<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 2000.
REGISTRATION NO. 333-96049
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DRUGABUSE SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 2836 94-3222724
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1430 O'BRIEN DRIVE
MENLO PARK, CA 94025
(650) 462-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
PHILIPPE POULETTY, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DRUGABUSE SCIENCES, INC.
1430 O'BRIEN DRIVE
MENLO PARK, CA 94025
(650) 462-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Jeffrey P. Higgins, Esq. Paul Hilton, Esq.
Gunderson Dettmer Stough Lexi Methvin, Esq.
Villeneuve Franklin & Hachigian, LLP Brobeck, Phleger & Harrison, LLP
155 Constitution Drive 370 Interlocken Blvd., Suite 500
Menlo Park, California 94025 Broomfield, Colorado 80021
(650) 321-2400 (303) 410-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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, please 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
<TABLE>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value...... 4,600,000 $15.00 $69,000,000.00 $18,216.00
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a)
(3) A fee of $18,216.00 was previously paid by the Registrant in connection with
the filing of the Form S-1 on February 3, 2000.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS Subject to completion, dated March , 2000
- --------------------------------------------------------------------------------
4,000,000 Shares
[DRUGABUSE SCIENCES LOGO]
Common Stock
- ---------------------------------------------------------
This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $13.00 and $15.00 per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "DASI."
BEFORE BUYING ANY SHARES OF OUR COMMON STOCK YOU SHOULD READ THE DISCUSSION OF
MATERIAL RISKS OF INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON
PAGE 7.
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.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
- ----------------------------------------------------------------------------------
Public offering price $ $
- ----------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
- ----------------------------------------------------------------------------------
Proceeds, before expenses, to DrugAbuse Sciences $ $
- ----------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to 600,000 shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. This option may be exercised
only to cover over-allotments, if any. If the option is exercised in full, the
total underwriting discounts and commissions will be $4,508,000, and the total
proceeds, before expenses, to us will be $59,892,000 at an assumed public
offering price of $14.00 per share.
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares of common stock is expected to be made on
or about , 2000.
Warburg Dillon Read LLC Robertson Stephens
<PAGE>
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus summary..................... 3
The offering........................... 5
Summary consolidated financial data.... 6
Risk factors........................... 7
Use of proceeds........................ 14
Dividend policy........................ 14
Capitalization......................... 15
Dilution............................... 17
Selected consolidated financial data... 19
Management's discussion and analysis of
financial condition and results of
operations........................... 22
Business............................... 27
Management............................. 49
Related party transactions............. 61
Principal shareholders................. 65
Description of securities.............. 68
Shares eligible for future sale........ 71
Underwriting........................... 73
Legal matters.......................... 75
Experts................................ 75
Change in independent accountants...... 75
Where you can find more information.... 77
Index to consolidated financial
statements........................... F-1
</TABLE>
<PAGE>
Prospectus summary
While this summary highlights what we believe to be the most important
information about this offering, you should read the entire prospectus carefully
for a complete understanding of the offering and our business.
OUR BUSINESS
We believe we are the first biotechnology company dedicated to developing and
marketing novel therapies for alcohol and drug abusers. We intend to become the
leading biopharmaceutical company in addiction care by offering a broad
portfolio of medications to serve the addiction care community. Our strategy is
to develop several medications in the near term and expand our product portfolio
through research and the acquisition of marketed products and technologies. We
intend to build a sales force to market our products, taking advantage of the
concentrated addiction care market.
THE PROBLEM
Addiction is a chronic disease of the brain. Current therapy depends heavily on
psychosocial therapy and the few available medications. However, we believe
psychosocial therapy alone is insufficient as it does not address the biological
basis of addiction. Furthermore, because of their underlying neurological
disease, addicts typically have great difficulty taking pills every day and
therefore current medications usually fail. Consequently, only a minority of
patients receiving treatment remain alcohol or drug free after one year.
Alcohol, heroin, cocaine and methamphetamine all affect a common neurological
pathway, which involves the neurotransmitter dopamine. Medications that affect
the dopamine pathway are available to treat alcohol and heroin dependence.
However, to be effective in maintaining abstinence, these medications need to be
taken every day on a long-term basis. There are no medications for treating
addiction to other drugs of abuse, such as cocaine and methamphetamine. There is
a great need for novel therapies which can improve compliance with existing
medications and offer new means to promote abstinence, prevent relapse, and
treat overdose for alcohol, heroin, cocaine and methamphetamine abusers.
OUR SOLUTION
We are developing a broad portfolio of biopharmaceutical products that address
key medical needs of alcohol abusers and drug addicts. We are developing product
candidates for the treatment of alcohol abuse and heroin addiction, NALTREL-TM-,
BUPREL-TM- and METHALiz-TM-, to improve existing medications. These products are
designed to be administered only once a month by a physician or a nurse, as
opposed to once a day by the patient. By putting the medical practitioner in
control, our products are expected to promote continuous therapy and help
overcome patient non-compliance. Our other product candidates, COC-AB-TM-,
MAP-AB-TM- and ITAC-TM-, are intended to provide novel means to treat patients
suffering from cocaine and methamphetamine overdose and addiction.
In 2000, to support prospective market approval, we expect to conduct clinical
trials with NALTREL for the treatment of alcohol and heroin dependence. In
parallel, in the next 18 months we expect to conduct several human trials with
BUPREL and METHALiz for the treatment of severe heroin addiction and with COC-AB
and ITAC for the treatment of cocaine overdose and addiction.
3
<PAGE>
OUR STRATEGY
We intend to:
- - Focus on the large but under-served alcohol and drug addiction care market;
- - Develop several medications in the near term;
- - Build a broad product portfolio through internal discovery research and
development, and the licensing or acquisition of commercial products and
product candidates; and
- - Market our products in the United States and Europe using our own dedicated
sales force.
Our principal executive offices are located at 1430 O'Brien Drive, Menlo Park,
CA 94025. Our telephone number is (650) 462-1000. AlcoholMD-TM-, BUPREL-TM-,
COC-AB-TM-, DAS-TM-, DrugAbuse Sciences-TM-, ITAC-TM-, Lactiz-TM-, MAP-AB-TM-,
METHALiz-TM- and NALTREL-TM- are our trademarks. Trade names, service marks or
trademarks of other companies appearing in this prospectus are the property of
their respective holders.
4
<PAGE>
The offering
The following information assumes that the underwriters do not exercise the
over-allotment option granted by us to purchase additional shares in the
offering.
<TABLE>
<S> <C>
Common stock offered by us................... 4,000,000 shares
Common stock to be outstanding after the
offering................................... 16,502,131 shares
Proposed Nasdaq National Market symbol....... DASI
Use of proceeds.............................. Research and development, sales and
marketing, general and administration and
working capital and general corporate
purposes. See "Use of proceeds."
</TABLE>
Except as otherwise indicated, the information in this prospectus, including the
number of shares to be outstanding after this offering assumes the following:
- - the automatic conversion of all outstanding shares of preferred stock into
7,305,769 shares of our common stock upon the closing of this offering
(which includes the 2,445,131 shares of our Series D Preferred Stock which
we issued in exchange for 1,849 shares of common stock in DrugAbuse
Sciences, SAS, our French Subsidiary on February 1, 2000). The recognition
of the excess of the estimated fair value of the preferred stock, issued
upon exchange of the SAS shares, of $29.4 million over the related minority
interest will result in $17.7 million of goodwill;
- - net exercise of outstanding warrants to purchase 1,815,912 shares of our
common stock at an assumed public offering price of $14.00 per share;
- - 6-for-1 reverse split of the common stock to be effected prior to the
closing of this offering; and
- - no exercise of the underwriters' over-allotment option.
The information in this prospectus, unless otherwise indicated, does not assume
inclusion of the following:
- - 600,000 shares issuable upon exercise of the underwriters' over-allotment
option;
- - 374,519 shares that may be issuable upon the exercise of warrants
outstanding as of January 20, 2000;
- - 1,042,729 shares issuable upon the exercise of options outstanding as of
January 20, 2000, at a weighted average exercise price of $0.36 per share;
and
- - 1,656,417 shares made available for future grants and awards under our stock
plans to be effective at the close of this offering. For a description of
our stock option and stock purchase plans, please see "Management--Stock
plans."
The number of shares of common stock outstanding after the offering is based on
shares outstanding as of December 31, 1999, based on the assumptions above.
Please see "Capitalization."
5
<PAGE>
Summary consolidated financial data
The following table summarizes the financial data for our business during the
periods indicated. You should read the data set forth below in conjunction with
"Management's discussion and analysis of financial condition and results of
operations" and our consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
Note 2 to our Notes to Consolidated Financial Statements explains how we
determined the number of shares we used to compute our basic and diluted net
loss per share available to common shareholders and our pro forma net loss per
share available to common shareholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1997 1998 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Grant revenues......................................... $-- $810,607 $1,224,605
Loss from operations................................... (1,382,412) (1,272,946) (6,379,053)
Net loss............................................... (1,300,163) (1,192,343) (6,228,002)
Dividend related to beneficial conversion feature of
preferred stock...................................... -- -- (9,669,978)
Net loss available to common shareholders.............. (1,300,163) (1,192,343) (15,897,980)
Net loss per share available to common shareholders,
basic and diluted.................................... $(0.61) $(0.56) $(7.45)
=========== =========== ===========
Shares used in computing net loss per share available
to common shareholders, basic and diluted............ 2,114,506 2,116,728 2,134,073
Pro forma net loss per share available to common
shareholders......................................... $(2.80)
===========
Shares used in computing pro forma net loss per share
available to common shareholders..................... 5,672,186
===========
</TABLE>
The pro forma information for the consolidated balance sheet data at
December 31, 1999 represents:
- the automatic conversion of all outstanding preferred stock into
7,305,769 shares of common stock (which includes the 2,445,131 shares of
our Series D preferred stock which we issued in exchange for 1,849 shares
of common stock of DrugAbuse Sciences, SAS, our French subsidiary, which
we had reflected as minority interests and which was converted on
February 1, 2000);
- the recognition of the excess of the estimated fair value of the preferred
stock, issued upon exchange of the SAS shares, of $29.4 million over the
related minority interest as $17.7 million of goodwill;
- the sale of 4,000,000 shares of common stock offered by us at the
estimated initial public offering price of $14.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1999
1999 PRO FORMA
CONSOLIDATED BALANCE SHEET DATA: 1997 1998 ACTUAL AS ADJUSTED
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents.................... $2,305,882 $1,039,315 $19,224,906 $69,804,906
Total assets................................. 2,693,408 1,997,048 21,036,632 89,352,615
Long-term obligations and capital lease
obligations................................ 478,684 543,090 367,789 367,789
Minority interest............................ -- -- 11,654,492 --
Total shareholders' equity................... 1,707,699 862,490 7,833,442 87,803,917
</TABLE>
6
<PAGE>
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Risk factors
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and the other information in this
prospectus before investing in our common stock. Our business and results of
operations could be seriously harmed if any of the following risks occur. In
this case the trading price of our common stock could decline due to any of
these risks, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY WITH A HISTORY OF LOSSES AND WE EXPECT TO
INCUR LOSSES IN THE FUTURE
We commenced operations in late 1994 and are still a development stage company.
We have not commercialized any products, have incurred significant losses to
date and expect to incur future losses. Our expenses have consisted principally
of costs incurred in research and development and from general and
administrative costs associated with our operations. Operating losses were
approximately $1.4 million, $1.3 million and $6.4 million for the fiscal years
ended December 31, 1997, 1998 and 1999, respectively. We had an accumulated
deficit of approximately $19.3 million at December 31, 1999. We expect our
expenses to increase and to continue to incur operating losses for at least the
next several years as we continue our research and development efforts and
develop and market our products. Our future success and profits depend upon our
ability to market and sell our products. The time frame to achieve market
success for any one of our products is long and uncertain and may not occur at
all. As a result, we may never become profitable.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, WE MAY NOT BE ABLE TO SUPPORT OUR
OPERATIONS
Based on our current plans, we believe our cash, cash equivalents and short-term
investments, together with the net proceeds of this offering will be sufficient
to fund our operating expenses and capital requirements through at least the
next 18 months. However, if we require additional funds and we are unable to
obtain them on terms favorable to us, we may be required to delay, scale back or
eliminate some or all of our research and development programs or to license
third parties to market products or technologies that we would otherwise seek to
develop or market ourselves. If we raise additional funds by selling additional
shares of our capital stock, our shareholder's ownership interest will be
diluted.
IF WE DO NOT DEMONSTRATE THE SAFETY AND EFFECTIVENESS OF OUR PRODUCTS IN
CLINICAL TRIALS, WE WILL NOT BE ABLE TO APPLY FOR REGULATORY APPROVAL OF OUR
PRODUCTS
NALTREL-TM- is the only product candidate for which we have initiated clinical
trials involving human testing. Our other product candidates, BUPREL-TM-,
METHALiz, COC-AB-TM-, MAP-AB-TM- and ITAC-TM-, are still in the pre-clinical
testing phase. Conducting clinical trials is a lengthy, time-consuming,
uncertain and expensive process. We will incur substantial expenses for, and
devote significant time and resources to, pre-clinical testing and clinical
trials of our product candidates. It may take up to a minimum of two to three
years to complete trials for our first product. Clinical trials are subject to
various interpretations. Regulatory authorities may not agree with us regarding
our trial design, methods of analysis and our interpretations of clinical
results. If that occurs, regulatory authorities may require us to change our
trial design or conduct new trials.
- --------------------------------------------------------------------------------
7
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
In addition, it is possible that we could encounter problems in a clinical trial
that would significantly delay the completion of the trial, require us to repeat
the study or cause us to abandon the trial or our product candidates altogether.
IF WE DO NOT OBTAIN THE NECESSARY DOMESTIC AND FOREIGN REGULATORY APPROVALS,
THEN WE WILL NOT BE ABLE TO SELL OUR PRODUCTS
Numerous governmental authorities in the United States and Europe regulate the
production and marketing of our products and our ongoing research and
development activities. We will need to obtain approvals from the appropriate
regulatory authorities to market and sell our products. Foreign regulations can
vary among countries and foreign regulatory authorities may require different or
additional clinical trials than we conduct to obtain FDA approval.
The length of the regulatory review period varies considerably, as does the
amount of pre-clinical and clinical data required to demonstrate the safety and
effectiveness of a specific product. In addition, if the FDA or any other
foreign regulatory agency, changes its policy position during the period of
product development, we will encounter additional delays or possibly rejections.
Our approved products, their manufacturers and their manufacturing facilities
will be subject to continual review and periodic inspections. If we discover
unknown problems with one of our products, its manufacturer or facilities after
regulatory approval, regulatory agencies may place restrictions on the product
or manufacturer, or may require withdrawal of the product from the market.
We have relied upon scientific, technical, clinical, commercial and other data
supplied and disclosed by outside collaborators and will rely in part on such
data in support of our initial drug applications and subsequent clinical trials
for our products. If the FDA or any other foreign regulatory agency does not
permit us to rely upon such data to support our applications or subsequent
clinical trials or if the information contains errors or omissions of fact, it
will delay our research and development efforts and it is unlikely that we will
obtain the necessary regulatory approval for our products.
IF THE MARKET FOR MEDICATIONS TO TREAT ADDICTIONS DOES NOT DEVELOP, WE WILL NOT
BE SUCCESSFUL
The market for medications to treat addictions is a new market. If this market
does not develop and the addiction care community does not widely accept our
products, either because physicians do not prescribe them or patients do not
take them, we will not be successful.
IF WE DO NOT MAINTAIN OUR COLLABORATIVE RELATIONSHIPS WITH OTHER PARTIES, WE
WILL BE UNABLE TO DEVELOP AND MANUFACTURE OUR PRODUCTS
We rely heavily upon other parties for many important stages of our discovery,
research and product development, including:
- - manufacturing of our product candidates;
- - conducting of pre-clinical trials and clinical studies; and
- - development of new products and technologies under the license of existing
patented and proprietary information.
We will also rely upon other parties to manufacture our commercial products. In
addition, we license most of our technology from strategic partners. We license
the sustained-release polymer technology, called Lactiz, which is used in
NALTREL, BUPREL and METHALiz from Southern Research Institute and we license our
ITAC technology from The Scripps Institute. The successful completion of our
clinical trials and the sale of our products depends upon the continued
relationship with these partners.
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
If any of these partners were to terminate the licensing arrangement, or if the
licensor failed to perform its obligations under the agreements, we would be
unable to continue with our product testing and would not be successful in
bringing our product to the market.
COMPETITORS HAVE DEVELOPED OR COULD DEVELOP PRODUCTS OR TECHNOLOGIES THAT
COMPETE WITH OUR PRODUCTS AND THAT COULD RENDER OUR PRODUCTS OBSOLETE
Many of our competitors have greater financial, operational, sales and marketing
resources, and more experience in research and development than we have.
Products developed by these competitors could have advantages significantly
outweighing those of the products that we are seeking to develop and even render
our products obsolete. We expect the intensity of competition to increase.
Currently, we compete with biotechnology, pharmaceutical, chemical and other
companies, academic and scientific institutions, governmental agencies and
public and private research organizations.
Technological advances, new treatments and new products could make our products
obsolete or unsuccessful in the market. In particular, the patents for
naltrexone, methadone and buprenorphine have expired and several competitors may
be developing products similar to ours based on the same basic compounds.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON OR
MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS
Our products may conflict with patents that have been or may be granted to
competitors, universities or others. In the event someone brings an infringement
claim against us, we could face legal actions seeking damages and seeking to
enjoin clinical testing, manufacturing and marketing of the affected product.
This type of litigation could consume a substantial portion of our resources,
and if there was an adverse outcome to the litigation, we might not be able to
sell the affected product. If any claims of third-party patents are upheld as
valid and enforceable with respect to a product or process made, used or sold by
us, we could be prevented from practicing the subject matter claimed in those
patents or could be required to obtain licenses or redesign our products or
processes to avoid infringement. As a result, we would be liable to pay damages
that may exceed our resources. We may not be able to obtain necessary licenses
on commercially reasonable terms, or we may not be successful in attempting to
redesign our products to avoid infringement.
IF ONE OF OUR THIRD PARTY MANUFACTURERS WERE TO TERMINATE THEIR RELATIONSHIP
WITH US, WE WOULD NEED TO OBTAIN A NEW MANUFACTURER FOR OUR PRODUCTS AND WOULD
BE DELAYED IN OUR COMMERCIAL SALES
We have no manufacturing facilities for clinical production of our products and
we rely on third parties for the manufacture of drug product. If we are unable
to enter into new agreements with our manufacturers for our clinical trials or
commercial manufacture of our products, we will need to obtain regulatory
approval for any alternate manufacturer which may delay the commercialization of
our products and possibly invalidate our clinical trials.
Aventis Pasteur manufactures COC-AB for use in our clinical trials and for
commercial sale. SP Pharmaceuticals manufactures Naltrel for use in our clinical
trials. Our use of third party manufacturers involves risks, including:
- - reduced control over quality, timing and scale of production;
- - inability to manufacture products on reasonable terms;
- - inability to produce commercial quantities of our products;
- --------------------------------------------------------------------------------
9
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
- - loss of FDA approval or approval from other foreign regulatory agencies; and
- - in the case of products containing controlled substances, loss of DEA
approval.
If any of these risks were to materialize, this could delay pre-clinical testing
and clinical trials it could invalidate the results from these trials and we
could be unable to meet commercial manufacturing quantity and quality
requirements.
We currently do not have any agreements for the manufacture of BUPREL, METHALiz,
or ITAC for clinical trials. We have entered into an agreement with Aventis
Pasteur for the commercial manufacture of COC-AB but we currently do not have
any other agreements for the commercial manufacture of our other product
candidates. We may not be able to enter into manufacturing agreements for our
other product candidates on commercially reasonable terms or at all.
IF ONE OF OUR THIRD-PARTY SUPPLIERS WERE TO TERMINATE THEIR RELATIONSHIP WITH
US, WE WILL HAVE DELAYS IN OUR CLINICAL TRIALS
Each of our suppliers must be qualified and approved according to the FDA, DEA
and other foreign regulatory agencies' policies. If any of our suppliers were
unable to supply us with the necessary materials in a timely fashion, we would
need to obtain a substitute vendor. Obtaining a substitute vendor would not only
delay the timing of our pre-clinical testing and clinical trials, but would
require the submission of additional regulatory applications, which could take
several months to process. The delay of our testing would inhibit our ability to
obtain regulatory approval and therefore, we would not be able to sell our
products for an indeterminate amount of time.
IF WE DO NOT ESTABLISH SALES AND MARKETING CAPABILITIES, WE WILL NOT BE ABLE TO
SELL OUR PRODUCTS
We have no sales and marketing experience. Even if we obtain approval for our
products, if we do not establish the sales and marketing capabilities necessary
to commercialize our products, we will never be successful. We will need to
invest significant amounts of capital to establish sufficient sales and
marketing capability. We will need to recruit and retain skilled sales
management, direct salespersons or distributors. If we enter into distribution
arrangements with third parties for the sale of our products, we will be
dependent on them. If we are unable to attract and retain a skilled sales and
marketing team, or if third party distributors do not perform as expected, we
will not become profitable.
IF OUR PRODUCTS ARE ALLEGED TO BE HARMFUL, WE WILL NOT BE ABLE TO SELL THEM AND
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS
In the event that anyone alleges that any of our products are harmful, we may
experience reduced consumer demand for our products and our products may be
recalled from the market. In addition, we may be forced to defend a lawsuit and,
if unsuccessful, to pay a substantial amount in damages. We currently have
insurance against liability risks associated with pre-clinical testing and
clinical trials, and intend to obtain coverage to insure against liability risks
associated with manufacturing and marketing of our products. If our insurance
coverage limits are not adequate to protect us from the liabilities we might
incur in connection with the clinical testing or sales of our products, we will
be required to pay for the damages associated with the liabilities. Insurance is
expensive and, in the future, may not be available on acceptable terms, if at
all. A successful product liability claim or series of claims brought against us
in excess of our insurance coverage, or a recall of our products, could have a
detrimental effect on our business, financial condition and results of
operations.
- --------------------------------------------------------------------------------
10
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES, OUR BUSINESS WILL NOT
DEVELOP OR EXPAND
Our success will depend on our ability to attract and retain key employees and
scientific advisors. Competition among biotechnology and biopharmaceutical
companies for highly skilled scientific and management personnel, particularly
in our geographic region, is intense. We anticipate expanding our existing
functions and entering into new areas and activities, which require additional
expertise, such as clinical testing, regulatory compliance, marketing and
distribution. This expansion will place increased demands on our resources.
These activities will require the addition of new personnel with expertise in
these areas and the development of additional expertise by existing personnel.
If we fail to acquire such personnel, lose existing personnel, specifically
current members of our management team, such as our Chief Executive Officer, or
fail to develop this expertise, our success would be hindered. We maintain a
key-man life insurance policy on the life of our founder and Chief Executive
Officer, Philippe Pouletty, in the amount of $5.0 million.
We also depend on the continued availability of outside scientific collaborators
who perform research in areas relevant to our business, and on consultants and
scientific advisors. Our scientific collaborators, consultants and advisors are
not our employees and generally may terminate their relationship with us at any
time. As a result, we have limited control over their activities and can expect
that only limited amounts of their time will be dedicated to our research.
Although our scientific collaborators have agreed not to engage in activities
that would involve a conflict of interest with our business, it is possible that
this could occur in the future.
WE HAVE EXPERIENCED RECENT GROWTH AND IF WE DO NOT MANAGE THIS GROWTH
EFFECTIVELY, IT COULD AFFECT OUR ABILITY TO PURSUE BUSINESS OPPORTUNITIES AND
EXPAND OUR BUSINESS
If we fail to effectively manage our growth it could affect our ability to
pursue business opportunities and expand our business. We have recently expanded
our management team, adding a Vice President of Clinical Development in
October 1999, a Senior Vice President of Marketing and Sales, a Vice President
of Regulatory Affairs and a Senior Vice President of European Development in
January of this year. Philippe Pouletty, the founder and Chairman of our
company, replaced our former Chief Executive Officer in December of 1999 and our
Chief Financial Officer, a director since 1998, joined our management team in
April of 1999. Since we have only recently added these officers, it may take
some time before the management team is able to effectively work together and
manage our business or operations. In addition, our management team will need to
expand, train and manage our workforce and continue to improve our operational
and financial systems and managerial controls.
We have only recently implemented financial and accounting processes, controls,
reporting systems and procedures. For example, we have recently implemented
commercial accounting software. We have only 3 personnel in our internal
financial and accounting group. We believe that we need to hire additional
financial and accounting personnel to manage future growth. Additionally, due to
our international operations and the difference in accounting conventions
between the United States and Europe, there is added complexity in our financial
reporting and controls that we must overcome.
RISKS RELATED TO THIS OFFERING
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS
Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately 48.19% of our outstanding common
stock or 46.55% if the underwriters' over-allotment option is
- --------------------------------------------------------------------------------
11
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
exercised in full. As a result, these persons, acting together, will have the
ability to determine the outcome of all matters submitted to our shareholders
for approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
these persons, acting together, will have the ability to control the management
and affairs of our company. Accordingly, this concentration of ownership may
harm the market price of our common stock by:
- - delaying, deferring or preventing a change in control of our company;
- - impeding a merger, consolidation, takeover or other business combination
involving our company; or
- - discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
Please see "Principal shareholders" for additional information on concentration
of ownership of our common stock.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND THE COMMERCIALIZATION OF OUR PRODUCTS
The trading price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in price in response to various factors, many of
which are beyond our control, including:
- - actual or anticipated variations in quarterly operating results;
- - announcements of technological innovations or breakthroughs in research by
us or our competitors;
- - delay or failure in initiating, conducting, completing or analyzing clinical
trials or unsatisfactory design or results of these trials;
- - achievement of regulatory approvals;
- - new products or services introduced or announced by us or our competitors;
- - changes in financial estimates by securities analysts;
- - conditions or trends in the biotechnology, pharmaceutical and addiction care
industries;
- - announcements or departures of key personnel; and
- - sales of our common stock.
In addition, the stock market in general and the market for pharmaceutical and
biotechnology companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to a company's
operating performance. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In the past, shareholders have initiated securities class-action
litigation against companies whose securities have experienced periods of
volatility. If this type of litigation was instituted against us, we would be
faced with substantial costs and management's attention and resources would be
diverted, which could in turn seriously harm our business and financial
condition.
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12
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE
Sales of substantial amounts of our common stock in the public market after this
offering could seriously harm prevailing market prices for our common stock.
Upon completion of this offering, we will have 16,502,131 shares of common stock
outstanding, 4,000,000 of which will be freely tradeable. An additional
7,539,786 shares will become available for sale 180 days after the date of this
prospectus. These sales might make it difficult or impossible for us to sell
additional securities when we need to raise capital. The number of additional
shares available for sale in the public market will be affected by volume
restrictions imposed by law. Generally, other than for shares sold in this
offering, shareholders who have held their shares for at least one year may sell
no more than the greater of 1% of the outstanding shares or the average weekly
trading volume in any 90-day period. Shareholders who have held their shares for
more than two years can sell without restrictions.
Please see "Shares eligible for future sale" for a description of the number of
shares which may be sold by existing shareholders in the future.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND CALIFORNIA LAW COULD MAKE
A THIRD-PARTY ACQUISITION OF US DIFFICULT. THIS COULD LIMIT THE PRICE INVESTORS
MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK
The anti-takeover provisions in our articles of incorporation, our bylaws and
California law could make it more difficult for a third party to acquire us
without approval of our board of directors. As a result of these provisions we
could delay, deter or prevent a takeover attempt or third party acquisition that
our shareholders consider to be in their best interests, including a takeover
attempt that results in a premium over the market price for the shares held by
our shareholders.
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13
<PAGE>
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Use of proceeds
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock that we are offering will be approximately $50.6 million, assuming
an estimated initial public offering price of $14.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $58.4 million. We have not
yet determined our expected use of these proceeds, but we estimate that we will
use approximately $20.0 million for research and development, $8.0 million for
sales and marketing, $11.0 million for general and administrative expenses and
$11.6 million for general corporate purposes, including working capital. The
amounts that we actually expend will vary significantly depending on any number
of factors, including future revenue growth, if any, and the amount of cash we
generate from operations. As a result, we will retain broad discretion over the
allocation of the net proceeds from this offering. A portion of the net proceeds
may also be used for the acquisition of businesses, products and technologies
that are complementary to ours. We have no current agreements or commitments for
acquisitions of complementary businesses, products or technologies. Pending
these uses, we will invest the net proceeds of this offering in short-term,
investment grade and interest-bearing securities.
Dividend policy
We have never declared or paid any cash dividends since inception and do not
currently anticipate paying any cash dividends in the foreseeable future. Any
future determination relating to dividend policy will be made at the discretion
of our board of directors and will depend on a number of factors, including
future earnings, capital requirements, financial condition and future prospects
and other factors the board of directors may deem relevant.
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14
<PAGE>
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Capitalization
The following table shows our capitalization as of December 31, 1999;
- - On an actual basis; and
- - On a pro forma basis to give effect to:
- the automatic conversion of all outstanding shares of preferred stock into
7,305,769 shares of our common stock upon the closing of this offering
(which includes the 2,445,131 shares of our Series D Preferred Stock which
we issued in exchange for 1,849 shares of common stock in DrugAbuse
Sciences, SAS, our French subsidiary, which we had reflected as minority
interests and which was converted on February 1, 2000).
- net exercise of outstanding warrants to purchase 1,815,912 shares of our
common stock at an assumed public offering price of $14.00 per share;
- 6-for-1 reverse split of the common stock to be effected prior to the
closing of this offering; and
- no exercise of the underwriters' over-allotment option.
- - On a pro forma as adjusted basis:
- our receipt of the estimated net proceeds from our sale of 4,000,000
shares of common stock in this offering at an assumed initial offering
price of $14.00 and, after deducting the underwriting discounts and
commissions and estimated offering expenses; and
- the filing of new articles of incorporation upon the closing of this
offering.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total long-term obligations and capital lease
obligations..................................... $367,789 $367,789 $367,789
------------ ------------ -----------
Minority interest................................. 11,654,492 -- --
------------ ------------ -----------
Shareholders' equity:
Convertible preferred stock: $0.001 par value;
shares authorized: 7,707,414; shares issued
and outstanding, actual 4,860,638; no shares
outstanding, pro forma or pro forma as
adjusted...................................... 4,861 -- --
Common stock: $0.001 par value; shares
authorized: 85,000,000; shares issued and
outstanding, actual 3,380,450; shares issued
and outstanding, pro forma 12,502,131; shares
issued and outstanding, pro forma as adjusted;
16,502,131.................................... 2,721 10,027 14,027
Additional paid-in capital........................ 52,714,300 64,366,347 114,942,347
Deferred stock compensation....................... (14,409,691) (14,409,691) (14,409,691)
Note receivable from shareholders................. (510,950) (510,950) (510,950)
Accumulated other comprehensive loss.............. (126,018) (126,018) (126,018)
Deficit accumulated during the development
stage........................................... (29,841,781) (29,841,781) (29,841,781)
------------ ------------ -----------
Total shareholders' equity........................ 7,833,442 19,487,934 70,067,934
------------ ------------ -----------
Total capitalization.......................... $19,855,723 $19,855,723 $70,435,723
============ ============ ===========
</TABLE>
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15
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
This table excludes:
- - 1,042,729 shares of common stock issuable upon exercise of stock options
outstanding as of January 20, 2000 at a weighted average exercise price of
$0.36 per share;
- - 750,000 shares of common stock available for issuance under our 2000 Stock
Incentive Plan;
- - 375,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan;
- - 200,000 shares of common stock available for issuance under our 2000
Directors' Option Plan; and
- - 374,519 shares of common stock that may be issuable upon exercise of
outstanding warrants at an exercise price of $0.06 per share;
To the extent that these options are exercised, there will be further dilution
to new investors. Please see "Management--stock plans," and Note 8 of "Notes to
Consolidated Financial Statements" for further information regarding our stock
option plans.
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16
<PAGE>
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Dilution
Our net tangible book value as of December 31, 1999 was $19.5 million, or
approximately $2.36 per share, based on the number of common shares outstanding
as of December 31, 1999, calculated giving effect to:
- - the automatic conversion of all outstanding shares of preferred stock into
4,860,638 shares of our common stock upon the closing of this offering;
- - 6-for-1 reverse stock split of the common stock to be effected prior to the
closing of this offering; and
- - no exercise of underwriters' over-allotment option.
Net tangible book value per share is equal to our total tangible assets, less
liabilities divided by the shares of common and preferred stock outstanding.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to our sale
of 4,000,000 shares of common stock in this offering at an assumed initial
public offering price of $14.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses, our net tangible book
value as of December 31, 1999 would have been $70.1 million or $5.72 per share.
This represents an immediate increase in net tangible book value of $3.36 per
share to existing shareholders and an immediate dilution in net tangible book
value of $8.28 per share to purchasers of common stock in the offering.
Pro forma net tangible book value dilution per share represents the incremental
dilutive effect of:
- - the automatic conversion of 2,445,131 shares of our Series D Preferred Stock
which were issued in exchange for 1,849 shares of common stock in DrugAbuse
Sciences, SAS, our French subsidiary, which was reflected as minority
interests and which was converted on February 1, 2000; and
- - net exercise of outstanding warrants to purchase 1,815,912 shares of our
common stock at an assumed public offering price of $14.00 per share.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share as of December 31,
1999.................................................... $2.36
Increase per share attributable to new investors.......... 3.36
------
Net tangible book value per share after the offering........ 5.72
------
Dilution per share to new investors......................... 8.28
Incremental dilution occurring upon exchange and conversion
of our preferred stock for DrugAbuse Sciences, SAS, common
stock and net exercise of outstanding warrants............ 1.47
------
Pro forma dilution per share to new investors............... $9.75
======
</TABLE>
The following table presents on a pro forma basis as of December 31, 1999 after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock upon completion of this offering, the differences between the
existing shareholders and the purchasers of shares in the offering
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17
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
with respect to the number of shares purchased from us, the total consideration
paid and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............. 12,502,131 76% $26,631,081 32% $2.13
New shareholders................... 4,000,000 24 $56,000,000 68% 14.00
---------- ----- ----------- -----
Totals........................... 16,502,131 100% $82,631,081 100%
========== ===== =========== =====
</TABLE>
The table above assumes the net exercise of warrants to purchase 1,815,912
shares of common stock and excludes:
- - 1,042,729 shares issuable upon exercise of options outstanding at
January 20, 2000 at a weighted average exercise price of $0.36 per share;
- - 374,519 shares that may be issuable upon exercise of warrants outstanding at
January 20, 2000 at an exercise price of $0.06 per share;
- - 1,656,417 shares reserved for issuance under our stock option and purchase
plans.
To the extent outstanding or future options or warrants are exercised, there
will be further dilution to new investors. For a description of our equity
plans, please see "Management--Stock plans" and Note 8 of Notes to consolidated
financial statements.
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18
<PAGE>
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Selected consolidated financial data
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes and "Management's
discussions and analysis of financial condition and results of operations"
appearing elsewhere in this prospectus.
The consolidated statements of operations data for the fiscal years ended
December 31, 1997, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1998 and 1999 are derived from our audited consolidated financial
statements included elsewhere in this prospectus. The consolidated balance sheet
data as of December 31, 1997 is derived from our audited financial statements
not included in this prospectus. The statement of operations data for the fiscal
years ended December 31, 1995 and 1996 and the consolidated balance sheet data
as of December 31, 1995 and 1996 are derived from unaudited financial statements
not included in the prospectus. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting
principally of normal recurring adjustments necessary for a fair presentation of
the results of operations for this period. The historical results are not
necessarily indicative of the operations to be
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19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
expected for future periods and the results of interim periods are not
necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF FOR THE YEAR ENDED DECEMBER 31,
OPERATIONS DATA 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Grant revenues............... $-- $-- $-- $810,607 1,224,605
Operating expenses:
Research and development
(including non-cash stock
compensation of $0.1,
$0.2 and $1.3 million in
1997, 1998 and 1999)..... 196,891 207,545 1,103,174 1,463,046 5,491,289
General and administrative
(including non-cash stock
compensation of
$0.6 million in 1999).... 57,664 92,020 279,238 620,507 2,112,369
---------- ---------- ----------- ----------- ------------
Total operating
expenses............... 254,555 299,565 1,382,412 2,083,553 7,603,658
---------- ---------- ----------- ----------- ------------
Loss from operations......... (254,555) (299,565) (1,382,412) (1,272,946) (6,379,053)
Interest income.............. -- 6,653 85,314 96,067 273,547
Interest expense............. -- -- (3,065) (15,464) (122,496)
---------- ---------- ----------- ----------- ------------
Net loss..................... (254,555) (292,912) (1,300,163) (1,192,343) (6,228,002)
---------- ---------- ----------- ----------- ------------
Dividend related to
beneficial conversion
feature of preferred
stock...................... -- -- -- -- (9,669,978)
---------- ---------- ----------- ----------- ------------
Net loss available to common
shareholders............... (254,555) (292,912) (1,300,160) (1,192,343) (15,897,980)
Other comprehensive income
(loss):
Change in foreign currency
translation
adjustments.............. (8,964) (7,073) 35,760 (44,581) (116,714)
---------- ---------- ----------- ----------- ------------
Comprehensive loss........... (263,519) (299,985) $(1,264,403) (1,236,924) (16,014,694)
========== ========== =========== =========== ============
Net loss per share available
to common shareholders
basic and diluted.......... $(0.13) $(0.14) $(0.61) $(0.56) $(7.45)
========== ========== =========== =========== ============
Shares used in computing net
loss per share available to
common shareholders basic
and diluted................ 2,027,013 2,094,345 2,114,506 2,116,728 2,134,073
========== ========== =========== =========== ============
Pro forma net loss per share
available to common
shareholders............... $(2.80)
============
Shares used in computing pro
forma net loss per share
available to common
shareholders............... 5,672,186
============
</TABLE>
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20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents............. 380,655 40,698 $2,305,882 $1,039,315 $19,224,906
Total assets.......................... 396,171 49,870 2,693,408 1,997,048 21,036,632
Long-term obligations and capital
lease obligations................... 250,000 250,000 478,684 543,090 367,789
Minority interest..................... -- -- -- -- 11,654,492
Total shareholders' equity
(deficit)........................... 130,359 (403,518) 1,707,699 862,490 7,833,442
</TABLE>
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21
<PAGE>
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Management's discussion and analysis of financial condition and results of
operations
You should read the following discussion in conjunction with the financial
statements and the notes to those statements that appear elsewhere in this
prospectus.
OVERVIEW
We are a development stage company. Since our inception, we have incurred losses
and, as of December 31, 1999, we had an accumulated deficit of $19.3 million. To
date, our revenues have been solely from government grants. We intend to carry
out the necessary registration trials for our lead product, NALTREL-TM-, in
2000. We do not anticipate generating commercial product revenues from our own
internally developed products until the various regulatory agencies, such as the
FDA and other European agencies, have approved these for marketing.
We expect to recognize revenues from government grants and from the sale of
approved pharmaceutical products. We may in-license or acquire currently
available commercial products. We expect to market our own internally developed
products following regulatory approval. We expect our sales to increase over
time as our products become accepted by physicians and as we introduce a broader
array of products.
Our expenses have consisted primarily of research and development costs and
general and administrative costs associated with our operations. We expect our
research and development expenses to increase in the future as we continue to
improve and develop products. Our selling expenses will increase as we
commercialize our products. The additional obligations we will have as a public
company will also add to our expenses. As a result, we expect to incur losses in
the foreseeable future.
We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including:
- - the time and extent of our research and development efforts;
- - the market acceptance of product candidates following approval;
- - the introduction of new products by our competitors; and
- - the timing of regulatory approval for additional products.
Our limited operating history makes accurate prediction of future operations
difficult or impossible.
We have recorded deferred stock compensation expense in connection with the
grants of stock options to employees and consultants. Deferred stock
compensation for options granted to employees is the difference between the
estimated fair value for financial reporting purposes of our common stock on the
date such options were granted and their exercise price. Deferred stock
compensation for options granted to consultants has been determined in
accordance with Statement of Financial Accounting Standards No. 123 as the fair
value of the equity instruments issued. We have recognized stock compensation
expense in accordance with FIN 28, an accelerated amortization method. Deferred
stock compensation for options granted to consultants is periodically remeasured
as the underlying options vest in accordance with Emerging Issues Task Force
No. 96-18.
In connection with the grant of stock options to employees and consultants, we
recorded deferred stock compensation of approximately $15.9 million,
$0.4 million and $0.1 million for the years ended December 31, 1999, 1998 and
1997, respectively. These amounts were recorded as a component of
- --------------------------------------------------------------------------------
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
shareholders equity and are being amortized as charges to operations over the
vesting periods of the options. We recorded amortization of deferred stock
compensation of approximately $64,863 for the year ended December 31, 1997,
compared to $0.2 million in 1998 and $1.8 million in 1999. For options granted
through December 31, 1999, we expect to record additional amortization expense
for deferred compensation as follows: $7.3 million in 2000, $3.8 million in
2001, $2.1 million in 2002 and $0.8 million in 2003. Amortization expense
relates to options awarded to employees and consultants assigned to all
operating expense categories in the statements of operations. We will also
record an additional $4.2 million of deferred stock compensation related to
options for 364,738 shares of common stock granted during January 2000.
Amortization expense relates to options awarded to employees and consultants and
is assigned to all operating expense categories in the statements of operations.
See Note 8 of Notes to Consolidated Financial Statements.
On February 1, 2000, we exchanged 2,245,131 shares of our Series D preferred
stock for 1,849 shares of common stock of our subsidiary, DrugAbuse Sciences,
SAS. We will account for the acquisition of the minority interest shares in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combination," using the purchase method of accounting. The excess of our
purchase price of $29.4 million, which represents the estimated fair value of
our preferred stock issued, over the minority interest will result in goodwill
of $17.7 million. We expect to amortize the goodwill over a period of three to
ten years on a straight line basis. See Note 8 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUE
Government grant revenue increased to $1.2 million in 1999 from $0.8 million in
1998 and to $0.8 million in 1998 from $0.0 in 1997. The increases in 1999 and
1998 were primarily due to grants received from the French government and the
National Institute on Drug Abuse.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 275.3% to $5.5 million in 1999 from
$1.5 million in 1998 and increased 32.6% to $1.5 million in 1998 from $1.1
million in 1997. Research and development expenses included non-cash stock
compensation expense of $1.3 million, $0.2 million and $0.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increase in 1999
was primarily due to expenses relating to animal studies and the commencement of
human trials with Naltrel, and to a lesser extent, research projects relating to
the chemistry of COC-AB, Buprel and MAP-AB and the increase in 1998 resulted
from the development work associated with NALTREL and COC-AB.
GENERAL ADMINISTRATIVE EXPENSES
General and administrative expenses increased 240.4% to $2.1 million in 1999
from $0.6 million in 1998 and increased 122.2% to $0.6 million in 1998 from
$0.3 million in 1997. General and administrative expenses included non-cash
stock compensation expense of $0.6 million in 1999. The increase in 1999 was
primarily due to the strengthening of our management team and the engagement of
consultants to evaluate the commercial market and the increase in 1998 was
primarily due to the costs associated with patent work for NALTREL and COC-AB
and the hiring of personnel in fourth quarter of 1998.
- --------------------------------------------------------------------------------
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest income increased to approximately $273,547 in 1999 from approximately
$96,067 in 1998 and increased to approximately $96,067 in 1998 from $85,314 in
1997. The increase in 1999 was due to the proceeds received from the Series C
and Series D Preferred Stock financings and the increase in 1998 was due to
higher rates on short term investments in 1998 offset by expenditure of the
proceeds from the Series B preferred stock financing in March 1997.
INTEREST EXPENSE
Interest expense increased to $122,496 in 1999 from $15,464 in 1998 and
increased to $15,464 in 1998 from $3,065 in 1997. The increase in 1999 was due
to a short-term convertible note and the increase in 1998 was due to the
increase in borrowings under a capital lease agreement in France.
INCOME TAXES
No provision for federal and state income taxes was recorded as we incurred net
operating losses from inception through December 31, 1999. As of December 31,
1999, we had approximately $7 million of net operating loss carryforwards which
expire in varying amounts through the year 2019. Due to uncertainty regarding
the ultimate utilization of the net operating loss carryforwards, we have not
recorded any benefit for losses and a valuation allowance has been recorded for
the entire amount of the net deferred tax asset. Under applicable tax
regulations, sales of our stock, including shares sold in this offering, may
further restrict our ability to utilize our net operation loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through $26.6 million
in private equity financings and $2.5 million in grants and loans from the
French and United States governments. At December 31, 1999, cash and cash
equivalents were $19.2 million compared to $1.0 million at December 31, 1998.
Our cash reserves are held in short-term, investment grade and interest-bearing
securities.
Cash used in operations for the year ended December 31, 1999 was $4.5 million
compared with $1.1 million for the same period in 1998.
Cash provided by financing activities was $22.7 million for the year ended
December 31, 1999 compared to use of funds of $0.1 for the same period in 1998.
Financing activities included the receipt of net proceeds of $19.9 million from
the sale of preferred stock to investors in the twelve month period ended
December 31, 1999 and $0 in the twelve month period ended December 31, 1998.
Working capital increased to $19.4 million in the twelve month period ended
December 31, 1999 from $1.0 million in the twelve month period ended December
31, 1998. The increase was due to our financings.
As of December 31, 1999, we had an aggregate of $367,789 in future obligations
of principle payments under capital leases and long term obligations. During
fiscal 2000, $0.2 million of our capital leases and long term obligations are to
be paid.
In June 1997, we entered into a multi-year research and development loan, with a
French government agency. We received approximately $420,000 for the future
research and development activities in 1997. We perform research on a
"best-effort" basis and the loan is repayable over a five year period. Payments
received under this multi-year research and development loan have been recorded
as long term obligations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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In November 1997, we entered into a line of credit with BNP. The line of credit
has a total capacity of approximately $140,000 to finance research and
development activities. The line of credit bears interest at 6.25% with
principal and interest payable semi-annually. $65,000 is available for
borrowing. The line of credit terminates in November 2001.
We believe our existing cash, cash equivalents and short term investments,
together with the net proceeds of this offering will be sufficient to fund our
operating expenses and capital requirements through at least the next 18 months.
Our future capital uses and requirements depend on numerous factors, including:
- - our progress with research and development;
- - the success of our pre-clinical testing and clinical trials;
- - costs and timing of obtaining regulatory approval for our products;
- - our ability to license and/or acquire innovative technologies and products;
- - our ability to protect our intellectual property rights;
- - our ability to manufacture our products;
- - our ability to introduce and sell our products;
- - our ability to hire competent personnel;
- - the level of our sales and marketing expenses;
- - pricing and policies of reimbursement; and
- - the costs and timing of obtaining new patent rights, changes in regulation,
competition, and medical and technological developments in the market.
Therefore, our capital requirements may increase in the future periods. As a
result, we may require additional funds and may attempt to raise additional
funds through equity or debt financings, collaborative arrangements with
corporate partners, government grants or other sources.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
and software products will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software may need to be upgraded, redesigned or replaced to comply with such
Year 2000 requirements to avoid system failure or miscalculations causing
disruptions of normal business activities.
STATE OF READINESS
We have experienced no Year 2000 compliance problems relating to our systems. In
response to the Year 2000 problem, we implemented changes to our existing
information technology systems through a combination of modifications and
upgrades to Year 2000 compliant software.
We expect to have no Year 2000 problems in the future.
COSTS
We have incurred minimal costs associated with identifying and addressing Year
2000 compliance issues, and do not expect to incur costs in the future.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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RISKS
We believe that the Year 2000 issue will not have a material adverse effect on
our business, financial condition or operating results. Since December 31, 1999
we have experienced no Year 2000 problems, however, latent issues may still
surface in the future that require upgrades, modifications, or replacement, all
of which could be time-consuming and expensive. In addition, there can be no
assurance that utility companies, Internet access companies and our third-party
vendors or Year 2000 compliant. The failure by such entities to be Year 2000
compliant could result in a systemic failure such as a prolonged Internet,
telecommunications or electrical failure.
CONTINGENCY PLAN
Because no systems have been found to be non-compliant and we have experienced
no problems to date, we have determined that a contingency plan is not required.
We are unable to provide for contingencies arising as a result of large scale or
Internet-wide failure because we are not aware of any adequate replacement
service for the Internet.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our activities
without increasing risk. Some of the securities that we invest in may have
market risk. This means that a change in prevailing interest rates may cause the
fair value of the principal amount of the investment to fluctuate. For example,
if we hold a security that was issued with a fixed interest rate at the
prevailing rate and the prevailing rate later rises, the fair value of the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and short
term investments in a variety of securities, including commercial paper,
government and non-government debt securities and money market funds. The
average duration of all our investments has generally been less than one year.
Due to the short term nature of these investments, we believe we have no
material exposure to interest rate risk arising from our investments. Therefore,
no quantitative tabular disclosure is required.
FOREIGN CURRENCY RATE FLUCTUATIONS
The functional currency for our French subsidiary is the French franc. The
translation from the French franc to the US dollar is translated for balance
sheet accounts using the current exchange rate in effect at the balance sheet
date and for revenues and expense accounts using average exchange rate during
the period. The effects of translation are recorded as a separate component of
shareholders equity. Our French subsidiary conducts its business with customers
in local European currencies or the Euro. Exchange gains and losses arising
through these transactions are recorded using the actual exchange differences on
the date of the transaction. We have not taken any action to reduce our exposure
to changes in currency in foreign currency exchange rates, such as options or
futures contracts, with respect to transactions with our French subsidiary or
transactions with our European customers.
INFLATION
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative--which focused on
freestanding contracts such as options and forwards, including futures and
swaps--expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of SFAS No. 133 will have a material impact on our financial
position or results of operations.
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Business
OVERVIEW
We believe we are the first biotechnology company dedicated to developing and
marketing novel therapies for alcohol and drug abusers. We intend to become the
leading biopharmaceutical company in addiction care by offering a broad
portfolio of medications to serve the addiction care community. Our strategy is
to develop several medications in the near term, and expand our product
portfolio through research and the acquisition of marketed products and
technologies. We intend to build a sales force to market our products, taking
advantage of the concentrated addiction care market.
We are developing and intend to market a broad portfolio of biopharmaceutical
products that address various medical needs of alcohol abusers and drug addicts.
We develop our product candidates for the treatment of alcohol and heroin
addiction, NALTREL-TM-, BUPREL-TM- and METHALiz-TM-, to improve existing
medications. We develop these products to be administered only once a month by a
physician or a nurse, as opposed to once a day by the patient. By putting the
medical practitioner in control, we expect our products to promote continuous
therapy and help overcome patient non-compliance, the primary limitation of
current medications. We intend our other product candidates, COC-AB-TM-,
MAP-AB-TM- and ITAC-TM-, to provide novel means to treat patients suffering from
cocaine and methamphetamine overdose and addiction. In 2000, to support
prospective market approval in the United States and Europe, we expect to
conduct pivotal clinical trials with NALTREL for the treatment of alcohol abuse
and heroin addiction. In parallel, in the next 18 months we expect to conduct
several human trials with BUPREL and METHALiz for treatment of severe heroin
addiction, and with COC-AB and ITAC for the treatment of cocaine overdose and
addiction.
BACKGROUND
We estimate that in the United States and Europe, there are in excess of
20.0 million alcoholics and 2.0 million heroin addicts. According to the Office
of National Drug Control Policy, in the United States, there are an estimated
3.6 million cocaine addicts. Substance abuse can have severe social and medical
consequences, including imprisonment, car accidents, overdose, liver failure,
infections such as HIV and viral hepatitis, and death. In addition, the National
Institute of Health estimated that $197.0 billion dollars is lost each year in
the United States due to absenteeism and lost productivity at work related to
alcohol and drug abuse.
We estimate that 7% of alcholics and drug addicts, approximately 1.5 million
patients in the United States, receive treatment for their addiction. According
to the Substance Abuse and Mental Health Services Administration, the majority
of alcohol and drug abuse patients that receive treatment are treated in the
limited number of specialized addiction care centers. Current treatments consist
primarily of psychosocial therapy and drug-substitution therapy and are
generally not effective in curing alcohol and drug addiction. According to the
National Drug and Alcohol Treatment Unit Survey, in 1992, nearly $7.1 billion
was spent in the United States to treat alcohol and drug abuse. An estimated
$11.00 of social and medical costs are saved for every dollar spent on substance
abuse treatment according to the New York State Office of Alcoholism and
Substance Abuse Services. Despite the potential medical benefits and
cost-savings of treating addictions, we believe the market for addiction care is
poorly served by the pharmaceutical industry and that the medical community
needs new products to effectively treat alcohol abuse and drug addictions.
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THE NEUROBIOLOGY OF ADDICTION
Addiction is a chronic disease of the brain triggering the compulsive use of
substances like alcohol, heroin, cocaine and methamphetamine at increasing and
more frequent doses, despite severe social and medical consequences. Scientists
have only recently started to uncover the biology of addiction at the molecular
level.
Alcohol and all drugs of abuse interfere with normal neurological pathways that
are responsible for transmitting signals in the brain, particularly the pathway
that involves the neurotransmitter dopamine. This dopamine pathway in the brain
controls euphoria and pain. All addictive substances impact dopamine directly or
indirectly. Alcohol and heroin stimulate a receptor in the brain called the
opiate receptor. Heroin binds directly to the opiate receptor, while alcohol
triggers the release of naturally occurring endorphins, which then bind to the
opiate receptor. Stimulation of the opiate receptor by heroin or alcohol-induced
endorphins causes cells to release dopamine. Unlike alcohol and heroin,
methamphetamine triggers a direct release of dopamine, while cocaine prevents
the normal reabsorption of dopamine following its release. Excess levels of
dopamine overstimulate the dopamine receptors of nearby cells, triggering
feelings of euphoria.
The scientific community increasingly understands the molecular biology of
opiate and dopamine receptors, potentially enabling the rational design of novel
medications targeting these receptors. Opiate receptors include several
subtypes, mu, delta, and kappa, which are located on the outside of a neuron
membrane in several regions of the brain. The opiate receptors are made of
proteins that contain six helices. Molecules such as endorphins, morphine,
heroin and methadone bind specifically to the helices located in the outer
region of the receptor, modify their shape, and trigger transmission of an
intracellular signal by the inner region of the receptor. The molecules that
stimulate the opiate receptor are called receptor agonists. Stimulation of the
receptors can induce euphoria and resistance to pain. Other molecules, such as
naltrexone, can bind to the receptor without triggering its stimulation and can
prevent the binding of agonists. They are called antagonists. Dopamine receptors
belong to a family of protein receptors expressed on the membrane of neurons in
various areas of the brain. Dopamine binds to and stimulates three categories of
dopamine receptors called D1, D2 and D3, which mediate different neurochemical
signals. Seven protein helices linked by protein loops make these receptors.
Their shape changes when dopamine occupies the receptor, triggering a signal
transmission to the neuron. Control of movement, cognitive functions,
cardiovascular functions, behavior and emotions involve D1, D2 and D3 receptors.
When brain cells are repeatedly exposed to addictive substances, levels of
dopamine and other neurotransmitters, such as serotonin and GABA, and their
corresponding neuroreceptors are chronically modified, creating a chemical
imbalance. As a result of this chemical-imbalance, an abuser's neurological
pathways demand the presence of the addictive substance and the abuser has
become addicted. Once addicted, the substance abuser will use the substance more
frequently to induce euphoria at the expense of normal activities. The substance
abuser will also increase the amount of the substance taken, because an
increased concentration of alcohol or drug becomes necessary to obtain the same
level of euphoria. As dopamine and the other affected neurotransmitters play a
key role in multiple brain functions, this chemical imbalance often leads to
other neurological manifestations such as impaired judgement and perceptions,
memory loss, depression, irritability, aggressive behavior, seizures and
thoughts of suicide.
CLINICAL ASPECTS OF ADDICTION
The clinical aspects of addiction are the:
- - acute effects of a drug overdose or binge drinking;
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- - chronic toxicity of repeated use on various biological systems and brain
functions;
- - acute withdrawal symptoms; and
- - lifelong risk of relapse.
ACUTE EFFECTS. Drug overdose and binge drinking affect multiple organs and
biological systems. Acute intoxication often results in psychotic episodes,
respiratory or cardiovascular distress, accidental injury or death. For example,
a 1992 study, The Economic Costs of Alcohol and Drug Abuse in the U.S. has shown
that approximately 40% of fatal car accidents in the United States are
alcohol-related. The Drug Abuse Warning Network estimated 250,000 emergency room
visits per year are the result of drug overdose.
CHRONIC TOXICITY OF SUBSTANCE OF ABUSE. As brain chemistry is modified on a
chronic basis, substance abusers may suffer multiple psychiatric and
neurological disorders such as depression, suicidal thoughts and psychotic
behavior. Permanent neurological damage may occur.
ACUTE WITHDRAWAL SYNDROME. Withdrawal is a condition resulting from sudden
discontinuation of a substance to which a person is addicted. Withdrawal from
alcohol can result in rapid heart rate, difficulty sleeping and life threatening
delirium tremens. Heroin withdrawal can result in irritability, pain, nausea,
vomiting, cramps and muscle aches. Withdrawal from cocaine or methamphetamine
can result in irritability, sleeplessness, and depression.
RELAPSE. The ultimate goal of medical treatment for addicts is to achieve an
alcohol-and drug-free state called abstinence. However, several studies found
that for patients who have achieved abstinence, the rate of relapse is high
within the first months of therapy, and remains a significant risk over the
patient's lifetime. Relapse can be very severe, and many patients experience
multiple cycles of detoxification, abstinence, relapse and overdose. Due to the
long-term risk of relapse, alcohol abusers and drug addicts are life-long
patients.
CURRENT ADDICTION CARE AND AVAILABLE PRODUCTS
Care for addiction includes chronic therapy and emergency therapy. Chronic
therapy promotes and attempts to maintain long-term abstinence following
detoxification. Emergency therapy attempts to reverse the effects of overdose.
Few medications are available to promote abstinence in alcohol and heroin
abusers. No medication is available to treat cocaine and methamphetamine
addiction or overdose. Studies have shown that as many as eighty percent of
patients are not compliant with their therapeutic regimen, typically resulting
in treatment failure.
CHRONIC ADDICTION CARE
Chronic therapy relies heavily on psychosocial therapy because few medications
are available. Psychosocial therapy, which consists of regular counseling
sessions, is the cornerstone of addiction care but has limited success because
it does not address the biological basis of addiction.
There are two types of medications available for long-term therapy of addicts.
Substitution therapy is the use of a pharmaceutical product that mimics the
abused substance. Abstinence therapy is the use of a medication to help the
addict abstain from substance use and cure addiction.
Substitution therapy is used for heroin addicts whose dependence is too severe
to permit abstinence therapy. It consists of medications which are chemically
related to heroin and which bind to and stimulate the opiate receptor. These
medications prevent withdrawal symptoms and maintain the state of addiction, but
in a medically-controlled environment. Substitution therapy is not a cure for
addiction. However, there are significant medical and social benefits, such as
reducing the risk of contracting infections and decreasing propensity to commit
crime. Substitution therapy can be used as
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a temporary therapy for patients who can then be detoxified and become
abstinent, or as a long-term therapy for severe addicts who are unresponsive to
abstinence therapies.
Abstinence therapy is medically more desirable than substitution therapy, as it
can effectively reduce dependence and may restore normal brain functions.
However, there are few medications available to promote abstinence, and
medication non-compliance is a major limitation. An estimated 80% of patients
fail to take their medication on a daily basis as prescribed and typically
relapse into severe alcohol and heroin abuse. A minority of alcoholics and
heroin addicts receiving abstinence treatment typically remain abstinent after
one year.
The existing medications are summarized in the following table.
<TABLE>
<CAPTION>
DOSAGE
PRODUCT/FIRST US REGIMEN/
APPROVAL DATE TECHNOLOGY USAGE SUBSTANCE OF ABUSE LIMITATION
- ---------------- ----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
METHADONE Binds to and Substitution Heroin and other Requires daily
(1975) stimulates opiate therapy opiates therapy at a
receptor licensed clinic
BUPRENORPHINE(1) Binds to and Substitution Heroin and other Requires daily
stimulates opiate therapy opiates therapy
receptor
LAAM (1993) Binds to and Substitution Heroin and other Requires therapy
stimulates opiate therapy opiates 2 times per week
receptor at clinic
NALTREXONE Blocks opiate Abstinence Alcohol and heroin Daily/
(1984, HEROIN; 1994, receptor maintenance non-compliance
ALCOHOL)
ACAMPROSATE(2) GABA antagonist Abstinence Alcohol Daily/
maintenance non-compliance
DISULFIRAM (1951) Induces nausea Relapse Alcohol Toxicity/
and vomiting upon prevention non-compliance
alcohol
absorption
</TABLE>
(1) Approved in France in 1995.
(2) Approved in France in 1987 and subsequently in other European countries.
The opiate agonists, methadone, LAAM and buprenorphine are the three
substitution medications. According to the Substance Abuse and Mental Health
Services Administration, an estimated 180,000 patients in the United States use
methadone. Sales of this off-patent generic product are subject to low pricing,
with approximately $20.0 million in sales in 1999 in the United States.
Methadone binds to the opiate receptor, triggering a stimulation of the dopamine
pathway. It decreases the use of heroin but maintains dependence. Licensed
methadone clinics dispense methadone and typically require the patient to visit
several times per week. LAAM is structurally related to methadone, has similar
effects, and is administered three times a week at the clinic. Buprenorphine,
currently marketed only in France, is a compound structurally related to
methadone, but which stimulates the opiate receptor to a lesser extent. An
estimated 62,000 patients in France, approximately 37% of the heroin addict
population
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use buprenorphine on a daily basis. In 1999, sales in France reached
approximately $80 million. Buprenorphine therapy may result in significant
diversion of use and potential lethal overdoses, as the patient is responsible
for administration.
The two main products available to promote and maintain abstinence are
naltrexone, for alcoholics and heroin addicts, and acamprosate (available only
in the EU) for alcoholics. Both naltrexone and acamprosate are available as oral
daily tablets. Naltrexone is an opiate antagonist that blocks the opiate
receptor, thereby decreasing the effects of and desire to use both alcohol and
heroin, and promoting an alcohol and heroin-free state when used on a chronic
basis. Acamprosate only affects alcohol dependence. Worldwide sales of branded
and generic naltrexone were an estimated $34 million in 1999. Sales of
acamprosate were an estimated $20 million in 1999. Naltrexone and acamprosate
have a similar efficacy and safety profile in alcoholics and are both limited by
severe patient non-compliance. To avoid prescribing therapies which will not be
used, physicians typically prescribe these medications only to the small subset
of their patients who are highly motivated to comply. We believe that we can
develop a sustained-release formulation of naltrexone to address the issue of
non-compliance, but that acamprosate is not conducive to sustained-release
formulation development because of the high dose required to obtain a
therapeutic effect. The other medication to treat alcoholism is disulfiram.
Disulfiram induces nausea and vomiting when the patient drinks alcohol because
it increases the concentration of toxic alcohol byproducts. Few patients are
willing to use disulfiram long term.
For cocaine and methamphetamine dependence, no medication is currently
available.
EMERGENCY THERAPY
Emergency therapy focuses on reversing the life-threatening effects of alcohol
and drug overdose. The goal is to use an antidote to block the effect of or
rapidly remove the toxic substance from the patient's blood stream and tissue,
reduce the complications of the overdose and lower the overall cost of emergency
care. Heroin is the only drug of abuse for which there is an antidote, called
naloxone. Naloxone binds to the opiate receptor, displaces molecules of heroin
already bound to the receptor, and prevents further binding of heroin to the
receptor. For cocaine and methamphetamine overdose, there is no antidote
available.
Other medications commonly used in alcoholics and drug addicts are products to
treat medical conditions resulting from substance abuse such as depression,
infectious diseases or liver dysfunction.
We believe that due to the seriousness of addiction and the low compliance with
current medications, there is a substantial need for medications that treat the
biological basis of addiction, facilitate medication compliance through less
frequent dosing schedules and promote alcohol and drug abstinence.
OUR SOLUTION
We are developing and intend to market a broad portfolio of biopharmaceutical
products for alcohol and drug abusers that we believe will:
- - facilitate and maintain abstinence;
- - provide safer substitution therapy;
- - treat overdose; and
- - prevent the onset of addiction.
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Our lead product candidates are:
- - NALTREL, a sustained-release formulation of naltrexone to treat patients
with alcohol or heroin dependence;
- - BUPREL, a sustained-release formulation of buprenorphine to provide
substitution therapy to patients with heroin dependence;
- - METHALiz, a sustained-release formulation of methadone to provide
substitution therapy to patients with severe heroin dependence; and
- - COC-AB, an antidote to treat cocaine overdose.
Our product candidates use two proven technologies. NALTREL, BUPREL and METHALiz
are based on our sustained-release technology, called Lactiz, which we licensed
from Southern Research Institute. Other companies have applied Southern Research
Institute's patented technology to create successful sustained-release
medications outside addiction care. COC-AB is based on an antidote technology
which has been applied by others to various other applications including
treatment of snake venom and digoxin poisoning.
WE ARE IMPROVING EXISTING MEDICATIONS USING SUSTAINED-RELEASE FORMULATIONS
All current abstinence medications are available only as daily oral medications.
The majority of patients prescribed an abstinence medication fail to take their
daily pill. Non-compliance with prescribed medication typically leads to therapy
failure and relapse into alcohol or drug abuse. We are developing
sustained-release formulations of approved medications to overcome chronic
non-compliance with daily therapies. A sustained-release formulation only
requires the administration once a month by the physician or the nurse, as
opposed to once a day by the patient. We believe once-a-month administration
fits well with the regular schedule of patient visits to their physician for
psychosocial therapy sessions. Putting addiction care in the hands of doctors
rather than patients should ensure compliance and greatly improve the chances of
success in addiction therapy.
We are applying our sustained-release technology to several medications,
naltrexone, buprenorphine and methadone, which are already used in the field of
substance abuse. Naltrexone, an abstinence medication which blocks the opiate
receptor, is effective in alcohol and heroin dependent patients. Buprenorphine
(approved only in France) and methadone are substitution medications prescribed
to heroin addicts. Because the active ingredients in our product candidates,
naltrexone, buprenorphine and methadone have demonstrated safety and
effectiveness in the oral dosage form approved by the FDA or by foreign
regulatory agencies for the treatment of addiction, we believe the demonstration
in human trials of the prolonged release of the medication in the blood is the
critical step in clinical development of our sustained-release dosage forms.
WE ARE CREATING MOLECULAR BARRIERS TO BLOCK ACCESS OF A DRUG TO THE BRAIN
Drugs of abuse exert their toxic effect in the brain only after they have
crossed the barrier that separates the blood from the brain tissue, called the
blood brain barrier. Current medications only interfere with drugs of abuse once
they have entered the brain. We are developing novel medications to prevent a
drug from crossing the blood brain barrier. We believe that we can develop
antibodies that will bind to a specific drug in the bloodstream, such as
cocaine, forming large molecular complexes that are unable to pass through the
blood brain barrier. Preventing drugs from entering the brain will limit their
toxic effects and the desire to use them. We are developing two complementary
antibody technologies, COC-AB for treatment of overdose and ITAC for prevention
of cocaine dependence.
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WE ARE CONDUCTING RESEARCH ON NOVEL COMPOUNDS THAT MAY REGULATE THE EFFECT OF
DOPAMINE
As dopamine is central to the biology of addiction, we believe that therapeutic
products derived from molecules that regulate the release of dopamine by brain
cells could help treat drug dependence. In collaboration with academic
scientists at the University of Paris V, we are conducting early-stage research
on the design of novel medications that can modify the levels of dopamine and
its effect on dopamine receptors.
OUR STRATEGY
Our goal is to become the leader in the United States and Europe in the
development and commercialization of pharmaceutical products for the treatment
of patients with alcohol dependence or drug addiction.
WE FOCUS ON THE LARGE ADDICTION CARE MARKET
We believe we are the first biotechnology company to focus exclusively on
addiction care. We intend to develop products for the key medical indications
for alcohol and drug abusers:
- - promoting and maintaining abstinence;
- - providing substitution therapy;
- - preventing relapse; and
- - treating overdose.
By offering new and improved therapies that address the multiple medical needs
of substance abusers, we plan to increase the availability and effectiveness of
treatment options and promote phamacotherapy as the cornerstone of addiction
care.
WE ARE DEVELOPING SEVERAL MEDICATIONS IN THE NEAR TERM
We currently focus on developing products with short development time frames
that may be rapidly commercialized. We are applying two known and proven
technologies, a sustained-release polymer and an antidote technology, to develop
our first four products NALTREL, BUPREL, COC-AB and METHALiz. We believe we have
a greater probability of near-term success in gaining FDA approval for our three
sustained-release products as compared to the approval probability of novel
molecular entities. The sustained-release technology is a proven technology for
other marketed pharmaceutical products and the active ingredients are already
approved by the FDA or other regulatory authorities as oral dosage forms.
Several of our products that we are developing address major indications and
large potential markets.
WE ARE BUILDING A BROAD PRODUCT PORTFOLIO
We intend to build a broad portfolio of products through internal research and
development and the licensing or acquisition of existing commercial products and
product candidates. We believe we will be well positioned to acquire new product
candidates and technologies from academic groups and biotechnology or
pharmaceutical companies active in central nervous system research but with no
commercial interest in addiction care. We may also seek to acquire, before our
own products are on the market, some of the products already marketed for
addiction care. We believe the synergies between our different products will
allow a medical practitioner to combine several medications to treat patients
according to the stage and severity of their particular medical condition. We
believe we can increase the probability of successful treatment for patients
already receiving therapy and induce more alcoholics and drug addicts to seek
treatment by making therapy easier and more effective.
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WE INTEND TO MARKET OUR PRODUCTS IN THE UNITED STATES AND EUROPE USING OUR OWN
DEDICATED SALES FORCE
We intend to market our products directly. We believe that a small sales force
of approximately 60 dedicated representatives will enable us to effectively
market our products to the limited number of specialized, high volume, addiction
treatment centers in the United States and Europe.
WE INTEND TO FOCUS ON NEAR-TERM REVENUES AND FUND LONGER-TERM RESEARCH WITH
GRANTS
We hope to achieve profitability from sales generated in the United States and
Europe from the first approved product in our current portfolio. We believe we
can generate significant margins by marketing our broad portfolio of products
using the same sales force. While developing near-term products, we can also
develop a pipeline of innovative product candidates. As addiction care is a
government priority in many countries, significant grant funding is available to
support addiction research. To date we have received research grants from
European and US government entities of approximately $4.2 million and are
seeking additional grants.
If the market for addiction care medication does not develop and our products do
not become widely accepted due to safety and effectiveness issues, marketing and
distribution restrictions, adverse publicity or pricing and reimbursement
issues, we will not be successful. In addition, our revenues will depend on
reimbursement for the reasonable price of our products by government health
organizations, private health insurance providers and other organizations. If
our products, once approved, are not reimbursed by those payors at reasonable
prices or at all, our market penetration and our product sales will be lower.
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PRODUCT CANDIDATES
We are developing a portfolio of novel product candidates that we believe
improve existing medications by facilitating medication compliance, and address
novel treatment indications. Near term products are for treatment of alcohol and
heroin abusers. Longer term products are for treatment of cocaine and
methamphetamine addicts.
<TABLE>
<CAPTION>
PRODUCT CANDIDATE TECHNOLOGY INDICATION SUBSTANCE OF ABUSE DEVELOPMENT STATUS(1)
- ----------------- ----------------- ------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
NALTREL-TM- Lactiz-TM-(2) Abstinence Alcohol Final clinical trial
Sustained-release maintenance planned in 2000
naltrexone
Heroin Final clinical trial
planned in 2000
BUPREL-TM- Lactiz-TM-(2) Substitution Heroin Clinical trial
Sustained-release therapy for planned in late 2000
buprenorphine mild addicts
METHALIZ-TM- Lactiz-TM-(2) Substitution Heroin Clinical trial
Sustained-release therapy for planned in 2001
methadone severe
addicts
COC-AB-TM- Antidote(2) Overdose Cocaine Clinical trial
therapy planned in 2000
MAP-AB-TM- Antidote(2) Overdose Methamphetamine Clinical trial
therapy planned in 2001
ITAC-TM- PLATFORM Vaccine(2) Abstinence Cocaine Clinical trial
TECHNOLOGY induction planned in 2000/2001
DOPAMINE MODULATORS Rational drug Abstinence Cocaine Early stage research
design maintenance Methamphetamine
ALCOHOLMD.COM Website Clinician and Alcohol Launch planned late
patient 2000
education
Psychosocial
therapy
</TABLE>
(1) Dates assume successful completion of preclinical research.
(2) Commercial rights held by us subject to royalty payments to our
collaborators.
NALTREL-TM-
NALTREL is a sustained-release formulation of naltrexone designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse. The potential recommended use of NALTREL is for the treatment of alcohol
and heroin dependence. NALTREL is designed to release naltrexone continuously
over 30 days from a single administration. By putting the medical practitioner
in control of therapy, we expect that the use of NALTREL will facilitate patient
compliance, enhance the effectiveness of the medication, improve overall
treatment outcomes and become the therapy of choice for a large number of
patients.
NALTREL IS BASED ON NALTREXONE, A PROVEN MEDICATION. Naltrexone is an effective
medication approved in more than 30 countries in an oral daily dosage form for
treatment of alcohol dependence
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and heroin addiction. It blocks the opiate receptor, preventing euphoria and
thereby decreasing the desire for, and the effects of alcohol and heroin. If
taken daily on a chronic basis, naltrexone is highly effective in reducing
alcohol and heroin consumption, promoting abstinence and preventing relapse. In
clinical trials involving the daily oral dosage form of naltrexone, patients who
were compliant in taking their medication demonstrated a much higher success
rate at achieving abstinence than those who were not compliant. However, most
patients who are prescribed daily naltrexone tablets are not compliant; they
stop taking their medication within the first few weeks or months, and fail
therapy.
NALTREL IS BASED ON OUR LACTIZ SUSTAINED-RELEASE TECHNOLOGY. The Lactiz
technology uses polylactide, a biodegradable, carbon-based polymer, which can be
processed into solid microscopic spheres. The microscopic spheres consist of a
network of tiny pores and channels into which a medication can be incorporated.
When injected into muscle, the microscopic spheres fill with water, initiating a
progressive and continuous release of medication into surrounding tissues. The
medication then diffuses into small blood vessels called capillaries, and from
capillaries into larger blood vessels. It then crosses the blood brain barrier
and diffuses into the brain. The properties of Lactiz, including its molecular
weight and density, as well as the type and amount of medication loaded into the
microscopic spheres, control the rate at which medication is released into
surrounding tissue. The polylactide polymer making up Lactiz breaks down into
carbon dioxide and water over time, eventually disappearing. Lactiz-based
products can be re-injected at appropriate intervals. By adjusting the
properties of Lactiz, we can create formulations with sustained-release
characteristics that may allow for medication release ranging from two weeks to
three months.
NALTREL CLINICAL TRIAL RESULTS. We have developed multiple formulations of
NALTREL and evaluated them in animals and in humans to select a formulation that
we believe will safely deliver sufficient levels of naltrexone over a one-month
period following a single administration. We have completed human trials in 28
subjects to evaluate levels of naltrexone in the blood. The results evidenced
two critical facts. First, release of naltrexone over one month following a
single NALTREL administration was similar to the amount of naltrexone delivered
by 31 daily naltrexone oral tablets. Second, the blood levels of naltrexone
resulting from one NALTREL administration were less variable over time than with
the oral tablets. As naltrexone is a clinically-proven commercial drug in the
tablet dosage form, and as our sustained-release technology is similar to the
technology used in previously approved products, we believe that these first
human trials suggest that NALTREL will be effective in treating alcoholics and
heroin addicts.
NALTREL PIVOTAL TRIALS PLAN. In 2000, we intend to conduct pivotal safety and
efficacy trials in alcoholics and heroin addicts to support potential market
approvals in the United States and Europe. In the US, we expect to need a single
pivotal trial to support the alcohol dependence indication and a single pivotal
trial to support the heroin dependence indication. Subject to discussion of the
protocols with the FDA and European regulatory authorities, the clinical trial
in alcoholics will be a double-blind, randomized, placebo-controlled trial in an
estimated 300 alcoholic patients. We plan to conduct the trial at approximately
30 sites in the United States. We expect to treat and follow-up patients for
three to six months. We expect that at the end of this period we will find that
patients will have been drinking less and that they are less likely to relapse
into heavy drinking. Subject to discussion of the protocols with the FDA and
European regulatory authorities, the clinical trial in heroin addicts will
enroll an estimated 100 patients and will be placebo-controlled. We expect that
at the end of this period we will find that NALTREL will have blocked the opiate
receptor preventing the patient from experiencing drug-induced euphoria. In
addition to these trials, we intend to conduct additional NALTREL studies in
particular patient sub-populations, such as rapid detoxification, converting
methadone users to abstinence therapy to respond to the interests of the medical
community.
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BUPREL-TM-
BUPREL is a sustained-release formulation of buprenorphine designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse, using the same Lactiz technology as for NALTREL. The potential indication
of BUPREL is for substitution therapy for heroin-dependent patients who are not
ready or willing to be detoxified. Buprenorphine partially stimulates the opiate
receptor, inducing mild euphoria and maintaining dependence, while reducing the
consumption of heroin. Frequent misuse of the oral dosage form by the patient
may limit the safety of buprenorphine therapy. By putting the physician or the
nurse in charge of administering the medication, we expect BUPREL will simplify
and improve the safety of buprenorphine therapy.
We are currently optimizing formulations of BUPREL in preclinical studies and
expect to enter the clinic in late 2000. Initial trials in approximately 30
patients are expected to permit the potential selection of a formulation that
release an appropriate medication amount over one month. Subsequent trials in
approximately 100 patients will be designed to potentially confirm the
buprenorphine release profile and one pivotal trial will seek to establish
safety and efficacy in fewer than 300 heroin dependent patients.
METHALIZ-TM-
METHALiz is a sustained-release formulation of methadone designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse, using the same Lactiz technology as for NALTREL and BUPREL. The potential
indication of METHALiz is for substitution therapy for severe heroin-dependent
patients who are not ready or willing to be detoxified and for whom
buprenorphine therapy is not available or sufficiently potent. Methadone
stimulates the opiate receptor, prevents withdrawal symptoms and maintains
dependence while reducing the consumption of heroin. According to the American
Methadone Treatment Association, approximately 180,000 heroin addicts in the
United States use an oral formulation of methadone, dispensed by
900 specialized methadone clinics. While high-risk patients are required to
visit the registered methadone clinic on a daily basis to be administered their
dose of methadone, many patients are allowed to take one or more days worth of
product home for self-administration. This sometimes leads to fatal overdosing.
By putting the physician or the nurse in charge of administering the medication
and making the dosing schedule more convenient, by eliminating patient
take-homes and self-dosing, we expect METHALiz will simplify and improve the
safety of methadone therapy.
Subject to successful preclinical development, we expect to enter the clinic in
2001. Initial trials in approximately 30 patients may permit the selection of
the formulation that provides an appropriate amount of medication over one
month. Subsequent trials in fewer than 100 subjects will be designed to confirm
the methadone release profile and one pivotal trial will seek to establish
safety and efficacy in fewer than 300 patients.
COC-AB-TM-
We designed COC-AB as a cocaine antidote for the treatment of cocaine overdose,
an indication for which there is no treatment available. The current care for
toxic overdose is intensive treatment with cardiovascular and central nervous
system medications, which may be costly and labor-intensive. We designed COC-AB
to rapidly remove cocaine from the brain and body, acting as an antidote by
binding free cocaine in the blood and triggering the removal of cocaine. COC-AB
is administered by intravenous injection. Therapy of digoxin overdose and snake
venom bites uses a similar technology. Aventis Pasteur, a marketer of similar
antidotes for other indications, is our manufacturer.
COC-AB is a purified protein fragment, called F(ab')(2,) derived from an
antibody produced in horses. It binds tightly to cocaine and toxic cocaine
metabolites in the bloodstream to stop further cocaine entry into tissues,
particularly the heart and brain which is responsible for the potential
life-threatening
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consequences of cocaine overdose. As a result, the concentration of free cocaine
molecules in the bloodstream drops. The body strives to maintain equilibrium of
free cocaine between tissue sites and the bloodstream. Therefore, as the free
cocaine in the bloodstream is bound as a COC-AB-cocaine complex, the cocaine
present in the brain and other tissues diffuses back to the bloodstream where it
is captured by COC-AB. The liver and kidneys clear the inactive COC-AB-cocaine
complex within days.
We make COC-AB by injecting horses with a proprietary chemical derivative of
cocaine linked to a protein carrier. Most of the metabolites of cocaine are
benign. To be effective, an antidote should preferably target only cocaine
itself and its toxic metabolites and not be unnecessarily consumed by these
benign metabolites. By chemically modifying cocaine into novel chemical
entities, we succeeded in producing antibodies that distinguish between toxic
by-products of cocaine, such as cocaethylene and norcocaine, and its non-toxic
metabolites such as benzoylecgonine and ecgonine-methylester. As a result, we
expect that COC-AB activity in the body will target primarily the toxic
metabolites that result from cocaine overdose.
We are currently scaling-up COC-AB in collaboration with our manufacturer,
Aventis Pasteur. We expect to enter the clinic mid-2000 to study the effect of
COC-AB on blood levels of cocaine in approximately 25 cocaine users. To assess
the clinical benefits of COC-AB in patients suffering from cocaine overdose, we
then intend to conduct a clinical trial in the emergency room in fewer than 100
patients and additional trials to support potential market approval.
MAP-AB-TM-
We intend to apply the same antidote technology to develop additional products.
We develop MAP-AB for the treatment of methamphetamine overdose. Methamphetamine
is one of the substances of abuse with the fastest growth in the United States.
Recent research has demonstrated the long-lasting toxic effects of
methamphetamine. These effects are thought to be responsible for the severe
behavioral abnormalities that accompany the prolonged use of methamphetamine.
According to the National Institute for Drug Abuse, or NIDA, there is an urgent
need for an effective medication to treat methamphetamine addiction, especially
anti-methamphetamine antibodies which could be used by emergency room physicians
to treat the growing number of overdoses. We are currently in pre-clinical
development of the chemistry of MAP-AB that could, upon intravenous
administration to a patient in the emergency room, capture methamphetamine
molecules and decrease their toxicity.
ITAC-TM-
We develop ITAC as a cocaine vaccine candidate to create a chemical barrier in
the blood to prevent cocaine from reaching the brain. Following administration
of the vaccine, the patient forms anti-cocaine antibodies. Upon cocaine use,
cocaine-antibody complexes will form that are too large to move through blood
vessel walls into the brain. Cocaine is trapped within the bloodstream until it
is eliminated with no toxic effects from the body through normal kidney and
liver activity. Such a vaccine may serve as a valuable component of treatment
programs that protect against relapse. In animals, ITAC prevents the onset of
cocaine dependence. Using a proprietary technology similar to the one developed
to produce COC-AB, our collaborators at the Scripps Research Institute have
developed the cocaine vaccine candidate by chemically modifying cocaine and
linking it to a large protein molecule. Animals vaccinated with the ITAC vaccine
develop cocaine-specific antibodies that bind with cocaine in the blood, as well
as its toxic metabolites, preventing most of the drug from reaching the brain.
Injecting cocaine into rodents immunized with the ITAC vaccine candidate
resulted in significantly higher levels of cocaine in the blood where it is
harmless, and correspondingly lower levels in the brain, thereby reducing
dependence to cocaine. We are currently studying in additional animal models
various vaccine formulations to select one candidate that may be tested in
humans. In 2000,
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we expect to initiate clinical trials with ITAC in cocaine abusers to study the
safety of the vaccine and its ability to generate anti-cocaine antibodies in
humans.
ALCOHOLMD.COM
We are developing an interactive website for medical practitioners and patients
for alcohol addiction treatment. For medical practitioners, the website will
feature medical literature, including an online medical journal, information
about best practices for addiction care, latest treatment options and provide a
forum for addiction care physicians to exchange ideas on a real time basis. In
addition, the website will be designed to host a consultant forum allowing
physician in the field to solicit opinions from leading experts. For patients
and their families, AlcoholMD.com is expected to provide tools for the
self-evaluation of drinking habits, information on treatment options and an
online forum for patient and family support. We will seek to make AlcoholMD.com
the premier online website for alcohol abuse care by assembling broad
information about alcohol addiction care and providing links to other addiction
care websites. We also intend to study the use of online psychotherapy support
for patients who are in treatment for alcohol abuse. We expect to launch
AlcoholMD.com in the second half of 2000. Importantly, we expect this website to
facilitate the marketing of our own products and services.
THE MARKET
LARGE POPULATION OF CHRONIC PATIENTS TREATED IN A SMALL NUMBER OF SPECIALIZED
CENTERS
Approximately 1.5 million patients in the United States receive therapy for
alcohol, heroin or cocaine addiction in a limited number of specialized
treatment centers as recorded by the Substance Abuse and Mental Health Services
Administration. Approximately 3,200 physicians are members of the American
Society of Addiction Medicine and these physicians write most of the
prescriptions for the few medications available to treat these patients.
Approximately 70% of alcohol abusers and drug users are employed and most
employers in the United States provide mental health plan coverage. It is
estimated that insurance or direct government financing in the United States
pays for 90 percent of addiction care. In Europe, various social security and
private payers plans cover addiction care.
ADDICTION CARE IS COST-EFFECTIVE
For every dollar spent on substance abuse treatment, an estimated $11.00 of
other social and medical costs are avoided. For instance, treatment is estimated
to reduce overall hospital admission rates of substance abusers by 38% in the
United States. In addition, treatment for addiction can decrease crime rates. In
one study, treatment for one year was shown to reduce arrests by an estimated
65%. We believe novel addiction medications can command pricing comparable to
other critical care therapies. For example, buprenorphine in France, used now by
an estimated 37% of heroin addicts, costs approximately $1,500 per year.
MORE PATIENTS ARE IN NEED OF THERAPY
Only an estimated 6% of alcohol abusers and cocaine addicts, and 27% of heroin
addicts are in treatment in the United States and Europe. There are an estimated
12.4 million alcohol abusers, 810,000 heroin addicts and 3.6 million cocaine
addicts in the United States, and approximately 14 million alcohol and drug
abusers in Europe. Lack of effective medications often discourages families and
primary care physicians to refer more patients to addiction treatment centers.
COLLABORATIONS
We are strengthening our position by forming relationships with strategic
partners. Alliances with government organizations, academic institutions and
others will help develop and market our new
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therapies. We have cultivated relationships with academic communities, clinics,
government organizations and others, to advance the development of medications
in the treatment in addiction. We have formed alliances with research
organizations and pharmaceutical companies for product development and the
manufacturing of NALTREL, BUPREL, METHALiz, COC-AB and ITAC. This strategy
lowers costs and leverages the resources and expertise of our collaborators.
MANUFACTURING AND SUPPLY ARRANGEMENTS
We do not intend to build manufacturing facilities, but to contract out our
manufacturing requirements to recognized leaders in pharmaceutical
manufacturing.
RELATIONSHIP WITH AVENTIS PASTEUR
In June 1999, we entered into a manufacturing agreement with Aventis Pasteur for
the manufacture of COC-AB. Aventis Pasteur is one of the world's largest vaccine
companies with a broad range of products. Under the terms of the agreement,
Aventis Pasteur has agreed to manufacture and supply us with COC-AB (Fab')2
product. As part of the relationship, Aventis Pasteur has agreed to certain
exclusivity provisions that preclude Aventis Pasteur from developing,
manufacturing or licensing a product that contains an anti-cocaine antibody or
antibody derivative for anyone other than us. We have agreed to exclusively use
Aventis Pasteur to manufacture COC-AB. This agreement has been in effect since
June 1999 and will continue until the 10(th) anniversary of the first commercial
sale of COC-AB to the general public. After such ten year period, we can
negotiate up to two (2) year renewals. The manufacturing agreement may be
terminated upon:
- uncured material breach;
- failure to obtain regulatory approval within specified time frames ranging
from two years to six years, and;
- termination of the patent and know-how license agreement between us and
Aventis Pasteur.
Also in June 1999, we entered into a patent and know-how license agreement with
Aventis Pasteur. In this agreement, Aventis Pasteur granted to us an exclusive
license under certain patents and know-how to produce and sell COC-AB products
for the treatment of drug addiction. This agreement will continue for thirteen
years following the date of first commercial sale of COC-AB to the public and
until we have made all royalty payments. The agreement may be terminated by
either party 120 days following written notice of an uncured material breach.
RELATIONSHIP WITH SP PHARMACEUTICALS L.L.C.
In November 1999, we entered into a manufacturing agreement with SP
Pharmaceuticals L.L.C. for the manufacture of NALTREL active and placebo product
for our use in clinical trials. Under the terms of the agreement, SP
Pharmaceuticals has agreed to manufacture and supply us with NALTREL.
SP Pharmaceuticals also agreed not to develop, manufacture or sell any product,
drug or compound directed to the treatment of drug, alcohol, or other substance
abuse addiction which involve sustained-release properties for any party other
than us during the term of this agreement and for two years after the expiration
or termination of this agreement. The agreement is to continue until
February 1, 2001. It may be extended for additional successive one year periods
until the development work is completed. This agreement may be terminated upon
an uncured material breach.
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LICENSING AGREEMENTS
RELATIONSHIP WITH SOUTHERN RESEARCH INSTITUTE
In February 1997, we entered into an agreement with Southern Research Institute,
or SRI, for the research and development of NALTREL. SRI is a multidisciplinary
non-profit research organization and is recognized for its ability to produce
practical, workable solutions to difficult technological problems. SRI has been
instrumental in developing the proprietary micro-encapsulation technology for
NALTREL.
Under the terms of the agreement, we are working with SRI on the development of
an injectable, biodegradable microscopic sphere formulation for one-month
delivery of naltrexone. In connection with the agreement, we were also granted
the option to license some of the developed product. On July 1, 1999, we
exercised the option of licensing worldwide rights, on an exclusive basis to
develop, produce and sell any injectable, sustained-release formulation of
naltrexone or other opiate receptor antagonists. In addition, we received a
nonexclusive license to certain other SRI patents and know-how for the purpose
of developing and commercializing any injectable, sustained-release formulations
of naltrexone. With respect to any of the other SRI patents, we agreed to give
SRI a non-exclusive, royalty-free license to fully exploit for any other purpose
any improvements to the other SRI patents for which we file a patent
application. The term of the development agreement will continue until
December 31, 2000. The license will continue until December 31, 2010, or the
expiration of the naltrexone patents or the expiration of the SRI patent rights,
whichever is last to occur. SRI may terminate the agreement if we have not filed
a new drug application for an injectable, sustained-release formulation of
naltrexone with the FDA by July 1, 2004, unless we can show our failure to file
resulted from events reasonably beyond our control. Further, SRI may terminate
the agreement upon 90 days written notice of an uncured material breach by us.
In January 2000, we entered into a second agreement with SRI for the research
and development of controlled release buprenorphine or other opiate receptor
agonists, including but not limited to, methadone. Under the terms of the
agreement, we are developing with SRI an injectable, sustained-release
formulation for delivery of controlled release buprenorphine. On January 21,
2000 we exercised the option of licensing exclusive worldwide rights for any
current or future patent rights covering inventions made during the performance
of the work under the research agreement to develop and commercialize any
injectable, sustained-release formulation of buprenorphine or other opiate
recepter agonists, including, but not limited to, methadone. The license
requires us to give a non-exclusive, royalty-free license to SRI to exploit for
any commercial purpose, other than sustained-release buprenorphine and other
opiate recepter agonists, any improvements we make to SRI patents. The term of
the development agreement will continue until January 21, 2003. The license will
continue until the expiration of the last of the buprenorphine patents or the
expiration of other relevant SRI patent rights. This agreement may be terminated
upon an uncured material breach by us.
RELATIONSHIP WITH SCRIPPS RESEARCH INSTITUTE
In June 1996, SCRIPPS Research Institute granted us a license of certain patents
relating to the development and marketing of diagnostic and therapeutic products
within the field of treatment of cocaine addition. SCRIPPS is engaged in
fundamental scientific biomedical and biochemical research. The SCRIPPS Research
Institute is one of the largest, private, non-profit research organizations in
the United States. SCRIPPS has become internationally known for its basic
research into immunology, molecular and cellular biology, chemistry,
neurosciences, autoimmune diseases, cardiovascular diseases and synthetic
vaccine development.
Under the terms of the agreement we licensed exclusive worldwide rights to
develop and market ITAC. This agreement will remain in effect so long as we sell
products covered under the terms of the license
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or until the licensed patents expire. Scripps may terminate the agreement within
60 days after an arbitrator's decision that we have not complied with the
commercial development obligations required in the agreement. Further, Scripps
may terminate the agreement upon 15 days written notice for nonpayment of any
amounts due by us and upon 60 days notice for any other uncured breach by us.
RELATIONSHIP WITH UNIVERSITY OF PARIS V
In June 1999 and March 2000, we entered into research and development agreements
with the University of Paris V to jointly develop COC-AB and related antibodies,
MAP-AB and dopamine modulators using both the facilities and expertise of the
University of Paris V.
Under the terms of the agreements, we have been granted worldwide rights,
current and future, to all inventions related to and including COC-AB, MAP-AB
and dopamine modulators. In consideration of the agreements we have agreed to
make royalty payments to the University of Paris V for a period of five years
from the date of the first commercial sale of either COC-AB, MAP-AB or dopamine
modulators, as the case may be.
In order for our clinical trials to be successful, we must continue to maintain
collaborative relationships with our partners. We rely heavily on these partners
to manufacture our product candidates, conduct pre-clinical trials and clinical
studies and license patented and proprietary technology to us.
PATENTS AND PROPRIETARY TECHNOLOGY
Our success will depend in part on our and our licensors' ability to obtain
patents for our technology and preserve our trade secrets and to operate without
infringing upon the proprietary rights of others. We currently hold one US
patent relating to COC-AB and we expect that a second patent will be issued in
the near future. We also have a patent application pending for our proprietary
naltrexone formulation, NALTREL and have a patent application pending for our
proprietary buprenorphine formulation, BUPREL. In addition, we have an exclusive
license from Southern Research Institute for patents relating to
sustained-release formulations of NALTREL, BUPREL, and METHALiz and an exclusive
license from the Scripps Research Institute for a patent relating to ITAC.
Patent positions in the pharmaceutical field are often uncertain and may involve
complex legal, scientific and factual questions. There has been increasing
litigation in the pharmaceutical industry with respect to the manufacture, use
and sale of new therapeutic products that are the subject of conflicting patent
rights. The validity and breadth of claims in pharmaceutical patents may involve
complex factual and legal issues for which no consistent policy has emerged, and
therefore, are highly uncertain. Moreover, the patent laws of foreign countries
differ from those of the US, and hence the degree of protection afforded by
foreign patents may be different. There can be no assurance that patent
applications relating to products and technologies developed by us will result
in patents being issued or that, if issued, the patents will provide a
competitive advantage or will afford protection against competitors with similar
technologies, or that such patents will not be challenged successfully or
circumvented by competitors, or that our technologies, products or processes
will not infringe on third parties patent rights. In addition, the US Patent and
Trademark Office has a substantial backlog of biotechnology patent applications
and the approval or rejection of patent applications may take several years.
We also rely on certain proprietary trade secrets and know-how that are not
patentable. Although we have taken steps to protect our unpatented trade secrets
and know-how, in part through the use of confidentiality agreements, with our
employees and consultants there can be no assurance that:
- these agreements will not be breached; or
- our trade secrets will not otherwise become known or independently
developed.
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COMPETITION
Currently, we compete primarily with other companies marketing products for the
treatment of alcohol and heroin abuse. In the future we may compete with
companies developing similar products using alternative technologies, or
different products for similar medical indications that could render our
products obsolete. We believe we will compete in the future on the basis of
approved product indications, post-marketing studies, pricing and reimbursement.
Many of our competitors have greater financial, operational, sales and marketing
resources, and more experience in research and development than we have.
Several companies are currently making or developing products that compete with
or will compete with our products. The current products that will compete with
ours are:
- - Acamprosate, for treatment of alcoholics, marketed by Lipha;
- - Buprenorphine, for treatment of heroin addiction, marketed by Schering
Plough;
- - Disulfiram, for treatment of alcoholics, marketed by Wyeth Ayerst and
others;
- - LAAM, a derivative of methadone, for treatment of heroin addiction, marketed
by Roxane;
- - Methadone, for treatment of heroin addiction, marketed by Roxane and
Mallinckrodt; and
- - Naltrexone oral tablets, for treatment of heroin addicts and alcoholics,
marketed by Barr Laboratories and Dupont Merck.
PRE-CLINICAL TESTING AND CLINICAL TRIALS
Before we can obtain the necessary regulatory approvals for the sale of any of
our products, we must demonstrate, through pre-clinical testing and clinical
trials, that our product candidates are safe and effective. Naltrel is the only
product candidate for which we have initiated clinical trials involving human
testing. Our other product candidates are still in the pre-clinical testing
phase.
Conducting clinical trials is a lengthy, time-consuming, uncertain and expensive
process. Several factors may delay or affect the commencement and completion of
clinical trials, including:
- - inability to manufacture or develop the product candidates and the placebo
to be used in the clinical trials;
- - inability to obtain the controlled substances to be used in the study;
- - patient enrollment, including the size of the patient population, the nature
of the protocol, the proximity of patients to clinical sites, the
eligibility criteria for the study and the potential for patient drop out,
particularly due to the nature of the study;
- - inability to adequately follow patients after initial participation in the
clinical trial;
- - availability of third parties to conduct the trials.
If our product candidates fail to perform as expected, then we will not be able
to develop our products as expected.
GOVERNMENT REGULATION
Our research and development activities, pre-clinical tests and clinical trials,
and ultimately the manufacturing, marketing and labeling of our products, are
subject to extensive regulation by the FDA and other regulatory agencies in the
United States and other countries. In the US, the Federal Food,
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Drug, and Cosmetic Act, or the Act, and the regulations promulgated thereunder
and other federal and state statutes and regulations govern, among other things,
the testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising, promotion, import and export of our products. Similarly,
the EU subjects the manufacture, testing, marketing, labeling, advertising, and
classification of medicinal products to extensive regulation, which is
implemented at national level and supplemented by additional national rules
throughout the Member States of the EU. Pre-clinical testing and clinical trial
requirements and the regulatory approval process typically take years and
require the expenditure of substantial resources. Additional government
regulation may be established that could prevent or delay regulatory approval of
our product candidates. Delays or rejections in obtaining regulatory approvals
would adversely affect our ability to commercialize any pharmaceutical product
candidates we develop and our ability to receive product revenues or royalties.
Even if regulatory approval of a product candidate is granted, the approval may
include significant limitations on the indicated uses for which the product may
be marketed.
The FDA and other foreign regulatory agencies require that the safety and
effectiveness of our product candidates be supported through adequate and
well-controlled clinical trials. If the results of pivotal clinical trials that
we submit in applications for approval do not establish the safety and efficacy
of our product candidates to the satisfaction of the FDA and other foreign
regulatory agencies, we will not receive the approvals necessary to market our
product candidates, which would have a material adverse effect on our business,
financial condition, cash flows and results of operations.
Some of our products will also be regulated by the United States Drug
Enforcement Administration and by the European Union as controlled substances.
FDA REGULATION--APPROVAL OF THERAPEUTIC PRODUCTS
Our therapeutic products are regulated either as drugs (in the case of NALTREL,
BUPREL, METHALiz, and dopamine modulators) or as biological products (in the
case of COC-AB, MAP-AB and ITAC). The steps required before a drug or biological
product may be marketed in the United States include:
- - pre-clinical and clinical studies;
- - the submission to the FDA of an Investigational New Drug application, or
IND, which must become effective before human clinical trials may commence;
- - adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug;
- - the submission to the FDA of a New Drug Application, or NDA, or, a
Biological License Application, or BLA; and
- - FDA approval of the application, including approval of all product labeling.
Pre-clinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Pre-clinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the pre-clinical tests are typically submitted and
reviewed by the FDA as part of an IND, before human clinical trials begin. If
the FDA does not object to an IND, it will become effective in 30 days.
Submission of an IND may not result in FDA authorization to commence clinical
trials and the lack of an objection may not mean that the FDA will ultimately
approve a product for marketing. We filed an IND for NALTREL in early 1999.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. The
protocols for clinical trials must be reviewed by
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the FDA and must be conducted in accordance with Good Clinical Practices. Each
clinical trial must be approved by an Institutional Review Board that will
consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution conducting the clinical trials. We
must also obtain patient informed consent.
Clinical trials are typically conducted in three sequential phases that may
overlap. In clinical trials for the study of medication safety in healthy
volunteers, typically called Phase I clinical trials, the drug is given to
healthy human volunteers and is tested for safety, dosage tolerance, metabolism,
distribution, excretion and blood levels. In trials for the study of medication
safety in patients, typically known as Phase I/II clinical trials, trials are
conducted in a target patient population:
- - to gather evidence about the blood levels, safety and effectiveness of the
drug for specific uses;
- - to determine dosage tolerance and optimal dosage; and
- - to identify possible adverse effects and safety risks.
Phase III clinical trials are undertaken to evaluate effectiveness and to test
for safety in an expanded patient population. Our clinical trials may not be
completed successfully or within any specified time period. We or the FDA may
suspend clinical trials at any time, if either we or the FDA conclude that
clinical subjects are being exposed to an unacceptable health risk, or for many
other reasons.
The FDA may disagree with the design of the Phase III clinical trial protocols
after the results of the Phase III clinical trials have been announced. The FDA
inspects and reviews clinical trial sites and data from the clinical trials to
determine compliance with Good Clinical Practice. The FDA also examines whether
there was bias in the conduct of clinical trials. Phase III clinical trials are
complex and difficult, and they may not be successful.
The results of pre-clinical studies and clinical trials, if successful, are
submitted in an application to seek the FDA approval to market the drug or
biological product for a specified use. The testing and approval process
requires substantial time and effort, and approval may not be granted for any
product nor approval granted according to any schedule. The FDA may refuse to
approve an application if it believes that regulatory criteria are not satisfied
and may require additional testing for safety and efficacy of the drug. If
regulatory approval is granted, the approval will be limited to specific
indications. Our product candidates may not receive regulatory approvals for
marketing, or if approved, the approval may not be for the indications we have
requested.
The FDA provides a "fast track" review process for drugs that treat serious or
life threatening diseases and conditions and have a demonstrated potential to
meet unmet medical needs for these diseases or conditions. Approval may be
conditioned on a requirement that, following product launch, a company continue
to study the drug to verify and describe its clinical benefit. Under "fast
track" procedures, the FDA may withdraw approval on an expedited basis if the
company fails to show due diligence in conducting post-marketing clinical trials
or if the post-approval clinical trials fail to demonstrate that the product is
safe or effective. When appropriate, we intend to pursue opportunities for "fast
track" review of our products. We may not be able to take advantage of "fast
track" review of our products.
The current fee for submission of NDAs and BLAs is $256,338, and may increase
from year to year. The FDA also may require annual fees for approved products
and for companies that manufacture products. The FDA may waive or reduce these
fees under special circumstances. We will seek waivers or reductions of fees
where possible, but we may not be eligible for any such waiver or reduction.
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FDA REGULATION--POST-APPROVAL REQUIREMENTS
Even if we obtain regulatory approvals for our product candidates, our products
and the facilities that manufacture them are subject to continual review and
periodic inspection. Each US drug manufacturing establishment must be registered
with the FDA. Manufacturing establishments in the US and abroad are subject to
inspections by the FDA and must comply with the FDA's good manufacturing
practice regulations, which are strictly enforced. Full technical compliance
requires manufacturers to expend funds, time and effort in the area of
production and quality control.
The FDA continues to regulate products after they have been approved. For
example, the FDA and, in certain instances, the Federal Trade Commission,
regulate the labeling and promotion of approved products. The FDA also requires
that we report certain adverse events involving our products. In addition, the
FDA can impose other post-marketing controls on us and our products.
Failure to comply with regulatory requirements can result in warning letters,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, refusal or withdrawal of approvals and
criminal prosecution of our company and employees.
EU REGULATION--APPROVAL OF THERAPEUTIC PRODUCTS
Before clinical trials and marketing of our products in the EU begin, we must
obtain EU regulatory approval regardless of FDA approval. The approval procedure
varies in each Member State, and the time required may be different from that
required for FDA approval.
Under EU law, there are two procedures for the approval of therapeutic products.
The first is a centralized approval procedure, administered by the European
Agency for the Evaluation of Medicinal Products , or the EMEA. The second is a
decentralized approval procedure, which requires approval by the Medicines
Agency in each Member State where our therapeutic products will be marketed.
Once a product has been approved by one Member State, the product is eligible
for expedited review by other Member States. The centralized approval procedure
is mandatory for certain biological products and may be applicable to our
products. We believe that approval of COC-AB, MAP-AB and ITAC will be considered
under this procedure. We believe that the approval of some of our other
products, such as, NALTREL, BUPREL and METHALiz will be considered under the
decentralized procedure. There can be no assurance that one Member State will
recognize a drug approval granted earlier by another Member State, but a
decision will be made within 90 days.
Regardless of which procedure might be used, the rigorous and lengthy steps
ordinarily required before a medicinal product may be marketed in the EU
include:
- - adequate non-clinical tests and clinical trials;
- - the submission to the EMEA or to the respective Member States' Medicines
Agencies of an application for a marketing authorization, supported by all
necessary documents and test results; and
- - approval of the application, including approval of all product labeling and
packaging, by the European Commission and/or the relevant Medicines Agencies
in each Member State.
- - In the EU, there is no "fast track" review process to for expedited
regulatory approval.
In all cases, the safety, effectiveness and quality of our product candidates
must be demonstrated according to demanding criteria under EU and US rules. Our
non-clinical tests and clinical trials performed in the US may not be recognized
and accepted by the regulatory authorities in the EU. Pre-clinical tests in the
EU must be conducted by laboratories that comply with Good Laboratory Practice,
and clinical trials must be conducted in accordance with specific national Good
Clinical
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Practices. Moreover, many Member States require compliance with principles of
Good Manufacturing Practices in the manufacture of products intended for use in
clinical trials. The complex array of national requirements for clinical trials
conducted in the EU may delay regulatory approvals.
After receiving pre-marketing approval we will have to comply with rules in the
Member States relating to the labeling and advertising of our products.
Even if regulatory authorities approve our product candidates, our products and
our facilities, including facilities located outside the EU, may be subject to
ongoing testing, review and inspections by EU health regulatory authorities.
Failure to comply with EU regulatory requirements can result in, among other
things, warning letters, fines, injunctions, civil penalties, recall orders or
seizure of products, total or partial suspension of production, refusal or
withdrawal of approvals and criminal prosecution of us and our employees.
DEA REGULATION
Some components of our current product candidates are regulated as controlled
substances by the Drug Enforcement Agency, or DEA. The active ingredient in
METHALiz is currently classified on Schedule II (signifying, among other things,
a high potential for abuse) and the active ingredient in BUPREL is currently
classified as Schedule V (signifying, among other things, a lower potential for
abuse). In addition, the active ingredient in ITAC is derived from a substance
classified on Schedule II and may itself be regulated as a Schedule II
substance.
As controlled substances, the handling of these ingredients, and the
manufacture, shipment, storage, sale, and use of finished products containing
these ingredients, are subject to the highest degree of regulation and
accountability by DEA. The amount of controlled substances we can obtain for
clinical trials and for commercial distribution is limited by the DEA and may
not be sufficient to complete clinical trials or meet commercial demand.
Moreover, DEA may, in the future, seek to regulate other active ingredients in
our product candidates as controlled substances. DEA restrictions on the
controlled substances used in our products, or on the marketing of our products
containing those controlled substances, could significantly limit the sales of
our products, resulting in a material adverse impact on our financial
performance.
REGULATION OF CONTROLLED SUBSTANCES IN THE EUROPEAN UNION
EU regulations govern trade in controlled substances between the EU and third
countries, and may adversely affect the manufacture, clinical testing, shipment,
storage, sale and use of certain active ingredients contained in our products or
our products themselves. EU regulations impose a specific system of monitoring
trade in controlled substances, including licensing and registration
requirements, pre-notification of consignments of certain controlled substances,
prohibitions of certain operations, and a variety of record keeping, labeling
and security requirements. Enforcement actions for non-compliance with
regulations include fines and/or criminal sanctions.
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SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board made up of leading scholars in
the field of addiction science. Members of our scientific advisory board consult
with us on matters relating to the development of our products described
elsewhere in this prospectus. We reimburse members of our Scientific Advisory
Board for reasonable out-of-pocket expenses they incur in connection with board
meetings. Some of the members may also receive options to purchase shares of our
common stock. The members of the scientific advisory board are as follows:
<TABLE>
<CAPTION>
ADVISOR INSTITUTION
- ------------------------------------------------------------------------------------------------
<S> <C>
Walter Ling, MD, Chairman University of California, Los Angeles
Jean Ades, MD Louis Mourier Hospital, Paris
Dominique Blanchard, PhD Establissement de Transfusion Sanguine,
Nantes
Herve Galons, PhD University of Paris V, Paris
Kim D. Janda, PhD The Scripps Research Institute, La Jolla
Reese Jones, MD University of California, San Francisco
George Koob, PhD The Scripps Research Institute, La Jolla
Charles O'Brien, MD University of Pennsylvania, Philadelphia
Jean-Marc Rouzioux, MD, PhD, LD Aventis Pasteur, Lyon
</TABLE>
EMPLOYEES
As of March 6, 2000, we employed 19 persons, four of whom hold PhD or MD degrees
and one who holds another advanced degree. Approximately seven employees are
engaged in management or administration, one in business development, one in
finance, one in marketing and sales, one in regulatory affairs and quality
assurance, and six are involved in research and clinical development. Our
success will depend in large part upon our ability to attract and retain
employees. We face competition in this regard from other companies, research and
academic institutions, government entities and other organizations. We believe
that we maintain good relations with our employees.
FACILITIES
We sublease an office facility in Menlo Park, California that is approximately
1,500 square feet for $4,500.00 per month that we use as our headquarters and as
the base for our operations. The sublease expires on September 30, 2000. We rent
laboratory space in Paris, France and also intend to lease a facility in Paris
that is approximately 1,700 square feet. Under the terms of this lease, we will
pay rent of approximately $3,400 per month beginning July 1, 2000. We believe
that our current facilities will be adequate to meet our near-term space
requirements. We also believe that suitable additional space will be available
to us, when needed, on commercially reasonable terms.
ORGANIZATION
We were incorporated in the state of California in 1993. We have a wholly-owned
subsidiary, DrugAbuse Sciences, SAS, incorporated under the laws of France.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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Management
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers, directors and key employees as of
March 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND KEY
EMPLOYEES
Philippe Pouletty, MD..................... 41 Chairman of the Board and Chief Executive
Officer
Elizabeth M. Greetham..................... 50 Chief Financial Officer, Senior Vice
President, Business Development, Secretary
and Director
James W. Elder............................ 47 Senior Vice President, Marketing and Sales
Jason A. Gross, PharmD.................... 35 Vice President, Regulatory Affairs and
Quality Assurance
Maryvonne Hiance.......................... 51 General Manager of European Operations
Jacques Kusmierek, MD..................... 57 Deputy General Manager of European
Operations, Senior Vice President European
Development
David E. Smith, MD........................ 60 Medical Director and Director
Donald R. Wesson, MD...................... 58 Vice President, Clinical Development
Raffy Kazandjian(2)....................... 40 Director
Fred P. Phillips IV(2).................... 35 Director
Russell Ricci(1).......................... 53 Director
Gordon Russell(2)......................... 66 Director
Vincent Worms(1).......................... 47 Director
</TABLE>
- ---------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
PHILIPPE POULETTY, MD Dr. Pouletty is our founder and has served as our
Chairman of the Board since 1993 and chief executive officer since December
1999. In 1988, Dr. Pouletty founded SangStat Medical Corporation (NASDAQ: SANG),
the only specialty pharmaceutical company dedicated to organ transplantation
which received FDA approval for two new drugs in 1998. Dr. Pouletty served as
President, CEO and a director of SangStat from 1988 to 1995. From 1995 to 1998
he served as Chairman and CEO and is presently the Chairman. He is also a member
of the board of Conjuchem, a private biotechnology company. Before founding
SangStat, Dr. Pouletty co-founded Clonatec, a French biotechnology company,
where he was the director of research from 1984 to 1988. From 1981 to 1984,
Dr. Pouletty was Interne des Hospitaux de Paris and practiced hematology and
immunology at two of Paris' leading hospitals. He is the inventor of 22 issued
US patents, co-author of 41 published scientific papers and a member of the
American Society of Addiction Medicine. Dr. Pouletty received his M.D. degree
from the University of Paris VI and immunology and virology degrees (M.S.) at
Institut Pasteur. He was a post-doctoral fellow at Stanford University in the
Department of Medical Microbiology and Immunology.
ELIZABETH M. GREETHAM Ms. Greetham joined us in 1998 as a member of the board
of directors and in April 1999 assumed the position of Chief Financial Officer
and Senior Vice President, Business Development. From 1988 to 1999,
Ms. Greetham was a portfolio manager for Weiss, Peck & Greer,
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an institutional investment management firm. She managed the WPG Life Sciences
Funds, L.P., which invested in select biotechnology stocks. Prior to that,
Ms. Greetham was a consultant to F. Eberstadt & Co. She has over 25 years of
investment experience as a portfolio manager and health care analyst in the
United States and Europe. She is a member of the Board of Directors of Guilford
Pharmaceuticals, SangStat Medical Corporation, PathoGenesis Corporation and
CliniChem Development Inc., all publicly traded companies. Ms. Greetham earned
an MA (Hons.) from the University of Edinburgh, Scotland.
JAMES W. ELDER Mr. Elder joined us in January 2000, to become our Senior Vice
President, Marketing and Sales. For the past twenty-one years, he has held
numerous management positions at Mallinckrodt Incorporated, a pharmaceutical
company that manufactures controlled substances in bulk. Mr. Elder was most
recently Business Director of the Addiction Treatment Business Unit, where he
was responsible for developing products and services for addiction treatment
clinics, including a methadone clinic computer, sales of methadone and
naltrexone pharmaceuticals and bulk methadone, and retail sales of generic
analgesics. Other positions held by Mr. Elder at Mallinkrodt include Marketing
Manager of the Pharmaceutical Dosage Products and Drug Chemicals Divisions,
Quality Assurance Manager, and Senior Business Manager. Prior to joining
Mallinckrodt, Mr. Elder worked as a Research Chemist for the Protein Research
Division of Ralston Purina. Mr. Elder earned an MBA at the Southern Illinois
University and received his Bachelor of Arts in Chemistry from the University of
Missouri-Columbia.
JASON A. GROSS, PHARMD Mr. Gross joined us in January 2000 to become our Vice
President, Regulatory Affairs and Quality Assurance. From 1997 until 2000, he
was the director of State, Federal and International regulatory affairs at
Zenith/Goldline Pharmaceuticals, a subsidiary of IVAX Corporation. From 1992 to
1997 Dr. Gross was an officer in the Public Health Service assigned to the Food
and Drug Administration, Center for Drug Evaluaion and Research (CDER). He
served in various regulatory capacities including Chief Consumer Safety Officer
for the Office of Generic Drugs; Division of Bioequivalence, Manager of the
Domestic Preapproval Inspection Process and was assigned to the Office of the
Commissioner at the US Food and Drug Administration, to work on issues
associated with the tobacco initiative and homeopathic medications. Dr. Gross
studied Marketing and Management at Pima Community College and received his
Doctor of Pharmacy from the University of Arizona, after which he completed a
post Doctorate specialized residency in Ambulatory Care at the National
Institutes of Health.
MARYVONNE HIANCE Ms. Hiance joined us as General Manager of our European
operations in 1997. She served as President of Sangstat Atlantique, Sangstat's
European subsidiary from 1990 to 1992. She was co-founder from 1991 to 1996, of
Demeter Innovation, a French consulting company where she was manager from 1991
to 1993. Ms. Hiance was General Manager of Strategic Ventures, a company focused
on organizing and financing the international growth of European companies, from
1993 to 1997. She holds an Engineering degree from the 'Ecole Polytechnique
Feminine', Paris and a Nuclear Engineering degree from the 'Institut des
Sciences et Techniques', Grenoble.
JACQUES KUSMIEREK, MD Dr. Kusmierek joined us in January 2000 as Deputy General
Manager of European Operations and Senior Vice President of European
Development. From 1990 to 1999, he served in several positions at Sanofi
Pharmaceuticals in Paris, France. From 1996 to 1999 he served as Vice President
and Chief Executive Medical Officer of Human Health Worldwide, where he was
responsible for establishing the new Medical Affairs division which included
Health Economics and Outcome Research, Pricing and Reimbursement. From 1990 to
1996 he was Executive Vice President of Research and Director of International
Clinical Development, a division he started and managed for six years.
Dr. Kusmierek has held medical director and clinical research positions at Eli
Lilly, Rhone
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Poulenc and Boehringer Ingelheim in both the US and Europe. Dr. Kusmierek
received his M.D. degree from the University of Rene Descartes in Paris, France.
He is a board-certified cardiologist and completed additional training in
clinical pharmacology at the University of Pierre and Marie Curie.
DAVID E. SMITH, MD Dr. Smith is our Medical Director and a member of our
Scientific Advisory Board, positions he has held since 1998. Dr. Smith founded
the Haight Ashbury Free Clinics in the San Francisco area in 1967 and has been
the President and Medical Director from inception. He serves as medical director
for several organizations including the California State Department of Alcohol
and Drug Programs at the University of California in San Francisco (UCSF). Dr.
Smith has been an author and advisor of more than 300 articles, books, and films
and has been an investigator in numerous clinical trials of addiction
treatments. He served as President of the American Society of Addiction Medicine
(ASAM) from 1995 to 1997 and also served as President of the California Society
of Addiction Medicine (CSAM). He is also a member of the Clinical Review Board
for the National Institute on Drug Abuse (NIDA). In 1967, Dr. Smith founded the
Journal of Psychoactive Drugs, where he currently serves as Executive Editor.
Dr. Smith received a M.S. in pharmacology and his M.D. from the University of
California, San Francisco.
DONALD R. WESSON, MD Dr. Wesson joined us in January 1998 as a member of our
Scientific and Medical Advisory Board, and in October 1999 he was appointed Vice
President, Clinical Development. Dr. Wesson has been the Scientific Director of
Friends Research Associates in Berkeley, California, a collaborative group of
researchers dedicated to expanding the treatment options for addiction care. He
has been the principal investigator for 11 clinical trials sponsored by the
National Institute on Drug Abuse (NIDA), and 10 clinical trials sponsored by the
pharmaceutical industry. Since 1997, Dr. Wesson has served as the Chairman of
the American Society of Addiction Medicine's (ASAM) Medications Development
Committee. He has written more than 100 articles, book chapters, and books
concerning drug abuse and its treatment and is on the editorial board of several
journals including the Journal of Psychoactive Drugs and the Journal of
Addictive Diseases. Dr. Wesson received his M.D. at the Medical College of
Alabama and is a board-certified psychiatrist.
RAFFY KAZANDJIAN Mr. Kazandjian joined our board of directors in March 1998. He
is currently the Investment Director at CDC-Innovation, a venture-capital firm
he joined in 1996. He has extensive knowledge in the area of life sciences
investments and information technology. Mr. Kazandjian currently serves on the
boards of directors of several European and North American pharmaceutical and
biotechnology and internet companies, including Thallia Pharmaceuticals,
Neurotech, and Quantum Biotechnologies. Mr. Kazandjian is a graduate of
Massachusetts Institute of Technology, with an MBA from INSEAD in Paris, and
started his career with the P&G Company.
FRED P. PHILLIPS IV Mr. Phillips joined our Board of Directors in
October 1999. Since November 1997, Mr. Phillips has invested in technology
companies on behalf of ABN AMRO NV, an investment firm in the Netherlands.
Mr. Phillips is presently a director of several privately held technology
companies in the United States and Europe. Mr. Phillips holds a B.S. in
economics from Cornell University, a M.St. in philosophy from Oxford University,
and a J.D. from Yale University.
RUSSELL J. RICCI, MD Dr. Ricci joined our board of directors in January 2000
and is the General Manager of IBM's Healthcare Industry leading a team
developing information technology and e-business solutions to payors, providers
and pharmaceutical companies. Prior to joining IBM, he held a number of
executive and clinical positions with other organizations, including Voluntary
Hospitals of America (VHA), and New Health Ventures at Blue Cross and Blue
Shield of Massachusetts, where he served as President. Dr. Ricci received his
undergraduate degree from Columbia University and his M.D. from New York
University and is a former associate chairman and assistant clinical professor
at Boston University School of Medicine.
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GORDON RUSSELL Mr. Russell joined our board of directors in December 1998, and
was formerly a general partner at Sequoia Capital, a venture capital firm he
joined in 1979. At Sequoia he developed the partnership's original healthcare
investments in companies such as Acuson, Ventritex, SangStat Medical
Corporation, and Biotrack. Mr. Russell is a Chairman of Fusion Medical
Technologies, a publicly traded company. He is a Chairman of the Board of
Overseers of the Dartmouth Medical School and the C. Everett Koop Institute at
Dartmouth. He also sits on the Board of Trustees of the Palo Alto Medical
Foundation. Mr. Russell has an A.B. in History from Dartmouth College.
VINCENT WORMS Mr. Worms joined our board of directors in July 1994, and is
currently a General Partner at Partech International a venture capital firm he
jointly founded in 1982. His 17 years of investment experience have been
concentrated in the computer and CAD/CAE areas, and now predominantly in the
software industry. Mr. Worms is presently a director of Business Objects,
SangStat Medical Corporation, Visioneer and Informatica. He has a MS in Civil
Engineering from the Massachusetts Institute of Technology and a MS in
engineering from Ecole Polytechnique in Paris.
BOARD OF DIRECTORS
We currently have authorized eight directors. All of our officers serve at the
discretion of the board of directors. There are no family relationships among
our directors and officers.
BOARD COMMITTEES
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding all forms of compensation provided to our
executive officers and directors, including stock compensation and loans. In
addition, the compensation committee reviews and makes recommendations on bonus
and stock compensation arrangements for all of our employees. As part of these
responsibilities, the compensation committee also administers our 2000 Stock
Incentive Plan, 2000 Employee Stock Purchase Plan and 2000 Directors' Option
Plan. The current members of the compensation committee are Vincent Worms and
Russell Ricci.
The audit committee of the board of directors reviews and monitors our corporate
financial reporting and our external audits, the results and scope of the annual
audit and other services provided by our independent auditors and our compliance
with legal matters that have a significant impact on our financial reports. The
audit committee also consults with management and our independent auditors
before the presentation of financial statements to shareholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, our independent
auditors. The current members of the audit committee are Fred Phillips, Gordon
Russell, and Raffy Kazandjian.
DIRECTOR COMPENSATION
We do not currently provide our directors with cash compensation for their
services as members of the board of directors, although members are reimbursed
for some expenses in connection with attendance at board and committee meetings.
On December 15, 1999, all non-employee directors, including Gordon Russell,
David Smith, Vincent Worms, Raffy Kazandijian, Fred Phillips, and Russell Ricci
were granted a stock option for 33,333 shares at $0.45. The directors will vest
in 25% of the shares subject to their options after 12 months of continuous
service as directors after their grant date; the remaining shares vest equally
over the next 36 months of continuous service. Following this offering,
directors will receive automatic option grants under our 2000 Directors' Option
Plan. A non-employee director who first joins our board following the offering
will receive an option for 20,000 shares of our common stock. Twenty-five
percent of the shares subject to this initial option vest after 12 months of
continuous service as a director; the remaining shares vest equally over the
next 36 months of
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continuous service. At each annual meeting of shareholders, beginning in 2001,
all non-employee directors who will continue to be board members after the
annual meeting will receive an option for 5,000 shares of our common stock,
which will vest after 12 months of continuous service after the grant date. In
no event will a non-employee director receive an option for 5,000 shares in the
same calendar year that he or she receives the option for 20,000 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Vincent Worms and Russell Ricci. 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, and no
interlocking relationship has existed in the past, except that Elizabeth
Greetham and Vincent Worms serve on the compensation committee of SangStat
Medical Corporation, a publicly traded company, in which Philippe Pouletty
serves as the Chairman of the Board.
EXECUTIVE COMPENSATION
The following table presents information on compensation for fiscal year 1999
paid by us for services by our current chief executive officer, our former chief
executive officer, and our executive officers, collectively referred to as the
Named Executive Officers.
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS(#)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D.... -- -- -- -- 726,656
Chairman of the Board,
Chief Executive Officer
and President
Elizabeth M. Greetham..... -- -- -- 2,200 480,553
Chief Financial Officer,
Senior Vice President,
Business Development and
Director
James W. Elder(1)......... -- -- -- -- --
Senior Vice President,
Marketing and Sales
Maryvonne Hiance.......... 60,000 -- -- -- 25,000
General Manager of
European Operations
Stanley Kaplan, Ph.D.(2)... 175,000 8,033 36,526 -- --
Former Chief Executive
Officer and Former
President
</TABLE>
- ---------
(1) Mr. James W. Elder began serving as our Senior Vice President, Marketing and
Sales on January 19, 2000.
(2) Dr. Kaplan ceased to serve as Chief Executive Officer as of December 26,
1999. He continued to serve as President until December 31, 1999.
Dr. Kaplan currently provides consulting services and will provide these
services until April 9, 2000. Other annual compensation for Mr. Kaplan
includes a severance payment of $30,834 and $5,692 in accrued vacation.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options we granted during fiscal year
1999 to each of our Named Executive Officers. Generally these stock options are
immediately exercisable. We have the right to repurchase all unvested shares at
the original exercise price if the optionee's service terminates. Each of the
options has a ten-year term, subject to earlier termination if the optionee's
service terminates.
The percentages in the column entitled "Percent of total options granted to
employees in 1999" are based on an aggregate of 1,721,210 options granted under
the 1994 Stock Plan, the 1999 Stock Plan A, and the 1999 Stock Plan B during the
12 months ended December 31, 1999.
The amounts listed in the following table under the heading "Exercise price"
were valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account the purchase price
paid by investors for shares of our preferred stock (taking into account the
liquidation preferences and other rights, privileges and preferences associated
with such preferred stock) and an evaluation by the board of directors of our
revenues, operating history and prospects. The exercise price may be paid in
cash, in shares of our common stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. We may also finance the option exercise by lending the
optionee sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with the exercise.
We calculated the amounts listed in the following table under the heading
"Potential realizable value at assumed annual rates of stock price appreciation
for option term" based on the ten-year term of the option at the time of grant.
For purposes of these columns, we assumed stock price appreciation of 5% and 10%
pursuant to rules promulgated by the Securities and Exchange Commission. These
rates do not represent our prediction of our stock price performance. We
calculated the potential realizable values at 5% and 10% appreciation by
assuming that the estimated fair market value on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. Information on how we determined the fair market value of our
common stock is disclosed in the preceding paragraph. The price to the public in
this offering is higher than the estimated fair market value on the date of
grant. Therefore, the potential realizable value of the option grants would be
significantly higher than the
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- --------------------------------------------------------------------------------
numbers shown in the column if future stock prices were projected to the end of
the option term by applying the same annual rates of stock price appreciation to
the public offering price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION (IN THOUSANDS)
NAME GRANTED (#) IN 1999 ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D...... 106,709(1) 6.20% $0.30 09/27/2009 $20,133 $51,020
619,947(2) 36.02 0.45 12/14/2009 175,447 444,616
Elizabeth M. Greetham....... 108,585(3) 6.31 0.30 04/06/2009 20,487 51,917
371,968(4) 12.61 0.45 12/14/2009 105,268 266,770
James Elder................. -- -- -- -- -- --
Maryvonne Hiance............ 25,000(5) 1.45 0.30 07/12/2009 4,717 11,953
Stanley Kaplan, PhD......... -- -- -- -- -- --
</TABLE>
- ---------
(1) Dr. Pouletty's option grant vests 25% upon completion of 12 months of
service from the vesting start date and the balance equally over the next
36 months of service. This option will become fully vested upon a change in
control before Dr. Pouletty's service terminates.
(2) Dr. Pouletty's option grant vests for 30% of the shares equally over 36
months of services and for 70% at the end of his sixth year of service, with
potential vesting acceleration upon the attainment of specific milestones.
This option will become fully vested upon a change in control.
(3) Ms. Greetham's option grant vests at the end of her sixth year of service,
with potential vesting acceleration upon the attainment of specific
milestones.
(4) Ms. Greetham's option grant vests at the end of her sixth year of service,
with potential vesting acceleration upon the attainment of specific
milestones. This option will become partially vested upon a change in
control.
(5) Ms. Hiance's option grant vests as follows: 25% of the shares vest equally
over four years and the balance at the end of her sixth year of service,
with acceleration upon the attainment of specific milestones.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth for each of our Named Executive Officers the
number of options exercised during the fiscal year ended December 31, 1999 and
the number and value of securities underlying unexercised options that are held
by the Named Executive Officers as of December 31, 1999. No stock appreciation
rights were exercised by our Named Executive Officers in fiscal year 1999, and
no stock appreciation rights were outstanding at the end of that year.
The numbers in the column entitled "Value Realized" are equal to the fair market
value of the purchased shares on the option exercise date, less the exercise
price paid for such shares. Generally, these stock options are immediately
exercisable. We have the right to repurchase all unvested option shares at the
original exercise price if the optionee's service terminates. The heading
"Vested" refers to shares no longer subject to our right of repurchase; the
heading "Unvested" refers to shares subject to our right of repurchase as of
December 31, 1999.
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The numbers in the column entitled "Value of unexercised in-the-money options at
December 31, 1999" are based on the value of our common stock at December 31,
1999, as determined by our board of directors, $0.45, less the exercise price
payable or paid for such shares. The fair market value of our common stock at
December 31, 1999 was estimated by the board of directors on the basis of the
purchase price paid by investors for shares of our preferred stock (taking into
account the liquidation preferences and other rights, privileges and preferences
associated with the preferred stock) and an evaluation by the board of our
revenues, operating history and prospects. The price to the public in this
offering is higher than the estimated fair market value at December 31, 1999.
Consequently, the value of unexercised options would be higher than the numbers
shown in the table if the value were calculated by subtracting the option
exercise price from the public offering price.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED ON VALUE 1999 (#) 1999 ($)
NAME EXERCISE (#) REALIZED ($) VESTED UNVESTED VESTED UNVESTED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D....... 726,656 16,006 -- -- -- --
Elizabeth M. Greetham........ 480,553 16,288 -- -- -- --
James Elder.................. -- -- -- -- -- 0
Maryvonne Hiance............. -- -- 10,417 39,583 260 990
Stanley Kaplan, PhD.......... 48,684 7,303 -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
As a condition to employment, each employee must execute our Employee
Confidentiality Information and Inventions Agreement. In addition, all of our
current employees have entered into arrangements with us which contain
restrictions and covenants. These provisions include covenants relating to the
protection of our confidential information, the assignment of inventions, and
restrictions on competition and soliciting our clients, employees, or
independent contractors. None of our US employees are employed for a specified
term, and each employee's employment with us is subject to termination at any
time by either party for any reason, with or without cause. Our French employees
are also at-will employees but are subject to the employment laws of France,
including notice provisions and other restrictions regulating the termination of
employment.
We have entered into an agreement dated December 26, 1999, with Dr. Stanley
Kaplan, our former Chief Executive Officer and President. On his termination
date, December 31, 1999, we paid Dr. Kaplan $30,834, which was equal to two
months of his base salary, and $5,692, which represented his accrued vacation.
In addition, the severance agreement confirms that Dr. Kaplan is vested in
48,683 shares of the 182,562 shares under his stock option granted September 8,
1998. Dr. Kaplan will provide us with consulting services from January 10, 2000
until April 9, 2000, for a salary of $7,800 per month for 20 hours of work per
week.
We have entered into an employment agreement dated December 27, 1999, with James
W. Elder, our Senior Vice President, Marketing and Sales, North America, which
provides for an initial annual base salary of $140,000 and a potential bonus of
up to 25% of base salary subject to meeting specific milestones and
participation in our employee benefit plans. We will pay reasonable moving
expenses, up to $20,000. If Mr. Elder is terminated without cause during the
first five years with us and if the total value of Mr. Elder's vested stock
options is lower than $140,000, we will pay Mr. Elder six months of severance
payments equal to his starting monthly salary. These payments will cease before
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MANAGEMENT
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the end of the six months if Mr. Elder accepts a new full time position or the
value of his vested options exceeds $140,000. If Mr. Elder is terminated without
cause after the fifth anniversary of employment, we will pay Mr. Elder a
severance of two months salary.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our directors
and officers that would require us to indemnify them against liabilities that
may arise by reason of their status or service as directors or officers and to
advance their expenses incurred as a result of any proceeding against them.
However, we will not indemnify directors or officers with respect to liabilities
arising from willful misconduct of a culpable nature. For more information
concerning these agreements, see "Description of securities--limitation of
liabilities and indemnification matters."
STOCK PLANS
2000 STOCK INCENTIVE PLAN
SHARE RESERVE
Our board of directors adopted our 2000 Stock Incentive Plan on January 13,
2000, subject to shareholder approval. We have reserved 750,000 shares of our
common stock for issuance under the 2000 Stock Incentive Plan. Any shares not
yet issued under our 1994 Stock Plan and 1999 Stock Plans on the date of this
offering will also be available under the 2000 Stock Incentive Plan. On
January 1 of each year, starting with the year 2001, the number of shares in the
reserve will automatically increase by 6% of the total number of shares of
common stock that are outstanding at that time or by 2,000,000 shares, whichever
is less. In general, if options or shares awarded under the 2000 Stock Incentive
Plan or the 1994 or 1999 Stock Plans are forfeited, then those options or shares
will again become available for awards under the 2000 Stock Incentive Plan. We
have not yet granted any options under the 2000 Stock Incentive Plan.
ADMINISTRATION
The compensation committee of our board of directors administers the 2000 Stock
Incentive Plan. The committee has the complete discretion to make all decisions
relating to the interpretation and operation of our 2000 Stock Incentive Plan.
The committee has the discretion to determine who will receive an award, what
type of award it will be, how many shares will be covered by the award, what the
vesting requirements will be (if any), and what the other features and
conditions of each award will be. The compensation committee may also reprice
outstanding options and modify outstanding awards in other ways.
ELIGIBILITY
The following groups of individuals are eligible to participate in the 2000
Stock Incentive Plan:
- - Employees;
- - Members of our board of directors who are not employees; and
- - Consultants.
TYPES OF AWARD
The 2000 Stock Incentive Plan provides for the following types of awards:
- - Incentive stock options to purchase shares of our common stock;
- - Nonstatutory stock options to purchase shares of our common stock; and
- - Restricted shares of our common stock.
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OPTIONS
An optionee who exercises an incentive stock option may qualify for favorable
tax treatment under Section 422 of the Internal Revenue Code of 1986.
Nonstatutory stock options, however, do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the 2000
Stock Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 50% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
- - Cash;
- - Shares of common stock that the optionee already owns;
- - A full-recourse promissory note;
- - An immediate sale of the option shares through a broker designated by us; or
- - A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee. In
most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
2000 Stock Incentive Plan provides that no participant may receive options
covering more than 1,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 2,000,000 shares in the first year
of employment.
RESTRICTED SHARES
Restricted shares may be awarded under the 2000 Stock Incentive Plan in return
for:
- - Cash;
- - A full-recourse promissory note; or
- - Services provided to us.
Restricted shares vest at the time or times determined by the compensation
committee.
CHANGE IN CONTROL
If a change in control of DrugAbuse Sciences occurs, an option or restricted
stock award under the 2000 Stock Incentive Plan may vest on an accelerated basis
to the extent determined by the compensation committee. The compensation
committee may determine that outstanding grants will vest in full or in part at
the time of the change in control. It may also determine that the grants will
vest on an accelerated basis only if the participant is actually or
constructively discharged within a specified period of time after the change in
control. Finally, the committee may determine that the grants will remain
outstanding without acceleration of vesting. However, if the surviving
corporation fails to assume an outstanding option or replace it with a
comparable option, then the option will always become fully vested as a result
of the change in control. A change in control includes:
- - A merger of DrugAbuse Sciences after which our own shareholders own 50% or
less of the surviving corporation (or its parent company);
- - A sale of all or substantially all of our assets;
- - A proxy contest that results in the replacement of more than one-half of our
directors over a 24-month period; or
- - An acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to our company (such as a holding company
owned by our shareholders).
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AMENDMENTS OR TERMINATION
Our board may amend or terminate the 2000 Stock Incentive Plan at any time. If
our board amends the plan, it does not need to ask for shareholder approval of
the amendment unless applicable law requires it. The 2000 Stock Incentive Plan
will continue in effect for 10 years, unless the board decides to terminate the
plan earlier.
2000 EMPLOYEE STOCK PURCHASE PLAN
SHARE RESERVE AND ADMINISTRATION
Our board of directors adopted our 2000 Employee Stock Purchase Plan on
January 13, 2000, subject to shareholder approval. Our 2000 Employee Stock
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code. We have reserved 375,000 shares of our common stock for issuance under the
plan. On May 1 of each year, starting with the year 2001, the number of shares
in the reserve will automatically be restored to 375,000. In other words, the
reserve will be increased by the number of shares that have been issued under
the 2000 Employee Stock Purchase Plan during the prior 12-month period. The plan
will be administered by the compensation committee of our board of directors.
ELIGIBILITY
All of our employees are eligible to participate if they are employed by us for
more than 20 hours per week and for more than five months per year. Eligible
employees may begin participating in the 2000 Employee Stock Purchase Plan at
the start of any offering period. Each offering period lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on April 30, 2002.
AMOUNT OF CONTRIBUTIONS
Our 2000 Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions may
not exceed 15% of the employee's salary and commissions. Purchases of our common
stock will occur on April 30 and October 31 of each year. Each participant may
purchase up to 2,000 shares on any purchase date (4,000 shares per year). But
the value of the shares purchased in any calendar year (measured as of the
beginning of the applicable offering period) may not exceed $25,000.
PURCHASE PRICE
The price of each share of common stock purchased under our 2000 Employee Stock
Purchase Plan will be 85% of the lower of:
- - The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- - The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
- - The price per share to the public in this offering, or
- - The fair market value per share of common stock on the purchase date.
OTHER PROVISIONS
Employees may end their participation in the 2000 Employee Stock Purchase Plan
at any time. Participation ends automatically upon termination of employment
with DrugAbuse Sciences. If a change in control of DrugAbuse Sciences occurs,
our 2000 Employee Stock Purchase Plan will end and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
the plan is assumed by the surviving corporation or its parent. Our board of
directors may
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MANAGEMENT
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amend or terminate the plan at any time. If our board increases the number of
shares of common stock reserved for issuance under the plan (except for the
automatic increases described above), it must seek the approval of our
shareholders. The 2000 Employee Stock Purchase Plan will continue in effect for
10 years, unless the board decides to terminate the plan earlier.
2000 DIRECTORS' OPTION PLAN
SHARE RESERVE
Our board of directors adopted our 2000 Directors' Option Plan on January 13,
2000, subject to shareholder approval. We have reserved 200,000 shares of our
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2001, the number of shares in the reserve will automatically be
restored to 200,000. In other words, the reserve will be increased by the number
of shares that have been optioned under the 2000 Directors' Option Plan during
the prior 12-month period. In general, if options granted under the 2000
Directors' Option Plan are forfeited, then those options will again become
available for grants under the plan. The Directors' Option Plan will be
administered by the compensation committee of our board of directors, although
all grants under the plan are automatic and non-discretionary.
INITIAL GRANTS
Only the non-employee members of our board of directors will be eligible for
option grants under the 2000 Directors' Option Plan. Each non-employee director
who first joins our board after the effective date of this offering will receive
an initial option for 20,000 shares. That grant will occur when the director
takes office. The initial options vest in equal monthly installments over the
four-year period following the date of grant, except that all vesting for the
first year occurs at the close of that year.
ANNUAL GRANTS
At the time of each of our annual shareholders' meetings, beginning in 2001,
each non-employee director who will continue to be a director after that meeting
will automatically be granted an annual option for 5,000 shares of our common
stock. However, a new non-employee director who is receiving the 20,000-share
initial option will not receive the 5,000-share annual option in the same
calendar year. The annual options vest in full one year following the date of
grant.
OTHER OPTION TERMS
The exercise price of each non-employee director's option will be equal to the
fair market value of our common stock on the option grant date. A director may
pay the exercise price by using cash, shares of common stock that the director
already owns, or an immediate sale of the option shares through a broker
designated by us. The non-employee directors' options have a 10-year term,
except that they expire one year after a director leaves the board (if earlier).
If a change in control of DrugAbuse Sciences occurs, a non-employee director's
option granted under the 2000 Directors' Option Plan will become fully vested
(unless the accounting rules applicable to a pooling of interests preclude
acceleration). Vesting also accelerates in the event of the optionee's death or
disability.
AMENDMENTS OR TERMINATION
Our board may amend or terminate the 2000 Directors' Option Plan at any time. If
our board amends the plan, it does not need to ask for shareholder approval of
the amendment unless applicable law requires it. The 2000 Directors' Option Plan
will continue in effect for 10 years, unless the board decides to terminate the
plan.
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<PAGE>
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Related party transactions
SALES OF SECURITIES
Since our inception in December 1993 through March 1, 2000, we have issued and
sold the following securities in private placement transactions:
- - 672,892 shares of our common stock for an aggregate price of $30,280 in
August 1994, in connection with the sale of our Series A preferred stock,
and accounting for a three for one stock split on November 15, 1994 and a
four-for-one stock split on June 14, 1996;
- - 375,556 shares of our Series A preferred stock for an aggregate price of
$499,489 in August, which accounts for a three for one stock split on
November 15, 1994 and a four-for-one stock split on June 14, 1996, resulting
in aggregate proceeds to us of $499,489;
- - 1,316,069 shares of Series B preferred stock for an aggregate price of
$3,284,995 in March 1997;
- - warrants to purchase 1,855,684 shares of our common stock in connection with
the sale of Series B preferred stock;
- - 932,456 shares of Series C preferred stock for an aggregate price of
$2,327,428 on March 1999;
- - 4,681,688 shares of Series D preferred stock for an aggregate price of
$22,314,874 on October 1999, includes the exchange of 1,849 shares of common
stock in DrugAbuse Sciences, SAS;
- - warrants to purchase 374,519 shares of Series D preferred stock in
connection with the sale of Series D preferred stock.
All preferred stock was issued to various venture capital and other
institutional investors in reliance upon exemption from registration under
Section 4(2) of the Securities Act. All shares issued upon exercise of options
were issued to employees and consultants in reliance upon exemption from
registration under Rule 701 of the Securities Act. All shares of common stock
issued to one of our executive officers were issued in reliance upon exemption
from registration under Section 4(2) of the Securities Act. None of the
institutional investors who negotiated the terms of these transactions were
affiliated with us prior to purchasing these shares.
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<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The purchasers of more than $60,000 of these securities include, among others,
the following executive officers, directors and holders of more than 5% of our
outstanding stock and their affiliates:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF
SHARES OF SERIES A SERIES B SERIES C SERIES D
EXECUTIVE OFFICERS, DIRECTORS COMMON PREFERRED PREFERRED PREFERRED PREFERRED TOTAL
AND 5% SHAREHOLDERS STOCK STOCK STOCK STOCK STOCK CONSIDERATION
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Philippe Pouletty..... 2,906,782(1) 20,032 52,083 16,784(2) $571,648
Elizabeth M. Greetham..... 487,886 60,096 31,470(3) 502,161
Gordon Russell(4)......... 297,846(5) 71,168 50,080 80,128 41,960(6) 626,350
Partech International(7)... 702,348(8) 179,844 300,479 122,060 270,853 2,600,432
CDC Innovation(9)......... 300,480 122,067 167,841(10) 1,854,680
ABN-Amro Capital Investments
Belgie N.V.(11)......... 433,750(12) 2,067,426
Nomura International PLC... 734,306(13) 3,499,999
Parnib Belgie N.V......... 591,641(14) 2,820,000
3i Group PLC.............. 986,517(15) 4,702,137
</TABLE>
- ---------
These figures assume the conversion of the shares of our French subsidiary,
DrugAbuse Sciences, SAS, into shares of our common stock.
(1) Includes 880,376 shares of our common stock issued pursuant to net exercise
of warrants at an exercise price of $0.30.
(2) Excludes warrants to purchase 1,342 shares of our Series D preferred stock
at an exercise price of $0.06.
(3) Excludes warrants to purchase 2,517 shares of our Series D preferred stock
at an exercise price of $0.06.
(4) Consists of: 247,526 shares of common stock, 71,168 shares of Series A
preferred stock, 50,080 shares of Series B preferred stock, 80,128 shares of
Series C preferred stock, 41,960 shares of Series D preferred stock, and
warrants to purchase 3,356 shares of Series D preferred stock held by Gordon
W. Russell, TTE Russell, 1988 Revocable Trust. Mr. Russell, one of our
directors, is the trustee of the Gordon Russell Trust.
(5) Includes 149,014 shares of our common stock issued pursuant to net exercise
of warrants at an exercise price of $0.30.
(6) Excludes warrants to purchase 3,356 shares of Series D preferred stock at an
exercise price of $0.06.
(7) Consists of:
- - 43,897 shares of common stock, 11,240 shares of Series A preferred stock,
9,754 shares of Series B preferred stock, and 3,962 shares of Series C
preferred stock held by Multinvest, an affiliate of Partech International;
- - 142,660 shares of common stock, 36,530 shares of Series A preferred stock,
67,802 shares of Series B preferred stock, and 27,538 shares of Series C
preferred stock held by Parvest Europe, an affiliate of Partech
International;
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<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
- - 428,001 shares of common stock, 109,594 shares of Series A preferred stock,
203,416 shares of Series B preferred stock, and 82,636 shares of Series C
preferred stock held by Parvest US, an affiliate of Partech International;
- - 63,779 shares of Series D preferred stock and warrants to purchase 5,102
shares of Series D preferred stock held by Axa US Growth Fund, a side fund
of Parvest US;
- - 86,648 shares of Series D preferred stock and warrants to purchase 6,931
shares of Series D preferred stock held Parallel Capital I LLC, a side fund
of Parvest US;
- - 120,426 shares of Series D preferred stock and warrants to purchase 9,634
shares of Series D preferred stock held Parallel Capital II LLC, a side fund
of Parvest US; and
- - 87,790 shares of common stock, 22,480 shares of Series A preferred stock,
19,507 shares of Series B preferred stock, and 7,924 shares of Series C
preferred stock held by Tradinvest, an affiliate of Partech International.
- - Mr. Vincent Worms, one of our directors, is a General Partner of Partech
International.
(8) Includes 353,126 shares of our common stock issued pursuant to net exercise
of warrants at an exercise price of $0.30.
(9) Mr. Raffy Kazandjian, one of our directors, is the Investment Director at
CDC Innovation.
(10) Excludes warrants to purchase 13,427 shares of Series D preferred stock at
an exercise price of $0.06.
(11) Consists of:
- - 433,750 shares of Series D preferred stock and warrants to purchase 34,700
shares of Series D preferred stock held by ABN-Amro Capital Investments
BELGIE N.V.
- - Mr. Fred Phillips IV, one of our directors, is affiliated with ABN-Amro
Capital Investments Belgie N.V.
(12) Excludes warrants to purchase 34,700 shares of Series D preferred stock at
an exercise price of $0.06.
(13) Excludes warrants to purchase 58,744 shares of Series D preferred stock at
an exercise price of $0.06.
(14) Excludes warrants to purchase 47,331 shares of Series D preferred stock at
an exercise price of $0.06.
(15) Excludes warrants to purchase 78,921 shares of Series D preferred stock at
an exercise price of $0.06.
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RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Shares by all affiliated persons and entities have been aggregated. Share
numbers and purchase price information are reflected on an as if converted into
shares of common stock basis. See "Principal shareholders" for more detail on
shares held by these purchasers.
In addition, we have granted options to some of our directors and executive
officers. See "Management--director compensation," "Management--executive
compensation" and "Principal shareholders."
We believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
Elizabeth Greetham and Vincent Worms serve on the compensation committee of
SangStat Medical Corporation, a publicly traded company, in which Philippe
Pouletty serves as the Chairman of the Board.
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64
<PAGE>
- --------------------------------------------------------------------------------
Principal shareholders
The following table presents selected information regarding beneficial ownership
of our outstanding common stock as of March 1, 2000 and as adjusted to reflect
the sale of the common stock being sold in this offering for:
- - each of our directors;
- - our executive officers listed in the "Summary compensation" table above;
- - all of our directors and executive officers as a group; and
- - each other person (or group of affiliated persons) who owns beneficially 5%
or more of our common stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES OUTSTANDING(1)(2)
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Five percent shareholders
Entities affiliated with Partech International (3) ........ 1,575,584 12.60% 9.55%
50 California street, Suite 3200
San Francisco, California 94111
3i Group PLC .............................................. 986,517 7.89 5.98
91 Waterloo Road
London SE1 8XP,
United Kingdom
Nomura .................................................... 734,306 5.87 4.45
Nomura House
1 St. Martin's-le-Grant
London EC1A 4NP
Parnib Belgie N.V. ........................................ 591,641 4.73 3.59
Uitbredingstraat 10/16
2600 Antwerpen
Belgium
CDC--Innovations .......................................... 590,388 4.72 3.58
Raffy Kazandjian
Tour Maine--Montparnasse
33 Avenue du Maine--B.P. 180
75755 Paris Cedex 15
France
</TABLE>
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65
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES OUTSTANDING(1)(2)
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Directors and named executive officers
Philippe Pouletty, M.D..................................... 2,995,681 23.96% 18.15%
Elizabeth M. Greetham...................................... 579,452 4.63 3.51
James W. Elder (4)......................................... 116,666 * *
Maryvonne Hiance (5)....................................... 61,404 * *
David E. Smith (6)......................................... 50,000 * *
Raffy Kazandjian (7)....................................... 623,722 4.99 3.78
Fred P. Phillips IV (8).................................... 723,630 5.79 4.39
Russell Ricci (9).......................................... 33,333 * *
Gordon Russell (10)........................................ 574,515 4.60 3.48
Vincent Worms (11)......................................... 1,634,076 13.07 9.90
All executive officers and directors 7,635,811 58.23 48.19
as a group (13 persons) (12).............................
</TABLE>
- ---------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Percentage ownership is based on 12,502,131 shares outstanding as of
January 20, 2000, including 7,305,769 shares of Common Stock issuable upon
conversion of all outstanding preferred stock at the closing of this
offering, net exercise of warrants to purchase 1,815,912 shares of Common
Stock, and conversion of DrugAbuse Sciences SAS shares into shares of our
Series D preferred stock. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of January 20, 2000 are
deemed outstanding for purposes of computing the percentage ownership of
the person holding such options but are not deemed outstanding for
computing the percentage ownership of any other person. Unless otherwise
indicated, the address for each listed shareholder is: c/o DrugAbuse
Sciences, Inc., 1430 O'Brien Drive, Menlo Park, CA 94025. To our knowledge,
except as indicated in the footnotes to this table and under applicable
community property laws, the persons or entities identified in this table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(2) Assumes the Underwriters' over-allotment is not exercised.
(3) Includes 274,530 shares owned by Parvest Europe, 823,647 shares owned by
Parvest US, 63,779 shares owned by Axa US Growth Fund, 86,648 shares owned
by Parallel Capital I LLC, 120,426 shares owned by Parallel Capital II LLC,
137,701 shares owned by Tradinvest, and 68,853 shares owned by Multinvest.
Mr. Worms, one of our directors, is a general partner and/or managing
member of the Partech International entities listed above. Mr. Worms
disclaims beneficial ownership of the shares held by the entities
affiliated with Partech International except to the extent of his pecuniary
interest therein.
(4) Includes 116,666 shares of common stock issuable upon exercise of
immediately exercisable options, 116,666 shares of which are subject to our
right of repurchase.
(5) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options, 39,075 shares of which are subject to our
right of repurchase.
(6) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options, 41,667 of which are subject to our right
of repurchase.
- --------------------------------------------------------------------------------
66
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
(7) Includes 590,388 shares owned by CDC-Innovation. Includes 33,333 shares of
common stock issuable upon exercise of immediately exercisable options,
33,333 of which are subject to our right of repurchase.
(8) Includes 433,750 shares owned by ABN-Amro Capital Investments Belgie, N.V.
Includes 33,333 shares of common stock issuable upon exercise of
immediately exercisable options, 33,333 of which are subject to our right
of repurchase.
(9) Includes 33,333 shares of common stock issuable upon exercise of
immediately exercisable options, 33,333 of which are subject to our right
of repurchase.
(10) Includes 490,862 shares owned by the Gordon Russell Trust. Includes 33,333
shares of common stock issuable upon exercise of immediately exercisable
options, 33,333 of which are subject to our right of repurchase
(11) Includes 1,575,584 shares owned by Partech entities. Includes 33,333
shares of common stock issuable upon exercise of immediately exercisable
options, 33,333 of which are subject to our right of repurchase.
(12) Includes options immediately exercisable for 609,996 shares, 599,071 of
which are subject to our right of repurchase.
- --------------------------------------------------------------------------------
67
<PAGE>
- --------------------------------------------------------------------------------
Description of securities
Upon the consummation of this offering, we will be authorized to issue
50,000,000 shares of common stock, and 5,000,000 shares of undesignated
preferred stock. The following is a summary description of our capital stock.
Our bylaws and our Amended and Restated Articles of Incorporation, to be
effective after the closing of this offering, provide further information about
our capital stock.
COMMON STOCK
As of January 20, 2000 there were 12,502,131 shares of common stock outstanding,
as adjusted to reflect the conversion of all outstanding shares of preferred
stock into common stock, the exercise of certain warrants, and the exchange of
all DrugAbuse Sciences SAS shares not owned by us for shares of our common stock
upon the closing of this offering. The preferred shares were held of record by
approximately 55 shareholders. There will be 16,502,131 shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
assuming no exercise after January 20, 2000 of outstanding options or warrants,
after giving effect to the sale of the shares of common stock to the public
offered in this prospectus.
The holders of common stock are entitled to one vote per share on all matters to
be voted upon by the shareholders. Subject to preferences that may be applicable
to any outstanding preferred stock, the holders of common stock are entitled to
receive dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available. See "Dividend policy." In the event of
our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. The common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
OPTIONS
As of January 20, 2000, options to purchase a total of 1,042,729 shares of
common stock were outstanding at a weighted average exercise price of $0.36.
Options to purchase a total of 1,656,417 shares of common stock may be granted
under our stock plans. Please see "Management--Stock plans" and "Shares eligible
for future sale."
WARRANTS
Immediately following the closing of this offering there will be outstanding
warrants to purchase a total of 374,519 shares of common stock at an exercise
price of $0.06 per share. The warrants are only exercisable if our valuation at
the expiration of the 180 day period following the closing of this offering is
not at least $150,000,000. This valuation target is based on the average of the
closing prices of our common stock for the twenty trading days ending on the
expiration of such 180 day period and does not include the sale of any shares
sold in this offering, including those that may be exercised by the underwriters
pursuant to their over-allotment option. The warrants expire 220 days following
the closing of this offering if it is not a qualifying IPO.
- --------------------------------------------------------------------------------
68
<PAGE>
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
PREFERRED STOCK
The board of directors has the authority, without action by the shareholders, to
designate and issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and related restrictions, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of the series. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of us
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of common stock. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. At
present, we have no plans to issue any of our preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 7,305,769 shares of common
stock will be entitled to rights with respect to the registration of these
shares under the Securities Act. Under the terms of the agreement between us and
the holders of these registrable securities, 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 registration and are entitled to include their shares
of common stock in the registration. Holders of 7,305,769 shares of the
registrable securities are also entitled to specified demand registration rights
under which they may require us to file a registration statement under the
Securities Act at our expense with respect to our shares of common stock, and we
are required to use our best efforts to effect this registration. Further, the
holders of these demand rights may require us to file additional registration
statements on Form S-3. All of these registration rights are subject to
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in the registration and our
right not to effect a requested registration within six months following the
initial offering of our securities, including this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Amended and Restated Articles of Incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law. Under California law, a director's liability
to a company or its shareholders may not be limited:
- - for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
- - for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence of
good faith on the part of the director;
- - for any transaction from which a director derived an improper personal
benefit;
- - for acts or omissions that show a reckless disregard for the director's duty
to the company or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing
the director's duties, of a risk of serious injury to the company or its
shareholders;
- - for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or its
shareholders;
- --------------------------------------------------------------------------------
69
<PAGE>
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
- - under Section 310 of the California General Corporation Law concerning
contacts or transactions between the company and a director; or
- - under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to us or our shareholders.
Our Articles of Incorporation also include an authorization for us to indemnify
our "agents," as defined in Section 317 of the California General Corporation
Law, through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, our Amended and Restated Bylaws
provide for indemnification of our directors, officers and employees. In
addition, we may, at our discretion, provide indemnification to persons whom we
are not obligated to indemnify. The Amended and Restated Bylaws also allow us to
enter into indemnity agreements with individual directors, officers, employees
and other agents. Indemnity agreements have been entered into with all directors
and certain executive officers and provide the maximum indemnification permitted
by law. We also intend to obtain directors' and officers' liability insurance.
These agreements, together with our Amended and Restated Bylaws and Amended and
Restated Articles of Incorporation, may require us, among other things, to
indemnify our directors and executive officers, other than for liability
resulting from willful misconduct of a culpable nature, and to advance expenses
to them as they are incurred, provided that they undertake to repay the amount
advanced if it is ultimately determined by a court that they are not entitled to
indemnification. Section 317 of the California General Corporation Law and our
Amended and Restated Bylaws and our indemnification agreements make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities, including reimbursement of expenses incurred, arising under the
Securities Act. We are not currently aware of any pending litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. Moreover, we are not
currently aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. We believe that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is EquiServ.
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
Shares eligible for future sale
Upon completion of this offering, we will have 16,502,131 shares of common stock
outstanding, assuming no exercise of options after January 20, 2000. Of these
shares, the 4,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares held by persons that directly or indirectly control, or are
controlled by, or are under common control with us, may generally only be sold
in compliance with the limitations of Rule 144 described below.
The remaining 12,502,131 shares of common stock are deemed restricted shares
under Rule 144. The number of shares of common stock available for sale in the
public market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of the shares have agreed not to sell or
dispose of any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Warburg Dillon Read. On the date
of this prospectus, no shares other than the 4,000,000 shares being sold in this
offering will be eligible for sale. Beginning 180 days after the date of this
prospectus, or earlier with the consent of Warburg Dillon Read, 7,539,786
restricted shares will become available for sale in the public market subject to
the limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock,
approximately 165,021 shares after giving effect to this offering, and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding this sale. Sales under Rule 144 of the
Securities Act are subject to restrictions relating to manner of sale, notice
and the availability of current public information about us. A person who is not
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of
Rule 144 of the Securities Act. However, the transfer agent may require an
opinion of counsel that a proposed sale of shares comes within the terms of
Rule 144 of the Securities Act before effecting a transfer of these shares.
Before this offering, there has been no public market for our common stock and
no predictions can be made of the effect, if any, that the sale or availability
for sale of shares of additional common stock will have on the market price of
our common stock. Nevertheless, sales of substantial amounts of these shares in
the public market, or the perception that these sales could occur, could
adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
As of January 20, 2000, options to purchase a total of 1,042,729 shares of
common stock, including 358,826 under the 1994 Stock Plan, 481,405 under the
1999 Stock Plan A, 202,498 under the 1999 Stock Plan B and 0 under the 2000
Stock Incentive Plan, were outstanding and exercisable. All of the shares
subject to options are subject to lock-up agreements. An additional 1,564,179
shares of common stock were available as of January 20, 2000 for future option
grants or direct issuances under the 2000 Stock Incentive Plan. In addition, in
January 20, 2000, 575,000 shares were reserved for issuance under our 2000
Employee Stock Purchase Plan and our 2000 Directors' Option Plan. See
"Management--Stock plans."
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71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Rule 701 under the Securities Act provides that shares of common stock acquired
on the exercise of outstanding options may be resold by persons other than our
affiliates, beginning 90 days after the date of this prospectus, subject only to
the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days
after the date of this prospectus, subject to all provisions of Rule 144 except
its one-year minimum holding period. We intend to file one or more registration
statements on Form S-8 under the Securities Act to register all shares of common
stock subject to outstanding stock options under our 1994 Stock Plan and our
1999 Stock Plans and all shares offered under the 2000 Stock Incentive Plan, the
2000 Employee Stock Purchase Plan and the 2000 Directors' Option Plan
approximately five days after the closing of this offering. This registration
statement is expected to become effective upon filing. Shares covered by this
registration statement will then be eligible for sale in the public markets,
subject to the lock-up agreements, if applicable.
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
Underwriting
We have entered into an underwriting agreement concerning the shares being
offered with the underwriters for the offering named below. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC and FleetBoston
Robertson Stephens Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC.....................................
FleetBoston Robertson Stephens Inc..........................
----------
Total...................................................
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 600,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional 600,000 shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Per Share................................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $1,500,000. Shares
sold by the underwriters to the public will initially be offered at the initial
public offering price set forth on the cover of this prospectus. Any shares sold
by the underwriters to securities dealers may be sold at a discount of up to
$ per share from the initial public offering price. Any of these securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at a discount of up to $ per share from the initial public
offering price. If all shares are not sold at the initial public offering price,
the representatives may change the offering price and the other selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
We and our directors, officers and certain of our shareholders have agreed with
the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of our common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, without the prior written consent of
Warburg Dillon Read LLC. This agreement does not apply to any securities issued
under existing employee benefit plans.
The underwriters have reserved for sale, at the initial public offering price,
up to 200,000 shares of our common stock being offered for sale to our customers
and business partners. At the discretion of our management, other parties,
including our employees, may participate in the reserved shares program. The
number of shares available for sale to the general public in the offering will
be reduced
- --------------------------------------------------------------------------------
73
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
to the extent these persons purchase reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives of the underwriters. The principal factors to be considered in
determining the public offering price include:
- - the information set forth in this prospectus and otherwise available to the
representatives;
- - our prospects for future earnings, the present state of our development, and
our current financial position;
- - the history and the prospects for the industry in which we compete;
- - the ability of our management;
- - the general condition of the securities markets at the time of this
offering; and
- - the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933 and to contribute to
payments that the underwriters may be required to make in respect thereof.
- --------------------------------------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
Legal matters
The validity of the common stock being offered will be passed upon for DrugAbuse
Sciences, Inc. by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California and for the underwriters by Brobeck, Phleger & Harrison
LLP, Broomfield, Colorado. Attorneys at Brobeck, Phleger & Harrison LLP
beneficially own, through an investment trust, 20,032 shares of our common
stock.
Experts
The consolidated financial statements as of December 31, 1998 and 1999 and for
each of the three years in the period ended December 31, 1999 and the for the
cumulative period from December 21, 1993 (date of inception) to December 31,
1999 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The statements in this prospectus relating to US and EU patent and other
intellectual property matters have been reviewed and approved by Raeventner Law
Group, our patent counsel, as experts on such matters and are included in this
prospectus in reliance upon that review and approval.
Bert Rowland, an attorney with Raeventner Law Group, beneficially owns 287,402
shares of our common stock.
Change in Independent Accountants
In January 2000, we engaged PricewaterhouseCoopers LLP as our independent
accountants to replace Deloitte & Touche LLP, who we dismissed as our
independent accountants effective December 1999. The report of Deloitte & Touche
LLP on our financial statements for the year ended 1998 and for the cumulative
period from December 21, 1993 (date of inception) to December 31, 1998, which is
not included herein and are not made part of the registration statement, did not
contain any adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with the audits of our financial statements for the fiscal year ended
December 31, 1998 and in the subsequent interim period preceding the dismissal
of Deloitte & Touche LLP there were no disagreements with Deloitte & Touche LLP
on any matters of accounting principles or practices, financial statements
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Deloitte & Touche LLP would have caused Deloitte & Touche LLP to
make a reference to the matter in their report. During the most recent fiscal
years and subsequent interim period preceding the dismissal of Deloitte & Touche
LLP, we have not been advised of any matters described in Regulation S-K,
Item 304(a)(1)(v) of the Securities Act, except that in 1999 Deloitte & Touche
LLP advised our Board of Directors in writing of certain significant
deficiencies in our internal controls noted in connection with their audit of
our 1998 financial statements, including, among other items, a lack of
comprehensive accounting and finance policies and procedures throughout our
organization, understaffing in our accounting department, and the non-timely
performance of account reconciliations, all of which conditions could adversely
affect our ability to prepare reliable financial statements. We requested that
Deloitte & Touche LLP furnish us with a letter addressed to the SEC stating
whether or not they agree with the above statements. A copy of such letter is
filed as an exhibit to the registration statement which includes this
prospectus.
Prior to engaging PricewaterhouseCoopers LLP as our new independent accountants,
we did not request any advice from PricewaterhouseCoopers LLP regarding any
matter related to accounting
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
practice or accounting principles; and we did not consult with
PricewaterhouseCoopers LLP regarding the type of audit opinion that might be
rendered by them or items that were or should have been subject to the AICPA's
Statement on Auditing Standards No. 50, "Reports on the Application of
Accounting Principles."
We have requested that PricewaterhouseCoopers LLP review the above disclosures
regarding our change in accountants and have given them the opportunity to
furnish us with a letter addressed to the SEC in which PricewaterhouseCoopersLLP
may include new information, clarify our statements on the change in accountants
or disclose the respects in which they disagree with the statements made by us
in this prospectus regarding our change in accountants. If
PricewaterhouseCoopers LLP elects to submit such a letter to the SEC, we will
file the letter as an exhibit to the registration statement when received.
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76
<PAGE>
- --------------------------------------------------------------------------------
Where you can find more information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being offered. This prospectus does not contain all of the information presented
in the registration statement and the exhibits to the registration statement.
For further information with respect to DrugAbuse Sciences and our common stock
we are offering, reference is made to the registration statement and the
exhibits filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
referred to may be only summaries of these documents. The exhibits to this
registration statement should be referenced for the complete contents of these
contracts and documents. Each statement is qualified in all respects by
reference to the exhibit. The registration statement, including the exhibits,
may be inspected without charge at the public reference facilities maintained by
the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part may be obtained from this office after payment of fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is http://www.sec.gov.
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77
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY (COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of DrugAbuse Sciences, Inc.
(a company in the development stage)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of DrugAbuse
Sciences, Inc. and its subsidiary (companies in the development stage) at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 and for
the cumulative period from December 21, 1993 (date of inception) to
December 31, 1999 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 6, 2000, except
as to the one-for-six reverse stock split
described in Note 1
which is as of March 24, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- DECEMBER 31,
1998 1999 1999
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $1,039,315 $19,224,906 $19,224,906
Grant receivable......................................... 416,040 1,014,638 1,014,638
Prepaid expenses and other current assets................ 135,248 372,628 372,628
----------- ------------ ------------
Total current assets................................... 1,590,603 20,612,172 20,612,172
Property and equipment, net................................ 297,445 314,981 314,981
Other assets............................................... 109,000 109,479 109,479
Goodwill................................................... -- -- 17,735,983
----------- ------------ ------------
Total assets........................................... $1,997,048 $21,036,632 $38,772,615
=========== ============ ============
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $436,625 $930,235 $930,235
Accrued liabilities...................................... 41,580 93,535 93,535
Current portion of long-term obligations................. 80,393 108,282 108,282
Current portion of capital lease obligations............. 32,870 48,857 48,857
----------- ------------ ------------
Total current liabilities.............................. 591,468 1,180,909 1,180,909
Long-term obligations...................................... 435,127 264,610 264,610
Long-term capital lease obligations........................ 107,963 103,179 103,179
----------- ------------ ------------
Total liabilities...................................... 1,134,558 1,548,698 1,548,698
----------- ------------ ------------
Commitments (Note 7)
Minority interest.......................................... -- 11,654,492 --
Shareholders' Equity:
Convertible preferred stock: $0.001 par value;
Shares authorized: 7,707,414
Shares issued and outstanding: 1,691,625 in 1998,
4,860,638 in 1999 and none pro forma................... 1,692 4,861 --
(Liquidation value: $16,772,132)
Common Stock: $0.001 par value;
Shares authorized: 85,000,000
Shares issued and outstanding: 2,116,726 in 1998,
3,380,450 in 1999 and 12,502,131 pro forma............. 1,457 2,721 10,027
Additional paid-in capital............................... 4,560,758 42,142,532 71,530,562
Deferred stock compensation.............................. (320,080) (14,409,691) (14,409,691)
Notes receivable from shareholders....................... -- (510,950) (510,950)
Accumulated other comprehensive loss..................... (9,304) (126,018) (126,018)
Deficit accumulated during the development stage......... (3,372,033) (19,270,013) (19,270,013)
----------- ------------ ------------
Total shareholders' equity............................. 862,490 7,833,442 $37,223,917
----------- ------------ ------------
Total liabilities, minority interest and
shareholders' equity............................... $1,997,048 $21,036,632 $38,772,615
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE
PERIOD FROM
DECEMBER 21,
1993 (DATE OF
FOR THE YEAR ENDED DECEMBER 31, INCEPTION) TO
------------------------------------------ DECEMBER 31,
1997 1998 1999 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Grant revenues...................... $-- $810,607 $1,224,605 $2,035,212
Operating expenses:
Research and development
(including non-cash stock
compensation of $0.1, $0.2 and
$1.3 million in 1997, 1998 and
1999, respectively)............. 1,103,174 1,463,046 5,491,289 8,716,713
General and administrative
(including non-cash stock
compensation of $0.6 million in
1999)........................... 279,238 620,507 2,112,369 3,239,090
----------- ----------- ------------ ------------
Total operating expenses........ 1,382,412 2,083,553 7,603,658 11,955,803
----------- ----------- ------------ ------------
Loss from operations................ (1,382,412) (1,272,946) (6,379,053) (9,920,591)
Interest income..................... 85,314 96,067 273,547 461,581
Interest expense.................... (3,065) (15,464) (122,496) (141,025)
----------- ----------- ------------ ------------
Net loss............................ (1,300,163) (1,192,343) (6,228,002) (9,600,035)
Dividend related to beneficial
conversion feature of preferred
stock............................. -- -- (9,669,978) (9,669,978)
----------- ----------- ------------ ------------
Net loss available to common
shareholders...................... (1,300,163) (1,192,343) (15,897,980) (19,270,013)
Other comprehensive income (loss):
Change in foreign currency
translation adjustments......... 35,760 (44,581) (116,714) (150,001)
----------- ----------- ------------ ------------
Comprehensive loss.................. $(1,264,403) $(1,236,924) $(16,014,694) $(19,420,014)
=========== =========== ============ ============
Net loss per share available to
common shareholders, basic and
diluted........................... $(0.61) $(0.56) $(7.45)
=========== =========== ============
Shares used in computing net loss
per share available to common
shareholders, basic and diluted... 2,114,506 2,116,728 2,134,073
=========== =========== ============
Pro forma net loss per share
available to common shareholders
(unaudited)....................... $(2.80)
============
Shares used in computing pro forma
net loss per share available to
common shareholders (unaudited)... 5,672,186
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-4
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 21, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share.................................... -- $-- 1,320,000 $660
Issuance of common stock in August 1994 at $0.045 per
share................................................... -- -- 672,892 673
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance costs of
$8,000.................................................. 375,556 376 -- --
Exercise of stock options in August 1995 at $0.045 per
share................................................... -- -- 90,000 90
Issuance of common stock in June 1996 in exchange for
license agreement....................................... -- -- 18,459 18
Exercise of stock options in July 1996 at $0.135 per
share................................................... -- -- 3,000 3
Net loss since inception.................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1996................................. 375,556 376 2,104,351 1,444
Exercise of stock options in January 1997 at $0.135 per
share................................................... -- -- 6,000 6
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance costs of
$56,183................................................. 1,316,069 1,316 -- --
Exercise of stock options in May 1997 at $0.135 per
share................................................... -- -- 8,500 9
Repurchase of common stock in July 1997 at $0.135 per
share................................................... -- -- (2,125) (2)
Stock options granted for services in 1997................ -- -- -- --
Deferred stock compensation............................... -- -- -- --
Amortization of deferred stock compensation............... -- -- -- --
Foreign currency translation adjustment................... -- -- -- --
Net loss.................................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1997................................. 1,691,625 1,692 2,116,726 1,457
Stock options granted for services in 1998................ -- -- -- --
Stock compensation........................................ -- -- -- --
Foreign currency translation adjustment................... -- -- -- --
Deferred stock compensation............................... -- -- -- --
Amortization of deferred stock compensation............... -- -- -- --
Net loss.................................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1998................................. 1,691,625 1,692 2,116,726 1,457
Issuance of common stock in January 1999 at $0.30 per
share................................................... -- -- 499 1
Issuance of Series C convertible preferred stock in
March 1999 at $2.496 per share, net of issuance costs of
$37,812................................................. 932,456 932 -- --
Issuance of common stock for services from April through
December 1999........................................... -- -- 7,334 7
Exercise of stock options in September 1999 at $0.30 per
share................................................... -- -- 48,683 49
Issuance of Series D convertible preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $1,245,373........................................... 1,502,251 1,503 -- --
Conversion of notes payable into preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $449,996............................................. 734,306 734 -- --
Exercise of stock options in exchange for notes receivable
from shareholders....................................... -- -- 1,207,208 1,207
Stock compensation........................................ -- -- -- --
Deferred stock compensation............................... -- -- -- --
Amortization of deferred stock compensation............... -- -- -- --
Foreign currency translation adjustment................... -- -- -- --
Dividend related to beneficial conversion feature of
preferred stock......................................... -- -- -- --
Net loss.................................................. -- -- -- --
--------- --------- --------- ----------
Balances, December 31, 1999................................. 4,860,638 $4,861 3,380,450 $2,721
========= ========= ========= ==========
<CAPTION>
ADDITIONAL DEFERRED NOTES RECEIVABLE
PAID-IN CAPITAL STOCK COMPENSATION FROM SHAREHOLDERS
--------------- -------------------- -------------------
<S> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share.................................... $-- $-- $--
Issuance of common stock in August 1994 at $0.045 per
share................................................... 29,607 -- --
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance costs of
$8,000.................................................. 491,113 -- --
Exercise of stock options in August 1995 at $0.045 per
share................................................... 3,960 -- --
Issuance of common stock in June 1996 in exchange for
license agreement....................................... 9,951 -- --
Exercise of stock options in July 1996 at $0.135 per
share................................................... 402 -- --
Net loss since inception.................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1996................................. 535,033 -- --
Exercise of stock options in January 1997 at $0.135 per
share................................................... 804 -- --
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance costs of
$56,183................................................. 3,227,409 -- --
Exercise of stock options in May 1997 at $0.135 per
share................................................... 1,139 -- --
Repurchase of common stock in July 1997 at $0.135 per
share................................................... (285) -- --
Stock options granted for services in 1997................ 20,000 -- --
Deferred stock compensation............................... 145,274 (145,274) --
Amortization of deferred stock compensation............... -- 64,863 --
Foreign currency translation adjustment................... -- -- --
Net loss.................................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1997................................. 3,929,374 (80,411) --
Stock options granted for services in 1998................ 15,000 -- --
Stock compensation........................................ 195,917 -- --
Foreign currency translation adjustment................... -- -- --
Deferred stock compensation............................... 420,467 (420,467) --
Amortization of deferred stock compensation............... -- 180,798 --
Net loss.................................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1998................................. 4,560,758 (320,080) --
Issuance of common stock in January 1999 at $0.30 per
share................................................... 149 -- --
Issuance of Series C convertible preferred stock in
March 1999 at $2.496 per share, net of issuance costs of
$37,812................................................. 2,288,666 -- --
Issuance of common stock for services from April through
December 1999........................................... 51,363 -- --
Exercise of stock options in September 1999 at $0.30 per
share................................................... 14,556 -- --
Issuance of Series D convertible preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $1,245,373........................................... 5,913,453 -- --
Conversion of notes payable into preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $449,996............................................. 2,999,266 -- --
Exercise of stock options in exchange for notes receivable
from shareholders....................................... 509,743 -- (510,950)
Stock compensation........................................ 196,252 -- --
Deferred stock compensation............................... 15,938,348 (15,938,348) --
Amortization of deferred stock compensation............... -- 1,848,737 --
Foreign currency translation adjustment................... -- -- --
Dividend related to beneficial conversion feature of
preferred stock......................................... 9,669,978 -- --
Net loss.................................................. -- -- --
------------- ---------------- --------------
Balances, December 31, 1999................................. $42,142,532 $(14,409,691) $(510,950)
============= ================ ==============
<CAPTION>
ACCUMULATED
OTHER DEFICIT ACCUMULATED
COMPREHENSIVE DURING THE
INCOME (LOSS) DEVELOPMENT STAGE TOTALS
----------------- -------------------- ------------
<S> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share.................................... $-- $-- $660
Issuance of common stock in August 1994 at $0.045 per
share................................................... -- -- 30,280
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance costs of
$8,000.................................................. -- -- 491,489
Exercise of stock options in August 1995 at $0.045 per
share................................................... -- -- 4,050
Issuance of common stock in June 1996 in exchange for
license agreement....................................... -- -- 9,969
Exercise of stock options in July 1996 at $0.135 per
share................................................... -- -- 405
Net loss since inception.................................. -- (879,527) (879,527)
------------ --------------- ------------
Balances, December 31, 1996................................. -- (879,527) (342,674)
Exercise of stock options in January 1997 at $0.135 per
share................................................... -- -- 810
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance costs of
$56,183................................................. -- -- 3,228,725
Exercise of stock options in May 1997 at $0.135 per
share................................................... -- -- 1,148
Repurchase of common stock in July 1997 at $0.135 per
share................................................... -- -- (287)
Stock options granted for services in 1997................ -- -- 20,000
Deferred stock compensation............................... -- -- --
Amortization of deferred stock compensation............... -- -- 64,863
Foreign currency translation adjustment................... 35,277 -- 35,277
Net loss.................................................. -- (1,300,163) (1,300,163)
------------ --------------- ------------
Balances, December 31, 1997................................. 35,277 (2,179,690) 1,707,699
Stock options granted for services in 1998................ -- -- 15,000
Stock compensation........................................ -- -- 195,917
Foreign currency translation adjustment................... (44,581) -- (44,581)
Deferred stock compensation............................... -- -- --
Amortization of deferred stock compensation............... -- -- 180,798
Net loss.................................................. -- (1,192,343) (1,192,343)
------------ --------------- ------------
Balances, December 31, 1998................................. (9,304) (3,372,033) 862,490
Issuance of common stock in January 1999 at $0.30 per
share................................................... -- -- 150
Issuance of Series C convertible preferred stock in
March 1999 at $2.496 per share, net of issuance costs of
$37,812................................................. -- -- 2,289,598
Issuance of common stock for services from April through
December 1999........................................... -- -- 51,370
Exercise of stock options in September 1999 at $0.30 per
share................................................... -- -- 14,605
Issuance of Series D convertible preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $1,245,373........................................... -- -- 5,914,956
Conversion of notes payable into preferred stock in
October 1999 at $4.7664 per share, net of issuance costs
of $449,996............................................. -- -- 3,000,000
Exercise of stock options in exchange for notes receivable
from shareholders....................................... -- -- --
Stock compensation........................................ -- -- 196,252
Deferred stock compensation............................... -- -- --
Amortization of deferred stock compensation............... -- -- 1,848,737
Foreign currency translation adjustment................... (116,714) -- (116,714)
Dividend related to beneficial conversion feature of
preferred stock......................................... -- (9,669,978) --
Net loss.................................................. -- (6,228,002) (6,228,002)
------------ --------------- ------------
Balances, December 31, 1999................................. $(126,018) $(19,270,013) $7,833,442
============ =============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE
PERIOD FROM
DECEMBER 21,
1993 (DATE OF
FOR THE YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(1,300,163) $(1,192,343) $(6,228,002) $(9,600,035)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 3,881 38,575 43,129 90,665
Amortization of deferred stock
compensation............................ 64,863 180,798 1,848,737 2,094,398
Common stock and options issued for
services................................ 20,000 15,000 51,370 86,370
Common stock issued for license
agreement............................... -- -- -- 9,969
Compensation related to stock options..... -- 195,917 196,252 392,169
Changes in assets and liabilities:
Grant receivable........................ -- (394,772) (655,012) (1,071,052)
Prepaid expenses and other assets....... (236,134) (3,029) (237,859) (482,107)
Accounts payable........................ 351,473 42,792 493,610 930,235
Accrued liabilities..................... (268,941) 1,578 51,955 93,535
Other................................... (20,561) (19,766) (54,285) (42,508)
----------- ----------- ----------- ------------
Net cash used in operating
activities.......................... (1,385,582) (1,135,250) (4,490,105) (7,498,361)
----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment.......... (146,556) (32,759) -- (179,315)
----------- ----------- ----------- ------------
Net cash used in investing
activities.......................... (146,556) (32,759) -- (179,315)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term obligations......... 568,164 -- 2,930,000 3,498,164
Payment of long-term obligations and capital
lease obligations......................... -- (98,558) (128,105) (226,663)
Proceeds from issuance of preferred stock... 3,228,725 -- 19,859,046 23,579,260
Proceeds from issuance of common stock...... 1,958 -- 14,755 52,108
Repurchase of common stock.................. (287) -- -- (287)
----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities................ 3,798,560 (98,558) 22,675,696 26,902,582
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents................................. 2,266,422 (1,266,567) 18,185,591 --
Cash and cash equivalents, beginning of
period...................................... 39,460 2,305,882 1,039,315 19,224,906
----------- ----------- ----------- ------------
Cash and cash equivalents, end of period...... $2,305,882 $1,039,315 $19,224,906 $19,224,906
=========== =========== =========== ============
ADDITIONAL CASH FLOW INFORMATION--INTEREST
PAID........................................ $3,065 $15,464 $122,496 $141,025
=========== =========== =========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases..... $-- $156,954 $60,665 $217,619
Conversion of notes payable for preferred
stock..................................... $-- $-- $3,000,000 $3,000,000
Stock options exercised in exchange for
notes receivable.......................... $-- $-- $510,950 $510,950
Dividend related to beneficial conversion
feature of preferred stock................ $-- $-- $9,669,978 $9,669,978
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:
DrugAbuse Sciences Inc., (the "Company") is a biotechnology company dedicated to
developing and marketing novel biopharmaceutical products that address key
medical needs of alcohol abusers and drug addicts. For the period from inception
through December 31, 1999, the Company has been in the development stage as
planned operations had not yet begun to generate significant revenue. The
Company was incorporated in December 1993 and operates in one business segment.
On March 24, 2000, the Company received approval to effect a 1-for-6 reverse
stock split of its common and preferred stock. All share and per share amounts
in the accompanying financial statements have been adjusted retroactively.
In November 1994 and May 1996, the Board of Directors and shareholders of the
Company approved a 3-for-1 and a 4-for-1 stock split, respectively, of its
common and preferred stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All intercompany transactions have been 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 financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
INITIAL PUBLIC OFFERING
In January 2000, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the preferred stock, including the 2,445,131 shares of Series D preferred stock
which were issued in exchange for 1,849 shares of common stock of DrugAbuse
Sciences, SAS, the French subsidiary, will automatically convert into
7,305,769 shares of common stock. The excess of the estimated fair value of the
preferred stock, issued upon exchange of the SAS shares, of $29.4 million over
the related minority interest will result in $17.7 million of goodwill. The pro
forma effect of this exchange and conversion has been presented as a separate
column on the Company's balance sheet.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and cash equivalents and accounts receivable. Cash
and cash equivalents are deposited in demand and money market accounts in one
financial institution in the United States and France.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable and accounts payable approximate
fair value due to their short
- --------------------------------------------------------------------------------
F-7
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
maturities. Based on borrowing rates currently available to the Company for
loans with similar terms, the carrying value of its debt obligations
approximates fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include short-term investment grade and interest-bearing securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a straight-line
basis over their estimated useful lives of three to seven years. Leasehold
improvements are amortized over their estimated useful lives, or the lease term
if shorter. Upon retirement or sale, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations. Maintenance and repairs are charged to operations as
incurred.
REVENUE RECOGNITION
Research and development grant agreements provide for periodic payments in
support of the Company's research activities. Grant revenue is recognized as
earned based on actual costs incurred or as milestones are achieved. Payments
received under multi-year research and development grants which are repayable
have been recorded as long-term obligations in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 68, "Research and Development
Arrangements" (Note 6).
LONG-LIVED ASSETS
Long-lived assets and certain intangible assets are reviewed for impairment when
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Recoverability is measured by comparison of the asset's
carrying amount to future net undiscounted cash flows the assets are expected to
generate. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the projected discounted future net cash flows arising from the asset.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for
Company-sponsored research and development activities. These costs include
direct and research-related overhead expenses and are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
FOREIGN CURRENCY ACCOUNTING
Exchange adjustments resulting from foreign currency transactions are generally
recognized in operations, whereas adjustments resulting from the translation of
financial statements are reflected as a separate component of stockholders'
equity.
- --------------------------------------------------------------------------------
F-8
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
from common shares issuable through stock options, warrants and other
convertible securities. The following table is a reconciliation of the numerator
(net loss available to common shareholders) and the denominator (number of
shares) used in the basic and diluted EPS calculations and sets forth potential
shares of common stock that are not included in the diluted net loss per share
available to common shareholders as their effect is antidilutive:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
BASIC AND DILUTED:
Net loss available to common shareholders........ $(1,300,163) $(1,192,343) $(15,897,980)
Weighted average common shares outstanding....... 2,114,506 2,116,728 2,134,073
----------- ------------ ------------
Net loss per share available to common
shareholders................................... $(0.61) $(0.56) $(7.45)
=========== ============ ============
ANTIDILUTIVE SECURITIES:
Convertible preferred stock...................... 1,691,625 1,691,625 4,860,638
Options to purchase common stock................. 369,459 598,489 680,280
Warrants......................................... 1,855,684 1,855,684 2,245,813
----------- ------------ ------------
3,916,768 4,145,798 7,786,731
=========== ============ ============
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share available to common shareholders for the year ended
December 31, 1999 was computed using the weighted average number of shares of
common stock outstanding, including the pro forma effects of the automatic
conversion of all of the company's preferred stock, including the 2,445,131
shares of Series D preferred stock which were issued in exchange for 1,849
shares of common stock of DrugAbuse Sciences, SAS, the French subsidiary, into
shares of the Company's common stock effective upon the closing of the Company's
initial public offering as if such conversion occurred on January 1, 1999, or at
the date of original issuance, if later.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components for
general-purpose financial statements. Comprehensive income is defined as net
income plus all revenues, expenses, gains and losses from non-owner sources that
are excluded from net income in accordance with generally accepted accounting
principles.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. To date, the Company has not engaged in derivative
and hedging activities.
- --------------------------------------------------------------------------------
F-9
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain financial statement items have been reclassified to conform to the
current year's format. These reclassifications had no impact on previously
reported net loss or shareholders equity.
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment comprise:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
--------- ---------
<S> <C> <C>
Computer equipment................................ $9,039 $27,376
Furniture and fixtures............................ 2,493 21,605
Equipment......................................... 164,350 212,614
Leasehold improvements............................ 160,388 135,340
-------- --------
336,270 396,935
Less: Accumulated depreciation and amortization... (38,825) (81,954)
-------- --------
$297,445 $314,981
======== ========
</TABLE>
Included in computer equipment at December 31, 1998 and 1999 is equipment
acquired under capital leases totaling approximately $157,000 and $216,000,
respectively, net of accumulated amortization of $23,000 and $56,000,
respectively.
NOTE 4 -- GRANT RECEIVABLE
In December 1997, the Company received a grant from The Ministry of Research in
France (FRT) of approximately $2.8 million for the development and
commercialization of the COC-AB product. Under the terms of the grant the
Company is reimbursed for 50% of its expenses relating to COC-AB research and is
committed to pay royalties of 1% of worldwide net sales of the COC-AB product
for a period of 5 years up to a maximum amount of the grant.
NOTE 5--SPONSORED LICENSE AND RESEARCH AGREEMENTS:
In February 1997, the Company entered into a research agreement with Southern
Research Institute ("SRI") to help develop NALTREL and conduct animal studies.
Under the terms of the agreement, the Company pays SRI monthly for research
services performed during the three year agreement. Aggregate payments are
expected to be approximately $3.0 million. Expenses under the agreement were
$739,978, $671,580 and $1,270,087 for the years ended December 31, 1997, 1998
and 1999, respectively.
In connection with the research agreement, the Company entered into a license
agreement with SRI under which it obtained an exclusive, worldwide, royalty
bearing license to make, use and sell pharmaceutical products containing
sustained release Naltrexone and Naltrexone derivatives. The license agreement
terminates upon the later of December 31, 2010 or the last Naltrexone Patent or
Southern Patent Rights.
In June 1996, the Company entered into an exclusive worldwide license with the
Scripps Research Institute ("Scripps") for certain patents relating to the
development and marketing of diagnostic and therapeutic products within the
field of cocaine addiction treatment. In exchange for the exclusive
- --------------------------------------------------------------------------------
F-10
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
license, the Company paid Scripps $8,000 and issued 18,460 shares of common
stock. Upon the achievement of certain milestones, the Company will issue
additional common shares aggregating 55,382. As additional consideration,
Scripps will receive a royalty ranging from 1% to 2% of net sales of licensed
products.
- --------------------------------------------------------------------------------
F-11
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1999, the Company entered into manufacturing and license agreements with
Aventis Pasteur ("Pasteur"). Under the terms of the agreements, Pasteur has
agreed to manufacture and supply the COC-AB product, as well as license certain
patents for the treatment of drug addiction. As consideration for the license
agreement, the Company will pay Pasteur royalties ranging from 4% to 14%.
In June 1999, the Company entered into a research and development agreement with
the University of Paris V (the "University") whereby the Company is developing
COC-AB and related antibodies using the facilities and expertise of the
University. Under the terms of the agreement, the Company was granted worldwide
rights to all inventions related to and including COC-AB. In consideration for
the agreement, the Company will make royalty payments to the University at 1% of
COC-AB revenues, up to a maximum of the amount granted to the Company by the
University, for a period of five years from the date of the first commercial
sale of COC-AB.
NOTE 6--LONG-TERM OBLIGATIONS:
In June 1997, the Company entered into a multi-year research and development
loan, with a French government agency. The Company received approximately
$420,000 for the future research and development activities in 1997. The Company
performs research on a "best-effort" basis and the loan is repayable over a five
year period.
In November 1997, the Company entered into a line of credit with Banque
Nationale de Paris. The line of credit has a total capacity of approximately
$140,000 to finance research and development activities. The line of credit
bears interest at 6.25% with principal and interest payable semi-annually. The
line of credit terminates in November 2001.
In June 1999, the Company entered into a convertible note payable for $3,000,000
with a financial institution. The note and accrued interest (2% above US LIBOR)
is due on December 31, 2003. The note and accrued interest automatically convert
to Series D preferred stock in any private placement raising at least
$5 million prior to March 31, 2000 or into Series C preferred stock at the
option of the holder on March 31, 2000 (but not after) at a conversion price
equal to the Series C subscription price if no automatic conversion has taken
place. The Company may prepay the balance at any time after March 31, 2000. This
note converted into Series D preferred stock in connection with the preferred
round of financing.
Future repayments of the long-term obligations at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
2000........................................................ $108,282
2001........................................................ 142,492
2002........................................................ 122,118
---------
372,892
Less: current portion................................. 108,282
---------
$264,610
=========
</TABLE>
- --------------------------------------------------------------------------------
F-12
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS:
The Company leases office space and equipment under noncancelable operating and
capital leases with various expiration dates through March 2004. Capital lease
obligations are collateralized by the equipment subject to the leases. The
Company is responsible for maintenance costs and property taxes on certain of
the operating leases. Rent expense for the years ended December 31, 1997, 1998
and 1999 and for the cumulative period from December 21, 1993 (date of
inception) to December 31, 1999 was nil, $13,500, $54,000 and $67,500,
respectively.
Future minimum lease payments under noncancelable operating and capital leases
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS CAPITAL OPERATING
ENDING DECEMBER 31, LEASES LEASES
- -----------------------------------------------------------------------------
<S> <C> <C>
2000.................................................. $48,857 $40,500
2001.................................................. 48,857 --
2002.................................................. 48,857 --
2003.................................................. 22,527 --
2004.................................................. 2,310 --
-------- --------
Total minimum lease payments.......................... 171,408 $40,500
========
Less: Amount representing interest.................... 19,372
--------
Present value of capital lease obligations............ 152,036
Less: Current portion................................. 48,857
--------
$103,179
========
</TABLE>
NOTE 8--SHAREHOLDERS' EQUITY:
COMMON STOCK
At December 31, 1999, the Company had reserved sufficient shares of common stock
for issuance upon conversion of preferred stock and the exercise of stock
options and warrants. Common shareholders are entitled to dividends as and when
declared by the Board of Directors subject to the prior rights of the preferred
shareholders. The holders of each share of common stock are entitled to one
vote.
CONVERTIBLE PREFERRED STOCK:
SERIES D PREFERRED STOCK
In October 1999, the Company issued 2,236,557 shares of Series D convertible
preferred stock at a price of $4.7664 raising gross proceeds of $10,660,325.
Additionally, the Company's subsidiary in France, DrugAbuse Sciences, SAS,
issued 1,849 shares of common stock at a price of $6,303.1325 per share raising
gross proceeds of $11,654,492. The issuance of the subsidiary's common shares
were recorded in accordance with Staff Accounting Bulletin Topic 5:H,
"Accounting for Sales of Stock By a Subsidiary", as a capital transaction and
reflected in the consolidated balance sheet as minority interest. The
subsidiary's common shares are convertible into 2,445,131 shares of the
Company's Series D preferred stock at the option of the Company or the holders.
Such shares automatically convert upon certain trigger events including (i) the
filing of a registration statement with respect to an
- --------------------------------------------------------------------------------
F-13
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
underwritten public offering of the Company's common stock, or (ii) the
execution of a binding letter of intent to merge or consolidate the Company with
a third party, or (iii) the automatic conversion of all outstanding shares of
preferred stock into shares of common stock. In connection with the sale of the
Company's Series D preferred stock and DrugAbuseSciences, SAS common stock, the
Company issued 178,913 warrants to purchase Series D preferred stock. In
addition, the Company has committed to issue warrants to purchase 195,606 shares
of Series D preferred stock upon conversion of the subsidiary's common stock.
The convertible preferred stock comprise the following series at December 31,
1999:
<TABLE>
<CAPTION>
COMMON SHARES
NUMBER OF NUMBER OF SHARES RESERVED FOR LIQUIDATION
SHARES AUTHORIZED ISSUED AND OUTSTANDING CONVERSION VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A............... 375,556 375,556 375,556 $499,489
Series B............... 1,316,069 1,316,069 1,316,069 3,284,908
Series C............... 932,456 932,456 932,456 2,327,410
Series D............... 5,083,333 2,236,557 5,083,333 10,660,325
------------ -------------- ----------- -----------
7,707,414 4,860,638 7,707,414 $16,772,132
============ ============== =========== ===========
</TABLE>
DIVIDENDS
The holders of shares of Series A, Series B, Series C and Series D convertible
preferred stock are entitled to receive dividends, out of any assets legally
available, prior and in preference to any declaration or payment of any dividend
on the common stock of the Company, at the rate of eight percent of the $1.33,
$2.496, $2.496 and $4.766 per share, respectively, when, as and if declared by
the Board of Directors. Dividends on the Series A, Series B, Series C and
Series D convertible preferred stock shall not accrue unless declared by the
Board of Directors.
LIQUIDATION
In the event of any liquidation, dissolution or winding up for the Company,
either voluntary or involuntary, the holders of Series A, Series B, Series C and
Series D convertible preferred stock are entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of common stock by reason of their ownership, an amount per share equal
to $1.33, $2.496, $2.496 and $4.766, respectively, for each outstanding share of
convertible preferred stock, as adjusted for stock splits, stock dividends or
similar events, plus any accrued but unpaid dividends on such shares. If the
assets and funds distributed among the holders of Series A, Series B, Series C
and Series D convertible preferred stock are insufficient to permit the payment
in the full preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of Series A, Series B, Series C and Series D convertible
preferred stock in proportion to the full amounts to which they would otherwise
be respectively entitled.
After payment has been made to the holders of Series A, Series B, Series C and
Series D convertible preferred stock, any remaining assets and funds are to be
distributed among the holders of common stock and convertible preferred stock
ratably until such time as the Series A, Series B, Series C and Series D
convertible preferred shareholders have received an aggregate of $2.66, $4.992,
$4.992, $9.534 per share, respectively, thereafter any remaining assets will be
distributed to the holders of common stock.
- --------------------------------------------------------------------------------
F-14
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MERGERS
A merger, reorganization or sale of all or substantially all of the assets of
the Company in which the shareholders of the Company immediately prior to the
transaction possess less than 50% of the voting power of the surviving entity
(or its parent) immediately after the transaction shall be deemed to be a
liquidation, dissolution or winding up.
VOTING
The holder of each share of Series A, Series B, Series C and Series D
convertible preferred stock is entitled to the number of votes equal to the
number of shares of common stock into which each share of convertible preferred
stock could be converted, except as otherwise required by law, and has voting
rights and powers equal to the voting rights and powers of common stock. For as
long as fifty percent of the authorized shares of Series A and Series B
convertible preferred stock remain outstanding, each class shall have the right
to elect a member to the Board of Directors voting separately as individual
classes. For as long as forty-six percent of the authorized shares of Series D
convertible preferred stock remain outstanding, two directors shall be elected
by vote of the holders of the Series D convertible preferred stock voting as a
separate class. One director shall be elected by the holders of common stock and
the holders of Series A, Series B, Series C and Series D convertible preferred
stock, voting together with members of common stock as one class, shall be
entitled to elect the remaining directors.
CONVERSION
Each share of Series A, Series B, Series C and Series D convertible preferred
stock, at the option of the holder, is convertible into the number of fully paid
and nonassessable shares of common stock which results from dividing the
liquidation price for each respective series, $1.33, $2.496, $2.496 and $4.766,
respectively, by the respective conversion prices. The per share conversion
price of Series A Series B, Series C and Series D convertible preferred stock is
$1.33, $2.496, $2.496 and $4.766 respectively. Conversion is automatic
immediately (i) upon the closing of a sale of common stock by the Company in an
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, in which (a) the aggregate gross proceeds
exceed $15,000,000 and (b) the public offering price equals or exceeds $10.50 or
(ii) at the election of the holders of sixty-seven percent of the then
outstanding Series A, Series B, Series C and Series D convertible preferred
stock, voting together as a single class on an as-converted basis, or (iii) or
at the election of the holders of two-thirds Series A and Series B convertible
preferred stock, voting together as a separate series and the holders of two
thirds of Series C and Series D convertible preferred stock, voting separately
as separate series.
PREFERRED STOCK DIVIDEND
1999 ACTIVITY
In October 1999, the Company sold 2,236,557 shares of Series D convertible
preferred stock at $4.7664 per share. The difference between the conversion
price and the fair value per share of the common stock on the transaction date
resulted in a beneficial conversion feature in the amount of $9.7 million. The
beneficial conversion feature has been reflected as a preferred stock dividend
in the statement of operations for the year ended December 31, 1999.
- --------------------------------------------------------------------------------
F-15
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUBSEQUENT EVENT
In February 2000, the Company's subsidiary in France exchanged 1,849 shares of
its common stock for 2,445,131 shares of the Company's Series D preferred stock.
The acquisition of the minority interest shares will be accounted for in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations", using the purchase method of accounting. The excess of the
purchase price of $29.4 million, which represents the estimated fair value of
the preferred stock issued upon exchange in February 2000, over the minority
interest will result in goodwill of $17.7 million. The Company expects to
amortize the goodwill over a period of three to ten years on a straight line
basis.
NOTES RECEIVABLE FROM SHAREHOLDERS
In December 1999, certain officers exercised stock options in exchange for
short-term advances that were repaid in February 2000.
STOCK OPTION PLAN
In July 1994 and December 1999, the Company adopted the 1994 Stock Plan, and the
1999 A and 1999 B Stock Plans (the "Plans"), respectively, under which the Board
of Directors may issue incentive and non-qualified stock options to employees,
directors and consultants. The Board of Directors has the authority to determine
to whom options will be granted, the number of shares, the term and exercise
price. Options are to be granted at an exercise price not less than fair market
value for incentive stock options or 85% of fair market value for non-qualified
stock options. For individuals holding more than 10% of the voting rights of all
classes of stock, the exercise price of incentive stock options will not be less
than 110% of fair market value. The options are exercisable immediately upon the
Optionee entering into a Restricted Stock Purchase Agreement with respect to any
unvested options. Options generally vest and become exercisable annually at a
rate of 25% after the first year and 1/48 per month thereafter. The term of the
options is no longer than five years for incentive stock options for which the
grantee owns greater than 10% of the voting power of all classes of stock and no
longer than ten years for all other options.
- --------------------------------------------------------------------------------
F-16
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity under the Plans are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
<S> <C> <C> <C>
Balances, December 31, 1996.............................. 137,582 279,418 $0.14
Granted................................................ (72,333) 72,333 0.17
Exercised.............................................. -- (14,500) 0.14
Cancelled.............................................. 15,500 (15,500) 0.14
---------- ---------- ------
Balances, December 31, 1997.............................. 80,749 321,751 0.14
Additional options reserved............................ 166,666 -- --
Granted................................................ (236,725) 236,725 0.30
Cancelled.............................................. 73,367 (73,367) 0.14
---------- ---------- ------
Balances, December 31, 1998.............................. 84,057 485,109 0.22
Additional options reserved............................ 1,906,666 -- --
Granted................................................ (1,595,532) 1,595,532 0.43
Exercised.............................................. -- (1,255,891) 0.45
Cancelled.............................................. 144,470 (144,470) 0.30
---------- ---------- ------
Balances, December 31, 1999.............................. 539,661 680,280 $0.31
========== ========== ======
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
AT DECEMBER 31, 1999
-------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
- --------------- ----------- ------------ --------
<S> <C> <C> <C>
$0.14 187,959 6.48 years $0.14
$0.30 194,828 8.72 years $0.30
$0.45 297,493 9.96 years $0.45
----------
680,280
==========
</TABLE>
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." Had compensation cost for the Incentive Stock Plan been
determined based on the fair value at the grant date for awards during 1997,
1998 and 1999, consistent with the provisions of SFAS No. 123, the
- --------------------------------------------------------------------------------
F-17
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's pro forma net loss available to common shareholders and pro forma net
loss per share available to common shareholders would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1998 1999
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss available to common
shareholders as reported......... $(1,300,163) $(1,192,343) $(15,897,980)
Net loss available to common
shareholders pro forma........... $(1,302,972) $(1,195,984) $(15,921,159)
Net loss per share available to
common shareholders, as reported,
basic and diluted................ $(0.61) $(0.56) $(7.45)
Net loss per share available to
common shareholders, pro forma,
basic and diluted................ $(0.62) $(0.57) $(7.46)
</TABLE>
Such pro forma disclosures may not be representative of future compensation cost
because options vest over several years and additional grants are anticipated to
be made each year.
At December 31, 1997, 1998 and 1999, all options under the Plan were
exercisable. The Plan provides for employees to exercise their options at any
time. Unvested options are subject to repurchase by the Company at their
original exercise price upon termination of employment. The weighted average
fair values of options granted during 1997, 1998 and 1999 were $0.06, $0.07 and
$0.09, respectively.
The fair value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.1% 6.2% 6.4%
Expected life..................................... 4 years 4 years 4 years
Expected dividends................................ -- -- --
</TABLE>
2000 STOCK INCENTIVE PLAN
In January 2000, the Board of Directors adopted the 2000 Stock Incentive
Plan (the "2000 Plan"). The Company reserved 750,000 shares of common stock for
issuance under the 2000 Plan. Additionally, any shares not yet issued under the
1999 Stock Plans are also available under the 2000 Plan. Beginning on
January 1, 2001, the number of shares in the reserve will automatically increase
by the lesser of 6% of the total number of shares of common stock that are
outstanding or by 2,000,000 shares. The 2000 Plan allows for the issuance of
nonstatutory and incentive stock options which will generally vest over the four
year period following the date of the grant and expire ten years after they are
granted. Upon a change of control, options will become fully vested if the
surviving corporation fails to assume an outstanding option or replace it with a
comparable option.
2000 EMPLOYEE STOCK PURCHASE PLAN
In January 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan ("2000 Purchase Plan"). The 2000 Purchase Plan is intended to
qualify under Section 423 of the Internal
- --------------------------------------------------------------------------------
F-18
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Code. The Company has reserved 375,000 shares of common stock for
issuance under the plan. On May 1 of each year, starting with the year 2001, the
number of shares in the reserve will automatically be restored to 375,000. All
employees are eligible to participate if they are employed by the Company for
more than 20 hours per week and for more than five months per year. Eligible
employees may begin participating in the 2000 Purchase Plan at the start of any
offering period, which lasts 24 months. Overlapping offering periods start on
May 1 and November 1 of each year. However, the first offering period will start
on the effective date of this offering and end on April 30, 2002.
The 2000 Purchase Plan permits each eligible employee to purchase common stock
through payroll deductions up to 15% of the employee's salary and commissions.
Purchases of our common stock will occur on April 30 and October 31 of each
year. The price of each share of common stock purchased under our 2000 Purchase
Plan will be 85% of the lower of the fair market value per share of common stock
on the date immediately before the first day of the applicable offering period,
or the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 2000 Purchase Plan at any time,
although participation ends automatically upon termination of employment with
the Company.
2000 DIRECTORS' OPTION PLAN
Also in January 2000, the Board of Directors adopted the 2000 Directors'
Option Plan ("2000 Directors' Plan"). The Company has reserved 200,000 shares of
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2001, the number of shares in the reserve will automatically be
restored to 200,000. Only the non-employee members of the Board of Directors
will be eligible for option grants under the 2000 Directors' Plan. Each
non-employee director who first joins the board after the effective date of the
offering will receive an initial option for 20,000 shares. That grant will occur
when the director takes office. The initial options vest in equal monthly
installments over the four-year period following the date of grant, except that
all vesting for the first year occurs at the close of that year. At the time of
each of the annual shareholders' meetings, beginning in 2001, each non-employee
director who will continue to be a director after that meeting will
automatically be granted an annual option for 5,000 shares of common stock.
The exercise price of each non-employee director's option will be equal to the
fair market value of common stock on the option grant date. The non-employee
directors' options have a 10-year term, except that they expire one year after a
director leaves the board. If a change in control of the Company occurs, a
non-employee director's option granted under the 2000 Directors' Plan will
become fully vested. Vesting also accelerates in the event of the optionee's
death or disability.
DEFERRED STOCK COMPENSATION
During the period from inception through December 31, 1999, the Company recorded
$16,504,089 of deferred stock compensation in accordance with APB No. 25,
SFAS No. 123 and EITF 96-18, related to options granted to consultants and
employees in 1997, 1998 and 1999. The Company will record additional deferred
compensation of $4.2 million related to options to purchase common stock issued
subsequent to December 31, 1999. During this period the Company determined the
fair value of options granted to consultants using the Black-Scholes option
pricing model with the following assumptions: expected lives of four years;
weighted average risk-free rate of 5.75%; expected dividend yield of zero
percent; expected volatility of 50% and deemed values of common stock between
$0.14 and $11.05 per share. Stock compensation expense is being recognized in
accordance with FIN 28, an
- --------------------------------------------------------------------------------
F-19
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accelerated amortization method, over the vesting periods of the related
options, generally four years. The Company recognized stock compensation expense
of $64,863, $180,798, $1,848,737 and $2,094,398 for the years ended
December 31, 1997, 1998 and 1999 and for the cumulative period from
December 21, 1993 (date of inception) to December 31, 1999, respectively.
WARRANTS
In connection with its license agreement with the Scripps Research Institute in
June 1996, the Company issued warrants to purchase 55,382 shares of common stock
at an exercise price of $0.14. The warrants expire in June 2016. The fair value
of these warrants determined using the Black-Scholes valuation model was not
considered material, and accordingly, no value was ascribed to them for
financial reporting purposes.
In connection with the Series B preferred stock issuance, the Company issued
warrants to purchase 1,815,912 shares of common stock with an exercise price of
$0.30. The warrants will become exerciseable only in the event of a merger or
sale of substantially all of the Company's assets or an initial public offering
with gross proceeds to the Company of $10 million and a price per share of at
least $12.00. The term of the warrants is five years.
In connection with the Series D convertible preferred stock issuance, the
Company issued 178,913 warrants to purchase Series D convertible preferred
stock. The warrants have an exercise price of $0.06 per share and will terminate
on November 30, 2001 or earlier upon the closing of certain events. The warrants
become exercisable only in the event that the Company has not completed on or
before April 26, 2001 either (i) an initial public offering with a valuation at
the expiration of the 180 day lock-up period following the closing of the
initial public offering of at least $150 million based on the average of the
closing prices of the Company's common stock for the twenty trading days ending
on the expiration of such 180 day period, or (ii) a merger or sale of all or
substantially all of the Company's assets resulting in proceeds of
$150 million.
In addition, the Company has committed to issue warrants to purchase 195,606
shares of Series D preferred stock upon conversion of the subsidiary's common
stock.
The warrants to purchase Series D preferred stock issued in connection with the
Series D financing are exercisable only in the event that the Company has not
successfully completed a qualified public offering by April 2001. As such, in
order to assign value to these warrants at the date of issuance, a probability
factor was given to the warrants related to probability of a public offering.
Based on various economic factors, the Company assigned a high probability to
the completion of a qualified public offering which results in an immaterial
value for the warrants. No expense has been recorded for the Series D warrants
and all the proceeds related to the Series D issuance have been allocated to
preferred stock and additional paid in capital.
NOTE 9--INCOME TAXES:
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $7.5 million for federal and state income tax purposes. The net
operating loss carryforwards expire primarily in the year 2019 for federal and
in 2006 for state purposes.
The Company's ability to utilize its net operating loss carryforwards to offset
future taxable income will be subject to annual limitations resulting from
changes in ownership, as defined in the Tax Reform Act of 1986.
- --------------------------------------------------------------------------------
F-20
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss carryforwards............................ $1,172,000 $1,450,000
Other....................................................... 1,600 38,000
----------- -----------
Gross deferred tax asset................................ 1,173,600 1,488,000
Valuation allowance......................................... (1,173,600) (1,488,000)
----------- -----------
Net deferred tax assets................................. $-- $--
=========== ===========
</TABLE>
Under SFAS 109, "Accounting for Income Taxes", deferred tax assets and
liabilities are determined based on differences between financial reporting 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.
Based upon the weight of available evidence, which includes the Company's
historical operating performance, the reported net losses for the period from
inception through December 31, 1999 and for the three years ended December 31,
1999, and the uncertainties regarding the Company's future results of
operations, a full valuation allowance has been provided against its net
deferred tax assets as it is more likely than not that the deferred tax assets
will not be realized.
- --------------------------------------------------------------------------------
F-21
<PAGE>
[DRUGABUSE SCIENCES LOGO]
Until , 2000 (25 days after the date of this prospectus), all
dealers selling shares of our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter 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 presents the costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $18,216
NASD fee.................................................... 7,400
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 300,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 350,000
Blue sky fees and expenses.................................. 15,000
Custodian and transfer agent fees........................... 10,000
Miscellaneous fees and expenses............................. 104,384
----------
Total................................................... $1,500,000
==========
</TABLE>
- ---------
* Information to be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Articles of Incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law (the "California Law"). Under the California
Law, a director's liability to a company or its shareholders may not be limited:
- - for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law,
- - for acts or omissions that a director believes to be contrary to the best
interest of our company or our shareholders or that involve the absence of
good faith on the part of the director,
- - for any transaction from which a director derived an improper personal
benefit,
- - for acts or omissions that show a reckless disregard for the director's duty
to our company or our shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the Registrant or its
shareholders,
- - for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to our company or our
shareholders,
- - under Section 310 of the California Law concerning contacts or transactions
between our company and a director, or
- - under Section 316 of the California Law concerning directors' liability for
improper dividends, loans and guarantees.
- --------------------------------------------------------------------------------
II-1
<PAGE>
PART II
- --------------------------------------------------------------------------------
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to our company or our shareholders.
Our Articles of Incorporation also include an authorization for the company to
indemnify our "agents" (as defined in Section 317 of the California Law),
through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, the company's Bylaws provide for
indemnification of the company's directors, officers and employees. In addition,
the company, at its discretion, may provide indemnification to persons whom we
are not obligated to indemnify. The Bylaws also allow the company to enter into
indemnity agreements with individual directors, officers, employees and other
agents. These indemnity agreements have been entered into with all directors and
executive officers and provide the maximum indemnification permitted by law.
These agreements, together with the company's Bylaws and Articles of
Incorporation, may require us, among other things, to indemnify these directors
or executive officers (other than for liability resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms. Section 317 of the California Law and the company's Bylaws make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities (including reimbursement of expense incurred) arising under the
Securities Act. We currently maintain directors' and officers' liability
insurance.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agent in which indemnification will be required or
permitted. Moreover, we are not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification. We believe that the
foregoing indemnification provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers. The Underwriting
Agreement (the form of which is filed as Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of our company and our officers and
directors, and by us of the Underwriters, for certain liabilities arising under
the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued and sold the following securities:
1. On March 28, 1997, we issued and sold an aggregate of 1,316,069 shares of
Series B Preferred Stock to a group of 26 investors for an aggregate
purchase price of $3,284,908.
2. On March 28, 1997, in connection with the Series B Preferred Stock
Financing, we issued and sold warrants to purchase 1,855,684 shares of
common stock to a group of 17 investors.
3. On March 17, 1999, we issued and sold an aggregate of 932,456 shares of
Series C Preferred Stock to a group of 29 investors for an aggregate
purchase price of $2,327,410.
4. On October 6, 1999, we issued and sold an aggregate of 2,236,557 shares of
Series D Preferred Stock to a group of 27 investors for an aggregate
purchase price of $10,660,409.49.
5. On October 6, 1999, in connection with the Series D Preferred Stock
Financing, we issued and sold warrants to purchase 178,913 shares of
Series D Preferred Stock to a group of 26 investors.
6. On October 6, 1999, our French subsidiary, DrugAbuse Sciences, SAS, issued
and sold an aggregate of 1,849 shares of the common stock of DrugAbuse
Sciences, SAS to a group of 9
- --------------------------------------------------------------------------------
II-2
<PAGE>
PART II
- --------------------------------------------------------------------------------
investors for an aggregate purchase price of $11,654,492.35. These shares
convert into 2,445,131 shares of our Series D Preferred Stock upon certain
circumstances.
8. On February 1, 2000, we issued 2,445,131 shares of our Series D Preferred
Stock in connection with the exchange of 1,849 shares of DrugAbuse
Sciences, SAS.
9. On February 1, 2000, and in connection with the exchange of the DrugAbuse
Sciences, SAS shares, our French subsidiary, DrugAbuse Sciences, SAS issued
warrants to purchase 195,606 shares of Series D Preferred Stock to a group
of 9 investors.
From inception through January 20, 2000, we granted options to purchase
2,680,024 shares of common stock at exercise prices ranging from $0.045 to $0.45
per share to employees, consultants, directors, and other service providers
pursuant to our 1994 and 1999 stock plans.
The sale of the above securities was deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts relating
to compensation as provided under Rule 701. The recipients of securities in each
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution and appropriate legends were affixed to the share certificates
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Our Amended and Restated Articles of Incorporation.
3.2** Form of Amended and Restated Articles of Incorporation to be
filed upon the closing of the offering made under this
Registration Statement.
3.3** Our Bylaws.
3.4** Our Amended and Restated Bylaws to be effective upon the
closing of the offering made under this Registration
Statement.
4.1** Amended and Restated Investors' Rights Agreement, dated
October 6, 1999.
4.2** Form of our Common Stock certificate.
5.1** Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1** Form of Indemnification Agreement entered into between us
and each of our directors and executive officers.
10.2** 1994 Stock Option Plan.
10.3** 1999 Stock Plan A.
10.4** 1999 Stock Plan B.
10.5** 2000 Stock Incentive Plan.
10.6** 2000 Employee Stock Purchase Plan.
</TABLE>
- --------------------------------------------------------------------------------
II-3
<PAGE>
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
10.7** 2000 Directors' Option Plan.
10.8** Sublease between Etak, Inc. and us dated October 1, 1998, as
amended.
10.9*+ Clinical Supply Agreement by and between the Registrant and
SP Pharmaceuticals, L.L.C. dated November 24, 1999.
10.10**+ Research Agreement with Option to License by and between us
and Southern Research Institute dated February 28, 1997.
10.11**+ Product License Agreement by and between us and Southern
Research Institute dated July 1, 1999.
10.12*+ Research Agreement with Option to License by and between us
and Southern Research Institute dated January 21, 2000.
10.13**+ Product License Agreement by and between us and Southern
Research Institute dated January 21, 2000.
10.14*+ License Agreement by and between us and SCRIPPS dated
June 18, 1996.
10.15*+ License Agreement by and between us and Pasteur Meriux
Serums & Vaccins dated June 8, 1999.
10.16*+ Manufacturing and Supply Agreement by and between us and
Pasteur Meriux Serums & Vaccins dated June 8, 1999.
10.17**+ Research and Development Agreement by and between us and
University of Paris V dated June 8, 1999.
10.18**+ Research and Development Agreement by and between us and
University of Paris V dated March 3, 2000.
16.1** Letter regarding change in certifying accountant.
21.1** List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Patent Counsel.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ---------
* Previously filed but refiled with reinstated text in accordance with rules
regarding confidential treatment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission ("SEC"). The omitted information has been filed
separately with the SEC pursuant to the application for confidential
treatment.
- --------------------------------------------------------------------------------
II-4
<PAGE>
PART II
- --------------------------------------------------------------------------------
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be presented
in them is not applicable or is shown in the consolidated financial statements
or related notes.
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
under the California Corporations Code, the Certificate of Incorporation or our
bylaws, the underwriting agreement, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities, other than the payment by us of expenses incurred or paid by a
director, officer, or controlling person of ours in the successful defense of
any action, suit or proceeding, is asserted by a director, officer or
controlling person in connection with the securities being registered in this
offering, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether this indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We undertake that:
(1) 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 us under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered, and
the offering of these securities at that time shall be deemed to be the
initial bona fide offering.
- --------------------------------------------------------------------------------
II-5
<PAGE>
- --------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 4 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Menlo
Park, State of California, on this 3rd day of April, 2000.
<TABLE>
<S> <C>
DRUGABUSE SCIENCES, INC.
By: /s/ PHILIPPE POULETTY, M.D.
--------------------------------------------
Philippe Pouletty, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
/s/ PHILIPPE POULETTY, M.D.
--------------------------------- Chairman of the Board and Chief April 3, 2000
Philippe Pouletty, M.D. Executive Officer
* Chief Financial Officer, Senior Vice
--------------------------------- President, Business Development and
Elizabeth M. Greetham Director
*
--------------------------------- Medical Director and Director
David E. Smith, M.D.
*
--------------------------------- Director
Raffy Kazandjian
*
--------------------------------- Director
Fred P. Phillips IV
*
--------------------------------- Director
Russell Ricci
*
--------------------------------- Director
Gordon Russell
*
--------------------------------- Director
Vincent Worms
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ PHILIPPE POULETTY, M.D.
--------------------------------------
Philippe Pouletty, M.D. April 3, 2000
ATTORNEY-IN-FACT
</TABLE>
- --------------------------------------------------------------------------------
II-6
<PAGE>
- --------------------------------------------------------------------------------
Index to exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1** Our Amended and Restated Articles of Incorporation.
3.2** Form of Amended and Restated Articles of Incorporation to be
filed upon the closing of the offering made under this
Registration Statement.
3.3** Our Bylaws.
3.4** Our Amended and Restated Bylaws to be effective upon the
closing of the offering made under this Registration
Statement.
4.1** Amended and Restated Investors' Rights Agreement, dated
October 6, 1999.
4.2** Form of our Common Stock certificate.
5.1** Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1** Form of Indemnification Agreement entered into between us
and each of our directors and executive officers.
10.2** 1994 Stock Option Plan.
10.3** 1999 Stock Plan A.
10.4** 1999 Stock Plan B.
10.5** 2000 Stock Incentive Plan.
10.6** 2000 Employee Stock Purchase Plan.
10.7** 2000 Directors' Option Plan.
10.8** Sublease between Etak, Inc. and us dated October 1, 1998, as
amended.
10.9*+ Clinical Supply Agreement by and between the Registrant and
SP Pharmaceuticals, L.L.C. dated November 24, 1999.
10.10**+ Research Agreement with Option to License by and between us
and Southern Research Institute dated February 28, 1997.
10.11**+ Product License Agreement by and between us and Southern
Research Institute dated July 1, 1999.
10.12*+ Research Agreement with Option to License by and between us
and Southern Research Institute dated January 21, 2000.
10.13**+ Product License Agreement by and between us and Southern
Research Institute dated January 21, 2000.
10.14*+ License Agreement by and between us and SCRIPPS dated June
18, 1996.
10.15*+ License Agreement by and between us and Pasteur Meriux
Serums & Vaccins dated June 8, 1999.
10.16*+ Manufacturing and Supply Agreement by and between us and
Pasteur Meriux Serums & Vaccins dated June 8, 1999.
10.17**+ Research and Development Agreement by and between us and
University of Paris V dated June 8, 1999.
10.18**+ Research and Development Agreement by and between us and
University of Paris V dated March 3, 2000.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
16.1** Letter regarding change in certifying accountant.
21.1** List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Patent Counsel.
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ---------
* Previously filed but refiled with reinstated text in accordance with rules
regarding confidential treatment.
** Previously filed.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission ("SEC"). The omitted information has been filed
separately with the SEC pursuant to the application for confidential
treatment.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXHIBIT 10.9
CLINICAL SUPPLY AGREEMENT
Drug Abuse Sciences, ("DAS"), a corporation incorporated under
the laws of the State of California, with offices located at 1430 O'Brien Drive,
Suite E, Menlo Park, California, 94025 and SP Pharmaceuticals, L.L.C., a New
Mexico limited liability company ("SP"), located at 4272 Balloon Park Road,
N.E., Albuquerque, New Mexico 87109 agree:
1. RECITALS. SP proposes to manufacture the Product for DAS
for use in clinical trials in accordance with the terms of this Agreement.
2. THE WORK. SP will manufacture and supply DAS with the
Product pursuant to DAS Purchase Orders in accordance with the Specifications,
CGMPs and other terms described in the Statement of Work pursuant to the terms
of this Agreement and all appendices, exhibits and other attachments, subject to
DAS' right to have a third party perform the work specified in section 5.2 of
this Agreement. Subject to Section 3.3 below, any amendments to the Statement of
Work must be mutually agreed to by the Parties in writing and must be attached
to the Statement of Work, whereupon such amendment will become part of this
Agreement. Upon mutual agreement of the parties, DAS may add additional products
to this Agreement to be finished by SP, and the Parties will amend this
Agreement to cover such additional products. Any additional products added to
this Agreement will require their own statements of work, and a statement of
work for the related work. SP will have a right of first refusal to manufacture
each lot of clinical supply of Product required by DAS on the same terms and
conditions as may be offered by DAS to a third party.
2.1 SUPPLIED MATERIALS. SP will order the Supplied
Materials from vendors mutually agreed upon by the parties. SP agrees to inspect
the Supplied Materials and agrees to use all diligent efforts to replace
non-conforming Supplied Materials on a timely basis. All materials and products,
including Supplied Materials, paid for or provided by DAS pursuant to this
Agreement shall be and remain the property of DAS.
2.2 ACTIVE INGREDIENT AND [****]. DAS shall
furnish to SP [********] in these quantities as are reasonably necessary to
enable SP to manufacture the desired quantities of Product in accordance with
the Statement of Work. All shipments of Active Ingredient shall be
accompanied by a certificate of analysis from the bulk supplier of the Active
Ingredient, confirming the quantity and purity of such Active Ingredient. SP
shall verify the labeled quantity of Active Ingredient against the bill of
lading and shall perform release testing to confirm that the Active
Ingredient conforms with specifications defined in Appendix B. If SP fails to
properly carry out the above-referenced inspection and analysis obligations,
or its storage and handling obligations, SP shall be responsible for the
non-conformance or other failure of the Active Ingredient. SP will inform DAS
of any discrepancies in quantity and identity of the Active Ingredient or
failure of the Active Ingredient to conform to the bulk supplier's
certificate of analysis in any respect as soon as reasonably practical after
receipt of the Active Ingredient. SP shall also inform DAS of any damage to
the Active Ingredient received that is visually obvious (e.g., damaged or
punctured containers) within twenty (20) days of SP's receipt of the Active
Ingredient. Active Ingredient that is rejected in accordance with the
foregoing or SP's standard operating procedures will be returned
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
to the bulk supplier at DAS' expense and direction and DAS will be
responsible for arranging replacement Active Ingredient on a timely basis to
allow SP to produce the Product.
2.3 PACKAGING REQUIREMENTS. SP shall furnish all
labor, packaging materials, and packaging supplier necessary to package the
Product in sealed vials in accordance with the Statement of Work and at the
prices set forth in with the Pricing Appendix. SP guarantees that is packaging
procedures shall comply with all relevant laws, rules and regulations of the FDA
and the Foreign Authorities.
2.4 RECORDS. SP will maintain and provide to DAS
adequate documentation with respect to the manufacture of Product to properly
document and support all of DAS' filings as they relate to Product production
with the FDA. Further, during the Hold Period, SP shall maintain records and
samples relating to such Product batches sufficient to substantiate and verify
its duties and obligations hereunder, including but not limited to, records of
Active Ingredient used, Product manufactured, work in progress, Product
analyses, quality control tests and the like. During the Hold Period, SP shall
not destroy any records relating to regulatory compliance or quality assurance
without giving DAS notice and an opportunity to take possession of or copy such
records as DAS may reasonably require. After the Hold Period, SP will transfer
all such records to DAS or at DAS' request destroy such records in accordance
with SP's standard operating procedures then in effect (but which shall be at
least as protective as the SP Standard Operating Procedure attached hereto as
Appendix D). DAS will reimburse SP for reasonable out-of-pocket costs incurred
for such transfer.
3. QUALITY CONTROL.
3.1 SPECIFICATIONS. SP shall not implement any
changes relevant to the Product which are not in compliance with the
Specifications without obtaining DAS' prior written approval.
3.2 SP LABORATORY SERVICES. SP will test the Active
Ingredient, [****] and finished Product in accordance with the Statement of
Work attached as Appendix B. SP will provide required manning and supervision,
training, procedures, qualifications, reagents, analysis, investigating, data
collection and reporting with respects the Product, and DAS will provide all
validated analytical methodologies and standards, including method transfer
protocols needed for the testing of Active Ingredient, [****] and finished
Product.
3.3 MODIFICATIONS. DAS will inform SP in writing of
any modifications to the Specifications or Statement of Work as soon as
reasonably practicable. SP will inform DAS of the amount of reasonable
additional costs, if any, SP would incur due to the modification. If DAS elects
to adopt the modification, DAS will (i) at DAS' election either directly
purchase required additional equipment or materials which are approved by SP, or
reimburse SP for required direct capital expenditures, and (ii) pay SP for any
increased services or materials which are necessary to implement the
modification to the Specifications or Statement of Work at SP's then current
pricing rates for such services and materials. SP will provide DAS a detailed
and itemized written explanation of capital expenditures and additional charges
for services and materials incurred due to the modification. If the parties
agree that SP is
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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technically unable to comply with a proposed modification or if DAS is unwilling
to pay SP's costs for direct capital expenditures in advance, DAS shall have the
option to withdraw the proposed modification or negotiate a payment plan
acceptable to SP. When a cost-saving modification is recommended by DAS and
implemented by SP, SP will decrease its charges to DAS by an amount equal to the
reduction in price resulting from the decreased services or materials afforded
by the modification. SP and DAS will revise the Pricing Appendix, Statement of
Work, Specifications and related schedules to account for any modifications
agreed to and implemented by the parties pursuant to this paragraph. SP is not
required to accept any modification which in SP's reasonable belief would create
a compliance risk for any regulatory requirement.
3.4 ACCESS TO SP FACILITIES BY DAS. Upon reasonable
notice and at a time mutually agreeable to the parties, or immediately in the
event of a bona fide emergency, SP shall permit DAS representatives to enter
SP's plant during regular business hours for the purpose of making quality
control inspections of the facilities used in production of Product for DAS, for
taking inventories of Active Ingredient and Product, and for examining and
copying any relevant records (described in Section 2.04) during normal business
hours. DAS may observe and inspect all activities and records associated with
manufacturing, quality control, storage, and waste disposal. [********]. Any DAS
Representatives shall be advised of the confidentiality obligations under this
Agreement and shall follow such security, safety and facility access procedures
as are reasonably designated by SP.
3.5 SAFETY. SP shall have sole responsibility for
adopting and enforcing safety procedures for the handling and production of the
Product by SP and handling and disposal of waste relating thereto that comply in
all material respects with all federal, New Mexico state, regulatory and
Albuquerque local environmental and occupational safety and health requirements
based on material safety data sheets or other raw material, Active Ingredient,
or finished Product data. Such responsibilities shall include the proper
disposal of waste in an appropriate manner consistent with the nature of the
waste and at a permitted waste disposal facility. Such responsibilities shall
terminate as to Product upon delivery thereof to DAS. DAS shall, at SP's
reasonable request, advise and consult with SP concerning such safety
procedures. Subject to the foregoing, DAS acknowledges and agrees that it is
responsible for providing the material safety data sheets, toxicology, safe
handling and disposal requirements for Active Ingredient, [****], Product, and
other raw materials provided by DAS.
4. NON-CONFORMING PRODUCT. Upon receiving a written request
from DAS, SP will rework or, if necessary, remanufacture a new Product lot to
replace any Non-conforming Product lot. If SP agrees that the Product in
question is Non-conforming Product as a result of an error or omission by SP, it
shall promptly pay to DAS the Reimbursement Amount. At DAS' option, (i) SP shall
be relieved of any obligation to deliver any substitute Product with respect to
the Non-conforming Product lot, or (ii) SP shall use best efforts to replace the
Non-conforming Product with substitute Product that conforms with the
Specifications and any other requirements of this Agreement as soon as
reasonably possible, in which case DAS shall pay SP for the substitute Product
in accordance with the Pricing Appendix and this Agreement. SP shall dispose of
any Non-conforming Product which is the result of an error or omission of SP at
its own expense. DAS shall pay for disposal of all Non-conforming
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Product which is not due to the error or omission of SP, and which occurs after
the Product is surrendered by SP for shipping to DAS or its representatives.
4.1 If SP does not agree that the Product is
Non-conforming Product as a result of an error or omission by SP, the parties
shall timely consult with each other and attempt to resolve the discrepancies.
If the parties cannot resolve the discrepancies in a timely manner, they shall
promptly nominate an independent, reputable laboratory, which shall carry out
appropriate analyses with respect to such Product to determine if it conforms to
the Specifications. If the results conclude that the Product conformed to the
Specifications, DAS will be responsible for all amounts owed to the laboratory
and shall not be entitled to the Reimbursement Amount. If the results conclude
that the Product did not conform to the Specifications, as a result of an error
or omission by SP, SP shall be responsible for all amounts owed to Laboratory
and shall promptly pay DAS the Reimbursement Amount.
5. PRICING AND PAYMENT TERMS.
5.1 PAYMENT. Subject to the terms of this Agreement,
DAS will pay SP for the Product, SP miscellaneous charges, and for any services
rendered by SP in accordance with the pricing terms described in the Pricing
Appendix, provided that such SP services (including the manufacture of Product)
have been rendered pursuant to a DAS Purchase Order and in accordance with the
Statement of Work. [********] and (ii) [********] without the requirement of a
Purchase Order. The amount to be paid to SP by DAS under this Agreement does not
include the cost of materials provided by DAS to SP. In the event DAS and SP
have not executed a development agreement prior to the execution of this
clinical supply agreement, DAS will pay SP [********] in accordance with the
terms set forth in the Pricing Appendix.
5.2 OUTSOURCE WORK. DAS will have the right to
have a third party perform the work for the [********] (item 4 in the Pricing
Appendix), [********] (item 10 in the Pricing Appendix) and [********] (item
11 in the Pricing Appendix) (collectively referred to as the "Outsource
Work"). If a third party does perform the Outsource Work for DAS as set forth
above, DAS will have no obligation to pay SP for items 4, 10 and 11 in the
Pricing Appendix. If DAS decides to have SP perform the Outsource Work
instead of a third party, DAS will pay SP for the Outsource Work in
accordance with the prices and terms set forth in the Pricing Appendix. SP
will not be responsible for any delays in testing or manufacturing the
clinical supplies which are due to delays of the third party performing the
Outsource Work.
6. PURCHASE ORDERS. Purchase Orders shall be written and shall
specify the quantity of Product ordered, the location to which the Product is to
be delivered and the requested delivery date. [********], as necessary, to the
attention of David Lunt, Pricing Analyst, [********] confirmed by SP. SP will
use its best efforts to deliver Product in accordance with the delivery schedule
listed in the Statement of Work. However, the parties recognize that
installation, validation, and operation of the equipment used to manufacture the
Product may affect the delivery dates.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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6.1 SHIPMENT. SP will ship the Product and an
applicable certificate of analysis at DAS' expense pursuant to a DAS Purchase
Order. Delivery of the Product will be F.O.B. SP's shipping docks in
Albuquerque.
6.2 TITLE. Title to all Active Ingredient,
[********], all work in process to produce the Product, and all completed
Product, shall at all times remain in DAS. However, SP shall assume liability
for any loss or damage relating to the foregoing while SP has custody over
the same. If any Active Ingredient, work in process or Product is destroyed,
damaged or lost while in SP's custody or control, SP shall reimburse DAS for
DAS' out-of-pocket costs for items provided by DAS for the manufacture of the
Product, provided that reimbursement for Active Ingredient and [********] per
lot produced under this Agreement. SP shall keep DAS' title to all Active
Ingredient, work in process to produce Product, and finished Product while in
SP's custody free and clear of all liens and encumbrances. SP shall pay all
costs associated with securing the release of any such liens and encumbrances.
7. TAXES AND FEES. DAS will be liable for and pay to SP any
sales, use, gross receipts or other taxes, licenses, or fees (excluding tax
based on net income and franchise taxes) required to be paid by SP to the State
of New Mexico or any other state or tax jurisdiction as a result of purchasing
materials, rendering services, transferring property, or taking any other action
necessary to fulfill the terms of this Agreement.
8. COMPLIANCE WITH APPLICABLE LAWS. SP and DAS will each
comply with all applicable state, United States and Foreign Authorities
regulations, including without limitation all applicable FDA laws and
regulations and all Environmental Protection Agency laws and regulations, and
will provide such information and documentation to each other as is necessary
for such compliance.
9. NATURE OF RELATIONSHIP. The relationship between the
parties shall be governed by the terms of this Agreement and shall not extend to
other activities, transactions or contracts. Neither party to this Agreement is
in any way the legal representative or agent of, nor has any authority to assume
or create any obligation on behalf of, the other party. Under no circumstances
shall the employees, agents or representatives of one party be considered
employees, agents or representatives of any other. Each party shall perform
under this Agreement as an independent contractor and nothing herein shall be
construed to be inconsistent with that relationship or status. This Agreement
shall not constitute, create, or in any way be interpreted as a joint venture,
partnership, or formal business organization of any kind. Storage of the
finished Product by SP will not create or constitute an agency relationship
between the parties.
10. PRODUCT DEVELOPMENT. DAS and SP will negotiate in good
faith toward the execution of a mutually acceptable supply agreement by
January 31, 2000, pursuant to which SP will be the exclusive supplier to DAS
for the supply of quantities of Product during the Initial Supply Period for
the United States and Foreign Authorities. DAS and SP agree to negotiate in
good faith during the term of this Agreement towards the execution of a
mutually acceptable Supply Agreement for the period following the Initial
Supply Period, taking into account such factors as (but not limited to)
capacity, delivery location, environmental constraints, price and quality
issues and the like. If
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
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the parties cannot reach agreement on such a Supply Agreement, then DAS shall be
free to enter into a definitive agreement with a third party.
11. CONFIDENTIALITY.
11.1 DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION.
Each Receiving Party will maintain in confidence all Confidential Information
disclosed pursuant to this Agreement and will not use any Confidential
Information except as permitted by this Agreement, or disclose the same to
anyone other than its Representatives who need to know such Confidential
Information in connection with the Receiving Party's activities under this
Agreement. SP acknowledges and agrees that all information relating to the
Product, the SRI Process and the Process Improvements shall be deemed to be the
Confidential Information of DAS.
11.2 USE BY REPRESENTATIVES. Each party will use its
best efforts to ensure that its Representatives do not disclose or make any
unauthorized use of any Confidential Information. Each party will notify the
other promptly upon discovery of any unauthorized use or disclosure of the
other's Confidential Information. Each Receiving Party shall direct its
Representatives to handle all Confidential Information in a manner consistent
with the terms of this Agreement and to take all precautions and measures that
are reasonably necessary to prevent any improper use of the Confidential
Information. At Disclosing Party's request, Receiving Party shall cause its
Representatives to execute written confidentiality agreements, in form
satisfactory to both Disclosing Party and Receiving Party, requiring such
Representatives to handle all Confidential Information in a manner consistent
with the terms of this Agreement.
11.3 LIMITATION ON CONFIDENTIALITY.
A. The obligation of confidentiality imposed by this
Section 11 will not apply to the extent that (i) the Receiving Party is required
to disclose information by applicable law, regulation or order of a governmental
agency or a court of competent jurisdiction, subject to the conditions of
Section 11.04; (ii) the Receiving Party can demonstrate that the disclosed
information was at the time of disclosure already in the public domain, other
than as a result of actions or failure to act of the Receiving Party or its
Representatives in violation of this Agreement; (iii) the disclosed information
was rightfully known by the Receiving Party (as shown by its written records)
prior to the date of disclosure to the Receiving Party in connection with the
transactions contemplated by this Agreement; or (iv) the disclosed information
was received by the Receiving Party on an unrestricted basis from a source which
is not under duty of confidentiality to the Disclosing Party.
B. All Confidential Information developed by SP
pursuant to this Agreement, excluding Elements of the Process which are
generally known or have been used by SP prior to development of the Process
shall be deemed to be Confidential Information of DAS disclosed by DAS to SP and
exception (iii) above will not be applicable thereto.
C. Notwithstanding any limitations imposed by Section
11 of this Agreement, SP will have the full right to use and disclose such
portions of the Confidential Information, including Confidential Information
owned by DAS which relates to the Process
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Improvements, as are necessary to allow SP to fully exploit its licenses
described in Section 12.3 of this Agreement.
11.4 DISCLOSURE OF CONFIDENTIAL INFORMATION. If the
Receiving Party must make disclosure of any Confidential Information as a result
of the issuance of a court order or other government process, the Receiving
Party will promptly, but in no event more than forty-eight hours after learning
of such court order or other government process, notify, by personal delivery or
facsimile, the Disclosing Party of the same. At the Disclosing Party's expense,
the Receiving Party will (a) take all reasonably necessary steps requested by
the Disclosing Party to defend against the enforcement of such court order or
other government process, and (b) permit the Disclosing Party to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
11.5 IRREPARABLE HARM. Each party acknowledges that
its breach of these Confidentiality provisions would cause irreparable injury to
the other party for which monetary damages are not an adequate remedy.
Accordingly, a party will be entitled to injunctive relief and other equitable
remedies in the event of such a breach by the other.
11.6 RETURN AND RETENTION. The Receiving Party shall,
upon the written request of the Disclosing Party, promptly return to the
Disclosing Party all Confidential Information (including notes, writings and
other material developed therefrom) and all copies thereof and retain none for
its files, except that SP may retain original documents generated by SP and
except to the extent SP is required by law to retain such Confidential
Information. The return or retention of such information shall not relieve the
Receiving Party of its continuing obligation of confidentiality hereunder. All
original documents prepared by SP in support of development of the Product, the
development work and the manufacturing process will be maintained by SP during
the Hold Period. SP will provide DAS with reasonable written notice not less
than 60 days prior to the proposed destruction of such documents and will
provide DAS with reasonable opportunity to have such items shipped to DAS at
DAS' expense prior to destruction. At a time mutually agreeable to the parties
or within 3 business days if in connection with a regulatory filing, DAS will
have access to original documents relating to the Product, the development work
and the manufacturing process during ordinary SP business hours, and may use
copies of the original documents for any purpose, including, without limitation,
submission to the FDA or other regulatory agencies in connection with an
application for governmental approval.
11.7 PUBLIC ANNOUNCEMENT. The parties agree that no
press release, public announcement or publication regarding this Agreement or
the relationship of the parties, (except to the extent that it may be legally
required), shall be made unless mutually agreed to prior to the release or
dissemination of any such press release, public announcement or publication.
12. PATENTS AND INTELLECTUAL PROPERTY RIGHTS.
12.1 OWNERSHIP OF INTELLECTUAL PROPERTY. The
parties expect that the Product will be manufactured using a process
developed by SP which is based upon a process developed by [****]. The
parties expect that the process to
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be developed by SP will, among other things, provide for the manufacture of
Product in large quantities and allow the Product to be (i) [********], and
(ii) [********]. SP expects to improve upon the SRI Process by developing new
technologies and by using certain processes and information that SP
developed, used or had access to prior to development of the Product. DAS and
SP intend and agree that the Product, Process, and Process Improvements shall
be solely and exclusively owned by DAS. SP will own improvements to the SP
Intellectual Property which are developed by SP while performing the
development work for DAS and which do not rely on or incorporate the
proprietary rights (whether or not confidential) of DAS or its suppliers.
12.2 SP ASSIGNMENT. SP hereby assigns and agrees to
assign to DAS all of SP's ownership rights in and to the Product, Process and
any and all Process Improvements, which assignment includes all related
intellectual property rights. SP will execute such documents and provide such
assistance as may be deemed necessary by DAS to apply for, defend or enforce any
United States or foreign letters patent which are the result of any Process
Improvements developed, in whole or in part, by SP.
12.3 DAS LICENSES TO SP.
A. DAS hereby grants to SP a non-exclusive, royalty
free license to use the Product, Process, SRI Process, and Process Improvements
for the purpose of producing, developing or manufacturing the Product for DAS.
B. Subject to the limitations set forth below, DAS
hereby grants to SP a perpetual, non-exclusive, royalty-free license to use
any Process Improvements for any purpose, including without limitation in the
development or manufacture of products for third parties, except that (a) SP
will have no license or right to use in any respect (and shall not permit
others to use) the Process Improvements in the development, production or
manufacture of products, processes or compounds with the [********]. DAS will
not have any claim or cause of action against any third party based on SP's
use of the Process Improvements for such third party solely in the
development, production or manufacture of a product or processes which is
outside the Field. The SP License may only be revoked if SP (i) exceeds the
scope of the SP License or (ii) violates the non-competition provisions of
Section 22 of this Agreement; [********].
C. SP hereby grants to DAS an irrevocable, perpetual,
non-exclusive, royalty-free license to use for any purpose any Elements of the
Process that are owned by SP and which are directly incorporated into the
Process.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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13. INSURANCE. SP and DAS shall each, throughout the term
of this Agreement, obtain and maintain at its own cost and expense from a
qualified insurance company, [****], including [****] insurance designating
each other as an [****]. Such policies shall provide protection against any
and all claims, demands and causes of action arising out of any defects or
failure to perform, alleged or otherwise, of the Product or any material used
in connection therewith or any use thereof. The amount of coverage shall be a
minimum of [********] combined single limit coverage, for each occurrence for
bodily injury and/or for property damage. SP and DAS each agree to furnish
within [********] after execution of this Agreement proof that such insurance
is in effect.
14. REGULATORY MATTERS.
14.1 COMPLIANCE. SP shall be responsible for
compliance of the manufacturing, quality control, testing, packaging procedures,
and any of its other pertinent obligations hereunder, with FDA standards,
including those pertaining to CGMPs, provided that, as set forth in the
Statement of Work, DAS shall provide and be responsible for compliance of the
(I) testing methods and procedures for the Active Ingredient and [****]
provided by DAS, (II) label copy for use in or with the Product, (III) conduct
and implementation of the clinical trials, (IV) Product distribution, and (V)
any other DAS' obligations hereunder in accordance with FDA standards. Each
party will provide all reasonable assistance and cooperation to the other if
necessary to respond to FDA audits, inspections, inquiries or requests
concerning the Product. However, DAS shall reimburse SP for any costs incurred
in connection with SP's efforts to comply with regulatory requests that are
outside of the normal course of SP's business in accordance with the terms of a
pricing protocol to be mutually agreed upon by DAS and SP ("Pricing Protocol").
DAS employees present at the SP facility shall at all times adhere to safety
regulations, CGMPs and work schedule generally applicable to SP's own employees,
provided that such DAS employees are notified of the same.
14.2 SAFETY MATTERS. DAS shall give SP prompt notice
of any information it receives regarding the safety of the Active Ingredient,
[****] or Product, including any confirmed or unconfirmed information on
serious adverse events associated with the use of the Product that in the
reasonable judgment of DAS are related to the manufacture of the Product by SP
or are necessary to satisfy SP's obligations to the FDA with respect to the
manufacture of the Product by SP. SP shall give DAS prompt notice of any
information it receives regarding the safety of the Product, including any
confirmed or unconfirmed information on adverse, serious or unexpected events
associated with the use of the Product. For serious, unexpected events, notice
must be given by telephone to DAS immediately after receipt of the information
and followed by written notice not more than one business day thereafter. All
responsibility and cost for filing any reports with the FDA concerning such
reactions (including Drug Experience Reports) caused by Product manufactured for
DAS shall be DAS' responsibility and the cost borne by DAS. With respect to
problems relating to SP's production of the Product, SP will provide all
reasonable assistance to DAS in responding to any complaints or inquiries
regarding the Product, including reviews and testing of retained samples,
Product, and batch records relating to a complaint. SP will promptly inform DAS
of any environmental non-compliance or regulatory issues that could jeopardize
SP's ability to manufacture and package the Product hereunder. DAS will
reimburse SP for the cost of SP's investigation into
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the Product complaint or inquiry where the cause of such complaint or inquiry is
not due to an act or omission of SP.
14.3 COOPERATION. SP will maintain and, upon
reasonable notice, provide to DAS such documentation, data, and other
information as DAS may require for submission to the FDA. SP shall also make
available its cooperation and consultation if reasonably requested by DAS or
required by the FDA for development of additional data, performance of studies
concerning the Product, or consulting with DAS in addressing any issues raised
by FDA concerning manufacture and quality control of the Product, and DAS shall
pay SP in accordance with the Pricing Protocol. SP shall also provide, if
required by the FDA, information concerning its production processes and quality
control procedures with respect to the Product.
14.4 INSPECTION. SP shall promptly notify DAS of any
announced or unannounced FDA or Foreign Authority inspection relating to
production of the Product. SP shall permit a DAS representative to accompany the
FDA or Foreign Authority representative during any inspection relating to the
production of the Product, provided that DAS' representative shall only
participate as an observer and be present only during those portions of the
inspection that relate to the Product. SP shall immediately provide to DAS
copies of any resulting document of action (FDA Form 483 inspectional
observation report, regulatory letters, etc.) resulting from these audits.
Should either SP or DAS receive any such document of action, it shall
immediately notify the other and shall provide to the other an opportunity to
the extent feasible under the circumstances to provide input to any response to
any such document of action.
15. INDEMNIFICATION.
A. DAS will indemnify and hold harmless the
Indemnified SP Parties against any and all losses, liabilities, damages, and
costs (including attorneys' fees and expenses) incurred as a result of any third
party claim, arising out of (i) any failure by DAS to comply with any applicable
governmental regulation (including, without limitation, any applicable
environmental laws), (ii) the breach of any representation, warranty, or
covenant of DAS contained in this Agreement, (iii) a claim that use of the
Process or a process, Active Ingredient or material as provided by DAS infringes
a valid patent or trademark of such third party, to the extent that such claim
arises out of use of such process, Active Ingredient or material as provided by
DAS, (iv) the use by SP of any raw or component material(s) supplied by DAS to
SP or by a third party on DAS' behalf, (v) the promotion, marketing,
distribution and sale, whether directly or through distributors, of the Product,
(vi) any product recall which is not due to an error or omission of SP, or (vii)
personal injury, product liability or property damage relating to or arising
from the Product supplied or the manufacturing process; PROVIDED, HOWEVER, THAT
IN NO EVENT SHALL DAS INDEMNIFY OR HOLD HARMLESS ANY OF THE INDEMNIFIED SP
PARTIES IN THE EVENT SP OR ANY THIRD PARTY IS IN ANY WAY RESPONSIBLE BY GROSS
NEGLIGENCE OR WILLFUL ACT FOR SUCH LOSSES, LIABILITIES, DAMAGES, COSTS AND
EXPENSES.
B. SP will indemnify and hold harmless the
Indemnified DAS Parties against any and all losses, liabilities, damages, and
costs (including attorneys' fees and expenses)
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
incurred as a result of any third party claim, commenced or threatened, arising
out of, based upon, or in connection with (i) any breach of any representation,
warranty, covenant or agreement of SP contained in this Agreement, (ii) any
failure by SP to comply with any state, United States, FDA or Foreign
Authorities regulations (including, without limitation, any applicable
environmental laws), or (iii) any product recalls [********] produced
hereunder), personal injury, product liability or property damage relating to or
arising from any Product supplied or manufacturing Process developed by SP under
this Agreement, BUT ONLY TO THE EXTENT SUCH FAILURE, RECALLS OR WITHDRAWALS,
PERSONAL INJURY, PRODUCT LIABILITY OR PROPERTY DAMAGE REFERRED TO WITHIN (ii)
AND (iii) OF THIS PARAGRAPH IS ATTRIBUTABLE TO SP'S BREACH OF THIS AGREEMENT,
OR SP'S FAILURE TO MANUFACTURE ANY PRODUCT IN CONFORMANCE WITH THE
SPECIFICATIONS; PROVIDED FURTHER THAT SP WILL NOT INDEMNIFY AND HOLD HARMLESS
INDEMNIFIED DAS PARTIES FOR (I) EXPENSES INCURRED IN DEFENDING AGAINST ANY
LITIGATION, CLAIM, OR ANY AND ALL AMOUNTS REASONABLY PAID IN SETTLEMENT OF ANY
CLAIM OR LITIGATION ARISING OUT OF DAS' GROSS NEGLIGENCE INCLUDING, WITHOUT
LIMITATION, DAS' GROSS NEGLIGENCE IN PRODUCT DEVELOPMENT, PRODUCT DESIGN,
PRODUCT SUPPLY, OR INSTRUCTIONS FOR PRODUCT USE OR (II) THE PORTION OF ANY LOSS
OF ACTIVE INGREDIENT OR [****] PROVIDED BY DAS WHICH IS IN EXCESS OF
[********], OR (III) ANY LOSS, LIABILITY OR EXPENSE ARISING FROM DAS' OR ANY
THIRD PARTY'S MODIFICATION OR GROSS NEGLIGENCE OR UNINTENDED USE OF ANY
MANUFACTURING PROCESS DEVELOPED OR IMPROVED BY SP PURSUANT TO THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION THE PROCESS AND ANY IMPROVEMENTS THERETO, ONLY TO
THE EXTENT SUCH LIABILITY WAS CAUSED BY SUCH MODIFICATION OR GROSS NEGLIGENCE OR
UNINTENDED USE AS SET FORTH ABOVE.
C. DAS and SP will cooperate with each other with
respect to resolving any claim or liability with respect to which
indemnification may be sought under this Agreement, including, without
limitation, by making commercially reasonable efforts to mitigate or resolve any
such claim or liability.
D. The foregoing indemnity obligations are
conditioned upon the following: (i) the Indemnified Party will promptly notify
the Indemnifying Party in writing of the claim; (ii) the Indemnified Party will
fully cooperate with the Indemnifying Party in the defense of any such claim;
and (iii) the Indemnified Party will provide the Indemnifying Party sole control
over defense and settlement of any such claim.
E. Upon request, each party will (i) provide such
records and information reasonably relevant to the claim, (ii) make employees
available on a mutually convenient basis to provide additional information, and
(iii) explain any material provided under this Agreement.
16. WARRANTIES.
16.1 SP'S WARRANTIES. SP hereby represents and
warrants as follows:
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(a) The Product shall conform in all respects to the
Specifications and shall be manufactured and packaged in compliance with
CGMPs and other quality assurance procedures and processes in accordance with
FDA or other applicable regulatory standards;
(b) SP shall fully comply in all material respects with
any law, regulation, ordinance, order, injunction, decree or requirement
applicable to the manufacture of the Product or the handling and disposal of
the waste;
(c) SP shall maintain in effect all required federal, FDA,
Foreign Authorities, New Mexico state, and local governmental permits,
licenses, orders, applications and approvals regarding the manufacturing of
the Product, and SP shall manufacture Product in accordance with all such
permits, licenses, orders, applications and approvals;
(d) The Supplied Materials shall (i) not be adulterated or
misbranded within the meaning of the FFDCA or within the meaning of any
applicable state or municipal law in which the definitions of adulteration
and misbranding are substantially the same as those contained in the FFDCA,
and (ii) not be articles that may not, under the FFDCA or any other
applicable law, statute or regulation, be introduced into interstate
commerce; and
(e) The Product, at the time of delivery to DAS, shall
have a minimum shelf life of thirty (30) days as determined by validated
stability information (i.e., Product performance/potency/efficacy shall
continue to conform to the Specifications during the 30 day period).
(f) To the best of SP's knowledge (without requiring SP to
conduct a patent search), the Process Improvements will not infringe any
intellectual property or proprietary rights of any third party.
16.2 DAS' WARRANTIES. DAS hereby represents and warrants as
follows:
(a) DAS shall comply in all material respects with any
law, regulation, ordinance, order, injunction, decree or requirement
applicable to the clinical testing, distribution and labeling of the Product;
(b) DAS shall maintain in effect all material required
federal, Foreign Authorities, New Mexico state, and local governmental
permits, licenses, orders, applications and approvals regarding the clinical
testing, distribution and labeling of the Product, and DAS shall conduct
clinical trials and market the Product in accordance with all such permits,
licenses, orders, applications and approvals; and
(c) Following delivery of Product to DAS by SP, such
Product thereafter shall (i) not be adulterated or misbranded within the
meaning of the FFDCA or any Foreign Authorities within the meaning of any
applicable state or municipal law in which the definitions of adulteration
and misbranding are substantially the same as those contained in the FFDCA or
Foreign Authorities, and (ii) not be articles that may not, under the FFDCA
or any other applicable law, statute or regulation, be introduced into
interstate commerce; and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(d) All material safety data sheets and other raw
material, Active Ingredient, finished Product or other data supplied by DAS
to SP are accurate to the best of DAS' knowledge.
(e) SP's use of the SRI Process to produce the Product
will not infringe any intellectual property or proprietary rights of SRI.
16.3 WARRANTY DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH IN THIS AGREEMENT, SP AND DAS MAKE NO REPRESENTATIONS AND EXTEND NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
17. APPENDICES, AMENDMENTS AND CONFLICTS. The terms of the
appendices, exhibits, schedules and other attachments to this Agreement may
be amended from time to time upon the written consent of an authorized
representative of both SP and DAS. In cases where there is of a conflict
between the terms of this Agreement and the terms of an appendix, exhibit,
schedule or other attachment, the terms of this Agreement will control.
18. GOVERNING LAW. If SP should bring any suit, action or proceeding
arising out of or relating to this Agreement against DAS, this Agreement
shall be governed by and construed in accordance with the laws of the State
of California. If DAS should bring any suit, action, or proceeding arising
out of this Agreement against SP, this Agreement shall be governed by and
construed in accordance with the laws of the State of New Mexico.
19. SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Agreement shall not affect the validity or enforceability
of any other term or provision hereof.
20. SURVIVAL. The obligations in Sections 2.4, 6.2, 9, 11, 12, 14,
15, 16, 17, 18, 19, 20, 21.4, 22 and 23 shall survive the expiration or
termination of this Agreement for any reason whatsoever.
21. TERM AND TERMINATION.
21.1 TERM. Subject to the termination provisions below, the
initial term of this Agreement shall commerce on the date this Agreement is
signed by authorized representatives of both parties and shall continue until
February 1, 2001 unless otherwise terminated as provided below. The parties
may agree to extend this Agreement for additional successive one year periods
until the Development Work is completed and SP will update pricing to account
for pricing increases or decreases at such renewals.
21.2 TERMINATION FOR CONVENIENCE. DAS shall have the right to
terminate this Agreement for convenience on [********] to SP if DAS
reasonably determines that the Product is not commercially or technically
viable.
21.3 TERMINATION FOR CAUSE. In addition, each party shall have
the right to terminate this Agreement:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(a) by giving the other party written notice thereof if
the other party fails to perform or violates any material provision of this
Agreement in any material respect, and such failure continues uncured for a
period of [********] after the date the notifying party gives written notice
to the defaulting party with respect thereto; or
(b) immediately if the other party is declared insolvent
or bankrupt by a court of competent jurisdiction, or a voluntary petition of
bankruptcy is filed in any court of competent jurisdiction by the other party
makes or executes any assignment for the benefit of creditors.
21.4 EFFECT OF TERMINATION.
(a) Upon termination of this Agreement for any reason
(whether due to breach of either party or otherwise), SP shall furnish to DAS
a complete inventory of all stock on hand of the Active Ingredient, Polymers,
work in progress for the manufacture of the Product and finished Product.
Unless otherwise agreed to between the parties, all stock on hand as of the
effective date of termination of this Agreement shall be dealt with promptly
as follows:
(i) Product manufactured and packaged pursuant to
this Agreement shall be delivered by SP to DAS, whereupon DAS shall pay SP
therefor in accordance with the terms hereof;
(ii) Work in progress commenced by SP shall be
completed by SP and delivered to DAS, whereupon DAS shall pay SP therefor in
accordance with the terms hereof; and
(iii) [********] not necessary to complete (b) above
shall be disposed of by SP or provided to DAS at DAS' option. At DAS' option,
SP will at its expense tender for delivery to DAS any raw materials paid for
by DAS under this Agreement, whereupon DAS shall be responsible for the costs
of shipping and related insurance.
(b) Upon termination of this Agreement, SP shall at DAS'
request and at DAS' cost, assist DAS in all ways reasonably requested by DAS
to transfer the manufacture of Product to DAS or its designated agents
including, but not limited to, the transfer of any information concerning
SP's processes, quality control procedures and testing, the education and
training of DAS personnel or other designated third parties, and any other
act necessary for DAS to have equivalent capabilities to manufacture Product.
SP shall designate a senior level manager as liaison who shall be responsible
for facilitating and coordinating the transfer of such information. DAS and
SP shall negotiate in good faith the reasonable cost and the reasonable
period of time for which SP shall provide such assistance.
22. NON-COMPETITION AGREEMENT.
A. SP [********], (i) [********], or (ii) [********] [********]
[********], subject to the extended non-competition period in Section 22.B.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
B. If DAS and SP execute a mutually acceptable supply agreement
for the supply of Product for the Initial Supply Period or any period
thereafter, then the [********] shall be extended and continue uninterrupted
for an additional period ending [********] after:
(i) [********]; or
(ii) the end of any year following the first year
after FDA approval of the Product in which DAS' orders for Product from SP
[********]; provided, however, that if SP is not the exclusive supplier of
Product to DAS in any such year (following the first year after FDA approval
of the Product) where DAS orders for Product from [********], then the
[********] will only continue for a period of [********] after the end of any
such year [********].
C. The Non-Competition Restriction imposed upon SP will
immediately terminate if DAS substantially ceases its activities in the Field.
23. DEFINITIONS.
23.1 "ACTIVE INGREDIENT" means [********].
23.2 "CGMPs" means the Current Good Manufacturing Practices as
established by the FDA with regard to the manufacture of finished
pharmaceuticals as set forth in 21 CFR 211.
23.3 "CONFIDENTIAL INFORMATION" means, collectively, all
information disclosed pursuant to this Agreement and designated in writing as
"confidential" by the Disclosing Party, which includes but is not limited to:
(i) all information relating to the Product, Active Ingredient, raw
materials, licenses, patents, patent applications, technology, processes and
business plans of the Disclosing Party, (ii) all notes, analyses, studies or
other documents prepared by the Receiving Party which contain or are based on
such information or material relating to the information disclosed by the
Disclosing Party, and (iii) all information obtained by the Receiving Party
upon visiting the Disclosing Party's facilities or reviewing products, plans,
processes, formulations, operations, facilities, equipment or other assets of
the Disclosing Party, whether or not such information or process is the
property of the Disclosing Party.
23.4 "DAS LICENSE" means the license from SP to DAS as defined
and limited in Section 12.3.C.
23.5 "DISCLOSING PARTY" means a party to this Agreement which
discloses Confidential Information to the other party.
23.6 "ELEMENTS" means each of those steps, procedures,
processes or directives involved in producing the Product.
23.7 "FDA" means the United States Food and Drug Administration.
23.8 "FFDCA" means the Federal Food, Drug, and Cosmetic Act.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
23.9 "FIELD" means the development, production or manufacture
of products, processes or compounds with the primary indication directed to
the treatment of drug, alcohol, or other substance abuse addiction which
involve slow release properties.
23.10 "FOREIGN AUTHORITIES" means those foreign countries
listed on the attached Appendix C and the governments and regulating
authorities of such foreign countries.
23.11 "HOLD PERIOD" means the period of time defined in SP's
Standard Operating Procedures for "Retention and Control of QA Records"
during which time SP will retain records and samples relating to Product
batches and which will not be for a period which is less than five years
following the manufacture date of any particular Product batches or such
longer period as may be required by the FDA.
23.12 "INDEMNIFIED DAS PARTIES" means DAS, its affiliates, any
present or future parent or subsidiary of them, and their respective
officers, members, managers, employees, counsel, agents, investment bankers,
accountants, and affiliates which may be entitled to indemnification pursuant
to the terms of this Agreement.
23.13 "INDEMNIFIED SP PARTIES" means SP, its affiliates, any
present or future parent or subsidiary of them, and their respective
officers, members, managers, employees, counsel, agents, investment bankers,
accountants, and affiliates which may be entitled to indemnification pursuant
to the terms of this Agreement.
23.14 "INDEMNIFIED PARTY" means any party seeking
indemnification under this Agreement.
23.15 "INDEMNIFYING PARTY" means any party which will be
indemnifying the Indemnified Party pursuant to this Agreement.
23.16 "INITIAL SUPPLY PERIOD" means the first two years
following FDA approval of the Product.
23.17 "NON-CONFORMING PRODUCT" means any Product which does not
meet the Specifications.
23.18 [********]
23.19 "PRICING APPENDIX" means Appendix A and includes the
pricing terms for the work to be performed by SP pursuant to this Agreement,
as amended from time to time by the parties.
23.20 "PROCESS" refers to each Element involved in producing
the Product, as well as all of those Elements taken together, but does not
include any Element of the Process developed, used or available to SP prior
to commencement of the Product development, including without limitation SP's
[********] in time release or other products prior to commencement of the
Product development.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
23.21 "PROCESS IMPROVEMENTS" means any improvements to the
[********] developed by SP, including without limitation new technologies
developed by SP during the Product development and any improvements to
processes or information developed, used or available to SP prior to
development of the Product, but does not include the SRI Process.
23.22 "PRODUCT" means [********].
23.23 "PURCHASE ORDER" means a written order for Product from
DAS.
23.24 "RECEIVING PARTY" means a party to this Agreement which
receives Confidential Information from the other party to this Agreement.
23.25 "REIMBURSEMENT AMOUNT" means the sum of (i) any costs
reasonably expended by DAS in order to identify defects in Non-conforming
Product (e.g., testing), subject to a maximum amount equal to [********] for
the Non-conforming Product lot; (ii) all fees paid to SP for the
Non-conforming Product lot that cannot be shipped due to the defect; (iii)
the replacement cost of Active Ingredient that cannot be shipped due to the
Non-conforming Product lot, provided that SP's liability for such cost shall
not exceed [********] for each Non-conforming Product lot; and (iv) the
transportation charges paid by DAS for the Non-conforming Product lot.
23.26 "REPRESENTATIVES" means the officers, directors, members,
managers, representatives, agents or employees of one of the parties to this
Agreement.
23.27 "SPECIFICATIONS" means the Product specifications
described in the Statement of Work attached as Appendix B and mutually agreed
to by the parties.
23.28 "SP LICENSE" means the license from DAS to SP as defined
and limited in Section 12.03.B.
23.29 "SP INTELLECTUAL PROPERTY" means any patent, know-how, or
trade secret which SP can demonstrate was in existence and owned by SP prior
to the beginning of any development work for DAS.
23.30 "STATEMENT OF WORK" means the Statement of Work attached
to this Agreement as Appendix B.
23.31 "SUPPLIED MATERIALS" means all materials necessary to
manufacture the Product which are to be supplied by SP, but not including
[********] and any other materials to be supplied by DAS.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
DAS
By: /s/ Philippe Pouletty 11/24/99
--------------------------------------- -------------------------------
Date:
Title: Chairman
SP PHARMACEUTICALS, L.L.C.,
A New Mexico limited liability company
By: /s/ D. Hogan 11/24/99
--------------------------------------- -------------------------------
Its: Operating Manager Date:
------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
DRUG ABUSE SCIENCES
PRICING APPENDIX
ESTIMATED CLINICAL SUPPLY COSTS
AND TIME LINES
The prices listed below are an estimate only based upon SP's knowledge of the
current process. Because the process is in development, SP cannot predict the
final outcome of the development process. Thus these prices are expected to
change.
ITEMIZED COSTS AND ESTIMATED TIME FRAMES:
1. JUNE 1, 1999-DECEMBER 1999
a) [********]
b) [********]
c) [********]
d) [********]
e) [********]
2. DECEMBER 1, 1999 - MARCH 1, 2000
a) [********]
b) [********]
c) [********]
d) [********]
e) [********]
3. SCALE-UP:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Known Activity Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] Costs negotiated and paid for between [******] and DAS
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
Estimate based upon knowledge of process ,to date.
Expect to bill on a time, travel, per diem and material
basis at [********] per hour depending on level of
person used.
- ------------------------------------------------------------ ---------------------------------------------------------
[********] runs. Price includes [********] ([********] per lot)
- - [********]
- - [********]
- - [********]
- - [********]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Price does NOT include: TBD - Price to be mutually agreed upon at a later date
- - [********]
- - [********]
- - [********]
Drug Abuse Sciences provides SP with:
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Estimated Total [********] to [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
4. PLACEBO LOT MANUFACTURE [********]:
Estimated Time Frame: Manufacture: [********]
Release: [********]
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Item Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Placebo lot manufacture: $ [********]
- - Manufacture up to [********]
- - One lot
Does not include cost for: TBD - Price to be mutually agreed upon at a later date
- - [********]
- - [********]
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Document preparation: [********]
- - [********]
- - [********]
- - [********]
- - [********]
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
5. [********]:
Estimated Time Frame: [********]
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Known Activity Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] [********] per tote
- ------------------------------------------------------------ ---------------------------------------------------------
Transportation [********] [********] per round trip
- ------------------------------------------------------------ ---------------------------------------------------------
Process validation. To be contracted out. [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Regulatory compliance work [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Estimated Total [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
6. MANUFACTURING EQUIPMENT LEASE OR PURCHASE:
Estimated time frame for completion: [********]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Equipment Expected Total Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] DAS to provide
- ------------------------------------------------------------ ---------------------------------------------------------
[********] DAS to provide
- ------------------------------------------------------------ ---------------------------------------------------------
[********] DAS to provide
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- - [********]
- - [********]
[********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] Modification to be performed on SP equipment to adapt
to DAS requirements.
No Charge.
- ------------------------------------------------------------ ---------------------------------------------------------
Miscellaneous Equipment and Accessories [********] (price not expected to exceed)
(hoses, valves, modifications to existing
equipment, etc.)
- ------------------------------------------------------------ ---------------------------------------------------------
Estimated Total for SP [********]
Plus appropriate
shipping, handling,
installation and
taxes.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
7. [********]:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Test Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] [********] per vendor lot
Certificate of Analysis:
- [********]
- [********]
- [********]
- [********]
- [********]
[********]
[********]
[********]
[********]
[********]
[********]
- [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] Certificate of Analysis Outside Laboratory costs plus [********]
- - [********] (to be performed by a contract [********] - Price to be mutually agreed upon at a
laboratory) at a later date.
- - [********] (to be performed by a contract
laboratory) SP is waiting for copies of methods from the
- - [********] three outside laboratories that [********]. If
- - [********] SP is unable to obtain copies of the methods
- [********] SP will need to discuss other options with [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
- [********]
- [********]
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
8. CLINICAL/STABILITY LOTS OF [********]:
Estimated Time Frame: First lot manufacture: [********]
First lot Release: [********]
Second lot Manufacture: [********]
Second lot Release: [********]
Third lot Manufacture: [********]
[********]
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Item Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Manufacturing Cost [********]
[********]:
- [********]
- [********]
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Document preparation [********] per formulation
- [********]
- [********]
- [********]
- [********]
- [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Total for [********] lot [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Total for [********] lots [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
SP assumes DAS prefers to schedule the lots several weeks apart to allow for
obtaining test data on finished product for one lot prior to manufacturing the
next lot.
9. CLINICAL/STABILITY LOTS OF DILUENT [********]:
Estimated time frame to Manufacture: [********]
Estimated time frame to Release: [********]
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Item Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Manufacturing Cost Diluent [********] per lot
Includes the cost of the
- - [********]
- - [********]
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
- - [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Does not include the cost of:
- [********] See Item 13. Validations
- [********]
- [********]
- [********]
- [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
10. STABILITY STUDY [********] (SCHEDULE ATTACHED) [Outsource Work. DAS has
the right to have a third party perform the work for the Stability
Study for [********]]:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Number of Lots on Stability Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Estimated Total [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
Estimated Time Frame: Each study begins upon lot release and continues through
the [********] test point following ICH guidelines.
11. STABILITY STUDY DILUENT (SCHEDULE ATTACHED) [Outsource Work. DAS has
the right to have a third party perform the work for the Stability
Study for Diluent:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Number of Lots on Stability Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] [********] per lot
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
Estimated Time Frame: The study begins upon lot release and continues through
the [********] test point following ICH guidelines.
12. GOVERNMENT SUBMISSION:
Estimated Time Frame: Dependent upon DAS Projected Time Frames.
DAS needs to inform SP of IND requests [********] in advance of date DAS
needs the information.
DAS needs to inform SP of NDA requests [********] in advance of date DAS
needs the information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Submission Type Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] [********]
[********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
[********]
- ------------------------------------------------------------ ---------------------------------------------------------
Estimated Total [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
13. VALIDATIONS:
Estimated Start Date: [********].
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
Validations Stage Expected Cost
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] SP does not plan to perform process validation on the
clinical lots
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
[********] Perform additional work on a time and materials basis
at [********].
- ------------------------------------------------------------ ---------------------------------------------------------
[********] TBD - Price to be mutually agreed upon at a later date
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] TBD - Price to be mutually agreed upon at a later date.
[********]
- ------------------------------------------------------------ ---------------------------------------------------------
Estimated Total $[********] without terminal sterilization validation
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ESTIMATED CLINICAL COSTS: APPROXIMATE RANGE
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
1. [********] [********] [********]
2. [********] [********]
3. [********] [********]
4. [********] [********]
5. [********] [********]
6. [********] [********]
7. [********] [********]
8. [********] [********]
9. [********] [********]
10. [********] [********]
11. [********] [********]
-----------------------------------------------------------------
ESTIMATED TOTAL [********]* [********]*
[********] [********] [********]
[********] [********] [********]
</TABLE>
*Does not include costs outlined in various sections that are yet to be
determined.
PREPAYMENT:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
A [********] or [********] prepayment of the estimated total (less the costs for
the optional items of [********].
PURCHASE ORDERS:
A purchase order will be issued by DAS prior to the initiation of any work with
the exception of the SP Process Transfer and Scale Up, Experimental lots and
Travel incurred to date, Equipment leased or to be purchased, through December
1, 1999. Verbal authorization to initiate work is acceptable and will be
followed immediately with the issue of a purchase order. The terms of the
contract and this Appendix and any amendments to them will supercede any
conflicts with the Terms and Conditions of the Purchase Order.
PAYMENT METHODS:
1. PER CENT OF COMPLETION: The SP Process Transfer and Scale Up will be invoiced
using a per cent of completion method.
2. MILESTONES: Invoices for items other than the SP Process Transfer and Scale
Up will be sent at the completion of each milestone.
PAYMENT LOCATION: Payment shall be made to SP by electronic transfer of funds
to:
[********]
APPLICATION TO PREPAYMENT: Invoices for items covered under both the Percent of
Completion and Milestone methods will be applied to the prepayment until the
prepayment amount is met. Once the prepayment is met, [********].
INTEREST OF [********] PER MONTH WILL BE CHARGED ON ALL INVOICES PAID LATER
THAN [********] FROM DATE OF INVOICE.
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------- ---------------------------------------------
PERCENT OF COMPLETION EXPECTED COST INVOICE DATE
- ---------------------------------------- ------------------------------- ---------------------------------------------
<S> <C> <C>
SP process transfer and scale up [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
- ---------------------------------------- ------------------------------- ---------------------------------------------
MILESTONE EXPECTED COST MILESTONE COMPLETION (BILLING DATE
- ---------------------------------------- ------------------------------- ---------------------------------------------
Travel [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
Experimental Lots [********] per lot [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] per lot [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ---------------------------------------- ------------------------------- ---------------------------------------------
of the lot, whichever comes first.
[********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
Equipment lease or purchase [********] expected plus [********]
and installation shipping, handling,
installation and taxes
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
[********] TBD
- ---------------------------------------- ------------------------------- ---------------------------------------------
Manufacture [********] of [********] per lot [********]
Documentation Preparation [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] per lot [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] per lot [********]
[********] [********]
[********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] Final report
[********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
[********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] [********]
[********] Final report
[********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
[********] [********] [********]
- ---------------------------------------- ------------------------------- ---------------------------------------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
APPENDIX B
"SCOPE OF WORK"
DRUG ABUSE SCIENCES [********]
PRODUCT MANUFACTURE AND TESTING RESPONSIBILITIES AND
REQUIREMENTS
1) DRUG ABUSE SCIENCES will provide:
a) Vendor released [********]
b) [********]
c) Validated analytical methodology and standards (i.e., reference
standards or in-house standards) required to test the materials
provided by DAS for the following. The standards shall be from the
same lot DRUG ABUSE SCIENCES WILL use for its tests.
i) Receiving
ii) In process bulk solution
iii)Finished product testing
2) These budgetary quotes are based upon SP performing the following:
a) Performance of the following Receiving Tests:
[********]
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Appearance [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Water (Karl Fisher) [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Assay [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Related Substances Pass
- - [********] [********]
- - [********] [********]
- - [********] [********]
- - [********] [********]
- - [********] [********]
- - [********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Identification by IR To Be Determined (TBD)
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[********]
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
Identity by [********]
- ------------------------------------------------------------ ---------------------------------------------------------
Inherent viscosity, [********] Unknown
- - [********] [********]
- - [********] [********]
- - [********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] Unknown
- ------------------------------------------------------------ ---------------------------------------------------------
[********] to be defined Unknown
- ------------------------------------------------------------ ---------------------------------------------------------
[********] (Total Concentration) Unknown
- ------------------------------------------------------------ ---------------------------------------------------------
b) Performance of the following In Process Tests:
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
Appearance TBD
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] TBD
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
*NOTE: [********]
c) Performance of the following End Product Analysis after Gama
Sterilization:
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] TBD
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
*NOTE: [********].
3) Providing the following components:
a) Vial: [********]
b) Stopper: [********]
c) Seal: [********]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
d) Standard SP Shippers
4) Raw Materials: SP will furnish and conduct the appropriate inspection,
testing and release of the excipient raw material. For the purpose of
this quote the excipients were quoted as:
(a) [********]
(b) [********]
5) Preparing the Master Batch Record and associated records following the
information provided.
6) Manufacturing the product according to the approved master batch record
as follows:
a) Compound the [********].
b) Prepare and sterilize [********].
c) Fill the [********].
d) [********].
e) [********].
f) [********].
g) [********].
h) [********].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
APPENDIX C
"SCOPE OF WORK"
DRUG ABUSE SCIENCES [********]
PRODUCT MANUFACTURE AND TESTING RESPONSIBILITIES AND
REQUIREMENTS
1) These budgetary quotes are based upon SP performing the following:
a) Performance of the following Receiving Tests:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
b) Performance of the following In Process Tests:
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
*NOTE: Relative Viscosity is not included in pricing due to unknown method.
c) Performance of the following End Product Analysis:
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] To Be Determined (TBD)
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
*Note: [********].
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
APPENDIX C
"SCOPE OF WORK"
DRUG ABUSE SCIENCES [********]
d) Performance of the following product specific validations:
- ------------------------------------------------------------ ---------------------------------------------------------
TEST SPECIFICATION
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
[********] [********]
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
2) Providing the following components:
a) Vial: [********]
b) Stopper: [********]
c) Seal: [********].
d) [********]
3) Raw Materials: [********]:
(a) [********]
(b) [********]
(c) [********]
(d) [********]
4) Gases and Water for Injection (WFI): [********].
5) Preparing the Master Batch Record and associated records following the
information provided.
6) Manufacturing the product according to the approved master batch record
as follows:
a) [********]
b) [********]
c) [********]
d) [********]
e) [********]
f) [********]
g) [********]
h) [********]
i) [********]
j) [********]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.12
RESEARCH AGREEMENT
(WITH OPTION TO LICENSE)
BETWEEN
SOUTHERN RESEARCH INSTITUTE
AND
DRUG ABUSE SCIENCES, INC.
DATE: JANUARY 21, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
BACKGROUND........................................................................................................1
DEFINITIONS:......................................................................................................1
THE PROJECT.......................................................................................................2
TERM..............................................................................................................2
CHARGES AND INVOICING.............................................................................................3
MATERIALS.........................................................................................................4
DELIVERABLES......................................................................................................4
OWNERSHIP OF INVENTIONS AND DISCOVERIES...........................................................................5
PATENT MATTERS....................................................................................................6
PRODUCT COMMERCIALIZATION.........................................................................................7
PUBLICITY.........................................................................................................7
CONFIDENTIALITY...................................................................................................7
LIMITATION OF LIABILITY...........................................................................................8
INDEMNIFICATION...................................................................................................8
MISCELLANEOUS.....................................................................................................9
Assignment...............................................................................................9
Entire Agreement.........................................................................................9
Parties Independent......................................................................................9
Waivers; Amendments.....................................................................................10
Further Assurances......................................................................................10
Notice..................................................................................................10
Applicable Law; Divisibility............................................................................11
Headings................................................................................................11
Translations............................................................................................11
Force Majeure...........................................................................................11
Agreement Under Seal....................................................................................11
Counterparts............................................................................................11
EXHIBIT A - PRODUCT DESCRIPTION................................................................................ E-1
EXHIBIT B - PATENTS AND PATENT APPLICATIONS.................................................................... E-2
EXHIBIT C - PROPOSAL........................................................................................... E-3
</TABLE>
i
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
RESEARCH AGREEMENT
(WITH OPTION TO LICENSE)
THIS AGREEMENT ("RESEARCH AGREEMENT") is made and entered into as of January 21,
2000, by and between SOUTHERN RESEARCH INSTITUTE, having an address at 2000
Ninth Avenue South, Birmingham, Alabama, 35205 (hereinafter "SOUTHERN"), and
DRUG ABUSE SCIENCES, INC., having an address at 1430 O'Brien Dr., Suite E, Menlo
Park, California, 94025, and Affiliates (hereinafter referred to collectively as
"DAS", where Affiliates are defined below).
BACKGROUND
SOUTHERN is a not-for-profit corporation organized and operated for scientific
purposes and is engaged in conducting scientific research in the public
interest; and
DAS desires that SOUTHERN conduct the research described in this RESEARCH
AGREEMENT and SOUTHERN's Proposal P99.620.3R3 (hereinafter the "Proposal"). A
copy of the Proposal is attached hereto as Exhibit C.
THEREFORE, in consideration of the premises and mutual promises and covenants
herein contained, SOUTHERN and DAS agree as follows:
DEFINITIONS:
TECHNOLOGY - Means any and all technical information,
formulations, processes, know-how, data, specifications,
characterization methods, characterization results, and other
proprietary information, whether or not patented or
patentable, owned or used by SOUTHERN and relating to the
process for [****] or other performance-enhancing qualities
to products, including but not limited to the patents
(issued, ending, or subsequently filed and including all
divisionals, continuations, continuations-in-part or other
related United States and foreign applications) listed in
Exhibit B to which may be added additional patents or patent
applications resulting from developments under this RESEARCH
AGREEMENT.
PRODUCT TECHNOLOGY - Means any part of the Technology, as
defined above, specifically utilized in work on this project
and to produce DAS' ultimate product(s), compound(s), or
formulation(s), listed in Exhibit A, which Exhibit A may be
amended from time to time based on developments under this
RESEARCH AGREEMENT.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
1
<PAGE>
AFFILIATE - means any entity or organization that controls, is
controlled by or is under common control with a party. For
this purpose, "control" shall mean the ownership (whether
directly or indirectly) of forty-nine percent (49%) or more of
the voting stock or other equity interest or the ability
(whether directly or indirectly) to determine the policy or
actions of any entity on account of contract or other
relationships.
BUPRENORPHINE - means each of [********]
CONTROLLED RELEASE BUPRENORPHINE - means any [********]
THE PROJECT
1. (a) DAS hereby establishes a research project with SOUTHERN
(hereinafter the "Project"), the purpose of which is to develop the product(s)
listed in Exhibit A (hereinafter the "PRODUCT").
(b) During the term of this RESEARCH AGREEMENT , SOUTHERN will
undertake the Project described in Paragraph 1(a) exclusively for DAS
[********].
(c) SOUTHERN grants to DAS an exclusive option to license the
PRODUCT developed during the term of this RESEARCH AGREEMENT (hereinafter said
term shall be referred to as the "Option Period"). The purpose of such option to
license is for DAS to evaluate its interest in commercializing the PRODUCT. The
payment for such option to license shall be in the amount and shall occur
pursuant to Paragraph 3(a) herein. DAS' rights under this option to license are
described in Paragraph 8 herein.
TERM
2. (a) This RESEARCH AGREEMENT and the Option Period shall become
effective on the date written above and, unless earlier terminated by DAS as set
forth below, shall terminate the earlier of three (3) years thereafter or upon
completion of the services which DAS may require for entering and performing
clinical studies toward the commercialization of PRODUCT, except as otherwise
provided herein; provided, however, that the three (3) year term set forth in
this sentence shall be changed to two (2) years if DAS ceases the operation of
its business. It is the intent of the parties that both parties use best efforts
to produce a PRODUCT acceptable to DAS that shall be delivered to DAS not later
than [********] from the initiation of the development set forth in the
Proposal.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
2
<PAGE>
(b) Paragraphs 1(c), 2(b) and (c), 3(a), 5, 6, 7, 8, 9, 10,
11, 12 and 13 shall survive the termination of this RESEARCH AGREEMENT.
(c) DAS can terminate this RESEARCH AGREEMENT, which will
also terminate the option to license, by giving SOUTHERN a written notice
stating the desired termination date. This notice shall be given at least
[*********] of the desired termination date. DAS shall pay to SOUTHERN in
full for all of SOUTHERN's activities occurring under this RESEARCH AGREEMENT
through the date of termination. In the event that DAS terminates this
RESEARCH AGREEMENT prior to delivery of PRODUCT and SOUTHERN enters into a
subsequent research agreement for Buprenorphine and employs Product
Technology developed under this RESEARCH AGREEMENT, SOUTHERN agrees to
negotiate in good faith with DAS reasonable compensation for DAS' payments
prior to such termination. Such compensation shall take into consideration
pharmaceutical industry standard drug profit margins, the fact of DAS'
termination, the total amount paid by DAS, the extent to which the Product
Technology will be used, the savings in performing such future research which
SOUTHERN will enjoy, the period of time elapsing between the termination by
DAS and the entering into such subsequent research agreement, and such other
considerations which are relevant to the determination of compensation. If
the parties cannot agree on such compensation within [*********] of a party's
request to negotiate, then either party may submit the matter to binding
arbitration. The parties agree to hold a meeting, attended by individuals
with decision-making authority regarding the dispute, to attempt in good
faith to negotiate a resolution of the dispute prior to pursuing other
available remedies. If, within [*********] after such meeting, unless extended
by mutual consent, the parties have not succeeded in negotiating a resolution
of the dispute, the parties agree to hold another meeting, attended by
individuals holding at least vice presidential offices within their
respective organizations, to again attempt in good faith to negotiate a
resolution of the dispute. If, within [*********] after such meeting, unless
extended by mutual consent, the parties have not succeeded in negotiating a
resolution of the dispute, such dispute shall be submitted to final and
binding arbitration under the then current rules relating to commercial
disputes of the American Arbitration Association ("AAA"), with a single
arbitrator in New York, New York. Such arbitrator shall be selected by mutual
agreement of the parties or, failing such agreement, shall be selected
according to the aforesaid AAA rules. The parties shall bear the costs of
arbitration equally unless the arbitrators, pursuant to their right, but not
their obligation, require the non-prevailing party to bear all or any unequal
portion of the prevailing party's costs. The decision of the arbitrator shall
be final and may be sued on or enforced by the party in whose favor it runs
in any court of competent jurisdiction at the option of the successful party.
The arbitrators will be instructed to prepare and deliver a written, reasoned
opinion conferring their decision. The rights and obligations of the parties
to arbitrate any dispute relating to the interpretation or performance of
this Agreement or the grounds for the termination thereof shall survive the
expiration or termination of this Agreement for any reason.
(d) The term of this RESEARCH AGREEMENT and the Option
Period can be extended subject to mutual agreement in writing between DAS and
SOUTHERN.
CHARGES AND INVOICING
3. (a) Upon signing of this RESEARCH AGREEMENT, DAS shall have
the option, at no cost, to license described in Paragraph 1(c) herein, which
option shall remain in
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
3
<PAGE>
effect for a period of three (3) years, with an understanding that DAS shall
use diligent efforts develop a product. Thereafter, the option may be
extended on a year by year basis by a payment of $25,000. The payments for
the option to license are not refundable.
(b) DAS' liability for the payment of charges in carrying
out the Project shall not exceed, in the aggregate, $814,600 without DAS'
prior written consent. Each task described in the Proposal shall require a
purchase order issued by DAS.
(c) DAS shall pay to SOUTHERN the sum of the charges
incurred during each month within [*********] of the invoice date for the
corresponding purchase order.
(d) SOUTHERN reserves the right to terminate this RESEARCH
AGREEMENT and the option to license, if DAS fails to pay any invoice within
[*********]from the invoice date.
(e) Upon receipt of DAS' written notice to terminate this
RESEARCH AGREEMENT, SOUTHERN will promptly discontinue work on the Project
and will invoice DAS for the sum of any uninvoiced charges incurred prior to
DAS' requested termination date. DAS shall pay to SOUTHERN the sum of the
charges listed on this invoice within [*********] of the invoice date.
MATERIALS
4. (a) With respect to the Project, SOUTHERN shall provide the
services of such personnel, laboratory facilities, equipment, chemicals, and
other supplies to conduct its activities under this RESEARCH AGREEMENT.
SOUTHERN shall provide as Exhibit D the names of the senior personnel who
will be working on the Project. In addition to the milestones set forth in
Exhibit C, the status of the Project at [*********] from the initiation of
the Project shall be treated as a milestone. At the time of each of the
milestones, the parties shall meet and assess the progress of the Project.
The meeting site for such meetings will alternate between the parties'
respective offices, with each party to bear its own costs associated
therewith. The information set forth in Exhibit D shall not be binding on
SOUTHERN, but SOUTHERN will notify DAS of any significant change in personnel
or charges.
(b) DAS agrees to supply to SOUTHERN, at no charge to
SOUTHERN, such necessary quantities of Buprenorphine ("Material") for the
Project at such times as SOUTHERN may reasonably request in order to complete
the Project. SOUTHERN shall give DAS reasonable notice of any need for the
Material, so as to allow DAS to obtain reasonable delivery of the Material
without delaying the Project.
DELIVERABLES
5. (a) SOUTHERN will furnish DAS timely progress reports on a
monthly basis summarizing the results of the Project and technical reports on
completion of a specific task or activity. These progress reports shall
contain technical information generated on the Project, except the details of
the process to make the PRODUCT.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4
<PAGE>
(b) SOUTHERN will provide research samples of the PRODUCT
("Research Samples") to DAS for evaluation as they become available. With the
Research Samples, SOUTHERN will provide DAS with sufficient information to
evaluate the Research Samples. The Research Samples shall be used by DAS for
research purposes only and DAS shall not distribute the Research Samples to a
third party without permission of SOUTHERN, except that DAS may without
permission give the Research Samples to laboratories for testing and
evaluation, which laboratories shall agree not to analyze the samples for
their composition, and provided that such laboratories satisfy any
requirements of the United States Drug Enforcement Agency. Information
generated by DAS from use of Research Samples may be shared in confidence
with SOUTHERN and will not be published, presented publicly, such as at
scientific meetings, or patented by SOUTHERN without prior written agreement
of the parties.
(c) It is understood and agreed that said Research Samples
cannot be used in humans.
(d) Should any phase of this Project involve the supply of
clinical samples of the PRODUCT ("Clinical Samples") by SOUTHERN for use in
humans, DAS hereby represents and warrants to SOUTHERN that all human
clinical protocols involving the use of any Clinical Samples to be provided
under this and/or subsequent agreements will be reviewed by the appropriate
Regulatory Agency(ies) and Institutional Human-Use Review Board(s) for
analysis of risk, benefit, and safety to human subjects and compliance with
all applicable procedures, laws, and regulations. It is agreed that said
Clinical Samples shall be prepared under current Good Manufacturing Practices
(cGMP) and supply of such Clinical Samples to DAS shall occur after SOUTHERN
receives from DAS written verification that appropriate Regulatory
Agency(ies) and Institutional Human-Use Review Board(s) approvals are in
place.
(e) Prior to DAS preparing any Clinical Samples of the
PRODUCT, SOUTHERN reserves the right to reassess its potential liability
arising from such use and to renegotiate the indemnity provisions of this
RESEARCH AGREEMENT. SOUTHERN shall provide DAS with the basis for its request
for renegotiation and substantiate the reasons for the change in indemnity
provisions.
OWNERSHIP OF INVENTIONS AND DISCOVERIES
6. (a) SOUTHERN represents that each of its employees has
entered into an employment agreement that provides for assignment to SOUTHERN
of all inventions made by such employee during the course of his employment
with SOUTHERN.
(b) DAS shall have title to any and all discoveries
relating to preparations and/or formulations and/or methods of use of the
formulations (collectively, the "Composition/Method Invention") in connection
with this Project, solely made or obtained during the term of this RESEARCH
AGREEMENT by personnel of DAS engaged in work on the Project. SOUTHERN shall
have title to any Composition/Method Invention in connection with this
Project solely made or obtained during the term of this RESEARCH AGREEMENT by
personnel of SOUTHERN engaged in the work on the Project. DAS and SOUTHERN
shall have title to any Composition/Method Invention in connection with this
Project jointly made or obtained during the term of this RESEARCH AGREEMENT
by personnel of SOUTHERN and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
5
<PAGE>
employees of DAS engaged in work on the Project. Such Composition/Method
Invention, whether patentable or not, shall promptly be made known to DAS in
writing. Whether or not a Composition/Method Invention patent issues as a
result of the research herein, SOUTHERN shall grant to DAS the right to use
any Composition/Method Invention owned solely by SOUTHERN only for the
PRODUCT contingent upon the signing of a license agreement ("LICENSE
AGREEMENT") by the parties. If a jointly owned patent issues, DAS shall
assign its rights to non-PRODUCTS to SOUTHERN, while retaining a
non-exclusive non-transferable royalty-free license to fully exploit such
patent(s) and the underlying technology.
(c) SOUTHERN shall have title to any and all discoveries
relating to chemical and/or fabrication processes (collectively, the "Process
Invention") arising from research investigations under this Project, made or
obtained during the term of this RESEARCH AGREEMENT by personnel of SOUTHERN
engaged in the work on the Project. SOUTHERN shall grant to DAS the right to
use such Process Invention, whether or not a letters patent issues, to
manufacture only the PRODUCT contingent upon the signing of the LICENSE
AGREEMENT by the parties.
(d) SOUTHERN shall grant to DAS the right to use SOUTHERN's
existing inventions listed in Exhibit B. DAS can use such existing inventions
to manufacture only the PRODUCT in accordance with the LICENSE AGREEMENT.
PATENT MATTERS
7. (a) Any expense for the drafting, filing, assignment,
recording of assignment, prosecution, annuities, and maintenance of United
States or foreign patent applications and patents for Composition/Method
Inventions arising from research investigations of this Project shall be
borne by DAS during the Option Period and during the period that such patent
applications and patents are exclusively licensed for PRODUCT to DAS.
Otherwise, such expenses shall be borne by SOUTHERN. SOUTHERN shall be
responsible for all patent prosecution for Composition/Method Inventions and
all decisions thereto, except that under any LICENSE AGREEMENT, DAS shall
assume all costs and have control of all Composition/Method of Use patents
covering PRODUCT. Each party shall cooperate with the other party in the
filing and prosecution of any such patents covering Composition/Method
Inventions arising under this Agreement.
(b) Any expense for the drafting, filing, assignment,
recording of assignment, prosecution, annuities, and maintenance of United
States or foreign patent applications and patents for Process Inventions
arising from research investigation of this Project shall be borne by
SOUTHERN. SOUTHERN shall be responsible for all patent prosecution for
Process Inventions and all decisions thereto.
(c) Both SOUTHERN and DAS shall have the opportunity for a
timely textual review of patent filing and prosecution matters related to
Composition/Method Invention applications that result from research
investigations of this Project.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
6
<PAGE>
PRODUCT COMMERCIALIZATION
8. (a) At any time during the Option Period, DAS upon written notice to
SOUTHERN, may, at its sole option, elect to enter into the LICENSE AGREEMENT for
the PRODUCT attached hereto as Exhibit D.
(b) No PRODUCT based upon the Technology, derivatives thereof, or their
use shall be commercialized by DAS or any third party without license from
SOUTHERN, except as provided for in Article 5 para. (b).
(c) If DAS executes a clinical or commercial supply agreement for
PRODUCT with a third party, SOUTHERN will, at DAS' expense, assist DAS and such
third party in utilizing the Project Technology to manufacture the PRODUCT. Such
third party shall be subject to SOUTHERN's reasonable approval and shall agree
in writing to be bound by the confidentiality and other relevant provisions of
this RESEARCH AGREEMENT.
PUBLICITY
9. Except as required by law, no publication, advertising, or publicity
matter having any reference to either DAS or SOUTHERN, expressed or implied,
shall be made use of by either party or anyone on behalf of either party, unless
and until such matter shall have first been mutually agreed upon in writing. The
foregoing shall not restrict the parties' right to make reference to the
parties' relationship or this Agreement to investors or potential investors.
CONFIDENTIALITY
10. (a) DAS and SOUTHERN agree that they will exert diligent efforts to
ensure their employees, agents, and consultants will keep in confidence and not
disclose or publish any proprietary information, confidential technical
information, or confidential business information (collectively hereinafter
referred to as "Information") transmitted to one another for use in the
performance of this Project or new information developed by DAS or SOUTHERN in
connection with this Project, including any Composition/Method and Process
Inventions. The confidentiality obligations herein shall not apply to:
(i) information, that at the time of disclosure, is in the
public domain; or
(ii) information, that after disclosure, becomes available to the
public through no fault of either party hereto or is lawfully made available to
DAS or SOUTHERN by a third party without restrictions as to disclosure; or
(iii) information that DAS or SOUTHERN can establish by
reasonable proof was in their possession at the time of disclosure, or was
subsequently and independently developed by employees of DAS or SOUTHERN,
outside of the scope of this Project, who had no knowledge of the information
disclosed; or
(iv) information deemed necessary and appropriate by DAS
or SOUTHERN to perfect patent rights pursuant to Paragraphs 6 and 7; or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
7
<PAGE>
(v) information that DAS and SOUTHERN mutually agree in writing
to release from the terms of this RESEARCH AGREEMENT; or
(vi) information required to be disclosed by order of a court,
other governmental body, or other government regulatory agency in the
furtherance of the purposes of the Project, after consultation with the party
who owns the Information.
(b) DAS' and SOUTHERN's obligation to keep in confidence, not to
disclose or publish such Information shall continue for a period of ten (10)
years from the date of this RESEARCH AGREEMENT, at the end of such period the
obligation will terminate.
(c) DAS and SOUTHERN may, in their sole discretion, disclose
necessary or appropriate Information to representatives of one or more of its
subsidiaries (whether directly or indirectly owned) in order for DAS or SOUTHERN
to perform its obligation under this RESEARCH AGREEMENT, provided, however, that
such subsidiary and such representatives shall be bound by the terms and
conditions of this Paragraph 10 that are applicable to DAS and SOUTHERN. Such
obligation not to disclose or publish shall continue in effect for any former
such subsidiary and such representatives of DAS or SOUTHERN.
(d) DAS and SOUTHERN agree that the Information disclosed will not be
used to provoke an interference with any patent application that the other party
or its employees have filed with respect to Information, and will not be used to
amend any claim in any pending patent application to expand the claim to read
on, cover or dominate any invention (whether or not patentable) disclosed as
Information.
LIMITATION OF LIABILITY
11. Under this RESEARCH AGREEMENT, SOUTHERN is to perform certain research
and other work incidental thereto, and is to provide certain counseling, advice,
conclusions, and/or recommendations. SOUTHERN will use its professional
experience and diligent professional efforts in performing this work. However,
SOUTHERN does not represent, warrant, or guarantee that its research results or
any products produced therefrom are merchantable or satisfactory for any
particular purpose, and there are no warranties, express or implied, to such
effect. DAS hereby agrees to release, waive, and forever discharge any demands,
claims, suits, or actions of any character against SOUTHERN arising out of or in
connection with DAS' acceptance, reliance on, or use of such results in the
absence of any negligent or willful act or omission by SOUTHERN in the
fulfillment of its activities under this RESEARCH AGREEMENT. In connection with
this Agreement, neither party shall be responsible or liable in contract or in
tort for any special, indirect, incidental, or consequential damages such as,
but not limited to, loss of PRODUCT, profits or revenues, damage or loss from
operation or nonoperation of plant, or claims of customers.
INDEMNIFICATION
12. DAS hereby agrees to indemnify, hold harmless, and defend SOUTHERN
and its officers, directors, representatives, agents, and employees from and
against any and all demands, claims, suits, or actions of any character
presented or brought on account of any injuries, losses, or damages sustained by
any person or property in consequence of any act or omission of DAS
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
8
<PAGE>
or its agents, employees, or subcontractors, except for any injuries, losses, or
damages that result from and to the extent of the negligence or willful
misconduct of SOUTHERN, in the performance of the Project and obligations
imposed herein and [*********]. The foregoing indemnity shall include but not be
limited to court costs, attorneys' fees, costs of investigation, costs of
defense associated with such demands, claims, suits, or actions.
During the time that any product, process, service relating to, or
developed pursuant to this RESEARCH AGREEMENT is introduced into human trials
or is being commercially distributed or sold by DAS or by a licensee,
affiliate or agent of DAS, DAS shall, at no cost to SOUTHERN, procure and
maintain [*********] in reasonable amount in relation to the nature of the
PRODUCT being sold, to the extent that such insurance is available to DAS at
a cost reasonably related to the anticipated risks and commensurate with
DAS's reasonable assessment of the risk and its ability to respond in
damages. Any such [*********] insurance shall provide (i) [*********] (ii)
[*********]. The amounts provided for by such insurance shall not be
[*********].
DAS shall provide SOUTHERN with written evidence of such insurance or
evidence of DAS' attempts to obtain such insurance upon written request of
SOUTHERN and shall give SOUTHERN at least [**********] notice prior to
cancellation, non-renewal or material change relating to insurance of which DAS
has previously notified SOUTHERN.
MISCELLANEOUS
13. (a) ASSIGNMENT. This RESEARCH AGREEMENT and the benefits and
obligations hereunder may not be assigned by a party without the prior written
consent of the other party, except
(i) to an Affiliate, or
(ii) in connection with a merger or consolidation of the party in
which such party is not the surviving entity, or a sale of all or substantially
all of the assets of the party provided that the successor or purchaser agrees
to assume all of the obligations of the party hereunder.
In the event of an assignment under Subsection (ii) of this Paragraph 13(a), the
assigning party shall notify the other party in writing of such assignment at
least thirty (30) days in advance of its occurrence.
(b) ENTIRE AGREEMENT. This RESEARCH AGREEMENT, including all Exhibits
hereto, sets forth and constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersedes any and all
prior agreements, requests for quotation, quotations, purchase orders, letters
of intent and understandings between the parties, and any and all promises,
statements, and representations made by either party to the other concerning
the subject matter hereof and the terms applicable hereto.
(c) PARTIES INDEPENDENT. In making and performing this RESEARCH
AGREEMENT, the parties are acting and shall act at all times as independent
contractors and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
nothing contained in this RESEARCH AGREEMENT shall be construed or implied to
create an agency, partnership, or joint venture relationship between the
parties.
(d) WAIVERS; AMENDMENTS.
(i) The failure of either party to insist upon the performance of
any of the terms of this RESEARCH AGREEMENT or to exercise any right hereunder
or at law or in equity, or any delay by either party in the exercise of any such
right, shall not be construed as a waiver or relinquishment of any such
performance or right or of the future performance of any such term or the future
exercise of such right, and any effective waiver or relinquishment of any such
right must be in writing and signed by a duly authorized officer of the party
waiving or relinquishing the right or rights. No waiver or relinquishment of any
right granted by either party to the other shall be deemed to be a continuing
waiver of such right in the future unless otherwise provided in the waiver.
(ii) This RESEARCH AGREEMENT may not be released, discharged,
amended, or modified in any manner except by an instrument in writing that
references this RESEARCH AGREEMENT and is signed by a duly authorized officer
of each party.
(e) FURTHER ASSURANCES. Each of the parties shall execute and deliver
to, or cause to be executed and delivered to, the other party, such further
instruments, or take such other action as may reasonably be requested of it to
consummate more effectively the transactions contemplated hereby.
(f) NOTICE. Any notice or other written communication required or
permitted to be made or given hereunder may be made or given by either party to
the other party by fax communication to the fax number set forth below and such
notice shall be followed up by depositing the same in the mail, certified
delivery, return receipt requested, postage prepaid, and addressed to the
mailing address set forth below:
DAS: DrugAbuse Sciences, Inc.
Attn: Chief Executive Officer
1430 O'Brien Drive, Suite E
Menlo Park, CA 94025
FAX: (650) 462-1003
SOUTHERN: Dr. Thomas R. Tice
Director, Pharmaceutical
Formulations Department
Southern Research Institute
2000 Ninth Avenue South
Birmingham, Alabama, 35205
FAX: 205-581-2888
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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(g) APPLICABLE LAW; DIVISIBILITY. This RESEARCH AGREEMENT is to be
governed by and construed in accordance with the laws of the State of Alabama,
United States of America. If, however, any provision hereof in any way
contravenes the laws of any state or jurisdiction where this RESEARCH AGREEMENT
is to be performed, such provision shall be deemed to be deleted therefrom, and
if any term of this RESEARCH AGREEMENT shall be declared by a final adjudication
to be illegal or contrary to public policy, it shall not affect the validity of
any other terms or provisions of this RESEARCH AGREEMENT.
(h) HEADINGS. Descriptive headings used herein are for convenience only
and shall not affect the meaning or construction of any provision hereof.
(i) TRANSLATIONS. In the event of an inconsistency between any terms of
this RESEARCH AGREEMENT and any translations thereof into another language, the
English language meaning shall control.
(j) FORCE MAJEURE. The untimely performance of any obligation arising
hereunder by either party will be excused, and such delay of performance shall
not constitute a breach or grounds for termination or prejudice of any rights
hereunder, provided that (a) the delay of performance is a result of
circumstances or occurrences beyond the reasonable control of the party whose
performance is excused hereunder (the "Delaying Event"), and (b) such party
shall (i) immediately resume performance after the Delaying Event is removed and
(ii) be reasonably diligent during such Delaying Event in avoiding further
delay. Without limiting the generality of circumstances or occurrences that
shall constitute a Delaying Event, examples of Delaying Events include, but are
not limited to, strikes, shortages of power or other utility services, materials
or transportation, acts of government or of God, sabotage, insurrection and
civil war. A party whose performance may be affected by a Delaying Event
promptly shall give notice to the other party of such Delaying Event and the
fact that it intends to rely upon such Delaying Event to excuse its performance
under this RESEARCH AGREEMENT.
(k) AGREEMENT UNDER SEAL. This RESEARCH AGREEMENT is intended to be
under the seal of all parties hereto and to have the effect of a sealed
instrument in accordance with the law.
(l) COUNTERPARTS. This RESEARCH AGREEMENT may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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IN WITNESS WHEREOF, the parties hereto have caused this RESEARCH
AGREEMENT to be duly executed, on the date written above.
SOUTHERN RESEARCH INSTITUTE DRUGABUSE SCIENCES, INC.
By: /s/ David W. Mason By: /s/ Philippe Pouletty
------------------------------------ ------------------------------
Name: David W. Mason Name: Philippe Pouletty
---------------------------------- ----------------------------
Title: Assistant Secretary Director Title: CEO
Commercialization and
Intellectual Property
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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EXHIBIT A
PRODUCT DESCRIPTION
CONTROLLED RELEASE BUPRENORPHINE
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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EXHIBIT B
PATENTS AND PATENT APPLICATIONS
A. COMPOSITION/METHOD INVENTION PATENT APPLICATIONS
U.S PATENT NUMBER: 4,897,268
TITLE: Drug Delivery System and
Making the Same
U.S. PATENT APPLICATION NUMBER: 60-151112, filed 8/27/99
TITLE: [*********].
AND ANY U.S. CONTINUATION(S), CONTINUATION(S) IN PART, OR DIVISIONALS AND ANY
FOREIGN COUNTERPART OF THE ABOVE.
B. PROCESS INVENTION PATENT APPLICATIONS
U.S. PATENT NUMBER: 5,407,609
TITLE: Improved Encapsulation Process
and Products Therefrom
U.S. PATENT NUMBER: 4,897,268
TITLE: Drug Delivery System and Method of Making the Same
U.S. PATENT APPLICATION NUMBER: 60-151112 filed 8/27/99
TITLE: [*********].
AND ANY U.S. CONTINUATION(S), CONTINUATION(S) IN PART, OR DIVISIONALS AND ANY
FOREIGN COUNTERPART OF THE ABOVE.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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EXHIBIT C
SOUTHERN PROPOSAL P99.620.3R3
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
E-3
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EXHIBIT D
LICENSE AGREEMENT
[see attached pages]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
E-4
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EXHIBIT 10.14
LICENSE AGREEMENT
by and between
THE SCRIPPS RESEARCH INSTITUTE,
a California nonprofit
public benefit corporation
and
DRUG ABUSE SCIENCES,
a California corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Definitions................................................................................................1
1.1 Affiliate.........................................................................................1
1.2 Confidential Information..........................................................................2
1.3 Field.............................................................................................2
1.4 Licensed Product..................................................................................2
1.5 Net Sales.........................................................................................2
1.6 Scripps Patent Rights.............................................................................2
1.7 Scripps Technology................................................................................3
2. License Terms and Conditions...............................................................................3
2.1 Grant of License..................................................................................3
2.2 Initial License Fee...............................................................................3
2.3 Milestone Issuances of Stock......................................................................3
2.4 Royalties.........................................................................................3
2.4.1 Percentage Royalty.......................................................................3
2.5 Combination Products..............................................................................4
2.5.1 Definition of Combination Product........................................................4
2.5.2 Royalty Payable on Combination Products..................................................4
2.5.3 Third Party Royalty......................................................................4
2.6 Quarterly Payments................................................................................4
2.7 Term of License...................................................................................5
2.8 Sublicense........................................................................................5
2.9 Duration of Royalty Obligations...................................................................5
2.10 Reports...........................................................................................6
2.11 Records...........................................................................................6
2.12 Foreign Sales.....................................................................................6
2.13 Foreign Taxes.....................................................................................6
3. Patent Matters.............................................................................................6
3.1 Patent Prosecution and Maintenance................................................................6
3.2 Information to Licensee...........................................................................7
3.3 Patent Costs......................................................................................7
3.4 Ownership.........................................................................................7
3.5 Scripps Right to Pursue Patent....................................................................7
3.6 Infringement Actions..............................................................................8
3.6.1 Prosecution and Defense of Infringements.................................................8
3.6.2 Allocation of Recovery...................................................................8
4. Obligations Related to Commercialization...................................................................8
4.1 Commercial Development Obligation.................................................................8
4.2 Governmental Approvals and Marketing of Licensed Products.........................................9
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4.3 Indemnity.........................................................................................9
4.4 Patent Marking....................................................................................9
4.5 No Use of Name....................................................................................9
4.6 U.S. Manufacture..................................................................................9
4.7 Foreign Registration.............................................................................10
5. Limited Warranty..........................................................................................10
6. Interests in Intellectual Property Rights.................................................................10
6.1 Preservation of Title............................................................................10
6.2 Royalty-free License to Improvements.............................................................10
6.3 Governmental Interest............................................................................10
6.4 Reservation of Rights............................................................................10
7. Confidentiality and Publication...........................................................................11
7.1 Treatment of Confidential Information............................................................11
7.2 Publications.....................................................................................11
7.3 Publicity........................................................................................11
8. Term and Termination......................................................................................11
8.1 Term.............................................................................................11
8.2 Termination Upon Default.........................................................................11
8.3 Termination Upon Bankruptcy or Insolvency........................................................12
8.4 Rights Upon Expiration...........................................................................12
8.5 Rights Upon Termination..........................................................................12
8.6 Work-in-Progress.................................................................................12
9. Assignment; Successors....................................................................................12
9.1 Assignment.......................................................................................12
9.2 Binding Upon Successors and Assigns..............................................................13
10. General Provisions........................................................................................13
10.1 Independent Contractors..........................................................................13
10.2 Arbitration......................................................................................13
10.2.1 Location................................................................................13
10.2.2 Selection of Arbitrators................................................................13
10.2.3 Discovery...............................................................................13
10.2.4 Case Management.........................................................................13
10.2.5. Remedies................................................................................14
10.2.6 Expenses................................................................................14
10.2.7 Confidentiality.........................................................................14
10.3 Entire Agreement; Modification...................................................................14
10.4 California Law...................................................................................14
10.5 Headings.........................................................................................14
10.6 Severability.....................................................................................14
10.7 No Waiver........................................................................................15
10.8 Name.............................................................................................15
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10.9 Attorneys'Fees...................................................................................15
10.10 Notices..........................................................................................15
10.11 Compliance with U.S. Laws........................................................................15
</TABLE>
iii
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
LICENSE AGREEMENT
This License Agreement is entered into and made effective
as of this 18th day of June, 1996, by and between THE SCRIPPS RESEARCH
INSTITUTE, nonprofit public benefit corporation ("Scripps") located at 10550
North Torrey Pines Road, La Jolla, California 92037, and Drug Abuse Sciences,
a California corporation ("Licensee") located at 3 O'Dell Place, Atherton,
California 94027, with respect to the facts set forth below.
RECITALS
A. Scripps is engaged in fundamental scientific
biomedical and biochemical research including research relating to
Cocaine-Specific Monoclonal Antibodies: Hapten Design, Synthesis and
Immunization.
B. Licensee is engaged in research and development of
therapeutics and diagnostics for cocaine addiction.
C. Scripps has disclosed to Licensee certain technology
described in TSRI Technology Disclosure #92-05 entitled "Cocaine-Specific
Monoclonal Antibodies: Hapten Design, Synthesis and Immunization," as shell as
the Scripps patent application entitled "Anti-Cocaine Vaccine" (Scripps #507.0),
copies of which are attached hereto as Exhibit A and incorporated herein by
reference (collectively, the "Technology Disclosure").
D. Scripps has the exclusive right to grant a license to
the technology described in the Technology Disclosure, subject to certain rights
of the U.S. Government to use such technology for its own purposes, resulting
from the receipt by Scripps of certain funding from the U.S. Government.
E. Scripps desires to grant to Licensee, and Licensee
wishes to acquire, an exclusive worldwide right and license to the technology
described in the Technology Disclosure and to certain patent rights and know-how
of Scripps with respect thereto, subject to the terms and conditions set forth
herein, with a view to developing and marketing diagnostic and/or therapeutic
products within the Field (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein, Scripps and Licensee hereby agree as follows:
1. DEFINITIONS. Capitalized terms shall have the
meaning set forth below.
1.1 AFFILIATE. The term "Affiliate" shall mean
any entity which directly or indirectly controls, is controlled by or is under
common control with Licensee. The term "control" as used herein means the
possession of the power to direct or cause the direction of the management and
the policies of an entity, whether through the ownership of a majority of the
outstanding voting securities or by contract or otherwise.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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1.2 CONFIDENTIAL INFORMATION. The term
"Confidential Information" shall mean any and all proprietary or confidential
information of Scripps or Licensee which may be exchanged between the parties at
any time and from time to time during the term of this Agreement. Information
shall not be considered confidential to the extent that it:
a. Is publicly disclosed through no
fault of any party hereto, either before or after it becomes known to the
receiving party; or
b. Was known to the receiving party
prior to the date of this Agreement, which knowledge was acquired independently
and not from another party hereto (or such party's employees); or
c. Is subsequently disclosed to the
receiving party in good faith by a third party who has a right to make such
disclosure; or
d. Has been published by a third party as a
matter of right.
1.3 FIELD. The term "Field" shall mean the
field of the diagnosis and treatment of cocaine addiction and shall specifically
exclude any agricultural applications or products.
1.4 LICENSED PRODUCT. The term
"Licensed Product" shall mean any product which cannot be developed,
manufactured, used or sold without (i) infringing one or more claims under
Scripps Patent Rights or (ii) utilizing any part of Scripps Technology not
otherwise includable within Scripps Patent Rights.
1.5 NET SALES. The term "Net Sales" shall mean
the gross amount invoiced by Licensee, or its Affiliates and sublicensees, or
any of them, on all sales of Licensed Products, less (i) discounts actually
allowed, (ii) credits for claims, allowances, retroactive price reductions or
returned goods, (iii) prepaid freight and (iv) sales taxes or other governmental
charges actually paid in connection with sales of Licensed Products (but
excluding what is commonly known as income taxes). For purposes of determining
Net Sales, a sale shall be deemed to have occurred when an invoice therefor
shall be generated or the Licensed Product shipped for delivery. Sales of
Licensed Products by Licensee, or an Affiliate or sublicensee of Licensee to any
Affiliate or sublicensee which is a reseller thereof shall be excluded, and only
the subsequent sale of such Licensed Products by Affiliates or sublicensees of
Licensee to unrelated parties shall be deemed Net Sales hereunder.
1.6 SCRIPPS PATENT RIGHTS. The "Scripps Patent
Rights" shall mean rights arising out of or resulting from (i) any and all U.S.
and foreign patent applications and patents covering Scripps Technology, (ii)
the patents proceeding from such applications, (iii) all claims of
continuations-in-part directed solely to subject matter specifically described
in the Technology Disclosure, and (iv) divisionals, continuations, reissues,
reexaminations, and extensions of any patent or application set forth in
(i)-(iii) above, so long as said patents have not been held invalid and/or
unenforceable by a court of competent jurisdiction from which there is no appeal
or, if appealable, from which no appeal has been taken.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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1.7 SCRIPPS TECHNOLOGY. The term "Scripps
Technology" shall mean so much of the technology as is proprietary to Scripps
disclosed in the Technology Disclosure, together with materials, information and
know-how related thereto whether or not the same is eligible for protection
under the patent laws of the United States or elsewhere, and whether or not any
such processes and technology, or information related thereto, would be
enforceable as a trade secret or the copying of which would be enjoined or
restrained by a court as constituting unfair competition.
2. LICENSE TERMS AND CONDITIONS.
2.1 GRANT OF LICENSE. Scripps hereby grants
to Licensee an exclusive, worldwide license, including the right to
sublicense, to Scripps Technology and under Scripps Patent Rights, to make,
to have made, to use, and to sell Licensed Products in the Field, subject to
the terms of this Agreement.
2.2 INITIAL LICENSE FEE. In partial
consideration for the exclusive license granted pursuant to Section 2.1 hereof,
Licensee shall pay to Scripps a nonrefundable license fee upon execution of this
Agreement in the amount of [***]. In addition, pursuant to a Common Stock
Purchase Agreement in substantially the form attached hereto as Exhibit B and
incorporated herein by this reference (a "Common Stock Purchase Agreement"),
promptly after the effective date hereof, Licensee shall issue to Scripps
(subject to the terms and conditions of the Common Stock Purchase Agreement and
conditioned upon such issuance being exempt from any federal or state securities
registration requirements) 110,765 shares of Licensee's Nonvoting Common Stock
(the "Shares"). The license fee described in this Section is consideration for
the grant and continuation of the license hereunder, and Scripps shall have no
obligation to return any portion of such license fee, notwithstanding any
failure by Licensee to develop any Licensed Product or market any Licensed
Product commercially, and notwithstanding the volume of sales of any such
Licensed Product.
2.3 MILESTONE ISSUANCES OF STOCK. Pursuant to a
Common Stock Purchase Agreement in substantially the form attached hereto as
Exhibit B, and in addition to the other consideration set forth in this Article
2 for the exclusive license granted pursuant to Section 2.1 hereof, Licensee
shall issue to Scripps (subject to the terms and conditions of the Common Stock
Purchase Agreement and conditioned such issuance being exempt from any federal
or state securities registration requirements) shares of Licensee's Nonvoting
Common Stock (or, if any such issuance shall occur after the closing of an
initial public offering of Licensee's Common Stock pursuant to a Registration
Statement filed under the Securities Act of 1933, shares of such Common Stock)
as follows: (i) 166,148 shares upon the filing of an investigational new drug
application ("IND") for an efficacy clinical trial sponsored by Licensee or its
Sublicensee with the U.S. Food and Drug Administration in respect of a Licensed
Product and (ii) 166,148 shares upon demonstration of human clinical efficacy
for a primary end point in a Phase clinical trial sponsored by Licensee or its
Sublicensee in respect of a Licensed Product.
2.4 ROYALTIES.
2.4.1 PERCENTAGE ROYALTY. As additional
consideration for the exclusive license granted pursuant to Section 2.1 hereof,
Licensee shall pay to Scripps a [***] on
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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a country-by-country basis in the amount of (i) [***] which cannot be made,
used or sold in such country without utilizing one or more valid claims under
Scripps Patent Rights and (ii) [***].
2.5 COMBINATION PRODUCTS.
2.5.1 DEFINITION OF COMBINATION PRODUCT.
As used herein, the term "Combination Product" shall mean a Licensed Product
which cannot be manufactured, used or sold without infringing Scripps Patent
Rights, utilizing Scripps Technology licensed hereunder, infringing or utilizing
one or more patents or proprietary technology or know-how of (i) Licensee, (ii)
a third party licensed pursuant to an agreement between Licensee and such third
party, or (iii) Scripps under a license agreement other than this Agreement
(referred to herein as "other licensed rights").
2.5.2 ROYALTY PAYABLE ON COMBINATION
PRODUCTS. The royalty payable on Combination Products shall be the royalty rate
set forth in Section 2.2.1 above based on a pro rata portion of Net Sales of
Combination Products in accordance with the following formula:
A
X = -
B, where
X = the pro rata portion of Net Sales
attributable to Scripps Patent Rights or other
Scripps Technology licensed herein (expressed as a
percentage), and
A = the fair market value of the component
in the Combination Product utilizing Scripps
Technology licensed hereunder, and
B = A plus the fair market value of all
other components in the Combination Product using
other licensed rights.
2.5.3 THIRD PARTY ROYALTY. In the event
that Licensee is required to pay a third party a royalty in order to enjoy the
benefits of its license under this Agreement, the parties shall negotiate a
reasonable deduction in the royalties owed under Section 2.4 to offset the third
party royalty, but in no event shall the deduction be greater than [***] of the
applicable royalty set forth in Section 2.4.
The fair market values described above shall be determined by the parties hereto
in good faith. In the absence of agreement as to the fair market value of all of
the components contained in a Combination Product, the fair market value of each
component shall be determined by arbitration in accordance with the provisions
of Section 10.2 hereof.
2.6 QUARTERLY PAYMENTS.
2.6.1 SALES BY LICENSEE. With regard to
Net Sales made by Licensee or its Affiliates, royalties shall be payable by
Licensee [***], based upon the Net Sales
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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of Licensed Products during such preceding calendar quarter, commencing with
the calendar quarter in which the first commercial sale of any Licensed
Product is made.
2.6.2 SALES BY SUBLICENSEES. With regard
to Net Sales made by sublicensees of Licensee or its Affiliates, royalties shall
be payable by Licensee quarterly, within ninety (90) days after the end of each
calendar quarter, based upon the Net Sales of Licensed Products by such
sublicensee during such preceding calendar quarter, commencing with the calendar
quarter in which the first commercial sale of any Licensed Product is made by
such sublicensee.
2.7 TERM OF LICENSE. Unless terminated sooner
in accordance with the provisions of this Agreement, the term of this license
shall expire when the last of the royalty obligations set forth has expired.
Notwithstanding the foregoing, if applicable government regulations require a
shorter term and/or a shorter term of exclusivity than provided for herein, then
the term of this License Agreement shall be so shortened or this License
Agreement shall be amended to provide for a non-exclusive license, and, in such
event, the parties shall negotiate in good faith to reduce appropriately the
royalties payable as set forth under the section heading "Royalties" hereof.
2.8 SUBLICENSE. Licensee shall have the sole
and exclusive right to grant sublicenses to any party with respect to the rights
conferred upon Licensee under this Agreement, provided, however, that (i) any
such sublicense shall be subject in all respects to the restrictions,
exceptions, royalty obligations, reports, termination provisions, and other
provisions contained in this Agreement (but not including the payment of a
license fee pursuant to Section 2.2 hereof) and (ii) each such sublicensee, and
the form and substance of each such sublicense, shall be subject to the prior
written approval of Scripps, which approval shall not be unreasonably withheld,
provided, however, that any sublicense granted to an Affiliate of Licensee shall
not be subject to Scripps's prior written approval. No approval shall be
required as to any sublicense which utilizes the form of sublicense attached
hereto as Exhibit C. Licensee shall pay Scripps, or cause its Affiliate or
sublicensee to pay Scripps, the same royalties on all Net Sales of such
Affiliate or sublicensee the same as if said Net Sales had been made by
Licensee. Each Affiliate and sublicensee shall report its Net Sales to Scripps
through Licensee, which Net Sales shall be aggregated with any Net Sales of
Licensee for purposes of determining the Net Sales upon which royalties are to
be paid to Scripps.
Except as set forth below, any revenues, other than royalties,
due Licensee pursuant to the grant of a sublicense to a party not an Affiliate
shall be reported to Scripps by Licensee. Licensee shall pay to Scripps [***] of
any such revenue, where such license is a bare patent license. As to all fees
other than for a bare patent license, the amount paid Scripps shall be
negotiated, based on the respective contributions of the parties. In no event
shall reasonable fees for performing research by Licensee be included in any
determination of the revenues to be due Scripps.
2.9 DURATION OF ROYALTY OBLIGATIONS. The
royalty obligations of Licensee as to each Licensed Product shall terminate
on a country-by-country basis concurrently with the expiration of the last to
expire of Scripps Patent Rights utilized by or in such Licensed Product in
each such country or, with respect to Licensed Products not utilizing any
Scripps Patent Rights, the earlier of fifteen (15) years after the date of
first commercial sale of such Licensed Product in such country or the
termination of the use of Confidential Information coming within Scripps
Technology.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2.10 REPORTS. Licensee shall furnish to Scripps
at the same time as each royalty payment is made by Licensee, a detailed written
report of Net Sales of the Licensed Products and the royalty due and payable
thereon, including a description of any offsets or credits deducted therefrom,
on a product-by-product and country-by-country basis, for the calendar quarter
upon which the royalty payment is based.
2.11 RECORDS. Licensee shall keep, and cause its
Affiliates and sublicensees to keep, full, complete and proper records and
accounts of all sales of Licensed Products in sufficient detail to enable the
royalties payable on Net Sales of each Licensed Product to be determined.
Scripps shall have the right to appoint an independent certified public
accounting firm approved by Licensee, which approval shall not be unreasonably
withheld, to audit the records of Licensee, its Affiliates and sublicensees as
necessary to verify the royalties payable pursuant to this Agreement. Licensee,
its Affiliates and sublicensees shall pay to Scripps an amount equal to any
additional royalties to which Scripps is entitled as disclosed by the audit,
[***]. Such audit shall be at Scripps's expense; provided however, that if the
audit discloses that Scripps was underpaid royalties with respect to any
Licensed Product by [***] for any calendar quarter, then Licensee, its
Affiliates or sublicensee, as the case may be shall reimburse Scripps for any
such audit costs. Scripps may exercise its right of audit as to each of
Licensee, its Affiliates or sublicensees no more frequently than once in any
calendar year. The accounting firm shall disclose to Scripps only information
relating to the accuracy of the royalty payments. Licensee, its Affiliates and
sublicensees shall preserve and maintain all such records required for audit for
a period of three (3) years after the calendar quarter to which the record
applies.
2.12 FOREIGN SALES. The remittance of royalties
payable on sales outside the United States shall be payable to Scripps in United
States Dollar equivalents at the official rate of exchange of the currency of
the country from which the royalties are payable, as quoted in the Wall Street
Journal for the last business day of the calendar quarter in which the royalties
are payable. If the transfer of or the conversion into the United States Dollar
equivalents of any such remittance in any such instance is not lawful or
possible, the payment of such part of the royalties as is necessary shall be
made by the deposit thereof, in the currency of the county where the sale was
made on which the royalty was based to the credit and account of Scripps or its
nominee in any commercial bank or trust company of Scripps's choice located in
that country, prompt written notice of which shall be given by Licensee to
Scripps.
2.13 FOREIGN TAXES. Any tax required to be
withheld by Licensee under the laws of any foreign country for the accounts of
Scripps shall be promptly paid by Licensee for and on behalf of Scripps to the
appropriate governmental authority, and Licensee shall use its best efforts to
furnish Scripps with proof of payment of such tax together with official or
other appropriate evidence issued by the applicable government authority. Any
such tax actually paid on Scripps's behalf shall be deducted from royalty
payments due Scripps.
3. PATENT MATTERS.
3.1 PATENT PROSECUTION AND MAINTENANCE. From
and after the date of this Agreement, the provisions of this Section 3 shall
control the prosecution and maintenance of any patent included within Scripps
Patent Rights. Subject to the requirements, limitations and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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conditions set forth in this Agreement, Scripps shall direct and control (i)
the preparation, filing and prosecution of the United States and foreign
patent applications within Scripps Patent Rights (including any interferences
and foreign oppositions), except that Licensee shall not be liable for
expenses related to foreign patent applications, which foreign patent
applications have not received Licensee's approval for filing and continued
prosecution, and (ii) maintain the patents issuing therefrom. Scripps shall
select the patent attorney, subject to Licensee's written approval, which
approval shall not be unreasonably withheld. Both parties hereto agree that
Scripps may, at its sole discretion, utilize Scripps Office of Patent Counsel
in lieu of outside counsel for patent prosecution and maintenance described
herein, and the fees and expenses incurred by Scripps with respect to work
done by such Office of Patent Counsel shall be paid as set forth below.
Licensee shall have full rights of consultation with the patent attorney so
selected on all matters relating to Scripps Patent Rights. Scripps shall use
its best efforts to implement all reasonable requests made by Licensee with
regard to the preparation, filing, prosecution and/or maintenance of the
patent applications and/or patents within Scripps Patent Rights.
3.2 INFORMATION TO LICENSEE. Scripps shall
keep Licensee informed with regard to the patent application and maintenance
processes. Scripps shall deliver to Licensee copies of all patent
applications, amendments, related correspondence, and other related matters.
3.3 PATENT COSTS. Licensee acknowledges and
agrees that Scripps does not have independent funding to cover patent costs,
and that the license granted hereunder is in part in consideration for
Licensee's assumption of patent costs and expenses as described herein.
Licensee shall pay for all expenses incurred by Scripps pursuant to Section
3.1 hereof. In addition, Licensee agrees to reimburse Scripps for all patent
costs and expenses paid or incurred by Scripps to date in connection with
Scripps Patent Rights licensed hereunder. Licensee agrees to pay all such
past and future patent expenses directly or to reimburse Scripps for the
payment of such expenses within sixty (60) days after Licensee receives an
itemized invoice therefor. In the event Licensee elects to discontinue
payment for the filing, prosecution and/or maintenance of any patent
application and/or patent within Scripps Patent Rights, any such patent
application or patent shall be excluded from the definition of Scripps Patent
Rights and from the scope of the license granted under this Agreement, and
all rights relating thereto shall revert to Scripps and may be freely
licensed by Scripps. Licensee shall give Scripps at least sixty (60) days'
prior written notice of such election. No such notice shall have any effect
on Licensee's obligations to pay expenses incurred up to the effective date
of such election.
3.4 OWNERSHIP. The patent applications filed
and the patents obtained by Scripps pursuant to Section 3.1 hereof shall be
owned solely by Scripps, assigned to Scripps and deemed a part of Scripps
Patent Rights.
3.5 SCRIPPS RIGHT TO PURSUE PATENT. If at
any time during the term of this Agreement, Licensee's rights with respect to
Scripps Patent Rights are terminated, Scripps shall have the right to take
whatever action Scripps deems appropriate to obtain or maintain the
corresponding patent protection at its own expense. If Scripps pursues
patents under this Section 3.5, Licensee agrees to entertain any request by
Scripps to cooperate in the prosecution
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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of such patents, including by providing, at no charge to Scripps, all
appropriate technical data and executing all necessary legal documents.
3.6 INFRINGEMENT ACTIONS.
3.6.1 PROSECUTION AND DEFENSE OF
INFRINGEMENTS. Except as provided herein, in order to maintain the license
granted hereunder in force, Licensee shall prosecute any and all
infringements of any Scripps Patent Rights and shall defend all charges of
infringement arising as a result of the exercise of Scripps Patent Rights by
Licensee, its Affiliates or sublicensees, unless otherwise agreed to between
Scripps and Licensee and Licensee shall hold Scripps harmless from any costs
or expenses of liability respecting all such infringements. Licensee may
enter into settlements, stipulated judgments or other arrangements respecting
such infringement, at its own expense, but only with the prior written
consent of Scripps, which consent shall not be unreasonably withheld. Scripps
shall permit any action to be brought in its name if required by law. Scripps
agrees to provide reasonable assistance of a technical nature which Licensee
may require in any litigation arising in accordance with the provisions of
this Section 3.6.1, for which Licensee shall pay to Scripps a reasonable
hourly rate of compensation. In the event Licensee fails to prosecute any
such infringement, Licensee shall notify Scripps in writing promptly and
Scripps shall have the right to prosecute such infringement on its own
behalf. Failure on the part of Licensee to prosecute any such infringement
shall be grounds for termination of the license granted to Licensee hereunder
(but solely with respect to the patent at issue, which, with respect to the
country in which such infringement occurs, shall thereafter be excluded from
the definition of Scripps Patent Rights) at the option of Scripps, unless
Licensee shall have established to Scripps reasonable satisfaction that such
prosecution would be unwarranted or unreasonable in view of the likelihood of
success, the costs of prosecution, the amount of any anticipated recovery, or
the economic impact of the infringement.
3.6.2 ALLOCATION OF RECOVERY. Any
damages or other recovery from an infringement action undertaken by Licensee
pursuant to Section 3.6.1 shall first be used to reimburse the parties for
the costs and expenses incurred in such action, and shall thereafter be
allocated between the parties as follows: [***]. If Licensee fails to
prosecute any such action to completion, then any damages or other recovery
net of the parties' costs and expenses incurred in such infringement action
shall be the sole property of Scripps.
4. OBLIGATIONS RELATED TO COMMERCIALIZATION.
4.1 COMMERCIAL DEVELOPMENT OBLIGATION. In
order to maintain the license granted hereunder in force, Licensee shall use
reasonable efforts and due diligence to develop Scripps Technology and
Scripps Patent Rights which are licensed hereunder into commercially viable
Licensed Products, as promptly as is reasonably and commercially feasible,
and thereafter to produce and sell reasonable quantities of Licensed
Products. Licensee shall keep Scripps generally informed as to Licensee's
progress in such development, production and sale, including its efforts, if
any, to sublicense Scripps Technology and Scripps Patent Rights, and Licensee
shall deliver to Scripps an annual written report and such other reports as
Scripps may reasonably request. The parties hereto acknowledge and agree to
negotiate milestones on an annual basis, beginning with the effective date of
this Agreement, for the proceeding year, and said milestones shall be
incorporated into this Agreement as Exhibit D; however, in this regard,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Scripps hereby acknowledges that Licensee is an early-stage technology
company and Scripps Technology is in an early stage of development and that
milestones will be established accordingly. The achievement of the milestones
described in Exhibit D attached hereto on or before the dates set forth
therein shall be evidence of compliance by Licensee with its commercial
development obligations hereunder for the time periods specified in Exhibit
D. In the event Scripps has a reasonable basis to believe that Licensee is
not using reasonable efforts and due diligence as required hereunder, upon
notice by Scripps to Licensee which specifies the basis for such belief,
Scripps and Licensee shall negotiate in good faith to attempt to mutually
resolve the issue. In the event Scripps and Licensee cannot agree upon any
matter related to Licensee's commercial development obligations, the parties
agree to utilize arbitration pursuant to Section 10.2 hereof in order to
resolve the matter. If the arbitrator determines that Licensee has not
complied with its obligations hereunder, and such default is not fully cured
within sixty (60) days after the arbitrator's decision, Scripps may terminate
Licensee's rights under this Agreement.
4.2 GOVERNMENTAL APPROVALS AND MARKETING OF
LICENSED PRODUCTS. Licensee shall be responsible for obtaining all necessary
governmental approvals for the development, production, distribution, sale
and use of any Licensed Product, at Licensee's expense, including, without
limitation, any safety studies. Licensee shall have sole responsibility for
any warning labels, packaging and instructions as to the use of Licensed
Products and for the quality control for any Licensed Product.
4.3 INDEMNITY. Licensee hereby agrees to
indemnify, defend and hold harmless Scripps and any parent, subsidiary or
other affiliated entity and their trustees, officers, employees, scientists
and agents from and against any liability or expense arising from any product
liability claim asserted by any party as to any Licensed Product or any
claims arising from the use of any Scripps Patent Rights or Scripps
Technology pursuant to this Agreement. Such indemnity and defense obligation
shall apply to any product liability or other claims, including without
limitation, personal injury, death or property damage, made by employees,
subcontractors, sublicensees, or agents of Licensee, as well as any member of
the general public. Licensee shall use its best efforts to have Scripps and
any parent, subsidiary or other affiliated entity and their trustees,
officers, employees, scientists and agents named as additional insured
parties on any product liability insurance policies maintained by Licensee,
its Affiliates and sublicensees applicable to Licensed Products.
4.4 PATENT MARKING. To the extent required
by applicable law, Licensee shall mark all Licensed Products or their
containers in accordance with the applicable patent marking laws.
4.5 NO USE OF NAME. The use of the name "The
Scripps Research Institute", "Scripps", or any variation thereof in
connection with the advertising or sale of Licensed Products is expressly
prohibited.
4.6 U.S. MANUFACTURE. To the extent required
by applicable United States laws, if at all, Licensee agrees that Licensed
Products will be manufactured in the United States, or its territories,
subject to such waivers as may be required, or obtained, if at all, from the
United States Department of Health and Human Services, or its designee.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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4.7 FOREIGN REGISTRATION. Licensee agrees to
register this Agreement with any foreign governmental agency which requires
such registration, and Licensee shall pay all costs and legal fees in
connection therewith. In addition, Licensee shall assure that all foreign
laws affecting this Agreement or the sale of Licensed Products are fully
satisfied.
5. LIMITED WARRANTY. Scripps hereby represents and
warrants that it has full right and power to enter into this Agreement.
SCRIPPS MAKES NO OTHER WARRANTIES CONCERNING SCRIPPS PATENT RIGHTS OR SCRIPPS
TECHNOLOGY COVERED BY THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, ANY
EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AS TO SCRIPPS PATENT RIGHTS, SCRIPPS TECHNOLOGY OR ANY LICENSED
PRODUCT. SCRIPPS MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY OR
SCOPE OF SCRIPPS PATENT RIGHTS, OR THAT ANY LICENSED PRODUCT WILL BE FREE
FROM AN INFRINGEMENT ON PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES, OR THAT NO THIRD PARTIES ARE IN ANY WAY INFRINGING SCRIPPS
PATENT RIGHTS OR SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT.
6. INTERESTS IN INTELLECTUAL PROPERTY RIGHTS.
6.1 PRESERVATION OF TITLE. Scripps shall
retain full ownership and title to Scripps Technology, and Scripps Patent
Rights licensed hereunder and shall use its reasonable best efforts to
preserve and maintain such full ownership and title, subject to Licensee
fully performing all of its obligations under this Agreement.
6.2 ROYALTY-FREE LICENSE TO IMPROVEMENTS.
Licensee hereby grants to Scripps a non-exclusive, royalty-free license to
any improvement to Scripps Technology developed by Licensee, to use for its
own non-commercial research purposes or grant to other nonprofit institutions
for their non-commercial research purposes, it being understood that Licensee
has no duty to disclose to Scripps any such improvements and in the event of
an inadvertent disclosure, such disclosure shall be governed by the
restrictions as set forth in Section 7.1 Treatment of Confidential
Information.
6.3 GOVERNMENTAL INTEREST. Licensee and
Scripps acknowledge that Scripps has received, and expects to continue to
receive, funding from the United States Government in support of Scripps's
research activities. Licensee and Scripps acknowledge and agree that their
respective rights and obligations pursuant to this Agreement shall be subject
to Scripps's obligations and the rights of the United States Government, if
any, which arise or result from Scripps's receipt of research support from
the United States Government, including without limitation, the grant by
Scripps to the United States a non-exclusive, irrevocable, royalty-free
license to Scripps Technology and Scripps Patent Rights licensed hereunder
for governmental purposes.
6.4 RESERVATION OF RIGHTS. Scripps reserves
the right to use for any non-commercial research purposes and the right to
allow other nonprofit institutions to use for any non-commercial research
purposes any Scripps Technology and Scripps Patent Rights
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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licensed hereunder, without Scripps or such other institutions being
obligated to pay Licensee any royalties or other compensation.
7. CONFIDENTIALITY AND PUBLICATION.
7.1 TREATMENT OF CONFIDENTIAL INFORMATION.
The parties agree that during the term of this Agreement, and for a period of
three (3) years after this Agreement terminates, a party receiving
Confidential Information of the other party will (i) maintain in confidence
such Confidential Information to the same extent such party maintains its own
proprietary industrial information, (ii) not disclose such Confidential
Information to any third party without prior written consent of the other
party and (iii) not use such Confidential Information for any purpose except
those permitted by this Agreement.
7.2 PUBLICATIONS. Licensee agrees that
Scripps shall have a right to publish in accordance with its general
policies, subject to the confidential commitments of Section 7.1 Treatment of
Confidential Information, which shall not be overridden by this Section.
7.3 PUBLICITY. Except as otherwise provided
herein or required by law, no party shall originate any publication, news
release or other public announcement, written or oral, whether in the public
press, stockholders' reports, or otherwise, relating to this Agreement or to
any sublicense hereunder, or to the performance hereunder or any such
agreements, without the prior written approval of the other party, which
approval shall not be unreasonably withheld. Scientific publications
published in accordance with Section 7.2 of this Agreement shall not be
construed as publicity governed by this Section 7.3.
8. TERM AND TERMINATION.
8.1 TERM. Unless terminated sooner in accordance
with the terms set forth herein, this Agreement, and the license granted
hereunder, shall terminate as provided in Section 2.6 hereof.
8.2 TERMINATION UPON DEFAULT. Any one or
more of the following events shall constitute an event of default hereunder:
(i) the failure of a party to pay any amounts when due hereunder and the
expiration of fifteen (15) days after receipt of a written notice requesting
the payment of such amount; (ii) the failure of a party to perform any
obligation required of its to be performed hereunder, and the failure to cure
within sixty (60) days after receipt of notice from the other party
specifying in reasonable detail the nature of such default; Upon the
occurrence of any event of default, the non-defaulting party may deliver to
the defaulting party written notice of intent to terminate, such termination
to be effective upon the date set forth in such notice.
Such termination rights shall be in addition to and not in
substitution for any other remedies that may be available to the
non-defaulting party. Termination pursuant to this Section 8.2 shall not
relieve the defaulting party from liability and damages to the other party
for breach of this Agreement. Waiver by either party of a single default or a
succession of defaults shall not deprive such party of any right to terminate
this Agreement arising by reason of any subsequent default.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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8.3 TERMINATION UPON BANKRUPTCY OR
INSOLVENCY. This Agreement may be terminated by Scripps giving written notice
of termination to Licensee upon the filing of bankruptcy or bankruptcy of
Licensee or the appointment of a receiver of any of Licensee's assets, or the
making by Licensee of any assignment for the benefit of creditors, or the
institution of any proceedings against Licensee under any bankruptcy law.
Termination shall be effective upon the date specified in such notice.
8.4 RIGHTS UPON EXPIRATION. Neither party
shall have any further rights or obligations upon the expiration of this
Agreement upon its regularly scheduled expiration date with respect to this
Agreement, other than the obligation of Licensee to make any and all reports
and payments for the final quarter period. Provided, however, that upon such
expiration, each party shall be required to continue to abide by its
nondisclosure obligations as described in Section 7.1, and Licensee shall
continue to abide by its obligation to indemnify Scripps as described in
Section 4.3 and by its obligations under Section 6.2 hereof.
8.5 RIGHTS UPON TERMINATION. Notwithstanding
any other provision of this Agreement, upon any termination of this Agreement
prior to the regularly scheduled expiration date of this Agreement, the
license granted hereunder shall terminate. Except as otherwise provided in
Section 8.6 of this Agreement with respect to work-in-progress, upon such
termination, Licensee shall have no further right to develop, manufacture or
market any Licensed Product, or to otherwise use any Scripps Patent Rights or
any Scripps Technology not otherwise includable therein. Upon any such
termination, Licensee shall promptly return all materials, samples,
documents, information, and other materials which embody or disclose Scripps
Patent Rights or any Scripps Technology not otherwise includable therein;
provided, however, that Licensee shall not be obligated to provide Scripps
with proprietary information which Licensee can show that it independently
developed. Licensee shall be free to keep one copy of all such materials,
samples, documents, information, and other materials for the sole purpose of
monitoring its obligations under this Section 8.5. Any such termination shall
not relieve either party from any obligations accrued to the date of such
termination. Upon such termination, each party shall be required to abide by
its nondisclosure obligations as described in Section 7.1, and Licensee shall
continue to abide by its obligations to indemnify Scripps as described in
Section 4.3.
8.6 WORK-IN-PROGRESS. Upon any such early
termination of the license granted hereunder in accordance with this
Agreement, Licensee shall be entitled to finish any work-in-progress and to
sell any completed inventory of a Licensed Product covered by such license
which remain on hand as of the date of the termination, so long as Licensee
pays to Scripps the royalties applicable to said subsequent sales in
accordance with the terms and conditions as set forth in this Agreement,
provided that no such sales shall be permitted after the expiration of six
(6) months after the date of termination.
9. ASSIGNMENT; SUCCESSORS.
9.1 ASSIGNMENT. Neither this Agreement nor
any rights granted hereunder may be assigned or transferred by Licensee
except (i) to an Affiliate of Licensee or (ii) as expressly permitted
hereunder, without the prior written consent of Scripps, which shall not be
unreasonably withheld.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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9.2 BINDING UPON SUCCESSORS AND ASSIGNS.
Subject to the limitations on assignment herein, this Agreement shall be
binding upon and inure to the benefit of any successors in interest and
assigns of Scripps and Licensee. Any such successor or assignee of Licensee's
interest shall expressly assume in writing the performance of all the terms
and conditions of this Agreement to be performed by Licensee.
10. GENERAL PROVISIONS.
10.1 INDEPENDENT CONTRACTORS. The
relationship between Scripps and Licensee is that of independent contractors.
Scripps and Licensee are not joint venturers, partners, principal and agent,
master and servant, employer or employee, and have no other relationship
other than independent contracting parties. Scripps and Licensee shall have
no power to bind or obligate each other in any manner, other than as is
expressly set forth in this Agreement.
10.2 ARBITRATION. Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"), and the procedures set
forth below. In the event of any inconsistency between the Rules of AAA and
the procedures set forth below, the procedures set forth below shall control.
Judgment upon the award rendered by the arbitrators may be enforced in any
court having jurisdiction thereof.
10.2.1 LOCATION. The location of the
arbitration shall be in the County of San Diego.
10.2.2 SELECTION OF ARBITRATORS. The
arbitration shall be conducted by a panel of three neutral arbitrators who
are independent and disinterested with respect to the parties, this
Agreement, and the outcome of the arbitration. Each party shall appoint one
neutral arbitrator, and these two arbitrators so selected by the parties
shall then select the third arbitrator. If one party has given written notice
to the other party as to the identity of the arbitrator appointed by the
party, and the party thereafter makes a written demand on the other party to
appoint its designated arbitrator within the next ten days, and the other
patty fails to appoint its designated arbitrator within ten days after
receiving said written demand, then the arbitrator who has already been
designated shall appoint the other two arbitrators.
10.2.3 DISCOVERY. Unless the parties
mutually agree in writing to some additional and specific pre-hearing
discovery, the only pre-hearing discovery shall be (a) reasonably limited
production of relevant and non-privileged documents, and (b) the
identification of witnesses to be called at the hearing, which identification
shall give the witness's name, general qualifications and position, and a
brief statement as to the general scope of the testimony to be given by the
witness. The arbitrators shall decide any disputes and shall control the
process concerning these pre-hearing discovery matters. Pursuant to the Rules
of AAA, the parties may subpoena witnesses and documents for presentation at
the hearing.
10.2.4 CASE MANAGEMENT. Prompt
resolution of any dispute is important to both parties; and the parties agree
that the arbitration of any dispute shall be conducted expeditiously. The
arbitrators are instructed and directed to assume case management
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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initiative and control over the arbitration process (including scheduling of
events, pre-hearing discovery and activities, and the conduct of the
hearing), in order to complete the arbitration as expeditiously as is
reasonably practical for obtaining a just resolution of the dispute.
10.2.5 REMEDIES. The arbitrators may
grant any legal or equitable remedy or relief that the arbitrators deem just
and equitable, to the same extent that remedies or relief could be granted by
a state or federal court, provided however, that no punitive damages may be
awarded. No court action may be maintained seeking punitive damages. The
decision of any two of the three arbitrators appointed shall be binding upon
the parties.
10.2.6 EXPENSES. The expenses of the
arbitration, including the arbitrators' fees, expert witness fees, and
attorney's fees, may be awarded to the prevailing party, in the discretion of
the arbitrators, or may be apportioned between the parties in any manner
deemed appropriate by the arbitrators. Unless and until the arbitrators
decide that one party is to pay for all (or a share) of such expenses, both
parties shall share equally in the payment of the arbitrators' fees as and
when billed by the arbitrators.
10.2.7 CONFIDENTIALITY. Except as set
forth below, the parties shall keep confidential the fact of the arbitration,
the dispute being arbitrated, and the decision of the arbitrators.
Notwithstanding the foregoing, the parties may disclose information about the
arbitration to persons who have a need to know, such as directors, trustees,
management employees, witnesses, experts, investors, attorneys, lenders,
insurers, and others who may be directly affected. Additionally, if a party
has stock which is publicly traded, the party may make such disclosures as
are required by applicable securities laws. Further, if a party is expressly
asked by a third party about the dispute or the arbitration, the party may
disclose and acknowledge in general and limited terms that there is a dispute
with the other party which is being (or has been) arbitrated. Once the
arbitration award has become final, if the arbitration award is not promptly
satisfied, then these confidentiality provisions shall no longer be
applicable.
10.3 ENTIRE AGREEMENT; MODIFICATION. This
Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof. There shall be no amendments or
modifications to this Agreement, except by a written document which is signed
by both parties.
10.4 CALIFORNIA LAW. This Agreement shall be
construed and enforced in accordance with the laws of the State of California.
10.5 HEADINGS. The headings for each article
and section in this Agreement have been inserted for convenience of reference
only and are not intended to limit or expand on the meaning of the language
contained in the particular article or section.
10.6 SEVERABILITY. Should any one or more of
the provisions of this Agreement be held invalid or unenforceable by a court
of competent jurisdiction, it shall be considered severed from this Agreement
and shall not serve to invalidate the remaining provisions thereof. The
parties shall make a good faith effort to replace any invalid or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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unenforceable provision with a valid and enforceable one such that the
objectives contemplated by them when entering this Agreement may be realized.
10.7 NO WAIVER. Any delay in enforcing a
party's rights under this Agreement or any waiver as to a particular default
or other matter shall not constitute a waiver of such party's rights to the
future enforcement of its rights under this Agreement, excepting only as to
an express written and signed waiver as to a particular matter for a
particular period of time.
10.8 NAME. Whenever there has been an
assignment or a sublicense by Licensee as permitted by this Agreement, the
term "Licensee" as used in this Agreement shall also include and refer to, if
appropriate, such assignee or sublicensee.
10.9 ATTORNEYS' FEES. In the event of a
dispute between the parties hereto or in the event of any default hereunder,
the party prevailing in the resolution of any such dispute or default shall
be entitled to recover its reasonable attorneys' fees and other costs
incurred in connection with resolving such dispute or default.
10.10 NOTICES. Any notices required by this
Agreement shall be in writing, shall specifically refer to this Agreement and
shall be sent by registered or certified airmail, postage prepaid, or by
telefax, telex or cable, charges prepaid, or by overnight courier, postage
prepaid and shall be forwarded to the respective addresses set forth below
unless subsequently changed by written notice to the other party:
For Scripps: The Scripps Research Institute
10550 North Torrey Pines Road
La Jolla, California 92037
Attention: V.P., Technology Development
Fax No.: (619) 554-9910
For Licensee: Drug Abuse Sciences
3 O'Dell Place
Atherton, California 94207
Attention: President
Fax No.: 415-328-8892
Notice shall be deemed delivered upon the earlier of (i) when received, (ii)
three (3) days after deposit into the mail, or (iii) the date notice is sent
via telefax, telex or cable, (iv) the day immediately following delivery to
overnight courier (except Sunday and holidays).
10.11 COMPLIANCE WITH U.S. LAWS. Nothing
contained in this Agreement shall require or permit Scripps or Licensee to do
any act inconsistent with the requirements of any United States law,
regulation or executive order as the same may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed this
Agreement by their duly authorized representatives as of the date set forth
above.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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SCRIPPS: LICENSEE:
THE SCRIPPS RESEARCH INSTITUTE DRUG ABUSE SCIENCES
By: /s/ Arnold LaGuardia By: /s/ Philippe Pouletty
--------------------------------- ------------------------------
Title: Sr. Vice President Title: Chairman
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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EXHIBIT B
DRUGABUSE SCIENCES, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of June 18, 1996, between DRUGABUSE
SCIENCES, INC., a California corporation (the "Company"), and The Scripps
Research Institute ("Scripps").
RECITALS
A. The Company has entered into and made effective as of the
execution hereof a License Agreement with Scripps (the "License Agreement").
B. In connection with the License Agreement, the Company
wishes to issue to Scripps: (i) an aggregate of 110,765 shares of Common Stock
of the Company, which shares, when issued, represent .75% of the outstanding
shares of the Company immediately prior to the execution of this Agreement; (ii)
a warrant to purchase an aggregate of 166,148 shares of Common Stock of the
Company, which shares represent approximately 1.125% of the outstanding shares
of the Company immediately prior to the execution of this Agreement ("Warrant
W-1") and attached hereto as Exhibit 1; and (iii) an additional warrant to
purchase an aggregate of 166,148 shares Common Stock of the Company which shares
represent approximately 1.125% of the outstanding shares of the Company
immediately prior to the execution of this Agreement ("Warrant W-2") and
attached hereto as Exhibit 2.
C. The Company wishes to condition the exercise of Warrant W-1
and Warrant W-2 (collectively, the "Warrants") upon the completion of certain
events related to the research and development of new products by the Company
and attached hereto as Exhibit 3 (the "Milestones").
D. The authorized capital stock of the Company consists of
120,000,000 shares of Common Stock, 12,515,352 of which are issued and
outstanding and 187,778 shares of Series A Preferred Stock, 187,778 of which are
issued and outstanding and convertible into 2,253,336 shares of Common Stock.
The total number of common stock equivalents as of the date of this Agreement is
14,768,688.
E. Scripps wishes to acquire the Common Stock and the Warrants
on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration for the willingness to enter
into the License Agreement and for the mutual covenants and representations
herein set forth, the Company and Scripps agree as follows:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
F. ISSUANCE OF STOCK. As part of the consideration for the
grant of the licenses set forth in the License Agreement, the Company hereby
issues to Scripps, and Scripps hereby acquires from the Company, 110,765 shares
of the Company's Common Stock (the "Shares") valued at a price of $0.0225 per
share.
G. WARRANTS. As further consideration, the Company hereby
issues to Scripps the Warrants, valued at a price of $0.0225 per share subject
to the terms and conditions contained in the Warrants, for the grant of certain
licenses as provided in the License Agreement.
H. LEGENDS. The share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legends (in addition to any
legends required under applicable state securities laws):
1. "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
2. Any legend required to be placed thereon by the California
Commissioner of Corporations or any other applicable state securities
laws.
I. INVESTMENT REPRESENTATIONS; RESTRICTION ON TRANSFER.
In connection with the purchase of the Shares, Scripps represents to the Company
the following:
(a) INFORMATION CONCERNING THE COMPANY. Scripps
is aware of the Company's business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares.
1. INVESTMENT INTENT. Scripps is
purchasing these Shares for investment for Scripps' own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
2. RESIDENCE. Scripps' principal
residence is within the State of California and is located at the address
indicated beneath Scripps' signature below.
3. RISK. Scripps understands that the
Company is a start-up venture with limited financial and other resources and
that purchase of the Shares will be a highly speculative investment and involves
a high degree of risk, and Scripps is able, without impairing financial
condition, to hold the Shares for an indefinite period of time and to suffer a
complete loss of Scripps' investment.
4. RESTRICTED SECURITIES. Scripps
acknowledges and understands that the Shares constitute "restricted securities"
under the Securities Act and must be
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Scripps
further acknowledges and understands that the Company is under no obligation
to register the Shares. Scripps understands that the certificate evidencing
the Shares will be imprinted with a legend which prohibits the transfer of
the Shares unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
5. RULE 144. Scripps is familiar
with the provisions of Rule 144, promulgated under the Securities Act, which,
in substance, permits limited public resale of "restricted securities"
acquired, directly or indirectly, from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 144 requires
among other things: (1) the availability of certain public information about
the Company; (2) the resale occurring not less than two years after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and (3) in the case of an affiliate, or of a
non-affiliate who has held the securities less than three years, the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934) and the amount of securities being sold
during any three-month period not exceeding the specified limitations stated
therein, if applicable. Although the exemption from registration available
under Rule 144 is not necessarily exclusive, Scripps acknowledges that it may
bear a substantial burden of proof in establishing the existence of an
exemption under the Securities Act if the requirements under Rule 144 are not
satisfied.
6. TAXES. Scripps understands that
Scripps' investment in the Company may result in personal tax consequences.
Scripps shall rely solely on the determinations of its tax advisors or its
own determinations, and not on any statements or representations by the
Company or any of its agents, with regard to all such tax matters.
7. NO PUBLIC MARKET. Scripps
understands that no public market now exists for any securities issued by the
Company and that there is no assurance that a public market will ever exist
for the Shares.
J. MARKET STAND-OFF. Scripps agrees, in connection with the
initial public offering of the Company's securities, (i) not to sell, make
short sales of, loan, grant any options for the purchase of, or otherwise
dispose of any securities of the Company held by Scripps (other than those
securities included in the registration) without the prior written consent of
the Company or the underwriters managing such initial underwritten public
offering of the Company's securities for one hundred eighty (180) days from
the effective date of such registration and (ii) further agrees to execute
any agreement reflecting (i) above as may be requested by the underwriters at
the time of the public offering.
K. STATE SECURITIES LAW. The sale of the securities which
are the subject of this Agreement has not been qualified with the
Commissioner of Corporations of the State of California and the issuance of
such securities or the payment or receipt of any part of the consideration
therefor prior to such qualification is unlawful, unless the sale of
securities is exempt from the qualification by Section 25100, 25102, or 25105
of the California Corporations
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Code. The rights of all parties to this Agreement are expressly conditioned
upon such qualification being obtained, unless the sale is so exempt.
L. TRANSFER TO INVENTORS. Subject to applicable state and
federal securities laws, the Company shall permit the transfer of shares of
Common Stock and Warrants issued pursuant to this Agreement to those
inventors whose technology is covered by the License Agreement as directed by
Scripps, provided such inventors acquire such securities on the same terms
and conditions as such securities are acquired by Scripps.
M. GENERAL PROVISIONS.
1. GOVERNING LAW. This Agreement
shall be governed by the internal laws of the State of California as applied
to agreements made and performed in California by residents of California.
2. ENTIRE AGREEMENT. This Agreement
represents the entire agreement between the parties with respect to the
purchase of Common Stock by Scripps and may only be modified or amended in
writing signed by both parties.
IN WITNESS WHEREOF, the parties have duly executed this
Common Stock Purchase Agreement as of the day and year first set forth above.
DRUGABUSE SCIENCES, INC, THE SCRIPPS RESEARCH INSTITUTE
a California corporation a California nonprofit public benefit
corporation
By: /s/ Philippe Pouletty Name: /s/ Arnold LaGuardia
---------------------------------- -----------------------------
Title: Chairman By: Arnold LaGuardia, Sr. V.P.
---------------------------------- -----------------------------
10550 N. Toreey Pines Rd.
-----------------------------------
Address
La Jolla, CA 92037
-----------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4
<PAGE>
EXHIBIT 1
Warrant W-1
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
NO.: W-1 Void after
June 18, 2016
DRUGABUSE SCIENCES, INC.
COMMON STOCK PURCHASE WARRANT
Issued June 18, 1996
This Warrant is issued, for good and valuable consideration,
receipt of which is hereby acknowledged, to The Scripps Research Institute, a
California nonprofit public benefit corporation, (the "Holder") by DrueAbuse
Sciences, Inc., a California corporation (the "Company").
1. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth, the Holder is entitled, upon surrender of this Warrant to
the Company, to purchase from the Company fully paid and non-assessable shares
of the Company's Common Stock (as adjusted pursuant to Section 10 hereof, the
"Shares").
2. PURCHASE PRICE. The purchase price per share for the Shares
shall be $.0225, (the "Warrant Price"). The number of shares of Common Stock
purchasable upon exercise of this Warrant shall be 166,148 shares.
3. EXERCISE PERIOD. This Warrant is exercisable upon the
completion of certain events related to the research and development of new
products by the Company and attached hereto as Schedule 1 (the "Milestones"), at
any time before the close of business on June 18, 2016.
4. METHOD OF EXERCISE. While this Warrant remains outstanding,
the Holder may exercise, in whole or in part, the purchase rights evidenced
hereby in accordance with Section 3 above. Such exercise shall be effected by
the surrender of this Warrant to the Chief Financial Officer of the Company at
its principal offices, together with the payment to the Company (i) in cash, by
check or by wire transfer to an account designated by the Company, (ii) by
cancellation by the Holder of any then-outstanding indebtedness of the Company
to the Holder, or (iii) by a combination of (i) and (ii) of an amount equal to
the aggregate purchase price for the number of Shares being purchased.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
5. NET ISSUE EXERCISE. In lieu of the payment methods set
forth in Section 4 above, immediately prior to, or at any time after, the
closing of an Initial Public Offering, the Holder may elect to exchange all
or a portion of this Warrant for Shares equal to the value of the amount of
the Warrant being exchanged on the date of exchange. If the Holder elects to
exchange this Warrant as provided in this Section 5, the Holder shall tender
to the Company the Warrant for the amount being exchanged, with written
notice of the Holder's election to exchange some or all of the Warrant, and
the Company shall issue to the Holder the number of Shares computed using the
following formula:
X = Y (A-B)
A
Where X = the number of Shares to be issued to
the Holder.
Y = the number of Shares purchasable
under the amount of the Warrant
being exchanged (as adjusted to the
date of such calculation).
A = the Fair Market Value of one Share.
B = the Purchase Price (as adjusted to
the date of such calculation).
All references herein to an "exercise" of the Warrant shall
include an exchange pursuant to this Section 5. Upon receipt of a written
notice of the Company's intention to raise capital by selling shares of
Common Stock in an Initial Public Offering (the "IPO NOTICE"), which notice
shall be delivered to the Holder promptly after the date of filing with the
Securities and Exchange Commission of the registration statement associated
with such Initial Public Offering, the Holder shall use its reasonable
efforts to determine whether or not the Holder will exercise this Warrant
pursuant to this Section 5 prior to the completion of the Initial Public
Offering. Notwithstanding whether or not an IPO Notice has been delivered to
the Holder or any other provision of this Warrant to the contrary, if the
Holder decides to exercise this Warrant while a registration statement is on
file with the Securities and Exchange Commission in connection with the
Initial Public Offering, this Warrant shall be deemed exercised on the
closing of the Initial Public Offering and the Fair Market Value of a Share
shall be the price at which one share of Common Stock was sold to the public
in the Initial Public Offering. If the Holder has elected to exercise this
Warrant pursuant to this Section 5 while a registration statement is on file
with the Securities and Exchange Commission in connection with an Initial
Public Offering and the Initial Public Offering is not completed, then the
Holder's exercise of this Warrant shall not be effective.
6. EXERCISE NOTICE AND INVESTMENT REPRESENTATIONS. On or
prior to the date of each exercise under this Warrant, Holder shall deliver
an executed copy of (a) the form of Notice of Exercise attached hereto as
EXHIBIT 1 duly executed by the Holder and (b) the form of Investment
Representation Statement attached hereto as EXHIBIT 2.
7. CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price or
number or type of securities issuable upon exercise of this Warrant is adjusted,
as herein provided, the Company
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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shall promptly deliver to the record holder of this Warrant a certificate of
an officer of the Company setting forth the nature of such adjustment and a
brief statement of the facts requiring such adjustment.
8. CERTIFICATES FOR SHARES. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
number of Shares so purchased shall be issued as soon as practicable
thereafter, and in any event within thirty (30) days of the delivery of the
subscription notice.
9. RESERVATION OF SHARES. The Company covenants that it
will at all times keep available such number of authorized shares of its
Common Stock, free from all preemptive rights with respect thereto, which
will be sufficient to permit the exercise of this Warrant for the full number
of Shares specified herein. The Company further covenants that such Shares,
when issued pursuant to the exercise of this Warrant, will be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issuance thereof
10. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
(a) SPLITS AND COMBINATIONS. If the
Company at any time subdivides any of its outstanding shares of Common Stock
into a greater number of shares, the Warrant Price in effect immediately
prior to such subdivision shall be proportionately reduced, and, conversely,
if the outstanding shares of Common Stock are combined into a smaller number
of shares, the Warrant Price in effect immediately prior to such combination
shall be proportionately increased. Upon any adjustment of the Warrant Price
under this Section 10(a), the number of shares of Common Stock issuable upon
exercise of this Warrant shall equal the number of shares determined by
dividing (i) the aggregate Warrant Price payable for the purchase of all
shares issuable upon exercise of this Warrant immediately prior to such
adjustment by (ii) the Warrant Price per share in effect immediately after
such adjustment.
(b) RECLASSIFICATIONS AND EXCHANGES. If the
Company changes any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification
or other change and the Warrant Price therefor shall be appropriately
adjusted. If thirty percent (30%) or more of the Company's outstanding Common
Stock is voluntarily exchanged for a different security issued by the
Company, then the Investor shall have the right to elect to receive such
security rather than the Common Stock on exercise or conversion of this
Warrant.
(c) DIVIDENDS AND DISTRIBUTION. If the
Company declares a non-cash dividend or other distribution on the Common
Stock or if a dividend or other distribution on the Common Stock occurs
pursuant to the Articles of Incorporation (other than a cash dividend or
distribution), then, as part of such dividend or distribution, lawful
provision shall be made so that there shall thereafter be deliverable upon
the exercise of this Warrant or any portion thereof, in addition to the
number of shares of Common Stock receivable thereupon and without payment of
any additional consideration, the amount of the dividend or other
distribution to which the holder
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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of the number of shares of Common Stock obtained upon exercise hereof would
have been entitled to receive had the exercise occurred as of the record date
for such dividend or distribution.
11. NO SHAREHOLDER RIGHTS. Prior to exercise of this
Warrant, the Holder shall not be entitled to any rights of a shareholder
including (without limitation) the right to vote, receive preemptive rights
or be notified of shareholder meetings, and such Holder shall not be entitled
to any notice or other communication concerning the business or affairs or
the Company.
12. RESTRICTED SECURITIES. The Holder understands that this
Warrant and the Shares purchasable hereunder constitute "restricted
securities" under the federal securities laws inasmuch as they are being, or
will be, acquired from the Company in transactions not involving a public
offering and accordingly may not, under such laws and applicable regulations,
be resold or transferred without registration under the Securities Act of
1933 or an applicable exemption from registration. In this connection, the
Holder acknowledges that Rule 144 of the Securities and Exchange Commission
is not now, and may not in the future be, available for resales of the Shares
purchased hereunder. The Holder further acknowledges that the Shares and any
other securities issued upon exercise of this Warrant shall bear a legend
substantially in the form of the legend appearing on the face hereof.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE
OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS SUCH SALE OR TRANSFER
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THESE SECURITIES
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE
SALE IS SO EXEMPT.
13. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current
registration statement under the Securities Act of 1933 shall be in effect
with respect to the securities to be issued upon exercise of this Warrant,
the Holder, by accepting this Warrant, covenants and agrees that, at the time
of exercise hereof, such Holder will deliver to the Company a written
certification satisfactory to the Company that the securities acquired by the
Holder and acquired for investment purposes only and that such securities are
not acquired with a view to, or for sale in connection with, any distribution
thereof.
14. SUCCESSORS AND ASSIGNS. The terms and provisions of
this Warrant shall inure to the benefit of, and be binding upon, the Company
and the Holder hereof and their respective successors and assigns.
15. AMENDMENT. This Warrant is one of several warrants (the
"Bridge Warrants") issued by the Company in further consideration of certain
loans made to support the Company's continuing operations prior to the
arrangement of and commitment to close the Next Financing. Any term of this
Warrant may be amended if agreed to by the Company and holders of Bridge
Warrants representing a majority of the shares issuable upon exercise of all
Bridge Warrants then outstanding. Notwithstanding the foregoing, no such
amendment of this Warrant
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4
<PAGE>
shall be effective if it would (i) alter the number of shares issuable
hereunder, or (ii) affect this Warrant in a manner different than the other
Bridge Warrants, unless the Holder hereof consents thereto.
16. NON-TRANSFERABILITY. The Holder of this note shall not
sell, transfer, pledge, hypothecate or otherwise dispose of any interest in
this note without the prior written consent of the Company, with one
exception: Scripps may transfer any portion of Scripps' interest in this note
to the inventors whose technology is covered by the License Agreement.
17. LOCKUP AGREEMENT. In consideration of the Company's
issuance of this Warrant, the Holder agrees in connection with an Initial
Public Offering not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any Shares issuable hereunder
without the prior written consent of an underwriter or underwriters in such
Initial Public Offering, for such period of time (not to exceed 180 days)
from the effective date of such registration as such underwriter or
underwriters may specify.
18. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Warrant may be executed by the parties hereto
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
19. GOVERNING LAW. This Warrant shall be governed by the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
DRUGABUSE SCIENCES, INC.
By: Chairman
-----------------------------
Title:
---------------------------
Accepted and Agreed:
By:
------------------------------
Signature
Arnold LaGuardia, Sr. V.P.
- -----------------------------------------
(Print name and, if applicable, title)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
5
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
DRUGABUSE SCIENCES, INC.
The undersigned hereby irrevocably elects to exercise the
Warrant for shares of capital stock, as provided for therein, and (check the
applicable box):
/ / Tenders payment of the purchase price in the form of
cash, by check or wire transfer, in the amount of
$____________________ for __________ shares of Common
Stock.
/ / Elects the Net Issue Exercise option pursuant to
Section 5 of the Warrant, and requests delivery of a
net of __________ shares of Common Stock.
The undersigned hereby affirms the statements and covenants in
Section 12 of the Warrant. Please issue a certificate or certificates for such
shares in the name of, and pay any cash for any fractional share to (please
print name, address and social security number)
Name:_______________________________________
Address:____________________________________
Signature:__________________________________
Note: The above signature should correspond exactly with the name on the
first page of this Warrant or with the name of the assignee appearing
in the assignment form below.
If said number of shares shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of the Registered Holder for the balance remaining of the shares purchasable
thereunder together with cash in lieu of any fraction of a share in the amount
of the current Fair Market Value of one whole share as of the date of exercise
multiplied by such fraction.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
__________ Shares of Common Stock of
DrugAbuse Sciences, Inc.
In connection with the purchase of the above-listed securities
the undersigned hereby represents to DrugAbuse Sciences, Inc. (the "Company") as
follows:
RECEIPT OF INFORMATION. The undersigned has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Common Stock issuable upon exercise of the Warrant dated June __,
1996 (the "Warrant") issued by the Company to the undersigned, and it has
examined any information furnished to it by the Company in connection therewith.
INVESTMENT REPRESENTATION.
(a) The shares of Stock to be received by the undersigned upon
the exercise of the Warrant (the "Securities") will be acquired for investment
for its own account, not as a nominee or agent, and not with a view to the sale
or distribution of any part thereof, except that it is understood that Scripps
may transfer any portion of Scripps' interest in the Warrant and shares of the
Company to the inventors of the technology which is the subject of the License
Agreement and the undersigned has no present intention of selling, granting
participation in or otherwise distributing the same, but subject, nevertheless,
to any requirement of law that the disposition of its property shall at all
times be within its control. By executing this Statement, the undersigned
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any Securities issuable upon
exercise of the Warrant, except as provided herein.
(b) The undersigned understands that the Securities issuable
upon exercise of the Warrant at the time of issuance may not be registered under
the Securities Act of 1933, as amended (the "Act"), and applicable state
securities laws, on the ground that the issuance of such securities is exempt
pursuant to Section 4(2) of the Act and state law exemptions relating to offers
and sales not by means of a public offering, and that the Company's reliance on
such exemptions is predicated on the undersigned's representations set forth
herein.
(c) The undersigned agrees that in no event will it make a
disposition of any Securities acquired upon the exercise of the Warrant unless
and until (i) it shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (ii) it shall have furnished the
Company with an opinion of counsel satisfactory to the Company and the Company's
counsel to the effect that (A) appropriate action necessary for compliance with
the Act and any applicable state securities laws has been taken or an exemption
from the registration requirements of the Act and such laws is available, and
(B) that the proposed transfer will not violate any of said laws.
Notwithstanding the provisions of this paragraph, Scripps may transfer any
portion of the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
Warrant and shares of the Company to Kim Janda and/or Peter Wirshing, the
inventors of the technology which is the subject of the License Agreement
without providing additional notice or advice of counsel.
(d) The undersigned represents that it is able to fend for
itself in the transactions contemplated by this Statement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investments, and has the ability to bear the
economic risks (including the risk of a total loss) of its investment. The
undersigned represents that it has had the opportunity to ask questions of the
Company concerning the Company's business and assets and to obtain any
additional information which it considered necessary to verify the accuracy of
or to amplify the Company's disclosures, and has had all questions which have
been asked by it satisfactorily answered by the Company.
(e) The undersigned acknowledges that the Securities issuable
upon exercise of the Warrant must be held indefinitely unless subsequently
registered under the Act or an exemption from such registration is available,
except as provided otherwise herein. The undersigned is aware of the provisions
of Rule 144 promulgated under the Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through a
"broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and the number of shares being sold during any
three-month period not exceeding specified limitations. The undersigned is aware
that the conditions for resale set forth in Rule 144 have not been satisfied.
Dated: __________
_______________________________________
(Signature)
_______________________________________
(Typed or Printed Name)
_______________________________________
(Title)
2
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
SCHEDULE 1
MILESTONES
1. Warrant W-l is exercisable upon the filing of an
investigational new drug application ("IND") for an efficacy clinical trial
sponsored by Licensee or its Sublicensee with the U.S. Food and Drug
Administration in respect of a Licensed Product.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 2
Warrant W-2
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
NO.: W-1 Void after
June 18, 2016
DRUGABUSE SCIENCES, INC.
COMMON STOCK PURCHASE WARRANT
Issued June 18, 1996
This Warrant is issued, for good and valuable consideration,
receipt of which is hereby acknowledged, to The Scripps Research Institute, a
California nonprofit public benefit corporation, (the "Holder") by DrueAbuse
Sciences, Inc., a California corporation (the "Company").
20. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth, the Holder is entitled, upon surrender of this Warrant to
the Company, to purchase from the Company fully paid and non-assessable shares
of the Company's Common Stock (as adjusted pursuant to Section 10 hereof, the
"Shares").
21. PURCHASE PRICE. The purchase price per share for the
Shares shall be $.0225, (the "Warrant Price"). The number of shares of Common
Stock purchasable upon exercise of this Warrant shall be 166,148 shares.
22. EXERCISE PERIOD. This Warrant is exercisable upon the
completion of certain events related to the research and development of new
products by the Company and attached hereto as Schedule 1 (the "Milestones"), at
any time before the close of business on June 18, 2016.
23. METHOD OF EXERCISE. While this Warrant remains
outstanding, the Holder may exercise, in whole or in part, the purchase rights
evidenced hereby in accordance with Section 3 above. Such exercise shall be
effected by the surrender of this Warrant to the Chief Financial Officer of the
Company at its principal offices, together with the payment to the Company (i)
in cash, by check or by wire transfer to an account designated by the Company,
(ii) by cancellation by the Holder of any then-outstanding indebtedness of the
Company to the Holder, or (iii) by a combination of (i) and (ii) of an amount
equal to the aggregate purchase price for the number of Shares being purchased.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
24. NET ISSUE EXERCISE. In lieu of the payment methods set
forth in Section 4 above, immediately prior to, or at any time after, the
closing of an Initial Public Offering, the Holder may elect to exchange all or a
portion of this Warrant for Shares equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If the Holder elects to
exchange this Warrant as provided in this Section 5, the Holder shall tender to
the Company the Warrant for the amount being exchanged, with written notice of
the Holder's election to exchange some or all of the Warrant, and the Company
shall issue to the Holder the number of Shares computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to
the Holder.
Y = the number of Shares purchasable
under the amount of the Warrant
being exchanged (as adjusted to the
date of such calculation).
A = the Fair Market Value of one Share.
B = the Purchase Price (as adjusted to
the date of such calculation).
All references herein to an "exercise" of the Warrant shall
include an exchange pursuant to this Section 5. Upon receipt of a written notice
of the Company's intention to raise capital by selling shares of Common Stock in
an Initial Public Offering (the "IPO NOTICE"), which notice shall be delivered
to the Holder promptly after the date of filing with the Securities and Exchange
Commission of the registration statement associated with such Initial Public
Offering, the Holder shall use its reasonable efforts to determine whether or
not the Holder will exercise this Warrant pursuant to this Section 5 prior to
the completion of the Initial Public Offering. Notwithstanding whether or not an
IPO Notice has been delivered to the Holder or any other provision of this
Warrant to the contrary, if the Holder decides to exercise this Warrant while a
registration statement is on file with the Securities and Exchange Commission in
connection with the Initial Public Offering, this Warrant shall be deemed
exercised on the closing of the Initial Public Offering and the Fair Market
Value of a Share shall be the price at which one share of Common Stock was sold
to the public in the Initial Public Offering. If the Holder has elected to
exercise this Warrant pursuant to this Section 5 while a registration statement
is on file with the Securities and Exchange Commission in connection with an
Initial Public Offering and the Initial Public Offering is not completed, then
the Holder's exercise of this Warrant shall not be effective.
25. EXERCISE NOTICE AND INVESTMENT REPRESENTATIONS. On or
prior to the date of each exercise under this Warrant, Holder shall deliver an
executed copy of (a) the form of Notice of Exercise attached hereto as EXHIBIT 1
duly executed by the Holder and (b) the form of Investment Representation
Statement attached hereto as EXHIBIT 2.
26. CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price or
number or type of securities issuable upon exercise of this Warrant is adjusted,
as herein provided, the Company
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
2
<PAGE>
shall promptly deliver to the record holder of this Warrant a certificate of
an officer of the Company setting forth the nature of such adjustment and a
brief statement of the facts requiring such adjustment.
27. CERTIFICATES FOR SHARES. Upon the exercise of the purchase
rights evidenced by this Warrant, one or more certificates for the number of
Shares so purchased shall be issued as soon as practicable thereafter, and in
any event within thirty (30) days of the delivery of the subscription notice.
28. RESERVATION OF SHARES. The Company covenants that it will
at all times keep available such number of authorized shares of its Common
Stock, free from all preemptive rights with respect thereto, which will be
sufficient to permit the exercise of this Warrant for the full number of Shares
specified herein. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof
29. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
(a) SPLITS AND COMBINATIONS. If the Company
at any time subdivides any of its outstanding shares of Common Stock into a
greater number of shares, the Warrant Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, if the
outstanding shares of Common Stock are combined into a smaller number of shares,
the Warrant Price in effect immediately prior to such combination shall be
proportionately increased. Upon any adjustment of the Warrant Price under this
Section 10(a), the number of shares of Common Stock issuable upon exercise of
this Warrant shall equal the number of shares determined by dividing (i) the
aggregate Warrant Price payable for the purchase of all shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Warrant Price per share in effect immediately after such adjustment.
(b) RECLASSIFICATIONS AND EXCHANGES. If the
Company changes any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities that were subject to the purchase
rights under this Warrant immediately prior to such reclassification or other
change and the Warrant Price therefor shall be appropriately adjusted. If thirty
percent (30%) or more of the Company's outstanding Common Stock is voluntarily
exchanged for a different security issued by the Company, then the Investor
shall have the right to elect to receive such security rather than the Common
Stock on exercise or conversion of this Warrant.
(c) DIVIDENDS AND DISTRIBUTION. If the
Company declares a non-cash dividend or other distribution on the Common Stock
or if a dividend or other distribution on the Common Stock occurs pursuant to
the Articles of Incorporation (other than a cash dividend or distribution),
then, as part of such dividend or distribution, lawful provision shall be made
so that there shall thereafter be deliverable upon the exercise of this Warrant
or any portion thereof, in addition to the number of shares of Common Stock
receivable thereupon and without payment of any additional consideration, the
amount of the dividend or other distribution to which the holder
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
3
<PAGE>
of the number of shares of Common Stock obtained upon exercise hereof would
have been entitled to receive had the exercise occurred as of the record date
for such dividend or distribution.
30. NO SHAREHOLDER RIGHTS. Prior to exercise of this Warrant,
the Holder shall not be entitled to any rights of a shareholder including
(without limitation) the right to vote, receive preemptive rights or be notified
of shareholder meetings, and such Holder shall not be entitled to any notice or
other communication concerning the business or affairs or the Company.
31. RESTRICTED SECURITIES. The Holder understands that this
Warrant and the Shares purchasable hereunder constitute "restricted securities"
under the federal securities laws inasmuch as they are being, or will be,
acquired from the Company in transactions not involving a public offering and
accordingly may not, under such laws and applicable regulations, be resold or
transferred without registration under the Securities Act of 1933 or an
applicable exemption from registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission is not now,
and may not in the future be, available for resales of the Shares purchased
hereunder. The Holder further acknowledges that the Shares and any other
securities issued upon exercise of this Warrant shall bear a legend
substantially in the form of the legend appearing on the face hereof.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS SUCH SALE OR TRANSFER IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THESE SECURITIES ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
32. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current
registration statement under the Securities Act of 1933 shall be in effect with
respect to the securities to be issued upon exercise of this Warrant, the
Holder, by accepting this Warrant, covenants and agrees that, at the time of
exercise hereof, such Holder will deliver to the Company a written certification
satisfactory to the Company that the securities acquired by the Holder and
acquired for investment purposes only and that such securities are not acquired
with a view to, or for sale in connection with, any distribution thereof.
33. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Warrant shall inure to the benefit of, and be binding upon, the Company and the
Holder hereof and their respective successors and assigns.
34. AMENDMENT. This Warrant is one of several warrants (the
"Bridge Warrants") issued by the Company in further consideration of certain
loans made to support the Company's continuing operations prior to the
arrangement of and commitment to close the Next Financing. Any term of this
Warrant may be amended if agreed to by the Company and holders of Bridge
Warrants representing a majority of the shares issuable upon exercise of all
Bridge Warrants then outstanding. Notwithstanding the foregoing, no such
amendment of this Warrant
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4
<PAGE>
shall be effective if it would (i) alter the number of shares issuable
hereunder, or (ii) affect this Warrant in a manner different than the other
Bridge Warrants, unless the Holder hereof consents thereto.
35. NON-TRANSFERABILITY. The Holder of this note shall not
sell, transfer, pledge, hypothecate or otherwise dispose of any interest in this
note without the prior written consent of the Company, with one exception:
Scripps may transfer any portion of Scripps' interest in this note to the
inventors whose technology is covered by the License Agreement.
36. LOCKUP AGREEMENT. In consideration of the Company's
issuance of this Warrant, the Holder agrees in connection with an Initial Public
Offering not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Shares issuable hereunder without the
prior written consent of an underwriter or underwriters in such Initial Public
Offering, for such period of time (not to exceed 180 days) from the effective
date of such registration as such underwriter or underwriters may specify.
37. COUNTERPARTS. For the convenience of the parties, any
number of counterparts of this Warrant may be executed by the parties hereto and
each such executed counterpart shall be, and shall be deemed to be, an original
instrument.
38. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of California as applied to agreements among California residents
entered into and to be performed entirely within California.
DRUGABUSE SCIENCES, INC.
By: /s/ Philippe Pouletty
--------------------------------
Title: Chairman
-----------------------------
Accepted and Agreed:
By: /s/ Arnold LaGuardia
-----------------------------------
Signature
Arnold LaGuardia, Sr. V.P.
- --------------------------------------
(Print name and, if applicable, title)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
5
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
DRUGABUSE SCIENCES, INC.
The undersigned hereby irrevocably elects to exercise the
Warrant for shares of capital stock, as provided for therein, and (check the
applicable box):
/ / Tenders payment of the purchase price in the form of
cash, by check or wire transfer, in the amount of
$____________________ for __________ shares of Common
Stock.
/ / Elects the Net Issue Exercise option pursuant to
Section 5 of the Warrant, and requests delivery of a
net of __________ shares of Common Stock.
The undersigned hereby affirms the statements and covenants
in Section 12 of the Warrant. Please issue a certificate or certificates for
such shares in the name of, and pay any cash for any fractional share to
(please print name, address and social security number)
Name:______________________________
Address:___________________________
Signature:_________________________
Note: The above signature should correspond exactly with the name on the
first page of this Warrant or with the name of the assignee appearing
in the assignment form below.
If said number of shares shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of the Registered Holder for the balance remaining of the shares purchasable
thereunder together with cash in lieu of any fraction of a share in the amount
of the current Fair Market Value of one whole share as of the date of exercise
multiplied by such fraction.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
__________ Shares of Common Stock of
DrugAbuse Sciences, Inc.
In connection with the purchase of the above-listed securities
the undersigned hereby represents to DrugAbuse Sciences, Inc. (the "Company") as
follows:
RECEIPT OF INFORMATION. The undersigned has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Common Stock issuable upon exercise of the Warrant dated June __,
1996 (the "Warrant") issued by the Company to the undersigned, and it has
examined any information furnished to it by the Company in connection therewith.
INVESTMENT REPRESENTATION.
(a) The shares of Stock to be received by the undersigned
upon the exercise of the Warrant (the "Securities") will be acquired for
investment for its own account, not as a nominee or agent, and not with a view
to the sale or distribution of any part thereof, except that it is understood
that Scripps may transfer any portion of Scripps' interest in the Warrant and
shares of the Company to the inventors of the technology which is the subject
of the License Agreement and the undersigned has no present intention of
selling, granting participation in or otherwise distributing the same, but
subject, nevertheless, to any requirement of law that the disposition of its
property shall at all times be within its control. By executing this Statement,
the undersigned further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participation to such person or to any third person, with respect to any
Securities issuable upon exercise of the Warrant, except as provided herein.
(b) The undersigned understands that the Securities issuable
upon exercise of the Warrant at the time of issuance may not be registered
under the Securities Act of 1933, as amended (the "Act"), and applicable state
securities laws, on the ground that the issuance of such securities is exempt
pursuant to Section 4(2) of the Act and state law exemptions relating to offers
and sales not by means of a public offering, and that the Company's reliance on
such exemptions is predicated on the undersigned's representations set forth
herein.
(c) The undersigned agrees that in no event will it make a
disposition of any Securities acquired upon the exercise of the Warrant unless
and until (i) it shall have notified the Company of the proposed disposition
and shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (ii) it shall have furnished the
Company with an opinion of counsel satisfactory to the Company and the
Company's counsel to the effect that (A) appropriate action necessary for
compliance with the Act and any applicable state securities laws has been taken
or an exemption from the registration requirements of the Act and such laws is
available, and (B) that the proposed transfer will not violate any of said
laws. Notwithstanding the provisions of this paragraph, Scripps may transfer
any portion of the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
Warrant and shares of the Company to Kim Janda and/or Peter Wirshing, the
inventors of the technology which is the subject of the License Agreement
without providing additional notice or advice of counsel.
(d) The undersigned represents that it is able to fend for
itself in the transactions contemplated by this Statement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investments, and has the ability to bear the
economic risks (including the risk of a total loss) of its investment. The
undersigned represents that it has had the opportunity to ask questions of the
Company concerning the Company's business and assets and to obtain any
additional information which it considered necessary to verify the accuracy of
or to amplify the Company's disclosures, and has had all questions which have
been asked by it satisfactorily answered by the Company.
(e) The undersigned acknowledges that the Securities issuable
upon exercise of the Warrant must be held indefinitely unless subsequently
registered under the Act or an exemption from such registration is available,
except as provided otherwise herein. The undersigned is aware of the provisions
of Rule 144 promulgated under the Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through a
"broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and the number of shares being sold during any
three-month period not exceeding specified limitations. The undersigned is
aware that the conditions for resale set forth in Rule 144 have not been
satisfied.
Dated: __________
________________________________
(Signature)
________________________________
(Typed or Printed Name)
________________________________
(Title)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
2
<PAGE>
SCHEDULE 1
MILESTONES
1. Warrant W-2 is exercisable upon demonstration of human
clinical efficacy for a primary end point in a Phase II clinical trial
sponsored by Licensee or its Sublicensee in respect of a Licensed Product.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 3
Milestones
1. Warrant W-1 is exercisable upon the filing of an
investigational new drug application ("IND") for an efficacy clinical trial
sponsored by Licensee or its Sublicensees with the U.S. Food and Drug
Administration in respect of a Licensed Product.
2. Warrant W-2 is exercisable upon demonstration of human
clinical efficacy for a primary end point in a Phase II clinical trial
sponsored by Licensee or its Sublicensee in respect of a Licensed Product.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C
FORM OF SUBLICENSE
This Sublicense Term Sheet is entered into and made effective
as of ____________________, 19__ by and between ______________________________,
a __________ located at _______________________________________________________
("Licensee") and ______________________________, a ____________________ located
at ________________________________________ ("Sublicensee").
GRANT OF SUBLICENSE. Licensee hereby grants to Sublicensee a
sublicense under and on all the same terms and conditions of that certain
License Agreement between Licensee and The Scripps Research Institute, a
California nonprofit public benefit corporation ("Scripps") attached hereto as
Exhibit I (the "Master License Agreement"), except as set forth below:
a. Technology subject to Sublicense: _______________
____________________________________________________________________________
____________________________________________________________________________.
b. Term: ___________________________________________
____________________________________________________________________________
____________________________________________________________________________.
c. Royalty Payments: _______________________________
____________________________________________________________________________
____________________________________________________________________________.
d. Commercial Development Obligations: _____________
____________________________________________________________________________
____________________________________________________________________________.
By its signature below, Sublicensee agrees to be bound by all
of the terms and conditions of the Master License Agreement, as modified
hereby, for the benefit of Licensee and Scripps.
LICENSEE: SUBLICENSEE:
____________________________ ________________________________
By:_________________________ By:_____________________________
Title:______________________ Title:__________________________
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT D
MILESTONES
1. The filing of an investigational new drug application
("IND") for an efficacy clinical trial sponsored by Licensee or its Sublicensee
with the U.S. Food and Drug Administration in respect of a Licensed Product.
2. Upon demonstration of human clinical efficacy for a
primary end point in a Phase II clinical trial sponsored by Licensee or its
Sublicensee in respect of a Licensed Product.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.15
-------------------------------
PATENT AND KNOW-HOW
LICENSE AGREEMENT
-------------------------------
This Agreement is entered this 08-day of June 1999 ("Effective Date") into BY
AND BETWEEN:
- - PASTEUR MERIEUX SERUMS & VACCINS, - PASTEUR MERIEUX CONNAUGHT COMPANY -,
a company organized and existing under the laws of France having its
registered head office at 58 avenue Leclerc, 69007 Lyon, France,
Represented by Mr. Michel GRECO, its DIRECTEUR GENERAL,
(hereinafter referred to as "LICENSOR")
AND
- - DRUG ABUSE SCIENCES INC a corporation existing and organized under the
laws of the United States its registered head office at 1430 O'Brien
Drive, suite E, Menlo Park, CA 94025
Represented by Mr Stanley KAPLAN, its Chief Executive Officer,
(hereinafter referred to as "LICENSEE")
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
WITNESSETH
WHEREAS, LICENSOR has developed intellectual property, including inventions
which are the subject matter of patents and patent applications and a secret and
substantial know-how, relating to the [********] technology.
WHEREAS, LICENSEE wishes to obtain from LICENSOR a license in order to have the
right to use LICENSOR' inventions relating to the pasteurization for use with
products that are directed toward alleviation of drug addictions, and LICENSOR
is willing to grant such licenses to LICENSEE, subject to the terms of and
conditioned upon this Agreement;
NOW, THEREFORE, in consideration of the respective representations
and covenants of each of the Parties as set forth below, LICENSOR and LICENSEE,
intending to be legally bound, agree as follows
ARTICLE 1 - DEFINITIONS AND INTERPRETATION.
1.1 DEFINITIONS: For the purposes of this Agreement the following words and
phrases shall have the following meanings:
(a) "AFFILIATE" means, with respect to any Person, (i) any other
Person of which the securities or other ownership interests
representing fifty per cent (50%) or more of the equity or fifty
per cent (50%) or more of the ordinary voting power or fifty per
cent (50%) or more of the general partnership interest are, at the
time such determination is being made, owned, Controlled or held,
directly or indirectly, by such Person (a "Subsidiary"), or (ii)
any other Person which, at the time such determination is being
made, is Controlling or under common Control with, such Person. As
used herein, the term "Control", whether used as a noun or verb,
refers to the possession, directly or indirectly, of the power to
direct, or cause the direction of, the management or policies of a
Person, whether through the ownership of voting securities, by
contract or otherwise.
(b) "AGREEMENT" means this agreement, all amendments and supplements
to this Agreement and all schedules to this Agreement, including
the following:
SCHEDULE A - LICENSED PATENTS,
SCHEDULE B - LICENSED KNOW-HOW
(c) "BIOLOGICAL MATERIALS" shall mean any biological materials
including but not limited to structural genes, genetic sequences,
promoters, enhancers, probes, linkage probes, vectors, hosts,
plasmids, peptides, polypeptides, transformed cell lines,
transgenic animals, proteins, biological modifiers, antigens,
reagents, hybridomas, antibodies, toxins, lectins, enzymes,
lipids, hormones, viruses, cells or parts of cells, cell lines,
fragments of any of the foregoing and any other biologically
active material or compound, whether or not occurring naturally or
howsoever derived, modified, conjugated, cross-linked,
immobilized, reduced, purified or produces, whether by recombinant
DNA techniques and/or otherwise.
(d) "CALENDAR QUARTER" means any of the three-month periods beginning
January 1, April 1, July 1 and October 1 in any year.
(e) "CONFIDENTIAL INFORMATION" has the meaning ascribed to it in
Section 9.1. of this Agreement.
(f) "EVENT OF FORCE MAJEURE" has the meaning ascribed to it in Article
12 of this Agreement.
(g) "FIELD OF USE" means the treatment of drug addiction.
(h) "FIRST COMMERCIAL SALE" means, in each country of the Territory,
the first sale of a PRODUCT, after obtaining the regulatory
approvals necessary to commercially market such PRODUCT in such
country in the Territory, by LICENSEE, its
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Affiliates or Sublicensees, to Third-Parties, in each case for use
or consumption of such PRODUCT in such country by the general
public.
(i) "IMPROVEMENTS" means all patentable or non-patentable inventions,
discoveries, technology and information of any type whatsoever,
including without limitation Biological Materials, methods,
processes, technical information, knowledge, experience and
know-how which utilize, incorporate, derive from, are based on or
could not be conceived, developed or reduced to practice but for
the use of the LICENSOR Technology.
(j) "LICENSE" has the meaning ascribed to it in Section 2.1.1. of this
Agreement.
(k) "LICENSED KNOW-HOW" means any and all technical information,
discoveries, Improvements, processes, formulae, data, engineering,
technical and shop drawings, inventions, Biological Materials,
shop-rights, know-how and trade secrets which is useful or
necessary to make, have made, use or sell the PRODUCTS or to
practice under the LICENSED PATENTS in the Field of Use, which
have been, or hereafter are, either developed by LICENSOR or its
Affiliates, or acquired by LICENSOR or its Affiliates and to which
LICENSOR or its Affiliates, to the extent to which it has the
right to do so in the Field of Use.
(l) "LICENSED PATENTS" means:
(i) any existing patents and patent applications listed in
Schedule A to this Agreement;
(ii) any future patents issued from any patent applications
referred to in Paragraph 1.1(1)(i) above and any future
patents issued from a patent application filed in any
country in the Territory which corresponds to a patent or
patent application identified in Paragraph 1.1(1)(i) above;
(iii) any reissues, confirmations, renewals, extensions,
counterparts, divisions, continuations,
continuations-in-part, supplemental protection certificates
or utility models issued, assigned or licensed to LICENSOR
or its Affiliates of or relating to the patents or patent
applications identified in Paragraph 1.1(1)(i) and (ii)
above
(iv) any future patents and patent applications covering
LICENSOR Improvements, solely or jointly owned by LICENSOR
or its Affiliates, or licensed by LICENSOR or its
Affiliates with the right to sublicense.
(m) "NET SALES" shall mean the amount actually received on sales of
PRODUCTS by LICENSEE, and its Affiliates and Sublicensees if the
Sublicensees are Affiliates to the first Third-Party (including
unaffiliated Third-Party distributors, except in the circumstances
referred to in Section 6.3 hereof less), to the extent actually
incurred or allowed and if not already deducted in the amount
invoiced:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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(i) normal or customary trade and/or quantity discounts,
credits, allowances, rebates, returns (including, but not
limited to, wholesaler and retailer returns);
(ii) retroactive price reductions;
(iii) excise taxes, other consumption taxes, customs duties and
compulsory payments made to governmental authorities;
(iv) sales commissions that are actually paid to Third-Party
distributors and selling agents; and
(v) transportation, transit and insurance for transportation
each to the extent separately invoiced and paid by
LICENSEE.
(n) "Notice of Dispute" has the meaning ascribed to it in Section
16.4.(a) of this Agreement.
(o) "PARTIES" means LICENSEE and LICENSOR, and "Party" means any one
of them.
(p) "PERSON" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, pool, syndicate,
sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed
herein.
(q) "PHASE III" means the first pivotal safety and efficacy clinical
trial relating to a PRODUCT.
(r) "PRODUCTS" means the COC are produced by or under license from
DAS, the manufacture, sale or use of such PRODUCTS which would
have constituted a misappropriation of substantial LICENSED
KNOW-HOW, or LICENSOR Improvements, and/or an infringement of the
LICENSED PATENTS, but for the LICENSE granted in this Agreement.
(s) "ROYALTY TERM" means, with respect to the PRODUCT in each country
in the Territory, the period starting on the date of the First
Commercial Sale of such PRODUCT in such country and ending when
the PRODUCT is no longer commercially sold in such country.
(t) "SUBLICENSEE" means any Person acting pursuant to a sublicense
granted to it by LICENSEE under the terms of this Agreement.
(u) "TERRITORY" means all countries in the world.
(v) "THIRD-PARTY" means any Person other than LICENSEE, LICENSOR and
their respective Affiliates..
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
3
<PAGE>
(w) "VALID PATENT CLAIM" means a claim of an issued and unexpired
patent or patent application included in LICENSED PATENTS which
has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise. If there
should be two or more decisions within the same country which are
conflicting with respect to the invalidity of the same claim, the
decision of the highest tribunal shall thereafter control.
However, should the tribunals be of equal authority, then the
decision or decisions holding the claim valid shall prevail where
the conflicting decisions are equal in number and the majority of
decisions shall prevail where the conflicting decisions are not
equal in number.
(x) "LICENSOR IMPROVEMENT" means Improvements which are conceived,
developed or reduced to practice during the term of this Agreement
solely or jointly by employees or contractors acting on behalf of
LICENSOR or its Affiliates.
(y) "LICENSOR TECHNOLOGY" means the LICENSED PATENTS, the LICENSED
KNOWHOW and the LICENSOR Improvements.
1.2 CERTAIN RULES OF INTERPRETATION IN THIS AGREEMENT AND THE SCHEDULES:
(a) An accounting term not otherwise defined has the meaning assigned
to it by, and every accounting matter will be determined in
accordance with, generally accepted accounting principles in the
United States of America;
(b) Unless otherwise specified, all references to monetary amounts are
to United States dollars currency (US$);
(c) The descriptive headings of Articles and Sections are inserted
solely for convenience of reference and are not intended as
complete or accurate descriptions of the content of such Articles
or Sections;
(d) The use of words in the singular or plural, or with a particular
gender, shall not limit the scope or exclude the application of
any provision of this Agreement to such Person or Persons or
circumstances as the context otherwise permits;
(e) Whenever a provision of this Agreement requires an approval or
consent by a Party to this Agreement and notification of such
approval or consent is not delivered within the applicable time
limit, then, unless otherwise specified, the Party whose approval
or consent is required shall be conclusively deemed to have
granted its approval or consent;
(f) Unless otherwise specified, time periods within or following which
any payment is to be made or act is to be done shall be calculated
by excluding the day on which the period commences and including
the day on which the period ends and by extending the period to
the next business day following if the last day of the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4
<PAGE>
period is not a business day in the jurisdiction of the Party to
make such payment or do such act; and
(g) Whenever any payment is to be made or action to be taken under
this Agreement is required to be made or taken on a day other than
a business day, such payment shall be made or action taken on the
next business day following such day in the jurisdiction of the
Party to make such payment or do such act.
ARTICLE 2 - LICENSE.
2.1 GRANT.
Subject to and conditioned upon the provisions of this Agreement,
LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, a
license ( the "LICENSE") in the Territory to make, have made, use and
sell PRODUCTS under the LICENSED PATENTS and by using LICENSED KNOW-HOW
and LICENSOR Improvements in the Field of Use.
(i) Subject to and conditioned upon the provisions of this
Agreement, the LICENSE granted pursuant to this Article 3
shall be exclusive (exclusive even as to LICENSOR) to
LICENSEE in the Field of Use. Without limiting the
generality of the foregoing, LICENSOR covenants that during
the term of this Agreement, neither LICENSOR nor its
Affiliates shall grant to any other Person any right,
license or privilege to make, have made, use or sell
PRODUCTS or to otherwise exploit LICENSOR Technology, or
any other Biological Matter or chemical substance (or any
derivative or formulation thereof), in the Field of Use.
(ii) For greater certainty, LICENSOR has and retains all rights
in and to the LICENSOR Technology outside the Field of Use
and LICENSEE has no rights in the LICENSOR Technology
outside the Field of Use.
2.2 LICENSEE'S RIGHTS TO SUBLICENSE.
(i) LICENSEE shall have the right, without obtaining the
further consent of LICENSOR, to sublicense in the Field of
Use all or any portion of the rights to the LICENSED
PATENTS, the LICENSED KNOW-HOW and LICENSOR Improvements
granted to it pursuant to this Agreement under the LICENSE
(i) to any of its Affiliates, and (ii) to any Person in any
country of the Territory without PMC's prior approval to
any third party unless such Person is well known as being
actively engaged in the business of researching,
developing, manufacturing and marketing immunoproteins at
the time the sublicense is contemplated, in which case the
grant of the sublicense to such a third party shall be
subject to PMC's prior approval in writing. Such approval
shall only be dependent upon PMC being reasonably satisfied
by the provision that DAS will propose to include in the
sublicense to, and only to, the effect that the Licensed
Technology may not be used and/or exploited by the
prospective
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
5
<PAGE>
sublicensee in the immunoproteine field. For that purpose,
DAS shall provide to PMC a draft along with its request.
PMC shall have fifteen (15) days to confirm in writing its
consent or state in writing the material reasons, made in
good faith, why such provision will not protect the
Licensed Technology from use as restricted in the previous
two sentences, in which case the parties will use their
best efforts to expedite negotiations of an appropriate
provision. PMC shall be deemed to have approved a request
by DAS pursuant to this Section 2.2, if PMC fails to
respond as provided hereunder within the fifteen (15)
period set forth above.
No permitted Sublicensee pursuant hereto shall have the right to
grant further sublicenses to any Third-Party.
(ii) LICENSEE agrees that all sublicenses granted by LICENSEE
hereunder shall expressly bind Sublicensees to the terms of
Article 9, "Confidentiality" and to all other relevant
provisions of this Agreement.
In the event LICENSEE grants sublicenses to its Affiliates,
LICENSEE shall pay royalties to LICENSOR as if Net Sales of the
Sublicensees if such Sublicensees are Affiliates were Net Sales of
LICENSEE and LICENSOR shall be expressly made a Third-Party
beneficiary thereof.
For all other Sublicenses to Third-Parties except for the
standalone Sublicenses as specified herebelow, the amount of
royalties paid by Sublicensee(s) to LICENSEE shall be included
into the amount of Net Sales. It is understood between the
parties, that LICENSOR will be paid by LICENSEE [***] that would
be equivalent to what LICENSOR would have received if LICENSEE has
been selling directly the PRODUCTS. Such percentage shall not
exceed [***] of the amount of revenue actually received by
LICENSEE.
If LICENSEE grants a Sublicense to the LICENSED PATENTS to a
third-party on a standalone basis, LICENSEE shall pay to PMC [***]
of any incremental consideration that LICENSEE may receive from
any Third-Party Sublicensee such as but not limited to license
issue fees, milestone payments and royalties.
(iii) Any sublicenses granted by LICENSEE shall include a
requirement that the Sublicensee maintains records and
permit inspection on terms essentially identical to Section
6.2 hereof. At LlCENSOR's request, LICENSEE shall arrange
for an independent certified public accountant selected by
LICENSOR, and at LlCENSOR's cost, to inspect the records of
Sublicensees for the purpose of verifying royalties due to
LICENSOR and shall cause such accountant to report the
results thereof to LICENSOR.
(iv) Any sublicenses granted by LICENSEE shall provide for the
termination of the sublicense, or, if the Sublicensee is a
Third-Party, at the option of such Sublicensee, the
conversion to a license directly between such
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Sublicensee and LICENSOR, upon termination of this
Agreement under Article 10 (other than expiration under
Section 10.1 or a termination by LICENSEE further to a
breach by LICENSOR pursuant to Section 10.4). Such
conversion shall be subject to LlCENSOR's approval and
contingent upon acceptance by the Sublicensee of the
remaining provisions of this Agreement.
(vi) LICENSEE shall notify LICENSOR of each sublicense granted
to Third-Parties and shall provide LICENSOR with the name
and address of each Sublicensee and a description of the
PRODUCTS and territory covered by each sublicenses.
2.3 SUBLICENSES TO LICENSEE.
To the extent LICENSED PATENTS have been, or shall be, licensed by
LICENSOR from a Third-Party under an agreement with such Third-Party (a
"Third-Party Licensee), LICENSEE understands and agrees as follows:
(i) The rights sub-licensed to LICENSEE by LICENSOR are subject
to the terms and conditions, restrictions, limitations and
obligations of the relevant Third-Party License that are
imposed upon LICENSOR;
(ii) LICENSEE shall comply with the terms and conditions,
restrictions, limitations and obligations of such
Third-Party License(s) to the extent LICENSEE has been
permitted to review such terms, conditions, restrictions,
limitations and obligations. LICENSOR shall give LICENSEE,
upon request, a reasonable opportunity to review the same
except to the extent that confidentiality obligations
towards Third-Parties may prevent LICENSOR from doing so.
In any event, LICENSOR shall act reasonably in advising
LICENSEE of the scope of LICENSEE's obligations pursuant to
any relevant Third Party License. LICENSOR represents and
warrants that, on the Effective Date, there are no Third
Party Licenses that apply to exploitation of the LICENSOR
Technology.
2.4 SUBCONTRACTING.
Notwithstanding anything herein provided for to the contrary, LICENSEE
shall be allowed to (i) sub-contract in whole or in part PRODUCTS
development to Third-Parties such as, without limitation, clinical
research organizations, (ii) appoint sales agents and distributors to
market and distribute PRODUCTS and (iii) sub-contract manufacturing of
PRODUCTS, or any part thereof, with Third-Parties or with LICENSEE's
Affiliates including LICENSOR acting as toll manufacturer.
2.5 DISCLOSURE OF TECHNOLOGY.
From time to time during the term of this Agreement, LICENSOR shall
disclose or cause its Affiliates to disclose to LICENSEE such LICENSOR
Technology as may be reasonably necessary to enable LICENSEE to develop,
manufacture, commercialize and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
otherwise exploit the PRODUCTS in the Field of Use on the terms and
subject to the conditions of this Agreement. In addition, during the term
of this Agreement, LICENSOR shall, upon LICENSEE's reasonable request and
with adequate notice to LICENSOR, make available to LICENSEE at
LICENSEE's or its Affiliates' manufacturing facilities or the facility of
a Third Party manufacturer who shall have contracted with LICENSEE to
manufacture PRODUCTS, LICENSOR's or LICENSOR Affiliate's Personnel to
provide technical assistance to LICENSEE's Personnel, or LICENSEE
Affiliates' Personnel or Third-Party manufacturer's Personnel. LICENSEE
shall pay or have paid by its concerned Affiliates all reasonable travel
costs incurred by LICENSOR or its Affiliates in connection with rendering
such technical assistance. Such Personnel shall render such assistance at
the facilities designated by LICENSEE for periods of not less than three
continuous business days per visit. In addition, LICENSOR shall make it
or its Affiliates Personnel reasonable available for telephone
consultation, as requested by LICENSEE.
2.6 PROVISION OF RELATED ASSISTANCE.
(i) In support of LICENSEE'S development and commercialization of
PRODUCTS, LICENSOR shall promptly and timely provide and prepare,
upon reasonable request of DAS and free of charge, relevant
sections pertaining to (i) IND, BLA, PLA and ELA supplements and
other regulatory approvals required by the FDA and other
Regulatory Authorities to commercially market and sell PRODUCTS to
the public in the Territory, and, (ii) such information as
LICENSEE or Regulatory Authorities may request in connection with
(a) LICENSEE's preclinical studies, Phase I, II III and IV studies
for PRODUCTS. LICENSOR shall promptly conduct such manufacturing
process development studies (including but not limited to
stability studies) as are reasonably requested by LICENSEE or
required by Regulatory Authorities in order to fulfill its
obligations under this Agreement, and to permit LICENSEE to
expeditiously submit complete applications to obtain marketing
(and earlier) approvals to commercially develop, market and sell
PRODUCTS in the Territory.
(ii) LICENSOR represents and warrants, to the best of its knowledge,
that the information, data and technical assistance provided to
LICENSEE hereunder shall not contain any material fact or
omission, and shall indemnify and hold LICENSEE harmless from any
liability or damage (including reasonable attorneys' fees arising
from a breach of the foregoing.)
2.7 COMMUNICATION AMONG PARTIES.
Each of LICENSEE and LICENSOR shall appoint (a) specific individual(s)
who shall be available and shall act as (a) liaison Person(s) to
facilitate the day-to-day communications among the Parties. The names and
addresses of the liaison Persons who shall act on behalf of each of the
Parties shall be provided by each of the Parties to the other
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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immediately following the execution of this Agreement. Each of LICENSEE
and LICENSOR agrees to notify the other in accordance with the terms of
Section 16.1 of this Agreement in the event of a change in liaison
Person.
2.8 IDENTIFICATION OF KNOW-HOW.
The Parties agree that all information and Biological Materials comprised
in the LICENSED KNOW-HOW to be transferred to LICENSEE pursuant to this
Agreement shall be so transferred in the case of written information, by
memoranda bearing the mention "Confidential", and, in the case of
Biological Materials, by clearly marked and numbered containers. LICENSEE
shall designate an individual who shall be responsible for receiving
information and Biological Materials from LICENSOR and/or its Affiliates
and the Parties agree that such information and Biological Materials
shall in all cases (except where the Parties agree otherwise) be sent
solely to the attention of such individual. Upon receipt of information
and/or Biological Materials, the designated individual shall, on behalf
of LICENSEE, send an acknowledgement to LICENSOR and/or its Affiliates
confirming receipt of information and/or Biological Materials. The
Parties agree that they shall in good faith work together to establish
and maintain a system to record the transmission of information and/or
materials under this Agreement and make all commercially reasonable
efforts to ensure such system is followed.
2.9 CONFIDENTIALITY.
All information transferred pursuant to this Agreement shall be deemed to
be "Confidential Information" in accordance with Section 9.1 hereof.
ARTICLE 3 - DEVELOPMENT AND COMMERCIALIZATION.
3.1 DEVELOPMENT AND COMMERCIALIZATION EFFORTS.
LICENSEE shall comply with all applicable good laboratory, clinical and
manufacturing practices in the development and commercialization of
PRODUCTS, and shall cause its Affiliates and subcontractors to do the
same. LICENSEE shall be solely responsible for funding all costs incurred
by LICENSEE for the development and commercialization of each PRODUCT.
3.2 DEVELOPMENT AND COMMERCIALIZATION REPORTS.
During the term of this Agreement, LICENSEE shall keep LICENSOR
reasonably informed as to the progress of the development of PRODUCTS by
notifying LICENSOR of completion of PHASE III studies for each such
PRODUCT (to the extent such studies are commenced and completed). All
information disclosed by LICENSEE pursuant to this Section 4.2 shall be
treated as LICENSEE Confidential Information subject to Article 8 hereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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ARTICLE 4 - ROYALTIES AND MILESTONES.
4.1 EARNED ROYALTIES.
During the Royalty Term, LICENSEE shall pay to LICENSOR a royalty as
follows:
(i) during the [***]
[***] percent of Net Sales of PRODUCTS.
(ii) As of the [***] and until the [***]:
[***] of Net Sales of PRODUCTS on annual NET SALES below [***];
[***] of Net Sales of PRODUCTS on annual NET SALES above [***]
(iii) As of the [***] following the date of First Commercial Sale:
[***]:
[***] of Net Sales of PRODUCTS
As of the [***] year, LICENSEE shall pay royalties in countries
where there is no [***]; in all other cases, the LICENSE in any
such country shall be royalty free).
4.2 SINGLE ROYALTY: NON-ROYALTY SALES.
In no event shall more than one royalty be payable under Section 4.1.
with respect to a particular unit of PRODUCTS. No royalty shall be
payable under this Section 4 with respect to sales of PRODUCTS among
LICENSEE and its Subsidiaries or Affiliates, or among Sublicensees and
their respective Affiliates, or among LICENSEE and its Sublicensees,
[***]. No royalty shall be payable for (i) PRODUCTS used in clinical
trials, or (ii) PRODUCTS used by LICENSEE, its Affiliates or
Sublicensees, for research, (iii) customary quantities of PRODUCTS
distributed as free samples or (iv) reasonable quantities of PRODUCTS
disposed by LICENSEE as donations to Third-Parties.
4.3 [***].
In those cases where LICENSEE or its Affiliates sell PRODUCTS in bulk to
a Third-Party, [***].
4.4 ROYALTY ADJUSTMENTS.
The royalty due hereunder shall be reduced in the following circumstances
and in the following manner:
(i) Where LICENSEE is required to obtain additional rights to make,
use or sell PRODUCTS and to pay a third party a royalty in order
to obtain such
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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rights, the royalty hereunder shall be reduced by an amount
[***] to the third party until such time as (a) [***], or (b)
[***].
(ii) At any time (and only for such time) that the sum of (a) the
royalty due hereunder for PRODUCTS, and (b) the transfer price
for PMC Product due LICENSOR pursuant to that certain
Manufacturing and Supply Agreement between the Parties, dated of
even date herewith (the "Combined Price"), [***] (referred to as
the "Margin"), the royalty on such PRODUCT shall be suspended.
Thereafter, LICENSEE shall not owe any royalty on PRODUCTS until
the Combined Price is less than the Margin, and then only to the
extent of the difference between the Combined Price and the
Margin.
(iii) With respect to any PRODUCTS that are not manufactured by
LICENSOR (whether through termination of the Manufacturing and
Supply Agreement, force majeure or otherwise), the royalty due
for such PRODUCTS shall be [***] of the Net Sales received on
the sales of the PRODUCTS manufactured by the Third-Party. For
the avoidance of doubt, LICENSEE shall pay LICENSOR the
royalties mentioned in Section 4.1 of the Net Sales received on
the PRODUCTS manufactured by LICENSOR.
ARTICLE 5 - ROYALTY REPORTS AND ACCOUNTING.
5.1 REPORTS, EXCHANGE RATES.
During the term of this Agreement following the First Commercial Sale,
LICENSEE shall furnish to LICENSOR, with respect to each Calendar
Quarter, a written report showing in reasonably specific detail, for the
European Union, North America, and the rest of the Territory,
respectively: (a) the gross sales of PRODUCTS sold by LICENSEE, its
Affiliates and its Sub-licensees in the Territory during the
corresponding Calendar Quarter and the calculation of Net Sales from such
gross sales; (b) the royalties payable in United States dollars, if any,
which shall have accrued hereunder based upon Net Sales of PRODUCTS; (c)
the withholding taxes, if any, required by law to be deducted in respect
of such royalties; (d) the date of the First Commercial Sale of PRODUCTS
having occurred in each country in the Territory during the corresponding
Calendar Quarter; and (e) the exchange rates used in determining the
royalty amount expressed in United States dollars.
With respect to sales (if any) of PRODUCTS invoiced in United States
dollars, the gross sales, Net Sales, and royalties payable shall be
expressed in United Sates dollars. With respect to sales of PRODUCTS
invoiced in a currency other than United Sates dollars, the gross sales,
Net Sales and royalties payable shall be expressed in the currency of the
invoice issued by the Party making the sale together with the United
States dollars equivalent of the royalty payable, calculated using the
rate of exchange published in the Wall Street Journal for such currency
on the last business day of the concerned Calendar Quarter. Reports and
payments shall be due [***]. LICENSEE shall keep complete and
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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accurate records in sufficient detail to properly reflect all gross sales
and Net Sales and to enable the royalties payable hereunder to be
determined.
5.2 AUDITS.
5.2.1. Upon the written request of LICENSOR and not more than once in each
calendar year, LICENSEE shall permit an independent certified public
accounting firm of internationally recognized standing, selected by
LICENSOR and reasonably acceptable to LICENSEE, at LlCENSOR's expense, to
have access during normal business hours to such of the records of
LICENSEE as may be reasonably necessary to [***]. The accounting firm
shall disclose to LICENSOR only whether the records are correct or not
and the specific details concerning any discrepancies. No other
information shall be shared.
5.2.2. If such accounting firm concludes that additional royalties were owed
during such period, LICENSEE shall pay the [***] LICENSOR delivers to
LICENSEE such accounting firm's written report so concluding. The fees
charged by such accounting firm shall be paid by LICENSOR; provided,
however, if the audit discloses that the royalties payable by LICENSEE
for the audited period are more than [***] actually paid for such period,
then LICENSEE shall pay the reasonable fees and expenses charged by such
accounting firm.
5.2.3. LICENSEE shall include in each permitted sublicense granted by it
pursuant to the Agreement a provision requiring the SUBLICENSEE to make
reports to LICENSEE, to keep and maintain records of sales made pursuant
to such sublicense and to grant access to such records by LlCENSOR's
independent accountant to the same extent required with respect to
LICENSEE's records under this Agreement.
5.2.4. Except in the case of circumstances which would have prevented an error
or anomaly from being disclosed during the audit hereabove mentioned,
such as fraud or other failure to provide accurate information, upon the
expiration of [***] following the end of any calendar year, the
calculation of royalties payable with respect to such year shall be
binding and conclusive upon LICENSOR, and LICENSEE, its Affiliates and
Sublicensees shall be released from any liability or accountability with
respect to royalties for such year.
5.3 CONFIDENTIAL FINANCIAL INFORMATION.
LICENSOR shall treat all financial information subject to review under
this Article 5 or under any sublicense agreement as confidential, and
shall cause its accounting firm to retain all such financial information
in confidence.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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ARTICLE 6 - PAYMENTS.
6.1 PAYMENT TERM.
Royalties shown to have accrued by each royalty report provided for under
Article 4 of this Agreement shall be due [********]. Payment of royalties
in whole or in part may be made in advance of such due date.
6.2 PAYMENT METHOD.
All payments by LICENSEE to LICENSOR under this Agreement shall be paid
in United States dollars, and all such payments shall be made without
deduction of bank transfer fees by bank wire transfer in immediately
available funds to the following bank account:
[********]
6.3 WITHHOLDING TAXES.
Royalties shall be paid by LICENSEE to LICENSOR, after deduction of any
applicable withholding taxes. Prior to any payment by LICENSEE to
LICENSOR, LICENSEE shall provide to LICENSOR any forms required to attest
LlCENSOR's fiscal domiciliation in order to allow LICENSEE to claim
application of the reduced rate of withholding tax provided for in any
applicable bilateral fiscal convention. LICENSOR shall promptly return
such forms to LICENSEE. In the event LICENSOR fails to promptly return
such forms duly filled and signed, LICENSEE shall declare and pay
withholding tax at the common law rate of the applicable corporate income
tax, and such tax shall then be deducted from the corresponding payment
by LICENSEE to LICENSOR. LICENSEE shall pay withholding tax to the proper
taxing authority and proof of payment of such tax shall be secured and
sent to LICENSOR as evidence of such payment. If, in the opinion of
either Party, the provisions of this Section become extremely burdensome,
the Parties agree to meet and discuss such other options as may be
available to them.
ARTICLE 7 - INVENTIONS AND PATENTS.
7.1 OWNERSHIP OF INVENTIONS.
The entire right and title to technology, whether or not patentable, and
any patent applications or patents based thereon, made or conceived
during the term of this Agreement which directly relates to and are not
severable from LICENSOR Technology and which are Improvements thereto
and/or more generally relate to PRODUCT (a) by employees or others acting
solely on behalf of LICENSOR or its Affiliates shall be
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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owned solely by LICENSOR (the LICENSOR Improvements" as more fully
defined in Article 1 hereof), (b) by employees or others acting solely on
behalf of LICENSEE or its Affiliates shall be owned solely by LICENSEE
and (c) by both employees or others acting on behalf of LICENSEE or its
Affiliates, and employees or others acting on behalf of LICENSOR and its
Affiliates shall be jointly owned by LICENSEE and LICENSOR.
LICENSOR and LICENSEE each hereby represents that all employees and other
Persons acting on its behalf in performing its obligations under this
Agreement shall be obligated under a binding written agreement to assign
to it, or as it shall direct, all Improvements conceived or reduced to
practice by such employees or other Persons.
7.2 PATENT PROSECUTION AND MAINTENANCE.
LICENSED PATENTS. LICENSOR shall be responsible for and shall control the
preparation, filing, prosecution, grant and maintenance of all LICENSED
PATENTS. LICENSOR shall prepare, file, prosecute and maintain such
LICENSED PATENTS in good faith consistent with its customary patent
policy and its reasonable business judgement, and shall consider in good
faith the interests of LICENSEE in so doing.
JOINT INVENTIONS. As to any joint inventions made by the Parties during
the term of this Agreement, LICENSEE shall have the first right to file
patent applications with respect to such inventions in the name of both
Parties. LICENSEE may elect not to file and if it does so, LICENSOR shall
have the right to file the patent application in the name of both
Parties. In each case regarding joint inventions, the filing Party shall
give the non-filing Party an opportunity to review the text of the
application before filing, shall consult with the non-filing Party with
respect thereto and shall supply the non-filing Party with a copy of the
applications as filed, together with notice of its filing date and serial
number and [***] the out-of-pocket costs and expenses of the filing Party
shall be reimbursed by the other Party. Both Parties shall keep the other
advised of the status of actual and prospective patent application
filings and upon request, provide advanced copies of any documents
related to such filings and thereafter to the prosecution and maintenance
of all patent applications and patents.
COSTS. With respect to all filings hereunder, the filing Party shall be
responsible for payment of all costs and expenses related to such
filings, prosecution and maintenance, unless relieved of same pursuant to
Section 7.3 hereinafter, and except for jointly owned patents, for which
[***] of all such costs and expenses shall be reimbursed to the filing
Party by the other Party.
7.3 OPTION TO PROSECUTE AND MAINTAIN PATENTS.
LICENSOR shall give notice to LICENSEE of any intention to cease
prosecution and/or maintenance, or not to proceed with an extension, of
LICENSED PATENTS and, in such case, shall permit LICENSEE, at LICENSEE's
sole discretion, to continue prosecution or maintenance or proceed with
the extension at its own expenses. If LICENSEE elects to continue
prosecution or maintenance or to proceed with the extension, LICENSOR
shall execute such documents and perform such acts at LICENSEE's expense
as may be
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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reasonably necessary to effect an assignment of such LICENSED PATENTS to
LICENSEE in a timely manner, and more generally to permit LICENSEE to
continue such prosecution and maintenance or to proceed with the
extension. Any patents and patent applications so assigned shall not be
considered as LICENSED PATENTS as of the date of such assignment. No
royalties shall be payable by LICENSEE on sales of PRODUCTS covered only
by a Valid Patent Claim of a LICENSED PATENT which has been assigned to
LICENSEE pursuant to this Section 7.3.
7.4 INTERFERENCE, OPPOSITION, REEXAMINATION AND REISSUE.
(i) The Parties shall use their respective best efforts to
within [***] of learning of any interference, opposition,
reexamination or reissue event, inform the other Party of
any request for, or filing or declaration thereof relating
to LICENSED PATENTS. The Parties shall thereafter consult
and cooperate fully to determine the course of action with
respect to any such proceeding. Both Parties shall have the
right to review and comment on any submission to be made in
connection with any such proceeding.
(ii) LICENSOR shall not institute any reexamination or reissue
proceeding relating to LICENSED PATENTS without having
first consulted LICENSEE.
(iii) In connection with any interference, opposition, reissue or
reexamination proceeding relating to LICENSED PATENTS, the
Parties shall cooperate fully and shall provide each other
with any information or assistance that either Party may
reasonably request. LICENSOR shall keep LICENSEE informed
of developments in any such action or proceeding,
including, to the extent permissible, the status of any
settlement negotiations and the terms of any offer related
thereto.
(iv) LICENSOR shall bear the expense of any interference,
opposition, reexamination or reissue proceeding relating to
LICENSED PATENTS.
7.5 ENFORCEMENT AND DEFENSE.
(i) Each Party shall give the other notice of either (a) any
infringement of LICENSED PATENTS, or (b) any
misappropriation or misuse of LICENSED KNOW-HOW that has
come to its attention. The Parties shall thereafter consult
and cooperate fully to determine a course of action,
including but not limited to the commencement of legal
action by either or both Parties to terminate any
infringement of LICENSED PATENTS or any misappropriation or
misuse of LICENSED KNOW-HOW.
(ii) In the event that LICENSED PATENTS are infringed by any
Third-Party with respect to a PRODUCT in the Field of Use,
LICENSEE, upon notice to LICENSOR, shall for a period of
[***] have the first right, but not the obligation, to
institute and prosecute any action or proceeding under
LICENSED PATENTS with respect to such infringement, by
counsel of
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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its choice, or to control the defense of any declaratory
judgment action arising from such infringement or from the
misappropriation or misuse of LICENSED KNOW-HOW, at its own
expense and in the name of both Parties. LICENSEE shall not
otherwise settle, compromise or take any action in such
litigation which diminish, limit or inhibit the scope,
validity or enforceability of LICENSED PATENTS without the
express permission of LICENSOR. LICENSEE shall keep
LICENSOR advised of the progress of such proceedings.
(iii) In the event that a Third-Party is infringing any LICENSED
PATENTS with respect to a PRODUCT in the Field of Use and
LICENSEE does not elect to institute an action, LICENSOR,
upon notice to LICENSEE, shall have the right, but not the
obligation, to institute and prosecute any action or
proceeding under LICENSED PATENTS with respect to such
infringement, by counsel of its choice, or to control the
defense of any declaratory judgment action arising from
such infringement or from the misappropriation or misuse of
LICENSED KNOW-HOW, at its own expense and in the name of
both Parties. LICENSOR shall not settle, compromise or take
any action in such litigation which diminish, limit or
inhibit the scope, validity or enforceability of LICENSED
PATENTS without the prior approval of LICENSEE, which shall
not be unreasonably withheld.
(iv) With respect to any action to terminate any infringement of
LICENSED PATENTS or any misappropriation or misuse of
LICENSED KNOW-HOW, the Parties shall cooperate fully and
shall provide each other with any information and
assistance that either Party may reasonably request. In
particular, either Party shall execute such documents
necessary for the other Party to initiate and prosecute the
action or proceeding and cause its Affiliates, Sublicensees
and LICENSEE to execute all such documents, if required. In
the event that either Party is unable to initiate or
prosecute an action solely in its own name, the other Party
shall then join such action voluntarily. Each Party shall
keep the other informed of the development of any action or
proceeding including, to the extent permissible by law, the
status of any settlement negotiations and the terms of any
offer related thereto.
(v) Any recovery obtained by either or both Parties in
connection with or as a result of any action or proceeding
contemplated by this Section 8.3, whether by settlement or
otherwise, shall be allocated in order as follows:
(a) The Party which initiated and prosecuted the action
shall recoup all of its costs and expenses incurred
in connection with the action (provided that if
LICENSEE was the initiating Party and that the
action proceeds were not sufficient for LICENSEE to
recoup all its costs and expenses, then LICENSEE
shall be allowed to deduct the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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balance of its unrecovered costs and expenses from
royalties payable to LICENSOR under Article 4
hereof);
(b) The other Party shall then, to the extent possible,
recover its costs and expenses incurred in
connection with the action; and
(c) The amounts of any recovery remaining shall then be
allocated between the Parties with LICENSEE
receiving all amounts in respect of damages in the
Field of Use and LICENSOR receiving all amounts in
respect of damages out of the Field of Use, except
that any amounts recovered in connection with
infringement actions relating to jointly-owned
patents shall be equally shared between the Parties.
(vi) LICENSOR shall inform LICENSEE of any certification
regarding any LICENSED PATENTS it has received pursuant to
21 United States Code Sections355(b)(2)(A)(iv) or
(j)(2)(A)(vii)(lV), or any similar provision in other
countries, and shall provide LICENSEE with a copy of such
certification within [***] of receipt. Both Parties rights
with respect to the initiation and prosecution of any legal
action as a result of such certification or any recovery
obtained as a result of such legal action shall be as
defined in paragraphs (a) to (c) of this Section 7.6.
7.6 NOTICE OF PATENT EVENTS.
LICENSOR shall promptly give notice to LICENSEE of the grant, lapse,
revocation, surrender or invalidation of any LICENSED PATENTS.
7.7 PATENT TERM RESTORATION.
LICENSOR shall notify LICENSEE of (a) the issuance of each U.S. patent
included within the LICENSED PATENTS, giving the date of issue and patent
number for each such patent, and (b) each notice pertaining to any patent
included within the LICENSED PATENTS which it receives as patent owner
pursuant to the United Sates Drug Price Competition and Patent Term
Restoration Act of 1984 (hereinafter called the "Act"), including notices
pursuant to Sections 101 and 103 of the Act from Persons who have filed a
biological license application ("BLA") or an abbreviated new drug
application ("ANDA"), whichever is applicable. Such notices shall be
given promptly, but in any event within five (5) calendar days of each
such patent's date of issue or receipt of each such notice pursuant to
the Act, whichever is applicable. LICENSOR shall notify LICENSEE of each
filing for patent term restoration under the Act, any allegations of
failure to show due diligence and all awards of patent term restoration
(extensions) with respect to the LICENSED PATENTS.
Likewise, LICENSOR or LICENSEE, as the case may be, shall inform the
other Party of patent extensions and periods of data exclusivity in the
rest of the world regarding any PRODUCTS and more generally the Parties
shall diligently cooperate with respect to any procedures for patent and
period of data exclusivity extensions, such as but not limited to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Supplementary Protection Certificates, the above-mentioned Patent Term
Restoration and corresponding GATT regulations.
ARTICLE 8 - GENERAL PROVISIONS.
8.1 CONFIDENTIALITY.
(a) -GENERAL
Except as expressly set forth in this Section 8, each party shall cause
its respective Affiliates, officers, directors, employees, agents and
subcontractors (collectively, "Representatives") to keep confidential any
and all technical, commercial, scientific and other data, processes,
documents or other information (whether in oral form and identified as
confidential within 30 days after the date of disclosure, or if written
form, if marked as "confidential" at the time of disclosure) or physical
object (including, without limitation, intellectual property, marketing
data, agreements between any party and a third-party, license
applications, and business plans and projections of any party ) that have
been marked as "confidential" at the time of disclosure) acquired from
the other party (the "Other Party"), its Affiliates or its
Representatives after the Effective Date ("Confidential Information"),
and each party shall not disclose directly or indirectly, and shall cause
its Representatives not to disclose directly or indirectly, any
Confidential Information to anyone outside such Person, in the case of
LICENSEE, its Sublicensees, and each of their Affiliates and their
respective Representatives, except that the foregoing restriction shall
not apply to any information disclosed hereunder to any party, if such
Person (the "Receiving Person") can demonstrate that such Confidential
Information:
(i) is or hereafter becomes generally available other than by
reason of any breach or default by the Receiving Person,
any of its Affiliates or any Representative of the
foregoing with respect to a confidentiality obligation
under this Agreement;
(ii) was already known to the Receiving Person or such affiliate
or Representative;
(iii) is disclosed to the Receiving Person or such affiliate or
Representative by a third party who has the right to
disclose such information;
(iv) is independently developed by the Receiving Person;
(v) based on such Person's good faith judgement with the advice
of counsel, is otherwise required to be disclosed in
compliance with applicable legal requirements to a public
authority.
Whenever the Receiving Person becomes aware of any state of facts which
would or might result in disclosure of Confidential Information pursuant
to subparagraph (v) above, it shall, if possible, promptly notify the
Person making disclosure "Disclosing Person") prior to any such
disclosure so that the Disclosing Person may seek a protective
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement.
In any event, if the Receiving Person is unable to promptly notify the
Disclosing Person or if such protective order or other remedy is not
obtained, or if the Disclosing Person waives compliance with the
provisions of this Agreement, the Receiving Person will furnish only that
portion of the information which it is advised by counsel is legally
required and will exercise reasonable efforts to obtain assurance that
confidential treatment will be accorded the Confidential Information.
Each party shall be entitled, in addition to any other right or remedy it
may have, at law or in equity, to an injunction, without the posting of
any bond or other security except as required by the relevant laws,
enjoining or restraining any other party from any violation or threatened
violation of this Section 8.1.
(b) -USE OF CONFIDENTIAL INFORMATION
Each party agrees that no Confidential Information shall:
(i) be used in its own business except as necessary to exercise
the rights and obligations of such Party under this
Agreement;
(ii) be assigned, licensed, sublicensed, marketed, transferred
or loaned, directly or indirectly to any third party other
than a Representative or an Affiliate Representative of
such party, except as necessary or contemplated for the
exercise of the rights and obligations of the Parties under
this Agreement;
The obligations set forth in this Section 8.1 shall extend to
copies, if any, of Confidential Information made by any
Representatives referred to in paragraph (a) and to documents
prepared by such Persons which embody or contain Confidential
Information.
(c) -PROTECTION OF CONFIDENTIAL INFORMATION
Each party shall deal with Confidential Information so as to
protect it from disclosure with a degree of care not less than
that used by it in dealing with its own information intended to
remain exclusively within its knowledge and shall take reasonable
steps to minimize the risk of disclosure of Confidential
Information which shall include, without limitation, ensuring that
only those Persons who have a bona fide need to know such
Confidential Information for purposes permitted or contemplated by
this Agreement shall have access thereto. Each party, shall notify
all of its Representatives who have access to Confidential
Information of its confidentiality and the care therefor required,
and shall obtain from any Affiliate or any agent or subcontractor
who is a Representative that is permitted access to such
Confidential Information in accordance with this Section 8.1, an
agreement of confidentiality incorporating the restrictions set
forth herein.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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(d) -SURVIVAL OF OBLIGATIONS
The obligations set forth in this Section 8.1 shall survive the
termination of this Agreement for a period of [***].
(e) -RETURN OF CONFIDENTIAL INFORMATION
Within thirty (30) days after the termination of this Agreement,
the Receiving Person shall (and shall cause its Affiliates'
Representatives and its Affiliates to) return to the Disclosing
Person or destroy all related documents and tangible items then in
its possession which it has received from the Disclosing Person or
any affiliate or Representative thereof pertaining, referring or
relating to the Disclosing Person's Confidential Information, as
well as all copies, summaries, records, descriptions,
modifications, and duplications that it, or any of its Affiliates
or Representatives, has made from the documents or tangible items
received from the Disclosing Person or any affiliate or
Representative thereof; provided, however, that the Receiving
Person may retain one copy of each document in its legal files
solely to permit the Receiving Person to continue to comply with
its obligations hereunder and, in addition, may upon notice to the
Disclosing Person, retain in its legal files or in the office of
outside legal counsel one copy of any document solely for use in
any pending legal proceeding to which such document relates.
Notwithstanding the foregoing, this provision shall not apply with
respect to Confidential Information obtained from LICENSOR that is
comprised of LICENSOR KNOW-HOW, in the event of expiration of the
Agreement in accordance with its terms or termination of this
Agreement for breach by LICENSOR.
8.2 TERM AND TERMINATION.
8.2.1. EXPIRATION.
Unless terminated earlier pursuant to this Article 8, the Agreement shall
expire on the expiration of LICENSEE's obligation to pay royalties under
the Agreement in accordance with the Section 4 of this Agreement.
8.2.2. TERMINATION BY LICENSEE.
LICENSEE shall have the right at any time, in its sole discretion, to
terminate this Agreement, by giving not less than three (3) months prior
written notice to LICENSOR of such termination.
8.2.3. TERMINATION FOR CAUSE.
(i) Either Party may terminate this Agreement, at its option,
upon or after the breach of any material provision of the
Agreement by the other Party, if such breaching Party has
not cured such breach within one-hundred and twenty
(120) days after written notice thereof from the other
Party.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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(ii) LICENSEE or LICENSOR may terminate this Agreement upon
written notice to the other party if the other party makes
a general assignment for the benefit of creditors, is the
subject of proceedings in voluntary or involuntary
bankruptcy or has a receiver or trustee appointed for
substantially all of its property; PROVIDED that in the
case of an involuntary bankruptcy proceeding such right to
terminate shall only become effective if the other party
consents thereto or such proceeding is not dismissed within
ninety (90) days after the filing thereof.
(iii) Each of the parties hereto acknowledges and agrees that
this Agreement (i) constitutes a license of Intellectual
Property (as such term is defined in the United States
Bankruptcy Code, as amended (the "Code"), and (ii) is an
executory contract, with significant obligations to be
performed by each party hereto. The parties agree that
LICENSEE as LICENSEE may fully exercise all of its rights
and elections under the Code, including, without
limitation, those set forth in Section 365 (n) of the Code.
The parties further agree that, in the event that LICENSEE
elects to retain its rights as a licensee under the Code,
LICENSEE shall be entitled to complete access to the
LICENSOR Technology licensed to it hereunder and all
embodiments of such technology. Such embodiments of the
LICENSOR Technology shall be delivered to LICENSEE not
later than (a) the commencement of bankruptcy proceedings
against LICENSOR, unless LICENSOR elects to perform its
obligations under the Agreement, or (b) if not delivered
under (a) above, upon the rejection of the Agreement by or
on behalf of LICENSOR.
8.2.4. EFFECT OF EXPIRATION AND TERMINATION.
Expiration or termination of the Agreement shall not relieve the Parties
of any obligation accruing prior to such expiration or termination.
8.3 FORCE MAJEURE.
No Party (or any of its Affiliates) shall be held liable or responsible
to the other Party (or any of its Affiliates) nor be deemed to have
defaulted under or breached the Agreement for failure or delay in
fulfilling or performing any term of the Agreement when such failure or
delay is caused by or results from causes beyond the reasonable control
of the affected Party (or any of its Affiliates) including but not
limited to fire, floods, embargoes, war, acts of war (whether war be
declared or not), insurrections, riots, civil commotions, strikes,
lockouts or other labor disturbances, acts of God or acts, omissions or
delays in acting by any governmental authority or the other Party
(collectively, "Events of Force Majeure"); provided, however, that the
affected Party (i) shall immediately notify the other Party of the
occurrence of any such Event of Force Majeure and (ii) shall exert all
reasonable efforts to eliminate, cure or overcome any such Event of Force
Majeure and to resume performance of its covenants with all possible
speed; and provided, further, that nothing contained herein shall require
any Party to settle on terms unsatisfactory to such Party any strike,
lockout or other labor difficulty, any investigation
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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or proceeding by any governmental authority or any litigation by any
Third-Party. Notwithstanding the foregoing, to the extent that an
Event of Force Majeure continues for a period in excess of [***] the
affected Party shall promptly notify in writing the other Party of
such Event of Force Majeure and [***] of the other Party's receipt of
such notice, the Parties agree to negotiate in good faith either (i)
to resolve the Event of Force Majeure, if possible, (ii) to extend by
mutual agreement the time period to resolve, eliminate, cure or
overcome such Event of Force Majeure, (iii) to amend this Agreement to
the extent reasonably 'possible, or (iv) to terminate this Agreement.
8.4 ASSIGNMENT.
This Agreement may not be assigned or otherwise transferred, nor, except
as expressly provided hereunder, may any right or obligations hereunder
be assigned or transferred to any Third-Party by either Party without the
consent of the other Party; PROVIDED, HOWEVER, that either Party may,
without such consent, assign this Agreement and its rights and
obligations hereunder to any of its Affiliates or in connection with the
transfer or sale of all or substantially all of its business, or in the
event of its merger or consolidation or change in control or similar
transaction. Any permitted assignee shall assume all obligations of its
assignor under this Agreement. Without limiting the generality of the
foregoing, without the prior written consent of LICENSEE, LICENSOR shall
not under any circumstances assign or transfer any LICENSOR Technology
unless (i) all of the rights and obligations of LICENSOR under this
Agreement are assigned to the same transferee(s) concurrently therewith,
and (ii) such transferee(s) expressly assume(s) in writing the
performance of all terms and conditions of this Agreement to be performed
by LICENSOR and such assignment shall not relieved the assignor of any of
its obligations under this Agreement. Each Party acknowledges that the
other Party would suffer irreparable injury in the event of any breach of
this Article 8 and that therefore the remedy at law for any breach or
threatened breach hereof by any Party shall be inadequate. Accordingly,
upon a breach or threatened breach hereof by any Party, the other Party
shall, in addition and without prejudice to any other rights and remedies
it may have, be entitled as a matter of right, without proof of actual
damages, to seek specific performance hereof and to such other injunctive
or equitable relief to enforce, or prevent any violations (whether
anticipatory, continuing or future) hereof.
8.5 ADVERSE EXPERIENCE REPORTING.
During the term of the Agreement, each Party shall notify the other
immediately of any information (howsoever obtained and from whatever
source) concerning any unexpected side effect, injury, toxicity or
sensitivity reaction, or any unexpected incidence, and the severity
thereof, associated with the clinical uses, studies, investigations,
tests and marketing of a PRODUCTS. For purposes of this Section 8.5,
"unexpected" shall mean (x) for a nonmarketed PRODUCTS, an experience
that is not identified in nature, severity or frequency in the current
clinical investigator's confidential information brochure, and (y) for a
marketed PRODUCTS, an experience which is not listed in the current
labeling for such PRODUCTS, and includes an event that may be
symptomatically and patho-physiologically related to an event listed in
the labeling but differs from the event because of increased frequency or
greater severity or specificity. Each Party further shall
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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immediately notify the other of any information received regarding any
threatened or pending action by an agency which may affect the safety
and efficacy claims of a Product. Upon receipt of any such
information, the Parties shall consult with each other in an effort to
arrive at a mutually acceptable procedure for taking appropriate
action; provided, however, that nothing contained herein shall be
construed as restricting either Party's right to make a timely report
of such matter to any government agency or take other action that it
deems to be appropriate or required by applicable law or regulation.
8.6 SEVERABILITY.
Each Party hereby agrees that it does not intend to violate any public
policy, statutory or common laws, rules, regulations, treaty or decision
of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of
this Agreement be or become invalid, the Parties hereto shall substitute,
by mutual consent, valid provisions for such invalid provisions which
valid provisions in their economic effect are sufficiently similar to the
invalid provisions that it can be reasonably assumed that the Parties
would have entered into this Agreement with such provisions. In case such
provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this
Agreement as a whole, unless the invalid provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
Parties would not have entered into this Agreement without the invalid
provisions.
8.7 MISCELLANEOUS.
8.7.1. NOTICES.
Any consent, notice or report required or permitted to be given or made
under this Agreement by one of the Parties hereto to the other shall be
in writing, delivered Personally or by facsimile (and promptly confirmed
by Personal delivery, first class air mail or courier), first class air
mail or courier, postage prepaid (where applicable), addressed to such
other Party at its address indicated below, or to such other address as
the addressee shall have last furnished in writing to the addressor and
(except as otherwise provided in this Agreement) shall be effective upon
receipt by the addressee.
IF TO LICENSOR:
LICENSOR
Pasteur Merieux Serums & Vaccins
58 avenue Leclerc
69007 Lyon, France
Attention: General Counsel
Telefax: 33.4.37.37.70.61
Telephone: 33.4.37.37.01.00
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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IF TO LICENSEE:
LICENSEE
1430 O'Brien Drive, suite E,
Menlo Park, CA 94025
USA
Attention: CEO
Telefax: 650.462.1000
Telephone: 650.462.1003
8.7.2. APPLICABLE LAW.
The Agreement shall be governed by and construed in accordance with the
laws of State of California without regard to the conflict of law
principles thereof.
8.7.3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
8.7.3.1 REPRESENTATIONS AND WARRANTIES OF LICENSEE.
(a) LICENSEE is a corporation duly organized and existing under the
laws of the State of California, with the corporate power to own,
lease and operate its properties and to carry on its business as
now conducted.
(b) LICENSEE has all necessary corporate power and authority to enter
into this Agreement and to consummate the transactions
contemplated hereby.
(c) The execution, delivery or performance of this Agreement will not
conflict with or result in a breach of, or entitle any party
thereto to terminate, any material agreement or instrument to
which LICENSEE is a party, or by which any of its assets or
properties is bound.
(d) This Agreement has been duly authorized, executed and delivered by
LICENSEE and constitutes a legal, valid and binding agreement of
LICENSEE, enforceable against LICENSEE in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally.
8.7.3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR.
(a) LICENSOR is a corporation duly incorporated and validly existing
as a corporation in good standing under the laws of France with
the corporate power to own, lease and operate its properties and
to carry on its business as now conducted.
(b) LICENSOR has all necessary corporate power and authority to enter
into this Agreement and to consummate the transactions
contemplated hereby.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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(c) The execution, delivery and performance of this Agreement by
LICENSOR does not conflict with or contravene its certificate of
incorporation or by-laws, nor will the execution, delivery or
performance of this Agreement conflict with or result in a breach
of, or entitle any party thereto to terminate, any agreement or
instrument to which LICENSOR is a party, or by which any of its
assets or properties is bound.
(d) This Agreement has been duly authorized, executed and delivered by
LICENSOR and constitutes a legal, valid and binding agreement of
LICENSOR, enforceable against LICENSOR in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws
affecting creditors' rights generally.
(e) All LICENSED PATENTS listed on Schedule A as amended from time to
time have been registered in, filed in or issued by the
appropriate patent offices of each jurisdiction as indicated on
such Schedule A, and in each case is currently in effect and all
maintenance fees and renewals thereof have been duly made with
respect thereto. LICENSOR owns or has full and exclusive rights to
use and exploit under licenses (and to license or sublicense) all
its rights under such LICENSED PATENTS and the LICENSED KNOW-HOW.
There have been no material claims made against LICENSOR asserting
the invalidity or non-enforceability of, or with respect to such
LICENSED PATENTS, the misuse of such LICENSED PATENTS or the
LICENSED KNOW-HOW, nor is LICENSOR aware that any such claims
exist. LICENSOR has not received a notice of conflict of such
LICENSED PATENTS or the LICENSED KNOW-HOW with the asserted rights
of others, or otherwise challenging its rights to use any of such
LICENSED PATENTS, or the LICENSED KNOW-HOW. None of the rights of
LICENSOR under the LICENSED PATENTS or LICENSED KNOW-HOW shall be
adversely affected by the execution, delivery or performance of
this Agreement, or the consummation of the transaction
contemplated herein. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN
THIS SECTION, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS
ANY WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR VALIDITY OF ANY PATENT RIGHTS PENDING.
8.7.4. DISPUTE RESOLUTION.
Any and all disputes arising in connection with this Agreement that will
not be solved on an amicable basis between the parties shall be finally
settled by arbitration under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce, rules that the Parties recognize
that they know. The arbitration shall be conducted in Paris, France, in
English by one arbitrator if the dispute involves a claim of damage of
and [***] appointed in accordance with the said rules. The arbitrator(s)
shall apply French law to the merits of the case. The arbitration shall
be final and binding upon the parties.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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in the event of a dispute regarding any payments owing under this
Agreement, all undisputed Agreements shall be paid when due and the
balance, if any, promptly after resolution of the dispute.
8.7.5. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the Parties with
respect to the subject matter hereof. All express or implied agreements
and understandings, either oral or written, heretofore made, including
but not limited to Option Agreements to the extent, but only to the
extent, they are inconsistent with any provisions of this Agreement (in
which case the relevant provision of this Agreement shall prevail) are
expressly superseded by this Agreement. This Agreement may be amended, or
any term hereof modified, only by a written instrument duly executed by
both Parties hereto.
8.7.6. INDEPENDENT CONTRACTORS.
LICENSOR and LICENSEE each acknowledge that they shall be independent
contractors and that the relationship between the two Parties shall not
constitute a partnership, joint venture or agency. Neither LICENSOR nor
LICENSEE shall have the authority to make any statements, representations
or commitments of any kind, or to take any action, which shall be binding
on the other Party, the prior consent of the other Party to do so.
8.7.7. AFFILIATES.
Each Party shall cause its respective Affiliates to comply fully with the
provisions of this Agreement to the extent such provisions specifically
relate to, or are intended to specifically relate to, such Affiliates, as
though such Affiliates were expressly named as joint obligors hereunder.
8.7.8. WAIVER.
The waiver by either Party hereto of any right hereunder or the failure
to perform or of a breach by the other Party shall not be deemed a waiver
of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.
8.7.9. NO IMPLIED LICENSE.
Nothing in this Agreement shall be deemed to constitute, by implication
or otherwise, the grant by LICENSEE to LICENSOR, or by LICENSOR to
LICENSEE, of any license to, or interest in, or other rights under any
patent, patent application, proprietary know-how, trade secrets or other
intellectual property rights owned or possessed by LICENSEE or LICENSOR,
whichever is applicable, except as expressly provided for herein. For the
avoidance of doubt, LICENSEE shall at all times own all right, title and
interest in and to COC ab and all intellectual and industrial property
rights relating thereto, in whatever form and however derived or
modified, and LICENSOR shall make any assignments necessary from time to
time to effect such ownership.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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8.7.10. LIABILITY LIMITATION.
In no event shall either party be liable with respect to any subject
matter of this agreement under any contract, negligence, strict liability
or other legal or equitable theory for any incidental or consequential
damages, lost profits or lost data.
8.7.11. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.
For LICENSOR.
By: /s/ Michel Greco
-------------------------------
Name: Michel GRECO
Title: DIRECTEUR GENERAL
For LICENSEE.
By: /s/ Stanley Kaplan
-------------------------------
Name: Stanley KAPLAN
Title: CEO & President
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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- --------------------------------------------------------------------------------
SCHEDULE A
- --------------------------------------------------------------------------------
LICENSED PATENTS
US Patent nDEG. 5.234.991 of August 10, 1993 "POROUS MINERAL SUPPORT COATED
WITH AN ANIMATED POLYSACCHARIDE POLYMER
US Patent nDEG. 4.849.508 of July 18, 1989 "PASTEURIZATION OF IMMUNOGLOBULIN
SOLUTIONS"
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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- --------------------------------------------------------------------------------
SCHEDULE B
- --------------------------------------------------------------------------------
LICENSED KNOW-HOW
[***]
[***]
[***]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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EXHIBIT 10.16
------------------------------------------
MANUFACTURING AND SUPPLY AGREEMENT
COC AB FAB'2 SOLUTION
------------------------------------------
This Agreement is entered into as of 08 June 1999 by and between
- - PASTEUR MERIEUX SERUMS & VACCINS, a PASTEUR MERIEUX CONNAUGHT company,
SOCIETE ANONYME, existing and organized under the laws of the Republic of
France, having its registered head office at 58, avenue Leclerc, 69007,
LYON, FRANCE, which capital is 1.698.859.000 FRF, which registered number
in LYON is B 349 505 370
Represented by Mr. Michel GRECO, acting as Directeur General.
(hereinafter referred to as "PMC")
OF THE FIRST PART,
AND :
- - DRUG ABUSE SCIENCES SA a corporation existing and organized under the laws
of France having its registered head office at, 2 rue de Crucy, 44000
Nantes, France.
Represented by Mrs Maryvonne HIANCE, President,
And
- - DRUG ABUSE SCIENCES INC a corporation existing and organized under the laws
of the United States its registered head office at 1430 O'Brien Drive,
Suite E, Menlo Park CA 94025,
Represented by Mr Stanley Kaplan, its Chief Executive Officer,
(hereinafter collectively referred to as "DAS")
OF THE SECOND PART,
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
WITNESSETH
WHEREAS, DAS is a specialty pharmaceutical company dedicated
to drug addiction care applying a disease approach to the treatment of
substance abuse.
WHEREAS, PASTEUR MERIEUX Serums & Vaccins is a leading
manufacturer of human vaccines and other related immunological products for
prevention, treatment and cure of diseases in human beings and has extensive
world-wide research, development, manufacturing and marketing operations in
that field and has developed a certain know-how in the Fab'2 technology.
WHEREAS, DAS has approached PMC in to manufacture and supply
for DAS a product manufactured according to the Fab'2 technology.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "ADDITIONAL EQUIPMENT" shall mean any and all equipment,
other than the Equipment required for the manufacturing of the Equine Plasma
which shall be purchased by PMC pursuant to an Approved Proposal contemplated
in Article 11 herein.
1.2 "ADDITIONAL EQUIPMENT COSTS" shall mean the cost of
Additional Equipment.
1.3 "COMMERCIAL PERIOD" shall mean the period beginning on
the date of First Commercial Sale and continuing throughout the term of this
Agreement.
1.4 "IDAS CERTIFICATE" shall mean the certificate
accompanying the Immunogen provided by DAS to PMC pursuant to Article 3.3 of
this Agreement. A model of a DAS Certificate is attached to this Agreement as
Exhibit 4.
1.5 "IDAS PRODUCT" shall mean the COC ab produced by DAS.
1.6 "IDAS SPECIFICATIONS" shall mean the specifications
relating to the production of the PMC Product for use as an active ingredient
in the DAS Product, as more particularly described in Exhibit 3 hereto, which
are the sole and exclusive property of DAS.
1.7 "DEVELOPMENT PERIOD" shall mean the period beginning on
the Effective Date and ending on the date of First Commercial Sale of the DAS
Product, which period includes the preclinical and clinical phases.
1.8 "EFFECTIVE DATE" shall mean the date of execution of this
Agreement.
1.9 "EQUIPMENT" shall mean any and all equipment located at
the PMC Facilities and required for the manufacturing of the Equine Plasma at
the Effective Date.
1.10 "FIRST COMMERCIAL SALE" shall mean the first sale of a
DAS Product, after obtaining the regulatory approvals necessary to commercially
market (whether under Biological License Application or an the orphan drug
status) such DAS Product by DAS to third-parties, in each case for use or
consumption of such DAS Product by the general public.
1.11 "IMMUNOGEN" shall mean the [********]
1.12 "LABORATORY" shall mean the laboratory jointly by the
parties to resolve a Product quality dispute as described in Article 13
hereunder and the name of which is mentioned in Exhibit 7 hereto.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
1
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1.13 "MANUFACTURING ORDER" shall mean an order for PMC
Product placed by DAS, a model of which is attached as Exhibit 6 of this
Agreement.
1.14 "PARTY" shall mean PMC or DAS.
1.15 "PMC PRODUCT" shall mean [********]
1.16 "PMC FACILITIES" shall mean, as applicable, the facility
in which the PMC Product is manufactured, purified, stored and at which quality
control procedures are effected. The names and addresses of the PMC Facilities
are specified in Exhibit 1 hereto.
1.17 "PMC SOP" shall mean the procedures describing (or
otherwise called in French "CAHIER DES CHARGES") the manufacturing and testing
of the PMC Product and set forth in Exhibit 3 hereto which are PMC's sole and
exclusive property
1.18 "PMC CERTIFICATE" shall mean the certificate issued by
PMC at delivery of the PMC Product. A model of a PMC Certificate is attached to
this Agreement as Exhibit 5.
1.19 "PROTOCOL" shall mean the Protocol relating to the COC
ab Protocol mutually agreed upon between the parties required for the
manufacturing of the PMC Product and attached hereto as Exhibit 2.
1.20 "REGULATORY AUTHORITY" shall mean (i) with respect to
the United States, the United States Food and Drug Administration or such other
agency or instrumentality of the United States to which the responsibilities
and authority of the FDA are given or delegated from time to time, (ii) with
respect to France, the Agence du Medicament, or such other agency or
instrumentality of France to which the responsibilities and authority of the
Agence du Medicament are given or delegated from time to time, (iii) with
respect to the European Union, the Agence Europeenne du Medicament and (iv)
with respect to each other jurisdiction, the agencies or instrumentalities of
such jurisdiction having substantially the same responsibilities and authority
of the Agence du Medicament.
ARTICLE 2
PURPOSE OF THE AGREEMENT
Subject to the terms and conditions set forth in this
Agreement, DAS hereby appoints PMC, who accepts, as an exclusive manufacturer
and supplier of the PMC Product according to the Protocol, DAS Specifications
and PMC SOPs. [***].
ARTICLE 3
MANUFACTURING AND SUPPLY OF PMC PRODUCT
3.1 DESCRIPTION OF PMC PRODUCT. Subject to the terms and
conditions of this Agreement and in particular, capacity limitation set forth
in the last sentence of Article 4.4, PMC agrees to manufacture and supply to
DAS, who accepts to purchase, subject to the terms and conditions of this
Agreement, exclusively from PMC, the PMC Product that is produced as bulk
active ingredient and in compliance with the Manufacturing Orders placed by DAS
in accordance with this Agreement.
The manufacturing, packaging and labeling of the PMC Product
shall be in accordance with DAS Specifications.
3.2 RESTRICTIONS. PMC agrees to manufacture and supply the
PMC Product (and any other anti-cocaine immunoglobulin derivatives) [***].
3.3 TRANSFER OF IMMUNOGEN. DAS agrees to provide free of
charge to PMC the Immunogen in reasonable sufficient quantities for PMC to
manufacture quantities of PMC Product according to the annual forecast
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
2
<PAGE>
by DAS. PMC shall not be held liable by DAS in the event the Immunogen is not
provided to PMC in the required quantities and timelines. Each quantity of
Immunogen shall be delivered to PMC with a DAS Certificate without which PMC
shall not process such quantity Immunogen. DAS shall advise PMC in advance in a
timely manner of any planned change or modification of the manufacturing
process of the Immunogen, in order to permit PMC to assess the impact, if any,
on the manufacturing of the PMC Product and PMC shall not be held liable in the
event of a change or modification of the process of the Immunogen.
At the beginning of each calendar year, PMC shall provide DAS
with a non-binding immunization schedule which shall be coherent with the
non-binding forecast in order to permit DAS to prepare the Immunogen in
sufficient amounts to insure its availability during this Agreement. DAS shall
promptly inform PMC of any event or problem which could have an impact on the
preparation by DAS of the Immunogen.
PMC agrees to use the Immunogen only for the purpose of
manufacturing PMC Product on behalf of DAS.
3.4 PMC FACILITIES. PMC Product shall be manufactured in the
PMC Facilities unless otherwise mutually agreed by the parties in advance in
writing.
For the purposes of manufacturing PMC Product for use in the
DAS Product, PMC shall maintain the PMC Facilities in compliance with
requirements of applicable Regulatory Authority. In the event that the
applicable Regulatory Authorities require any modifications to the PMC
Facilities for such purposes, PMC shall use all diligent efforts to make such
modifications as soon as possible in accordance with Article 12 hereunder.
3.5 PMC SOPS. The PMC SOPs listed in Exhibit 3 are PMC's sole
and entire property and can be updated or amended by PMC at any moment provided
that if such update or amendment (i) does not affect production or distribution
of the DAS Product, then PMC shall notify DAS in advance with thirty-days prior
notice, (ii) could affect the production or distribution of the DAS Product and
such change is not mandated by a Regulatory Authority, then PMC shall obtain
DAS's prior written consent, and (iii) could affect the production or
distribution of the DAS Product and such change is mandated by a Regulatory
Authority, PMC shall inform DAS as soon as possible and the parties shall work
in good faith to affect such change in a manner that least disrupts production
or distribution of the DAS Product.
ARTICLE 4
FORECASTS AND MANUFACTURING ORDERS
4.1 FORECASTS.
4.1.1 FORECAST DURING DEVELOPMENT PERIOD: The
Parties have agreed upon a forecast of DAS expected requirements of the PMC
Product during the Development Period attached hereto as Exhibit 8. In the
event that DAS reasonably believes that the Development Period may exceed the
period set forth in Exhibit 8, or that it may require during the Development
Period quantities of PMC Product in excess of those set forth in Exhibit 8, it
shall advise PMC in writing and the parties shall update the forecast to
include such increased [***] days after receipt of such notice by PMC. Should
the increase of total quantities of PMC Product [***] of the amount mentioned
in the forecast, the parties shall discuss in good faith the planning of
delivery of such PMC Products in excess.
4.1.2 FORECAST DURING COMMERCIAL PERIOD: During the
year preceding the expected launch of the DAS Product, DAS shall provide within
reasonable time a non-binding forecast of the quantities of PMC Product to be
manufactured on a [***]. This forecast shall be updated by DAS at each year
end, for the following Year 2 and 3, it being understood that all the forecasts
provided by DAS shall be non binding. Within a reasonable period of time
thereafter, PMC shall provide DAS with its proposed immunization schedule for
such period. This non-binding immunization schedule shall be updated by PMC at
each year end, and at such times as DAS's forecasts are adjusted, for the
following two years.
4.2 MANUFACTURING ORDER. At each year end, the parties
shall meet in order to discuss the imminent Manufacturing Orders, immunization
schedule and non-binding forecast modification for the following two years. DAS
shall at least [***] before the date upon which it desires that any shipment of
PMC Product be delivered to it, place a Manufacturing Order in writing with
respect to such shipment. All Manufacturing Orders shall be binding on the
parties when received by PMC.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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More precisely, DAS shall provide PMC with a Manufacturing
Order for the immunization of horses and the transformation of the equine
plasma within the following dates:
(I) In January of each year, DAS shall provide its
Manufacturing Orders for delivery of PMC Product
during the third calendar quarter of such year;
(II) In April of each year, DAS shall provide its
Manufacturing Orders for deliver, of PMC Product
during the fourth calendar quarter of such year,
(III) In July of each year, DAS shall provide its
Manufacturing Orders for delivery of PMC Product
during the first calendar quarter of the next year;
and
(IV) In October of each year, DAS shall provide its
Manufacturing Orders for delivery of PMC Product
during the second calendar quarter of the next year
The models of a Manufacturing Order attached in Exhibit 6
cannot be amended by either party unless mutually agreed between the parties.
4.3 INCREASE OF NON-BINDING FORECAST. PMC shall use
commercially reasonable efforts but have no obligation to supply quantities of
PMC Product for Manufacturing Orders that exceed in the second year after [***]
of the aggregate quantities ordered under Manufacturing Orders from the
previous calendar year, and [***] of the aggregate quantities ordered under
Manufacturing Orders from the previous calendar year. In any case, in the event
of [***]amount (as applicable) ordered in the prior year, PMC shall have a [***]
. Notwithstanding the foregoing, the parties acknowledge and agree that the
maximum capacity of PMC Facilities of the production of PMC Product is limited
to the greater of [***].
4.4 FORECASTS AND MANUFACTURING ORDERS IN EXCESS OF CAPACITY.
In the event that Manufacturing Orders or forecasts are likely to require more
than the number of Batches or quantity of PMC Product per year described in
Section 4.3 above, then the Parties shall meet and confer in good faith in
order to discuss an increase capacity at the PMC Facilities, or if such an
increase is not feasible both technically and financially to PMC and DAS, (i)
increase capacity at the PMC Facilities, or if such an increase is not feasible
both technically and financially to PMC and DAS, (ii) use commercially
reasonable efforts to assist DAS to obtain a second source, and PMC shall use
reasonable efforts to assist DAS to implement such second source (including
transfer of the PMC SOPs for use by such second source) to manufacture PMC
Product.
ARTICLE 5
TIMELY MANUFACTURING OF PMC PRODUCT
PMC undertakes to use all diligent efforts to manufacture and
supply DAS with PMC Product in a timely manner, and in full accordance with the
Manufacturing Orders and this Agreement. For information purposes, a non
binding guideline on the time period for the manufacturing of the PMC Product
is specified in Exhibit 9 hereto.
ARTICLE 6
SHIPPING AND RECEPTION
ACCEPTANCE OF THE PMC PRODUCT
6.1 SHIPPING. PMC shall deliver the PMC Product to DAS ex
works at PMC's Facilities at Marcy L'Etoile (France). DAS shall be in charge of
the transportation and insurance of the PMC Product upon delivery of the PMC
Product to DAS.
6.2 DEFECTIVE SHIPMENTS; REMEDIES. In the event that any PMC
Product supplied by PMC fails to conform to the Protocol at delivery, the
parties shall meet and PMC shall at DAS's option either use its best efforts to
replace it as promptly as possible, taking into account the time required to
manufacture quantities of PMC Product, or issue a refund therefor. In the event
that the parties cannot mutually agree on the fact that the PMC Product fails
to perform the Protocol, then the parties shall refer to the quality dispute
procedure described in Article 13 of this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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6.2.1 PRODUCTION RECORDS. PMC agrees to maintain
records in accordance with the applicable rules and regulations relative to the
PMC Facilities, materials used in the PMC Product and batch processing thereof
for a period of not less than five (5) years after the date of manufacture of
the applicable batch of the PMC Product. Upon DAS's request with a seven (7)
business days notice and at DAS's expense, PMC shall permit DAS and/or an
independent auditor selected by DAS to have access to such records from time to
time during ordinary business hours to verify compliance by PMC with such rules
and regulations.
6.3 PMC CERTIFICATE. PMC will provide DAS with the PMC
Certificate and any other documents required by a Regulatory Authority and that
PMC may reasonably provide relating to the PMC Product to enable DAS to conform
to regulatory requirements.
ARTICLE 7
TITLE AND RISK OF LOSS
Title to the PMC Product shall at all times remain with DAS.
Risk of loss to each shipment of PMC Product shall pass to DAS upon its
transfer by PMC to the common carrier as specified in Article 6.1 hereabove.
ARTICLE 8
WARRANTY, DISCLAIMER AND INSURANCE
8.1 WARRANTY. PMC warrants that all PMC Product delivered to
DAS:
- - will have been manufactured in compliance with Good Manufacturing
Practices, in a GMP facility and in compliance any applicable
regulations relating to the supply of the PMC Product as a raw material
for producing DAS Product and in accordance with appropriate rules and
regulations and regulatory guideline for each stage of production;
- - will have been manufactured, packaged, labeled and shipped in
compliance with DAS specifications;
- - shall conform to the Protocol, DAS Specifications and PMC SOPs.
8.2 DISCLAIMER. PMC hereby disclaims any other warranties,
express or implied, including warranties as to its merchantability or fitness
for any particular purpose.
ARTICLE 9
COORDINATION
In order to coordinate the Services, the parties have decided
to create a Manufacturing Coordinating Committee as follows:
9.1 MEMBERS OF THE MANUFACTURING COORDINATING COMMITTEE
The parties have agreed to appoint 2 people of their
organization on the Manufacturing Coordinating Committee which are:
- For PMC
- - A pharmaceutical Affairs representative
- - A qualified Industrial Operation Department Representative
- FOR DAS
- - President of DAS SA or one of its designated persons
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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- - CEO of DAS Inc or one of its designated persons
Internal or external expert may from time to time assist the
Manufacturing Coordinating Committee meetings according to the agenda of such
meeting at the request of one of the party which will inform the other party
within a reasonable delay before the date of the meeting in order to obtain its
approval.
9.2 OBJECTIVE OF THE MANUFACTURING COORDINATING COMMITTEE
The purpose of the Manufacturing Coordinating Committee shall
be to review the Manufacturing of PMC Product at a high quality and in a timely
manner, discuss annual forecasts for PMC Products and any possible adjustments
to the forecast that may be proposed by one of the parties from time to time,
and such other matters as the parties may mutually agree.
9.3 FUNCTIONING
The Manufacturing Coordinating Committee shall meet regularly
at least once each calendar quarter at Marcy-L'Etoile facilities or another
location mutually agreed upon by the Parties. The Manufacturing Coordinating
Committee may take action only by the unanimous written consent of the Parties
(all the members of the Manufacturing Coordinating Committee of one Party
representing one voting right). The minutes of the meetings shall be signed by
each party, each party keeping one copy.
If an issue remains unresolved after consideration by the
Manufacturing Coordinating Committee, the Manufacturing Coordinating Committee
may escalate it to the chief executive officers of the parties for resolution.
ARTICLE 10
PRICE AND PAYMENT
10.1 PRICE.
The price of the PMC Product is set at the Effective
Date :
[***] per gram of PMC Product.
This Price [***].
10.2 PAYMENT. PMC shall invoice DAS for any batch of PMC
Product upon delivery of the same as specified hereunder. [***] after the date
of the corresponding invoice. No PMC Product shall be delivered prior to the
delivery date set forth on the applicable Manufacturing Order. Payments shall be
remitted by wire transfer in the invoice currency to a bank account to be
designated in writing from time to time by PMC.
[***] (and are not subject to a good faith dispute between the
parties) shall bear interest on the outstanding amount of [***].
10.3 ADDITIONAL EQUIPMENT COSTS. DAS shall pay PMC the
Equipment Costs as specified in Article 11 hereunder.
ARTICLE 11
ACQUISITION OF ADDITIONAL EQUIPMENT
11.1 GENERAL. The Parties recognize that the acquisition of
Additional Equipment for manufacturing of PMC Product may be necessary to
supply DAS's future requirements of PMC Product that exceed [***] Batches of
PMC Product per year. The Parties contemplate that PMC's existing equipment
shall continue to be employed to supply PMC Product and that PMC may, upon
payment of the sums required by this Agreement and provided the relevant terms
and conditions of this Agreement are met, embark upon a program to acquire and
install Additional Equipment designed to meet any unexpected supply forecasts
of DAS in excess of [***] Batches of PMC Product at the PMC Facilities.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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11.2 ADDITIONAL EQUIPMENT PROPOSAL PROCEDURE.
11.2.1 PROPOSAL
In the event the Parties determine in writing that Additional
Equipment is required to be purchased during the Term of this Agreement to
supply DAS's future requirements of PMC Product, PMC shall, within thirty (30)
days after each such determination, prepare and deliver to DAS a proposal for
the purchase and installation of such Additional Equipment (a "Proposal"). Each
Proposal shall include a detailed statement of all Additional Equipment Costs,
the schedule of required payments of such Additional Equipment Costs.
11.2.2 APPROVAL OF PROPOSAL
Upon DAS's receipt of each Proposal, DAS shall review the
Proposal and shall notify PMC promptly of any respects in which such Proposal is
not satisfactory. The Parties shall thereafter enter into discussions to resolve
any remaining differences and shall revise such Proposal accordingly. If and
when the Parties mutually agree in writing to proceed under such Proposal, such
Proposal shall be an Approved Proposal. for purposes of this Agreement. If the
Parties do not mutually agree to proceed under such Proposal, DAS shall accept
continued performance by PMC using PMC's existing capacity.
11.3 REIMBURSEMENT OF ADDITIONAL EQUIPMENT COSTS. Since PMC
would not, in the absence of this Agreement, undertake to acquire Additional
Equipment specified in an Approved Proposal, the Parties hereby acknowledge that
PMC requires certain undertakings from DAS concerning reimbursement of any
Additional Equipment Costs incurred by PMC. Accordingly, DAS agrees that all
Additional Equipment Costs incurred by PMC shall be reimbursed by DAS in
accordance with the mechanism established in Exhibit 8.
11.4 CANCELLATION BY DAS OF APPROVED PROPOSALS. PMC hereby
acknowledges that DAS shall have the right to cancel any Approved Proposal at
any time prior to the beginning of execution of the Approved Proposal by PMC.
11.5 LOSS OR DESTRUCTION OF EQUIPMENT OR PMC FACILITIES. In
the event that any of PMC's Facilities or Equipment used, or to be used, for the
production of the PMC Product is destroyed or incapacitated by fire or other
events beyond the control of PMC, PMC hereby agrees, at its expense, to use all
best efforts to provide alternative means of supplying in a timely fashion as
much of DAS requirements for PMC Product as soon as possible, and to use its
best efforts in order to commence rebuilding or restoring such facilities to
full capacity and/or replacing damaged Equipment. PMC also hereby agrees to
maintain at all times during the term of this Agreement, at its own expense,
applicable insurance against the losses described in this Article 11.5. Upon
written request, PMC shall furnish DAS with satisfactory evidence of such
insurance coverage.
11.6 OWNERSHIP OF ADDITIONAL EQUIPMENT. DAS hereby
acknowledges that all Additional Equipment once installed are and shall be the
property of DAS, and shall be held by PMC as DAS's bailee, and all rights of
title and ownership shall vest in DAS. Upon termination of this Agreement, PMC
shall arrange for the transfer of such equipment to DAS or its designee upon one
hundred and twenty (120) days prior written notice.
11.7 USE OF ADDITIONAL EQUIPMENT FOR OTHER PURPOSES. In the
event that PMC desires to use the Additional Equipment for any purpose other
than production of the PMC Product, PMC shall give DAS prompt written notice of
the same, and thereafter, the Parties shall negotiate in good faith (without
further obligation) the terms of appropriate compensation to be paid by PMC to
DAS for such use, based upon the percentage of the total capacity of the
Additional Equipment dedicated to such other use.
ARTICLE 12
CHANGES OF THE PMC PRODUCT
12.1 REQUIRED BY DAS FOR REGULATORY PURPOSES. DAS will inform
PMC in writing of any modifications to the Protocol, DAS Specifications or PMC
Product required for regulatory purposes, including any changes to regulations
that could affect the PMC SOPs or the production of PMC Product. Such notice
shall be accompanied with a brief description of the corresponding regulation.
PMC shall exercise its best efforts, subject to the terms of this Section, to
timely and efficiently make such modifications as may be required by such
changes. PMC shall not make any change or modification described in the
applicable DAS Specifications, Protocol or the production of PMC Product unless
instructed in writing by DAS.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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PMC will inform DAS of the amount of the additional costs
(including investment) PMC would incur due to the modification, if any, and if
DAS elects to adopt the modification DAS will reimburse PMC for required direct
capital expenditures in accordance with the mechanism set forth in Exhibit 8
hereto, and the relevant documents and related schedules will be revised
accordingly. PMC will provide DAS a written explanation of such investment and
additional costs.
If PMC is technically unable to comply with a proposed
modification or if DAS is unwilling to pay PMC's direct capital expenditures,
DAS shall have the option to withdraw the proposed modification (and hold PMC
harmless of any consequences due to such withdrawal) or to negotiate a payment
plan acceptable to PMC. DAS will notify PMC as soon as reasonably practical of
any changes to any DAS Specifications; procedures or other areas that are filed
with Regulatory Authorities and that could have an impact on PMC's performance
of this Agreement, and will advise PMC of the granting of approval and effective
date of such changes. Any such changes shall be deemed modifications under this
Section.
In the event that DAS decides not to adopt the modifications,
PMC shall continue to provide PMC Product in accordance with the DAS
Specification still in force and DAS shall hold PMC harmless of any consequences
resulting from the non-amendment of such DAS Specification.
12.2 MODIFICATION FOR NON-REGULATORY PURPOSES. Any
modification required to the production of PMC Product for non-regulatory
purposes shall be discussed between the parties. The parties shall negotiate in
good faith the changes to the PMC Product, the financial conditions and the time
schedule for the works to be performed.
In no event shall such a modification be implemented without
PMC's prior written approval, which shall not be unreasonably withheld and PMC
shall exercise its best efforts, subject to the terms of this Section, to timely
and efficiently make such modifications as may be required and agreed to
pursuant to this Section.
DAS shall hold PMC harmless of any consequences of such
changes.
ARTICLE 13
QUALITY DISPUTES
13.1 PMC PRODUCT QUALITY DISPUTES. If DAS rejects any PMC
Product and if the parties have not agreed mutually on a remedy as per Article
6.2.3 of this Agreement, the parties, through the Manufacturing Coordinating
Committee shall timely consult with each other and attempt to resolve the
discrepancies. If the parties cannot resolve the discrepancies in a timely
manner after notification thereof to PMC, they shall promptly nominate a
Laboratory, which shall carry out analyses with respect to such Product as may
be jointly agreed upon by PMC and DAS and at the parties' joint expense.
The results obtained by the Laboratory shall be binding on the
parties for purposes of this Agreement.
If the results conclude that the PMC Product conformed to the
Protocol, DAS Specifications and PMC SOPs, DAS will reimburse PMC amounts paid
to the Laboratory. If the results conclude that the PMC Product does not conform
to the Protocol, DAS Specifications and PMC SOPs, PMC shall reimburse DAS
amounts paid to the Laboratory. In the event the Laboratory cannot conclude to
whether the PMC Product conform or not to the Protocol, DAS Specifications or
PMC SOPs, the parties shall equally share the Laboratory expenses.
Until such time as the Laboratory determines whether the PMC
Product conforms to PMC and DAS Specifications, DAS may withhold payment to PMC
of any amounts due in respect of the subject Manufacturing Order and deposit
such withheld payment in an interest-bearing bank account with a French bank,
and shall provide evidence of the same to PMC. In the event that the subject PMC
Product is determined to be conforming PMC shall receive all amounts in such
interest bearing bank account.
13.2 NON-PAYMENT FOR NON-CONFORMING PMC PRODUCT. If DAS
rejects any PMC Product and if it is determined by the Laboratory that such PMC
Product did not or would conform with the Protocol, DAS Specifications or PMC
SOPs, PMC shall at DAS's option use its best efforts to replace the non
conforming PMC Product as promptly as possible in accordance with the duration
of the production of PMC Product or issue a refund therefor, the costs of such
PMC Product shall not be paid to PMC, and PMC shall credit DAS with (i) DAS's
direct
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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cost of the Immunogen used to produce the PMC Product that DAS demonstrates
cannot be shipped due to the defect; and (ii) the transportation charges paid
by DAS for such Immunogen.
ARTICLE 14
QUALITY ASSURANCE
14.1 AUDIT OF PMC FACILITIES. Upon advance notice of [***] PMC
shall permit DAS representatives to enter PMC Facilities during regular business
hours for the purpose of making quality control inspections of the PMC
Facilities and limited to the part of the PMC Facilities in which PMC produces
the PMC Product.
In the event of an inspection by a Regulatory Authority, the
Regulatory Authority representative accompanied by DAS representatives shall be
permitted to enter PMC Facilities in the same conditions as described above.
However, the notice period in such case shall be [***] or such other time as may
be requested by Regulatory Authorities.
DAS shall cause its representatives and the Regulatory
Authority representatives to follow the security and facility access procedures
as are reasonably designated by PMC. PMC may require that at all times DAS
representative be accompanied by a PMC representative and that DAS
representative not enter some areas of the PMC facility to assure protection of
PMC or third party confidential information.
14.2 SAFETY PROCEDURES. PMC undertakes to adopt and enforce
safety procedures for the manufacturing of the PMC Product by PMC and handling
and disposal of waste relating to the PMC Product that comply with
environmental, safety and health requirements. Such responsibilities shall
include the proper disposal of waste in an appropriate manner consistent with
the nature of the waste and at a permitted waste disposal facility.
ARTICLE 15
DECLARATION
PMC shall use its best efforts to assist DAS, at DAS cost calculated according
to Exhibit 8, to address and resolve regulatory issues relating to the DAS
Product and more particularly, shall provide DAS, upon reasonable notice, and at
no cost, provide all necessary and available data relating to the PMC Product in
order to obtain regulatory approvals to develop and commercialize the DAS
Product. Without limiting the foregoing, DAS shall diligently process its own
ELA or the appropriate supplement of the existing ELA in accordance with a
timetable sufficient to permit DAS to meet its own timetable with regard to its
filing of a IND, 8LA and PLA's for DAS Products. PMC acknowledges and agrees
that (a) it shall be required to pass a preapproval inspection by the FDA and
other Regulatory Authorities prior to DAS obtaining regulatory approval by such
authority, (b) it has reviewed, understands and shall comply with all applicable
laws, regulations and other requirements of the FDA and other Regulatory
Authorities in manufacturing, processing and packaging as active ingredient bulk
of the PMC Products, and (c) it shall provide DAS with copies of all notices it
or its contractors receive from Regulatory Authorities that could affect the PMC
Product, DAS Product or the ability to manufacture the PMC Product in the PMC
Facilities. PMC shall provide any manufacturing, quality control or quality
assurance data and other information relating to obtaining all approvals from
all Regulatory Authorities to commercially market and sell DAS Product
(including without limitation, any other information as may be useful or
required (in DAS'S reasonable opinion or upon request of a Regulatory Authority)
for FDA and other Regulatory Authorities approval of DAS Products) to the
public.
ARTICLE 16
SUPERIORITY
No provision on DAS's purchase order form or on PMC's general
conditions of sale or invoice which may purport to impose different conditions
upon DAS or PMC shall modify or otherwise alter the terms of this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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ARTICLE 17
CONFIDENTIALITY
(a) - GENERAL
Except as expressly set forth in this Article 17, each party shall
cause its respective Affiliates, officers, directors, employees, agents
and subcontractors (collectively, "Representatives") to keep
confidential any and all technical, commercial, scientific and other
data, processes, documents or other information (whether in oral form
and identified as confidential within 30 days after the date of
disclosure, or if written form, if marked as "Confidential" at the time
of disclosure) or physical object (including, without limitation,
intellectual property, marketing data, agreements between any party and
a third-party, license applications, and business plans and projections
of any party) that have been marked as "confidential" at the time of
disclosure) acquired from the other party (the "Other Party"), its
Affiliates or its Representatives after the Effective Date
("Confidential Information"), and each party shall not disclose
directly or indirectly, and shall cause its Representatives not to
disclose directly or indirectly, any Confidential Information to anyone
outside such Person and each of their Affiliates and their respective
Representatives, except that the foregoing restriction shall not apply
to any information disclosed hereunder to any party, if such Person
(the Receiving Person") can demonstrate that such Confidential
Information:
(i) is or hereafter becomes generally available other than by
reason of any breach or default by the Receiving Person, any
of its Affiliates or any Representative of the foregoing with
respect to a confidentiality obligation under this Agreement;
(ii) was already known to the Receiving Person or such affiliate or
Representative;
(iii) is disclosed to the Receiving Person or such affiliate or
Representative by a third party who has the right to disclose
such information;
(iv) is independently developed by the Receiving Person;
(v) based on such Person's good faith judgement with the advice of
counsel, is otherwise required to be disclosed in compliance
with applicable legal requirements to a public authority.
Whenever the Receiving Person becomes aware of any state of facts which
would or might result in disclosure of Confidential Information
pursuant to subparagraph (v) above, it shall, if possible, promptly
notify the Person making disclosure "Disclosing Person") prior to any
such disclosure so that the Disclosing Person may seek a protective
order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement.
In any event, if the Receiving Person is unable to promptly notify the
Disclosing Person or if such protective order or other remedy is not
obtained, or if the Disclosing Person waives compliance with the
provisions of this Agreement, the Receiving Person will furnish only
that portion of the information which it is advised by counsel is
legally required and will exercise reasonable efforts to obtain
assurance that confidential treatment will be accorded the Confidential
Information.
Each party shall be entitled, in addition to any other right or remedy
it may have, at law or in equity, to an injunction, without the posting
of any bond or other security except as required by the relevant laws,
enjoining or restraining any other party from any violation or
threatened violation of this Section 8.1.
(b) - USE OF CONFIDENTIAL INFORMATION
Each party agrees that no Confidential Information shall:
(i) be used in its own business except as necessary to exercise
the rights and obligations of such Party under this Agreement;
(ii) be assigned, licensed, sublicensed, marketed, transferred or
loaned, directly or indirectly to any third party other than a
Representative or an Affiliate Representative of such party,
except as
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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necessary or contemplated for the exercise of the rights
and obligations of the Parties under this Agreement;
The obligations set forth in this Article 17 shall extend to copies, if
any, of Confidential Information made by any Representatives referred
to in paragraph (a) and to documents prepared by such Persons which
embody or contain Confidential Information.
(c) - PROTECTION OF CONFIDENTIAL INFORMATION
Each party shall deal with Confidential Information so as to protect it
from disclosure with a degree of care not less than that used by it in
dealing with its own information intended to remain exclusively within
its knowledge and shall take reasonable steps to minimise the risk of
disclosure of Confidential Information which shall include, without
limitation, ensuring that only those Persons who have a bona fide need
to know such Confidential Information for purposes permitted or
contemplated by this Agreement shall have access thereto. Each party,
shall notify all of its Representatives who have access to Confidential
Information of its confidentiality and the care therefor required, and
shall obtain from any Affiliate or any agent or subcontractor who is a
Representative that is permitted access to such Confidential
Information in accordance with this Article 17, an agreement of
confidentiality incorporating the restrictions set forth herein.
(d) - SURVIVAL OF OBLIGATIONS
The obligations set forth in this Article 17 shall survive the
termination of this Agreement for a period of five (5) years.
(e) - RETURN OF CONFIDENTIAL INFORMATION
Within thirty (30) days after the termination of this Agreement, the
Receiving Person shall (and shall cause its Affiliates' Representatives
and its Affiliates to) return to the Disclosing Person or destroy all
related documents and tangible items then in its possession which it
has received from the Disclosing Person or any affiliate or
Representative thereof pertaining, referring or relating to the
Disposing Person's Confidential Information, as well as all copies,
summaries, records, descriptions, modifications, and duplications that
it, or any of its Affiliates or Representatives, has made from the
documents or tangible items received from the Disclosing Person or any
affiliate or Representative thereof; provided, however, that the
Receiving Person may retain one copy of each document in its legal fees
solely to permit the Receiving Person to continue to comply with its
obligations hereunder and, in addition, may upon notice to the
Disclosing Person, retain in its legal files or in the office of
outside legal counsel one copy of any document solely for use in any
pending legal proceeding to which such document relates.
ARTICLE 18
INDEMNITY
(a) Subject to PMC's indemnity obligations
for violations of Article 8 above (which obligations shall take precedence) DAS
shall indemnify, hold harmless and defend PMC, its directors, officers, and
employees from and against any and all claims, costs, demands, liabilities,
losses, damages and expenses of whatever nature, including costs of recall made
against or sustained by them, arising out of the use or sale of the PMC Product
or the DAS Product by DAS or its customers.
(b) PMC shall indemnify and hold DAS, its
affiliate's, directors, officers, agents and employees from and against any and
all claims, costs, demands, liabilities, losses, damages and expenses of
whatever nature, including costs of recall made against or sustained by them,
arising out of or in connection with this Agreement caused by the negligence or
willful misconduct of PMC or any breach of PMC's warranties set forth under
provision 8.1 hereabove.
(c) In the event of any claim being made
against a party ("the Indemnified Party") for which the other party ("the
Indemnifying Party") has agreed to indemnify the Indemnified Party under this
Agreement, the Indemnifying Party shall be promptly notified thereof and may at
its own expense conduct all negotiations for the settlement of the same and any
litigation that may arise therefrom. The Indemnified Party shall use its
commercially reasonable efforts to not at any time make any admission or take
any steps which might be prejudicial to the settlement or successful defense by
the Indemnifying Party of any claim or demand until the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
11
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Indemnifying Party has been notified of the claim and has stated its
intention not to negotiate or defend the claim provided that the indemnifying
Party shall act promptly throughout.
ARTICLE 19
TERM AND TERMINATION
19.1 TERM RENEWAL. This Agreement shall take effect as of
the Effective Date and shall, unless terminated earlier according to this
Article 19, continue in effect for a period of ten (10) years after First
Commercial Sale. After such 10 year period, PMC shall exercise commercially
reasonable efforts to ensure continuous supply of PMC Product on financial
terms reasonably acceptable to both parties, provided that (i) annual
forecasts of PMC Product are at least two hundred and fifty (250) liters of
PMC Product per year (ii) the parties shall negotiate in good faith such
annual renewals, and (iii) all other terms of the Agreement shall apply to
such renewals or extensions, and (iv) in no event shall this Agreement be
renewed for more than additional two times two (2) year period. However, in
the event of a renewal of the Agreement for the second two-year period, the
parties shall renegotiate in good faith the financial conditions of the
Agreement.
19.2 TERMINATION WITHOUT CAUSE.
19.2.1 AUTOMATIC TERMINATION.
This Agreement shall automatically terminate
upon written notice of one of the parties in the event of termination for
whatever reason of that certain Patent and Know-How License Agreement signed on
this same date between the parties.
19.2.2 FAILURE TO OBTAIN FDA APPROVAL.
(a) DAS may terminate this Agreement
without cause upon ninety (90) days' written notice to PMC if (I) it
determines that the BLA or other relevant product license to market the DAS
Product will not be approved by the FDA or the Agence Europeenne du
Medicament within a reasonable time at a reasonable cost, or (II) PMC fails
to obtain an ELA supplemental approval (and the equivalent approvals from the
Regulatory Authorities for France and the European Union), with respect to
the PMC Product and the DAS Product by June 30, 2002.
(b) PMC may terminate this Agreement
without cause upon ninety (90) days' written notice to DAS if a BLA or other
relevant product license has not been approved within six (6) years of the
Effective Date and DAS cannot demonstrate to PMC's reasonable satisfaction
within said ninety (90) days period that, such approval is forthcoming.
19.2.2 EXCESSIVE COST. If at any time DAS
determines that, due to competitive conditions, currency fluctuations or
otherwise, the price of PMC Product and Additional Equipment Costs will be so
high that DAS will be unable to sell DAS Product at a price that will result
in a reasonable profit to DAS, DAS may, upon sixty (60) days written notice
to PMC, terminate this Agreement without cause.
19.3 TERMINATION FOR CAUSE. This Agreement may be terminated
by PMC upon [***], but only if DAS fails to pay an amount when due that is not
subject to a good faith dispute between the parties, and DAS has not cured such
breach within [***]. This Agreement may be terminated by DAS in the event that
PMC fails to perform or otherwise breaches any of its material obligations under
this Agreement, by giving notice to PMC of its intent to terminate and stating
the grounds therefor. PMC shall have sixty (60) days from the date of receipt
thereof cure the failure or breach. In the event the breach is not cured within
the time period set forth herein, then this Agreement shall, at the option of
DAS, terminate at the end of [***]. Except as otherwise expressly set forth in
this Agreement, neither party shall have the right to terminate this Agreement,
and any disputes between the parties shall be resolved pursuant to Section 20.9.
19.4 EFFECT OF TERMINATION OR EXPIRATION
19.4.1 GENERAL
Upon the expiration or termination of this Agreement, PMC
shall notify DAS of the amount of PMC Product it has on hand, and DAS shall
purchase such PMC Product at its applicable transfer price determined pursuant
to Article 10.1 above except that DAS shall not be obligated to purchase more
than the quantity of PMC Product specified in the most recent Manufacturing
Order and DAS shall have no obligation to purchase any such
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
12
<PAGE>
PMC Product if a basis for the termination is a failure of the PMC Product to
meet the PMC SOPs or DAS Specifications, Protocol or otherwise be warranted
product. Termination shall not affect any available remedies.
19.4.2 FURTHER EFFECTS OF TERMINATION
In the event of any termination of this Agreement, or in the
event that DAS elects to establish an equivalent capability at its own or a
different facility, PMC shall at DAS's request and at DAS's cost, assist DAS in
all ways reasonably requested by DAS to transfer the production of PMC Product
to DAS or its designated agents including, but not limited to, transfer of any
part of the PMC SOPs reasonably necessary for DAS to perform or have performed
the equivalent production capability. PMC shall designate for a reasonable
period to be agreed upon by the parties, a senior-level manager as liaison who
shall be responsible for facilitating and coordinating PMC's efforts to effect
such transfer. PMC and DAS shall negotiate in good faith the reasonable cost and
the reasonable period of time for which PMC shall provide the technical
assistance. PMC shall only be obligated to provide technical assistance one
time. PMC shall not liable for the inability of DAS to successfully complete a
transfer.
19.5 SURVIVAL. In addition, anything herein to the contrary
notwithstanding, the following provisions of this Agreement shall survive
termination of this Agreement: Articles 7, 8, 13, 16, 17, 20, 18, 19, 21, 11.3,
11.5 and 11.6 and Section 10.2 and right to payments that have accrued prior to
the date of termination, shall survive termination.
ARTICLE 20
FORCE MAJEURE
No Party hereto shall be responsible or liable to the other
Party hereto for any failure to perform any of its agreements, covenants or
obligations under this Agreement if such failure results from events or
circumstances reasonably beyond the control of such Party including, without
limitation, war or other national emergency; riot; fire, explosion, good or
other Act of God; general and long lasting strike affecting the entire activity
of either party, any injunction, decree, order, law or regulation of any public
authority; or any inability to obtain electricity, fuel or raw material
(collectively, "Events of Force Majeure").
The affected party shall (i) forthwith inform the other party
in writing of the occurrence of the Event of Force Majeure and (ii) exert all
best efforts to eliminate, cure or overcome any such Event of Force Majeure and
to resume performance hereunder with all possible speed; provided, however, that
nothing herein shall require the party to settle on terms unsatisfactory to such
party any strike. To the extent that an Event of Force Majeure continues for a
period in [***], the parties agree to negotiate in good faith either (i) to
resolve the Event of Force Majeure, if possible, (ii) to extend the time period
to resolve, eliminate or overcome such Event or (iii) to terminate this
Agreement.
ARTICLE 21
MISCELLANEOUS PROVISIONS
21.1 INDEPENDENT CONTRACTOR. PMC shall supply PMC Product as
an independent contractor and nothing contained herein shall be construed to be
inconsistent with that relationship or status. PMC and its employees shall not
be considered employees or agents of DAS. This agreement shall not constitute,
create or in any way be interpreted as a joint venture, partnership or business
organization of any kind.
21.2 NO ASSIGNMENT. Neither party shall transfer or assign
this Agreement, in whole or in part without the other party's prior written
consent, except that either party may transfer, assign and delegate this
Agreement to an Affiliate or in connection with a merger, reorganization or sale
of substantially all of its assets, without the other party's consent.
21.3 NOTICES. Notices and other communications required or
called for under this Agreement shall be in writing, shall be transmitted by
certified mail postage prepaid, and shall be deemed delivered upon receipt by
the party to whom it is addressed.
In the case of DAS such communications shall be addressed to.
DAS, 2 rue de Cnucy, 44000 Nantes, France. Attention:
President
DAS Inc. 1430 O'Brien Drive, Suite E, Menlo Park CA 94025 USA
Attention: CEO
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
13
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In the case of PMC, such communications shall be addressed to:
PASTEUR MERIEUX Serums & Vaccins
58, avenue Leclerc
69007 Lyon
FRANCE
Attention: General Counsel
or to the attention of such other individual or to such other address as either
party may give to other in writing.
21.4 NO WAIVER. The failure of either party to enforce at any
time for any period the provisions hereof shall not be construed to be a waiver
of such provisions or of the right of such party thereafter to enforce each such
provision.
21.5 SEVERANCE. If any provision of this Agreement should be
or become fully or partly invalid or unenforceable for any reason whatsoever or
violate any applicable law, this Agreement is to be considered divisible as to
such provision and such provision is to be deleted from this Agreement, and the
remainder of this Agreement shall be deemed valid and binding as if such
provision were not included. A suitable provision which, as far as legally
possible, comes nearest to what the parties desired according to the sense and
purpose of this Agreement had this point been considered when concluding this
Agreement shall be substituted for any such provision deemed to be deleted.
21.6 LIST OF EXHIBITS. The Exhibits listed in this provision
and attached herewith are fully part of this Agreement and cannot be modified
unless mutually agreed between the parties:
Exhibit 1 PMC Facilities
Exhibit 2 Protocol
Exhibit 3 PMC SOPs and DAS Specifications
Exhibit 4 DAS Certificate
Exhibit 5 PMC Certificate
Exhibit 6 Manufacturing Order
Exhibit 7 Laboratory
Exhibit 8 Forecasts during Development Period
Exhibit 9 Non binding Guidelines
Exhibit 10 Direct Costs
21.7 GOVERNING LAW. This Agreement shall be governed by
Californian Laws.
21.8 DISPUTE RESOLUTION.
Any and all disputes arising in connection with this Agreement which will not
be solved on an amicable basis between the parties shall be finally settled
by arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, rules that the Parties recognizes that
they know. The arbitration shall be conducted in Paris, France, in English by
one arbitrator if the dispute involves a claim of damage [***] in accordance
with the said rules. The arbitrator(s) shall apply French law to the merits
of the case. The arbitration shall be final and binding upon the parties.
21.9 HEADINGS.
The Articles and article headings included in this Agreement are for reference
purpose only and shall not affect the meaning or interpretation of this
Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
14
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IN WITNESS WHEREOF, the parties hereto have caused these
presents to be signed by their respective corporate officers, authorized as of
the day and year first above written.
DAS SA PASTEUR MERIEUX SERUMS ET VACCINS
By: /s/ Maryvonne Hiance By: /s/ Michel Greco
-------------------------------- -----------------------------
Name: Maryvonne HIANCE Name: Michel GRECO
Title: President Title: DIRECTEUR GENERAL
DAS INC
By: /s/ Stanley Kaplan
--------------------------------
Name: Stanley KAPLAN
Title: Chief Executive Officer & President
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
15
<PAGE>
EXHIBIT 1
PMC FACILITIES
[********]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
16
<PAGE>
EXHIBIT 2
COC AB PROTOCOL
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
17
<PAGE>
EXHIBIT 3
PMC SOPS
THE FOLLOWING PMC SOP'S MAY BE MODIFIED BY APPLYING THE PROVISIONS OF THIS
AGREEMENT
Procedure technique PMC T [********] [***]
Procedure technique PMCT[********] [***]
Procedure technique PMC T [********] [***]
Procedure technique PMC T [********] [***]
Procedure technique PMC T [********] [***]
Les autres specifications techniques de PMC pourront etre modifiees par PMC a
tout moment mais auditable par IMTIX-SangStat
Procedure technique PMC T [********] [***]
Procedure technique PMC T [********] [***]
rongeurs
Procedure technique PMC T [********] [***]
Procedure technique PMC T [********] [***]
This exhibit shall be completed with PMC SOP's redrafted upon existing SOP's
relating to other products manufactured by PMC.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
18
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EXHIBIT 4
DAS CERTIFICATE
===============================================================================
DAS CERTIFICATE
COC AB ANTIGENE
- -------------------------------------------------------------------------------
Batch N(DEG.) Tests results
---- Anormal Toxicity
Sterility
- -------------------------------------------------------------------------------
We certify that all the COC ab Antigene mentioned in this certificate have been
released for horse imminuzation to produce Anticocaine plasma
Name: _____________
Title: _____________
Date: _____________
===============================================================================
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
19
<PAGE>
EXHIBIT 5
PMC CERTIFICATE
===============================================================================
PASTEUR MERIEUX SERUMS & VACCINS
Nous, soussignes, certifions que la solution Fab'2 vrac anti cocaine COC ab du
lot:
n(DEG.) _______________
a ete produit conformement aux specifications de DAS mentionne au contrat en
date du Juin 1999 aux procedures techniques de PMC applicables et aux Bonnes
Pratiques de Fabrication.
Certificat de controles: ci-joint
Fait a Marcy l'Etoile, le ________________
Nom: ________________
Fonction: ________________
Signature: ________________
===============================================================================
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
20
<PAGE>
Pasteur Merieux Serums & Vaccins
Direction des controles
CERTIFICAT D'ANALYSE
SOLUTION DE COC AB FAB'2 10%
LOT N(DEG.): __________________
ASPECT : Conforme
DOSAGE DES PROTEINES TOTALES : g/100ml
RECHERCHE DES PROTEINES ETRANGERES : Conforme
TEST DE DIGESTION : Conforme
ESSAI DE STERILITE BACTERIENNE ET FONGIQUE : Conforme
ESSAI DES PYROGENES : Conforme
HPLC GEL FILTRATION
[********] : %
[********] : %
[********] : %
CONCLUSION:
Date: le directeur de Services de Controle
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
21
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EXHIBIT 6
MANUFACTURING ORDER
===============================================================================
DAS
BON DE COMMANDE N(DEG.) ___________;
SOLUTION DE PRINCIPE ACTIF FAB'2 VRAC ANTI COCAINE COC AB
Volume total ___________________ litres, soit _______________ grammes
Nombre de lots estimes: ________________
Periode de livraison: du _______/___/ au ________/____/____
DAS s'engage a livrer a temps les quantites d'antigenes necessaires a
l'immunisation du nombre de chevaux correspondant a la quantite de plasma
necessaire a l'obtention du produit.
Estimatif du montant de la commande ___________________: _____________ FRF HT
(Nb grammes x Prix/g)
Fait a
Le
- -----------------
Responsible Achat
DAS
===============================================================================
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
22
<PAGE>
EXHIBIT 7
LABORATORY
Ecole Nationale Veterinaire
7 avenue du General Leclerc
94704 MAISONS ALFORT Cedex
Tel: 01.42.96.71.00
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
23
<PAGE>
EXHIBIT 8
FORECAST DURING DEVELOPMENT PERIOD
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
24
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EXHIBIT 9
NON BINDING GUIDE LINES ON THE TIMING
TIME LINES FOR FIRST BATCH DURING MANUFACTURING PERIOD
Manufacturing order for 1st batch [***] [***]
Reception of horses [***] [***]
Quarantine [***]
Immunization [***]
Processing and controls [***]
Next batches: [***]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
25
<PAGE>
EXHIBIT 10
PMC PRODUCT DIRECT COSTS
"Direct Cost" shall mean the direct cost attributable or allocable to the
specific activity for which they are to be charged. The components of direct
costs are limited to the following: personnel salaries, cost of supplies, cost
of materials, contracted and outside services and support costs. Specifically
(depending on the activity), Direct Costs may include one of more of components
set forth below:
BREAKDOWN OF THE DIRECT COST
The direct cost is composed of 4 main categories of costs.
<TABLE>
<CAPTION>
- ------------------------ ----------------------------------------- ---------------------------------------------------
Category Including Comments
- ------------------------ ----------------------------------------- ---------------------------------------------------
<S> <C> <C>
Raw materials Bill of material
- ------------------------ ----------------------------------------- ---------------------------------------------------
Direct Labor Payroll Gross salary, excluding interessement et
Overtime participation
Medical benefits Payroll taxes
- ------------------------ ----------------------------------------- ---------------------------------------------------
Overhead Product manager Salary, payroll taxes,...
Utilities
QC environmental tests, technical assistance,
process optimization
Equipment items
Small equipment items
Services rendered
- ------------------------ ----------------------------------------- ---------------------------------------------------
</TABLE>
All other costs considered indirect are not allocated or attributable, and are
mainly:
- Administrative cost (including phone expenses which are not
allocated to cost centers)
- Executives and site production administrative people
- Purchasing and warehousing
- Quality assurance/metrology - Depreciation
- Taxes (including `taxe professionnelle')
- Pharmaceutical responsibility
- Product liability insurance
- Bonus (interessement et participation)
- Distribution costs
- Site expenses (including site security, guarding)
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 6, 2000, except as to the one-for-six reverse stock split
described in Note 1 which is as of March 24, 2000, relating to the consolidated
financial statements of DrugAbuse Sciences, Inc. and its subsidiary (companies
in the development stage), which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, CA
April 3, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF COUNSEL
We consent to the reference to us under the heading "Experts" in this
Registration Statement on Form S-1.
/s/ RAEVENTER LAW GROUP
Raeventner Law Group
April 3, 2000
