SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JULY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-17085
TECHNICLONE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3698422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14282 Franklin Avenue, Tustin, California 92780-7017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (714) 508-6000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED, SINCE
LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has
been subject to such filing requirements for the past 90 days. YES X NO .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.)
78,355,183 shares of Common Stock
as of August 31, 1999
<PAGE>
TECHNICLONE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 1999
TABLE OF CONTENTS
THE TERMS "WE", "US", "OUR," AND "THE COMPANY" AS USED IN THIS FORM ON 10-Q
REFERS TO TECHNICLONE CORPORATION, TECHNICLONE INTERNATIONAL CORPORATION, ITS
FORMER SUBSIDIARY, CANCER BIOLOGICS INCORPORATED, WHICH WAS MERGED INTO THE
COMPANY ON JULY 26, 1994 AND ITS WHOLLY-OWNED SUBSIDIARY PEREGRINE
PHARMACEUTICALS, INC.
PART I FINANCIAL INFORMATION
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PAGE
A Cautionary Statement Regarding Forward-Looking Statements................. 3
Item 1. Our Financial Statements ................................................... 4
Consolidated Balance Sheets at July 31, 1999 and April 30, 1999 ............ 4
Consolidated Statements of Operations for the three months ended July 31,
1999 and 1998............................................................... 6
Consolidated Statement of Stockholders' Equity for the three months ended
July 31, 1999............................................................... 7
Consolidated Statements of Cash Flows for the three months ended July 31,
1999 and 1998............................................................... 8
Notes to Consolidated Financial Statements ................................. 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...................................................... 15
Company Overview ........................................................... 15
Other Risk Factors of Our Company .......................................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk ................. 28
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 28
Item 2. Changes in Securities and Use of Proceeds .................................. 28
Item 3. Defaults Upon Senior Securities ............................................ 30
Item 4. Submission of Matters to a Vote of Security Holders ........................ 30
Item 5. Other Information .......................................................... 30
Item 6. Exhibits and Reports on Form 8-K............................................ 30
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2
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PART I FINANCIAL INFORMATION
----------------------------
A CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS. Except
for historical information contained herein, this Quarterly Report on Form
10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. In
light of the important factors that can materially affect results, including
those set forth elsewhere in this Form 10-Q, the inclusion of
forward-looking information should not be regarded as a representation by
the Company or any other person that the objectives or plans of the Company
will be achieved. We will encounter competitive, technological, financial
and business challenges making it more difficult than expected to continue
to develop, market and manufacture our products. Our challenges may include,
but are not limited to, competitive conditions within the industry, which
may change adversely; upon development of our products, demand for our
products may weaken; the market may not accept our products; we may not be
able to retain existing key management personnel; our forecasts may not
accurately anticipate market demand; and there may be other material adverse
changes in our operations or business. In addition, certain important
factors affecting the forward-looking statements made herein include, but
are not limited to, the risks and uncertainties associated with completing
pre-clinical and clinical trials for our technologies; obtaining additional
financing to support our operations; obtaining regulatory approval for our
technologies; complying with other governmental regulations applicable to
our business; obtaining the raw materials necessary in the development of
such compounds; consummating collaborative arrangements with corporate
partners for product development; achieving milestones under collaborative
arrangements with corporate partners; developing the capacity to
manufacture, market and sell our products, either directly or indirectly
with collaborative partners; developing market demand for and acceptance of
such products; competing effectively with other pharmaceutical and
biotechnological products; attracting and retaining key personnel;
protecting proprietary rights; accurately forecasting operating and capital
expenditures, other commitments, or clinical trial costs, general economic
conditions and other factors. The assumptions relating to budgeting,
marketing, product development and other management decisions are subjective
in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact
of which may cause us to alter our capital expenditure or other budgets,
which may in turn affect our business, financial position and our results of
operations.
3
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ITEM 1. FINANCIAL STATEMENTS
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1999 AND APRIL 30, 1999
- ---------------------------------------------------------------------------------------------------------------
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JULY 31, ARRIL 30,
1999 1999
------------- -------------
UNAUDITED
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,632,000 $ 2,385,000
Other receivables, net of allowance for doubtful accounts of
$221,000 (July) and $201,000 (April) 303,000 279,000
Inventories 48,000 57,000
Prepaid expenses and other current assets 260,000 280,000
Covenant not-to-compete with former officer 155,000 213,000
------------- -------------
Total current assets 2,398,000 3,214,000
PROPERTY:
Laboratory equipment 2,170,000 2,098,000
Leasehold improvements 73,000 71,000
Furniture, fixtures and computer equipment 840,000 838,000
------------- -------------
3,083,000 3,007,000
Less accumulated depreciation and amortization (1,193,000) (1,067,000)
------------- -------------
Property, net 1,890,000 1,940,000
OTHER ASSETS:
Note receivable 1,851,000 1,863,000
Other, net 348,000 353,000
------------- -------------
Total other assets 2,199,000 2,216,000
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TOTAL ASSETS $ 6,487,000 $ 7,370,000
============= =============
</TABLE>
4
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1999 AND APRIL 30, 1999 (CONTINUED)
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JULY 31, APRIL 30,
1999 1999
------------- -------------
UNAUDITED
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 969,000 $ 898,000
Deferred license revenue 3,000,000 3,000,000
Accrued clinical trial site fees 628,000 691,000
Notes payable 103,000 106,000
Accrued legal and accounting fees 177,000 314,000
Accrued royalties and license fees 301,000 310,000
Due to former officers under severance agreements 397,000 329,000
Other current liabilities 210,000 357,000
------------- -------------
Total current liabilities 5,785,000 6,005,000
NOTES PAYABLE 3,472,000 3,498,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock- $.001 par value; authorized 5,000,000 shares:
Class C convertible preferred stock, shares outstanding -
91 shares (July 31, 1999); 121 shares (April 30, 1999);
liquidation preference of $91,000 at July 31, 1999 - -
Common stock-$.001 par value; authorized 120,000,000 shares;
outstanding - 76,369,778 shares (July 31, 1999); 73,372,205
shares (April 30, 1999) 76,000 73,000
Additional paid-in capital 93,129,000 90,779,000
Accumulated deficit (95,668,000) (92,678,000)
------------- -------------
(2,463,000) (1,826,000)
Less notes receivable from sale of common stock (307,000) (307,000)
------------- -------------
Total stockholders' deficit (2,770,000) (2,133,000)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 6,487,000 $ 7,370,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
5
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TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1999 AND 1998 (UNAUDITED)
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THREE MONTHS ENDED JULY 31,
1999 1998
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COSTS AND EXPENSES:
Research and development $ 1,984,000 $ 1,851,000
General and administrative 980,000 1,292,000
Interest 88,000 240,000
------------- -------------
Total costs and expenses 3,052,000 3,383,000
Interest and other income 63,000 77,000
------------- -------------
NET LOSS $ (2,989,000) $ (3,306,000)
============= =============
Net loss before preferred stock accretion
and dividends $ (2,989,000) $ (3,306,000)
Preferred stock accretion and dividends:
Imputed dividends on
Class C Preferred Stock (1,000) (11,000)
Accretion of Class C Preferred
Stock discount - (531,000)
------------- -------------
Net loss applicable to common stock $ (2,990,000) $ (3,848,000)
============= =============
Weighted average shares outstanding 75,002,199 59,746,636
============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.06)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED JULY 31, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
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BALANCES - April 30, 1999 121 $ - 73,372,205 $ 73,000
Accretion of Class C preferred stock
dividends
Common stock issued upon conversion of
Class C preferred stock (30) 50,873
Common stock issued upon exercise of
Class C warrants and Equity Line
warrants 54,373
Common stock issued for cash upon
exercise of stock options 203,334
Common stock issued under the
Equity Line for cash 2,688,993 3,000
Stock-based compensation
Net loss
------------- ------------- ------------- -------------
BALANCES - July 31, 1999 91 $ - 76,369,778 $ 76,000
============= ============= ============= =============
</TABLE>
(CONTINUED)
<TABLE>
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NOTES
ADDITIONAL RECEIVABLE NET
PAID-IN ACCUMULATED FROM SALE OF STOCKHOLDERS'
CAPITAL DEFICIT COMMON STOCK DEFICIT
------------- ------------- ------------- -------------
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BALANCES - April 30, 1999 $ 90,779,000 $(92,678,000) $ (307,000) $ (2,133,000)
Accretion of Class C preferred stock
dividends (1,000) (1,000)
Common stock issued upon conversion of
Class C preferred stock -
Common stock issued upon exercise of
Class C warrants and Equity Line
warrants 31,000 31,000
Common stock issued for cash upon
exercise of stock options 122,000 122,000
Common stock issued under the
Equity Line for cash 2,040,000 2,043,000
Stock-based compensation 157,000 157,000
Net loss (2,989,000) (2,989,000)
------------- ------------- ------------- -------------
BALANCES - July 31, 1999 $ 93,129,000 $(95,668,000) $ (307,000) $ (2,770,000)
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
7
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1999 AND 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED JULY 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,989,000) $ (3,306,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 126,000 244,000
Stock-based compensation and common stock issued for interest,
services and under severance agreements 157,000 334,000
Severance expense 126,000 234,000
Changes in operating assets and liabilities:
Other receivables (23,000) 6,000
Inventories, net 9,000 (19,000)
Prepaid expenses and other current assets 20,000 4,000
Other assets (6,000)
Accounts payable and accrued legal and accounting fees (66,000) 212,000
Accrued clinical trial site fees (63,000)
Accrued royalties and license termination fees (9,000) (12,000)
Other accrued expenses and current liabilities (147,000) 350,000
------------- -------------
Net cash used in operating activities (2,859,000) (1,959,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (76,000) (166,000)
Decrease in other assets 16,000 5,000
------------- -------------
Net cash used in investing activities (60,000) (161,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,196,000 5,244,000
Proceeds from issuance of Class C Preferred Stock - 530,000
Principal payments on notes payable (29,000) (529,000)
Payment of Class C preferred stock dividends (1,000) (4,000)
------------- -------------
Net cash provided by financing activities 2,166,000 5,241,000
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</TABLE>
8
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1999 AND 1998 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------
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THREE MONTHS ENDED JULY 31,
1999 1998
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (753,000) $ 3,121,000
CASH AND CASH EQUIVALENTS,
beginning of period 2,385,000 1,736,000
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CASH AND CASH EQUIVALENTS,
end of period $ 1,632,000 $ 4,857,000
============= =============
SUPPLEMENTAL INFORMATION:
Interest paid $ 88,000 $ 51,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
9
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 1999 (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying unaudited financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company experienced losses in fiscal 1999 and during
the first three months of fiscal 2000 and has an accumulated deficit of
$95,668,000 at July 31, 1999. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going
concern.
The Company must raise additional funds to sustain research
and development, provide for future clinical trials and continue its
operations until it is able to generate sufficient additional revenue
from the sale and/or licensing of its products. The Company plans to
obtain required financing through one or more methods including,
obtaining additional equity or debt financing and negotiating
additional licensing or collaboration agreements with another company.
There can be no assurances that the Company will be successful in
raising such funds on terms acceptable to it, or at all, or that
sufficient additional capital will be raised to complete the research,
development, and clinical testing of the Company's product candidates.
The Company's future success is dependent upon raising additional money
to provide for the necessary operations of the Company. If the Company
is unable to obtain additional financing, there would be a material
adverse effect on the Company's business, financial position and
results of operations. The Company's continuation as a going concern is
dependent on its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing as may be
required and, ultimately, to attain successful operations.
At July 31, 1999, the Company had cash and cash equivalents
of $1,632,000. During August 1999, the Company exercised its Put option
and received gross proceeds of $1,250,000 in exchange for 1,718,750
shares of common stock, including commission shares, pursuant to a
Regulation D Common Stock Equity Line Subscription Agreement the (the
"Equity Line Agreement") (Note 2). The Company believes it has
sufficient cash on hand at August 31, 1999 and available pursuant to
the Equity Line Agreement (assuming only one future quarterly draw of
$2,250,000) to meet its obligations on a timely basis through November
1999. Management believes that additional capital must be raised to
support the Company's continued operations and other short-term cash
needs.
The Company's ability to access funds under the Equity Line
Agreement is subject to the satisfaction of certain conditions and the
failure to satisfy these conditions may limit or preclude the Company's
ability to access such funds, which could adversely affect the
Company's business, immediate liquidity, financial position and results
of operations unless additional financing sources are available (Note
2).
10
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 1999 (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------
The accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring
adjustments) which, in the opinion of management, are necessary to
present fairly the consolidated financial position of the Company at
July 31, 1999, and the consolidated results of its operations and its
consolidated cash flows for the three month periods ended July 31, 1999
and 1998. Although the Company believes that the disclosures in the
financial statements are adequate to make the information presented not
misleading, certain information and footnote disclosures normally
included in the consolidated financial statements have been condensed
or omitted pursuant to rules and regulations of the Securities and
Exchange Commission. The consolidated financial statements included
herein should be read in conjunction with the consolidated financial
statements of the Company, included in the Company's Annual Report on
Form 10-K for the year ended April 30, 1999, filed with the Securities
and Exchange Commission on July 28, 1999.
Results of operations for the interim periods covered by this
Report may not necessarily be indicative of results of operations for
the full fiscal year.
INVENTORIES. Inventories consist of raw materials and
supplies and are stated at the lower of first-in, first-out cost or
market.
RECLASSIFICATION. Certain reclassifications were made to the
prior period balances to conform them to the current period
presentation.
NET LOSS PER SHARE. Net loss per share is calculated by
adding the net loss for the three month period to the Preferred Stock
dividends and Preferred Stock issuance discount accretion on the Class
C Preferred Stock during the three month period divided by the weighted
average number of shares of common stock outstanding during the three
month period. Shares issuable upon the exercise of common stock
warrants and options have been excluded from the per share calculation
for the three month period ended July 31, 1999 and 1998 because their
effect is antidilutive. Accretion of the Class C Preferred Stock
dividends and issue discount amounted to $1,000 and $542,000 for the
quarter ended July 31, 1999 and 1998, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS. Effective May 1, 1998, the
Company adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and displaying comprehensive income
and its components in the consolidated financial statements. For the
three months ended July 31, 1999 and 1998, the Company did not have any
components of comprehensive income as defined in SFAS No. 130.
The Company adopted SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information" on May 1, 1998. SFAS No. 131
established standards of reporting by publicly held businesses and
disclosures of information about operating segments in annual financial
11
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 1999 (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------
statements, and to a lesser extent, in interim financial reports issued
to stockholders. The adoption of SFAS No. 131 had no impact on the
Company's consolidated financial statements as the Company operates in
one industry segment engaged in the research, development and
commercialization of targeted cancer therapeutics.
During June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which will be effective for the Company beginning May 1,
2001. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
imbedded in other contracts, and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in
the statements of financial position and measure those instruments at
fair value. The Company has not determined the impact on the
consolidated financial statements, if any, upon adopting SFAS No. 133.
2. STOCKHOLDERS' EQUITY
During June 1998, the Company secured access to $20,000,000
under a Common Stock Equity Line ("Equity Line") with two institutional
investors, expiring in June 2001. Under the terms of the Equity Line,
the Company may, in its sole discretion, and subject to certain
restrictions, periodically sell ("Put") shares of the Company's common
stock for up to $20,000,000 upon the effective registration of the Put
shares, which occurred on January 15, 1999. After effective
registration for the Put shares, unless an increase is otherwise agreed
to, $2,250,000 of Puts can be made every quarter, subject to share
issuance volume limitations identical to the share resale limitations
set forth in Rule 144(e). In addition, if the Company's closing bid
price falls below $1.00 on any day during the ten trading days prior to
the Put, the Company's ability to access funds under the Equity Line in
the Put is limited to 15% of what would otherwise be available. If the
closing bid price of the Company's common stock falls below $0.50 or if
the Company is delisted from The Nasdaq SmallCap Market, the Company
would have no access to funds under the Equity Line.
The Equity Line provided for immediate funding of $3,500,000
in exchange for 2,749,090 shares of common stock, including commission
shares. One-half of this amount, or $1,750,000, is subject to
adjustment at three months after the effective date of the registration
statement registering these shares with the second half subject to
adjustment six months after such effective date of the registration of
these shares. At each adjustment date, if the market price at the three
or six month period ("Adjustment Price") is less than the initial price
paid for the common stock, the Company will be required to issue
additional shares of its common stock equal to the difference between
the amount of shares actually issued and the amount of shares which
would have been issued if the purchase price had been the Adjustment
Price. On July 15, 1999, the Company issued 179,485 shares of common
stock covering the final six-month adjustment date.
12
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 1999 (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------
Future Puts under the Equity Line are priced at a discount
equal to the greater of $0.20 or 17.5% off the lowest closing per share
bid price during the ten trading days immediately preceding the date on
which such shares are sold to the institutional investors.
At the time of each Put, the investors will be issued
warrants, exercisable only on a cashless basis and expiring on December
31, 2004, to purchase up to 10% of the amount of common stock issued to
the investor at the same price as the purchase of the shares sold in
the Put. During the quarter ended July 31, 1999, the Company issued
250,948 warrants under the Equity Line at an exercise price ranging
from $0.61 to $1.24. Also during the quarter ended July 31, 1999, the
Company issued 6,411 shares of common stock upon the cashless exercise
of 20,172 Equity Line warrants.
In addition, during the quarter ended July 31, 1999, the
Company received gross proceeds of $2,250,000 in exchange for 2,509,508
shares of common stock, including commission shares, under the Equity
Line Agreement.
If the Company does not exercise the full amount of its Put
rights, then the Company will issue Commitment Warrants on the first,
second, and third anniversary of the Equity Line. The number of
Commitment Warrants to be issued on each anniversary date will be equal
to ten percent (10%) of the quotient of the difference of $6,666,666,
$13,333,333 and $20,000,000 (Commitment Amounts), respectively, less
the actual cumulative total dollar amount of Puts which have been
exercised by the Company prior to such anniversary date divided by the
market price of the Company's common stock. On June 24, 1999, the first
anniversary date of the agreement, the Company issued Commitment
Warrants to purchase up to 17,721 shares of the Company's common stock
at $1.50 per share, exercisable on a cashless basis only.
13
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 1999 (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------
3. CONTINGENCY
On March 18, 1999, the Company was served with notice of a
lawsuit filed in Orange County Superior Court for the State of
California by a former employee alleging a single cause of action for
wrongful termination. The Company believes this lawsuit is barred by a
severance agreement and release signed by the former employee following
his termination and the Company is vigorously defending the action. The
Company's motion for summary judgement is currently pending argument.
Management does not believe that the outcome of this action will have a
material adverse effect upon the financial position or results of
operations of the Company.
4. SUBSEQUENT EVENTS
On August 4, 1999, the Company entered into a revised license
agreement with Northwestern University for the licensing of Oncolym(R).
Under the revised terms, the Company's royalty rate payable to
Northwestern University was reduced from 6% of net sales to 3% of net
sales generated in the United States including Guam and Puerto Rico.
The royalty rate was further reduced to 1.5% of net sales if there is a
generic form of the licensed product sold in such territory. In
addition, in all other territories, the royalty rate was reduced to
1.5% of net sales and further reduced to 1% of net sales if there is a
generic form of the licensed product sold in such territory. The term
of the revised license agreement had been reduced from 20 years from
the first commercial sale to a fixed date ending in February 2009.
14
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GOING CONCERN. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
As shown in the financial statements, we experienced losses in fiscal 1999
and during the first three months of fiscal 2000 and we have an accumulated
deficit at July 31, 1999 of $95,668,000. These factors, among others, raise
substantial doubt about our ability to continue as a going concern.
We must raise additional funds to sustain research and development,
provide for future clinical trials and continue our operations until we are
able to achieve profitability based on revenue from the sale and/or
licensing of our products. We plan to obtain required financing through one
or more methods including, obtaining additional equity or debt financing and
negotiating additional licensing or collaboration agreements with another
company. There can be no assurance that we will be successful in raising
such funds on terms acceptable to us, or at all, or that sufficient
additional capital will be raised to complete the research, development, and
clinical testing of our product candidates. Our future success is dependent
upon raising additional money to provide for the necessary operations of the
Company. If we are unable to obtain additional financing, there would be a
material adverse effect on the Company's business, financial position and
results of operations. Our continuation as a going concern is dependent on
our ability to generate sufficient cash flow to meet our obligations on a
timely basis, to obtain additional financing as may be required and,
ultimately, to attain successful operations.
Management believes that additional capital must be raised to
support the Company's continued operations and other short-term cash needs.
The Company believes that it has sufficient cash on hand and available
pursuant to the financing commitments under the Equity Line of Credit
(assuming only one future quarterly draw of $2,250,000) to meet its
obligations on a timely basis through November 1999. Our ability to access
funds under the Equity Line Agreement is subject to the satisfaction of
certain conditions and the failure to satisfy these conditions may limit or
preclude the Company's ability to access such funds, which could adversely
affect the our business, immediate liquidity, financial position and results
of operations unless additional financing sources are available.
COMPANY OVERVIEW. Techniclone Corporation is a biopharmaceutical
company engaged in the research, development and commercialization of
targeted cancer therapeutics. We develop product candidates based primarily
on our proprietary collateral (indirect) tumor targeting technologies for
the treatment of solid tumors and a direct tumor targeting agent for the
treatment of refractory malignant lymphoma. We have four potential product
candidates: two products are in Phase II clinical trials and two products
are in preclinical studies.
Collateral (indirect) tumor targeting is the therapeutic strategy
of targeting peripheral structures and cell types, other than the viable
cancer cells directly, as a means to treat solid tumors. We are currently
developing three collateral (indirect) targeting agents for the treatment of
solid tumors: Tumor Necrosis Therapy, which is potentially capable of
carrying a variety of therapeutic agents to the interior of solid tumors and
irradiating the tumor from the inside out; Vasopermeation Enhancement
Agents, which potentially increases the permeability of the tumor site and
consequently can increase the concentration of killing agents at the core of
the tumor; and Vascular Targeting Agents, which potentially creates a
blockage within the capillaries and blood vessels that supply solid tumors
with nutrients, thus potentially destroying the tumor.
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A Phase II clinical trial of our Tumor Necrosis Therapy agent
(called Cotara(TM)) for the treatment of malignant glioma (brain cancer) is
currently being conducted at The Medical University of South Carolina,
University of California at Los Angeles, Temple University, University of
Utah-Salt Lake City and Carolina Neurosurgery & Spine Association, with
three additional clinical trial sites at various stages of contract
negotiation. In addition, our Tumor Necrosis Therapy agent is being used in
an equivalent Phase I clinical trial for the treatment of pancreatic,
prostrate and liver cancers at a clinical trial site in Mexico City. We are
collaborating with outside scientists for preclinical studies on
Vasopermeation Enhancement Agents and on Vascular Targeting Agents.
On March 8, 1999, we entered into a license agreement with Schering
A.G., Germany, a major multinational pharmaceutical company, with respect to
the development, manufacture and marketing of our direct tumor targeting
agent candidate, Oncolym(R). At the time we entered into the license
agreement with Schering A.G., Germany, Oncolym(R) was in a Phase II/III
clinical trial for the treatment of non-Hodgkin's B-cell Lymphoma. Under the
agreement, Schering A.G., Germany controls the clinical development program
and funds 80% of the clinical trial costs. Recently, Schering A.G., Germany
has advised us that they believe the potential success of the Oncolym(R)
product may be enhanced via a revision of the current Phase II protocol. In
this context, Schering A.G., Germany is analyzing the results of the current
Phase II clinical trial and, based on that analysis, may revise the current
protocol. As such, the current clinical trial sites will remain open for
treating existing patients, however, no new enrollment of patients will be
made under the current trial. If a revised protocol is developed by Schering
A.G., Germany, it will be submitted to the United States Food and Drug
Administration ("FDA") for additional clinical studies. As part of this
Oncolym(R) agreement, Schering A.G., Germany and Techniclone are proceeding
with negotiations concerning the terms of a possible licensing transaction
on the Vascular Targeting Agents technology. We cannot be certain whether we
will be successful in entering into a licensing transaction on the Vascular
Targeting Agents technology on terms satisfactory to us, if at all.
RESULTS OF OPERATIONS. The Company's net loss of $2,989,000, before
preferred stock discount accretion and dividends, for the quarter ended July
31, 1999 represents a decrease in net loss of $317,000 in comparison to the
net loss of $3,306,000 for the prior year quarter ended July 31, 1998. This
decrease in the net loss for the quarter ended July 31, 1999 is due to a
decrease in total costs and expenses of $331,000 offset by a decrease in
interest and other income of $14,000.
The Company's total costs and expenses decreased $331,000 during
the three months ended July 31, 1999 compared to the three months ended July
31, 1998 due to a decrease in general and administrative expenses of
$312,000 and a decrease in interest expense of $152,000 offset by an
increase in research and development expenses of $133,000, in comparison to
the three months ended July 31, 1998.
The increase in research and development expenses of $133,000
during the three months ended July 31, 1999 compared to the same period in
the prior year is primarily due to increased research fees from MDS Nordion
associated with the development of a commercial radiolabeling facility. In
addition, during the quarter ended July 31, 1999, the Company incurred
increased building lease expense related to the sale and subsequent
leaseback of the Company's facilities in December 1998 partially offset by a
corresponding decrease in depreciation expense on the related building. Also
during the current quarter, the Company incurred increased costs associated
with the equivalent Phase I study in Mexico City for the treatment of
pancreatic, liver, and prostate cancers using Cotara(TM). This was offset by
a decrease in the Oncolym(R) clinical trial fees as Schering A.G., Germany
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is paying for 80% of the clinical trial expenses as defined in the
agreement. In addition, Schering A.G., Germany is analyzing the results of
the current Phase II trial and during such time, no new enrollment of
patients is being made under the current trial, further lowering the
clinical trial costs for the current quarter.
The decrease in general and administrative expenses of $312,000
during the quarter ended July 31, 1999 compared to the quarter ended July
31, 1998 resulted primarily from a decrease in severance expenses associated
with the Company's former Chief Executive Officer combined with a decrease
in consulting fees.
The decrease in interest expense of $152,000 for the three months
ended July 31, 1999 compared to the same period in the prior year is
primarily due to a decrease in interest charges related to construction
costs incurred in the prior year quarter related to manufacturing facility
enhancements combined with a decrease in mortgage interest in the current
quarter as the mortgages were paid in full as part of sale of the facilities
in December 1998. Such decrease was partially offset by an increase in
interest charges on a $3,300,000 note payable to Biotechnology Development
Ltd. related to the buyback of the Oncolym(R) rights in March 1999.
The decrease in interest and other income of $14,000 during the
three months ended July 31, 1999 compared to the same period in the prior
year is primarily due to a decrease in rental income as one of the Company's
sub-tenants had completed their lease term in March 1999. The Company does
not expect to generate product sales for at least the next year.
Management believes that research and development costs will
increase as the Company continues to expand its clinical trial activities
and increases production and radiolabeling capabilities for its TNT and
Oncolym(R) antibodies.
LIQUIDITY AND CAPITAL RESOURCES. At July 31, 1999, we had
$1,632,000 in cash and cash equivalents and a working capital deficit of
$3,387,000. We experienced losses in fiscal 1999 and during the first three
months of fiscal 2000 and had an accumulated deficit of approximately
$95,668,000 at July 31, 1999. During August 1999, the Company exercised its
Put option and received gross proceeds of $1,250,000 in exchange for
1,718,750 shares of common stock, including commission shares, pursuant to a
Regulation D Common Stock Equity Line Subscription Agreement the (the
"Equity Line Agreement"). The Company believes it has sufficient cash on
hand at August 31, 1999 and available pursuant to the Equity Line Agreement
(assuming only one future quarterly draw of $2,250,000) to meet its
obligations on a timely basis through November 1999. Management believes
that additional capital must be raised to support the Company's continued
operations and other short-term cash needs.
Our ability to access funds under the Equity Line Agreement is
subject to the satisfaction of certain conditions and the failure to satisfy
these conditions may limit or preclude our ability to access such funds,
which could adversely affect the our business, immediate liquidity,
financial position and results of operations unless additional financing
sources are available.
We have significant commitments to expend additional funds for
preclinical development, clinical trials, radiolabeling contracts, license
contracts, severance arrangements and consulting. We expect operating
expenditures related to clinical trials to increase in the future as our
clinical trial activity increases and scale-up for clinical trial production
continues. We have experienced negative cash flows from operations since our
inception and we expect the negative cash flow from operations to continue
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for the foreseeable future. We expect that the monthly negative cash flow
will continue for at least the next year as a result of increased activities
in connection with the Phase II clinical trials of Cotara(TM) and the
equivalent Phase I clinical trials of Cotara(TM) in Mexico and the
development costs associated with Vasopermeation Enhancement Agents ("VEAs")
and Vascular Targeting Agents ("VTAs"). We believe that it will be necessary
for us to raise additional capital to sustain research and development and
provide for future clinical trials. Additional funds must be raised to
continue our operations until we are able to generate sufficient additional
revenue from the sale and/or licensing of our products. There can be no
assurance that we will be successful in raising such funds on terms
acceptable to us, or at all, or that sufficient capital will be raised to
complete the research and development of our product candidates.
COMMITMENTS. At July 31, 1999, we had no material capital
commitments, although we have significant obligations, most of which are
contingent, for payments to licensors for its technologies and in connection
with the acquisition of the Oncolym(R) rights previously owned by Alpha
Therapeutic Corporation ("Alpha").
OTHER RISK FACTORS OF OUR COMPANY
IF WE CANNOT OBTAIN ADDITIONAL FUNDING, OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION EFFORTS MAY BE REDUCED OR DISCONTINUED.
At July 31, 1999, we had $1,632,000 in cash and cash equivalents.
We have expended, and will continue to expend, substantial funds on the
development of our product candidates and for clinical trials. As a result,
we have had negative cash flows from operations since inception and expect
the negative cash flows from operations to continue for the foreseeable
future. We currently have commitments to expend additional funds for
antibody and radioactive isotope combination services, clinical trials,
product development contracts, license contracts, severance arrangements,
employment agreements, consulting agreements, and for the repurchase of
marketing rights to certain product technology. We expect operating
expenditures related to clinical trials to increase in the future as
clinical trial activity increases and expansion for clinical trial
production continues. We also expect that the monthly negative cash flows
will continue. We will require additional funding to sustain our research
and development efforts, provide for future clinical trials, expand our
manufacturing and product commercialization capabilities, and continue our
operations until we are able to generate sufficient revenue from the sale
and/or licensing of our products.
During June 1998, we secured access to $20,000,000 under a Common
Stock Equity Line (Equity Line) with two institutional investors. The Equity
Line expires in June 2001. Under the terms of the Equity Line, we may, in
our sole discretion, and subject to certain restrictions, periodically sell
("Put") shares of our common stock for up to $20,000,000 upon the effective
registration of the Put shares. Up to $2,250,000 of Puts, unless an increase
is otherwise agreed to, can be made every quarter, subject to the
satisfaction of certain conditions, including share issuance volume
limitations identical to the share resale limitations set forth in Rule
144(e). In addition, if the closing bid price of our common stock falls
below $1.00 during the ten trading days prior to the call date, then the
amount of Puts will be limited to 15% of what would otherwise be available.
If the closing bid price of the Company's common stock falls below $0.50 or
if the Company is delisted from The Nasdaq SmallCap Market, the Company
would have no access to funds under the Equity Line. As of August 31, 1999,
we had $10,750,000 available for future Puts under the Equity Line.
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We cannot be certain whether we can obtain required additional
funding on terms satisfactory to us, if at all. If we do raise additional
funds through the issuance of equity or convertible debt securities, these
new securities may have rights, preferences or privileges senior to the
presently outstanding securities of the Company. If we are unable to raise
additional funds when necessary, we may have to reduce or discontinue
development, commercialization or clinical testing of some or all of our
product candidates or enter into financing arrangements on terms which we
would not otherwise accept. Our future success is dependent upon raising
additional money to provide for the necessary operations of the Company. If
we are unable to obtain additional financing, there would be a material
adverse effect on the Company's business, financial position and results of
operations.
Without obtaining additional financing or completing a licensing
transaction, we believe that we have sufficient cash on hand as of August
31, 1999 and available pursuant to the Equity Line mentioned above, assuming
we make one additional quarterly draw of $2,250,000, to meet our obligations
on a timely basis through November, 1999.
WE HAVE HAD SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES.
We have experienced significant losses since inception. As of July
31, 1999, our accumulated deficit was approximately $95,668,000. We expect
to incur significant additional operating losses in the future and expect
cumulative losses to increase substantially due to expanded research and
development efforts, preclinical studies and clinical trials, and expansion
of manufacturing and product commercialization capabilities. We also expect
losses to fluctuate substantially from quarter to quarter. All of our
products are currently in development, preclinical studies or clinical
trials, and no revenues have been generated from commercial product sales.
To achieve and sustain profitable operations, we must successfully develop
and obtain regulatory approval for our products, either alone or with
others, and must also manufacture, introduce, market and sell our products.
The time frame necessary to achieve market success for our products is long
and uncertain. We do not expect to generate significant product revenues for
at least the next year. There can be no guarantee that we will ever generate
product revenues sufficient to become profitable or to sustain
profitability.
PROBLEMS IN PRODUCT DEVELOPMENT MAY CAUSE OUR CASH DEPLETION RATE
TO INCREASE.
Our ability to obtain financing and to manage expenses and our cash
depletion rate is key to the continued development of product candidates and
the completion of ongoing clinical trials. Our cash depletion rate will vary
substantially from quarter to quarter as we fund non-recurring items
associated with clinical trials, product development, antibody manufacturing
and facility expansion and scale-up, patent legal fees and various
consulting fees. We have limited experience with clinical trials and if we
encounter unexpected difficulties with our operations or clinical trials, we
may have to expend additional funds, which would increase our cash depletion
rate.
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OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY NOT BE SUCCESSFUL.
Since inception, we have been engaged in the development of drugs
and related therapies for the treatment of people with cancer. Our product
candidates, which have not received regulatory approval, are generally in
the early stages of development. If the initial results from any of the
clinical trials are poor, those results will adversely effect our ability to
raise additional capital, which will affect our ability to continue
full-scale research and development for our antibody technologies. In
addition, product candidates resulting from our research and development
efforts, if any, are not expected to be available commercially for at least
the next year. Our products currently in clinical trials represent a
departure from more commonly used methods for cancer treatment. These
products, if approved, may experience under-utilization by doctors who are
unfamiliar with their application in the treatment of cancer. As with any
new drug, doctors may be inclined to continue to treat patients with
conventional therapies, in most cases chemotherapy, rather than new
alternative therapies. We or our marketing partner may be required to
implement an aggressive education and promotion plan with doctors in order
to gain market recognition, understanding and acceptance of our products.
Market acceptance could also be affected by the availability of third-party
reimbursement. Accordingly, we cannot guarantee that our product development
efforts, including clinical trials, or commercialization efforts will be
successful or that any of our products, if approved, can be successfully
marketed.
WE MAY NOT BE ABLE TO EXPAND OUR FACILITIES TO IMPLEMENT COMMERCIAL
PRODUCTION OF OUR PRODUCTS.
In order to conduct clinical trials on a timely basis, obtain
regulatory approval and be commercially successful, we must expand our
manufacturing and product commercialization processes so that our product
candidates, if approved, can be manufactured and produced in commercial
quantities. To date, we have expended significant funds for the expansion of
our antibody manufacturing capabilities for clinical trial requirements for
two of our product candidates and for refinement of the production
processes. We intend to use existing antibody manufacturing capacity to meet
the clinical trial requirements for these two product candidates and to
support the initial commercialization of these product candidates, if
approved. In order to provide additional capacity, we must successfully
negotiate agreements with contract antibody manufacturers to have these
products produced, the cost of which is estimated to be several million
dollars in start-up costs and additional production costs on a "per run
basis". Such contracts would also require an additional investment estimated
at five to nine million dollars over the next two years for antibody
radiolabeling services and related equipment and related production area
enhancements, and for vendor services associated with technology transfer
assistance, expansion and production start-up and for regulatory assistance.
We have limited manufacturing experience, and cannot make any guarantee as
to our ability to expand our manufacturing operations, the suitability of
our present facility for clinical trial production or commercial production,
our ability to make a successful transition to commercial production or our
ability to reach an acceptable agreement with one or more contract
manufacturers to produce any of our other product candidates, if approved,
in clinical or commercial quantities.
OUR TECHNOLOGY AND PRODUCTS MAY PROVE INEFFECTIVE OR BE TOO EXPENSIVE TO
MARKET SUCCESSFULLY.
Our future success is significantly dependent on our ability to
develop and test workable products for which we will seek approval from the
United States Food and Drug Administration to market to certain defined
patient groups. There is a significant risk as to the performance and
commercial success of our technology and products. The products we are
currently developing will require significant additional laboratory and
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clinical testing and investment over the foreseeable future. Our proposed
products may not prove to be effective in clinical trials or they may cause
harmful side effects during clinical trials. In addition, our product
candidates, if approved, may prove impracticable to manufacture in
commercial quantities at a reasonable cost and/or with acceptable quality.
Any of these factors could negatively affect our financial position and
results of operations.
OUR DEPENDENCY ON A LIMITED NUMBER OF SUPPLIERS MAY NEGATIVELY IMPACT OUR
ABILITY TO COMPLETE CLINICAL TRIALS AND MARKET OUR PRODUCTS.
We currently procure, and intend in the future to procure, our
antibody radioactive isotope combination services ("radiolabeling") under
negotiated contracts with two domestic entities, one Canadian entity and one
European entity. We cannot guarantee that these suppliers will be able to
qualify their facilities or label and supply antibody in a timely manner, if
at all. Prior to commercial distribution of any of our products, if
approved, we will be required to identify and contract with a commercial
company for commercial antibody manufacturing and radioactive isotope
combination services. We are presently in discussions with a few companies
to provide commercial antibody manufacturing and radioactive isotope
combination services. We also currently rely on, and expect in the future to
rely on, our current suppliers for all or a significant portion of the raw
material requirements for our antibody products. Antibody that has been
combined with a radioactive isotope cannot be stockpiled against future
shortages. Accordingly, any change in our existing or future contractual
relationships with, or an interruption in supply from, any such third-party
service provider or antibody supplier could negatively impact our ability to
complete ongoing clinical trials and to market our products, if approved.
TERMINATION OF OUR RELATIONSHIP WITH SCHERING A.G., GERMANY COULD ADVERSELY
AFFECT OUR BUSINESS.
In March 1999, we entered into a license agreement with Schering
A.G., Germany for the worldwide development, marketing and distribution of
our direct tumor targeting agent product candidate, Oncolym(R). Under the
agreement, Schering A.G., Germany has assumed control of the clinical
development program, regulatory approvals in the United States and all
foreign countries and handling sales and marketing of this product
candidate. Schering A.G., Germany may terminate the agreement under a number
of circumstances as defined in the agreement, including thirty days' written
notice given at any time prior to receiving regulatory approval. We are
relying on Schering A.G., Germany to apply its expertise and know-how
through the development, launch and sale of this product candidate. If
Schering A.G., Germany decides to discontinue the development of this
product candidate and terminates our license agreement, we may have to
discontinue development, commercialization and clinical testing of this
product candidate, which could negatively affect our operations and
financial performance. In connection with our agreement with Schering A.G.,
Germany for Oncolym(R), Schering A.G., Germany has also agreed to discuss
the development and commercialization of our Vascular Targeting Agent
technology. If we enter into an agreement with Schering A.G., Germany with
respect to our Vascular Targeting Agent technology, we will also rely on
Schering A.G., Germany to apply its expertise and know-how through the
development, launch and sale of our Vascular Targeting Agent product
candidates. We cannot guarantee that Schering A.G., Germany will devote the
resources necessary to successfully develop and/or market any product
candidate.
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WE DO NOT HAVE A SALES FORCE TO MARKET OUR PRODUCTS.
At the present time, we do not have a sales force to market any of
our products, if and when they are approved. We intend to sell our products
in the United States and internationally in collaboration with one or more
marketing partners. If and when we receive approval from the United States
Food and Drug Administration for our initial product candidates, the
marketing of these products will be contingent upon our ability to either
license or enter into a marketing agreement with a large company or our
ability to recruit, develop, train and deploy our own sales force. We do not
presently possess the resources or experience necessary to market any of our
product candidates. Other than an agreement with Schering A.G., Germany with
respect to the marketing of our direct tumor targeting agent product
candidate, we presently have no agreements for the licensing or marketing of
our product candidates, and we cannot assure you that we will be able to
enter into any such agreements in a timely manner or on commercially
favorable terms, if at all. Development of an effective sales force requires
significant financial resources, time and expertise. We cannot assure you
that we will be able to obtain the financing necessary to establish such a
sales force in a timely or cost effective manner, if at all, or that such a
sales force will be capable of generating demand for our product candidates,
if and when they are approved.
WE MAINTAIN ONLY LIMITED PRODUCT LIABILITY INSURANCE AND MAY BE EXPOSED TO
CLAIMS IF OUR INSURANCE COVERAGE IS INSUFFICIENT.
The manufacture and sale of human therapeutic products involves an
inherent risk of product liability claims. We maintain only limited product
liability insurance. We cannot assure you that we will be able to maintain
existing insurance or obtain additional product liability insurance on
acceptable terms or with adequate coverage against potential liabilities.
Product liability insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. Our inability to
obtain sufficient insurance coverage on reasonable terms or to otherwise
protect against potential product liability claims in excess of our
insurance coverage, if any, or a product recall could negatively impact our
financial position and results of operations.
EARTHQUAKES MAY DAMAGE OUR FACILITIES.
Our corporate and research facilities, where the majority of our
research and development activities are conducted, are located near major
earthquake faults, which have experienced earthquakes in the past. Although
we carry limited earthquake insurance, in the event of a major earthquake or
other disaster in or near the greater Southern California area, our
facilities may sustain significant damage and our operations could be
negatively affected.
THE LIQUIDITY OF OUR COMMON STOCK WILL BE ADVERSELY AFFECTED IF OUR COMMON
STOCK IS DELISTED FROM THE NASDAQ SMALLCAP MARKET.
The Common Stock is presently traded on The Nasdaq SmallCap Market.
To maintain inclusion on The Nasdaq SmallCap Market, we must continue to
have either net tangible assets of at least $2,000,000, market
capitalization of at least $35,000,000, or net income (in either our latest
fiscal year or in two of our last three fiscal years) of at least $500,000.
In addition, we must meet other requirements, including, but not limited to,
having a public float of at least 500,000 shares and $1,000,000, a minimum
closing bid price of $1.00 per share of Common Stock (without falling below
this minimum bid price for a period of 30 consecutive trading days), at
least two market makers and at least 300 stockholders, each holding at least
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100 shares of Common Stock. At various times, we have failed to maintain a
$1.00 minimum closing bid price for extended periods of time and our stock
may periodically fall below the minimum $1.00 closing bid price for extended
periods of time in the future. If we fail to meet the minimum closing bid
price of $1.00 for a period of 30 consecutive trading days, we will be
notified by The Nasdaq Stock Market and will then have a period of 90
calendar days from such notification to achieve compliance with the
applicable standard by meeting the minimum closing bid price requirement for
at least 10 consecutive trading days during such 90 day period. We cannot
guarantee that we will be able to maintain these requirements in the future.
If we fail to meet any of The Nasdaq SmallCap Market listing requirements,
the market value of the Common Stock could fall and holders of Common Stock
would likely find it more difficult to dispose of the Common Stock. In
addition, if the minimum closing bid price of the Common Stock is not at
least $1.00 per share for 10 consecutive trading days before we make a call
for proceeds under our Regulation D Common Stock Equity Line Subscription
Agreement with two institutional investors or if the Common Stock ceases to
be included on The Nasdaq SmallCap Market, we would have limited or no
access to funds under the Regulation D Common Stock Equity Line Subscription
Agreement. Moreover, should the market price of the Common Stock fall
significantly, we would be required to issue to the two institutional
investors a much greater number of shares than we would otherwise if the
market price were stable or rising, which could cause the market price of
the Common Stock to fall further and faster. In addition, we and
broker-dealers effecting transactions in the Common Stock may become subject
to additional disclosure and reporting requirements applicable to low-priced
securities, which may reduce the level of trading activity in the secondary
market for the Common Stock and limit or prevent investors from readily
selling their shares of Common Stock.
THE SALE OF SUBSTANTIAL SHARES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK
PRICE.
As of August 31, 1999, we had approximately 78,355,000 shares of
Common Stock outstanding. We are also obligated to issue up to an additional
approximately 191,000 shares of Common Stock upon conversion of 91
outstanding shares of our 5% Adjustable Convertible Class C Preferred Stock
and exercise of related warrants. Under our Regulation D Common Stock Equity
Line Subscription Agreement with two institutional investors, we may issue
up to an additional approximately 16,259,000 shares of Common Stock
(assuming a market price of our common stock of $1.00 per share), at our
sole option, from time to time, in exchange for an aggregate purchase price
of $10,750,000, which includes warrants equal to 10% of the shares of Common
Stock issued under such agreement, which must be exercised on a cashless
basis only. In addition, an additional approximately 16,050,000 shares of
Common Stock are issuable upon exercise of outstanding stock options and
other warrants at an average exercise price of $1.79. The conversion rate
applicable to our Class C Preferred Stock and the purchase price for the
shares of Common Stock and warrants to be issued under the Regulation D
Common Stock Equity Line Subscription Agreement are at a significant
discount to the market price of the Common Stock. The sale and issuance of
these shares of Common Stock, as well as subsequent sales of shares of
Common Stock in the open market, may cause the market price of the Common
Stock to fall and might impair our ability to raise additional capital
through sales of equity or equity-related securities, whether under the
Regulation D Common Stock Equity Line Subscription Agreement or otherwise.
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OUR HIGHLY VOLATILE STOCK PRICE AND TRADING VOLUME MAY ADVERSELY AFFECT THE
LIQUIDITY OF THE COMMON STOCK.
The market price of the Common Stock, and the market prices of
securities of companies in the biotechnology industry generally, have been
highly volatile and is likely to continue to be highly volatile. Also, the
trading volume in the Common Stock has been highly volatile, ranging from as
few as 44,000 shares per day to as many as 19 million shares per day over
the past eighteen months, and is likely to continue to be highly volatile.
The market price of the Common Stock may be significantly impacted by many
factors, including announcements of technological innovations or new
commercial products by us or our competitors, disputes concerning patent or
proprietary rights, publicity regarding actual or potential medical results
relating to products under development by us or our competitors and
regulatory developments and product safety concerns in both the United
States and foreign countries. These and other external factors have caused
and may continue to cause the market price and demand for the Common Stock
to fluctuate substantially, which may limit or prevent investors from
readily selling their shares of Common Stock and may otherwise negatively
affect the liquidity of the Common Stock.
WE MAY NOT BE ABLE TO COMPETE WITH OUR COMPETITORS IN THE BIOTECHNOLOGY
INDUSTRY.
The biotechnology industry is intensely competitive. It is also
subject to rapid change and sensitive to new product introductions or
enhancements. We expect to continue to experience significant and increasing
levels of competition in the future. Virtually all of our existing
competitors have greater financial resources, larger technical staffs, and
larger research budgets than we have, as well as greater experience in
developing products and running clinical trials. Two of our competitors,
IDEC Pharmaceuticals Corporation and Coulter Pharmaceuticals, Inc., each has
a lymphoma antibody that may compete with our direct tumor targeting agent
product, Oncolym(R). IDEC Pharmaceuticals Corporation is currently marketing
its lymphoma product for low grade non-Hodgkin's lymphoma and we believe
that Coulter Pharmaceuticals, Inc. will be marketing its respective lymphoma
product prior to the time our Oncolym(R) product will be submitted to the
United States Food and Drug Administration for marketing approval. Coulter
Pharmaceuticals, Inc. has also announced that it intends to conduct clinical
trials of its antibody treatment for intermediate and/or high-grade
non-Hodgkin's lymphomas. In addition, there may be other companies which are
currently developing competitive technologies and products or which may in
the future develop technologies and products which are comparable or
superior to our technologies and products. Some or all of these companies
may also have greater financial and technical resources than we have.
Accordingly, we cannot assure you that we will be able to compete
successfully with our existing and future competitors or that competition
will not negatively affect our financial position or results of operations
in the future.
WE MAY NOT BE SUCCESSFUL IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PATENTS AND
LICENSES TO PATENTS.
Our success depends, in large part, on our ability to obtain or
maintain a proprietary position in our products through patents, trade
secrets and orphan drug designations. We have been granted several United
States patents and have submitted several United States patent applications
and numerous corresponding foreign patent applications, and have also
obtained licenses to patents or patent applications owned by other entities.
However, we cannot assure you that any of these patent applications will be
granted or that our patent licensors will not terminate any of our patent
licenses. We also cannot guarantee that any issued patents will provide
competitive advantages for our products or that any issued patents will not
be successfully challenged or circumvented by our competitors. Although we
believe that our patents and our licensors' patents do not infringe on any
24
<PAGE>
third party's patents, we cannot be certain that we can avoid litigation
involving such patents or other proprietary rights. Patent and proprietary
rights litigation entails substantial legal and other costs, and we may not
have the necessary financial resources to defend or prosecute our rights in
connection with any litigation. Responding to, defending or bringing claims
related to patents and other intellectual property rights may require our
management to redirect our human and monetary resources to address these
claims and may take years to resolve.
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY BE REDUCED OR
DISCONTINUED DUE TO DIFFICULTIES OR DELAYS IN CLINICAL TRIALS.
We may encounter unanticipated problems, including development,
manufacturing, distribution, financing and marketing difficulties, during
the product development, approval and commercialization process. Our product
candidates may take longer than anticipated to progress through clinical
trials or patient enrollment in the clinical trials may be delayed or
prolonged significantly, thus delaying the clinical trials. Delays in
patient enrollment will result in increased costs and further delays. If we
experience any such difficulties or delays, we may have to reduce or
discontinue development, commercialization or clinical testing of some or
all of our product candidates. Schering A.G., Germany has recently advised
us that it is analyzing the results of the current Phase II clinical
development program for our direct tumor targeting agent product candidate
and based on that analysis, Schering A.G., Germany may revise the current
protocol. As such, the current clinical trial sites will remain open for
treating existing patients, however, no new enrollment of patients will be
made under the current trial. Schering A.G., Germany has further informed us
that if a revised protocol is developed, it will be submitted to the United
States Food and Drug Administration for additional clinical trials. If
Schering A.G., Germany decides to discontinue the development of this
product candidate and terminates our license agreement for the worldwide
development, distribution and marketing of this product candidate, we may
have to discontinue development, commercialization and clinical testing of
this product candidate.
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY BE REDUCED OR
DISCONTINUED DUE TO DELAYS OR FAILURE IN OBTAINING REGULATORY APPROVALS.
We will need to do substantial additional development and clinical
testing prior to seeking any regulatory approval for commercialization of
our product candidates. Testing, manufacturing, commercialization,
advertising, promotion, export and marketing, among other things, of our
proposed products are subject to extensive regulation by governmental
authorities in the United States and other countries. The testing and
approval process requires substantial time, effort and financial resources
and we cannot guarantee that any approval will be granted on a timely basis,
if at all. Companies in the pharmaceutical and biotechnology industries have
suffered significant setbacks in conducting advanced human clinical trials,
even after obtaining promising results in earlier trials. Furthermore, the
United States Food and Drug Administration may suspend clinical trials at
any time on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk. Even if
regulatory approval of a product is granted, such approval may entail
limitations on the indicated uses for which it may be marketed. Accordingly,
we may experience difficulties and delays in obtaining necessary
governmental clearances and approvals to market our products, and we may not
be able to obtain all necessary governmental clearances and approvals to
market our products. At least initially, we intend, to the extent possible,
to rely on licensees to obtain regulatory approval for marketing our
products. The failure by us or our licensees to adequately demonstrate the
safety and efficacy of any of our product candidates under development could
delay, limit or prevent regulatory approval of the product, which may
require us to reduce or discontinue development, commercialization or
clinical testing of some or all of our product candidates.
25
<PAGE>
OUR PRODUCTS, IF APPROVED, MAY NOT BE COMMERCIALLY VIABLE DUE TO HEALTH CARE
REFORM AND THIRD-PARTY REIMBURSEMENT LIMITATIONS.
Recent initiatives to reduce the federal deficit and to reform
health care delivery are increasing cost-containment efforts. We anticipate
that Congress, state legislatures and the private sector will continue to
review and assess alternative benefits, controls on health care spending
through limitations on the growth of private health insurance premiums and
Medicare and Medicaid spending, price controls on pharmaceuticals and other
fundamental changes to the health care delivery system. Legislative debate
is expected to continue in the future, and market forces are expected to
drive reductions of health care costs. Any such changes could negatively
impact the commercial viability of our products, if approved. Our ability to
successfully commercialize our product candidates, if and when they are
approved, will depend in part on the extent to which appropriate
reimbursement codes and authorized cost reimbursement levels of such
products and related treatment are obtained from governmental authorities,
private health insurers and other organizations, such as health maintenance
organizations. In the absence of national Medicare coverage determination,
local contractors that administer the Medicare program, within certain
guidelines, can make their own coverage decisions. Accordingly, there can be
no assurance that any of our product candidates, if approved and when
commercially available, will be included within the then, current Medicare
coverage determination or the coverage determination of state Medicaid
programs, private insurance companies and other health care providers. In
addition, third-party payors are increasingly challenging the prices charged
for medical products and services. The trend toward managed health care and
the growth of health maintenance organizations in the United States may all
result in lower prices for our products, if approved and when commercially
available, than we currently expect. The cost containment measures that
health care payors and providers are instituting and the effect of any
health care reform could negatively affect our financial performance, if and
when one or more of our products are approved and available for commercial
use.
OUR MANUFACTURING AND USE OF HAZARDOUS AND RADIOACTIVE MATERIALS MAY RESULT
IN OUR LIABILITY FOR DAMAGES, INCREASED COSTS AND INTERRUPTION OF ANTIBODY
SUPPLIES.
The manufacturing and use of our products require the handling and
disposal of the radioactive isotope I131. We currently rely on, and intend
in the future to rely on, our current contract manufacturers to combine
antibodies with radioactive I131 isotope in our products and to comply with
various local, state, national or international regulations regarding the
handling and use of radioactive materials. Violation of these regulations by
these companies or a clinical trial site could significantly delay
completion of the trials. Violations of safety regulations could occur with
these manufacturers, so there is also a risk of accidental contamination or
injury. Accordingly, we could be held liable for any damages that result
from an accident, contamination or injury caused by the handling and
disposal of these materials, as well as for unexpected remedial costs and
penalties that may result from any violation of applicable regulations. In
addition, we may incur substantial costs to comply with environmental
regulations. In the event of any noncompliance or accident, the supply of
antibodies for use in clinical trials or commercial products could also be
interrupted.
26
<PAGE>
OUR OPERATIONS AND FINANCIAL PERFORMANCE COULD BE NEGATIVELY AFFECTED IF WE
CANNOT ATTRACT AND RETAIN KEY PERSONNEL.
Our success is dependent, in part, upon a limited number of key
executive officers and technical personnel remaining employed with us,
including Larry O. Bymaster, our President and Chief Executive Officer,
Steven C. Burke, our Chief Financial Officer, and Dr. John N. Bonfiglio, our
Vice President of Technology and Business Development and interim Vice
President of Clinical and Regulatory Affairs. We also believe that our
future success will depend largely upon our ability to attract and retain
highly-skilled research and development and technical personnel. We face
intense competition in our recruiting activities, including larger companies
with greater resources. We do not know if we will be successful in
attracting or retaining skilled personnel. The loss of certain key employees
or our inability to attract and retain other qualified employees could
negatively affect our operations and financial performance.
OUR BUSINESS MAY BE ADVERSELY EFFECTED IF OUR COMPUTER SYSTEMS AND THE
COMPUTER SYSTEMS OF OUR SUPPLIERS ARE NOT YEAR 2000 COMPLIANT.
We are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 problem
is pervasive and complex. The issue is whether computer systems will
properly recognize date-sensitive information in the year 2000 due to the
fact that the programming in most computer systems use a two digit year
value, which value will rollover to "00" as of January 1, 2000. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail. We have identified substantially all of our
information technology ("IT") and non-IT systems, including major hardware
and software platforms in use and we have modified and upgraded our
hardware, software of IT and non-IT systems to be year 2000 compliant. We do
not presently believe that the year 2000 problem will pose significant
operational problems for our internal computer systems or have a negative
effect on our operations. However, we cannot assure you that any year 2000
compliance problems of our suppliers will not negatively affect our
operations. Because uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance, we intend to continue to
make efforts to ensure that third parties with whom we have relationships
are year 2000 compliant. We have not incurred significant costs to date
associated with year 2000 compliance and presently believe estimated future
costs will not be material. However, actual results could differ materially
from our expectations due to unanticipated technological difficulties or
project delays. If any third parties upon which we rely are unable to
address the year 2000 issue in a timely manner, although we are uncertain as
to our worst case consequences, it could have an adverse impact on our
operations, including delaying our clinical trial programs. In order to
minimize this risk, we have developed a contingency plan, the implementation
of which should be completed by November 1999, and we intend to devote all
resources required to attempt to resolve any significant year 2000 problems
in a timely manner.
27
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
A significant change in interest rates would not have a material
adverse effect on the Company's financial position or results of operations
due to the amount of cash on hand at July 31, 1999, which consists of
highly liquid investments, and as the Company's debt instruments have fixed
interest rates and terms.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
------- ------------------
On March 18, 1999, the Company was served with notice of a lawsuit
filed in Orange County Superior Court for the State of California by a
former employee alleging a single cause of action for wrongful termination.
The Company believes this lawsuit is barred by a severance agreement and
release signed by the former employee following his termination and the
Company is vigorously defending the action. The Company's motion for summary
judgement is currently pending argument. Management does not believe that
the outcome of this action will have a material adverse effect upon the
financial position or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
------- ------------------------------------------
The following is a summary of transactions by the Company during
the quarterly period commencing on May 1, 1999 and ending on July 31, 1999
involving issuance and sales of the Company's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act").
On or about June 16, 1999, the Company issued to one unaffiliated
investor an aggregate of 98,835 shares of the Company's Common Stock upon
conversion of 30 outstanding shares of the Company's 5% Adjustable
Convertible Class C Preferred Stock (the "Class C Stock") and upon the
exercise of outstanding warrants to purchase 47,962 shares of Common Stock
for total consideration of $31,435. Upon conversion of the 30 shares of
Class C Stock, the Company issued warrants to such investor to purchase up
to an aggregate of 12,718 shares of the Company's Common Stock at an
exercise price of $0.6554 per share, which warrants were exercised and
included in the total 47,962 warrants.
On various dates during the quarter ended July 31, 1999, the
Company issued an aggregate of 2,509,508 shares of the Company's common
Stock to the two institutional investors and the placement agent under the
Equity Line, for an aggregate purchase price of $2,250,000, pursuant to an
Equity Line draw and also issued warrants to the two institutional investors
and placement agent to purchase up to 250,948 shares of Common Stock, which
warrants are immediately exercisable on a cashless basis only and expire on
December 31, 2004.
28
<PAGE>
The following table provides specific information with respect to
securities of Techniclone sold (Put) to the two institutional investors and
the placement agent under the Equity Line during the quarter ended July 31,
1999:
<TABLE>
<CAPTION>
Shares of common Shares subject to Shares of Shares subject
stock issued to the warrants issued common stock to warrants
Institutional to the issued to the issued to the
Amount Investors Institutional Placement Agent Placement
Date Funded Investors Agent
- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
May 10, 1999 $ 337,500 551,020 (1) 55,101 (2) 55,102 5,510 (2)
June 2, 1999 $ 337,500 457,626 (3) 45,762 (4) 45,762 4,576 (4)
June 24, 1999 $ 1,575,000 1,272,726 (5) 127,272 (6) 127,272 12,727 (6)
----------------------
(1) Purchase price of $0.6125 per share. (4) Exercise price of $0.7375 per share.
(2) Exercise price of $0.6125 per share. (5) Purchase price of $1.2375 per share.
(3) Purchase price of $0.7375 per share. (6) Exercise price of $1.2375 per share.
</TABLE>
On July 15, 1999, the Company issued an aggregate of 179,485 shares
of the Company's Common Stock to the two institutional investors and
placement agent under the Equity Line, for no monetary consideration, as an
adjustment to the purchase price of one-half of the initial shares sold to
the two institutional investors in June 1998, pursuant to the terms of the
Equity Line.
On various dates during the quarter ended July 31, 1999, the
Company issued an aggregate of 6,411 shares of the Company's Common Stock to
one institutional investor upon the cashless exercise of 20,172 warrants
issued under the Equity Line.
Under the Equity Line, if the Company does not exercise the full
amount of its Put rights, then the Company will issue Commitment Warrants on
the first, second, and third anniversary of the Equity Line. The number of
Commitment Warrants to be issued on each anniversary date will be equal to
ten percent (10%) of the quotient of the difference of $6,666,666,
$13,333,333 and $20,000,000 (Commitment Amounts), respectively, less the
actual cumulative total dollar amount of Puts which have been exercised by
the Company prior to such anniversary date divided by the market price of
the Company's common stock. On June 24, 1999, the first anniversary date of
the agreement, the Company issued Commitment Warrants to purchase up to
17,721 shares of the Company's common stock at $1.50 per share, exercisable
on a cashless basis only.
The issuances of the securities of the Company in the above
transactions were deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2) thereof or Regulation D promulgated
thereunder, as a transaction by an issuer not involving a public offering.
The recipient of such securities either received adequate information about
the Company or had access, through employment or other relationships with
the Company, to such information.
29
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
------- --------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
------- ----------------------------------------------------
ITEM 5. OTHER INFORMATION. None.
------- ------------------
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
------- --------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
10.57 Patent License Agreement dated October 8,
1998 between Registrant and the Board of
Regents of the University of Texas System
for patents related to Targeting the
Vasculature of Solid Tumors (Vascular
Targeting Agent patents).
10.58 Patent License Agreement dated October 8,
1998 between Registrant and the Board of
Regents of the University of Texas System
for patents related to the Coagulation of
the Tumor Vasculature (Vascular Targeting
Agent patents).
10.59 License Agreement between Northwestern
University and Registrant dated August 4,
1999 covering the LYM-1 and LYM-2 antibodies
(Oncolym(R)).
27 Financial Data Schedule.
(b) Reports on Form 8-K: None.
30
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNICLONE CORPORATION
By: /s/ Steven C. Burke
---------------------------------
Chief Financial Officer (signed
both as an officer duly
authorized to sign on behalf of
the Registrant and principal
financial officer and chief
accounting officer)
31
<PAGE>
EXHIBIT 10.57
PATENT LICENSE AGREEMENT
BETWEEN UNIVERSITY OF TEXAS SYSTEM
AND
TECHNICLONE CORPORATION
THIS PATENT LICENSE AGREEMENT ("LICENSE AGREEMENT") is made by and
between the BOARD OF REGENTS (BOARD) OF THE UNIVERSITY OF TEXAS SYSTEM (SYSTEM),
an agency of the State of Texas, whose address is 201 West 7th Street, Austin,
Texas 78701 and TECHNICLONE CORPORATION (LICENSEE), a Delaware corporation,
having its a principal place of business located at 14282 Franklin Avenue,
Tustin, CA 92780.
WITNESSETH:
Whereas BOARD and IMPERIAL CANCER RESEARCH TECHNOLOGY, LTD. (ICRT)
jointly created certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED
SUBJECT MATTER, which were developed at The University of Texas Southwestern
Medical Center at Dallas (UT SOUTHWESTERN), located at 5323 Harry Hines
Boulevard, Dallas, Texas 75235, a component institution of SYSTEM, and ICRT;
Whereas ICRT has assigned the necessary rights in PATENT RIGHTS and TECHNOLOGY
RIGHTS to BOARD under an Inter-Institutional Intellectual Property Management
Agreement under which BOARD assumes ownership and all licensing responsibilities
for LICENSED SUBJECT MATTER;
Whereas pursuant to the Inter-Institutional Intellectual Property
Management Agreement, BOARD obtained ICRT's assent to the ICRT ASSIGNMENT (as
hereinafter defined);
<PAGE>
Whereas BOARD and Peregrine Pharmaceuticals, Inc. (PEREGRINE) entered
into a patent license agreement dated January 9, 1995 (1995 PATENT LICENSE
AGREEMENT) for LICENSED SUBJECT MATTER;
Whereas LICENSEE acquired PEREGRINE in April 1997, and, under Article
IX of 1995 PATENT LICENSE AGREEMENT, has obtained assignment of 1995 PATENT
LICENSE AGREEMENT from PEREGRINE;
Whereas BOARD and LICENSEE wish to terminate the 1995 PATENT LICENSE
AGREEMENT and enter into this LICENSE AGREEMENT simultaneously on the EFFECTIVE
DATE of this LICENSE AGREEMENT;
Whereas BOARD desires to have the LICENSED SUBJECT MATTER developed and
used for the benefit of LICENSEE, the INVENTORS (as hereinafter defined), BOARD,
UT SOUTHWESTERN, ICRT and the public as outlined in the Intellectual Property
Policy promulgated by the BOARD; and
Whereas LICENSEE wishes to obtain a license from BOARD to practice
LICENSED SUBJECT MATTER;
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto agree as follows:
ARTICLE I
TERMINATION OF 1995 PATENT LICENSE AGREEMENT
The parties mutually agree to terminate the 1995 PATENT LICENSE
AGREEMENT as of the EFFECTIVE DATE of this LICENSE AGREEMENT.
2
<PAGE>
ARTICLE II
EFFECTIVE DATE
This LICENSE AGREEMENT shall be effective as of the date the last party
executes this LICENSE AGREEMENT (EFFECTIVE DATE).
ARTICLE III
DEFINITIONS
As used in this LICENSE AGREEMENT, the following terms shall have the
meanings indicated:
3.1 COAGULATION PATENT LICENSE AGREEMENT shall mean that certain
COAGULATION PATENT LICENSE AGREEMENT dated as of even date herewith by and
between LICENSEE and BOARD pursuant to which BOARD has licensed the COAGULATION
PATENT RIGHTS to LICENSEE.
3.2 COAGULATION PATENT RIGHTS shall mean BOARD's rights in information
or discoveries covered by the patent applications listed in Appendix I, as well
as all divisions, continuations, and continuations-in-part arising from research
funded in whole or in part by LICENSEE, or previously by PEREGRINE, as well as
reissues, reexamination or extensions thereof.
3.3 COMMERCIAL INTRODUCTION shall mean the date of the first commercial
SALE of a LICENSED PRODUCT by LICENSEE or any sublicensee in any country.
3
<PAGE>
3.4 ICRT ASSIGNMENT shall mean that certain assignment executed by ICRT
in favor of SYSTEM pursuant to which ICRT assigned its rights in PATENT RIGHTS
and TECHNOLOGY RIGHTS to SYSTEM.
3.5 INVENTORS (or singly INVENTOR) shall mean Philip Thorpe, Francis
Burrows, Thomas Edgington, Steven W. King and Boning Gao.
3.6 LICENSED FIELD shall mean targeting compounds to or acting on tumor
vasculature or any other components of a tumor for therapeutic or diagnostic
use.
3.7 LICENSED PRODUCT shall mean any product SOLD by LICENSEE comprising
LICENSED SUBJECT MATTER pursuant to this LICENSE AGREEMENT.
3.8 LICENSED SUBJECT MATTER shall mean inventions and discoveries
covered by PATENT RIGHTS, LINKER PATENT RIGHTS, LINKER TECHNOLOGY RIGHTS, or
TECHNOLOGY RIGHTS within the LICENSED FIELD.
3.9 LICENSED TERRITORY shall mean the world.
3.10 LINKER PATENT RIGHTS shall mean BOARD's rights in information or
discoveries covered by the patents listed in Appendix II which relate to the
LICENSED FIELD, as well as reissues, reexaminations or extensions thereof.
3.11 LINKER TECHNOLOGY RIGHTS shall mean BOARD's rights in any
technical information, know-how, process, procedure, composition, device,
method, formula, protocol, technique, software design, drawing, data, biological
and other materials developed by Philip Thorpe at UT SOUTHWESTERN and which are
useful in targeting therapeutic and diagnostic compounds to tumor vasculature in
humans and which are not covered by LINKER PATENT RIGHTS but which are necessary
or useful for practicing any inventions at any time covered by LINKER PATENT
RIGHTS.
4
<PAGE>
3.12 NET SALES shall mean the gross revenues received by LICENSEE from
the SALE of LICENSED PRODUCTS less sales and/or use taxes actually paid, import
and/or export duties actually paid, outbound transportation prepaid or allowed,
and amounts allowed or credited due to returns (not to exceed the original
billing or invoice amount).
3.13 PATENT RIGHTS shall mean BOARD's rights in information or
discoveries covered by the patents and/or patent applications listed in Appendix
III, whether domestic or foreign, as well as all divisions, continuations and
continuations-in-part arising from research funded in whole or in part by
LICENSEE, or previously by PEREGRINE, as well as any reissues, reexaminations or
extensions thereof. Notwithstanding anything to the contrary in this Section
3.13, it is hereby acknowledged and agreed that PATENT RIGHTS for purposes of
this LICENSE AGREEMENT do not include BOARD's rights in COAGULATION PATENT
RIGHTS, which are licensed to LICENSEE under the COAGULATION PATENT LICENSE
AGREEMENT executed by LICENSEE and BOARD concurrently with the execution of this
LICENSE AGREEMENT.
3.14 PHASE I TRIAL INITIATION shall mean the commencement of a Phase I
Clinical Trial on a LICENSED PRODUCT.
5
<PAGE>
3.15 PHASE II TRIAL COMPLETION shall mean the submission to the US Food
and Drug Administration (FDA) of the final data resulting from completion of a
Phase II Clinical Trial on a LICENSED PRODUCT.
3.16 SALE, SELL or SOLD shall mean the transfer or disposition of a
LICENSED PRODUCT for value to a party other than LICENSEE or a SUBSIDIARY.
3.17 SUBLICENSEE GROSS REVENUES shall mean the gross revenues and other
consideration received by LICENSEE from any sublicensees of LICENSEE
incorporating LICENSED SUBJECT MATTER, excluding (a) payments made by any
sublicensee in consideration for the issuance of equity or debt securities of
LICENSEE, (b) payments made by any sublicensee to support or fund research
activities to be undertaken by LICENSEE, (c) up-front payments made in
consideration or recognition of prior research and development efforts
undertaken by LICENSEE, and (d) payments made by any sublicensee upon the
achievement of specified milestones or benchmarks relating to the development of
the LICENSED PRODUCTS sublicensed to sublicensee, other than royalty payments.
Notwithstanding subpart (d) above, if the royalty rate charged by LICENSEE for
sublicensing any LICENSED PRODUCT is less than four percent (4%), then the
parties will mutually agree to an equitable sharing arrangement with respect to
license fee, milestone, benchmark or other payments. If non-monetary
consideration is so received, then a commercially reasonable monetary value will
be assigned for purposes of calculating BOARD's share of SUBLICENSEE GROSS
REVENUES.
3.18 SUBSIDIARY shall mean any business entity more than fifty percent
(50%) owned by LICENSEE, any business entity which owns more than fifty percent
(50%) of LICENSEE, or any business entity that is more than fifty percent (50%)
owned by a business entity that owns more than fifty percent (50%) of LICENSEE.
6
<PAGE>
3.19 TECHNOLOGY RIGHTS shall mean BOARD's rights in any technical
information, know-how, process, procedure, composition, device, method, formula,
protocol, technique, software, design, drawing, data, biological and other
materials developed by Philip Thorpe at UT SOUTHWESTERN and which are useful in
targeting therapeutic and diagnostic compounds to tumor vasculature in humans
and which are not covered by PATENT RIGHTS but which are necessary or useful for
practicing any inventions at any time covered by PATENT RIGHTS.
ARTICLE IV
WARRANTY; SUPERIOR-RIGHTS
4.1 Except for the rights, if any, of the third parties described in
Section 4.3 and Exhibit A attached hereto, BOARD represents and warrants that it
is the owner of the entire right, title, and interest in and to the LICENSED
SUBJECT MATTER and that it has the sole right to grant licenses thereunder, and
that it has not granted licenses thereunder to any other entity that would
restrict rights granted hereunder except as stated herein.
4.2 BOARD hereby represents and warrants that Appendix II and Appendix
III list the patents and patent applications in the LICENSED FIELD to which the
BOARD has rights and which arise from work at UT SOUTHWESTERN involving Philip
Thorpe (other than patents and patent applications covered by COAGULATION PATENT
RIGHTS), and that each of the patent applications listed in Appendix II and
Appendix III was duly filed in the United States on the date indicated therein
or was duly filed in such foreign jurisdictions as are listed in Appendix III on
the dates indicated therein.
7
<PAGE>
4.3 LICENSEE understands that the LICENSED SUBJECT MATTER has been
developed under the funding agreements with the third parties listed on Exhibit
A attached hereto and that such parties have the rights relative thereto
specified in such Exhibit A. This LICENSE AGREEMENT is explicitly made subject
to the rights of such parties, which are described in Exhibit A. To the extent
that there is a conflict between the rights set forth on Exhibit A and this
LICENSE AGREEMENT, the rights set forth on Exhibit A prevail.
ARTICLE V
LICENSE
5.1 BOARD hereby grants to LICENSEE a royalty-bearing, exclusive
license under both PATENT RIGHTS and TECHNOLOGY RIGHTS to manufacture, have
manufactured, use, and/or SELL LICENSED PRODUCTS within LICENSED TERRITORY for
use within LICENSED FIELD. BOARD also hereby grants to LICENSEE a
royalty-bearing, exclusive license under LINKER PATENT RIGHTS and LINKER
TECHNOLOGY RIGHTS to manufacture, have manufactured, use, and/or SELL LICENSED
PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD, with the
exception of those uses related to immunotoxins directed against neoplastic
cells, in which case the license granted to LICENSEE herein shall be
non-exclusive. These grants shall be subject to the payment by LICENSEE to BOARD
of all consideration as provided in this LICENSE AGREEMENT, and shall be further
subject to rights retained by BOARD and ICRT to:
8
<PAGE>
5.1.1 Publish the general scientific findings from research related
to LICENSED SUBJECT MATTER; provided, that, in order to avoid possible loss of
rights in the PATENT RIGHTS, BOARD hereby agrees to submit any materials
relating to a planned publication to LICENSEE at least sixty (60) days prior to
the date of planned submission for publication. If, within thirty (30) days of
receipt of such materials, LICENSEE notifies BOARD that it desires to file
patent applications pertaining to any inventions contained in such materials,
BOARD shall defer publication or other disclosure for an additional period, not
to exceed ninety (90) days, sufficient to permit such desired patent
applications to be filed.
5.1.2 Use LICENSED SUBJECT MATTER for research, teaching and other
educationally-related purposes at any institution within the SYSTEM.
5.2 BOARD hereby also grants to LICENSEE a first option to obtain a
royalty bearing exclusive license to any inventions in the LICENSED FIELD which
arise from work funded by LICENSEE, or previously by PEREGRINE, in which
INVENTORS, singly or jointly, participate while affiliated with UT SOUTHWESTERN
and which have applications in the LICENSED FIELD (collectively,
"IMPROVEMENTS"). The option for any such IMPROVEMENTS shall extend for a period
of ninety (90) days from the date LICENSEE receives written notice from BOARD
disclosing such IMPROVEMENTS. During such ninety (90) day period, BOARD shall
reasonably make available to LICENSEE any other information in its possession or
control which would be useful to LICENSEE in evaluating the IMPROVEMENT, subject
to such reasonable confidentiality undertakings as BOARD shall require. LICENSEE
may exercise its option by informing BOARD in writing during such ninety (90)
day period that it intends to commercialize the IMPROVEMENT as soon as
9
<PAGE>
practicable, consistent with sound and reasonable business practice and
judgment. Upon exercise of LICENSEE's option, such IMPROVEMENT shall become
subject to the terms and conditions of this LICENSE AGREEMENT. In the event that
LICENSEE fails to exercise its option with respect to any IMPROVEMENT as
provided herein, BOARD shall have the right to enter into license agreements
concerning such IMPROVEMENT with third parties provided that the terms and
conditions thereof are not more favorable than those terms and conditions
provided under this LICENSE AGREEMENT unless BOARD has offered the new terms and
conditions to LICENSEE and LICENSEE has refused to accept them.
5.3 BOARD hereby also grants to LICENSEE a first option to negotiate
and acquire an exclusive, worldwide, royalty-bearing license to any inventions
outside the LICENSED FIELD which arise from work funded by LICENSEE in which
INVENTORS, singly or jointly, participate while affiliated with UT SOUTHWESTERN.
The option for any such inventions shall extend for a period of ninety (90) days
from the date LICENSEE receives written notice from BOARD disclosing such
invention. LICENSEE may exercise its option by informing BOARD in writing during
such ninety (90) day period that it intends to commercialize the invention as
soon as practicable, consistent with sound and reasonable business judgment.
Upon exercise of LICENSEE's option, BOARD and LICENSEE shall enter into good
faith negotiations regarding the terms and conditions of said license and
further agree to negotiate license rates and other payments which are fair and
reasonable to both parties. If BOARD and LICENSEE are unable to agree on the
terms of a license within ninety (90) days following the exercise of LICENSEE's
option, BOARD shall have the right to enter into license agreements concerning
the invention with third parties; provided, however, such licensing agreements
shall be on terms no less favorable to BOARD than BOARD's final offer to
LICENSEE, unless BOARD has offered the new terms and conditions to LICENSEE and
LICENSEE has refused to accept them.
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5.4 LICENSEE shall have the right to extend the license granted herein
to any SUBSIDIARY provided that such SUBSIDIARY consents to be bound by this
LICENSE AGREEMENT to the same extent as LICENSEE.
5.5 LICENSEE shall have the right to grant sublicenses in accordance
with the terms and conditions of this LICENSE AGREEMENT. LICENSEE agrees to
deliver to BOARD a true and correct copy of each sublicense granted by LICENSEE,
and any modification or termination thereof, within thirty (30) days after
execution, modification, or termination. If any sublicensee fails to pay any
royalty payment to LICENSEE on the date provided in such sublicense, LICENSEE
shall, within thirty (30) days of such scheduled payment date, take steps to
require such sublicensee to cure such default. If such default is not cured by
such sublicensee within an additional ninety (90) day period, LICENSEE shall
terminate such sublicense. If LICENSEE fails to terminate any sublicense as
provided herein, LICENSEE shall be responsible for the payment of royalties owed
by such sublicensee under this LICENSE AGREEMENT whether or not paid to LICENSEE
by such sublicensee. Upon termination of this LICENSE AGREEMENT, any and all
existing sublicenses granted by LICENSEE shall be assigned to BOARD.
5.6 BOARD shall have the right at any time after five (5) years from
the EFFECTIVE DATE of this LICENSE AGREEMENT, to terminate the exclusivity of
the license granted herein in any national jurisdiction within LICENSED
TERRITORY if LICENSEE, within ninety (90) days after written notice from BOARD
as to such intended termination of exclusivity, fails to provide written
evidence that it has commercialized or is actively attempting to commercialize
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an invention licensed hereunder within such jurisdiction. BOARD agrees to
negotiate in good faith with LICENSEE for adjusting terms under such a
non-exclusive arrangement. BOARD shall have the right at any time after seven
(7) years from the EFFECTIVE DATE of this LICENSE AGREEMENT to terminate the
license completely in any national jurisdiction if LICENSEE, within ninety (90)
days after written notice from BOARD of such intended termination, fails to
provide written evidence that it has commercialized or is actively attempting to
commercialize an invention licensed hereunder within such jurisdiction. Evidence
provided by LICENSEE that it has an ongoing and active research, development,
manufacturing, marketing or licensing program as appropriate, directed toward
production and SALE of products based on PATENT RIGHTS, LINKER PATENT RIGHTS,
TECHNOLOGY RIGHTS or LINKER TECHNOLOGY RIGHTS within such jurisdiction shall be
deemed satisfactory evidence.
ARTICLE VI
PAYMENTS AND REPORTS
6.1 Subject to Section 6.1.7 of this LICENSE AGREEMENT, in
consideration of rights granted by BOARD to LICENSEE under this LICENSE
AGREEMENT, LICENSEE agrees to pay BOARD the following:
6.1.1 A PHASE II TRIAL COMPLETION milestone payment of One Hundred
Thousand Dollars ($100,000) payable within thirty (30) days of the earlier of
(a) February 1, 2001 or
(b) Phase II Trial Completion.
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6.1.2 A milestone payment for COMMERCIAL INTRODUCTION of each
LICENSED PRODUCT in the amount of Three Hundred Thousand Dollars ($300,000)
payable to BOARD within thirty (30) days of COMMERCIAL INTRODUCTION of the
LICENSED PRODUCT. All COMMERCIAL INTRODUCTION milestone payments shall be
credited against royalty payments due under Section 6.1 on a LICENSED
PRODUCT-by-LICENSED PRODUCT basis.
6.1.3 A running earned royalty equal to four percent (4%) of NET
SALES of LICENSED PRODUCTS incorporating PATENT RIGHTS or LINKER PATENT RIGHTS.
In the event any LICENSED PRODUCT incorporating PATENT RIGHTS or LINKER PATENT
RIGHTS is SOLD as a component of a combination of active elements, NET SALES for
purposes of determining royalty payments on such combination shall be calculated
by multiplying NET SALES of such combination by the fraction A over A+B, in
which "A" is the gross selling price of the LICENSED PRODUCT portion of the
combination when SOLD separately during the accounting period in which the SALE
was made, and "B" is the gross selling price of the non-LICENSED PRODUCT portion
of the combination SOLD separately during the accounting period in question. In
the event that no separate SALE of either such above-designated LICENSED PRODUCT
or such above-designated non-LICENSED PRODUCT portion of the combination is made
during the accounting period in which the SALE was made, NET SALES shall be
calculated by multiplying NET SALES of such combination by the fraction C over
C+D, in which "C" is the standard fully-absorbed cost of the LICENSED PRODUCT
portion of such combination, and "D" is the standard fully absorbed cost of the
other component(s), such costs being arrived at using the standard accounting
procedures of LICENSEE which will be in accord with generally accepted
accounting practices. Notwithstanding the foregoing, under no circumstances
shall the royalty provided for in this Section 6.l.3 be reduced to less than two
percent (2%) of NET SALES of LICENSED PRODUCTS incorporating PATENT RIGHTS or
LINKER PATENT RIGHTS. No royalties shall be payable to BOARD under this Section
6.1.3 with respect to SALES for which a royalty has been paid under the
COAGULATION PATENT LICENSE AGREEMENT.
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6.1.4 A running earned royalty equal to one percent (1 %) of NET
SALES of LICENSED PRODUCTS covered by TECHNOLOGY RIGHTS or LINKER TECHNOLOGY
RIGHTS only. No royalty shall be payable to BOARD under this Section 6.l.4 with
respect to SALES for which a royalty has been paid under Section 6.l.3 or under
the COAGULATION PATENT LICENSE AGREEMENT.
6.1.5 Twenty percent (20%) of the SUBLICENSEE GROSS REVENUES of
SALES of LICENSED PRODUCTS; provided, however, if a LICENSED PRODUCT is
sublicensed and incorporates technology not covered by PATENT RIGHTS or LINKER
PATENT RIGHTS, the running royalty to be paid under this Section 6.1.5 shall be
reduced to ten percent (10%) of SUBLICENSEE GROSS REVENUES of SALES of LICENSED
PRODUCTS. In the event any LICENSED PRODUCT incorporating PATENT RIGHTS or
LINKER PATENT RIGHTS is sublicensed as a component of a combination of active
elements, SUBLICENSEE GROSS REVENUES of SALES of LICENSED PRODUCTS for purposes
of determining royalty payments on such combination shall be calculated by
multiplying SUBLICENSEE GROSS REVENUES of SALES of LICENSED PRODUCTS of such
combination by the fraction A over A+B, in which "A" is the gross selling price
of the LICENSED PRODUCT portion of the combination when SOLD separately during
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the accounting period in which the SALE was made, and "B" is the gross selling
price of the non-LICENSED PRODUCT portion of the combination SOLD separately
during the accounting period in question. In the event that no separate SALE of
either such above-designated LICENSED PRODUCT or such above-designated
non-LICENSED PRODUCT portion of the combination is made during the accounting
period in which the SALE was made, SUBLICENSEE GROSS REVENUES of SALES of
LICENSED PRODUCTS shall be calculated by multiplying SUBLICENSEE GROSS REVENUES
of SALES of LICENSED PRODUCTS of such combination by the fraction C over C+D, in
which "C" is the standard fully-absorbed cost of the LICENSED PRODUCT portion of
such combination, and "D" is the standard fully absorbed cost of the other
component(s), such costs being arrived at using the standard accounting
procedures of LICENSEE which will be in accord with generally accepted
accounting practices. Notwithstanding the foregoing, under no circumstances
shall the royalty provided for in this Section 6.1.5 be reduced to less than ten
percent (10%) of SUBLICENSEE GROSS REVENUES of SALES of LICENSED PRODUCTS
incorporating PATENT RIGHTS or LINKER PATENT RIGHTS. No royalties shall be
payable to BOARD under this Section 6.1.5 with respect to SALES for which a
royalty has been paid under the COAGULATION PATENT LICENSE AGREEMENT.
6.1.6 The parties hereto agree that if economic or political
conditions change sufficiently so as to affect the continued applicability of
the assumptions made in negotiating the dates of the milestone payments agreed
to in Section 6.1, they will negotiate in good faith a reasonable extension of
the dates of such milestone payments in accordance with such changed economic or
political conditions.
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6.1.7 Notwithstanding anything to the contrary in this LICENSE
AGREEMENT, it is hereby acknowledged and agreed by the parties hereto that (i)
the amount payable by LICENSEE pursuant to Section 6.1.1 of this LICENSE
AGREEMENT is a one-time license fee payable by LICENSEE only with respect to the
first LICENSED PRODUCT of LICENSEE and (ii) no amounts shall be paid by LICENSEE
pursuant to such Sections to the extent that such payments have been made by
LICENSEE under the COAGULATION PATENT LICENSE AGREEMENT.
6.2 During the term of this LICENSE AGREEMENT and for one (1) year
thereafter, LICENSEE shall keep complete and accurate records of its SALES and
NET SALES of LICENSED PRODUCTS and all SUBLICENSEE GROSS REVENUES received by
LICENSEE under the license granted in this LICENSE AGREEMENT in sufficient
detail to enable the royalties payable hereunder to be determined. LICENSEE
shall permit BOARD or its representatives, at BOARD's expense, to periodically
examine its books, ledgers, and records during regular business hours for the
purposes of and to the extent necessary to verify any report required under this
LICENSE AGREEMENT. If any such inspection reveals that the aggregate of
royalties paid during any four (4) consecutive calendar quarters was less than
the amount that should have been paid under this LICENSE AGREEMENT, LICENSEE
shall remit to BOARD the amount of such deficiency; provided, that, if such
deficiency is more than five percent (5%) of the amount that should have been
paid, LICENSEE shall remit to BOARD, in addition to the amount of such
deficiency, the reasonable expenses of the inspection conducted by BOARD. If
LICENSEE or BOARD disputes any deficiency or expenses provided in this Section
6.2 the dispute shall be referred to an independent accountant selected by
mutual agreement of BOARD and LICENSEE, whose decision will be binding and final
on the parties hereto. If a decision is entered against LICENSEE by such
independent accountant for the amount of such deficiency or expenses, LICENSEE
agrees to remit to BOARD, in addition to any other amounts provided for in this
Section 6.2, accrued interest on such deficiency through the date of such
decision at the highest allowable rate.
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6.3 Within forty-five (45) days after March 31, June 30, September 30,
and December 31 of each year, LICENSEE shall deliver to BOARD a true and
accurate report which shall describe (a) the quantities of LICENSED SUBJECT
MATTER that it has produced; (b) the total SALES; (c) the calculation of
royalties thereon; and (d) the total royalties so computed and due.
Simultaneously with the delivery of each such report, LICENSEE shall pay to
BOARD the amount, if any, due for the period covered by such report. If no
payments are due, it shall be so reported.
6.4 Upon the request of BOARD but not more often than once per calendar
year, LICENSEE shall deliver to BOARD a written report as to LICENSEE's efforts
and accomplishments during the preceding year in commercializing LICENSED
SUBJECT MATTER in various parts of the LICENSED TERRITORY and its
commercialization plans for the upcoming year.
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6.5 All amounts payable hereunder by LICENSEE shall be payable in
United States funds without deductions for taxes, assessments, fees, or charges
of any kind. Checks shall be made payable to UT SOUTHWESTERN and sent to:
U.T. Southwestern Medical Center
Office for Technology Development
5323 Harry Hines Boulevard
Dallas, Texas 75235-9094
Attn: Ray Wheatley
ARTICLE VII
TERM AND TERMINATION
7.1 The Term of this LICENSE AGREEMENT shall extend from the EFFECTIVE
DATE set forth hereinabove to the full end of the term or terms for which PATENT
RIGHTS or LINKER PATENT RIGHTS have not expired or if only TECHNOLOGY RIGHTS or
LINKER TECHNOLOGY RIGHTS are licensed and no PATENT RIGHTS or LINKER PATENT
RIGHTS are applicable, then, on a per-product basis, (i) with respect to
LICENSED PRODUCTS which have an FDA-approved therapeutic indication for humans,
for a term of seven (7) years from the date of COMMERCIAL INTRODUCTION of any
such product and (ii) with respect to LICENSED PRODUCTS which have an
FDA-approved diagnostic indication for humans, for a term of seven (7) years
from the date of COMMERCIAL INTRODUCTION of such product.
7.2 This LICENSE AGREEMENT will earlier terminate:
7.2.1 upon thirty (30) days written notice if LICENSEE shall
default in its obligation to make payments, if any are due, in accordance with
Article VI or Article XIV hereunder; provided, however, LICENSEE may avoid such
termination if before the end of such notice period LICENSEE cures its default;
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7.2.2 automatically if LICENSEE shall become bankrupt or insolvent
and/or if the business of LICENSEE shall be placed in the hands of a receiver,
assignee, or trustee, whether by voluntary act or LICENSEE or otherwise;
7.2.3 upon ninety (90) days written notice if LICENSEE shall breach
or default on any obligation under this LICENSE AGREEMENT except as provided in
Article VI or Article XIV; provided, however, LICENSEE may avoid such
termination if before the end of such period LICENSEE notifies BOARD that such
breach has been cured, states the manner of such cure and in fact the breach has
been cured; or
7.2.4 Under the provisions of Section 5.6 if invoked.
7.3 Upon termination of this LICENSE AGREEMENT for any cause, nothing
herein shall be construed to release either party of any obligation matured
prior to the effective date of such termination. LICENSEE may, after the
effective date of such termination, SELL all LICENSED PRODUCT and parts therefor
that it may have on hand at the date of termination, provided that it pays
running royalty earned thereon as provided in this LICENSE AGREEMENT.
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ARTICLE VIII
INFRINGEMENT BY THIRD PARTIES
8.1 Each party shall inform the other promptly in writing of any
alleged infringement of the PATENT RIGHTS or LINKER PATENT RIGHTS by a third
party, including all details then available. LICENSEE shall have the right, but
shall not be obligated, to prosecute at its own expense any such infringements,
and BOARD agrees that LICENSEE may join BOARD as a plaintiff at the expense of
LICENSEE. In any infringement action commenced or defended solely by LICENSEE,
all expenses and all recovery for infringement shall be those of LICENSEE. In
any such action by LICENSEE, BOARD shall be entitled to receive an amount equal
to the applicable royalties on any recovery of profits and damages that is in
excess of LICENSEE's reasonable costs and expenses, including, but not limited
to actual costs and expenses paid non-affiliated accountants, lawyers and
consultants. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without BOARD's consent, which
consent shall not be unreasonably withheld, delayed or conditioned.
8.2 If LICENSEE has not commenced legal action or been successful in
obtaining cessation of the infringement within ninety (90) days of written
notification from BOARD of such infringement, or if LICENSEE elects not to
continue prosecuting any legal action against an infringer, BOARD shall have the
right, but shall not be obligated, to prosecute at its own expense any such
infringement. BOARD may join LICENSEE as a plaintiff in any such infringement
suit at BOARD's expense. No settlement, consent judgment or other voluntary
final disposition of the suit may be entered into without LICENSEE's consent,
which consent shall not be unreasonably withheld, delayed or conditioned.
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8.3 In the event that LICENSEE and/or BOARD do not file suit against,
conclude settlement negotiations with, or grant a license to a substantial
infringer of PATENT RIGHTS or LINKER PATENT RIGHTS within one (1) year of
knowledge thereof, then the parties will consult with one another in an effort
to determine whether a reasonably prudent licensee would institute litigation,
conclude settlement negotiations, and/or grant a license within the one (1) year
time period described above in order to enforce the patent in question in light
of all relevant business and economic factors (including, but not limited to,
the projected cost of such litigation, the likelihood of success on the merits,
the probable amount of any damage award, the prospects for satisfaction of any
judgment against the alleged infringer, the possibility of counterclaims against
LICENSEE and BOARD, the diversion of LICENSEE's human and economic resources,
the impact of any possible adverse outcome on LICENSEE, and the effect any
publicity might have on the respective reputations and goodwill of the parties).
If after such consultation, the parties have not reached agreement and LICENSEE
does not forthwith file suit against, enter into settlement negotiations with or
grant a license to the substantial infringer, then BOARD shall have the right to
enforce any PATENT RIGHT or LINKER PATENT RIGHT, licensed hereunder on behalf of
itself and LICENSEE (BOARD retaining all recoveries from such enforcement), and
BOARD shall have the right to reduce the license granted hereunder to
nonexclusive in the national jurisdiction in which suit is brought.
8.4 In any infringement suit that either party brings to enforce the
PATENT RIGHTS or LINKER PATENT RIGHTS, the other party shall at the request and
expense of the party bringing the suit, cooperate in all reasonable respects,
including, to the extent possible, obtaining the testimony of its employees and
agents and making available physical evidence in the possession of that party.
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ARTICLE IX
ASSIGNMENT
This LICENSE AGREEMENT shall not be assignable or otherwise
transferable by LICENSEE without the prior written consent of BOARD, which
consent shall not be unreasonably withheld, except that LICENSEE may assign or
otherwise transfer its rights under this LICENSE AGREEMENT to the following
parties without obtaining BOARD's consent: (i) a successor to LICENSEE's
business, or a successor to that portion of LICENSEE's business that pertains to
the subject matter of the PATENT RIGHTS or LINKER PATENT RIGHTS or any
TECHNOLOGY RIGHTS or LINKER TECHNOLOGY RIGHTS, and (ii) any entities controlled
by, controlling, or under common control with LICENSEE.
ARTICLE X
PATENT MARKING
LICENSEE agrees to mark permanently and legibly all products and
documentation manufactured or sold by it under this LICENSE AGREEMENT with such
patent notice as may be permitted or required under Title 35, United States
Code.
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ARTICLE XI
INDEMNIFICATION
LICENSEE shall hold harmless and indemnify BOARD, INVENTORS, SYSTEM, UT
SOUTHWESTERN, ICRT, and their respective Regents, officers, employees and agents
(each, an "INDEMNITEE") from and against any liability, loss or damage they may
suffer as a result of claims, demands, or causes of action whatsoever, including
without limitation those arising on account of any injury or death of persons or
damage to property caused by, or arising out of or resulting from, the exercise
or practice of the license granted hereunder by LICENSEE or its officers,
employees, agents or representatives; provided, however, that LICENSEE shall not
be required to indemnify or hold harmless any INDEMNITEE, from any losses or
claims attributable to any infringement or alleged infringement of patents,
technology, trade secrets, or confidential or proprietary know-how or
information of third parties by the PATENT RIGHTS or LINKER PATENT RIGHTS or the
TECHNOLOGY RIGHTS or LINKER TECHNOLOGY RIGHTS. Except as otherwise provided in
this LICENSE AGREEMENT, the obligations of LICENSEE under this Section shall
apply in full force whether or not the claims and any losses resulted, or are
alleged to have resulted, in whole or in part from the acts or omissions of any
INDEMNITEE; PROVIDED, HOWEVER, that the foregoing indemnity shall not apply to
any claims or losses arising out of any act or omission constituting gross
negligence, willful malfeasance, misconduct or bad faith of any INDEMNITEE.
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ARTICLE XII
USE OF NAME
LICENSEE shall not use the name of UT SOUTHWESTERN, INVENTORS, SYSTEM,
BOARD, ICRT or their respective Regents in any advertising, promotional or sales
literature, or in any other form of publicity without prior written consent
obtained from each such party in each case. The foregoing notwithstanding,
LICENSEE shall have the right to identify such parties and to disclose the terms
of this LICENSE AGREEMENT in any prospectus, offering memorandum or other
document or filing required by applicable securities laws or other applicable
law or regulation, provided that LICENSEE shall have given each such affected
party at least ten (10) business days prior written notice of the proposed text
of any such identification or disclosure for the purpose of giving each such
affected party the opportunity to comment on and suggest amendments to such
proposed text.
ARTICLE XIII
CONFIDENTIAL INFORMATION
13.1 BOARD and LICENSEE each agree that all information contained in
documents marked "confidential" which are forwarded to one by the other shall be
received in strict confidence, used only for the purposes of this LICENSE
AGREEMENT, and not disclosed by the recipient party (except as required by law
or court order), its agents or employees without the prior written consent of
the other party, unless such information (a) was in the public domain at the
time of disclosure, (b) later became part of the public domain through no act or
omission of the recipient party, its employees, agents, successors or assigns,
(c) was lawfully disclosed to the recipient party by a third party having the
right to disclose it, (d) was already known by the recipient party at the time
of disclosure, (e) was independently developed or (f) is required by law or
regulation to be disclosed.
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13.2 Each party's obligation of confidence hereunder shall be fulfilled
by using at least the same degree of care with the other party's confidential
information as it uses to protect its own confidential information. This
obligation shall exist while this LICENSE AGREEMENT is in force and for a period
of three (3) years thereafter.
ARTICLE XIV
PATENT AND INVENTIONS
14.1 UT SOUTHWESTERN shall be responsible for the preparation, filing,
prosecution and maintenance of all patent applications and patents included in
PATENT RIGHTS and LINKER PATENT RIGHTS. LICENSEE shall reimburse UT SOUTHWESTERN
for all reasonable attorneys' fees (i) incurred by UT SOUTHWESTERN subsequent to
the EFFECTIVE DATE, or (ii) incurred by UT SOUTHWESTERN prior to the EFFECTIVE
DATE and for which invoices have been submitted to LICENSEE in connection with
the preparation, filing and maintenance of all patent applications and patents
included in PATENT RIGHTS and LINKER PATENT RIGHTS; provided that patent counsel
selected by UT SOUTHWESTERN is reasonably acceptable to LICENSEE. Subsequent to
the EFFECTIVE DATE, UT SOUTHWESTERN shall consult with LICENSEE as to the
preparation, filing, prosecution and maintenance of all such patent applications
and patents in accordance with the procedures set forth on Exhibit B hereto and
incorporated herein by reference, and shall furnish to LICENSEE copies of
documents relevant to such preparation, filing, prosecution or maintenance,
including without limitation invoices providing detailed descriptions of all
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costs and expenses incurred by UT SOUTHWESTERN's patent counsel in connection
therewith, sufficiently prior to filing such documents or making any payment due
thereunder to allow for review and comment by LICENSEE. If, at any time,
LICENSEE shall elect not to pay the expenses of any patent application or patent
included in PATENT RIGHTS or LINKER PATENT RIGHTS, LICENSEE shall so notify UT
SOUTHWESTERN within thirty (30) days of such consultation and shall thereby
surrender its rights under such patent application or patent; provided, however,
that LICENSEE shall remain obligated to reimburse UT SOUTHWESTERN for any costs
incurred with respect to such patent application or patents prior to said
election.
14.2 At any time during the term of this LICENSE AGREEMENT, LICENSEE
may petition BOARD in writing to transfer prosecution or maintenance of any
PATENT RIGHTS licensed hereunder to another law firm. Such petition shall state
LICENSEE's reason(s) for its desire to transfer prosecution or maintenance to
another law firm and include information about the law firm and individual
patent attorneys, patent agents, and/or scientific advisors that may be assigned
to the files by the patent firm. BOARD shall first seek to meet the needs of
LICENSEE through meeting with existing patent counsel. If the petition is
granted by BOARD, LICENSEE or outside counsel shall provide BOARD and UT
SOUTHWESTERN with copies of all documents received or filed during prosecution
and/or maintenance thereof in a timely manner. In any event, LICENSEE shall
consult UT SOUTHWESTERN prior to abandonment of any claims of any patent
application for LICENSED SUBJECT MATTER at least sixty (60) days prior to
abandonment.
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ARTICLE XV
GENERAL
15.1 This LICENSE AGREEMENT and the Exhibits and Appendices attached
hereto constitute the entire and only agreement between the parties for LICENSED
SUBJECT MATTER and all other prior negotiations, representations, agreements,
and understandings are superseded hereby. No agreements altering or
supplementing the terms hereof may be made except by means of a written document
signed by the duly authorized representatives of the parties.
15.2 Any notice required by this LICENSE AGREEMENT shall be given by
facsimile and confirmed by overnight delivery service, addressed in the case of
BOARD to:
BOARD OF REGENTS
The University of Texas System
201 West Seventh Street
Austin, Texas 78701
ATTENTION: Office of General Counsel
Telephone: 512/499-4462
Facsimile: 512/499-4523
with copies to:
UT SOUTHWESTERN
Peter H. Fitzgerald, Ph.D.
Executive Vice President for Business Affairs
5323 Harry Hines Boulevard
Dallas, TX 75235-9013
Telephone: 214/648-3572
Facsimile: 214/648-3944
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and
UT SOUTHWESTERN
Ray Wheatley
Director, Technology Development
Office for Technology Development
6000 Harry Hines Boulevard, Room NB2.200
Dallas, Texas 75235-9094
Telephone: 214/648-1888
Facsimile: 214/648-1889
or in the case of LICENSEE to:
TECHNICLONE CORPORATION
14282 Franklin Avenue
Tustin, CA 92780
ATTENTION: John N. Bonfiglio, Ph.D.
Telephone: 949/508-6000
Facsimile: 949/838-4094
with copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
ATTENTION: R.C. Shepard
Telephone: 949/725-4000
Facsimile: 949/725-4100
or such other address as may be given from time to time under the terms of this
notice provision.
15.3 LICENSEE shall comply with all applicable federal, state and local
laws, regulations, and ordinances in connection with its activities pursuant to
this LICENSE AGREEMENT.
15.4 This LICENSE AGREEMENT shall be construed and enforced in
accordance with the laws of the United States of America and of the State of
Texas.
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15.5 Failure of BOARD to enforce a right under this LICENSE AGREEMENT
shall not act as a waiver of that right or the ability to later assert that
right relative to the particular situation involved.
15.6 Headings included herein are for convenience only and shall not be
used to construe this LICENSE AGREEMENT.
15.7 If any provision of this LICENSE AGREEMENT shall be found by a
court to be void, invalid or unenforceable, the same shall be reformed to comply
with applicable law or stricken if no so conformable, so as not to affect the
validity or enforceability of this LICENSE AGREEMENT.
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IN WITNESS WHEREOF, parties hereto have caused their duly authorized
representative to execute this LICENSE AGREEMENT.
BOARD OF REGENTS OF THE TECHNICLONE CORPORATION
UNIVERSITY OF TEXAS SYSTEM
By: /s/ Peter H. Fitzgerald, Ph.D. By: /s/ John N. Bonfiglio, Ph.D.
------------------------------------ ----------------------------
Peter H. Fitzgerald, Ph.D. John N. Bonfiglio, Ph.D.
Executive Vice President for Business Vice President,
Affairs Business Development
UT Southwestern Medical Center at Dallas
Date: OCT-8 1998 Date: 9/8/98
------------------------------------ ----------------------------
APPROVED AS TO FORM:
By: /s/ BethLynn Maxwell, Ph.D., J.D.
------------------------------------
BethLynn Maxwell, Ph.D., J.D.
Office of General Counsel
Date: 11 Sept., 98
------------------------------------
APPROVED AS TO CONTENT:
UT SOUTHWESTERN
By: /s/ Dennis K. Stone, M.D.
------------------------------------
Dennis K. Stone, M.D.
Vice President for Technology Development
Date: Sept. 17, 1998
------------------------------------
30
EXHIBIT 10.58
COAGULATION PATENT LICENSE AGREEMENT
BETWEEN UNIVERSITY OF TEXAS SYSTEM
AND
TECHNICLONE CORPORATION
THIS COAGULATION PATENT LICENSE AGREEMENT ("AGREEMENT") is made by and
between the BOARD OF REGENTS (BOARD) OF THE UNIVERSITY OF TEXAS SYSTEM (SYSTEM),
an agency of the State of Texas, whose address is 201 West 7th Street, Austin,
Texas 78701 and TECHNICLONE CORPORATION (LICENSEE), a Delaware corporation,
having a principal place of business located at 14282 Franklin Avenue, Tustin,
CA 92780.
W I T N E S S E T H:
Whereas BOARD and SCRIPPS RESEARCH INSTITUTE (SCRIPPS) jointly created
certain COAGULATION PATENT RIGHTS and COAGULATION TECHNOLOGY RIGHTS related to
LICENSED SUBJECT MATTER, which were developed at The University of Texas
Southwestern Medical Center at Dallas (UT SOUTHWESTERN), located at 5323 Harry
Hines Boulevard, Dallas, Texas 75235, a component institution of SYSTEM;
Whereas BOARD and Peregrine Pharmaceuticals, Inc. (PEREGRINE) entered
into a coagulation patent license agreement dated January 9, 1995 (1995
COAGULATION PATENT LICENSE AGREEMENT) for LICENSED SUBJECT MATTER;
Whereas LICENSEE acquired PEREGRINE in April 1997, and under Article IX
of 1995 COAGULATION PATENT LICENSE AGREEMENT, has obtained assignment of 1995
COAGULATION PATENT LICENSE AGREEMENT from PEREGRINE;
<PAGE>
Whereas BOARD and LICENSEE wish to terminate the 1995 COAGULATION
PATENT LICENSE AGREEMENT and enter into this AGREEMENT simultaneously on the
EFFECTIVE DATE of this AGREEMENT;
Whereas BOARD desires to have the LICENSED SUBJECT MATTER developed and
used for the benefit of LICENSEE, the INVENTORS (as hereinafter defined) BOARD,
UT SOUTHWESTERN and the public as outlined in the Intellectual Property Policy
promulgated by the BOARD; and
Whereas LICENSEE wishes to obtain a license from BOARD to practice
LICENSED SUBJECT MATTER;
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto agree as follows:
I. TERMINATION OF 1995 COAGULATION PATENT LICENSE AGREEMENT
--------------------------------------------------------
The parties mutually agree to terminate the 1995 COAGULATION PATENT
LICENSE AGREEMENT as of the EFFECTIVE DATE of this AGREEMENT.
II. EFFECTIVE DATE
--------------
This AGREEMENT shall be effective as of the date the last party
executes this AGREEMENT (EFFECTIVE DATE).
III. DEFINITIONS
-----------
As used in this AGREEMENT, the following terms shall have the meanings
indicated:
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3.1 COAGULATION PATENT RIGHTS shall mean BOARD's rights in information
or discoveries covered by the patent applications listed in Appendix I, as well
as all divisions, continuations, and continuations-in-part arising from research
funded in whole or in part by LICENSEE, or previously by PEREGRINE, as well as
any reissues, reexaminations or extensions thereof.
Notwithstanding anything to the contrary in this Section 3.2,
it is hereby acknowledged and agreed that COAGULATION PATENT RIGHTS for purposes
of this AGREEMENT do not include BOARD's rights in PATENT RIGHTS, which are
licensed to LICENSEE under the PATENT LICENSE AGREEMENT executed by LICENSEE and
BOARD concurrently with the execution of this AGREEMENT.
3.2 COAGULATION TECHNOLOGY RIGHTS shall mean BOARD's rights in any
technical information, know-how, process, procedure, composition, or device,
method, formula, protocol, technique, software, design, drawing, data,
biological and other materials developed by Philip Thorpe at UT SOUTHWESTERN and
which are useful in targeting therapeutic and diagnostic compounds to tumor
vasculature in humans and which are not covered by COAGULATION PATENT RIGHTS but
which are necessary or useful for practicing any inventions at any time covered
by COAGULATION PATENT RIGHTS.
3.3 COMMERCIAL INTRODUCTION shall mean the date of the first commercial
SALE of a LICENSED PRODUCT BY LICENSEE or any sublicensee in any country.
3.4 INVENTORS (or singly INVENTOR) shall mean Philip Thorpe, Francis
Burrows, Thomas Edgington, Steven W King and Boning Gao.
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3.5 LICENSED FIELD shall mean targeting compounds to or acting on tumor
vasculature or any other component of a tumor for therapeutic or diagnostic use.
3.6 LICENSE PRODUCT shall mean any product SOLD by LICENSEE comprising
LICENSED SUBJECT MATTER pursuant to this AGREEMENT.
3.7 LICENSED SUBJECT MATTER shall mean inventions and discoveries
covered by COAGULATION PATENT RIGHTS or COAGULATION TECHNOLOGY RIGHTS within the
LICENSED FIELD.
3.8 LICENSED TERRITORY shall mean the world.
3.9 NET SALES shall mean the gross revenues received by LICENSEE from
the SALE of LICENSED PRODUCTS less sales and/or use taxes actually paid, import
and/or export duties actually paid, outbound transportation prepaid or allowed,
and amounts allowed or credited due to returns (not to exceed the original
billing or invoice amount).
3.10 PATENT LICENSE AGREEMENT shall mean that certain PATENT LICENSE
AGREEMENT dated as of even date herewith by and between LICENSEE and BOARD
pursuant to which BOARD has licensed the PATENT RIGHTS to LICENSEE.
3.11 PATENT RIGHTS shall mean BOARD's rights in information or
discoveries covered by the patents and/or patent applications listed in Appendix
II whether domestic or foreign, as well as all divisions, continuations and
continuations-in-part arising from research funded in whole or in part by
LICENSEE, or previously by PEREGRINE, as well as any reissues, reexaminations or
extensions thereof.
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3.12 PHASE I TRIAL INITIATION shall mean the commencement of a Phase I
Clinical Trial on a LICENSED PRODUCT.
3.13 PHASE II TRIAL COMPLETION shall mean the submission to the US Food
and Drug Administration (FDA) of the final data resulting from completion of a
Phase II Clinical Trial on a LICENSED PRODUCT.
3.14 SALE, SELL or SOLD shall mean the transfer or disposition of a
LICENSED PRODUCT for value to a party other than LICENSEE or a SUBSIDIARY.
3.15 SUBLICENSEE GROSS REVENUES shall mean the gross revenues and other
consideration received by LICENSEE from any sublicensees of LICENSEE
incorporating LICENSED SUBJECT MATTER, excluding (a) payments made by any
sublicensee in consideration for the issuance of equity or debt securities of
LICENSEE, (b) payments made by any sublicensee to support or fund research
activities to be undertaken by LICENSEE, (c) up-front payments made in
consideration or recognition of prior research and development efforts
undertaken by LICENSEE, and (d) payments made by any sublicensee upon the
achievement of specified milestones or benchmarks relating to the development of
the LICENSED PRODUCTS sublicensed to sublicensee, other than royalty payments.
Notwithstanding subpart (d) above, if the royalty rate charged by LICENSEE for
sublicensing any LICENSED PRODUCT is less than four percent (4%), then the
parties will mutually agree to an equitable sharing arrangement with respect to
license fee, milestone, benchmark or other payments. If non-monetary
consideration is so received, then a commercially reasonable monetary value will
be assigned for purposes of calculating BOARD's share of SUBLICENSEE GROSS
REVENUES.
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3.16 SUBSIDIARY shall mean any business entity more than 50% owned by
LICENSEE, any business entity which owns more than 50% of LICENSEE, or any
business entity that is more than 50% owned by a business entity that owns more
than 50% of LICENSEE.
IV. WARRANTY; SUPERIOR RIGHTS
-------------------------
4.1 BOARD represents and warrants that it is the owner of all right,
title, and interest in and to LICENSED SUBJECT MATTER, and that it has the sole
right to grant licenses thereunder, and that it has not granted licenses
thereunder to any other entity that would restrict rights granted hereunder
except as stated herein.
4.2 BOARD hereby represents and warrants that Appendix I lists the
patents and patent applications in the LICENSED FIELD to which the BOARD has the
rights and which arise from work at UT SOUTHWESTERN involving INVENTORS (other
than patents and patent applications covered by PATENT RIGHTS), and that the
patent applications set forth in Appendix I were duly filed in the United States
on the date indicated therein or was duly filed in such foreign jurisdictions as
are listed in Appendix I on the dates indicated therein.
V. LICENSE
-------
5.1 BOARD hereby grants to LICENSEE a royalty-bearing, exclusive
license under both COAGULATION PATENT RIGHTS and COAGULATION TECHNOLOGY RIGHTS
to manufacture, have manufactured, use, and/or SELL LICENSED PRODUCTS within
LICENSED TERRITORY for use within LICENSED FIELD. This grant shall be subject to
the payment by LICENSEE to BOARD of all consideration as provided in this
AGREEMENT, and shall be further subject to rights retained by BOARD to:
6
<PAGE>
(a) Publish the general scientific findings from research
related to LICENSED SUBJECT MATTER; PROVIDED, that, in order to avoid
possible loss of rights in the COAGULATION PATENT RIGHTS, BOARD hereby
agrees to submit any materials relating to a planned publication to
LICENSEE at least sixty (60) days prior to the date of planned
submission for publication. If, within thirty (30) days of receipt of
such materials, LICENSEE notifies BOARD that it desires to file patent
applications pertaining to any inventions contained in such materials,
BOARD shall defer publication or other disclosure for an additional
period, not to exceed ninety (90) days, sufficient to permit such
desired patent applications to be filed.
(b) Use LICENSED SUBJECT MATTER for research, teaching and
other educationally-related purposes at any institution within the
SYSTEM.
5.2 BOARD hereby also grants to LICENSEE a first option to obtain a
royalty-bearing exclusive license to any inventions in the LICENSED FIELD which
arise from work funded by LICENSEE in which INVENTORS, singly or jointly
participate while affiliated with UT SOUTHWESTERN and which have applications in
the LICENSED FIELD (collectively, "IMPROVEMENTS"). The option for any such
IMPROVEMENTS shall extend for a period of ninety (90) days from the date
LICENSEE receives a written notice from BOARD disclosing such IMPROVEMENTS.
During such ninety (90) day period, BOARD shall reasonably make available to
LICENSEE any other information in its possession or control which would be
useful to LICENSEE in evaluating the IMPROVEMENT, subject to such reasonable
confidentiality undertakings as BOARD shall require. LICENSEE may exercise its
option by informing BOARD in writing during such ninety (90) day period that it
intends to commercialize the IMPROVEMENT as soon as practicable, consistent with
sound and reasonable business practice and judgment. Upon exercise of LICENSEE's
7
<PAGE>
option, such IMPROVEMENT shall become subject to the terms and conditions of
this AGREEMENT. In the event that LICENSEE fails to exercise its option with
respect to any IMPROVEMENT as provided herein, BOARD shall have the right to
enter into license agreements concerning such IMPROVEMENT with third parties
provided the terms and conditions thereof are not, in general, more favorable
than those terms and conditions provided under this AGREEMENT, unless BOARD has
offered the new terms and conditions to LICENSEE and LICENSEE has refused to
accept them.
5.3 BOARD hereby also grants to LICENSEE a first option to negotiate
and acquire an exclusive, worldwide, royalty-bearing license to any inventions
outside the LICENSED FIELD which arise from work funded by LICENSEE in which
INVENTORS, singly or jointly, participate while affiliated with UT SOUTHWESTERN.
The option for any such inventions shall extend for a period of ninety (90) days
from the date LICENSEE receives written notice from BOARD disclosing such
invention. LICENSEE may exercise its option by informing BOARD in writing during
such ninety (90) day period that it intends to commercialize the invention as
soon as practicable, consistent with sound and reasonable business judgment.
Upon exercise of LICENSEE's option, BOARD and LICENSEE shall enter into good
faith negotiations regarding the terms and conditions of said license and
further agree to negotiate license rates and other payments which are fair and
reasonable to both parties. If BOARD and LICENSEE are unable to agree on the
terms of a license within ninety (90) days following the exercise of LICENSEE'S
option, BOARD shall have the right to enter into license agreements concerning
the invention with third parties; PROVIDED, HOWEVER, such licensing agreements
shall be on terms no less favorable to BOARD than BOARD's final offer to
LICENSEE, unless BOARD has offered the new terms and conditions to LICENSEE and
LICENSEE has refused to accept them.
8
<PAGE>
5.4 LICENSEE shall have the right to extend the license granted herein
to any SUBSIDIARY provided that such SUBSIDIARY consents to be bound by this
AGREEMENT to the same extent as LICENSEE.
5.5 LICENSEE shall have the right to grant sublicenses in accordance
with the terms and conditions of this AGREEMENT. LICENSEE agrees to deliver to
BOARD a true and correct copy of such sublicense granted by LICENSEE, and any
modification or termination thereof, within thirty (30) days after execution,
modification, or termination. If any sublicense fails to pay any royalty payment
to LICENSEE on the date provided in such sublicense, LICENSEE shall, within
thirty (30) days of such scheduled payment date, take steps to require such
sublicensee to cure such default. If such default is not cured by such
sublicensee within an additional ninety (90) day period, LICENSEE shall
terminate such sublicense. If LICENSEE fails to terminate any sublicense as
provided herein, LICENSEE shall be responsible for the payment of royalties owed
by such sublicensee under this AGREEMENT whether or not paid to LICENSEE by such
sublicensee. Upon termination of this AGREEMENT, any and all existing
sublicenses granted by LICENSEE shall be assigned to BOARD.
5.6 BOARD shall have the right at any time after five (5) years from
the EFFECTIVE DATE of this AGREEMENT, to terminate the exclusivity of the
license granted herein in any national jurisdiction within LICENSED TERRITORY if
LICENSEE, within ninety (90) days after written notice from BOARD as to such
intended termination of exclusivity, fails to provide written evidence that it
has commercialized or is actively attempting to commercialize an invention
licensed hereunder within such jurisdiction. BOARD agrees to negotiate in good
faith with LICENSEE for adjusting terms under such a non-exclusive arrangement.
BOARD shall have the right at any time after seven (7) years from the EFFECTIVE
9
<PAGE>
DATE of this AGREEMENT to terminate the license completely in any national
jurisdiction if LICENSEE, within ninety (90) days after written notice from
BOARD of such intended termination, fails to provide written evidence that it
has commercialized or is actively attempting to commercialize an invention
licensed hereunder within such jurisdiction. Evidence provided by LICENSEE that
it has an ongoing and active research, development, manufacturing, marketing or
licensing program as appropriate, directed toward production and SALE of
products based on COAGULATION PATENT RIGHTS or COAGULATION TECHNOLOGY RIGHTS
within such jurisdiction shall be deemed satisfactory evidence.
VI. PAYMENTS AND REPORTS
--------------------
6.1 Subject to Section 6.1(g) of this AGREEMENT, in consideration of
rights granted by BOARD to LICENSEE under this AGREEMENT, LICENSEE agrees to pay
BOARD the following:
(a) A PHASE II TRIAL COMPLETION milestone payment of one
hundred thousand dollars ($100,000) payable within thirty (30) days of
the earlier of: (i) February 1, 2001, or (ii) PHASE II TRIAL
COMPLETION.
(b) A milestone payment for COMMERCIAL INTRODUCTION of each
LICENSED PRODUCT in the amount of three hundred thousand dollars
($300,000) payable to BOARD within thirty (30) days of COMMERCIAL
INTRODUCTION of the LICENSED PRODUCT. All COMMERCIAL INTRODUCTION
milestone payments shall be credited against royalty payments due under
Section 6.1 on a LICENSED PRODUCT-by-LICENSED PRODUCT basis.
10
<PAGE>
(c) A running earned royalty equal to four percent (4%) of NET
SALES of LICENSED PRODUCTS incorporating COAGULATION PATENT RIGHTS. In
the event any LICENSED PRODUCT incorporating COAGULATION PATENT RIGHTS
is SOLD as a component of a combination of active elements, NET SALES
for purposes of determining royalty payments on such combination shall
be calculated by multiplying NET SALES of such combination by the
fraction A over A+B, in which "A" is the gross selling price of the
LICENSED PRODUCT portion of the combination when SOLD separately during
the accounting period in which the SALE was made, and "B" is the gross
selling price of the non-LICENSED PRODUCT portion of the combination
SOLD separately during the accounting period in question. In the event
that no separate SALE of either such above-designated LICENSED PRODUCT
or such above-designated non-LICENSED PRODUCT portion of the
combination is made during the accounting period in which the SALE was
made, NET SALES shall be calculated by multiplying NET SALES of such
combination by the fraction C over C+D, in which "C" is the standard
fully-absorbed cost of the LICENSED PRODUCT portion of such
combination, and "D" is the standard fully absorbed cost of the other
component(s), such costs being arrived at using the standard accounting
procedures of LICENSEE which will be in accord with generally accepted
accounting practices. Notwithstanding the foregoing, under no
circumstances shall the royalty provided for in this Section 6.1(c) be
reduced to less than two percent (2%) of NET SALES of LICENSED PRODUCTS
incorporating COAGULATION PATENT RIGHTS. No royalties shall be payable
to BOARD under this Section 6.1(c) with respect to SALES for which a
royalty has been paid under the PATENT LICENSE AGREEMENT.
11
<PAGE>
(d) A running earned royalty equal to one percent (1%) of NET
SALES of LICENSED PRODUCTS covered by COAGULATION TECHNOLOGY RIGHTS
only. No royalty shall be payable to BOARD under this Section 6.1(d)
with respect to SALES for which a royalty is has been paid under
Section 6.1(c) or under the PATENT LICENSE AGREEMENT.
(e) Twenty percent (20%) of the SUBLICENSEE GROSS REVENUES of
SALES of LICENSED PRODUCTS; provided, however, if a LICENSED PRODUCT is
sublicensed and incorporates technology not covered by COAGULATION
PATENT RIGHTS, the running royalty to be paid under this Section 6.1(e)
shall be reduced to ten percent (10%) of SUBLICENSEE GROSS REVENUES of
SALES of LICENSED PRODUCTS. In the event any LICENSED PRODUCT
incorporating COAGULATION PATENT RIGHTS is sublicensed as a component
of a combination of active elements, SUBLICENSEE GROSS REVENUES of
SALES of LICENSED PRODUCTS for purposes of determining royalty payments
on such combination shall be calculated by multiplying SUBLICENSEE
GROSS REVENUES of SALES of LICENSED PRODUCTS of such combination by the
fraction A over A+B, in which "A" is the gross selling price of the
LICENSED PRODUCT portion of the combination when SOLD separately during
the accounting period in which the SALE was made, and "B" is the gross
selling price of the non-LICENSED PRODUCT portion of the combination
SOLD separately during the accounting period in question. In the event
that no separate SALE of either such above-designated LICENSED PRODUCT
or such above-designated non-LICENSED PRODUCT portion of the
combination is made during the accounting period in which the SALE was
made, SUBLICENSEE GROSS REVENUES of SALES of LICENSED PRODUCTS shall be
calculated by multiplying SUBLICENSEE GROSS REVENUES of SALES of
LICENSED PRODUCTS of such combination by the fraction C over C+D, in
which "C" is the standard fully-absorbed cost of the LICENSED PRODUCT
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<PAGE>
portion of such combination, and "D" is the standard fully absorbed
cost of the other component(s), such costs being arrived at using the
standard accounting procedures of LICENSEE which will be in accord with
generally accepted accounting practices. Notwithstanding the foregoing,
under no circumstances shall the royalty provided for in this Section
6.1(e) be reduced to less than ten percent (10%) of SUBLICENSEE GROSS
REVENUES of SALES of LICENSED PRODUCTS incorporating COAGULATION PATENT
RIGHTS. No royalties shall be payable to BOARD under this Section
6.1(e) with respect to SALES for which a royalty has been paid under
the PATENT LICENSE AGREEMENT.
(f) The parties hereto agree that if economic or political
conditions change sufficiently so as to affect the continued
applicability of the assumptions made in negotiating the dates of the
milestone payments agreed to in this Section 6.1, they will negotiate
in good faith a reasonable extension of the dates of such milestone
payments in accordance with such changed economic or political
conditions.
(g) Notwithstanding anything to the contrary in this
AGREEMENT, it is hereby acknowledged and agreed by the parties hereto
that (i) the amount payable by LICENSEE pursuant to Section 6.1(a) of
this AGREEMENT is a one-time license fee payable by LICENSEE only with
respect to the first LICENSED PRODUCT of LICENSEE and (ii) no amounts
shall be paid by LICENSEE pursuant to such Sections to the extent that
such payments have been made by LICENSEE under the PATENT LICENSE
AGREEMENT.
6.2 During the term of this AGREEMENT and for one (1) year thereafter,
LICENSEE shall keep complete and accurate records of its SALES and NET SALES of
LICENSED PRODUCTS and all SUBLICENSEE GROSS REVENUES received by LICENSEE under
the license granted in this AGREEMENT in sufficient detail to enable the
royalties payable hereunder to be determined. LICENSEE shall permit BOARD or its
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<PAGE>
representatives, at BOARD's expense, to periodically examine its books, ledgers,
and records during regular business hours for the purposes of and to the extent
necessary to verify any report required under this AGREEMENT. If any such
inspection reveals that the aggregate of royalties paid during any four (4)
consecutive calendar quarters was less than the amount that should have been
paid under this AGREEMENT, LICENSEE shall remit to BOARD the amount of such
deficiency; provided, that, if such deficiency is more than five percent (5%) of
the amount that should have been paid, LICENSEE shall remit to BOARD, in
addition to the amount of such deficiency, the reasonable expenses of the
inspection conducted by BOARD. If LICENSEE or BOARD disputes any deficiency or
expenses provided in this Section 6.2, the dispute shall be referred to an
independent accountant selected by mutual agreement of BOARD and LICENSEE, whose
decision will be binding and final on the parties hereto. If a decision is
entered against LICENSEE by such independent accountant for the amount of such
deficiency or expenses, LICENSEE agrees to remit to BOARD, in addition to any
other amounts provided for in this Section 6.2, accrued interest on such
deficiency through the date of such decision at the highest allowable rate.
6.3 Within forty-five (45) days after March 31, June 30, September 30
and December 31 of each year, LICENSEE shall deliver to BOARD a true and
accurate report which shall describe (a) the quantities of LICENSED SUBJECT
MATTER that it has produced; (b) the total SALES; (c) the calculation of
royalties thereon; and (d) the total royalties so computed and due.
Simultaneously with the delivery of each such report, LICENSEE shall pay to
BOARD the amount, if any, due for the period covered by such report. If no
payments are due, it shall be so reported.
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6.4 Upon the request of BOARD but not more often than once per calendar
year, LICENSEE shall deliver to BOARD a written report as to LICENSEE's efforts
and accomplishments during the preceding year in commercializing LICENSED
SUBJECT MATTER in various parts of the LICENSED TERRITORY and its
commercialization plans for the upcoming year.
6.5 All amounts payable hereunder by LICENSEE shall be payable in
United States funds without deductions for taxes, assessments, fees, or charges
of any kind. Checks shall be made payable to UT SOUTHWESTERN and sent to:
UT Southwestern Medical Center
Office for Technology Transfer Development
5323 Harry Hines Boulevard
Dallas, Texas 75235-9094
Attn: Ray Wheatley
VII. TERM AND TERMINATION
--------------------
7.1 The Term of this AGREEMENT shall extend from the EFFECTIVE DATE set
forth hereinabove to the full end of the term or terms for which COAGULATION
PATENT RIGHTS have not expired and if only COAGULATION TECHNOLOGY RIGHTS are
licensed and no COAGULATION PATENT RIGHTS are applicable, then, on a per-product
basis, (i) with respect to LICENSED PRODUCTS which have an FDA-approved
therapeutic indication for humans, for a term of seven (7) years from the date
of COMMERCIAL INTRODUCTION of any such product and (ii) with respect to LICENSED
PRODUCTS which have an FDA-approved diagnostic indication for humans, for a term
of seven (7) years from the date of COMMERCIAL INTRODUCTION of such product.
7.2 This AGREEMENT will earlier terminate:
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(a) upon thirty (30) days written notice if LICENSEE shall
default in its obligation to make payments, if any are due, in
accordance with Article VI or Article XIV hereunder; provided, however,
LICENSEE may avoid such termination if before the end of such notice
period LICENSEE cures its default;
(b) automatically if LICENSEE shall become bankrupt or
insolvent and/or if the business of LICENSEE shall be placed in the
hands of a receiver, assignee, or trustee, whether by voluntary act or
LICENSEE or otherwise;
(c) upon ninety (90) days written notice if LICENSEE shall
breach or default on any obligation under this AGREEMENT except as
provided in Article VI or Article XIV; provided, however, LICENSEE may
avoid such termination if before the end of such period LICENSEE
notifies BOARD that such breach has been cured, states the manner of
such cure and in fact the breach has been cured; or
(d) Under the provisions of Section 5.6 if invoked.
7.3 Upon termination of this AGREEMENT for any cause, nothing herein
shall be construed to release either party of any obligation matured prior to
the effective date of such termination. LICENSEE may, after the effective date
of such termination, SELL all LICENSED PRODUCT and parts therefor that it may
have on hand at the date of termination, provided that it pays running royalty
earned thereon as provided in this AGREEMENT.
VIII. INFRINGEMENT BY THIRD PARTIES
-----------------------------
8.1 Each party shall inform the other promptly in writing of any
alleged infringement of the COAGULATION PATENT RIGHTS by a third party,
including all details then available. LICENSEE shall have the right, but shall
not be obligated, to prosecute at its own expense any such infringements, and
BOARD agrees that LICENSEE may join BOARD as a plaintiff at the expense of
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LICENSEE. If any infringement action commenced or defended solely by LICENSEE,
all expenses and all recovery for infringement shall be those of LICENSEE. In
any such action by LICENSEE, BOARD shall be entitled to receive an amount equal
to the applicable royalties on any recovery of profits and damages that is in
excess of LICENSEE's reasonable costs and expenses, including, but not limited
to, actual costs and expenses incurred to non-affiliated accountants, lawyers
and consultants. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without BOARD's consent, which
consent shall not be unreasonably withheld, delayed or conditioned.
8.2 If LICENSEE has not commenced legal action or been successful in
obtaining cessation of the infringement within ninety (90) days of written
notification from BOARD of such infringement, or if LICENSEE elects not to
continue prosecuting any legal action against an infringer, BOARD shall have the
right, but shall not be obligated, to prosecute at its own expense any such
infringement. BOARD may join LICENSEE as a plaintiff in any such infringement
suit at BOARD's expense. No settlement, consent judgment or other voluntary
final disposition of the suit may be entered into without LICENSEE's consent,
which consent shall not be unreasonably withheld, delayed or conditioned.
8.3 In the event that LICENSEE and/or BOARD do not file suit against,
conclude settlement negotiations with, or grant a license to a substantial
infringer of COAGULATION PATENT RIGHTS within one (1) year of knowledge thereof,
then the parties will consult with one another in an effort to determine whether
a reasonably prudent licensee would institute litigation, conclude settlement
negotiations, and/or grant a license within the one (1) year time period
described above in order to enforce the patent in question in light of all
relevant business and economic factors (including, but not limited to, the
projected cost of such litigation, the likelihood of success on the merits, the
probable amount of any damage award, the prospects for satisfaction of any
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judgment against the alleged infringer, the possibility of counterclaims against
LICENSEE and BOARD, the diversion of LICENSEE's human and economic resources,
the impact of any possible adverse outcome on LICENSEE, and the effect any
publicity might have on the respective reputations and goodwill of the parties).
If after such consultation, the parties have not reached agreement and LICENSEE
does not forthwith file suit against, enter into settlement negotiations with or
grant a license to the substantial infringer, then BOARD shall have the right to
enforce any COAGULATION PATENT RIGHT, licensed hereunder on behalf of itself and
LICENSEE (BOARD retaining all recoveries from such enforcement), and BOARD shall
have the right to reduce the license granted hereunder to nonexclusive in the
national jurisdiction in which suit is brought.
8.4 If any infringement suit that either party brings to enforce the
COAGULATION PATENT RIGHTS, the other party shall at the request and expense of
the party bringing the suit, cooperate in all reasonable respects, including, to
the extent possible, obtaining the testimony of its employees and agents and
making available physical evidence in the possession of that party.
IX. ASSIGNMENT
----------
This AGREEMENT shall not be assignable or otherwise transferable by
LICENSEE without the prior written consent of BOARD, which consent shall not be
unreasonably withheld, except that LICENSEE may assign or otherwise transfer its
rights under this AGREEMENT to the following parties without obtaining BOARD's
consent: (i) a successor to LICENSEE's business, or a successor to that portion
of LICENSEE's business that pertains to the subject matter of the COAGULATION
PATENT RIGHTS or any COAGULATION TECHNOLOGY RIGHTS, and (ii) any entities
controlled by, controlling, or under common control with LICENSEE.
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X. PATENT MARKING
--------------
LICENSEE agrees to mark permanently and legibly all products and
documentation manufactured or sold by it under this AGREEMENT with such patent
notice as may be permitted or required under Title 35, United States Code.
XI. INDEMNIFICATION
---------------
LICENSEE shall hold harmless and indemnify BOARD, INVENTORS, SYSTEM, UT
SOUTHWESTERN, and their respective Regents, officers, employees and agents
(each, an "INDEMNITEE") from and against any liability, loss or damage they may
suffer as a result of claims, demands, or causes of action whatsoever, including
without limitation those arising on account of any injury or death of persons or
damage to property caused by, or arising out of or resulting from, the exercise
or practice of the license granted hereunder by LICENSEE or its officers,
employees, agents or representatives; PROVIDED, HOWEVER, that LICENSEE shall not
be required to indemnify or hold harmless any INDEMNITEE, from any losses or
claims attributable to any infringement or alleged infringement of patents,
technology, trade secrets, or confidential or proprietary know-how or
information of third parties by the COAGULATION PATENT RIGHTS or the COAGULATION
TECHNOLOGY RIGHTS. Except as otherwise provided in this AGREEMENT, the
obligations of LICENSEE under this Section shall apply in full force whether or
not the claims and any losses resulted, or are alleged to have resulted, in
whole or in part from the acts or omissions of any INDEMNITEE; PROVIDED,
HOWEVER, that the foregoing indemnity shall not apply to any claims or losses
arising out of any act or omission constituting gross negligence, willful
malfeasance, misconduct or bad faith of any INDEMNITEE.
19
<PAGE>
XII. USE OF NAME
-----------
LICENSEE shall not use the name of UT SOUTHWESTERN, INVENTORS, SYSTEM,
BOARD or their respective Regents in any advertising, promotional or sales
literature, or in any other form of publicity without prior written consent
obtained from each such party in each case. The foregoing notwithstanding,
LICENSEE shall have the right to identify such parties and to disclose the terms
of this AGREEMENT in any prospectus, offering memorandum or other document or
filing required by applicable securities laws or other applicable law or
regulation, provided that LICENSEE shall have given each such affected party at
least ten (10) business days prior written notice of the proposed text of any
such identification or disclosure for the purpose of giving each such affected
party the opportunity to comment on and suggest amendments to such proposed
text.
XIII. CONFIDENTIAL INFORMATION
------------------------
13.1 BOARD and LICENSEE each agree that all information contained in
documents marked "confidential" which are forwarded to one by the other shall be
received in strict confidence, used only for the purposes of this AGREEMENT, and
not disclosed by the recipient party (except as required by law or court order),
its agents or employees without the prior written consent of the other party,
unless such information (a) was in the public domain at the time of disclosure,
(b) later became part of the public domain through no act or omission of the
recipient party, its employees, agents, successors or assigns, (c) was lawfully
disclosed to the recipient party by third party having the right to disclose it,
(d) was already known by the recipient party at the time of disclosure, (e) was
independently developed or (f) is required by law or regulation to be disclosed.
20
<PAGE>
13.2 Each party's obligation of confidence hereunder shall be fulfilled
by using the at least same degree of care with the other party's confidential
information it uses to protect its own confidential information. This obligation
shall exist while this AGREEMENT is in force and for a period of three (3) years
thereafter.
XIV. PATENTS AND INVENTIONS
----------------------
14.1 UT SOUTHWESTERN shall be responsible for the preparation, filing,
prosecution and maintenance of all patent applications and patents included in
COAGULATION PATENT RIGHTS. LICENSEE shall reimburse UT SOUTHWESTERN for all
reasonable attorneys' fees (i) incurred by UT SOUTHWESTERN subsequent to the
EFFECTIVE DATE, or (ii) incurred by UT SOUTHWESTERN prior to the EFFECTIVE DATE
and for which invoices have been submitted to LICENSEE in connection with the
preparation, filing and maintenance of all patent applications and patents
included in COAGULATION PATENT RIGHTS; PROVIDED that patent counsel selected by
UT SOUTHWESTERN is reasonably acceptable to LICENSEE. Subsequent to the
EFFECTIVE DATE, UT SOUTHWESTERN shall consult with LICENSEE as to the
preparation, filing, prosecution and maintenance of all such patent applications
and patents in accordance with the procedures set forth on EXHIBIT A hereto and
incorporated herein by reference, and shall furnish to LICENSEE copies of
documents relevant to such preparation, filing, prosecution or maintenance,
including without limitation invoices providing detailed descriptions of all
costs and expenses incurred by UT SOUTHWESTERN's patent counsel in connection
therewith, sufficiently prior to filing such documents or making any payment due
thereunder to allow for review and comment by LICENSEE. If, at any time,
LICENSEE shall elect not to pay the expenses of any patent application or patent
included in COAGULATION PATENT RIGHTS, LICENSEE shall so notify UT SOUTHWESTERN
within thirty (30) days of such consultation and shall thereby surrender its
rights under such patent application or patent; PROVIDED, HOWEVER, that LICENSEE
shall remain obligated to reimburse UT SOUTHWESTERN for any costs incurred with
respect to such patent application or patents prior to said election.
21
<PAGE>
14.2 At any time during the term of this AGREEMENT, LICENSEE may
petition BOARD in writing to transfer prosecution or maintenance of any PATENT
RIGHTS licensed hereunder to another law firm. Such petition shall state
LICENSEE's reason(s) for its desire to transfer prosecution or maintenance to
another law firm and include information about the law firm and individual
patent attorneys, patent agents, and/or scientific advisors that may be assigned
to the files by the patent firm. BOARD shall first seek to meet the needs of
LICENSEE through meeting with existing patent counsel. If the petition is
granted by BOARD, LICENSEE or outside counsel shall provide BOARD and UT
SOUTHWESTERN with copies of all documents received or filed during prosecution
and/or maintenance thereof in a timely manner. In any event, LICENSEE shall
consult UT SOUTHWESTERN prior to abandonment of any claims of any patent
application for LICENSED SUBJECT MATTER at least sixty (60) days prior to
abandonment.
XV. GENERAL
-------
15.1 This AGREEMENT and the Exhibits and Appendices attached hereto
constitute the entire and only agreement between the parties for LICENSED
SUBJECT MATTER and all other prior negotiations, representations, agreements,
and understandings are superseded hereby. No agreements altering or
supplementing the terms hereof may be made except by means of a written document
signed by the duly authorized representatives of the parties.
22
<PAGE>
15.2 Any notice required by this AGREEMENT shall be given by facsimile
and confirmed by overnight delivery service, addressed in the case of BOARD to:
BOARD OF REGENTS
The University of Texas System
201 West Seventh Street
Austin, Texas 78701
ATTENTION: Office of General Counsel
Ph. 512-499-4462
Fax 512-499-4523
with copies to:
UT SOUTHWESTERN
Peter H. Fitzgerald, Ph.D.
Executive Vice President
for Business Affairs
5323 Harry Hines Boulevard
Dallas, TX 75235-9013
Ph. 214-648-3572
Fax 214-648-3944
and
UT SOUTHWESTERN
Ray Wheatley
Director, Technology Development
Office for Technology Development
6000 Harry Hines Boulevard, Rm NB2200
Dallas, TX 75235-9094
Ph. 214-648-1888
Fax 214-648-1889
or in the case of LICENSEE to:
Techniclone Corporation
14282 Franklin Avenue
Tustin, California 92780
Attention: John N. Bonfiglio, Ph.D.
Ph. (949) 508-6000
Fax (949) 838-4094
23
<PAGE>
with copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attention: R.C. Shepard, Esq.
Ph. (949) 725-4000
Fax (949) 725-4100
or such other address as may be given from time to time under the terms of this
notice provision.
15.3 LICENSEE shall comply with all applicable federal, state and local
laws, regulations, and ordinances in connection with its activities pursuant to
this AGREEMENT.
15.4 This AGREEMENT shall be construed and enforced in accordance with
the laws of the United States of America and of the State of Texas.
15.5 Failure of BOARD to enforce a right under this AGREEMENT shall not
act as a waiver of that right or the ability to later assert that right relative
to the particular situation involved.
15.6 Headings included herein are for convenience only and shall not be
used to construe this AGREEMENT.
15.7 If any provision of this AGREEMENT shall be found by a court to be
void, invalid or unenforceable, the same shall be reformed to comply with
applicable law or stricken if not so confirmable, so as not to affect the
validity or enforceability of this AGREEMENT.
24
<PAGE>
IN WITNESS WHEREOF, parties hereto have caused their duly authorized
representatives to execute this AGREEMENT.
BOARD OF REGENTS OF THE TECHNICLONE CORPORATION
UNIVERSITY OF TEXAS SYSTEM
By: /s/ Peter H. Fitzgerald, Ph.D. By: /s/ John N. Bonfiglio, Ph.D.
----------------------------------- ----------------------------
Peter H. Fitzgerald, Ph.D. John N. Bonfiglio, Ph.D.
Executive Vice President for Vice President, Business
Business Affairs Development
UT Southwestern Medical Center at
Dallas
Date: Oct-8, 1998 Date: 9/8/98
----------------------------------- ----------------------------
APPROVED AS TO FORM:
By: /s / Bethlynn Maxwell, Ph.D., J.D.
-----------------------------------
Bethlynn Maxwell, Ph.D., J.D.
Office of General Counsel
Date: 11 Sept., 98
-----------------------------------
APPROVED AS TO CONTENT:
By: /s/ Dennis K. Stone
-----------------------------------
Dennis K. Stone
Vice President for Technology Development
Date: Sept. 17, 1998
-----------------------------------
25
EXHIBIT 10.59
LICENSE AGREEMENT
-----------------
This License Agreement ("Agreement") effective as of August 4, 1999
(the "Effective Date"), is entered into by and between NORTHWESTERN UNIVERSITY,
an Illinois corporation located at 633 Clark Street, Evanston, Illinois 60201
and TECHNICLONE CORPORATION, a Delaware corporation ("TECHNICLONE") located at
14282 Franklin Avenue, Tustin, California 92780-7017.
R E C I T A L S
A. In the course of research conducted at NORTHWESTERN UNIVERSITY,
Professor Alan Epstein (the "Inventor") has produced inventions, the titles of
which are also listed in Exhibit "A" (the "Inventions").
B. WHEREAS, the Inventions described were made under support from the
National Institutes of Health of the Department of Health and Human Services and
NORTHWESTERN UNIVERSITY has acquired rights thereto pursuant to P.L. 96-517, and
if a conflict arises between the conditions of this Agreement and the rights of
the Federal Government, TECHNICLONE's rights would be subordinate to the
legitimate rights of the Federal Government, and
C. TECHNICLONE has obtained a license to the Licensed Technology (as
hereinafter defined), and NORTHWESTERN UNIVERSITY granted such a license to
TECHNICLONE pursuant to that certain License Agreement dated June 12, 1985, as
amended pursuant to that certain Amendment effective October, 1987 (the "Prior
License Agreement").
D. NORTHWESTERN UNIVERSITY and TECHNICLONE desire to amend and restate
that certain Prior License Agreement and desire that this Agreement supercede
the Prior License Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing, and the covenants
and promises contained herein, the sufficiency of which are hereby acknowledged
by the parties, NORTHWESTERN UNIVERSITY and TECHNICLONE hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall be defined as set
forth below:
-1-
<PAGE>
1.1 "AFFILIATE" shall mean any person, corporation, partnership, firm,
joint venture or other entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
another person, corporation, partnership, firm, joint venture or other entity,
as the case may be. As used in this definition, "control" means the possession
of power to direct or cause the direction of the management and policies of an
entity, whether through the ownership of the outstanding voting securities or by
contract or otherwise.
1.2 "IMPROVEMENT(S)" shall mean inventions or other improvements which
relate to or are based on the Inventions and which are within the scope of the
then existing Licensed Patents. An Improvement shall be within the scope of a
Licensed Patent if covered by a claim, either literally or under the doctrine of
equivalents.
1.3 "INVENTIONS" shall mean the inventions of the Inventor as described
in Exhibit "A" attached hereto and incorporated herein by this reference.
1.4 "LICENSED PATENTS" shall mean all United States and foreign patents
and applications for patents owned by NORTHWESTERN UNIVERSITY, and filed prior
to the date of or during the term of this Agreement relating to any of the
Invention(s), including, in each case, all foreign and domestic patents issuing
on any of the foregoing applications, and all reissues, renewals,
reexaminations, extensions, continuations, continuations-in-part, provisionals
and divisionals of each of the preceding. The Licensed Patents that are pending
or issued as of the date of this Agreement are set forth in EXHIBIT "B." For
purposes of this Agreement, any United States or foreign patents and/or
applications for patents owned by NORTHWESTERN UNIVERSITY relating to an
Improvement shall be treated as Licensed Patents for all purposes whatsoever.
1.5 "LICENSED PRODUCTS" shall mean all products derived from a
combination of LYM-1 antibody or LYM-2 antibody plus the radioactive Iodine 131
combination.
1.6 "LICENSED TECHNOLOGY" shall mean the Licensed Patents and the
Technical Information.
-2-
<PAGE>
1.7 "NET SALES" shall mean the revenues actually received by
Sublicensees generated from the sale of the Licensed Products by such
Sublicensees to third parties in Territory A and Territory B; less reasonable
and customary deductions applicable to the Licensed Products for: (i)
transportation charges and charges such as insurance, relating to transportation
paid by the selling party; (ii) sales and excise taxes or customers duties paid
by the selling party and any other governmental charges imposed upon the sale of
the Licensed Products and paid by the selling party; (iii) distributors' fees,
rebates or allowances; (iv) quantity discounts, cash discounts or chargebacks in
the ordinary course of business in connection with the sale of the Licensed
Products; (v) allowances or credits to customers, not in excess of the selling
price of the Licensed Products, on account of governmental requirements,
rejection, outdating, recalls or return of the Licensed Products; (vi) costs of
customer programs such as cost effectiveness or patient or physician assistance
programs designed to aid in patient compliance to maintain medication schedules
and which are reasonably required to be carried out in order to effect a sale of
the Licensed Products; and (vii) a deduction for actual bad debts no to exceed
1%. Sales of the Licensed Products solely for research or clinical testing
purposes shall be excluded from the computation of Net Sales. Licensed Products
shall be considered sold when sold or invoiced to a third party, and if not sold
or invoiced, when delivered to a third party.
1.8 "QUARTER YEAR" shall mean the three-month periods ending March
31st, June 30th, September 30th and December 31st of each Royalty Year.
1.9 "ROYALTY YEAR" shall mean each twelve-month period commencing
January 1st and ending December 31st during the term of this Agreement. For the
first year of this Agreement, the Royalty Year shall be the period of time
between the signing of this Agreement and December 31st of such year.
1.10 "SUBLICENSEE" shall mean a person or entity to whom TECHNICLONE
has granted the right under the Licensed Technology to develop, manufacture,
have manufactured, use, market, distribute and/or sell the Licensed Products.
1.11 "TECHNICAL INFORMATION" shall mean NORTHWESTERN UNIVERSITY's
technical information and know-how relating to the preparation of Licensed
Products including, but not limited to the maintenance of hybridomas, medical
diagnostic and therapeutic procedures and methods for characterizing antigenic
material utilizing monoclonal antibodies produced from such hybridomas,
purification schemes, bioassay and immunoassay procedures and methods of
evaluation.
1.12 "TERRITORY A" shall mean the United States of America [, including
Guam and Puerto Rico.]
1.13 "TERRITORY B" shall mean all countries, territories and
jurisdictions of the world, other than Territory A.
1.14 "VALID CLAIM" shall mean a claim of any issues, unexpired United
States or foreign patent, as applicable, which shall not have been withdrawn,
canceled or disclaimed or held invalid or unenforceable by a court of competent
jurisdiction in an unappealed or unappealable decision.
ARTICLE II
GRANT OF LICENSE
----------------
2.1 GRANT. Subject to the terms and conditions of this Agreement,
NORTHWESTERN UNIVERSITY hereby grants and TECHNICLONE hereby accepts a worldwide
exclusive license under the Licensed Technology, to develop, manufacture, have
manufactured, use, market, import, have imported, offer for sale and sell
Licensed Products.
-3-
<PAGE>
2.2 SUBLICENSE. TECHNICLONE shall have the right to further license,
sublicense or subcontract all or any part of the rights hereby licensed to it
without the prior written consent of NORTHWESTERN UNIVERSITY. TECHNICLONE shall
promptly notify NORTHWESTERN UNIVERSITY in writing at the time of each such
license, sublicense or subcontract. Notwithstanding the foregoing, NORTHWESTERN
UNIVERSITY shall retain the right to approve any complete transfer or assignment
of this Agreement by TECHNICLONE prior to such transfer or assignment, which
approval shall not unreasonably be withheld or delayed.
2.3 RETENTION OF RIGHTS. NORTHWESTERN UNIVERSITY and its affiliates
shall retain the nontransferable right to make, use and practice the Licensed
Technology for their own noncommercial purposes. NORTHWESTERN UNIVERSITY may
publish and disseminate the Technical Information and may furnish the Licensed
Products produced by the hybridomas accepted by TECHNICLONE to third parties for
non-commercial research oriented purposes. NORTHWESTERN UNIVERSITY will inform
any third party receiving material under this Section that the hybridomas are
the property of NORTHWESTERN UNIVERSITY and that they can only be used for
non-commercial research and cannot be further distributed without the written
permission of NORTHWESTERN UNIVERSITY.
2.4 THIRD PARTY LICENSES. The parties recognize that TECHNICLONE may
encounter patents held by third parties and that licenses between NORTHWESTERN
UNIVERSITY or TECHNICLONE and such third parties may be necessary in order to
enable TECHNICLONE to develop, make or market certain Licensed Products. In that
event, TECHNICLONE has the right to enter into licensing agreements with such
third parties, provided NORTHWESTERN UNIVERSITY is consulted a reasonable time
before hand. In the event that TECHNICLONE is obligated to pay royalties to such
a third party and/or other amounts to acquire such a license, TECHNICLONE shall
be entitled to credit against the royalties otherwise payable to NORTHWESTERN
UNIVERSITY hereunder an amount equal to one-half (1/2) the sum of earned
royalties and other amounts paid to such third party(ies) to acquire access to
or use of such third party's intellectual property rights.
ARTICLE III
ROYALTIES AND OTHER PAYMENTS
----------------------------
3.1 ROYALTIES. In consideration for the license granted hereunder,
during the term of this Agreement, TECHNICLONE shall pay to NORTHWESTERN
UNIVERSITY the following royalty amounts with respect to Net Sales:
<TABLE>
<CAPTION>
<S> <C> <C>
TERRITORY DURATION OF ROYALTY PERIOD ROYALTY AMOUNT
Territory A Until February 5, 2009; 3% of Net Sales;
provided, that no royalties are provided, that the royalty
payable if and to the extent shall be 1.5% if there is
TECHNICLONE does not a generic form of the
receive any revenue from Net Sales Licensed Product sold
In Territory A in Territory A
-4-
<PAGE>
Territory B Until February 5, 2009; 1% of Net Sales;
provided, that if any patent filed by provided that the royalty
NORTHWESTERN is issued after the shall be 0.5% with respect
date of execution of this Agreement to a particular country in
for any country in Territory B, the Territory B if a generic
Royalty Period with respect to that form of the Licensed
particular country will continue until Product is sold in such
the expiration of such patent; provided, country
further that no royalties are payable if
and to the extent TECHNICLONE
does not receive any revenue from Net
Sales in any country in Territory B
</TABLE>
Notwithstanding the foregoing, the Royalty Amount shall be subject to
adjustment if the Licensed Product consists of a LYM-1 antibody or LYM-2
antibody with a non-radiolabeled therapeutic (e.g., alpha interferon or gamma
interferon), as follows:
Where:
x = cost of goods sold attributable to the LYM component of the
Licensed Product; and
y = cost of goods sold for the entire Licensed Product;
the Royalty Amount shall be equal to the product of (i) the applicable
Royalty Amount set forth in the table above, multiplied by (ii) x divided by y.
3.2 PAYMENTS. Royalty payments are nonrefundable and shall be paid in
United States dollars at the address designated for NORTHWESTERN UNIVERSITY in
Article X of this Agreement or at such other place as NORTHWESTERN UNIVERSITY
may reasonably designate and shall be payable on the seventieth (70th) day after
each Quarter Year.
ARTICLE IV
REPORTS AND RECORDS
-------------------
4.1 ROYALTY REPORTS. TECHNICLONE shall deliver to NORTHWESTERN
UNIVERSITY true and accurate reports, giving such particulars of the business
conducted by TECHNICLONE during the preceding three-month period, under this
Agreement, that shall be pertinent to a royalty accounting hereunder. Within
seventy (70) days after each Quarter Year, TECHNICLONE shall deliver to
NORTHWESTERN UNIVERSITY true and accurate reports, giving such particulars of
the business conducted by its Sublicensees during the preceding three-month
period, under this Agreement, that shall be pertinent to a royalty accounting
hereunder. NORTHWESTERN UNIVERSITY agrees to hold all information in such
royalty reports in confidence pursuant to the provisions of SECTION 10.12,
except as necessary to communicate and/or investigate TECHNICLONE's
non-compliance with this Agreement. With each such report submitted, TECHNICLONE
shall pay to NORTHWESTERN UNIVERSITY the royalties due and payable under this
Agreement. If no royalties shall be due, TECHNICLONE shall so report.
-5-
<PAGE>
4.2 RETENTION OF BOOKS AND RECORDS. TECHNICLONE shall make and retain
for a period of three (3) years following the period of each report required by
this Article true and accurate records, files and books of account containing
all the data reasonably required for the full computation and verification of
gross sales, gross revenues and other information required in SECTION 4.1. Such
books and records shall be in accordance with generally accepted accounting
principles consistently applied and shall be kept at TECHNICLONE's principal
place of business. TECHNICLONE shall permit the inspection of such records,
files and books of account by an independent certified public accountant chosen
by NORTHWESTERN UNIVERSITY and reasonably acceptable to TECHNICLONE during
regular business hours upon five (5) business days' written notice to
TECHNICLONE, to the extent necessary to verify compliance with this Agreement.
Such inspection shall not be made more than two times each calendar year or more
than once for any period unless an error is discovered, or other good cause. All
costs of such inspection and copying shall be paid by NORTHWESTERN UNIVERSITY,
provided that if any such inspection shall reveal that an error has been made in
the amount equal to 5% or more of such payment, such costs shall be borne by
TECHNICLONE.
4.3 PAYMENTS AFTER TERMINATION. If this Agreement should be terminated
at any time other than at the end of the Quarter Year or Royalty Year, the last
report and payment shall be made within one hundred (100) days after the
effective date of such termination on, and shall include any royalties through
the date of termination; provided, however, TECHNICLONE shall provide
NORTHWESTERN UNIVERSITY with a report setting forth the amount of any inventory
of Licensed Products not sold as of the date of termination, and TECHNICLONE
shall continue to render royalty reports with respect to Net Revenue actually
received by TECHNICLONE from sales of such existing inventory and to make
payments in accordance with the terms of this Agreement as though this Agreement
were still in effect.
ARTICLE V
PATENT PROSECUTION
------------------
5.1 PATENTS.
(a) If during the term of this Agreement NORTHWESTERN
UNIVERSITY elects to file patent applications or otherwise obtain patent rights
related to the Inventions or Licensed Products as defined in this Agreement,
such applications shall become included in the Licensed Patents defined
hereunder.
(b) TECHNICLONE shall, upon written request from
NORTHWESTERN UNIVERSITY, bear all (100%) of the reasonable costs for the
preparation, filing and prosecuting of the United States patent applications
included in the Licensed Patents, but in no case beyond an appeal to and a
decision by the United States Patent and Trademark Office Board of Appeals,
unless TECHNICLONE specifically agrees otherwise in writing.
-6-
<PAGE>
(c) TECHNICLONE shall indicate to NORTHWESTERN UNIVERSITY in
which countries, if any, it wishes NORTHWESTERN UNIVERSITY to file patent
applications related to United States patent applications in the Licensed
Patents. Such selection of countries will be made in writing by TECHNICLONE to
NORTHWESTERN UNIVERSITY within nine (9) months after the filing date of any
corresponding U.S. application. Notwithstanding the foregoing, nothing shall
prevent or otherwise limit TECHNICLONE and/or its Sublicensees from preparing,
filing, prosecuting, maintaining patent applications and patents in such
countries other than the United States which TECHNICLONE or its Sublicensees
wishes to include under the Licensed Patents of this Agreement.
(d) TECHNICLONE agrees to pay or to cause its Sublicensees
to pay for all reasonable fees and expenses for preparation, prosecution,
maintenance and taxes relating to the filing and maintenance of patent
applications and patents in such countries other than the United States which
TECHNICLONE or its Sublicensees wishes to include under the Licensed Patents of
this Agreement.
(e) If TECHNICLONE elects to discontinue any patents under
this Section for preparation, filing, prosecuting or maintaining any patent
application or, patent in any country, the license granted under this Agreement
with respect to said patent application or patent in such country shall
terminate.
ARTICLE VI
INFRINGEMENT
------------
6.1 NOTICE OF INFRINGEMENT BY THIRD PARTIES. TECHNICLONE shall inform
NORTHWESTERN UNIVERSITY promptly in writing of any apparent infringement by a
third party discovered by it with respect to any patent issuing from the
Licensed Patents and of any available evidence thereof.
6.2 PROSECUTION OF INFRINGEMENT CLAIMS. During the term of this
Agreement, NORTHWESTERN UNIVERSITY shall have the right, but shall not be
obligated, to prosecute at its own expense all infringements of any patent
issuing from the Licensed Patents and, in furtherance of such right, TECHNICLONE
hereby agrees that NORTHWESTERN UNIVERSITY may include TECHNICLONE as a party
plaintiff (but not as a defendant or respondent or counter claimant) in such
suit, without expense to TECHNICLONE. The full cost and expense of any such
action so commenced or so defended by NORTHWESTERN UNIVERSITY shall be the
responsibility of and paid for by NORTHWESTERN and NORTHWESTERN shall keep any
recovery or damages for past infringement derived therefrom. No settlement,
consent judgment or other voluntary final disposition of the suit may be entered
into without the consent of TECHNICLONE, which consent shall not unreasonably be
withheld or delayed. NORTHWESTERN UNIVERSITY shall indemnify TECHNICLONE against
any order for costs that may be made against TECHNICLONE in such proceedings.
-7-
<PAGE>
6.3 TECHNICLONE RIGHT TO PROSECUTE. If within six (6) months after
having been notified of any alleged or apparent infringement, NORTHWESTERN
UNIVERSITY shall have been unsuccessful in persuading the alleged infringer to
cease and desist such alleged infringement and shall not have brought and shall
not be diligently prosecuting an infringement action, or if NORTHWESTERN
UNIVERSITY shall notify TECHNICLONE at any time prior thereto of its intention
not to bring suit against any alleged infringer, then TECHNICLONE shall have the
right, but shall not be obligated, to prosecute at its own expense any
infringement of any patent issuing from the Licensed Patents and, in furtherance
of such right, NORTHWESTERN UNIVERSITY hereby agrees that TECHNICLONE may
include NORTHWESTERN UNIVERSITY as a party plaintiff (but not as a defendant or
respondent or counter claimant) in such suit; provided, however, that such right
to bring such infringement action shall remain in effect only for so long as the
license granted herein remains exclusive in accordance with the terms hereof. No
settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without the consent of NORTHWESTERN UNIVERSITY, which
consent shall not unreasonably be withheld or delayed. TECHNICLONE shall
indemnify NORTHWESTERN UNIVERSITY against any order for costs that may be made
against NORTHWESTERN UNIVERSITY in such proceedings. TECHNICLONE shall keep any
recovery or damages for past infringement derived therefrom; provided, however,
that such recovery, less expenses (including reasonable attorneys' fees and
disbursements) shall be treated as Net Sales for the purpose of calculating
royalties under paragraph 3.1 hereof.
6.4 DECLARATORY JUDGMENT ACTION. If a declaratory judgment action
alleging invalidity or noninfringement of any patent issuing from the Licensed
Patents shall be brought against TECHNICLONE, NORTHWESTERN UNIVERSITY, at its
option, shall have the right, within thirty (30) days after it receives notice
of the commencement of such action, to intervene and take over the sole defense
of the action at its own expense. No settlement, consent judgment or other
voluntary final disposition of such action may be entered into without the
consent of TECHNICLONE, which consent shall not unreasonably be withheld or
delayed. NORTHWESTERN UNIVERSITY shall indemnify TECHNICLONE against any order
for costs that may be made against TECHNICLONE in such action or the related
proceedings.
6.5 COOPERATION OF THE PARTIES. In any infringement suit or action that
either party may institute to enforce the patents issuing from the Licensed
Patents pursuant to this Agreement, the other party hereto shall, at the
reasonably request and expense of the party initiating such suit, cooperate in
all reasonably respects and, to the extent possible, have its employees testify
when reasonably requested to do so and make available relevant records, papers,
information, samples, specimens and the like, subject to an order or agreement
of confidentiality reasonably acceptable to such other party with respect to any
such records, papers, information, samples, specimens or the like which are not
within the public domain or are not otherwise already generally disclosed or
available to the public.
-8-
<PAGE>
6.6 RIGHT TO LICENSE OR SUBLICENSE TO ALLEGED INFRINGER. TECHNICLONE,
during the term of this Agreement, shall have the sole right in accordance with
the terms and conditions hereof, to license or sublicense to any alleged
infringer for future use of any of the patents issuing from the Licensed
Patents. Any upfront fees as part of such a license or sublicense shall be
shared equally between TECHNICLONE and NORTHWESTERN UNIVERSITY and any royalties
generated from such a license or sublicense shall be treated as Net Sales for
the purpose of calculating royalties under paragraph 3.1 hereof.
6.7 RIGHT TO MONITOR PROCEEDINGS. With respect to any suit, action or
proceeding which only one of the parties has instituted as provided above in
this Article VI, if reasonably requested by the other party, such party shall
make available to the other party any documents and materials that are relevant
to the other party's interests in such suit, action or proceeding; provided,
that the disclosure of such documents and materials to the other party would not
impair such party's prosecution of such suit, action or proceeding.
ARTICLE VII
INDEMNIFICATION
---------------
TECHNICLONE agrees to indemnify, hold harmless and defend NORTHWESTERN
UNIVERSITY, its officers, employees, and agents against any and all claims,
suits, losses, damage, costs, fees, and expenses resulting from or arising out
of the development, manufacture, use, marketing or sale of the Licensed Products
by TECHNICLONE, its Sublicensee(s) and others purchasing and/or receiving the
Licensed Product. If any claims is asserted against NORTHWESTERN UNIVERSITY or
TECHNICLONE, or any of their respective officers, directors, trustees,
employees, agents or representatives, or such person is made a party defendant
in any action involving a matter which is the subject of TECHNICLONE's
indemnification hereunder, or NORTHWESTERN UNIVERSITY or TECHNICLONE becomes
aware of a claim or patent which might provide the basis for a third party's
claim of infringement against TECHNICLONE, its Affiliates, Sublicensee(s) or
permitted assignees as a result of the development, manufacture, use, marketing
or sale of a Licensed Product, then within thirty (30) days of receipt by
NORTHWESTERN UNIVERSITY or by TECHNICLONE of notice of any such event, and
within ten (10) days of such party's receipt of a written complaint or other
formal pleading regarding any such event, such party shall give the other party
hereto written notice thereof.
-9-
<PAGE>
If TECHNICLONE or NORTHWESTERN UNIVERSITY receives notice of a claim or
action by a third party alleging infringement of such third party's rights in
connection with the development, manufacture, use, marketing or sale of a
Licensed Product by TECHNICLONE, its Sublicensees or permitted assignees,
TECHNICLONE or its Sublicensees shall have the right to conduct the legal
defense, but shall not enter into any settlement, consent judgment or final
voluntary disposition that admits that any Licensed Product infringes any third
party right, without NORTHWESTERN UNIVERSITY's prior written consent to such
disposition, which consent shall not be unreasonably withheld or delayed. All
costs of TECHNICLONE's and its Sublicensees' defense, including their respective
attorneys' fees and costs, and any damages awarded or amounts paid in settlement
in any such claim or action shall be the sole responsibility of TECHNICLONE and
such Sublicensees, except to the extent that such damages or amounts relate to
the validity of any of the patents issuing from a Licensed Product. NORTHWESTERN
UNIVERSITY shall cooperate with TECHNICLONE if requested to do so by TECHNICLONE
or its Sublicensees, in its defense of such infringement claim or action,
provided that TECHNICLONE or such Sublicensees shall reimburse NORTHWESTERN
UNIVERSITY for all out-of-pocket expenses incurred by it in providing such
cooperation.
ARTICLE VIII
LAWS AND REGULATIONS
--------------------
TECHNICLONE shall use commercially reasonable best efforts to comply
with all foreign and United States federal, state and local laws, regulations,
rules and orders applicable to the testing, production, transportation,
packaging, labeling, export, sale and use of the Licensed Products. NORTHWESTERN
UNIVERSITY agrees to use reasonable efforts to cooperate with TECHNICLONE at
TECHNICLONE's expense, in connection with any filings required by any
governmental entity.
ARTICLE IX
TERM OF LICENSE; TERMINATION OF LICENSE
---------------------------------------
9.1 TERM. Unless sooner terminated according to the provisions of this
Agreement, the term of the license granted hereunder shall commence upon the
execution hereof, and shall terminate on February 5, 2009; provided, that if any
patent filed by NORTHWESTERN is issued after the date of execution of this
Agreement for any country in Territory B, the term of the license granted
hereunder with respect to that particular country will continue until the
expiration of such patent (which shall be deemed to be a Licensed Patent for
purposes of this Agreement). Notwithstanding the foregoing, the term of the
license granted hereunder shall terminate with respect to a particular country
if and to the extent that TECHNICLONE no longer receives Net Sales from sales of
the Licensed Products in such country for a period of four (4) consecutive
fiscal quarters after commercial sales of such Licensed Product have commenced
in such country.
9.2 TERMINATION.
(a) If TECHNICLONE shall become bankrupt or insolvent and/or
if the business of TECHNICLONE shall be placed in the hands of a receiver,
assignee, or trustee. whether by the voluntary act of TECHNICLONE or otherwise,
this License Agreement may be terminated at the option of NORTHWESTERN
UNIVERSITY upon written notice to TECHNICLONE; provided, however, that such
termination shall not terminate any obligations of TECHNICLONE to NORTHWESTERN
UNIVERSITY that may have accrued thereto.
(b) Upon any breach or default under this Agreement by
TECHNICLONE, NORTHWESTERN UNIVERSITY may terminate this Agreement by giving
ninety (90) days written notice by certified or registered mail, return receipt
requested. Said notice shall become effective at the end of said period, unless
during said period TECHNICLONE shall cure such breach or default to the
reasonable satisfaction of NORTHWESTERN UNIVERSITY.
-10-
<PAGE>
(c) TECHNICLONE may terminate this Agreement at any time
upon ninety (90) days written notice by certified or registered mail, return
receipt requested, to NORTHWESTERN UNIVERSITY.
(d) Upon termination of this Agreement for any reason, all
rights granted hereunder shall revert to NORTHWESTERN UNIVERSITY for the sole
benefit of NORTHWESTERN UNIVERSITY.
(e) TECHNICLONE's obligations and responsibilities to report
to NORTHWESTERN UNIVERSITY and pay royalties to NORTHWESTERN UNIVERSITY under
this Agreement as a result of activity prior to any termination or expiration
hereof shall survive such termination or expiration if and to the extent that
TECHNICLONE actually receives Net Sales from sales of the Licensed Products
attributable to such activity prior to such termination or expiration.
ARTICLE X
MISCELLANEOUS
-------------
10.1 NOTICES. Any notice, demand, report, statement, request or other
communication required or permitted to be given hereunder ("NOTICE") by a party
to the other parties shall be in writing and shall be either (i) hand-delivered
(including delivery by courier), or (ii) mailed by first-class registered or
certified mail (airmail if international), return receipt requested, postage
prepaid, addressed as follows:
To NORTHWESTERN UNIVERSITY: Director
Technology Transfer Program
Northwestern University
1801 Maple Avenue
Evanston, IL 60201
If to TECHNICLONE: Techniclone Corporation
14282 Franklin Avenue
Tustin, CA 92780
Attn: President
Each party may designate by notice in writing a new address or telecopy number
to which any Notice, may thereafter be so given, served or sent. Any Notice sent
by (a) registered or certified (air)mail shall be deemed to have been given at
the time of the receipt thereof by the other party or three (3) calendar days
after the time of mailing, whichever is earlier; or (b) hand-delivery (including
delivery by courier) shall be deemed to have been given at the time of receipt
of same.
-11-
<PAGE>
10.2 ENTIRE AGREEMENT. This Agreement and the schedules and documents
referenced herein and therein) contains the entire agreement with respect to the
subject matter hereof and supersedes any and all prior agreements, written or
oral, with respect thereto, including, without limitation, the Prior License
Agreement.
10.3 WAIVERS AND AMENDMENTS: NON-CONTRACTUAL REMEDIES: PRESERVATION OF
REMEDIES. This Agreement shall not be modified or amended except pursuant to an
instrument in writing executed by duly authorized representatives of each party
and delivered on behalf of each party to be bound. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Neither any waiver on the part of any party of any such right,
power or privilege, nor any single or partial exercise of any such right, power
or privilege shall preclude any further exercise thereof or the exercise of any
other such right, power or privilege unless waived in writing. The rights and
remedies hereunder provided are cumulative and except as otherwise provided
herein are not exclusive of any rights or remedies that any party may otherwise
have at law or in equity.
10.4 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their respective
successors and permitted assigns.
10.5 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
10.6 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
signed by less than all, but together signed by all of the parties hereto.
10.7 EXHIBITS AND SCHEDULES. The documents referred to herein are a
part of this Agreement as if fully set forth herein. All references herein to
sections, subsections, clauses, documents and schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
10.8 HEADINGS. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
10.9 SEVERABILITY OF PROVISIONS: REFORMATION. If any term, clause,
word, condition, provision or agreement in this Agreement or the application
thereof or any portion thereof to any person or circumstance, shall be held
illegal, invalid, void or unenforceable, the remainder of the term, clause,
word, condition, provision or agreement and the application thereof shall remain
in full force and effect, and the illegal, invalid, void or unenforceable term,
clause, word, condition, provision or agreement shall be reformed to the extent
possible in order to give its intended effect and/or meaning.
-12-
<PAGE>
10.10 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Illinois as applied to contracts
that are executed and performed entirely in Illinois.
10.11 CONFIDENTIAL INFORMATION. Except as expressly provided herein,
the parties agree that, for the term of this Agreement and for five (5) years
thereafter, the receiving party shall keep completely confidential and shall not
publish or otherwise disclose and shall not use for any purpose except for the
purposes contemplated by this Agreement any Confidential Information furnished
to it by the disclosing party hereto pursuant to this Agreement, except to the
extent that it can be established by the receiving party by competent proof that
such Confidential Information:
(a) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part
of the public domain at the time of its disclosure to the receiving
party;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through
any act or omission of the receiving party in breach of this Agreement;
(d) was independently developed by the receiving party as
demonstrated by sufficiently documented evidence prepared
contemporaneously with such independent development; or
(e) was subsequently lawfully disclosed to the receiving
party by a person other than a party hereto.
-13-
<PAGE>
Each party hereto may use or disclose information disclosed to it by the other
party to the extent such use or disclosure is reasonably necessary in filing or
prosecuting patent applications, prosecuting or defending litigation, complying
with applicable governmental laws, rules and regulations (including, without
limitation, rules and regulations promulgated by the Securities and Exchange
Commission) or otherwise submitting information to tax or other governmental
authorities, conducting clinical trials, or making a permitted sublicense or
otherwise exercising its rights hereunder, provided that if a party is required
to make any such disclosure of another party's Confidential Information, other
than pursuant to a confidentiality agreement, it will give reasonable advance
notice to the latter party of such disclosure and, save to the extent
inappropriate in the case of patent applications, will use its best efforts to
secure confidential treatment of such information prior to its disclosure
(whether through protective orders or otherwise.) Except as expressly provided
herein, each party agrees not to disclose any terms of this Agreement to any
third party without the consent of the other party; provided disclosures may be
made as required by securities or other applicable laws, or to actual or
prospective investors or corporate partners, or to a party's accountants,
attorneys and other professional advisors. As used herein, "CONFIDENTIAL
INFORMATION" shall mean (i) any proprietary or confidential information or
material in tangible form disclosed hereunder that is marked as "confidential"
at the time it is delivered to the receiving party, and/or (ii) any written
reports marked "confidential" furnished by either party to the other pursuant to
the terms of this Agreement.
10.12 FURTHER ASSURANCES. Each party to this Agreement shall, at the
request of the other, furnish, execute, and deliver such documents, instruments,
certificates, notices or other further assurances as the requesting party shall
reasonably request as necessary or desirable to effect complete consummation of
this Agreement and the transactions contemplated hereby.
10.13 INDEPENDENT CONTRACTORS. The relationship of NORTHWESTERN
UNIVERSITY and TECHNICLONE established by this Agreement is that of independent
contractors, and nothing contained in this Agreement shall be construed to (i)
give either party the power to direct and control the day-to-day activities of
the other, or (ii) allow TECHNICLONE to create or assume any obligation on
behalf of NORTHWESTERN UNIVERSITY for any purpose whatsoever. All financial
obligations associated with TECHNICLONE's business are the sole responsibility
of TECHNICLONE. All sales and other agreements between TECHNICLONE and its
customers are TECHNICLONE's exclusive responsibility and shall have no effect on
NORTHWESTERN UNIVERSITY's obligations under this Agreement.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date set forth below.
NORTHWESTERN UNIVERSITY: NORTHWESTERN UNIVERSITY
By: /s/ Lydia Ville Kamarolf
----------------------------------
Its: AUG - 4 1999
---------------------------------
TECHNICLONE: TECHNICLONE CORPORATION,
a Delaware corporation
By: /s/ John N. Bonfiglio
----------------------------------
John N. Bonfiglio, Vice President of
Technology and Business Development
-15-
<PAGE>
EXHIBIT "A"
INVENTIONS
----------
1. "Hybridoma 173-9, Lym-1" (NU 8314-A)
------------------------------------
A hybridoma clone, designated Lym-1, was produced from the fusion of
primed mouse splenocytes and mouse myeloma NS-a cells. Hybridoma Lym-1 produced
a murine IgG2a monoclonal antibody which recognizes a 31, 32, 33 and 35
kilodalton cell surface protein expressed in normal and malignant B lymphocytes.
Immunoperoxidase staining of a panel of normal human tissues shows that Lym-1
reacts with germinal center and mantle zone B lymphocytes and interdigitating
histiocytes of the lymph node, medullary dendritic cells of the thymus, and
weakly with surface epithlium of the colon. A subset of peripheral blood B cells
are positive and no reactivity has been observed in human bone marrow by flow
cytometric analysis. The antigen recognized by Lym-1 is not shed from the
surface of lymphoma cells either in cell culture or in patients and is not
modulated after Lym-1 binding. Lym-1 itself has been shown to have high avidity
to human lymphoma cells IN VIVO as demonstrated by radionuclide binding studies
in lymphoma patients using I-123 conjugates. Binding to normal tissues such as
the bone marrow, spleen, lymph node, liver, kidney, lung or central nervous
system has not been demonstrated in over 30 patients studied. Lym-1 has further
been found to be highly stable to radionuclide conjugation methods and may be
prepared as F(ab1)2 or F(ab) fragments without significant loss of antibody
activity. Collectively, these data suggest that Lym-1 will be an appropriate
reagent for IN VIVO diagnosis and therapy of the human B-cell lymphomas and
leukemias.
2. "Hybridoma Clone 1010-9, Lym-2" (NU 8314-B)
-------------------------------------------
A hybridoma clone, designated Lym-2, was produced from the fusion of
primed mouse splenocytes and mouse myeloma NS-1 cells. Hybridoma Lym-2 produced
a murine IgG1 monoclonal antibody which recognizes a cell surface protein
expressed in normal and malignant B lymphocytes. Immunoperoxidase staining of a
panel of normal human tissues show that Pym-2 reacts with germinal center and
mantle zone B lymphocytes and interdigitating histiocytes of the lymph node. A
subset of peripheral blood B cells are positive and no reactivity has been
observed in human bone marrow by flow cytometric analysis. Because of the
remarkable specificity of Lym-2 for human B-cells and derived malignancies,
these data suggest that Lym-2 will be appropriate for reagent for in vivo
diagnostic and therapy of the human B-cell lymphomas and leukemias.
<PAGE>
3. "Hybridoma Clone 818-18, BM-1" (NU 8216-C)
------------------------------------------
A hybridoma clone, designated 818-18, was produced from the fusion of
primed mouse splenocytes and mouse myeloma NS-1 cells. Clone 818-18 produces a
murine IgG1 monoclonal antibody which recognizes a nuclear antigen expressed in
human granulocytes and myeloid precursors and acute and chronic myeloid
leukemia. Immunoperoxidase staining with 818-18 on B5 fixed, paraffin embedded
clot preparations of bone marrow aspirates shows positive nuclear staining of
myeloid cells with normal non-specific background staining. The remarkable
specificity of this reagent and its ability to stain B5 fixed, paraffin embedded
tissues makes it a unique reagent for the diagnosis of myeloid derived
leukemias.
<PAGE>
EXHIBIT "B"
ISSUED LICENSED PATENTS
-----------------------
United States Patent 4,724,213 issued February 9, 1988; Epstein, "Murine
Hybridoma LYM-1 and Diagnostic Antibody Produced Thereby."
United States Patent 4,724,212 issued February 9, 1988; Epstein, "Murine
Hybridoma LYM-2 and Diagnostic Antibody Produced Thereby."
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