<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
---------------
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1995 Commission File Number 0-14587
GENETICS INSTITUTE, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2718435
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
87 CambridgePark Drive, Cambridge, MA 02140
--------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (617) 876-1170
-----------------------------
None
--------------------------------------------------------------------------------
(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
--- ---
26,734,799 shares of Common Stock, par value $.01 (including 10,734,058 shares
represented by Depositary Shares) were outstanding on August 4, 1995.
<PAGE> 2
GENETICS INSTITUTE, INC.
INDEX
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Page
Item 1 - Financial Statements Number
------
<S> <C>
Consolidated Condensed Balance Sheets -
June 30, 1995 and December 31, 1994.................................................................... 3
Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1995 and 1994.............................................. 4
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 1995 and 1994........................................................ 5
Notes to Consolidated Condensed Financial Statements...................................................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................................. 12
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings................................................................................... 15
Item 4 - Submission of Matters to a Vote of Security Holders................................................. 15
Item 6 - Exhibits and Reports on Form 8-K.................................................................... 15
Signatures................................................................................................... 16
</TABLE>
-2-
<PAGE> 3
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------------- ----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 30,267 $ 21,793
Marketable securities 236,748 247,970
Accounts receivable 39,449 16,127
Inventories:
Materials and supplies 5,333 4,354
Work in progress 824 776
Finished goods 7,890 13,543
---------------- ----------------
14,047 18,673
Other current assets 5,665 5,275
---------------- ----------------
Total current assets 326,176 309,838
Property, plant and equipment 170,687 158,712
Less accumulated depreciation (61,559) (53,397)
---------------- ----------------
109,128 105,315
Other assets 10,773 6,440
---------------- ----------------
$ 446,077 $ 421,593
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 10,397 $ 11,544
Accrued expenses 21,054 21,045
---------------- ----------------
Total current liabilities 31,451 32,589
Shareholders' Equity:
Common stock, par value $.01 267 266
Additional paid-in capital 599,131 595,360
Accumulated deficit (184,772) (206,622)
---------------- ----------------
Total shareholders' equity 414,626 389,004
---------------- ----------------
$ 446,077 $ 421,593
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE
Product sales $ 22,631 $ 10,784 $ 46,509 $ 23,736
Royalties 13,396 10,467 23,959 19,339
Collaborative research and development 9,883 3,536 27,213 8,662
--------- --------- --------- ---------
Total revenue 45,910 24,787 97,681 51,737
OPERATING EXPENSES
Cost of sales 13,416 6,791 26,880 14,391
Research and development 31,621 25,405 58,545 52,529
General and administrative 5,068 4,569 9,468 8,786
--------- --------- --------- ---------
Total operating expenses 50,105 36,765 94,893 75,706
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (4,195) (11,978) 2,788 (23,969)
OTHER INCOME (EXPENSE), NET
Investment income 4,506 3,264 8,683 7,084
Income (losses) of affiliates 4,926 (310) 2,171 (1,419)
Other, net (67) (519) (2,773) (1,290)
--------- --------- --------- ---------
Total other income (expense), net 9,365 2,435 8,081 4,375
--------- --------- --------- ---------
NET INCOME (LOSS) $ 5,170 $ (9,543) $ 10,869 $ (19,594)
========= ========= ========= =========
Weighted Average Common Shares
Outstanding 26,696 26,396 26,662 26,365
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE $ .19 $ (.36) $ .41 $ (.74)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 10,869 $ (19,594)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities -
Depreciation and amortization 9,279 6,034
Equity in (income) losses of affiliates (2,171) 1,419
Compensation related to incentive plans 362 347
Changes in assets and liabilities (20,224) 4,972
--------- ---------
Net cash used in operating
activities (1,885) (6,822)
--------- ---------
INVESTING ACTIVITIES
Purchase of marketable securities (108,359) (120,508)
Proceeds from sale/maturity of
marketable securities 130,562 135,403
Additions to property, plant and
equipment (12,799) (17,669)
Investments in affiliates (1,829) (1,419)
Other investing activities, net (626) (1,422)
--------- ---------
Net cash provided by (used in) investing
activities 6,949 (5,615)
--------- ---------
FINANCING ACTIVITIES
Stock issuances 3,410 4,183
--------- ---------
Net cash provided by financing activities 3,410 4,183
--------- ---------
Net increase (decrease) in cash and cash
equivalents 8,474 (8,254)
Cash and cash equivalents, beginning of
period 21,793 20,869
--------- ---------
Cash and cash equivalents, end of period $ 30,267 $ 12,615
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
Basis of Presentation: The accompanying consolidated condensed financial
statements are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation. The consolidated condensed
financial statements should be read in conjunction with the Company's
audited consolidated financial statements and related footnotes for the year
ended December 31, 1994.
The consolidated condensed financial statements include all accounts of
Genetics Institute, Inc. and its wholly-owned subsidiaries. Investments in
50% owned joint ventures are accounted for on the equity method. Under the
equity method, investments in such affiliated joint ventures are recorded at
cost and adjusted by the Company's share of the income and losses of and the
investments in and distributions from such affiliates. All significant
intercompany balances and transactions have been eliminated in
consolidation.
2. Transactions with American Home Products Corporation
On September 19, 1991, the Company and American Home Products Corporation
("AHP") entered into an Agreement and Plan of Merger (the "AHP Transaction")
that was consummated on January 16, 1992 through which AHP acquired a 60%
interest in the Company. In connection with the AHP Transaction, the Company
issued 9,466,709 new shares of Common Stock to AHP for an aggregate purchase
price of approximately $300.0 million and, for shares of common stock owned,
the Company's shareholders received a combination of cash and Depositary
Shares subject to a call option. Under the terms of the call option, AHP has
the right but not the obligation, to purchase the outstanding Depositary
Shares that it does not own, in whole but not in part, at any time until
December 31, 1996, at a call price of $75.79 per share for the period July
1, 1995 to September 30, 1995 and increasing by approximately $1.84 on a
quarterly basis to $85.00 per share for the quarter ending December 31,
1996.
Independent of its right to call the Depositary Shares, AHP is permitted by
the terms of the agreements with the Company to acquire additional
Depositary Shares through open market purchases or privately negotiated
purchases, provided that its aggregate holdings do not exceed 75% of the
Company's outstanding equity, subject to certain exceptions. As of June 30,
1995, such transactions have brought AHP's total ownership position in the
Company to approximately 63%.
The Company is engaged in collaborations with AHP in the development and
commercialization of recombinant human interleukin-twelve (rhIL-12), an
immune system modulatory protein, and the commercialization of recombinant
human interleukin-eleven (rhIL-11), a blood cell growth factor. A
collaboration with AHP in the area of cellular adhesion discovery research
ended as scheduled during the second quarter of 1995. Collaborative research
and development revenue includes $4.8 million and $7.9 million,
respectively, for the three and six month periods ended June 30, 1995 and
$1.5 million and $2.9 million, respectively, for the three and six month
periods ended June 30, 1994 and losses of affiliates includes $0.9 million
and $1.5 million, respectively, for the three and six month periods
ended June 30, 1995, relating to these collaborations with AHP.
-6-
<PAGE> 7
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. Investments in Debt Securities
The Company's portfolio of debt securities consists of cash equivalents
classified as held-to-maturity and marketable securities classified as
available-for-sale. The fair value of cash equivalents approximated the
amortized cost of $30.0 million at June 30, 1995. Aggregate fair value,
amortized cost and average maturity for marketable securities held at
June 30, 1995 are presented below. The average maturities presented below
include estimates of the effective life for certain securities whose actual
maturities will differ from contractual maturities because the borrowers
have the right to call or prepay the obligations without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Holding Gains and (Losses) Value
---- -------------------------- -----
(in thousands)
<S> <C> <C> <C> <C>
U.S. Government and Agency
securities (average maturity
of 3.0 years) $ 140,559 $ 1,543 $ (1,264) $ 140,838
Corporate and other debt securities
(average maturity of 2.9 years) 96,380 721 (1,191) 95,910
--------- --------- --------- ---------
$ 236,939 $ 2,264 $ (2,455) $ 236,748
========= ========= ========= =========
</TABLE>
The decrease in the net unrealized loss on marketable securities for the
three and six month periods ended June 30, 1995 was $5.9 million and $11.0
million, respectively. Gross realized gains and losses on sales of
marketable securities for the three and six month periods ended June 30,
1995 and 1994 were not material.
4. Income (Loss) of Affiliates, Net
Income (loss) of affiliates, net consists of the Company's share of
benchmark payments or license fees received by the joint ventures, net of
the Company's share of research and development expenses incurred by
affiliated joint ventures (excluding any research and development or other
services provided by the Company to the joint ventures). The Company's share
of the joint ventures' revenues, which ranges from 50% to 62.5%, is
generally distributed when received by the joint venture. The Company's
share of the joint ventures' expenses, which ranges from 25% to 50%, is
generally funded as incurred. Investments in such affiliates are accounted
for on the equity method and amounted to $4.5 million and $0.4 million at
June 30, 1995 and December 31, 1994, respectively.
The more significant of these affiliates are GI-Yamanouchi, Inc. (GYJ), the
GI-Yamanouchi European Partnership (GYEP) and IL-12 Partners. The GYJ and
the GYEP are joint ventures with Yamanouchi Pharmaceutical Co., Ltd.
(Yamanouchi) formed to develop and commercialize certain of the Company's
product candidates in Japan and Europe, respectively. IL-12 Partners is a
joint venture with AHP formed to develop and commercialize rhIL-12 worldwide
except Japan.
-7-
<PAGE> 8
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
The Company's income (loss) of affiliates, net for the three and six months
ended June 30, 1995 and for the years ended December 31,1994 and November 30,
1993 was as follows (in millions):
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, June 30,
-------------- ----------------
1995 1994 1995 1994
---- ----- ----- -----
<S> <C> <C> <C> <C>
Combined net income (loss) of affiliated
joint ventures $ 3.5 $ 2.1 $(6.9) $(3.7)
===== ===== ===== =====
Company share of joint ventures' net income
(loss) based on ownership percentage share of
revenues and expenses 2.3 (0.8) (2.6) (3.1)
Elimination of Company share of joint venture
expenses attributable to services provided
by the Company 2.6 0.5 4.8 1.7
----- ----- ----- -----
Equity income (loss) of affiliates reported in
the Company's Consolidated Statements
of Operations $ 4.9 $(0.3) $ 2.2 $(1.4)
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended
December 31, November 30,
1994 1993
----------------- -----------------
<S> <C> <C>
Combined net loss of affiliated joint ventures $ (38.9) $ (12.8)
================= =================
Company share of joint ventures' net loss
based on ownership percentage share of
revenues and expenses $ (15.7) $ (1.5)
Elimination of Company share of joint venture
expenses attributable to:
-Benchmarks paid to the Company 4.5 -
-Services provided by the Company 5.9 4.8
----------------- -----------------
Equity (loss) income of affiliates reported in
the Company's Consolidated Statements
of Operations $ (5.3) $ 3.3
================= =================
</TABLE>
-8-
<PAGE> 9
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Summarized financial information for the Company's affiliated joint ventures
for fiscal 1994 and 1993 is presented below (in millions):
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GYJ GYEP Other Eliminations Total
----------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ 6.0 $ (6.0) $ -
Research and
Development Expenses:
Benchmark payments 9.0 6.0 - (6.0) 9.0
GI R&D - 2.6 15.2 - 17.8
Partner R&D and
other costs 11.0 0.8 0.3 - 12.1
----------- ------------ ------------- ------------- ---------------
20.0 9.4 15.5 (6.0) 38.9
----------- ------------ ------------- ------------- ---------------
Net Loss $ (20.0) $ (9.4) $ (9.5) $ - $ (38.9)
=========== ============ ============= ============= ===============
</TABLE>
FOR THE YEAR ENDED NOVEMBER 30, 1993
<TABLE>
<CAPTION>
GYJ GYEP Other Eliminations Total
----------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 10.0 $ 6.0 $ (6.0) $ 10.0
Research and
Development Expenses:
Benchmark payments - 6.0 - (6.0) -
GI R&D 0.2 1.2 16.5 - 17.9
Partner R&D and
other costs 4.9 - - - 4.9
----------- ------------- -------------- ------------- ----------------
5.1 7.2 16.5 (6.0) 22.8
----------- ------------- -------------- ------------- ----------------
Net (Loss) Income $ (5.1) $ 2.8 $ (10.5) $ - $ (12.8)
=========== ============= ============== ============= ================
</TABLE>
The Company's equity in the (loss) income of the GYJ and the GYEP for fiscal
1994 and 1993 was $(5.5) million and $(2.4) million, respectively, and
$(0.4) million and $5.0 million, respectively. Collaborative research and
development revenue from joint venture affiliates, which represents research
and development costs and benchmark payments billed to the joint ventures,
net of amounts funded by the Company, totaled $15.7 million (including $4.5
million in benchmark payments from the GYJ) and $13.3 million for fiscal
1994 and 1993, respectively. In addition, in fiscal 1994 the Company
recorded $20.0 million in initial milestone and signature payments from AHP
in connection with the formation of a joint venture with the Company.
-9-
<PAGE> 10
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Contingencies
The Company has been engaged in legal proceedings relating to the amount of
damages payable by the Company as a result of the holding of the U.S. Court
of Appeals for the Federal Circuit ("CAFC") that the Company infringed a
U.S. patent of Amgen Inc. ("Amgen") relating to recombinant erythropoietin
("EPO"). On May 11, 1993, the Company and Amgen agreed to settle all then
outstanding claims of Amgen against the Company in the United States
relating to recombinant EPO.
In August 1991, Ortho Pharmaceutical Co., Ltd. and its affiliates ("Ortho"),
a licensee of Kirin-Amgen, Inc.'s ("Kirin-Amgen") recombinant EPO patents,
initiated infringement proceedings against the Company in the U.S. District
Court in Massachusetts. Ortho moved to consolidate the case with the
infringement suit brought by Amgen. Upon motion by the Company and Amgen,
the District Court dismissed Ortho's claims and the CAFC affirmed the
District Court's decision in April 1995. Ortho has sought a review of the
CAFC decision by the U.S. Supreme Court.
In June 1994, the Company sued Ortho in the U.S. District Court in Delaware.
The Company's suit claimed that Ortho's manufacture, use and sale of EPO in
the U.S. infringes a patent covering pharmaceutical compositions containing
homogeneous EPO that was issued to the Company in June 1994 (the '837
patent). In September 1994, Amgen sued the Company in U.S. District Court in
Massachusetts and Ortho intervened in the Amgen suit. Amgen's suit asked the
court to declare that the Company's '837 patent is invalid and not infringed
by Amgen and to declare that any dispute over the patent was resolved by the
prior litigation. The Company has filed counterclaims against Amgen and
Ortho for infringement for the '837 patent, and the Company's suit against
Ortho in Delaware has been stayed. In February 1995, the Massachusetts court
granted a motion by Amgen for summary judgment. The court ruled that the
CAFC decision in the prior litigation invalidating an earlier U.S. EPO
patent of the Company precluded the assertion of the '837 patent. The
Company has appealed the decision. The Company can provide no assurances as
to the outcome of these disputes with Ortho and Amgen.
The Company and its licensees are engaged in various patent litigation
proceedings in Europe related to EPO. Beginning in 1991, Ortho and certain
Ortho affiliates initiated patent infringement litigation in Europe against
Boehringer Mannheim GmbH ("Boehringer Mannheim"), the Company's European EPO
licensee, based on a European recombinant EPO patent issued to Kirin-Amgen,
its licensor. The suits have included requests for damages and/or injunctive
relief. Boehringer Mannheim filed suits against Ortho and/or certain of its
affiliates in Europe claiming infringement of the Company's European EPO
patents. This litigation has expanded into many of the European Community
countries in Boehringer Mannheim's territory. In some countries, where the
patentee is a legally necessary party to a suit to enforce a patent, the
Company has joined as a plaintiff. The Company is also a defendant in suits
in the United Kingdom, Germany, Italy and the Netherlands brought by an
Ortho affiliate seeking to invalidate and revoke the Company's EPO patents
in the United Kingdom, the former East Germany, Italy and the Netherlands,
respectively. The revocation suit in Germany was dismissed in May 1994.
However, this decision has been appealed.
In June 1994, a claim in the Company's European patent covering homogeneous
EPO compositions (the '539 patent) was upheld by the Opposition Division of
the European Patent Office. This decision has been appealed. In September
1994, an appellate hearing was held before the Board of Technical Appeals of
the European Patent Office relating to the oppositions to Kirin-Amgen's
-10-
<PAGE> 11
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
European recombinant EPO patent. The Board ruled that a modified
version of certain of Kirin-Amgen's original claims in the patent was valid.
The Company can provide no assurance as to the outcome of these European
proceedings. If the courts ultimately rule in Ortho's favor in these
European proceedings, including issuing an injunction against the future
manufacture or sale of recombinant EPO by Boehringer Mannheim, or if this
litigation is otherwise concluded in a manner adverse to Boehringer Mannheim
or the Company, future royalty income from EPO in Europe, which totaled
$11.3 million in fiscal 1994, could be reduced or eliminated.
The Company is engaged in a patent interference proceeding among the
Company, Genentech, Inc. and Chiron Corporation concerning the Factor VIII
patent rights which are cross-licensed among the Company, Baxter (the
Company's licensee) and Genentech, Inc. While the Company believes it or
Genentech should prevail in the interference, no assurance can be given as
to the outcome of this interference. Any disposition of this proceeding in a
manner unfavorable to the Company or its licensee could have a material
adverse effect on the Company's future consolidated results of operations.
The Company is engaged in a patent interference proceeding with Stryker
Corporation, the assignee of Creative BioMolecules, Inc., concerning one of
the Company's U.S. patents covering recombinant BMP-2, which is currently in
the clinical development stage. The Company can provide no assurance as to
the outcome of this proceeding.
The Company is engaged in a patent interference proceeding among the
Company, Transgene, S.A., Zymogenetics, Inc. and British Technology Group,
Ltd. ("BTG") concerning U.S. patent rights directed to the use of vitamin K
as a culture medium supplement in the manufacture of the Company's
recombinant Factor IX, which is currently in the clinical development stage.
The Company has entered into agreements with each of these companies to
obtain licenses to their respective patent rights at issue in the
interference proceeding. In addition, Armour Pharmaceutical Company, which
currently markets a monoclonal purified plasma derived Factor IX, currently
holds a U.S. Food and Drug Administration ("FDA") orphan drug designation in
the United States for its product which expires in August 1999. The Company
believes that FDA approval of its recombinant Factor IX product will not be
affected by Armour's orphan drug designation because, among other reasons,
the Company's recombinant human Factor IX, which is not derived from human
plasma, eliminates the theoretical risk of viral contamination associated
with products derived from human plasma. However, the Company can provide no
assurance as to the timing or ultimate approval of its recombinant Factor IX
product by the FDA.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Genetics Institute, Inc. is principally engaged in discovering, developing and
commercializing protein-based therapeutic products using recombinant DNA and
related technologies. Significant volatility has been associated with the
business and operations of biopharmaceutical companies. Developments involving
the Company or its competitors concerning technological innovations, new
commercial products, results of clinical trials, patents, proprietary rights and
related infringement disputes, results of litigation and the expense and time
associated with obtaining requisite government approvals may have a significant
impact on the Company's business.
The Company's consolidated results of operations have fluctuated from period to
period and may continue to fluctuate in the near-term as a result of the timing
of production and shipment of bulk protein products, changes in the timing and
composition of funding under its collaborative research and development
agreements, the ability to consummate new collaborative agreements, royalty
income (and the impact of infringement litigation on royalty income), interest
income and the amount of expenditures committed to research and development
programs.
During the first half of 1995, five of the Company's proprietary product
candidates were in phase I or phase II human clinical trials. On June 9, 1995,
the Company announced that it had suspended its clinical trials of recombinant
human interleukin-twelve (rhIL-12) in oncology and HIV after receiving reports
of unexpected serious adverse events in its phase II advanced kidney cancer
study. The Company is conducting an investigation into the cause of these events
and is consulting with the Food and Drug Administration. In July 1995,
recombinant Factor IX entered phase III testing and recombinant IL-11 is
proceeding toward a phase III trial in late 1995 or early 1996. Phase I and
phase II data are preliminary measurements of a product's safety and efficacy
and do not assure positive phase III data or ultimate regulatory approval for
commercial sale. The Company's market valuation could be subject to volatility
as investors interpret the results of the Company's current and future clinical
trials.
The Company and American Home Products Corporation ("AHP") entered into a
transaction (the "AHP Transaction") through which AHP acquired a majority
interest in the Company effective January 16, 1992 (see Note 2 of Notes to
Consolidated Condensed Financial Statements).
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1995 and 1994. The Company reported net
income of $5.2 million for the second quarter ended June 30, 1995 and net income
of $10.9 million for the six months ended June 30, 1995 compared with net losses
of $9.5 million and $19.6 million, respectively, for the second quarter and
first half of 1994. The net income for the first half of 1995 as compared with
the net loss for the first half of 1994 is primarily due to the increases in
revenue and income of affiliates discussed below. However, due to the
non-recurring nature of certain revenues recorded in the first half of 1995, and
with five products presently in the clinical development phase, the Company
still expects to incur a net loss for the full year. In addition, on June 22,
1995 the Company made a proposal to acquire SciGenics, Inc. for $12.00 per
share. The proposal is being evaluated by the independent members of
the SciGenics Board of Directors. If the Company's offer is accepted, the
acquisition would result in a charge of approximately $21 million to the
Company's operations for 1995, principally relating to the portion of the
acquisition price representing acquired research. There can be no assurances
that the proposal will result in a transaction between the Company and
SciGenics, or if such a transaction is agreed to, what its terms will be.
The Company's revenues include product revenue from the supply of recombinant
human antihemophilic factor concentrate ("rhAHF") to Baxter Healthcare
Corporation ("Baxter"), royalties on sales of products by marketing partners,
and collaborative research and development revenue for license fees and
activities conducted under the Company's agreements with its various
collaborative partners. Revenues for the 1995 second quarter of $45.9 million
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increased 85%, or $21.1 million, from the second quarter of fiscal 1994.
Six month revenues of $97.7 increased 89% from prior year levels.
Product sales increased 110%, or $11.8 million to $22.6 million, for the 1995
second quarter and increased 96% for the first six months of 1995, due primarily
to increases in the unit volume of rhAHF shipped to Baxter. The 28% increase in
royalties for the 1995 second quarter and 24% first half increase is principally
due to increases in collaborative partners' sales of finished drug products.
Collaborative research and development revenue increased $6.3 million for the
1995 second quarter and $18.6 million for the first six months of 1995. The
Company recognized $4.5 million in benchmark payments in the second quarter of
1995 in connection with the Company's decision to proceed to a phase III
clinical trial of recombinant human interleukin-eleven (rhIL-11), a blood cell
growth factor, as a treatment for alleviating cancer therapy-induced
thrombocytopenia. In addition, the Company recorded $12.5 million of
collaborative research and development revenue in the first quarter of 1995 in
connection with an agreement between the Company and Sofamor Danek Group, Inc.
to commercialize recombinant human bone morphogenetic protein-two (rhBMP-2) in
North America for use in certain surgical procedures involving the spine.
Collaborative research and development revenue includes $4.8 million and $1.5
million, respectively, for the first quarters of 1995 and 1994 and $7.9 million
and $2.9 million, respectively, for the first six months of 1995 and 1994,
relating to collaborations with AHP in the development and commercialization of
recombinant human interleukin-twelve (rhIL-12), an immune system modulatory
protein, the commercialization of rhIL-11 and in the area of cellular adhesion
discovery research. AHP's discovery research funding commitment relating to the
cellular adhesion collaboration ended as scheduled during the second quarter of
1995.
Cost of sales includes royalties payable to third parties upon the receipt of
certain royalty revenues from collaborative partners. Such third party royalties
totaled $1.4 million and $0.8 million in the second quarters of 1995 and 1994,
respectively. Cost of sales, excluding such third party royalties, as a
percentage of product sales was 53% and 55% for the second quarters of 1995 and
1994, respectively, and 52% and 53% for the first six months of 1995 and 1994,
respectively. Research and development expense increased $6.2 million for the
1995 second quarter to $31.6 million and increased 11% in the first half, due
primarily to increases in facilities and clinical study costs. General and
administrative expenses increased 11% for the 1995 second quarter and 8% for the
first half of 1995 due, in part, to increases in market development activities.
Investment income increased 38% in the 1995 second quarter and 23% for the first
half as the impact of higher current interest rates and realized losses recorded
in the prior year periods more than offset a lower average balance of cash and
marketable securities between periods.
The Company's share of the income of its joint venture affiliates, net, was $4.9
million for the 1995 second quarter and $2.2 million for the 1995 first half,
compared with losses of affiliates, net, of $0.3 million and $1.4 million for
the prior year periods. Certain of the Company's product development activities
in Japan are being conducted through GI-Yamanouchi, Inc. (GYJ), a joint venture
with Yamanouchi Pharmaceutical Co., Ltd. In the second quarter of 1995, the GYJ
assigned its rights to the development and commercialization of rhBMP-2 in Japan
to Yamanouchi, effective January 1, 1995, in return for an initial payment and a
future benchmark payment. The Company recognized income of affiliates of $7.3
million in connection with this transaction. Excluding this transaction, the
increase in losses of affiliates, net, in 1995 was primarily due to expansion of
rhIL-11 and rhIL-12 product development activities in Japan by the GYJ and to
expansion of product development activities that are being conducted through
IL-12 Partners, a joint venture with AHP.
-13-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other expense, net, for the first half of 1995 increased by $1.5 million to $2.8
million principally due to unrealized losses on foreign currency forward
contracts that are expected to be offset during the balance of 1995 as royalties
are earned in Japan and Germany.
LEGAL PROCEEDINGS
The Company is engaged in a number of legal proceedings. See Note 5 of Notes to
Consolidated Condensed Financial Statements which is incorporated by reference
herein.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities totaled $267.0 million at June 30, 1995, a
decrease of $2.7 million from December 31, 1994. This decrease is net of a
non-cash decrease in the unrealized loss on marketable securities of $11.0
million. The use of cash and marketable securities of $13.7 million for the six
month period is principally due to capital expenditures of $12.8 million and, to
a lesser extent, a use of funds from operating activities of $1.8 million.
Accounts receivable from Baxter for shipments of rhAHF increased by $19.5
million, of which $7.0 million is due to increased product sales volume and
$12.5 million results from a change in the contractual terms for the payment of
rhAHF product revenue to the Company by Baxter.
As discussed above, on June 22, 1995 the Company made a proposal to acquire
SciGenics, Inc. for approximately $25.1 million in cash, or $12.00 per share.
There can be no assurances that the proposal will result in a transaction
between the Company and SciGenics, or if such a transaction is agreed to, what
its terms will be.
The Company expects that its available cash and marketable securities, together
with investment income, operating revenues and lease and debt financing
arrangements, will be sufficient to finance its working capital and capital
requirements for the foreseeable future. Over the next several years, the
Company's cash requirements will be subject to change depending upon numerous
factors including the level of capital expenditures, the amount of expenditures
committed to self-funded research and development programs, the results of
research and development activities, competitive and technological developments,
the levels of resources which the Company devotes to the expansion of its
clinical testing, manufacturing and marketing capabilities and the timing and
cost of obtaining required regulatory approvals for new products.
-14-
<PAGE> 15
Part II - Other Information
Item 1. Legal Proceedings
See Note 5 of Notes to the Consolidated Condensed Financial Statements
provided in Part I of this Quarterly Report on Form 10-Q, which Note
is hereby incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on May 16, 1995, the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
Withheld
Proposal For Authority
-------- --- ---------
<S> <C> <C> <C>
1. Election of Class II Directors:
Anthony B. Evnin 24,474,912 35,501
Robert I. Levy, Ph.D. 24,457,197 53,216
Thomas P. Maniatis, Ph.D. 24,460,713 49,700
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes(1)
--- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
2. Amendment to 1991 Stock
Option Plan increasing the
aggregate number of Depositary
Shares covered by such plan
from 4,400,000 to 5,700,000 21,768,301 2,091,507 35,541 615,064
3. Ratification of Arthur Andersen
LLP as the Company's
independent accountant for the
current fiscal year 24,480,338 10,391 19,684
</TABLE>
In addition, J. Richard Crout, M.D., Fred Hassan and Gabriel Schmergel
will continue to serve as Class III directors until the Company's 1996
Annual Meeting and James G. Andress and Benno C. Schmidt will continue
to serve as Class I directors until the Company's 1997 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits filed as part of this Form 10-Q are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
(b) No reports were filed on Form 8-K during the quarter ended June 30, 1995.
---------------
(1) Votes counted for quorum purposes, as to which the broker or other nominee
holder was not authorized by the beneficial owner to cast a vote on this
particular proposal but was authorized to cast (and did cast) a vote on at least
one other proposal.
-15-
<PAGE> 16
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.
GENETICS INSTITUTE, INC.
(Registrant)
Date: August 11, 1995 By: /s/ GAREN G. BOHLIN
----------------------------------
Garen G. Bohlin,
Executive Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
-16-
<PAGE> 17
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C>
10.1 Yamanouchi Assignment, Assumption and Master
Amendment Agreement among GPDC Partnership,
Yamanouchi Pharmaceutical Co., Ltd.,
GI-Yamanouchi, Inc., Genetics Institute, Inc.
and GI JJV, Inc. dated as of June 1, 1995
11 Computation of Earnings Per Share
27 Financial Data Schedules (EDGAR)
</TABLE>
-17-
<PAGE> 1
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS."
EXHIBIT 10.1
YAMANOUCHI ASSIGNMENT, ASSUMPTION AND
MASTER AMENDMENT AGREEMENT
among
GPDC PARTNERSHIP,
YAMANOUCHI PHARMACEUTICAL CO., LTD.,
GI-YAMANOUCHI, INC.,
GENETICS INSTITUTE, INC.
and
GI JJV, INC.
June 1, 1995
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
INTRODUCTION 1
ARTICLE I. DEFINITIONS
1.1 Additional Sublicensee 2
1.2 Advanced Clinical Trials 2
1.3 Affiliate 3
1.4 BMP-2 3
1.5 Confidential Information 3
1.6 Core Clinical Trials 3
1.7 Distributor 3
1.8 GPDC Factors 4
1.9 Improvements 4
1.10 IND 4
1.11 JJV Sublicense Agreement 4
1.12 Know-How 4
1.13 License Agreement 4
1.14 Licensed Products 5
1.15 Master Loan Agreement 5
1.16 NDA 5
1.17 Net Sales 5
1.18 Organizational Agreement 7
1.19 Partnership Agreement 7
1.20 Party 7
1.21 Patent Rights 7
1.22 Research Agreement 7
1.23 Territory 8
1.24 Valid Claim 8
ARTICLE II. ASSIGNMENT AND ASSUMPTION OF PATENT AND
KNOW-HOW LICENSES AND RELATED RIGHTS AND OBLIGATIONS
2.1 Assignment 8
2.2 Assumption 8
2.3 Consent 8
2.4 Sublicenses 9
ARTICLE III. PAYMENT, PATENT AND KNOW-HOW ROYALTIES
3.1 Payment 9
3.2 Royalties 9
3.3 Reports and Payment 10
3.4 Foreign Royalties 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.5 Records 11
ARTICLE IV.TESTING, SCALE-UP AND COMMERCIALIZATION
4.1 Obligations of the GPDC 12
4.2 Obligations of YAMANOUCHI 12
4.3 Manufacture Right and Obligation 13
ARTICLE V. INTELLECTUAL PROPERTY RIGHTS
5.1 Ownership of Technology 13
5.2 Improvements 14
5.3 Responsibility for Patenting of GPDC Technology 14
5.4 Infringement 15
5.5 Claimed Infringement 18
ARTICLE VI. CONFIDENTIAL INFORMATION
6.1 Treatment of Confidential Information 19
6.2 Release from Restrictions 19
6.3 Publications 20
ARTICLE VII. TERMINATION
7.1 Term 21
7.2 Termination for Breach 21
7.3 Termination of License Agreement 22
7.4 Disposition of Licensed Products 22
7.5 Survival of Obligations; Return of Confidential Information 22
ARTICLE VIII. MISCELLANEOUS
8.1 Product Liability indemnification 23
8.2 Publicity 24
8.3 Assignment 24
8.4 Governing Law 25
8.5 Force Majeure 25
8.6 Waiver 25
8.7 Notices 26
8.8 No Agency 27
8.9 Exports 28
8.10 Entire Agreement 29
8.11 Headings 29
8.12 Severability 30
8.13 Successors and Assigns 30
8.14 Counterparts 30
</TABLE>
<PAGE> 4
YAMANOUCHI ASSIGNMENT, ASSUMPTION AND
MASTER AMENDMENT AGREEMENT
AGREEMENT dated as of June 1, 1995 among GPDC PARTNERSHIP, a Delaware
general partnership having its principal place of business at 87 CambridgePark
Drive, Cambridge, Massachusetts 02140 (hereinafter referred to as the "GPDC"),
YAMANOUCHI PHARMACEUTICAL CO., LTD., a Japanese corporation, having its
principal place of business at 3-11, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo
103, Japan (hereinafter referred to as "YAMANOUCHI"), GI-YAMANOUCHI, INC., a
Japanese corporation, having its principal place of business at Higashi Azabu
Annex, 1-10-13 Higashi Azabu, Minato-ku, Tokyo 106, Japan (hereinafter referred
to as the "JJV"), GENETICS INSTITUTE, INC., a Delaware corporation, having its
principal place of business at 87 CambridgePark Drive, Cambridge, Massachusetts
02140 (hereinafter referred to as "GI") and GI JJV, INC., a Delaware
corporation and wholly-owned subsidiary of GI, having its principal place of
business at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801 (hereinafter referred to as the "GJV").
INTRODUCTION
1. The GPDC has been assigned an exclusive, worldwide license
from GI to all osteogenic and chondrogenic factors identified, isolated,
purified and/or cloned by GI for the purpose of developing, using, formulating,
filling and finishing, distributing and selling products derived from such
factors.
2. The JJV has exclusively licensed from the GPDC the right to
develop, use, fill and finish, distribute and sell products derived from
certain of such factors, including rhBMP-2, in Japan under the JJV Sublicense
Agreement.
3. The JJV desires to assign to YAMANOUCHI that portion of the
JJV Sublicense Agreement pertaining to the right to develop, use, fill and
finish, distribute and sell products derived from rhBMP-2 in Japan, and
YAMANOUCHI desires to assume any and all rights and obligations of the JJV
under the JJV Sublicense Agreement pertaining to rhBMP-2, on the terms and
conditions set forth in this Agreement.
4. The GPDC desires to consent to such assignment by the JJV and
assumption by YAMANOUCHI of the rights and obligations pertaining to rhBMP-2 in
Japan, on the terms and conditions set forth in this Agreement.
5. With regard to GPDC Factors other than rhBMP-2, GI and
YAMANOUCHI agree that they will discuss in good faith how such GPDC Factors
should be treated, when they become ready for development in Japan, including
applicability of the framework for rhBMP-2 set forth in this Agreement.
6. To the extent this Agreement contemplates amendments of the
JJV Sublicense
<PAGE> 5
Agreement, the License Agreement, the Organizational Agreement, the Master
Loan Agreements and the Partnership Agreement, such amendments are made by the
execution, by the necessary parties, of this Agreement and/or any Exhibits
attached hereto. In consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, the
GPDC, YAMANOUCHI, the JJV, GI and the GJV agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the following meanings:
1.1. "ADDITIONAL SUBLICENSEE" means a sublicensee of the GPDC other
than GI, YAMANOUCHI or the JJV.
1.2. "ADVANCED CLINICAL TRIALS" means all preclinical and clinical
trials necessary and appropriate in order to file IND's and NDA's which will be
sufficient to obtain approval to develop, use, fill and finish, distribute and
sell Licensed Products in the Territory, other than the Core Clinical Trials.
1.3. "AFFILIATE" means any corporation, company, partnership, joint
venture and/or firm which controls, is controlled by or is under common control
with a Party. For purposes of this Section 1.3, "control" shall mean (a) in the
case of corporate entities, direct or indirect ownership of at least fifty
percent (50%) of the stock or shares entitled to vote for the election of
directors; and (b) in the case of non-corporate entities, direct or indirect
ownership of at least fifty percent (50%) of the equity interest with the power
to direct the management and policies of such noncorporate entities.
1.4. "BMP-2" means recombinant human bone morphogenetic
protein-two, or rhBMP-2, which is identified as BMP-2 in Schedule A of the
Partnership Agreement.
1.5. "CONFIDENTIAL INFORMATION" means all proprietary information
and materials, patentable or otherwise, including DNA sequences, vectors,
cells, substances, formulations, techniques, methodology, equipment, data,
reports, know-how, sources of supply, patent positioning and business plans,
including any negative developments, which are communicated to, learned of,
developed or otherwise acquired by either Party, and any other information
designated by the disclosing Party in writing as confidential or proprietary,
whether or not related to BMP-2.
1.6. "CORE CLINICAL TRIALS" means Core Clinical Trials as such term
is defined in the Partnership Agreement.
1.7. "DISTRIBUTOR" means a third party which is not an Affiliate of
YAMANOUCHI and which is a distributor, wholesaler or other entity purchasing
Licensed Products from YAMANOUCHI or its Affiliate or sublicensee for resale.
<PAGE> 6
1.8. "GPDC FACTORS" means GPDC Factors as such term is defined in
the Partnership Agreement.
1.9. "IMPROVEMENTS" means any information, patentable or otherwise,
developed or acquired (by license or otherwise) by YAMANOUCHI (other than
technical information developed, applied or acquired solely pursuant to the
terms of Section 2.1 of this Agreement) during the term of this Agreement and
which relates to BMP-2, which information is reasonably necessary or is
required to develop, use, manufacture, distribute and/or sell Licensed
Products.
1.10. "IND" means an Investigational New Drug Application or its
equivalent or any corresponding foreign application or registration.
1.11. "JJV SUBLICENSE AGREEMENT" means the JJV Sublicense Agreement
between the GPDC and the JJV dated as of September 20, 1990.
1.12. "KNOW-HOW" means all technical information, patentable or
otherwise, of the GPDC, acquired (by license or otherwise) by the GPDC (other
than technical information developed, applied or acquired solely pursuant to
the terms of Section 5.2 of this Agreement) as of the date of this Agreement or
hereafter developed, applied or acquired (by license or otherwise) by the GPDC
(other than technical information developed, applied or acquired solely
pursuant to the terms of Section 5.2 of this Agreement) during the term of this
Agreement in connection with BMP-2, relating to the identification,
characterization, use or production of BMP-2 which is reasonably necessary or
is required to develop, use, manufacture, distribute and/or sell Licensed
Products.
1.13. "LICENSE AGREEMENT" means the License Agreement between GI and
GI Japan, Inc. ("GIA") dated as of May 30, 1990, which License Agreement has
been irrevocably assigned and transferred by GIA to the GPDC.
1.14. "LICENSED PRODUCTS" means any and all BMP-2 and any and all
formulations, mixtures or compositions thereof which, or the use, making or
manufacturing of which, is covered by a Valid Claim of any of the Patent Rights
and/or embodies any Know-How.
1.15. "MASTER LOAN AGREEMENT" means each Master Loan Agreement dated
as of April, 1993, between the JJV and the GJV and between the JJV and
YAMANOUCHI.
1.16. "NDA" means a New Drug Application or its equivalent or any
corresponding foreign application or registration.
1.17. "NET SALES" means the aggregate United States dollar
equivalent of gross revenues derived by or payable to YAMANOUCHI, its
Affiliates and sublicensees from or on account of the sale of Licensed Products
to independent third parties, less (a) reasonable credits or allowances, if
any, actually granted on account of, and reasonably allocable to, Licensed
Products, based on price adjustments or on discounts or rebates paid to
Distributors, (b) reasonable credits or allowances, if any, actually granted on
account of recalls, rejection or return of Licensed Products previously sold,
(c) excises, sales taxes, consumption taxes, duties
<PAGE> 7
or other taxes imposed upon and paid with respect to such sales (excluding
income or franchise taxes of any kind) and (d) separately itemized
transportation and insurance costs incurred in shipping Licensed Products to
such independent third parties. Upon request of YAMANOUCHI, the Parties agree to
discuss the substitution of a deduction of a fixed percentage of Net Sales in
lieu of the itemized deduction set forth in subsection (d). No deduction shall
be made for any item of cost incurred by YAMANOUCHI, its Affiliates or
sublicensees in preparing, manufacturing, shipping or selling Licensed
Products except as permitted pursuant to clauses (a), (b), (c) and (d) of the
foregoing sentence. Net Sales shall not include any transfer between YAMANOUCHI
and any of its Affiliates or sublicensees for resale. If YAMANOUCHI or its
Affiliate or sublicensee sells Licensed Products to a Distributor, Net Sales
shall be deemed to be the gross revenues received by YAMANOUCHI and/or the
applicable Affiliate or sublicensee from the sale of Licensed Products to the
Distributor. In the event that YAMANOUCHI or any of its Affiliates or
sublicensees shall make any transfer of Licensed Products to independent third
parties for other than monetary value, such transfer shall be considered a sale
hereunder for accounting and royalty purposes. Net Sales for any such transfers
shall be the average price of "arms length" sales by YAMANOUCHI, its Affiliates
or sublicensees in the Territory during the royalty reporting period in which
such transfer occurs or, if no such "arms length" sales occurred in the
Territory during such period, during the last period in which such "arms length"
sales occurred. If no "arms length" sales have occurred in the Territory, Net
Sales for any such transfer in the Territory shall be agreed upon by the GPDC
and YAMANOUCHI. Notwithstanding the foregoing, no transfer of Licensed Products
for test or developmental purposes or as samples shall be considered a sale
hereunder for accounting and royalty purposes. In the event that YAMANOUCHI or
any of its Affiliates or sublicensees shall sell Licensed Products together with
other products of YAMANOUCHI, its Affiliates or sublicensees to independent
third parties at a price which is less than the average price of "arms length"
sales in the Territory for the royalty reporting period in which such sales
occur (such sales to be excluded from the calculation of the average price of
"arms length" sales), Net Sales for any such sales shall be the average price of
"arms length" sales by YAMANOUCHI, its Affiliates and sublicensees in the
Territory during the royalty reporting period in which such sales occur. If no
"arms length" sales shall have occurred in the Territory during such period, the
relevant reference factor shall be the last royalty reporting period in which
such "arms length" sales occurred. If no "arms length" sales have occurred in
the Territory, Net Sales for such sales shall be agreed upon by the GPDC and
YAMANOUCHI.
1.18. "ORGANIZATIONAL AGREEMENT" means the Organizational Agreement
among GI, GJV and YAMANOUCHI dated as of June 30, 1990 establishing the JJV.
1.19. "PARTNERSHIP AGREEMENT" means the Partnership Agreement
between GIA and YAMANOUCHI dated as of May 30, 1990 establishing the GPDC.
1.20. "PARTY" means the GPDC or YAMANOUCHI; "Parties" means the GPDC
and YAMANOUCHI.
1.21. "PATENT RIGHTS" means all patents and patent applications
(which for all purposes of this Agreement shall be deemed to include
certificates of invention and applications for certificates of invention)
acquired (by license or otherwise) by the GPDC (other than technical
<PAGE> 8
information developed, applied or acquired solely pursuant to the terms of
Section 5.2 of this Agreement) as of the date of this Agreement or hereafter
developed, applied or acquired (by license or otherwise) by the GPDC (other
than technical information developed, applied or acquired solely pursuant to
the terms of Section 5.2 of this Agreement) during the term of this Agreement
in connection with BMP-2, relating to the identification, characterization, use
or production of BMP-2 which are reasonably necessary or are required to
develop, use, manufacture, distribute and/or sell Licensed Products.
1.22. "RESEARCH AGREEMENT" means the Research and Development
Agreement between GI and the GPDC dated as of May 30, 1990.
1.23. "TERRITORY" means Japan.
1.24. "VALID CLAIM" means a claim of an unexpired patent which shall
not have been withdrawn, cancelled or disclaimed, nor held invalid by a court
of competent jurisdiction in an unappealed or unappealable decision, or the
claim of a patent application which has not been on file for more than seven
years.
ARTICLE II. ASSIGNMENT AND ASSUMPTION
OF PATENT AND KNOW-HOW LICENSES AND
RELATED RIGHTS AND OBLIGATIONS
2.1. ASSIGNMENT. The JJV hereby irrevocably assigns, transfers and
conveys to YAMANOUCHI any and all of its rights, obligations and interests
under that portion of the JJV Sublicense Agreement pertaining to the right to
develop, use, fill and finish, distribute and sell products derived from BMP-2
in the Territory. The foregoing assignment, transfer and conveyance is coupled
with an interest and shall be irrevocable and survive any liquidation or
dissolution of the JJV. The JJV shall be relieved of any and all obligations
and responsibilities with respect to BMP-2 under the Organizational Agreement
and the JJV Sublicense Agreement except that the provisions of Article VII of
the Organizational Agreement and Article VI of the JJV Sublicense Agreement,
which pertain to Confidential Information, shall remain in effect.
2.2. ASSUMPTION. YAMANOUCHI hereby agrees to assume, and to fully
perform, pay and discharge, any and all of the JJV's rights, obligations and
interests under that portion of the JJV Sublicense Agreement pertaining to the
right to develop, use, fill and finish, distribute and sell products derived
from BMP-2 in the Territory on the terms and conditions set forth therein, as
amended by the terms and conditions set forth in this Agreement.
2.3 CONSENT. The GPDC hereby consents to such assignment by the
JJV and assumption by YAMANOUCHI.
2.4. SUBLICENSES. In the event that YAMANOUCHI intends to grant a
sublicense of the rights assigned and assumed under this Agreement to a third
party or third parties, YAMANOUCHI shall so inform the GPDC prior to granting
such sublicense and will consider in good faith any recommendations made by the
GPDC with respect to the sublicensing of such
<PAGE> 9
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS."
rights. A copy of each sublicense agreement entered into by YAMANOUCHI under
this Agreement shall be furnished to the GPDC promptly after execution thereof.
ARTICLE III. PAYMENT, PATENT AND KNOW-HOW ROYALTIES
3.1. PAYMENT. YAMANOUCHI shall make payments to the JJV in the
amounts and at the times indicated below:
<TABLE>
<CAPTION>
Time of Payment Amount
<S> <C>
**************************** ***************
***************************** ***************
*********************************
***************************
</TABLE>
Notwithstanding any provisions in the Master Loan Agreement to the contrary,
the JJV shall promptly (but not later than 90 days) repay on a pro rata basis
to each of the GJV and YAMANOUCHI the outstanding loans from the GJV and
YAMANOUCHI, respectively, out of all payments so made by YAMANOUCHI as
aforesaid.
3.2. ROYALTIES.
(a) YAMANOUCHI shall pay to the GPDC during the term of
the license granted to the JJV in Section 2.1 of the JJV Sublicense Agreement
and assigned to YAMANOUCHI under Section 2.1 above earned royalties at a rate
equal to *** of Net Sales on all Net Sales made by YAMANOUCHI, its Affiliates
and sublicensees of Licensed Products which fall within the definition of
Licensed Products by virtue of involving (i) a Valid Claim under the Patent
Rights or (ii) Know-How. Under no circumstances shall YAMANOUCHI be obligated
to pay royalties under both subsections (i) and (ii) above; only one royalty
shall be due with respect to each sale of a Licensed Product.
(b) Royalties based upon Licensed Products involving a
Valid Claim under the Patent Rights shall be payable with respect to Net Sales
in the Territory where the Licensed Products are used, manufactured ,
distributed or sold in which there is a Valid Claim under Patent Rights.
Royalties based upon Licensed Products involving Know-How shall be payable for
a period of ** years after the first commercial sale of Licensed Products in
the Territory.
(c) Upon the expiration in accordance with the last
sentence of Section 3.2 (b) of the royalty obligations set forth in Section 3.2
(a) with respect to any Know-How in the Territory, the licenses granted under
Section 2.1 of the JJV Sublicense Agreement and assigned to YAMANOUCHI under
Section 2.1 above with respect to such Know-How in the Territory shall become
fully paid exclusive licenses.
(d) Notwithstanding the provisions of the distribution of
profits in Article VI
<PAGE> 10
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS."
of the Partnership Agreement, **************** of the royalties payable to the
GPDC under Section 3.2 (a), or *** of Net Sales shall be distributed in full
to GI, with the remaining *************, or ** of Net Sales being distributed as
set forth in the Partnership Agreement.
3.3 REPORTS AND PAYMENT. YAMANOUCHI shall deliver to the GPDC (a)
within 30 days after the end of the calendar quarters ended June 30 and
December 31 of each year and (b) within 60 days after the end of the calendar
quarters ended March 31 and September 30 of each year, a written report showing
its computation of royalties due under this Agreement upon Net Sales by
YAMANOUCHI, its Affiliates and sublicensees during such calendar quarter. All
Net Sales shall be segmented in each such report according to sales by
YAMANOUCHI, each of its Affiliates and each sublicensee, including the rates of
exchange used to convert such royalties to United States dollars from the
currency in which such sales were made. For the purposes hereof, the rates of
exchange to be used for converting royalties hereunder to United States dollars
shall be those in effect for the purchase of dollars at any leading Japanese
bank mutually agreeable to the GPDC and YAMANOUCHI, on the day on which payment
is due. YAMANOUCHI, simultaneously with the delivery of each such report, shall
tender payment in United States dollars of all royalties shown to be due
thereon.
3.4. FOREIGN ROYALTIES. Where royalties are due to the GPDC
hereunder for sales of Licensed Products in the Territory where, by reason of
currency regulations or taxes of any kind, it is impossible or illegal for
YAMANOUCHI, any of its Affiliates or sublicensee to transfer royalty payments
to the GPDC for Net Sales in the Territory, such royalties shall be deposited
in whatever currency is permitted by the person or entity not able to make the
transfer for the benefit or credit of the GPDC in an accredited bank in the
Territory that is acceptable to the GPDC.
3.5. RECORDS. YAMANOUCHI shall keep, and shall require all
applicable Affiliates and sublicensees to keep, full, true and accurate books
of accounts and other records containing all information and data which may be
necessary to ascertain and verify the royalties payable hereunder. During the
term of this Agreement and for a period of one year following its termination,
the GPDC shall have the right from time to time (not to exceed twice during
each calendar year) at its sole cost and expense to inspect, or have an agent,
accountant or other representative inspect, such books, records and supporting
data.
ARTICLE IV. TESTING, SCALE-UP AND COMMERCIALIZATION
4.1. OBLIGATIONS OF THE GPDC. The GPDC agrees to use its best
efforts to:
(a) disclose to YAMANOUCHI, on an on-going basis, in
writing, all laboratory, animal, clinical, production and other scientific data
in the GPDC's possession as may be useful to YAMANOUCHI in performing its
responsibilities hereunder;
(b) arrange for the conduct of all Core Clinical Trials;
(c) disclose to YAMANOUCHI, in writing, the results of
all Core Clinical
<PAGE> 11
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS."
Trials; and
(d) disclose to YAMANOUCHI, in writing, the results of
all Advanced Clinical Trials conducted by GI and the Additional Sublicensees to
the extent permitted by law.
4.2. OBLIGATIONS OF YAMANOUCHI. YAMANOUCHI agrees to bear any
costs for the Advanced Clinical Trials in the Territory conducted by the JJV
under the JJV Sublicense Agreement after November 30, 1994 and to use its best
efforts to:
(a) conduct all Advanced Clinical Trials in the Territory;
(b) disclose to the GPDC, in writing, the results of all
Advanced Clinical Trials conducted by it to the extent permitted by law;
(c) prepare and file all government applications
necessary to obtain approvals to import, develop, use, fill and finish,
distribute and sell Licensed Products in the Territory;
(d) provide for formulation of Licensed Products on a
commercial scale but only if so instructed by the GPDC;
(e) provide for preparation and finishing of the final
dosage form of Licensed Products on a commercial scale; and
(f) market, directly or indirectly, Licensed Products in
the Territory on a commercial basis after receipt of all necessary approvals
for marketing by applicable government regulatory agencies; and
(g) continue to coordinate the development and marketing
program for the Licensed Products in Japan with the GPDC's other sublicensees
for the Licensed Products, but in a manner more typical of global development
co-ordination for in-licensed products.
4.3. MANUFACTURE RIGHT AND OBLIGATION. GI shall have the right and
obligation to supply YAMANOUCHI, its Affiliates and sublicensees with 100% of
their requirements of bulk BMP-2 for all preclinical, clinical and commercial
purposes. All bulk BMP-2 supplied by GI to YAMANOUCHI shall be supplied
directly to YAMANOUCHI in accordance with a separate supply agreement in
accordance with the terms set forth in the License Agreement; provided,
however, notwithstanding the provisions in Section 4.4 of the License
Agreement, GI shall supply commercial bulk BMP-2 to YAMANOUCHI at a price equal
to ***** of Net Sales.
ARTICLE V. INTELLECTUAL PROPERTY RIGHTS
5.1. OWNERSHIP OF TECHNOLOGY. Ownership of the Patent Rights and
Know-How shall be determined by reference to the Partnership Agreement, the
License Agreement and the Research Agreement. As used herein, the term "GPDC
Technology" means all Patent Rights and Know-How.
<PAGE> 12
5.2. IMPROVEMENTS. YAMANOUCHI shall own the entire right, title
and interest in and to all Improvements. To the extent that YAMANOUCHI
develops, or otherwise acquires the right to grant a license covering any
Improvement to the Licensed Products, YAMANOUCHI hereby grants to the GPDC a
non-exclusive, royalty-free license, including the right to grant sublicenses,
to such Improvement to develop, use, manufacture, fill and finish, distribute
and/or sell all Licensed Products (as defined herein and as defined in the
Partnership Agreement) outside the Territory.
5.3. RESPONSIBILITY FOR PATENTING OF GPDC TECHNOLOGY.
(a) Except as otherwise provided in the Partnership
Agreement, the License Agreement and in this Agreement, the GPDC shall have the
right and responsibility to decide whether or not to seek or continue to seek
or maintain patent protection on any GPDC Technology in the Territory, and
shall have the right, at its expense, to file for, procure and maintain patents
on any GPDC Technology in the Territory.
(b) If the GPDC elects not to seek or continue to seek or
maintain patent protection on any GPDC Technology in the Territory, YAMANOUCHI
shall have the right, at its expense, to file, prosecute and maintain patents
in the Territory on such GPDC Technology, except as otherwise provided in the
Partnership Agreement and the License Agreement. Any such patents shall be
filed, prosecuted, issued and maintained in the name designated by the GPDC.
The GPDC agrees to advise YAMANOUCHI of all decisions taken under subsection
(a) above in a timely manner in order to allow YAMANOUCHI to protect its rights
under this subsection (b).
(c) Each Party shall provide the other Party with copies
of all substantive communications from all patent offices regarding
applications or patents on any GPDC Technology promptly after the receipt
thereof. Each Party shall provide the other Party with copies of all proposed
substantive communications to such patent offices in sufficient time before the
due date in order to enable the other Party an opportunity to comment on the
content thereof.
(d) Each Party shall make available to the other Party or
its authorized attorneys, agents or representatives, such of its employees whom
the other Party in its reasonable judgment deems necessary in order to assist
it in obtaining patent protection for the GPDC Technology. Each Party shall
sign or use its best efforts to have signed all legal documents necessary to
file and prosecute patent applications or to obtain or maintain patents at no
charge to the other Party.
5.4. INFRINGEMENT.
(a) Each Party shall promptly report in writing to the
other Party during the term of this Agreement any (i) known infringement or
suspected infringement of any of the Patent Rights in the Territory, or (ii)
unauthorized use or misappropriation of Know-How or Confidential Information by
a third party in the Territory of which it becomes aware, and shall provide the
other Party with all available evidence supporting said infringement, suspected
infringement or unauthorized use or misappropriation.
<PAGE> 13
(b) Except as provided in paragraph (d) below, the GPDC
shall have the right to initiate an infringement or other appropriate suit
anywhere in the Territory against any third party who at any time has
infringed, or is suspected of infringing, any of the Patent Rights or of using
without proper authorization all or any portion of the Know-How. The GPDC shall
give YAMANOUCHI sufficient advance notice of its intent to file said suit and
the reasons therefor, and shall provide YAMANOUCHI with an opportunity to make
suggestions and comments regarding such suit. The GPDC shall keep YAMANOUCHI
promptly informed, and shall from time to time consult with YAMANOUCHI
regarding the status of any such suit and shall provide YAMANOUCHI with copies
of all documents filed in, and all written communications relating to, such
suit.
(c) The GPDC shall have the sole and exclusive right to
select counsel for any suit referred to in subsection (b) above and shall,
except as provided below, pay all expenses of the suit, including without
limitation attorneys' fees and court costs. YAMANOUCHI, in its sole discretion,
may elect, within 60 days after the commencement of such litigation, to
contribute to the costs incurred by the GPDC in connection with such litigation
and, if it so elects, any damages, royalties, settlement fees or other
consideration for past infringement received by the GPDC as a result of such
litigation shall be shared by the GPDC and YAMANOUCHI pro rata based on their
respective sharing of the costs of such litigation. In the event that
YAMANOUCHI elects not to contribute to the costs of such litigation, the GPDC
shall be entitled to retain any damages, royalties, settlement fees or other
consideration for past infringement resulting therefrom. If necessary,
YAMANOUCHI shall join as a party to the suit but shall be under no obligation
to participate except to the extent that such participation is required as the
result of being a named party to the suit. YAMANOUCHI shall offer reasonable
assistance to the GPDC in connection therewith at no charge to the GPDC except
for reimbursement of reasonable out-of-pocket expenses, including salaries of
YAMANOUCHI personnel, incurred in rendering such assistance. YAMANOUCHI shall
have the right to participate and be represented in any such suit by its own
counsel at its own expense. The GPDC shall not settle any such suit involving
rights of YAMANOUCHI without obtaining the prior written consent of YAMANOUCHI,
which consent shall not be unreasonably withheld.
(d) In the event that the GPDC elects not to initiate an
infringement or other appropriate suit pursuant to subsection (b) above, the
GPDC shall promptly advise YAMANOUCHI of its intent not to initiate such suit,
and YAMANOUCHI shall have the right, at the expense of YAMANOUCHI, of
initiating an infringement or other appropriate suit against any third party
who at any time has infringed, or is suspected of infringing, any of the Patent
Rights or of using without proper authorization all or any portion of the
Know-How. In exercising its rights pursuant to this subsection (d), YAMANOUCHI
shall have the sole and exclusive right to select counsel and shall, except as
provided below, pay all expenses of the suit including without limitation
attorneys' fees and court costs. The GPDC, in its sole discretion, may elect,
within 60 days after the commencement of such litigation, to contribute to the
costs incurred by YAMANOUCHI in connection with such litigation and, if it so
elects, any damages, royalties, settlement fees or other consideration for past
infringement received by YAMANOUCHI as a result of such litigation shall be
shared by YAMANOUCHI and the GPDC pro rata based on their respective sharing of
the costs of such litigation. In the event that the GPDC elects not to
contribute to the costs of such litigation, YAMANOUCHI shall be entitled
<PAGE> 14
"CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS."
to retain any damages, royalties, settlement fees or other consideration for
past infringement resulting therefrom. If necessary, the GPDC shall join as a
party to the suit but shall be under no obligation to participate except to the
extent that such participation is required as a result of being a named party
to the suit. At YAMANOUCHI's request, the GPDC shall offer reasonable
assistance to YAMANOUCHI in connection therewith at no charge to YAMANOUCHI
except for reimbursement of reasonable out-of-pocket expenses, including
salaries of GPDC personnel, incurred in rendering such assistance. The GPDC
shall have the right to participate and be represented in any such suit by its
own counsel at its own expense.
5.5. CLAIMED INFRINGEMENT.
(a) In the event that a third party at any time provides
written notice of a claim to, or brings an action, suit or proceeding against,
either Party or any of their respective Affiliates or sublicensees, claiming
infringement of its patent rights or unauthorized use or misappropriation of
its know-how, based upon an assertion or claim arising out of the development,
use, manufacture, distribution or sale of Licensed Products, such Party shall
promptly notify the other Party of the claim or the commencement of such
action, suit or proceeding, enclosing a copy of the claim and/or all papers
served. The GPDC agrees to make available to YAMANOUCHI its advice and counsel
regarding the technical merits of any such claim.
(b) If YAMANOUCHI, in order to operate under or exploit
the licenses granted under Article II of this Agreement in the Territory, must
make payments (including without limitation royalties, option fees or license
fees) to one or more third parties to obtain a license or similar right in the
absence of which the GPDC Technology could not legally be used in connection
with the development, use, manufacture, distribution or sale of Licensed
Products in the Territory, YAMANOUCHI may deduct from royalties thereafter
payable to the GPDC on Net Sales in the Territory an amount equal to up to ***
of such third party payments, provided that the total royalties otherwise due
to the GPDC on Net Sales in the Territory in any year shall not be reduced by
more than *** as a result of such deduction.
(c) This Section 5.5 states the entire responsibility of
the GPDC in the case of any claimed infringement or violation of any third
party's patent rights or unauthorized use or misappropriation of any third
party's know-how.
ARTICLE VI. CONFIDENTIAL INFORMATION
6.1. TREATMENT OF CONFIDENTIAL INFORMATION. Each Party hereto
shall maintain the Confidential Information of the other Party in confidence,
and shall not disclose, divulge or otherwise communicate such Confidential
Information to others, or use it for any purpose, except pursuant to, and in
order to carry out, the terms and objectives of this Agreement, and hereby
agrees to exercise every reasonable precaution to prevent and restrain the
unauthorized disclosure of such Confidential Information by any of its
directors, officers, employees, consultants, subcontractors, sublicensees or
agents.
<PAGE> 15
6.2. RELEASE FROM RESTRICTIONS. The provisions of Section 6.1
shall not apply to any Confidential Information disclosed hereunder which:
(a) was known or used by the receiving Party or its
Affiliates prior to its date of disclosure to the receiving Party, as evidenced
by the prior written records of the receiving Party or its Affiliates; or
(b) either before or after the date of the disclosure to
the receiving Party is lawfully disclosed without restriction to the receiving
Party or its Affiliates by an independent, unaffiliated third party rightfully
in possession of the Confidential Information (but only to the extent of the
rights received from such third party); or
(c) either before or after the date of the disclosure to
the receiving Party becomes published or generally known to the public through
no fault or omission on the part of the receiving Party or its Affiliates; or
(d) is required to be disclosed by the receiving Party or
its Affiliates to comply with applicable laws, to defend or prosecute
litigation or to comply with governmental regulations, provided that the
receiving Party provides prior written notice of such disclosure to the other
Party and takes reasonable and lawful actions to avoid and/or minimize the
degree of such disclosure.
6.3. PUBLICATIONS. The following restrictions shall apply with
respect to the disclosure in scientific journals or publications by any Party
or any employee or consultant of any Party relating to any scientific work
performed relating to BMP-2:
(a) a Party (the "publishing Party") shall provide the
other Party with an advance copy of any proposed publication (which may be in
draft form) relating to BMP-2, and such other Party shall have a reasonable
opportunity to recommend any changes it reasonably believes are necessary to
preserve patent rights or know-how licensed to or owned in whole or in part by
the GPDC or YAMANOUCHI, or are otherwise necessary to promote or protect the
interests of the GPDC or YAMANOUCHI, and the incorporation of such recommended
changes shall not be unreasonably refused;
(b) if such other Party informs the publishing Party,
within 30 days of receipt of an advance copy of a proposed publication, that
such publication in its reasonable judgment could be expected to have a
material adverse effect on any patent rights or know-how licensed to or owned
in whole or in part by the GPDC or YAMANOUCHI, the publishing Party shall, to
the extent permitted by its agreements with its employees and consultants,
delay or prevent such publication as proposed. In the case of inventions, the
delay shall be sufficiently long to permit the timely preparation and filing of
a patent application(s) or application(s) for a certificate of invention on the
information involved; and
(c) if such other Party informs the publishing Party,
within 30 days of receipt of an advance copy of a proposed publication, that
such publication in its reasonable judgment could be expected to have a
material adverse effect on the interests of the GPDC
<PAGE> 16
or YAMANOUCHI, the Parties shall discuss the publication and, if mutually
agreeable, the publishing Party shall, to the extent permitted by its agreements
with its employees and consultants, delay or prevent such publication as agreed.
ARTICLE VII. TERMINATION
7.1. TERM. This Agreement shall remain in effect until terminated
in accordance with the provisions of this Article VII or until the last to
expire of the licenses granted pursuant to Section 2.1 of the JJV Sublicense
Agreement and assigned to YAMANOUCHI pursuant to Section 2.1 hereof.
7.2. TERMINATION FOR BREACH. Each Party shall be entitled to
terminate this Agreement by written notice to the other Party in the event that
the other Party shall be in default of any of its obligations hereunder, and
shall fail to remedy any such default within 60 days after notice thereof by
the non-breaching Party. Any such notice shall specifically state that the
non-breaching Party intends to terminate this Agreement in the event that the
breaching Party shall fail to remedy the default. Upon termination of this
Agreement pursuant to this Section 7.2, neither Party shall be relieved of any
obligations incurred prior to such termination. In the event that the GPDC
terminates this Agreement pursuant to this Section 7.2, the GPDC shall be
entitled to receive from YAMANOUCHI, at no cost to the GPDC, non-exclusive
rights in and to all Improvements, all laboratory, animal, clinical, production
and other scientific data and such other information and documents in
YAMANOUCHI's possession that the GPDC may require in order to apply for
approval of applicable government regulatory agencies to develop, use, fill and
finish, distribute and sell Licensed Products in the Territory.
7.3. TERMINATION OF LICENSE AGREEMENT. In the event of any
termination of the License Agreement, this Agreement shall terminate
immediately.
7.4. DISPOSITION OF LICENSED PRODUCTS. Upon any termination of
this Agreement pursuant to Section 7.2 or 7.3, YAMANOUCHI shall within 30 days
of the effective date of such termination notify the GPDC in writing of the
amount of Licensed Products which YAMANOUCHI, its Affiliates and sublicensees
then have completed and in their possession, the sale of which would, but for
the termination, be subject to royalty, and YAMANOUCHI, its Affiliates and
sublicensees shall thereupon be permitted during the six months following such
termination to sell that amount of Licensed Products, provided that YAMANOUCHI
shall pay the aggregate royalty thereon at the conclusion of the earlier of the
last such sale or such six months period. Except as provided above, all
sublicenses granted by YAMANOUCHI shall forthwith terminate upon the
termination of this Agreement.
7.5. SURVIVAL OF OBLIGATIONS; RETURN OF CONFIDENTIAL INFORMATION.
Notwithstanding any termination of this Agreement, the obligations of the
Parties under Sections 5.5 and 8.1 and Article VI of this Agreement, as well as
under any other provisions which by their nature are intended to survive any
such termination, shall survive and continue to be enforceable. Upon any
termination of this Agreement pursuant to Section 7.2 or 7.3, each Party shall
promptly return to the other Party all written Confidential Information, and
all copies thereof, of the other
<PAGE> 17
Party.
ARTICLES VIII. MISCELLANEOUS
8.1. PRODUCT LIABILITY INDEMNIFICATION.
(a) YAMANOUCHI agrees to defend the GPDC, its agents,
directors, officers and employees at YAMANOUCHI's cost and expense, and will
indemnify and hold harmless the GPDC, its agents, directors, officers and
employees, from and against any and all losses, costs, damages, fees or
expenses ("Losses") arising out or in connection with the development, use,
filling and finishing, distribution or sale of any Licensed Product, including,
but not limited to, any actual or alleged injury, damage, death or other
consequence occurring to any person as a result, directly or indirectly, of the
possession, use or consumption of any Licensed Product, whether claimed by
reason of breach of warranty, negligence, product defect or otherwise, and
regardless of the form in which any such claim is made, provided that the
foregoing indemnity shall not apply to the extent that any such Losses are due
to the gross negligence or willful misconduct, illegal or unlawful acts or
omissions, or breach of this Agreement or any of the Basic Agreements (as
defined in the Partnership Agreement) of or by the GPDC. In the event of any
such claim against the GPDC or any agent, director, officer or employee, the
GPDC shall promptly notify YAMANOUCHI in writing of the claim and YAMANOUCHI
shall manage and control, at its sole expense, the defense of the claim and its
settlement. The GPDC shall cooperate with YAMANOUCHI and may, at its option
and expense, be represented in any such action or proceeding. YAMANOUCHI shall
not be liable for any litigation costs or expenses incurred by the GPDC without
YAMANOUCHI's written authorization.
(b) The GPDC agrees to defend YAMANOUCHI, its agents,
directors, officers and employees at the GPDC's cost and expense, and will
indemnify and hold harmless YAMANOUCHI, its agents, directors, officers and
employees, from and against any and all Losses due to the gross negligence, or
wilful misconduct, illegal or unlawful acts or omissions, or breach of this
Agreement or any of the Basic Agreements (as defined in the Partnership
Agreement) of or by the GPDC, including, but not limited to, any actual or
alleged injury, damage, death or other consequence occurring to any person as a
result, directly or indirectly, of the possession, use or consumption of any
Licensed Product, whether claimed by reason of breach of warranty, negligence,
product defect or otherwise, and regardless of the form in which any such claim
is made. In the event of any such claim against YAMANOUCHI or any agent,
director, officer or employee, YAMANOUCHI shall promptly notify the GPDC in
writing of the claim and the GPDC shall manage and control, at its sole
expense, the defense of the claim and its settlement. YAMANOUCHI shall
cooperate with the GPDC and may, at its option and expense, be represented in
any such action or proceeding. The GPDC shall not be liable for any litigation
costs or expenses incurred by YAMANOUCHI without the GPDC's written
authorization.
8.2. PUBLICITY. None of any party hereto (nor any affiliate of any
party hereto) shall have the right to originate any publicity, news release or
other public announcement, written or
<PAGE> 18
oral, relating to this Agreement or the existence of an arrangement among the
parties hereto, without the prior written approval of other parties hereto,
which approval shall not be unreasonably withheld, except as otherwise required
by law.
8.3. ASSIGNMENT. Except as otherwise provided in this Agreement,
neither this Agreement nor any of the rights or obligations hereunder may be
assigned by any party hereto without the prior written consent of other parties
hereto, except to a party who acquires all or substantially all of the business
of the assigning party hereto by merger, sale of assets or otherwise.
Notwithstanding the foregoing, in the event of a dissolution of the GPDC, the
GPDC shall have the right to assign this Agreement, or its rights or
obligations under this Agreement, to either or both of its Partners (as such
term is defined in the Partnership Agreement).
8.4. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
8.5. FORCE MAJEURE. In the event that any party hereto is
prevented from performing or is unable to perform any of its obligations under
this Agreement due to any act of God; fire; casualty; flood; war; strike;
lockout; failure of public utilities; injunction or any acts, exercise,
assertion or requirement of governmental authority; epidemic; destruction of
production facilities; riots; insurrection; inability to procure or use
materials, labor, equipment, transportation or energy; or any other cause
beyond the reasonable control of the party hereto invoking this Section 8.5 if
such party shall have used its best efforts to avoid such occurrence, such
party shall give notice to other parties hereto in writing promptly, and
thereupon the affected party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
8.6. WAIVER. The waiver by any party hereto of a breach or a
default of any provision of this Agreement by any other party hereto shall not
be construed as a waiver of any succeeding breach of the same or any other
provision, nor shall any delay or omission on the part of any party hereto to
exercise or avail itself of any right, power or privilege that it has or may
have hereunder operate as a waiver of any right, power or privilege by such
party.
8.7. NOTICES. Any notice or other communication in connection with
this Agreement must be in writing and if by mail, by registered mail, return
receipt requested, and if transmitted by telecopier, with a copy sent by mail
in accordance with this Section 8.7, and shall be effective when delivered to
the addressee at the address or telecopier number listed below or such other
address or telecopier number as the addressee shall have specified in a notice
actually received by the addressor.
If to the GPDC: GPDC Partnership
c/o GI Japan, Inc.
87 CambridgePark Drive
Cambridge, Massachusetts 02140
Telecopier: (617) 876-5851
Attention: President
<PAGE> 19
GPDC Partnership
c/o Yamanouchi Pharmaceutical Co., Ltd.
3-11, Nihonbashi-Honcho 2-chome,
Chuo-ku, Tokyo 103, Japan
Telecopier: (81-3) 3244-3054
Attention: Director of the Board
If to YAMANOUCHI: Yamanouchi Pharmaceutical Co., Ltd.
3-11, Nihonbashi-Honcho 2-chome,
Chuo-ku, Tokyo 103, Japan
Telecopier: (81-3) 3244-3054
Attention: Director of the Board
If to the JJV: GI-Yamanouchi, Inc.
c/o Genetics Institute, Inc. of Japan
Higashi Azabu Annex
1-10-13 Higashi Azabu
Minato-ku, Tokyo 106 Japan
Telecopier: (81-3) 3589-2778
Attention: Managing Director
GI-Yamanouchi, Inc.
c/o Yamanouchi Pharmaceutical Co., Ltd.
3-11, Nihonbashi-Honcho 2-chome,
Chuo-ku, Tokyo 103, Japan
Telecopier: (81-3) 3244-3054
Attention: Director of the Board
If to GI: Genetics Institute, Inc.
87 CambridgePark Drive
Cambridge, Massachusetts 02140
Telecopier: (617) 876-5851
Attention: President
If to GJV: GI JJV, INC.
c/o Genetics Institute, Inc. of Japan
Higashi Azabu Annex,
1-10-13 Higashi Azabu,
Minato-ku, Tokyo 106, Japan
Telecopier: (81-3) 3589-2778
Attention: Managing Director
8.8. NO AGENCY. Nothing herein shall be deemed to constitute any
party hereto as the agent or representative of any other party(ies) hereto, or
all the parties hereto as joint ventures or partners for any purpose.
YAMANOUCHI shall be an independent contractor, not an employee or partner of
the GPDC, and the manner in which YAMANOUCHI renders its
<PAGE> 20
services under this Agreement shall be within YAMANOUCHI's sole discretion.
None of any party hereto shall be responsible for the acts or omissions of
any other party(ies) hereto, and none of any party hereto will have authority to
speak for, represent or obligate any other party(ies) hereto in any way without
prior written authority from such other party(ies).
8.9. EXPORTS.
(a) The Parties acknowledge that the export of technical
data, materials or products is subject to the exporting Party receiving the
necessary export licenses and that the Parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of either Party. The Parties agree that regardless of any disclosure made by
the Party receiving an export of an ultimate destination of any technical data,
materials or products, the receiving Party will not reexport either directly or
indirectly, any technical data, material or products without first obtaining
the applicable validated or general license from the United States Department
of Commerce, United States Food and Drug Administration and/or any other agency
or department of the United States Government, as required. The receiving
Party shall provide the exporting Party with any information, certifications or
other documents which may be reasonably required in connection with such
exports under the Export Administration Act of 1979, as amended, its rules and
regulations, the Federal Food, Drug and Cosmetic Act and other applicable
export laws.
(b) Without limitation of the foregoing, and in support
of maintaining a general license for the export of technical data under this
Agreement, a Party receiving an export agrees to not knowingly export or
reexport any technical data or materials furnished to such Party under this
Agreement, any part thereof or any direct product thereof, directly or
indirectly, without first obtaining permission to do so from the United States
Department of Commerce, the United States Food and Drug Administration and/or
other appropriate United States governmental agencies, into Afghanistan, the
People's Republic of China, South Africa or Namibia, Iran, Iraq, Syria or any
other country with respect to which the United States maintains terrorist or
foreign policy controls, or any of those countries listed from time to time in
supplements to Part 770 to Title 15 of the Code of Federal Regulations in
Country Groups Q, S, W, Y or Z , which, as of March 1993 are as follows: Group
Q (Romania), Group S (Libya), Group W (Czech Republic, Slovakia and Poland),
Group Y (Albania, Bulgaria, Cambodia, Estonia, Laos, Latvia, Lithuania,
Mongolian People's Republic and the republics which formerly constituted the
Union of Soviet Socialist Republics) and Group Z (Cuba, North Korea and
Vietnam).
8.10. ENTIRE AGREEMENT. This Agreement contains the full
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and writings relating thereto. No
waiver, alteration or modification of any of the provisions hereof shall be
binding unless made in writing and signed by the parties concerned hereto by
their respective officers thereunto duly authorized.
8.11. HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not be considered in construing this
Agreement.
8.12. SEVERABILITY. In the event that any provision of this
Agreement is held by a court
<PAGE> 21
of competent jurisdiction or by any competition or other regulatory authority
to be unenforceable because it is invalid or in conflict with any law of any
relevant jurisdiction, such provision shall be deemed not to have taken effect
from the date of this Agreement and the validity of the remaining provisions
shall not be affected, and the rights and obligations of the parties hereto
shall be construed and enforced as if the Agreement did not contain the
particular provisions held to be unenforceable, and the parties hereto shall
negotiate in good faith with each other and with such court or competition or
regulatory authority with a view to modifying this Agreement in a manner which
as closely as is reasonably practicable reflects the commercial objectives and
effect of this Agreement as originally signed.
8.13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and
permitted assigns.
8.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as a sealed instrument in their names by their properly and duly
authorized officers or representatives as of the date first above written.
GPDC PARTNERSHIP
by: GI JAPAN, INC.
by: /s/ Jack Morgan
-------------------------
by: YAMANOUCHI USA, INC.
by: /s/ Shigeo Morioka
--------------------------
YAMANOUCHI PHARMACEUTICAL CO., LTD.
by: /s/ Masayoshi Onoda
-----------------------------------
GI-YAMANOUCHI, INC.
by: /s/ Mamoru Adachi
-----------------------------------
by: /s/ Kuni Yamamoto
-----------------------------------
GENETICS INSTITUTE, INC.
by: /s/ Gabriel Schmergel
-----------------------------------
GI JJV, INC.
by: /s/ Tuan Ha-Ngoc
-----------------------------------
<PAGE> 1
GENETICS INSTITUTE, INC. AND SUBSIDIARIES
EXHIBIT 11
Computation of Earnings Per Share
(unaudited-in thousands, except per share amounts)
Primary earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common stock
equivalents outstanding.
Common stock equivalents consist of stock options and warrants and are not
included in the calculation of earnings per share in loss periods because their
effect would be antidilutive.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary Earnings per Share
--------------------------
Weighted average number of shares
outstanding 26,696 26,396 26,662 26,365
Shares deemed outstanding from the
assumed exercise of stock options
and warrants reduced by the number
of shares purchased with proceeds -- -- -- --
-------- -------- -------- --------
Total 26,696 26,396 26,662 26,365
-------- -------- -------- --------
Net income (loss) applicable to
common shares $ 5,170 $ (9,543) $ 10,869 $(19,594)
-------- -------- -------- --------
Primary earnings (loss) per common share $ .19 $ (.36) $ .41 $ (.74)
======== ======== ======== ========
Fully Diluted Earnings Per Share
--------------------------------
Weighted average number of shares
outstanding 26,696 26,396 26,662 26,365
Shares deemed outstanding from the
assumed exercise of stock options
and warrants reduced by the number
of shares purchased with proceeds 570 -- 444 --
-------- -------- -------- --------
Total 27,266 26,396 27,106 26,365
-------- -------- -------- --------
Net income (loss) applicable to common shares $ 5,170 $ (9,543) $ 10,869 $(19,594)
-------- -------- -------- --------
Fully diluted earnings (loss) per common share $ .19 $ (.36) $ .40 $ (.74)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 30,267
<SECURITIES> 236,748
<RECEIVABLES> 39,449
<ALLOWANCES> 0
<INVENTORY> 14,047
<CURRENT-ASSETS> 326,176
<PP&E> 170,687
<DEPRECIATION> 61,559
<TOTAL-ASSETS> 446,077
<CURRENT-LIABILITIES> 31,451
<BONDS> 0
<COMMON> 267
0
0
<OTHER-SE> 414,359
<TOTAL-LIABILITY-AND-EQUITY> 446,077
<SALES> 22,631
<TOTAL-REVENUES> 45,910
<CGS> 13,416
<TOTAL-COSTS> 13,416
<OTHER-EXPENSES> 27,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,170
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,170
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
