<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2000 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_______________.
Commission File Number 0-16614
NEORX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WASHINGTON 91-1261311
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
410 West Harrison Street, Seattle, Washington 98119
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (206) 281-7001
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of April 21, 2000 there were outstanding 23,544,440 shares of the Company's
Common Stock, $.02 par value.
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TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Balance Sheets as of March 31, 2000
and December 31, 1999 3
Statements of Operations for the
three months ended March 31,
2000 and 1999 4
Statements of Cash Flows for the
three months ended March 31,
2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
Item 5. Other Information 24
Item 6. Exhibits 24
Signature 25
</TABLE>
2
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NEORX CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 954 $ 3,752
Investment securities 17,053 15,289
Prepaid expenses and other current assets 1,173 566
--------- ---------
Total current assets 19,180 19,607
--------- ---------
FACILITIES AND EQUIPMENT, at cost:
Leasehold improvements 3,283 3,283
Equipment and furniture 5,050 5,040
--------- ---------
8,333 8,323
Less: accumulated depreciation and amortization (7,490) (7,405)
--------- ---------
Facilities and equipment, net 843 918
--------- ---------
OTHER ASSETS, NET 514 240
--------- ---------
Total assets $ 20,537 $ 20,765
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,348 $ 819
Accrued liabilities 698 929
Current portion of convertible subordinated debentures 1,185 1,195
--------- ---------
Total current liabilities 3,231 2,943
--------- ---------
SHAREHOLDERS' EQUITY:
Series preferred stock, $.02 par value,
3,000,000 shares authorized:
Convertible exchangeable preferred stock, Series 1,
208,240 shares issued and outstanding (entitled in
liquidation to $5,248) 4 4
Common stock, $.02 par value, 60,000,000 shares authorized,
21,811,808 and 21,006,964 shares issued and outstanding,
at March 31, 2000 and December 31, 1999, respectively 436 421
Additional paid-in capital 166,508 164,151
Accumulated deficit (149,589) (147,096)
Accumulated other comprehensive income (loss) - unrealized
gain (loss) on investment securities (53) 342
--------- ---------
Total shareholders' equity 17,306 17,822
--------- ---------
Total liabilities and shareholders' equity $ 20,537 $ 20,765
========= =========
</TABLE>
See accompanying notes to the financial statements.
3
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NEORX CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUE $ 149 $ 413
-------- --------
OPERATING EXPENSES:
Research and development 4,526 2,496
General and administrative 1,537 850
-------- --------
Total operating expenses 6,063 3,346
-------- --------
Loss from operations (5,914) (2,933)
OTHER INCOME (EXPENSE):
Interest income 267 255
Realized gain on sale of securities 3,310 --
Interest expense (29) (30)
-------- --------
Net loss $ (2,366) $ (2,708)
======== ========
Preferred stock dividends (127) (127)
-------- --------
Net loss applicable to common shares $ (2,493) $ (2,835)
======== ========
Net loss per common share - basic and diluted $ (.12) $ (.13)
======== ========
Weighted average common shares outstanding -
basic and diluted 21,363 21,007
======== ========
</TABLE>
See accompanying notes to the financial statements.
4
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NEORX CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,366) $ (2,708)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 85 93
Common stock issued for services 81 --
Stock warrants issued for services 206 --
Decrease (increase) in prepaid
expenses and other assets (581) 83
Increase (decrease) in accounts
payable 529 (5)
Decrease in accrued liabilities (358) (251)
Decrease in deferred revenue -- (250)
-------- --------
Net cash used in operating activities (2,404) (3,038)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment
securities 3,465 13,304
Purchases of investment securities (5,624) (11,372)
Facilities and equipment purchases (10) (31)
-------- --------
Net cash provided by (used in) investing
activities (2,169) 1,901
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations -- (4)
Proceeds from stock options exercised 1,775 --
-------- --------
Net cash provided by (used in)
financing activities 1,775 (4)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,798) (1,141)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,752 1,910
-------- --------
End of period $ 954 $ 769
======== ========
</TABLE>
See accompanying notes to the financial statements.
5
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The interim financial statements contained herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1999.
In the opinion of management, the interim financial statements reflect all
adjustments, consisting only of normal recurring accruals necessary to present
fairly the Company's financial position as of March 31, 2000 and the results of
its operations and cash flows for the quarters ended March 31, 2000 and 1999.
The results of operations for the quarter ended March 31, 2000 are not
necessarily indicative of the expected operating results for the full year.
Note 2. Shareholders' Equity
Changes in shareholders' equity from December 31, 1999 to March 31, 2000 are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1999 $17,822
Proceeds from stock options exercised 1,775
Common stock issued for services 81
Stock warrants issued for services 506
Conversion of subordinated debentures 10
Preferred stock dividends (127)
Net loss (2,366)
Accumulated other comprehensive
loss - unrealized loss on
investment securities (395)
-------
Balance, March 31, 2000 $17,306
=======
</TABLE>
6
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 3. Loss per share
The following is a reconciliation of the numerator and denominator of the basic
and diluted loss per share computations for the three months ended March 31,
2000 and 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Net loss $ (2,366) $ (2,708)
Less: preferred
stock dividends (127) (127)
-------- --------
Net loss applicable
to common shares $ (2,493) $ (2,835)
======== ========
Weighted average common shares
outstanding - basic and diluted 21,363 21,007
======== ========
Net loss per common share -
basic and diluted $ (.12) $ (.13)
======== ========
</TABLE>
The numerator and denominator of the basic and diluted loss per share
calculations for the quarters ended March 31, 2000 and 1999 were the same, as
including the effect of options to purchase additional shares of common stock
would have been antidilutive. Excluded for the quarters ended March 31, 2000 and
1999 were 2,890,453 and 3,316,867 shares of common stock issuable under stock
options, respectively.
In addition, 45,930 and 46,318 shares of common stock issuable upon conversion
of the Company's convertible subordinated debentures and 237,394 shares of
common stock issuable upon conversion of its Series 1 Preferred Stock are not
included in the calculation of diluted loss per share for the quarters ended
March 31, 2000 and 1999, respectively, because the effect of including such
shares would have been antidilutive. Outstanding warrants to purchase 305,000
shares of common stock at March 31, 2000 were also excluded from the
calculation.
7
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NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
Note 4. Comprehensive Loss
The Company's total comprehensive loss for the quarters ended March 31, 2000 and
1999 was $2,761,000 and $2,722,000, respectively. The comprehensive loss for the
quarter ended March 31, 2000 consisted of net loss of $2,366,000 and unrealized
loss on investment securities of $395,000. The comprehensive loss for the
quarter ended March 31, 1999 consisted of net loss of $2,708,000 and unrealized
loss on investment securities of $14,000.
Note 5. Subsequent Event
In April 2000, the Company sold 1,727,045 shares of common stock in a private
placement and received net proceeds of $18,015,000. The Company intends to use
the net proceeds from the private placement to advance its research and
development programs including its proprietary Skeletal Targeting Radiation
("STR") and PRETARGET(R) candidates, as well as for other general corporate
purposes. The shares of common stock sold in the offering were not registered
under the Securities Act of 1933, and cannot be offered or sold absent
registration or an applicable exemption from registration. The Company has filed
a Registration Statement on Form S-3 to register the shares.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This discussion on Form 10-Q contains forward-looking statements. These
statements relate to future events or future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,
will, should, expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. Many factors could affect the Company's actual results. In
evaluating these statements, you should specifically consider various factors,
including those factors described under "Additional factors that may affect
results" below. These factors may cause our actual results to differ materially
from any forward-looking statement.
Although we believe the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements after the date of this report to conform such statements to actual
results or to changes in our expectations.
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999.
Revenues for the quarter ended March 31, 2000 were $149,000 compared to $413,000
for the quarter ended March 31, 1999, and consisted primarily of licensing
revenue from non-strategic patent technologies.
Total operating expenses for the quarter ended March 31, 2000 increased 81% to
$6,063,000 from $3,346,000 in the quarter ended March 31, 1999. Research and
development expenses for the quarter ended March 31, 2000 increased 81% to
$4,526,000 from $2,496,000 for the same time period in 1999. The increase in
research and development expenses for the quarter ended March 31, 2000 is
primarily the result of start-up expenses for the design and construction of the
manufacturing process for NeoRx's Skeletal Targeted Radiotherapy ("STR") project
and clinical trial costs.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
General and administrative expenses for the quarter ended March 31, 2000
increased 81% to $1,500,000 from $850,000 for the quarter ended March 31, 1999.
General and administrative expenses for the quarter ended March 31, 2000
increased primarily due to increased non-cash expenses relating to warrants
issued to unrelated parties as compensation for services, in addition to higher
costs for personnel and investor relations.
Other income for the first quarter of 2000 includes $3.3 million of realized
gains on the sale of the Company's shares of Angiotech Pharmaceuticals, Inc.
Interest income for the quarter ended March 31, 2000 increased to $267,000 from
$255,000 for the same time period in 1999. The increase is due to higher rates
of return on the Company's investments.
LIQUIDITY AND CAPITAL RESOURCES.
Cash and investment securities as of March 31, 2000 were $18,007,000 compared to
$19,041,000 at December 31, 1999. The balance of cash and investment securities
decreased primarily as a result of the 2000 year-to-date net loss.
The Company has a line of credit available from PPD, Inc., of up to $5 million
to assist in funding its phase III trial of its STR product in development.
In April 2000, the Company sold 1,727,045 shares of common stock via a private
placement and received net proceeds of $18,015,000.
The Company expects that its capital resources and interest income will be
sufficient to finance its currently anticipated working capital and capital
requirements at least through the second quarter of 2001.
The Company's working capital and capital requirements will depend upon numerous
factors, including results of research and development activities, clinical
trials and expenses associated with expanding marketing, competitive and
technological developments. The Company will need to raise substantial
additional funds to conduct research and development activities,
10
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
preclinical studies and clinical trials necessary to bring its potential
products to market, and to establish marketing and manufacturing capabilities.
The Company intends to seek additional funding through arrangements with
corporate collaborators, public or private equity financing, out-licensing
certain technologies, or other sources. Adequate funds may not be available when
needed or on terms acceptable to the Company.
NEW ACCOUNTING PRONOUNCEMENTS.
In December 1999, the United States Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in
Financial Statements", which must be applied in the Company's second fiscal
quarter of 2000. SAB 101 provides guidance on revenue recognition and the SEC
staff's views on the application of accounting principles to selected revenue
recognition issues. The interpretation of SAB 101 is currently uncertain as it
relates to biotechnology companies and, consequently, the impact on the
Company's financial statements is unknown. The Company is in the process of
determining the potential impact on its financial statements.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions involving Stock Compensation".
Interpretation No. 44 clarifies the application of Accounting Principles Board
Opinion No. 25 ("APB 25") and is effective July 1, 2000. Interpretation No. 44
clarifies the definition of "employee" for purposes of applying APB 25, the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. NeoRx Corporation does not expect
the adoption of Interpretation No. 44 to have a material impact on its financial
statements.
ADDITIONAL FACTORS THAT MAY AFFECT RESULTS.
In addition to the other information contained in this report, the following
factors could affect our actual results and could cause our actual results to
differ materially from those achieved in the past or expressed in our forward
looking statements.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
We Expect to Continue to Operate at a Loss, and We May Never Become Profitable
We have not been profitable since our inception on May 11, 1984, and we cannot
be certain that we will ever achieve and sustain profitability. To date, we have
been engaged in research and development activities and have not generated any
revenues from product sales. The process of developing our products will require
significant research and development, preclinical testing and clinical trials,
as well as regulatory approvals. We expect these activities, together with our
general and administrative expenses, to result in operating losses for the
foreseeable future. Our ability to achieve profitability will depend, in part,
on our ability to successfully complete development of our proposed products and
on our ability to successfully obtain required regulatory approvals and
manufacture and market our products. We do not expect that any proposed product
which is currently in research and development will be commercially available
for at least several years, if ever.
We May Need to Raise Additional Capital Which May Not Be Available
Based on our current operating plan, we believe that our working capital will be
sufficient to satisfy our capital requirements through at least the second
quarter of 2001. This belief is based on certain assumptions which may prove to
be incorrect. Substantial additional capital will be required for our
operations. We intend to seek additional financing, which may take the form of
public or private financings, including equity financings, which would be
dilutive to existing shareholders, and through other arrangements, including
relationships with corporate partners for the development of certain of our
products. We may not be able to obtain such additional capital or enter into
relationships with corporate partners on a timely basis, on favorable terms, or
at all. If adequate funds are not available, we may be required to delay, reduce
or eliminate expenditures for certain of our programs or products or to enter
into relationships with corporate partners to develop or commercialize products
or technologies that we would otherwise seek to develop or commercialize
independently.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
Our Potential Products Must Undergo Rigorous Clinical Testing and Regulatory
Approvals, Which Could Substantially Delay or Prevent Us from Marketing Any
Products
Before obtaining regulatory approvals for the commercial sale of any of our
proposed products, the products will be subjected to extensive preclinical and
clinical testing to demonstrate their safety and efficacy in humans. Results of
initial preclinical and clinical testing of products under development are not
necessarily indicative of results that will be obtained from subsequent or more
extensive preclinical and clinical testing. Furthermore, we cannot be certain
that clinical trials of products under development will be completed or will
demonstrate the safety and efficacy of such products at all, or to the extent
necessary to obtain regulatory approvals. Companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after achieving promising results in earlier trials. The failure to adequately
demonstrate the safety and efficacy of a therapeutic product under development
could delay or prevent regulatory approval of such product.
The rate of completion of clinical trials depends on, among other factors, the
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Difficulty attaining planned patient enrollment in
our current clinical trials or future clinical trials may result in increased
costs, program delays or both.
We May Not Be Able to Obtain Government Approval in a Timely Manner to Market
and Sell Our Potential Products or Approval May Be Withdrawn
The manufacture and marketing of our proposed products and our research and
development activities are subject to regulation for safety, efficacy and
quality by numerous government authorities in the United States and other
countries. Clinical trials, manufacturing, and marketing are subject to the
rigorous testing and approval processes of the U.S. Food and Drug
Administration, commonly referred to as the FDA, and equivalent foreign
regulatory authorities. Clinical trials and regulatory approvals can take a
13
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
number of years to accomplish and require the expenditure of substantial
resources. It may not be possible to start or successfully complete clinical
trials within any specified time period. Delays in obtaining approvals can occur
for a number of reasons, including our failure to obtain necessary supplies of
finished products, monoclonal antibodies or other materials or to the failure
attract a sufficient number of available patients to support the claims
necessary for regulatory approvals.
The FDA approval process is typically lengthy and expensive, and approval is
never certain. Because of the risks and uncertainties in biochemical
development, our potential products could take a significantly longer time to
gain regulatory approvals than we expect or may never gain FDA approval. If we
do not receive these necessary approvals from the FDA, we will not be able to
generate substantial revenues and will not become profitable. We may encounter
significant delays or excessive costs in our efforts to secure regulatory
approvals. FDA approvals may not be obtained on a timely basis, if at all, and
any approvals granted may cover less than all of the clinical indications for
which we sought approval or may contain significant limitations in the form of
warnings, precautions or contraindications with respect to conditions of use.
Delays in obtaining, or the imposition of limitations upon, FDA approvals would
adversely affect or prevent the marketing of products developed by us and our
ability to receive royalty or other product revenues. The manufacture and
marketing of our products would, after approval, be subject to continuing FDA
review, and later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions, including potential
withdrawal of the product from the market. In addition, U.S. federal and state
agencies and congressional committees have expressed interest in further
regulation of biotechnology. We are unable to estimate the extent and impact of
regulation in the biotechnology field resulting from any future federal, state
or local legislation or administrative action.
For clinical investigation and marketing outside the United States, we and our
potential collaborative partners also are subject to foreign regulatory
requirements. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely among countries and can involve
additional testing. The time required to obtain approval may
14
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
differ from that required to obtain FDA approvals. The foreign regulatory
approval processes include all of the risks associated with obtaining FDA
approvals set forth above, and approval by the FDA does not ensure approval by
the health authorities of any other country.
If We Fail To Negotiate and Maintain Collaborative Arrangements with Third
Parties, Our Manufacturing, Sales and Marketing Activities May Be Delayed or
Reduced
We have no experience in commercial manufacturing, sales, marketing or
distribution. In most cases, our strategy for commercialization of our potential
products requires entering into various arrangements with corporate
collaborators, licensors, licensees and others to manufacture, distribute and
market such products; we will depend on the successful performance of third
parties. Although we believe that parties to our existing and any future
arrangements will have an economic incentive to perform their contractual
responsibilities successfully, these activities will not be within our control.
In February 2000, we engaged International Isotopes, Inc. to build a
manufacturing facility for our Skeletal Targeted Radiation product, which we
refer to as STR, for Phase III clinical trials. International Isotopes will be
responsible for all aspects of the manufacture of STR, including process
qualification, quality control, packaging and shipping, from its Denton, Texas
radiopharmaceutical facility. International Isotopes' failure to perform its
contractual responsibilities effectively could have an adverse effect on our
business.
We cannot assure you that we will be successful in maintaining our existing
relationships or that we will be able to negotiate additional collaborative
arrangements in the future. The absence, suspension or termination of current or
future relationships with collaborative partners could have a material adverse
effect on the development of our products and could result in the loss of
material revenues to us, either of which could have a material adverse effect on
our business, financial condition and results of operations. In the
biotechnology industry, termination of relationships, for any reason, has been
known to cause material adverse impacts on a company's share price.
15
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
We Are Dependent On Suppliers for the Timely Delivery of Materials and Services
and We Have Experienced, and May Experience In the Future, Interruptions In
Supply
We depend on the timely delivery from suppliers of certain materials and
services. In connection with our research, preclinical studies and clinical
trials, we periodically have experienced interruption in the supply of
monoclonal antibodies. Interruptions in these and other supplies could occur in
the future. We, together with our potential partners, will need to develop
sources for commercial quantities of Holmium-166 and Yttrium-90, the
radionuclides used in our proposed cancer therapeutic products, for the bone
seeking agent used in our STR product, and for the antibody, streptavidin and
clearing agent used in our PRETARGET(R) products. We or our potential partners
may be unable to develop such sources.
Uncertainties Regarding Human Immune Response To Foreign Proteins May Limit The
Effectiveness of Our Proposed Cancer Therapy Products
We plan to use monoclonal antibodies coupled to streptavidin (a protein of
bacterial origin) in our PRETARGET(R) cancer therapy products. These molecules
appear as foreign proteins to the human immune system, which develops its own
antibody in response. We plan to use humanized antibodies, where needed, to
minimize the "human anti-mouse antibody" (HAMA) response which otherwise might
restrict the number of doses that can be safely or effectively administered,
thus limiting the product's efficacy. The "human anti-streptavidin antibody"
(HASA) response may also limit the number of doses. We believe that modifying
streptavidin may reduce HASA. Although we may utilize humanized antibodies and
are modifying streptavidin, we cannot be certain that either would reduce the
extent to which HASA and HAMA may limit the effectiveness of our cancer therapy
products.
We Face Substantial Competition In The Development Of Cancer Therapies and May
Not Be Able To Successfully Compete and Our Potential Products May Be Rendered
Obsolete By Rapid Technological Change
The competition for development of cancer therapies is intense. There are
numerous competitors developing products to treat each of
16
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
the diseases for which we are seeking to develop products. Some competitors have
adopted product development strategies targeting cancer cells with monoclonal
antibodies. Many emerging companies, including but not limited to IDEC
Pharmaceuticals, Cytogen Corp. and Coulter Pharmaceuticals, have corporate
partnership arrangements with large, established companies to support research,
development and commercialization efforts of products that may be competitive
with those which we are developing. In addition, a number of established
pharmaceutical companies, including, but not limited to SmithKline Beecham,
Nycomed Amersham, Mallinkrodt, Inc. and Bristol-Myers Squibb, are developing
proprietary technologies or have enhanced their capabilities by entering into
arrangements with, or acquiring, companies with proprietary monoclonal
antibody-based technology or other technologies applicable to the treatment of
cancer. Many of our existing or potential competitors have or have access to
substantially greater financial, research and development, marketing and
production resources than we do and may be better equipped than us to develop,
manufacture and market competing products. Our competitors may have, or may
develop and introduce, new products that would render our technology and
products under development less competitive, uneconomical or obsolete.
We also expect to face increasing competition from universities and other
non-profit research organizations. These instructions carry out a significant
amount of research and development in the field of antibody-based technology.
These institutions are becoming increasingly more aware of the commercial value
of their findings and more active in seeking patent and other proprietary
rights, as well as licensing revenues.
Our Success Is Dependent Upon Our Ability To Effectively Protect Our Patents And
Proprietary Rights, Which We May Not Be Able To Do
The patent position of biotechnology firms is generally highly uncertain and
involves complex legal and factual questions. Currently, no consistent policy
has emerged regarding the breadth of claims allowed in biotechnology patents.
Products and processes important to us are subject to this uncertainty.
Accordingly, we cannot be certain that our patent applications will result in
additional patents being issued or that, if issued, patents will afford
protection against competitors with similar technology. We
17
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
cannot be certain that any patents issued to us will not be infringed by or
designed around by others or that others will not obtain patents that we would
need to license or design around. Moreover, the technology applicable to our
products is developing rapidly. Research institutes, universities and
biotechnology companies, including our competitors, have filed applications for,
or have been issued, numerous patents and may obtain additional patents and
proprietary rights relating to products or processes competitive with or
relating to ours. The scope and validity of such patents, the extent to which we
may be required to obtain licenses thereunder or under other proprietary rights
and the cost and availability of licenses, are unknown. To the extent licenses
are required, they may not be available on commercially reasonable terms, if at
all. We also rely on unpatented proprietary technology. Others may independently
develop substantially equivalent proprietary information and techniques or gain
access to our proprietary technology or disclose such technology. We may not be
able to meaningfully protect our rights in such unpatented proprietary
technology.
Product Liability Claims In Excess Of The Amount Of Our Insurance Would
Adversely Affect Our Financial Condition
The testing, manufacturing, marketing and sale of the human healthcare products
which we have under development entail an inherent risk that product liability
claims will be asserted against us. Although we are insured against such risks
up to a $10 million annual aggregate limit in connection with clinical trials
and commercial sales of our products under development, we cannot be certain
that our present product liability insurance is adequate. A product liability
claim in excess of our insurance coverage could have a material adverse effect
on us and may prevent us from obtaining product liability insurance in the
future on affordable terms. In addition, we cannot be certain that product
liability coverage will continue to be available in sufficient amounts or at an
acceptable cost.
Our Use Of Radioactive and Other Hazardous Materials Exposes Us To The Risk Of
Material Environmental Liabilities, and We May Incur Significant Additional
Costs To Comply With Environmental Laws In The Future
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
Our research and development and clinical manufacturing processes involve the
controlled use of small amounts of hazardous and radioactive materials. As a
result, we are subject to foreign, federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes in connection with our research and development activities and our
manufacturing of clinical trial materials. Although we believe that our safety
procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, we may be required to incur
significant costs to comply with environmental and health and safety regulations
in the future. Further, the risk of accidental contamination or injury from
hazardous and radioactive materials cannot be completely eliminated. In the
event of such an accident, we could be held liable for any resulting damages,
and any such liability could exceed our resources.
Even If We Bring Products To Market, Changes in Health Care Reimbursement Could
Adversely Affect our Ability To Effectively Price Our Products Or Obtain
Adequate Reimbursement For Sales Of Our Products
The levels of revenues and profitability of pharmaceutical companies may be
affected by the continuing efforts of government and third-party payors to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to governmental control. In the United States, there have been, and
we expect that there will continue to be, a number of federal and state
proposals to implement similar governmental controls. It is uncertain what
legislative proposals will be adopted or what actions federal, state or private
payors for healthcare goods and services may take in response to any healthcare
reform proposals or legislation. Even in the absence of statutory change, market
forces are changing the healthcare sector. We cannot predict the effect
healthcare reforms may have on our business, and we cannot be certain that any
such reforms will not have a material adverse effect on us. Further, to the
extent that such proposals or reforms have a material adverse effect on the
business, financial condition and profitability of other pharmaceutical
companies that are prospective collaborators for certain of our potential
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
products, our ability to commercialize our products under development may be
adversely affected. In addition, both in the United States and elsewhere, sales
of prescription pharmaceuticals depend in part on the availability of
reimbursement to the consumer from third-party payors, such as governmental and
private insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. If we succeed in bringing one
or more products to market, we cannot be certain that these products will be
considered cost-effective and that reimbursement to the consumer will be
available or will be sufficient to allow us to sell our products on a
competitive or profitable basis.
The Loss of Key Employees Could Adversely Affect Our Operations
Our success will depend in part on the efforts of certain key scientists and
management personnel. Because of the specialized nature of our business, our
ability to maintain our competitive position will depend in part on our ability
to attract and retain qualified personnel. Competition for such personnel is
intense. We cannot be certain that we will be able to hire sufficient qualified
personnel on a timely basis or retain such personnel. The loss of key management
or scientific personnel could have a material adverse effect on our business. We
do not maintain key person insurance on any of our scientists or management
personnel.
Our Stock Price is Volatile and, as a Result, You Could Lose Some or All of Your
Investment
There has been a history of significant volatility in the market prices of
securities of pharmaceutical and biotechnology companies, including our common
stock, and it is likely that the market price of our common stock will continue
to be highly volatile. Announcements by us or our competitors concerning
acquisitions, technological innovations or new commercial products, results of
clinical trials, developments concerning patents, proprietary rights and
potential infringement, and the expense and time associated with obtaining
government approvals for marketing of our products may have a significant effect
on our business and on the relative market price of the our common stock. In
addition, public concern about the safety of the products we develop, comments
by securities analysts, and general market conditions may have a
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
significant effect on the market price of our common stock. The realization of
any of these risks could have a material adverse impact on the market price of
our common stock and may result in a loss of some, or even all of your
investment.
In the past, securities class action litigation has often been brought against
companies following periods of volatility in their stock prices. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert our management's time and resources, which could
cause our business to suffer.
Certain Provisions In Our Restated Articles Of Incorporation and Washington
State Law Could Discourage a Change of Control of NeoRx
Our restated articles of incorporation authorize our board of directors to issue
up to 3,000,000 shares of preferred stock and to determine the price, rights,
preference, privileges and restrictions, including voting rights, of those
shares without any further vote or action by our shareholders. The issuance of
preferred stock could have the effect or delaying, deferring or preventing a
change of control of NeoRx, even if this change would benefit our shareholders.
In addition, the issuance of preferred stock may adversely affect the market
price of the common stock and the voting and other rights of the holders of
common stock.
We have adopted a Shareholder' Rights Plan intended to protect the rights of
shareholders by deterring coercive or unfair takeover tactics. The board of
directors declared a dividend to holders of our common stock of one preferred
share purchase right for each outstanding share of the common stock. The right
is exercisable 10 days following the offer to purchase or acquisition of
beneficial ownership of 20% of the outstanding common stock by a person or group
of affiliated persons. Each right entitles the registered holder, other than the
acquiring person or group, to purchase from NeoRx one-hundredth of one share of
Series A Junior Participating Preferred Stock at the price of $40, subject to
adjustment. The rights expire April 10, 2006. In lieu of exercising the right by
purchasing one one-hundredth of one share of Series A Preferred Stock, the
holder of the right, other than the acquiring person or group, may purchase for
$40 that number of shares of our common stock having a market value of twice
that price.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
Washington law imposes restrictions on some transactions between a corporation
and significant shareholders. Chapter 23B.19 of the Washington Business
Corporation Act prohibits a target corporation, with some exception, from
engaging in particular significant business transactions with an acquiring
person, which is defined as a persons or group of persons that beneficially owns
10% or more of the voting securities of the target corporation, for a period of
five years after the acquisition, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the acquisition. Prohibited transactions include,
among other things:
- - a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
- - termination of 5% or more of the employees of the target corporation; or
- - receipt by the acquiring person of any disproportionate benefit as a
shareholder.
A corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of NeoRx.
Problems Related to the Year 2000 Issue Could Adversely Affect Our Business
Prior to January 1, 2000, we devoted substantial resources in an effort to
ensure that our proprietary software, the third-party software on which we rely,
and the underlying systems and protocols did not contain errors or defects
associated with Year 2000 date functions. Since January 1, 2000, we have not
experienced any disruption to our business as a result of any Year 2000 problems
or otherwise. If problems do arise, they could adversely affect our business.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to the impact of interest rate changes and changes in the
market values of its investments.
INTEREST RATE AND INVESTMENT RISK
The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's debt securities included in its investment portfolio.
The Company does not have any derivative financial instruments. The Company
invests in debt instruments of the U.S. Government and its agencies and
high-quality corporate issuers. Investments in both fixed rate and floating rate
interest earning instruments carry a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, the Company's
future investment income may fall short of expectations due to changes in
interest rates or the Company may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest rates.
At March 31, 2000, the Company owned government debt instruments in the amount
of $11.5 million and corporate debt securities in the amount of $5.6 million.
The Company's exposure to losses as a result of interest rate changes is managed
through investing primarily in securities with maturities of one year or less.
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Item 5. Other Information
On February 3, 2000, the Company entered into an agreement with Pharmaceutical
Product Development, Inc. ("PPD") in which the Company received a revolving line
of credit of up to $5,000,000. This revolving line of credit is to be used in
assisting the funding of the Company's phase III trial of its STR product in
development. Any proceeds drawn on the revolving line of credit and interest due
must be repaid on the earlier of the date of the first commercial sale of the
STR product or the date it is determined that the STR product cannot or will not
be launched.
On February 21, 2000, the Company entered into an agreement with International
Isotopes, Inc. ("I3") in which I3 has agreed to design the clinical
manufacturing facility and process for the STR product in development and
manufacture and supply the STR product. The Company has agreed to pay for such
services.
Item 6. Exhibits
Sequentially
Exhibit Number Exhibit Numbered Page
10.1 * Credit Facility Agreement between 26
NeoRx Corporation and PPD
10.2 * Clinical Manufacture and Supply 41
Agreement between NeoRx Corporation and I3
27 Financial Data Schedule 42
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment dated May 4, 2000.
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SIGNATURE
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.
NeoRx Corporation
(Registrant)
Date: May 9, 2000 By: /s/ Richard L. Anderson
---------------------------------
Richard L. Anderson
President, Chief Operating Officer,
Secretary
(Principal Financial and
Accounting Officer)
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REDACTED VERSION
CREDIT FACILITY AGREEMENT
THIS AGREEMENT, dated February 3, 2000, is made by and between NeoRx
Corporation ("NR") and Pharmaceutical Product Development, Inc. ("PPD").
W I T N E S S E T H
WHEREAS, NR has requested a Five Million Dollar ($5,000,000) revolving
credit facility for the purposes hereinafter set forth; and
WHEREAS, PPD has agreed to make the requested credit facility available to
NR under the terms and conditions herein set forth;
NOW, THEREFORE, FOR AND IN CONSIDERATION OF the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
ADVANCES means all sums advanced by PPD to NR under the Commitment.
AGREEMENT means this agreement.
BUSINESS DAY means a day other than a Saturday, Sunday or other day on
which commercial banks in Wilmington, North Carolina are authorized or required
by law to close.
CHANGE OF CONTROL means a merger, consolidation, acquisition of all or
substantially all of the property or stock, liquidation or other reorganization
of NR (the "Reorganization") as a result of which the shareholders of NR receive
cash, stock or other property in exchange for their common stock of NR and the
holders of NR's voting equity securities immediately prior to the Reorganization
together own less than a majority interest of the voting securities of the
successor corporation following the Reorganization.
CLINICAL TRIAL SERVICES means those services provided to conduct NR's
clinical trial entitled "A Phase II/III Multicenter, Randomized, Open-Label
Trial Evaluating High Dose Melphalan plus Holmium-166-DOTMP versus High dose
Melphalan alone in Patients with Multiple Myeloma when Given in Conjunction with
Peripheral Blood Stem Cell Transplantation" (the "Trial"), including clinical
project management, monitoring and site management, and administrative support;
quality management, assurance and regulatory services to include document
control, investigator files, and file and site audits; medical management and
pharmacovigilence including
[*] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
study set-up and maintenance, non-reportable SAEs and Clintrace set-up and
maintenance; data management services including CRF design, database set-up and
maintenance, data entry, data review and clean-up and clinical quality audits,
project management, import of external data, and data transfers; biostatistics
services including protocol review and/or writing, randomization plan and/or
schedule, analysis plan, DSMB analyses, interim analysis, and final analysis;
IVR system services including randomization; investigator meetings and services;
patient participation; raw materials; product doses; IRB services; CRF printing
and shipping; and other related costs or expenses to conduct the Trial approved
in advance by PPD.
COMMITMENT means a credit facility made available hereunder by PPD to NR in
an amount not to exceed Five Million Dollars ($5,000,000) to be used solely for
payment of Clinical Trial Services, including but not limited to Clinical Trial
Services performed by PPD.
COMMITMENT PERIOD means the period from and including the Effective Date to
but excluding the earlier of (i) the Termination Date, or (ii) the date on which
the Commitment hereunder shall have been terminated in accordance with the
provisions hereof.
EFFECTIVE DATE means February 3, 2000.
EVENT OF DEFAULT shall have the meaning assigned to such term in Section
6.1 of this Agreement.
FIRST COMMERCIAL SALE means the initial transfer in the ordinary course of
business by NR or its sublicensees of the STR Product after regulatory approval
in exchange for cash or some equivalent to which value can be assigned. Transfer
for research, development or testing purposes shall not constitute the First
Commercial Sale.
GAAP means generally accepted accounting principles in the United States
applied on a consistent basis.
GOVERNMENTAL AUTHORITY means any federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory body.
INTEREST RATE means [ * ]
NET SALES means the total amount received by NR from the sale of the STR
Product , including royalties (if any), less (a) customary trade, quantity, or
cash discounts and commissions allowed and taken by brokers or agents, (b)
amounts repaid or credited by reason of rejection or return, (c) sales, use
and/or taxes or duties, import and/or export duties, and other similar
governmental charges paid, but not including income taxes, and (d) to the extent
separately stated on purchase orders, invoices, or other documents of sale,
insurance costs and outbound transportation charges prepaid or
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allowed related to shipment of the STR Product. "Net Sales" shall not include
license fees or milestone payments paid to NR that are not conditioned on the
sale of the STR Product by the licensee.
NOTE shall have the meaning assigned to such term in Section 2.5 hereof.
PERSON means any individual, partnership, joint venture, firm, corporation,
limited liability company, association trust or enterprise (whether or not
incorporated) or any Governmental Authority.
REQUIREMENT OF LAW means as to any Person the certificate of incorporation
and bylaws or other organizational or other governing documents of such Person,
and any law, treaty, rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to any such
Person or to which any of its material property is subject.
SEC means the United States Securities and Exchange Commission.
STR PRODUCT means the Skeletal Targeted Radiotherapy product known as
Holmium-166 DOTMP.
TERMINATION DATE means the earlier of (i) the second anniversary of the
Trigger Date, (ii) the effective date of a Change in Control of NR which
materially diminishes NR's financial ability to repay the Commitment, (iii)
thirty (30) days after NR sells, licenses or otherwise in any manner disposes of
substantially all of its interest in the Holmium-166 DOTMP compound, or its
successor compound(s) or derivatives, (iv) the date of termination by NR for any
reason other than material breach of or material nonperformance under that
certain Master Services Agreement Addendum of even date between NR and PPD
Development, Inc. for the further development of the Holmium-166 DOTMP compound,
or (v) any other date on which this Agreement or the Commitment hereunder is
terminated or deemed terminated as herein provided.
TRIGGER DATE means the earlier of (i) the date of the First Commercial Sale
of the STR Product or (ii) the date on which it is determined that the STR
Product cannot or will not, whichever is applicable, be launched.
SECTION 2. CREDIT FACILITY.
2.1 CREDIT FACILITY. During the Commitment Period, subject to the terms and
conditions hereof PPD shall make available to NR the Commitment. The continuing
obligation of PPD to make the Commitment available to NR hereunder is subject to
the condition that the Representations and Warranties of NR set forth herein are
true and correct in all material respects throughout the Commitment Period.
Within the limits set forth herein and in the Note, NR may borrow under this
section, repay or, to the extent permitted by Section 2.6, prepay the Commitment
at any time during
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the Commitment Period. PPD shall have no obligation to make available a credit
facility in excess of the amount of the Commitment.
2.2 NOTICES. Any request by NR for an Advance hereunder shall be made by
written notice to PPD not later than the fifth Business Day prior to the
requested date of issuance of the Advance. Said notice shall be in the form of
APPENDIX I attached and shall specify in detail the Clinical Trial Services for
which the requested Advance is to be used. PPD may request such additional
documentation or evidentiary material as it deems reasonably necessary, in its
sole discretion, to verify that the Advance will be used for payment of Clinical
Trial Services. Each such request shall be deemed a reaffirmation by NR that the
Representations and Warranties set forth herein are true and correct in all
material respects as of such date. Notwithstanding anything to the contrary
contained in this Agreement, PPD shall be under no obligation to make any
Advance hereunder if there shall have occurred any condition or event which
constitutes an Event of Default or which, with the giving of notice or lapse of
time, or both, would, unless cured or waived, become an Event of Default.
2.3 INTEREST RATE. Commencing on the Effective Date, Advances made under
the Commitment hereunder shall bear interest at a per annum rate equal to the
Interest Rate; provided, however, that after the occurrence and during the
continuance of an Event of Default, the principal and, to the extent permitted
by law, interest on Advances made under the Commitment and any other amounts
owing hereunder shall bear interest, payable upon demand, at a rate equal to the
lesser of (i) the Interest Rate plus two percent (2%), or (ii) the maximum rate
permitted without causing a violation of a Requirement of Law.
2.4 REPAYMENT. Unless sooner paid, the principal amount of Advances made
under the Commitment and all accrued and unpaid interest thereon shall be
payable as follows:
(i) Commencing thirty (30) days after the Trigger Date, the principal
amount of all Advances made to NR which are outstanding under the Commitment and
all accrued and unpaid interest thereon shall be paid in twenty-four (24) equal
monthly installments, with the first installment being thirty (30) days after
the Trigger Date, and subsequent installments being due on the same day of each
succeeding calendar month thereafter, with the last payment being due on the
second anniversary of the Trigger Date, until or unless all outstanding amounts
under the Commitment have been previously paid in full. Each installment shall
be applied first to the payment of interest on the then unpaid principal amount
of Advances made under the Commitment and the residue in reduction of the unpaid
principal amount of Advances outstanding. If (i) additional Advances are made to
NR under the Commitment after the Trigger Date or (ii) payments are made
pursuant to clause (ii) of this Section 2.4, the amount of the monthly
installments payable hereunder shall be recalculated and adjusted accordingly on
the next payment date.
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(ii) Commencing on the last day of the fourth calendar month following
the month in which the First Commercial Sale of the STR Product occurs and on
the last day of each succeeding month until all of the unpaid principal amount
of the Advances made under the Commitment and the interest thereon has been paid
in full, [ * ] Each payment shall be applied first to the payment of interest on
the then unpaid principal amount of Advances made under the Commitment and the
residue in reduction of the unpaid principal amount of Advances outstanding.
2.5 NOTE. Advances made pursuant to the Commitment shall be evidenced by a
single promissory note of NR dated the Effective Date, payable to the order of
PPD in an amount equal to the Commitment, in the form of SCHEDULE A hereto (as
amended, modified, extended, supplemented, removed, or replaced, the Note).
2.6 PREPAYMENTS. Advances made under the Commitment may be prepaid in whole
or in part in any time without premium or penalty.
2.7 PAYMENTS AND COMPUTATION. Payments shall be made hereunder in U. S.
Dollars in immediately available funds, without offset, reduction or withholding
of any kind, at the offices of PPD provided in the notice section of this
Agreement. Computations of interest hereunder shall be made on the basis of
actual number of days elapsed over a year of 365 days. Whenever any payment of
principal of, or interest on, Advances made under the Commitment shall be due on
a day that is not a Business Day, the date for payment thereof shall be extended
to the next succeeding Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
SECTION 3. CONDITIONS.
The effectiveness of this Agreement and the continuing obligations of PPD
hereunder is expressly conditioned upon (i) the accuracy and truth of the
Representations and Warranties on the Effective Date and throughout the
Commitment Period, (ii) the aggregate Advances made under the Commitment will
not exceed the amount of the Commitment, and (iii) the receipt by PPD of the
warrant to purchase shares of NR common stock as provided for in that certain
NeoRx Corporation warrant issued on even date to PPD.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
4.1 CORPORATE ORGANIZATION. NR is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, is qualified to do business in each jurisdiction where failure to
so qualify would have a material adverse effect on NR, and is in compliance with
all Requirements of Law except to the extent such failure to be in compliance
would not have a material adverse effect on NR.
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4.2 ENFORCEABLE OBLIGATION. NR has the power and authority and legal right
to enter into, deliver and perform under this Agreement and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Agreement. This Agreement constitutes a legal, valid and binding obligation
of NR, enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights or by general equitable principles (whether enforcement is
sought by proceedings in equity or at law).
4.3 LEGAL PROCEEDINGS. No claim, litigation or proceeding before any
arbitrator or Governmental Authority is pending, or, to the knowledge of NR,
threatened which if there is a reasonable likelihood of adverse determination
would reasonably be expected to have a material adverse effect on NR.
4.4 NO DEFAULT. No Event of Default or event or condition which with notice
or lapse of time, or both, would constitute an Event of Default, presently
exists.
SECTION 5. COVENANTS.
5.1 FINANCIAL STATEMENTS. NR will furnish or cause to be furnished to PPD:
(i) SEC FILINGS. Complete Form 10-K's and Form 10-Q's within one (1)
business day after said forms are filed from time to time with the SEC.
(ii) OTHER INFORMATION. Promptly upon request, such additional
financial and other information as PPD may reasonably request from time to time.
All financial statements shall be complete and correct in all material respects
(subject, in the case of interim statements, to normally recurring year-end
audit adjustments) and shall be prepared in reasonable detail and in accordance
with GAAP throughout the periods reflected therein (except as approved by such
accountants and disclosed therein) and further accompanied by a description of,
and an estimation of the effect on the financial statements on account of, a
change in the application of accounting principles from a prior period.
5.2 COMPLIANCE WITH LAWS. NR will comply with all material Requirements of
Law and all requirements of any Governmental Authority, except where the
necessity of such compliance has been contested in good faith through
appropriate proceedings.
5.3 BOOKS AND RECORDS. NR will keep proper books and records in conformity
with GAAP and all material Requirements of Law. PPD hereby reserves the right to
have such books and records reviewed and audited by a national recognized
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independent certified public accounting firm reasonably acceptable to NR with
respect to all amounts owed by NR to PPD under Section 2.4(ii) hereof. Prior to
any audit, said firm shall enter into a confidentiality agreement with NR for
such audit which is reasonably acceptable to the parties. If the result of such
audit reveals amounts due to PPD in excess of Five Percent (5%) of the amount
actually paid to PPD for the period in question, (i)NR shall pay such amount
determined by such audit to be due to PPD, plus interest thereon at the Interest
Rate, if there is outstanding any unpaid principal or interest under the
Commitment, but only to the extent of such unpaid principal or interest, and
(ii) NR shall reimburse PPD for the cost of said audit.
SECTION 6. EVENTS OF DEFAULT.
6.1 EVENT OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an Event of Default under this Agreement:
(i) NR shall fail to pay any amount when due under the Commitment or
the Note within ten (10) days after NR's receipt of written notice from PPD to
pay same;
(ii) NR shall fail to observe or perform any covenant or agreement
contained in this Agreement or the Note other than those covered by clause (i)
above, which breach or nonperformance is not cured within thirty (30) days after
NR's receipt of notice of same;
(iii) any representation, warranty, certification or statement made by
NR in any financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect in any material respect when made
(or deemed made);
(iv) NR shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to the appointment of or taking possession by any such official in any
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to authorize
any of the foregoing;
(v) an involuntary case or other proceeding shall be commenced against
NR seeking liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of sixty (60) days, or an
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order for release shall be entered against NR under the federal bankruptcy laws
as now or hereafter in effect; or
(vi) one or more judgments or orders for payment of money in an
aggregate amount in excess of One Million Dollars ($1,000,000) shall be rendered
against NR and such judgment or order shall continue unsatisfied or unstayed for
a period of thirty (30) days.
6.2 REMEDIES. Upon the occurrence of an Event of Default, and at any time
thereafter, and during the continuation of any Event of Default, PPD may
immediately terminate the Commitment which shall thereupon terminate, and by
notice to NR (i) declare the unpaid principal of the Note, together with any
accrued and unpaid interest owing thereon, to be, and the Note and the
outstanding Advances and all other indebtedness or obligations owing hereunder
or under any of other instrument referenced herein or in connection herewith or
therewith, shall thereupon become immediately due and payable without
presentment, demand, protest or other notice of any kind, all which are hereby
waived by NR, and (ii) enforce any other rights and interests available at law
or in equity, including rights of set off. Notwithstanding the foregoing, in the
case of an Event of Default described in clauses (v) or (vi) of Section 6.1
relating to bankruptcy and insolvency, the Note, the Advances, and all accrued
interest, fees and other indebtedness and other amounts owing hereunder or under
any other instrument given by NR to PPD shall become immediately due and payable
without presentment, demand, protest or the giving of any other notice or other
action by PPD, all of which are hereby waived by NR.
SECTION 7. MISCELLANEOUS.
7.1 NOTICES. Notices and other communications shall be effective, when duly
given, (i) when received, (ii) when transmitted by telecopier or other facsimile
device to the numbers set out below if transmitted before 5:00 p.m. on a
Business Day, or otherwise on the next following Business Day, (iii) the day
following the day on which delivered prepaid by a reputable national overnight
air courier service, (iv) the third Business Day following the day sent by
certified or registered mail postage prepaid, in each case to the parties at the
address shown below, or at such other address as may be specified by written
notice to the other parties:
if to PPD: Pharmaceutical Product Development, Inc.
3151 South 17th Street
Wilmington, NC 28412
Attention: Chief Financial Officer
Telephone: (910) 251-0081
Fax: (910) 772-7056
if to NR: NeoRx Corporation
410 West Harrison Street
Seattle, WA 98119
8
<PAGE>
Attention: President
Telephone: (206) 286-2514
Fax: (206) 284-7112
with a copy to: LAWCO of Washington
1201 Third Avenue, Suite 4000
Seattle, WA 98101
Telephone: (206) 583-8888
Fax: (206) 583-8500
7.2 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and shall
inure to the benefit of the respective successors and the permitted assigns of
the parties hereto; provided, that neither PPD nor NR may assign or transfer any
of its obligations or interests without the other's prior written consent.
7.3 NO WAIVER. No failure or delay on the part of PPD in exercising any
right, power or privilege hereunder or under the Note and no course of dealing
between PPD, on the one hand, and NR, on the other hand, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under the Note preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and privileges provided herein are cumulative and not
exclusive to any rights or remedies which PPD would otherwise have.
7.4 AMENDMENTS. Neither this Agreement nor the Note may be amended or
modified, nor shall consents or waivers be effective, except with the written
consent of the parties hereto.
7.5 PAYMENT OF EXPENSES. NR shall pay all reasonable out-of-pocket costs
and expenses of PPD in connection with the enforcement of this Agreement, the
Note and any other documents and instruments referred to herein or therein
including, without limitation, in connection with any such enforcement, the
reasonable fees and disbursements of counsel for PPD. In the event of any
dispute hereunder before any tribunal of any kind which is authorized to resolve
said dispute, the prevailing party's costs and expenses, including reasonable
attorney's fees, shall be paid by the non-prevailing party.
7.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same agreement. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
7.7 HEADINGS. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
9
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7.8 SURVIVAL. The indemnities and payment obligations hereunder and the
Representations and Warranties made herein or in connection herewith shall
survive the making and repayment of Advances made under the Commitment and
termination of the Commitment hereunder.
7.9 GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of North Carolina.
7.10 CONSENT TO JURISDICTION. NR (a) submits to personal jurisdiction in
the State of North Carolina, the courts thereof and the United States District
Courts sitting therein, for the enforcement of this Agreement and the Note, (b)
waives any and all personal rights under the laws of any jurisdiction to object
on any basis (including, without limitation, inconvenience of forum) to
jurisdiction or venue within the State of North Carolina for the purpose of
litigation to enforce this Agreement or the Note, and (c) agrees that service of
process may be made upon it by personal delivery or certified or registered mail
in the manner prescribed in Section 7.1 for the giving of notice to NR. Nothing
herein contained, however, shall prevent PPD from bringing any action against NR
within any other state or jurisdiction.
[NEXT PAGE IS SIGNATURE PAGE]
10
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first
herein set forth.
Pharmaceutical Product Development, Inc.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Attest:
----------------------------
-------------------Secretary
[Corporate Seal]
NEORX CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Attest:
----------------------------
-------------------Secretary
[Corporate Seal]
11
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APPENDIX I
Request for Advance
This Request for Advance ("Request") dated as of _______________, 20__, is by
and between NeoRx Corporation ("NR") and Pharmaceutical Product Development,
Inc. ("PPD"). Advances made by PPD pursuant to its Commitment to NR under the
Credit Facility Agreement (the "Credit Agreement") dated February 3, 2000 by and
between NR and PPD shall be made available on the fifth Business Day following
receipt of this Request at the offices of PPD in Wilmington, NC. Unless
otherwise indicated in this Request, all capitalized terms used in this Request
shall have the same meaning ascribed to them in the Credit Agreement.
1. AMOUNT REQUESTED ($) :
2. DESCRIPTION OF PROPOSED USE OF FUNDS (Note: Must be for payment of Clinical
Trial Services) :
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3. THIS REQUEST REPRESENTS A REAFFIRMATION BY NR THAT THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN THE CREDIT AGREEMENT ARE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF THE DATE OF THIS REQUEST.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE CREDIT AGREEMENT, PPD
SHALL BE UNDER NO OBLIGATION TO MAKE ANY ADVANCE HEREUNDER IF THERE SHALL HAVE
OCCURRED ANY CONDITION OR EVENT THAT CONSTITUTES AN EVENT OF DEFAULT OR WHICH,
WITH THE GIVING OF NOTICE OR LAPSE OF TIME, OR BOTH, WOULD, UNLESS CURED OR
WAIVED, BECOME AN EVENT OF DEFAULT.
IN WITNESS HEREOF, NR has caused this Request to be duly executed by its
authorized officer as of the date first above written.
NEORX CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[*] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
SCHEDULE A
PROMISSORY NOTE
$5,000,000 February 3, 2000
FOR VALUE RECEIVED, the undersigned, NeoRx Corporation ("NR") promises to
pay to the order of Pharmaceutical Product Development, Inc. ("PPD"), its
endorsees, successors and assigns, on or before the Termination Date the
principal sum of Five Million Dollars ($5,000,000) or, if less, the aggregate
unpaid principal amount of all advances made by PPD pursuant to its Commitment
to NR under the Agreement, in lawful money of the United States in immediately
available funds at the office of PPD as provided in the Credit Facility
Agreement of even date by and between PPD and NR (the "Credit Agreement") or as
otherwise directed by PPD pursuant to the terms of the Credit Agreement,
together with interest, in like money funds, on the unpaid principal amount
hereof at the rates and on the dates as set forth in the Agreement.
This Note is issued pursuant to, and is entitled to the benefits of the
Credit Agreement (as the same may be amended or modified and in effect from time
to time), to which Credit Agreement reference is hereby made for a statement of
the terms and conditions under which this Note may be prepaid or its maturity
date accelerated. Capitalized terms used herein and not otherwise defined herein
are used with the meanings attributed to them in the Credit Agreement.
In the event payment of amounts due hereunder are accelerated under the
terms of the Credit Agreement, all such amounts shall become immediately due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby waived.
TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE. In addition and not in
limitation of the foregoing provisions of the Credit Agreement, NR further
agrees to pay all expenses of collection, including reasonable attorneys' fees,
if this Note shall be collected by an attorney at law, or in bankruptcy,
receivership or other court proceedings.
This Note shall be governed by and construed in accordance with the laws of
the State of North Carolina. This Note is intended to be effective as an
instrument executed under seal.
PRESENTMENT, DEMAND, PROTEST, NOTICE OF DISHONOR AND NOTICE OF ANY KIND ARE
HEREBY WAIVED BY NR.
<PAGE>
Executed under hand and seal of NR on the date first above written.
NeoRx Corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Attest:
----------------------------
-------------------Secretary
<PAGE>
CLINICAL MANUFACTURE AND SUPPLY AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into on February 21, 2000 by
and between International Isotopes Inc., a Texas corporation, with its principal
place of business at 3100 Jim Christal Road, Denton, Texas 76207 ("I3"), and
NeoRx Corporation, a Washington corporation, with its principal place of
business at 410 West Harrison Street, Seattle, Washington 98119-4007 ("NeoRx").
WITNESSETH
WHEREAS, NeoRx has obtained an exclusive license under certain patents and
the right to use certain technology and processes to make, use, sell and
distribute the Product (as hereafter defined), which is a radiopharmaceutical
product, for clinical and commercial purposes; and
WHEREAS, I3 is in the business of manufacturing a full range of
radiochemicals and radiopharmaceuticals, and is the sole owner of a
radiopharmaceutical manufacturing facility located in Denton, Texas (the
"Building"); and
WHEREAS, NeoRx and I3 have entered into that certain Design Phase
Agreement, through which I3 has agreed to design the Clinical Manufacturing
Facility and Process for the benefit of NeoRx, and NeoRx has agreed to pay I3
for such services; and
WHEREAS, the parties desire to set forth the terms under which I3 will
install and qualify the Clinical Manufacturing Facility and Process within the
Building to be used for Processing the Product for use in Clinical Trials;
WHEREAS, NeoRx desires that I3 manufacture and supply to and on behalf of
NeoRx certain quantities of the Product for use in Clinical Trials, and I3 is
willing to perform such services to and on behalf of NeoRx, all in accordance
with the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing promises and agreements
set forth herein, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Affiliate" of a Party means any corporation or other business entity
controlled by, controlling or under common control with such Party. For this
purpose, "control" means direct or indirect beneficial ownership of thirty-five
percent (35%) or more of the voting and income interest in such corporation or
other business entity.
1.2 "Building" means the entire 25,000 square foot radiopharmaceutical
manufacturing facility owned by I3 and located in Denton, Texas.
1.3 "Calibration Time" is 12:00 noon Central Time on the day following the
manufacturing date of a particular Batch of Product.
[ * ] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
1.4 "Certificate of Analysis" means a written certificate produced by I3
verifying that a particular dose of Product meets all Product Specifications,
and that the methodology used to Process the Product met all Requirements, cGMP
and all other applicable laws and regulations.
1.5 "Change Control" means a procedure, governed by I3's Standard
Operating Procedures, for assessing the potential impact on the regulatory
status, validation status, and safety of any proposed change to a Validated
Process or the validated equipment and utilities associated with that Process
prior to implementation of that change.
1.6 "Clinical Batch" means a production batch of the Product intended to
have uniform character and quality that is Processed by I3 in accordance with
the terms and conditions of this Agreement. [ * ]
1.7 "Clinical Facility Information" means all written information given to
the FDA to support the approval of the Clinical Manufacturing Facility as being
qualified and Validated to manufacture the Product for Clinical Trials.
1.8 "Clinical Facility Qualification Plan" has the meaning as set forth in
Section 2.1(b).
1.9 "Clinical Facility Qualification Report" has the meaning as set forth
in Section 2.4(a).
1.10 "Clinical Facility Validation Plan" has the meaning as set forth in
Section 2.1(c).
1.11 "Clinical Facility Validation Report" has the meaning as set forth in
Section 2.4(b).
1.12 "Clinical Manufacturing Facility" means that portion of the Building
that will be designed and constructed in accordance with the Construction
Specifications for use as a radiopharmaceutical manufacturing facility, and
which is to be dedicated to the clinical manufacture of the Product.
1.13 "Clinical Trials" means any trials for clinical development of
pharmaceutical products defined as "Phase I," "Phase II," "Phase III," or
"Treatment IND" in FDA regulations, as amended from time to time.
1.14 "Construction Specifications" means the specifications for the
construction, characteristics and operations of the Clinical Manufacturing
Facility and the Process as set forth in the Construction Design Plans attached
hereto as Exhibit A, which may be amended from time to time by written agreement
of the parties.
1.15 "Construction Fee" has the meaning as set forth in Section 2.2.
1.16 "cGMP" means the current good manufacturing practices required by the
FDA and set forth in the FD&C Act or FDA regulations, policies, or guidelines in
effect at a particular time for the manufacture, testing and quality control of
pharmaceutical materials as applied to
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drugs except to the extent that another jurisdiction within the North American
Market imposes standards for the manufacture, testing and quality control of
pharmaceutical materials as applied to drugs are higher or more stringent than
those required by the FDA, in which case such standards will apply.
1.17 "Dedicated Moveable Equipment" means all equipment except hot cells
and glove boxes purchased by NeoRx for exclusive use in Processing the Product.
1.18 "Dedicated Fixed Equipment" means hot cells and glove boxes purchased
by NeoRx for exclusive use in Processing the Product.
1.19 [ * ]
1.20 "Effective Date" means the date this Agreement is entered into, as
indicated in the first paragraph of this Agreement.
1.21 "Facility Master File" or "FMF" means the Facility Master File dossier
prepared by I3 and filed with the FDA, which provides the FDA with specific (and
proprietary) chemistry, manufacturing and controls information for the Building.
1.22 "FDA" means the United States Federal Food and Drug Administration.
1.23 "FD&C Act" means the United States Federal Food, Drug and Cosmetic
Act, as amended.
1.24 "IND" means an Investigational New Drug application and any
supplements thereto, as defined in FDA regulations, as amended from time to
time.
1.25 "Installation Qualification" means the program employed by I3 by which
it is established that the equipment and systems used in the Process are capable
of consistently operating within established limits and tolerance for purposes
of Processing the Product for use in Clinical Trials.
1.26 "Inventions" has the same meaning as set forth in Section 11.2(a).
1.27 "Master Batch Record" means the document which sets forth the
methodology and formulae for Processing each Batch. I3 may amend the Master
Batch Record from time to time; provided, however, that I3 shall make such
amendment only in accordance with its written Standard Operating Procedures
governing Change Control for a validated process, and shall notify the FDA
Master File dossier and NeoRx of such amendment prior to the implementation
thereof.
1.28 "Milestones" means the Milestones as set forth on Exhibit B, which
reflect the timeline during which I3 will complete the construction,
qualification and validation of the Clinical Manufacturing Facility, as such
construction, qualification and validation are further described in Article II.
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1.29 "New Drug Application" or "NDA" means the application for marketing a
new drug product filed by NeoRx with the FDA.
1.30 "Operation Qualification" means the program employed by I3 by which it
is established that the equipment and systems used in the Process are capable of
Processing Product that consistently meets the Requirements.
1.31 "Performance Qualification" means the program by which it is
established that the Process, and all equipment and systems associated
therewith, are effective and reproducible.
1.32 "PHS Act" means the United States Public Health Service Act, as
amended.
1.33 "Primary Completion Date" has the meaning as set forth in Section 2.1.
1.34 "Processing," "Process," and "Processed" shall have comparable
meanings and mean the act of manufacturing, handling, storing, analyzing,
packaging in dosage form, inspecting and labeling Product in accordance with the
Master Batch Record, Product Specifications, the Requirements, cGMP and all
other applicable federal, state and local laws and regulations for the
manufacture of the Product for use in Clinical Trials.
1.35 "Process Qualification" means a defined set of procedures, materials
and controls by which three (3) consecutive Clinical Batches are produced
according to the Master Batch Record procedures and the resulting Diagnostic and
Therapeutic Doses meet all Product Specifications.
1.36 "Process Validation" means the defined set of procedures, materials,
and controls as set forth in the Clinical Facility Information, by which
documented evidence provides a high degree of assurance that the Process will
consistently produce the Product that meets all Product Specifications and other
quality criteria and attributes as mutually agreed upon by the parties and as
set forth in the applicable I3 process validation protocol.
1.37 "Product" means a [ * ]
1.38 "Product Specifications" means the composition of the Product, along
with the set of analytical tests, methods, and acceptance criteria for Product
attributes which must be met in order to prove that the Product meets the
standards of quality, purity, identity and strength accepted by the FDA for this
substance. Product Specifications are a critical part of the Requirements and
are filed with the FDA as part of an FMF, NDA, IND or otherwise and set forth in
the Clinical Facility Information. All Product Specifications are set forth on
Exhibit C, which may be amended from time to time by written agreement of the
parties and as dictated by the FDA and applicable laws and regulations.
1.39 "Proprietary Information" means all information concerning a party
(the "Disclosing Party") which is furnished to or created by (such as notes,
analysis, compilations, studies, interpretations or other documents) the other
party or its directors, officers, employees,
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agents, advisors or Affiliates (collectively, the "Receiving Party") as a result
of entering into this Agreement and in furtherance hereof.
1.40 "Purchase Order" means the written or electronic document sent by
NeoRx from time to time to I3 that sets forth the number of Diagnostic and/or
Therapy Doses ordered and the expected delivery dates.
1.41 "Quality Control Tests" means the analytical testing of Product
attributes performed by I3 according to the test methods specified by the
Requirements, to determine whether a given dose meets its Product
Specifications.
1.42 "Requirements" means those Product Specifications, Process parameters,
cGMP and other governmental requirements relating to the Product, as set forth
in Exhibit D, which may be revised from time to time upon written agreement of
the parties and as dictated by the FDA and applicable laws and regulations. Upon
such revision, I3 shall immediately implement any modified documents and/or
procedures pertinent to the revised Requirements. Should the revision to the
Requirements have a material effect on the cost of Processing the Product, the
parties agree to meet and negotiate in good faith any price changes for the
purchase of the Product.
1.43 "Standard Operating Procedures" ("SOPs") means I3's internal written
standard operating procedures, controlled by I3's quality assurance unit,
governing all aspects of manufacturing and testing Product under cGMP.
1.44 [ * ]
1.45 "Validated" means the condition of having passed standards for
Installation Qualification, Operation Qualification and Performance
Qualification, as well as meeting all Construction Specifications, all Process
Validation requirements, and validation of the analytical methods.
1.46 "Validation Completion Date" has the meaning as set forth in Section
2.1.
1.47 "Waste" means all (a) rejected or unusable Product, (b) Product not
purchased by NeoRx for whatever reason, and (c) waste relating to I3's
Processing of Product.
ARTICLE II - CONSTRUCTION OF MANUFACTURING
FACILITY AND PROCESS
2.1 CONSTRUCTION OF CLINICAL MANUFACTURING FACILITY
(a) CONSTRUCTION. I3 will construct the Clinical Manufacturing Facility
and Process in accordance with the Construction Specifications and the
Milestones. [ * ]
(b) QUALIFICATION. I3 will prepare and NeoRx will approve a qualification
plan for the Clinical Manufacturing Facility and Process (the "Clinical Facility
Qualification Plan"), which will set forth the steps to be followed by I3 in
causing the Clinical Manufacturing Facility and
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Process to be qualified for use in clinical trials. I3 shall prepare and
execute, and deliver to NeoRx no later than thirty (30) days after the Primary
Completion Date, a final Clinical Facility Qualification Report indicating that
the construction of the Clinical Manufacturing Facility and the Process are
complete and qualified and that I3 has satisfied all aspects of the Clinical
Facility Qualification Plan. I3 acknowledges that any or all data included in
the final Clinical Facility Qualification Report may be used by NeoRx for
purposes of completing the CMC section of the IND.
(c) VALIDATION. I3 will prepare and NeoRx will approve a validation plan
for the Clinical Manufacturing Facility and Process (the "Clinical Facility
Validation Plan"), which will set forth the steps to be followed by I3 in
causing the Clinical Manufacturing Facility, analytical methods and Process to
be Validated. [ * ] I3 acknowledges that any or all data included in the final
Clinical Facility Validation Report may be used by NeoRx for purposes of
completing the CMC section of the NDA.
(d) COSTS. I3 shall be solely responsible for the payment of all costs in
connection with the construction of the Clinical Manufacturing Facility and
Process and obtaining all equipment associated therewith other than Dedicated
Moveable Equipment and Dedicated Fixed Equipment; provided, however, that if,
upon the prior written consent of NeoRx, I3 writes specifications for and
purchases the Dedicated Moveable Equipment and Dedicated Fixed Equipment on
behalf of NeoRx, then NeoRx shall reimburse I3 for the cost of such Dedicated
Equipment plus a 10% markup.
(e) DEDICATED EQUIPMENT. NeoRx shall be solely responsible for the cost of
Dedicated Moveable Equipment and Dedicated Fixed Equipment (collectively, the
"Dedicated Equipment"), whether such equipment is purchased or leased by NeoRx
or I3. NeoRx shall remain the sole owner of all Dedicated Equipment that is
purchased, and will maintain UCC filings documenting NeoRx's ownership therein
during the Term of this Agreement. Upon the expiration of this Agreement, I3
shall promptly return at NeoRx's sole expense all Dedicated Equipment to NeoRx
in good working condition less reasonable wear and tear; provided, however, that
if NeoRx indicates in writing to I3 that NeoRx intends to sell the Dedicated
Fixed Equipment at any time within sixty (60) days of the expiration or
termination of this Agreement (the "Sales Notice"), I3 shall have the right to
purchase the Dedicated Fixed Equipment from NeoRx at a rate equal to the
original book value minus 10% for each year the Dedicated Fixed Equipment has
been in service; provided, further, that I3 must exercise its right, if any, to
purchase the Dedicated Fixed Equipment within thirty (30) days of NeoRx sending
the Sales Notice to I3.
2.2 CONSTRUCTION FEE
In consideration of I3's construction of the Clinical Manufacturing
Facility, NeoRx shall pay to I3 a flat fee of [ * ] (the "Construction Fee").
NeoRx shall pay the Construction Fee to I3 in the following four installments:
(a) [ * ] upon full execution of this Agreement; (b) [ * ] upon completion and
execution of the Clinical Facility Qualification Plan, as described in Section
2.1(b); (c) [ * ] upon completion and execution of the final Clinical Facility
Validation Report, as described in Section 2.1(b); and (d) [ * ] upon filing the
NDA package associated
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with the Product. NeoRx's obligation to pay each installment is conditioned upon
its receipt of an invoice from I3 for the payment of each installment; provided,
however, that NeoRx's obligation to pay the final installment of the
Construction Fee is conditioned on NeoRx's acceptance of a final NDA package
associated with the Product.
2.3 PERFORMANCE CHARACTERISTICS
I3 will construct the Clinical Manufacturing Facility so that it shall have
the capacity to Process Product (a) in accordance with the Product
Specifications, the Requirements, cGMP and all applicable federal, state and
local laws, regulations, rules and orders and (b) in the amounts set forth in
Section 3.3. The Clinical Manufacturing Facility shall be built according to the
development documents created in the Design Phase Services Agreement that was
executed between the parties on September 20, 1999.
2.4 CLINICAL FACILITY REPORTS
(a) QUALIFICATION. At such times as are set forth in the Clinical Facility
Qualification Plan, I3 shall prepare and submit to NeoRx a report (the "Clinical
Facility Qualification Report") summarizing the activities performed pursuant to
the Clinical Facility Qualification Plan, including but not limited to facility
qualifications that are needed to begin producing Product for Phase III Clinical
Trials. I3 shall also prepare and submit to NeoRx a final Clinical Facility
Qualification Report, as described in Section 2.1(b), at such time as the
Clinical Manufacturing Facility and Process are Qualified, but no later than
thirty (30) days after the Primary Completion Date.
(b) VALIDATION. At such times as are set forth in the Clinical Facility
Validation Plan, I3 shall prepare and submit to NeoRx a report (the "Clinical
Facility Validation Report") summarizing the activities performed pursuant to
the Clinical Facility Validation Plan. I3 shall also prepare and submit to NeoRx
a final Clinical Facility Validation Report, as described in Section 2.1(c), at
such time as the Clinical Manufacturing Facility and Process are Validated, but
no later than six (6) months after the Primary Completion Date.
2.5 FACILITY EXCLUSIVITY
During the Term, I3 may not use the Clinical Manufacturing Facility for any
purpose other than Producing Product pursuant to this Agreement or for
conducting such additional activities as instructed by NeoRx and agreed upon by
the parties.
2.6 REPAIRS AND MAINTENANCE
I3 shall perform all maintenance required to maintain the Clinical
Manufacturing Facility and Process in good operating condition as required by
the Construction Specifications, Requirements, cGMP and all other applicable
federal, state and local laws, regulations, rules or orders. In the event of any
conflict between the applicable laws, regulations, rules or orders of any
jurisdictions, I3 will notify NeoRx of such conflict and the parties shall act
in good faith to resolve such conflict or to determine which laws, regulations,
rules or orders take precedence;
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provided, however, that at all times the Parties shall comply with the
requirements of cGMP. The cost of all repairs and maintenance to the Clinical
Manufacturing Facility and/or Process, and the replacement of any equipment
other than Dedicated Equipment, shall be borne by I3. NeoRx will bear all
expenses for repairs to or replacement of the Dedicated Equipment provided that
I3 has been operating the Dedicated Equipment under normal operating procedures
and conditions.
2.7 MODIFICATIONS
If, at any time during the Term of this Agreement after the Clinical
Manufacturing Facility and Process are Validated, the parties determine that
modifications to the Clinical Manufacturing Facility or Process are required as
a result of errors committed by I3 in carrying out the Clinical Facility
Qualification Plan, then I3 shall make such modifications and bear all costs and
expenses associated therewith. The costs for all other modifications to the
Clinical Manufacturing Facility or Process as determined, or agreed to, by
NeoRx, including those needed to meet agreed upon changes in the Requirements or
complete agreed upon additional construction, shall be borne solely by NeoRx,
subject to NeoRx's prior written authorization.
2.8 DEDICATED PERSONNEL
During the Term of this Agreement, I3 shall dedicate the personnel listed
on Exhibit E to the (a) construction, qualification and Validation of the
Clinical Manufacturing Facility, the Commercial Manufacturing Facility (as
described in the Commercial Manufacturing and Supply Agreement) and the Process,
and (b) the Processing of the Product. If any person listed on Exhibit E
terminates his or her employment with I3 during the Term of this Agreement, I3
shall replace that individual within two (2) months with someone of the same
level of experience.
ARTICLE III- MANUFACTURE & SUPPLY; OTHER SERVICES
3.1 NEORX'S SOURCE OF PRODUCT
(a) NORTH AMERICA. During the Term of this Agreement, NeoRx will obtain
from I3 at least [ * ] of its requirements of the Product for use in Clinical
Trials performed in North America that are associated with the use of the
Product for treatment of multiple myeloma; provided, [ * ] Accordingly, NeoRx
may, from time to time during the Term, obtain from third party manufacturers up
to twenty percent (20%) of its requirements of the Product for use in multiple
myeloma related Clinical Trials performed in North America.
(b) OTHER. [ * ] I3 shall have no obligation or right to Process Product
that is to be used for such purposes.
3.2 PROCESS AND SUPPLY OF PRODUCT
(a) GENERAL. I3 shall (a) Process the Product in strict conformity with
the Requirements, cGMP requirements and all other applicable laws, rules and
regulations, (b) maintain all documentation and quality control records
regarding the Products as described
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herein, and (c) supply the Product to the appropriate party in accordance with
the terms of this Agreement. I3 shall have no right to use, test or distribute
the Product for any reason other than as expressly provided in this Agreement.
(b) PROCESS AND SUPPLY. During the Term, I3 will Process and supply to
NeoRx such doses of the Product as NeoRx may order from I3 pursuant to Purchase
Orders. To fulfill the Purchase Orders, each week during the Term of this
Agreement I3 shall Process such Batches, or partial Batches, as is necessary to
produce only the number of doses of the Product ordered and scheduled for
delivery during such week.
(c) SITE OF PROCESSING; SUBCONTRACTING. I3 will Process all of the Product
at the Clinical Manufacturing Facility. Under no circumstances will I3 Process
any Product at any other location or subcontract out to a third party all or any
part of the Processing or testing of the Product without NeoRx's prior written
consent.
(d) APPROVAL FOR MANUFACTURING CHANGES. I3 agrees that no changes will be
made to any materials, Requirements, equipment, Processing or Quality Control
Tests without NeoRx's prior written approval. Subsequent to such approval from
NeoRx, I3 may then make such approved changes, so long as, in any event, (i)
such changes are permitted by applicable governmental regulations and the terms
of any licenses, registrations, authorizations or approvals previously granted
by the applicable governmental entity with respect to the Product and (ii) NeoRx
receives copies of all documentation relating to such approved changes. If the
changes require the additional license, registration, authorization, or approval
of any applicable governmental entity, I3 may not implement the changes until it
receives written notice from NeoRx that the governmental entity has authorized
or approved the change. I3 shall cooperate fully with NeoRx in preparing, and
will provide all necessary data and information for, a submission requesting
authorization or approval of a change in materials, Requirements, equipment,
Processing or Quality Control Tests.
3.3 I3'S PROCESS CAPABILITIES
During the Term of this Agreement I3 will be capable of Processing and
shipping up to [ * ] The parties acknowledge and agree that during the Term of
the Agreement, the actual number of Clinical Batches I3 will Process and ship
per week will be dependant on the Purchase Orders I3 receives from NeoRx.
3.4 SCHEDULED FACILITY SHUTDOWN
The parties agree that during the final two weeks of December of each year,
I3 will cease production of the Product to conduct maintenance to the Clinical
Manufacturing Facility and Process.
3.5 ORDERS AND FULFILLMENT
(a) PURCHASE ORDERS. NeoRx shall deliver to I3 (i) by the close of
business on Monday of each week during the Term of this Agreement, a written or
electronic Purchase Order
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for the number of batches, and delivery dates, that NeoRx desires to purchase
for delivery during the following calendar week and (ii) by the close of
business on Thursday of each week during the Term of this Agreement, an
amendment to the Purchase Order described in clause (i) that specifies the
number of each fill size of Diagnostic Doses and/or Therapy Doses that NeoRx
desires to purchase for delivery during the following calendar week. Each dose
shall be shipped in such manner, and to such location, as directed by NeoRx.
(b) ADDITIONAL PROVISIONS IN PURCHASE ORDERS. To the extent any Purchase
Order, invoice or acknowledgement form contains any provisions additional or
contrary to the provisions of this Agreement, such additional or contrary
provision shall have no force or effect and the terms of this Agreement shall
control.
(c) NOTICE OF INABILITY TO FULFILL. I3 shall notify NeoRx by telephone and
in writing immediately if I3 acquires any information that it will not be able
to fulfill the then most recent Purchase Orders. I3 shall promptly notify NeoRx
by telephone and in writing of any other production issues (including any
proposed or potential shutdown of the Clinical Manufacturing Facility for any
reason) or other information of which I3 becomes aware which may affect the
regulatory status of the Product or the ability of I3 to supply Product in
accordance with this Agreement and the Purchase Orders.
3.6 PROJECTED PURCHASES
Within thirty (30) days after the Effective Date, NeoRx shall provide a
twelve (12) month forecast (each, a "Forecast") to I3 that shows the projected
monthly number of Clinical Batches to be purchased. This Forecast shall be
maintained as a twelve (12) month rolling schedule and shall be updated at least
quarterly or more often if significant changes in demand are forecast. In
addition, NeoRx shall prepare a schedule of projected weekly purchases (each a
"Weekly Purchase Schedule") of Clinical Batches for the first three (3) months
following the Effective Date. This Weekly Purchase Schedule shall be maintained
as a three (3) month rolling schedule and will be updated at least monthly. The
parties acknowledge that any projections or estimates set forth in any Forecast
or Weekly Purchase Schedule are subject to change by reason of unknown or
unforeseen factors. Accordingly, the parties agree that such estimates shall not
be binding on NeoRx and may be modified weekly by NeoRx in light of its actual
purchasing needs provided that NeoRx will not order from I3 any Product in
excess of I3's maximum production capabilities as described in Section 3.3.
3.7 COMPLIANCE WITH LAW; HANDLING OF PRODUCT
While the Product is in its possession or under its control, I3 shall be
responsible for complying with all applicable federal, state and local
governmental statutory and regulatory requirements, including requirements
relating to the manufacture, handling, storage, labeling, packaging,
transportation and shipment of the Product. In performing its obligations under
this Agreement, I3 shall comply with all applicable environmental and health and
safety laws and shall be solely responsible for determining how to carry out
these obligations; provided, however, that I3 shall consult with NeoRx where
cGMP or labeling issues arise. In addition to the foregoing, at all times I3
will take all reasonable actions necessary to avoid spills and other
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safety concerns to persons, and damage to property or the environment resulting
from the Product or any intermediates or raw materials thereof.
3.8 TESTING AND DOCUMENTATION
I3 shall certify monthly in writing, to NeoRx's reasonable satisfaction,
that each Batch was produced and tested in compliance with (i) the Requirements,
(ii) cGMP requirements, (iii) the IND or NDA (whichever is applicable) relevant
to the Product, and (iv) all other applicable regulatory documents, in
accordance with procedures agreed between I3 and NeoRx. The tests and analyses
provided in the Requirements and the written certification referenced therein
may be amended from time to time by mutual written consent of the parties. I3
shall also provide to NeoRx a Certificate of Analysis for each Clinical Batch
that I3 processes.
3.9 OTHER SERVICES
I3 shall perform the following services during the Term of the Agreement:
(a) Obtaining, installing and qualifying all equipment to be used in
Processing the Product; provided, however, that NeoRx may obtain by purchase or
lease certain of the Dedicated Equipment as agreed to by the parties.
(b) Validating in accordance with cGMP all analytical methods and
manufacturing processes, which are to be developed by NeoRx in consultation with
I3. All changes to an established Validation Process shall be agreed upon by the
parties prior to the implementation thereof.
(c) Performing ongoing Quality Control Tests and stability studies on the
Product according to agreed upon test methods and specifications, and retaining
samples of Product associated with each such test and stability study. I3 shall
perform such other tests as are consistent with cGMP, as are required by the FDA
and/or any other governmental entity with respect to I3's manufacture of the
Product hereunder. I3 shall maintain all retained samples in a suitable storage
facility (under conditions as agreed to by the parties) for such time as NeoRx
may reasonably require. All such samples shall be available for inspection and
testing by NeoRx at reasonable times and upon reasonable notice.
(d) Training all appropriate I3 and NeoRx personnel with respect to the
operation of the Processes, the specifications of which are to be agreed upon by
the parties.
(e) Maintaining the Clinical Manufacturing Facility and Process so that it
complies with the Construction Specifications and Requirements throughout the
Term of this Agreement, and ensuring that each dose of Product delivered to
NeoRx meets all Product Specifications.
3.10 WASTE DISPOSAL
I3 shall be responsible for the treatment and/or disposal of all Waste
generated at I3 during the manufacturing process in accordance with established
federal, state and local
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environmental and OSHA laws and regulations, and the maintenance of detailed and
complete records related thereto.
ARTICLE IV - RAW MATERIALS
4.1 (166)HOLMIUM CHLORIDE
NeoRx will contract with a third party for the supply of (166)Holmium
chloride, which will be delivered to I3 directly. The delivery of
(166)Holmium chloride to I3 shall be pursuant to the delivery terms to be
stated in the supply agreement between NeoRx and the third party supplier of
(166)Holmium chloride, or as otherwise agreed to by NeoRx and such third
party supplier. NeoRx, in consultation with I3, will establish a procedure
for just-in-time delivery of (166)Holmium chloride from third party suppliers
to I3, with the amount of each delivery dependant on the actual Purchase
Orders received by I3 during the Term of this Agreement. The (166)Holmium
chloride shall be delivered to I3 in sufficient time to allow all Processing,
testing, packaging and release of the Product to be completed the same day
for delivery to the freight carrier for shipment that day. Any late
deliveries of (166)Holmium chloride may cause I3 to miss the evening shipment
deadline, in which case I3 shall not be held accountable or liable for the
costs thereof. NeoRx shall be responsible for the cost of all (166)Holmium
chloride, including all charges associated with the shipment of the
(166)Holmium chloride to the Manufacturing Facility. I3 agrees that it will
use the (166)Holmium chloride provided by NeoRx only for Processing the
Product, unless otherwise instructed by NeoRx. NeoRx shall remain the sole
owner of all (166)Holmium chloride that is purchased, and will maintain UCC
filings documenting NeoRx's ownership therein during the Term of this
Agreement.
I3 is responsible for either (a) verifying the quality of the
(166)Holmium chloride to ensure that it will meet the Requirements when
Processing the Product, or (b) relying on certificates from the manufacturers
of the (166)Holmium chloride with spot-checks performed by I3. I3 shall
notify NeoRx immediately of any (166)Holmium chloride that is not suitable
for Processing the Product, and I3 shall not be accountable for the cost
thereof or for late shipments as a result of its receipt of unsuitable
(166)Holmium chloride.
4.2 DOTMP
NeoRx will contract with a third party for the supply of DOTMP, which will
be delivered to I3 directly. The delivery of DOTMP to I3 shall be pursuant to
the delivery terms to be stated in the supply agreement between NeoRx and the
third party supplier of DOTMP, or as otherwise agreed to by NeoRx and such third
party supplier. NeoRx, in consultation with I3, shall determine the amount of
DOTMP that I3 will maintain in inventory for use in Processing the Product.
NeoRx shall be responsible for the cost of all DOTMP and will perform stability
studies on the bulk DOTMP; provided, however, that I3 shall perform stability
studies for radiolabeled DOTMP in addition to any other stability studies
performed pursuant to Section 3.8(c). I3 agrees that it will use the DOTMP
provided by NeoRx only for Processing the Product, unless otherwise instructed
by NeoRx. NeoRx shall remain the sole owner of all DOTMP that is purchased, and
will maintain UCC filings documenting NeoRx's ownership therein during the Term
of this Agreement.
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I3 is responsible for either (a) verifying the quality of the DOTMP to
ensure that it will meet the Requirements when Processing the Product, or (b)
relying on certificates from the manufacturers of the DOTMP with spot-checks
performed by I3. I3 shall notify NeoRx immediately of any DOTMP that is not
suitable for Processing the Product, and I3 shall not be accountable for the
cost thereof or for late shipments as a result of its receipt of unsuitable
DOTMP.
4.3 OTHER
I3 will contract with third parties and pay for the supply of all raw
materials, other than shipment boxes (as described in Section 6.2(c)),
(166)Holmium chloride (as described in Section 4.1) and DOTMP (as described in
Section 4.2), that are necessary to manufacture and package the Product in
dosage form. I3 shall be responsible for obtaining the type and amount of all
such other raw materials necessary to fulfill all Purchase Orders, the cost of
which shall be covered by I3; accordingly, NeoRx shall not be responsible for
paying suppliers directly, or reimbursing I3, for the cost of obtaining such raw
materials other than through the payment to I3 of the purchase price for the
Product as described in Article V.
4.4 UNAVAILABILITY OR SCARCITY OF (166)HOLMIUM CHLORIDE OR DOTMP
The parties acknowledge that NeoRx's obligation to supply (166)Holmium
chloride and DOTMP to I3 is conditional upon its ability to obtain a sufficient
supply of such raw materials. NeoRx will use reasonable efforts to notify I3
upon NeoRx's knowledge of a shortage of either (166)Holmium chloride or DOTMP
if such shortage will impact the manufacture of the Product.
ARTICLE V - PURCHASE PRICE AND PAYMENT
5.1 BATCH FEE
For each [ * ] Clinical Batch of Product Processed by I3 during the Term of
this Agreement, NeoRx shall pay to I3 a fee based on the following schedule:
BATCH PER WEEK PRICE PER BATCH
-------------- ---------------
[ * ] [ * ]
The price per Batch includes the cost of labor, materials and overhead to
manufacture and test the finished vials and is exclusive of the cost of
(166)Holmium chloride, DOTMP, Shipment Boxes, Customer Service and distribution.
5.2 MINIMUM PURCHASE AGREEMENT
Upon the Clinical Manufacturing Facility becoming fully operational and the
Process meeting all Process Qualifications as required pursuant to Section
2.1(a), and through the Term of this Agreement, NeoRx agrees to purchase from I3
a minimum of one Clinical Batch per week other than during (a) the final two
weeks of December of each year, during which I3 will cease production of the
Product to conduct maintenance to the Clinical Manufacturing Facility and
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Process as stated in Section 3.4, or (b) any week during which the Manufacturing
Facility is not in operation.
5.3 SHIPPING CHARGES
NeoRx, in consultation with I3, shall arrange for the shipment of the
Product from the Clinical Manufacturing Facility to NeoRx, or such other
location as determined by NeoRx. NeoRx shall be responsible for the payment of
all shipping charges (including, without limitation, freight, handling,
insurance, customs, duties and all other transportation related items)
associated with such shipments. NeoRx shall make all payment directly.
5.4 INVOICES
I3 shall invoice NeoRx bi-weekly for any Product Processed by I3 in
response to Purchase Orders during the two weeks prior to the date of each
invoice. NeoRx shall pay for such Product within thirty (30) days of its receipt
of such invoice, with a two (2%) discount allowed for payment in full within ten
(10) days from the date of NeoRx's receipt of such invoice. I3 shall reference
the applicable Purchase Orders on all invoices. If NeoRx disagrees in good faith
for any reason with the amount of an invoice, NeoRx shall notify I3 in writing
of such disagreement within ten (10) business days of receipt of such invoice,
and the Parties shall promptly endeavor to resolve the dispute in good faith
according to Section 13.3; provided, however, that NeoRx shall timely pay all
amounts not in dispute. If NeoRx is found to have incorrectly disputed any
amount of any invoice, NeoRx shall promptly pay such amount to I3 together with
interest at an annual rate of eighteen percent (18%) from the date of the
invoice through the date of payment.
5.5 MARKET CHANGES
In the event of any unanticipated and severe changes in market conditions
or other circumstances affecting the costs of the Product, the parties agree to
discuss such changed circumstances and to negotiate in good faith appropriate
adjustments to the price of the Product to reflect such changes.
ARTICLE VI - DELIVERY
6.1 DELIVERY
All Product purchased by NeoRx hereunder shall be delivered F.O.B. place of
manufacture. All Product to be shipped from the Clinical Manufacturing Facility
pursuant to a NeoRx Purchase Order shall be identified and designated by I3 as
to specified doses (and complete shipping advice) for delivery to NeoRx as soon
as possible in I3's Process of the Product. I3 shall be responsible for properly
packaging each Clinical Dose for shipment and preparing the shipping labels
according to the corresponding Purchase Order.
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6.2 PACKAGING AND SHIPPING MATERIALS
(a) PACKAGING AND SHIPPING MATERIALS. NeoRx will provide all packaging and
shipping materials, other than labels, associated with shipments of the Product.
NeoRx will be responsible for testing to United States Department of
Transportation standards. All costs associated with developing and obtaining the
packaging and shipping materials, other than labels, shall be borne by NeoRx.
(b) LABEL ARTWORK. NeoRx, in consultation with I3, will provide final
artwork for all labels used on the packaging and shipping materials, which shall
comply with all FDA regulations. All costs associated with the purchase and
supply of such labels shall be borne byI3.
(c) SHIPMENT BOXES. NeoRx will contract with third parties for the supply
of lead shipment boxes to be used by I3 in shipping the Product to or on behalf
of NeoRx. NeoRx shall remain the sole owner of all shipment boxes that are
purchased, and will maintain UCC filings documenting NeoRx's ownership therein
during the Term of this Agreement. Upon the termination of this Agreement, I3
shall promptly return all shipment boxes in I3's inventory to NeoRx.
6.3 INSPECTION AND ACCEPTANCE
(a) REJECTION OF DOSES. All Product shipped from the Clinical
Manufacturing Facility shall comply with the Product Specifications and
Requirements. Each dose of Product delivered by I3 according to a Purchase Order
shall be accompanied by a Certificate of Analysis relating to such dose. Any
party receiving a dose of Product from I3 pursuant to a Purchase Order may
reject such dose if (i) I3 fails to deliver a Certificate of Analysis prior to
use of such dose or as required by the FDA, (ii) such party finds that the dose
does not meet the Product Specifications, (iii) NeoRx finds that such dose was
not Processed in strict accordance with the Requirements and other terms of this
Agreement, or (iv) such party finds that the dose was shipped improperly or
untimely. If any party rejects a dose pursuant to the preceding sentence, then
the party will return such dose to I3 along with a written notice stating the
reasons justifying such rejection, and I3 shall promptly replace such rejected
doses. I3 will be responsible for all costs associated with any rejected doses,
up to the value of the rejected dose, and will reimburse NeoRx for any damages,
costs and expenses incurred by NeoRx as a result of such rejected dose(s) up to
an amount equal to the value of the rejected dose(s).
(b) DISAGREEMENT WITH REJECTION. If I3 disagrees with NeoRx's
determination that a shipment of Product does not meet the Product
Specifications and Requirements, the parties will (i) replace the rejected
dose(s) as soon as practicable, and then (ii) meet to review all relevant data
to determine the cause of such rejection. The parties will make every reasonable
effort to resolve the disagreement amicably. If the parties cannot resolve the
disagreement, the parties will select a mutually agreeable outside consulting
firm to review all applicable and pertinent information and data to determine
the cause of the rejection. The party against whom the consulting firm rules
shall bear all costs associated with the rejected dose(s) and the consulting
firm. If both parties are deemed to share responsibility for the rejection, then
such costs shall be allocated on a pro-rata share of the assigned blame. If the
cause cannot be determined then each
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party shall pay 50% of the costs. I3 cannot be in breach of this Agreement
because of an improper rejection or the inability to promptly supply replacement
Product after an improper rejection.
ARTICLE VII - REPRESENTATIONS AND WARRANTIES
7.1 LABOR AND EQUIPMENT
I3 represents that it shall furnish all qualified labor, validated
equipment and facilities necessary to Process Product in the amounts, and in the
timely manner, as set forth in each Purchase Order.
7.2 RAW MATERIALS
I3 represents that it will purchase all raw materials, other than
(166)Holmium chloride, DOTMP and Shipment Boxes necessary to Process, label and
store the Product in strict accordance with the Requirements, cGMP and all
applicable laws or regulations and shall be responsible for vendor qualification
and all raw material testing in accordance with written standard operating
procedures and applicable I3 raw material specifications for chemical and
microbiological characteristics, and shall comply with all applicable federal,
state and local laws and regulations.
7.3 CLINICAL MANUFACTURING FACILITY AND PROCESS
I3 represents that it will maintain the Clinical Manufacturing Facility and
Process according to the Requirements, Construction Specifications, cGMP and all
applicable laws and regulations.
7.4 PROCESSING REQUIREMENTS
I3 extends to NeoRx and to any purchaser of Products from or through NeoRx
the following warranties: Each and every dose of the Product that I3 sells to
NeoRx shall on and before delivery to or on behalf of NeoRx:
(a) Be Processed, manufactured, produced, packaged and labeled in strict
accordance with (i) the Requirements, (ii) all federal (including FDA), state
and local laws, statutes, regulations or other requirements relating thereto and
applicable to the intended use of such Product, (iii) cGMP, (iv) FMF pertaining
to the Process and the Facility (which I3 will file with the FDA), and (v) any
information provided by I3 to NeoRx for inclusion in a NDA or IND. I3 grants to
NeoRx permission to reference I3's FMF in NeoRx's regulatory filings with the
FDA pertaining to the Product.
(b) Not be adulterated or misbranded within the meaning of the Federal
Food, Drug and Cosmetic Act, 21 USC 301 ET SEQ., the Fair Packaging and Labeling
Act, 15 USC 1451 ET SEQ., or other applicable federal, state or local statutes,
regulations or other requirements. For purposes of this warranty, the Product
shall be adulterated or misbranded on or before the date of delivery to the end
user if as a result of any defect in the manufacture, preparation, packaging or
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storage of the Product by I3 prior to the delivery to the end user, the Product
subsequently became adulterated or misbranded under the Federal Food, Drug and
Cosmetic Act or equivalent state laws.
7.5 RECORDS RELATING TO WASTE DISPOSAL
I3 represents that it shall obtain and maintain all waste generator
licenses, disposal manifests and other records in accordance with applicable
federal, state and local laws and regulations.
7.6 CHANGES TO PRODUCT AND PROCESS
I3 represents that it shall not implement any changes, material or
otherwise, relating to the Product, its Requirements (including Product
Specifications), or Validated Process without NeoRx's prior written approval of
such change. A change is defined as any variation in the written procedures
currently in place that (i) impacts the regulatory commitments for the Product,
(ii) may require revalidation, (iii) may affect the quality, purity, identity or
strength of the Product or dose of the Product or (iv) would necessarily result
in changing, altering or modifying the Requirements, test methods, sampling
procedures, qualification procedures, Facility Master File or Master Batch
Record relating to the Product.
7.7 CHANGES AND WRITTEN AUTHORIZATION
Changes, extensions, or other modifications to this Agreement may be made
by mutual agreement at any time during the period of performance hereof. Changes
to this Agreement will be executed only by individual(s) authorized by the
respective parties to make such changes. Changes will take the form of a fully
executed modification to this Agreement.
7.8 SAFETY PROCEDURES
I3 represents that it shall have primary responsibility for adopting and
enforcing safety procedures for the handling and production of the Products at
the Clinical Manufacturing Facility that comply in all material respects with
all federal, state and local environmental and occupational safety and health
requirements.
7.9 LIMITATIONS ON WARRANTIES
(a) Except as otherwise expressly set forth in this agreement, I3 makes no
representations and extends no warranties of any kind, either express or
implied, including any express or implied warranties of merchantability or
fitness for a particular purpose.
(b) Except as otherwise expressly set forth in this agreement, NeoRx makes
no representations and extends no warranties of any kind.
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7.10 LIMITATION ON LIABILITY
Other than as expressly set forth in this agreement, neither party shall be
liable to the other for direct, indirect, special, incidental, or consequential
damages (including loss of profits) whether based on contract, tort, or any
other legal theory.
ARTICLE VIII - PERMITS; RECORDS AND AUDITS
8.1 LICENSES AND PERMITS
(a) NEORX. NeoRx shall be responsible for obtaining and maintaining such
drug licenses, registrations, listings, authorizations and approvals as the FDA
or any other applicable governmental entity may require to enable the use of
Product in Clinical Trials and marketing of the Product wherever such activities
will occur. I3 shall take all reasonable actions necessary to assist NeoRx in
obtaining and maintaining all such licenses, registrations, listings,
authorizations and approvals. NeoRx and/or its designee shall serve as the point
of contact with the FDA and any other applicable governmental entity concerning
such licenses, registration, authorizations or approvals, but may, as
appropriate, request I3's assistance with FDA and/or other applicable
governmental entity communications.
(b) I3. I3 shall be responsible, in coordination with NeoRx, for obtaining
and maintaining all necessary licenses, registrations, authorizations, and
approvals, other than those required to market the Product or use it in Clinical
Trials, which are necessary to perform its obligations under this Agreement,
including its activities relating to the manufacturing, handling, storing,
labeling, packaging, transporting and shipping the Product under cGMP conditions
and other regulatory requirements including, but not limited to, the use and
handling of radioactive materials. I3 shall provide NeoRx with copies of any
correspondence sent from I3 to governmental entities relating to the Product at
the time such correspondence is sent by I3; provided, if it becomes necessary
for I3 to provide any NeoRx proprietary and/or confidential information to any
third party or governmental authorities, it shall not do so without the express
written authorization of NeoRx, and then only after adequate steps have been
taken to ensure the confidentiality of such information. I3 shall provide NeoRx
with copies of any comments, responses, notices or other correspondence received
by I3 from any governmental entity relating to the Product within two (2) days
of receipt of such correspondence by I3 purged of any I3 proprietary information
and/or trade secrets.
8.2 OPERATIONAL RECORDS
During the Term of this Agreement, and for five (5) years after I3's
Processing any Product (unless a longer time is required by applicable law), I3
shall maintain records and samples necessary to evidence compliance with (a) all
applicable governmental laws, regulations and other requirements relating to the
manufacture of the Product; (b) relevant sections of the IND or NDA (whichever
is applicable) relevant to the Product, and corresponding licenses,
registrations, authorizations or approvals for foreign jurisdiction(s) as
advised by NeoRx; and (c) the Product Specifications. I3 may also retain records
with respect to its obligations and performance under this Agreement. I3 shall
also maintain ongoing detailed and complete records
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relating to (a) Purchase Orders received, (b) raw materials purchased and
stored, (c) Product manufactured, (d) manufacturing steps and processes, (e)
quality assurance and quality control procedures for the Product, (f)
qualification reports, (g) shipment of the product and any returns (h) disposal
of Waste, and the like. I3 will provide reasonable access thereto to NeoRx from
time to time upon NeoRx's reasonable request.
8.3 GOVERNMENTAL RECORDS AND AUDITS
(a) RECORDS AND AUDITS. I3 will cooperate with NeoRx as requested thereby
in obtaining and maintaining all FDA and other regulatory approvals necessary to
enable NeoRx to use the Products as intended under this Agreement. I3 shall
prepare and supply to NeoRx all documents and updates to records with regard to
Processing the Products that are required by the FDA. I3 shall submit to all
inquiries and inspections by the FDA. I3 shall promptly notify NeoRx of any FDA
interactions and/or correspondence relating to I3's operations that could
relate, directly or indirectly, to the Product. I3 shall provide NeoRx with
copies of all documents, reports or communications received from any federal,
state or local governmental authorities that relate in any way to I3's
Processing and/or storing the Product and all I3 documents responding thereto.
I3 shall immediately inform NeoRx of all FDA audits pertinent to NeoRx's Product
or Requirements and shall permit NeoRx's personnel and representatives who are
trained in I3's audit procedures to be present and participate in such audits.
Similarly, NeoRx shall inform I3 in advance of FDA planned audits of NeoRx if
such audits relate directly to the Products. I3 shall immediately provide NeoRx
with copies of any regulatory letters or other documents issued by the FDA and
received by I3 in connection with the audit or any inspection relating to the
Product, and allow NeoRx to participate in the drafting of responses to any FDA
inspectional observations or regulatory letters.
(b) INSPECTIONS. If NeoRx is required by any governmental authority to
have inspected or approved the site of manufacturing or storing the Product or
any raw materials related thereto, I3 shall permit officials of the governmental
authority to inspect the facility where the Product is manufactured or stored.
NeoRx has the right to have a NeoRx representative present in the Clinical
Manufacturing Facility during all scheduled FDA inspections of the Clinical
Manufacturing Facility and/or Process.
8.4 STABILITY TESTING AND SAFETY RECORDS
I3 shall maintain full, accurate and complete records and reports with
respect to all stability testing and sample retention and shall supply NeoRx
with copies thereof as requested by NeoRx along with reasonable samples and
specimens of Product on which such testing was performed to the extent that
providing samples and specimens does not negatively impact I3's ability to
maintain the stability or sample retention program. In addition, at least once
per quarter and at any time upon ten days' written notice from NeoRx, I3 shall
provide NeoRx with copies of all Certificates of Analysis and may audit I3's
records relating solely to I3's manufacture of the Product.
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8.5 INSPECTIONS
I3 shall permit employees and/or representatives of NeoRx to be present in
the Clinical Manufacturing Facility during normal business hours in order to
determine whether the Products are being Processed (including manufacturing,
receiving, sampling, analyzing, handling, packaging and labeling) and shipped,
and Waste is being disposed of, in conformity with the terms of this Agreement.
NeoRx acknowledges that its employees and/or representatives may be required to
first execute I3's confidentiality agreements and to complete all necessary I3
training and shall at all times comply with established health and safety
procedures as set forth in that document and I3's overall health and safety
requirements specified to them at the time they are in the Clinical
Manufacturing Facility. In addition to the foregoing, and in conformity with FDA
rules and regulations as well as all laws, rules and regulations as may be
applicable to NeoRx, I3 shall further permit employees or representatives of
NeoRx to inspect and sample Products designated for delivery to NeoRx and
otherwise provide NeoRx with such information as it may reasonably be required
to determine whether the Products are being Processed in accordance with FDA
rules and regulations as well as all laws, rules and regulations as may be
applicable to NeoRx and the provisions of this Agreement. NeoRx shall reject all
or any portion of any Products designated by I3 for delivery to NeoRx that do
not meet the Product Specifications and Requirements; and upon such rejection,
NeoRx shall have no payment obligation to I3 with respect to such rejected
Products. I3 shall promptly replace any Products that are rejected by NeoRx. If
I3 disagrees with NeoRx's determination that a shipment of Product does not meet
the Product Specifications and Requirements the two parties will seek resolution
of the disagreement per Section 6.3 (b) of this document.
ARTICLE IX - REGULATORY MATTERS
9.1 GENERAL
I3 and NeoRx shall be jointly responsible for the maintenance of any and
all regulatory documents covering the Product, the Process, and/or the Clinical
Manufacturing Facility and shall make all such documents available to NeoRx for
its review upon NeoRx's request.
9.2 NEW DRUG APPLICATIONS
I3 shall cooperate with NeoRx with respect to any NDA or IND obligations
relating to the Product that are imposed by the FDA or foreign regulations
(including without limitation the completion of the Chemistry and Manufacturing
Controls section of such NDA), and NeoRx shall be the exclusive owner of the NDA
and IND. I3 agrees to comply with all commitments made in the NDA and IND
regarding I3's manufacturing responsibilities as described herein and therein.
9.3 NOTICE OF SAFETY RELATED INFORMATION
I3 shall provide NeoRx with prompt notice of any information it receives
relating to the safety of the Product, including any confirmed or unconfirmed
information on adverse, serious, or unexpected events associated with the use or
toxicity of the Product regardless of the source.
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For serious (based on a good faith evaluation), unexpected events, notice must
be given by telephone within one (1) business day after receipt of the
information and followed by written notice not less than one (1) week
thereafter. NeoRx, with I3's cooperation, shall be responsible for responding to
the FDA and filing any reports with the FDA concerning such reactions (including
Drug Experience Reports) caused by the Product.
9.4 NEW REGULATORY REQUIREMENTS
Each party shall promptly notify the other of new or amended regulatory
requirements of which it becomes aware that are relevant to the Processing of
the Product under this Agreement and that are required by the FDA, other
applicable governmental entity or other applicable laws or governmental
regulations, and shall confer with each other with respect to the best means to
comply with such requirements.
ARTICLE X - RECALLS
The parties agree to immediately inform each other in writing of all
incidents and/or any Product that is alleged or proved to be the subject of
recall, market withdrawal or correction and shall cooperate with each other in
such recall, market withdrawal or correction. Any such recall, market withdrawal
or correction shall be at the sole expense of I3 if the Product does not meet
the Processing Requirements specified in Section 7.4. NeoRx shall have sole
responsibility for the conduct of the recall and interface with customer and
regulatory authorities in connection with the recall. NeoRx will Keep I3
apprised of all aspects of the recall and shall consult with I3 on all critical
aspects of the recall. The parties shall disclose to each other all information
necessary to prevent recurrence of the event or circumstance.
ARTICLE XI - CONFIDENTIALITY; OWNERSHIP AND DISCLOSURES
11.1 CONFIDENTIAL INFORMATION
Except to the extent expressly authorized by this Agreement, during the
Term of this Agreement and for seven (7) years thereafter, neither Party shall:
(a) disclose, publish, or make available any Proprietary Information
disclosed to it by the other to any third party, including employees who do not
need to know or have access to such Proprietary Information; or
(b) sell, transfer, or otherwise use or exploit any such Proprietary
Information disclosed to it by the other Party; or
(c) knowingly permit the sale, transfer, use or exploitation by a third
party of any such Proprietary Information which may have been disclosed to such
third party, including employees who do not need to know or have access to such
Proprietary Information.
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<PAGE>
11.2 OWNERSHIP
(a) INVENTIONS. NeoRx and I3 agree that NeoRx owns all intellectual
property rights related to the Product and each owns preexisting intellectual
property rights related to the development of the Clinical Manufacturing
Facility and Process and that all right, title and interest in all such prior
intellectual property rights shall remain in the respective party (collectively
these rights shall be called "Background Rights"). NeoRx shall solely own the
intellectual rights in any inventions, improvements and discoveries, if any,
which are developed jointly by the parties or by I3 individually associated
directly with the Product. I3 and NeoRx shall own jointly the intellectual
rights in the inventions, improvements and discoveries (collectively the "Joint
Inventions"), if any, which are developed jointly by the parties or by I3
individually associated with the Clinical Manufacturing Facility or Process,
including all rights to seek or obtain patent coverage for all or any part of
the Clinical Manufacturing Facility or Process. The parties agree to work
together in good faith to protect any such Joint Inventions, including the
filing of any patent applications. As co-owners of the Joint Inventions and any
patents related thereto (a) I3 shall not exploit such Joint Inventions or
related patents, through license or otherwise, with respect to any radiolabeled
product based on the DOTMP or EDTMP family, and (b) NeoRx shall have full power
and authority to exploit such Joint Inventions in any manner NeoRx deems
appropriate, including the granting of licenses related thereto, and I3 hereby
consents to NeoRx making any such license and agrees to execute any documents
necessary to acknowledge such consent; provided, however, that NeoRx will not
allow any manufacturer that competes directly with I3 to use the Joint
Inventions, through license or otherwise, unless such use is associated with the
production of NeoRx products or a derivative thereof. In the event that either
party elects not to participate equally in the cost of filing, prosecuting and
maintaining in force patent applications or patents or other action to protect
Joint Inventions, then the other party shall have the right, at its sole
expense, to pursue such protection and shall be entitled to retain all right,
title and interest in any resulting patents subject to the other party retaining
an irrevocable, royalty free, nonexclusive license to use such Joint Inventions
(a "Joint Invention License"). In the event I3 obtains a Joint Invention
License, I3 shall not exploit such Joint Invention License, through sublicense,
use or otherwise, with respect to any radiolabeled product based on the DOTMP or
EDTMP family. In the event NeoRx obtains a Joint Invention License, it shall
have full power and authority to exploit such Joint Invention License in any
manner NeoRx deems appropriate, including the granting of sublicenses related
thereto, and I3 hereby consents to NeoRx making any such sublicense and agrees
to execute any documents necessary to acknowledge such consent; provided,
however, that NeoRx will not allow any manufacturer that competes directly with
I3 to use the Joint Inventions, through sublicense or otherwise, unless such use
is associated with the production of NeoRx products or a derivative thereof.
(b) PROPRIETARY INFORMATION. Each party's respective Proprietary
Information that is supplied to the other party to assist it in carrying out its
obligations hereunder shall remain the property of the supplying party and shall
be returned to such party upon termination of this Agreement.
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<PAGE>
11.3 LIMITATIONS; DISCLOSURES
(a) LIMITATIONS. For purposes of this Agreement, the term Proprietary
Information shall not include information which:
(i) is in the public domain or becomes generally available to the
public through no fault of either party; or
(ii) the Receiving Party can show by documentary evidence was within
its possession or control prior to its being furnished to the Receiving
Party by or on behalf of the Disclosing Party pursuant hereto, free of any
obligation of confidentiality; or
(iii) the Receiving Party can show by documentary evidence that came
into its possession or control subsequent to the date of this agreement
from a third party free of any obligation of confidentiality; or
(iv) was independently developed by the Receiving Party without the
aid, application or use of the Proprietary Information disclosed; or
(v) is required to be disclosed by applicable law order of any
governmental authority of competent jurisdiction (provided, that in such
event, the Receiving Party shall provide the other party with notice of
such law or order and provide reasonable cooperation in connection with any
attempt to challenge or limit the scope of such disclosure).
(b) DISCLOSURES. During the Term of this Agreement, neither Party shall
make any press release or other disclosure of the terms of this Agreement
without the prior written consent of the other Party, except as required by a
court of competent jurisdiction and pursuant to the disclosure requirements of
federal or state regulatory agencies, including the Securities and Exchange
Commission. NeoRx and I3 shall jointly redact all Proprietary Information from
this Agreement for filing with the Securities and Exchange Commission, and will
jointly make a request for confidential treatment of such redactions.
ARTICLE XII - INDEMNIFICATION AND INSURANCE
12.1 INDEMNIFICATION BY NEORX
NeoRx shall defend, indemnify, and hold harmless I3, its officers, agents,
employees and Affiliates from any loss, claim, action, damage, expense or
liability (including defense costs and reasonable attorneys' fees) arising out
of NeoRx's (a) breach, violation or nonfulfillment of any of its covenant,
agreements, representations or warranties under this Agreement, (b) handling,
possession, or use of the Products, (c) negligent acts or omissions or willful
misconduct, or (d) breach of any third party's trade secret rights, except for
and to the extent that such loss, claim, action, damage, expense or liability is
based on, arises out of, or is due to I3's (i) breach of any of its
representations or warranties hereunder, (ii) negligent act or omission, (iii)
willful misconduct, (iv) failure to Process the Product according to the
Requirements or consistent with
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<PAGE>
the applicable sections of the IND or NDA (whichever is applicable) and any
corresponding licenses, registrations, authorizations or approvals of any
governmental entity, or (v) failure to manufacture, handle, store, label,
package, transport or ship the product in accordance with cGMP or any other
applicable law, regulation, or other requirements of any applicable governmental
entity.
12.2 INDEMNIFICATION BY I3
I3 shall defend, indemnify, and hold harmless NeoRx, its officers, agents,
employees and Affiliates from any loss, claim, action, damage, expense or
liability (including defense costs and reasonable attorneys' fees) arising out
of or related to I3's (a) breach, violation or nonfulfillment of any of its
covenants, agreements, representations or warranties under this Agreement, (b)
negligent acts or omissions or willful misconduct, (c) disposal of any Waste,
(d) failure to Process the Products in accordance with the Requirements, cGMP,
any applicable laws or regulations, or the applicable sections of the IND or NDA
(whichever is applicable) or any corresponding licenses, registrations,
authorizations or approvals of any governmental entity (e) manufacture,
handling, storage, labelling, packaging or delivery of the Product, or (f)
breach of any third party's trade secret rights, except for and to the extent
that loss, claim, action, damage, expense or liability is based on, arises out
of, or is due to NeoRx's (i) negligent act or omission or willful misconduct or
(ii) breach of any its warranties or representations hereunder.
12.3 INJURIES TO EMPLOYEES
NeoRx agrees that, in the event of a personal injury to a NeoRx employee in
the course of his/her employment, NeoRx or its insurance carrier will be
responsible for worker's compensation payments to such employee. I3 agrees that,
in the event of a personal injury to a I3 employee in the course of his/her
employment, I3 or its insurance carrier will be responsible for worker's
compensation payments to such employee.
12.4 INDEMNIFICATION NOT A WAIVER
A party's right to demand and receive indemnification pursuant to this
Article XII shall not be such party's exclusive remedy, and the exercise by such
party of its right to demand and receive indemnification pursuant to this
Article XII shall not be deemed to prejudice, or to constitute or operate as a
waiver of, any other right or remedy that such party may be entitled to exercise
at law or equity.
12.5 PROCEDURE
Each party agrees to give the indemnifying party (a) prompt notice of any
claim or suit coming within the purview of the indemnities contained in this
Article XII, (b) all relevant facts in its possession or control, subject to the
treatment of such information pursuant to Article XI, (c) the right to exclusive
control of the defense of any action (at the indemnifying party's sole expense),
and (d) its cooperation in the defense of any such action.
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12.6 INSURANCE
(a) PRODUCT LIABILITY INSURANCE. NeoRx shall obtain and maintain in
effect, with financially sound and reputable insurers, product liability
insurance or indemnity policies which name I3 as an additional insured, with
respect to the manufacture, sale and use of commercial products produced by
NeoRx that contain Products. Such insurance policies shall be in an amount not
less than $5 million/$5 million for bodily injury and $5 million for property
damage.
(b) PRODUCT LIABILITY CLAIMS. Each party shall give the other prompt
written notice of any injury alleged to have occurred as a result of the use of
any Product, specifying the time, place and circumstances thereof and the names
and addresses of the persons involved. Each party shall also forward promptly to
the other copies of all papers received in respect of any matter arising out of
the alleged injury.
(c) MANUFACTURER'S INSURANCE. I3 shall obtain and maintain in effect, with
financially sound and reputable insurers, appropriate insurance policies, with a
minimum aggregate coverage of not less than $5,000,000 per annum, naming NeoRx
as an additional insured, with respect to the Processing of the Products
according to the Requirements.
(d) EVIDENCE OF INSURANCE. Each party shall supply to the other copies of
certificates of insurance giving evidence of procurement of the insurance in the
amounts specified in this Article XII (including the naming of the other party
as an additional insured, if required).
ARTICLE XIII - TERM AND TERMINATION
13.1 TERM
(a) Subject to the parties' ability to terminate this Agreement as set
forth in this Article XIII, the "Initial Term" of this Agreement shall commence
on the Effective Date and shall continue through [ * ] (the "Initial Term").
(b) Upon the expiration of the Initial Term, NeoRx shall have the option
of extending this Agreement for up to an additional three (3) year term (the
"Extension Term"); provided, that NeoRx shall exercise its option, if at all, in
writing no later than six (6) months prior to the end of the Initial Term. The
Initial Term and the Extension Term, if applicable, unless the Agreement is
terminated by either party pursuant to the terms of this Agreement, are
collectively referred to herein as the "Term."
13.2 TERMINATION BY EITHER PARTY
Either party may terminate this Agreement at any time after the happening
of any of the following events; provided, however, that the party terminating
this Agreement shall provide the other with written notice of such termination
prior to the date thereof:
(a) either party breaching any of its agreements, covenants,
representations or warranties as set forth in this Agreement and the breaching
party fails to cure such breach within fifteen (15) days of written notice
thereof from the non-breaching party; or
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<PAGE>
(b) I3 fails to timely fulfill (i) [ * ] or (ii) [ * ], in accordance with
this Agreement and the applicable Purchase Orders; provided, however, that prior
to terminating this Agreement, a senior executive officer of NeoRx and a senior
executive officer of I3 will meet in good faith within fifteen (15) days of I3's
failure to timely fulfill the Purchase Orders as described above in an attempt
to resolve any disputes or delays; or
(c) a party is declared insolvent or bankrupt by a court of competent
jurisdiction, or a party is served with an involuntary petition against it as
part of an insolvency proceeding and such petition is not dismissed within sixty
(60) days after the filing thereof, or a voluntary petition of bankruptcy is
filed in any court of competent jurisdiction by a party, or a party makes or
executes any assignment for the benefit of creditors, or a receiver is appointed
to control the business of a party; or
(d) if clinical or market data do not support the clinical development or
commercialization of the Product, or if the FDA refuses to grant approval for
the clinical development or commercialization of the Product within a
commercially reasonable time, based on response data derived from clinical
trials; or
(e) the FDA, Texas Department of Health or other regulatory agency orders
I3 to cease Processing the Product or orders NeoRx to cease commercially
supplying Product; or
(f) the parties fail to meet two (2) consecutive Milestones; provided,
however, that prior to terminating this Agreement, a senior executive officer of
NeoRx and a senior executive officer of I3 will meet in good faith within
fifteen (15) days of the parties' failure to meet the second consecutive
Milestone in an attempt to resolve any disputes or delays; or
(g) I3 fails to meet either the Primary Completion Date or the Validation
Completion Date, in accordance with Article II; provided, however, that prior to
terminating this Agreement, a senior executive officer of NeoRx and a senior
executive officer of I3 will meet in good faith within fifteen (15) days of the
parties' failure to meet either Completion Date in an attempt to resolve any
disputes or delays.
Notwithstanding any provision in this Agreement to the contrary, I3 shall
continue to Process the Product, and deliver Product in response to any Purchase
Order, through the date of termination, unless such Process and delivery
requirements are waived in writing by NeoRx.
13.3 DISPUTES
Except as set forth in Sections 6.3 and 8.5, in the event of a good faith
dispute regarding the interpretation of this Agreement, the parties agree they
will endeavor to resolve such dispute amicably. In the event a dispute cannot be
resolved by the parties, then upon the written request of any party that
includes a summary of the dispute, the Chief Executive Officers, or other senior
executive officer, of each party shall promptly meet and endeavor to resolve the
dispute through good-faith negotiations within thirty (30) days of their receipt
of the dispute. If any dispute goes unresolved after following the foregoing
procedures, either party may terminate this Agreement.
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<PAGE>
13.4 RETURN OF INFORMATION
Upon expiration or termination of this Agreement, I3 shall return to NeoRx
all originals and copies of manuals, correspondence documents, records, and all
written Proprietary Information it may have received or created concerning the
preparation of Product.
13.5 ASSIGNMENT
(a) NEORX. NeoRx may not assign its rights and/or delegate its obligations
under this Agreement to any third party without I3's prior written consent;
provided, however, that NeoRx may assign its rights and/or delegate its
obligations under this Agreement, without I3's prior written consent, to a third
party solely in connection with the sale, merger or transfer of substantially
all of the assets to which this Agreement relates, provided such assignee or
delegate agrees to be bound by the terms of this Agreement, and provided that
such action would not in any way impair or jeopardize any pending or actual
regulatory approval for the manufacture of Product or adversely affect the
regulatory status of the Product.
(b) I3. I3 may not assign its rights and/or delegate its obligations under
this Agreement to any third party without NeoRx's prior written consent;
provided, however, that I3 may assign its rights and/or delegate its obligations
under this Agreement, without NeoRx's prior written consent, to a third party
solely in connection with a merger, provided that such third party agrees to be
bound by the terms of this Agreement, and provided that such action would not in
any way impair or jeopardize any pending or actual regulatory approval for the
manufacture of Product or adversely affect the regulatory status of the Product.
13.6 RIGHTS ON TERMINATION
(a) CONTINUING OBLIGATIONS. Upon termination of this Agreement, each of
the parties shall continue to be bound by its obligations under Articles VII and
XI and Sections 12.1 through 12.5 of this Agreement.
(b) NEORX'S ADDITIONAL REMEDIES. If NeoRx terminates this Agreement
pursuant to Section 13.2(a) (for I3's breach of this Agreement) or Section
13.2(b) (for I3's failure to timely fulfill Purchase Orders) or 13.2(c) (for I3
being declared insolvent or bankrupt), then:
(i) Within sixty (60) days of such termination, I3 shall pay a
cancellation fee to NeoRx equal to [ * ]; provided, however, that if I3 has
assigned any of its rights and/or delegated any of its obligations under
this Agreement to any third party, then the cancellation fee owing to NeoRx
shall be [ * ]. The parties acknowledge and agree that NeoRx's actual
damages in the event of the termination of this Agreement as described
above would be extremely difficult or impracticable to determine;
therefore, the parties acknowledge that the termination fee reflects as
accurately as possible actual costs that would be incurred by NeoRx, is a
reasonable estimate of just compensation for such costs, and is not a
penalty; and
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(ii) I3 shall pay to NeoRx the amount of any excess costs or expense
incurred by NeoRx to obtain Product from a third party manufacturer; and
(iii) within thirty (30) days of such termination, I3 shall deliver to
NeoRx (A) all Dedicated Moveable Equipment in its then current condition,
subject to any regulatory requirements to the contrary, at I3's expense,
and (B) a commercially reasonable plan to transition the Processing of the
Product to a third party manufacturer. NeoRx shall be responsible for the
implementation of such transition plan. In the event that I3 fails to
deliver to NeoRx any Dedicated Moveable Equipment within such thirty (30)
days, then at NeoRx's discretion (C) I3 shall immediately deliver the
Dedicated Moveable Equipment to NeoRx, (D) NeoRx may purchase replacement
equipment and I3 shall reimburse NeoRx for all costs and expenses in making
such purchase, or (E) I3 shall immediately pay to NeoRx an amount equal to
such equipment's replacement value regardless of whether NeoRx purchases
replacement equipment. In the event I3 fails to deliver to NeoRx a
commercially reasonable transition plan, then within sixty (60) days of
termination I3 shall pay to NeoRx [ * ]; and
(iv) within seventy-five (75) days of such termination, I3 shall
deliver to NeoRx all Dedicated Fixed Equipment in its then current
condition, subject to any regulatory requirements to the contrary, at I3's
expense. In the event that I3 fails to deliver to NeoRx any Dedicated Fixed
Equipment within such seventy-five (75) days, then at NeoRx's discretion
(A) I3 shall immediately deliver the Dedicated Moveable Equipment to NeoRx,
(B) NeoRx may purchase replacement equipment and I3 shall reimburse NeoRx
for all costs and expenses in making such purchase, or (C) I3 shall
immediately pay to NeoRx an amount equal to such equipment's replacement
value regardless of whether NeoRx purchases replacement equipment; and
(iv) during the six (6) months following termination, if requested by
NeoRx I3 shall provide at least one hundred and sixty (160) person-hours of
the time of I3 employees, at no cost to NeoRx, to assist NeoRx in
establishing a third party facility for Processing the Product; and
(v) within thirty (30) days of such termination, I3 shall transfer
to NeoRx all remaining raw materials and shipping materials already paid
for by NeoRx (including, without limitation DOTMP), Batch records, standard
test methods and Specifications in I3's possession, along with all data,
documentation and other information directly relating to the Process
subject to any regulatory requirements to the contrary; and
(vi) immediately upon such termination, I3 shall cease using and
shall return to NeoRx any and all of NeoRx's Proprietary Information; and
(vii) I3 will, to the extent it is able to do so, continue to supply
Product as may be requested by NeoRx, at the prices set forth herein until
the earlier of (A) nine (9) months from the date of such termination, (B)
the natural expiration date of this Agreement, or (C) the date upon which
NeoRx has established an alternative source of manufacturing and supply
services with respect to the Product, which source is capable of
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performing at levels satisfactory to NeoRx and has received all requisite
regulatory and legal approvals to perform such manufacturing and supply
services.
(c) I3'S ADDITIONAL REMEDIES. If I3 terminates this Agreement pursuant to
Section 13.2(a) (for NeoRx's material breach of this Agreement) or 13.2(c) (for
NeoRx being declared insolvent or bankrupt), then:
(i) within thirty (30) days of such termination, NeoRx shall pay to
I3 any amounts not yet paid for the Construction Fee under this Agreement;
and
(ii) within sixty (60) days of such termination, NeoRx shall pay a
cancellation fee to I3 equal to [ * ]. The parties acknowledge and agree
that I3's actual damages in the event of the termination of this Agreement
as described above would be extremely difficult or impracticable to
determine; therefore, the parties acknowledge that the termination fee
reflects as accurately as possible actual costs that would be incurred by
I3, is a reasonable estimate of just compensation for such costs, and is
not a penalty.
ARTICLE XIV - FORCE MAJEURE
Neither Party hereto shall be liable to the other in damages for any delay
or default in such Party's performance hereunder if such delay or default is
caused by conditions beyond such Party's control including, but not limited to,
delays by the FDA or other governmental agency at no fault of a party, acts of
God, war, insurrection, civil commotion, destruction of production facilities or
materials by earthquake, fire, flood or storm, labor disturbances including
strikes or lockouts or epidemic ("Force Majeure"). Each Party hereto agrees to
promptly notify the other Party of any event of Force Majeure and to employ all
reasonable efforts toward prompt resumption of its performance hereunder when
possible if such performance is delayed or interrupted by reason of such event;
provided, however, that either party may terminate this Agreement if the parties
cannot fully resume performance hereunder within thirty (30) days of the
happening of an event of Force Majeure.
ARTICLE XV - MISCELLANEOUS
15.1 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
Parties, their successors and permitted assigns.
15.2 GOVERNING LAW; VENUE; ATTORNEYS' FEES
This Agreement, and all matters relating hereto, shall be governed,
construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law. If either
party is reasonably required to initiate legal action to enforce this Agreement,
the prevailing party in such legal action shall be entitled to recover its
reasonably attorneys' fees and costs.
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15.3 ENTIRE AGREEMENT
This Agreement, along with each Purchase Order, contains the entire
understanding of the parties hereto relating to the subject matter contained
herein, supersedes all prior agreements, promises and understandings of the
parties. This Agreement may not be modified, amended or any provision waived
except by unanimous written consent of the parties.
15.4 NOTICES
All notices, demands, requests and other communications shall be in writing
or by written telecommunication, and shall be given when delivered personally to
the addressee or, if mailed, by certified mail, return receipt requested,
postage prepaid, or sent by written telecommunication, when delivered to the
addresses specified in the opening paragraph of this Agreement. Either party may
from time to time change its address, facsimile number or designated individual
by notice to the other party. Such notice, demand, request, and other
communications shall be deemed to have been given as of the date so delivered or
transmitted by facsimile (as long as the transmitting machine confirms
successful transmission) or, if mailed, three (3) business days after the date
so mailed, or, if sent by overnight courier service, one (1) business day after
the date so sent.
15.5 RELATIONSHIP OF PARTIES
The parties are acting herein as independent contractors and independent
employers. Nothing herein contained shall create or be construed as creating a
partnership, joint venture, joint employer or agency relationship between the
parties and no party shall have the authority to bind the other in any respect.
15.6 NO WAIVER
Any terms, covenants, or obligations of any party may be waived at any time
in writing executed by the party or parties for whose benefit such terms exist.
The failure to enforce any provision of this Agreement shall not constitute a
waiver of any term hereof. No waiver in any one or more instances shall be
deemed to be a further or continuing waiver of any other condition or any breach
of any other terms, covenants or representations.
15.7 SEVERABILITY
In the event that any provision of this Agreement shall be held invalid,
illegal or unenforceable under applicable law such provision shall be made to
conform to the law, and the remainder of this Agreement shall remain valid and
enforceable, unless such invalidity, illegality or unenforceability
substantially diminishes the rights and obligations, taken as a whole, of any
party.
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<PAGE>
15.8 AGREEMENT APPROVAL
Each party hereby represents and warrants that all necessary corporate
approvals for this Agreement have been obtained, and the person whose signature
appears below has the authority necessary to execute this Agreement on behalf of
the party indicated.
15.9 CAPTIONS
The captions in this Agreement are solely for convenience of reference and
shall not be used for purposes of interpreting or construing the provisions
hereof.
15.10 NON-SOLICITATION
During the term of this Agreement and for one (1) year thereafter, the
Parties agree not to solicit for employment each other's employees except those
employees who have been terminated or laid off by either Party.
15.11 COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original and all of which together shall constitute one and the
same agreement.
15.12 FURTHER ASSURANCES
Each party agrees that it shall execute such further documents and perform
such further acts as may be necessary to comply with the terms of this
Agreement.
15.13 INTELLECTUAL PROPERTY
No trademark, trade name, logo, trade dress, copyright or license therein,
or other intellectual property rights (collectively, "Intellectual Property")
are conveyed by this Agreement, and neither party shall have the right to use
the other party's Intellectual Property for any purpose whatsoever without prior
written consent.
15.14 PRICING
All references to pricing in this Agreement shall be in terms of U.S.
dollars.
[signatures on following page]
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by duly their authorized representatives, effective on this date first set forth
above.
INTERNATIONAL ISOTOPES INC. NEORX CORPORATION
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Its: Its:
----------------------------- -----------------------------
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<PAGE>
EXHIBIT A
CONSTRUCTION DESIGN PLAN
[See attached materials]
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<PAGE>
EXHIBIT B
MILESTONES
[ * ]
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<PAGE>
EXHIBIT C
FINAL COMPOUNDED PRODUCT SPECIFICATIONS
[ * ]
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<PAGE>
EXHIBIT D
REQUIREMENTS
PROCESSING PROCEDURES
I3 shall Process each Batch in conformance with cGMP, Master Batch Records
and all applicable federal, state and local laws and regulations. In addition,
each Batch being Processed by I3 shall be subject to the following Batch
Processing Procedures:
(1) I3 will Process each Batch according to the conditions of the process
which was validated according to I3's Process Validation Protocol and Validation
Report.
(2) All Quality Control Tests will be performed using the Validation test
methods listed in the Product Specifications, and employing validated laboratory
instrumentation.
(3) At NeoRx's request, I3 will ship (at I3's cost) to NeoRx or its
assigned contractor test samples of Batches in such amounts as determined by the
parties.
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<PAGE>
EXHIBIT E
DEDICATED PERSONNEL
[ * ]
-37-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/00
10(a) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 954
<SECURITIES> 17,053
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,180
<PP&E> 8,333
<DEPRECIATION> 7,490
<TOTAL-ASSETS> 20,537
<CURRENT-LIABILITIES> 2,046
<BONDS> 1,185
0
4
<COMMON> 436
<OTHER-SE> 16,866
<TOTAL-LIABILITY-AND-EQUITY> 20,537
<SALES> 0
<TOTAL-REVENUES> 149
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> (2,366)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,366)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,366)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
