<PAGE> 1
UNITED STATES
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 September 30, 1996
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 0-15847
SEQUUS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3031834
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
960 Hamilton Court, Menlo Park, CA 94025
(Address of principle executive offices)
(415) 323-9011
(Registrant's telephone number, including area code)
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 ___
At October 31, 1996 the number of outstanding shares of the Company's common
stock, par value $.0001, was 29,578,247.
<PAGE> 2
SEQUUS PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
ITEM 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheets
September 30, 1996 and December 31, 1995............................................... 1
Condensed Statements of Operations for the
Three Months and Nine Months Ended September 30, 1996 and 1995......................... 2
Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995.......................................... 3
Notes to Condensed Financial Statements ............................................... 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................... 6
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K........................................................ 19
Signature............................................................................................ 20
</TABLE>
i
<PAGE> 3
SEQUUS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands except par value)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,963 $ 6,770
Short-term marketable investments 25,845 43,506
Trade accounts receivable 3,551 1,642
Inventories 3,616 1,105
Prepaid expenses and other current assets 5,953 949
--------- ---------
Total Current Assets 48,928 53,972
Equipment and improvements, net 4,297 3,591
Other assets 196 245
========= =========
Total Assets $ 53,421 $ 57,808
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,603 $ 2,773
Accrued clinical costs 1,897 1,664
Accrued compensation 2,035 2,310
Other accrued liabilities 771 746
Deferred revenue -- 716
--------- ---------
Total Current Liabilities 6,306 8,209
Commitments
Stockholders' Equity:
Preferred stock, par value $.01 -- 4
Common stock, par value $.0001 3 3
Additional paid-in capital 191,981 183,019
Accumulated deficit (144,869) (133,427)
--------- ---------
Total Stockholders' Equity 47,115 49,599
--------- ---------
Total Liabilities and Stockholders' Equity $ 53,421 $ 57,808
========= =========
</TABLE>
See accompanying notes to condensed financial statements
1
<PAGE> 4
SEQUUS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 6,225 $ 33 $ 16,167 $ 1,073
Royalties and fees 5,331 53 5,400 91
-------- -------- -------- --------
Total Revenues 11,556 86 21,567 1,164
Expenses:
Cost of goods sold 1,048 4 2,269 279
Research and development 7,621 5,173 19,349 15,902
Selling, general and administrative 3,938 3,133 12,796 9,326
-------- -------- -------- --------
Total Expenses 12,607 8,310 34,414 25,507
Net interest and other income 392 271 1,238 471
-------- -------- -------- --------
Net Loss $ (659) $ (7,953) $(11,609) $(23,872)
======== ======== ======== ========
Net loss per common share $ (0.02) $ (0.37) $ (0.40) $ (1.17)
======== ======== ======== ========
Common and common equivalent shares
used in calculation of net loss per share 29,280 21,545 28,710 20,435
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements
2
<PAGE> 5
SEQUUS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,609) $(23,872)
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,294 1,466
Change in assets and liabilities:
Trade accounts and interest receivable (1,909) 66
Inventories (2,511) (380)
Prepaid expenses and other current assets (5,004) 291
Other assets (29) 6
Accounts payable (1,170) (902)
Accrued clinical costs 233 (1,469)
Accrued compensation (275) 519
Other accrued liabilities 25 (486)
Deferred revenue (716) --
-------- --------
Net cash used by operating activities (21,671) (24,761)
-------- --------
Cash flows from investing activities:
Available-for-sale securities:
Purchases (39,707) (17,067)
Sales 34,022 --
Maturities 23,424 15,765
Capital expenditures (1,833) (932)
-------- --------
Net cash provided (used) by investing activities 15,906 (2,234)
-------- --------
Cash flows from financing activities:
Sale of common stock 8,958 15,052
Sale of preferred stock -- 11,038
-------- --------
Net cash provided by financing activities 8,958 26,090
-------- --------
Net increase in cash and cash equivalents $ 3,193 $ (905)
-------- --------
Cash and cash equivalents at beginning of the period $ 6,770 $ 5,448
-------- --------
Cash and cash equivalents at end of the period $ 9,963 $ 4,543
======== ========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE> 6
SEQUUS PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
SEQUUS Pharmaceuticals, Inc. ("SEQUUS" or the
"Company") is engaged in the development, manufacture, marketing and
sale of proprietary liposome and lipid-based products primarily to
treat cancer and certain fungal infections. The Company's strategic
emphasis is on injectable pharmaceutical products designed to improve
the efficacy and reduce the toxicity of selected existing and new drugs
used to treat cancer and infectious diseases.
In the opinion of management, the accompanying unaudited condensed
financial statements of SEQUUS contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the
financial position as of September 30,1996, and the results of
operations for the three and nine month periods ended September 30,
1996 and 1995, and the changes in cash flows for the nine month periods
ended September 30, 1996 and 1995, in accordance with generally
accepted accounting principles.
These condensed financial statements should be read in conjunction with
the Company's audited financial statements for the year ended December
31, 1995, which were filed with the Securities and Exchange Commission
on Form 10-K.
Although the nature of the business is not seasonal, the results of
operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. CASH AND CASH EQUIVALENTS AND MARKETABLE INVESTMENTS
The Company invests its excess cash principally in government
securities and high-grade investment paper. The Company maintains its
cash, cash equivalents and investments in several different instruments
with various banks and brokerage houses. The diversification of risk is
consistent with Company policy to maintain liquidity and ensure the
safety of principal.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each
balance sheet date. At September 30, 1996, all investments are
classified as available-for-sale securities and are carried at fair
value, with the unrealized gains and losses reported as a component of
accumulated deficit. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in net interest
and other income. Realized gains and losses and declines in value
judged to be other than temporary on available-for-sale securities are
included in net interest and other income. The cost of securities sold
is based on the specific identification method.
4
<PAGE> 7
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
As of September 30, 1996 AMORTIZED GROSS UNREALIZED ESTIMATED
--------------------
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
United States government securities ................. $19,062 $ 167 ($1) $19,228
United States corporate securities .................. 16,339 23 (1) 16,361
Foreign debt securities ............................. 1,058 -- -- 1,058
------- ----- --- -------
$36,459 $ 190 ($2) $36,647
======= ===== === =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995 AMORTIZED GROSS UNREALIZED ESTIMATED
--------------------
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
United States government securities.................. $20,234 $ 15 ($10) $20,239
United States corporate securities .................. 10,314 8 -- 10,322
Foreign debt securities ............................. 12,936 9 -- 12,945
------- ---- --- -------
$43,484 $ 32 ($10) $43,506
======= ==== ==== =======
</TABLE>
The gross realized gains and losses on sales of available-for-sale
securities were immaterial for the quarters ended September 30, 1996
and 1995. As of September 30, 1996 the average portfolio duration was
approximately 59 days.
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. The inventory detail is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials ........................ $1,781 $ 898
Work-in-process ...................... 1,594 68
Finished goods ....................... 241 139
------ ------
$3,616 $1,105
====== ======
</TABLE>
4. STOCKHOLDERS' EQUITY
During the first nine months of 1996, the Company received
approximately $8,958,000 from the exercise of warrants and stock
options. Of this, approximately $3,000,000 was due to the exercise of
warrants to purchase 705,714 shares of Common Stock at $4.25 per share
and approximately $2,033,000 was due to the exercise of warrants to
purchase 273,465 shares of Common Stock at $7.4328 a share. The
warrants were acquired by investors in private placement financings in
March 1991 and May 1995, respectively. Warrants for 500,000 shares of
SEQUUS Common Stock, expiring in March 1997, remain outstanding from
the March 1991 private placement and warrants for 838,380 shares,
expiring in May 1999, remain outstanding from the May 1995 private
placement. In addition, warrants for 808,320 shares of Common Stock at
$7.425 per share, which expire in April 1998, remain outstanding from a
private placement financing in March and April 1995.
In February 1996, the Company gave notice to investors participating in
a March 1995 private placement of the conversion to Common Stock of
480,000 shares of Series A Convertible Reset Preferred Stock
("Preferred Stock"). Each share of Preferred Stock was converted into
3.367 shares of Common Stock (rounded down to the nearest whole share).
5
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements in this report that relate to future plans, events or performance
are forward-looking statements. Actual results, events or performance may differ
materially due to a variety of factors, including the factors described under
"Factors That May Affect Future Results, Events or Performance" below. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
OVERVIEW
The Company is a leader in the development, manufacture, marketing and sale
of liposome and lipid-based biopharmaceutical products primarily to treat cancer
and certain infectious diseases. In November 1995, SEQUUS received marketing
clearance from the FDA for its proprietary anticancer drug, DOXIL(R)
(doxorubicin HCI liposome injection), for the treatment of Kaposi's sarcoma
("KS") in AIDS patients whose KS has progressed on prior chemotherapy or in
patients who are intolerant to such therapy. In December 1995, the Company
launched DOXIL in the U.S. In June 1996, the Company was granted marketing
authorization for DOXIL under the tradename CAELYX(TM), in the 15 member states
of the European Union ("EU"), for both first-line and second-line treatment of
AIDS-KS in patients with low CD4 counts and extensive mucocutaneous or visceral
disease. The drug may be used as first-line systemic chemotherapy, or as
second-line chemotherapy, in AIDS-KS patients with disease that has progressed
with, or in patients who are intolerant to, prior combination chemotherapy
comprising at least two of the following agents: a Vinca alkaloid, bleomycin,
and doxorubicin (or other anthracycline). A competitor of the Company has
received approval from the FDA for the use of a liposome anthracycline
formulation as first-line therapy for AIDS-KS and has also received approval for
the same indication in a number of additional countries. These approvals could
have an adverse effect on the market penetration of DOXIL.
In September 1996, SEQUUS announced a distribution agreement with
Schering-Plough Corporation ("Schering-Plough") and, in partial consideration
for distribution rights, received from Schering-Plough a one-time upfront fee of
$5.3 million which was recorded in the quarter ended September 30, 1996. Under
the multi-year agreement, Schering-Plough will distribute, market and sell
CAELYX worldwide, except for the United States, Japan and certain small markets
subject to prior distribution arrangements. Under the terms of the agreement,
SEQUUS will receive payments for product sales to Schering-Plough. In addition,
Schering-Plough will fund a portion of the clinical development program for
CAELYX, conduct clinical trials for a solid tumor indication, apply for
regulatory approval in the Schering-Plough territories for all new indications,
and assist with pharmacoeconomic studies. The agreement also calls for potential
additional payments to the Company totaling $27 million based on the achievement
of certain product development milestones and events.
AMPHOTEC(TM) (amphotericin B cholesteryl sulfate complex for injection), the
Company's proprietary product for treatment of life-threatening systemic fungal
infections, is being marketed in 16 countries and has been cleared for marketing
in an additional country. AMPHOTEC is indicated for the treatment of severe
and/or deep systemic mycoses in cases where toxicity or renal failure precludes
the use of conventional amphotericin B and in cases where prior systemic
antifungal therapy has failed. (AMPHOTEC is marketed under the tradename
AMPHOCIL in most countries outside of the U.S. and is also known as ABCD.)
The Company has received marketing authorization approval for AMPHOTEC in
Argentina, Austria, Brazil, Denmark, the Czech Republic, Finland, Iceland,
Ireland, Italy, the Netherlands, Russia, Singapore, Slovenia, the Slovak
Republic, Sweden, Turkey and the U.K. Marketing Authorization Applications
6
<PAGE> 9
("MAAs") for AMPHOTEC, submitted by the Company and Zeneca Pharmaceuticals
("Zeneca") are under assessment in a number of countries, including other
European countries, except in Norway where the MAA has been withdrawn. On
September 13, 1995, the CPMP reviewed the Company's multi-state application for
product marketing approval. Germany, France, Spain, Greece and Luxembourg did
not accept the MAA. SEQUUS believes national approval will be forthcoming in
Portugal. However, there can be no assurance that approvals, including pricing
approvals, will be forthcoming on a timely basis, or at all. In addition, after
the CPMP meeting, following further consideration by the Commission of Medicines
in Belgium, the Company has accepted an option for marketing authorization for
AMPHOTEC in a limited indication. A competitor of the Company has regulatory
approval in over 20 countries, primarily in Europe, to sell a liposome-based
amphotericin B product which targets indications similar to those targeted by
AMPHOTEC. Another competitor introduced its lipid-based amphotericin B product
as the third entrant in the U.K. market at a price substantially below the price
of the other lipid-based antifungals and recently launched the product as the
first lipid-based antifungal agent in the U.S. Competition from these two
competitors could have an adverse effect on the market penetration and pricing
of AMPHOTEC in both Europe and, if AMPHOTEC marketing clearance is obtained, in
the U.S.
In August 1993, the Company signed a distribution agreement with Zeneca
under which Zeneca was to market and sell AMPHOTEC in most European countries.
In March 1994, SEQUUS and Zeneca announced the expansion of their August 1993
agreement to cover all countries not previously covered with the exception of
the United States, Canada, Japan and selected small markets. Sales of AMPHOTEC
to date have been below expectations. In July 1996, SEQUUS announced that it had
reacquired from Zeneca all international marketing and distribution rights for
AMPHOTEC except for nine European countries to which Zeneca had retained such
rights (Denmark, Finland, Holland, Iceland, Ireland, Italy, Portugal, Sweden and
the U.K.). In exchange for the return to SEQUUS of marketing and distribution
rights throughout the rest of the world, SEQUUS agreed to restructure certain
future milestone payments specified in the original 1993 agreement, adjust the
pricing terms for AMPHOTEC to provide greater competitive flexibility, and
exchange certain inventory.
In August 1996 the Company announced the signing of an exclusive agreement
with Prodesfarma, S.A. for the marketing and distribution of AMPHOTEC in Spain,
Belgium and Luxembourg. The Company also announced the signing of an exclusive
agreement with TORREX Pharma Ges. M. b. H. of Vienna, Austria for the marketing
and distribution of AMPHOTEC in Austria, the Czech Republic, Hungary, Poland and
Slovenia.
The Company will continue to evaluate various product distribution
arrangements for both AMPHOTEC and DOXIL which could affect near-term and
long-term financial performance.
The Company has incurred losses in each year since its inception and had
accumulated approximately $145.0 million in net losses through September 30,
1996, including a loss of approximately $11.6 million in the first nine months
of 1996. Although the Company or its distributors have commenced marketing DOXIL
in the U.S. and certain international markets and AMPHOTEC in the U.K. and 15
other countries, the Company expects operating losses to continue in the near
term due to expenditures associated with research, preclinical testing and
clinical trials, marketing expenses and other expenses relating to the
development, manufacture, marketing and sale of its products. If the Company
expands clinical trials for additional indications of DOXIL or begins clinical
trials or expands preclinical studies for other products in the pipeline,
research and development spending may increase in future periods.
The Company expects its marketing and sales expenses to increase
significantly as it proceeds with the commercialization of DOXIL and prepares
for the potential U.S. launch of AMPHOTEC (which is currently pending review by
the FDA) through its direct sales and marketing organization. As of September
30, 1996, SEQUUS had a sales force of 32 individuals experienced in the sale of
pharmaceutical and biopharmaceutical products, with particular emphasis on
oncology and infectious disease. The Company currently uses Ben Venue
Laboratories, Inc. ("Ben Venue"), a contract manufacturer, for the
commercial-scale manufacturing of its products.
7
<PAGE> 10
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Revenues
Total revenues were $11.6 million during the three month period ended
September 30, 1996 compared with $0.1 million recorded during the three month
period ended September 30, 1995. For the third quarter of 1996, product sales
were $6.2 million and, in addition, the Company received approximately $5.3
million in royalties and fees which included a small royalty payment from a
technology sublicensee and a one-time upfront fee of $5.3 million from Schering
Plough in partial consideration for distribution rights granted under the
distribution agreement. DOXIL sales represent 93.6% of total product sales in
the three month period ended September 30, 1996 compared to less than 1% in the
same period of 1995. For the three month period ended September 30, 1995, most
of the Company's product sales were sales of AMPHOTEC to agents, who marketed
the product to the customer. Modest shipments of AMPHOTEC were made to Zeneca in
the third quarter of 1996, and the Company anticipates only limited sales to
Zeneca for the foreseeable future.
Operating Expenses
The Company's gross margin decreased to 83.2% of net sales in the three
month period ended September 30, 1996 from 87.9% of net sales in the three month
period ended September 30, 1995. The decrease in gross margin was due to higher
production costs. The Company anticipates that the gross margin on net product
sales will continue to fluctuate unless product volume increases.
A substantial part of the Company's operating expenses are incurred for
research and development ("R&D"), including preclinical testing and clinical
trials required for new pharmaceutical products. The principal items of R&D
expense are personnel costs, costs for clinical trials, and costs associated
with production of clinical product and supplies. R&D increased to $7.6 million
in the three month period ended September 30, 1996, from $5.2 million in the
third quarter of 1995, an increase of $2.4 million. The increase in the third
quarter reflects increased spending on pipeline products, primarily SPI-77, a
STEALTH(R) liposome formulation of cisplatin, an anticancer drug. If the Company
expands clinical trials for additional indications of DOXIL or enters clinical
trials or expands preclinical studies with other products in the pipeline, R&D
expenses may continue to increase.
Selling, general and administrative ("SG&A") expenses increased $0.8 million
to $3.9 million in the three month period ended September 30, 1996 from $3.1
million in the same period in 1995, principally reflecting an increase in
marketing and sales expenses related to the expansion of the sales force to
market DOXIL and to prepare for the potential launch of AMPHOTEC in the U.S. The
Company currently has a sales force of 32 individuals experienced in the sale of
pharmaceutical and biopharmaceutical products and additional internal staff to
support sales operations. The Company expects SG&A expenses to continue to
increase in preparation for the potential U.S. launch of AMPHOTEC.
Net Interest and Other Income
Net interest and other income increased to approximately $0.4 million in the
three month period ended September 30, 1996 from approximately $0.3 million in
the same period of 1995, an increase of approximately $0.1 million principally
due to the increase in cash available for investment from the proceeds of the
Company's public offering of Common Stock in the fourth quarter of 1995 and the
exercise of warrants and stock options during the first nine months of 1996.
8
<PAGE> 11
Net Loss
The Company's net loss decreased to $0.7 million for the three month period
ended September 30, 1996 from a net loss of $8.0 million for the same period of
1995, a decrease of $7.3 million. The net loss per share was $0.02 for the three
month period ended September 30, 1996 compared to a $0.37 net loss per share in
the same period of 1995. The number of weighted shares outstanding at September
30, 1996 was 29,280,000 as compared to 21,545,000 at September 30, 1995. The
decrease in the net loss was due to the increase in net sales of DOXIL and the
one-time upfront fee of $5.3 million from the distribution agreement with
Schering-Plough, partially offset by an increase in total operating expenses.
Nine Months Ended September 30, 1996 and 1995
Revenues
Total revenues were $21.6 million during the nine month period ended
September 30, 1996 compared with $1.2 million recorded during the nine month
period ended September 30, 1995. Sales of DOXIL represent 94.2% of total product
sales in the nine month period ended September 30, 1996 compared to less than 1%
in the same period of 1995. For the nine month period ended September 30, 1995,
most of the Company's product sales represent sales of AMPHOTEC to Zeneca.
Modest shipments of AMPHOTEC were made to Zeneca in the first nine months of
1996.
Operating Expenses
The Company's gross margin increased to 86.0% of net sales in the nine month
period ended September 30 1996 from 74.0% of net sales in the nine month period
ended September 30, 1995. The increase in gross margin was due to higher margins
associated with DOXIL sales in the U.S. where the Company currently markets
directly to the customer.
R&D increased to $19.3 million in the nine month period ended September 30,
1996, from $15.9 million in 1995, an increase of $3.4 million. This increase is
due to an increase in spending on the product pipeline and general overall
increase in expense levels.
SG&A expenses increased $3.5 million to $12.8 million in the nine month
period ended September 30, 1996 from $9.3 million in the same period in 1995,
principally reflecting an increase in marketing and sales expenses related to
the expansion of the sales force to market DOXIL and to prepare for the
potential launch of AMPHOTEC in the U.S. SG&A expenses in the nine month period
ended September 30, 1995 included accrued expenses in connection with
termination of the employment of certain officers.
Net Interest and Other Income
Net interest and other income increased to $1.2 million in the nine month
period ended September 30, 1996 from $.5 million in the same period of 1995, an
increase of $.7 million principally due to the increase in cash available for
investment from the proceeds of the Company's public offering of Common Stock in
the fourth quarter of 1995 and the exercise of warrants and stock options during
the first nine months of 1996.
Net Loss
The Company's net loss decreased to $11.6 million for the nine month period
ended September 30, 1996 from a net loss of $23.9 million for the same period of
1995, a decrease of $12.3 million. The net loss per share was $0.40 for the nine
month period ended September 30, 1996 compared to a net loss of $1.17 in the
same period of 1995. The number of weighted shares outstanding at September 30,
1996 was 28,710,000 as compared to 20,435,000 at September 30, 1995. The
decrease in the net loss was due to the increase in net sales of DOXIL and the
$5.3 million one-time upfront fee from Schering-Plough partially offset by an
increase in total operating expenses.
9
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable investments at
September 30, 1996 were $35.8 million, a decrease of $14.5 million from $50.3
million at December 31, 1995. This decrease represents principally cash used by
operations and capital expenditures offset by cash provided by stock option and
warrant exercises. During the nine month period ended September 30, 1996, the
Company received approximately $9.0 million from the exercise of warrants and
stock options. Of this, approximately $3.0 million was due to the exercise of
warrants to purchase 705,714 shares of Common Stock at $4.25 per share and
approximately $2.0 million was due to the exercise of warrants to purchase
273,465 shares of Common Stock at $7.4328 per share. These warrants were
acquired by investors in private placement financings in March 1991 and May
1995, respectively. Warrants for 500,000 shares of SEQUUS Common Stock, which
expire in March 1997, remain outstanding from the March 1991 private placement.
Warrants for 838,380 shares, which expire in May 1999, remain outstanding from
the May 1995 financing. In addition, as of September 30, 1996, warrants for
808,320 shares of Common Stock at $7.425 per share, which expire in April 1998,
remained outstanding from a private placement financing in March and April 1995.
In February 1996, the Company gave notice to investors participating in a March
1995 private placement of the conversion to Common Stock of 480,000 shares of
Series A Convertible Reset Preferred Stock. Each share of Preferred Stock was
converted into 3.367 shares of Common Stock (rounded down to the nearest whole
share). The conversion was completed in April 1996.
The Company's strategy has been to fund primarily from its own cash
resources the preclinical and clinical development of two of its proprietary
products, DOXIL and AMPHOTEC and the continued research and development of
additional STEALTH liposome products. This strategy requires significant
operating and capital expenditures, including the possible construction of a
pilot production facility which is currently in the planning phase.
The Company believes that at planned spending rates its existing cash
balances, interest income earned thereon and revenues from operations will be
adequate to fund its planned activities through at least the next 12 months,
although it may seek additional financing sooner. There can be no assurance that
adequate financing will be available on satisfactory terms, if at all.
10
<PAGE> 13
FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE
SEQUUS wishes to caution readers that the following important factors, among
others, may affect the Company's future results, events or performance and could
cause actual results, events or performance to differ materially from those
expressed in any forward-looking statements made by the Company in this report
or presented elsewhere by the Company from time to time.
Uncertainty of Market Acceptance
The Company has received significant revenues from the sale of only one
product, DOXIL, and has limited experience in marketing its products. A
number of factors may limit the market acceptance of AMPHOTEC and any other
products developed by the Company and may limit continued or further market
penetration of DOXIL, including the timing of regulatory approval and market
entry relative to competitive products, the availability of alternate therapies,
the price of the Company's products relative to alternative therapies, the
availability of third-party reimbursement and the extent of marketing efforts by
third-party distributors or agents retained by the Company. Until quite
recently, no therapeutic product based on liposome or lipid-based technology was
commercially available in the United States. As a result, unanticipated side
effects or unfavorable publicity concerning any product incorporating liposome
or lipid-based technologies could have an adverse effect on the Company's
ability to obtain physician, patient or third-party payor acceptance and to sell
the Company's products. There can be no assurance of the Company's ability, or
the length of time required, to achieve commercialization of the Company's
products or that physicians, patients or third-party payors will accept liposome
products or any of the Company's products as readily as traditional forms of
medication or at all.
Uncertainty of Product Development
The development of new pharmaceutical products is subject to a number of
significant risks. Potential products that appear to be promising at various
stages of development may not receive regulatory approval, reach the market or
achieve widespread use for a number of reasons. For example, DOXIL is being
clinically tested in various types of solid tumors. Although the Company
believes that preliminary results suggest activity in some but not all of these
tumors, these results are not conclusive nor are they predictive of future
results. Moreover, even when a drug does demonstrate activity, this does not
mean that it will prove sufficiently effective to be better than existing
therapies. The reasons for a product not being successful include the
possibilities that the potential product will be found insufficiently effective
or unduly toxic during preclinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical to market or not achieve market acceptance, be inferior or
significantly later to market than competing products or be precluded from
commercialization by proprietary rights of third parties.
There are a number of challenges the Company must address successfully to
develop commercial products in each of its development programs. The Company's
potential products will require significant additional research and development
efforts, including process development and significant additional clinical
testing, prior to any commercial use. There can be no assurance that the Company
will successfully address any of these technological challenges, or others that
may arise in the course of development. In addition, the Company may not have
sufficient resources to commercialize new products successfully.
Successful product development requires, among other things, the design and
completion of clinical trials. The rate of completion of the Company's clinical
trials is dependent upon, among other factors, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the nature of the protocol, the Company's ability to manage
the clinical trial, the proximity of patients to clinical sites and the
eligibility criteria for the study. Several factors, such as delays in planned
patient enrollment may result in increased costs and delays, or termination of
clinical trials prior to completion, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
11
<PAGE> 14
Competition
The drugs being developed by the Company compete with existing and new drugs
being created by pharmaceutical, biopharmaceutical and biotechnology companies.
Many of these companies, as well as university-related entities, both in the
United States and abroad are developing products based on improved drug delivery
technologies as well as novel therapeutics for the treatment of cancer,
infectious diseases and other indications targeted by the Company. Some of these
companies are active in the development of liposome and lipid-based research and
product development and many have financial and technical resources and
production and marketing capabilities substantially greater than those of the
Company. In addition, many of these companies have significantly greater
experience than the Company in preclinical and clinical development activities
and in obtaining regulatory approval to manufacture and market biopharmaceutical
products.
The Company's two principal competitors in liposome drug delivery are
NeXstar Pharmaceuticals, Inc. ("NeXstar") and The Liposome Company ("TLC"), both
of which have received regulatory approval for products competitive with the
Company's products. NeXstar has received approval from the FDA with respect to
its liposome-based daunorubicin product (a liposome anthracycline formulation)
for use in first-line therapy of KS patients and has also received approval for
the same indication in 14 additional countries. DOXIL has been approved and is
being marketed in the U.S. as a second-line treatment for AIDS-KS and has been
approved in the 15 E.U. countries for both first-line and second-line therapy of
AIDS-KS (see "DOXIL Regulatory Status"). A NeXstar liposomal amphotericin B
product has been available in Europe since 1989 and has achieved substantial
market share as compared to the limited market penetration achieved to date by
the Company's lipid-based amphotericin B product, AMPHOTEC. In late 1995, TLC
launched its lipid-based amphotericin B product in the U.S., making it the first
lipid-based antifungal product available in the U.S. market. The Company's NDA
for AMPHOTEC is under review by the FDA (see "AMPHOTEC Regulatory Status"). TLC
also received approval for its amphotericin B product in several European
countries and has additional MAAs pending.
SEQUUS believes that competition in all pharmaceutical products and in all
forms of drug delivery will continue to be intense. There can be no assurance
that other pharmaceutical companies will not develop more effective therapeutics
or drug delivery technologies than those of the Company or will not market and
sell their products more effectively than the Company.
Uncertainty of Pharmaceutical Pricing and Reimbursement
The Company's business may be materially adversely affected by the
continuing efforts of worldwide governmental and third-party payors to contain
or reduce the costs of health care in general and drugs in particular. For
example, in most foreign markets, including markets the Company is seeking to
enter, pricing of prescription pharmaceuticals is subject to government pricing
control. In these markets, once marketing approval is received, pricing
negotiation could take as long as another six to 12 months or longer. In the
U.S., there has been, and the Company expects that there will continue to be, a
number of federal and state proposals to implement similar government pricing
control. In addition, an increasing emphasis on managed care and consolidation
of hospital purchasing in the U.S. has and will continue to put pressure on
pharmaceutical pricing. Such proposals, if adopted, and such initiatives could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or initiatives have a material adverse effect on
pharmaceutical companies that are collaborators or prospective collaborators for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be materially adversely affected. In
addition, price competition may result from competing product sales, attempts to
gain market share or introductory pricing schemes, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
12
<PAGE> 15
The Company's ability to commercialize biopharmaceutical products may depend
in part on the extent to which reimbursement for such products and related
treatments will be available from government health administration authorities,
private health insurers and other third-party payors. Significant uncertainty
exists as to the reimbursement status of newly approved health care products,
and third-party payors are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third-party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products, and by refusing, in some cases, to
provide coverage for off-label uses of approved products, i.e., uses for
indications as to which the FDA has not granted marketing approval. Moreover,
reimbursement may be denied even for FDA-approved indications. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's products, the Company's business, financial
condition and results of operations would be materially adversely affected.
No Assurance of Regulatory Approvals
The production and marketing of the Company's products are subject to
rigorous manufacturing requirements, preclinical testing and clinical trials and
approval by the FDA, by comparable agencies in other countries and by state
regulatory authorities prior to marketing. The process of conducting clinical
trials and obtaining regulatory approval for a product typically takes a number
of years and involves substantial expenditures. In addition, product approvals
may be withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company has
received regulatory approval in the U.S. for the commercial sale of only one of
its products. The Company may encounter significant delays or excessive costs in
its efforts to secure and maintain necessary approvals or licenses. Future
federal, state, local or foreign legislative or administrative acts could also
prevent or delay regulatory approval of the Company's products. There can be no
assurance that the Company will be able to obtain or maintain the necessary
approvals for manufacturing or marketing the Company's products for current or
expanded indications or that the data it obtains in clinical trials will be
sufficient to establish the safety and efficacy of its products. Even if the
Company obtains regulatory approval for any particular product, there can be no
assurance that it will be economically feasible for the Company to commercialize
such product. In addition, identification of certain side effects after a drug
is on the market or the occurrence of manufacturing problems could cause
subsequent withdrawal of approval, reformulation of the drug, additional
preclinical testing or clinical trials, and changes in labeling of the product.
Failure to obtain or maintain requisite governmental approvals, failure to
obtain approvals of the clinically intended uses or the identification of side
effects could delay or preclude the Company from further developing particular
products or from marketing its products, or could limit the commercial use of
its products, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
DOXIL Regulatory Status
In November 1995, SEQUUS received marketing clearance from the FDA for use
of DOXIL in the treatment of AIDS-KS patients whose KS has progressed on prior
chemotherapy or in patients who are intolerant to such therapy. In December
1995, the Company launched DOXIL in the U.S., using its own marketing and sales
force. The marketing clearance was provided in accordance with the FDA's
procedures for Accelerated Approval of New Drugs for Serious or Life-Threatening
Illnesses. Accelerated approval regulations require that an applicant study an
investigational drug following product launch to verify and describe the drug's
clinical benefit. The Company is conducting a post-marketing clinical trial
designed to meet accelerated approval requirements. Under FDA accelerated
approval regulations, the FDA may withdraw approval following product launch if
the Company fails to show due diligence in conducting the post-marketing
clinical trial or if this clinical trial fails to demonstrate clinical benefit
to the FDA's satisfaction. There can be no assurance that the Company will be
able to conduct a satisfactory post-marketing clinical trial.
13
<PAGE> 16
In June 1996, the Company was granted marketing authorization for DOXIL
under the tradename CAELYX, in the 15 member states of the EU, for both
first-line and second-line treatment of AIDS-KS in patients with low CD4 counts
and extensive mucocutaneous or visceral disease. The drug may be used as
first-line systemic chemotherapy, or as second-line chemotherapy, in AIDS-KS
patients with disease that has progressed with, or in patients who are
intolerant to, prior combination chemotherapy comprising at least two of the
following agents: a Vinca alkaloid, bleomycin, and doxorubicin (or another
anthracycline). The Company's distribution partner, Schering-Plough (see
"Dependence on Third Party Distributors and Agents"), has begun pricing
discussions with the appropriate agencies in selected countries where pricing
approval is required. There can be no assurance that Schering-Plough will be
able to negotiate a satisfactory price for DOXIL in the EU countries.
AMPHOTEC Regulatory Status
SEQUUS has received marketing authorization approval for AMPHOTEC, under the
tradename AMPHOCIL, in Argentina, Austria, Brazil, Denmark, the Czech Republic,
Finland, Iceland, Ireland, Italy, the Netherlands, Russia, Singapore, Slovenia,
the Slovak Republic, Sweden, Turkey and the U.K.. AMPHOTEC is indicated for the
treatment of severe and/or deep systemic mycoses in cases where toxicity or
renal failure precludes the use of conventional amphotericin B and in cases
where prior systemic antifungal therapy has failed. MAAs for AMPHOTEC, submitted
by the Company and Zeneca, are under assessment in a number of countries,
including other European countries, except in Norway where the MAA was
withdrawn. In September 1995, the CPMP reviewed the Company's multi-state
application for product marketing approval. Germany, France, Spain, Greece and
Luxembourg did not accept the MAA. SEQUUS believes approval will be forthcoming
in Portugal. However, there can be no assurance that approvals in any additional
countries, including pricing approvals, will be forthcoming on a timely basis,
or at all. In addition, after the CPMP meeting, following further consideration
by the Commission of Medicines in Belgium, the Company has accepted the option
of a marketing authorization approval for AMPHOTEC in a limited indication.
In November 1995, the Company submitted to the FDA an NDA for AMPHOTEC based
upon certain data from open label clinical trials, which was accepted for filing
in January 1996. There can be no assurance that the FDA will determine that the
Company's NDA provides sufficient evidence of safety and efficacy in humans to
support FDA approval or that the NDA will be approved on a timely basis, or at
all.
Dependence on Third-Party Distributor and Agents; Limited Marketing and Sales
Experience
In September 1996, the Company entered into an exclusive arrangement with
Schering-Plough under which Schering-Plough will distribute, market and sell
DOXIL worldwide, under the tradename CAELYX(TM), except for the United States,
Japan and certain small markets subject to prior distribution arrangements.
Under the terms of the agreement, SEQUUS will receive payments for product sales
to Schering-Plough. In addition, Schering-Plough will fund a portion of the
clinical development program for DOXIL, conduct clinical trials for a solid
tumor indication, apply for regulatory approval in the Schering-Plough
territories for all new indications, and assist with pharmacoeconomic studies.
The Company's future sales of DOXIL to Schering-Plough will depend upon the
success of Schering-Plough's marketing efforts, the rate at which the product
penetrates the existing approved markets (see "DOXIL Regulatory Status") as well
as the timing of additional approvals, including pricing approvals, in other
countries, if any.
In 1995, a substantial portion of the Company's product revenues came from
sales either to a third-party distributor (Zeneca) or through third-party
agents. For the fiscal year ended December 31, 1995, 41% of the Company's
product sales represent sales of AMPHOTEC to Zeneca as compared to 91% for 1994.
A significant portion of these sales of AMPHOTEC reflect pipeline-filling
(inventory) orders. The Company did not ship any AMPHOTEC to Zeneca in 1995
after the first quarter. Five shipments of AMPHOTEC were made in the first nine
months of 1996 and the Company anticipates only limited sales to Zeneca for the
foreseeable future. The level of the Company's future sales of AMPHOTEC to
Zeneca will
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<PAGE> 17
depend upon the rate at which the product penetrates the existing approved
markets (see "AMPHOTEC Regulatory Status") as well as the timing of additional
approvals in other countries, if any. Sales of AMPHOTEC to date have been below
expectations. In July 1996, SEQUUS announced that it had reacquired from Zeneca
all international marketing and distribution rights for AMPHOTEC except for nine
European countries to which Zeneca had retain such rights (Denmark, Finland,
Holland, Iceland, Ireland, Italy, Portugal, Sweden and the United Kingdom). In
exchange for the return to SEQUUS of marketing and distribution rights
throughout the rest of the world, SEQUUS agreed to restructure certain future
milestone payments specified in the original 1993 agreement, adjust the pricing
terms for AMPHOTEC to provide greater competitive flexibility, and exchange
certain inventory.
The Company expects to market and sell its products directly, or possibly
co-promote them with strategic partners, in the U.S. In this regard, SEQUUS
currently employs a sales force of 32 professionals to market DOXIL, which the
Company intends to expand if marketing clearance is obtained for AMPHOTEC. This
group is experienced in the sale of pharmaceutical and biotechnology products to
physicians, hospitals and clinics, including managed care providers, and in
facilitating reimbursement with third-party payors. Further development of such
a marketing and sales organization will require significant additional
expenditures, management resources and time. The Company has limited experience
marketing and selling its products. In addition, the loss of certain key sales
personnel would delay and adversely affect the sales effort and would have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to implement its marketing plan successfully. If the Company enters into any
marketing partnerships in the U.S., such as those currently under consideration,
this would significantly reduce the Company's margins on these products. There
can be no assurance that the Company will be able to establish such a marketing
and sales organization successfully or manage its marketing organization
successfully.
Product Liability
Testing, manufacturing, marketing and use of the Company's products will
entail substantial risk of product liability. The Company currently maintains
product liability insurance in an amount of $10 million per occurrence and $10
million in the aggregate. A single product liability claim could exceed the $10
million coverage limit, and there is a possibility of multiple claims. There can
be no assurance that the amount of insurance the Company has obtained against
the risk of product liability will be adequate, that the amount of such
insurance can be renewed or that the amount and scope of any coverage obtained
will be adequate to protect the Company in the event of a successful product
liability claim. The Company's business could be materially adversely affected
by one or more successful product liability claims.
In addition, with respect to the sale of products in the U.S., the Company
believes it has significantly greater risk in connection with product liability
claims due to the greater frequency of lawsuits and higher claims paid in courts
in the U.S. as opposed to most other countries. The Company is required by
governmental regulations to test its products even after they have been sold and
used by patients. As a result of such tests, the Company may be required to, or
may determine that it should, recall products when most of such products have
already been sold. Such later testing and product recalls may increase the
Company's potential exposure to product liability claims.
Dependence on Third-Party Manufacturer; Manufacturing Risks
The Company's present internal manufacturing capabilities are limited to
producing products for preclinical development. The Company is dependent on Ben
Venue, a United States-based contract manufacturer, to manufacture
commercial-scale quantities of AMPHOTEC and DOXIL pursuant to supply agreements.
Under these agreements the Company has agreed to indemnify Ben Venue against
certain liabilities. As of September 1996, the Company and Ben Venue have
manufactured 32 commercial-scale batches of DOXIL, including the three
registration batches which are required as part of the FDA's NDA approval
process. There can be no assurance that Ben Venue will continue to meet FDA or
product specification standards or that the Company's manufacturing goals can be
met in a consistent and timely
15
<PAGE> 18
manner. There is only a limited number of other manufacturers with the
capability of manufacturing AMPHOTEC and DOXIL, and any alternative manufacturer
would require regulatory qualification to manufacture the product which would
likely take several months.
The Company has not qualified alternative manufacturers for its products. In
the event of any interruption of supply from the contract manufacturer due to
regulatory or other causes, there can be no assurance that the Company could
make alternative manufacturing arrangements on a timely basis, if at all. Such
an interruption would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company relies on certain suppliers of key raw materials to provide an
adequate supply of such materials for production of finished products. Certain
materials are purchased from single sources. In particular, amphotericin B and
doxorubicin HCI are currently each supplied to the Company by single sources,
and the number of alternative sources is severely limited. For example, the
Company has a five-year, sole-source supply agreement with Meiji Seika Pharma
International, Ltd. to supply the Company with doxorubicin HCI for DOXIL. There
can be no assurance that the doxorubicin HCI supplied under the agreement will
continue to meet FDA requirements applicable to DOXIL, which could delay or
prevent future sales of DOXIL, if any, by the Company. Although the Company has
supply agreements in place with the suppliers of its key raw materials, the
number of alternative qualified suppliers of key raw materials required for the
manufacture of AMPHOTEC and DOXIL is limited. The disqualification or loss of a
sole source supplier could have a material adverse effect on the Company because
of a delay or inability in obtaining and qualifying an alternate supplier and
the costs associated with such delay and in finding and qualifying an alternate
supplier. Regulatory requirements applicable to pharmaceutical products tend to
make the substitution of suppliers costly and time consuming. The unavailability
of adequate commercial quantities, the loss of a supplier's regulatory approval,
the inability to develop alternative sources, a reduction or interruption in
supply or a significant increase in the price of materials could have a material
adverse effect on the Company's ability to manufacture and market its products
and its results of operations.
Patents and Trade Secrets
There has been increasing litigation in the biomedical, biotechnology and
pharmaceutical industries with respect to the manufacture, use and sale of new
therapeutic products that are the subject of conflicting patent rights. A
substantial number of patents relating to liposomes have been issued to, or are
controlled by, other public and private entities, including academic
institutions. In addition, others, including competitors of SEQUUS, may have
filed applications for, or may have been issued patents or may obtain additional
patents and proprietary rights relating to products or processes competitive
with those of SEQUUS. The patent positions of pharmaceutical, biopharmaceutical,
biotechnology and drug delivery companies, including SEQUUS, are uncertain and
involve complex legal and factual issues. Additionally, the coverage claimed in
a patent application can be significantly reduced before the patent is issued.
As a consequence, the Company does not know whether any of its patent
applications will result in the issuance of patents or whether any of the
Company's patents will provide significant proprietary protection or will be
circumvented or invalidated. Since patent applications in the United States are
maintained in secrecy until patents issue, and since publication of discoveries
in the scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it was the first inventor of inventions covered
by its pending patent applications or that it was the first to file patent
applications for such inventions. Moreover, the Company may have to participate
in interference proceedings to determine priority of invention, which could
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that any patents owned or
controlled by the Company will protect SEQUUS against infringement litigation or
afford commercially significant protection of the Company's technology. Almost
none of the Company's patents has been tested in court to determine their
validity and scope. Moreover, the patent laws of foreign countries differ from
those of the United States and the degree of protection, if any, afforded by
foreign patents may, therefore, be different.
16
<PAGE> 19
In November 1991, the Company received a letter from TLC bringing to SEQUUS'
attention TLC's United States Patent No. 5,059,591 (the "'591 Patent")
containing claims directed to amphotericin B/sterol compositions and their
method of use. Subsequently, SEQUUS' patent counsel delivered an opinion to the
Company that, among other things, AMPHOTEC does not infringe any valid claim of
the '591 Patent. However, no assurance can be given that TLC will not make a
claim against SEQUUS with respect to the '591 Patent, which could have a
material adverse effect on the Company's ability to commercialize AMPHOTEC.
The Company has a practice of monitoring patents and other developments in
the liposome field. To the extent that the Company becomes aware of patents of
other parties which the Company's processes or products might infringe, it is
the Company's practice to seek review of such patents by the Company's patent
counsel. With respect to the Company's DOXIL product, SEQUUS is aware of TLC's
United States Patent No. 5,077,056 (the "056 Patent") relating to the loading of
therapeutic drugs into liposomes. The Company's patent counsel has rendered an
opinion that DOXIL would not infringe any valid claim of this patent.
International equivalent patents to the '056 Patent are now undergoing
opposition proceedings in the European and Japanese patent offices and the
Company is party to such proceedings. The Company is also aware of TLC's United
States Patent No. 5,008,050 relating to reducing liposome size by extrusion, and
NeXstar's United States Patent No. 5,435,989 relating to targeting of liposomes
to solid tumors. The Company's patent counsel has rendered an opinion that its
DOXIL product would not infringe any valid claim of either of these patents. In
addition, the Company is aware of certain patents covering lyophilization of
liposomes. Neither of the Company's principal products involves the
lyophilization of liposomes.
Generally, the Company refers patents to its patent counsel for review. Even
if the Company's patent counsel renders advice that the Company's products do
not infringe any valid claim under such patents, there can be no assurance that
any third party will not commence litigation to enforce such patents or that the
Company will not incur substantial expense, or that it will prevail, in any
patent litigation.
The Company has been required to defend itself in patent litigation in the
past and the uncertainties inherent in any other lawsuit that may be commenced
in the future with respect to any alleged patent infringement by the Company
make the outcome of any such litigation difficult to predict. The Company may
decide to pay a royalty or make other concessions to settle a patent dispute. In
the event of litigation, there can be no assurance that the Company will be
successful. A judgment adverse to the Company in any such litigation could
materially adversely affect the Company's business, financial condition and
results of operations, and the expense of such litigation may be substantial,
whether or not the Company is successful in such litigation.
The Company relies on unpatented trade secrets and proprietary know-how to
protect certain aspects of its production and lipid purification technologies
and other proprietary information. Although SEQUUS has entered into
confidentiality agreements with its employees, consultants, representatives and
other business associates, there can be no assurance that trade secrets and
know-how will remain undisclosed or that similar trade secrets or know-how will
not be independently developed by others.
History of Operating Losses; Need for Additional Financing
The Company has incurred losses in each year since its inception and has
accumulated approximately $145.0 million in net losses through September 30,
1996, including a net loss of $11.6 million in the first nine months of 1996.
The Company to date has generated limited revenues. There can be no assurance
that revenues from product sales will be significant or sufficient to fund
operations. Owing to expenditures associated with self-funded research,
preclinical and clinical programs, marketing expenses and other activities
related to seeking regulatory approval and achieving commercialization of its
products, the Company expects to continue to incur operating losses. Additional
financing may be required to fund the Company's continuing operations and
product and business development activities in the form of debt or equity
securities or bank financing. There can be no assurance that such financing will
be available on
17
<PAGE> 20
acceptable terms, if at all. The unavailability of such financing could delay or
prevent the development, testing, regulatory approval, manufacturing or
marketing of some or all of the Company's products and could have a material
adverse effect on the Company.
Dependence on Key Personnel; Management Transition
The Company's success depends largely upon its ability to attract and
retain qualified scientific, engineering, manufacturing, sales and marketing and
management personnel. The Company faces competition for such personnel from
other companies, academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful in
hiring or retaining such personnel. Four of the key executive officers of the
Company have joined the management team in the past 18 months. The new
management team will face significant challenges in transitioning the Company
from research and development to manufacturing and marketing if the Company's
products obtain regulatory approval. There can be no assurance that the
management team can successfully manage the transition of the Company's
business.
Hazardous Materials
As with many biopharmaceutical companies, the Company's research and
development involves the controlled use of hazardous materials and chemical
compounds. There can be no assurance that the Company's safety procedures for
handling and disposing of such materials will comply with the standards
prescribed by federal, state and local regulations or that it will not be
subject to the risk of accidental contamination or injury from these materials.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could materially adversely affect the
Company's business, financial condition and results of operations.
Volatility of Stock Price
The market price of the Common Stock, like the stock prices of many publicly
traded biopharmaceutical companies, has been and may continue to be highly
volatile. A variety of events, both concerning and unrelated to the Company and
the biopharmaceutical industry, such as the level of sales of the Company's
products, problems with clinical development of the Company's potential
products, announcements of technological innovations, regulatory developments or
new commercial products by the Company or its competitors, government
regulation, delays or other developments relating to regulatory approvals,
developments or disputes relating to patent or proprietary rights, product
liability claims, as well as period-to-period fluctuations in the Company's
financial results, may have a significant negative impact on the market price of
the Common Stock. Although the Common Stock trades on the Nasdaq National
Market, the trading volume has fluctuated and at times has been quite low. Any
large sale of securities of the Company could have a significant adverse effect
on the market price of the Common Stock.
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<PAGE> 21
PART II - OTHER INFORMATION
ITEM 6.
Exhibits and Reports on Form 8-K
(a) Exhibits:
10 Distribution Agreement Between Schering-Plough Ltd. and SEQUUS
Pharmaceuticals, Inc.(1)
27 Financial Data Schedule
(b) Reports on Form 8-K. During the three months ended September 30, 1996,
no reports on Form 8-K were filed.
- --------
(1) The Registrant has requested confidential treatment of certain portions of
this agreement.
19
<PAGE> 22
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.
SEQUUS PHARMACEUTICALS, INC.
----------------------------
(Registrant)
Date: November 14, 1996 By: /s/ Donald J. Stewart
------------------------
Donald J. Stewart
Vice President, Finance
(Principal Accounting Officer)
20
<PAGE> 23
EXHIBIT INDEX
EXHIBITS DESCRIPTION
- -------- -----------
10 Distribution Agreement Between Schering-Plough Ltd. and SEQUUS
Pharmaceuticals, Inc.(1)
27 Financial Data Schedule
- --------
(1) The Registrant has requested confidential treatment of certain portions of
this agreement.
21
<PAGE> 1
Exhibit 10
The Symbol "**" Is Used Throughout
This Exhibit To Indicate That A
Portion Of The Exhibit Has Been
Omitted And Filed Separately With
The Commision.
DISTRIBUTION AGREEMENT
BETWEEN
SCHERING-PLOUGH LTD.
AND
SEQUUS PHARMACEUTICALS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. DEFINITIONS........................................................................................... 3
1.1 "Affiliate"................................................................................. 3
1.2 "Agreement Confidential Information"........................................................ 3
1.3 "Agreement Product"......................................................................... 4
1.4 "Annual Net Sales".......................................................................... 4
1.5 "Board of Directors Approval"............................................................... 4
1.6 "Compound".................................................................................. 4
1.7 "Confidential Information".................................................................. 5
1.8 "Designated Subdistributor"................................................................. 5
1.9 "European Economic Area".................................................................... 5
1.10 "European Union"............................................................................ 5
1.11 "Far East".................................................................................. 6
1.12 "Fiscal Half-Year".......................................................................... 6
1.13 "Fiscal Year"............................................................................... 6
1.14 "Know-how".................................................................................. 6
1.15 "Major Market".............................................................................. 7
1.16 "Net Sales"................................................................................. 7
1.17 "Regulatory Authorities".................................................................... 9
1.18 "Schering Confidential Information"......................................................... 9
1.19 "Sequus Confidential Information"........................................................... 9
1.20 "Territory"................................................................................. 10
1.21 "Trademarks"................................................................................ 10
II. APPOINTMENT...................................................................................... 10
2.1 Exclusive Appointment....................................................................... 10
2.2 Distribution Rights......................................................................... 11
2.3 **.......................................................................................... 12
2.4 **.......................................................................................... 14
2.5 **.......................................................................................... 15
III. CLINICAL DEVELOPMENT.................................................................................. 16
3.1 Joint Development Team...................................................................... 16
3.2 JDT Composition............................................................................. 18
3.3 JDT Meetings................................................................................ 18
3.4 Deadlock.................................................................................... 19
3.5 **.......................................................................................... 19
3.6 Sequus' Clinical Responsibilities........................................................... 19
3.7 **.......................................................................................... 21
3.8 ** Registration Program..................................................................... 22
3.9 Schering's Development Rights............................................................... 24
3.10 Right of Parties to Confer on Certain Matters............................................... 25
3.11 Clinical Expense Reimbursement.............................................................. 25
3.12 Schering Clinical Trials.................................................................... 26
3.13 Clinical Study Reports...................................................................... 26
3.14 Access to Data and Information.............................................................. 27
3.15 Clinical Expense Reporting.................................................................. 30
IV. GOVERNMENT APPROVALS............................................................................. 30
4.1 Health Registrations........................................................................ 30
4.2 Other Government Approvals.................................................................. 34
4.3 Post-Marketing Studies...................................................................... 35
4.4 Pricing and Reimbursement Approvals......................................................... 35
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V. MARKETING OF THE AGREEMENT PRODUCT................................................................... 37
5.1 **.......................................................................................... 37
5.2 **.......................................................................................... 38
5.3 Commencement of Marketing................................................................... 38
VI. SUPPLY OF AGREEMENT PRODUCT.......................................................................... 40
6.1 Purchase Requirements....................................................................... 40
6.2 Quality Control and Quality Assurance....................................................... 41
6.3 Forecasts................................................................................... 46
6.4 Delivery Terms.............................................................................. 51
6.5 Scheduling of Delivery...................................................................... 51
6.6 **.......................................................................................... 51
VII. PRICE AND PAYMENTS........................................................................................ 52
7.1 Price....................................................................................... 52
7.2 Floor Price................................................................................. 53
7.3 Provisional Price........................................................................... 55
7.4 Reconciliation.............................................................................. 55
7.5 Samples and Clinical Supplies............................................................... 56
7.6 Sales Reports............................................................................... 56
7.7 Method of Payment........................................................................... 57
7.8 Approval Payment............................................................................ 58
7.9 Event and Criteria Attainment............................................................... 58
7.10 Withholding................................................................................. 61
7.11 Combination Products........................................................................ 61
VIII. INDEMNITY................................................................................................. 62
8.1 Indemnification by Schering................................................................. 62
8.2 Indemnification by Sequus................................................................... 63
8.3 Conditions to Indemnification............................................................... 64
8.4 Settlements................................................................................. 64
8.5 Limitation of Liability..................................................................... 65
8.6 Insurance................................................................................... 65
8.7 Third Party Intellectual Property........................................................... 65
8.8 Claimed Infringement........................................................................ 66
8.9 Third Party Infringement.................................................................... 68
IX. AGREEMENT PRODUCT LABELLING.......................................................................... 69
9.1 Format...................................................................................... 69
9.2 Approval.................................................................................... 69
9.3 Regulatory Review........................................................................... 70
9.4 Unscheduled Modifications................................................................... 70
9.5 Consistency................................................................................. 71
9.6 Samples of Printed Material................................................................. 71
X. TRADEMARKS AND TRADE NAMES........................................................................... 71
10.1 Trademark................................................................................... 71
10.2 Trademark Use............................................................................... 72
10.3 Trade Names................................................................................. 72
10.4 Infringement of Third Party Trademark Rights................................................ 73
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10.5 Third Party Infringement.................................................................... 74
10.6 Trademark on Materials...................................................................... 74
10.7 **.......................................................................................... 74
10.8 **.......................................................................................... 75
XI. CONFIDENTIALITY...................................................................................... 75
11.1 Confidentiality Obligations................................................................. 75
11.2 Return of Confidential Information.......................................................... 77
11.3 Press Releases.............................................................................. 77
XII. TERM AND TERMINATION...................................................................................... 78
12.1 Term........................................................................................ 78
12.2 Termination Rights.......................................................................... 79
12.3 Change of Control of Affiliates and Designated
Subdistributors............................................................................. 83
12.4 Change of Control of a Party................................................................ 83
12.5 Breach...................................................................................... 84
12.6 No Release.................................................................................. 84
12.7 Bankruptcy.................................................................................. 84
12.8 Failure to Make Payments.................................................................... 85
12.9 Obligations After Termination............................................................... 85
12.10 Conduct of Business in Anticipation of
Termination................................................................................. 88
XIII. ASSIGNMENT OR DELEGATION.................................................................................. 89
13.1 Assignment.................................................................................. 89
13.2 Successors and Assigns...................................................................... 89
XIV. GOVERNING LAW AND ARBITRATION............................................................................. 90
14.1 Governing Law............................................................................... 90
14.2 Arbitration................................................................................. 90
XV. FORCE MAJEURE............................................................................................. 90
XVI. INDEPENDENT CONTRACTOR.................................................................................... 91
XVII. ACCOUNTING................................................................................................ 91
17.1 Audit of Schering........................................................................... 91
17.2 Audit of Sequus............................................................................. 92
XVIII.SAFETY.................................................................................................... 93
18.1 Communications.............................................................................. 93
18.2 Adverse Events.............................................................................. 94
XIX. NOTICES................................................................................................... 94
19.1 Timing and Addresses for Notices............................................................ 94
XX. SEVERABILITY AND ENFORCEABILITY........................................................................... 96
20.1 Separability and Enforcement................................................................ 96
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XXI. EXPORT.................................................................................................... 96
XXII. REPRESENTATIONS AND WARRANTIES............................................................................ 97
22.1 Representations and Warranties of Each Party................................................ 97
22.2 Sequus' Representations..................................................................... 98
22.3 Continuing Representations..................................................................101
XXIII.SURVIVAL..................................................................................................102
23.1 Sections Which Survive......................................................................102
23.2 Section Which Do Not Survive................................................................102
XXIV. CAPTIONS..................................................................................................103
XXV. NON-WAIVER................................................................................................103
XXVI. FURTHER ACTIONS...........................................................................................103
XXVII.ENTIRE AGREEMENT..........................................................................................103
</TABLE>
SCHEDULE A...Agreement Product Release Specifications
SCHEDULE B...Sequus Trademarks
SCHEDULE C...Dispute Resolution Procedures
SCHEDULE D...**
SCHEDULE E...Events and Criteria
SCHEDULE F...**
SCHEDULE G...Adverse Event Reporting Procedures
SCHEDULE H...Sequus Distributor Agreements
SCHEDULE I...**
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<PAGE> 6
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made this 29th day of August, 1996 (the "Effective
Date") by and between Schering-Plough Ltd. ("Schering"), a corporation organized
under the laws of Switzerland having its principal place of business at
Toepferstrasse 5, CH-6004, Lucerne, Switzerland for itself and its Affiliates
(as that term is defined below) and Sequus Pharmaceuticals, Inc. ("Sequus"), a
corporation organized and existing under the laws of the State of Delaware
having its principal place of business at 960 Hamilton Court, Menlo Park,
California 94025.
PREAMBLE
Schering has considerable international experience, knowledge and
capability in developing and successfully commercializing a variety of
pharmaceutical products, particularly cancer therapeutics, and has in place
wellexperienced staff to perform these activities as well as an established
sales and marketing organization. Sequus is an innovative developer of new
pharmaceutical products and has established significant alliances and
collaborations to develop, register, distribute, market and sell products
worldwide. Sequus has developed, and is commercializing throughout the world in
accordance with a global development plan and program, a product comprised of a
liposome formulation of doxorubicin hydrochloride encapsulated in Stealth(R)
liposomes. Schering and Sequus desire to use their respective resources and
areas of expertise to maximize the commercial opportunities of such product.
<PAGE> 7
BACKGROUND
Sequus has developed an injectable liposome formulation, containing
doxorubicin hydrochloride encapsulated in liposomes with surface-bound
methoxypolyethylene glycol, which it intends to market for those cancer
indications allowed by regulatory authorities, including, but not limited to,
the treatment of AIDS-related Kaposi's sarcoma, and is the exclusive owner of
trademarks, trade names, product registrations and know-how, relating thereto.
Sequus has received marketing authorization for such product in the European
Union for the treatment of AIDSrelated Kaposi's sarcoma.
Subject to the terms and conditions of this Agreement, Schering desires
to exclusively distribute, market, and sell the product supplied by Sequus using
Sequus' trademarks in Europe and associated countries, Canada, and, subject to
pre-existing agreements of Sequus with ** and ** and **, countries of Latin
America (excluding Puerto Rico), the Middle East and the Far East (excluding
Japan), pursuant to product registrations owned by Sequus, and to be transferred
to Schering, or to be owned by Schering, to perform certain development
activities on Sequus' behalf with respect to the product, to have a regular
supply of such product, and to have certain rights with respect to **.
In accordance with the terms of this Agreement, Sequus is willing to
appoint Schering as exclusive distributor of the product in the Territory
defined below, and Schering is willing to accept such appointment, to enable
Schering to distribute,
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<PAGE> 8
market and sell product and to perform certain development activities on Sequus'
behalf.
Accordingly, in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, Schering and Sequus agree as follows:
I. DEFINITIONS
As used in the Agreement, the following capitalized terms shall have
the meanings set forth below. Capitalized terms in this Agreement used in the
plural shall have the same meaning as for the singular and vice versa.
1.1 "Affiliate" of a party shall mean any individual, corporation or
other business entity controlling, controlled by or under common control with,
such party. "Control" shall mean the direct or indirect ownership of fifty
percent (50%) or more of the voting interest in, or a fifty percent (50%) or
more interest in the income of, such corporation or other business entity, or
such other relationship as, in fact, gives such individual or entity the power
or ability to control the management, business and affairs of an entity.
1.2 "Agreement Confidential Information" shall mean any and all
technical data, ideas, information, materials, instructions, processes,
formulae, expert opinion and other know-how presently owned or controlled by or
developed by, or on behalf of, either party during the term of this Agreement,
which relates to the Compound and Agreement Product.
1.3 "Agreement Product" shall mean any presentation of an injectable
human pharmaceutical product containing Compound encapsulated in liposomes with
surface-bound methoxypolyethylene
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<PAGE> 9
glycol, which product is the subject of the marketing authorization
EU/1/96/011/001 and EU/1/96/011/002 issued by the European Commission and the
New Drug Application #50718 ("NDA") approved by the United States Food and Drug
Administration ("FDA"), for use in any human pharmaceutical indication, whether
or not the marketing of such product for any such indication is approved in the
above-referenced marketing authorization or another marketing authorization, or
such other product included within the same NDA as for the above described
injectable product, such product meeting those specifications for Agreement
Product in bulk vials attached hereto as Schedule A, as such Schedule may be
amended from time to time by the written agreement of the parties.
1.4 "Annual Net Sales" shall mean the total of all Net Sales in the
Territory in a Fiscal Year.
1.5 "Board of Directors Approval" shall mean the receipt of approval of
this Agreement from the Board of Directors of Schering-Plough Corporation, the
corporate parent of Schering.
1.6 "Compound" shall mean doxorubicin hydrochloride, also identified by
the chemical name (8S-cis)-10-[(3-amino-2,3,6-
trideoxy-[alpha]-L-lyxo-hexopyranosyl)oxy]-7,8,9,10-tetrahydro-6,8,11-
trihydroxy-8-(hydroxyacetyl)-1-methoxy-5,12-naphthacenedione hydrochloride.
1.7 "Confidential Information" shall mean collectively the Agreement
Confidential Information, the Schering Confidential Information and the Sequus
Confidential Information.
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<PAGE> 10
1.8 "Designated Subdistributor" shall mean an un-Affiliated third party
designated by Schering to distribute, market and sell Agreement Product.
1.9 "European Economic Area" or "EEA" shall mean each of the countries
comprising the member states of the EEA (or its successor), which currently
include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Liechtenstein, Luxembourg, The Netherlands, Norway, Portugal,
Spain, Sweden and the United Kingdom, as such membership may change from time to
time, and includes countries upon their admission for full membership (with
commercial rights and privileges substantially comparable to those of the
foregoing countries); provided, however, that for purposes of this Agreement, if
a country is or becomes a member of the EEA (or its successor) at any time
during the term of this Agreement, such country shall be deemed to be included
in the EEA even if such country withdraws from or is otherwise no longer a
member of the EEA (or its successor).
1.10 "European Union" or "EU" shall mean each of the countries
comprising the member states of the European Union (or its successor), which
currently include Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the
United Kingdom, as such membership may change from time to time, and includes
countries upon their admission for full membership (with commercial rights and
privileges substantially comparable to those of the foregoing countries);
provided, however, that for purposes of this Agreement, if a country is or
becomes a member
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<PAGE> 11
of the EU (or its successor) at any time during the term of this Agreement, such
country shall be deemed to be included in the EU even if such country withdraws
from or is otherwise no longer a member of the EU (or its successor).
1.11 "Far East" shall mean the following countries: Bangladesh, Burma,
Cambodia, Hong Kong, India, Indonesia, North Korea, South Korea, Laos, Malaysia,
Mongolia, New Guinea, People's Republic of China, Philippines, Singapore, Sri
Lanka, Taiwan, Thailand and Vietnam.
1.12 "Fiscal Half-Year" shall mean each six (6) month period commencing
with January 1 and July 1 and ending respectively on the following June 30 and
December 31 for so long as this Agreement is in effect.
1.13 "Fiscal Year" shall mean each twelve (12) month period commencing
on January 1 and ending on December 31 for so long as this Agreement is in
effect.
1.14 "Know-how" shall mean all materials and information developed
relating to all biological, chemical, pharmaceutical, toxicological,
pharmacological, clinical, regulatory, physical and analytical, safety, quality
control data and marketing information relating to the Compound and the
Agreement Product owned and/or controlled by Sequus as of the Effective Date of
this Agreement or during the term of this Agreement, including, but not limited
to, all correspondence with the FDA or other Regulatory Authorities relating to
the Agreement Product.
1.15 "Major Market" shall mean each of France, Germany, Italy, Spain
and the United Kingdom.
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<PAGE> 12
1.16 "Net Sales" shall mean, with respect to each country in the
Territory, ** on all sales of Agreement Product to an unAffiliated third party
(whether an end-user, a distributor that is not a Designated Subdistributor, or
otherwise) and exclusive of intercompany transfers less the reasonable and
customary accrual-basis deductions from such gross amounts including: (a) normal
and customary trade, cash and quantity discounts, allowances and credits
actually allowed or taken with respect to the Agreement Product; (b) credits or
allowances actually granted for damaged goods, returns or rejections of
Agreement Product; (c) **; (d) sales or similar taxes, or other governmental
charges levied on, absorbed or otherwise imposed directly on the sale of
Agreement Product including, without limitation, value added taxes or other
governmental charges otherwise measured by the billing amount, when included in
billing; (e) freight, postage, shipping, customs duties and insurance charges;
(f) ** and (g) commissions legally paid to third parties other than sales
personnel and sales representatives or sales agents. For purposes of calculating
Net Sales under this Agreement, all sales of Agreement Product hereunder,
whether made for cash or otherwise, shall be deemed to be made for cash, at the
applicable fair market value of the Product. **
7
<PAGE> 13
In the event that Agreement Product is permissibly sold pursuant to Section 7.11
as part of a combination product, i.e., sold in a package containing other
products ("Combination Product"), Net Sales for such Combination Product will be
calculated by multiplying actual Net Sales of such Combination Product by the
fraction A/(A+B) where A is the invoice price of the Agreement Product if sold
separately by or on behalf of Schering and B is the invoice price of any other
products in the Combination Product if such products are sold separately by or
on behalf of Schering. In the event that the Agreement Product is sold in the
form of a Combination Product and one or more of such other products included
within the Combination Product are not sold separately, then the Net Sales for
such Combination Product shall be calculated by multiplying the number of units
of Agreement Product sold in the form of a Combination Product by the Average
Net Selling Price for Agreement Product sold separately in the country in
question, during the period for which Net Sales is being calculated. For the
purposes hereof, "Average Net Selling Price" shall mean, for the country in
question, the Net Sales of the quantity of Agreement Product sold separately
divided by the number of units of Agreement Product represented in such Net
Sales. If the Agreement Product is not sold separately in such country, then the
parties shall agree in good faith on an equitable Average Net Selling Price for
the Agreement Product to be used in the foregoing calculation.
1.17 "Regulatory Authorities" shall mean any national, supra-national
(e.g., the European Commission, the Council of the
8
<PAGE> 14
European Union, the EEA or The European Agency for the Evaluation of Medicinal
Products ("EMEA")), regional, state or local regulatory agency, department,
bureau or other governmental entity in the Territory responsible for issuing any
technical, medical and scientific licenses, registrations, authorizations and/or
approvals of the Agreement Product including any marketing authorizations based
upon such approvals and pricing, third party reimbursement or labelling
approvals that are necessary for the manufacture, distribution, use or sale of
Agreement Product in a regulatory jurisdiction.
1.18 "Schering Confidential Information" shall mean (a) any and all
methods, policies and procedures related to the distribution, marketing and sale
of Agreement Product and (b) all technical data, ideas, information, materials,
instructions, processes, formulae, expert opinion and other know-how presently
owned or controlled by or developed by, or on behalf of, Schering or its
Affiliates during the term of this Agreement which relates to Schering's
activities in connection with the Agreement Product pursuant to this Agreement
and the internal business practices or business information of Schering.
1.19 "Sequus Confidential Information" shall mean (a) any and all
technical data, ideas, information, materials, instructions, processes,
formulae, expert opinion and other know-how presently owned or controlled by or
developed by, or on behalf of, Sequus, including by Schering or a third party,
during the term of this Agreement which relates to the Know-how, the Compound,
the Agreement Product and (b) any inventions or know-
9
<PAGE> 15
how which might be useful or necessary for the manufacture of the Agreement
Product.
1.20 "Territory" shall mean the entire world except the United States
of America, its territories and possessions, Puerto Rico and Japan.
1.21 "Trademarks" shall mean a trademark or trademarks owned by Sequus
and agreed upon by the parties for use by Schering with the Agreement Product in
the Territory, which marks shall include CAELYX(TM) and such other marks that,
once they have been agreed by the parties, shall also be set forth in Schedule B
attached hereto and forming a part of this Agreement, which Schedule may be
amended from time to time by written agreement between the parties.
II. APPOINTMENT
2.1 Exclusive Appointment. From the Effective Date and for the term of
this Agreement, subject to all of the provisions hereof and subject to a
pre-existing agreement of Sequus with ** (collectively, the "** Agreement") and
subject further to a pre-existing agreement of Sequus with ** (the "**
Agreement"), Sequus hereby appoints Schering as its exclusive distributor,
exclusive even with respect to Sequus, of Agreement Product in the Territory,
and Schering accepts such appointment as exclusive distributor.
2.2 Distribution Rights.
(a) Subject to the terms hereof and the pre-existing
agreements set forth in Section 2.1, from the Effective Date and for the term of
this Agreement, Schering shall have the exclusive rights, exclusive even with
respect to Sequus, to distribute,
10
<PAGE> 16
market and sell the Agreement Product in the Territory for all uses not
disallowed under applicable law. Schering may distribute, market and sell
Agreement Product in the Territory through its agents, designated Affiliates and
Designated Subdistributors, subject to any required consents, provided, that:
(i) notice of any Designated Subdistributor to distribute, market and sell
Agreement Product in the EEA and Canada shall be given to Sequus within thirty
(30) days of such designation (which can occur at any time during the term of
this Agreement) and such designation shall be approved in the reasonable
judgment of Sequus, in writing within thirty (30) days of such notice by
Schering; (ii) Schering shall ensure that each designated Affiliate and
Designated Subdistributor agrees in writing to be bound by the terms of this
Agreement (including, but not limited to, the provisions of Article XI and
Article XII below); (iv) Schering guarantees the performance of any such
designated Affiliate or Designated Subdistributor; (v) Schering shall continue
to be bound by all the terms of this Agreement; and (vi) in the event that any
designated Affiliate or Designated Subdistributor fails to observe any term,
representation or covenant of this Agreement, Sequus may treat such failure as a
failure of Schering for all purposes subject to Article XII hereof. **
2.3 **
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<PAGE> 17
2.4 **
2.5 **
III. CLINICAL DEVELOPMENT
12
<PAGE> 18
3.1 Joint Development Team. ** A joint development team ("JDT") will be
established by the parties. The JDT's primary objective will be to coordinate
the development of the Agreement Product, **. The JDT will be responsible for
overseeing the clinical development program for the Agreement Product and
monitoring and coordinating progress by the parties in the implementation of
the development program. Specific responsibilities of the JDT include:
(a) **
(b) All clinical trials conducted by either party for the
purposes of regulatory approval will be reasonably consistent with the approved
development plan and submitted for review by the JDT.
(c) The JDT will develop and approve objectives, parameters
and guidelines for non-registration trials and it will be the responsibility of
the party conducting trials to ensure that the clinical trials they conduct
conform to those objectives and guidelines.
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<PAGE> 19
(d) The JDT shall establish a mechanism for tracking clinical
trials.
(e) The JDT will be informed of the selection of principal
investigators and principal sites for all clinical trials sponsored by Schering
or Sequus and endeavor to coordinate investigator and site selection to optimize
effective development that will lead to effective commercialization of the
Agreement Product.
(f) **
3.2 JDT Composition.
(a) The JDT shall be composed of up to three (3)
representatives from each of Schering and Sequus, and a quorum shall consist of
at least two (2) JDT representatives from each party. In any matter before the
JDT, each party shall have one (1) vote, and no action shall be taken except by
the unanimous vote of the JDT. A party's representatives shall serve at the
discretion of such party and may be substituted for or replaced at any time by
such party.
(b) The JDT shall be chaired first by a representative of
Sequus for the balance of Fiscal Year 1996 and the Chairperson position shall
rotate annually on a calendar year basis, with Schering to appoint the
Chairperson for Fiscal Year 1997, and so
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<PAGE> 20
forth thereafter. The Chairperson shall be responsible for calling meetings,
preparing agendas and preparing and issuing minutes of each meeting within
thirty (30) days thereafter.
3.3 JDT Meetings. The JDT shall meet within thirty (30) days of the
Effective Date at Sequus' facility, and thereafter at least quarterly in each
Fiscal Year during the term of this Agreement, until such time as the parties
agree to a more or less frequent meeting schedule. The site of such meetings
shall alternate between the offices of Schering and Sequus (or any other site
mutually agreed upon by the parties) and each party shall bear its own costs of
attending such meetings. All meetings of the JDT shall be summarized in writing
and sent to both parties and countersigned by both parties.
3.4 Deadlock. In the event that the JDT is unable to reach a decision
by unanimous vote with respect to any matter and such inability continues for a
period of thirty (30) calendar days after the date on which the matter is first
voted on by the JDT, each party shall have the right to refer the matter to the
most senior executive managers responsible for the development of Agreement
Product, ** for resolution. Such senior executive managers shall have thirty
(30) calendar days after the date on which the matter is first submitted to them
to resolve such dispute. If such senior executive managers are unable to resolve
such dispute within such thirty (30) calendar day period, either party may, by
providing written notice to the
15
<PAGE> 21
other party within thirty (30) calendar days after the end of such thirty (30)
day period, request that the matter be submitted to a special arbitration panel
for resolution, in accordance with the procedures set forth in Schedule C, Part
I.
3.5 **
3.6 Sequus' Clinical Responsibilities.
(a) Sequus shall diligently conduct, or have conducted, at its
own expense and on a timely basis, the preclinical, clinical and related work
required by the applicable Regulatory Authority for health registrations of
Agreement Product in **, where the Agreement Product has demonstrable clinical
benefits. As of the Effective Date, ** for development include, but are not
limited to, **. Sequus shall consult with the JDT as to the scope, timing and
priorities of developing other **.
(b) **
(c) Schering shall have full access to all data generated by
any third party conducting any trials pursuant to Section 3.6(b) but such third
party shall have no reciprocal right to any Agreement Confidential Information
generated by Schering pursuant to this Agreement (except for Agreement
Confidential Information Sequus itself may have and has the lawful right to
transfer pursuant to this Agreement). Any third party selected by Sequus
pursuant to Section 3.6(b) shall have no
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right to participate on the JDT or to make any development decisions with regard
to the Agreement Product.
3.7 **
3.8 ** Registration Program.
(a) Schering shall conduct, on Sequus' behalf, a ** clinical
program sufficient for ** and prepare the resulting regulatory filings in the
Territory to be made in Schering's name, as described more fully in Schedule D.
** Schering's obligation shall be limited to conducting a program of up to **
patients, at a cost of up to **. Should the program costs exceed ** or exceed **
patients, Schering, at it's sole option, may cease its obligations under this
Section 3.8. In the event Schering does not exercise its option to cease its
obligations under this Section 3.8 and Schering continues with the **
registration program and such continuation causes substantial additional
financial obligation to Sequus, Sequus shall have the right to terminate funding
(as provided in the mechanism set forth in the last sentence of Section 3.8(b))
of the Schering ** registration program . The terms and conditions of this
Section 3.8(a) shall not be subject to modification by the JDT pursuant to
Section 3.1(f). Schering alone shall pay for the first ** of its Development
Costs (as defined below) for the ** registration program, and the remainder of
the Development Costs actually incurred in such program by Schering shall be
deducted from payments due Sequus under Section 7.9.
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(b) ** Schering shall keep adequate records of such expenses,
and Sequus shall have the right to audit such records pursuant to the provisions
of Section 17.1. Schering's Development Costs as described in this Section
3.8(b) shall be billed on a quarterly basis and provided promptly to Sequus,
within forty-five (45) days after the close of the quarter. Sequus will be
provided with the opportunity to review the bill, with such period not exceeding
thirty (30) days after receipt of the bill. If no objection is received within
thirty (30) days, Schering's Development Costs will be subtracted from event and
18
<PAGE> 24
criteria payments described in Section 7.9 due Sequus for that quarter.
(c) **
3.9 Schering's Development Rights. Schering shall have the exclusive
right, but not the obligation (except as obligated under Section 3.8 hereof) and
except for the right of Sequus or a third party on Sequus' behalf to use
Agreement Product in the Territory in clinical trials (including for
pre-clinical activities such as toxicology and pharmacokinetics studies which
may be necessary to obtain regulatory approval for the Agreement Product) and
for the continued development and commercialization of the Agreement Product for
other indications as permitted hereunder.
3.10 Right of Parties to Confer on Certain Matters. The parties may
reasonably confer from time to time on development and regulatory matters that
are outside the scope of the JDT.
3.11 Clinical Expense Reimbursement. In addition to any payments made
under Article VII, beginning on the Effective Date of this Agreement, Schering,
in consideration of the continuing clinical and other development activities to
be undertaken by Sequus, shall pay Sequus as follows:
(a) **
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(b) **
(c) The amounts paid by Schering to Sequus under this Section
3.11 shall be used by Sequus **. Such payments shall be made quarterly, within
thirty (30) days of the end of each calendar quarter in which Net Sales occur,
and shall be based on the Net Sales made in the calendar quarter in question.
Schering's obligation to make the payment required under this Section 3.11 shall
cease **
3.12 Schering Clinical Trials. In the event that Schering desires to
conduct studies, including clinical trials, with respect to the Agreement
Product, Schering shall be free to do so, subject to the following provisions.
** except as otherwise provided in this Agreement. Schering shall conduct such
trials within the guidelines established by the JDT. Any study sponsored by
either party not within the JDT guidelines shall be subject to the prior
approval of the JDT. Schering shall conduct ** that may be necessary or
desirable in Schering's judgment. **
3.13 Clinical Study Reports. To the extent practicable, the parties
intend to provide each other with data from studies on a scheduled basis **
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Subject to the terms and conditions of this Agreement, either party and its
Affiliated and non-Affiliated agents, licensees or distributors shall be free to
use the results of any such study (and the data resulting therefrom) to obtain
approvals for Agreement Product and in the promotion, distribution, marketing
and sale of the Agreement Product outside the Territory.
3.14 Access to Data and Information.
(a) Each Party shall have the right to access and use all
Agreement Confidential Information generated in all clinical and marketing
studies with respect to the Agreement Product for the purposes of this
Agreement. Subject to the terms and
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conditions of this Agreement, Sequus shall have access to all Agreement
Confidential Information derived from clinical trials on a timely basis and be
entitled to use such Agreement Confidential Information only for registration,
promoting, distributing, marketing and selling the Agreement Product and the
providing of such Agreement Confidential Information to any Regulatory Authority
or to any third party distributing, marketing or selling Agreement Product.
Subject to the terms and conditions of this Agreement, Schering shall have
access to the Know-how, Trademarks and Sequus Confidential Information to enable
Schering to distribute, market and sell the Agreement Product in the Territory
for all uses not disallowed under applicable law.
(b) Each party shall have the right of cross-reference to the
other party's regulatory filings (e.g., IND, NDA, CTX, etc.). Schering shall
have the right to participate with Sequus in all contacts with the FDA regarding
the clinical development, toxicology and chemistry, manufacturing, controls
("CMC") issues relating to the Agreement Product.** Schering shall have full
access to all correspondence with the FDA or other Regulatory Authorities
relating to the Agreement Product. Notwithstanding the foregoing rights of
access, participation and limits on use, Sequus shall own the Sequus
Confidential Information and Schering shall own the Schering Confidential
Information.
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(c) Sequus may not provide Agreement Confidential Information
generated by Schering to a third party to distribute, market and sell Agreement
Product ** unless Sequus obtains a reciprocal right on Schering's behalf
to obtain from such third party the right for Schering to use information and
data generated by such third party to distribute, market and sell Agreement
Product in the Territory. **
(d) If Sequus provides Agreement Confidential Information
generated by Schering to a third party to distribute, market and sell Agreement
Product ** Sequus shall obtain a reciprocal right on Schering's behalf to obtain
from such third party the right for Schering to use information and data
generated by such third party to distribute, market and sell Agreement Product
in the Territory. **
(e) Nothing provided herein shall prohibit a party from
informing the other party or a third party of any adverse events with respect to
the Agreement Product, or obligate a party to disclose any information or data
if such disclosure is prohibited by law or regulation.
(f) No Schering Confidential Information shall be provided to
any third party without Schering's prior written consent.
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(g) Notwithstanding any provision or term of this Agreement,
Schering shall have no right of access to, or any right to receive from Sequus,
and Sequus shall have no obligation to provide access to or transfer to
Schering, any Know-how relating to the manufacture of the Agreement Product,
except in the event that such information is required to obtain or maintain
health registrations in the Territory or except in the event that **, and then
only to the limited extent necessary to enable Schering to obtain or maintain
such registrations **. All submissions shall be made on a confidential basis and
only for the uses permitted herein and provided only to those who have a need to
know for the limited purposes hereof.
3.15 Clinical Expense Reporting. Within thirty (30) days of the end of
each calendar quarter in which clinical trials or medical marketing trials,
including, without limitation, those in the ** registration program, are being
conducted, Schering shall report the amount of trial expenses for such quarter
to Sequus. **
IV. GOVERNMENT APPROVALS
4.1 Health Registrations.
(a) Promptly following the Effective Date, Sequus shall
transfer, or cause to be transferred, all right, title and interest in and to
all existing filings, applications, marketing authorizations, centralized
registrations, approvals, health
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registrations and any technical, medical and scientific licenses (and any
amendments to the foregoing) (collectively, "Marketing Authorizations") in the
Territory, to Schering, in order to enable Schering to distribute, market and
sell the Agreement Product in the Territory for all uses not disallowed under
applicable law. In addition, Sequus agrees to promptly execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the transfer of such Marketing
Authorizations to Schering as required herein. Schering shall be responsible for
all payments due to all relevant Regulatory Authorities for purposes of
effecting such transfer(s).
(b) Schering, its Affiliates or Designated Subdistributors
shall file **, in a timely manner, secure and maintain, health registrations and
any technical, medical and scientific licenses, authorizations and/or approvals
for all indications approved by the JDT and pricing, third party reimbursements
or labelling approvals as may be necessary with respect to the importation into
and sale of the Agreement Product under the Trademarks in each and every country
of the Territory (all such governmental approvals are hereinafter referred to as
"Governmental Permits").
(c) Schering shall satisfy its foregoing obligation with
respect to the EU by obtaining and maintaining the health registration for the
Agreement Product, from the EMEA or any successor Regulatory Authorities. For
those countries of the Territory outside of the EU that accept, as the basis of
such country's health registration approval, the NDA approval of the
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United States of America, Sequus agrees to provide Schering the right to
reference the NDA.
(d) **
(e) The Governmental Permits shall be held by Schering, unless
Sequus is required by law or regulation to hold any such Governmental Permit(s).
Each party agrees, at no material out-of-pocket cost to such party, to provide
reasonable technical assistance to enable the other party to meet any conditions
in order to obtain and maintain Governmental Permits in the Territory from any
Regulatory Authorities, as provided under the terms of this Agreement.
(f) During the term of this Agreement, Schering shall not
assign, license or grant to any third party any rights in or to the Governmental
Permits that are held by Schering pursuant to this Section 4.1 without the prior
written consent of Sequus except as otherwise may be expressly permitted by the
provisions of this Agreement. **
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(g) Upon expiration of this Agreement, termination of this
Agreement by Schering for any reason, or termination of this Agreement by Sequus
in a proper and lawful manner pursuant to the express terms and provisions of
this Agreement all right, title and interest in and to any such Governmental
Permits that are held by Schering, its Affiliates or Designated Subdistributors
shall be promptly transferred to Sequus. Schering shall be responsible for all
fees payable to Regulatory Authorities relating to the transfer of such
Governmental Permits to Sequus. Such transfers shall be initiated within thirty
(30) days of any such termination and Schering shall use its reasonably diligent
efforts to cause the timely completion of such transfers. **
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(h) Schering hereby grants to Sequus a royalty free,
exclusive, exclusive even as to Schering, (except for Schering's right to use
the Trademark under the terms and conditions of Section 12.9(a)), irrevocable
license to make, have made, use, sell and import Agreement Product in the
Territory under each such Governmental Permit, which license shall become
effective only upon the occurrence of an event of expiration or termination that
results in the obligation of Schering to transfer such Governmental Permits to
Sequus pursuant to Section 4.1(g) hereof. Such license shall automatically
expire upon the transfer of such Governmental Permits to Sequus. This Section
4.1(h) shall in no way diminish Schering's obligation to transfer such
Governmental Permits to Sequus as and when required by Section 4.1(g) hereof.
(i) The grant to Schering of the right, title and interest in
and to the Governmental Permits under this Section 4.1 shall not be construed,
either alone or together with the other provisions of this Agreement, to
constitute a license from Sequus to Schering, under any intellectual property
rights owned or controlled by Sequus to make, use or sell the Agreement Product.
(j) Sequus shall be responsible for obtaining and maintaining
all applicable authorizations and/or regulatory approvals in the United States.
4.2 Other Government Approvals. Any other governmental approvals
required to import and sell Agreement Product in any
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country of the Territory, including, without limitation, certificates of
origin, shall be obtained by Schering at its own expense. Sequus shall
reasonably assist Schering in order to enable Schering to obtain the
certificates of origin. Sequus shall pay all freight and shipping on account
of the supply of bulk vials of Agreement Product by Sequus to a single delivery
site in the EEA and a single delivery site for Canada, as reasonably designated
by Schering. In addition, if Schering does not source the other countries of
the Territory from the same site(s) as the EEA and Canada, Schering shall have
the right to reasonably designate one (1) additional delivery site in the
Territory and Sequus shall pay for freight and shipping on account of the
supply of bulk vials of Agreement Product to such third site. **
4.3 Post-Marketing Studies. If, at any time, additional pre-clinical,
clinical or regulatory studies are required to be conducted in any country of
the Territory by Regulatory Authorities or otherwise to maintain the marketing
authorization or any Governmental Permit for the Agreement Product in such
country, Sequus shall be obligated to conduct such studies.
4.4 Pricing and Reimbursement Approvals
(a) As soon as reasonably practicable after the Effective Date,
Schering shall establish pricing levels for the Agreement Product in the
Territory, including obtaining necessary pricing and reimbursement approvals
from appropriate governmental authorities in the Territory. Schering shall **
obtain pricing and reimbursement approvals
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for the Agreement Product **
(b) **
(c) **
(d) **
(e) **
V. MARKETING OF THE AGREEMENT PRODUCT
5.1 **
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5.2 **
5.3 Commencement of Marketing.
(a) Schering shall commence to market the Agreement Product
commercially in each country of the Territory as soon as practicable, and on a
timely schedule, after receipt of regulatory approval and, if required, pricing
and/or price reimbursement approval for the Agreement Product in such country
and after any other local requirements for launching Agreement Product have been
satisfied. Notwithstanding the foregoing, the parties recognize that extenuating
circumstances may arise that may excuse Schering from the commencement of
marketing of the Agreement Product, including but not limited to, unfavorable
pricing, pricing reimbursement, or labelling. In the event Schering determines
that unfavorable pricing, pricing reimbursement or labelling conditions exist,
Schering shall be excused from its obligation to commence marketing of the
Agreement Product. Any other reason which Sequus finds acceptable in its
reasonable judgment may also excuse Schering's obligation to commence marketing
of the Agreement Product. Schering shall also be excused from its obligation to
commence marketing of the Agreement Product if Sequus is not meeting its
obligation to supply Agreement Product under Article VI of this Agreement.
(b) **
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(c) **
(d) **
VI. SUPPLY OF AGREEMENT PRODUCT
6.1 Purchase Requirements. During the term and in accordance with the
provisions of this Agreement, Schering shall purchase exclusively from Sequus
all of its Requirements of the Agreement Product, and Sequus agrees to sell such
quantities of Agreement Product, in the form of bulk vials, to Schering during
such term, subject to the provisions hereof. For the purposes of this Agreement,
the term "Requirements" shall mean, except where specifically provided otherwise
herein, all quantities of the Agreement Product that are required by Schering
and its Designated Subdistributors for distribution, marketing, including
sampling, clinical trial materials and sale of the Agreement Product during the
term hereof.
6.2 Quality Control and Quality Assurance.
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(a) Sequus warrants that all of the Agreement Product supplied
by Sequus to Schering hereunder shall conform to the specifications therefor as
defined in the then-current marketing authorization of each country of the
Territory, which specifications are attached to this Agreement as Schedule A
("Specifications"), as such Schedule may be amended from time to time by written
agreement between the parties and shall be manufactured in accordance with the
current procedures described in the applicable marketing authorization(s) and
all current Good Manufacturing Practices ("cGMPs") and other applicable federal,
national and local laws and regulations in effect at the time of manufacture.
(b) Sequus shall maintain a quality control program consistent
with current cGMPs, as required by the Pharmaceutical Inspection Convention, all
applicable laws and regulations, and health authorities in the Territory, as
applicable, and the country of manufacture, and all subsequent additions and
revisions thereto.
(c) Promptly after execution of this Agreement, the parties
shall meet to coordinate all aspects of material logistics relating to the
supply of Agreement Product hereunder. In a timely manner, but no later than
within sixty (60) days of the Effective Date, the parties shall agree to the
terms of a Technical Agreement, based on determinations and understandings
reached by the parties that shall include, but not be limited to, logistical
procedures relating to the delivery, quality control, quality assurance, recall
procedures, release and manufacturing regulatory compliance matters associated
with the supply of
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Agreement Product, and define the responsibilities and obligations of Sequus,
Schering**, to meet the requirements of European Directive 91-356-EEC. The terms
of the Technical Agreement shall not include any additional payment terms
between the parties and no material term of the Technical Agreement shall be in
conflict with this Agreement. The parties shall finalize the contract status,
with respect to Qualified Person Services, between **, Schering and Sequus,
subject to the written approval of an authorized representative of each party.
The parties shall resolve all logistical issues relating to the supply of
Agreement Product during the term of this Agreement consistent with the terms
and conditions of the Technical Agreement. Any impasse shall be settled in
accordance with the procedures set forth in Section 3.4 for the JDT except that
the management representative for Schering shall be Vice President, Technical
Operations.
(d) **
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(e) **
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(f) If as determined in accordance with Section 6.2(d) above a
shipment of Agreement Product does not conform to the Specifications, Sequus
shall replace such shipment free of charge with a substitute shipment which
meets such Specifications according to the following timeframe: If the Agreement
Product is in inventory then conforming Agreement Product will be shipped by air
freight so as to arrive on the next business day after being sent. If the
Agreement Product is not in inventory, Sequus will take all reasonable steps to
ensure expeditious manufacture of conforming Agreement Product which will be
shipped air freight on the next shipping day after completion of manufacture so
as to arrive on the next business day.
(g) ** At Sequus' expense, the non-conforming shipment shall
be returned to Sequus, or disposed of by Schering, at Schering's option, upon
final determination in accordance with Section 6.2(d) above that it does not
meet the Specifications.
(h) Each party agrees to notify the other within two (2)
business days of its receipt of notification of any inquiries, notifications, or
inspection activity by any Regulatory Authority, governmental agency or
authority in regard to the Agreement Product or the manufacturing facilities
therefor. Sequus shall provide a reasonable description to Schering of any such
governmental inquiries, notifications or inspections promptly (but in no event
later than five (5)
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calendar days) after notification of completion of such visit or inquiry. Sequus
shall furnish to Schering, (i) within two (2) business days after receipt, any
report or correspondence issued by the Regulatory Authority or governmental
authority in connection with such visit or inquiry, including but not limited
to, any FDA form 483, Establishment Inspection Reports or warning letters and
(ii) at the same time it provides to any Regulatory Authority or governmental
authority, copies of any and all documents, responses or explanations relating
to items set forth above, in each case purged only of trade secrets of Sequus
that are unrelated to the obligations under this Agreement or are unrelated to
the Agreement product. In the event such governmental agency or authority
requests or requires any action to be taken to address any citations, Sequus
agrees, after consultation with Schering, to take such action as necessary to
address such citations, and agrees to cooperate with Schering with respect to
any such citation and/or action taken with respect thereto.
(i) Sequus shall ** obtain the right for Schering to
visit, during normal business hours and with reasonable advance notice (a
minimum of thirty (30) business days) Sequus' manufacturing facility (including
Ben Venue Laboratories Inc. ** or their successors), under customary
confidentiality conditions, for the purpose of observing the manufacturing,
packaging, testing, and warehousing of the Agreement Product and to inspect for
compliance with cGMPs and other applicable regulatory requirements.
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(j) **
6.3 Forecasts.
(a) The parties will work together to establish mechanisms to
ensure efficient, fair, equitable and cost effective supply logistics and
materials management. As soon as practicable, but not later than thirty (30)
days after the Effective Date, Schering shall provide Sequus with a written
forecast (by quarter) of the quantity of Agreement Product that Schering desires
to have delivered to it during the period beginning on the Effective Date and
ending September 30, 1996 (the "Initial Period") and for the following five (5)
consecutive calendar quarters commencing with October 1, 1996. The forecast for
the Initial Period shall not be binding, but the forecast for the ** beginning
October 1, 1996 shall represent a binding commitment of Schering to purchase and
Sequus to supply such forecasted amount of Agreement Product. Thereafter, at
least fifteen (15) days before the end of each subsequent calendar quarter,
Schering shall provide a written, updated forecast (by quarter) of the quantity
of Agreement Product that Schering desires to have delivered to it during the
following five (5) consecutive calendar quarters. Each successive forecast shall
update the forecast previously given for the last three (3) quarters covered and
add a forecast for the quarter following immediately thereafter, to enable
Sequus to have sufficient
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information to schedule its or its sub-contractors' manufacturing operations to
meet Schering's forecasted Requirements of the Agreement Product. Sequus
acknowledges that such forecasts are only estimates of Schering's purchase
Requirements of the Agreement Product and that Schering shall not be bound by
any such estimate, except that the ** of each successive forecast so provided
shall likewise represent a binding commitment of Schering to purchase and of
Sequus to supply such forecasted quantity of Agreement Product in a timely
manner, subject to adjustment within the limits set forth in Section 6.3(c)
hereof. Schering shall order and maintain all reasonable inventories of the
Agreement Product, having due regard to current and forecasted sales volumes.
Schering shall issue to Sequus firm purchase orders for each delivery not later
than three (3) months prior to the requested delivery date.
(b) Schering shall not be permitted to return any Agreement
Product meeting Specifications therefor that Schering has ordered and Sequus has
supplied hereunder, without the prior written consent of Sequus.
(c) Sequus shall not be obligated to supply that quantity of
Agreement Product in any calendar quarter that is more than ** of the last
binding forecast provided by Schering for the calendar quarter in question;
provided, however, that Sequus shall endeavor to take all reasonable steps to
fill binding orders for Agreement Product in excess of such amount.
(d) If any time Sequus experiences a shortage of Agreement
Product supply and the available supplies of Agreement Product are not
sufficient to satisfy all of Schering's
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Requirements for the Agreement Product in the Territory, Sequus shall allocate
its available worldwide supplies (including inventory in excess of customary
supplies) equitably among its own requirements and those of its licensees and
distributors, including Schering, based on the purchasing history of such
entities during the prior six (6) month period.
(e) If at any time Sequus is of the opinion that it may not be
able to meet future binding orders from Schering for Agreement Product ** it
shall notify Schering in writing, and the parties shall in good faith cooperate
and endeavor to make appropriate arrangements for a continuous and adequate
supply of Agreement Product from Sequus to Schering. Consistent with Sequus'
obligations under Section 6.3(c), if Sequus is unable to supply at least ** of
the quantities of Agreement Product ordered by Schering in any two (2)
consecutive quarters, based on Schering's good faith estimates of its future
Requirements, Schering shall be relieved of its obligation to purchase that
portion of its Requirements of Agreement Product from Sequus that Sequus is
unable to supply, for so long as such inability to supply continues. ** In the
event that Sequus is unable to supply Agreement Product as provided in this
Section 6.3(e), Sequus shall be responsible for **. At such time as Sequus
reasonably demonstrates to Schering that it is able to again supply all of
Schering's Requirements, Schering shall be permitted to ** have manufactured on
Sequus' behalf, for such period of time thereafter **, using generally accepted
accounting principles normally used by Schering in keeping its own books and
records. Thereafter, Schering shall ** terminate its supply from
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a third party, **, and subsequently continue the purchase of its Requirements of
Agreement Product from Sequus in accordance with the terms of this Agreement. If
the quantity of Agreement Product that Sequus is unable to supply is so limited
that it would be an excessive financial burden on Schering to ** have
manufactured, such limited quantity, the parties shall meet, after Sequus is
notified by Schering of such circumstance, and in good faith seek to reasonably
resolve the matter.
(f) If Sequus discloses Know-how pursuant to this Agreement
and/or Know-how related to manufacturing of the Agreement Product to Schering **
then, for the term of this Agreement and for three (3) years thereafter,
Schering and its Affiliates shall not **.
(g) **
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derivation of such Know-how, Sequus Confidential Information or technology
provided by Sequus; and (iii) Schering shall establish protective measures
within its organization and the third party manufacturer to protect any
Know-how, Sequus Confidential Information or technology from disclosure.
6.4 Delivery Terms. All Agreement Product shall be sold in bulk vials
and be delivered **.
6.5 Scheduling of Delivery. Sequus shall schedule the timely
manufacturing and shipment of the Agreement Product pursuant to Schering's firm
purchase orders. Should Sequus, at any time during the course of this Agreement,
have reason to believe that it will be unable to meet Schering's requested
delivery dates, Sequus will promptly notify Schering, in writing, stating the
reasons for the delay. Such notification will not be deemed a waiver of Sequus'
obligations set forth in Section 6.3(e).
6.6 **. Within a reasonable time (which shall not exceed ** plus any
delay associated with approval of the site of manufacture by a Regulatory
Authority) after Annual Net Sales attain a level of **, or if a restriction is
imposed upon (a) manufacturing that would prevent Sequus from meeting its supply
obligation hereunder or (b) exporting the Agreement Product out of the country
where it is manufactured, then Sequus shall establish **. Schering, or a
Schering Affiliate, shall be considered in good faith by Sequus as **, provided,
that Schering, or the Schering Affiliate, as the case may be, ** and is able
to reasonably demonstrate ** that it is able to meet all **.
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VII. PRICE AND PAYMENTS
7.1 Price. Subject to adjustment as provided in Section 7.4 below or as
provided in Section 7.2, the price per vial of Agreement Product to be paid by
Schering for the Agreement Product sold by Sequus to Schering in any Fiscal Year
shall be equal to the sum of (i) ** of Annual Net Sales in such Fiscal Year for
Annual Net Sales up to and including ** and (ii) ** of Annual Net Sales in such
Fiscal Year for Annual Net Sales in excess of **, divided by the total numbers
of vials of Agreement Product included in such Annual Net Sales; provided,
however, that upon receipt from the European Commission or applicable Regulatory
Authority of marketing approval for the Agreement Product for the treatment of
**, the percentage of Annual Net Sales used for the foregoing calculation shall
be fixed at **, regardless of the level of Annual Net Sales, for the remainder
of the term of this Agreement. ** In no event shall the payments due under
this Section 7.1 plus payments due under Section 3.11 exceed ** of Annual Net
Sales prior to marketing approval in the EU for the treatment of **.
7.2 Floor Price.
(a) Notwithstanding Section 7.1 above, in the event the price
Schering is to pay Sequus for Agreement Product per twenty (20) milligram-ten
(10) milliliter vial of Agreement
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Product supplied by Sequus to Schering would be less than **, or ** the parties
shall meet to discuss the economic implications for Sequus. In the event the
parties are unable to agree on actions to modify the economic implications for
Sequus, Sequus shall supply the Agreement Product to Schering at the price
specified in Section 7.1 above as long as such price is not below **. The
foregoing price shall be adjusted on an annual basis each January 1st by the
annual percentage change in the Producer's Price Index for Pharmaceutical
Products reported in the month of June of the year immediately preceding the
year in which the adjustment is to be effective.
(b) In the event the price specified in Section 7.1 above
would result in a price below **, Schering shall notify Sequus to that effect.
However, Sequus shall continue to supply Schering at the price specified in
Section 7.1 above as long as such price is not below Sequus' **. In the event
this results in inequitable economics between the parties from what was
originally contemplated, the parties shall discuss reasonable changes to the
economic structure that might restore the original economic distribution. While
such discussions are ongoing and in the event such discussions break down,
Sequus shall continue to supply Agreement Product to Schering at the price
specified in Section 7.1 above as long as such price is not below Sequus' **.
Sequus' ** for Agreement Product shall be determined consistent with Schedule F
attached hereto.
(c) If the price specified in Section 7.1 above would result
in a price to Sequus below its ** the parties shall in good faith endeavor to
reach agreement on a new price that would
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maintain an equitable economic benefit to each party or other remedy as the
parties agree.
(d) All calculations of price per milligram of Compound shall
be determined from the price in Dollars per vial of Agreement Product divided by
the quantity of Compound in milligrams specified on the label of the Agreement
Product.
7.3 Provisional Price. The initial price for the purchase of the
Agreement Product shall be set as soon as practicable, but in no event later
than within thirty (30) days from the Effective Date and by September 30th of
each Fiscal Year commencing in 1997. The intention is that the provisional price
will be a close approximation to the expected final purchase price for the next
Fiscal Year. In the event that the parties cannot so agree, the provisional
price will be ** of the average net selling price on a per vial basis in the
preceding second calendar quarter.
7.4 Reconciliation. At the end of each calendar quarter, Schering shall
make a calculation showing whether an adjusting payment is necessary between the
two parties applying Section 7.1, at a total purchase price of ** of Net Sales
for Net Sales for the Fiscal Year which are less than or equal to **, and ** of
Net Sales, for those Net Sales for the Fiscal Year that exceed **, as
appropriate prior to receipt from the European Commission of marketing approval
for the treatment of ** and ** of Net Sales subsequent to such approval, divided
by the number of vials sold, to calculate the actual supply price(s). This will
be compared with the provisional supply price. A reconciliation statement shall
be supplied by Schering to Sequus by the last working day of the month following
the end of each calendar quarter and the
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difference between the actual supply price and the provisional price multiplied
by the total number of vials sold in the calendar quarter will be paid by
Schering or Sequus to the other (as the case may be) within sixty (60) days
after the end of the calendar quarter in question.
7.5 Samples and Clinical Supplies. Agreement Product to be used by
Schering for registration trials, as set forth in this Agreement, shall be
provided to Schering **. Agreement Product to be used by Schering as samples and
as product for non-registration trials shall be supplied to Schering at a price
of ** per twenty (20) milligram-ten (10) milliliter vial. At such time as Sequus
scales up its manufacturing process for the Agreement Product to a ** batch
size, the foregoing price shall be ** per twenty (20) milligram-ten (10)
milliliter vial, which may be adjusted up or down based on changes to Sequus' **
such that it reflects Sequus' actual **. The foregoing prices shall be adjusted
on an annual basis each January 1st by the annual percentage change in the
Producer's Price Index for Pharmaceutical Products reported in the month of June
of the year immediately preceding the year in which the adjustment is to be
effective. **
7.6 Sales Reports. Within thirty (30) days following the close of each
calendar quarter, Schering shall provide Sequus with a statement for each
country of the Territory showing the total amount of sales of Agreement Product
and the number of vials sold for Agreement Product for the quarter. Upon request
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by Sequus, Schering shall supply the currency exchange rate(s) used in
calculating the payments made hereunder pursuant to Section 7.7(b). Schering
shall also provide Sequus within sixty (60) days after the close of each Fiscal
Half-Year with a statement showing the number of samples distributed in each
country by or on behalf of Schering.
7.7 Method of Payment.
(a) Sequus will invoice Schering in United States Dollars for
each and every shipment of Agreement Product, and payment for all such
quantities so shipped, and any other payments due under this Agreement, shall be
made in United States Dollars by bank transfer within thirty (30) days of
invoice date, in accordance with written instructions (not inconsistent
herewith) that Sequus shall give to Schering.
(b) Payments based on Net Sales of Agreement Product in any
country of the Territory shall be calculated by converting the Net Sales in each
country into United States Dollars at the rates of exchange used by Schering's
United States reporting parent Affiliate to report its sales for public,
financial reporting purposes and multiplying the resultant amount by the
appropriate percentage specified in Section 7.1.
(c) If, due to restrictions or prohibitions imposed by a
national or international authority in a country where Schering has no presence
or has no Affiliate or Designated Subdistributor presence, payments in such a
country of the Territory cannot be made as aforesaid, then the parties shall
consult with a view to finding a prompt and acceptable solution, and Schering
shall, from time-to-time, deal with such monies as Sequus may lawfully
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direct at no additional out-of-pocket expense to Schering. Notwithstanding the
foregoing, if payments accrued on Net Sales in such a country cannot be remitted
to Sequus for any reason within six (6) months after the end of the calendar
quarter during which they are earned, then Schering shall be obligated to
deposit the payments in a bank account in such country in the name of Sequus.
(d) **
7.8 Approval Payment. In addition to any other amounts paid by Schering
to Sequus pursuant to this Agreement, Schering shall pay Sequus within ten (10)
days of Board of Directors Approval, in partial consideration of the
distribution rights granted to Schering pursuant to this Agreement and in
recognition of the marketing authorization approval for the Agreement Product in
the EEA, Five Million Three Hundred Thousand Dollars ($5,300,000), **.
7.9 Event and Criteria Attainment. Schering shall make ** payments upon
the completion of certain events and attaining certain criteria, in the party's
mutual reasonable judgment, and in consideration of Sequus' share of efforts in
that regard, totalling up to Twenty-Seven Million Dollars ($27,000,000), as
follows:
(a) **
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**
(b) A total of up to ** for completion of the events and
meeting the criteria set forth on Schedule E, **
(c) **
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(d) It is contemplated that multiple events and criteria may
be met by single events or occurrences and without regard to a particular order.
Full payment for completion of an event or achievement of a particular criteria
shall be made regardless of the time at which the event is completed or the
criteria achieved. All such payments shall be paid within thirty (30) days of
completion or occurrence of the event or achievement of the criteria in
question.
7.10 Withholding. If at any time during or after the Agreement, any
jurisdiction within the Territory requires that taxes be withheld from any
payment (or portion thereof) of Sequus' compensation under this Agreement,
Schering may deduct such amount from the corresponding payment, or, if
applicable, Sequus will promptly reimburse Schering or its designee(s) such
amounts. Schering shall provide Sequus with documentation of such withholding
and payment in a manner that is satisfactory for purposes of the U.S. Internal
Revenue Service. Any withholdings paid when due hereunder shall be for the
account of Sequus and shall not be included in the calculation of Net Sales.
Sequus shall be liable for any deficiency, and any fine, assessment or
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penalty imposed by any taxing authority in the Territory for any deficiency in
the amount of any such withholding or the failure to make such withholding
payment, unless such fine, assessment or penalty imposed was due to an act or
omission of Schering. If Schering is required to pay any such deficiency, or any
fine, assessment or penalty for any such deficiency for which Sequus is liable
above, Sequus shall promptly reimburse Schering for such payments, which shall
not be included in the calculation of Net Sales.
7.11 Combination Products. Schering shall not distribute market or sell
Agreement Product as part of a combination product, i.e., sold in a package
containing other products, without the prior written approval of Sequus.
VIII. INDEMNITY
8.1 Indemnification by Schering.
(a) Schering shall indemnify, defend and hold harmless Sequus
and its Affiliates, and each of its and their respective employees, officers,
directors and agents (each, a "Sequus Indemnified Party") from and against any
and all liability, loss, damage, cost, and expense (including reasonable
attorneys' fees), subject to the limitations in Section 8.5 (collectively, a
"Liability") which the Sequus Indemnified Party may incur, suffer or be required
to pay resulting from or arising in connection with (i) the breach by Schering
of any covenant, representation or warranty contained in this Agreement, (ii)
any negligent act or omission or willful misconduct of Schering (or any
Affiliate thereof) in the development, promotion, manufacture, marketing or
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sale of the Agreement Product or any other activity conducted by Schering under
this Agreement which is the proximate cause of injury, death or property damage
to a third party, (iii) the activities of Sequus and/or Schering associated with
the continued supply of Agreement Product as provided in Sections 8.8(a) or
8.8(c), (iv) the activities of Schering in the continued use of the Trademarks
as provided in Section 10.4, or (v) the successful enforcement by an Sequus
Indemnified Party of any of the foregoing.
(b) Schering also shall indemnify, defend and hold harmless
each Sequus Indemnified Party from and against any Liability which the Sequus
Indemnified Party may incur, suffer or be required to pay resulting from or
arising in connection with any negligent act or omission or willful misconduct
of Schering (or any Affiliate thereof) in the development, promotion,
manufacture, marketing or sale of the Agreement Product or any other activity
conducted by Schering under this Agreement after the termination of this
Agreement which is the proximate cause of injury, death or property damage to a
third party.
8.2 Indemnification by Sequus.
(a) Sequus shall indemnify, defend and hold harmless Schering
and its Affiliates, and each of its and their respective employees, officers,
directors and agents (each, a "Schering Indemnified Party") from and against any
Liability which the Schering Indemnified Party may incur, suffer or be required
to pay resulting from or arising in connection with (i) the breach by Sequus of
any covenant, representation or warranty contained in this Agreement, (ii) any
negligent act or omission or willful
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misconduct of Sequus (or any Affiliate thereof) in providing the Know-how or in
the development, promotion, manufacture, marketing or sale of the Agreement
Product or any other activity conducted by Sequus under this Agreement which is
the proximate cause of injury, death or property damage to a third party, or
(iii) the successful enforcement by an Schering Indemnified Party of any of the
foregoing.
(b) Sequus also shall indemnify, defend and hold harmless each
Schering Indemnified Party from and against any Liability which the Schering
Indemnified Party may incur, suffer or be required to pay resulting from or
arising in connection with any negligent act or omission or willful misconduct
of Sequus (or any Affiliate thereof) in the development, promotion, manufacture,
marketing or sale of the Agreement Product or any other activity conducted by
Sequus under this Agreement after the termination of the Agreement which is the
proximate cause of injury, death or property damage to a third party.
8.3 Conditions to Indemnification. The obligations of the indemnifying
Party under Sections 8.1 and 8.2 are conditioned upon the delivery of written
notice to the indemnifying party of any potential Liability promptly after the
indemnified party becomes aware of such potential Liability. The indemnifying
party shall have the right to assume the defense of any suit or claim related to
the Liability if it has assumed responsibility for the suit or claim in writing;
however, if in the reasonable judgment of the indemnified party, such suit or
claim involves an issue or matter which could have a materially adverse effect
on the business operations or assets of the indemnified party, the
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indemnified party may waive its rights to indemnity under this Agreement and
control the defense or settlement thereof, but in no event shall any such waiver
be construed as a waiver of any other indemnification rights such party may have
at law or in equity. If the indemnifying party defends the suit or claim, the
indemnified party may participate in (but not control) the defense thereof at
its sole cost and expense.
8.4 Settlements. Neither party may settle a claim or action related to
a Liability without the consent of the other party, if such settlement would
impose any monetary obligation on the other party or require the other party to
submit to an injunction or otherwise limit the other party's rights under this
Agreement. Any payment made by a party to settle any such claim or action shall
be at its own cost and expense.
8.5 Limitation of Liability. With respect to any claim by one party
against the other arising out of the performance or failure of performance of
the other party under this Agreement, the parties expressly agree that the
liability of such party to the other party for such breach shall be limited
under this Agreement or otherwise at law or equity to direct damages only and in
no event shall a party be liable for punitive, exemplary or consequential
damages.
8.6 Insurance. Schering acknowledges that it maintains and shall,
during the term of this Agreement, maintain in full force and effect an
insurance program for liability insurance, including product liability and
contractual liability insurance, adequately covering it's obligations under this
Agreement. Sequus acknowledges that it maintains and shall, during the term
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of this Agreement, maintain in full force and effect insurance coverage to
include products liability and contractual liability in the Territory in amounts
not less that **. Sequus shall provide thirty (30) days' prior written notice to
Schering in the event of cancellation or any material change in such insurance.
Each party shall provide the other party with evidence of such insurance
program, upon request.
8.7 Third Party Intellectual Property. Sequus represents and warrants
that to the best of its knowledge the manufacture, use and sale of the Agreement
Product supplied to Schering under this Agreement ** in the Territory or in any
country where such Agreement Product is manufactured.
8.8 Claimed Infringement
(a) Schering or Sequus, as the case may be, shall promptly
notify the other of any claim by a third party of infringement of such third
party's patent rights resulting from either Schering's or Sequus' undertakings
with respect to the Agreement Product hereunder, upon such claim of infringement
becoming known, directly or indirectly. In the event of any such notice,
Schering and Sequus agree to meet in good faith to determine their respective
courses of action with respect to the third party claim. Notwithstanding that,
Schering shall immediately discontinue any use, import, sale, distribution ** of
any Agreement Product upon notice from Sequus that in Sequus' reasonable
judgment such activity may be an infringement of such third party's patent
rights, and all liability arising out of Schering's use, sale, distribution **
of such Agreement Product after the date of such notice shall be borne by
Schering;
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provided, however, that if Schering desires to have a continued supply of
Agreement Product ** so that Schering may continue to distribute or sell the
Agreement Product, regardless of the fact of the third party claim, Schering
shall so notify Sequus, and Sequus shall continue to supply the Agreement
Product to Schering ** distribute and sell the Agreement Product. **
(b) Sequus shall in good faith negotiate with such third party
to obtain any license that might be required under reasonable commercial terms
and pay reasonable costs associated with the license, or defend such action,
with its own counsel, at its sole discretion, control and expense. Schering
shall render reasonable assistance to Sequus in the defense of any such action
and shall be entitled to be represented by its own counsel at its sole expense.
(c) If Sequus seeks a license from such third party and is
unable to obtain such a license for Sequus and Schering to use, import, export,
sell, offer to sell, market, distribute ** Agreement Product in the
Territory under commercially reasonable terms, then, subject to Schering's right
to obtain a license on its own behalf, with any license terms to be subject to
Sequus' approval, not to be unreasonably withheld, Sequus may terminate this
Agreement upon immediate written notice to Schering; provided, however, that if
Schering desires to have a
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continued supply of Agreement Product regardless of the fact of the third party
claim, Schering shall so notify Sequus and Sequus shall continue to supply the
Agreement Product to Schering. Schering shall, in accordance with Section
8.1(a), indemnify and hold Sequus harmless from any such claim of infringement,
including, without limitation, any claim of willful infringement, because of
such activities of Sequus.
(d) **
8.9 Third Party Infringement. Schering shall, upon Sequus' request,
cooperate with Sequus in any action reasonably necessary or desirable to protect
or defend any of the intellectual property rights applicable to the Agreement
Product or rights granted to Schering hereunder. Schering shall notify Sequus of
any apparent infringement by any third party of any intellectual property rights
applicable to the Agreement Product as soon as practicable after learning
thereof. The cost of any action against a third party infringer shall be borne
by Sequus, and any awards or judgments received by Sequus in any such actions
shall be retained by Sequus for its sole benefit. If Sequus and Schering so
agree, Schering and Sequus may share the cost, equitably divided in relative
proportion to the balance of economic benefits intended by the Parties under
this Agreement, of any action against a third party infringer, and, in such
event, any award shall be applied first toward the recovery of each party's
costs, and any remaining amount of such award shall be shared by the parties in
the same proportion as the costs were shared.
IX. AGREEMENT PRODUCT LABELLING
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9.1 Format. Schering shall be responsible for labelling the Agreement
Product and packaging the Agreement Product, consistent with the provisions
hereof, in such form as is suitable and in compliance with all regulatory
requirements of each country of the Territory. Each Agreement Product marketed
by Schering, and all product labelling (including Package Insert, Physician Data
Sheet and compendia entries in the Territory), together with advertising and
promotional material for each Agreement Product shall have a typical Schering
label design developed by Schering featuring the applicable Trademark, unless
expressly prohibited by the responsible regulatory agency. The product labelling
together with any package and carton used with the Agreement Product shall
comply with all applicable regulatory requirements in the Territory.
9.2 Approval. Where permitted by applicable law and regulations, the
product labelling, package and carton for each Agreement Product ** and be in
accordance with all applicable regulatory requirements. **
9.3 Regulatory Review. Following the launch of the Agreement Product in
the Territory, the health registration holder in each country of the Territory
shall have the obligation, in accordance with all applicable regulatory
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requirements of Regulatory Authorities relating to regulatory review and
updating requirements, to confirm that product labelling, package, carton,
Package Insert and Physicians Data Sheet as entered in the Compendium of
Pharmaceutical Specialties are consistent with the then-current regulatory
requirements. The health registration holder shall take all necessary action to
update any product labelling, package, carton, Package Insert or Physicians Data
Sheet as necessary so that they are consistent with then-current regulatory
requirements.
9.4 Unscheduled Modifications. Notwithstanding Section 9.3 above, if
new clinical data, post-marketing experience, or unsatisfactory compliance with
the product labelling requirements outlined in this Agreement would warrant
unscheduled changes in the product labelling, package and/or carton, the parties
shall meet to discuss the matter giving due and reasonable consideration to the
changes that may be required, and Schering shall endeavor to make such changes
as the parties deem necessary, to the extent such changes are not inconsistent
with what is required by applicable law and the requirements of local Regulatory
Authorities.
9.5 Consistency. All technical and scientific information and
therapeutic claims referred to by Schering in promotional advertisements,
promotional literature, sales aids, training aids and literature and the like
with respect to the Agreement Product shall be consistent with the regulatory
approval and take into consideration the information and claims made by Sequus
with respect thereto.
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9.6 Samples of Printed Material. Schering shall as promptly as
practicable, at Sequus's written request, but no more than semi-annually, supply
to Sequus samples of representative printed materials actually used by Schering
in connection with the promotion and sale of the Agreement Product. Schering
shall be responsible for assuring compliance with all regulatory labelling
requirements in the Territory, and shall indemnify and hold harmless Sequus and
its directors, officers and employees from and against any and all claims,
liabilities, costs, penalties, fines and expenses (including attorneys' fees and
other litigation costs, regardless of outcome) arising out of the failure of
Schering to comply with local law or regulations in connection with the
Agreement Product.
X. TRADEMARKS AND TRADE NAMES
10.1 Trademark. Sequus shall be responsible for filing, prosecuting,
registering, maintaining and protecting the Trademarks in all countries of the
Territory, at is sole cost and expense. In the event that the Trademark cannot
be used pursuant to Section 10.4 or if it is agreed by the parties that a
different trademark is to be used other than or in addition to the Trademark in
any country of the Territory, then the parties shall agree on the trademark and
Sequus shall determine the availability and shall diligently file for and
prosecute said trademark, which shall thereafter be treated as a Trademark for
purposes of this Agreement. If the trademark is already owned by Schering, then
Schering shall assign all its rights, title and interest to said trademark to
Sequus, with Sequus to pay all costs related to the recordal of the assignment.
If the
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trademark is to be purchased from a third party, then Sequus and Schering shall
agree on the allocation for acquiring said trademark.
10.2 Trademark Use. Sequus hereby grants to Schering the exclusive
right to use the Trademarks in connection with Schering's sales of the Agreement
Product in the Territory, but only during the term of this Agreement and only so
long as Schering distributes, markets and sells the Agreement Product in
accordance with the terms of this Agreement; provided, however, that Schering
shall be permitted to use the Trademark following termination of this Agreement
in connection with disposing of inventory of Agreement Product pursuant to
Section 12.9 below. Schering shall only use the Trademarks with the applicable
Agreement Product distributed, marketed or sold by Schering hereunder. Upon the
termination or expiration of this Agreement, Schering's right to use the
Trademarks shall automatically revert to Sequus.
10.3 Trade Names. During the term of this Agreement and unless
prohibited by the responsible regulatory agency, Schering shall not use any
trademark other than the Trademarks (except for the name and logo of Schering or
its Affiliates) and shall use the trade name of Schering or its Affiliates and,
in its discretion, the Sequus trade name, on all Agreement Product and all
product labelling, advertising and promotional material pertaining thereto. **
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All such use of the Sequus trade name in accordance with this Agreement and
applicable law shall inure to the benefit of Sequus.
10.4 Infringement of Third Party Trademark Rights. Schering shall
promptly notify Sequus of any claim of infringement by a third party resulting
from Schering's use of any Trademark or the Sequus trade name hereunder,
promptly upon such claim of infringement becoming known, directly or indirectly,
to Schering. In the event of any such notice, Schering and Sequus agree to meet
in good faith to determine their respective courses of action with respect to
the third party claim. Notwithstanding that, Schering agrees to immediately
discontinue use of any Trademark upon notice from Sequus that such use is or may
be an infringement of such third party's trademark rights, except as provided
below, and all liability arising out of Schering's use of such trademark after
the date of such notice shall be borne by Schering. In the event of any such
third party notice, Schering and Sequus agree to meet in good faith to select a
new Sequus Trademark acceptable to both parties to be used with the Agreement
Product. If Schering desires to continue to sell Agreement Product using the
Trademark in question, Schering shall, in accordance with Section 8.1(a),
indemnify and hold Sequus harmless from any claim of infringement arising from
such continued sale by Schering.
10.5 Third Party Infringement. Schering shall, upon Sequus' request,
and at no out of pocket expense to Schering cooperate with Sequus in any action
reasonably necessary or desirable to protect or defend any Trademark used or
proposed to be used
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hereunder. Schering shall notify Sequus of any apparent infringement by any
third party of any Trademark as soon as practicable after becoming aware
thereof. The cost of any action against a third party infringer shall be borne
by Sequus, and any awards or judgments received by Sequus in any such actions
shall be retained by Sequus for its sole benefit. If Sequus and Schering so
agree, Schering and Sequus may share the cost, equitably divided in relative
proportion to the balance of economic benefits intended by the parties under
this Agreement, of any action against a third party infringer, and, in such
event, any award shall be applied first toward the recovery of each party's
costs, and any remaining amount of such award shall be shared by the parties in
the same proportion as the costs were shared.
10.6 Trademark on Materials. Each Agreement Product and all labelling,
advertising and promotional material shall prominently feature the applicable
Trademark.
10.7 **
10.8 **
XI. CONFIDENTIALITY
11.1 Confidentiality Obligations.
(a) Any Confidential Information of a party disclosed to the
other party relating to the subject matter of this Agreement shall, during the
term of this Agreement and for **
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after the date of expiration or termination of this Agreement, be held in
confidence by the receiving party, used only for the express purposes
contemplated herein and disclosed to its officers and employees on a
need-to-know basis only. A receiving party may also disclose the disclosing
party's Confidential Information to officers and employees of its Affiliates and
to consultants, on a need-to-know basis, provided, that such officers, employees
or consultants, as the case may be, are bound by secrecy and use obligations
with respect to such disclosures at least equivalent to those contained in this
Agreement.
(b) The foregoing confidentiality and use obligations shall
not apply to Confidential Information which the receiving party can reasonably
document:
(i) was already known by the receiving party or
is subsequently obtained by the receiving
party without confidentiality obligation to
the disclosing party or any third party,
(ii) is independently developed by the receiving
party without the aid, application or use of
disclosures of Confidential Information of
disclosing party, (and such independent
development can be properly demonstrated by
the receiving party), or
(iii) is or becomes public knowledge through no
fault of the receiving party, or
(iv) is required by law or rules or regulations
of any governmental agency or authority or
any stock exchange to be
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disclosed, provided, that the receiving
party shall, prior to making any such
disclosure, give the disclosing party
sufficient advance written notice to permit
the disclosing party to seek a protective
order or other similar order with respect to
such information and thereafter shall
disclose only the minimum information
required to be disclosed in order to comply
with such law, rule or regulation, whether
or not a protective order or other similar
order is obtained.
11.2 Return of Confidential Information. Upon termination of this
Agreement, if requested, the receiving party will return all documents, and
copies thereof, containing the disclosing party's Confidential Information at
any time upon request of the disclosing party. However, the receiving party may
retain one copy of such documents in a secure location solely for the purpose of
determining its obligations hereunder, to comply with any applicable regulatory
requirements, or to defend against any product liability claims. In the event
that any of the provisions of this Agreement relating to the disclosure or use
of Confidential Information conflict with any of the provisions of the letter of
intent dated July 8, 1996 and the May 13, 1994 Mutual Confidentiality Agreement
between the parties hereto, the provisions of this Agreement shall take
precedence and govern.
11.3 Press Releases.
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(a) (i) All press releases and (ii) other oral or written public
communications of any sort relating to this Agreement, arising herefrom or the
transactions contemplated hereby (except those covered pursuant to Section
11.3(b) below) and the method of release for publication thereof, will be
subject to the prior written mutual approval of the parties. Copies of any such
press releases or other public communications shall be made available to the
other party.
(b) All oral or written public communications of any sort with regard
to the Agreement Product, unless previously disclosed information or a final
study report, will be subject to the prior written mutual approval of the
parties.
(c) Nothing in the foregoing, however, shall prohibit a party from
making such disclosures to the extent deemed necessary under applicable federal
or state securities laws or any rule or regulation of any nationally recognized
securities exchange; in such event, however, the disclosing party shall use good
faith efforts to consult with the other party prior to such disclosure and,
where applicable, shall request confidential treatment to the extent available.
XII. TERM AND TERMINATION
12.1 Term. Unless sooner terminated as provided for herein, this
Agreement shall remain in full force and effect for a period commencing on the
Effective Date and expiring **.
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12.2 Termination Rights.
**
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12.3 Change of Control of Affiliates and Designated Subdistributors.
Schering's right to designate and cause any Schering Affiliate or
Designated Subdistributor to distribute, market and sell ** the Agreement
Product in a particular country or countries in the Territory, and such Schering
Affiliate's or Designated Subdistributor's rights to so distribute, market, sell
**, shall terminate, at Sequus' option, in the case of a Schering Affiliate in
the event of a sale or other transfer of the controlling interest in such
Affiliate by Schering to a third party; and in the case of a Designated
Subdistributor in the event of a change of ownership or control of such
Designated Subdistributor. The sale or other transfer of a "controlling
interest" or a "change of ownership or control" shall mean a sale or other
transfer of fifty percent (50%) or more of the voting interest in, or a fifty
percent (50%) or more interest in the income or such other sale or other
transfer as, in fact, constitutes the sale or other transfer of actual control.
Sequus' right to terminate this Agreement granted in this Section 12.3 shall
itself terminate one (1) year from the date of such "change of ownership or
control".
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12.4 Change of Control of a Party. In the event of a sale or other
transfer of the controlling interest in either party to a third party or a
change of ownership or control of either party, or in the event of a sale or
other transfer of the controlling interest in, or a change of ownership or
control of, any corporation or other entity having direct or indirect ownership
of either party or a direct or indirect controlling interest in either party,
the successor entity shall assume and be bound by all of the provisions of this
Agreement and shall perform all of the obligations hereunder and have all of the
benefits and rights hereunder. The sale or other transfer of a "controlling
interest" or a "change of ownership or control" shall mean a sale or other
transfer of fifty percent (50%) or more of the voting interest in, or a fifty
percent (50%) or more interest in, the income or such other sale or other
transfer as, in fact constitutes the sale or other transfer of actual control.
12.5 Breach. Either party shall have the right to terminate this
Agreement if the other party commits a material breach of this Agreement and
continues in default for more than ninety (90) days after receiving written
notice of such default from the non-defaulting party, such termination to be
effective only upon failure by the defaulting party to cure such default within
such ninety (90) day period; **
12.6 No Release. Termination of this Agreement shall not operate to
release any party from any obligation or liability
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incurred under the terms of this Agreement prior to or upon termination hereof.
12.7 Bankruptcy. This Agreement may be terminated at the option of
either party upon written notice to the other party, if such other party is
adjudged bankrupt, files or has filed against it any petition under any
bankruptcy, insolvency or similar law, which petition is not dismissed within
sixty (60) days, has a receiver appointed for its business or property, or makes
a general assignment for the benefit of its creditors. Such termination shall be
made effective the date notice of termination is given.
12.8 Failure to Make Payments. Sequus shall also have the right to
terminate this Agreement if, except as provided in Section 8.7 hereof, Schering
fails to make any payment due hereunder within the time provided therefor and
continues in default for more than thirty (30) days after receiving written
notice from Sequus that such payment had not been made within the time provided
therefor, such termination to be effective upon further written notice to
Schering after failure by Schering to cure such default.
12.9 Obligations After Termination.
(a) Upon termination of this Agreement, and notwithstanding
Section 12.9(b) below, Schering will be allowed, for a reasonable period
thereafter (to be agreed upon by both parties in writing, but if no such
agreement is reached, such period shall not be in excess of **, to continue
selling the Agreement Product in order to dispose of Schering's inventory of
Agreement Product. During such period, the Agreement Product
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shall be sold on terms and conditions not materially different than that for
Agreement Product sold in the prior year in each country of the Territory, and
Schering shall not take any action or fail to take any action that would
detrimentally affect continued marketing, sale or distribution of the Agreement
Product by Sequus or on Sequus' behalf by third parties. After the expiration of
such period, Schering may not sell any of such inventory. Prior to the
expiration of such period, or thereafter if Schering and Sequus agree in
writing, Sequus may repurchase all or part of such inventory from Schering. If
Sequus does so repurchase any of such inventory, such repurchase shall be made
at Schering's cost therefor, provided, that such inventory is unused and
suitable for resale.
(b) The provisions of Sections 12.9(b)(i) and 12.9(b)(ii)
shall apply in the event of expiry or termination of this Agreement and on a
country-by-country basis in the event of termination of this Agreement in
respect of any country within the Territory:
(i) Schering shall, at Sequus' request, promptly
deliver or cause its designated third
parties and Affiliates to deliver to Sequus
or its nominee all material scientific or
technical data furnished by Sequus to
Schering pursuant to this Agreement and
relating to the Agreement Product, pursuant
to the terms of Section 11.2, and Schering
shall not thereafter make any use thereof as
long as
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disclosure of same would have been
prohibited under Article XI hereof.
(ii) Schering shall immediately assign or cause
its designated third parties and Affiliates
to assign or otherwise transfer to Sequus or
Sequus' nominee, (x) all rights in and to
any trademarks and registrations thereof,
** (y) all right, title and interest in and
to all Governmental Permits, as and when
required by and subject to the provisions of
Section 4.1(g) and other rights pertaining
to the Agreement Product; and (z) shall
cooperate with Sequus or Sequus' nominee in
procuring the cancellation of any
registration of Schering as a Registered
User of any Trademark insofar as such
trademark relates to the Agreement Product,
and shall immediately cease to use any
trademark transferred to Sequus or its
nominee pursuant to subparagraph (x) of this
Section 12.9(b)(ii) or in respect of which a
registration has been canceled under this
subsection (z), provided, however, that
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Schering shall be permitted to use the
Trademark under the terms and conditions of
Section 12.9(a).
(c) Schering shall thereafter have no further rights with
respect to the Agreement Product, provided, however, in the event that, upon
termination of this Agreement, Schering is not required, pursuant to Section
4.1(g), to assign to Sequus all right, title and interest in and to the
Governmental Permits, Schering shall thereafter be free to assign, license or
grant to third parties rights in or to such Governmental Permits without the
prior written consent of Sequus.
12.10 Conduct of Business in Anticipation of Termination.
Except as Sequus may otherwise consent to in writing, if Schering
anticipates termination of this Agreement in its entirety or on a country basis,
either by formal notice thereof received from Sequus or otherwise, Schering, it
Affiliates and Designated Subdistributors shall distribute, market and sell the
Agreement Product, in accordance with the regular and ordinary manner that
Schering, its Affiliates and Designated Subdistributors had conducted such
activities prior to such anticipation, using their commercially reasonable
efforts to maintain distribution and selling channels and relationships with
customers and others connected to the distribution, marketing or sale of the
Agreement Product, and, without the prior written approval of Sequus, shall not
sell more than one hundred and ten percent (110%) of the prior six (6) months'
sales of Agreement Product on a country-by-country basis.
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XIII. ASSIGNMENT OR DELEGATION
13.1 Assignment. Either party may at its sole discretion and without
approval by the other party:
(a) assign this Agreement or transfer its interest or any part
thereof under this Agreement to any of its Affiliates, or
(b) designate and cause any of its Affiliates to perform all
or part of its obligations hereunder, or to have the
benefit of all or part of its rights hereunder.
In the event of any such assignment, transfer or designation, the
assignee, transferee or designee Affiliate shall assume and be bound by the
provisions of this Agreement and the assignor or transferor shall guarantee the
performance and obligations of the assignee, transferee, or designee Affiliate
under this Agreement.
13.2 Successors and Assigns. This Agreement shall be otherwise
assignable (except to the limited extent provided in Section 13.1 above) only
with the prior consent in writing of the other party hereto. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
successors or assigns of Schering or Sequus, respectively, provided, that any
such successor or assign shall have acquired all or substantially all of the
stock or assets of its predecessor by events including, but not limited to,
reorganization, incorporation, merger, consolidation or purchase.
XIV. GOVERNING LAW AND ARBITRATION
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14.1 Governing Law. This Agreement shall be governed by and interpreted
exclusively in accordance with the laws of the State of California, U.S.A.
(regardless of its, or any other jurisdiction's choice of law principles).
14.2 Arbitration. The Parties recognize that a bona fide dispute as to
certain matters may from time to time arise during the term of this Agreement.
In the event of the occurrence of such a dispute (except for a deadlock in a
matter being considered by the JDT, the resolution of which shall be
accomplished in accordance with the provisions of Section 3.4 hereof) either
party may, by written notice to the other party, have such dispute referred to
their respective officers (designated below) or their successors for attempted
resolution by good faith negotiations within thirty (30) calendar days after
such notice is received. Said designated officers are as follows:
For Schering: **
For Sequus: **
In the event the designated officers are not able to resolve such dispute
through good faith negotiations within such thirty (30) calendar day period,
either party may invoke the provisions of Schedule C, Part II at any time within
thirty (30) calendar days following the end of such thirty (30) calendar day
period.
XV. FORCE MAJEURE
Neither party hereto shall be liable in damages for, nor shall this
Agreement be terminable or cancelable by reason of, any delay or default in such
party's performance hereunder if such default or delay is caused by events
beyond such party's
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<PAGE> 83
reasonable control including, but not limited to, acts of God, regulation or law
or other action of any government or agency thereof, war or insurrection, civil
commotion, destruction or damage of production facilities or materials by
earthquake, fire, flood or storm, labor disturbances, epidemic, or failure of
suppliers, public utilities or common carriers. Each party agrees to employ all
reasonable efforts toward resumption of its performance hereunder if such
performance is delayed or interrupted by reason of force majeure.
XVI. INDEPENDENT CONTRACTOR
Both parties shall act solely as independent contractors, and nothing
in this Agreement shall be construed to create a partnership or joint venture,
nor shall either party have the power or authority to act for, bind or commit
the other party. Accordingly, neither party shall, without the other party's
prior written consent, use the other party's name on its stationery,
advertising, or the like in a manner that might suggest that the other party is
its agent, or make quotations or write letters under the name or on behalf of
the other party.
XVII. ACCOUNTING
17.1 Audit of Schering. Schering agrees to keep accurate records, and
to cause its Affiliates and Designated Subdistributors to keep accurate records
on a country-by-country basis, in at least as much detail as it does for its own
similar products, all of which records shall be retained at a single location of
Schering or an Affiliate thereof, of Net Sales and units of Agreement Product
sold, and such other information as may be necessary to verify the payments due
under Article VII.
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<PAGE> 84
Sequus shall be entitled to have an independent certified public or chartered
accounting firm, designated by Sequus and reasonably acceptable to Schering,
examine Schering's pertinent financial books and records at the single location
or where the underlying records are kept which records cover the three (3) year
period immediately preceding the audit, during regular business hours on at
least ten (10) day prior notice and not later than forty-five (45) days after
such notice is sent to Schering, but not more than once a year, in order to
verify the payments due under this Agreement. The fees and expenses of such
certified public or chartered accounting firm performing such verification shall
be borne by Sequus. Schering shall be entitled to require the auditor conducting
the audit to sign a confidentiality agreement having reasonable and customary
terms of the trade prior to such auditor being given access to Schering's
records. Such accounting firm shall provide a report to Sequus indicating only
whether reports and payments made by Schering to Sequus are, in fact, accurate;
no other information observed or obtained by such accounting firm shall be
disclosed to Sequus except where disclosure of such information is necessary to
support the finding of any discrepancies in the reports and payments made by
Schering.
17.2 Audit of Sequus. Sequus agrees to keep accurate records to
substantiate **, which records shall be retained at a single location of Sequus,
and such other information as may be necessary to verify the **, and to allow an
independent certified public or chartered accounting firm, designated by
Schering and reasonably acceptable to Sequus, to examine its pertinent
79
<PAGE> 85
financial books and records covering the three (3) year period immediately
preceding the audit, during regular business hours at Sequus' place of business
on at least ten (10) day prior notice and not later than forty-five (45) days
after such notice is sent to Sequus, but not more than once a year, in order to
verify the cost calculations pertinent to this Agreement. The fees and expenses
of such certified public or chartered accounting firm performing such
verification shall be borne by Schering. Sequus shall be entitled to require the
auditor conducting the audit to sign a confidentiality agreement having
reasonable and customary terms of the trade prior to such auditor being given
access to Sequus' records. Such accounting firm shall provide a report to
Schering indicating only whether ** are, in fact, accurate; no other information
observed or obtained by such accounting firm shall be disclosed to Schering
except where disclosure of such information is necessary to support the finding
of any discrepancies in **.
XVIII. SAFETY
18.1 Communications. Schering shall regularly inform Sequus of any
information it obtains regarding the safety of the Agreement Product. Further,
without charge to Schering, Sequus shall keep Schering informed as to
information Sequus obtains relating to the safety of the Agreement Product.
18.2 Adverse Events.
(a) Each party will notify the other promptly in the case of
all "Adverse Events" in accordance with the provisions set forth in Schedule G.
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<PAGE> 86
XIX. NOTICES
19.1 Timing and Addresses for Notices.
(a) Any notice, payment, reports, or other correspondence
(hereinafter collectively referred to as "Correspondence") required or permitted
to be given hereunder shall be mailed, postage prepaid, delivered by hand or
sent by express delivery service or certified mail, postage prepaid, or by
facsimile with written certification by mail to the party to whom such
Correspondence is required or permitted to be given hereunder. If mailed, any
such Correspondence shall be sent certified mail, return receipt requested. If
delivered by hand, express delivery service, certified mail or facsimile, any
such correspondence shall be deemed to have been given when received by the
party to whom such correspondence is given, as evidenced by written and dated
receipt of the receiving party. It is understood and agreed that in the event of
a threatened or actual disruption of postal service in the country in which the
party to be notified is located, the party giving notice shall not use the
postal service of such country for the purpose of giving any notice hereunder.
(b) All correspondence to Schering shall be addressed as
follows:
Schering-Plough Ltd.
Toepferstrasse 9
CH-6004 Lucerne
Switzerland
Attention: President
FAX: 41-41-4181626
with a copy to:
Schering Corporation
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<PAGE> 87
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attention: Vice President, Business Development
FAX: (908) 298-5379
and
Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attention: Legal Director, Licensing
FAX: (908) 298-2739
(c) All correspondence to Sequus shall be addressed as
follows:
Sequus Pharmaceuticals, Inc.
960 Hamilton Court
Menlo Park, California 94025
Attention: Scott Minick, President & COO
FAX: (415) 617-3069
With a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301-1900
Attention: Neil Flanzraich
FAX: (415) 324-6038
82
<PAGE> 88
XX. SEVERABILITY AND ENFORCEABILITY
20.1 Separability and Enforcement.
(a) Should any part or provision of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose and economic benefit of such part or provision in a valid and
enforceable manner, and the remainder of this Agreement shall remain binding
upon the parties hereto.
(b) Nothing in this Agreement is intended to nor shall it have
the effect of excluding, modifying or restricting any right or remedy available
under any relevant law which, by virtue of any such law, cannot be excluded,
modified or restricted.
XXI. EXPORT
This Agreement is made subject to any restrictions concerning the
export of products or technical information from the United States of America
which may be imposed upon or related to Sequus or Schering from time to time by
the government of the United States of America. Furthermore, each party agree
that it will not export, directly or indirectly, any technical information or
products using such technical information to any country for which the United
States government or any agency thereof at the time of export requires an export
license or other governmental approval, without first obtaining the written
consent to do so from the Department of Commerce or other agency of the United
States government when required by an applicable statute or regulation. If at
any time there is a restriction on
83
<PAGE> 89
export of Agreement Product that would materially affect Sequus' ability to
supply Schering's Requirements of Agreement Product, the parties shall meet to
discuss the establishment of a second source of supply outside of the United
States.
XXII. REPRESENTATIONS AND WARRANTIES
22.1 Representations and Warranties of Each Party. Each of Schering and
Sequus represents and warrants to the other that:
(a) It is a corporation duly organized and validly existing
under the laws of the state or other jurisdiction of incorporation or formation;
(b) The execution, delivery and performance of this Agreement
by it has been duly authorized by all requisite corporate action, subject only
to receipt of requisite Board of Directors Approval and no payment shall be made
to Sequus prior to receipt of such Board of Directors Approval;
(c) It has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(d) The execution, delivery and performance by it of this
Agreement and its compliance with the terms and provisions hereof does not and
will not conflict with or result in a breach of any of the terms and provisions
of or constitute a default under (i) a loan agreement, guaranty, financing
agreement, agreement affecting a product, including, without limitations, the
Agreement Product, or other agreement or instrument binding or affecting it or
its property; (ii) the provisions of its charter documents or by-laws; or (iii)
any order, writ, injunction or decree of any court or governmental authority
entered against it or by which any of its property is bound;
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<PAGE> 90
(e) Except for the governmental and regulatory approvals
required to market the Agreement Product in the Territory, the execution,
delivery and performance of this Agreement by it does not require the consent,
approval or authorization of, or notice, declaration, filing or registration
with, any governmental or regulatory authority and the execution, delivery or
performance of this Agreement will not violate any law, rule or regulation
applicable to it;
(f) This Agreement has been duly authorized, executed and
delivered and constitutes such party's legal, valid and binding obligation
enforceable against it in accordance with its terms subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to the availability
of particular remedies under general equity principles;
(g) It shall comply with all applicable laws and regulations
relating to its activities under this Agreement; and
(h) There are currently not in effect any such agreements and
after the Effective Date it shall not enter into any oral or written agreement
or arrangement that would be inconsistent with its obligations under this
Agreement.
22.2 Sequus' Representations. Sequus represents and warrants to
Schering that:
(a) It owns or has sufficient rights in and to the Know-how,
the Agreement Product and the Trademarks, free and clear of any liens or
encumbrances, to grant the rights to Schering as contained in this Agreement;
85
<PAGE> 91
(b) As of the Effective Date, the Trademarks are valid and
subsisting and it has not received any notice that the Trademarks infringe the
rights of any third party and that all notices received by Sequus after the
Effective Date shall be communicated to Schering;
(c) During the term of this Agreement it will use diligent
efforts not to diminish the rights under its Know-how and Trademarks granted to
Schering hereunder, including without limitation, by not committing or
permitting any actions or omissions which would cause the breach of any
agreements between itself and third parties which provide for intellectual
property rights applicable to the manufacture, use or sale of Agreement Product.
Sequus agrees to provide Schering promptly with notice of any such alleged
breach. As of the Effective Date, it is in compliance in all material respects
with any such agreements with third parties;
(d) Except as provided for in this Agreement and as set forth
in Schedule H, or as mutually agreed by the parties, there shall be no
distributorship agreements, marketing arrangements or similar agreements within
thirty (30) days of the Effective Date whereby Sequus, an Affiliate, a designee
or a third party is selling Agreement Product in the Territory or whereby Sequus
has authorized third parties to make, sell, distribute or supply the Agreement
Product in the Territory;
(e) **
(f) As of the Effective Date, it is not aware of any existing
third party trademark, trade name or other intellectual property rights **
86
<PAGE> 92
that might be infringed by the import, distribution, marketing, use or
sale of the Agreement Product in the Territory under the Sequus Trademark or
through the use of the Sequus name;
(g) Data summaries provided to Schering by Sequus prior to the
Effective Date relating to the clinical trials of the Product, taken as a whole,
accurately represent the underlying raw data;
(h) Sequus has provided to Schering a summary of all adverse
events known to Sequus as of the Effective Date relating to the Agreement
Product;
(i) **; and
(j) At the time of delivery of the Agreement Product at the
** point of delivery for the Agreement Product it shall (i) have been
manufactured in accordance with cGMPs and applicable governmental requirements
and (ii) meet the specifications as set forth in Schedule A and the applicable
marketing authorization(s).
22.3 Continuing Representations. The representations and warranties of
each party contained in Sections 22.1 and 22.2 shall survive the execution of
this Agreement and shall remain true and correct after the date hereof with the
same effect as if made as of the date hereof.
22.4 Sequus' Undertakings.
(a) In recognition of Sequus' obligations under the **
Agreement, Sequus shall have the right to sell to its third party distributor
under the ** Agreement that quantity of Agreement Product required in Sequus'
reasonable judgment for sale for use
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<PAGE> 93
in the territory encompassed by the ** Agreement; provided, however, that Sequus
shall not sell the Agreement Product to any third party that could reasonably be
expected to resell the Agreement Product outside the territory encompassed by
the ** Agreement.
(b) Sequus shall provide to Schering a sales report on a
quarterly basis showing all sales and all units shipped of Agreement Product by
Sequus pursuant to the ** Agreement and the ** Agreement during the preceding
quarter.
(c) Sequus agrees to use reasonable business efforts to ensure
that Agreement Product sold to ** and ** are only sold in those countries
specified in their respective Agreements ("Sequus Distributor Territory"). In
the event that Schering demonstrates, or Sequus otherwise discovers, sales of
such product in countries outside the Sequus Distributor Territory, then Sequus
agrees to take all reasonable steps to prevent further such sales outside the
Sequus Distributor Territory. In the event that Sequus and/or Schering find
repeated, material sales of Agreement Product sold to ** or ** outside the
Sequus Distributor Territory, then Sequus will use such remedies available under
those Agreements, including but not limited to termination, to halt such sales.
Nothing herein shall cause Sequus to breach any provisions of the ** or **
Agreements.
XXIII. SURVIVAL
23.1 Sections Which Survive. The provisions of Sections 7.4, 7.6, 7.7,
8.1, 8.2, 8.5 and 10.7, Article XI, Section 12.9, Article XIV and Article XXVII
shall survive the termination or
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expiration of this Agreement (as the case may be) and shall remain in full
force and effect.
23.2 Section Which Do Not Survive. The provisions of this Agreement
which do not survive termination or expiration hereof (as the case may be)
shall, nonetheless, be controlling on, and shall be used in construing and
interpreting the rights and obligations of the parties hereto with regard to any
dispute, controversy or claim which may arise under, out of, in connection with,
or relating to this Agreement.
XXIV. CAPTIONS
The captions of this Agreement are solely for the convenience of
reference and shall not affect its interpretation.
XXV. NON-WAIVER
No failure or delay on the part of either party in exercising any right
hereunder will operate as a waiver of, or impair, any such right. No single or
partial exercise of any such right will preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right will be
deemed a waiver of any other right hereunder.
XXVI. FURTHER ACTIONS
Each party agrees to execute, acknowledge and deliver such further
instruments, and to do all such other acts, as may be necessary or appropriate
in order to carry out the purposes and intent of this Agreement.
XXVII. ENTIRE AGREEMENT
This Agreement, including any Schedules and documents delivered
contemporaneously herewith relating to this Agreement, represent the entire
understanding as of the Effective Date
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<PAGE> 95
hereof between the parties with respect to the subject matter hereof, which
subject matter is the supply by Sequus to Schering and the distribution by
Schering of the Agreement Product in the Territory, and **, supersedes all prior
agreements, negotiations, understandings, representations, statements, letters
and writings between the parties relating thereto and the Confidentiality
Agreement between the parties dated May 13, 1994. No modification, alteration,
waiver or change in any of the terms of this Agreement shall be valid or binding
upon the parties hereto unless made in writing and duly executed and delivered
on behalf of each of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized representatives of the parties.
SCHERING-PLOUGH LTD. SEQUUS PHARMACEUTICALS, INC.
By:________________________________ By:___________________________
Title:_____________________________ Title:________________________
Date:______________________________ Date:_________________________
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Schedule A
Page 1 of 2
SCHEDULE A
Agreement Product Release Specification
Test Method Specification
- ---- ------ -------------
**
<PAGE> 97
Schedule A
Page 2 of 2
SCHEDULE A
Agreement Product Shelf-Life Specification
Test Method Specification
- ---- ------ -------------
**
<PAGE> 98
<TABLE>
<CAPTION>
SCHEDULE B
SEQUUS TRADEMARKS
August 26, 1996
================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- --------------------------------------------------------------------------------
CAELYX
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAELYX ** SEQ-326 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-324 5 PENDING PRIOR TO
SN: EXAMINATION
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-309 5 REGISTERED
SN: 164.853
DATE: 6/24/96
- --------------------------------------------------------------------------------
CAELYX ** SEQ-327 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-310 5 PENDING PRIOR TO
SN: 865513 EXAMINATION
DATE: 2/16/96
- --------------------------------------------------------------------------------
CAELYX ** SEQ-328 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-329 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-330 5 PENDING PRIOR TO
SN: 35528 EXAMINATION
DATE: 6/24/96
</TABLE>
-1-
<PAGE> 99
<TABLE>
<CAPTION>
================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAELYX ** SEQ-331 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-332 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-333 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-334 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-335 5 PENDING PRIOR
SN: 113012 TO EXAMINATION
DATE: 7/12/96
- --------------------------------------------------------------------------------
CAELYX ** SEQ-311 5 PENDING PRIOR
SN: VA 01.135 TO EXAMINATION
1996
DATE: 2/19/96
- --------------------------------------------------------------------------------
CAELYX ** SEQ-336 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-337 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-338 5 INSTRUCTED
SN:
DATE:
- --------------------------------------------------------------------------------
CAELYX ** SEQ-339 5 INSTRUCTED
SN:
DATE:
</TABLE>
-2-
<PAGE> 100
<TABLE>
<CAPTION>
==========================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAELYX ** SEQ-340 5 PENDING PRIOR
SN: 01408 TO EXAMINATION
DATE: 7/4/96
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-312 5 PENDING PRIOR
SN: 840/96 TO EXAMINATION
DATE: 2/16/96
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-313 5 PENDING PRIOR
SN: 96611229 TO EXAMINATION
DATE: 2/16/96
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-341 5 INSTRUCTED AS.
SN:
DATE:
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-314 5 PENDING PRIOR
SN: 396 07 719.6 TO EXAMINATION
DATE: 2/20/96
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-315 5 PENDING PRIOR
SN: 128390 TO EXAMINATION
DATE: 2/19/96
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-342 5 INSTRUCTED
SN:
DATE:
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-343 5 INSTRUCTED
SN:
DATE:
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-344 5 PENDING PRIOR
SN: 6816/96 TO EXAMINATION
DATE: 6/5/96
- ------------------------------------------------------------------------------------------
CAELYX ** SEQ-345 5 PENDING PRIOR
SN: M 96 02001 TO EXAMINATION
DATE: 6/21/96
</TABLE>
-3-
<PAGE> 101
<TABLE>
<CAPTION>
===================================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAELYX ** SEQ-346 5 PENDING PRIOR
SN: TO EXAMINATION
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-347 5 PENDING PRIOR
SN: D96-10813 TO EXAMINATION
DATE: 5/28/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-316 5 PENDING PRIOR
SN: 96/1254 TO EXAMINATION
DATE: 2/16/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-317 5 PENDING PRIOR
SN: RM96C00866 TO EXAMINATION
DATE: 2/21/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-349 5 PENDING PRIOR
SN: 1996-18441 TO EXAMINATION
DATE: 5/7/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-350 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-351 5 PENDING PRIOR
SN: M-96-1059 TO EXAMINATION
DATE: 7/3/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-352 5 AWAITING REGISTRATION;
SN: CERTIFICATION WILL NOT
DATE: 7/9/96 ISSUE UNTIL 1999
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-353 5 PENDING
SN: 96-1602
DATE: 7/2/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-354 5 INSTRUCTED AS.
SN:
DATE:
</TABLE>
-4-
<PAGE> 102
<TABLE>
===================================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAELYX ** SEQ-355 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-323 5 PENDING PRIOR
SN: 259789 TO EXAMINATION
DATE: 3/12/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-356 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-357 5 PENDING PRIOR
SN: 963807 TO EXAMINATION
DATE: 6/20/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-358 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-359 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-360 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-361 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-362 5 PENDING PRIOR
SN: Z-161 241 TO EXAMINATION
DATE: 6/21/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-318 5 PUBLISHED 5/31/96;
SN: 315576 2 MO. OPPN. PERIOD
DATE: 2/23/96
</TABLE>
-5-
<PAGE> 103
<TABLE>
====================================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAELYX ** SEQ-363 5 INSTRUCTED AS.
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-364 5 INSTRUCTED AS.
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-365 5 INSTRUCTED
SN:
DATE:
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-366 5 PENDING PRIOR
SN: 4672/96 TO EXAMINATION
DATE: 5/9/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-367 5 PENDING PRIOR
SN: 1685-96 TO EXAMINATION
DATE: 6/25/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-368 5 PENDING PRIOR
SN: Z-9670872 TO EXAMINATION
DATE: 6/26/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-369 5 PENDING PRIOR
SN: 96-08166 TO EXAMINATION
DATE: 6/21/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-319 5 PUBLISHED FOR
SN: 2013442 OPPOSITION 4/16/96;
DATE: 2/20/96 TWO-MONTH PERIOD
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-320 5 PENDING PRIOR
SN: 96-01969 TO EXAMINATION
DATE: 2/20/96
- ----------------------------------------------------------------------------------------------------
CAELYX ** SEQ-370 5 PENDING PRIOR
SN: 4443/96 TO EXAMINATION
DATE: 6/18/96
</TABLE>
-6-
<PAGE> 104
<TABLE>
============================================================================================================
MARK COUNTRY MATTER POWER CLASS COMMENTS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAELYX ** SEQ-322 5 PENDING PRIOR
SN: 85-013617 TO EXAMINATION
DATE: 3/22/96
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-371 5 PENDING PRIOR
SN: 309892 TO EXAMINATION
DATE: 6/12/96
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-372 5 INSTRUCTED
SN:
DATE:
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-373 5 INSTRUCTED AS.
SN:
DATE:
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-321 5 BEING EXAMINED
SN: 2057571
DATE: 2/16/96
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-374 5 PUBLISHED;
SN: 287.280 NO OPPOSITIONS
DATE: 6/20/96 ENCOUNTERED
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-375 5 INSTRUCTED
SN:
DATE:
- ------------------------------------------------------------------------------------------------------------
CAELYX ** SEQ-376 5 PENDING PRIOR
SN: NH0253/96 TO EXAMINATION
DATE: 7/15/96
- ------------------------------------------------------------------------------------------------------------
CAELYX ** LIPOS-022 5 EXTENSION OF TIME TO FILE
SN: 709.546 DECLARATION OF USE REQUESTED;
DATE: 7/22/92 NEW DEADLINE 1/22/97
=============================================================================================================
</TABLE>
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<PAGE> 105
SCHEDULE C
Dispute Resolution Procedures
I. Procedures for resolving disputes of the JDT:
a. Within ten (10) business days after the receipt of the notice
provided for in Section 3.4 of this Agreement, each party shall
appoint an independent expert, knowledgeable in the field concerning
the disputed matter (e.g., an expert in the field of developing
pharmaceutical products for oncology indications), to serve on the
special arbitration panel. The two independent experts so appointed
by the parties, shall, within ten (10) business days thereafter,
appoint a neutral third independent expert, knowledgeable in the
field concerning the disputed matter. Such neutral third independent
expert shall serve as the chairperson of the special arbitration
panel. Each of the members of the special arbitration panel shall be
required to sign a secrecy agreement with respect to any information
provided by either party during the special arbitration procedure.
b. Within five (5) business days after the chairperson of the special
arbitration panel is appointed, each party shall submit, to each
member of the special arbitration panel and to the other party, a
written statement setting forth the relevant facts with respect to
the disputed matter and arguments supporting such party's position
with respect to the resolution of the disputed matter.
c. Within five (5) business days after such written statements are
provided to the special arbitration panel, the panel and appropriate
representatives of each party shall meet so that the parties can
present oral arguments to the arbitration panel and the arbitration
panel can have the opportunity to ask questions of the parties. The
location of such meeting shall be at Schering's facility in
Kenilworth, New Jersey if Sequus requests the special arbitration and
at Sequus' facility in Menlo Park, California if Schering requests
the special arbitration. Each party shall have two (2) hours to
present its arguments to the special arbitration panel and thirty
(30) additional minutes to rebut the arguments made by the other
party. The party requesting the special arbitration shall be the
first to present its oral argument to the special arbitration panel.
d. Within five (5) business days after such meeting, the special
arbitration panel shall render a decision on the disputed matter,
which decision shall be reduced to writing by the chairperson of the
special arbitration panel and signed by each member of the special
arbitration panel. The chairperson of the special arbitration panel
shall be responsible for immediately providing a copy of the written
-1-
<PAGE> 106
decision to each party. The decision of the special
arbitration panel shall be binding upon the parties.
e. Nothing contained herein shall be construed to permit the
arbitration panel or any court or any other forum to award punitive,
exemplary or any other damages. By entering into this Agreement to
arbitrate, the parties expressly waive any claim for punitive,
exemplary or any other damages with respect to the resolution of a
deadlock by the JDT.
f. Each party shall be responsible for its own costs incurred in such
arbitration procedures and the cost of the special arbitration panel
shall be shared equally by the parties.
II. Procedures for resolving disputes other than disputes of
the JDT:
a. Except as otherwise set forth herein, any dispute, controversy or
claim arising out of or relating to the validity, construction,
enforceability or performance of this Agreement including disputes
relating to an alleged breach or termination of this Agreement shall
be settled by binding Alternative Dispute Resolution ("ADR") in the
manner set forth below; provided, however, that the neutral referred
to below shall give effect to the provisions of this Agreement and
shall not adjust, modify or change the effects of termination as set
forth in Article 11:
b. If a party intends to begin an ADR to resolve a dispute, such
party shall provide written notice (the "ADR Request") by certified
or registered mail or properly documented overnight delivery to the
other party informing such other party of such intention and the
issues to be resolved. The notice shall explain the nature of the
complaint and refer to the relevant sections of the Agreement upon
which the complaint is based. The complaining party shall also set
forth a proposed solution to the problem, including a suggested time
frame within which the parties must act.
c. The non-complaining party must respond in writing within
forty-five (45) calendar days of receiving notice with an
explanation, including references to the relevant provisions of the
Agreement and a response to the proposed solution and suggested time
frame for action. The non-complaining party may add additional
issues to resolved.
d. Within fifteen (15) business days of receipt of the response from
the non-complaining party, the parties shall meet and discuss options
for resolving the dispute. Each party shall make available all
appropriate personnel to meet and confer with the other party within
the fifteen
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<PAGE> 107
(15) business day period following the complaining party's receipt of
the response by the non-complaining party.
e. Any and all disputes that cannot be resolved pursuant to
Paragraphs b, c and d above shall be submitted to a neutral who shall
be selected by mutual agreement of the parties. If the parties are
unable to agree upon a neutral, then the neutral shall be selected in
accordance with the procedures of the American Arbitration
Association. The neutral shall be an individual who shall preside
over and resolve any disputes between the parties. The neutral
selected shall be a former judge of a state or federal court and
shall not be an employee, director or shareholder of, or otherwise
have any current or previous relationship with, either party or its
respective Affiliates. The ADR shall be conducted in accordance with
the commercial arbitration rules of the American Arbitration
Association Association then in effect, subject to the time periods
and other provisions of this Schedule C, Part II or as otherwise set
forth in this Agreement.
f. Consistent with the time schedule established pursuant to
Paragraphs g and h above the neutral shall hold a hearing to resolve
each of the issues identified by the parties and shall render a
decision as expeditiously as possible but in no event more than
thirty (30) calendar days after the close of hearings. In rendering
the decision the neutral shall rule on each disputed issue and shall
adopt in whole or in part the proposed ruling of one of the parties
on each disputed issue.
g. During the meeting referred to in Paragraph d above, the parties
shall negotiate in good faith the scope and schedule of discovery,
relating to depositions, document production and other discovery
devices, taking into account the nature of the dispute submitted for
resolution. If the parties are unable to reach agreement as to the
scope and schedule of discovery, the neutral may order such discovery
as the neutral deems necessary. To the extent practicable taking into
account the nature of the dispute submitted for resolution, such
discovery shall be completed within sixty (60) calendar days from the
date of the selection of the neutral. At the hearing, which shall
commence within twenty (20) business days after completion of
discovery unless the neutral otherwise orders, the parties may
present testimony (either live witness or deposition), subject to
cross-examination, and documentary evidence. To the extent
practicable taking into account the nature of the dispute submitted
for resolution and the availability of the neutral, the hearing shall
be conducted over a period not to exceed thirty (30) consecutive
business days, with each party entitled to approximately half of the
allotted time unless otherwise ordered by the neutral. The hearing
shall be held in or near Kenilworth, New Jersey if Sequus is the
complaining party and in or near Menlo Park,
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<PAGE> 108
California if Schering is the complaining party or at such other
place as may be agreed upon by the parties. The neutral shall have
sole discretion with regard to the admissibility of any evidence and
all other matters relating to the conduct of the hearing. The neutral
shall, in rendering its decision, apply the substantive laws of the
State of California (regardless of its or any other jurisdiction's
choice of law principles). The decision of the neutral shall be final
and not appealable, except in the case of fraud or bad faith on the
part of the neutral or any party to the ADR proceeding in connection
with the conduct of such proceedings.
h. At least ten (10) business days prior to the date set for the
hearing, each party shall submit to each other party and the neutral
a list of all documents on which such party intends to rely in any
oral or written presentation to the neutral and a list of all
witnesses, if any, such party intends to call at such hearing and a
brief summary of each witness' testimony. At least five (5) business
days prior to the hearing, each party must submit to the neutral and
serve on each other party a proposed findings of fact and conclusions
of law on each issue to be resolved. Following the close of hearings,
the parties shall each submit such post-hearing briefs to the neutral
addressing the evidence and issues to be resolved as may be required
or permitted by the neutral.
i. Except as otherwise set forth herein, the neutral shall determine
the proportion in which the parties shall pay the costs and fees of
the ADR, and each party shall pay its own costs (including, without
limitation, reasonable attorneys' fees) and expenses in connection
with such ADR; provided, however, that if the neutral determines that
the action of any party was arbitrary, frivolous or in bad faith, the
neutral may award such costs and expenses to the prevailing party.
j. The ADR proceeding shall be confidential and, except as required
by law, neither party shall make (or instruct the neutral to make)
any public announcement with respect to the proceedings or decision
of the neutral without the prior written consent of the other party.
The existence of any dispute submitted by ADR, and the award of the
neutral, shall be kept in confidence by the parties and the neutral,
except as required in connection with the enforcement of such award
or as otherwise required by applicable law.
k. For the purposes of this Schedule C, the parties acknowledge their
diversity and agree to accept the jurisdiction of the Federal
District Court in the States of California and New Jersey for the
purposes of enforcing awards entered pursuant to this Schedule C,
Part II and for enforcing the agreements reflected in this Schedule
C, Part II.
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<PAGE> 109
l. Nothing contained herein shall be construed to permit the neutral
or any court or any other forum to award punitive, exemplary or any
similar damages. By entering into this Agreement to arbitrate, the
parties expressly waive any claim for punitive, exemplary or any
similar damages. The only damages recoverable under this Agreement
are compensatory damages.
m. The procedures specified in this Schedule C, Part II shall be the
sole and exclusive procedures for the resolution of disputes between
the parties which are expressly identified for resolution in
accordance with this Schedule C, Part II.
-5-
<PAGE> 110
SCHEDULE D
**
<PAGE> 111
SCHEDULE E
EVENTS AND CRITERIA
Payment Amount Responsibility Est. Date
- ------- ------ -------------- ---------
**
<PAGE> 112
SCHEDULE F
**
<PAGE> 113
SCHEDULE G
ADVERSE EVENT REPORTING PROCEDURES
The parties hereby agree that the following terms will govern
disclosures of each party to the other with respect to adverse event reporting
relating to the Agreement Product as clinically tested or marketed by or on
behalf of either party.
1. An Adverse Event ("AE") is defined as:
a) any experience which is adverse, including what are commonly
described as adverse or undesirable experiences, adverse events, adverse
reactions, side effects, or death due to any cause associated with, or observed
in conjunction with the use of a drug, biological product, or device in humans,
whether or not considered related to the use of that product:
- occurring in the course of the use of a drug,
biological product or device,
- associated with, or observed in conjunction with
product overdose, whether accidental or intentional,
- associated with, or observed in conjunction with
product abuse, and/or
- associated with, or observed in conjunction with
product withdrawal.
b) Any significant failure of expected
pharmacological or biologic therapeutical action (with the
exception of in clinical trials).
2. Serious or Non-Serious is defined as:
a) A Serious AE is one that is life threatening or fatal,
permanently disabling, requires or prolongs in-patient hospitalization or
prolonged hospitalization, or is a congenital anomaly, cancer or overdose. In
addition, end organ toxicity, including hematological, renal, hepatic, and
central nervous system AEs, may be considered serious. In laboratory tests in
animals, a serious AE includes any experience suggesting significant risk for
human subjects.
b) A Non-Serious AE is any AE which does not meet the
criteria for a serious AE.
3. Life-threatening is defined as: the patient is at
immediate risk of death from the AE as it occurs.
-1-
<PAGE> 114
4. End-Organ Toxicity is defined as: A medically
significant event or lab value change in which a patient may not
necessarily be hospitalized or disabled, but is clinically
significant enough to warrant monitoring (e.g. seizures, blood
dyscrasias).
5. Expected or unexpected is defined as:
a) Expected AE - An AE which is listed in the Investigator's
Brochure for clinical trials, included in local labelling (e.g., Summary of
Agreement Product Characteristics) for Marketed Drugs, or in countries with no
local labelling, in the Corporate Standard Prescribing Document.
b) Unexpected AE - An AE that does not meet the criteria for
an expected AE or an AE which is listed but differs from that event in terms of
severity or specificity.
6. Associated with or related to the use of the drug is
defined as: A reasonable possibility exists that the AE was caused
by the drug.
7. Un-associated or unrelated to the use of the drug is
defined as: A reasonable possibility exists that the AE may not
have been caused by the drug.
8. NDA Holder is defined as: An "Applicant" as defined in 21 CFR
Part 314.3(b), for regulatory approval of an Agreement Product in any regulatory
jurisdiction, including a holder of a foreign equivalent thereto.
9. IND Holder is defined as: A "Sponsor" as defined in 21 CFR
Part 312.3(b) of an investigational new drug in any regulatory
jurisdiction, including a holder of a foreign equivalent thereto.
10. Capitalized terms not defined in this Exhibit shall have
the meaning assigned thereto in the Distribution Agreement (the
"Agreement").
11. With respect to the Agreement Product, the parties agree
as follows:
All initial reports and any follow-up information (oral or
written) for any and all Serious AEs as defined above, (other
than with respect to animal studies)which become known to
either party (other than from disclosure by or on behalf of
the other party) must be communicated by telephone, telefax or
electronically directly to the other party and/or the NDA
Holder, IND Holder (individually and collectively referred to
as "Holders") within forty eight hours of receipt of the
information. Written confirmation
-2-
<PAGE> 115
of the Serious AE received by such party should be sent to the
other party and/or the Holders as soon as it becomes
available, but in any event within forty eight hours hours of
initial report of the Serious AE by such party.
Both parties shall exchange Medwatch and/or CIOMS forms and
other health authority reports within forty eight hours of
submission to any regulatory agency.
All initial reports and follow-up information received for all
Non-Serious AEs for marketed Agreement Product which become
known to a party (other than from disclosure by or on behalf
of the other party) must be communicated in writing, by
telefax or electronically to the other party on a monthly
basis, on Medwatch or CIOMs forms (where possible).
Each party shall coordinate and cooperate with the other
whenever practicable to prepare a single written report
regarding all Serious and/or Non-Serious AEs, provided,
however, that neither party shall be obligated to delay
reporting of any AE in violation of applicable law or
regulations regarding the reporting of adverse events.
12. The parties further agree that:
a) a written report be forwarded to the other party within
forty eight hours of receipt by the party making the report, for AEs
for animal studies which suggest a potential significant risk for
humans;
b) each party will give the other party a print-out or
computer disk of all AEs reported to it and its Affiliates relating to the
Agreement Product within the last year, within 30 days of receipt of a request
from the other party but not more often than four times a year;
c) if either party wishes access to AE Reports of the other
party relating to the Agreement Product, upon request of that party, the other
party shall make available its AE records relating to the Agreement Product
(including computer disks) for viewing and copying by the other party. The
parties may discuss the transfer of AE Reports by computer disk.
d) disclosure of information hereunder by a party to the other
party shall continue as long as either party and/or its Affiliates or designeees
continue to clinically test or market Agreement Product.
e) all written regulatory reports, including periodic NDA,
annual IND, safety updates, or foreign equivalents thereto, etc.
-3-
<PAGE> 116
shall be sent by a party to the other party within forty eight hours forty of
submission to the appropriate regulatory agency. The parties shall agree on a
procedure for preparing these reports.
13. Each party shall diligently undertake the following further
obligations where both parties are or will be commercializing the Agreement
Product pursuant to the Agreement and/or performing clinical trials with respect
to the Agreement Product:
a) upon the Effective Date, each party shall identify individuals
who shall be responsible for identifying all AE reporting requirements in all
countries of the Territory as set forth in the Agreement, and any amendments
thereto;
b) to immediately consult with the other party, with respect to the
investigation and handling of any Serious AE disclosed to it by the other party
or by a third party and to allow the other party to review the Serious AE and to
participate in the follow-up investigation;
c) to immediately advise the other party of any Agreement Product
safety communication received from a health authority and consult with the other
party with respect to any Agreement Product warning, labelling change or change
to an investigators' brochure involving safety issues proposed by the other
party, including, but not limited to the safety issues agreed to by the parties;
d) to diligently handle in a timely manner the follow-up
investigation and resolution of each AE reported to it;
e) to provide the other party mutually agreed upon audit rights of
its AE reporting system and documentation, upon prior notice, during normal
business hours, at the expense of the auditing party and under customary
confidentiality obligations;
f) to meet in a timely fashion from time to time as may be
reasonably required to implement the adverse event reporting and consultation
procedures described in this Exhibit D, including identification of those
individuals in each party's Drug Safety group who will be responsible for
reporting to and receiving AE information from the other party, and the
development of a written standard operating procedure with respect to adverse
event reporting responsibilities, including reporting responsibilities to
investigators;
g) where possible, to transmit all data electronically;
h) to report to each other any addenda, revisions or changes to the
Agreement (e.g., change in territories, local regulations, addition of new
licensors/licensees to the Agreement,
-4-
<PAGE> 117
etc.) which might alter the adverse event reporting responsibilities
hereunder;
i) to utilize English as the language of communication and data
exchange between the parties;
j) to develop a system of exchange of documents and information in
the event that the Agreement involves more than two parties;
k) to work together to develop an electronic system to transmit
Adverse Event data.
14. The parties may meet after the Effective Date of the Agreement to
establish a separate agreement for adverse event exchange which will supersede
this Schedule G.
-5-
<PAGE> 118
SCHEDULE H
Distributorship agreements, marketing arrangements or similar agreements or
similar agreements whereby Sequus, an Affiliate, a designee or a third party is
selling Agreement Product in the Territory or whereby Sequus has authorized
third parties to make, sell, distribute or supply the Agreement Product in the
Territory.
Distributorship Agreement with ** and **
Agency Agreement with **
<PAGE> 119
SCHEDULE I
**
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<PERIOD-END> SEP-30-1996
<CASH> 25,423
<SECURITIES> 10,385
<RECEIVABLES> 7,791
<ALLOWANCES> 0
<INVENTORY> 3,616
<CURRENT-ASSETS> 48,928
<PP&E> 4,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,421
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0
0
<COMMON> 3
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<TOTAL-LIABILITY-AND-EQUITY> 53,421
<SALES> 6,225
<TOTAL-REVENUES> 11,556
<CGS> 1,048
<TOTAL-COSTS> 12,607
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
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