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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21088
VICAL INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 93-0948554
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9373 Towne Centre Dr., Suite 100, San Diego, California 92121
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(Address of principal executive offices) (Zip code)
(619) 453-9900
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
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Common Stock, $.01 par value 15,460,802
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VICAL INCORPORATED
FORM 10-Q/A
TABLE OF CONTENTS
PAGE NO.
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COVER PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .3
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
EXHIBIT 10.18 # Agreement between Merck & Co. Inc. and the Company dated
September 12, 1997.
# Confidential treatment has been requested with respect to certain
portions of this agreement.
EXHIBIT 27 Financial Data Schedule
2. Reports on Form 8-K
None
3
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VICAL INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Vical Incorporated
Date: January 30, 1998 By: s/Martha J. Demski
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Martha J. Demski
Vice President and
Chief Financial Officer
(on behalf of the registrant and
as the registrant's Principal
Financial and Accounting
Officer)
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EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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1. EXHIBIT 10.18 # Agreement between Merck & Co. Inc. and the
Company dated September 12, 1997
EXHIBIT 27
Financial Data Schedule
# Confidential treatment has been requested with respect to certain portions of
this agreement.
5
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EXHIBIT 10.18
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
OPTION AND LICENSE AGREEMENT
THIS AGREEMENT is effective as of the 12th day of September, 1997 by and
between Vical Incorporated, a corporation organized and existing under the laws
of the State of Delaware, and having its principal offices at 9373 Towne Centre
Drive, San Diego, California 92121 ("VICAL"), and Merck & Co., Inc., a
corporation organized and existing under the laws of the State of New Jersey,
and having its principal offices at One Merck Drive, P.O. Box 100, Whitehouse
Station, New Jersey 08889-0100 ("MERCK").
WHEREAS, VICAL possesses methods for the administration of plasmid DNA to
humans, which DNA expresses physiologically active proteins for human
therapeutic applications as disclosed in the VICAL PATENT RIGHTS (the
"TECHNOLOGY"); and
WHEREAS, MERCK wishes to obtain rights to use the TECHNOLOGY for
pharmaceutical products with mechanisms of action mediated by ( )
and/or ( ); and
WHEREAS, MERCK anticipates that, in the absence of safety and/or efficacy
concerns related to such products, it will dedicate resources (internal or
external) ( ) for research and/or development of such
products during the first four years of this Agreement; and
WHEREAS, VICAL is willing to grant Merck rights to use the TECHNOLOGY for
such products upon the terms and conditions set forth herein;
NOW, THEREFORE, VICAL and MERCK agree as follows:
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ARTICLE I - DEFINITIONS
1.1 AFFILIATE of VICAL or MERCK means (i) any corporation or business entity
of which fifty percent (50%) or more of the securities or other ownership
interests representing the equity, the voting stock or general
partnership interest are owned, controlled or held, directly or
indirectly, by VICAL or MERCK; (ii) any corporation or business entity
which, directly or indirectly, owns, controls or holds fifty percent
(50%) (or the maximum ownership interest permitted by law) or more of the
securities or other ownership interests representing the equity, the
voting stock or, if applicable, the general partnership interest of VICAL
or MERCK.
1.2 CALENDAR QUARTER means the respective periods of three (3) consecutive
calendar months ending on March 31, June 30, September 30 and December
31.
1.3 COMBINATION PRODUCT means LICENSED PRODUCT in combination with one or
more biologically active components other than COMPOUND.
1.4 COMPOUND means ( ) and/or, in the event MERCK exercises
the OPTION set forth in Article 2, ( ) ,in each case which
is delivered using a method that is claimed by the VICAL PATENT RIGHTS.
It is understood that ( ) in combination with (
) shall be considered a COMPOUND.
1.5 CONTRACT YEAR means the one (1) year period beginning with the Effective
Date of this Agreement and any subsequent one (1) year periods that this
Agreement is in effect.
1.6 EFFECTIVE DATE means the date as of which both MERCK and VICAL have
executed this Agreement.
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1.7 (
)
1.8 FIRST COMMERCIAL SALE means, with respect to any LICENSED PRODUCT, the
first sale for end use or consumption of such LICENSED PRODUCT in a
country after all required approvals, including marketing and pricing
approvals (if any), have been granted by the governing health authority
of such country.
1.9 LICENSED PRODUCT means preparations in final form for sale by
prescription, over the counter or any other method for all uses, in
humans which contain COMPOUND, including, without limitation, any
COMBINATION PRODUCT.
1.10 (a) NET SALES means the gross invoice price of LICENSED PRODUCT sold
by MERCK, its AFFILIATES or sublicensees (which term does not
include DISTRIBUTORS) to the first independent third parties
less:
1. the actual cost to MERCK of the devices for dispensing or
administering the LICENSED PRODUCT as well as diluents or
similar material which accompany the LICENSED PRODUCT as it
is sold;
2. trade and quantity discounts actually allowed;
3. returns, rebates and allowances;
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4. retroactive price reductions;
5. with regard to sales in the United States, five percent (5%)
of the amount invoiced to cover cash discounts, bad debt,
sales or excise taxes, transportation and insurance charges;
and with regard to, sales outside the United States ten
percent (10%) to include the above and additional special
packaging, duties, governmental charges.
(b) With respect to sales of COMBINATION PRODUCT, NET SALES shall be
calculated on the basis of the NET SALES price of the same dose
of LICENSED PRODUCT being sold without other active ingredients
if such exists, and if LICENSED PRODUCT is not sold without other
active ingredients, NET SALES shall be calculated on the basis of
the invoice price of the COMBINATION PRODUCT multiplied by a
fraction, the numerator of which shall be the inventory cost of
LICENSED PRODUCT in the COMBINATION PRODUCT and the denominator
of which shall be the inventory cost (using the same method of
accounting) of all of the active ingredients in the COMBINATION
PRODUCT. Inventory cost shall be determined in accordance with
MERCK's regular accounting methods. In no event shall the
fraction be less than one over the number of active ingredients
in the COMBINATION PRODUCT.
1.11 OPTION means the option to obtain rights under VICAL PATENT RIGHTS with
respect to ( ) as set forth in Article 2.1.
1.12 OPTION PERIOD means the period of twelve (12) months from the EFFECTIVE
DATE or as extended pursuant to Article 2.2.
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1.13 TERRITORY means all countries of the world.
1.14 VALID PATENT RIGHTS means issued and unexpired VICAL PATENT RIGHTS which
have not been revoked or held unenforceable or invalid by a court or
other governmental agency of competent jurisdiction, unappealed or
unappealable within the time allowed for appeal, and which has not been
disclaimed, denied or admitted to be invalid or unenforceable through
reissue or disclaimer or otherwise.
1.15 (
)
1.16 VICAL KNOW-HOW means any information and data regarding the TECHNOLOGY
that is not generally known, including but not limited to, discoveries,
improvements, processes, formulas, inventions, trade secrets, patentable
or otherwise, which are necessary or useful for MERCK in order to
manufacture, use, develop, sell or seek approval to market LICENSED
PRODUCT, in which VICAL has an ownership or licensable interest and which
is in the possession of VICAL on the EFFECTIVE DATE of this Agreement.
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1.17 VICAL PATENT RIGHTS means all patents and patent applications listed in
Schedule A and any divisions, continuations, continuations in part,
reissues, renewals, extensions, utility models, protection certificates
or the like of any such patents and patent applications and foreign
equivalents thereof.
ARTICLE 2 - OPTION
2.1 Subject to the provisions of Articles 3.4 and 3.5 below, VICAL grants to
MERCK an irrevocable OPTION during the OPTION PERIOD to obtain an
exclusive license from VICAL in the TERRITORY, under VICAL PATENT RIGHTS
and VICAL KNOW-HOW, to develop, make, have made, use, sell, offer to sell
and import, LICENSED PRODUCTS containing COMPOUNDS which are (
). In consideration of the past research by VICAL regarding the
TECHNOLOGY, MERCK will pay VICAL ( ) within thirty (30)
days of the EFFECTIVE DATE.
2.2 MERCK may extend the OPTION PERIOD for an additional six (6) month period
by written notice to VICAL given prior to the expiration of twelve (12)
months from the EFFECTIVE DATE. Within thirty (30) days after such
notice, MERCK shall pay VICAL ( ) in
further consideration of past research by VICAL regarding the TECHNOLOGY.
2.3 The OPTION shall be exercisable by MERCK at any time during the OPTION
PERIOD upon written notice to VICAL that MERCK has fulfilled the
condition set forth in Article 2.4. In the event MERCK timely exercises
the OPTION as set forth herein, the definition of COMPOUND shall
include ( ) and all of the terms and conditions of this
Agreement shall apply to LICENSED PRODUCTS which contain COMPOUNDS which
are ( ). Within thirty (30) days after exercise of the
OPTION,
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MERCK shall pay VICAL the amount of ( ) in further
consideration for past research by VICAL regarding the TECHNOLOGY.
2.4 Exercise by MERCK of the OPTION is subject to MERCK establishing
that (
).
ARTICLE 3 - LICENSE GRANT
3.1 Subject to the provisions of Article 2 hereof and Articles 3.4 and 3.5
below, VICAL grants to MERCK an exclusive license under VICAL PATENT
RIGHTS and VICAL KNOW-HOW to develop, make, have made, use, sell, offer
to sell and import LICENSED PRODUCTS in the TERRITORY with the right to
grant sublicenses.
3.2 To the extent that MERCK grants sublicenses under VICAL PATENT RIGHTS to
third parties who are not AFFILIATES or distributors of MERCK, MERCK
shall pay to VICAL all compensation, if any, received from such third
parties as consideration for such sublicense(s).
3.3 In accordance with the letter from MERCK to the Wisconsin Alumni Research
Foundation ("WARF") dated August 29, 1997, a copy of which is attached
hereto as Schedule B the exclusive licenses granted under Article 3.1
hereof with respect to certain of the VICAL PATENT RIGHTS shall extend
beyond and survive the termination of the License Agreement ("WARF
License Agreement") dated and effective as of January 1, 1991 between
VICAL and WARF in the event such termination occurs prior to the
termination of this Agreement.
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3.4 The parties agree that VICAL may request MERCK to provide a fully paid-up
exclusive license in the TERRITORY to VICAL under VICAL PATENT RIGHTS and
VICAL KNOW-HOW to develop, make, have made, use, sell, offer to sell and
import LICENSED PRODUCTS for the treatment of diseases (
)
3.5 Not more than once in each twelve month period beginning after the (1)
year anniversary of the effective date of this Agreement, VICAL may
request MERCK to provide the license set forth in Article 3.4 for
COMPOUNDS and LICENSED PRODUCT(S) for the treatment and prevention of no
more than one disease. MERCK shall have ninety (90) days to consider
VICAL's request. At the end of such period, MERCK shall, in its sole
discretion, either (a) grant a fully paid-up, exclusive license in the
Territory to VICAL for LICENSED PRODUCT(S) for the applicable disease
or (b) advise VICAL that it will not grant the license to VICAL. In the
event of b, MERCK will (i) use reasonable efforts to develop LICENSED
PRODUCT(S) for such disease pursuant to Article 10 and (ii) make the
royalty and milestone payments, if applicable, pursuant to Article 6 for
LICENSED PRODUCT for such disease.
ARTICLE 4 - PATENT PROTECTION AND VALIDITY
4.1 VICAL represents and warrants to MERCK that as of the Effective Date of
this Agreement it (i) has the rights to grant the licenses granted under
Article 3.1 and the OPTION granted under Article 2 hereof, (ii) it has
not previously assigned, transferred, conveyed or otherwise encumbered
its right, title and interest in VICAL PATENT RIGHTS so as to conflict
with the OPTION granted under Article 2 above and the licenses granted
under Article 3.1 above, (iii) to the extent lawfully allowed by the
Wisconsin Alumni Research
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Foundation will maintain in full force and effect the WARF LICENSE
AGREEMENT for so long as this Agreement remains in force, and (iv) will
take no action with respect to the WARF LICENSE AGREEMENT which would
conflict with MERCK's rights under this agreement. MERCK may elect to
terminate this Agreement in the event VICAL is determined by WARF to be
in breach of the WARF LICENSE AGREEMENT. MERCK acknowledges that (i)
VICAL has entered into the WARF LICENSE AGREEMENT, (ii) MERCK has
reviewed such Agreement, in the form which is attached as Schedule D,
(iii) that any sublicense from VICAL to MERCK with respect thereto shall
be subject, to the extent set forth in Schedule D, to the terms of the
WARF License Agreement, including, without limitation, Section 2C of such
Agreement with respect to sublicenses which extend beyond its
termination.
4.2 MERCK represents and warrants that it has the full rights to enter into
this Agreement and that it neither has made nor will make any commitments
to others in conflict with or in derogation of this Agreement.
4.3 Nothing in this Agreement shall be construed as a warranty or
representation by VICAL as to the validity or scope of any VICAL PATENT
RIGHTS. Neither VICAL nor MERCK makes any warranty or representation as
to the viability, safety or efficacy of any COMPOUND or LICENSED PRODUCT.
THE WARRANTIES EXPRESSLY SET FORTH HEREIN ARE EXCLUSIVE AND NO OTHER
WARRANTY, WRITTEN OR ORAL, INCLUDING WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE PATENT OR
OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY OTHER PERSON OR ENTITY, IS
EXPRESSED OR IMPLIED.
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4.4 To the extent it may lawfully do so, VICAL agrees to file, prosecute and
maintain in such jurisdictions as it reasonably deems commercially
appropriate after consultation with MERCK the VICAL PATENT RIGHTS owned
in whole or in part by VICAL and licensed to MERCK under this Agreement,
including prosecution of an interference. VICAL shall give notice to
MERCK of any decision to cease prosecution and/or maintenance of such
VICAL PATENT RIGHTS and, in such case, shall permit MERCK at its sole
discretion (together with any other licensees similarly notified) to
continue prosecution or maintenance at its own expense. If MERCK elects
to continue prosecution or maintenance, VICAL shall execute such
documents and perform such acts at VICAL's expense as may be reasonably
necessary for MERCK to continue prosecution or maintenance. Fifty
percent (50%) of all expenses and costs incurred by MERCK to continue
prosecution and subsequent maintenance of VICAL's PATENT RIGHTS shall be
fully creditable against royalties due under Article 7 of this Agreement,
however, no royalty payment when due, regardless of the number of such
credits available to MERCK in accordance with the terms of this
Agreement, shall be reduced by more than fifty percent (50%). Unused
credits may be carried over into subsequent royalty periods.
4.5 VICAL shall protect, where it reasonably determines that it is
commercially advisable to do so after consultation with MERCK, the VICAL
PATENT RIGHTS licensed to MERCK under this Agreement against any third
party who infringes the VICAL PATENT RIGHTS by development, manufacture,
use or sale of LICENSED PRODUCT for which MERCK retains a license under
this Agreement.
4.6 In the event VICAL institutes an action at its expense against third
party infringers with respect to LICENSED PRODUCT or takes appropriate
action to defend the VICAL PATENT RIGHTS with respect to LICENSED
PRODUCT, MERCK hereby agrees to cooperate fully with VICAL and any
recovery obtained by VICAL as a result of such
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proceeding or other actions, whether obtained by settlement or otherwise,
shall be retained by VICAL, except that VICAL shall pay to MERCK any
reasonable out of pocket expenses incurred in assisting in such action
(including reasonable counsel fees) and any amount of the recovery
attributable to lost profit on lost sales by MERCK with respect to
LICENSED PRODUCT after deduction of the royalty due VICAL on such sales
under Article 7.
4.7 If within sixty (60) days of becoming aware of the substantial and
continuing infringement of the VICAL PATENT RIGHTS with respect to
LICENSED PRODUCT, VICAL decides not to institute an infringement suit or
take other reasonable action to protect the VICAL PATENT RIGHTS with
respect to LICENSED PRODUCT, MERCK shall have the right to institute
such suit or take other appropriate action at its own expense in the name
of VICAL or MERCK or both. In such event, VICAL shall cooperate fully
with MERCK in its efforts to protect the VICAL PATENT RIGHTS with respect
to LICENSED PRODUCT. Any recovery obtained by MERCK as a result of such
proceeding, by settlement or otherwise, shall be the property of MERCK,
provided, however, that MERCK shall pay to VICAL any reasonable out of
pocket expenses incurred by VICAL in assisting with such action
(including reasonable counsel fees) and the applicable royalty VICAL
would have received on sales lost by MERCK to the extent that the
recovery includes sales lost by MERCK. For purposes of this Article 4.7,
a "substantial and continuing infringement" of the VICAL PATENT RIGHTS
shall exist if (a) a third party (who is not an AFFILIATE) is determined
(in the reasonable legal opinion of nationally recognized patent counsel
in the field) to infringe the valid claims of one or more patents within
the VICAL PATENT RIGHTS issued in a MAJOR MARKET COUNTRY, by making,
using, offering for sale, selling or importing a LICENSED PRODUCT in such
MAJOR MARKET COUNTRY, and (b) (i) the aggregate sale of all such
infringing product(s) in such MAJOR MARKET COUNTRY are greater than or
equal to twenty percent (20%) of the NET SALES of LICENSED PRODUCTS sold
by MERCK, its AFFILIATES and
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sublicensees in such MAJOR MARKET COUNTRY, or (ii) in a MAJOR MARKET
COUNTRY in which competing LICENSED PRODUCTS are not sold by MERCK, its
AFFILIATES and/or sublicensees, the aggregate sales of such infringing
product(s) in such MAJOR MARKET COUNTRY are greater than or equal to ten
percent (10%) of the total sales of all products in such MAJOR MARKET
COUNTRY for use in the prevention or treatment of the same disease, state
or condition as the infringing product, all as determined by data and
other evidence mutually acceptable to both parties.
4.8 (a) VICAL shall, within ten (10) days of learning of such event,
inform MERCK of any request for, or filing or declaration of, any
interference, opposition, or reexamination relating to VICAL
PATENT RIGHTS. MERCK and VICAL shall thereafter consult and
cooperate fully to determine a course of action with respect to
any such proceeding. MERCK shall have the right to receive
copies of any submission made in connection with such
proceeding.
(b) In connection with any interference, opposition, reissue, or
reexamination proceeding relating to VICAL Patent Rights, MERCK
and VICAL will cooperate fully and will provide each other with
any information or assistance that either may reasonably request.
Each party shall keep the other informed of developments in any
such action or proceeding, including, to the extent permissible,
the status of any settlement negotiations and the terms of any
offer related thereto.
4.9 VICAL and MERCK each shall immediately give notice to the other of any
certification of which they become aware filed under the U.S. "Drug Price
Competition and Patent Term Restoration Act of 1984" (or similar
provisions in other countries) claiming that a patent covering LICENSED
PRODUCT is invalid or that infringement will not arise from the
manufacture, use or sale of LICENSED PRODUCT by a third party and shall
provide the
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other party with a copy of any such certification within five (5) days of
receipt. If VICAL decides not to bring infringement proceedings against
the entity making such a certification, VICAL shall give notice to MERCK
of its decision not to bring suit within twenty-one (21) days after
receipt of notice of such certification. MERCK may then, but is not
required to, bring suit against the party that filed the certification.
Any suit by MERCK or VICAL shall either be in the name of MERCK or in the
name of VICAL, or jointly by MERCK and VICAL, as may be required by law.
For this purpose, the party not bringing suit shall execute such legal
papers necessary for the prosecution of such suit as may be reasonably
requested by the party bringing suit at the expense of the party bringing
such suit.
4.10 VICAL shall promptly give notice to MERCK of the grant, lapse,
revocation, surrender, invalidation or abandonment of any VICAL PATENT
RIGHTS licensed to MERCK for which VICAL is responsible for the
application, prosecution and maintenance.
4.11 The parties hereto shall cooperate with each other in gaining patent term
extension or supplemental protection certificates or their equivalent in
any country in the TERRITORY where applicable to VICAL PATENT RIGHTS. In
the event that elections with respect to obtaining such patent term
restoration are to be made, MERCK shall have the right to make the
election and VICAL agrees to abide by any such election.
4.12 In any country where a compulsory license must be granted involving VICAL
PATENT RIGHTS, the exclusive rights and license granted to MERCK shall
not prohibit or prevent the granting of a compulsory license under the
VICAL PATENT RIGHTS and any royalty payable by MERCK shall not be greater
than the royalty payable by the compulsory licensee. VICAL shall consult
with MERCK with respect to any circumstances in which it may be required
to grant a compulsory license.
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ARTICLE 5 - CONFIDENTIALITY
5.1 Except as otherwise provided in this Agreement, in the event confidential
information is received by one party from the other party during the term
of this Agreement, such confidential information shall be maintained in
confidence by the recipient and shall not be disclosed to any other
person, firm, or agency, governmental or private, without the prior
written consent of the other party, except to the extent that such
confidential information:
5.1.1 is known by recipient at the time of its receipt as documented in
written records, or
5.1.2 is properly in the public domain, or
5.1.3 is subsequently disclosed to recipient by a third party not under an
obligation of confidentiality to the disclosing party, or
5.1.4 is developed independently by persons without access to or use of
confidential information received by recipient, as documented in
written records.
5.2 The confidentiality obligations of a party under Article 5 shall not
apply to the extent such confidential information:
5.2.1 is required to be disclosed to governmental agencies in order to gain
approval to sell LICENSED PRODUCT and provided that written notice is
promptly delivered to the other party in order to provide an
opportunity to challenge or limit the disclosure obligations, or
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5.2.2 is required to be disclosed by law, regulation or court order,
provided that written notice is promptly delivered to the other party
in order to provide an opportunity to challenge or limit the
disclosure obligations.
5.2.3 is necessary to be disclosed to sublicensees, agents, consultants,
AFFILIATES and/or other third parties for the research and development
and/or sale and marketing of LICENSED PRODUCT under this Agreement,
which entities first agree to be bound by the confidentiality
obligations contained in this Agreement. It is understood that each
party may disclose confidential information with the prior written
consent and approval of the other party.
ARTICLE 6 - PAYMENTS AND OTHER CONSIDERATIONS
6.1 MERCK shall pay to VICAL the following amounts within thirty (30) days of
the achievement of the following:
a) Execution of this Agreement, in consideration for past research by
VICAL regarding the TECHNOLOGY ( )
b) A specified percentage of the non-refundable milestone payments
provided for in Schedule C will be paid for LICENSED PRODUCTS
hereunder as follows:
For each of the first two LICENSED PRODUCTS to reach
a milestone ( )
For the third LICENSED PRODUCT to reach
a milestone ( )
For the fourth LICENSED PRODUCT to reach
a milestone ( )
It is understood that no additional milestones will be paid for any
additional LICENSED PRODUCTS.
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6.2 In consideration of the license granted in Article 3, MERCK shall pay
royalties to VICAL in the amount of ( ) of NET SALES
by MERCK or its AFFILIATES for each LICENSED PRODUCT for the term set
forth in Article 6.3.
6.3 The term of the royalty payments set forth in Article 6.2, on a
product-by-product basis, shall begin on the date of First Commercial
Sale of a LICENSED PRODUCT in a country and shall terminate on the fifth
(5th) anniversary of the First Commercial Sale of such LICENSED PRODUCT
in such country on a country-by-country basis, provided, however, that in
the event such LICENSED PRODUCT is covered by a claim of VALID PATENT
RIGHTS in the country of sale at any time after the fifth anniversary of
First Commercial Sale in such country, royalty payments under Article 6.2
shall be payable for such additional term as such LICENSED PRODUCT is
covered by a claim of VALID PATENT RIGHTS in such country until the
expiration, in the country of sale, of such relevant claim of VALID
PATENT RIGHTS.
6.4 Sales between MERCK and its sublicensees or AFFILIATES, or among such
AFFILIATES and sublicensees, shall not be subject to royalty, but in such
cases royalty shall be calculated upon MERCK's or its sublicensee's or
AFFILIATES' NET SALES to an independent third party.
6.5 The obligation to pay royalties is imposed only once with respect to the
same unit of LICENSED PRODUCT.
6.6 If MERCK is required to pay cumulative royalties to VICAL and to third
parties (who are not AFFILIATES) ( ) of
NET SALES for additional licenses required to commercialize a particular
LICENSED PRODUCT, the royalties payable to VICAL herewith with respect to
such LICENSED PRODUCT shall be reduced
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by fifty percent (50%) of the additional royalties above (
) figure; provided, however, that in no event shall the royalties
due VICAL hereunder, after taking into account the above reduction, be
reduced below ( ). Unused credits may be
carried over into subsequent royalty periods.
6.7 No royalties shall accrue on the disposition, consistent with normal
business practices, of LICENSED PRODUCT in reasonable quantities by
MERCK, its AFFILIATES or its sublicensees as bona fide promotional
samples or as bona fide donations (for example, to non-profit
institutions or government agencies.)
6.8 It is understood by the parties that MERCK (or its Affiliates) may sell
LICENSED PRODUCT(s) to an independent third party (such as a retailer or
wholesaler) and may subsequently perform services relating to LICENSED
PRODUCT(s) and other products under a managed pharmaceutical benefits
contract or other similar contract. In such cases, it is agreed by the
parties that Net Sales shall be based on the invoice price to the
independent third party, as set forth in Article 1.10, notwithstanding
that MERCK (or its Affiliates) may receive compensation arising from the
performance of such services.
6.9 The parties acknowledge that during the term of this Agreement, MERCK's
sales practices for the marketing and distribution of LICENSED PRODUCT
may change to the extent to which the calculation of the payment for
royalties on NET SALES may become impractical or even impossible. In
such event the parties agree to meet and discuss in good faith new ways
of compensating VICAL to the extent currently contemplated under Section
6.2
ARTICLE 7 - ACCOUNTING AND REPORTS
7.1 MERCK shall deliver to VICAL within sixty (60) days after the end of each
CALENDAR QUARTER a written account, on a country-by-country and
product-by-product basis,
8/29/97 17
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including quantities and monetary amounts of MERCK's and MERCK's
AFFILIATES' sales subject to royalty payments and the amount of the
royalty payment due to VICAL for such quarter. In the case of sales
outside the United States, "calendar quarter" shall mean the respective
periods of three (3) consecutive calendar months ending on February
28, May 31, August 31, and November 30. With respect to these "calendar
quarters", royalties shall be calculated for such periods but accounted
for and paid within sixty (60) days after the end of each regular
calendar quarter as set forth above
7.2 When MERCK delivers the accounting to VICAL, MERCK shall also deliver all
royalty payments due to VICAL for the CALENDAR QUARTER.
7.3 If laws, rules or regulations require withholding of income taxes or
other taxes imposed upon payments set forth in this Article 7, MERCK
shall make such withholding payments as required and subtract such
withholding payments from the payments set forth in this Article 7.
MERCK shall use reasonable efforts to minimize any such taxes required to
be withheld. MERCK shall submit appropriate proof of payment of the
withholding taxes to VICAL within a reasonable period of time.
7.4 MERCK shall keep accurate records in sufficient detail to enable the
amounts due to VICAL to be determined. Upon VICAL's request, MERCK shall
permit an independent, certified public accountant selected by VICAL,
except one to whom MERCK has reasonable objection, to have access during
ordinary business hours to MERCK's records necessary to determine the
correctness of any report or payment made in respect to any CALENDAR
QUARTER and obtain information as to the amount payable to VICAL for any
such period in case of MERCK's failure to report or make payment. Such
examination shall be at VICAL's expense and shall not take place more
than once each year. The accounting firm shall disclose to VICAL only
whether the royalty reports are correct or
8/29/97 18
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incorrect and the specific details concerning any discrepancies, or the
amount payable to VICAL for any such period in case of MERCK's failure to
report or make payment and shall enter into a reasonably acceptable
confidentiality agreement with MERCK. These rights with respect to any
year shall terminate two (2) years after the end of any such year;
provided, however, that if such examination discloses that the royalties
payable for the examination period are more than one hundred five percent
(105%) of the royalties actually paid for such period, MERCK shall pay
the expenses of the accountant.
7.5 All payments to be made by MERCK to VICAL under this Agreement shall be
made in United States dollars by bank wire transfer in immediately
available funds. In the case of sales outside the United States, the
rate of exchange to be used in computing the amount of currency
equivalent in United States dollars due VICAL shall be made at the rate
of exchange, utilized by MERCK in its worldwide accounting system,
prevailing on the fourth-to-the last business day of the CALENDAR
QUARTER.
ARTICLE 8 - DURATION
8.1 This Agreement becomes effective as of the day and year first above
written and may be terminated as set forth in Article 10 hereof and
otherwise remains in effect until MERCK is no longer obligated to make
payments to VICAL pursuant to this Agreement. At such time, the rights
and licenses granted to MERCK under this Agreement shall be fully paid up
and shall continue in full force and effect.
ARTICLE 9 - TERMINATION
9.1 Upon any material breach by either party under this Agreement, in
addition to any other remedy it may have, the other party may terminate
this Agreement by ninety (90) days written notice to the breaching party,
specifying the material breach, default or other defect.
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The termination becomes effective at the end of the ninety (90) day
period unless the breaching party cures the breach during the ninety (90)
day period.
9.2 Either party may terminate this Agreement without notice if the other
party becomes insolvent, makes an assignment for the benefit of
creditors, is the subject of proceedings in voluntary or involuntary
bankruptcy instituted on behalf of or against such party, or has a
receiver or trustee appointed for substantially all of its property;
provided that in the case of an involuntary bankruptcy proceeding such
right to terminate shall only become effective if the party consents
thereto or such proceeding is not dismissed within ninety (90) days after
the filing thereof.
9.3 Notwithstanding any other provisions of this Agreement to the contrary,
this Agreement may be terminated by MERCK any time upon ninety (90) days
prior notice given to VICAL. In the event of written notice of such
termination, subject to Article 9.4, no further sums shall be payable by
MERCK under this Agreement and the licenses and rights granted to MERCK
shall be terminated.
9.4 Any expiration or early termination of this Agreement shall be without
prejudice to the rights of either party against the other accrued or
accruing under this Agreement prior to termination, including the
obligation to pay royalties for LICENSED PRODUCT sold prior to such
termination.
9.5 Upon termination of this Agreement, all provisions regarding
confidentiality shall continue in full force and effect until seven (7)
years after termination. The provisions regarding indemnity shall
survive termination. Additionally, upon such termination, each party
shall continue to be a joint owner of any joint inventions developed
under this Agreement.
8/29/97 20
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ARTICLE 10 - EFFORTS
10.1 MERCK shall use reasonable efforts, consistent with the usual practice
followed by MERCK in pursuing the commercialization and marketing of its
other similar pharmaceutical products at its own expense, to develop and
commercialize a LICENSED PRODUCT on a commercially reasonable basis, in
such countries in the Territory where in MERCK's reasonable opinion it is
commercially viable to do so. MERCK shall notify VICAL each time it
submits an application for government registration and marketing approval
for any LICENSED PRODUCT in the United States or any Major Market Country
as defined in Schedule C, and shall promptly advise VICAL when any
government approval to market any LICENSED PRODUCT has been obtained in
the Territory.
10.2 The obligation of MERCK with respect to a LICENSED PRODUCT under Article
10.1 is expressly conditioned on the continuing absence of any adverse
condition or event relating to the safety or efficacy of the LICENSED
PRODUCT, and the obligation of MERCK to develop or market any such
LICENSED PRODUCT shall be delayed or suspended so long as in MERCK's
opinion, any such condition or event exist.
10.3 MERCK shall furnish VICAL with an annual, summary report with respect to
MERCK's efforts to achieve key milestones in preclinical and clinical
development, including regulatory filings, under Article 10.1 above until
the date of First Commercial Sale of such LICENSED PRODUCT.
ARTICLE 11 - GOVERNING LAW
11.1 This Agreement shall be construed and the respective rights of the
parties hereto determined according to the substantive laws of the State
of California notwithstanding the provisions governing conflict of laws
under such law to the contrary.
8/29/97 21
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ARTICLE 12 - ASSIGNMENT
12.1 Neither party may assign or otherwise transfer (except as provided
herein) this Agreement in whole or in part without the written consent of
the other, except that no such consent shall be required (i) in the case
of MERCK if such assignment occurs in connection with the sale of all or
substantially all of the business and assets of MERCK related to gene
therapy products, or if MERCK assigns this Agreement to an AFFILIATE and
(ii) in the case of VICAL, if such assignment occurs in connection with
the acquisition, merger, or sale of all or substantially all of the
assets of VICAL related to the Technology or a change in control of VICAL
or similar transaction. Assignment of this Agreement shall not release
the assigning party of its performance obligations under this Agreement
without the consent of the other party which consent shall not be
unreasonably withheld. Any assignment or transfer in violation of this
Article 12 shall be void.
ARTICLE 13 - SEVERANCE
13.1 If any provision of this Agreement is held to be invalid or unenforceable
under the laws of either jurisdiction of the parties, all other
provisions shall nevertheless continue in full force and effect, unless
there is a material change in the benefits and/or rights received under
this Agreement.
ARTICLE 14 - AMENDMENT
14.1 This Agreement constitutes the entire agreement between the parties and
supersedes all previous arrangements whether written or oral. Any
amendment or modification to this Agreement shall be made in writing
signed by both parties.
8/29/97 22
<PAGE>
ARTICLE 15 - NOTICE
15.1 Notices to VICAL shall be addressed to:
Vical Incorporated
9373 Towne Centre Drive
San Diego, California 92121
Attention: President
Copy to:
Thomas E. Sparks, Jr.
Pillsbury Madison & Sutro LLP
235 Montgomery St.
San Francisco, CA 94104
Notices to MERCK shall be addressed to:
Merck & Co., Inc.
One Merck Drive
Whitehouse Station, NJ 08889-0100
Attention: Vice President, Corporate Licensing
With a copy to General Counsel (at the above address).
Either party may change its address by giving notice to the other party
in the manner herein provided. Any notice required or provided for by
the terms of this Agreement shall be in writing and sent by registered or
certified mail, return receipt requested, postage prepaid or by express
courier services providing evidence of delivery and properly addressed in
accordance with the paragraph above. The effective date of notice shall
be the actual date of receipt by VICAL or MERCK.
ARTICLE 16 - FORCE MAJEURE
16.1 No failure or omission by the parties hereto in the performance of any
obligation of this Agreement shall be deemed a breach of this Agreement
or shall create any liability to the
8/29/97 23
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extent, and for so long as, the same shall arise from any cause or causes
beyond the control of the parties, including, but not limited to, the
following: act of God; acts or omissions of any government; any rules,
regulations or orders issued by any governmental authority or by any
officer, department, agency or instrumentality thereof; fire; storm;
flood; earthquake; accident; war; rebellion; insurrection; riot;
invasion; strikes; and lockouts and provided that such failure or
omission resulting from one of the above causes is cured as soon as is
practicable after the occurrence of one of the above-mentioned causes.
The affected party shall notify the other party of such force majeure
circumstances as soon as reasonably practical.
ARTICLE 17 - PUBLIC ANNOUNCEMENTS/MISCELLANEOUS
17.1 Any public announcements or similar publicity with respect to this
Agreement or the transactions contemplated herein shall be at such time
and in such manner as VICAL and MERCK shall agree in writing, provided
that nothing herein shall prevent either party upon notice to the other
from making such public announcements as such party's legal obligations
require. VICAL may disclose this Agreement or the transactions
contemplated hereby to investors or potential investors in VICAL or to
financial institutions for the purpose of obtaining financing in the
event that such disclosure is reasonably required to obtain an investment
or financing and MERCK will have the opportunity to review such
disclosure in advance. VICAL has informed MERCK that it contemplates
releasing a public statement regarding this Agreement upon its execution
and MERCK agrees that it will discuss, in good faith, the content of such
a statement with VICAL in order to render it agreeable to both parties.
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ARTICLE 18 - INDEMNIFICATION
18.1 MERCK agrees to indemnify and hold VICAL, its employees directors,
officers, stockholders and agents harmless from and against any losses,
liabilities, damages and expenses (including attorneys' fees) arising out
of any claim, demand, action or other proceeding arising out of MERCK's
development, testing, use, manufacture, marketing or other activities
contemplated under this Agreement with respect to COMPOUNDS or LICENSED
PRODUCTS.
18.2 In the event that VICAL (the "Indemnitee") intends to claim
indemnification under this Article 18 it shall promptly notify MERCK (the
"Indemnitor") in writing of any loss, claim, damage, liability or action
in respect of which the Indemnitee or any of its AFFILIATES intend to
claim such indemnification, and the Indemnitor shall have the right to
participate in, and, to the extent the Indemnitor so desires, jointly
with any other Indemnitor similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided,
however, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitee, if
representation of such Indemnitee by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential differing
interests between such Indemnitee and any other party represented by such
con such proceedings. The indemnity agreement in this Article 18 shall
not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of
the Indemnitor, which consent shall not be withheld or delayed
unreasonably. The failure to deliver written notice to the Indemnitor
within a reasonable time after the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitees under this Article 18, but
the omission to deliver written notice to the Indemnitor will not relieve
it of any liability that it may have to any Indemnitee otherwise than
under this Article 18.
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The Indemnitee under this Article 19, its employees and agents, shall
cooperate reasonably with the Indemnitor and its legal representatives
in the investigation of any action, claim or liability covered by this
indemnification.
ARTICLE 19 - MISCELLANEOUS
19.1 This Agreement, including all Schedules attached hereto, contains the
entire understanding of the parties with respect to the subject matter
hereof. All express or implied agreements, representations and
understandings, either oral or written, heretofore made are expressly
merged in and made a part of this Agreement. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly
executed by both parties hereto.
19.2 It is expressly agreed that MERCK and VICAL shall be independent
contractors and that the relationship between the two parties shall not
constitute a partnership, joint venture or agency. Neither MERCK nor
VICAL shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on
the other party without the prior written consent of such other party.
19.3 This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
MERCK & CO., INC. VICAL INCORPORATED
By: /s/ Raymond V. Gilmartin By: /s/ Alain B. Schreiber, M.D.
------------------------------- ---------------------------------
Raymond V. Gilmartin Alain B. Schreiber, M.D.
Title: Chairman, President and CEO Title: President & CEO
--------------------------- ----------------
Date Date:
-------------------- ----------------------
8/29/97 26
<PAGE>
SCHEDULE A
VICAL PATENT RIGHTS
UNITED STATES PATENT NO. 5,580,859
UNITED STATES PATENT NO. 5,589,466
(
)
<PAGE>
SCHEDULE B
Oliver M. Johnson, II Merck & Co., Inc.
Senior Director One Merck Drive
Corporate Licensing P.O. Box 100, WS2A-10
Whitehouse Station NJ 08889-0100
Fax 908 735 1202
Tel 908 423 7321
VIA FACSIMILE (608) 263-1064 AND REGULAR MAIL
August 29, 1997
Richard H. Leazer
Managing Director
Wisconsin Alumni Research Foundation
614 Walnut Street
Madison, WI 53705
Dear Mr. Leazer:
Vical Incorporated and Merck & Co., Inc., anticipate entering into a Option and
License Agreement ("Vical License Agreement") involving intramuscular delivery
of genes for the treatment of certain human diseases ("the Technology"). Under
the proposed Agreement Merck will be granted exclusive rights from Vical.
Merck is aware that certain inventions involving the Technology are jointly
owned by Vical and WARF and that pursuant to a License Agreement between the
parties, dated January 1, 1991, ("WARF License Agreement") WARF has granted
Vical an exclusive license to its interest in certain of the Technology. The
grant is subject only to the rights, if any, of the United States Government to
practice the invention for government purposes.
Pursuant to Section 2C of the WARF License Agreement, Merck hereby requests
WARF's consent permitting Vical to extend the exclusive license granted by Vical
to Merck with respect to WARF's ownership interest in certain of the Technology
beyond any termination of the WARF License Agreement. In the event of such
termination Merck agrees to be bound by the terms of the WARF License Agreement
to the extent of its license from Vical and for so long as the Vical License
Agreement remains in effect.
If WARF is willing to permit such extension please have WARF indicate its
consent by having an authorized representative sign and date this letter in the
space provided below and return one original to me.
<PAGE>
Mr. Richard H. Leazer
August 29, 1997
Page 2
We have asked Vical to acknowledge its agreement to this arrangement by also
signing and dating this letter.
Your cooperation in this matter is appreciated.
Sincerely,
/s/Oliver M. Johnson, II
Oliver M. Johnson, II
AGREED TO AND ACCEPTED:
WISCONSIN ALUMNI RESEARCH FOUNDATION:
By: /s/Richard H. Leazer
--------------------
Richard H. Leazer
Managing Director
Date: September 3, 1997
-----------------
ACKNOWLEDGED:
VICAL INCORPORATED
By: /s/Alain B. Schreiber, M.D.
---------------------------
Alain B. Schreiber, M.D.
President & CEO
Date: September 8, 1997
-----------------
<PAGE>
SCHEDULE C
MILESTONES
( ) IN A MAJOR MARKET
COUNTRY* ( )
( ) IN A
MAJOR COUNTRY** ( )
( ) IN
A MAJOR MARKET COUNTRY ( )
( ) IN A
MAJOR MARKET COUNTRY ( )
"Major Market Country" shall mean the United States, EEC countries, Canada, or
Japan.
*If this milestone is not reached with respect to the first LICENSED PRODUCT by
the second anniversary of the Effective Date of this Agreement, MERCK will
nevertheless pay the amount and will credit the amount against the payment due
when the milestone is first achieved.
**If this milestone is not reached with respect to the first LICENSED PRODUCT by
the fourth anniversary of the Effective Date of this Agreement, MERCK will
nevertheless pay the amount and will credit the amount against the payment due
when the milestone is first achieved.
