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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
incorporation or organization) Identification No.)
9373 Towne Centre Dr., Suite 100, San Diego, California 92121
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(858) 646-1100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 March 31, 2000
----- -----------------------------
Common Stock, $.01 par value 19,822,238
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VICAL INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
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PAGE NO.
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COVER PAGE.............................................................................................1
TABLE OF CONTENTS......................................................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of March 31, 2000, and December 31, 1999....................................3
Statements of Operations for the Three Months Ended March 31, 2000 and 1999...................4
Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999...................5
Notes to Financial Statements.................................................................6
Forward-Looking Statements....................................................................8
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................................9
ITEM 3.
Quantitative and Qualitative Disclosure About Market Risk.....................................*
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................................*
ITEM 2. Changes in Securities................................................................*
ITEM 3. Defaults upon Senior Securities......................................................*
ITEM 4. Submission of Matters to a Vote of Security Holders..................................*
ITEM 5. Other Information....................................................................*
ITEM 6. Exhibits and Reports on Form 8-K....................................................19
SIGNATURE.............................................................................................20
EXHIBIT LIST..........................................................................................21
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* No information provided due to inapplicability of item.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VICAL INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 66,978,112 $ 11,149,587
Marketable securities - available-for-sale 86,523,560 26,525,181
Receivables and other 3,193,857 3,971,621
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Total current assets 156,695,529 41,646,389
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Investment, at cost 5,000,000 -
Property and Equipment:
Equipment 5,726,659 5,948,458
Leasehold improvements 2,473,967 1,646,023
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8,200,626 7,594,481
Less--accumulated depreciation and amortization (5,936,570) (5,708,349)
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2,264,056 1,886,132
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Patent costs, net of accumulated amortization 1,429,208 1,380,245
Other assets 96,317 146,470
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$ 165,485,110 $ 45,059,236
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,908,460 $ 3,839,642
Current portion of capital lease obligations 572,578 627,957
Current portion of notes payable 114,808 106,887
Current portion of deferred revenue 1,985,859 1,076,166
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Total current liabilities 5,581,705 5,650,652
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Long-Term Obligations:
Long-term obligations under capital leases 672,694 739,885
Notes payable 688,844 -
Deferred revenue 3,818,182 -
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Total long-term obligations 5,179,720 739,885
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Stockholders' Equity:
Preferred stock, $0.01 par value--5,000,000 shares authorized--
none outstanding - -
Common stock, $0.01 par value--40,000,000 shares authorized-- 198,222 162,011
19,822,238 and 16,201,136 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively
Additional paid-in capital 202,315,409 83,292,870
Accumulated other comprehensive loss (233,931) (140,801)
Accumulated deficit (47,556,015) (44,645,381)
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Total stockholders' equity 154,723,685 38,668,699
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Total Liabilities and Stockholders' Equity $ 165,485,110 $ 45,059,236
================ =================
</TABLE>
3
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VICAL INCORPORATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Revenues:
License/royalty revenue $ 615,724 $ 2,665,335
Contract revenue 382,009 614,839
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997,733 3,280,174
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Operating Expenses:
Research and development 4,316,888 3,614,228
General and administrative 1,329,872 1,012,942
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5,646,760 4,627,170
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Loss from operations (4,649,027) (1,346,996)
Interest income 1,777,108 571,174
Interest expense 38,715 33,223
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Net loss $ (2,910,634) $ (809,045)
================ =================
Net loss per share (basic and diluted--Note 2) $ (0.15) $ (0.05)
================ =================
Weighted average shares used in computing net loss per share 19,021,921 15,952,678
(Note 2) ================ =================
</TABLE>
4
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VICAL INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------
2000 1999
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OPERATING ACTIVITIES:
Net loss $ (2,910,634) $ (809,045)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 258,892 242,647
Change in operating assets and liabilities:
Receivables and other 777,764 (931,624)
Accounts payable and accrued expenses (931,182) (419,589)
Deferred revenue (272,125) 933,333
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Net cash used in operating activities (3,077,285) (984,278)
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INVESTING ACTIVITIES:
Marketable securities (60,091,508) (7,252,863)
Capital expenditures (577,776) (117,385)
Deposits and other 50,154 19,418
Patent expenditures (72,016) (78,750)
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Net cash used in investment activities (60,691,146) (7,429,580)
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FINANCING ACTIVITIES:
Issuance of common stock, net 119,058,750 4,840,982
Proceeds from notes payable 803,239 -
Payments on notes payable (106,474) (53,443)
Principal payments under capital lease obligations (158,559) (124,485)
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Net cash provided from financing activities 119,596,956 4,663,054
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Net increase (decrease) in cash and cash equivalents 55,828,525 (3,750,804)
Cash and cash equivalents at beginning of period 11,149,587 13,567,817
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Cash and cash equivalents at end of period $ 66,978,112 $ 9,817,013
================ =================
Supplemental Disclosure of Non-Cash Investing and Financing
Activities: Investment in preferred stock of Vascular Genetics
Inc. in exchange for grant of license $ 5,000,000 $ -
================ =================
Equipment acquired under capital leases $ 35,988 $ 32,417
================ =================
</TABLE>
5
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VICAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Vical was incorporated in April 1987 and has devoted substantially all
of its resources since that time to its research and development programs. We
are currently focusing our resources on the development of our naked DNA and
related technologies.
BASIS OF PRESENTATION
The information contained herein has been prepared in accordance with
instructions for Form 10-Q. The information at March 31, 2000, and for the
three-month periods ended March 31, 2000 and 1999, is unaudited. In the opinion
of management, the information reflects all adjustments necessary to present
fairly the financial position and results of operations for the interim periods.
All such adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results for a full year. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. For a presentation including all disclosures required by generally
accepted accounting principles, these financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1999, included in the Vical Incorporated Form 10-K filed with the Securities
and Exchange Commission.
2. NET LOSS PER SHARE
Net loss per share (basic and diluted) for the three-month periods
ended March 31, 2000 and 1999, has been computed using the weighted average
number of common shares outstanding during the respective periods. Diluted loss
per share does not include any assumed exercise of stock options as the effect
would be antidilutive.
3. COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive loss represents unrealized loss on
marketable securities. For the three-month periods ended March 31, 2000 and
1999, other comprehensive loss was $93,130 and $52,087, respectively, and total
comprehensive loss was $3,003,764 and $861,132, respectively.
4. PUBLIC STOCK OFFERING
In January 2000, Vical completed the sale of 3,450,000 shares of common
stock in a public offering which raised net proceeds of approximately $117.5
million.
5. LICENSE AGREEMENTS WITH HUMAN GENOME SCIENCES, INC. AND VASCULAR
GENETICS INC.
On February 24, 2000, Vical and Human Genome Sciences, Inc. (HGS)
signed a reciprocal royalty-bearing license. Under the agreement, Vical has the
option to exclusively license up to three genes from HGS for gene-based product
development. HGS has the option to license Vical's naked DNA gene delivery
technology for use in up to three gene-based products. In addition, Vical
granted an exclusive, royalty-bearing license to Vascular Genetics, Inc. (VGI),
a company in which HGS is a major shareholder, for naked DNA delivery of a gene
with potential use for revascularization. In exchange, Vical received shares of
Preferred Stock Series B of Vascular Genetics, Inc. This investment was recorded
at estimated
6
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fair value of $5.0 million on the date of investment and is reflected as
Investment, at cost, in the accompanying balance sheet. The investment is being
accounted for on the cost method. Vical also recorded a liability for deferred
revenue of $5.0 million. This deferred revenue is being recognized ratably each
month through September 30, 2004.
6. COMMITMENTS
Vical will expand its leased space by approximately 5,100 square
feet in one facility effective June 1, 2000. Total monthly rental on all
facilities, including common area maintenance costs, is expected to be
approximately $125,000 effective June 1, 2000. This lease amendment will
increase our minimum lease commitments by approximately $938,000 through the
end of the lease in November 2004.
At March 31, 2000, we had borrowed $803,000 under the $1.0 million line
of credit with a bank to finance certain leasehold improvements.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
- -"Revenue Recognition" (SAB 101). SAB 101 reflects the SEC's views on revenue
recognition. Historically Vical has recognized revenue from initial
technology option and license fees in the period in which the agreement was
signed if there were no significant performance obligations remaining.
Revenue from milestone payments is recognized as revenue when the milestones
are achieved. SAB 101 would require that when there has not been the
culmination of the earnings process, revenue from technology option and
license fees and milestone payments be deferred and recognized over the
period of the technology option or license agreement. There is a lack of
guidance about applying SAB 101 in the Life Sciences Industry, including what
constitutes the culmination of the earnings process where there are up-front,
milestone and royalty payments. Further, there is significant uncertainty
about the life over which to recognize this revenue, particularly where
royalties continue to be payable until the last related patent expires.
Companies which have not adhered to the guidance in SAB 101 will be required
to reflect a cumulative effect adjustment of a change in accounting principle
in their financial statements for the second fiscal quarter of the fiscal
year beginning after December 15, 1999. Due to the uncertainties noted above,
we have not completed our evaluation of the impact of SAB 101 on our
financial statements, however, the potential impact is expected to be
material to the financial statements.
7
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FORWARD-LOOKING STATEMENTS
The statements incorporated by reference or contained in this report
discuss our future expectations, contain projections of our results of
operations or financial condition, and include other "forward-looking"
information within the meaning of Section 27A of the Securities Act of 1933, as
amended. Our actual results may differ materially from those expressed in
forward-looking statements made or incorporated by reference in this report.
Forward-looking statements that express our beliefs, plans, objectives,
assumptions or future events or performance may involve estimates, assumptions,
risks and uncertainties. Therefore, our actual results and performance may
differ materially from those expressed in the forward-looking statements.
Forward-looking statements often, although not always, include words or phrases
such as the following:
- "will likely result,"
- "are expected to,"
- "will continue,"
- "is anticipated,"
- "estimate,"
- "intends,"
- "plans,"
- "projection," and
- "outlook."
You should not unduly rely on forward-looking statements contained or
incorporated by reference in this report. Actual results or outcomes may differ
materially from those predicted in our forward-looking statements due to the
risks and uncertainties inherent in our business, including risks and
uncertainties in:
- clinical trial results,
- obtaining and maintaining regulatory approval,
- market acceptance of and continuing demand for our products,
- the attainment of patent protection for any of these products,
- the impact of competitive products, pricing and reimbursement
policies,
- our ability to obtain additional financing to support our operations,
- the continuation of our corporate collaborations, and
- changing market conditions and other risks detailed below.
You should read and interpret any forward-looking statements together
with the following documents:
- our Annual Report on Form 10-K,
- the risk factors contained in this report under the caption "Risk
Factors," and
- our other filings with the Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date on which that
statement is made. We will not update any forward-looking statement to reflect
events or circumstances that occur after the date on which such statement is
made.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We were incorporated in April 1987 and have devoted substantially all
of our resources since that time to our research and development programs. To
date, we have not received revenues from the sale of products. We expect to
incur substantial operating losses for at least the next few years, due
primarily to the expansion of our research and development programs and the cost
of preclinical studies and clinical trials. Losses may fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and the
revenues received from collaborative agreements. Such fluctuations may be
significant. As of March 31, 2000, our accumulated deficit was approximately
$47.6 million.
We develop biopharmaceutical products based on our patented naked DNA
gene transfer technologies for the prevention and treatment of life-threatening
diseases. We currently focus our development on innovative cancer therapies to
induce an immune response against cancer cells without causing serious side
effects. We have retained all rights to our internally developed cancer product
candidates.
We enter into collaborations with major pharmaceutical companies to
leverage our technologies primarily for non-cancer applications such as vaccines
for infectious diseases and optimized delivery of therapeutic proteins. We have
established relationships through the license of our technology with a growing
number of corporate partners and collaborators.
Vical has formulated ALLOVECTIN-7, a complex containing the gene
encoding a particular human histocompatibility antigen, HLA-B7, and a lipid
material to facilitate gene uptake. After direct injection of ALLOVECTIN-7 into
a tumor, we believe that the HLA-B7 gene will cause the tumor cells to produce
the HLA-B7 antigen. This gene expression may then trigger a potent cellular
immune response against the tumor cells. The treatment may also trigger an
immune response against additional tumor cells, both locally and systemically,
by exposing other features of the tumor cells to the immune system.
ALLOVECTIN-7, is in Phase III and Phase II registration trials for patients with
advanced metastatic malignant melanoma, an aggressive form of skin cancer, and
in Phase II clinical testing for patients with cancer of the head and neck.
Vical is developing its second gene-based product candidate, LEUVECTIN,
also intended for direct injection into tumor lesions of cancer patients.
LEUVECTIN contains a gene that encodes the potent immunostimulator IL-2 and a
lipid material to facilitate gene uptake. We expect that LEUVECTIN, when
injected into tumors, will cause the malignant cells to produce and secrete IL-2
in the vicinity of the tumor, stimulating the patient's immune system to attack
and destroy tumor cells. Because LEUVECTIN is designed to deliver IL-2 only at
the site of tumor lesions, we believe that it may provide efficacy similar to
systemic IL-2 therapy with fewer side effects. LEUVECTIN is in Phase II clinical
trials for patients with advanced metastatic kidney cancer and for high-risk
patients with locally confined prostate cancer.
VAXID, a cancer vaccine intended to prevent recurrence of low-grade,
non-Hodgkin's B-cell lymphoma, is in a Phase I/II clinical trial in a
collaboration with Stanford University Medical Center. We are supporting
clinical testing of a cancer vaccine for the treatment of advanced metastatic
melanoma in a collaboration with the National Cancer Institute, NCI.
We are developing our cancer product candidates internally, while
developing vaccine product candidates for infectious diseases primarily in
collaboration with corporate partners Merck and Aventis Pasteur. We have a
license agreement allowing Centocor to use our naked DNA technology to develop
and market gene-based vaccines for the potential treatment of types of cancer.
We have an agreement with Boston Scientific for the use of our technology in
catheter-based intravascular gene delivery. We have an agreement with Aventis
Pharma to use our gene delivery technology to deliver neurological proteins for
neurodegenerative diseases. We have agreements with Pfizer for use of our
technology for DNA-based delivery of therapeutic proteins in animal health
applications and with Merial for use of our technology for DNA vaccines in
animal infectious disease targets.
9
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In February 2000, Vical and Human Genome Sciences, Inc. (HGS) signed a
reciprocal royalty-bearing license. Under the agreement, Vical has the option to
exclusively license up to three genes from HGS for gene-based product
development. HGS has the option to license Vical's patented naked DNA gene
delivery technology for use in up to three gene-based products. In addition, we
granted an exclusive, royalty-bearing license to Vascular Genetics Inc. (VGI), a
company in which HGS is a major shareholder, for naked DNA delivery of Vascular
Endothelial Growth Factor-2, a protein with potential use for revascularization.
On April 13, 2000, the Company announced that Alain B. Schreiber,
President and CEO, and member of the Board of Directors, would be leaving the
Company at the end of June. The Board of Directors has commenced a search for a
replacement. During the transition, R. Gordon Douglas, M.D., Chairman of the
Board of Vical, is assuming a more active role in managing the strategic
direction of the Company. Deirdre Y. Gillespie, M.D., formerly Executive Vice
President and Chief Business Officer, was elected Chief Operating Officer and
assumed additional operating responsibilities.
In May 2000, an independent Drug Safety Review Board recommended
that current Phase II and Phase III registration trials targeting metastatic
melanoma should progress as planned, based on a review of safety and
preliminary efficacy data collected to date.
We have licensed our naked DNA vaccination technology to Merck for a
total of seven preventive vaccine targets:
- hepatitis B virus, HBV,
- hepatitis C virus, HCV,
- human immunodeficiency virus, HIV,
- human papilloma virus, HPV,
- herpes simplex virus, HSV,
- influenza virus, and
- tuberculosis, TB.
In addition, Merck also has a license covering three therapeutic
vaccine targets, HBV, HIV and HPV.
Merck initiated a clinical trial in December 1999 with a vaccine using
Vical's patented naked DNA technology to protect against infection by human
immunodeficiency virus (HIV), the virus that causes acquired immunodeficiency
syndrome.
We also have a license and option agreement with Aventis Pasteur for a
total of six preventive vaccine targets:
- cytomegalovirus, CMV,
- HELICOBACTER PYLORI,
- Lyme disease,
- malaria,
- respiratory syncytial virus, RSV, and
- varicella zoster virus, VZV.
Vical is collaborating with Aventis Pasteur and the U.S. Naval Medical
Research Center (NMRC) to develop a DNA vaccine against malaria. Results from a
Phase I clinical trial with approximately twenty volunteers indicated that
subjects immunized with a potential malaria DNA vaccine developed dose-related
killer T-cell immune responses. As a result of these data, further clinical
development is planned.
Vical's product candidates or those of our collaborators may not prove
to be safe and effective in clinical trials and no commercially successful
products may ultimately be developed by Vical or our collaborators.
10
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RESULTS OF OPERATIONS
Revenues of $998,000 were recorded for the quarter ended March 31,
2000. License revenue primarily represented recognition of deferred license fees
of $366,000 from Merial and Vascular Genetics Inc., and royalty and other
revenue of $250,000. Contract and grant revenue recognized was $382,000, and
included revenues from a contract with the Office of Naval Research for the
development work on a potential naked DNA vaccine to prevent malaria, revenue
from grants with NIH, and revenue from Pfizer and other agreements. Through
March 31, 2000, Vical had recognized revenue of $2,532,000 of the total contract
amount of $2,813,000 with the Office of Naval Research.
Revenues of $3,280,000 were recognized for the quarter ended March 31,
1999. License revenue included $1.0 million of option fees and $1.2 million of
equity premium pursuant to January 1999 agreements with Pfizer Inc. License
revenue also included recognition of deferred license fees of $250,000 from
Merial and royalty income of $215,000. In addition, for the quarter ended March
31, 1999, we recognized net contract revenue of $615,000, primarily from the
contract with the Office of Naval Research.
Our total operating expenses for the quarter ended March 31, 2000, were
$5,647,000 compared with $4,627,000 for the first quarter of 1999. Research and
development expenses increased to $4,317,000 for the three months ended March
31, 2000, from $3,614,000 for the same period in 1999. The increase in research
and development expenses for the three-month period was generally due to
increased preclinical and clinical trial costs, and personnel-related costs.
General and administrative expenses increased to $1,330,000 for the
three months ended March 31, 2000, from $1,013,000 for the same period in 1999.
The increase primarily is attributable to increased personnel-related costs in
support of the expanded research and development activities.
Interest income for the three-month periods ended March 31, 2000 and
1999, was $1,777,000 and $571,000, respectively. The increase is a result of
higher investment balances due to the January 2000 completion of the sale of
3,450,000 shares of Vical common stock in a public offering which raised net
proceeds of approximately $117.5 million.
The net loss was $0.15 per share for the three months ended March 31,
2000, compared with a net loss of $0.05 for the same period of 1999. We expect
to incur losses throughout the remainder of 2000 and to report a net loss for
the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Vical has financed its operations primarily
through private placements of preferred and common stock, four public offerings
of common stock and revenues from collaborative agreements. In January 2000,
Vical completed the sale of 3,450,000 shares of common stock in a public
offering which raised net proceeds of approximately $117.5 million. The net
proceeds were invested in marketable securities and cash equivalents during the
quarter. As of March 31, 2000, we had working capital of approximately $151.1
million compared with $36.0 million at December 31, 1999. Cash and marketable
securities totaled approximately $153.5 million at March 31, 2000, compared with
$37.7 million at December 31, 1999. We have an unsecured line of credit
agreement with a bank to provide financing for leasehold improvements. Under the
terms of the agreement, we may borrow up to $1,000,000 through May 1, 2000. At
March 31, 2000, $803,000 of borrowings were outstanding under this agreement.
We expect to incur substantial additional research and development
expenses and general and administrative expenses, including continued increases
in personnel costs, costs related to preclinical testing and clinical trials,
outside services and facilities. Our future capital requirements will depend on
many factors, including continued scientific progress in our research and
development programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the cost of manufacturing scale-up, and
commercialization activities and arrangements. We intend to seek additional
funding through research and development relationships with suitable potential
corporate collaborators. We may also seek additional funding through public or
private financings. We cannot assure that additional financing will be available
on favorable terms or at all.
11
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If additional funding is not available, Vical anticipates that its
available cash and existing sources of funding will be adequate to satisfy its
operating needs through at least 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 -
"Revenue Recognition" (SAB 101). SAB 101 reflects the SEC's views on revenue
recognition. Historically Vical has recognized revenue from initial technology
option and license fees in the period in which the agreement was signed if there
were no significant performance obligations remaining. Revenue from milestone
payments is recognized as revenue when the milestones are achieved. SAB 101
would require that when there has not been the culmination of the earnings
process, revenue from technology option and license fees and milestone payments
be deferred and recognized over the period of the technology option or license
agreement. There is a lack of guidance about applying SAB 101 in the Life
Sciences Industry, including what constitutes the culmination of the earnings
process where there are up-front, milestone and royalty payments.
Further, there is significant uncertainty about the life over which to recognize
this revenue, particularly where royalties continue to be payable until the last
related patent expires. Companies which have not adhered to the guidance in SAB
101 will be required to reflect a cumulative effect adjustment of a change in
accounting principle in their financial statements for the second fiscal quarter
of the fiscal year beginning after December 15, 1999. Due to the uncertainties
noted above, we have not completed our evaluation of the impact of SAB 101 on
our financial statements, however, the potential impact is expected to be
material to the financial statements.
YEAR 2000 ISSUES
Through March 31, 2000, we have not experienced any immediate adverse
impacts related to the Year 2000, including the impacts of the Year 2000 being a
leap year. However, there may be adverse events which have occurred but which
are not yet apparent to us, our strategic partners and our suppliers. We will
continue to monitor our Year 2000 compliance and that of our collaborators and
suppliers. Our costs for Year 2000 compliance have been immaterial. We do not
believe that Year 2000 issues will have a material impact on our business,
financial condition or results of operations.
RISK FACTORS
You should carefully consider the risks described below, together with
all of the other information included in this report, before deciding whether to
invest in our common stock. If any of the following risks actually occurs, our
business, financial condition or results of operations could be harmed. In this
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
NONE OF OUR PRODUCTS HAVE BEEN APPROVED FOR SALE. IF WE DO NOT DEVELOP
COMMERCIALLY SUCCESSFUL PRODUCTS, WE MAY BE FORCED TO CURTAIL OR CEASE
OPERATIONS.
Very little data exists regarding the safety and efficacy of DNA
therapeutics. All of our potential products are either in research or
development. We must conduct a substantial amount of additional research and
development before any U.S. or foreign regulatory authority will approve any of
our products. Results of our research and development activities may indicate
that our potential products are unsafe or ineffective. In this case, regulatory
authorities will not approve them. Even if approved, our products may not be
commercially successful. If we fail to develop and commercialize our products,
we will not be successful.
WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET
LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have not sold any products and do not expect to sell any products
for the next few years. For the period from our inception to March 31, 2000, we
have incurred cumulative net losses totaling approximately $47.6 million.
Moreover, our negative cash flow and losses from operations will continue and
increase for the foreseeable future. We may never generate sufficient product
revenue to become profitable. We also expect to have quarter-to-quarter
fluctuations in revenues, expenses and losses, some of which could be
significant.
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WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE. IF ADDITIONAL CAPITAL IS
NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
We may need to raise more money to continue the research and
development necessary to bring our products to market and to establish
manufacturing and marketing capabilities. We may seek additional funds through
public and private stock offerings, arrangements with corporate partners,
borrowings under lease lines of credit or other sources. In the event that we
need more money, but are unable to raise more money we may have to reduce our
capital expenditures, scale back our development of new products, reduce our
workforce and license to others products or technologies that we otherwise would
seek to commercialize ourselves. The amount of money we may need will depend on
many factors, including:
- the progress of our research and development programs,
- the scope and results of our preclinical studies and clinical trials,
- the time and costs involved in:
- obtaining necessary regulatory approvals,
- filing, prosecuting and enforcing patent claims,
- scaling up our manufacturing capabilities, and
- the commercial arrangements we may establish.
THE REGULATORY APPROVAL PROCESS IS EXPENSIVE, TIME CONSUMING AND
UNCERTAIN WHICH MAY PREVENT US FROM OBTAINING REQUIRED APPROVALS FOR
THE COMMERCIALIZATION OF OUR PRODUCTS.
Testing of the potential drugs we develop is regulated by numerous
governmental authorities in the United States and other countries. The
regulations are evolving and uncertain. The regulatory process can take many
years and require us to expend substantial resources. For example:
- the U.S. Food and Drug Administration, the FDA, has not established
guidelines concerning the scope of clinical trials required for DNA
therapeutics,
- the FDA has not indicated how many patients it will require to be
enrolled in clinical trials to establish the safety and efficacy of
DNA therapeutics, and
- current regulations are subject to substantial review by various
governmental agencies.
Therefore, U.S. or foreign regulations could prevent or delay
regulatory approval of our products or limit our ability to develop and
commercialize our products. Delays could:
- impose costly procedures on our activities,
- diminish any competitive advantages that we attain, and
- negatively affect our ability to receive royalties.
We believe that the FDA and comparable foreign regulatory bodies will
regulate separately each product containing a particular gene depending on its
intended use. Presently, to commercialize any product we must sponsor and file a
regulatory application for each proposed use. We then must conduct clinical
studies to demonstrate the safety and efficacy of the product necessary to
obtain FDA approval. The results obtained so far in our clinical trials may not
be replicated in our on-going or future trials. This may prevent any of our
potential products from receiving FDA approval.
We use recombinant DNA molecules in our product candidates, and
therefore we also must comply with guidelines instituted by the National
Institutes of Health, the NIH, and its Recombinant DNA Advisory Committee.
The NIH could restrict or delay the development of our products.
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ADVERSE EVENTS IN THE FIELD OF GENE THERAPY, OR WITH RESPECT TO OUR
POTENTIAL PRODUCTS, MAY NEGATIVELY IMPACT REGULATORY APPROVAL OR PUBLIC
PERCEPTION OF OUR PRODUCTS.
The recent death of a patient undergoing a viral-based gene therapy at
the University of Pennsylvania in an investigator-sponsored trial has been
widely publicized. This death and other adverse events in the field of gene
therapy could result in greater governmental regulation of gene therapies,
including our non-viral naked DNA technology, and potential regulatory delays
relating to the testing or approval of our potential products. In addition, the
field of gene therapy is under increased scrutiny, which may affect our product
development efforts or clinical trials.
For example, one patient who had undergone treatment with ALLOVECTIN-7
for advanced metastatic melanoma died more than two months later of progressive
disease and numerous other factors, after receiving multiple other cancer
therapies. The death was originally reported as unrelated to the treatment.
Following an autopsy, the death was reclassified as "probably related" to the
treatment because the possibility could not be ruled out. We do not believe
ALLOVECTIN-7 was a significant factor in the patient's death.
The commercial success of our potential products will depend in part on
public acceptance of the use of gene therapies for the prevention or treatment
of human diseases. Public attitudes may be influenced by claims that gene
therapies are unsafe and our naked DNA therapeutics may not gain the acceptance
of the public or the medical community. Negative public reaction to adverse
events in our trials or gene therapy in general could result in greater
government regulation and stricter labeling requirements of gene therapies,
including our naked DNA therapeutics, and could cause a decrease in the demand
for any products we may develop.
OUR PATENTS AND PROPRIETARY RIGHTS MAY NOT PROVIDE US WITH ANY BENEFIT
AND THE PATENTS OF OTHERS MAY PREVENT US FROM COMMERCIALIZING OUR
PRODUCTS.
Patents may not issue from any of our current applications. Moreover,
if patents do issue, governmental authorities may not allow claims sufficient to
protect our technology. Finally, others may challenge or seek to circumvent or
invalidate patents that are issued to us or to licensors of our technology. In
that event, the rights granted under patents may be inadequate to protect our
proprietary technology or to provide any commercial advantage.
Our core DNA delivery technology is covered by a patent issued in
Europe which is being opposed by several companies under European patent
procedures. If we are not successful in this opposition proceeding we may lose
part or all of our proprietary protection on our potential products in Europe.
Others may have or may receive patents which contain claims applicable
to our products. These patents may impede our ability to commercialize products.
THE LEGAL PROCEEDINGS TO OBTAIN PATENTS AND LITIGATION OF THIRD-PARTY
CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD REQUIRE US TO SPEND
MONEY AND COULD IMPAIR OUR OPERATIONS.
Our success will depend in part on our ability to obtain patent
protection for our products and processes both in the United States and in other
countries. The patent positions of biotechnology and pharmaceutical companies,
however, can be highly uncertain and involve complex legal and factual
questions. Therefore, it is difficult to predict the breadth of claims allowed
in the biotechnology and pharmaceutical fields.
We also rely on protecting our proprietary technology in part through
confidentiality agreements with our corporate collaborators, employees,
consultants and certain contractors. These agreements may be breached and we may
not have adequate remedies for any breach. In addition, our trade secrets may
otherwise become known or independently discovered by our competitors.
Protecting intellectual property rights can be very expensive.
Litigation may be necessary to enforce a patent issued to us or to determine the
scope and validity of third-party proprietary rights. Moreover, if a competitor
were to file a patent application claiming technology also invented by us, we
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would have to participate in an interference proceeding before the U.S. Patent
and Trademark Office or in a foreign counterpart to determine the priority of
the invention. We may be drawn into interferences with third parties or may have
to provoke interferences ourselves to unblock third party patent rights so as to
allow us or our licensees to commercialize products based on our technology.
Litigation could result in substantial costs and the diversion of management's
efforts regardless of the results of the litigation. An unfavorable result in
litigation could subject us to significant liabilities to third parties, require
disputed rights to be licensed or require us to cease using some technology.
Our products and processes may infringe, or be found to infringe on,
patents not owned or controlled by us. We do not know whether any patents held
by others will require us to alter our products or processes, obtain licenses,
or stop activities. If relevant claims of third-party patents are upheld as
valid and enforceable, we could be prevented from practicing the subject matter
claimed in the patents, or may be required to obtain licenses or redesign our
products or processes to avoid infringement. A number of genetic sequences or
proteins encoded by genetic sequences that we are investigating are, or may
become, patented by others. As a result, we may have to obtain licenses to test,
use or market these products. Our business will suffer if we are not able to
obtain licenses at all or on terms commercially reasonable to us and we may not
be able to redesign our products or processes to avoid infringement.
COMPETITION AND TECHNOLOGICAL CHANGE MAY MAKE OUR POTENTIAL PRODUCTS
AND TECHNOLOGIES LESS ATTRACTIVE OR OBSOLETE.
We compete with companies, including major pharmaceutical and
biotechnology firms, that are pursuing other forms of treatment or prevention
for the diseases we target. We also may experience competition from companies
that have acquired or may acquire technology from universities and other
research institutions. As these companies develop their technologies, they may
develop proprietary positions which may prevent us from successfully
commercializing products.
Some of our competitors are established companies with greater
financial and other resources than we have. Other companies may succeed in
developing products earlier than we do, obtaining FDA approval for products more
rapidly than we do, or developing products that are more effective than those we
propose to develop. While we will seek to expand our technological capabilities
to remain competitive, research and development by others will seek to render
our technology or products obsolete or noncompetitive or result in treatments or
cures superior to any therapy developed by us. Additionally, consumers may not
prefer therapies developed by us over existing or newly developed therapies.
THE METHOD OF ADMINISTRATION OF SOME OF OUR POTENTIAL PRODUCTS CAN
CAUSE ADVERSE EVENTS IN PATIENTS, INCLUDING DEATH.
Some of our potential products are designed to be injected directly
into malignant tumors. There are medical risks inherent in direct tumor
injections. For example, in clinical trials of our potential products, attending
physicians have punctured patients' lungs in less than one percent of
procedures, requiring hospitalization. In addition, a physician administering
our product in an investigator-sponsored clinical trial inadvertently damaged
tissue near the heart of a patient which may have precipitated the patient's
death. These events are reported as adverse events in our clinical trials and
illustrate the medical risks related to direct injection of tumors. These risks
may adversely impact market acceptance of some of our products.
COMMERCIALIZATION OF SOME OF OUR POTENTIAL PRODUCTS DEPENDS ON
COLLABORATIONS WITH OTHERS. IF OUR COLLABORATORS ARE NOT SUCCESSFUL OR
IF WE ARE UNABLE TO FIND COLLABORATORS IN THE FUTURE, WE MAY NOT BE
ABLE TO DEVELOP THESE PRODUCTS.
Our strategy for the research, development and commercialization of
some of our product candidates requires us to enter into contractual
arrangements with corporate collaborators, licensors, licensees and others. Our
success depends upon the performance by these collaborators of their
responsibilities under these arrangements. Some collaborators may not perform
their obligations as we expect or we may not derive any revenue from these
arrangements.
We have collaborative agreements with several pharmaceutical companies.
We do not know whether these companies will successfully develop and market any
products under their respective agreements. Moreover, some of our collaborators
are also researching competing technologies to treat
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the diseases targeted by our collaborative programs. We may be unsuccessful in
entering into other collaborative arrangements to develop and commercialize our
products.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN
ADDITIONAL PERSONNEL, WE MAY NOT BE ABLE TO PURSUE COLLABORATIONS OR
DEVELOP OUR OWN PRODUCTS.
We are highly dependent on the principal members of our scientific,
manufacturing, marketing and management personnel, the loss of whose services
might significantly delay or prevent the achievement of our objectives. We face
competition from other companies, academic institutions, government entities and
other organizations in attracting and retaining personnel.
WE MAY NOT BE ABLE TO MANUFACTURE PRODUCTS ON A COMMERCIAL SCALE.
We have limited experience in manufacturing our product candidates in
commercial quantities. We may be dependent initially on corporate partners,
licensees or others to manufacture our products commercially. We also will be
required to comply with extensive regulations applicable to manufacturing
facilities. We may be unable to enter into any arrangement for the manufacture
of our products.
WE HAVE NO MARKETING OR SALES EXPERIENCE, AND IF WE ARE UNABLE TO
DEVELOP OUR OWN SALES AND MARKETING CAPABILITY, WE MAY NOT BE
SUCCESSFUL IN COMMERCIALIZING OUR PRODUCTS.
Our current strategy is to market our proprietary cancer products
directly in the United States, but we currently do not possess pharmaceutical
marketing or sales capabilities. In order to market and sell our proprietary
cancer products, we will need to develop a sales force and a marketing group
with relevant pharmaceutical experience, or make appropriate arrangements with
strategic partners to market and sell these products. Developing a marketing and
sales force is expensive and time consuming and could delay any product launch.
Our inability to successfully employ qualified marketing and sales personnel and
develop our sales and marketing capabilities will harm our business.
HEALTH CARE REFORM AND RESTRICTIONS ON REIMBURSEMENT MAY LIMIT OUR
RETURNS ON POTENTIAL PRODUCTS.
Our ability to earn sufficient returns on our products will depend in
part on the extent to which reimbursement for our products and related
treatments will be available from:
- government health administration authorities,
- private health coverage insurers,
- managed care organizations, and
- other organizations.
If we fail to obtain appropriate reimbursement, it could prevent us
from successfully commercializing our potential products.
There are efforts by governmental and third party payors to contain or
reduce the costs of health care through various means. We expect that there will
continue to be a number of legislative proposals to implement government
controls. The announcement of proposals or reforms could impair our ability to
raise capital. The adoption of proposals or reforms could impair our business.
Additionally third party payors are increasingly challenging the price
of medical products and services. If purchasers or users of our products are not
able to obtain adequate reimbursement for the cost of using our products, they
may forego or reduce their use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and whether
adequate third party coverage will be available.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO
IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME
CONSUMING AND COSTLY.
Our research and development processes involve the controlled storage,
use and disposal of hazardous materials, biological hazardous materials and
radioactive compounds. We are subject to
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federal, state and local regulations governing the use, manufacture, storage,
handling and disposal of materials and waste products. Although we believe that
our safety procedures for handling and disposing of these hazardous materials
comply with the standards prescribed by law and regulation, the risk of
accidental contamination or injury from hazardous materials cannot be
completely eliminated. In the event of an accident, we could be held liable for
any damages that result, and any liability could exceed the limits or fall
outside the coverage of our insurance. We may not be able to maintain insurance
on acceptable terms, or at all. We could be required to incur significant costs
to comply with current or future environmental laws and regulations.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE.
We face an inherent business risk of exposure to product liability and
other claims in the event that our technologies or products are alleged to have
caused harm. These risks are inherent in the development of chemical and
pharmaceutical products. Although we currently maintain product liability
insurance, we may not have sufficient insurance coverage and we may not be able
to obtain sufficient coverage at a reasonable cost. Our inability to obtain
product liability insurance at an acceptable cost or to otherwise protect
against potential product liability claims could prevent or inhibit the
commercialization of any products developed by us or our collaborators. We also
have liability for products manufactured by us on a contract basis for third
parties. If we are sued for any injury caused by our technology or products, our
liability could exceed our total assets.
OUR STOCK PRICE COULD CONTINUE TO BE HIGHLY VOLATILE AND YOU MAY NOT BE
ABLE TO RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM.
The market price of our common stock, like that of many other life
sciences companies, has been highly volatile and is likely to continue to be
highly volatile. The following factors, among others, could have a significant
impact on the market price of our common stock:
- the results of our preclinical studies and clinical trials or those
of our collaborators or competitors or for DNA therapeutics in
general,
- evidence of the safety or efficacy of our potential products or the
products of our competitors,
- the announcement by us or our competitors of technological
innovations or new products,
- governmental regulatory actions,
- changes or announcements in reimbursement policies,
- developments with our collaborators,
- developments concerning our patent or other proprietary rights or
those of our competitors, including litigation,
- concern as to the safety of our potential products,
- period-to-period fluctuations in our operating results,
- market conditions for life science stocks in general, and
- changes in estimates of our performance by securities analysts.
IF WE, OUR STRATEGIC PARTNERS OR OUR SUPPLIERS FAIL TO REMEDY YEAR 2000
ISSUES, OUR PRODUCT DEVELOPMENT PROGRAMS COULD BE INTERRUPTED AND OUR
BUSINESS AND OPERATING RESULTS COULD BE HARMED.
If we, our strategic partners, or our suppliers of goods and services
fail to remedy any Year 2000 issues, our business operations and development
programs could be interrupted. Through March 1, 2000, we have not experienced
any immediate adverse impacts related to the Year 2000, including the impacts of
the Year 2000 being a leap year. However, there may be adverse events which have
occurred but which are not yet apparent to us, our strategic partners and our
suppliers. We will continue to monitor our Year 2000 compliance and that of our
strategic partners and suppliers. Our costs for Year 2000 compliance have been
immaterial. We do not believe that Year 2000 issues will have a material impact
on our business, financial condition or results of operations.
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OUR ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE POTENTIAL TAKEOVER
ATTEMPTS AND MAKE ATTEMPTS BY STOCKHOLDERS TO CHANGE MANAGEMENT MORE
DIFFICULT.
The approval of two-thirds of our voting stock is required to approve
some transactions and to take some stockholder actions, including the calling of
a special meeting of stockholders and the amendment of any of the anti-takeover
provisions contained in our certificate of incorporation. Further, pursuant to
the terms of our stockholder rights plan adopted in March 1995, we have
distributed a dividend of one right for each outstanding share of common stock.
These rights will cause substantial dilution to the ownership of a person or
group that attempts to acquire us on terms not approved by our Board of
Directors and may have the effect of deterring hostile takeover attempts.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
EXHIBIT 10.21* License Agreement dated February 24, 2000 between
Vical and Human Genome Sciences, Inc.
EXHIBIT 10.22* License Agreement dated February 24, 2000 between
Vical and Vascular Genetics Inc.
* Vical has requested confidential treatment of certain portions of
these agreements.
EXHIBIT 27 Financial Data Schedule
2. Reports on Form 8-K
None
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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: May 12, 2000 By: /s/ MARTHA J. DEMSKI
--------------------
Martha J. Demski
Vice President and Chief
Financial Officer (on behalf of
the registrant and as the
registrant's Principal Financial
and Accounting Officer)
20
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C> <C>
1. Exhibit 10.21* License Agreement dated February 24, 2000
between Vical and Human Genome Sciences, Inc.
Exhibit 10.22* License Agreement dated February 24, 2000
between Vical and Vascular Genetics Inc.
* Vical has requested confidential treatment of
certain portions of these agreements.
2. Exhibit 27 Financial Data Schedule
</TABLE>
21
<PAGE>
EXHIBIT 10.21
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]
LICENSE AGREEMENT
BETWEEN
HUMAN GENOME SCIENCES, INC.
AND
VICAL INCORPORATED
FEBRUARY 24, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1 BACKGROUND 1
2 DEFINITIONS 2
3 GRANTS AND COVENANTS 7
4 HGS PRODUCTS 11
5 VICAL PRODUCTS 13
6 MILESTONES AND ROYALTIES 16
7 TECHNOLOGY TRANSFER 20
8 PRODUCT DEVELOPMENT 21
9 CONFIDENTIALITY 23
10 PATENT PROSECUTION AND LITIGATION 25
11 STATEMENTS AND REMITTANCES 28
12 TERM AND TERMINATION 29
13 WARRANTIES AND REPRESENTATIONS 31
14 INDEMNIFICATION 33
15 FORCE MAJEURE 35
16 DISPUTE RESOLUTION 35
17 SEPARABILITY 36
18 ENTIRE AGREEMENT 36
19 NOTICES 37
20 ASSIGNMENT AND CHANGE OF CONTROL 38
21 COUNTERPARTS 38
22 WAIVER 38
23 INDEPENDENT RELATIONSHIP 39
24 FURTHER ACTIONS 39
</TABLE>
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LICENSE AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of the 24th of February 2000 (the
"Effective Date"), is entered into by Human Genome Sciences, Inc. ("HGS"), a
Delaware corporation, having a place of business at 9410 Key West Avenue,
Rockville, Maryland 20850, and Vical Incorporated ("VICAL"), a Delaware
corporation, having a place of business at 9373 Towne Center Drive, San Diego,
California 92121.
1 BACKGROUND
1.1 HGS is in possession of certain human gene sequence information and has
the ability and desire to develop and commercialize and to have
developed and commercialized gene therapy products based on that
sequence information.
1.2 VICAL is in possession of certain gene therapy delivery methods and has
the ability and desire to develop and commercialize and to have
developed and commercialized gene therapy products based on those
delivery methods.
1.3 Vascular Genetics Inc. ("VGI") has an exclusive license from HGS for
the use of the gene Vascular Endothelial Growth Factor-2 ("VEGF-2") in
the gene therapy treatment of vascular diseases. HGS holds a
significant equity interest in VGI.
1.4 HGS, VICAL, and VGI have agreed in an Investment Agreement, dated
February 24, 2000 (the "Investment Agreement") to undertake a series of
transactions in which (1) VGI will receive a license from VICAL for the
use of VICAL's gene therapy delivery methods in conjunction with
VEGF-2; (2) HGS will receive a license from VICAL for the use of
certain VICAL technology with respect to certain genes; (3) VICAL will
receive a license from HGS for the use of certain genes as gene therapy
products; (4) VICAL will receive an equity interest in VGI, which VGI
will have certain rights to redeem; and (5) HGS will receive additional
equity in VGI and will have returned to it by VGI rights to certain
genes licensed to VGI by HGS.
<PAGE>
1.5 To effect this series of transactions pursuant to the terms and
conditions of the Investment Agreement, this Agreement is being
simultaneously executed with (1) a license agreement between VICAL and
VGI; (2) a second amendment to the license agreement between HGS and
VGI; (3) certain other agreements, all as set forth in the Investment
Agreement.
2 DEFINITIONS.
2.1 "AFFILIATE" shall mean any individual or entity directly or indirectly
controlling, controlled by or under common control with, the specified
individual or entity. For purposes of this Agreement, the direct or
indirect ownership of fifty percent (50%) or more of the outstanding
voting securities of an entity, or the right to receive fifty (50%) or
more of the profits or earnings of an entity shall be deemed to
constitute control. 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 shall also constitute control.
2.2 "CONFIDENTIAL INFORMATION" shall mean, with respect to a party, all
information (and all tangible and intangible embodiments thereof),
which is owned or controlled by such party, is disclosed by such party
to the other party pursuant to this Agreement and (if disclosed in
writing or other tangible medium) is marked or identified as
confidential at the time of disclosure to the receiving party or (if
otherwise disclosed) is identified as confidential at the time of
disclosure to the receiving party and described as such in writing
within thirty (30) days after such disclosure. Notwithstanding the
foregoing, CONFIDENTIAL INFORMATION of a party shall not include
information which, and only to the extent, the receiving party can
establish by written documentation (a) has been publicly known prior to
disclosure of such information by the disclosing party to the receiving
party, (b) has become publicly known, without fault on the part of the
receiving party, subsequent to disclosure of such information by the
disclosing party to the receiving party, (c) has been received by the
receiving party at any time from a source, other than the disclosing
party, rightfully having possession of and the right to disclose such
information free of confidentiality obligations, (d) has been otherwise
known by the receiving party free of confidentiality obligations prior
to disclosure of such information by the disclosing party to the
receiving party, or (e) has been independently developed by
-2-
<PAGE>
employees or others on behalf of the receiving party without access to
or use of such information disclosed by the disclosing party to the
receiving party.
2.3 "CYTOFECTIN DELIVERY TECHNOLOGY" shall mean all patentable or
unpatentable inventions, discoveries, technology and information of any
type whatsoever, including without limitation compositions, methods,
processes, confidential information, technical information, knowledge,
experience and know-how regarding the use of cytofectins (including
cationic lipids) in the delivery of GENES into a patient for the
treatment or prevention of one or more diseases or conditions; in each
case which is owned by or licensed to VICAL on the Effective Date or
during the term of this Agreement, all to the extent and only to the
extent that VICAL now has or hereafter will have the right to grant
licenses, immunities or other rights thereunder.
2.4 "DIRECT INJECTION TECHNOLOGY" shall mean all patentable or unpatentable
inventions, discoveries, technology and information of any type
whatsoever, including without limitation compositions, methods,
processes, confidential information, technical information, knowledge,
experience and know-how regarding the direct injection of GENES
(including plasmid DNA-based delivery technology) into a patient to
cause the IN VIVO expression of a desired protein, thereby effecting
delivery of such protein, to a patient for the treatment or prevention
of one or more diseases or conditions; in each case which is owned by
or licensed to VICAL on the Effective Date or during the term of this
Agreement, all to the extent and only to the extent that VICAL now has
or will have during the term of this Agreement the right to grant
licenses, immunities or other rights thereunder.
2.5 "DNA PROCESS TECHNOLOGY" shall mean all patentable or unpatentable
inventions, discoveries, technology and information of any type
whatsoever, including without limitation compositions, methods,
processes, confidential information, technical information, knowledge,
experience and know-how regarding technologies related to the
manufacture and processing of plasmid DNA for human use; in each case ,
which is owned by or licensed to VICAL on the Effective Date or during
the term of this Agreement, all to the extent and only to the extent
that VICAL now has or will have during the term of this Agreement the
right to grant licenses, immunities or other rights
-3-
<PAGE>
thereunder.
2.6 "EXCLUSIVE HGS PRODUCT" means any product or part thereof (a) the
manufacture, use or sale of which is covered by an VICAL PATENT or is
otherwise based on, uses or incorporates the VICAL TECHNOLOGY and (b)
comprises an HGS RESEARCH GENE as to which HGS has exercised an option
under Paragraph 3.2 and been granted a license under Paragraph 4.3.
2.7 "EXCLUSIVE VICAL PRODUCT" means any product or part thereof (a) the
manufacture, use, or sale of which is covered by a HGS PATENT or is
otherwise based on, uses or incorporates the HGS TECHNOLOGY, and (b)
comprises a VICAL RESEARCH GENE as to which VICAL has exercised an
option under Paragraph 3.6 and been granted a license under Paragraph
5.4.
2.8 "FIELD" shall mean the intervention, treatment and/or prevention of a
disease or disorder in humans by GENE THERAPY.
2.9 "GENE" shall mean a human nucleotide sequence, including DNA, RNA and
complementary and reverse complementary nucleotide sequences thereto,
whether coding or non-coding and whether intact or a fragment.
2.10 "GENE THERAPY" shall mean the treatment or prevention of a disease, or
remedying a gene deficiency of humans by genetic modification of
somatic cells (IN VIVO or EX VIVO) with DNA whereby an active
transcription process results in the expression of a protein or
oligo(poly)nucleotide encoded by said DNA in a human.
2.11 "HGS DATABASES" shall mean all data and information which during the
term of this Agreement is owned by HGS or to which HGS has the right to
grant access, regarding (i) sequence data with respect to genetic
material (and the corresponding clones) and expression products
thereof, (ii) information on biological function of such genetic
material and expression products, and (iii) clones, cell lines and
vectors.
2.12 "HGS IMPROVEMENTS" shall mean all patentable or unpatentable
inventions, discoveries, or other technology regarding VICAL RESEARCH
GENES or the protein(s)
-4-
<PAGE>
encoded thereby or the use of either of the foregoing, but expressly
excluding a formulation or combination of a GENE and the delivery
vehicle for such GENE, made or conceived by VICAL solely or jointly
with others during the term of this Agreement.
2.13 "HGS PATENT(S)" shall mean (a) all patent applications filed in any
country before or after the Effective Date; (b) all patents that have
issued or in the future issue from any of the foregoing patent
applications, including without limitation, utility and design patents
and certificates of invention; and (c) all continuations,
continuations-in-part, divisionals, additions, reissues, renewals,
re-examinations or extensions, or SPCs to any such patents and patent
applications; in each case which during the term of this Agreement are
or become owned by HGS or to which HGS otherwise has, now or in the
future, the right to grant licenses and which claim in whole or in part
GENES, HGS TECHNOLOGY or the use thereof in the FIELD.
2.14 "HGS RESEARCH GENE" shall mean a GENE identified by HGS pursuant to
Paragraph 7.3.
2.15 "HGS TECHNOLOGY" shall mean (a) sequence data with respect to human DNA
(and the corresponding clones) and expression products, (b) information
on biological function of GENES, and (c) HGS clones, cell lines and
vectors and all related information and data which during the term of
this Agreement, are owned by HGS or to which HGS otherwise has the
right to grant licenses, immunities or other rights thereunder.
2.16 "IND" shall mean an Investigational New Drug application filed with the
Food and Drug Administration in the United States, or any similar
filing with any foreign regulatory authority, to commence human
clinical testing of a PRODUCT in any country.
2.17 "NET SALES" shall mean, with respect to a PRODUCT, the gross sales
price invoiced by the seller (calculated on a PRODUCT by PRODUCT basis)
to THIRD PARTIES that are not (sub)licensees (except as set forth
below), less normal and customary deductions actually paid or accrued
by the seller for (i) normal and customary trade, cash and quality
credits, discounts, refunds or government rebates; (ii) credits for
claims, allowances or returns; retroactive price reductions;
chargebacks or the like; and (iii) sales taxes, duties and other
government charges (including value added tax), but excluding what is
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commonly known as income taxes. NET SALES shall not include sales among
the seller, its (sub)licensees and their respective AFFILIATES for
resale, provided that NET SALES shall include the amounts invoiced by
the seller, its sublicensees and their respective AFFILIATES to THIRD
PARTIES on the resale of such PRODUCT. Sales between or among a party,
its (sub)licensees and their respective AFFILIATES shall be included
within NET SALES only if such purchaser is an end-user of such PRODUCT.
2.18 "PRODUCT(S)" shall mean EXCLUSIVE VICAL PRODUCT(S) and EXCLUSIVE HGS
PRODUCT(S).
2.19 "RESEARCH PLAN" shall mean a plan for research and development of a
PRODUCT in the FIELD, which includes, at a minimum, scientific data,
research and development efforts, and research and development
milestones.
2.20 "RESEARCH TERM" shall mean the period beginning on the Effective Date
and ending on September 30, 2004.
2.21 "SB" shall mean SmithKline Beecham Corporation and/or SmithKline
Beecham p.l.c., as defined in the SB/HGS LICENSE AGREEMENT.
2.22 "SB/HGS LICENSE AGREEMENT" shall mean the SB/HGS License Agreement
dated June 28, 1996 between SmithKline Beecham Corporation, SmithKline
Beecham p.l.c. and Human Genome Sciences, Inc., as the same may be
amended from time to time.
2.23 "SP" shall mean Schering Corporation and/or Schering Plough Ltd., as
defined in the SP/HGS GENE THERAPY LICENSE AGREEMENT.
2.24 "SP/HGS GENE THERAPY LICENSE AGREEMENT" shall mean the Gene Therapy
Collaboration and License Agreement between HGS and SP, dated June 28,
1996.
2.25 "SPC" shall mean a right based upon an underlying patent such as a
Supplementary Protection Certificate.
2.26 "THIRD PARTY" shall mean any party other than HGS or VICAL or an
AFFILIATE of
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VICAL or HGS.
2.27 "VICAL IMPROVEMENTS" shall mean all patentable or unpatentable
inventions, discoveries or other technology regarding VICAL TECHNOLOGY,
but expressly excluding a formulation or combination of a GENE and the
delivery vehicle for such GENE, made or conceived by HGS solely or
jointly with others during the term of this Agreement, and which
resulted from the use of VICAL TECHNOLOGY.
2.28 "VICAL PATENT(S)" shall mean (a) all patent applications filed in any
country before or after the Effective Date; (b) all patents that have
issued or in the future issue from any of the foregoing patent
applications, including without limitation, utility and design patents
and certificates of invention, further including but not limited to
those patents listed in Appendix A; and (c) all continuations,
continuations-in-part, divisional, additions, reissues, renewals,
re-examinations or extensions, or SPCs to any such patents and patent
applications; in each case which during the term of this Agreement are
or become owned by VICAL or to which VICAL otherwise has, now or in the
future, the right to grant licenses and which claim in whole or in part
VICAL TECHNOLOGY or the use thereof in the FIELD.
2.29 "VICAL RESEARCH GENE" shall mean a GENE identified by VICAL pursuant to
Paragraph 7.2.
2.30 "VICAL TECHNOLOGY" shall mean (a) DIRECT INJECTION TECHNOLOGY, (b)
CYTOFECTIN DELIVERY TECHNOLOGY, and (c) DNA PROCESS TECHNOLOGY.
3 GRANTS AND COVENANTS
HGS PRODUCTS
3.1 Subject to the terms and conditions of this Agreement, VICAL grants to
HGS a non-exclusive, non-transferable, worldwide license (without the
right to grant sublicenses) under VICAL TECHNOLOGY and VICAL PATENTS to
perform research and preclinical development in the FIELD during the
RESEARCH TERM using HGS RESEARCH GENES.
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3.2 Subject to the terms and conditions of this Agreement, VICAL hereby
grants to HGS non-exclusive, non-transferable options to obtain
licenses under Paragraph 3.3 for up to three (3) HGS RESEARCH GENES
exercisable during the RESEARCH TERM of this Agreement in accordance
with the provisions of Article 4.
3.3 Subject to the terms and conditions of this Agreement, with respect to
EXCLUSIVE HGS PRODUCTS directed to an HGS RESEARCH GENE for which HGS
has exercised an option under Paragraph 3.2 and VICAL is obligated to
grant a license pursuant to Paragraph 4.3, VICAL grants to HGS an
exclusive worldwide license (with the right to grant sublicenses) under
VICAL TECHNOLOGY and VICAL PATENTS to research, develop, make, have
made, use, import, export, offer to sell and sell such EXCLUSIVE HGS
PRODUCTS in the FIELD.
3.4 For any sublicense granted by HGS to an AFFILIATE or THIRD PARTY
pursuant to the provisions of Paragraph 3.3, HGS shall provide VICAL
with a copy of each sublicense granted hereunder promptly after
executing the same; provided, however, that HGS shall have the right to
redact any confidential terms from the copy provided to VICAL. Any such
sublicense shall be subject and subordinate to the terms and conditions
of this Agreement, and HGS shall remain responsible for all payments
due to VICAL.
VICAL PRODUCTS
3.5 Subject to the terms and conditions of this Agreement, HGS grants to
VICAL a non-exclusive, non-transferable, worldwide license (without the
right to grant sublicenses), under HGS TECHNOLOGY and HGS PATENTS to
perform research and preclinical development in the FIELD during the
RESEARCH TERM using VICAL RESEARCH GENES.
3.6 Subject to the terms and conditions of this Agreement, HGS hereby
grants to VICAL non-exclusive, non-transferable options to obtain
licenses under Paragraph 3.7 for up to three (3) VICAL RESEARCH GENES
exercisable during the RESEARCH TERM of this Agreement in accordance
with the provisions of Article 5.
3.7 Subject to the terms and conditions of this Agreement, with respect to
EXCLUSIVE
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VICAL PRODUCTS directed to a VICAL RESEARCH GENE for which VICAL has
exercised an option under Paragraph 3.6 and HGS is obligated to grant
a license pursuant to Paragraph 5.3, HGS grants to VICAL an exclusive
worldwide license (with the right to grant sublicenses) under HGS
TECHNOLOGY and HGS PATENTS to research, develop, make, have made, use,
import, export, offer to sell and sell such EXCLUSIVE VICAL PRODUCTS
in the FIELD.
3.8 For any sublicense granted by VICAL to an AFFILIATE or THIRD PARTY
pursuant to the provisions of Paragraph 3.7, VICAL shall provide HGS
with a copy of each sublicense granted hereunder promptly after
executing the same; provided, however, that VICAL shall have the right
to redact any confidential terms from the copy provided to HGS. Any
such sublicense shall be subject and subordinate to the terms and
conditions of this Agreement, and VICAL shall remain responsible for
all payments due to HGS.
MISCELLANEOUS
3.9 During and after the RESEARCH TERM, VICAL agrees to use HGS TECHNOLOGY
and HGS PATENTS only as licensed and permitted hereunder. During and
after the RESEARCH TERM, HGS agrees to use VICAL TECHNOLOGY and VICAL
PATENTS only as licensed and permitted hereunder.
3.10 The rights and licenses granted to HGS by VICAL are sublicensable
and/or transferable by HGS to a THIRD PARTY only with respect to a
specific EXCLUSIVE HGS PRODUCT and only in accordance with the
provisions of this Agreement. The rights and licenses granted to VICAL
by HGS are licensable and/or transferable by VICAL to a THIRD PARTY
only with respect to a specific EXCLUSIVE VICAL PRODUCT and only in
accordance with the provisions of this Agreement.
3.11 Notwithstanding anything to the contrary in this Agreement, HGS shall
not grant any rights or license to a THIRD PARTY with respect to an
EXCLUSIVE HGS PRODUCT unless HGS has first demonstrated IN VIVO
biological activity for the EXCLUSIVE HGS PRODUCT in a relevant animal
model. VICAL shall not grant any rights or license to a THIRD PARTY
with respect to an EXCLUSIVE VICAL PRODUCT unless VICAL has first
demonstrated IN VIVO biological activity for the EXCLUSIVE VICAL
PRODUCT in
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a relevant animal model. Such evidence of IN VIVO biological activity
must be statistically different (p < 0.05) from control for at least
one data point.
3.12 Notwithstanding anything to the contrary herein, HGS shall own all
right, title and interest in and to the HGS IMPROVEMENTS and all
intellectual property rights therein and thereto. VICAL hereby
irrevocably assigns, transfers and conveys to HGS all right, title and
interest in and to the HGS IMPROVEMENTS and all intellectual property
rights therein and thereto. VICAL shall take, and shall cause its
AFFILIATES to take any and all actions and execute and deliver (or
cause to be executed or delivered) any and all documents reasonably
requested by HGS, at HGS' expense, in order to effect the foregoing
assignment.
3.13 HGS hereby grants VICAL a non-exclusive, royalty-free, perpetual,
worldwide, sublicensable license to HGS IMPROVEMENTS and the claims of
any HGS PATENT covering such HGS IMPROVEMENTS but only to the extent
that such claims cover HGS IMPROVEMENTS.
3.14 Notwithstanding anything to the contrary herein, VICAL shall own all
right, title and interest in and to the VICAL IMPROVEMENTS and all
intellectual property rights therein and thereto. HGS hereby
irrevocably assigns, transfers and conveys to VICAL all right, title
and interest in and to the VICAL IMPROVEMENTS and all intellectual
property rights therein and thereto. HGS shall take, and shall cause
its AFFILIATES to take any and all actions and execute and deliver (or
cause to be executed or delivered) any and all documents reasonably
requested by VICAL, at VICAL's expense, in order to effect the
foregoing assignment.
3.15 VICAL hereby grants HGS a non-exclusive, royalty-free, perpetual,
worldwide, sublicensable license to VICAL IMPROVEMENTS and the claims
of any VICAL PATENT covering such VICAL IMPROVEMENTS, but only to the
extent that such claims cover VICAL IMPROVEMENTS.
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3.16 Notwithstanding anything to the contrary herein, during the period
commencing upon the Effective Date and ending ***, HGS shall not
request and VICAL shall not grant to HGS any license rights regarding
GENES encoding ***.
3.17 No rights, other than those expressly set forth in this Agreement, are
granted to HGS or VICAL hereunder, and no additional rights shall be
granted to VICAL or HGS by implication, estoppel or otherwise.
4 HGS PRODUCTS
4.1 If HGS desires to exercise an option under Paragraph 3.2 for an HGS
RESEARCH GENE, HGS shall do so by submitting to VICAL a written notice
that describes the HGS RESEARCH GENE for which HGS seeks an exclusive
license to use VICAL TECHNOLOGY and VICAL PATENTS. Such notice shall
include the HGS Clone ID Number, the common name of such GENE, the
amino acid sequence encoded by the GENE, and any other publicly known
names of the GENE or the amino acid sequence.
4.2 VICAL shall grant an exclusive license pursuant to Paragraph 3.3 to the
HGS RESEARCH GENE identified in such notice provided that (1) VICAL has
not previously granted a license to a THIRD PARTY with respect to the
identified GENE or essentially the same GENE; or (2) VICAL has not
previously begun an active gene therapy program on such GENE or
essentially the same gene. For the purposes of this Agreement the term
"essentially the same" shall mean that the sequence of nucleotides
comprising the GENE is at least *** homologous to such GENE. In the
event that VICAL indicates to HGS that VICAL has previously begun a
program to research and/or develop a product in the FIELD which
utilizes, comprises, or is based on such GENE or essentially the same
GENE, within sixty (60) days thereafter HGS shall have the right to
notify VICAL that HGS at its cost and expense will have an independent
THIRD PARTY reasonably acceptable to VICAL inspect VICAL's records with
respect thereto solely for the purpose of verifying that VICAL has
previously begun such research and development. VICAL
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*** Confidential material redacted and separately filed with the Commission.
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shall permit such independent THIRD PARTY to effect such inspection
within a reasonable time after such notification provided that such
THIRD PARTY signs an agreement of confidentiality acceptable to VICAL
which includes a covenant that the only information which will be
provided to HGS is whether or not VICAL has in fact begun such research
and/or development.
4.3 Within thirty (30) days after receipt of a notice pursuant Paragraph
4.1, VICAL shall notify HGS in writing if VICAL does not have the right
to grant HGS the license under Paragraph 3.3 for such GENE. Unless
VICAL timely notifies HGS in writing that it does not have such a
right, VICAL hereby grants to HGS the exclusive license under Paragraph
3.3 for EXCLUSIVE HGS PRODUCTS directed to such GENE.
4.4 Following a grant to HGS under Paragraph 4.3 above, HGS shall not
exercise its option for its second or third GENE, as the case may be,
until the earlier of (a) the date on which HGS has granted to VICAL the
first or second, as the case may be, exclusive license pursuant to
Paragraph 3.7 for a GENE; or (b) the date *** after the date on which
VICAL has granted to HGS its immediately preceding exclusive license
pursuant to Paragraph 3.3 (the "HGS Holding Period"); provided,
however, if VICAL receives written notice pursuant to Paragraph 5.2 or
5.4 that a GENE requested by VICAL is not available, the HGS Holding
Period shall continue until the later of (i) the expiration of the ***
described in clause (b) above, and (ii) the earlier of (A) the date ***
after the date on which VICAL receives the latest written notice from
HGS pursuant to Paragraph 5.2 or 5.4, and (B) the date *** after the
expiration of the *** described in clause (b) above.
4.5 Within thirty (30) days of the grant of each license under Paragraph
3.3, HGS shall provide VICAL with a RESEARCH PLAN for each HGS RESEARCH
GENE for which license rights are granted.
4.6 HGS will have the sole responsibility for development and
commercialization of EXCLUSIVE HGS PRODUCTS.
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*** Confidential material redacted and separately filed with the Commission.
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4.7 VICAL agrees not to grant to any THIRD PARTY any rights or licenses in
or to an EXCLUSIVE HGS PRODUCT or to the use of VICAL TECHNOLOGY or
VICAL PATENTS with respect to essentially the same GENE which is
encompassed by such EXCLUSIVE HGS PRODUCT.
4.8 HGS may not exercise an option to obtain an exclusive license under
Paragraph 3.3 for EXCLUSIVE HGS PRODUCTS directed to more than three
(3) GENES during the term of this Agreement.
4.9 During the term of this Agreement and for a period of two (2) years
thereafter, HGS shall keep complete and accurate records of its
research and development activities conducted under this Agreement
regarding EXCLUSIVE HGS PRODUCTS and the results thereof. Within thirty
(30) days after the end of each calendar year during the term of this
Agreement, HGS shall prepare and provide VICAL with a reasonably
detailed written report of such activities and results through such
date.
5 VICAL PRODUCTS
5.1 If VICAL desires to exercise an option under Paragraph 3.6 for a VICAL
RESEARCH GENE, VICAL may do so by submitting to HGS a written notice
that describes the GENE for which VICAL seeks an exclusive license.
Such notice shall include the HGS Clone ID Number, the common name of
the GENE, the amino acid sequence encoded by the GENE, and any other
publicly known names of the GENE or the amino acid sequence.
5.2 HGS shall grant an exclusive license pursuant to Paragraph 3.7 to the
GENE identified in such notice provided that (1) HGS has not previously
granted a license to a THIRD PARTY with respect to such GENE or
essentially the same GENE; (2) the GENE is not directed to a
therapeutic protein that HGS has obtained exclusive rights to pursuant
to the SB/HGS LICENSE AGREEMENT and similar collaboration agreements;
(3) HGS has not previously begun an active gene therapy program on the
GENE or essentially the same GENE; or (4) SP has not exercised its
option as described in Paragraph 5.3. For the purposes of this
Agreement the term "essentially the same" shall mean that the sequence
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of nucleotides comprising the GENE incorporated in a product for GENE
THERAPY licensed to a THIRD PARTY, or under development by HGS, is at
least *** homologous to such GENE. In the event that HGS indicates to
VICAL that HGS has previously begun a program to research and/or
develop a product in the FIELD which utilizes, comprises or is based on
such GENE or essentially the same GENE, within sixty (60) days
thereafter VICAL shall have the right to notify HGS that VICAL at its
cost and expense will have an independent THIRD PARTY reasonably
acceptable to HGS inspect HGS' records with respect thereto solely for
the purpose of verifying that HGS has previously begun such research
and development. HGS shall permit such independent THIRD PARTY to
effect such inspection within a reasonable time after such notification
provided that such THIRD PARTY signs an agreement of confidentiality
acceptable to HGS which includes a covenant that the only information
which will be provided to VICAL is whether or not HGS has in fact begun
such research and/or development.
5.3 Under the terms of the SP/HGS GENE THERAPY LICENSE AGREEMENT, HGS may
not license a GENE to VICAL without first notifying SP and offering SP
the right to license such GENE. SP has the right to exercise its option
to such GENE within thirty (30) days after such notice from HGS.
Accordingly, upon written notice from VICAL pursuant to Section 5.1 of
its intent to exercise its option to a GENE, and if such GENE would
otherwise be available for licensing to VICAL except for the SP option,
HGS within ten (10) business days shall notify SP in writing that HGS
intends to license the GENE to a THIRD PARTY. Such notice shall not
identify VICAL as the THIRD Party. If SP fails to exercise the option
within the thirty (30) day period, HGS shall grant an exclusive license
to VICAL for the EXCLUSIVE VICAL PRODUCT.
5.4 Within ten (10) days after expiration of the SP option period described
in Paragraph 5.3, HGS shall notify VICAL in writing if HGS does not
have the right to grant VICAL the license under Paragraph 3.7 for such
GENE. Unless HGS timely notifies VICAL in writing that it does not have
such a right, HGS hereby grants to VICAL the exclusive
____________
*** Confidential material redacted and separately filed with the Commission.
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license under Paragraph 3.7 for EXCLUSIVE VICAL PRODUCTS directed to
such GENE.
5.5 Following a grant to VICAL under Paragraph 5.4 above, VICAL shall not
exercise its option for its second or third GENE, as the case may be,
until the earlier of (a) the date on which VICAL has granted to HGS the
first or second, as the case may be, exclusive license pursuant to
Paragraph 3.3 for a GENE; or (b) the date *** after the date on which
HGS has granted to VICAL its immediately preceding exclusive license
pursuant to Paragraph 3.7 (the "VICAL Holding Period"); provided,
however, if HGS receives written notice pursuant to Paragraph 4.2 or
4.3 that a GENE requested by HGS is not available, the VICAL Holding
Period shall continue until the later of (i) the expiration of the ***
described in clause (b) above, and (ii) the earlier of (A) the date ***
after the date on which HGS receives the latest written notice from
VICAL pursuant to Paragraph 4.2 or 4.3, and (B) the date *** after the
expiration of the *** described in clause (b) above.
5.6 Within thirty (30) days of the grant of the license under Paragraph 3.7
VICAL shall provide HGS with a RESEARCH PLAN for each VICAL RESEARCH
GENE for which license rights are granted.
5.7 VICAL will have the sole responsibility for development and
commercialization of EXCLUSIVE VICAL PRODUCTS.
5.8 HGS agrees not to grant to any THIRD PARTY any rights or licenses in or
to an EXCLUSIVE VICAL PRODUCT or to the use of HGS TECHNOLOGY or HGS
PATENTS in the FIELD with respect to essentially the same GENE which is
encompassed by such EXCLUSIVE VICAL PRODUCT.
5.9 VICAL may not exercise an option to obtain an exclusive license under
Paragraph 3.6 for EXCLUSIVE VICAL PRODUCTS directed to more than three
(3) GENES during the term of this Agreement.
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*** Confidential material redacted and separately filed with the Commission.
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5.10 During the term of this Agreement and for a period of two (2) years
thereafter, VICAL shall keep complete and accurate records of its
research and development activities conducted under this Agreement
regarding EXCLUSIVE VICAL PRODUCTS and the results thereof. Within
thirty (30) days after the end of each calendar year during the term of
this Agreement, VICAL shall prepare and provide HGS with a reasonably
detailed written report of such activities and results through such
date.
6 MILESTONES AND ROYALTIES
EXCLUSIVE HGS PRODUCT
6.1 Within thirty (30) days of the granting by VICAL of an exclusive
license for each EXCLUSIVE HGS PRODUCT, HGS shall pay to VICAL the sum
of ***.
6.2 For the second and third EXCLUSIVE HGS PRODUCTS for which HGS obtains a
license under Paragraph 3.3, but not for the first such EXCLUSIVE HGS
PRODUCT, HGS shall pay to VICAL a milestone payment of *** upon start
of a Phase III clinical trial. Such milestone payment shall be due and
payable within thirty (30) days after the start of the trial, which for
the purpose of this Paragraph 6.2 shall be the date the first patient
is enrolled in the trial. In the event that no Phase III clinical trial
is initiated prior to submission of an application for regulatory
approval (e.g., a New Drug Application or a Biological License
Application) of the PRODUCT, such milestone payment shall be due on the
date such submission is submitted to the appropriate regulatory
authority. The milestone payments provided in this Paragraph 6.2 shall
only be made once for each EXCLUSIVE HGS PRODUCT and shall not be made
in the case of improvements or modifications such as, but not limited
to, changed forms, formats, formulations, indications, processes or
protocols of an EXCLUSIVE HGS PRODUCT for which the payments were
previously made.
6.3 Subject to Paragraph 6.4, for each EXCLUSIVE HGS PRODUCT, HGS shall pay
to
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*** Confidential material redacted and separately filed with the Commission.
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VICAL a royalty of *** of NET SALES of the PRODUCT sold by HGS, and its
(sub)licensees and their respective AFFILIATES.
6.4 Royalty obligations under Paragraph 6.3, with respect to an EXCLUSIVE
HGS PRODUCT, shall terminate on a country-by-country basis and on an
EXCLUSIVE HGS PRODUCT by EXCLUSIVE HGS PRODUCT basis on the later of
(i) *** after first country-wide launch of such PRODUCT in such country
or (ii) expiration of the last to expire VICAL PATENT licensed to HGS
under this Agreement which covers the making, having made, importing,
exporting, offering to sell or using or selling of such PRODUCT in such
country.
6.5 In the event that HGS licenses an EXCLUSIVE HGS PRODUCT to a THIRD
PARTY, HGS shall pay VICAL a percentage of all revenues received under
the license for the EXCLUSIVE HGS PRODUCT, other than revenues received
as earned royalties, or payments for R&D services provided by HGS to
the licensee or monies to purchase equity in HGS at fair market value.
The percentage applied to such payments will vary according to the
development stage of the PRODUCT at the time such a license agreement
is entered into, as follows:
(a) If such PRODUCT is licensed to a THIRD PARTY prior to the
filing of an IND in the United States (or its foreign
equivalent in a Major Country), the percentage shall be ***;
(b) If such PRODUCT is licensed to a THIRD PARTY after the filing
of an IND in the United States (or its foreign equivalent in a
Major Country) but before the completion of an initial Phase
II(a) clinical trial, the percentage shall be ***;
(c) If such PRODUCT is licensed to a THIRD PARTY after completion
of an initial Phase II(a) clinical trial, the percentage shall
be ***.
____________
*** Confidential material redacted and separately filed with the Commission.
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EXCLUSIVE VICAL PRODUCT
6.6 Within thirty (30) days of the granting by HGS of an exclusive license
for each EXCLUSIVE VICAL PRODUCT, VICAL shall pay to HGS the sum of
***.
6.7 For the second and third EXCLUSIVE VICAL PRODUCTS for which VICAL
obtains a license under Paragraph 3.7, but not for the first such
EXCLUSIVE VICAL PRODUCT, VICAL shall pay to HGS a milestone payment ***
upon start of a Phase III clinical trial. Such milestone payment shall
be due and payable within thirty (30) days after the start of the
trial, which for the purpose of this Paragraph shall be the date the
first patient is enrolled in the trial. In the event that no Phase III
clinical trial is initiated prior to submission of an application for
regulatory approval (e.g., a New Drug Application or a Biological
License Application) of the PRODUCT, such milestone payment shall be
due on the date such submission is submitted to the appropriate
regulatory authority. The milestone payments provided in this Paragraph
6.7 shall only be made once for each EXCLUSIVE VICAL PRODUCT and shall
not be made in the case of improvements or modifications such as, but
not limited to, changed forms, formats, formulations, indications,
processes or protocols of an EXCLUSIVE VICAL PRODUCT for which the
payments were previously made.
6.8 Subject to Paragraph 6.9, for each EXCLUSIVE VICAL PRODUCT, VICAL shall
pay to HGS a royalty of *** of NET SALES of the PRODUCT sold by VICAL,
and its (sub)licensees and their respective AFFILIATES.
6.9 Royalty obligations under Paragraph 6.8, with respect to an EXCLUSIVE
VICAL PRODUCT, shall terminate on a country-by-country basis and on an
EXCLUSIVE VICAL PRODUCT by EXCLUSIVE VICAL PRODUCT basis on the later
of (i) *** after first country-wide launch of such PRODUCT in such
country or (ii) expiration of the last to expire HGS PATENT licensed to
VICAL under this Agreement which covers the making, having made,
importing, exporting, offering to sell or using or selling of such
____________
*** Confidential material redacted and separately filed with the Commission.
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PRODUCT in such country.
6.10 In the event that VICAL licenses an EXCLUSIVE VICAL PRODUCT to a THIRD
PARTY, VICAL shall pay HGS a percentage of all revenues received under
the license for the EXCLUSIVE VICAL PRODUCT, other than revenues
received as earned royalties, payments for R&D services provided by
VICAL to the licensee or monies to purchase equity in VICAL at fair
market value. The percentage applied to such payments will vary
according to the development stage of the PRODUCT at the time such
license agreement is entered into, as follows:
(a) If such PRODUCT is licensed to a THIRD PARTY prior to the
filing of an IND in the United States (or its foreign
equivalent in a Major Country), the percentage shall be ***;
(b) If such PRODUCT is licensed to a THIRD PARTY after the filing
of an IND in the United States (or its foreign equivalent in a
Major Country) but before the completion of an initial Phase
II(a) clinical trial, the percentage shall be ***;
(c) If such PRODUCT is licensed to a THIRD PARTY after completion
of an initial Phase II(a) clinical trial, the percentage shall
be ***.
MISCELLANEOUS
6.11 For purposes of this Article 6, (a) "Phase II(a) clinical trial" shall
mean an initial human clinical trial in a Major Country that is
intended to initially evaluate the effectiveness of a PRODUCT for a
particular indication or indications in patients with the disease or
indication under study, or that would otherwise satisfy requirements of
21 CRF 312.21(b); (b) "Phase III clinical trial" shall mean a human
clinical trial in a Major Country the results of which could be used as
pivotal to establish safety and efficacy of a PRODUCT as a basis for a
marketing approval application submitted to the U.S. FDA or a foreign
equivalent, or that would otherwise satisfy requirements of 21 CRF
312.21(c);
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*** Confidential material redacted and separately filed with the Commission.
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and, (c) "Major Country" shall mean the United States, any country in
the European Union, Canada or Japan.
6.12 If, at the time when any milestone payment listed in the applicable
Paragraph under this Article 6 with respect to a PRODUCT is due from a
party, such party has not paid all other milestone payments (if any)
previously listed in such Paragraph with respect to such PRODUCT, then
at such time such party shall pay all such unpaid milestone payments
(if any) previously listed in such Paragraph with respect to such
PRODUCT. If, at the time of the first commercial sale of a PRODUCT by a
party, its AFFILIATE or permitted licensee, such party has not paid all
milestone payments (if any) listed in the applicable Paragraph under
this Article 6 with respect to such PRODUCT, then at such time such
party shall pay all such unpaid milestone payments (if any) listed in
such Paragraph with respect to such PRODUCT.
6.13 The manner in which statements and remittances of royalty and other
payments are handled is as set forth in Article 11 hereof.
6.14 All payments to be made hereunder shall be by wire transfer of
immediately available funds to an account designated by VICAL or HGS,
whoever is to be the recipient of such funds.
7 TECHNOLOGY TRANSFER
7.1 To assist VICAL in the selection of three (3) GENES for exclusive
licensing pursuant to Paragraph 3.7, HGS scientists shall meet with
VICAL scientists to discuss therapeutic areas of interest to VICAL and
to develop criteria and search parameters for potential GENES of
interest to VICAL. Upon VICAL's request, HGS shall search the HGS
DATABASES for GENES that meet those criteria and parameters and will
provide VICAL with a list of the candidates resulting from such
searches.
7.2 VICAL shall have the right to identify a reasonable number of GENES
(***) as VICAL
____________
*** Confidential material redacted and separately filed with the Commission.
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RESEARCH GENES. These genes may be based on the candidates identified
pursuant to Paragraph 7.1 or may be independently identified by VICAL.
For each such VICAL RESEARCH GENE, HGS will provide VICAL to the extent
available all sequence data related to such GENE contained in the HGS
DATABASES and any HGS clones related to that GENE. HGS will be required
to furnish such data and clones only to the extent that HGS would be
able to grant VICAL an EXCLUSIVE LICENSE to such GENE pursuant to
Paragraph 3.7.
7.3 HGS shall have the right to identify a reasonable number of GENES (***)
as HGS RESEARCH GENES.
7.4 To assist HGS in the utilization of VICAL TECHNOLOGY, VICAL scientists
will meet with HGS scientists to discuss the application of VICAL
TECHNOLOGY to HGS RESEARCH GENES and will provide to HGS any know-how
or proprietary materials necessary for HGS to use the VICAL TECHNOLOGY
with respect to an HGS RESEARCH GENE in accordance with the research
license granted in Paragraph 3.1. VICAL will be required to furnish
such information only to the extent that VICAL would be able to grant
HGS an EXCLUSIVE LICENSE to such HGS RESEARCH GENE pursuant to
Paragraph 3.3.
7.5 Pursuant to Paragraphs 7.1 and 7.4, HGS and VICAL agree to make their
scientists reasonably available to the other.
8 PRODUCT DEVELOPMENT
8.1 VICAL shall use reasonable efforts to actively research, develop,
market, promote and sell each royalty bearing EXCLUSIVE VICAL PRODUCT.
8.2 During the term of this Agreement and for a period of five (5) years
thereafter, VICAL shall keep complete and accurate records of its
activities conducted under this Agreement regarding the development and
commercialization of EXCLUSIVE VICAL PRODUCTS
____________
*** Confidential material redacted and separately filed with the Commission.
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and the results thereof. Within thirty (30) days after the end of each
calendar year during the term of this Agreement, VICAL shall prepare
and provide HGS with a reasonably detailed written report of such
activities and results, through such date.
8.3 If at any time VICAL elects not to continue the development and
commercialization of an EXCLUSIVE VICAL PRODUCT, or fails to use
reasonable efforts to actively research, develop, market, promote and
sell each such PRODUCT as required by Paragraph 8.1, all relevant
licenses granted by HGS pursuant to this Agreement shall terminate.
8.4 HGS shall use reasonable efforts to actively research, develop, market,
promote and sell each royalty bearing EXCLUSIVE HGS PRODUCT.
8.5 During the term of this Agreement and for a period of five (5) years
thereafter, HGS shall keep complete and accurate records of its
activities conducted under this Agreement regarding the development and
commercialization of EXCLUSIVE HGS PRODUCTS and the results thereof.
Within thirty (30) days after the end of each calendar year during the
term of this Agreement, HGS shall prepare and provide VICAL with a
reasonably detailed written report of such activities and results,
through such date.
8.6 If at any time HGS elects not to continue the development and
commercialization of an EXCLUSIVE HGS PRODUCT, or fails to use
reasonable efforts to actively research, develop, market, promote and
sell each such PRODUCT as required by Paragraph 8.4 all relevant
licenses granted by VICAL pursuant to this Agreement shall terminate;
provided however, that if HGS is pursuing development and
commercialization of a gene therapy product not derived from VICAL
TECHNOLOGY, but directed to the same gene as the EXCLUSIVE HGS PRODUCT,
HGS shall have the option at its sole discretion to retain the relevant
VICAL licenses by paying to VICAL the milestones and royalties set
forth in Paragraph 6.1, on the development and sale of such non-VICAL
derived product.
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9 CONFIDENTIALITY
9.1 During the term of this Agreement and for a period of *** following the
expiration or earlier termination hereof, each party shall maintain in
confidence the CONFIDENTIAL INFORMATION of the other party, and shall
not disclose, use or grant the use of the CONFIDENTIAL INFORMATION of
the other party except on a need-to-know basis to such party's
AFFILIATES, directors, officers, employees, agents, independent
contractors and such party's THIRD PARTY licensors of intellectual
property rights (sub)licensed hereunder, and such party's consultants,
to the extent such disclosure is reasonably necessary in connection
with such party's activities as expressly authorized by this Agreement.
To the extent that disclosure to any person is authorized by this
Agreement, prior to disclosure, a party shall obtain written agreement
of such person to hold in confidence and not disclose, use or grant the
use of the CONFIDENTIAL INFORMATION of the other party except as
expressly permitted under this Agreement. Each party shall notify the
other party promptly upon discovery of any unauthorized use or
disclosure of the other party's CONFIDENTIAL INFORMATION. Upon the
expiration or earlier termination of this Agreement, each party shall
return to the other party all tangible items regarding the CONFIDENTIAL
INFORMATION of the other party and all copies thereof; provided,
however, that each party shall have the right to retain one (1) copy
for its legal files for the sole purpose of determining its obligations
hereunder.
9.2 All confidential information disclosed by one party to the other party
shall remain the intellectual property of the disclosing party. In the
event that a court or other legal or administrative tribunal, directly
or through an appointed master, trustee or receiver, assumes partial or
complete control over the assets of a party to this Agreement based on
the insolvency or bankruptcy of such party, the bankrupt or insolvent
party shall promptly notify the court or other tribunal (i) that
confidential information received from the other party under this
Agreement remains the property of the other party and (ii) of the
confidentiality obligations under this Agreement. In addition, the
bankrupt or insolvent
____________
*** Confidential material redacted and separately filed with the Commission.
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party shall, to the extent permitted by law, take all steps necessary
or desirable to maintain the confidentiality of the other party's
confidential information and to insure that the court, other tribunal
or appointee maintains such information in confidence in accordance
with the terms of this Agreement.
9.3 No public announcement or public disclosure concerning (i) the
existence of or terms of this Agreement, (ii) research and/or
discoveries made by one party, (iii) milestones achieved by one party,
or (iv) exercise by one party of rights and options granted under this
Agreement, shall be made, either directly or indirectly, by any other
party to this Agreement without prior written notice and, except as may
be legally required, or as may be legally required for a public
offering of securities, or as may be required for recording purposes,
without first obtaining the approval of the other party and agreement
upon the nature and text of such announcement, such agreement and/or
approval not to be unreasonably withheld. Except as otherwise required
by law, the party desiring to make any such public announcement or
public disclosure shall inform the other party of the proposed
announcement or disclosure at least five (5) business days prior to
public release, and shall provide the other party with a written copy
thereof, in order to allow such other party to comment upon such
announcement or disclosure. This Paragraph shall not apply to any
information in a public announcement or public disclosure that is
information essentially identical to that contained in a previous
public announcement or public disclosure agreed to pursuant to this
paragraph.
9.4 The confidentiality obligations under Paragraphs 9.1 and 9.2 shall not
apply to the extent that a party is required to disclose information by
applicable law, regulation or order of a governmental agency or a court
of competent jurisdiction; provided, however, that to the extent
practical such party (a) shall provide written notice thereof to the
other party and consult with the other party prior to such disclosure
with respect, thereto, and (b) shall provide the other party sufficient
opportunity to object to any such disclosure or to request confidential
treatment thereof, and provide reasonable assistance as requested in
connection therewith.
9.5 Both parties agree that all RESEARCH PLANS submitted by a party to the
other party
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pursuant to this Agreement shall be strictly confidential and that all
RESEARCH PLANS will not be utilized by or on behalf of the receiving
party for any purpose other than as authorized under this Agreement.
9.6 Each party hereto acknowledges that the remedy at law for breach by any
party of its obligations under this Section 9 is inadequate and that
each party shall be entitled to equitable remedies, including
injunctive relief, in the event of a breach by the other party.
9.7 The provisions of this Section 9 are in addition to an do not supercede
and are not superceded by similar provisions in any other agreements.
10 PATENT PROSECUTION AND LITIGATION
10.1 All right, title and interest to the VICAL TECHNOLOGY and all patent
rights and other intellectual property rights therein shall belong
solely to VICAL. VICAL shall have the sole right and responsibility for
the filing, prosecution and maintenance of patents and patent
applications directed thereto.
10.2 All right, title and interest to the HGS TECHNOLOGY and all patent
rights and other intellectual property rights therein shall belong
solely to HGS. HGS shall have the sole right and responsibility for the
filing, prosecution and maintenance of patents and patent applications
directed thereto.
10.3 With respect to any patent covering HGS IMPROVEMENTS or VICAL
IMPROVEMENTS that is a joint invention of both HGS and VICAL, HGS and
VICAL shall share equally in the cost and expense thereof. Unless the
parties otherwise agree, HGS shall be the lead party on HGS
IMPROVEMENTS and VICAL shall be the lead party on VICAL IMPROVEMENTS.
The lead party shall consult with the other with respect to strategies
for filing, prosecution and maintenance of patents and patent
applications for which it bears responsibility under this paragraph,
and shall keep the other reasonably informed with regard to filing,
prosecution and maintenance activity for such patents and patent
applications. In the event the lead party does not intend to prepare,
file, prosecute and/or maintain patent protection in any country with
respect to such joint invention, the lead party shall notify the other
party and the other party may
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assume such responsibility at its own cost and expense. Any patent on
such joint invention shall be considered both an HGS PATENT and a VICAL
PATENT.
10.4 Both parties will provide the other reasonable assistance to enable the
other to prepare, file, prosecute and maintain patents pursuant to this
Article 10.
10.5 In the event of the institution of any suit by a THIRD PARTY,
(a) against VICAL, its AFFILIATES, or its licensees (other than
HGS) for patent infringement involving the manufacture, use,
import, export, offer for sale, sale, distribution or
marketing of EXCLUSIVE VICAL PRODUCT, VICAL shall promptly
notify HGS in writing. As between HGS and VICAL, VICAL shall
be solely responsible for the cost and expense of such action
and any liability, which results therefrom;
(b) against HGS, its AFFILIATES, or its licensees (other than
VICAL) for patent infringement involving the manufacture, use,
import, export, offer for sale, sale, distribution or
marketing of EXCLUSIVE HGS PRODUCT, HGS shall promptly notify
VICAL in writing. As between HGS and VICAL, HGS shall be
solely responsible for the cost and expense of such action and
any liability, which results therefrom;
(c) The party defending an action under this Paragraph 10.5 shall
have full control over its conduct, including settlement
thereof provided such settlement shall not be made without the
prior written consent of the other party if it would adversely
affect the patent rights of such party licensed hereunder.
10.6 In the event that HGS or VICAL becomes aware of actual or threatened
infringement of a VICAL PATENT or HGS PATENT that claims an EXCLUSIVE
VICAL PRODUCT or EXCLUSIVE HGS PRODUCT or the use thereof, that party
shall promptly notify the other party in writing. The owner of the
VICAL PATENT or HGS PATENT shall have the first right but not the
obligation to bring, at its own expense, an infringement action against
any THIRD PARTY and to use the other party's name in connection
therewith. If the owner of the patent does not commence a particular
infringement action within ninety (90) days, the other party, after
notifying the owner in writing, shall be entitled to bring such
infringement action, in its own name and/or in the name of the patent
owner, at its own expense to the extent that such party is licensed
thereunder. The foregoing notwithstanding, in the event that an alleged
infringer certifies pursuant to 21 U.S.C. Section 355(b)(2)(A)(iv)
against an issued VICAL PATENT or HGS PATENT that claims EXCLUSIVE
VICAL PRODUCT or EXCLUSIVE HGS PRODUCT or the use thereof,
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as between the patent owner and the owner of the product, the party
receiving notice of such certification shall immediately notify the
other party of such certification, and if fourteen (14) days prior
to expiration of the forty five (45) day period set forth in 21
U.S.C. Section 355(c)(3)(C), the owner of the patent fails to
commence an infringement action, the party receiving notice, in its
sole discretion, at its own expense and to the extent that it is
licensed under the patent, shall be entitled to bring such
infringement action in its own name and/or in the name of the patent
owner. The party conducting an action under this Paragraph 10.6
shall have full control over its conduct, including settlement
thereof provided such settlement shall not be made without the prior
written consent of the other party if it would adversely affect the
patent rights of such party licensed hereunder. The licensing party
(i.e., the patent owner) and the licensed party (i.e., the owner of
the product) shall reasonably assist one another and cooperate in
any such litigation at the other's request, each such party paying
its own costs and expenses. The party conducting the litigation
shall periodically reimburse the other party for its reasonable and
actual out-of-pocket expenses incurred at the request of the party
conducting the litigation for assisting in the litigation, which
reimbursement shall be made within thirty (30) days of receipt by
the party conducting the litigation of itemized invoices from the
assisting party documenting such expenses.
10.7 Any recovery made by a party as the result of an action for patent
infringement it has conducted under Paragraph 10.6 shall be distributed
as follows:
(a) The party conducting the action shall recover its actual out
-of-pocket expenses, and then shall reimburse the other party
for any unreimbursed actual and out-of-pocket expenses.
(b) To the extent that the recovery exceeds the total of item (a),
the excess shall be kept by the party conducting the action,
provided, however, that to the extent that (i) the recovery is
based on an award of lost sales/profits, and (ii) the party
conducting the action would have incurred a royalty obligation
to the other party based upon such sales, the party to whom
such royalties would have been due shall receive a proportion
of the excess recovery corresponding to the royalty percentage
it would have otherwise been due.
10.8 The parties shall periodically keep one another reasonably informed of
the status of their respective activities regarding any such litigation
or settlement thereof.
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11 STATEMENTS AND REMITTANCES
11.1 VICAL and HGS, as the case may be, shall keep and require its
AFFILIATES and licensees to keep complete and accurate records of all
sales and calculations for NET SALES of PRODUCTS. Each party shall have
the right, at its expense, through an independent certified public
accounting firm of nationally recognized standing reasonably acceptable
to the other party, to examine pertinent financial records during
regular business hours upon proper advance written notice during the
life of this Agreement and for *** after its termination for the
purpose of verifying and reporting to HGS or VICAL as to the
computation of the royalty payments made hereunder during the preceding
*** prior to the date of such examination; provided, however, that such
examination shall not take place more often than once a year; provided
further that such accountant shall report only as to the accuracy of
the royalty statements and payments, including the magnitude and source
of any discrepancy. VICAL, HGS, and their respective AFFILIATES and
licensees shall be required to maintain such sales and royalty
calculation records for ***. The accountant shall execute customary
confidentiality agreements prior to any examination, reasonably
satisfactory in form and substance to both parties, to maintain in
confidence all information obtained during the course of any such
examination, except for disclosure to the parties, as necessary for the
above purpose.
11.2 Within sixty (60) days after the close of each calendar quarter, VICAL
and HGS, as the case may be, shall deliver to the other party a true
accounting of all amounts owing hereunder sold by it and its licensees
and distributors during such calendar quarter and shall at the same
time pay all amounts due.
11.3 All royalties and other payments due under this Agreement shall be
payable in U.S. dollars.
11.4 Royalties payable on sales in countries other than the United States
shall be calculated by
____________
*** Confidential material redacted and separately filed with the Commission.
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multiplying the appropriate royalty rate times the sales in each
currency in which they are made and converting the resulting amount
into United States dollars, at the rates of exchange as reported in The
Wall Street Journal as published under the caption
"Currency Trading", on the last business day in New York, New York of
each royalty period. If the Wall Street Journal ceases to be published,
then the rate of exchange to be used shall be that reported in such
other business publication as all parties reasonably agree. Such
payments shall be without deduction of exchange, collection, or other
charges. If, due to restrictions or prohibitions imposed by a national
or international authority, payments cannot be made as aforesaid, the
parties shall consult with a view to finding a prompt and acceptable
solution, and the parties will deal with such monies as the other party
may lawfully direct at no additional out-of-pocket expense to the party
owed the royalty. Notwithstanding the foregoing, if royalties cannot be
remitted for any reason within six (6) months after the end of the
calendar quarter during which they are earned, then the party owing the
royalty shall be obligated to deposit the royalties in a bank account
in the country of sale in the name of the other party. Each party shall
deduct any taxes which the party is obligated to pay and/or withhold in
a country based on royalties due to the other based on sales in such
country from royalty payments due for such country under this Agreement
and pay them to the proper authorities as required by applicable laws.
Each party shall maintain official receipts of payment of any such
taxes and forward these receipts to the other within sixty (60) days.
11.5 All payments to be made hereunder shall be by wire transfer of
immediately available funds to an account designated by HGS or VICAL,
whoever is to be the recipient of such funds.
12 TERM AND TERMINATION
12.1 This Agreement shall come into effect as of the Effective Date, and
unless earlier terminated as provided in this Article 12, shall remain
in full force and effect on a PRODUCT by PRODUCT and country-by-country
basis, until the last to expire of the applicable party's royalty
obligations under this Agreement with respect to such PRODUCT in such
country.
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12.2 A party shall have the right to terminate this Agreement with respect
to any PRODUCT upon the material breach by the other party of the other
party's obligations with respect to such PRODUCT under Article 8 if
such breach is not cured within sixty (60) days after receipt of
written notice from such party thereof. Notwithstanding the foregoing,
a party may not terminate this Agreement during the pendency of an
arbitration proceeding under this Agreement in which the other party
reasonably contests whether it has failed to meet its obligations under
Article 8.
12.3 A party shall have the right to terminate this Agreement in its
entirety (a) upon the material breach by the other party of the other
party's obligations to pay any amounts owing hereunder, if such breach
is not cured within thirty (30) days after receipt of written notice
from such party thereof, or (b) upon the material breach by the other
party of the other party's obligations (other than obligations under
Article 8 or obligations to pay any amounts owing hereunder), if such
breach is not cured within sixty (60) days after receipt of written
notice from such party thereof. Notwithstanding the foregoing, a party
may not terminate this Agreement during the pendency of an arbitration
proceeding under this Agreement in which the other party reasonably
contests whether a royalty or other amount is due hereunder, or whether
it has failed to satisfy its other obligations hereunder.
12.4 Either party, may terminate this Agreement if, at any time, the other
party shall file in any court or agency pursuant to any statute or
regulation of any state or country, a petition in bankruptcy or
insolvency or for reorganization or for an arrangement or for the
appointment of a receiver or trustee of the party or of its assets, or
if the other party proposes a written agreement of composition or
extension of its debts, or if the other party shall be served with an
involuntary petition against it, filed in any insolvency proceeding,
and such petition shall not be dismissed within sixty (60) days after
the filing thereof, or if the other party shall propose or be a party
to any dissolution or liquidation, or if the other party shall make an
assignment for the benefit of creditors.
12.5 Neither party shall have the right to terminate this Agreement except
under Paragraphs 12.2, 12.3 and 12.4, provided however that nothing in
this Agreement shall limit any remedies for breach which may be
available pursuant to a judgment of a court, in law or
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equity, including termination of this Agreement or of any or all rights
hereunder, except that any action seeking remedies for breach of this
Agreement shall be conducted in accordance with Article 16.
12.6 Notwithstanding termination of this Agreement, the rights and
obligations of the parties under Articles 9, 10, 12, 13, 14 and 16 and
Paragraphs 3.12, 3.13, 3.14 and 3.15 shall survive such termination, as
well as any provision not specified in this paragraph which is clearly
meant to survive termination of this Agreement. Upon expiration of this
Agreement under Paragraph 12.1 with respect to a particular PRODUCT in
a particular country, the licenses granted under Paragraphs 3.3 and 3.6
under VICAL TECHNOLOGY and HGS TECHNOLOGY shall survive on a
non-exclusive basis.
12.7 Termination of the Agreement in accordance with the provisions hereof
shall not limit remedies that may be otherwise available in law or
equity.
13 WARRANTIES AND REPRESENTATIONS
13.1 Each of HGS and VICAL hereby represents, warrants and covenants to the
other, as of the date of this Agreement, as follows:
(a) it is a corporation duly organized and validity existing under
the laws of the state of its incorporation;
(b) the execution, delivery and performance of this Agreement by
such party has been duly authorized by all requisite corporate
action;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, including,
without limitation, the right, power and authority to grant
the licenses under Article 3;
(d) the execution, delivery and performance by such party of this
Agreement and its compliance with the terms and provisions
hereof to such party's best knowledge does 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,
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agreement affecting a product or other agreement or instrument
binding or affecting it or its property; (ii) the provisions
of its charter documents or bylaws; 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;
and
(e) this Agreement 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.
13.2 No party to this Agreement has in effect, and, after the date of this
Agreement, no party shall enter into any written agreement that would
be inconsistent with its obligations under this Agreement.
13.3 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY THAT VICAL
PATENTS OR HGS PATENTS ARE VALID OR ENFORCEABLE OR THAT THEIR EXERCISE
OR THE EXERCISE OF HGS TECHNOLOGY OR VICAL TECHNOLOGY DOES NOT INFRINGE
ANY PATENT RIGHTS OF THIRD PARTIES. A HOLDING OF INVALIDITY OR
UNENFORCEABILITY OF ANY SUCH PATENT, FROM WHICH NO FURTHER APPEAL IS OR
CAN BE TAKEN, SHALL NOT AFFECT ANY OBLIGATION HEREUNDER, BUT SHALL ONLY
ELIMINATE ROYALTIES OTHERWISE DUE UNDER SUCH PATENT FROM THE DATE SUCH
HOLDING BECOMES FINAL.
13.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN HGS AND VICAL MAKE NO
REPRESENTATIONS OR EXTEND ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.
13.5 Each party shall use any materials provided by the other party under
this Agreement in compliance with all applicable laws and regulations.
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14 INDEMNIFICATION
14.1 VICAL shall defend, indemnify and hold harmless HGS, its AFFILIATES,
licensors of HGS and each of their respective directors, officers,
shareholders, agents and employees, from and against any and all
liability, loss, damages and expenses (including reasonable attorneys'
fees) as the result of claims, demands, actions or proceedings by any
THIRD PARTY which are made or instituted against any of them arising
out of the development, manufacture, possession, distribution, use,
testing, sale or other disposition of any EXCLUSIVE VICAL PRODUCT by or
through VICAL, its AFFILIATES or any THIRD PARTY granted rights by
VICAL under this Agreement. VICAL's obligation to defend, indemnify and
hold harmless shall include claims, demands, actions or proceedings,
whether for money damages or equitable relief by reason of alleged
personal injury (including death) to any person or alleged property
damage, provided, however, the indemnity shall not extend to any claims
against an indemnified party which result from the gross negligence or
willful misconduct of an indemnified party. VICAL shall have the
exclusive right to control the defense of any action which is to be
indemnified in whole by VICAL hereunder, including the right to select
counsel reasonably acceptable to HGS to defend HGS and the indemnified
parties hereunder, and to settle any claim, demand, action or
proceeding, provided that, without the prior written consent of HGS
(which shall not be unreasonably withheld or delayed), VICAL shall not
agree to settle any claim, demand, action or proceeding against HGS to
the extent such claim has a material adverse effect on HGS. The
provisions of this Paragraph 14.1 shall survive and remain in full
force and effect after any termination, expiration or cancellation of
this Agreement and the obligation hereunder shall apply whether or not
such claims are rightfully brought. VICAL shall require each licensee
to agree to indemnify HGS in a manner consistent with this Paragraph
14.1.
14.2 HGS shall defend, indemnify and hold harmless VICAL, its AFFILIATES,
licensors of VICAL and each of their respective directors, officers,
shareholders, agents and employees, from and against any and all
liability, loss, damages and expenses (including reasonable attorneys'
fees) as the result of claims, demands, actions or proceedings by a
THIRD PARTY which are made or instituted against any of them arising
out of the
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development, manufacture, possession, distribution, use, testing,
sale or other disposition of EXCLUSIVE HGS PRODUCT by or through
HGS, its AFFILIATES or any THIRD PARTY granted rights by HGS
under this Agreement. HGS' obligation to defend, indemnify and hold
harmless shall include claims, demands, actions or proceedings, whether
for money damages or equitable relief by reason of alleged personal
injury (including death) to any person or alleged property damage,
provided, however, the indemnity shall not extend to any claims against
an indemnified party which result from the gross negligence or willful
misconduct of an indemnified party. HGS shall have the exclusive right
to control the defense of any action which is to be indemnified in
whole by HGS hereunder, including the right to select counsel
reasonably acceptable to VICAL to defend VICAL and the indemnified
parties hereunder, and to settle any claim, demand, action or
proceeding, provided that, without the prior written consent of VICAL
(which shall not be unreasonably withheld or delayed), HGS shall not
agree to settle any claim, demand, action or proceeding against VICAL
to the extent such claim has a material adverse effect on VICAL. The
provisions of this Paragraph 14.2 shall survive and remain in full
force and effect after any termination, expiration or cancellation of
this Agreement and the obligation hereunder shall apply whether or not
such claims are rightfully brought. HGS shall require each licensee to
agree to indemnify VICAL in a manner consistent with this Paragraph
14.2.
14.3 A person or entity that intends to claim indemnification under this
Article 14 (the "Indemnitee") shall promptly notify the other party
(the "Indemnitor") of any claim, demand, action or proceeding for which
the Indemnitee intends to claim such indemnification, and the
Indemnitor, after it determines that indemnification is required of it,
shall assume the defense thereof with counsel selected by the
Indemnitor and reasonably acceptable to the other party, provided,
however, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitor if
Indemnitor does not assume the defense; or, if representation of such
Indemnitee by the counsel retained by the Indemnitor would be
inappropriate due to actual or potential conflicts of interest between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 14 shall not apply
to amounts paid in settlement of any claim, demand, action or
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proceeding if such settlement is effected without the consent of the
Indemnitor, which consent shall not be unreasonably withheld or
delayed. The failure to deliver 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 Indemnitee under this Article 14,
but failure to deliver notice to the Indemnitor will not relieve it of
any liability that it may have to any Indemnitee otherwise than under
this Article 14. The Indemnitee under this Article 14, its employees
and agents, shall cooperate reasonably with the Indemnitor and its
legal representatives in the investigations of any claim, demand,
action or proceeding covered by this indemnification. In the event that
each party claims indemnity from the other and one party is finally
held liable to indemnify the other, the Indemnitor shall additionally
be liable to pay the reasonable legal costs and attorneys' fees
incurred by the Indemnitee in establishing its claim for indemnity.
15 FORCE MAJEURE
15.1 If the performance by a party of any obligation under this Agreement
(other than an obligation for a payment of money), is prevented,
restricted, interfered with or delayed by reason of any reasonable,
unforeseeable cause beyond the reasonable control of the party liable
to perform, the party so affected shall, upon giving written notice to
the other party, be excused from such performance to the extent of such
prevention, restriction, interference or delay, provided that the
affected party shall use its commercially reasonable efforts to avoid
or remove such causes of non-performance and shall continue performance
with the utmost dispatch whenever such causes are removed. When such
circumstances arise, the parties shall discuss what, if any,
modification of the terms of this Agreement may be required in order to
arrive at an equitable solution.
16 DISPUTE RESOLUTION
16.1 This Agreement shall be construed and enforced in accordance with the
laws of the State of Delaware (without reference to the conflicts of
law principles thereof).
16.2 In the event of any controversy, dispute or claim arising out of or
relating to any provision of this Agreement or the breach thereof, the
parties shall use good faith efforts
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<PAGE>
to settle such controversy, dispute, or claim amicably between
themselves.
16.3 Should the parties fail to reach mutually acceptable settlement of any
controversy, dispute or claim which may arise out of or in connection
with this Agreement, or the breach, termination or validity thereof
(other than with respect to patent validity) shall be settled by final
and binding arbitration pursuant to the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") as herein provided.
(a) The Arbitration Tribunal shall consist of three arbitrators.
Each party shall nominate in the request for arbitration and
the answer thereto one arbitrator and the two arbitrators so
named will then jointly appoint the third arbitrator as
chairman of the Arbitration Tribunal. If one party fails to
nominate its arbitrator or, if the parties' arbitrators cannot
agree on the person to be named as chairman within sixty (60)
days, the necessary appointments shall be made under the rules
of the AAA.
(b) The place of arbitration shall be in Chicago, Illinois and the
arbitration proceedings shall be held in English. The
procedural law of the State of Illinois shall apply where the
AAA Rules are silent.
The award of the Arbitration Tribunal shall be final and judgment upon such an
award may be entered in any competent court or application may be made to any
competent court for judicial acceptance of such an award and order of
enforcement. Notwithstanding the foregoing, nothing contained herein shall
prevent either party from seeking interim relief from a court of competent
jurisdiction pending the establishment of or a decision by a panel of
arbitrators.
17 SEPARABILITY
17.1 In the event any portion of this Agreement shall be held illegal, void
or ineffective, the remaining portions hereof shall remain in full
force and effect.
17.2 If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or
provisions shall be deemed inoperative to the extent that they may
conflict therewith and shall be deemed to be modified to conform with
such statute or rule of law.
17.3 In the event that the terms and conditions of this Agreement are
materially altered as a result of Paragraphs 17.1 or 17.2, the parties
will, in good faith, renegotiate the terms and conditions of this
Agreement to resolve any inequities.
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<PAGE>
18 ENTIRE AGREEMENT
18.1 This Agreement, together with the Appendices hereto, entered into as of
the date written above constitutes the entire agreement between the
parties relating to the subject matter hereof and supersedes all
previous writings and understandings. No terms or provisions of this
Agreement shall be varied or modified by any prior or subsequent
statement, conduct or act of either of the parties, except that the
parties may amend this Agreement by written instruments specifically
referring to and executed in the same manner as this Agreement.
19 NOTICES
19.1 Any notice required or permitted under this Agreement shall be
hand-delivered or sent by express delivery service or certified or
registered mail, postage prepaid, or by fax with written confirmation
by mail, to the following addresses of the parties:
HUMAN GENOME SCIENCES, INC.
9410 Key West Avenue
Rockville, MD 20850
Attn: Senior Vice President, Corporate Development
Fax: 301-762-5181
copy to:
HUMAN GENOME SCIENCES, INC.
9410 Key West Avenue
Rockville, Maryland 20850
Attn: General Counsel
Fax: 301-309-8439
VICAL INCORPORATED
9373 Towne Center Drive
San Diego, California 92121
Attn: President
Fax: 858-646-1150
copy to:
PILLSBURY MADISON & SUTRO
50 Fremont Street
San Francisco, California 94105
Attn: Thomas E. Sparks, Jr.
Fax: 415-983-7396
19.2 Any notice required or permitted to be given concerning this Agreement
shall be
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<PAGE>
effective upon receipt by the party to whom it is addressed.
20 ASSIGNMENT AND CHANGE OF CONTROL
20.1 This Agreement and the licenses herein granted shall be binding upon
and inure to the benefit of the parties and their respective permitted
assignees and successors in interest of the respective parties. Neither
this Agreement nor any interest hereunder shall be assignable by a
party without the prior written consent of the other party and any
attempted assignment contrary to this Paragraph 20.1 shall be void and
without force and effect. Notwithstanding the foregoing, a party may
assign this Agreement and all its rights and obligations hereunder to
any AFFILIATE or to any THIRD PARTY in connection with the transfer or
sale of all or substantially all of its business, or all or
substantially all of its assets to which this Agreement relates, or in
the event of its merger, consolidation, change in control or similar
transaction, without obtaining the consent of the other party, provided
that the THIRD PARTY assignee or surviving entity assumes in writing
all of its obligations under this Agreement.
20.2 ***
21 COUNTERPARTS
21.1 This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed an original instrument, but all such
counterparts together shall constitute but one agreement.
22 WAIVER
22.1 Any delay or failure in enforcing a party's rights under this Agreement
or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of
its rights under this Agreement, nor operate to bar the exercise or
enforcement thereof at any time or times thereafter, excepting only as
to an express
____________
*** Confidential material redacted and separately filed with the Commission.
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<PAGE>
written and signed waiver as to a particular matter for a particular
period of time.
22.2 Notwithstanding the foregoing, in the event VICAL or HGS challenges
whether any payments contemplated hereunder (including, without
limitation royalties or milestones) are due, it shall have the right,
but not the obligation, to make such payments under protest (reserving
all rights hereunder) pending resolution of such dispute.
23 INDEPENDENT RELATIONSHIP
23.1 Nothing herein contained shall be deemed to create an employment,
agency, joint venture or partnership relationship between the parties
hereto or any of their agents or employees, or any other legal
arrangement that would impose liability upon one party for the act or
failure to act of the other party. No party shall have any power to
enter into any contracts or commitments or to incur any liabilities in
the name of, or on behalf of, the other party, or to bind the other
party in any respect whatsoever.
24 FURTHER ACTIONS
24.1 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.
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<PAGE>
IN WITNESS WHEREOF, the parties, through their authorized officers, have
executed this Agreement as of the Effective Date.
VICAL INCORPORATED
BY: /s/ Alain B. Schreiber
------------------------------
Alain B. Schreiber, M.D.
Title: President and Chief Executive Officer
HUMAN GENOME SCIENCES, INC.
BY: /s/ Arthur M. Mandell
------------------------------
Arthur M. Mandell
Title: Sup. Corporate Development
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<PAGE>
APPENDIX A
***
____________
*** Confidential material redacted and separately filed with the Commission.
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<PAGE>
APPENDIX B
***
____________
*** Confidential material redacted and separately filed with the Commission.
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<PAGE>
EXHIBIT 10.22
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]
LICENSE AGREEMENT
BETWEEN
VASCULAR GENETICS INC.
AND
VICAL INCORPORATED
FEBRUARY 24, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. BACKGROUND.........................................................................................1
2. DEFINITIONS........................................................................................2
3. LICENSE GRANT......................................................................................6
4. PAYMENTS AND ROYALTIES.............................................................................7
5. TECHNOLOGY TRANSFER................................................................................8
6. PRODUCT DEVELOPMENT................................................................................9
7. CONFIDENTIALITY...................................................................................10
8. PATENT PROSECUTION AND LITIGATION.................................................................12
9. STATEMENTS AND REMITTANCES........................................................................13
10. TERM AND TERMINATION..............................................................................15
11. WARRANTIES AND REPRESENTATIONS....................................................................16
12. INDEMNIFICATION...................................................................................17
13. ***.................................................................................................
14. FORCE MAJEURE.....................................................................................19
15. DISPUTE RESOLUTION................................................................................20
16. ENTIRE AGREEMENT..................................................................................21
17. NOTICES...........................................................................................21
18. ASSIGNMENT AND CHANGE OF CONTROL..................................................................22
19. COUNTERPARTS......................................................................................22
20. WAIVER............................................................................................23
21. INDEPENDENT RELATIONSHIP..........................................................................23
22. FURTHER ACTIONS...................................................................................23
</TABLE>
i
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LICENSE AGREEMENT
This Agreement ("Agreement") dated as of the 24th day of February 2000
("Effective Date") is entered into by Vascular Genetics Inc. ("VGI"), a Delaware
corporation, having a place of business at Suite 201, 4364 S. Alston Avenue,
Durham, North Carolina 27713, and Vical Incorporated, a Delaware corporation,
having a place of business at 9373 Towne Center Drive, San Diego, California
92121 ("VICAL").
1. BACKGROUND.
1.1 VGI has an exclusive license from Human Genome Sciences, Inc. ("HGS")
for the use of the gene Vascular Endothelial Growth Factor-2 ("VEGF-2")
in the gene therapy treatment of vascular diseases.
1.2 VICAL is in possession of certain gene therapy delivery methods, and is
willing to grant a license to VGI for the use of those methods in
conjunction with VEGF-2.
1.3 Therefore to facilitate this transaction, VGI, VICAL and HGS have
agreed in an Investment Agreement dated of same date herewith (the
"Investment Agreement") to undertake a series of transactions in which
(1) VGI will receive a license from VICAL for the use of VICAL's
current and future gene therapy delivery methods in conjunction with
VEGF-2; (2) HGS will receive a license from VICAL for the use of
VICAL's technology with certain genes; (3) VICAL will receive a license
from HGS for the use of certain genes as gene therapy products; (4)
VICAL will receive an equity interest in VGI, which VGI will have
certain rights to redeem as set forth in the Investment Agreement; and
(5) HGS will receive additional equity in VGI and will have returned to
it by VGI rights to certain genes licensed to VGI by HGS.
1.4 To effect this series of transactions pursuant to the terms and
conditions of the Investment Agreement, this Agreement is being
simultaneously executed with (1) a license agreement between VICAL and
HGS; and (2) a second amendment to the license agreement between HGS
and VGI; and (3) certain other agreements, all as set forth in the
Investment Agreement.
1
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2. DEFINITIONS.
2.1 "AFFILIATE" shall mean any individual or entity directly or indirectly
controlling, controlled by or under common control with, the specified
individual or entity. For purposes of this Agreement, the direct or
indirect ownership of fifty percent (50%) or more of the outstanding
voting securities of an entity, or the right to receive fifty (50%) or
more of the profits or earnings of an entity shall be deemed to
constitute control. 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 shall also constitute control.
2.2 "CONFIDENTIAL INFORMATION" shall mean, with respect to a party, all
information (and all tangible and intangible embodiments thereof),
which is owned or controlled by such party, is disclosed by such party
to the other party pursuant to this Agreement, and (if disclosed in
writing or other tangible medium) is marked or identified as
confidential at the time of disclosure to the receiving party or (if
otherwise disclosed) is identified as confidential at the time of
disclosure to the receiving party and described as such in writing
within thirty (30) days after such disclosure. The Financial Details
(as hereinafter defined) shall be deemed to be marked as confidential
without further action on the part of either party. Notwithstanding the
foregoing, CONFIDENTIAL INFORMATION of a party shall not include
information which, and only to the extent, the receiving party can
establish by written documentation (a) has been publicly known prior to
disclosure of such information by the disclosing party to the receiving
party, (b) has become publicly known, without fault on the part of the
receiving party, subsequent to disclosure of such information by the
disclosing party to the receiving party, (c) has been received by the
receiving party at any time from a source, other than the disclosing
party, rightfully having possession of and the right to disclose such
information free of confidentiality obligations, (d) has been otherwise
known by the receiving party free of confidentiality obligations prior
to disclosure of such information by the disclosing party to the
receiving party, or (e) has been independently developed by employees
or others on behalf of the receiving party without access to or use of
such information disclosed by the disclosing party to the receiving
party.
2
<PAGE>
2.3 "CYTOFECTIN DELIVERY TECHNOLOGY" shall mean all patentable or
unpatentable inventions, discoveries, technology and information of any
type whatsoever, including without limitation compositions, methods,
processes, confidential information, technical information, knowledge,
experience and know-how, regarding the use of cytofectins in the
delivery of genes into a patient for the treatment or prevention of one
or more diseases or conditions; in each case which is owned by or
licensed to VICAL on the Effective Date or during the term of this
Agreement, all to the extent and only to the extent that VICAL now has
or hereafter will have the right to grant licenses, immunities or other
rights thereunder.
2.4 "DIRECT INJECTION TECHNOLOGY" shall mean all patentable or unpatentable
inventions, discoveries, technology and information of any type
whatsoever, including without limitation compositions, methods,
processes, confidential information, technical information, knowledge,
experience and know-how, regarding the direct injection of genes
(including plasmid DNA-based delivery technology) into a patient to
cause the IN VIVO expression of a desired protein, thereby effecting
delivery of such protein to a patient for the treatment or prevention
of one or more diseases or conditions; in each case which is owned by
or licensed to VICAL on the Effective Date or during the term of this
Agreement, all to the extent and only to the extent that VICAL now has
or will have during the term of this Agreement the right to grant
licenses, immunities or other rights thereunder.
2.5 "DNA PROCESS TECHNOLOGY" shall mean all patentable or unpatentable
inventions, discoveries, technology and information of any type
whatsoever, including without limitation compositions, methods,
processes, confidential information, technical information, knowledge,
experience and know-how regarding technologies related to the
manufacture and processing of plasmid DNA for human use; in each case,
which is owned by or licensed to VICAL on the Effective Date or during
the term of this Agreement, all to the extent and only to the extent
that VICAL now has or will have during the term of this Agreement the
right to grant licenses, immunities or other rights thereunder.
3
<PAGE>
2.6 "FIELD" shall mean the intervention, treatment and/or prevention of a
disease or disorder in humans by GENE THERAPY.
2.7 "GENE THERAPY" shall mean the treatment or prevention of a disease, or
remedying a gene deficiency of humans by genetic modification of
somatic cells (IN VIVO or EX VIVO) with DNA whereby an active
transcription process results in the expression of a protein or
oligo(poly)nucleotide encoded by said DNA in a human.
2.8 "IND" shall mean an Investigational New Drug application filed with the
Food and Drug Administration in the United States, or any similar
filing with any foreign regulatory authority, to commence human
clinical testing of a PRODUCT in any country.
2.9 "LICENSED INTELLECTUAL PROPERTY" shall mean VICAL's rights in the VICAL
PATENTS and VICAL KNOW-HOW.
2.10 "LICENSED PRODUCT(S)" means a PRODUCT for use in the FIELD, one of
whose active components is the gene, a portion of the gene, or a
derivative of the gene, Vascular Endothelial Growth Factor-2
("VEGF-2"), as described and disclosed in U.S. Patent Nos. 5,935,820
and 5,932,540.
2.11 "NET SALES" shall mean, with respect to a LICENSED PRODUCT, the gross
sales price invoiced by the seller (calculated on a LICENSED PRODUCT by
LICENSED PRODUCT basis) to THIRD PARTIES that are not (sub)licensees
(except as set forth below), less normal and customary deductions
actually paid or accrued by the seller for (i) normal and customary
trade, cash and quality credits, discounts, refunds or government
rebates; (ii) credits for claims, allowances or returns; retroactive
price reductions; chargebacks or the like; and (iii) sales taxes,
duties and other governmental charges (including value added tax), but
excluding what is commonly known as income taxes. NET SALES shall not
include sales among the seller, its (sub)licensees and their respective
AFFILIATES for resale, provided that NET SALES shall include the
amounts invoiced by the seller and its AFFILIATES to THIRD PARTIES on
the resale of such LICENSED PRODUCT. Sales between or among a party,
its (sub)licensees and their
4
<PAGE>
respective AFFILIATES shall be included within NET SALES only if such
purchaser is an end-user of such LICENSED PRODUCT.
2.12 "PRODUCT" shall mean any product or part thereof, the manufacture, use
or sale of which is covered in whole or in part by a VALID CLAIM.
2.13 "SPC" shall mean a right based upon an underlying patent such as a
Supplementary Protection Certificate.
2.14 "THIRD PARTY" shall mean any party other than VICAL or VGI or an
AFFILIATE of VICAL or VGI.
2.15 "VALID CLAIM" shall mean either (a) a claim of an issued and unexpired
patent included within the VICAL PATENTS, which has not been held
unenforceable, unpatentable or invalid by a court or other governmental
agency of competent jurisdiction, and which has not been admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise, or
(b) a claim in a hypothetical issued patent corresponding to a pending
claim in a patent application within the VICAL PATENTS, provided that
if such pending claim has not issued as a claim of an issued patent
within the VICAL PATENTS, within six (6) years after the filing date
from which such patent application takes priority, such pending claim
shall not be a VALID CLAIM for purposes of this Agreement. In the event
that a claim of an issued patent within the VICAL PATENTS is held by a
court or other governmental agency of competent jurisdiction to be
unenforceable, unpatentable or invalid, and such holding is reversed on
appeal by a higher court or agency of competition jurisdiction, such
claim shall be reinstated as a VALID CLAIM hereunder.
2.16 "VICAL IMPROVEMENTS" shall mean all patentable or unpatentable
inventions, discoveries or other technology regarding VICAL TECHNOLOGY,
but expressly excluding a formulation or combination of the VEGF-2 gene
and the delivery vehicle therefor, made or conceived by VGI solely or
jointly with others during the term of this Agreement, and which
resulted from the use of VICAL TECHNOLOGY.
5
<PAGE>
2.17 "VICAL KNOW-HOW" shall mean collectively, all inventions, discoveries,
data, information, methods, techniques, technology and other results
regarding VICAL TECHNOLOGY, whether or not patentable, which during the
term of this Agreement are owned by VICAL or to which VICAL otherwise
has the right to grant licenses, and which are not generally known. All
VICAL KNOW-HOW shall be CONFIDENTIAL INFORMATION of VICAL.
2.18 "VICAL LICENSED INTELLECTUAL PROPERTY" shall mean VICAL's rights in the
VICAL PATENTS and VICAL KNOW-HOW.
2.19 "VICAL PATENT(S)" shall mean, collectively, (a) all patent applications
filed in any country before or after the Effective Date; (b) all
patents that have issued or in the future issue from any of the
foregoing patent applications, including without limitation, utility
and design patents and certificates of invention, further including but
not limited to those patents listed in Appendix A; and (c) all
continuations, continuations-in-part, divisional, additions, reissues,
renewals, re-examinations or extensions, or SPCs to any such patents
and patent applications; in each case which during the term of this
Agreement are or become owned by VICAL or to which VICAL otherwise has,
now or in the future, the right to grant licenses and which claim in
whole or in part VICAL TECHNOLOGY or the use thereof in the FIELD.
2.20 "VICAL TECHNOLOGY" shall mean CYTOFECTIN DELIVERY TECHNOLOGY, DIRECT
INJECTION TECHNOLOGY and DNA PROCESS TECHNOLOGY.
3. LICENSE GRANT.
3.1 Subject to the terms and conditions of this Agreement, VICAL grants to
VGI an exclusive worldwide license (with the right to grant
sublicenses) under VICAL LICENSED INTELLECTUAL PROPERTY to research,
develop, make, have made, use, import, export, offer to sell and sell
LICENSED PRODUCTS in the FIELD.
3.2 Notwithstanding anything to the contrary herein, VICAL shall own all
right, title and interest in and to the VICAL IMPROVEMENTS and all
intellectual property rights
6
<PAGE>
therein and thereto. VGI hereby irrevocably assigns, transfers and
conveys to VICAL all right, title and interest in and to the VICAL
IMPROVEMENTS and all intellectual property rights therein and thereto.
VGI shall take, and shall cause its AFFILIATES to take any and all
actions and execute and deliver (or cause to be executed or delivered)
any and all documents reasonably requested by VICAL, at VICAL's
expense, in order to effect the foregoing assignment.
3.3 VICAL hereby grants VGI a non-exclusive, royalty-free, perpetual,
worldwide, sublicensable license to VICAL IMPROVEMENTS and the claims
of any VICAL PATENT covering such VICAL IMPROVEMENTS, but only to the
extent that such claims cover VICAL IMPROVEMENTS.
3.4 No rights, other than those expressly set forth in this Agreement, are
granted to VGI hereunder, and no additional rights shall be granted to
VGI by implication, estoppel or otherwise.
4. PAYMENTS AND ROYALTIES.
4.1 On the Effective Date, VGI will issue to VICAL shares of VGI's Series B
Preferred Stock in such amount, and subject to the terms, as described
in the Investment Agreement.
4.2 Subject to Section 4.3, for each LICENSED PRODUCT, VGI shall pay to
VICAL a royalty of *** of NET SALES of the LICENSED PRODUCT sold by
VGI, its (sub)licensees and their respective AFFILIATES.
4.3 VGI acknowledges that the LICENSED INTELLECTUAL PROPERTY hereunder is a
mix of various types of intellectual property, including patent rights
and know-how. Accordingly, even in the event one or more VICAL PATENTS
or other LICENSED INTELLECTUAL PROPERTY is declared void or not
enforceable, or otherwise expires
____________
*** Confidential material redacted and separately filed with the Commission.
7
<PAGE>
VGI shall continue to have royalty obligations under the terms of this
Agreement; provided, however, in such case, and except as otherwise set
forth below in this Section 4.3, such royalty obligations will cease in
the event all information transferred hereunder is finally determined
by a court of competent jurisdiction after exhaustion of all appeals to
be dedicated to the public domain. Notwithstanding the foregoing
provisions, however, all royalty obligations under Section 4.2, with
respect to a LICENSED PRODUCT, shall terminate on a country-by-country
basis and on a LICENSED PRODUCT by LICENSED PRODUCT basis on the later
of (i) *** after first country-wide launch of such LICENSED PRODUCT in
such country or (ii) expiration of the last to expire VICAL PATENT
licensed to VGI under this Agreement which covers the making, having
made, importing, exporting, offering to sell or using or selling of
such LICENSED PRODUCT in such country.
4.4 The manner in which statements and remittances of royalty and other
payments are handled is as set forth in Article 9 hereof.
4.5 All payments to be made hereunder shall be by wire transfer of
immediately available funds to an account designated by VICAL.
5. TECHNOLOGY TRANSFER
5.1 To assist VGI in the utilization of VICAL TECHNOLOGY, VICAL scientists
will meet with VGI scientists to discuss the application of VICAL
TECHNOLOGY to VEGF-2 and will provide to VGI any know-how or
proprietary materials necessary for VGI to use the VICAL TECHNOLOGY
with respect to VEGF-2 in accordance with the license granted under
Section 3.1.
____________
*** Confidential material redacted and separately filed with the Commission.
8
<PAGE>
6. PRODUCT DEVELOPMENT
6.1 VGI shall use its commercially reasonable efforts to actively research,
develop, obtain regulatory approvals and commercialize in at least one
major market (U.S., Japan or the European Community) at least one
LICENSED PRODUCT for at least one indication.
6.2 If the diligence requirements set forth in Paragraph 6.1 are not met,
Vical shall have the right to terminate this Agreement pursuant to
Paragraph 10.2. Notwithstanding the foregoing if VGI is pursuing
development and commercialization of a product (a "NON-VICAL PRODUCT")
for use in the FIELD, one of whose active components is VEGF-2, a
portion of VEGF-2, or a derivative of VEGF-2 and which was not derived
from VICAL TECHNOLOGY, VGI shall have the option, exercisable by
written notice to VICAL within thirty (30) days after the date of such
termination by VICAL, at its sole discretion to retain the relevant
VICAL licenses under this Agreement for any or all indications where
the NON-VICAL PRODUCT is applied, provided that VGI pays to VICAL the
royalties set forth in Paragraph 4.2 on the NET SALES of such NON-VICAL
PRODUCT for the indication or indications intended to be retained by
VGI and delivers all reports described in this Agreement, regarding
such NON-VICAL PRODUCT in the desired indication to the same extent it
would if such NON-VICAL PRODUCT were a LICENSED PRODUCT.
6.3 During the term of this Agreement and for a period of five (5) years
thereafter, VGI shall keep complete and accurate records of its
activities conducted under this Agreement regarding the development and
commercialization of LICENSED PRODUCTS and the results thereof. Within
twenty (20) days after the end of each May and September during the
term of this Agreement, VGI shall prepare and provide VICAL with a
reasonably detailed written report of such activities and results,
through such date.
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7. CONFIDENTIALITY
7.1 During the term of this Agreement and for a period of *** following the
expiration or earlier termination hereof, each party shall maintain in
confidence the CONFIDENTIAL INFORMATION of the other party, and shall
not disclose, use or grant the use of the CONFIDENTIAL INFORMATION of
the other party except on a need-to-know basis to such party's
AFFILIATES, directors, officers, employees, agents, independent
contractors and such party's THIRD PARTY licensors of intellectual
property rights (sub)licensed hereunder, and such party's consultants,
to the extent such disclosure is reasonably necessary in connection
with such party's activities as expressly authorized by this Agreement
or the Investment Agreement. To the extent that disclosure to any
person is authorized by this Agreement, prior to disclosure, a party
shall obtain written agreement of such person to hold in confidence and
not disclose, use or grant the use of the CONFIDENTIAL INFORMATION of
the other party except as expressly permitted under this Agreement.
Each party shall notify the other party promptly upon discovery of any
unauthorized use or disclosure of the other party's CONFIDENTIAL
INFORMATION. Upon the expiration or earlier termination of this
Agreement, each party shall return to the other party all tangible
items regarding the CONFIDENTIAL INFORMATION of the other party and all
copies thereof; PROVIDED, HOWEVER, that each party shall have the right
to retain one (1) copy for its legal files for the sole purpose of
determining its obligations hereunder.
7.2 No public announcement or public disclosure concerning (i) the
existence or terms of this Agreement or the Investment Agreement,
including without limitation, the number of shares of Series B
Preferred Shares or Common Stock which is issuable upon conversion
thereof, the number of Additional Common Shares or the percentage any
of such represent of the outstanding equity of VGI or the terms of the
royalties set forth in this Agreement (collectively, the "Financial
Details") or (ii) exercise by one party of rights
____________
*** Confidential material redacted and separately filed with the Commission.
10
<PAGE>
and options granted under this Agreement or the Investment Agreement,
shall be made, either directly or indirectly, by any party to this
Agreement without prior written notice and, except as may be legally
required, or as may be legally required for a public offering of
securities, or as may be required for recording purposes, without first
obtaining the approval of the other party and agreement upon the nature
and text of such announcement, such agreement and/or approval not to be
unreasonably withheld. In complying with any legal requirement for
public announcement or public disclosure, the party having the
obligation to so announce or disclose shall use reasonable efforts to
summarize or redact information containing the Financial Details as
reasonably requested by the other party. Except as otherwise required
by law, the party desiring to make any such public announcement or
public disclosure shall inform the other party of the proposed
announcement or disclosure at least five (5) business days prior to
public release, and shall provide the other party with a written copy
thereof, in order to allow such other party to comment upon such
announcement or disclosure. This Section 7.2 shall not apply to any
information in a public announcement or public disclosure that is
information essentially identical to that contained in a previous
public announcement or public disclosure agreed to pursuant to this
Section 7.2.
7.3 The confidentiality obligations under Section 7.1 shall not apply to
the extent that a party is required to disclose information by
applicable law, regulation or order of a governmental agency or a court
of competent jurisdiction; PROVIDED, HOWEVER, that (a) to the extent
commercially practicable, such party shall provide written notice
thereof to the other party and consult with the other party prior to
such disclosure with respect thereto, (b) shall provide the other party
sufficient opportunity to object to any such disclosure or to request
confidential treatment thereof, and provide reasonable assistance as
requested in connection therewith and (c) in the event that the
disclosure is a public disclosure or public announcement, the
disclosing party shall also comply with Section 7.2.
7.4 Each party hereto acknowledges that the remedy at law for breach by any
party of its obligations under this Section 7 is inadequate and that
each party shall be entitled to equitable remedies, including
injunctive relief, in the event of a breach by the other party.
11
<PAGE>
7.5 The provisions of this Section 7 are in addition to and do not
supercede and are not superceded by similar provisions in any other
agreements.
8. PATENT PROSECUTION AND LITIGATION.
8.1 All right, title and interest to the VICAL TECHNOLOGY and all patent
rights and other intellectual property rights therein shall belong
solely to VICAL. VICAL shall have the sole right and responsibility for
the filing, prosecution and maintenance of patents and patent
applications directed thereto.
8.2 In the event that VGI or VICAL becomes aware of actual or threatened
infringement of a VICAL PATENT that claims a LICENSED PRODUCT or the
use thereof, that party shall promptly notify the other party in
writing. VICAL shall have the first right but not the obligation to
bring, at its own expense, an infringement action against any THIRD
PARTY and to use VGI's name in connection therewith. If VICAL does not
commence a particular infringement action within ninety (90) days, VGI,
after notifying VICAL in writing, shall be entitled to bring such
infringement action, in its own name and/or in the name of VICAL, at
its own expense to the extent that such party is licensed thereunder.
The foregoing notwithstanding, in the event that an alleged infringer
certifies pursuant to 21 U.S.C. Section 355(b)(2)(A)(iv) against an
issued VICAL PATENT covering a LICENSED PRODUCT, as between VICAL AND
VGI, the party receiving notice of such certification shall immediately
notify the other party of such certification, and if fourteen (14) days
prior to expiration of the forty five (45) day period set forth in 21
U.S.C. Section 355(c)(3)(C), VICAL fails to commence an infringement
action, the party receiving notice, in its sole discretion, at its own
expense and to the extent that it is licensed under the patent, shall
be entitled to bring such infringement action in its own name and/or in
the name of the patent owner. The party conducting an action under this
Section 8.2 shall have full control over its conduct, including
settlement thereof provided such settlement shall not be made without
the prior written consent of the other party if it would adversely
affect the patent rights of such party licensed hereunder. VICAL and
VGI shall reasonably assist one another and cooperate in any such
litigation at the other's request.
12
<PAGE>
The party conducting the litigation shall reimburse the other party
for its reasonable and actual out-of-pocket expenses incurred at the
request of the party conducting the litigation for assisting in the
litigation, which reimbursement shall be made within thirty (30)
days of receipt by the party conducting the litigation of itemized
invoices from the assisting party documenting such expenses.
8.3 Any recovery made by a party as the result of an action for patent
infringement it has conducted under Section 8.2 shall be distributed as
follows:
(a) The party conducting the action shall recover its actual out
-of-pocket expenses, and then shall reimburse the other party
for any unreimbursed actual and out-of-pocket expenses.
(b) To the extent that the recovery exceeds the total of item (a),
the excess shall be kept by the party conducting the action,
provided, however, that to the extent that the recovery is
based on an award of lost sales/profits, VICAL shall receive a
proportion of the excess recovery corresponding to the royalty
percentage it would have otherwise been due on those lost
sales/profits and VGI shall receive the proportion of the
excess recovery corresponding to the lost sales/profits.
8.4 The parties shall periodically keep one another reasonably informed of
the status of their respective activities regarding any such litigation
or settlement thereof.
9. STATEMENTS AND REMITTANCES.
9.1 VGI shall keep and require its AFFILIATES and (sub)licensees to keep
complete and accurate records of all sales and calculations for NET
SALES of LICENSED PRODUCTS. Each party shall have the right, at its
expense, through an independent certified public accounting firm of
nationally recognized standing reasonably acceptable to the other
party, to examine pertinent financial records during regular business
hours
13
<PAGE>
upon advance written notice during the life of this Agreement and for
*** after its termination for the purpose of verifying and reporting to
VICAL as to the computation of the payments made hereunder during the
preceding *** prior to the date of such examination; provided, however,
that such examination shall not take place more often than once a year;
provided further that such accountant shall report only as to the
accuracy of the royalty statements and payments, including the
magnitude and source of any discrepancy. VGI, its AFFILIATES and
(sub)licensees shall be required to maintain such sales and royalty
calculation records for ***. The accountant shall execute customary
confidentiality agreements prior to any examination, reasonably
satisfactory in form and substance to both parties, to maintain in
confidence all information obtained during the course of any such
examination, except for disclosure to the parties, as necessary for the
above purpose.
9.2 Within sixty (60) days after the close of each calendar quarter, VGI
shall deliver to VICAL a true accounting of amounts owing hereunder
sold by it and its licensees and distributors during such calendar
quarter and shall at the same time pay all amounts due.
9.3 All royalties and other payments due under this Agreement shall be
payable in U.S. dollars.
9.4 Royalties payable on sales in countries other than the United States
shall be calculated by multiplying the appropriate royalty rate times
the sales in each currency in which they are made and converting the
resulting amount into United States dollars, at the rates of exchange
as reported in THE WALL STREET JOURNAL as published under the caption
"Currency Trading"), on the last business day in New York, New York of
each royalty period. If THE WALL STREET JOURNAL ceases to be published,
then the rate of exchange to be used shall be that reported in such
other business publication of national circulation in the United States
as all parties reasonably agree. Such payments shall be without
deduction of exchange, collection, or other charges. If, due to
restrictions or prohibitions imposed
____________
*** Confidential material redacted and separately filed with the Commission.
14
<PAGE>
by a national or international authority, payments cannot be made as
aforesaid, the parties shall consult with a view to finding a prompt
and acceptable solution, and the parties will deal with such monies as
the other party may lawfully direct at no additional out-of-pocket
expense to the party owed the royalty. Notwithstanding the foregoing,
if royalties cannot be remitted for any reason within six (6) months
after the end of the calendar quarter during which they are earned,
then the party owing the royalty shall be obligated to deposit the
royalties in a bank account in the country of sale in the name of the
other party. Each party shall deduct any taxes which the party is
obligated to pay and/or withhold in a country based on royalties due to
the other based on sales in such country from royalty payments due for
such country under this Agreement and pay them to the proper
authorities as required by applicable laws. Each party shall maintain
official receipts of payment of any such taxes and forward these
receipts to the other within sixty (60) days.
10. TERM AND TERMINATION.
10.1 This Agreement shall come into effect as of the Effective Date, and
unless earlier terminated as provided in this Article 10, shall remain
in full force and effect in a country-by-country basis until the
expiration of VGI's royalty obligations for such LICENSED PRODUCT in
such country.
10.2 A party shall have the right to terminate this Agreement in its
entirety (a) upon the breach by the other party of such other party's
obligations to pay any amounts owing hereunder, if such breach is not
cured within thirty (30) days after receipt of written notice from such
party thereof, or (b) upon the breach by the other party of such other
party's obligations (other than to pay any amounts owing) hereunder, if
such breach is not cured within sixty (60) days after receipt of
written notice from such party thereof.
10.3 Notwithstanding termination of this Agreement, the rights and
obligations of the parties under Sections 3.2 and 3.3 and Articles 7,
9, 10, 11, 12 and 15 shall survive such
15
<PAGE>
termination, as well as any provision not specified in this
paragraph which is clearly meant to survive termination of this
Agreement.
10.4 Termination of the Agreement in accordance with the provisions hereof
shall not limit remedies that may be otherwise available in law or
equity.
11. WARRANTIES AND REPRESENTATIONS.
11.1 Each of VGI and VICAL hereby represents, warrants and covenants to the
other, as of the date of this Agreement, as follows:
(a) it is a corporation duly organized and validity existing under
the laws of the state of its incorporation;
(b) the execution, delivery and performance of this Agreement by
such party has been duly authorized by all requisite corporate
action;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, including,
without limitation, in the case of VICAL, the right, power and
authority to grant the licenses under Article 3;
(d) the execution, delivery and performance by such party of this
Agreement and its compliance with the terms and provisions
hereof to such party's best knowledge does 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 or other
agreement or instrument binding or affecting it or its
property; (ii) the provisions of its charter documents or
bylaws; 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; and
(e) this Agreement 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
16
<PAGE>
relating to or affecting creditors' rights and to the
availability of particular remedies under general equity
principles.
11.2 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY THAT VICAL
PATENTS ARE VALID OR ENFORCEABLE OR THAT THEIR EXERCISE OR THE EXERCISE
OF VICAL TECHNOLOGY DOES NOT INFRINGE ANY PATENT RIGHTS OF THIRD
PARTIES. A HOLDING OF INVALIDITY OR UNENFORCEABILITY OF ANY SUCH
PATENT, FROM WHICH NO FURTHER APPEAL IS OR CAN BE TAKEN, SHALL NOT
AFFECT ANY OBLIGATION HEREUNDER, BUT SHALL ONLY ELIMINATE ROYALTIES
OTHERWISE DUE UNDER SUCH PATENT FROM THE DATE SUCH HOLDING BECOMES
FINAL.
11.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN VGI AND VICAL MAKE NO
REPRESENTATIONS OR EXTEND ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.
11.4 Each party shall use any materials provided by the other party under
this Agreement in compliance with all applicable laws and regulations.
12. INDEMNIFICATION
12.1 VGI shall defend, indemnify and hold harmless VICAL, its AFFILIATES
licensors of VICAL and each of their respective directors, officers,
shareholders, agents and employees, from and against any and all
liability, loss, damages and expenses (including reasonable attorneys'
fees) as the result of claims, demands, actions or proceedings by any
THIRD PARTY which are made or instituted against any of them arising
out of the development, manufacture, possession, distribution, use,
testing, sale or other disposition of LICENSED PRODUCT by or through
VGI, its AFFILIATES or any THIRD PARTY granted rights by VGI under this
Agreement. VGI's obligation to defend, indemnify and hold harmless
shall include claims, demands, actions or proceedings, whether for
money
17
<PAGE>
damages or equitable relief by reason of alleged personal injury
(including death) to any person or alleged property damage, provided,
however, the indemnity shall not extend to any claims against an
indemnified party which result from the gross negligence or willful
misconduct of an indemnified party. VGI shall have the exclusive right
to control the defense of any action which is to be indemnified in
whole by VGI hereunder, including the right to select counsel
reasonably acceptable to VICAL to defend VICAL and the indemnified
parties hereunder and to settle any claim, demand, action or
proceeding, provided that, without the prior written consent of VICAL
(which shall not be unreasonably withheld or delayed), VGI shall not
agree to settle any claim, demand, action or proceeding against VICAL
to the extent such claim has a material adverse effect on VICAL. The
provisions of this paragraph shall survive and remain in full force and
effect after any termination, expiration or cancellation of this
Agreement and VGI's obligation hereunder shall apply whether or not
such claims are rightfully brought. VGI shall require each
(sub)licensee hereunder to agree to indemnify VICAL in a manner
consistent with this Section 12.1.
12.2 If VICAL intends to claim indemnification under this Article 12, VICAL
shall promptly notify VGI of any claim, demand, action or proceeding
for which VICAL intends to claim such indemnification, and VGI, after
it determines that indemnification is required of it, shall assume the
defense thereof with counsel selected by VGI and reasonably acceptable
to the other party; provided, however, that VICAL shall have the right
to retain its own counsel, with the fees and expenses to be paid by VGI
if VGI does not assume the defense; or, if representation of VICAL by
the counsel retained by VGI would be inappropriate due to actual or
potential conflicts of interest between VICAL and any other party
represented by such counsel in such proceedings. The indemnity
agreement in this Article 12 shall not apply to amounts paid in
settlement of any claim, demand, action or proceeding if such
settlement is effected without the consent of VGI, which consent shall
not be unreasonably withheld or delayed. The failure to deliver notice
to VGI within a reasonable time after the commencement of any such
action, if prejudicial to its ability to defend such action, shall
relieve VGI of any liability to VICAL under this Article 12, but
failure to deliver notice to VGI will not relieve it of any liability
that it may have to VICAL otherwise than under this Article 12. VICAL
under this
18
<PAGE>
Article 12, its employees and agents, shall reasonably cooperate
with VGI and its legal representatives in the investigations of any
claim, demand, action or proceeding covered by this indemnification.
In the event that each party claims indemnity from the other and one
party is finally held liable to indemnify the other, VGI shall
additionally be liable to pay the reasonable legal costs and
attorneys' fees incurred by VICAL in establishing its claim for
indemnity.
13. ***
13.1 ***
14. FORCE MAJEURE
14.1 If the performance by a party of any obligation under this Agreement
(other than an obligation for a payment of money), is prevented,
restricted, interfered with or delayed by reason of any reasonable
unforeseeable cause beyond the reasonable control of the party liable
to perform, the party so affected shall, upon giving written notice to
the other party, be excused from such performance to the extent of such
prevention, restriction, interference or delay, provided that the
affected party shall use its commercially reasonable efforts to avoid
or remove such causes of non-performance and shall continue performance
with the utmost dispatch whenever such causes are removed. When such
circumstances arise, the parties shall discuss what, if any,
modification of the terms of this Agreement may be required in order to
arrive at an equitable solution.
____________
*** Confidential material redacted and separately filed with the Commission.
19
<PAGE>
15. DISPUTE RESOLUTION
15.1 This Agreement shall be construed and enforced in accordance with the
laws of the State of Delaware (without reference to the conflicts of
law principles thereof).
15.2 In the event of any controversy, dispute or claim arising out of or
relating to any provision of this Agreement or the breach thereof, the
parties shall use good faith efforts to settle such controversy,
dispute or claim amicably between themselves.
15.3 Should the parties fail to reach mutually acceptable settlement of any
controversy, dispute or claim which may arise out of or in connection
with this Agreement, or the breach, termination or validity thereof
(other than with respect to patent validity) shall be settled by final
and binding arbitration pursuant to the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") as herein provided.
(a) The Arbitration Tribunal shall consist of three arbitrators.
Each party shall nominate in the request for arbitration and
the answer thereto one arbitrator and the two arbitrators so
named will then jointly appoint the third arbitrator as
chairman of the Arbitration Tribunal. If one party fails to
nominate its arbitrator or, if the parties' arbitrators cannot
agree on the person to be named as chairman within sixty (60)
days, the necessary appointments shall be made under the rules
of the AAA.
(b) The place of arbitration shall be in Chicago, Illinois and the
arbitration proceedings shall be held in English. The
procedural law of the State of Illinois shall apply where the
AAA Rules are silent.
(c) The award of the Arbitration Tribunal shall be final and
judgment upon such an award may be entered in any competent
court or application may be made to any competent court for
judicial acceptance of such an award and order of enforcement.
Notwithstanding the foregoing, nothing contained herein shall
prevent either party from seeking interim relief from a court
of competent jurisdiction pending the establishment of or a
decision by a panel of arbitrators.
20
<PAGE>
16. ENTIRE AGREEMENT.
16.1 This Agreement, and the Appendices hereto, entered into as of the date
written above together with the Investment Agreement and each of the
documents referenced in such Investment Agreement, constitute the
entire agreement between the parties relating to the subject matter
hereof and supersedes all previous writings and understandings. No
terms or provisions of this Agreement shall be varied or modified by
any prior or subsequent statement, conduct or act of either of the
parties, except that the parties may amend this Agreement by written
instruments specifically referring to and executed in the same manner
as this Agreement.
17. NOTICES.
17.1 Any notice required or permitted under this Agreement shall be
hand-delivered or sent by express delivery service or certified or
registered mail, postage prepaid, or by fax with written confirmation
by mail, to the following addresses of the parties:
VASCULAR GENETICS INC.
Suite 201
4364 S. Alston Avenue
Durham, North Carolina 27713
Attn: John W. Cumming
Fax: (843) 342-3701
copy to:
Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street, N.W.
Atlanta, GA 30308
Attn: Mark S. Lange, Esq.
Fax: (404) 527-3808
VICAL INCORPORATED
9373 Towne Center Drive
San Diego, California 92121
Attn: President
Fax: (858) 646-1150
21
<PAGE>
copy to:
Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, California 94105
Attn: Thomas E. Sparks, Jr., Esq.
Fax: (415) 983-1200
17.2 Any notice required or permitted to be given concerning this Agreement
shall be effective upon receipt by the party to whom it is addressed.
18. ASSIGNMENT AND CHANGE OF CONTROL.
18.1 This Agreement and the licenses herein granted shall be binding upon
and inure to the benefit of the parties and their respective permitted
assignees and successors in interest. Neither this Agreement nor any
interest hereunder shall be assignable by a party without the prior
written consent of the other party and any attempted assignment
contrary to this Section 18.1 shall be void and without force and
effect. Notwithstanding the foregoing; a party may assign this
Agreement and all of its rights and obligations hereunder to any
AFFILIATE or to any THIRD PARTY in connection with the transfer or sale
of all or substantially all of its business or all or substantially all
of its assets to which this Agreement relates, or in the event of its
merger, consolidation, change in control or similar transaction,
without obtaining the consent of the other party, provided that the
assigning party remains liable under this Agreement and that the THIRD
PARTY assignee or surviving entity assumes in writing all of its
obligations under this Agreement.
19. COUNTERPARTS.
19.1 This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed an original instrument, but all such
counterparts together shall constitute but one agreement.
22
<PAGE>
20. WAIVER.
20.1 Any delay or failure in enforcing a party's rights under this Agreement
or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of
its rights under this Agreement, nor operate to bar the exercise or
enforcement thereof at any time or times thereafter, excepting only as
to an express written and signed waiver as to a particular matter for a
particular period of time.
20.2 Notwithstanding the foregoing, in the event VGI challenges whether any
payments contemplated hereunder (including, without limitation
royalties or milestones) are due, it shall have the right, but not the
obligation, to make such payments under protest (reserving all rights
hereunder) pending resolution of such dispute.
21. INDEPENDENT RELATIONSHIP.
21.1 Nothing herein contained shall be deemed to create an employment,
agency, joint venture or partnership relationship between the parties
hereto or any of their agents or employees, or any other legal
arrangement that would impose liability upon one party for the act or
failure to act of the other party. No party shall have any power to
enter into any contracts or commitments or to incur any liabilities in
the name of, or on behalf of, the other party, or to bind the other
party in any respect whatsoever.
22. FURTHER ACTIONS.
22.1 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.
23
<PAGE>
IN WITNESS WHEREOF, the parties, through their authorized officers,
have executed this Agreement as of the Effective Date.
VICAL INCORPORATED
By: /s/ Alain B. Shreiber, M.D.
-----------------------------
Alain B. Schreiber, M.D.
President and Chief Executive Officer
VASCULAR GENETICS INC.
By: /s/ John W. Cumming
-----------------------------
John W. Cumming
President
24
<PAGE>
APPENDIX A ***
____________
*** Confidential material redacted and separately filed with the Commission.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF THE COMPANY'S FORM 10-Q FOR THE THREE
MONTH PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 66,978
<SECURITIES> 86,524
<RECEIVABLES> 117
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156,696
<PP&E> 8,201
<DEPRECIATION> 5,937
<TOTAL-ASSETS> 165,485
<CURRENT-LIABILITIES> 5,582
<BONDS> 1,362
0
0
<COMMON> 162
<OTHER-SE> 154,358
<TOTAL-LIABILITY-AND-EQUITY> 165,485
<SALES> 0
<TOTAL-REVENUES> 998
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,317
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (2,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,911)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
