SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
--------------------
[x] QUARTERLY REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No. 0-18728
INTERNEURON PHARMACEUTICALS, INC.
(exact name of registrant as specified in its charter)
Delaware 04-3047911
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Ledgemont Center, 99 Hayden Avenue 02173
Lexington, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (617) 861-8444
(Former name, former address and former fiscal year, if changed since last
report):Not Applicable
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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 August 12, 1997:
Common Stock $.001 par value 41,049,458 shares
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INTERNEURON PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and September 30, 1996......................................................................... 3
Consolidated Statements of Operations for the Three and Nine Months ended
June 30, 1997 and 1996..........................................................................4
Consolidated Statements of Cash Flows for the Nine Months ended
June 30, 1997 and 1996..........................................................................5
Notes to Unaudited Consolidated Financial Statements............................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................10
PART II. OTHER INFORMATION
Item 2. Changes in Securities .......................................................24
Item 5. Other Information............................................................24
Item 6. Exhibits and Reports on Form 8-K.............................................27
SIGNATURES.......................................................................................................28
</TABLE>
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Item 1. Financial Statements
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands except share data)
<TABLE>
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June 30, September 30,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 61,062 $145,901
Marketable securities 58,332 17,068
Accounts receivable 3,159 4,338
Inventories 4,149 8,376
Prepaids and other current assets 8,346 1,324
----------- ------------
Total current assets 135,048 177,007
Marketable securities 32,382 6,639
Property and equipment, net 5,947 2,689
Other assets 214 103
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$173,591 $186,438
======== =========
LIABILITIES
Current liabilities:
Accounts payable $ 3,227 $ 2,575
Accrued expenses 17,794 11,604
Deferred revenue 7,135 6,921
Current portion of other long-term liabilities 29 -
Current portion of capital lease obligations 854 661
---------- -------------
Total current liabilities 29,039 21,761
Long-term portion of capital lease obligations 1,289 526
Other long-term liabilities 489 16
Minority interest 18,372 19,373
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, authorized 5,000,000 shares: Series B, 239,425
shares issued and outstanding at June 30, 1997 and September 30, 1996
(liquidation preference at
June 30, 1997 $3,018) 3,000 3,000
Series C, 5,000 shares issued and outstanding at June 30, 1997
and September 30, 1996 (liquidation preference at
June 30, 1997 $501) 500 500
Common stock, $.001 par value, 80,000,000 shares authorized:
41,226,293 shares issued and 41,015,969 shares issued and
outstanding at June 30, 1997 and September 30, 1996, respectively 41 41
Additional paid-in capital 248,794 247,999
Accumulated deficit (124,733) (106,778)
Unrealized gains on marketable securities 16 -
Treasury stock, at cost, 176,835 shares at June 30, 1997 and no
shares at September 30, 1996 (3,216) -
------------ --------------
Total stockholders' equity 124,402 144,762
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$173,591 $186,438
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
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INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1997 and 1996
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the three months ended June 30, For the nine months ended June 30,
----------------------------------- ----------------------------------
1997 1996 1997 1996
---- ---- ---- ----
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Revenues:
Product revenue $ 15,012 $ 1,100 $ 46,200 $ 1,167
Contract and license fees 2,383 1,067 8,661 7,248
---------- ----------- ---------- ----------
Total revenues 17,395 2,167 54,861 8,415
Costs and expenses:
Cost of product revenue 9,144 661 31,047 727
Research and development 10,500 4,955 27,984 11,615
Selling, general and administrative 7,372 4,297 18,716 11,178
Purchase of in-process research
and development 286 - 2,547 8,234
---------- ------------- ---------- ----------
Total costs and expenses 27,302 9,913 80,294 31,754
-------- --------- -------- --------
Net loss from operations (9,907) ( 7,746) (25,433) (23,339)
Investment income, net 2,191 1,129 6,788 2,119
Minority interest 542 444 690 (98)
---------- ---------- ----------- ------------
Net loss $ (7,174) $(6,173) $(17,955) $(21,318)
========= ======== ========= =========
Net loss per common share $ ( 0.17) $ ( 0.16) $ ( 0.44) $ (0.60)
========== ========== =========== ===========
Weighted average common
shares outstanding 41,048 38,300 41,055 35,702
========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
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INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1997 and 1996
(Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended June 30,
--------------------------
1997 1996
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Cash flows from operating activities:
Net loss $ (17,955) $ (21,318)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,025 582
Loss (gain) on disposal of fixed assets 7 (20)
Minority interest in net income/loss of
consolidated subsidiaries (690) 98
Purchase of in-process research and development 2,147 8,098
Noncash compensation 262 1,234
Change in assets and liabilities:
Accounts receivable 1,179 (2,384)
Inventories 4,227 (8,663)
Prepaids and other current assets (7,022) (975)
Other assets (112) 112
Accounts payable 652 1,184
Deferred revenue 214 2,126
Accrued expenses and other liabilities 6,273 4,880
------------ --------------
Net cash (used) by operating activities (9,793) (15,046)
------------- --------------
Cash flows from investing activities:
Capital expenditures (3,258) (453)
Purchase of marketable securities (79,381) (43,169)
Proceeds from maturities and sales of
marketable securities 12,390 36,108
Purchases of Intercardia stock (2,837) -
Proceeds from disposal of fixed assets - 63
------------- ---------------
Net cash (used) by investing activities (73,086) ( 7,451)
------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of common and treasury stock 1,317 124,084
Net proceeds from issuance of stock by subsidiaries 276 30,344
Purchase of treasury stock (3,978) -
Proceeds from sale/leaseback 1,050 131
Principal payments of capital lease obligations (625) (499)
------------- ----------------
Net cash (used) provided by financing activities (1,960) 154,060
------------- -------------
Net change in cash and cash equivalents (84,839) 131,563
Cash and cash equivalents at beginning of period 145,901 16,781
------------ --------------
Cash and cash equivalents at end of period $ 61,062 $ 148,344
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
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INTERNEURON PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The consolidated financial statements included herein have been
prepared by Interneuron Pharmaceuticals, Inc. without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company. The unaudited consolidated financial statements
included herein should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's Form 10-K
for the fiscal year ended September 30, 1996.
The unaudited consolidated financial statements include the accounts of
Interneuron Pharmaceuticals, Inc. ("Interneuron" or the "Company") and its
subsidiaries (the "Subsidiaries"), Progenitor, Inc. ("Progenitor"), Transcell
Technologies, Inc. ("Transcell"), Intercardia, Inc. ("Intercardia"), and
InterNutria, Inc. ("InterNutria"). All significant intercompany activity has
been eliminated.
The Company will adopt Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128") in the quarter ending December 31, 1997. SFAS
128 requires the Company to change its method of computing, presenting and
disclosing earnings per share information. Upon adoption, all prior period data
presented will be restated to conform to the provisions of SFAS 128.
Management has not determined the effect of adopting SFAS 128.
B. Significant Accounting Policies:
Certain prior year amounts have been reclassified to conform with fiscal
1997 classifications.
C. Inventories:
Inventories consisted of: June 30, September 30,
1997 1996
Raw materials $2,844,000 $5,420,000
Finished goods 1,305,000 2,956,000
------------ ----------
$4,149,000 $8,376,000
========== ==========
Raw materials consisted primarily of dexfenfluramine drug substance and
finished goods
-6-
consisted primarily of finished and packaged Redux(TM) capsules.
D. Subsidiaries:
In December 1996, Progenitor entered into an agreement with Amgen, Inc.
("Amgen") granting Amgen certain exclusive rights for the development and
commercialization of products using Progenitor's leptin receptor technology.
Amgen paid Progenitor a $500,000 initial license fee in January 1997, which was
reflected in contract and license fee revenue in the nine month period ended
June 30, 1997. Progenitor may also receive from Amgen certain development and
regulatory milestone payments and potential royalties on sales. Amgen also
agreed to purchase Progenitor common stock in the event of a Progenitor initial
public offering under certain conditions. See Note G.
In December 1996, Intercardia entered into an agreement with BASF
Pharma/Knoll AG ("Knoll") ("the Knoll Collaboration") to provide for the
development, manufacture and marketing of bucindolol in all countries with the
exception of the United States and Japan (the "Territory"). The Knoll
Collaboration relates to both the twice-daily bucindolol formulation and the
once-a-day bucindolol formulation currently under development. Under the terms
of the Knoll Collaboration, Knoll made up-front payments to CPEC, Inc. ("CPEC",
Intercardia's majority-owned subsidiary, of which Interneuron owns the minority
portion) totaling $3,143,000 which were recognized as contract and license fee
revenue in the nine month period ended June 30, 1997. Knoll will make future
payments to CPEC contingent upon the achievement of product approval and sales
milestones.
Knoll and Intercardia agreed to share the development and marketing costs
of bucindolol in the Territory. In general, Knoll agreed to pay approximately
60% of certain development and marketing costs prior to product launch and
Intercardia agreed to pay approximately 40% of such costs, subject to certain
maximum dollar limitations. CPEC will be entitled to a royalty equal to 40% of
net profits, as defined in the Knoll Collaboration, and would be responsible
for, 40% of any net loss, as defined. Knoll also agreed to pay approximately 60%
of once-a-day formulation development costs that relate solely to the Territory
and approximately one-third that have worldwide benefit.
E. Agreement:
In June 1997, the Company entered into an agreement with Eli Lilly and Co.
and Eli Lilly S.A. ("Lilly") relating to the licensing by Lilly from the Company
of a use patent for Lilly's antidepressant Prozac(R) (fluoxetine hydrochloride).
Lilly licensed from the Company a U.S. patent and worldwide patent application
rights covering the use of fluoxetine to treat disturbances of appetite and mood
associated with premenstrual syndrome. Prozac currently is not approved to treat
this indication. The agreement requires Lilly to pay the Company an up-front
license fee of $1,000,000 which was recorded as license fee revenue in the three
and nine month periods ended June 30, 1997 and additional payments based upon
achievement of development and regulatory related milestones and royalties based
upon net sales.
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F. Other:
In February 1997, the Company announced that its Board of Directors had
authorized it to purchase from time to time through open-market transactions up
to 200,000 shares of the common stock of Intercardia. As of June 30, 1997, the
Company had purchased 124,400 shares of Intercardia common stock, of which
20,000 shares were purchased in the three month period ended June 30, 1997, for
an aggregate purchase price of approximately $2,837,000, of which approximately
$286,000 and $2,147,000 was recorded as purchase of in-process research and
development in the three and nine month periods ended June 30, 1997,
respectively. As a result of these purchases, the Company's ownership of
Intercardia increased from approximately 60% at September 30, 1996 to
approximately 61% at June 30, 1997 based upon the number of outstanding shares
of Intercardia at such dates.
At the Company's annual meeting of stockholders, on March 5, 1997, the
Company's stockholders approved an increase to the number of authorized shares
of Common Stock from 60,000,000 to 80,000,000.
In March 1997, the Company announced that its Board of Directors had
authorized it to repurchase from time to time through open-market transactions
up to 1,500,000 shares of the Company's Common Stock. As of June 30, 1997, the
Company had repurchased 217,500 shares, of which 75,000 shares were repurchased
in the three month period ended June 30, 1997, for an aggregate purchase price
of approximately $3,978,000, of which 40,665 shares were re-issued pursuant to
stock option exercises and an employee stock purchase plan.
In May 1997, the Company purchased in private transactions from Swiss Bank
Corporation, London Branch ("SBC") capped call options on Interneuron Common
Stock. These call options give Interneuron the right to purchase from SBC up to
a total of 1,240,000 shares of Interneuron Common Stock at a strike price of
$17.75. The call options are exercisable only at their maturities, which are
September 24, 1997, March 9, 1998, May 21, 1998 and August 24, 1998 each with
respect to 310,000 shares, and are subject to caps of $26.00, $34.00, $38.00 and
$40.00, respectively, which limit the economic benefit to the Company of these
call options. The call options which the Company purchased are expected to be
settled, if exercised, with cash in an amount equal to the difference between
the strike price and the market price, subject to caps which will limit the
total amount of cash the Company could receive or increase the strike prices in
the case of stock settlement when the market price of the Company's Common Stock
exceeds the applicable cap price. Under certain circumstances, the Company may
delay the expiration date of these call options for the payment of additional
consideration to SBC.
In exchange for the purchases of these call options, in lieu of cash
purchase prices, the Company sold to SBC call options entitling SBC to purchase
from the Company at a strike price of $40.30 per share, an aggregate of
2,000,000 shares of Interneuron Common Stock, 1,000,000 shares on each of May 21
and May 24, 1999. The Company will have the right to settle these call options
with cash or stock, subject to certain conditions. If exercised, the Company
expects to settle the call options that it sold through issuances by the Company
to SBC of up to an aggregate of 2,000,000 authorized and unissued shares of
Common Stock, subject to the effectiveness of a registration statement covering
the resale of these shares delivered.
-8-
Because the Company has the ability to settle call options through issuance or
receipt of Common Stock, the Company has accounted for the purchases and sales
of these call options as equivalent and offsetting noncash equity transactions.
Any gains realized from purchased call options will be reflected in additional
paid-in capital.
G. Subsequent Events:
On July 3, 1997, Transcell and Interneuron entered into a Research
Collaboration and Licensing Agreement with Merck & Co., Inc. ("Merck") to
discover and commercialize certain novel antibacterial agents. Merck has an
option to extend the field of the collaboration and license to include all
antibacterial pharmaceutical products. The agreement provides for Transcell to
receive initial payments totaling $2,500,000 (which were received in July 1997
and which will be recognized as license fee revenue in the three month period
ending September 30, 1997) plus research support during the first two years of
the agreement. Additionally, Transcell is entitled to payments based upon
achievement of certain defined clinical development and regulatory milestones
and royalties based upon net sales of products resulting from the collaboration.
Certain of the rights licensed to Merck are based on exclusive licenses or
rights held by Transcell and Interneuron from Princeton University, which will
be entitled to varying percentages of certain payments and royalties received
from Merck.
On August 12, 1997, Progenitor completed an initial public offering (the
"Progenitor IPO") of 2,750,000 units at $7.00 per unit, each unit consisting of
one share of Progenitor Common Stock and one five-year warrant to purchase one
share of Progenitor Common Stock at $10.50 per share. The Progenitor IPO
resulted in proceeds to Progenitor, net of offering-related costs, of
approximately $16,600,000. Interneuron purchased 500,000 units of the Progenitor
IPO for a total of $3,500,000. Concurrent with the Progenitor IPO, Progenitor
sold 1,023,256 shares of Progenitor Common Stock to Amgen pursuant to a stock
purchase agreement for a purchase price of $4,500,000 in cash and a $1,000,000
promissory note. Concurrently with the closing of the Progenitor IPO, Progenitor
completed a merger with Mercator Genetics, Inc. (the "Mercator Acquisition") for
approximately $22,000,000 paid with the issuance of approximately 3,441,000
shares of Progenitor Common Stock, plus the assumption of Mercator liabilities
and forgiveness of debt relating to advances made by Progenitor to Mercator.
Interneuron's ownership in Progenitor's outstanding capital stock decreased from
approximately 76% at September 30, 1996 to approximately 37 % immediately
following the Progenitor IPO and the Mercator Acquisition. As a result of the
Company 's decreased percentage of ownership in Progenitor, the Company will no
longer consolidate the financial statements of Progenitor but will include
Progenitor in the Company's financial statements using the equity method of
accounting.
In connection with the Mercator Acquisition, Progenitor will incur
non-recurring charges to operations in the quarter and fiscal year ending
September 30, 1997, related to the purchase of in- process research and
development. Interneuron will include a portion (currently estimated at
approximately $12,000,000) of these charges in Equity in net loss of
unconsolidated subsidiaries, based on its ownership interest in Progenitor. As a
result of the Progenitor IPO and Interneuron's purchase of 500,000 units
thereof, Interneuron will recognize in the quarter and fiscal year ending
September 30, 1997, a gain on its investment in Progenitor in the Company's
Additional paid-in capital but not in the Company's Consolidated Statement of
Operations.
-9-
As a result of the Progenitor IPO, shares of Interneuron Common Stock
potentially issuable under certain put protection rights exercisable in June
1998 have decreased from a maximum of approximately 2,181,250 shares to a
maximum of approximately 232,000 shares, if Interneuron's Common Stock is valued
at $2.00 per share or less. Based upon the closing market price of Interneuron
Common Stock on August 8, 1997 of $20.25, the Company's potential obligation
under these put protection rights could cause the Company to issue approximately
22,900 shares of its Common Stock.
In certain circumstances, Interneuron has the right to purchase
additional shares of Progenitor Common Stock at fair market value to maintain
Interneuron's equity ownership in Progenitor, and Interneuron may from time to
time purchase through open-market transactions Progenitor common stock or
warrants. As of August 13, 1997, the Company has purchased 20,000 shares of
Progenitor common stock for approximately $105,000.
In July 1997, the Company relinquished certain conversion price adjustments
relating to Progenitor Series A Preferred Stock held by the Company in exchange
for an option to acquire an exclusive, worldwide license to manufacture, use and
sell certain aspects of Del-1, a novel cell surface protein encoded by the Del-1
gene which was discovered by Progenitor. In addition, at the closing of the
Progenitor IPO, the Company contributed to the capital of Progenitor all
outstanding advances made by the Company to Progenitor.
In August 1997, the Company, American Home Products Corp. and Les
Laboratoires Servier entered into agreements relating to the development and
commercialization of a sustained-release once-a-day formulation of Redux(TM) for
the management of obesity in the United States. See Item 5. Other Information.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Statements in this Form 10-Q that are not descriptions of historical facts
are forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth in the Company's filings under the
Securities Act of 1933 and under the Securities Exchange Act of 1934 under "Risk
Factors" and elsewhere including, in particular, risks relating to product
commercialization , such as marketing, regulatory, safety, competition, patent,
product liability, manufacturing and supply and other risks; revenue
fluctuations; uncertainties relating to clinical trials; risks related to
contractual obligations; risks relating to product launches and managing growth;
government regulation, patent risks, dependence on third parties, competition;
and the early stage of products under development.
The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto appearing
elsewhere in this report and audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996. Unless the context indicates otherwise, all references
to the Company include Interneuron and its Subsidiaries.
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Citicoline
The Company's principal product under development is CerAxon(TM)
(citicoline) for the treatment of ischemic stroke. The Company recently
completed a pivotal Phase 3 clinical trial of citicoline (the "Fiscal 1997 Phase
3 Trial") for treatment of ischemic stroke and is performing an ongoing Phase 3
clinical trial which is expected to extend into fiscal 1999 (the "Ongoing Phase
3 Trial") as well as other supportive trials. These trials are in addition to a
first pivotal, Phase 2/3 dose ranging trial completed in Fiscal 1996.
The Ongoing Phase 3 Trial is exploring reduction in brain infarct size and
functional improvement in citicoline versus placebo-treated stroke patients
using brain imaging techniques. The Company plans to initiate further studies
beginning in fiscal 1998 or fiscal 1999 to explore areas such as post-stroke
learning and memory, combination with thrombolytic therapies and other clinical
paradigms such as treatment or prevention of peri-operative strokes and
treatment of head trauma.
In July 1997, the Company announced that a preliminary analysis of the
Fiscal 1997 Phase 3 Trial showed that neurological function among patients with
moderate and severe strokes was significantly improved and that the drug was
well tolerated.
Fiscal 1997 Phase 3 Trial Study Design: Patients over 18 years old with no
upper age limit who met entry criteria were entered within 24 hours of their
stroke in a 2 to 1 randomization to receive citicoline 500 milligrams or placebo
orally once daily for six weeks. Two hundred sixty-seven patients received
citicoline and 127 patients received placebo. The primary outcome analysis of
this double-blind, placebo-controlled trial of 394 patients was improvement in
the Barthel Index, a 100 point rating scale of functional capabilities in
neurological patients, at a time point three months after an ischemic stroke.
Other secondary outcome measures were assessed. To account for baseline
differences in stroke severity, the primary analysis requires that 3-month
Barthel scores be adjusted for stroke severity using the NIH Stroke Scale.
The NIH Stroke Scale rates patients from 0 to 42 points for maximum
severity. Patients enrolled in the study were required to have an NIH Stroke
Scale score of 5 or greater. Patients were considered to have achieved complete
or near-complete functional recovery if they achieved a Barthel score of 95 or
100 at three months. Analysis of data was performed on an intent to treat basis
with assessments made using two methods: patients who completed the study and
had a three-month observation point (observed cases, or OC analysis) and
patients whose last recorded scores were carried forward to the 3 month point,
regardless of their study completion (last observation carried forward, or LOCF
analysis).
Fiscal 1997 Phase 3 Trial Study Results: In a responders analysis, 41
percent of citicoline-treated patients with an NIH stroke scale on entry of
greater than or equal to 8 (moderate to severe strokes) achieved a Barthel Index
of greater than or equal to 95 compared to 25 percent of placebo-treated
patients (OC analysis, p = 0.02). Thus, patients with moderate to severe stroke
treated with citicoline had a 64 percent greater chance of complete or
near-complete recovery relative to patients with moderate to severe stroke
treated with placebo. In the LOCF analysis, 33 percent of moderate to severe
citicoline patients and 21 percent of moderate to severe placebo patients
achieved a Barthel Index of greater than or equal to 95, a 57 percent increased
chance of improvement in recovery (p = 0.05).
Overall, patients who had mild strokes on entry into the study (NIH Stroke
Scale 5 through 7) had an excellent clinical outcome regardless of placebo or
citicoline treatment. For example, approximately 80 percent of patients with
mild strokes who received placebo and a similar percentage of citicoline-treated
patients with mild strokes achieved a Barthel score of greater than or equal to
95 at three months.
There was an unexpected highly significant baseline imbalance in the
percentage of placebo
-11-
versus citicoline-treated patients who had mild strokes on study entry (34
percent for placebo vs. 22 percent for citicoline (p = 0.006), due to chance.
The study was influenced by the significant preponderance of mild cases in the
placebo group. As a result of this imbalance and other statistical factors, the
primary analysis of the study, the distribution of Barthel Index scores in
citicoline vs. placebo-treated patients as a function of baseline NIH Stroke
Scale scores, did not achieve statistical significance. However, this primary
analysis was statistically invalid because the patient imbalance and other
statistical factors failed to satisfy the requirements for the correct operation
of the statistical model. Therefore, a protocol-defined responders analysis,
percentage of patients who achieve a Barthel Index greater than or equal to 95,
among patients with moderate to severe strokes, was employed (see results
above).
In another protocol-defined measure of functional clinical outcome, the
6-point Rankin scale of physician-rated global assessment was utilized. A Rankin
score of 0 or 1 at study completion indicated complete or near-complete lack of
disability. Among patients with moderate to severe strokes, 24 percent of
citicoline-treated patients vs. 11 percent of placebo-treated patients achieved
a Rankin score of 0 or 1, a 118% improvement in outcome (OC analysis, p = 0.02).
In the LOCF analysis, 19 percent of moderate to severe citicoline patients and
11 percent of moderate to severe placebo patients had a Rankin scale of 0 or 1,
a 73% improvement in outcome (p = 0.08).
Other secondary outcome measurements involving NIH Stroke Scales, duration
of hospitalization, rate of recovery and neurocognitive ratings have not yet
been analyzed.
Preliminary safety review indicated that citicoline was well tolerated.
There did not appear to be any medically serious adverse events that differed in
frequency from placebo-treated patients. Minor gastrointestinal complaints,
though relatively infrequent, appear to have occurred more frequently in
citicoline versus placebo-treated patients. A previous study indicated an
increased incidence in dizziness and accidental injuries in citicoline-treated
patients. However, in the present trial there did not appear to be any
differences in dizziness or accidental injuries between drug and placebo-treated
patients. The mortality rates for drug-treated and placebo-treated patients were
identical (approximately 18 percent in each group).
Future Citicoline Development and Commercialization: The Company currently
intends to submit a New Drug Application ("NDA") with the U.S. Food and Drug
Administration ("FDA") before the end of 1997. The NDA will include data from
the Company's two completed pivotal U.S. trials and supporting data from a
Japanese clinical trial conducted in stroke patients by Takeda Chemical
Industries, Ltd. The Company is currently evaluating the indication it intends
to request in the NDA for citicoline. The Company is unable to pedict whether or
when the NDA for citicoline will be accepted for filing by the FDA or whether
the FDA will grant authorization to market citicoline in the U.S. based on the
available information.
The remaining expenditures of all currently planned clinical trials and
related studies and the
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preparation of the NDA are estimated, based upon current trial protocols, to
aggregate approximately $23,000,000. The Company is unable to predict with
certainty the costs of any related or additional clinical studies which will
depend upon the results of the ongoing trials and upon FDA requirements.
The Company is currently evaluating the commercialization strategy for
citicoline, subject to required regulatory approvals. The Company is planning to
conduct sole direct marketing of the product to neurologists and certain
emergency room personnel but may consider contracting with certain companies for
the copromotion of the product or for a contract salesforce for market segments
requiring extensive salesforce coverage. In the event the Company markets
citicoline directly, significant funds would be required for manufacturing,
distribution, marketing and selling efforts. The Company is dependent upon third
party suppliers of citicoline for manufacturing in accordance with the Company's
and applicable regulatory requirements and is subject to an agreement with Grupo
Ferrer ("Ferrer"), a Spanish pharmaceutical company, requiring the Company to
purchase citicoline for commercial purposes at fixed prices, subject to certain
conditions. There can be no assurance the Company can or will establish on a
timely basis, or maintain, manufacturing or marketing capabilities required to
obtain regulatory approval or successfully commercialize citicoline or that any
facilities used to produce citicoline will have complied, or will be able to
maintain compliance, with U.S. Good Manufacturing Practices ("GMP") regulations.
The Company has an exclusive license from Ferrer based on certain patent
and know how rights relating to the use of citicoline in the United States and
Canada. The license provides for Ferrer to receive a royalty equal to 6% of the
Company's net sales of citicoline. The Company has also filed a patent
application relating to the use of citicoline to reduce infarct size.
Redux
On April 29, 1996, the Company's first pharmaceutical product, Redux(TM)
(dexfenfluramine hydrochloride capsules) C-IV received clearance by the FDA for
marketing as a twice-daily prescription therapy to treat obesity. The indication
is for the management of obesity, including weight loss and maintenance of
weight loss in patients on a reduced calorie diet who have a body mass index
("BMI") of greater than or equal to 30 kg/m2 or greater than or equal to 27
kg/m2 in the presence of other risk factors, such as hypertension, diabetes and
elevated cholesterol. Under license and copromotion agreements, Redux is being
marketed in the U.S. by Wyeth-Ayerst Laboratories ("Wyeth-Ayerst"), a division
of American Home Products Corp. ("AHP") and co-promoted by the Company through a
salesforce of approximately 30 people.
The Company's revenues relating to Redux are currently primarily derived
from: (1) royalties paid by AHP to the Company based on the net sales of Redux
capsules by AHP to distributors; (2) sales of Redux capsules to AHP; and (3)
financial support of the Company's sales force provided by AHP.
The Company's license agreement with AHP provides for royalties to the
Company consisting of (i) "base" royalties equal to 11.5% of AHP's net sales (an
amount equal to the total royalties required to be paid by the Company to Les
Laboratoires Servier ("Servier") and (ii) "additional" royalties based on net
sales of Redux by AHP. The percentage of "additional" royalties varies depending
upon (x) the status of Redux as a scheduled or descheduled drug and (y) whether
or not
-13-
the Company supplies the finished capsules of Redux to AHP. As of June 30, 1997,
Redux was scheduled as a controlled substance and the Company manufactures the
finished dosage formulation of the drug. In April 1997, the Drug Enforcement
Agency ("DEA") published a recommendation for the removal of fenfluramine and
its isomers including dexfenfluramine from Schedule IV and all other controls of
the Controlled Substances Act. If after a comment period the DEA were to issue a
final rule consistent with its proposal, then Redux would no longer carry the
C-IV designation and would no longer be subject to such DEA controls. Certain
states will deschedule the drug automatically upon federal descheduling while
other states have varying procedures for descheduling.
The following sets forth the applicable "additional" royalties payable to
the Company based on annual net sales for the twice-daily formulation of Redux,
on an annual contract basis commencing in May of each contract year, assuming
the Company is supplying finished capsules of Redux, based on the status of
dexfenfluramine as a scheduled or descheduled drug:
Scheduled
---------
First $50,000,000 5.0%
Next $100,000,000 8.0%
Over $150,000,000 10.0%
Descheduled
-----------
First $150,000,000 8.0%
Next $ 50,000,000 10.0%
Over $200,000,000 11.0%
Royalty rates are subject to a 50% reduction if generic drug competition
exceeds a 10% market share in two consecutive quarters. The Company recognizes
royalty revenue and associated expense in the fiscal quarter when AHP reports to
Interneuron AHP's shipments to distributors. Accordingly, royalty revenue is
reported by the Company in the quarter following actual shipments by AHP.
Under a copromotion agreement with Wyeth-Ayerst effective June 1, 1996, the
Company's sales force is promoting Redux to selected specialists, in return for
financial support of the sales force and a percentage of resulting revenues less
certain expenses. The copromotion agreement with AHP calls for a reduction of
the Redux sales force costs paid by AHP to Interneuron from $100,000 per
salesperson during the first year of the agreement to $50,000 per salesperson
during the second year of the agreement. As a result, total maximum payments
from AHP will be reduced to approximately $1,650,000 for the twelve month period
beginning June 1997 from approximately $3,300,000 for the twelve month period
which commenced June 1996. The copromotion agreement is cancelable by
Wyeth-Ayerst under certain conditions. There is no assurance the Company will
meet such conditions, which include a minimum revenue requirement relating to
sales generated from the Company's copromotion of Redux.
The Company has a manufacturing agreement with Boehringer Ingelheim
Pharmaceuticals, Inc. ("Boehringer") under which Boehringer manufactures and
packages finished capsules of Redux on behalf of the Company for sale to AHP.
This agreement obligates Boehringer to provide, and the Company to purchase,
manufactured Redux capsules to the extent defined in the agreement, through the
current contract expiration date of December 31, 1998. At the expiration or
termination
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of the agreement, the Company would be obligated to purchase from Boehringer any
unused manufacturing materials, work in process, or finished product and to
assume any unfilled Boehringer purchase commitments that could not be canceled
prior to the expiration or termination of the agreement. If the Boehringer
agreement is not extended, the Company will be required to obtain a replacement
GMP-qualified manufacturing facility for Redux. There can be no assurance a
replacement manufacturer will be approved by the FDA in sufficient time to avoid
an interruption in the commercial supply of Redux. The Company recognizes
revenue from the sale of these capsules upon acceptance by AHP, typically 45
days after shipment.
Included in the FDA-approved labeling for Redux are references to certain
risks that may be associated with dexfenfluramine and which were highlighted
during the FDA's review of the drug. One issue relates to whether there is an
association between appetite suppressants, including dexfenfluramine, and the
development of primary pulmonary hypertension ("PPH"), a rare but serious lung
disorder estimated to occur in the general population at one to two cases per
million adults per year. An epidemiologic study conducted in Europe known as
IPPHS (International Primary Pulmonary Hypertension Study) examined risk factors
for PPH and showed that among other factors, weight reduction drugs, including
dexfenfluramine, and obesity itself were associated with a higher risk of PPH.
In the final report of IPPHS, published in the New England Journal of Medicine
(August 29, 1996), the authors estimated yearly occurrence of PPH for patients
taking appetite suppressants for greater than three months duration to be
between 23 and 46 cases per million patients per year. Current labeling for
Redux discloses this risk.
The FDA-approved labeling for Redux also includes discussion as to whether
dexfenfluramine is associated with certain neurochemical changes in the brain.
Certain studies conducted by third parties related to this issue purport to show
that very high doses of dexfenfluramine cause prolonged serotonin depletion in
certain animals, which some researchers believe is an indication of
neurotoxicity. The Company has presented data relating to the lack of
neurocognitive effects in patients taking Redux to the FDA and believes that, as
demonstrated in human trials, these animal studies are clinically irrelevant to
humans because of pharmacokinetic differences between animals and humans and
because of the high dosages used in the animal studies. The Company and Wyeth-
Ayerst have agreed with the FDA to conduct a Phase 4, or post-marketing, study
to examine subtle cognitive, behavioral or psychological changes, if any, that
may occur in patients taking Redux. Interneuron's portion of this study and
related costs are currently estimated to be approximately $12,000,000 and are
expected to be incurred over an approximately three year period from the
commencement of the trial. Wyeth-Ayerst is responsible for 50% of the study's
costs.
The Company has been working with the FDA regarding revised labeling for
Redux (dexfenfluramine, the "left-handed" isomer of fenfluramine) in response to
a recent description by the Mayo Clinic of potential serious heart valve
disorders that have been reported with the combined use of (Pondimin(R))
(fenfluramine) and phentermine. The revised labeling may include a highlighted
("boxed") warning about such possible serious heart valve disorders which have
been reported with the combined use of fenfluramine and phentermine. In
addition, the boxed warning may include a warning regarding the
previously-mentioned association between Redux and PPH. The Company is unable to
predict the future impact of safety-related issues and revised labeling on
revenues of Redux. The Company is aware of litigation relating to the use of
certain prescription weight loss drugs,
-15-
including Redux. The Company does not have sufficient information to evaluate
the impact on it of such litigation.
The use patent on dexfenfluramine currently expires in mid 2000. In
accordance with the Waxman-Hatch Act, the U.S. Patent and Trademark Office
("PTO") is currently considering an extension of the dexfenfluramine patent to
compensate the Company for a portion of the time dexfenfluramine was being
tested and considered for approval. The FDA has instituted a petition period,
during which it will accept comments regarding such extension. If such extension
is granted by the PTO, the dexfenfluramine patent will be extended for
approximately an additional 3.5 years. Also, the Company believes it is entitled
under the Waxman-Hatch Act to a minimum three year period of exclusivity from
the date of FDA approval, during which applications for generic versions of the
drug may not be approved, although the Company has applied for a five year
period of exclusivity. There can be no assurance of receipt of such exclusivity
or patent extension on a timely basis or at all.
In August 1997, the Company entered into agreements with AHP and Servier
for the development and commercialization in the U.S. of a sustained release,
once-a-day formulation of Redux. See Item 5. Other Information.
Redux is subject to substantial competition. AHP also sells Pondimin to
treat obesity. The FDA has issued an "approvable" letter for a BASF AG drug,
Meridia(TM), and an FDA advisory panel has recommended approval of a Roche
Holdings, Ltd. drug, Xenical(TM). In addition, other drugs and technologies are
under development to treat obesity.
Inventories of $4,149,000 at June 30, 1997 consisted primarily of
dexfenfluramine drug substance and finished and packaged capsules of Redux.
Inventories decreased from $8,376,000 at September 30, 1996. Inventory levels
depend to a large extent on Redux sales, sales forecasts provided by AHP, AHP's
management of its inventory levels, production planning by the Company, and
production capabilities of Boehringer. There may be fluctuations in Redux sales
as a result of many factors, including seasonality, promotion and advertising,
publicity, the introduction of competitive products, the impact from regulatory
issues, and other factors. There can be no assurance that the manufacture of the
capsules and their sale to AHP will result in profits to Interneuron. Further,
there can be no assurance that Boehringer will be able to manufacture product in
adequate quantities or on a timely basis, or that AHP's sales forecasts and the
Company's production planning will be accurate, which may result in higher
inventory costs to the Company or inadequate or excessive supplies of the
product. AHP pays the Company for certain portions of dexfenfluramine drug
substance prior to its incorporation into the manufacturing process. Such
payments are included in, and are the majority components of, the deferred
revenue balance of $7,135,000 at June 30, 1997.
Results of Operations
Total revenues increased substantially in the three and nine month periods
ended June 30, 1997 over the same periods in the prior fiscal year primarily as
a result of the launch of Redux in June 1996. Total revenues of $17,395,000 in
the three month period ended June 30, 1997 consisted of $15,012,000 of product
revenue and $2,383,000 of contract and license fees, and total revenues of
$54,861,000 in the nine month period ended June 30, 1997 consisted of
$46,200,000 of product revenue and $8,661,000 of contract and license fees.
-16-
Product revenue of $15,012,000 in the three month period ended June 30,
1997 consists primarily of royalty revenue of approximately $10,500,000 based on
AHP's net sales of Redux and approximately $4,300,000 of revenue from the
Company's sale of Redux capsules to AHP. Product revenue of $46,200,000 in the
nine month period ended June 30, 1997 consists primarily of royalty revenue of
approximately $27,400,000 based on AHP's net sales of Redux and approximately
$18,200,000 of revenue from the Company's sale of Redux capsules to AHP. The
Company recognizes Redux royalty revenue when net sales are reported to the
Company by AHP, which occurs in the quarter after AHP shipments of Redux to
distributors. The Company did not report any product revenue in the comparable
fiscal 1996 periods.
The Company expects Redux royalty revenue to decrease over the next several
quarters due to the resetting of the royalty rates as a result of the
commencement of the second contract year in May 1997 and a downward trend in net
sales of Redux. Revenue from the sale of Redux capsules to AHP is also expected
to decrease as a result of decreased demand from AHP which is managing its
inventory at decreased levels while experiencing lower net sales. As discussed
above under "Redux"; the Company is unable to predict the impact of
safety-related issues or the revised labeling on future revenues of Redux.
Contract and license fee revenue increased $1,316,000, or 123%, from
$1,067,000 for the three month period ended June 30, 1996 to $2,383,000 for the
three month period ended June 30, 1997 and increased $1,413,000, or 19%, from
$7,248,000 for the nine month period ended June 30, 1996 to $8,661,000 for the
nine month period ended June 30, 1997. The increase in the three month period is
primarily the result an up-front license fee from Lilly. The increase in the
nine month period is primarily the result of Intercardia's contract payments
from Knoll, the Company's revenue from Wyeth-Ayerst supporting the Interneuron
Redux sales force pursuant to the copromotion agreement with Wyeth-Ayerst and
recognition of the up-front license fee from Lilly, offset by the $5,000,000
initial payment Intercardia received pursuant to their agreement with Astra
Merck in fiscal 1996.
Total costs and expenses increased $17,389,000, or 175%, from $9,913,000
for the three month period ended June 30,1996 to $27,302,000 for the three month
period ended June 30, 1997 and $48,540,000, or 153%, from $31,754,000 for the
nine month period ended June 30, 1996 to $80,294,000 for the nine month period
ended June 30, 1997. Cost of product revenue, which includes the Company's
royalty to Servier, and which minimally existed in the fiscal 1996 periods,
comprised approximately 49% and 62%, respectively, of the 1997 three and nine
month period increases. The three and nine month periods ended June 30, 1997
included expense for the purchase of in-process research and development of
$286,000 and $2,547,000, respectively, resulting primarily from the Company's
open market purchases of Intercardia common stock. See Note F of Notes to
Unaudited Consolidated Financial Statements. The nine month period ended June
30, 1996 included expense for the purchase of in-process research and
development of $6,084,000 from the Company's acquisition of the remaining 20% of
CPEC which was not owned by Intercardia in exchange for the issuance of
Interneuron Common Stock and $2,150,000 for InterNutria's acquisition of
technology and know-how related to PMS Escape(TM) which is being paid by the
issuance of Interneuron Common Stock.
Research and development expenses increased $5,545,000, or 112%, from
$4,955,000 for the three month period ended June 30, 1996 to $10,500,000 for the
three month period ended June 30,
-17-
1997 and $16,369,000, or 141%, from $11,615,000 for the nine month period ended
June 30, 1996 to $27,984,000 for the nine month period ended June 30, 1997.
Increases in the 1997 three and nine month periods reflect expenses relating to
two pivotal Phase 3 citicoline trials and preliminary efforts preparing for an
NDA for citicoline, the pivotal Phase 2/3 pagaclone clinical trial initiated in
the first quarter of fiscal 1997, certain new development efforts at the Company
and Subsidiaries including expenses relating to LidodexNS, and additional
staffing and related expenses at the Company and the Subsidiaries. The nine
month period increases also include certain post-approval clinical trials
expenses relating to Redux and Intercardia's expenses for once-a-day and tablet
formulations of bucindolol. Research and development expenses include only a
relatively small amount for bucindolol as a substantial portion of the
non-government sponsored development expenses for bucindolol have been assumed,
and are being paid, by Astra Merck. Future periods will include significant
research and development expenses related to Phase 4 studies with Redux expected
to commence shortly, the development of a once-a-day formulation of Redux,
filing of an NDA for CerAxon and additional, ongoing clinical testing of
citicoline.
Selling, general and administrative expenses increased $3,075,000, or 72%,
from $4,297,000 for the three month period ended June 30,1996 to $7,372,000 for
the three month period ended June 30, 1997 and $7,538,000, or 67%, from
$11,178,000 for the nine month period ended June 30, 1996 to $18,716,000 for the
nine month period ended June 30, 1997. These increases are due primarily to the
cost of the Company's Redux sales force, promotional expenses incurred for PMS
Escape, increased personnel costs, additional staffing, consultants and
insurance relating to the Company's growth and increased business development
activities, and additional facilities costs at Interneuron relating to its
expanded facilities and at Transcell relating to its move into expanded
facilities. Partially offsetting the nine month increases was a non-recurring
expense recorded in fiscal 1996 for severance and related charges incurred by
Transcell relating to certain management changes. The Company expects selling,
general and administrative expenses will increase in fiscal 1998, in part as a
result of increased promotional expenses expected to be incurred by InterNutria
for a national launch of PMS Escape, and by the Company for the launch of
CerAxon, if FDA approval is obtained. See "Liquidity and Capital Resources".
Investment income, net of interest expense, increased substantially over
the 1997 three and nine month periods due to significantly higher invested
balances of cash, cash equivalents and marketable securities resulting primarily
from funds received from public offerings in fiscal 1996 by Interneuron and
Intercardia.
Liquidity and Capital Resources
Cash, Cash Equivalents and Marketable Securities
At June 30, 1997, the Company had consolidated cash, cash equivalents and
marketable securities aggregating $151,776,000, compared to $169,608,000 at
September 30, 1996. Approximately $9,800,000 of this decrease resulted from cash
used by operating activities and approximately $6,800,000 of this decrease is
the result of the Company's open-market purchases of Intercardia and Interneuron
Common Stock (see Note F of Notes to Unaudited Consolidated Financial
Statements).
-18-
Clinical Studies
The Company is expending substantial amounts for the development and
regulatory approval of citicoline as discussed above under "Citicoline".
The Company is also incurring substantial costs to develop pagoclone for
which a Phase 2/3 trial commenced in November 1996. The Company designates a
trial as Phase 2/3 if it is a well-controlled trial which the Company may
utilize, depending upon results, as either a pivotal or supporting trial in an
NDA submission. The Company currently estimates the total costs of certain
clinical studies, license fees to Rhone-Poulenc Rorer Pharmaceuticals, Inc., and
NDA preparation for pagoclone to be approximately $33,000,000, which will be
incurred over approximately the next three years. The Company is unable to
predict with certainty the costs of any related or additional studies which may
be required by the FDA, whether any such clinical trials will be successful or
result in FDA approval of the product. Further, in the event the Company markets
pagoclone directly, significant additional funds would be required for
manufacturing, distribution and selling efforts.
In December 1996, the Company entered into an agreement with Algos
Pharmaceutical Corporation to collaborate in the development and
commercialization of LidodexNS(TM), which combines two drugs that are currently
marketed for other indications. This combination product is in pre-clinical
development for the acute intra-nasal treatment of migraine headaches. The
development of this and other products, including those which may be acquired by
the Company in the future will require substantial additional funds.
There can be no assurance that results of any ongoing current preclinical
or clinical trial will be successful, that additional trials will not be
required, that any drug under development will receive FDA approval in a timely
manner or at all, or that such drug could be successfully manufactured in
accordance with good manufacturing practice regulations or marketed in a timely
manner, or at all, any of which could materially adversely affect the Company.
Analysis of Cash Flows
Cash used by operating activities during the nine months ended June 30,
1997 of $9,793,000 consisted primarily of a net loss of $17,955,000 (See
"Results of Operations") and changes in assets and liabilities as follows:
(i) a decrease in accounts receivable of $1,179,000 from $4,338,000 at
September 30, 1996 to $3,159,000 at June 30, 1997 primarily resulting from
collections from AHP and reduced billings to AHP.
(ii) a decrease in inventories of $4,227,000 from $8,376,000 at September
30, 1996 to $4,149,000 at June 30, 1997, reflecting a reduction in production
rate of Redux capsules and their sale to AHP.
(iii) an increase of $7,022,000 in prepaid and other current assets from
$1,324,000 at September 30, 1996 to $8,346,000 at June 30, 1997 primarily due to
Progenitor's approximately $5,400,000 of prepaid and accrued costs relating to
its proposed initial public offering and Mercator acquisition
-19-
and advances to Mercator under a line of credit arrangement. (See Note G of
Notes to Unaudited Consolidated Financial Statements and Item 5. Other Events)
(iv) an increase of $6,273,000 in accrued expenses and other liabilities
primarily due to increased accruals relating to research and development
contracts, and Progenitor's accrual of initial public offering and Mercator
acquisition costs. Accrued expenses consist primarily of obligations related to
clinical trials and sponsored research, consultants and other service providers,
compensation and other items.
Cash used by investing activities during the nine months ended June 30,
1997 of $73,086,000 consisted primarily of purchases of marketable securities
(investments purchased with maturities greater than three months) of $79,381,000
resulting mainly from funds available from maturities of securities classified
as cash equivalents, purchases of property and equipment of $3,258,000 and the
Company's $2,837,000 purchase of Intercardia stock.
Cash used by financing activities during the nine months ended June 30,
1997 of $1,960,000 consisted of $3,978,000 used to purchase treasury stock which
was partially offset by inflows of $1,317,000 from issuances of common and
treasury stock and $1,050,000 from proceeds from sales and leasebacks of fixed
assets.
Other
In February 1997, the Company announced that its Board of Directors had
authorized it to purchase from time to time through open-market transactions up
to 200,000 shares of the common stock of Intercardia. As of June 30, 1997, the
Company had purchased 124,400 shares of Intercardia common stock, of which
20,000 shares were purchased in the three month period ended June 30, 1997, for
an aggregate purchase price of approximately $2,837,000, of which approximately
$286,000 and $2,147,000 was recorded as purchase of in-process research and
development in the three and nine month periods ended June 30, 1997,
respectively. As a result of these purchases, the Company's ownership of
Intercardia increased from approximately 60% at September 30, 1996 to
approximately 61% at June 30, 1997 based upon the number of outstanding shares
of Intercardia at each date.
In March 1997, the Company announced that its Board of Directors had
authorized it to repurchase from time to time through open-market transactions
up to 1,500,000 shares of the Company's Common Stock. As of June 30, 1997, the
Company had repurchased 217,500 shares (of which 75,000 were repurchased in the
three month period ended June 30, 1997) for an aggregate purchase price of
approximately $3,978,000, of which 40,665 shares were re-issued pursuant to
stock option exercises and an employee stock purchase plan.
On May 9, 1997, the Company purchased in private transactions from Swiss
Bank Corporation, London Branch ("SBC") capped call options on Interneuron
Common Stock. These call options give Interneuron the right to purchase from SBC
up to a total of 1,240,000 shares of Interneuron Common Stock at a strike price
of $17.75. The call options are exercisable only at their maturities, which are
September 24, 1997, March 9, 1998, May 21, 1998 and August 24, 1998 each with
respect to 310,000 shares, and are subject to caps of $26.00, $34.00, $38.00 and
$40.00, respectively, which limit the economic benefit to the Company of these
call options. The call
-20-
options which the Company purchased are expected to be settled, if exercised,
with cash in an amount equal to the difference between the strike price and the
market price, subject to caps which will limit the total amount of cash the
Company could receive or increase the strike prices in the case of stock
settlement when the market price of the Company's Common Stock exceeds the
applicable cap price.
In exchange for the purchases of these call options, in lieu of cash
purchase prices, the Company sold to SBC call options entitling SBC to purchase
from the Company at a strike price of $40.30 per share, an aggregate of
2,000,000 shares of Interneuron Common Stock, 1,000,000 shares on each of May 21
and May 24, 1999. The Company will have the right to settle these call options
with cash or stock, subject to certain conditions. If exercised, the Company
expects to settle the call options that it sold through issuances by the Company
to SBC of up to an aggregate of 2,000,000 authorized and unissued shares of
Common Stock, subject to the effectiveness of a registration statement covering
the resale of these shares delivered. The sale or potential sale of such shares
could have an adverse effect on the market price of the Company's Common Stock.
Because the Company has the ability to settle call options through issuance or
receipt of Common Stock, the Company has accounted for the purchase and sales of
these call options as equivalent and offsetting noncash equity transactions. Any
gains realized from purchased call options will be reflected in additional
paid-in capital.
SBC has advised that it has engaged, and may engage, in transactions,
including buying and selling shares of the Company's Common Stock, to offset its
risk relating to the options. Purchases and sales could affect the market price
of the Company's Common Stock.
The Company's business strategy includes evaluation of various
technologies, product or company acquisitions, licensing and/or financing
opportunities (including private placements and initial and follow-on equity
offerings) and the Company and certain of its subsidiaries are currently engaged
in discussions relating to such opportunities. Any such initiatives may involve
the issuance of securities of Interneuron or its subsidiaries and/or financial
commitments and would result in increased expenses, on a consolidated basis.
While the Company believes it has sufficient cash for the next 12 months,
it may seek additional funds through other equity and/or debt financings and
corporate collaborations to provide working capital financing and funding for
new business opportunities and growth beyond the next twelve months. In
particular, in the event citicoline receives regulatory approval in the U.S. and
the Company seeks to conduct marketing directly, the Company may seek additional
financing. In addition, certain subsidiaries are exploring various financings
(including issuances of securities of the subsidiaries, possibly in combination
with securities of Interneuron, in public offerings or private placements),
collaborations or business combinations. If such efforts are not successful,
certain activities at these subsidiaries may be reduced. In August 1997,
Progenitor completed its initial public offering. See Note G of Notes to
Unaudited Consolidated Financial Statements and Item 5. Other Information.
Although Interneuron may acquire additional equity in subsidiaries through
participation in financings, purchases from third parties, including open market
purchases and conversion of intercompany debt, equity financings by a subsidiary
will likely reduce Interneuron's percentage ownership of that subsidiary and
funds held by the subsidiaries will generally not be available to Interneuron.
The Company's goal is for its subsidiaries to establish independent operations
and
-21-
financing through corporate alliances, third-party financings, mergers or other
business combinations, with Interneuron generally retaining an ongoing equity
interest. The nature of any such transaction is expected to vary depending on
the business and capital needs of each subsidiary and the state of development
of their respective technologies or products.
Subsidiaries
Interneuron is currently funding operations of Transcell and InterNutria
and has funded the operations of Progenitor until the closing of the Progenitor
IPO. See Note G of Notes to Unaudited Consolidated Financial Statements.
Expenses of the Subsidiaries, including those required under collaboration
agreements, constitute a significant part of the Company's overall expenses. The
Subsidiaries' portion of consolidated research and development and selling,
general and administrative expenses in the three and nine month periods ended
June 30, 1997 was approximately 41% and 40%, respectively.
Intercardia
Pursuant to the Astra Merck Collaboration, Intercardia has agreed to pay
Astra Merck $10,000,000 in December 1997 and up to $11,000,000 for one-third of
product launch costs for bucindolol incurred beginning when Intercardia files an
NDA with the FDA for the twice- daily formulation of bucindolol and continuing
through the first 12 months subsequent to the first commercial sale of the
formulation. In the event Intercardia elects not to make these payments, the
royalties payable by Astra Merck to Intercardia would be substantially reduced.
There can be no assurance of the success of the Beta-blocker Evaluation of
Survival Trial (the "BEST Study") or that bucindolol will be successfully
commercialized. A substantial portion of the bucindolol development costs are
being assumed and paid by the National Institutes of Health, the Department of
Veterans Affairs, Astra Merck and Knoll.
Pursuant to the Knoll Collaboration (see Note D of Notes to Unaudited
Consolidated Financial Statements), Intercardia is responsible for approximately
40% of the development and marketing costs of bucindolol in the Territory, which
includes all countries other than the United States and Japan, subject to
certain maximum dollar limitations. The Company's portion of development and
clinical trial costs for the Territory is estimated to be up to $10,000,000.
Intercardia is also responsible for approximately 40% of the once-a-day
development costs which relate to development solely for the Territory and
approximately 67% of once-a-day development costs which have a worldwide
benefit.
In May 1997, the FDA approved the use in the United States of carvedilol, a
competitive drug being developed by SmithKline Beecham, for the treatment of
congestive heart failure. SmithKline Beecham is currently marketing carvedilol
in the United States and a number of other countries. The Company is unable to
predict the impact of this product on bucindolol, if bucindolol is approved by
the FDA.
Progenitor
In December 1996, Progenitor entered into an agreement with Amgen, granting
Amgen certain exclusive rights for the development and commercialization of
products using Progenitor's leptin receptor technology. Amgen paid Progenitor a
$500,000 initial license fee in January 1997, which
-22-
was reflected in contract and license fee revenue in the nine month period ended
June 30, 1997. Progenitor may also receive from Amgen certain development and
regulatory milestone payments and potential royalties on sales. In connection
with this agreement, Amgen purchased Progenitor common stock in a private
transaction at the same time as the Progenitor IPO.
On August 12, 1997, Progenitor completed the Progenitor IPO. See Note G of
Notes to Unaudited Consolidated Financial Statements and Item 5. Other
Information.
Transcell
On July 3, 1997 Transcell and Interneuron entered into a Research
Collaboration and Licensing Agreement with Merck & Co., Inc. ("Merck") to
discover and commercialize certain novel antibacterial agents. Merck has an
option to extend the field of the collaboration and license to include all
antibacterial pharmaceutical products. The agreement provides for Transcell to
receive initial payments totaling $2,500,000 (which were received in July 1997
and which will be recognized as license fee revenue in the three month period
ending September 30, 1997) plus research support during the first two years of
the agreement. Additionally, Transcell is entitled to payments based upon
achievement of certain defined clinical development and regulatory milestones
and royalties based upon net sales of products resulting from the collaboration.
Certain of the rights licensed to Merck are based on exclusive licenses or
rights held by Transcell and Interneuron from Princeton University, which will
be entitled to varying percentages of certain payments and royalties received
from Merck.
InterNutria
InterNutria recently concluded a preliminary analysis of data from a
clinical evaluation of PMS Escape and intends to commence a national launch of
PMS Escape in the fall of 1997. Selling and marketing costs associated with this
launch are estimated to be approximately $13,000,000 through early 1998 and will
be funded by Interneuron.
-23-
PART II - OTHER INFORMATION
Item 2. Changes in Securities:
During the nine month period ended June 30, 1997, the Company issued or
sold the following securities which were not registered under the Securities Act
of 1933, as amended (the "Act").
In May 1997, the Company sold to Swiss Bank Corporation, London Branch
(SBC"), call options entitling SBC to purchase from the Company at a strike
price of $40.30 per share, an aggregate of 2,000,000 shares of the Company's
Common Stock. In exchange, the Company purchased from SBC capped call options
giving the Company the right to purchase from SBC up to a total of 1,240,000
shares of Interneuron Common Stock at a strike price of $17.75 on specified
dates. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
In March 1997, the Company granted warrants to purchase 25,000 shares of
the Company's Common Stock to a designee of Paramount Capital, Inc., exercisable
at $18.25 per share, in consideration of investment banking services.
In December 1996, the Company granted warrants to purchase 25,000 shares of
the Company's Common Stock to a consultant, exercisable at $20.125 per share, in
consideration of consulting services.
Each of these transactions was a private transaction not involving a public
offering, was exempt from the registration provisions of the Act pursuant to
Section 4(2) thereof, and was without the use of an underwriter.
Item 5. Other Information:
Agreements with Servier and AHP
In August 1997, the Company, AHP and Servier entered into agreements
relating to the development and commercialization of a sustained release,
once-a-day formulation of Redux(TM) for the management of obesity in the United
States. Redux is currently marketed by AHP and copromoted by the Company in the
U.S. as a twice-daily prescription drug for the management of obesity. In
connection with the transaction (i) the Company and Servier entered into an
Amendment (the "IPI/Servier Amendment") to the Patent and Know How License
Agreement dated February 7, 1990, as previously amended; (ii) the Company, Orsem
(an affiliate of Servier) and American Cyanamid Company, a subsidiary of AHP
("ACC") entered into an Amendment (the "Trademark Amendment") to (x) the
Trademark Agreement between the Company and Orsem dated February 7, 1990, as
previously amended, and (y) the Trademark License Agreement among the Company,
Orsem and ACC dated November 19, 1992; (iii) the Company and AHP entered into an
Amendment Agreement (the "IPI/AHP Amendment") amending the Patent and Know How
Sublicense and Supply Agreement between the Company and ACC dated November 19,
1992; and (iv) the Company, Servier , ACC and AHP entered into Consent
Agreements (the IPI/Servier Amendment, the Trademark Amendment, the IPI/AHP
Amendment and the Consent Agreements are collectively referred to herein as the
"Agreements").
-24-
The Company agreed to pay Servier $2,000,000 in connection with execution
of the IPI/Servier Amendment, $1,000,000 upon the filing of a New Drug
Application ("NDA") for the once-a-day formulation of Redux and $1,000,000 upon
receipt of FDA marketing approval of the once-a-day formulation of Redux.
Royalties payable by the Company to Servier on Net Sales, as defined, of
once-a-day formulation of Redux are comparable to royalties payable to Servier
on Net Sales of Redux, and base royalties payable by ACC to the Company on the
once-a-day formulation of Redux (equal to the royalties payable by the Company
to Servier) are comparable to royalties payable on Net Sales of Redux, except
that no royalty is payable for any formulation patent on the once-a-day
formulation of Redux and that minimum royalties on the once-a-day formulation of
Redux are double the minimum royalties on Redux.
Additional royalties payable by ACC to the Company based on Net Sales of
the once-a-day formulation of Redux are based on the status of dexfenfluramine
as a scheduled or descheduled drug. The additional royalties on Net Sales of the
once-a-day formulation of Redux are as follows:
Scheduled
First $50 million 5.5%
Next $100 million 8.5%
Over $150 million 10.5%
Descheduled
First $150 million 8.5%
Next $50 million 10.5%
Over $200 million 11.5%
The additional royalty rates on the once-a-day formulation of Redux are
subject to a 50% reduction if generic drugs achieve a market share of 20% or
greater for two consecutive quarters of the number of total new prescriptions
for the once-a-day formulation of Redux. ACC agreed to make milestone payments
to the Company based on Net Sales of the once-a-day formulation of Redux in the
event the compound is scheduled.
The Company agreed to share with ACC 50% of the costs of the clinical
development of the once-a-day formulation of Redux, including Phase 3 clinical
trials, subject to certain conditions and excluding Phase 4 studies. The
Company's portion of such costs are currently estimated to aggregate
approximately $15,000,000. In certain cases, the Company will reimburse ACC for
50% of the costs of clinical trials for an expanded indication. Currently, the
Company's portion of such costs are estimated to aggregate approximately
$4,000,000. The Agreements provide for ACC to be the sponsor of the NDA for the
once-a-day formulation of Redux.
The Company will not supply ACC with the once-a-day formulation of Redux.
However, royalties payable to the Company on the once-a-day formulation are .5%
higher than on the twice-daily formulation. Under certain conditions, the
Company may be required to share in the cost of supply or manufacturing of the
once-a-day formulation of Redux.
-25-
Progenitor IPO
On August 12, 1997, Progenitor completed an initial public offering
(the "Progenitor IPO") of 2,750,000 units at $7.00 per unit, each unit
consisting of one share of Progenitor Common Stock and one five-year warrant to
purchase one share of Progenitor Common Stock at $10.50 per share. The
Progenitor IPO resulted in proceeds to Progenitor, net of offering-related
costs, of approximately $16,600,000. Interneuron purchased 500,000 units of the
Progenitor IPO for a total of $3,500,000. Concurrent with the Progenitor IPO,
Progenitor sold 1,023,256 shares of Progenitor Common Stock to Amgen pursuant to
a stock purchase agreement for a purchase price of $4,500,000 in cash and a
$1,000,000 promissory note. Concurrently with the closing of the Progenitor IPO,
Progenitor completed a merger with Mercator Genetics, Inc. (the "Mercator
Acquisition") for approximately $22,000,000 paid with the issuance of
approximately 3,441,000 shares of Progenitor Common Stock, plus the assumption
of Mercator liabilities and forgiveness of debt relating to advances made by
Progenitor to Mercator. Interneuron's ownership in Progenitor's outstanding
capital stock decreased from approximately 76% at September 30, 1996 to
approximately 37 % immediately following the Progenitor IPO and the Mercator
Acquisition. As a result of the Company's decreased percentage of ownership in
Progenitor, the Company will no longer consolidate the financial statements of
Progenitor but will include Progenitor using the equity method of accounting.
In connection with the Mercator Acquisition, Progenitor will incur
non-recurring charges to operations in the quarter and fiscal year ending
September 30, 1997, related to the purchase of in-process research and
development. Interneuron will include a portion (currently estimated at
approximately $12,000,000) of these charges in Equity in net loss of
unconsolidated subsidiaries, based on its ownership interest in Progenitor. As a
result of the Progenitor IPO and Interneuron's purchase of 500,000 shares
thereof, Interneuron will recognize in the quarter and fiscal year ending
September 30, 1997, a gain on its investment in Progenitor in the Company's
Additional paid-in capital but not in the Company's Consolidated Statement of
Operations.
As a result of the Progenitor IPO, shares of Interneuron Common Stock
potentially issuable under certain put protection rights exercisable in June
1998 have decreased from a maximum of approximately 2,181,250 shares to a
maximum of approximately 232,000 shares, if Interneuron's Common Stock is valued
at $2.00 per share or less. Based upon the closing market price of Interneuron
Common Stock on August 8, 1997 of $20.25, the Company's potential obligation
under these put protection rights could cause the Company to issue approximately
22,900 shares of its Common Stock.
In certain circumstances, Interneuron has the right to purchase
additional shares of Progenitor Common Stock at fair market value to maintain
Interneuron's equity ownership in Progenitor and Interneuron may purchase from
time to time through open-market transactions Progenitor common stock or
warrants. As of August 13, 1997, the Company has purchased 20,000 shares of
Progenitor common stock for approximately $105,000.
-26-
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10.92 - Research and Collaboration and License Agreement
effective as of June 30, 1997 by and among Merck &
Co., Inc., Transcell Technologies, Inc. and
Interneuron Pharmaceuticals, Inc. (*)
27 - Financial Data Schedule
- ----------------
* Confidential treatment requested for a portion of this Exhibit.
(b) Reports on Form 8-K
The Company filed Reports on Form 8-K reporting information under "Item
5" on May 6, 1997, June 20, 1997, July 15, 1997 and July 28, 1997.
-27-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNEURON PHARMACEUTICALS, INC.
Date: August 14, 1997 By: /s/ Glenn L. Cooper, M.D.
-----------------------------
Glenn L. Cooper, M.D., President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ Thomas F. Farb
-----------------------------
Thomas F. Farb,
Executive Vice President
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: August 14, 1997 By: /s/ Dale Ritter
-----------------------------
Dale Ritter
Vice President, Corporate Controller
(Principal Accounting Officer)
-28-
EXHIBIT 10.92
EXECUTION COPY
- --------------
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by an * and [ ], have been
separately filed with the Commission.
RESEARCH COLLABORATION AND LICENSE AGREEMENT
by and among
MERCK & CO., INC.,
TRANSCELL TECHNOLOGIES, INC.
and
INTERNEURON PHARMACEUTICALS, INC.
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS.......................................................1
ARTICLE II RESEARCH PROGRAM AND DRUG DEVELOPMENT PROGRAM...................7
2.1 General.........................................................7
2.2 Conduct of Research.............................................7
2.3 Additional FTE's................................................7
2.4 [*] Research Program............................................7
2.5 [*] Research Program............................................7
2.6 Joint Research Committee........................................7
2.7 Exchange of Information.........................................9
2.8 Records and Reports.............................................9
2.9 Research Information and Inventions.............................9
2.10 Research Program Term.........................................10
2.11 Research Program Materials....................................11
2.12 Drug Development Program......................................11
ARTICLE III LICENSE; DEVELOPMENT AND COMMERCIALIZATION.....................12
3.1 License Grant..................................................12
3.2 Retained Rights................................................12
3.3 Exclusivity in Expanded Field..................................12
3.4 Princeton Agreements...........................................13
3.5 Development and Commercialization..............................13
ARTICLE IV CONFIDENTIALITY AND PUBLICATION.................................14
4.1 Non-disclosure and Non-Use Obligations.........................14
4.2 Permitted Disclosure of Proprietary Information................14
4.3 Publication and Public Disclosures.............................15
ARTICLE V PAYMENTS; ROYALTIES AND REPORTS..................................16
5.1 Commitment Fee and Option Payment..............................16
5.2 Research Program Funding.......................................16
5.3 Milestone Payments.............................................16
5.4 Royalties......................................................17
5.5 Reports; Payment of Royalty....................................19
5.6 Audits.........................................................19
5.7 Payment Exchange Rate..........................................20
5.8 Income Tax Withholding.........................................20
i
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
ARTICLE VI REPRESENTATIONS AND WARRANTIES..................................21
6.1 Transcell Representations and Warranties.......................21
6.2 Interneuron Representations and Warranties.....................22
6.3 General Disclaimer.............................................22
6.4 Merck Representations and Warranties...........................23
ARTICLE VII PATENT MATTERS.................................................23
7.1 Filing, Prosecution and Maintenance of Patents.................23
7.2 Right of Other Parties to Prosecute and Maintain Patents.......23
7.3 Interference, Opposition, Reexamination and Reissue............24
7.4 Enforcement and Defense........................................24
7.5 Patent Term Restoration........................................25
ARTICLE VIII TERM AND TERMINATION..........................................26
8.1 Term and Expiration............................................26
8.2 Termination by Notice..........................................26
8.3 Termination....................................................26
8.4 Effect of Expiration or Termination............................28
ARTICLE IX MISCELLANEOUS...................................................28
9.1 Force Majeure..................................................28
9.2 Assignment.....................................................29
9.3 Severability...................................................29
9.4 Notices........................................................29
9.5 Applicable Law.................................................30
9.6 Dispute Resolution.............................................30
9.7 Entire Agreement...............................................31
9.8 Headings.......................................................31
9.9 Independent Contractors........................................31
9.10 Waiver........................................................31
9.11 Counterparts..................................................31
Schedule 1.19 -- Interneuron Patent Assets
Schedule 1.25 -- List of Major Market Countries
Attachment 1.39 -- 1993 Princeton License Agreement
Attachment 1.40 -- 1997 Princeton Research Agreement
Attachment 1.46 -- Side Agreement
Schedule 1.52 -- Transcell Patent Assets
Attachment 2.1.A -- [*] Research Program
Attachment 2.1.B -- [*] Research Program
ii
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
Attachment 4.3 -- Form of Press Release
Schedule 7.1 -- Countries Where Interneuron and Transcell will
File, Prosecute and Maintain Patents
iii
RESEARCH COLLABORATION AND LICENSE AGREEMENT
THIS AGREEMENT effective as of June 30, 1997, (the "Effective Date")
between Merck & Co., Inc., a corporation organized and existing under the laws
of New Jersey ("Merck"), Transcell Technologies Inc., a corporation organized
and existing under the laws of Delaware ("Transcell") and Interneuron
Pharmaceuticals, Inc., a corporation organized and existing under the laws of
Delaware ("Interneuron").
WITNESSETH:
WHEREAS, Transcell and/or Interneuron have developed or will develop
certain Transcell Know-How and Interneuron Know-How and have or will obtain
rights to certain Patent Assets (as hereinafter defined);
WHEREAS, Merck and Transcell desire to enter into a research
collaboration to discover and develop Compounds (as hereinafter defined) upon
the terms and conditions set forth herein;
WHEREAS, Merck desires to obtain a license under Transcell and
Interneuron Intellectual Property, upon the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Unless specifically set forth to the contrary herein, the following
terms, whether used in the singular or plural, shall have the respective
meanings set forth below:
1.1 "Affiliate" shall mean (i) any corporation or business entity of which
fifty percent (50%) or more of the securities or other ownership
interests representing the equity, the voting stock or general
partnership interest are owned, controlled or held, directly or
indirectly, by a Party; or (ii) any corporation or business entity
which, directly or indirectly, owns, controls or holds fifty percent
(50%) (or the maximum ownership interest permitted by law) or more of
the securities or other ownership interests representing the equity,
the voting stock or, if applicable, the general partnership interest,
of a Party.
1.2 "Calendar Quarter" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30
and December 31.
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
1.3 "Calendar Year" shall mean each successive period of twelve (12) months
commencing on January 1 and ending on December 31.
1.4 "Combination Product" shall mean a Licensed Product which includes one
or more active ingredients other than Compound in combination with
Compound.
1.5 "Compound" shall mean any chemical entity that is synthesized in, or
discovered in or during, the Research Program, or a derivative,
homolog, or analogue of such a chemical entity or a salt or ester
thereof.
1.6 "Drug Development Program" shall mean the drug development program to
be carried out by Merck in accordance with Section 2.12.
1.7 "Effective Date" shall mean June 30, 1997.
1.8 "Expanded Field" shall mean all antibacterial agents for human or
animal use.
1.9 "Extended Research Program Term" shall have the meaning set forth in
Section 2.10.
1.10 "FDA" shall mean the United States Food and Drug Administration and any
successor agency having substantially the same functions.
1.11 "Field" shall mean all [*] and [*] analogues which are antibacterial
agents for human or animal use.
1.12 "First Commercial Sale" shall mean, with respect to any Licensed
Product, the first sale for end use or consumption of such Licensed
Product in a country after all required approvals, including marketing
and pricing approvals, have been granted by the governing health
authority of such country.
1.13 "Full Time Equivalent" or "FTE" shall mean the equivalent of a
full-time scientist's work time over a twelve-month period (including
normal vacations, sick days and holidays). The portion of an FTE year
devoted by a scientist to the Research Program shall be determined by
dividing the number of days during any twelve-month period devoted by
such employee to the Research Program by the total number of working
days during such twelve-month period.
1.14 "Improvement" shall mean any enhancement in the manufacture,
formulation, ingredients, preparation, presentation, means of delivery,
dosage or packaging of Compound or Licensed Product.
2
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
1.15 "Interneuron Information and Inventions" shall have the meaning as set
forth in Section 2.9.
1.16 "Interneuron Intellectual Property" shall mean (i) Interneuron
Know-How, (ii) Interneuron Patent Assets, (iii) Interneuron Information
and Inventions, (iv) Interneuron's interest in Interneuron/Transcell
Joint Information and Inventions and (v) Interneuron's interest in
Interneuron/Merck Joint Information and Inventions.
1.17 "Interneuron Know-How" shall mean all Interneuron Information and
Inventions, and all information and materials, including but not
limited to, discoveries, Improvements, processes, formulas, data,
inventions, know-how and trade secrets, patentable or otherwise, which
during the term of this Agreement (i) are in Interneuron's possession
or control or in which Interneuron has sub-licensable rights, including
its rights under the 1997 Princeton Research Agreement, (ii) are not
generally known and (iii) are necessary or useful to Merck in
connection with rights granted and activities contemplated under this
Agreement.
1.18 "Interneuron/Merck Joint Information and Inventions" shall have the
meaning as set forth in Section 2.9.
1.19 "Interneuron Patent Assets" shall mean issued patents and patent
applications (which shall be deemed to include certificates of
invention and applications for certificates of invention) presently
existing or which during the term of this Agreement are owned by
Interneuron or which Interneuron through license or otherwise acquires
rights, including, but not limited to, those listed on Schedule 1.19,
which: (i) relate to a Compound and/or Licensed Product, their uses in
the Field or Expanded Field or a method of their manufacture; or (ii)
relate to Research Information and Inventions; including all divisions,
continuations, continuations-in-part, reissues, renewals, extensions,
supplementary protection certificates or the like of any such patents
and patent applications and foreign equivalents thereof.
1.20 "Interneuron/Transcell Joint Information and Inventions" shall have the
meaning as set forth in Section 2.9.
1.21 "Joint Research Committee" shall mean the committee described in
Section 2.6.
1.22 "Lead Candidate" means a Compound that is selected by the Joint
Research Committee as a lead compound for medicinal chemistry studies
in accordance with the [*] Research Program or the [*] Research
Program.
3
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
1.23 "Licensed Product" shall mean any preparation in final form for sale by
prescription, over-the-counter or by any other method, for human or
animal use, which contains a Compound, including, without limitation,
any Combination Product.
1.24 "Licensor(s)" shall mean Interneuron and/or Transcell, as the context
indicates.
1.25 "Major Market Country" shall mean a country listed on Schedule 1.25
hereto.
1.26 "Merck Information and Inventions" shall have the meaning as set forth
in Section 2.9.
1.27 "Merck Know-How" shall mean any Merck information and materials,
including but not limited to, discoveries, Improvements, processes,
formulas, data, inventions, know-how and trade secrets, patentable or
otherwise, which during the term of this Agreement are not generally
known and which arise out of the Research Program or are necessary or
useful to Transcell in the performance of its obligations under the
Research Program.
1.28 "Merck Patent Assets" shall mean issued patents and patent applications
(which shall be deemed to include certificates of invention and
applications for certificates of invention) which during the term of
this Agreement are owned by Merck or which Merck through license or
otherwise acquires rights, which: (i) relate to a Compound and/or
Licensed Product or their uses in the Field or Expanded Field; or (ii)
relate to Research Information and Inventions; including all divisions,
continuations, continuations-in-part, reissues, renewals, extensions,
supplementary protection certificates or the like of any such patents
and patent applications and foreign equivalents thereof.
1.29 "Milestone" shall have the meanings as described in Attachment 2.1.A
and Attachment 2.1.B hereto.
1.30 "[*] Research Program" shall mean the research program for the
synthesis and biological evaluation of [*] analogues and development of
Licensed Products as described in Attachment 2.1.B hereto.
1.31 "NDA" shall mean a new drug application filed with the FDA for
marketing authorization of a Licensed Product.
1.32 "Net Sales" shall mean the gross invoice price of Licensed Product sold
by Merck, its Affiliates or sublicensees (which term does not include
distributors) to the first independent third party after deducting, if
not previously deducted, from the amount invoiced:
(a) trade, cash and quantity discounts;
4
(b) credits and allowances on account of returned or rejected
products;
(c) rebates, chargebacks and other amounts paid on sale or
dispensing of Licensed Product;
(d) retroactive price reductions;
(e) with regard to sales in the United States, a fixed amount
equal to five percent (5%) of the amount invoiced to cover bad
debt, sales or excise taxes, transportation and insurance
charges; and with regard to sales outside the United States, a
fixed amount equal to ten percent (10%) of the amount invoiced
to cover the above and additional special transportation,
custom duties, and other governmental charges; and
(f) the inventory cost of devices or delivery systems used for
dispensing or administering Licensed Product, special
packaging of Licensed Product and diluents or similar
exogenous materials which accompany Licensed Product as it is
sold.
With respect to sales of Combination Products, Net Sales shall be
calculated on the basis of the invoice price of Licensed Product(s)
containing the same weight of a Compound sold without other active
ingredients. If such Licensed Product is not sold without other active
ingredients, Net Sales shall be calculated on the basis of the invoice
price of the Combination Product multiplied by a fraction, the
numerator of which shall be the inventory cost of Compound in the
Licensed Product and the denominator of which shall be the inventory
cost of all of the active ingredients in the Combination Product.
Inventory cost shall be determined in accordance with Merck's regular
accounting methods.
1.33 "Option Payment" shall mean the payment described in Section 5.1 in
consideration for the rights granted in Section 3.3.
1.34 "Option Period" shall mean the option period described in Section 3.3.
1.35 "Party" shall mean Merck, Transcell or Interneuron.
1.36 "Patent Assets" shall mean the Interneuron Patent Assets and the
Transcell Patent Assets.
1.37 "Princeton" shall mean Princeton University, Princeton, New Jersey.
1.38 "Princeton Agreements" shall mean the 1993 Princeton License Agreement
and the 1997 Princeton Research Agreement, as the same may be amended
from time to time.
5
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
1.39 "1993 Princeton License Agreement" shall mean the License Agreement by
and between the Trustees of Princeton and Transcell effective as of
October 14, 1993, as amended February 21, 1997 and as further amended
from time to time, a copy of which is attached hereto as Attachment
1.39.
1.40 "1997 Princeton Research Agreement" shall mean the Research Agreement
by and between the Trustees of Princeton and Interneuron effective as
of April 29, 1997, as amended from time to time, a copy of which is
attached hereto as Attachment 1.40.
1.41 "Proprietary Information" shall mean any and all scientific, clinical,
regulatory, marketing, financial and commercial information or data,
whether communicated in writing, orally or by any other means, which is
provided by one Party to the other Party in connection with this
Agreement. Proprietary Information shall include, without limitation,
Merck Know-How and Transcell Know-How.
1.42 "Research Information and Inventions" shall mean the entire right,
title and interest in all discoveries, Improvements, processes,
formulas, data, inventions, know-how and trade secrets, patentable or
otherwise, arising from the Research Program.
1.43 "Research Program" shall mean the collaborative research effort between
the parties as described in Attachments 2.1.A and 2.1.B hereto
consisting of the [*] Research Program and the [*] Research Program, as
may be amended or revised pursuant to the provisions of Section 2.6.3.
References to the Research Program shall refer only to the
collaborative phase of the research effort and shall not refer to the
selection of a Safety Assessment Candidate by Merck or to the Drug
Development Program.
1.44 "Research Program Term" shall have the meaning set forth in Section
2.10.
1.45 "Safety Assessment Candidate" shall mean a Compound with a scientific
data package that is evaluated and approved by the Merck Research
Management Committee for initiation of formal toxicology studies.
1.46 "Side Agreement" shall mean the agreement entered into not later than,
and effective as of, the Effective Date by and among Merck, Transcell,
Interneuron and the Trustees of Princeton and attached hereto as
Attachment 1.46.
1.47 "Territory" shall mean all of the countries in the world.
6
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
1.48 "Transcell Intellectual Property" shall mean (i) Transcell Know-How,
(ii) Transcell Patent Assets, (iii) Transcell Information and
Inventions, (iv) Transcell's interest in Transcell/Merck Joint
Information and Inventions and (v) Transcell's interest in
Interneuron/Transcell Joint Information and Inventions.
1.49 "Transcell Information and Inventions" shall have the meaning as set
forth in Section 2.9.
1.50 "Transcell Know-How" shall mean all Transcell Information and
Inventions, and all information and materials, including but not
limited to, discoveries, Improvements, processes, formulas, data,
inventions, know-how and trade secrets, patentable or otherwise, which
during the term of this Agreement (i) are in Transcell's possession or
control or in which Transcell has sub-licensable rights, (ii) are not
generally known and (iii) are necessary or useful to Merck in
connection with rights granted and activities contemplated under this
Agreement.
1.51 "Transcell/Merck Joint Information and Inventions" shall have the
meaning as set forth in Section 2.9.
1.52 "Transcell Patent Assets" shall mean issued patents and patent
applications (which shall be deemed to include certificates of
invention and applications for certificates of invention) presently
existing or which during the term of this Agreement are owned by
Transcell or which Transcell through license or otherwise acquires
rights, including, but not limited to, those listed on Schedule 1.52,
which: (i) relate to a Compound and/or Licensed Product, their uses in
the Field or Expanded Field, or a method of their manufacture; or (ii)
relate to Research Information and Inventions; including all divisions,
continuations, continuations-in-part, reissues, renewals, extensions,
supplementary protection certificates or the like of any such patents
and patent applications and foreign equivalents thereof.
1.53 "Valid Patent Claim" means a claim of an issued and unexpired patent
included within the Patent Assets or the Merck Patent Assets, which has
not been revoked or held unenforceable or invalid by a decision of a
court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and
which has not been disclaimed, denied or admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise.
1.54 "[*] Research Program" shall mean the research program for the
synthesis and biological evaluation of [*] analogues and the
development of Licensed Products as described in Attachment 2.1.A
hereto.
7
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
ARTICLE II
RESEARCH PROGRAM AND
DRUG DEVELOPMENT PROGRAM
------------------------
2.1 General. Transcell and Merck shall engage in the Research Program upon
the terms and conditions set forth in this Agreement. The activities to
be undertaken in the course of Research Program are set forth in this
Article II and in Attachment 2.1.A and Attachment 2.1.B hereto which
may be amended from time to time upon the mutual agreement of the
parties.
2.2 Conduct of Research. Transcell and Merck each shall conduct the
Research Program in a good scientific manner, and in compliance in all
material respects with all requirements of applicable laws, rules and
regulations and all applicable standard laboratory practices to attempt
to achieve their objectives efficiently and expeditiously. Transcell
and Merck each shall proceed diligently with the work set out in the
Research Program by using their respective good faith efforts.
2.3 Additional FTE's. In the event that the initial stage of either the [*]
Research Program or the [*] Research Program yields a Compound that
satisfies the criteria set forth in the relevant Research Program for
Milestone I, Merck, in consultation with Transcell, will determine
whether an increased number of chemistry FTE's may be required at Merck
or Transcell for carrying out the subsequent stages of such Research
Program. In the event that Merck determines that an increased number of
FTE's are required at Transcell and/or Princeton, Merck shall be
responsible for the costs of such FTE's at the same rate provided for
in Section 5.2(b) of this Agreement.
2.4 [*] Research Program. The [*] Research Program shall proceed as
described in Attachment 2.1.A.
2.5 [*] Research Program. The [*] Research Program shall proceed as
described in Attachment 2.1.B.
2.6 Joint Research Committee. The parties hereby establish a joint research
committee to direct and monitor the Research Program as follows:
2.6.1 Composition of the Committee. The Research Program shall be
conducted under the direction of a joint research and
development committee (the "Joint Research Committee")
comprised of three named representatives of Merck and three
named representatives of Transcell. Each of Merck and
Transcell shall appoint its
8
respective representatives to the Joint Research Committee,
and from time to time may substitute one or more of its
representatives, in its sole discretion, effective upon notice
to the other Party of such change. It is anticipated that
these representatives shall have appropriate technical
credentials and knowledge, and ongoing familiarity with the
Research Program. The Merck representatives initially shall be
John Kozarich, James Heck and a third representative to be
appointed and the Transcell representatives initially shall be
Daniel Kahne, Michael Sofia and a third representative to be
appointed. Additional representatives or consultants may from
time to time, by mutual consent of the parties, be invited to
attend Joint Research Committee meetings, subject to
compliance with Section 4.1.
2.6.2 Chairman and Vice Chairmen. The Chairman of the Joint Research
Committee shall be John Kozarich and the Vice Chairmen shall
be Daniel Kahne and Michael Sofia. The Chairman and the Vice
Chairmen shall be the primary contacts between the parties
with respect to the Research Program. Each Party shall notify
the other as soon as practicable upon changing this
appointment.
2.6.3 Meetings and Decisions. The Joint Research Committee shall
meet at least once each Calendar Quarter at such locations as
shall be determined by the Joint Research Committee. Each
Party shall bear its owns expenses related to attendance of
such meetings by its representatives. At the first such
meeting, which shall take place within 30 days after the
Effective Date, the Joint Research Committee shall discuss any
necessary or recommended changes in the Research Program. The
Joint Research Committee may meet by means of teleconference
or video conference or other similar communications equipment.
The Joint Research Committee shall confer and make decisions
regarding the status and direction of the Research Program and
the other matters specified in the Research Program and shall
also consider, advise and make decisions regarding any
technical, budgetary or economic matters relating to the
Research Program. Decisions of the Joint Research Committee
shall be made by a majority of the members. In the event that
the Joint Research Committee cannot or does not, after good
faith efforts, achieve a majority on an issue, the Chief
Executive Officer of Transcell, or his designee, acting as the
duly authorized representative of Transcell, and the Executive
Vice President of Merck Research Laboratories, acting as the
duly authorized representative of Merck, shall discuss the
matter and attempt, in good faith, to reach agreement with
respect to such decision. In the event that the Chief
Executive Officer of Transcell, or his designee, and the
Executive Vice President of Merck Research Laboratories shall
be unable to reach agreement, Merck shall, in its sole
discretion, make the final decision; provided, however, that
(i) in the event Merck determines that in increased number of
FTE's are required to carry out a stage of the Research
Program, Merck shall be responsible for the costs of such
FTE's at the same rate provided for in Section 5.2(b) of this
Agreement and (ii) any changes to the Research Program
9
which could affect the provisions of Article V hereof require
the written approval of both Parties.
2.6.4 Records. The Joint Research Committee shall maintain accurate
records to document the discussions and decisions at each
meeting. Meeting minutes or summaries shall be prepared in
accordance with procedures established by the Joint Research
Committee at its first meeting and shall be distributed to all
members of the Joint Research Committee after approval of
drafts by the Chairman and Vice Chairmen.
2.7 Exchange of Information. Upon execution of this Agreement, Transcell
shall disclose to Merck in writing all Transcell Know-How not
previously disclosed. During the Research Program Term or any Extended
Research Program Term, Transcell and Interneuron shall also promptly
disclose to Merck in writing on an ongoing basis all Transcell Know-How
and Interneuron Know-How. Merck shall promptly disclose to Transcell
during the Research Program Term all Merck Know-How.
2.8 Records and Reports.
2.8.1 Records. Transcell shall maintain records in sufficient detail
and in good scientific manner appropriate for patent and
regulatory purposes, which shall be complete and accurate and
shall fully and properly reflect all work done and results
achieved in the performance of the Research Program.
2.8.2 Copies and Inspection of Records. Merck shall have the right,
during normal business hours and upon reasonable notice, to
inspect and copy all such records of Transcell referred to in
Section 2.8.1. Merck shall maintain such records and the
information disclosed therein in confidence in accordance with
Section 4.1. Merck shall have the right to arrange for its
employees, agents and outside consultants to visit Transcell
at its offices and laboratories, and to visit the laboratory
of Daniel Kahne, during normal business hours and upon
reasonable notice, and to discuss the Research Program and its
results in detail with the technical personnel and consultants
of Transcell.
2.8.3 Quarterly Reports. Within thirty (30) days following the end
of each Calendar Quarter during the Research Program Term,
Transcell shall provide to the Joint Research Committee a
written progress report which shall describe the work
performed to date on the Research Program, evaluate the work
performed in relation to the goals of the Research Program and
provide such other information required by the Research
Program or reasonably requested by Merck or the Joint Research
Committee relating to the progress of the goals or performance
of the Research Program. Upon request, Transcell shall provide
copies of the records described in Section 2.8.1. above.
10
2.9 Research Information and Inventions. Research Information and
Inventions developed or invented:
(a) (i) solely by employees, agents or consultants of Transcell
(other than Daniel Kahne or Suzanne Walker-Kahne) shall be
owned by Transcell; (ii) solely by employees, agents or
consultants of Princeton and subject to the 1993 Princeton
License Agreement shall be owned by Princeton, subject to
Transcell's rights under the 1993 Princeton License Agreement;
and (iii) jointly by employees, agents or consultants of
Transcell (other than Daniel Kahne or Suzanne Walker- Kahne)
and Princeton and subject to the 1993 Princeton License
Agreement shall be owned jointly by Transcell and Princeton
((i), (ii) and/or (iii) individually or collectively,
"Transcell Information and Inventions");
(b) solely by employees, agents or consultants of Princeton and
subject to the 1997 Princeton Research Agreement shall be
owned by Princeton, subject to Interneuron's rights under the
1997 Princeton Research Agreement ("Interneuron Information
and Inventions"),;
(c) solely by employees, agents or consultants of Merck shall be
owned solely by Merck ("Merck Information and Inventions");
(d) (i) jointly by employees, agents or consultants of Transcell
(other than Daniel Kahne or Suzanne Walker-Kahne) and Merck
shall be owned jointly by Transcell and Merck; and (ii)
jointly by employees, agents or consultants of Princeton and
Merck and subject to the 1993 Princeton License Agreement
shall be owned jointly by Princeton and Merck with Princeton's
interest in such Research Information and Inventions subject
to Transcell's rights under the 1993 Princeton License
Agreement ((i) and/or (ii) individually or together,
"Transcell/Merck Joint Information and Inventions");
(e) jointly by employees, agents or consultants of Princeton and
Merck and subject to the 1997 Princeton Research Agreement
shall be owned jointly by Princeton and Merck with Princeton's
interest in such Research Information and Inventions subject
to Interneuron's rights under the 1997 Princeton Research
Agreement ("Interneuron/Merck Joint Information and
Inventions"); and
(f) jointly by employees, agents or consultants of Princeton and
Transcell (other than Daniel Kahne or Suzanne Walker-Kahne)
and subject to the 1997 Princeton Research Agreement shall be
owned jointly by Princeton and Transcell with Princeton's
interest in such Research Information and Inventions subject
to Interneuron's rights under the 1997 Princeton Research
Agreement ("Interneuron/Transcell Joint Information and
Inventions").
Each Party shall promptly disclose to the other Parties the
development, making, conception or reduction to practice of Research
Information and Inventions.
11
2.10 Research Program Term. The term of the Research Program shall commence
on the Effective Date and continue for a period of two years (the
"Research Program Term"), unless (a) Merck elects in writing to extend
the Research Program Term for one or more additional one-year terms
(each, an "Extended Research Program Term") or (b) the Research Program
is terminated prior to the end of the Research Program Term in
accordance with this Agreement. If Merck elects to extend the Research
Program, Merck shall notify Transcell in writing of such election at
least 90 days before the end of the current Research Program Term or
Extended Research Program Term and, if Transcell agrees to extend the
Research Program, the parties shall negotiate in good faith to complete
a mutually acceptable written agreement at least 45 days prior to the
expiration of the current Research Program Term or Extended Research
Program Term, which agreement will describe the Research Program
activities to be carried out by Merck and Transcell during such
Extended Research Program Term and the funding arrangements applicable
to such Extended Research Program Term.
2.11 Research Program Materials. The parties contemplate that each of them
will make compounds and/or biological materials available for purposes
of the Research Program and that additional compounds may be invented
and/or synthesized in the course of the Research Program. In respect of
such compounds and/or biological materials, the parties agree as
follows:
2.11.1 Compounds or biological materials transmitted by one Party to
another pursuant to this Agreement (i) shall be distributed
only to the employees of the receiving Party who have a need
to receive them to carry out the terms of this Agreement, (ii)
shall be used solely for the purposes expressly set forth in
this Agreement (iii) subject to 2.11.2, shall be returned
promptly to the transmitting Party upon such Party's request
and (iv) shall not be disclosed or distributed to any third
party without the prior written consent of the Party
transmitting such compounds or biological material.
2.11.2 Compounds that are used in the Research Program and are
determined not to be Lead Candidates shall be returned to the
Party which made such compound available. Ownership of
Compounds shall be determined in accordance with the terms of
this Agreement, and all such Compounds that are determined not
to be Lead Candidates shall revert to the Party or Parties
that own(s) such Compounds. Any such Compound which is
returned to a Party pursuant to this Section 2.11.2 may not be
developed, made, used or sold by such Party, its Affiliates or
licensees in the Expanded Field prior to the First Commercial
Sale in a Major Market Country of a Licensed Product developed
pursuant to this Agreement. Compounds that are determined to
be Lead Candidates shall remain available to the Parties for
the purposes of the Research Program and shall be subject to
the terms of this Agreement.
2.12 Drug Development Program. A Compound which is identified by the Joint
Research Committee as meeting the criteria in Attachment 2.1 set for
Milestone II will be reviewed
12
by Merck's internal system for acceptance of such Compound as a Safety
Assessment Candidate. After identification of such a Safety Assessment
Candidate, Merck will be responsible for and will undertake all
preclinical development, toxicology and clinical development, including
regulatory filings, which are required for commercialization. The
progress and results of Merck's Drug Development Program, as well as
such other information reasonably requested by Transcell relating to
the progress, goals or performance of the Drug Development Program,
will be reported to Transcell through semi-annual summary reports.
Merck shall also notify Transcell upon (i) the filing of an IND with
the FDA (ii) the filing of an NDA with the FDA and (iii) the approval
of an NDA by the FDA.
ARTICLE III
LICENSE; DEVELOPMENT AND COMMERCIALIZATION
------------------------------------------
3.1 License Grant.
3.1.1 Subject to Sections 3.2 and 3.3 and the other terms and
conditions set forth herein, Transcell hereby grants to Merck an
exclusive license in the Field, including the right to grant
sublicenses to Merck Affiliates and to third parties, under Transcell
Intellectual Property solely to make, have made, use, develop, import,
offer for sale and sell Compounds and Licensed Products in the
Territory. The foregoing license includes an exclusive sub-license in
the Field of Transcell's rights under the 1993 Princeton License
Agreement solely to make, have made, use, develop, import, offer for
sale and sell Compounds and Licensed Products in the Territory.
3.1.2 Subject to Section 3.2 and 3.3 and the other terms and conditions
set forth herein, Interneuron hereby grants to Merck an exclusive
license in the Field, including the right to grant sublicenses to Merck
Affiliates and to third parties, under Interneuron Intellectual
Property solely to make, have made, use, develop, import, offer for
sale and sell Compounds and Licensed Products in the Territory. The
foregoing license includes an exclusive sub-license in the Field to
Interneuron's rights pursuant to the 1997 Princeton Research Agreement
including any license agreement entered into between Interneuron and
Princeton pursuant to the 1997 Princeton Research Agreement, solely to
make, have made, use, develop, import, offer for sale and sell
Compounds and Licensed Products in the Territory.
3.2 Retained Rights. Except as specifically set forth herein, Merck is not
granted any other license by implication or otherwise. During the
Research Program Term and any Extended Research Program Term, Transcell
shall retain the right to use Transcell Intellectual Property and
Interneuron shall retain the right to use Interneuron Intellectual
Property (i) in the Field, solely for the purposes of performing their
obligations under the Research Program and (ii) outside of the Field
for any purpose, subject to Section 3.3 below. After expiration or
termination of the Research Program Term, Transcell and
13
Interneuron shall retain the right to use Transcell Intellectual
Property and Interneuron Intellectual Property outside of the Field for
any purpose, subject to Section 3.3 below.
3.3 Exclusivity in Expanded Field. In consideration of the Option Payment,
Transcell and Interneuron agree that, for a period of one year from and
after the Effective Date (the "Option Period"), neither Transcell nor
Interneuron will collaborate with a third party in the Expanded Field,
or grant or engage in negotiations to grant a license in the Expanded
Field to any third party under the Transcell and Interneuron
Intellectual Property; provided, however, that Transcell and
Interneuron may hold introductory meetings of a general nature with
third parties during such period. During the Option Period, Merck shall
have an exclusive option to request an exclusive license under
Transcell Intellectual Property and Interneuron Intellectual Property
in the Expanded Field upon terms to be mutually agreed. In the event
that Merck elects to exercise such option, Merck shall so notify
Transcell in writing prior to the end of the Option Period, and the
parties shall negotiate in good faith to complete a mutually acceptable
written license agreement not later than ninety (90) days after the end
of the Option Period. Such agreement will describe the activities to be
carried out by the Parties, the funding arrangements and any additional
terms as agreed by the Parties. Neither Transcell nor Interneuron will
collaborate with a third party in the Expanded Field, or grant or
engage in negotiations to grant a license in the Expanded Field to any
third party under the Transcell and Interneuron Intellectual Property
during the period of such negotiations with Merck; provided, however,
that Transcell and Interneuron may hold introductory meetings of a
general nature with third parties during such period.
3.4 Princeton Agreements. (a) With respect to the 1993 Princeton License
Agreement, Merck acknowledges that it is a sublicensee of Transcell's
rights under such Agreement to the extent provided in Section 3.1
hereof, and Merck agrees to be bound by the terms thereof to the extent
set forth in the Side Agreement. Except to the extent provided for in
the Side Agreement, Merck shall have no responsibility for payments to
Princeton under the 1993 Princeton License Agreement.
(b) With respect to the 1997 Princeton Research Agreement, Interneuron
agrees to exercise its right under such Agreement to obtain an
exclusive license to Princeton's interest in Research Information and
Inventions in a timely manner in accordance with the terms of such
agreement and to use commercially reasonable efforts to negotiate a
license which is consistent with the terms of this Agreement and which
will provide the broadest possible rights to such Research Information
and Inventions. Interneuron shall promptly provide Merck with a copy of
any such license upon execution thereof, and Merck shall automatically
be deemed a sublicensee of Interneuron's rights thereunder to the
extent provided in Section 3.1 hereof. Except to the extent provided
for in the Side Agreement, Merck shall have no responsibility for
payments to Princeton under the 1997 Princeton Research Agreement and
under any license agreement entered into between Interneuron and
Princeton pursuant thereto.
14
3.5 Development and Commercialization. Merck shall use reasonable efforts,
consistent with the usual practice followed by Merck in pursuing the
commercialization and marketing of pharmaceutical products of similar
market potential, at its own expense, to develop and commercialize a
Licensed Product on a commercially reasonable basis in such countries
in the Territory where in Merck's opinion it is commercially viable to
do so; provided, that such countries shall include the United States
and at least one other Major Market Country.
ARTICLE IV
CONFIDENTIALITY AND PUBLICATION
-------------------------------
4.1 Non-disclosure and Non-Use Obligations. All Proprietary Information
disclosed by one Party to any other Party hereunder shall be maintained
in confidence and shall not be disclosed to any non-party or used for
any purpose except as expressly permitted herein without the prior
written consent of the disclosing Party. The foregoing non-disclosure
and non-use obligations shall not apply to the extent that such
Proprietary Information:
(a) is known by the receiving Party at the time of its receipt,
and not through a prior disclosure by the disclosing Party, as
documented by business records;
(b) is properly in the public domain;
(c) is subsequently disclosed to a receiving Party by a third
party who may lawfully do so and is not under an obligation of
confidentiality to the disclosing Party; or
(d) is developed by the receiving Party independently of
Proprietary Information received from the other Party, as
documented by research and development records.
4.2 Permitted Disclosure of Proprietary Information. Notwithstanding
Section 4.1, a Party receiving Proprietary Information of another Party
may disclose such Proprietary Information:
(a) to governmental or other regulatory agencies in order to
obtain patents subject to this Agreement, or to gain approval
to conduct clinical trials or to market Licensed Product, but
such disclosure may be only to the extent reasonably necessary
to obtain such patents or authorizations;
(b) by Merck to its permitted sublicensees, agents, consultants,
Affiliates and/or other third parties for the research and
development, manufacturing and/or marketing of the Licensed
Product (or for such parties to determine their interest in
performing such activities) in accordance with this Agreement
on the condition that such third parties agree to be bound by
the confidentiality obligations contained this
15
Agreement, provided that the term of confidentiality for such
third parties shall be no less than seven (7) years; or
(c) if required to be disclosed by law or court order, provided
that notice is promptly delivered to the non-disclosing Party
in order to provide an opportunity to challenge or limit the
disclosure obligations; provided, however, without limiting
any of the foregoing, it is understood that (i) any Party
hereto, including any Affiliate, may make reasonable
disclosure of this Agreement, and the terms hereof in any
filings required by the United States Securities and Exchange
Commission, subject to review by the other Parties of such
proposed disclosure and requests for confidential treatment
for certain provisions of this Agreement, as agreed by the
Parties.
4.3 Publication and Public Disclosures. (a) Merck and Transcell each
acknowledge the other Party's interest in publishing its results to
obtain recognition within the scientific community and to advance the
state of scientific knowledge. Each Party also recognizes the mutual
interest in obtaining valid patent protection and in protecting
business interests and trade secret information. Consequently, either
Party, its employees or consultants wishing to make a publication or to
make an oral disclosure shall deliver to the other Party a copy of the
proposed written publication or an outline of an oral disclosure at
least forty-five (45) days prior to submission for publication or
presentation. The reviewing Party shall have the right (a) to propose
modifications to the publication or oral disclosure for patent reasons,
trade secret reasons or business reasons or (b) to request a reasonable
delay in publication or oral disclosure in order to protect patentable
information. If the reviewing Party requests a delay, the publishing or
disclosing Party shall delay submission or presentation for a period of
sixty (60) days to enable patent applications protecting each Party's
rights in such information to be filed in accordance with Article VI
below. Upon expiration of such sixty (60) days, the publishing Party
shall be free to proceed with the publication or oral disclosure. If
the reviewing Party requests modifications to the publication or oral
disclosure, the publishing Party shall edit such publication to prevent
disclosure of trade secret or proprietary business information prior to
submission of the publication or prior to oral disclosure, subject to
the terms of the Princeton Agreements and the Side Agreement.
Interneuron agrees promptly to forward to Merck for review any proposed
publication or other disclosure by Princeton (including any student
thesis or dissertation) received by Interneuron pursuant to Section 8
of the 1997 Princeton Research Agreement and which is subject to
Merck's rights hereunder and, upon Merck's request, to request that
Princeton delay such publication or presentation for a maximum of 60
days to protect the patentability of any inventions described therein,
subject to the provisions of the Side Agreement. In addition, upon
Merck's request, Interneuron shall request that such a publication or
presentation be altered, or not made, in order to protect the
patentability of any inventions described therein, subject to
Princeton's rights under the 1997 Princeton Research Agreement and the
Side Agreement.
16
(b) Any Party hereto, including any Affiliate of a Party, may make
disclosure of the existence of this Agreement and the terms hereof in
any filings required by the United States Securities and Exchange
Commission, provided that any such proposed disclosure shall be
submitted to the other Parties for prior review within a reasonable
time in advance of the filing of such proposed disclosure, and such
other Parties may request reasonable modifications to such proposed
disclosure for patent reasons, trade secret reasons or business
reasons. The Parties shall use good faith efforts (i) to provide
reasonable time for prior review of proposed disclosures and (ii) to
respond to requests for review of disclosures in a timely manner. A
Party which has complied with this Section shall not be required to
delay a disclosure if such delay would cause a violation of law,
regulation or court order. Upon execution of this Agreement, the
Parties may issue a press release in the form attached as Attachment
4.3. Any additional press releases or public announcements with respect
to this Agreement or the transactions and activities contemplated
herein shall be at such time and in such manner as the Parties shall
agree. Any information which has been previously disclosed pursuant to
the terms of this Section 4.3(b) shall be subject to expedited review
by the other Party prior to the subsequent disclosure of such
information. A request for expedited review shall (i) state the
proposed use of the information; (ii) include a copy of the previously
approved disclosure of the information; and (iii) state the deadline
for response.
ARTICLE V
PAYMENTS; ROYALTIES AND REPORTS
-------------------------------
5.1 Commitment Fee and Option Payment. In consideration for Transcell's
commitment to perform its obligations under the Research Program and
for access to the Transcell Know-How and Patent Assets granted
hereunder, Merck shall pay to Transcell a non- refundable commitment
fee of $1,500,000 within thirty (30) days after the Effective Date. In
consideration for the option granted in Section 3.3 hereof, Merck shall
pay to Transcell a non-refundable Option Payment of $1,000,000 within
thirty (30) days after the Effective Date.
5.2 Research Program Funding. In consideration for Transcell's performance
of its obligations under the Research Program and subject to the terms
and conditions contained herein, Merck shall pay Transcell:
(a) During the First and Second Years of the Research Program Term: an
amount equal to $750,000 per year payable in equal quarterly
installments of $187,500, for 6 FTE's: 3 FTE's at Transcell and 3
FTE's, including time spent by Daniel Kahne, at Princeton. The first
such quarterly installment shall be due within 30 days after the
Effective Date. The remaining quarterly installments shall be due
within fifteen (15) days after the end of each Calendar Quarter,
beginning October 15, 1997.
17
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
(b) For any Additional Year(s) of the Research Program Term: If the
Research Program Term is extended for a third or subsequent year in
accordance with Section 2.10 above, payments for such additional year
or years shall be negotiated annually, based upon [______] per FTE at
Transcell and [_______] per FTE at Princeton.
5.3 Milestone Payments. Subject to the terms and conditions contained in
this Agreement, Merck shall pay to Transcell the following
non-refundable milestone payments, each milestone payment is to be made
no more than once with respect to the [*] Research Program and once
with respect to the [*] Research Program:
(a) $1,500,000 upon [*];
(b) $3,000,000 upon [*];
(c) $4,000,000 upon [*];
(d) $6,000,000 upon [*]; and
(e) $8,000,000 upon [*].
5.3.1 Merck shall notify Transcell in writing within thirty (30)
days after the achievement of each milestone, and such notice
shall be accompanied by payment of the appropriate milestone
payment. The milestone payments described above shall be
payable only upon the initial achievement of such milestone
for each of the [*] Research Program and the [*] Research
Program and no amounts shall be due hereunder for subsequent
or repeated achievement of such milestones within a Research
Program.
5.3.2 Fifty percent (50%) of each milestone payment made for the
achievement of a milestone described in (c), (d) and (e) above
shall be credited against the royalties payable by Merck under
Section 5.4 for the Compound for which such milestone was
paid.
5.4 Royalties.
5.4.1 Royalties Payable By Merck. Subject to the terms and
conditions of this Agreement, for each Licensed Product Merck
shall pay to Transcell royalties on a country-by-country
basis:
18
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
(a) if Merck's activities with respect to a Licensed Product
or Compound would, but for this Agreement, infringe or fall
within the scope of a Valid Patent Claim or a supplemental
protection certificate in the country of sale, then:
(i) for annual Net Sales of Licensed Products by
Merck, its Affiliates or sublicensees less than or equal to
[*], an amount equal to [*] percent [*] of such Net Sales in
such countries;
(ii) for that amount of annual Net Sales of Licensed
Products by Merck, its Affiliates or sublicensees greater than
[*] and less than or equal to [*], an amount equal to [*]
percent [*] of such Net Sales in such countries; and
(iii) for that amount of annual Net Sales of Licensed
Products by Merck, its Affiliates or sublicensees greater than
[*], an amount equal to [*] percent [*] of such Net Sales in
such countries; or
(b) for sales other than those covered in Subsection
5.4.1(a) above:
(i) for annual Net Sales of Licensed Products by
Merck, its Affiliates or sublicensees less than or equal to
[*], an amount equal to [*] percent [*] of such Net Sales in
such countries;
(ii) for that amount of annual Net Sales of Licensed
Products by Merck, its Affiliates or sublicensees greater than
[*] and less than or equal to [*], an amount equal to [*]
percent [*] of such Net Sales in such countries; and
(iii) for that amount of annual Net Sales of Licensed
Product by Merck, its Affiliates or sublicensees greater than
[*], an amount equal to [*] percent [*] of such Net Sales in
such countries
Royalties on each Licensed Product at the rate set forth above shall be
effective as of the date of First Commercial Sale of Licensed Product
in a country and shall continue until either (i) the expiration of the
last applicable patent on such Licensed Product or Compound in such
country in the case of sales under Subsection 5.4.1(a) above or (ii)
until the tenth (10th) anniversary of the First Commercial Sale in such
country in the case of sales of Licensed Product under Subsection
5.4.1(b) above, subject to the following conditions:
(x) that only one royalty shall be due with respect to the
same unit of Licensed Product;
19
(y) that no royalties shall be due upon the sale or other
transfer among Merck, its Affiliates or sublicensees, but in
such cases the royalty shall be due and calculated upon
Merck's or its Affiliate's or its sublicensee's Net Sales to
the first independent third party; and
(z) no royalties shall accrue on the disposition of Licensed
Product in reasonable quantities by Merck, Affiliates or its
sublicenses as samples (promotion or otherwise) or as
donations (for example, to non-profit institutions or
government agencies for a non-commercial purpose).
5.4.2 Managed Pharmaceutical Contract. Merck may sell Licensed
Products to an independent third party (such as a retailer or
wholesaler) and may subsequently perform services relating to
Licensed Products and other products under a managed
pharmaceutical benefits contract or other similar contract. In
such cases, it is agreed by the parties that Net Sales shall
be based on the invoice price to an independent retailer or
wholesaler, as set forth in the definition of Net Sales in
Article I hereof, notwithstanding that Merck may receive
compensation arising from the performance of such services.
5.4.3 Change in Sales Practices. The parties acknowledge that during
the term of this Agreement, Merck's sales practices for the
marketing and distribution of Licensed Products may change to
the extent to which the calculation of the payment for
royalties on Net Sales may become impractical or even
impossible. In such event the parties agree to meet and
discuss in good faith new ways of compensating Transcell to
the extent currently contemplated under Section 5.4.1.
5.4.4 Royalties for Bulk Compound. In those cases where Merck sells
bulk Compound rather than a Licensed Product in packaged form
to an independent third party, and is unable to determine Net
Sales, the royalty obligations of this Article V shall be
applicable to the bulk Compound sold.
5.4.5 Compulsory Licenses. If a compulsory license is granted to a
Third Party with respect to Licensed Product in any country in
the Territory with a royalty rate lower than the royalty rate
provided by Section 5.4.1., then the royalty rate to be paid
by Merck on Net Sales in that country under Section 5.4.1
shall be reduced to the rate paid by the compulsory Third
Party licensee.
5.4.6 Third Party Licenses. If one or more patent licenses from a
third party or parties are required by Merck, its Affiliates
and sublicensees in order to develop, make, have made, use,
sell or import Compound or Licensed Product in a particular
country, 50% of any royalties actually paid under such third
party patent licenses by Merck for sale of such Compound or
Licensed Product in a country for such Calendar Quarter shall
be creditable against the royalty payments to be paid to
Transcell by Merck with respect to the sale of such Licensed
Products in such country.
20
5.5 Reports; Payment of Royalty. Following the First Commercial Sale of a
Licensed Product and during the term of the Agreement, Merck shall
furnish to Transcell a quarterly written report for the Calendar
Quarter showing the sales of all Licensed Products subject to royalty
payments sold by Merck, its Affiliates and its sublicensees in the
Territory during the reporting period (and a reconciliation to Net
Sales) and the royalties payable under this Agreement. Reports shall be
due on the thirtieth (30th) day following the close of each Calendar
Quarter. Royalties shown to have accrued by each royalty report shall
be due and payable on the date such royalty report is due. Merck shall
keep complete and accurate records in sufficient detail to enable the
royalties payable hereunder to be determined.
5.6 Audits.
(a) Upon the written request of Transcell and not more than once
in each Calendar Year, Merck shall permit an independent
certified public accounting firm of nationally recognized
standing selected by Transcell and reasonably acceptable to
Merck, to have access during normal business hours to such of
the records of Merck as may be reasonably necessary to verify
the accuracy of the royalty reports hereunder for any year
ending not more than twenty-four (24) months prior to the date
of such request. The accounting firm shall disclose to
Transcell only whether the royalty reports are correct or
incorrect and the specific details concerning any
discrepancies.
(b) If such accounting firm correctly concludes that additional
royalties were owed during such period, Merck shall pay the
additional royalties within thirty (30) days of the date
Transcell delivers to Merck such accounting firm's written
report so correctly concluding. The fees charged by such
accounting firm shall be paid by Transcell; provided, however,
that if an error in favor of Transcell in the -------- -------
payment of royalties of more than five percent (5%) of the
royalties due hereunder for the period being reviewed is
discovered, then the fees and expenses of the accounting firm
shall be borne by Merck.
(c) Merck shall include in each sublicense granted by it pursuant
to this Agreement a provision requiring the sublicensee to
make reports to Merck, to keep and maintain records of sales
made pursuant to such sublicense and to grant access to such
records by Transcell's independent accountant to the same
extent required of Merck under this Agreement. Upon the
expiration of twenty-four (24) months following the end of any
year, the calculation of royalties payable with respect to
such year shall be binding and conclusive upon Transcell, and
Merck and its sublicensees shall be released from any
liability or accountability with respect to royalties for such
year.
(d) Transcell shall treat all financial information subject to
review under this Section 5.6 or under any sublicense
agreement in accordance with the confidentiality provisions of
this Agreement, and shall cause its accounting firm to enter
into an
21
acceptable confidentiality agreement with Merck obligating it
to retain all such financial information in confidence
pursuant to such confidentiality agreement.
5.7 Payment Exchange Rate. All payments to Transcell under this Agreement
shall be made in United States dollars by bank wire transfer in
immediately available funds to such bank account in the United States
designated in writing by Transcell from time to time. In the case of
sales outside the United States, the rate of exchange to be used in
computing the amount of currency equivalent in United States dollars
due Transcell shall be made at the rate of exchange utilized by Merck
in its worldwide accounting system, prevailing on the fourth to the
last business day of the Calendar Quarter to which such payments
relate. Such rate of exchange is that rate quoted by Reuters Ltd. for
the spot purchase of U.S. dollars at 7:15 a.m. Eastern Standard Time on
such day.
5.8 Income Tax Withholding. If laws, rules or regulations require
withholding of income taxes or other taxes imposed upon payments set
forth in this Article V, Merck shall make such withholding payments as
required and subtract such withholding payments from the payments set
forth in this Article V. Merck shall submit appropriate proof of
payment of the withholding taxes to Transcell within a reasonable
period of time. Merck will use efforts consistent with its usual
business practices to ensure that any withholding taxes imposed are
reduced as far as possible under the provisions of the current or any
future double taxation treaties or agreements between foreign
countries, and the Parties shall cooperate with each other with respect
thereto, with the appropriate Party under the circumstance providing
the documentation required under such treaty or agreement to claim
benefits thereunder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Transcell Representations and Warranties. Transcell represents and
warrants to Merck that as of the date of this Agreement:
(a) to the best of Transcell's knowledge, without having conducted
an investigation, the Transcell Patent Assets and Transcell
Know-How are not invalid or unenforceable, in whole or in
part;
(b) it has the full right, power and authority to enter into this
Agreement, to perform the Research Program and to grant the
licenses granted under Article III hereof;
(c) it has not previously assigned, transferred, conveyed or
otherwise encumbered its right, title and interest in the
Transcell Patent Assets or Transcell Know-How;
22
(d) to the best of Transcell's knowledge, without having conducted
an investigation, it is the sole and exclusive owner of or
licensee under the Transcell Patent Assets and Transcell
Know-How, all of which are free and clear of any liens,
charges and encumbrances, subject to the Princeton Agreements,
and, other than the rights of Princeton and the United States
pursuant to the Princeton Agreements, no other person,
corporate or other private entity, or governmental entity or
subdivision thereof, has any valid claim of ownership with
respect to the Transcell Patent Assets and Transcell Know-How,
whatsoever;
(e) to the best of Transcell's knowledge, without having conducted
an investigation, the licensed Transcell Patent Assets and
Transcell Know-How practiced as contemplated herein and the
development, manufacture, use and sale of Compound and
Licensed Products do not infringe any patent rights owned or
possessed by any third party;
(f) there are no claims, judgments or settlements against or owed
by Transcell or pending or, to the best of Transcell's
knowledge, threatened claims or litigation relating to the
Transcell Patent Assets and Transcell Know-How;
(g) it has disclosed to Merck all relevant information known by it
regarding the Transcell Patent Assets and Transcell Know-How
reasonably related to the activities contemplated under this
Agreement; and
(h) the copy of the 1993 Princeton License Agreement and the
amendment thereto attached hereto is true, complete and
correct and there have been no further amendments to such
agreement, and, to its knowledge, such agreement is in full
force and effect as of the date hereof.
6.2 Interneuron Representations and Warranties. Interneuron represents and
warrants to Merck that as of the date of this Agreement:
(a) it has the full right, power and authority to enter into this
Agreement and subject to the 1997 Princeton Research
Agreement, to grant the licenses granted under Article III
hereof;
(b) it has not previously assigned, transferred, conveyed or
otherwise encumbered its right, title and interest in the
Interneuron Patent Assets or Interneuron Know- How;
(c) to the best of Interneuron's knowledge, without having
conducted an investigation, it has the sole and exclusive
right under the 1997 Research Agreement to obtain an exclusive
license under the Interneuron Patent Assets and Interneuron
Know-How, all of which are free and clear of any liens,
charges and encumbrances, subject to the Princeton Agreements,
and, other than the rights of Princeton and the United States
pursuant to the Princeton Agreements, no other
23
person, corporate or other private entity, or governmental
entity or subdivision thereof, has any valid claim of
ownership with respect to the Interneuron Patent Assets and
Interneuron Know-How, whatsoever;
(d) to the best of Interneuron's knowledge, without having
conducted an investigation, the licensed Interneuron Patent
Assets and Interneuron Know-How practiced as contemplated
herein and the development, manufacture, use and sale of
Compound and Licensed Products do not infringe any patent
rights owned or possessed by any third party;
(e) there are no claims, judgments or settlements against or owed
by Interneuron or pending or, to the best of Interneuron's
knowledge, threatened claims or litigation relating to the
Interneuron Patent Assets and Interneuron Know-How;
(f) it has disclosed to Merck all relevant information known by it
regarding the Interneuron Patent Assets and Interneuron
Know-How reasonably related to the activities contemplated
under this Agreement; and
(g) the copy of the 1997 Princeton Research Agreement attached
hereto is true, complete and correct and there have been no
amendments to such agreement, and, to its knowledge, such
agreement is in full force and effect as of the date hereof.
6.3 General Disclaimer. THE PATENT ASSETS, TRANSCELL KNOW-HOW AND
INTERNEURON KNOW-HOW PROVIDED BY LICENSORS TO MERCK ARE PROVIDED "AS
IS" AND LICENSORS MAKE NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING, WITHOUT LIMITATION, ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE VALUE, ADEQUACY, FREEDOM
FROM FAULT, OR THE QUALITY, EFFICIENCY, SUITABILITY, CHARACTERISTICS,
USEFULNESS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF, THE
PATENT ASSETS, TRANSCELL KNOW-HOW OR INTERNEURON KNOW-HOW, OR ANY DATA
CONTAINED THEREIN.
6.4 Merck Representations and Warranties. Merck represents and warrants to
Transcell and Interneuron that as of the date of this Agreement it has
the full right, power and authority to enter into this Agreement and to
perform the Research Program.
ARTICLE VII
PATENT MATTERS
--------------
7.1 Filing, Prosecution and Maintenance of Patents. Each of Transcell and
Interneuron agrees to file, prosecute and maintain in the countries in
the Territory listed on Schedule
24
7.1 hereto, or such other countries as the Parties may agree, upon
appropriate consultation with Merck, the Transcell Patent Assets and
the Interneuron Patent Assets, respectively, licensed to Merck under
this Agreement; provided, however, (i) with respect to Transcell/Merck
Joint Information and Inventions or Interneuron/Merck Joint Information
and Inventions, Merck shall have the first right to file, prosecute and
maintain the patent applications and (ii) if Transcell or Interneuron
elects not to file a patent application on Transcell Information and
Inventions or Interneuron Information and Inventions, Merck shall have
the right to file, prosecute and maintain such patent application, and
Transcell or Interneuron, as the case may be, shall cooperate fully in
the filing and prosecution of such patents. In each case, the filing
Party shall give the non-filing Parties an opportunity to review the
text of the application before filing, shall consult with the
non-filing Parties with respect thereto, and shall supply the
non-filing Parties with a copy of the application as filed, together
with notice of its filing date and serial number. Each Party shall keep
the other Parties advised of the status of the actual and prospective
patent filings and upon the request of another Party, provide advance
copies of any papers related to the filing, prosecution and maintenance
of such patent filings. Each Licensor shall promptly give notice to
Merck of the grant, lapse, revocation, surrender, invalidation or
abandonment of any Patent licensed or sub-licensed to Merck by such
Licensor. The Party that is the filing Party under this Section shall
be responsible for the payment of all costs and expenses related to
such filing.
7.2 Right of Other Parties to Prosecute and Maintain Patents. Any Party
having the first right to file, prosecute and maintain the patent
applications and patents referred to in Section 7.1 shall give notice
to the other Parties of any desire to cease prosecution and/or
maintenance of a patent constituting part of Patent Assets and, in such
case, shall permit the other Parties, at the other Parties' sole
discretion, to continue prosecution or maintenance at its own expense,
subject to the Princeton Agreements and the Side Agreement.
7.3 Interference, Opposition, Reexamination and Reissue.
(a) A Licensor, within ten (10) days of learning of such an event,
shall inform Merck of any request for, or filing or
declaration of, any interference, opposition or reexamination
relating to Patent Assets. Merck and such Licensor thereafter
shall consult and cooperate fully to determine a course of
action with respect to any such proceeding and shall agree
upon the Parties' rights of review and approval of submissions
relating to such proceeding based upon the Parties' relative
interests in the relevant portion of Patent Assets.
(b) A Licensor shall not institute any opposition, reexamination,
or reissue proceeding relating to Patent Assets without the
prior written consent of Merck, which consent shall not
unreasonably be withheld or delayed.
(c) In connection with any interference, opposition, reissue, or
reexamination proceeding relating to Patent Assets, Merck and
Licensors will cooperate fully
25
and will provide each other with any information or assistance
that either reasonably may request. Licensors shall keep Merck
informed of developments in any such action or proceeding,
including, to the extent permissible, the status of any
settlement negotiations and the terms of any offer related
thereto.
(d) Licensors shall bear the expense of any interference,
opposition, reexamination, or reissue proceeding relating to
Patent Assets.
7.4 Enforcement and Defense.
(a) Each Party shall promptly give the other Parties notice of
either any infringement of Patent Assets, or any
misappropriation or misuse of Transcell Know-How or
Interneuron Know-How, that comes to such Party's attention.
The Parties shall thereafter consult and cooperate fully to
determine a course of action, including, without limitation,
the commencement of legal action by any or all of the Parties.
However, Licensors, upon notice to Merck, shall have the first
right to initiate and prosecute such legal action at their own
expense and in the name of Transcell and/or Interneuron, as
applicable, and Merck, or to control the defense of any
declaratory judgment action relating to Transcell and
Interneuron Intellectual Property. Licensors shall promptly
inform Merck if both Licensors elect not to exercise such
first right, and Merck thereafter shall have the right either
to initiate and prosecute such action or to control the
defense of such declaratory judgment action in the name of
Merck and, if necessary, Transcell or Interneuron.
(b) If Licensors elect not to initiate and prosecute an
infringement action as provided in Subsection 7.4(a), and
Merck elects to do so, the cost of any agreed-upon course of
action, including the costs of any legal action commenced or
the defense of any declaratory judgment, shall be borne solely
by Merck.
(c) For any such legal action, in the event that any Party is
unable to initiate or prosecute such action solely in its own
name, the other Parties will join such action voluntarily and
will execute and cause its Affiliates under its control to
execute all documents necessary for the Party to prosecute and
maintain such action. In connection with any such action, the
Parties will cooperate fully and will provide each other with
any information or assistance that either reasonably may
request. Each Party shall keep the other informed of
developments in any such action or proceeding, including, to
the extent permissible by law, the status of any settlement
negotiations and the terms of any offer related thereto.
(d) Any recovery obtained by Merck or either Licensor shall be
shared as follows:
(i) the Party that initiated and prosecuted the action
shall recoup all of its costs and expenses incurred
in connection with the action, whether by settlement
or otherwise;
26
(ii) the other Party then shall, to the extent possible,
recover its costs and expenses incurred in connection
with the action;
(iii) if Licensors initiated and prosecuted the action, the
amount of any recovery remaining then shall be
retained by Licensors; and
(iv) if Merck initiated and prosecuted the action, the
amount of any recovery remaining shall be retained by
Merck except that Licensors shall receive a portion
equivalent to the royalties they would have received
on such amount.
(e) Each Licensor shall inform Merck of any certification
regarding any Patent Assets it has received pursuant to either
21 U.S.C.ss.ss.355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or under
Canada's Patented Medicines (Notice of Compliance) Regulations
Article 5 and shall provide Merck with a copy of such
certification within five (5) days of receipt. Licensors' and
Merck's rights with respect to the initiation and prosecution
of any legal action as a result of such certification or any
recovery obtained as a result of such legal action shall be
allocated as defined in Subsections 7.4(a) through (d);
provided, however, that Licensors shall exercise the first
right to initiate and prosecute any action and shall inform
Merck of such decision within fifteen days of receipt of the
certification, after which time, if Licensors have not advised
Merck of their intention to initiate and prosecute such
action, Merck shall have the right to initiate and prosecute
such action.
7.5 Patent Term Restoration. The Parties shall cooperate in obtaining
patent term restoration or supplemental protection certificates or
their equivalents in any country in the Territory where applicable. If
elections with respect to obtaining such patent term restoration are to
be made, Merck shall have the right to make the election and Licensors
shall abide by such election.
ARTICLE VIII
TERM AND TERMINATION
8.1 Term and Expiration. This Agreement shall be effective as of the
Effective Date and unless terminated earlier pursuant to Sections 8.2
or 8.3 below, the term of this Agreement shall continue in effect until
expiration of all royalty obligations hereunder. Upon expiration of
this Agreement due to expiration of all royalty obligations hereunder,
Merck's licenses pursuant to Section 3.1 shall become fully paid-up,
perpetual licenses.
8.2 Termination by Notice. Notwithstanding anything contained herein to the
contrary, Merck shall have the right to terminate this Agreement at any
time by giving ninety (90)
27
days advance written notice to Transcell and Interneuron. In the event
of such termination, (i) the rights and obligations hereunder,
including any payment obligations not due and owing as of the
termination date shall terminate and (ii) Merck shall have no further
rights with respect to Transcell Intellectual Property and Interneuron
Intellectual Property.
8.3 Termination.
8.3.1 Termination for Cause. Any Party may terminate this Agreement
by notice to the other Parties at any time during the term of
this Agreement:
(a) if another Party is in breach of its material
obligations hereunder by causes and reasons within
its control and has not cured such breach within
ninety (90) days after notice requesting cure of the
breach; or
(b) upon the filing or institution of bankruptcy,
reorganization, liquidation or receivership
proceedings, or upon an assignment of a substantial
portion of the assets for the benefit of creditors by
another Party; provided, however, in the case of any
involuntary bankruptcy proceeding such right to
terminate shall only become effective if the Party
consents to the involuntary bankruptcy or such
proceeding is not dismissed within ninety (90) days
after the filing thereof.
8.3.2 Effect of Termination for Cause on License.
(a) In the event that either Transcell or Interneuron
breaches its material obligations hereunder and Merck
notifies Transcell and Interneuron of the termination
of this Agreement under Section 8.3.1(a) or initiates
arbitration against Transcell or Interneuron for
breach of this Agreement pursuant to Section 9.6, or
both, any milestone or royalty payments that Merck
may be required to pay pursuant to this Agreement and
that are not subject to Section 8.4 shall be paid by
Merck instead into an escrow account pending the
resolution of the arbitration or other agreement of
the Parties. If the arbitrators determine that Merck
had the right to terminate this Agreement under
Section 8.3.1(a) due to a breach of material
obligations by Transcell or Interneuron which was not
cured as set forth therein, Merck's licenses pursuant
to this Agreement shall become perpetual licenses,
and the royalty to be paid by Merck, if any, shall be
determined by the arbitrators. In addition, Licensors
shall, within one month from such determination,
return or cause to be returned to Merck all Licensed
Products, Compounds, Know-How or other substances or
composition, delivered or provided by Merck, as well
as any other materials and/or documents provided by
Merck in any medium.
28
(b) In the event that Merck breaches its material
obligations hereunder and Licensors notify Merck of
the termination of this Agreement under Section
8.3.1(a) or initiate arbitration against Merck for
breach of this Agreement pursuant to Section 9.6, or
both, Merck shall continue to pay to Transcell any
milestone or royalty payments that Merck may be
required to pay pursuant to this Agreement pending
the resolution of the arbitration or other agreement
of the Parties. If the arbitrators determine that
Licensors had the right to terminate this Agreement
under Section 8.3.1(a) due to a breach of material
obligations by Merck which was not cured as set forth
therein, Licensors shall be entitled to any payments
then due or owing under this Agreement and Merck
shall have no further rights with respect to
Transcell Intellectual Property or Interneuron
Intellectual Property. Merck shall, within one month
from such determination, return or cause to be
returned to Licensors all Licensed Products,
Compounds, Know-How or other substances or
composition, delivered or provided by Licensors, as
well as any other materials and/or documents provided
by Licensors in any medium.
(c) In the event Merck terminates this Agreement under
Section 8.3.1(b) or this Agreement is otherwise
terminated under 8.3.1(b), all rights and licenses
granted pursuant to this Agreement are, and shall
otherwise be deemed to be, for purposes of Section
365(n) of the Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section
101(35A) of the Bankruptcy Code. The Parties agree
that Merck, as a licensee of such rights under this
Agreement, shall retain and may fully exercise all of
its rights and elections under the Bankruptcy Code.
The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against
Transcell or Interneuron under the Bankruptcy Code,
Merck shall be entitled to a complete duplicate of
(or complete access to, as appropriate) any such
intellectual property and all embodiments of such
intellectual property upon written request therefore
by Merck. Such intellectual property and all
embodiments thereof shall be promptly delivered to
Merck (i) upon any such commencement of a bankruptcy
proceeding upon written request therefore by Merck,
unless Transcell and Interneuron elect to continue to
perform all of their respective obligations under
this Agreement or (ii) if not delivered under (i)
above, upon the rejection of this Agreement by or on
behalf of Transcell or Interneuron, as the case may
be, upon written request therefor by Merck.
8.4 Effect of Expiration or Termination. Expiration or termination of this
Agreement shall not relieve the parties of any obligation accruing
prior to such expiration or termination, and Merck shall be obligated
to pay and shall pay to Transcell, within thirty (30) calendar days of
such expiration or termination, all payments and royalties due or
accrued
29
pursuant to the terms of Article V herein. The provisions of Article IV
shall survive the expiration or termination of this Agreement and shall
continue in effect for seven (7) years from the date of expiration or
termination. Any expiration or early termination of this Agreement
shall be without prejudice to the rights of any Party against the
others accrued or accruing under this Agreement prior to termination,
including the obligation to pay royalties for Licensed Product(s) or
Compound sold prior to such termination. Upon the expiration or
termination of this Agreement other than pursuant to Section 8.3, Merck
shall, within one month from the date of termination, return or cause
to be returned to Licensors all Licensed Products, Compounds, Know-How
or other substances or composition, delivered or provided by Licensors,
as well as any other materials and/or documents provided by Licensors
in any medium and Licensors shall, within one month from the date of
termination, return or cause to be returned to Merck all Licensed
Products, Compounds, Know-How or other substances or composition,
delivered or provided by Merck, as well as any other materials and/or
documents provided by Merck in any medium.. In addition, if this
Agreement is terminated by Merck pursuant to Section 8.2 for reasons
other then concerns regarding the safety of a Safety Assessment
Candidate, Merck may, in its sole discretion, offer to Licensors the
right to acquire the information and data developed by Merck for the
IND or NDA with respect to such Safety Assessment Candidate upon
mutually agreeable terms and for reasonable compensation to be
negotiated in good faith.
ARTICLE IX
MISCELLANEOUS
9.1 Force Majeure. No Party shall be held liable or responsible to the
other Parties nor be deemed to have defaulted under or breached the
Agreement for failure or delay in fulfilling or performing any term of
the Agreement when such failure or delay is caused by or results from
causes beyond the reasonable control of the affected Party including,
but not limited to, fire, flood, embargo, war, acts of war (whether war
be declared or not), insurrection, riot, civil commotion, strike,
lockout or other labor disturbance, act of God or act, omission or
delay in acting by any governmental authority or one of the other
Parties. The affected Party shall notify the other Parties of such
force majeure circumstances as soon as reasonably practical.
9.2 Assignment. The Agreement may not be assigned or otherwise transferred,
nor, except as expressly provided hereunder, may any right or
obligations hereunder be assigned or transferred, by a Party without
the consent of the other Parties; provided, however, that any Party
may, without such consent, assign the Agreement and its rights and
obligations hereunder to an Affiliate or in connection with the
transfer or sale of all or substantially all of its assets related to a
Licensed Product or its business, or in the event of its merger or
consolidation or change in control or similar transaction. Any
permitted assignee shall assume all obligations of its assignor under
this Agreement.
30
9.3 Severability. In the event that any of the provisions contained in this
Agreement are held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby,
unless the absence of the invalidated provision(s) adversely affect the
substantive rights of the parties. The Parties shall replace the
invalid, illegal or unenforceable provision(s) with valid, legal and
enforceable provision(s) which, insofar as practical, implement the
purposes of this Agreement.
9.4 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally, sent by telecopier (and promptly confirmed by personal
delivery, registered or certified mail or overnight courier), sent by
nationally-recognized overnight courier or sent by registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to Transcell, to: Transcell Technologies Inc.
8 Cedarbrook Drive
Cranbury Junction, NJ 08512
Attention: Chief Operating Officer
Telecopier No.: 609-655-6930
if to Interneuron to: Interneuron Pharmaceuticals, Inc.
One Ledgemont Center
99 Hayden Avenue, Suite 340
Lexington, MA 02173
Attention: President
Telecopier No.: 617-674-2448
in either case
with copies to: Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
18th Floor
New York, NY 10017
Attention: Jill M. Cohen
Telecopier No.: 212-682-5729
Lowe Price LeBlanc & Becker
99 Canal Center Plaza
Suite 300
Alexandria, VA 22314
Attention: Gilberto M. Villacorta
Telecopier No.: 703-684-1124
if to Merck, to: Merck & Co., Inc.
One Merck Drive
31
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Attention: Office of Secretary
Telecopier No.: 908-735-1246
with a copy to: Attention: Office of Assistant
General Counsel
Telecopier No.: 908-735-1226
or to such other address as the Party to whom notice is to be given may
have furnished to the other Parties in writing in accordance herewith.
Any such communication shall be deemed to have been given when
delivered if personally delivered or sent by telecopier on a business
day, on the business day after dispatch if sent by
nationally-recognized overnight courier and on the third business day
following the date of mailing if sent by mail.
9.5 Applicable Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey and the United
States without reference to any rules of conflict of laws or renvoi.
9.6 Dispute Resolution. The Parties agree to attempt initially to solve all
claims, disputes, or controversies arising under, out of, or in
connection with this Agreement by conducting good faith negotiations.
If the Parties are unable to settle the matter between themselves, the
matter shall thereafter be resolved by alternative dispute resolution,
starting with mediation and including, if necessary, a final and
binding arbitration. Whenever a Party shall decide to institute
arbitration proceedings, it shall give written notice to that effect to
the other Party. The Party giving such notice shall refrain from
instituting the arbitration proceedings for a period of sixty (60) days
following such notice. During such period, the Parties shall make good
faith efforts to amicably resolve the dispute without arbitration. Any
arbitration hereunder shall be conducted under the rules of the
American Arbitration Association. Each such arbitration shall be
conducted by a panel of three arbitrators: one arbitrator shall be
appointed by each of Merck and Transcell and the third shall be
appointed by the American Arbitration Association. Any such arbitration
shall be held in New York, New York. The arbitrators shall have the
authority to grant specific performance. Judgment upon the award so
rendered may be entered in any court having jurisdiction or application
may be made to such court for judicial acceptance of any award and an
order of enforcement, as the case may be. In no event shall a demand
for arbitration be made after the date when institution of a legal or
equitable proceeding based on such claim, dispute or other matter in
question would be barred by the applicable statute of limitations.
9.7 Entire Agreement. This Agreement and the Side Agreement contain the
entire understanding of the Parties with respect to the subject matter
hereof. All express or implied agreements and understandings, either
oral or written, heretofore made are expressly merged in and made a
part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by all
Parties hereto.
32
9.8 Headings. The captions to the several Articles and Sections hereof are
not a part of the Agreement, but are merely guides or labels to assist
in locating and reading the several Articles and Sections hereof.
9.9 Independent Contractors. It is expressly agreed that the Parties shall
be independent contractors and that the relationship between the
Parties shall not constitute a partnership, joint venture or agency. No
Party shall have the authority to make any statements, representations
or commitments of any kind, or to take any action, which shall be
binding on the other Parties, without the prior consent of such other
Parties.
9.10 Waiver. The waiver by a Party hereto of any right hereunder or the
failure to perform or of a breach by another Party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure
by said other Party whether of a similar nature or otherwise.
9.11 Counterparts. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
33
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.
MERCK & CO., INC. TRANSCELL TECHNOLOGIES, INC.
BY: /s/ Edward M. Scolnick BY: /s/ Vincent L. Fabiano
------------------------------------ -------------------------------
Name: Edward M. Scolnick Name: Vincent L. Fabiano
Title: President, Title: Executive Vice President
Merck Research Laboratories and Chief Operating Officer
INTERNEURON PHARMACEUTICALS, INC.
BY: /s/ Glenn L. Cooper
-------------------------------
Name: Glenn L. Cooper, M.D.
Title: President and CEO
34
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
Schedule 1.19
Interneuron Patent Assets
<TABLE>
<CAPTION>
=============================================================================================================
TITLE OF APPLICATION DOCKET NO. SERIAL NO. FILING DATE STATUS PATENT NO.
=============================================================================================================
<S> <C> <C> <C> <C> <C>
New Application Regarding
[*] Libraries Unassigned Unassigned Not Yet Filed In Preparation N/A
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE 1.25
LIST OF MAJOR MARKET COUNTRIES
United States
United Kingdom
Germany
France
Italy
Spain
Japan
ATTACHMENT 1.39
LICENSE AGREEMENT
This License Agreement (hereinafter referred to as the "License
Agreement"), effective as of October 14, 1993, is by and between The Trustees of
PRINCETON UNIVERSITY, a nonprofit, private educational institution existing in
the State of New Jersey (hereinafter referred to as "PRINCETON"), and TRANSCELL
TECHNOLOGIES, INC., a corporation duly organized and existing under the laws of
the State of Delaware and having a principal place of business at 2000 Cornwall
Road, Monmouth Junction, New Jersey 08852 (hereinafter referred to as the
"LICENSEE").
WHEREAS, PRINCETON and INTERNEURON PHARMACEUTICALS, INC.
("INTERNEURON") entered into a Research Agreement effective July 1, 1991
(hereafter referred to as the "Research Agreement" and attached, hereto, along
with any addenda, as Appendix I), granting INTERNEURON a first option to acquire
a worldwide license, with the right to sublicense, under any inventions and
confidential information, including any patent rights which may be obtained
thereon, arising out of a Research Program supervised by Daniel Kahne, Ph.D., as
a Principal Investigator in the Department of Chemistry at PRINCETON.
WHEREAS, INTERNEURON, on March 22, 1993, exercised the option to
license the Kahne patent application filed February 23, 1993, which is based on
inventions and confidential information arising out of the Research Program;
WHEREAS, said Research Agreement and all the rights thereunder,
including the option to license the Kahne patent application, were assigned by
INTERNEURON to LICENSEE on April 22, 1993 and LICENSEE now desires to obtain a
license, under the patent rights, upon the terms and conditions hereinafter set
forth; and
WHEREAS, LICENSEE has represented to PRINCETON, to induce PRINCETON to
enter into this License Agreement, that it shall commit itself to a thorough,
vigorous and diligent program of exploiting said inventions and confidential
information, including any patent rights which may be obtained thereon, so that
public utilization shall result therefrom.
NOW, THEREFORE, it is agreed as follows:
1
ARTICLE 1
DEFINITIONS
For the purposes of this License Agreement, the following words and
phrases shall have the following meanings:
1.1 "LICENSEE" shall mean TRANSCELL TECHNOLOGIES, INC., and any related
company or subsidiary of LICENSEE, the voting stock of which is at least fifty
percent (50%), directly or indirectly, owned or controlled by LICENSEE.
1.2 "Patent Rights" shall mean:
1.2.1 United States Patent Application Serial Number
08/021,391, as set forth in Appendix II (hereinafter referred to as the "Patent
Rights Patent Application");
1.2.2 Any other United States and/or foreign patent
applications and/or patents, arising out of the Research Program as set forth in
the Research Agreement, which may, by subsequent agreement between the parties,
be added to Appendix II (hereinafter referred to as "Patent Rights Patent
Applications");
1.2.3 Any later-filed United States and/or foreign patent
applications based on the patent applications and/or patents listed in Appendix
II (including patent applications on any compounds or products made by using the
process set forth in the patent application listed in Appendix II), or
corresponding thereto, including any continuations, continuations-in-part,
divisionals, reissues, reexaminations, or extensions thereof, arising out of the
Research Program as set forth in the Research Agreement (hereinafter referred to
as the "Patent Rights Patent Application"); and
1.2.4 Any United States and/or foreign patents issuing from
any of the foregoing (hereinafter referred to as the "Patent Rights Patents").
1.3 "Licensed Product(s)" shall mean any product which:
(a) is covered in whole or in part by (i) a pending claim
contained in a Patent Rights Patent Application in the country in which the
Licensed Product(s) is made, used or sold, or (ii) a valid and unexpired claim
contained in a Patent Rights Patent in the country in which the Licensed
Product(s) is made, used or sold;
(b) is manufactured by using a process which is covered in
whole or in part by (i) a pending claim contained in a Patent Rights Patent
Application in the country in which the
2
Licensed Process(es) is used or (ii) a valid and unexpired claim contained in a
Patent Rights Patent in the country in which the Licensed Process(es) is used;
(c) is used according to a method which is covered in whole or
in part by (i) a pending claim contained in a Patent Rights Patent Application
in the country in which the Licensed Process(es) is used or (ii) a valid and
unexpired claim contained in a Patent Rights Patent in the country in which the
Licensed Process(es) is used.
1.4 "Licensed Process(es)" shall mean any process which is covered, in
whole or in part, by (i) a pending claim contained in a Patent Rights Patent
Application or (ii) a valid and unexpired claim contained in a Patent Rights
Patent.
1.5 "Net Revenues" shall mean the sum of (a) and (b) below:
(a) All amounts actually received by LICENSEE on account of
billings by LICENSEE for Licensed Product(s) sold by LICENSEE, less the sum of
the following:
(i) Discounts and free goods allowed in amounts
customary in the trade;
(ii) Sales, tariff duties and/or use taxes
directly imposed and with reference to particular sales;
(iii) Outbound transportation prepaid or allowed;
(iv) Amounts allowed or credited on returns;
(v) Actual losses incurred due to changes in
foreign currency exchange rates.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections.
(b) Royalties actually received by LICENSEE from its
sublicensees on account of their sales of Licensed Products which, at the time
the sublicense was entered into, had either (i) been developed by LICENSEE to
the stage where they were substantially ready for sale and marketing or (ii)
were pharmaceutical products which had entered Phase II clinical testing or
(iii) were products on which LICENSEE had expended $1,000,000 or more in direct
development costs.
3
Net Revenues shall not include amounts received by LICENSEE as payment
for product development services or other services rendered by LICENSEE.
1.6 "Net Ancillary Product Royalties" shall mean royalties actually
received by LICENSEE from its sublicensees on account of their sales of Licensed
Products other than the Licensed Products referred to in Paragraph 1.5.
ARTICLE 2
GRANT
2.1 PRINCETON hereby grants to LICENSEE an exclusive (even as to
PRINCETON) worldwide license under the Patent Rights and to make, have made,
use, lease, and/or sell any Licensed Products and to practice the Licensed
Processes, to the full end of the term for which the Patent Rights are granted,
unless sooner terminated as hereinafter provided, said license to include the
right to sublicense.
2.2 LICENSEE agrees that any sublicenses granted by it shall provide
for privity of contract between PRINCETON and sublicensee such that the
obligations of this License Agreement shall be binding upon the sublicensee as
if it were in the place of LICENSEE, except that each sublicensee shall pay its
royalties to LICENSEE. LICENSEE further agrees that a copy of this License
Agreement shall be attached to, and made a part of, any sublicense agreement,
which shall be forwarded to PRINCETON upon execution.
2.3 LICENSEE agrees to forward to PRINCETON annually a copy of such
reports received from any sublicensee as may be pertinent to an accounting of
royalties.
2.4 LICENSEE agrees that Licensed Products leased or sold in the United
States shall be manufactured substantially in the United States.
ARTICLE 3
DUE DILIGENCE
3.1 LICENSEE shall use its best efforts to commercialize the Licensed
Products and/or Licensed Processes through a thorough, vigorous and diligent
program for exploitation of the Patent Rights.
4
3.2 In addition to the obligations of Paragraph 3.1, LICENSEE shall
adhere to the following milestones:
3.2.1 Within six (6) months from demonstrating the utility of
the technology described in the Patent Rights by successfully synthesizing two
complicated oligosaccharides on the solid phase such as a derivative of the GMI
ganglioside and one other biologically important oligosaccharide, LICENSEE shall
develop and submit to PRINCETON a business plan setting forth the amount of
money, number and kind of personnel, and time, budgeted and planned for each
phase of the development of Licensed Products and/or Licensed Processes.
3.2.2 Within three (3) months of the submission of the
business plan, LICENSEE shall meet with PRINCETON to discuss further milestones,
and LICENSEE shall establish further reasonable milestones as soon as
practicable thereafter.
3.2.3 Commencing by January 31 following the second
anniversary of the Effective Date of this License Agreement and by January 31 of
each succeeding year during which this License agreement has not been
terminated, LICENSEE shall provide to PRINCETON a written report outlining the
development plan for the technology for the following year and a brief written
summary of the developmental activities of the previous year. Such report and
summary shall include a review of the milestones established pursuant to
Paragraph 3.2.2 and may include proposed changes thereto based on the
development activities and other relevant information. LICENSEE shall meet with
PRINCETON to discuss the report and summary, and LICENSEE shall revise the
milestones, or establish new ones, as may be appropriate following such
discussions.
3.3 LICENSEE's failure to perform in accordance with Paragraph 3.1
shall constitute a material breach or default for purposes of the termination
provisions of Paragraph 7.3.
3.4 If LICENSEE fails to meet the milestone set forth in Paragraph
3.2.1 or any milestones established pursuant to Paragraph 3.2.2 or 3.2.3,
PRINCETON and LICENSEE shall engage in god faith negotiations to establish
substitute milestones, on the basis of the development work that has been
completed to date, the prospectus and expected time and cost for further
development, marketing potential for resulting products, and other relevant
factors. Any material failure by LICENSEE to meet milestones to which it has
agreed, except where such failure was not within LICENSEE's reasonable control,
and any failure by LICENSEE to engage in good faith negotiations relating to
milestones, as provided herein, shall constitute a material breach or default
for purposes of the termination provisions of Paragraph 7.3.
5
ARTICLE 4
ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay to PRINCETON, as set forth below, to the end of the term of the Patent
Rights or until this License Agreement shall be terminated as hereinafter
provided:
4.1.1 A license issue fee of fifteen thousand dollars
($15,000), which license issue fee shall be deemed earned and due immediately
upon the execution of this License Agreement.
4.1.2 A royalty in an amount equal to (a) four percent (4.0%)
of Net Revenues up to Five Million Dollars ($5,000,000) in any calendar year;
and (b) a royalty in an amount equal to three percent (3.0%) of Net Revenues
over Five Million Dollars, but less than Ten Million Dollars ($10,000,000), in
any calendar year; and (c) a royalty in an amount equal to two percent (2.0%) of
Net Revenues over Ten Million Dollars ($10,000,00) in any calendar year;
4.1.3 A royalty in an amount equal to (a) fifty percent (50%)
of Net Ancillary Product Royalties where the royalty rate to LICENSEE is ten
percent (10%) or more of the sublicensees' sales or revenues; (b) a royalty in
an amount equal to forty percent (40%) of Net Ancillary Product Royalties where
the royalty rate to LICENSEE is five percent (5%) or more but less than ten
percent (10%) of the sublicensees' sales or revenues; and (c) a royalty in an
amount equal to thirty percent (30%) of Net Ancillary Product royalties where
the royalty rate to LICENSEE is less than five percent (5%) of the sublicensees'
sales or revenues.
4.1.4 Up to fifty percent (50%) of any royalties paid by
LICENSEE to a third party, in any calendar year, as a condition of utilizing the
Licensed Patents or the Licensed Processes, may be deducted from the amounts due
under Paragraphs 4.1.2 and 4.1.3.
4.1.5 In the event that LICENSEE's royalty payment to
PRINCETON hereunder for licensed operation during the calendar year 1999, and
each year thereafter in which this License Agreement is in effect and there are
any Licensed Products or Licensed Processes, falls below One Hundred Thousand
Dollars ($100,000), LICENSEE shall, with it last report for said years, pay to
PRINCETON, in addition to the royalty payments provided in the foregoing
paragraphs, an amount sufficient to attain such annual $100,000 amount.
6
4.2 In addition to the foregoing royalties, LICENSEE shall pay to
PRINCETON License Maintenance Fees of Twenty-Five Thousand Dollars ($25,000) for
each of 1995 and 1996 and Fifty Thousand Dollars ($50,000) for each of 1997 and
1998. Such payments will be made with the first quarterly report for each of
such years pursuant to Paragraph 5.2.
4.3 No multiple royalties shall be payable because the use, lease or
sale of any of the Licensed Products or the practice of the Licensed Processes
is, or shall be, covered by more than one claim contained in the Patent Rights.
No royalties shall be payable under this License Agreement with respect to any
Net Revenues or Net Ancillary Product Royalties if a royalty is also payable
thereon to PRINCETON under the License Agreement between PRINCETON and
INTERNEURON effective as of January 1, 1992.
4.4 Royalty payments shall be paid in United States dollars at
Princeton, New Jersey or at such other place as PRINCETON may reasonably
designate consistent with the laws and regulations controlling in any foreign
country. Any withholding taxes which LICENSEE shall be required by law to
withhold on remittance of the royalty payments shall be deducted from royalties
paid to PRINCETON. LICENSEE shall furnish PRINCETON with copies of official
receipts for such taxes. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion shall be
made by using the exchange rate at the date of remittance of said payment to
LICENSEE.
ARTICLE 5
REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amount payable to PRINCETON by way of royalty as aforesaid. Said books of
account shall be kept at LICENSEE's principal place of business and shall be
maintained in accordance with generally accepted accounting principles (GAAP).
Said books and the supporting data shall be open, upon reasonable notice to
LICENSEE and no more than twice per calendar year, for five (5) years following
the end of the calendar year to which they pertain, for inspection by the
PRINCETON Internal Audit Division and/or by an independent certified public
accountant employed by PRINCETON, to which LICENSEE has no reasonable objection,
for the purpose of verifying LICENSEE's royalty statement or compliance in other
respects with this License Agreement.
7
5.2 LICENSEE, within sixty (60) days after the end of each quarter of
each calendar year, shall deliver to PRINCETON true and accurate reports, giving
such particulars of the business conducted by LICENSEE during the preceding
quarter under this License Agreement as shall be pertinent to a royalty
accounting hereunder. These shall include at least the following:
(a) All Licensed Products leased or sold, by or for
LICENSEE or its sublicensees;
(b) Total amounts received for Licensed Products leased
or sold by LICENSEE;
(c) Deductions applicable as provided in the definition
of Net Revenues;
(d) Total royalties due to PRINCETON based on Net
Revenues of LICENSEE;
(e) Names and addresses of all sublicensees of Patent
Rights of LICENSEE, and the applicable royalty rates for each sublicense;
(f) Net Ancillary Product Royalties received by LICENSEE
from sublicensees where the royalty rate to LICENSEE is (i) 10% or more; (ii) 5%
or more but less than 10%; (ii) 5% or more but less than 10%; and (iii) less
than 5%;
(g) Total royalties due to PRINCETON based on Net
Ancillary Product Royalties of LICENSEE;
(h) On an annual basis, LICENSEE's annual report.
5.3 With each such report submitted, LICENSEE shall pay to PRINCETON
the royalties due and payable under this License Agreement provided that no
payment to PRINCETON shall be payable in the event that the remittance of
royalties from foreign countries to the accounts of LICENSEE in the United
States shall be blocked by exchange controls in foreign countries, which
exchange controls are beyond the control of LICENSEE. If no royalties shall be
due, LICENSEE shall so report.
ARTICLE 6
PATENT PROSECUTION
In accordance with Paragraph 11.4 of the Research Agreement, the
LICENSEE, at its own expense and utilizing the Patent Attorneys of its choice,
shall have the sole right and responsibility for the filing, prosecution, and
maintenance of
8
any patent applications and patents contained in the Patent Rights; provided,
however, that PRINCETON shall have the right to approve LICENSEE's choice of
Patent Attorneys, said approval not to be unreasonably withheld. LICENSEE, or
its patent counsel, shall provide PRINCETON with copies of all correspondence
and documents filed with, or received from, the United States Patent and
Trademark Office or any foreign patent office or patent agent. In addition,
LICENSEE agrees that any and all official or "ribbon" copies of issued patents
shall be forwarded to, and retained by, PRINCETON.
ARTICLE 7
TERMINATION
7.1 If LICENSEE shall become bankrupt or insolvent, or shall file a
petition in bankruptcy, or if the business of LICENSEE shall be placed in the
hands of a receiver, assignee or trustee for the benefit of creditors, whether
by the voluntary act of LICENSEE or otherwise, this License Agreement shall
automatically terminate.
7.2 Should LICENSEE fail in its payment to PRINCETON of royalties due
in accordance with the terms of this License Agreement, PRINCETON shall have the
right to serve notice upon LICENSEE, by certified mail to the address designated
in Article 14 hereof, of its intention to terminate this License Agreement
within thirty (30) days after receipt of said notice of termination unless
LICENSEE shall pay to PRINCETON, within the thirty (30) day period, all such
royalties due and payable. Upon the expiration of the thirty (30) day period, if
LICENSEE shall not have paid all such royalties due and payable, the right,
privileges and license granted hereunder shall thereupon immediately terminate.
7.3 Upon any material breach or default of this License Agreement by
LICENSEE, other than those occurrences set out in Paragraphs 7.1 and 7.2
hereinabove, which shall always take precedence in that order over any material
breach or default referred to in this Paragraph 7.3, PRINCETON shall have the
right to terminate this License Agreement and the rights, privileges and license
granted hereunder by ninety (90) days' notice to LICENSEE by certified mail to
the address designated in Article 14 hereof. Such termination shall become
effective unless LICENSEE shall have cured any such breach or default prior to
the expiration of the ninety (90) day period from receipt of the notice of
termination.
7.4 LICENSEE shall have the right to terminate this License Agreement
at any time on six (6) months' notice by certified mail
9
to PRINCETON, in whole or with respect to designated countries or designated
Patent Rights, Licensed Products or Licensed Processes.
7.5 Upon termination of this License Agreement for any reason, nothing
herein shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. LICENSEE and/or any
sublicensee thereof may, however, after the effective date of such termination,
sell all Licensed Products, and complete Licensed Products in the process of
manufacture at the time of such termination, and sell the same, provided that
LICENSEE shall pay to PRINCETON the royalties thereon as required by Article 4
of this License Agreement and shall submit the reports required by Article 5
hereof on the sales of Licensed Products.
ARTICLE 8
ARBITRATION
8.1 Except as to issues relating to the validity, enforceability, or
infringement of any patent contained in the Patent Rights licensed hereunder,
any and all claims, disputes or controversies arising under, out of, or in
connection with this License Agreement, which have not been resolved by good
faith negotiations between the parties, shall be resolved by final and binding
arbitration in Princeton, New Jersey under the rules of the American Arbitration
Association then in effect. The arbitrators shall have no power to add to,
subtract from, or modify any of the terms or conditions of this License
Agreement. Any award rendered in such arbitration may be enforced by either
party in either the state or federal courts of New Jersey, to whose jurisdiction
for such purposes, PRINCETON and LICENSEE each hereby irrevocably consents and
submits.
8.2 Any claim, dispute, or controversy concerning the validity,
enforceability, or infringement of any patent contained in the Patent Rights
licensed hereunder shall be resolved in any court having jurisdiction thereof.
8.3 In the event that, in any arbitration proceeding, any issue shall
arise concerning the validity, enforceability, or infringement of any patent
contained in the Patent Rights licensed hereunder, the arbitrators shall, to the
extent possible, resolve all issues other than validity, enforceability, and
infringement; in any event, the arbitrators shall not delay the arbitration
proceeding for the purpose of obtaining or permitting either party to obtain
judicial resolution of such issues, unless an order staying the arbitration
proceeding shall be entered by a court of competent jurisdiction. Neither party
10
shall raise any issue concerning the validity, enforceability, or infringement
of any patent contained in the Patent Rights licensed hereunder, in any
proceeding to enforce any arbitration award hereunder, or in any proceeding
otherwise arising out of any such arbitration award.
ARTICLE 9
INFRINGEMENT AND OTHER ACTIONS
9.1 LICENSEE and PRINCETON shall promptly provide written notice, to
the other party, of any alleged infringement by a third party of the Patent
Rights and provide such other party with any available evidence of such
infringement.
9.2 During the term of this Agreement, LICENSEE shall have the right,
but not the obligation, to prosecute and/or defend, at its own expense and
utilizing counsel of its choice, any infringement of, and/or challenge to, the
Patent Rights. In furtherance of such right, PRINCETON hereby agrees that
LICENSEE may join PRINCETON as a party in any such suit, without expense to
PRINCETON. No settlement, consent judgment or other voluntary final disposition
of any such suit may be entered into without the consent of PRINCETON, which
consent shall not unreasonably be withheld. LICENSEE shall indemnify PRINCETON
against any order for costs that may be made against PRINCETON in any such suit.
9.3 In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights, as provided in Paragraph 9.2, LICENSEE may
withhold up to fifty percent (50%) of the royalties otherwise thereafter due
PRINCETON and apply the same toward reimbursement of its expenses, including
attorneys' fees, in connection therewith. Any recovery of damages by LICENSEE,
in any such suit, shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of LICENSEE relating to the suit, and next toward
reimbursement of PRINCETON for any royalties past due or withheld and applied
pursuant to this paragraph. The balance remaining from any such recovery shall
be divided equally between LICENSEE and PRINCETON.
9.4 If within six (6) months after receiving notice of any alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist, or shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify PRINCETON, at
any time prior thereto, of its intention not to bring suit against the alleged
infringer, then, and in those events only, PRINCETON shall have the right, but
not the obligation, to prosecute, at its own expense and utilizing counsel of
its choice, any infringement of the Patent Rights, and PRINCETON may, for such
purposes, join the
11
LICENSEE as a party plaintiff. The total cost of any such infringement action
commenced solely by PRINCETON shall be borne by PRINCETON and PRINCETON shall
keep any recovery or damages for past infringement derived therefrom.
9.5 In any suit to enforce and/or defend the Patent Rights pursuant to
this License Agreement, the party not in control of such suit shall, at the
request and expense of the controlling party, cooperate in all respects and, to
the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens and the
like.
ARTICLE 10
PRODUCT LIABILITY
10.1 PRINCETON, by this License Agreement, makes no representation as
to the patentability and/or breadth of the inventions contained in the Patent
Rights. PRINCETON by this License Agreement makes no representation as to
patents now held or which will be held by others in the field of the Licensed
Products or Licensed Process for a particular purpose.
10.2 LICENSEE agrees to defend, indemnify, and hold PRINCETON harmless
from and against all liability, demands, damages, expense or losses for death,
personal injury, illness or property damage arising (a) out of use by LICENSEE
or its transferees of inventions licensed or information furnished under this
License Agreement, or (b) out of any use, sale or other disposition by LICENSEE
or its transferees of products made by use of such inventions or information. As
used in this clause, "PRINCETON" includes its Trustees, Officers, Agents,
Employees and Students and "LICENSEE" includes its Affiliates, Contractors and
Sub-Contractors.
10.3 In discharge of the above, LICENSEE will maintain general
liability insurance in the amount of at least One Million Dollars ($1,000,000)
per occurrence, with an appropriate deductible, if possible of not more than
$10,000 per occurrence, with such insurers and on such terms as PRINCETON
approves in writing, against damage to, or destruction of, property, and injury
to, or death of, individuals, and against such other risks as PRINCETON may
reasonably request arising out of, or in connection with, any of the Licensed
Products or Licensed Process. PRINCETON, and its officers, trustees, and
employees will be named insureds under all such insurance. Such insurance will
also provide that PRINCETON will be given notice of any modification thereof and
at least ten (10) days prior written notice of cancellation or termination and
the reason therefor.
12
LICENSEE will furnish PRINCETON, upon request, written confirmation issued by
the insurer or an independent insurance agent confirming that insurance is
maintained in accordance with the above requirements.
ARTICLE 11
ASSIGNMENT
11.1 LICENSEE may assign or otherwise transfer this License Agreement
and the license granted hereunder and the rights acquired by it hereunder so
long as such assignment or transfer shall be to a subsidiary or shall be
accompanied by a sale or other transfer of LICENSEE's entire business or that
part of LICENSEE's business to which the license granted hereunder relates.
11.2 LICENSEE shall give PRINCETON thirty (30) days prior written
notice within which to approve, or reasonably object to, such assignment or
transfer. If within thirty (30) days after the giving of such notice, no written
objection is received by LICENSEE, PRINCETON shall be deemed to have approved
such assignment or transfer; provided, however, PRINCETON shall not be deemed to
have approved such assignment or transfer unless such assignee or transferee
shall have agreed in writing to be bound by the terms and conditions of this
License Agreement. Upon such assignment or transfer and agreement by such
assignee or transferee, the term LICENSEE, as used herein, shall mean such
assignee or transferee. If LICENSEE shall sell or otherwise transfer its entire
business or that part of its business to which the license granted hereby
relates and the transferee shall not have agreed in writing to be bound by the
terms and conditions of this License Agreement, or new terms and conditions
shall not have agreed in writing to be bound by the terms and conditions of this
License Agreement, or new terms and conditions shall not have been reasonably
agreed upon within sixty (60) days of such sale or transfer, PRINCETON shall
have the right to terminate this License Agreement.
ARTICLE 12
NON-USE OF NAMES
LICENSEE shall not use the name of PRINCETON or any adaptation thereof
or of any faculty member, employee or student, in any advertising, promotional
or sales literature without prior written consent obtained from PRINCETON, in
each case, except that LICENSEE may state that it is licensed by PRINCETON,
under
13
one or more of the patents and/or applications comprising the Patent Rights.
ARTICLE 13
EXPORT CONTROLS
It is understood that PRINCETON is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended, and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. Princeton neither represents that a license shall not be required nor
that, if required, it shall be issued.
ARTICLE 14
PAYMENTS, NOTICES
AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this License
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by certified first class mail, postage prepaid, addressed to it at
its address below or as it shall designate by written notice given to the other
party:
In the case of PRINCETON UNIVERSITY:
Jean A. Mahoney, Director
Office of Technology and Trademark Licensing
PRINCETON UNIVERSITY
5 New South Building, P.O. Box 36
Princeton, New Jersey 08544
In the case of LICENSEE:
Elizabeth Tallett - President
TRANSCELL TECHNOLOGIES, INC.
2000 Cornwall Road
Monmouth Junction, NJ 08852
14
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 This License Agreement shall be construed, governed, interpreted
and applied in accordance with the laws of the State of New Jersey, except that
questions affecting the validity, enforceability, or infringement of any patent
contained in the Patent Rights shall be determined by the law of the country in
which the patent was granted.
15.2 The parties hereto acknowledge that this License Agreement sets
forth the entire agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change or modification
except by the execution of a written instrument subscribed to by the parties
hereto.
15.3 The provisions of this License Agreement are severable, and in the
event that any provision of this License Agreement shall be determined to be
invalid or unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 LICENSEE agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped to, or sold in, other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
15.5 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this License Agreement
shall not constitute a waiver of that right or excuse a similar subsequent
failure to perform any such term or condition by the other party.
15
IN WITNESS WHEREOF, the parties hereto have executed this License
Agreement, in duplicate, by proper persons thereunto duly authorized.
TRUSTEES OF PRINCETON UNIVERSITY
By: /s/ Allen J. Sinisgalli
----------------------------------
Name: Allen J. Sinisgalli
Title: Associate Provost for Research
and Project Administration
Date: _______________________________
TRANSCELL TECHNOLOGIES, INC.
By: /s/ Elizabeth E. Tallett
---------------------------------
Name: Elizabeth E. Tallett
Title: President
Date: 15th October 1993
16
APPENDIX I
RESEARCH AGREEMENT
17
APPENDIX II
1. United States Patent Application Serial Number 08-021,391
filed February 23, 1993, in the name of Daniel E. Kahne,
entitled SINGLE-STEP FORMATION OF MULTIPLE GLYCOSIDIC
LINKAGES.
18
[LETTERHEAD OF TRANSCELL TECHNOLOGIES, INC.]
August 2, 1993
Ms. Jo Anne McLusky, Associate Director
Office of Research & Project Administration
Fifth Floor, New South Building
P.O. Box 36
Princeton, NJ 08544-0036
Dear Ms. McLusky:
On July 25, 1993 Dr. Daniel Kahne submitted to Transcell Technologies, Inc. a
Research Proposal entitled "Rapid Synthesis of GM1 Derivatives," Proposal number
130-M173, seeking $195,154 for the period July 1, 1993 to December 31, 1993. The
proposed Sponsored Research is an extension of the Research Agreement between
the University and Transcell dated July 1, 1991.
Pursuant to the Research Agreement, Transcell is providing this written notice
of its decision to provide the requested funding. Although the Research Proposal
did not include a payment schedule, we propose to adapt the schedule set forth
in Paragraph 6.1, with the first payment of $78,062 (40% of the total project
amount) payable within 30 days of acceptance of the Research Proposal and the
balance of $117,092 due on October 30, 1993.
Thank you for your assistance in this matter.
Sincerely,
/s/ Elizabeth E. Tallett
-------------------------------------
Elizabeth E. Tallett
President and Chief Executive Officer
19
Amendment No. 1 (the "Amendment") to License Agreement, effective as of
February 21, 1997, is by and between The Trustees of PRINCETON UNIVERSITY, a
nonprofit, private educational institution existing in the State of New Jersey
(hereinafter referred to as "PRINCETON"), and TRANSCELL TECHNOLOGIES, INC., a
corporation duly organized and existing under the laws of the State of Delaware
and having a principal place of business at 2000 Cornwall Road, Monmouth
Junction, New Jersey 08852 (hereinafter referred to as the "LICENSEE").
WHEREAS, PRINCETON and LICENSEE entered into a License Agreement
effective as of October 14, 1993 (the "License Agreement"), granting LICENSEE a
worldwide license, with the right to sublicense, under certain inventions and
confidential information, including any patent rights which may be obtained
thereon, on the terms and conditions set forth therein; and
WHEREAS, PRINCETON and LICENSEE desire to amend certain provisions of
the License Agreement, on the terms and conditions set forth herein.
NOW, THEREFORE, it is agreed as follows:
1. Section 1.5(b) of the License Agreement is hereby amended to
add the following new subsection (iv) to the end thereof:
"(iv) been developed using technology covered under the Patent
Rights, on which technology LICENSEE had expended $1,000,000
or more in development costs"
2. Article 2 of the License Agreement is hereby amended to add
the following new Section 2.5 to the end thereof:
"2.5 Notwithstanding the provisions set forth in the preceding
sections of this Article 2, PRINCETON reserves the right to
use the invention, PRINCETON'S Patent Rights, the Licensed
Products, the Licensed Processes, the technology, associated
information and know-how for PRINCETON'S own internal
educational, research and other non-commercial purposes only,
and to publish the results thereof in accordance with the
terms of Section 13 of the Research Agreement."
3. Section 4.1 of the License Agreement is hereby amended to add
the following new Section 4.1.6 to the end thereof:
"4.1.6 Notwithstanding the provisions set forth in the
preceding sections of this Section 4.1, in the event of a
sublicense of Patent Rights, the maximum royalty payable
hereunder shall be 25% of the royalties received by LICENSEE
from sublicensees as a result of sublicensees' sales of
Licensed Products and Licensed Processes; provided, however,
that in the event such limitation would cause royalties
payable hereunder to be less than 1.5% of the sublicensees'
net sales, then the royalty payable hereunder shall be 1.5% of
the sublicensees' net sales. For example, in the event
1
the royalty payable from a sublicensee to LICENSEE is 5% of
the sublicensee's net sales of Licensed Products and Licensed
Processes, the royalties payable to PRINCETON hereunder shall
be 1.5% (since 25% of 5% is less than 1.5%). For purposes of
this section, references to sublicensees' net sales assume
that such net sales are calculated in the same manner as Net
Sales in this Agreement."
4. Section 4.2 is hereby amended and restated in its entirety to
read as follows:
"4.2 In addition to the foregoing royalties, LICENSEE shall
pay to Princeton License Maintenance Fees of (i) two hundred
thousand dollars ($200,000), payable upon execution of this
Amendment and (ii) one hundred thousand dollars ($100,000) for
each year commencing October 14, 1997, through the earlier of
(i) termination of the License Agreement or (ii) the date of
first commercial sale of a Licensed Product."
5. Appendix II to the License Agreement is hereby updated and
restated as of the date of this Amendment in the form attached
hereto.
6. This Amendment may be executed in counterparts, each of which
counterparts, when so executed and delivered, shall be deemed
an original and all of which counterparts, taken together,
shall constitute one and the same instrument. Unless
separately defined, all defined terms herein shall have the
meaning set forth in the License Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment, in duplicate, by proper persons thereunto duly authorized.
TRUSTEES OF PRINCETON UNIVERSITY
By: /s/ Allen J. Sinisgalli
- ----------------------------------------
Name: Allen J. Sinisgalli
Title: Associate Provost for
Research & Project Admin.
Date: 2/17/97
TRANSCELL TECHNOLOGIES, INC.
By: /s/ Glenn L. Cooper
- ----------------------------------------
Name: Glenn L. Cooper, M.D.
Title: Acting President
Date: 2/21/97
2
Appendix II
1. Lowe Price LeBlanc & Becker Docket No. 2645-002
United States Patent Application Serial Number 08/021,391
filed February 23, 1993, in the name of Daniel E. Kahne,
entitled SINGLE-STEP FORMATION OF MULTIPLE GLYCOSIDIC
LINKAGES.
2. Lowe Price LeBlanc & Becker Docket No. 2645-002A
United States Patent Application Serial Number 08/198,271
filed February 18, 1994, in the name of Daniel E. Kahne,
entitled SOLUTION AND SOLID PHASE FORMATION OF GLYCOSIDIC
LINKAGES.
3. Lowe Price LeBlanc & Becker Docket No. 2645-002B
United States Patent Application Serial Number 08/281,167
filed July 24, 1994, in the name of Daniel E. Kahne et al.,
entitled SOLUTION AND SOLID-PHASE GLYCOSIDIC LINKAGES.
4. Lowe Price LeBlanc & Becker Docket No. 2645-002C
United States Patent Application Serial Number (to be
assigned) filed January 9, 1997, in the name of Daniel E.
Kahne, entitled SOLUTION AND SOLID-PHASE FORMATION OF
GLYCOSIDIC LINKAGES.
5. Lowe Price LeBlanc & Becker Docket No. 2645-002D
United States Patent Application Serial Number (to be
assigned) filed January 10, 1997, in the name of Daniel E.
Kahne, entitled SOLUTION AND SOLID PHASE FORMATION OF
GLYCOSIDIC LINKAGES.
3
ATTACHMENT 1.40
1997 PRINCETON RESEARCH AGREEMENT
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
PRINCETON UNIVERSITY
RESEARCH AGREEMENT
This Research Agreement is entered into on April 29, 1997 between the Trustees
of Princeton University, a not-for-profit, private educational institution
existing in the State of New Jersey, hereinafter referred to as "Princeton" and
Interneuron Pharmaceuticals Inc., a corporation existing under the laws of the
State of Delaware, hereinafter referred to as "Sponsor."
1. Statement of Work
Princeton, through the Department of Chemistry, has valuable experience,
skill and ability in the construction of a [*] library. Sponsor desires to
have Princeton undertake a research project in the above-named area in
accordance with the scope of work described in Exhibit A, Research
Proposal. Princeton agrees to use reasonable effort to perform the research
project described therein and hereafter referred to as the "Research."
Sponsor acknowledges that Princeton makes no expressed or implied
warranties for the research.
2. Principal Investigator
The research will be supervised by Professor Daniel Kahne. If for any
reason he is unable to continue to serve as Principal Investigator and a
successor acceptable to both Princeton and Sponsor is not available, this
Agreement shall be terminated as provided in Article 6.
3. Period of Performance
This research will be conducted during the period July 1, 1996 through June
30, 1998, but may be extended under the same terms and conditions by mutual
written agreement of the Parties. A third year of optional funding is
listed in the budget and shall be exercised by mutual agreement of the
parties.
4. Reimbursement of Costs
Princeton shall be reimbursed by Sponsor for all costs incurred in
connection with the research up to the amount of $441,246. While it is
estimated that this amount is sufficient to conduct the research, Princeton
and Sponsor may mutually agree to fund the third year of research, as
listed in the budget. Sponsor is not liable for any cost in excess of the
amount specified herein unless this Agreement is modified in writing by
both parties.
5. Payment Schedule
(a) Payments shall be made to Princeton by Sponsor with the first payment
of $110,000 due within thirty (30) days from the signing of this
Agreement. The balance is due in accordance with the following
schedule:
March 31, 1997 $55,000 December 31, 1997 $55,000
June 30, 1997 $55,000 March 31, 1998 $55,000
September 30, 1997 $55,000 June 30, 1998 $56,246
(b) Checks payable to Princeton University shall reference 130-4297, and be
sent to:
Raymond J. Clark, Treasurer
P.O. Box 35
Princeton University
Princeton, New Jersey 08544
6. Termination
Performance under this Agreement may be terminated by Sponsor upon sixty
(60) days' written notice; performance may be terminated by Princeton if
circumstances beyond its control preclude continuation of the research.
Upon termination, Princeton will be reimbursed for all costs and
non-cancelable commitments incurred in the performance of the research and
not yet paid for, such reimbursement together with other payments not to
exceed the total estimated project costs specified in Article 4. The
provision of Article 7 hereof shall survive any termination of this
Agreement.
7. Intellectual Property
(a) Ownership of Inventions
(1) The term "Invention" means any patentable or potentially
patentable subject matter or discovery conceived or reduced to
practice in carrying out of the Research pursuant to this
Agreement.
(2) Any Invention developed, as part of this Research, solely by
Sponsor personnel will be the exclusive property of Sponsor which
may, to the extent permitted by law, hold all right, title and
interest in such Invention. Such Inventions, including the right,
title and interest therein, are referred to herein as
"Sponsor-owned".
(3) Any Invention developed, as part of the Research, solely by
Princeton personnel, including faculty, students and employees,
will be the exclusive property of Princeton, which may, to the
extent permitted by law, hold all right, title, and interest in
such Invention. Such Inventions, including the right, title and
interest therein, are referred to herein as "Princeton-owned".
2
(4) Any Invention developed, as part of this Research, jointly by
Sponsor and Princeton personnel, including faculty, students and
employees, will be the mutual property of both parties, which may,
to the extent permitted by law, jointly hold all right, title and
interest in such Invention. Such Inventions, including the right,
title and interest therein, are referred to herein as
"Jointly-owned".
(b) Patents
The parties agree that it is desirable to file patent applications on
discoveries and Inventions conceived or first reduced to practice
during the term of this Agreement. Sponsor acknowledges that Princeton
has an obligation to protect and transfer its technology for the public
benefit and the parties agree to cooperate to effect that end in an
expedient manner equitable to both parties.
(c) Patent Applications
(1) Princeton and Sponsor agree to cooperate fully in applying for,
obtaining, prosecuting and maintaining patents.
(2) Princeton shall promptly disclose to Sponsor, in writing, any
Princeton-owned or Jointly-owned Inventions disclosed to
Princeton. Princeton shall file and prosecute U.S. and foreign
patent applications in its name at Sponsor's request and expense,
using mutually agreed upon patent counsel, on such Princeton-owned
or Jointly-owned Inventions as may, in Sponsor's judgment, become
appropriate during the term of this Agreement and up to twelve
(12) months after its termination. All information given to
Sponsor by Princeton in accordance with this section shall be held
in confidence by Sponsor so long as such information remains
unpublished or undisclosed by Princeton. Such patent applications
and any patents resulting therefrom shall be subject to the terms
of this Agreement.
(3) Princeton shall have the opportunity to file patent applications
in its name at its own expense for those Princeton-owned or
Jointly-owned Inventions made by its personnel and for which
Sponsor does not agree, within thirty (30) days after notification
by Princeton of its intent to file a patent application, to pay
for Princeton to file said patent application; such patent
applications and any patents resulting therefrom shall not be
subject to the terms of this Agreement.
(4) Sponsor patent counsel may prepare, file and prosecute all U.S.
applications for any Jointly-owned Inventions, at Sponsor's sole
cost and expense, provided, however, that Princeton shall have the
right to review and approve the application, and be consulted on
all prosecution actions, and foreign filing decisions. Princeton's
right, title and interest in the Jointly-owned Inventions
disclosed or claimed in such patent applications or in any such
patents shall be subject to the terms of this Agreement.
3
(d) Grant of Patent Rights
(1) In consideration for its sponsorship of the research program,
Sponsor shall retain an irrevocable, royalty-free, worldwide,
nonexclusive license, without the right to sublicense, for
Sponsor's own internal research use, under any Princeton-owned
Inventions, under any patents or patent applications.
(2) Princeton, to the extent it is permitted to do so by its
agreements with other government sponsors of research, and the
provisions of Public Laws 96-517 and 98-620, grants to Sponsor an
exclusive Option to obtain an exclusive worldwide license to any
Princeton-owned Inventions and Princeton's right, title and
interest under any Jointly-owned Inventions, patents or patent
applications, with a right to sublicense upon Princeton's
approval, which shall not be unreasonably withheld, on the terms
and conditions set forth in the resulting license agreements.
Sponsor agrees not to sublicense or assign any such intellectual
property to Transcell Technologies Inc., without Princeton's
written consent.
(3) Such Option with respect to each Invention shall extend for a
period commencing on the date the Invention is disclosed to
Sponsor through ninety (90) days from the filing date of a patent
application disclosing and claiming same. Sponsor may exercise its
Option on Princeton-owned and jointly-owned patent applications or
patents by providing a written statement to Princeton. Upon
exercise of each such Option, Sponsor and Princeton shall have
twelve (12) months to negotiate in good faith a royalty-bearing
worldwide exclusive license under reasonable royalty terms. During
the Option and subsequent negotiation periods, Princeton shall not
offer commercial license rights to any third party. At the end of
twelve (12) months from the date Sponsor exercises its Option if
no license agreement has been signed, Princeton shall be free to
negotiate licenses with other parties, and Sponsor shall have no
further rights to such Inventions except for those provided for in
7.d.1 herein, and those it retains to any jointly owned Inventions
by virtue of its ownership thereof.
(e) Unpatented Technology
It is recognized that some technology created in the performance of the
Research and uses thereof may not be protected by patent applications
or patents. Accordingly, Princeton, to the extent permitted by its
obligations to other government sponsors, hereby grants to Sponsor the
exclusive Option to negotiate an exclusive royalty-bearing worldwide
license to use any such technology for commercial purposes, to the
extent said technology or the use thereof contemplated by Sponsor is
not covered by a patent application or patent assigned to or controlled
by Princeton. Sponsor may exercise this Option in the same manner as,
and subject to the limitations of, its Options under Inventions, patent
application or patents with the Option period beginning upon the
provision of a written description or samples of the technology to
Sponsor. Princeton hereby grants to Sponsor a worldwide, royalty-free,
nonexclusive license, without the right to sublicense, to utilize all
such technology for its own internal research purposes only.
4
(f) Computer Software
Copyrights and all other rights in any computer software created in the
course of the Research shall be owned by Princeton. Sponsor shall have
nonexclusive royalty-free license for internal use, without the right
to sublicense. Princeton hereby grants Sponsor an exclusive Option to
negotiate an exclusive royalty-bearing license, such Option to extend
for sixty (60) days from the date Sponsor is provided with a copy of
said software. Sponsor may exercise this Option in the same manner as,
and subject to the limitations of, its Option under patent applications
or patents.
8. Publication
(a) Subject to the terms of this paragraph 8, Princeton shall have the
right, at its discretion, to release information or to publish any
material resulting from the Research. Sponsor and Princeton acknowledge
that patent rights may be jeopardized by public disclosure of such
Research results prior to the filing of a patent application.
Accordingly, Princeton shall forward copies of presentations and
publications (including poster sessions) to Sponsor for review and
comment 30 days prior to submission for publication. Sponsor may
request Princeton to delay publication an additional sixty days (60)
days in order to protect the potential patentability of any Invention
described therein. Such delay shall not, however, be imposed on the
filing of any student thesis or dissertation.
(b) The parties will cooperate to minimize delay of manuscripts. In no
event will a submission for publication or presentation under this
Agreement be delayed longer than three (3) months from the date a
manuscript is submitted to Sponsor for review.
(c) Princeton shall give Sponsor the option of receiving an acknowledgment
in any publication for its sponsorship of the Research. Sponsor
understands that the basic objective of research activities at
Princeton is the generation of new knowledge and its expeditious
dissemination. Therefore, in review of any publication, Sponsor shall
provide all reasonable cooperation in meeting this objective.
9. Consultation
Selected personnel of Sponsor, designated by Sponsor to Princeton, shall
have the right to confer with the Principal Investigator and his or her
associates for such reasonable periods and at such times as are mutually
agreeable.
10. Publicity and Use of Names
Neither Sponsor nor Princeton will use the name of the other in connection
with any product, promotional literature, or advertising material without
the prior written permission of the other party. This shall not include
internal documents available to the public that identify the existence of
the Agreement; and shall not preclude the Sponsor from disclosing any
information to the SEC or other governmental regulatory agency, if required
5
11. Reports
Princeton shall furnish Sponsor annual letter reports during the term of
this Agreement summarizing the research conducted. A final report setting
forth the accomplishments and significant research findings shall be
prepared by Princeton and submitted to Sponsor within ninety (90) days of
the expiration of the Agreement. A final summary report shall be submitted
to Sponsor if the Research is extended for an additional year, under the
terms of Article 3.
12. Proprietary Data
Princeton's acceptance and use of any proprietary data which may be
supplied by Sponsor in the course of the Research shall be subject to the
following:
(a) The data must be marked or designated in writing as proprietary to
Sponsor.
(b Princeton retains the right to refuse to accept any such data which it
does not consider to be essential to the completion of the Research.
(c) When Princeton does accept such data as proprietary, it agrees to
exercise all reasonable efforts not to publish or otherwise reveal the
data to others outside the University without the permission of
Sponsor, unless the data has already been published or disclosed
publicly by third parties or is required to be disclosed by order of a
court of law.
(d) Princeton understands and agrees that the disclosure of proprietary
data or confidential information to the University by the Sponsor shall
not be construed as granting Princeton any ownership rights in, or to,
the disclosed data or information, or any right to use such data or
information, except in the manner agreed upon by the Sponsor and
Princeton prior to disclosure of the proprietary data or confidential
information.
(e) The obligations under this provision shall survive and continue for one
year after termination of this Research Agreement, at which time
Princeton shall return any and all proprietary data or confidential
information to the Sponsor; provided, however, that Princeton may keep
one copy of any form of such proprietary data or confidential
information for archival purposes.
13. Indemnification
Sponsor agrees to indemnify and hold Princeton harmless from any loss,
claim, damage, or liability of any kind involving an employee of Sponsor
arising out of or in connection with this Agreement, except to the extent
that such loss, claim, damage, or liability arises in whole or in part from
the gross negligence or willful misconduct of Princeton.
14. Warranties
Princeton makes no warranties, express or implied, as to any matter
whatsoever, including, without limitation, the condition of the research or
any inventions(s) or product(s), whether
6
tangible or intangible, conceived, discovered, or developed under this
Agreement; or the ownership, merchantability, or fitness for a particular
purpose of the research or any such invention or product. Princeton shall
not be liable for any direct, consequential, or other damages suffered by
any licensee or any others resulting from the use of the research or any
such invention or product, except to the extent such damages result from
the sole negligence of Princeton.
15. Equipment
Title to any equipment purchased or manufactured in the performance of the
work funded under the Agreement shall vest in Princeton.
16. Assignment
Neither party shall assign this Agreement to another without the prior
written consent of the other party, which will not be unreasonably
withheld; provided, however, that Sponsor may assign this Agreement to a
successor in ownership of all or substantially all its business assets.
Sponsor agrees, however, that this agreement may not be assigned to
Transcell Technologies Inc. without the express written agreement of
Princeton. Such successor shall expressly assume in writing the obligation
to perform in accordance with the terms and conditions of this Agreement.
Any other purported assignment shall be void.
17. Independent Inquiry
Nothing in this Agreement shall be construed to limit the freedom of
researchers who are not participants in this Agreement from engaging in
similar research inquiries made independently under other grants, contracts
or agreements with parties other than Sponsor.
18. Governing Law
This Agreement shall be governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate
by proper persons thereunto duly authorized.
Interneuron Pharmaceuticals, Inc. The Trustees of Princeton University
By: /s/ Glenn L. Cooper By: /s/ Allen J. Sinisgalli
- ----------------------------------- -----------------------------------
Name: Glenn L. Cooper, M.D. Name: Allen J. Sinisgalli
Title: President and CEO Title: Associate Provost of
Research and Project Admin.
Date: May 1, 1997 Date: 5/6/97
Principal Investigator /s/ Daniel Kahne
---------------------------------------------------
Professor Daniel Kahne Date
7
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
Research Proposal - EXHIBIT A
TITLE: Construction of a [*] Library
INSTITUTION: Princeton University
Department of Chemistry
Princeton, New Jersey 08544
PRINCIPAL INVESTIGATOR:
/s/ Daniel Kahne Oct. 31, 1996
-----------------------------------------------
Daniel Kahne Date
Department of Chemistry
Princeton, New Jersey 08544
Phone: 609-258-6368
Fax: 609-258-2617
INSTITUTIONAL ENDORSEMENTS:
/s/ George McLendon Nov. 1996
-----------------------------------------------
George McLendon, Chair Date
Department of Chemistry
Princeton, New Jersey 08544
Phone: 609-258-3916
Fax: 609-258-6746
-----------------------------------------------
Allen J. Sinisgalli, Associate Provost Date
Office of Research and Project Administration
5 New South Building
Princeton, New Jersey 08544
Phone: 609-258-3090
Fax: 609-258-1159
TOTAL COST: $441,246
DURATION: July 1, 1996 to June 30, 1998
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
-------
[*]
-------
References
1. a) Cohen, M.L. Science 1992, 257, 1050; b) Neu, H.C. Science 1992,
257, 1064.
2. Walsh, C.T. Science 1993, 261, 308.
3. Nagarajan, R.; Schabel, A.A.; Occolowitz, J.L.; Counter, F.T.; Ott,
J.L.; Felty- Duckworth, A.M.J. Antibiotics 1989, 41, 63.
4. Yan, L.; Taylor, C.M.; Goodnow, Jr., R.; Kahne, D. J. Am. Chem. Soc.
1994, 116, 6953.
5. Doyle, R.J. and Ofek, I. (Eds.) Adhesion of Microbial Pathogens,
Methods in Enzymology, Vol 253, Academic Press; San Diego, 1995.
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
ATTACHMENT 1.46
SIDE AGREEMENT
REFERENCE IS MADE to (i) the License Agreement between Transcell
Technologies, Inc. ("Transcell") and the Trustees of Princeton University
("Princeton") effective as of October 14, 1993, as amended (the "Princeton
License Agreement"), (ii) the Research Agreement between Princeton and
Interneuron Pharmaceuticals, Inc. ("Interneuron") dated as of April 29, 1997
(the "Princeton Research Agreement") and (iii) the draft Research Collaboration
and License Agreement among Merck & Co., Inc. ("Merck"), Transcell and
Interneuron (the "Merck/Transcell Collaboration Agreement").
WHEREAS, a portion of the collaboration contemplated by the
Merck/Transcell Collaboration Agreement includes the construction by Dr. Daniel
Kahne of a [*] library in order to identify new antibacterial agents based upon
[*]; and
WHEREAS, pursuant to the Merck/Transcell Collaboration Agreement,
Transcell and Interneuron are granting to Merck exclusive licenses and
sub-licenses limited to the field of certain antibacterial agents with an option
to obtain exclusive licenses and sub-licenses limited to a specified expanded
field of antibacterial agents, such sub-licenses (the "Merck Rights") being
granted to Merck under Transcell's and Interneuron's exclusive rights pursuant
to the Princeton License Agreement and the Princeton Research Agreement and any
subsequent license agreement entered into between Princeton and Transcell or
between Princeton and Interneuron related to such agreements; and
WHEREAS, Merck, Transcell, Interneuron and Princeton (the "Parties")
desire to set forth the relative rights of the Parties related to certain
matters under the Princeton License Agreement, the Princeton Research Agreement
and the Merck/Transcell Collaboration Agreement. In view of the foregoing, the
Parties agree as follows:
1. Merck agrees that the following provisions of the Princeton License
Agreement shall apply to Merck as if it were the Licensee thereunder,
to the extent, and only to that extent, that such provisions relate to
the Merck Rights and to the activities of Merck pursuant to the
Merck/Transcell Collaboration Agreement: Section 2.4 (manufacture in
the U.S.), Section 10.2 (indemnification), Article 12 (non-use of
names) and Article 13 (export controls). All other rights and
obligations of the Licensee under the Princeton License Agreement
shall be rights and obligations of Transcell only, except as otherwise
provided in this Side Agreement. The obligations of Interneuron under
the Princeton Research Agreement and under any license agreement
entered into by Princeton and Interneuron pursuant to the Princeton
Research Agreement shall be the obligations of Interneuron only and
shall not be binding upon Merck, except as otherwise provided in this
Side Letter or agreed to in writing by Merck.
2. In connection with the research project contemplated by the Princeton
Research Agreement, Princeton agrees that all publications or
presentations (including any student thesis or dissertation) subject
to Section 8 of the Princeton Research Agreement and subject to the
Merck Rights shall, after Interneuron's receipt of same from
Princeton, be submitted by Interneuron to Merck for review prior to
submission to the publisher or prior to presentation. In addition to
any rights of Interneuron under the Princeton Research Agreement, upon
Merck's request, Interneuron may then request that Princeton delay
publication or presentation for a maximum of an additional 60 days to
protect the patentability of any inventions described therein. Such
delay shall not be imposed on the filing of any student thesis or
dissertation for the purposes of fulfilling academic requirements.
3. Notwithstanding the provisions of Article 6 of the Princeton License
Agreement and of Section 7(c) of the Princeton Research Agreement, the
Parties agree that Merck shall have the right to file, prosecute and
maintain patent applications and patents relating to research
information and inventions owned jointly by Merck and Princeton which
are subject to the Merck Rights. In addition, if Transcell or
Interneuron, as the case may be, elects not to file, prosecute or
maintain patent applications and patents covering Princeton-owned
inventions subject to the Princeton License Agreement or the Princeton
Research Agreement and subject to the Merck Rights, Merck shall have
the right to prosecute and maintain such patent applications and
patents, if rights thereunder are sublicensed to Merck under the
Merck/Transcell Collaboration Agreement. The rights granted by and
exercised under this paragraph shall have no effect on the rights of
ownership of any patent rights or inventions which shall be governed
by applicable patent laws and applicable provisions of the Princeton
License Agreement, the Princeton Research Agreement and the
Merck/Transcell Collaboration Agreement.
4. Notwithstanding the provisions of Article 9 of the Princeton License
Agreement, the Parties agree that, if Transcell or Interneuron, as the
case may be, elects not to initiate and prosecute a patent
infringement action or to defend against a declaratory judgment action
relating to patents arising out of the Princeton License Agreement or
the Princeton Research Agreement which are subject to the Merck
Rights, Merck shall have the right either to initiate and prosecute
such patent enforcement action or to control the defense of such
declaratory judgment action under the terms and conditions set forth
in the Merck/Transcell Collaboration Agreement, if rights under the
relevant patent are sublicensed to Merck under the Merck/Transcell
Collaboration Agreement. The rights granted by and exercised under
this paragraph shall have no effect on the rights of ownership of any
patent rights or inventions which shall be governed by applicable
patent laws and applicable provisions of the Princeton License
Agreement, the Princeton Research Agreement and the Merck/Transcell
Collaboration Agreement.
5. Notwithstanding Section 7.1 of the Princeton License Agreement, the
Parties agree that in the event that Transcell becomes bankrupt, or
shall file a petition in bankruptcy, or if the business of Transcell
shall be placed in the hands of a receiver, assignee or trustee for
the benefit of creditors, whether by the voluntary act of Transcell or
otherwise, (i) the Princeton License Agreement shall not terminate
with respect to the rights granted to Merck under the Merck/Transcell
Collaboration Agreement, (ii) Merck
2
shall retain and may fully exercise all of its rights and elections
under the Bankruptcy Code as sub-licensee of such rights and (iii) upon
Merck's request, Merck and Princeton shall negotiate in good faith an
agreement providing for the assumption by Merck of Transcell's rights
and obligations under the Princeton License Agreement with respect to
the rights granted to Merck under the Merck/Transcell Collaboration
Agreement.
6. The Parties agree that a copy of any notice of Transcell's failure to
pay or any other material breach or default by Transcell under
Sections 7.2 or 7.3 of the Princeton License Agreement shall be sent
to Merck as follows: Merck & Co., Inc., One Merck Drive, P.O. Box 100,
Whitehouse Station, NJ 08889-0100, Attention Office of Secretary,
Telecopier No.: (908) 735-1246, with a copy to Attention: Office of
Assistant General Counsel, Telecopier No.: (908) 735-1226. If
Transcell fails to cure such breach within the specified period, Merck
shall have the right, but not the obligation, to cure such non-
payment or other breach on Transcell's behalf within 30 days of notice
to Merck of such failure to cure. In such event, Princeton shall not
have the right to terminate the Princeton License Agreement pursuant
to Sections 7.2 or 7.3 of the Princeton License Agreement and Merck
may credit any amount so paid to Princeton or the direct and
reasonable costs of effecting such other cure on behalf of Transcell
against the amounts then due and owing from Merck to Transcell.
7. Princeton and Transcell agree that they will not amend the Princeton
License Agreement so as to make such agreement inconsistent with
Merck's rights under, or in violation of, this Side Agreement or the
Merck/Transcell Collaboration Agreement without Merck's written
consent.
8. Princeton and Interneuron agree that they will not amend the Princeton
Research Agreement so as to make such agreement inconsistent with, or
in violation of, Merck's rights under this Side Agreement or the
Merck/Transcell Collaboration Agreement without Merck's written
consent. Princeton and Interneuron further agree they will not enter
into any license agreement pursuant to the Princeton Research
Agreement upon terms which are inconsistent with, or in violation of,
Merck's rights under this Side Agreement or the Merck/Transcell
Collaboration Agreement without Merck's written consent.
9. Princeton hereby consents to (i) the sublicense by Transcell to Merck
pursuant to the Merck/Transcell Collaboration Agreement of certain of
Transcell's rights under the Princeton License Agreement and (ii) the
sublicense by Interneuron to Merck pursuant to the Merck/Transcell
Collaboration Agreement of certain of Interneuron's rights under the
Princeton Research Agreement and any license agreement entered into
pursuant to the Princeton Research Agreement.
10. This Agreement shall be effective as of June 30, 1997 and shall be
governed by the laws of the State of New Jersey without reference to
any rules of conflict of laws. This
3
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
MERCK & CO., INC. TRANSCELL TECHNOLOGIES, INC.
BY: /s/ Edward M. Scolnick BY: /s/ Vincent L. Fabiano
-------------------------------- ---------------------------------
NAME: Edward M. Scolnick NAME: Vincent L. Fabiano
TITLE: President, TITLE: Executive Vice President
Merck Research and Chief Operating Officer
Laboratories
TRUSTEES OF INTERNEURON
PRINCETON UNIVERSITY PHARMACEUTICALS, INC.
BY: /s/ Allen J. Sinisgalli BY: /s/ Glenn L. Cooper
-------------------------------- ---------------------------------
NAME: Allen J. Sinisgalli NAME: Glenn L. Cooper
TITLE: Associate Provost for TITLE: President and CEO
Research & Project Admin.
4
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
<TABLE>
<CAPTION>
Schedule 1.52
Transcell Patent Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Application Docket No. Serial No. Filing Date Status Patent No.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Application Regarding [*] Library 2644-007 Not Yet Filed In Preparation
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002 08/021,391 2/23/93 Issued 6/18/97 5,639,866
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AAR 327,496 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AAU 61382/94 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002ACA 2156717 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AEPC 94908048.5 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AIL 108,748 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AIN 119/MAS/94 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AJP 519067/94 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AKE 94/00128 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AMX 94-1390 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002APCT 94/01604 2/23/94 National Phase
Linkages Completed
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002APH 47814 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002APK 0077/94 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002ARU 95122803 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002ASD 94/150069 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002ASK 703535/95 2/23/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002ATW 83102930 4/02/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AVE 0295-94 3/4/94 Pending
- ------------------------------------------------------------------------------------------------------------------------------------
Solution and Solid Phase Formation of Glycosidic 2645-002AZA 94/1229 2/23/94 Issued 11/30/94 9401229
- ------------------------------------------------------------------------------------------------------------------------------------
Libraries Prepared by the Solid Phase Formation 2645-002C 08/780,914 1/9/97 Pending
of Glycosidic Linkages
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
ATTACHMENT 2.1.A
---------
[*]
---------
7
The information below marked by * and [ ] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
ATTACHMENT 2.1.B
---------
[*]
---------
ATTACHMENT 4.3
FORM OF PRESS RELEASE
FOR IMMEDIATE RELEASE
Contact at Interneuron, (617) 402-3410:
William B. Boni
VP, Corp. Communications
Contact at Transcell, (609) 655-6900
Vincent L. Fabiano
Executive VP and COO
TRANSCELL AND MERCK ENTER INTO
ANTI-BACTERIAL RESEARCH COLLABORATION
LEXINGTON, MA and PRINCETON, NJ, July , 1997 - Transcell Technologies, Inc., a
majority-owned subsidiary of Interneuron Pharmaceuticals, Inc. (NASDAQ: IPIC)
and Interneuron today announced that they have entered into a collaborative
research and licensing agreement with Merck & Co., Inc. (NYSE: MRK) to discover
and commercialize novel antibacterial agents.
The initial focus of this collaboration will be the discovery and biological
evaluation of analogues of anti-bacterial compounds selected from two distinct
structural classes and the license to Merck of any products arising out of the
two research programs. Transcell will utilize its combinatorial technologies to
prepare libraries of carbohydrate derivative compounds for biological evaluation
and further development. Additionally, Merck has an option to extend the field
of the collaboration and license to include all antibacterial pharmaceutical
products.
Under this agreement, Transcell receives from Merck an initial licensing payment
and research support over two years. In addition, Transcell will receive
additional payments based upon the achievement of defined milestones for each
program. While there is no assurance these milestones will be reached, these
additional payments, combined with the initial licensing payment and research
support, could total approximately $48,000,000 if products from both programs
were approved by the FDA. In addition, Transcell would receive royalty payments
on sales of any products that may be developed based on the research programs.
- MORE -
Page 1 of 2
Certain of the rights licensed to Merck are based on exclusive licenses or
rights held by Transcell and Interneuron from Princeton University, which will
be entitled to varying percentages of certain payments and royalties received
from Merck. Transcell's combinatorial carbohydrate technology is based upon the
research of its scientific founders, .Dr. Daniel Kahne and .Dr. Suzanne Walker
of Princeton University.
"Merck's recognition that Transcell's platform of synthetic chemistries and
combinatorial technologies can add significant value to its antibacterial drug
discovery programs is a very important step in our development of the technology
for drug discovery in several therapeutic areas," said Vincent L. Fabiano,
executive vice president and chief operating officer of Transcell. "We are
pleased to have Merck as our first drug discovery partner. Our partnership,
which initially will provide Merck access to libraries of new analogues of two
antibiotics, has the potential for expansion into the broad field of
antibacterial drug discovery."
Transcell Technologies, a majority-owned subsidiary of Interneuron
Pharmaceuticals, is exploiting the molecular diversity of carbohydrates to
discover novel small molecule pharmaceutical products.
Interneuron Pharmaceuticals is a diversified biopharmaceutical company engaged
in the development and commercialization of a portfolio of products and product
candidates primarily for neurological and behavioral disorders. Interneuron is
also developing products and technologies, generally outside the central nervous
system field, through three other subsidiaries: Intercardia, Inc. focused on
cardiovascular disease, Progenitor, Inc. focused on developmental genomics, and
InterNutria, Inc. focused on dietary supplement products.
Except for the descriptions of historical facts contained herein, this release
contains forward-looking statements that involve risks and uncertainties as
detailed from time to time in Interneuron's SEC filings under the Securities Act
of 1933 and the Securities Exchange Act of 1934 under "Risk Factors" that could
cause Interneuron's actual results to differ significantly from those discussed
in the forward-looking statements, including the early stage of development of
Transcell's technology, uncertainties related to preclinical development,
corporate collaborations, clinical trials, patent risks, government regulation,
and dependence on third parties for manufacturing and marketing.
###
Page 2 of 2
SCHEDULE 7.1
COUNTRIES WHERE INTERNEURON AND TRANSCELL
WILL FILE, PROSECUTE AND MAINTAIN PATENTS
Argentina
Australia
Canada
Austria
Belgium
Switzerland/Liechtenstein
Germany
Denmark
Spain
Finland
France
United Kingdom
Italy
Netherlands
Sweden
Israel
India
Japan
Kenya
Mexico
Philippines
Pakistan
Russian Federation
South Korea
Taiwan
United States
Venezuela
South Africa
Which List of Countries Can Be Amended From Time to Time
By Mutual Written Agreement of the Parties
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 61,062,000
<SECURITIES> 58,332,000
<RECEIVABLES> 3,159,000
<ALLOWANCES> 0
<INVENTORY> 4,149,000
<CURRENT-ASSETS> 135,048,000
<PP&E> 8,534,000
<DEPRECIATION> (2,587,000)
<TOTAL-ASSETS> 173,591,000
<CURRENT-LIABILITIES> 29,039,000
<BONDS> 1,758,000
0
3,500,000
<COMMON> 41,000
<OTHER-SE> 120,861,000<F1>
<TOTAL-LIABILITY-AND-EQUITY> 173,591,000
<SALES> 18,600,000
<TOTAL-REVENUES> 54,861,000
<CGS> 15,991,000
<TOTAL-COSTS> 80,294,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,000
<INCOME-PRETAX> (17,955,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,955,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,955,000)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> 0
<FN>
<F1>
Additional paid - in capital - $248,794,000 Accumulated Deficit - $(124,733,000)
FAS 115 Securities Adjustment - $16,000 Treasury Stock - $(3,216,000)
</FN>
</TABLE>
