<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
[ ] 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 02421
Lexington, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (781) 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 class of
common stock, as of the latest practicable date.
Class Outstanding at August 14, 1998:
Common Stock $.001 par value 41,809,719 shares
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INTERNEURON PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and September 30, 1997.............................................. 3
Consolidated Statements of Operations for the Three and Nine Months
ended June 30, 1998 and 1997........................................ 4
Consolidated Statements of Cash Flows for the Nine Months
ended June 30, 1998 and 1997........................................ 5
Notes to Unaudited Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 23
Item 5. Other Information............................................ 24
Item 6. Exhibits and Reports on Form 8-K............................. 24
SIGNATURES............................................................ 25
<PAGE> 3
Item 1. Financial Statements
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
June 30, September 30,
-------- -------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $29,062 $ 55,820
Marketable securities 46,731 64,549
Accounts receivable 1,976 1,297
Inventories 831 735
Prepaids and other current assets 1,702 2,137
----------- ------------
Total current assets 80,302 124,538
Marketable securities 4,733 19,683
Investment in unconsolidated subsidiary 1,167 4,040
Property and equipment, net 4,150 4,669
----------- ------------
$90,352 $152,930
=========== ============
LIABILITIES
Current liabilities:
Accounts payable $1,667 $1,615
Accrued expenses 26,866 39,153
Deferred revenue 106 750
Current portion of notes payable and capital lease obligations 716 710
----------- ------------
Total current liabilities 29,355 42,228
Long-term portion of notes payable and capital lease obligations 1,561 1,734
Minority interest 7,997 12,959
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock; $.001 par value, 5,000,000 shares authorized;
Series B, 239,425 shares issued and outstanding at June 30, 1998
and September 30, 1997 (liquidation preference at June 30, 1998 $3,019) 3,000 3,000
Series C, 5,000 shares issued and outstanding at June 30, 1998
and September 30, 1997 (liquidation preference at June 30, 1998 $500) 500 500
Common stock; $.001 par value, 80,000,000 shares authorized; 41,809,719 shares
issued and outstanding at June 30, 1998 and
41,266,293 shares issued at September 30, 1997 42 41
Additional paid-in capital 267,177 255,693
Accumulated deficit (219,290) (162,034)
Unrealized net gain on marketable securities 10 85
Treasury stock; at cost, no shares at June 30, 1998 and 70,483 shares
at September 30, 1997 - (1,276)
----------- ------------
Total stockholders' equity 51,439 96,009
----------- ------------
$90,352 $152,930
=========== ============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
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<PAGE> 4
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1998 and 1997
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product revenue $ 996 $ 15,012 $ 2,666 $ 46,200
Contract and license fees 697 2,383 2,024 8,661
--------- --------- --------- ---------
Total revenues 1,693 17,395 4,690 54,861
Costs and expenses:
Cost of product revenue 357 9,144 1,026 31,047
Research and development 9,043 10,500 29,399 27,984
Selling, general and administrative 8,932 7,372 35,794 18,716
Purchase of in-process research and development - 286 500 2,547
--------- --------- --------- ---------
Total costs and expenses 18,332 27,302 66,719 80,294
--------- --------- --------- ---------
Net loss from operations (16,639) (9,907) (62,029) (25,433)
Investment income, net 1,209 2,191 4,445 6,788
Equity in net loss of unconsolidated subsidiary (1,002) -- (2,873) --
Minority interest 1,677 542 3,201 690
--------- --------- --------- ---------
Net loss $ (14,755) $ (7,174) $ (57,256) $ (17,955)
========= ========= ========= =========
Net loss per common share - basic $ (0.35) $ (0.17) $ (1.38) $ (0.44)
========= ========= ========= =========
Net loss per common share - diluted $ (0.35) $ (0.17) $ (1.38) $ (0.44)
========= ========= ========= =========
Weighted average common shares outstanding 41,613 41,048 41,353 41,055
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
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<PAGE> 5
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (57,256) $ (17,955)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation and amortization 1,973 1,025
Loss on disposal of fixed assets - 7
Minority interest in net income/loss of consolidated subsidiaries (3,201) (690)
Purchase of in-process research and development - 2,147
Noncash compensation 10,417 262
Equity in net loss of unconsolidated subsidiary 2,873 --
Change in assets and liabilities:
Accounts receivable (680) 1,179
Prepaid and other assets 436 (7,134)
Inventories (96) 4,227
Accounts payable 51 652
Deferred revenue (644) 214
Accrued expenses and other liabilities (12,104) 6,273
--------- ---------
Net cash (used) by operating activities (58,231) (9,793)
--------- ---------
Cash flows from investing activities:
Capital expenditures (915) (3,258)
Purchase of marketable securities (26,855) (79,381)
Proceeds from maturities and sales of marketable securities 59,548 12,390
Purchases of Intercardia stock - (2,837)
--------- ---------
Net cash provided (used) by investing activities 31,778 (73,086)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common and treasury stock 223 1,317
Net proceeds from issuance of stock by subsidiaries 177 276
Purchases of treasury stock - (3,978)
Proceeds from sale/leaseback transactions - 1,050
Principal payments of capital lease obligations (663) (625)
Principal payments of notes payable (42) --
--------- ---------
Net cash (used) by financing activities (305) (1,960)
--------- ---------
Net change in cash and cash equivalents (26,758) (84,839)
Cash and cash equivalents at beginning of period 55,820 145,901
--------- ---------
Cash and cash equivalents at end of period $ 29,062 $ 61,062
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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<PAGE> 6
INTERNEURON PHARMACEUTICALS, INC. AND SUBSIDIARIES
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, 1997.
The consolidated financial statements include the accounts of Interneuron
Pharmaceuticals, Inc. ("Interneuron" or the "Company") and its majority-owned
subsidiaries, Intercardia, Inc. ("Intercardia") and InterNutria, Inc.
("InterNutria") and, for the periods ended June 30, 1997, Progenitor, Inc.
("Progenitor") and through May 8, 1998, Transcell Technologies, Inc.
("Transcell") (the "Subsidiaries"). Progenitor, which as of August 1997 is less
than majority but greater than 20% owned, is accounted for using the equity
method of accounting for all periods subsequent to August 1997. On May 8, 1998,
the merger of Transcell into Intercardia was completed (see Note D). All
significant intercompany activity has been eliminated.
B. Significant Accounting Policies
SFAS 128:
In Fiscal 1998, the Company adopted Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
All earnings per share amounts for all periods have been presented to conform to
SFAS No. 128 requirements. There was no effect on the earnings per share
disclosures as a result of adoption of SFAS No. 128 due to the antidilutive
effect of the Company's outstanding options, warrants and convertible
securities.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted:
Net loss $(14,755,000) $(7,174,000) $(57,256,000) $(17,955,000)
============ =========== ============ =============
Denominator for basic and diluted:
weighted average shares outstanding 41,613,000 41,048,000 41,353,000 41,055,000
============ =========== ============ =============
Net loss per common share - basic $ (0.35) $(0.17) $(1.38) $ (0.44)
============ =========== ============ =============
Net loss per common share - diluted $ (0.35) $ (0.17) $(1.38) $ (0.44)
============ =========== ============ =============
</TABLE>
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<PAGE> 7
During the three month period ended June 30, 1998, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 3,464,776 shares of Common Stock at prices ranging from $7.00 to
$32.00 with expiration dates ranging up to March 3, 2008; (ii) warrants to
purchase 727,500 shares of Common Stock with exercise prices ranging from $7.88
to $23.25 and with expiration dates ranging up to July 17, 2006; and (iii) call
options sold by the Company for 2,000,000 shares of Common Stock with an
exercise price of $36.00 and expiration dates ranging up to December 31, 1999.
Additionally, during the three month period ended June 30, 1998, securities not
included in the computation of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 3,515,400 shares of Common Stock at prices ranging from
$0.83 to $6.50 with expiration dates ranging up to May 5, 2008; (ii) warrants to
purchase 95,000 shares of Common Stock with exercise prices ranging from $2.75
to $5.13 and with expiration dates ranging up to February 3, 2005; (iii) Series
B and C preferred stock convertible into 622,222 shares of Common Stock; and
(iv) unvested Restricted Stock Awards to acquire 805,146 shares of Common Stock
granted pursuant to the Company's 1997 Equity Incentive Plan.
During the three month period ended June 30, 1997, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 1,882,600 shares of Common Stock at prices ranging from $18.63 to
$32.00 with expiration dates ranging up to June 30, 2007; (ii) warrants to
purchase 105,000 shares of Common Stock with exercise prices ranging from $18.25
to $23.25 and with expiration dates ranging up to July 17, 2006; and (iii) call
options sold by the Company for 2,000,000 shares of Common Stock with an
exercise price of $40.30 and expiration dates ranging up to May 24, 1999.
Additionally, during the three month period ended June 30, 1997, securities not
included in the computation of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 3,282,674 shares of Common Stock at prices ranging from
$0.83 to $16.25 with expiration dates ranging up to May 19, 2007; (ii) warrants
to purchase 776,157 shares of Common Stock with exercise prices ranging from
$2.75 to $14.00 and with expiration dates ranging up to February 3, 2005; and
(iii) Series B and C preferred stock convertible into 622,222 shares of Common
Stock.
During the nine month period ended June 30, 1998, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 2,027,603 shares of Common Stock at prices ranging from $9.50 to
$32.00 with expiration dates ranging up to January 21, 2008; (ii) warrants to
purchase 667,500 shares of Common Stock with exercise prices ranging from $10.00
to $23.25 and with expiration dates ranging up to July 17, 2006; and (iii) call
options sold by the Company for 2,000,000 shares of Common Stock with an
exercise price of $36.00 and expiration dates ranging up to December 31, 1999.
Additionally, during the nine month period ended June 30, 1998, securities not
included in the computation of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 4,952,573 shares of Common Stock at prices ranging from
$0.83 to $8.75 with expiration dates ranging up to May 5, 2008; (ii) warrants to
purchase 155,000 shares of Common Stock with exercise prices ranging from $2.75
to $9.00 and with expiration dates ranging up to February 3, 2005; (iii) Series
B and C preferred stock convertible into 622,222 shares of Common Stock; and
(iv) unvested Restricted Stock Awards of 805,146 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.
During the nine month period ended June 30, 1997, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 581,800 shares of Common Stock at prices ranging from $23.25 to
$32.00 with expiration dates ranging up to March 7, 2007; (ii) warrants to
purchase 80,000 shares of
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<PAGE> 8
Common Stock with an exercise price of $23.25 and with expiration dates ranging
up to July 17, 2006; and (iii) call options sold by the Company for 2,000,000
shares of Common Stock with an exercise price of $40.30 and expiration dates
ranging up to May 24, 1999. Additionally, during the nine month period ended
June 30, 1997, securities not included in the computation of diluted earnings
per share, because they would have an antidilutive effect due to the net loss
for the period, were as follows: (i) options to purchase 4,583,474 shares of
Common Stock at prices ranging from $0.83 to $20.25 with expiration dates
ranging up to June 30, 2007; (ii) warrants to purchase 801,157 shares of Common
Stock with exercise prices ranging from $2.75 to $18.25 and with expiration
dates ranging up to February 3, 2005; and (iii) Series B and C preferred stock
convertible into 622,222 shares of Common Stock.
Certain of the securities listed above contain anti-dilution provisions.
Redux(TM) Revenue:
The Company's revenue recognition policy is to record and recognize as
product revenue royalties from licensed products when the amount of and basis
for such royalties are reported to the Company in accurate and appropriate form
and in accordance with the related license agreements. Due to the market
withdrawal of Redux in September 1997 and related events, the Company did not
receive any royalties relating to the sales of Redux for any period commencing
July 1, 1997 and the Company did not record product revenue relating to Redux
thereafter.
Recent Accounting Pronouncements:
The Company will adopt SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"), in the fiscal year ending September 30, 1999. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
Management has not determined the effect of adopting SFAS No. 130.
The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), in the fiscal year ending
September 30, 1999. SFAS No. 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information to
be disclosed. Management has not determined the effect of adopting SFAS No. 131.
The Company will adopt SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), by October 1, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS 133 requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. Management has not determined the effect of adopting SFAS 133.
C. Inventories
Inventories consisted of the following:
June 30, September 30,
1998 1997
---- ----
Raw materials $222,000 $221,000
Finished goods 609,000 514,000
-------- --------
$831,000 $735,000
======== ========
At June 30, 1998 and September 30, 1997, inventories consisted primarily of
PMS Escape(TM). At June 30, 1998 and September 30, 1997, the Company had fully
reserved all Redux-related inventories in connection with the market withdrawal
of Redux.
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<PAGE> 9
D. Subsidiaries
In January 1998, Interneuron sold, subject to repurchase rights expiring in
April 1999, an aggregate of 10% of its InterNutria common stock to four
executive officers of Interneuron for the par value of the InterNutria shares
($.001 per share) which approximated fair market value of these shares at the
time of the transaction.
On May 8, 1998, the merger of Transcell with and into Intercardia and the
acquisition by Intercardia of certain related technology rights owned by
Interneuron was completed and, simultaneously, Interneuron contributed to
Transcell's capital all of Transcell's indebtedness to Interneuron (the
"Transcell Acquisition"). Consideration given by Intercardia consisted of (i)
Intercardia common stock payable to the Transcell stockholders, including
Interneuron, in three installments with an aggregate market value at closing of
approximately $14,200,000, of which $3,000,000 was payable at closing as an
initial payment to Interneuron for certain of its technology rights and
continued guarantees of certain Transcell leases (the "Technology/Guarantee
Payment"), and (ii) the issuance of options and warrants to purchase
approximately 260,000 shares of Intercardia common stock to Transcell employees
and consultants in exchange for their options and warrants to purchase Transcell
capital stock. Accordingly, in connection with the first installment of the
merger consideration due at the closing of the merger, Intercardia issued an
aggregate of approximately 320,000 shares of common stock, of which
approximately 191,000 shares were issued to Interneuron. In addition,
Intercardia issued approximately 175,000 shares to Interneuron for the
Technology/Guarantee Payment. Intercardia's acquisition of the minority
shareholders' interest in Transcell resulted in Intercardia recording a charge
to operations for the three and nine month periods ended June 30, 1998 for the
purchase of in-process research and development of approximately $5,300,000.
This charge is eliminated in consolidation and is not reflected in the Company's
results of operations because the Company did not acquire any incremental
interest in Trancell's net assets as a result of the transaction. In connection
with this transaction, the Company also recorded a credit to additional paid-in
capital of approximately $2,200,000 to reflect adjustments to minority interest
resulting from the Transcell Acquisition and the book value of the Intercardia
shares received by the Company for the Technology/Guarantee Payment.
Interneuron owned approximately 61% and 62% of the outstanding capital stock of
Intercardia before and immediately after the closing of the Transcell
Acquisition, respectively. As a result of the Transcell Acquisition, put
protection rights that could have caused the Company to issue up to 232,000
additional shares (assuming Interneuron's Common Stock was $2.00 per share or
less) of Interneuron Common Stock expired.
E. Commitments and Contingencies
In connection with the September 15, 1997 market withdrawal of Redux,
Interneuron has been named, together with other pharmaceutical companies,
including American Home Products Corp. ("AHP"), as a defendant in approximately
580 legal actions, many of which purport to be class actions, in federal and
state courts involving the use of Redux and other weight loss drugs. On December
10, 1997, the federal Judicial Panel on Multidistrict Litigation issued an Order
allowing for the transfer or potential transfer of the federal actions to the
Eastern District of Pennsylvania for coordinated or consolidated pretrial
proceedings. The Company and certain directors and/or officers of the Company
have also been named as a defendant in several lawsuits filed by alleged
purchasers of the Company's Common Stock, purporting to be class actions,
claiming violation of the federal securities laws. It is not possible for the
Company to determine its costs related to its defense in these or potential
future legal actions, monetary or other damages which may result from such legal
actions, or the effect on the future operations of the Company. The withdrawal
of Redux and related events may materially adversely affect the Company and its
financial condition.
F. Equity
As an integral component of a management and employee retention program
designed to motivate, retain and provide incentive to the Company's management
and other employees, the Company's Board of Directors adopted the 1997 Equity
Incentive Plan during the three month period ended December 31,
-9-
<PAGE> 10
1997 (the "1997 Plan"). The 1997 Plan provides for the grant of restricted stock
awards which entitle the plan participants to receive up to an aggregate of
1,750,000 shares of the Company's Common Stock upon satisfaction of specified
vesting periods. As of June 30, 1998, restricted stock awards to acquire an
aggregate of 1,306,334 shares had been granted, net of forfeitures, to all
employees of the Company in consideration of services rendered by the employee
to the Company and payment of the par value of the shares. The number of shares
subject to each employee's award were based primarily on the employee's base
compensation. The shares subject to the awards have been registered under the
Securities Act of 1933 on a registration statement on Form S-8 and, accordingly,
may be sold by the plan participants immediately upon vesting of the shares. In
accordance with the provisions of the 1997 Plan for automatic extension of
vesting during Black-Out Periods, as defined in the 1997 Plan, vesting of the
shares commenced in April 1998 and through June 30, 1998, 501,188 shares have
vested and been issued by the Company under the 1997 Plan. Vesting continues
through May 2000 on the remaining 805,146 shares subject to awards at June 30,
1998.
The Company has incurred and will continue to incur compensation expense
from the date of grant of awards through the vesting period of shares subject to
restricted stock awards. The charges relating to the restricted stock awards to
acquire 1,306,334 shares are expected to aggregate approximately $15,500,000,
the fair market value of the shares at the time of grant, of which approximately
$11,000,000 is expected to be incurred in the fiscal year ending September 30,
1998 and the remainder through the final vesting periods in fiscal 2000.
Approximately $1,600,000 and $9,400,000 of such expense was recognized during
the three and nine month periods ended June 30, 1998, respectively, and
allocated to research and development and selling, general and administrative
expense.
In fiscal 1997, the Company purchased in a private transaction capped call
options in exchange for the issuance by the Company of call options and the
receipt by the Company of $500,000. Call options on an aggregate of 620,000
shares of Common Stock, maturing on December 31, 1997 and June 9, 1998, expired
without exercise.
In January 1998, the Company's Board of Directors adopted, and in March
1998 the Company's stockholders approved, the 1998 Employee Stock Option Plan
(the "1998 Plan"). Under the 1998 Plan, options to purchase up to 1,500,000
shares of the Company's Common Stock may be granted to employees, directors and
consultants except persons who were executive officers or directors of the
Company as of the date of adoption of the 1998 Plan. The duration of the 1998
Plan is ten years and the term of options granted thereunder cannot exceed seven
years.
In May 1998, the Company's Board of Directors authorized the Company to
offer (the "Exchange Offer") holders of outstanding options issued primarily
pursuant to Interneuron's stock option plans, and certain warrants, to purchase
the Company's Common Stock, which have exercise prices of $10.00 per share or
greater, the right to exchange such options and warrants for new options and
warrants (the "Exchanged Options and Warrants") to purchase the same number of
shares represented by the original options and warrants at an exercise price of
$6.1875 per share, the fair market value of the Company's Common Stock
determined as of May 5, 1998. The Exchanged Options and Warrants generally vest
in six equal installments commencing six months from the date the Board
authorized the Exchange Offer. The term of each Exchanged Option or Warrant is
the same as the remaining term of the respective original option or warrant.
Approximately 4,200,000 options and warrants have been or are expected to be
exchanged pursuant to the Exchange Offer.
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<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Conditions 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 withdrawal of
Redux and Redux-related litigation; uncertainties relating to CerAxon(TM),
pagoclone, and other products under development; uncertainties relating to
regulatory approvals and clinical trials; continued losses from operations, need
for additional funds and risks relating to funding requirements; product
liability; manufacturing and supply and marketing risks; risks related to
contractual obligations; risks relating to product launches and managing growth;
limited revenues and revenue fluctuations; government regulation; the early
stage of products under development; patent risks; dependence on third parties;
dependence on key personnel; competition; and uncertainties regarding
pharmaceutical prices and reimbursements.
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, 1997. Unless the context indicates otherwise, all references
to the Company include Interneuron and its Subsidiaries.
General
CerAxon
In April 1998, the Company announced that based upon a preliminary
analysis, a 100-patient Phase 3 trial with CerAxon (cytidine-5'-diphosphate
choline, sodium or citicoline), the Company's product under development to treat
ischemic stroke, failed to meet its primary and the principal secondary
endpoints and the Company withdrew the New Drug Application ("NDA") submitted to
the U.S. Food and Drug Administration ("FDA") for CerAxon in December 1997. With
respect to the primary endpoint, no statistically significant difference was
detected in the reduction of infarct size among patients with ischemic stroke
who received 500 milligrams per day of CerAxon as compared with patients who
received placebo. With respect to the principal secondary endpoint, the trial
did not show an improvement in neurological function among drug-treated patients
as compared with patients who received placebo. A placebo response rate
unexpectedly higher than that previously reported in the literature may have
accounted for the inability to detect a difference in infarct size reduction and
neurological function among drug-treated patients, as compared with patients who
received placebo.
The CerAxon NDA had been accepted for filing and assigned priority and
fast-track review status. A priority review status reflects the FDA's commitment
to review the NDA within six months following submission and a fast-track
designation indicates that the FDA has determined a drug is intended to treat a
serious or life-threatening condition that currently has an unmet medical need
and that the FDA can take actions to expedite the development and review of the
drug. Data in the NDA included the results of two Phase 3 clinical trials
conducted by Interneuron in the U.S., a Japanese Phase 3 clinical trial
conducted by Takeda Chemical Industries, Ltd. and supportive clinical and
post-marketing data from more than 20 countries where citicoline has already
been approved. As a result of the preliminary analysis and considering statutory
requirements that would have mandated an FDA action by June 1998, the Company
withdrew its NDA for CerAxon in April 1998.
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The Company is proceeding with the development of CerAxon and commenced in
June 1998 a Phase 3 clinical trial which will compare the neurological function
at 12 weeks following ischemic stroke of CerAxon-treated patients with that of
patients who received placebo. Patients will be treated with 2000 milligrams of
CerAxon daily for six weeks with a six week follow-up period. It is anticipated
that this clinical trial will be completed in late 1999. The 2000 milligram dose
level is higher than the dose used in the Company's two most recent CerAxon
clinical trials but was used in the Company's first Phase 3 trial in which
patients treated with this dose achieved the primary endpoint of improved
neurological function. Depending upon the evaluation of the results from this
trial, the Company will determine whether to resubmit the NDA for CerAxon to the
FDA. Even if the Company does re-submit the NDA, as to which there is no
assurance, the Company is unable to predict whether or when the FDA would grant
authorization to market CerAxon in the U.S. Upon resubmission of the NDA, a new
review period would commence.
As of June 30, 1998, the remaining expenditures of all currently planned
clinical trials and related studies and NDA preparation for CerAxon are
estimated, based upon current trial protocols, to aggregate approximately
$33,000,000. The Company is unable to predict the costs of any related or
additional clinical studies which will depend upon the results of the on-going
trial and upon FDA requirements.
The Company is dependent upon third party suppliers of citicoline bulk
compound, finished product and packaging for manufacturing in accordance with
the Company's requirements and current U.S. Good Manufacturing Practices
("cGMP") regulations as well as on third party arrangements for the distribution
of CerAxon. Supplies of citicoline finished product used for clinical purposes
have been produced on a contract basis by a third party manufacturer. The
Company does not have arrangements with a manufacturer for supply of commercial
quantities of finished product and there can be no assurance such agreement can
be obtained on terms favorable to the Company or at all, which could adversely
affect the Company's ability to commercialize CerAxon on a timely and
cost-effective basis. The Company is subject to an agreement with Ferrer
Internacional S.A. ("Ferrer"), a Spanish pharmaceutical company which licensed
certain patent rights relating to citicoline to the Company, requiring the
Company to purchase citicoline bulk compound 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 capabilities of
bulk compound and finished product required to obtain regulatory approval of
CerAxon, or that any facilities used to produce citicoline will have complied,
or will be able to maintain compliance, with cGMP, or that such suppliers will
be able to meet manufacturing requirements on a timely basis or at all.
In June 1998, the Company amended its agreement with Ferrer to extend to
January 31, 2002 the date upon which Ferrer may terminate the citicoline license
agreement if FDA approval of citicoline is not obtained. The agreement provides
for such date to be extended for up to two years if the Company provides
information to Ferrer which tends to establish that the Company has carried out
the steps for obtaining such approval and if such approval has not been obtained
for reasons beyond the Company's control.
In June 1998, the Company also entered into an agreement with Ferrer
whereby the Company licensed to Ferrer, worldwide except for the U.S. and
Canada, the use of Interneuron's patent rights relating to the use of citicoline
in the protection of brain tissue from cerebral infarction following ischemic
stroke. In exchange for the license to Ferrer, Interneuron will be entitled to
royalties from Ferrer on certain exports to, and sales of, the solid form of
citicoline in certain countries upon its approval in each relevant country.
As a result of the Company's withdrawal of its NDA and the resulting
additional time and expense for product development, the Company is reexamining
a variety of CerAxon commercialization
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strategies. Significant additional funds will be required for development,
manufacturing, distribution, marketing and selling efforts, the amount of which
will depend upon whether the Company markets CerAxon itself or enters into a
corporate collaboration.
Redux
Withdrawal
On September 15, 1997, the Company announced the withdrawal of the weight
loss medication Redux. On September 12, 1997, the FDA provided the Company and
Wyeth-Ayerst Laboratories, a division of American Home Products Corp. ("AHP")
and manufacturers and marketers of phentermine with new, preliminary and summary
information, subsequently updated and revised by the FDA, concerning potential
abnormal echocardiogram findings in patients using these drugs. These patients
had been treated with Pondimin or Redux for up to 24 months, most often in
combination with phentermine. Redux was launched in June 1996.
These observations presented by the FDA reflected a preliminary analysis of
pooled information rather than results of a formal clinical investigation, and
are difficult to evaluate because of the absence of matched controls and
pretreatment baseline data for these patients. Nevertheless, the Company
believes it was prudent, in light of this information, to have withdrawn Redux
from the market.
As reported in the original preliminary information provided by the FDA,
abnormal echocardiogram findings were reported in 92 of 291 subjects evaluated.
As originally reported, 271 of the 291 patients had taken fenfluramine (also
called Pondimin) in combination with phentermine (commonly referred to as the
"fen/phen" combination), 11 had taken Redux alone and nine had taken a
combination of Redux and phentermine. As originally reported, of the 11 who had
taken Redux alone, two had abnormal echocardiograms and, of the nine who had
taken a combination of Redux and phentermine, four had abnormal echocardiograms.
The FDA has continued to evaluate the data from the original 291 cases. In
a subsequent update, the FDA has reported to the Company that, revising the
originally reported data, of the 291 cases, 15 patients had taken Redux alone
and 21 had taken a combination of Redux and phentermine. Of the 15 who had taken
Redux alone, two patients had abnormal echocardiograms and of the 21 who had
taken a combination of Redux and phentermine, 13 patients had abnormal
echocardiograms. The FDA-approved prescribing information (the label) for Redux
recommended against using Redux in combination with other appetite suppressants.
The Company believes, based on industry data, that over 90% of prescriptions
written for Redux were for Redux alone (without a combination with another
appetite suppressant).
Additional adverse event reports of abnormal echocardiogram findings in
patients that have used Redux alone or in combination with other weight loss
agents continue to be received by Interneuron, Wyeth- Ayerst, and the FDA.
On November 13, 1997, the U.S. Department of Health and Human Services
("HHS") issued preliminary recommendations for the medical management of people
who took Pondimin or Redux. HHS recommended, until more complete information is
available, that patients who took either drug should see their physicians to
determine whether there are signs or symptoms of heart or lung disease and that
if a person has signs or symptoms of heart or lung disease, such as a new heart
murmur or shortness of breath, an echocardiogram should be performed upon that
person. HHS also recommended that physicians strongly consider performing an
echocardiogram before a patient who has taken either drug has any invasive
procedure for which antibiotic prophylactic treatment is recommended to prevent
the development of bacterial endocarditis.
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Subsequent Studies
Additional echocardiogram studies are being conducted to compare patients
who had taken either Redux or the "fen/phen" combination with a matched group of
obese patients who did not receive any anti-obesity drugs. These studies are
being conducted and will be analyzed by independent panels of cardiologists to
compare the incidence of significant heart valve abnormalities in treated
compared to non-treated groups. Patients are selected and assigned to these
groups randomly. Readings of patient echocardiograms are made on a blinded basis
by cardiologists who do not know from which group individual echocardiograms
were taken.
Findings from one such placebo-controlled, blinded study were presented at
the 47th Annual Scientific Session of the American College of Cardiology in
March 1998. The findings involved three groups totaling 1,072 patients who
received drug or placebo for up to four months: one group received the
twice-daily formulation of Redux which was marketed until its withdrawal, one
group received a sustained-release formulation of Redux which was previously
under development and never marketed, and a third group received placebo. The
study was conducted independently at Georgetown University Medical Center.
Financial support for the study was provided by AHP. Echocardiogram readings
were made by one core laboratory using consistent definitions of cardiac valve
abnormalities. Investigators reported no statistically significant difference
between the prevalence of cardiac valve abnormalities, as defined by the FDA,
among patients who took Redux and placebo-treated patients. It was also reported
that the prevalence of such abnormalities among Redux patients was significantly
less than previously reported estimates. Treated patients took Redux alone for
2-3 months, which the Company believes reflects the duration of treatment for an
estimated 75-80% of patients who took Redux while it was marketed, based on
market research.
In addition, Interneuron has initiated a separate study which will also be
analyzed by an independent blinded panel of cardiologists, comparing
echocardiograms of patients who took Redux alone for at least three months to
echocardiograms of a control group of patients who did not take any anti-obesity
medication to measure the prevalence and severity of abnormal echocardiogram
observations among the two sets of patients. Approximately 400 patients are
expected to be included in the Company-supported study, the remaining
expenditures for which are estimated to be up to approximately $1,000,000.
Results of this study are anticipated to become available in 1998. A number of
other clinical studies relating to the prevalence of abnormal echocardiogram
findings in patients who took Redux and other anti-obesity agents, including the
phen/fen combination, have been and may be conducted by Wyeth-Ayerst and/or
others.
Legal Actions
Interneuron has been named, together with other pharmaceutical companies,
including AHP, as a defendant in approximately 580 legal actions, many of which
purport to be class actions, in federal and state courts involving the use of
Redux and other weight loss drugs. On December 10, 1997, the federal Judicial
Panel on Multidistrict Litigation issued an Order allowing for the transfer or
potential transfer of the federal actions to the Eastern District of
Pennsylvania for coordinated or consolidated pretrial proceedings. The Company
and certain directors and/or officers of the Company have also been named as
defendants in several lawsuits filed by alleged purchasers of the Company's
common stock, purporting to be class actions, claiming violation of the federal
securities laws. See "Legal Proceedings."
Under certain circumstances, the Company may be required to indemnify Les
Laboratoires Servier ("Servier"), Boehringer Ingelheim Pharmaceuticals, Inc.
("Boehringer") (the contract manufacturer of Redux capsules) and AHP, and the
Company may be entitled to indemnification by AHP and Boehringer against certain
claims, damages or liabilities incurred in connection with Redux. The cross
indemnification
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<PAGE> 15
between the Company and AHP generally relates to the activities and
responsibilities of each company.
Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend these and similar actions
vigorously, the Company may be required to devote significant management time
and resources to these legal actions and, in the event of successful uninsured
or insufficiently insured claims, or in the event a successful indemnification
claim was made against the Company, the Company's business, financial condition
and results of operations could be materially adversely affected. In addition,
the uncertainties and costs associated with these legal actions have had, and
may continue to have, an adverse effect on the market price of the Company's
Common Stock and on the Company's ability to obtain additional financing to
satisfy cash requirements, to retain and attract qualified personnel, to
commercialize products on a timely and adequate basis, to acquire or obtain
rights to additional products, or to obtain product liability insurance for
other products at costs acceptable to the Company, or at all, any or all of
which may materially adversely affect the Company's business and financial
condition.
Through September 1997, a significant portion of Interneuron's revenues had
been derived from Redux sales. Due to the market withdrawal of Redux in
September 1997 and related events, the Company did not record product revenue
relating to Redux in any fiscal 1998 periods. The Company does not expect to
realize any future revenues related to Redux. See Note B of Notes to Unaudited
Consolidated Financial Statements.
Pagoclone
The Company is incurring substantial costs to develop pagoclone for the
treatment of panic disorders and anxiety. The results from a Phase 2/3 trial
which commenced in November 1996 are expected shortly. 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. After completion of this Phase 2/3 trial, the Company expects to
commence additional pivotal trials which will be necessary to be included in an
NDA submission for pagoclone. The Company currently estimates the total costs of
these and other clinical studies related to pagoclone, license fees to
Rhone-Poulenc Rorer Pharmaceuticals, Inc. ("RPR"), and NDA preparation for
pagoclone to be approximately $49,000,000, which if all of such activities are
undertaken, would 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 and there can be assurance,
assuming such trials are conducted, that any such clinical trials will be
successful or result in FDA approval of the product. The Company expects to
explore various funding and commercialization strategies for pagoclone which may
include corporate partnering arrangements. In the event the Company markets
pagoclone directly, significant additional funds would be required for
manufacturing, distribution and selling efforts. In the event pagoclone is
successfully developed and receives FDA authorization for marketing, RPR would
be entitled to royalties based on net sales.
Liquidity and Capital Resources
Cash, Cash Equivalents and Marketable Securities
At June 30, 1998, the Company had consolidated cash, cash equivalents and
marketable securities aggregating $80,526,000 (of which approximately
$22,441,000 was held by Intercardia and is not available to Interneuron)
compared to $140,052,000 at September 30, 1997. This decrease is primarily due
to approximately $58,000,000 used to fund operations, including $10,000,000 paid
by CPEC, Inc. ("CPEC"), a majority-owned subsidiary of Intercardia, to Astra
Merck, Inc. ("Astra Merck") (all of which was accrued at September 30, 1997). A
portion of this payment to Astra Merck was funded by Interneuron, which owns
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<PAGE> 16
directly approximately 20% of CPEC.
Product Development
The Company expects to continue expending substantial amounts for the
development of CerAxon and pagoclone as described above. In the event the
Company does not have sufficient funds in the future, the Company may be
required to delay certain clinical trials which would adversely affect
development of the Company's products. See "CerAxon" and "Pagoclone" above and
"Other" below.
In April 1998, the Company licensed from Tulane University exclusive
world-wide rights to a U.S. patent and U.S. and foreign patent applications
owned by Tulane relating to a novel neuropeptide, known as PACAP (pituitary
adenylate cyclase activating peptide). Preclinical data suggests PACAP may have
potential as a treatment for stroke, either alone or in combination with
CerAxon, and other neurodegenerative diseases in humans. Consideration to Tulane
for the license includes an upfront fee, research funding, potential milestone
payments and royalties from products developed from this program.
The Company has initiated pre-clinical development of PACAP.
The Company is continuing pre-clinical development of LidodexNS, a product
for the acute intra-nasal treatment of migraine headaches, being developed
pursuant to a collaborative agreement with Algos Pharmaceutical Corporation. The
development of this product and other products, including those which may be
acquired by the Company in the future will require substantial additional funds.
In July 1998, the Company received FDA authorization for the marketing in
the U.S. of a medical device called the AnatoMark(TM) Non-Invasive Head
Reference System ("AnatoMark") designed to provide reproducible anatomical
markers non-invasively for brain imaging. The Company is currently finalizing
its marketing strategy and plans for AnatoMark, which is expected to be
commercially introduced in fiscal 1999.
During 1997, the Company obtained an exclusive option to license a product
for the treatment and prevention of liver diseases. The option grants
Interneuron the right to license, on specified terms, North American and Asian
marketing rights to an issued U.S. patent and pending international patents,
following Interneuron's review of future clinical data. This orally-administered
compound is being studied in a large U.S. government-sponsored Phase 3 clinical
trial. Several hundred patients have been enrolled in the study, which is
expected to be completed in approximately two years. The study is designed to
have periodic interim analysis which could lead to earlier termination if a
significant positive drug effect is identified.
Consistent with its corporate strategy, the Company continually seeks to
identify technology and product candidates for in-licensing and development. The
Company's in-licensing agreements generally require the Company to undertake
general or specific development efforts or risk the loss of the license and/or
incur penalties.
There can be no assurance that results of any on-going current or future
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 cGMP or marketed in a timely manner or at all, or that the
Company will have sufficient funds to commercialize any of its products, any of
which events could materially adversely affect the Company.
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Analysis of Cash Flows
Cash used by operating activities during the nine months of fiscal 1998 of
$58,231,000 consisted primarily of a net loss of $57,256,000 and $10,000,000
paid by CPEC in December 1997 to Astra Merck for CPEC's contractual liability
pursuant to the Astra Merck Collaboration recorded as of September 30, 1997,
partially offset by noncash compensation charges of $10,417,000 consisting
primarily of compensation expense relating to grants of restricted stock awards
under the Company's 1997 Equity Incentive Plan and $2,873,000 of equity in the
net loss of the unconsolidated subsidiary, Progenitor.
Accrued expenses decreased $12,287,000 to $26,866,000 at June 30, 1998 from
$39,153,000 at September 30, 1997 primarily due to CPEC's $10,000,000 payment to
Astra Merck in December 1997, partially funded by Interneuron as a result of
Interneuron's approximately 20% direct ownership of CPEC. Included in accrued
expenses at June 30, 1998 and September 30, 1997 were liabilities relating to
clinical trials and sponsored research as well as the Redux withdrawal and
related events. These amounts are reduced when paid.
Cash provided by investing activities of $31,778,000 during the first
nine months of fiscal 1998 consisted primarily of net proceeds from maturities
and sales of marketable securities of $32,693,000.
Other
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 engage from time to
time 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.
While the Company believes it has sufficient cash for currently planned
expenditures through June 1999, based on certain assumptions relating to
operations, subsidiary expenditures, legal actions and other factors, it will
require additional funds after such time and intends to seek additional funds
prior to such time. The Company will require additional funds for the
development and regulatory review of CerAxon, pagoclone and its other compounds
and technologies as well as any new products acquired in the future and it has
no commitments or arrangements to obtain such funds. If such funds are not
available, the Company will be required to delay product development and
regulatory efforts. As a result of the uncertainties and costs associated with
the Redux-related litigation and other factors generally affecting the Company's
ability to raise capital, there can be no assurance that the Company will be
able to obtain additional financing to satisfy future cash requirements or that
any financing will be available on terms favorable or acceptable to the Company,
if at all. See "General -- Redux -- Legal Actions."
In connection with the royalty and license payments made by the Company to
Servier, a pharmaceutical company based in France, the Company was required to
have withheld certain taxes which were required to have been paid by Servier.
Based on advice from an external tax advisor, the Company did not withhold or
pay these taxes. Reduced withholding rates are applicable under certain
conditions. If Servier does not pay the required withholding taxes, the Company
may be required to pay the amount of such withholding taxes plus applicable
interest and penalties, all or a portion of which may be recoverable. The
Company is currently unable to predict or estimate the actual or net amounts
that may be paid or recovered by the Company.
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Subsidiaries
Interneuron is currently funding the operations of InterNutria and funded
the operations of Transcell until May 8, 1998, when the merger of Transcell into
Intercardia was completed (see "Intercardia" below). After this merger, the
costs of the operations previously conducted by Transcell are being funded by
Intercardia (as a division of Intercardia known as Intercardia Research
Laboratories ("IRL")). Accordingly, such operations continue to be reflected in
the Company's consolidated financial statements. Expenses of the Subsidiaries
continue to constitute a significant part of the Company's overall expenses. The
Subsidiaries' portion of consolidated research and development and selling,
general, and administrative expenses was approximately 55% and 47%,
respectively, for the three and nine month periods ended June 30, 1998, not
including Progenitor, which is not consolidated for fiscal 1998.
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 not be available to Interneuron. The
Company's goal is for its subsidiaries to establish independent operations and
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 and percentage of such equity
interest 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.
Intercardia
Pursuant to the Astra Merck Collaboration, CPEC paid Astra Merck
$10,000,000 in December 1997 and CPEC, an approximately 80%-owned subsidiary of
Intercardia, or Intercardia has agreed to pay Astra Merck up to $11,000,000 for
one-third of product launch costs for BEXTRA(R). In the event Intercardia or
CPEC elects not to make any required product launch payments to Astra Merck, 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 BEXTRA will be successfully
commercialized. To date, a substantial portion of the BEXTRA development costs
have been assumed or paid by the National Institutes of Health, the Department
of Veterans Affairs, Astra Merck and/or BASF Pharma/Knoll AG ("Knoll"),
Intercardia's partner for the development and commercialization of BEXTRA in
Europe.
The Astra Merck Collaboration provides that Astra Merck shall be
responsible for the expenses incurred in development and commercialization of
the twice-daily formulation of bucindolol in the United States, and Astra Merck
committed an amount up to $15,000,000 to be expended in connection with such
development. Astra Merck has advised Intercardia that Astra Merck had expended
$15,000,000 as of April 30, 1998. Intercardia and Astra Merck are discussing
Astra Merck's contractual responsibility to fund such expenses above $15,000,000
while Astra Merck has continued to fund such expenses. Intercardia believes that
in the event Astra Merck does not fund such expenses, Astra Merck would be in
breach of the Astra Merck Collaboration. The Astra Merck Collaboration provides
for arbitration of any disputes, and Astra Merck has notified Intercardia that
Astra Merck intends to institute arbitration proceedings to resolve the dispute.
Under the Astra Merck Collaboration, the parties are required to attempt to
resolve disputes prior to the actual institution of arbitration proceedings.
There can be no assurance as to the cost or results of any arbitration. In the
event that Intercardia or CPEC funds such expenses or a portion of such expenses
in excess of $15,000,000, the results of operations and financial position of
Intercardia and the Company may be materially adversely affected.
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On July 1, 1998, the business of Astra Merck was combined with that of
Astra AB's wholly owned subsidiary, Astra USA, Inc. into a new limited
partnership, Astra Pharmaceuticals, L.P. ("Astra Pharmaceuticals"), and Astra
Pharmaceuticals has succeeded to the rights and obligations of Astra Merck under
the Astra Merck Collaboration. In August 1998, Intercardia notified Astra
Pharmaceuticals that Intercardia believes Astra Pharmaceuticals has breached
certain non-competition provisions of the Astra Merck Collaboration. Intercardia
and Astra Pharmaceuticals are in discussions to resolve the conflict or
terminate the collaboration. Astra Pharmaceuticals has informed Intercardia it
does not believe it is in violation of the Astra Merck Collaboration. If the
Astra Merck Collaboration is terminated because of Astra Pharmaceuticals'
breach, the Astra Merck Collaboration provides for return of all rights,
material and information relating to BEXTRA and a payment to Intercardia and
CPEC which would then be responsible for all remaining costs to develop BEXTRA
in the U.S.
Pursuant to the Knoll Collaboration, Intercardia is responsible for
approximately 40% of the development and marketing costs of bucindolol in the
Knoll Territory, which includes all countries other than the United States and
Japan, subject to certain maximum dollar limitations. Intercardia's portion of
development and clinical trial costs for the Knoll Territory is estimated to be
up to $10,000,000 over the next several years. Intercardia is also responsible
for approximately 40% of the once-a-day development costs which relate to
development solely for the Knoll Territory and approximately 67% of once-a-day
development costs which have a worldwide benefit.
Intercardia will require additional financing to fund its operations, the
amount and timing of which will depend upon many factors, including in
particular the status of the Astra Merck Collaboration and resolution of
proposed arbitration proceedings and outstanding issues under the collaboration,
on clinical trial results and other regulatory requirements and on the ability
of Intercardia to establish additional corporate collaborations. Assuming the
continuation of the Astra Merck Collaboration, Intercardia's funding
requirements include $11,000,000 in payments for U.S. product launch expenses to
Astra Merck. In the event of termination of the Astra Merck Collaboration,
Intercardia would assume financial responsibility for the remaining estimated
$15,000,000 to $20,000,000 of BEXTRA U.S. development and NDA preparation costs.
Interneuron may fund 20% of such costs in order to maintain its approximately
20% ownership interest in CPEC. There is no assurance that Intercardia or the
Company will have sufficient resources to complete the U.S. development of
BEXTRA. Intercardia's other funding requirements include payments to its other
collaborative partners, including 40% of development and marketing costs of
bucindolol in the Knoll Territory pursuant to the Knoll Collaboration, the
operations of IRL previously conducted by Transcell, which merged into
Intercardia in May 1998, and new technology and product development. Intercardia
intends to seek to raise additional funds through equity and/or debt financings,
although there can be no assurance such funds will be available on terms
acceptable or favorable to Intercardia, or at all.
In July 1998, Intercardia licensed worldwide rights (except for Japan and
South Korea) to OP2000 from Opocrin S.p.A., of Modena, Italy. Intercardia
intends to investigate the use of OP2000 as a drug for the treatment of
inflammatory bowel disease. Intercardia will be responsible for conducting
clinical trials for OP2000 and made a $1,000,000 payment to Opocrin upon
execution of the license agreement. Intercardia will make additional payments to
Opocrin upon achievement of certain milestones.
On May 8, 1998, the merger of Transcell with and into Intercardia and the
acquisition by Intercardia of certain related technology rights owned by
Interneuron was completed and, simultaneously, Interneuron contributed to
Transcell's capital all of Transcell's indebtedness to Interneuron (the
"Transcell Acquisition"). Consideration given by Intercardia consisted of (i)
Intercardia common stock payable to the Transcell stockholders, including
Interneuron, in three installments with an aggregate market value at closing of
approximately $14,200,000, of which $3,000,000 was payable at closing as an
initial payment to Interneuron for certain of its technology rights and
continued guarantees of certain Transcell leases (the "Technology/Guarantee
Payment"), and (ii) the issuance of options and
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<PAGE> 20
warrants to purchase approximately 260,000 shares of Intercardia common stock to
Transcell employees and consultants in exchange for their options and warrants
to purchase Transcell capital stock. Accordingly, in connection with the first
installment of the merger consideration due at the closing of the merger,
Intercardia issued an aggregate of approximately 320,000 shares of common stock,
of which approximately 191,000 shares were issued to Interneuron. In addition,
Intercardia issued approximately 175,000 shares to Interneuron for the
Technology/Guarantee Payment. Intercardia's acquisition of the minority
shareholders' interest in Transcell resulted in Intercardia recording a charge
to operations for the three and nine month periods ended June 30, 1998 for the
purchase of in-process research and development of approximately $5,300,000.
This charge is eliminated in consolidation and is not reflected in the Company's
results of operations because the Company did not acquire any incremental
interest in Trancell's net assets as a result of the transaction. In connection
with this transaction, the Company also recorded a credit to additional paid-in
capital of approximately $2,212,000 to reflect adjustments to minority interest
resulting from the Transcell Acquisition and the book value of the Intercardia
shares received by the Company for the Technology/Guarantee Payment. Interneuron
owned approximately 61% and 62% of the outstanding capital stock of Intercardia
before and immediately after the closing of the Transcell Acquisition,
respectively. As a result of the Transcell Acquisition, put protection rights
that could have caused the Company to issue up to 232,000 additional shares
(assuming Interneuron's Common Stock was $2.00 per share or less) of Interneuron
Common Stock expired.
InterNutria
InterNutria commenced a national launch of PMS Escape in September 1997,
resulting in product revenue of approximately $2,700,000 and selling and
marketing costs of approximately $15,000,000 in the nine month period ended June
30, 1998. Additional selling and marketing costs associated with this product
are estimated to be approximately $3,000,000 through the remainder of fiscal
1998 assuming no external funding of InterNutria. To date, InterNutria's
operations have been funded primarily by Interneuron. InterNutria is exploring
strategic alternatives which may include third-party financing, collaborations,
and/or business combinations, to reduce or eliminate Interneuron's funding of
InterNutria, although there can be no assurance such funding will be available.
If external funding is not obtained by InterNutria, Interneuron may reduce
funding InterNutria and may incur charges relating to the reduction in
InterNutria's operations. InterNutria has not generated sufficient revenues from
PMS Escape or its other products to offset related costs. See "Results of
Operations". InterNutria has ceased utilization of a contract sales force and no
longer has the utilization of the Interneuron sales force of approximately 25
persons whose employment was terminated effective May 8, 1998 as a result of the
postponement of the launch of CerAxon in connection with the Company's
withdrawal of its NDA for CerAxon.
Progenitor
In August 1997, Progenitor completed an initial public offering and
simultaneous acquisition of Mercator Genetics, Inc. resulting in Interneuron's
ownership in Progenitor's outstanding capital stock decreasing to approximately
37%. Consequently thereafter, the Company ceased consolidating the financial
statements of Progenitor. The Company's consolidated financial statements for
the three and nine month periods ended June 30, 1998 and Consolidated Balance
Sheet at September 30, 1997 include Progenitor using the equity method of
accounting, whereas the Company's Consolidated Statements of Operations for the
three and nine month periods ended June 30, 1997 and Statement of Cash Flows for
the nine month period ended June 30, 1997 reflect Progenitor on a consolidated
basis. See "Results of Operations".
Recent Accounting Pronouncements
The Company will adopt SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"), in the fiscal year ending September 30, 1999. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
Management has not determined the effect of adopting SFAS No. 130.
-20-
<PAGE> 21
The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), in the fiscal year ending
September 30, 1999. SFAS No. 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information to
be disclosed. Management has not determined the effect of adopting SFAS No. 131.
The Company will adopt SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), by October 1, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS 133 requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. Management has not determined the effect of adopting SFAS 133.
Year 2000 Software Issues
The Company has commenced review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and will develop an
implementation plan to resolve any problems. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to define
the applicable year. Software programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company believes
there will not be material operational and monetary impact from resolving any
problems to currently used software.
Results of Operations
Total revenues decreased substantially to $1,693,000 and $4,690,000 in the
three and nine month periods ended June 30, 1998, respectively, from $17,395,000
and $54,861,000 in the three and nine month periods ended June 30, 1997,
respectively, primarily reflecting the $14,016,000 and $43,534,000 decrease in
product revenue over the respective periods. The Company did not recognize any
Redux-related product revenue in the fiscal 1998 periods (see "Redux" above)
compared to approximately $14,886,000 and $45,796,000 of Redux-related product
revenue recognized in the three month and nine month periods ended June 30,
1997, respectively. Product revenue of $996,000 and $2,666,000 in the three
month and nine month periods ended June 30, 1998 consists primarily of sales of
PMS Escape by InterNutria.
Contract and license fee revenue decreased $1,686,000, or 71%, to $697,000
for the three month period ended June 30, 1998 from $2,383,000 for the three
month period ended June 30, 1997 and decreased $6,637,000, or 77%, to $2,024,000
for the nine month period ended June 30, 1998 from $8,661,000 for the nine month
period ended June 30, 1997. The fiscal 1997 three and nine month periods
included revenue recognized by the Company pursuant to its Copromotion Agreement
with Wyeth-Ayerst and contract revenue recognized by Progenitor, whose financial
statements were consolidated with the Company's during the 1997 fiscal periods.
The fiscal 1997 nine month period included revenue recognized by Intercardia
pursuant to a collaboration agreement with Knoll. Contract revenue in the fiscal
1998 periods consists primarily of revenue recognized by the Company and
Transcell pursuant to the Merck Agreement and by Intercardia pursuant to the
Astra Merck Collaboration.
Cost of product revenue decreased $8,787,000 to $357,000 in the three month
period ended June 30, 1998 from $9,144,000 in the three month period ended June
30, 1997 and decreased $30,021,000 to $1,026,000 in the nine month period ended
June 30, 1998 from $31,047,000 in the nine month period ended June 30, 1997 due
to the absence of any Redux-related product revenue. Cost of product revenue in
the fiscal 1998 periods relates primarily to sales of PMS Escape by InterNutria.
Research and development expenses decreased $1,457,000, or 14%, to
$9,043,000 for the three month period ended June 30,1998 from $10,500,000 for
the three month period ended June 30, 1997 and increased $1,415,000, or 5%, to
$29,399,000 for the nine month period ended June 30, 1998 from $27,984,000 for
the nine month period ended June 30, 1997. The changes in the three and nine
month periods primarily reflect increases in the fiscal 1998 periods resulting
from an allocation to research and development of the noncash compensation
expense associated with the Company's 1997 Equity Incentive Plan and
Intercardia's
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<PAGE> 22
increased spending related to its expanding research and development programs,
offset by decreases resulting from the absence of expense from Progenitor, whose
results of operations were not consolidated with the Company's in the fiscal
1998 periods, and decreases in expenses relating to Redux and CerAxon. Expenses
for the development of CerAxon will increase in future periods reflecting the
June 1998 commencement of an approximately 900 patient Phase 3 clinical trial
expected to end in late 1999. See "Liquidity and Capital Resources -- Product
Development."
Selling, general and administrative expenses increased $1,560,000, or 21%,
to $8,932,000 for the three month period ended June 30, 1998 from $7,372,000 for
the three month period ended June 30, 1997 and increased $17,078,000, or 91%, to
$35,794,000 for the nine month period ended June 30, 1998 from $18,716,000 for
the nine month period ended June 30, 1997. These increases primarily reflect
approximately $2,000,000 and $12,000,000 of incremental expenditures in the
three and nine month periods ended June 30, 1998, respectively, for selling and
marketing activities relating to the national launch of PMS Escape which
commenced in September 1997, an allocation to selling, general and
administrative expenses of the noncash compensation expense relating to the
Company's 1997 Equity Incentive Plan and, for the nine month period,
pre-marketing activities relating to the potential launch of CerAxon which have
ceased since the NDA withdrawal in April 1998. These incremental fiscal 1998
expenses were partially offset in the 1998 three and nine month periods by the
absence of expense from Progenitor, whose results of operations were not
consolidated with the Company's in the fiscal 1998 periods.
Investment income, net of interest expense, decreased $982,000, or 45%, to
$1,209,000 in the three month period ended June 30, 1998 from $2,191,000 in the
three month period ended June 30, 1997 and $2,343,000, or 35%, to $4,445,000 in
the nine month period ended June 30, 1998 from $6,788,000 in the nine month
period ended June 30, 1997 primarily as a result of a decrease in cash available
for investment and used in the operations of the Company.
Equity in net loss of unconsolidated subsidiary of $1,002,000 and
$2,873,000 in the three and nine month periods ended June 30, 1998 represents
the Company's share of Progenitor's net loss for the respective periods. The
results of Progenitor's operations were reflected in the Company's financial
statements on a consolidated basis until Progenitor's IPO in August 1997 after
which Progenitor was included in the Company's financial statements using the
equity method of accounting. Progenitor's operations resulted in a net loss of
approximately $1,402,000 and $3,941,000, respectively, which was included in the
Company's Consolidated Statements of Operations for the three and nine month
periods ended June 30, 1997.
Net loss increased $7,581,000 to $14,755,000 in the three month period
ended June 30, 1998 from $7,174,000 in the three month period ended June 30,
1997 and increased $39,301,000 to $57,256,000 in the nine month period ended
June 30, 1998 from $17,955,000 in the nine month period ended June 30, 1997
primarily due to the lack of revenues and related gross profits from Redux and
reduced contract revenue, the expenses associated with the launch of PMS Escape,
and noncash expenses relating to the Company's 1997 Equity Incentive Plan .
The Company expects to recognize approximately $11,000,000 of noncash
expense in fiscal 1998 as a result of grants of Restricted Stock Awards under
the Company's 1997 Equity Incentive Plan, of which approximately $1,604,000 and
$9,446,000 was recognized in the three and nine month periods ended June 30,
1998, respectively.
The Company from time to time explores various technology, product or
company acquisitions and/or business combinations or financing opportunities and
is currently engaged in discussions relating to such
-22-
<PAGE> 23
opportunities. Any such initiatives may involve the issuance of shares of
Interneuron's Common Stock or other securities and/or cash and financial
commitments for licensing fees and/or to fund product development, either of
which may adversely affect the Company's consolidated financial condition or
results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named, together with other pharmaceutical companies,
including AHP, as a defendant in approximately 580 legal actions, many of which
purport to be class actions, in federal and state courts relating to the use of
Redux. The actions generally have been brought by individuals in their own right
or on behalf of putative classes of persons who claim to have suffered injury or
who claim that they may suffer injury in the future due to use of one or more
weight loss drugs including Pondimin (fenfluramine), phentermine and Redux.
Plaintiffs' allegations of liability are based on various theories of recovery,
including, but not limited to, product liability, strict liability, negligence,
various breaches of warranty, conspiracy, fraud, misrepresentation and deceit.
These lawsuits typically allege that the short or long-term use of Pondimin
and/or Redux, independently or in combination (including the combination of
Pondimin and phentermine popularly known as "fen/phen"), causes, among other
things, primary pulmonary hypertension, valvular heart disease and/or
neurological dysfunction. In addition, some lawsuits allege emotional distress
caused by the purported increased risk of injury in the future. Plaintiffs
typically seek relief in the form of monetary damages (including economic
losses, medical care and monitoring expenses, loss of earnings and earnings
capacity, other compensatory damages and punitive damages), generally in
unspecified amounts, on behalf of the individual or the class. In addition, some
actions seeking class certification ask for certain types of purportedly
equitable relief, including, but not limited to, declaratory judgments and the
establishment of a research program or medical surveillance fund. On December
10, 1997, the federal Judicial Panel on Multidistrict Litigation issued an Order
allowing for the transfer or potential transfer of the federal actions to the
Eastern District of Pennsylvania for coordinated or consolidated pretrial
proceedings.
On January 23, 1998, the Court entered an order consolidating all of these
actions for pretrial purposes. The plaintiffs subsequently filed a first amended
and consolidated complaint [Corrected Version] (the "Complaint") containing
substantially similar substantive allegations and alleging a class period of
December 19, 1996 through September 15, 1997. On May 11, 1998, the defendants
moved to dismiss the Complaint, which motion is still pending. A case management
conference is scheduled for September 23, 1998.
The Company and certain directors and/or officers of the Company have also
been named as defendants in several lawsuits filed in the United States District
for the District of Massachusetts (the "Court") by alleged purchasers of the
Company's Common Stock, purporting to be class actions, claiming among other
things that the Company publicly disseminated materially false and misleading
statements concerning the prospects and safety of Redux, resulting in the
artificial inflation of the Company's Common Stock price during various alleged
class periods, the earliest commencing December 16, 1996 through September 17,
1997, in violation of the federal securities laws.
Under certain circumstances, the Company may be required to indemnify
Servier, Boehringer and AHP, and the Company may be entitled to indemnification
by AHP and Boehringer, against certain claims, damages or liabilities incurred
in connection with Redux. The cross indemnification between the Company and AHP
generally relates to the activities and responsibilities of each company.
Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend these and similar actions
vigorously, the Company may be required to devote significant management time
and resources to these legal actions and, in the event of successful uninsured
or insufficiently insured claims, or in the event a successful indemnification
claim was made against the Company, the Company's business, financial condition
and results of operations could be materially adversely affected. In addition,
the costs and
-23-
<PAGE> 24
uncertainties associated with these legal actions have had, and may continue to
have, an adverse effect on the market price of the Company's Common Stock, on
the Company's ability to obtain additional financing to satisfy cash
requirements, to retain and attract qualified personnel, to commercialize
products on a timely and adequate basis, to acquire or obtain rights to
additional products, or to obtain product liability insurance for other products
at costs acceptable to the Company, or at all, any or all of which may
materially adversely affect the Company's business and financial condition.
Item 5. Other Information
In May 1998, the Company's Board of Directors authorized the Company to
offer (the "Exchange Offer") holders of outstanding options issued primarily
pursuant to Interneuron's stock option plans, and certain warrants, to purchase
the Company's Common Stock, which have exercise prices of $10.00 per share or
greater, the right to exchange such options and warrants for new options and
warrants (the "Exchanged Options and Warrants") to purchase the same number of
shares represented by the original options and warrants at an exercise price of
$6.1875 per share, the fair market value of the Company's Common Stock
determined as of May 5, 1998. The Exchanged Options and Warrants generally vest
in six equal installments commencing six months from the date the Board
authorized the Exchange Offer. The term of each Exchanged Option or Warrant is
the same as the remaining term of the respective original option and warrant.
Approximately 4,200,000 options and warrants have been or are expected to be
exchanged pursuant to the Exchange Offer.
In July 1998, Thomas F. Farb, Interneuron's Executive Vice President,
Treasurer and Chief Financial Officer, resigned from the Company effective as of
August 18, 1998. In connection with Mr. Farb's resignation and in consideration
of certain commitments by Mr. Farb, options to purchase an aggregate of 585,000
shares of Common Stock will terminate, options to purchase 205,000 shares of
Common Stock (granted under the Company's 1994 Long-Term Incentive Plan in
exchange for cancellation of options to purchase 205,000 shares granted under
the Company's 1989 Stock Option Plan) will be exercisable for six months from
the effective resignation date, and restricted stock awards to acquire 100,000
shares of Common Stock will terminate. Dale Ritter, who previously served as the
Company's Vice President, Corporate Controller and Chief Accounting Officer, was
named Senior Vice President, Finance and, as of the effective resignation date,
Acting Chief Financial Officer and Treasurer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.22(b) Addendum and Second Amendment to License Agreement between
Interneuron Pharmaceuticals, Inc. and Ferrer Internacional
S.A. dated June 1, 1998
10.96 Assignment and Assumption and Royalty Agreement between
Intercardia, Inc. and Interneuron Pharmaceuticals, Inc. dated
May 8, 1998
10.97 License Agreement between Interneuron Pharmaceuticals, Inc.
and the Administrators of the Tulane Educational Fund dated
April 29, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K reporting information under "Item 5" on
April 21, 1998.
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<PAGE> 25
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, 1998 By: /s/ Glenn L. Cooper
--------------------------------
Glenn L. Cooper, M.D., President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ Dale Ritter
--------------------------------
Dale Ritter, Senior Vice President, Finance
(Principal Accounting Officer)
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<PAGE> 1
EXHIBIT 10.22(b)
ADDENDUM
--------
This Addendum, when signed by both parties, constitutes a valid and enforceable
addition to the agreement between the parties dated January 15, 1993, relating
to the licensing of CDP-Choline (hereinafter referred to as the "Agreement").
FIRST
- -----
Following execution of the Agreement, business relations between the parties
have been duly developed for their mutual benefit.
SECOND
- ------
Notwithstanding the above, as consequence of the INTERNEURON U.S. Patent
applications US Prior. 08/399.262, US Prior. 08/603.102 and US Prior.
08/609.448, and corresponding (WO)PCT 96/27.380 (hereinafter jointly referred to
as the "New Patent"), the parties have upheld different positions interpreting
whether the New Patent should be included under the stipulations of Article 5.3
of the Agreement.
THIRD
- -----
The parties have reached the following agreement for the use of the New Patent,
while in force and also as long as pending, in those countries other than the
United States of America, Canada, and Puerto Rico (referred to as the
"Territory" in the Agreement and hereinafter):
a) Pursuant to Article 5.3 of the Agreement, FERRER, its associates, its
licensees, and its distributors have an exclusive right to freely use
and dispose of the New Patent in all the countries other than the
Territory.
b) Notwithstanding the above, and as compensation of the aforementioned
exclusive right for the license or distribution agreements granted by
FERRER to third parties following execution of this Addendum which
relate to the Compound and/or the Preparation, FERRER shall grant to
INTERNEURON the right to receive, separately for each one of the
countries other than the Territory, the following payments, when
applicable:
i) twenty percent (20%) of the royalties that FERRER would
receive from the relevant country, or
ii) two percent (2%) of the Compound exports done by FERRER to the
relevant country, or
iii) one and a half percent (1.5%) of FERRER exports if done as
finished pharmaceutical speciality or in its bulk form to the
relevant country.
<PAGE> 2
In the given case that FERRER undertakes with respect to any country
outside the Territory more than one of the activities described above
in paragraphs (i), (iii) and (iii), then FERRER shall pay INTERNEURON
the relevant corresponding amounts as set forth above as applicable to
payments received by FERRER in respect of such activities.
c) FERRER shall give notice of any infringement or claim by a third party
related to the New Patent of which FERRER has knowledge of in those
countries other than the Territory.
d) Pursuant to Article 4 of the Agreement, it is understood and agreed
that FERRER shall communicate and provide to INTERNEURON all
experimental and clinical data relating to the Compound and the
Preparation which FERRER and its sublicensees may generate after the
date of execution of this Addendum and which FERRER is legally entitled
to disclose.
FOURTH
- ------
4.1 It is provided that the terms set forth in provision THIRD b) are not
applicable to all those agreements already subscribed up to the date of
execution of this Addendum by and between FERRER and third parties but
shall be applicable to (i) all sublicense, distributor or other similar
agreements relating to the Preparation which FERRER shall grant after
the date of this Addendum in which the New Patent is included or (ii)
any amendments made after the date of execution of this Addendum to the
pre-existing agreements, improving for FERRER the economic terms of
such agreements, resulting from the inclusion in such agreements of the
New Patent; in such case only the new economic terms will be notified
to INTERNEURON, and the terms set forth in provision THIRD b) will be
applied based exclusively on the corresponding and resulting economic
increases. To such effect, FERRER shall inform INTERNEURON of the
signature of future agreements with third parties as well as of the
economic terms contained therein that make reference to the terms and
conditions set forth in this Addendum.
4.2 In the given case of FERRER granting license over the Preparation
and/or the Compound to Takeda Chemical Industries Ltd. (hereinafter
referred to as "Takeda") and in consideration for the negotiating
efforts produced by INTERNEURON, the compensation set forth in
provision THIRD b) would exceptionally be substituted by fifty percent
(50%) of the royalties that FERRER would receive relating to such
license from Takeda, Takeda's licensees or its distributors in each one
of the relevant countries. If in the aforementioned case FERRER should
not receive royalties but does receive other payments as provided in
provision THIRD b), then FERRER will apply to such payments the terms
set forth in such provision.
4.3 In the event that FERRER shall grant license over the Preparation
and/or the Compound to Synthelabo or licensees of Synthelabo (or a
replacing third party, in the given case that an agreement with
Synthelabo should not be achieved), FERRER will exceptionally apply the
compensation set forth in Section THIRD b) to such license even in the
case of the New Patent being cancelled, rejected or withdrawn in a
country included in such license. Such
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<PAGE> 3
exceptional application of the compensation shall follow the terms set
forth in Section THIRD b) and will have a duration of three (3) years,
commencing such term on the date of cancellation, rejection or
withdrawal of the New Patent in the corresponding country.
FIFTH
- -----
The terms and conditions set forth in this Addendum in respect of the New Patent
are exceptional, so, therefore, the terms and conditions set forth in this
Addendum in respect of the New Patent shall not be understood as a binding
precedent between the parties, so all other terms and conditions of the
Agreement are hereby retained in full force and effect, and are confirmed as of
the date hereof.
In witness whereof, the parties, through their authorized representatives, have
executed this Addendum, whereby they evidence their intent to be legally bound.
Barcelona and Lexington, _________________________.
FERRER INTERNACIONAL S.A. INTERNEURON PHARMACEUTICALS, INC.
/s/ Rafael Foguet By: /s/ Mark S. Butler
- -------------------------- --------------------------
By: Rafael Foguet Mark S. Butler
Title: Chief Executive Officer Title: Executive Vice President
26-05-98 6/1/98
-3-
<PAGE> 4
SECOND AMENDMENT
----------------
This Second Amendment, when signed by both of us, constitutes a valid and
enforceable amendment to the agreement between us dated January 15, 1993,
relating to the licensing of CDP Choline ("the Agreement").
The Agreement is hereby amended as follows:
FIRST
- -----
(i) Section 8.2.a. is hereby amended and restated in its entirety to read
as follows:
"a. if INTERNEURON fails to obtain a Registration of the Preparation in
the Territory by January 31, 2002 and/or".
(ii) The last paragraph of Article 8 is hereby amended and restated in its
entirety to read as follows:
"The above-mentioned period (by January 31, 2002) shall be
automatically extended by successive six (6) month periods up to a
maximum two (2) year extension if INTERNEURON provides information to
FERRER which tends to establish that INTERNEURON has carried out the
steps for obtaining the Registration of the Preparation and that the
latter has not been obtained for reasons beyond the control of
INTERNEURON."
SECOND
- ------
All other terms and conditions of the Agreement are hereby retained in full
force and effect, and are confirmed as of the date hereof.
In witness whereof, the parties, through their authorized representatives, have
executed this Amendment, whereby they evidence their intent to be legally bound.
Barcelona and Lexington, _________________________.
FERRER INTERNACIONAL S.A. INTERNEURON PHARMACEUTICALS, INC.
/s/ Rafael Foguet By: /s/ Mark S. Butler
- -------------------------- --------------------------
By: Rafael Foguet Mark S. Butler
Title: Chief Executive Officer Title: Executive Vice President
26-05-98 6/1/98
<PAGE> 1
EXHIBIT 10.96
ASSIGNMENT AND ASSUMPTION AND
ROYALTY AGREEMENT
between
INTERCARDIA, INC.
and
INTERNEURON PHARMACEUTICALS, INC.
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS................................................................. 1
1.1 "Closing Date"..................................................... 1
1.2 "Common Stock"..................................................... 1
1.3 Defined Terms Appearing in Merck Agreement......................... 2
1.4 "Earned Payment"................................................... 2
1.5 "Fair Market Value"................................................ 2
1.6 "Merck"............................................................ 2
1.7 "Merck Agreement".................................................. 2
1.8 "Party"............................................................ 2
1.9 "Princeton License Agreement"...................................... 3
1.10 "Princeton Sponsored Research Agreements".......................... 3
1.11 "Product".......................................................... 3
1.12 "Securities Act"................................................... 3
1.13 "Side Agreement"................................................... 3
ARTICLE II
ASSIGNMENT AND ASSUMPTION; GUARANTY AGREEMENT............................... 3
2.1 Assignment and Assumption.......................................... 3
2.2 Guaranty Agreement................................................. 3
2.3 Consents or Approvals.............................................. 3
ARTICLE III
EARNED PAYMENT; ROYALTIES AND REPORTS....................................... 4
3.1 Earned Payment and Royalties....................................... 4
3.2 Reports; Payment of Royalty; Adjustments........................... 5
3.3 Audits............................................................. 5
3.4 Payment Exchange Rate.............................................. 6
3.5 Tax Withholding.................................................... 6
3.6 Representations and Warranties of Interneuron...................... 6
3.7 Representations and Warranties of Intercardia...................... 8
ARTICLE IV
TERM AND TERMINATION........................................................ 9
4.1 Term and Expiration................................................ 9
4.2 Effect of Expiration or Termination................................ 9
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE V
MISCELLANEOUS............................................................... 9
5.1 Assignment......................................................... 9
5.2 Severability....................................................... 9
5.3 Notices........................................................... 10
5.4 Applicable Law.................................................... 11
5.5 Dispute Resolution................................................ 11
5.6 Entire Agreement.................................................. 11
5.7 No Authority...................................................... 11
5.8 Waiver............................................................ 11
5.9 Counterparts...................................................... 12
APPENDIX A ASSIGNED AGREEMENTS
APPENDIX 1.2 MERCK AGREEMENT
APPENDIX 2.2 GUARANTIES
</TABLE>
(ii)
<PAGE> 4
ASSIGNMENT AND ASSUMPTION AND
ROYALTY AGREEMENT
THIS AGREEMENT effective as of May 8, 1998, (the "Effective Date")
between Intercardia, Inc., a corporation organized and existing under the laws
of Delaware and having its principal office at 3200 East Highway 54, Cape Fear
Building, Suite 300, Research Triangle Park, North Carolina 27709
("Intercardia") and Interneuron Pharmaceuticals, Inc., a corporation organized
and existing under the laws of Delaware and having its principal office at 99
Hayden Avenue, Lexington MA 02173 ("Interneuron").
W I T N E S S E T H:
WHEREAS, in connection with an Agreement and Plan of Merger entered
into on the Effective Date (the "Merger Agreement"), Intercardia has agreed to
acquire from Interneuron all of the capital stock (the "Stock") of Transcell
Technologies, Inc. ("Transcell") owned by Interneuron under the terms and
conditions contained therein; and
WHEREAS, Interneuron has agreed to assign (the "Assignment") to
Intercardia Interneuron's rights, benefits and interests under the agreements
set forth on Appendix A hereto (the "Assigned Agreements") and to continue to
guaranty certain lease obligations of Transcell under certain conditions (the
"Guaranty Agreement") effective upon the closing of the merger (the "Merger")
contemplated by the Merger Agreement; and
WHEREAS, as consideration for the Assignment and the Guaranty
Agreement, Intercardia has agreed to pay to Interneuron royalties on Net Sales
of Products (each as defined herein), 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, where used in the singular or plural, shall have the respective meanings
set forth below:
1.1 "Closing Date" shall mean the closing date of the Merger.
1.2 "Common Stock" shall mean the common stock, $.001 par value, of
Intercardia.
<PAGE> 5
1.3 Defined Terms Appearing in Merck Agreement. The following terms shall
have the respective meanings set forth in the Merck Agreement:
(a) Affiliate;
(b) Calendar Quarter;
(c) Calendar Year;
(d) First Commercial Sale;
(e) Net Sales.
1.4 "Earned Payment" shall mean the $3,000,000 payment made by Intercardia
in Common Stock to Interneuron on the Closing Date.
1.5 "Fair Market Value" shall mean, on any applicable payment date, (a) the
average of the high and low sales price of the Common Stock on the five
(5) most recent trading days, ending two (2) business days immediately
prior to the applicable payment date, in which the trading volume of
the Common Stock was at least 1500 shares, or, if no such sales take
place on any such date, the average of the closing bid and asked prices
of the Common Stock on such date, in each case as officially reported
on the Nasdaq National Market or any other national securities exchange
on which the Common Stock is then listed, or (b) if the Common Stock is
not then listed or admitted to trading on the Nasdaq National Market or
any other national securities exchange, the average of the reported
closing bid and asked prices of the Common Stock on the five (5)
trading days ending on such date as shown by Nasdaq or (c) if the
Common Stock is not then listed on any exchange or shown by Nasdaq, the
higher of (x) the book value thereof as determined by any firm of
independent public accountants of recognized standing selected by the
Board of Directors of Intercardia as at the last day of any month
ending within 60 days preceding the date as of which the determination
is to be made or (y) the fair value thereof determined in good faith by
an independent valuation firm jointly selected by the parties as of a
date which is within 15 days of the date as of which the determination
is to be made.
1.6 "Merck" shall mean Merck & Co., Inc.
1.7 "Merck Agreement" shall mean the Research Collaboration and License
Agreement by and among Merck & Co., Inc., Transcell and Interneuron
effective as of June 30, 1997, a copy of which is attached hereto as
Appendix 1.2.
1.8 "Party" shall mean Intercardia or Interneuron.
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1.9 "Princeton License Agreement" shall mean the License Agreement between
the Trustees of Princeton University ("Princeton") and Interneuron
entered into on April 15, 1998, effective as of June 30, 1997.
1.10 "Princeton Sponsored Research Agreements" shall mean the Research
Agreements between Princeton and Interneuron dated April 29, 1997
relating to Research Proposals titled "Construction of a Vancomycin
Library" and "Towards a Map of the Active Site of MurG."
1.11 "Product" shall mean a product defined in the Merck Agreement as a
Licensed Product.
1.12 "Securities Act" shall mean the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder.
1.13 "Side Agreement" shall mean the Side Agreement effective as of June 30,
1997 by and among Merck, Princeton, Interneuron and Transcell.
ARTICLE II
ASSIGNMENT AND ASSUMPTION; GUARANTY AGREEMENT
---------------------------------------------
2.1 Assignment and Assumption. Interneuron hereby assigns to Intercardia
all of its rights, benefits and interests under each of the Assigned
Agreements. Intercardia hereby assumes and agrees to pay, perform,
discharge and carry out all of the obligations and liabilities of
Interneuron under each of the Assigned Agreements.
2.2 Guaranty Agreement. Interneuron hereby agrees to continue its
respective guaranties set forth on Appendix 2.2 hereof (the
"Guaranties") until such time as the respective guaranty can be
terminated or transferred to Intercardia. Intercardia hereby agrees to
(i) use its best efforts to terminate or remove Interneuron from each
of the Guaranties and (ii) pay, perform, discharge and carry out all
the obligations and liabilities under the leases subject to the
Guaranties; provided, however, that promptly after the Closing Date,
Intercardia shall submit a written request to terminate or remove
Interneuron from such Guaranties and shall negotiate in good faith to
do so; further provided that, in the event that Intercardia shall be
unsuccessful in terminating or removing Interneuron from such
Guaranties at such time, Intercardia hereby covenants to submit a
similar request on an annual basis, or promptly following the closing
of any capital raising transaction of Intercardia, whichever is sooner,
until such Guaranties are terminated. Interneuron may participate in or
initiate any discussions relating to the termination of, or removal of
Interneuron from, such Guaranties.
2.3 Consents or Approvals. To the extent that any consent or approval is
required to permit the assignment to Intercardia of any Assigned
Agreement or any agreement, commitment
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or other contractual right thereof, contemplated hereunder to be
assigned to Intercardia and such consent or approval is not obtained,
this Agreement shall not constitute an assignment thereof. However,
Interneuron and Intercardia shall cooperate in any reasonable
arrangements designed to provide for Intercardia all of the benefits
(and to assure that Interneuron will be effectively relieved from
related liabilities) under such agreement or commitment; provided,
however, that neither Interneuron nor Intercardia shall be required to
enter into any arrangement which, in the reasonable opinion of its
counsel, violates the provisions of any contract, law or regulation to
which such Party is a party or by which such Party is bound.
Intercardia agrees that, so long as it is a party to any such agreement
or commitment Intercardia will fully perform all of Interneuron 's
obligations thereunder which arise following the Effective Date.
ARTICLE III
EARNED PAYMENT; ROYALTIES AND REPORTS
-------------------------------------
3.1 Earned Payment and Royalties. In consideration for Interneuron's
agreements hereunder, Intercardia shall make the following payments to
Interneuron:
3.1.1 Earned Payment. Intercardia shall pay the Earned Payment to
Interneuron on the Closing Date. The Earned Payment shall be
non-refundable and shall be paid in shares of Intercardia
Common Stock calculated by dividing $3,000,000 by the Per
Share Price. The Per Share Price shall equal the Fair Market
Value of Intercardia Common Stock determined as of the Closing
Date; provided, however, that if the Fair Market Value of
Intercardia Common Stock determined as of the Closing Date is
(i) less than $15.00 then the Per Share Price shall equal
$15.00 and (ii) more than $29.00, the Per Share Price shall
equal $29.00.
3.1.2 Royalties
(a) Subject to the terms and conditions of this
Agreement, Intercardia shall pay to Interneuron
royalties based on cumulative annual Net Sales of
Products by Merck, Intercardia, their Affiliates or
sublicensees in the percentages set forth below:
Cumulative Annual Net Sales Royalty
--------------------------- -------
Less than or equal to $500,000,000 1%
Greater than $500,000,000 1.5%
(b) Royalties at the rates set forth above shall be
effective as of the date of First Commercial Sale of
a Product and shall continue until Merck, or its
successor in interest to the Merck Agreement, no
longer has an obligation to pay royalties pursuant to
the Merck Agreement, on any Product;
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provided, however, that payment of royalties shall
not be due until cumulative net sales of Products
equal $300,000,000 (the "Initial Payment Event").
3.2 Reports; Payment of Royalty; Adjustments.
(a) Following the First Commercial Sale of a Product and during
the term of the Agreement, Intercardia shall furnish to
Interneuron a copy of the written report received by
Intercardia under Section 5.5 of the Merck Agreement for each
Calendar Quarter of a Calendar Year showing the sales of all
Products subject to royalties sold by Merck, Intercardia,
their Affiliates and sublicensees during the reporting period
(and a reconciliation to Net Sales) together with a report
showing the royalties accrued under this Agreement
(collectively, the "Accrual Reports"). Accrual Reports shall
be due on the thirty-fifth (35th) day following the close of
each Calendar Quarter. Royalties shown to have accrued as of
the Initial Payment Event shall be due and payable on the
thirty-fifth (35th) day following the Initial Payment Event.
After the Initial Payment Event, royalties shown to have
accrued by each Accrual Report shall be due and payable within
ten (10) days after the date that the Accrual Report for such
Calendar Quarter is due.
Intercardia shall keep complete and accurate records,
including copies of any reports forwarded by Merck to
Intercardia pursuant to the Merck Agreement, in sufficient
detail to enable the royalties hereunder to be determined.
Such Accrual Reports will include information in the local
currency and as converted into United States dollars based on
the average exchange rate on the first and last day of each
month (determined in accordance with the Merck Agreement).
(b) Royalties shall be paid through the issuance by Intercardia to
Interneuron of shares (the "Royalty Shares") of Common Stock,
unless Interneuron and Intercardia agree that royalties may be
paid in cash. The number of Royalty Shares to be issued shall
be equal to the amount of royalties due hereunder divided by
the Fair Market Value determined as of each Accrual Report
date. Interneuron shall have the registration rights with
respect to the resale of the Royalty Shares as set forth in a
Registration Rights Agreement to be entered into as of the
Closing Date.
3.3 Audits.
(a) Upon the request of Interneuron, Intercardia shall permit an
independent certified public accounting firm of nationally
recognized standing selected by Interneuron, to have access
during normal business hours to such of the records of
Intercardia as may be reasonably necessary to verify the
accuracy of the Accrual Reports hereunder for any year ending
not more than thirty-six (36) months prior to the date of such
request.
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(b) If such accounting firm correctly concludes that additional
royalties were owed during such period, Intercardia shall pay
the additional royalties within thirty (30) days of the date
Interneuron delivers to Intercardia such accounting firm's
written report so concluding. The fees and expenses charged by
such accounting firm shall be paid by Interneuron; provided,
however, that if an error in favor of Interneuron in the
payment of royalties of more than 10% of the royalties due
hereunder for the period being reviewed is discovered, then
the fees and expenses of such accounting firm shall be borne
by Intercardia.
(c) Upon the expiration of thirty-six (36) months following the
end of any year the calculation of royalties payable with
respect to such year shall be binding and conclusive upon
Interneuron, and Intercardia shall be released from any
liability or accountability with respect to royalties for such
year.
3.4 Payment Exchange Rate. All calculations of royalties payable to
Interneuron under this Agreement shall be made in United States
dollars. 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 shall be calculated in accordance with Section
5.7 of the Merck Agreement.
3.5 Tax Withholding. If laws, rules or regulations require withholding of
income taxes or other taxes imposed upon payments set forth in this
Article III, Intercardia shall make such withholding payments as
required and subtract such withholding payments from the calculation of
royalties and number of Royalty Shares issuable pursuant to this
Article III. Intercardia shall submit appropriate proof of payment of
the withholding taxes to Interneuron within a reasonable period of
time. Intercardia 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.
3.6 Representations and Warranties of Interneuron. Interneuron represents
and warrants to Intercardia that:
(a) the Royalty Shares payable to Interneuron pursuant to the
terms hereof will be acquired for investment for its own
account, without any view to the unregistered public
distribution or resale thereof, all without prejudice,
however, to the right of Interneuron at any time lawfully to
sell or otherwise to dispose of all or any part of the Royalty
Shares pursuant to registration or any exemption therefrom
under the Securities Act and applicable state securities laws;
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<PAGE> 10
(b) Interneuron understands that the Royalty Shares to be received
by it pursuant to the terms hereof are characterized as
"restricted securities" under the federal securities laws
inasmuch as they will be acquired from Intercardia in a
transaction not involving a public offering and that under
such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in
certain limited circumstances;
(c) Interneuron is an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act. Interneuron
has the capacity to evaluate the merits and high risks of an
investment in the Royalty Shares and is able to bear the
economic risk of this investment. Interneuron understands that
an investment in Royalty Shares is highly speculative and
involves a high degree of risk. Interneuron has been provided
access to all information requested by it in order to evaluate
the merits and risks of an investment in the Royalty Shares;
(d) Interneuron acknowledges that the certificates evidencing the
Royalty Shares shall bear a legend substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
The foregoing legend shall be removed by Intercardia from any
certificate at such time as the holder of the Royalty Shares
represented by the certificate delivers an opinion of counsel
reasonably satisfactory to Intercardia to the effect that such
legend is not required in order to establish compliance with
any provisions of the Securities Act, or at such time as the
holder of such Royalty Shares satisfies the requirements of
Rule 144(k) under the Securities Act (provided that Rule
144(k) as then in effect does not differ substantially from
Rule 144(k) as in effect as of the date of this Agreement),
and provided further that Intercardia has received from the
holder a written representation that such holder satisfies the
requirements of Rule 144(k) as then in effect with respect to
such Royalty Shares;
(e) Interneuron is a duly organized and validly existing
corporation under the laws of the State of Delaware, and has
taken all required corporate action to authorize the
execution, delivery and performance of this Agreement; it has
the full corporate right, power and authority to enter into
this Agreement and to perform all of its obligations
hereunder; the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein do
not violate, conflict with, or constitute a default under its
certificate of incorporation, by-laws or the terms or
provisions of any material agreement to which it is a party or
by which it is bound, or any order, award, judgment or decree
to which it is a party, except in
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each case, for such violations, conflicts or defaults which
would not have a material adverse effect (a "Material Adverse
Effect") on the assets, results of operations, business or
financial condition of Interneuron and its subsidiaries, taken
as a whole; and (assuming this Agreement constitutes the valid
and binding obligation of Intercardia), upon execution and
delivery, this Agreement will constitute the legal, valid and
binding obligation of Interneuron;
(f) The Assigned Agreements were, as of their respective effective
dates and, to Interneuron's knowledge, the Assigned Agreements
are, in each case, with respect to Interneuron, in full force
and effect and enforceable against Interneuron in accordance
with their respective terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of
creditors' rights, (b) as limited by laws relating to the
availability of specific performance, injunctive relief or
other equitable remedies, and (c) to the extent the
enforceability of any indemnification provisions contained in
the Assigned Agreements may be limited by applicable laws;
(g) Interneuron has not previously assigned, transferred, conveyed
or otherwise encumbered its right, title and interest in the
Assigned Agreements, except pursuant to the Merck Agreement;
(h) to Interneuron's knowledge, there are no claims, judgments or
settlements against or owed by Interneuron or pending or
threatened claims or litigation to which Interneuron is a
party, in each case relating to the Assigned Agreements; and
(i) Interneuron has obtained consents, if any, required in order
to assign the Assigned Agreements to Intercardia.
3.7 Representations and Warranties of Intercardia. Intercardia represents
and warrants to Interneuron that:
(a) Intercardia is a duly organized and validly existing
corporation under the laws of the State of Delaware, and has
taken all required corporate action to authorize the
execution, delivery and performance of this Agreement; it has
the full corporate right, power and authority to enter into
this Agreement and to perform all of its obligations
hereunder; the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein do
not violate, conflict with, or constitute a default under its
certificate of incorporation, by-laws or the terms or
provisions of any material agreement to which it is a party or
by which it is bound, or any order, award, judgment or decree
to which it is a party, except in each case, for such
violations, conflicts or defaults which would not have a
Material Adverse Effect on the assets, results of operations,
business or financial condition of Intercardia and its
subsidiaries, taken as a whole; and (assuming this
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<PAGE> 12
Agreement constitutes the valid and binding obligation of
Interneuron) upon execution and delivery, this Agreement will
constitute the legal, valid and binding obligation of
Intercardia;
(b) the Royalty Shares issuable pursuant to this Agreement have
been duly authorized and, when issued and delivered pursuant
to the terms of this Agreement will be duly and validly
issued, fully paid and non-assessable and free of any
preemptive rights and of restrictions on transfer except under
applicable federal and state securities laws; Intercardia will
use its best efforts during the term of this Agreement to
maintain, authorize and reserve for issuance a sufficient
number of shares of authorized Common Stock for the issuance
of Royalty Shares pursuant to this Agreement, including, if
necessary, amending its Certificate of Incorporation.
ARTICLE IV
TERM AND TERMINATION
--------------------
4.1 Term and Expiration. This Agreement shall be effective as of the
Effective Date and shall continue in effect until expiration of all
royalty obligations hereunder.
4.2 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. Any expiration or early
termination of this Agreement shall be without prejudice to the rights
of any Party against the other accrued or accruing under this Agreement
prior to termination, including the obligation to make royalty payments
for Product(s) sold prior to such termination.
ARTICLE V
MISCELLANEOUS
-------------
5.1 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted
assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any person who is not a Party. No
assignment of this Agreement or of any rights or obligations hereunder
may be made by Intercardia (by operation of law or otherwise) without
Interneuron's written consent. Interneuron may assign all or a portion
of its benefits pursuant to this Agreement.
5.2 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
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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.
5.3 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally, sent by facsimile (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 Interneuron to: Interneuron Pharmaceuticals, Inc.
99 Hayden Avenue
Lexington, MA 02173
Attention: President
Fax No.: 781-862-3859
with a copy to: Bachner, Tally, Polevoy Misher LLP
380 Madison Avenue
18th Floor
New York, NY 10017
Attention: Jill M. Cohen, Esq.
Fax No.: 212-682-5729
if to Intercardia to: Intercardia, Inc.
P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, NC 27709
Attention: President
Fax No.: 919-544-1245
with a copy to: Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail
Suite 300
Raleigh, NC 27607
Attention: Larry Robbins, Esq.
Fax No.: 919-781-4865
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 facsimile on
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a business day, on the business day after patch if sent by
nationally-recognized overnight courier and on the third business day
following the date of mailing if sent by mail.
5.4 Applicable Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware and the United States
without reference to any rules of conflict of laws.
5.5 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 Interneuron and Intercardia and the third shall be
appointed by the American Arbitration Association. Any such arbitration
shall be held in Wilmington, Delaware. 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.
5.6 Entire Agreement. This Agreement, together with the Merger Agreement
and the exhibits thereto, contains the entire understanding of the
Parties with respect to the subject matter hereof. All express or
implied agreements and understandings, either oral or written, relating
to the subject matter hereof, 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. To the extent this Agreement refers to or
incorporates sections of the Merck Agreement, the consent of
Interneuron shall be required in connection with the amendment or
modification of any of such sections of the Merck Agreement.
5.7 No Authority. Except as specifically set forth herein, 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 any other Party, without the prior consent of such other Party.
5.8 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 other:
wise.
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<PAGE> 15
5.9 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.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.
INTERCARDIA, INC.
By: /s/ Clayton Duncan
--------------------------------------
Name: Clayton Duncan
Title: President and Chief Executive
Officer
INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Glenn L. Cooper, M.D.
--------------------------------------
Name: Glenn L. Cooper, M.D.
Title: President and Chief Executive
Officer
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<PAGE> 16
APPENDIX A
----------
ASSIGNED AGREEMENTS
Merck Agreement
Princeton License Agreement
Princeton Sponsored Research Agreements
Side Agreement
<PAGE> 17
APPENDIX 1.2
------------
MERCK AGREEMENT
<PAGE> 18
APPENDIX 2.2
------------
GUARANTIES
Guaranty to Lease between Transcell and Cedar Brook Corporate Center, L.P.,
dated September 19, 1996.
Guaranty to Master Equipment Lease between Transcell and Phoenix Leasing
Incorporated.
<PAGE> 1
EXHIBIT 10.97
LICENSE AGREEMENT
This License Agreement (the "Agreement") dated April 29, 1998 (the
"Effective Date") is by and between the Administrators of the Tulane Educational
Fund, the corporate entity of the Tulane University, a non-profit corporation
organized under the laws of the State of Louisiana, located at 1430 Tulane Ave.,
New Orleans, Louisiana 70112 (hereinafter referred to as TULANE) and Interneuron
Pharmaceuticals, Inc., a Delaware corporation having its principal place of
business at 99 Hayden Avenue, Lexington, Massachusetts, 02173 (hereinafter
referred to as INTERNEURON).
W I T N E S S E T H
WHEREAS, TULANE is the sole owner of certain patent rights developed by
Akira Arimura, M.D., Ph.D. and those under his direction and control, and may
become a co-owner of certain patent rights in conjunction with Takeda Chemical
Industries Ltd. ("Takeda"), all concerning Pituitary Adenylate Cyclase
Activating Polypeptide (PACAP) and its use for neuroprotection, and;
WHEREAS, TULANE desires to use the patent rights to benefit TULANE and
to result in public utilization, consistent with TULANE'S educational and
research objectives, and is willing to grant a license thereunder; and
WHEREAS, INTERNEURON desires to obtain a license under the patent
rights and has represented to TULANE that it shall commit itself to thorough and
diligent efforts to develop, produce, manufacture, market and sell products
under the patent rights;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 AFFILIATE shall mean (i) any corporation or business entity of
which more than fifty percent (50%) 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; (ii)
any corporation or business entity which, directly or indirectly, owns, controls
or holds more than fifty percent (50%) (or the maximum ownership interest
permitted by law) of the securities or
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<PAGE> 2
other ownership interests representing the equity, the voting stock or, if
applicable, the general partnership interest, of a party; or (iii) any
corporation or business entity of which a party has the right to acquire,
directly or indirectly, at least fifty percent (50%) of the securities or other
ownership interests representing the equity, voting stock or general partnership
interests.
1.2 FIELD shall mean all uses other than those previously licensed by
TULANE as specifically set forth in the agreements provided to INTERNEURON and
set forth on Schedule 1.2 hereto, or uses related to the promotion or inhibition
of spermatogenesis.
1.3 FIRST COMMERCIAL SALE shall mean, with respect to the LICENSED
PRODUCT, the first sale for end use or consumption of such LICENSED PRODUCT in
any country in the Territory after all required approvals, including marketing
and pricing approvals, have been granted by the governing health authority of
such country or, where government approval is not required, the first sale in
that country in connection with a launch of LICENSED PRODUCT in that country.
1.4 GMP MATERIAL shall mean drug substance comprised of PACAP or an
active segment or fragment thereof, which is manufactured in accordance with
United States current good manufacturing practices.
1.5 IMPROVEMENTS shall mean any enhancements in the manufacture,
formulation, ingredients, preparation, presentation, means of delivery, dosage
or packaging of INVENTION or LICENSED PRODUCT and shall include any homologs,
analogs, derivatives, or conjugates of INVENTION or LICENSED PRODUCT or any new
uses of the foregoing discovered or co- discovered under the RESEARCH AGREEMENT.
1.6 IND shall mean an investigational new drug application and any
supplements and additions thereto relating to the use of INVENTION or LICENSED
PRODUCT.
1.7 INVENTION(S) shall mean Pituitary Adenylate Cyclase Activating
Polypeptide (PACAP) and any segments or fragments thereof (including their use
as a neuroprotectant) discovered by any of the INVENTORS and included in the
PATENT RIGHTS or arising under the RESEARCH AGREEMENT.
1.8 INVENTOR(S) shall mean Akira Arimura, M.D., Ph.D. or those under
Dr. Arimura's direction and control.
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<PAGE> 3
1.9 KNOW-HOW shall mean any information and materials, including but
not limited to, discoveries, information, enhancements, processes, formulas,
data, inventions, know-how and trade secrets, patentable or otherwise, which are
in TULANE'S possession and control and which relate to INVENTION, LICENSED
PRODUCT or IMPROVEMENTS in the FIELD or which are developed, produced, conceived
or invented under the RESEARCH AGREEMENT. Such know-how shall include, without
limitation, all chemical, pharmaceutical, toxicological, clinical, assay
control, manufacturing, regulatory, and any other information which relate to
the INVENTION, LICENSED PRODUCT or IMPROVEMENTS.
1.10 LICENSED PRODUCT shall mean a pharmaceutical preparation in form
for human use utilizing the INVENTION or IMPROVEMENTS.
1.11 MAJOR MARKETS shall mean any of (i) North America, (ii) Japan or
(iii) the European Economic Community ("EEC").
1.12 NDA shall mean a New Drug Application filed with the U.S. Food and
Drug Administration for use of LICENSED PRODUCT.
1.13 NET SALES shall mean the gross sales amount invoiced for LICENSED
PRODUCT by INTERNEURON, 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 using United States generally
accepted accounting principles ("GAAP"): (a) trade, cash, promotional or
quantity discounts or rebates or chargebacks actually allowed, (b) recalls,
returns and allowances actually credited to third parties, including, without
limitation, allowances for breakage and spoilage, (c) sales and excise taxes and
other taxes or governmental charges paid by INTERNEURON, which taxes are based
or levied on the sales price (and not income) of the LICENSED PRODUCT, (d)
transportation, (e) insurance charges if actually included in the gross sales
price (not to exceed the original billing or invoice amount), (f) retroactive
price reductions, and (g) reserves for bad debts or allowances not covered in
(a) through (f), net of recovery amounts.
1.14 PATENT RIGHTS shall mean (i) the patents or patent applications,
whether domestic or foreign, relating to INVENTION discovered or developed by
any of the INVENTORS and listed on Schedule 1.14(a) attached hereto and (ii)
contingent upon and after the assignment thereof to TULANE, TULANE's rights in
the TAKEDA PATENT RIGHTS, in each case including any patents that may issue
thereon and any other patents or patent applications, whether domestic or
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foreign, including any patents that may issue thereon, which during the term of
this Agreement are owned or co-owned by TULANE and which relate to LICENSED
PRODUCT or their uses or to INVENTIONS or IMPROVEMENTS and which are discovered
under the RESEARCH AGREEMENT, including certificates of invention and
applications for certificates of invention, 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.
1.15 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.
1.16 REGULATORY APPROVAL shall mean, with respect to a given country,
the governmental approvals necessary to market LICENSED PRODUCT in such country
to the public.
1.17 REGULATORY DATA shall mean INTERNEURON'S medical, toxicological,
pharmacological, preclinical, clinical, adverse reaction reports, processes for
manufacturing LICENSED PRODUCT and other data, relating to any LICENSED PRODUCT.
1.18 RESEARCH AGREEMENT shall mean the Research Funding Agreement dated
as of the Effective Date by and between TULANE and INTERNEURON, as amended from
time to time, or any other research funding agreements entered into between
TULANE and INTERNEURON or an AFFILIATE relating to research by an INVENTOR.
1.19 SALE or SOLD shall mean the transfer or disposition of a LICENSED
PRODUCT commencing with the FIRST COMMERCIAL SALE to a party other than
INTERNEURON or AFFILIATE for value whether in the form of cash payments,
royalties, fees, stock, or any other form of compensation including but not
limited to rights to compounds under the control of other companies or business
entities, provided that the value of any compensation other than cash payments
shall be determined by mutual agreement between INTERNEURON and TULANE using
GAAP as the basis for such agreement. For the purposes of determining NET SALES,
a sale shall be deemed to have occurred when an invoice therefor shall be
generated or the LICENSED PRODUCT shipped for delivery.
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1.20 TAKEDA PATENT RIGHTS shall mean the patents and/or patent
applications, whether domestic or foreign, currently owned by Takeda subject to
TULANE's rights to obtain co-ownership thereof, and listed on Schedule 1.14(b)
attached hereto.
ARTICLE II
GRANT OF LICENSE
2.1 The grant of the License shall be subject to the obligations of
TULANE to the United States Government, to the extent such obligations exist
with respect to the subject matter of this Agreement, under any and all
applicable laws, regulations, executive orders, and circulars, including those
set forth in 35 U.S.C. ss.200, et seq.
2.2 (a) TULANE hereby grants to INTERNEURON, subject to all the terms
and conditions of this Agreement and those set forth in Section 2.1 above, an
exclusive (even as to TULANE) worldwide, royalty bearing license under the
PATENT RIGHTS and KNOW-HOW to manufacture, have manufactured, import, use, offer
for sale and sell LICENSED PRODUCT in the FIELD.
(b) TULANE hereby grants to INTERNEURON, subject to all the
terms and conditions of this Agreement and those set forth in Section 2.1 above,
an exclusive (even as to TULANE) worldwide, royalty bearing license under the
PATENT RIGHTS and KNOW-HOW generated under the Research Agreement to
manufacture, have manufactured, import, use, offer for sale and sell LICENSED
PRODUCT.
2.3 INTERNEURON shall have the right to extend the license granted
herein to any AFFILIATE provided that such AFFILIATE consents to be bound by
this Agreement to the same extent as INTERNEURON and that INTERNEURON provides
to TULANE in writing evidence of such consent.
2.4 INTERNEURON shall have the right to grant one or more sublicenses
under the exclusive license granted hereunder consistent with this Agreement
provided that INTERNEURON shall be responsible for the operations of its
sublicensees relevant to this Agreement as if such operations were carried out
by INTERNEURON including the payment of royalties whether or not paid to
INTERNEURON by the sublicensees. INTERNEURON also agrees to use its best efforts
to incorporate in each such sublicense all terms with respect to TULANE and
TULANE'S rights as
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herein set forth. INTERNEURON further agrees to provide TULANE with a draft of a
proposed sublicense agreement (and any amendments thereto) it proposes to enter
into, for TULANE'S approval, which will not be unreasonably withheld, before
entering into such sublicense and TULANE agrees to use its best efforts to
provide such approval within five (5) business days after INTERNEURON provides
such draft to TULANE.
2.5 TULANE reserves the right to practice the PATENT RIGHTS and
KNOW-HOW for TULANE's own research and educational purposes; provided, however,
that (i) such use is for non- commercial academic purposes only and for no other
purpose; and (ii) TULANE shall promptly notify INTERNEURON of any intellectual
property, discoveries or inventions relating to or emanating from the INVENTION,
LICENSED PRODUCT or IMPROVEMENTS as a result of such use if generated under the
RESEARCH AGREEMENT, and that such intellectual property, discoveries or
inventions, and any domestic or foreign patents or patent applications that may
embody, disclose or claim such further intellectual property, discovery or
invention, once conceived and/or reduced to practice in the course of conducting
or performing such non-commercial academic activity, shall automatically become
part of the PATENT RIGHTS and KNOW-HOW at no additional cost to INTERNEURON.
ARTICLE III
CONFIDENTIAL INFORMATION
3.1 TULANE and INTERNEURON each agree that all PROPRIETARY INFORMATION
which are disclosed by INTERNEURON to TULANE and, to the extent contained in
documents marked "CONFIDENTIAL," by TULANE to INTERNEURON, shall be received in
strict confidence, used only for the purposes of this Agreement, and not
disclosed by the recipient party (except as required by law or court or
administrative agency order), its agents or employees without the written
consent of an authorized officer of the other party, unless such information (a)
was in the public domain at the time of disclosure, (b) later became part of the
public domain through no act or omission of the recipient party, its employees,
agents, successors or assigns, (c) was lawfully disclosed to the recipient party
by a third party having the right to disclose it, (d) was already known by the
recipient party at the time of disclosure, (e) is developed by the receiving
party independently of PROPRIETARY INFORMATION received from the other party, as
documented by research and
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development records, or (f) is required to be submitted to a government agency
or court to obtain and maintain the approvals and clearances of LICENSED
PRODUCT.
3.2 Each party's obligation of confidence hereunder shall be fulfilled
by using at least the same degree of care with the other party's PROPRIETARY
INFORMATION as it uses to protect its own PROPRIETARY INFORMATION. This
obligation shall exist while this Agreement is in force and for a period of two
(2) years thereafter except in the event of termination for breach on the part
of INTERNEURON, in which event INTERNEURON'S obligation to maintain the
PROPRIETARY INFORMATION confidential will exist for a period of five (5) years
after termination for breach.
3.3 Notwithstanding Sections 3.1 and 3.2 above, disclosure of
PROPRIETARY INFORMATION may be made by INTERNEURON to governmental agencies to
the extent required or desirable to conduct clinical trials or obtain REGULATORY
APPROVAL for LICENSED PRODUCT, obtain patents or as required by law or court or
administrative agency order. Disclosure may also be made to assignees,
sublicensees, distributors, customers, and agents, to nonclinical and clinical
investigators, and to consultants, where necessary or desirable, with
appropriate safeguards to protect the confidential underlying disclosure. In the
event of any required confidential disclosure pursuant to a court order or
administrative agency requirement, INTERNEURON shall provide to TULANE as much
advance notice of the required disclosure as possible, and TULANE in its sole
discretion, may seek through appropriate legal remedies to prevent the required
disclosure; provided, however, it is understood that (i) INTERNEURON, including
any AFFILIATE, may make disclosure of this Agreement and the terms hereof in a
press release and in any filings required by the United States Securities and
Exchange Commission and (ii) either party may publicly announce the existence of
this Agreement, its financial terms, the areas of responsibility of each party,
and the impact of this Agreement upon the financial position of the party.
3.4 This Agreement may be distributed solely (a) to those employees,
agents and independent contractors of TULANE and INTERNEURON who have a need to
know its contents, (b) to those persons whose knowledge of its contents will
facilitate performance of the obligations of the parties under this Agreement,
(c) to those persons, if any, whose knowledge of its contents is essential in
order to permit INTERNEURON to maintain or secure the benefits under policies of
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insurance, or (d) as may be required by law, regulation, or judicial order
including any filings required by the Securities and Exchange Commission.
ARTICLE IV
MILESTONES
4.1 INTERNEURON shall proceed diligently with the development of
LICENSED PRODUCT with the goal of obtaining governmental approvals for the
marketing of LICENSED PRODUCT. INTERNEURON shall be deemed to satisfy the
foregoing obligation if it achieves the following described milestones within
the time frame indicated:
(a) Commencement of Phase 1 clinical trials -- twenty-four
(24) months from the Effective Date, provided adequate quantities of GMP
MATERIAL to conduct preclinical and Phase 1 clinical trials in accordance with
INTERNEURON's protocols for such trials are available within twelve (12) months
of the Effective Date;
(b) Commencement of Phase 2 clinical trials -- twelve (12)
months from the successful completion of Phase 1 clinical trials;
(c) Commencement of Phase 3 clinical trials -- twelve (12)
months from the successful completion of Phase 2 clinical trials;
(d) FIRST COMMERCIAL SALE in each MAJOR MARKET in which an NDA
or equivalent is approved and, if required in the respective MAJOR MARKET,
reimbursement prices acceptable to INTERNEURON are approved -- as soon as
practicable after such approvals issue, but no later than six (6) months after
such approvals issue. Sales under treatment INDS or analogous regulatory
requirements shall not be construed to have satisfied the terms of this
milestone.
(e) Submission for regulatory approval in each of Japan and
the EEC -- two (2) years after U.S. NDA approval, provided that a patent
covering the use of LICENSED PRODUCT in the FIELD has issued in the applicable
market.
A milestone shall be deemed to be achieved by INTERNEURON if achieved
by any sublicensee or AFFILIATE of INTERNEURON.
4.2 At the written request of INTERNEURON, TULANE, at the expense of
INTERNEURON, agrees to assist and cooperate with INTERNEURON or its sublicensees
in the
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preparation and processing of the IND, NDA and any other applications, whether
or not similar to the IND or NDA, for REGULATORY APPROVAL.
4.3 In the event INTERNEURON shall fail to achieve any of the
milestones in Section 4.1 (a) through (e) within the time frame indicated,
INTERNEURON shall be entitled to a reasonable extension of such time period, not
to exceed six (6) months, if requested in writing by INTERNEURON and supported
by evidence provided to TULANE of technical difficulties, delays in preclinical
or clinical studies, regulatory processes or other commercially justifiable
reasons or delays which INTERNEURON could not have reasonably avoided. If
INTERNEURON shall fail to achieve any of these milestones for reasons other than
those set forth in the preceding sentence, or if INTERNEURON shall fail to
achieve a milestone within an applicable six (6) month extension as provided for
in the preceding sentence, INTERNEURON shall automatically be entitled to one
twelve (12) month extension of the time period (or an additional twelve (12)
month extension of the six (6) month extension if the preceding sentence was
applicable) for each such milestone in exchange for payments to TULANE of
$12,500 per month for each month during the extension period in which the
milestone is not met. If any milestones set forth in Section 4.1 (a) through (d)
are not met within such twelve (12) month extension, TULANE may, on ninety (90)
days prior written notice (and provided INTERNEURON shall not have achieved the
milestone during such 90 day period) at its sole discretion, terminate this
Agreement or terminate the exclusivity of this Agreement. If the milestone set
forth in Section 4.1(e) is not met in either MAJOR MARKET referred to in Section
4.1(e) within such twelve (12) month extension, TULANE may, on ninety (90) days
prior written notice (and provided INTERNEURON shall not have achieved the
milestone during such 90 day period) at its sole discretion, terminate this
Agreement or terminate the exclusivity of this Agreement, in either case solely
with respect to the MAJOR MARKET in which the milestone was not met. In the
event only the exclusivity of this Agreement is terminated, INTERNEURON shall
have no further obligations to achieve the milestones set forth in Section 4.1.
4.4 INTERNEURON shall own, control and retain primary legal
responsibility for the preparation, filing and prosecution of all regulatory
filings and applications required to obtain approvals for and/or commercially
sell and use LICENSED PRODUCT in each country.
4.5 Any LICENSED PRODUCT sold by INTERNEURON shall be sold under a
trademark selected, owned and maintained by INTERNEURON.
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ARTICLE V
CONSIDERATION
In consideration of the exclusive license granted by TULANE to
INTERNEURON under this Agreement, INTERNEURON agrees to pay TULANE the
following:
5.1 A one-time, non-creditable, non-refundable licensing fee of
$100,000 (One Hundred Thousand Dollars) upon execution of this Agreement.
5.2 One-time milestone payments upon achievement of the particular
milestones listed below in the development of LICENSED PRODUCT:
(a) $150,000 upon successful completion of a Phase 1 clinical
trial, non-creditable and non-refundable;
(b) $300,000 upon successful completion of Phase 2 clinical
trial, non-creditable and non-refundable;
(c) $500,000 upon successful completion of Phase 3 clinical
trials, non-creditable and non-refundable;
(d) $750,000 upon approval of an NDA in the United States,
non-refundable and creditable against future running royalties, provided,
however, that under no circumstances shall the royalty payable be reduced by
more than 50% of the royalty otherwise due in any calendar quarter;
(e) $750,000 upon approval of an NDA in Japan or the EEC
whichever comes first, non-refundable and creditable against future running
royalties, provided, however, that under no circumstances shall the royalty
payable be reduced by more than 50% of the royalty otherwise due in any calendar
quarter;
(f) $150,000 per year commencing twelve (12) months after the
commencement of Phase 3 clinical trials and expiring upon the submission of an
NDA in the United States.
5.3 INTERNEURON shall notify TULANE in writing within thirty (30) days
after the achievement of each milestone set forth in 5.2 (a) through (e) and
such notice shall be accompanied by payment of the applicable milestone payment.
The payments described in 5.2 (a) through (e) above shall be (i) payable only
upon the initial achievement of such milestone, and no amounts shall be due
hereunder for subsequent or repeated achievement of such milestones and (ii)
subject to potential increase under the terms and conditions set forth in
Section 5.5 of this Agreement.
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5.4 Effective as of the date of FIRST COMMERCIAL SALE of LICENSED
PRODUCT, a running royalty of five percent (5%) of annual NET SALES by
INTERNEURON, its AFFILIATES or its sublicensees on any LICENSED PRODUCT if such
LICENSED PRODUCT is covered by any patent included in said PATENT RIGHTS in the
country where such LICENSED PRODUCT is sold, or a royalty equal to 2.5 percent
(2.5%) of annual NET SALES of LICENSED PRODUCT sold in any country where such
LICENSED PRODUCT is not covered by any patent included in said PATENT RIGHTS,
subject to the following conditions:
(i) that only one royalty shall be due with respect to
the same unit of LICENSED PRODUCT;
(ii) that no royalties shall be due upon the sale or other
transfer among INTERNEURON, its AFFILIATES or
sublicensees, but in such cases the royalty shall be
due and calculated upon INTERNEURON's, its
AFFILIATE's or sublicensees' NET SALES to the first
independent third party;
(iii) that no royalties shall accrue on the disposition of
LICENSED PRODUCT in reasonable quantities by
INTERNEURON, AFFILIATES or sublicensees as samples
(promotion or otherwise) or as donations (for
example, to non-profit institutions or government
agencies for a non-commercial purpose); and
(iv) that in those cases where INTERNEURON, its AFFILIATES
or its sublicensee sells bulk compound to be
incorporated into LICENSED PRODUCT for commercial
purposes (excluding sales of bulk compound for
development or testing purposes), rather than
LICENSED PRODUCT, to an independent third party and
excluding sales within or among INTERNEURON, its
AFFILIATES or its sublicensees, and is unable to
determine NET SALES, the royalty obligations of this
Article V shall be applicable to the bulk compound
sold.
5.5 INTERNEURON will pay TULANE twenty-five percent (25%) (a "TRANSFER
PAYMENT") of any lump sum, periodic or other cash payments (other than running
royalties) received by INTERNEURON from sublicensees of INTERNEURON which
payments constitute advance royalties or other consideration for a sublicense
agreement relating to PATENT RIGHTS
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and KNOW-HOW, excluding amounts received by INTERNEURON from third parties in
connection with the issuance or debt or equity securities in INTERNEURON or to
fund research and development of LICENSED PRODUCT; provided, however, that (i)
any TRANSFER PAYMENTS made to TULANE under this Section 5.5 that arise as a
result of payments from sublicensees that are creditable against royalties
payable by such sublicensee to INTERNEURON shall be similarly credited against
future running royalties payable to TULANE hereunder; (ii) any TRANSFER PAYMENTS
made to TULANE under this Section 5.5 that arise as a result of payments from
sublicensees that are refunded by INTERNEURON shall be credited against the
milestones payable to TULANE listed under Section 5.2(a) through (e); (iii) in
the event that in connection with the execution of a sublicense agreement
INTERNEURON issues to a sublicensee equity or debt securities (and "INTERNEURON
INVESTMENT") in exchange for cash or equity securities of the sublicensee then,
upon the achievement of the first milestone listed under Section 5.2 (a) through
(e) which occurs after the date of execution of the sublicense agreement, the
milestone payment otherwise due TULANE upon achievement of the applicable
milestone event shall be increased by 25% of the cash received by INTERNEURON in
exchange for the INTERNEURON INVESTMENT or, if INTERNEURON receives equity
securities, 25% of the number of securities received by INTERNEURON, up to a
maximum increase in the milestone payment of $500,000 (or securities having a
fair market value of $500,000); (iv) only one TRANSFER PAYMENT shall be due with
respect to the same payment or investment made to or in INTERNEURON by a
sublicensee and (v) TRANSFER PAYMENTS shall be payable within sixty (60) days of
receipt by INTERNEURON of the applicable payment from a sublicensee except for
payments due under subparagraph (iii) which shall be payable at the time the
applicable milestone payment is payable.
5.6 Beginning with the calendar year in which the FIRST COMMERCIAL SALE
of LICENSED PRODUCT is made, a minimum payment of $250,000 will be paid to
TULANE, which minimum payment will be applicable against payments required under
paragraph 5.4. Such minimum payment of $250,000 shall be paid to TULANE each
succeeding year, which succeeding minimum payment will be applicable against
payments required under paragraph 5.4.
5.7 Commencing at such time as generic product prescriptions exceed
twenty five percent (25%) of prescriptions of LICENSED PRODUCT over any six
month period, on a country by country basis, no running royalties will be due on
SALES of LICENSED PRODUCT in said country.
5.8 If laws, rules or regulations require withholding of income taxes
or other taxes imposed upon payments set forth in this Article V, INTERNEURON
shall make such withholding
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payments as required and subtract such withholding payments from the payments
set forth in this Article V. INTERNEURON shall submit appropriate proof of
payment of the withholding taxes to TULANE within a reasonable period of time.
INTERNEURON 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.
5.9 If a compulsory license is granted to a third party with respect to
LICENSED PRODUCT in any country in which LICENSED PRODUCT is covered by an
issued patent included in the PATENT RIGHTS with a royalty rate lower than the
royalty rate provided by Section 5.4, then the royalty rate to be paid by
INTERNEURON on Net Sales in that country under Section 5.4 shall be reduced to
the rate paid by the compulsory third party licensee.
ARTICLE VI
REPORTS AND REPORTING
6.1 Within three (3) months after March 31, June 30, September 30, and
December 31 of each year, INTERNEURON shall deliver to TULANE a true and
accurate report, showing the SALES of LICENSED PRODUCT by INTERNEURON, its
AFFILIATES and its sublicensees, on a country-by-country basis if any exist,
during each three (3) calendar months preceding March 31, June 30, September 30,
and December 31 (each, a "Royalty Payment Period") as are pertinent to an
accounting for payments hereunder. Such report shall include at least (a) the
quantities of LICENSED PRODUCT manufactured and sold by INTERNEURON; (b) the
gross amount invoiced from total SALES and computation of NET SALES of LICENSED
PRODUCT on a country by country basis; (c) the calculation of royalties thereon;
and (d) the total royalties so computed and due TULANE; and (e) designation of
all payments received by INTERNEURON subject to Section 5.5 of this Agreement
during the aforementioned periods. Simultaneously with the delivery of each
report, INTERNEURON shall pay to TULANE the amount, if any, due for the period
of such report. If no payments are due, it shall be so reported. In the event
restrictions on the transfer of currency exist in any country so as to prevent
INTERNEURON from making payments in the United States, INTERNEURON shall take
all reasonable steps to obtain a waiver of such restrictions
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or to otherwise enable INTERNEURON to make such payments, failing which
INTERNEURON make the royalty payments due upon sale in such country in local
currency and deposit such payments in a local bank or other depository agreed to
the parties.
6.2. Beginning twelve (12) months after the Effective Date and annually
on such date thereafter INTERNEURON shall deliver to TULANE a written report as
to INTERNEURON'S efforts and accomplishments during the preceding year in
developing and commercializing LICENSED PRODUCT and its development and
commercialization plans for the upcoming year.
6.3 Amounts payable under this Agreement shall be paid in U.S. dollars
to TULANE or in such other currencies as the parties may agree upon in writing.
Such payments shall be subject to applicable law and regulations existing at the
place of remittance. NET SALES of LICENSED PRODUCT not denominated in U.S.
dollars and the royalties payable thereon shall first be determined in the
currency in which such LICENSED PRODUCT was sold and shall then be converted
into the equivalent number of U.S. dollars in accordance with GAAP based on the
average of the conversion rates on the first and last business day of each month
during each Royalty Payment Period, as published in the Wall Street Journal,
Eastern edition.
6.4 During the Term of this Agreement and for three (3) years
thereafter, INTERNEURON shall keep complete and accurate records of its, its
AFFILIATES' and its sublicensees' SALES and NET SALES of LICENSED PRODUCT under
the license granted in this Agreement in sufficient detail to enable the
royalties payable hereunder to be determined. Upon the written request of TULANE
and not more than once in each year, INTERNEURON shall permit a firm of
independent accountants (who shall be reasonably acceptable to INTERNEURON), at
TULANE'S expense, to periodically examine such of INTERNEURON'S books, ledgers,
and records during regular business hours at times mutually convenient to the
parties and upon reasonable notice to INTERNEURON for the purpose of and to the
extent necessary to verify any report required under this Agreement for any year
ending not more than thirty-six (36) months prior to the date of such request.
If such audit finds that any royalties were owed during such period, INTERNEURON
shall pay the additional royalties within thirty (30) days of the date TULANE
delivers to INTERNEURON such accounting firm's written report so concluding and,
in the event that the amounts due to TULANE are determined to have been
underpaid by more than five percent (5%), INTERNEURON shall pay the cost of such
examination, as well as accrued interest on the additional royalties due at an
annual rate
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equal to two percent (2%) over the prime rate, as published in the Wall Street
Journal, Eastern edition. Upon the expiration of thirty-six (36) months
following the end of any year the calculation of royalties payable with respect
to such year shall be binding and conclusive upon TULANE, and INTERNEURON and
its sublicensees shall be released from any liability or accountability with
respect to royalties for such year. TULANE shall treat all financial information
subject to review under this Section 6.4 or under any sublicense agreement in
accordance with the confidentiality provisions of this Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 (a) Each party represents and warrants to the other that:
(i) it is a corporation duly incorporated and validly
existing under the laws of its jurisdiction of incorporation, with full power
and authority to own or license its properties and conduct its business as
currently owned or licensed and conducted;
(ii) it has the corporate power and authority to
execute and deliver this Agreement, and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the execution and delivery of this Agreement
have been duly authorized by all necessary corporate action and this Agreement
has been duly executed and delivered by it and is a legal, valid and binding
obligation enforceable in accordance with its terms;
(b) TULANE represents and warrants that:
(i) the PATENT RIGHTS listed on Schedule 1.14(a) are
owned solely by TULANE free and clear of any liens, charges and encumbrances,
and no other person, corporate or other private entity, or governmental entity
or subdivision thereof, has any valid claim of ownership with respect to the
PATENT RIGHTS and KNOW-HOW, whatsoever, except as may be subject to the rights
of the United States Government;
(ii) it has not previously assigned, transferred,
conveyed or otherwise encumbered its right, title and interest in the PATENT
RIGHTS or KNOW-HOW or entered into any agreement with any third party which is
in conflict with the rights granted to INTERNEURON pursuant to this Agreement,
except as set forth on Schedule 1.2 to this Agreement;
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(iii) to its knowledge, the PATENT RIGHTS and
KNOW-HOW practiced as contemplated herein and the development, importation,
manufacture, use, offer for sale and sale of LICENSED PRODUCT does not and will
not infringe any patent rights owned or possessed by any third party;
(iv) there are no claims, judgments or settlements
against or owed by TULANE or pending or, threatened claims or litigation
relating to the PATENT RIGHTS and KNOW-HOW; and
(v) it has disclosed to INTERNEURON all information
known by it that is reasonably believed by TULANE to be related to the PATENT
RIGHTS and the activities contemplated under this Agreement.
(c) EXCEPT AS SET FORTH IN THIS AGREEMENT TULANE MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, CONCERNING THE
QUALITY, COMMERCIAL UTILITY, PATENTABILITY, FREEDOM FROM INFRINGEMENT,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER CHARACTERISTICS
OF THE PATENT RIGHTS.
ARTICLE VIII
INFRINGEMENT
A. Infringement Action Brought By a Third Party
8.1 If INTERNEURON, its AFFILIATES or sublicensees or TULANE is (are)
notified that INTERNEURON, its AFFILIATES, sublicensees or TULANE allegedly
infringe(s) any patent owned by or licensed to a third party, in connection with
any of the activities contemplated by this Agreement, TULANE or INTERNEURON
shall promptly notify the other in writing.
8.2 TULANE shall have no obligation to defend or settle any claim by a
third party that the manufacture, importation, offer for sale, sale, or other
use of the INVENTION, LICENSED PRODUCT, or IMPROVEMENTS infringes any patent
right owned by or licensed to the third party.
8.3 If a third party makes an infringement claim or files an
infringement action against TULANE, INTERNEURON, its AFFILIATES or sublicensees
arising out of INTERNEURON's. its AFFILIATE'S or sublicensee's manufacture,
importation, offer for sale, sale, or other use of the INVENTION, LICENSED
PRODUCT or IMPROVEMENTS, INTERNEURON shall defend the
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<PAGE> 17
claim or action at its expense and shall have the right to settle the claim or
action at its expense. TULANE shall, at INTERNEURON'S request, cooperate with
INTERNEURON by providing relevant records, documents, samples, information and
such other assistance as may be appropriate with respect to such action.
8.4 INTERNEURON shall defend, hold harmless, and indemnify TULANE from
and against any loss, expense (including reasonable attorneys' fees, court
costs, and other legal expenses), injury, damage, or act resulting from any
infringement action referred to in Section 8.3.
8.5 Should INTERNEURON, its AFFILIATES, or sublicensees obtain one or
more licenses under any patent not licensed hereunder, which are required in
order to make, use, or sell the INVENTIONS or LICENSED PRODUCT in a particular
country (whether as a condition of settlement of an infringement action, by
court order or otherwise required), the royalties payable to TULANE for sale in
the country involved shall be reduced by the amount of the royalty payable by
INTERNEURON, its AFFILIATES, or sublicensees, under any or all such additional
licenses; provided that in no circumstances shall the royalty provided for
herein be reduced by more than a total of fifty percent (50%) of royalties
otherwise due in the country involved.
8.6 In the event INTERNEURON, its AFFILIATES, or sublicensees, is
permanently enjoined from exercising its license rights granted hereunder
pursuant to an infringement action brought by a third party, or if the proposed
terms of settlement or judgment render the production of LICENSED PRODUCT
impracticable in INTERNEURON'S reasonable judgment, then INTERNEURON shall have
the right to terminate this Agreement with respect to the country where the
action is or was pending following thirty (30) days' written notice to TULANE.
B. Infringement Action Brought Against a Third Party
8.7 If any third party shall, in the reasonable opinion of either
party, infringe any of the PATENT RIGHTS, then such party shall promptly notify
the other party. INTERNEURON (or its AFFILIATES or sublicensee) shall have the
initial sole right to commence an action for infringement against the third
party, in its own name and/or in the name of TULANE, together with the right to
enforce and collect any judgment thereon. If INTERNEURON (or its sublicensee)
elects to exercise the right to commence an action, then TULANE shall, at
INTERNEURON'S request, and at INTERNEURON'S expense for TULANE'S out-of-pocket
costs and expenses, assist in the prosecution of such action, including, but not
limited to, consenting to being joined in such action
-17-
<PAGE> 18
as a voluntary plaintiff. INTERNEURON shall bear its own internal and external
legal and other costs and expenses associated with the prosecution of the
action. TULANE shall have the right to independently retain legal counsel and
consultants, at TULANE'S sole cost and expense, but such counsel or consultants
shall not have the right to affect INTERNEURON'S (or its AFFILIATE(S) or
sublicensee(s)) sole management of the prosecution of the action.
8.8 Any monetary recovery (whether by settlement or judgment) in
connection with an infringement action commenced by INTERNEURON or its AFFILIATE
or sublicensee shall be applied first to reimburse INTERNEURON, its AFFILIATE
and its sublicensee, if applicable, for their out-of-pocket expenses (including
reasonable attorneys fees) incurred in prosecuting such action and the expenses
of TULANE borne by INTERNEURON hereunder. Any balance remaining shall be shared
between INTERNEURON and TULANE in the ratio of 75:25 (INTERNEURON:
TULANE), respectively.
8.9 Should neither INTERNEURON, its AFFILIATE nor its sublicensee take
appropriate and diligent action with respect to any such infringement within
three months after receiving notice of any infringement or possible
infringement, then TULANE shall have the right but not the obligation to take
such action, at its own expense, in its own name, and the right to enforce and
collect and keep the entirety of any judgment thereon.
8.10 Neither party shall settle any infringement action without the
prior consent of the other party, not to be unreasonably denied or delayed.
ARTICLE IX
PATENTS
9.1 TULANE shall use all commercially reasonable efforts to obtain the
assignment by TAKEDA to TULANE of TULANE's interest in the TAKEDA PATENT RIGHTS,
whereupon the TAKEDA PATENT RIGHTS shall automatically become part of the PATENT
RIGHTS and subject to this Agreement at no additional cost to INTERNEURON.
9.2 Ownership of PATENT RIGHTS shall remain with TULANE either solely
or jointly with Takeda, as the case may be, subject to the license granted
hereunder. INTERNEURON, using counsel of its choice, shall prosecute and
maintain patents and patent applications included in the PATENT RIGHTS, which
are owned solely by TULANE. TULANE
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<PAGE> 19
shall be provided with copies of all patents and patent applications and shall
be entitled to review and comment upon all actions undertaken in the prosecution
and maintenance of all patents and patent applications owned solely by TULANE.
TULANE shall use its best efforts to obtain Takeda's agreement to permit
INTERNEURON, through INTERNEURON's counsel of choice, to assist Takeda, on
behalf of TULANE, with the prosecution and maintenance of all patents and patent
applications included in the TAKEDA PATENT RIGHTS. Moreover, TULANE shall use
its best efforts to ensure that INTERNEURON shall receive from Takeda or its
agents copies of all appropriate documents relating to the prosecution and
maintenance of the TAKEDA PATENT RIGHTS including, but not limited to, copies of
correspondence, office actions, responses, appeals and the like. INTERNEURON
shall be entitled to review and comment upon all actions in a reasonable time in
advance of when such actions are due or undertaken in the prosecution and
maintenance of the TAKEDA PATENT RIGHTS.
9.3 The costs for preparing, filing, prosecuting, and maintaining
patents and patent applications included in the PATENT RIGHTS, which are owned
solely by TULANE, and one-half the costs for preparing, filing, prosecuting and
maintaining patents and patent applications included in the PATENT RIGHTS, which
become jointly owned by TULANE with Takeda, shall be borne by INTERNEURON.
INTERNEURON'S obligation to pay patent prosecution and maintenance costs shall
continue as long as this Agreement remains effective.
9.4 TULANE shall have the right to terminate this license in any
particular country only in which INTERNEURON fails to pay the costs set forth in
paragraph 9.2 above, according to the provisions of Article 11.3.
ARTICLE X
INTELLECTUAL PROPERTY OWNED SOLELY BY INTERNEURON
Ownership of all intellectual property rights related to INVENTIONS,
LICENSED PRODUCT or IMPROVEMENTS, including, but not limited to, modifications,
technical information, know-how, delivery systems, processes, procedures,
compounds, compositions, methods, formula, protocol, techniques or any
improvements thereon (whether or not patentable), which are conceived or made
solely by INTERNEURON, its employees or agents, or its AFFILIATES, and ownership
of any corresponding domestic and foreign patent applications and
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<PAGE> 20
patents, trademarks, tradenames, copyrights, trade dress, trade secrets, designs
and the like (collectively, "INTERNEURON RIGHTS"), shall accrue to and remain
with INTERNEURON.
ARTICLE XI
TERM AND TERMINATION
11.1 This Agreement shall become effective on the Effective Date.
Unless sooner terminated as provided for below, this Agreement shall continue in
effect for ten (10) years after the FIRST COMMERCIAL SALE of the LICENSED
PRODUCT or until the expiration of the last to expire of any patent included in
the PATENT RIGHTS, whichever is longer on a country by country basis.
Thereafter, INTERNEURON shall have a fully paid up license without further
obligation to TULANE.
11.2 The provisions of ARTICLE III (Confidentiality) and ARTICLE XIII
(Indemnification) shall survive termination or expiration of this Agreement in
accordance with their respective terms.
11.3 Unless otherwise specified, if (1) either party breaches any
material obligation imposed by this Agreement; (2) either party makes any
general assignment for the benefit of its creditors; (3) a petition is filed by
or against either party, or any proceeding is initiated against either party as
a debtor, under any bankruptcy or insolvency law, unless the laws then in effect
void the effectiveness of this provision; or (4) a receiver, trustee, or any
similar officer is appointed to take possession, custody, or control of all or
any part of either party's assets or property, then the other party may, at its
option, send a written notice that it intends to terminate the license granted
by this Agreement.
11.4 If the party in breach does not cure the breach or remedy the
event within ninety (90) days from the notice date, then the other party shall
have the right to terminate the license granted by this Agreement, which
termination shall be effective immediately upon the date of mailing of a written
notice of termination to the party in breach.
11.5 Notwithstanding anything contained herein to the contrary,
INTERNEURON shall have the right to terminate this Agreement at any time by
giving ninety (90) days written notice to TULANE in the event of any event,
condition or regulatory action that affects the safety or efficacy or
marketability of LICENSED PRODUCT or in the event INTERNEURON is unable to
obtain sufficient quantities of GMP MATERIAL to conduct clinical trials. In the
event of such termination, (i) the rights and obligations hereunder, including
any payment obligations not due and owing as of
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<PAGE> 21
the termination date, shall terminate and (ii) INTERNEURON shall have no further
rights with respect to the PATENT RIGHTS or KNOW-HOW.
11.6 Upon termination of this Agreement for any cause, nothing herein
shall be construed to release either party of any obligation that has matured
prior to the effective date of such termination. INTERNEURON may, after the
effective date of such termination, sell all LICENSED PRODUCT that it may have
on hand at the date of termination, provided that it pays earned royalty thereon
as provided in this Agreement.
11.7 In the event of termination of this Agreement for material breach
by INTERNEURON, INTERNEURON agrees no longer to use any of the PATENT RIGHTS or
KNOW-HOW after the effective date of termination. In such event, upon the
written request of TULANE, INTERNEURON and TULANE shall negotiate in good faith
an agreement granting TULANE a license to use INTERNEURON'S REGULATORY DATA and
INTERNEURON RIGHTS in exchange for the following payments and such other terms
and conditions as INTERNEURON and TULANE may mutually agree:
(a) payments equal to 30% of royalties received by TULANE for
any license by TULANE utilizing the REGULATORY DATA or the INTERNEURON RIGHTS,
not to exceed the following percentages of net sales (to be defined similarly to
NET SALES) of products:
(i) if termination of this Agreement occurs prior to
commencement of Phase 1 clinical trials: 2% of net sales;
(ii) if termination of this Agreement occurs after
commencement of Phase 1 clinical trials but before completion of Phase 2
clinical trials: 4% of net sales;
(iii) if termination occurs after completion of Phase
2 clinical trials: 8% of net sales; and
(b) a payment equal to 30% of any payments received by TULANE
from a licensee of TULANE other than royalties.
11.8 In the event of termination of this Agreement by INTERNEURON, upon
written request of TULANE, INTERNEURON and TULANE shall negotiate in good faith
an agreement granting TULANE a license to use INTERNEURON'S REGULATORY DATA and
INTERNEURON RIGHTS in exchange for payments equal to 50% of the payments set
forth in Section 11.7 of this Agreement.
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<PAGE> 22
ARTICLE XII
ASSIGNMENT
This Agreement shall not be assignable in whole or in part by any party
without the written consent of the other which consent shall not be unreasonably
withheld and shall be given provided that the assignment is consistent with the
parties' overall objectives in connection with this Agreement; provided,
however, that INTERNEURON may, without such consent, assign the Agreement in
whole or in part and its rights and obligations hereunder or in connection with
the transfer or sale of all or substantially all of its assets related to
LICENSED PRODUCT or all or substantially all of its business or in the event of
its merger or consolidation or change in control or similar transaction. Any
assignee shall assume all obligations of its assignor under this Agreement.
ARTICLE XIII
INDEMNIFICATION
13.1 TULANE assumes no responsibility for the manufacture or product
specification or end-use of any LICENSED PRODUCT which is manufactured by or
sold by or for INTERNEURON.
13.2 INTERNEURON shall defend, hold harmless and indemnify TULANE, its
administrators, trustees, officers, directors, employees and agents and the
insurers of TULANE and the successors and heirs of the insurers and these
persons, at the expense of INTERNEURON, from any and all claims, causes of
action, court or administrative orders, and liability (including, but not
limited to, product liability, strict liability, and negligence and including,
but not limited to, personal injury and property damage, including environmental
damage) for any loss, expense (including reasonable attorneys' fees, court
costs, and other legal expenses) injury, damage, or act arising out of the use
of any product or service utilizing the PATENT RIGHTS or LICENSED PRODUCT, or
arising out of the negligence or wilful malfeasance of INTERNEURON or its
employees or agents in the manufacture, use or sale of LICENSED PRODUCT except
to the extent such liability arises from the negligence of TULANE. INTERNEURON
agrees to maintain product liability insurance naming TULANE as additional
insured with a reputable insurance company approved by TULANE, in an amount not
less than Three Million Dollars ($3,000,000.00) per person per occurrence with
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<PAGE> 23
an aggregate limit of Ten Million Dollars ($10,000,000). At TULANE's request,
INTERNEURON agrees to provide TULANE with a certified copy of such policy or
policies within thirty (30) days of purchase of each policy, which insurance
will be obtained no later than thirty (30) days prior to the commencement of
clinical trials.
13.3 TULANE shall hold harmless and indemnify INTERNEURON from
liability resulting from TULANE'S acts or omissions within the terms of this
Agreement; provided however, TULANE shall not indemnify or hold INTERNEURON
harmless from any claims, demands, or causes of action arising in favor of any
person or entity growing out of, incident to, or resulting directly or
indirectly from negligence (whether sole, joint, concurring or otherwise) of
INTERNEURON, its officers, agents, representative, or employees, or any person
or entity not subject to TULANE'S supervision or control.
ARTICLE XIV
GENERAL
14.1 TULANE will be free to publish the results of any research related
to INVENTIONS and use any information for purposes of research, teaching, and
other educationally-related matters under the following conditions: In order to
avoid loss of PATENT RIGHTS as a result of premature disclosure of patentable
information, TULANE shall submit any prepublication or predisclosure material in
the FIELD to INTERNEURON for review at least thirty (30) days prior to planned
submission for publication or disclosure. INTERNEURON shall have the right to
request alterations or revisions, and such request shall not be unreasonably
withheld. INTERNEURON shall notify TULANE within such thirty (30) days whether
it desires to file patent applications on any inventions contained in the
material and in such case, TULANE shall proceed to file a patent application in
due course at the expense of INTERNEURON. INTERNEURON may request a delay in
submission for publication, but in no event shall such delay exceed an
additional sixty (60) days. If the proposed materials contain confidential
information of INTERNEURON, TULANE shall, at INTERNEURON'S request, delete said
confidential information from the intended publication.
14.2 If there is any dispute between INTERNEURON and TULANE arising
under this Agreement, the parties shall first attempt initially to solve all
claims, disputes, or controversies by conducting good faith negotiations. If the
Parties are unable to settle the matter between themselves,
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<PAGE> 24
the matter shall thereafter be resolved by an appropriate alternative dispute
resolution mechanism, including mediation, arbitration, or otherwise. In the
event the parties cannot agree on an appropriate alternative dispute mechanism,
the dispute shall be settled by binding arbitration in accordance with the rules
of the American Arbitration Association (AAA). 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 continue to make good faith
efforts to amicably resolve the dispute without arbitration. The arbitration
shall be conducted in Louisiana or, if requested by INTERNEURON and if
INTERNEURON agrees to pay the related out-of-pocket expenses of TULANE to attend
such arbitration, Delaware, by a panel of three arbitrators: one arbitrator
shall be appointed by each of INTERNEURON and TULANE and the third shall be
appointed by the American Arbitration Association and each shall have
demonstrable experience in, or knowledge of, the drug development and
registration process in one or more of the MAJOR MARKETS. The decision of the
arbitrators shall be final and binding on the parties with respect to the
subject matter thereof, and judgment upon the award rendered by the arbitrators
may be entered in any court with competent jurisdiction. 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. Each party shall bear
its own costs and expenses incurred in connection with any arbitration
proceeding, and the parties share equally the costs of the arbitration levied by
the AAA.
14.3 This Agreement constitutes the complete agreement between the
parties with regard to the PATENT RIGHTS. No agreements altering or
supplementing the terms hereof may be made except by means of a written document
signed by the duly authorized representative of the parties.
14.4 INTERNEURON agrees not to use the names of TULANE or any member of
its staff in sales promotions or advertising or in any other form of publicity
without the written permission of TULANE, except in accordance with Article III,
which permission shall not be unreasonably withheld and shall be given promptly.
14.5 Headings included herein are for convenience only and shall not be
used to construe this Agreement.
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<PAGE> 25
14.6 Failure of either party to enforce a right under this Agreement
shall not act as a waiver of that right or the ability to later assert that
right relative to the particular situation involved.
14.7 This Agreement shall be construed and enforced in accordance with
the laws of the United States of America and of the State of Delaware without
regard to Delaware's internal conflict of law principles.
14.8 If any provision of this Agreement shall be found to be void,
invalid or unenforceable, the same shall be reformed to comply with applicable
law or stricken if not so conformable, so as not to affect the validity of
enforceability of this Agreement. 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.
14.9 INTERNEURON shall comply in all material respects with all laws,
governmental regulations, and standards applicable to the manufacture,
distribution, sale, promotion, and use of all LICENSED PRODUCT.
14.10 To the extent required by applicable law, INTERNEURON shall mark
all LICENSED PRODUCT or their containers in accordance with the applicable
patent marking laws.
14.11 INTERNEURON agrees to register this Agreement with any foreign
governmental agency which requires such registration, and INTERNEURON shall pay
all costs and legal fees in connection therewith.
14.12 TULANE agrees to report to INTERNEURON as soon as possible any
information received from any source concerning any major unexpected side
effect, adverse reaction or injury and any substantial increase in the number of
unexpected side effects, adverse reactions or injuries associated with the use
and marketing of LICENSED PRODUCT, whether or not determined to be attributable
thereto. INTERNEURON agrees to report to TULANE similar information as set forth
in the preceding sentence at such time as such information is, and to the extent
required to be, submitted to the FDA.
14.13 To the extent required by applicable United States laws, if at
all, INTERNEURON agrees that LICENSED PRODUCT will be manufactured in the United
States, or its territories, subject to such waivers as may be required or
obtained, if at all, from the United States Government.
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<PAGE> 26
ARTICLE XV
NOTICES
15.1 All notices, disclosures, and all other communications hereunder
shall be in writing and shall be deemed to be duly given if delivered
personally, sent by facsimile (and promptly confirmed by personal delivery,
registered or certified mail or overnight courier), or delivered by courier
service or mailed by registered or certified mail prepaid and return receipt
requested) addressed as follows:
(a) If to INTERNEURON:
Interneuron Pharmaceuticals, Inc.
99 Hayden Avenue
Lexington, MA 02173
Attn: Glenn L. Cooper, M.D., President
and Chief Executive Officer
Fax No.: (781) 862-3859
(b) If to TULANE:
John C. LaRosa, Chancellor
Tulane University Medical Center
1430 Tulane Avenue SL 76
New Orleans, Louisiana 70112
Attn: Office of Technology Development
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<PAGE> 27
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
INTERNEURON PHARMACEUTICALS, INC.:
By: /s/ Mark Butler
---------------------------------
Mark Butler, Executive Vice President
and Chief Administrative Officer
Date: April 29, 1998
---------------------------------
THE ADMINISTRATORS OF THE TULANE EDUCATIONAL FUND:
By: /s/ John C. LaRosa
---------------------------------
John C. LaRosa, Chancellor
Tulane University Medical Center
Date: April 29, 1998
---------------------------------
Agreed and Acknowledged By:
/s/ Akira Arimura
---------------------------------
Akira Arimura, M.D., Ph.D.
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<PAGE> 28
SCHEDULE 1.2
Patent License Agreement by and between the Administrators of the Tulane
Educational Fund and Peninsula Laboratories effective July 7, l992 concerning
Pituitary Adenylate Cyclase Activating Polypeptide (PACAP) for use as a reagent
for scientific research.
Patent License Agreement by and between the Administrators of the Tulane
Educational Fund and American Peptide Company effective December 1, l991
concerning Pituitary Adenylate Cyclase Activating Polypeptide (PACAP) for use as
a reagent for scientific research.
Patent License Agreement by and between the Administrators of the Tulane
Educational Fund and Bachem California effective August 1, l992 concerning
Pituitary Adenylate Cyclase Activating Polypeptide (PACAP) for use as a reagent
for scientific research.
Patent License Agreement by and between the Administrators of the Tulane
Educational Fund and Peptide Institute, Inc. effective July 7, l992 concerning
Pituitary Adenylate Cyclase Activating Polypeptide (PACAP) for use as a reagent
for scientific research.
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<PAGE> 29
SCHEDULE 1.14(A)
Pituitary Adenylate Cyclase Activating Polypeptide (PACAP) Patents owned solely
by the Administrators of the Tulane Educational Fund
U.S. Patent #5,128,242 entitled "Novel Hypothalamic Polypeptides with Adenylate
Cyclase Stimulating Activity", filed 6/19/89. Issued 7/7/92
Canadian patent application - #CA 2,018,714 filed 6/11/90 entitled"Novel
Hypothalamic Polypeptides with Adenylate Cyclase Stimulating Activity"
Japanese patent application - #2-158,895 filed 6/19/90 entitled "Novel
Hypothalamic Polypeptides with Adenylate Cyclase Stimulating Activity"
Japanese filing - 08-510838, National Stage of PCT/US94/10752 entitled "Method
and Pharmaceutical Composition for Prevention and Treatment of Brain Damage".
U.S. Serial #08/809,500 entitled "Method and Pharmaceutical Composition for
Prevention and Treatment of Brain Damage", National Stage of PCT/US95/12057,
which was a continuation of PCT/US94/10753.
-29-
<PAGE> 30
SCHEDULE 1.14(B)
Pituitary Adenylate Cyclase Activating Polypeptide (PACAP) patents invented
jointly with Takeda Chemical Industries, Ltd. These patents will become part of
the Patent Rights, contingent upon co-assignment by Takeda Chemical Industries
Ltd. to the Administrators of the Tulane Educational Fund, which assignments
have not been finalized on the effective date of this License.
U.S. Patent #5,198,542 entitled "DNA Encoding a Pituitary Adenylate Cyclase
Activating Protein and Use Thereof"
U.S. Patent #5,326,860 entitled "Pituitary Adenylate Cyclase Activating Protein
Precursor"
U.S. Patent #5,521,069 entitled "Genomic DNA Exons Having Exons Encoding Human
Pituitary Adenylate Cyclase Activity Peptide With 38 Amino Acids Residues
(PACAP38) And A Promoter Thereof"
European patent application # 96114503.4- entitled "Polypeptide Having c-AMP
Producing Activity for the Prevention of Neuronal Cell Death". Published
application EP-0768090-A2.
-30-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<INVENTORY> 831,000
<CURRENT-ASSETS> 80,302,000
<PP&E> 5,542,000
<DEPRECIATION> (1,392,000)
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<TOTAL-LIABILITY-AND-EQUITY> 90,352,000
<SALES> 2,666,000
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<TOTAL-COSTS> 66,719,000
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<INTEREST-EXPENSE> 214,000
<INCOME-PRETAX> (57,256,000)
<INCOME-TAX> 0
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