<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_______________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION 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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at February 11, 2000:
Common Stock $.001 par value 42,358,162 shares
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999
and September 30, 1999...................................................... 3
Consolidated Statements of Operations for the Three Months
ended December 31, 1999 and 1998............................................ 4
Consolidated Statements of Cash Flows for the Three Months
ended December 31, 1999 and 1998............................................ 5
Notes to Unaudited Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................16
Item 6. Exhibits and Reports on Form 8-K.....................................19
SIGNATURES....................................................................20
2
<PAGE>
Item 1. Financial Statements
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,963 $ 19,354
Marketable securities 3,482 2,457
Accounts receivable 1,724 785
Prepaids and other current assets 1,779 1,812
---------- ----------
Total current assets 43,948 24,408
Investment in unconsolidated subsidiary 2,064 1,827
Property and equipment, net 344 403
---------- ----------
$ 46,356 $ 26,638
========== ==========
LIABILITIES
Current liabilities:
Accounts payable $ 175 $ 157
Accrued expenses 19,226 20,100
Deferred revenue 3,000 --
Current portion of capital lease obligations 49 68
---------- ----------
Total current liabilities 22,450 20,325
Long-term portion of capital lease obligations -- 2
Minority interest 189 189
STOCKHOLDERS' EQUITY
Preferred stock; $.001 par value, 5,000,000 shares authorized;
Series B, 239,425 shares issued and outstanding (liquidation
preference at December 31, 1999 $3,034) 3,000 3,000
Series C, 5,000 shares issued and outstanding at (liquidation
preference at December 31, 1999 $503) 500 500
Common stock; $.001 par value, 80,000,000 shares authorized;
42,097,262 and 42,019,426 shares issued and outstanding
at December 31, 1999 and September 30, 1999, respectively 42 42
Additional paid-in capital 272,834 272,337
Accumulated deficit (252,899) (269,758)
Accumulated other comprehensive income 240 1
---------- ----------
Total stockholders' equity 23,717 6,122
---------- ----------
$ 46,356 $ 26,638
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended December 31, 1999 and 1998
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended December 31,
---------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Contract and license fee revenues $ 23,751 $ 691
Costs and expenses:
Cost of revenues 2,050 --
Research and development 2,660 11,653
Selling, general and administrative 2,473 3,245
----------- ---------
Total costs and expenses 7,183 14,898
----------- ---------
Income (loss) from operations 16,568 (14,207)
Investment income, net 291 777
Minority interest -- 2,345
----------- ---------
Net income (loss) $ 16,859 $(11,085)
=========== ========
Net income (loss) per common share - basic and diluted:
Net income (loss) per common share - basic $ 0.40 $ (0.27)
Net income (loss) per common share - diluted $ 0.39 $ (0.27)
Weighted average shares outstanding - basic 42,031 41,817
=========== ========
Weighted average shares outstanding - diluted 43,345 41,817
=========== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1999 and 1998
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
-----------------------
December 31,
------------------------
1999 1998
--------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 16,859 $ (11,085)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 59 290
Minority interest in net loss of consolidated subsidiaries -- (2,345)
Noncash compensation 506 1,463
Change in assets and liabilities:
Accounts receivable (939) 830
Prepaid and other assets 33 (772)
Accounts payable 18 249
Deferred revenue 3,000 --
Accrued expenses and other liabilities (883) (1,246)
--------- ----------
Net cash provided (used) by operating activities 18,653 (12,616)
--------- ----------
Cash flows from investing activities:
Capital expenditures -- (265)
Purchase of marketable securities (4,915) (2,520)
Proceeds from maturities and sales of marketable securities 3,892 8,471
--------- ----------
Net cash (used) provided by investing activities (1,023) 5,686
--------- ----------
Cash flows from financing activities:
Net proceeds from issuance of stock by subsidiaries -- 49
Principal payments of capital lease obligations (21) (91)
Principal payments of notes payable -- (33)
--------- ----------
Net cash (used) by financing activities (21) (75)
--------- ----------
Net change in cash and cash equivalents 17,609 (7,005)
Cash and cash equivalents at beginning of period 19,354 39,330
--------- ----------
Cash and cash equivalents at end of period $ 36,963 $ 32,325
========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
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. ("Interneuron" or the "Company) 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, 1999.
Interneuron is a biopharmaceutical company engaged in the development and
commercialization of a portfolio of products and product candidates primarily
for central nervous system and other disorders.
B. BASIC AND DILUTED INCOME (LOSS) PER SHARE
-----------------------------------------
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended December 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Numerator for basic and diluted income (loss)
per share:
Net income(loss) $ 16,859,000 $(11,085,000)
============ ============
Denominator for basic income (loss) per share:
Weighted average shares outstanding - basic 42,031,000 41,817,000
============ ============
Denominator for diluted income (loss)
per share:
Weighted average shares outstanding 42,031,000 41,817,000
Dilutive effect of:
Shares issuable in connection with
stock option plans 39,000 --
Shares issuable in connection with
restricted stock awards 653,000 --
Shares issuable in connection with
convertible preferred stock 622,000 --
------------ ------------
Weighted average shares outstanding - diluted 43,345,000 41,817,000
============ ============
Net income (loss) per common share - basic $0.40 $(0.27)
============ ============
Net income (loss) per common share - diluted $0.39 $(0.27)
============ ============
</TABLE>
6
<PAGE>
During the three month period ended December 31, 1999, 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 6,405,084 shares of Common Stock at prices
ranging from $3.13 to $20.13 with expiration dates ranging up to March 17, 2009;
(ii) warrants to purchase 812,500 shares of Common Stock with exercise prices
ranging from $5.00 to $12.77 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 to December
31, 1999.
During the three month period ended December 31, 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 6,314,508 shares of Common Stock at prices
ranging from $3.56 to $20.13 with expiration dates ranging up to March 3, 2008;
(ii) warrants to purchase 812,500 shares of Common Stock with exercise prices
ranging from $5.00 to $12.77 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 December
31, 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 17,400 shares of Common
Stock at prices ranging from $0.83 to $3.13 with expiration dates ranging up to
August 3, 2005; (ii) Series B and C preferred stock convertible into 622,222
shares of Common Stock; and (iii) unvested Restricted Stock Awards to acquire
725,146 shares of Common Stock granted pursuant to the Company's 1997 Equity
Incentive Plan.
Certain of the securities listed above contain anti-dilution
provisions.
C. COMPREHENSIVE INCOME
--------------------
Comprehensive income (loss) for the three month periods ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Net income (loss) $16,859,000 $(11,085,000)
Change in unrealized net gain on
marketable securities 239,000 (21,000)
----------- ------------
Comprehensive income (loss) $17,098,000 $(11,106,000)
=========== ============
</TABLE>
D. WITHDRAWAL OF REDUX(TM), LEGAL PROCEEDINGS, AND RELATED CONTINGENCIES
---------------------------------------------------------------------
On September 27, 1999, the Company announced that the U.S. District Court
for the Eastern District of Pennsylvania (the "District Court") rejected a
proposed agreement among the Company and the Plaintiffs' Management Committee
("PMC") to settle all product liability litigation and claims against the
Company related to Redux. The District Court found that the proposed settlement
did not meet the requirements for limited fund class actions, as described by
the Supreme Court in its June 23, 1999 decision in Ortiz v. Fibreboard Corp.
------------------------
("Ortiz"). The District Court also vacated the stays of pending and future
litigation that were previously in effect. The Company filed a petition with the
U.S. Court of Appeals for the Third Circuit on October 12, 1999, seeking review
of the District Court's ruling. That petition is still pending.
7
<PAGE>
Interneuron is named, together with other pharmaceutical companies, as a
defendant in approximately 2,160 product liability 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. As a result of the District Court's rejection
of the proposed settlement agreement, the ongoing Redux-related litigation is
proceeding against the Company. The existence of such litigation, including the
time and expenses associated with the litigation, may materially adversely
affect the Company's business, including its ability to obtain sufficient
financing to fund operations. Although the Company is unable to predict its
expense, or the outcome of, any such litigation, such outcome may materially
adversely affect the Company's future business, results of operations and
financial condition.
On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed interpleader actions against Les
Laboratoires Servier ("Servier") and the Company in the District Court.
Insurance policies issued by the insurers to the Company have an aggregate limit
of $40,000,000 in three tiers: a primary level of $20,000,000, then $5,000,000
in excess of $20,000,000 and a third tier of $15,000,000 in excess of
$25,000,000. The insurers allege that both the Company and Servier have asserted
claims against these policies, a substantial portion of which has been used in
the Company's defense of the litigation. The insurers have deposited the
available proceeds up to the limits of their policies, which is subject to
ongoing claims by the Company and Servier, into the registry of the District
Court.
On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of American Home Products Corp.'s ("AHP") product
liability litigation related to Redux and Pondimin. The Company is not a
released party under this settlement.
On January 24, 2000, the Company announced it has filed a complaint against
AHP in the Superior Court of the Commonwealth of Massachusetts. The complaint
seeks unspecified but substantial damages and attorney's fees pursuant to
Massachusetts law for AHP's knowing and willful deceptive acts and practices,
fraud and misrepresentations. AHP has not filed an answer to such complaint and
the Company cannot predict its costs relative to this litigation or the duration
or the outcome of the proceedings.
The Company and certain present or former directors and/or officers of the
Company were 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. On February 2, 2000, the Massachusetts Federal
Court entered an Order of Final Settlement Approval and Final Judgment of
Dismissal, which, among other things, granted final judgment to and an approval
of the settlement of the lawsuits on a class-wide basis, covering a class period
of March 24, 1997 to July 8, 1997. The settlement is for a de minimus amount
and will be entirely funded by insurance proceeds.
E. AGREEMENTS
In November 1999, the Company licensed exclusive U.S. rights from Madaus AG
("Madaus") to develop and market trospium, an orally administered prescription
drug product currently marketed as a treatment for overactive bladder in several
European countries. In exchange, the Company has agreed to pay Madaus regulatory
milestone, royalty and sales milestone payments. The Company will be responsible
for all clinical development and regulatory activities and costs related to the
compound in the U.S.
In December 1999, the Company entered into an agreement with Takeda
Chemical Industries, Ltd. ("Takeda") under which the Company licensed to Takeda
exclusive U.S. and Canadian commericalization rights to citicoline (the "Takeda
Agreement") in exchange for $13,000,000 in licensing and other guaranteed
payments, of which approximately $11,500,000 has been received to date, up to
$60,000,000 in payments
8
<PAGE>
contingent upon the achievement of future regulatory milestones in the U.S. and
Canada, and royalties on net sales. Takeda also agreed to fulfill the royalty
payment obligations of Interneuron to Ferrer Internacional, S.A. ("Ferrer"),
pursuant to Interneuron's agreement with Ferrer, and to fund any future Phase 4
studies of citicoline in stroke and Phase 3 studies for additional indications.
The Takeda Agreement also provides an option to Takeda to negotiate a license
for any one alternative Interneuron compound, excluding pagoclone, in the event
Takeda decides to terminate the citicoline license following a review of the
results of the 899-person Phase 3 clinical trial. In the three months ended
December 31, 1999, the Company recognized $10,000,000 of the Takeda payments as
license fee revenue and $3,000,000 related to the technology option as deferred
revenue.
In December 1999, the Company entered into an agreement with Warner-Lambert
Company ("Warner-Lambert"), under which it licensed to Warner-Lambert exclusive
worldwide rights to commercialize pagoclone (the "Warner-Lambert Agreement").
Under the Warner-Lambert Agreement, the Company received $13,750,000 recognized
as license fee revenue, and is entitled to receive up to $60,000,000 in
additional payments contingent upon the achievement of clinical and regulatory
milestones. Warner-Lambert also agreed to pay Interneuron royalties on net
sales. Under the Warner-Lambert Agreement, Warner-Lambert would be responsible
for conducting and funding all further clinical development, regulatory review,
manufacturing and marketing of pagoclone for all indications on a worldwide
basis. Under the Company's agreement with Rhone-Poulenc Rorer ("RPR"), RPR is
entitled to receive approximately $2,050,000 of the payment received by the
Company from Warner-Lambert which was reflected as cost of revenue and a
liability in the three months ended December 31, 1999.
F. OTHER:
-----
Call options held by Swiss Bank Corporation, London Branch for the purchase
of 1,000,000 shares of the Company's Common Stock at an exercise price of $36.00
per share on each of December 30 and 31, 1999 expired without exercise.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
----------------------------------------------------------------
RESULTS OF OPERATIONS:
---------------------
Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives include, without
limitation, statements regarding the Redux-related litigation, the Company's
ability to successfully develop, obtain regulatory approval for and
commercialize any products, to enter into corporate collaborations or obtain
sufficient additional capital to fund operations, and are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "estimate"
or other expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-
looking statements as they involve risks and uncertainties, and actual results
could differ materially from those currently anticipated due to a number of
factors, including those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into, the Company's Form 10-K for its fiscal year
ended September 30, 1999. These risk factors include, but are not limited to,
risks relating to the Redux-related litigation by and against the Company,
uncertainties relating to clinical trials, regulatory approval and
commercialization of any products; need for additional funds and corporate
partners; substantial losses from operations and expected future losses; minimal
revenues; product liability; dependence on third parties for manufacturing and
marketing; competition; government regulation; contractual arrangements; patents
and proprietary rights; dependence on key personnel; uncertainty regarding
pharmaceutical pricing and reimbursement and other risks. The forward-looking
statements represent the Company's judgment and expectations as of the date of
this Report. The Company assumes no obligation to update any such forward-
looking statements.
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, 1999. Unless the context indicates otherwise, all references
to the Company include Interneuron and its subsidiaries.
GENERAL
- -------
Redux
On September 27, 1999, the Company announced that the U.S. District Court
for the Eastern District of Pennsylvania (the "District Court") rejected a
proposed agreement among the Company and the Plaintiffs' Management Committee
("PMC") to settle all product liability litigation and claims against the
Company related to Redux. The District Court found that the proposed settlement
did not meet the requirements for limited fund class actions, as described by
the Supreme Court in its June 23, 1999 decision in Ortiz v. Fibreboard Corp.
("Ortiz"). The District Court also vacated the stays of pending and future
litigation that were previously in effect. The Company filed a petition with the
U.S. Court of Appeals for the Third Circuit on October 12, 1999, seeking review
of the District Court's ruling. That petition is still pending.
Interneuron is named, together with other pharmaceutical companies, as a
defendant in approximately 2,160 product liability legal actions, many of which
purport to be class actions, in federal and state courts
10
<PAGE>
involving the use of Redux and other weight loss drugs. As a result of the
District Court's rejection of the proposed settlement agreement, the ongoing
Redux-related litigation is proceeding against the Company. The existence of
such litigation, including the time and expenses associated with the
litigation, may materially adversely affect the Company's business, including
its ability to obtain sufficient financing to fund operations. Although the
Company is unable to predict the outcome of any such litigation, such outcome
may materially adversely affect the Company's future business, results of
operations and financial condition.
On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed interpleader actions against Les
Laboratoires Servier ("Servier") and the Company in the District Court.
Insurance policies issued by the insurers to the Company have an aggregate limit
of $40,000,000 in three tiers: a primary level of $20,000,000, then $5,000,000
in excess of $20,000,000 and a third tier of $15,000,000 in excess of
$25,000,000. The insurers allege that both the Company and Servier have asserted
claims against these policies, a substantial portion of which has been used in
the Company's defense of the litigation. The insurers have deposited the
available proceeds up to the limits of their policies, which is subject to
ongoing claims by the Company and Servier, into the registry of the District
Court.
On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of American Home Products Corp.'s ("AHP") product
liability litigation related to Redux and Pondimin. The Company is not a
released party under this settlement.
On January 24, 2000, the Company announced it has filed a complaint against
AHP in the Superior Court of the Commonwealth of Massachusetts. The complaint
seeks unspecified and substantial damages and attorney's fees pursuant to
Massachusetts law for AHP's knowing and willful deceptive acts and practices,
fraud and misrepresentations. AHP has not filed an answer to such complaint and
the Company cannot predict its costs relative to this complaint or the duration
or the outcome of the proceedings.
The Company and certain present or former directors and/or officers of the
Company were 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. On February 2, 2000, the Massachusetts Federal
Court entered an Order of Final Settlement Approval and Final Judgment of
Dismissal, which, among other things, granted final judgment to and an approval
of the settlement of the lawsuits on a class-wide basis, covering a class period
of March 24, 1997 to July 8, 1997. The settlement is for a de minimus amount and
will be entirely funded by insurance proceeds.
Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend these and similar actions
vigorously, the Company has been required and may continue 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 were 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 develop and commercialize products on a timely and
adequate basis, to acquire or obtain rights to additional products, to enter
into certain corporate partnerships, or to obtain product liability insurance
for other products at costs acceptable to the Company, or at all, any or all of
which may adversely affect the Company's business and financial condition.
11
<PAGE>
Citicoline
In December 1999, the Company entered into the Takeda Agreement under which
the Company licensed to Takeda exclusive U.S. and Canadian commercialization
rights to citicoline in exchange for $13,000,000 in licensing and other
guaranteed payments, of which approximately $11,500,000 has been received to
date, up to $60,000,000 in payments contingent upon the achievement of future
regulatory milestones in the U.S. and Canada, and royalties on net sales. Takeda
also agreed to fulfill the royalty payment obligations of Interneuron to Ferrer,
pursuant to Interneuron's agreement with Ferrer, and to fund any future Phase 4
studies of citicoline in stroke and Phase 3 studies for additional indications.
On January 10, 2000 the Company announced that a preliminary analysis of
the 899-patient Phase 3 clinical trial with citicoline failed to meet its
primary endpoint, a measure of improvement in neurological function among
patients suffering from moderate to severe ischemic stroke. The pre-specified,
primary outcome measurement of the trial was the comparison of the percentages
of patients treated with citicoline or placebo who achieved at least a 7-point
improvement on the national Institutes of Health Stroke Scale ("NIHSS") scores
from enrollment through the combined 12-week treatment and follow-up period.
Secondary outcomes included additional comparisons of neurological function and
infarct volume measurements among citicoline and placebo patients at the end of
the study.
Although improvement in the primary outcome measurement was not achieved,
certain secondary endpoints were positive. At the end of the 12-week trial
period, a statistically significantly higher proportion of citicoline-treated
patients achieved complete or near-complete recovery of neurological function
compared to placebo-treated patients, as measured by the Rankin Scale. Likewise,
at the same time point, NIHSS scores indicated a strongly positive trend in the
number of citicoline-treated patients who achieved full neurological recovery.
Although not statistically significant, a higher percentage of citicoline-
treated patients achieved reduction in the size of their cerebral infarct
compared to placebo-treated patients. In addition, preliminary review of
findings from this study indicates that there were no significant adverse safety
issues associated with citicoline.
The Takeda Agreement also provides an exclusive option to Takeda to
negotiate a license for any one alternative Interneuron compound, excluding
pagoclone, in the event Takeda decides to terminate the citicoline license
following a review of the results of the 899-person Phase 3 clinical trial.
Takeda has until April 30, 2000, or later if the Company does not provide Takeda
with reports from certain of its clinical studies, to exercise its option and
ten months from the date of exercise of the option to negotiate the license for
the chosen compound. In the event Takeda and the Company are unable to negotiate
a license agreement by the end of such ten-month period, there will be an
additional six month period during which the Company must provide Takeda with a
right of first refusal for any licensing arrangement the Company may wish to
offer a third party. If Takeda exercises its option, all rights to citicoline
will be returned to the Company.
In the three month period ended December 31, 1999, the Company recognized
$10,000,000 as license fee revenue from Takeda and $3,000,000 related to the
option as deferred revenue.
Pagoclone
In December 1999, the Company entered into the Warner-Lambert Agreement,
under which it licensed to Warner-Lambert exclusive worldwide rights to develop
and commercialize pagoclone. Under the Warner-Lambert Agreement, the Company
received $13,750,000 in December 1999 and is entitled to received up to
12
<PAGE>
$60,000,000 in additional payments contingent upon the achievement of clinical
and regulatory milestones. Warner-Lambert also agreed to pay Interneuron
royalties on net sales. Under the Warner-Lambert Agreement, Warner-Lambert would
be responsible for conducting and funding all further clinical development,
regulatory review, manufacturing and marketing of pagoclone for all indications
on a worldwide basis. Under the Company's agreement with RPR, RPR is entitled to
receive a portion of the payments to be received by the Company from Warner-
Lambert. In the three months ended December 31, 1999, the Company recognized
$13,750,000 received from Warner-Lambert in December 1999 as contract and
license fee revenue and $2,050,000 paid to RPR in January 2000 from the initial
payment as cost of revenue.
Trospium
In November 1999, the Company licensed exclusive U.S. rights from Madaus to
trospium, an orally administered prescription drug product for treatment for
overactive bladder in several European countries. In exchange the Company has
agreed to pay Madaus regulatory milestone, royalty and sales milestone payments.
The Company will be responsible for all clinical development and regulatory
activities and costs related to the compound in the U.S. The Company currently
intends to file an IND in 2000. The Company does not have adequate current funds
to fully develop and market trospium and will require additional capital and/or
a collaborative partner for the development and marketing of trospium.
RESULTS OF OPERATIONS
- ---------------------
For the three month period ended December 31, 1999, the Company had net
income of $16,859,000 compared to a net loss of $11,085,000 in the three month
period ended December 31, 1998. This substantial increase was the result of
$23,750,000 of contract and license fee revenue from the Takeda and Warner-
Lambert Agreements entered into in December 1999 and the absence in fiscal 2000
of the results of operations of Incara Pharmaceuticals Corp. ("Incara") which
resulted in a net loss in the three month period ended December 31, 1998. In
July 1999, the Company exchanged its majority position in Incara for a majority
position in CPEC LLC, after which the Company no longer consolidates the results
of Incara's operations. The Company expects the results of its consolidated
operations to result in losses for the balance of fiscal 2000.
Revenues, consisting of contract and license fee revenue, increased
$23,060,000 to $23,751,000 in the three month period ended December 31, 1999
from $691,000 in the three month period ended December 31, 1998. Contract and
license fee revenue in fiscal 1999 consisted of $10,000,000 received from Takeda
pursuant to the Takeda Agreement and $13,750,000 received from Warner-Lambert
pursuant to the Warner-Lambert Agreement. Contract and license fee revenue in
fiscal 1998 consisted primarily of a milestone payment received by the Company
from Eli Lilly and Company ("Lilly") relating to the development of Lilly's
drug, Prozac(R) for the treatment of premenstrual syndrome.
Cost of revenues of $2,050,000 in the three month period ended December 31,
1999 consists of the amount due to RPR from the initial payment received from
Warner-Lambert. This amount was paid in January 2000.
Research and development expense decreased $8,993,000, or 77%, to $2,660,000
in the three month period ended December 31, 1999 from $11,653,000 in the three
month period ended December 31, 1998. This decrease was primarily due to the
absence in fiscal 2000 of Incara expenses. Also, the Company incurred less
expense related to citicoline due to the completion of the 899-person Phase 3
citicoline clinical trial in the first quarter of fiscal 2000 and reduced
expenses related to pagoclone as the Company curtailed pagoclone development
while pursuing a collaborative development and marketing partner.
13
<PAGE>
Selling, general and administrative expense decreased $772,000, or 24%, to
$2,473,000 in the three month period ended December 31, 1999 from $3,245,000 in
the three month period ended December 31, 1998. This decrease was primarily due
to the absence in fiscal 2000 of Incara expenses.
Investment income decreased $486,000, or 63%, to $291,000 in the three month
period ended December 31, 1999 from $777,000 in the three month period ended
December 31, 1998 primarily due to lower balances of cash and marketable
securities resulting from funds used in Company operations and the absence in
fiscal 2000 of Incara investment income.
Minority interest in fiscal 1999 was attributed to the consolidation of
Incara. As described above, Incara's results of operations are not consolidated
with the Company's in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash, Cash Equivalents and Marketable Securities
At December 31, 1999, the Company had consolidated cash, cash equivalents
and marketable securities of $40,445,000 compared to $21,811,000 at September
30, 1999. This increase is primarily due to approximately $25,250,000 received
from Takeda and Warner-Lambert pursuant to the Takeda and Warner-Lambert
Agreements less amounts used to fund operations in the three month period ended
December 31, 1999.
While the Company believes it has sufficient cash for currently planned
expenditures through 2000 based on certain assumptions relating to operations
and other factors, excluding any settlements of the Redux-related litigation by
and against the Company, it will require additional funds after such time. The
Company is evaluating its ongoing business strategy, investigating other
potential business opportunities, and reducing its overhead and expenditures. In
February 2000, the Company reduced its workforce by 11 people to bring its
current number of employees to 24. The Company will require additional funds for
the development and commercialization of trospium and its other compounds and
technologies, as well as any new businesses, products or technologies acquired
or developed in the future. The Company has no commitments or arrangements to
obtain such funds. If such funds are not available, the Company will be required
to further reduce its operations and delay development and regulatory efforts.
As a result of the uncertainties and costs associated with the Redux-related
litigation, including the fact that no settlement agreements exist or are
pending and the stays of pending and future product liability litigation and
claims against the Company have been vacated by the court, market conditions 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.
14
<PAGE>
Product Development
There can be no assurance that results of any on-going current or future
preclinical or clinical trials 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 successfully 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.
ANALYSIS OF CASH FLOWS
----------------------
Cash provided by operating activities during the three months ended December
31, 1999 of $18,653,000 consisted primarily of net income of $16,859,000 and
$3,000,000 of deferred revenue related to cash received pursuant to the Takeda
Agreement.
Cash used by investing activities of $1,023,000 during the three months
ended December 31, 1999 consisted of net proceeds from maturities and sales of
marketable securities.
Included in accounts receivable and accrued expenses is approximately
$1,500,000 relating to obligations of the Company to vendors which supplied
services to the Company related to the 899-person citicoline phase 3 clinical
trial and which Takeda agreed to pay on behalf of the Company pursuant to the
Takeda Agreement. This amount will be reduced as Takeda makes such payments.
OTHER
-----
Year 2000 Compliance:
The Company's Year 2000 compliance programs were completed on time. The
Company's business has not been adversely affected due to the failure of key
third parties to successfully complete the Year 2000 conversion. Although there
can be no assurance that all of the Company's material third-party relationships
had successful conversion programs, management does not expect that any such
failure would have a material
15
<PAGE>
adverse effect on the financial position, results of operations or liquidity of
the Company. The costs of the Company's Year 2000 program to date have not been
material, and the Company knows of no further required modifications to its
information technology or embedded technology systems that would have a material
impact on its financial position, results of operations or liquidity.
Investment in Incara:
In February 2000, the Company is due to receive its third and final
installment from Incara for the sale of Transcell Technologies, Inc. to Incara
in May 1998. The Company will receive Incara common stock valued at
approximately $1,600,000 as the final payment. As of December 31, 1999, the
Company owned approximately 6% of Incara's issued and outstanding shares of
common stock as reported on Incara's Form 10-Q for the three months ended
December 31, 1999.
Other:
In November 1998, pursuant to an agreement with Les Laboratoires Servier to
resolve a withholding tax issue on Redux-related payments to Servier, the
Company paid to the U.S. Internal Revenue Service approximately $1,700,000 for
withholding tax and interest. Servier agreed to reimburse the Company for a
portion of the withholding taxes upon Servier's receipt of a related tax refund
from the French tax authorities. The Company is unable to predict with certainty
whether or when this reimbursement will be obtained.
Call options held by Swiss Bank Corporation, London Branch for the purchase
of 1,000,000 shares of the Company's Common Stock at an exercise price of $36.00
per share on each of December 30 and 31, 1999 expired without exercise.
General
The Company's current business strategy includes evaluation of various
technologies, product or company acquisitions, licensing and/or financing
opportunities and Interneuron engages from time to time in discussions relating
to such opportunities. The Company is evaluating and exploring new strategic
business opportunities which would result in a reallocation of management and
financial resources. Any such initiatives may involve the issuance of
securities, which would dilute existing stockholders, and/or financial
commitments for licensing fees and/or to fund product development or debt
financing, any of which may adversely affect the Company's consolidated
financial condition or results of operations. 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.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
PRODUCT LIABILITY lITIGATION: Subsequent to the market withdrawal of Redux
----------------------------
in September 1997, the Company has been named, together with other
pharmaceutical companies, as a defendant in approximately 2,160 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.
16
<PAGE>
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, PPH, 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 September 25, 1998, the District Court preliminarily approved the
Settlement Agreement relating to a proposed settlement of all product liability
litigation and claims against Interneuron related to Redux, which was later
rejected by the District Court as described below. The District Court also
conditionally certified a limited fund class action and, thereafter, issued
stays halting all Redux product liability litigation against the Company,
pending and future, in federal and state courts. The District Court conducted a
fairness hearing in the second quarter of fiscal 1999 regarding the proposed
Settlement Agreement.
The Settlement Agreement required Interneuron to deposit a total of
approximately $15,000,000 in three installments into a settlement fund. In
addition, the Settlement Agreement provided for Interneuron to cause all
remaining and available product liability insurance proceeds related to Redux to
be deposited into the settlement fund. Interneuron also agreed to make royalty
payments to the settlement fund, in the total amount of $55,000,000, based upon
revenues related to Interneuron products, over a seven year period commencing
after the settlement would have become final. If, at the end of that seven-year
period, the amount of royalty payments made by Interneuron were less than
$55,000,000, the settlement fund would be entitled to receive the number of
shares of Interneuron Common Stock equal to the unpaid balance divided by $7.49
per share, subject to adjustment in certain circumstances.
Following a decision from the Supreme Court overturning a putative "limited
fund" class action settlement relating to asbestos litigation in Ortiz vs.
--------
Fibreboard Corporation, the District Court, on September 27, 1999, rejected the
- ----------------------
Settlement Agreement, finding that it did not meet the requirements for limited
fund class actions described by the Supreme Court . The District Court also
vacated the stays of pending and future litigation that were previously in
effect. The Company filed a petition with the U.S. Court of Appeals for the
Third Circuit on October 12, 1999, seeking review of the District Court's
ruling. That petition is still pending.
On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of AHP's product liability litigation related to Redux and
Pondimin. The Company is not a released party under this settlement.
On January 24, 2000, the Company announced it has filed a complaint against
AHP in the Superior Court of the Commonwealth of Massachusetts. The complaint
seeks unspecified and substantial damages and attorney's fees pursuant to
Massachusetts law for AHP's knowing and willful deceptive acts and practices,
fraud and misrepresentations. AHP has not filed an answer to such complaint
and the
17
<PAGE>
Company cannot predict its costs relative to this complaint, or the duration or
the outcome of the proceedings.
INTERPLEADER LITIGATION: On November 20, 1998, December 30, 1998 and
-----------------------
February 5, 1999, the Company's three product liability insurers filed
interpleader actions against Servier and the Company in the District Court,
pursuant to the federal interpleader statute. The aggregate limits of the three
commercial excess insurance policies issued by the insurers to the Company is
$40,000,000 in tiers of $20,000,000, $5,000,000 in excess of $20,000,000, and
$15,000,000 in excess of $25,000,000. The insurers allege that both the Company
and Servier have asserted claims against these policies, a substantial portion
of which has been used in the Company's defense of the litigation. The insurers
have deposited the available proceeds up to the limits of their policies, which
is subject to ongoing claims by the Company and Servier, into the registry of
the District Court.
SECURITIES LITIGATION: The Company and certain present or former directors
---------------------
and/or officers of the Company were 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. On February 2, 2000,
the Massachusetts Federal Court entered an Order of Final Settlement Approval
and Final Judgment of Dismissal, which, among other things, granted final
judgment to and an approval of the settlement of the lawsuits on a class-wide
basis, covering a class period of March 24, 1997 to July 8, 1997. The settlement
is for a de minimus amount and will be entirely funded by insurance proceeds.
GENERAL: Pursuant to agreements between the parties, under certain
-------
circumstances, the Company may be required to indemnify Servier, Boehringer
Ingelheim Pharmaceuticals, Inc. and AHP, and the Company may be entitled to
indemnification by AHP, 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 has been required and may continue to be required to
devote significant management time and resources to these legal actions. In the
absence of a settlement and in the event of successful uninsured or
insufficiently insured claims, or in the event a successful indemnification
claim were made against the Company, the Company's business, financial condition
and results of operations could be materially adversely affected. Even if a
settlement is reached, the terms of such settlement may include cash and/or the
issuance of the Company's securities, which may materially adversely affect the
Company's financial condition and results of operations and result in dilution
to the Company's stockholders. The uncertainties and costs associated with these
legal actions have had, and
18
<PAGE>
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 corporate collaborations or
additional financing to satisfy cash requirements, to retain and attract
qualified personnel, to develop and commercialize products on a timely and
adequate basis, to acquire 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,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Risk Factors--The
outcome of the Redux litigation could materially harm us" and Note G of Notes to
Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
10.116 License Agreement between Interneuron
Pharmaceuticals, Inc. and Warner-Lambert Company
effective as of December 23, 1999 (1)
27 Financial Data Schedule
-----------------------
(1) Confidential treatment requested.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three month period ended December 31, 1999.
19
<PAGE>
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: February 14, 2000 By: /s/ Glenn L. Cooper, M.D.
----------------------------------------
Glenn L. Cooper, M.D., President, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2000 By: /s/ Michael W. Rogers
----------------------------------------
Michael W. Rogers, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 14, 2000 By: /s/ Dale Ritter
----------------------------------------
Dale Ritter, Senior Vice President, Finance
(Principal Accounting Officer)
20
<PAGE>
EXHIBIT 10.116
LICENSE AGREEMENT
BETWEEN
INTERNEURON PHARMACEUTICALS, INC. AND WARNER-LAMBERT COMPANY
THIS LICENSE AGREEMENT (the "AGREEMENT") is made effective as of December
23, 1999 (the "Effective Date") by and between INTERNEURON PHARMACEUTICALS,
INC., a Delaware corporation having its principal place of business at 99 Hayden
Avenue, Suite 200, Lexington, MA 02421-7966 ("INTERNEURON"), and WARNER-LAMBERT
COMPANY, a Delaware corporation having its principal place of business at 201
Tabor Road, Morris Plains, New Jersey 07950 ("WARNER"). Interneuron and Warner
may be referred to herein individually as a "Party" and collectively as the
"Parties".
RECITALS
A. Warner is a global company devoted, among other businesses, to
discovering, developing, manufacturing and marketing human
pharmaceutical products.
B. Interneuron is engaged in the development of novel pharmaceuticals for
central nervous system indications and has licensed from Rhone-Poulenc
Rorer, S.A. ("RPR") certain rights to the Compound pursuant to the
terms of that certain License Agreement dated February 18, 1994 by and
between Interneuron and RPR (the "Interneuron-RPR License Agreement").
C. Interneuron desires to license to Warner and Warner desires to license
from Interneuron all of Interneuron's right, title and interest in and
to all intellectual property rights owned, licensed by or otherwise
controlled by Interneuron relating to the Compound.
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
The following terms shall have the following meanings as used in this
Agreement:
"AFFILIATE" shall mean, with respect to a Party, any other business entity
which directly or indirectly controls, is controlled by, or is under common
control with, such Party. As used in this definition of "Affiliate", the term
"control" shall mean direct or indirect beneficial ownership of more than 50% of
the voting or income interest in such business entity.
"COMMERCIALIZATION" means the manufacturing, marketing, sale, supply,
import, export and distribution of Licensed Products.
<PAGE>
"COMPOUND" MEANS (+)-2-(7-chloro-1,8-naphtyridin-2-yl)-3-(5-methyl-2-
oxohexyl) phthalimidine; (+)-2-(7-chloro-1,8-naphthyridin-2-yl)-2,3-dihydro-3-
(5-methyl-2-oxohyxyl)-1H-isoindol-1-one known as RP62955 or pagoclone, as
diagrammed on Exhibit A attached hereto and any pharmaceutically acceptable
salts, hydrates, solvates, amides, prodrugs and esters thereof.
"CONTROL" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
or other arrangement with any Third Party.
"DEVELOPMENT" means those activities undertaken with respect to a
Compound or Licensed Product which are devoted to the exploration of a potential
pharmaceutical product in human clinical trials and/or the conduct of any other
activities or studies, including, without limitation, pre-clinical testing,
toxicology, formulation, bulk production, fill/finish, manufacturing process
development, test method development and validation, technology transfer,
stability testing, process validation, manufacturing and quality assurance
technical support, clinical trials, regulatory affairs and other activities
directed toward Regulatory Approval of such Compound or Licensed Product.
"DRUG APPROVAL APPLICATION" means an application for Regulatory Approval
required before commercial sale or use of a Licensed Product as a pharmaceutical
product in a regulatory jurisdiction.
"EFFECTIVE DATE" shall mean the date first set forth above.
"EUROPE" means the countries of France, Germany, Italy, Spain and the
United Kingdom.
"FDA" means the United States Food and Drug Administration or any
successor thereto.
"FIRST COMMERCIAL SALE" shall mean, with respect to any Licensed Product,
the first sale to a Third Party for end use or consumption of such Licensed
Product in a country after receipt of Regulatory Approval in such country or,
where Regulatory Approval is not required, the first sale in that country in
connection with the nationwide introduction of such Licensed Product in that
country by Warner, its Affiliates or sublicensees.
"FOREIGN ROYALTY YEAR" shall mean each successive twelve (12) month period
commencing with the first day of the first month in which occurs the First
Commercial Sale in any country outside the United States.
"IND" means an Investigational New Drug Application as defined in the
United States Food, Drug and Cosmetic Act and applicable regulations promulgated
thereunder by the FDA or the equivalent application to the equivalent agency in
any other regulatory jurisdiction, the filing of which is necessary to commence
clinical testing of pharmaceutical products in humans.
<PAGE>
"INTERNEURON PATENT RIGHTS" means any and all United States and foreign
patents (including all provisionals, reissues, extensions, substitutions,
confirmations, re-registrations, re-examinations, revalidations and patents of
addition) and patent applications (including, without limitation, all
continuations, continuations-in-part, and divisions thereof), the subject matter
of which relates to any aspect of the manufacture, use, lease or sale of the
Compound or any Licensed Product or intermediates used in the manufacture of the
Compound or any Licensed Product, including without limitation, the RPR Patents
and the patents listed on Exhibit B which is attached hereto and incorporated
herein by reference.
"KNOW-HOW" means all proprietary information and technology, including
trade secret information, developments, discoveries, methods, techniques,
formulations, clinical and pre-clinical data, toxicology, stability data,
pharmacology data, and other information owned or Controlled by Interneuron,
whether or not patentable, relating to the Compound or any Licensed Product or
any improvements thereof, presently known to Interneuron or generated by or on
behalf of Interneuron, including such rights which Interneuron may have to
information developed by third parties relating to capsule formulation for use
with the Compound or any Licensed Product and such know how as Interneuron
licensed from RPR.
"LICENSED PRODUCT" means all finished pharmaceutical formulations
containing the Compound in any dosage form for human use.
"NDA" shall mean a New Drug Application filed with FDA, or the equivalent
application filed in Europe.
"NET SALES" means the gross amount invoiced to Third Parties by any
Party, its Affiliates and its permitted sublicensees for all Licensed Products
sold after deduction for the following items (i) trade, quantity and cash
discounts or rebates actually allowed, paid or taken; (ii) credits, rebates,
charge-back rebates, reimbursements or similar payments actually granted or
given to wholesalers and other distributors, buying groups, health care
insurance carriers, governmental agencies and other institutions; (iii) credits
or allowances actually granted or given for rejection or return of such Licensed
Product previously sold; (iv) any tax, tariff, duty or other governmental charge
(other than an income tax) levied on the sale, transportation or delivery of
Licensed Product and actually borne by the seller thereof; (v) payments or
rebates actually paid in connection with state or federal Medicare, Medicaid or
similar programs; (vi) any charge for freight or insurance actually borne by the
seller thereof; and (vii) actual writeoffs or bad debts consistent with Warner's
past internal financial policies.
"PHASE II CLINICAL TRIAL" means a clinical trial designed to establish the
safety and biological activity of a pharmaceutical product for its intended use.
"PHASE III CLINICAL TRIALS" means those trials on sufficient numbers of
patients that are designed to establish that a pharmaceutical product is safe
and efficacious for its intended use, and to define warnings, precautions and
adverse reactions that are associated with the pharmaceutical product in the
dosage range to be prescribed, and supporting Regulatory Approval of such
pharmaceutical product or label expansion of such pharmaceutical product.
<PAGE>
"REGULATORY APPROVAL" means all approvals (including pricing and
reimbursement approvals required for marketing authorization), product and/or
establishment licenses, registrations or authorizations of all regional,
federal, state or local regulatory agency, department, bureau or other
governmental entity, necessary for the manufacture, use, storage, import,
export, transport and sale of any Licensed Product in a regulatory jurisdiction.
"RPR PATENTS" shall have the meaning set forth in Section 6.1.
"THIRD PARTY" means any entity other than Interneuron or Warner or their
Affiliates.
"U.S. ROYALTY YEAR" shall mean each successive twelve (12) month period
commencing with the first day of the first month in which occurs the First
Commercial Sale in the United States.
"VALID CLAIM" shall mean any claim issued in an unexpired patent which has
not been held unenforceable, unpatentable or invalid by a decision of a court or
other governmental agency of competent jurisdiction following exhaustion of all
possible appeal processes, and which has not been admitted to be invalid or
unenforceable through reissue, reexamination or disclaimer and has not been
terminated for failure to pay maintenance fees.
ARTICLE 2
LICENSE GRANT
2.1 LICENSES TO WARNER.
(A) Subject to the terms of this Agreement, Interneuron hereby grants to
Warner an exclusive (even as to Interneuron), worldwide, royalty-
bearing license under the Interneuron Patent Rights and Interneuron
Know-How to develop, make, have made, use, sell, offer for sale, have
sold and import the Compound and any Licensed Products for all
indications.
(B) Warner shall have the first right to initiate and prosecute any
action, claim, complaint, lawsuit or other proceedings against RPR,
its Affiliates, agents, representatives, employees, officers or
directors or any successor in interest to any of the foregoing,
relating to the matters set forth in the following sentence that
Interneuron may have at law or in equity (a "Claim") in any court of
competent jurisdiction, in any country in the world, in Interneuron's
name, and collect any monetary damages awarded or settlement payments
made, or enforce any other decision, judgment or decree arising from
such Claim. Warner shall only have the first right to bring a Claim
for breach, default or threatened breach or default of any of the
terms, conditions, obligations and/or representations of RPR under the
Interneuron-RPR License Agreement or any breach or threatened breach
of any
<PAGE>
obligation of RPR to Interneuron relating to such Interneuron-RPR
License Agreement, to the extent such breach, default or threatened
breach or default arises out of or relates to acts or omissions of RPR
regarding RPR's commercializing, marketing, selling, promoting,
distributing, manufacturing, using, exporting or importing the
Compound or any Licensed Product. In the event Warner elects not to
exercise such right, Warner shall promptly notify Interneuron and
Interneuron shall then have the right to initiate and prosecute any
such Claim. Interneuron shall promptly inform Warner in writing of any
breach or threatened breach by RPR of the Interneuron-RPR License
Agreement of which it becomes aware.
(C) Any recovery obtained by Warner or Interneuron under Section 2.1 (b)
shall be shared as follows:
(i) the Party that initiated and prosecuted the Claim shall recoup
all of its costs and expenses incurred in connection with the
Claim, whether by settlement or otherwise;
(ii) the other Party then shall, to the extent possible, recover its
costs and expenses incurred in connection with the Claim;
(iii) if Interneuron initiated and prosecuted the Claim, the amount
of any recovery received by Interneuron and remaining after the
application of Sections 2.1(c)(i) - (ii) shall be retained by
Interneuron; and
(iv) if Warner initiated and prosecuted the Claim, the amount of any
recovery received by Warner and remaining after the application
of Sections 2.1(c)(i) - (ii) shall be retained by Warner except
that Interneuron shall receive a portion equivalent to the
payments they would have received on such remaining amount if
such amount were deemed Net Sales.
2.2 SUBLICENSING. Subject to the terms of the Interneuron-RPR License
Agreement, Warner shall have an unrestricted right to grant to Affiliates and
non-Affiliates sublicenses of any and all rights licensed to Warner by
Interneuron under this Agreement and Warner shall have an unrestricted right to
grant sublicenses to Third Parties to assist Warner in performing any of its
obligations or to exercise any of its rights under this Agreement. At the time
it provides each report required under Section 4.3(e), or upon Interneuron's
prior written request (which request may only be made up to two times in any
twelve month period), Warner shall notify Interneuron of each sublicense granted
in each country in the US, Japan and Europe to permit a Third Party to promote
or market any Licensed Products. Any sublicense permitted under this Agreement
to be granted shall be subject to the terms and conditions of the license
itself, and Warner shall be responsible for and shall guarantee the performance
by the sublicensee of such obligations.
<PAGE>
No such sublicensee shall acquire any rights from or obligations on the
part of Interneuron, other than those that are specifically granted in this
Agreement, and each such sublicensee shall assume all obligations to Interneuron
required of Warner by this Agreement applicable to the sublicensed rights.
ARTICLE 3
TRANSITION; DEVELOPMENT; COMMERCIALIZATION
3.1 INFORMATION, KNOW-HOW AND MATERIALS. Within 30 days of the date hereof,
Interneuron shall deliver to Warner electronic, where available, and hard copies
(or, upon Warner's request, originals) of all information, records and data, and
all Know-How which it owns or Controls and which are necessary or useful for the
continued research, Development and Commercialization of the Compound and the
Licensed Products, and Interneuron shall forward to Warner all supplies of the
Compound and the Licensed Products which it owns or controls, and samples of all
other chemical and biological materials necessary for the continued research,
Development and Commercialization of the Compound and the Licensed Products.
3.2 REGULATORY FILINGS, APPROVALS AND APPLICATIONS. Within 10 days of the
date hereof, Interneuron shall transfer to Warner all regulatory filings,
approvals and applications relating to the Compound or the Licensed Products,
including all IND's and all Regulatory Approvals and all related documentation
and information. Interneuron shall notify the FDA that all such IND's and all
responsibilities related thereto, have been transferred to Warner.
3.3 REGULATORY MATTERS. After the Effective Date, Warner shall own, control
and retain primary legal responsibility for the preparation, filing and
prosecution of all filings and regulatory applications required to obtain
Regulatory Approval in each country. Warner shall have sole responsibility for,
bear all costs and expenses associated with and make all decisions with respect
to any recall, withdrawal or seizure of the Licensed Product. Any Licensed
Product returned to Interneuron shall be shipped to Warner's nearest facility,
with any reasonable or authorized shipping or other documented direct cost to be
paid by Warner. Interneuron shall provide Warner with immediate notice of all
adverse events of which Interneuron becomes aware which arise from all clinical
trials of the Compound and the Licensed Products, conducted by Interneuron or
its representatives.
3.4 AGREEMENTS. Attached hereto as Exhibit C is a list of all contracts,
agreements and other arrangements (other than the Interneuron-RPR License
Agreement which is attached as Exhibit D) between Interneuron and any and all
Third Parties relating to the research, Development or Commercialization of the
Compound and the Licensed Products. Interneuron shall promptly (and in no event
later than 5 days after a request from Warner) assign to Warner the contracts
and agreements listed in Exhibit C which Warner shall specifically request, and
Interneuron shall terminate such other contracts, agreements or other
arrangements, as Warner shall request. Without Warner's prior written consent,
Interneuron shall not modify, amend or
<PAGE>
terminate the agreements listed on Exhibit C and Interneuron shall not enter
into any other agreements regarding the Compound or the Licensed Products.
3.5 MANUFACTURING DEVELOPMENT; COMMERCIALIZATION. After the Effective Date,
Warner shall control, in its discretion, and shall be solely responsible for
Development, Manufacture and Commercialization of the Compound and the Licensed
Products conducted or performed after the date hereof.
3.6 ALL OTHER ACTS NECESSARY OR USEFUL. Interneuron shall take such other
actions and execute such other instruments, assignments and documents as may be
reasonably necessary or useful to effect the transfer of rights hereunder to
Warner. Interneuron shall further render such assistance as Warner shall
reasonably request in the transfer of Know-How relating to the Compound and the
Licensed Products.
3.7 DILIGENCE; DEVELOPMENT AND COMMERCIALIZATION.
(A) After the Effective Date, Warner will be responsible for conducting
and fully funding all Development, regulatory filings, and Commercialization of
the Licensed Products. Warner shall only be obligated to develop or
commercialize the Licensed Products using not less than those efforts Warner
applies with respect to its other drug candidates and pharmaceutical products of
a comparable stage of development and commercial potential. Warner shall not be
obligated to pursue Development or Commercialization in any specific
jurisdiction. Interneuron's only remedy in the event Warner fails to fulfill the
obligation set forth in the second sentence of this Section 3.7 shall be to
terminate this License Agreement under Section 8.3 and require Warner to provide
Interneuron with all samples of the Licensed Product. Warner shall comply with
all applicable laws and regulations in the Commercialization of Licensed
Products. No more than twice per calendar year, Interneuron may request a
meeting with Warner to discuss a summary of the progress and results of Warner's
Development and Commercialization at dates and locations to be mutually agreed
to. Any disclosures of such progress and results shall be deemed Confidential
Information of Warner. Warner shall also notify Interneuron as soon as
reasonably practicable upon the achievement of milestones listed in 4.1(a)
below, the receipt of Regulatory Approvals in the United States, Japan and
Europe, and the date of First Commercial Sale in the United States, Japan and
Europe.
(B) In addition to and not in lieu of the obligations of Warner under
the second sentence of Section 3.7(a), Warner shall:
1. Either dose the first patient in a Phase III Clinical Trial for Panic
Disorder by the 12 month anniversary of the date this Agreement is
fully signed by authorized representatives of each Party or pay to
Interneuron the amount set forth in Section 4.2(a)(1) (which payment
shall be deemed to be in lieu of the obligation to make such payment
under Section 4.2(a)); and
2. Either dose the first patient in a Phase II Clinical Trial for General
Anxiety Disorder by the 12 month anniversary of the date this Agreement
is fully signed by authorized representatives of each party, or pay to
Interneuron
<PAGE>
$* dollars by such twelve month anniversary (which payment shall be
credited against any milestone payments due under Section 4.2(a)(2));
and
3. Either dose the first patient in a Phase III Clinical Trial for General
Anxiety Disorder by the 24 month anniversary of the date this Agreement
is fully signed by authorized representatives of each party, or pay to
Interneuron the amount set forth in Section 4.2(a)(2) (which payment
shall be deemed to be in lieu of the obligation to make such payment
under Section 4.2(a)) less any amounts paid under Section 3.7(b)(2)
above.
In the event that Warner fails to fulfill its obligations set forth in
Section 3.7(b)(1), 3.7(b)(2) or 3.7(b)(3), Interneuron shall have the right to
terminate this License Agreement and the provisions of Section 8.5 of this
Agreement shall apply to such termination.
(C) Notwithstanding the foregoing, Interneuron shall not have the right
to terminate this Agreement under Section 3.7(b) in the event Warner's failure
to fulfill its obligations under Section 3.7(b)(1) through (3) is due to any of
the following circumstances (except, in the case of (c)(1) or (c)(2), if such
circumstances are directly caused by any negligent act or omission of Warner):
1. Unavailability of drug supplies needed to conduct the applicable
clinical trial, including, without limitation, as a result of failure
of stability or lack of a satisfactory formulation;
2. An inability to conduct the applicable clinical trial due to action on
the part of the FDA or any foreign equivalent, including, without
limitation, the placement of a clinical hold on such clinical trial;
3. The conduct of such clinical trial would violate any applicable
laws, rules or regulations;
4. A good faith determination on the part of Warner that the Licensed
Product which is intended to be studied in the applicable clinical
trial is not safe or efficacious in its then current formulation or
dosage form or dose level, provided Warner is engaged in good faith
efforts to pursue development of a Licensed Product;
5. Any circumstances described in Section 10.2.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
ARTICLE 4
PAYMENT PROVISIONS
4.1 LICENSE FEE. In consideration for the license granted hereunder
and to reimburse Interneuron for development costs of the Compound and the
Licensed Products, Warner shall pay Interneuron, within 10 days of the Effective
Date, the non-refundable and noncreditable sum of Thirteen Million Seven
Hundred Fifty Thousand ($13,750,000) Dollars.
4.2 MILESTONE PAYMENTS.
(A) MILESTONE AMOUNTS. Warner shall notify Interneuron upon the achievement
of each of the following milestones, and Warner shall make the following
milestone payments to Interneuron within thirty (30) days after the first
achievement of each of the following milestones:
1. Upon dosing of the first patient in a Phase III Clinical Trial
for Panic Disorder $ *
2. Upon dosing of the first patient in a Phase III Clinical Trial
for General Anxiety Disorder $ *
3. Successful completion of toxicology studies followed by
a decision of Warner to continue Development of
the Licensed Product $ *
4. On acceptance for filing by the FDA of an NDA for
Panic Disorder $ *
5. On acceptance for filing by the FDA of an NDA for
General Anxiety Disorder $ *
6. On Regulatory Approval by the FDA for Panic Disorder $ *
7. On Regulatory Approval by the FDA for General Anxiety Disorder $ *
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
8. On acceptance for filing of an NDA in Europe
for Panic Disorder $ *
9. On acceptance for filing of an NDA in Europe for
General Anxiety Disorder $ *
10. On Regulatory Approval in Europe for Panic Disorder $ *
11. On Regulatory Approval in Europe for
General Anxiety Disorder $ *
12. On acceptance for filing with Koseshio in Japan for the first
indication for which such filing is made $ *
13. On Regulatory Approval in Japan of the first Licensed Product for
the first indication for which Regulatory Approval is obtained $ *
14. Upon acceptance for filing by the FDA of an NDA for an SR form of
the Licensed Product $ *
15. Upon Regulatory Approval by the FDA for an SR form of
the Licensed Product $ *
16. Upon Regulatory Approval by the FDA for each of the first three
additional indications for which an NDA is required to be filed
for the Licensed Product $ *
17. Upon Regulatory Approval in Europe for each of the first three
additional indications for which an NDA is required to be filed
for the Licensed Product $ *
For convenience of reference, each of the events listed in Section 4.2 shall be
referred to as a "Trigger Event". For Trigger Event numbers 8, 9, 10, 11 and
17, in the event the applicable acceptance for filing or approval is granted in
less than all of the countries listed in the definition of "Europe", Warner
shall pay an amount equal to one-fifth of the applicable milestone payment for
such Trigger Event, multiplied by the number of countries in which such
acceptance for filing or approval is granted.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
(B) ONE MILESTONE PER PRODUCT. The milestone payments received by
Interneuron under Section 4.2(a) shall be non-refundable and noncreditable.
Except for the milestones payable on achievement of Trigger Event numbers 16 and
17, each milestone payment referred to in Section 4.2(a) shall be made only
once, regardless of whether additional indications or additional formulations of
a Licensed Product are developed or commercialized.
4.3 ROYALTY PAYMENTS ON LICENSED PRODUCTS.
(A) ROYALTY AMOUNT AND TERM. Warner shall pay Interneuron a royalty
payment on Net Sales according to the following rates during the "Royalty Term".
The "Royalty Term" shall be applied on a country by country basis and shall
mean, in any country, the period of time commencing on the First Commercial Sale
of Licensed Product and ending upon the later of (a) 10 years from the date of
such First Commercial Sale or (b) the expiration of the last to expire Valid
Claim in the Interneuron Patent Rights, in such country, which is necessary, to
make, use or sell Licensed Product in such country; provided that, if any such
Valid Claim exists after such 10 year period, and if another product containing
the same active ingredient is sold following the 10 year period from the date of
the First Commercial Sale in such country without Warner's permission and
without infringing any such Valid Claim, then the royalty obligation with
respect to such country shall be terminated as of the date of first commercial
sale of such other product in such country.
(i) Royalties due on sales in the United States:
Annual Net Sales (in millions)
Royalty Percentage in each U.S. Royalty Year
------------------ -------------------------
*% up to $*
*% in excess of $* and up to $*
*% in excess of $*
(ii) Royalties due on sales outside the United States (other than France):
Annual Net Sales (in millions)
Royalty Percentage in each Foreign Royalty Year (excluding France)
------------------ -----------------------------------------------
*% up to $*
*% in excess of $* and up to $*
*% in excess of $* and up to $*
*% in excess of $*
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
By way of example, the first $* of Net Sales in any U.S. Royalty Year shall only
be subject to a royalty rate of *% regardless of whether Net Sales in the United
States for such U.S. Royalty Year exceed $*. Similarly, the first $* of total
Net Sales in all countries other than France and the United States in any
Foreign Royalty Year shall only be subject to a royalty of * percent (*%),
regardless of whether Net Sales outside the United States (excluding France) for
such Foreign Royalty Year exceed $*. Warner shall not be obligated to pay any
royalties for Net Sales in France.
(B) ROYALTIES OWED TO THIRD PARTIES. Warner will pay any and all
royalties owed to Third Parties by Warner in respect of the manufacture, use or
sale of Licensed Products. Interneuron will pay any and all royalties owed to
Third Parties by Interneuron (including, without limitation, pursuant to the
Interneuron-RPR License Agreement) in respect of the manufacture, use or sale of
Licensed Products.
(C) ROYALTY REDUCTION IN CASE OF ROYALTIES OWED TO THIRD PARTIES.
Warner may deduct from any royalties owed to Interneuron under this Agreement,
fifty percent (50%) of royalties required to be paid by Warner to Third Parties
which are necessary for the sales of such Licensed Product and which relate to
claims covering the composition of matter of the Compound or its manufacture or
use.
(D) CURRENCY OF PAYMENT. All payments to be made under this Agreement
shall be made in United States dollars in the United States to a bank account
designated by Interneuron. Royalties earned shall first be determined in the
currency of the country in which they are earned and then converted to its
equivalent in United States currency. Such conversion shall be based on the
average buying rates of exchange for the currencies involved into the currency
of the United States quoted by Citibank (or its successor in interest) in New
York, New York at the close of business on each business day of the quarterly
period in which the royalties were earned.
(E) PAYMENT AND REPORTING. The royalties due under this Section shall
be paid quarterly, within thirty (30) days following each calendar quarter which
such royalties are earned, or earlier if practical. With each such quarterly
payment, Warner shall furnish Interneuron a royalty statement, setting forth, on
a country-by-country basis, the total number of units of each royalty-bearing
Licensed Product made, used and/or sold hereunder for the quarterly period for
which the royalties are due and a calculation of Net Sales for such Licensed
Product. In addition, Warner shall furnish such a royalty statement on a
country-by-country basis (except France) for the first quarter during which
Warner makes sales of Licensed Product for which no royalty payment in respect
of such country is due hereunder, and shall state the basis for such sales then
being free of royalty obligations hereunder. Warner shall thereafter have no
further obligation to report the number of units or Net Sales of such Licensed
Product made, used and/or sold in such country.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
(F) RECORDS. Warner shall keep accurate books and accounts of record
in connection with the manufacture, use and/or sale by or for it of the Licensed
Products hereunder in sufficient detail to permit accurate determination of all
figures necessary for calculation and verification of royalty obligations set
forth in this Article 4. Such records shall be maintained for a period of three
(3) years from the end of each U.S. Royalty Year and Foreign Royalty Year in
which sales occurred. Interneuron, at its expense, through a nationally
recognized certified public accounting firm, shall have the right to access such
books and records for the sole purpose of verifying the royalty statements; such
access shall be conducted after reasonable prior notice by Interneuron to Warner
and conducted during Warner's ordinary business hours and shall not be more
frequent than once during each calendar year. Said certified public accountant
shall agree not disclose to Interneuron or any other party any information
except that which should properly be contained in a royalty report required
under this Agreement. If such certified public accountant concludes that
additional royalties were owed during such period, Warner shall pay the
additional royalties within ten (10) days of the date Interneuron delivers to
Warner such accounting firm's written report so concluding. In the event such
certified public accountant concludes that amounts were overpaid by Warner
during such period, Interneuron shall reimburse Warner the amount of such
overpayment within ten (10) days of receipt of such certified public
accountant's written report. The fees charged by such certified public
accountant shall be paid by Interneuron; provided, however, that if an error in
favor of Interneuron in the payment of royalties of more than ten percent (10%)
of the royalties due hereunder for the period being reviewed is discovered, then
the fees and expenses of the certified public accountant shall be reimbursed by
Warner.
(G) TAXES WITHHELD. Any income or other tax that one Party
hereunder, its Affiliates or sublicensees is required to withhold (the
"Withholding Party") and pay on behalf of the other Party hereunder (the
"Withheld Party") with respect to the royalties payable under this Agreement
shall be deducted from and offset against said royalties prior to remittance to
the Withheld Party; provided, however, that in regard to any tax so deducted,
the Withholding Party shall give or cause to be given to the Withheld Party such
assistance as may reasonably be necessary to enable the Withheld Party to claim
exemption therefrom or credit therefor, and in each case shall furnish the
Withheld Party proper evidence of the taxes paid on its behalf.
(H) COMPUTATION OF ROYALTIES. All sales of Licensed Products between
any Party and any of its Affiliates and sublicensees shall be disregarded for
purposes of computing royalties under this Article 4, but in such instances
royalties shall be payable only upon sales to unlicensed Third Parties. Nothing
herein contained shall obligate any Party to pay the other Party more than one
royalty on any unit of any Licensed Product.
<PAGE>
(I) LICENSES TO AFFILIATES. Interneuron shall, at Warner's request,
sign license and/or royalty agreements directly with Warner's Affiliates and
sublicensees in those situations where such agreements would not decrease the
amount of royalties or milestones which would be owed hereunder. Such agreements
shall contain the same language as contained herein with appropriate changes in
parties and territory. No such license and/or royalty agreement will relieve
Warner or Interneuron, as the case may be, of its obligations hereunder, and
such Party will guarantee the obligations of its Affiliate or sublicensee in any
such agreement. Royalties received directly from one Party's Affiliates and
sublicensees shall be credited towards such Party's royalty obligations
hereunder.
(J) RESTRICTIONS ON PAYMENT. The obligation to pay royalties under
this Agreement shall be waived and excused to the extent that statutes, laws,
codes or governmental regulations in a particular country prevent such royalty
payments by the seller of Licensed Products; provided, however, that if legally
permissible, the seller of Licensed Products shall pay the royalties owed to the
other party hereto by depositing such amounts in a bank account in such country
that has been designated by the party owed such royalties.
ARTICLE 5
CONFIDENTIALITY
5.1 CONFIDENTIALITY. Except as specifically permitted hereunder, each
Party hereby agrees to hold in confidence and not use on behalf of itself or
others the terms of this Agreement and all data, samples, technical and economic
information (including the economic terms hereof), commercialization, clinical
and research strategies and know-how which it obtained during the research or
development of the Compound or the Licensed Products or which it obtains from
the disclosing Party pursuant to the terms of this Agreement during the term of
this Agreement and for a period of five years thereafter (collectively the
"Confidential Information"), except that the term "Confidential Information"
shall not include:
(I) information that is or becomes part of the public domain through
no fault of the receiving party or its Affiliates;
(II) information that is obtained after the date hereof by one of the
Parties or one of its Affiliates from any Third Party which is lawfully in
possession of such Confidential Information and not in violation of any
contractual or legal obligation to the other Party or its Affiliates with
respect to such Confidential Information;
(III) information independently developed by a Party or its
Affiliates, without application of the other Party's Confidential Information;
<PAGE>
(IV) information that is known to one of the Parties or one or more of
its Affiliates prior to disclosure by the other Party or its Affiliates, as
evidenced by such first Party's written records;
(V) information that is necessary to be disclosed to any governmental
authorities or pursuant to any regulatory filings (other than NDAs or INDs),
provided that in such case the Party notifies the other Party reasonably in
advance of such disclosure and cooperates with such Party to minimize the scope
or content of such disclosure, provided however that Interneuron may disclose
and file this Agreement with the SEC, if required by federal law, after it
redacts information from such disclosure to the full extent permitted by law; or
(VI) information required to be disclosed to RPR pursuant to the terms
of the Interneuron-RPR License Agreement or any agreements between RPR and
Warner relating to development of the Compound or Licensed Product or
commercialization of the Compound or the Licensed Product for sale in France.
The obligations of this Section 5.1 shall survive the expiration or termination
of this Agreement.
5.2 PUBLICITY. Notwithstanding the foregoing Section 5.1,Warner shall be
free to issue all publicity, press releases and other announcements and
publications relating to this Agreement and the research, Development and
Commercialization of the Compound and the Licensed Products (including
information supplied by Interneuron) as it shall deem fit. Interneuron shall
not issue any publicity, press releases and other announcements relating to this
Agreement or the transactions contemplated hereby without the prior approval of
Warner, which approval shall not be unreasonably withheld or delayed; provided
however that Interneuron may issue any public statements only to the extent
required to be disclosed pursuant to applicable laws, rules and regulations and
then, only to the extent Warner is given a copy of such disclosure at least 2
business days prior to such disclosure. Warner agrees to furnish to Interneuron
copies of any such publicity, press releases and any announcements at the time
Warner releases such publicity or such announcements to the public or as soon
thereafter as is reasonably practical.
ARTICLE 6
OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
6.1 PROTECTION OF RPR PATENT RIGHTS. Interneuron shall continue to
be responsible for reimbursing RPR for all costs associated with the prosecution
and maintenance of all patent and patent applications referenced in the first
sentence of Section 6.1 of the
<PAGE>
Interneuron-RPR License Agreement (the "RPR Patents"). Interneuron shall provide
all information relating to the status and progress of the prosecution and
maintenance of the RPR Patents, and copies of all relevant materials, which
Interneuron receives from RPR as soon as Interneuron receives such information
and materials from RPR. Interneuron shall further instruct RPR to provide such
information and materials directly to Warner, and upon Warner's request, shall
obtain from RPR all documents and other information that Interneuron is entitled
to obtain under the Interneuron-RPR License Agreement. In the event RPR elects
or has elected not to file, prosecute or maintain in any jurisdiction, patents
or patent applications contained within the RPR Patents, and Interneuron has the
right to assume or has assumed such filing, prosecution or maintenance,
Interneuron shall immediately notify Warner and Warner shall have the right at
its option, in each such jurisdiction, to file, prosecute and maintain such
patents and patent applications in its own name and at its sole cost.
6.2 PROTECTION OF INTERNEURON PATENT RIGHTS. To the extent
Interneuron has filed or is prosecuting or maintaining any patents or patent
applications claiming inventions made by its employees, representatives, agents
or contractors or otherwise owned or licensed by Interneuron, relating to the
Compound or the Licensed Products (the "Interneuron Patents"), Interneuron shall
continue to file, prosecute and maintain the Interneuron Patents at its sole
cost. Interneuron shall keep Warner fully informed of all matters relating to
the filing, prosecution and maintenance of the Interneuron Patents. In the event
Interneuron fails to file, prosecute or maintain any Interneuron Patents in any
jurisdiction, Interneuron shall immediately notify Warner and Warner shall have
the right at its option and expense, in each such jurisdiction, to assume the
filing, prosecution and maintenance of such Interneuron Patents, and Interneuron
shall assign to Warner all of Interneuron's right, title and interest in and to
such Interneuron Patents.
6.3 PROTECTION OF WARNER PATENT RIGHTS. To the extent Warner or its
employees, representatives, agents or contractors makes an invention relating to
the Compound or the Licensed Patents, Warner shall own such invention and shall
have the sole right, at its option and expense, to file, prosecute and maintain
any patent application or patent claiming such invention (such patents and
patent applications are hereinafter referred to as the "Warner Patents").
6.4 ENFORCEMENT RIGHTS.
(a) INFRINGEMENT BY THIRD PARTIES. If any Interneuron Patent,
Warner Patent or RPR Patent is infringed by a Third Party in connection
with the manufacture, import, use, sale or offer for sale of a product
competitive with the Licensed Product, the Party first having knowledge of
such infringement shall promptly notify the other in writing. The notice
shall set forth the facts of that infringement in reasonable detail. The
Party having the primary right, but not the obligation, to institute,
prosecute and control any
<PAGE>
action or proceeding with respect to such infringement (the "Enforcing
Party") shall be Interneuron for infringement of Interneuron Patents, and
Warner for infringement of Warner Patents or any RPR Patents for which
Interneuron otherwise has the right to institute, prosecute or control any
such action or proceeding under the terms of the Interneuron-RPR License
Agreement. The non-Enforcing Party shall have the right at its own expense
to participate in any action brought by the Enforcing Party and to be
represented by counsel of its own choice. If the Enforcing Party fails to
bring an action or proceeding within a period of ninety (90) days after
written notice from the other Party, the other Party shall have the right
at its own expense to bring and control any such action by counsel of its
own choice, and the Enforcing Party shall have the right to participate in
such action and be represented by counsel of its own choice and shall
further reimburse the non-Enforcing Party for one-half of the non-Enforcing
Party's costs and expenses in bringing such action or proceeding. If a
Party brings any such action or proceeding hereunder, the other Party
agrees to give the Enforcing Party reasonable assistance and authority to
control, file and prosecute the suit as necessary. The costs and expenses
of the Party bringing suit under this Section (including the internal costs
and expenses specifically attributable to said suit) shall be reimbursed
first out of any damages or other monetary awards recovered in favor of the
Parties. Any remaining damages shall be provided to Warner and such amount
(after payment of costs and expenses attributable to the suit) shall be
deemed to be Net Sales in the applicable country for the year in which such
amount is actually received by Warner.
(b) DEFENSE AND SETTLEMENT OF THIRD-PARTY CLAIMS AGAINST LICENSED
PRODUCTS. If a Third Party asserts that a patent or other right owned by
it is infringed by the development, manufacture, import, use, sale or offer
for sale of the Compound or the Licensed Products, the Party first
obtaining knowledge of such a claim shall immediately provide the other
Party notice of such claim and the related facts in reasonable detail.
Warner shall be primarily responsible for controlling the defense of any
such infringement claim and Interneuron shall reimburse Warner for 50% of
all costs and expenses incurred in such defense. Interneuron shall further
pay 50% of all damages awarded or settlement payments made to such Third
Party as a result of such claimed infringement. To the extent any such
claim relates to an Interneuron Patent or RPR Patent, Interneuron shall
have the right at its own expense to participate in such defense and to be
represented in any such action by counsel of its selection at its sole
discretion.
6.5 TRADEMARKS. All Licensed Products shall be sold worldwide under
trademarks selected by Warner and Warner shall have the sole right to control
all matters relating to such trademarks.
<PAGE>
ARTICLE 7
REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY
7.1 REPRESENTATIONS AND WARRANTIES.
(a) PARTY REPRESENTATIONS AND WARRANTIES. Each of the Parties hereby
represents and warrants to the other Party as follows:
(i) This Agreement is a legal and valid obligation binding upon such
Party and enforceable in accordance with its terms. The execution, delivery and
performance of the Agreement by such Party does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which
it is bound, nor violate any law or regulation of any court, governmental body
or administrative or other agency having jurisdiction over it.
(ii) Such Party has not granted, and during the term of the Agreement
will not, grant any right to any Third Party which would conflict with the
rights granted to the other Party hereunder.
(b) INTERNEURON REPRESENTATIONS AND WARRANTIES. Interneuron hereby
represents and warrants to Warner as follows:
(i) In the course of the development of the Licensed Product,
Interneuron has not used any employee or consultant that is debarred by the
FDA or, to the best of Interneuron's knowledge, is the subject of debarment
proceedings by the FDA.
(ii) Interneuron is not aware of any results or adverse events in its
ongoing clinical trials of the Licensed Product which would lead it to
believe that such Licensed Product is not a viable pharmaceutical product
or that such clinical trials were or should have been terminated because
such Licensed Product is unsafe or not efficacious.
(iii) Interneuron has provided Warner with full, complete and
accurate disclosure of all relevant information and materials in
Interneuron's possession relating to the current status of the research,
development and commercialization of the Licensed Products and all such
research, development and commercialization conducted by Interneuron has
been performed in accordance with applicable laws, rules and regulations.
(iv) Attached as Exhibit B is a true and complete list of all patents
and patent applications included within the Interneuron Patent Rights. As
of the Effective Date, Interneuron is not aware that the practice of the
Interneuron Patent Rights or the Know-How as contemplated by this Agreement
will involve any infringement or constitute an unauthorized use of any
patent, copyright, trade secret, proprietary information, license or right
therein belonging to any Third Party.
<PAGE>
(v) Interneuron is not aware of any interferences or oppositions or
other matters pending or threatened against RPR or Interneuron before any
court or administrative office or agency which affect the Interneuron
Patent Rights or the Know-How.
(vi) Each of the patent applications included in the Interneuron
Patent Rights is currently pending and in good standing. As of the
Effective Date, Interneuron is not aware of any prior art or any fact which
causes it to conclude that any Interneuron Patent Rights are invalid or
unenforceable.
(vii) Attached as Exhibit D is a true and complete copy of the
Interneuron-RPR License Agreement, including all supplements thereto and
modifications or amendments thereof. Interneuron is not, and to the best
of its knowledge, RPR is not, in default under or in breach of any terms or
provisions of the Interneuron-RPR License Agreement and such agreement is
in full force and effect as of the date hereof. During the term of this
Agreement, Interneuron shall not amend, modify, terminate or cause a
default under the Interneuron-RPR License Agreement, or reject the
Interneuron-RPR License Agreement pursuant to 11 U.S.C. (S) 365.
ARTICLE 8
TERM AND TERMINATION
8.1 RIGHT OF WARNER TO TERMINATE DEVELOPMENT. Warner may at any
time terminate this Agreement by giving six (6) months advance written notice to
Interneuron. If Warner terminates this Agreement after a Licensed Product has
received Regulatory Approval in any jurisdiction, Interneuron shall pay Warner
*% of Net Sales in each country on such Licensed Product for the Royalty Term.
8.2 TERM. This Agreement shall commence as of the Effective Date
and, unless sooner terminated as provided herein, shall continue in effect until
the earlier of (a) the date on which Warner or its Affiliates or sublicensees
are no longer researching, developing, marketing or selling a Licensed Product
in any country, (b) the expiration of the last to expire Royalty Term or (c) the
date this Agreement is terminated pursuant to the terms hereof. A termination
of the Interneuron-RPR License Agreement, including a rejection pursuant to 11
U.S.C. (S) 365, shall be deemed to be a termination of this Agreement.
*CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
8.3 TERMINATION FOR MATERIAL BREACH. Subject to the provisions of
this Section 8.3, if either Party (the "BREACHING PARTY") shall have committed a
material breach and such material breach shall remain uncured and shall be
continuing for a period of ninety (90) days following receipt of notice thereof
by the other Party of such breach (the "NON-BREACHING PARTY"), then, in addition
to any and all other rights and remedies that may be available, the Non-
Breaching Party shall have the right to terminate this Agreement effective upon
the expiration of such ninety (90) day period; provided, however that if the
material breach is capable of being cured but cannot be reasonably cured in such
ninety (90) day period, then the right to terminate this Agreement shall not
arise if the allegedly Breaching Party has (i) during such period of time
submitted a plan which, if successfully carried out, would be effective in
curing such breach, and has commenced its execution of such plan, and (ii)
diligently pursues such plan thereafter to a successful conclusion. Any such
notice of alleged material breach by the Non-Breaching Party shall include a
reasonably detailed description of all relevant facts and circumstances
demonstrating, supporting and/or relating to each such alleged material breach
by the Breaching Party. Actual termination of this Agreement pursuant to this
Section 8.3 shall only occur upon a separate written notice by the Non-Breaching
Party after the end of the cure period. Notwithstanding the foregoing, if any
such breach relates solely to one or more Licensed Products, then the Non-
Breaching Party may only terminate this Agreement only to the extent it applies
to such Licensed Product or Licensed Products and this Agreement shall remain in
effect as it applies to all other Licensed Products.
8.4 SURVIVING RIGHTS. The rights and obligations set forth in this
Agreement shall extend beyond the term or termination of the Agreement only to
the extent expressly provided for herein, or the extent that the survival of
such rights or obligations are necessary to permit their complete fulfillment or
discharge. Without limiting the foregoing, the Parties have identified various
rights and obligations which are understood to survive, as follows:
In the event of expiration or termination of this Agreement pursuant to
Section 8, the provisions of Articles 5, 7 and 9 shall survive.
8.5 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination, relinquishment or
expiration of the Agreement for any reason shall be without prejudice to any
rights which shall have accrued to the benefit of either Party prior to such
termination, relinquishment or expiration, including damages arising from any
breach hereunder. Such termination, relinquishment or expiration shall not
relieve either Party from obligations which are expressly indicated to survive
termination or expiration of the Agreement. Subject to the royalty described in
Section 8.1, in the event of termination under this Article 8, Warner shall
promptly return to Interneuron any and all rights to the Compound and the
Licensed Products, including but not limited to Interneuron Patent Rights and
Know-How, and shall grant Interneuron a royalty-free, fully paid-up license to
the Warner Patents, Know-How and data relating thereto in Warner's possession or
control at the time of termination relating to the Compound or the Licensed
Products only to the extent necessary for Interneuron's Development and
Commercialization of the Compound and the Licensed Products and then only to the
extent used by Warner in its Development and Commercialization of the Compound
and the Licensed Products.
<PAGE>
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION FOR LICENSED PRODUCTS.
(a) WARNER INDEMNIFICATION. Warner hereby agrees to indemnify, save,
defend and hold Interneuron and its agents and employees and RPR harmless
from and against any and all suits, claims, actions, or demands by a Third
Party for damages, liabilities, expenses and/or loss, including reasonable
legal expense and attorneys' fees (collectively, "LOSSES"), resulting
directly from (i) the manufacture, use, development, handling, storage,
marketing, sale or other disposition of the Compound or the Licensed
Products by Warner, its Affiliates or sublicensees, or (ii) Warner's breach
in any material respect of any of its representations, warranties or
obligations set forth in this Agreement or Warner's negligence or willful
misconduct; except to the extent such Losses result from the negligence or
willful misconduct of Interneuron, its agents or employees or RPR, or to
the extent Interneuron is obligated to indemnify Warner for such Losses as
provided in Section 9.1(b),
(b) INTERNEURON INDEMNIFICATION. Interneuron hereby agrees to
indemnify, save, defend and hold Warner and its agents and employees
harmless from and against any and all Losses resulting directly from (i)
Interneuron's breach in any material respect of any of its representations,
warranties or obligations set forth in this Agreement, (ii) Interneuron's
negligence or willful misconduct or (iii) Interneuron's research,
development, use, manufacture, handling, storage or other disposition of
the Compound or the Licensed Products, except to the extent such Losses
result from the negligence or willful misconduct of Warner, its agents or
employees, or to the extent Warner is obligated to indemnify Interneuron
for such Losses as provided in Section 9.1(a).
9.2 NOTICE OF CLAIM. In the event that a Party is seeking
indemnification under this Article 9, it shall inform the other Party of a claim
as soon as reasonably practicable after it receives notice of the claim, shall
permit the indemnifying Party to assume direction and control of the defense of
the claim (including the right to settle the claim solely for monetary
consideration), and shall cooperate as requested (at the expense of the
Indemnifying Party) in the defense and settlement of the claim. The indemnified
Party shall not voluntarily make any payment or incur any expense in connection
with any claim or suit without the consent of the indemnifying Party.
<PAGE>
ARTICLE 10
MISCELLANEOUS
10.1 ASSIGNMENT.
(a) AFFILIATES. Warner may assign any of its rights or obligations under
this Agreement in any country to any Affiliates; provided, however, that such
assignment shall not relieve Warner of its responsibilities for performance of
its obligations under this Agreement, and further provided that if a proposed
assignment would have an adverse financial impact upon Interneuron (e.g., by
reason of changed tax treatment of payments due under this Agreement), such
assignment shall be subject to Interneuron' prior written consent.
(b) MERGER, ACQUISITION OR SALE OF ASSETS. Subject to the terms hereof,
either Party may assign its rights or obligations under this Agreement to a non-
Affiliate only in connection with a merger or similar reorganization or the sale
of all or substantially all of its assets or the sale of all or substantially
all of its pharmaceutical and/or healthcare assets, or otherwise with the prior
written consent of the other Party. This Agreement shall survive any such
merger or reorganization of either Party with or into, or such sale of assets
to, another party and no consent for such merger, reorganization or sale shall
be required hereunder; provided, that in the event of such merger,
reorganization or sale, no intellectual property rights of the acquiring
corporation shall be included in the technology licensed hereunder.
(c) BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
Parties. Any assignment not in accordance with this Agreement shall be void.
10.2 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, earthquake, explosion, flood, strike, lockout, embargo, act
of God, or any other similar or dissimilar cause beyond the control of the
defaulting Party, provided that the Party claiming force majeure has exerted all
reasonable efforts to avoid or remedy such force majeure.
10.3 BANKRUPTCY PROVISION. All rights and licenses granted by
Interneuron to Warner under or pursuant to this Agreement are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy
Code, licenses of rights to "intellectual property" as defined in Section 101 of
the Bankruptcy Code. The parties agree that Warner, as exclusive licensee of
such rights under this Agreement, shall retain and may fully exercise all of its
rights and elections under the Bankruptcy Code. The parties further agree that,
in the event of the commencement of a bankruptcy proceeding by or against
Interneuron under the Bankruptcy Code, Warner shall be entitled to a complete
duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, and same, if not
already in its possession, shall be promptly delivered to Warner (i) upon any
such commencement of a bankruptcy proceeding, unless Interneuron elects to
continue to perform all
<PAGE>
of its obligations under this Agreement; or (ii) if not delivered under (i)
above, upon the rejection of this Agreement by or on behalf of Interneuron.
10.4 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
10.5 NO TRADEMARK RIGHTS. Except as otherwise provided herein, no right,
express or implied, is granted by the Agreement to use in any manner the name
Warner, Interneuron or any other trade name or trademark of the other Party or
its Affiliates in connection with the performance of the Agreement.
10.6 NOTICES. All notices hereunder shall be in writing and shall be
deemed given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the Parties
at the following addresses (or at such other address for a Party as shall be
specified by like notice; provided, that notices of a change of address shall be
effective only upon receipt thereof).
If to Interneuron, addressed to: Interneuron Pharmaceuticals, Inc.
99 Hayden Avenue, Suite 200
Lexington, MA 02421-7966
Attn: Glenn L. Cooper, M.D., President and CEO
Telephone: 781-861-8444
Telecopy: 781-861-3830
If to Warner, addressed to: Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Attention: President, Pharmaceutical Division
Telephone: (973) 540-7259
Telecopy: (973) 540-3927
With a copy to: Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Attention: Vice President and
General Counsel
10.7 Waiver. Except as specifically provided for herein, the waiver from
time to time by either of the Parties of any of their rights or their failure to
exercise any remedy shall not operate or be construed as a continuing waiver of
same or of any other of such Party's rights or remedies provided in this
Agreement.
10.8 SEVERABILITY. If any term, covenant or condition of this Agreement
or the application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable,
<PAGE>
then (i) the remainder of this Agreement, or the application of such term,
covenant or condition to the Parties or under circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law; and (ii) the Parties hereto
covenant and agree to renegotiate any such term, covenant or application thereof
in good faith in order to provide a reasonably acceptable alternative to the
term, covenant or condition of this Agreement or the application thereof that is
invalid or unenforceable, it being the intent of the Parties that the basic
purposes of this Agreement are to be effectuated.
10.9 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
10.10 GOVERNING LAW. This Agreement shall be governed by and interpreted
under the laws of the State of New Jersey without reference of rules or
principles relating to conflicts of laws.
10.11 HEADINGS. The Article and Section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said Articles or Sections.
10.12 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.13 ENTIRE AGREEMENT. This Agreement including all Exhibits attached
hereto, and all documents delivered concurrently herewith, set forth all the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the Parties hereto with respect to the subject matter
hereof and supersede and terminate all prior agreements and understanding
between the Parties as to such subject matter. There are no covenants,
promises, agreements, warranties, representations, conditions or understandings,
either oral or written, between the Parties with respect to such subject matter
other than as set forth herein and therein. No subsequent alteration,
amendment, change or addition to this Agreement shall be binding upon the
Parties hereto unless reduced to writing and signed by the respective authorized
officers of the Parties.
10.14 USE OF NAMES. Except as otherwise provided in this Agreement,
neither Party shall use the name of the other Party in relation to this
transaction in any public announcement, press release or other public document
without the consent of such other Party, which consent shall not be unreasonably
withheld or delayed; provided, however, that either Party may use the name of
the other Party in any document required to be filed to obtain Regulatory
Approval or to comply with applicable laws, rules or regulations.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this License Agreement in
duplicate originals by their proper officers as of the Effective Date.
INTERNEURON PHARMACEUTICALS, INC. WARNER-LAMBERT COMPANY
By: /s/ Glenn L. Cooper By: /s/ Peter B. Corr
------------------- ------------------
Title: President and CEO Title: President, R&D
----------------- ----------------
<PAGE>
LICENSE AGREEMENT
BETWEEN
INTERNEURON PHARMACEUTICALS, INC.
AND
WARNER-LAMBERT COMPANY
_______________, 1999
<PAGE>
EXHIBIT A: STRUCTURE OF COMPOUND
USAN and International
non-proprietary name: Pagoclone
Trade name: not available
Code name: RP 62955; IP 456
Chemical Name: (+)-2-(7-chloro-1,8-naphthyridin-2-yl)-3-(5-methyl-2-
oxohexyl)phthalimidine; (+)-2-(7-chloro-1,8-naphthyridin-2-
yl)-2,3-dihydro-3-(5-methyl-2-oxohexyl)-1H-isoindol-1-one
[Diagram appears here]
*: asymmetric carbon
Empirical formula: C23H22ClN3O2
Molecular weight: 407.904
A-1
<PAGE>
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 1
Substance and Composition
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Country Filed Published Issued Expiration
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa * - * *
- --------------------------------------------------------------------------------------------------
Germany * * * *
- --------------------------------------------------------------------------------------------------
Australia * - * *
- --------------------------------------------------------------------------------------------------
Austria * * * *
- --------------------------------------------------------------------------------------------------
Belgium * * * *
- --------------------------------------------------------------------------------------------------
Canada * - * *
- --------------------------------------------------------------------------------------------------
South Korea * - * *
- --------------------------------------------------------------------------------------------------
Denmark * - * *
- --------------------------------------------------------------------------------------------------
Spain * * * *
- --------------------------------------------------------------------------------------------------
United States * - * *
- --------------------------------------------------------------------------------------------------
France * * * *
- --------------------------------------------------------------------------------------------------
Greece * * * *
- --------------------------------------------------------------------------------------------------
Ireland * - * *
- --------------------------------------------------------------------------------------------------
Italy * * * *
- --------------------------------------------------------------------------------------------------
Japan * - * *
- --------------------------------------------------------------------------------------------------
Luxembourg * * * *
- --------------------------------------------------------------------------------------------------
Mexico * - * *
- --------------------------------------------------------------------------------------------------
New Zealand * - * *
- --------------------------------------------------------------------------------------------------
Netherlands * * * *
- --------------------------------------------------------------------------------------------------
Portugal * - * *
- --------------------------------------------------------------------------------------------------
European Application * * * *
- --------------------------------------------------------------------------------------------------
United Kingdom * * * *
- --------------------------------------------------------------------------------------------------
Sweden * * * *
- --------------------------------------------------------------------------------------------------
Switzerland * * * *
- --------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
B-1
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 2
Process Resolution I
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Country Filed Published Issued Expiration
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa * - * *
- -------------------------------------------------------------------------------------------------
Australia * - * *
- -------------------------------------------------------------------------------------------------
Canada * - - *
- -------------------------------------------------------------------------------------------------
South Korea * * - *
- -------------------------------------------------------------------------------------------------
France * * * *
- -------------------------------------------------------------------------------------------------
Ireland * - * *
- -------------------------------------------------------------------------------------------------
Mexico * - * *
- -------------------------------------------------------------------------------------------------
New Zealand * - * *
- -------------------------------------------------------------------------------------------------
PCT * * - -
- -------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
Received from Pepper Hamilton 7/14/19
B-2
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 3
Process Resolution II
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Country Filed Published Issued Expiration
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa * - * *
- -------------------------------------------------------------------------------------------------
Australia * - * *
- -------------------------------------------------------------------------------------------------
Canada * - - *
- -------------------------------------------------------------------------------------------------
South Korea * * - *
- -------------------------------------------------------------------------------------------------
France * * * *
- -------------------------------------------------------------------------------------------------
Ireland * * * *
- -------------------------------------------------------------------------------------------------
Mexico * - * *
- -------------------------------------------------------------------------------------------------
New Zealand * - * *
- -------------------------------------------------------------------------------------------------
European Application * * - -
- -------------------------------------------------------------------------------------------------
PCT * * - -
- -------------------------------------------------------------------------------------------------
Mexico - - * -
- -------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
Received from Pepper Hamilton 7/14/19
B-3
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 4
Process Resolution III
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Country Filed Published Issued Expiration
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa * - * *
- -------------------------------------------------------------------------------------------------
Australia * - * *
- -------------------------------------------------------------------------------------------------
Canada * - - *
- -------------------------------------------------------------------------------------------------
South Korea * * - *
- -------------------------------------------------------------------------------------------------
France * * * *
- -------------------------------------------------------------------------------------------------
Ireland * * * *
- -------------------------------------------------------------------------------------------------
Mexico * - * *
- -------------------------------------------------------------------------------------------------
New Zealand * - * *
- -------------------------------------------------------------------------------------------------
European Application * * - -
- -------------------------------------------------------------------------------------------------
PCT * * - -
- -------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
Received from Pepper Hamilton 7/14/19
B-4
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 5
Process Resolution IV
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Country Filed Published Issued Expiration
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa * - * *
- -------------------------------------------------------------------------------------------------
Australia * - * *
- -------------------------------------------------------------------------------------------------
Canada * - - *
- -------------------------------------------------------------------------------------------------
South Korea * * - *
- -------------------------------------------------------------------------------------------------
France * * * *
- -------------------------------------------------------------------------------------------------
Ireland * * * *
- -------------------------------------------------------------------------------------------------
Mexico * - * *
- -------------------------------------------------------------------------------------------------
New Zealand * - * *
- -------------------------------------------------------------------------------------------------
European Application * * - -
- -------------------------------------------------------------------------------------------------
PCT * * - -
- -------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
Received from Pepper Hamilton 7/14/19
B-5
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 5a
Process Resolution IV
<TABLE>
<CAPTION>
Country Filed Published Issued Expiration
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Europe * - * *
- ----------------------------------------------------------------------------------------------------
United States * - * *
- ----------------------------------------------------------------------------------------------------
Japan * - * *
- ----------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
Received from Pepper Hamilton 7/14/19
B-6
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 6
Metabolites, Process and Isolation
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Country Filed Published Issued Expiration
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Africa * * * *
- -----------------------------------------------------------------------------------------------------------
Austria * * * *
- -----------------------------------------------------------------------------------------------------------
Belgium * * * *
- -----------------------------------------------------------------------------------------------------------
Canada * - - *
- -----------------------------------------------------------------------------------------------------------
Denmark * * * *
- -----------------------------------------------------------------------------------------------------------
Spain * * * *
- -----------------------------------------------------------------------------------------------------------
United States * - * *
- -----------------------------------------------------------------------------------------------------------
United States * - * *
- -----------------------------------------------------------------------------------------------------------
United States * - * *
- -----------------------------------------------------------------------------------------------------------
France * * * *
- -----------------------------------------------------------------------------------------------------------
France * * * *
- -----------------------------------------------------------------------------------------------------------
Greece * * * *
- -----------------------------------------------------------------------------------------------------------
Ireland * * * *
- -----------------------------------------------------------------------------------------------------------
Italy * * * *
- -----------------------------------------------------------------------------------------------------------
Japan * - - *
- -----------------------------------------------------------------------------------------------------------
Luxembourg * * * *
- -----------------------------------------------------------------------------------------------------------
Netherlands * * * *
- -----------------------------------------------------------------------------------------------------------
Portugal * * * *
- -----------------------------------------------------------------------------------------------------------
European Application * * * *
- -----------------------------------------------------------------------------------------------------------
PCT * * - *
- -----------------------------------------------------------------------------------------------------------
United Kingdom * * * *
- -----------------------------------------------------------------------------------------------------------
Sweden * * * *
- -----------------------------------------------------------------------------------------------------------
Switzerland * * * *
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT REQUESTED
Received from Pepper Hamilton 7/14/19
B-7
<PAGE>
Exhibit B: List of patents
Interneuron/Warner-Lambert Agreement dated 12/23/99
Table 7
Additional Methods of Use Applications
<TABLE>
<CAPTION>
Country Filed Published Issued Expiration
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States * - - -
- --------------------------------------------------------------------------------------------------
</TABLE>
Updated on September 16, to include new application (above).
Received from Pepper Hamilton 7/14/19
B-8
<PAGE>
Exhibit C: Contracts and Agreements
Interneuron/Warner-Lambert Agreement dates 12/23/99
List of Contracts/agreements/POs for pagoclone
<TABLE>
<CAPTION>
VENDOR DESCRIPTION
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
1 Albany Molecular Re-certification of pagoclone reference standard
- ---------------------------------------------------------------------------------------------------------
2 Albany Molecular Research Storage & Bi-Annual Analysis
- ---------------------------------------------------------------------------------------------------------
3 Imperial College of Science PET Study 6 volunteers (IP456-008)
Tech.& Medicine
- ---------------------------------------------------------------------------------------------------------
4 Phoenix International Life Method development & validation
- ---------------------------------------------------------------------------------------------------------
5 PPD Pharmaco Soft-gel Stability Program
- ---------------------------------------------------------------------------------------------------------
6 PPD Pharmaco Dev & validation of a chiral assay for "total & "free" pag
- ---------------------------------------------------------------------------------------------------------
7 PPD Pharmaco Release testing & stability testing
- ---------------------------------------------------------------------------------------------------------
8 PPD Pharmaco Stability testing of drug substance
- ---------------------------------------------------------------------------------------------------------
9 PPD Pharmaco Stability testing of soft-gel capsule lot#E900882 & E900883
- ---------------------------------------------------------------------------------------------------------
10 PPD Pharmaco Stability testing of pagoclone surfactant formulation
- ---------------------------------------------------------------------------------------------------------
11 PPD Pharmaco Stability testing of drug substance, Batch P112-281-2
- ---------------------------------------------------------------------------------------------------------
12 PPD Pharmaco LC/MS validation of pagoclone protein
- ---------------------------------------------------------------------------------------------------------
13 PPD Pharmaco Stability testing of pagoclone, Batch P132-13-1
- ---------------------------------------------------------------------------------------------------------
14 PPD Pharmaco Stability studies in various excipients
- ---------------------------------------------------------------------------------------------------------
15 PPD Pharmaco Stability storage & analysis of Pagoclone
- ---------------------------------------------------------------------------------------------------------
16 Regis Technologies Pagoclone method of development
- ---------------------------------------------------------------------------------------------------------
17 Regis Technologies Pagoclone synthesis
- ---------------------------------------------------------------------------------------------------------
18 Regis Technologies Pagoclone scale-up
- ---------------------------------------------------------------------------------------------------------
19 Regis Technologies Pagoclone GMP manufacture
- ---------------------------------------------------------------------------------------------------------
20 Wisconsin Analytical Pagoclone Soft Gel Stability Program
- ---------------------------------------------------------------------------------------------------------
21 Wisconsin Analytical Softgel Stability (Blister cards)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE>
Exhibit D: Interneuron-RPR License Agreement
(Filed as exhibit 10.52 to Registrant's Registration statement on Form S-3 or
Amendment No.1 (File No. 33-75826))
D-1
<PAGE>
LIST OF EXHIBITS
EXHIBIt A: STRUCTURE OF COMPOUND
EXHIBIT B: LIST OF PATENTS
EXHIBIT C: CONTRACTS AND AGREEMENTS
EXHIBIT D: INTERNEURON-RPR LICENSE AGREEMENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> $36,963,000
<SECURITIES> $3,482,000
<RECEIVABLES> $1,724,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $43,948,000
<PP&E> $1,591,000
<DEPRECIATION> $(1,247,000)
<TOTAL-ASSETS> $46,356,000
<CURRENT-LIABILITIES> $22,450,000
<BONDS> 0
0
$3,500,000
<COMMON> $42,000
<OTHER-SE> $20,175,000
<TOTAL-LIABILITY-AND-EQUITY> $46,356,000
<SALES> 0
<TOTAL-REVENUES> $23,751,000
<CGS> 0
<TOTAL-COSTS> $7,183,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $16,859,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $16,859,000
<EPS-BASIC> $0.40
<EPS-DILUTED> $0.39
</TABLE>
