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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO __________________
Commission file number: 0-19910
CREATIVE BIOMOLECULES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2786743
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
45 SOUTH STREET, HOPKINTON, MA 01748
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 435-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) on February 28, 1997 was
approximately $260 million, based on the last sale price as reported on The
Nasdaq Stock Market.
As of February 28, 1997, the registrant had 32,927,058 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
following parts of this Form 10-K: Certain information required in Part III of
this Annual Report on Form 10-K is incorporated from the Registrant's Proxy
Statement for the 1997 Annual Meeting of Stockholders. With the exception of the
portions of the 1997 Proxy Statement expressly incorporated into this Form 10-K
by reference, such document shall not be deemed filed as part of this Form 10-K.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Creative BioMolecules, Inc. ("Creative BioMolecules" or the "Company")
is developing products for the regeneration and restoration of human tissues
and organs based on morphogenic proteins identified and characterized by the
Company. The Company's lead morphogenic protein, OP-1, has been shown to induce
formation of several types of tissues including bone, cartilage, kidney, tooth
and brain. For orthopaedic and dental applications of OP-1, the Company's
corporate partner is Stryker Corporation ("Stryker"), a leading surgical and
medical products company. Stryker has completed a pivotal trial to evaluate
the use of an OP-1 bone regeneration product as a bone graft substitute. Stryker
is also undertaking clinical studies of OP-1 in acute fractures and other bone
indications, as well as preclinical studies in cartilage regeneration. The
Company's corporate partner in development of renal disease therapies is
Biogen, Inc. ("Biogen"), a leading biopharmaceutical company with expertise in
development and commercialization of protein therapies. Creative BioMolecules
and Biogen are developing OP-1 products to moderate or halt the progression of
renal failure. In addition to the Stryker and Biogen programs, Creative
BioMolecules has proprietary programs in place to develop OP-1 product
candidates for neurological disorders and osteoporosis.
The Company has discovered a family of morphogenic proteins that initiate
the cascade of cellular events responsible for tissue formation. One member of
this family is OP-1, a naturally occurring morphogenic protein produced
primarily in the kidney. OP-1 has the capacity to trigger the formation of a
variety of tissues by activating cells to respond to their specific environment.
The activated cells then differentiate and form the type of tissue dictated by
their environment. The Company believes that as a result of such action, OP-1
may be helpful in the treatment of defects and diseases involving a number of
different types of human tissues and organs. OP-1 was first isolated and
characterized by Creative BioMolecules' scientists and is the subject of issued
patents covering the protein itself as well as OP-1 based products for certain
applications.
The Company's agreement with Stryker gives Stryker the exclusive right
to develop, market and sell OP-1 based products for use in the repair or
replacement of bone and joint tissue ("orthopaedic reconstruction"). This
agreement provides for the payment of royalties to the Company on such sales,
gives the Company the exclusive right to supply Stryker's worldwide commercial
requirements for such products and provides for research funding to the
Company. The Company's agreement with Biogen gives Biogen the exclusive right
to develop, manufacture, market and sell OP-1 based products for use in the
treatment of renal disease. This agreement provides for the payment of
royalties to the Company on such sales and provides for research funding to the
Company. The Company has retained commercial rights to OP-1 based products for
all indications other than orthopaedic reconstruction, dental therapeutics and
kidney disorders. The Company's retained applications include neurological
disorders and metabolic bone diseases such as osteoporosis.
ORTHOPAEDIC RECONSTRUCTION. In 1995 there were 1.6 million procedures in
the United States for which the Company believes an OP-1 bone regeneration
product could have been utilized. These procedures included non-healing
fractures, open fracture reductions, spinal fusions, maxillofacial
reconstructions, prosthetic fixations and gap fillings. In addition to the
pivotal trial in non-union fractures, the Company's corporate partner, Stryker,
has initiated clinical studies in Europe in acute fractures and other bone
indications, and has a preclinical program in cartilage regeneration underway to
evaluate OP-1 in the treatment of both cartilage defects and combination
bone-cartilage defects in animal models.
KIDNEY DISORDERS. Acute renal failure involves the rapid loss of kidney
function and is associated with a high mortality rate. Chronic renal failure, in
contrast, is the slow progressive loss of kidney function ultimately resulting
in the need for kidney transplantation or dialysis. The high mortality rate of
acute renal
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failure and the substantial costs associated with dialysis therapy represents
areas of significant unmet medical and economic healthcare needs. Creative
BioMolecules and its partner, Biogen, are developing OP-1 product candidates to
treat both acute and chronic renal failure. The Company believes that there is a
substantial commercial opportunity for renal therapies that could delay or
eliminate the need for costly dialysis treatments. Studies have shown that OP-1
administration improves kidney function in animal models of both acute and
chronic renal failure.
DENTAL THERAPEUTICS. The Company and its partner, Stryker, are developing
an OP-1 product for dentin regeneration that may offer an alternative to certain
root canal procedures. In a pilot clinical trial, the Company's OP-1 product
induced statistically significant dentin formation. The Company commenced a
second pilot clinical trial in September 1995 to evaluate this application
further. The Company also has an OP-1 product candidate in preclinical testing
which it believes can restore the periodontal tissues necessary to maintain
tooth attachment when used in conjunction with standard surgical treatments of
periodontal disease.
NEUROLOGICAL DISORDERS. Creative BioMolecules is developing OP-1 product
candidates for use in the treatment of certain neurological disorders involving
stroke and Parkinson's Disease. Preclinical studies have shown that OP-1
promotes survival of neurons and can promote the establishment of new neuronal
connections which aid recovery from brain injury or disease. The Company
believes that therapies which promote survival and growth of neurons could have
substantial commercial potential.
OTHER PROGRAMS. Research studies have suggested that OP-1 may be useful in
treating osteoporosis. In addition to its work with the OP-1 protein, the
Company has a program underway to develop small molecules that can stimulate the
same regeneration results induced by morphogenic proteins via activation of
various steps in the tissue formation cascade.
The Company's principal offices are located at 45 South Street, Hopkinton,
Massachusetts 01748, and its telephone number is (508) 435-9001. The Company is
the successor to a California corporation of the same name organized in 1981. In
1987, the Company completed a corporate reorganization and became a Delaware
corporation.
SCIENTIFIC BACKGROUND
As humans age, the body's capacity to form or regenerate tissue after
injury diminishes substantially. Tissue formation begins when an activated stem
cell responds to the program of cues produced in that cell's location and
becomes committed to a cell type consistent with that particular set of
information. Stem cells are found throughout the body in people of all ages and
are the precursor cells from which all tissues and organs are derived. Once a
stem cell is activated, its interactions with its surroundings determine the
particular cell type (e.g., bone, cartilage, kidney, tooth and brain) into which
it will differentiate. For example, an activated stem cell in a bone defect will
produce bone because the information available to that cell from neighboring
cells and the extracellular environment specifies a unique program of signal and
response that results in that cell becoming a bone-forming cell.
This process of cell interaction depends on morphogenic proteins which can
activate stem cells to begin the process of differentiation and commitment,
leading to tissue and organ formation. Diminished capacity to produce
morphogenic proteins, due to aging or disease, is believed to be associated with
reduced ability to form tissue in response to injury. The ability to reinitiate
tissue formation processes with morphogenic proteins may provide the basis for
novel therapeutics to treat tissue disorders.
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THE COMPANY'S TECHNOLOGY
Creative BioMolecules has played a significant role in advancing
scientific understanding of the process of tissue regeneration. The Company has
established a technology platform based on the molecular and cellular events
responsible for tissue and organ development. This platform provides the basis
for development of the Company's proprietary therapeutic products.
Creative BioMolecules was the first to identify and characterize a family
of morphogenic proteins that are key regulators of tissue and organ formation in
humans. The Company's lead morphogenic protein, OP-1, is a naturally occurring
substance produced primarily in the kidney. OP-1's role early in the cascade of
events that leads to tissue and organ formation, prior to commitment of a stem
cell to a particular cell type, has led the Company to believe that OP-1 is
capable of inducing the formation of many different types of tissues.
Preclinical studies conducted by the Company have indicated a prominent role for
OP-1 in the formation of bone, cartilage, kidney, tooth and brain.
The illustration below depicts the cascade of molecular and cellular
events involved in the tissue formation process.
[GRAPHIC DEPICTING MORPHOGEN INDUCED TISSUE AND ORGAN FORMATION.]
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In addition to identifying and characterizing the OP-1 protein and other
morphogenic proteins, Creative BioMolecules also has identified the DNA
sequences which regulate the expression of OP-1, has identified the cellular
receptors to which OP-1 binds and through which it acts, and has determined the
three-dimensional structure of OP-1. These discoveries have enabled Creative
BioMolecules to initiate a small molecule program, the goal of which is to
identify second generation, orally-active drug compounds that either promote
morphogenic protein expression or mimic the biological activities of morphogenic
proteins.
BUSINESS STRATEGY
Creative BioMolecules' objective is to lead the discovery and development
of therapeutics for tissue regeneration. Key elements of the Company's
continuing business strategy include:
SECURING MARKETING APPROVAL FOR OP-1 IN ORTHOPAEDIC RECONSTRUCTION. The
Company is supporting Stryker in obtaining marketing approval of the OP-1 bone
regeneration product for use in the United States and foreign markets. The
Company has focused its manufacturing, quality control and quality assurance
efforts on generating the manufacturing related data for the PMA application to
be filed by Stryker, and preparing the Company's manufacturing facility for Food
and Drug Administration ("FDA") inspection and approval.
DEVELOPING OP-1 AS A THERAPY FOR RENAL DISEASE. In late 1996, the Company
established a worldwide partnership with Biogen to develop OP-1 as a therapy for
acute and chronic renal disease. The Company believes that preclinical results
have demonstrated the promise of this molecule in protecting against kidney
damage in acute conditions and in slowing kidney function decline in chronic
disease. The Company and Biogen are working closely together in the development
of a renal therapy based on these findings. The Company is supplying OP-1 for
the initial development stages and Biogen is preparing to conduct clinical
trials of this therapy.
GENERATING A BREADTH OF PRODUCT PROGRAMS. The Company has targeted a
number of initial indications for its OP-1 products, including the regeneration
of bone, cartilage, kidney, tooth and brain. The Company believes the potential
for expansion of its product pipeline is extensive, since OP-1 has shown
activity in inducing the formation of a broad range of tissues and organs. In
addition, the Company is investigating the role in tissue formation of related
morphogenic proteins in its proprietary portfolio.
ESTABLISHING CORPORATE COLLABORATIONS. The Company's strategy is to seek
collaborations for several of its discovery and development programs. Through
collaborations, the Company augments its financial resources and leverages its
equity capital. Collaborations also allow the Company to broaden its pipeline of
programs, to access complementary technologies and to gain significant
development, manufacturing and commercialization expertise.
DEVELOPING A SMALL MOLECULE PROGRAM. The Company believes it may be able
to stimulate the same regeneration induced by morphogenic proteins via
activation of various steps in the cascade of tissue formation with small,
orally-active compounds. The Company has been able to develop biochemical and
cell-based screens that mimic discrete points within the tissue formation
cascade to enable the identification of small molecule candidates. In connection
with establishment of a partnership to develop a renal disease therapy, Biogen
extended to the Company a $15 million line of credit to fund research in a small
molecule discovery program.
ACCESSING NEW TECHNOLOGIES/ESTABLISHING ACADEMIC COLLABORATIONS. The
Company has utilized a large network of academic collaborators to gain knowledge
of new technologies, to identify additional uses for morphogenic proteins and to
extend research on existing indications. These collaborators, who are located
around the world, help leverage the Company's resources.
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CAPITALIZING ON PROCESS DEVELOPMENT AND MANUFACTURING CAPABILITIES. The
Company has significant capabilities in process development and in manufacturing
OP-1 for use in both the ongoing clinical trials and for future OP-1
indications. In addition, the Company's process development and protein
manufacturing capabilities are transferable to the production of other proteins,
enabling the Company to fill existing plant capacity and to generate additional
revenues in the near-term. The manufacture of products in-house also allows the
Company to increase its participation in corporate partnerships by deriving
revenues from manufacturing as well as product sales.
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The Company is developing therapeutic products based on OP-1 for use in
orthopaedic reconstruction, kidney disorders, dental therapeutics, neurological
disorders and osteoporosis. The following table sets forth these programs:
OP-1 PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
Commercial U.S. Regulatory
Potential Application Rights Classification(1) Status(2)
- --------------------- ---------- ----------------- ---------
<S> <C> <C> <C>
ORTHOPAEDIC RECONSTRUCTION: Stryker Device
Non-Union Fractures -- Tibia U.S. Pivotal Clinical Trial
completed, data analysis in
progress
Non-Union Fractures -- All long bones U.S. Treatment Study
Other Bone Indications (3) European Clinical Studies
Cartilage Regeneration Preclinical Studies
KIDNEY DISORDERS: Biogen Biologic
Acute Renal Failure Preclinical Studies
Chronic Renal Failure Preclinical Studies
DENTAL THERAPEUTICS: Stryker Device
Periodontal Disease Preclinical Studies
Dentin Regeneration U.S. Pilot Clinical Trial
NEUROLOGICAL DISORDERS: Company Biologic
Stroke Preclinical Studies
Parkinson's Disease Preclinical Studies
OSTEOPOROSIS Company Drug Research
</TABLE>
- ------------
(1) "Device" refers to products which will be reviewed by the FDA's Center for
Devices and Radiological Health; "Biologic" refers to products which will be
reviewed by the FDA's Center for Biologics Evaluation and Research; "Drug"
refers to products which will be reviewed by the FDA's Center for Drug
Evaluation and Research. The indicated regulatory classifications are either
current (orthopaedic reconstruction and dentin regeneration) or anticipated
(kidney disorders, periodontal disease, neurological disorders and
osteoporosis). These regulatory classifications may be subject to change, as the
FDA has the authority to regulate the Company's products under more than one
regulatory classification.
(2) "Pivotal Clinical Trials" are investigations conducted under an
Investigational Device Exemption ("IDE"), intended to be used as the primary
supporting documentation for regulatory approval of a new medical device.
"Treatment Study" denotes an open label study pursuant to a supplement to an
IDE. "European Clinical Studies" are physician sponsored feasibility
investigations conducted among a small number of patients. "Pilot Clinical
Trials" are feasibility investigations
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conducted under an IDE, that are intended to assess the initial safety and/or
efficacy of a new medical device. "Preclinical Studies" denotes the collection
and analysis of data from multiple studies in animals relating to toxicity
and/or efficacy in preparation for an Investigational New Drug ("IND") or IDE
application filing. "Research" denotes all investigative activities with respect
to product candidates prior to initiation of Preclinical Studies. See "--
Regulatory Issues."
(3) Stryker has indicated that it has initiated clinical studies for multiple
orthopaedic reconstruction applications of OP-1.
ORTHOPAEDIC RECONSTRUCTION PROGRAMS
Creative BioMolecules believes there is a significant commercial
opportunity for the use of OP-1 products to regenerate bone and cartilage tissue
in orthopaedic reconstruction. The number of procedures for which the Company
believes an OP-1 bone regeneration product could have been utilized exceeded 1.6
million in 1995 in the United States. These procedures included non-healing
fractures (170,000), open fracture reductions (439,000), spinal fusions
(202,000), maxillofacial reconstructions (219,000), prosthetic fixations
(541,000), and gap fillings (31,000). In addition, in 1995 there were 570,000
cartilage-related injuries in the United States. For orthopaedic reconstruction
applications, the Company's corporate partner is Stryker, a leader in surgical
and medical products for orthopaedic reconstruction.
Pursuant to its agreement with Stryker, the Company receives funding to
support research and development in orthopaedic reconstruction, has an exclusive
right to supply OP-1 bone and cartilage regeneration products for Stryker's
orthopaedic reconstruction applications, and upon marketing, will also receive
royalties on any sales of such OP-1 bone and cartilage regeneration products.
See "--Collaborative and Licensing Agreements -- Stryker Corporation."
BONE. The Company has amassed a large body of evidence that OP-1 is a
potent stimulator of cartilage and bone formation. The natural conversion of
stem cells into cartilage is activated by morphogenic proteins such as OP-1. In
a bone environment, cartilage tissue becomes permeated by blood vessels and
mineralizes to become bone. Numerous studies in six different animal species
have demonstrated that OP-1 is capable of inducing bone regeneration at a wide
array of sites within the body in which bone is normally present. Bone formed in
response to OP-1 is biochemically and biomechanically identical to normal bone.
The most widely employed reconstruction procedure for the replacement of
lost or damaged bone is bone grafting. Grafting involves surgical
transplantation of bone or bone chips to the site of the defect facilitating new
bone formation. Autograft, the currently preferred grafting approach, involves
two surgical steps: one step to harvest the graft and a second step to implant
the graft at the site of the defect or injury. In addition to the pain and cost
associated with this two-step procedure, an estimated twenty-five percent of
patients experience complications resulting from the graft harvesting step.
Allograft procedures, a second approach, utilize bone grafts or demineralized
bone powder taken from cadavers. While allografts avoid the need for an
ancillary surgical procedure, they carry the risk of infectious disease
transmission. The Company believes that its OP-1 bone regeneration product
applied locally to the site of the defect could be used as an alternative to
many bone graft procedures, providing more reliable healing, accelerating the
rate of healing and obviating the need for graft harvesting with its associated
complications.
Stryker has completed a pivotal clinical trial under an IDE to evaluate
the use of an OP-1 bone regeneration product as a bone graft substitute. This
clinical trial focuses on regeneration of bone tissue in non-union fractures in
the tibia, a long bone in the leg. Non-union fractures are fractures which have
failed to heal for a period of at least nine months. The trial was designed to
compare the safety and efficacy of the OP-1 bone regeneration product candidate
with autograft procedures in the treatment of non-union fractures. The OP-1 bone
regeneration product used in this trial consists of a paste-like formulation
that is applied locally at the site of defect. The trial is being conducted at a
number of specialized orthopaedic hospitals and trauma centers in the United
States. In accordance with the protocol of this trial, patients are followed for
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nine months after treatment to assess bone regeneration. The endpoints of the
trial are clinical outcome and a blinded panel radiographic assessment of
healing which is currently in progress. Stryker and the Company are working to
prepare a PMA application for this OP-1 bone regeneration product.
In October 1995, the FDA approved a supplemental treatment arm (an
"Open-Label Trial") of the pivotal trial, allowing Stryker to expand the study
to test the OP-1 bone regeneration product for the treatment of all long bone
non-union fractures. Stryker is currently treating patients in this Open-Label
Trial which will allow for the evaluation of various clinical parameters prior
to market launch.
In addition to the U.S. pivotal trial and its supplemental treatment arm,
Stryker initiated clinical studies in several European countries, under
physician sponsorship. Stryker is expected to initiate further clinical testing
of OP-1 bone regeneration products in a number of countries for an increasing
array of orthopaedic reconstruction indications. The Company believes that
Stryker's goal is to sell OP-1 bone regeneration products for a number of
orthopaedic reconstruction indications in major markets around the world.
CARTILAGE. Creative BioMolecules and Stryker are also engaged in research
on the regeneration of cartilage. Cartilage tissue is found in different parts
of the body and serves various purposes. The focus of the Company's
collaboration is articular cartilage, a thin layer of tough opaque tissue that
lines the opposing bone surfaces of all moving joints to provide almost
frictionless movement. When articular cartilage tissue in a joint suffers more
than superficial damage, it does not regenerate and may further deteriorate over
time. In an initial series of animal experiments, Creative BioMolecules
demonstrated that an OP-1 product induced the formation of articular cartilage
in cartilage defect sites.
Current techniques to repair cartilage damage are limited. Arthroscopic
surgery is used to relieve pain and lessen the chance of further tissue damage
but cannot repair defects or stop degeneration. Many patients need to undergo
more than one treatment and often never achieve lasting pain relief. Another
procedure, recently developed in Sweden, has been used to treat patients with
articular cartilage defects in the knee. In this procedure, a small portion of
the patient's healthy knee cartilage tissue is surgically removed. The cells
within the extracted tissue sample are multiplied over several weeks using cell
culture techniques and then those cells are reimplanted in the patient's knee.
This process is costly, time consuming and involves two separate surgical
procedures at different times.
The Company believes that OP-1 can be used to stimulate the regeneration
of articular cartilage. Initial animal studies show that OP-1 induces cartilage
formation in surgically prepared defects. The Company and Stryker are expanding
the preclinical program to evaluate locally applied OP-1 in the treatment of
both cartilage defects and combination bone-cartilage defects in animal studies.
KIDNEY DISORDERS
Kidney disorders, particularly various types of renal failure, are a large
and growing health care problem. Billions of dollars are spent annually in the
United States on the treatment of renal failure patients. Despite these
expenditures, mortality rates remain high and quality of life low. Recent
research has indicated that kidneys which recover from acute renal failure may
be doing so by repeating some of those morphogenic processes that were initially
involved in kidney development. Studies conducted by the Company's scientists
and its collaborators have shown that OP-1 is a key morphogenic signal that
initiates kidney formation at the earliest stages of kidney development. The
Company's corporate partner in development of a renal disease therapy is Biogen,
a leading biopharmaceutical company with expertise in development and
commercialization of protein based therapeutics. Creative BioMolecules and its
partner, Biogen, are
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developing an OP-1 product to moderate or halt the progression of renal failure.
See "-- Collaborative and Licensing Agreements -- Biogen, Inc."
ACUTE RENAL FAILURE. Acute renal failure is the rapid and sudden loss of
the kidneys' ability to perform their essential functions and is often
associated with multiple organ failure and a high mortality rate. The primary
causes of acute renal failure are interruptions of blood flow (often as a result
of certain surgical procedures or cardiac arrest), trauma and certain
medications with toxic side effects to the kidneys. Based on data from the
National Center for Health Statistics and other sources, Creative BioMolecules
estimates that there were 250,000 diagnosed cases of acute renal failure in the
United States in 1995. Currently, therapies that prevent, improve recovery or
reduce the extent of kidney injury from acute renal failure are limited. The
Company believes that there is a substantial commercial opportunity for a
therapy that could prevent, facilitate recovery or reduce the extent of kidney
injury in acute renal failure.
Animal studies have been conducted by the Company and its academic
collaborators to determine if the rapid onset of acute renal failure injury can
be moderated by systemic administration of OP-1. Results of these studies
indicate that an OP-1 product can reduce the extent of injury to the kidneys in
an animal model of acute renal failure. The Company and its partner, Biogen,
currently have additional preclinical studies underway with the goal of
initiating human clinical investigation of an OP-1 product for the treatment of
acute renal failure.
CHRONIC RENAL FAILURE. Unlike acute renal failure with its sudden and
rapid onset, chronic renal failure is characterized by a gradual and progressive
loss of kidney function. Chronic renal failure may take several years to
manifest symptoms and to require therapeutic intervention. The most common
conditions associated with onset of chronic renal failure are diabetes and high
blood pressure. Chronic renal failure eventually results in end stage renal
disease, a condition which requires dialysis or kidney transplantation. Aside
from the substantial economic costs associated with dialysis, there are
significant side effects and the average life expectancy of patients on dialysis
is substantially diminished. Based on reports from the United States Renal Data
System and epidemiology studies, Creative BioMolecules estimates that in 1995
there were more than 300,000 patients on dialysis and that the numbers are
rising by 10% each year. In addition, the Company estimates that there were more
than 700,000 patients with some degree of chronic renal failure in the United
States in 1995. The Company believes that there is a significant commercial
opportunity for a therapy that could reduce, delay or prevent the need for
dialysis or that could halt the progression of chronic renal failure.
The Company has initiated a series of studies to investigate the potential
of OP-1 to moderate the progression of chronic renal failure. Results indicate
that systemic administration of OP-1 can retard the progressive loss of kidney
function in an animal model of chronic renal failure. The Company and Biogen are
conducting additional preclinical studies with the goal of initiating human
clinical investigation of an OP-1 product for the treatment of chronic renal
failure.
DENTAL THERAPEUTICS
Dental medicine has few therapeutics to treat the hard and soft tissues
which comprise the tooth and its associated attachment structures. Creative
BioMolecules, in partnership with Stryker, is developing regenerative therapies
to treat these tissues. The Company and Stryker are evaluating OP-1 products to
treat periodontal disease and for dentin regeneration as an alternative to
certain root canal procedures.
PERIODONTAL TISSUE REPAIR. Periodontal disease is a bacterially induced
inflammatory disorder that results in the progressive destruction of the
periodontal tissues that hold teeth in place. Reliable and effective restoration
of periodontal tissue damaged or lost as a result of periodontal disease is not
possible with current
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therapies. The Company estimates based on data from the most recent American
Dental Association Survey of Services Rendered ("ADA Survey") that in 1995
approximately four million patients underwent periodontal surgery in the United
States for severe periodontal disease. The Company believes that most of these
procedures would have been candidates for treatment with an OP-1 periodontal
product.
DENTIN REGENERATION. Dentin is a hard, mineralized tissue that lies
immediately beneath the enamel of the tooth, surrounding the dental pulp which
contains the tooth's nerve and blood vessels. Dentin acts as a protective layer
to the dental pulp. A pulp exposure occurs when a defect in the tooth penetrates
through the enamel and dentin into the pulp chamber. This often results in
infection of the pulp, necessitating tooth extraction or removal of the pulp by
root canal surgery. The Company's estimates based on data from the most recent
ADA Survey that in 1995 there were approximately 16 million root canal
procedures performed in the United States. The Company believes that
approximately one quarter of these procedures represent candidates for dentin
regeneration therapy with an OP-1 product.
A pilot clinical trial completed in 1994 in the United States with an OP-1
product showed statistically significant evidence of dentin formation. The trial
was conducted under an IDE"and involved placement of an OP-1 product onto an
exposed pulp which was then sealed with standard dental filling material. The
Company and Stryker are conducting additional trials to evaluate OP-1's safety
and activity in dentin formation.
NEUROLOGICAL DISORDERS
A number of neurological disorders, including stroke, Parkinson's Disease,
brain trauma, Alzheimer's Disease, and Amyotrophic Lateral Sclerosis (Lou
Gehrig's Disease), are characterized by the acute or progressive death of
neurons. A major advance in neuroscience was the discovery of naturally
occurring proteins that promote the survival of neurons. It is generally
believed that application of such proteins to neurons could slow or halt
neuronal degeneration and hence slow disease progression. Studies conducted by
Creative BioMolecules and its academic collaborators have indicated that OP-1
can promote neuron survival. The Company has initiated preclinical investigation
of OP-1 as a treatment for certain neurological disorders.
STROKE. Strokes occur when blood flow to the brain is interrupted by a
clogged or burst artery. The interruption deprives the brain of oxygen and
nutrients, and causes neurons to die. Stroke is the third leading cause of death
in the United States and the number one cause of adult disability. The National
Stroke Association estimates that there are 550,000 strokes every year in the
United States and that three million Americans are permanently disabled because
of stroke. Therapeutics currently available to aid the recovery from stroke are
limited. The Company believes that there is a substantial commercial opportunity
for a therapeutic that could promote enhanced recovery from stroke.
Recent research by Creative BioMolecules' academic collaborators has
indicated that OP-1 can promote the development of neurons and thereby enhance
the ability of neurons to establish connections with adjacent neurons. The
Company therefore believes that treatment with OP-1 has the potential to enhance
recovery after brain injury caused by stroke. In a preclinical study in an
animal model of stroke conducted by one of the Company's collaborators, OP-1
treated animals showed a statistically significant improvement in the recovery
of motor skills compared to untreated animals. Creative BioMolecules is
continuing these studies with the goal of initiating human clinical
investigation of OP-1 as a treatment to enhance recovery from stroke.
PARKINSON'S DISEASE. Parkinson's disease is a progressive neurological
condition characterized by tremor, muscular rigidity, and slowness of movement.
The disease is caused by the gradual loss of function and eventual death of the
neurons which control the coordination of voluntary movement. Current therapies
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offer a temporary palliative effect, but, for reasons not well understood, these
therapies become ineffective after several years. The National Institute of
Neurological Disorders and Stroke estimates that more than 500,000 people in the
United States are affected by Parkinson's Disease at any one time, and that
50,000 people in the United States are diagnosed with Parkinsons's Disease each
year. The Company believes that a therapy that promotes the survival of the
neurons which degenerate in Parkinson's Disease could have substantial
commercial potential.
Initial studies in a preclinical model of Parkinson's Disease conducted
by the Company's academic collaborators have indicated that OP-1 enhances
survival of the neurons which are most affected by Parkinson's Disease and that
this enhancement correlates with improved recovery of normal function. These
studies are being continued with the goal of initiating human clinical
investigation of OP-1 as a treatment for Parkinson's Disease.
OSTEOPOROSIS
Creative BioMolecules is engaged in a research program to develop
therapeutic products for use in osteoporosis and other metabolic bone diseases.
Osteoporosis is a term used to describe a variety of disorders that are
characterized by a reduction in the mass of bone per unit volume. Current
therapies for osteoporosis are thought to work by inhibiting further loss of
bone tissue rather than stimulating the formation of new bone. The Company
believes that treatments that would stimulate bone formation rather than inhibit
bone resorption may be preferable for therapy in osteoporosis. The Company
believes an OP-1 product, or a small molecule that triggers OP-1 production or
mimics its action, may cause the body to rebuild the bone mass lost to
osteoporosis or other metabolic bone diseases.
SMALL MOLECULE PROGRAM
In addition to identifying and characterizing the OP-1 protein, Creative
BioMolecules also has identified the DNA sequences which regulate the expression
of OP-1, has identified the cellular receptors to which OP-1 binds and through
which it acts and has determined the three-dimensional structure of OP-1. The
Company is seeking to use these recent discoveries to identify orally-active
drug compounds that either promote endogenous morphogenic protein expression or
mimic morphogenic protein biological activities. For instance, the DNA sequences
that regulate OP-1 expression and the receptors which bind OP-1 are being
formatted into assays to screen and identify small molecules that increase OP-1
synthesis or mimic OP-1 action. In addition, the information that relates to the
three-dimensional structure of OP-1 can be used to aid the rational design or
modification of small molecule drug candidates. These assays and information
have enabled the Company to develop a small molecule program that seeks to
identify the next generation of drug development candidates based on morphogenic
protein biology. The Company may fund this small molecule research program in
part through a $15 million line of credit from Biogen. This credit facility was
established by the Company and Biogen in connection with the December 1996
partnership agreement for renal disease therapy. If the Company successfully
identifies one or more small molecule candidates for clinical development,
Biogen has a right to license such compounds for its renal disease program.
COLLABORATIVE AND LICENSING AGREEMENTS
STRYKER CORPORATION. Creative BioMolecules entered into a collaboration
with Stryker in 1985 to identify and develop bone-inducing proteins. OP-1 was
first isolated and characterized by the Company's scientists through research
funded by Stryker. The Company will receive royalty payments based on Stryker's
worldwide commercial sales of OP-1 products for use in orthopaedic
reconstruction and manufacturing revenue for supply of Stryker's product
requirements for such sales. The Company is currently supplying an OP-1 bone
regeneration product to Stryker for use in clinical trials as part of the
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research program. The Company is conducting research on additional indications
for OP-1 in orthopaedic reconstruction including cartilage regeneration. In
1996, the Company and Stryker extended their collaboration to include dental
therapeutics incorporating OP-1. The Company's agreement with Stryker provides
for research funding to the Company for this work. The current work plan
establishes research objectives and funding through April 30, 1998.
Stryker has exclusive rights to develop, market and sell products
incorporating bone and cartilage-inducing proteins developed under the research
program, including OP-1, for use in the field of orthopaedic reconstruction and
dental therapeutics. The Company has also agreed not to undertake research to
develop bone and cartilage-inducing proteins for use in orthopaedic
reconstruction, on its own behalf or for third parties, for five years after
conclusion of the research program. The Company has the exclusive and
irrevocable right to develop, market and sell products incorporating morphogenic
proteins developed under the research program, including OP-1, for all uses and
applications other than orthopaedic and dental reconstruction such as renal
failure, neurological diseases, metabolic bone disorders, and others. Both the
Company and Stryker have the right to grant licenses to third parties in their
respective fields, and each is obligated to pay royalties to the other on its
sales of such products and to share royalties received from licensees. The
Company has been responsible for preclinical studies of OP-1 products, and
Stryker and the Company are each responsible for clinical studies in their
respective fields. The Company has the exclusive right to supply OP-1 products
to Stryker for worldwide commercial sales in the field of orthopaedic and dental
reconstruction. See "-- Patents and Proprietary Rights."
BIOGEN, INC. In December 1996, the Company entered into a Research
Collaboration and License Agreement with Biogen to collaborate on the
development of novel therapeutics for the treatment of renal disorders. The
initial focus of the collaboration is on advancing the development of the
Company's morphogenic protein, OP-1, for the treatment of acute and chronic
renal failure. Under the agreement, the Company granted to Biogen exclusive
worldwide rights to manufacture, market and sell OP-1 and OP-1 products
developed through the collaboration for the treatment of renal disease. Biogen
paid the Company a $10,000,000 license fee in 1996 and made an $18,000,000
equity investment which were recorded in the quarter ended December 31, 1996. In
addition, Biogen has guaranteed $10,500,000 in research funding over the next
three years, will pay up to an additional $69,000,000 upon the attainment of
certain milestones and will make available a $15,000,000 line of credit. The
agreement further provides for the payment of royalties to the Company based on
product sales.
The Company may draw upon the $15,000,000 line of credit over the next
three years to fund the research and development of small molecule products
based on OP-1. Advances are limited to $5,000,000 per year. Biogen received an
exclusive option to obtain an exclusive, worldwide license to OP-1 protein small
molecule products for the treatment of renal disorders. In the event Biogen
exercises its option, Biogen will forgive the lesser of $10,000,000 or the
principal amount outstanding under the line of credit. The remaining principle,
together with all accrued and unpaid interest, is due and payable five years
from the date of the first advance and may be repaid, at the Company's option,
in either cash, common stock or reduction of royalties due the Company from
Biogen.
In September 1994, the Company signed a three-year manufacturing contract
with Biogen to produce in the Company's manufacturing facility in Lebanon, New
Hampshire several of Biogen's protein-based therapeutic candidates for use in
Biogen's clinical trials. The contract covers the period from January 1995
through December 1997. As part of the research collaboration, the two companies
agreed to extend the manufacturing contract for two years through December 31,
1999, with Biogen having the option, but not the obligation, to use the
manufacturing facility for a mutually agreeable number of months in one of the
two extension years. To enable the Company to meet its obligations under the
manufacturing contract, Biogen financed the construction of a 7,000 square foot
addition to the present facility for production under current Good
Manufacturing Practices as mandated by the FDA ("cGMP") using
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bacterial fermentation at an estimated total cost of $2,900,000. The Company
agreed to reimburse Biogen for the construction costs and leasehold improvements
at the end of the contract term, including the extension, at an amount equal to
Biogen's construction costs less $300,000 and less all accumulated depreciation.
The reimbursement to Biogen is estimated to be no more than $2,100,000. Biogen
also agreed to lease equipment to the Company for the operation of such portion
of the facility and for cGMP production using bacterial fermentation by the
Company at an estimated total cost of $2,400,000, as provided in an equipment
lease agreement. The Company has the option to purchase the equipment at the end
of the extended lease term for an amount equal to its then fair market value or
for such other amount as is negotiated by the two parties.
GENETICS INSTITUTE. In July 1996 Creative BioMolecules and Stryker and
Genetics Institute, Inc., now a wholly-owned subsidiary of American Home
Products, ("Genetics Institute") announced that they had cross-licensed their
worldwide patent rights, royalty-free, in the bone morphogenetic/osteogenic
protein family. The agreement allows the companies to commercialize
their respective lead compounds, which are now in clinical trials for bone
repair and regeneration, free of the risk of patent litigation among the
parties. Under the agreement, which covers both issued patents and pending
patent applications, Creative BioMolecules and Stryker have exclusive rights to
OP-1, their lead compound under both their own and Genetics Institute's patents.
Genetics Institute and Yamanouchi Pharmaceutical Company, Ltd., its partner in
the worldwide development of Genetics Institute's bone growth factors, have
exclusive rights to BMP-2, their lead compound under both their own and Creative
BioMolecules/Stryker patents. In addition, the companies have granted each other
royalty-free, non-exclusive cross-licenses to patents and patent applications
covering certain other related morphogenic proteins.
PURDUE UNIVERSITY. In May 1996, Creative BioMolecules entered into an
agreement with Purdue Research Foundation to define signaling pathways in the
cell that result in tissue formation. The goal of this collaboration is to aid
in the discovery of small molecule compounds that can regenerate a variety of
tissues. This agreement expands the Company's effort to extend its technology
from morphogenic proteins such as OP-1 to small, orally-active compounds that
mimic or upregulate these proteins. As part of the agreement, Creative
BioMolecules also has licensed rights to a class of small molecule compounds
that have already been demonstrated to influence signal transduction pathways.
NATIONAL INSTITUTES OF HEALTH. The Company has a cooperative research and
development agreement with the National Institutes of Health to explore the
biology of certain morphogenic proteins that were first identified by U.S.
government researchers. As part of this agreement Creative BioMolecules has a
right to license patentable inventions that may arise from this collaboration.
ACADEMIC COLLABORATIONS. The Company has relationships with a number of
academic investigators which are focused on testing morphogenic proteins in
tissue regeneration and restoration applications. In its collaborations, the
Company seeks to expand the scientific knowledge concerning tissue formation as
well as the activities and characteristics of various proteins under development
by the Company. The academic collaborators are not employees of Creative
BioMolecules. Hence, the Company has limited control over their activities and
limited amounts of their time are dedicated to the Company's projects. The
Company's collaborators may have relationships with other commercial entities,
some of which compete with the Company. Although the precise nature of each
relationship varies, the collaborators and their primary affiliated institutions
generally sign agreements which provide for confidentiality of the Company's
proprietary technology and results of studies. The Company seeks to obtain
exclusive rights to license developments that may result from these studies.
PRUTECH RESEARCH AND DEVELOPMENT PARTNERSHIP. In December 1986, the
Company granted to entities associated with Prudential Securities Incorporated
(PruTech Research and Development Partnership III and PruTech Product
Development Partnership; collectively, the "PruTech Entities") a license to use
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certain technology developed by the Company relating to Epidermal Growth
Factor ("EGF") and Platlet Derived Growth Factor ("PDGF"). Technology developed
as a result of such research and development is owned by the PruTech Entities.
During 1988, the Company exercised its option under a related contract to take
a worldwide, exclusive license to all such technology. The license requires the
Company to pay the PruTech Entities royalties on sales of any PDGF or
EGF-related products or on sublicenses of the technology through December 31,
1999.
ENZON CROSS-LICENSING AGREEMENT. The Company owns a number of issued U.S.
and foreign patents with broad claims on the composition of BABS(TM)
(Biosynthetic Antibody Binding Sites) proteins and their interdomain linkers.
BABS(TM) represents a separate technology developed by the Company, as to which
the Company has retained rights, but is not currently being utilized in its OP-1
development programs. One important European patent in this family has been
opposed. The opposition proceeding is in its early stages, and it is too early
to predict its outcome. There can be no assurance that this European patent will
not be narrowed or lost in the opposition. Some of the Company's BABS(TM)
technology is also covered by patents held by Enzon Corporation ("Enzon"). In
December 1993, the Company and Enzon signed cross-licensing and collaboration
agreements which consolidate the two companies' intellectual property rights and
know-how covering BABS(TM) proteins. The agreements allow each company, on a
royalty-free basis, to develop and manufacture products based on the combined
technology. Each party is also free to market products based on the combined
technology in collaboration with a limited number of third parties, subject to
the payment of a royalty by such third party. The parties have also agreed to
outlicense the technology to third parties on a non-exclusive basis in exchange
for license, milestone and royalty payments. Enzon has been designated the
exclusive marketing agent for such licenses. The Company believes that
consolidation of the companies' respective positions relating to BABS(TM)
proteins has created a strong position in the use and manufacture of these novel
proteins.
MANUFACTURING
The Company has significant manufacturing experience in the scaling-up and
production of recombinant proteins, including its own OP-1 protein. This
manufacturing experience prepares the Company to move forward with its OP-1
product programs utilizing its own manufacturing capabilities. The Company has
produced its recombinant proteins by bacterial fermentation as well as by
mammalian cell culture techniques in the laboratory. The Company has scaled-up
both of these production processes and has produced clinical grade recombinant
proteins using each of them. In March 1993, the Company acquired a 47,000 square
foot manufacturing facility in Lebanon, New Hampshire from Verax Corporation
("Verax") to scale-up the production of its proteins. The facility was designed
to enable production for clinical research and commercial use in accordance with
cGMP.
In September 1994, the Company signed a three-year manufacturing contract
with Biogen to produce in the manufacturing facility several of Biogen's
protein-based therapeutic candidates for Biogen's use in its clinical trials. To
enable the Company to meet its obligations under the manufacturing contract,
Biogen financed the construction of a 7,000 square foot addition to the present
facility for cGMP production using bacterial fermentation and agreed to lease
equipment to the Company for the operation of such portion of the facility. See
"-- Collaborative and Licensing Agreements -- Biogen, Inc." The Company believes
that the acquisition and expansion of this manufacturing facility will
significantly enhance its ability to produce qualified products for clinical
trials and commercialization of OP-1.
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COMPETITION
The potential therapeutic products which Creative BioMolecules is
developing will compete with existing and new products being developed by others
for treatment of the same indications. Competition in the development of human
therapeutics is particularly intense and includes many large pharmaceutical and
biopharmaceutical companies, specialized biotechnology firms, universities and
other research institutions. Certain of these companies have extensive
financial, marketing and human resources which may result in significant
competition. Many pharmaceutical companies have extensive experience in
undertaking clinical trials, in obtaining regulatory approval to market products
and in manufacturing on a large scale. Other biopharmaceutical companies may
also have more resources and experience in these areas than the Company. Several
pharmaceutical companies have entered or expanded their presence in the
biotechnology field by acquiring specialized biotechnology companies, thus
providing additional resources to the acquired companies which may allow them to
become more competitive.
The technology underlying the development of human therapeutic products is
expected to continue to undergo rapid and significant advancement and change. In
the future, the Company's technological and commercial success will be based on
its ability to develop proprietary positions in key scientific areas and
efficiently evaluate potential product opportunities.
A number of companies are engaged in the research and development of
morphogenic proteins for the repair of bone and cartilage. The Company is aware
that Genetics Institute is pursuing the development of bone morphogenetic
proteins and, to the Company's knowledge, is the only other company that has
begun human clinical trials of a recombinant bone morphogenetic protein for the
repair of orthopaedic and other skeletal defects. Genetics Institute has entered
into relationships with Yamanouchi Pharmaceuticals Co., Ltd. and Sofamor Danek
Group, Inc. covering development and marketing of bone morphogenetic proteins.
In addition, the Company believes that a number of biopharmaceutical companies
are developing other recombinant human proteins, primarily growth factors, for
use in the repair of bone and cartilage defects and in other indications. A
number of other companies are pursuing traditional therapies, including
autografts, allografts and electrical stimulation devices, as well as cell
therapies for the repair of bone and cartilage defects that may compete with the
Company's products.
The Company's potential products for dental indications through its
collaboration with Stryker will compete primarily with traditional therapies.
The Company is not aware of any companies pursuing the development of
recombinant proteins for dentin applications. The Company is aware that Genetics
Institute is pursuing the development of bone morphogenetic proteins for the
repair of periodontal tissue.
The Company is aware of several biotechnology companies that are
developing recombinant protein based products for the treatment of renal and
neurological disorders. In the field of renal failure two different products are
being evaluated in human clinical studies for acute renal failure and one of
those products is also being evaluated preclinically for chronic renal failure.
Creative BioMolecules is not aware of any companies developing morphogenic
protein based products for either acute or chronic renal failure. In the field
of neurological disorders, particularly in the areas of recovery from stroke and
treatment of Parkinson's Disease, there are several companies engaged in
preclinical and clinical studies with recombinant protein based and more
traditional small molecule products. One of those product candidates (for the
treatment of Parkinson's Disease) is based on a morphogenic protein that is part
of the same family of proteins of which OP-1 is a member.
A number of biotechnology and pharmaceutical companies are pursuing the
development of other recombinant growth factors and hormones for the treatment
of osteoporosis. The Company believes that only a limited number of companies
are seeking to develop morphogenic proteins for the treatment of
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osteoporosis. However, many major pharmaceutical companies are pursuing the
development of traditional drug therapies for the treatment of osteoporosis.
In addition to competing with pharmaceutical and biotechnology companies,
the Company's products and technologies will also compete with those developed
by academic institutions, government agencies and other public organizations
conducting research that may discover new therapies, seek patent protection or
establish collaborative arrangements for product research.
The Company believes that in addition to a product's patent position,
efficacy and price, the timing of a product's introduction may be a major factor
in determining eventual commercial success and profitability. Early entry may
have important advantages in gaining product acceptance and market share.
Accordingly, the relative speed with which the Company can complete preclinical
and clinical testing, obtain regulatory approvals, and supply commercial
quantities of the product is expected to have an important impact on the
Company's competitive position, both in the United States and abroad. Other
companies may succeed in developing similar products that are introduced
earlier, are more effective, or are produced and marketed more effectively.
There can be no assurance that research and development by others will not
render any of the Company's products obsolete or noncompetitive.
PATENTS AND PROPRIETARY RIGHTS
Creative BioMolecules pursues a policy of obtaining patent protection for
patentable subject matter in its proprietary technology. As of March 6, 1997,
the Company owned or had rights to 40 issued patents and 81 pending patent
applications in the United States. The Company also owned or had rights to
approximately 41 issued foreign patents and 126 foreign patent applications
pending in Europe, Japan and certain other countries. Many of these applications
were filed through the Patent Cooperation Treaty and the European Patent Office
seeking to preserve for the Company the right to file applications in various
countries. Certain patents and patent applications relating to morphogenic
proteins, including OP-1, are owned by Stryker and have been licensed
exclusively to the Company for use in all indications other than orthopaedic
reconstruction. See "-- Collaborative and Licensing Agreements -- Stryker
Corporation." Certain other patents and patent applications are owned jointly
with other collaborators. There can be no assurance, however, that any such
patent applications will issue as patents, or that any patent now issued, or to
be issued, will provide a preferred position with respect to the technology or
products it covers.
MORPHOGENIC PROTEIN TECHNOLOGY. Within the Company's patent estate, 15
issued U.S. patents, 21 granted foreign patents, 75 U.S. pending applications
and 89 pending foreign applications pertain to the Company's morphogenic protein
technology. Of these, 14 U.S. patents, 17 foreign patents, 16 U.S. pending
applications and 34 foreign applications pertain to composition of matter; 1
U.S. patent, 4 U.S. pending applications and 8 foreign applications pertain to
methods of production; 19 U.S. applications and 17 foreign applications pertain
to the Company's small molecule program and 4 foreign patents, 26 U.S. pending
applications and 30 foreign applications pertain to particular tissue
applications, including renal, neural, bone, liver, periodontal, dentin,
gastrointestinal tract and immune cell-mediated tissue applications.
On July 15, 1996, Creative BioMolecules, Stryker and Genetics Institute
entered into a cross-license agreement in which the parties granted world-wide,
royalty-free, cross licenses to each other in the bone
morphogenetic/osteogenetic protein family (see "-- Collaborative and Licensing
Agreements -- Genetics Institute"). This cross-license, covering both issued
patents and pending applications in the field of bone morphogenic proteins,
eliminates the risk of patent litigation between the parties relating to the
Company's individual and joint efforts with Stryker to commercialize OP-1.
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OTHER TECHNOLOGY. Within the Company's patent estate, the Company owns or
has rights to 7 U.S. patents, 4 foreign patents, 9 U.S. applications and 20
foreign applications, related to its BABS(TM) and interdomain linker technology.
The Company also has patents issued in the United States and certain foreign
countries, and applications pending in the United States and certain foreign
countries on compositions of matter, methods of use and methods of production
relating to other proprietary technology.
The Company's success will depend in part on its ability to obtain
marketing exclusivity for its products for a period of time sufficient to
establish a market position and achieve an adequate return on its investment in
product development. The Company believes that protection of its products and
technology under United States and international patent laws and other
intellectual property laws is an important factor in securing such market
exclusivity. U.S. patents issued from applications filed prior to June 8, 1995
have a term of the longer of 17 years from patent grant or 20 years from the
earliest filing date to which the application is entitled benefit. U.S. patents
issued from applications filed on or after June 8, 1995 have a term of 20 years
from the earliest filing date to which the application is entitled benefit.
Patents in most foreign countries have a term of 20 years from the date of the
filing of the patent application. In the United States and certain foreign
countries, the exclusivity period provided by patents covering pharmaceutical
products may be extended by a portion of the time required to obtain regulatory
approval for a product. The Company's issued U.S. patents begin expiring in
2005, and issued foreign patents begin expiring in 2006.
Although the Company pursues patent protection, significant legal issues
remain as to the extent to which patent protection may be afforded in the field
of biotechnology, in both the United States and foreign countries. Furthermore,
the scope of protection has not yet been broadly tested. Therefore, the Company
also relies upon trade secrets, know-how and continuing technological
advancement to develop and maintain its competitive position. Disclosure of the
Company's know-how is generally protected under confidentiality agreements.
There can be no assurance, however, that all confidentiality agreements will be
honored, that third parties will not develop equivalent technology
independently, that disputes will not arise as to the ownership of technical
information or that wrongful disclosure of the Company's trade secrets will not
occur.
Certain products and processes important to Creative BioMolecules may be
subject in the future to patent protection obtained by others. Biotechnology is
developing rapidly. Because many patent applications have been filed in this
field in recent years, the scope that courts will give to the claims of patents
issued from such applications and the nature of these claims cannot be
predicted. Several patent applications based on work done years ago have been
issued to others with broad claims directed to the use of basic recombinant DNA
technology. It is premature to predict what general trend, if any, will emerge
as to the breadth of allowed claims for biotechnology products and related uses.
The allowance of broader claims may increase the incidence and cost of
interference proceedings at the United States Patent and Trademark Office and
the risk of infringement litigation. A policy of allowing narrower claims,
conversely, could limit the value of the Company's proprietary rights under its
patents. It is possible that Patent and Trademark Office interference
proceedings will occur with respect to a number of the Company's patent
applications or issued patents. It is also likely that subject matter patented
by others will be required by the Company to research, develop, or commercialize
at least some of the Company's products. No assurance can be given that licenses
under any such patent rights of others will be made available on acceptable
terms.
REGULATORY ISSUES
Regulation by governmental agencies in the United States and other
countries is a significant factor in the clinical evaluation and licensing of
the Company's potential products as well as in the development and research of
new products. All of the Company's products currently under development will
require regulatory approval by the FDA under the Food, Drug, and Cosmetic Act
("FD&C Act"), as a drug or device, or under
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the Public Health Service Act as a biological, to be marketed in the United
States. Regardless of the classification assigned to the Company's products, all
human diagnostic and therapeutic products are subject to rigorous testing.
Generally, considerable time and expense are required to clinically evaluate the
safety and efficacy of a new product. Moreover, even after extensive preclinical
testing, unanticipated side effects can arise during clinical trials that can
halt or delay the regulatory process at any point. The Company believes that
seeking and obtaining regulatory approval for a new therapeutic or diagnostic
product is likely to take several years and require the expenditure of
substantial resources.
Products developed through genetic engineering, such as the Company's
products, are relatively new, and state and local regulation may increase as
genetically engineered products become more common. The federal government
oversees certain recombinant DNA research activity through the National
Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules
(the "NIH Guidelines"). The Company believes it complies with the NIH
Guidelines, which prohibit or restrict certain recombinant experiments, set
forth levels of biological and physical containment of recombinant DNA molecules
to be met for various types of research, and require that institutional
biosafety committees approve certain experiments before they are initiated.
Compliance with the NIH Guidelines has not had, and the Company does not foresee
that it will have, a material effect on the competitive position or cash flow of
the Company. Discussions have been underway since 1996 between NIH and FDA
regarding alternative models for regulation of recombinant DNA research and the
products resulting from such research, and the appropriateness of any continued
NIH role. It is not possible to predict the effect of such potential regulatory
changes on the Company or its potential competitors.
PHARMACEUTICAL AND BIOLOGICAL PRODUCTS. The Company expects that
certain of its potential products will be regulated by the FDA as
pharmaceuticals or biologicals. The regulatory approval of pharmaceutical and
biological products in the United States intended for therapeutic use in humans
involves many steps. The initial phase of the FDA approval process involves
preclinical testing to demonstrate that the product would not be an
unreasonable hazard in clinical studies with human subjects. Upon completion of
preclinical testing, an IND application must be filed with the FDA. The
application includes (i) information on the composition of the product
including pharmacology and toxicology, (ii) chemistry, manufacturing, and
control information, (iii) results of all the preclinical safety and efficacy
investigations including in vivo and in vitro studies, (iv) information on any
previous human experience with the product, (v) a clinical design and protocol,
(vi) information on the investigators, (vii) the necessary agreements among
parties involved in the testing and (viii) approval of an Institutional Review
Board at the center(s) conducting the study or studies. If the application has
not been denied or if additional information has not been requested by the FDA
within 30 days of filing, the applicant may then begin clinical studies.
Clinical testing usually occurs in three phases to demonstrate safety and
efficacy of the product. Phase I clinical trials consist of testing for the
safety and tolerance of the product with a small group of subjects and may also
yield preliminary information about the efficacy and dosage levels of the
product. Phase II clinical trials involve testing for efficacy, determination of
optimal dosage and identification of possible side effects in a larger patient
group. Phase III clinical trials consist of additional testing for efficacy and
safety with an expanded patient group. Currently, FDA requires a separate IND
for each distinct clinical study. After product approval, FDA may request or
require an additional phase (Phase IV) of clinical studies to provide additional
information on safety and efficacy.
Upon successful completion of Phase III testing, either a New Drug
Application ("NDA") or Product License Application/Establishment License
Application ("PLA/ELA") can be filed, depending upon whether the product is
designated as a drug or a biological, respectively. The FDA normally requires at
least two
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adequate and well-controlled clinical trials for product approval. Certain
biological products may be eligible for a unified application known as a
Biologics License Application ("BLA"), which reduces the amount of information
required to be filed concerning manufacturing facilities. All approval types
require a detailed review of all data collected from clinical studies, the
composition of the drug or biological, non-clinical pharmacology and toxicology
data, environmental impact data, human pharmacokinetics and bioavailability
data, patent information, certain case report data and forms, the labeling that
will be used, information on chemistry, manufacturing, and controls, and samples
of the product. After the FDA completes its review of the application, the
product is typically reviewed by a panel of medical experts, and the applicant
is required to answer questions on its safety and efficacy. The FDA considers
the recommendation of the panel, and may in its own discretion approve an NDA,
PLA/ELA, or BLA. If so approved, the product may then be marketed.
DEVICES. The Company expects that certain of its potential products
will be regulated by the FDA as Class III devices. Preclinical evaluations of
Class III devices are similar to those of pharmaceuticals and biologicals, with
additional emphasis on implant persistence, implant sensitization, and carrier
characterization and specifications. Upon completion of preclinical testing, an
IDE application is filed with the Center for Devices and Radiological Health in
the FDA. This application consists of (i) identifying information on the
sponsor, (ii) complete reports of prior investigations of the device, (iii) a
summary of the investigational plan (or the complete plan), (iv) a description
of the methods, facilities, and controls used for manufacturing, processing,
packing, storage, and installation of the device, (v) example investigator
agreements, (vi) a list of investigators, (vii) certifications concerning
investigators and Investigational Review Boards, (viii) copies of labeling and
(ix) materials relating to environmental impact and informed consent. If the
application has not been denied by the FDA within 30 days of filing, the
applicant may then begin clinical studies. The FDA may approve the IDE before
the end of the 30 day period, in which case the applicant may begin clinical
studies immediately.
The clinical testing of a device may consist of a preliminary feasibility
study leading to a much larger pivotal safety and effectiveness study, or it may
consist of only the larger pivotal safety and effectiveness study. Upon
successful completion of the clinical testing and compilation of the data, a PMA
application can be filed. This application consists of (i) indications for use,
(ii) product description, (iii) discussion of alternatives to use of the device,
(iv) marketing history (worldwide), (v) review of clinical studies and results,
(vi) methods, facilities and controls (as in an IDE), (vii) non-clinical data,
(viii) if only one clinical study is used, a justification of that approach,
(ix) identification and bibliography of any information relevant to the safety
and effectiveness of the device, (x) product samples, (xi) product labeling and
(xii) certain environmental information. The FDA is required to respond to the
PMA submission within 180 days, although the FDA may not adhere to this schedule
and further review may take additional time. After the FDA completes its review
of the application, the product is typically reviewed by a panel of medical
experts, and the applicant is required to answer questions on its safety and
effectiveness. At the recommendation of the panel, a PMA may be granted, and the
product may then be marketed.
TREATMENT IND STATUS. Before the completion of clinical trials for
products, a company may file for Treatment IND status under provisions of the
IND regulations. These regulations apply to products for patients with serious
or life-threatening diseases and are intended to facilitate the availability of
new products to desperately ill patients after clinical trials have shown
convincing evidence of efficacy, but before general marketing approval has been
granted by the FDA. Under these regulations, it may be possible for the Company
to recover some of the costs of research, development and manufacture of its
products before commercial marketing begins. The
18
<PAGE> 20
Company may seek Treatment IND status for qualified products, although the
decision whether to grant such status lies with the FDA.
The FDA has also adopted regulations intending to accelerate the approval
of therapeutic products for serious and life threatening diseases under certain
circumstances. The Company may seek to utilize these regulations for qualified
products. Approvals under these regulations may be conditioned on further
studies by the Company, may include restrictions on marketing, may require prior
submission of promotional materials, and may be subject to expedited withdrawal
of approval.
USER FEES. The United States Congress passed the Prescription Drug
User Fee Act ("User Fee Act") in October 1992. The purpose of the User Fee Act
is to reduce the time that the FDA takes to act on completed PLAs, ELAs, and
NDAs. Priority applications should be acted upon in six months and regular
applications should be acted upon in 12 months from date of submission. The
User Fee Act contemplates that establishment, application and product fees paid
by pharmaceutical companies seeking license approval or who already have
products on the market will be used to pay for extra resources at the FDA. The
increase in resources is intended to allow the FDA to meet the above deadlines.
Small companies with no product on the market may receive a reduction and
deferral of some fees. User fee waivers are possible for companies with limited
resources if they can show that fees are a barrier to innovation or to
development of products. Waivers are also possible to protect the public
health, if fees would exceed FDA costs, or on equitable grounds. The FDA has
stated that it will grant these waivers on a case-by-case basis. In particular,
smaller entities (less than $10 million in annual gross revenues and no
corporate parent or funding source with annual gross revenues of $100 million
or more), or up to medium-sized entities (annual gross revenues of less than
$100 million) developing Orphan Drugs, may qualify for a fee waiver. The FDA
has issued a draft guidance document describing criteria for user fee
exceptions and waivers, and the Company may seek such exceptions or waivers for
its products if appropriate under this guidance. The user fee program does not
apply to generic drugs and medical devices at this time. Because the original
legislation creating user fees will expire in the fall of 1997, negotiations
are currently underway between the regulated industry, the FDA, and the
Congress to draft reauthorizing legislation. It is impossible to predict
whether these efforts will be successful, and what effect their success or
failure may have on approval times and availability of FDA resources.
FACILITIES INSPECTION. In addition to product approval prior to
marketing, the Company must also obtain FDA approval of the facility in which
its products will be manufactured. In the case of a pharmaceutical or a device,
the Company must be in compliance with cGMP requirements; inspection of the
Company's facilities to determine such compliance would be conducted as part of
the overall NDA or PMA approval. In the case of a biological, unless the
product qualifies for a BLA, a separate application specific to the
manufacturing facility must be approved (in the form of an ELA), and the
facility must meet guidelines set by the Center for Biologics Evaluation and
Research. Since any NDA, PMA or ELA approved by the FDA is both site and
process specific, any material change by the Company in its manufacturing
process, equipment or location would necessitate additional FDA review and
approval. Recently, the FDA promulgated new regulations concerning cGMPs for
medical devices. These new regulations include elements drawn from existing
international standards and a new emphasis on design of medical devices (in
addition to the existing focus on manufacturing). Until these new regulations
are better understood by industry, compliance with medical device cGMPs may
prove more difficult than in the past, and may require the use of additional
resources or even the redesign of some existing devices or facilities.
19
<PAGE> 21
FOREIGN REGULATIONS. Regulations concerning the marketing of human
therapeutic and diagnostic products are generally imposed by foreign
governments and may have an impact on the Company's anticipated operations. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement levels vary widely from country to country. The
Company attempts to conduct its development activities in a manner that would
also support regulatory filings in selected foreign countries.
OTHER. The current Congress is considering various possible reforms to
limit the FD&C Act. Examples of possible changes include, but are not limited
to, alternative approval mechanisms, variations in the length of statutory
exclusivity and patent restoration, and modified FDA regulatory procedures. At
present, it is not possible to predict whether such changes will, in fact,
occur, and what their possible effect on the Company might be. Amendments to
the federal laws have loosened export restrictions on therapeutic products,
including amendments permitting the export of products not yet approved in the
United States but approved in certain foreign countries. The Company may choose
to conduct such exports of its products prior to obtaining FDA marketing
approval in the United States.
In addition, the Company is subject to regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Research Conservation and Recovery Act, regulations
administered by the Nuclear Regulatory Commission, national restrictions on
technology transfer, import, export and customs regulations and other present or
possible future local, state or federal regulation. From time to time, other
federal agencies and congressional committees have indicated an interest in
implementing further regulation of biotechnology applications. The Company is
not able to predict whether any such regulations will be adopted or whether, if
adopted, such regulations will adversely affect the Company's business.
EMPLOYEES
As of February 28, 1997, the Company had 191 full-time employees, 27 of
whom hold Ph.D., D.V.M., or M.D. degrees. The Company considers its relations
with its employees to be good and has experienced a low rate of employee
turnover. None of the Company's employees is covered by a collective bargaining
agreement. The Company has entered into confidentiality agreements with all of
its employees.
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<PAGE> 22
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases an aggregate of 69,000 square feet in two
facilities in Hopkinton, Massachusetts. The location is approximately 30 miles
west of Cambridge and Boston and 20 miles east of Worcester, all of which are
major research centers in health care and biotechnology in Massachusetts. The
Company's larger facility, encompassing 54,000 square feet of space, houses
research and development laboratories and small scale production suites. The
research and development laboratories are fully equipped for recombinant DNA
synthesis, protein engineering, analytical chemistry, cell biology, and process
development activities. The production suites are designed and equipped to
produce clinical grade protein products. The smaller facility, with 15,000
square feet of space, houses its corporate offices. Both leases expire in 1998.
The Company purchased a leasehold interest in, and an option to purchase,
a 47,000 square foot manufacturing facility in Lebanon, New Hampshire on March
15, 1993. The location is approximately 130 miles north by northwest of Boston,
Massachusetts and 90 miles southeast of Burlington, Vermont. This facility
houses two functional cGMP production suites, quality assurance/quality control
laboratories and support offices. The facility is fully equipped for cGMP
production of recombinant proteins from mammalian cell culture and monoclonal
antibodies from Hybridoma cultures. The lease expires in 2008.
The Company has room for expansion within the site.
In September 1994, the Company signed a three-year manufacturing contract
with Biogen to produce for clinical trials several of Biogen's protein-based
therapeutic candidates in the manufacturing facility in Lebanon, New Hampshire.
To enable the Company to meet its obligations under the manufacturing contract,
Biogen is constructing and financing a 7,000 square foot addition to the present
facility for cGMP production using bacterial fermentation and agreed to lease
equipment to the Company for the operation of such portion of the facility and
for the cGMP production of bacterial fermentation products by the Company.
The Company believes that its existing facilities, including the addition
of bacterial fermentation capacity in Lebanon, New Hampshire, are adequate for
its current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of the Company's security holders.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol CBMI. The following table presents quarterly information on the price
range of the Company's Common Stock, indicating the high and low sale prices
reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1996
4th Quarter.................. $12.75 $ 6.50
3rd Quarter.................. 8.50 5.13
2nd Quarter.................. 10.88 7.56
1st Quarter.................. 13.00 6.88
1995
4th Quarter.................. 7.00 4.50
3rd Quarter.................. 6.25 2.50
2nd Quarter.................. 3.13 1.69
1st Quarter.................. 3.25 1.50
1994
4th Quarter.................. 3.88 1.38
</TABLE>
STOCKHOLDERS
As of February 28, 1997, there were approximately 318 stockholders of
record of the Company's Common Stock.
DIVIDENDS
The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends on its Common Stock in the
foreseeable future. The Company intends to retain its earnings, if any, for the
development of its business.
RECENT SALES OF UNREGISTERED SECURITIES
On December 9, 1996, the Company sold to Biogen 1,542,680 shares of
Common Stock at a premium to the then-current market price of the Common Stock.
Proceeds to the Company were $18,000,000. The Company issued these securities
without registration in reliance upon the exemption provided by Section 4(2) of
the Securities Act, since no public offering was involved. No underwriters were
involved in the offer and sale of the securities.
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<PAGE> 24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect
to the Company's consolidated statements of operations for the year ended
December 31, 1996, the three months ended December 31, 1995 and for the years
ended September 30, 1995 and 1994, and with respect to the consolidated balance
sheets as of December 31, 1996 and 1995, are derived from the consolidated
financial statements that have been audited by Deloitte & Touche LLP,
independent auditors, which are included elsewhere in this Form 10-K. The
consolidated statement of operations data for the years ended September 30, 1993
and 1992, and the consolidated balance sheet data as of September 30, 1995,
1994, 1993 and 1992, are derived from audited consolidated financial statements
not included herein. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes included
herein.
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED YEARS ENDED SEPTEMBER 30,
DECEMBER DECEMBER -----------------------------------------------
31, 1996 31, 1995(1) 1995 1994 1993 1992
-------- ----------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Research and development contracts ..... $ 5,548 $ 971 $ 5,824 $ 3,652 $ 1,576 $ 4,469
Manufacturing contracts ................ 4,486 770 6,159 1,411 461 --
License fees and royalties ............. 11,122 2 544 7 30 --
Product sales .......................... -- -- -- 16 35 56
Interest ............................... 1,174 261 649 580 549 472
Other .................................. 22 -- 53 141 3 5
-------- -------- -------- -------- -------- --------
Total revenues ....................... 22,352 2,004 13,229 5,807 2,654 5,002
-------- -------- -------- -------- -------- --------
Cost and expenses:
Research and development ............... 15,651 3,194 11,688 17,680 12,898 7,489
Cost of manufacturing contracts ........ 3,823 715 5,330 1,389 439 --
Cost of product sales .................. -- -- -- 3 6 13
Marketing, general and administrative .. 4,901 1,254 3,604 4,794 3,121 3,292
Interest ............................... 217 61 229 200 209 200
-------- -------- -------- -------- -------- --------
Total costs and expenses ............. 24,592 5,224 20,851 24,066 16,673 10,994
-------- -------- -------- -------- -------- --------
Net loss ................................. $ (2,240) $ (3,220) $ (7,622) $(18,259) $(14,019) $ (5,992)
======== ======== ======== ======== ======== ========
Net loss per common share(2) ............. $ (0.07) $ (0.11) $ (0.37) $ (0.95) $ (0.94) $ (0.55)
======== ======== ======== ======== ======== ========
Weighted average number of
common shares outstanding(2) ........... 30,062 28,120 20,431 19,212 14,855 10,812
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER DECEMBER -----------------------------------------------
31, 1996 31, 1995 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents
and marketable securities ..................... $ 50,075 $ 20,002 $ 10,486 $ 5,423 $ 25,255 $ 6,739
Working capital ................................ 48,174 21,743 11,651 4,927 23,940 5,015
Total assets ................................... 73,819 41,341 32,192 27,470 45,326 12,235
Capital lease obligations, less current portion 1,651 1,711 1,713 1,750 1,798 216
Accumulated deficit ............................ (71,438) (69,198) (65,978) (58,356) (40,098) (26,079)
Total stockholders' equity ..................... 67,261 37,829 28,269 22,807 40,675 9,676
</TABLE>
(1) In January 1996, the Company changed its fiscal year end from September 30
to December 31, effective with the three month period ended December 31,
1995.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the computation of net loss per common share.
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
To date, most of the Company's revenues have been derived from
research and development payments and license fees under agreements with
collaborative partners. Beginning in the year ended September 30, 1995, a
significant portion of the Company's revenues also were derived from contract
manufacturing. The Company anticipates that over the next several years its
revenues will be derived primarily from such collaborative agreements. The
Company has been unprofitable since its inception and expects to incur
additional operating losses over the next several years.
The Company's research agreements with collaborative partners have
typically provided for the partial or complete funding of research and
development for specified projects and royalties payable to the Company in
exchange for licenses to market the resulting products. The Company is presently
a party to major research collaborations with Stryker to develop products for
orthopedic reconstruction and with Biogen to develop products for the treatment
of renal disorders. Under the research portion of the collaboration with
Stryker, the Company supplies an OP-1 product to Stryker for clinical trials and
other uses, provides clinical support and performs research work pursuant to
work plans established periodically by the two companies. The current work plan
establishes research objectives and funding through April 1998. In December
1996, the Company signed a Research Collaboration and License Agreement with
Biogen. Under the research collaboration, the Company will perform research work
pursuant to work plans established annually by the two companies and supply OP-1
to Biogen for preclinical and clinical uses. Although the Company is seeking and
in the future may seek to enter into collaborative arrangements with respect to
certain other projects, there can be no assurance that the Company will be able
to obtain such agreements on acceptable terms or that the costs required to
complete the projects will not exceed the funding available for such projects
from the collaborative partners.
The Company's manufacturing contracts provide for technical
collaboration and manufacturing for third parties at the Company's manufacturing
facility in Lebanon, New Hampshire. The Company is presently a party to a
manufacturing contract with Biogen to produce several of Biogen's protein-based
therapeutic candidates through December 1997 for use in Biogen's clinical
trials. The Company agreed to provide Biogen with all available cell culture and
bacterial fermentation capacity within the manufacturing facility, and Biogen
agreed to pay the Company's costs associated with such capacity, for
approximately six months in each of the three years beginning in January 1995.
The companies have agreed that the supply of OP-1 to Biogen pursuant to the
research collaboration during 1997 will satisfy Biogen's 1997 obligations under
the manufacturing contract. The companies also agreed to extend the
manufacturing contract for two years through 1999, with Biogen having the
option, but not the obligation, to use the manufacturing facility for a mutually
agreeable number of months in one of the two years. Although the Company is
seeking additional manufacturing contracts for available cell culture and
bacterial fermentation capacity, there can be no assurance that the Company will
be able to obtain such contracts on acceptable terms.
Revenue is earned and recognized based upon work performed, upon the
sale or licensing of product rights, upon shipment of product for use in
preclinical and clinical testing or upon attainment of benchmarks specified in
collaborative agreements. The Company's results of operations vary significantly
from year to year and quarter to quarter and depend on, among other factors, the
timing of contract manufacturing activities and the timing of payments made by
collaborative partners. The timing of the Company's contract revenues may not
match the timing of the Company's associated product development expenses. As a
result, research and development expenses may exceed contract revenues in any
particular period. Furthermore, aggregate research and development contract
revenues for any product may not offset all of the Company's development
expenses for such product.
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<PAGE> 26
In January 1996, the Board of Directors voted to change the Company's
fiscal year end from September 30 to December 31, effective with the three month
period ended December 31, 1995.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, SEPTEMBER 30, 1995 AND 1994. The
Company's revenues in the fiscal years ended December 31, 1996, September 30,
1995 and September 30, 1994 were $22,352,000, $13,229,000 and $5,807,000,
respectively. Research and development contract revenues increased 59% from
$3,652,000 in the year ended September 30, 1994 to $5,824,000 in the year ended
September 30, 1995 and decreased 5% to $5,548,000 in the year ended December 31,
1996. These increases and decreases are primarily due to fluctuations in
research funding from Stryker. The Company anticipates that research revenues
will increase in 1997 primarily as a result of the research activity under the
research collaboration with Biogen.
Manufacturing contract revenues reflect manufacturing, principally
for Biogen beginning in the year ended September 30, 1995, performed at the
Company's manufacturing facility in Lebanon, New Hampshire. The Company
anticipates using the facility for the production of OP-1 for Stryker, Biogen
and the Company's own uses for a substantial portion of 1997. Therefore, the
Company does not anticipate significant contract manufacturing revenues in 1997.
Product sales are sales of proteins to the research market. The
Company does not anticipate significant product sales, if any, in 1997.
License fees and royalties revenues for the year ended December 31,
1996 include a $10,000,000 license fee from Biogen as part of the research
collaboration with the Company to develop products for the treatment of renal
disorders, $500,000 from Stryker for the Company's licensing to Stryker of
patent rights and know-how in the dental field and $622,000 received for the
licensing patent rights and know-how associated with certain protein technology
which is not central to the Company's business. License fees and royalties
revenues for the year ended September 30, 1995 include revenue from licensing
patent rights and know-how associated with certain protein technology which is
not central to the Company's business.
Interest revenues increased 12% from $580,000 in the year ended
September 30, 1994 to $649,000 in the year ended September 30, 1995 and
increased 81% to $1,174,000 in the year ended December 31, 1996. The increase
from the year ended September 30, 1994 to the year ended September 30, 1995 was
due to increased cash balances resulting from a private placement of the
Company's equity during the year ended September 30, 1995. The increase from the
year ended September 30, 1995 to the year ended December 31, 1996 was due to
increased cash balances resulting from an underwritten public offering of the
Company's common stock in July 1996. Other revenues consist primarily of
non-recurring gains from the sale of certain manufacturing equipment.
The Company's total costs and expenses, consisting primarily of
research and development expenses, decreased 13% from $24,066,000 in the year
ended September 30, 1994 to $20,851,000 in the year ended September 30, 1995 and
increased 18% to $24,592,000 in the year ended December 31, 1996.
Research and development expenses decreased 34% from $17,680,000 in
the year ended September 30, 1994 to $11,688,000 in the year ended September 30,
1995 and increased 34% to $15,651,000 in the year ended December 31, 1996.
Substantially all of the cost of operating the manufacturing facility from
January 1995 through mid-September 1995 is reported as cost of manufacturing
contracts, contributing to the decrease in research and development expenses
from the year ended September 30, 1994 to the year ended September 30, 1995.
From the date of acquisition of the manufacturing facility in March 1993 through
December 1994, the facility was primarily used for development activities by the
Company and therefore the facility operating costs related to such development
activities were reported as research and development
25
<PAGE> 27
expenses for such periods. As discussed further below, commencing in January
1995 through September 1995, facility operating costs were reported as cost of
manufacturing contracts. The decrease in research and development expenses from
the year ended September 30, 1994 to the year ended September 30, 1995 also was
due to a 20% staff reduction in the Company's Massachusetts operations
implemented in September 1994 and a corresponding reduction in purchases of
laboratory supplies and services. The increase in research and development
expenses from the year ended September 30, 1995 to the year ended December 31,
1996 was due in part to an increase in development activities by the Company at
the manufacturing facility. The facility operating costs related to such
development activities were reported as research and development expenses for
such periods. Also contributing to the increase were staff increases and a
corresponding increase in purchases of laboratory supplies, services, recruiting
and relocation expenses, and increased expenditures on academic collaborations
and subcontracted research related to product and technology development. The
Company anticipates that research expenses will increase in 1997 primarily as a
result of the research activity under the research collaboration with Biogen.
Cost of manufacturing contracts includes the costs associated with
the manufacturing for third parties conducted at the Company's manufacturing
facility in Lebanon, New Hampshire. Cost of manufacturing contracts increased
significantly beginning in the year ended September 30, 1995, as the Company
began production for Biogen in January 1995. The Company anticipates using the
facility for the production of OP-1 for Stryker, Biogen and the Company's own
uses for a substantial portion of 1997. Costs associated with the production of
OP-1 for Stryker, Biogen and the Company's own uses will be reported as research
and development expenses.
Marketing, general and administrative expenses decreased 25% from
$4,794,000 in the year ended September 30, 1994 to $3,604,000 in the year ended
September 30, 1995 and increased 36% to $4,901,000 in the year ended December
31, 1996. The decrease from the year ended September 30, 1994 to the year ended
September 30, 1995 was due to a 20% staff reduction in the Company's
Massachusetts operations implemented in September 1994 and a corresponding
reduction in purchases of supplies and services and a reduction in recruiting
and relocation expenses. The increase from the year ended September 30, 1995 to
the year ended December 31, 1996 was due to increases in executive staff and
recruiting and relocation costs, along with additional costs associated with the
Biogen transaction.
Interest expense increased 15% from $200,000 in the year ended
September 30, 1994 to $229,000 in the year ended September 30, 1995 and
decreased 5% to $217,000 in the year ended December 31, 1996. The increase from
the year ended September 30, 1994 to the year ended September 30, 1995 was due
to an increase in interest rates on capital lease obligations, partially offset
by the repayment of obligations under capital leases. The decrease from the year
ended September 30, 1995 to the year ended December 31, 1996 was due to the
repayment of obligations under capital leases.
As a result of the foregoing, the Company incurred a net loss of
$2,240,000 in the year ended December 31, 1996 compared to a net loss of
$7,622,000 in the year ended September 30, 1995 and a net loss of $18,259,000 in
the year ended September 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's principal sources of liquidity
consisted of cash and cash equivalents of $38,249,000, marketable securities of
$11,826,000 and a $15,000,000 unsecured line of credit from Biogen, as discussed
futher below. The Company has financed its operations primarily through
placements of equity securities, revenues received under agreements with
collaborative partners, and more recently, manufacturing contracts. Since
inception, sales of equity securities have raised approximately $131,998,000 in
gross proceeds, including approximately $12,717,000 in an underwritten public
offering of common stock completed in July 1996 and $18,000,000 in a private
placement of common stock with Biogen
26
<PAGE> 28
completed in December 1996. Since inception, the Company has earned
approximately $79,660,000 in gross revenues.
The Company increased its investment in property, plant and equipment
to $28,458,000 at December 31, 1996 from $24,680,000 at December 31, 1995. The
Company currently plans to spend approximately $3,200,000 in the year ended
December 31, 1997 in leasehold improvements, equipment purchases and validation
expenses required to obtain FDA approval of the manufacturing facility and to
expand the Company's research, development and manufacturing capabilities. In
addition, as part of a manufacturing contract with Biogen, Biogen financed the
construction of leasehold improvements to the Company's manufacturing facility
at an estimated total cost of $2,900,000 and is installing and financing certain
equipment with an estimated total cost of $2,400,000 for the Company, as
discussed further below.
The Company's collaborative agreements with Stryker provide for
research payments to the Company and royalty payments to the nonseller from
sales of any OP-1 products. The Company also has the exclusive right to supply
Stryker's worldwide commercial requirements for OP-1 products for use in
orthopedic reconstruction. Under the research portion of the collaboration, the
Company supplies OP-1 products to Stryker for clinical trials and other uses and
provides clinical support and performs research work pursuant to work plans
established periodically by the two companies. In May 1996, the Company and
Stryker agreed to extend the research portion of the collaboration for two years
through April 1998. The Company estimates that the contract extension will
provide approximately $12,000,000 of revenue to the Company over the two year
period.
In December 1996, the Company signed a Research Collaboration and
License Agreement with Biogen to collaborate on the development of the Company's
morphogenic protein, OP-1, for the treatment of renal disorders. Under the
agreement, the Company granted to Biogen exclusive worldwide rights to
manufacture, market and sell OP-1 for the treatment of renal disease. Biogen
paid a $10,000,000 license fee in 1996 and made an $18,000,000 equity investment
in common stock at a premium over the then-current market price per share.
Biogen has guaranteed $10,500,000 in research funding over the next three years,
will pay up to an additional $69,000,000 upon the attainment of certain
milestones and make available a $15,000,000 line of credit. The agreement
further provides for the payment of royalties to the Company based on product
sales. The Company may draw upon the $15,000,000 line of credit over the next
three years to fund the research and development of small molecule products
based on OP-1. Advances are limited to $5,000,000 per year. In exchange for the
line of credit, Biogen received an exclusive option to obtain an exclusive,
worldwide license to OP-1 based small molecule products for the treatment of
renal disorders. In the event Biogen exercises its option, Biogen will forgive
the lesser of $10,000,000 or the principal amount outstanding under the line of
credit. The remaining principal, together with all accrued and unpaid interest
is due and payable five years from the date of the first advance and may be
repaid, at the Company's option, in either cash, common stock or reduction of
royalties due the Company from Biogen.
In September 1994, the Company signed a three-year manufacturing
contract with Biogen to produce in the Company's manufacturing facility in
Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates
for use in Biogen's clinical trials. The contract covers the period from January
1995 through December 1997. As part of the research collaboration, the two
companies agreed to extend the manufacturing contract for two years through
December 31, 1999, with Biogen having the option, but not the obligation, to use
the manufacturing facility for a mutually agreeable number of months in one of
the two extension years. To enable the Company to meet its obligations under the
manufacturing contract, Biogen financed the construction of a 7,000 square foot
addition to the present facility for cGMP production using bacterial
fermentation at an estimated total cost of $2,900,000. The Company agreed to
reimburse Biogen for the construction costs and leasehold improvements at the
end of the contract term, including the extension, at an amount equal to
Biogen's construction costs less $300,000 and less all accumulated depreciation.
The reimbursement to Biogen is estimated to be no more than $2,100,000. Biogen
also agreed to lease equipment to the Company for the operation of such portion
of the facility and for cGMP production using bacterial fermentation by the
Company at an estimated total cost of $2,400,000, as provided in an equipment
lease agreement. The Company has the option to purchase the equipment at the end
of
27
<PAGE> 29
the extended lease term for an amount equal to its then fair market value or for
such other amount as is negotiated by the two parties. Biogen currently plans to
complete the installation of the equipment and prepare the bacterial facility
for operation in 1997.
The Company anticipates that its existing capital resources should
enable it to maintain its current and planned operations through 1999. The
Company expects to incur substantial additional research and development and
other costs, including costs related to preclinical studies and clinical trials.
The Company's ability to continue funding its planned operations beyond 1999 is
dependent upon its ability to generate sufficient cash flow from collaborative
arrangements and manufacturing contracts, and to obtain additional funds through
equity or debt financings, or from other sources of financing, as may be
required. The Company is seeking additional collaborative arrangements and also
expects to raise funds through one or more financing transactions, as conditions
permit. In addition, the Company is investigating the feasibility of raising
capital through the sale/leaseback or debt financing of some of its capital
assets. Over the longer term, because of the Company's significant long-term
capital requirements, the Company intends to raise funds when conditions are
favorable, even if it does not have an immediate need for additional capital at
such time. If substantial additional funding is not available, the Company's
business will be materially and adversely affected.
CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements which are based on
management's current expectations and which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. The Company cautions investors that there can be
no assurance that the actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to the following:
uncertainty as to timing of and the Company's ability to commercialize its
products; the Company's reliance on its lead product candidate and the Company's
lack of control over the clinical progress of several applications of its
products, which are controlled by the Company's collaborative partners; the
Company's reliance on current and prospective collaborative partners to supply
funds for research and development and to commercialize its products; intense
competition related to the research and development of morphogenic and other
proteins for various applications and therapies and the possibility that others
may discover or develop, and the Company may not be able to gain rights with
respect to, the technology necessary to commercialize its products; the
Company's lack of experience in commercial manufacturing and unproven ability to
manufacture products on a large scale; the Company's lack of marketing and sales
experience and the risk that any products that the Company develops may not be
able to be marketed at acceptable prices or receive commercial acceptance in the
markets that the Company expects to target; uncertainty as to whether there will
exist adequate reimbursement for the Company's products from government, private
health insurers and other organizations; and uncertainties as to the extent of
future government regulation of the Company's business. As a result, the
Company's future development efforts involve a high degree of risk.
28
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Index to Consolidated Financial Statements Number
- ------------------------------------------ ------
Creative BioMolecules, Inc. And Subsidiary:
Financial Statements:
Independent Auditors' Report........................ 30
Consolidated Balance Sheets......................... 31
Consolidated Statements of Operations............... 32
Consolidated Statements of Stockholders' Equity..... 33
Consolidated Statements of Cash Flows............... 34
Notes to Consolidated Financial Statements.......... 35
29
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Creative BioMolecules, Inc.
We have audited the accompanying consolidated balance sheets of Creative
BioMolecules, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 1996, the three month period ended
December 31, 1995 and each of the two years in the period ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts used and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiary at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the year ended December 31, 1996, the three month period ended
December 31, 1995 and each of the two years in the period ended September 30,
1995 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 21, 1997
30
<PAGE> 32
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
ASSETS 1996 1995
- ------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 38,248,988 $ 11,917,779
Marketable securities 11,826,266 8,084,269
Accounts receivable 1,454,696 2,818,618
Inventory 1,341,914 562,290
Prepaid expenses and other 208,886 149,105
------------- -------------
Total current assets 53,080,750 23,532,061
------------- -------------
PROPERTY, PLANT AND EQUIPMENT - net 16,224,376 14,736,306
------------- -------------
OTHER ASSETS:
Note receivable - officer 350,000
Patents and licensed technology - net 401,629 382,703
Deferred patent application costs - net 3,471,169 2,431,298
Deposits and other 290,950 258,473
------------- -------------
Total other assets 4,513,748 3,072,474
------------- -------------
TOTAL $ 73,818,874 $ 41,340,841
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lease obligations - current portion $ 53,532 $ 42,567
Accounts payable 2,830,356 738,100
Accrued liabilities 561,562 512,446
Accrued compensation 1,460,856 495,633
------------- -------------
Total current liabilities 4,906,306 1,788,746
------------- -------------
LEASE OBLIGATIONS 1,651,493 1,710,910
------------- -------------
DEFERRED COMPENSATION - officers 12,500
------------- -------------
COMMITMENTS (Notes 6, 7 and 11) STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Common stock, $.01 par value, 50,000,000 shares authorized,
32,769,553 shares and 28,894,996 shares issued and
outstanding at December 31, 1996 and 1995, respectively 327,696 288,950
Common stock payable 1,736,586
Additional paid-in capital 138,371,802 105,001,625
Accumulated deficit (71,438,423) (69,198,476)
------------- -------------
Total stockholders' equity 67,261,075 37,828,685
------------- -------------
TOTAL $ 73,818,874 $ 41,340,841
============= =============
</TABLE>
See notes to consolidated financial statements
31
<PAGE> 33
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December 31, December 31, -----------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Research and development contracts $ 5,547,976 $ 970,806 $ 5,824,344 $ 3,651,949
Manufacturing contracts 4,485,531 770,133 6,158,574 1,411,262
License fees and royalties 11,122,584 2,157 544,000 7,500
Product sales 15,600
Interest 1,174,219 260,953 648,602 580,160
Other 21,900 349 53,470 140,757
------------ ------------ ------------ ------------
Total revenues 22,352,210 2,004,398 13,228,990 5,807,228
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Research and development 15,650,986 3,193,979 11,687,847 17,679,692
Cost of manufacturing contracts 3,823,442 715,171 5,329,779 1,388,577
Cost of product sales 3,494
Marketing, general and administrative 4,900,823 1,254,566 3,603,954 4,793,508
Interest 216,906 60,784 229,477 200,563
------------ ------------ ------------ ------------
Total costs and expenses 24,592,157 5,224,500 20,851,057 24,065,834
------------ ------------ ------------ ------------
NET LOSS $ (2,239,947) $ (3,220,102) $ (7,622,067) $(18,258,606)
============ ============ ============ ============
NET LOSS PER COMMON SHARE $ (0.07) $ (0.11) $ (0.37) $ (0.95)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 30,062,334 28,120,190 20,430,900 19,212,477
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 34
CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
----------------------- -----------------------
Shares Amount Shares Amount
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993 0 $ 0 18,575,966 $185,760
Repayment of notes receivable
Forgiveness of notes receivable
Issuance of common stock in connection with asset purchase 394,890 3,949
Issuance of common stock for note receivable 467,715 4,677
Other issuances of common stock 96,247 962
Net loss
----------- -------- ----------- --------
BALANCE, SEPTEMBER 30, 1994 0 0 19,534,818 195,348
Forgiveness of notes receivable
Issuance of common stock for note receivable 66,271 663
Repayment of notes receivable
Issuance of Series 1994/A Preferred Stock in connection
with private placement (net of costs $269,064) 1,130,000 11,300
Issuance of common stock in connection with asset purchase 394,890 3,949
Conversion of Series 1994/A Preferred Stock into
common stock (1,130,000) (11,300) 5,650,000 56,500
Other issuances of common stock 186,675 1,867
Net loss
----------- -------- ----------- --------
BALANCE, SEPTEMBER 30, 1995 0 0 25,832,654 258,327
Issuance of common stock in connection with self-managed
public offering of common stock (net of costs of $108,026) 3,000,000 30,000
Other issuances of common stock 62,342 623
Net loss
----------- -------- ----------- --------
BALANCE, DECEMBER 31, 1995 0 0 28,894,996 288,950
Reclassification of equity consideration in connection with asset purchase
Issuance of common stock in connection with underwritten
public offering of common stock (net of costs of $1,283,236) 2,000,000 20,000
Issuance of common stock in connection with research collaboration 1,542,680 15,427
Stock based compensation
Other issuances of common stock 331,877 3,319
Net loss
---------- --------- ----------- --------
BALANCE, DECEMBER 31, 1996 0 $ 0 32,769,553 $327,696
========== ========= =========== ========
</TABLE>
<TABLE>
<CAPTION>
Common Additional
Stock Paid-In Accumulated
Payable Capital Deficit
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993 $ 5,785,131 $ 74,914,056 $(40,097,701)
Repayment of notes receivable
Forgiveness of notes receivable
Issuance of common stock in connection with asset purchase (4,048,545) 4,044,596
Issuance of common stock for note receivable 1,763,286
Other issuances of common stock 316,496
Net loss (18,258,606)
----------- ------------ ------------
BALANCE, SEPTEMBER 30, 1994 1,736,586 81,038,434 (58,356,307)
Forgiveness of notes receivable
Issuance of common stock for note receivable 69,358
Repayment of notes receivable
Issuance of Series 1994/A Preferred Stock in connection
with private placement (net of costs $269,064) 10,949,011
Issuance of common stock in connection with asset purchase (3,949)
Conversion of Series 1994/A Preferred Stock into
common stock (45,200)
Other issuances of common stock 245,097
Net loss (7,622,067)
----------- ------------ ------------
BALANCE, SEPTEMBER 30, 1995 1,736,586 92,252,751 (65,978,374)
Issuance of common stock in connection with self-managed
public offering of common stock (net of costs of $108,026) 12,611,974
Other issuances of common stock 136,900
Net loss (3,220,102)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1995 1,736,586 105,001,625 (69,198,476)
Reclassification of equity consideration in connection with asset purchase (1,736,586) 1,736,586
Issuance of common stock in connection with underwritten
public offering of common stock (net of costs of $1,283,236) 12,696,744
Issuance of common stock in connection with research collaboration 17,984,573
Stock based compensation 17,000
Other issuances of common stock 935,274
Net loss (2,239,947)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1996 $ 0 $138,371,802 $(71,438,423)
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Stockholders'
Notes
Receivable Total
------------ ------------
<S> <C> <C>
BALANCE, SEPTEMBER 30, 1993 $ (112,491) $ 40,674,755
Repayment of notes receivable 24,183 24,183
Forgiveness of notes receivable 44,154 44,154
Issuance of common stock in connection with asset purchase
Issuance of common stock for note receivable (1,763,286) 4,677
Other issuances of common stock 317,458
Net loss (18,258,606)
----------- ------------
BALANCE, SEPTEMBER 30, 1994 (1,807,440) 22,806,621
Forgiveness of notes receivable 44,154 44,154
Issuance of common stock for note receivable (70,021)
Repayment of notes receivable 1,833,307 1,833,307
Issuance of Series 1994/A Preferred Stock in connection
with private placement (net of costs $269,064) 10,960,311
Issuance of common stock in connection with asset purchase
Conversion of Series 1994/A Preferred Stock into
common stock
Other issuances of common stock 246,964
Net loss (7,622,067)
----------- ------------
BALANCE, SEPTEMBER 30, 1995 0 28,269,290
Issuance of common stock in connection with self-managed
public offering of common stock (net of costs of $108,026) 12,641,974
Other issuances of common stock 137,523
Net loss (3,220,102)
----------- ------------
BALANCE, DECEMBER 31, 1995 0 37,828,685
Reclassification of equity consideration in connection with asset purchase
Issuance of common stock in connection with underwritten
public offering of common stock (net of costs of $1,283,236) 12,716,744
Issuance of common stock in connection with research collaboration 18,000,000
Stock based compensation 17,000
Other issuances of common stock 938,593
Net loss (2,239,947)
----------- ------------
BALANCE, DECEMBER 31, 1996 $ 0 $ 67,261,075
=========== ============
</TABLE>
See notes to consolidated financial statements
33
<PAGE> 35
CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended September 30,
December December -----------------------------
31, 1996 31, 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,239,947) $ (3,220,102) $ (7,622,067) $(18,258,606)
------------ ------------ ------------ ------------
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 2,423,002 758,544 2,471,184 2,347,602
Compensation expense 35,249 29,750 107,002 78,967
Deferred patent and application costs 92,426 137,474
Bad debt expense 232,671
Increase (decrease) in cash from:
Accounts receivable 1,345,673 (255,691) (1,101,169) (1,020,377)
Inventory and prepaid expenses (839,405) 87,655 142,375 (146,662)
Accounts payable and accrued liabilities 3,151,969 (417,120) (477,274) 66,282
Deferred contract revenue (147,920) 147,920
------------ ------------ ------------ ------------
Total adjustments 6,116,488 203,138 1,086,624 1,843,877
------------ ------------ ------------ ------------
Net cash provided by (used for) operating activities 3,876,541 (3,016,964) (6,535,443) (16,414,729)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (17,362,723) (4,735,565) (12,701,607) (16,740,819)
Sale of marketable securities 13,620,727 2,710,190 9,407,869 22,208,504
Expenditures for property, plant and equipment (3,778,278) (47,495) (445,082) (2,949,005)
Expenditures for patents (1,191,591) (175,902) (832,552) (644,879)
Note receivable from officer (350,000)
Decrease (increase) in deposits and other (32,477) (27,679) 12,233
------------ ------------ ------------ ------------
Net cash provided by (used for) investing activities (9,094,342) (2,248,772) (4,599,051) 1,886,034
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of equity:
Public placement of common stock 14,000,000 12,750,000
Private placement of common stock 18,000,000
Series 1994/A Preferred Stock 11,229,375
Common stock - other 880,698 137,523 239,465 322,135
Costs of raising equity (1,283,236) (108,026) (269,064)
Decrease in stockholders' notes receivable 1,833,307 24,183
Repayments of obligations under capital leases (48,452) (23,211) (128,776) (182,472)
------------ ------------ ------------ ------------
Net cash provided by financing activities 31,549,010 12,756,286 12,904,307 163,846
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 26,331,209 7,490,550 1,769,813 (14,364,849)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 11,917,779 4,427,229 2,657,416 17,022,265
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 38,248,988 $ 11,917,779 $ 4,427,229 $ 2,657,416
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 36
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Creative BioMolecules is developing products for
the regeneration and restoration of human tissues and organs. The
Company's products in development are based on OP-1, a morphogenic
protein identified and characterized by the Company. OP-1 has been
shown to induce formation of several tissues including bone,
cartilage, kidney, brain and tooth.
Change in Year End - In January 1996, the Board of Directors voted to
change the Company's fiscal year end from September 30 to December
31, effective with the three month period ended December 31, 1995.
Use of Estimates - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosure of certain assets and
liabilities at the balance sheet date. Actual results may differ from
such estimates.
Reclassifications - Certain reclassifications have been made to
amounts at December 31, 1995 to conform to the presentation at
December 31, 1996.
Consolidation - The accompanying consolidated financial statements
include the Company and its wholly owned subsidiary, California
Medicinal Chemistry Corporation (the "Subsidiary"). Intercompany
balances are eliminated in consolidation. The Subsidiary has been
inactive since 1985.
Revenue Recognition - The Company's research agreements with
collaborative partners have typically provided for the partial or
complete funding of research and development for specified projects
and royalties payable to the Company in exchange for licenses to
market resulting products. These research agreements are generally
cancelable on short-term notice by the collaborative partner. In
certain of these agreements, the Company retains the right to
manufacture and supply the active ingredient. Revenue is earned and
recognized based upon work performed, upon the sale or licensing of
product rights, upon shipment of product for use in preclinical and
clinical testing or upon attainment of benchmarks specified in the
related agreements.
The Company's manufacturing contracts provide for technical
collaboration and manufacturing for third parties. Revenue is earned
and recognized based upon work performed.
35
<PAGE> 37
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
During the year ended December 31, 1996, the three months ended
December 31, 1995 and the years ended September 30, 1995 and 1994,
total revenues from major customers as a percent of total revenues of
the Company were as follows:
<TABLE>
<CAPTION>
Three Months Year Ended
Year Ended Ended September 30,
December December -----------------
Customer 31, 1996 31, 1995 1995 1994
-------- ---------- ------------ ---- ----
<S> <C> <C> <C> <C>
Biogen, Inc. 65% 37% 46% 2%
Stryker Corporation 27% 48% 35% 49%
Government Grant 2% 11%
Contract Manufacturing 11%
Customer
</TABLE>
Research and Development - Research and development costs are charged
to operations as incurred. Certain research and development projects
are partially funded with research and development contracts, and the
expenses related to these activities are included in research and
development costs.
Cash Equivalents and Marketable Securities - Cash equivalents consist
of short-term, highly liquid investments purchased with remaining
maturities of three months or less. All other liquid investments are
classified as marketable securities. Marketable securities are stated
at market value which approximates amortized cost plus accrued
interest.
As of December 31, 1996 and 1995, the Company classified its
marketable securities as available-for-sale and had approximately
$5,678,000 and $5,251,000 in United States government and agency
instruments, respectively, and $6,148,000 and $2,833,000 in corporate
bonds and notes, respectively, all with maturities ranging from one
to twenty-seven months.
For the year ended December 31, 1996, the three months ended December
31, 1995 and the years ended September 30, 1995 and 1994, gross
realized gains and losses were not material. In computing realized
gains and losses, the Company computes the cost of its investments on
a specific identification basis. Such cost includes the direct costs
to acquire the securities, adjusted for the amortization of any
discount or premium. At December 31, 1996 and 1995, gross unrealized
gains and losses were not material.
Fair Value of Financial Instruments - The estimated fair value of
financial instruments has been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting data to
develop the estimates of fair value.
36
<PAGE> 38
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The estimated fair value of cash, accounts receivable and accounts
payable approximates fair value due to the short-term nature of these
instruments. The fair value of marketable securities is based on
current market values. Lease obligations generally bear interest at a
floating annual rate, subject to market conditions. Accordingly, fair
value approximates market value.
Inventory - Inventory consists principally of raw materials and
laboratory supplies. Inventories are stated at the lower of cost or
market.
Property, Plant and Equipment - Purchased property, plant and
equipment is recorded at cost. Leased property, plant and equipment
is recorded at the lesser of cost or the present value of the minimum
lease payments. Depreciation and amortization are provided on the
straight-line method over the estimated useful lives of the related
assets (three to fifteen years) or the remaining terms of the leases,
whichever is shorter.
Patents and Licensed Technology - The Company has filed applications
for United States and foreign patents covering aspects of its
technology. Costs related to pending patent applications have been
deferred. Costs related to successful patent applications and costs
related to pending applications from which the Company is currently
deriving economic benefit, are amortized over the estimated useful
life of the patent, generally 16 to 20 years, using the straight-line
method. Costs related to licensed technology also have been deferred
and are amortized over the estimated useful life of the underlying
technology, generally 10 to 17 years, using the straight-line method.
Accumulated amortization was approximately $358,000 and $225,000 at
December 31, 1996 and 1995, respectively.
Accumulated costs related to issued patents, pending patent
applications and licensed technology are evaluated periodically and,
if considered to have limited future value, are charged to expense.
See Long Lived Assets below.
Long Lived Assets - The Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long Lived Assets and Long Lived Assets to be
Disposed Of" in 1996. SFAS No. 121 establishes recognition and
measurement criteria for losses whenever events or changes in
circumstances indicate that the carrying value of assets may not be
recoverable. There was no effect on the Company's consolidated
financial statements as a result of the adoption of SFAS No. 121.
Net Loss Per Common Share - Net loss per common share is computed
based on the weighted average number of shares of common stock
outstanding during each year. Common equivalent shares from stock
options and warrants are excluded from the computation as their
effect is antidilutive.
Stock-Based Compensation - The Company's stock options and purchase
plans are accounted for under Accounting Principles Board ("APB") No.
25, "Accounting for Stock Issued to Employees" (Note 8).
37
<PAGE> 39
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
In December 1996, the Company entered into a Research Collaboration
and License Agreement with Biogen to collaborate on the development
of novel therapeutics for the treatment of renal disorders. The
initial focus of the collaboration is on advancing the development of
the Company's morphogenic protein, OP-1, for the treatment of acute
and chronic renal failure. Under the agreement, the Company granted
to Biogen exclusive worldwide rights to manufacture, market and sell
OP-1 and OP-1 products developed through the collaboration for the
treatment of renal disease. Biogen paid the Company a $10,000,000
license fee in 1996 and made an $18,000,000 equity investment (Note
9) which were recorded in the quarter ended December 31, 1996. In
addition, Biogen has guaranteed $10,500,000 in research funding over
the next three years, will pay up to an additional $69,000,000 upon
the attainment of certain milestones and will make available a
$15,000,000 line of credit. The agreement further provides for the
payment of royalties to the Company based on product sales.
The Company may draw upon the $15,000,000 line of credit over the
next three years to fund the research and development of small
molecule products based on OP-1. Advances are limited to $5,000,000
per year. In exchange for the line of credit, Biogen received an
exclusive option to obtain an exclusive, worldwide license to OP-1
based small molecule products for the treatment of renal disorders.
In the event Biogen exercises its option, Biogen will forgive the
lesser of $10,000,000 or the principal amount outstanding under the
line of credit. The remaining principal, together with all accrued
and unpaid interest, is due and payable five years from the date of
the first advance and may be repaid, at the Company's option, in
either cash, common stock or reduction of royalties due the Company
from Biogen.
3. NOTE RECEIVABLE - OFFICER
In September 1996, the Company loaned $350,000 to an officer of the
Company. The loan is evidenced by a fully secured promissory note
bearing interest at the annual rate of 6.02% and payable in three
equal annual installments, plus accrued interest.
4. ACQUISITION OF ASSETS
On March 15, 1993, the Company acquired certain assets of Verax
consisting principally of a leased manufacturing facility and
equipment. The total purchase price of approximately $13,700,000
consisted of approximately $3,100,000 in cash, assumption of certain
liabilities of Verax totaling approximately $2,000,000, acquisition
costs of approximately $160,000 and an equity consideration valued at
$8,500,000. The equity consideration consisted of 1,184,670 shares of
the Company's common stock issued in annual installments from March
1993 through March 1995.
38
<PAGE> 40
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land $ 352,000 $ 352,000
Building 1,500,000 1,500,000
Laboratory equipment and furniture 7,684,195 6,722,634
Leasehold improvements 16,403,420 13,971,149
Office furniture and equipment 2,495,095 1,970,138
Construction in progress 23,760 164,270
------------ ------------
Total 28,458,470 24,680,191
Less accumulated depreciation and amortization (12,234,094) (9,943,885)
------------ ------------
Total $ 16,224,376 $ 14,736,306
============ ============
</TABLE>
Amounts included in property, plant and equipment applicable to
capital leases were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Land $ 352,000 $ 352,000
Building 1,500,000 1,500,000
Laboratory equipment and furniture 47,000 47,000
----------- -----------
Total 1,899,000 1,899,000
Less accumulated amortization (397,960) (293,463)
----------- -----------
Total $ 1,501,040 $ 1,605,537
=========== ===========
</TABLE>
6. LEASE OBLIGATIONS
As part of the acquisition of certain assets of Verax (Note 4), the
Company assumed certain liabilities consisting principally of
obligations under capital leases totaling $1,852,000. These
obligations bear interest at variable rates based on the prime rate
ranging from 9.25 % to 10.5 % at December 31, 1996 and 1995 and are
due monthly through the year 2008.
In addition, the Company has an agreement to lease certain laboratory
equipment for a period of five years, with an effective interest rate
of 15%.
The Company has noncancelable operating lease agreements for office
and laboratory space and certain office and laboratory equipment.
Rent expense for all operating leases was approximately $566,000,
$150,000, $597,000 and $478,000 for the year ended December 31, 1996,
the three months ended December 31, 1995 and the years ended
September 30, 1995 and 1994, respectively.
39
<PAGE> 41
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LEASE OBLIGATIONS (CONTINUED)
Future minimum lease obligations at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Year Ending December 31 Capital Operating
----------------------- ------- ---------
<S> <C> <C>
1997 $ 260,864 $553,376
1998 250,771 234,747
1999 247,406 8,340
2000 247,406
2001 247,406
Thereafter 2,352,899
----------- --------
Total minimum lease payments 3,606,752 $796,463
========
Less amount representing interest 1,901,727
----------
Present value of net minimum lease payments 1,705,025
Less current portion 53,532
----------
Long-term obligations under capital leases $1,651,493
==========
</TABLE>
Under a security requirement of a lease agreement with a leasing
company, the Company purchased and pledged as collateral a letter of
credit totaling $31,152, which expires on February 26, 1997 and must
be renewed annually until the end of the lease term.
7. COMMITMENTS
In September 1994, the Company signed a three-year manufacturing
contract with Biogen to produce in the Company's manufacturing
facility in Lebanon, New Hampshire several of Biogen's protein-based
therapeutic candidates for use in Biogen's clinical trials. The
contract covers the period from January 1995 through December 1997.
As part of the research collaboration, the companies agreed to extend
the manufacturing contract for two years through December 31, 1999,
with Biogen having the option, but not the obligation, to use the
manufacturing facility for a mutually agreeable number of months in
one of the two years. To enable the Company to meet its obligations
under the manufacturing contract, Biogen financed the construction of
a 7,000 square foot addition to the present facility for cGMP
production using bacterial fermentation at an estimated total cost of
$2,900,000. The Company agreed to reimburse Biogen for the
construction costs and leasehold improvements at the end of the
contract term at an amount equal to Biogen's construction costs less
$300,000 and less all accumulated depreciation. The reimbursement to
Biogen is expected to be no more than $2,100,000. Biogen also agreed
to lease equipment to the Company for the operation of such portion
of the facility and for cGMP production using bacterial fermentation
by the Company at an estimated total cost of $2,400,000, as provided
in an equipment lease agreement. The Company has the option to
purchase the equipment at the end of the extended lease term for an
amount equal to its then fair market value or for such other amount
as negotiated by the parties. Biogen plans to complete the
installation of the equipment and prepare the bacterial facility for
operation in 1997.
40
<PAGE> 42
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS (CONTINUED)
As security for its obligations under the manufacturing contract and
the equipment lease agreement, the Company granted to Biogen a
security interest in the manufacturing facility and certain of its
equipment and furniture at the manufacturing facility and any
applicable inventory or other assets related to the operation of the
manufacturing facility with a total net book value at December 31,
1996 of $13,504,000.
8. STOCK PLANS
Stock Option Plans - In May 1987, the Company established the 1987
Stock Plan ("1987 Plan") and terminated the 1983 Incentive Stock
Option Plan ("1983 Plan") such that no further grants of options
could be made thereunder. The 1987 Plan was subsequently amended to
increase the number of shares of common stock authorized for issuance
thereunder. A total of 5,150,000 shares of common stock have been
reserved for issuance under the 1987 Plan upon the exercise of
options or in connection with awards or direct purchases of stock.
The 1987 Plan permits the granting of incentive and nonqualified
stock options to consultants, employees or officers of the Company
and its subsidiaries at prices determined by the Board of Directors.
All options granted in the year ended December 31, 1996, the three
months ended December 31, 1995 and the two years ended September 30,
1995 and 1994 were granted at fair market value. Awards of stock may
be made to consultants, employees or officers of the Company and its
subsidiaries, and direct purchases of stock may be made by such
individuals also at prices determined by the Board of Directors.
Options become exercisable as determined by the Board of Directors
and expire up to ten years from the date of grant.
41
<PAGE> 43
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK PLANS (CONTINUED)
Activity under the plans is summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Exercise Price
of Shares Per Share
--------- ----------------
<S> <C> <C>
Outstanding, October 1, 1993 1,180,739 $3.38
Granted 281,400 8.36
Exercised (18,740) 1.97
Canceled (85,520) 6.36
---------
Outstanding, September 30, 1994 1,357,879 4.25
(806,535 exercisable at a weighted average price of $2.48 per share)
Granted 2,816,441 2.42
Exercised (106,471) .90
Canceled (320,086) 4.04
---------
Outstanding, September 30, 1995 3,747,763 2.99
(1,014,897 exercisable at a weighted average price of $2.89 per share)
Granted 13,000 6.00
Exercised (9,477) .82
Canceled (37,129) 4.28
---------
Outstanding, December 31, 1995 3,714,157 3.00
(1,431,824 exercisable at a weighted average price of $3.11 per share)
Granted 1,063,700 7.86
Exercised (276,178) 2.12
Canceled (139,535) 4.43
---------
Outstanding, December 31, 1996 4,362,144 $4.16
=========
(1,904,110 exercisable at a weighted average price of $3.47 per share)
</TABLE>
At December 31, 1996 85,024 shares were available for grant under the
1987 Plan. In January 1997, the Company's Board of Directors
approved, subject to stockholder approval, an increase in the number
of shares of common stock authorized for issuance under the 1987 Plan
from 5,150,000 to 6,150,000.
Employee Stock Purchase Plan - The Employee Stock Purchase Plan
permits eligible employees to purchase common stock of the Company up
to an aggregate of 500,000 shares. During the year ended December 31,
1996, 45,049 shares were issued under this Plan at prices of $6.11
and $7.01 per share; during the three months ended December 31, 1995,
55,515 shares were issued under this Plan at a price of $2.34 per
share; during the year ended September 30, 1995, 143,475 shares were
issued under this Plan at a price of $1.49 per share and during the
year ended September 30, 1994, 77,507 shares were issued under this
Plan at prices of $7.44 and $2.75 per share.
42
<PAGE> 44
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK PLANS (CONTINUED)
Director Plan - The 1992 Non-Employee Director Non-Qualified Stock
Option Plan provides for the granting of options to purchase up to an
aggregate of 300,000 shares of common stock to non-employee
directors. During the year ended December 31, 1996, options to
purchase 70,000 shares were granted at a price of $9.34 per share;
during the three months ended December 31, 1995 no options were
granted; during the year ended September 30, 1995, options to
purchase 20,000 shares were granted at a weighted average exercise
price of $2.75 per share and during the year ended September 30, 1994
no options were granted.
During the year ended December 31, 1996, options to purchase 12,500
shares were canceled at a weighted average exercise price of $9.18
per share. During the year ended September 30, 1994, options to
purchase 30,000 shares were canceled at a weighted average exercise
price of $8.50 per share. At December 31, 1996, options to purchase
47,500 shares were exercisable at a weighted average exercise price
of $7.92 per share.
Stock-Based Compensation - As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic
value method in accordance with APB No. 25, and its related
interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock
arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the
disclosure of pro forma net income and earnings per share had the
Company adopted the fair value method as of January 1, 1995. Under
SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These
models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect
the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following assumptions:
expected life, six months following total vesting; stock volatility,
76% to 86% in 1996 and 77% to 80% in 1995; risk free interest rates,
5% in 1996 and 1995; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation
approach and forfeitures for broad-based grants are estimated at 2%
per year and adjusted to actual as they occur. Forfeitures for grants
to executives are recognized as they occur. If the computed fair
values of the 1996 and 1995 awards had been amortized to expense over
the vesting period of the awards, pro forma net loss would have been
$3,811,000 or a net loss of $0.13 per share for the year ended
December 31, 1996, $3,378,000 or a net loss of $0.12 per share for
the three months ended December 31, 1995, and $7,822,000 or a net
loss of $0.38 per share for the year ended September 30, 1995.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years. These amounts are based on calculated values for
options awards in 1996 and 1995 aggregating $7,980,000. Had the
assumptions regarding expected term and volatility been reduced by
six months and 10% or increased by six months and 10%, total
calculated value would have decreased by $975,000 or increased by
$884,000, respectively.
43
<PAGE> 45
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK PLANS (CONTINUED)
The Company also granted stock options to non-employee consultants in
1996. These options were valued based on the fair value of the
services received. Total compensation expense recognized related to
these options was $17,000 in 1996.
9. STOCKHOLDERS' EQUITY
In December 1994, the Board of Directors designated a series of
preferred stock of the Company consisting of 1,500,000 shares of the
authorized and unissued preferred stock, as Series 1994/A Convertible
Preferred Stock (the "Series Preferred Stock"). Each share of the
Series Preferred Stock was convertible, at the option of the holder,
into five shares of common stock. Each share of the Series Preferred
Stock automatically converted into five shares of common stock after
twenty consecutive trading days on which the closing price of the
Company's common stock exceeded $3.975 per share.
In December 1994 and January 1995, the Company sold in a private
placement, 1,130,000 units (the "Units"), consisting of one share of
Series Preferred Stock and one warrant to purchase one share of the
Company's common stock. Each warrant is exercisable for a period of
five years from the date of issuance at an exercise price of $2.385.
Net proceeds to the Company, after deducting fees and other expenses
of the offering, were approximately $11,000,000. In June 1995,
holders of 30,000 shares of Series Preferred Stock elected to convert
their Series Preferred Stock into 150,000 shares of common stock. In
August 1995, holders of 40,251 shares of Series Preferred Stock
elected to convert their Series Preferred Stock into 201,255 shares
of common stock. On August 31, 1995, after twenty consecutive trading
days on which the closing price of the Company's common stock
exceeded $3.975 per share, the remaining 1,059,749 shares of Series
Preferred Stock automatically converted into 5,298,745 shares of
common stock.
In October 1995, the Company sold in a self-managed public offering
3,000,000 shares of common stock at a price of $4.25 per share. Net
proceeds to the Company, after deducting fees and other expenses of
the offering, were approximately $12,650,000.
In July 1996, the Company sold 2,000,000 shares of common stock in a
public offering at a price of $7.00 per share. Net proceeds to the
Company, after deducting fees and other expenses of the offering,
were approximately $12,717,000.
In December 1996, as part of a research collaboration (Note 2), the
Company sold to Biogen 1,542,680 shares of common stock at a premium
to the then-current market price of the common stock. Proceeds to the
Company were $18,000,000.
Common Stock Warrants - The Company issued in 1987 a warrant to
purchase 17,600 shares of common stock at $5.00 per share to an
equipment lessor. The warrant is fully exercisable and expires in
December 1997.
44
<PAGE> 46
CREATIVE BIOMOLECULES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY (CONTINUED)
Stockholders' Notes Receivable - In connection with a research and
development contract, the Company in 1986 sold to a partnership, for
a purchase price of $25,100, warrants for the purchase of 467,715
shares of common stock at an initial exercise price of $5.00 per
share (subsequently adjusted to $3.78 per share). The warrants were
exercised on December 22, 1993 by payment of $4,677 in cash and
delivery of a secured full recourse promissory note for $1,763,286
bearing interest at prime plus 1%. The note was repaid in full in
February 1995.
10. INCOME TAXES
No income tax provision or benefit has been provided for federal
income tax purposes as the Company has incurred losses since
inception. As of December 31, 1996, the Company had available net
operating loss carryforwards of approximately $64,400,000 for income
tax purposes. In addition, the Company had approximately $1,500,000
of unused investment and research and development tax credits. These
net operating loss and tax credit carryforwards will expire at
various dates between 1997 and 2012.
Because of the change in ownership, as defined in the Internal
Revenue Code, which occurred in July 1989, the net operating loss and
tax credit carryforwards are subject to annual limitations regarding
their utilization.
The components of deferred income taxes at December 31, 1996 and 1995
were primarily deferred tax assets of approximately $21,900,000 and
$21,100,000, respectively, of net operating loss carryforwards and
approximately $1,500,000 and $1,300,000, respectively, of investment
and research and development tax credits. The Company has not yet
achieved profitable operations. Accordingly, management believes that
the tax benefits as of December 31, 1996 and 1995 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a
valuation allowance for the entire net asset.
11. ROYALTY AGREEMENTS
The Company has entered into various license agreements which require
the Company to pay royalties based upon a set percentage of certain
product sales and license fee revenue subject, in some cases, to
certain minimum amounts. Total royalty expense approximated $25,000,
$5,000, $21,000 and $22,000 for the year ended December 31, 1996, the
three months ended December 31, 1995 and the years ended September
30, 1995 and 1994, respectively.
12. RETIREMENT SAVINGS PLAN
The Company has a 401(k) retirement savings plan covering
substantially all of the Company's employees. Matching Company
contributions are at the discretion of the Board of Directors. The
Board of Directors authorized matching contributions up to 3% of
participants' salaries amounting to approximately $202,000, $53,000,
$180,000 and $175,000 for the year ended December 31, 1996, the three
months ended December 31, 1995 and the years ended September 30, 1995
and 1994, respectively.
45
<PAGE> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The response to this item is incorporated by reference from the
discussions responsive thereto under the captions "Information Concerning
Current Directors, Nominees and Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement
relating to the 1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Compensation of Directors and
Executive Officers" in the Company's Proxy Statement relating to the 1997 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement relating to
the 1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the captions "Certain Transactions" and
"Compensation of Directors and Executive Officers --Employment Agreements" in
the Company's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders.
46
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a) The following documents are filed as part of this Annual Report on
Form 10-K.
14(a)(1) Financial Statements
See "Index to Consolidated Financial Statements" at Item 8 in
this Annual Report on Form 10-K.
14(a)(2) Financial Statement Schedules and Other Financial Statements - See
14(d) below.
14(a)(3) Exhibits - See 14 (c) below.
Item 14(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period
ended December 31, 1996.
Item 14(c) Exhibits
The following is a list of exhibits filed as part of this Annual
Report on Form 10-K:
3. Articles of Incorporation and By-Laws
3.1 Restated Certificate of Incorporation, as amended, of the
Registrant. (Filed as Exhibit 3.1 to Registrant's Annual
Report on Form 10-K for the period ended September 30, 1995
(File No. 0-19910), and incorporated herein by reference.)
3.2 Restated By-Laws of the Registrant. (Filed as Exhibit 3.4
to Form S-1 Registration Statement (Registration No.
33-46200), or amendments thereto, and incorporated herein
by reference.)
4. Instruments Defining the Rights of Security Holders
4.1 Article FOURTH of the Restated Certificate of Incorporation
of the Registrant, as amended (see Exhibit 3.1).
10. Material Contracts
10.1 Second Amended and Restated Registration Rights Agreement,
dated as of January 31, 1992. (Filed as Exhibit 10.4 to
Form S-1 Registration Statement (Registration No.
33-46200), or amendments thereto, and incorporated herein
by reference.)
10.2 Amendment No. 1 to Second Amended and Restated Registration
Rights Agreement, dated as of December 23, 1994, by and
between the Registrant and certain of its Stockholders, and
Instruments of Adherence to the Second Amended and Restated
Registration Rights Agreement. (Filed as Exhibit 10.51 to
Registrant's Quarterly Report on Form 10-Q for the Period
Ended December 31, 1994 (File No. 0-19910), and
incorporated herein by reference.)
47
<PAGE> 49
10.3 Amendment No. 2 to Second Amended and Restated Registration
Rights Agreement, dated as of May 24, 1996, by and between
the Registrant and certain of its Stockholders. (Filed as
Exhibit 10.1 to Form S-3 Registration Statement
(Registration No. 333-5477), and incorporated herein by
reference.)
10.4 Amendment No. 3 to Second Amended and Restated Registration
Rights Agreement, dated as of December 9, 1996, by and
between the Registrant and certain of its Stockholders.
#10.5 Second Amended and Restated Research, Development and
Supply Agreement, As Amended, dated as of May 17, 1991,
between Stryker Corporation and the Registrant ("Stryker
Development Agreement"). (Filed as Exhibit 10.5 to Form S-1
Registration Statement (Registration No. 33-42159), or
amendments thereto, and incorporated herein by reference.)
#10.6 Amendment Agreement, dated October 23, 1991, between the
Registrant and Stryker Corporation. (Filed as Exhibit 10.6
to Form S-1 Registration Statement (Registration No.
33-46200), or amendments thereto, and incorporated herein
by reference.)
10.7 Amendment, dated March 27, 1992, to Stryker Development
Agreement between Stryker Corporation and the Registrant.
(Filed as Exhibit 10.6A to Form S-1 Registration Statement
(Registration No. 33-46200), or amendments thereto, and
incorporated herein by reference.)
10.8 Amendment, dated November 19, 1992, to Stryker Development
Agreement between Stryker Corporation and the Registrant.
(Filed as Exhibit 10.6B to Form S-1 Registration Statement
(Registration No. 33-46200), or amendments thereto, and
incorporated herein by reference.)
10.9 Amendment Agreement, dated May 13, 1994, between the
Registrant and Stryker Corporation. (Filed as Exhibit 99.2
to Registrant's Report on Form 8-K for the May 9, 1996
Event (File No. 0-19910), and incorporated herein by
reference.)
10.10 Amendment Agreement, dated April 30, 1996, between the
Registrant and Stryker Corporation. (Filed as Exhibit 99.3
to Registrant's Report on Form 8-K for the May 9, 1996
Event (File No. 0-19910), and incorporated herein by
reference.)
+10.11 Amendment Agreement, dated October 31, 1996, between the
Registrant and Stryker Corporation.
10.12 Irrevocable License Agreement, dated May 17, 1991, between
Stryker Corporation and the Registrant. (Filed as Exhibit
10.7 to Form S-1 Registration Statement (Registration No.
33-42159), or amendments thereto, and incorporated herein
by reference.)
10.13 Amended and Restated Agreement for License or Sale of
Technology, dated December 14, 1988, by and among PruTech
Research and Development Partnership III, PruTech Project
Development Partnership and the Registrant. (Filed as
Exhibit 10.9 to Form S-1 Registration Statement
(Registration No. 33-42159), or amendments thereto, and
incorporated herein by reference.)
48
<PAGE> 50
10.14 Master Lease Agreement, dated as of May 1, 1987, between
the Registrant and Phoenix Leasing Incorporated. (Filed as
Exhibit 10.23 to Form S-1 Registration Statement
(Registration No. 33-42159), or amendments thereto, and
incorporated herein by reference.)
10.15 Common Stock Purchase Warrant, dated June 1, 1987, issued
by the Registrant to Phoenix Leasing Incorporated. (Filed
as Exhibit 10.24 to Form S-1 Registration Statement
(Registration No. 33-42159), or amendments thereto, and
incorporated herein by reference.)
10.16 Real Estate Standard Form Industrial Lease, dated as of
October 24, 1988, as amended September 17, 1991, between
WRC Properties, Inc. and the Registrant. (Filed as Exhibit
10.26 to Form S-1 Registration Statement (Registration No.
33-42159), or amendments thereto, and incorporated herein
by reference.)
10.17 Second Amendment, dated January 28, 1994, to Standard Form
Industrial Lease dated October 24, 1988, as amended
September 17, 1991, by and between the Registrant and WRC
Properties, Inc. (Filed as Exhibit 10.15 to Registrant's
Annual Report on Form 10-K for the Period Ended September
30, 1994 (File No. 0-19910), and incorporated herein by
reference.)
10.18 Third Amendment, dated September 20, 1994, to Standard Form
Industrial Lease dated October 24, 1988, as amended
September 17, 1991 and January 28, 1994, by and between the
Registrant and WRC Properties, Inc. (Filed as Exhibit 10.16
to Registrant's Annual Report on Form 10-K for the Period
Ended September 30, 1994 (File No. 0-19910), and
incorporated herein by reference.)
10.19 Standard Form Industrial Lease, dated February 25, 1992, by
and between the Registrant and WRC Properties, Inc. (Filed
as Exhibit 10.52 to Form S-1 Registration Statement
(Registration No. 33-46200), or amendments thereto, and
incorporated herein by reference.)
10.20 First Amendment, dated February 28, 1994, to Standard Form
Industrial Lease dated February 25, 1992 by and between the
Registrant and WRC Properties, Inc. (Filed as Exhibit 10.32
to Registrant's Annual Report on Form 10-K for the period
ended September 30, 1995 (File No. 0-19910), and
incorporated herein by reference.)
10.21 Second Amendment, dated September 20, 1994, to Standard
Form Industrial Lease dated February 25, 1992, as amended
February 28, 1994, by and between the Registrant and WRC
Properties, Inc. (Filed as Exhibit 10.33 to Registrant's
Annual Report on Form 10-K for the period ended September
30, 1995 (File No. 0-19910), and incorporated herein by
reference.)
10.22 Asset Purchase Agreement, dated March 4, 1993, by and
between the Registrant and Verax Corporation (the "Asset
Purchase Agreement"), including Exhibits thereto and List
of Schedules to Asset Purchase Agreement and to Exhibit A
thereto. Any of such Schedules will be supplied upon
request by the Commission. (Filed as Exhibit 2.1 and 2.2 to
the Registrant's Report on Form 8-K for March 15, 1993
Event (File No. 0-19910), and incorporated herein by
reference.)
49
<PAGE> 51
10.23 Assumption Agreement, dated March 15, 1993, by and between
the Registrant and Verax Corporation including Exhibits
hereto. (Filed as Exhibit 10.56 to the Registrant's
Quarterly Report on Form 10-Q for the period ended March
31, 1993 (File No. 0-19910), and incorporated herein by
reference.)
10.24 Indenture of Lease between Wilton L. Buskey and Carol
Buskey and Verax Corporation, dated September 7, 1988 as
amended through September 25, 1992, (assumed by Registrant
pursuant to Assumption Agreement, dated March 15, 1993, by
and between the Registrant and Verax Corporation -- see
Exhibit 10.23 above). (Filed as Exhibit 10.57 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1993 (File No. 0-19910), and incorporated
herein by reference.)
10.25 Non-Disturbance and Attornment Agreement, dated as of
September 7, 1988, by and between Verax Corporation and
First NH Bank [successor to First NH Bank of Lebanon]
(assumed by Registrant pursuant to Assumption Agreement,
dated March 15, 1993, by and between the registrant and
Verax Corporation -- see Exhibit 10.23 above.) (Filed as
Exhibit 10.58 to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1993 (File No.
0-19910), and incorporated herein by reference.)
10.26 Loan Agreement, dated as of September 7, 1988, by and
between Verax Corporation and First NH Bank [successor to
First NH Bank of Lebanon] (assumed by Registrant pursuant
to Assumption Agreement, dated March 15, 1993, by and
between the Registrant and Verax Corporation -- see Exhibit
10.23 above.) (Filed as Exhibit 10.59 to the Registrant's
Quarterly Report on Form 10-Q for the period ended March
31, 1993 (File No. 0-19910), and incorporated herein by
reference.)
#10.27 CBM Cross-License Agreement, dated as of November 26,
1993, between Enzon, Inc. and the Registrant. (Filed as
Exhibit 10.42 to Registrant's Quarterly Report on Form 10-Q
for the period ended December 31, 1993 (File No. 0-19910),
and incorporated herein by reference.)
#10.28 Enzon Cross-License Agreement, dated as of November 26,
1993, between Enzon, Inc. and the Registrant. (Filed as
Exhibit 10.43 to Registrant's Quarterly Report on Form 10-Q
for the period ended December 31, 1993 (File No. 0-19910),
and incorporated herein by reference.)
#10.29 Exclusive Marketing Agreement, dated as of November 26,
1993, between Enzon, Inc. and the Registrant. (Filed as
Exhibit 10.44 to Registrant's Quarterly Report on Form 10-Q
for the period ended December 31, 1993 (Filed No. 0-19910),
and incorporated herein by reference.)
#10.30 Manufacturing Agreement, dated as of September 28, 1994,
between Biogen, Inc. and the Registrant. (Filed as Exhibit
99.1 to Registrant's Report on Form 8-K for the September
30, 1994 Event (File No. 0-19910), and incorporated herein
by reference.)
#10.31 Equipment Lease Agreement, dated as of September 28, 1994,
between Biogen, Inc. and the Registrant. (Filed as Exhibit
99.2 to Registrant's Report on Form 8-K for the September
30, 1994 Event (File No. 0-19910), and incorporated herein
by reference.)
50
<PAGE> 52
10.32 Security Agreement, dated as of September 28, 1994, between
Biogen, Inc. and the Registrant. (Filed as Exhibit 99.3 to
Registrant's Report on Form 8-K for the September 30, 1994
Event (File No. 0-19910), and incorporated herein by
reference.)
10.33 Form of Preferred Stock and Warrant Purchase Agreement,
with Exhibits thereto, signed by the Registrant and the
persons listed on the Schedule attached at the end of the
Form of Preferred Stock and Warrant Purchase Agreement.
(Filed as Exhibit 10.52 to Registrant's Quarterly Report on
Form 10-Q for the Period Ended December 31, 1994 (File No.
0-19910), and incorporated herein by reference.)
10.34 Form of Warrant issued by the Registrant to the persons
listed on the Schedule attached at the end of the Form of
Warrant on various dates between December 23, 1994 and
January 25, 1995. (Filed as Exhibit 10.53 to Registrant's
Quarterly Report on Form 10-Q for the Period Ended December
31, 1994 (File No. 0-19910), and incorporated herein by
reference.)
#10.35 Cross-License Agreement, dated as of July 15, 1996,
between the Registrant, Genetics Institute, Inc. and
Stryker Corporation. (Filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 of Genetics Institute, Inc. (File
No.0-14587), filed with the Securities and Exchange
Commission on November 6, 1996 and incorporated herein by
reference.)
10.36 Underwriting Agreement dated July 2, 1996 between the
Registrant and Hambrecht & Quist LLP and Cowen & Company.
(Filed as Exhibit 1.1 to Form S-3 Registration Statement
(Registration No. 333-5477), or amendments thereto, and
incorporated herein by reference.)
+10.37 Research Collaboration and License Agreement, dated
December 9, 1996, between the Registrant and Biogen, Inc.
10.38 Restricted Stock Purchase Agreement, dated December 9,
1996, between the Registrant and Biogen, Inc.
*10.39 1983 Incentive Stock Option Plan, amended as of September
11, 1984. (Filed as Exhibit 10.34 to Form S-1 Registration
Statement (Registration No. 33-42159), or amendments
thereto, and incorporated herein by reference.)
*10.40 1987 Stock Plan, as amended on December 7, 1994. (Filed as
Exhibit to Registrant's Preliminary Proxy Statement for
1995 Annual Meeting of Stockholders (File No. 0-19910), and
incorporated herein by reference.)
*10.41 Employee Stock Purchase Plan, as amended on December 7,
1994. (Filed as Exhibit to Registrant's Preliminary Proxy
Statement for 1995 Annual Meeting of Stockholders (File No.
0-19910), and incorporated herein by reference.)
*10.42 1992 Non-Employee Director Non-Qualified Stock Option
Plan, as amended on March 20, 1996. (Filed as Exhibit 10.25
to Registrant's Quarterly Report on Form 10-Q for the
period ended March 31, 1996 (File No. 0-19910), and
incorporated herein by reference.)
51
<PAGE> 53
*10.43 Form of Employment Agreement with confidentiality
provisions. (Filed as Exhibit 10.31 to Form S-1
Registration Statement (Registration No. 33-42159), or
amendments thereto, and incorporated herein by reference.)
*10.44 Employment Agreement, dated as of January 2, 1992, between
Charles Cohen, Ph.D. and the Registrant. (Filed as Exhibit
10.47 to Form S-1 Registration Statement (Registration No.
33-46200), or amendments thereto, and incorporated herein
by reference.)
*10.45 Employment Agreement, dated February 25, 1992, between
Wayne E. Mayhew III and the Registrant. (Filed as Exhibit
10.51 to Form S-1 Registration Statement (Registration No.
33-46200), or amendments thereto, and incorporated herein
by reference.)
*10.46 Employment Agreement, dated July 20, 1992, between Ronald
D. Johnson, Ph.D., and the Registrant. (Filed as Exhibit
10.54 to Form S-1 Registration Statement (Registration No.
33-46200), or amendments thereto, and incorporated herein
by reference.)
*10.47 Executive Severance Agreement, dated December 1, 1993,
between Gregory Liposky and the Registrant (assumed as part
of the Registrant's acquisition of the manufacturing
facility from Verax Corporation). (Filed as Exhibit 10.51
to Registrant's Annual Report on Form 10-K for the period
ended September 30, 1995 (File No. 0-19910), and
incorporated herein by reference.)
*10.48 Employment Agreement, dated July 17, 1995, between Michael
M. Tarnow and the Registrant. (Filed as Exhibit 99.1 to
Registrant's Report on Form 8-K for the August 31, 1995
Event (File No. 0-19910), and incorporated herein by
reference.)
*10.49 Employment Agreement, dated May 21, 1996, between Thomas
J. Facklam, Ph.D. and the Registrant. (Filed as Exhibit
99.2 to Registrant's Report on Form 8-K for the June 3,
1996 Event (File No. 0-19910), and incorporated herein by
reference.)
21 Subsidiaries of the Registrant. (Filed as Exhibit 22 to
Form S-1 Registration Statement (Registration No.
33-42159), or amendments thereto, and incorporated herein
by reference.)
23.1 Independent Auditors' Consent.
27 Financial Data Schedule
The Registrant will supply the Commission, upon request, with copies of
all exhibits and schedules to exhibits listed above, as to which such exhibits
and schedules have not been included herein.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.
+ Documents with respect to which Confidential Treatment has been requested.
# Documents with certain confidential information deleted.
Item 14(d) Financial Statement Schedules and Other Financial Statements
Financial statement schedules have not been included because they
are not applicable or the information is included in the
financial statements or notes thereto.
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Hopkinton,
Massachusetts, on March 28, 1997.
CREATIVE BIOMOLECULES, INC.
By: /s/ Wayne E. Mayhew III
Wayne E. Mayhew III
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities indicated
below on date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Brian H. Dovey Chairman of the Board and Director March 28, 1997
Brian H. Dovey
/s/ Michael M. Tarnow President and Chief Executive Officer March 28, 1997
Michael M. Tarnow and Director (principal executive officer)
/s/ Charles Cohen, Ph.D. Chief Scientific Officer and Director March 28, 1997
Charles Cohen, Ph.D.
/s/ Wayne E. Mayhew III Vice President and Chief Financial Officer, March 28, 1997
Wayne E. Mayhew III Treasurer and Secretary (principal financial
officer)
/s/ Susan B. Blanton Controller (principal accounting officer) March 28, 1997
Susan B. Blanton
/s/ Jeremy L. Curnock Cook Director March 28, 1997
Jeremy L. Curnock Cook
/s/ Martyn D. Greenacre Director March 28, 1997
Martyn D. Greenacre
/s/ Arthur J. Hale Director March 28, 1997
Arthur J. Hale, M.D.
/s/ Suzanne D. Jaffe Director March 28, 1997
Suzanne D. Jaffe
/s/ Michael Rosenblatt, M.D. Director March 28, 1997
Michael Rosenblatt, M.D.
/s/ James R. Tobin Director March 28, 1997
James R. Tobin
</TABLE>
<PAGE> 55
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Restated Certificate of Incorporation, as amended, of the Registrant.
(Filed as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for
the period ended September 30, 1995 (File No. 0-19910), and
incorporated herein by reference.)
3.2 Restated By-Laws of the Registrant. (Filed as Exhibit 3.4 to Form S-1
Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
4.1 Article FOURTH of the Restated Certificate of Incorporation of the
Registrant, as amended (see Exhibit 3.1).
10.1 Second Amended and Restated Registration Rights Agreement, dated as of
January 31, 1992. (Filed as Exhibit 10.4 to Form S-1 Registration
Statement (Registration No. 33-46200), or amendments thereto, and
incorporated herein by reference.)
10.2 Amendment No. 1 to Second Amended and Restated Registration Rights
Agreement, dated as of December 23, 1994, by and between the Registrant
and certain of its Stockholders, and Instruments of Adherence to the
Second Amended and Restated Registration Rights Agreement. (Filed as
Exhibit 10.51 to Registrant's Quarterly Report on Form 10-Q for the
Period Ended December 31, 1994 (File No. 0-19910), and incorporated
herein by reference.)
10.3 Amendment No. 2 to Second Amended and Restated Registration Rights
Agreement, dated as of May 24, 1996, by and between the Registrant and
certain of its Stockholders. (Filed as Exhibit 10.1 to Form S-3
Registration Statement (Registration No. 333-5477), and incorporated
herein by reference.)
10.4 Amendment No. 3 to Second Amended and Restated Registration Rights
Agreement, dated as of December 9, 1996, by and between the Registrant
and certain of its Stockholders.
10.5 Second Amended and Restated Research, Development and Supply Agreement,
as Amended, dated as of May 17, 1991, between Stryker Corporation and
the Registrant ("Stryker Development Agreement"). (Filed as Exhibit
10.5 to Form S-1 Registration Statement (Registration No. 33-42159), or
amendments thereto, and incorporated herein by reference.)
10.6 Amendment Agreement, dated October 23, 1991, between the Registrant and
Stryker Corporation. (Filed as Exhibit 10.6 to Form S-1 Registration
Statement (Registration No. 33-46200), or amendments thereto, and
incorporated herein by reference.)
10.7 Amendment, dated March 27, 1992, to Stryker Development Agreement
between Stryker Corporation and the Registrant. (Filed as Exhibit 10.6A
to Form S-1 Registration Statement (Registration No. 33-46200), or
amendments thereto, and incorporated herein by reference.)
10.8 Amendment, dated November 19, 1992, to Stryker Development Agreement
between Stryker Corporation and the Registrant. (Filed as Exhibit 10.6B
to Form S-1 Registration Statement (Registration No. 33-46200), or
amendments thereto, and incorporated herein by reference.)
<PAGE> 56
Exhibit
No. Description
- ------- -----------
10.9 Amendment Agreement, dated May 13, 1994, between the Registrant and
Stryker Corporation. (Filed as Exhibit 99.2 to Registrant's Report on
Form 8-K for the May 9, 1996 Event (File No. 0-19910), and incorporated
herein by reference.)
10.10 Amendment Agreement, dated April 30, 1996, between the Registrant and
Stryker Corporation. (Filed as Exhibit 99.3 to Registrant's Report on
Form 8-K for the May 9, 1996 Event (File No. 0-19910), and incorporated
herein by reference.)
10.11 Amendment Agreement, dated October 31, 1996, between the Registrant and
Stryker Corporation.
10.12 Irrevocable License Agreement, dated May 17, 1991, between Stryker
Corporation and the Registrant. (Filed as Exhibit 10.7 to Form S-1
Registration Statement (Registration No. 33-42159), or amendments
thereto and incorporated herein by reference.)
10.13 Amended and Restated Agreement for License or Sale of Technology, dated
December 14, 1988, by and among PruTech Research and Development
Partnership III, PruTech Project Development Partnership and the
Registrant. (Filed as Exhibit 10.9 to Form S-1 Registration Statement
(Registration No. 33-42159), or amendments thereto, and incorporated
herein by reference.)
10.14 Master Lease Agreement, dated as of May 1, 1987, between the Registrant
and Phoenix Leasing Incorporated. (Filed as Exhibit 10.23 to Form S-1
Registration Statement (Registration No. 33-42159), or amendments
thereto, and incorporated herein by reference.)
10.15 Common Stock Purchase Warrant, dated June 1, 1987, issued by the
Registrant to Phoenix Leasing Incorporated. (Filed as Exhibit 10.24 to
Form S-1 Registration Statement (Registration No. 33-42159), or
amendments thereto, and incorporated herein by reference.)
10.16 Real Estate Standard Form Industrial Lease, dated as of October 24,
1988, as amended September 17, 1991, between WRC Properties, Inc. and
the Registrant. (Filed as Exhibit 10.26 to Form S-1 Registration
Statement (Registration No. 33-42159), or amendments thereto, and
incorporated herein by reference.)
10.17 Second Amendment, dated January 28, 1994, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991, by and
between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.15
to Registrant's Annual Report on Form 10-K for the Period Ended
September 30, 1994 (File No. 0-19910), and incorporated herein by
reference.)
10.18 Third Amendment, dated September 20, 1994, to Standard Form Industrial
Lease dated October 24, 1988, as amended September 17, 1991 and January
28, 1994, by and between the Registrant and WRC Properties, Inc. (Filed
as Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the
Period Ended September 30, 1994 (File No. 0-19910), and incorporated
herein by reference.)
10.19 Standard Form Industrial Lease, dated February 25, 1992, by and between
the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.52 to Form
S-1 Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
<PAGE> 57
Exhibit
No. Description
- ------- -----------
10.20 First Amendment, dated February 28, 1994, to Standard Form Industrial
Lease dated February 25, 1992 by and between the Registrant and WRC
Properties, Inc. (Filed as Exhibit 10.32 to Registrant's Annual Report
on Form 10-K for the period ended September 30, 1995 (File No.
0-19910), and incorporated herein by reference.)
10.21 Second Amendment, dated September 20, 1994, to Standard Form Industrial
Lease dated February 25, 1992, as amended February 28, 1994, by and
between the Registrant and WRC Properties, Inc. (Filed as Exhibit 10.33
to Registrant's Annual Report on Form 10-K for the period ended
September 30, 1995 (File No. 0-19910), and incorporated herein by
reference.)
10.22 Asset Purchase Agreement, dated March 4, 1993, by and between the
Registrant and Verax Corporation (the "Asset Purchase Agreement"),
including Exhibits thereto and List of Schedules to Asset Purchase
Agreement and to Exhibit A thereto. Any of such Schedules will be
supplied upon request by the Commission. (Filed as Exhibit 2.1 and 2.2
to the Registrant's Report on Form 8-K for March 15, 1993 Event (File
No. 0-19910), and incorporated herein by reference.)
10.23 Assumption Agreement, dated March 15, 1993, by and between the
Registrant and Verax Corporation including Exhibits hereto. (Filed as
Exhibit 10.56 to the Registrant's Quarterly Report on Form 10-Q for the
period ended March 31, 1993 (File No. 0-19910), and incorporated herein
by reference.)
10.24 Indenture of Lease between Wilton L. Buskey and Carol Buskey and Verax
Corporation, dated September 7, 1988 as amended through September 25,
1992, (assumed by Registrant pursuant to Assumption Agreement, dated
March 15, 1993, by and between the Registrant and Verax Corporation --
see Exhibit 10.23 above). (Filed as Exhibit 10.57 to the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File
No. 0-19910), and incorporated herein by reference.)
10.25 Non-Disturbance and Attornment Agreement, dated as of September 7,
1988, by and between Verax Corporation and First NH Bank [successor to
First NH Bank of Lebanon] (assumed by Registrant pursuant to Assumption
Agreement, dated March 15, 1993, by and between the registrant and
Verax Corporation -- see Exhibit 10.23 above.) (Filed as Exhibit 10.58
to the Registrant's Quarterly Report on Form 10-Q for the period ended
March 31, 1993 (File No. 0-19910), and incorporated herein by
reference.)
10.26 Loan Agreement, dated as of September 7, 1988, by and between Verax
Corporation and First NH Bank [successor to First NH Bank of Lebanon]
(assumed by Registrant pursuant to Assumption Agreement, dated March
15, 1993, by and between the Registrant and Verax Corporation -- see
Exhibit 10.23 above.) (Filed as Exhibit 10.59 to the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1993 (File
No. 0-19910), and incorporated herein by reference.)
10.27 CBM Cross-License Agreement, dated as of November 26, 1993, between
Enzon, Inc. and the Registrant. (Filed as Exhibit 10.42 to Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(File No. 0-19910), and incorporated herein by reference.)
10.28 Enzon Cross-License Agreement, dated as of November 26, 1993, between
Enzon, Inc. and the Registrant. (Filed as Exhibit 10.43 to Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(File No. 0-19910), and incorporated herein by reference.)
<PAGE> 58
Exhibit
No. Description
- ------- -----------
10.29 Exclusive Marketing Agreement, dated as of November 26, 1993, between
Enzon, Inc. and the Registrant. (Filed as Exhibit 10.44 to Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1993
(Filed No. 0-19910), and incorporated herein by reference.)
10.30 Manufacturing Agreement, dated as of September 28, 1994, between
Biogen, Inc. and the Registrant. (Filed as Exhibit 99.1 to Registrant's
Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910),
and incorporated herein by reference.)
10.31 Equipment Lease Agreement, dated as of September 28, 1994, between
Biogen, Inc. and the Registrant. (Filed as Exhibit 99.2 to Registrant's
Report on Form 8-K for the September 30, 1994 Event (File No. 0-19910),
and incorporated herein by reference.)
10.32 Security Agreement, dated as of September 28, 1994, between Biogen,
Inc. and the Registrant. (Filed as Exhibit 99.3 to Registrant's Report
on Form 8-K for the September 30, 1994 Event (File No. 0-19910), and
incorporated herein by reference.)
10.33 Form of Preferred Stock and Warrant Purchase Agreement, with Exhibits
thereto, signed by the Registrant and the persons listed on the
Schedule attached at the end of the Form of Preferred Stock and Warrant
Purchase Agreement. (Filed as Exhibit 10.52 to Registrant's Quarterly
Report on Form 10-Q for the Period Ended December 31, 1994 (File No.
0-19910), and incorporated herein by reference.)
10.34 Form of Warrant issued by the Registrant to the persons listed on the
Schedule attached at the end of the Form of Warrant on various dates
between December 23, 1994 and January 25, 1995. (Filed as Exhibit 10.53
to Registrant's Quarterly Report on Form 10-Q for the Period Ended
December 31, 1994 (File No. 0-19910), and incorporated herein by
reference.)
10.35 Cross-License Agreement, dated as of July 15, 1996, between the
Registrant, Genetics Institute, Inc. and Stryker Corporation. (Filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 of Genetics Institute, Inc. (File No.0-14587), filed
with the Securities and Exchange Commission on November 6, 1996 and
incorporated by reference herein.)
10.36 Underwriting Agreement dated July 2, 1996 between the Registrant and
Hambrecht & Quist LLC and Cowen & Company. (Filed as Exhibit 1.1 to
Form S-3 Registration Statement (Registration No. 333-5477), or
amendments thereto, and incorporated herein by reference.)
10.37 Research Collaboration and License Agreement, dated December 9, 1996,
between the Registrant and Biogen, Inc.
10.38 Restricted Stock Purchase Agreement, dated December 9, 1996, between
the Registrant and Biogen, Inc.
10.39 1983 Incentive Stock Option Plan, amended as of September 11, 1984.
(Filed as Exhibit 10.34 to Form S-1 Registration Statement
(Registration No. 33-42159), or amendments thereto, and incorporated
herein by reference.)
10.40 1987 Stock Plan, as amended on December 7, 1994. (Filed as Exhibit to
Registrant's Preliminary Proxy Statement for 1995 Annual Meeting of
Stockholders (File No. 0-19910), and incorporated herein by reference.)
<PAGE> 59
Exhibit
No. Description
- ------- -----------
10.41 Employee Stock Purchase Plan, as amended on December 7, 1994. (Filed as
Exhibit to Registrant's Preliminary Proxy Statement for 1995 Annual
Meeting of Stockholders (File No. 0-19910), and incorporated herein by
reference.)
10.42 1992 Non-Employee Director Non-Qualified Stock Option Plan, as amended
on March 20, 1996. (Filed as Exhibit 10.25 to Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1996 (File No.
0-19910), and incorporated herein by reference.)
10.43 Form of Employment Agreement with confidentiality provisions. (Filed as
Exhibit 10.31 to Form S-1 Registration Statement (Registration No.
33-42159), or amendments thereto, and incorporated herein by
reference.)
10.44 Employment Agreement, dated as of January 2, 1992, between Charles
Cohen, Ph.D. and the Registrant. (Filed as Exhibit 10.47 to Form S-1
Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
10.45 Employment Agreement, dated February 25, 1992, between Wayne E. Mayhew
III and the Registrant. (Filed as Exhibit 10.51 to Form S-1
Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
10.46 Employment Agreement, dated July 20, 1992, between Ronald D. Johnson,
Ph.D., and the Registrant. (Filed as Exhibit 10.54 to Form S-1
Registration Statement (Registration No. 33-46200), or amendments
thereto, and incorporated herein by reference.)
10.47 Executive Severance Agreement, dated December 1, 1993, between Gregory
Liposky and the Registrant (assumed as part of the Registrant's
acquisition of the manufacturing facility from Verax Corporation).
(Filed as Exhibit 10.51 to Registrant's Annual Report on Form 10-K for
the period ended September 30, 1995 (File No. 0-19910), and
incorporated herein by reference.)
10.48 Employment Agreement, dated July 17, 1995, between Michael M. Tarnow
and the Registrant. (Filed as Exhibit 99.1 to Registrant's Report on
Form 8-K for the August 31, 1995 Event (File No. 0-19910), and
incorporated herein by reference.)
10.49 Employment Agreement, dated May 21, 1996, between Thomas J. Facklam,
Ph.D. and the Registrant. (Filed as Exhibit 99.2 to Registrant's Report
on Form 8-K for the June 3, 1996 Event (File No. 0-19910), and
incorporated herein by reference.
21 Subsidiaries of the Registrant. (Filed as Exhibit 22 to Form S-1
Registration Statement (Registration No. 33-42159), or amendments
thereto, and incorporated herein by reference.)
23.1 Independent Auditors' Consent
27 Financial Data Schedule
<PAGE> 1
Exhibit 10.4
AMENDMENT NO. 3 TO THE
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 3, dated as of December 9, 1996, is made to the SECOND
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of January 31,
1992, as previously amended by (i) Amendment No. 1 thereto, dated as of December
23, 1994, and (ii) Amendment No. 2 thereto, dated as of May 24, 1996
(collectively, the "Registration Rights Agreement"), among Creative
BioMolecules, Inc., a Delaware corporation (the "Company"), and the persons
defined as "Investors" under the Registration Rights Agreement.
W I T N E S S E T H:
WHEREAS, the Company proposes to enter into a Research Collaboration and
License Agreement with Biogen, Inc. ("Biogen"), and in connection therewith to
enter into a restricted stock purchase agreement (the "Restricted Stock Purchase
Agreement") with Biogen under which Biogen will purchase from the Company a
number of shares (the "Biogen Shares") of the Company's common stock, $.01 par
value per share ("Common Stock") in an amount to be computed in accordance with
the Restricted Stock Purchase Agreement at an aggregate purchase price of
$18,000,000;
WHEREAS, in connection with the execution of the Restricted Stock Purchase
Agreement, the Company has agreed to amend the Registration Rights Agreement to
provide certain registration rights with respect to the Biogen Shares;
WHEREAS, the parties hereto desire to amend the Registration Rights
Agreement to, among other things, add Biogen as a party to the Registration
Rights Agreement and include the Biogen Shares as "Registrable Securities",
thereby providing to Biogen registration rights with respect to the Biogen
Shares; and
WHEREAS, Section 17(f) of the Registration Rights Agreement provides that
terms of the Registration Rights Agreement may be amended and the observance
thereof waived with the consent of the Company and the holders of at least 50%
of the Registrable Securities (as currently defined in the Registration Rights
Agreement), and the undersigned holders of Registrable Securities collectively
hold the requisite percentage of Registrable Securities to effect this amendment
on behalf of all Investors; and
WHEREAS, the parties believe that it is in their best interests to amend
the Registration Rights Agreement as provided herein;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. To amend the Registration Rights Agreement as follows:
(a) Biogen shall be included within the definition of "Investors" in
the Registration Rights Agreement and shall have the same rights
and privileges as apply to the existing Investors thereunder,
PROVIDED THAT Biogen executes an instrument of adherence to
the Registration Rights Agreement bearing the address to be used
for notice under the Registration Rights Agreement.
(b) The definition of Registrable Securities in Section 2(b) of the
Registration Rights Agreement shall be amended to include the
Biogen Shares and any shares of Common Stock subsequently issued
to Biogen with respect to the Biogen Shares.
2. Except as otherwise expressly provided herein, the Registration Rights
Agreement is hereby ratified and confirmed and shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 3 TO
THE SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT to be executed as
an instrument under seal as of the date first written above.
CREATIVE BIOMOLECULES, INC.
By: /s/ Wayne E. Mayhew III
-----------------------------------
Name: Wayne E. Mayhew III
Title: Vice President and
Chief Financial Officer
THE INVESTORS
Name of Investor: APA Excelsior Venture
Capital Holdings
(Jersey) Limited
By: /s/ Alan Patricof
-----------------------------------
Title: Patricof & Co. Ventures, Inc.
Investment Manager
<PAGE> 3
Name of Investor: Apax CR II(A)
By: /s/ Maurice Tchenio
-----------------------------------
Title: PDG
---------------------------------
Name of Investor: Apax CR II(C)
By: /s/ Maurice Tchenio
-----------------------------------
Title: PDG
---------------------------------
Name of Investor: MMG Conseil
By: /s/ Maurice Tchenio
-----------------------------------
Title: PDG
Name of Investor: Apax Venture
Capital Fund Ltd.
By: /s/ Coutts (Jersey) Limited
-----------------------------------
Name of Investor: Apax Ventures II, Ltd.
By: /s/ Coutts (Jersey) Limited
-----------------------------------
Name of Investor: Apax Ventures III
By: /s/ Apax Funds Nominee Ltd.
-----------------------------------
<PAGE> 4
Name of Investor: Apax Ventures III
International
Partners, L.P.
By: /s/ Apax Funds Nominee Ltd.
-----------------------------------
Name of Investor: Apax Ventures IV
By: /s/ Apax Funds Nominee Ltd.
-----------------------------------
Name of Investor: Apax Ventures IV
International
Partners, L.P.
By: /s/ Apax Funds Nominee Ltd.
-----------------------------------
Name of Investor: Biotechnology
Investments Limited
By: /s/ T. Fowler /s/ H. Casey
-----------------------------------
Title: Authorized Signatories
---------------------------------
Name of Investor: Charles Cohen
By: /s/ Charles Cohen
-----------------------------------
Title: Chief Scientific Officer
---------------------------------
Name of Investor: Domain Partners III, LP
One Palmer Square Associates III, LP
By: /s/ Kathleen K. Schoemaker
-----------------------------------
Title: General Partner
---------------------------------
<PAGE> 5
Name of Investor: DP III Associates, LP
One Palmer Square Associates III, LP
By: /s/ Kathleen K. Schoemaker
-----------------------------------
Title: General Partner
---------------------------------
Name of Investor: Arthur J. Hale, M.D.
By: /s/ Arthur J. Hale
-----------------------------------
Title: Director
---------------------------------
Name of Investor: PruTech
Research & Development
Partnership III
R&D Funding Corp. General Partner
By: /s/ Patrick Owen Burns
-----------------------------------
Title: Vice President
---------------------------------
Name of Investor: Jeffrey Wiesen
By: /s/ Jeffrey M. Wiesen
-----------------------------------
<PAGE> 1
EXHIBIT 10.11
CREATIVE BIOMOLECULES, INC. HAS OMITTED FROM THIS EXHIBIT 10.11 PORTIONS OF THE
AGREEMENT FOR WHICH CREATIVE BIOMOLECULES, INC. HAS REQUESTED CONFIDENTIAL
TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE
AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH
AN ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPERATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
AMENDMENT AGREEMENT
This agreement by and between CREATIVE BIOMOLECULES, INC., a
Delaware corporation with its office and place of business at 45 South Street,
Hopkinton, Massachusetts 01748 ("CBM"), and STRYKER CORPORATION, a Michigan
corporation with its office and place of business at 2725 Fairfield Road, P.O.
Box 4085, Kalamazoo, Michigan 49003-4085 ("Stryker").
WHEREAS, CBM and Stryker are parties to that certain Second Amended
and Restated Research, Development and Supply Agreement, dated as of May 17,
1991, as amended to the date hereof (the "Agreement"), concerning research and
development on OP (capitalized terms used but not defined herein shall have the
meaning provided therefor in the Agreement); and
WHEREAS, CBM and Stryker desire to amend the Agreement in certain
respects as more fully set forth herein, to evidence their agreement that the OP
Field includes the Dental Field (as defined below) and to set forth the terms
and conditions relating to the license by CBM to Stryker of CBM's rights with
respect to certain intellectual property and related commercial rights related
to the Dental Field generally and to certain programs undertaken by CBM in the
Dental Field;
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth herein and in the Agreement, the parties
<PAGE> 2
hereto agree that, effective as of the date hereof, the provisions of the
Agreement shall be amended as provided herein.
1. The fifth WHEREAS clause of the Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
WHEREAS, the parties have agreed that Stryker shall own all right,
title and interest in and to the OP Products and OP Devices which have
resulted from or may be further developed by CBM, its agents or
independent contractors as a result of undertaking the Prior Agreement and
this Agreement or performing the tasks performed thereunder or to be
performed hereunder (the "Research Project"); that Stryker shall be the
exclusive licensee of the Licensed Dental Intellectual Property (as such
term is defined in Section 1.7A(iii) of this Agreement) as provided in
Section 1.7 of this Agreement; and that, pursuant to the terms of that
certain Irrevocable License Agreement, dated as of May 17, 1991 (the
"License"), a copy of which is attached hereto as Exhibit 1, Stryker shall
grant to CBM an irrevocable, exclusive, worldwide license to the Present
Patents and Applications and Future Patents and Applications (as such
terms are defined in Section 1.4B of this Agreement) for all uses and
applications of all inventions claimed therein, except for the
manufacture, use and sale of OP Products and OP Devices for use in the
field of treatment, repair or
- 2 -
<PAGE> 3
replacement of bone and joint tissue including, without limitation,
meniscus and articular cartilage and ligaments and tendons (the "OP
Field") other than the portion of the OP Field consisting of prevention or
treatment of Osteoporosis, Osteomalacia and Paget's Disease other than (i)
by the local application of OP Products and OP Devices in an insoluble
formulation directly on bone or joint tissue for local, as opposed to
general or systemic, effect and (ii) the treatment of fractures regardless
of whether they result from Osteoporosis, Osteomalacia and Paget's Disease
(the "Bone Disease Field"), it being expressly understood and agreed that
the OP Field as defined herein includes the Dental Field (as such term is
defined in Section 1.7A(i) of this Agreement);
2. Paragraph B of Section 1.4 of the Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
B. Pursuant to the Assignment, dated May 17, 1991 (the "Patent
Assignment"), a copy of which is attached hereto as Exhibit 2, CBM has
assigned to Stryker its entire right, title and interest in the inventions
and improvements disclosed in the U.S., foreign and PCT applications and
patents issuing therefrom that are listed in Schedule A thereto (the
"Present Patents and Applications"). CBM represents to Stryker that the
Present Patents and
- 3 -
<PAGE> 4
Applications and the patents and applications that have been prosecuted in
Stryker's name during the period from May 17, 1991 to October 31, 1996 as
Future Patents and Applications (as defined below), a list of which is set
forth in Schedule I hereto, constitute all U.S., foreign and PCT
applications and patents in which CBM ever had any right, title and
interest that disclose inventions and improvements related to OP Products
and OP Devices conceived, made, developed or reduced to practice as part
of the Research Project by CBM or any of its personnel or by any third
party under contract to CBM. CBM agrees that all future patent
applications and patents that disclose inventions and improvements related
to OP Products and OP Devices that are conceived, made, developed or
reduced to practice as part of the Research Project by CBM or any of its
personnel or by any third party under contract to CBM and all
continuations, continuations in part, divisions, reissues, additions or
extensions and other patents or applications based in whole or in part on
such patents and applications (the "Future Patents and Applications") in
which CBM has any right, title or interest will be prosecuted in Stryker's
name at Stryker's expense. CBM will prepare and file the applications for
the Future Patents and Applications at no expense to Stryker but only
after review thereof by Stryker and with Stryker's concurrence as to the
form thereof. Issues that arise in
- 4 -
<PAGE> 5
the course of the prosecution of the Present Patents and Applications and
Future Patents and Applications will be jointly decided by Stryker and
CBM.
3. Paragraph A of Section 1.5 of the Agreement is hereby amended by
adding a new sentence at the end thereof that shall read as follows:
Notwithstanding anything in the foregoing to the contrary, no payments
shall be required to be made by CBM to Stryker in respect of the first *
of Royalties, calculated in the manner provided herein, that would
otherwise be required to be paid hereunder.
4. The first sentence of paragraph A of Section 1.6 of this
Agreement is hereby amended to read in its entirety as follows:
Stryker shall pay to CBM, in U.S. dollars, quarterly royalties equal to *
of Stryker's Net Sales of OP Products and OP Devices for a period of *
years beginning, in the case of OP Products or OP Devices with application
in the OP Field other than the Dental Field, on the date of first
commercial sale of any OP Product or OP Device with such an application
and, in the case of OP Products or OP Devices with application in the
Dental Field, on the date of first commercial sale of any OP Product or OP
Device with such an application.
- 5 -
<PAGE> 6
5. Article I of the Agreement is hereby amended to add at the end
thereof a new Section 1.7, which shall read in its entirety as follows:
1.7 Agreements Relating to the Dental Field.
A. For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Dental Field" shall mean the treatment, repair or replacement
of the tooth, dentin, alveolar bone, cementum, enamel, gingiva (to the
extent, but only to the extent, the gingiva functions as part of the
apparatus holding the tooth to the jaw) and/or periodontal ligament, but
excluding the treatment of Oral Ulcerations (as defined in clause (v)
below) or any other disease or disorder of the tissues of the mouth not
involving the tooth, dentin, bone (including alveolar bone), cementum,
enamel, gingiva (to the extent, but only to the extent, the gingiva
functions as part of the apparatus holding the tooth to the jaw), ligament
(including the periodontal ligament), tendon and/or cartilage;
(ii) "Know-How" shall mean all inventions, discoveries,
confidential or proprietary ideas, concepts and information, research
data, lab notebooks, records relating to preclinical and clinical trials,
manufacturing specifications, methods or processes, formulas, designs,
Master Files, IDE and other submissions to the FDA and other authorities
in connection with regulatory clearances,
- 6 -
<PAGE> 7
product development data and other trade secrets, other than the Licensed
Patent Rights (as such term is defined in Section 1.7A(iv) of this
Agreement), related to the development of OP Products and OP Devices with
applications in the Dental Field;
(iii) "Licensed Dental Intellectual Property" shall mean the
Know-How and the Licensed Patent Rights;
(iv) "Licensed Patent Rights" shall mean CBM's entire right, title
and interest for the United States and all foreign countries in all
inventions and improvements disclosed in the US, foreign and PCT
applications and patents issuing therefrom that are listed on Schedule II
hereto and in all continuations, continuations in part, divisions,
reissues, additions or extensions thereof and in the future patent
applications and patents referred to in the last sentence of Section 1.7B
of this Agreement;
(v) "Oral Ulcerations" shall mean the formation of lesions on the
surface of skin lining the oral cavity caused by loss of tissue but does
not include Periodontal Disease (as defined in clause (vi) below) or any
other disease or disorder involving the tooth, dentin, bone (including
alveolar bone), cementum, enamel, gingiva (to the extent, but only to the
extent, the gingiva functions as part of the apparatus holding the tooth
to the jaw), ligament (including the periodontal ligament), tendon and/or
cartilage; and
- 7 -
<PAGE> 8
(vi) "Periodontal Disease" shall mean degeneration of the apparatus
holding the tooth to the jaw involving damage to any or all of the gingiva
(to the extent, but only to the extent, the gingiva functions as part of
the apparatus holding the tooth to the jaw), alveolar bone, cementum,
enamel and periodontal ligament.
B. CBM hereby grants to Stryker an irrevocable (except as set forth
in Section 3.2), exclusive, worldwide license in the Dental Field to use
and enjoy the Licensed Dental Intellectual Property and related commercial
rights that CBM now has or hereafter acquires arising out of research and
development programs undertaken by CBM, or by third parties and in which
CBM has or acquires any rights, to develop OP Products and OP Devices with
applications in the Dental Field, including, but not limited to, OP
Products and OP Devices for dentin regeneration and the treatment of
periodontal disease and tooth sensitivity. The license granted hereunder
shall include the right to sublicense to third parties not affiliated with
Stryker. CBM represents to Stryker that, as of the date hereof, the
Licensed Patent Rights constitute all US, foreign and PCT applications and
patents in which CBM ever had any right, title and interest that disclose
inventions and improvements related to OP Products and OP Devices with
applications in the Dental Field other than the Present Patents and
Applications and
- 8 -
<PAGE> 9
the Future Patents and Applications to the extent applicable to the Dental
Field and that the inventions and improvements disclosed in the Licensed
Patent Rights and the other Licensed Dental Intellectual Property were not
conceived, made, developed or reduced to practice as part of the Research
Project. CBM further agrees that all future patent applications and
patents in which it has or acquires any rights that disclose inventions or
improvements related to OP Products and OP Devices that were not
conceived, made, developed or reduced to practice as part of the Research
Project but have applications in the Dental Field as well as applications
outside the Dental Field shall be included in Licensed Patent Rights.
C. Stryker is hereby given the first right during the term of this
Agreement to sue infringers in the Dental Field of the Licensed Dental
Intellectual Property and to collect and retain all profits and/or damages
or amounts by way of settlement that may be recovered as a result thereof,
whether for the past or for the future, and CBM agrees to permit the use
of its name in all such suits and sign all necessary papers. The expenses
of such suit or suits shall be paid by Stryker, and any and all recoveries
from said suit or settlements thereof shall go to Stryker. Should Stryker
fail to take the necessary steps by litigation or otherwise to stop
infringement in the Dental Field of the
- 9 -
<PAGE> 10
Licensed Dental Intellectual Property, then CBM may conduct at its own
expense, and with the right to all recoveries, such litigation as it may
deem necessary, provided that CBM has first given a written sixty (60) day
notice to Stryker of its intention to initiate such litigation, and
provided further, that Stryker fails during said sixty (60) days' period
to indicate its willingness to initiate said suggested litigation or fails
to initiate said suggested litigation within four (4) months after said
notice. The party conducting any litigation shall keep the other party
reasonably informed as to all actions in the litigation and the party not
conducting the litigation shall assist and cooperate with the party
conducting the litigation and shall be reimbursed by the conducting party
for the out-of-pocket expenses reasonably incurred by it in connection
with providing such assistance and cooperation.
D. Stryker agrees to reimburse CBM for its pro rata share of all
costs incurred after August 1, 1996 in the prosecution and defense of the
Licensed Patent Rights, which costs will be prorated by agreement of the
parties based on a good faith estimate of the relative value of the patent
or application inside and outside the Dental Field but, if the parties
cannot otherwise agree, each will bear half the cost. CBM agrees that it
will consult with Stryker with respect to issues that arise in the course
of the
- 10 -
<PAGE> 11
prosecution of the Licensed Patent Rights and that it will not abandon any
claims related to the Dental Field without the prior written consent of
Stryker.
E. Stryker acknowledges that certain of the Licensed Patent Rights
are the subject of a Cross-License Agreement entered into among Stryker,
CBM and Genetics Institute, Inc. (for itself and the GPDC Partnership
referred to therein).
F. As part of the consideration for the license of the Licensed
Dental Intellectual Property hereunder, Stryker agrees to pay to CBM, by
wire transfer to the account designated in writing by CBM, the sum of
$500,000.
G. Stryker agrees that it will employ such reasonable efforts as are
necessary to diligently proceed with research and product development work
with regard to the development of OP Products and OP Devices for dentin
regeneration and the treatment of Periodontal Disease. With respect to
dentin regeneration, Stryker agrees to complete the current clinical
trials and then to evaluate this program. With respect to the treatment of
Periodontal Disease, Stryker agrees to prepare a work plan that
contemplates the commencement of human feasibility studies of such OP
Products and Devices prior to *. Stryker's agreements herein with regard
to the continuation of the programs regarding the development of OP
Products and OP
- 11 -
<PAGE> 12
Devices for dentin regeneration and the treatment of Periodontal Disease
are subject, however, in each case, to the cessation of such activities at
any time in the event of adverse findings regarding safety or efficacy or
any other matter that in Stryker's judgment adversely affects Stryker's
ability to develop a commercially marketable product therefor. Stryker
also agrees to evaluate the results of CBM's research regarding the
treatment of tooth sensitivity and to make a decision regarding the
resumption of that program. In the event that Stryker determines that the
development of a commercially marketable product for dentin regeneration
or the treatment of Periodontal Disease or tooth sensitivity is not
feasible, Stryker agrees that it will consider entering into a license and
sublicense, which license and sublicense shall not include the right to
grant sublicenses without Stryker's written consent, with CBM or a third
party proposed by CBM that is acceptable to Stryker in its reasonable
discretion with respect to the use and exploitation of the patent rights
of Stryker owned by Stryker pursuant to Section 1.4A of this Agreement and
of the Licensed Dental Intellectual Property insofar as they relate to
dentin regeneration or the treatment of Periodontal Disease or tooth
sensitivity, as the case may be. In exercising its discretion in
determining that a proposed third-party licensee/sublicensee is not
acceptable
- 12 -
<PAGE> 13
to it, Stryker may take into account, among other things, the economic
terms of any such license and sublicense, the fact that the proposed
third-party licensee/sublicensee is a competitor of Stryker in the OP
Field and the protections against off-label use of products produced by
the proposed third-party licensee/sublicensee that are included in the
proposed terms of any such license and sublicense.
H. Stryker and CBM agree that the Research Project will be expanded
to cover projects related to the programs to be continued by Stryker with
respect to the development of OP Products and OP Devices for dentin
regeneration and the treatment of Periodontal Disease and tooth
sensitivity, if Stryker determines to proceed with any such program. In
such event, the specific projects on which CBM will work and the maximum
number of full-time equivalents to be allocated to them in any month shall
be determined in advance by one or more written documents (a "Dental Field
Related Current Scope of Work") and the term "Current Scopes of Work," as
defined in paragraph B of Section 1.1 shall include any such Dental Field
Related Current Scope of Work.
I. Stryker shall reimburse CBM for all expenses incurred by CBM
after July 31, 1996 in connection with research efforts and clinical
trials related to the Dental Field up to an aggregate of $85,000 or such
greater amount as may have been approved in advance by Stryker in writing
- 13 -
<PAGE> 14
promptly upon receipt of an invoice or invoices therefor that provides
detailed information with respect to the particular expenses for which
reimbursement is sought. Except as set forth in the preceding sentence, it
is expressly understood and agreed that Stryker is not assuming any
obligation or liability incurred or that may be incurred as a result of
the work performed prior to the date hereof by CBM or by third patties
under contract to CBM related to the development of OP Products and OP
Devices with applications in the Dental Field, including, but not limited
to, product liability claims, claims arising out of treatments prior to
the date hereof in connection with preclinical or clinical trials,
including with respect to all patients currently enrolled therein, and
that Stryker is not assuming any obligation or liability of CBM to any
third party under any agreement or understanding related to such
development efforts, whether incurred prior to or on or after the
execution and delivery of this Agreement (collectively, the "Preexisting
CBM Obligations"). CBM agrees to indemnify and hold Stryker harmless from
any and all losses, costs, expenses (including attorneys' fees and
expenses), fees, liabilities and damages sustained or that may be
sustained by Stryker to the extent they arise out of Preexisting CBM
Obligations.
- 14 -
<PAGE> 15
J. Nothing in this Agreement, including, without limitation, the
acceptance of the license of the Licensed Dental Intellectual Property
pursuant to this Section 1.7, shall constitute a waiver by Stryker of its
right to ownership of any portion of the Licensed Dental Intellectual
Property that is subsequently determined to have been conceived, made,
developed or reduced to practice as part of the Research Project by CBM or
any of its personnel or by any third party under contract to CBM.
K. Stryker acknowledges that any patent rights owned by Stryker that
arise from any Dental Field Related Current Scope of Work shall be Future
Patents and Applications and shall be covered by the License with respect
to all uses and applications of the inventions claimed therein other than
in the OP Field.
6. The first sentence of subparagraph (iv) of Section 3.2C of the
Agreement shall be amended to read in its entirety as follows:
(iv) if Stryker shall at any time after the date hereof decide not
to proceed, or fail to diligently proceed with its obligations under
Section 1.lE, other than with respect to applications in the Dental Field
that are treated separately in Section 1.7G of this Agreement, and such
failure shall continue for three (3) months after notice from CBM, Stryker
shall
- 15 -
<PAGE> 16
reassign to CBM all of the rights and licenses otherwise granted to
Stryker under this Agreement and the Patent Assignment.
7. Section 3.5 of the Agreement is hereby amended by adding, at the
end thereof, the following language:
; provided, however, that in the event of any controversy or claim
relating to the provisions of this Agreement pertaining exclusively to
matters arising under Section 1.7 hereof, the arbitration shall take place
in Boston, Massachusetts.
8. The specific amendments of certain provisions of the Agreement
set forth in paragraphs 1, 2, 3, 4, 6 and 7 hereof shall be effective as of the
date hereof and the provisions set forth in paragraph 5 hereof shall be deemed
to be added to Article I of the Agreement effective as of the date hereof.
Except as specifically provided herein, the terms and provisions of the
Agreement shall continue in full force and effect in all respects and are hereby
confirmed by the parties hereto.
9. This Agreement may be executed in counterparts and shall become
effective when one or more counterparts have been signed by each of the parties.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have-executed this Amendment
Agreement as of the 31st day of October, 1996.
CREATIVE BIOMOLECULES, INC. STRYKER CORPORATION
/s/Michael M. Tarnow /s/John W. Brown
- --------------------------------- ----------------------------------
Michael M. Tarnow John W. Brown
President and Chief Chairman of the Board,
Executive Officer President and Chief
Executive Officer
- 17 -
<PAGE> 18
SCHEDULE I.
CaseNumber Country Application Number: Filing Date: Patent Number:
*
- 18 -
<PAGE> 19
SCHEDULE I.
CaseNumber Country Application Number: Filing Date: Patent Number:
*
- 19 -
<PAGE> 20
SCHEDULE II.
Pending and Issued CBM Patent Filings Relating to Dental Field
**The inventions and improvements in the patent applications and patent(s)
listed herein are licensed only for use in the Dental Field.
CaseNumber Country Application Number: Filing Date: Patent Number:
*
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<PAGE> 1
EXHIBIT 10.37
CREATIVE BIOMOLECULES, INC. HAS OMITTED FROM THIS EXHIBIT 10.37 PORTIONS OF THE
AGREEMENT FOR WHICH CREATIVE BIOMOLECULES, INC. HAS REQUESTED CONFIDENTIAL
TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE
AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH
AN ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPERATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
RESEARCH COLLABORATION AND LICENSE AGREEMENT
This Agreement is made and entered into this 9th day of December, 1996 by
and between BIOGEN, INC. (hereinafter referred to as "BIOGEN"), a Massachusetts
corporation located at 14 Cambridge Center, Cambridge, MA 02142, and CREATIVE
BIOMOLECULES, INC., a Delaware corporation, located at 45 South Street,
Hopkinton, MA 01748 ("CBM").
WHEREAS, BIOGEN is a biopharmaceutical company which develops,
manufactures, markets and sells pharmaceutical products for human healthcare;
and
WHEREAS, CBM is the owner and/or exclusive licensee of certain technology,
patent rights and other proprietary know-how related to PRODUCTS as hereinafter
defined; and
WHEREAS, BIOGEN desires to obtain an exclusive right and license in and to
such technology, patent rights and proprietary know-how in the TERRITORY as
hereinafter defined; and
WHEREAS, BIOGEN desires to support additional research in the FIELD as
hereinafter defined; and
WHEREAS, CBM is willing to grant the exclusive right and license desired
by BIOGEN and to participate in the conduct of the research supported by BIOGEN.
NOW, THEREFORE, in consideration of the mutual promises and other good and
valuable consideration, the parties agree as follows:
SECTION 1 - DEFINITIONS.
The terms used in this Agreement have the following meaning:
1.1 The term "AFFILIATE" as applied to either party shall mean any company
or other legal entity other than the party in question, in whatever country
organized, controlling, controlled by or under common control with that party.
The term "control" means ownership or control,
<PAGE> 2
directly or indirectly, of at least fifty percent (50%) of the outstanding stock
or voting rights or the right to elect or appoint a majority of the directors.
1.2 The term first "AGREEMENT YEAR" shall mean the period from the
EFFECTIVE DATE to December 31, 1997. With respect to any year after the first
AGREEMENT YEAR, the term "AGREEMENT YEAR" shall mean the calendar year.
1.3 The term "BACKGROUND INFORMATION" shall mean any data, know-how or
other information pertaining to the FIELD which may be useful in the discovery,
research, development, manufacture, use or sale of PRODUCTS and which is known
to BIOGEN or CBM, as the case may be, on the EFFECTIVE DATE and in and to which
BIOGEN or CBM, as the case may be, has a transferable right.
1.4 The term "BACKGROUND MATERIAL" shall mean any material, reagent or
substance relating to the FIELD which may be useful in the discovery, research,
development, manufacture, use or sale of PRODUCTS and which is in the possession
of BIOGEN or CBM, as the case may be, on the EFFECTIVE DATE and in and to which
BIOGEN or CBM, as the case may be, has a transferable right.
1.5 The term "BIOGEN PATENTS" shall mean all patents and patent
applications throughout the TERRITORY, covering or relating to BIOGEN
TECHNOLOGY, including any substitutions, extensions, reissues, reexaminations,
renewals, continuations, continuations-in-part, divisionals and supplemental
protection certificates, which BIOGEN owns (in whole or in part) or otherwise
has a transferable right as of the EFFECTIVE DATE or at any time during the term
of this Agreement, including but not limited to BIOGEN'S rights in any RESEARCH
PATENTS.
1.6 The term "BIOGEN OP-1 TECHNOLOGY" shall mean any methods, procedures,
practices, processes, know-how, inventions, discoveries and the like used by
BIOGEN (other than solely for research purposes) at any time during the term of
this Agreement in the manufacture of OP-
- 2 -
<PAGE> 3
1 PROTEIN in bulk form by BIOGEN. BIOGEN OP-1 TECHNOLOGY shall not include any
methods, procedures, practices, processes, know-how, inventions, discoveries or
the like owned or controlled by BIOGEN which relate solely to the formulation of
OP-1 PROTEIN in final dosage form or which relate to other uses in the FIELD.
1.7 The term "BIOGEN OP-1 PATENTS" shall mean all patents and patent
applications throughout the TERRITORY covering or relating to BIOGEN OP-1
TECHNOLOGY, including any substitutions, extensions, reissues, reexaminations,
renewals, continuations, continuations-in-part, divisionals and supplemental
protection certificates, which BIOGEN owns (in whole or in part) or otherwise
has a transferable right at any time during the term of this Agreement.
1.8 The term "BIOGEN TECHNOLOGY" shall mean information and materials in
the FIELD, including but not limited to, biological materials, technical and
non-technical data and information relating to the results of tests, assays,
methods, and processes, and drawings, plans, diagrams and specifications and/or
other documents containing such information and data owned by BIOGEN or to which
BIOGEN has a transferable interest on the EFFECTIVE DATE or prior to termination
of this Agreement and which are necessary or useful for the manufacture, use or
sale of PRODUCTS.
1.9 The term "CALENDAR QUARTER" shall mean the period of three (3)
consecutive calendar months ending on March 31, June 30, September 30 or
December 31, as the case may be.
1.10 The term "CBM PATENT RIGHT(S)" shall mean all patents and patent
applications throughout the TERRITORY, covering or relating to CBM TECHNOLOGY,
including any substitutions, extensions, reissues, reexaminations, renewals,
continuations, continuations-in-part, divisionals and supplemental protection
certificates, which CBM owns (in whole or in part) or otherwise has a
transferable right as of the EFFECTIVE DATE or at any time during the term of
this Agreement, including but not limited to CBM's rights in any RESEARCH
PATENTS and CBM's
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<PAGE> 4
rights obtained under the STRYKER LICENSE and the GI LICENSE. CBM PATENT RIGHTS
as of the EFFECTIVE DATE are set forth in Appendix A hereto.
1.11 "CBM TECHNOLOGY" shall mean CBM BACKGROUND INFORMATION and any other
information, data (including all chemical, pharmacological, toxicological,
clinical, assay, manufacturing and control information, data and test results),
ideas, concepts, formulas, trade secrets, methods, procedures, designs,
materials, compositions, plans, diagrams, applications, specifications,
techniques, records, practices, processes, research, know-how, inventions,
discoveries and the like which CBM owns (in whole or in part) or otherwise has a
transferable right as of the EFFECTIVE DATE or at any time during the term of
this Agreement and which is necessary or useful in order to discover, research,
develop, make, formulate, use, sell or seek approval to market PRODUCT,
including but not limited to CBM's rights in the RESEARCH INFORMATION, the
RESEARCH MATERIALS and the RESEARCH INVENTIONS, and CBM's rights under the
STRYKER LICENSE and the GI LICENSE.
1.12 The term "COST OF GOODS" shall mean BIOGEN's FULLY ALLOCATED COST to
manufacture PRODUCTS (i) less the amount, if any, by which CBM's FULLY ALLOCATED
COST for OP-1 PROTEIN (manufactured by CBM in accordance with GMP) is less than
BIOGEN's FULLY ALLOCATED COST for manufacturing of OP-1 PROTEIN included in
PRODUCT (ii) plus any amounts to be added to COST OF GOODS under Sections 9.2
and 10.1 (a).
1.13 The term "DISTRIBUTOR" shall mean a person or entity in a country who
(i) buys finished PRODUCT from BIOGEN or its AFFILIATES, (ii) assumes
responsibility for a significant amount of the promotion, marketing and sales
effort related to PRODUCTS in that country and, (iii) under an implied
sublicense, sells such PRODUCT in that country.
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1.14 The term "EFFECTIVE DATE" shall mean the date after execution of this
Agreement on which the government's notice period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, lapses without government action.
1.15 The term "FTE" shall mean scientist or other professional possessing
skills and experience necessary to carry out the RESEARCH, measured each year on
a full-time basis.
1.16 The term "FIELD" shall mean the treatment, diagnosis and prevention
of acute and chronic forms of renal failure, renal dysfunction, renal toxicity
and other forms of kidney disease or kidney disorders in humans, independent of
etiology, by use of drug or gene therapy designed or intended to have an effect
on the function of the kidney, excluding, however ex-vivo uses in preserving
organs for transplant. Specifically excluded from the FIELD is the use of a drug
or gene therapy to treat or prevent damage to any organ other than the kidney or
any tissue other than renal tissue, except to the extent that the effect on the
non-kidney organ or non-renal tissue is inherent or coincidental to the designed
or intended effect on the function of the kidney.
1.17 The term "FIRST COMMERCIAL SALE" shall mean in each country of the
TERRITORY, (i) the first sale of a PRODUCT by BIOGEN or any of its AFFILIATES,
SUBLICENSEES or DISTRIBUTORS to a THIRD PARTY in connection with the nationwide
introduction of PRODUCT by BIOGEN, its AFFILIATES, SUBLICENSEES or DISTRIBUTORS
following marketing and/or pricing approval by the appropriate governmental
agency for the country in which the sale is made, or (ii) when governmental
approval is not required or when sales can be made through named patient sales
prior to governmental approval, the first sale in that country in connection
with the nationwide introduction of PRODUCT in that country.
1.18 The term "FULLY ALLOCATED COST" shall mean BIOGEN's fully burdened
manufacturing cost of PRODUCT in final therapeutic form or CBM's fully burdened
manufacturing cost of OP-1 PROTEIN, as the case may be. The fully burdened cost
of the PRODUCT or OP-1
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PROTEIN, as the case may be, will be determined in accordance with generally
accepted accounting principles in the United States and will include (i) direct
labor, material, product testing costs, (ii) charges related to lost batches,
except as otherwise specified in this Agreement, and (iii) an allocable share of
manufacturing overhead costs defined as costs incurred by the party or for its
account which are attributable to the party's supervisory services, occupancy
costs, corporate bonus (to the extent not charged directly to departments),
payroll, information systems, or human relations or purchasing functions and
which are allocated to company departments based on space occupied or headcount
or other activity-based method. Allocable manufacturing overhead shall not
include any costs attributable to general corporate activities including, by way
of example, executive management, investor relations, business development,
legal affairs and finance.
1.19 The term "GI LICENSE" shall mean a Cross License Agreement made as of
July 15, 1996 by and among Genetics Institute, Inc., Stryker Corporation and
CBM.
1.20 The term "GMP" shall mean current Good Manufacturing Practices
required by the Food and Drug Administration and equivalent requirements of
other regulatory authorities in the MAJOR MARKETS for the manufacture and
testing of pharmaceutical products.
1.21 The term "GROSS PROFIT" shall mean NET SALES of PRODUCT less COST OF
GOODS.
1.22 The term "MAA" shall mean an application for regulatory approval to
sell PRODUCT in the European Union and similar in purpose to an NDA in the
United States.
1.23 The term "MAJOR MARKET(S)" shall mean the United States, Japan,
United Kingdom, Germany, France, Italy and Spain. The term "MAJOR MARKET
SEGMENT" shall mean United States, Europe or Japan, as the case may be.
1.24 The term "NDA" shall mean a New Drug Application or Product License
Application or equivalent filing filed for PRODUCT with the U.S. Food and Drug
Administration ("FDA").
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1.25 The term "NDR" shall mean an application for regulatory approval to
sell PRODUCT in Japan and similar in purpose to an NDA in the United States.
1.26 The term "NET SALES" means the gross amount invoiced by BIOGEN, its
AFFILIATES and SUBLICENSEES to THIRD PARTIES from the sale or distribution of
PRODUCT, less cost of freight and freight insurance, (if billed separately),
returns, rejections, rebates, sales taxes, excise taxes, other taxes (other than
income taxes) levied on the invoiced amount, duties and credits and allowances
actually given or made, including cash, trade, quantity and other discounts and
the like, provided, however, that a sale or transfer of PRODUCT by BIOGEN to an
AFFILIATE or SUBLICENSEE for re-sale of PRODUCT by such AFFILIATE or SUBLICENSEE
shall not be considered a sale for the purpose of this provision but the resale
of PRODUCT by such AFFILIATE or SUBLICENSEE to a THIRD PARTY shall be a sale for
such purposes. A "sale" shall mean a transfer or other disposition for
consideration, but shall not include transfers or dispositions at no cost for
pre-clinical, clinical, regulatory or governmental purposes or disposition of
PRODUCT at no cost for promotional purposes. In the event that consideration in
addition to or in lieu of money is received for the sale of PRODUCT in an arms
length transaction, such consideration shall be added to NET SALES. To the
extent that a PRODUCT is sold in other than an arms length transaction, NET
SALES shall be the average sales price of PRODUCT if sold in an arms length
transaction in the country in which the non-arms length transaction occurred.
PRODUCT shall be considered "sold" at the earlier of (a) the transfer of title
in such PRODUCT by BIOGEN or any of its AFFILIATES or SUBLICENSEES to a THIRD
PARTY as aforesaid; or (b) the shipment of such PRODUCT from the manufacturing
or warehouse facilities of BIOGEN or its AFFILIATE or SUBLICENSEE to a THIRD
PARTY.
In the event that PRODUCT is sold in the form of a combination product
containing one or more active ingredients or components in addition to OP-1
PROTEIN, NET SALES shall be
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determined by multiplying NET SALES of the combination product (as defined by
reference to the standard NET SALES definition) during the applicable payment
period by the fraction A/A+B where A is the average sale price of PRODUCT when
sold separately in finished form and B is the average sale price of the other
active ingredients or components when sold separately in finished form in each
case during the applicable payment period in the country in which the sale of
the combination product was made, or if sales of both the PRODUCT and the other
active ingredients or components did not occur in such period, then in the most
recent payment period in which sales of both occurred. In the event that such
average sale price cannot be determined for both PRODUCT and all other active
ingredients or components included in the combination product, NET SALES for
purposes of determining payments under this Agreement shall be calculated by
multiplying the NET SALES of the combination product by the fraction C/C+D where
C is the standard fully-absorbed cost of the OP-1 PROTEIN portion of the
combination and D is the sum of the standard fully-absorbed costs of all other
active components or ingredients included in the combination product, in each
case, as determined by BIOGEN using its standard accounting procedures
consistently applied. In no event shall NET SALES of a combination product be
reduced to less than * of actual NET SALES of such PRODUCT by reason of the
adjustment provision set forth in this paragraph.
1.27 The term "OP-1 PROTEIN" shall mean a polypeptide chain ("Protein") *
is set forth on Appendix B to this Agreement and shall include:
(a) * variant forms thereof;
(b) amino acid variant forms of the Protein sharing at least *
amino acid sequence identity with the * of the Protein
("* Homologs");
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<PAGE> 9
(c) * variant forms of the Protein or such * variant forms
or the * Homologs, including, without limitation, polypeptides
comprising only the * thereof;
(d) homodimeric, heterodimeric and chimeric forms of the Protein
and of any of the variant forms thereof identified in the
preceding Subsections (a), (b) and (c), to the extent they
also consist of:
(i) the Protein or variant forms thereof identified in the
preceding Subsections (a), (b) and (c), or
(ii) other polypeptide chains which are not within the
preceding Subsection (i).
(e) polyclonal or monoclonal antibodies to the Protein or to any
of the foregoing proteins;
(f) the DNA or RNA encoding the Protein or any of the foregoing
proteins;
(g) vectors and host cells containing the foregoing DNA or RNA.
Determination of "identity" between any two amino acid sequences is based on
that alignment which achieves the maximum identity between the two sequences.
1.28 The term "PRODUCT" shall mean any article, composition, apparatus,
material, method, process or service for use in development or clinical testing
in the FIELD or indicated and approved for use in the FIELD which (i) is or
includes the OP-1 PROTEIN and/or any product developed or derived therefrom
pursuant to RESEARCH, and (ii) the manufacture, import, use or sale of which is
covered by a VALID CLAIM of the CBM PATENT RIGHTS or includes, is based on or is
derived from any of the CBM TECHNOLOGY.
1.29 The term "PRODUCT DEVELOPMENT PROGRAM" shall have the meaning set
forth in Section 7.2.
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<PAGE> 10
1.30 The term "R&D" shall mean the research and development work performed
by CBM and funded by BIOGEN as part of the R&D COLLABORATION, including the
research work performed by CBM under the RESEARCH PLAN and the development work
performed by CBM as agreed upon by the parties.
1.31 The term "R&D COLLABORATION" shall have the meaning set forth in
Section 8.1 of this Agreement.
1.32 The term "RESEARCH INFORMATION" shall mean any data, results,
formulas, process information or other information which results directly from
R&D funded by BIOGEN pursuant to this Agreement.
1.33 The term "RESEARCH INVENTION(S)" shall mean any invention, know-how,
method, process, use, article of manufacture, or composition of matter conceived
or first actually or constructively reduced to practice as part of R&D or which
results directly from R&D funded by BIOGEN pursuant to this Agreement.
1.34 The term "RESEARCH MATERIAL" shall mean any material, reagent or
substance which results directly from R&D funded by BIOGEN pursuant to this
Agreement.
1.35 The term "RESEARCH PATENT RIGHT(S)" shall mean all patents and patent
applications throughout the TERRITORY which have any claim which incorporates,
is based on or derived from RESEARCH INFORMATION, RESEARCH INVENTIONS or
RESEARCH MATERIAL, including any substitutions, extensions, reissues,
reexaminations, renewals, continuations, continuations-in-part, divisionals and
supplemental protection certificates.
1.36 The term "RESEARCH PLAN" shall mean the written descriptions of the
discovery research and pre-GLP studies to be performed by CBM as part of the R&D
COLLABORATION in the FIELD for the first AGREEMENT YEAR and for each subsequent
AGREEMENT YEAR of the R&D COLLABORATION as agreed upon by the parties in
accordance with Section 8.2.
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<PAGE> 11
1.37 The term "STRYKER LICENSE" shall mean a certain Irrevocable License
Agreement dated as of May 17, 1991 by and between CBM and Stryker Corporation.
1.38 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party
expressly licensed by BIOGEN to make, have made, import, use or sell any
PRODUCT.
1.39 The term "TERRITORY" shall mean all countries of the world.
1.40 The term "THIRD PARTY(IES)" shall mean a person or entity who or
which is neither a party hereto nor an AFFILIATE or SUBLICENSEE of a party
hereto.
1.41 The term "VALID CLAIM" shall mean (i) a claim of a pending patent
application which claim shall not have been canceled, withdrawn, abandoned or
rejected by an administrative agency from which no appeal can be taken or been
pending for more than seven (7) years or (ii) a claim of an issued and unexpired
patent which has not lapsed or become abandoned or been declared invalid or
unenforceable by a court of competent jurisdiction or an administrative agency
from which no appeal can be or is taken.
1.42 The use herein of the plural shall include the singular, and the use
of the masculine shall include the feminine.
SECTION 2 - GRANT AND OTHER RIGHTS.
2.1 (a) Subject to Section 3.2, CBM hereby grants to BIOGEN and BIOGEN
hereby accepts from CBM an exclusive, royalty-bearing right and license under
CBM TECHNOLOGY AND CBM PATENT RIGHTS to make, have made, import, use and sell
PRODUCTS in the TERRITORY. In the event that under the preceding sentence CBM
has granted to BIOGEN a sublicense to CBM's rights under any CBM PATENTS or CBM
TECHNOLOGY acquired by CBM from a THIRD PARTY after the EFFECTIVE DATE, other
than any rights acquired by CBM under the granted THIRD PARTY patent discussed
between patent counsel for CBM and patent counsel
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<PAGE> 12
for BIOGEN, at a meeting held on November 25, 1996, and its foreign counterpart
patents and under any divisionals, substitutions, reissues, reexaminations,
renewals, extensions, supplemental protection certificates, continuations or
continuations-in-part of such patents (the "Other Third Party Patents"), BIOGEN
shall be responsible for paying any royalty obligation which CBM may have to
such THIRD PARTY arising from the manufacture, use or sale by BIOGEN of PRODUCTS
in the TERRITORY.
(b) CBM hereby grants to BIOGEN and BIOGEN hereby accepts from CBM a
nonexclusive, perpetual, royalty-free right and license, with no right to grant
sublicenses, under CBM's rights in RESEARCH INVENTIONS, RESEARCH INFORMATION AND
RESEARCH PATENTS to research, develop, make, have made, import, use and sell, in
and outside the FIELD, products that do not embody OP-1 PROTEIN. In addition,
CBM grants to BIOGEN an option to obtain a nonexclusive, royalty-bearing right
and license, with the right to grant sublicenses as part of a sublicense package
which includes, to a significant extent, BIOGEN technology, under CBM's rights
in RESEARCH INVENTIONS, RESEARCH INFORMATION and RESEARCH PATENTS to research,
develop, make, have made, import, use and sell, in and outside the FIELD,
products that do not embody OP-1 PROTEIN, on terms, including financial terms,
to be negotiated in good faith by the parties.
(c) BIOGEN hereby grants to CBM and CBM hereby accepts from BIOGEN a
nonexclusive, royalty-free, right and license, with no right to grant
sublicenses, under BIOGEN OP-1 TECHNOLOGY and BIOGEN OP-1 PATENTS solely for
CBM's own use to make, have made, import, use and sell OP-1 PROTEIN for use by
CBM or Stryker Corporation outside the FIELD. The license granted by the
preceding sentence shall terminate in the event of the sale by CBM of all or
substantially all of its assets or the merger or acquisition or similar change
in control of CBM (a "Change of Control"). BIOGEN grants to CBM (or in the event
of a Change of Control, to the successor to CBM) an option exercisable at any
time during the term of this Agreement to obtain a
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<PAGE> 13
nonexclusive, royalty-bearing right and license, with the right to grant
sublicenses, under BIOGEN OP-1 TECHNOLOGY and BIOGEN OP-1 PATENTS solely to
make, have made, import, use and sell OP-1 PROTEIN for use outside the FIELD
under terms, including financial terms, to be negotiated in good faith by the
parties. In the event that under this Section , BIOGEN has granted to CBM a
sublicense to BIOGEN's rights under any BIOGEN OP-1 TECHNOLOGY or BIOGEN OP-1
PATENTS owned (in whole or in part) by a THIRD PARTY, CBM shall be responsible
for paying any royalty obligations which BIOGEN may have to such THIRD PARTY
arising from the manufacture, use or sale by CBM or Stryker Corporation of OP-1
PROTEIN.
(d) BIOGEN hereby grants to CBM and CBM hereby accepts from BIOGEN a
nonexclusive, royalty-free right and license under BIOGEN BACKGROUND INFORMATION
and BIOGEN BACKGROUND MATERIALS in the TERRITORY, without the right to grant
sublicenses, solely for purposes of conducting R&D under this Agreement. The
foregoing license shall terminate upon termination of the R&D COLLABORATION.
2.2 (a) Subject to Paragraphs 2.2(b) and 2.2(c), BIOGEN shall be entitled
to extend the licenses granted to it herein to AFFILIATES and to sublicense such
licenses to THIRD PARTIES, provided that CBM shall have the right to consent to
any sublicense in a MAJOR MARKET other than Japan which consent shall not be
unreasonably withheld. In the case of a license which has been extended to
AFFILIATES or sublicensed to a SUBLICENSEE, such AFFILIATES and SUBLICENSEES
shall be bound by all terms and conditions of this Agreement. BIOGEN shall
advise CBM of any such extension to AFFILIATES or of any sublicense which does
not require CBM's consent under this Section promptly after such extension or
sublicense becomes effective. In the event BIOGEN proposes to grant a sublicense
to its rights in a MAJOR MARKET other than Japan, BIOGEN shall provide CBM with
notice of BIOGEN's intent and a copy of any proposed sublicense at least thirty
(30) days prior to the proposed execution of such sublicense.
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<PAGE> 14
CBM shall be deemed to have given its consent to any sublicense in a MAJOR
MARKET to which it has not objected prior to the end of the thirty (30) day
notice period.
(b) BIOGEN shall guarantee and be responsible for the payment of all
compensation due and the making of reports under this Agreement by reason of
sales of any PRODUCTS by its AFFILIATES and SUBLICENSEES and their compliance
with all applicable terms of this Agreement. Performance or satisfaction of any
obligations of BIOGEN under this Agreement by any of its AFFILIATES or
SUBLICENSEES shall be deemed performance or satisfaction of such obligations by
BIOGEN.
(c) Notwithstanding anything to the contrary herein, BIOGEN shall
not be entitled to grant a sublicense in Japan unless, pursuant to the terms of
such sublicense, BIOGEN continues to play a significant role with the
SUBLICENSEE in the development, registration and sale of PRODUCT in Japan.
BIOGEN shall provide CBM with a copy of any proposed sublicense in Japan at
least thirty (30) days prior to the proposed execution of such sublicense.
2.3 During the term of this Agreement, if CBM determines that it is
interested in entering into a business arrangement with a THIRD PARTY outside
the FIELD for exploitation of products which are or include the OP-1 PROTEIN and
with respect to which CBM has not granted rights as of the EFFECTIVE DATE, and
in the event that as part of the THIRD PARTY arrangement it will be proposed
that such THIRD PARTY acquire * of the outstanding common stock of CBM, then CBM
shall grant to BIOGEN a right of first negotiation as follows:
(i) CBM shall give written notice to BIOGEN of its interest in
entering into such an arrangement with a THIRD PARTY and information as to the
nature of the proposed products or technology. BIOGEN shall have * after receipt
of such notice and information to decide whether or not it wishes to pursue
negotiations for such an arrangement and * after receipt of such notice and
information to submit a proposal to CBM. During such period,
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CBM shall provide BIOGEN with such additional information and data as may be
reasonably requested by BIOGEN to enable BIOGEN prepare its proposal.
(ii) In the event that BIOGEN declines to pursue negotiations or
does not reply to CBM's notice within * or submit a proposal within *, CBM shall
be free to negotiate an arrangement with a THIRD PARTY. In the event that BIOGEN
expresses interest in negotiations, * after submission of the proposal by
BIOGEN, CBM shall conduct negotiations on an exclusive basis with BIOGEN
diligently and in good faith to reach an agreement with BIOGEN. In the event
that the parties fail to negotiate a written agreement, CBM shall be free to
negotiate and conclude an agreement with a THIRD PARTY.
2.4 CBM agrees for the term of this Agreement not to make, use or sell in
the FIELD or to grant a license to a THIRD PARTY to make, use or sell in the
FIELD a product which is or includes a protein sharing at least * amino acid
sequence identity with the * of the OP-1 PROTEIN (a "* Homolog") or any * or *
variant form of such * Homolog or homodimeric, heterodimeric or chimeric form of
the * Homolog or any polyclonal or monoclonal antibodies to the * Homolog or DNA
or RNA encoding the * Homolog.
2.5 (a) CBM shall use commercially reasonable efforts (i) to restrict its
marketing and sales of any products which are or incorporate the OP-1 PROTEIN to
fields other than the FIELD and (ii) to ensure that all THIRD PARTIES to whom
CBM grants rights to make, use or sell products which are or incorporate the
OP-1 PROTEIN are restricted by contract (which CBM shall use reasonable efforts
to enforce) in their operations to marketing and selling such products in fields
other than the FIELD.
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(b) BIOGEN shall use commercially reasonable efforts (i) to restrict
its marketing and sales of PRODUCT to uses in the FIELD and (ii) to ensure that
all AFFILIATES and SUBLICENSEES to whom BIOGEN grants rights to make, use or
sell PRODUCTS are restricted in their operations to marketing and selling such
PRODUCTS in the FIELD, provided, however that, nothing contained herein shall
prevent BIOGEN or any of its AFFILIATES or SUBLICENSEES from including in its
marketing and sales materials and efforts references to inherent or coincidental
effects of PRODUCT not excluded from the FIELD under Section 1.16.
2.6 (a) To the extent CBM PATENT RIGHTS or CBM TECHNOLOGY licensed to
BIOGEN under this Agreement are rights which CBM has licensed from Stryker
Corporation, under the STRYKER LICENSE or licensed from Genetics Institute, Inc.
under the GI LICENSE, BIOGEN understands and agrees as follows:
(i) The rights licensed to BIOGEN by CBM are subject to the
terms, limitations, restrictions and obligations of the STRYKER LICENSE and the
GI LICENSE.
(ii) BIOGEN will comply with the terms, obligations,
limitations and restrictions of the STRYKER LICENSE and the GI LICENSE and
acknowledges that it has reviewed such terms, obligations, limitations and
restrictions.
2.7 BIOGEN shall notify CBM in the event that BIOGEN receives notice of
any claim that its manufacture, use or sale of PRODUCT infringes the Other Third
Party Patents. CBM shall, at its sole expense, (i) defend BIOGEN in any
infringement action under the Other Third Party Patents and indemnify and hold
BIOGEN harmless for any damages and expenses incurred by BIOGEN in connection
therewith, including back royalties and damages and charges incurred by BIOGEN
if injunctive relief is granted against BIOGEN, or (ii) obtain, at CBM's sole
expense, the right for BIOGEN to make, use and sell PRODUCTS under the Other
Third Party Patents.
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SECTION 3 - SMALL MOLECULE PRODUCTS OUTSIDE THE SCOPE OF THE RESEARCH
COLLABORATION.
3.1 (a) To the extent CBM determines, in its sole discretion, to conduct
research in order to develop small molecule products based on the OP-1 PROTEIN,
BIOGEN shall, subject to the terms set forth below, make funds available for
such research and development by a loan or loans to CBM up to the amount of
fifteen million dollars ($15,000,000) (the "Maximum Amount"). Such available
funds may be drawn upon by CBM over the first three (3) AGREEMENT YEARS in such
amounts and at such times as CBM may, in it sole discretion, determine up to the
Maximum Amount, provided that CBM shall not draw down in any AGREEMENT YEAR more
than $5 million plus any portion of the funds available for draw down during the
prior AGREEMENT YEARS which CBM did not draw down in such prior AGREEMENT YEARS.
CBM shall provide to BIOGEN a workplan and budget showing any use for which CBM
intends to borrow funds from BIOGEN under this Agreement prior to such use.
Subject to the other provisions of this Section, CBM may borrow funds before or
after any use shown on a workplan and budget. CBM shall give reasonable
consideration to BIOGEN's comments on any workplan and budget provided under
this Section. CBM shall not be required to obtain BIOGEN's approval for any
workplan or budget related to CBM's small molecule development program or
approval to implement any workplan or budget. In addition, on each occasion that
CBM draws upon funding available under this section, CBM shall provide BIOGEN
with or otherwise utilize the form of unsecured note set forth in Appendix C
attached hereto and made a part hereof (the "Note"). BIOGEN shall not be
obligated to make any loan to CBM under this Section at any time during which
(i) CBM is in default under the Note, (ii) CBM does not have cash and marketable
securities in the amount of at least $15,000,000, as shown on its most recent
publicly-filed financial statements or (iii) any proceeding, voluntary or
involuntary, in bankruptcy or insolvency, are pending against CBM, or a receiver
is operating for CBM with or
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without the consent of CBM. BIOGEN's obligation to make loans to CBM under this
Section shall terminate upon the earlier to occur of (i) the end of the third
AGREEMENT YEAR or (ii) termination or expiration of this Agreement.
(b) During such time as CBM is developing an OP-1 PROTEIN small
molecule product (provided BIOGEN has not breached its obligations under this
Section), but no later than sixty (60) days after CBM gives BIOGEN written
notice of * BIOGEN shall have an exclusive option to obtain an exclusive,
worldwide license in the FIELD to the family of compounds which includes such
small molecule product on terms to be negotiated by the parties hereto in good
faith; provided that (i) the royalty rate applicable to such product shall be *
of NET SALES and (ii) there shall be * in connection with the license for the
family of compounds which includes such small molecule product. In addition, in
the event BIOGEN exercises its option hereunder, BIOGEN shall (i) forgive the
lesser of ten million dollars ($10,000,000) or the principal amount outstanding
under the Note and (ii) in the event that CBM has repaid all or part of the
principal amount of the Note, pay to CBM an amount equal to the difference
between $10,000,000 and the sum of (x) the amount forgiven under clause (i) and
(y) the amount of principal repaid by CBM under the Note. In the event BIOGEN
shall exercise its option under this Section as to more than one family of
compounds, BIOGEN shall forgive or repay, as the case may be, in accordance with
the previous sentence, any incremental amounts borrowed under this Section by
CBM with respect to development of the additional family of compounds, provided
in no event shall the sum of the amounts forgiven and/or paid by BIOGEN under
this sentence and the amounts forgiven and/or paid by BIOGEN under the previous
sentence exceed $10 million.
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(c) At BIOGEN's request, CBM shall provide BIOGEN with annual
summary reviews of CBM's program to develop small molecule products. BIOGEN may
exercise its option hereunder using the same procedures as those described in
Paragraph 2.3(i) and (ii), provided that in the event that the parties fail to
negotiate a written agreement within the time period allotted, CBM shall be free
to negotiate and conclude an agreement with a THIRD PARTY but only on terms not
more favorable than the terms offered to BIOGEN without first offering BIOGEN
such more favorable terms. To the extent the funds are repayable, CBM shall
repay to BIOGEN the amounts borrowed and represented by the Note on or before
the end of five (5) years following the date the Note was first executed by CBM
hereunder. Such repayment shall be made at, CBM's sole option, either in cash,
or Common Stock, registered for re-sale, priced at its then fair market value,
as defined below, or if at the time of repayment there are NET SALES of PRODUCT,
as a deduction from the Percentage of GROSS PROFIT due CBM under Section 10 of
this Agreement, provided that (i) unless CBM otherwise requests, BIOGEN shall
not deduct in any year more than * of the Percentage of GROSS PROFIT otherwise
due to CBM for such year and (ii) interest shall continue to accrue under the
Note until all amounts under the Note have been repaid in full. Notwithstanding
anything herein to the contrary, BIOGEN may require that CBM repay the amounts
borrowed under the Note in cash rather than equity if the closing price of CBM's
Common Stock has been less than * per share on any of the thirty (30) trading
days preceding the repayment date or in cash and stock to the extent necessary
to ensure that receipt of CBM's shares will not cause BIOGEN's holdings in CBM
to equal more than * of CBM's total Common Stock outstanding after the issuance
of such shares to BIOGEN. For purposes of this Section 3.1 (c), "fair market
value" of CBM Common Stock shall mean: the lower of (i) the average of the
closing prices as reported by NASDAQ or by such other principal securities
exchange on which the shares are traded, as applicable, over the thirty (30)
trading days preceding the date on which payment is due
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or (ii) the closing price as reported by NASDAQ or such other exchange on the
date on which payment was due. Delivery of any shares of Common Stock shall take
place no later than five (5) days after the repayment date. Notwithstanding the
foregoing, in the event that at any time during the * following the date on
which repayment under the Note is due, CBM makes a public disclosure regarding
material adverse information which was known to CBM on the repayment date but
which had not been publicly disclosed and the trading price of CBM Common Stock
on the second full trading day after public release of the information is lower
than the per share "fair market value" of any shares issued to BIOGEN, as
determined above, the "fair market value" of the shares issued to BIOGEN shall
be retroactively adjusted based on such lower price and additional shares shall
be issued to BIOGEN to make up the shortfall.
3.2 All right, title and interest in and to inventions, discoveries and
know-how and all patents and other intellectual property rights related thereto
resulting from CBM's small molecule program shall be owned by CBM but shall be
subject to BIOGEN's option set forth in Paragraph 3.1(a).
SECTION 4 - SUPPLY OF PRECLINICAL AND CLINICAL MATERIAL.
4.1 In support of the PRODUCT DEVELOPMENT PROGRAM, during the term of this
Agreement, CBM shall supply BIOGEN with its worldwide requirements for
preclinical and clinical supplies of bulk PRODUCT provided that CBM's obligation
to supply and BIOGEN's obligation to obtain PRODUCT shall not apply to (i) a
PRODUCT used for phase III pivotal clinical trials or for cross-over or human
pharmacological studies for which it is desirable or necessary, for regulatory
approval purposes, to use material manufactured at the commercial production
facility or (ii) to any preclinical and clinical studies for any indications
after the first two indications in the FIELD if CBM is then using * or more of
the capacity of its New Hampshire facility as
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existing on the EFFECTIVE DATE. To the extent BIOGEN cannot obtain approval for
itself or an AFFILIATE or a contract manufacturer, subject to Section 4.13, or
SUBLICENSEE to qualify as a source of supply for phase III pivotal clinical
trials, CBM shall continue to supply bulk PRODUCT for clinical trials for a
transition period to be agreed upon by the parties.
4.2 As set forth in Paragraph 7.1, BIOGEN shall have primary
responsibility for process development. Upon BIOGEN's request, CBM shall
promptly transfer to BIOGEN, such BACKGROUND INFORMATION and CBM TECHNOLOGY
relative to OP-1 PROTEIN and manufacturing OP-1 PROTEIN as is reasonably
necessary to enable BIOGEN to perform process development work and to
manufacture supplies of the PRODUCT. BIOGEN shall reimburse CBM for the
reasonable costs of copying and shipping BACKGROUND INFORMATION under the
preceding sentence to BIOGEN, but no additional compensation will be required of
BIOGEN for such transfer other than as set forth in this Agreement. BIOGEN
agrees that it will use a mutually agreed upon number of CBM personnel in its
process development effort with the costs of such CBM personnel to be included
as part of the payments to support R&D set forth in Paragraph 8.3.
4.3 Subject to the other terms of this Section, CBM shall use
commercially reasonable efforts to supply to BIOGEN all of BIOGEN's requirements
for bulk PRODUCT for preclinical and clinical uses, not including phase III
pivotal clinical trials, in such quantities as BIOGEN shall from time to time
order and to deliver to BIOGEN such quantities of bulk PRODUCT in accordance
with a mutually agreeable supply schedule (which shall specify at a minimum
those supply dates which are designed to ensure that BIOGEN will have final
PRODUCT in advance of the scheduled commencement date of any clinical trial or
other work for which PRODUCT is needed) as set forth in Section 4.7. In the
event that CBM is unable to manufacture sufficient quantities of bulk PRODUCT to
meet its supply commitments to BIOGEN and Stryker Corporation and to satisfy its
own internal needs for OP-1 PROTEIN, CBM shall immediately notify BIOGEN of such
shortage,
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and, until such shortage has ended, shall allocate available supplies among
BIOGEN, Stryker Corporation and CBM (for its own internal use) in a manner which
is reasonable in light of the anticipated needs and the timing of the needs of
the parties. Notwithstanding anything to the contrary in this Agreement, CBM's
obligation to supply hereunder shall not require CBM to add additional capacity
above that which existed on the EFFECTIVE DATE or to use any outside source. In
the event BIOGEN's development plan requires quantities of bulk PRODUCT beyond
CBM's ability to supply or CBM is for any reason unable to deliver bulk PRODUCT
which conforms to Specifications, as defined below, and GMP, in the quantities
required ("Incremental Supply"), whether because of a shortage of bulk PRODUCT
or a lack of capacity or otherwise, but other than as the result of (i) a
failure of the production process prior to the first successful batch (defined
as a batch which has achieved anticipated yield and conforms to Specifications
run at scale after technology transfer), or (ii) a force majeure event of the
kind described in Section 14, provided such force majeure event does not extend
more than three (3) months, the parties will negotiate in good faith the use of
BIOGEN or other facilities to manufacture the Incremental Supply of PRODUCT.
4.4 BIOGEN shall reimburse CBM for bulk PRODUCT as follows:
(a) For the First Order, as defined in Section 4.7, of bulk PRODUCT
using the cell-line and process currently being utilized by CBM (the "*
Process"), BIOGEN shall reimburse CBM for PRODUCT under the terms of the
Manufacturing Agreement between the parties dated as of September 28, 1994 (the
"Manufacturing Agreement").
(b) For any bulk PRODUCT manufactured by CBM using the * Process
after the First Order, BIOGEN shall reimburse CBM at a per gram amount for bulk
PRODUCT delivered to and accepted by BIOGEN, such amount to be negotiated in
good faith by the parties upon completion of the First Order, using as a
reference CBM's FULLY ALLOCATED COST of bulk
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PRODUCT for the First Order. CBM shall provide to BIOGEN as soon as available
all relevant cost information regarding the First Order.
(c) For bulk PRODUCT manufacturing by CBM using a cell line and
process other than the * Process, BIOGEN shall reimburse CBM for CBM's FULLY
ALLOCATED COST for the actual quantity of bulk PRODUCT delivered to and accepted
by BIOGEN, provided that in determining its FULLY ALLOCATED COST for bulk
PRODUCT, CBM shall not include costs related to any failed batches after the
first successful batch run at scale following technology transfer, but instead
shall include * of the FULLY ALLOCATED COST of the delivered batch. CBM's FULLY
ALLOCATED COST shall include an allocated portion of * as the cost of capital on
any incremental capital investment designed to produce PRODUCT to be supplied
hereunder provided such capital investment is approved in advance by BIOGEN. The
reimbursement amount for each shipment or transfer of PRODUCT shall be paid
within thirty (30) days after the invoice date unless the shipment is rejected
during such thirty (30) day period. Payment shall be remitted in immediately
available funds in the invoice currency. Unless otherwise agreed between the
parties the invoice currency shall be U.S. Dollars.
4.5 Title to PRODUCT supplied hereunder, and risk of loss with respect to
such PRODUCT, shall pass to BIOGEN upon delivery of the PRODUCT to a carrier
designated by BIOGEN at CBM's manufacturing facility. Upon the passage of title,
BIOGEN shall be the owner of such PRODUCT for all purposes.
4.6 No provision on BIOGEN's order forms or CBM's order or invoice forms
which may purport to impose different conditions upon the parties hereto shall
modify the terms of this Agreement.
4.7 (a) CBM and BIOGEN agree that CBM shall extend its current OP-1
PROTEIN manufacturing campaign in 1997 for an additional * period (or for
such longer period
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<PAGE> 24
as BIOGEN may request) to manufacture bulk PRODUCT for BIOGEN's use under this
Agreement. The bulk PRODUCT resulting from the * manufacturing campaign (or such
longer period as BIOGEN may request) shall be delivered to BIOGEN as BIOGEN's
"First Order". CBM acknowledges and agrees that the * manufacturing campaign for
OP-1 PROTEIN under this Agreement shall be considered use by BIOGEN of CBM's
cell culture space under the terms of the Manufacturing Agreement.
(b) CBM agrees that BIOGEN's reimbursement to CBM for the First
Order and any related facility turn-around time and * of IQ and OQ work to be
performed on bacteria fermentation equipment at CBM's manufacturing facility
under the Manufacturing Agreement will be deemed full satisfaction by BIOGEN to
CBM of BIOGEN's obligation for 1997 under the Manufacturing Agreement. The
parties will extend the Manufacturing Agreement for an additional two (2) year
period with BIOGEN having the option but not the obligation to use CBM's
manufacturing facility for a mutually agreeable number of slots in one of the
two extension years. CBM's obligation under the Manufacturing Agreement to
purchase certain bacterial fermentation equipment owned by BIOGEN shall be
extended during the option period until the earlier of (i) the end of the year
in which BIOGEN exercises its option and uses its option capacity or (ii) the
end of the extension period.
(c) As soon as practical after the EFFECTIVE DATE, BIOGEN shall
provide to CBM a nonbinding forecast showing on a quarterly basis BIOGEN's
anticipated requirements for PRODUCT for the first and second AGREEMENT YEARS.
Commencing in 1997, BIOGEN shall, at least thirty (30) days prior to each
CALENDAR QUARTER, provide to CBM a forecast showing BIOGEN's PRODUCT needs for
the corresponding CALENDAR QUARTER and three following CALENDAR QUARTERS of the
next year. Within ten (10) days of receipt of the forecast, CBM shall provide
BIOGEN with a proposed production schedule and the parties shall meet to
determine
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the number of batches and start and stop dates for the necessary production
campaigns. BIOGEN may cancel a scheduled campaign, without penalty, up to nine
(9) months prior to scheduled commencement date of the campaign. In the event
BIOGEN cancels a campaign after nine (9) months prior to the schedule
commencement date, BIOGEN shall pay to CBM the following percentage of CBM's
FULLY ALLOCATED COSTS attributable to the scheduled production run:
Notice of Cancellation Percentage of Costs
---------------------- -------------------
*
In the event there is unused or excess capacity at CBM during such period
as CBM is otherwise obligated to manufacture bulk PRODUCT for BIOGEN, CBM shall
provide written notice to BIOGEN and shall give BIOGEN the first option to have
CBM manufacture additional bulk PRODUCT for BIOGEN under this Agreement using
such unused or excess capacity.
4.8 PRODUCT supplied by CBM to BIOGEN under this Agreement shall conform
to the specifications attached hereto as Appendix D (the "Specifications"). The
parties acknowledge that the Specifications are expected to be amended in light
of manufacturing experiences. Amended Specifications shall be attached to this
Agreement upon signature by each of the parties. CBM shall manufacture PRODUCT
in accordance with GMP and shall use and maintain validated processes,
facilities and documentation in the manufacture of PRODUCT which comply with GMP
as generally applied in the pharmaceutical industry to the relevant stage of
development of PRODUCT. CBM shall make available for inspection by BIOGEN all
documentation related to validation and GMP compliance. In manufacturing
PRODUCT, CBM shall comply in all material respects with all
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<PAGE> 26
applicable laws, regulations and professional standards. CBM shall package
PRODUCT for shipment to BIOGEN in accordance with standard operating procedures
approved by BIOGEN.
4.9 CBM shall provide BIOGEN with the test results, certificates of
analysis, batch records and other necessary documents to enable BIOGEN to
determine whether PRODUCT meets the Specifications and has been manufactured in
accordance with GMP, as generally applied in the pharmaceutical industry to the
relevant stage of development of PRODUCT. BIOGEN shall have thirty (30) days
from receipt of such documentation to examine such documentation and to
determine if the PRODUCT meets the Specifications. BIOGEN shall promptly notify
CBM of any defective PRODUCT and shall return to CBM or otherwise dispose of any
defective shipments in accordance with CBM instructions and at CBM's cost and
expense. Except as set forth in Section 12, BIOGEN's sole and exclusive remedy
for receipt of a defective shipment shall be for CBM, at BIOGEN's request, (i)
to give BIOGEN a full credit for any defective shipments or (ii) to provide
replacement PRODUCT, at no additional cost to BIOGEN, within five (5) days if
CBM has PRODUCT on hand or otherwise within ninety (90) days, of receipt of
BIOGEN's notice of defect.
4.10 BIOGEN shall have the right to conduct inspections, audits and
investigations of CBM's facilities, equipment, record-keeping procedures and
records from time to time upon reasonable notice. CBM shall provide reasonable
cooperation in any investigations conducted by BIOGEN related to PRODUCT
manufactured at CBM. BIOGEN shall have the right to observe during the
manufacture of PRODUCT to be supplied to BIOGEN under this Agreement. CBM shall
provide prompt notice to BIOGEN of any inspections or investigations by the FDA
or other regulatory authorities directed towards PRODUCT or any facilities or
equipment used in the manufacturing of PRODUCT and shall provide BIOGEN with
copies of all correspondence and reports related to any such inspection or
investigation as soon as practical after they become available to CBM.
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4.11 In utilizing the PRODUCT in the TERRITORY, BIOGEN will comply with
all provisions of the laws applicable in the TERRITORY in all material respects.
4.12 CBM warrants that PRODUCT at the time of delivery to BIOGEN shall
meet the Specifications. EXCEPT AS SET FORTH IN THIS SECTION AND IN SECTION 4.8,
CBM MAKES NO OTHER WARRANTY HEREIN, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE SUPPLY OF PRODUCT HEREUNDER.
4.13 (a) BIOGEN has the right to manufacture PRODUCT (i) for Phase III
pivotal clinical trials, (ii) for Phase I and Phase II trials for any indication
after the first two indications in the event CBM is then utilizing * of the
capacity at its New Hampshire facility as existing on the EFFECTIVE DATE, (iii)
for any cross-over or human pharmacological studies for which it is necessary or
desirable, for regulatory approval purposes, to use material manufactured at the
commercial production facility and (iv) for commercial supply worldwide. In the
event BIOGEN decides to engage a contract manufacturer to manufacture PRODUCT,
BIOGEN shall use CBM to perform the contract manufacturing services for BIOGEN,
unless BIOGEN determines, in its reasonable discretion, that CBM cannot
manufacture PRODUCT on competitive terms, in the required amounts and meeting
the desired quality standards. In addition, at any such time as BIOGEN proposes
to build a new facility or add to an existing facility in order to expand
manufacturing capacity for PRODUCT, BIOGEN shall consider in good faith using
CBM as a contract manufacturer to provide the additional capacity. BIOGEN shall
consider in good faith any request by CBM for BIOGEN to supply OP-1 PROTEIN to
CBM on mutually agreeable terms under a supply agreement to be negotiated by the
parties at such time.
(b) BIOGEN agrees that, during the term of this Agreement, BIOGEN
shall use CBM as a contract manufacturer to manufacture Phase I or Phase II
product for BIOGEN (which may be bulk PRODUCT for which BIOGEN is not otherwise
obligated to use CBM under this
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Agreement or another product) for a period of time which is substantially
equivalent to the number of months utilized by BIOGEN to manufacture bulk
PRODUCT for treatment of patients at Phase III clinical trial sites located in
Europe and Japan, provided that (i) CBM has open capacity at its facility when
BIOGEN needs the capacity, and (ii) CBM is capable of manufacturing product in
the quantities and of the quality required by BIOGEN. BIOGEN shall have the
right to make the capacity which it is obligated to use under this Section
available to a third party. The terms of the contract manufacturing relationship
between the parties shall be the subject of a separate written agreement to be
negotiated in good faith by the parties at the time manufacturing is required by
BIOGEN.
SECTION 5 - DUE DILIGENCE.
5.1 (a) BIOGEN shall initiate and use commercially reasonable efforts to
develop, and register PRODUCTS and continue to use commercially reasonable
efforts to manufacture, market and sell PRODUCTS in each MAJOR MARKET in the
TERRITORY.
(b) In addition to its obligations under Paragraph 5.1(a), BIOGEN
shall use "diligent efforts", as defined below, to meet the following milestones
with respect to PRODUCTS in Japan on the dates set forth herein:
*
The parties hereby acknowledge that the marketing plan for Japan received
by CBM from BIOGEN on * (the "Japan Plan") will serve as a general guide for
BIOGEN to
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develop, register and sell PRODUCTS in Japan. CBM acknowledges that it has
received and reviewed the Japan Plan. During the term of this Agreement, BIOGEN
shall provide CBM with quarterly updates of BIOGEN's PRODUCT development and
marketing activities in Japan.
For purposes of this Section, "diligent efforts" shall mean those efforts
which are consistent with the efforts that would be generally applied by *.
Notwithstanding anything herein to the contrary, in no event shall BIOGEN be
deemed not to have used "diligent efforts" in Japan to the extent any delay in
meeting any of the milestones set forth above for Japan is attributable to the
failure of CBM, in any material respect, to fulfill its obligations to supply
PRODUCT for testing and clinical uses in Japan under this Agreement or any delay
by CBM in meeting such obligations.
If CBM does not agree that BIOGEN has applied "diligent efforts" to reach
a milestone in Japan, then CBM shall notify BIOGEN. If BIOGEN does not agree
with CBM's assessment, the parties shall enter into arbitration under the terms
of this Section. Within * days of delivery of notice from CBM under this
Section, each party shall select one expert in the field of Japanese drug
development to serve on an arbitration panel to decide the issue. The expert
selected by a party shall not be a past or present employee of or consultant to
such party or of any AFFILIATE or SUBLICENSEE of such party. The members of the
panel selected by the parties shall, within * days of their selection, select a
third member to serve on the panel. If the members of the panel selected by the
parties cannot, within * days of their selection, agree on a third member, the
parties shall request that the American Arbitration Association ("AAA") select
the third member who shall not be a past or present employee of or consultant to
either party or of any AFFILIATE or SUBLICENSEE of either party. Each party
shall then have * days to submit to the panel and to the other party a written
response presenting such party's position on the issue. The panel
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shall, within * days after receipt of both parties responses, hold a joint
meeting on the issue at which each party will have an opportunity to make a
presentation and to respond to the other party's presentation. Within * days of
the conclusion of the meeting, the panel shall render its decision in writing.
The decision of the panel shall be binding on the parties. Each party shall bear
its own costs in connection with the arbitration proceedings, including the
costs of the panel member selected by it. The costs of the third panel member
will be shared equally. The arbitration shall be held in the United States and
conducted under the rules of the AAA, except as otherwise expressly provided in
this Section .
(c) In the event that BIOGEN fails to meet any of its obligations
under Section 5.1(a) as to a MAJOR MARKET, including Japan, or Section 5.1(b) as
to Japan or advises CBM that it does not have a significant interest in
developing, registering, manufacturing, marketing or selling PRODUCT in a MAJOR
MARKET or does not intend to develop, register, manufacture, market or sell
PRODUCT in a MAJOR MARKET, CBM, as its sole remedy, shall have the right and
option to terminate this Agreement as to the MAJOR MARKET SEGMENT (but not as to
the entire Agreement or any other MAJOR MARKET SEGMENT) which includes such
MAJOR MARKET on sixty (60) days prior written notice to BIOGEN. In the event
that BIOGEN advises CBM that BIOGEN does not intend to develop, register,
manufacture, market or sell PRODUCT in a particular country outside the MAJOR
MARKETS and BIOGEN's reasons for choosing not to enter such country are not
related to the limited size of the potential market, potential parallel import
or pricing issues, regulatory or patent obstacles in such country or other
difficulties or limitations outside of BIOGEN's control, CBM, as its sole
remedy, shall have the right and option to terminate this Agreement as to such
country on sixty (60) days prior written notice to BIOGEN.
(d) BIOGEN shall provide written reports to CBM on June 30th and
December 31st of each year concerning the efforts being made in accordance with
this Section 5.1 with respect
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to PRODUCTS in the TERRITORY. BIOGEN shall provide CBM with any additional
information reasonably requested by CBM concerning the status of BIOGEN's
development efforts.
SECTION 6 - CONFIDENTIALITY, INFORMATION AND ADVERSE EXPERIENCES.
6.1 During the term of this Agreement, it is contemplated that each party
may disclose to the other, proprietary and confidential technology, inventions,
technical information, material, reagents, biological materials and the like
which are owned or controlled by the party providing such information or which
that party is obligated to maintain in confidence ("Confidential Information").
Each party shall have the right to refuse to accept the other party's
Confidential Information. Each party agrees not to disclose and to maintain the
Confidential Information of the other party in strict confidence, to cause all
of its agents, representatives and employees to maintain the disclosing party's
Confidential Information in confidence and not to disclose any such Confidential
Information to a third party without the prior written consent of the disclosing
party and not to use such Confidential Information for any purpose other than as
licensed under this Agreement.
6.2 The obligations of confidentiality will not apply to information
which:
(i) was known to the receiving party or generally known to the
public prior to its disclosure hereunder through no fault of the receiving party
or any agent, representative or employee thereof; or
(ii) subsequently becomes known to the public by some means other
than a breach of this Agreement, including publication and/or laying open to
inspection of any patent applications or patents;
(iii) is subsequently disclosed to the receiving party by a third
party having a lawful right to make such disclosure and who is not under an
obligation of confidentiality to the disclosing party;
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(iv) is required by law, rule, regulation or bona fide legal process
to be disclosed, provided that the receiving party takes all reasonable steps to
restrict and maintain confidentiality of such disclosure and provides reasonable
notice to the disclosing party; or
(v) is approved for release by the parties.
6.3 The obligations of Section 6.1 notwithstanding, BIOGEN may disclose
the Confidential Information of CBM licensed to BIOGEN hereunder to THIRD
PARTIES who (i) need to know the same in order to secure regulatory approval for
the sale of PRODUCT, (ii) who need to know the same in order to work towards the
commercial development of PRODUCT or to manufacture PRODUCT, or (iii) who are
approved by CBM, provided that such parties, other than regulatory authorities,
are bound by obligations of confidentiality and non-use at least as stringent as
those set forth herein.
6.4 CBM shall provide to BIOGEN, or if required to the applicable
regulatory authority, all documents and information requested by the regulatory
authority or reasonably requested by BIOGEN in support of BIOGEN's regulatory
submissions, including information related to manufacturing as specified in
Section 4. Copies of all documents provided directly to a regulatory authority
shall be provided to BIOGEN in advance, if practicable, or otherwise within two
(2) days of delivery to the regulatory authority. In addition, CBM shall provide
to BIOGEN any information related to PRODUCT reasonably required in support of
BIOGEN's applications to patent offices and such governmental offices as
regulate the price of PRODUCT as well as any information relating to PRODUCT
reasonably required to support a legal action by BIOGEN against a THIRD PARTY.
6.5 Each party will keep the other informed of all reports of serious
adverse experiences ("AE's") coming to its knowledge and possibly related to
PRODUCT. All reports of serious AE's shall be promptly forwarded to the other
party.
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SECTION 7 - GOVERNANCE.
7.1 Oversight of the Strategic Alliance between the parties
(a) As part of the strategic alliance between the parties under this
Agreement and subject to the terms of this Agreement, (i) BIOGEN shall have the
primary responsibility in areas of process development, product development,
clinical, regulatory, commercial manufacturing, sales and marketing, and (ii)
CBM shall have primary responsibility in the areas of discovery research and
pre-GLP research, subject to funding limitations under Section 8.3, and
preclinical and clinical supplies of PRODUCT.
(b) Overall direction and strategy of the parties' strategic
alliance under this Agreement will be provided by a Senior Board consisting of
the Presidents of each party (the "Board"). The Board will meet not less than
two (2) times a year during the term of this Agreement.
(c) The parties shall also establish two (2) committees under this
Agreement which will be monitored and supervised by the Board. These committees
shall be:
(i) the Research and Development Committee; and
(ii) the Clinical Advisory Committee.
7.2 Research and Development Committee. BIOGEN shall use commercially
reasonable efforts to develop OP-1 PROTEIN for use in the FIELD (the "PRODUCT
DEVELOPMENT PROGRAM"). BIOGEN shall use commercially reasonable efforts to
concurrently develop OP-1 PROTEIN for the treatment of acute and chronic renal
failure. A Research and Development Committee (the "R&D Committee") shall be
established by the parties to oversee and monitor the PRODUCT DEVELOPMENT
PROGRAM, including research, process development, product development, clinical,
regulatory and production of preclinical and clinical supplies of PRODUCTS. The
day-to-day activities of the R&D COLLABORATION, described hereinafter in Section
8, will be overseen and monitored by the R&D Committee as described herein.
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(a) Membership. Within ten (10) days of the date hereof, CBM and
BIOGEN shall each appoint (2) persons (or such other number of persons as the
parties may determine) to serve on the R&D Committee. Such representatives will
be qualified, by reason of background and experience, to assess the scientific
progress of each activity. Each party will have the right to change its
representation on the R & D Committee upon written notice sent to the other
party.
(b) Chair. The R&D Committee chair shall alternate between the
parties each AGREEMENT YEAR during the PRODUCT DEVELOPMENT PROGRAM.
(c) Responsibilities. The R&D Committee will have authority to:
(i) review and approve the RESEARCH PLAN for each AGREEMENT
YEAR prepared by CBM;
(ii) make recommendations to the Board regarding the
performance of the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION and the
conduct of the R&D pursuant thereto, and monitor performance thereunder;
(iii) modify the R&D COLLABORATION
(iv) review any and all proposed publication[s] or
communication[s] relating to the PRODUCT DEVELOPMENT PROGRAM and R&D
COLLABORATION and the results therefrom, in accordance with the procedure set
forth in Section 8;
(d) Meetings. The R&D Committee will meet not less than four (4)
times a year during the term of the PRODUCT DEVELOPMENT PROGRAM, at such dates
and times as agreed to by the parties. Meetings in person will alternate between
BIOGEN's premises and CBM's premises or such other place as may be mutually
agreed upon. At such meetings, the Committee will discuss the PRODUCT
DEVELOPMENT PROGRAM and R&D COLLABORATION and the performance by each party
under the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION, evaluate the
results thereof and set priorities therefor. All decisions made or actions taken
by the
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Committee will be made unanimously by its members with the CBM members
cumulatively having one vote and the BIOGEN members cumulatively having one
vote. The Committee will prepare written minutes of each meeting and a written
record of all decisions whether made at a formal meeting or not. A quorum for a
meeting shall require at least one CBM member and at least one BIOGEN member.
7.3 Clinical Advisory Committee. A Clinical Advisory Committee shall be
established by the parties consisting of up to three (3) outside scientists and
all of the members of the R&D Committee. This outside scientists on the Clinical
Advisory Committee shall be selected by the R&D Committee. The Clinical Advisory
Committee shall meet two (2) times each year to advise the R&D Committee with
respect to the PRODUCT DEVELOPMENT PROGRAM and R&D COLLABORATION. BIOGEN shall
enter into agreements with and pay the fees of the outside members of the
Clinical Advisory Committee.
7.4 Committee Deadlock. If there is an issue not involving a major
strategic decision on which any of the committees cannot reach agreement because
of a Deadlock (as hereinafter defined), such matter will be resolved, in good
faith, by the party having primary responsibility for the area in question, as
set forth in Section 7.1. If there is an issue involving a major strategic
decision on which any of the committees cannot reach agreement because of a
Deadlock, such matter will be submitted to the Board. In the event agreement
cannot be reached at the Board level, the Deadlock shall be resolved, in good
faith, by the party having primary responsibility for the area in question as
set forth in Section 7.1.
For the purpose of this Section, "Deadlock" will mean, (i) with respect
to any matter considered and voted upon by the committee, that one party votes
in favor of such matter and the other party does not vote in favor of such
matter or (ii) a quorum cannot be established for the Committee to vote on a
matter.
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7.5 Attendance by CBM at BIOGEN Project Meetings. A representative of CBM
shall have the right to attend all meetings of those BIOGEN project teams
devoted solely to the marketing, sale and commercialization of PRODUCTS and
those portions of any other internal BIOGEN meetings that are devoted solely to
the review of the commercialization of PRODUCTS, other than those meetings at
which BIOGEN intends to discuss sensitive information related to BIOGEN's
business or strategies. BIOGEN acknowledges that CBM representatives will have
access to sales forecasts as part of their attendance at BIOGEN meetings.
SECTION 8 - R&D COLLABORATION
8.1 Object. As soon as practical after the EFFECTIVE DATE, as part of the
PRODUCT DEVELOPMENT PROGRAM, a research and development collaboration shall be
established by the parties hereto to conduct R&D and other development work, as
specified herein (the "R&D COLLABORATION"). CBM agrees to conduct R&D pursuant
to the RESEARCH PLAN and any development work requested by BIOGEN and BIOGEN
agrees to support and fund such R&D at CBM in accordance with the terms and
conditions set forth below. In addition, BIOGEN agrees to fund and conduct its
own research and development efforts as part of the PRODUCT DEVELOPMENT PROGRAM.
8.2 (a) Conduct of the R&D. The R&D will be conducted at such sites
approved by the R&D Committee. CBM will use commercially reasonable efforts to
complete R&D in accordance with the agreed-upon schedule, but in no event shall
CBM be obligated to provide research funding or perform research and development
work beyond that funded by BIOGEN. The RESEARCH PLAN for the first AGREEMENT
YEAR shall be agreed upon by the parties within one (1) month of the EFFECTIVE
DATE. The RESEARCH PLAN for each subsequent AGREEMENT YEAR
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shall be agreed upon by the parties at least ninety (90) days prior to the
beginning of such AGREEMENT YEAR.
(b) Exchange of Information To further the efforts of the parties
under the R&D COLLABORATION, the parties shall, within thirty (30) days of the
EFFECTIVE DATE, exchange BACKGROUND INFORMATION. A disclosing party's BACKGROUND
INFORMATION shall be treated as Confidential Information of the disclosing party
under Section 6, subject to the licenses expressly granted to the receiving
party under this Agreement, and shall be used only for purposes contemplated
under this Agreement. BIOGEN shall keep CBM reasonably informed of its process
development efforts in connection with the PRODUCT DEVELOPMENT PROGRAM.
(c) Visitation. For the purpose of facilitating the parties
understanding of the research and development activities conducted hereunder,
each party will permit duly authorized employees or representatives of the other
to visit its facilities where the R&D activities are conducted, at reasonable
times and with reasonable notice.
8.3 Financial Conditions.
(a) Support Commitment. During the term of the R&D COLLABORATION, as
specified in Section 8.6, BIOGEN will pay to CBM the following amounts in the
calendar years as set forth below to support R & D at CBM and the number of
FTE's so indicated:
(i) four million dollars ($4,000,000) for the first AGREEMENT
YEAR to support *; and
(ii) three and one-half million dollars ($3,500,000) for the
second AGREEMENT YEAR to support *.
(iii) three million dollars ($3,000,000) for the third
AGREEMENT YEAR to support *.
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* of the funding amount each AGREEMENT YEAR shall be used to support
development work as directed by BIOGEN under the R&D COLLABORATION. In the event
that in any AGREEMENT YEAR, BIOGEN has not requested CBM to perform a level of
development work sufficient to fully utilize the allocated development work
funding for such AGREEMENT YEAR then CBM shall have the right to use unused
development work funding for discovery or pre-GLP R&D in that AGREEMENT YEAR or
in a subsequent AGREEMENT YEAR, provided that in the event that the R&D
COLLABORATION or this Agreement terminates (other than as a result of a breach
by CBM) prior to the expenditure of any such funds by CBM, CBM shall have the
right to retain and use such funds for any purpose. CBM agrees that no part of
the R&D funding provided by BIOGEN shall be used for CBM's small molecule
development program.
(b) Commitment Level BIOGEN's total commitment to support the R&D
set forth above for the R&D COLLABORATION will be ten and one-half million
dollars ($10,500,000) and includes the costs of any arrangements with THIRD
PARTIES entered into by CBM.
(c) Payment Schedule. Funding for the R&D COLLABORATION will be made
by BIOGEN to CBM in United States dollars for each calendar year during the term
of the R&D COLLABORATION, payable *, with the first payment for the FIRST
AGREEMENT YEAR to be made on the later of the EFFECTIVE DATE or January 1, 1997.
In the event CBM has not used all of the funds allocated to discovery and
pre-GLP research under the R&D COLLABORATION in the FIRST AGREEMENT YEAR, CBM
may use such funds, up to *, for R&D in the next AGREEMENT YEAR. Except as set
forth in the preceding sentence and in Section 8.3 (a), CBM shall not carry-over
funding from one AGREEMENT YEAR to the next, and all funding for an AGREEMENT
YEAR which has not been used by CBM for R&D in such year shall be promptly
refunded to BIOGEN.
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8.4 Budget, Allocation and Audits. The R&D Committee will establish an
annual budget for R&D and prepare semi-annual financial reports of actual and
budgeted expenditures based on the use of FTE's and monies spent on THIRD PARTY
R&D. BIOGEN shall have the right annually to have an independent certified
public accountant review CBM's accounting records for the sole purpose of
verifying the use of FTE's and monies spent on THIRD PARTY R&D in connection
with the R&D COLLABORATION. The costs of any such audit shall be borne by BIOGEN
unless CBM has been determined through the audit to be in material breach of
this Agreement in which case the cost of the audit shall be borne by CBM.
8.5 Title to Equipment. CBM will retain title to any equipment purchased
with funds provided by BIOGEN under this Agreement, if such purchase is mutually
agreed upon as part of the budget.
8.6 Term and termination of the Research Collaboration. The term of the
R&D COLLABORATION will be the first three (3) AGREEMENT YEARS, but may be
extended by mutual agreement of the parties for an additional two (2) AGREEMENT
YEARS with funding for such years to be determined by mutual agreement of the
parties hereto. BIOGEN shall be entitled to terminate the R&D COLLABORATION and
cease funding thereof only in the event of a breach by CBM of any of CBM's
material obligations in the R&D COLLABORATION following written notice of such
breach to CBM. If such breach is not cured within thirty (30) days after written
notice is given by BIOGEN to CBM specifying the breach, BIOGEN may terminate the
R&D COLLABORATION without terminating the entire Agreement and may cease funding
hereunder forthwith upon written notice to CBM after expiration of such thirty
(30) day period. In the event, BIOGEN terminates the R&D COLLABORATION, CBM will
reimburse to BIOGEN any amounts paid by BIOGEN in excess of CBM's actual and
non-cancelable expenditures.
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8.7 Third Party Support CBM shall not apply any of the funding provided by
BIOGEN under this Agreement towards R&D to be conducted in whole or in part by a
THIRD PARTY unless BIOGEN has approved the form of agreement with such THIRD
PARTY.
8.8 Confidentiality. In order to facilitate the operation of the R&D
COLLABORATION, either party may disclose confidential or proprietary information
owned or controlled by it to the other. It is hereby understood and agreed that
such information shall be deemed "Confidential Information" and treated as such
in accordance with Section 5 hereof.
8.9 Results of the R&D COLLABORATION.
(a) All right, title and interest in and to any RESEARCH
INFORMATION, RESEARCH INVENTIONS and RESEARCH MATERIAL (the "Results"), and any
RESEARCH PATENTS based thereon, made solely by employees or others acting on
behalf of CBM shall be owned solely by CBM ("CBM Results"), subject to the
licenses granted to BIOGEN under Section 2. All right, title and interest in and
to any invention, information or materials made solely by employees or others
acting on behalf of BIOGEN in connection with the PRODUCT DEVELOPMENT PROGRAM
and any patents thereon shall be owned solely by BIOGEN ("BIOGEN Results"),
subject to the licenses granted to CBM under Section 2 to the extent that BIOGEN
Results constitute BIOGEN OP-1 TECHNOLOGY or BIOGEN OP-1 PATENTS.
(b) The Parties recognize that, as a result of the R&D COLLABORATION
between BIOGEN and CBM hereunder, certain Results may be deemed to be joint
inventions, in accordance with applicable law, as both: (i) one or more
employees or agents of CBM or any other persons obliged to assign such Results
to CBM, and (ii) one or more employees or agents of BIOGEN or any other persons
obliged to assign such Results to BIOGEN, are joint inventors of such Results
("Joint Results"). Joint Results shall be jointly owned by the parties subject
to the licenses granted under Section 2.
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(c) There will be no publication of the Results by CBM or BIOGEN, or
any employee of CBM or BIOGEN unless the R&D Committee has reviewed the proposed
scientific publication concerning the Results and each party has consented to
the publication. A party will, upon request of the other party, delay
publication to enable patent rights to be perfected.
8.10 BIOGEN Activity. BIOGEN will, at its sole expense, conduct all
pre-clinical, clinical, development and regulatory work under the PRODUCT
DEVELOPMENT PROGRAM not conducted by CBM as part of the R&D COLLABORATION in
order to obtain registration in the TERRITORY for the PRODUCTS being developed
in the R&D COLLABORATION. The work to be performed by BIOGEN will be outlined in
a development plan presented to the R&D Committee, with the R&D Committee
providing, among other things, input on protocol design and development and
registration strategies. BIOGEN shall keep the R&D Committee regularly informed
and consult with the R&D Committee no less frequently than quarterly with
respect to BIOGEN's activities relative to PRODUCTS in connection with the
PRODUCT DEVELOPMENT PROGRAM.
SECTION 9 - PATENTS.
9.1 (a) CBM shall promptly advise BIOGEN, in writing, of each RESEARCH
INVENTION arising from the R&D COLLABORATION. Representatives of CBM and BIOGEN
shall then discuss whether a patent application or applications pertaining to
such RESEARCH INVENTION should be filed and in which countries. The titles,
serial numbers and other identifying data of patent applications claiming a
RESEARCH INVENTION to which BIOGEN is granted rights hereunder and filed after
the EFFECTIVE DATE by mutual agreement of and BIOGEN, shall be added to Appendix
A and shall become CBM PATENT RIGHTS. In the event CBM is not interested in
filing a patent application on a RESEARCH INVENTION, then CBM shall assign all
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of its right, title and interest in the RESEARCH INVENTION and any patents
thereon to BIOGEN, and CBM shall have no further right or license thereto.
(b) Subject to Section 9.1 (c) as to Joint Results, BIOGEN shall pay
* of all "Patent Costs", as defined below, related to those CBM PATENT RIGHTS
identified" on Schedule 1 of Appendix A. Notwithstanding the foregoing, BIOGEN
shall pay * of the Patents Costs related to any of the CBM PATENT RIGHTS
identified on Schedule 2 of Appendix A which pertain solely to the FIELD. All
other costs for filing, prosecution, issuance and maintenance of CBM PATENT
RIGHTS shall be borne by CBM. The term "Patent Costs" shall mean all reasonable
costs of CBM incurred after the EFFECTIVE DATE for the filing, prosecution,
issuance, and maintenance of the identified CBM PATENT RIGHTS, but not including
the costs of any opposition or interference proceedings.
(c) CBM shall file, prosecute and maintain patent applications and
patents in the TERRITORY relating to CBM PATENT RIGHTS and those RESEARCH
INVENTIONS, RESEARCH PATENTS RIGHTS and other inventions made solely by
employees or others acting on behalf of CBM through patent counsel selected by
CBM and reasonably acceptable to BIOGEN, who shall consult with and keep BIOGEN
advised with respect thereto. In the case of Joint Results, the parties will
determine which party will be responsible for filing, prosecuting and
maintaining patent applications and patents based on which party made the
greater contribution to the joint inventions but in all cases the cost and
expense of such filing, prosecuting and maintaining patents applications and
patents shall be paid for jointly by the parties, subject to paragraph (a) above
and paragraph (d) below.
(d) Notwithstanding anything in this Section 9.1 to the contrary,
BIOGEN may, at its discretion, elect to discontinue financial support of any
patent or patent application for which it is providing support under this
Agreement, provided, however, that BIOGEN will notify CBM of
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its intention at least ninety (90) days prior to taking such action. In any
country in which BIOGEN has elected to discontinue its support of any patent
application or patent, CBM, upon receiving notice, may elect at its own expense
to assume all financial responsibility for the prosecution or maintenance of
such patent application or patent. In such event the license of the patent or
patent application will be deemed to have expired with respect to that country
upon CBM's receiving notice of BIOGEN's decision. If any such patent or patent
application as to which BIOGEN has elected to discontinue its support is based
upon a Joint Result, then BIOGEN shall promptly thereafter assign all of its
rights and interest in any such patent or patent application to CBM without
further cost or obligation of CBM to BIOGEN.
9.2 With respect to any CBM PATENT RIGHTS, each patent application, office
action, response to office action, request for terminal disclaimer, and request
for reissue or reexamination of any patent issuing from such application shall
be provided to BIOGEN sufficiently prior to the filing of such application,
response or request to allow for review and comment by BIOGEN. However, CBM
shall have the right to take any action that in its judgement is necessary to
preserve such CBM PATENT RIGHTS. Notwithstanding anything herein to the
contrary, CBM shall not abandon a CBM PATENT RIGHT or allow a CBM PATENT RIGHT
to lapse, other than as part of a commercially reasonable patent strategy
designed to increase the value of CBM PATENT RIGHTS licensed to BIOGEN under
this Agreement, without first giving BIOGEN notice of such intention at least
sixty (60) days prior to the date on which such CBM PATENT RIGHT will lapse or
become abandoned. BIOGEN shall have the right to assume the prosecution,
maintenance and defense of any CBM PATENT RIGHT which CBM intends to abandon. In
the event BIOGEN assumes the prosecution, maintenance and defense of any CBM
PATENT RIGHT under the foregoing sentence, the costs incurred by BIOGEN in
connection therewith shall be added to COST
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OF GOODS under this Agreement, but not for purposes of determining COST OF GOODS
(as a percentage of NET SALES) under Appendix E.
9.3 (a) If any of the CBM PATENT RIGHTS under which BIOGEN is licensed
hereunder is infringed by a THIRD PARTY, BIOGEN shall have the right and option
but not the obligation to bring an action for infringement, at its sole expense,
against such third party in the name of CBM and/or in the name of BIOGEN, and to
join CBM as a party plaintiff if required or if it would promote the success of
the litigation. Each party shall promptly notify the other party of any such
infringement. BIOGEN shall keep CBM informed as to the prosecution of any action
for such infringement. No settlement, consent judgment or other voluntary final
disposition of the suit which adversely affects CBM PATENT RIGHTS may be entered
into without the consent of CBM, which consent shall not unreasonably be
withheld.
(b) In the event that BIOGEN shall undertake the enforcement and/or
defense of the CBM PATENT RIGHTS by litigation any recovery of damages by BIOGEN
for any such suit shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of BIOGEN relating to the suit. The balance remaining
from any such recovery shall be treated as NET SALES in the period received.
(c) In the event that BIOGEN elects not to pursue an action for
infringement, upon written notice to CBM by BIOGEN that an unlicensed third
party is an infringer of CBM PATENT RIGHTS licensed to BIOGEN, CBM shall have
the right and option, but not the obligation at its cost and expense to initiate
infringement litigation and to retain any recovered damages.
(d) In any infringement suit either party may institute to enforce
the CBM PATENT RIGHTS pursuant to this Agreement, the other party hereto shall,
at the request of the party initiating such suit, cooperate in all respects and,
to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens,
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and the like. All reasonable out-of-pocket costs incurred in connection with
rendering cooperation requested hereunder shall be paid by the party requesting
cooperation.
SECTION 10 - COMPENSATION.
10.1 (a) BIOGEN shall pay to CBM a percentage of GROSS PROFIT from the
sale of PRODUCTS sold by BIOGEN, its AFFILIATES and SUBLICENSEES in the
TERRITORY ("Percentage of GROSS PROFIT") as set forth in Appendix D attached
hereto and made a part hereof; provided that, if the COST OF GOODS as a
percentage of NET SALES, as shown on Appendix E, is greater than *, the
Percentage of GROSS PROFIT paid to CBM shall not be less than the equivalent of
a royalty of * on NET SALES. In the event that BIOGEN is required to pay
royalties in any country to a party who is not an AFFILIATE or SUBLICENSEE of
BIOGEN for PRODUCT for which compensation is also due hereunder to CBM pursuant
to this Section 10.1 under a license which is reasonably required for the
manufacture, marketing, importation, use or sale of OP-1 PROTEIN contained in
PRODUCT (such royalties to such party are hereinafter "Other Payments"), then
the COST OF GOODS shall be increased in each payment period by *.
(b) If the manufacture, use or sale of PRODUCT by BIOGEN or its
AFFILIATES or SUBLICENSEES in any country in which PRODUCT has been on the
market for at least three (3) years is not covered by a VALID CLAIM of a CBM
PATENT RIGHT in such country, the percentage of GROSS PROFIT payable with
respect to NET SALES in such country shall be reduced
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by one-half during each CALENDAR QUARTER immediately subsequent to a CALENDAR
QUARTER in which one or more THIRD PARTIES, not including a DISTRIBUTOR of
BIOGEN, are selling "Comparable Products" as defined below, and the fraction
A/A+B is greater than *. For purposes of the preceding sentence, A is the unit
sales of Comparable Products in such quarter in such country and B is the unit
sales of PRODUCT in such quarter in such country, as shown by a competent sales
tracking company recognized in such country. "Comparable Product" shall mean a
product which would be a PRODUCT if manufactured, used or sold under this
Agreement. In no event shall any reduction under this Section 10.1(b) cause the
compensation payable to CBM under Section 10.1 for any period to fall below the
equivalent of (i) a royalty of * of NET SALES in any country in which CBM had at
one time filed in good faith a patent application with a claim covering PRODUCT
or (ii) a royalty of * of NET SALES in any other country. In any period in which
the percentage of GROSS PROFIT is reduced in a country under the preceding
sentence, the COST OF GOODS and NET SALES attributable to PRODUCT sold in such
country shall no longer be used in determining the COST OF GOODS as a percentage
of NET SALES for purposes of Appendix E for such period.
(c) NET SALES of PRODUCT in a country shall not be included in the
calculation of GROSS PROFIT or "Sales Volume", as defined in Appendix E, or in
the determination of COST OF GOODS at any time after the later to occur of (i)
the period ending * and (ii) the date on which PRODUCT is no longer covered by a
VALID CLAIM of CBM PATENT RIGHT in such country.
10.2 As consideration for the research and development already performed
by CBM with respect to PRODUCTS, BIOGEN shall pay to CBM a nonrefundable,
noncreditable license fee of ten million dollars ($10,000,000), which amount
shall be paid on the date of this Agreement by
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delivery of such amount to the Escrow Agent, as defined in a certain Escrow
Agreement between the parties dated as of the date hereof (the "Escrow
Agreement"). The license fee shall be held by the Escrow Agent under the terms
of the Escrow Agreement.
10.3 (a) BIOGEN shall pay the following amounts upon the occurrence of the
following milestone events with respect to PRODUCTS.
*
(b) In the event BIOGEN does not initiate a Phase I clinical trial
in the United States with a PRODUCT prior to * and its failure to initiate a
Phase I clinical trial on such date is not attributable to the breach by CBM in
any material respect of its supply obligations under this Agreement or any delay
by CBM in meeting such obligations, BIOGEN will nevertheless pay CBM the
milestone set forth in Section 10.3(a) above as if it had reached such
milestone; provided that if BIOGEN later actually achieves such milestone,
BIOGEN shall also pay the amount required on reaching the milestone but shall
not thereafter be required to pay the milestone required * in Japan.
10.4 The parties hereto have contemporaneously with this Agreement
executed a Restricted Stock Purchase Agreement under which BIOGEN will purchase
for investment an agreed upon amount of CBM Common Stock.
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10.5 BIOGEN shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES to keep, full and accurate books of account containing all
particulars relevant to its sales of PRODUCTS that may be necessary for the
purpose of calculating all compensation payable to CBM hereunder. Such books of
account shall be kept at their principal place of business and, with all
necessary supporting data shall, for the three (3) years next following the end
of the calendar year to which each shall pertain, be open for inspection by an
independent certified public accountant reasonably acceptable to BIOGEN, upon
reasonable notice during normal business hours at CBM's expense for the sole
purpose of verifying compensation or compliance with this Agreement. In the
event the inspection determines that compensation due CBM for any period have
been underpaid by five percent (5%) or more, then BIOGEN shall pay for all costs
of the inspection, otherwise the costs of the inspection shall be borne by CBM.
In all cases, BIOGEN shall pay to CBM any underpaid compensation promptly and
with interest at an annualized rate of the prime rate available to CBM, plus two
percent (2%) and CBM shall promptly pay to BIOGEN any overpaid compensation. All
information and data reviewed in the inspection shall be used only for the
purpose of verifying compensation due and shall be treated as BIOGEN
Confidential Information subject to the obligations of this Agreement. No audit
by an agent of CBM shall occur more frequently than once during any twelve (12)
month period.
10.6 In each year the amount of compensation due shall be calculated
quarterly as of the end of each CALENDAR QUARTER (each as being the last day of
an "Accounting Period") and shall be paid quarterly within the thirty (30) days
next following such date. Every such payment shall be supported by the
accounting prescribed in Paragraph 10.7 and shall be made in United States
currency. Whenever for the purpose of calculating compensation, conversion from
any foreign currency shall be required, such conversion shall be at the rate of
exchange published in The Wall Street Journal for the last business day of the
Accounting Period.
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10.7 With each quarterly payment, BIOGEN shall deliver to CBM a full and
accurate accounting to include at least the following information:
(a) Quantity of PRODUCT subject to compensation sold (by country) by
BIOGEN, its AFFILIATES and SUBLICENSEES;
(b) Total receipts for each PRODUCT subject to compensation (by
country);
(c) Detailed deductions to determine GROSS PROFIT; and
(d) Total compensation payable to CBM.
10.8 Since NET SALES and COST OF GOODS in each AGREEMENT YEAR to be used
to finally determine the Percentage of GROSS PROFIT for such year will not be
known until the end of such AGREEMENT YEAR, in order to make the quarterly
payments specified under Section 10.6, BIOGEN shall use a percentage of GROSS
PROFIT which is determined by:
(i) annualizing the year-to-date NET SALES for purposes of
calculating Sales Volume;
(ii) using the year-to-date COST OF GOODS;
As changes in the Percentage of GROSS PROFIT determined by applying
(i) and (ii) above occur from one CALENDAR QUARTER to the next CALENDAR QUARTER
within the same AGREEMENT YEAR, in addition to the payment for the CALENDAR
QUARTER, BIOGEN will make the necessary adjustment in such CALENDAR QUARTER
reflecting the change in the Percentage of GROSS PROFIT to be applied to the
preceding CALENDAR QUARTER or QUARTERS. Within thirty (30) days of the end of
each CALENDAR YEAR, BIOGEN shall calculate the actual percentage of GROSS SALES
to which CBM is entitled based on the actual Sales Volume, NET SALES and COST OF
GOODS for the year. In the event CBM has not received its full percentage of
GROSS PROFITS for the year, BIOGEN shall promptly make a balancing payment to
CBM in the amount of the deficit. In the event BIOGEN has paid CBM more than its
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full percentage of GROSS PROFITS for the year, CBM shall promptly reimburse
BIOGEN in the amount of the excess.
10.9 If the transfer of or the conversion into United States Dollar
Equivalent of any remittance due hereunder is not lawful or possible in any
country, such remittance shall be made by the deposit thereof in the currency of
the country to the credit and account of CBM or its nominee in any commercial
bank or trust company located in that country, prompt notice of which shall be
given to CBM. CBM shall be advised in writing in advance by BIOGEN and provide
to BIOGEN a nominee, if so desired.
10.10 Any tax required to be withheld by BIOGEN under the laws of any
foreign country for the account of CBM, shall be promptly paid by BIOGEN for and
on behalf of CBM to the appropriate governmental authority, and BIOGEN shall use
its best efforts to furnish CBM with proof of payment of such tax. Any such tax
actually paid on CBM's behalf shall be deducted from royalty payments due CBM.
10.11 Compensation shall be due and payable for the manufacture, use and
sale of an individual PRODUCT only once with respect to the same unit of PRODUCT
irrespective of the number of patents or claims thereof which cover the
manufacture, use and sale of such PRODUCT.
SECTION 11 - REPRESENTATIONS AND WARRANTIES.
11.1 Each party represents and warrants to the other party that: (i) it is
free to enter into this Agreement; (ii) in so doing, it will not violate any
other agreement to which it is a party; and (iii) it has taken all corporate
action necessary to authorize the execution and delivery of this Agreement and
the performance of its obligations under this Agreement.
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11.2 (a) Each party represents that it is not aware, without making any
special inquiry or investigation, of any action, suit, inquiry or investigation
or any claim, demand or notice of default which if adversely determined would
affect the rights granted under this Agreement.
(b) Each party acknowledges that in entering into this Agreement the
other party has relied upon information supplied by the disclosing party,
including, in the case of information supplied by CBM, data and information
concerning OP-1 PROTEIN and preclinical studies in the FIELD and information
related to CBM's patents. Neither party is aware of any data or information
given to the other party which is untrue or inaccurate or of any other data or
information which is necessary to make the data and information provided to the
other party complete and not misleading. To the best of CBM's knowledge, all
filings set forth in Appendix A and made by CBM to the United States Patent and
Trademark Office were made in compliance with the applicable requirements of 37
CFRSection 1.56.
11.3 CBM hereby represents and warrants to BIOGEN that:
(a) It is the owner or licensee of the CBM PATENT RIGHTS which it
has licensed to BIOGEN under this Agreement and has the right and has taken all
necessary action to grant licenses or sublicenses therefor;
(b) All patent applications included in CBM PATENT RIGHTS existing
as of the Effective Date are pending and have not been abandoned;
(c) Subject to Section 2.6, CBM has not entered into any agreement
with any THIRD PARTY which is in conflict with the rights granted to BIOGEN
pursuant to this Agreement.
(d) CBM will not take any action that would in any way prevent CBM
from granting the rights granted to BIOGEN under this Agreement with respect to
CBM PATENT RIGHTS or CBM TECHNOLOGY acquired after the EFFECTIVE DATE or which
would otherwise conflict with or adversely affect the rights granted to BIOGEN
under this Agreement.
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Nothing herein shall prohibit CBM from amending or modifying the scope of claims
during the patent prosecution process.
(e) CBM will take all actions required by it to maintain its rights
under the STRYKER LICENSE and the GI LICENSE as in effect on the EFFECTIVE DATE,
and shall immediately send to BIOGEN any notice of default or breach received by
CBM under the STRYKER LICENSE or the GI LICENSE.
(f) All employees of CBM who perform R&D for CBM in connection with
CBM's obligations under this Agreement are required to assign their rights in
any intellectual property arising from such work to CBM.
11.4 Each party represents that, with the exception of the issues raised
by the Other Third Party Patents, if any, it has not as of the EFFECTIVE DATE
been notified by a THIRD PARTY or received an opinion of counsel to the effect
that there are any granted patents owned or controlled by a THIRD PARTY which
would be infringed by the manufacture, use or sale of PRODUCT and it is not
aware, without making any special inquiry or investigation, of any infringement
by a THIRD PARTY of the CBM PATENT RIGHTS.
11.5 Except as otherwise expressly set forth in this Agreement CBM makes
no representations or extends any warranties of any kind, either express or
implied, including, but not limited to, warranties of merchantability, fitness
for a particular purpose, non-infringement or validity of any CBM patent or
other intellectual property rights.
11.6 The Parties shall file with the Federal Trade Commission and the
Department of Justice any notification and report required to be filed under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations issued thereunder (the "Act") and use their best efforts to
comply with the Act in connection with the transactions contemplated under this
Agreement.
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SECTION 12 - INDEMNIFICATION.
12.1 Indemnification by BIOGEN. BIOGEN will defend, indemnify and hold
harmless CBM, its AFFILIATES and their employees, agents, officers, shareholders
and directors and each of them (the "CBM Indemnified Parties") from and against
any and all third party claims, causes of action and costs (including reasonable
attorney's fees) of any nature made or lawsuits or other proceedings filed or
otherwise instituted against the CBM Indemnified Parties resulting from or
arising out of breach of this Agreement by BIOGEN or failure by BIOGEN to comply
in any material respect with applicable laws or regulations or out of the
research, development, testing, manufacture, sale or use of any PRODUCT by
BIOGEN, its AFFILIATES, SUBLICENSEES or DISTRIBUTORS, other than those claims
which result or arise from breach of this Agreement by CBM or failure by CBM to
comply in any material respect with applicable laws or regulations or the
negligence or willful misconduct of CBM or any its AFFILIATES or any of their
employees, agents, officers, shareholders or directors.
12.2 Indemnification by CBM. CBM will defend, indemnify and hold harmless
BIOGEN, its AFFILIATES and their employees, agents, officers, shareholders and
directors and each of them (the "BIOGEN Indemnified Parties") from and against
any and all third party claims, causes of action and costs (including reasonable
attorney's fees) of any nature made or lawsuits or other proceedings filed or
otherwise instituted against any of the BIOGEN Indemnified Parties resulting
from or arising out of breach of this Agreement by CBM or failure of CBM to
comply in any material respect with applicable laws or regulations or the
negligence or willful misconduct of CBM or its AFFILIATES or any of their
employees, agents, officers, shareholders or directors.
12.3 Conditions to Indemnification. A person or entity that intends to
claim indemnification under this Section (the "Indemnitee") shall promptly
notify the indemnifying party (the "Indemnitor") of any loss, claim, damage,
liability or action in respect of which the Indemnitee intends to claim such
- 53 -
<PAGE> 54
indemnification, and the Indemnitor shall assume the defense thereof with
counsel mutually satisfactory to the Indemnitee whether or not such claim is
rightfully brought; provided, however, that an Indemnitee shall have the right
to retain its own counsel, with the fees and expenses to be paid by the
Indemnitor if Indemnitor does not assume the defense, or if representation of
such Indemnitee by the counsel retained by the Indemnitor would be inappropriate
due to actual or potential differing interests between such Indemnitee and any
other person represented by such counsel in such proceedings. The indemnity
agreement in this Section shall not apply to amounts paid in settlement of any
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Indemnitor, which consent shall not be withheld or delayed
unreasonably. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, only if prejudicial
to its ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Section , but the omission so to deliver
notice to the Indemnitor will not relieve it of any liability that it may have
to any Indemnitee otherwise than under this Section . The Indemnitee under this
Section , its employees and agents, shall cooperate fully with the Indemnitor
and its legal representatives in the investigations of any action, claim or
liability covered by this indemnification.
SECTION 13 - ASSIGNMENT; SUCCESSORS.
13.1 This Agreement shall not be assignable by either of the parties
without the prior written consent of the other party (which consent shall not be
unreasonably withheld), except that either party without the consent of the
other may assign this Agreement to an AFFILIATE or to a successor in interest or
transferee of all or substantially all of the portion of the business to which
this Agreement relates.
- 54 -
<PAGE> 55
13.2 Subject to the limitations on assignment herein, this Agreement shall
be binding upon and inure to the benefit of said successors in interest and
assigns of CBM and BIOGEN. Any such successor or assignee of a party's interest
shall expressly assume in writing the performance of all the terms and
conditions of this Agreement to be performed by said party and such Assignment
shall not relieve the Assignor of any of its obligations under this Agreement.
SECTION 14 - FORCE MAJEURE.
Neither party shall be liable to the other party for damages or loss
(other than with respect to payments due CBM hereunder) occasioned by failure of
performance by the defaulting party if the failure is occasioned by war, fire,
explosion, flood, strike or lockout, embargo, or any similar cause beyond the
control of the defaulting party, provided that the party claiming this exception
has exerted all reasonable efforts to avoid or remedy such event and provided
such event does not extend for more than six (6) months.
SECTION 15 - TERMINATION.
15.1 Except as otherwise specifically provided herein and unless sooner
terminated pursuant to Sections 15.2 or 15.3 of this Agreement, this Agreement
and the licenses and rights granted hereunder shall remain in full force and
effect until BIOGEN's obligations to pay compensation hereunder terminate. Upon
expiration of BIOGEN's obligation to pay compensation hereunder with respect to
a specific country and specific PRODUCT as to which BIOGEN's license is then in
effect, the license granted to BIOGEN with respect to such country and such
PRODUCT pursuant to Section 2.1 shall be deemed to be fully paid and BIOGEN
shall thereafter have a royalty-free right to use the CBM PATENT RIGHTS and CBM
TECHNOLOGY and to make, use, import and sell such PRODUCT in such country.
- 55 -
<PAGE> 56
15.2 Upon breach of any material provisions of this Agreement by either
party to this Agreement, in the event the breach is not cured within sixty (60)
days after written notice to the breaching party by the other party, in addition
to any other remedy it may have, the other party at its sole option may
terminate this Agreement, provided that such other party is not then in breach
of this Agreement.
15.3 Either party to this Agreement may, upon giving notice of
termination, immediately terminate this Agreement upon receipt of notice that
the other party has become insolvent or has suspended business in all material
respects hereof, or has consented to an involuntary petition purporting to be
pursuant to any reorganization or insolvency law of any jurisdiction, or has
made an assignment for the benefit of creditors or has applied for or consented
to the appointment of a receiver or trustee for a substantial part of its
property.
15.4 Upon any termination of this Agreement, BIOGEN shall be entitled to,
but shall not be obligated to finish any work-in-progress for which BIOGEN has
received firm purchase orders and to sell any completed inventory of a PRODUCT
covered by this Agreement which remains on hand as of the date of the
termination, so long as BIOGEN pays to CBM the compensation applicable to said
subsequent sales in accordance with the same terms and conditions as set forth
in this Agreement.
15.5 The licenses granted under Section 2.1(b) and, subject to the
termination provision contained therein, 2.1(c), and obligations of Sections 6
and 12, as well as Sections 15.4, 15.5, 15.6, 15.7, 15.9, 16.3, and 16.7 and the
repayment obligation under the Note shall survive any termination of this
Agreement.
15.6 Upon termination of this Agreement or of the rights and licenses
granted to BIOGEN in any country, BIOGEN shall have no further right under this
Agreement to CBM TECHNOLOGY or CBM PATENT RIGHTS in such country other than
under the license granted under Section
- 56 -
<PAGE> 57
2.1(b) and other than in those countries in which BIOGEN otherwise retains a
license, including a paid up license, under this Agreement.
15.7 BIOGEN agrees to use CBM TECHNOLOGY only for the manufacture, use or
sale of PRODUCTS and only and to the extent licensed under this Agreement.
15.8 CBM shall have the right to terminate this Agreement in the event CBM
has terminated BIOGEN's rights under Section 5.1(c) as to all of the MAJOR
MARKET SEGMENTS.
15.9 On or after the end of the third AGREEMENT YEAR, BIOGEN may terminate
this Agreement for any reason upon six (6) months prior notice to CBM. In the
event of any termination under this Section or in the event CBM terminates this
Agreement pursuant to Sections 15.2, 15.3 or 15.8 all licenses and rights
granted to BIOGEN shall terminate forthwith and BIOGEN shall grant to CBM an
exclusive, worldwide, royalty-free, sublicensable license under BIOGEN PATENTS
and BIOGEN TECHNOLOGY solely to make, have made, import, use and sell PRODUCTS.
In the event that under this Section , BIOGEN has granted to CBM a sublicense to
BIOGEN's rights under any BIOGEN TECHNOLOGY or BIOGEN PATENTS owned (in whole or
in part) by a THIRD PARTY, CBM shall be responsible for paying any royalty
obligations which BIOGEN may have to such THIRD PARTY arising from the
manufacture, use or sale by CBM of PRODUCTS. In addition, if the licenses under
this Section become applicable, CBM shall pay all reasonable costs incurred by
BIOGEN in making BIOGEN PATENTS and BIOGEN TECHNOLOGY available to CBM. In the
event CBM terminates the rights and licenses in any country pursuant to Section
5.1(c) then BIOGEN shall grant to CBM an exclusive, royalty-free, sublicensable
license in that country under BIOGEN PATENTS and BIOGEN TECHNOLOGY solely to
make, have made, use and sell PRODUCTS and subject to the same terms as above
with respect to THIRD PARTY royalties and costs incurred by BIOGEN. In addition,
in the event CBM terminates the rights and licenses in any country pursuant to
Section 5.1(c), but not the entire Agreement, BIOGEN will supply CBM's
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<PAGE> 58
requirements for PRODUCT in such country under a supply agreement, with terms,
including financial terms, to be negotiated by the parties in good faith.
SECTION 16 - GENERAL PROVISIONS.
16.1 The relationship between CBM and BIOGEN is that of independent
contractors. CBM and BIOGEN are not joint venturers, partners, principal and
agent, master and servant, employer or employee, and have no relationship other
than as independent contracting parties. CBM shall have no power to bind or
obligate BIOGEN in any manner. Likewise, BIOGEN shall have no power to bind or
obligate CBM in any manner.
16.2 This Agreement, the Restricted Stock Purchase Agreement, the Escrow
Agreement and the Instrument of Adherence between the parties of even date
herewith sets forth the entire agreement and understanding between the parties
as to the subject matter thereof and supersedes all prior agreements in this
respect. There shall be no amendments or modifications to these Agreements,
except by a written document which is signed by both parties.
16.3 This Agreement shall be construed and enforced in accordance with the
laws of the Commonwealth of Massachusetts, U.S.A. without reference to its
choice-of-law principles.
16.4 The headings in this Agreement have been inserted for the convenience
of reference only and are not intended to limit or expand on the meaning of the
language contained in the particular or section or paragraph.
16.5 Any delay in enforcing a party's rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute a waiver
of a party's right to the future enforcement of its rights under this Agreement,
excepting only as to an expressed written and signed waiver as to a particular
matter for a particular period of time.
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<PAGE> 59
16.6 In conducting any activities under this Agreement or in connection
with the manufacture use or sale of PRODUCT, BIOGEN shall comply with all
applicable laws and regulations including, but not limited to, all Export
Administration Regulations of the United States Department of Commerce.
16.7 Notices. Any notices given pursuant to this Agreement shall be in
writing and shall be deemed delivered upon the earlier of (i) when received at
the address set forth below, or (ii) three (3) business days after mailed by
certified or registered mail postage prepaid and properly addressed, with return
receipt requested, or (iii) when sent, if sent, by facsimile, as confirmed by
certified or registered mail. Notices shall be delivered to the respective
parties as indicated:
If to CBM: Creative BioMolecules, Inc.
45 South Street
Hopkinton, MA 01748
Attn: CEO
with a copy to Vice President - General Counsel
If to BIOGEN: Biogen, Inc.
14 Cambridge Center
Cambridge, MA 02142
Attn: President
with a copy to Vice President - General Counsel
16.8 This Agreement may be executed in any number of separate
counterparts, each of which shall be deemed to be an original, but which
together shall constitute one and the same instrument.
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<PAGE> 60
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
CREATIVE BIOMOLECULES, INC. BIOGEN, INC.
By: /s/ Michael M. Tarnow By: /s/ James R. Tobin
-------------------------------- ---------------------------------
Name and Title: Michael M. Tarnow Name and Title: James R. Tobin
-------------------- --------------------
Chief Executive Officer President and
Chief Operating Officer
<PAGE> 61
APPENDIX A
SCHEDULE 1
CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE: PATENT NUMBER:
*
SCHEDULE 2
CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE: PATENT NUMBER:
*
SCHEDULE 3
CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE: PATENT NUMBER:
*
SCHEDULE 4
CASENUMBER COUNTRY APPLICATION NUMBER: FILING DATE; PATENT NUMBER:
*
<PAGE> 62
APPENDIX B
OP-1 PROTEIN
ACTIVE
*
FULL SEQUENCE
*
<PAGE> 63
APPENDIX C
CREATIVE BIOMOLECULES, INC.
UNSECURED PROMISSORY NOTE
Creative BioMolecules, Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with
offices at 45 South Street, Hopkinton, MA 01748 (the "Borrower") acknowledges
itself indebted to and for value received hereby promises to pay to the order of
Biogen, Inc. (the "Payee"), at 14 Cambridge Center, Cambridge, MA 02142 or at
such other address as the Borrower may be directed from time to time, the
principal sum of Fifteen Million Dollars ($15,000,000), or such lesser sum as
shall be advanced as set forth in the schedule of Advances and Payments of
Principal attached hereto (the "Schedule"), and to pay interest on the unpaid
principal amount hereof from the date of each Advance at a rate for each Advance
equal to the Prime Rate, as defined below, in effect on the business day
immediately preceding the date of the Advance (interest to be paid on the basis
of the actual number of days elapsed on the basis of a 360 day year). Prime Rate
shall mean the rate of interest announced from time to time by State Street Bank
and Trust Company as its *.
The principal hereof, if not sooner paid as provided herein, together with
all accrued and unpaid interest, shall be due and payable five years from the
date of the first advance set forth in the Schedule attached hereto. All
payments shall be applied first to costs of collection and then to principal and
interest accrued on such principal. Payments of accrued interest shall be made
quarterly in arrears on the first business day of each quarter until the
aforesaid principal sum and all accrued interest thereon has been fully paid.
This Note is entered into pursuant to the Research Collaboration and
License Agreement, dated December 9, 1996 by and between the Borrower and the
Payee (the "Agreement"). The advances described in the Agreement and made by the
Payee to the Borrower, the applicable interest rate, and all payments made on
the account of principal thereof, shall be recorded by the Payee, and, prior to
any transfer thereof, endorsed on the Schedule attached hereto which is a part
of this Note; provided, however, that the failure of the Payee so to record on
or endorse this Note (or any error in recording on or endorsing this Note) shall
not affect the Borrower's obligations hereunder.
Payments hereon are to be made in lawful money of the United States of
America or in any other manner set forth in the Agreement at the Payee's address
set forth above or such other address as the Payee shall designate in writing to
the Borrower. This Note may be prepaid in whole or in part on any date without
penalty or premium upon five (5) days prior written notice to the Payee,
provided that amounts prepaid shall not be available for futher borrowing under
the Agreement. Partial prepayments shall be applied to principal payments of
this Note in inverse order of maturity.
Whenever any Event of Default, as defined below, shall have occurred, the
Payee may take any one or more of the following remedial steps:
<PAGE> 64
(i) The Payee may declare the entire outstanding principal amount payable
hereunder, together with accrued interest, to be immediately due and payable,
whereupon the same shall become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything herein to the contrary notwithstanding:
(ii) The Payee may exercise any rights and remedies under this Note;
(iii) The Payee may take whatever action at law or in equity as may be
available and appear necessary or desirable to collect the amounts then due and
thereafter to become due, or to specifically enforce the performance or
observance of any obligations, agreements, or covenants of the Borrower under
this Note.
For purposes of this Agreement, an "Event of Default" shall mean (i)
failure of Borrower to pay interest when due or (ii) termination by Payee of the
Agreement for breach by the Borrower.
In addition to the payment of interest, as provided above, Payee shall pay
interest on overdue installments of principal, and to the extent permitted by
law, on overdue installments of interest, at the rate of 18% per annum. In no
event shall this Note bear interest in excess of the maximum rate of interest
permitted by applicable law.
In case the Payee shall have proceeded to enforce its rights under this
Note and such proceedings shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Payee, then and in every
such case, the Borrower and the Payee shall be restored respectively to their
several positions and rights hereunder and thereunder, and all rights, remedies
and powers of the Borrower and the Payee shall continue as though no such
proceedings had been taken, but subject nevertheless to the order or result of
any such proceedings.
No remedy herein conferred upon or reserved to the Payee is intended to be
exclusive of any other available remedy or remedies but each and every such
remedy shall be cumulative and shall be in addition to every remedy given under
this Note or the Agreement or now or hereafter existing at law, in equity or by
statute.
If an Event of Default shall occur and the Payee shall reasonably require
and employ attorneys for the collection of payments due or to become due or the
enforcement or performance or observance of any obligation or agreement on the
part of the Borrower herein contained, the Borrower shall on demand therefor pay
to the Payee the reasonable fees and expenses of such attorneys so incurred by
the Payee in connection with litigation or otherwise. In the event any agreement
contained in this Note should be breached by either party and thereafter waived
by the other party, such waiver shall be limited to the particular breach so
waived and shall not be deemed to waive any other breach hereunder.
Upon receipt by the Borrower of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note and indemnity
satisfactory to the Borrower (in case of loss, theft or destruction) or
cancellation of the Note (in the case of mutilation), the Borrower will make
<PAGE> 65
and deliver to the Payee a new Note of like tenor and amount and dated as of the
date to which interest has been paid on the unpaid principal balance hereunder.
This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts without giving effect to conflicts of law
principles.
If any clause or provision of this Note shall be ruled invalid by any
court of competent jurisdiction, the validity of such clause or provision shall
not affect any of the remaining provisions hereof.
The Borrower (and any endorsers of this Note) hereby waive presentment,
demand for payment, protest and notice of dishonor of this Note
IN WITNESS WHEREOF the Borrower has caused this Note to be duly executed
and delivered, all as of the date shown below.
Date:
[SEAL]
ATTEST: CREATIVE BIOMOLECULES, INC.
_______________________ By:______________________
<PAGE> 66
ADVANCES AND PAYMENTS OF PRINCIPAL(1)
Amount of Unpaid
Amount of Interest Principal Principal Notation
Date Advance Rate Paid Balance Made By
- ---- --------- -------- --------- --------- --------
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__________
(1) This Schedule is part of an Unsecured Promissory Note executed by
Creative BioMolecules, Inc. (the "Borrower") on December 9, 1996, pursuant to
which the Borrower promises to pay up to fifteen million dollars ($15,000,000)
to the order of Biogen, Inc.
<PAGE> 67
APPENDIX D
PRODUCT RELEASE SPECIFICATIONS FOR BULK OP-1
Test Method Specification
*
<PAGE> 68
APPENDIX E
PERCENTAGE OF GROSS PROFIT
THE PERCENTAGE OF GROSS PROFIT TO BE RECEIVED BY CBM UNDER SECTION 10.1
SHALL BE DETERMINED AS A FUNCTION OF SALES VOLUME AND COST OF GOODS (AS A
PERCENTAGE OF NET SALES) BY REFERENCE TO THE FOLLOWING TABLE:
COST OF GOODS (AS A PERCENTAGE OF NET SALES)
S
A
L
E *
S
V
O
L
U
M
E
For purposes of the determination of Percentage of GROSS PROFIT, "Sales
Volume" for a calendar year shall mean NET SALES of Product for such year,
provided that solely for purposes of calculating Sales Volume and not for
purposes of calculating GROSS PROFIT, NET SALES on sales by BIOGEN to
DISTRIBUTORS shall be based on the invoice price on the sale by the DISTRIBUTOR
to a THIRD PARTY rather than on the invoice price on the sale to the DISTRIBUTOR
by BIOGEN.
<PAGE> 1
EXHIBIT 10.38
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
the 9th day of December, 1996 by and among Creative BioMolecules, Inc., a
Delaware corporation, with its principal office at 45 South Street, Hopkinton,
MA 01748 (the "Company") and Biogen, Inc., a Massachusetts corporation, with its
principal office at 14 Cambridge Center, Cambridge, MA 02142 (the "Purchaser").
WHEREAS, the Company and the Purchaser have entered into a Research
Collaboration and License Agreement of even date herewith, (the "License
Agreement") pursuant to which the Company will grant to the Purchaser a license
to certain of the Company's patent rights and technology as further defined and
described therein.
WHEREAS, in furtherance of the execution and delivery of the License
Agreement, the Company has agreed to sell to the Purchaser and the Purchaser has
agreed to purchase the number of shares of the Company's common stock, $.01 par
value (the "Common Stock") computed in accordance with this Agreement, at an
aggregate purchase price of $18,000,000, on the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
SECTION 1 - SALE OF THE SHARES.
1.1 Sale by the Company. Subject to and upon the terms and conditions of
this Agreement, at the Closing (as defined in Section 3.1):
<PAGE> 2
Pending only clearance of the transactions contemplated by this
Agreement and the License Agreement by the Federal Trade Commission and the
Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "Act"), the Company shall sell to the Purchaser, and the
Purchaser shall purchase from the Company, the number of whole shares of the
Company's Common Stock equal to the Calculated Amount (defined hereafter) (the
"Shares"), at a purchase price (the "Purchase Price") per share equal to the
Premium Price (defined hereafter), for an aggregate purchase price of
$18,000,000. The Purchase Price for all of the Shares will be payable by the
Purchaser at the Closing by delivery to Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. in its capacity as the Escrow Agent, as defined in a certain Escrow
Agreement between the parties and the Escrow Agent dated as of the date hereof
(the "Escrow Agreement"), of a certified check or wire transfer in the amount of
the aggregate Purchase Price for all of the Shares. The parties agree that the
Escrow Agent shall hold the aggregate Purchase Price paid by the Purchaser in
escrow under the terms of the Escrow Agreement. "Market Price" means the average
of the last reported sale price, regular way, or if there is no such sale price,
the average of the last reported bid and asked prices, as reported by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
for the five (5) business days immediately preceding the date of the Closing,
computed to three decimal places. "Premium Price" means one hundred and thirty
percent (130%) of the Market Price, provided that in no event shall the Premium
Price be less than $10.00 nor more than $12.00. "Calculated Amount" means
18,000,000 divided by the Premium Price.
SECTION 2 - CONDITIONS TO PURCHASER'S OBLIGATION.
The obligation of the Purchaser to purchase the Shares pursuant to Section
1.1 of this Agreement is subject to satisfaction of the following conditions at
or prior to the Closing:
2.1 Representations and Warranties. Each of the representations and
warranties of the Company set forth in Section 6 hereof shall be true and
correct as of the date of the Closing.
- 2 -
<PAGE> 3
2.2 Registration Rights Agreement. The Second Amended and Restated
Registration Rights Agreement, dated as of May 24, 1996, by and among the
Company and various holders of the Company's securities (the "Registration
Rights Agreement") shall have been amended by the execution of an amendment to
the Registration Rights Agreement ("Amendment No. 3 to the Registration Rights
Agreement") and an Instrument of Adherence which provide that the Shares and any
shares subsequently issued to the Purchaser with respect to the Shares (the
"Additional Shares") shall be included in the definition of "Registrable
Securities" and the Purchaser, as the holders of Shares, shall be included in
the definition of "Investors", and such documents shall have been deposited with
the Escrow Agent under the Escrow Agreement.
2.3 License Agreement. The Company and the Purchaser shall have executed
and deposited with the Escrow Agent under the Escrow Agreement the License
Agreement, and the License Agreement shall be in full force and effect as of the
date of the Closing, pending only clearance of the transactions contemplated by
this Agreement and the License Agreement by the Federal Trade Commission and the
Department of Justice under the Act.
2.4 Documentation at the Closing. The Company shall have deposited with
the Escrow Agent, prior to or at the Closing, all of the following documents or
evidence of the occurrence of the following events:
(a) An Officer's Certificate, executed by the President of the
Company and dated as of the date of the Closing, stating that the
representations and warranties of the Company contained in Section 6 hereof are
true and correct as of the date of the Closing and that all of the obligations
and covenants of the Company contained in this Agreement required to be
performed or satisfied prior to or at the Closing, including, without limitation
the conditions specified in Sections 2.1 through 2.3, inclusive, have been
performed or satisfied in all material respects.
- 3 -
<PAGE> 4
(b) A Secretary's Certificate, executed by the Secretary or the
Assistant Secretary of the Company and dated as of the date of the Closing,
providing: (1) a certified copy of the resolutions of the Board of Directors of
the Company evidencing approval of this Agreement, authorization for the
issuance of the Shares, execution of all other agreements and documents
contemplated hereby, and performance of all of the transactions contemplated
hereby and thereby; (2) a certified copy of the Certificate of Incorporation of
the Company, as amended and in effect as of the date of the Closing; (3) a
certified copy of the by-laws of the Company, as amended and in effect as of the
date of the Closing; and (4) the names of officers of the Company authorized to
sign this Agreement, the certificate for the Shares, and the other documents or
certificates to be delivered pursuant to this Agreement by the Company or any of
its officers, together with the true signatures of such officers.
(c) A certificate of good standing of the Company, issued by the
Secretary of State of the State of Delaware and each State where the Company is
qualified to do business as a foreign corporation, dated as of the close of
business on a date within ten (10) business days of the date of the Closing.
(d) Copies of all other documents evidencing other necessary
corporate or other action and third party and governmental approvals, if any,
with respect to this Agreement and the other documents executed in connection
with this Agreement and the transactions contemplated hereby or thereby.
2.5 Documents and Proceedings. All documents to be deposited with the
Escrow Agent hereunder, and all corporate and other proceedings taken or
required to be taken in connection with the transactions contemplated hereby and
to be consummated at or prior to the Closing and all documents incident thereto,
shall be reasonably satisfactory in form and substance to the Purchaser
- 4 -
<PAGE> 5
or its counsel. The parties acknowledge that all documents deposited with the
Escrow Agent under this Agreement will be held by the Escrow Agent under the
terms of the Escrow Agreement.
2.6 Waiver. Any condition specified in this Section 2 may be waived by the
Purchaser; provided, however, that no such waiver shall be effective unless (i)
it is set forth in a writing executed by the Purchaser or (ii) the Purchaser
consummates the Closing.
SECTION 3 - CLOSING.
3.1 Closing. The closing of the transactions contemplated under this
Agreement (the "Closing") shall take place at the offices of the Purchaser, 4
Cambridge Center, Cambridge, MA 02142, at 4:00 p.m., Boston Time, on December 9,
1996, or at such other place, time or date as may be mutually agreed upon in
writing by the parties.
3.2 Delivery of Certificates Representing the Shares. At the Closing, the
Company shall deliver to the Escrow Agent, to be held under the terms of the
Escrow Agreement, an Irrevocable Letter of Instructions to Transfer Agent,
signed by the Vice President and Chief Financial Officer of the Company,
instructing ChaseMellon Shareholder Services, L.L.C., the Company's Transfer
Agent and Registrar, to issue a stock certificate, registered in the name of the
Purchaser, representing the Shares.
SECTION 4 - RIGHTS TO REPURCHASE SHARES.
(a) In the event that the License Agreement is terminated as a
result of a breach by the Purchaser thereunder or by the Purchaser prior to its
expiration (except as a result of a breach by the Company) (such termination a
"Termination Event"), the Company, shall have the right and option, for sixty
(60) days from the occurrence of the Termination Event, to elect to purchase
from the Purchaser, and the Purchaser shall sell or cause to be sold to the
Company, upon the Company's
- 5 -
<PAGE> 6
exercise of such right, such number of Shares (collectively the "Option Shares")
owned by the Purchaser on such date as is specified by the Company, at the
Purchase Price.
The right to repurchase the Option Shares provided in this Section
4(a) shall be exercised by the Company, if at all, by delivery to the Purchaser
during the applicable aforesaid 60-day period, of a written notice of election
to purchase such Option Shares (the"Election Notice").
(b) The number of Option Shares subject to repurchase and the
purchase price thereof, at the time of any stock dividend or other distribution
made on or in respect of the shares of capital stock of the Company or any
subdivision, combination, redemption or reclassification of the outstanding
capital stock of the Company or received in exchange for the Option Shares or
any part thereof, shall be adjusted to give effect to such stock dividend, other
distribution, subdivision, combination, redemption or reclassification.
(c) The sale of Option Shares effected under the terms of Section
4(a) hereof shall be made at the offices of the Company on a mutually acceptable
business day which day shall be within 10 days after the expiration of the
applicable 60-day period referred to in Section 4(a), and shall be such 10th day
if the parties do not agree on such date. Delivery of certificates or other
instruments evidencing such Option Shares duly endorsed for transfer shall be
made on such date against payment of the Purchase Price thereof. Payment for the
Option Shares purchased pursuant to this Section 4 shall be made in the form of
a certified check or a wire transfer of clearing house funds to an account
designated by the Purchaser.
(d) Following the occurrence of a Termination Event, if and to the
extent that the Company does not exercise its right to purchase the Option
Shares within the exercise period, this Section 4 shall be null and void and the
Purchaser may sell or otherwise transfer up to all of the Option Shares, subject
only to compliance with the provisions of Section 5 of this Agreement and any
applicable laws or regulations.
- 6 -
<PAGE> 7
(e) The provisions of this Section 4 shall not be applicable after
the fifth anniversary of the date of this Agreement.
SECTION 5 - PROCEDURES ON SALE OF SHARES TO THIRD PARTIES BY THE
PURCHASER.
Except as otherwise expressly provided herein, the Purchaser hereby agrees
that it shall not Sell (as defined in subsection (e) below) any Shares (the
"Offered Shares") to any person other than the Company, except in accordance
with the following procedures:
(a) The Purchaser shall first deliver to the Company a written
notice (the "Transfer Notice"), which Transfer Notice shall be irrevocable for a
period of ten (10) days after delivery thereof (the "Offer Period"), offering to
the Company, all of the Offered Shares proposed to be sold by the Purchaser at
the purchase price and on the terms specified therein. The Company shall have
the right and option, at its sole discretion, for a period of 10 days after its
receipt of the Transfer Notice, to accept the offer of all, but not less than
all, of the Offered Shares at the purchase price and upon the terms stated in
the Transfer Notice. Such acceptance will be made by delivery of a written
notice to the Purchaser within the Offer Period (the "Acceptance Notice").
(b) The sale of Offered Shares under the terms of Section 5(a) above
shall be made at the offices of the Company on a mutually acceptable business
day, which day shall be within 5 days after the expiration of the Offer Period
and shall be such 5th day if the parties do not agree on such date. Delivery of
certificates or other instruments evidencing such Offered Shares duly endorsed
for transfer shall be made on such date against payment of the purchase price
therefor. Payment for the Offered Shares purchased pursuant to this Section 5
shall be made in the form of a certified check or a wire transfer of clearing
house funds to an account designated by the Purchaser.
(c) If effective acceptance shall not be received pursuant to
Section 5(a) above with respect to all Offered Shares offered for sale pursuant
to the Transfer Notice then the Purchaser may Sell to a third party or third
parties all, but not less than all, the shares so offered for sale at a
- 7 -
<PAGE> 8
price not less than the price, and on terms not more favorable to the purchaser
thereof than the terms, stated in the Transfer Notice, at any time within 90
days after the expiration of the Offer Period. In the event that such shares are
not sold by the Purchaser during such 90-day period, the right of the Purchaser
to Sell such shares without renewed compliance with this Section 5 shall expire
and the obligations of this Section 5 shall be reinstated; provided, however,
that in the event that the Purchaser determines, at any time during such 90-day
period, that the sale of all of the shares on the terms set forth in the
Transfer Notice is impracticable, the Purchaser can terminate the offer of the
shares to a third party or parties and reinstate the procedure provided in this
Section 5 without waiting for the expiration of such 90-day period.
(d) Anything contained herein to the contrary notwithstanding, any
third party purchaser of shares pursuant to this Section 5 who or which is not a
signatory to an agreement with the Company that places restrictions on such
Offered Shares substantially similar to the restrictions set forth in Section 5
of this Agreement shall agree in writing, as a condition to such sale, to be
bound by all applicable provisions of Section 5 of this Agreement .
(e) As used above, the term "Sell" shall mean to sell, or in any
other way, directly or indirectly, transfer, assign, distribute, pledge,
encumber or otherwise dispose of, either voluntarily or involuntarily any of the
Shares or Additional Shares.
(f) Anything contained herein to the contrary notwithstanding, the
provisions of this Section 5 shall not be applicable (i) if, and to the extent
that, the Purchaser Sells any Offered Shares to the public pursuant to a
registration statement declared effective by the Securities and Exchange
Commission under the Securities Act, (ii) if, and to the extent that, the
Purchaser Sells any Offered Shares in compliance with the requirements set forth
in Rule 144 under the Securities Act or (iii) after the third anniversary of
this Agreement.
- 8 -
<PAGE> 9
(g) The Company shall not be required (a) to transfer on its books
any of the shares which shall have been sold or transferred in violation of any
of the provisions set forth in this Agreement, or (b) to treat as owner of such
shares or to pay dividends to any transferee to whom any such shares shall have
been sold or transferred.
SECTION 6 - REPRESENTATIONS OF THE COMPANY.
The Company represents and warrants to the Purchaser that:
6.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite power and authority (corporate and other) to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
Company is duly qualified to do business and is in good standing in all
jurisdictions in which its ownership of property or the character of its
business requires such qualification and in which the failure to be so qualified
would have a material adverse effect on the Company.
6.2 Authorization. The execution and delivery by the Company of this
Agreement, and any other documents and agreements to be executed in connection
with this Agreement (the "Company's Transaction Documents"), and the
consummation by the Company of all transactions contemplated hereunder,
including without limitation the issuance and sale of the Shares, to the
Purchaser pursuant to Section 1, have been duly authorized by all requisite
corporate action. The Company's Transaction Documents have been duly executed by
the Company and constitute the valid and legally binding obligations of the
Company, enforceable against it in accordance with their respective terms,
subject to clearance under the Act, as set forth in Section 2.3, and subject to
laws of general application relating to bankruptcy, insolvency, relief of
debtors and equitable principles and except as rights to indemnity or
contribution may be limited by applicable law. Upon issuance to the Purchaser
for the consideration specified in Section 1 above, the Shares will be duly
authorized,
- 9 -
<PAGE> 10
validly issued, fully paid and nonassessable. Subject to clearance under the
Act, as set forth in Section 2.3, the execution, delivery and performance by the
Company of the Company's Transaction Documents and the consummation by the
Company of the transactions contemplated thereby, will not, with or without the
giving of notice or the passage of time or both, (i) conflict with or result in
a breach of the material terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's capital stock or assets pursuant to,
(iv) give any third party the right to accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or
governmental body pursuant to, the certificate of incorporation or by-laws of
the Company, or any law, statute, rule or regulation to which the Company is
subject, or any material agreement, instrument, order, judgment or decree to
which the Company is subject, except where any such event listed above would not
have a material adverse effect on the Company or the transactions contemplated
hereunder. Except as set forth on Exhibit A, the issuance of the Shares will
not, require any further corporate action related specifically to such issuances
and are not and will not be subject to any preemptive or other preferential
rights or similar statutory or contractual rights either arising pursuant to any
agreement or instrument to which the Company is a party or which is otherwise
binding upon the Company.
6.3 Governmental Approval. Subject to the accuracy of the Purchaser's
representations herein, no authorization, consent, approval, license, exemption
of or filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, under
any applicable laws or regulations presently in effect, is or will be necessary
for, or in connection with, the offer, issuance, sale, execution or delivery by
the Company of the Shares or for the performance by the Company of its
obligations under this Agreement or any other Company's
- 10 -
<PAGE> 11
Transaction Documents except under the Act, as set forth in Section 2.3, or as
may be required under the Securities Act or applicable state securities laws.
6.4 Registration . Except as set forth in the Registration Rights
Agreement and on Exhibit A, no person has demand or other rights to cause the
Company to file any registration statement under the Securities Act relating to
any securities of the Company or any right to participate in any such
registration statement.
6.5 SEC Filings. The Company is current on all filings required by the
Securities and Exchange Commission. The Company's annual report on Form 10-K for
the year ended September 30, 1995, and its reports on Form 10-Q and Form 8K
filed since September 30, 1995, do not contain any untrue statement of a
material fact or omit to state any fact necessary to make the statements made
therein not misleading. Since the date of CBM's last publicly filed report on
Form 10-Q, there has been no material adverse change to the business, financial
condition or assets of the Company that has not been disclosed in a publicly
filed report or otherwise disclosed to the Purchaser. There has commenced no
litigation against the Company subsequent to September 30, 1996.
6.6 No Brokers or Finders. Except as otherwise disclosed to the Purchaser,
no person has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest or valid claim against or upon the Purchaser for
any commission, fee or other compensation as a finder or broker because of any
act by the Company or of any agent of the Company. The Company will pay, and
hold the Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any claim for any such commission, fee or other
compensation.
6.7 Closing Date. The representations and warranties of the Company
contained in this Section 6 and elsewhere in this Agreement, and all information
contained in any exhibit, schedule or attachment hereto or in any writing
delivered by, or on behalf of, the Company to the Purchaser, will
- 11 -
<PAGE> 12
be true and correct in all material respects on the date of the Closing as
though then made, except as affected by the transactions expressly contemplated
by this Agreement.
SECTION 7 - REPRESENTATIONS OF THE PURCHASER.
The Purchaser represents and warrants to the Company as follows:
7.1 (a) Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts, and has all requisite power and authority (corporate and other)
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
(b) Authorization. The execution and delivery by the Purchaser of
this Agreement and the consummation by the Purchaser of all transactions
contemplated hereunder has been duly authorized by all requisite corporate
action. This Agreement has been duly executed by the Purchaser. This Agreement
and all other agreements and obligations entered into and undertaken in
connection with the transactions contemplated hereby to which the Purchaser is a
party constitute the valid and legally binding obligations of the Purchaser,
enforceable against it in accordance with their respective terms, subject to the
Act, as set forth in Section 2.3, and subject to laws of general application
relating to bankruptcy, insolvency, relief of debtors and equitable principles
and except as rights to indemnity or contribution may be limited by applicable
law. Subject to clearance under the Act, as set forth in Section 2.3, the
execution, delivery and performance by the Purchaser of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby, will not,
with or without the giving of notice or the passage of time or both, (a) violate
the provisions of the Articles of Organization or By-laws of the Purchaser; or
(b) violate any judgment, decree, order or award of any court, governmental body
or arbitrator or any material agreement to which the Purchaser is a party or by
which the Purchaser is bound.
- 12 -
<PAGE> 13
7.2 Investment Representation.
(a) The Purchaser is acquiring the Shares for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of selling or distributing
the same and the Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the distribution thereof.
(b) The Purchaser has carefully reviewed the representations
concerning the Company and has made a detailed inquiry concerning the Company,
its business and its personnel; the officers of the Company have made available
to the Purchaser the opportunity to ask questions and receive answers concerning
the terms and conditions of the offering of the Shares made hereby and to obtain
any additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of
information provided by the Company to the Purchaser; the Purchaser has
sufficient knowledge and experience in business and financial matters so as to
be able to evaluate the risks and merits of its investment in the Company and is
able to sustain a complete loss of its investment in the Company; and the
Purchaser is an "accredited investor," as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
(c) The Purchaser understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act; (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 or otherwise
may not be available for at least two years.
- 13 -
<PAGE> 14
(d) The Purchaser will not attempt to sell, transfer or otherwise
dispose of all or any portion of the Shares in the absence of an effective
registration statement unless (i) an exemption from such registration is
available under the Securities Act and (ii) if requested by the Company, the
Purchaser shall have furnished to the Company an opinion of reputable securities
counsel satisfactory in form and substance to the Company and its counsel that
such proposed sale, transfer or other disposition would not be in violation of
the Securities Act and applicable state securities laws.
(e) A legend substantially in the following form will be placed on
the Certificate representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED. THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
CONDITIONS SPECIFIED IN A RESTRICTED STOCK PURCHASE AGREEMENT DATED
DECEMBER 9, 1996, BY AND AMONG CREATIVE BIOMOLECULES, INC. AND
BIOGEN, INC. AND NO TRANSFER OF SUCH SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH
AGREEMENTS CAN BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF CREATIVE
BIOMOLECULES, INC.
7.3 No Brokers or Finders. No person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon the Company for any commission, fee or other compensation as a
finder or broker because of any act by the Purchaser or of any agent of the
Purchaser. The Purchaser will pay, and hold the Company harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
- 14 -
<PAGE> 15
7.4 Closing Date. The representations and warranties of the Purchaser
contained in this Section 7 and elsewhere in this Agreement and all information
delivered by, or on behalf of, the Purchaser to the Company, will be true and
correct in all material respects on the date of the Closing as though then made,
except as affected by the transactions expressly contemplated by this Agreement.
SECTION 8 - BOARD SEAT
The Company shall continue to nominate James R. Tobin, as long as he
continues to be an employee of the Purchaser, to serve as a member of the Board
of Directors of the Company through his current term and through one additional
three-year term. Commencing with the date on which the additional three-year
term of Mr. Tobin ends, or if earlier, the date on which Mr. Tobin is no longer
an employee of the Purchaser, the Company shall nominate either the Chairman or
the President of the Purchaser to serve as a member of the Board of Directors of
the Company for the remainder of Mr. Tobin's terms under the preceding sentence
if Mr. Tobin leaves the Purchaser's employ during his original term or his
extension term and for two additional three year terms thereafter. This Section
8 shall terminate immediately upon termination of the License Agreement.
SECTION 9 - NOTICES.
Any notices or other communications required or permitted hereunder shall
be sufficiently given if delivered personally or sent by telex, nationally
recognized overnight delivery service, facsimile (receipt confirmed), registered
or certified mail, postage prepaid, addressed as follows or to such other
address of which the parties may have given notice:
(i) if to the Purchaser, to:
BIOGEN, INC.
14 Cambridge Center
Cambridge, MA 02142
Attn: Vice President - General Counsel
Fax No.: (617)679-2838
- 15 -
<PAGE> 16
(ii) if to the Company, to:
Creative BioMolecules, Inc.
45 South Street
Hopkinton, Massachusetts
Attn: President
Fax No.: (508) 435-6951
Unless otherwise specified herein, such notices or other communications shall be
deemed delivered (a) on the date delivered, if delivered by facsimile or
personally; (b) on the day after the notice is delivered into the possession and
control of a nationally recognized overnight delivery services, duly marked for
delivery to the receiving party; or (c) three business days after being sent, if
sent by registered or certified mail.
SECTION 10 - SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Purchaser, on the
one hand, and the Company, on the other hand, may not assign their respective
obligations hereunder without the prior written consent of the other party. Any
assignment in contravention of this Section 9 shall be void. No assignment shall
release the Purchaser or the Company from any obligation or liability under this
Agreement unless expressly agreed to by the non-assigning party.
SECTION 11 - REMEDIES.
The parties acknowledge that a breach of this Agreement will cause them
irreparable harm which will be difficult to quantify and for which money damages
would be inadequate. Therefore, in the event of such a breach or threat of such
a breach, in addition to any other legal or equitable remedies it may have, each
party shall be entitled to obtain specific performance of the other party's
- 16 -
<PAGE> 17
obligations and to obtain immediate injunctive relief, in each case without the
necessity of posting a bond.
SECTION 12 - COOPERATION.
The Purchaser agrees that in the event of any underwritten public offering
of securities of the Company, the Purchaser will comply with and agree to any
reasonable restriction on the transfer of shares of Common Stock imposed by an
underwriter and shall perform all acts and sign all necessary documents required
with respect thereto.
SECTION 13 - ENTIRE AGREEMENT; AMENDMENTS.
This Agreement and the other writings referred to herein or delivered
pursuant hereto contain the entire understanding and agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral and written and all contemporaneous oral negotiations, commitments
and understandings between such parties. This Agreement may be amended only by a
written amendment executed by both parties.
SECTION 14 - SEVERABILITY.
Any provision of this Agreement which is invalid, illegal or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity, illegality or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction.
SECTION 15 - EXPENSES.
Except as otherwise expressly provided herein, the Purchaser, on the one
hand, and the Company, on the other hand, will pay all fees and expenses
(including, without limitation, legal and accounting fees and expenses) incurred
by each of them in connection with the transactions contemplated hereby.
- 17 -
<PAGE> 18
SECTION 16 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties made in this Agreement or any other
instrument or document delivered in connection herewith or therewith, shall
survive the execution and delivery hereof or thereof for a period of five (5)
years.
SECTION 17 - WAIVER.
No failure or delay on the part of a party hereto in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder.
SECTION 18 - FURTHER ASSURANCES.
From and after the date of this Agreement, upon the reasonable request of
one party hereto, the other party hereto shall execute and deliver such
instruments, documents and other writings as may be necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
SECTION 19 - GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts without regard to choice of law
principles.
SECTION 20 - SECTION HEADINGS.
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
SECTION 21 - COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
- 18 -
<PAGE> 19
SECTION 22 - PERSON.
The term Person as used in this Agreement means any individual,
partnership, corporation, trust or other entity.
IN WITNESS WHEREOF, this Agreement has been duly executed under seal by
the parties hereto and delivered as of the date first above written.
CREATIVE BIOMOLECULES, INC.
By: /s/ Michael M. Tarnow
-------------------------------
Michael M. Tarnow
Chief Executive Officer
BIOGEN, INC.
By: /s/ James R. Tobin
-------------------------------
Name: James R. Tobin
Title: President and Chief Operating Officer
- 19 -
<PAGE> 20
EXHIBIT A
SCHEDULE OF EXCEPTIONS
None
- 20 -
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-68084, 33-83276 and 33-91150 on Form S-3 and Registration Statement Nos.
33-56704, 33-56706, 33-61884 and 33-80945 on Form S-8 of Creative BioMolecules,
Inc. of our report dated February 21, 1997, appearing in the Annual Report on
Form 10-K of Creative BioMolecules, Inc. for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Boston, Massachsuetts
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,1996 AND FOR THE
YEAR ENDED DECEMBER 31,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 38,248,988
<SECURITIES> 11,826,266
<RECEIVABLES> 1,454,696
<ALLOWANCES> 0
<INVENTORY> 1,341,914
<CURRENT-ASSETS> 53,080,750
<PP&E> 28,458,470
<DEPRECIATION> (12,234,094)
<TOTAL-ASSETS> 73,818,874
<CURRENT-LIABILITIES> 4,906,306
<BONDS> 1,651,493
0
0
<COMMON> 327,696
<OTHER-SE> 66,933,379
<TOTAL-LIABILITY-AND-EQUITY> 73,818,874
<SALES> 0
<TOTAL-REVENUES> 22,352,210
<CGS> 0
<TOTAL-COSTS> 3,823,442
<OTHER-EXPENSES> 15,650,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,906
<INCOME-PRETAX> (2,239,947)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,239,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,239,947)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
