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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-19986
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CELL GENESYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3061375
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OR ORGANIZATION)
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342 LAKESIDE DRIVE, FOSTER CITY, CALIFORNIA 94404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK $.001
PAR VALUE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(650) 425-4400
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 incorporated
by reference in Part III of this Form 10-K or any amendment to this Form
10-K. [X]
As of March 15, 1999, the approximate market value of voting stock held by
nonaffiliates of the Registrant was $161,608,413. 2,582,703 shares of Common
Stock held by each officer, director and holder of 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 15, 1999, the number of outstanding shares of the Registrant's
Common Stock was 30,997,389.
Documents incorporated by reference: The information called by Part III of
this Form 10-K is incorporated by reference to the definitive proxy statement
for the annual meeting of stockholders of the company which will be filed no
later than 120 days after December 31, 1998.
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TABLE OF CONTENTS
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PART I
Item 1. Business......................................... 2
Item 2. Properties....................................... 13
Item 3. Legal Proceedings................................ 14
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 15
Item 6. Selected Consolidated Financial Data............. 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 17
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk............................................ 29
Item 8. Consolidated Financial Statements and
Supplementary Data..................................... 30
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 49
PART III
Item 10. Directors and Executive Officers of the
Registrant............................................. 49
Item 11. Executive Compensation........................... 49
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................... 49
Item 13. Certain Relationships and Related Transactions... 49
PART IV
Item 14. Exhibits, Financial Statements Schedules and
Reports on Form 8-K.................................... 49
SIGNATURES.................................................. 53
POWER OF ATTORNEY........................................... 53
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PART I
ITEM 1. BUSINESS
OVERVIEW
Statements made in this document other than statements of historical fact,
including statements about the Company's and its subsidiary's clinical trials,
product pipelines, corporate partnerships, licenses and intellectual property,
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and are subject to a number of uncertainties that could cause actual results to
differ materially from the statements made, including risks associated with the
success of research and product development programs, patents, proprietary
technology and corporate partnerships. Reference is made to discussions about
risks associated with product development programs, intellectual property and
other risks which may affect the Company under "Risk Factors" below. The Company
does not undertake any obligation to update forward-looking statements.
Since its inception in April 1988, Cell Genesys, Inc. ("Cell Genesys" or
"the Company") has focused its research and product development efforts on human
disease therapies which are based on innovative gene modification technologies.
The Company's strategic objective is to develop and commercialize in vivo and/or
ex vivo gene therapies to treat major, life-threatening diseases including
cancer and AIDS. Cell Genesys' clinical programs include GVAX(TM) cancer
vaccines in Phase I/II studies to treat specific types of cancer, and T cell
gene therapy for AIDS, which is undergoing Phase II testing. GVAX(TM) vaccines
for prostate cancer and for lung cancer are being developed through a worldwide
collaboration with the pharmaceutical division of Japan Tobacco Inc. ("JT").
AIDS gene therapy is being developed through a worldwide collaboration with
Hoechst Marion Roussel, Inc. ("Hoechst Marion Roussel"). In addition, Cell
Genesys has preclinical programs, which are evaluating potential gene therapies
for cancer, cardiovascular disorders, hemophilia and Parkinson's disease. The
Company also has assets outside of its core business which can be used to help
maintain financial strength while product candidates are under development.
These assets include Cell Genesys' minority ownership of Abgenix, Inc.
("Abgenix", Nasdaq-AMEX: ABGX), which is focused on the development and
commercialization of antibody therapies and a licensing program in gene
activation technology.
During 1998, Cell Genesys continued to build its gene therapy business
through progress in both clinical and preclinical programs, by further
validating its technology through multiple scientific papers and patent
issuances, and by establishing the GVAX(TM) collaboration with JT. The Company
has prioritized its efforts, focusing on partnered clinical programs which offer
the greatest commercial potential and advancing preclinical programs to a point
where they can be partnered.
Cell Genesys believes that gene therapies are likely to be developed on a
continuum, progressing from ex vivo (modification of cells outside the patient's
body for injection as therapy) to in vivo (modification of cells within the
patient's body to provide therapy). The Company's goal is to emphasize
"off-the-shelf" products that enable gene therapy to be provided in out-patient
settings. These potentially include both non-patient-specific therapies, which
could be vialed pharmaceuticals for direct administration, and patient-specific
gene therapy products, which could be packaged as "kits" for overnight cell
processing at clinical laboratories.
Ex vivo gene therapies currently are being evaluated by Cell Genesys in
Phase I/II human clinical studies. These include studies of GVAX(TM) therapeutic
vaccines for specific types of cancer and studies of T cell AIDS gene therapy.
All of these gene therapies are designed to impart new disease-fighting
capabilities to the patient's immune system, in order to enhance an immune
response against diseased cells. During 1998, Phase I/II human trials evaluating
the GVAX(TM) vaccine for prostate cancer demonstrated antitumor effects as
measured by levels of prostate specific antigen (PSA), a cancer "marker." As a
result, the Company initiated additional GVAX(TM) clinical trials for prostate
cancer. Phase I/II trials for lung cancer and melanoma are continuing, and the
patients are now being evaluated. In Phase II trials of T cell gene therapy for
AIDS, data demonstrated safety in patients with persistent HIV in their
bloodstream as well as preliminary indications of potential antiviral activity.
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In vivo gene therapies are at the preclinical stage of development at Cell
Genesys. Treatment strategies may target cells that typically cannot be removed
from the body for external processing and therefore are modified within the
body. With in vivo gene therapy, the treatment goals include stimulating
targeted cells to produce a protein or other substance needed to normalize key
biological processes, or otherwise inhibiting specific disease processes. In
1998, the Company's preclinical research focused on studies of gene therapy in
animal models for hemophilia and Parkinson's disease, and on gene therapy
strategies to overcome restenosis, a serious complication of angioplasty for
cardiovascular disease. For example, in hemophilia studies, a single injection
of gene therapy resulted in improved blood clotting and reduced number of
bleeding episodes in a dog hemophilia model. Similarly, in studies for
Parkinson's disease, a single injection of gene therapy essentially eliminated
the need for daily L-dopa injections in mice with a Parkinson's-like condition.
Cardiovascular gene therapy studies demonstrated the successful delivery of
genes to blood vessel lining cells.
Cell Genesys ended 1998 with approximately $53 million in cash and
short-term investments. The Company has maintained its financial position by
relying on funding from various corporate collaborations and licensing
agreements, as well as through strategic management of its resources. Sources of
funding in 1998 included the signing of the GVAX(TM) collaboration with JT, a
sale of Abgenix common stock representing part of the Company's ownership
position, and payments received through its gene activation licensing program.
The Company's plan is to continue to finance its operations when possible
through corporate collaborations with established pharmaceutical and
biotechnology companies in order to develop its technologies as broadly as
possible, to fund product development and to accelerate the commercialization of
certain product opportunities. Such alliances are intended to provide financial
resources, research, development and manufacturing capabilities, and marketing
infrastructure to aid in the commercialization of potential disease therapies.
Cell Genesys also evaluates on an ongoing basis opportunities to in-license or
acquire genes and technologies that complement its portfolio. There can be no
assurance that Cell Genesys will be able to enter into additional collaborative
relationships or obtain new genes and technologies on acceptable terms, if at
all, or that if such actions occur, they will be successful. Failure to enter
new corporate relationships or expand Cell Genesys' product and technological
base may limit Cell Genesys' success unless alternative financing arrangements
are available.
BACKGROUND
For many years the pharmaceutical industry has focused on developing
chemical compounds as pharmaceutical drugs and disease therapies. These
traditional pharmaceutical products are most often synthesized in the laboratory
or derived from substances found in nature, and they include antibiotics,
antineoplastics, analgesics and a variety of other compounds. The therapeutic
value of such agents generally depends on their ability to stimulate or inhibit
physiological processes related to disease, to interfere directly with infection
or cancer, or to correct various chemical imbalances. In certain cases,
traditional pharmaceutical products may not be able to achieve these purposes,
due to a variety of reasons including unwanted side effects, delivery of
insufficient amounts of drug to the disease site, or treatment of symptoms
rather than the underlying cause of illness. Although the biotechnology industry
has made significant advances with respect to the development of therapeutic
products based on proteins or monoclonal antibodies, such products are not
always successful in treating certain complex diseases. Examples include types
of cancer, AIDS, cardiovascular diseases, neurologic conditions and a variety of
genetic diseases and disorders. Cell Genesys believes that an important approach
to the treatment of these and other diseases may involve the genetic
modification of cells, ex vivo or in vivo, to potentially provide new, enhanced
or expanded functions in the form of "gene therapy."
GENE THERAPY
A critical component of gene therapy are genes, or segments of DNA, which
typically are contained in the nucleus of cells. Genes provide the chemical
instructions that direct cells to produce proteins. The production process is
known as gene "expression," and the resulting proteins determine the nature and
function of cells and tissues in all living organisms.
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A worldwide effort has been under way for several years to discover and
study genes and their functions. Findings by academic institutions, government
organizations and various corporations are providing an increased understanding
of the relationship between specific genes and human disease. It is now well
known that genes are implicated in the cause of many diseases, including not
only inherited conditions involving a defective or missing gene, but also a wide
range of diseases arising from inappropriate biological activity, such as the
over- or under-expression of a normal gene as a result of environmental factors.
Certain genes also may provide therapeutic benefits by stimulating the
production of proteins that can overcome various disease processes.
The field known as gene therapy is based on the principle that naturally
occurring or genetically modified genes can be introduced into target cells to
bring about a therapeutic effect. Depending upon the choice of genetic material
delivered, gene therapy may be used to enhance normal cell activities or enable
cells to perform new roles. In addition, certain forms of gene therapy may
involve "gene correction," which introduces normal genes into relevant cells of
patients with genetically inherited diseases, or may involve "vaccination,"
which uses genetic material or modified cells to stimulate the patient's immune
response. Cell Genesys' lead gene therapy programs, which currently are
undergoing human clinical testing, are designed to expand the capabilities of
immune cells to target and more effectively fight disease.
Another key component of gene therapy is the methodology used to introduce
therapeutic genes into cells. Whether ex vivo or in vivo, the insertion of genes
into cells is typically accomplished using reagents known as vectors. The role
of vectors is to deliver the gene to the target cell, in order to allow the
production of a specific protein. Depending upon the type of gene and its
delivery site in the cell, the expressed protein may remain within the cell for
intracellular effect, travel to the cell membrane to exert a cell-surface
effect, or be secreted into the bloodstream to provide a systemic effect.
Different types of vectors are needed for multiple gene therapy products,
and the appropriateness of a specific vector is based on the disease indication,
safety considerations, production efficiencies, disease site and other factors.
Certain viruses, because of their natural ability to insert genes into cells,
have proven to be particularly efficient vectors and can be genetically modified
to eliminate inherent disease-causing properties. Engineered viruses may
potentially have selective capabilities for targeting the delivery of genes into
specific cell types and specific regions within the cells. To date, Cell Genesys
has focused its gene delivery efforts primarily on the development and use of
viral vector systems, including adenoviral, adeno-associated viral, lentiviral
and retroviral vectors.
PRODUCT DEVELOPMENT
Cell Genesys' strategic objective is to develop and commercialize ex vivo
and in vivo gene therapies to treat major, life-threatening diseases and
disorders. Toward this end, Cell Genesys is genetically modifying selected cell
types, using patient-specific or more broadly applicable treatment approaches,
to impart disease-fighting capabilities that are not possible with conventional
therapeutic agents.
Clinical Programs
OVERVIEW OF GVAX(TM) CANCER VACCINE PROGRAM. GVAX(TM) cancer vaccine is a
treatment vaccine, not a preventative, designed to stimulate the patient's
overall immune system to effectively fight cancer. This program, was obtained by
Cell Genesys as part of its acquisition of Somatix Therapy Corporation in 1997.
The GVAX(TM) cancer vaccine is composed of tumor cells which are genetically
modified to secrete an immune-stimulating protein, granulocyte-macrophage colony
stimulating factor (GM-CSF), and then are lethally irradiated for safety.
Administration of the resulting product involves injecting the genetically
modified, irradiated cells into the patient. The goal is to stimulate an
anti-tumor immune response that targets and destroys tumor cells which persist
or recur following surgery, radiation therapy and other forms of cancer
treatment. Cell Genesys is currently testing two configurations of its
second-generation GVAX(TM) cancer vaccine in human clinical studies, a
non-patient-specific format in prostate cancer and a patient-specific format in
lung cancer and melanoma. Phase I results from an earlier, first-generation
GVAX(TM) vaccine substantiated the potential of the patient-specific treatment
approach. Among patients with advanced
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metastatic melanoma, 11 of 16 patients in whom biopsies were possible
demonstrated potent antitumor immunity. The evidence included dense infiltration
of immune cells into metastatic tumors, detection of antitumor T cells and
antibodies specific to melanoma, and destruction of tumor blood vessels.
GVAX(TM) VACCINE FOR PROSTATE CANCER. This product candidate is comprised
of an "allogeneic" (non-patient specific) vaccine which employs prostate cancer
cell lines that have been genetically modified with GM-CSF and irradiated for
safety. The Company's plan is to develop and manufacture this potential product
as an "off-the-shelf" pharmaceutical for use after surgery or radiation therapy
for the primary cancer. In ongoing Phase I/II studies, prostate cancer patients
who have rising PSA levels indicative of recurrent disease are receiving the
prostate cancer GVAX(TM) vaccine by intradermal injection. The objective of
these initial trials is to conduct a preliminary evaluation of the safety and
activity of the product. Interim results of the initial Phase I/II trial,
conducted at Johns Hopkins Medical Institutions in 21 patients, were reported in
late 1998. These results indicated that the treatment was safe and well
tolerated and that it resulted in antitumor effects as measured by blood levels
of PSA. Disease stabilization and a decrease in rising PSA levels were observed
in 11 of 15 (73 percent) patients then evaluable at three months following the
vaccine treatment. Two patients experienced a greater than 50 percent decrease
in PSA levels, in one case continuing after eight months. The Company
anticipates that further results from this initial trial will be reported during
1999. Based on the data from this initial trial, Cell Genesys has initiated an
expanded Phase I/II trial of prostate cancer GVAX(TM) to optimize the dose and
treatment regimen and is planning an additional study in men who have failed
hormone treatment for prostate cancer. Both of these studies will include
approximately 40 patients and will be conducted at Johns Hopkins Medical
Institutions (Baltimore, MD), University of California, San Francisco, and PRN
Research, Inc. (Dallas, TX).
GVAX(TM) VACCINES FOR LUNG CANCER AND MELANOMA. This product candidate is
comprised of an "autologous" (patient-specific) vaccine which employs cancer
cells obtained from individual patients. After surgical removal of a patient's
tumor, the vaccine is prepared by genetically modifying the cells to secrete
GM-CSF and irradiating them for safety. The production process involves an
adenoviral gene delivery system that allows overnight preparation of the vaccine
at the hospital. The vaccine is injected into the patient with the intent of
stimulating an immune response against the patient's own tumor cells. This form
of GVAX(TM) could potentially be commercialized by Cell Genesys as a gene
therapy "kit" for use by hospitals to produce vaccines on a patient-by-patient
basis. Phase I/II clinical trials are in progress for lung cancer and melanoma
at Dana-Farber Partners Cancer Care, Harvard Medical School (Boston, MA).
Approximately 25 lung cancer patients and 25 melanoma patients are participating
in the clinical trials. The company anticipates that results from these trials
will be reported during 1999.
Cell Genesys' GVAX(TM) cancer vaccines are novel therapies which must
undergo rigorous human testing regulated by the FDA. There is no assurance that
either configuration of GVAX(TM) will be proven safe or efficacious, or if
approved, that either configuration can be successfully commercialized. Although
preliminary results reported to date from Cell Genesys' Phase I/II clinical
testing of GVAX(TM) vaccine for prostate cancer are encouraging, and the therapy
appears to be both safe and well tolerated by patients, there can be no
assurance that this therapy will be tolerated over an extended period of time or
that the clinical efficacy of this therapy will be demonstrated. There also can
be no assurance that Phase I/II studies of GVAX(TM) vaccines for the treatment
of lung cancer or melanoma will demonstrate clinical efficacy. Any conclusion as
to whether the Company's GVAX(TM) cancer vaccines can potentially play a role in
the treatment of prostate cancer, lung cancer or melanoma will be based on both
the results of ongoing Phase I/II clinical trials as well as future Phase II and
Phase III studies.
T CELL GENE THERAPY FOR HIV INFECTION. Human immunodeficiency virus ("HIV")
is the virus which infects the human immune system and causes AIDS. A number of
antiviral drugs have been approved by the U.S. Food and Drug Administration
("FDA") to inhibit replication of HIV in infected individuals and thereby slow
the spread of infection throughout the immune system. However, none of these
antiviral drugs is able to kill HIV-infected cells and eliminate persistent
sites of infection with the virus. Furthermore, AIDS patients undergoing
long-term therapy may become drug-resistant, and extensive evidence now shows
that the virus reappears when drug resistance occurs, or within a short period
following the discontinuation of antiviral therapy.
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Cell Genesys' T cell gene therapy for HIV infection involves genetically
modifying the patient's own immune T cells to impart the ability to recognize
and destroy HIV-infected cells potentially eliminating reservoirs of virus that
persist despite antiviral drugs. Specifically, killer T cells (CD8 cells) and
helper T cells (CD4 cells) are collected from the patient's blood via a standard
blood bank procedure (apheresis) and are genetically modified with the CD4-zeta
gene, which encodes a novel cell surface receptor that targets a viral protein
present on HIV-infected cells. The genetically modified T cells are then
expanded in number and infused into the patient periodically in an outpatient
clinical setting, with the goal of reducing the number of HIV-infected cells.
Cell Genesys has conducted Phase II clinical studies of T cell gene therapy for
HIV infection in combination with antiviral drugs. These studies are being
conducted at multiple clinical sites including the University of California at
San Francisco, Massachusetts General Hospital, University of California at Los
Angeles, the AIDS Community Research Consortium, and ViRx, Inc. Cell Genesys'
initial Phase II trial evaluated patients who were receiving antiretroviral drug
therapy but still had detectable HIV in their blood. Clinical data reported for
this initial trial showed no treatment-related safety problems and successfully
demonstrated persistence of the genetically modified T cells in the circulatory
system for at least 100 days following cell infusion. Preliminary evidence of
potential antiviral activity included a trend toward decreasing levels of HIV in
gastrointestinal lymph tissue, a primary reservoir for HIV-infected cells, in
four of five patients tested. A second multi-center Phase II trial of the
Company's AIDS gene therapy is being conducted in approximately 40 patients who
have no detectable virus in their blood while receiving antiretroviral drugs.
Results from this trial are expected to be available during 1999.
Cell Genesys' AIDS gene therapy is a novel therapy which must undergo
rigorous human testing regulated by the FDA. There is no assurance that the
therapy will be proven safe or efficacious, or if approved, that the therapy can
be successfully commercialized. Although there have been no treatment-related
side effects to date, there can be no assurance that this therapy will be
tolerated by the patient over an extended period of time or that the clinical
efficacy of this therapy will be demonstrated. Any conclusion as to whether the
Company's gene therapy can potentially play a role in the treatment of AIDS will
be based on the results of ongoing Phase II clinical trials as well as future
Phase III trials.
T CELL GENE THERAPY FOR CANCER. Cell Genesys has also conducted research
and development of T cell gene therapy for the treatment of specific types of
cancer. During 1998, the Company completed Phase I/II testing of T cell gene
therapy for colon cancer. The patient-specific treatment involved genetically
modifying the patient's own T cells with a proprietary therapeutic gene,
CC49-zeta, which targets TAG-72, a protein present on many types of cancer
cells. Data from both an intravenous and intrahepatic infusion study of T cell
gene therapy, in patients with advanced colon cancer with liver metastases,
indicated that the treatment could be safely administered in an outpatient
setting and that the genetically modified T cells persisted and trafficked to
the liver. No antitumor activity was observed in these studies. Cell Genesys
currently plans to establish collaborative arrangements before proceeding with
additional studies of T cell cancer gene therapy.
Preclinical Programs
During 1998, Cell Genesys conducted preclinical studies in three in vivo
gene therapy programs including hemophilia, Parkinson's disease and
cardiovascular disorders. Findings to date have been encouraging, and the
Company is seeking corporate partners to support the next stages of product
development.
HEMOPHILIA GENE THERAPY. Cell Genesys scientists and academic collaborators
have evaluated gene therapy using an adeno-associated viral (AAV) vector to
deliver the factor IX gene into the liver of both small and large animals with
hemophilia. Factor IX is deficient in one type of hemophilia referred to as
hemophilia B. Liver cells are the primary site for production of blood clotting
proteins. With successful gene therapy, liver cells may be modified to provide a
missing blood clotting protein. In the preclinical studies of hemophilia gene
therapy, a single gene therapy injection led to stable production of the factor
IX protein for the duration of study: seventeen months in mice and eight months
in dogs. In the treated dogs, the time required to form blood clots was reduced,
and there was a greater than 90 percent reduction in bleeding episodes in the
large animals. No immune response against the gene therapy was observed.
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PARKINSON'S DISEASE GENE THERAPY. Cell Genesys scientists and academic
collaborators have also evaluated AAV-based gene therapy in Parkinson's disease,
a neurodegenerative condition affecting brain cells responsible for movement and
speech. Currently, the drug, L-dopa is commonly prescribed as a treatment for
Parkinson's disease. In a study in mice exhibiting certain Parkinson's symptoms,
an AAV gene delivery system was used to deliver the genes required for the
production of L-dopa to specific regions of the brain where L-dopa production
could be detected throughout the one-year observation period. Additionally,
after a single gene therapy injection, treated mice could survive during the
study without daily L-dopa treatments.
CARDIOVASCULAR GENE THERAPY. Cell Genesys' cardiovascular gene therapy
program is focused on the development of gene therapy to prevent or treat
restenosis, a complication of thrombolysis and angioplasty, a surgical procedure
employed to open blood vessel blockages and restore blood flow in patients with
cardiovascular disease. Restenosis occurs when blood vessel lining cells migrate
to and proliferate at such treatment sites thereby constricting blood flow. Cell
Genesys believes that gene therapy represents a potential approach to treating
or preventing restenosis by delivering genes to blood vessel lining cells that
can inhibit or slow the proliferation of the blood vessel cells associated with
restenosis. Medical procedures are currently available to achieve the
site-specific delivery of these genes to appropriate sites in blood vessels.
Cell Genesys scientists and academic collaborators have demonstrated that
adenoviral gene delivery systems can be used to deliver genes to blood vessel
lining cells in studies in rabbits and that certain genes can reduce the
proliferation of cells that contribute to restenosis.
PROPRIETARY GENE THERAPY TECHNOLOGIES
Successful gene therapy -- ex vivo or in vivo -- depends on an effective
combination of therapeutic genes and vectors, the gene delivery technologies
used to transfer genes into cells. Cell Genesys' proprietary gene delivery
technologies include adenoviral, adeno-associated viral (AAV), lentiviral and
retroviral vectors. This broad portfolio of vectors enhances the number of gene
therapy applications that the Company and its collaborators can pursue.
The selection of a specific vector is based on the disease indication,
safety considerations, production efficiencies, disease site and other factors.
Adenoviral vectors deliver larger genes into dividing or nondividing cells, and
they are currently being used ex vivo in human clinical studies of GVAX(TM)
vaccine for lung cancer and melanoma. Adenoviral vectors are also being used in
vivo in preclinical studies to deliver genes to cardiovascular cells.
Adeno-associated viral (AAV) vectors deliver smaller genes to certain
nondividing cells, including muscle, liver, nerve and blood vessel cells.
Effective in vivo gene delivery using the AAV vector has been achieved in the
Company's hemophilia and Parkinson's disease preclinical programs. Lentiviral
vectors deliver larger genes to dividing and nondividing cells, including nerve,
liver, muscle and bone marrow stem cells. Company scientists have recently
described that the improved third-generation lentiviral vectors, a potential
candidate for human clinical studies, which employ a new safety mechanism which
can prevent the vector from functioning should it recombine with infectious
virus already present in the individual receiving the gene therapy treatment.
Finally, retroviral vectors are suitable for delivering genes ex vivo to
dividing cells such as immune system T cells and are currently being employed in
the Company's clinical programs for T cell AIDS gene therapy.
Cell Genesys believes that its broad portfolio of vectors position the
company as an attractive partner for biotechnology and pharmaceutical companies
as well as academic institutions which have proprietary genes with potential in
gene therapy. Cell Genesys expects to enter collaborations with such companies
or institutions to license genes for product development. One example of this
strategy is the worldwide license and research collaboration which Cell Genesys
signed in 1998 with Mitotix, Inc. under which Cell Genesys has exclusive rights
to use cell cycle inhibitor genes for the development of gene therapy products
for cardiovascular disease and other indications.
GOVERNMENT REGULATIONS
FDA REGULATION. The activities required before a pharmaceutical agent may
be marketed in the United States begin with preclinical testing. Preclinical
tests include laboratory evaluation of potential products and
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animal studies to assess the potential safety and efficacy of the product and
its formulations. The results of these studies and other information must be
submitted to the FDA as part of an investigational new drug application, which
must be reviewed and approved by the FDA before proposed clinical testing can
begin. Clinical trials involve the administration of the investigational new
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with Good
Clinical Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational new drug application. Further, each clinical study must be
conducted under the auspices of an independent institutional review board at the
institution at which the study will be conducted. The institutional review board
will consider, among other things, ethical factors and the safety of human
subjects. In addition, certain protocols involving the use of genetically
modified human cells must also be reviewed by the Recombinant Advisory Committee
of the National Institutes of Health.
Typically, clinical testing involves a three-phase process. In Phase I,
clinical trials are conducted with a small number of subjects to determine the
early safety profile and pharmacology of the new therapy. In Phase II, clinical
trials are conducted with groups of patients afflicted with a specific disease
in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large scale, multicenter, comparative clinical
trials are conducted with patients afflicted with a target disease in order to
provide enough data for the statistical proof of efficacy and safety required by
the FDA and others. In the case of products for life-threatening diseases, the
initial human testing is generally done with diseased patients rather than with
healthy volunteers. Since these patients are already afflicted with the target
disease, it is possible that such studies may provide results traditionally
obtained in Phase II trials. These trials are frequently referred to as Phase
I/II trials. Although the preliminary Phase I/II clinical results of Cell
Genesys' GVAX(TM) cancer vaccine and AIDS gene therapy have shown no significant
treatment-related safety problems to date, there can be no assurance that such
therapy or product will be tolerated at higher doses or that the clinical
efficacy of such therapy or product will be demonstrated.
The results of the preclinical and clinical testing, together with
chemistry and manufacturing information, are submitted to the FDA in the form of
a new drug application for a pharmaceutical product, and in the form of a
product license application for a biological product, for approval to commence
commercial sales. In responding to a new drug application or a product license
application, the FDA may grant marketing approvals, request additional
information or further research, or deny the application if it determines that
the application does not satisfy its regulatory approval criteria. Approvals may
not be granted on a timely basis, if at all, or if granted may not cover all the
clinical indications for which Cell Genesys is seeking approval or may contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
OTHER GOVERNMENT REGULATION. In addition to laws and regulations enforced
by the FDA, Cell Genesys is also subject to regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other present and
potential future federal, state or local laws and regulations as Cell Genesys
research and development involves the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds.
Cell Genesys' manufacturing facility for production of clinical quantities
of its products was licensed in 1994 by the California Department of Health
Services. The California Department of Health Services may inspect the facility
annually. Manufacture of clinical quantities of Cell Genesys' products does not
require an FDA license, although the FDA may at any time inspect the facility.
The continued operation of this facility requires compliance with FDA standards
for this type of manufacturing. A separate license from the FDA is required for
commercial manufacturing of any products. During 1995, Cell Genesys completed
construction of a clinical scale manufacturing facility. This facility has been
used to process cells for Cell Genesys' clinical testing of its T cell gene
therapy and additionally is being used to manufacture clinical product for the
company's Phase I/II clinical trials of GVAX(TM) cancer vaccine. Cell Genesys
will consider contract manufacturing for commercial scale requirements in the
future to the extent possible, or expansion of its own facilities if necessary.
8
<PAGE> 10
CELL GENESYS ASSETS OUTSIDE OF ITS CORE BUSINESS IN GENE THERAPY
MINORITY-OWNED ABGENIX, INC. ("ABGENIX") SUBSIDIARY. Abgenix is developing
antibody therapies for transplantation-associated medical conditions,
inflammation, autoimmune disorders and cancer. Abgenix's core technology
includes strains of transgenic mice capable of generating fully human
antibodies. Cell Genesys formed Abgenix as a separate business subsidiary in
June 1996, contributing $14 million in cash, research, development and
manufacturing technology as well as patents and other intellectual property
specific to the antibody therapy programs. Abgenix completed its public offering
(Nasdaq-AMEX: ABGX) in July 1998. Following the initial public offering, Cell
Genesys' ownership of Abgenix dropped below 50 percent. In a private placement
during November 1998, Cell Genesys sold approximately 1.1 million shares of
Abgenix common stock, thereby reducing its Abgenix ownership to approximately 30
percent. In March, 1999, Abgenix completed the sale of 3 million shares of
common stock in a follow-on offering reducing Cell Genesys' ownership of Abgenix
to approximately 22 percent. The Company may decide to sell additional shares of
Abgenix common stock over time, when appropriate to provide additional funding
for Cell Genesys' gene therapy business.
GENE ACTIVATION TECHNOLOGY. Cell Genesys has developed a novel and
proprietary method for protein production referred to as "gene activation." Gene
activation involves the insertion of genetic regulatory elements at specific
sites in cell chromosomes in proximity to a human gene responsible for the
production ("expression") of a therapeutic protein. Subsequently, the
gene-activated protein could be produced in a cell-based production system. Gene
activation may be applied to therapeutic proteins such as erythropoietin (EPO)
and potentially other proteins and may offer certain advantages. Gene activation
licensing agreements have provided more than $21 million in revenues to Cell
Genesys as of February 1999. Most recently, Cell Genesys executed a license
agreement with Hoechst Marion Roussel in February 1997 for gene-activated EPO
and a second undisclosed protein. The agreement provides for up to $26 million
in milestone payments and fees, in addition to any royalties on future sales of
these two potential gene-activated protein products. As of February 1999, Cell
Genesys had received over $13 million under this license agreement, including a
milestone payment for the 1998 initiation of a Phase III clinical trial for
gene-activated EPO, which Hoechst Marion Roussel is developing in collaboration
with Transkaryotic Therapies, Inc., and a milestone payment for the 1998
granting of a European patent to Cell Genesys for gene activation technology.
CORPORATE COLLABORATIONS
PHARMACEUTICAL DIVISION OF JAPAN TOBACCO. In December 1998, Cell Genesys
announced the signing of a worldwide collaboration with the pharmaceutical
division of Japan Tobacco Inc. ("JT") for selected product candidates from the
Company's GVAX(TM) cancer vaccine program. Initially the collaboration will
focus on two targets: prostate cancer and lung cancer. Under the terms of the
agreement, the two parties will share equally in the product development costs
and future profits on a worldwide basis. Cell Genesys will have marketing rights
in North America; JT will have marketing rights in Japan, Taiwan and Korea; and
the two companies will share equally in marketing rights in Europe and the rest
of the world. The agreement provides for committed payments to Cell Genesys of
$12.7 million due at signature and a first anniversary payment of $2.5 million.
Based primarily on the research and development progress with the two GVAX(TM)
products, Cell Genesys could receive up to $27.5 million in research and
development funding in the first three years, and approximately $80 million in
milestone payments if JT continues in the collaboration through the regulatory
approvals of the two products. Additionally, the agreement provides for loans of
up to $30 million to Cell Genesys for Phase III development costs if JT
continues in the collaboration into Phase III trials. The parties have also
agreed to support an ongoing clinical trial of GVAX(TM) for kidney cancer in
Japan which is the first clinical trial of cancer gene therapy in Japan. If the
parties agree to proceed with the development of this third GVAX(TM) product,
Cell Genesys will be eligible to receive additional funding in the form of
research and development reimbursements and other payments to be agreed upon at
a later date. Of the above payments to be received by Cell Genesys,
approximately $45 million thereof are expected during the first two years of the
agreement. None of the payments involve an additional equity investment in Cell
Genesys by JT, which currently owns approximately 3 percent of the Company. This
is the second collaboration agreement between
9
<PAGE> 11
Cell Genesys and JT. The first collaboration, signed in 1991, funded the
successful development of the fully human monoclonal antibody technology
employed by Abgenix.
HOECHST MARION ROUSSEL. In 1995, Cell Genesys signed a worldwide agreement
with Hoechst Marion Roussel for the development and commercialization of Cell
Genesys' AIDS gene therapy program. Under the agreement, Cell Genesys is leading
product development in North America and would provide worldwide manufacturing
services. Hoechst Marion Roussel has worldwide marketing rights to AIDS gene
therapy. In North America, Cell Genesys will participate in profit sharing and
has retained a co-promotion option. Elsewhere in the world, Cell Genesys will
receive royalties. Cell Genesys has retained worldwide rights for any cancer
gene therapy. In addition to AIDS gene therapy, Hoechst Marion Roussel also has
preferential rights for up to two additional T cell gene therapy product
candidates that, if exercised, would result in additional payments to Cell
Genesys. The collaboration also provides for consolidation of intellectual
property related to Cell Genesys' gene therapy technology through a
cross-licensing agreement among Cell Genesys, Hoechst Marion Roussel and its
licensor in this field, Massachusetts General Hospital. Through December 1998,
Cell Genesys has received approximately $63.6 million under its agreement with
Hoechst Marion Roussel including a $20 million equity investment in Cell
Genesys' common stock representing approximately 6 percent of the outstanding
Cell Genesys common stock as of December 31, 1998. There can be no assurance
that Cell Genesys will receive any further progress-dependent funding from
Hoechst Marion Roussel pursuant to this arrangement, or that Hoechst Marion
Roussel will exercise its warrant to purchase additional shares of Cell Genesys'
common stock.
OTHER COLLABORATIONS. Cell Genesys entered into two agreements in 1998
relating to its cardiovascular technology. The first was a worldwide license and
research collaboration with Mitotix, Inc. under which Cell Genesys has exclusive
rights to use certain cell cycle inhibitor genes for the development of gene
therapy products to treat cardiovascular disease and other indications. The
agreement also covers a research collaboration in which Mitotix scientists are
conducting research to enhance cell cycle inhibitors for Cell Genesys'
development of these products. Additionally, Cell Genesys signed a research
collaboration agreement with Collateral Therapeutics, Inc. Under this agreement,
Collateral is evaluating Cell Genesys' second-generation recombinant adenoviral
vectors in preclinical studies of cardiovascular gene therapy.
GENE THERAPY PATENTS AND TRADE SECRETS
The patent positions of pharmaceutical and biotechnology firms, including
Cell Genesys, are generally uncertain and involve complex legal and factual
questions. Cell Genesys currently has approximately 150 issued or granted
patents and more than 300 pending applications. While Cell Genesys is currently
prosecuting its patent applications, it cannot be certain whether any given
application will result in the issuance of a patent or, if any patent is issued,
whether it will provide significant proprietary protection or will be
invalidated. Because patent applications in the United States are confidential
until patents are issued and publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries by several months, Cell
Genesys cannot be certain that it was the first creator of inventions covered by
pending patent applications or that it was the first to file patent applications
for such inventions.
The commercial success of the Company will also depend in part on not
infringing the patents or proprietary rights of others and not breaching
licenses granted to the Company. The Company may be required to obtain licenses
to third party technology or genes necessary to conduct its business. Any
failure by the Company to license at reasonable cost any technology or genes
required to commercialize its technologies or products may have a material
adverse effect on the Company's business, results of operations, financial
condition or cash flow.
Litigation, which could result in substantial cost to the Company, may also
be necessary to enforce any patents issued to the Company or to determine the
scope and validity of other parties' proprietary rights. To determine the
priority of inventions, interference proceedings are frequently declared by the
U.S. Patent Office that could result in substantial costs to the Company and may
result in an adverse decision as to the priority of the Company's inventions.
Cell Genesys is currently involved in interference and/or opposition proceedings
with regard to: (i) gene activation technology, (ii) ex vivo gene therapy, and
(iii) chimeric receptor
10
<PAGE> 12
technology employed in the company's T cell gene therapy program. The outcome of
these proceedings cannot be predicted, but are not expected to have a material
adverse effect on the Company's intellectual property position or its business.
The Company may be involved in other interference and/or opposition proceedings
in the future. The Company believes there will continue to be significant
litigation in the industry regarding patent and other intellectual property
rights.
The Company also relies on unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position. No assurance can be given that others will
not independently develop substantially equivalent proprietary information and
techniques, or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its rights to its
unpatented trade secrets.
Cell Genesys requires its employees and consultants to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. These agreements provide that all confidential
information developed by or made known to an individual during the course of the
employment or consulting relationship generally must be kept confidential. In
the case of employees, the agreements provide that all inventions conceived by
the individual, while employed by the Company, relating to the Company's
business are the Company's exclusive property. These agreements may not provide
meaningful protection for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
HUMAN RESOURCES
As of December 31, 1998, Cell Genesys employed 118 persons, of whom 18 hold
Ph.D. degrees and 3 hold M.D. degrees. Approximately 89 employees are engaged in
research and development, and 29 support business development, intellectual
property, finance and other administrative functions. Cell Genesys' senior
management and directors have had prior product development experience in the
biotechnology and pharmaceutical industries.
Cell Genesys' success will depend in large part upon its ability to attract
and retain employees. Cell Genesys faces competition in this regard from other
companies, research and academic institutions, government entities and other
organizations. Cell Genesys believes that it maintains good relations with its
employees.
EXECUTIVE OFFICERS
The executive officers of Cell Genesys and their ages as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CELL GENESYS
---- --- --------------------------
<S> <C> <C>
Stephen A. Sherwin, M.D. ............ 50 Chairman of the Board, President and Chief Executive
Officer
Matthew J. Pfeffer................... 41 Chief Financial Officer
Dale G. Ando M.D. ................... 45 Vice President -- Clinical Research and Regulatory
Affairs
David F. Broad, Ph.D. ............... 45 Vice President -- Development and Manufacturing
Mitchell H. Finer, Ph.D. ............ 40 Vice President -- Research
Bruce A. Hironaka.................... 44 Vice President -- Corporate Development
Christine McKinley................... 45 Vice President -- Human Resources
</TABLE>
Dr. Sherwin has served as the president and chief executive officer and a
director of Cell Genesys since March 1990. In March 1994, Dr. Sherwin was
elected to the additional position of chairman of the board of directors of Cell
Genesys. From 1983 to 1990, Dr. Sherwin held various positions at Genentech,
Inc., a biotechnology company, most recently as vice president of clinical
research. Prior to 1983, Dr. Sherwin held various positions on the staff of the
National Cancer Institute. Dr. Sherwin also currently serves as an associate
clinical professor of medicine at the University of California, San Francisco, a
position he has held since 1986. Dr. Sherwin currently serves as chairman of the
board of Abgenix, Inc. and is also a director of the California Healthcare
Institute, a non-profit institution. Dr. Sherwin holds a B.A. in biology from
Yale University and an M.D. from Harvard Medical School.
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<PAGE> 13
Mr. Pfeffer joined Cell Genesys in June 1996 as director of finance and was
appointed chief financial officer in September 1998. From 1989 to 1996, Mr.
Pfeffer held a variety of positions at Diasonics Ultrasound, Inc., most recently
as corporate controller. From 1987 to 1989, he was in the finance department at
ComputerLand Corporation. From 1981 to 1987, Mr. Pfeffer was in the audit and
consulting groups at Price Waterhouse, where he obtained his CPA certificate.
Mr. Pfeffer graduated with a B.S. degree in business administration from the
University of California, Berkeley.
Dr. Ando, vice president, clinical research and regulatory affairs, joined
Cell Genesys in July 1997. Dr. Ando brings over nine years of clinical
development and research experience to Cell Genesys, including three years at
Cetus Corporation and six years at Chiron Corporation. Most recently he has
served as director of clinical gene therapy for Chiron Technologies at Chiron.
His experience includes clinical development of biological therapeutics and gene
therapy for both cancer and HIV infection. Dr. Ando began his career as a
faculty member at UCLA medical school in the division of rheumatology. He
received his M.D. and Internal Medicine training at the University of Michigan
and a B.S. in Chemistry from Stanford University.
Dr. Broad joined Cell Genesys in 1993 and is currently vice president of
development and manufacturing. His prior experience in biological product
development includes more than six years at Celltech Limited, where he
specialized in cell-based manufacturing systems for therapeutic proteins and
antibodies. Dr. Broad also served as a senior development scientist at Beecham
Pharmaceuticals. He received his B.S. and Ph.D. in microbiology from the
University of London and served as a postdoctoral research fellow in the
Microbiology Section of the School of Pharmacy, University of London.
Dr. Finer, vice president, research of Cell Genesys, joined Cell Genesys in
1990, serving in a variety of scientific positions. He has provided scientific
leadership to both the ex vivo and in vivo gene therapy programs at Cell
Genesys. Prior to joining Cell Genesys, Dr. Finer was an American Cancer Society
postdoctoral fellow at the Whitehead Institute for Biomedical Research. He
received his B.A. in biochemistry, microbiology and immunology from the
University of California, Berkeley and his Ph.D. in biochemistry and molecular
biology from Harvard University. He served as a postdoctoral fellow at the
Whitehead Institute of the Massachusetts Institute of Technology.
Mr. Hironaka, vice president, corporate development, joined Cell Genesys in
1994. From 1992 to 1994, Mr. Hironaka was with Aviron, a biotechnology company
focusing on viral vaccines, most recently as vice president responsible for
business development, finance, human resource and operations. Previously, he was
a consultant with McKinsey & Company, a leading international management
consulting firm. Mr. Hironaka received an A.B. in economics from the University
of California, Berkeley and holds an M.B.A. and J.D. from Stanford University.
Ms. McKinley, vice president, human resources joined Cell Genesys in l994.
From 1986 to 1994, she was responsible for human resources at Nellcor Puritan
Bennett, Inc. Previously, Ms. McKinley also worked at Genentech, Inc. for seven
years in various human resource positions. She received a B.A. in psychology
from the University of California, Santa Barbara.
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<PAGE> 14
SCIENTIFIC ADVISORY BOARD
Cell Genesys has created a prominent scientific advisory board that
includes several leaders in the gene therapy field. The board consists of the
following individuals:
<TABLE>
<CAPTION>
NAME SCIENTIFIC POSITION
---- -------------------
<S> <C>
Fred H. Gage, Ph.D. ...................... Professor of Neuroscience at The Salk Institute for
Biological Studies
Ronald N. Germain, M.D., Ph.D. ........... Deputy Chief of Laboratory of Immunology
Chief, Lymphocyte Biology Section
National Institutes of Health
National Institute of Allergy and Infectious Diseases
Jordan U. Gutterman, M.D. ................ Chairman, Clinical Immunology and Biological Therapy M.D.
Anderson Cancer Center
Philip A. Hieter, Ph.D. .................. Professor of Medical Genetics
University of British Columbia
Center for Molecular Medicine & Therapeutics
Raju S. Kucherlapati, Ph.D. .............. Kramer Professor
Chairman of the Department of Molecular Genetics
Albert Einstein College of Medicine
Richard C. Mulligan, Ph.D. ............... Investigator, Howard Hughes Medical Institute Children's
Hospital;
Mallinckrodt Professor of Genetics
Harvard Medical School
John T. Potts, Jr., M.D. ................. Director of Research
Massachusetts General Hospital; Physician-in-Chief Emeritus
Jackson Distinguished Professor of Clinical Medicine
Harvard Medical School
Thomas E. Shenk, Ph.D. ................... Elkins Professor
Chairman of the Department of Molecular Biology
Investigator, Howard Hughes Medical Institute
Professor, Princeton University
Inder M. Verma, Ph.D. .................... Professor of Molecular Biology and Virology
The Salk Institute
Arthur Weiss, M.D., Ph.D. ................ Chief, Rheumatology Division
Ephraim P. Engleman Distinguished Professor of Rheumatology
Investigator, Howard Hughes Medical Institute
University of California, San Francisco
</TABLE>
ITEM 2. PROPERTIES
Cell Genesys occupies administrative offices and research laboratories
covering approximately 80,000 square feet of space in a research and development
office park located in Foster City, California. Cell Genesys' lease of these
facilities expires in 2002, with an option to renew the lease for an additional
four-year term. Cell Genesys' laboratories are equipped for biochemical and
tissue culture research and development. Additionally, Cell Genesys has
constructed a facility licensed for Good Manufacturing Practices ("GMP")
manufacturing of clinical quantities of Cell Genesys' products.
In addition, Cell Genesys leases certain other facilities, including
facilities assumed as part of its acquisition of Somatix Therapy Corporation in
1997. These facilities are not currently occupied by Cell
13
<PAGE> 15
Genesys, but are largely sublet to other companies under sub-leasing
arrangements. Cell Genesys also retains approximately 25,000 square feet of GMP
manufacturing space in Alameda, Calif. available for manufacturing of future
products. The Company believes its facilities are in good repair and are
adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Cell Genesys common stock is traded in the over-the-counter market and
is quoted on The Nasdaq-AMEX National Market under the symbol "CEGE." The
following table sets forth, for the periods indicated, the high and low bid
prices per share of Cell Genesys common stock as reported by The Nasdaq-AMEX
National Market. Cell Genesys did not pay any cash dividends with respect to the
Cell Genesys common stock during any of the periods indicated below.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
Calendar Year 1997
First Quarter............................................. $ 9.44 $6.13
Second Quarter............................................ $ 6.25 $4.50
Third Quarter............................................. $ 7.88 $4.94
Fourth Quarter............................................ $11.50 $7.19
Calendar Year 1998
First Quarter............................................. $ 8.63 $6.19
Second Quarter............................................ $ 9.00 $6.50
Third Quarter............................................. $ 8.94 $3.00
Fourth Quarter............................................ $ 6.00 $2.69
Calendar Year 1999
First Quarter (through 3/15/99)........................... $ 7.06 $5.69
</TABLE>
As of March 15, 1999, there were approximately 11,556 holders of record of
the Company's common stock. On March 15, 1999 the last reported sales price on
the Nasdaq-AMEX National Market for the common stock was $5.69. The market for
the Company's common stock is highly volatile.
15
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue under collaborative
agreements -- principally from related
parties....................................... $ 24,146 $ 23,806 $ 22,505 $ 13,822 $ 9,416
Operating expenses:
Research and development...................... 37,932 36,830 27,587 25,879 21,540
General and administrative.................... 8,204 10,659 7,469 5,670 5,316
Charge for purchased in-process technology.... -- 72,270 -- -- --
Restructuring charge related to acquisition... -- 6,576 -- -- --
Charge for cross-license and settlement
(includes $11,250 equity in losses of
Xenotech joint venture associated with
cross-license and settlement)............... -- 22,500 -- -- --
--------- --------- -------- -------- --------
Total operating expenses............... 46,136 148,835 35,056 31,549 26,856
--------- --------- -------- -------- --------
Operating loss.................................. (21,990) (125,029) (12,551) (17,727) (17,440)
Equity in loss of Abgenix....................... (2,917) -- -- -- --
Gain on sale of stock of Abgenix................ 7,020 -- -- -- --
Interest income, net............................ 1,567 1,500 3,277 2,739 2,896
--------- --------- -------- -------- --------
Loss before minority interest................... (16,320) $(123,529) $ (9,274) $(14,988) $(14,544)
Loss attributed to minority interest............ 4,192 -- -- -- --
--------- --------- -------- -------- --------
Net loss........................................ (12,128) $(123,529) $ (9,274) $(14,988) $(14,544)
Deemed dividend to preferred stockholders....... 1,088 -- -- -- --
--------- --------- -------- -------- --------
Net loss attributed to common stock............. $ (13,216) $(123,529) $ (9,274) $(14,988) $(14,544)
========= ========= ======== ======== ========
Basic and diluted net loss per common share..... $ (0.46) $ (5.33) $ (0.57) $ (1.07) $ (1.07)
========= ========= ======== ======== ========
Basic and diluted weighted average common shares
outstanding................................... 28,607 23,172 16,373 14,025 13,630
========= ========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................... $ 52,874 $ 88,816 $ 85,584 $ 81,929 $ 70,772
Working capital................................. 44,031 51,804 64,137 76,098 67,923
Total assets.................................... 65,799 106,887 99,809 94,120 82,162
Total current liabilities....................... 9,964 39,955 22,612 7,007 4,707
Long-term obligations........................... 4,860 11,082 6,133 7,720 5,126
Redeemable convertible preferred stock.......... 12,083 19,817 -- -- --
Accumulated deficit............................. (175,456) (179,563) (56,270) (46,459) (32,405)
Stockholders' equity............................ 38,892 18,641 71,064 79,393 72,329
</TABLE>
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements made in this Item other than statements of historical fact,
including statements about the Company's and its subsidiary's clinical trials,
product pipelines, corporate partnerships, licenses and intellectual property,
are forward-looking statements within the meaning of section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and are subject to a number of uncertainties that could cause actual results to
differ materially from the statements made, including risks associated with the
success of research and product development programs, patents, proprietary
technology and corporate partnerships. Reference is made to discussions about
risks associated with product development programs, intellectual property and
other risks which may affect the Company under "Risk Factors" below. The Company
does not undertake any obligation to update forward-looking statements.
OUTLOOK
Since its inception in April 1988, Cell Genesys, Inc. has focused its
research and product development efforts on human disease therapies which are
based on innovative gene modification technologies. The Company's strategic
objective is to develop and commercialize in vivo and/or ex vivo gene therapies
to treat major, life-threatening diseases including cancer and AIDS. Cell
Genesys' clinical programs include GVAX(TM) cancer vaccines in Phase I/II
studies to treat specific types of cancer, and T cell gene therapy for AIDS,
which is undergoing Phase II testing. GVAX(TM) vaccines for prostate cancer and
for lung cancer are being developed through a worldwide collaboration with the
pharmaceutical division of Japan Tobacco. AIDS gene therapy is being developed
through a worldwide collaboration with Hoechst Marion Roussel, Inc. In addition,
Cell Genesys has preclinical programs, which are evaluating potential gene
therapies for cancer, cardiovascular disorders, hemophilia and Parkinson's
disease. The Company also has assets outside of its core business which can be
used to help maintain financial strength while product candidates are under
development. These assets include Cell Genesys' minority ownership of Abgenix,
which is focused on the development and commercialization of antibody therapies
and a licensing program in gene activation technology.
The Company acquired Somatix Therapy Corporation ("Somatix") during 1997
and completed the integration of Somatix and Cell Genesys during 1997 and 1998,
having prioritized the most promising programs and having significantly reduced
overall expenses of the combined businesses. At the end of the third quarter of
1998, encouraging data from Cell Genesys' clinical trials prompted the Company
to implement further restructuring to focus its resources on the advancement of
its clinical-stage programs and to reduce operating expenses by approximately 30
percent, or $10 million per year. The restructuring was accomplished through a
combination of reallocation of resources on more advanced clinical-stage
programs, elimination of certain fixed costs and an approximate 20 percent
reduction in the number of regular employees. Prior to this reduction, Cell
Genesys employed approximately 140 individuals. The Company's plan is to advance
preclinical-stage programs to a point where they can then be supported primarily
through corporate partnerships.
Cell Genesys believes that gene therapies are likely to be developed on a
continuum, progressing from ex vivo (modification of cells outside the patient's
body for injection as therapy) to in vivo (modification of cells within the
patient's body to provide therapy). The Company's goal is to emphasize
"off-the-shelf" products that enable gene therapy to be provided in out-patient
settings. These potentially include both non-patient-specific therapies, which
could be vialed pharmaceuticals for direct administration, and patient-specific
gene therapy products, which could be packaged as "kits" for overnight cell
processing at clinical laboratories.
Ex vivo gene therapies currently are being evaluated by Cell Genesys in
Phase I/II human clinical studies. These include studies of GVAX(TM) therapeutic
vaccines for specific types of cancer and studies of T cell AIDS gene therapy.
All of these gene therapies are designed to impart new disease-fighting
capabilities to the patient's immune system, in order to enhance an immune
response against diseased cells. During 1998, Phase I/II human trials evaluating
the GVAX(TM) vaccine for prostate cancer demonstrated antitumor effects as
measured by levels of prostate specific antigen (PSA), a cancer "marker." As a
result, the Company initiated additional GVAX(TM) clinical trials for prostate
cancer. Phase I/II trials for lung cancer and
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<PAGE> 19
melanoma are continuing, and the patients are now being evaluated. In Phase II
trials of T cell gene therapy for AIDS, data demonstrated safety in patients
with persistent HIV in their bloodstream as well as preliminary indications of
potential antiviral activity.
In vivo gene therapies are at the preclinical stage of development at Cell
Genesys. Treatment strategies may target cells that typically cannot be removed
from the body for external processing and therefore are modified within the
body. With in vivo gene therapy, the treatment goals include stimulating
targeted cells to produce a protein or other substance needed to normalize key
biological processes, or otherwise inhibiting specific disease processes. In
1998, the Company's preclinical research focused on studies of gene therapy in
animal models for hemophilia and Parkinson's disease, and on gene therapy
strategies to overcome restenosis, a serious complication of angioplasty for
cardiovascular disease. For example, in hemophilia studies, a single injection
of gene therapy resulted in improved blood clotting and reduced number of
bleeding episodes in a dog hemophilia model. Similarly, in studies for
Parkinson's disease, a single injection of gene therapy essentially eliminated
the need for daily L-dopa injections in mice with a Parkinson's-like condition.
Cardiovascular gene therapy studies demonstrated the successful delivery of
genes to blood vessel lining cells.
Abgenix, which is focused on the development and commercialization of
antibody therapies, was initially formed as a wholly owned subsidiary of Cell
Genesys in mid-1996. In July 1998, Abgenix completed an initial public offering
(IPO). Cell Genesys' financial results for 1998 include the results of Abgenix
only during the first half of the year, prior to Abgenix's IPO. After this IPO,
Cell Genesys' ownership of Abgenix dropped below 50 percent, with the result
that Abgenix is no longer consolidated into the individual financial statement
lines but is shown instead as equity in the losses of an unconsolidated
subsidiary. Following the Company's sale of part of its ownership of Abgenix
common stock in the fourth quarter, Cell Genesys ended 1998 with approximately
30 percent ownership in Abgenix. Abgenix is developing antibody therapies for
transplantation-associated medical conditions, inflammation, autoimmune
disorders and cancer. Abgenix's core technology includes strains of transgenic
mice capable of generating fully human antibodies. Cell Genesys formed Abgenix
as a separate business subsidiary in June 1996, contributing $14 million in
cash, research, development and manufacturing technology as well as patents and
other intellectual property specific to the antibody therapy programs. Abgenix
completed its public offering (Nasdaq-AMEX: ABGX) in July 1998. Following the
initial public offering, Cell Genesys' ownership of Abgenix dropped below 50
percent. In a private placement during November 1998, Cell Genesys sold
approximately 1.1 million shares of Abgenix common stock, thereby reducing its
Abgenix ownership to approximately 30 percent. In March, 1999, Abgenix completed
the sale of 3 million shares of common stock in a follow-on offering reducing
Cell Genesys' ownership of Abgenix to approximately 22 percent. The Company may
decide to sell additional shares of Abgenix common stock over time, when
appropriate to provide additional funding for Cell Genesys' gene therapy
business.
Cell Genesys' net cash usage for 1999 in its current operations is not
expected to exceed approximately $10 million, and the Company intends to manage
toward this net cash expenditure target through funding received from various
corporate collaborations and licensing agreements, as well as through strategic
management of its resources and, potentially the sale of some portion of its
remaining Abgenix shares. When possible, the company intends to continue to
finance its operations through corporate collaborations with established
pharmaceutical and biotechnology companies in order to develop its technologies
as broadly as possible, to fund product development and to accelerate the
commercialization of certain product opportunities. The Company may from time to
time evaluate opportunities to acquire or in-license other potential products
and technologies. Expenses associated with in-licensing such products may
constitute unbudgeted expenses.
RESULTS OF OPERATIONS
Revenue increased to $24.1 million in 1998 from $23.8 million and $22.5
million in 1997 and 1996, respectively. The collaboration with Japan Tobacco
Inc. entered into in December 1998 for Cell Genesys GVAX(TM) programs provided
revenue of $12 million during 1998. Under the terms of the agreement, the
Company could receive up to $27.5 million in research and development
expenditures during the first three years and could receive up to $80 million in
milestone payments. The collaboration with Hoechst Marion
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Roussel, Inc. which was entered into in 1995 continued to fund Cell Genesys'
AIDS gene therapy program. Revenue under this agreement decreased to $6.4
million in 1998 from $14.4 million in 1997 and $15.3 million in 1996, and will
continue to decrease in 1999 due to the completion of the majority of research
and development activities planned to date. The partners are currently
evaluating the results of these activities, including ongoing clinical trials.
Further research and development activities and funding will be determined upon
completion of this review. In February 1997, Cell Genesys entered into an
agreement to license the Company's gene activation technology to Hoechst Marion
Roussel for erythropoietin (EPO) and a second undisclosed protein. The agreement
provides for milestone payments and annual maintenance fees, in addition to
royalties on future sales of these two potential gene-activated protein
products. The Company recognized revenue of $4.1 million in 1998 and $5.1
million in 1997 pursuant to the agreement. Other revenues in 1996 through 1998
resulted primarily from the Company's joint venture ("Xenotech") with JT
Immunotech in its human monoclonal antibody program during such time that
Abgenix's results were included as a consolidated subsidiary (see Note 3 to the
Consolidated Financial Statements).
Research and development expenses increased to $37.9 million during 1998
from $36.8 million and $27.6 million in 1997 and 1996, respectively. The
increase reflects the costs of expanded clinical development activities for the
Company's cancer gene therapy and AIDS gene therapy programs. The increase also
reflects the costs of additional research targets following the acquisition of
Somatix in 1997. Research and development expenses have generally represented
approximately 80% of the Company's total operating expenses, excluding the
effect of non-recurring charges in 1997 for a cross-license and settlement with
GenPharm International ("GenPharm") to which the Company as well as Abgenix,
Japan Tobacco and Xenotech were parties, as well as the acquisition of Somatix
and related restructuring. The Company expects that its research and development
expenditures will continue to increase to support additional product development
activities, particularly in the field of cancer, for which a number of the
Company's GVAX(TM) cancer vaccine trials commenced in 1998. The rate of increase
depends on a number of factors including primarily progress in the clinical
trials.
General and administrative expenses were $8.2 million during 1998 compared
to $10.7 million and $7.5 million in 1997 and 1996, respectively. The decrease
this year reflects the Company's continuing efforts to control administrative
expenditures as well as the exclusion of Abgenix costs following its IPO. The
Company implemented a corporate restructuring plan in September 1998 to reduce
its operating expenses by 30 percent and focus more resources on its clinical
stage programs.
Interest income was $3.7 million in 1998 compared to $4.0 million and $4.4
million in 1997 and 1996, respectively. The decrease was due to lower average
cash balances during these years. Interest expense decreased to $2.2 million in
1998 from $2.5 million in 1997 and increased from $1.2 million in 1996. The
increase in 1997 and subsequent decline in 1998 was due to interest accrued on
the note payable to GenPharm commencing January 1997 which was paid in September
1998.
Cell Genesys' net loss was $12.1 million in 1998, compared to $123.5
million in 1997 and $9.3 million in 1996. This was primarily due to $78.9
million in non-recurring charges for the acquisition of Somatix and related
costs and $22.5 million in non-recurring charges related to the cross-license
and settlement agreement in 1997. The Company's accounting for costs associated
with its purchase of Somatix is currently under review by the Securities and
Exchange Commission ("SEC"). The SEC has recently been critical of many
companies' accounting for acquisition related costs, including those associated
with in-process technology. While the Company believes its accounting for such
costs to be correct, as a result of this review it may be subject to potential
revision. Net losses, excluding non-recurring charges, are expected to continue
and may increase in future years as operating expenses rise, particularly as the
Company incurs expenses related to manufacturing and late stage human testing of
its potential products.
At December 31, 1998, Cell Genesys had federal net operating loss
carryforwards of approximately $119 million. The company also had federal
research and development tax credit carryforwards of approximately $2.4 million
as of December 31, 1998. The net operating loss and credit carryforwards will
expire in the years of 1999 through 2018, if not utilized.
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LIQUIDITY AND CAPITAL RESOURCES
Cell Genesys has financed its operations primarily through the sale of
equity securities, funding under collaborative arrangements and equipment
financing. From inception through February 28, 1999, the Company received $172.8
million in net proceeds from equity financings, $118.4 million under
collaborative agreements and utilized $27.3 million of property and equipment
financings.
At December 31, 1998, Cell Genesys' cash, cash equivalents and short-term
investments totaled $52.9 million, compared to $88.8 million at December 31,
1997. This decrease was due primarily to cash used in operating activities of
$15.3 million, payment of $15.0 million for the GenPharm convertible note and
payment of long term financing obligations. At December 31, 1997 cash and cash
equivalents included $15.3 million held by Abgenix, which at December 31, 1998
is not consolidated in the Company's cash and cash equivalents.
Cell Genesys anticipates that consolidated net cash usage will not exceed
$10 million in 1999. The Company expects its cash requirements to increase
significantly in the future. The Company's capital requirements can depend on
numerous factors, including: the progress of the Company's research and
development programs; preclinical and clinical trials; clinical and commercial
scale manufacturing requirements; the attraction and maintenance of
collaborative partners; the acquisition of new products or technologies; and the
cost of litigation, patent interference proceedings or other legal proceedings
or their resolution.
Cell Genesys believes that its available cash, cash equivalents and
short-term investments at December 31, 1998, together with payments to be
received under the Company's existing collaborative arrangements, license
agreements and financing facilities will be sufficient to meet the Company's
operating expenses and capital requirements at least through 2000. Thereafter,
the Company may require substantial additional funds. Due to these requirements,
the Company regularly considers financing alternatives, including sale of equity
securities held in Abgenix and the private or public sale of equity by Cell
Genesys. Any sale of Cell Genesys' equity securities may be dilutive to existing
stockholders.
RISK FACTORS
Need for Substantial Additional Funds. We will need substantial additional
funds to do existing and planned preclinical and clinical trials to continue
research and development activities, and to establish manufacturing and
marketing capabilities for any products we may develop. We expect that our
existing capital resources, together with payments to be received under existing
collaborative agreements and amounts available under existing equipment
financing facilities, will enable us to maintain our operations at least through
2000. Beyond 2000, we may need to raise substantial additional capital to fund
our operations.
Our future capital requirements will depend on, and could increase as a
result of, many factors such as:
- continued scientific progress of research and development programs
- magnitude of such programs
- progress of preclinical and clinical testing
- time and costs involved in obtaining regulatory approvals
- costs involved in preparing, filing, prosecuting, maintaining, enforcing
and defending patent claims
- competing technological and market developments
- changes in collaborative relationships with Hoechst Marion Roussel, Japan
Tobacco and others
- terms of any additional collaborative arrangements into which we may
enter
- our ability to establish research, development and commercialization
arrangements pertaining to products other than those covered by existing
collaborative arrangements
- cost of establishing manufacturing facilities
- cost of commercialization activities
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- demand for our products, if and when approved
- potential redemption obligations in connection with conversion of the
Series B convertible preferred stock. See "Notes to Consolidated
Financial Statements" Note 9, "-- Shares Eligible for Future Sale,
Dilution" and ". . . Potential Redemption Obligations."
We expect to raise additional funds through additional equity or debt
financings, collaborative relationships, or otherwise. Because of our long-term
capital requirements, we may seek to access the public or private equity markets
whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. There can be no assurance that any such
additional funding will be available to us, or, if available, that it will be on
acceptable terms. If we raise additional funds by issuing equity securities,
stockholders will incur immediate dilution. There is no assurance that
opportunities for in-licensing technologies or for third party collaborations
will continue to be available to us on acceptable terms. If adequate funds are
not available, we may be required to delay, reduce the scope of, or eliminate
one or more of our research, development and clinical activities or we may need
to seek funds through arrangements with collaborative partners or others that
require us to relinquish rights to certain of our technologies, product
candidates or products that we would otherwise seek to develop or commercialize
ourselves. Either of these events could have a material adverse effect on our
business, results of operations, financial condition or cash flow.
Early Stage of Development; No Developed or Approved Products. All of our
potential gene therapy products are in research and development. We have not
sold any products or generated any revenues from the sale of products. We do not
expect to generate any such revenues for at least the next several years. Our
products currently under development will require significant additional
research and development efforts, including extensive preclinical and clinical
testing and regulatory approval, prior to commercial use. There can be no
assurance that our research and development efforts will be successful or that
any of our future products will ultimately be commercially successful. Even if
developed, our products may not receive regulatory approval or be successfully
introduced and marketed at prices that would permit us to operate profitably.
Operating Loss and Accumulated Deficit. We have incurred net losses since
our inception. At December 31, 1998, our accumulated deficit was approximately
$175.6 million. We incurred net losses of $12.1 million for the year ended
December 31, 1998. Such losses have resulted principally from expenses of
research and development programs and to a lesser extent, from general and
administrative expenses. In 1997, we incurred losses of $123.5 million,
including $78.9 million related to the acquisition of Somatix and $22.5 million
related to the cross license and settlement agreement with GenPharm. During the
first six months of 1998 while Abgenix was a consolidated subsidiary, we
attributed Abgenix losses totaling $4.2 million to the minority stockholders.
Under the equity method of accounting, we recorded $2.9 million loss in equity
of Abgenix during the six months ended December 31, 1998. We expect to incur
substantial losses for at least the next several years due primarily to the
expansion of research and development programs, including preclinical studies,
clinical trials and manufacturing. We expect that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. There can be
no assurance that we will successfully develop, commercialize, manufacture or
market any products. We cannot guarantee that we will ever achieve or sustain
product revenues or profitability.
Technological Uncertainty. Gene therapy is a new technology. Existing
preclinical and clinical data on the safety and efficacy of gene therapy are
limited. Data relating to our specific gene therapy approaches are also limited.
Our GVAX(TM) cancer vaccine and AIDS gene therapy are currently being tested in
Phase I/II and Phase II human clinical trials, respectively, to determine their
safety and efficacy. None of our other products or therapies under development
are in human clinical trials. The results of preclinical studies do not predict
safety or efficacy in humans. Possible side effects of gene therapy may be
serious and potentially life-threatening. There can be no assurance that
unacceptable side effects will not be discovered during preclinical and clinical
testing of our potential products or thereafter. There are many reasons that
potential products that appear promising at an early stage of research or
development do not result in commercialization. Although we are testing proposed
products or therapies in human clinical trials, there can be no assurance that
we will be permitted to undertake human clinical trials for any of our other
products. Also, the results of such testing
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might not demonstrate safety or efficacy. Even if clinical trials are
successful, there is no assurance that we will obtain regulatory approval for
any indication, that an approved product can be produced in commercial
quantities at reasonable cost or that such a product will be successfully
marketed.
Patents and Trade Secrets. The patent positions of pharmaceutical and
biotechnology firms, including Cell Genesys, are generally uncertain and involve
complex legal and factual questions. Cell Genesys currently has approximately
150 issued or granted patents and more than 300 pending applications. Although
we are prosecuting patent applications, we cannot be certain whether any given
application will result in the issuance of a patent or, if any patent is issued,
whether it will provide significant proprietary protection or will be
invalidated. Also, patent applications in the United States are confidential
until patents are issued. Publication of discoveries in scientific or patent
literature tends to lag behind actual discoveries by several months.
Accordingly, we cannot be certain that we were the first creator of inventions
covered by pending patent applications or that we were the first to file patent
applications for such inventions.
Our commercial success will also depend in part on not infringing the
patents or proprietary rights of others and not breaching licenses granted to
us. We will be required to obtain licenses to certain third party technology and
genes necessary to conduct our business. Any failure to license at reasonable
cost any technology or genes required to commercialize our technologies or
products may have a material adverse effect on our business, results of
operations, financial condition or cash flow.
Litigation, which could result in substantial cost to us, may also be
necessary to enforce any patents issued to us, or to determine the scope and
validity of other parties' proprietary rights. To determine the priority of
inventions, the United States Patent Office frequently declares interference
proceedings. In Europe, other patents can be revoked through opposition
proceedings. Such proceedings could result in an adverse decision as to the
priority of our inventions.
We are currently involved in three separate interference and/or opposition
proceedings with regard to:
(i) gene activation technology
(ii) ex vivo gene therapy
(iii) chimeric receptor technology
While we believe our position in each proceeding is strong, the outcome of
each proceeding cannot be predicted. An adverse result could have a material
adverse effect on our intellectual property position in these areas. We may be
involved in other interference and/or opposition proceedings in the future. We
believe that there will continue to be significant litigation in the industry
regarding patent and other intellectual property rights.
We also rely on unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our
competitive position. No assurance can be given that others will not
independently develop similar or better proprietary information and techniques
and disclose it. Also, there can be no assurance that others will not gain
access to our trade secrets, or that we can meaningfully protect our rights to
our unpatented trade secrets.
We require our employees and consultants to execute a confidentiality
agreement upon the commencement of an employment or consulting relationship with
us. These agreements provide that all confidential information developed by or
made known to an individual during the course of the employment or consulting
relationship generally must be kept confidential. In the case of employees, the
agreements provide that all inventions conceived by the individual while
employed by us, relating to our business are our exclusive property. These
agreements may not provide meaningful protection for our trade secrets in the
event of unauthorized use or disclosure of such information.
Competition. Competition in the field of gene therapy from other
biotechnology and pharmaceutical companies and from research and academic
institutions is intense and expected to increase. There are numerous competitors
working on products to treat each of the diseases for which we are seeking to
develop therapeutic products. Some competitors are pursuing a product
development strategy competitive with ours,
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particularly with respect to our cancer vaccine program. Certain of these
competitive products are in substantially more advanced stages of product
development and clinical trials. Our competitors may develop technologies and
products that are more effective than ours, or that would render our technology
and products less competitive or obsolete. Many of these competitors have
substantially greater financial resources and larger research and development
staffs than we do. In addition, many of these competitors may have significantly
greater experience than we do in developing products, in undertaking preclinical
testing and human clinical trials of new pharmaceutical products, in obtaining
United States Food and Drug Administration (the "FDA") and other regulatory
approvals of products, and in manufacturing and marketing such products.
Accordingly, our competitors may obtain patent protection, or FDA approval and
may commercialize products more rapidly than we do. There can be no assurance
that we will be able to obtain certain biological materials necessary to support
our research, development or manufacturing of any of our planned therapies. If
we are permitted to commence commercial sales of products, we will also be
competing with respect to marketing capabilities and manufacturing efficiency,
areas in which we have limited or no experience. We expect to build additional
clinical scale and commercial scale manufacturing facilities and/or employ
contract facilities to commercialize our products. We also expect to secure
funding for these and other product development activities through our partners
and future potential partners. We also compete with universities and other
research institutions in the development of products, technologies and
processes. In many instances, we compete with other commercial entities in
acquiring products or technology from universities.
We expect that competition among products approved for sale will be based,
among other things, on:
- product efficacy
- safety
- reliability
- availability
- price
- patent position
- sales, marketing and distribution capabilities
Our competitive positions also depend upon our ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient funding for the often
substantial period between product conception and commercial sales.
The continuing efforts of governmental and third-party payers to contain or
reduce the costs of health care through various means may affect the revenues
and profitability of biotechnology and pharmaceutical companies like ours. In
the United States there have been, and we expect there to continue to be, a
number of federal and state proposals to control health care costs. We cannot
predict the effect health care reforms may have on our business. It is possible
that such reforms will have a material adverse effect on our business, results
of operations, financial condition or cash flow. In the United States and
elsewhere, sales of therapeutic products depend in part on the availability of
reimbursements to consumer from third party payers, such as government and
private insurance plans. If we succeed in bringing one or more products to the
market, our products might not be considered cost effective. In such event,
third party payers might not reimburse the consumer sufficiently to allow us to
sell our products on a competitive basis.
Volatility Of Stock Price. The market prices for securities of
biopharmaceutical and biotechnology companies (including Cell Genesys) have
historically been highly volatile. The market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. The following factors may affect our stock
price:
- fluctuations in our financial results
- announcements of technological innovations or new therapeutic products by
us or our competitors
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- announcements of changes in governmental regulation
- announcements of regulatory approvals or disapprovals of our or our
competitors' products
- developments in patent or other proprietary rights
- public concern as to the safety of products developed by us or other
biotechnology and pharmaceutical companies
- general market conditions
Government Regulation. Regulation by governmental authorities in the United
States and foreign countries is a significant factor in the manufacture and
marketing of our proposed products and our research and development activities.
All of our products will require regulatory approval by governmental agencies
prior to commercialization. In particular, human therapeutic products must
undergo rigorous preclinical and clinical testing and other premarket approval
procedures by the FDA and similar authorities in foreign countries. Since
certain of our potential products involve the application of new technologies,
regulatory approvals may take longer than for products produced using more
conventional methods. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of such products. The lengthy process of
seeking these approvals, and the subsequent compliance with applicable federal
statutes and regulations, requires the expenditure of substantial resources. Any
failure by us or our collaborators or licensees to obtain, or any delay in
obtaining regulatory approvals could adversely affect the marketing of our
products and our ability to receive product or royalty revenue.
In responding to a new drug application, or a product license application,
the FDA may grant marketing approvals, request additional information or further
research, or deny the application if it determines that the application does not
satisfy its regulatory approval criteria. Approvals may not be granted on a
timely basis, if at all, or if granted may not cover all the clinical
indications for which we are seeking approval. Also, an approval might contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
In addition to laws and regulations enforced by the FDA, we are also
subject to regulation under:
- Occupational Safety and Health Act
- Environmental Protection Act
- Toxic Substances Control Act
- Resource Conservation and Recovery Act
- Other present and potential future federal, state or local laws and
regulations
Our research and development involves the controlled use of hazardous
materials, chemicals, viruses and various radioactive compounds. Although we
believe our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, we cannot
completely eliminate the risk of accidental contamination or injury from these
materials. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our resources.
Our manufacturing facilities are subject to licensing requirements of the
California Department of Health Services. While not subject to license by the
FDA, such facilities are subject to inspection by the FDA as well as by the
California Department of Health Services. A separate license from the FDA is
required for commercial manufacture of any product. Failure to maintain such
licenses or to meet the inspection criteria of the FDA and the California
Department of Health Services would disrupt our manufacturing processes and have
a material adverse effect on our business, results of operations, financial
condition and cash flow.
For marketing outside the United States, we are subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and devices. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country
to country. Failure to
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comply with such regulatory requirements or obtain such approvals could impair
our ability to develop these markets and have a material adverse effect on our
business, results of operations, financial condition or cash flow.
Commercialization; Lack of Marketing Experience. We expect to rely on sales
and marketing expertise of potential corporate partners for our initial
products. We do not have any experience in sales, marketing or distribution of
biopharmaceutical products. The decision to market future products directly or
through corporate partners will be based on a number of factors including;
- market size and concentration
- size and expertise of the partner's sales force in a particular market
- the Company's overall strategic objectives
We are currently engaged in various stages of discussions with potential
partners. There can be no assurance that we will be able to establish new
relationships, if at all, on acceptable terms and conditions.
Product Liabilities and Insurance. Clinical trials or marketing of any of
our potential products may expose us to liability claims resulting from the use
of such products. These claims might be made directly by consumers, health care
providers or by others selling such products. We currently maintain product
liability insurance with respect to each of our clinical trials. There can be no
assurance that we will be able to maintain such insurance or that sufficient
coverage can be acquired at a reasonable cost. An inability to maintain
insurance at acceptable cost, or at all, could prevent or inhibit the clinical
testing or commercialization of our products. A product liability claim or
recall could have a material adverse effect on our business, results of
operations, financial condition and cash flow.
Hazardous Materials; Environmental Matters. Our research and development
activities involve the controlled use of hazardous materials, chemicals, viruses
and various radioactive compounds. We are subject to federal, state and local
laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by such laws and regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of such an accident, we could be held liable for any damages that
result, and any such liability could exceed our resources. We may be required to
incur significant costs to comply with environmental laws and regulations in the
future. Our business may be materially adversely affected by current or future
environmental laws or regulations.
Reimbursement. In both domestic and foreign markets, sales of our potential
products will depend in part upon coverage and reimbursement from third-party
payers, including:
- government agencies
- private health care insurers and other health care payers such as health
maintenance organizations
- self-insured employee plans
- Blue Cross/Blue Shield and similar plans
There is considerable pressure to reduce the cost of biotechnology and
pharmaceutical products. In particular, reimbursement from government agencies
and insurers and large health organizations may become more restricted in the
future. Our potential products represent a new mode of therapy and, while the
cost-benefit ratio of the products may be favorable, we expect that the costs
associated with our products will be substantial. There can be no assurance that
our proposed products, if successfully developed, will be considered
cost-effective by third-party payers. There can be no assurance that insurance
coverage will be provided by such third-party payers at all or without
substantial delay. Even if such coverage is provided, the approved reimbursement
might not provide sufficient funds to enable us to become profitable.
Uncertainty Of Pharmaceutical Pricing and Related Matters. The continuing
efforts of governmental and third-party payers to contain or reduce the costs of
healthcare through various means, may have a material
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adverse affect on the future revenues and profitability of biotechnology
companies. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and we expect that there will continue to be, a number
of federal and state proposals to implement similar government control. While we
cannot predict whether the government will adopt any such legislative or
regulatory proposals, the announcement or adoption of such proposals could have
a material adverse effect on our business, results of operations, financial
condition and cash flow.
Dependence Upon Key Personnel and Collaborative Relationships. We rely and
will continue to rely on our key management and scientific staff. The loss of
key personnel or the failure to recruit necessary additional qualified personnel
could have a material adverse effect on our business, results of operations,
financial condition or cash flow. There is intense competition from other
companies, research and academic institutions and other organizations for
qualified personnel in the areas of our activities. There is no assurance that
we will be able to continue to attract and retain the qualified personnel
necessary for the development of our business. We will need to continue to
recruit experts in the areas of clinical testing, manufacturing, marketing and
distribution and develop additional expertise in our existing personnel. If we
do not succeed in recruiting such personnel or developing such expertise, our
business could suffer significantly.
We have clinical trial agreements with a number of public and private
medical institutions relating to the conduct of human clinical trials for our
GVAX(TM) cancer vaccine program and T cell gene therapy program. These
agreements include:
- National Institutes of Allergy and Infectious Diseases
- University of California, San Francisco
- San Francisco General Hospital
- University of Colorado Health Sciences Center
- Massachusetts General Hospital
- University of California, Los Angeles
- ViRx, Inc.
- Aids Community Research Consortium
- Dana Farber Partners Cancer Care
- The Johns Hopkins Medical Institutions
- PRN Research Inc.
- Stanford University
- University of Tokyo, IMSUT
The early termination of certain of these clinical trial agreements would
hinder the progress of our clinical trials including Phase II trials of T cell
gene therapy for HIV infection and Phase I/II trials of GVAX(TM) cancer vaccine
for prostate cancer, lung cancer and melanoma. If certain of these relationships
are terminated, the clinical trials might not be completed and the results might
not be evaluated.
We rely on the continued availability of outside scientific collaborators
performing research. These relationships generally may be terminated at any time
by the collaborator, typically by giving 30 days' notice. These scientific
collaborators are not our employees. As a result, we have limited control over
their activities and can expect that only limited amounts of their time will be
dedicated to our activities. Our agreements with these collaborators, as well as
those with our scientific consultants, provide that any rights we obtain as a
result of their research efforts will be subject to the rights of the research
institutions in such work. In addition, some of these collaborators have
consulting or other advisory arrangements with other entities that may
potentially conflict with their obligations to us. For these reasons, there can
be no assurance that inventions or processes discovered by our scientific
collaborators or consultants will become our property.
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Shares Eligible For Future Sale; Dilution. Substantially all the
outstanding shares of Cell Genesys common stock are eligible for sale in the
public market. The following factors, as well as others such as those identified
above under "Volatility of Stock Price," could cause a decline in the market
price of our common stock:
- severe fluctuations in price and volume in the stock market in general
which are unrelated to our operating performance
- issuance of common stock upon conversion of the Series B preferred stock
- issuance of common stock upon exercise of the warrants issued to Hoechst
Marion Roussel, Inc. and others -- see Notes to the Consolidated
Financial Statements (the "Warrants").
- future sales of such common stock or other shares of common stock by
existing stockholders
- the perception that such issuances or sales could occur
Conversion of the Series B preferred stock or exercise of the warrants
would result in issuance of additional shares of common stock, diluting existing
investors. The number of shares of common stock issued, and therefore the amount
of dilution of existing investors, would increase as a result of either (i) an
event triggering the antidilution rights of any outstanding shares of Series B
preferred stock, or (ii) a decline in the market price of the Company's common
stock immediately prior to conversion of the Series B preferred stock.
The holders of the Series B preferred stock may choose at any time to
convert their shares into common stock. In such event, the number of shares of
common stock issued would be based on a conversion price of $11.02 per share or,
if lower, the average of certain specified trading prices during the 10 trading
days preceding such date of conversion (the "Floating Conversion Price"). The
market price of the common stock has recently traded below $11.02 per share and
consequently the conversion rate of the Series B preferred stock is currently
based on the market price. The greater in decline in the market price, the
greater the number of shares issuable upon conversion of the Series B preferred
stock.
Potential Redemption Obligation. If the holders of the Series B preferred
stock decide to convert their shares, we would not be required to issue more
than 5,624,000 shares of common stock (which is 19.99% of the outstanding shares
of common stock on November 14, 1997, or the "Share Limit"), unless we first
obtained stockholder approval. If we did not obtain stockholder approval or an
exemption from the requirement for stockholder approval from the Nasdaq-AMEX
(the "Nasdaq-AMEX exemption") we would not be required to issue shares of common
stock in excess of the Share Limit pursuant to requests for conversion of the
Series B preferred stock. However, in such event, the holders of the Series B
preferred stock could require us to redeem certain shares of Series B preferred
stock, and the amount of these redemption obligations could become material if
the common stock price declined below approximately $3.70 per share. Since the
common stock traded at prices below $3.70 per share during certain periods in
1998 and we have not obtained stockholder approval or the Nasdaq-AMEX exemption,
we could become subject to a material redemption obligation if the number of
shares of common stock issuable upon conversion of the Series B preferred stock
exceeds the Share Limit. The amount of the redemption obligation will increase
as the common stock price decreases because we are limited in the number of
shares we can issue upon conversion. Consequently, volatility in the price of
the common stock could magnify the amount of any redemption obligation.
IMPACT OF THE YEAR 2000
The Company has undertaken various initiatives to ensure that its
information technology (IT) and non-IT systems are Year 2000 compliant. Based on
its assessment efforts to date, the Company has not identified any systems
currently in use which require replacement as a result of its Year 2000
initiatives. The Company currently anticipates that its Year 2000
identification, assessment, remediation activities (including repairing or
replacing identified systems), testing and contingency planning efforts, which
began in late 1997, will be complete by the end of the fourth quarter of 1999.
27
<PAGE> 29
Year 2000 costs incurred to date have not been material and total costs to
modify systems for Year 2000 compliance are not expected to become material.
Such costs do not include normal system upgrades and replacements and the actual
financial impact could exceed this estimate.
The following summarizes the progress the Company has made to date on each
phase of its Year 2000 project plan:
<TABLE>
<CAPTION>
PHASE TIMEFRAME FOR COMPLETION PERCENT COMPLETE
----- ------------------------ ----------------
<S> <C> <C>
Initial identification assessment, and contingency
planning............................................. Q2 -- 1999 75%
Remediation............................................ Q3 -- 1999 25%
Testing................................................ Q4 -- 1999 10%
</TABLE>
In addition to risks associated with the Company's own computer systems and
equipment, the Company has relationships with, and is to varying degrees
dependent upon, a large number of third parties that provide information, goods
and services to the Company. These include financial institutions, suppliers,
vendors, research partners, governmental entities and customers. The Company has
begun surveying all of its major vendors, collaborative partners and other third
party interests to determine whether their systems are Year 2000 compliant. We
cannot guarantee that all of the Company's key suppliers, partners and others
will achieve Year 2000 compliance in a timely manner. The failure of the
Company's vendors and partners to successfully address the Year 2000 issue could
have a material adverse effect on the Company's ability to fully address its
Year 2000 issue. Such failures could materially affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty of
the Year 2000 readiness of third parties, the Company is unable to determine at
this time whether all consequences of Year 2000 failures will have a material
impact on the Company's results of operations, liquidity and financial
condition.
The costs of the Company's Year 2000 project plan, the dates on which the
Company believes it will complete each phase of its Year 2000 project plan and
the process for contingency planning are best estimates, which are derived from
assumptions regarding future events, including the continued availability of
certain resources, third party remediation plans and other factors. There can be
no assurance that these estimates and plans will prove to be accurate, and
actual results could differ materially from those currently anticipated.
28
<PAGE> 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business, the financial position of the Company is
routinely subject to a variety of risks including market risk associated with
interest rate movements. The Company regularly assesses these risks and has
established policies and business practices to protect against and other
exposures. As a result, the Company does not anticipate material potential
losses in these areas.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities and debt obligations, the table presents principal cash flows and
related weighted-average interest rates by expected maturity dates.
Additionally, the Company has assumed its available for sale securities,
comprised of corporate notes and commercial paper, are similar enough to
aggregate those securities for presentation purposes. The average interest rate
was calculated using the weighted average fixed rates under all contracts with
Wells Fargo Bank, Transamerica Business Credit Corporation, FINOVA Credit
Corporation and Silicon Valley Bank.
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
THERE- FAIR VALUE
(IN THOUSANDS) 1999 2000 2001 2002 2003 AFTER TOTAL DEC. 31, 1988
-------------- ------- ------- ------ ------ ---- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents
Fixed Rate Securities...... $11,846 -- -- -- -- -- $11,846 $11,846
Average Interest Rate...... 5.27% -- -- -- -- -- 5.27%
Short-term Investments
Fixed Rate Securities...... $14,223 -- -- -- -- -- $14,223 $14,294
Average Interest Rate...... 5.09% -- -- -- -- -- 5.09%
Long-term Investments
Fixed Rate Securities...... -- $24,451 -- -- -- -- $24,451 $24,494
Average Interest Rate...... -- 5.15% -- -- -- -- 5.15%
Total Investments
Securities................. $26,069 $24,451 -- -- -- -- $50,520 $50,633
Average Interest Rate...... 5.18% 5.15% -- -- -- -- 5.16%
Long-term Debt, including
Current Portion............ $ 4,447 $ 2,813 $1,837 $ 511 $313 $ 9,920 $ 9,920
Average Interest Rate...... 11.47% 11.07% 10.56% 10.69% 9.66% -- 10.69%
</TABLE>
29
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cell Genesys, Inc.
We have audited the accompanying consolidated balance sheets of Cell
Genesys, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cell Genesys,
Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
January 29, 1999
30
<PAGE> 32
CELL GENESYS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 14,086 $ 10,631
Short-term investments.................................... 38,788 78,185
Prepaid expenses and other current assets................. 1,121 2,943
--------- ---------
Total current assets................................. 53,995 91,759
Property and equipment, net................................. 6,079 13,815
Deposits and other assets................................... 645 1,313
Investment in Abgenix....................................... 5,080 --
--------- ---------
$ 65,799 $ 106,887
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,103 $ 2,090
Accrued compensation and benefits......................... 1,288 892
Deferred revenue.......................................... 703 5,993
Accrued legal expenses.................................... 651 1,137
Accrued acquisition and related costs..................... 932 1,648
Other accrued liabilities................................. 1,721 4,286
Current portion of property and equipment financing....... 3,566 5,159
Contribution payable...................................... -- 3,750
Convertible note payable.................................. -- 15,000
--------- ---------
Total current liabilities............................ 9,964 39,955
Non-current portion of property and equipment financing..... 4,860 11,082
Commitments and contingencies
Redeemable convertible preferred stock, $.001 par value:
5,000,000 shares authorized; 1,156 and 2,000 shares issued
and outstanding in 1998 and 1997, respectively............ 12,083 19,817
Minority interest in the equity of subsidiary............... -- 17,392
Stockholders' equity:
Common stock, $.001 par value: 80,000,000 shares
authorized; 30,866,610 and 28,168,459 shares issued and
outstanding in 1998 and 1997, respectively............. 31 28
Additional paid-in capital................................ 230,557 199,495
Deferred compensation of subsidiary....................... -- (1,319)
Accumulated other comprehensive income.................... 113 118
Accumulated deficit....................................... (191,809) (179,681)
--------- ---------
Total stockholders' equity........................... 38,892 18,641
--------- ---------
$ 65,799 $ 106,887
========= =========
</TABLE>
See accompanying notes.
31
<PAGE> 33
CELL GENESYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue under collaborative agreements -- principally from
related parties (net of equity in losses of the Xenotech
joint venture of $310, $897 and $3,866).................. $ 24,146 $ 23,806 $22,505
Operating expenses:
Research and development................................. 37,932 36,830 27,587
General and administrative............................... 8,204 10,659 7,469
Charge for purchased in-process technology............... -- 72,270 --
Restructuring charge related to acquisition.............. -- 6,576 --
Charge for cross-license and settlement (includes $11,250
equity in losses of Xenotech joint venture associated
with cross-license and settlement).................... -- 22,500 --
-------- --------- -------
Total operating expenses............................ 46,136 148,835 35,056
Equity in loss of Abgenix.................................. (2,917) -- --
Gain on sale of stock of Abgenix........................... 7,020 -- --
Interest income............................................ 3,725 3,953 4,446
Interest expense........................................... (2,158) (2,453) (1,169)
-------- --------- -------
Loss before minority interest in Abgenix................... (16,320) (123,529) (9,274)
Loss attributed to minority interest in Abgenix............ 4,192 -- --
-------- --------- -------
Net loss................................................... (12,128) (123,529) (9,274)
Deemed dividend to preferred stockholders.................. 1,088 -- --
Net loss attributed to common stockholders................. $(13,216) $(123,529) $(9,274)
======== ========= =======
Net loss per common share.................................. $ (0.46) $ (5.33) $ (0.57)
======== ========= =======
Shares used in computing net loss per common share......... 28,607 23,172 16,373
======== ========= =======
</TABLE>
See accompanying notes.
32
<PAGE> 34
CELL GENESYS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION INCOME DEFICIT EQUITY
------ ---------- ------------ ------------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995......... $16 $125,836 $ -- $ 419 $ (46,878) $ 79,393
---------
Net loss............................ -- -- -- -- (9,274) (9,274)
---------
Change in net unrealized holding
loss on available for sale
securities........................ -- -- -- (537) -- (537)
---------
Comprehensive income................ -- -- -- -- -- (9,811)
---------
Issuance of 555,522 shares of common
stock upon exercise of stock
options and pursuant to the 1992
Employee Stock Purchase Plan...... -- 1,482 -- -- -- 1,482
--- -------- ------- ----- --------- ---------
Balances at December 31, 1996......... 16 127,318 -- (118) (56,152) 71,064
---------
Net loss............................ -- -- -- -- (123,529) (123,529)
Change in net unrealized holding
loss on available for sale
securities........................ -- -- -- 236 -- 236
---------
Comprehensive income................ -- -- -- -- -- (123,293)
---------
Issuance of 11,089,706 shares of
common stock to Somatix
stockholders...................... 11 67,913 -- -- -- 67,924
Issuance of 564,060 shares of common
stock upon exercise of stock
options and pursuant to the 1992
Employee Stock Purchase Plan...... 1 2,561 -- -- -- 2,562
Deferred compensation related to the
issuance of certain stock options
of subsidiary..................... -- 1,703 (1,703) -- -- --
Amortization of deferred
compensation recognized by
subsidiary........................ -- -- 384 -- -- 384
--- -------- ------- ----- --------- ---------
Balances at December 31, 1997......... 28 199,495 (1,319) 118 (179,681) 18,641
---------
Net loss............................ -- -- -- -- (12,128) (12,128)
Change in net unrealized holding
loss on available for sale
securities........................ -- -- -- (5) -- (5)
---------
Comprehensive income................ -- -- -- -- -- (12,133)
---------
Adjustment to carrying amount of
Abgenix investment as a
result of IPO..................... -- 22,209 1,319 -- -- 23,528
Issuance of 245,856 shares of common
stock upon exercise of stock
options and pursuant to the 1992
Employee Stock Purchase Plan...... 1 1,089 -- -- -- 1,090
Issuance of 66,512 shares of common
stock upon exercise of warrants... -- 33 -- -- -- 33
Conversion of 844 shares of Series B
redeemable preferred into
2,385,783 shares of common
stock............................. 2 8,360 -- -- -- 8,362
Deemed Dividend to preferred
stockholders...................... -- (629) -- -- -- (629)
--- -------- ------- ----- --------- ---------
Balances at December 31, 1998......... $31 $230,557 $ -- $ 113 $(191,809) $ 38,892
=== ======== ======= ===== ========= =========
</TABLE>
See accompanying notes.
33
<PAGE> 35
CELL GENESYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................ $(12,128) $(123,529) $ (9,274)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................ 4,549 5,433 3,718
Amortization of deferred compensation of
subsidiary......................................... 528 384 --
Minority interest in net loss........................ (4,192) -- --
Equity in losses of Xenotech joint venture........... 118 897 3,866
Equity in losses of Abgenix.......................... 2,917 -- --
Gain on sale of shares of Abgenix.................... (7,020) -- --
Charge for purchased in-process technology........... -- 72,270 --
Restructuring charges................................ -- 4,021 --
Charge for cross-license and settlement.............. -- 22,500 --
Changes, excluding effect of acquisition, to:
Prepaid expenses and other assets.................... 1,239 (1,369) (250)
Accounts payable..................................... (55) (1,280) 1,312
Accrued compensation and benefits.................... 704 (1,520) 249
Deferred revenue from related parties................ (5,290) (6,170) 10,060
Accrued legal expenses............................... 592 (446) 1,654
Accrued acquisition and related costs................ (716) (3,203) --
Other accrued liabilities............................ (3,597) (2,551) (204)
-------- --------- --------
Net cash provided by (used in) operating
activities...................................... (22,351) (34,563) 11,131
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments..................... (40,071) (79,282) (62,946)
Maturities of short-term investments.................... 14,831 9,607 24,752
Sales of short-term investments......................... 57,614 56,375 46,747
Purchase of subsidiary, net of cash acquired............ -- 2,842 --
Contributions to Xenotech joint venture................. (8) (4,647) (3,205)
Capital expenditures.................................... (703) (2,460) (2,726)
Cash effect of applying equity method of accounting to
the investment in Abgenix............................ (642) -- --
Net proceeds from sale of Abgenix shares................ 9,008 -- --
-------- --------- --------
Net cash provided by (used in) investing
activities...................................... 40,029 (17,565) 2,622
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock... -- 19,817 --
Proceeds from minority investment in subsidiary......... 3,944 17,392 --
Proceeds from issuances of common stock................. 1,121 2,563 1,482
Proceeds from property and equipment financing.......... -- 5,735 --
Payment of convertible note............................. (15,000) -- (750)
Payments under equipment financing obligations.......... (4,288) (3,683) (1,740)
-------- --------- --------
Net cash provided by (used in) financing
activities...................................... (14,223) 41,824 (1,008)
-------- --------- --------
Net increase (decrease) in cash and cash equivalents...... 3,455 (10,304) 12,745
Cash and cash equivalents at beginning of year............ 10,631 20,935 8,190
-------- --------- --------
Cash and cash equivalents at end of year.................. $ 14,086 $ 10,631 $ 20,935
======== ========= ========
</TABLE>
See accompanying notes
34
<PAGE> 36
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and basis of presentation
Cell Genesys, Inc. ("Cell Genesys"), a Delaware corporation, is focused on
the development and commercialization of gene therapies to treat major,
life-threatening diseases, including cancer and AIDS. Abgenix, Inc., ("Abgenix")
a partially owned subsidiary of Cell Genesys, is focused on the development and
commercialization of human monoclonal antibodies for pharmaceutical
applications, including inflammation, autoimmune disorders, and cancer. On July
2, 1998 Abgenix completed its initial public offering and Cell Genesys'
ownership position fell below 50 percent. Consequently, while Abgenix had
previously been fully consolidated, it has been accounted for under the equity
method of accounting from July 2, 1998 forward (see Note 2 -- Investment in
Abgenix). In May 1997, the Company acquired Somatix Therapy Corporation,
("Somatix"). The accompanying consolidated financial statements include the
accounts of Cell Genesys, including Abgenix on a consolidated basis prior to
July 2, 1998, and Somatix from May 30, 1997, the date of acquisition, (together
the "Company" or "Cell Genesys"). Intercompany accounts and transactions have
been eliminated in consolidation.
Revenue recognition
Revenue under collaborative agreements, including that from related
parties, is recorded when earned as defined under the terms of the respective
collaborative agreements. Nonrefundable signing or licensing fees that are not
dependent on future performance under collaborative agreements are recognized as
revenue when received. Payments for research and development performed by the
Company under contractual arrangements are recognized as revenue ratably over
the period in which the related work is performed. Revenue from the achievement
of milestone events is recognized when the funding party agrees that the
scientific or clinical results stipulated in the agreement have been achieved.
Deferred revenue arises principally due to timing of cash payments received
under research and development contracts. Revenues from Abgenix' joint venture
("Xenotech") with JT Immunotech have been recognized net of the Company's
related payments to Xenotech through July 2, 1998, as described above.
Research and development
Research and development expenses, including direct and allocated expenses,
consist of independent research and development costs and costs associated with
sponsored research and development. Research and development payments made by
Abgenix to Xenotech have been eliminated against related revenues from Xenotech.
Depreciation and amortization
Cell Genesys records property and equipment at cost and depreciates it
using the straight-line method over the estimated useful lives of the assets,
generally five years. Furniture and equipment leased under capital leases is
amortized over the shorter of the useful lives or the lease term. Amortization
of leased assets is included in depreciation and amortization expense and is
combined with accumulated depreciation and amortization of the Company's owned
assets. Intangible assets are amortized using the straight-line method over the
estimated useful lives of the assets, generally three years.
Cash, cash equivalents and short-term investments
Cell Genesys places its cash, cash equivalents and short-term investments
with high credit quality U.S. and foreign financial institutions, government and
corporate issuers and limits the amount of credit exposure to any one issuer.
The Company considers all highly liquid investments with insignificant interest
35
<PAGE> 37
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate risk with a maturity of less than three months when purchased to be cash
equivalents. All investments are denominated in U. S. dollars.
The Company's debt securities are classified as available-for-sale and
carried at fair value. The cost of securities sold is based on the specific
identification method. Realized gains and losses and declines in value, judged
to be other than temporary, on available for sale securities are included in
interest income. Unrealized holding gains and losses on securities classified as
available-for-sale are recorded in accumulated other comprehensive income. The
Company determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet date.
Net loss per share
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
restated all prior periods. Under the provisions of SFAS 128, basic earnings per
share is calculated based on the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share also give
effect to the dilutive effect of stock options, warrants and convertible
preferred stock (calculated based on the treasury stock method). The Company
does not present diluted earnings per share as the effect of potentially
dilutive shares from stock options, warrants and preferred stock, is
antidilutive.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Comprehensive Income
As of January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive income (loss) is
comprised of net income (loss) and other comprehensive income (loss). The
measurement and presentation of net income (loss) does not change. Other
comprehensive income (loss) includes certain changes to stockholders' equity of
the Company that are excluded from net income (loss). Specifically, SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income (loss). Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131. "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 superseded SFAS 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards
for the way that public business enterprises report selected information about
operating segments in annual and interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company operates solely in one
segment, the development and commercialization of gene therapies to treat major,
life threatening diseases. The adoption of SFAS 131 had no impact on the
Company's results of operations, financial position or disclosure of segment
information.
In March 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132. "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 does not change the
recognition of measurement of pension of postretirement
36
<PAGE> 38
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
benefit plans, but revises and standardizes disclosure requirement for pensions
and other postretirement benefits. The adoption of SFAS 132 has no impact on the
Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133. "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for years beginning
after June 15, 1999 and is not anticipated to have an impact on the Company's
results of operations or financial condition when adopted.
Statement of cash flows
Supplemental disclosure to the Consolidated Statements of Cash Flows is as
follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash paid for interest........................... $2,159 $2,224 $1,169
</TABLE>
Supplemental disclosure regarding noncash investing and financing
activities is as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Furniture and equipment acquired under
financing..................................... $1,268 $ 3,652 $1,319
Deferred compensation related to grant of stock
options by subsidiary......................... $ 298 $ 1,703 $ --
Shares issued to Somatix stockholders........... $ -- $67,924 $ --
</TABLE>
2. INVESTMENT IN ABGENIX AND MINORITY INTEREST
Since 1996, the Company has maintained an investment in Abgenix, Inc
("Abgenix"). In December 1997 and January 1998, Abgenix completed private
placements of securities reducing Cell Genesys' percentage ownership from
approximately 100% to approximately 54%.
On July 2, 1998, Abgenix completed an initial public offering ("IPO")
resulting in gross proceeds of $23 million, reducing Cell Genesys' percentage
ownership to approximately 40%. Prior to the IPO, Abgenix was a consolidated
subsidiary and its financial results were presented accordingly. From July 2,
1998 forward, the Company's investment in Abgenix is accounted for under the
equity method of accounting as a result of the reduced ownership position. The
difference between the cost of the investment (the carrying value of the net
assets less the minority interest immediately prior to the IPO) and the amount
of the underlying equity in net assets of Abgenix immediately following the IPO
was accounted for in accordance with APB Opinion No. 18 "The Equity Method of
Accounting for Investment in Common Stock" and Staff Accounting Bulletin No. 51.
Accordingly, the Company recognized $6.0 million as a contribution to
Stockholders' Equity upon completion of the IPO.
37
<PAGE> 39
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 20, 1998, the Company completed the sale of 1.1 million shares
of Abgenix common stock for approximately $9.5 million in gross proceeds. This
further reduced the Company's ownership percentage in Abgenix to approximately
30 percent. At December 31, 1998, the carrying amount of the Company's
investment in Abgenix was $5 million. Summarized information for Abgenix is as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Revenue.............................................. $ 3,842
Operating loss....................................... (17,258)
Net loss............................................. (16,827)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Current assets....................................... $15,871
Non-current assets................................... 9,234
Current liabilities.................................. 6,213
Non-current liabilities.............................. 3,979
</TABLE>
Minority interest in Abgenix at December 31, 1997 represents the minority
stockholders' investment in Abgenix. During the period of 1998 prior to its IPO
while Abgenix was a consolidated subsidiary, losses of Abgenix totaling $4.2
million were attributed to the minority stockholders.
3. BUSINESS COMBINATION AND RELATED RESTRUCTURING
On May 30, 1997, Cell Genesys acquired Somatix Therapy Corporation. Under
the terms of the merger agreement, Somatix became a subsidiary of Cell Genesys
in a tax-free reorganization and stock-for-stock merger. Somatix stockholders
received 0.385 shares of Cell Genesys stock for each share of Somatix stock. A
total of 11,089,706 shares were issued to Somatix stockholders. The acquisition
was accounted for under the purchase method of accounting. The purchase price of
approximately $70.9 million, comprised of $67.9 million of common stock and $3.0
million of transaction costs, was allocated to the acquired assets and assumed
liabilities based upon their estimated fair value. The fair value of the net
assets acquired, including in-process technology, was determined by management
based on a forecast of future results management believes are likely to occur.
However, no assurance can be given that deviations from these projections will
not occur. The purchase price was allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Purchased in-process technology........................ $72,270
Purchased intangibles.................................. 500
Liabilities assumed in excess of assets acquired....... (1,870)
-------
$70,900
=======
</TABLE>
The amount allocated to purchased in-process technology was charged to
operations in 1997. The purchased intangible, assembled workforce, is being
amortized over the period of three years using the straight-line method.
Accumulated amortization of purchased intangibles at December 31, 1998 was
$264,000. The operations of Somatix are included in the Company's consolidated
operating results from May 31, 1997 forward.
38
<PAGE> 40
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, Cell Genesys recognized $6.6 million in 1997 for restructuring
and integration expenses related to the acquisition. The current status of the
accrued restructuring charges is summarized below:
<TABLE>
<CAPTION>
AMOUNT OF TOTAL AMOUNT UTILIZED AMOUNT UTILIZED AMOUNT TO BE
RESTRUCTURING THROUGH THROUGH UTILIZED IN
CHARGE DECEMBER 31, 1997 DECEMBER 31, 1998 FUTURE PERIODS
--------------- ----------------- ----------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Employee-related costs.............. $2,880 $(2,730) $(150) $ --
Facility shut-down.................. 1,991 (918) (312) 761
Duplicate equipment................. 537 (537) -- --
Other............................... 1,170 (745) (251) 174
------ ------- ----- ----
$6,578 $(4,930) $(713) $935
====== ======= ===== ====
</TABLE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information presents the results of
operations of the Company and Somatix for the years ended December 31, 1996 and
1997 as if the acquisition had been consummated as of the beginning of the
periods presented. This pro forma information does not purport to be indicative
of what would have occurred had the acquisitions been made as of those dates or
of results which may occur in the future. The pro forma information does not
include the charge for purchased in-process technology of $72.3 million or other
transaction-related restructuring costs totaling $6.6 million which were
recognized as expense during 1997, relating to the acquisition of Somatix.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $ 23,806 $ 22,505
Net loss............................................... (53,239) (31,169)
Net loss per share..................................... (1.92) (1.14)
</TABLE>
4. COLLABORATIVE AND LICENSE AGREEMENTS
Collaborative agreement with Japan Tobacco Inc.
On December 18, 1998, Cell Genesys entered into a worldwide collaboration
agreement with the pharmaceutical division of Japan Tobacco Inc. ("JT") related
to the Company's GVAX(TM) cancer vaccine program. The Company received an
initial payment under the agreement of $12.7 million in December 1998 of which
$12.0 million was recognized as revenue in 1998, including an initial
nonrefundable payment of $10 million. Research and development expenses incurred
in 1998 in connection with this agreement were $4.0 million. Under the terms of
this agreement, the Company could receive up to $27.5 million in research and
development funding in the first three years, and approximately $80 million in
milestone payments if JT continues in the collaboration through the regulatory
approvals of the two products. As part of the agreement, JT agreed to advance
the Company up to $30 million in the form of a loan to assist in the funding of
Phase III trials, if needed. None of the payments involve an additional equity
investment in Cell Genesys by JT, which currently owns approximately 3 percent
of the company.
Collaborative agreement with Hoechst Marion Roussel
In 1995, Cell Genesys entered into a collaboration agreement with Hoechst
Marion Roussel, Inc. ("Hoechst Marion Roussel") for the worldwide development
and commercialization of the Company's AIDS gene therapy program. The agreement
provides for funding based on research and development progress.
39
<PAGE> 41
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the agreement with Hoechst Marion Roussel, Cell Genesys conducts
research, will lead product development in North America and will provide
worldwide manufacturing services. Hoechst Marion Roussel has worldwide marketing
rights for AIDS products developed in this program and Cell Genesys retains a
co-promotion option in North America. Cell Genesys receives payments for
research and development and milestone payments and will receive a transfer
price for manufacturing services and profit sharing. The Company recognized
revenue of $6.4 million, $14.4 million and $15.3 million in fiscal 1998, 1997
and 1996, respectively, pursuant to the agreement. Research and development
expenses incurred under collaborative agreements with Hoechst Marion Roussel
were $8.8 million, $13.7 million, and $12.7 million in 1998, 1997 and 1996
respectively.
Gene Activation Technology Licenses
In 1997, the Company entered into an agreement to license the Company's
gene activation technology to Hoechst Marion Roussel for gene-activated
erythropoietin (EPO) and a second undisclosed protein. The agreement provides
for milestone payments and fees, in addition to royalties on future sales of
these two potential gene-activated protein products. The Company recognized
revenue of $4.1 and $5.1 million in 1998 and 1997, respectively, pursuant to the
agreement.
In 1994, the Company entered into a license agreement for gene-activated
follicle-stimulating hormone ("FSH") for infertility with Organon, a business
unit of Akzo Nobel Pharma Group. In November 1996, the Company renegotiated the
license agreement. The Company recognized revenue of $2.5 million in fiscal 1997
and $2.5 million in fiscal 1996 pursuant to the agreement.
Joint venture with JT Immunotech
In 1991, the Company and JT Immunotech, a medical subsidiary of Japan
Tobacco Inc. ("Japan Tobacco"), formed Xenotech, LP, ("Xenotech"), an
equally-owned joint venture, to develop genetically modified strains of mice
which can produce human monoclonal antibodies and to commercialize products
generated from these mice. In June 1996, Cell Genesys transferred its
partnership interest in the joint venture to its then subsidiary, Abgenix, as
part of the initial formation of Abgenix. Xenotech funds this research which is
now conducted by Abgenix on behalf of the joint venture. The Company recognized
revenue of $499,000, $1.3 million and $4.7 million in 1998, 1997 and 1996,
respectively, net of its own payments to the joint venture. Related research and
development expenses incurred were $152,000, $2.9 million, and $8.9 million for
the same periods, respectively. The Company (Abgenix, subsequent to its IPO) has
funded 50% of all Xenotech expenses.
Abgenix accounts for its investment in Xenotech under the equity method;
50% of Xenotech's losses (after adjustment for certain timing differences) are
offset against revenue, as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- -------- ------
<S> <C> <C> <C>
Abgenix' share of Xenotech net loss.............. $310 $ 12,347 $3,306
Losses associated with cross-license and
settlement..................................... -- (11,250) --
Difference due to timing and change in deferred
revenue........................................ -- (200) 560
---- -------- ------
Equity in losses of Xenotech..................... $310 $ 897 $3,866
==== ======== ======
</TABLE>
40
<PAGE> 42
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized information for Xenotech at June 30, 1998 (just prior to
Abgenix's IPO), and December 31, 1997 and 1996, and for the six months ended
June 30, 1998 and the years ended at December 31, 1997, and 1996 as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ -------- -------
<S> <C> <C> <C>
Total assets.................................. $8,240.. $ 7,569 $ 492
Total liabilities............................. 8,052 7,556 59
Total revenues................................ 310 272 1,912
Total expenses (principally research and
development)................................ (935) (24,964) (8,547)
Net loss...................................... (625) (24,680) (6,614)
</TABLE>
5. CHARGE FOR CROSS-LICENSE AND SETTLEMENT
In February 1994, the Company filed a complaint against GenPharm
International, Inc. ("GenPharm") alleging that GenPharm and its agents
misappropriated Cell Genesys' proprietary technology used to develop strains of
mice which produce human antibodies and that GenPharm unlawfully filed patent
applications covering this technology. One aspect of the technology at issue
related to a method for inactivating a mouse's antibody genes. On January 7,
1997, GenPharm received a patent (the "'669 patent") which includes claims
related to transgenic mice whose antibody genes have been inactivated. On that
same date, GenPharm filed suit alleging that the Company's subsidiary, Abgenix,
was infringing the '669 patent. In light of these developments, the Company
dismissed without prejudice its state court action against GenPharm in January
1997. In February 1996, GenPharm filed an antitrust suit against the Company
alleging that Cell Genesys violated the Federal antitrust laws when it filed the
state court action against GenPharm in February 1994. GenPharm sought treble
damages, attorneys' fees and costs for suit. The Court granted Cell Genesys'
motion to dismiss this lawsuit and entered a judgment of dismissal without
prejudice in December 1996. In January 1997, GenPharm filed an appeal of this
judgment.
On March 27, 1997, the Company announced that, along with Abgenix, Xenotech
and Japan Tobacco, it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm that resolved all related litigation and
claims between the parties. The cross-license agreement includes a worldwide
royalty free cross-license to all issued and related patent applications
pertaining to the generation of fully human monoclonal antibody technologies in
genetically modified strains of mice. The Company also obtained a license to
certain technology in the field of gene therapy held by GenPharm. As
consideration for the cross-license and settlement agreement, Cell Genesys
issued a note for $15 million bearing interest at a rate of 7% per annum, which
came due and was paid on September 30, 1998. Total interest paid for the note
was $805,000 and $787,500 in 1998 and 1997, respectively. Of this note, $3.75
million was contributed to, then paid by Xenotech. The entire amount of the note
was recognized as expense by Abgenix in the first quarter of 1997. In addition,
Japan Tobacco also made a cash payment to GenPharm. During 1997, two milestones
contemplated under the cross license and settlement agreement related to the
issuance of specified patents of $7.5 million each were met. Xenotech recognized
an expense of $15 million, $7.5 million of which was paid in cash in the fourth
quarter of 1997 and the remainder was paid in the fourth quarter of 1998. During
1997, Abgenix recognized an expense of $7.5 million for its contribution due to
Xenotech for its share of the patent milestones which was paid in two equal
installments in 1997 and 1998. No additional milestone payments will accrue
under this agreement.
41
<PAGE> 43
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is a summary of the Company's available-for-sale securities
at December 31, 1998 and 1997, respectively (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
1998 --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and its Agencies........ $16,327 $ 51 $-- $16,378
Corporate Notes......................... 17,293 27 -- 17,321
Commercial Paper........................ 16,900 35 -- 16,934
------- ---- --- -------
$50,520 $113 $-- $50,633
======= ==== === =======
Classified as:
Cash equivalents...................... $11,846 $ -- $-- $11,845
Short-term investments................ 38,674 113 -- 38,788
------- ---- --- -------
$50,520 $113 $-- $50,633
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
1997 --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and its Agencies........ $33,897 $ 62 $-- $33,959
Corporate Notes......................... 26,123 10 -- 26,133
Commercial Paper........................ 24,866 46 -- 24,912
------- ---- --- -------
Short-term investments.................. $84,886 $118 $-- $85,004
======= ==== === =======
</TABLE>
Gross realized gains and losses for 1998 were immaterial and gross realized
gains recorded on sales of available-for-sale securities were approximately
$154,000 for the year ended December 31,1997.
The amortized cost and estimated fair value of available-for-sale
securities at December 31, 1998, by contractual maturity, are shown below (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less................................ $26,069 $26,140
Due in one to two years................................ 24,451 24,493
------- -------
$50,520 $50,633
======= =======
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Furniture and equipment under equipment financing........... $ 12,141 $ 13,236
Machinery and equipment..................................... 4,574 4,733
Leasehold improvements under financing...................... 5,129 9,173
Leasehold improvements...................................... 3,929 4,188
Construction in progress.................................... 165 32
-------- --------
25,938 31,362
Accumulated depreciation and amortization................... (19,859) (17,547)
-------- --------
$ 6,079 $ 13,815
======== ========
</TABLE>
42
<PAGE> 44
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recognized depreciation and amortization expense of $4,567,000,
$5,281,000 and $3,709,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
8. DEBT OBLIGATIONS
Property and equipment financing
As of December 31, 1998 the Company has $17.3 million of property and
equipment financed through long-term obligations. These obligations bear
interest ranging from 10 to 14 percent, have up to 5 year terms and contain
various buy-out provisions at term expiration. These obligations are secured by
certain fixed assets at the Company and by certain deposits. Under these
obligations, the Company is required to meet various financial covenants with
which it was in compliance at December 31, 1998. $2.8 million is available under
these leaselines for future financings.
Future minimum principal payments under property and equipment financing as
of December 31, 1998 were (in thousands):
<TABLE>
<S> <C>
Years ending December 31:
1999.............................................. $4,447
2000.............................................. 2,813
2001.............................................. 1,837
2002.............................................. 511
2003 and beyond................................... 313
------
$9,920
======
</TABLE>
The Company leases its facilities and certain equipment under noncancelable
operating leases. The leases expire at various dates through 2007 and some
contain options for renewal. Rent expense under operating leases was $2.7
million in 1998, $2.2 million in 1997 and $1.8 million in 1996. Included in
accrued liabilities was $935,000 at December 31, 1998 for future lease payments,
net of expected sublease income, related to the closed Alameda facility assumed
through the Somatix acquisition.
Future minimum payments under noncancelable operating and capital leases,
excluding the Alameda facility, at December 31, 1998 were (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
Years ending December 31:
1999...................................................... $1,593 $ 4,447
2000...................................................... 1,705 2,813
2001...................................................... 1,721 1,837
2002...................................................... 150 511
2003...................................................... 0 313
------ -------
Total minimum lease payment............................... $5,169 $ 9,920
Less: Amount representing interest.......................... (1,494)
-------
Present value of future lease payments $ 8,426
Current portion............................................. 3,566
-------
Non current portion......................................... $ 4,860
=======
</TABLE>
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On November 14, 1997, the Company completed a private placement of 2,000
shares of Series B redeemable convertible preferred stock, ("preferred stock"),
for aggregate proceeds of $20 million. The Company, subject to certain
conditions, may exercise a put option to sell up to an additional $10 million of
43
<PAGE> 45
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
preferred stock and investors, subject to certain conditions, may exercise a
call option to purchase up to an additional $10 million of preferred stock. Each
of the preferred shares is convertible, at the option of the holder, into shares
of common stock of the Company based upon a conversion price of $11.02 per share
or, if lower, 100% of the average of specified trading prices during the ten
trading days preceding a conversion. Any shares not converted prior to November
2002 are automatically converted into shares of the Company's common stock. The
convertible preferred stock bears a dividend of 5%, payable in kind upon
conversion. If the Company enters into a "major transaction" or effects a
"triggering event" as defined in the private placement agreement, the stock may
be redeemed at the option of the holders. Examples of such transactions or
events would include a change in control of the Company or delisting of
company's stock. The preferred stock is non-voting. At December 31, 1998, 844
shares of Series B preferred stock had been converted into common stock and
1,156 shares remained outstanding.
10. STOCKHOLDERS' EQUITY
Accounting for Stock Issued to Employees
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Incentive Stock Plans
The Company's 1989 Incentive Stock Plan and the 1998 Incentive Stock Plan
("the Plans") provide for the issuance of common stock and granting of options
for common stock to employees, officers, directors and consultants of the
Company. The Company grants shares of common stock for issuance under the Plans
at no less than the fair market value of the stock (85% of fair market value for
non-qualified options). Options granted under the Plans have a maximum term of
ten years and generally vest over four years at the rate of 25% one year from
the grant date and 1/48 monthly thereafter.
Effective November 6, 1998, Cell Genesys offered employees holding
outstanding options the opportunity to exchange each option share for one option
share priced at $4.125 (the fair market value on that date). The new options are
not eligible for exercise prior to May 6, 1999, after which vesting continues in
accordance with the previous options' vesting schedule. All other terms remained
unchanged. As a result of the offer, 1,765,835 options were exchanged which are
included in the table below.
44
<PAGE> 46
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about the plan:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
---------------------------
WEIGHTED-
SHARES NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Balances, December 31, 1995............................... 1,147 2,539 $4.83
Authorized.............................................. 500 --
Granted................................................. (838) 838 $9.70
Exercised............................................... -- (484) $2.29
Canceled................................................ 558 (558) $8.01
------ ------
Balances, December 31, 1996............................... 1,367 2,335 $6.36
Authorized.............................................. 1,750 --
Granted................................................. (2,410) 2,410 $6.99
Exercised............................................... -- (442) $4.48
Canceled................................................ 1,372 (1,372) $8.52
------ ------
Balances, December 31, 1997............................... 2,079 2,931 $6.13
Authorized.............................................. 623 --
Granted................................................. (2,940) 2,940 $5.46
Exercised............................................... -- (177) $4.32
Canceled................................................ 2,419 (2,419) $7.14
------ ------
Balances, December 31, 1998............................... 2,181 3,275 $4.88
====== ======
Exercisable at December 31, 1998..................................... 1,038 $5.43
Exercisable at December 31, 1997..................................... 1,425 $5.68
Exercisable at December 31, 1996..................................... 1,313 $5.10
Weighted average fair value of options granted during 1998........................ $3.55
Weighted average fair value of options granted during 1997........................ $3.78
Weighted average fair value of options granted during 1996........................ $5.97
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES (000) CONTRACTUAL LIFE EXERCISE PRICE (000) EXERCISE PRICE
- --------------- ----------- ------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.30 - 1.50 133 2.7 years $ 1.27 133 $ 1.27
$3.00 - 4.38 1,998 9.2 years $ 4.02 232 $ 3.28
$4.75 - 6.75 513 8.1 years $ 5.86 251 $ 5.94
$7.00 - 10.13 590 8.3 years $ 7.32 382 $ 7.22
$11.00 - 11.75 41 4.4 years $11.19 41 $11.19
----- -----
3,275 1,038
===== =====
</TABLE>
45
<PAGE> 47
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Somatix 1992 Stock Option Plan
Under the terms of the merger agreement with Somatix, the Company adopted
the 1992 Stock Option Plan. Information with respect to the plan activity from
the date of acquisition, May 30, 1997 to December 31, 1998 follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at acquisition.................................. 1,018 $8.94
Granted................................................... -- --
Exercised................................................. (44) 4.69
Canceled.................................................. (137) 10.15
---------
Authorized and Outstanding at December 31, 1997............. 837 8.97
Granted................................................... -- --
Exercised................................................. -- --
Canceled.................................................. (108) 16.04
---------
Outstanding at December 31, 1998............................ 729 $9.01
=========
Exercisable at December 31, 1998............................ 719 $8.92
Exercisable at December 31, 1997............................ 810 $8.73
Weighted average remaining contractual life at December 31,
1998...................................................... 5.6 years
</TABLE>
1992 Employee Stock Purchase Plan
The 1992 Employee Stock Purchase Plan allows eligible employees to
participate and purchase common stock at 85% of its fair value at certain
specified dates. Employee contributions are limited to 10% of compensation. A
total of 500,000 shares of common stock have been reserved for issuance under
the Purchase Plan. As of December 31, 1998, 315,759 shares have been issued
pursuant to the Purchase Plan.
Pro forma information
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for options
granted under its employee stock option plans and the Purchase Plan under the
fair value method of that Statement. The fair value of Cell Genesys' options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions for 1996, 1997 and 1998, respectively: risk-free
interest rates of 5.29%, 6.46% and 4.64%; no dividend yields; volatility factors
of the expected market price of the Company's common stock of 0.68, 0.68 and
0.67; and an expected life of the option of 5 years under the stock option plan
and 0.5 years for options granted under the Purchase Plan.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
46
<PAGE> 48
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
table illustrates what net loss would have been had the Company accounted for
its stock options under the provisions of FAS 123.
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss
As reported......................................... $(12,128) $(123,529) $ (9,274)
Pro forma........................................... $(14,463) $(126,549) $(11,028)
Net loss per share
As reported......................................... $ (0.46) $ (5.33) $ (0.57)
Pro forma........................................... $ (0.51) $ (5.46) $ (0.67)
</TABLE>
Stockholder Rights Plan
In July 1995, the Board of Directors approved a stockholder rights plan
under which stockholders of record on August 21, 1995 received one preferred
share purchase right for each outstanding share of the Company's common stock.
The rights are exercisable only if an acquirer purchases 20% or more of the
Company's common stock or announces a tender offer for 20% or more of the
Company's common stock. Upon exercise, holders other than the acquirer may
purchase Cell Genesys stock at a discount. The Board of Directors may terminate
the rights plan at any time or under certain circumstances redeem the rights.
Warrants
In connection with its collaboration agreement with Hoechst Marion Roussel,
the Company has a warrant outstanding for the purchase of 750,000 shares of
common stock at an exercise price of $13.00 per share, which expires in 2000.
The Company has assumed various warrants issued by Somatix for the purchase
of common stock, of which 51,841 shares were outstanding at December 31, 1998,
at exercise prices ranging from $0.03 to $18.83 per share, all of which expire
at various dates during 1999.
Shares reserved
At December 31, 1998, the Company has reserved shares of common stock for
potential future issuance consisting of (i) 3,238,217 upon conversion of
preferred stock; (ii) 801,841 upon exercises of warrants; and (iii) 5,633,117
for exercises under the employee stock option plans or the stock purchase plan.
11. INCOME TAXES
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $119 million. The Company also had federal
research and development tax credit carryforwards of approximately $2.4 million
as of December 31, 1998. The net operating loss and credit carryforwards will
expire in the years 1999 through 2018, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
47
<PAGE> 49
CELL GENESYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets for federal and
state income taxes as of December 31 are as follows in thousands:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards............................ $ 41,400 $ 44,700
Research credit carryforwards............................... 3,200 3,100
Capitalized research and development........................ 1,300 2,300
Capitalized license agreements.............................. -- 8,000
Other -- net................................................ 3,700 3,700
-------- --------
Net deferred tax assets..................................... 51,500 61,800
Valuation allowance......................................... (51,500) (61,800)
-------- --------
$ 0 $ 0
======== ========
</TABLE>
The net valuation allowance increased by $38.0 million during the year
ended December 31, 1997 and decreased by $10,300 in 1998. Approximately $2.6
million of the valuation allowance for deferred tax assets relates to benefits
of stock option deductions which, when recognized, will be allocated directly to
contributed capital.
12. LITIGATION AND CONTINGENCIES
The Company is party to various claims, investigations and legal
proceedings arising out of the normal course of its business. These claims,
investigations and legal proceedings relate primarily to intellectual property
of which certain of them are the subject of ongoing interference or opposition
proceedings with patent authorities. While there can be no assurance that an
adverse determination of any such matters could not have a material adverse
impact in any future period, management does not believe, based upon information
known to it, that the final resolution of these matters will have a material
adverse effect upon the Company's business, financial position or results of
operations.
48
<PAGE> 50
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item concerning the Company's
directors is incorporated by reference to the Company's Proxy Statement related
to the 1999 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days after the Company's fiscal year end (the
"1999 Proxy Statement").
(b) The information required by this Item concerning the Company's
executive officers is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's 1999 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Balance Sheets at December 31, 1998 and 1997................ 31
Statements of Operations for the years ended December 31,
1998, 1997 and 1996....................................... 32
Statement of Stockholders' Equity for the years ended
December 31, 1998, 1997
and 1996.................................................. 33
Statements of Cash Flows for the years ended December 31,
1998, 1977 and 1996....................................... 34
Notes to Financial Statements............................... 35
</TABLE>
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because they are not
applicable or not required or because the required information is included in
the financial statements or notes thereto.
(b) Reports on Form 8-K
None.
49
<PAGE> 51
(c) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
2.1* (9) Stock Purchase Agreement, dated as of October 9, 1995,
between the Registrant and Hoechst Marion Roussel, Inc.
2.2 (15) Agreement and plan of merger and reorganization, dated as of
January 12, 1997, among Registrant, S Merger Corp. and
Somatix Therapy Corporation.
3.1 (2) Restated Certificate of Incorporation.
3.2 (1) Bylaws.
10.1 (1) Form of Indemnification Agreement for Directors and
Officers.
10.2 (13) Amended 1989 Incentive Stock Plan.
10.3 (13) Amended 1992 Employee Stock Purchase Plan.
10.4 (1) Representative Preferred Stock Purchase Agreement.
10.5 (1) Fourth Amended and Restated Stockholder Rights Agreement.
10.6 (1) License Agreement dated August 13, 1990 between Registrant
and the University of North Carolina at Chapel Hill.
10.7 (1) First page only of Exhibit 10.7.
10.8* (8) Amended and Restated Exclusive License Agreement dated
September 5, 1995 between the Company and the Regents of the
University of California.
10.9 (1) License Agreement dated June 28, 1991 between Registrant and
the University of Utah Research Foundation.
10.10* (1) First page only of Exhibit 10.9.
10.11 (2) Amended Employment Agreement with Stephen A. Sherwin, M.D.
10.12 (3) Master Loan and Security Agreement dated April 26, 1993
between Registrant and Financing for Science International,
Inc.
10.13 (4) Commitment Letter dated march 1, 1994 between Registrant and
Financing for Science International, Inc.
10.14 (5) Amendment dated April 25, 1994 to Commitment Letter with
Financing for Science International, Inc.
10.15 (7) Commitment Letter dated April 20, 1995 between the Company
and Financing for Science International, Inc.
10.16 (13) Amendment dated January 22, 1996 to Commitment Letter with
Financing for Science International, Inc.
10.17 (6) Research and Development Leases dated November 1, 1994
between Registrant and Vintage Park Associates and Addendums
thereto.
10.18* (10) Collaboration Agreement, dated as of October 9,1995, by and
among the Registrant, Hoechst Aktiengesellschaft and Hoechst
Marion Roussel, Inc., including the letter agreement dated
as of October 9, 1995 between the parties.
10.19* (11) Cross License Agreement. dated as of October 9, 1995,
between the Registrant and Hoechst Aktiengesellschaft.
10.20* (12) Settlement Procedure Agreement, dated as of October 9, 1995,
by and among the Registrant, Hoechst Aktiengesellschft and
Massachusetts General Hospital.
10.21* (14) Amendment No. 1 dated June 7, 1996 to Vintage Park Research
and Development lease.
10.22 (16) Stock Option Agreement, dated as of January 12, 1997,
between Somatix Therapy Corporation, as grantor, and
Registrant, as grantee.
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
10.23 (17) Stock Option Agreement, dated as of January 12, 1997,
between Registrant, as grantor, and Somatix Therapy
Corporation, as grantee.
10.24* (18) Release and Settlement Agreement, dated March 26, 1997,
among Cell Genesys, Inc., Abgenix. Inc., Xenotech, L.P.,
Japan Tobacco Inc. and GenPharm International. Inc.
10.25* (18) Cross License Agreement, effective as of March 26, 1997,
among Cell Genesys, Inc. Abgenix, Inc., Xenotech, L.P.,
Japan Tobacco Inc. and GenPharm International, Inc.
10.26* (18) Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, Inc., Abgenix, Inc.,
Xenotech. L.P., Japan Tobacco Inc. and GenPharm
International, Inc.
10.27 (18) Convertible Note Purchase Agreement, dated as of March 26,
1997, between Cell Genesys, Inc. and GenPharm International,
Inc.
10.28 (18) Convertible Subordinated Promissory Note, dated March 26,
1997, made by Cell Genesys Inc. to the order of GenPharm
International, Inc.
10.29* GVAX(TM) Agreement By and Between Japan Tobacco Inc. and
Cell Genesys, Inc. dated December 18, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney, (Reference is made to page 52).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment has been granted with respect to specific portions
of this exhibit.
(1) Incorporated by reference to the same numbered exhibit filed with the
Company's Registration statement on Form S-1 (Reg. No. 33-46452) as
amended.
(2) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993.
(4) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
(5) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-K for the quarter ended March 31,
1994.
(6) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(7) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
(8) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995.
(9) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995.
(10) Incorporated by reference to the same numbered exhibit filed with the
Company's Form 8-K dated October 9, 1995.
(11) Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K
dated October 9, 1995.
(12) Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K
dated October 9, 1995.
(13) Incorporated by reference to Exhibit 10.3 filed with the Company's Form 8-K
dated October 9, 1995.
(14) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
51
<PAGE> 53
(15) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.
(16) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
(17) Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-K
dated January 12, 1997.
(18) Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K
dated January 12, 1997.
(19) Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K
dated January 12, 1997.
(20) Incorporated by reference to the Company's Form 10-K/A for the fiscal year
ended December 31, 1996 as filed April 30, 1997.
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized in Foster City, California, on
March 30, 1999:
CELL GENESYS, INC.
By: /s/ MATTHEW J. PFEFFER
------------------------------------
Matthew J. Pfeffer
Chief Financial Officer
(Principal Accounting Officer)
Date: March 30, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen A. Sherwin, M.D. and Matthew J.
Pfeffer, jointly and severally, as his or her attorneys-in-fact, each with the
full power of substitution, for him or her, in any and all capacities, to sign
any amendment to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting to said attorneys-in-fact, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or any of them, or their or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEPHEN A. SHERWIN, M.D. Chairman of the Board, March 30, 1999
- ----------------------------------------------------- President and
Stephen A. Sherwin, M.D. Chief Executive Officer
(Principal Executive Officer)
/s/ MATTHEW J. PFEFFER Chief Financial Officer March 30, 1999
- ----------------------------------------------------- (Principal Financial and
Matthew J. Pfeffer Accounting Officer)
/s/ DAVID W. CARTER Director March 30, 1999
- -----------------------------------------------------
David W. Carter
/s/ JAMES M. GOWER Director March 30, 1999
- -----------------------------------------------------
James M. Gower
/s/ RAJU S. KUCHERLAPATI, PH.D. Director March 30, 1999
- -----------------------------------------------------
Raju S. Kucherlapati, Ph.D.
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOSEPH E. MAROUN Director March 30, 1999
- -----------------------------------------------------
Joseph E. Maroun
/s/ JOHN T. POTTS, JR., M.D. Director March 30, 1999
- -----------------------------------------------------
John T. Potts, Jr., M.D.
/s/ EUGENE L. STEP Director March 30, 1999
- -----------------------------------------------------
Eugene L. Step
/s/ INDER M. VERMA, PH.D. Director March 30, 1999
- -----------------------------------------------------
Inder M. Verma, Ph.D.
</TABLE>
54
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
2.1* (9) Stock Purchase Agreement, dated as of October 9, 1995,
between the Registrant and Hoechst Marion Roussel, Inc.
2.2 (15) Agreement and plan of merger and reorganization, dated as of
January 12, 1997, among Registrant, S Merger Corp. and
Somatix Therapy Corporation.
3.1 (2) Restated Certificate of Incorporation.
3.2 (1) Bylaws.
10.1 (1) Form of Indemnification Agreement for Directors and
Officers.
10.2 (13) Amended 1989 Incentive Stock Plan.
10.3 (13) Amended 1992 Employee Stock Purchase Plan.
10.4 (1) Representative Preferred Stock Purchase Agreement.
10.5 (1) Fourth Amended and Restated Stockholder Rights Agreement.
10.6 (1) License Agreement dated August 13, 1990 between Registrant
and the University of North Carolina at Chapel Hill.
10.7 (1) First page only of Exhibit 10.7.
10.8* (8) Amended and Restated Exclusive License Agreement dated
September 5, 1995 between the Company and the Regents of the
University of California.
10.9 (1) License Agreement dated June 28, 1991 between Registrant and
the University of Utah Research Foundation.
10.10* (1) First page only of Exhibit 10.9.
10.11 (2) Amended Employment Agreement with Stephen A. Sherwin, M.D.
10.12 (3) Master Loan and Security Agreement dated April 26, 1993
between Registrant and Financing for Science International,
Inc.
10.13 (4) Commitment Letter dated march 1, 1994 between Registrant and
Financing for Science International, Inc.
10.14 (5) Amendment dated April 25, 1994 to Commitment Letter with
Financing for Science International, Inc.
10.15 (7) Commitment Letter dated April 20, 1995 between the Company
and Financing for Science International, Inc.
10.16 (13) Amendment dated January 22, 1996 to Commitment Letter with
Financing for Science International, Inc.
10.17 (6) Research and Development Leases dated November 1, 1994
between Registrant and Vintage Park Associates and Addendums
thereto.
10.18* (10) Collaboration Agreement, dated as of October 9,1995, by and
among the Registrant, Hoechst Aktiengesellschaft and Hoechst
Marion Roussel, Inc., including the letter agreement dated
as of October 9, 1995 between the parties.
10.19* (11) Cross License Agreement. dated as of October 9, 1995,
between the Registrant and Hoechst Aktiengesellschaft.
10.20* (12) Settlement Procedure Agreement, dated as of October 9, 1995,
by and among the Registrant, Hoechst Aktiengesellschft and
Massachusetts General Hospital.
10.21* (14) Amendment No. 1 dated June 7, 1996 to Vintage Park Research
and Development lease.
10.22 (16) Stock Option Agreement, dated as of January 12, 1997,
between Somatix Therapy Corporation, as grantor, and
Registrant, as grantee.
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
10.23 (17) Stock Option Agreement, dated as of January 12, 1997,
between Registrant, as grantor, and Somatix Therapy
Corporation, as grantee.
10.24* (18) Release and Settlement Agreement, dated March 26, 1997,
among Cell Genesys, Inc., Abgenix. Inc., Xenotech, L.P.,
Japan Tobacco Inc. and GenPharm International. Inc.
10.25* (18) Cross License Agreement, effective as of March 26, 1997,
among Cell Genesys, Inc. Abgenix, Inc., Xenotech, L.P.,
Japan Tobacco Inc. and GenPharm International, Inc.
10.26* (18) Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, Inc., Abgenix, Inc.,
Xenotech. L.P., Japan Tobacco Inc. and GenPharm
International, Inc.
10.27 (18) Convertible Note Purchase Agreement, dated as of March 26,
1997, between Cell Genesys, Inc. and GenPharm International,
Inc.
10.28 (18) Convertible Subordinated Promissory Note, dated March 26,
1997, made by Cell Genesys Inc. to the order of GenPharm
International, Inc.
10.29* GVAX(TM) Agreement By and Between Japan Tobacco Inc. and
Cell Genesys, Inc. dated December 18, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney, (Reference is made to page 52).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Confidential treatment has been granted with respect to specific portions
of this exhibit.
(1) Incorporated by reference to the same numbered exhibit filed with the
Company's Registration statement on Form S-1 (Reg. No. 33-46452) as
amended.
(2) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993.
(4) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
(5) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-K for the quarter ended March 31,
1994.
(6) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(7) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
(8) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995.
(9) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995.
(10) Incorporated by reference to the same numbered exhibit filed with the
Company's Form 8-K dated October 9, 1995.
(11) Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K
dated October 9, 1995.
(12) Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K
dated October 9, 1995.
(13) Incorporated by reference to Exhibit 10.3 filed with the Company's Form 8-K
dated October 9, 1995.
(14) Incorporated by reference to the same numbered exhibit filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
<PAGE> 58
(15) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.
(16) Incorporated by reference to the same numbered exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
(17) Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-K
dated January 12, 1997.
(18) Incorporated by reference to Exhibit 10.1 filed with the Company's Form 8-K
dated January 12, 1997.
(19) Incorporated by reference to Exhibit 10.2 filed with the Company's Form 8-K
dated January 12, 1997.
(20) Incorporated by reference to the Company's Form 10-K/A for the fiscal year
ended December 31, 1996 as filed April 30, 1997.
<PAGE> 1
EXHIBIT 10.29
- --------------------------------------------------------------------------------
GVAX(TM) AGREEMENT
BY AND BETWEEN
JAPAN TOBACCO INC.
AND
CELL GENESYS, INC.
DECEMBER 18, 1998
- -------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portion.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS........................................................................... 8
1.1 "Affiliate"...................................................................... 8
1.2 "CG Technology".................................................................. 8
1.3 "Cell Processing Services"....................................................... 9
1.4 "Collaboration Products"......................................................... 9
1.5 "Commercialization Committee".................................................... 9
1.6 "Commercializing Party".......................................................... 9
1.7 "Completion"..................................................................... 10
1.8 "Confidential Information"....................................................... 10
1.9 "Control"........................................................................ 10
1.10 "Current Clinical Trials"........................................................ 10
1.11 "Current Collaboration Products"................................................. 10
1.12 "Data"........................................................................... 10
1.13 "Development Committee".......................................................... 10
1.14 "Development Costs".............................................................. 10
1.15 "Development Personnel".......................................................... 11
1.16 "Development Plan and Budget".................................................... 11
1.17 "Development Program"............................................................ 11
1.18 "East Asia"...................................................................... 11
1.19 "Event".......................................................................... 11
1.20 "Excess Operating Expenses"...................................................... 12
1.21 "Existing Data".................................................................. 12
1.22 "Europe"......................................................................... 12
1.23 "FDA"............................................................................ 12
1.24 "Field".......................................................................... 12
1.25 "First Commercial Sale".......................................................... 12
1.26 "Full Funding Term".............................................................. 12
1.27 "GAAP"........................................................................... 12
1.28 "GM-CSF"......................................................................... 12
1.29 "IND"............................................................................ 12
1.30 "Initiation"..................................................................... 12
1.31 "JT Technology".................................................................. 12
1.32 "Major Market Country"........................................................... 13
1.33 "Manufacturing Facilities"....................................................... 13
1.34 "Marketing Approval"............................................................. 13
</TABLE>
- --------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portion.
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.35 "Marketing Approval Application"................................................. 13
1.36 "Marketing Distributor".......................................................... 13
1.37 "Marketing Plans"................................................................ 14
1.38 "[*] Data"....................................................................... 14
1.39 "[*] Trial"...................................................................... 14
1.40 "Net Sales"...................................................................... 14
1.41 "Net Third Party Revenues"....................................................... 14
1.42 "North America".................................................................. 15
1.43 "Operating Advances"............................................................. 15
1.44 "Operating Expenses"............................................................. 16
1.45 "Operating Revenues"............................................................. 16
1.46 "[*]"............................................................................ 16
1.47 "Phase I"........................................................................ 17
1.48 "Phase II"....................................................................... 17
1.49 "Phase III"...................................................................... 17
1.50 "Production Costs"............................................................... 17
1.51 "Prosecution Interference Activities"............................................ 17
1.52 "Renal Data"..................................................................... 18
1.53 "Renal Trials"................................................................... 18
1.54 "Reserve Amount"................................................................. 18
1.55 "Rest of the World".............................................................. 18
1.56 "Subject Patents"................................................................ 18
1.57 "Target"......................................................................... 18
1.58 "Territory"...................................................................... 18
1.59 "Third Party Agreements"......................................................... 18
ARTICLE 2 DEVELOPMENT COMMITTEE................................................................. 19
2.1 Development Committee............................................................ 19
2.2 Membership....................................................................... 19
2.3 Development Committee Meetings................................................... 19
2.4 Decisions........................................................................ 19
ARTICLE 3 DEVELOPMENT PLANS AND BUDGETS......................................................... 20
3.1 General.......................................................................... 20
3.2 Development Priorities........................................................... 20
3.3 Annual Review.................................................................... 20
3.4 Periodic Reviews................................................................. 20
</TABLE>
- --------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portion.
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 4 DEVELOPMENT PROGRAM................................................................... 21
4.1 Development Program for North America............................................ 21
4.2 Development Program for East Asia................................................ 21
4.3 Development Program for Europe and the Rest of the World......................... 21
4.4 Regulatory Filings............................................................... 21
4.5 Visiting Personnel............................................................... 21
4.6 Exclusivity of Efforts........................................................... 22
ARTICLE 5 RECORDKEEPING; PUBLICATION............................................................ 22
5.1 Reports and Records.............................................................. 22
5.2 Review of Publications........................................................... 23
ARTICLE 6 DEVELOPMENT PROGRAM FUNDING........................................................... 24
6.1 Funding.......................................................................... 24
6.2 Additional Payments for Existing Data; Cost Reimbursement........................ 28
6.3 [*].............................................................................. 22
6.4 Credit Facility.................................................................. 30
6.5 Metastatic Renal Cell Carcinoma.................................................. 30
6.6 [*].............................................................................. 30
ARTICLE 7 USE OF PRECLINICAL AND CLINICAL DATA.................................................. 31
7.1 Exchange......................................................................... 31
7.2 Disclosure....................................................................... 32
7.3 Regulatory Requirements.......................................................... 32
7.4 Development Committee Review..................................................... 32
7.5 Ownership........................................................................ 32
ARTICLE 8 MARKETING RIGHTS...................................................................... 32
8.1 General.......................................................................... 32
8.2 JT............................................................................... 33
8.3 CG............................................................................... 33
8.4 Europe and Rest of the World..................................................... 33
8.5 Marketing Distributor............................................................ 33
8.6 Covenants........................................................................ 33
8.7 Commercialization Committee...................................................... 33
8.8 Marketing Plans.................................................................. 34
8.9 Marketing Distributor............................................................ 35
</TABLE>
- --------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portion.
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 9 PRODUCT PAYMENTS...................................................................... 36
9.1 General.......................................................................... 36
9.2 Royalty.......................................................................... 36
9.3 Net Third Party Revenues......................................................... 37
9.4 Mechanism........................................................................ 38
9.5 Cell Processing Services/Kits.................................................... 38
9.6 Combinations..................................................................... 38
9.7 Transfer Pricing................................................................. 38
9.8 Third Party Payments............................................................. 38
ARTICLE 10 PAYMENTS; BOOKS AND RECORDS.......................................................... 40
10.1 Quarterly Reports................................................................ 40
10.2 Payment Method................................................................... 40
10.3 Currency Conversion.............................................................. 41
10.4 Taxes............................................................................ 41
10.5 Records; Inspection.............................................................. 42
ARTICLE 11 DUE DILIGENCE........................................................................ 43
11.1 CG............................................................................... 43
11.2 JT............................................................................... 43
ARTICLE 12 MANUFACTURING RIGHTS................................................................. 43
12.1 East Asia........................................................................ 43
12.2 North America.................................................................... 44
12.3 Transfer Price................................................................... 44
12.4 Supply Agreements................................................................ 44
ARTICLE 13 LICENSE GRANTS....................................................................... 44
13.1 Grant to JT...................................................................... 44
13.2 Grant to CG...................................................................... 45
13.3 Sublicenses...................................................................... 45
13.4 No Rights Beyond Collaboration Products.......................................... 45
ARTICLE 14 INTELLECTUAL PROPERTY................................................................ 46
14.1 Ownership of Inventions.......................................................... 46
14.2 Patent Prosecution............................................................... 46
14.3 Defense of Third Party Infringement Claims....................................... 47
14.4 Enforcement...................................................................... 48
14.5 Third Party Rights............................................................... 49
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ARTICLE 15 TRADEMARKS........................................................................... 49
15.1 Single Mark...................................................................... 49
15.2 General.......................................................................... 49
ARTICLE 16 REPRESENTATIONS AND WARRANTIES....................................................... 50
16.1 CG Warranties.................................................................... 50
16.2 JT Warranties.................................................................... 50
16.3 Disclaimer of Warranties......................................................... 50
ARTICLE 17 CONFIDENTIALITY...................................................................... 51
17.1 Confidential Information......................................................... 51
17.2 Permitted Disclosures............................................................ 51
17.3 Clinical Data.................................................................... 52
ARTICLE 18 INSURANCE; INDEMNIFICATION........................................................... 52
18.1 Insurance........................................................................ 52
18.2 Indemnification of CG............................................................ 52
18.3 Indemnification of JT............................................................ 53
18.4 Procedure........................................................................ 53
ARTICLE 19 TERM AND TERMINATION................................................................. 54
19.1 Term............................................................................. 54
19.2 Termination for Cause............................................................ 54
19.3 Termination Upon Notice.......................................................... 54
19.4 Effect of Termination............................................................ 57
ARTICLE 20 DISPUTE RESOLUTION................................................................... 66
20.1 Disputes......................................................................... 66
20.2 Full Arbitration................................................................. 66
20.3 Short Form Arbitration........................................................... 67
ARTICLE 21 MISCELLANEOUS........................................................................ 68
21.1 Governing Law.................................................................... 68
21.2 Force Majeure.................................................................... 68
21.3 No Implied Waivers; Rights Cumulative............................................ 68
21.4 Independent Contractors.......................................................... 69
21.5 Notices.......................................................................... 69
21.6 Assignment....................................................................... 70
21.7 Modification..................................................................... 70
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21.8 Severability..................................................................... 70
21.9 Publicity........................................................................ 70
21.10 Counterparts..................................................................... 71
21.11 Headings......................................................................... 71
21.12 Patent Marking................................................................... 71
21.13 Export Laws...................................................................... 71
21.14 Review by Fair Trade Commission.................................................. 71
21.15 Language......................................................................... 71
21.16 Entire Agreement................................................................. 72
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EXHIBIT 1.21 CG Patents
EXHIBIT 1.7 Clinical Report Form
EXHIBIT 1.21 Europe
EXHIBIT 1.56 Subject Patents
EXHIBIT 1.59 CG's Third Party Agreements
EXHIBIT 6.1.1 FTE Rate Calculation
EXHIBIT 3.3 Initial Development Plan and Budget
EXHIBIT 6.4 Credit Agreement
EXHIBIT 9.2.2 Operating Advance Example
EXHIBIT 13.1 Core Patent Rights
EXHIBIT 16.1 Non-Controlled Subject Matter
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GVAX(TM) AGREEMENT
This GVAX(TM) AGREEMENT ("Agreement"), effective as of December 18, 1998
(the "Effective Date"), is made by and between Cell Genesys, Inc, a Delaware
corporation having offices at 342 Lakeside Drive, Foster City, California 94404,
U.S.A. ("CG"), and Japan Tobacco Inc., a Japanese corporation having offices at
JT Building, 2-1 Toranomon 2-Chome, Minato-ku, Tokyo 105-8422, Japan ("JT").
BACKGROUND
A. CG is developing certain methods and compositions for tumor vaccines,
known as GVAX(TM), in which tumor cells or tumor cell lines are genetically
engineered to express granulocyte macrophage colony stimulating factor.
B. JT and CG desire to collaborate on, share the costs of and equally
benefit from, the worldwide research, development and commercialization of
GVAX(TM) products for non-small cell lung and prostate cancers on the terms and
conditions set forth below.
NOW THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
as follows:
ARTICLE 1
DEFINITIONS
1.1 "Affiliate" shall mean any entity which controls, is controlled by
or is under common control with JT or CG. For purposes of this definition,
"control" shall mean beneficial ownership (direct or indirect) of at least fifty
percent (50%) of the shares of the subject entity entitled to vote in the
election of directors (or, in the case of an entity that is not a corporation,
for the election of the corresponding managing authority). "Controlled
Affiliate" shall mean an entity that is controlled by a party to this Agreement.
Notwithstanding the foregoing, neither Abgenix, Inc., nor any entity controlled
by Abgenix, Inc. shall be deemed an Affiliate of CG for purposes of this
Agreement. Likewise, neither the government of Japan nor any entity controlled
by the government of Japan shall be deemed an Affiliate of JT.
1.2 "CG Technology" shall mean CG Patents and CG Technical Information.
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1.2.1 "CG Patents" shall mean all patents and all reissues,
renewals, reexaminations and extensions thereof, and patent applications
therefor, and any divisions or continuations, in whole or in part, thereof,
which claim the composition, manufacture, sale or use of a Collaboration Product
and that are Controlled by CG or its Controlled Affiliates during the term of
this Agreement. Exhibit 1.2.1 is a list of all CG Patents existing as of the
Effective Date.
1.2.2 "CG Technical Information" shall mean confidential
information, tangible and intangible, and materials, including, but not limited
to: pharmaceutical, chemical, biological, genetic and biochemical compositions;
and technical and non-technical data and information, and/or the results of
tests, assays, methods and processes; and plans, specifications and/or other
documents containing said information and data; in each case that is possessed
by CG as of the Effective Date or discovered, developed or acquired by CG or its
Controlled Affiliates during the term of this Agreement, to the extent such
relates to the manufacture, sale or use of a Collaboration Product and to the
extent that CG or its Controlled Affiliate Controls the same.
1.3 "Cell Processing Services" shall mean those services involved in the
preparation of Collaboration Products and delivery of those Collaboration
Products to health care providers and patients, including without limitation
quality assurance and quality control services. Cell Processing Services
include, for example but without limitation, if required, the biopsy of the
patient's tumor cells, the dissociation and transduction of those cells with
nucleic acid encoding GM-CSF, and the expansion, irradiation and formulation and
freezing of those cells for reinfusion into a patient.
1.4 "Collaboration Products" shall mean products within the Field, in
each case to the extent the same are being developed by CG and JT pursuant to
the Development Plan and Budget in effect at the time, or for which a Marketing
Approval has been obtained pursuant to the Development Program, subject in each
case to Section 19.3.2 below. It is understood that as used herein,
"Collaboration Product" includes related Cell Processing Services. It is further
understood and agreed that each Collaboration Product for a particular Target
shall be deemed to be a separate Collaboration Product for purposes of this
Agreement; provided, however, that if the same IND filed with the FDA covers
more than one (1) Target, then the Collaboration Product covered by such IND for
all such Targets shall be deemed a single Collaboration Product. For purposes of
this Section 1.4, an IND shall be deemed to include amendments and supplements
to such IND as provided in 21 C.F.R. Section 312.
1.5 "Commercialization Committee" shall have the meaning as set forth in
Section 8. 7 below.
1.6 "Commercializing Party" shall have the meaning as set forth in
Section 9. 2 below.
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1.7 "Completion" shall be deemed to occur, with respect to a particular
clinical trial for a Collaboration Product, upon the earlier of: (i) submission
by the principal investigator and receipt by both parties of the completed
Clinical Trial Report for such clinical trial in the form and including the
information requested on Exhibit 1.7 hereto or (ii) Initiation of a later phase
clinical trial for the same Collaboration Product.
1.8 "Confidential Information" shall have the meaning as set forth in
Section 17.1 below.
1.9 "Control" shall mean possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of an agreement
with a third party.
1.10 "Current Clinical Trials" shall mean collectively the following two
(2) clinical trials that are currently in progress as of the Effective Date: (i)
"Study of Vaccination with Autologous, Lethally Irradiated Non-Small Cell Lung
Carcinoma Cells Engineered by Adenoviral Mediated Gene Transfer to Secrete Human
GM-CSF," conducted by Glenn Dranoff, M. D., at Dana-Farber Cancer Institute; and
(ii) "A Phase I/II Study of Allogeneic Human GM-CSF Transduced Cancer Vaccines
in Patients with Metastatic Prostate Carcinoma," conducted by Jonathan Simons,
M.D., at Johns Hopkins Oncology Center, in each case as such studies may be
modified from time to time by the Development Committee. Notwithstanding
anything herein to the contrary, it is understood that, [*]
1.11 "Current Collaboration Products" shall have the meaning as set
forth in Section 6.3 below.
1.12 "Data" shall have the meaning as set forth in Section 7.1 below.
1.13 "Development Committee" shall have the meaning as set forth in
Section 2.1 below.
1.14 "Development Costs" shall mean all direct and indirect costs
incurred by or on behalf of a party in conducting the Development Program,
including, (i) costs of clinical trial materials, (ii) development milestones or
other amounts payable to third parties under a Third Party Agreement as a result
of performance of the Development Program, (iii) costs of insurance procured by
a party in accordance with Section 18.1 below with respect to the Development
Program, (iv) costs associated with establishing and validating CG facilities to
manufacture Collaboration Products and/or provide Cell Processing Services, and
(v) such other amounts as reflected in the Development Plan and Budget, all as
calculated using GAAP consistently applied by such party. Notwithstanding the
foregoing, indirect costs (i.e., general and administrative overhead) included
in Development Costs shall not exceed [*] of the direct costs included therein;
provided that for purposes of the
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foregoing, the entire FTE rate (as established pursuant to Section 6.1.1 below)
shall be deemed to be direct costs.
1.15 "Development Personnel" shall mean employees of a party assigned
(full- or part-time) to conduct research, development, regulatory affairs or
business development activities under the Development Program, including project
managers, scientists, clinical research and manufacturing staff, post-doctoral
fellows, quality control and assurance personnel, technicians or the like, but
excluding non-technical, non-professional personnel such as secretarial staff.
As used in this Agreement, a "full-time equivalent" or "FTE" shall mean a
full-time person, or in the case of less than a full-time dedicated person, a
full-time, equivalent person year, based upon a total of [*] hours per year, of
work related to the Development Program. For purposes of the foregoing,
"employees" shall include "contract workers" who work at a party's location
under the party's direction, but do not include outside consultants, such as
regulatory affairs consultants, academic collaborators or the like.
1.16 "Development Plan and Budget" shall mean the plan and budget for
the Development Program in effect from time to time, as established in
accordance with Article 3 below.
1.17 "Development Program" shall mean activities with respect to the
research and development of Collaboration Products for applications within the
Field, comprising preclinical, clinical, regulatory, business development and
all other activities relating to the research and development of Collaboration
Products, all in accordance with the Development Plan and Budget in effect at
the time. For avoidance of doubt, the Development Program will include, but not
be limited to, toxicological, pharmacological and any other studies, the results
of which are intended for use in obtaining Marketing Approvals, as well as
development and documentation of methods, processes and procedures for the
manufacture and/or preparation of Collaboration Products and establishment and
validation of CG facilities for the clinical and commercial manufacture and/or
preparation of Collaboration Products. Subject to the provisions of Article 14
below, it is understood that activities of each party's internal patent
personnel related to Prosecution and Interference Activities for such party's
Patents (i.e., the CG Patents or the JT Patents, as applicable) shall be part of
the Development Program in accordance with the Development Plan and Budget. For
avoidance of doubt, the Development Program, with respect to a particular
Collaboration Product shall not include [*] provided that activities relating to
ongoing research, clinical studies and other development pertaining to such
Collaboration Product that are conducted after its launch (including without
limitation, Phase IV trials) shall nonetheless be within the Development
Program.
1.18 "East Asia" shall mean Japan, Korea and Taiwan.
1.19 "Event" shall have the meaning as set forth in Section 6. 2.2
below.
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1.20 "Excess Operating Expenses" shall have the meaning as set forth in
Section 1. 45 below.
1.21 "Existing Data" shall mean (i) all preclinical data submitted by CG
to the FDA in support of INDs for the Current Collaboration Products and (ii)
all clinical data generated in the course of the Current Clinical Trials, in
each of cases (i) and (ii), to the extent the same exist as of the Effective
Date.
1.22 "Europe" shall mean the geographic regions included as of the
Effective Date within those countries listed on Exhibit 1.22 hereto.
1.23 "FDA" shall mean the U. S. Food and Drug Administration, or any
successor agency.
1.24 "Field" shall mean the [*]
1.25 "First Commercial Sale" shall mean, with respect to each
Collaboration Product in each country in the Territory, the first bona fide
commercial sale of such Collaboration Product to a non-Affiliate third party in
such country by or under authority of CG or JT, their Affiliates or Marketing
Distributor after Marketing Approval (if necessary).
1.26 "Full Funding Term" shall mean the period from the Effective Date
until the earlier of the expiration of the Full Funding Term in accordance with
Section 6.1.6(b)(iii) below or 31 December 2001, and any Extension Period
established under Section 6.1.6(b) below.
1.27 "GAAP" shall have the meaning as set forth in Section 10.2.2
below.
1.28 "GM-CSF" shall mean Granulocyte-Macrophage Colony Stimulating
Factor.
1.29 "IND" shall mean an Investigational New Drug application, as
defined in the U. S. Federal Food, Drug and Cosmetic Act and the regulations
promulgated thereunder, or comparable filing in a foreign jurisdiction, in each
case with respect to a Collaboration Product for use within the Field.
1.30 "Initiation" shall be deemed to occur, with respect to a particular
clinical trial for a Collaboration Product, upon [*] in such trial in accordance
with the protocol therefor.
1.31 "JT Technology" shall mean JT Patents and JT Technical Information.
1.31.1 "JT Patents" shall mean all patents and all reissues,
renewals, re-examinations, and extensions thereof, and patent applications
therefor, and any divisions or continuations, in whole
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or in part, thereof, which claim the composition, manufacture, sale or use of a
Collaboration Product and that are Controlled by JT or its Controlled Affiliates
during the term of this Agreement.
1.31.2 "JT Technical Information" shall mean confidential
information, tangible and intangible, and materials, including, but not limited
to: pharmaceutical, chemical, biological, genetic and biochemical compositions;
and technical and non-technical data and information, and/or the results of
tests, assays, methods and processes; and plans, specifications and/or other
documents containing said information and data; in each case that is possessed
by JT as of the Effective Date or discovered, developed or acquired by JT or its
Controlled Affiliates during the term of this Agreement, to the extent such
relates to the manufacture, sale or use of a Collaboration Product and to the
extent that JT or its Controlled Affiliate Controls the same.
1.32 "Major Market Country" shall mean [*]
1.33 "Manufacturing Facilities" shall mean, collectively, the CG
manufacturing facilities established in accordance with the Development Program
for the clinical or commercial manufacture of Collaboration Products and/or
provision of Cell Processing Services. For avoidance of doubt, Manufacturing
Facilities shall exclude all manufacturing facilities owned or controlled by CG
or its Affiliates as of the Effective Date, to the extent such facilities exist
as of the Effective Date.
1.34 "Marketing Approval" shall mean, with respect to each country of
the Territory for a Collaboration Product, approval in such country by the
health regulatory authority in such country that is the counterpart of the FDA
to market such Collaboration Product for an application within the Field.
Marketing Approval shall include government approval of pricing or reimbursement
in jurisdictions outside the United States where such approval is legally
required for commercial sale. In such jurisdictions where government approval of
pricing or reimbursement is available but not a condition for commercial sale,
government approval of pricing or reimbursement shall not be deemed to be
legally required.
1.35 "Marketing Approval Application" or "MAA" shall mean a Biological
License Application or similar application as required under the U. S. Federal
Food, Drug and Cosmetics Act and the regulations promulgated thereunder, or a
comparable filing for Marketing Approval in any other country in the Territory,
in each case with respect to a Collaboration Product for use within the Field.
It is understood that an MAA shall not include an application for pricing or
reimbursement approval.
1.36 "Marketing Distributor" shall mean a non-Affiliate third party to
whom CG or JT has granted the right in its territory (i. e., North America with
respect to CG or East Asia with respect to JT) under the JT Technology and/or CG
Technology to make, use and sell a Collaboration Product,
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with respect to Collaboration Products made and sold by such third party. As
used in this Agreement, "Marketing Distributor" shall also include a
non-Affiliate third party to whom CG or JT has granted the right to distribute
such Collaboration Product, provided that such third party is responsible for
the marketing and promotion of such Collaboration Products within the applicable
territory. As used herein, "Marketing Rights" shall mean the foregoing rights
which are granted to a Marketing Distributor and "Marketing Agreement" shall
mean an agreement under which Marketing Rights are granted to a Marketing
Distributor; provided that neither the definitions of "Marketing Rights,"
"Marketing Agreement" nor this Section 1.36 shall be deemed to limit the scope
of rights or sublicenses that may be granted by the parties under Article 13
below. For purposes of this Agreement, CG and JT shall not be deemed Marketing
Distributors of the other.
1.37 "Marketing Plans" shall mean collectively the JT Marketing Plans
and the CG Marketing Plans, as such terms are defined in Section 8.8 below.
1.38 "[*] Data" shall mean all data and reports generated in the course
of performing the [*] Trial, in each case to the extent the same is Controlled
by CG, in the form and to the extent the same exists as of the Effective Date.
1.39 "[*] Trial" shall mean that certain clinical trial in progress as
of the Effective Date entitled, [*]
1.40 "Net Sales" shall mean the total amount invoiced to third parties
by CG or JT, or their respective Affiliates (each a "Selling Party"), upon sales
to such third parties of Collaboration Products, including, if any, Cell
Processing Services provided by the Selling Party in connection with sales of
Collaboration Products, less the following reasonable and customary deductions
to the extent applicable to such sales: (i) all trade, cash and quantity
credits, discounts, refunds or rebates paid or allowed; (ii) amounts for claims,
allowances or credits for returns; retroactive price reductions; chargebacks;
(iii) packaging, handling fees and prepaid freight, sales taxes, duties and
other governmental charges (including value added tax), but excluding what is
commonly known as income taxes; and (iv) reasonable provisions for uncollectible
accounts determined in accordance with GAAP, consistently applied to all
products of the Selling Party. For the removal of doubt, Net Sales shall not
include sales among JT or CG and its respective Affiliates for resale, nor shall
Net Sales include sales by JT or CG or its respective Affiliates to a Marketing
Distributor, and Net Sales shall similarly not include sales by CG or its
respective Affiliates to JT or an Affiliate of JT.
1.41 "Net Third Party Revenues" shall mean all revenues received by CG
or JT (for purposes of this Section 1. 41, each the "Recipient") [*]
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1.41.1 Notwithstanding the foregoing, Net Third Party Revenues
shall not include: [*]
1.41.2 "Premium on Equity" shall mean the amount by which cash
amounts received by CG or JT for a particular equity security exceed the Fair
Market Value of such security. "Fair Market Value" of an equity security shall
mean (i) if the equity security is traded on a National Exchange, then Fair
Market Value shall equal the average closing sale price of a share of such
equity security as reported on the National Exchange for the [*] trading days
immediately preceding, and the [*] trading days including and following, the
date CG or JT received payment for such security from the Marketing Distributor;
(ii) if the equity security is not traded on a National Exchange, then Fair
Market Value shall be determined on the basis of the common stock equivalents of
such equity security, and shall equal the effective gross price per share of a
common stock equivalent of CG or JT, as applicable, (subject to appropriate
adjustments for stock splits, stock dividends, recapitalizations,
reorganizations and combinations) in the last sales of equity securities by CG
or JT to third parties other than the Marketing Distributor (but including sales
to such other third parties made at the same time as the sale to the Marketing
Distributor), in which the aggregate cash purchase price paid by such third
parties exceeded [*] and in which at least [*] of the invested amount is from
investors that are not pharmaceutical or biotechnology companies (or Affiliates
thereof) and that have not previously invested in CG or JT (respectively) and
have not entered into a collaboration or contractual arrangement with CG or JT
(respectively). For such purposes, "National Exchange" means the New York Stock
Exchange, the American Stock Exchange, any national market system (including
without limitation the Nasdaq National Market), or the European or Japanese
equivalent of such an exchange or market system.
1.41.3 In the event that CG or JT (the "Granting Party") grants
Marketing Rights to an entity that is not an Affiliate and obtains equity or
other ownership interest in such entity in consideration of such Marketing
Rights, then [*]
1.41.4 Notwithstanding any of the foregoing, in no event shall
Net Third Party Revenues be deemed to include amounts received by CG or JT in
consideration for a sale of all or substantially all of the business or assets
of CG or JT (whether by way of merger, sale of stock, sale of assets or
otherwise) to which this Agreement pertains, if the successor to such business
or assets has assumed the obligations under this Agreement of the transferring
party.
1.42 "North America" shall mean Canada, the United States (and its
territories and possessions including the commonwealth of Puerto Rico) and
Mexico.
1.43 "Operating Advances" shall have the meaning as set forth in Section
9.2.2 below.
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1.44 "Operating Expenses" shall mean with respect to a particular
Collaboration Product (i) the Production Costs of such Collaboration Product;
(ii) the direct costs incurred by a party hereto or its Affiliates with respect
to Collaboration Product-specific sales, marketing and promotion of such
Collaboration Product and allocation of the direct field force expense for such
Collaboration Product; (iii) other expenses allocable to such Collaboration
Product in accordance with GAAP and (iv) running royalties paid by the party
selling such Collaboration Product under Third Party Agreements on Net Sales of
such Collaboration Product (including amounts reimbursed to the other party
under Section 9.8 below). On or promptly following the establishment of the
Commercialization Committee in accordance with Section 8.7.1, the parties shall
reasonably agree on method of allocating other expenses described in clause
(iii) above and the method of calculation of such other expenses.
1.45 "Operating Revenues" shall mean Net Sales of a Collaboration
Product by CG or JT (for purposes of this Section 1.45 the "Commercializing
Party") and its respective Affiliates, less (i) the Operating Expenses incurred
by the Commercializing Party allocable to such Collaboration Product (which
Operating Expenses shall be reduced by the amount equal to two hundred percent
(200%) of any Operating Advances received by the Commercializing Party from the
other party pursuant to Section 9.2.2 below with respect to such Collaboration
Product), (ii) product liability expenses (if any) related to such Collaboration
Product, to the extent not already within Operating Expenses, and (iii) [*] (as
defined below) allocable to such Collaboration Product not previously offset
against Net Sales. For purposes of this Section 1.45, if Operating Revenues
calculated above are less than zero, the amount less than zero together with
interest (as specified below) accruing from the last day of the calendar year
for which Operating Revenues are so calculated compounded annually shall be
deemed and referred to as "Excess Operating Expenses," and as used in this
Agreement, the term Operating Revenues shall not be deemed to refer to Excess
Operating Expenses. Where JT is the Commercializing Party, such interest shall
be calculated using the Japanese prime rate per annum as quoted in the "Foreign
Prime Rates" section of the "Money Rates" column of The Wall Street Journal
(U.S., Western Edition), and where CG is the Commercializing Party, such
interest shall be calculated using the U.S. prime rate per annum as quoted in
the "Prime Rate" section of the "Money Rates" column of The Wall Street Journal
(U.S., Western Edition), in each case on the last business day of each calendar
year during the period in which such interest accrues. It is understood that any
such Excess Operating Expenses may be carried forward by the Commercializing
Party and applied against Net Sales in subsequent periods for purposes of
calculating Operating Revenues; provided that once so applied, such Excess
Operating Expenses may not be further carried forward and shall cease to be
Excess Operating Expenses hereunder.
1.46 [*] shall have the meaning as set forth in Section 6.3 below.
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1.47 "Phase I" shall mean human clinical trials, the principal purpose
of which is preliminary determination of safety in healthy individuals or
patients as required in 21 C. F.R. Section 312, or similar clinical study in a
country other than the United States, and for which there are no primary
endpoints relating to efficacy included in the protocol.
1.48 "Phase II" shall mean human clinical trials, for which a primary
endpoint is a preliminary determination of efficacy and/or dose ranges in
patients with the tumor type being studied as required in 21 C. F.R. Section
312, or similar clinical study in a country other than the United States.
1.49 "Phase III" shall mean human clinical trials, the principal purpose
of which is to establish safety and efficacy in patients with the tumor type
being studied as required in 21 C. F.R. Section 312, or similar clinical study
in a country other than the United States. Phase III shall also include any
other human clinical trial intended as a pivotal trial for regulatory approval
purposes whether or not such trial is a traditional Phase III trial.
1.50 "Production Costs" with respect to a Collaboration Product (or
component thereof) shall mean all fully-allocated direct and indirect costs that
are incurred by CG or JT, or its respective Affiliate associated with the
manufacture, filling, packaging, labeling and/or other preparation of such
Collaboration Product, including without limitation the costs of facilities,
labor, equipment, materials and validation studies, quality assurance, quality
control and other testing, storage, shipping and other resources consumed in or
otherwise allocated to the manufacture, filling, packaging, labeling and/or
other preparation of such Collaboration Product, in each case calculated in
accordance with GAAP. Production Costs shall (i) include allowances associated
with wastage and failed or discarded lots of Collaboration Products, and (ii)
not include depreciation of Manufacturing Facilities used to manufacture
Collaboration Products or provide Cell Processing Services to the extent the
costs thereof were included within Development Costs hereunder, but may include
depreciation charges not so excluded. Notwithstanding the foregoing, indirect
costs (i.e., general and administrative overhead) included in Production Costs
shall not exceed [*] of the direct costs included therein. With respect to
Collaboration Products (or component thereof) acquired by a party from a
non-Affiliate third party, the Production Costs for such Collaboration Products
(or component thereof) shall be deemed to be the amounts paid to such third
party therefor, plus costs associated with the acquisition from such vendor,
including without limitation, quality control or assurance services provided by
or on behalf of the acquiring party.
1.51 "Prosecution Interference Activities" shall have the meaning as set
forth in Section 14.2.1 below.
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1.52 "Renal Data" shall mean all data and reports generated in the
course of performing the Renal Trials, in each case to the extent the same is
Controlled by CG, in the form the same exist as of the date JT requests such
data and reports in accordance with Section 6.5 below.
1.53 "Renal Trials" shall mean (i) that certain clinical trial in
progress as of the Effective Date entitled, "A Phase I Study Using
Non-Replicating Autologous Tumor Cell Vaccines Secreting Granulocyte Macrophage
Colony Stimulating Factor in Patients with Metastatic Renal Cell Carcinoma,"
conducted by Shigetaka Asano, M. D., D.M.Sci. and Kenzaburo Tani, M.D., Ph.D.,
at The Institute of Medical Science, The University of Tokyo and (ii) other
trials for the same Collaboration Product of a similar size (i.e., small trials)
conducted hereunder. As used herein the "Existing Renal Trial" shall mean the
trial described in (i) above.
1.54 "Reserve Amount" shall mean an amount equal to [*] of
non-cancelable commitments included in Section 19.4.2(a)(i)(B) or Section
19.4.2(b)(ii)(B), as applicable, to be incurred by CG after expiration of the
Post-Termination Period.
1.55 "Rest of the World" shall mean all areas of the world outside of
East Asia, North America and Europe.
1.56 "Subject Patents" shall mean those patents and patent applications
listed on Exhibit 1. 56 hereto.
1.57 "Target" shall mean each disease indication specified for a
Collaboration Product in the applicable clinical trial protocol (i. e., the
criteria for patient selection and exclusion for such trial); or for
Collaboration Products for which a MAA has been filed, or a Marketing Approval
obtained, the disease indications specified in such MAA or Marketing Approval,
respectively.
1.58 "Territory" shall mean world-wide.
1.59 "Third Party Agreements" shall mean collectively those agreements
between CG and a third party existing as of the Effective Date pursuant to which
CG obtained rights applicable to the development, manufacture, sale or use of
Collaboration Products hereunder. If after the Effective Date either JT and/or
CG enter into an agreement to license or acquire rights from a third party with
respect to subject matter to be utilized in connection with Collaboration
Products in accordance with Section 9.8.2 below, such agreements shall also be
deemed Third Party Agreements for purposes of this Agreement. Exhibit 1.59 is a
list of all Third Party Agreements existing as of the Effective Date.
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<PAGE> 20
ARTICLE 2
DEVELOPMENT COMMITTEE
2.1 Development Committee. JT and CG shall establish a development
committee to oversee, review and coordinate the research and development of
Collaboration Products worldwide for applications within the Field pursuant to
the Development Program ("Development Committee"). From time to time, the
Development Committee may establish subcommittees or project teams to oversee
particular projects or activities, and such subcommittees or project teams will
be constituted as the Development Committee agrees (e.g., for oversight of the
research or development or other day-to-day matters).
2.2 Membership. The Development Committee shall be comprised of an equal
number of representatives from each of JT and CG, selected by such party. The
exact number of such representatives shall be three (3) for each of JT and CG,
or such other number as the parties may agree. Each party shall at all times
have at least one (1) representative on the Development Committee at the Vice
President level or above. Subject to the foregoing provisions of this Section
2.2, CG and JT may replace its respective Development Committee representatives
at any time, with prior written notice to the other party.
2.3 Development Committee Meetings. During the Development Program, the
Development Committee shall meet quarterly, or as otherwise agreed by the
parties, at such locations as the parties agree and thereafter as the parties
agree. At its meetings, the Development Committee will (i) formulate and review
the Development Program objectives, (ii) monitor the progress of the Development
Program toward those objectives, (iii) review and approve the Development Plan
and Budget, pursuant to Section 3.1 of this Agreement, and (iv) undertake and/or
approve such other matters as are provided for the Development Committee under
this Agreement. With the consent of the parties, other representatives of CG or
JT may attend Development Committee or subcommittee meetings as non-voting
observers. The Development Committee may also convene or be polled or consulted
from time to time by means of telecommunications, video conferences or
correspondence, as deemed necessary or appropriate. Each party shall bear its
own personnel, travel and lodging expenses relating to Development Committee
meetings, which costs and expenses shall not be included in the Development
Costs.
2.4 Decisions. Decisions of the Development Committee shall be made by
unanimous agreement of the members present in person or by other means (e.g.,
teleconference) at any meeting; provided that at least two (2) representatives
of each party are present at such meeting. In the event that the Development
Committee is unable to reach unanimous agreement on an issue, the issue shall be
referred for resolution through good faith negotiations between the Chief
Executive Officer of CG and the head of JT's pharmaceutical business. If after
thirty (30) days such executives are unable to
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<PAGE> 21
resolve the issue, then upon request by either party such issue shall be
resolved in accordance with Section 20.3 below; it being understood, however,
that the issues to be resolved under Section 20.3 shall be limited to those
specific issues that are expressly provided in this Agreement to be decided by
the Development Committee (i.e., specific issues other than those areas
generally described in clauses (i) and (ii) under Section 2.3 above).
ARTICLE 3
DEVELOPMENT PLANS AND BUDGETS
3.1 General. During the Development Program and subject to Section 3.2
below, CG shall prepare and propose to the Development Committee a reasonably
detailed Development Plan and Budget pursuant to which the Development Program
will be performed. The Development Plan and Budget shall specify the objectives
and work plan activities with respect to Development Program, and the headcount
and other costs and expenses of the Development Program, including consultants
and third party contractors and facilities.
3.2 Development Priorities. [*]
3.3 Annual Review.
3.3.1 Initial Development Plan and Budget. The initial
Development Plan and Budget is attached hereto as Exhibit 3.3 (the "Initial
Development Plan and Budget"), and shall be fixed for the period from October 1,
1998 through December 31, 1999, unless otherwise agreed. Notwithstanding the
foregoing, promptly after the Effective Date the Development Committee shall
meet to discuss modifications, if any, to the Initial Development Plan and
Budget, and the Initial Development Plan and Budget shall be modified as
determined by the Development Committee.
3.3.2 Other. Beginning October 1, 1999 and by October 1 of each
year thereafter during the Development Program, CG shall submit to the
Development Committee the proposed plan and budget required under Section 3.1
above for the following calendar year. The Development Committee shall review
such proposals as soon as possible and shall approve the Development Plan and
Budget for the next succeeding year, with such changes as the Development
Committee and CG may agree to the plan and budget proposed by CG, no later than
December 1 of such year.
3.4 Periodic Reviews. The Development Committee shall review the
Development Plan and Budget on an ongoing basis and may make changes thereto;
provided, however, the Development Plan and Budget in effect for a year shall
not be modified except as JT and CG otherwise agree.
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ARTICLE 4
DEVELOPMENT PROGRAM
4.1 Development Program for North America. Subject to Section 3.2 above,
CG shall conduct, directly or through third parties, the Development Program for
North America together with such other activities as the parties agree should be
performed by CG under the Development Program, all in accordance with the
Development Plan and Budget then in effect. CG agrees to keep the Development
Committee informed as to the progress of its activities under the Development
Program for Collaboration Products hereunder. JT shall provide reasonable
assistance to CG regarding CG's performance of the Development Program
hereunder.
4.2 Development Program for East Asia. Subject to Section 3.2 above, JT
shall conduct, directly or through third parties, the Development Program for
East Asia, together with such other activities as the parties agree should be
performed by JT under the Development Program, all in accordance with the
Development Plan and Budget then in effect. JT agrees to keep the Development
Committee informed as to the progress of its activities under the Development
Program for Collaboration Products hereunder. CG shall provide reasonable
assistance to JT regarding JT's performance of the Development Program
hereunder.
4.3 Development Program for Europe and the Rest of the World. To the
extent Development Program activities (including clinical trials) in addition to
those to be conducted pursuant to Sections 4.1 and 4.2 above are required to
obtain Marketing Approvals for Collaboration Products in Europe or the Rest of
the World, such activities shall be conducted in accordance with the Development
Plan and Budget established in accordance with Article 3 above or as otherwise
agreed by the parties.
4.4 Regulatory Filings. CG shall be responsible, directly or through
third parties, for the preparation and filing of all regulatory documents in
North America with respect to the Collaboration Products, which shall be filed
in the name of CG or its designee. JT shall be responsible for all preparation
and filing of all regulatory documents in East Asia with respect to the
Collaboration Products, which shall be filed in the name of JT or its designee.
With respect to Europe and the Rest of the World, preparation and filing of
regulatory documents with respect to Collaboration Products shall be as mutually
agreed by the parties.
4.5 Visiting Personnel. It is understood that in the course of the
Development Program there may be occasions where one party's personnel
("Visiting Personnel") may be stationed at the other party's facilities on a
temporary basis. Such Visiting Personnel shall agree to be bound by all orders,
rules and regulations pertaining to the hosting party's facilities during the
entire time at such facilities. Without limiting the foregoing, such Visiting
Personnel shall enter into an agreement with
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<PAGE> 23
the hosting party regarding proprietary information and inventions in a form
mutually agreed by the parties hereto.
4.6 Exclusivity of Efforts.
4.6.1 JT. JT agrees that neither it, nor any Affiliate that is
controlled by JT shall research, develop, sell, market or distribute any vaccine
for applications in the Field (as defined in Section 1.24, without regard to any
modifications pursuant to Section 6.1.6(b)(ii), 6.5 or 6.6), other than a
Collaboration Product. It is understood that this Section 4.6.1 shall not limit
JT's ability to research, develop, sell, market or distribute a vaccine for
applications outside of the Field (as defined in Section 1.24, without regard to
any modifications pursuant to Section 6.1.6(b)(ii), 6.5 or 6.6). Notwithstanding
the provisions of this Section 4.6.1, during the term of this Agreement, JT
shall have the right, at its own expense, to conduct or have conducted research
and development outside of the Development Program relating to the Field;
provided that JT shall have no right to commercialize the results of such
research or development within the Field (as defined in Section 1.24, without
regard to any modifications pursuant to Section 6.1.6(b)(ii), 6.5 or 6.6) except
as a Collaboration Product pursuant to this Agreement.
4.6.2 CG. CG agrees that neither it, nor any Affiliate that is
controlled by CG shall research, develop, sell, market or distribute any vaccine
for applications in the Field (as may be limited pursuant to Sections
6.1.6(b)(ii), 6.5 and 6.6), other than a Collaboration Product. It is understood
that this Section 4.6.2 shall not limit CG's ability to research, develop, sell,
market or distribute a vaccine for applications outside of the Field (as may be
limited by Sections 6.1.6(b)(ii), 6.5 and 6.6). Notwithstanding the provisions
of this Section 4.6.2, during the term of this Agreement, CG shall have the
right, at its own expense, to conduct or have conducted research and development
outside of the Development Program relating to the Field; provided that CG shall
have no right to commercialize the results of such research or development
within the Field (as may be limited pursuant to Sections 6.1.6(b)(ii), 6.5 and
6.6) except as a Collaboration Product pursuant to this Agreement.
ARTICLE 5
RECORDKEEPING; PUBLICATION
5.1 Reports and Records.
5.1.1 Records. CG and JT shall use reasonable efforts to maintain
records of the Development Program (or cause such records to be maintained) in
sufficient detail and in good scientific manner as will properly reflect all
work done and results achieved in the performance of the Development Program
(including all data in the form required under any applicable governmen-
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<PAGE> 24
tal regulations necessary for obtaining Marketing Approvals). Upon reasonable
advance notice, each party shall allow the other to have reasonable access to
all records, materials and data generated by or on behalf of such party with
respect to each Collaboration Product for applications within the Field at
reasonable times and in a reasonable manner.
5.1.2 Reports. Each party shall at least semiannually provide the
Development Committee with a written report in English summarizing the progress
of the Development Program performed by such party with respect to each
Collaboration Product during the preceding period.
5.2 Review of Publications. As soon as is practicable prior to the oral
public disclosure, and prior to the submission to any outside person for
publication of an abstract or manuscript describing the scientific data
resulting from the Development Program, in each case to the extent the contents
of the oral disclosure, abstract or manuscript have not been previously
disclosed pursuant to this Section 5.2 before such proposed disclosure, CG or
JT, as the case may be, shall disclose to the other party a copy of the
abstract, manuscript, or a written summary of any oral disclosure, to be made or
submitted, and shall allow the other party at least thirty (30) days to
determine whether such disclosure or manuscript contains subject matter for
which patent protection should be sought prior to publication or which either
party believes should be modified to avoid disclosure of Confidential
Information or regulatory or other issues; provided, however with respect to
abstracts the reviewing party shall use good faith efforts to review and respond
to the submitting party within ten (10) days of the receiving party's receipt
thereof. With respect to publications by investigators or other third parties,
such publications shall be subject to review by the reviewing party under this
Section 5.2 only to the extent that CG or JT (as the case may be) has the right
to do so. It is understood that each party shall only have the right to publish
under this Section 5.2 scientific data which such party (or its third party
contractors) generated in performing the Development Program.
5.2.1 Publication Rights. Subject to the provisions of Articles 7
and 17, after the expiration of thirty (30) days from the date of receipt of
such abstract, disclosure or manuscript, unless the authoring party has received
the written notice specified below, the authoring party shall be free to submit
such abstract or manuscript for publication or to orally disclose or publish the
disclosed research results in any manner consistent with academic standards.
5.2.2 Delay of Publication. Prior to the expiration of the thirty
(30)-day period specified in Section 5.2.1 above, the reviewing party may notify
in writing the submitting party of its determination that such oral
presentation, abstract or manuscript contains Confidential Information of such
other party or objectionable material or material that consists of patentable
subject matter for which patent protection should be sought. The submitting
party shall withhold its proposed public disclosure and confer with the
reviewing party to determine the best course of action to take in order to
modify the disclosure (including removing Confidential Information of the
reviewing party) or to
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<PAGE> 25
obtain patent protection. After resolution of the confidentiality, regulatory or
other issues, or the filing of a patent application or due consideration as to
whether a patent application can reasonably be filed, but in no event more than
sixty (60) days after notification of the submitting party as provided above,
the submitting party shall be free to submit the abstract or manuscript and/or
make its public oral disclosure. If the submitting party declines to file an
appropriate patent application, then the reviewing party may undertake to file
such application in accordance with Section 14.2 below.
ARTICLE 6
DEVELOPMENT PROGRAM FUNDING
6.1 Funding. Subject to the limitations set forth below, each party
shall be responsible for fifty percent (50%) of the total Development Costs
incurred by CG and JT in accordance with the Development Plan and Budget, as
described more fully below.
6.1.1 FTEs. An FTE rate determined in accordance with this
Section 6.1.1 shall be used for purposes of determining the Development Costs
incurred with respect to Development Personnel. The FTE rate shall be [*] per
FTE (as adjusted below). The FTE rate includes all salary, employee benefits,
materials and other expenses including support staff and overhead for or
associated with an FTE, but does not include travel and lodging expenses
incurred by such FTEs in performance of the Development Program (which travel
and lodging expenses shall be included in the Development Costs separately under
Section 6.1.2 below). Effective beginning with the calendar year 2000, the FTE
rate shall increase no more than once annually by the percentage increase, if
any, in the weighted average cost to CG for Development Personnel (calculated in
the same manner as the original [*] above, as set forth in Exhibit 6.1.1 hereto)
since the Effective Date or the last such increase, whichever is later (the
"Cost of Labor Increase"), upon thirty (30) days prior written notice to JT and
such increase shall be effective for the then-current and all subsequent
Development Plans and Budgets hereunder until further modified under this
Section 6.1.1; provided, however, concurrently with the aforementioned notice,
CG shall provide to JT documentation and calculations supporting the Cost of
Labor Increase and the Cost of Labor Increase shall be subject to JT's approval,
which approval shall not be unreasonably withheld or delayed if the provided
documentation and calculations support such Cost of Labor Increase.
6.1.2 Non-FTE Costs. It is understood that the Development Costs
will include reasonable costs for items other than FTEs, including without
limitation amounts paid to consultants, third party clinical trial sites or the
like. In addition, Development Costs may include costs for equipment and
facilities acquired for purposes of the Development Program or production of
Collaboration Products; provided that if such equipment or facilities are used
both (i) in the course of
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<PAGE> 26
the Development Program or otherwise in connection with the Collaboration
Products and (ii) for other projects or programs of the acquiring party, then
the costs of such equipment or facilities shall be allocated between the
Development Program and such other projects or programs in accordance with GAAP.
It is understood that the party acquiring any capital equipment or facilities in
connection with the Development Program, whether or not separately identified in
the Development Plan and Budget, will be the owner of such capital equipment and
facilities.
6.1.3 Payment. So that the parties will share equally the
Development Costs incurred in accordance with the Development Plan and Budget,
balancing payments shall be made as follows: On or before the first day of each
calendar quarter, the party who will incur the smaller amount of Development
Costs during such quarter (as reflected in the then-current Development Plan and
Budget) (for purposes of this Section 6.1.3, the "Reimbursing Party") shall pay
to the other party (the "Receiving Party") an amount equal to (i) fifty percent
(50%) of the Development Costs budgeted to be incurred by the Receiving Party
during such quarter, less (ii) fifty percent (50%) of the Development Costs to
be incurred by the Reimbursing Party during such quarter, all in accordance with
the Development Plan and Budget then in effect. Unless otherwise specified in
the applicable Development Plan and Budget, amounts budgeted for the full year
will be deemed budgeted in equal amounts for each calendar quarter during such
year. Within sixty (60) days following the end of each calendar year during the
term of this Agreement, each party shall provide to the other a summary of the
Development Costs actually incurred by such party during each calendar quarter
during such year, in a form mutually agreed by the parties (such form to be
agreed and established by the parties on or before February 28, 1999), including
a reasonably detailed accounting supporting the indirect costs included in the
Development Costs. With respect to the period from October 1, 1998 through
December 31, 1999 and for each calendar year thereafter the following shall
apply: if the Development Costs incurred by a party in such period are less than
the amounts budgeted for such party for such period under the Development Plan
and Budget, [*]
6.1.4 Funding Effective Date. In addition to other amounts due
within five (5) business days of the Effective Date, JT shall pay to CG within
five (5) business days of the Effective Date the sum of Two Million Seven
Hundred Thousand Dollars (US $2,700,000) as reimbursement for JT's share of
Development Costs incurred from October 1, 1998 to the Effective Date and as
payment for JT's share of Development Costs estimated to be incurred during the
period from the Effective Date through the end of the calendar quarter in which
the Effective Date occurs, subject to Section 6.1.3 above.
6.1.5 Excess Costs. To the extent the Development Costs incurred
by a party exceed by more than [*] the Development Costs budgeted for such party
for a calendar year in the Development Plan and Budget then in effect, the other
party shall not be responsible to reimburse any portion of such excess
Development Costs unless the other party approves such excess
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Development Costs, which approval shall not be unreasonably withheld to the
extent the incurrence of such excess costs was not within the reasonable control
of the party incurring such costs; likewise, unless otherwise mutually agreed by
the parties, neither party shall be obligated to incur Development Costs in
excess of the amounts set forth for such party in the then-current Development
Plan and Budget.
6.1.6 Committed Funding Requirements.
(a) Through 2001. Except as mutually agreed, the parties
agree that the Development Plan and Budget for each calendar year through the
end of 2001 shall provide for a budget for such year that is not less than (i)
the amount proposed for such year in the Development Plan and Budget presented
to the Development Committee in accordance with Section 3.3 above, or (ii) the
amounts set forth below for such year, whichever of (i) or (ii) is less. It is
understood that the committed amounts set forth below for a calendar year are
only for Development Costs to be incurred with respect to the Development
Program for North America, and that such committed amounts vary based upon the
number of Targets for which Phase I or later clinical trials will be conducted
hereunder during such year:
<TABLE>
<CAPTION>
COMMITTED FUNDING AMOUNT
CALENDAR YEAR IF [*] TARGETS
IN CLINICAL DEVELOPMENT:
------------- ------------------------
<S> <C>
1999 [*]
2000 [*]
2001 [*]
</TABLE>
(b) Option to Renew. JT shall have the right to extend the
Full Funding Term for successive one (1)-year periods (each such one (1)-year
period being referred to as, an "Extension Period"), by so notifying CG in
writing at least six (6) months prior to the expiration of the then-current Full
Funding Term, as extended pursuant to this Section 6.1.6(b) (an "Extension
Notice").
(i) Renewal. JT may exercise its rights to so extend
the Full Funding Term by so stating in the Extension Notice, with respect to the
next succeeding Extension Period. In such event the Development Program shall
continue at the full funding level for such Extension Period, and the parties
shall negotiate committed dollar levels for the Development Program during such
Extension Period, provided that unless the parties otherwise agree such
committed funding amounts shall not be less than [*] per calendar year.
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(ii) Nonrenewal. In the event that JT does not so
extend the Full Funding Term, or if the Full Funding Term is terminated under
Section 6.1.6(b)(iii) below, then the following shall apply:
(A) From and after the end of the Full Funding
Term, unless otherwise agreed in writing by the parties at such time, (y) the
"Field" shall be limited to those Targets for which a Phase I study has been
Initiated under the Development Program during the Full Funding Term and that
are actively being developed under the Development Program at the end of the
Full Funding Term (the "Included Targets"), and so much of Section 1.24 as reads
[*] (as such quoted text may have been modified under Section 6.5 or 6.6 below)
shall thereafter be deemed amended to read "malignant tumors, to the extent the
same constitute Included Targets," subject to Section 6.6, and as further
modified by Section 6.5 or 6.6 below; and (z) "Collaboration Products" shall be
limited for all purposes of this Agreement to those Collaboration Products for
which such a Phase I study has been so Initiated for an Included Target and that
were actively being developed under the Development Program at the end of the
Full Funding Term or for which a Marketing Approval had been obtained in a Major
Market Country during the Full Funding Term;
(B) CG and JT shall continue to establish
Development Plans and Budgets for the Included Targets in accordance with
Section 3.1 at funding levels sufficient for the parties to continue to actively
conduct the Development Program for such Collaboration Products to such Included
Targets (subject to Article 19 below);
(C) JT's rights to further extend the Full
Funding Term under this Section 6.1.6(b) shall terminate. In addition, for the
avoidance of doubt, it is understood that once the Field has been limited
pursuant to (A) above, it shall not thereafter be expanded except by mutual
written agreement of the parties, and Section 4.6 shall not be deemed to
restrict CG (itself or together with or through one or more third parties) from
researching, developing, selling, marketing, or distributing products within the
Field defined in Section 1.24, other than the Collaboration Products (as the
definition of Collaboration Products is modified under clause (A)(z) above); and
(D) Any products that cease to be Collaboration
Products by reason of clause (A)(z) above, shall be deemed to have been
terminated by JT pursuant to Section 19.3.2 below (including for purposes of
Section 19.4.2).
(iii) In the event JT terminates a Collaboration
Product pursuant to Section 19.3.2 below, and after giving effect to such
termination there are then in Phase I or later clinical trials fewer than two
(2) Collaboration Products, then the Full Funding Term shall be deemed to have
terminated.
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(c) General. If at any time the parties fail to establish
a Development Plan and Budget for a particular year, the committed funding
amounts specified in this Section 6.1.6 shall be deemed allocated between the
parties, including for purposes of Section 6.1.3 above, based on the percentage
of the total budget allocated to the activities to be performed by such party in
the last Development Plan and Budget approved by the Development Committee,
which amounts shall be spent on activities within the Field. Notwithstanding the
foregoing, it is understood and agreed that a Development Plan and Budget
established pursuant to Section 20.3.1 below would not necessarily be based on
such allocation. Beginning with the year 2000, the dollar amounts reflected in
this Section 6.1.6 shall be increased by the Cost of Labor Increase.
(d) Development Outside of North America. In addition to
the amounts set forth in Section 6.1.6(a) above, the Development Plan and Budget
may include amounts for development activities outside of North America as the
Development Committee may approve in accordance with Article 2 above.
(e) Renal Trial. In addition to the other amounts set
forth in this Section 6.1.6 each of CG and JT shall each be responsible for
fifty percent (50%) of the Development Costs incurred by CG and JT for the
Existing Renal Trial in accordance with the protocol therefor (as may be
modified by the Development Committee).
6.2 Additional Payments for Existing Data; Cost Reimbursement. JT agrees
to pay to CG the amounts set forth in this Section 6.2 below. For avoidance of
doubt, it is understood and agreed that the amounts paid to CG under this
Section 6.2 shall not be included in the Development Costs incurred by JT
hereunder. The parties hereto acknowledge that the Development Program hereunder
involves a high degree of risk and uncertainty; accordingly, both parties hereto
expressly disclaim any implied warranty as to the results of the Development
Program.
6.2.1 Purchase of Existing Data. The parties acknowledge that, CG
has previously delivered and transferred, and shall deliver and transfer, to JT
copies of all Existing Data which CG has the right to so transfer. The party's
further acknowledge and agree that the Existing Data has significant value to
the parties hereunder and that JT shall have the right to use such copies and
the Existing Data contained therein subject to the terms and conditions of this
Agreement, including without limitation Articles 7, 17 and 19.4.4. In
consideration of the purchase of such copies and JT's right to use the same, JT
agrees to pay to CG the amounts set forth in this Section 6.2.1 below:
(a) Effective Date. Within five (5) business days of the
Effective Date, JT shall pay to CG the initial non-refundable, non-creditable
amount of Ten Million Dollars (US $10,000,000); and
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(b) First Anniversary. Upon the first anniversary of the Effective Date, JT
shall pay to CG the additional non-refundable, non-creditable amount of Two
Million Five Hundred Thousand Dollars (US $2,500,000).
6.2.2 Reimbursement Payments. As reimbursement for CG's
expenditures (or, in case where an applicable payment set forth below exceeds
the then concurrent unreimbursed expenditures of CG, the exceeding amount
thereof as advance payment for CG's future expenditures) with respect to
clinical development of Collaboration Products hereunder and subject to Section
6.2.3, JT agrees to make the following non-refundable, non-creditable payments
to CG upon the first occurrence after the Effective Date of each event specified
below (each, an "Event"):
<TABLE>
<CAPTION>
EVENT AMOUNT
----- ------
<S> <C>
[*] [*]
</TABLE>
6.2.3 Other.
(a) It is understood and agreed that the payment
corresponding to Events 1 through 6 above shall be due and payable for each
Collaboration Product for which such Event occurs; provided, however, (i) the
payment for Event 1 shall not be due with respect to the Collaboration Products
that are the subject of the Current Clinical Trials and (ii) payment for Events
1 through 6 shall not be due with respect to the further clinical development of
metastatic renal cell carcinomas (it being understood that payments pertaining
to the clinical development of metastatic renal cell carcinomas shall be as
negotiated under Section 6.5 below).
(b) Subject to Section 6.2.3(a) above, with respect to
Events 1 through 6, if at the occurrence of an Event with respect to a
particular Collaboration Product the payment corresponding to the occurrence of
any preceding Event (i.e., "previous" as contemplated by the Event number
specified above) for such Collaboration Product has not been made, then such
corresponding payment(s) shall then be due.
(c) Subject to Section 19.4.3, the payments set forth in
Section 6.2.2 hereof shall each be due and payable as follows: (i) for Events
accomplished by CG, such payment shall be due within forty-five (45) days after
written notice thereof to JT, subject to JT's verification during such
forty-five (45)-day period that the Event occurred; and (ii) for Events
accomplished by JT, such payment shall be due within thirty (30) days after
occurrence of the corresponding Event. CG and JT agree to promptly notify the
other in writing of its achievement of any Event under Section 6.2.2.
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6.3 [*] In consideration of the rights and licenses granted to JT
hereunder and JT's sharing in proceeds from the exploitation of Collaboration
Products throughout the world as set forth in Section 9.1 below and upon the
occurrence of the [*] JT shall pay CG the non-refundable, non-creditable amount
of [*]
6.3.1 Change in Circumstances. Notwithstanding the provisions of
Section 6.3 above, if as a result of a change in circumstances arising after the
Effective Date (e.g., a change in [*]
6.3.2 Other. Subject to Section 19.4.3, the payments set forth in
this Section 6.3 shall each be due and payable within forty-five (45) days after
written notice thereof to JT, subject to JT's verification during such
forty-five (45)-day period that [*] has occurred. Together with such notice, CG
shall provide JT a copy of each agreement between CG and an [*] if such copy has
not previously provided to JT. Notwithstanding the provisions of Section 6.3
above, the conditions under Section 6.3(iii) shall be deemed to be met at such
time as the parties hereto authorize one or more third parties to sell or
otherwise distribute a Collaboration Product in all countries of the European
Union pursuant to Section 8.4 below.
6.4 Credit Facility. Subject to the terms and conditions of the Credit
Facility Agreement attached hereto as Exhibit 6.4 (the "Credit Agreement"), JT
agrees to advance to CG from time to time, such sums as CG may request (the
"Advances") but which shall not exceed, in aggregate principal amount at any
time outstanding, the Commitment. It is understood and agreed that a request for
an Advance with respect to a particular Collaboration Product may be made only
after the Development Committee's decision to undertake the first Phase III
clinical trial for such Collaboration Product hereunder. Together with CG's
first request for an Advance hereunder, CG shall execute and deliver to JT the
Credit Agreement, together with such other documents as required thereby, and JT
shall promptly execute and deliver a fully-executed Credit Agreement to CG. For
purposes of this Section 6.4, capitalized terms not otherwise defined in this
Agreement shall have the respective meanings set forth in the Credit Agreement.
6.5 Metastatic Renal Cell Carcinoma. [*]
6.6 [*] CG agrees to promptly provide to JT after the Effective Date the
[*] Data. At any time prior to sixty (60) days after JT receives the [*] Data
(the "[*] Decision Period"), JT shall have the right to retain either (but not
both) non-small cell lung tumors or [*] in the Field by written notice to CG
referencing this Section 6.6 and electing either "non-small lung tumors" or [*]
as the tumor type which JT desires to retain in the Field.
6.6.1 Retention of [*]. If JT notifies CG prior to expiration of
the [*] Decision Period that it elects to retain [*] in the Field in accordance
with this Section 6.6 above, the following
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shall apply: (i) so much of Section 1.24 as reads [*] prostate tumors" shall
thereafter be deemed amended to read "malignant prostate tumors;" (ii) the
Development Committee shall promptly adopt a revised Development Plan and Budget
for the remainder of calendar year 1999 in accordance with Article 3 and Section
6.1.6 above including a Collaboration Product for melanomas and excluding
development relating to non-small cell lung tumors; and (iii) notwithstanding
anything herein to the contrary, JT shall assign (and in such case, hereby
assigns) to CG its ownership interest in and to data and reports generated in
the course of the Current Collaboration Trial described in clause (i) of Section
1.10. For avoidance of doubt, in such event JT shall not be entitled to a credit
for any amounts incurred by either party with respect to non-small cell lung
tumors in accordance with the Development Plan and Budget then in effect.
6.6.2 Retention of Non-Small Cell Lung Tumors. If JT notifies CG
prior to expiration of the [*] Decision Period that it desires to retain
non-small cell lung tumors in the Field in accordance with this Section 6.6 or
fails to so notify CG during the [*] Decision Period, the following shall apply:
(i) so much of Section 1.24 as reads "[and/or] [*] shall thereafter be deemed to
be deleted; and (ii) notwithstanding anything herein to the contrary, JT shall
assign (and in such case, hereby assigns) to CG its ownership interest in and to
the [*] Data. For avoidance of doubt, in such case the Development Plan and
Budget then in effect shall continue in effect, subject to the other terms and
conditions herein. In the event JT provides to CG during the [*] Decision Period
neither the written notice described in this Section 6.6.2 nor Section 6.6.1
above, JT shall be deemed to have elected to retain non-small cell lung tumors
as described in this Section 6.6.2.
6.6.3 Development Costs. Notwithstanding anything herein to the
contrary, beginning 1 January 1999 through the expiration of the [*] Decision
Period, JT's share of Development Costs incurred by CG with respect to the
development of non-small cell lung tumors hereunder shall not exceed [*] per
month, and CG shall not be required to incur Development Costs with respect to
the development of non-small cell lung tumors in excess of [*] per month during
such period, in each case unless otherwise mutually agreed by the parties.
ARTICLE 7
USE OF PRECLINICAL AND CLINICAL DATA
7.1 Exchange. Subject to the provisions of this Article 7 and Article 17
below, JT and CG shall each have access to and the right to use for any purpose,
any Existing Data and any preclinical and/or clinical data with respect to
applications within the Field of Collaboration Products developed by CG or JT in
the course of the Development Program; provided that JT agrees not to disclose
to third parties any such Existing Data or other data for purposes outside the
Field. CG and JT will provide to the other reasonable access to all regulatory
filings made relating to clinical trials
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and Marketing Approvals by CG or JT or on their behalf in any country with
respect to each such application within the Field of a Collaboration Product,
together with the underlying preclinical and clinical data, analysis, reports
and correspondence, including Existing Data (collectively with such filings,
"Data"), at reasonable times and on reasonable notice, to the extent each has
the right to do so.
7.2 Disclosure. CG and JT may provide copies or summaries of such Data
to third parties as is reasonably necessary or useful for commercialization of
Collaboration Products in accordance with this Agreement, or in the case of CG
of products outside the Field, including without limitation for use by third
parties and for cross-referencing regulatory filings. It is understood that the
foregoing shall include the right to disclose Data to third parties with whom JT
or CG are discussing entering into agreements for such permitted purposes,
subject to reasonable conditions of confidentiality.
7.3 Regulatory Requirements. Notwithstanding the provisions of Section
7.2 above, in all agreements with third parties or Affiliates involving the
development of preclinical and clinical data for a Collaboration Product, JT and
CG shall require that such third parties and Affiliates provide JT or CG
(respectively) access to all such data, to the extent that such data is required
to be obtained from such third parties by the Japanese Ministry of Health and
Welfare, the FDA, the Commission of Proprietary Medicines of the European
Community, the European Medicines Evaluation Agency or other regulatory agency,
in each case with respect to MAAs or Marketing Approvals.
7.4 Development Committee Review. All protocols for clinical trials to
be conducted, and all product registration plans, for Collaboration Products for
applications within the Field in the Territory to the extent the same are within
the Development Program shall be submitted to the Development Committee for
review and comment by the Development Committee prior to filing of such
protocols and registrations, respectively, with any health regulatory agency;
and subject to Article 2 above, protocols for such trials shall be subject to
approval of the Development Committee.
7.5 Ownership. [*]
ARTICLE 8
MARKETING RIGHTS
8.1 General. Subject to Article 19 below, it is understood and agreed
that JT and CG shall jointly own the worldwide marketing rights to the
Collaboration Products and that any such rights shall be exploited solely as set
forth in and in accordance with this Article 8 below.
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8.2 JT. JT shall have the exclusive right, including the right to
authorize others, to market, sell and distribute the Collaboration Products for
use in East Asia within the Field.
8.3 CG. CG shall have the exclusive right, including the right to
authorize others, to market, sell and distribute the Collaboration Products for
use in North America within the Field.
8.4 Europe and Rest of the World. The parties shall negotiate in good
faith the development, marketing, distribution and/or licensing of Collaboration
Products for use in Europe and the Rest of the World. The Collaboration Products
shall only be developed, marketed, sold and distributed in Europe and the Rest
of the World on such terms and conditions as are mutually agreed by JT and CG.
It is understood that the parties intend to share equally the net economic
benefits arising therefrom. Except as otherwise agreed, CG and JT will be
co-parties to any arrangement with third parties entered into pursuant to this
Section 8.4.
8.5 Marketing Distributor. JT and CG may exercise their respective
rights under Sections 8.2 and 8.3 above through one or more Marketing
Distributors; provided that neither JT nor CG may authorize any such Marketing
Distributor to market or distribute Collaboration Products through further
(i.e., indirect) Marketing Distributors.
8.6 Covenants. It is understood that, with respect to any particular
Collaboration Product, whether or not the manufacture, use and sale of such
Collaboration Product by CG and/or JT in any country [*] neither CG nor JT shall
market, sell or distribute a Collaboration Product anywhere in the world except
in accordance with this Agreement, including this Article 8.
8.7 Commercialization Committee.
8.7.1 General. At such time as the parties agree, JT and CG shall
assemble a team of appropriate personnel from both JT and CG to oversee, review
and coordinate the marketing and promotion of Collaboration Products in the
Territory for applications within the Field (hereinafter referred to as the
"Commercialization Committee"). From time to time, the Commercialization
Committee may establish subcommittees or project teams to oversee particular
projects or activities, and such subcommittees or project teams will be
constituted as the Commercialization Committee agrees.
8.7.2 Membership. The Commercialization Committee shall be
comprised of an equal number of representatives from each of JT and CG, selected
by such party. The exact number of such representatives shall be three (3) for
each of JT and CG, or such other number as the parties may agree. Each party
shall at all times have at least one (1) representative on the Commercialization
Committee at the Vice President level or above. Subject to the foregoing
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provisions of this Section 8.7, CG and JT may replace its respective
Commercialization Committee representatives at any time, with prior written
notice to the other party.
8.7.3 Commercialization Committee Meetings. After its formation
in accordance with Section 8.7.1 above, the Commercialization Committee shall
meet quarterly, or as otherwise agreed by the parties, at such locations as the
parties agree. At its meetings, the Commercialization Committee will (i)
formulate and review the objectives of the Marketing Plans, (ii) monitor the
progress of the parties toward those objectives, (iii) review the Marketing
Plans, pursuant to Section 8.8 below, (iv) coordinate worldwide marketing
strategies with respect to Collaboration Products and (v) undertake and/or
approve such other matters as are provided for the Commercialization Committee
under this Agreement. With the consent of the parties, other representatives of
CG or JT may attend Commercialization Committee or subcommittee meetings as
non-voting observers. The Commercialization Committee may also convene or be
polled or consulted from time to time by means of telecommunications, video
conferences or correspondence, as deemed necessary or appropriate. Each party
shall bear its own personnel, travel and lodging expenses relating to
Commercialization Committee meetings, which costs and expenses shall not be
included in the Development Costs.
8.7.4 Decisions. Decisions of the Commercialization Committee
shall be made by unanimous agreement of the members present in person or by
other means (e.g., teleconference) at any meeting; provided that at least two
(2) representatives of each party are present at such meeting. In the event that
the Commercialization Committee is unable to reach unanimous agreement on an
issue, the issue shall be referred for resolution through good faith
negotiations between the Chief Executive Officer of CG and the head of JT's
pharmaceutical business. If such officers are unable to resolve any such issues,
the head of JT's pharmaceutical business shall have the right to decide such
issue as it pertains to East Asia, and CG's Chief Executive Officer shall have
the right to decide such issue as it relates to North America; otherwise upon
request by either party such issue shall be resolved in accordance with Section
20.3 below.
8.8 Marketing Plans. JT shall prepare detailed marketing plans for East
Asia and for each Major Market Country therein, such plans shall include plans
related to the prelaunch, launch, promotion and sale of Collaboration Products
(the "JT Marketing Plans") and submit the JT Marketing Plans at least
semiannually to the Commercialization Committee. Likewise, CG shall prepare
detailed marketing plans for North America and for each Major Market Country
therein, such plans shall include plans related to the prelaunch, launch,
promotion and sale of Collaboration Products (the "CG Marketing Plans") and
submit the CG Marketing Plans at least semiannually to the Commercialization
Committee. Subject to the provisions of this Agreement, and subject to
compliance with its Marketing Plans, each of JT and CG shall have full control
and authority of the day-to-day commercialization of Collaboration Products in
East Asia and North America,
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respectively, for applications within the Field and implementation of the
corresponding Marketing Plans, at its expense. Each of JT and CG shall implement
its respective Marketing Plans, and the Commercialization Committee will review
the progress of such party's marketing efforts under such Marketing Plans.
8.9 Marketing Distributor. It is understood and agreed that Sections
7.4, 8.7 and 8.8 shall not apply to activities undertaken by a permitted
Marketing Distributor of JT or CG. In addition, the provisions of Section 19.3.4
shall not apply to the activities undertaken by a permitted Marketing
Distributor of JT or CG (the "Licensing Party"), provided that such Marketing
Distributor had annual revenues of at least [*] in its last full fiscal year
prior to the date the Licensing Party entered into the Marketing Agreement with
such Marketing Distributor, and the Marketing Distributor agrees in writing to
indemnify the other party hereto and its Affiliates and each of the directors,
officers, and employees of the other party and such Affiliates and the
successors and assigns of any of the foregoing (for purposes of this Section 8.9
each, an "Indemnified Party"), and hold each Indemnified Party harmless from and
against any and all liabilities, damages, settlements, claims, actions, suits,
penalties, fines, costs or expenses (including, without limitation, reasonable
attorneys' fees and other expenses of litigation) incurred by any Indemnified
Party as a result of any claim, action, suit, or other proceeding brought by
third parties against an Indemnified Party based on a claim of patent
infringement arising from or occurring as a result of the manufacture, use or
sale of the particular Collaboration Product in the Marketing Distributor's
territory; provided that the Indemnified Party (i) shall promptly notify the
Marketing Distributor in writing of any claim, action, suit, or other proceeding
brought by third parties in respect of which the Indemnified Party or any of its
Affiliates, or their directors, officers, employees, successors or assigns
intend to claim such indemnification hereunder, (ii) provides the Marketing
Distributor with sole control over the defense and/or settlement of such claim,
action, suit, or other proceeding, and (iii) provides the Marketing Distributor,
at its request, reasonable assistance and information regarding such claim,
action, suit, or other proceeding. Notwithstanding the foregoing, the
Indemnified Party shall have the right to participate in such defense or
settlement with counsel of its own choosing at its expense. The failure to
deliver written notice to the Marketing Distributor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Marketing Distributor of any liability to
the Indemnified Party under this Section 8.9 but the omission so to deliver
written notice to the Marketing Distributor shall not relieve the Marketing
Distributor of any liability that it may have to any Indemnified Party otherwise
than under this Section 8.9. Without limiting the foregoing, the Marketing
Distributor shall keep the Indemnified Party fully informed of the progress of
any claim, action, suit, or other proceeding under this Section 8.9.
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ARTICLE 9
PRODUCT PAYMENTS
9.1 General. The parties shall make payments relating to the
exploitation of the Collaboration Products in East Asia and North America, to
the extent set forth in this Article 9 below. It is understood that proceeds
from the exploitation of Collaboration Products in Europe and the Rest of World,
shall be shared and/or allocated as mutually agreed under Section 8.4 above.
9.2 Royalty.
9.2.1 Base Royalty. Subject to the provisions of this Section 9.2
below, to the extent that JT or CG (for purposes of this Section 9.2, the
"Commercializing Party") markets or promotes a Collaboration Product itself
(directly or through an Affiliate), the Commercializing Party shall pay the
other party a running royalty equal to [*] of Net Sales of such Collaboration
Product by the Commercializing Party and its Affiliates (as such percentage may
be adjusted pursuant to this Section 9.2.1). The parties agree to undertake on
or promptly following the establishment of the Commercialization Committee in
accordance with Section 8.7.1, and thereafter at the request of either party
(which requests may not be made more often than quarterly), good faith
discussions to adjust such percentage, to the extent appropriate, if either
party can demonstrate to the other party hereto economic factors or
considerations which would reasonably justify such an adjustment.
9.2.2 Operating Expenses. Without limiting the foregoing
provisions of this Section 9.2, upon the request of the Commercializing Party
the other party (for purposes of this Section 9.2.2, the "Reimbursing Party")
shall share the Excess Operating Expenses incurred by the Commercializing Party
or its Affiliate with respect to the pre-launch, launch, marketing and promotion
or other commercialization activities related to such Collaboration Product as
follows: The Reimbursing Party shall pay to the Commercializing Party, quarterly
in advance, [*] of such Excess Operating Expenses to be incurred by the
Commercializing Party, based on good faith estimates of such quarterly Excess
Operating Expenses; provided, however, unless otherwise agreed in writing,
neither party shall be obligated to reimburse the other party more than a
cumulative aggregate of [*] pursuant to this Section 9.2.2. Notwithstanding the
foregoing, it is understood and agreed that actual Excess Operating Expenses
shall be reported for the full calendar quarter under Section 10.1 below, and
the actual amounts shall be reconciled against such quarterly estimates and an
adjustment made at the time of such quarterly accounting. For purposes of this
Section 9.2, the amount so reimbursed by the Reimbursing Party for Excess
Operating Expenses shall be herein referred to as "Operating Advances."
Operating Advances shall be due hereunder the later of (i) forty-five (45) days
after a proper invoice therefor submitted in accordance with this Section 9.2.2
or (ii) first day of the applicable quarter. Together with each invoice for
Operating Advances under this Section 9.2.2, the Commercializing Party shall
provide the Reimbursing Party a calculation of the
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Commercializing Party's estimated Excess Operating Expenses and reasonable
supporting documentation therefor. Exhibit 9.2.2 sets forth, for purposes of
example only, an example of the operation of this Section 9.2.2.
9.2.3 Annual Limit; Reconciliation. Notwithstanding the foregoing
provisions of this Section 9.2, in no event shall the royalty paid by the
Commercializing Party under this Section 9.2 with respect to Net Sales of a
Collaboration Product in a calendar quarter exceed fifty percent (50%) of
Operating Revenues for such quarter; provided that, if this Section 9.2.3
reduces the amount of royalty paid with respect to a Collaboration Product in
any quarter of a calendar year, but the royalty calculated under Section 9.2.1
above for such Collaboration Product for the full calendar year is less than the
fifty percent (50%) of actual Operating Revenues for such Collaboration Product
for such year, then the Commercializing Party shall refund the amount of such
reduction with the royalty payment due under Section 10.1 below for the fourth
quarter of such year.
9.3 Net Third Party Revenues.
9.3.1 General. To the extent that JT or CG commercializes a
Collaboration Product in its respective territory through a Marketing
Distributor, it shall pay to the other fifty percent (50%) of any Net Third
Party Revenues from such Collaboration Product.
9.3.2 Equity Co-Sale Right. In the event CG proposes to issue and
sell to a Marketing Distributor equity securities of CG in connection with a
grant of Marketing Rights hereunder, CG shall (i) notify JT in writing of the
estimated type and number of equity securities to be transferred and the terms
and conditions for such issuance and sale at least thirty (30) days prior to
such sale and (ii) further notify JT in writing (the "Transaction Notice") at
least fifteen (15) days prior to such sale of the actual type and number of
equity securities to be transferred and the terms and conditions for such
issuance and sale. In such event, JT shall have the right to sell to the
Marketing Distributor up to one-half (1/2) of the total number of equity
securities to be sold by CG on the same terms and conditions as CG; provided
that JT irrevocably so notifies CG within fifteen (15) days of receiving the
Transaction Notice. If JT notifies CG that it does not desire to sell such
equity securities to the Marketing Distributor or if JT fails to notify CG
within the fifteen (15)-day period, then JT shall be deemed to waive its right
to participate in such transaction and CG shall be free to sell all of such
equity securities to the Marketing Distributor. For avoidance of doubt, nothing
in this Section 9.3.2 shall be deemed to limit either party's obligation to
share any [*] realized from such sale of equity securities to a Marketing
Distributor pursuant to Section 9.3.1 above, provided that JT shall not so share
in [*] received by CG with respect to that number of shares sold by CG to the
Marketing Distributor equal to the number of shares sold by JT to such Marketing
Distributor pursuant to this Section 9.3.2. Further, it is understood this
Section 9.3.2 shall only apply to the extent that JT then owns the same CG
equity security to be sold to the Marketing Distributor by CG.
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9.4 Mechanism. At such time as both JT and CG (itself or an Affiliate)
have Net Sales and/or Net Third Party Revenues, the parties shall negotiate
appropriate mechanisms for netting amounts and providing for a single balancing
payment.
9.5 Cell Processing Services/Kits. It is understood that, subject to
Section 12.1 below, JT or CG (directly or through an Affiliate) may or may not
perform Cell Processing Services in connection with the commercialization of
Collaboration Products hereunder. If not, it is contemplated that the
Collaboration Products may be commercialized in a kit or other format which
would include vectors for transducing the applicable tumor cells and other
reagents and materials, as appropriate, to allow the health care providers to
provide such services themselves or through a third party contractor. If JT or
CG or their respective Marketing Distributor perform the Cell Processing
Services, the same shall be deemed part of the Collaboration Product; otherwise,
the Collaboration Product will be such kit or other format.
9.6 Combinations.
9.6.1 Combination Products. In the event that a Collaboration
Product is sold in combination with other products, components or services
(other than another Collaboration Product or Cell Processing Services) for which
no amounts would be payable to the other party hereto if sold separately,
amounts invoiced for such combination sales for purposes of calculating Net
Sales of the Collaboration Product in such combination shall be reasonably
allocated between such Net Sales for Collaboration Product and amounts in
consideration for such other products, components or services by the party under
whose authority such sale was made.
9.6.2 Combination Sublicenses. Notwithstanding anything herein to
the contrary, in the event that CG or JT grants to a Marketing Distributor
Marketing Rights with respect to Collaboration Products hereunder in combination
with a grant of rights or licenses outside the Field to such Marketing
Distributor, amounts received from such Marketing Distributor for purposes of
calculating Net Third Party Revenues from such Marketing Rights shall be
reasonably allocated between Net Third Party Revenues for the Marketing Rights
and amounts in consideration for such other rights by the party granting such
other rights.
9.7 Transfer Pricing. In addition to amounts payable to CG under
Sections 9.2 and 9.3 above, with respect to transfer of Collaboration Products
for use in East Asia, CG shall receive the Production Cost for Collaboration
Products supplied by CG.
9.8 Third Party Payments.
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9.8.1 Generally. Each Party (for purposes of this Section 9.8,
the "Reimbursing Party") shall promptly reimburse the other party hereto for
fifty percent (50%) of any amounts payable by such other party to third parties
pursuant to a Third Party Agreement (including agreements entered into as set
forth below), including any royalties, license fees, or milestone payments due
to such third parties, which in each case become due as a result of the
development, marketing, sale or distribution of Collaboration Products hereunder
by or under authority of the Reimbursing Party in accordance with this
Agreement. The foregoing shall only apply to the extent such amounts are not
included within the definition of Development Costs hereunder.
9.8.2 Future Agreements. It is understood and agreed JT and CG
may mutually agree to utilize in connection with a Collaboration Product
intellectual property that is controlled by a third party, in addition to or in
lieu of subject matter covered by Third Party Agreements existing as of the
Effective Date. CG shall have the right to take the lead in obtaining such
rights to such intellectual property; provided that to the extent CG is unable
to acquire such rights, JT may acquire such rights directly from such third
party. In the event that CG or JT (the "Acquiring Party") proposes to apply to a
Collaboration Product intellectual property otherwise so acquired by the
Acquiring Party, the Acquiring Party shall disclose the same to the Development
Committee, including any royalty or other payment obligations that would apply
to the Collaboration Products as a result of the development or
commercialization of such Collaboration Products hereunder. The Development
Committee shall determine, within thirty (30) days whether or not the
Development Committee agrees that the intellectual property so acquired should
be applied to the Collaboration Products, and if the Development Committee so
determines, the agreement under which the Acquiring Party acquires such
intellectual property shall be a "Third Party Agreement" for purposes of this
Agreement. In the event that the Development Committee is unable to reach
unanimous agreement with respect to whether such intellectual property should be
applied to the Collaboration Products hereunder, it is understood that the issue
shall be resolved in accordance with Sections 2.4 above and 20.3.1 below. To the
extent the agreement is not so included within the Third Party Agreements
hereunder, the subject matter of such agreement shall not be within the
definition of CG Technology or JT Technology hereunder, and the other party
shall have no license with respect to such intellectual property.
9.8.3 Payment; Reports. If a party is obligated to pay amounts to
a third party pursuant to a Third Party Agreement subject to reimbursement
pursuant to Section 9.8.1 above, such party shall notify the Reimbursing Party
reasonably in advance, and the Reimbursing Party shall reimburse its share of
such payments by the earlier of (i) ten (10) days before such amounts are
payable to such third party or (ii) thirty (30) days after receipt of notice
therefor. In addition, to the extent that a party is obligated to provide
reports to a third party pursuant to a Third Party Agreement as a result of or
reporting on the status of activities of the other party hereunder, the other
party
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hereto shall reasonably assist the reporting party by providing information in
its possession or control and in sufficient detail to complete and submit such
reports as required.
9.8.4 Notice of Potential Claims. CG and JT shall each notify the
other in the event that a third party asserts that the development, manufacture,
sale or use of a Collaboration Product being developed or contemplated to be
developed hereunder is covered by patent rights controlled by such third party.
ARTICLE 10
PAYMENTS; BOOKS AND RECORDS
10.1 Quarterly Reports. Following the first receipt by a party or its
Affiliate of Net Third Party Revenues, First Commercial Sale of a Collaboration
Product by a party or its Affiliate, or accrual of Excess Operating Expenses by
a party or its Affiliate hereunder, such party shall make quarterly reports to
the other party within [*] days after the end of each calendar quarter, which
reports shall include, in reasonable detail, a calculation of any Net Third
Party Revenues received, Excess Operating Expenses incurred, and Net Sales in
such quarter. The format of such report shall be mutually agreed by the parties
hereto. Concurrently with making such report, such party shall remit payment to
the other party fifty percent (50%) of any Net Third Party Revenues received and
any royalty due under Section 9.2. If the reporting party or its Affiliate has
incurred Excess Operating Expenses for the quarter, such report shall include a
reconciliation of any quarterly estimated Excess Operating Expenses made in
accordance with Section 9.2.2 above, and either an invoice to the other party
for fifty percent (50%) of any Excess Operating Expenses incurred by the
reporting party during such quarter (less any estimated amounts previously
reimbursed by the other party in accordance with Section 9.2.2 for the same
period), which invoice shall be paid by the other party within [*] days of
receipt, or shall remit to the other party any excess of the estimated amounts
paid by such other party for such quarter under Section 9.2.2 above over such
other party's share of the actual Excess Operating Expenses incurred by the
reporting party in such quarter.
10.2 Payment Method.
10.2.1 General. All payments under this Agreement shall be made
by bank wire transfer in immediately available funds to an account designated by
the payee. All such payments made by or on behalf of JT hereunder shall be made
by a Japanese entity, and likewise, all such payments made by or on behalf of CG
hereunder shall be made by a U.S. entity. All dollar amounts specified in this
Agreement, and all payments made hereunder, are and shall be made in U.S.
dollars. Any payments due under this Agreement which are not paid by the date
such payments are due under this Agreement shall bear interest to the extent
permitted by applicable law at the U.S. prime rate per annum quoted in the
"Money Rates" column of The Wall Street Journal (U.S., Western Edition) on
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the first business day after such payment is due, plus an additional [*]
calculated on the number of days such payment is delinquent. This Section 10.2.1
shall in no way limit any other remedies available to either party.
10.2.2 GAAP. In calculating amounts hereunder, CG shall use
United States Generally Accepted Accounting Principles and cost accounting
principles generally accepted in the United States and JT shall use the Japanese
equivalents thereof; provided, however, if the parties' use of different
accounting principles causes material variation in the accounting of amounts
hereunder the parties shall agree on a mechanism to eliminate such variations in
accounting principles (all such principles and methods, together are herein
referred to as "GAAP").
10.3 Currency Conversion. If any currency conversion shall be required
in connection with the calculation of amounts payable hereunder, such conversion
shall be made using the buying exchange rate for conversion of the foreign
currency into U.S. dollars, quoted for current transactions reported in The Wall
Street Journal (U.S., Western Edition) for the last business day of the calendar
quarter to which such payment pertains.
10.4 Taxes.
10.4.1 General. Each party shall bear and, except as otherwise
expressly provided in this Section 10.4.1, pay any and all taxes, duties,
levies, and other similar charges (and any related interest and penalties),
however designated, imposed on that party as a result of the existence or
operation of this Agreement. If laws or regulations require that taxes be
withheld, the paying party will (i) deduct those taxes from the remittable
payment, (ii) timely pay the taxes to the proper taxing authority, and (iii)
send proof of payment to the other party within sixty (60) days following that
payment. In addition and without limiting the foregoing, with respect to amounts
payable under this Agreement which may give rise to taxes based on net income,
the paying party may withhold from such payments and pay such taxes to the
proper taxing authority if the paying party reasonably determines that as a
result of the relationship of the parties under this Agreement a withholding of
such taxes is required by applicable law, in which case the paying party shall
send proof of such payment to the other party within sixty (60) days following
that payment. Further each party, as is necessary or desirable, shall have the
right to file any tax or other returns or make any election as a result of the
relationship of the parties under this Agreement and such party shall have the
right to file all such returns and make such elections as required by law and
all administrative and filing costs associated therewith shall be deemed
Development Costs for purposes of this Agreement. Each party agrees to provide
the other party with reasonable information and assistance in connection with
the other party's performance of the activities described in this Section
10.4.1.
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10.4.2 Withholding Taxes on Net Third Party Revenues. With
respect to any withholding taxes deducted by a party (the "Deducting Party")
from Net Third Party Revenues under Section 1.41 above, the Deducting Party
agrees to elect to claim a tax credit for such withholding taxes with respect to
which it is entitled to do so elect, and further agrees not to amend such
election for the full carry-forward period with respect to such credit. At the
time that the Deducting Party realizes a reduction in its tax liability by
actually utilizing the withholding taxes as a credit against its regular
domestic tax liability (determined on a "first-in-first-out" basis pro rata with
other available foreign tax credits), then the amount of the credit so realized
shall immediately be included in Net Third Party Revenues of the Deducting Party
for the period in which such credit is realized.
10.5 Records; Inspection.
10.5.1 CG. CG shall keep, and require its Affiliates to keep,
complete, true and accurate books of accounts and records for the purpose of
determining the amounts payable pursuant to this Agreement. Such books and
records shall be kept for at least three (3) years following the end of the
calendar quarter to which they pertain. Such records will be open for inspection
at the principal place of business of CG during such three (3)-year period by an
independent auditor chosen by JT and reasonably acceptable to CG for the purpose
of verifying the amounts payable by CG hereunder. Such inspections may be made
no more than once each calendar year, at reasonable times and on reasonable
notice. The independent auditor shall be obligated to execute a reasonable
confidentiality agreement prior to commencing any such inspection. Inspections
conducted under this Section 10.5.1 shall be at the expense of JT, unless a
variation or error producing a difference exceeding [*] of the amounts hereunder
for the period covered by the inspection is established in the course of any
such inspection, whereupon all costs relating to the inspection for such period
and any unpaid or overpaid amounts that are discovered shall be paid or repaid
by CG, together with interest on such unpaid or overpaid amounts at the rate set
forth in Section 10.2 above. The parties will endeavor to minimize disruption of
CG's normal business activities to the extent reasonably practicable.
10.5.2 JT. JT shall keep, and require its Affiliates to keep,
complete, true and accurate books of accounts and records for the purpose of
determining payments due pursuant to this Agreement. Such books and records
shall be kept for at least three (3) years following the end of the calendar
quarter to which they pertain. Such records will be open for inspection at the
principal place of business of JT during such three (3)-year period by an
independent auditor chosen by CG and reasonably acceptable to JT for the purpose
of verifying the amounts payable by CG hereunder. Such inspections may be made
no more than once each calendar year, at reasonable times and on reasonable
notice. CG's independent auditor shall be obligated to execute a reasonable
confidentiality agreement prior to commencing any such inspection. Inspections
conducted under this Section 10.5.2 shall be at the expense of CG, unless a
variation or error producing a difference exceeding [*] of the
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amounts hereunder for the period covered by the inspection is established in the
course of any such inspection, whereupon all costs relating to the inspection
for such period and any unpaid or overpaid amounts that are discovered will be
paid or repaid by JT, together with interest on such unpaid or overpaid amounts
at the rate set forth in Section 10.2 above. The parties will endeavor to
minimize disruption of JT's normal business activities to the extent reasonably
practicable.
ARTICLE 11
DUE DILIGENCE
11.1 CG.
11.1.1 Marketing. CG shall use commercially reasonable efforts
(i) to launch each Collaboration Product in each country of North America as
soon as practicable after receiving Marketing Approval in such country for such
Collaboration Product; and (ii) thereafter to market, promote and distribute
such Collaboration Product in such country.
11.1.2 [*] In addition, CG shall use commercially reasonable
efforts to satisfy the conditions of [*] as soon as practicable; and CG agrees
to keep JT reasonably informed as to its progress in fulfilling the conditions
of the[*]
11.2 JT. JT shall use commercially reasonable efforts (i) to launch each
Collaboration Product in each country of East Asia as soon as practicable after
receiving Marketing Approval in such country for such Collaboration Product; and
(ii) thereafter to market, promote and distribute such Collaboration Product in
such country.
ARTICLE 12
MANUFACTURING RIGHTS
12.1 East Asia. JT shall have the exclusive right to supply or have
supplied Collaboration Products to be used in East Asia. As of the Effective
Date it is the intent of the parties that CG will supply all Collaboration
Products to be used in East Asia, including quantities used by or under
authority of JT (i) to perform the Development Program, and (ii) for commercial
sale in East Asia; provided that JT shall not be obligated to use CG for supply
of Collaboration Products for use or sale in East Asia. In addition, upon
request by JT, CG agrees to supply or have supplied Collaboration Products to JT
for use in East Asia from manufacturing capacity for Collaboration Products
established in accordance with the Development Program, subject to Section 12.4
below. In the event that CG so supplies Collaboration Products for use in East
Asia, JT shall pay to CG for such supply the amounts set forth in 12.3 below.
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12.2 North America. Subject to Section 12.1 above, CG shall have the
exclusive right to supply, or have supplied all Collaboration Products to be
used in North America, including quantities to be used (i) to perform the
Development Program, and (ii) for commercial sale in North America.
12.3 Transfer Price.
12.3.1 Non-Commercial Materials. With respect to a particular
Collaboration Product provided for use in the Development Program prior to
obtaining Marketing Approval for such Collaboration Product in a particular
country, the transfer price to be paid to CG by JT for such Collaboration
Product shall be [*] of CG's Production Costs therefor. The amounts so paid by
JT to CG shall be included in the Development Costs incurred by JT for purposes
of Section 6.1 above. For Collaboration Products used by CG in conducting the
Development Program (i.e., excluding those supplied to JT), the Production Costs
thereof shall be included in the Development Costs incurred by CG for purposes
of Section 6.1.
12.3.2 Commercial Materials. With respect to Collaboration
Products and Cell Processing Services provided to JT for sale in East Asia, JT
shall pay to CG a transfer price equal to [*] of the Production Costs therefor.
For avoidance of doubt, the amounts paid by JT to CG under this Section 12.3.2
shall be included in the JT's Operating Expenses pursuant to Section 1.44.
12.4 Supply Agreements. In the event JT and CG agree that CG will supply
Collaboration Products or Cell Processing Services to JT for East Asia, the
parties shall enter into a supply agreement with respect to such supply of
Collaboration Products and Cell Processing Services for use in East Asia as
contemplated in Section 12.1 above, on reasonable terms. It is understood that
such agreement would include, without limitation, reasonable provisions for
forecasting and lead-times. Such agreement would further include provisions
requiring in the event that CG is unable to supply worldwide requirements of a
Collaboration Product, allocation of the quantities of such Collaboration
Product that CG has in inventory and that CG is able to produce, [*]
ARTICLE 13
LICENSE GRANTS
13.1 Grant to JT. Subject to the terms and conditions of this Agreement
including Article 12 above, CG hereby grants to JT a license under the CG
Technology to: (i) use, sell, have sold, import and otherwise distribute
Collaboration Products for use solely in the Field in East Asia, (ii) to
manufacture, have manufactured or otherwise produce Collaboration Products for
purposes of (i), and (iii) to carry out those activities assigned to JT under
the Development Program in accordance with the Development Plan and Budget in
effect from time to time hereunder. To provide JT the exclusivity described in
Section 8.2 above, CG agrees not to grant to any third party
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any license or right under those patents and patent applications set forth on
Exhibit 13.1 hereto, to make, use or sell any Collaboration Product in East
Asia; except for such exclusivity, the license granted under this Section 13.1
shall be non-exclusive. The foregoing shall not be deemed to limit CG from
manufacturing, or having manufactured, Collaboration Products in East Asia for
supply to JT or for supply for use outside East Asia.
13.2 Grant to CG. Subject to the terms and conditions of this Agreement
including Article 12 above, JT hereby grants to CG a license under the JT
Technology to: (i) use, sell, have sold, import and otherwise distribute
Collaboration Products for use solely in the Field in North America, (ii) to
manufacture, have manufactured or otherwise produce Collaboration Products for
use outside of East Asia, and (iii) to carry out those activities assigned to CG
under the Development Program in accordance with the Development Plan and Budget
in effect from time to time hereunder. The license granted pursuant to clause
(i) above shall be exclusive and the licenses granted pursuant to clauses (ii)
and (iii) shall be non-exclusive. It is understood that this Section 13.2 shall
not be deemed to limit CG's subcontractors in connection with the supply of
Collaboration Products under Article 12 above.
13.3 Sublicenses. The licenses granted under Sections 13.1 and 13.2
above include the right to grant sublicenses, but shall not include the right to
authorize sublicensees to grant further sublicenses. Notwithstanding the
foregoing, JT shall not have the right to grant to a third party a sublicense to
manufacture and sell Collaboration Products, without CG's prior written consent
(which consent shall not be unreasonably withheld or delayed). For purposes of
the foregoing, and without limitation, it shall be deemed reasonable for CG to
withhold consent for reasonable competitive concerns. In no event shall this
Section 13.3 be deemed to limit JT's right to utilize contract manufacturers to
manufacture or produce Collaboration Products in accordance with Article 12.
13.4 No Rights Beyond Collaboration Products. Except as expressly
provided herein, nothing in this Agreement shall be deemed to grant to JT rights
in products or technology other than the Collaboration Products; nor shall any
provision of this Agreement be deemed to restrict CG's right to exploit any CG
Technology in products other than Collaboration Products. Likewise, except as
expressly provided herein, nothing in this Agreement shall be deemed to grant to
CG rights in products or technology other than Collaboration Products, nor shall
any provision of this Agreement be deemed to restrict JT's right to exploit any
JT Technology in products other than Collaboration Products.
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ARTICLE 14
INTELLECTUAL PROPERTY
14.1 Ownership of Inventions. Subject to the provisions of Section 4.5
above, title to all inventions and other intellectual property made solely by JT
personnel in connection with the Development Program shall be owned by JT. Title
to all inventions and other intellectual property made solely by CG personnel in
connection with the Development Program shall be owned by CG. Title to all
inventions and other intellectual property made jointly by personnel of CG and
JT in connection with the Development Program shall be jointly owned by JT and
CG. Except as expressly provided in this Agreement, it is understood that
neither party shall have any obligation to account to the other for profits, or
to obtain any approval of the other party to license or exploit a joint
invention, by reason of joint ownership of any invention or other intellectual
property, and each party hereby waives any such right it may have under
applicable laws in any country.
14.2 Patent Prosecution.
14.2.1 Sole Inventions. CG or JT, as the case may be (for
purposes of this Section 14.2.1 the "Controlling Party") shall control the
Prosecution and Interference Activities pertaining to solely owned patent
applications and patents within the Controlling Party's Technology (i.e., the CG
Technology or the JT Technology, as applicable), in each case worldwide using
counsel of its choice and in such countries as the Controlling Party deems
appropriate; and the other party hereto agrees to reimburse the Controlling
Party within forty-five (45) days of receipt of invoice therefor (A) [*] of the
out-of-pocket expenses paid by the Controlling Party to third party with respect
to Prosecution and Interference Activities for patent applications or patents
the subject matter of which will be used primarily for applications within the
Field as determined by the Development Committee (the "Core Patent Rights") and
(B) [*] of the out-of-pocket expenses paid by the Controlling Party to third
party with respect to Prosecution and Interference Activities for patent
applications and patents other than Core Patents. For purposes of this Section
14.2.1, "Prosecution and Interference Activities" shall mean the preparing,
filing, prosecuting and maintenance of patent applications and patents and
re-examinations, reissues and requests for patent term extensions therefor,
together with the conduct of any interference, opposition or other similar
proceeding pertaining to patent applications or patents. For avoidance of doubt,
it is understood and agreed that in-house patent personnel of the Controlling
Party shall be deemed Development Personnel with respect to the conduct of the
foregoing activities pertaining to the Controlling Party's Technology (i.e., the
JT Technology or the CG Technology, as applicable) in accordance with the
Development Plan and Budget then in effect. For purposes of this Section 14.2.1,
Core Patent Rights shall in all cases include those patent applications and
patents listed on Exhibit 13.1, together with all reissues, renewals,
re-examinations, extensions, and any divisions or continuations, in whole or in
part, thereof and foreign counterparts of any of the foregoing.
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14.2.2 Joint Inventions. The parties shall pursue patent or other
intellectual property protection for inventions that are owned jointly by JT and
CG under Section 14.1 as determined by the Development Committee, and each party
shall be responsible for [*] of the out-of-pocket expenses incurred in
connection with such activities. Notwithstanding the foregoing, if either party
(for purposes of this Section 14.2.2, the "Notifying Party") notifies the other
party in writing that it no longer desires to pay for such expenses with respect
to any patent application or patent, the Notifying Party shall assign all right,
title and interest in and to such patent application or patent (as the case may
be) and any patents issuing thereon (subject to the rights and licenses granted
hereunder) to the other party; in such event, the Notifying Party shall not be
responsible for expenses incurred under this Section 14.2.2 with respect to such
patent application or patent beginning sixty (60) days after giving the
foregoing notice. For avoidance of doubt, the foregoing sentence shall not
relieve the Notifying Party of any obligation under Section 14.2.1 above.
14.2.3 Cooperation. Each of CG and JT shall keep the other
reasonably informed as to the status of patent matters pertaining to the CG
Technology and JT Technology, as applicable, including providing to the other
party copies of any significant documents that such party receives from or sends
to patent offices, such as notices of interferences, re-examinations,
oppositions or requests for patent term extensions, all as reasonably requested
by the other party. CG and JT shall each cooperate with and assist the other in
connection with such activities, at the other party's request and expense, and
shall use good faith efforts to consult with each other regarding the
prosecution and maintenance of the JT Patents and the CG Patents as is
reasonably appropriate.
14.2.4 Patent Committee. Without limiting the provisions of
Section 14.2.3 above, JT and CG shall establish a patent committee ("Patent
Committee") in accordance with this Section 14.2.4. The Patent Committee shall
be comprised of patent counsel designated by each of JT and CG, from time to
time, and shall meet together during the Development Program at least
semi-annually to discuss, evaluate and consult with each other on the status of,
and update the other party's representatives with respect to, patent matters
pertaining to the CG Technology and JT Technology, as applicable, including
without limitation (i) status of the [*] (ii) any new applications being
prosecuted under this Section 14.2 above by such party, (iii) whether JT
requires any license or sublicense with respect to the subject matter listed in
Exhibit 16.1, (iv) whether [*] hereunder, and (v) third party patents or patent
applications that the parties may consider accessing in connection with the
development, manufacture, sale or use of Collaboration Products hereunder. The
Patent Committee shall keep the Development Committee reasonably informed as to
the status of patent matters pertaining to the Collaboration Products including
providing a summary of the discussions of Patent Committee meetings.
14.3 Defense of Third Party Infringement Claims. If the development,
manufacture, sale or use of any Collaboration Product pursuant to this Agreement
results in a claim, suit or proceeding
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(collectively, "Actions") alleging patent infringement against CG or JT (or
their respective Affiliates or Marketing Distributor), such party shall promptly
notify the other party hereto in writing. The party subject to such Action (for
purposes of this Section 14.3, the "Controlling Party") shall have the exclusive
right to defend and control the defense of any such Action using counsel of its
own choice; provided, however, that if such Action is directed to the subject of
a patent of the other party (i.e., a CG Patent or a JT Patent), such other party
may participate in the defense and/or settlement thereof at its own expense with
counsel of its choice. Except as agreed in writing by JT and CG, the Controlling
Party shall not enter into any settlement relating to a Collaboration Product,
if such settlement admits the invalidity or unenforceability of any patent
within the CG Technology or the JT Technology, as applicable, of the other
party. The Controlling Party agrees to keep the other party hereto reasonably
informed of all material developments in connection with any such Action.
Subject to Section 19.3.3 below, any cost, liability or expense (including
amounts paid in settlement) incurred by the Controlling Party, as a result of
such Action, shall be included in Operating Expenses for the Collaboration
Product(s) that are involved in such Action (or, if the Action is brought prior
to the First Commercial Sale of such Collaboration Product(s), such amounts
shall be included in Development Costs incurred by the Controlling Party and in
either case shall not be subject to the limitations of Section 1.44 or Section
6.1.5 above).
14.4 Enforcement. Subject to the provisions of this Section 14.4, in the
event that CG or JT reasonably believes that any CG Technology or JT Technology
necessary for the development, manufacture, use or sale of a Collaboration
Product is infringed or misappropriated by a third party or is subject to a
declaratory judgment action arising from such infringement in such country, in
each case with respect to the development, manufacture, sale or use of a product
within the Field, JT or CG (respectively) shall promptly notify the other party
hereto. Promptly after such notice the parties shall meet to discuss the course
of action to be taken with respect to an Enforcement Action (as defined below)
with respect to such infringement or misappropriation, including the control
thereof and sharing of costs and expenses related thereto, for the purposes of
entering into a litigation agreement setting forth the same ("Litigation
Agreement"). If the parties do not enter such Litigation Agreement, the party
whose Technology is so allegedly infringed or misappropriated, or is subject to
such declaratory judgment action, (for purposes of this Section 14.4, the
"Owner") shall have the initial right (but not the obligation) to enforce the
intellectual property rights within such Technology, or defend any declaratory
judgment action with respect thereto (for purposes of this Section 14.4, an
"Enforcement Action"); provided that the Owner agrees to indemnify the other
party for any and all liabilities and expenses (including, without limitation,
reasonable attorneys' fees and other expenses of litigation) incurred by such
other party as a result of such Enforcement Action, subject to Section 18.4
below. For purposes of the foregoing, "Technology" shall mean the CG Technology
or the JT Technology, as appropriate.
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14.4.1 Information. Absent a Litigation Agreement, the party
initiating or defending any such Enforcement Action shall keep the other party
hereto reasonably informed of the progress of any such Enforcement Action, and
such other party shall have the right to participate with counsel of its own
choice at its own expense.
14.4.2 Enforcement Costs; Recoveries. Unless otherwise agreed,
the party initiating an Enforcement Action shall, at the option of such party,
have the right to either: (i) assume responsibility for all costs and expenses
of such Enforcement Action, in which case all amounts recovered in the
Enforcement Action (including without limitation Net Third Party Revenues
resulting from a settlement thereof) shall be retained by such party; or (ii)
offset such costs and expenses against Net Sales and Net Third Party Revenues
(prior to making royalty payments pursuant to Section 9.2 above or sharing Net
Third Party Revenues pursuant to Section 9.3 above), in which case all amounts
recovered in the Enforcement Action, after reimbursing the party initiating the
Enforcement Action for any costs and expenses not previously so offset, shall be
included in Net Third Party Revenues, to the extent the same represents a
recovery for infringing activities within the Field.
14.5 Third Party Rights. The foregoing provisions of this Article 14
shall be subject to and limited by Third Party Agreements pursuant to which CG
and JT, as the case may be, acquired any particular CG Technology or JT
Technology.
ARTICLE 15
TRADEMARKS
15.1 Single Mark. It is understood that the Commercialization Committee
may determine that the marketing, promotion or other commercialization
activities related to the Collaboration Products for applications in the Field
should be conducted using a single mark throughout East Asia and North America.
In such event, the parties will discuss an appropriate mark for such purposes
and enter into trademark licensing and usage agreements as the parties may agree
with respect to such mark. Without limiting the foregoing, upon JT's request CG
agrees to grant to JT, without further consideration a license under CG's rights
in the "GVAX" trademark for use in connection with the marketing, promotion or
other commercialization activities related to the Collaboration Products for
application in the Field in East Asia, provided that JT agrees to pay for
recordation of such license in those jurisdictions where recordation is
required. The parties acknowledge that as of the Effective Date, [*]
15.2 General. Except as otherwise may be agreed pursuant to Section 15.1
above, each of JT and CG may use those trademarks and trade names as it deems
appropriate in connection with its marketing, promotion or other
commercialization activities related to the Collaboration Products for
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applications in the Field, provided that except as may be agreed under Section
15.1, no license is granted to either party hereunder to use trademarks owned by
the other party.
ARTICLE 16
REPRESENTATIONS AND WARRANTIES
16.1 CG Warranties. CG warrants and represents to JT that (i) it has the
full right and authority to enter into this Agreement and grant the rights and
licenses granted herein; (ii) it has not previously granted and will not grant
any rights in conflict with the rights and licenses granted herein; (iii) it has
not previously granted, and will not grant during the term of this Agreement,
any right, license or interest in or to the CG Technology, or any portion
thereof, to manufacture, sell or use a Collaboration Product that is in conflict
with the rights or licenses granted under this Agreement; (iv) Exhibit 1.59 is a
complete and accurate list of all agreements between CG and third parties
pertaining to the Collaboration Products that are in existence as of the
Effective Date; (v) Exhibit 1.2.1 is a complete and accurate list of all CG
Patents as of the Effective Date; (vi) as of the Effective Date, other than the
subject matter identified on Exhibit 16.1, neither CG nor its Controlled
Affiliates owns or has a license to subject matter necessary for the
manufacture, use or sale of Collaboration Products which is not Controlled by CG
or its Controlled Affiliates; and (vii) to CG's knowledge as of the Effective
Date, the manufacture, sale and use of Collaboration Products will not infringe
any patent rights of a third party, provided that no representation or warranty
is made or given with respect to the patent rights heretofore identified in
writing by CG's counsel, Wilson Sonsini Goodrich & Rosati to JT's counsel,
Gilbert, Segall and Young LLP.
16.2 JT Warranties. JT warrants and represents to CG that (i) it has the
full right and authority to enter into this Agreement and grant the rights and
licenses granted herein; (ii) it has not previously granted and will not grant
any rights in conflict with the rights and licenses granted herein; and (iii) it
has not previously granted, and will not grant during the term of this
Agreement, any right, license or interest in or to the JT Technology, or any
portion thereof, to manufacture, sell or use a Collaboration Product that is in
conflict with the rights or licenses granted under this Agreement.
16.3 Disclaimer of Warranties. EXCEPT AS OTHERWISE EXPLICITLY PROVIDED
IN THIS 16, CG AND JT EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE DEVELOPMENT PROGRAM, OR THE
CG TECHNOLOGY OR JT TECHNOLOGY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY
OF CG
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TECHNOLOGY OR JT TECHNOLOGY, PATENTED OR UNPATENTED, AND NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
ARTICLE 17
CONFIDENTIALITY
17.1 Confidential Information. Except as expressly provided herein, the
parties agree that, for the term of this Agreement and for seven (7) years
thereafter, the receiving party shall not publish or otherwise disclose and
shall not use for any purpose any information furnished to it by the other party
hereto pursuant to this Agreement which if disclosed in tangible form is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature or if disclosed orally is indicated orally to be confidential
or proprietary by the party disclosing such information at the time of such
disclosure and is confirmed in writing as confidential or proprietary by the
disclosing party within a reasonable time after such disclosure (collectively,
"Confidential Information"). Notwithstanding the foregoing, Confidential
Information shall not include information that, in each case is demonstrated by
written documentation:
(a) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure hereunder;
(b) was generally available to the public or otherwise
part of the public domain at the time of its disclosure to the receiving party
hereunder;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving
party by a person other than a party or developed by the receiving party without
reference to any information or materials disclosed by the disclosing party.
17.2 Permitted Disclosures. Notwithstanding the provisions of Section
17.1 above, each party hereto may use and disclose the other party's
Confidential Information to the extent such disclosure is reasonably necessary
to exercise the rights granted to it under this Agreement (including without
limitation entering into and/or performing business or scientific relationships
with respect to Collaboration Products as permitted hereunder), in filing or
prosecuting patent applications, prosecuting or defending litigation, complying
with applicable governmental regulations, submitting information to tax or other
governmental authorities (including regulatory authorities), or conducting
clinical trials hereunder with respect to Collaboration Products, provided that
if a party is required to
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make any such disclosure of the other party's Confidential Information, to the
extent it may legally do so, it will give reasonable advance notice to the
latter party of such disclosure and, save to the extent inappropriate in the
case of patent applications or otherwise, will use its reasonable efforts to
secure confidential treatment of such Confidential Information prior to its
disclosure (whether through protective orders or otherwise). If the party whose
Confidential Information is to be disclosed has not filed a patent application
with respect to such Confidential Information, it may require the other party to
delay the proposed disclosure (to the extent the disclosing party may legally do
so), for up to ninety (90) days, to allow for the filing of such an application.
17.3 Clinical Data. Except as expressly permitted under Sections 7.2 and
17.2, and for publications or disclosures in accordance with Section 5.2,
neither party shall disclose to third parties preclinical data, clinical data or
regulatory filings, comprising Confidential Information of the other party that
is generated or developed in connection with the Development Program by or on
behalf of either CG or JT.
ARTICLE 18
INSURANCE; INDEMNIFICATION
18.1 Insurance. Each party shall secure and maintain in effect during
the term of this Agreement and for a period of five (5) years thereafter
insurance policy(ies) underwritten by a reputable insurance company and in a
form and having limits standard and customary for entities in the
biopharmaceutical industry for exposures related to the Collaboration Products.
Such insurance shall include general liability, clinical trial liability and
products liability coverage with respect to such party's performance of the
Development Program and commercialization of Collaboration Products hereunder
and shall name the CG Indemnitees or JT Indemnitees (each as defined below) as
additional insureds thereunder, as appropriate. Upon request by the other party
hereto, certificates of insurance evidencing the coverage required above shall
be provided to the other party.
18.2 Indemnification of CG. JT shall indemnify each of CG and its
Affiliates and the directors, officers, and employees of CG and such Affiliates
and the successors and assigns of any of the foregoing (the "CG Indemnitees"),
and hold each CG Indemnitee harmless from and against fifty percent (50%) of any
and all liabilities, damages, settlements, claims, actions, suits, penalties,
fines, costs or expenses (including, without limitation, reasonable attorneys'
fees and other expenses of litigation) incurred by any CG Indemnitee to the
extent not otherwise covered by insurance, arising from or occurring as a result
any claim, action, suit, or other proceeding brought by third parties against a
CG Indemnitee arising from or occurring as a result of (i) the exercise of the
rights granted to CG, or the performance of CG's responsibilities, under this
Agreement, including without limitation, product liability claims relating to
any Collaboration Products used, sold or otherwise
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distributed by CG, its Affiliates or Marketing Distributor or (ii) the exercise
or the practice of the rights or licenses granted to JT under this Agreement.
Notwithstanding the foregoing, JT shall have no obligation under this Section
18.2 with respect to liabilities, damages, settlements, claims, actions, suits,
penalties, fines, costs or expenses: (A) with respect to infringement claims
brought by third parties with respect to CG's manufacture or preparation of
Collaboration Products (including provision of Cell Processing Services) or the
conduct of the Development Program hereunder, which claims are subject to the
provisions of Section 14.4 above, or (B) to the extent the same is caused by the
gross negligence or willful tortious misconduct of a CG Indemnitee.
18.3 Indemnification of JT. CG shall indemnify each of JT and its
Affiliates and the directors, officers, and employees of JT and such Affiliates
and the successors and assigns of any of the foregoing (the "JT Indemnitees"),
and hold each JT Indemnitee harmless from and against fifty percent (50%) of any
and all liabilities, damages, settlements, claims, actions, suits, penalties,
fines, costs or expenses (including, without limitation, reasonable attorneys'
fees and other expenses of litigation) incurred by any JT Indemnitee to the
extent not otherwise covered by insurance, arising from or occurring as a result
of any claim, action, suit, or other proceeding brought by third parties against
a JT Indemnitee arising from or occurring as a result of (i) the exercise of the
rights granted to JT, or the performance of JT's responsibilities, under this
Agreement, including without limitation, product liability claims relating to
any Collaboration Products used, sold or otherwise distributed by JT, its
Affiliates or Marketing Distributor or (ii) the exercise or the practice of the
rights or licenses granted to CG under this Agreement. Notwithstanding the
foregoing, CG shall have no obligation under this Section 18.3 with respect to
liabilities, damages, settlements, claims, actions, suits, penalties, fines,
costs or expenses: (A) with respect to infringement claims brought by third
parties with respect to JT's manufacture or preparation of Collaboration
Products (including provision of Cell Processing Services) or the conduct of the
Development Program hereunder, which claims are subject to the provisions of
Section 14.4 above, or (B) to the extent the same is caused by the gross
negligence or willful tortious misconduct of a JT Indemnitee.
18.4 Procedure. A party (for purposes of this Section 18.4, the
"Indemnitee") that intends to claim indemnification under any provision of this
Agreement shall promptly notify the indemnifying party (the "Indemnitor") in
writing of any claim, action, suit, or other proceeding brought by third parties
in respect of which the Indemnitee or any of its Affiliates, or their directors,
officers, employees, successors or assigns intend to claim such indemnification
hereunder. As between the parties hereto the Indemnitee shall have the right to
control the defense and settlement of such claim, action, suit, or other
proceeding; provided, that the Indemnitor shall have the right to participate in
such defense or settlement with counsel of its own choosing at its expense.
Notwithstanding the foregoing, the indemnity agreement in this Article 18 shall
not apply to amounts paid in settlement of any loss, claim, damage, liability or
action if such settlement is effected without
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the consent of the Indemnitor, to the extent such consent is not withheld
unreasonably or delayed. The failure to deliver written notice to the Indemnitor
within a reasonable time after the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such Indemnitor
of any liability to the Indemnitee under this Article 18 but the omission so to
deliver written notice to the Indemnitor shall not relieve the Indemnitor of any
liability that it may have to any Indemnitee otherwise than under this Article
18. Without limiting the foregoing, the Indemnitee shall keep the Indemnitor
fully informed of the progress of any claim, action, suit, or other proceeding
for which it intends to claim indemnification under this Article 18.
ARTICLE 19
TERM AND TERMINATION
19.1 Term. This Agreement shall become effective as of the Effective
Date and, unless earlier terminated pursuant to the other provisions of this
Article 19, shall continue in full force and effect until the later to occur of
(i) such time as no Collaboration Product is being sold by or on behalf of CG,
JT or a third party jointly designated by CG and JT in accordance with Section
8.4 above; or (ii) the expiration of the last issued patent within the CG
Patents or JT Patents claiming the manufacture, use or sale of a Collaboration
Product hereunder.
19.2 Termination for Cause.
19.2.1 Failure to Pay. CG may terminate this Agreement in the
event JT fails to make any payment due under Article 6, within thirty (30) days
following receipt of written notice of such default. Any termination shall
become effective at the end of such thirty (30)-day period unless JT (or any
other party on its behalf) has cured any such default prior to the expiration of
the thirty (30)-day period.
19.2.2 Other Material Non-Performance/Misrepresentation. Other
than a failure to pay as set forth in Section 19.2.1 in the event of (i) a
party's default in any other material respect in the performance or observance
of any other material term, covenant or provision of this Agreement, or (ii) if
any representation by a party contained in this Agreement shall prove to have
been incorrect in any material respect when made, resulting in material adverse
consequences for the other party, (any such default or material incorrect
representation a "Material Non-Performance"), such Material Non-Performance
shall be remedied only as provided in Section 19.4.4(d) below.
19.3 Termination Upon Notice.
19.3.1 JT's Notice. JT may terminate this Agreement upon [*]
written notice to CG, provided that such notice is given after the earlier to
occur of [*]
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19.3.2 Product-by-Product. In addition after the Completion of
the [*] clinical trial with respect to a particular Collaboration Product, JT
may terminate this Agreement with respect to such Collaboration Product by
notifying CG that it desires to terminate this Agreement with respect to such
Collaboration Product, which termination shall be effective [*] after the date
of such notice; provided, however, if as a result of such a termination no
Collaboration Product would be in "product development" or for which a Market
Approval has been obtained in a Major Market Country under the Agreement, such
termination shall be deemed a termination of this Agreement under Section 19.3.1
above and be subject to the terms and conditions thereof. As used in this
Section 19.3.2, "product development" shall mean pre-Phase I and later clinical
development that begins with formal toxicological studies conducted in
accordance with Good Laboratory Practices (as then defined by the FDA) and
includes the conduct of preclinical studies, to produce data required for
inclusion in an IND for such Collaboration Product.
19.3.3 Inability to Sell. In the event that a party hereto
becomes subject to an Action (as defined in Section 14.3 above) (the "Subject
Party"), the other party (for purposes of this Section 19.3.3, the "Terminating
Party") may terminate this Agreement with respect to the Collaboration
Product(s) subject to such Action (provided that such Action is initiated after
the First Commercial Sale of such Collaboration Product(s)) with respect to one
or more countries, which shall include the country(ies) where such Action is
initiated (for purposes of this Section 19.3.3, the "Terminated Country(ies)"),
by providing six (6) months written notice to Subject Party within three (3)
months of the initiation of such Action so indicating the Terminating Party's
desire to so terminate. For purposes of the foregoing, if the Terminating Party
terminates with respect to: (i) the United States, then all of the countries
within North America shall be deemed Terminated Countries; or (ii) Japan, then
all of East Asia shall be deemed Terminated Countries. In such case,
notwithstanding Section 14.3 above, the Action shall be at the Subject Party's
expense; provided that the Subject Party may [*] to the Terminating Party (as
established in accordance with Section 19.4.4(b) below) and apply the [*] of any
cost, liability or expense (including amounts paid in settlement) incurred by
the Subject Party, as a result of such Action. Notwithstanding the foregoing,
the Subject Party agrees to withhold only that portion of such royalties as may
reasonably be necessary to reimburse amounts in accordance with this Section
19.3.3. For avoidance of doubt, if the Subject Party (or its Affiliates or
Marketing Distributor) is required to pay amounts to a third party to make
and/or sell the Collaboration Product subject to such Action as a result of a
final judgment or settlement of such Action, [*] to the Terminating Party (as
established in accordance with Section 19.4.4(b) below) hereunder in relation to
such Collaboration Product; provided that [*] Alternatively, with the other
party's consent, which will not be withheld or delayed unnecessarily, the
Subject Party may terminate the Agreement on a country-by-country basis with
respect to the Collaboration Product(s) subject to such Action.
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19.3.4 Launch. If, at the time the first MAA is filed by a
Commercializing Party (as defined in Section 9.2.1 above) in a country for a
particular Collaboration Product, the other party has a reasonable basis for
concluding that such Collaboration Product may be the [*] in such country, such
other party shall promptly notify the Commercializing Party stating the basis
for such conclusion. In such event the following provisions shall apply:
(a) Measures to Abate. First, the parties hereto shall
promptly convene to address such potential infringement risk, including the
possibility of acquiring licenses or other rights to such patents to abate such
risk. Subject to Section 9.8, the Commercializing Party shall implement all
reasonable measures mutually established by the parties to manage such
infringement risk; and if the parties are unable to agree upon the appropriate
measures and if the Chief Executive Officer of CG and head of JT's
pharmaceutical business are unable to agree on how to manage such risk pursuant
to the procedure set forth in Section 20.1 below, the Commercializing Party's
launch of the Collaboration Product in such Country shall be conditioned upon
its implementing any reasonable suggestion made by the other party's senior
executive for managing such infringement risk.
(b) Termination. Second, the other party under Section
19.3.4 above (for purposes of this Section 19.3.4(b), the "Terminating Party")
may terminate this Agreement with respect to such Collaboration Product in such
country (for purposes of this Section 19.3.4(b) the "Terminated Country"), by
providing written notice to the Commercializing Party during the six (6)-month
period following such MAA filing for such Collaboration Product in the
Terminated Country. For purposes of the foregoing, if the Terminating Party
terminates this Agreement with respect to: (i) the United States, then all of
the countries within North America shall be deemed Terminated Countries; or (ii)
Japan, then all of the countries within East Asia shall be deemed Terminated
Countries. In the case of a termination pursuant to this Section 19.3.4, the
Commercializing Party shall indemnify each of the Terminating Party and its
Affiliates and the directors, officers, and employees of the Terminating Party
and such Affiliates and the successors and assigns of any of the foregoing (for
purposes of this Section 19.3.4 each, an "Indemnified Party"), and hold each
Indemnified Party harmless from and against any and all liabilities, damages,
settlements, claims, actions, suits, penalties, fines, costs or expenses
(including, without limitation, reasonable attorneys' fees and other expenses of
litigation) incurred by any Indemnified Party as a result of any claim, action,
suit, or other proceeding brought by third parties against an Indemnified Party
arising from or occurring as a result of the manufacture, use or sale of such
terminated Collaboration Product in the Terminated Countries. The
Commercializing Party's obligation to indemnify Indemnified Parties as set forth
in the preceding sentence shall in each case be subject to procedures set forth
in Section 18.4 above; provided that notwithstanding Section 18.4 the
Indemnified Party shall provide the Commercializing Party or its designee with
sole control of the defense and/or settlement of such
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claim, and provided further that the Indemnified Party may participate in such
claim with counsel of its own choice at its own expense. It is understood that
the Terminating Party shall receive royalties with respect to the terminated
product in the Terminated Countries to the extent provided in Section 19.4.4(c)
below.
19.3.5 Mutual Agreement. In addition, the parties may mutually
agree to terminate this Agreement in its entirety or on a Collaboration
Product-by-Collaboration Product basis for reasons including, without
limitation, FDA or other governmental orders or instructions or as a result of
serious adverse events.
19.4 Effect of Termination.
19.4.1 Accrued Obligations. Termination of this Agreement for any
reason shall not release either party hereto from any liability which, at the
time of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination nor preclude either party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.
19.4.2 Wind-Down Expenses.
(a) For Breach; By Notice. In the event of a termination
of this Agreement pursuant to Section 19.2.1 or 19.3.1 the following provisions
shall apply:
(i) Payments to CG. JT shall pay to CG the following:
(A) an amount equal to [*] of the amounts budgeted to be incurred by CG in
accordance with the then-current Development Plan and Budget (or in the case of
Manufacturing Facilities, plans for such Manufacturing Facilities approved by
the Development Committee) over the [*] period after the notice of termination
under Section 19.3.1, or after the effective date of termination under Section
19.2.1 (in each case the "Post-Termination Period") related to (I) Manufacturing
Facilities (including amounts for construction, management, upkeep or leases
therefor) and (II) clinical trials for Collaboration Products ongoing during the
Post-Termination Period (including costs of CG FTEs, outside clinical staff, and
Production Costs of clinical materials for such clinical trials); (B) an amount
equal to [*] of all non-cancelable commitments incurred by CG hereunder during
the entire period of such commitment, to the extent such commitments have been
approved by the Development Committee (excluding commitments included in clause
(A) above); and (C) an amount equal to [*] of the amount budgeted to be incurred
by CG in accordance with the then-current Development Plan and Budget over the
[*] period after the notice of termination under Section 19.3.1, or after the
effective date of termination under Section 19.2.1 related to matters under the
Development Program not included in clauses (A) or (B) above (including wind-up
of
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Completed clinical trials and research activities). JT shall make the payments
to CG under this Section 19.4.2(a)(i) within forty-five (45) days after the
notice of termination is given hereunder, and upon such payment, JT shall have
no further obligation under Section 6.1 above. In the event there are less than
[*] remaining under the Development Plan and Budget in effect on the date the
notice of termination is given, such Development Plan and Budget shall be deemed
extended for the remaining [*] of the Post-Termination Period at the same
average [*] amounts as are in the remaining term of the then-current Development
Plan and Budget. Without limiting the foregoing, it is understood that CG shall
have no obligation under Section 6.1 to reimburse or credit Development Costs
incurred by JT after the date of such a notice of termination. It is further
understood and agreed that if this Agreement is terminated pursuant to an event
described in this Section 19.4.2(a), CG shall have the right to use amounts
received under this Section 19.4.2(a)(i) and any other amounts received prior to
the effective date of such termination as CG deems fit in its sole discretion,
and shall have no further obligation with respect to such amounts.
Notwithstanding the foregoing, within ninety (90) days after the expiration of
the Post-Termination Period, CG shall provide JT an accounting of the amounts
incurred by CG during the Post-Termination Period related to the subject matter
of clauses (A) through (C) above; and to the extent the amount paid by JT
pursuant to clauses (A) through (C) of this Section 19.4.2(a)(i) above (aa)
exceeds [*] of such amount incurred by CG with respect thereto plus the Reserve
Amount, CG shall refund to JT such excess amount or (bb) is deficient of [*] of
such amount incurred by CG with respect thereto plus the Reserve Amount, JT
shall pay to CG such shortfall. Together with such accounting, CG shall provide
JT the calculation of the Reserve Amount, if any, and reasonable supporting
documentation therefor. In addition, within ninety (90) days after no further
non-cancelable commitments exist under clause (B) above, CG shall provide JT an
accounting of the amounts incurred by CG after the expiration of the
Post-Termination Period with respect to non-cancelable commitments under clause
(B) above, and to the extent that the Reserve Amount exceeds (cc) exceeds [*] of
such amount incurred by CG with respect thereto, CG shall refund to JT such
excess amount or (dd) is deficient of [*] of such amount incurred by CG with
respect thereto, JT shall pay to CG such shortfall. For purposes of the
foregoing, it is understood that with respect to CG FTEs the FTE rate therefor
shall be the FTE rate in effect as of the date of notice of termination for a
termination event described in this Section 19.4.2(a). For purposes of this
Section 19.4.2(a)(i), a clinical trial shall be deemed to be "ongoing during the
Post-Termination Period" if the Development Committee had made the decision to
undertake such clinical trial but such clinical trial was not Completed as of
the beginning of the Post-Termination Period.
(ii) Manufacturing Royalty to JT. CG shall pay to JT
a royalty on sales of commercial materials produced in a Manufacturing Facility
equal to [*] of the manufacturing costs of such commercial materials (the
"Manufacturing Royalty") until CG has reimbursed all Unrecouped Investments in
such Manufacturing Facility; provided that the
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Manufacturing Royalty payable to JT with respect to commercial materials
manufactured at a particular Manufacturing Facility during any one (1)-year
period shall in no case exceed [*] of the Unrecouped Investment in such
Manufacturing Facility. For purposes of this Section 19.4.2(a)(ii), "Unrecouped
Investment" shall mean, with respect to a Manufacturing Facility, [*] of the
amounts incurred by CG with respect to such Manufacturing Facility under the
Development Program, to the extent such amounts were specifically identified in
the Development Program Plan and Budget as capital expenditures for the
Manufacturing Facility and were reimbursed by JT hereunder (including the
amounts reimbursed under 19.4.2(a)(i)(A)(I)), less the depreciation expense for
such Manufacturing Facility not included in the Production Costs of
Collaboration Products produced under this Agreement pursuant to Section
1.50(ii) for clinical or commercial uses by, directly or indirectly, either CG
or JT. It is understood and agreed that once any Unrecouped Investment have been
reimbursed through payment of the Manufacturing Royalty outlined above, such
reimbursed amount shall cease thereafter to be Unrecouped Investment for all
purposes of this Section 19.4.2(a)(ii).
(b) Product-by-Product.
(i) Product-by-Product (pre-Phase III). In the event
of a termination of development of any particular Collaboration Product under
this Agreement pursuant to Section 19.3.2, 19.3.3 or 19.3.4, which in each case
the notice of termination is given prior to the Development Committee's decision
to undertake the first Phase III clinical trial with respect to such
Collaboration Product, the terminating party shall reimburse the other party
(for purposes of this Section 19.4.2(b)(i), the "Other Party") for [*] of all
obligations and commitments incurred by the Other Party to third parties in
accordance with the Development Plan and Budget with respect to such product
prior to such notice of termination, and [*] of all FTE Expenses budgeted for
the Other Party for such product over the [*] following the date of such notice
of termination, to the extent that such FTEs are not reassigned to other work to
be performed under the Development Program or to programs funded or reimbursed
by a third party at [*] or higher. Upon such payment, the terminating party
shall have no further obligation under Section 6.1 with respect to such product.
If there are not then remaining [*] under the Development Plan and Budget, the
same shall be deemed extended at the same number of FTEs in effect at the date
of the notice of termination, to the extent that such FTEs are not reassigned to
other work to be performed under the Development Program or to programs funded
or reimbursed by a third party at [*] or higher. It is further understood and
agreed that the Other Party shall have the right to use amounts received under
this Section 19.4.2(b)(i) as it deems fit in its sole discretion, and shall have
no further obligation with respect to such amounts. For purposes of this Section
19.4.2(b)(i), "FTE Expenses" shall mean the number of the Other Party's FTEs
assigned to the Development Program for such terminated product under the
Development Plan and Budget in effect at the date of the notice of termination,
multiplied by the
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FTE rate per month then in effect under the Development Plan and Budget.
Notwithstanding the foregoing, if within [*] of a termination of a Collaboration
Product under this Agreement prior to the Development Committee's decision to
undertake the first Phase III clinical trial with respect to such Collaboration
Product, this Agreement is terminated pursuant to Section 19.2.1 or 19.3.1, the
termination of such Collaboration Product shall be deemed to have occurred after
the Development Committee's decision to undertake a Phase III for such
Collaboration Product. Accordingly, in such case, JT shall pay to CG the amount
that would have been due under Section 19.4.2(b)(ii) for such Collaboration
Product within forty-five (45) days after JT's notice of termination under
Section 19.3.1, provided that amounts paid to CG with respect to such
Collaboration Product pursuant to this Section 19.4.2(b)(i) shall be credited
against the amounts so payable under Section 19.4.2(b)(ii).
(ii) Product-by-Product (Other). In the event of a
termination of development of any particular Collaboration Product under this
Agreement pursuant to Section 19.3.2, 19.3.3 or 19.3.4, which in each case the
notice of termination is given after the Development Committee's decision to
undertake the first Phase III clinical trial with respect to such Collaboration
Product (for purposes of this Section 19.4.2(b)(ii), the "Terminated Product"),
JT shall pay to CG the following: (A) an amount equal to [*] of the amounts
budgeted to be incurred by CG in accordance with the then-current Development
Plan and Budget for such Terminated Product (or in the case of Manufacturing
Facilities for such Terminated Product, plans for such Manufacturing Facilities
approved by the Development Committee) over the [*] period after the applicable
notice of termination (for purposes of this Section 19.4.2(b)(ii), the
"Post-Termination Period") related to (I) Manufacturing Facilities allocable to
such Terminated Product (including amounts for construction, management, upkeep
or leases therefor) and (II) clinical trials for such Terminated Product ongoing
during the Post-Termination Period (including costs of CG FTEs, outside clinical
staff, and Production Costs of clinical materials for such clinical trials); (B)
an amount equal to [*] of all non-cancelable commitments incurred by CG
hereunder with respect to such Terminated Product during the entire period of
such commitment, to the extent such commitments have been approved by the
Development Committee (excluding commitments included in clause (A) above); and
(C) an amount equal to [*] of the amount budgeted to be incurred by CG with
respect to the Terminated Product in accordance with the then-current
Development Plan and Budget over the [*] period after the applicable notice of
termination related to matters under the Development Program for such Terminated
Product not included in clauses (A) or (B) above (including wind-up of Completed
clinical trials and research activities with respect to such Terminated
Product). JT shall make the payments to CG under this Section 19.4.2(b)(ii)
within forty-five (45) days after the applicable notice of termination is given,
and upon such payment, JT shall have no further obligation under Section 6.1
above with respect to such Terminated Product. In the event there are less than
[*] remaining under the Development Plan and Budget in effect on the date the
notice of termination is
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given, such Development Plan and Budget shall be deemed extended for the
remaining [*] of the Post-Termination Period at the same [*] allocated to such
Terminated Product as are in the remaining term of the then-current Development
Plan and Budget. Without limiting the foregoing, it is understood that CG shall
have no obligation under Section 6.1 to reimburse or credit Development Costs
incurred by JT with respect to such Terminated Product after the date of such a
notice of termination. It is further understood and agreed that if this
Agreement is terminated pursuant to an event described in this Section
19.4.2(b)(ii), CG shall have the right to use amounts received under this
Section 19.4.2(b)(ii) as CG deems fit in its sole discretion, and shall have no
further obligation with respect to such amounts. Notwithstanding the foregoing,
within ninety (90) days after the expiration of the Post-Termination Period, CG
shall provide JT an accounting of the amounts incurred by CG during the
Post-Termination Period related to the subject matter of clauses (A) through (C)
above; and to the extent the amount paid by JT pursuant to clauses (A) through
(C) of this Section 19.4.2(b)(ii) above (aa) exceeds [*] of such amount incurred
by CG with respect thereto plus the Reserve Amount, CG shall refund to JT such
excess amount or (bb) is deficient of [*] of such amount incurred by CG with
respect thereto plus the Reserve Amount, JT shall pay to CG such shortfall.
Together with such accounting, CG shall provide JT the calculation of the
Reserve Amount, if any, and reasonable supporting documentation therefor. In
addition, within ninety (90) days after no further non-cancelable commitments
exist under clause (B) above, CG shall provide JT an accounting of the amounts
incurred by CG after the expiration of the Post-Termination Period with respect
to non-cancelable commitments under clause (B) above, and to the extent that the
Reserve Amount exceeds (cc) exceeds [*] of such amount incurred by CG with
respect thereto, CG shall refund to JT such excess amount or (dd) is deficient
of [*] of such amount incurred by CG with respect thereto, JT shall pay to CG
such shortfall. For purposes of the foregoing, it is understood that with
respect to CG FTEs the FTE rate therefor shall be the FTE rate in effect as of
the date of notice of termination for a termination event described in this
Section 19.4.2(b)(ii). For purposes of this Section 19.4.2(b)(ii), a clinical
trial shall be deemed to be "ongoing during the Post-Termination Period" if the
Development Committee had made the decision to undertake such clinical trial but
such clinical trial was not Completed as of the beginning of the
Post-Termination Period.
19.4.3 [*] and Event Payments. Notwithstanding anything herein to
the contrary, JT shall not be obligated to pay any payment otherwise payable
under Section 6.2.2 as a result of occurrence of an Event or under Section 6.3
as the result of occurrence of the [*] or Event occurs after (i) a termination
notice is properly given by JT pursuant to Section 19.3.1 above or (ii) a
termination pursuant to Section 19.3.5 above. Similarly, in the event that JT
terminates this Agreement with respect to a particular Collaboration Product in
accordance with Section 19.3.2 above or terminates this Agreement with respect
to a particular Collaboration Product on a world-wide basis in accordance with
Section 19.3.3 or 19.3.4, JT shall not be obligated to pay any payment under
Section 6.2.2 above as the result of occurrence of an Event with respect to such
terminated
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Collaboration Product if the Event occurs more than thirty (30) days after a
notice of such termination is properly given by JT pursuant to Section 19.3.2.
19.4.4 Survival. Articles 1, 17, 18, 19, 20 and 21 and Sections
10.5, 14.1, 14.2.1 and 14.2.2 shall survive the expiration and any termination
of this Agreement; and Section 7.1, and the licenses under Article 13 with
respect to CG Technical Information and JT Technical Information (but not CG
Patent or JT Patents) shall survive the expiration but not an earlier
termination (except as provided below) of this Agreement. Except as otherwise
provided in this Section 19.4.4 below, for a period of [*] after the
termination, but not expiration, of this Agreement for any reason, JT shall not
disclose Data to any third party. In addition, the following provisions shall
survive termination of this Agreement in the events set forth below:
(a) Certain Terminations. In the event of a termination of
this Agreement pursuant to Section 19.2.1 or 19.3.1: (i) JT shall assign or
cause to be assigned to CG (or if not so assignable, JT shall take all
reasonable actions to make available to CG) all regulatory filings and
registrations (including MAAs and Marketing Approvals) with respect to the
Collaboration Products that have been filed or made by or under authority of JT,
in each case such assignment (or availability) shall be made within thirty (30)
days after the notice of termination; (ii) without limiting any other provisions
of this Section 19.4.4, CG's rights and JT's obligations (but not JT's rights or
CG's obligations) under Sections 5.1.1, 7.1, 7.2 and 7.3 shall survive; (iii) CG
shall have an irrevocable, exclusive, worldwide license, with the right to grant
and authorize sublicenses, under the JT Technology and any trademarks owned by
JT and used by JT in association with the Collaboration Products (excluding the
Japan Tobacco trade name) to make, use, sell, import and otherwise exploit
products within the Field (as defined in Section 1.24, without regard to any
modifications pursuant to Section 6.1.6(b)(ii)(A), 6.5 or 6.6 above); (iv) CG's
obligation to reimburse JT for amounts under Section 9.8 shall survive with
respect to Third Party Agreements existing as of the notice of termination,
provided that CG shall reimburse JT [*] of amounts payable to third parties
thereunder as a result of CG's exercise of the license granted under clause
(iii); and (v) without limiting the foregoing, JT's obligations under Section
4.6 above shall continue for a period of two (2) years after the effective date
of such termination, provided that JT shall have the right to complete human
clinical trials then being conducted by JT that were Initiated under the
Development Program but not completed during the term of the Agreement. The
license granted under clause (iii) shall include the right to enforce
proprietary rights included within the JT Technology to the extent necessary for
the manufacture, use or sale of a product in the Field, and JT shall cooperate
fully with CG in connection with such enforcement, including without limitation
by joining as a nominal party plaintiff if such joining is necessary for
standing purposes, and otherwise in enabling CG to commercialize (directly or
through a third party) products within the Field. From and after the date of a
notice of termination in the events described in this Section 19.4.4(a), CG
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shall have no further obligations under this Agreement beyond those obligations
that survive termination in such events as specified in this Section 19.4.4. In
the event of a termination described in this Section 19.4.4(a), notwithstanding
Section 17.3 above, CG may use and distribute without limitations the data and
items described therein (including without limitation, the Data, but without
limiting any other rights expressly granted to CG in this Agreement with respect
to the Data.)
(b) Product-by-Product. In the event of a termination by
JT of this Agreement for any particular Collaboration Product pursuant to
Section 19.3.2 (for purposes of this Section 19.4.4(b), the "Terminated
Product"), the Terminated Product shall cease to be a Collaboration Product for
purposes of this Agreement. In addition, (i) JT shall assign or cause to be
assigned to CG (or if not so assignable, JT shall take all reasonable actions to
make available to CG) all regulatory filings and registrations (including MAAs
and Marketing Approvals) with respect to the Terminated Product that have been
made by or under authority of JT, in each case such assignment (or availability)
shall be made within thirty (30) days after the applicable notice of
termination; (ii) without limiting any other provisions of this Section
19.4.4(b), JT's rights and CG's obligations (but not JT's obligations or CG's
rights) under Sections 5.1.1, 7.1, 7.2 and 7.3 shall terminate; (iii) CG shall
have an irrevocable, exclusive, worldwide license, with the right to grant and
authorize sublicenses, under the JT Technology and any trademarks owned by JT
used in association with the Terminated Product (excluding JT's trade name) to
make, use, sell, import and otherwise exploit the Terminated Product and/or
modifications thereof; (iv) CG's obligation to reimburse JT for amounts under
Section 9.8 shall survive with respect to the further commercialization of the
Terminated Product, for Third Party Agreements existing as of the notice of
termination, provided that CG shall reimburse JT [*] of amounts payable to third
parties thereunder as a result of CG's exercise of the license granted under
clause (iii); and (v) CG's obligations under Section 4.6 above shall terminate
with respect to the Terminated Product and any modifications thereto (it being
therefore understood that CG shall have the right (itself or together with or
through one or more third parties) to research, develop, sell, market or
distribute the Terminated Product and/or modifications thereto). The license
granted under clause (iii) shall include the right to enforce proprietary rights
included within the JT Technology to the extent necessary for the manufacture,
use or sale of the Terminated Product in the Field, and JT shall cooperate fully
with CG in connection with such enforcement, including without limitation by
joining as a nominal party plaintiff if such joining is necessary for standing
purposes, and otherwise in enabling CG to commercialize (directly or through
Marketing Distributor) the Terminated Product within the Field. From and after
the date of notice of such termination described in this Section 19.4.4(b), CG
shall have no further obligation under this Agreement with respect to the
Terminated Product (it being understood that, without limitation, CG will have
no further obligation to reimburse or credit Development Costs or Operating
Expenses incurred by JT with respect to the Terminated Product). In any event of
termination described in this Section 19.4.4(b),
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notwithstanding Section 17.3 above, CG may use and disclose without limitation
the data and items described therein (including without limitation, the Data,
but without limiting any other rights expressly granted to CG in this Agreement
with respect to the Data) for purposes of commercializing the Terminated
Products.
(c) Launch; Inability to Sell. In the event of a
termination of this Agreement pursuant to Section 19.3.3 or 19.3.4 for any
particular Collaboration Product in a Terminated Country (as defined in Section
19.3.3 or 19.3.4, as applicable) (for purposes of this Section 19.4.4(c), the
"Terminated Product"), the Terminated Product shall cease to be a Collaboration
Product in the Terminated Countries for purposes of this Agreement. In addition,
(i) the Terminating Party (as defined in Section 19.3.3 or 19.3.4, as
applicable) shall assign or cause to be assigned to the other party (the
"Non-Terminating Party") (or if not so assignable, the Terminating Party shall
take all reasonable actions to make available to the Non-Terminating party) all
regulatory filings and registrations (including MAAs and Marketing Approvals)
with respect to the Terminated Product in the Terminated Countries that have
been made by or under authority of the Terminating Party, in each case such
assignment (or availability) shall be made within thirty (30) days after the
applicable notice of termination; (ii) the Non-Terminating Party shall have an
irrevocable, exclusive license, with the right to grant and authorize
sublicenses, under the Terminating Party's Technology (i.e., the JT Technology
or the CG Technology, as the case may be) and any trademarks owned by
Terminating Party used in association with the Terminated Product in the
Terminated Countries (excluding the Terminating Party's trade name) to make,
use, sell, import and otherwise exploit the Terminated Product and/or
modifications thereof in the Terminated Countries; (iii) the Non-Terminating
Party's obligation to reimburse the Terminating Party for amounts under Section
9.8 shall survive with respect to the further commercialization of the
Terminated Product in the Terminated Countries, for Third Party Agreements
existing as of the notice of termination, provided that the Non-Terminating
Party shall reimburse the Terminating Party [*] of amounts payable to third
parties thereunder as a result of the Non-Terminating Party's exercise of the
license granted under clause (ii) in the Terminated Countries; and (iv) the
Non-Terminating Party's obligations under Section 4.6 above shall terminate with
respect to the Terminated Product and any modifications thereto in the
Terminated Countries (it being therefore understood that the Non-Terminating
Party shall have the right (itself or together with or through one or more third
parties) to research, develop, sell, market or distribute the Terminated Product
and/or modifications thereto in the Terminated Countries). The license granted
under clause (ii) shall include the right to enforce proprietary rights included
within the Terminating Party's Technology to the extent necessary for the
manufacture, use or sale of the Terminated Product in the Field in the
Terminated Countries, and the Terminating Party shall cooperate fully with the
Non-Terminating Party in connection with such enforcement, including without
limitation by joining as a nominal party plaintiff if such joining is necessary
for standing purposes, and otherwise in enabling the Non-
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Terminating Party to commercialize (directly or through Marketing Distributor)
the Terminated Product within the Field in the Terminated Countries. In
addition, with respect to a termination under Section 19.3.3 or 19.3.4, the
Non-Terminating Party shall pay to the Terminating Party a royalty on the
Non-Terminating Party's Net Sales of the Terminated Product(s) for use in the
Field (as defined in Section 1.24, without regard to any modifications pursuant
to Section 6.1.6(b)(ii)(A), 6.5 or 6.6 above) in the Terminated Countries; such
royalty shall be negotiated in good faith based upon the extent to which the
Terminating Party's Patents (i.e., the JT Patents or the CG Patents, as the case
may be) cover such products subject to such royalty, the extent to which the
Terminating Party's payments under this Agreement directly benefited the
Terminated Product and the extent to which such royalty would increase the total
royalties payable to the Terminating Party and third parties with respect to the
Terminated Product to the point that the Non-Terminating Party would not be able
to commercialize the Terminated Product (itself or through a third party) at a
reasonable rate of return. It is understood, however, that any such royalty will
take into account that the Non-Terminating Party and third parties acting under
its authority may bear additional risk that the Terminating Party was unwilling
to bear with respect to the Terminated Products. If the Terminating Party and
Non-Terminating Party are unable to agree on the amount of such royalty, it
shall be determined in accordance with Section 20.3.1 below. In any event of
termination described in this Section 19.4.4(c), notwithstanding Section 17.3
above, the Non-Terminating Party may use and disclose without limitation the
data and items described therein (including without limitation, the Data, but
without limiting any other rights expressly granted to the Non-Terminating Party
in this Agreement with respect to the Data) for purposes of commercializing the
Terminated Products in the Terminated Countries in the Field.
(d) Material Non-Performance. In the event of any Material
Non-Performance by a party, the other party shall, without reasonable delay
following discovery of such Material Non-Performance, notify the defaulting
party in writing, and the parties shall consult with each other in good faith to
endeavor to agree upon the most effective means to cure such Material
Non-Performance and, if necessary, to effect a remedy in favor of the
non-defaulting party for the consequences of such Material Non-Performance by
the defaulting party (collectively, the "Resolution"). In the event (i) the
parties are unable to agree upon Resolution, or (ii) the defaulting party, in
the exercise of reasonable diligence shall have been unable to remedy such
Material Non-Performance, then in either such event the remedy of the
non-defaulting party with respect to the Material Non-Performance by the
defaulting party shall be determined by arbitration pursuant to Section 20.2
hereof, and the arbitrators shall be authorized to fashion such remedy,
including equitable relief, which may include termination of this Agreement in
whole or in part, as the arbitrators shall determine appropriate, except that
termination of this Agreement in whole shall only be the remedy of last resort.
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ARTICLE 20
DISPUTE RESOLUTION
20.1 Disputes. If the Development Committee, or parties, are unable to
resolve any dispute between them arising out of this Agreement, either party
may, by written notice to the other, have such dispute referred to the Chief
Executive Officer of CG and the head of JT's pharmaceutical business, for
attempted resolution by good faith negotiations within thirty (30) days after
such notice is received. Unless otherwise mutually agreed, the negotiations
between the designated officers should be conducted by telephone, with three (3)
days and times within the period stated above offered by the designated officer
of JT to the designated officer of CG for consideration.
20.2 Full Arbitration. Except as otherwise expressly set forth in
Section 20.3 below, any dispute, controversy or claim arising out of or relating
to the validity, construction, enforceability or performance of this Agreement,
including disputes relating to alleged breach or termination of this Agreement
shall be settled by binding arbitration in the manner described in this Section
20.2. The arbitration shall be conducted pursuant to the Commercial Rules and
Supplementary Procedures for Large, Complex Disputes of the American Arbitration
Association then in effect. Notwithstanding those rules, the following
provisions shall apply to the arbitration hereunder:
20.2.1 Arbitrators. The arbitration shall be conducted by a
single arbitrator; provided that at the request of either party, the arbitration
shall be conducted by a panel of three (3) arbitrators, with one (1) arbitrator
chosen by each of CG and JT and the third appointed by the other two (2)
arbitrators. If the parties are unable to agree upon a single arbitrator, or the
third arbitrator in case of a panel of three (3), such single or third
arbitrator (as the case may be) shall be appointed in accordance with the rules
of the American Arbitration Association. In any event, the arbitrator or
arbitrators selected in accordance with this Section 20.2.1 are referred to
herein as the "Panel" and shall be comprised of independent experts in worldwide
business development in the biotechnology industry, unless otherwise agreed.
20.2.2 Proceedings. Except as otherwise provided herein, the
parties and the arbitrators shall use their best efforts to complete the
arbitration within one (1) year after the appointment of the Panel under Section
20.2.1 above, unless a party can demonstrate to the Panel that the complexity of
the issues or other reasons warrant the extension of one or more of the time
tables. In such case, the Panel may extend such time table as reasonably
required. The Panel shall, in rendering its decision, apply the substantive law
of the State of California, without regard to its conflicts of laws provisions,
except that the interpretation of and enforcement of this Article 20 shall be
governed by the U.S. Federal Arbitration Act. The proceeding shall be conducted
in English and shall take place in New York, New York. All pleadings and written
evidence shall be in the English language. Any written evidence in a language
other than English shall be submitted in English
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translation accompanied by the original or true copy thereof. The fees of the
Panel shall be paid by the losing party which party shall be designated by the
Panel. If the Panel is unable to designate a losing party, it shall so state and
the fees shall be split equally between the parties. Each party shall bear the
costs of its own attorneys' and experts' fees; provided that the Panel may in
its discretion award the prevailing party all or part of the costs and expenses
incurred by the prevailing party in connection with the arbitration proceeding.
Neither party shall initiate an arbitration hereunder unless it has attempted to
resolve the matter in accordance with Section 20.1 above.
20.3 Short Form Arbitration.
20.3.1 Development Plans; Royalties; Certain Other. If the
parties do not agree upon (a) the Development Plan and Budget for any calendar
year in accordance with Section 3.1 above, or (b) whether certain intellectual
property should be applied to Collaboration Products pursuant to Section 9.8.2,
or (c) the amount of royalty under Section 19.4.4 (c) above, then such matters
in issue shall be determined by binding arbitration conducted pursuant to this
Section 20.3 by one (1) arbitrator. In such arbitration, the arbitrator shall be
an independent expert (including in the area of the dispute) in worldwide
business development in the biotechnology industry mutually acceptable to the
parties. If the parties are unable to agree on an arbitrator, the arbitrator
shall be an independent expert as described in the preceding sentence selected
by the chief executive of the New York office of the American Arbitration
Association. With respect to arbitration related to clause (a) above, each party
to the arbitration shall prepare a written report setting forth its position
with respect to the substance of the Development Plan and Budget for the
upcoming year. The arbitrator shall select one of the requested positions as his
decision, and shall not have authority to render any substantive decision other
than to so select the position of either JT or CG; provided, however, that in no
event shall any Development Plan and Budget established under this Section 20.3
exceed the maximum amounts applicable under Section 6.1.6 above. The costs of
such arbitration shall be shared equally by the parties, and each party shall
bear its own expenses in connection with such arbitration. Any such arbitration
shall be completed within thirty (30) days following a request by any party for
such arbitration.
20.3.2 Field. Subject to Section 20.1 above, if (i) after the
Full Funding Term JT disputes CG's right to develop or otherwise commercialize a
product for any Target excluded from the Field pursuant to Section 6.1.6(b)(ii)
above or (ii) JT disputes CG's right to develop or otherwise commercialize a
product for metastatic renal cell carcinomas or non-small cell lung tumors or
[*] as a result of operation of Section 6.5 or 6.6, as applicable or (iii) the
Terminating Party (as defined in Section 19.4.4(b) or (c), as applicable)
disputes the Non-Terminating Party's (as defined in Section 19.4.4(b) or (c), as
applicable) right to develop or otherwise commercialize a Terminated Product
pursuant to Section 19.4.4(b) or (c), JT or the Terminating Party, as applicable
shall initiate an arbitration proceeding under this Section 20.3.2 below within
sixty (60) days of its receipt of
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notice from the other party that such other party intends to develop or
otherwise commercialize a product for such Target or such Terminated Product. If
JT or the Terminating Party, as applicable does not initiate such arbitration
within such sixty (60)-day period it shall have no further right to dispute the
other party's right to develop and commercialize products for such Target or
such Terminated Product. Any such dispute shall be finally settled by binding
arbitration in New York, New York under the Licensing Rules of American
Arbitration Association by a single arbitrator appointed in accordance with such
rules and the sole question before the arbitrator shall be whether the disputed
Target is within the Field or the product is within the definition of Terminated
Product. The arbitrator shall be an independent expert in the area of worldwide
business development in the biotechnology industry. THE FOREGOING REMEDY SHALL
BE JT'S OR THE TERMINATING PARTY'S, AS APPLICABLE, SOLE AND EXCLUSIVE REMEDY
WITH RESPECT TO ANY DISPUTE RELATING TO THE SCOPE OF THE FIELD UNDER SECTION
6.1.6(b), 6.5 OR 6.6 OR WHETHER A PARTICULAR PRODUCT IS WITHIN THE DEFINITION OF
TERMINATED PRODUCT (as defined in Section 19.4.4(b) or (c)).
ARTICLE 21
MISCELLANEOUS
21.1 Governing Law. This Agreement and any dispute arising from the
performance or breach hereof shall be governed by and construed and enforced in
accordance with, the laws of the State of California, without reference to
conflicts of laws principles or the U.N. Convention on the Sale of Goods.
21.2 Force Majeure. Nonperformance of any party (except for payment of
amounts due hereunder) shall be excused to the extent that performance is
rendered impossible by strike, fire, earthquake, flood, governmental acts or
orders or restrictions, or any other reason, including failure of suppliers,
where failure to perform is beyond the reasonable control of the nonperforming
party. In such event CG or JT, as the case may be, shall promptly notify the
other party of such inability and of the period for which such inability is
anticipated to continue. Without limiting the foregoing, the party subject to
such inability shall use reasonable efforts to minimize the duration of any
force majeure event.
21.3 No Implied Waivers; Rights Cumulative. No failure on the part of CG
or JT to exercise and no delay in exercising any right under this Agreement, or
provided by statute or at law or in equity or otherwise, shall impair, prejudice
or constitute a waiver of any such right, nor shall any partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right.
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21.4 Independent Contractors. Nothing contained in this Agreement is
intended implicitly, or is to be construed, to constitute CG or JT as partners
in the legal sense. No party hereto shall have any express or implied right or
authority to assume or create any obligations on behalf of or in the name of any
other party or to bind any other party to any contract, agreement or undertaking
with any third party.
21.5 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by registered or
certified mail, return receipt requested, postage prepaid; facsimile
transmission (receipt verified); or express courier service (signature
required), in each case to the respective address or fax number specified below,
or such other address or fax number as may be specified in writing to the other
parties hereto:
JT: Japan Tobacco Inc.
JT Building
2-1 Toranomon 2-Chome
Minato-ku
Tokyo 105-8422
Japan
Attn:Vice President
Pharmaceutical Business Development
Fax:011-81-3-5572-1449
with copy to: Gilbert, Segall and Young LLP
430 Park Avenue
New York, New York 10022-3592
U.S.A.
Attn:Neal N. Beaton, Esq.
Fax:(212) 644-4051
CG:Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404
U.S.A.
Attn:President
Fax:(650) 358-0230
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with a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
U.S.A.
Attn:Kenneth A. Clark, Esq.
Fax:(650) 493-6811
21.6 Assignment. This Agreement shall not be assignable by either party
to any third party without the written consent of the other party hereto; except
that either party may assign this Agreement without the other party's consent to
an entity that acquires substantially all of the business or assets of the
assigning party within the Field, in each case whether by merger, transfer of
assets, or otherwise. Upon a permitted assignment of this Agreement, all
references herein to the assigning party shall be deemed references to the party
to whom the Agreement is so assigned.
21.7 Modification. No amendment or modification of any provision of this
Agreement shall be effective unless in writing signed by both parties hereto. No
provision of this Agreement shall be varied, contradicted or explained by any
oral agreement, course of dealing or performance or any other matter not set
forth in an agreement in writing and signed by both parties hereto.
21.8 Severability. If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, the parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible. Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction. In the event a party seeks to avoid a provision of this
Agreement by asserting that such provision is invalid, illegal or otherwise
unenforceable, the other party shall have the right to terminate this Agreement
upon sixty (60) days' prior written notice to the asserting party, unless such
assertion is eliminated and cured within such sixty (60)-day period. Any
termination in accordance with the foregoing sentence shall be deemed a
termination pursuant to Section 19.3.1 if the asserting party is JT, or pursuant
to Section 19.2.2 (for Material Non-Performance by CG) if the asserting party is
CG.
21.9 Publicity. Each of the parties hereto agrees not to disclose to any
third party the financial terms of this Agreement without the prior written
consent of the other party hereto, except to advisors, investors and others on a
need-to-know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Notwithstanding the
foregoing, the parties shall agree upon a press release to announce the
execution of this Agreement, together with a
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corresponding Question & Answer outline for use in responding to inquiries about
the Agreement; thereafter, JT and CG may each disclose to third parties the
information contained in such press release and Question & Answer outline
without the need for further approval by the other.
21.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together, shall constitute one and the same instrument.
21.11 Headings. Headings used herein are for convenience only and shall
not in any way affect the construction of or be taken into consideration in
interpreting this Agreement.
21.12 Patent Marking. CG and JT agree to mark and have their Affiliates
and Marketing Distributor mark all patented Collaboration Products they sell or
distribute pursuant to this Agreement in accordance with the applicable patent
statutes or regulations in the country or countries of manufacture and sale
thereof.
21.13 Export Laws. Notwithstanding anything to the contrary contained
herein, all obligations of CG and JT are subject to prior compliance with United
States and foreign export regulations and such other United States and foreign
laws and regulations as may be applicable, and to obtaining all necessary
approvals required by the applicable agencies of the governments of the United
States and foreign jurisdictions. CG and JT shall cooperate with each other and
shall provide assistance to the other as reasonably necessary to obtain any
required approvals.
21.14 Review by Fair Trade Commission. JT agrees to file this Agreement,
if required by applicable Japanese law, with the Japanese Fair Trade Commission
(the "JFTC"), and shall provide to CG an English translation of all
notifications filed in connection with this Agreement promptly after filing. If
the JFTC advises or recommends the amendment or deletion of any terms and
conditions of, or any addition to, this Agreement, JT shall immediately inform
CG of such advice or recommendation and the parties shall negotiate in good
faith to modify this Agreement in accordance with such advice or recommendation.
Notwithstanding the provisions of Section 21.8, if within thirty (30) days after
receipt of a written recommendation from the JFTC, the parties do not reach
agreement, either party may terminate this Agreement without incurring any
further liability or obligation.
21.15 Language. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions hereof in any
other language shall not be binding on the parties hereto. All communications
and notices to be made or given pursuant to this Agreement shall be in the
English language.
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21.16 Entire Agreement. This Agreement (including the Exhibits hereto),
constitutes the entire agreement, both written or oral, with respect to the
subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between CG and JT with
respect to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in duplicate originals as of the date first above
written.
JAPAN TOBACCO INC.
By:
-------------------------------
Masakazu Kakei
Executive Director
CELL GENESYS, INC.
By:
-------------------------------
Stephen A. Sherwin, M.D.
Chairman and Chief Executive Officer
SIGNATURE PAGE TO JAPAN TOBACCO - CELL GENESYS GVAX AGREEMENT
<PAGE> 75
EXHIBIT 1.2.1
CG PATENTS
[*]
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EXHIBIT 1.7
CLINICAL REPORT FORM
[*]
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EXHIBIT 1.21
EUROPE
<TABLE>
<S> <C>
Albania Macedonia
Andorra Malta
Armenia Moldova
Austria Monaco
Azerbaijan Montenegro
Belarus Netherlands
Belgium Norway
Bosnia and Herzegovina Poland
Bulgaria Portugal
Croatia Romania
Cypress Russia
Czech Republic San Marino
Denmark Serbia
Estonia Slovakia
Finland Slovenia
France Spain
Georgia Sweden
Germany Switzerland
Greece Turkey
Hungary Ukraine
Iceland United Kingdom
Ireland Vatican City
Italy
Latvia
Liechtenstein
Lithuania
Luxembourg
</TABLE>
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EXHIBIT 1.56
SUBJECT PATENTS
[*]
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EXHIBIT 1.59
CG'S THIRD PARTY AGREEMENTS
[*]
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EXHIBIT 6.1.1
FTE RATE CALCULATION
[*]
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EXHIBIT 3.3
INITIAL DEVELOPMENT PLAN AND BUDGET
[*]
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EXHIBIT 6.4
CREDIT AGREEMENT
[ATTACHED]
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CREDIT FACILITY AGREEMENT
This CREDIT FACILITY AGREEMENT ("Credit Agreement"), dated as of _____ ,
is entered into by and between:
(1) Japan Tobacco Inc. ("Lender"); and
(2) Cell Genesys, Inc. ("Borrower").
BACKGROUND
A. Borrower and Lender have entered into that certain GVAX(TM) Agreement
to which this Exhibit 6.4 is attached (the "GVAX Agreement"), pursuant to which
Lender is to provide to Borrower a credit facility.
B. Borrower and Lender wish to set forth their agreements with respect
to such credit facility.
NOW THEREFORE, for and in consideration of the covenants, conditions,
undertakings and premises set forth herein, the parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions. Unless otherwise indicated in this Credit Agreement,
each capitalized term set forth in Schedule 1, when used in this Credit
Agreement, shall have the respective meaning given to that term in Schedule 1 or
in the provision of this Credit Agreement referenced in Schedule 1. Each
capitalized term used and not otherwise defined in this Credit Agreement shall
have the meaning given to that term in the GVAX Agreement.
1.2 GAAP. Unless otherwise indicated in this Credit Agreement, all
accounting terms used in this Credit Agreement and the other Credit Documents
shall be construed, and all accounting and financial computations hereunder or
thereunder shall be computed, in accordance with GAAP.
1.3 Construction. This Credit Agreement and the other Credit Documents
are the result of negotiations among, and have been reviewed by, Borrower,
Lender and their respective counsel. Accordingly, this Credit Agreement and the
other Credit Documents shall be deemed to
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be the product of all parties hereto, and no ambiguity shall be construed in
favor of or against Borrower or Lender.
1.4 Calculation of Interest and Fees. All calculations of interest and
fees under this Credit Agreement and the other Credit Documents for any period
shall include the first day of such period and exclude the last day of such
period.
ARTICLE 2
ADVANCES
2.1 Terms. Subject to the terms and conditions of this Credit Agreement,
Lender agrees to advance to Borrower from time to time, such sums as Borrower
may request (the "Advances"), but which shall not exceed the Commitment. Each
Advance shall be made and used to pay Later Stage Development Costs with respect
to a specific Collaboration Product. Advances shall be made in U.S. dollars or
Japanese yen (as requested by Borrower) in same day or immediately available
funds. Each Advance denominated in U.S. dollars shall be in an amount equal to
at least U.S. [*] or any integral multiple of U.S. [*] in excess thereof and
shall be made [*] days after receipt by Lender of a Notice of Borrowing in the
form of Schedule 2. Each Advance denominated in Japanese yen shall be in an
amount equal to at least [*] or any integral multiple of [*] in excess thereof
and shall be made [*] days after delivery to Lender of a Notice of Borrowing.
2.2 Payment of Principal. If not paid earlier, the outstanding principal
balance of all Advances with respect to a Collaboration Product shall be due and
payable to Lender on the Termination Date with respect to Advances relating to
such Collaboration Product.
2.3 Interest. Interest on the outstanding principal balance of each
Advance while such Advance is outstanding shall accrue at the Applicable Prime
Rate in effect on the date of such Advance. All accrued and unpaid interest on
an Advance shall compound on an annual basis. Accrued interest on each Advance
or portion thereof shall be due and payable to Lender at the time of each
repayment of principal on such Advance.
2.4 Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to
Lender by wire transfer in lawful money of the United States with respect to
Advances denominated in U.S. dollars and in lawful money of Japan with respect
to Advances denominated in Japanese yen. Such payments shall be in same day or
immediately available funds according to such wire instructions as Lender shall
supply to Borrower from time to time.
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(b) Date. Whenever any payment due hereunder shall fall due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
2.5 Promissory Note. The Obligations of Borrower to Lender hereunder
shall be evidenced by a promissory note in the form of Schedule 3 hereto (the
"Note") and the amounts of the Advances hereunder, interest due with respect
thereto, and repayments and payments thereof shall be recorded on the records of
Lender and Borrower.
2.6 Security. The Obligations under this Credit Agreement and the Note
shall be secured by a security agreement in the form of Schedule 4 hereto (the
"Security Agreement").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BORROWER
3.1 To induce Lender to enter into this Credit Agreement and to make
Advances hereunder, Borrower represents and warrants to Lender as follows:
3.2 Due Incorporation, Qualification, etc.. Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (ii) has the power and authority to own, lease
and operate its properties and carry on its business as now conducted and (iii)
is duly qualified to do business and in good standing as a foreign corporation
in each jurisdiction where the failure to be so qualified or licensed could
reasonably be expected to have a material adverse impact on Borrower.
3.3 Authority. The execution, delivery and performance by Borrower of
each Credit Document to be executed by Borrower and the consummation of the
transactions contemplated thereby (i) are within the power of Borrower and (ii)
have been duly authorized by all necessary actions on the part of Borrower.
3.4 Enforceability. Each Credit Document executed, or to be executed, by
Borrower has been, or will be, duly executed and delivered by Borrower and
constitutes, or will constitute, a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity.
3.5 Non-Contravention. The execution and delivery by Borrower of the
Credit Documents and the performance and consummation of the transactions
contemplated thereby do not and will not (i) violate the Certificate of
Incorporation or Bylaws of the Borrower or any material judgment, order, writ,
decree, statute, rule or regulation applicable to Borrower;
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(ii) violate any provision of, or result in the breach or the acceleration of,
or entitle any other Person to accelerate (whether after the giving of notice or
lapse of time or both), any material mortgage, indenture, agreement, instrument
or contract to which Borrower is a party or by which it is bound; or (iii)
result in the creation or imposition of any lien (other than the lien granted
under the Security Agreement) upon any property, asset or revenue of Borrower or
the suspension, revocation, impairment, forfeiture, or nonrenewal of any
material permit, license, authorization or approval applicable to Borrower, its
business or operations, or any of its assets or properties.
3.6 Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
Person is required in connection with the execution and delivery of the Credit
Documents by Borrower and the performance and consummation of the transactions
contemplated thereby.
3.7 Other Regulations. Borrower is not subject to regulation under the
Investment Company Act of 1940, the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act, any state public utilities
code or to any federal or state statute or regulation limiting its ability to
incur Indebtedness.
3.8 Financial Statements. The financial statements of Borrower which
have been delivered to Lender pursuant to Section 5.1, (i) are in accordance
with the books and records of Borrower and have been prepared in conformity with
GAAP; and (ii) fairly present in all material respects the consolidated
financial position of Borrower as of the dates presented therein and the results
of operations, changes in financial positions or cash flows, as the case may be,
for the periods presented therein.
3.9 Litigation. No actions (including, without limitation, derivative
actions), suits, proceedings or investigations are pending or, to the knowledge
of Borrower, threatened against Borrower or Borrower's Affiliates at law or in
equity in any court or before any other governmental authority which (i) could
reasonably be expected to have a material adverse impact on Borrower or (ii)
seeks to enjoin, either directly or indirectly, the execution, delivery or
performance by Borrower of the Credit Documents or the transactions contemplated
thereby.
ARTICLE 4
CONDITIONS
4.1 Conditions to Effectiveness. The effectiveness of this Credit
Agreement is subject to the prior satisfaction or waiver of the conditions set
forth in this Section 4.1.
(a) Borrower shall have duly executed and delivered to
Lender:
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(i) this Credit Agreement;
(ii) the Note; and
(iii) the Security Agreement and all deliveries
contemplated thereby.
(b) Borrower shall have delivered to Lender all UCC-1
financing statements and other documents and instruments
which Lender may reasonably request to perfect its
security interest in the collateral described in the
Security Agreement.
(c) Borrower shall have caused to be delivered to Lender an
opinion of counsel in substantially the form of Schedule 5 hereto.
4.2 Conditions to Advances. Lender's obligation to make each Advance is
subject to the prior satisfaction or waiver of all the conditions set forth in
this Section 4.2.
(a) The representations and warranties made by Borrower in
Article 3 hereof and in the Security Agreement shall be true and correct as of
the date on which each Advance is made and after giving effect to the making of
the Advance. The submission by Borrower to Lender of a request for an Advance
shall be deemed to be a certification by the Borrower that as of the date of
borrowing, the representations and warranties made by Borrower in Article 3
hereof are true and correct.
(b) No Event of Default or Default has occurred or is continuing.
(c) The total aggregate principal amount of outstanding Advances
does not exceed the Commitment.
(d) The date of such Advance shall not occur after:
(i) Lender has provided a notice of termination of the
GVAX Agreement to Borrower in accordance with Section 19.3.1 of the GVAX
Agreement;
(ii) either Lender or Borrower has provided notice of
termination with respect to the applicable Collaboration Product to the other
party in accordance with Section 19.3.2 or 19.3.3 of the GVAX Agreement;
(iii) Lender has notified Borrower that Borrower is in
material breach under Section 19.2 of the GVAX Agreement, where such breach
exists and remains uncured; or
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(iv) there has been a notice of termination or material
breach (which remains uncured) provided pursuant to any other material agreement
between Borrower or its Affiliates and Lender or its Affiliates relating to the
Development Program or other activities under the GVAX Agreement, with respect
to the applicable Collaboration Product.
(e) The GVAX Agreement shall not have been assigned by Borrower
to a third party with annual revenues in excess of [*] pursuant to Section 21.6
of the GVAX Agreement nor has Borrower become a subsidiary of any such third
party with annual revenues in excess of [*].
(f) Borrower has not failed to pay any material Indebtedness
(excluding Obligations) owed by Borrower on the date due where such failure
continued for [*] Business Day after Borrower's receipt of written notice
thereof.
ARTICLE 5
COVENANTS
5.1 Financial Information. While any Advances are outstanding under this
Credit Agreement, Borrower will deliver to Lender (a) as soon as available and
in any event within 120 days after the end of each fiscal year of the Borrower a
consolidated balance sheet of Borrower and its subsidiaries as of the end of
such fiscal year and the related consolidated statements of operations,
stockholders' equity and cash flows for such fiscal year, all reported on by an
independent public accountant of nationally recognized standing and (b) as soon
as available and in any event within 60 days after the end of each of the first
three quarters of each fiscal year of Borrower an unaudited consolidated
financial report for such quarter; provided that the foregoing shall be deemed
satisfied for any fiscal year or quarter, as the case may be, upon delivery by
Borrower to Lender promptly after filing of the report which Borrower files with
the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended.
5.2 Maintenance of Properties. Borrower will cause all properties used
or useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of Borrower may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 5.2 shall prevent Borrower from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of Borrower, desirable in the conduct of its business.
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5.3 Payment of Taxes and Other Claims. Borrower will pay or discharge,
or cause to be paid or discharged, before the same may become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon Borrower
or upon the income, profits or property, of Borrower, and (ii) all claims for
labor, materials and supplies which, if unpaid, might by law become a lien or
charge upon the property of Borrower; provided however, that Borrower shall not
be required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim (A) if the failure to do so will not, in the
aggregate, have a material adverse impact on Borrower, or (B) if the amount,
applicability or validity is being contested in good faith by appropriate
proceedings and has been bonded or a reserve has been established on Borrower's
books to the extent required in accordance with GAAP.
5.4 Affiliate Transactions. Borrower shall not enter into any
contractual obligation with any Affiliate (other than a subsidiary) or engage in
any other transaction with any Affiliate (other than a subsidiary) except upon
terms at least as favorable to Borrower as an arms-length transaction with
unaffiliated Persons.
5.5 Inspection Rights. Lender and its representatives shall have the
right to inspect Borrower's records with respect to the Advances and the Later
Stage Development Costs on which Advances are utilized upon reasonable prior
notice and during regular business hours.
5.6 Dividends. Borrower shall not (i) pay any cash dividends or make any
distributions of assets to any holder of its equity securities; or (ii) set
apart any sum for any such purpose; it being understood, that the foregoing
shall not prevent Borrower from distributing a dividend payable solely in the
form of its equity securities to its existing holders of equity securities.
ARTICLE 6
EVENTS OF DEFAULT
6.1 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Credit Agreement and the Note:
(a) Failure to Pay. Borrower shall fail to pay (i) the principal
amount of all outstanding Advances on the Termination Date hereunder; (ii) any
interest, Obligation or other payment required under the terms of this Credit
Agreement or any other Credit Document on the date due and such failure shall
continue for [*] Business Days after Borrower's receipt of Lender's written
notice thereof to Borrower; or (iii) any Indebtedness (excluding Obligations)
owed by Borrower to Lender on the date due and such failure shall continue for
[*] Business Days after Borrower's receipt of Lender's written notice thereof to
Borrower; or
(b) Breaches of Covenants. Borrower shall fail to observe or
perform any covenant, obligation, condition or agreement contained in this
Credit Agreement or the other
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Credit Documents (other than those specified in Section 6.1(a)) and such failure
shall continue for fifteen (15) days after notice by Lender to Borrower of such
failure; or
(c) Voluntary Bankruptcy or Insolvency Proceedings. Borrower
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (vi) take any action for the purpose of effecting any of the
foregoing; or
(d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of Borrower
or of all or a substantial part of the property thereof, or an involuntary case
or other proceedings seeking liquidation, reorganization or other relief with
respect to Borrower or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
[*] calendar days of commencement; or
(e) Judgments. A final judgment or order for the payment of money
in excess of [*] (exclusive of amounts covered by insurance issued by an insurer
not an affiliate of Borrower) shall be rendered against Borrower and the same
shall remain undischarged for a period of [*] days during which execution shall
not be effectively stayed.
6.2 Rights of Lender upon Default.
(a) Acceleration. Upon the occurrence or existence of any Event
of Default described in Sections 6.1(c) and 6.1(d), automatically and without
notice or, at the option of Lender, upon the occurrence of an Event of Default
described in Sections 6.1(a) or 6.1(b), all outstanding Obligations payable by
Borrower hereunder shall become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the other Credit
Documents to the contrary notwithstanding.
(b) Cumulative Rights, etc.. The rights, powers and remedies of
Lender under this Credit Agreement shall be in addition to all rights, powers
and remedies given to Lender by virtue of any applicable law, rule or regulation
of any Governmental Authority, any transaction contemplated thereby or any other
agreement, all of which rights, powers, and remedies shall be cumulative and may
be exercised successively or concurrently without impairing Lender's rights
hereunder.
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ARTICLE 7
MISCELLANEOUS
7.1 Governing Law. This Credit Agreement and each of the other Credit
Documents and any dispute arising from the performance or breach hereof or
thereof shall be governed by and construed and enforced in accordance with, the
laws of the State of California, without reference to conflicts of laws
principles.
7.2 Set-off. In addition to any rights and remedies of Lender provided
by law, Lender shall have the right, without prior notice to Borrower, any such
notice being expressly waived by Borrower to the extent permitted by applicable
law, upon the occurrence and during the continuance of a Default or an Event of
Default, to set-off and apply against any Indebtedness, whether matured or
unmatured, of Borrower to Lender (including, without limitation, the
Obligations), any amount owing from Lender to Borrower. The aforesaid right of
set-off may be exercised by Lender against Borrower or against any trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor of Borrower or against
anyone else claiming through or against Borrower or such trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, receiver, or
execution, judgment or attachment creditor, notwithstanding the fact that such
right of set-off shall not have been exercised by Lender prior to the occurrence
of a Default or an Event of Default. Lender agrees promptly to notify Borrower
after any such set-off and application made by Lender.
7.3 No Implied Waivers; Rights Cumulative. No failure on the part of
Lender or Borrower to exercise and no delay in exercising any right under this
Credit Agreement or any of the other Credit Documents, or provided by statute or
at law or in equity or otherwise, shall impair, prejudice or constitute a waiver
of any such right, nor shall any partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
7.4 Independent Contractors. Nothing contained in this Credit Agreement
or any of the other Credit Documents is intended implicitly, or is to be
construed, to constitute Lender or Borrower as partners in the legal sense. No
party hereto shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of any other party or to bind
any other party to any contract, agreement or undertaking with any third party.
7.5 Notices. Except as otherwise provided herein, all notices, requests
and other communications hereunder shall be in writing and shall be personally
delivered or sent by registered or certified mail, return receipt requested,
postage prepaid; facsimile transmission (receipt verified); or express courier
service (signature required), in each case to the respective address or fax
number specified below, or such other address or fax number as may be specified
in writing to the other parties hereto. All such notices and communications
shall be effective (a) when sent by overnight service of recognized standing, on
the Business Day following the
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deposit with such service; (b) when mailed by registered or certified mail,
first class postage prepaid and addressed as aforesaid through the applicable
governmental postal service, upon receipt; (c) when delivered by hand, upon
delivery; and (d) when telecopied, upon confirmation of receipt; provided,
however, that any notice delivered to Lender under Article 2 shall not be
effective until received by Lender.
Lender: Japan Tobacco Inc.
JT Building
2-1 Toranomon 2-Chome
Minato-ku
Tokyo 105-8422
Japan
Attn: Vice President
Pharmaceutical Business Development
Fax: 011-81-3-5572-1449
with copy to: Gilbert, Segall and Young LLP
430 Park Avenue
New York, New York 10022-3592
U.S.A.
Attn: Neal N. Beaton, Esq.
Fax: (212) 644-4051
Borrower: Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404
U.S.A.
Attn: President
Fax: (650) 358-0230
with a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
U.S.A.
Attn: Kenneth A. Clark, Esq.
Fax: (650) 493-6811
7.6 Assignment. This Credit Agreement and the other Credit Documents
shall not be assignable by either party to any third party without the written
consent of the other party hereto;
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except that (i) either party may assign this Credit Agreement together with the
other Credit Documents without the other party's consent in connection with the
assignment of the GVAX Agreement to an entity that acquires substantially all of
the business or assets of the assigning party within the Field, in each case
whether by merger, transfer of assets, or otherwise and (ii) Lender may assign
any rights to the payment of money arising hereunder. Upon a permitted
assignment of this Credit Agreement, all references herein to the assigning
party shall be deemed references to the party to whom this Credit Agreement is
so assigned. This Credit Agreement and the other Credit Documents shall be
binding upon and inure to the benefit of Borrower, Lender and their respective
successors and permitted assigns.
7.7 Modification. No amendment or modification of any provision of this
Credit Agreement or any other Credit Document shall be effective unless in
writing signed by both of the parties hereto. No provision of this Credit
Agreement or any other Credit Document shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by both of the
parties.
7.8 Severability. If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, the parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible. Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
7.9 No Third Party Rights. Nothing expressed in or to be implied from
this Credit Agreement or any other Credit Document is intended to give, or shall
be construed to give, any Person, other than the parties hereto and thereto and
their permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Credit Agreement or any other Credit
Document.
7.10 Counterparts. This Credit Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together, shall constitute one and the same instrument.
7.11 Headings. Headings used herein are for convenience only and shall
not in any way affect the construction of or be taken into consideration in
interpreting this Credit Agreement.
7.12 Language. This Credit Agreement and the other Credit Documents are
in the English language only, which language shall be controlling in all
respects, and all versions hereof in any other language shall not be binding on
the parties hereto. All communications and notices to be made or given pursuant
to this Credit Agreement or the other Credit Documents shall be in the English
language.
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7.13 Entire Agreement. This Credit Agreement (including the Schedules
hereto) and the other Credit Documents together with the GVAX Agreement
(including the Exhibits thereto) constitute the entire agreement, both written
or oral, with respect to the subject matter hereof, and supersede all prior or
contemporaneous understandings or agreements, whether written or oral, between
Lender and Borrower with respect to such subject matter. It is understood that
this Credit Facility Agreement and the GVAX Agreement are independent, and the
termination of this Credit Facility Agreement or the GVAX Agreement shall not
affect the other.
7.14 Disputes. All disputes and controversies arising hereunder shall be
resolved in the manner provided in Article 20 of the GVAX Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be duly executed and delivered in duplicate originals as of the date first
above written.
JAPAN TOBACCO INC. ("Lender")
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
CELL GENESYS, INC. ("Borrower")
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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SCHEDULE 1
DEFINITIONS
a. "Advances" shall have the meaning set forth in Section 2.1 of this
Credit Agreement.
b. "Applicable Prime Rate" shall mean, with respect to Advances in U.S.
dollars, the rate per annum which is quoted as the "Prime Rate" for the United
States in the "Money Rates" column of The Wall Street Journal (U.S., Western
Edition), and with respect to Advances in Japanese yen, the rate per annum which
is quoted as the rate for Japan in the "Foreign Prime Rates" section of the
"Money Rates" column of The Wall Street Journal (U.S., Western Edition), in each
case, on the date such Advance is made. All computations of interest shall be
based on a year of 365 days and actual days elapsed.
c. "Business Day" shall mean any day on which commercial banks are not
authorized or required to close in San Francisco, California or Tokyo, Japan.
d. "Commitment" shall mean an amount equal to the lesser of (i) Thirty
Million Dollars (U.S. $30,000,000) and (ii) at any date of determination, [*] of
the cumulative amount of all Later Stage Development Costs shown under the most
recent and all previous annual Development Plans and Budgets; provided that
Advances with respect to any Collaboration Product shall not exceed [*] of the
cumulative amount of all Later Stage Development Costs with respect to such
Collaboration Product. In the case of an Advance in Japanese Yen, the
calculation of the aggregate Commitment shall be made by converting Japanese Yen
so advanced into the equivalent in U.S. dollars using the T.T.M. currency
exchange rate (U.S.$-JP(Y)) quoted by the Bank of Tokyo-Mitsubishi as of the
date of Notice of Borrowing (if such date is not a Business Day, then on the
next succeeding Business Day). The amount of the Commitment advanced shall not
change based upon subsequent changes in the exchange rate.
e. "Credit Documents" shall mean and include this Credit Agreement, the
Note, the Security Agreement, the GVAX Agreement and any other documents,
instruments and agreements delivered by Borrower to Lender in connection with
this Credit Agreement.
f. "Default" shall mean any event or circumstance not yet constituting
an Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
g. "Event of Default" shall have the meaning set forth in Section 6.1 of
this Credit Agreement.
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h. "GAAP" shall mean United States Generally Accepted Accounting
Principles and cost accounting principles generally accepted in the United
States.
i. "Governmental Authority" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
j. "Indebtedness" of any Person shall mean and include the aggregate
amount of, without duplication (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services (other than accounts payable
incurred in the ordinary course of business determined in accordance with GAAP),
(iv) all obligations under capital leases of such Person, (v) all obligations or
liabilities of others secured by a lien on any asset of such Person, whether or
not such obligation or liability is assumed, (vi) all guaranties of such Person
of the obligations of another Person; (vii) all obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement upon an event of default are limited to
repossession or sale of such property), (viii) net exposure under any interest
rate swap, currency swap, forward, cap, floor or other similar contract that is
not entered to in connection with a bona fide hedging operation that provides
offsetting benefits to such Person, which agreements shall be marked to market
on a current basis, and (ix) all reimbursement and other payment obligations,
contingent or otherwise, in respect of letters of credit.
k. "Later Stage Development Costs" shall mean [*]
l. "Note" shall have the meaning set forth in Section 2.5 of this Credit
Agreement.
m. "Notice of Borrowing" shall mean a notice of borrowing in the form of
Schedule 2 hereto.
n. "Obligations" shall mean and include all Advances and liabilities,
owed by Borrower to Lender of every kind and description, absolute or
contingent, due or to become due, now existing or hereafter arising pursuant to
the terms of any of the Credit Documents, including, without limitation, all
interest, fees, charges, expenses, reasonable attorneys' fees (and expenses) and
accountants' fees (and expenses) chargeable to Borrower or payable by Borrower
hereunder or thereunder.
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o. "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture, other entity
or a Governmental Authority.
p. "Security Agreement" shall have the meaning set forth in Section 2.6
of this Credit Agreement.
q. "Termination Date" shall mean, with respect to Advances related to
each Collaboration Product, the earlier of (i) the [*] of the first Advance with
respect to such Collaboration Product under this Credit Agreement, or (ii) the
end of the [*] year of the Borrower in which Pre-Tax Operating Profits realized
by Borrower are [*] with respect to such Collaboration Product.
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SCHEDULE 2
NOTICE OF BORROWING
[Date]
Japan Tobacco, Inc.
JT Building
2-1 Toranomon 2-Chome
Minato-ku
Tokyo 105-8422
Japan
Attention: Vice President
Pharmaceutical Business Development
1. Reference is made to that certain Credit Facility Agreement, dated as
of ____________ (the "Credit Agreement"), between Cell Genesys, Inc.
("Borrower") and Japan Tobacco Inc. ("Lender"). Unless otherwise indicated, all
capitalized terms defined in the Credit Agreement have the same respective
meanings when used herein.
2. Pursuant to Section 2.1 of the Credit Agreement, Borrower hereby
requests an Advance upon the following terms:
(a) The requested Advance is to be in [U.S. dollars in the
amount of $__________] [Japanese yen in the amount of (Y)__________];
(b) The date of the requested Advance is to be __________.
3. Borrower hereby certifies to Lender that, on the date hereof and on
the date of such borrowing and after giving effect to the requested borrowing:
(a) The representations and warranties set forth in Article 3 of
the Credit Agreement are or will be true and correct as if made on such
date; and
(b) No Event of Default or Default has occurred and is
continuing.
4. Please disburse the proceeds of the requested Advance to __________.
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IN WITNESS WHEREOF, Borrower has executed this Notice of Borrowing on
the date set forth above.
CELL GENESYS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
cc: Gilbert, Segall and Young LLP
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SCHEDULE 3
PROMISSORY NOTE
[Attached]
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PROMISSORY NOTE
$30,000,000 ___________, California
[Date]
FOR VALUE RECEIVED, CELL GENESYS, INC., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Japan Tobacco Inc. (the
"Holder"), the principal sum of Thirty Million Dollars ($30,000,000.00) or such
lessor amount as is outstanding from time to time as Advances pursuant to the
Credit Agreement (as defined below), upon the following terms and conditions:
1. Defined Terms. Capitalized terms used and not otherwise defined in
this Promissory Note (this "Note") shall have the respective meanings given in
that certain Credit Facility Agreement, dated as of _____________, between the
Company and the Holder ("Credit Agreement").
2. Principal and Interest. Interest shall accrue on Advances at the
rate, and payments of principal and interest made hereunder shall be made, as
set forth in the Credit Agreement the provisions of which are incorporated
herein by reference. Holder is hereby authorized to endorse the date, amount and
maturity of each Advance made by it and the amount and date of each payment of
principal made by the Company with respect thereto on the schedule annexed to
this Note; provided, that any failure to endorse such information on such
schedule shall not in any manner affect any obligation of the Company under the
Credit Agreement and this Note.
3. Credit Agreement. Holder shall be entitled to the benefits provided
in the Credit Agreement. Reference is made to the Credit Agreement for
provisions with respect to (i) the obligation of Holder to advance the Advances
to the Company, (ii) the manner in which Interest is computed and accrued, (iii)
the Company's rights, if any, to prepay all or part of the Advances, and (iv)
the events upon which the maturity of this Note may be accelerated or shall be
accelerated automatically.
4. Security Agreement. This Note is secured by the Security Agreement of
even date herewith (as amended, modified or supplemented, the "Security
Agreement") to be delivered by Company to Holder. Nothing herein shall be deemed
to limit any of the terms or provisions of the Security Agreement or any other
present or further document, instrument or agreement between Company and Holder,
and all of Holder's rights and remedies hereunder and thereunder are cumulative.
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5. Events of Default. The occurrence of any Event of Default under the
Credit Agreement shall constitute an Event of Default under this Note.
6. Costs. The undersigned agrees to pay any costs of collection of this
Note, including without limitation reasonable attorneys' fees and costs, in the
event an Event of Default occurs and is continuing.
7. Governing Law. This Note has been made and delivered in the State of
California and shall be construed in accordance with, and all actions arising
hereunder shall be governed by, the laws of the State of California, without
reference to conflicts of laws principles.
IN WITNESS WHEREOF, the Company has executed this Promissory Note as
of the date first set forth above.
CELL GENESYS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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SCHEDULE 4
SECURITY AGREEMENT
[Attached]
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SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of is executed by Cell Genesys,
Inc. ("Grantor"), in favor of Japan Tobacco Inc. ("Secured Party").
BACKGROUND
A. Grantor and Secured Party have entered into a GVAX(TM) Agreement
dated December 18, 1998 (the "GVAX Agreement") pursuant to which Grantor and
Secured Party are collaborating on the development and commercialization of
certain products, all as set forth in therein.
B. In connection with the GVAX Agreement, Grantor and Secured Party have
entered into a Credit Facility Agreement dated December 18, 1998 (the "Credit
Agreement") and Grantor has executed a Promissory Note (the "Note") in favor of
Secured Party.
C. Pursuant to the Credit Agreement, Grantor has agreed to enter into
this Security Agreement and to grant Secured Party the security interest in the
Collateral described below.
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with Secured Party as follows:
1. DEFINITIONS AND INTERPRETATION. Unless otherwise indicated in this
Security Agreement, each capitalized term shall have the respective meaning as
set forth below, when used in this Security Agreement. All other capitalized
terms used and not otherwise defined in this Security Agreement shall have the
respective meanings given to those terms in the Credit Agreement, or if not
otherwise defined herein, all terms defined in the UCC shall have the respective
meanings given to those terms in the UCC.
1.1 "Collateral" shall have the meaning given to that term in Section 2
hereof.
1.2 "Lien" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the
foregoing.
1.3 "Permitted Liens" shall mean and include: (i) Liens for taxes or
other governmental charges not at the time delinquent or thereafter payable
without penalty or being
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contested in good faith; (ii) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith; (iii) deposits under
workers' compensation, unemployment insurance and social security laws or to
secure the performance of bids, tenders, contracts (other than for the repayment
of borrowed money) or leases, or to secure statutory obligations of surety or
appeal bonds or to secure indemnity, performance or other similar bonds in the
ordinary course of business; (iv) Liens securing obligations under a capital
lease if such Liens do not extend to property other than the property leased
under such capital lease; (v) Liens upon any equipment acquired or held by
Grantor to secure the purchase price of such equipment or indebtedness incurred
solely for the purpose of financing the acquisition of such equipment, so long
as such Lien extends only to the equipment financed, and any accessions,
replacements, substitutions and proceeds (including insurance proceeds) thereof
or thereto; (vi) easements, reservations, rights of way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property in a manner not materially or adversely affecting the
value or use of such property; (vii) Liens in favor of Secured Party; (viii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payments of customs duties in connection with the importation of goods;
(viii) Liens which constitute rights of set-off of a customary nature or
banker's liens, whether arising by law or by contract, (ix) Liens on insurance
proceeds in favor of insurance companies granted solely as security for financed
premiums; and (x) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default.
1.4 "Proceeds" shall have the meaning given to that term in Attachment 1
hereto.
1.5 "Receivables" shall have the meaning given to that term in
Attachment 1 hereto.
1.6 "UCC" shall mean the Uniform Commercial Code as in effect in the
State of California from time to time.
2. GRANT OF SECURITY INTEREST. As security for the Obligations, Grantor
hereby pledges to Secured Party and grants to Secured Party a security interest
in all right, title and interests of Grantor in and to the property described in
Attachment 1 hereto (collectively and severally, the "Collateral"), which
Attachment 1 is incorporated herein by this reference. Notwithstanding the
foregoing, the security interest granted herein shall not extend to and the term
"Collateral" shall not include any property or rights to the extent the granting
of a security interest therein (1) would be contrary to applicable law or (2) is
prohibited by or would constitute a default under any agreement or document
governing such property or rights (but only to the extent such prohibition is
enforceable under applicable law).
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3. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants to
Secured Party that (a) Grantor is the owner of the Collateral (or, in the case
of after-acquired Collateral, at the time Grantor acquires rights in the
Collateral, will be the owner thereof) and that no other Person has (or, in the
case of after-acquired Collateral, at the time Grantor acquires rights therein,
will have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral, other than Permitted Liens; (b) Secured Party has
(or in the case of after-acquired Collateral, at the time Grantor acquires
rights therein, will have) a first priority perfected security interest in the
Collateral, except for Permitted Liens; (c) each Receivable is genuine and
enforceable against the party obligated to pay the same; and (d) the Collateral
is free and clear of consensual liens granted by Grantor (other than the lien
granted hereunder).
4. COVENANTS RELATING TO COLLATERAL. Grantor hereby agrees (a) to
perform all reasonable acts that may be necessary to maintain, preserve, protect
and perfect the Collateral, the Lien granted to Secured Party therein and the
priority of such Lien, except for Permitted Liens; (b) not to use or permit any
Collateral to be used (i) in violation of any provision of any documents,
instruments or agreements executed in connection with the Obligations, or (ii)
in violation of any applicable law, rule or regulation; (c) to pay promptly when
due all taxes and other governmental charges, all Liens and all other charges
now or hereafter imposed upon or affecting any Collateral, except where any such
taxes or charges are being disputed in good faith with appropriate proceedings;
(d) without written notice to Secured Party, not to change Grantor's name or
place of business (or, if Grantor has more than one place of business, its chief
executive office), or the office in which Grantor's records relating to
Receivables are kept, (e) to procure, execute and deliver from time to time any
endorsements, assignments, financing statements and other writings reasonably
deemed necessary or appropriate by Secured Party to perfect, maintain and
protect its Lien hereunder and the priority thereof and to deliver promptly to
Secured Party all originals of Collateral consisting of instruments; (f) to
appear in and defend any action or proceeding which may affect its title to or
Secured Party's interest in the Collateral; (h) to keep separate, accurate and
complete records of the Collateral; (i) to collect, enforce and receive delivery
of the Receivables in accordance with past practice; and (j) to comply with all
material requirements of law relating to the production, possession, operation,
maintenance and control of the products (including the Fair Labor Standards
Act).
5. AUTHORIZED ACTION BY AGENT. Grantor hereby irrevocably appoints
Secured Party as its attorney-in-fact and agrees that Secured Party may perform
(but Secured Party shall not be obligated to and shall incur no liability to
Grantor or any third party for failure so to do) any act which Grantor is
obligated by this Security Agreement to perform, and to exercise such rights and
powers as Grantor might exercise with respect to the Collateral, including the
right to (a) collect by legal proceedings or otherwise and endorse, receive and
receipt for all dividends, interest, payments, proceeds and other sums and
property now or hereafter payable on or on account of the Collateral;
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(b) enter into any extension, reorganization, deposit, merger, consolidation or
other agreement pertaining to, or deposit, surrender, accept, hold or apply
other property in exchange for the Collateral; (c) insure, process and preserve
the Collateral; (d) make any compromise or settlement, and take any action it
deems advisable, with respect to the Collateral; (e) pay any Indebtedness of
Grantor relating to the Collateral; and (f) execute UCC financing statements and
other documents, instruments and agreements required hereunder; provided,
however, that Secured Party shall not exercise any such powers prior to the
occurrence of an Event of Default and shall only exercise such powers during the
continuance of an Event of Default. Grantor agrees to reimburse Secured Party
upon demand for any reasonable costs and expenses, including attorneys' fees,
Secured Party may incur while acting as Grantor's attorney-in-fact hereunder,
all of which costs and expenses are included in the Obligations. It is further
agreed and understood between the parties hereto that such care as Secured Party
gives to the safekeeping of its own property of like kind shall constitute
reasonable care of the Collateral when in Secured Party's possession; provided,
however, that Secured Party shall not be required to make any presentment,
demand or protest, or give any notice and need not take any action to preserve
any rights against any prior party or any other person in connection with the
Obligations or with respect to the Collateral.
6. DEFAULT AND REMEDIES. Grantor shall be deemed in default under this
Security Agreement upon the occurrence and during the continuance of any Event
of Default under the Credit Agreement. Upon the occurrence and during the
continuance of any such Event of Default, Secured Party shall have the rights of
a secured creditor under the UCC, all rights granted by this Security Agreement
and by law, including the right to: (a) require Grantor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party; and (b) prior to the disposition of the Collateral, store,
process, repair or recondition it or otherwise prepare it for disposition in any
manner and to the extent Secured Party deems appropriate and in connection with
such preparation and disposition, without charge, use any trademark, trade name,
copyright, patent or technical process used by Grantor. Grantor hereby agrees
that ten (10) days' notice of any intended sale or disposition of any Collateral
is reasonable.
7. MISCELLANEOUS.
7.1 Governing Law. This Security Agreement and any dispute arising from
the performance or breach hereof shall be governed by and construed and enforced
in accordance with, the laws of the State of California, without reference to
conflicts of laws principles.
7.2 No Implied Waivers; Rights Cumulative. No failure on the part of
Secured Party or Grantor to exercise and no delay in exercising any right under
this Security Agreement or provided by statute or at law or in equity or
otherwise, shall impair, prejudice or constitute a waiver of any
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such right, nor shall any partial exercise of any such right preclude any other
or further exercise thereof or the exercise of any other right.
7.3 Independent Contractors. Nothing contained in this Security
Agreement is intended implicitly, or is to be construed, to constitute Secured
Party or Grantor as partners in the legal sense. No party hereto shall have any
express or implied right or authority to assume or create any obligations on
behalf of or in the name of any other party or to bind any other party to any
contract, agreement or undertaking with any third party.
7.4 Notices. Except as otherwise provided herein, all notices, requests
and other communications hereunder shall be in writing and shall be personally
delivered or sent by registered or certified mail, return receipt requested,
postage prepaid; facsimile transmission (receipt verified); or express courier
service (signature required), in each case to the respective address or fax
number specified below, or such other address or fax number as may be specified
in writing to the other parties hereto. All such notices and communications
shall be effective (a) when sent by overnight service of recognized standing, on
the Business Day following the deposit with such service; (b) when mailed by
registered or certified mail, first class postage prepaid and addressed as
aforesaid through the applicable governmental postal service, upon receipt; (c)
when delivered by hand, upon delivery; and (d) when telecopied, upon
confirmation of receipt.
Secured Party: Japan Tobacco Inc.
JT Building
2-1 Toranomon 2-Chome
Minato-ku
Tokyo 105-8422
Japan
Attn: Vice President
Pharmaceutical Business Development
Fax: 011-81-3-5572-1449
with copy to: Gilbert, Segall and Young LLP
430 Park Avenue
New York, New York 10022-3592
U.S.A.
Attn: Neal N. Beaton, Esq.
Fax: (212) 644-4051
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Grantor: Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404
U.S.A.
Attn: President
Fax: (650) 358-0230
with a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
U.S.A.
Attn: Kenneth A. Clark, Esq.
Fax: (650) 493-6811
7.5 Assignment. This Security Agreement shall not be assignable by
Grantor to any third party without the written consent of the Secured Party;
except that Grantor may assign this Security Agreement without the Secured
Party's consent in connection with the assignment of the GVAX Agreement to an
entity that acquires substantially all of the business or assets of the Grantor
within the Field, in each case whether by merger, transfer of assets, or
otherwise. Upon a permitted assignment of this Security Agreement, all
references herein to the assigning party shall be deemed references to the party
to whom this Security Agreement is so assigned. This Security Agreement shall be
binding upon and inure to the benefit of Grantor, Secured Party and their
respective successors and permitted assigns.
7.6 Modification. No amendment or modification of any provision of this
Security Agreement shall be effective unless in writing signed by both of the
parties hereto. No provision of this Security Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by both of the parties.
7.7 Severability. If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, the parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible. Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
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7.8 No Third Party Rights. Nothing expressed in or to be implied from
this Security Agreement is intended to give, or shall be construed to give, any
Person, other than the parties hereto and thereto and their permitted successors
and assigns, any benefit or legal or equitable right, remedy or claim under or
by virtue of this Security Agreement or any other Credit Document.
7.9 Counterparts. This Security Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together, shall constitute one and the same instrument.
7.10 Headings. Headings used herein are for convenience only and shall
not in any way affect the construction of or be taken into consideration in
interpreting this Security Agreement.
7.11 Language. This Security Agreement is in the English language only,
which language shall be controlling in all respects, and all versions hereof in
any other language shall not be binding on the parties hereto. All
communications and notices to be made or given pursuant to this Security
Agreement shall be in the English language.
7.12 Entire Agreement. This Security Agreement (including the
Attachments hereto) together with the other documents, instruments or agreements
executed in connection with the Obligations, taken together, constitute the
entire agreement, both written or oral, with respect to the subject matter
hereof, and supersede all prior or contemporaneous understandings or agreements,
whether written or oral, between Secured Party and Grantor with respect to such
subject matter.
7.13 Disputes. All disputes and controversies arising hereunder shall be
resolved in the manner provided in Article 20 of the GVAX Agreement.
7.14 Jury Trial. EACH OF GRANTOR AND SECURED PARTY, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT.
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IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be
duly executed as of the date first above written and delivered to the Secured
Party.
CELL GENESYS, INC. ("Grantor")
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
AGREED:
JAPAN TOBACCO INC. ("Secured Party")
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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ATTACHMENT 1
TO SECURITY AGREEMENT
All right, title and interest of Grantor now owned or hereafter acquired in and
to the following:
(a) All rights to receive cash consideration for rights in or to the
Core Patents Rights, including, without limitation, Grantor's rights in Net
Third Party Royalties (as defined in the GVAX Agreement);
(b) Accounts receivable from the sales of Collaboration Products
("Receivables"); and
(c) All proceeds of the foregoing (including, without limitation,
whatever is receivable or received when collateral or proceeds is sold,
collected, exchanged, returned, substituted or otherwise disposed of, whether
such disposition is voluntary or involuntary, including rights to payment and
return premiums and insurance proceeds under insurance with respect to any
collateral, and all rights to payment with respect to any cause of action
affecting or relating to the collateral) ("Proceeds");
"Core Patent Rights" shall mean the patents and patent applications
listed on Annex A to this Attachment 1 which exist as of the date hereof,
together with all reissues, renewals, re-examinations, extensions and any
divisions or continuations, in whole or in part, thereof.
"Collaboration Products" shall have the meaning as set forth in the GVAX
Agreement.
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SCHEDULE 5
LEGAL OPINION
[Attached]
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SCHEDULE 5
FORM OF OPINION
[Date]
Japan Tobacco Inc.
JT Building
2-1 Toranomon 2-Chome
Minato-ku
Tokyo 105-8422
Japan
Re: CREDIT FACILITY AGREEMENT, DATED AS OF __________, BETWEEN CELL
GENESYS, INC. AND JAPAN TOBACCO INC. (THE "CREDIT AGREEMENT")
Ladies and Gentlemen:
We have acted as special counsel to Cell Genesys, Inc., a Delaware
corporation ("Borrower"), in connection with the execution and delivery of the
Credit Agreement, between Borrower and Japan Tobacco Inc. ("Lender"). This
opinion is rendered to you pursuant to Section 4.1(c) of the Credit Agreement.
All capitalized terms used but not defined herein shall have the respective
meanings assigned to such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined executed
originals or copies of the following documents:
(a) the Credit Agreement;
(b) the Note;
(c) the Security Agreement;
(d) the Certificate of Incorporation and Bylaws of Borrower, as amended
to date;
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(e) records of proceedings of the Board of Directors of Borrower
during or by which resolutions were adopted relating to matters
covered by this opinion;
(f) (i) a certificate of the Secretary of State of the State of
Delaware, dated _________, with respect to the standing of
Borrower as a corporation incorporated under the laws of the
State of Delaware and the tax status Borrower with respect to
taxes under the Franchise Tax Law of the State of Delaware; and
(ii) a Certificate of the Secretary of State of the State of
California dated _________, 199 , with respect to the standing
of Borrower as a foreign corporation qualified to do business in
the State of California; and (iii) a tax status certificate from
the Franchise Tax Board of the State of California;
(g) the certificates of the Secretary and certain officers of
Borrower as to certain factual matters; and
(h) each of the documents listed as exhibits to the Company's Annual
Report on Form 10-K for the year ended ___________, included
therein pursuant to the requirements of clauses (2), (4), (9) or
(10) of Item 601(b) of Regulation S-K (other than those which
have expired, terminated or are otherwise no longer in effect),
and the documents listed as exhibits to the Company's Quarterly
Reports on Form 10-Q for the quarters ended __________,
____________ and _______________, required to be included
therein pursuant to the requirements of clauses (2), (4), (9) or
(10) of Item 601(b) of Regulation S-K (other than those which
have expired, terminated or are otherwise no longer in effect)
(collectively, the "Reviewed Agreements").
In addition, we have examined and relied upon such corporate records of
Borrower as we have deemed necessary or appropriate for purposes of the opinions
expressed below. We have also relied upon and obtained from public officials and
officers of Borrower such other certificates and assurances as we consider
necessary for the rendering of this opinion. The Credit Agreement, the Security
Agreement and the Note are sometimes referred to herein as the "Transaction
Documents."
With your permission and without any verification by us, we have assumed
the following for purposes of rendering the opinions set forth herein:
(i) The genuineness of all signatures, the legal capacity of all
natural persons to execute and deliver documents, the
authenticity and
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<PAGE> 117
completeness of documents submitted to us as originals and the
completeness and conformity with authentic original documents of
all documents submitted to us as copies, and that all documents,
books and records made available to us by Borrower are accurate
and complete.
(ii) That there are no agreements or understandings between or among
Borrower, Lender or third parties which would expand, modify or
otherwise affect the terms of the Transaction Documents or the
respective rights or obligations of the parties thereunder and
that the Transaction Documents correctly and completely set
forth the intent of all parties thereto.
(iii) That all parties to the Transaction Documents (other than
Borrower) have filed all required franchise tax returns, if any,
and paid all required taxes, if any, under the California
Revenue & Taxation Code.
(iv) That the Transaction Documents have been duly authorized,
executed and delivered by Lender to the extent Lender is
contemplated to be a party thereto and that Lender has full
power, authority and legal right to enter into and perform the
terms and conditions of the Transaction Documents to be
performed by Lender and that each Transaction Document to which
Lender is a party constitutes a legal, valid and binding
obligation of Lender, enforceable against it in accordance with
its terms.
(v) That an exemption is available from the restrictions of Section
1 of Article XV of the California Constitution and related
statutes relating to usury.
(vi) With respect to certain matters of fact, that the
representations and warranties of Borrower set forth in the
Transaction Documents to which it is a party, the certificates
of certain officers of Borrower delivered to you in connection
with the transactions contemplated by the Credit Agreement and
the certificates of certain officers of Borrower referred to in
paragraph (g) above are true and correct.
As used in this opinion, the expression "to our knowledge" or "known to
us" with reference to matters of fact means that during the course of our
representation of Borrower in connection with
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<PAGE> 118
the Transaction Documents, no information has come to the attention of the
attorneys of our firm involved in this engagement which would give them actual
knowledge of the existence or absence of such facts; however, we have made no
independent investigation to determine the existence or absence of such facts,
and any limited inquiry undertaken by us during the preparation of this opinion
should not be regarded as such an investigation. No inference as to our
knowledge of the existence or absence of any facts underlying any opinion given
"to our knowledge" should be drawn from the fact of our representation of
Borrower. Specifically, in rendering the opinion set forth in paragraph 7 below,
we have not made any independent investigation of court records to determine
whether any actions have been filed. Furthermore, this opinion letter does not
purport to encompass information which may have been communicated to any
attorney in our firm who is a director or officer of Borrower, solely by reason
of such attorney's serving in such capacity.
On the basis of the foregoing and in reliance thereon, and based upon
examination of such questions of law as we have deemed appropriate, and subject
to the assumptions, exceptions, qualifications, and limitations set forth
herein, we advise you that in our opinion:
1. Borrower is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Delaware and is
duly qualified to do business and is in good standing in the
state of California.
2. Borrower has the requisite corporate power and authority to
enter into the Transaction Documents and to carry out the
transactions contemplated thereby.
3. The execution and delivery by Borrower of each Transaction
Document to which it is a party, and the performance by Borrower
of its obligations under each of the Transaction Documents, have
been duly authorized by all necessary corporate action on the
part of Borrower.
4. Each of the Transaction Documents has been duly executed and
delivered and constitutes a valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its
terms.
5. The execution and delivery of each of the Transaction Documents
and the undertaking of the covenants set forth in Transaction
Documents and the borrowing of Loans in accordance with the
Credit Agreement and repayment of any Loans by Borrower do not
(a) conflict with or violate the Bylaws or Certificate of
Incorporation of Borrower; (b) to our knowledge, violate or
contravene any United States federal or California state law,
statute, rule or regulation applicable to Borrower; (c) to our
knowledge,
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<PAGE> 119
violate or contravene any order, writ, judgment, decree,
determination or award of any United States federal or
California state governmental authority applicable to Borrower;
or (d) to our knowledge, violate or result in a breach of or
constitute any default under any Reviewed Agreement, or, to our
knowledge, result in or require the creation or imposition of
any lien on any of its properties or revenues pursuant to any
provision of any United States federal or California state law,
rule or regulation or any such Reviewed Agreement, except for
the liens created in favor of Lender.
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or
agency of the United States or the State of California is
required on the part of Borrower for the execution or delivery
by Borrower of the Transaction Documents or for any borrowings
by Borrower of loans and repayment of such loans in accordance
with the terms of the Credit Agreement.
7. Except as disclosed in _________, to our knowledge, there are no
actions or proceedings against Borrower pending or overtly
threatened in writing before any court, governmental agency or
arbitrator which (a) seek to challenge the enforceability of any
of the Transaction Documents, or (b) we believe are reasonably
likely to have a material adverse effect on the ability of
Borrower to perform its obligations under the Transaction
Documents.
The opinions set forth above are subject to the following exceptions,
qualifications, limitations, comments and additional assumptions:
A. We express no opinion as to any matter relating to laws of any
jurisdiction other than the laws of the State of California, the
General Corporation Law of the State of Delaware and the federal
laws of the United States, as such are in effect on the date
hereof, and we have made no inquiry into, and we express no
opinion as to, the statutes, regulations, treaties, common laws
or other laws of any other nation, state or jurisdiction. As you
know, we are not licensed to practice law in the State of
Delaware and, accordingly, our opinions as to Delaware General
Corporation Law are based solely on a review of the official
statutes of the State of Delaware.
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B. We express no opinion as to (i) the effect of any bankruptcy,
insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium or other laws relating to or affecting the rights of
creditors generally, or (ii) the effect of general principles of
equity, including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance, injunctive relief or
other equitable relief, whether considered in a proceeding in
equity or at law.
C. We express no opinion regarding any of (i) the rights or
remedies available to any party for violations or breaches of
any provisions which are immaterial or the enforcement of which
would be unreasonable under the then existing circumstances,
(ii) the rights or remedies available to any party for material
violations or breaches which are the proximate result of actions
taken by any party to the Transaction Documents other than the
party against whom enforcement is sought, which actions such
other party is not entitled to take pursuant to the Transaction
Documents or which otherwise violate applicable laws, (iii) the
rights or remedies available to any party which takes
discretionary action which is arbitrary, unreasonable or
capricious, or is not taken in good faith or in a commercially
reasonable manner, whether or not the Transaction Documents
permit such action, (iv) the effect of the exercise of judicial
discretion, whether in a proceeding in equity or at law, (v) the
enforceability of any provision deemed to be "unconscionable"
within the meaning of Section 1670.5 of the California Civil
Code, (vi) the enforceability of any provision authorizing the
exercise of any remedy without reasonable notice and opportunity
to cure, or (vii) the effect of any provision of any Transaction
Document purporting to give a lender the right to make any
conclusive determination in its sole discretion.
D. We express no opinion as to the legality, validity, binding
nature or enforceability of (i) any provisions in the
Transaction Documents providing for the payment or reimbursement
of costs or expenses or indemnifying a party, to the extent such
provisions may be held unenforceable as contrary to public
policy, (ii) any provision of any Transaction Document insofar
as it provides for the payment or reimbursement of costs and
expenses or indemnification for claims, losses or liabilities in
excess of a reasonable amount determined by any court or other
tribunal, (iii) any provisions regarding a party's ability to
collect
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<PAGE> 121
attorneys' fees and costs in an action involving the Transaction
Documents, if the party is not the prevailing party in such
action (we call your attention to the effect of Section 1717 of
the California Civil Code, which provides that, where a contract
permits one party thereto to recover attorneys' fees, the
prevailing party in any action to enforce any provision of the
contract shall be entitled to recover its reasonable attorneys'
fees), (iv) any provisions of any Transaction Documents imposing
penalties or forfeitures, late payment charges or any increase
in interest rate, upon delinquency in payment or the occurrence
of a default to the extent they constitute a penalty or
forfeiture or are otherwise contrary to public policy, (v) any
rights of set-off, (vi) any provision of the Transaction
Documents to the effect that a statement, certificate,
determination or record shall be deemed conclusive absent
manifest error (or similar effect), including, without
limitation, that any such statement, certificate, determination
or record shall be prima facie evidence of a fact, or (vii) any
provision of the Transaction Documents which provides that
notice not actually received may be binding on any party.
E. We express no opinion with respect to the legality, validity,
binding nature or enforceability of (i) any vaguely or broadly
stated waiver, including without limitation, the waivers of
diligence, presentment, demand, protest or notice, (ii) any
waivers or consents (whether or not characterized as a waiver or
consent in the Transaction Documents) relating to the rights of
Borrower or duties owing to it existing as a matter of law,
including, without limitation, waivers of the benefits of
statutory or constitutional provisions, to the extent such
waivers or consents are found by courts to be against public
policy or which are ineffective pursuant to California statutes
and judicial decisions, (iii) any waivers of any statute of
limitations to the extent such waivers are in excess of four
years beyond the statutory period, or (iv) covenants to the
extent they are construed to be independent requirements as
distinguished from conditions that may trigger an event of
default.
F. We express no opinion with respect to the legality, validity,
binding nature or enforceability of any provision of the
Transaction Documents to the effect that rights or remedies are
not exclusive, that every right or remedy is cumulative and may
be exercised in addition to any other right or remedy, that the
election of some particular remedy or remedies does not preclude
recourse to one or more other remedies or that failure to
exercise
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or delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy.
G. We express no opinion as to any provision of the Transaction
Documents requiring written amendments or waivers of such
documents insofar as it suggests that oral or other
modifications, amendments or waivers could not be effectively
agreed upon by the parties or that the doctrine of promissory
estoppel might not apply.
H. We express no opinion as to the applicability or effect of
compliance or non-compliance by Lender with any state, federal
or other laws applicable to Lender or to the transactions
contemplated by the Transaction Documents because of the nature
of its business, including its legal or regulatory status.
I. We express no opinion regarding compliance or non-compliance (or
the effect thereof) with federal or state securities laws.
J. Our opinions set forth in paragraph 1, as to valid existence,
due qualification and good standing are based solely on the
certificates referenced in paragraph (f) above (copies of which
have been furnished to you).
K. We express no opinion as to the effect of California UCC
Sections 9501 through 9508, which, inter alia, impose procedural
limitations on the exercise of remedies by a secured creditor.
L. We express no opinion as to the creation, attachment, validity,
enforceability, perfection or priority of a security interest in
any item of collateral or the necessity of making any filings or
taking any other action in connection therewith.
M. Our opinions in clauses (b) and (c) of paragraph 5 above are
intended to express our opinion that the execution, delivery and
performance by Borrower of the Transaction Documents are neither
prohibited by, nor do they subject Borrower to a fine, penalty
or similar sanction that would be materially adverse to
Borrower, under or any law, rule, regulation of the State of
California or United States federal law or any order, writ,
judgment, decree, determination or award of any United States
federal or California state governmental authority that a lawyer
practicing in the
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State of California exercising customary professional diligence
would reasonably recognize to be applicable to Borrower and the
transactions contemplated by the Transaction Documents;
accordingly, our opinions set forth above are limited by the
foregoing.
N. This opinion speaks only at and as of its date and is based
solely on the facts and circumstances known to us at and as of
such date. We express no opinion as to the effect on Lender's
rights under the Transaction Documents of any statute, rule,
regulation or other law which is enacted or becomes effective
after, or of any court decision which changes the law relevant
to such rights which is rendered after, the date of this opinion
or the conduct of the parties following the closing of the
contemplated transaction. In addition, in rendering this
opinion, we assume no obligation to revise or supplement this
opinion should the present laws of the jurisdictions mentioned
herein be changed by legislative action, judicial decision or
otherwise.
This opinion is made with the knowledge and understanding that you (but
no other person) may rely thereon in entering into the Credit Agreement and is
solely for your benefit, and this opinion may not be disclosed to or relied upon
by any person other than you.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
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EXHIBIT 9.2.2
OPERATING ADVANCE EXAMPLE
[*]
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EXHIBIT 13.1
CORE PATENT RIGHTS
[*]
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EXHIBIT 16.1
NON-CONTROLLED SUBJECT MATTER
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-07707, No. 333-29549, and No. 333-59633) pertaining to the
Cell Genesys, Inc. 1989 Incentive Stock Plan, the 1992 Employee Stock Purchase
Plan, and the 1998 Incentive Stock Plan, of our report dated January 26, 1999
with respect to the consolidated financial statements of Cell Genesys, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,086
<SECURITIES> 38,788
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,995
<PP&E> 25,938
<DEPRECIATION> 19,859
<TOTAL-ASSETS> 65,799
<CURRENT-LIABILITIES> 9,964
<BONDS> 0
12,083
0
<COMMON> 230,588
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 65,799
<SALES> 0
<TOTAL-REVENUES> 24,146
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,136
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,158
<INCOME-PRETAX> (13,216)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,216)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
