<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended September 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from to
--------- ----------
Commission File Number 0-19319
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Vertex Pharmaceuticals Incorporated
(Exact name of registrant as specified in its charter)
Massachusetts 04-3039129
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 Waverly Street, Cambridge, Massachusetts 02139-4242
--------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 577-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 25,196,342
- -------------------------------------- -------------------------------
Class Outstanding at November 6, 1997
1
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
INDEX
Page
--------
Part I. - Financial Information
Item 1. Condensed Consolidated Financial Statements
Report of Independent Accountants 3
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1997 and 1996 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 7
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. - Other Information 14
Signatures 15
2
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Stockholders of Vertex Pharmaceuticals
Incorporated:
We have reviewed the accompanying condensed consolidated balance sheet of
Vertex Pharmaceuticals Incorporated as of September 30, 1997, and the related
condensed consolidated statements of operations and cash flows for the three
month and the nine month periods ended September 30, 1997 and 1996. These
financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations, retained earnings, and cash
flows for the year then ended (not presented herein); and in our report dated
February 18, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 21, 1997
3
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 177,191 $ 34,851
Short-term investments 106,092 95,508
Prepaid expenses and other current assets 2,183 1,791
------------- ------------
Total current assets 285,466 132,150
Restricted cash 2,316 2,316
Property and equipment, net 10,182 8,663
Other assets 763 370
------------- ------------
Total assets $ 298,727 $ 143,499
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital lease and debt $ 2,677 $ 2,910
Accounts payable and accrued expenses 8,525 4,146
Deferred revenue 556 ---
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Total current liabilities 11,758 7,056
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Obligations under capital leases and debt, excluding
current portion 5,488 5,617
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Total liabilities 17,246 12,673
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Stockholders' equity:
Common stock 251 211
Additional paid-in capital 391,056 227,510
Equity adjustments 151 49
Accumulated deficit (109,977) (96,944)
------------- ------------
Total stockholders' equity 281,481 130,826
------------- ------------
Total liabilities and stockholders' equity $ 298,727 $ 143,499
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Collaborative and other research and development $ 9,739 $ 2,930
Interest income 3,808 1,190
---------- ----------
Total revenues 13,547 4,120
---------- ----------
Costs and expenses:
Research and development 16,449 8,525
General and administrative 2,813 1,832
Interest 141 109
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Total costs and expenses 19,403 10,466
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Net loss $ (5,856) $ (6,346)
---------- ----------
---------- ----------
Net loss per common share $ (0.23) $ (0.33)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding 25,119 19,364
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Collaborative and other research and development $ 22,719 $ 8,519
Interest income 9,901 3,498
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Total revenues 32,620 12,017
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Costs and expenses:
Research and development 37,561 27,352
General and administrative 7,654 5,473
License payment --- 15,000
Interest 438 331
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Total costs and expenses 45,653 48,156
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Net loss $(13,033) $(36,139)
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---------- ----------
Net loss per common share $ (0.54) $ (2.00)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding 23,950 18,036
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,033) $(36,139)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 2,565 2,534
Changes in assets and liabilities:
Prepaid expenses and other
current assets (392) 18
Accounts payable and accrued
expenses 4,379 (3,607)
Deferred revenue 556 (197)
---------- ----------
Net cash provided (used) by
operating activities (5,925) (37,391)
---------- ----------
Cash flows from investing activities:
Net purchases and sales of short-term investments (10,468) (33,767)
Expenditures for property and equipment (4,084) (1,708)
Other assets (393) (869)
---------- ----------
Net cash provided (used) by
investing activities (14,945) (36,344)
---------- ----------
Cash flows from financing activities:
Net proceeds from public offerings of common stock 148,810 77,539
Proceeds from private placement of common stock 10,000 5,000
Other issuances of common stock 4,776 2,039
Proceeds from equipment sale/leaseback and debt 1,855 1,488
Repayment of capital lease obligations (2,217) (1,598)
---------- ----------
Net cash provided (used) by
financing activities 163,224 84,468
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Effect of exchange rate changes on cash (14) 1
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Increase (decrease) in cash and cash equivalents 142,340 10,734
Cash and cash equivalents at beginning of period 34,851 28,390
---------- ----------
Cash and cash equivalents at end of period $177,191 $ 39,124
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
7
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The year end condensed balance sheet data was derived from audited
financial statements. Certain information and footnote disclosures normally
included in the Company's annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair
statement of the results for the interim periods ended September 30, 1997 and
1996.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year,
although the Company expects to incur a substantial loss for the year ended
December 31, 1997. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1996, which are contained in the Company's 1996 Annual Report to its
shareholders and in its Form 10-K filed with the Securities and Exchange
Commission.
2. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less at the date
of purchase to be cash equivalents. Changes in cash and cash equivalents may
be affected by shifts in investment portfolio maturities as well as by actual
net cash receipts or disbursements.
3. Net Loss per Common Share
The net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not
included in the per-share calculations where the effect would be
anti-dilutive.
4. Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share"
which modifies the way in which earnings per share ("EPS") is calculated and
disclosed. SFAS 128 requires a dual presentation of basic and diluted EPS
for all years presented in the income statements. SFAS 128 is effective for
financial statements for periods ending after December 15, 1997. The
adoption of SFAS 128 is not expected to have a material impact on the
Company's EPS calculation.
The FASB has recently issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income". This Statement
requires that total comprehensive income be reported and that changes be
shown in a financial statement displayed with the same prominence as other
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods is required for comparative purposes. The Company does not believe
that this will have a material impact on results of operations.
8
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
5. Recent Collaborative Agreements
In September 1997, the Company and Kissei Pharmaceutical Co. Ltd.
("Kissei") entered into a collaborative agreement to design inhibitors of p38
MAP Kinase and to develop them as novel, orally active drugs for the
treatment of inflammatory and neurological diseases. Under the terms of the
agreement, Kissei will pay the Company up to $22 million composed of a $4
million research funding payment paid in September 1997, $11 million of
product research funding over three years and $7 million of development and
commercialization milestone payments. The Company and Kissei will
collaborate to identify and evaluate compounds that target p38 MAP Kinase.
Kissei will have the right to develop and commercialize these compounds in
its licensed territories. Kissei has exclusive rights to p38 MAP Kinase
compounds in Japan and certain Southeast Asian countries and semi-exclusive
rights in China, Taiwan and South Korea. The Company retains exclusive
marketing rights in the United States, Canada, Europe, and the rest of the
world. In addition, the Company will have the right to supply bulk drug
material to Kissei for sale in its territory, and will receive royalties and
drug supply payments on any product sales. Kissei has the right to terminate
the agreement without cause upon six months' notice after June 1998.
In June 1997, the Company and Eli Lilly and Company ("Lilly") entered
into a collaborative agreement to design inhibitors of the hepatitis C
protease enzyme, and to develop them as novel drugs to treat hepatitis C
infection. Under the terms of the agreement, Lilly will pay the Company up to
$51 million composed of a $3 million research funding payment paid in June
1997, $33 million of product research funding over six years and $15 million
of development and commercialization milestone payments. The Company and
Lilly will jointly manage the research, development, manufacturing and
marketing of drug candidates emerging from the collaboration. The Company
will have primary responsibility for drug design, process development and
pre-commercial drug substance manufacturing, and Lilly will have primary
responsibility for formulation, preclinical and clinical development and
global marketing. The Company has the option to supply 100 percent of
Lilly's commercial drug substance supply needs. The Company will receive
royalties on future product sales, if any. If the Company exercises its
commercial supply option, the Company will receive drug supply payments in
addition to royalties on future product sales, if any. Lilly has the right
to terminate the agreement without cause upon six months' notice after June
1999. In connection with this collaboration, Lilly purchased 263,922 shares
of the Company's common stock for $10,000,000.
9
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in the discovery, development and
commercialization of novel, small molecule pharmaceuticals for the treatment
of major diseases for which there are currently limited or no effective
treatments. The Company is a leader in the use of structure-based drug
design, an approach to drug discovery that integrates advanced biology,
biophysics and chemistry. The Company is conducting nine significant
pharmaceutical research and development programs to develop pharmaceuticals
for the treatment of viral diseases, multidrug resistance in cancer,
autoimmune diseases, inflammatory diseases and neurodegenerative disorders.
Four of these programs are in the development phase, and the other four are
in the research phase. During the third quarter of 1997, the Company's
partner, Glaxo Wellcome plc ("Glaxo Wellcome"), advanced Phase III clinical
development of VX-478 (141W94), the lead compound in the Company's HIV
program, in the United States, Canada and Europe. Kissei is also developing
VX-478 as the Company's partner for the HIV program in the Far East. Through
a series of Phase II clinical trials underway, the Company and its partner
for development and marketing of VX-710 in Canada, BioChem Therapeutics Inc.
("BioChem"), are evaluating VX-710 for the reversal of cancer multidrug
resistance in solid tumors. During the quarter, the Company and Alpha
Therapeutic ("Alpha") terminated their agreement to develop VX-366, an oral
compound for the treatment of inherited hemoglobin disorders, including
sickle cell anemia and beta thalassemia. In addition, the Company signed a
research, development and commercialization agreement with Kissei to develop
new drugs targeting p38 MAP Kinase to treat inflammatory and neurological
diseases.
To date, the Company has not received any revenues from the sale of
pharmaceutical products and does not expect to receive such revenues this
fiscal year, if ever. The Company has incurred since its inception, and may
incur over the next several years, significant operating losses as a result
of expenditures for its research and development programs. The Company
expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial.
Results of Operations
Three Months Ended September 30, 1997 Compared with Three Months Ended
September 30, 1996. For the third quarter of 1997, the Company's total
revenues were $13,547,000 as compared to $4,120,000 during the same period in
1996. From quarter to quarter, the Company's revenues fluctuate as a result
of changes in the timing and amount of partner research support payments,
partner reimbursements of Vertex drug development costs, and payments for the
achievement of various research and development milestones. In the third
quarter of 1997, the Company received $9,380,000 in revenue from its
collaborative agreements, $3,808,000 in interest received on invested funds
and $359,000 from government grants and other revenue. In the third quarter
of 1996, the Company received $2,678,000 in revenue from its collaborative
agreements, $1,190,000 in interest earned on invested funds and $252,000 from
government grants and other revenue. The increase in collaborative revenue
for the third quarter in 1997 is attributable principally to the $4,000,000
up-front payment and $750,000 in research funding received from Kissei under
the collaborative agreement for the Company's p38 MAP Kinase program, signed
in September 1997, the reimbursement by Hoechst Marion Roussel ("HMR") of
certain costs associated with the Company's ICE program, and research funding
from Lilly under a research collaboration signed in June 1997.
10
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's total costs and expenses increased to $19,403,000 in the
third quarter of 1997, from $10,466,000 during the same period in 1996.
Research and development expenses were $16,449,000 in the third quarter of
1997 as compared to $8,525,000 during the same period in 1996. This increase
in expense was principally a result of the continued growth of the Company's
research and development organization, ongoing clinical trials in the
multidrug resistance program, and preclinical development expenses for the
VX-740, the Company's lead compound in the ICE program, and VX-497, the lead
compound in the IMPDH program. In addition, during the third quarter of
1997, the Company purchased a portfolio of ten patent application families
claiming interleukin 1 beta converting enzyme ("ICE") and its inhibitors from
Sanofi S.A. General and administrative expenses increased during the third
quarter of 1997 to $2,813,000 from $1,832,000 in the third quarter of 1996
due primarily to increases in administrative personnel, increased legal costs
associated with patents and other matters, as well as an increase in
marketing efforts by the Company and the Company's subsidiary Altus Biologics
Inc. ("Altus"). Interest expense increased to $141,000 in the third quarter
of 1997 as compared to $109,000 during the same period in 1996 due to higher
levels of equipment financing.
The Company incurred a net loss of $5,856,000 or $0.23 per share in the
third quarter of 1997 as compared to a net loss of $6,346,000 or $0.33 per
share in the third quarter of 1996.
Nine Months Ended September 30, 1997 Compared with Nine Months Ended
September 30, 1996. The Company's total revenues increased to $32,620,000
for the nine months ended September 30, 1997 from $12,017,000 for the nine
months ended September 30, 1996. In 1997, the Company's revenues consisted
of $21,439,000 earned under the Company's collaborative agreements,
$9,901,000 in interest income and $1,280,000 in government grants and other
income. In 1996, the Company's revenues consisted of $7,825,000 earned under
the Company's collaborative agreements, $3,498,000 in interest income and
$694,000 in government grants and other income. The increase in revenue
during 1997 compared to the same period in 1996 was principally due to the
new collaborative agreements signed in 1997, an increase in development
reimbursements, and higher investment income. The Company received
$4,000,000 from Kissei upon the commencement of the p38 MAP Kinase
collaboration in September 1997, an upfront payment of $3,000,000 from Lilly
upon the commencement of the hepatitis C collaboration in June 1997, and
reimbursements of certain development costs by Kissei and HMR associated with
the Company's HIV and ICE programs including $4,000,000 from Kissei in the
first three quarters of 1997. The increase in investment income was due to
higher levels of cash and investments resulting from public offerings of the
Company's stock in March 1997 and August 1996.
The Company's total costs decreased to $45,653,000 for the nine months
ended September 30, 1997 from $48,156,000 for the nine months ended September
30, 1996. In the second quarter of 1996, the Company paid $15,000,000 to
obtain a non-exclusive, worldwide license under certain G.D. Searle and
Company patent applications claiming HIV protease inhibitors. Research and
development expenses increased to $37,561,000 in the first nine months of
1997 from $27,352,000 in the first nine months of 1996, due to additional
scientific staffing, ongoing Phase II clinical trials for the Company's
multidrug resistance program, purchase of a patent applications portfolio, as
well as the commencement of preclinical activities for VX-740, the Company's
lead compound in the ICE program, and VX-497, the lead compound in the IMPDH
program.
11
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses increased during the first nine
months of 1997 to $7,654,000 from $5,473,000 in the first nine months of 1996
due primarily to increases in administrative personnel, increased legal costs
associated with patents and other matters, as well as an increase in
marketing efforts of the Company and Altus. Interest expense was $438,000 in
the first nine months of 1997, an increase from $331,000 in the first nine
months of 1996, as a result of higher levels of equipment financing during
the period.
For the reasons stated above, the Company incurred a net loss of
$13,033,000 or $0.54 per share in the nine months ended September 30, 1997
compared to a net loss of $36,139,000 or $2.00 per share in the nine months
ended September 30, 1996.
Liquidity and Capital Resources
The Company's operations have been funded principally through strategic
collaborative agreements, public offerings and private placements of the
Company's equity securities, equipment lease financing, government grants and
interest income. The Company expects to incur increased research and
development and related supporting expenses and, consequently, may incur
continued losses on a quarterly and annual basis as it continues to develop
existing and future compounds and to conduct clinical trials of potential
drugs. The Company also expects to incur substantial administrative and
commercialization expenditures in the future and additional expenses related
to the filing, prosecution, defense and enforcement of patent and other
intellectual property rights.
The Company expects to finance these substantial cash needs with its
existing cash and investments at September 30, 1997 of approximately $283
million, together with interest earned thereon, future payments under its
existing collaborative agreements, and facilities and equipment financing.
To the extent that funds from these sources are not sufficient to fund the
Company's activities, it will be necessary to raise additional funds through
public offerings or private placements of securities or other methods of
financing. There can be no assurance that such financing will be available
on acceptable terms, if at all.
In September 1997, the Company entered into a collaborative agreement for
up to $22 million with Kissei for the research, development and
commercialization of compounds in connection with the Company's p38 MAP
Kinase program. The Company will supply bulk drug material to Kissei for
sale in its territory, and will receive royalties and drug supply payments on
product sales, if any.
In August 1997, the Company and Alpha terminated their agreement to
develop VX-366, an oral compound for the treatment of inherited hemoglobin
disorders, including sickle cell anemia and beta thalassemia. This
termination does not have a material effect on the liquidity and capital
resources of the Company.
In June 1997, the Company and Lilly entered into a collaborative
agreement to design inhibitors of the hepatitis C protease enzyme, and to
develop them as novel drugs to treat hepatitis C infection.The Company has
the option to supply 100 percent of Lilly's commercial drug substance supply
needs. The Company will receive royalties on future product sales, if any.
If the Company exercises its commercial supply option, the Company will
receive drug supply payments in addition to royalties on future product
sales, if any. In connection with this collaboration, Lilly purchased 263,922
shares of the Company's common stock for $10,000,000.
12
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's aggregate cash and investments increased by $152,924,000
during the nine months ended September 30, 1997 to $283,283,000, principally
due to a public offering of common stock completed in March 1997, with net
proceeds of approximately $148,810,000, and an equity investment by Lilly in
June 1997 of $10,000,000. Cash used by operations, principally to fund
research and development activities, was $5,925,000 during the same period.
The Company also expended $4,084,000 during this period to acquire property
and equipment, principally for research equipment and facilities. During the
first nine months of 1997, the Company entered into equipment lease financing
in the aggregate amount of $1,855,000 and repaid $2,217,000 of its lease
obligations.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share"
which modifies the way in which earnings per share ("EPS") is calculated and
disclosed. SFAS 128 requires a dual presentation of basic and diluted EPS
for all years presented in the income statements. SFAS 128 is effective for
financial statements for periods ending after December 15, 1997. The
adoption of SFAS 128 is not expected to have a material impact on the
Company's EPS calculation. The FASB has also issued Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income".
This Statement requires that total comprehensive income be reported and that
changes be shown in a financial statement displayed with the same prominence
as other financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods is required for comparative purposes. The Company does
not believe that this will have a material impact on results of operations.
13
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
------------------
None
Item 2. Changes in Securities:
----------------------
None
Item 3. Defaults Upon Senior Securities:
--------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders:
----------------------------------------------------
None
Item 5. Other Information:
------------------
None
Item 6. Exhibits:
---------
10.1 Research and Development Agreement between the Company and Kissei
Pharmaceutical Co. Ltd and the Company effective September 10,
1997 (filed herewith with certain confidential information
deleted).
27 Financial Data Schedule. (Exhibit 27 is submitted as an exhibit
only in the electronic format of this Quarterly Report on Form
10-Q submitted to the Securities and Exchange Commission.).
99 Letter of Independent Accountants.
Reports on Form 8-K:
--------------------
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTEX PHARMACEUTICALS INCORPORATED
Date: November 12, 1997 /s/ Thomas G. Auchincloss, Jr.
---------------------------------------
Thomas G. Auchincloss, Jr.
Vice President of Finance and Treasurer
(Principal Financial Officer)
Date: November 12, 1997 /s/ Hans D. van Houte
---------------------------------------
Hans D. van Houte
Controller
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT 10.1
The Company has omitted from this Exhibit 10.1 portions of the Agreement for
which the Company has requested confidential treatment from the Securities
and Exchange Commission. The portions of the Agreement for which
confidential treatment has been requested have been deleted and marked with
an asterisk surrounded by brackets ([*]) and have been filed separately with
the Securities and Exchange Commission.
<PAGE>
Research and Development Agreement
between
Vertex Pharmaceuticals Incorporated
and
Kissei Pharmaceutical Co., Ltd.
Cambridge, Massachusetts, U.S.A. Matsumoto-City, Nagano Pref., Japan
<PAGE>
RESEARCH AND DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INTRODUCTION ............................................................ 1
ARTICLE I -- Definitions ................................................ 2
1.1 "Affiliate" ...................................................... 2
1.2 "Field" .......................................................... 2
1.3 "Compounds" ...................................................... 2
1.4 "Core Development Activities" .................................... 2
1.5 "Core Development Costs" ......................................... 2
1.6 "Promising Compound" ............................................. 2
1.7 "Promising Processes" ............................................ 2
1.8 "Patents" ........................................................ 2
1.9 "Promising Patents" .............................................. 3
1.10 "Research Program" ............................................... 3
1.11 "Development Program" ............................................ 3
1.12 "KISSEI Technical Information" .................................... 3
1.13 "VERTEX Territory" ............................................... 3
1.14 "Exclusive Territory" ............................................ 3
1.15 "Semi-Exclusive Territory" ....................................... 3
1.16 "Territory" ...................................................... 3
1.17 "Effective Date" .................................................. 3
ARTICLE II -- Research and Development .................................. 4
2.1 Commencement ..................................................... 4
2.2 Payments by KISSEI ............................................... 4
2.3 Research Committee ............................................... 5
2.4 Exchange of Information .......................................... 5
2.5 Redirection of Research Program .................................. 6
2.6 Grantback ........................................................ 6
2.7 Information Transfer ............................................. 6
2.8 Development ...................................................... 7
2.9 Bulk Supply for Research and Development ......................... 7
2.10 KISSEI Research .................................................. 8
ARTICLE III -- KISSEI's Rights .......................................... 8
3.1 Selection of Promising Compounds ................................. 8
3.2 Option and Rights Agreement ...................................... 8
3.3 Scientific Strategies ............................................ 9
ARTICLE IV -- Confidentiality ........................................... 9
4.1 Undertaking ...................................................... 9
4.2 Exceptions ....................................................... 9
4.3 Publicity ........................................................ 10
4.4 Survival ......................................................... 10
<PAGE>
TABLE OF CONTENTS
(continued)
- -------------------------------------------------------------------------------
Page
ARTICLE V -- Patents ..................................................... 10
5.1 Preparation ....................................................... 10
5.2 Cost Reimbursement ................................................ 10
5.3 Failure to Reimburse .............................................. 11
ARTICLE VI -- Infringement ............................................... 11
ARTICLE VII -- Term and Termination ...................................... 11
7.1 Term of Agreement ................................................. 11
7.2 Termination of Research Program by KISSEI for Cause ............... 11
7.3 Termination of Research Program by KISSEI Without Cause ........... 12
7.4 Termination by VERTEX ............................................. 13
7.5 Effect of Termination ............................................. 13
ARTICLE VIII -- Dispute Resolution ....................................... 13
8.1 Governing Law, and Jurisdiction ................................... 13
8.2 Arbitration ....................................................... 13
ARTICLE IX -- Miscellaneous Provisions ................................... 14
9.1 Official Language ................................................. 14
9.2 Waiver ............................................................ 14
9.3 Force Majeure ..................................................... 14
9.4 Severability ...................................................... 15
9.5 Government Acts ................................................... 15
9.6 Government Approvals .............................................. 15
9.7 Export Controls ................................................... 15
9.8 Assignment ........................................................ 15
9.9 Counterparts ...................................................... 15
9.10 No Agency ......................................................... 15
9.11 Notice ............................................................ 16
9.12 Headings .......................................................... 16
9.13 Authority ......................................................... 16
9.14 Entire Agreement .................................................. 16
9.15 Competition ....................................................... 16
Schedule I -- List of Vertex Patent Applications and Patents
Schedule II -- Summary of Research Activities
Schedule III --Countries in the Exclusive Territory
<PAGE>
Research and Development Agreement
AGREEMENT made and effective this 10th day of September, 1997, between VERTEX
PHARMACEUTICALS INCORPORATED, a Massachusetts corporation ("VERTEX"), and
KISSEI PHARMACEUTICAL CO., LTD., a Japanese corporation ("KISSEI").
Introduction
A. VERTEX is a multidisciplinary biopharmaceutical company focused on the use
of structural biology, biophysics and organic chemistry to design and
develop novel human therapeutics. The Company has been involved for some
time in research aimed at developing drugs to treat acute and chronic
inflammation and neurodegeneration.
B. KISSEI is a diversified pharmaceutical company with substantial expertise
in the area of research, product development, the conduct of preclinical
and clinical trials, sales and marketing, and is interested in the
research, development, marketing and sale of pharmaceuticals for the
treatment of acute and chronic inflammation and neurodegeneration.
C. Both parties desire to enter into a collaboration specifically targeting an
area in which VERTEX has been working for some time -- the development of
small molecule inhibitors of the p38 enzyme, a member of the MAP kinase
family -- applying the complementary skills and strengths which each party
brings to the transaction.
D. The purpose of this Agreement is to set forth the terms upon which VERTEX,
together with KISSEI, will attempt to design and develop novel small
molecule inhibitors of the p38 enzyme for the treatment of acute and
chronic inflammation and neurodegeneration, with the financial and
technical assistance of KISSEI, for development, manufacture, marketing and
sale by KISSEI and/or sublicensees in the Territory (as defined below) upon
the terms set forth herein and in the attached form of Option and Rights
Agreement.
E. KISSEI desires to learn various scientific strategies from VERTEX that can
be applied to drug discovery programs outside of the Research Program, and
VERTEX is willing to accommodate that desire.
In consideration of the mutual covenants set forth in this Agreement, and other
good and valuable consideration, the parties agree as follows:
Research and Development Agreement -- Page 1
<PAGE>
Article I
Definitions
1.1 "Affiliate" shall mean at any time, any person or legal entity, then
directly or indirectly controlled by, controlling or under common control
with the party with respect to which this term is associated, and shall
include any person or legal entity which owns, either of record or
beneficially, 50% or more of the voting stock of any party hereto, or 50% or
more of the voting stock of which is owned by any party hereto.
1.2 "Field" shall mean human use in the diagnosis, prevention and
treatment of acute and chronic inflammation and neurodegeneration.
1.3 "Compounds" shall mean small molecule inhibitors of the p38 enzyme
discovered or developed by VERTEX, or by VERTEX together with KISSEI, in the
Field in the course of the Research Program, whether discovered or developed
by VERTEX or by VERTEX together with KISSEI (i) prior to or after the
effective date of this Agreement, or (ii) unless the Research Program is
terminated earlier by KISSEI pursuant to Section 7.2 or 7.3 hereof, during
[*] Research Program pursuant to Section 2.1 of this Agreement.
1.4 "Core Development Activities" shall have the meaning ascribed to it
in Section 2.8(c) hereof.
1.5. "Core Development Costs" shall have the meaning ascribed to it in
Section 2.8(c) hereof.
1.6 "Promising Compound" shall mean any Compound which is the subject of
or which is discovered during the Research Program and which becomes the
subject of KISSEI's rights in accordance with the provisions of Article III
hereof.
1.7 "Promising Processes" shall mean any technical information resulting
from the Research Program discovered or developed by VERTEX or by VERTEX
together with KISSEI in the Field in the course of the Research Program,
whether discovered or developed by VERTEX or by VERTEX together with KISSEI
prior to or after the effective date of this Agreement.
1.8 "Patents" shall mean any existing or later-filed patents or patent
applications filed by VERTEX or under which VERTEX acquires or has acquired
rights (including rights acquired under Section 2.6 hereof) claiming a
Compound, a Promising Process, or a method of manufacturing or using a
Compound, including any continuation, continuation-in-part, or division
thereof or any substitute application therefor. An up-to-date list of
Patents is appended hereto as Schedule I. VERTEX shall keep KISSEI currently
informed in writing of additions and amendments thereto.
Research and Development Agreement -- Page 2
<PAGE>
1.9 "Promising Patents" shall mean any Patents which become the subject
of KISSEI's rights in accordance with the provisions of Article III hereof.
1.10 "Research Program" shall mean research activities associated with
discovery or creation of Compounds, including in vitro studies of Compounds,
in vivo animal studies for research purposes only (rather than for the
generation of data for regulatory submission), and related activities, as
described in the Summary of Research Activities attached hereto as Schedule
II.
1.11 "Development Program" shall mean activities associated with
development of Promising Compounds for sale, including but not limited to (a)
selection of clinical candidates from among lead Compounds and preparation
for preclinical assessment thereof; (b) formulation of Promising Compounds
for use in preparation for preclinical studies; (c) preclinical animal
studies performed in accordance with "Good Laboratory Practices" (or the
applicable equivalent); (d) manufacture of Promising Compounds for
preclinical and clinical studies; (e) planning, implementation, evaluation
and administration of human clinical trials; (f) manufacturing process
development and scale-up; and (g) preparation and submission of applications
for regulatory approval.
1.12 "KISSEI Technical Information" shall mean all know-how, proprietary
information, or special knowledge of KISSEI relating to the research,
development, utilization, manufacture, or use of any Compound or Promising
Process, including but not limited to processes, techniques, methods,
products, materials, and compositions.
1.13 "VERTEX Technical Information" shall mean all know-how, proprietary
information, or special knowledge of VERTEX relating to the research,
development, utilization, manufacture, or use of any Compound or Promising
Process, including but not limited to processes, techniques, methods,
products, materials, and compositions.
1.14 "Exclusive Territory" shall mean those countries identified on
Schedule III hereto as comprising the exclusive territory.
1.15 "Semi-Exclusive Territory" shall mean those countries identified on
Schedule III hereto as comprising the semi-exclusive territory.
1.16 "Territory" shall mean the Exclusive Territory and the
Semi-Exclusive Territory.
1.17 "Effective Date" shall mean the effective date of this Agreement as
set forth on the first page hereof.
Research and Development Agreement -- Page 3
<PAGE>
ARTICLE II
Research and Development
2.1 Commencement. VERTEX or VERTEX together with KISSEI shall commence
the Research Program promptly upon the Effective Date and shall use its
reasonable best efforts to diligently conduct the Research Program during the
term of this Agreement in accordance with the provisions hereof. The
Research Program shall be concluded not later than 30 June 2000, unless
extended by agreement of the parties hereto. At the election of KISSEI,
subject to mutual agreement including agreement upon any additional funding
to be provided to VERTEX by KISSEI, the Research Program may be extended
through 31 December 2001.
2.2 Payments by KISSEI. KISSEI will provide financial support to the
Research Program and Development Program in the form of the following
payments to VERTEX.
1. As soon as practicable but in any event not more than fourteen
(14) days after execution of this Agreement : $4,000,000.00
2. July 1, 1997 - June 30, 1998: [ * ]
3. July 1, 1998 - June 30, 1999: [ * ]
4. July 1, 1999 - June 30, 2000: [ * ]
KISSEI will make additional research support payments to VERTEX in the
amounts stated below upon the occurrence of any of the following events with
respect to each Promising Compound.
5. [ * ]
[ * ]
6. [ * ]
[ * ]
7. [ * ]
[ * ]
The payments referenced in each of items 2, 3 and 4 above shall be
made in equal quarterly installments on the first day of each three month
period during the year referenced in each item, i.e., each July 1, October 1,
January 1 and April 1. The payment due on July 1, 1997 shall be made within
fourteen (14) days after the execution of this Agreement. All payments
Research and Development Agreement -- Page 4
<PAGE>
shall be made by wire transfer in United States dollars to the credit of such
bank account as may be designated by VERTEX in writing to KISSEI. Any
payment which falls due on a date which is a legal holiday in the
Commonwealth of Massachusetts may be made on the next succeeding day which is
not a legal holiday in the Commonwealth. If any installment payments set
forth above are not then due and remain unpaid upon termination of this
Agreement pursuant to Section 7.1 here of, KISSEI's obligation to make such
payments herein as scheduled in Section 2.2 shall survive termination of this
Agreement, if upon such termination, the Option and Rights Agreement shall be
in effect with respect to a Promising Compound.
KISSEI shall be required to make the payments referenced in items 5,
6 and 7 above with respect to each Promising Compound developed hereunder and
under the Option and Rights Agreement, provided that in the event that a
Promising Compound fails in development, any of items 5, 6 and 7 previously
paid with respect to such Promising Compound shall be made fully creditable
toward the same item due with respect to a subsequent Promising Compound, and
provided further that if two (or more) Promising Compounds are being
developed at the same time, items 5, 6 and 7 will be applicable to each such
Promising Compound. On the date any one of the payments under items 5, 6 and
7 above is earned with respect to a particular Promising Compound, any of the
other lower numbered items 5, 6 and 7 which have not yet been earned with
respect to that Promising Compound shall be deemed to have been achieved and
therefore payable with respect to that Promising Compound.
2.3 Research Committee. Upon the execution of this Agreement, VERTEX
and KISSEI will establish a Research Committee which shall consist of not
more than five persons designated from time to time by each of VERTEX and
KISSEI. The Research Committee shall meet formally at least semi-annually,
or with such other frequency, and at such time and location, as may be
established by the Committee, for the following purposes:
(a) To receive and review reports by VERTEX and KISSEI, which shall
be prepared by each party and submitted to the Research Committee and to the
other party on a quarterly basis within fifteen (15) days after the end of
the quarter, setting forth in general terms the results of work performed by
the reporting party and its Affiliates and sublicensees during the preceding
calendar quarter under the Research Program, including any planned or filed
patent applications covering Compounds;
(b) To advise VERTEX and KISSEI concerning research strategy, goals
and activities, and to consider whether redirection of the Research Program
should be recommended to VERTEX and KISSEI under Section 2.5 of this
Agreement;
(c) To assist in coordinating scientific interactions between
VERTEX and KISSEI during the course of the Research Program;
(d) To discuss matters relating to patents.
2.4 Exchange of Information. VERTEX and KISSEI will meet informally on
a regular basis to discuss the Research Program, and will freely share
technical information in the
Research and Development Agreement -- Page 5
<PAGE>
Field, including VERTEX Technical Information and KISSEI Technical
Information, which is not subject to restrictions imposed by a third party on
disclosure to or use by the other party. As of the effective date of this
Agreement, neither VERTEX nor KISSEI is subject to any such restrictions.
VERTEX and KISSEI will each provide quarterly written reports to the other on
the progress of the Research Program within fifteen (15) days after the end
of each calendar quarter during the term of the Research Program. Each party
will enable any of the other party's representatives on the Research
Committee (or other authorized representatives), to review the ongoing
research being conducted by it under the Research Program and to discuss that
research with its officers, all at such reasonable times and as often as may
be reasonably requested. Any representatives of VERTEX or KISSEI receiving
information from representatives of the other party shall sign appropriate
agreements ensuring that information disclosed to them is held in confidence.
KISSEI shall be free to apply any scientific strategies learned from VERTEX
by it during the course of the Research Program, and not the subject of
patent claims, to its own drug discovery efforts outside the Research Program
without any further obligation to VERTEX.
2.5 Redirection of Research Program. If at any time during the term of
this Agreement, the Research Committee shall determine in good faith that the
Research Program or any portion thereof cannot be successfully completed, or
if so completed will not produce Compounds that are commercially viable, the
Committee may suggest revision or reorientation of the Research Program to
each party's own top management, and upon mutual consent VERTEX and KISSEI
shall thereafter promptly modify their respective activities in connection
with the Research Program accordingly.
2.6 Grantback. KISSEI shall keep VERTEX fully advised of any Compounds
designed or discovered by KISSEI or any of its Affiliates, sublicensees and
subcontractors as a result of work under the Research Program ("KISSEI
Research Compound"), and any improvements made by KISSEI or its Affiliates or
sublicensees relating to Compounds and Promising Processes during the term of
the Research Program and the Development Program, whether patentable or not
("KISSEI Improvements"). KISSEI shall assign to VERTEX all of its rights to
any such KISSEI Research Compounds and KISSEI Improvements, and any such
KISSEI Research Compounds and KISSEI Improvements shall be considered
Compounds and/or VERTEX Technical Information and subject to KISSEI's rights
hereunder. KISSEI will seek to obtain similar rights in favor of VERTEX for
any KISSEI Improvements generated or made available to it by its Affiliates
and sublicensees, if any. VERTEX shall seek to obtain rights hereunder for
KISSEI in the Territory for any such improvements generated or made available
to VERTEX by its other licensees, if any.
2.7 Information Transfer. At such time as VERTEX and KISSEI, pursuant
to Article III hereof, shall enter into the Option and Rights Agreement with
respect to Promising Compounds, VERTEX shall deliver to KISSEI all
information which is necessary or useful for further development, manufacture
and commercial exploitation and distribution of the Promising Compounds in
the Territory. This information shall include copies of all patents, patent
applications, copyrights, copyright registrations and applications therefor
and all other manifestations of the intellectual property embodied in the
Promising Compounds, whether in human or machine readable form.
Research and Development Agreement -- Page 6
<PAGE>
2.8 Development. (a) KISSEI will have the exclusive right and
obligation to develop and sell Promising Compounds in the Exclusive
Territory, including without limitation the obligation to initiate and
complete any preclinical and clinical studies required to obtain regulatory
approval of Promising Compounds in the Exclusive Territory, and shall bear
all costs of the Development Program for Promising Compounds in the Exclusive
Territory.
(b) KISSEI will have exclusive rights to develop, manufacture and sell
Promising Compounds in the Semi-Exclusive Territory, but subject to the right
of VERTEX, or not more than one licensee of VERTEX in any country in the
Semi-Exclusive Territory, also to develop, manufacture or sell Promising
Compounds in the Semi-Exclusive Territory. The parties will attempt to
coordinate their respective development activities in the Semi-Exclusive
Territory but shall have the right to pursue development of Promising
Compounds independently if effective coordination is not possible. Absent
any agreement to the contrary, each party will bear the cost of its own
development activities in the Semi-Exclusive Territory, except as set forth
below with respect to Core Development Activities, and will have the right to
market and sell in the Semi-Exclusive Territory, for its own account,
products incorporating Promising Compounds.
(c) VERTEX will be undertaking development activities, including
preclinical and clinical studies and process research, necessary for the
development of Promising Compounds outside the Territory. Prior to the
commencement of the Development Program with respect to a Promising Compound,
VERTEX and KISSEI will meet to discuss the worldwide development plan with
respect to that Promising Compound, and will attempt to identify those
development activities being undertaken for development of the Promising
Compound outside the Territory (including preclinical and clinical studies
and process research and development) which will be necessary or useful for
the registration of products incorporating that Promising Compound in Japan.
Any such agreed activities are hereinafter referred to as "Core Development
Activities." VERTEX expects that those activities will be undertaken
applying standards (which KISSEI will specifically note to VERTEX if in
variance with usual and customary development practices and standards in the
United States) which will allow the results of those activities to be used by
KISSEI in its regulatory filings in Japan. VERTEX will provide KISSEI with
any and all preclinical and clinical data generated by VERTEX from Core
Development Activities in North America and Europe, and KISSEI shall be free
to use such data and information solely for the purpose of developing
Promising Compound(s) in the Territory pursuant hereto. If KISSEI should
undertake Core Development Activities with the agreement of VERTEX, VERTEX
shall be free to use any data and information generated by KISSEI in
connection therewith solely for the purpose of developing Promising Compounds
outside the Exclusive Territory. KISSEI shall pay [ * ] Core Development
Activities.
2.9 Bulk Supply for Research and Development. VERTEX will provide
KISSEI with bulk material for research and development in the Territory with
respect to Promising Compounds then under development by VERTEX, at [ * ].
Research and Development Agreement -- Page 7
<PAGE>
2.10 KISSEI Research. During the term of the Research Program, KISSEI
will discuss with and obtain consent from VERTEX or the Research Committee
prior to engaging in specific research activities in the Field. VERTEX will
not unreasonably withhold such consent.
Article III
KISSEI's Rights
3.1 Selection of Promising Compounds. KISSEI has an exclusive option
right to select from time to time for development under the Option and Rights
Agreement referenced below, from Compounds designated by VERTEX for
development, Promising Compounds in which KISSEI has an interest in
development, manufacture, marketing and sale in the Territory as a result of
KISSEI's financial and technical support of the Research Program and the
Development Program. During the course of the Research Program and [ * ],
VERTEX will notify KISSEI if and when it has selected a Compound for
development in the Field outside the Exclusive Territory, and KISSEI shall
have ninety (90) days after receipt of such notice (the "Option Notice") from
VERTEX in which to exercise its option to develop that Compound hereunder.
VERTEX shall include in any such notice to KISSEI a draft development plan
for that Compound outside the Territory and an estimate of related
development costs. KISSEI's option, if unexercised within the 90-day period,
shall expire with respect to that Compound; provided that if, at the time of
receipt of an Option Notice from VERTEX with respect to a Compound, KISSEI is
then developing a Promising Compound under the Option and Rights Agreement
(but only for so long as it continues such development), then its option
under this Section 3.1 with respect to the additional Compound shall extend
beyond the 90-day period and shall expire only upon the expiration or
termination of KISSEI's option rights under this Article III. If KISSEI
should exercise its option with respect to the additional Compound during the
extended option period, at a time when, by reason of development activities
undertaken by VERTEX or its partners outside the Territory subsequent to the
original option period, the development risks with respect to that Compound
have been substantially reduced, the parties will discuss an appropriate
premium to be paid to VERTEX by reason of the accrual of this benefit to
KISSEI. Upon exercise of its development option with respect to any such
Promising Compound, KISSEI will develop that Promising Compound in the
countries of the Territory in accordance with the terms of the Option and
Rights Agreement. KISSEI's option rights under this Article III shall expire
[ * ].
3.2 Option and Rights Agreement. The rights of KISSEI upon exercise of
its option under Section 3.1 above shall be as set forth in the Option and
Rights Agreement attached hereto as Exhibit A (the "Option and Rights
Agreement"). Promptly upon exercise of any such option by notice in writing
from KISSEI to VERTEX, the parties shall execute the Option and Rights
Agreement for further development, manufacture, marketing and sale in the
Territory of the Promising Compound to which the option exercise was directed.
Research and Development Agreement -- Page 8
<PAGE>
3.3 Scientific Strategies. KISSEI may apply scientific strategies
learned from VERTEX, which are not the subject of patent claims, to drug
discovery programs in which KISSEI is or may in the future be engaged outside
of the Research Program.
Article IV
Confidentiality
4.1 Undertaking. During the term of this Agreement, each party shall
keep confidential, and other than as provided herein shall not use or
disclose, directly or indirectly, any trade secrets, confidential or
proprietary information, or any other knowledge, information, documents or
materials, owned, developed or possessed by the other party, whether in
tangible or intangible form, the confidentiality of which such other party
takes reasonable measures to protect, including but not limited to VERTEX
Technical Information and KISSEI Technical Information. Each party shall
take any and all lawful measures to prevent the unauthorized use and
disclosure of such information, and to prevent unauthorized persons or
entities from obtaining or using such information. Each party further agrees
to refrain from directly or indirectly taking any action which would
constitute or facilitate the unauthorized use or disclosure of such
information. Each party may disclose such information to its officers,
employees and agents, and to sublicensees under KISSEI's rights pursuant to
Section 3.1 hereof, and to subcontractors in connection with the development
or manufacture of Promising Compounds, to the extent necessary to enable such
parties to perform their obligations hereunder or under the applicable
sublicense or subcontract, as the case may be; provided, that such officers,
employees, agents, sublicensees and subcontractors have entered into
appropriate confidentiality agreements for secrecy and non-use of such
information which by their terms shall be enforceable by injunctive relief at
the instance of the disclosing party. Each party shall be liable for any
unauthorized use and disclosure of such information by its officers,
employees and agents and any such sublicensees and subcontractors.
4.2 Exceptions. Notwithstanding the foregoing, the provisions of
Section 4.1 hereof shall not apply to knowledge, information, documents or
materials which the receiving party can conclusively establish: (i) have
entered the public domain without such party's breach of any obligation owed
to the disclosing party; (ii) have become known to the receiving party prior
to the disclosing party's disclosure of such information to such receiving
party; (iii) are permitted to be disclosed by the prior written consent of
the disclosing party; (iv) have become known to the receiving party from a
source other than the disclosing party other than by breach of an obligation
of confidentiality owed to the disclosing party; (v) are disclosed by the
disclosing party to a third party without restrictions on its disclosure;
(vi) are independently developed by the receiving party without breach of
this Agreement; or (vii) are required to be disclosed by the receiving party
to comply with applicable laws, to defend or prosecute litigation or to
comply with governmental regulations, provided that the receiving party
provides prior written notice of such disclosure to the disclosing party and
takes reasonable and lawful actions to avoid or minimize the degree of such
disclosure.
Research and Development Agreement -- Page 9
<PAGE>
4.3 Publicity. The timing and content of any press releases or other
public communications relating to the Agreement and the transactions
contemplated herein will, except as otherwise required by law, be determined
jointly by KISSEI and VERTEX.
4.4 Survival. The provisions of this Article IV shall survive the
termination of this Agreement.
Article V
Patents
5.1 Preparation. VERTEX shall take responsibility for the preparation,
filing, prosecution and maintenance of any and all patent applications and
patents in the Territory included in Patents; and shall furnish to KISSEI
copies of documents relevant to any such preparation, filing, prosecution or
maintenance. VERTEX and KISSEI shall otherwise cooperate fully in the
preparation, filing, prosecution and maintenance of all Patents, executing
all papers and instruments so as to enable VERTEX to apply for, to prosecute
and to maintain patent applications and patents in VERTEX's name in any
country in the Territory. The parties acknowledge the importance of
maintaining the confidentiality of any inventions or other information
relating to potential patent claims prior to the filing of patent
applications with respect hereto. Each party shall provide to the other
prompt notice as to all matters which may affect the preparation, filing,
prosecution or maintenance of any such patent applications or patents.
5.2 Cost Reimbursement. KISSEI shall reimburse VERTEX for the following
patent costs with respect to Patents: (a) [ * ] its "general patent
preparation and maintenance costs;" (b) [ * ] the reasonable expenses (other
than "general patent prosecution and maintenance" costs) which VERTEX has
incurred, or may in the future incur, for the preparation, filing,
prosecution and maintenance of Patents in the Semi-Exclusive Territory; and
(c) [ * ] the reasonable expenses (other than "general patent prosecution and
maintenance" costs) which VERTEX has incurred, or may in the future incur,
for the preparation, filing, prosecution and maintenance of Patents in the
Exclusive Territory. "General patent preparation and maintenance costs"
shall include the costs of preparation, filing and prosecution of any patent
application from which a patent application filed in any country of the
Territory claims priority, and any patent application filed under the Patent
Cooperation Treaty (PCT). VERTEX shall notify KISSEI in writing from time to
time of its plans with respect to the preparation, filing, prosecution and
maintenance of Patents in each country in the Territory which are, or have
not yet become, Promising Patents, together with its estimate of the costs of
such preparation, filing, prosecution and maintenance and an estimate of
VERTEX's general patent preparation and maintenance costs. KISSEI shall
reimburse VERTEX for [ * ] such reasonable costs, unless it shall notify
VERTEX in writing, within thirty (30) days after receipt of any such notice
from VERTEX, that KISSEI does not wish to proceed with cost reimbursement
with respect to a specific Patent in any specified country in the Territory;
after which time VERTEX may at its option refrain from, or abandon, the
preparation, filing, prosecution or maintenance of such Patent in such
country in the Territory. In any event, the provisions of Section 5.3 will
Research and Development Agreement -- Page 10
<PAGE>
apply to any patent which is the object of the foregoing notice from KISSEI
and which VERTEX continues to prosecute or maintain.
5.3 Failure to Reimburse. If KISSEI shall fail to reimburse VERTEX as
required under Section 5.2 above with respect to a patent application or
patent included within the Patents within sixty (60) days after receipt of a
written request for payment from VERTEX, VERTEX may terminate KISSEI's rights
hereunder with respect to that patent or patent application upon thirty (30)
days written notice thereof to KISSEI, unless KISSEI during such 30 day
period shall have submitted payment pursuant to the aforementioned request
for payment.
Article VI
Infringement
KISSEI shall notify VERTEX promptly of any possible infringements,
unauthorized possession, knowledge or use of the intellectual property
embodied in any of the Patents by third parties in any country in the
Territory, of which KISSEI becomes aware. KISSEI shall promptly furnish
VERTEX with full details of such infringements, imitations or unauthorized
possession, knowledge or use, and shall assist in preventing any recurrence
thereof. VERTEX shall be initially responsible, at its expense, for bringing
any action on account of any such infringements, knowledge or use, and KISSEI
shall cooperate with VERTEX, as VERTEX may reasonably request, in connection
with any such action. If, within sixty (60) days after receipt by VERTEX of
a written request from KISSEI that it bring such an action, VERTEX does not
do so, KISSEI shall have the right, at its expense and in its own name or in
the name of VERTEX, to do so on behalf of VERTEX, and VERTEX shall cooperate
with KISSEI, as KISSEI may reasonably request, in connection with such
action. Such suit may not be settled by KISSEI without VERTEX's consent,
which shall not be unreasonably withheld. Damages recovered in any actions
referenced hereunder shall be divided [ * ].
Article VII
Term and Termination
7.1 Term of Agreement. This Agreement will extend until the termination
of the Research Program and thereafter until six (6) months after the
termination of the Research Program, unless earlier terminated by either
party hereto in accordance with other applicable provisions of this Agreement.
7.2 Termination of Research Program by KISSEI for Cause. Upon written
notice to VERTEX, KISSEI may at its sole option terminate the Research
Program and this Agreement upon the occurrence of any of the following events:
Research and Development Agreement -- Page 11
<PAGE>
(a) VERTEX shall materially breach this Agreement, which shall include a
failure to use its reasonable best efforts to pursue the Research Program
diligently (provided, however, that this shall not be construed as a
guarantee by VERTEX that the Research Program will be successfully
completed or any Compounds successfully developed), and such material
failure to perform shall not have been remedied or steps initiated to
remedy the same to KISSEI's reasonable satisfaction, within sixty (60) days
after KISSEI sends written notice of failure to perform to VERTEX.
(b) VERTEX shall cease to function as a going concern by suspending or
discontinuing its business for any reason except for interruptions caused
by strike, labor dispute or any other events over which it has no control
(unless termination of this Agreement is permitted under Section 9.3
hereof); or
(c) A receiver for VERTEX shall be appointed or applied for, or a general
assignment shall be made for the benefit of its creditors or any proceeding
involving VERTEX shall be voluntarily commenced by it under any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute of the United States or any state thereof or
such proceedings shall be involuntarily instituted against it, and VERTEX
by any action shall indicate its approval of or consent to, or acquiescence
therein, or the same shall remain undismissed for sixty (60) days.
In the event of any valid termination under this Section 7.2, KISSEI
shall not be required to make any payments under Section 2.2 hereof which are
not due and payable prior to receipt by VERTEX of the notice of failure to
perform referenced under Section 7.2(a), receipt by VERTEX of the notice of
termination pursuant to Section 7.2(b), or the occurrence of the event
referenced in Section 7.2(c) giving rise to KISSEI's right to terminate
thereunder, as the case may be. Notwithstanding the foregoing, any Option
and Rights Agreement then in effect under the provisions of Article III of
this Agreement shall continue in effect in accordance with its terms.
7.3 Termination of the Research Program by KISSEI Without Cause. KISSEI
may, at its sole discretion and for any reason or no reason, terminate the
Research Program and this Agreement by six months' prior written notice
delivered to VERTEX at any time on or after 30 June 1998. In such event,
KISSEI shall make all of the payments specified in Section 2.2 hereof which
are due and payable before the effective date of such termination, but shall
not be required to make any payment which is due and payable on or after the
effective date of termination. Notwithstanding the foregoing, all payments
that would have been due under Section 2.2, absent termination by KISSEI,
shall become immediately due and payable to VERTEX if, [ * ] KISSEI proceeds
with substantial research relating to, or development of, a compound or
pharmaceutical product for the treatment of chronic inflammation or
neurodegeneration which acts in whole or in part through inhibition of a MAP
kinase enzyme. Any Option and Rights Agreement then in effect under the
provisions of Article
Research and Development Agreement -- Page 12
<PAGE>
III hereof shall automatically terminate upon the effective date of any
termination under this Section 7.3.
7.4 Termination by VERTEX. In addition to rights of termination which
may be granted to VERTEX under other provisions of this Agreement, VERTEX may
terminate this Agreement upon sixty (60) days prior written notice to KISSEI
upon the material breach by KISSEI of any of its obligations under this
Agreement, provided that such termination shall become effective only if
KISSEI shall fail to remedy or cure the breach within such sixty (60) day
period.
7.5 Effect of Termination. Termination of this Agreement for any
reason, or expiration of this Agreement, will not affect: (i) obligations
which have accrued as of the date of termination or expiration, and (ii)
obligations and rights which, from the context thereof, are intended to
survive termination or expiration of this Agreement.
Article VIII
Dispute Resolution
8.1 Governing Law, and Jurisdiction. This Agreement shall be governed
and construed in accordance with the internal laws of the Commonwealth of
Massachusetts. Both parties hereto agree to submit to personal jurisdiction
in the Commonwealth of Massachusetts and to accept and agree to venue in that
State.
8.2 Arbitration. In the event of any controversy or claim arising out
of or relating to any provision of this Agreement or the breach thereof, the
parties shall try to settle their differences amicably between themselves.
Any such controversy or claim which the parties are unable to resolve shall,
upon the written request of one party delivered to the other party, be
submitted to and be settled by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association (the "AAA")
then in effect (except as hereinafter stated), and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Notwithstanding anything to the contrary which may be contained in
the rules of the AAA, the parties further agree as follows:
(i) Each party will appoint one person who may be approved by the AAA to
hear and determine the dispute within fifteen (l5) days after receipt
of notice of arbitration from the noticing party. The two persons so
chosen will select a third impartial arbitrator, and their majority
decision will be final and conclusive upon the parties hereto. If
either party fails to designate its arbitrator within fifteen (l5)
days after delivery of the notice provided for herein, then the
arbitrator designated by the one party will act as sole arbitrator,
and will be deemed to be the single, mutually approved arbitrator to
resolve the controversy. In the event the parties are unable to agree
upon a rate of compensation for the arbitrators, they will be
compensated for their services at a rate to be determined by the AAA.
Research and Development Agreement -- Page 13
<PAGE>
(ii) The parties shall enjoy, but are not limited to, the same rights to
discovery as they would enjoy under the Federal Rules of Civil
Procedure for the district in which the City of Boston is located.
(iii)Each party will bear its own costs, including attorneys' fees, in
the arbitration, and will share equally the cost of the arbitrators.
(iv) The arbitrators will, upon the request of either party, issue a
written opinion of their findings of fact and conclusions of law and
shall deliver a copy of such opinion to both parties.
(v) Upon receipt of said written opinion, either party will have the
right, within fifteen (l5) days thereof, to file with the arbitrators
a motion to reconsider, and the arbitrators thereupon will reconsider
the issues raised by said motion and either confirm or alter their
decision, which will then be final and conclusive upon both parties
hereto. The costs of such a motion for reconsideration and written
opinion of the arbitrators, including attorneys' fees, will be paid by
the non-prevailing party. Any motion to reconsider shall be sent to
the other party at the time it is filed with the arbitrators.
Article IX
Miscellaneous Provisions
9.1 Official Language. English shall be the official language of this
Agreement and the Option and Rights Agreement, and all communications between
the parties hereto shall be conducted in that language.
9.2 Waiver. Any waiver by either party of the breach of any term or
condition of this Agreement will not be considered as a waiver of any
subsequent breach of the same or any other term or condition hereof.
9.3 Force Majeure. Neither party will be in breach hereof by reason of
its delay in the performance of or failure to perform any of its obligations
hereunder, if that delay or failure is caused by strikes, acts of God or the
public enemy, riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for materials, or any
fault beyond its control or without its fault or negligence. Notwithstanding
the foregoing, in the event that any delay or failure to perform by VERTEX by
reason of force majeure shall extend beyond six months, KISSEI may suspend
any payments which would otherwise become due and payable to VERTEX during
the next succeeding six month period under Section 2.2 hereof, and may
terminate this Agreement upon notice in writing to VERTEX if such delay or
failure to perform continues beyond such succeeding six (6) month period;
provided, that any suspended payments shall immediately be made by KISSEI
upon the earlier of (a) the resumption of normal operations
Research and Development Agreement -- Page 14
<PAGE>
by VERTEX during such succeeding six (6) month period, or (b) if KISSEI does
not exercise its right to terminate this Agreement under this Section 9.3
within fifteen (15) days after the conclusion of this one year period. In
the case of the occurrence of force majeure which extends or is anticipated
to extend beyond six (6) months, both parties to this Agreement, so far as
circumstances will permit, will meet and discuss the possibility of extending
this Agreement, on terms acceptable to both parties.
9.4 Severability. In the event that any provision of this Agreement, or
any part hereof, is found invalid or unenforceable, the remainder of this
Agreement will be binding on the parties hereto, and will be construed as if
the invalid or unenforceable provision or part thereof had been deleted from
this Agreement.
9.5 Government Acts. In the event that any act, regulation, directive,
or law of the government of a country within the Territory, including its
departments, agencies or courts, should make impossible or prohibit,
restrain, modify or limit any material act or obligation of KISSEI or VERTEX
under this Agreement, the party, if any, not so affected, shall have the
right, at its option, to suspend or terminate this Agreement as to such
country.
9.6 Government Approvals. KISSEI and its sublicensees will obtain any
government approval required in the Territory to enable this Agreement to
become effective, or to enable any payment hereunder to be made, or any other
obligation hereunder to be observed or performed. Each party will keep the
other informed of progress in obtaining any such government approval, and
will cooperate with the other party in any such efforts.
9.7 Export Controls. This Agreement is made subject to any restrictions
concerning the export of Promising Compounds or VERTEX Technical Information
from the United States which may be imposed upon or related to either party
to this Agreement from time to time by the Government of the United States.
Furthermore, KISSEI will not export, directly or indirectly, any VERTEX
Technical Information or any Promising Compounds utilizing such Technical
Information to any countries for which the United States Government or any
agency thereof at the time of export requires an export license or other
governmental approval, without first obtaining the written consent to do so
from the Department of Commerce or other agency of the United States
Government when required by applicable statute or regulation.
9.8 Assignment. KISSEI will not have the right to assign this Agreement
without the prior written consent of VERTEX, which shall not be unreasonably
withheld, except to one of KISSEI's Affiliates. VERTEX is free to assign
this Agreement to any of its Affiliates, and, with KISSEI's written consent,
which shall not be unreasonably withheld, to any entity which shall assume
any and all of VERTEX's obligations hereunder.
9.9 Counterparts. This Agreement may be executed in duplicate, each of
which shall be deemed to be original and both of which shall constitute one
and the same Agreement.
9.10 No Agency. Notwithstanding any of the provisions of this Agreement,
neither party to this Agreement shall at any time enter into, incur, or hold
itself out to third parties as
Research and Development Agreement -- Page 15
<PAGE>
having authority to enter into or incur, on behalf of the other party, any
commitment, expense, or liability whatsoever, and all contracts, expenses and
liabilities in connection with or relating to the obligations of each party
under this Agreement shall be made, paid, and undertaken exclusively by such
party on its own behalf and not as an agent or representative of the other.
9.11 Notice. All communications between the parties with respect to any
of the provisions of this Agreement will be sent to the addresses set out
below or to other addresses as notified by the parties for the purpose of
this clause, by prepaid certified air mail (which shall be deemed received by
the other party on the seventh business day following deposit in the mails),
or by cable, telex, facsimile transmission, or other electronic means of
communication (which shall be deemed received when transmitted), with
confirmation by first class letter, postage pre-paid, given by the close of
business on or before the next following business day:
if to KISSEI, at:
19-48 Yoshino Matsumoto-City
Nagano-Pref. 399 Japan
Attention: Yukiyoshi Ajisawa
Board Director
Discovery Research, R&D
Attention: Director of Legal Department
if to VERTEX, at:
130 Waverly Street
Cambridge, MA 02139-4242
Attention: Richard H. Aldrich
Senior Vice President and Chief Business Officer
9.12 Headings. The paragraph headings are for convenience only and will
not be deemed to affect in any way the language of the provisions to which
they refer.
9.13 Authority. The undersigned represent that they are authorized to
sign this Agreement on behalf of the parties hereto. The parties each
represent that no provision of this Agreement will violate any other
agreement that a party may have with any other person or company. Each party
has relied on that representation in entering into this Agreement.
9.14 Entire Agreement. This Agreement contains the entire understanding
of the parties relating to the matters referred to herein, and may only be
amended by a written document, duly executed on behalf of the respective
parties.
9.15 Competition. During the term of this Agreement, neither VERTEX (in
the Territory) nor KISSEI (worldwide) will develop, manufacture or sell small
molecule compounds or pharmaceutical products containing small molecule
compounds which have as their principal
Research and Development Agreement -- Page 16
<PAGE>
mode of action inhibition of the p38 kinase enzyme, other than under the
terms of this Agreement.
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/ Joshua Boger
-------------------------------------
Title: Chairman, President & CEO
----------------------------------
Date of Signature: September 10, 1997
----------------------
KISSEI PHARMACEUTICAL CO., LTD.
By: /s/ Mutosuo Kanzawa
-------------------------------------
Title: President C.E.O.
----------------------------------
Date of Signature: September 10, 1997
----------------------
Research and Development Agreement -- Page 17
<PAGE>
SCHEDULE I
LIST OF VERTEX PATENT APPLICATIONS AND PATENTS
RELATED TO P38 MAP KINASE PROGRAM
U.S. DISCLOSURES
<TABLE>
<CAPTION>
FILING DATE APPLICATION
OR ISSUE OR PATENT EXPIRATION
DOCKET NO. INVENTOR(S) TITLE STATUS DATE NO. DATE
- ---------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
</TABLE>
<PAGE>
Schedule II
p38 MAP Kinase Inhibitor Program
Summary of Research Activities -- 1996 - 1999
[ * ]
<PAGE>
Schedule III
Countries in the Territory
- ------------------------------------------------------------------------------
A. The Exclusive Territory:
[ * ]
Japan
[ * ]
B. The Semi-Exclusive Territory
China
Korea
Taiwan
<PAGE>
Exhibit A
Option and Rights Agreement
between
Vertex Pharmaceuticals Incorporated
and
Kissei Pharmaceutical Co., Ltd.
<PAGE>
Option and Rights Agreement
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
Page
INTRODUCTION .............................................................. 1
ARTICLE I -- Definitions .................................................. 1
1.1 "Affiliate" ......................................................... 1
1.2 "Field" ............................................................. 1
1.3 "Compounds" ......................................................... 1
1.4 "Promising Compounds" ............................................... 2
1.5 "Promising Processes" ............................................... 2
1.6 "Promising Patents" ................................................. 2
1.7 "Research Program" .................................................. 2
1.8 "Research and Development Agreement" ................................ 2
1.9 "Development Program" ............................................... 2
1.10 "KISSEI Technical Information" ...................................... 2
1.11 "VERTEX Technical Information" ...................................... 2
1.12 "Exclusive Territory" ............................................... 3
1.13 "Semi-Exclusive Territory" .......................................... 3
1.14 "Territory" ......................................................... 3
1.15 "Effective Date" .................................................... 3
1.16 "Net Sales" ......................................................... 3
1.17 "Manufacturing Cost" ................................................ 4
ARTICLE II -- KISSEI'S Rights ............................................. 4
2.1 Rights .............................................................. 4
2.2 Technical Information ............................................... 5
2.3 Information Transfer ................................................ 5
2.4 Due Diligence ....................................................... 5
2.5 Development ......................................................... 5
2.6 Termination ......................................................... 6
2.7 Grantback ........................................................... 6
Article III -- Supply ..................................................... 7
3.1 Commercial Supply Option ............................................ 7
3.2 Supply Price for Commercial Material ................................ 7
Article IV -- Royalties ................................................... 8
4.1 Royalty ............................................................. 8
4.2 Payment ............................................................. 9
Article V -- Reporting .................................................... 9
5.1 Development Reports ................................................. 9
5.2 Sales Reports and Records ........................................... 9
5.3 Exchange of Information ............................................. 9
5.4 Payment Delay ....................................................... 10
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
- ------------------------------------------------------------------------------
Page
Article VI -- Confidentiality ............................................. 10
6.1 Undertaking ......................................................... 10
6.2 Exceptions .......................................................... 10
6.3 Survival ............................................................ 11
Article VII -- Patents .................................................... 11
7.1 Preparation ......................................................... 11
7.2 Cost Reimbursement .................................................. 11
7.3 Assignment .......................................................... 11
7.4 Failure to Reimburse ................................................ 11
Article VIII -- Infringement .............................................. 11
Article IX-- Dispute Resolution ........................................... 12
9.1 Governing Law; Jurisdiction ......................................... 12
9.2 Arbitration ......................................................... 12
Article X-- Term and Termination .......................................... 13
10.1 Term ................................................................ 13
10.2 Termination ......................................................... 13
10.3 Effect of Termination ............................................... 13
Article XI -- Miscellaneous Provisions .................................... 14
11.1 No Warranty ......................................................... 14
11.2 Third Party Actions ................................................. 14
11.3 Waiver .............................................................. 14
11.4 Force Majeure ....................................................... 14
11.5 Severability ........................................................ 14
11.6 Government Acts ..................................................... 15
11.7 Government Approvals ................................................ 15
11.8 Export Controls ..................................................... 15
11.9 Assignment .......................................................... 15
11.10 Counterparts ........................................................ 15
11.11 No Agency ........................................................... 15
11.12 Competition ......................................................... 15
11.13 Notice .............................................................. 15
11.14 Headings ............................................................ 16
11.15 Authority ........................................................... 16
SCHEDULE I -- Promising Compounds, Processes and Patents
-ii-
<PAGE>
Exhibit A
Option and Rights Agreement
This Agreement is made and entered into as of ________________ between
Vertex Pharmaceuticals Incorporated (hereinafter "VERTEX"), a Massachusetts
corporation, and Kissei Pharmaceutical Co., Ltd. (hereinafter "KISSEI"), a
Japanese corporation.
Introduction
WHEREAS, VERTEX and KISSEI are parties to a certain Research and
Development Agreement dated 10 September 1997 (the "Research and Development
Agreement") under which VERTEX is attempting to design and discover novel
small molecule inhibitors of the p38 enzyme, with the financial and technical
assistance of KISSEI; and
WHEREAS, VERTEX is the owner of the entire right, title and interest in
the Promising Patents (as defined below); and
WHEREAS, KISSEI wishes to obtain an exclusive option right to practice
the invention covered by the Promising Patents in the Territory (as defined
below) and to develop, use and sell in the commercial market the Promising
Compounds and the products made in accordance therewith; and
WHEREAS, VERTEX agrees to such exclusive option right of KISSEI in
accordance with the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing premises, the parties
agree as follows:
Article I
Definitions
1.1. "Affiliate" shall mean at any time, any person or legal entity, then
directly or indirectly controlled by, controlling or under common control
with the party with respect to which this term is associated, and shall
include any person or legal entity which owns, either of record or
beneficially, 50% or more of the voting stock of any party hereto, or 50% or
more of the voting stock of which is owned by any party hereto.
1.2. "Field" shall mean human use of Compounds in the diagnosis,
prevention and treatment of acute and chronic inflammation and
neurodegeneration.
1.3. "Compounds" shall have the meaning ascribed to it in the Research
and Development Agreement.
Option and Rights Agreement -- Page 1
<PAGE>
1.4. "Promising Compounds" shall mean any Compounds as to which the
option rights granted under Article III of the Research and Development
Agreement have been exercised in accordance therewith by KISSEI as identified
on Schedule I hereto, as Schedule I may be updated from time to time by
reason of the subsequent exercise by KISSEI of such option rights with
respect to additional Compounds.
1.5. "Promising Processes" shall mean any processes resulting from the
Research Program as to which the option under Article III of the Research and
Development Agreement has been exercised in accordance therewith by KISSEI,
as identified on Schedule I hereto, as Schedule I may be updated from time to
time by reason of the subsequent exercise by KISSEI of such option rights
with respect to additional processes.
1.6. "Promising Patents" shall mean the Patents or patent applications
claiming a Promising Compound, a Promising Process, or a method of
manufacturing or using a Promising Compound, as to which the option under
Article III of the Research and Development Agreement has been exercised in
accordance therewith by KISSEI, as identified on Schedule I hereto and as
Schedule I may be updated from time to time by reason of the subsequent
exercise by KISSEI of such option with respect to additional patents, and
shall include any continuations, continuations-in-part, or divisions of such
patents or patent applications or any substitute applications therefor.
VERTEX shall keep KISSEI currently informed in writing of additions and
amendments to Schedule I.
1.7. "Research Program" shall have the meaning ascribed to it in the
Research and Development Agreement.
1.8. "Research and Development Agreement" shall mean that certain
Research and Development Agreement dated 10 September 1997 by and between
VERTEX and KISSEI.
1.9. "Development Program" shall mean activities associated with
development of Promising Compounds for sale, including but not limited to (a)
selection of clinical trial candidates from among lead Compounds and
preparation for preclinical assessment thereof; (b) formulation of the
Promising Compounds for use in preclinical studies; (c) preclinical animal
studies performed in accordance with "Good Laboratory Practices" (or the
applicable equivalent) in preparation for the filing of an Investigative New
Drug Application (or the applicable equivalent); (d) manufacture of Promising
Compounds for preclinical and clinical studies; (e) planning, implementation,
evaluation and administration of human clinical trials; (f) manufacturing
process development and scale-up; and (g) preparation and submission of
applications for regulatory approval.
1.10. "KISSEI Technical Information" shall mean all know-how,
proprietary information, or special knowledge of KISSEI relating to the
research, development, utilization, manufacture, or use of any Promising
Compounds, or Promising Processes, including but not limited to processes,
techniques, methods, products, materials, and compositions.
1.11. "VERTEX Technical Information" shall mean all know-how,
proprietary information, or special knowledge of VERTEX relating to the
research, development, utilization,
Option and Rights Agreement -- Page 2
<PAGE>
manufacture, or use of any Promising Compounds, or Promising Processes,
including but not limited to processes, techniques, methods, products,
materials, and compositions.
1.12. "Exclusive Territory" shall mean those countries identified on
Schedule III of the Research and Development Agreement as comprising the
exclusive territory.
1.13. "Semi-Exclusive Territory" shall mean those countries
identified on Schedule III of the Research and Development Agreement as
comprising the semi-exclusive territory.
1.14. "Territory" shall mean the Exclusive Territory and the
Semi-Exclusive Territory.
1.15. "Effective Date" shall mean the date on which this Agreement
enters into effect pursuant to Section 3.2 of the Research and Development
Agreement.
1.16. "Net Sales" shall mean
[ * ]
(a) Customary trade, quantity or cash discounts and non-affiliated
brokers' or agents' commissions actually allowed and taken;
(b) Amounts repaid or credited by reason of rejection or return;
and/or
(c) To the extent separately stated on purchase orders, invoices or
other documents of sale, taxes levied on and/or other government
charges made as to production, sale, transportation, delivery or
use and paid by or on behalf of KISSEI;
(d) Freight insurance and handling charges.
provided that
1.16.1. in the case of any sale or other disposal by a party thereto
to an Affiliate, the Net Sales shall be calculated as above
on the value charged or invoiced on the first arm's length
sale to a party who is not an Affiliate;
1.16.2. in the event of a sublicense as to any Promising Compound,
Net Sales will be calculated with respect to arms-length
sales by the sublicensee.
Option and Rights Agreement -- Page 3
<PAGE>
1.16.3. in the case of any other sale or other disposal, such as
barter or counter-trade, of any Promising Compounds, or
Promising Processes, or part thereof, otherwise than in an
arm's length transaction exclusively for money, the Net
Sales shall be calculated as above on the fair market price
(if higher) in the relevant country of sale or disposal.]
1.17. "Manufacturing Cost" shall mean
[ * ]
Article II
KISSEI's Rights
2.1. Rights. KISSEI has the sole and exclusive right, even as to VERTEX
(but subject to the rights of VERTEX under Article III hereof), under the
Promising Patents to develop, make, have made, use or sell Promising Compounds
in the Exclusive Territory and to practice the Promising Processes to develop,
make, have made, use or sell Promising Compounds in the Exclusive Territory.
KISSEI shall have the sole and exclusive right, except as to VERTEX, under the
Promising Patents to develop, make, have made, use or sell Promising Compounds
in the Semi-Exclusive Territory and to practice the Promising Processes to
develop, make, have made, use or sell Promising Compounds in the Semi-Exclusive
Territory. VERTEX shall retain the right to develop, make, have made, use or
sell Promising Compounds, and to practice the Promising Processes in connection
therewith, in the Semi-Exclusive Territory. KISSEI shall have the right to
grant sublicenses under the Promising Patents to not more than one sublicensee
in each country in the Territory, to develop, use and sell Promising Compounds
in the Territory on terms not inconsistent with this Agreement, provided that
KISSEI shall forthwith notify VERTEX of the grant of any such sublicense,
together with the name and address of any such sublicensee, shall provide VERTEX
with a summary of the terms of any such sublicense, and any consideration
received therefor, shall promptly take all reasonable steps in the event of the
breach of any such sublicense by the sublicensee to enforce the same, and in the
event of a breach of any such sublicense shall, if so requested by VERTEX,
terminate that sublicense in accordance with the procedures prescribed therein.
Any such sublicense shall be entered into by KISSEI and the sublicensee on an
arms-length basis. If VERTEX so requests, KISSEI shall make available to VERTEX
for its review a complete copy of any of KISSEI's agreements that grant a
sublicense under the Promising Patents and Promising Processes. VERTEX shall
have the right to grant a sublicense of its rights under the Promising Patents
to not more than one sublicensee in each country in the Semi-Exclusive
Territory. Prior to the grant of any such sublicense, VERTEX will discuss the
proposed sublicense and the suitability of the proposed sublicensee with KISSEI.
Option and Rights Agreement -- Page 4
<PAGE>
2.2. Technical Information. VERTEX hereby grants to KISSEI the right to
use VERTEX Technical Information throughout the Territory to develop,
manufacture, and sell Promising Compounds and to permit any sublicensees or
subcontractors to use VERTEX Technical Information for such purposes pursuant
to provisions safeguarding confidentiality equivalent to those provided in
this Agreement. If VERTEX or KISSEI become aware of any technical
information which may be useful in the development, manufacture or sale of
Promising Compounds, they will cooperate in a mutual attempt to gain access
to that information.
2.3. Information Transfer. At such time as VERTEX and KISSEI shall enter
into this Agreement with respect to a Promising Compound, VERTEX shall
deliver to KISSEI all information which is necessary or useful for further
development, manufacture and commercial exploitation and distribution of the
Promising Compound in the Exclusive Territory. This information shall
include copies of all patents, patent applications, copyrights, copyright
registrations and applications therefor and all other manifestations of the
intellectual property embodied in the Promising Compound, whether in human or
machine readable form.
2.4. Due Diligence. KISSEI shall promptly commence a Development Program
with respect to the Promising Compounds and use its best efforts to effect
introduction of the Promising Compounds (or other Compounds which become the
subject of KISSEI's rights under the Research and Development Agreement) into
the commercial market in the Territory as soon as practicable consistent with
the requirements of the Development Program and sound and reasonable business
practices and judgment. In the normal course of development, a certain
Promising Compound may be dropped from development and replaced within a
reasonable time with an improved or another Promising Compound, and such
occurrence in the Development Program shall not constitute a failure of due
diligence. Thereafter, until the expiration of this Agreement, KISSEI shall
endeavor to keep Promising Compounds (or other Compounds which become the
subject of KISSEI's rights under Article III of the Research and Development
Agreement) reasonably available to the public through the commercial market.
2.5. Development. (a) KISSEI will have the exclusive right and
obligation to develop and sell Promising Compounds in the Exclusive
Territory, including without limitation the obligation to initiate and
complete any preclinical and clinical studies required to obtain regulatory
approval of Promising Compounds in the Exclusive Territory and shall bear all
costs of the Development Program for Promising Compounds in the Exclusive
Territory.
(b) KISSEI will have exclusive rights to develop, manufacture and sell
Promising Compounds in the Semi-Exclusive Territory, but subject to the right
of VERTEX, or not more than one licensee of VERTEX in any country in the
Semi-Exclusive Territory, also to develop, manufacture or sell Promising
Compounds in the Semi-Exclusive Territory. The parties will seek to
coordinate their respective development activities in the Semi-Exclusive
Territory under a mutually agreeable co-development arrangement. Except as
otherwise stated in a mutually agreeable co-development agreement, each party
will bear the cost of its own development activities in the Semi-Exclusive
Territory, except as set forth below with respect to Core Development
Activities, and will have the right to market and sell in the Semi-Exclusive
Territory, for its own account, products incorporating Promising Compounds.
Option and Rights Agreement -- Page 5
<PAGE>
(c) VERTEX will be undertaking development activities, including
preclinical and clinical studies and process research, necessary for the
development of Promising Compounds outside the Territory. Prior to the
commencement of the Development Program with respect to a Promising Compound,
VERTEX and KISSEI will meet to discuss the worldwide development plan with
respect to that Promising Compound, and will attempt to identify those
development activities being undertaken for development of the Promising
Compound outside the Territory (including preclinical and clinical studies
and process research and development) which will be necessary or useful for
the registration of products incorporating that Promising Compound in Japan.
Any such agreed activities are hereinafter referred to as "Core Development
Activities." VERTEX expects those activities will be undertaken applying
standards (which KISSEI will specifically note to VERTEX if in variance with
usual and customary development practices and standards in the United States)
which will allow the results of those activities to be used by KISSEI in its
regulatory filings in Japan. VERTEX will provide KISSEI with any and all
preclinical and clinical data generated by VERTEX from Core Development
Activities in North America and Europe, and KISSEI shall be free to use such
data and information solely for the purpose of developing Promising
Compound(s) in the Territory pursuant hereto. If KISSEI should undertake
Core Development Activities with the agreement of VERTEX, VERTEX shall be
free to use any data and information generated by KISSEI in connection
therewith solely for the purpose of developing Promising Compounds outside
the Exclusive Territory. KISSEI shall pay [ * ] Core Development Activities.
2.6. Termination. VERTEX shall have the right to terminate or render
non-exclusive KISSEI's Rights hereunder upon thirty (30) days written notice
to KISSEI if, in VERTEX's reasonable judgment, KISSEI is not demonstrably and
diligently engaged in development, manufacturing, or marketing programs, as
appropriate, directed toward placing Promising Compounds hereunder into
commercial use in Japan, or, following product introduction in Japan, is not
keeping Promising Compounds reasonably available to the public in such
country. In making this determination VERTEX shall take into account the
normal course of such programs conducted with sound and reasonable business
practices and judgment. VERTEX shall also have the right to terminate or
render this right non-exclusive in any other country in the Territory at any
time upon thirty (30) days written notice to KISSEI if, within [ * ] from
the date of regulatory approval for the sale of the Promising Compound(s) in
Japan, KISSEI has not put the Promising Compound(s) into commercial use in
such other country, or following initial product introduction in such country
is not keeping the Promising Compound(s) reasonably available to the public,
unless KISSEI is demonstrably and diligently engaged in development,
manufacturing or marketing programs as appropriate, directed toward placing
the Promising Compound(s) into commercial use in such country as aforesaid.
2.7. Grantback. KISSEI shall keep VERTEX fully advised of any
improvements made by KISSEI or any of its Affiliates, sublicensees and
subcontractors relating to Promising Compounds and Promising Processes during
the term of the Research Program and the Development Program, whether
patentable or not ("KISSEI Improvements"). KISSEI shall assign to VERTEX all
of its rights to any such KISSEI Improvements and any such KISSEI
Improvements shall be considered Promising Compounds and/or VERTEX Technical
Information and subject to KISSEI's rights hereunder with respect thereto,
and KISSEI will seek to obtain similar rights in favor of VERTEX for any such
Improvements generated or made available to it by its Affiliates,
sublicensees and subcontractors, if any. VERTEX shall seek to
Option and Rights Agreement -- Page 6
<PAGE>
obtain rights hereunder for KISSEI in the Territory for any such improvements
generated or made available to VERTEX by its other licensees, if any.
Article III
Supply
3.1. Commercial Supply Option. VERTEX shall have the option to
manufacture or have manufactured and to supply KISSEI and its sublicensees
with their entire commercial requirements for bulk Promising Compound in the
Territory (the "Commercial Supply Option"). The Commercial Supply Option
with respect to a particular Promising Compound will be exercisable upon
written notice delivered by VERTEX to KISSEI no later than (a) the date of
[ * ] with respect to such Promising Compound, following written notice of
such commencement date delivered to VERTEX by KISSEI not less than six (6)
months prior thereto which makes specific mention of this Commercial Supply
Option, and (b) the delivery to VERTEX by KISSEI of a reasonably detailed
general plan for the final development and marketing of the Promising
Compound in each country in the Territory. If VERTEX exercises the
Commercial Supply Option, KISSEI, its Affiliates and sublicensees shall
purchase all of their respective requirements of bulk Promising Compound from
VERTEX for manufacture of products containing Promising Compounds for sale in
the Territory.
3.2. Supply Price for Commercial Material. If VERTEX exercises the
Commercial Supply Option set forth in Section 3.1: (a) the supply price for a
unit of bulk Promising Compound supplied by VERTEX for the manufacture of
products sold in Japan shall be
[ * ]
Option and Rights Agreement -- Page 7
<PAGE>
[ * ]
Annual Net Sales shall be calculated on a calendar year basis.
(b) the purchase price for each unit of bulk Promising Compound
supplied to KISSEI for sale in Japan shall initially be calculated during any
year based on [ * ] , which shall be provided by KISSEI to VERTEX within
sixty (60) days prior to commencement of that year and which shall be
reasonably acceptable to VERTEX. Forecasts shall be updated quarterly to
reflect actual experience, and prices for bulk Promising Compound for sale in
Japan will be recalculated accordingly, based on any material changes in the
forecast. Payments due to VERTEX based upon that forecasted price shall be
made within thirty days of receipt from VERTEX of an invoice for bulk
promising Compound purchased by KISSEI, and annual adjustments shall be made
within such time periods and applying such procedures as the parties may
agree to reflect the actual Net Sales in the Territory and the actual
Applicable Percentage for that year. Any net adjustments shall be remitted
forthwith to the party to whom the adjustment is due.
(c) the supply price for a unit of bulk Promising Compound supplied
by VERTEX for the manufacture of products by KISSEI, its Affiliates or
sublicensees sold in countries of the Territory other than Japan shall equal
[ * ].
(d) all bulk Promising Compound supplied by VERTEX to KISSEI
hereunder shall be provided under the terms of a supply agreement containing
terms and conditions, in addition to those provided herein, which are usual
and customary in the trade, as shall be agreed in good faith between the
parties hereto.
(e) the amounts payable under this Article III are net of any
applicable duties, government charges, withholding taxes or similar items, if
any.
Article IV
Royalties
4.1. Royalty. KISSEI shall pay VERTEX a [ * ] royalty on Net Sales of
products containing Promising Compounds sold during the effective time of
this Agreement in the countries of the Territory other than Japan. In
countries other than Japan where KISSEI obtains a royalty (or equivalent)
from a sublicensee in excess of [ * ] sold during the effective time of this
Agreement, KISSEI shall pay VERTEX [ * ] excess amount, as an additional
royalty. If VERTEX does not exercise its commercial supply option with
respect to a Promising Compound, VERTEX will provide KISSEI with all
manufacturing information in its possession concerning that Promising
Compound, and KISSEI will pay VERTEX a [ * ] royalty on Net Sales of products
sold in Japan during the effective time of this Agreement containing that
Promising Compound.
Option and Rights Agreement -- Page 8
<PAGE>
4.2. Payment. All payments from KISSEI to VERTEX under this Article IV
shall be made by wire transfer in U.S. dollars on a quarterly basis along
with delivery to VERTEX of the Sales Report referenced in Article V hereof.
The rates of exchange for such payments shall be the Telegraphic Transfer
Selling rate ("TTS") of the Fuji Bank in Tokyo, Japan on the day and time of
remittance.
Article V
Reporting
5.1. Development Reports. KISSEI shall prepare and submit to VERTEX, on a
quarterly basis, reports which set forth in reasonable detail the progress of
the Development Program and the results of work performed thereunder during the
preceding quarter. Vertex shall also report to KISSEI on a quarterly basis the
results of any development work which it may have undertaken with respect to
Promising Compounds during the preceding quarter.
5.2. Sales Reports and Records. During the term of this Agreement and
after the first commercial sale of a product containing a Promising Compound,
KISSEI shall deliver to VERTEX within 45 days after the end of each calendar
quarter a written report showing KISSEI's computation of amounts due under
this Agreement on Net Sales by KISSEI, its Affiliates and sublicensees during
such calendar quarter and on account of the supply of bulk Promising Compound
to KISSEI hereunder. All Net Sales shall be divided in each such report into
sales by KISSEI and each Affiliate and sublicensee, as well as on a
country-by-country basis, and shall state the rates of exchange used to
convert the payments due to VERTEX into United States dollars from the
currency in which such amounts are received by KISSEI. KISSEI will keep
complete, true and accurate books of account and records for the purpose of
showing the derivation of all amounts payable to VERTEX under this Agreement.
Such books and records will be kept at KISSEI's principal place of business
for at least three (3) years following the end of the calendar quarter to
which they pertain, and will be open at all reasonable times for inspection
by representatives of VERTEX for the purpose of verifying KISSEI's sales
reports, or KISSEI's compliance in other respects with this Agreement. Such
inspections shall be at the expense of VERTEX, unless a variation or error
exceeding [ * ], or the equivalent, is discovered in the course of any such
inspection, whereupon the costs relating thereto shall be for the account of
KISSEI. KISSEI will promptly pay to VERTEX the full amount of any
underpayment, together with interest thereon at the rate of [ * ] per
annum, compounded monthly from the date payment was due.
5.3. Exchange of Information. VERTEX and KISSEI will freely share
technical information in the Field, including VERTEX Technical Information
and KISSEI Technical Information, which is not subject to restrictions
imposed by a third party on disclosure to or use by the other party. KISSEI
will enable VERTEX to review the ongoing development being conducted under
the Development Program and to discuss that information with KISSEI's
officers, all at such reasonable times and as often as may be reasonably
requested. VERTEX and KISSEI will seek to form a committee or other such
body, when appropriate, to coordinate development activities between KISSEI,
VERTEX and any of their respective licensees or
Option and Rights Agreement -- Page 9
<PAGE>
sublicensees. Any representatives of VERTEX or KISSEI receiving information
from representatives of the other party shall sign appropriate agreements
ensuring that information disclosed to them is held in confidence.
5.4. Payment Delay. In case of a delay in any payments due from KISSEI
to VERTEX hereunder not occasioned by force majeure, interest at the rate of
one percent (1%) per month, assessed from the thirty-first day after the due
date of the said payment, shall be due by KISSEI without any special notice.
Article VI
Confidentiality
6.1. Undertaking. During the term of this Agreement, each party shall
keep confidential, and other than as provided herein shall not use or
disclose, directly or indirectly, any trade secrets, confidential or
proprietary information, or any other knowledge, information, documents or
materials, owned, developed or possessed by the other party, whether in
tangible or intangible form, the confidentiality of which such other party
takes reasonable measures to protect, including but not limited to VERTEX
Technical Information and KISSEI Technical Information. Each party shall
take any and all lawful measures to prevent the unauthorized use and
disclosure of such information, and to prevent unauthorized persons or
entities from obtaining or using such information. Each party further agrees
to refrain from directly or indirectly taking any action which would
constitute or facilitate the unauthorized use or disclosure of such
information. Each party may disclose such information to its officers,
employees and agents, and to sublicensees under the right pursuant to Section
2.1 and 2.2 hereof and to subcontractors in connection with its development
or manufacturing of Promising Compounds to the extent necessary to enable
such parties to perform their obligations hereunder or under the applicable
sublicense or subcontract, as the case may be; provided that such officers,
employees, agents, sublicensees and subcontractors have entered into
appropriate confidentiality agreements for secrecy and non-use of such
information which by their terms shall be enforceable by injunctive relief at
the instance of the disclosing party. Each party shall be liable for any
unauthorized use and disclosure of such information by its officers,
employees, agents, sublicensees and subcontractors.
6.2. Exceptions. Notwithstanding the foregoing, the provisions of
section 6.1 hereof shall not apply to knowledge, information, documents or
materials which the receiving party can conclusively establish: (i) have
entered the public domain without such party's breach of any obligation owed
to the disclosing party; (ii) have become known to the receiving party prior
to the disclosing party's disclosure of such information to such receiving
party; (iii) are permitted to be disclosed by the prior written consent of
the disclosing party; (iv) have become known to the receiving party from a
source other than the disclosing party other than by breach of an obligation
of confidentiality owed to the disclosing party; (v) are disclosed by the
disclosing party to a third party without restrictions on its disclosure;
(vi) are independently developed by the receiving party without breach of
this Agreement; or (vii) are required to be disclosed by the receiving party
to comply with applicable laws, to defend or prosecute litigation or to
comply
Option and Rights Agreement -- Page 10
<PAGE>
with governmental regulations, provided that the receiving party provides
prior written notice of such disclosure to the other party and takes
reasonable and lawful actions to avoid or minimize the degree of such
disclosure.
6.3. Survival. The provisions of this Article VI shall survive the
termination of this Agreement.
Article VII
Patents
7.1. Preparation. VERTEX shall take responsibility for the preparation,
filing, prosecution and maintenance of any and all patent applications and
patents in the Territory included in Promising Patents; and shall furnish to
KISSEI copies of documents relevant to any such preparation, filing,
prosecution or maintenance. VERTEX and KISSEI shall otherwise cooperate
fully in the preparation, filing, prosecution and maintenance of all
Promising Patents, executing all papers and instruments so as to enable
VERTEX to apply for, to prosecute and to maintain patent applications and
patents in VERTEX's name in any country in the Territory. Each party shall
provide to the other prompt notice as to all matters which may affect the
preparation, filing, prosecution or maintenance of any such patent
applications or patents.
7.2. Cost Reimbursement. KISSEI shall reimburse VERTEX for [ * ] the
reasonable expenses which VERTEX has incurred, or may in the future incur,
for the preparation, filing, prosecution and maintenance of Promising Patents
in the Semi-Exclusive Territory; and [ * ] the reasonable expenses which
VERTEX has incurred, or may in the future incur, for the preparation, filing,
prosecution and maintenance of Promising Patents in the Exclusive Territory.
7.3. Failure to Reimburse. If KISSEI shall fail to reimburse VERTEX as
required under Section 7.2 above with respect to a patent application or
patent included within the Promising Patents within sixty (60) days after
receipt of a written request for payment from VERTEX, VERTEX may terminate
KISSEI's rights hereunder and under the Research and Development Agreement
with respect to that patent or patent application upon thirty (30) days
written notice thereof to KISSEI, unless KISSEI during such 30-day period
shall have submitted payment pursuant to the aforementioned request for
payment.
Article VIII
Infringement
KISSEI shall notify VERTEX promptly of any possible infringements,
unauthorized possession, knowledge or use of the intellectual property embodied
in any of the Promising Patents by third parties in any country in the
Territory, of which KISSEI becomes aware. KISSEI shall promptly furnish VERTEX
with full details of such infringements, unauthorized possession, knowledge or
use, and shall assist in preventing any recurrence thereof. VERTEX
Option and Rights Agreement -- Page 11
<PAGE>
shall be initially responsible, at its expense, for bringing any action on
account of any such infringements, unauthorized possessions, knowledge or
use, and KISSEI shall cooperate with VERTEX, as VERTEX may request, in
connection with any such action. If, within sixty (60) days after receipt by
VERTEX of a written request from KISSEI that it bring such action VERTEX does
not do so, KISSEI shall have the right, at its expense and in its own name or
in the name of VERTEX, to do so on behalf of VERTEX, and VERTEX shall
cooperate with KISSEI, as KISSEI may reasonably request, in connection with
such action. Such suit may not be settled by KISSEI without VERTEX's
consent, which shall not be unreasonably withheld. Damages recovered in any
actions referenced hereunder shall be divided [ * ]. If such expenses
incurred by KISSEI exceed any damages recovered in any actions, [ * ] may be
deducted from amounts thereafter payable to VERTEX under Article III and
Article V hereof in respect of Net Sales in such country, provided that total
amounts otherwise due to VERTEX under those Sections in any year shall not be
reduced by more than [ * ].
Article IX
Dispute Resolution
9.1. Governing Law; Jurisdiction. This Agreement shall be governed and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts. Both parties hereto agree to submit to personal jurisdiction
in the Commonwealth of Massachusetts and to accept and agree to venue in that
State.
9.2. Arbitration. In the event of any controversy or claim arising out
of or relating to any provision of this Agreement or the breach thereof, the
parties shall try to settle their differences amicably between themselves.
Any such controversy or claim which the parties are unable to resolve shall,
upon the written request of one party delivered to the other party, be
submitted to and be settled by arbitration in Boston, Massachusetts, in
accordance with the rules of the American Arbitration Association (the "AAA")
then in effect (except as hereinafter stated), and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Notwithstanding anything to the contrary which may be contained in
the rules of the AAA, the parties further agree as follows:
(i) Each party will appoint one person approved by the AAA to hear and
determine the dispute within fifteen (l5) days after receipt of notice of
arbitration from the noticing party. The two persons so chosen will select
a third impartial arbitrator, and their majority decision will be final and
conclusive upon the parties hereon. If either party fails to designate its
arbitrator within fifteen (l5) days after delivery of the notice provided
for herein, then the arbitrator designated by the one party will act as
sole arbitrator, and will be deemed to be the single, mutually approved
arbitrator to resolve the controversy. In the event the parties are unable
to agree upon a rate of compensation for the arbitrators, they will be
compensated for their services at a rate to be determined by the AAA.
Option and Rights Agreement -- Page 12
<PAGE>
(ii) The parties shall enjoy, but are not limited to, the same rights to
discovery as they would enjoy under the Federal Rules of Civil
Procedure for the district in which the City of Boston is located.
(iii) Each party will bear its own costs, including attorneys' fees, in the
arbitration, and will share equally the cost of the arbitrators.
(iv) The arbitrators will, upon the request of either party, issue a written
opinion of their findings of fact and conclusions of law and shall
deliver a copy of such opinion to both parties.
(v) Upon receipt of said written opinion, either party will have the right,
within fifteen (l5) days thereof, to file with the arbitrators a motion
to reconsider, and the arbitrators thereupon will reconsider the issues
raised by said motion and either confirm or alter their decision, which
will then be final and conclusive upon both parties hereto. The costs
of such a motion for reconsideration and written opinion of the
arbitrators, including attorneys' fees, will be paid by the
non-prevailing party. Any motion to reconsider shall be sent to the
other party at the time it is filed with the arbitrators.
Article X
Term and Termination
10.1. Term. The term of this Agreement shall extend until the later
of the last to expire of the Promising Patents or ten (10) years from the
date of first commercial sale of the Promising Compound in the Territory.
10.2. Termination. In addition to rights of termination which may be
granted to either party under other provisions of this Agreement, either
party may terminate this Agreement upon sixty (60) days prior written notice
to the other party upon the material breach by such other party of any of its
obligations under this Agreement, provided that such termination shall become
effective only if the breaching party shall fail to remedy or cure the breach
within such sixty (60) day period.
10.3. Effect of Termination. Termination of this Agreement for any
reason, or expiration of this Agreement, will not affect: (i) obligations,
including the payment of any royalties, which have accrued as of the date of
termination or expiration, and (ii) rights and obligations which, from the
context thereof, are intended to survive termination or expiration of this
Agreement.
Option and Rights Agreement -- Page 13
<PAGE>
Article XI
Miscellaneous Provisions
11.1. No Warranty. VERTEX makes no warranty of any kind whatsoever,
either express or implied, to KISSEI, or any customer of KISSEI, as to the
ability of KISSEI to understand and utilize the Promising Patents or VERTEX
Technical Information. KISSEI shall indemnify and shall hold VERTEX harmless
against and from any and all claims of third parties for damages due to
personal injury arising out of the actions of KISSEI, its Affiliates, agents,
employees, sublicensees or subcontractors, including but not limited to
claims arising in connection with the development, manufacturing, assembly,
or sale of Promising Compounds by KISSEI. Notwithstanding the foregoing,
should VERTEX manufacture Promising Compounds for KISSEI, it will warrant
that such manufacture will be accomplished strictly in accordance with
KISSEI's manufacturing specifications and will indemnify KISSEI against any
damages caused by VERTEX's failure to meet such specifications. In addition,
VERTEX will promptly notify KISSEI should VERTEX become aware of any
unexpected adverse reactions to any Promising Compounds administered to
humans or animals.
11.2. Third Party Actions. To VERTEX's knowledge, the exercise of
the rights by KISSEI hereunder will not result in the infringement of valid
patents of third parties. Nevertheless, each party will promptly notify the
other in the event any relevant third party patents come to its notice.
VERTEX gives no warranty regarding the infringement of third party rights by
practice of the Promising Patents, and gives no indemnity against costs,
damages, expenses or other losses arising out of proceedings brought against
KISSEI or any other person by any third party. In the event KISSEI is sued
for infringement of any rights of any third party in the course of its
development, manufacture, marketing and sale of Promising Compounds or its
use of Promising Patents in connection therewith, VERTEX shall extend to
KISSEI, at no charge, good faith assistance and support in defending such
action, and may participate in the conduct of the suit at its own expense,
but shall otherwise be under no obligation in respect thereof. Legal
expenses and fees arising from such a legal action shall be paid by KISSEI.
11.3. Waiver. Any waiver by either party of the breach of any term
or condition of this Agreement will not be considered as a waiver of any
subsequent breach of the same or any other term or condition hereof.
11.4. Force Majeure. Neither party will be in breach hereof by
reason of its delay in the performance of or failure to perform any of its
obligations hereunder, if that delay or failure is caused by strikes, acts of
God or the public enemy, riots, incendiaries, interference by civil or
military authorities, compliance with governmental priorities for materials,
or any fault beyond its control or without its fault or negligence.
11.5. Severability. In the event that any provision of this
Agreement, or any part hereof, is found invalid or unenforceable, the
remainder of this Agreement will be binding on the parties hereto, and will
be construed as if the invalid or unenforceable provision or part thereof had
been deleted from this Agreement.
Option and Rights Agreement -- Page 14
<PAGE>
11.6. Government Acts. In the event that any act, regulation,
directive, or law of a government within the Territory, including its
departments, agencies or courts, should make impossible or prohibit,
restrain, modify or limit any material act or obligation of KISSEI or VERTEX
under this Agreement, the party, if any, not so affected, shall have the
right, at its option, to suspend or terminate this Agreement as to such
country.
11.7. Government Approvals. KISSEI and its sublicensees will obtain
any government approval required in the Territory to enable this Agreement to
become effective, or to enable any payment hereunder to be made, or any other
obligation hereunder to be observed or performed. Each party will keep the
other informed of progress in obtaining any such approvals.
11.8. Export Controls. This Agreement is made subject to any
restrictions concerning the export of Promising Compounds or VERTEX Technical
Information from the United States which may be imposed upon or related to
either party to this Agreement from time to time by the Government of the
United States. Furthermore, KISSEI will not export, directly or indirectly,
any VERTEX Technical Information or any Promising Compounds utilizing such
Technical Information to any countries for which the United States Government
or any agency thereof at the time of export requires an export license or
other governmental approval, without first obtaining the written consent to
do so from the Department of Commerce or other agency of the United States
Government when required by applicable statute or regulation.
11.9. Assignment. KISSEI will not have the right to assign this
Agreement without the prior written consent of VERTEX, except to one of
KISSEI's Affiliates. VERTEX is free to assign this Agreement to any of its
Affiliates, and, with KISSEI's written consent, which shall not be
unreasonably withheld, to any entity which shall assume any and all of
VERTEX's obligations hereunder.
11.10. Counterparts. This Agreement may be executed in duplicate both
of which shall be deemed to be originals, and both of which shall constitute
one and the same Agreement.
11.11. No Agency. Notwithstanding any of the provisions of this
Agreement, KISSEI at no time will enter into, incur, or hold itself out to
third parties as having authority to enter into or incur, on behalf of
VERTEX, any commitment, expense, or liability whatsoever, and all contracts,
expenses and liabilities in connection with or relating to the development,
manufacture or sale of the Promising Compounds shall be made, paid, and
undertaken exclusively by KISSEI, and not as an agent or representative of
VERTEX.
11.12. Competition. During the term of this Agreement, KISSEI,
including its Affiliates, will not develop, manufacture, sell, or cause to be
developed, manufactured or sold anywhere in the Territory, products for the
treatment of chronic inflammation or neurodegeneration which act in whole or
in part through inhibition of a MAP kinase enzyme, without the specific prior
written approval of VERTEX. If this Agreement is terminated for breach by or
nonfeasance of KISSEI, neither KISSEI or its Affiliates will develop,
manufacture or sell such products for [ * ].
11.13. Notice. All communications between the parties with respect to
any of the provisions of this Agreement will be sent to the addresses set out
below, or to other addresses as
Option and Rights Agreement -- Page 15
<PAGE>
notified by the parties for the purpose of this clause, by prepaid,
registered or certified air mail which shall be deemed received by the other
party on the seventh business day following deposit in the mails, or by
cable, telex, facsimile transmission, or other electronic means of
communication (which shall be deemed received when transmitted), with
confirmation by letter given by the close of business on the next following
business day:
if to KISSEI, at:
19-48 Yoshino Matsumoto-City
Nagano Pref. 399 Japan
Attention: Yukiyoshi Ajisawa
Board Director,
Discovery Research, R&D
Attention: Director of Legal Department
if to VERTEX, at:
130 Waverly Street
Cambridge, Massachusetts 02139-4242
Attention: Richard H. Aldrich
Senior Vice President and Chief Business Officer
11.14. Headings. The paragraph headings are for convenience only and
will not be deemed to affect in any way the language of the provisions to
which they refer.
11.15. Authority. The undersigned represent that they are authorized
to sign this Agreement on behalf of the parties hereto. The parties each
represent that no provision of this Agreement will violate any other
agreement that a party may have with any other person or company. Each party
has relied on that representation in entering into this Agreement.
Option and Rights Agreement -- Page 16
<PAGE>
This Agreement contains the entire understanding of the parties relating
to the matters referred to herein, and may only be amended by a written
document, duly executed on behalf of the respective parties.
VERTEX PHARMACEUTICALS INCORPORATED
By:
----------------------------------
Title:
-------------------------------
Date of Signature:
-------------------
KISSEI PHARMACEUTICAL CO., LTD.
By:
----------------------------------
Title:
-------------------------------
Date of Signature:
-------------------
Option and Rights Agreement -- Page 17
<PAGE>
SCHEDULE I
Promising Compounds, Processes and Patents
- -------------------------------------------------------------------------------
Option and Rights Agreement -- Confidential
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S THIRD QUARTER 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
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<PAGE>
Exhibit 99
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Vertex Pharmaceuticals Incorporated
Registration on Form S-8
We are aware that our report dated October 21, 1997 on our review of interim
financial information of Vertex Pharmaceuticals Incorporated for the three
month and nine month periods ended September 30, 1997 and included in the
Company's quarterly report on Form 10-Q for the quarter then ended is
incorporated by reference in the Company's registration statements on Form
S-8 (File Nos. 33-48030, 33-48348, 33-65742, 33-93224, 333-12325 and
333-27011). Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration statement prepared
or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 12, 1997
