<PAGE>
___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended September 30, 1998
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 000-19319
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 25,341,169
- --------------------------------------- ---------------------
Class Outstanding at November 10, 1998
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. - Financial Information
Item 1. Condensed Consolidated Financial Statements
Report of Independent Accountants 3
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1998 and 1997 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 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 15
Signatures 16
</TABLE>
2
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Vertex Pharmaceuticals
Incorporated:
We have reviewed the condensed consolidated balance sheet of Vertex
Pharmaceuticals Incorporated as of September 30, 1998, and the related
condensed consolidated statements of operations and cash flows for the three
month and nine month periods ended September 30, 1998 and 1997. 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, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 23, 1998, 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, 1997, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 21, 1998
3
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,652 $ 71,454
Short-term investments 209,261 208,217
Prepaid expenses and other current assets 1,972 1,952
----------- ---------
Total current assets 260,885 281,623
Restricted cash 2,316 2,316
Property and equipment, net 13,709 11,095
Other assets 961 570
----------- ---------
Total assets $ 277,871 $ 295,604
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital lease and debt $ 2,840 $ 2,510
Accounts payable and accrued expenses 8,320 10,632
Deferred revenue -- 556
----------- ---------
Total current liabilities 11,160 13,698
----------- ---------
Obligations under capital leases and debt,
excluding current portion 7,629 5,905
----------- ---------
Total liabilities 18,789 19,603
----------- ---------
Stockholders' equity:
Common stock 253 252
Additional paid-in capital 394,373 392,372
Accumulated other comprehensive income 1,720 152
Accumulated deficit (137,264) (116,775)
----------- ---------
Total stockholders' equity 259,082 276,001
----------- ---------
Total liabilities and stockholders' equity $ 277,871 $ 295,604
----------- ---------
----------- ---------
</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,
--------------------------------
1998 1997
-------- -------
<S> <C> <C>
Revenues:
Collaborative and other research and
development $ 14,633 $ 9,739
Investment income 3,784 3,808
--------- --------
Total revenues 18,417 13,547
--------- --------
Costs and expenses:
Research and development 15,741 16,449
General and administrative 4,772 2,813
Interest 177 141
--------- --------
Total costs and expenses 20,690 19,403
--------- --------
Net loss $ (2,273) $ (5,856)
--------- --------
--------- --------
Basic and diluted net loss per common share $ (0.09) $ (0.23)
--------- --------
--------- --------
Basic and diluted weighted average number of
common shares outstanding 25,308 25,119
--------- --------
--------- --------
</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,
--------------------------------
1998 1997
--------- --------
<S> <C> <C>
Revenues:
Collaborative and other research and development $ 21,053 $ 22,719
Investment income 11,685 9,901
--------- ---------
Total revenues 32,738 32,620
--------- ---------
Costs and expenses:
Research and development 40,554 37,561
General and administrative 12,189 7,654
Interest 484 438
--------- ---------
Total costs and expenses 53,227 45,653
--------- ---------
Net loss $(20,489) $ (13,033)
--------- ---------
--------- ---------
Basic and diluted net loss per common share $ (0.81) $ (0.54)
--------- ---------
--------- ---------
Basic and diluted weighted average number of
common shares outstanding 25,282 23,950
--------- ---------
--------- ---------
</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,
-------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (20,489) $ (13,033)
Adjustment to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 3,116 2,565
Changes in assets and liabilities:
Prepaid expenses and other
current assets (20) (392)
Accounts payable and accrued
expenses (2,312) 4,379
Deferred revenue (556) 556
--------- ---------
Net cash provided (used) by
operating activities (20,261) (5,925)
--------- ---------
Cash flows from investing activities:
Short-term investments 514 (10,468)
Expenditures for property and equipment (5,730) (4,084)
Other assets (391) (393)
--------- ---------
Net cash provided (used) by
investing activities (5,607) (14,945)
--------- ---------
Cash flows from financing activities:
Proceeds from public offering of common stock -- 148,810
Proceeds from private placement of common stock -- 10,000
Other issuances of common stock 2,002 4,776
Proceeds from equipment sale/leaseback 4,084 1,855
Repayment of capital lease obligations (2,030) (2,217)
--------- ---------
Net cash provided (used) by
financing activities 4,056 163,224
--------- ---------
Effect of exchange rate changes on cash 10 (14)
--------- ---------
Increase (decrease) in cash and cash equivalents (21,802) 142,340
Cash and cash equivalents at beginning of period 71,454 34,851
--------- ---------
Cash and cash equivalents at end of period $ 49,652 $ 177,191
--------- ---------
--------- ---------
</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 accompanying condensed consolidated financial statements are
unaudited and have been prepared by the Company in accordance with generally
accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's annual financial statements 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, 1998 and
1997.
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, 1998. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1997, which are contained in the Company's 1997 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. Basic and Diluted Loss per Common Share
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based upon the weighted average number of common shares outstanding during
the period plus additional weighted average common equivalent shares
outstanding during the period when the effect is not anti-dilutive. Common
equivalent shares result from the assumed exercise of outstanding stock
options, the proceeds of which are then assumed to have been used to
repurchase outstanding stock using the treasury stock method. Common
equivalent shares have not been included in the per share calculations as the
effect would be anti-dilutive. Potential common equivalent shares consist of
5,311,300 stock options outstanding with a weighted average exercise price of
$22.15 as of September 30, 1998.
8
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
4. Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires that all components of comprehensive income and
total comprehensive income be reported and that changes be shown in a
financial statement displayed with the same prominence as other financial
statements. The Company has elected to disclose this information in its
statement of stockholders' equity. For the nine months ended September 30,
1998 and 1997 total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------- ------------------
<S> <C> <C>
Net loss $ (20,489) $ (13,033)
Other comprehensive income (loss):
Unrealized holding gains (losses) on investments 1,559 116
Foreign currency translation adjustment 10 (14)
--------- ---------
Total other comprehensive income (loss) 1,569 102
--------- ---------
Total comprehensive loss $ (18,920) $ (12,931)
--------- ---------
--------- ---------
</TABLE>
5. Subsequent Event
In October 1998, the Company earned a $3,000,000 milestone payment from
Glaxo Wellcome on the submission of a New Drug Application (NDA) for the new
HIV protease inhibitor Agenerase-TM- (amprenavir).
6. Recent Collaborative Agreements
In August 1998, the Company and Schering AG, Germany entered into an
agreement to collaborate on the research, development and commercialization
of novel, orally active neurophilin compounds to promote nerve regeneration
for the treatment of a number of neurological diseases. Under the terms of
the agreement, Schering AG will pay the Company up to $88,000,000 composed of
a $6,000,000 upfront license payment paid in September 1998, $22,000,000 of
product research funding over five years and $60,000,000 of development and
commercialization milestone payments. Under terms of the agreement, Vertex
and Schering AG will have an equal role in management of neurophilin research
and product development. In North America, Vertex will have manufacturing
rights, and Vertex and Schering AG will share equally in the marketing
expenses and profits from commercialized compounds. In addition to having
manufacturing rights in North America, the Company retains the option to
manufacture bulk drug substance for sales and marketing in territories
outside Europe, the Middle East and Africa. Schering AG will have the right
to manufacture and market any commercialized compounds in Europe, the Middle
East and Africa, and pay Vertex a royalty on product sales. Schering AG has
the right to terminate the research agreement without cause upon three
months' notice after December 1998, but will be obligated to make the
payments for the period January to December 1999. After December 2000,
Schering AG has the right to terminate without cause upon a six months'
written notice.
9
<PAGE>
7. Recently Issued Accounting Standards
In July 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for fiscal years beginning after December
15, 1997. The interim reporting disclosures are not required in the first
year of adoption. SFAS 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information
to be disclosed. SFAS 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting. The
"management" approach expands the required disclosures for each segment. The
Company will adopt SFAS 131 in the fourth quarter ending December 31, 1998
and has not yet determined the impact of such adoption on its segment
reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and if it
is, the type of hedge transaction. The Company is currently assessing the
impact of this SFAS 133 does not believe that it will have a material impact
on the financial statements.
8. Legal Proceedings
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against the
Company and Eli Lilly and Company in the United States District Court for the
Northern District of California, alleging infringement by the defendants of
various U.S. patents issued to Chiron. The infringement action relates to
research activities by the defendants in the hepatitis C viral protease field
and the alleged use of inventions claimed by Chiron in connection with that
research and development. Chiron has requested damages in an unspecified
amount, as well as an order permanently enjoining the defendants from
unlicensed use of Chiron inventions. The Company intends to vigorously
contest the action.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements which are subject to
certain risks and uncertainties that can cause actual results to differ
materially from those described. Factors that may cause such differences
include but are not limited to those described in the section of the
Company's annual report on Form 10-K entitled "Risk Factors." Readers are
cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation
to publicly update or revise these forward-looking statements to reflect
events or circumstances after the date hereof.
Since its inception in 1989, the Company has been 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 research and development programs to develop pharmaceuticals for
the treatment of viral diseases, multidrug resistance in cancer, autoimmune
and inflammatory diseases and neurodegenerative disorders.
10
<PAGE>
To date, the Company has not received any revenues from the sale of
pharmaceutical products. The Company's lead product candidate,
Agenerase-TM-(amprenavir) for the treatment of HIV infection, is presently
undergoing Phase III clinical trials. A New Drug Application ("NDA") was
submitted to the U.S. Food and Drug Administration in October 1998, and
equivalent applications were subsequently submitted to Canadian and European
regulatory agencies. If the clinical trials are concluded successfully and
if the NDA is approved by the FDA, and product sales commence, the Company
will receive a royalty on sales of Agenerase-TM- by its partner Glaxo
Wellcome plc ("Glaxo Wellcome"). However, there can be no assurance that
Phase III clinical trials will be successfully completed, or that marketing
approval will be granted by the FDA. The Company has incurred operating
losses since its inception and expects to incur a loss in 1998. The Company
believes that operating losses may continue for the next several years even
if significant royalties are realized on Agenerase-TM- sales because the
Company is planning to make significant investments in research and
development for its other potential products. 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, 1998 Compared with Three Months Ended September
30, 1997.
The Company's total revenues increased to $18,417,000 in the third
quarter of 1998 from $13,547,000 in the third quarter of 1997. In the third
quarter of 1998, revenues consisted of $14,407,000 under the Company's
collaborative agreements, $3,784,000 in investment income and $226,000 in
government grants and other revenue. In the third quarter of 1997, the
Company received $9,380,000 in revenue from its collaborative agreements,
$3,808,000 in investment income and $359,000 from government grants and other
revenue. Revenues for the third quarter in 1998 included $9,000,000 of
payments from Schering AG, under a new collaboration (the "Schering
Agreement") signed in August 1998 to research, develop and commercialize
novel, orally active neurophilin compounds that promote nerve growth and
repair. The payment included $3,000,000 in research funding for the period
from January 1, 1998 to September 30, 1998, and a $6,000,000 license fee.
Also in the third quarter 1998, Vertex received a $2,000,000 milestone
payment from Kissei Pharmaceutical Co., Ltd. ("Kissei") relating to the
selection of Vertex's compound VX-745 as a lead drug development candidate
targeting the p38 MAP kinase enzyme. Revenues for the third quarter of 1998
increased even though 1997 third quarter revenues included a $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, and the reimbursement by Hoechst Marion Roussel ("HMR") of
certain costs associated with the Company's ICE program.
The Company's total costs and expenses increased to $20,690,000 in the
third quarter of 1998 from $19,403,000 in the third quarter of 1997. Research
and development expenses decreased to $15,741,000 in the third quarter of
1998 from $16,449,000 in the third quarter of 1997. In the third quarter of
1998, the Company experienced lower clinical and preclinical development
expenses for its MDR program for cancer, the ICE program for inflammatory
diseases and the IMPDH program for autoimmune diseases. These decreases were
offset in part by headcount growth of the scientific organization and by
commencement of research activities at the Company's new U.K. research
facility. General and administrative expenses increased to $4,772,000 in the
third quarter of 1998 from $2,813,000 in the third quarter of 1997. The
increase in general and administrative expenses principally reflects the
impact of personnel additions and an increase in marketing activities in
preparation for the anticipated launch of Agenerase-TM-. Interest expense
increased to $177,000 in the third quarter of 1998 from $141,000 in the third
quarter of 1997 due to higher levels of equipment lease financing during the
year. The Company expects that research and development as well as general
and administrative expenses will continue to increase as the Company starts
new research projects, advances current clinical and preclinical candidates,
and expands its marketing and business development activities.
The Company recorded a net loss of $2,273,000 or $0.09 per share in the
third quarter of 1998 compared to a net loss of $5,856,000 or $0.23 per share
in the third quarter of 1997.
11
<PAGE>
Nine Months Ended September 30, 1998 Compared with Nine Months Ended September
30, 1997.
The Company's total revenues were $32,738,000 for the nine months ended
September 30, 1998 as compared to $32,620,000 for the nine months ended
September 30, 1997. In 1998, the Company's revenues consisted of $20,368,000
in collaborative revenues, $11,685,000 in investment income, and $685,000 in
government grants and other income. In 1997, the Company's revenues
consisted of $21,439,000 earned under the Company's collaborative agreements,
$9,901,000 in investment income and $1,280,000 in government grants and other
income. While the 1998 first three quarters revenue included $9,000,000 of
payments from Schering AG, there was a moderate decline relative to the 1997
period due to the Company's receipt in 1997 of $4,000,000 in development
reimbursements from Kissei for a clinical trial of Agenerase-TM-, $3,000,000
of upfront payments from Lilly for the Company's Hepatitis C program and
$4,000,000 from Kissei for the p38 MAP Kinase program.
The Company's total costs increased to $53,227,000 for the nine months
ended September 30, 1998 from $45,653,000 for the nine months ended September
30, 1997. Research and development expenses increased to $40,554,000 in the
first three quarters of 1998 from $37,561,000 in the first three quarters of
1997, primarily due to the expansion of the Company's research and
development activities. General and administrative expenses increased during
the first three quarters of 1998 to $12,189,000 from $7,654,000 in the first
three quarters of 1997 due primarily to increases in personnel and
professional expenses, particularly in preparation for the expected market
launch of Agenerase-TM- and corporate advertising activities. Interest
expense was $484,000 in the first three quarters of 1998, an increase from
$438,000 in the first three quarters of 1997 as a result of higher levels of
equipment financing during the period.
For the reasons stated above, the Company incurred a net loss of
$20,489,000 or $0.81 per share in the nine months ended September 30, 1998
compared to a net loss of $13,033,000 or $0.54 per share in the nine months
ended September 30, 1997.
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
investment income. The Company expects to incur increased research and
development and related supporting expenses and, consequently, may continue
to experience 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 of approximately $258,913,000 at September 30,
1998, together with investment income earned thereon, future payments under
its existing collaborative agreements, and facilities and equipment
financing. In addition, an NDA for Agenerase-TM- was submitted in October
which, if approved, will lead to royalty income. 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 new research collaborations for new or
existing projects, or other methods of financing. There can be no assurance
that such financing will be available on acceptable terms, if at all. The
Company believes that its existing cash and investments should be sufficient
to meet its anticipated requirements for at least the next two years.
The Company's aggregate cash and investments decreased by $20,758,000
during the nine months ended September 30, 1998 to $258,913,000. Cash used
by operations, principally to fund research and development activities, was
$20,261,000 during the same period. The Company also expended $5,730,000
during this period to acquire property and equipment, principally for
research equipment and
12
<PAGE>
facilities. During the first three quarters of 1998, the Company entered
into equipment financing arrangements in the aggregate amount of $4,084,000
and repaid $2,030,000 of its lease obligations.
In addition to the expansion of the research and development activities
in the U.S., the Company started the expansion of its U.K. operations to
include a research site during the third quarter in 1998. The Company expects
that, in general, research and development as well as general and
administrative expenses will continue to increase as the Company starts new
research projects, advances current clinical and preclinical candidates, and
expands its marketing and business development activities.
Under the terms of the Schering Agreement, Schering AG will pay the
Company up to $88,000,000 composed of a $6,000,000 upfront license payment
paid in September 1998, $22,000,000 of product research funding over five
years and $60,000,000 of development and commercialization milestone
payments.
The Company adopted requirements relating to comprehensive income in
accordance with the 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.
In July 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is effective for fiscal years beginning after December
15, 1997. The interim reporting disclosures are not required in the first
year of adoption. SFAS 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information
to be disclosed. SFAS 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting. The
"management" approach expands the required disclosures for each segment. The
Company will adopt SFAS 131 in the fourth quarter ended December 31, 1998 and
has not yet determined the impact of such adoption on its segment reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and if it
is, the type of hedge transaction. The Company is currently assessing the
impact of this FASB and does not believe that it will have a material impact
on the financial statements.
Year 2000
The Company is currently assessing the potential impact of the Year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and products purchased by the Company. The Company's
review includes its own computer systems and software ("IT Systems"),
embedded systems in its non-computer equipment ("Non-IT Systems"), and
relationships with certain third parties.
The Company has completed its evaluation of its business critical IT Systems
and has determined the actions necessary in order to ensure that such IT
Systems will be able to function without disruption with respect to the
application of dating systems in the Year 2000. The Company has begun to
upgrade, replace and test certain of its IT Systems based on the results of
that evaluation. Evaluation of Non-IT Systems for Year 2000 compliance is
under way but has not been completed.
In addition to risks associated with the Company's own computer systems and
equipment, the Company has relationships with, and is to varying degrees
dependent upon, a number of third parties that provide goods, services and
information to the Company. These include contract manufacturers, suppliers,
13
<PAGE>
licensees and licensors, vendors, research partners and financial
institutions, whose systems and equipment are outside the control of the
Company. If certain of these third parties experience failures in their
computer systems or equipment due to Year 2000 non-compliance, it could
affect the Company's ability to engage in normal business activities. The
Company intends to contact its significant vendors and partners to ascertain
their Year 2000 compliance and to determine the extent to which the Company
is vulnerable to their non-compliance, if any.
The Company expects to complete its internal evaluation and remediation
efforts and its assessment of third party compliance by mid-1999. However,
there can be no assurance that these evaluations and any required remedial
actions will be able to be completed on a timely basis. The Company believes
that its internal IT Systems and Non-IT Systems are either already Year 2000
compliant or will be so prior to the Year 2000 without incurring material
costs. There can be no assurance, however, that the Company will not
experience unexpected costs in achieving Year 2000 compliance for its
internal systems, which could result in a material adverse effect on the
Company's future results of operations. The Company believes that it will be
able to locate alternate sources for any critical goods or services provided
by non-compliant third parties, if any. However, the Company may not be able
to timely develop or implement contingency plans to address those business
critical systems and third party relationships which may not be Year 2000
compliant.
14
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against the
Company and Eli Lilly and Company in the United States District Court for the
Northern District of California, alleging infringement by the defendants of
various U.S. patents issued to Chiron. The infringement action relates to
research activities by the defendants in the hepatitis C viral protease field
and the alleged use of inventions claimed by Chiron in connection with that
research and development. Chiron has requested damages in an unspecified
amount, as well as an order permanently enjoining the defendants from unlicensed
use of Chiron inventions. The Company intends to vigorously contest the action.
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 Agreement dated August 24, 1998 between the
Company and Schering AG. (Filed herewith with certain
confidential information omitted. The omitted portions have
been filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.)
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
15
<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 13, 1998 /s/ Thomas G. Auchincloss
-------------------------
Thomas G. Auchincloss, Jr.
Vice President of Finance and Treasurer
(Principal Financial Officer)
Date: November 13, 1998 /s/ Hans D. van Houte
--------------------------------------
Hans D. van Houte
Controller
(Principal Accounting Officer)
16
<PAGE>
Exhibit 10.1
Vertex Pharmaceuticals Incorporated 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 this Exhibit for which
confidential treatment has been requested are marked with bracketed asterisks
([***]), and such confidential portions have been filed separately with the
Securities and Exchange Commission.
Research Agreement
between
Vertex Pharmaceuticals Incorporated
and
Schering AG
<PAGE>
RESEARCH AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Introduction.................................................. 1
Article I--Definitions........................................ 2
ARTICLE II--Research Program................................... 7
2.1 Commencement.............................................. 7
2.2 Signature Payment by SCHERING............................. 8
2.3 Research Support Payments by SCHERING..................... 8
2.4 Research Committee........................................ 9
2.5 Research Plan............................................. 10
2.6 Selection of New Compound................................. 10
2.7 Development Criteria...................................... 11
2.8 Exchange of Information................................... 11
2.9 Research [***]............................................ 12
2.10 Redirection or Termination of Research Program............ 12
Article III--License Rights.................................... 13
3.1 License and Development Option............................ 13
3.2 Exercise.................................................. 13
3.3 Recommendation of Development Candidates by VERTEX........ 14
3.4 Refused Compound.......................................... 14
3.5 Continued Development of VX-853......................... 15
Article IV--Confidentiality.................................... 17
4.1 Undertaking............................................... 17
4.2 Exceptions................................................ 17
4.3 Publicity................................................. 18
4.4 Survival.................................................. 18
Article V--Indemnification..................................... 19
5.1 Environmental Indemnifications............................ 19
5.2 Environmental Matters..................................... 19
5.3 Indemnification by VERTEX................................. 20
5.4 Indemnification by SCHERING............................... 20
5.5 Claims Procedures......................................... 20
5.6 Compliance................................................ 21
5.7 Insurance................................................. 21
Article VI--Publication........................................ 21
Article VII--Patentable Inventions............................. 23
7.1 Ownership................................................. 23
7.2 Preparation............................................... 23
7.3 Costs..................................................... 23
7.4 Inventions Outside the Field.............................. 24
</TABLE>
<PAGE>
RESEARCH AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Article VIII--Term and Termination............................. 28
8.1 Term...................................................... 28
8.2 Termination of the Research Program by SCHERING for Cause. 28
8.3 Termination of Research Program by VERTEX for Cause....... 29
8.4 Early Termination of Research Program by SCHERING......... 29
8.5 Effect of Termination..................................... 30
8.6 Termination for Bankruptcy................................ 30
Article IX--Representations and Warranties..................... 31
9.1 Representations and Warranties of VERTEX.................. 31
9.2 Representations and Warranties of SCHERING................ 31
Article X--Dispute Resolution.................................. 32
10.1 Governing Law, and Jurisdiction........................... 32
10.2 Dispute Resolution Process................................ 32
Article XI--Miscellaneous Provisions........................... 33
11.1 Official Language......................................... 33
11.2 Waiver.................................................... 33
11.3 Force Majeure............................................. 33
11.4 Severability.............................................. 34
11.5 Government Acts........................................... 34
11.6 Government Approvals...................................... 34
11.7 Export Controls........................................... 34
11.8 Assignment................................................ 35
11.9 Affiliates................................................ 35
11.10 Counterparts............................................. 35
11.11 No Agency................................................ 35
11.12 Notice................................................... 35
11.13 Headings................................................. 36
11.14 Authority................................................ 36
11.15 Entire Agreement......................................... 37
</TABLE>
<PAGE>
RESEARCH AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.2(a)--Base Compound Patent and Patent Applications
Schedule 1.2(b)--Excluded Compounds
Schedule 1.34--SCHERING Patents
Schedule 1.41--VERTEX Patents
Schedule 2.5--Research Plan (including Chemistry Subplan)
Schedule 2.7--Development Criteria
Exhibit A--Form of License and Development Agreement
</TABLE>
<PAGE>
RESEARCH AGREEMENT
AGREEMENT made and effective this 24th day of August, 1998, between
VERTEX PHARMACEUTICALS INCORPORATED ("VERTEX"), a Massachusetts corporation
with principal offices at 130 Waverly Street, Cambridge, MA 02139-4242, and
SCHERING AG ("SCHERING") a German corporation with principal offices at
Muellerstrasse 178, D-13342 Berlin, GERMANY.
Introduction
WHEREAS, VERTEX has designed novel, small molecule compounds which it
believes may induce or potentiate nerve growth, nerve regeneration or nerve
and nerve cell body protection by acting on neurodegenerative,
neuroprotective or neurostimulatory mechanisms, and is conducting a research
program directed in part toward optimizing those compounds;
WHEREAS, SCHERING and VERTEX have complementary expertise and skills in
designing and synthesizing novel compounds and in developing, registering,
manufacturing, marketing and selling pharmaceuticals worldwide;
WHEREAS, both parties desire to enter into a collaboration the objective
of which will be to design novel compounds for the diagnosis, treatment or
prevention of conditions or diseases of the central nervous system and
peripheral nervous system, and to develop, market and sell those compounds as
drugs upon the terms set forth herein and in a License and Development
Agreement substantially in the form of Exhibit A hereto; and
WHEREAS, VERTEX has determined that a compound which it is developing
for cancer indications, and which it has designated as VX-853, may be useful
in the Field and has agreed to include VX-853 as a Program Compound under the
terms of this Agreement; and
NOW THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, and other good and valuable consideration, the parties agree as
follows:
Research Agreement--Confidential--Page 1
<PAGE>
Article I
Definitions
1.1 "Affiliate" shall mean, with respect to any Person, any other Person which
directly or indirectly, by itself or through one or more intermediaries,
controls, or is controlled by, or is under direct or indirect common control
with, such Person. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise. Control will be presumed if one Person owns, either of record or
beneficially, 40% or more of the voting stock of any other Person.
1.2 "Base Compound" shall mean a chemical entity falling within the class of
compounds described in the patents and patent applications referenced in
Schedule 1.2(a), including VX-853 but excluding those compounds and subclasses
of compounds (the "Excluded Compounds") which are specifically identified on
Schedule 1.2(b) hereto.
1.3 "Bulk Drug Substance" shall mean a Drug Product Candidate in bulk crystal,
powder or other form suitable for incorporation in a Drug Product.
1.4 "Development Criteria" shall have the meaning ascribed to it in Section 2.7
of this Agreement.
1.5 "Development Option" shall have the meaning set forth in Article III
hereof.
1.6 "Development Program" shall mean activities associated with development of
a Drug Product Candidate and/or a Drug Product for sale, including but not
limited to (a) selection of one or more Drug Product Candidates from among lead
Program Compounds, and preparation for preclinical assessment thereof;
(b) formulation of the Drug Product Candidate 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
Investigational New Drug application (or the applicable equivalent);
(d) manufacture and formulations of Program Compounds and Drug Product
Candidates for preclinical and clinical studies; (e) planning, implementation,
evaluation and administration of human clinical trials; (f) manufacturing
process development and scale-up for the manufacture of Bulk Drug Substance and
Drug Product; (g) preparation and submission of applications for Regulatory
Approval; and (h) post-market surveillance of approved drug indications, as
required or agreed as part of a marketing approval by any governmental
regulatory authority.
Research Agreement--Confidential--Page 2
<PAGE>
1.7 "Drug Product" shall mean a finished dosage form which is prepared from
Bulk Drug Substance and is ready for administration to the ultimate consumer as
a pharmaceutical.
1.8 "Drug Product Candidate" shall mean any Program Compound as to which
SCHERING has exercised its Development Option under Article III hereof, and
which has become the subject of a License Agreement in accordance with the
provisions of Section 3.2 hereof.
1.9 "Effective Date" shall mean the effective date of this Agreement as set
forth on the first page hereof.
1.10 "Excluded Compounds" shall mean (a) those compounds and subclasses of
compounds which are specifically identified on Schedule 1.2(b) hereto and
which are excluded from the definition of "Base Compounds" as referenced
above; and (b) any Program Compounds which are hereafter excluded from the
Research Program under Section 7.4(b) hereof.
1.11 "Field" shall mean the diagnosis, treatment or prevention in humans of
conditions or diseases of the central nervous system and/or peripheral nervous
system.
1.12 "Foreign Filing" means any application or regulatory filing to be filed
hereunder with a foreign regulatory authority for approval to manufacture and
sell Drug Product(s) outside the U.S. and any correspondence, approvals or
licenses relating thereto.
1.13 "GLP" shall mean the current Good Laboratory Practices regulations
promulgated by the FDA, published at 21 CFR Part 58, as such regulations may be
from time to time amended, and such equivalent foreign regulations or standards
as may be applicable with respect to Bulk Drug Substance or Drug Product(s)
manufactured or sold outside the United States.
1.14 "GMP" shall mean the current Good Manufacturing Practice regulations
promulgated by the FDA, published at 21 CFR Part 210 et seq., as such
regulations may from time to time be amended, and such equivalent foreign
regulations or standards as may be applicable with respect to Bulk Drug
Substance or Drug Product(s) manufactured or sold outside the United States.
1.15 "Hazardous Materials" includes, but is not limited to, any substance or
material which is or contains a substance designated or defined as oil or a
hazardous material, hazardous waste, hazardous substance, medical waste,
infectious waste, chemical known to cause cancer or reproductive toxicity,
air or water pollutant, or asbestos or polychlorinated biphenyl, as such
substances are defined under any applicable federal, state or local statute,
regulation, rule or ordinance.
Research Agreement--Confidential--Page 3
<PAGE>
1.16 "IND" means the investigational new drug application relating to one or
more Drug Product Candidates required to be filed with the FDA pursuant to 21
CFR Part 312, including any amendments thereto. References herein to an IND
shall include, to the extent applicable, any comparable Foreign Filing (such as
a CTX in the European Union).
1.17 "Know-How" means all data, technical information, know-how, experience,
inventions, discoveries, trade secrets, compositions of matter and methods,
whether currently existing or developed or obtained during the course of this
Agreement and whether or not patentable or confidential, that are now owned,
co-owned (other than with the other Party or its Affiliates) or licensed (with
the right to disclose and sublicense) or hereinafter acquired or licensed (with
the right to disclose and sublicense) by a Party or its Affiliates and that
relate to the research, development, utilization, manufacture or use of any
Program Compound, including but not limited to processes, techniques, methods,
products, materials and compositions.
1.18 "License Agreement" shall mean the License and Development Agreement,
substantially in the form of Exhibit A hereto, executed by VERTEX and SCHERING
pursuant to exercise by SCHERING of its Development Option under Article III
hereof.
1.19 "Licensed Patents" shall mean any VERTEX and SCHERING Patents which become
the subject of the License Agreement pursuant to exercise of the Development
Option under Article III hereof.
1.20 "Live Claim" means a claim of any issued, unexpired United States or
foreign patent which shall not have been withdrawn, canceled or disclaimed, nor
held invalid or unenforceable by a court of competent jurisdiction in an
unappealed or unappealable decision.
1.21 [***]
1.22 "New Compound" shall mean any chemical entity, and members of the same
Chemical Class as any such chemical entity, which (i) is synthesized by VERTEX
or SCHERING in accordance with the provisions of Section 2.6 hereof, or
(ii) which is identified in the course of the Research Program as a diagnostic
or therapeutic agent in the Field by means of any biochemical or biological
assay developed or applied in the Research Program and which is considered by
the Research Committee to have a therapeutic or diagnostic mechanism similar to
other Program Compounds. A compound shall be deemed to be in the same "Chemical
Class" as another compound if it is [***]
Research Agreement--Confidential--Page 4
<PAGE>
1.23 "Patents" means all existing patents and patent applications and all patent
applications hereafter filed, including any continuation, continuation-in-part,
division, provisional or any substitute applications, any patent issued with
respect to any such patent applications, any reissue, reexamination, renewal or
extension (including any supplemental patent certificate) of any such patent,
and any confirmation patent or registration patent or patent of addition based
on any such patent, and all foreign counterparts of any of the foregoing and
that are now owned, co-owned or licensed (with a right to disclose and
sublicense) or hereafter acquired or licensed (with a right to disclose and
sublicense) by a Party or its Affiliates.
1.24 "Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization or government or
political subdivision thereof.
1.25 "Phase I Clinical Trials" shall mean the initial clinical trials conducted
in humans to establish the safety profile of a Drug Product Candidate and to
collect initial data on its pharmacokinetics and pharmacological effects.
1.26 "Phase II Clinical Trials" shall mean well-controlled human clinical trials
conducted in a relatively small number of patients (usually no more than several
hundred) to collect preliminary data regarding its efficacy in the particular
indication tested, as well as to obtain some indication of the dosage regimen
required.
1.27 "Program Compound" shall mean a Base Compound or a New Compound.
1.28 "Program Process" shall mean any process discovered or developed in the
course of the Research Program, or within [***] following expiration of the
term of the Research Program, which is necessary or useful in the manufacture
or development of a Program Compound.
1.29 "Refused Compound" shall have the meaning ascribed to it in Article III
hereof.
Research Agreement--Confidential--Page 5
<PAGE>
1.30 "Research Committee" shall have the meaning ascribed to it in Section 2.4
of this Agreement.
1.31 "Research Program" shall mean research activities undertaken pursuant to
this Agreement, as described in the Research Plan attached hereto as Schedule
2.5, associated with discovery or creation of Program Compounds, including in
vitro studies of Program Compounds, in vivo animal studies for research purposes
only (rather than for the generation of data for regulatory submission), and
related activities.
1.32 "Research Year" means a twelve-month period during the term of the Research
Program commencing on January 1 and ending on December 31. The first Research
Year hereunder shall be deemed to have commenced on January 1, 1998.
1.33 "SCHERING Know-How" shall mean all Know-How of SCHERING.
1.34 "SCHERING Patents" shall mean any Patents owned by SCHERING or any of its
Affiliates, or under which SCHERING or any of its Affiliates acquires rights
(other than under this Agreement or the License Agreement, and unless those
acquired rights may not be included under this Agreement by reason of
restrictions imposed by a Third Party from which the rights were acquired),
claiming (i) a compound discovered or identified during the course of the
Research Program, or an improvement to the subject matter of a VERTEX Patent,
which, if discovered or developed by VERTEX in the course of the Research
Program, would be a Program Compound or otherwise the subject of a VERTEX Patent
as defined in this Agreement; (ii) a method of using any such compound; or
(iii) any processes (including manufacturing processes) discovered or developed
by SCHERING or any of its Affiliates in the course of the Research Program or
the Development Program which are or may be useful in the Field, and including
any continuation, continuation-in-part, or division of any such Patent. A list
of SCHERING Patents will be appended hereto as Schedule 1.34 and updated
periodically to reflect additions thereto during the course of the Research
Program. SCHERING shall keep VERTEX currently informed in writing of all
SCHERING Patents.
1.35 "SCHERING Technology" shall mean all SCHERING Patents and SCHERING
Know-How.
1.36 "Technology" shall mean SCHERING Technology and VERTEX Technology.
1.37 "Third Party" shall mean any person or entity which is not a party or
Affiliate of any party to this Agreement.
1.38 "Third Party Referral" shall mean the procedure for resolution of certain
disputes hereunder which is set forth in Section 10.2(b) hereof.
Research Agreement--Confidential--Page 6
<PAGE>
1.39 "Total Costs" shall mean the total of all costs incurred by VERTEX
associated with the development of a Refused Compound, including [***].
1.40 "VERTEX Know-How" shall mean all Know-How of VERTEX.
1.41 "VERTEX Patents" shall mean any Patents owned by VERTEX or any of its
Affiliates or under which VERTEX or any of its Affiliates acquires rights (other
than under this Agreement or the License Agreement, and unless those acquired
rights may not be included under this Agreement by reason of restrictions
imposed by a Third Party from which the rights were acquired), claiming (i) Base
Compounds; (ii) a compound discovered or identified during the course of the
Research Program, or an improvement to the subject matter of a SCHERING Patent
which, if discovered or developed by VERTEX in the course of the Research
Program, would be a Program Compound or otherwise the subject of a VERTEX Patent
as defined in this Agreement; (iii) a method of using any compound referenced in
items (i) and (ii) above; or (iv) any processes (including manufacturing
processes) discovered or developed by VERTEX or any of its Affiliates in the
course of the Research Program or the Development Program which are or may be
useful in the Field, and including any continuation, continuation-in-part, or
division of any such Patent. A list of VERTEX Patents will be appended hereto
as Schedule 1.41 and updated periodically to reflect additions thereto during
the course of the Research Program. VERTEX shall keep SCHERING currently
informed in writing of all VERTEX patents.
1.42 "VERTEX Technology" shall mean all VERTEX Patents and VERTEX Know-How.
1.43 "VX-853" shall mean that chemical compound referenced on Schedule 1.2(a)
hereto which is currently under development by VERTEX for cancer multi-drug
resistance indications and which is referred to by VERTEX as VX-853.
ARTICLE II
Research Program
2.1 Commencement. The Research Program shall commence as soon as practicable
after the Effective Date. Each party shall use reasonable efforts to discharge
its responsibilities
Research Agreement--Confidential--Page 7
<PAGE>
under the Research Program during the term of this Agreement in accordance
with the Research Plan. The common objective of the parties is to identify
Program compounds which may become Drug Product Candidates for worldwide
development and marketing under the terms of the License and Development
Agreement, upon exercise by SCHERING of the Development Option. The Research
Program will conclude five (5) years from the Effective Date, unless earlier
terminated in accordance with the provisions hereof.
2.2 Signature Payment by SCHERING. Upon execution of this Agreement
SCHERING will make a signature payment of $6,000,000 to VERTEX.
2.3 Research Support Payments by SCHERING. With respect to each Research Year
hereunder, SCHERING will make the following payments to VERTEX, in support of
the Research Program; provided that the payments on account of the Fourth and
Fifth Research Years shall be subject to reduction on the basis set forth below:
<TABLE>
<S> <C>
First Research Year: $[***]
Second Research Year: $[***]
Third Research Year: $[***]
Fourth Research Year: $[***]
Fifth Research Year: $[***]
</TABLE>
Three months before the end of each of the Third and Fourth
Research Years, VERTEX and SCHERING together will assess the projected level
of research effort by VERTEX for the next Research Year, as provided in the
Research Plan as then most recently revised, compared to the actual level of
effort by VERTEX during the Third Research Year, measured by [***]. If the
parties fairly conclude that the level of effort projected for either such
Fourth or Fifth Research Year is less than the actual level of effort in the
Third Research Year, then the payment provided above for any such Fourth or
Fifth Research Year shall be proportionately reduced (but not below $[***])
to reflect the proportionate reduction in level of effort relative to the
Third Research Year (subject to further adjustment at the end of the Fourth
or Fifth Research Year based on the level of effort actually sustained during
such Research Year as compared with the Third Research Year). The First
Research Year will be deemed to have commenced on January 1, 1998. Payments
due for each Research Year shall be made quarterly in advance on or before
January 1, April 1, July 1 and October 1 of each Research Year, except that
the quarterly payments due January 1, April 1 and July 1, 1998, shall be made
upon execution of this Agreement. All payments shall be made in United
States dollars to the credit of such bank account as may be designated by
VERTEX in writing to SCHERING. Any payments which fall due on a date which
is a legal holiday in the Commonwealth of Massachusetts may be made on the
next following day which is not a legal holiday in the Commonwealth.
SCHERING has advised that such payments, if made to VERTEX or another party
which is a United States domiciliary, are currently not subject to
withholding tax in Germany. If during the term of this
Research Agreement--Confidential--Page 8
<PAGE>
Agreement, withholding tax should be required by law to be deducted from such
payments, the parties will agree upon an equitable division of liability for any
sum which is withheld and for which VERTEX is not compensated or reimbursed by
way of usable tax credits or otherwise.
2.4 Research Committee. (a) Composition and Purposes. Upon the execution of
this Agreement, VERTEX and SCHERING will establish a Research Committee which
shall consist of an equal number of persons designated from time to time by each
of VERTEX and SCHERING. If the Research Committee chooses to designate a
Committee Chair, the Chair will be elected from among the members of the
Committee by a majority vote of the Committee, and may be removed in the same
manner. The Research Committee shall meet formally at least quarterly, or with
such other frequency, and at such time and location, as may be established by
the Committee, for the following purposes:
(i) To coordinate and review research activity and interactions
between VERTEX and SCHERING, to review any proposal by either party to revise
Development Criteria (as hereinafter defined), to review development
candidates proposed by either party for development, and to consider whether
redirection of the Research Program should be recommended to VERTEX and
SCHERING under Section 2.10 of this Agreement;
(ii) To receive and review reports by VERTEX and SCHERING, which
shall be prepared and submitted to the Research Committee and to the other
party hereto on a quarterly basis within fifteen (15) days after the end of
each calendar quarter (commencing with the first full quarter after the
execution of this Agreement), setting forth in reasonable detail, with
supporting data, the results of work performed by VERTEX and SCHERING during
the preceding calendar quarter under the Research Program, including any
planned or filed patent applications covering Program Compounds;
(iii) To review and consider revisions to the Research Plan; and
(iv) To discuss matters relating to Patents.
(b) Decision Making. (i) The objective of the Research Committee shall
be to reach agreement by consensus on all matters within the scope of the
Research Plan. However, all decisions to be made under this Agreement will
be made by majority vote in the Research Committee, and if the Research
Committee cannot reach agreement on any matter (a "Disputed Matter"), the
Disputed Matter shall be referred to the President of VERTEX and the member
of the Vorstand of SCHERING responsible for research and development, to
resolve the matter referred to them in a binding, nonappealable manner.
Research Agreement--Confidential--Page 9
<PAGE>
(ii) Notwithstanding the foregoing, if either VERTEX or SCHERING
proposes a change in the Development Criteria based upon a specified material
scientific or commercial development and the other party does not agree that
a change in the criteria is necessary or appropriate, or the parties disagree
as to whether a chemical entity identified as described in Section 1.23(ii)
has a diagnostic or therapeutic mechanism similar to other Program Compounds,
the matter will be referred to the President of VERTEX and the member of the
Vorstand of SCHERING responsible for research and development to resolve the
matter referred. If they are unable to resolve the matter satisfactorily,
the matter shall be referred for binding resolution under the dispute
resolution process referenced in Section 10.2(b) hereof.
(iii) Each party shall retain the rights, powers, and discretion
granted to it under this Agreement, and the Research Committee shall not be
delegated or vested with any such rights, powers or discretion except as
expressly provided in this Agreement. The Research Committee shall not have
the power to amend or modify this Agreement, which may only be amended or
modified as provided in Section 11.15.
2.5 Research Plan. VERTEX and SCHERING have agreed upon (i) an outline
five-year research plan (the "Research Plan") for identifying, conceiving,
synthesizing, structurally characterizing and/or otherwise discovering one or
more Program Compounds that are commercially viable candidates for
development; (ii) as a component of the Research Plan, a detailed research
plan for the first twelve (12) months of the Research Program; and (iii) an
overall plan for the chemistry work (the "Chemistry Subplan") which the
parties expect will be performed under the Research Program. All of these
plans are attached hereto as Schedule 2.5. The Research Committee will be
responsible for overseeing implementation of the Research Plan. Three months
before the end of each of Research Year 1 and Research Year 2, and six months
before the end of each of Research Year 3 and Research Year 4, VERTEX and
SCHERING will review and update the Research Plan as may be necessary to
reflect past developments and changed expectations for the future, and will
agree on a detailed research plan for the following twelve months which will
not be inconsistent with the five year plan referenced in (i) above, as
modified in accordance herewith. The Chemistry Subplan as a component of the
Research Plan will be reviewed and, if necessary, revised on a quarterly
basis (or more frequently, as the parties may agree) by the Research
Committee. Amendments to the Research Plan, including the Chemistry Subplan,
shall be effective only if agreed in writing by both parties in accordance
with the provisions of this Agreement. VERTEX and SCHERING shall each
allocate a sufficient number of qualified employees to the Research Program
to carry out the tasks allocated to each party under the Research Plan.
VERTEX will as a general rule allocate at any one time at least [***] to the
Research Program during Research Years 1 through 3.
Research Agreement--Confidential--Page 10
<PAGE>
2.6 Selection of New Compounds. VERTEX and SCHERING may each from time to
time propose the synthesis and study of chemical entities which are not Base
Compounds but which fall within the framework of the Chemistry Subplan, and
the Research Committee will coordinate all such activities which may be
undertaken by either party. Any chemical entity which is synthesized during
the course of the Research Program or within [***] after termination of the
Research Program in accordance with the Chemistry Subplan will become a "New
Compound" hereunder. Either party may also propose that the Chemistry Subplan
be modified or amended and any such proposal shall be submitted to the
Research Committee, with a copy delivered to the other party hereto. The
Research Committee shall review the proposal as soon as practicable and
decide whether to approve it or disapprove it. The decision of the Committee
shall be provided immediately to both parties hereto. If and when a disease
mechanism is identified by VERTEX and SCHERING as a desirable target for
drugs which the parties wish to develop hereunder, any compounds discovered
or designed hereunder which are active with respect to that target will also
be deemed to be New Compounds hereunder.
2.7 Development Criteria. VERTEX and SCHERING have agreed upon initial
criteria, based upon currently known scientific and commercial factors, to be
applied in the identification of a Program Compound as a drug candidate
suitable for development. A copy of those criteria is attached hereto as
Schedule 2.7. The criteria shall be reviewed at the request of either Party
at each formal Research Committee meeting hereafter, and at any other time
upon the request of either VERTEX or SCHERING, and may be modified by
agreement of the parties, as appropriate, to reflect material scientific or
commercial developments. These criteria, as so modified from time to time,
are referred to herein as the "Development Criteria." Disagreements between
VERTEX and SCHERING with respect to a proposed change in the Development
Criteria of the kind described in Section 2.4(b)(ii) above (but no other
kind) shall be resolved as set forth in that Section.
2.8 Exchange of Information.
(a) VERTEX and SCHERING will meet informally on a regular basis to
discuss the Research Program, and will freely share Technical Information
useful in connection with the Research Program which is not subject to
restrictions imposed by a Third Party on disclosure to or use by the other
party. VERTEX and SCHERING each represents and covenants that it is not, as
of the date hereof, subject to any such restrictions and that it will inform
the other prior to entering any agreement with a Third Party which would
impose any such restriction.
(b) Neither VERTEX nor SCHERING shall use Technology disclosed by the
other party (including information regarding assays but excluding information
which is no longer subject to confidentiality restrictions under Section 4.1
by reason of the exceptions set forth in Section 4.2) for any purpose other
than carrying out the Research Program or discharging its respective
responsibilities under the License and Development Agreement.
Research Agreement--Confidential--Page 11
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(c) VERTEX and SCHERING will each provide the quarterly written reports
to the Research Committee referenced in Section 2.4 (a)(ii) above. Each
party will enable any representatives of the other party on the Research
Committee, or other authorized representatives of such party, to review the
ongoing research being conducted by the first party 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. The parties
also shall institute periodic working meetings between scientists from VERTEX
and SCHERING, to enhance the coordination and application of each party's
resources and to provide an effective vehicle for sharing and exchanging
research results. Representatives of VERTEX or SCHERING receiving
confidential information from representatives of the other party and any
representatives of one party who may by agreement participate in an exchange
of scientists with the other party, or who may otherwise spend a significant
period of time at the laboratories of the other party, shall sign appropriate
agreements ensuring that information disclosed to them is held in confidence
in accordance with the provisions of Article IV of this Agreement.
2.9 [***].
2.10 Redirection or Termination of Research Program. If at any time during
the term of this Agreement, the Research Committee shall determine in good
faith (i) that the Research Program or any portion thereof cannot be
successfully completed or if so completed will not produce Program Compounds
that are commercially viable, or (ii) that, in other material respects the
Research Program will not conform to the parties= reasonable expectations
when entering into this Agreement, the Research Committee may suggest
revision, reorientation or termination of the Research Program to each
party's own top management, and upon mutual consent VERTEX and SCHERING shall
thereafter promptly modify their respective activities in connection with the
Research Program, or terminate the Research Program, accordingly.
Research Agreement--Confidential--Page 12
<PAGE>
Article III
License Rights
3.1. License and Development Option. VERTEX hereby grants to SCHERING (i) a
nonexclusive worldwide license and/or sublicense under VERTEX Technology to the
extent necessary to permit SCHERING to carry out its rights and obligations set
forth in this Agreement, and (ii) an option (the "Development Option") to
license one or more Program Compounds and to develop, manufacture, have
manufactured, market, use, sell and import for sale Bulk Drug Substance, Drug
Product Candidates and Drug Products incorporating those Program Compounds in
the Field in the Territory, upon the terms and conditions set forth in the
License and Development Agreement. While the Development Option is in effect,
VERTEX will not grant to any Third Party rights to VERTEX Technology which are
inconsistent with the grant of the Development Option to SCHERING hereunder.
VERTEX shall deliver to SCHERING all information which SCHERING may reasonably
request with respect to Program Compounds at any time while the Development
Option is in effect. SCHERING shall have the right to select such Program
Compounds pursuant to Section 3.2 hereof in its complete discretion at any time
following the Effective Date; provided, however, that the Development Option
will expire and SCHERING shall no longer have the right to select any Program
Compound upon the first to occur of:
(1) Early termination of the Research Program by SCHERING under Section
8.4(i) hereof;
(2) [***] following early termination of the Research Program by SCHERING
under Section 8.4(ii) hereof;
(3) [***] following termination of the Research Program by SCHERING for
Cause under Section 8.2 hereof,
(4) Termination of the Research Program by VERTEX for cause under Section
8.3 hereof; and
(5) [***] following expiration of the term of the Research Program and the
receipt by SCHERING of all information in the possession of VERTEX
which SCHERING may reasonably require with respect to Program
Compounds.
3.2 Exercise. The Development Option with respect to a Program Compound
may be exercised by SCHERING by delivery to VERTEX, prior to expiration of the
Development Option as set forth in Section 3.1 above, of written notice of
exercise (an "Exercise Notice"), specifying the Program Compound as to which the
Development Option is being exercised. The parties shall then promptly execute
a license and development agreement substantially identical
Research Agreement--Confidential--Page 13
<PAGE>
to the form of License and Development Agreement attached hereto as Exhibit
A (the "License and Development Agreement"), unless the Development Option has
previously been exercised with respect to another Program Compound, in which
case the License and Development Agreement in effect with respect to that
Program Compound will be amended to reflect the addition of another Program
Compound for development. Development of each Program Compound as to which the
Development Option is exercised shall proceed thereafter in accordance with the
terms of the License and Development Agreement.
3.3 Recommendation of Development Candidates by VERTEX. VERTEX may propose
to SCHERING that a particular Program Compound be developed under the terms of a
License and Development Agreement as set forth in Section 3.2, and shall submit
with any such proposal a preliminary development plan for review by the Research
Committee, which shall attempt to agree on a recommendation to SCHERING and
VERTEX whether the Program Compound meets the Development Criteria and should be
developed. The Research Committee shall promptly notify SCHERING and VERTEX in
writing of any recommendation to develop a Program Compound, and will include in
that notice a detailed report fully describing the Program Compound and its
qualification under the Development Criteria. Notwithstanding any such
recommendation, SCHERING shall not be obligated in any case to exercise its
Development Option but shall have complete discretion to determine whether to
exercise its Development Option with respect to any Program Compound.
3.4 Refused Compound. Notwithstanding the provisions of Section 3.3
hereof, if within [***] after receipt by SCHERING of (i) written notice from
VERTEX recommending a Program Compound for development which meets the
Development Criteria (in the good faith opinion of both parties, subject to
determination by Third Party Referral if the parties shall disagree, and (ii)
all available information which SCHERING may reasonably require (in a written
notice delivered to VERTEX within [***] after receipt of the initial notice
from VERTEX with respect to the Program Compound), SCHERING has not exercised
its Development Option with respect to such Program Compound (a "Refused
Compound"); and if SCHERING is not, at the time VERTEX proposes that Program
Compound for development, developing or marketing any other Program Compound
or any Drug Product Candidate or Drug Product under the terms of a License
and Development Agreement; then the Development Option shall expire only with
respect to that Refused Compound (subject to the proviso set forth below) and
VERTEX will thereafter be free to develop and commercialize the Refused
Compound; provided that upon written notice delivered to VERTEX[***],
SCHERING shall have the further option (the "Buy-
Research Agreement--Confidential--Page 14
<PAGE>
back Option") to exercise the Development Option with respect to that Refused
Compound in accordance with the following conditions, and undertake development
pursuant to a License and Development Agreement as set forth in Section 3.2
hereof. VERTEX will give SCHERING at least [***] prior written notice of each
[***] and will provide SCHERING with all available information reasonably
necessary for SCHERING to make a decision with respect to the Refused Compound.
If SCHERING elects to exercise the Development Option at the First Opportunity,
SCHERING shall reimburse VERTEX for [***]. If SCHERING elects to exercise the
Development Option with respect to a Refused Compound at the Second Opportunity,
it shall reimburse VERTEX for [***] If SCHERING exercises the Development
Option at either the First Opportunity or the Second Opportunity, it will at the
time of exercise pay to VERTEX [***].
3.5 Continued Development of VX-853. (a) Both parties recognize that
VX-853 has already been administered to humans and that certain
pharmacological and pharmacokinetic properties of VX-853 are already known.
While the parties therefore acknowledge that an early goal of the Research
Program is[***], the parties also acknowledge that SCHERING may find it
necessary or desirable to obtain additional data with respect to the
characteristics of VX-853 before determining whether to exercise its
Development Option with respect thereto. In order to accommodate these
requirements while at the same time avoiding any significant delay in the
development of VX-853, and notwithstanding any other provisions of this
Article III,[***]. VERTEX will review with the Research Committee on a
regular basis the design of all tests and protocols for studies which VERTEX
wishes to conduct and will provide SCHERING with all data resulting from any
such tests and studies. In any case VERTEX will review all available data
with SCHERING at a meeting
Research Agreement--Confidential--Page 15
<PAGE>
of the Research Committee to be held approximately 30 days after execution of
this Agreement, and at each subsequent meeting of the Research Committee. The
provisions of Section 3.3 and 3.4 shall apply to VX-853 in the same way as to
other Program Compounds subject only to Sections 3.5(d) and 7.4(b)(i) below.
(b) Nothing in this Section 3.5 shall be interpreted as giving
VERTEX: (i) [***] except under the provisions of Section 3.4 as modified by
Subsection 3.5(d) below.
(c) In the event SCHERING does exercise its Development Option with
respect to VX-853 [***].
(d) [***] and SCHERING chooses nonetheless not to exercise its
Development Option, then VERTEX, may, based on its own judgment of the
therapeutic potential of [***] in which case the provisions of Section 3.4
above shall apply except :
(i) Solely for purposes of this Section 3.5(d) the "First Opportunity" shall
mean any time from the expiry of the notice period referred to in Section 3.4
and the satisfaction of all conditions of that section [***] of the execution of
this Agreement;
(ii) Solely for purposes of this Section 3.5(d), the Second Opportunity
shall mean any time from expiry of the First Opportunity until [***] and
(iii) If SCHERING elects to exercise its option at such Second Opportunity,
SCHERING shall reimburse VERTEX for [***]
Research Agreement--Confidential--Page 16
<PAGE>
(e) If VERTEX proceeds with the [***] under the provisions of Section
3.5(d) above, and at a later time during the term of this Agreement additional
data is generated to demonstrate that[***], VERTEX shall provide all such data
to SCHERING (unless the Second Opportunity has passed, and Schering has not
exercised its Development Option with respect thereto). If VERTEX shall
thereafter recommend VX-853 for development hereunder then SCHERING will have a
further period of [***] from the date of delivery of such recommendation to
SCHERING within which to assess whether it wishes to exercise the Development
Option with respect to VX-853 and, in the event that SCHERING does not exercise
its Development Option during such [***] day period, the provisions of Section
3.4 shall apply.
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
Know-How and SCHERING Know-How. Each party shall take any and all reasonable
and 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, to
authorized licensees and sublicensees, and to subcontractors in connection
with the development, manufacture or sale of Bulk Drug Substance, Drug
Product Candidates and Drug Products, to the extent necessary to enable such
parties to perform their obligations hereunder or under the applicable
license, sublicense or subcontract, as the case may be; provided, that such
officers, employees, agents, licensees, 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
Research Agreement--Confidential--Page 17
<PAGE>
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 the 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.
4.3 Publicity. The parties will agree upon the timing and content of
any initial press releases or other public communications relating to this
Agreement and the transactions contemplated herein. Except to the extent
already disclosed in that initial press release or other public
communication, no public announcement concerning the existence or the terms
of this Agreement or concerning the transactions described herein shall be
made, either directly or indirectly, by VERTEX or SCHERING, except as may be
legally required by applicable laws, regulations, or judicial order, without
first obtaining the approval of the other party and agreement upon the
nature, text, and timing of such announcement, which approval and agreement
shall not be unreasonably withheld. The party desiring to make any such
public announcement shall provide the other party with a written copy of the
proposed announcement in sufficient time prior to public release to allow
such other party to comment upon such announcement, prior to public release.
Except as required by law, VERTEX shall not issue any press release
or make any public announcement which includes the name "Schering" in
reference to SCHERING or its Affiliates and which refers to the collaboration
between VERTEX and SCHERING set forth in the Research Agreement and the
License Agreement, without first providing SCHERING with 10 days written
notice thereof and the opportunity to make any amendment to the manner in
which the "Schering" name is used in such release or announcement as may be
reasonably necessary to comply with SCHERING's now-existing contractual
obligations with respect to use of the name "Schering." The foregoing prior
notice requirement shall not apply to any release or announcement the content
of which, as it refers to SCHERING, is substantially identical to the content
of releases or announcements previously approved by SCHERING.
4.4 Survival. The provisions of this Article IV shall survive the termination
of this Agreement, and shall extend for a period of [***] years thereafter.
Research Agreement--Confidential--Page 18
<PAGE>
Article V
Indemnification
5.1 Environmental Indemnification. Notwithstanding any other
indemnification obligation in this Agreement, and in addition to any rights
the parties hereto may have under relevant federal, state, or local statutory
and common laws, each Party (the "Indemnifying Party") shall indemnify and
hold harmless the other party and its Affiliates, their directors, officers,
employees, successors and assignes (the "Indemnified Party") from and against
any and all claims, actions, investigation costs, response costs, losses,
damages, and other costs and expenses (including reasonable attorney and
consulting fees) incurred as a result of Environmental Matters (as defined
below) except for any and all claims, actions, investigation costs, response
costs, losses, damages, and other costs and expenses (including attorney and
consulting fees) caused by the gross negligence or willful misconduct of the
Indemnified Party, in which case the Indemnified Party who engaged in such
gross negligence or willful misconduct shall indemnify and hold harmless the
Indemnifying Party and its Affiliates, their directors, officers, employees,
successors and assigns.
5.2 Environmental Matters. The term "Environmental Matters" shall
mean:
(a) The ownership or operation by the Indemnifying Party, or any
entity which produces or manufactures Drug Product(s) or any raw material
used therefor or provides services relating thereto under a subcontracting
arrangement with such Indemnifying Party, of any site or facility in a manner
that (i) is not in compliance with any Environmental Law; or (ii) is in
violation of any Environmental Law.
(b) Any action or inaction by the Indemnifying Party where (i)
there has been a release of Hazardous Materials into the environment; or (ii)
Hazardous Materials have been disposed of at a site as the term "disposed" is
defined in applicable Environmental Laws.
(c) Any failure by the Indemnifying Party to obtain or maintain
all permits or provide all notices required by Environmental Laws for the
lawful operation of any facility or site.
(d) Any other actual or alleged act or omission by the Indemnifying
Party relating to the generation, handling, treatment, storage,
transportation, release, threatened release or omission of Hazardous
Materials at any facility or site.
The term "Environmental Law" shall mean any federal, state or local
law, ordinance, rule or regulation, order, decree, judgment, injunction, or
other requirement relating to pollution or protection of the environment,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601, et seq.
Research Agreement--Confidential--Page 19
<PAGE>
("CERCLA"); the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq. ("RCRA"); the Toxic Substances Control Act, 15 U.S.C. Section 26019 et
seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Clean Water Act, 33
U.S.C. Section 1257 et seq.; and the Occupational Safety and Health Act, 29
U.S.C. Sections 641 et seq.
5.3 Indemnification by VERTEX. VERTEX will indemnify and hold SCHERING
and its Affiliates, and their employees, officers and directors harmless
against any loss, damages, action, suit, claim, demand, liability, expense,
bodily injury, death or property damage (a "Loss"), that may be brought,
instituted or arise against or be incurred by such persons to the extent such
Loss is based on or arises out of: (a) the development, manufacture, use,
sale, storage or handling of a Program Compound, a Drug Product Candidate or
a Drug Product by VERTEX or its Affiliates or their representatives, agents
or subcontractors under this Agreement, or any actual or alleged violation of
law resulting therefrom (with the exception of Losses based on infringement
or misappropriation of intellectual property rights), or (b) the breach by
VERTEX of any of its covenants, representations or warranties set forth in
this Agreement; provided that the foregoing indemnification shall not apply
to any Loss to the extent such Loss is caused by the negligent or willful
misconduct of SCHERING or its Affiliates.
5.4 Indemnification by SCHERING. SCHERING will indemnify and hold
VERTEX and its Affiliates, and their employees, officers and directors
harmless against any Loss that may be brought, instituted or arise against or
be incurred by such persons to the extent such Loss is based on or arises out
of: (a) the development, manufacture, use, sale, storage or handling of a
Program Compound, a Drug Product Candidate or a Drug Product by SCHERING or
its Affiliates or their representatives, agents or subcontractors under this
Agreement, or any actual or alleged violation of law resulting therefrom
(with the exception of Losses based on infringement or misappropriation of
intellectual property rights), or (b) the breach by SCHERING of any of its
covenants, representations or warranties set forth in this Agreement;
provided that the foregoing indemnification shall not apply to any Loss to
the extent such Loss is caused by the negligent or willful misconduct of
VERTEX or its Affiliates.
5.5 Claims Procedures. Each Party entitled to be indemnified by the
other Party (an "Indemnified Party") pursuant to Sections 5.1, 5.3 or 5.4
hereof shall give notice to the other Party (an "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any threatened
or asserted claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld) and the Indemnified Party may participate in
such defense at such party's expense (unless (i) the employment of counsel by
such Indemnified Party has been
Research Agreement--Confidential--Page 20
<PAGE>
authorized by the Indemnifying Party, or (ii) the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in the defense of such action, in
each of which cases the Indemnifying Party shall pay the reasonable fees and
expenses of one law firm serving as counsel for the Indemnified Party, which law
firm shall be subject to approval, not to be unreasonably withheld, by the
Indemnifying Party); and provided further, that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Agreement to the extent that the failure to give
notice did not result in harm to the Indemnifying Party. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the approval
of each Indemnified Party which approval shall not be unreasonably withheld,
consent to entry of any judgment or enter into any settlement which (i) would
result in injunctive or other relief being imposed against the Indemnified Party
or (ii) does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
5.6 Compliance. The parties shall comply fully with all applicable
laws and regulations in connection with their respective activities under
this Agreement.
5.7 Insurance. Each party shall use all commercially reasonable
efforts to maintain insurance, including product liability insurance, with
respect to its obligations hereunder. Such insurance shall be in such
amounts and subject to such deductibles as the parties may agree based upon
standards prevailing in the industry at the time. Either party may satisfy
its obligations under this Section through self-insurance to the same extent.
At such time as Drug Product(s) is being manufactured by a party for
commercial sale, each party shall name the other party as an additional
insured on any such policies.
Article VI
Publication
Publication. Each of SCHERING and VERTEX reserves the right to publish or
publicly present the results (the "Results") of the Research Program, subject to
the following terms and conditions. The party proposing to publish or publicly
present the Results (the "publishing party") will submit a draft of any proposed
manuscript or speech to the other party (the "non-publishing party") for
comments at least thirty (30) days prior to submission for publication or oral
presentation. The non-publishing party shall notify the publishing party in
writing within
Research Agreement--Confidential--Page 21
<PAGE>
fifteen (15) days of receipt of such draft whether such draft contains (i)
information of the non-publishing party which it considers to be confidential
under the provisions of Article IV hereof, (ii) information that if published
would have an adverse effect on a patent application which the non-publishing
party intends to file, or (iii) information which the non-publishing party
reasonably believes would be likely to have a material adverse impact on the
development or commercialization of a Drug Product. In any such
notification, the non-publishing party shall indicate with specificity its
suggestions regarding the manner and degree to which the publishing party may
disclose such information. In the case of item (ii) above, the
non-publishing party may request a delay and the publishing party shall delay
such publication, for a period not exceeding ninety (90) days, to permit the
timely preparation and filing of a patent application or an application for a
certificate of invention on the information involved. In the case of item
(i) above, no party may publish confidential information of the other party
without its consent in violation of Article IV of this Agreement. In the
case of item (iii) above, if the publishing party shall disagree with the
non-publishing party's assessment of the impact of the publication, then the
issue shall be referred to the Research Committee for resolution. If the
Research Committee is unable to reach agreement on the matter within thirty
(30) days after such referral, the matter shall be referred by the Research
Committee to the appropriate member of the SCHERING Vorstand and the Chief
Executive Officer of VERTEX who shall attempt in good faith to reach a fair
and equitable resolution of this disagreement. If the disagreement is not
resolved in this manner within four (4) weeks of referral by the Research
Committee as aforesaid, then the decision of the publishing party as to
publication shall be final. Subject always to the provisions of Article IV
hereof, the publishing party shall have the final authority to determine the
scope and content of any publication, provided that such authority shall be
exercised with reasonable regard for the interests of the non-publishing
party. The parties agree that authorship of any publication will be
determined based on the customary standards then being applied in the
relevant scientific journal. The parties will use their best efforts to gain
the right to review proposed publications relating to the subject matter of
the Research Program by consultants or contractors.
Research Agreement--Confidential--Page 22
<PAGE>
Article VII
Patentable Inventions
7.1 Ownership. All inventions made and all Know-How generated by
either party or its Affiliates in the Field after the date of this Agreement
in connection with, or within six (6) months after termination or expiration
of, the Research Program which fall within the scope of the Research Program
will be disclosed to the other party promptly after the disclosing party
recognizes the significance thereof, unless in the case of process
developments the same shall have been developed as part of a collaboration
with a Third Party, the terms of which prohibit disclosure to the other
party. All inventions shall be owned by the party making the invention
claimed, or if such invention is made jointly, shall be owned jointly, all as
determined in accordance with United States laws of inventorship.
7.2 Preparation. VERTEX shall take responsibility for the preparation,
filing, prosecution and maintenance of all VERTEX Patents, and any patents
and patent applications claiming jointly owned inventions, and SCHERING shall
take responsibility for the preparation, filing, prosecution and maintenance
of all SCHERING Patents, in each case after consulting from time to time with
the other party and the Research Committee with respect to such preparation,
filing, prosecution and maintenance. The Research Committee shall review and
discuss with the parties those countries in which patent applications are to
be filed and prosecuted. The party initially responsible for preparation,
filing, prosecution and maintenance of a particular Patent or patent
application (the "Initial Responsible Party") shall give thirty (30) days
advance notice (the "Discontinuance Election") to the other party of any
decision to cease preparation, filing, prosecution and maintenance of that
patent in any jurisdiction (a "Discontinued Patent"). In such case, the
other party may elect at its sole discretion to continue preparation, filing
and prosecution or maintenance of the Discontinued Patent at its sole
expense. The party so continuing shall own any such patent application and
patents maturing therefrom; and the Initial Responsible Party shall execute
such documents and perform such acts as may be reasonably necessary for the
other party to file or to continue prosecution or maintenance, including
assigning ownership of such patents and inventions to such electing party.
Discontinuance may be on a country-by-country basis or for a patent
application or patent series in total. Each party will endeavor in good faith
to coordinate its efforts with those of the other party to minimize or avoid
interference with the other party's patent applications.
7.3 Costs. [***] incurred in the preparation, prosecution and
maintenance of SCHERING Patents, and [***] incurred in the preparation,
prosecution and maintenance of VERTEX Patents. [***] of preparation,
prosecution and maintenance of Joint Patents.
Research Agreement--Confidential--Page 23
<PAGE>
7.4 Inventions Outside the Field.
(a) Except as set forth in (b) and (c) below: (i) [***]; and (ii) if
either VERTEX or SCHERING during the course of the Research Program makes an
invention (or a joint invention with the other party) which involves the use of
a Program Compound which is being developed as a Drug Product Candidate or
developed or marketed as a Drug Product, then [***]. In the event that an
invention which involves the use of a Program Compound is made prior to the
exercise by SCHERING of the Development Option with respect to that Program
Compound but before the Development Option with respect thereto has expired,
neither party will apply that invention to the development of that Program
Compound outside the Field until expiration of the Development Option with
respect thereto.
(b) Notwithstanding the foregoing:
(i) if SCHERING has not exercised its Development Option with
respect to VX-853 within [***], or having done so, thereafter fails to
develop VX-853 in accordance with the terms of the License Agreement,
then VERTEX upon 30 days written notice to SCHERING (the "Notice
Period") may elect to develop VX-853 [***] period referenced above may
be extended, but not beyond [***] in total, upon SCHERING's written
request delivered to VERTEX within the Notice Period, but only if the
following conditions are met:[***]. If the parties are unable to agree
whether the foregoing conditions have been met, the matter shall be
submitted for determination by Third Party Referral under Section
10.2(b) hereof. If SCHERING has exercised its Development Option with
respect to VX-853 and is diligently developing or marketing it under the
License Agreement, then in lieu of an election as set forth above with
respect to VX-853, [***]
Research Agreement--Confidential--Page 24
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(ii) During the course of the Research Program, VERTEX may from time
to time designate a Program Compound (other than a Program Compound owned
by SCHERING) for development outside the Field; provided that a Program
Compound may be so designated only [***]. VERTEX may during the course of
the Research Program designate a maximum of [***] such Program Compounds
which are subsequently added to the list of Excluded Compounds as set forth
below. VERTEX will provide written notice to SCHERING with respect to any
Program Compound which it proposes to designate for development outside
this Agreement and to add to the list of Excluded Compounds hereunder. In
such event, VERTEX will also provide to SCHERING, contemporaneously, all
material information in its possession and not previously delivered to
SCHERING, concerning the utility of that Program Compound for use in the
Field, along with an analysis of that Program Compound in comparison with
the Development Criteria then-applicable under this Agreement. [***] after
receipt of the aforementioned notice by SCHERING, the Program Compound
shall be deemed added to the list of Excluded Compounds and Schedule 1.2(b)
shall be updated accordingly and, as so updated, shall be binding on the
parties hereto, unless during the [***] referenced above[***]
Research Agreement--Confidential--Page 25
<PAGE>
If within [***] after receipt by VERTEX of the aforementioned notice
from SCHERING, SCHERING and VERTEX are unable to agree on the issues
raised by SCHERING in its notice, as referenced above, then those
issues shall be considered a Disputed Matter and resolved by Third
Party Referral as set forth in Section 10.2(b) hereof. The Program
Compound shall be added to the list of Excluded Compounds only upon
determination under the provisions of Section 10.2(b) that it meets
the conditions for designation set forth in the first sentence of this
subsection 7.4(b)(ii). Notwithstanding the foregoing, any such
Program Compound added to the list of Excluded Compounds in accordance
with the provisions of this Section 7.4(b)(ii) shall be considered a
Program Compound for purposes of Section 8.1(b) of this Agreement.
(c) Notwithstanding the foregoing:
(i) SCHERING shall not be required to obtain VERTEX's consent
in order to develop a Program Compound during the course of
the Research Program, and thereafter, for an indication
outside the Field,[***];
(ii) During the course of the Research Program, SCHERING may from
time to time designate a Program Compound (other than a
Program Compound owned by VERTEX or by VERTEX jointly with
SCHERING) for development outside the Field; provided that a
Program Compound may be so designated only[***]
Research Agreement--Confidential--Page 26
<PAGE>
SCHERING may during the course of the Research Program designate a maximum of
[***] such Program Compounds ("Designated Program Compounds"). SCHERING will
provide written notice to VERTEX with respect to any Designated Program
Compound and will provide to VERTEX, contemporaneously, all material
information in its possession and not previously delivered to VERTEX,
concerning the utility of that Designated Program Compound for use in the
Field, along with an analysis of that Designated Program Compound in
comparison with the Development Criteria then-applicable under this
Agreement. [***] after receipt of the aforementioned notice by VERTEX,
SCHERING may develop the Designated Program Compound outside the Field
without the further consent of VERTEX, unless during the [***]referenced
above[***]. If within [***] after receipt by SCHERING of the aforementioned
notice from VERTEX, VERTEX and SCHERING are unable to agree on the issues
raised by VERTEX in its notice, as referenced above, then those issues shall
be considered a Disputed Matter and resolved by Third Party Referral as set
forth in Section 10.2(b) hereof.
(d) Except as set forth in (a), (b) and (c) above, VERTEX and
SCHERING shall each be free to exploit outside the Field any inventions which
such party makes and any inventions which the parties make jointly in the course
of the Research Program; provided, that VERTEX shall have the exclusive right to
exploit any such inventions of SCHERING for[***], upon negotiation of a mutually
agreeable royalty arrangement with SCHERING, which the parties shall negotiate
in good faith.
Research Agreement--Confidential--Page 27
<PAGE>
Article VIII
Term and Termination
8.1 Term. (a) This Agreement will extend until the termination
(including any early termination hereunder) of the Research Program
(including any extension thereof) and thereafter for six months after the
termination of the Research Program, unless earlier terminated by either
party hereto in accordance with this Agreement.
(b) Subject to any early termination or extensions thereof in
accordance with this Agreement, the Research Program shall expire at the end of
its initial five-year term. If (i) the Research Program expires without early
termination by SCHERING or if the Research Program is terminated early by mutual
agreement of the parties, and (ii) SCHERING is then developing or
commercializing a Program Compound in accordance with the terms of a License
Agreement, then VERTEX may not, without SCHERING's prior written consent,
develop or commercialize any Program Compound in the Field or grant any such
right to a Third Party; provided, that the foregoing shall be inapplicable to
the development and commercialization of a Refused Compound. If the Research
Program is terminated early by SCHERING under Section 8.4(ii) hereof, and
SCHERING is then developing or commercializing a Program Compound for particular
indications in accordance with the terms of a License Agreement, then VERTEX may
not, without SCHERING's prior written consent, develop or commercialize any
Program Compound (other than a Refused Compound) in the Field for the same
indications, or grant any such right to a Third Party.
(c) If (i) the Research Program expires without early termination by
SCHERING or if the Research Program is terminated early by mutual agreement of
the parties, and (ii) SCHERING is not then developing or commercializing a
Program Compound in accordance with the terms of a License Agreement, then
VERTEX shall thereafter be free to develop and commercialize any Program
Compound belonging to it; provided that VERTEX has disclosed to SCHERING prior
to expiration of this Agreement all material information known to it about that
Program Compound, and SCHERING has not exercised its Development Option with
respect thereto before the last to occur of (x) termination of this Agreement
pursuant to Section 8.1(a) above, or (y) six months after VERTEX has complied
with the foregoing disclosure obligations.
8.2 Termination of the Research Program by SCHERING for Cause. Upon
written notice to VERTEX, SCHERING may at its sole discretion unilaterally
terminate the Research Program and this Agreement upon the occurrence of any
of the following events:
(a) VERTEX shall materially breach any of its material obligations
under this Agreement, or the License Agreement and such material
Research Agreement--Confidential--Page 28
<PAGE>
breach shall not have been remedied or steps initiated to remedy the same to
SCHERING's reasonable satisfaction, within sixty (60) days after SCHERING sends
written notice of breach to VERTEX; or
(b) VERTEX shall cease to function as a going concern by suspending or
discontinuing its business for any reason except for interruptions caused by
Force Majeur, strike, labor dispute or any other events over which it has no
control.
In the event of any valid termination under this Section 8.2, SCHERING
shall not be required to make any payments under Section 2.3 hereof which are
not due and payable prior to receipt by VERTEX of the notice of breach
referenced under Section 8.2 (a) or receipt by VERTEX of the notice of
termination pursuant to Section 8.2 (b), as the case may be. Notwithstanding
the foregoing, any License Agreement then in effect shall continue in effect
unless it is expressly terminated in accordance with its terms.
8.3 Termination of the Research Program by VERTEX for Cause. VERTEX
may in its absolute discretion terminate this Agreement upon written notice
to SCHERING upon the occurrence of any of the following events:
(a) SCHERING shall materially breach any of its material obligations
under this Agreement or the License Agreement and such material breach shall
not have been remedied or steps initiated to remedy the same to VERTEX's
reasonable satisfaction, within sixty (60) days after VERTEX sends written
notice of breach to SCHERING; or
(b) SCHERING 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.
Notwithstanding the foregoing, any License Agreement then in effect shall
continue in effect unless it is expressly terminated in accordance with its
terms.
8.4 Early Termination of Research Program by SCHERING. SCHERING may in
its absolute discretion terminate its participation in the Research Program
(i) at the end of the First Research Year upon three months' prior written
notice to VERTEX, in which event SCHERING must nevertheless make all of the
research payments required to be made under Section 2.3 hereof on account of
the Second Research Year; or (ii) after a minimum of three (3) Research
Years, upon six month's written notice (the "Notice Period") delivered to
VERTEX at any time on or after six (6) months before the end of the Third
Research Year. SCHERING will continue to make research support payments
under the Research Program which fall due during the Notice Period. The
Development Option shall terminate upon delivery of a termination notice
under
Research Agreement--Confidential--Page 29
<PAGE>
Section 8.4(i) above or six months following delivery by SCHERING of a
termination notice under Section 8.4(ii).
8.5 Effect of Termination. (a) Except where explicitly provided
elsewhere herein, 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,
expressly or from the context thereof, are intended to survive termination or
expiration of this Agreement, including obligations of confidentiality under
Article IV hereof and the representations and warranties under Article IX
hereof.
(b) Upon termination or expiration of this Agreement, VERTEX shall
have [***].
8.6 Termination for Bankruptcy. If at any time during the term of this
Agreement, an Event of Bankruptcy (as defined below) relating to either Party
(the "Bankrupt Party") occurs, the other Party (the "Other Party") shall
have, in addition to all other legal and equitable rights and remedies
available hereunder, the option to terminate this Agreement and the License
Agreement, if any, upon 30 days' written notice to the Bankrupt Party. It is
agreed and understood that if the Other Party does not elect to terminate
this Agreement or the License Agreement, if any, in the event of an Event of
Bankruptcy, except as may otherwise be agreed with the trustee or receiver
appointed to manage the affairs of the Bankrupt Party, the Other Party shall
continue to make all payments required of it under this Agreement as if the
Event of
Research Agreement--Confidential--Page 30
<PAGE>
Bankruptcy had not occurred, and the Bankrupt party shall not have the right to
terminate any license granted herein. As used above, the term "Event of
Bankruptcy" shall mean (a) dissolution, termination of existence, liquidation or
business failure of either Party, (b) the appointment of a custodian or receiver
for either Party who has not been terminated or dismissed within 90 days, (c)
the institution by either Party of any proceeding under national, federal or
state bankruptcy, reorganization, receivership or other similar laws affecting
the rights of creditors generally or the making by either Party of a composition
or any assignment or trust mortgage for the benefit of creditors or under any
national, federal or state bankruptcy, reorganization, receivership or other
similar law affecting the rights of creditors generally, which proceeding is not
dismissed within 90 days of filing.
Article IX
Representations and Warranties
9.1 Representations and Warranties of VERTEX. VERTEX represents and
warrants to SCHERING as follows:
(a) Authorization. This Agreement has been duly executed and
delivered by VERTEX and constitutes the valid and binding obligation of VERTEX,
enforceable against VERTEX in accordance with its terms except as enforceability
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally
and by general equitable principles. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action on the part of
VERTEX, its officers and directors.
(b) No Third Party Rights. VERTEX owns or possesses adequate
licenses or other rights to use all VERTEX Technology relating to the Field and
to grant the licenses herein. The granting of the license to SCHERING hereunder
does not violate any right known to VERTEX of any Third Party.
(c) Third Party Patents. Except as disclosed in writing between the
parties to this Agreement or their respective agents, VERTEX is not aware of any
pending patent application that, if issued, would be infringed by the
development, manufacture, use or sale of any Program Compound, Bulk Drug
Substance, Drug Product Candidate or Drug Product pursuant to this Agreement.
9.2 Representations and Warranties of SCHERING. SCHERING represents
and warrants to VERTEX as follows:
Research Agreement--Confidential--Page 31
<PAGE>
(a) Authorization. This Agreement has been duly executed and
delivered by SCHERING and constitutes the valid and binding obligation of
SCHERING, enforceable against SCHERING in accordance with its terms except as
enforceability may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable principles.
The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of SCHERING, its officers and
directors.
(b) Third Party Rights. SCHERING owns or possesses adequate licenses
or other rights to use all SCHERING Technology relating to the Field in
accordance with the provisions of this Agreement.
(c) Third Party Patents. Except as disclosed in writing between the
parties to this Agreement or their respective agents, SCHERING is not aware of
any pending patent application that, if issued, would be infringed by the
development, manufacture, use or sale of any Program Compound, Bulk Drug
Substance, Drug Product Candidate or Drug Product pursuant to this Agreement.
Article X
Dispute Resolution
10.1 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 with respect to contract disputes
hereunder, and to accept and agree to venue in that State.
10.2 Dispute Resolution Process.
(a) General. Except as set forth in (b) below or as otherwise
explicitly provided herein, in the event of any controversy or claim arising out
of or relating to any provision of this Agreement or the collaborative effort
contemplated hereby, the parties shall initially refer such dispute to the
President of VERTEX and the member of the Vorstand of SCHERING responsible for
research and development, who shall, as soon as practicable, attempt in good
faith to resolve the controversy or claim. If such controversy or claim is not
resolved within sixty (60) days of the first written request for dispute
resolution under this Article X, either party shall be free to initiate
proceedings in the courts of the Commonwealth of Massachusetts.
(b) Third Party Referral. Any dispute or claim relating to the
"Referral Matters" as defined below which the parties are unable to resolve
pursuant to the other dispute resolution mechanisms provided in this Agreement
(other than litigation) shall, upon the written
Research Agreement--Confidential--Page 32
<PAGE>
request of one party delivered to the other party, be submitted to and
settled by a panel of Third Parties (a "Third Party Panel") appointed by
VERTEX and SCHERING as provided below. The "Referral Matters" shall consist
solely of disagreements concerning (i) whether it is appropriate to amend the
definition of Development Criteria as referenced in Section 2.7 of this
Agreement; (ii) the question whether a particular Program Compound
recommended for development by VERTEX under Sections 3.3 and 3.4 of this
Agreement meets the Development Criteria then in effect; (iii) the question
whether a chemical entity identified pursuant to Section 1.23 hereof has a
therapeutic or diagnostic mechanism similar to other Program Compounds,
within the meaning of this Agreement; (iv) whether a Program Compound
proposed by VERTEX for exclusion from this Agreement under Section 7.4(b)(ii)
hereof or proposed by SCHERING for exclusion under Section 7.4(c)(ii) hereof
[***] and (v) whether the conditions specified in Section 7.4(b)(i) have been
met. Within 15 days after delivery of the above-referenced written request,
each party will appoint one person knowledgeable in the areas of
pharmaceutical science, business and commercial aspects of drug development
and sale, or the clinical development of pharmaceuticals, to hear and
determine the dispute. The two persons so chosen will select another
impartial Third Party and their majority decision will be final and
conclusive upon the parties hereto. If either party fails to designate its
appointee within the 15 day period referenced above, then the appointee who
has been designated will serve as the sole member of the Third Party Panel
and will be deemed to be the single, mutually approved party to resolve the
dispute. Each party will bear its own costs in the Third Party Referral
process, and the parties will split equally the costs of the Third Party
Panel members. The Third Party Panel will, upon the request of either party,
issue its final determination in writing.
Article XI
Miscellaneous Provisions
11.1 Official Language. English shall be the official language of this
Agreement and the License Agreement, and all communications between the
parties hereto shall be conducted in that language.
11.2 Waiver. No provision of this Agreement may be waived except in
writing by both parties hereto. No failure or delay by either party hereto
in exercising any right or remedy hereunder or under applicable law will
operate as a waiver thereof, or a waiver of any right or remedy on any
subsequent occasion.
Research Agreement--Confidential--Page 33
<PAGE>
11.3 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.
11.4 Severability. Should one or more provisions of this Agreement be
or become invalid, then the parties hereto shall attempt to agree upon valid
provisions in substitution for the invalid provisions, which in their
economic effect come so close to the invalid provisions that it can be
reasonably assumed that the parties would have accepted this Agreement with
those new provisions. If the parties are unable to agree on such valid
provisions, the invalidity of such one or more provisions of this Agreement
shall nevertheless not affect the validity of the Agreement as a whole,
unless the invalid provisions are of such essential importance for this
Agreement that it may be reasonably presumed that the parties would not have
entered into this Agreement without the invalid provisions.
11.5 Government Acts. In the event that any act, regulation, directive,
or law of a country or its government, including its departments, agencies or
courts, should make impossible or prohibit, restrain, modify or limit any
material act or obligation of SCHERING 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, if good faith
negotiations between the parties to make such modifications therein as may be
necessary to fairly address the impact thereof, after a reasonable period of
time are not successful in producing mutually acceptable modifications to
this Agreement.
11.6 Government Approvals. Each party will obtain any government
approval required 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.
11.7 Export Controls. This Agreement is made subject to any
restrictions concerning the export of materials and 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, SCHERING will not export, directly or indirectly, any VERTEX
Technical Information or any Licensed Products 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.
Research Agreement--Confidential--Page 34
<PAGE>
11.8 Assignment. This Agreement may not be assigned or otherwise
transferred by either party without the prior written consent of the other
party; provided, however, that either party may assign this Agreement,
without the consent of the other party, (i) to any of its Affiliates, if the
assigning party guarantees the full performance of its Affiliates'
obligations hereunder, or (ii) in connection with the transfer or sale of all
or substantially all of its assets or business or in the event of its merger
or consolidation with another company. Any purported assignment in
contravention of this Section 11.8 shall, at the option of the nonassigning
party, be null and void and of no effect. No assignment shall release either
party from responsibility for the performance of any accrued obligation of
such party hereunder.
11.9 Affiliates. Each party may perform its obligations hereunder
personally or through one or more Affiliates, although each party shall
nonetheless be solely responsible for the performance of its Affiliates.
Neither party shall permit any of its Affiliates to commit any act (including
any act or omission) which such party is prohibited hereunder from committing
directly.
11.10 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.
11.11 No Agency. Nothing herein contained shall be deemed to create an
agency, joint venture, amalgamation, partnership or similar relationship
between SCHERING and VERTEX. 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 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.
11.12 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 such other addresses as may be designated by one party to the
other by notice pursuant hereto, 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:
Research Agreement--Confidential--Page 35
<PAGE>
if to SCHERING, at:
SCHERING AG
Muellerstrasse 178
D-13342 Berlin
GERMANY
Attention: Prof. C. Braestrup
with a copy to legal department
with copies to
Schering Berlin Venture Corporation
110 East Hanover Avenue
Cedar Knolls, NJ 07927
Attention: President
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Attention: James M. Edwards, Esq.
if to VERTEX, at:
Vertex Pharmaceuticals Incorporated
130 Waverly Street
Cambridge, MA U.S.A. 02139-4211
Attention: Richard H. Aldrich, Senior Vice President and Chief
Business Officer
with a copy to:
Warner & Stackpole LLP
75 State Street
Boston, MA U.S.A. 02109
Attention: Kenneth S. Boger, Esq.
Fax: (617) 951-9151
11.3 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.
11.4 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 such party may have with any other person or company. Each
party has relied on that representation in entering into this Agreement.
Research Agreement--Confidential--Page 36
<PAGE>
11.5 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.
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/
----------------------------------
Richard H. Aldrich
Title: Senior Vice President and Chief Business Officer
-------------------------------------------------
Date of Signature:
------------------------------------
SCHERING AG
By: /s/
--------------------------------------
Title: MEMBER OF EXECUTIVE BOARD OF DIRECTORS
-----------------------------------------
By: /s/
------------------------------------------------
Title: HEAD OF PRE-CLINICAL RESEARCH
-----------------------------------------------
Date of Signature: 24th August 1998
------------------------------------
Research Agreement--Confidential--Page 37
<PAGE>
Schedule 1.2(a)
Base Compound Patent and Patent Application
<TABLE>
<CAPTION>
Docket No. Type Country Serial No. Filed Status Patent No.
<S> <C> <C> <C> <C> <C> <C>
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
</TABLE>
Research Agreement--Confidential
<PAGE>
Schedule 1.2(b)
Excluded Compounds
_______________________________________________________________________________
[***]
Research Agreement--Confidential
<PAGE>
Schedule 1.34
SCHERING Patents
_______________________________________________________________________________
Research Agreement--Confidential
<PAGE>
Schedule 1.41
VERTEX Patents
_______________________________________________________________________________
<TABLE>
<CAPTION>
Docket No. Type Country Serial No. Filed Status Patent No.
<S> <C> <C> <C> <C> <C> <C>
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
[***] [***] [***] [***] [***] [***] [***]
</TABLE>
Research Agreement--Confidential
<PAGE>
Schedule 2.5
Research Plan
(including Chemistry Subplan)
_______________________________________________________________________________
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
I. [***]
A. [***]
1. [***]
a. [***]
b. [***]
2. [***]
Research Agreement--Confidential
<PAGE>
a. [***]
b. [***]
c. [***]
(i) [***]
(ii) [***]
B. [***]
1. [***]
2. [***]
3. [***]
C. [***]
1. [***]
2. [***]
3. [***]
4. [***]
D. [***]
1. [***]
2. [***]
3. [***]
II. [***]
A. [***]
B. [***]
1. [***]
2. [***]
3. [***]
4. [***]
III. [***]
A. [***]
B. [***]
C. [***]:
1. [***]
2. [***]
3. [***]
4. [***]
5. [***]
6. [***]
7. [***]
8. [***]
9. [***]
IV. [***]
Research Agreement--Confidential
<PAGE>
A. [***]
V. [***]
A. [***]
B. [***]
C. [***]
VI. [***]
A. [***]
B. [***]
VII. [***]s
A. [***]
B. [***]
VIII. [***]
A. [***]
IX. [***]
A. [***]
X. [***]
A. [***]
B. [***]
C. [***]
D. [***]
XI. [***]
A. [***]
B. [***]
Research Agreement--Confidential
<PAGE>
C. [***]
D. [***]
XII. [***]
A. [***]
1. [***]
2. [***]
3. [***]
4. [***]
5. [***]
6. [***]
7. [***]
8. [***]
9. [***]
B. [***]
C. [***]
D. [***]
XIII. [***]
XIV. [***]
A. [***]
B. [***]
C. [***]
D. [***]
E. [***]
F. [***]
Research Agreement--Confidential
<PAGE>
[***]
[***]
I. [***].
A. [***]
B. [***]
C. [***]
D. [***]
E. [***]
F. [***]
G. [***]
H. [***]
I. [***]
J. [***]
K. [***]
L. [***]
II. [***].
A. [***]
B. [***]
C. [***]
D. [***]
E. [***]
F. [***]
III. [***].
A. [***]
B. [***]
C. [***]
Research Agreement--Confidential
<PAGE>
Schedule 2.7
Development Criteria
_______________________________________________________________________________
<TABLE>
<CAPTION>
Parameter Counter-Proposal
------------ -----------------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
</TABLE>
<PAGE>
Exhibit A
Form of License and Development Agreement
_______________________________________________________________________________
11253-42:222586 v11
Research Agreement--Confidential
<PAGE>
License and Development Agreement
between
Vertex Pharmaceuticals Incorporated
and
Schering AG
<PAGE>
LICENSE AND DEVELOPMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
------------
<S> <C>
Introduction................................................... 1
ARTICLE I--Definitions......................................... 1
ARTICLE II--License............................................ 8
2.1 Grant to SCHERING......................................... 8
2.2 Grant to VERTEX........................................... 9
2.3 Information Transfer...................................... 10
ARTICLE III--Development....................................... 10
3.1 Commencement of Development Program....................... 10
3.2 Development Committee..................................... 10
3.3 Development Plan.......................................... 12
3.4 Development Costs......................................... 13
3.5 Regulatory Approvals...................................... 14
3.6 Step-In Rights............................................ 14
ARTICLE IV--Manufacture and Supply............................. 15
4.1 Supply of Bulk Drug Substance for Development Purposes.... 15
4.2 VERTEX Bulk Drug Substance Commercial Supply Option....... 15
4.3 SCHERING Bulk Drug Substance Commercial Supply Right;
Manufacture of Drug Product............................ 16
4.4 Commercial Supply in North America........................ 16
4.5 Manufacturing Technology.................................. 16
4.6 Bulk Drug Substance Supply Terms.......................... 16
4.7 Coordination of Manufacturing Processes................... 16
ARTICLE V--Commercialization................................... 17
5.1 Marketing and Promotion................................... 17
5.2 Global Marketing Plan..................................... 17
5.3 Marketing in North America................................ 17
5.4 European Co-promotion Rights.............................. 22
5.5 Marketing in Japan........................................ 23
5.6 Further Co-Promotion Proposals............................ 23
5.7 Co-labeling............................................... 24
5.8 Due Diligence............................................. 24
</TABLE>
License and Development Agreement -- Table of Contents -- Confidential -- Page i
<PAGE>
<TABLE>
<CAPTION>
Page Number
------------
<S> <C>
ARTICLE VI--Payments........................................... 25
6.1 Development Payments by SCHERING.......................... 25
6.2 Supply Price for Bulk Drug Substance in the Supply
Option Territories...................................... 27
6.2.1 VERTEX Exercises Bulk Commercial Supply Option..... 27
6.2.2 Payment of Supply Price under Section 6.2.1 hereof. 27
6.2.3 VERTEX Does Not Exercise Bulk Commercial
Supply Option..................................... 28
6.3 Supply Price for Bulk Drug Substance in North America..... 28
6.4 Royalties................................................. 28
6.5 Reduction in Payments..................................... 28
6.6 Sales Reports............................................. 29
6.7 Withholding Tax........................................... 31
ARTICLE VII--Intellectual Property............................. 32
7.1 Information Sharing....................................... 32
7.2 Patentable Inventions and Know-How........................ 32
7.2.1 Ownership.......................................... 32
7.2.2 Patent Prosecution................................. 32
7.2.3 Costs.............................................. 33
7.3 Infringement Claims by Third Parties...................... 33
7.4 Infringement Claims Against Third Parties................. 35
7.5 Notice of Certification................................... 35
7.6 Patent Term Extensions.................................... 36
ARTICLE VIII--Reporting........................................ 36
8.1 Exchange of Information................................... 36
ARTICLE IX--Representations and Warranties of VERTEX........... 37
9.1 Authorization............................................. 37
9.2 No Third Party Rights..................................... 37
9.3 No Third Party Patents.................................... 37
9.4 Maintenance of Patents and Licenses....................... 37
ARTICLE X--Representations and Warranties of SCHERING.......... 37
10.1 Authorization............................................. 38
10.2 No Third Party Rights..................................... 38
10.3 No Third Party Patents.................................... 38
10.4 Maintenance of Patents and Licenses....................... 38
ARTICLE XI--Confidentiality.................................... 38
</TABLE>
License and Development Agreement--Table of Contents--Confidential--Page ii
<PAGE>
<TABLE>
<CAPTION>
Page Number
------------
<S> <C>
11.1 Undertaking............................................... 38
11.2 Exceptions................................................ 39
11.3 Publicity................................................. 39
11.4 Survival.................................................. 40
ARTICLE XII--Publication....................................... 40
ARTICLE XIII--Dispute Resolution............................... 40
13.1 Governing Law; Jurisdiction............................... 40
13.2 Dispute Resolution........................................ 40
ARTICLE XIV--Term and Termination.............................. 40
14.1 Term...................................................... 40
14.2 Termination For Cause..................................... 41
14.3 Termination by SCHERING................................... 41
14.4 Termination for Bankruptcy................................ 41
14.5 Effect of Termination..................................... 41
ARTICLE XV--Indemnification.................................... 42
15.1 Environmental Indemnification............................. 42
15.2 Environmental Matters..................................... 42
15.3 Indemnification by VERTEX................................. 43
15.4 Indemnification by SCHERING............................... 43
15.5 Claims Procedures......................................... 43
15.6 Compliance................................................ 44
15.7 Insurance................................................. 44
ARTICLE XVI--Miscellaneous Provisions.......................... 44
16.1 Waiver.................................................... 44
16.2 Force Majeure............................................. 45
16.3 Registration of License................................... 45
16.4 Severability.............................................. 45
16.5 Government Acts........................................... 45
16.6 Government Approvals...................................... 45
16.7 Assignment................................................ 45
16.8 Affiliates................................................ 46
16.9 Counterparts.............................................. 46
16.10 No Agency............................................... 46
16.11 Notice.................................................. 46
16.12 Headings................................................ 47
</TABLE>
License and Development Agreement--Table of Contents--Confidential--Page iii
<PAGE>
<TABLE>
<CAPTION>
Page Number
------------
<S> <C>
16.13 Authority............................................... 47
16.14 Competition............................................. 48
16.15 Entire Agreement........................................ 48
Schedule 1.12 -- List of Drug Product Candidates
Schedule 1.36 -- SCHERING Patents
Schedule 1.41 -- VERTEX Patents
Schedule 1.43 -- Region Definitions
Schedule 4.6 -- Terms of Supply
Schedule 5.4 -- Terms of European Co-Promotion Rights
Schedule 7.2.2 -- Minimum Patent Filing Countries
</TABLE>
License and Development Agreement--Table of Contents--Confidential--Page iv
<PAGE>
License and Development Agreement
This Agreement is made and entered into as of ________, _____ ( the
"Effective Date") between Vertex Pharmaceuticals Incorporated (hereinafter
"VERTEX"), a Massachusetts corporation with principal offices at 130 Waverly
Street, Cambridge, MA 02139-4242, and SCHERING AG (hereinafter "SCHERING"), a
German corporation with principal offices at Muellerstrasse 178, D-13342 Berlin,
GERMANY.
Introduction
WHEREAS, VERTEX and SCHERING are parties to a certain Research Agreement
dated as of April ____, 1998 (the "Research Agreement") under which SCHERING and
VERTEX are attempting to design and discover compounds for use in the treatment
of conditions and diseases of the central nervous system and peripheral nervous
system; and
WHEREAS, SCHERING has the option to develop and commercialize one or more
such compounds under the terms of a license and development agreement between
the parties as set forth in the Research Agreement; and
WHEREAS, SCHERING has exercised its option and has elected to develop and
commercialize the Program Compounds designated on Schedule 1.13 hereto, in
accordance with the terms of this License and Development Agreement; and
NOW THEREFORE, in consideration of the foregoing premises, the parties
agree as follows:
Article I
Definitions
1.1. "Affiliate" shall mean, with respect to any Person, any other Person which
directly or indirectly, by itself or through one or more intermediaries,
controls, or is controlled by, or is under direct or indirect common control
with, such Person. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management
License and Development Agreement--Confidential--Page 1
<PAGE>
and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise. Control will be presumed if one Person owns,
either of record or beneficially, 40% or more of the voting stock of any
other Person.
1.2. "Bulk Commercial Supply Option" shall have the meaning ascribed to
it in Section 4.2 hereof.
1.3. "Bulk Drug Substance" shall mean a Drug Product Candidate in bulk
crystal, powder or other form suitable for incorporation in a Drug Product.
1.4. "Co-promote" shall mean the right of SCHERING and VERTEX, subject to
applicable law, to market and Detail (as defined below) Drug Products in the
Field through their respective sales forces and to otherwise engage in
activities in accordance with the provisions of Section 5.3 or Section 5.4
hereof, as may be applicable. "Detail" as used above shall have the meaning
assigned to it in Section 5.3 hereof.
1.5. "Core Development Activities" shall mean all activities regardless
of where they are performed which are part of a Development Program for a
Drug Product Candidate and which the Development Committee believes are
reasonably necessary in order to obtain Regulatory Approval from the [***].
Notwithstanding the foregoing, "Core Development Activities" shall not
include studies required by the regulatory authority of a particular country
with respect to a particular geographic or ethnic population, or a subset
thereof, and not otherwise required by the FDA.
1.6. "Core Development Costs" shall mean the total of all [***]
1.7. "Development Committee" shall have the meaning ascribed to it in
Section 3.2 hereof.
License and Development Agreement--Confidential--Page 2
<PAGE>
1.8. "Development Plan" shall have the meaning ascribed to it in Section
3.3 hereof.
1.9. "Development Program" shall mean activities associated with
development of a Drug Product Candidate and/or a Drug Product for sale,
including but not limited to (a) selection of one or more Drug Product
Candidates from among lead Program Compounds, and preparation for preclinical
assessment thereof; (b) formulation of the Drug Product Candidate 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 Investigational New Drug application (or the
applicable equivalent); (d) manufacture and formulation of Program Compounds
and Drug Product Candidates for preclinical and clinical studies; (e)
planning, implementation, evaluation and administration of human clinical
trials; (f) manufacturing process development and scale-up for the
manufacture of Bulk Drug Substance and Drug Product; (g) preparation and
submission of applications for Regulatory Approval; and (h) post-market
surveillance of approved drug indications, as required or agreed as part of a
marketing approval by any governmental regulatory authority.
1.10. "Drug Product" shall mean a finished dosage form which is
prepared from Bulk Drug Substance and is ready for administration to the
ultimate consumer as a pharmaceutical.
1.11. "Drug Product Candidate" shall mean any Program Compound listed
from time to time on Schedule 1.12 hereof, as to which SCHERING has exercised
its Development Option under Article III of the Research Agreement and which
has become the subject of this License Agreement in accordance with the
provisions of Section 3.2 of the Research Agreement.
1.12. "Effective Date" shall mean the date specified in the first
paragraph of this Agreement, which shall be the date upon which this
Agreement is executed by the parties hereto following exercise of the
Development Option by SCHERING.
1.13. "Field" shall mean the diagnosis, treatment or prevention in
humans of conditions or diseases of the central nervous system and/or
peripheral nervous system.
1.14. "First Commercial Sale" shall mean the first sale of a Drug
Product by SCHERING or an Affiliate or sublicensee of SCHERING in a country
in the Territory following Regulatory Approval of the Drug Product in that
country or, if no such Regulatory Approval or similar marketing approval is
required, the date upon which the Drug Product is first commercially launched
in such country.
License and Development Agreement--Confidential--Page 3
<PAGE>
1.15. "Foreign Filing" shall mean any application or regulatory
filing to be filed hereunder with a foreign regulatory authority for approval
to manufacture and sell Drug Product(s) outside the U.S. and any
correspondence and/or approvals or licenses relating thereto.
1.16. "GLP" shall mean the current good Laboratory Practices
regulations promulgated by the FDA, published at 21 CFR Part 58, as such
regulations may be from time to time amended, and such equivalent foreign
regulations or standards as may be applicable with respect to Bulk Drug
Substance or Drug Product(s) manufactured or sold outside the United States.
1.17. "GMP" shall mean the Current Good Manufacturing practice
regulations promulgated by the FDA, published at 21 CFR Part 210 et seq., as
such regulations may be amended, and such equivalent foreign regulations or
standards as may be applicable with respect to Bulk Drug Substance or Drug
Product(s) manufactured or sold outside the United States.
1.18. "Hazardous Materials" includes, but is not limited to, any
substance or material which is or contains a substance designated or defined
as oil and/or a hazardous material, hazardous waste, hazardous substance,
medical waste, infectious waste, chemicals known to cause cancer or
reproductive toxicity, air pollutant, water pollutant, asbestos and
polychlorinated biphenyls, as such substances are defined under any
applicable federal, state or local statute, regulation, rule or ordinance.
1.19. "IND" means the investigational new drug application relating
to a Drug Product Candidate(s) to be filed with the FDA pursuant to 21 CFR
Part 312, including any amendments thereto. References herein to IND shall
include, to the extent applicable, any comparable Foreign Filing(s) (such as
a CTX in the European Union).
1.20. "Know-How" shall mean all data, technical information,
know-how, experience, inventions, discoveries, trade secrets, compositions of
matter and methods, whether currently existing or developed or obtained
during the course of this Agreement and whether or not patentable or
confidential, that are now owned, co-owned (other than with the other Party
or its Affiliates) or licensed (with a right to disclose and sublicense) or
hereafter acquired or licensed (with a right to disclose and sublicense) by a
Party or its Affiliates, and that relate to the research, development,
utilization, manufacture or use of any Drug Product Candidate or Drug
Product, including but not limited to processes, techniques, methods,
products, materials and compositions.
1.21. "Live Claim" shall mean a claim of any issued, unexpired United
States or foreign patent which shall not have been withdrawn, canceled or
disclaimed, nor held invalid or unenforceable by a court of competent
jurisdiction in an unappealed or unappealable decision.
License and Development Agreement--Confidential--Page 4
<PAGE>
1.22. [***].
1.23. "Major Markets" shall mean Japan and each country in North
America and the European Union.
1.24. "Manufacturing Cost" shall have the meaning ascribed to it in
Section 6.3 hereof.
1.25. "Net Sales" shall mean, with respect to a Drug Product, [***];
provided that:
1.25.1. In the case of any sale or other disposal of a Drug Product
between or among SCHERING and its Affiliates, sublicensees or marketing
partners, for resale, Net Sales shall be calculated as above only on the
value charged or invoiced on the first arms'-length sale thereafter to a
Third Party;
1.25.2. In the case of any sale which is not invoiced or is
delivered before invoice, Net Sales shall be calculated at the time of
delivery or when the Drug Product is paid for, if paid for before delivery or
invoice;
1.25.3. In the case of any other sale or other disposal for value,
such as barter or counter-trade, of any Drug Product, or part thereof, other
than in an arm's length transaction exclusively for money, Net Sales shall be
calculated as above on the fair market price (if higher) in the country of
sale or disposal;
License and Development Agreement--Confidential--Page 5
<PAGE>
1.25.4. In the event the Drug Product is sold as part of a
combination product, the Net Sales of the Drug Product, for the purposes of
determining royalty payments, shall be determined [***]. In the event that
such [***]cannot be determined for both the Drug Product and the other
product(s) in combination, Net Sales for purposes of determining royalty
payments shall be mutually agreed by the parties based on relative value
contributed by each component, and such agreement shall not be unreasonably
withheld.
1.25.5. For the purpose of calculating the Net Sales of SCHERING
and its Affiliates, sublicensees or marketing partners (collectively, the
"Seller"), the parties recognize and acknowledge that [***].
1.26. "Patents" shall mean all existing patents and patent
applications and all patent applications hereafter filed, including any
continuation, continuation-in-part, division, provisional or any substitute
applications, any patent issued with respect to any such patent applications,
any reissue, reexamination, renewal or extension (including any supplemental
patent certificate) of any such patent, and any confirmation patent or
registration patent or patent of addition based on any such patent, and all
foreign counterparts of any of the foregoing and that are now owned, co-owned
or licensed (with a right to disclose and sublicense) or hereafter acquired
or licensed (with a right to disclose and sublicense) by a Party or its
Affiliates.
1.27. "Person" shall mean any individual, corporation, partnership,
association. joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.
1.28. "Phase I Clinical Trials" shall mean the initial clinical
trials conducted in humans to establish the safety profile of a Drug Product
candidate and to collect initial data on its pharmacokinetics and
pharmacological effects.
1.29. "Phase II Clinical Trials" shall mean well-controlled human
clinical trials conducted in a relatively small number of patients (usually
no more than several hundred) to collect preliminary data regarding efficacy
in the particular indication tested, as well as to obtain some indication of
the dosage regimen required.
License and Development Agreement--Confidential--Page 6
<PAGE>
1.30. "Phase III Clinical Trials" shall mean large scale human
clinical trials conducted in patients and intended to generate data
concerning the safety and efficacy of a Drug Product Candidate in the
particular indication tested sufficient to evaluate the overall benefit-risk
relationship of the Drug Product Candidate, to provide an adequate basis for
product labeling, and to support registration of the Drug Product Candidate
with health regulatory authorities.
1.31. "Product Launch" shall mean, with respect to a particular Drug
Product, the First Commercial Sale of that Drug Product.
1.32. "Program Compound" shall mean a Base Compound or a New Compound.
1.33. "Regulatory Approval" shall mean all authorizations by the
appropriate governmental entity or entities necessary for commercial sale of
Drug Product (including exports) in each jurisdiction in which SCHERING
elects to market the Drug Product including, without limitation and where
applicable, approval of labeling, price, reimbursement and manufacturing. In
the United States "Regulatory Approval" shall mean final approval of a new
drug application pursuant to 21 CFR 314, permitting distribution of the
applicable Drug Product in interstate commerce in the United States.
1.34. "Research Agreement" shall mean that certain Research Agreement
between VERTEX and SCHERING dated as of August 24, 1998.
1.35. "SCHERING Know-How" shall mean all Know-How of SCHERING.
1.36. "SCHERING Patents" shall mean any Patents owned by SCHERING or
any of its Affiliates, or under which SCHERING or any of its Affiliates
acquires rights (other than under this Agreement or the License Agreement,
and unless those acquired rights may not be included under this Agreement by
reason of restrictions imposed by a Third Party from which the rights were
acquired), claiming (i) a compound discovered or identified during the course
of the Research Program, or an improvement to the subject matter of a VERTEX
Patent, which, if discovered or developed by VERTEX in the course of the
Research Program, would be a Program Compound or otherwise the subject of a
VERTEX Patent as defined in this Agreement; (ii) a method of using any such
compound; or (iii) any processes (including manufacturing processes)
discovered or developed by SCHERING or any of its Affiliates in the course of
the Research Program or the Development Program which are or may be useful in
the Field, and including any continuation, continuation-in-
License and Development Agreement--Confidential--Page 7
<PAGE>
part, or division of any such Patent. A list of SCHERING Patents will be
appended hereto as Schedule 1.36 and updated periodically to reflect
additions thereto during the course of the Research Program. SCHERING shall
keep VERTEX currently informed in writing of all SCHERING Patents.
1.37. "SCHERING Technology" shall mean all SCHERING Patents and all
SCHERING Know-How.
1.38. "Territory" shall mean all the countries in the world.
1.39. "Third Party" shall mean any entity which is not a party or
Affiliate of any party to this Agreement.
1.40. "VERTEX Know-How" shall mean all Know-How of VERTEX.
1.41. "VERTEX Patents" shall mean any Patents owned by VERTEX or any
of its Affiliates or under which VERTEX or any of its Affiliates acquires
rights (other than under this Agreement or the License Agreement, and unless
those acquired rights may not be included under this Agreement by reason of
restrictions imposed by a Third Party from which the rights were acquired),
claiming (i) Base Compounds; (ii) a compound discovered or identified during
the course of the Research Program, or an improvement to the subject matter
of a SCHERING Patent which, if discovered or developed by VERTEX in the
course of the Research Program, would be a Program Compound or otherwise the
subject of a VERTEX Patent as defined in this Agreement; (iii) a method of
using any such compound referenced in items (i) and (ii) above; or (iv) any
processes (including manufacturing processes) discovered or developed by
VERTEX or any of its Affiliates in the course of the Research Program or the
Development Program, which are or may be useful in the Field, and including
any continuation, continuation-in-part, or division of any such Patent. A
list of VERTEX Patents will be appended hereto as Schedule 1.41 and updated
periodically to reflect additions thereto during the course of the Research
Program. VERTEX shall keep SCHERING currently informed in writing of all
VERTEX patents.
1.42. "VERTEX Technology" shall mean all VERTEX Patents and all
VERTEX Know-How.
1.43. The terms "North America," "Europe," the "Middle East," and
"Africa" shall include those countries referenced on Schedule 1.43 hereto.
License and Development Agreement--Confidential--Page 8
<PAGE>
Capitalized terms used but not otherwise defined herein which are defined in
the Research Agreement shall have the meaning ascribed to them therein.
Article II
License
2.1. Grant to SCHERING.
(a) Subject to the other provisions of this Agreement and to the
provisions of the last sentence of Section 7.4 of the Research Agreement with
respect to any Program Compound covered thereby, VERTEX hereby grants to
SCHERING an exclusive worldwide license and/or sublicense under VERTEX
Technology to the extent useful to permit SCHERING to carry out its rights
and obligations set forth in this Agreement and to develop, manufacture, have
manufactured, market, use, sell and import for sale Bulk Drug Substance (to
the extent provided in Article IV hereof), Drug Product Candidates and Drug
Products in the Field in the Territory. Notwithstanding the foregoing grant,
VERTEX shall have the right to use all VERTEX Technology to discharge its
obligations and exercise its rights under this Agreement, including but not
limited to its right to manufacture and supply Bulk Drug Substance under
Article IV hereof and its rights under Article V hereof. VERTEX retains all
rights to VERTEX Technology except to the extent explicitly granted to
SCHERING hereunder.
(b) SCHERING may sublicense its rights under the foregoing license
to manufacture, market and sell Drug Products: [***]; provided that before
entering into any such sublicense, SCHERING will notify VERTEX of its
intention to do so, identifying the proposed partner, will provide VERTEX
with a reasonable opportunity to comment on the proposal and will consider in
good faith any suggestion by VERTEX with respect to the choice of
sublicensee, before concluding the sublicense. SCHERING shall guarantee and
be responsible to VERTEX for the performance by the sublicensee under any
such sublicense and under any provisions of this Agreement for which the
sublicensee is responsible pursuant to the terms of the sublicense. SCHERING
shall not permit any subcontractors or sublicensees to use VERTEX Technology
without provisions safeguarding confidentiality at least equivalent to those
provided in this Agreement.
License and Development Agreement--Confidential--Page 9
<PAGE>
2.2. Grant to VERTEX. Subject to the other provisions of this Agreement,
SCHERING hereby grants to VERTEX an exclusive, worldwide license and/or
sublicense under SCHERING Technology to the extent useful to permit VERTEX to
carry out its rights and obligations set forth in this Agreement and to
develop, manufacture, have manufactured, market, use and sell Bulk Drug
Substance, Drug Product Candidates and Drug Products in the Field in the
Territory, to the extent provided for herein. Notwithstanding the foregoing
grant, SCHERING shall have the right to use all SCHERING Technology to
discharge its obligations and exercise its rights under this Agreement.
VERTEX shall have the right to grant sublicenses of its manufacturing rights
under the foregoing license on terms consistent with this Agreement. VERTEX
shall guarantee and be responsible to SCHERING for the performance by the
sublicensee under any such sublicense and under any provisions of this
Agreement for which the sublicensee is responsible pursuant to the terms of
the sublicense. VERTEX shall not engage any Third Party to manufacture Bulk
Drug Substance without prior consultation and review with SCHERING; and
provided further that VERTEX shall not engage any such Third Party which does
not have a demonstrated ability to deliver high quality pharmaceutical
products on a timely basis at volumes likely to be required by VERTEX and
SCHERING. VERTEX will also refrain from engaging any Third Party
manufacturer to which SCHERING has reasonable objection; provided that
SCHERING notifies VERTEX of its objection, and the detailed basis therefor,
within thirty (30) days of receipt of notice from VERTEX of its intention to
employ the Third Party. VERTEX shall not permit any subcontractors or
sublicensees to use SCHERING Technology without provisions safeguarding
confidentiality equivalent to those provided in this Agreement. SCHERING
retains all rights to SCHERING Technology except to the extent explicitly
granted to VERTEX hereunder.
2.3. Information Transfer. Subject to the provisions of Section 4.5,
each party shall deliver to the other all information in its possession
(unless subject to restrictions pursuant to agreement with a Third Party) and
requested by the other party relating to Program Compounds, Bulk Drug
Substance, Drug Product Candidates and Drug Products, and methods of
manufacturing the same, which is necessary or useful for exercise by such
other party of the rights granted hereunder. The information to be delivered
shall include copies of all Patents, copyrights, copyright registrations and
applications therefor and all other manifestations of the intellectual
property embodied in the Program Compounds, Bulk Drug Substance, Drug Product
Candidates or Drug Products, whether in human or machine readable form.
License and Development Agreement--Confidential--Page 10
<PAGE>
Article III
Development
3.1. Commencement of Development Program. SCHERING and VERTEX shall
promptly and diligently commence and pursue a Development Program with
respect to each Program Compound as soon as practicable after exercise by
SCHERING of its Development Option, as set forth in the Research Agreement,
with respect to that Program Compound.
3.2. Development Committee.
(a) Formation and Responsibilities. Upon the execution of this
Agreement, VERTEX and SCHERING will establish a Development Committee made up
of equal numbers of VERTEX and SCHERING personnel. The Development Committee
will be responsible for the preparation and overall implementation of the
Development Plan with respect to each Drug Product Candidate, and may act
directly or through such sub-committees as it may deem appropriate to
establish. If the Development Committee chooses to designate a Committee
Chair, the Chair will be elected from among the members of the Committee by a
majority vote of the Committee, and may be removed in the same manner. The
Development Committee shall meet formally at least quarterly, or with such
other frequency, and at such time and location, as may be established by the
Committee, for the following purposes, among others:
(i) To prepare, review and, if necessary, revise the overall
Development Plan as set forth in Section 3.3 below, to oversee and
coordinate development activities and to review the conduct of
development and manufacturing of Bulk Drug Substance, Drug Product
Candidates and Drug Products;
(ii) To assign operational responsibility to VERTEX or SCHERING
for the conduct of particular activities specified in the Development
Plan;
(iii) To receive and review reports by VERTEX and SCHERING,
which shall be prepared by each party and submitted to the other party
and to the Development Committee on a quarterly basis within thirty
(30) days after the end of the quarter, setting forth in reasonable
detail, with supporting data, the results of work performed during the
preceding calendar quarter under the Development Program by the
License and Development Agreement--Confidential--Page 11
<PAGE>
party submitting the report, including any planned or filed patent
applications covering Bulk Drug Substance, Drug Product Candidates,
Drug Products and methods of manufacturing either;
(iv) To assist in coordinating scientific interactions and
resolving issues between VERTEX and SCHERING during the course of the
Development Program;
(v) To discuss matters relating to patents, including but not
limited to issues of inventorship and decisions relating to the filing,
prosecution and maintenance of patents and patent applications.
Notwithstanding the foregoing, each party shall retain the rights,
powers, and discretion expressly granted to it under this Agreement, and the
Development Committee shall not be delegated or vested with any such rights,
powers or discretion except as expressly provided in this Agreement. The
Development Committee shall not have the power to amend or modify this
Agreement, which may only be amended or modified as provided in Section 16.15
hereof.
(b) Decision Making.
(i) The objective of the Development Committee shall be to reach
agreement by consensus on all matters falling within its
authority hereunder, within the scope of the Development Plan.
However, if the Development Committee cannot reach consensus
on any matter (a "Disputed Matter"): (a) except as otherwise
set forth below, if the Disputed Matter relates to Core
Development Activities, the parties shall attempt in good
faith to resolve the disagreement through discussions among
executive representatives from each Company, and if resolution
of the Disputed Matter has not occurred within sixty (60) days
after either party has notified the other in writing of the
existence of the Disputed Matter, the Disputed Matter shall be
referred for resolution to the President of VERTEX and the
member of the Vorstand of SCHERING responsible for research
and development, to resolve the Matter referred to them in a
binding, nonappealable manner; and (b) if the Disputed Matter
relates to development activities which are not Core
Development Activities, a
License and Development Agreement--Confidential--Page 12
<PAGE>
person designated by SCHERING, who may or may not be a member
of the Development Committee, shall have final authority,
after full consultation with VERTEX and discussion among
executive representatives from each Company, to make all
decisions hereunder regarding such Matter.
(ii) Except as provided in (i) above, any substantial changes to
the Development Plan must be agreed to in writing by both
VERTEX and SCHERING. Any day-to-day nonsubstantial changes
(the characterization of which changes as "nonsubstantial"
shall be determined by at least two of the Development
Committee members appointed by SCHERING and at least two of
the Development Committee members appointed by VERTEX) to the
Development Plan may be approved by a majority vote of the
Development Committee.
3.3. Development Plan. (a) General. The Development Committee shall
prepare and oversee the implementation of an overall development plan (the
"Development Plan") for each Drug Product Candidate which shall describe
fully the proposed preclinical studies, toxicology, clinical trials,
regulatory plans, clinical trial and commercial material requirements and any
other key elements of obtaining Regulatory Approval in each country where the
Drug Product is to be marketed. The Development Plan will include, among
other things, a plan (the "Core Development Plan") for the conduct of Core
Development Activities, and will provide for the allocation of development
tasks between VERTEX and SCHERING. Each party assigned a development task
will, in a timely fashion, prepare a detailed plan for the accomplishment of
that task and will submit that plan to the Development Committee for its
review. Development tasks shall be advanced in parallel rather than serially
where practicable and appropriate, if doing so would be likely to advance the
ultimate date of product approval and launch and is otherwise commercially
reasonable.
(b) Process Development. VERTEX will be responsible for the development
of processes for manufacture of Bulk Drug Substance ("Bulk Process
Development"), and for the preparation and implementation of a plan to
accomplish that task. SCHERING will be responsible for the development of
processes for formulation and manufacture of Drug Products from Bulk Drug
Substance ("Finished Process Development"), and for the preparation and
implementation of a plan to accomplish that task. Each party will work with
the Development Committee to coordinate its plans with those of the other
party, with the objective of ensuring operationally effective and timely
License and Development Agreement--Confidential--Page 13
<PAGE>
integration of the two plans, as necessary to meet the overall schedule for
process development and the supply of Bulk Drug Substance and Drug Product as
set forth in the Development Plan.
3.4. Development Costs. (a) Development costs shall consist of Core
Development Costs incurred by VERTEX and SCHERING in accordance with the Core
Development Plan, and all other costs ("Supplemental Development Costs")
associated with conduct of the Development Plan in the Territory. SCHERING
will bear [***] of the Supplemental Development Costs and [***] of the Core
Development Costs, and VERTEX will bear [***] of the Core Development Costs.
Not later than sixty (60) days after the end of each calendar year, SCHERING
and VERTEX will each submit to the other a summary of the Core Development
Costs incurred by the submitting party during the calendar year just ended,
and to the extent that either party has incurred Core Development Costs
during such calendar year greater than its pro rata share, the other party
will reimburse such party as necessary to restore the agreed [***]
proportion; or the parties may, by agreement, provide that the party
obligated to provide reimbursement may instead bear a disproportionate share
of Core Development Costs (either in cash or in kind) during the next
succeeding year to the extent necessary to restore the agreed proportion.
(b) Each party, upon the written request and at the expense of the
other party, and in any event not more frequently than once in or in respect of
any calendar year, shall permit an independent public accountant of national
prominence selected by the other party to have access during normal business
hours to those records of such party as may be reasonably necessary to verify
the accuracy of the cost reports submitted by such party pursuant to this
Section 3.4(b) in respect of any calendar year ending not more than thirty-six
(36) months prior to the date of the aforementioned written request.
3.5. Regulatory Approvals. The parties shall use their respective
commercially reasonable efforts to file for and obtain all necessary
Regulatory Approvals within a reasonable time period. Unless otherwise
required by law in the relevant jurisdiction, SCHERING shall have the sole
right to obtain Regulatory Approvals, which shall be held by and in the name
of SCHERING, and SCHERING shall own all submissions in connection therewith,
provided that VERTEX shall have an irrevocable right of reference thereto,
and provided further, that any Regulatory Approvals with respect to [***] in
the United States shall be held by and in the name of VERTEX until Product
Launch of [***], whereupon they will be transferred to SCHERING or at its
direction to an Affiliate of SCHERING, and SCHERING shall have an irrevocable
right of reference thereto for purposes of this Agreement. All formulary or
marketing approvals shall also be obtained by and in the name of SCHERING or,
with respect to [***] in the United States, by and in the name of VERTEX,
until Product Launch of [***], whereupon they will be transferred to SCHERING
or at
License and Development Agreement--Confidential--Page 14
<PAGE>
its direction to an Affiliate of SCHERING. In the Territory, other than in
the United States with respect to [***], SCHERING will be the principal
interface with and will otherwise handle all interactions with regulatory
agencies concerning any Drug Product including, to the extent legally
possible, being the sole contact with such agencies, subject to the rights of
VERTEX under Section 3.6 hereof; and provided that VERTEX shall have the
right to be represented at all meetings between representatives of the FDA
and SCHERING, and between representatives of the EMEA and SCHERING, and shall
be provided by SCHERING with prompt access to all exchanges of correspondence
with the FDA and the EMEA. VERTEX at the request of SCHERING will supply
representatives to meet with regulatory agencies, if necessary in view of the
tasks assigned to VERTEX, to obtain or maintain Regulatory Approval of any
Drug Product. Notwithstanding the foregoing, if [***] becomes a Drug Product
Candidate, Regulatory Approvals shall continue to be obtained in the United
States in the name of VERTEX, although SCHERING shall have an irrevocable
right of reference thereto, and VERTEX will continue to act as the principal
interface with the U.S. Food and Drug Administration with respect to [***]
until Product Launch, at which time VERTEX shall assign all Regulatory
Approvals to SCHERING or at its direction to an Affiliate of SCHERING.
3.6. Step-In Rights. If either party (the "First Party") fails
unreasonably, other than as a result of Force Majeure or a failure of the
other party to discharge its obligations hereunder, to carry out the tasks
allocated to it under the Development Plan in accordance with the time lines
agreed therein, then the other party may, after ninety (90) days prior
written notice to the First Party, undertake that particular task ("Work")
and complete it at its own expense if the First Party has not at such time
begun to carry out such Work in a manner reasonably likely to cure its
default. Such party shall be entitled to reasonable cooperation and
assistance from the First Party to accommodate its efforts, including
assignment to such party of sponsorship of regulatory filings if necessary to
permit the exercise by such party of its rights under this Section 3.6. If
any such Work is of good quality, conforms with the requirements of the
Development Plan, and is used in any part by the First Party to advance
development of Bulk Drug Substance, a Drug Product Candidate or a Drug
Product, the out-of-pocket cost of that Work will be reimbursed to the party
incurring the cost as promptly as practicable.
Article IV
Manufacture and Supply
4.1. Supply of Bulk Drug Substance for Development Purposes. VERTEX
will supply Bulk Drug Substance to SCHERING, at a price equal to [***] as
necessary to meet
License and Development Agreement--Confidential--Page 15
<PAGE>
SCHERING's reasonable requirements for conduct of the Development Program,
including its requirements for pre-clinical studies, formulation process
development and human clinical trials.
4.2. VERTEX Bulk Drug Substance Commercial Supply Option. VERTEX shall
have the option (the "Bulk Commercial Supply Option") to manufacture or have
manufactured subject to Section 2.2 and to supply SCHERING with its entire
requirements of Bulk Drug Substance for Drug Product sales in territories
(the "Supply Option Territories") other than North America, Europe, the
Middle East and Africa. The Bulk Commercial Supply Option with respect to a
particular Drug Product will be exercisable upon written notice delivered by
VERTEX to SCHERING no later than ninety (90) days after receipt by VERTEX of
written notice from SCHERING announcing that Phase II Clinical Trials with
respect to such Drug Product have commenced and making specific mention of
the Bulk Commercial Supply Option. If VERTEX exercises the Bulk Commercial
Supply Option, SCHERING, its Affiliates, sublicensees and marketing partners
shall purchase all of their respective requirements of Bulk Drug Substance
from VERTEX for manufacture of Drug Product for sale in the Supply Option
Territories.
In the event that VERTEX does not exercise the Bulk Commercial Supply
Option with respect to a Drug Product in the Supply Option Territory, or is
for any reason unable to provide material in sufficient quantities and of
sufficient quality necessary to reasonably meet the objectives set forth in
the Development Plan for the Supply Option Territory, SCHERING may undertake
production using its own manufacturing resources or Third Party manufacturers
pursuant to the license granted in Section 2.1(a) of this Agreement, and
shall have access to all information generated by VERTEX relating to the
supply of Bulk Drug Substance. In such event SCHERING shall pay to VERTEX a
royalty of [***] of Net Sales of that Drug Product in the Supply Option
Territories.
4.3. SCHERING Bulk Drug Substance Commercial Supply Right; Manufacture
of Drug Product. SCHERING shall have the right to manufacture or have
manufactured Bulk Drug Substance to meet its requirements for Drug Product
sales in Europe, the Middle East and Africa, and, subject to VERTEX's rights
under Section 4.2, in the Supply Option Territories. In the event that
VERTEX has exercised its Bulk Commercial Supply Option with respect to Bulk
Drug Substance for a particular Drug Product, SCHERING will give due
consideration to VERTEX as a potential Third Party manufacturer if SCHERING
chooses to manufacture Bulk Drug Substance for Europe, the Middle East or
Africa through a Third Party manufacturer and will provide VERTEX with an
opportunity to negotiate a mutually agreeable manufacturing agreement before
entering into any
License and Development Agreement--Confidential--Page 16
<PAGE>
such agreement with a Third Party. SCHERING shall formulate and manufacture
or have manufactured and packaged from Bulk Drug Substance all requirements
for Drug Products in the Territory.
4.4. Commercial Supply in North America. VERTEX shall manufacture or
have manufactured all Bulk Drug Substance necessary to meet SCHERING's
requirements for Drug Product sales in North America.
4.5. Manufacturing Technology. Each party shall provide to the other,
free of charge, for use in the manufacture of Bulk Drug Substance, Drug
Product Candidates and Drug Products hereunder, any manufacturing technology
developed by it in connection with the Research Program or the Development
Program, and any improvements made by it to any such technology. Other
manufacturing technology which belongs to one party and which is useful in
the manufacture of Bulk Drug Substance, Drug Product Candidates or Drug
Products shall be made available to the manufacturing party for that purpose,
subject to negotiation of a reasonable royalty or other compensation
arrangement. If either party (a "Contracting Party") engages an Affiliate or
a Third Party in the course of the Development Program to provide assistance
to the Contracting Party in the development of processes useful for the
manufacture of Bulk Drug Substance, Drug Product Candidates or Drug Products,
the Contracting Party will ensure that any processes belonging to that
Affiliate or Third Party and made available to the Contracting Party will
also be made available to the other party on the same terms offered to the
Contracting Party.
4.6. Bulk Drug Substance Supply Terms. All Bulk Drug Substance
manufactured by VERTEX for SCHERING hereunder shall be supplied to SCHERING
pursuant to the terms of a supply agreement to be negotiated by the parties
based on the term sheet attached as Schedule 4.6 to this Agreement.
4.7. Coordination of Manufacturing Processes. The parties intend to
coordinate the development of each Drug Product so that each form of Drug
Product marketed or sold by SCHERING or VERTEX will be produced using
substantially identical processes on a worldwide basis. The parties shall,
as part of the supply agreement referenced in Section 4.6 above, agree upon
procedures for adoption of process changes and other changes to manufacturing
methods to ensure that manufacturing processes remain substantially identical
for as long as the Drug Product is sold.
License and Development Agreement--Confidential--Page 17
<PAGE>
Article V
Commercialization
5.1. Marketing and Promotion. SCHERING shall have [***] rights to
market, sell and distribute all Drug Products in the Territory, including the
right to sublicense marketing rights as set forth in Section 2.1(b) hereof,
subject to the [***] rights of VERTEX set forth in this Article V.
5.2. Global Marketing Plan. As soon as practicable but in any case no
later than the date of first submission of an application for regulatory
approval of a Drug Product in a Major Market, SCHERING in consultation with
VERTEX will prepare and provide to VERTEX for its review and comment a
marketing plan, budgets and other customary planning and marketing aids with
respect to launch of the Drug Product in each Major Market (the "Global
Marketing Plan"). The Global Marketing Plan will be consistent with the
North America Marketing Plan prepared in accordance with the provisions of
Section 5.3 below. SCHERING, in consultation with VERTEX, will periodically
update the Global Marketing Plan to reflect materially changed circumstances
as they occur, and will circulate the updated plan to VERTEX. SCHERING will
provide VERTEX with the opportunity to be represented on any committee which
it may establish to oversee the marketing effort under the Global Marketing
Plan with respect to each Drug Product and in any event shall provide VERTEX
with reasonable opportunities to comment on the creation of marketing
strategies and plans, will meet periodically with VERTEX to review marketing
matters, and will share with VERTEX on a regular basis materials and
information (such as, to the extent available, market research, including
market growth and trend data, reports, sales force deployment data and
information concerning competition and competitors) generated by or at the
direction of SCHERING or its Affiliates and sublicensees which is relevant to
the marketing of Drug Products.
5.3. Marketing in North American
VERTEX and SCHERING will Co-Promote Drug Products in North America under
the terms of a Co-Promotion Agreement (the "Co-Promotion Agreement") which
shall be negotiated between the parties in good faith within thirty (30) days
following the commencement of Phase III Clinical Trials for the first Drug
Product. The Co-Promotion Agreement will incorporate, among other things,
all of the principles set forth below.
(a) Profit-sharing. VERTEX and SCHERING will share equally in
Operating Profits and Operating Losses from sales of Drug Products in North
America. "Operating Profits" or "Operating Losses" shall mean [***].
License and Development Agreement--Confidential--Page 18
<PAGE>
(b) Marketing Committee. Commercialization and marketing of Drug
Products in North America shall take place under the general coordination and
direction of a Marketing Committee which shall be established not later than
thirty days (30) following the commencement of Phase III Clinical Trials with
respect to a Drug Product and which shall be composed of an equal number of
VERTEX and SCHERING personnel. The Marketing Committee shall participate in
the preparation and review of a detailed plan for the commercial launch and
subsequent marketing and sale of Drug Products in North America (the "North
American Marketing Plan").
(c) Roles and Responsibilities of the Parties. The North American
Marketing Plan will provide each party the opportunity to perform [***]. In
allocating tasks between VERTEX and SCHERING, the Marketing Committee will
attempt to assign roles to each party which are reasonable in relation to
that party's capabilities and consistent with relevant marketing
requirements. As used in this agreement, [***] according to generally
recognized standards in the pharmaceutical industry.
License and Development Agreement--Confidential--Page 19
<PAGE>
At its discretion, VERTEX may elect to make a contribution to the
marketing of Drug Products in North America [***].
(d) Decisions of the Marketing Committee. Where Vertex elects
[***], except as to (a) those matters addressed in Section 5.3(i) below,
which shall be decided under the procedures specified below for "Strategic
Issues."
Where VERTEX elects [***], the parties expect and intend that all
decisions of the Marketing Committee shall be reached by consensus and will
be agreeable to both parties. If consensus cannot be reached after
discussion of any item within a regular meeting of the Marketing Committee
[***].
The parties acknowledge that with specific reference to the launch of
Drug Products in North America certain decisions of the Marketing Committee
are of key strategic importance to both SCHERING and VERTEX ("Strategic
Issues") and that the collective and independent interests of both VERTEX and
SCHERING must be protected. The following items have been identified as
"Strategic Issues" :
1. [***].
License and Development Agreement--Confidential--Page 20
<PAGE>
2. [***].
3. [***].
4. [***].
In the event that the Marketing Committee is unable to reach consensus
on any of the above mentioned Strategic Issues, then the disagreement shall
be referred for decision to the appropriate member of the SCHERING Vorstand
and the Chief Executive Officer of VERTEX who shall in good faith reach a
fair and equitable resolution of the disagreement within twelve weeks of
referral of the dispute.
(e) Operational Issues. Except for those matters which are the
responsibility of the Marketing Committee or as otherwise provided in this
Agreement, each party will be free to make its own decisions concerning the
Detailing of Drug Products by its sales force in North America. It is
further understood by both parties that operational or tactical
responsibilities allocated to either VERTEX or SCHERING by the Marketing
Committee and in accordance with the overall Marketing Plan are not subject
to the authority of the Marketing Committee. The role of the Marketing
Committee in this respect shall be one of coordination, such that the
individual efforts of each party may be maximized and that overlap may be
kept to a minimum.
(f) Sublicensing. Either party may sublicense its Co-Promotion
rights and obligations in North America without the consent of the other
party; provided, however, that neither party shall grant any such sublicense
without prior consultation with the other party, and provided, that neither
party shall sublicense its Co-Promotion rights in North America to a third
party if the other party can demonstrate on a concrete, objective basis that
the proposed sublicensee is unsuitable to Co-Promote Drug Products in North
America.
License and Development Agreement--Confidential--Page 21
<PAGE>
(g) Supply of Bulk Drug Substance and Drug Product. VERTEX shall
supply Bulk Drug Substance to SCHERING for manufacture into Drug Product for
sale in North America, and SCHERING shall manufacture Drug Product from Bulk
Drug Substance supplied by VERTEX, for compensation equal [***].
(h) Marketing Expense. VERTEX and SCHERING shall each be
responsible for [***] under the North American Marketing Plan. [***]. As
part of the Co-Promotion Agreement to be negotiated between the Parties
pursuant to Section 5.3 above, the Parties will negotiate in good faith how
Direct Marketing Costs will be allocated where the Drug Product is Detailed
together with another product or products.
(i) Pricing Variations, Third Party Promotion Support and Conflict
of Interest. The Marketing Committee will coordinate and direct marketing of
a Drug Product after its initial launch in accordance with the provisions of
Section 5.3 (d) above. In the event that either party proposes pricing
variations which may be reasonably forecast to result in a decline, when
compared with actual experience in the prior year, of more than [***] in the
average net selling price for a Drug Product across all distribution channels
(including managed care) for the year in which the reduction applies, and if
the other party disagrees with the proposed pricing variations, then the
disagreement shall be referred for decision to the appropriate member of the
SCHERING Vorstand and the Chief Executive Officer of VERTEX who shall attempt
in good faith to reach a fair and equitable resolution of the disagreement.
If the parties are unable to resolve the disagreement within four (4) weeks
of referral of the dispute, then [***]. The foregoing method for resolving
disagreements will also be applicable to any disagreements concerning (x) a
proposal by either party to enter into a promotion support arrangement with a
third party with respect to a Drug Product; or (y) any other matter as to
which action is being proposed hereunder by one party which is demonstrably
License and Development Agreement--Confidential--Page 22
<PAGE>
and materially detrimental to the interests of the other party hereto but
which is materially beneficial to the separate interests of the proposing
party.
(j) Revision of Profit-sharing Formula. [***].
(k) Product Recall If either party is of the opinion that a Drug
Product being commercially marketed hereunder should be recalled as a result
of bona fide concerns regarding its safety, then the Drug Product shall be
recalled and the parties will cooperate to achieve that end.
(l) Booking of Sales. All customer orders for Drug Products in
North America will be [***]
(m) Training. Each party will be responsible for the cost of
training its own sales force. The parties will consult on training programs
to ensure a consistent, focused promotional strategy for each Drug Product.
(n) Advertising. Neither party shall engage in any advertising or
use any label, package, literature or other written material in connection
with a Drug Product in North America unless the specific form and content is
approved by the Marketing Committee.
5.4. European Co-promotion Rights. As set forth in Section 3.4 of the
Research Agreement, if SCHERING exercises the Buy-back option with respect to
a Refused Compound at the Second Opportunity, SCHERING shall grant VERTEX
European Co-promotion Rights in the marketing of any Drug Product Candidates
or Drug Products incorporating the Refused Compound. The nature and scope of
those rights shall be determined in detail by negotiation between the parties
at the time the European Co-Promotion Rights become applicable, and will
involve a co-promotion
License and Development Agreement--Confidential--Page 23
<PAGE>
role for VERTEX that is reasonable in relation to its capabilities and
consistent with relevant market requirements, but in any event shall
approximate in substance the terms set forth in Section 5.3 with respect to
North American Co-Promotion.
5.5. Marketing in Japan. SCHERING has the rights to sublicense in Japan
set forth in Section 2.1(b) hereof. The parties shall endeavor to ensure
that the launch of a Drug Product in Japan shall not be delayed due in whole
or in part to a lack of commercially adequate marketing capacity in that
country. No later than the date of first submission of an application for
Regulatory Approval of a Drug Product in Japan, the parties will develop a
mutually acceptable sales and marketing plan covering the periods ending both
one year and two years after projected Drug Product launch which will include
reasonable forecasts for sales of the Drug Product. Such forecasts will be
updated by agreement of the parties six months before the date of projected
launch of the Drug Product, taking into account all information then
available, and the forecasts for the second year will be updated six months
after the date of first commercial sale. If SCHERING and its Affiliates and
permitted sublicensees cannot reasonably demonstrate adequate marketing
capacity in view of these forecasts, SCHERING will obtain a marketing partner
in Japan, reasonably acceptable to VERTEX, which can undertake the marketing
effort together with SCHERING. If SCHERING (including its Affiliates and
permitted sublicensees) and/or its marketing partner, fail to reach [***]
(otherwise than for reasons beyond its reasonable control), and such failure
is attributable to a failure by SCHERING, its Affiliates and permitted
sublicensees to use commercially reasonable skill and efforts to exploit the
full commercial potential of the Drug Product in Japan, then VERTEX may elect
upon written notice to SCHERING to convert SCHERING's exclusive rights with
respect to such Drug Product in Japan to semi-exclusive rights (meaning that,
in addition to SCHERING, its Affiliates and permitted sublicensees and any
then-existing marketing partner, VERTEX or an Affiliate of VERTEX may itself
market and sell such Drug Product in Japan, or may license those rights to
another Third Party, subject to the payment to SCHERING of a [***] royalty
provided that VERTEX will not license its rights in Japan to any Third Party
on financial terms more favorable as a whole than those provided to SCHERING
in Japan). In the event that SCHERING appoints a marketing partner in Japan,
SCHERING shall have the right to supply Drug Product to that marketing
partner at such prices as SCHERING shall determine, subject always to its
royalty obligations to VERTEX based on Net Sales of Drug Product by SCHERING
and its Affiliates, sub-licensees and marketing partners.
5.6. Further Co-Promotion Proposals. VERTEX may provide SCHERING at any
time with a proposal for co-promotion of Drug Products in any market or
territory in the world
License and Development Agreement--Confidential--Page 24
<PAGE>
other than North America, and SCHERING will give due consideration to any such
proposal but will otherwise be under no obligation with respect thereto.
5.7. Co-labeling. All labels, packaging and package inserts, sales
literature, and product advertising relative to Drug Products shall bear the
names of both SCHERING and VERTEX in a prominent position or to the extent
permitted by law in a particular jurisdiction. SCHERING will cooperate with
any reasonable request of VERTEX directed toward facilitating approval by a
regulatory authority for co-labeling consistent with this Section 5.6.
5.8. Due Diligence.
(a) SCHERING shall use diligent and commercially reasonable
efforts consistent with the requirements of the Development Program and sound
and reasonable business practices and judgment to effect introduction of Drug
Products into Major Markets as soon as reasonably practicable, devoting the
same degree of attention and diligence to such efforts that it devotes to
such activities for other products of comparable market potential (without
reference to any competing products in SCHERING's product portfolio).
Following the First Commercial Sale of a Drug Product and until the
expiration of this Agreement, SCHERING shall endeavor to keep Drug Products
reasonably available to the public in each of the Major Markets. SCHERING
shall promptly notify VERTEX if it shall determine that the marketing and
sale of a Drug Product in any country is not commercially reasonable. In
determining whether SCHERING is in compliance with the foregoing provisions,
there shall be taken into account the normal course of assertive drug
development programs in the pharmaceutical industry conducted with sound and
reasonable business practices and judgment.
(b) VERTEX shall have the right to terminate this Agreement upon
ninety (90) days written notice to SCHERING if SCHERING shall be in default
of any of its material obligations under subsection (a) above; unless
SCHERING can demonstrate during such 90-day period that it has initiated and
will continue actions which are reasonably likely to cure the default within
a reasonable period of time. VERTEX shall also have the right to terminate
SCHERING's license hereunder in any country at any time upon ninety (90) days
written notice to SCHERING in each case, if within [***] from the date of
Regulatory Approval for the initial sale of a Drug Product in such country,
SCHERING has not put the Drug Product into commercial use in such country, or
following the First Commercial Sale in such country, is not keeping the Drug
Product reasonably available to the public therein, unless SCHERING is using
commercially reasonable efforts directed toward placing the Drug Product into
commercial use in such country or keeping the Drug Product reasonably
available to the public, respectively, as aforesaid, or unless SCHERING and
VERTEX have agreed in writing, acting reasonably and in good faith, not to
introduce that Drug Product into commercial use in such
License and Development Agreement--Confidential--Page 25
<PAGE>i
country. If commercial conditions applicable to a country are such that
SCHERING cannot reasonably be expected to generate a reasonable rate of
return on Net Sales of a Drug Product in that country, then SCHERING's
commercial rights hereunder in that country shall revert to VERTEX. During
any applicable ninety (90)-day notice period referenced above, the parties
shall make a good faith effort to resolve the issues complained of to their
mutual satisfaction. Notwithstanding the foregoing, the rights of termination
granted to VERTEX in this subsection (b) shall not apply if and so long as
VERTEX is in material default of any of its material obligations under this
Agreement.
Article VI
Payments
6.1. Development Payments by SCHERING. SCHERING will make the following
payments to VERTEX upon the achievement of any of the following milestones with
respect to [***] Program Compound, Drug Product Candidate or Drug Product, upon
the further terms and conditions set forth below.
<TABLE>
<S> <C> <C>
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
</TABLE>
License and Development Agreement--Confidential--Page 26
<PAGE>
Payments for the achievement of each of the milestones referenced above,
including any payment made on account of the achievement of any milestone
with respect to [***], shall be required no more than [***] times, no matter
how many Program Compounds, Drug Product Candidates or Drug Products achieve
such milestones. In addition, payments beyond the first payment made on
account of any milestone shall be required only on account of the achievement
of that milestone by a Program Compound, Drug Product Candidate or Drug
Product [***];
License and Development Agreement--Confidential--Page 27
<PAGE>
provided, further that no milestone shall be payable more than [***]with
respect to Program Compounds, Drug Product Candidates or Drug Products being
developed for indications principally involving the peripheral nervous system,
or for Program Compounds, Drug Product Candidates or Drug Products being
developed for indications principally involving the central nervous system.
Payment shall be made on or before the fifteenth day following the
occurrence of an event giving rise to a payment obligation hereunder. All
payments 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
SCHERING. Any payment which falls due on a date which is a Saturday, Sunday
or a legal holiday in the Commonwealth of Massachusetts may be made on the
next succeeding day which is not a Saturday, Sunday or a legal holiday in the
Commonwealth.
6.2. Supply Price for Bulk Drug Substance in the Supply Option
Territories.
6.2.1. VERTEX Exercises Bulk Commercial Supply Option. If
VERTEX exercises the Bulk Commercial Supply Option set forth in Section 4.2,
the supply price for a unit of Bulk Drug Substance supplied by VERTEX for the
manufacture of a Drug Product sold in the Supply Option Territories shall be
determined as a fraction (the "Applicable Percentage," as determined below)
of the Net Sales price of Drug Product sold in the Supply Option Territories
containing an equivalent unit of Bulk Drug Substance.
The Applicable Percentage shall equal for any year the fraction obtained
by dividing X by Y: where
License and Development Agreement--Confidential--Page 28
<PAGE>
[***].
Annual Net Sales shall be calculated on a calendar year basis.
6.2.2. Payment of Supply Price under Section 6.2.1 hereof. The
purchase price for each unit of Bulk Drug Substance supplied to SCHERING by
VERTEX under Section 6.2.1 hereof shall initially be calculated during any
year based on a forecast of Net Sales of Drug Products per unit of Bulk Drug
Substance for that year, and a forecast of the Applicable Percentage for that
year, which shall be provided by SCHERING 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 Drug Substance will be recalculated accordingly, based on
any material changes in the forecast. As part of the Supply Agreement to be
negotiated under Section 4.6 above, SCHERING and VERTEX will agree upon a
reasonable rate of yield in the manufacture of Drug Product from Bulk Drug
Substance, and SCHERING will compensate VERTEX for any otherwise
uncompensated loss above the agreed rate at the Manufacturing Cost thereof.
Payments due to VERTEX based upon that forecasted price shall be made within
thirty days of receipt from VERTEX of an invoice for Bulk Drug Substance
purchased by SCHERING under the terms of the Supply Agreement, and annual
adjustments shall be made within such time periods and applying such
procedures as the parties may agree to reflect the actual worldwide Net Sales
and Applicable Percentage for that year, and the actual manufacturing loss
during that year. Any net adjustments shall be remitted forthwith to the
party to whom the adjustment is due, with interest at the rate set forth in
Section 6.6(e) of this Agreement.
6.2.3. VERTEX Does Not Exercise Bulk Commercial Supply Option.
If VERTEX elects not to supply Bulk Drug Substance under Section 4.2 hereof
for the manufacture of a Drug Product sold in the Supply Option Territories,
SCHERING shall pay to VERTEX a royalty of [***] of Net Sales of that Drug
Product in the Supply Option Territories in lieu of the amount set forth in
Section 6.2.1 hereof.
License and Development Agreement--Confidential--Page 29
<PAGE>
6.3. Supply Price for Bulk Drug Substance and Drug Product in North
America. The supply price for a unit of Bulk Drug Substance supplied by
VERTEX to SCHERING for the manufacture of a Drug Product sold in North
America shall equal [***].
6.4. Royalties. SCHERING shall pay to VERTEX a royalty on Net Sales of
Drug Products in Europe, the Middle East and Africa of [***]
6.5. Reduction in Payments. (a) If, at the end of the [***] following
First Commercial Sale of a Drug Product in a particular country, that Drug
Product is not the subject of a Live Claim in that country held by either
VERTEX or SCHERING: (i) the Applicable Percentage under Section 6.2 or the
royalty percentage under Section 6.4, as may be applicable to the subject
country, shall thereafter be reduced by [***]; (ii) if SCHERING can
demonstrate that a competitive product has been commercially launched by a
Third Party in that country, and that the competitive product is of a type
the sale of which would infringe a VERTEX Patent if made in any country in
which there is a Live Claim covering the Drug Product, then the payment
reductions provided in Subsection 6.5(b) below will become effective,
notwithstanding the provisions of Section 6.5(a)(i), with respect to Net
Sales of that Drug Product in that country; and (iii) prior to the expiration
of the time period provided in Section 6.5(a)(i), if a previously issued Live
Claim covering a Drug Product in that country shall thereafter expire, and
there shall be no other Live Claims in that country covering that Drug
Product, and if at the time of expiration there was no Live Claim covering
that Drug Product in any Major Market, then the payment reductions provided
in Subsection 6.5(b) shall become effective, with respect to Net Sales of
that Drug Product in that country, notwithstanding the provisions of Section
6.5(a)(i).
License and Development Agreement--Confidential--Page 30
<PAGE>
(b) If, at the end of the [***] following First Commercial Sale of
a Drug Product in a particular country, that Drug Product is not the subject
of a Live Claim in that country held by either VERTEX or SCHERING, then
(except as provided in Section 14.1 hereof), as may be applicable: (i) the
percentage of Net Sales as set forth in Section 6.2 of this Agreement
relating to the supply of Bulk Drug Substance for the manufacture of Drug
Products sold in that country shall be reduced by [***]; or (ii) the royalty
rate on Net Sales of that Drug Product in such country shall be reduced to
[***].
6.6. Sales Reports.
(a) During the term of this Agreement and after the first commercial
sale of a Drug Product, SCHERING shall furnish or cause to be furnished to
VERTEX on a quarterly basis a written report or reports covering each calendar
quarter (each such calendar quarter being sometimes referred to herein as a
"reporting period") showing (i) the Net Sales of each Drug Product in each
country in the world during the reporting period by SCHERING and each Affiliate,
sublicensee and marketing partner; (ii) the royalties, payable in United States
Dollars ("Dollars"), which shall have accrued under Section 6.4 hereof in
respect of such sales and the basis of calculating those royalties; (iii)
amounts due under Section 6.2 hereof on account of the purchase of Bulk Drug
Substance, and the basis for calculating those amounts due (including unit sales
data); (iv) withholding taxes, if any, required by law to be deducted in respect
of any such sales; (v) the exchange rates used in converting into Dollars, from
the currencies in which sales were made, any payments due which are based on Net
Sales; (vi) dispositions of Drug Products other than pursuant to sale for cash.
With respect to sales of Drug Products invoiced in Dollars, the Net Sales
amounts and the amounts due to VERTEX hereunder shall be expressed in Dollars.
With respect to sales of Drug Products invoiced in a currency other than
Dollars, the Net Sales and amounts due to VERTEX hereunder shall be expressed in
the domestic currency of the party making the sale, together with the Dollar
equivalent of the amount payable to VERTEX, calculated using SCHERING's
then-current standard exchange rate methodology for the translation of foreign
currency sales into U.S. dollars. In each report the methodology will be
disclosed, will be identical to that employed by SCHERING, generally, in its
external financial reporting, as reviewed and approved by its independent
auditors and will be in conformity with SCHERING's usual and customary general
accounting principles consistently applied. If any sublicensee or marketing
partner makes any sales invoiced in a currency other than its domestic currency,
the Net Sales shall be converted to its domestic currency in accordance with the
sublicensee's normal accounting principles. SCHERING shall furnish to VERTEX
appropriate evidence of payment of any tax or other amount required by
applicable laws or regulations to be
License and Development Agreement--Confidential--Page 31
<PAGE>
deducted from any royalty payment, including any tax or withholding levied by
a foreign taxing authority in respect of the payment or accrual of any
royalty. Reports shall be due on the ninetieth (90th) day following the close
of each reporting period, although SCHERING shall also provide VERTEX with a
"flash" report of Net Sales, only, reasonably promptly after SCHERING closes
its books with respect to the quarterly reporting period. SCHERING shall
keep accurate records in sufficient detail to enable the amounts due
hereunder to be determined and to be verified by VERTEX. SCHERING shall be
responsible for all payments that are due to VERTEX but have not been paid by
SCHERING's sublicensees or marketing partners.
(b) Amounts shown to have accrued by each sales report provided
for under Section 6.6(a) of this Agreement shall be due and payable on the
date such sales report is due.
(c) All payments shall be made in Dollars. If at any time legal
restrictions prevent the prompt remittance of any payments with respect to
any country of the Territory where Drug Product Candidates or Drug Products
are sold, SCHERING or its sublicensees or marketing partners shall have the
right and option to make such payments by depositing the amount thereof in
local currency to VERTEX's account in a bank or depository in such country.
(d) Upon the written request of VERTEX, at VERTEX's expense and
not more than once in or in respect of any calendar year, SCHERING shall
permit an independent public accountant of national prominence selected by
VERTEX, to have access during normal business hours to those records of
SCHERING as may be reasonably necessary to verify the accuracy of the sales
reports furnished by SCHERING pursuant to this Section 6.6, in respect of any
calendar year ending not more than thirty-six (36) months prior to the date
of such notice. SCHERING shall include in each sublicense or marketing
agreement entered into by it pursuant to this Agreement a provision requiring
the sublicensee or marketing partner to keep and maintain adequate records of
sales made pursuant to such sublicense or marketing agreement and to grant
access to such records by the aforementioned independent public accountant
for the reasons specified in this Section 6.6. Upon the expiration of
thirty-six (36) months following the end of any calendar year, the
calculation of amounts payable with respect to such fiscal year shall be
binding and conclusive upon VERTEX, and SCHERING and its sublicensees and
marketing partners shall be released from any liability or accountability
with respect to payments for such year. The report prepared by such
independent public accountant, a copy of which shall be sent or otherwise
provided to SCHERING by such independent public accountant at the same time
it is sent or otherwise provided to VERTEX, shall contain the conclusions of
such independent public accountant regarding the audit and will specify that
the amounts paid to VERTEX pursuant thereto were correct or, if incorrect,
the amount of any underpayment or overpayment. If such independent public
accountant's report shows any
License and Development Agreement--Confidential--Page 32
<PAGE>
underpayment, SCHERING shall remit or shall cause its sublicensees or
marketing partners to remit to VERTEX within thirty (30) days after
SCHERING's receipt of such report, (i) the amount of such underpayment and
(ii) if such underpayment exceeds five percent (5%) of the total amount owed
for the calendar year then being audited, the reasonable and necessary fees
and expenses of such independent public accountant performing the audit,
subject to reasonable substantiation thereof. Any overpayments shall be
fully creditable against amounts payable in subsequent payment periods. Any
disagreement of the parties with respect to the findings of the public
accountant shall be subject to the dispute resolution mechanism set forth in
Section 13.2 hereof. VERTEX agrees that all information subject to review
under this Section 6.5 or under any sublicensee or marketing agreement is
confidential and that VERTEX shall retain and cause its accountant to retain
all such information in confidence.
(e) In case of any delay in payment by SCHERING to VERTEX not
occasioned by Force Majeure, interest at the rate of [***] per month, assessed
from the thirty-first day after the due date of the payment, shall be due from
SCHERING without any special notice.
6.7. Withholding Tax. If during the term of this Agreement,
withholding tax should be required by law to be deducted from any payments
required to be made by SCHERING to VERTEX hereunder, the parties will agree
upon an equitable division of liability for any sum which is withheld and for
which VERTEX is not compensated or reimbursed by way of usable tax credits or
otherwise. In that connection VERTEX at SCHERING's request shall sign a
usual and customary exemption application and in addition shall apply for a
tax refund at the request of SCHERING from any tax authority to which
SCHERING has paid withholding tax on account of any payments made by SCHERING
to VERTEX hereunder.
Article VII
Intellectual Property
7.1. Information Sharing.
(a) Preclinical and Clinical Data. Each party will provide the
other as promptly as possible with any and all preclinical and clinical data
generated by it as part of the development of Bulk Drug Substance, Drug
Product Candidates and Drug Products. The party receiving such information
shall be free to use it solely for the purpose of developing, marketing and
selling Drug Products and may cross-reference such information where
appropriate in any application filed for regulatory approval.
License and Development Agreement--Confidential--Page 33
<PAGE>
(b) Improvements and Inventions
Each party shall keep the other fully advised of:
(i) any improvements relating to Bulk Drug Substance, Drug
Product Candidates or Drug Products made by such party or
its Affiliates or sublicensees during the term of the
Research Program;
(ii) any other inventions, improvements, and Know-How relating
to Bulk Drug Substance, Drug Product Candidates or Drug
Products made jointly with the other party or its
Affiliates during the term of the Research Program
("Joint Inventions").
7.2. Patentable Inventions and Know-How.
7.2.1. Ownership. Any inventions made and all Know-How
generated by either party or its Affiliates during the term of this Agreement
relating to the manufacture or use of Bulk Drug Substance, a Drug Product
Candidate or a Drug Product will be disclosed to the other party promptly
after the disclosing party recognizes the significance thereof unless in the
case of process developments the same shall have been developed as part of a
collaboration with a Third Party, the terms of which prohibit disclosure to
the other party. All patents and technology shall be owned by the party
making the invention claimed or contained therein or, if such invention is
made jointly, shall be owned jointly, all as determined in accordance with
U.S. laws of inventorship.
7.2.2. Patent Prosecution. VERTEX shall be responsible for the
preparation, filing, prosecution and maintenance of all patents and patent
applications included in VERTEX Patents and all patents and patent
applications included in Patents claiming inventions jointly owned with
SCHERING. SCHERING shall be responsible for the preparation, filing,
prosecution and maintenance of all patents and patent applications included
in SCHERING Patents. In each case the responsible party shall consult from
time to time with the other party and the Development Committee with respect
thereto. The parties hereby agree that to the extent legally possible the
responsible party shall, at a minimum, prepare file, prosecute and maintain
patent coverage as described in this section in the countries listed in
Schedule 7.2.2, subject to the next succeeding sentence. The party initially
responsible for preparation, filing, prosecution and maintenance of a
particular Patent (the "Initial Responsible Party") shall give thirty (30)
days advance notice (the "Discontinuance Election") to the other party of any
decision to cease preparation, filing, prosecution and maintenance of that
Patent in any jurisdiction (a "Discontinued Patent"). In such case, the
other party may elect at its sole discretion to continue preparation, filing
and prosecution or maintenance of the Discontinued Patent at its sole
expense. The party so continuing shall own any such Patent; and the Initial
Responsible Party shall execute such documents and perform such
License and Development Agreement--Confidential--Page 34
<PAGE>
acts as may be reasonably necessary for the other party to file or to
continue prosecution or maintenance, including assigning ownership of such
Patent to such electing party. Discontinuance may be on a country-by-country
basis or for a patent application or patent series in total.
Each party will consult the other party with respect to its choice
of patent counsel and will keep that party continuously informed of all
matters relating to the preparation, filing, prosecution and maintenance of
Patents covered by this Agreement. Each party shall endeavor in good faith
to coordinate its efforts with those of the other party to minimize or avoid
interference with the prosecution of the other party's patent applications.
To the extent practicable, each party shall provide the Development Committee
with a copy of any patent application which first discloses any specific
technology, prior to filing the first of such applications in any
jurisdiction, for review and comment by the Committee or its designees.
7.2.3. Costs. Costs incurred in the preparation, prosecution
and maintenance of Patents shall be borne by each party as set forth in
Section 7.3 of the Research Agreement.
7.3. Infringement Claims by Third Parties.
If the manufacture, use or sale of Bulk Drug Substance and/or Drug
Product results in a claim against a party hereto for patent infringement or
for inducing or contributing to patent infringement ("Infringement Claim"),
the party first having notice of an Infringement Claim shall promptly notify
the other in writing. The notice shall set forth the facts of the
Infringement Claim in reasonable detail.
In the event that the sale of a Drug Product in any country
necessarily involves working within the scope of a Third Party's patent,
which would otherwise be infringed by the practice of a VERTEX Patent in
connection with sales or manufacture of the Drug Product in that country,
then VERTEX will use reasonable efforts to obtain required license under the
Third Party's patents with a right to sublicense to SCHERING, under terms
reasonably acceptable to both VERTEX and SCHERING, and VERTEX and SCHERING
will each bear [***] of any financial obligation payable under such license;
provided that VERTEX shall not be required to accept any license which
carries a financial obligation which is materially in excess of the range of
financial obligations customarily associated with comparable non-exclusive
licenses; and provided further, that VERTEX shall not be required to accept
any license obligation with respect to the sale of a Drug Product in a
particular country if its financial obligations under that license, when
aggregated with any other financial obligations with respect to Net Sales of
the Drug Product in such country, is greater than [***] in such country. If
the terms of a required license under a Third Party patent do not meet the
foregoing requirements and VERTEX therefore elects not to assume its share of
any financial
License and Development Agreement--Confidential--Page 35
<PAGE>
obligation, SCHERING may nonetheless elect to obtain the license, to continue
sales of Drug Product in such country and to pay, itself, any amounts due
under such license. If SCHERING elects to pay such amounts under the
circumstances stated, payments by SCHERING to VERTEX hereunder on account of
Net Sales in such country shall be subject to the reduced payment rate
specified in Section 6.5(a)(i) hereof.
If the required license is either unavailable or its terms are
unacceptable both to VERTEX and to SCHERING, then SCHERING may elect in its
sole discretion to discontinue sales of the Drug Product in such country or
to undertake the defense of a patent infringement action or the prosecution
of a declaratory judgment action with respect to the Third Party patents.
The parties shall share [***] all out-of-pocket costs and expenses incurred
in conducting the defense of such Infringement Claims or the prosecution of
such declaratory judgment actions, including the investigation and settlement
thereof. Provided that SCHERING is conducting the defense of the
Infringement Claim or the prosecution of such declaratory judgment actions,
VERTEX shall bear its own costs. The costs and expenses of all suits brought
by a party under this Section 7.3 shall be reimbursed to such party and then
to the other party, if it participates in such suit, pro rata, out of any
damages or other monetary awards recovered therein in favor of VERTEX or
SCHERING. Any remaining compensatory damages shall be split between VERTEX
and SCHERING as if they were Net Sales of SCHERING pursuant to the terms of
this Agreement. Any remaining exemplary or punitive damages shall then be
split equally between VERTEX and SCHERING. No settlement or consent judgment
or other voluntary final disposition of a suit under this Section 7.3 may be
entered into without the joint consent of VERTEX and SCHERING (which consent
shall not be unreasonably withheld).
7.4. Infringement Claims Against Third Parties.
7.4.1. VERTEX and SCHERING each agree to take reasonable actions
to protect their respective patents and technology from infringement and from
unauthorized possession or use.
7.4.2. If any VERTEX Patents or SCHERING Patents are infringed
or VERTEX Know-How or SCHERING Know-How is misappropriated, as the case may
be, by a Third Party, the party to this Agreement first having knowledge of
such infringement or misappropriation, or knowledge of a reasonable
probability of such infringement or misappropriation, shall promptly notify
the other in writing. The notice shall set forth the facts of such
infringement or misappropriation in reasonable detail. The owner of the
patent or technology, or VERTEX, in the case of joint ownership between the
parties hereto, shall have the primary right, but not the obligation, to
institute, prosecute, and control with its own counsel any action or
proceeding with
License and Development Agreement--Confidential--Page 36
<PAGE>
respect to infringement or misappropriation of such patent or technology and
the other party shall have the right, at its own expense, to be represented
in such action by its own counsel. If the party having the primary right or
responsibility to institute, prosecute, and control such action or
prosecution fails to do so within a period of one hundred twenty (120) days
after receiving notice of the infringement, the other party shall have the
right to bring and control any such action by counsel of its own choice, and
the other shall have the right, at its own expense, to be represented in any
such action by counsel of its own choice. If one party brings any such
action or proceeding, the second party may be joined as a party plaintiff
and, in case of joining, the second party agrees to give the first party
reasonable assistance and authority to file and to prosecute such suit. The
costs and expenses of all suits brought by a party under this Section 7.4.2
shall be reimbursed to such party and then to the other party, if it
participates in such suit, pro rata, out of any damages or other monetary
awards recovered therein in favor of VERTEX or SCHERING. Any remaining
compensatory damages shall be split between VERTEX and SCHERING as if they
were Net Sales of SCHERING pursuant to the terms of this Agreement. Any
remaining exemplary or punitive damages shall then be split equally between
VERTEX and SCHERING. No settlement or consent judgment or other voluntary
final disposition of a suit under this Section 7.4 may be entered into
without the joint consent of VERTEX and SCHERING (which consent shall not be
unreasonably withheld).
7.5. Notice of Certification. VERTEX and SCHERING each shall
immediately give notice to the other of any certification filed under the
U.S. "Drug Price Competition and Patent Term Restoration Act of 1984"
claiming that a Licensed Patent is invalid or that any infringement will not
arise from the manufacture, use or sale of any product by a third party. If
VERTEX decides not to bring infringement proceedings against the entity
making such a certification, VERTEX shall give notice to SCHERING of its
decision not to bring suit within twenty-one (21) days after receipt of
notice of such certification. SCHERING may then, but is not required to,
bring suit against the party that filed the certification. Any suit by
SCHERING or VERTEX shall either be in the name of SCHERING or in the name of
VERTEX, or jointly by SCHERING and VERTEX, as may be required by law. For
this purpose, the party not bringing suit shall execute such legal papers
necessary for the prosecution of such suit as may be reasonably requested by
the party bringing suit.
7.6. Patent Term Extensions. The parties shall cooperate in good faith
with each other in gaining patent term extension wherever applicable to
VERTEX Patents and SCHERING Patents covering Drug Product Candidates or Drug
Products. SCHERING and VERTEX shall mutually determine which patents shall be
extended. All filings for such extension shall be made by the party who owns
the patent, provided, however, that in the event that the party who owns the
patent elects not to file for an extension, such party shall (i) inform the
other party of its intention not to file and (ii) grant the other party the
right to file for such extension.
License and Development Agreement--Confidential--Page 37
<PAGE>
Article VIII
Reporting
8.1. Exchange of Information.
(a) General. VERTEX and SCHERING will promptly and freely share
technical information useful in connection with the development of Bulk Drug
Substance, Drug Product Candidates or Drug Products in the Field, including
VERTEX Know-How and SCHERING Know-How. Each party will permit the other to
review the ongoing activities which it is conducting under the Development
Program and to discuss that information with its officers, all at such
reasonable times and as often as may be reasonably requested.
(b) Notice of Pharmaceutical Side-Effects. The parties shall,
during the term of this Agreement, keep each other promptly and fully
informed of all of their pharmacological, toxicological and clinical trials,
investigations and findings relating to the Bulk Drug Substance, Drug Product
Candidates or Drug Products. Each of the parties will notify appropriate
authorities in accordance with applicable law, and the other party, promptly
after receipt of information with respect to any serious adverse reaction, as
defined by the World Health Organization, directly or indirectly attributable
to the use or application of Bulk Drug Substance, a Drug Product Candidate or
a Drug Product. In such a case, the parties shall meet as soon as possible
to define, according to the local regulations in the concerned country,
appropriate procedures and actions to address such difficulty. Each party
also shall forward to the other party on a regular basis information on
adverse reactions and any material difficulty associated with the clinical
use, studies, investigations, tests and prescriptions of Drug Product
Candidates and Drug Products. The parties will inform each other without
delay of any other governmental action which may affect the situation of Bulk
Drug Substance, Drug Product Candidates or Drug Products and to furnish each
other copies of any relevant documents relating thereto.
Article IX
Representations and Warranties of VERTEX
9.1. Authorization. This Agreement has been duly executed and delivered
by VERTEX and constitutes the valid and binding obligation of VERTEX,
enforceable against VERTEX in accordance with its terms except as
enforceability may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable principles.
The execution, delivery and
License and Development Agreement--Confidential--Page 38
<PAGE>
performance of this Agreement have been duly authorized by all necessary
action on the part of VERTEX, its officers and directors.
9.2. No Third Party Rights. Except as previously disclosed in writing
to SCHERING, (a) VERTEX owns or possesses adequate licenses or other rights
to use all VERTEX Technology, and to grant the licenses herein; and (b) the
granting of the licenses to SCHERING hereunder does not violate any right
known to VERTEX of any Third Party.
9.3. No Third Party Patents. Except as disclosed in writing by VERTEX
to SCHERING or its agents, to VERTEX's knowledge and based on its current
understanding of the Drug Product Candidate(s) and its use, the development,
manufacture, use or sale of any Bulk Drug Substance, Drug Product Candidates
or Drug Products pursuant to this Agreement will not infringe or conflict
with any Third Party right or patent, and VERTEX is not aware of any pending
patent application that, if issued, would be infringed by the development,
manufacture, use or sale of any Bulk Drug Substance, Drug Product Candidates
or Drug Products pursuant to this Agreement.
9.4. Maintenance of Patents and Licenses. Subject to the provisions of
Section 7.2.2 with respect to Discontinued Patents, VERTEX will take all
reasonable steps to obtain any consent required for and to maintain in
effect, including by means of extension, any license, sublicense, patent or
patent application applicable to the Field for which it has granted rights to
SCHERING hereunder.
Article X
Representations and Warranties of SCHERING
SCHERING represents and warrants to VERTEX as follows:
10.1. Authorization. This Agreement has been duly executed and
delivered by SCHERING and constitutes the valid and binding obligation of
SCHERING, enforceable against SCHERING in accordance with its terms, except
as enforceability may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to creditors'
rights generally and by general equitable principles. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action on the part of SCHERING, its officers and directors.
License and Development Agreement--Confidential--Page 39
<PAGE>
10.2. No Third Party Rights. Except as previously disclosed in
writing to VERTEX, (a) SCHERING owns or possesses adequate licenses or other
rights to use all SCHERING Technology, and to grant the licenses herein; and
(b) the granting of the licenses to VERTEX hereunder does not violate any
right known to SCHERING of any Third Party.
10.3. No Third Party Patents. Except as disclosed in writing by
SCHERING to VERTEX or its agents, to SCHERING's knowledge and based on its
current understanding of the Drug Product Candidate(s) and its use, the
manufacture, use or sale of any Bulk Drug Substance, Drug Product Candidates
or Drug Products pursuant to this Agreement will not infringe or conflict
with any Third Party right or patent, and SCHERING is not aware of any
pending patent application that, if issued, would be infringed by the
development, manufacture, use or sale of any Bulk Drug Substance, Drug
Product Candidates or Drug Products pursuant to this Agreement.
10.4. Maintenance of Patents and Licenses. Subject to the
provisions of Section 7.2.2 with respect to Discontinued Patents, SCHERING
will take all reasonable steps to obtain any consent required for and to
maintain in effect, including by means of extension, any license, sublicense,
patent or patent application applicable to the Field for which it has granted
rights to VERTEX hereunder.
Article XI
Confidentiality
11.1. 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
Know-How and SCHERING Know-How. 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, to authorized
licensees and sublicensees, and to subcontractors in connection with the
development or manufacture of Bulk Drug Substance, Drug Product Candidates or
Drug Products, to the extent necessary to enable such parties to perform
their obligations hereunder or under the applicable license, sublicense or
subcontract, as the case may be; provided, that such officers, employees,
agents, licensees, sublicensees and subcontractors have entered into
License and Development Agreement--Confidential--Page 40
<PAGE>
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.
11.2. Exceptions. Notwithstanding the foregoing, the provisions of
Section 11 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 the 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 or regulations, 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.
11.3. Publicity. The parties will agree upon the timing and content
of any initial press release or other public communications relating to this
Agreement and the transactions contemplated herein. Except to the extent
already disclosed in that initial press release or other public
communication, no public announcement concerning the existence or the terms
of this Agreement or concerning the transactions described herein shall be
made, either directly or indirectly, by VERTEX or SCHERING, except as may be
legally required by applicable laws, regulations, or judicial order, without
first obtaining the approval of the other party and agreement upon the
nature, text, and timing of such announcement, which approval and agreement
shall not be unreasonably withheld. The party desiring to make any such
public announcement shall provide the other party with a written copy of the
proposed announcement in sufficient time prior to public release to allow
such other party to comment upon such announcement, prior to public release.
11.4. Survival. The provisions of this Article VIII shall survive
the termination of this Agreement and shall extend for a period of five (5)
years thereafter.
License and Development Agreement--Confidential--Page 41
<PAGE>
Article XII
Publication
Each of SCHERING and VERTEX shall have the right to publish or publicly
present the results (the "Results") of the Development Program and their
respective rights and obligations in this regard shall be governed by the
provisions of Article VI of the Research Agreement.
Article XIII
Dispute Resolution
13.1. 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.
13.2. Dispute Resolution. Except as otherwise explicitly provided
herein or in the Research Agreement, 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 initially refer such dispute to the President of
VERTEX and the member of the Vorstand of SCHERING responsible for the subject
matter of the dispute, who shall, as soon as practicable, attempt in good
faith to resolve the controversy or claims. If such controversy or claim is
not resolved within sixty (60) days of the first written request for dispute
resolution under this Article XIII, either party shall be free to initiate
proceedings in the courts of the Commonwealth of Massachusetts.
Article XIV
Term and Termination
14.1. Term. The term of this Agreement shall extend until the later
of: (a) the last to expire of the VERTEX Patents; or (b) if there is no Live
Claim under a VERTEX Patent, [***] from the most recent date of First
Commercial Sale of a Drug Product; provided that SCHERING shall have an
option exercisable by delivery of notice to VERTEX not less than one year
prior to the expiration of the last to expire of the VERTEX Patents or such
[***] period, respectively, to extend the term of this Agreement and its
license to the VERTEX Know-How hereunder, for an additional term of [***], in
which event the provisions of Section 6.5(b) relating to the reduction in
amounts payable to VERTEX shall be inapplicable until the expiration of such
extended term.
License and Development Agreement--Confidential--Page 42
<PAGE>
14.2. Termination For Cause. 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 (i) 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; or (ii)
upon termination by such party of the Research Agreement for cause in
accordance with Section 8.3 or 8.4 of the Research Agreement.
14.3. Termination by SCHERING. SCHERING may terminate this
Agreement at any time with respect to one or more Drug Product Candidates or
Drug Products, upon six (6) months' prior written notice to VERTEX if the
results of clinical studies, in SCHERING's sole judgment, do not warrant
further development.
14.4. Termination for Bankruptcy. If at any time during the term of
this Agreement, an Event of Bankruptcy (as defined below) relating to either
party (the "Bankrupt Party") occurs, the other party (the "Other Party")
shall have, in addition to all other legal and equitable rights and remedies
available hereunder, the option to terminate this Agreement upon 30 days'
written notice to the Bankrupt Party. It is agreed and understood that if
the Other Party does not elect to terminate this Agreement in the event of an
Event of Bankruptcy, except as may otherwise be agreed with the trustee or
receiver appointed to manage the affairs of the Bankrupt Party, the Other
Party shall continue to make all payments required of it under this Agreement
as if the Event of Bankruptcy had not occurred, and the Bankrupt Party shall
not have the right to terminate any license granted herein. As used above,
the term "Event of Bankruptcy" shall mean (a) dissolution, termination of
existence, liquidation or business failure of either party; (b) the
appointment of a custodian or receiver for either party who has not been
terminated or dismissed within 90 days; (c) the institution by either party
of any proceeding under national, federal or state bankruptcy,
reorganization, receivership or other similar laws affecting the rights of
creditors generally or the making by either party of a composition or any
assignment or trust mortgage for the benefit of creditors or under any
national, federal or state bankruptcy, reorganization, receivership or other
similar law affecting the rights of creditors generally, which proceeding is
not dismissed within 90 days of filing.
14.5. 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 and any supply price payments, 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.
License and Development Agreement--Confidential--Page 43
<PAGE>
Article XV
Indemnification
15.1. Environmental Indemnification. Notwithstanding any other
indemnification obligation in this Agreement, and in addition to any rights
the parties hereto may have under relevant federal, state, or local statutory
and common laws, each party (the "Indemnifying Party") shall indemnify and
hold harmless the other party and its Affiliates, their directors, officers,
employees, successors and assigns (the "Indemnified Party") from and against
any and all claims, actions, investigation costs, response costs, losses,
damages, and other costs and expenses (including reasonable attorney and
consulting fees) incurred thereby as a result of Environmental Matters (as
defined below) except for any and all claims, actions, investigation costs,
response costs, losses, damages, and other costs and expenses (including
attorney and consulting fees) caused by the gross negligence or willful
misconduct of the Indemnified Party, in which case the Indemnified Party who
engaged in such gross negligence or willful misconduct shall indemnify and
hold harmless the Indemnifying Party and its Affiliates, their directors,
officers, employees, successors and assigns.
15.2. Environmental Matters. The term "Environmental Matters" shall
mean:
(a) The ownership or operation by the Indemnifying Party, or any
entity which produces or manufactures Bulk Drug Substance, Drug Product
Candidate(s) or Drug Product(s) or any raw material used therefor or provides
services relating thereto under a subcontracting arrangement with such
Indemnifying Party, of any site or facility in a manner that (i) is not in
compliance with any Environmental Law; or (ii) is in violation of any
Environmental Law.
(b) Any action or inaction by the Indemnifying Party where (i) there
has been a release of Hazardous Materials into the environment; or (ii)
Hazardous Materials have been disposed of at a site as the term "disposed" is
defined in applicable Environmental Laws.
(c) Any failure by the Indemnifying Party to obtain or maintain all
permits or provide all notices required by Environmental Laws for the lawful
operation of any facility or site.
(d) Any other actual or alleged act or omission by the Indemnifying
Party relating to the generation, handling, treatment storage, transportation,
release, threatened release or omission of Hazardous Materials at any facility
or site.
The term "Environmental Law" shall mean any federal, state or
local law, ordinance, rule or regulation, order, decree, judgment, injunction,
or other requirement relating to
License and Development Agreement--Confidential--Page 44
<PAGE>
pollution or protection of the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601, et seq. ("CERCLA"); the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq. ("RCRA"); the Toxic Substances
Control Act, 15 U.S.C. Section 26019 et seq.; the Clean Air Act, 42 U.S.C.
Section 7401 et seq.; the Clean Water Act, 33 U.S.C. Section 1257 et seq.;
and the Occupational Safety and Health Act, 29 U.S.C. Sections 641 et seq.
15.3. Indemnification by VERTEX. VERTEX will indemnify and hold
SCHERING and its Affiliates, and their employees, officers and directors
harmless against any loss, damages, action, suit, claim, demand, liability,
expense, bodily injury, death or property damage (a "Loss"), that may be
brought, instituted or arise against or be incurred by such persons to the
extent such Loss is based on or arises out of: (a) the development,
manufacture, use, sale, storage or handling of a Program Compound, a Drug
Product Candidate or a Drug Product by VERTEX or its Affiliates or their
representatives, agents or subcontractors under this Agreement, or any actual
or alleged violation of law resulting therefrom (with the exception of Losses
based on infringement or misappropriation of intellectual property rights);
or (b) the breach by VERTEX of any of its covenants, representations or
warranties set forth in this Agreement; provided that the foregoing
indemnification shall not apply to any Loss to the extent such Loss is caused
by the negligent or willful misconduct of SCHERING or its Affiliates.
15.4. Indemnification by SCHERING. SCHERING will indemnify and hold
VERTEX, and its Affiliates, and their employees, officers and directors
harmless against any Loss that may be brought, instituted or arise against or
be incurred by such persons to the extent such Loss is based on or arises out
of: (a) the development, manufacture, use, sale, storage or handling of Bulk
Drug Substance, a Drug Product Candidate or a Drug Product by SCHERING or its
Affiliates or their representatives, agents or subcontractors under this
Agreement, or any actual or alleged violation of law resulting therefrom
(with the exception of Losses based on infringement or misappropriation of
intellectual property rights); or (b) the breach by SCHERING of any of its
covenants, representations or warranties set forth in this Agreement;
provided that the foregoing indemnification shall not apply to any Loss to
the extent such Loss is caused by the negligent or willful misconduct of
VERTEX or its Affiliates.
15.5. Claims Procedures. Each Party entitled to be indemnified by
the other Party (an "Indemnified Party") pursuant to Section 15.3 or 15.4
hereof shall give notice to the other Party (an "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any threatened
or asserted claim as to which indemnity may be sought, and shall permit the
Indemnifying
License and Development Agreement--Confidential--Page 45
<PAGE>
Party to assume the defense of any such claim or any litigation resulting
therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless (i) the employment of counsel by such
Indemnified Party has been authorized by the Indemnifying Party; or (ii) the
Indemnified Party shall have reasonably concluded that there may be a
conflict of interest between the Indemnifying Party and the Indemnified Party
in the defense of such action, in each of which cases the Indemnifying Party
shall pay the reasonable fees and expenses of one law firm serving as counsel
for the Indemnified Party, which law firm shall be subject to approval, not
to be unreasonably withheld, by the Indemnifying Party); and provided
further, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Agreement to the extent that the failure to give notice did not result in
harm to the Indemnifying Party. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the approval of each Indemnified
Party which approval shall not be unreasonably withheld, consent to entry of
any judgment or enter into any settlement which (i) would result in
injunctive or other relief being imposed against the Indemnified Party; or
(ii) does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as
an Indemnifying Party may reasonably request in writing and shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
15.6. Compliance. The parties shall comply fully with all
applicable laws and regulations in connection with their respective
activities under this Agreement.
15.7. Insurance. Each party shall use all commercially reasonable
efforts to maintain insurance, including product liability insurance, with
respect to its obligations hereunder. Such insurance shall be in such
amounts and subject to such deductibles as the parties may agree based upon
standards prevailing in the industry at the time. Either party may satisfy
its obligations under this Section through self-insurance to the same extent.
At such time as Drug Product(s) is being manufactured by a party for
commercial sale, each party shall name the other party as an additional
insured on any such policies.
License and Development Agreement--Confidential--Page 46
<PAGE>
Article XVI
Miscellaneous Provisions
16.1. Waiver. No provision of the Agreement may be waived except in
writing by both parties hereto. No failure or delay by either party hereto
in exercising any right or remedy hereunder or under applicable law will
operate as a waiver thereof, or a waiver of a particular right or waiver of
any right or remedy on any subsequent occasion.
16.2. Force Majeure. Neither party shall be held liable or
responsible to the other party nor be deemed to have defaulted under or
breached this Agreement for failure or delay in fulfilling or performing any
term of this Agreement, other than an obligation to make a payment, when such
failure or delay is caused by or results from fire, floods, embargoes,
government regulations, prohibitions or interventions, war, acts of war
(whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts, acts of God, or any other cause beyond the reasonable
control of the affected party.
16.3. Registration of License. SCHERING may, at its expense,
register the license granted under this Agreement in any country where the
use, sale or manufacture of a Drug Product in such country would be covered
by a Live Claim. Upon request by SCHERING, VERTEX agrees promptly to execute
any "short form" licenses submitted to it by SCHERING in order to effect the
foregoing registration in such country, but such licenses shall in no way
alter or affect the obligations of the parties hereunder.
16.4. Severability. It is the intention of the parties to comply
with all applicable laws domestic or foreign in connection with the
performance of its obligations hereunder. 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, and the Agreement shall be deemed modified to the extent
necessary to render the surviving provisions enforceable to the fullest
extent permitted by law.
16.5. Government Acts. In the event that any act, regulation,
directive, or law of a government, including its departments, agencies or
courts, should make impossible or prohibit, restrain, modify or limit any
material act or obligation of SCHERING 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, if good faith
negotiations between the parties to make such modifications to this Agreement
as may be necessary to fairly address the impact thereof, after
License and Development Agreement--Confidential--Page 47
<PAGE>
a reasonable period of time are not successful in producing mutually
acceptable modifications to this Agreement.
16.6. Government Approvals. SCHERING will use reasonable efforts to
obtain any government approval required 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.
16.7. Assignment. This Agreement may not be assigned or otherwise
transferred by either party without the prior written consent of the other
party; provided, however, that either party may assign this Agreement,
without the consent of the other party, (i) to any of its Affiliates, if the
assigning party guarantees the full performance of its Affiliates'
obligations hereunder, or (ii) in connection with the transfer or sale of all
or substantially all of its assets or business or in the event of its merger
or consolidation with another company. Any purported assignment in
contravention of this Section shall, at the option of the nonassigning party,
be null and void and of no effect. No assignment shall release either party
from responsibility for the performance of any accrued obligation of such
party hereunder.
16.8. Affiliates. Each party may perform its obligations hereunder
personally or through one or more Affiliates, although each party shall
nonetheless be solely responsible for the performance of its Affiliates.
Neither party shall permit any of its Affiliates to commit any act (including
any act of omission) which such party is prohibited hereunder from committing
directly.
16.9. 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.
16.10. No Agency. Nothing herein contained shall be deemed to create
an agency, joint venture, amalgamation, partnership or similar relationship
between SCHERING and VERTEX. Notwithstanding any of the provisions of this
Agreement, neither party shall at any time enter into, incur, or hold itself
out to third parties as 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 undertaken or incurred by one party in
connection with or relating to the development, manufacture or sale of Bulk
Drug Substance, Drug Product Candidates or Drug Products shall be undertaken,
incurred or paid exclusively by that party, and not as an agent or
representative of the other party.
16.11. 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
License and Development Agreement--Confidential--Page 48
<PAGE>
as designated by one party to the other by notice pursuant hereto, 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 letter given
by the close of business on or before the next following business day:
if to SCHERING, at:
SCHERING AG
Muellerstrasse 178
D-13342 Berlin
GERMANY
Attention: Prof. C. Braestrup
with a copy to legal department
with copies to:
Schering Berlin Venture Corporation
110 East Hanover Avenue
Cedar Knolls, NJ 07927
Attention: President
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Attention: James M. Edwards, Esq.
if to VERTEX, at:
Vertex Pharmaceutical Incorporated
130 Waverly Street
Cambridge, MA U.S.A. 02139-4211
Attention: Richard H. Aldrich, Senior Vice President and Chief
Business Officer
License and Development Agreement--Confidential--Page 49
<PAGE>
with a copy to:
Warner & Stackpole LLP
75 State Street
Boston, MA U.S.A. 02109
Attention: Kenneth S. Boger, Esq.
Fax: (617) 951-9151
16.12. 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.
16.13. 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 such party may have with any other person or company. Each
party has relied on that representation in entering into this Agreement.
16.14. Competition.
(a) Neither VERTEX nor SCHERING will pursue development of a Drug
Product for an indication outside the Field without first obtaining written
agreement thereto from the other party.
(b) During the term of the Research Program, and thereafter so long
as SCHERING is developing or commercializing any Drug Product under this
Agreement, VERTEX will not, other than under Section 3.4 of the Research
Agreement relating to Refused Compounds, develop a Program Compound, a Drug
Product Candidate or a Drug Product for an indication in the Field without
first obtaining written agreement thereto from SCHERING.
(c) During the term of the Research Program, and thereafter so long
as SCHERING is developing or commercializing any Drug Product hereunder,
VERTEX will not develop an Excluded Compound, including any Program Compound
added to the list of Excluded Compounds pursuant to Section 7.4(b) of the
Research Agreement, for an indication in the Field, without first obtaining
written agreement thereto by SCHERING.
16.15. Entire Agreement.
This Agreement, including the Schedules appended hereto, contains the
entire understanding of the parties relating to the matters referred to
herein, except as matters referenced herein are also addressed in the
Research Agreement, and may only be amended by a written document, duly
executed on behalf of the respective parties.
License and Development Agreement--Confidential--Page 50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
VERTEX PHARMACEUTICALS INCORPORATED
By:/s/
-------------------------------------------------
Richard H. Aldrich
Title: Senior Vice President and Chief Business Officer
-------------------------------------------------
SCHERING AG
By:/s/
--------------------------------------------------
Title: MEMBER OF EXECUTIVE BOARD OF DIRECTORS
------------------------------------------------
By:/s/
----------------------------------------------------
Title: HEAD OF PRE-CLINICAL DRUG RESEARCH
--------------------------------------------------
License and Development Agreement--Confidential--Page 51
<PAGE>
Schedule 1.12
List of Drug Product Candidates
_______________________________________________________________________________
To be supplied
License and Development Agreement--Confidential
<PAGE>
Schedule 1.36
SCHERING Patents
_______________________________________________________________________________
As per Schedule 1.34 of the Research Agreement
License and Development Agreement--Confidential
<PAGE>
Schedule 1.41
VERTEX Patents
_______________________________________________________________________________
As per Schedule 1.41 of the Research Agreement
License and Development Agreement--Confidential
<PAGE>
Schedule 1.43
Region Definitions
______________________________________________________________________________
"North America" shall mean
Canada
United States of America
"Europe" shall mean
Albania
Andorra
Austria
Belgium
Britain
Bulgaria
Cyprus
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Italy
Liechtenstein
Luxembourg
Malta
Monaco
Netherlands
Norway
Poland
Portugal
Romania
Slovak Republic
Spain
Sweden
Switzerland
Turkey
United Kingdom
Countries of the former USSR
Countries of former Yugoslavia
License and Development Agreement--Confidential
<PAGE>
Schedule 1.43
Region Definitions (continued)
_______________________________________________________________________________
"Middle East" shall mean:
Bahrain
Iran
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi Arabia
Syria
United Arab Emirates
Yemen
"Africa" shall mean
Algeria
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Central Africa
Chad
Comoro Islands
Congo
Djibouti
Egypt
Equatorial Guinea
Ethiopia
Gabon
Gambia
Ghana
Guinea Bissau
Guinea
Ivory Coast
Kenya
Lesotho
Liberia
License and Development Agreement--Confidential
<PAGE>
Schedule 1.43
Region Definitions (continued)
_______________________________________________________________________________
Libya
Madagascar
Malawi
Mali
Mauritania
Mauritius
Morocco
Mozambique
Namibia
Niger
Nigeria
Rwanda
Sao Tome and Principe
Senegal
Seychelles
Sierra Leone
Somalia
South Africa
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
Zaire
Zambia
Zimbabwe
License and Development Agreement--Confidential
<PAGE>
Schedule 4.6
Terms of Supply
_______________________________________________________________________________
To be agreed
License and Development Agreement--Confidential
<PAGE>
Schedule 5.4
Terms of European Co-Promotion Rights
_______________________________________________________________________________
License and Development Agreement--Confidential
<PAGE>
Schedule 7.2.2
Minimum Patent Filing Countries
_______________________________________________________________________________
[***]
11253-42:222589 v12
License and Development Agreement--Confidential
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<CASH> 49,652
<SECURITIES> 209,261
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<CURRENT-ASSETS> 260,885
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<COMMON> 253
<OTHER-SE> 258,829
<TOTAL-LIABILITY-AND-EQUITY> 277,871
<SALES> 0
<TOTAL-REVENUES> 32,738
<CGS> 0
<TOTAL-COSTS> 52,743
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 484
<INCOME-PRETAX> (20,489)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,489)
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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, 1998 on our review of interim
financial information of Vertex Pharmaceuticals Incorporated for the three
month and nine month periods ended September 30, 1998 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, 33-12325, 333-27011
and 333-56179). 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 13, 1998
