<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996
REGISTRATION NO. 333-10845
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANSKARYOTIC THERAPIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2836 04-3027191
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
195 ALBANY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(617) 349-0200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
RICHARD F SELDEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRANSKARYOTIC THERAPIES, INC.
195 ALBANY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(617) 349-0200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PETER WIRTH, ESQ. BRUCE K. DALLAS, ESQ.
PALMER & DODGE LLP DAVIS POLK & WARDWELL
One Beacon Street 450 Lexington Avenue
Boston, Massachusetts 02108 New York, New York 10017
(617) 573-0100 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued October 15, 1996
2,500,000 Shares
LOGO
Transkaryotic Therapies, Inc.
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE WILL BE BETWEEN $13 AND $15. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE
COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "TKTX," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------
HOECHST MARION ROUSSEL, INC. WILL PURCHASE AN ADDITIONAL $5 MILLION OF SHARES OF
COMMON STOCK AT THE PRICE TO
PUBLIC SET FORTH BELOW PURSUANT TO ITS COLLABORATION WITH THE COMPANY. SEE
"CERTAIN TRANSACTIONS."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 8 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $680,000.
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
375,000 additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering
overallotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriters."
------------------------
The shares are offered, subject to prior sale, when, as and if received and
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the shares will be made on or about , 1996
at the offices of Morgan Stanley & Co. Incorporated, New York, N.Y. against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
UBS SECURITIES
PACIFIC GROWTH EQUITIES, INC.
, 1996
<PAGE> 3
[The figure shows a flowchart diagram of TKT's Gene Activation technology. A
human cell containing an inactive erythropoietin gene is modified by the
introduction of new regulatory DNA sequences. This process results in the
activation of the erythropoietin gene and production of Gene Activated
erythropoietin ("GA-EPO").]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements certified by independent
auditors and quarterly reports containing unaudited consolidated financial data
for the first three quarters of each fiscal year following the end of each such
quarter.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 8
Use of Proceeds....................................................................... 16
Dividend Policy....................................................................... 16
Dilution.............................................................................. 17
Capitalization........................................................................ 18
Selected Financial Data............................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 20
Business.............................................................................. 24
Management............................................................................ 42
Certain Transactions.................................................................. 49
Principal Stockholders................................................................ 51
Description of Capital Stock.......................................................... 53
Shares Eligible for Future Sale....................................................... 56
Underwriters.......................................................................... 58
Legal Matters......................................................................... 60
Experts............................................................................... 60
Additional Information................................................................ 60
Index to Financial Statements......................................................... F-1
</TABLE>
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and financial statements appearing
elsewhere in this Prospectus. All references herein, unless the context
otherwise requires, to the "Company" or "TKT" refer to Transkaryotic Therapies,
Inc. Except as otherwise noted herein, information in this Prospectus (i)
assumes no exercise of the Underwriters overallotment option, and (ii) reflects
the automatic conversion upon the closing of this offering of all outstanding
shares of Class A Redeemable Convertible, Class A, Class B, Class C, Class D,
Class E, Class F and Class G Convertible Preferred Stock of the Company into an
aggregate of 8,614,026 shares of Common Stock and (iii) gives effect to a
1.285714 for 1 stock split of Common Stock effected in the form of a stock
dividend. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.
THE COMPANY
Transkaryotic Therapies, Inc. ("TKT" or the "Company") has developed two
proprietary technology platforms, Gene Activation and gene therapy. The
Company's Gene Activation technology is a proprietary approach to the large
scale production of therapeutic proteins which does not require the cloning of
genes and their subsequent insertion into non-human cell lines. Consequently,
the Company believes its Gene Activation technology avoids using patented
approaches to protein production associated with such conventional genetic
engineering which have served as effective barriers to competition in the $11
billion therapeutic protein market. As a result, the Company believes it will be
able to develop and successfully commercialize a broad range of gene activated
versions of proteins which have proven medical utility, received marketing
approval from regulatory authorities and generated significant revenues in major
markets. The Company's most advanced Gene Activation development program is for
the production of Gene Activated erythropoietin ("GA-EPO") with clinical trials
expected to commence in the first half of 1997. The Company's gene therapy
technology ("Transkaryotic Therapy") is a non-viral, ex vivo system based on the
genetic modification of patients' cells to produce and deliver therapeutic
proteins for extended periods of time. The Company's Transkaryotic Therapy
system has produced target proteins at therapeutic levels for the lifetime of
animals without any side effects and preliminary clinical testing suggests that
the system appears to be well-tolerated.
TKT believes that its proprietary Gene Activation technology represents a
new wave in the evolution of protein production technology. Gene Activation is
based on the observation that essentially all human cells contain genes encoding
commercially valuable proteins, but that these genes are generally "turned off"
in most cells. As opposed to conventional protein production technology based on
the cloning of human genes and their subsequent insertion into bacteria, yeast
or mammalian cells, Gene Activation bypasses the genetic "off switch" in the
human cell with DNA sequences including an "on switch" that allows the human
gene to express the desired protein in its natural setting. These Gene Activated
human cells are then grown in large numbers and the protein of interest is
harvested, purified and readied for administration. The Company has successfully
applied its Gene Activation technology to the production of GA-EPO and has
demonstrated that the properties of cells generated by Gene Activation are
predictable and sufficient for scale-up to commercial production levels and that
the protein produced by these cells has the expected structural and functional
characteristics based on naturally produced erythropoietin.
In order to rapidly develop and exploit its Gene Activation technology, TKT
has entered into two strategic alliances with Hoechst Marion Roussel, Inc.
("HMRI"), the first in May 1994 and the second in March 1995. HMRI and its
pharmaceutical affiliates are one of the largest pharmaceutical groups in the
world with significant distribution capabilities in all major markets. The
alliances are focused on the development of two products, GA-EPO, a protein
hormone which is expected to compete in the $2.9 billion (1995) worldwide market
for erythropoietin and a second, undisclosed protein. Under the terms of the
alliances, if both products are successfully developed, TKT has the potential to
receive a total of $125 million in license fees, equity investments, milestone
payments and research funding from HMRI. To date, TKT has received a total of
$42 million from HMRI in connection with these two alliances, consisting of $20
million in license fees, $15 million in equity investments, $5 million in
research funding and $2 million in milestone payments.
4
<PAGE> 6
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Under the terms of the agreements, HMRI is responsible for all worldwide
development, manufacturing and marketing. TKT has the potential to receive a
royalty based on net sales of these two products worldwide. The Company believes
that working with Gene Activated proteins having conventional counterparts that
are well known to regulatory authorities may allow their clinical development to
be accomplished in a focused and timely manner.
The Company's gene therapy technology is focused on the commercialization
of non-viral gene therapy products for the long-term treatment of a broad range
of human diseases. In Transkaryotic Therapy, a small sample of the patient's
cells are removed in an out-patient procedure and sent to the Company's pilot
manufacturing facility where the cells are genetically engineered to produce the
desired therapeutic protein. In Transkaryotic Therapy, DNA is inserted into
cells using physical or chemical techniques rather than viruses or other
infectious agents. After the cells and the protein have been tested by TKT to
ensure both safety and functionality, an appropriate number of the
genetically-engineered cells are returned to the physician and injected back
into the patient. TKT believes that the entire process will require
approximately six weeks to complete, after which the patient should be capable
of producing his or her own supply of the therapeutic protein for an extended
period of time. TKT believes that its Transkaryotic Therapy gene therapy system
is broadly enabling and well-suited to the treatment of chronic protein
deficiency states such as hemophilia, diabetes, and hypercholesterolemia. The
potential benefits of Transkaryotic Therapy include improved therapeutic
outcomes, the elimination of frequent and painful injections and attendant
patient compliance problems, a reduction in side effects associated with over
and underdosing of proteins, and significant reductions in the total cost of
therapy. Preliminary data from an initial Phase I safety study of genetically
modified cells indicate that the therapy appears to be well-tolerated.
The Company has successfully applied its gene therapy approach in a variety
of model systems, using a number of different cell types to express a variety of
therapeutically useful proteins. Cells engineered by the Company retain their
normal properties, are stably transfected at efficiencies adequate for
commercial application, express the proteins of interest at therapeutic levels
and have delivered the therapeutic protein of interest for the lifetime of
experimental animals. The Company is conducting two preclinical programs of its
Transkaryotic Therapy products, one for the treatment of Fabry disease, a
lysosomal storage disorder, based on the production and delivery of the enzyme
- -galactosidase, and a second for the treatment of Hemophilia A based on the
production and delivery of coagulation Factor VIII. The Company anticipates that
it will initiate a Phase I clinical trial to study protein replacement in Fabry
disease in 1996 and gene therapy clinical trials for both Fabry disease and
Hemophilia A in 1997.
The Company's initial business strategy is to apply its Gene Activation
technology to the development and commercialization of several currently
marketed proteins. The Company's two strategic alliances with HMRI are the
primary focus of its Gene Activation activities, and TKT is actively pursuing
other Gene Activation product candidates for commercialization either with
pharmaceutical partners or independently. In parallel, the Company plans to
continue research and development of its Transkaryotic Therapy system to develop
a novel class of gene therapy treatments for a variety of protein deficiency
diseases. Taken together, the Company believes its Gene Activation and gene
therapy platforms are complementary opportunities that offer the potential for
the development of powerful product pipelines that may have a significant impact
in addressing society's healthcare needs.
TKT was incorporated in Delaware in 1988. The Company's principal executive
offices are located at 195 Albany Street, Cambridge, Massachusetts 02139, and
its telephone number is (617) 349-0200.
- --------------------------------------------------------------------------------
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................................ 2,500,000 shares(1)
Common Stock to be purchased by HMRI................ 357,143 shares(2)
Common Stock to be outstanding after the offering... 16,668,796 shares(3)
Use of Proceeds..................................... Research, preclinical and clinical
product development, and general
corporate purposes
Nasdaq National Market Symbol....................... TKTX
</TABLE>
- ---------------
(1) Excludes 375,000 shares subject to the Underwriters overallotment option.
See "Underwriters."
(2) Under its existing collaboration with the Company, at the closing of this
offering, HMRI will purchase an additional $5 million of Common Stock at the
initial public offering price (the "HMRI New Investment"). The number of
shares set forth above assumes an initial public offering price of $14.00
per share (the mid-point of the filing range). The actual number of shares
will be determined by dividing $5 million by the initial public offering
price.
(3) Excludes (i) 817,086 shares issuable upon exercise of warrants outstanding
as of August 15, 1996 (at a weighted average exercise price of $7.53 per
share); (ii) 2,250,000 shares of Common Stock reserved for issuance under
the Company's 1993 Long-Term Incentive Plan, of which options to purchase
875,249 shares were outstanding as of August 15, 1996; and (iii) 231,429
shares of Common Stock reserved for issuance under the Company's 1993
Non-Employee Directors' Stock Option Plan, none of which have been granted
as of August 15, 1996. See "Description of Capital Stock -- Warrants" and
"Management -- 1993 Long-Term Incentive Plan" and Note 11 of Notes to
Financial Statements. The number of shares issuable upon conversion of the
outstanding Class A Redeemable Convertible Preferred Stock, which will be
determined based on the initial public offering price, is based on an
assumed initial public offering price of $14.00 per share. See "Description
of Capital Stock -- Preferred Stock" and "Capitalization."
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1993 1994 1995 1995 1996
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
License and contract fee revenues..... $ -- $10,000 $15,400 $11,700 $ 1,975
Costs and expenses:
Research and development........... 6,253 9,126 10,067 5,205 6,839
General and administrative......... 2,998 4,690 4,290 1,737 1,911
------- ------- ------- ------- -------
Total costs and expenses.............. 9,251 13,816 14,357 6,942 8,750
Interest income, net.................. 168 394 1,116 432 788
Provision for income taxes............ -- -- 85 85 --
------- ------- ------- ------- -------
Net income (loss)..................... $ (9,083) $(3,422) $ 2,074 $ 5,105 $(5,987)
======= ======= ======= ======= =======
Pro forma net income (loss)
per share(1)....................... $ .14 $ .35 $ (.42)
======= ======= =======
Shares used in computing pro forma net
income (loss) per share(1)......... 14,633 14,640 14,255
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities..................................... $ 28,774 $ 57,244 $ 89,114
Working capital................................... 27,958 56,428 88,298
Total assets...................................... 33,626 62,096 93,966
Class A redeemable preferred stock................ 4,545 -- --
Deficit accumulated during the development
stage.......................................... (31,131) (31,131) (31,131)
Total stockholders' equity........................ 27,887 60,902 92,772
</TABLE>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Gives effect to (i) the sale of 909,091 shares of Class G Convertible
Preferred Stock at a price of $22.00 per share to BB Biotech AG and an
additional 224,498 shares to certain stockholders of the Company pursuant to
pre-emptive rights subsequent to June 30, 1996, all of which shares will
convert into an aggregate of 1,457,559 shares of Common Stock upon the
closing of this offering, (ii) the conversion of all outstanding shares of
Preferred Stock (including Class G) into an aggregate of 8,614,026 shares of
Common Stock upon the closing of this offering and (iii) 357,143 shares of
Common Stock to be sold in the HMRI New Investment.
(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
hereby after deduction of underwriting discounts and commissions and
estimated offering expenses payable by the Company.
7
<PAGE> 9
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors in addition to the other information set
forth in this Prospectus.
EARLY STAGE OF DEVELOPMENT; COMMERCIAL UNCERTAINTY
TKT is at an early stage of development. All of the Company's potential
Gene Activation products are in research or preclinical development. No revenues
have been generated from product sales and no such revenues are expected for at
least several years. The Gene Activation products currently under development by
the Company will require significant additional development efforts, including
extensive preclinical and clinical testing and regulatory approval, prior to
commercial use. There can be no assurance that any Gene Activation products will
ultimately be developed by the Company and its corporate partners, or that, even
if developed, these products will receive regulatory approval. If approved,
these products will compete with established products of proven safety and
efficacy, the manufacturers of which can be expected to employ intellectual
property challenges to commercialization of these products. See "-- Patents and
Proprietary Rights." There can be no assurance that the Company's Gene
Activation products, if any, will be able to be commercialized or, if
commercialized, that they will be accepted by medical centers, hospitals,
physicians or patients in lieu of existing treatments. Accordingly, there can be
no assurance that these products can be successfully manufactured and marketed
at prices that would permit the Company and its corporate partners to operate
profitably. The Company's potential gene therapy products may be even further
from commercial introduction. Due to the early stage of development of the
Company's potential gene therapy products and the extensive research,
development, preclinical and clinical testing, and regulatory review process
required before marketing approval can be obtained, the Company cannot predict
with certainty when it will be able to commercialize any of its potential gene
therapy products, if at all.
TECHNOLOGICAL UNCERTAINTY
Gene Activation and gene therapy are new and rapidly evolving technologies.
Existing preclinical data on the safety and efficacy of proteins produced by the
Company's Gene Activation technology are limited, and the Company's Gene
Activation products have not yet been tested in humans. The Company's potential
gene therapy products are even further from commercial introduction. While many
approaches to gene therapy are being pursued by pharmaceutical and biotechnology
companies and academic institutions, there are currently no marketed gene
therapy products, and existing clinical data on the safety and efficacy of
potential gene therapy products are limited. The potential gene therapy products
currently under development by the Company will require substantial additional
development efforts, including extensive preclinical and clinical testing and
the receipt of regulatory approvals prior to commercial introduction. For any
given disease, gene therapy generally, as well as the Company's specific
approach to gene therapy, may not be efficacious or may prove to have
undesirable and unintended side effects, toxicities or other characteristics
that may prevent or limit commercial use. There can be no assurance that the
Company's products will obtain approval from the U.S. Food and Drug
Administration (the "FDA") or equivalent foreign regulatory authorities for any
indication.
UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS
Subject to compliance with FDA regulations, TKT and its corporate partners
plan to undertake extensive clinical testing in humans to evaluate the safety
and efficacy of its Gene Activation and gene therapy products in development.
None of the Company's Gene Activation products has entered clinical trials. The
rate of completion of clinical trials is dependent upon, among other factors,
the enrollment of patients. Patient accrual is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Delays in planned patient enrollment in the
anticipated Gene Activation clinical trials may result in program delays, which
could have a material adverse effect on TKT. Even if clinical trials are
completed, there can be no assurance that the Company or its partners will be
able to submit a Product License Application ("PLA") to the FDA or comparable
regulatory agencies in foreign countries on the schedule anticipated or that
such applications will be reviewed and approved by such regulatory agencies in a
timely manner. Of the gene therapy products under development at the Company,
only one is in Phase I human clinical trials. The Company currently intends to
seek a collaborative partner prior to proceeding with further clinical
development of this product. There can be no assurance that the Company will be
able to
8
<PAGE> 10
obtain authorization from the FDA for additional human clinical testing of any
of its gene therapy products currently in research or preclinical development.
There can be no assurance that any authorized clinical testing will be completed
successfully within any specified time period, if at all, with respect to any
potential product. There also can be no assurance that such testing will show
any potential product to be safe or efficacious or that any such product will be
approved by the FDA for any indication. Furthermore, the Company or the FDA may
suspend clinical trials at any time if the subjects or patients participating in
such trials are being exposed to unacceptable health risks. There can be no
assurance that the Company will not encounter problems in clinical trials which
will cause the Company or the FDA to delay or suspend clinical trials.
PATENTS AND PROPRIETARY RIGHTS
The Company's success may depend in large part on its ability to obtain
patent protection for its Gene Activation and gene therapy processes and
potential products in the U.S. and other countries and to obtain the right to
use in its potential products genes or other technology that have been or may be
patented by others. Currently, the Company has 19 pending patent applications in
the U.S. to protect its proprietary methods and processes; it has also filed
foreign patent applications corresponding to certain of these U.S. patent
applications. In addition, the Company has entered into several agreements to
license proprietary rights from other parties. However, the patent situation in
the field of biotechnology generally is highly uncertain and involves complex
legal, scientific and factual questions. To date there has emerged no consistent
policy regarding the breadth of claims allowed in biotechnology patents.
Accordingly, there can be no assurance that patent applications relating to the
technology used by the Company will result in patents being issued or that, if
issued, the patents will not be challenged, invalidated or circumvented or will
afford protection against competitors with similar technology.
Many biotechnology and pharmaceutical companies, universities and research
institutions, including competitors with substantial resources, have filed
patent applications and have been issued patents potentially relating to the
Company's Gene Activation and gene therapy technologies. In addition, certain
competitors have filed patent applications and have been issued patents relating
to certain methods of producing therapeutic proteins that the Company
anticipates producing using its Gene Activation technology. The Company's Gene
Activation and gene therapy technologies and potential products may be found to
conflict or be alleged to conflict with patents which have been or may be
granted to competitors, universities or others. There are a substantial number
of biotechnology patent applications under review at the U.S. Patent and
Trademark Office (the "PTO"). Because patent applications in the U.S. are
maintained in secrecy until patents issue, the Company cannot be certain that
others have not filed or maintained patent applications for technology used by
the Company or covered by the Company's pending patent applications or that the
Company was the first to file patent applications for such technology.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to, compositions
of matter or processes that block or compete with those of the Company.
Furthermore, as is the case with any pending patent application, competitors may
attempt to amend existing applications to claim rights to compositions of matter
or processes that may block the Company. No assurance can be given that the
Company's products or processes may not infringe patents that may issue under
pending patent applications. With respect to gene therapy technology, the
Company is currently involved in one interference proceeding declared by the PTO
in order to determine the patentability of the technology and the priority of
invention and, thus, the right to a patent for such technology in the U.S. See
"Business -- Patents, Proprietary Rights and Licenses." Should any of its
competitors have filed additional patent applications in the U.S. that claim
technology also invented by the Company, the Company may have to participate in
additional interference proceedings declared by the PTO, all of which could
result in substantial cost to the Company to determine its rights or potential
loss of rights.
The biotechnology industry has been characterized by significant litigation
and interference proceedings regarding patents, patent applications and other
intellectual property rights, and many companies in the biotechnology industry
have attempted to employ intellectual property litigation to gain or preserve a
competitive advantage. For example, there has been substantial intellectual
property litigation between suppliers of erythropoietin throughout the world. In
September 1996, the Company received a letter from Amgen, Inc. ("Amgen")
stating, without further elaboration, that in Amgen's opinion any implication
that the Company will be able to commercialize GA-EPO in the United States is
"materially false and misleading." The Company has received an
9
<PAGE> 11
opinion of Hamilton, Brook, Smith & Reynolds, P.C., counsel to the Company, that
the technologies employed by the Company and the method of their use in the
Company's products do not infringe U.S. Patent Numbers 4,703,008, 5,441,868 and
5,547,933, the principal Amgen patents, and would not infringe such patents
under the doctrine of equivalents. Based upon this opinion as well as its and
its counsel's review of other relevant patents, the Company believes that it
will be able to commercialize GA-EPO in the United States upon successful
completion of its clinical trials and receipt of FDA approval. This opinion,
however, is not binding on any court, and there can be no assurance that the
Company will not in the future become subject, in the United States or any other
country, to patent infringement claims, interferences and other litigation
involving patents, including the three referenced Amgen patents, or any patents
that may issue on any pending patent applications, including Amgen patent
applications. The defense and prosecution of intellectual property suits and
related legal and administrative proceedings can be both costly and time
consuming. Litigation and interference proceedings could result in substantial
expense to the Company or its corporate partner and significant diversion of
effort by the Company's technical and management personnel. An adverse
determination in litigation to which the Company may become a party could
subject the Company to significant liabilities to third parties or require the
Company to seek licenses from third parties. Although a number of patent and
intellectual property disputes in the biotechnology area have been settled
through licensing or similar arrangements, costs associated with any such
arrangement may be substantial and could include ongoing royalties. Furthermore,
there can be no assurance that necessary licenses would be available to the
Company or its corporate partner or would be available on acceptable terms.
Adverse determinations in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company or its corporate partner
from manufacturing and selling some or all of its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although the Company has licensed proprietary rights to certain genes (for
example, for Factor VIII and Factor IX) to be used in its gene therapy products,
the Company presently has no proprietary rights to certain other genes that it
may later seek to use in its products and which may be the subject of issued
third party patents or pending patent applications. As a result, the Company may
be required to obtain licenses under third party patents in order to market
certain of its products. If such licenses are not made available to the Company
on acceptable terms, the Company will not be able to market such products. In
addition, under the Company's license and sublicense agreements, the licensors
and sublicensors may terminate these agreements upon the Company's failure to
meet certain specified milestones. Any such termination of an existing license
or sublicense by any such licensor or sublicensor, or any inability by the
Company to obtain any required license, could have a material adverse effect on
the Company's business.
The Company also relies upon unpatented proprietary technology, processes
and know-how, which the Company protects in part by confidentiality agreements
with its employees, consultants and certain contractors. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors.
UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS
The Company's research and development, preclinical testing, clinical
trials, facilities and manufacturing and marketing of its products will be
subject to extensive regulation by numerous governmental authorities in the U.S.
and other countries. The regulatory process for new therapeutic products, which
includes preclinical and clinical testing of each product to establish its
safety and efficacy, can take many years and require the expenditure of
substantial resources. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
FDA regulatory approval. In addition, delays or rejections may be encountered
based upon changes in FDA policy during the period of product development and
FDA regulatory review of each submitted License Application. Similar delays may
also be encountered and substantial resources expended in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any Gene Activation or gene therapy products
developed by the Company. Moreover, if regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed and contain requirements for post-marketing follow-up studies.
Because gene therapy is a relatively new technology and products for gene
therapy have not been extensively tested in humans, the regulatory requirements
governing gene therapy products may be subject to substantial additional review
by various regulatory authorities in
10
<PAGE> 12
the U.S. and abroad. These requirements may result in extensive delays in
initiating clinical trials of gene therapy products and in the regulatory
approval process in general.
Any of the foregoing effects of government regulation, as well as of
comparable foreign regulation, could delay the marketing of the Company's Gene
Activation and gene therapy products for a considerable or indefinite period of
time, materially increase the cost involved in developing, manufacturing and
marketing the Company's products, diminish or eliminate any competitive
advantage the Company may enjoy, or otherwise adversely affect the Company's
ability to conduct its business. Compliance with applicable government
regulations governing each of the Company's potential Gene Activation and gene
therapy products will require a significant commitment of time, money and effort
by the Company and its corporate partners with no assurances that any approval
will ultimately be granted on a timely basis, if at all.
HISTORY OF OPERATING LOSSES; FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL
FUNDING
The Company has experienced significant operating losses since its
inception in 1988. As of June 30, 1996, the Company had an accumulated deficit
of $31,131,049. The Company expects that it will continue to incur substantial
losses for at least several years and expects cumulative losses to increase as
the Company's research and development efforts expand. The Company expects that
such losses will fluctuate from quarter to quarter and that such fluctuations
may be substantial. There can be no assurance that the Company will ever achieve
sales or profitability.
The Company will require substantial funds to conduct research and
development (including preclinical and clinical testing) of its potential
products and to manufacture and market any products that are approved for
commercial sale. The Company's future capital requirements will depend on many
factors, including continued progress in its research and development programs,
the magnitude of these programs, the scope and results of clinical trials, the
timing and receipt of milestone payments, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims and other patent-related
costs, competing technological and market developments, the ability of the
Company to establish and maintain collaborative arrangements, and the cost of
manufacturing and commercialization activities. To date, the Company has not
received any revenues from product sales. The Company intends to seek additional
funding through collaborative arrangements or through public or private
financings. There can be no assurance that additional financing will be
available on acceptable terms, if at all.
COMPETITION
The field of biotechnology is new and evolving, and it is expected to
continue to undergo significant and rapid technological change. Technological
developments could result in the Company's potential products becoming obsolete.
The Company's products and technologies will be subject to substantial
competition, both from other companies in the field of Gene Activation and gene
therapy and from companies which have other forms of treatment of the diseases
targeted by the Company.
The Company is initially focusing its Gene Activation efforts on
established products with proven safety and efficacy. The Company anticipates
that companies selling such products will compete vigorously. There can be no
assurance that the Company's Gene Activation products will be accepted by
medical centers, hospitals, physicians or patients in lieu of existing products,
or as to the effect of such competition on the market prices of the Company's
products.
Although the Company has a major corporate partner, many of the Company's
existing or potential competitors have substantially greater product development
capabilities and financial, scientific, marketing or human resources than the
Company. Similarly, other competitors of the Company may enter into
collaborative relationships with other companies having such greater resources.
In addition, certain of these competitors have significantly greater experience
than the Company in undertaking human clinical trials of new therapeutic
products. Accordingly, other companies may succeed in developing products
earlier than the Company, obtaining FDA approvals for such products more rapidly
than the Company, or developing products that are more effective or less costly
than those proposed to be developed by the Company. Furthermore, if the Company
is permitted to commence commercial sales of products, it may also be competing
with respect to commercial manufacturing and marketing capabilities, areas in
which it has no experience.
11
<PAGE> 13
NO MANUFACTURING, DISTRIBUTION OR MARKETING CAPABILITY
Although the Company has a pilot gene therapy manufacturing facility and
believes it will be able to manufacture its potential products on a large scale,
the feasibility of large-scale manufacturing of such products has not been
demonstrated. If the Company is unable to develop or contract for manufacturing
capabilities on acceptable terms, the Company's ability to commercialize its
potential products would be materially adversely affected. If the Company is
delayed in establishing suitable manufacturing capabilities, the Company's
ability to conduct human clinical testing may be adversely affected, resulting
in the delay of submission of potential products for regulatory approval and
initiation of new development programs, which in turn could impair materially
the Company's competitive position and the possibility of the Company achieving
profitability. In addition, although the Company believes that its potential
products will be cost-effective, there can be no assurance that the Company will
be able to manufacture and distribute such products at a reasonable cost, that
the Company will be able to price such products competitively or, if priced
competitively, that the Company will be able to achieve margins sufficient to
allow it to achieve profitability.
The Company plans to provide its gene therapy products through central
manufacturing facilities. The establishment of these facilities will require
substantial additional funds and personnel and will require compliance with
extensive regulations applicable to such facilities. There can be no assurance
that such funds and personnel will be available on acceptable terms, if at all,
or that the Company will be able to comply with such regulations at acceptable
cost, if at all. In addition, in managing this expansion the Company may
encounter unforeseen regulatory, logistical or management problems or incur
unexpected operating costs. Failure or delays in establishing these facilities,
or the incurrence of unexpected operating costs, could adversely affect the
ability of the Company to manufacture and market its gene therapy products.
Furthermore, the Company has no experience in sales, marketing or distribution.
In order to market any of its gene therapy products, the Company must develop a
marketing and sales capability, either on its own or in conjunction with others.
There can be no assurance that the Company will be able to enter into any
arrangements for the marketing of its products, that such arrangements will be
successful, or that the Company will be able to obtain additional capital and
expertise to conduct such activities independently.
The Company has no manufacturing, sales, marketing or distribution
capabilities for its Gene Activation products. The Company's collaborative
partner, HMRI, is responsible for the manufacture, sales, marketing and
distribution of GA-EPO and the undisclosed second protein. With respect to
future Gene Activation products, the Company may seek collaborative partners or
may manufacture and commercialize the products on its own. There can be no
assurance that the Company will be successful in establishing such future
collaborative relationships or that the Company will be able to conduct such
activities independently. See "-- Dependence on Collaborative Partners."
DEPENDENCE ON KEY PERSONNEL
The Company's success is highly dependent on the retention of principal
members of its scientific and management staff. Furthermore, the Company's
future growth will require the hiring of significant numbers of qualified
scientific and management personnel. Accordingly, recruiting and retaining such
personnel in the future will be critical to the Company's success. There is
intense competition from other companies and research and academic institutions
for qualified personnel in the areas of the Company's activities, and there can
be no assurance that the Company will be able to continue to attract and retain
on acceptable terms the qualified personnel necessary for the development of its
business.
DEPENDENCE ON HMRI AND OTHER COLLABORATIVE PARTNERS
The Company has entered into arrangements with HMRI on two of its Gene
Activation development programs and with another corporate partner on one of its
gene therapy development programs. Each agreement with HMRI is subject to
termination without cause on short notice under certain circumstances and there
is no assurance that in the future either partner will not exercise its
termination rights. The Company is relying on HMRI to develop, conduct clinical
trials, obtain regulatory approval for the sale of, manufacture and market
GA-EPO and the undisclosed second protein worldwide. There can be no assurance
that HMRI will devote the resources necessary to complete development of and
commercialize these two
12
<PAGE> 14
potential products. Should HMRI fail to develop and commercialize these two
potential products, the Company's business would be materially adversely
affected.
The Company's strategy for the research, development and commercialization
of certain of its potential products includes the possibility that it will enter
into various additional arrangements with corporate partners, licensors,
licensees and others. There can be no assurance that any further arrangements
will be effected in the future. Although the Company believes parties to any
existing and future arrangements, if entered into, would have economic and other
motivations to perform their contractual responsibilities in full, the amount
and timing of resources which they would devote to these activities would not be
within the control of the Company. There can be no assurance that such parties
would perform their obligations as expected or that any revenue would be derived
by the Company from such arrangements.
PRODUCT LIABILITY AND INSURANCE
The Company's business will in the future expose it to potential product
liability risks which are inherent in the testing, manufacturing and marketing
of human therapeutic products. Although the Company has clinical trial liability
insurance for trials conducted in the U.S., the Company does not currently have
any product liability insurance, and there can be no assurance that it will be
able to obtain or maintain such insurance on acceptable terms, if at all, or
that any insurance obtained will provide adequate protection against potential
liabilities. An inability to obtain insurance at acceptable cost or otherwise
protect against potential product liability claims, in addition to exposing the
Company to significant liabilities, could prevent or inhibit the
commercialization of products developed by the Company.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through various
means. For example, in certain foreign markets, pricing and profitability of
prescription pharmaceuticals is subject to government control. In particular,
individual pricing negotiations are often required in each country of the
European Community, even if approval to market the drug is obtained. In the U.S.
there have been, and the Company expects that there will continue to be, a
number of federal and state proposals to implement similar government control.
In addition, an increasing emphasis on managed care in the U.S. has and will
continue to increase the pressure on pharmaceutical pricing. While the Company
cannot predict whether any such legislative or regulatory proposals will be
adopted or the effect such proposals or managed care efforts may have on its
business, the announcement of such proposals or efforts could have a material
adverse effect on the Company's ability to raise capital, and the adoption of
such proposals or efforts could have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or efforts have a material adverse effect on other
pharmaceutical companies that are prospective corporate partners for the
Company, the Company's ability to establish corporate collaborations may be
adversely affected. In addition, in both domestic and foreign markets, sales of
the Company's products, if any, will be dependent in part on the availability of
reimbursement from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in commercializing
products, there can be no assurance that these products will be considered cost
effective, that reimbursement will be available, or if available, that the
payor's reimbursement policies will be adequate to permit the Company to realize
a reasonable return on its investment.
CONCENTRATION OF OWNERSHIP
Following this offering, the present officers, directors and holders of
more than 5% of the Company's stock will beneficially own approximately 60.8% of
the outstanding shares of the capital stock of the Company, assuming the
exercise of warrants outstanding as of the date of this Prospectus. Accordingly,
such persons will have the ability to exercise significant influence over the
management and policies of the Company and to control the election of the
Company's Board of Directors and most other stockholder actions.
13
<PAGE> 15
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of this offering, the 13,811,653 shares of Common Stock
outstanding as of August 15, 1996 (after giving effect to the conversion of all
shares of preferred stock into Common Stock upon the closing of this offering)
will be "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), and under certain
circumstances may be sold without registration pursuant to Rule 144. In addition
to the 2,500,000 shares offered hereby, approximately 1,390,552 shares of
outstanding Common Stock will be eligible for sale in the public market pursuant
to Rule 144(k) under the Securities Act immediately after this offering
(excluding approximately 1,455,402 outstanding shares that would be eligible for
sale in the public market immediately after the offering were they not subject
to the lock-up agreements described below). An additional 458,155 shares of
outstanding Common Stock will become eligible for sale pursuant to Rules 144 and
701 under the Securities Act beginning 90 days after the effective date of this
offering (excluding an additional 2,014,073 outstanding shares that would be
eligible for sale in such time were they not subject to the lock-up agreements
described below). Holders of 11,869,398 shares of Common Stock have entered into
lock-up agreements pursuant to which they have agreed not to publicly offer,
sell or otherwise dispose of such shares without the consent of the
Representatives of the Underwriters for 180 days after the effective date of
this offering. The Company is unable to predict the effect that sales made under
Rule 144, or otherwise, may have on the then prevailing market price of the
Common Stock. As of August 15, 1996, the holders of approximately 8,614,026
shares of Common Stock were entitled to certain piggyback and demand
registration rights with respect to such shares. In addition, in connection with
the sale of 357,143 shares of Common Stock in the HMRI New Investment, the
Company will grant to HMRI one demand registration right with respect to such
shares exercisable after the expiration of the lock-up agreement. By exercising
their registration rights, subject to certain limitations, such holders could
cause a large number of shares to be registered and sold in the public market
commencing 180 days after the date of this Prospectus. Such sales may have an
adverse effect on the market price for the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.
See "Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriters."
DILUTION; ABSENCE OF DIVIDENDS
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution in net tangible book value per share. In
addition, investors purchasing shares of Common Stock in this offering will
incur additional dilution to the extent outstanding options and warrants are
exercised. See "Dilution," "Management -- 1993 Long-Term Incentive Plan" and
"Management -- 1993 Non-Employee Directors' Stock Option Plan" and "Description
of Capital Stock -- Warrants."
The Company has never paid dividends and does not intend to pay any
dividends in the foreseeable future. See "Dividend Policy."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock.
Certain of such provisions allow the Company to issue preferred stock with
rights senior to those of the Common Stock and impose various procedural and
other requirements which could make it more difficult for stockholders to effect
certain corporate actions. See "Description of Capital Stock -- Preferred Stock"
and "Description of Capital Stock -- Delaware Law and Certain Charter and By-Law
Provisions."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or,
if one does develop, that it will be maintained. The public offering price of
the Common Stock will be established by negotiations between the Company and the
Representatives of the Underwriters. See "Underwriters."
14
<PAGE> 16
The market price of the shares of Common Stock, like that of the common
stock of many other early-stage biotechnology companies, may be highly volatile.
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of clinical
testing or regulatory proceedings, governmental regulation and approvals,
developments in patent or other proprietary rights, public concern as to the
safety of products developed by the Company and general market conditions may
have a significant effect on the market price of the Common Stock. In addition,
the stock market has experienced extreme price and volume fluctuations. This
volatility has significantly affected the market prices of securities of many
biotechnology and pharmaceutical companies for reasons frequently unrelated to
or disproportionate to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $31,870,000 ($36,752,500 if the Underwriters
exercise the overallotment option in full) at an assumed initial public offering
price of $14.00 per share (the mid-point of the filing range) and after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to use the net proceeds of this offering along with the
$5 million to be received from the HMRI New Investment for research, preclinical
and clinical product development and other general corporate purposes. The
amounts actually expended for each purpose may vary significantly based upon
numerous factors including the results of clinical trials, the timing of
regulatory approvals, technological advances, determinations concerning
commercial potential of particular products, the status of competitive products,
the progress of the Company's research and development programs, establishment
of collaborative arrangements with other companies and research institutions and
the availability of financing. Pending application of the net proceeds of this
offering as described above, the Company intends to invest such net proceeds in
investment grade, interest-bearing securities or in interest-bearing accounts.
Based upon its current operating plan, the Company believes that its
available cash, together with the proceeds of this offering and interest income,
will be adequate to satisfy its capital needs through 1999. The Company will
require substantial funds to conduct research and development (including
preclinical and clinical testing) of its potential products and to manufacture
and market any products that are approved for commercial sale. The Company's
future capital requirements will depend on many factors, including continued
progress in its research and development programs, the magnitude of these
programs, the scope and results of clinical trials, the timing and receipt of
milestone payments, the time and costs involved in obtaining regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims, competing technological and market developments, the
ability of the Company to establish and maintain collaborative arrangements, the
cost of manufacturing and commercialization activities. To date, the Company has
not received any revenues from product sales. The Company intends to seek
additional funding through collaborative arrangements or through public or
private financings. There can be no assurance that additional financing will be
available on acceptable terms or at all.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain all of its earnings, if any, for use in
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
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<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company, as of June 30, 1996,
was $60,545,535 or $4.27 per share. Pro forma "net tangible book value per
share" is equal to the Company's pro forma total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding, after
giving effect to (i) the sale of 1,133,589 shares of Class G Convertible
Preferred Stock subsequent to June 30, 1996, (ii) the conversion of all
outstanding shares of Preferred Stock (including Class G) into an aggregate of
8,614,026 shares of Common Stock upon the closing of this offering and (iii) the
purchase by HMRI of $5 million of Common Stock in the HMRI New Investment. After
giving effect to the sale of 2,500,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $14.00 per share (the mid-point of
the filing range), and after deduction of underwriting discounts and commissions
and estimated offering expenses payable by the Company, the pro forma net
tangible book value of the Company as of June 30, 1996 would have been
$92,415,535 or $5.54 per share. This represents an immediate increase of $1.27
per share to existing stockholders and an immediate dilution of $8.46 per share
to new investors (the "New Investors"). The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $14.00
Pro forma net tangible book value per share as of June 30, 1996..... $4.27
Increase per share attributable to New Investors.................... 1.27
-----
Pro forma net tangible book value per share as of June 30, 1996 as
adjusted for the offering......................................... 5.54
------
Dilution per share to New Investors................................. $ 8.46
======
</TABLE>
Using the foregoing assumptions, the following table summarizes on a pro
forma basis at June 30, 1996 the difference between existing stockholders, HMRI
and New Investors with respect to the number of shares purchased from the
Company, the total consideration paid to the Company and the average
consideration paid per share at an assumed initial public offering price of
$14.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 13,811,653 82.9% $ 88,804,856 68.9% $ 6.43
New Investors.................... 2,500,000 15.0 35,000,000 27.2 14.00
HMRI New Investment(1)........... 357,143 2.1 5,000,002 3.9 14.00
---------- ----- ------------ -----
Total.................. 16,668,796 100.0% $128,804,858 100.0%
========== ===== ============ =====
<FN>
- ---------------
(1) Reflects the sale to HMRI of 357,143 shares of Common Stock at an assumed
initial public offering price of $14.00 pursuant to the HMRI New
Investment.
The foregoing tables assume no exercise of the Underwriters' overallotment
option and no exercise of outstanding options or warrants to purchase Common
Stock. At August 15, 1996, there were outstanding options to purchase an
aggregate of 875,249 shares of Common Stock for nominal consideration and
outstanding warrants to purchase an aggregate of 817,086 shares of Common Stock
at exercise prices ranging from $6.22 to $7.78 per share. To the extent these
options or warrants are exercised, there will be further dilution to existing
stockholders and New Investors. At August 15, 1996, 2,250,000 shares of Common
Stock were reserved for issuance under the Company's 1993 Long-Term Incentive
Plan and 231,429 shares were reserved for issuance under the Company's 1993
Non-Employee Directors' Stock Option Plan. See "Management -- 1993 Long-Term
Incentive Plan" and "Management -- 1993 Non-Employee Directors' Stock Option
Plan" and Note 11 of Notes to Financial Statements.
</TABLE>
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<PAGE> 19
CAPITALIZATION
The following table sets forth (i) the total capitalization of the Company
at June 30, 1996, (ii) pro forma capitalization as of such date to give effect
to the sale of 1,133,589 shares of Class G Convertible Preferred Stock at a
price per share of $22.00 which shares will convert into an aggregate of
1,457,559 shares of Common Stock upon the closing of this offering and give
effect to the sale of 357,143 shares of Common Stock in the HMRI New Investment
and (iii) as adjusted to reflect the sale by the Company of 2,500,000 shares of
Common Stock pursuant to this offering after deduction of underwriting discounts
and commissions and estimated expenses payable by the Company as described
herein under "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------------ ------------ --------------
<S> <C> <C> <C>
Redeemable preferred stock:
Class A redeemable convertible preferred stock, $1.00 par value,
3,000 shares authorized; 3,000 shares issued and outstanding; none
outstanding pro forma and as adjusted............................. $ 4,545,273 $ -- $ --
Stockholders' equity:
Class A convertible preferred stock, $1.00 par value, 3,000 shares
authorized; 3,000 issued and outstanding; none outstanding pro
forma and as adjusted............................................. 3,000 -- --
Class B convertible preferred stock, $1.00 par value, 60,000 shares
authorized; 49,339 issued and outstanding; none outstanding pro
forma and as adjusted............................................. 49,339 -- --
Class C convertible preferred stock, $1.00 par value, 1,875,000
shares authorized; 1,015,974 issued and outstanding; none
outstanding pro forma and as adjusted............................. 1,015,974 -- --
Class D convertible preferred stock, $1.00 par value, 280,367 shares
authorized; 280,367 issued and outstanding; none outstanding pro
forma and as adjusted............................................. 280,367 -- --
</TABLE>
<TABLE>
<S> <C> <C> <C>
Class E convertible preferred stock, $1.00 par value, 523,560 shares
authorized; 523,560 issued and outstanding; none outstanding pro
forma and as adjusted............................................. 523,560 -- --
Class F convertible preferred stock, $1.00 par value, 1,071,429
shares authorized; 1,071,429 issued and outstanding; none
outstanding pro forma and as adjusted............................. 1,071,429 -- --
Class G convertible preferred stock, $1.00 par value, 1,136,364
shares authorized; 1,133,589 issued and outstanding; none
outstanding pro forma and as adjusted............................. -- -- --
Common stock, $.01 par value, 15,000,000 shares authorized;
30,000,000 shares authorized as adjusted; 5,197,662 shares issued
and outstanding; 14,168,796 shares issued and outstanding pro
forma; 16,668,796 shares issued and outstanding as adjusted(3).... 51,977 141,688 166,688
Undesignated preferred stock, $0.01 par value, none authorized;
10,000,000 shares authorized as adjusted; none issued and
outstanding; none issued and outstanding pro forma and as
adjusted.......................................................... -- -- --
Additional paid-in capital.......................................... 62,516,381 96,840,341 128,685,341
Accretion of redeemable preferred stock dividends................... (1,545,273) -- --
Deficit accumulated during development stage........................ (31,131,049) (31,131,049) (31,131,049)
Deferred compensation............................................... (4,948,576) (4,948,576) (4,948,576)
------------ ------------ ------------
Total stockholders' equity................................... 27,887,129 60,902,404 92,772,404
------------ ------------ ------------
Total capitalization.................................... $ 32,432,402 $ 60,902,404 $ 92,772,404
============ ============ ============
</TABLE>
- ---------------
(1) Gives effect to (i) the sale of 1,133,589 shares of Class G Convertible
Preferred Stock at a price per share of $22.00 subsequent to June 30, 1996,
which shares will convert into an aggregate of 1,457,559 shares of Common
Stock upon the closing of this offering, (ii) the conversion of all
outstanding shares of Preferred Stock (including Class G) into an aggregate
of 8,614,026 shares of Common Stock upon the closing of this offering and
(iii) the sale of 357,143 shares of Common Stock in the HMRI New Investment.
(2) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $14.00 per share (the
mid-point of the filing range) after deduction of underwriting discounts and
commissions and estimated offering expenses payable by the Company.
(3) Excludes 817,086 shares of Common Stock issuable upon exercise of warrants
outstanding as of August 15, 1996, 2,250,000 shares of Common Stock reserved
for issuance under the Company's 1993 Long-Term Incentive Plan, of which
875,249 shares have been granted as of August 15, 1996, and 231,429 shares
of Common Stock reserved for issuance under the Company's 1993 Non-Employee
Directors' Stock Option Plan, none of which have been granted as of August
15, 1996. See "Description of Capital Stock -- Warrants" and
"Management -- 1993 Long-Term Incentive Plan" and Note 11 of Notes to
Financial Statements.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data of the Company for the five years
ended December 31, 1995 are derived from the financial statements of the Company
which have been audited by Ernst & Young LLP, independent auditors. The
financial statements as of December 31, 1994 and 1995 and for each of the three
years in the period ended December 31, 1995, and the report of Ernst & Young LLP
relating thereto are included elsewhere herein. The financial data for the
six-month periods ended June 30, 1995 and 1996 are derived from unaudited
financial statements included elsewhere herein. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
six months ended June 30, 1996 are not necessarily indicative of results to be
expected for the entire year ended December 31, 1996. The following data should
be read in conjunction with the Company's Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included herein.
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JULY 7, 1988
YEAR ENDED DECEMBER 31, JUNE 30, (INCEPTION)
--------------------------------------------------- ------------------ THROUGH
1991 1992 1993 1994 1995 1995 1996 JUNE 30, 1996
------- ------- ------- ------- ------- ------- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
License and contract fee
revenues.................. $ -- $ -- $ -- $10,000 $15,400 $11,700 $ 1,975 $ 27,375
Costs and expenses:
Research and
development............ 3,200 4,604 6,253 9,126 10,067 5,205 6,839 43,567
General and
administrative......... 1,123 2,043 2,998 4,690 4,290 1,737 1,911 17,793
------- ------- ------- ------- ------- ------- ------- --------
Total costs and expenses.... 4,323 6,647 9,251 13,816 14,357 6,942 8,750 61,360
Interest income (expense),
net....................... (67) 247 168 394 1,116 432 788 2,939
Provision for income
taxes..................... -- -- -- -- 85 85 -- 85
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss)........... $(4,390) $(6,400) $(9,083) $(3,422) $ 2,074 $ 5,105 $(5,987) $(31,131)
======= ======= ======= ======= ======= ======= ======= ========
Pro forma net income (loss)
per share(1).............. $ .14 $ .35 $ (.42)
======= ======= =======
Shares used in computing pro
forma net income (loss)
per share(1).............. 14,633 14,640 14,255
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------- AS OF JUNE 30,
1991 1992 1993 1994 1995 1996(2)
------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities............................. $ 1,566 $ 4,594 $ 6,753 $ 7,579 $ 34,485 $ 28,774
Working capital.......................... 1,228 4,264 5,565 5,948 33,525 27,958
Total assets............................. 3,442 7,129 11,409 13,472 39,218 33,626
Class A redeemable convertible preferred
stock.................................. 3,600 3,810 4,020 4,230 4,440 4,545
Deficit accumulated during the
development stage...................... (8,314) (14,714) (23,797) (27,218) (25,144) (31,131)
Total stockholders' equity (deficit)..... (5,913) 2,776 5,724 7,073 33,541 27,887
<FN>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Excludes an aggregate of $24,938,958 of gross proceeds received from the
sale of 1,133,589 shares of Class G Convertible Preferred Stock of the
Company subsequent to June 30, 1996.
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the development and commercialization of
therapeutic human proteins produced with the Company's proprietary Gene
Activation technology. Initially, the Company is focusing on currently-marketed
proteins that are medically useful, have been approved by health authorities and
have achieved significant revenues in major markets. The Company also is engaged
in the development and commercialization of gene therapy products designed for
the long-term treatment of a broad range of chronic human diseases. The Company
commenced operations in 1988 and is at an early stage of development.
To date, all revenues received by the Company have resulted from research
and development agreements, license fees and interest on invested funds; the
Company has not received any revenues from the sale of products and does not
expect to receive any such revenues for at least several years. The Company has
incurred losses in each year of operation since inception, except 1995, and has
accumulated losses since inception through June 30, 1996 of approximately
$31,131,000. The Company expects that it will continue to incur substantial
losses for at least several years and expects cumulative losses to increase as
the Company's research and development efforts expand. The Company expects that
such losses will fluctuate from quarter to quarter and that such fluctuations
may be substantial. There can be no assurance that the Company will ever achieve
sales or profitability. These losses result principally from expenditures under
its research and development programs and the Company expects to incur
significant operating losses over the next several years due primarily to
expanded research and development efforts, preclinical testing and clinical
trials of its product candidates, the acquisition of additional technologies,
the establishment of manufacturing capability and the performance of
commercialization activities. In order to commercialize products, the Company
will need to develop genetically engineered cells, scale-up manufacturing,
complete preclinical and clinical testing and obtain regulatory approval.
The Company's success may depend in large part on its ability to obtain
patent protection for its processes and potential products in the U.S. and other
countries and, if necessary, to defend successfully patent infringement claims
that may be brought by competitors against the Company and to obtain on
commercially acceptable terms licenses to use the patents of others in its
potential products and processes. The Company's failure to obtain such
protection, successfully defend any such claims and obtain the right to use such
licenses could have a material adverse effect on the Company's business. See
"Business -- Patents, Proprietary Rights and Licenses." Furthermore, the
Company's success will also depend on its ability to obtain FDA approval to
market its products. The regulatory process for new therapeutic products, which
includes preclinical and clinical testing of each product, can take many years
and require the expenditure of substantial resources. Delays or rejections may
be encountered based upon changes in FDA policy during the period of product
development and FDA regulatory review. Similar delays may also be encountered
and substantial resources expended in foreign countries. There can be no
assurance that even after such time and expenditures, regulatory approval will
be obtained for any products developed by the Company. Moreover, if regulatory
approval of a product is granted, such approval may entail limitations on the
indicated uses for which it may be marketed and contain requirements for
post-marketing follow-up studies. Because gene therapy is a relatively new
technology and products for gene therapy have not been extensively tested in
humans, the regulatory requirements governing gene therapy products may be
subject to substantial additional review by various regulatory authorities in
the U.S. and abroad. These requirements may result in extensive delays in
initiating clinical trials of gene therapy products and in the regulatory
approval process in general.
Any of the foregoing effects of government regulation, as well as of
comparable foreign regulation, could delay the marketing of the Company's
products for a considerable or indefinite period of time, materially increase
the cost involved in developing, manufacturing and marketing the Company's
products, diminish or eliminate any competitive advantage the Company may enjoy,
or otherwise adversely affect the Company's ability to conduct its business.
Compliance with applicable government regulations governing each of the
Company's potential products will require a significant commitment of time,
money and effort by the
20
<PAGE> 22
Company and there can be no assurances that any approval will ultimately be
granted on a timely basis, if at all.
Results of operations may vary significantly from quarter to quarter
depending on, among other factors, the progress of the Company's research and
development efforts, the receipt, if any, of additional license fees and
milestone payments, the timing of certain expenses and the establishment of
collaborative research agreements. The receipt of future license fees and
milestone payments is uncertain and could result in fluctuations in the
Company's reported financial results.
Collaborative Arrangements to Date. In May 1994, the Company and HMRI
(formerly named Marion Merrell Dow Inc.) entered into an agreement to
commercialize the Company's GA-EPO. Under the terms of the agreement, HMRI is
obligated to pay the Company a total of $58 million upon completion of all
milestones and objectives set forth in the agreement, as well as royalties based
on net sales, if any, of GA-EPO. Pursuant to this agreement, the Company
recognized $10 million of license fees in the second quarter of 1994 for a
license to the Gene Activation technology for GA-EPO and received $5 million in
that quarter from the sale of 280,367 shares of the Company's Series D Preferred
Stock to HMRI. In November 1995, the Company recognized $2 million of
collaborative research revenues upon HMRI's acceptance of a cell line suitable
for the large-scale manufacture of GA-EPO. The remaining milestones are based on
HMRI's achievement of certain stages in clinical development. The Company
anticipates that HMRI will commence clinical trials for GA-EPO during the first
half of 1997. HMRI is responsible for the worldwide development, manufacturing
and marketing of GA-EPO, and the Company will receive a royalty based on net
sales, if any. Pursuant to the provisions of the agreement, HMRI will purchase
$5 million of Common Stock at the initial public offering price (357,143 shares
assuming a public offering price of $14.00 per share, the mid-point of the
filing range) upon the closing of this offering in the HMRI New Investment.
In March 1995, the Company entered into a second agreement with HMRI to
commercialize an undisclosed Gene Activation product. Under the terms of this
agreement, HMRI is obligated to pay the Company a total of $67 million upon
completion of all milestones and objectives set forth in the agreement, as well
as royalties based on net sales, if any, of the undisclosed Gene Activation
product. Pursuant to this agreement, the Company recognized $10 million of
license fees in the first quarter of 1995 for a license to the Gene Activation
technology for the second protein and received $10 million from the sale of
523,560 shares of the Company's Series E Preferred Stock to HMRI. As part of the
agreement, HMRI agreed to fund basic research at the Company for two years at a
rate of $3 million per year. The Company is responsible for delivering a cell
line sufficient for scale-up to commercial production levels, and upon its
acceptance, will be entitled to receive a milestone payment of $2.5 million. The
remaining milestones are based on HMRI's achievement of certain stages in
clinical development. HMRI is responsible for the worldwide development,
manufacturing and marketing of the product and the Company will receive a
royalty based on net sales, if any.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
The Company's total revenues decreased to $1,975,000 in the six months
ended June 30, 1996 from $11,700,000 in the six months ended June 30, 1995. In
the six months ended June 30, 1996, the Company's revenues consisted primarily
of an additional $475,000 in collaborative research revenues relating to the
Company's GA-EPO collaboration with HMRI and $1,500,000 in collaborative
research revenues earned under its March 1995 collaboration with HMRI. In the
six months ended June 30, 1995 the Company's revenues consisted of $10,000,000
in up-front license fees and $1,700,000 primarily in collaborative research
revenues earned under the Company's collaborations with HMRI.
The Company's total costs and expenses increased to $8,750,000 in the six
months ended June 30, 1996 from $6,943,000 in the six months ended June 30,
1995. Research and development expenses increased 31% to $6,839,000 in the six
months ended June 30, 1996 from $5,205,000 in the six months ended June 30,
1995, reflecting growth principally in the Company's Gene Activation and gene
therapy programs. Significant contributors to the Company's increased research
and development expenses during the first half of fiscal 1996 included an
increase in the number of employees engaged in research and development
activities, increased
21
<PAGE> 23
purchases of laboratory supplies and increases in equipment depreciation
expense. General and administrative expenses increased 10% to $1,911,000 in the
six months ended June 30, 1996 from $1,737,000 in the six months ended June 30,
1995, reflecting primarily increased staffing levels. Total compensation and
benefits expense of $3,524,000 for the Company, including $481,000 expense from
amortization of deferred compensation, was recognized in the six months ended
June 30, 1996. In the six months ended June 30, 1995, the Company's total
compensation and benefits expense was $2,877,000, including $238,000 from
amortization of deferred compensation.
Interest income increased to $788,000 in the six months ended June 30, 1996
from $446,000 in the six months ended June 30, 1995, due primarily to higher
average cash balances during the 1996 period as compared with the corresponding
1995 period. Interest expense was zero in 1996 as compared to $13,000 for the
six months ended June 30, 1995. Interest expense was incurred on a bank loan to
finance the purchase of laboratory equipment and supplies and an equipment lease
line of credit, both of which were repaid in full in the first quarter of 1995.
The Company incurred a net loss of $5,987,000 in the six months ended June
30, 1996 compared to a net income of $5,105,000 in the six months ended June 30,
1995, primarily due to the receipt of up-front license fee revenues in 1995.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The Company had total revenues of $15,400,000, $10,000,000 and zero in the
years ended December 31, 1995, 1994 and 1993, respectively. In 1995, the
Company's revenues consisted primarily of $10,000,000 in up-front license fees
received and $5,400,000 in collaborative research revenues earned under the two
collaborations with HMRI. In 1994, the Company's revenues consisted of
$10,000,000 in up-front license fees received under the GA-EPO collaboration
with HMRI.
The Company's total costs and expenses were $14,357,000, $13,816,000 and
$9,251,000 in the years ended December 31, 1995, 1994 and 1993, respectively.
Research and development expenses increased 10% to $10,067,000 in 1995 from
$9,126,000 in 1994, and increased 46% in 1994 from $6,255,000 in 1993,
reflecting growth principally in the Company's Gene Activation and gene therapy
programs. Significant contributors to the Company's increased research and
development expenses during 1995 and 1994 included an increase in the number of
employees engaged in research and development activities to 75 at December 31,
1995 from 65 at December 31, 1994 and 46 at December 31, 1993; increased
purchases of laboratory supplies, the expansion of laboratory facilities and
increases in equipment depreciation expense. General and administrative expenses
decreased 9% in 1995 to $4,290,000 from $4,690,000 in 1994 and increased 56% in
1994 from $2,998,000 in 1993, reflecting primarily increases in staffing levels
and certain one-time severance payment expenses incurred in 1994.
Interest income was $1,129,000, $471,000 and $169,000 in 1995, 1994 and
1993, respectively, reflecting primarily increasing average cash balances during
these periods. Interest expense was $13,000 and $76,000 in 1995 and 1994,
respectively, and negligible in 1993. Interest expense was incurred on a bank
loan to finance the purchase of laboratory equipment and supplies and an
equipment lease line of credit, which was fully repaid in 1995.
The Company had net income of $2,074,000 in 1995, and incurred a net loss
of $3,422,000 and $9,083,000 in 1994 and 1993, respectively, reflecting
primarily the timing and receipt of up-front license fees from HMRI.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1996, the Company financed its operations
primarily through private placements of equity securities totaling $61,936,000,
up-front license fees and milestone payments totaling $22,000,000 and
collaborative research revenues totaling $5,400,000. As of June 30, 1996, the
Company had cash, cash equivalents and marketable securities totaling
$28,773,000. In July and August 1996, the Company
22
<PAGE> 24
sold shares of its Class G Convertible Preferred Stock in a private placement
for $24,939,000. As of August 15, 1996, the Company had cash, cash equivalents
and marketable securities totalling $50,423,000.
The Company has entered into licensing agreements with various corporations
and universities. These licenses provide for the payment of royalties by the
Company on net sales of products covered by the licensed technology, certain
milestone payments and minimum annual royalty payments under certain
circumstances. In 1995, the Company incurred license fees of $122,000 under
these agreements.
From inception through June 30, 1996, the Company acquired an aggregate of
$3,795,000 of laboratory, manufacturing and office equipment. In addition, the
Company leases its office, manufacturing and laboratory facilities under
operating leases. Through June 30, 1996, the Company expended $5,040,000 for
leasehold improvements to those leased facilities. The Company had no material
commitments for the acquisition of property and equipment at June 30, 1996.
The Company expects to incur substantial additional research and
development expenses including continued increases in personnel and costs
related to research, preclinical testing and clinical trials.
At December 31, 1995, the Company had net operating losses of approximately
$22 million which expire through 2009. Since the Company expects to incur
substantial losses for at least several years, the Company believes that as of
December 31, 1995, it is more likely than not that all of the deferred tax
assets will not be realized and, therefore, no tax benefit for the prior losses
has been provided. The future utilization of net operating loss carryforwards
may be subject to limitation under the changes in stock ownership rules of the
Internal Revenue Code. Because of this limitation, it is possible that taxable
income in future years, which would otherwise be offset by net operating losses,
will not be offset and therefore will be subject to tax. See Note 14 of the
Notes to the Financial Statements.
The Company anticipates that its available cash (aggregating $50,423,000 at
August 15, 1996), together with the estimated proceeds of this offering will be
adequate to satisfy its operating expenses and capital requirements as planned
through 1999. The Company will require substantial funds to conduct research and
development and preclinical and clinical testing of its potential products and
to manufacture and market any products that are approved for commercial sale.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
magnitude of these programs, the scope and results of preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims, competing technological and market developments, the ability of
the Company to establish development arrangements, the cost of manufacturing
facilities and effective commercialization activities and arrangements. The
Company intends to seek additional funding through collaborative arrangements or
through public or private financings, but there can be no assurance that
additional financing will be available on acceptable terms or at all.
23
<PAGE> 25
BUSINESS
SUMMARY
Transkaryotic Therapies, Inc. ("TKT" or the "Company") has developed two
proprietary technology platforms, Gene Activation and gene therapy. The
Company's Gene Activation technology is a proprietary approach to the large
scale production of therapeutic proteins which does not require the cloning of
genes and their subsequent insertion into non-human cell lines. Consequently,
the Company believes its Gene Activation technology avoids using patented
approaches to protein production associated with such conventional genetic
engineering techniques which have served as effective barriers to competition in
the $11 billion therapeutic protein market. As a result, the Company believes it
will be able to develop and successfully commercialize a broad range of gene
activated versions of proteins which have proven medical utility, received
marketing approval from regulatory authorities and generated significant
revenues in major markets. The Company's most advanced Gene Activation
development program is for the production of Gene Activated erythropoietin
("GA-EPO") with clinical trials expected to commence in the first half of 1997.
The Company's gene therapy technology ("Transkaryotic Therapy") is a non-viral,
ex vivo system based on genetically modifying patients' cells to produce and
deliver therapeutic proteins for extended periods of time. In preclinical animal
studies, the Company's Transkaryotic Therapy system has produced target proteins
at therapeutic levels for the lifetime of the animal without any side effects.
The Company's initial business strategy is to apply its Gene Activation
technology to the development and commercialization of several currently
marketed proteins. The Company's two strategic alliances with HMRI are the
primary focus of its Gene Activation activities, and TKT is actively pursuing
other Gene Activation product candidates for commercialization either with
pharmaceutical partners or independently. In parallel, the Company plans to
continue research and development of its Transkaryotic Therapy system to develop
a novel class of gene therapy treatments for a variety of protein deficiency
diseases. Taken together, the Company believes its Gene Activation and gene
therapy platforms are complementary opportunities that offer the potential for
the development of powerful product pipelines that may have a significant impact
in addressing society's healthcare needs.
GENE ACTIVATION: TECHNOLOGY BACKGROUND
Protein Production: Three Technological Waves. The therapeutic value of
certain proteins produced by the human body has been known for decades. One of
the major advances in 20th-century medicine was the development of systems for
the large-scale production of therapeutic proteins outside the body. For
example, prior to the development of a manufacturing process for insulin more
than seventy years ago, patients with Type I (juvenile onset) diabetes were
offered no effective treatment and generally died of starvation at an early age.
Following the development of pharmaceutical insulin preparations for injection,
Type I diabetics could live long and relatively normal lives. During this first
wave of protein production technology, proteins were generally purified from
human or animal tissue. Insulin, for example, was isolated from the pancreas of
pigs and cattle, and growth hormone, for the treatment of short stature, was
isolated from the pituitaries of cadavers. During the second wave of protein
production technology, based on the cloning of human genes, proteins were
manufactured using conventional genetic engineering techniques. As a result, by
the mid-1980's it became routine to engineer cells to produce therapeutic
proteins at levels that were substantially in excess of what could be obtained
by purification from tissue. However, since many of the proteins produced by
conventional genetic engineering techniques had previously been purified, the
patent protection afforded to this second wave of protein production technology
tended to focus on the genes encoding therapeutic proteins. Accordingly, many
patents have been issued covering isolated and purified DNA sequences encoding
such proteins, various vectors used to insert such DNA sequences into production
cell lines, and cell lines modified by the insertion of such DNA sequences. See
"Patents, Proprietary Rights and Licenses." TKT believes its proprietary Gene
Activation technology represents the third wave in the evolution of protein
production technology in that it is based on the activation of genes encoding
therapeutic proteins in human cells rather than the cloning and transfer of
these genes. TKT's Gene Activation technology avoids using the approach to
24
<PAGE> 26
protein production associated with the second wave, and the Company believes
this will allow it to develop and commercialize a large number of therapeutic
proteins, including many that are currently marketed.
Gene Structure and Regulation of Gene Expression. Recent advances in
molecular biology, cell biology, and genomics have led to a much better
understanding of the structure and function of human genes than was possible
only a few years ago. It is now generally accepted that virtually all genes
contain certain DNA sequences that provide information necessary for the cell to
assemble a specific sequence of amino acids that make up a protein ("coding DNA
sequences"). Thus each gene can be viewed as the blueprint for a particular
protein, and "gene expression" is the process which leads to the synthesis of
the protein it encodes. Gene expression is controlled by certain DNA sequences
which function as switches that "turn on" the gene and trigger the synthesis of
the protein ("regulatory DNA sequences"). See Figure 1. Despite the staggering
variety of proteins synthesized by the cells of the body, this process is
universal.
Figure 1 The Regulation of Gene Expression and Gene Structure
[The figure shows the regulatory DNA sequences that control gene expression and
coding DNA sequences that provide information necessary for the cell to assemble
a protein.]
Essentially every human cell contains the same set of approximately 100,000
genes, but each cell type actually produces only a subset of the 100,000
proteins possible. For example, although essentially all human cells contain the
insulin gene, only certain cells of the pancreas actually produce insulin. The
regulatory switches that turn on gene expression in the appropriate cell type
also turn off gene expression in all other cell types. For this reason, only
pancreatic cells express insulin -- the regulatory DNA sequences normally
associated with the insulin gene prevent expression elsewhere in the body. TKT's
Gene Activation technology is based on activating previously silent genes by
bypassing regulatory DNA sequences set in the "off position" with regulatory DNA
sequences set in the "on position."
Conventional Recombinant Protein Production. By the 1970's, the clinical
benefits of several proteins were well-known and the potential benefit of many
others was envisioned. Based on a series of basic discoveries in the 1960's and
1970's, scientists learned to clone and manipulate genes of therapeutic
interest, leading directly to the birth of the biotechnology industry and the
large scale production of therapeutic proteins. To produce large quantities of a
therapeutic protein using conventional genetic engineering techniques (see
Figure 2A), scientists first clone the relevant human gene by isolating the
coding DNA sequences for the gene from the human cell and transferring them to
bacteria, where large quantities of the gene are copied. The cloned gene is then
isolated from the bacteria and placed in a test tube. In this test tube, the
cloned gene is then fused to appropriate regulatory DNA sequences, and the
resulting DNA fragment containing both the regulatory DNA sequences and the
coding DNA sequences is inserted into a non-human (mammalian, yeast, or
bacterial) cell. This genetically modified cell is then propagated in large
bioreactors for commercial-scale production of the protein.
25
<PAGE> 27
Figure 2A The Conventional Approach to Protein Production
[GRAPH]
Figure 2B TKT's Approach to Protein Production by Gene Activation
[GRAPH]
TKT'S GENE ACTIVATION TECHNOLOGY
Although the conventional approach to recombinant protein production is
quite powerful, its use today faces certain commercial barriers and technical
limitations. The primary barrier is that biotechnology companies have sought and
obtained patent protection covering many of the techniques used to produce
commercially-marketed proteins using conventional genetic engineering
techniques. These patent rights have served as an effective entry barrier,
minimizing competition in the $11 billion (1995) protein therapeutics market.
See "Patents, Proprietary Rights and Licenses." In addition, conventional
genetic engineering techniques for protein production may face technical
limitations arising from the need to first clone the gene of interest. For
certain proteins, this step adds to development times, increases costs and is
technically challenging. Technical difficulties may also arise from the use of
non-human production cell lines, which may result in the production of proteins
which may have therapeutically significant differences from those naturally
produced by the cells of the human body. Furthermore, production processes based
on conventional genetic
26
<PAGE> 28
engineering may not have incorporated recent advances in cell culture systems
with significant efficiency and cost advantages as compared to processes
originally developed over a decade ago.
To overcome these commercial barriers and technical limitations, TKT has
developed Gene Activation technology for the production of therapeutic proteins
that does not rely on the manipulation of cloned genes. Using its proprietary
technology, TKT has succeeded in producing therapeutic proteins in human cells
by bypassing regulatory DNA sequences set in the "off position" with regulatory
DNA sequences set in the "on position" in order to activate the gene of
interest. See Figure 2B. The Company's Gene Activation technology does not
require the manipulation of the protein coding DNA sequences of the gene. The
bypass of an "off switch" with an "on switch" is accomplished by "gene
targeting." Gene targeting is a technology by which DNA fragments can be "cut
and pasted" precisely at pre-selected, desirable locations within the cell's
genome. Gene targeting can be thought of as molecular surgery, with the surgical
tools literally functioning at the molecular level. The technical term for gene
targeting, homologous recombination, reflects its underlying mechanism: cells
have the capacity to align two homologous DNA sequences (two sequences that are
quite similar) and exchange one with the other. In Gene Activation, the new
regulatory sequences are flanked with "homing" sequences and structural
sequences which allow the cell to exchange the new active regulatory sequences
in place of the old inactive ones. The new sequences must be introduced
precisely in order to allow the proper initiation of gene expression.
In order to manufacture a protein of therapeutic interest using Gene
Activation, a human cell line producing the protein must be generated. This cell
line will ultimately become the master cell bank for large scale manufacturing
and is generated as follows:
1. Determine the sequence of a portion of the regulatory DNA sequences
that control the gene of interest;
2. Build a "targeting fragment" by fusing homing sequences to a new
regulatory region known to be active in the human cell line chosen
for manufacturing;
3. Introduce the targeting fragment into the cell line;
4. Identify and propagate an activated cell line producing the protein
of interest; and
5. Optimize protein productivity and prepare the cell line for
commercial scale manufacturing.
The Company has successfully accomplished all of the steps described above
for GA-EPO. The results of TKT's work in this area have led to proof-of-concept
that (i) gene targeting can be used to direct the integration of regulatory and
structural sequences to a specific, pre-selected position in the genome, (ii)
the product of the targeting event is a cell containing an activated gene and
(iii) the protein production properties of cells created by Gene Activation are
predictable and suitable for, and have been successfully used in, large-scale
manufacturing. Accordingly, the Company believes that these methods may be used
to express a wide variety of therapeutically valuable proteins at levels
suitable for large-scale manufacturing purposes. Because the Gene Activation
process avoids many of the technical limitations of conventional recombinant
protein production technology, the Company also believes that the Gene
Activation process is at least as efficient as, and may be more cost effective
than, conventional genetic engineering techniques for protein production.
TKT'S GENE ACTIVATION PRODUCTS: GENE ACTIVATED ERYTHROPOIETIN
The Company's initial strategy in exploiting its technology is to
commercialize Gene Activated proteins that have proven medical utility, have
received marketing approval from regulatory authorities and have achieved
significant revenues in major markets. These protein products have experienced
high rates of acceptance among physicians and health care providers. The Company
believes, based primarily on information obtained from annual reports of public
companies and other published sources, that the total market for the top eight
marketed proteins in 1995 was approximately $10.8 billion. See Table I. As the
number of new approved protein products increases and as the number of approved
indications for such products increases, the Company believes that the market
for these protein products will continue to experience substantial growth. The
Company also believes that the broad applicability of its Gene Activation
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technology for protein production and the fact that many additional proteins are
currently in clinical development will provide a large number of candidates for
commercialization using TKT's Gene Activation technology.
TABLE I. ESTIMATED 1995 WORLDWIDE PROTEIN PRODUCT REVENUES (IN MILLIONS)
<TABLE>
<CAPTION>
PROTEIN PRIMARY INDICATION REVENUES
- --------------- ---------------------- --------
<S> <C> <C>
Erythropoietin Anemia $2,900
Insulin Diabetes 1,950
G-CSF Neutropenia 1,700
Growth Hormone Short stature 1,500
(alpha symbol) Interferon Hepatitis/Cancer 1,000
Factor VIII Hemophilia A 950
tPA Myocardial infarction 450
(beta Symbol) Interferon Multiple sclerosis 350
</TABLE>
TKT has focused its initial Gene Activation efforts on the development of
its GA-EPO product in collaboration with HMRI. See "-- Gene Activation
Collaborations and Commercialization Strategy." Erythropoiesis is the process by
which red blood cells (erythrocytes) are produced. When the body requires
additional red blood cells, the kidney normally produces erythropoietin, a
circulating protein hormone which stimulates the differentiation of certain
progenitor cells in the bone marrow. The kidney's critical role in red blood
cell production was determined in the 1950's, and erythropoietin was first
isolated and purified from the urine of patients with anemia in the 1970's (the
first wave). The gene encoding erythropoietin was cloned in the 1980's and used
for production of the protein using conventional genetic engineering techniques
(the second wave). Erythropoietins have been successfully used to treat anemia
associated with a variety of conditions, including the anemia of kidney failure
(which causes a reduction in the body's ability to produce the protein) and the
anemia of chemotherapy (which causes the destruction of a large number of bone
marrow progenitor cells).
GA-EPO Development Status. TKT has successfully applied its Gene
Activation technology to produce GA-EPO in human cells (the third wave). To
illustrate the underlying concept of the Gene Activation process, consider that
essentially all human cells contain the erythropoietin gene, yet only certain
cells of the kidney actually produce erythropoietin. In all other cells in the
human body, the erythropoietin gene is inactive. The erythropoietin gene is not
expressed in most human cells because regulatory sequences in those cells
prevent the protein from being made; the gene is controlled by a switch
("regulatory DNA sequences") that is permanently in the "off" position. The goal
of TKT's GA-EPO program was to remove this "off switch" in a human cell in which
the erythropoietin gene is inactive and, in effect, replace it with regulatory
sequences comprising an "on switch" to activate erythropoietin expression.
TKT has produced a GA-EPO producing cell line sufficient for scale-up to
commercial production levels. To accomplish this, TKT first studied the
regulatory region that prevents expression of the erythropoietin gene in most
human cells and developed an activation strategy. Next, a targeting fragment was
constructed by fusing certain homing sequences to a new regulatory region known
to be active in the human cell line chosen for manufacturing. The targeting
fragment was then introduced into the cell line under conditions appropriate for
homologous recombination to occur, and a resulting cell line that produced
GA-EPO was identified. The GA-EPO productivity of the cell line was optimized,
and the cells were prepared for commercial-scale manufacturing. At present, a
production cell line has been scaled up and successfully used to produce GA-EPO.
The purified protein has been subjected to an extensive series of analyses and
has the properties expected of a human erythropoietin preparation. In
particular, the protein has an appropriate molecular weight, amino acid
composition, amino acid sequence, secondary structure, and glycosylation
profile. GA-EPO has been shown to function in vitro and in vivo in a
dose-dependent manner. Finally, preclinical safety tests performed to date have
yielded satisfactory results. The Company believes that GA-EPO will be
functional in patients because extensive preclinical testing has demonstrated
that the protein has the structural
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<PAGE> 30
and functional characteristics that would be expected of a human erythropoietin
preparation. The Company anticipates that HMRI will commence clinical trials on
GA-EPO in the first half of 1997. See "-- Gene Activation Collaborations and
Commercialization Strategy."
The Company believes that GA-EPO is likely to be reviewed within FDA by its
Center for Biologics Evaluation and Research ("CBER"). This assumption is based
on the fact that erythropoietin products have historically been reviewed by CBER
and on the Company's preliminary discussions with CBER officials. CBER currently
has no "bioequivalence" pathway for the rapid approval of related biologics and
the Company believes that GA-EPO will require a complete clinical and regulatory
program. However, the regulatory and clinical programs have the advantage of
focusing on Gene Activated products with conventional counterparts that are
well-known to regulatory authorities around the world (in contrast to a typical
new biologic, which has no related history concerning its safety and efficacy in
humans). In addition, subsequent to the passage of the Prescription Drug User
Fee Act of 1992, all sections of the FDA (including CBER) are committed to
reviewing and acting upon complete new drug and biologic license applications
within twelve months. Accordingly, TKT believes that clinical development can be
accomplished in a focused and timely manner.
GENE ACTIVATION COLLABORATIONS AND COMMERCIALIZATION STRATEGY
In order to rapidly develop and exploit its Gene Activation technology, TKT
has entered into two strategic alliances with HMRI, the first in May 1994 and
the second in March 1995. HMRI with its affiliates is one of the largest
pharmaceutical groups in the world with significant distribution capabilities in
all major markets. The alliances are focused on the development of two products,
GA-EPO and a second, undisclosed protein. TKT has the potential to receive up to
$125 million from HMRI consisting of license fees, equity investments,
milestones and research funding in addition to royalties on the sales of the two
products, of which $42 million has been received to date (excluding the payment
for shares of Common Stock purchased in this offering). In addition, HMRI is
responsible at its own expense for all worldwide development, manufacturing and
marketing activities.
In May 1994, TKT and HMRI (formerly named Marion Merrell Dow Inc.) entered
into an agreement to commercialize TKT's GA-EPO. Under the terms of the
agreement, HMRI is obligated to pay TKT a total of $58 million upon completion
of all milestones and objectives set forth in the agreement. To date, TKT has
received a total of $17 million, which includes up-front fees of $10 million for
a license to the Gene Activation technology for GA-EPO, $5 million for the
purchase of shares of the Company's Class D Preferred Stock at a price per share
of $17.83 and a $2 million milestone payment in November 1995 at which time HMRI
accepted a cell line sufficient for scale-up to commercial production levels of
GA-EPO. In addition, HMRI will purchase $5 million of Common Stock at the
initial public offering price in the HMRI New Investment. See "Certain
Transactions." The remaining payments are based on HMRI's achievement of certain
GA-EPO clinical development milestones. HMRI is responsible for the worldwide
development, manufacturing and marketing of GA-EPO, and TKT will receive a
royalty based on net sales.
In March 1995, TKT entered into another agreement with HMRI to
commercialize a second, undisclosed protein. Pursuant to the agreement, TKT also
granted to HMRI an option to commercialize certain aspects of TKT's gene therapy
technologies related to this protein. Under the terms of the agreement, HMRI is
obligated to pay to TKT a total of $67 million upon completion of all milestones
and objectives set forth in the agreement. To date, TKT has received a total of
approximately $25 million from HMRI under the second agreement, including
up-front fees of $10 million for a license to the Gene Activation technology for
the second protein, $10 million for the purchase of shares of the Company's
Class E Preferred Stock at a price per share of $19.10, and $4.5 million to fund
basic research at the Company. The remaining $42 million to be paid by HMRI to
TKT consists primarily of milestone payments based on the development of the
product resulting from the licensed technology. TKT is responsible for
delivering a cell line suitable for large scale manufacturing. HMRI is
responsible for the worldwide development, manufacturing and marketing of the
product and TKT will receive a royalty based on net sales.
In addition to the above transactions, in December 1995, HMRI purchased
$7.9 million of the Company's Class F Preferred Stock at a price per share of
$14.00.
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<PAGE> 31
The Company has been able to learn significantly from its interaction with
HMRI and believes that this alliance has played a major role in TKT's growth and
development. In addition, TKT believes that the global marketing capabilities of
HMRI will result in the successful penetration of many markets leading to
substantial royalties to TKT. Finally, because of existing patent and license
arrangements for the commercialization of conventionally produced
erythropoietin, it is possible that TKT's GA-EPO will be the only branded
erythropoietin capable of being sold in all major markets worldwide.
Having completed its responsibilities under its first Gene Activation
project by successfully generating a cell line sufficient for scale-up to
commercial production levels of GA-EPO that has been accepted by HMRI, TKT is
actively pursuing other Gene Activation product candidates. The Company believes
that its revenues from the commercialization of Gene Activated proteins will be
divided into three stages. In the short term, TKT will attempt to license out
additional proteins for development by pharmaceutical partners in return for
licensing and milestone payments as well as research funding. In the medium term
the Company anticipates that it will receive royalty payments from HMRI with
respect to GA-EPO as well as from pharmaceutical partners that successfully
manufacture and market its Gene Activated proteins. In the long term, the
Company will consider developing Gene Activation products independently. Future
Gene Activation products may include currently-marketed proteins, proteins
currently in late stage clinical development or proteins that are in much
earlier stages of development. At present, TKT intends to focus on the
currently-marketed products until products from these latter two categories
demonstrate clinical and commercial viability before embarking on development
programs. TKT believes that its focus on currently-marketed proteins for near-
term commercialization and on development-stage proteins for the long-term
appropriately utilizes Company resources, maximizes near-term commercial
potential and will allow the Company to build a strong Gene Activation product
pipeline for the future.
GENE THERAPY TECHNOLOGY
TKT's Gene Therapy Approach. The first three waves of protein production
have a critical feature in common: regardless of methodology, the proteins are
manufactured outside the human body. See "-- Gene Activation." The Company
believes that its approach to gene therapy, Transkaryotic Therapy, represents
the fourth wave of protein production -- a system that would restore the
patient's natural ability to produce a required therapeutic protein. TKT's
approach to gene therapy is based on genetically modifying patients' cells to
produce and deliver therapeutic proteins for extended periods. The Company
believes the approach will be safe, cost-effective and clinically superior to
the conventional delivery of proteins by injection. In preclinical animal
studies, a single administration of one of the Company's gene therapy products
resulted in the lifetime production and delivery of therapeutic proteins. The
Company has initiated a Phase I clinical study to determine the safety of its
gene therapy system, and preliminary data suggests that the administration of
genetically-engineered cells appears to be well-tolerated. See "Gene
Therapy -- Clinical Development Status."
TKT believes its gene therapy system is broadly enabling, and, accordingly,
may be applicable to the treatment of a wide range of human diseases. Because
TKT's gene therapy has demonstrated long-term delivery of therapeutic proteins
in animal model systems, the Company believes its approach may be well-suited to
the treatment of chronic protein deficiency states including hemophilia,
diabetes and hypercholesterolemia. The diseases targeted by TKT are
characterized by a significant unmet medical need and the clinical goals that
must be achieved by TKT's gene therapy products are well-defined. The potential
benefits of TKT's gene therapy products include improved therapeutic outcome,
elimination of frequent painful injections and the problem of patient
compliance, a minimization of side effects due to over- and under-dosing of
conventional proteins and a reduction in costs.
There are a large number of technical approaches to gene therapy, but two
basic distinctions can be used to characterize the field. The first distinction
is viral vs. non-viral -- viral gene therapy approaches use genetically modified
viruses to introduce genes into human cells by infection and non-viral
approaches use non-infectious (chemical or physical) means to introduce the
genes. The second distinction is in vivo vs. ex vivo -- in vivo gene therapies
are based on the administration of DNA-based drugs directly to the patient,
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whereas ex vivo gene therapies are based on removing a small number of cells
from a patient, introducing a gene into the cells and implanting the engineered
cells into the patient.
TKT's enabling gene therapy technology platform is a non-viral, ex vivo
system which the Company believes is significantly different from other
approaches to gene therapy. The Company believes that these differences will
allow for physiologic levels of protein expression in patients for extended
periods, a goal that historically has represented a major obstacle in
alternative gene therapy systems. The major alternative to TKT's system is based
on the use of genetically-modified retroviruses and adenoviruses to infect
patients' cells. The Company believes that such viral ex vivo approaches present
a significant safety risk due to the possibility of causing new viral infections
in patients and have not allowed long-term production of the therapeutic protein
in animal models or patients. Furthermore, to the best of the Company's
knowledge, neither viral nor non-viral in vivo gene therapy technologies have
allowed long-term or high level protein expression in the patient and are likely
best-suited for non-chronic applications such as immunotherapy. TKT believes
Transkaryotic Therapy is well-suited to allow safe and long-term delivery of
therapeutic proteins for the treatment of chronic protein deficiency states as
demonstrated by the long-term delivery of therapeutic proteins in animal models.
In order to develop a safe, effective, non-viral, ex vivo gene therapy
system, the Company believes that several major tasks must first be accomplished
in basic and preclinical settings. Each of the steps must be carried out to
allow the ultimate product to be manufactured efficiently, reproducibly and
cost-effectively, to be subjected to rigorous quality control to ensure safety
and to direct the long-term production and delivery of the therapeutic protein
in the patient. The first step involves the development of techniques for
obtaining and propagating the cell types of interest. Next, non-viral
methodologies must be developed that allow DNA fragments to be stably introduced
into these cells. DNA fragments containing the appropriate DNA regulatory
sequences fused to the desired protein encoding sequences, for example, must be
constructed and introduced into cells to generate genetically-engineered cells
which express the therapeutic protein at clinically relevant levels. After the
DNA fragments have been successfully introduced into human cells, methodologies
must then be developed which allow the engineered cells to properly process the
therapeutic protein. The final step involves the development of methods and
formulations for the implantation of the engineered cells.
TKT scientists have successfully accomplished all of the above tasks (Table
II) and, in model systems, have successfully delivered therapeutic proteins for
the lifetime of the experimental animals. Much of TKT's work has focused on gene
therapy using fibroblasts, a cell type present in the skin (and throughout the
body) that is readily obtained from patients and propagated in culture. The
Company has developed a variety of methodologies for the stable transfection of
normal human cells. "Stable transfection" means that the introduced DNA fragment
becomes part of a chromosome in the treated cell. One such methodology is
electroporation, a technique based on subjecting cells to a brief electrical
pulse. The pulse transiently opens small pores in the cell membrane that allow
the DNA fragments of interest to enter the cell. The technique is simple,
reproducible (it works for a variety of cell types and for cells derived from
newborns to the elderly), efficient (one electroporation provides many more
transfected cells than required for treatment) and cost-effective (less than one
dollar per reaction).
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<TABLE>
TABLE II. TKT'S GENE THERAPY SYSTEM: SUMMARY OF SELECTED TECHNICAL ACCOMPLISHMENTS
<CAPTION>
TASKS ACHIEVEMENT COMMENTS
----- ----------- --------
<S> <C> <C>
Cell types propagated Fibroblasts, myoblasts, mammary Cells retain normal properties
epithelial cells
Proteins expressed Factor VIII, Factor IX, Growth All expressed at levels of at
Hormone, Insulin, Interleukin-2, least 1 ug/million cells/day
LDL receptor, -galactosidase
Transfection Electroporation, microinjection, All with efficiencies greater
methodologies applied polybrene and calcium phosphate than 1 stably transfected cell
precipitation per thousand treated cells
Proteins characterized Factor VIII, Factor IX, Growth All with natural
Hormone, -galactosidase post-translational modifications
In vivo expression Factor VIII, Factor IX, Growth All at physiologic levels in
observed Hormone, Insulin animal models
</TABLE>
The Company believes it has developed the basic technologies required for a
safe and effective gene therapy approach which can be refined and optimized for
patient use. In patients, TKT envisions that the system would function as
follows:
1. The clinician would identify the patient to be treated and perform
a small skin biopsy.
2. In TKT's manufacturing facility, patient cells would be harvested
from the biopsy specimen.
3. The DNA fragment containing DNA regulatory sequences and protein
coding sequences would be introduced into the harvested cells by
electroporation. The DNA fragment and the electroporation
methodology would be the same for all patients with a given
disease.
4. A genetically-engineered cell expressing the therapeutic protein
would be identified, propagated, subjected to appropriate
characterization and quality control tests and formulated in a
syringe. The syringe would then be returned to the physician.
5. The physician would then inject the engineered cells under the
patient's skin as an outpatient procedure.
The above patient techniques have been successfully carried out in an ongoing
Phase I clinical trial. See "-- Clinical Development Status." These procedures
might vary based on the disease to be treated. For example, different cell
types, sites of implantation and genes of interest could be advantageous for a
given disease.
TKT'S GENE THERAPY SYSTEM IN PRACTICE
To provide an overview of TKT's gene therapy technology in practice,
consider a patient diagnosed with Hemophilia A. See Figure 3. Hemophilia A is a
bleeding disorder caused by a deficiency in Factor VIII, a protein essential for
blood clotting normally found in the blood. As a candidate for a gene therapy
treatment, the patient would visit his physician as an out-patient and have a
small skin biopsy performed. The piece of skin, less than half the size of a
dime, requires only a few minutes to remove. The physician would send the
specimen to TKT's manufacturing facility, where the patient's cells would be
harvested, genetically engineered to produce the missing clotting factor and
characterized to ensure both safety and efficacy. The entire process would
require approximately six weeks and, at the end of that time, TKT would return
the appropriate number of genetically-engineered cells to the physician. Once
again as an out-patient, the cells would be injected back under the patient's
skin. The patient should now be capable of producing his own Factor VIII and
would no longer suffer bleeding problems.
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Figure 3 Transkaryotic Therapy in Practice
[A figure depicting the Company's Transkaryotic Therapy system in practice.]
Clinical Development Status. The Company's approach to initial clinical
development of its enabling gene therapy technology is to evaluate product
safety in extremely conservative clinical settings. Towards this end, the
Company has initiated one Phase I clinical trial for the treatment of cancer
cachexia (the gradual wasting of the body) by growth hormone gene therapy and is
sponsoring a second Phase I clinical trial for the treatment of renal cancer and
malignant melanoma by Interleukin-2 gene therapy. Based on the data generated
from these studies, the Company believes it will be well-positioned to perform
clinical trials in patients with conditions that are not life-threatening. At
present, the Company intends to explore the possibility of further development
of these products in conjunction with corporate partners.
TKT's first Company-initiated trial began in the U.S. in late 1994
following both validation of TKT's pilot manufacturing facility and FDA review
of the Company's IND. The Phase I study is based on the implantation of
genetically modified skin fibroblasts to express growth hormone in cancer
patients at risk for cachexia. A total of 20 patients will be enrolled with five
escalating dosage blocks. Community physicians have injected the modified cells
under the skin of subjects; all patient procedures have been performed on an
out-patient basis. The major goal of the study is to develop a safety profile of
the product in humans. To date, 11
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patients have been enrolled in the trial and the therapy appears to be
well-tolerated. Due to the extremely conservative inclusion and exclusion
criteria for the trial, it is expected to continue well into 1997.
The Company has also sponsored a Phase I study at the University of
Freiburg based on the delivery of Interleukin-2 by genetically modified skin
fibroblasts in order to restore or enhance the ability of the immune system to
attack the tumor cells in patients with renal cancer and malignant melanoma. All
manufacturing processes have been developed and performed by the University and
to date, the product appears to be well-tolerated. See "-- Other Gene Therapy
Collaborations."
Based on the results described above, the Company believes that
Transkaryotic Therapy offers several clinical and commercial advantages over
conventional treatments and other gene therapies for targeted diseases,
including:
- SAFETY. Transkaryotic Therapy does not use infectious agents such as
retroviruses to genetically engineer the patient's cells. TKT's non-viral
method of producing genetically engineered cells allows for extensive
safety testing prior to their implantation in the patient. In studies of
TKT's gene therapy system involving over 5,000 animals, no side effects
have been observed.
- LONG-TERM EXPRESSION. Transkaryotic Therapy is designed to produce
long-term results with a single treatment. In preclinical animal studies,
the Company has produced target proteins at therapeutic levels for the
lifetime of the animals, suggesting the possibility of long-term
effectiveness in humans.
- CONTROLLABILITY. Transkaryotic Therapy is designed to deliver
therapeutic proteins at levels which meet a patient's specific needs. The
Company believes that its gene therapy system will allow the physiologic
and pharmacologic regulation of expression. Further, the Company believes
that the treatment afforded by Transkaryotic Therapy will be readily
reversible so that therapy can be discontinued if no longer required.
- FLEXIBILITY. The Company has focused on genetically-engineering a wide
variety of human cell types because, although certain cell types are
useful in the gene therapy of particular diseases, no single cell type is
appropriate for the gene therapy of all diseases.
- EASE OF ADMINISTRATION. Transkaryotic Therapy will allow for the
administration of its products by a single injection under the patient's
skin on an out-patient basis. Furthermore, the potential long-term
effectiveness of the treatment could eliminate problems of patient
compliance.
- COST-EFFECTIVENESS. Transkaryotic Therapy takes advantage of the
patient's natural ability to synthesize therapeutic proteins for extended
periods. The potential benefits of Transkaryotic Therapy include improved
therapeutic outcome, the elimination of frequent painful injections and
patient compliance problems, a reduction of side effects due to
overdosing and underdosing of conventional proteins and significant
reductions in cost. Accordingly, the Company believes that its therapy
may be less costly than therapy using conventional protein
pharmaceuticals which require frequent administration.
TKT'S GENE THERAPY DEVELOPMENT PROGRAMS AND COMMERCIALIZATION STRATEGY
The Company is focusing its development efforts on gene therapy products
for the treatment of chronic diseases with straightforward and
well-characterized etiologies. For certain of these diseases, such as Hemophilia
A, effectiveness, dose ranges and safety have been clearly established in the
context of currently approved and marketed products. For others, such as Fabry
disease, preliminary in vitro and animal model data strongly suggest that the
long-term delivery of appropriate therapeutic proteins will effectively treat
the disease. The Company believes that this initial focus will provide strategic
advantages by allowing evaluation of Transkaryotic Therapy based on well
understood clinical parameters, thereby facilitating the regulatory approval
process. Furthermore, the Company believes that when administered as part of its
proprietary gene therapy system, these proteins may provide therapeutic benefits
not achievable using conventional methods of delivery.
Hemophilia A. When a blood vessel ruptures, an intricate series of events
allows the rapid formation of a clot in normal individuals. One of the
best-studied coagulation disorders is Hemophilia A, caused by a deficiency or
defect in protein coagulation Factor VIII. Patients with the disease experience
acute, debilitating and often life-threatening bleeding episodes. Depending on
the severity of the disease, bleeding may occur spontaneously or after minor
trauma. Conventional treatment consists of temporarily increasing the patient's
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Factor VIII levels through infusions of plasma-derived or recombinantly-produced
Factor VIII. Factor VIII levels typically rise to therapeutic levels for only
two to three days following intravenous administration, then return to the
baseline subtherapeutic level, once again placing the patient at risk for a
serious bleeding episode. It is estimated that there are about 19,000 Hemophilia
A patients in the U.S. and Canada, 25,000 in Europe and 4,000 in Japan. In the
U.S., an adult suffering from the disease receives Factor VIII protein treatment
only during bleeding crises at an average annual cost of approximately $65,000.
TKT's approach to the treatment of hemophilia is based on the production
and delivery of Factor VIII using Transkaryotic Therapy. The Company believes
that its Factor VIII gene therapy product has the potential to provide a
constant supply of therapeutic levels of the missing protein, effectively
eliminating the problem of rapid disappearance of the therapeutic protein. The
Company has produced clonal populations of human fibroblasts which have been
transfected to express Factor VIII in vitro, demonstrated that the protein is
properly processed and achieved protein expression in animals. The Company has
initiated preclinical studies for the product and intends to initiate Hemophilia
A clinical trials in 1997.
In July 1993, the Company entered into a Collaboration and License
Agreement with Genetics Institute, Inc. ("GI") relating to a joint development
and marketing program for a Hemophilia A gene therapy product based on the
Company's non-viral technology. The agreement provides that the parties will
collaborate to develop and commercialize a non-viral gene therapy product for
the treatment of Hemophilia A using TKT's proprietary technology and GI's
patented Factor VIII genes. Under the agreement, GI has granted TKT a
nonexclusive worldwide license under GI's patents covering truncated versions of
the gene encoding Factor VIII for use in certain non-viral gene therapy
applications. GI has agreed to pay a portion of the clinical development costs
of the product in the U.S., Canada and the European Community. TKT retained
exclusive manufacturing rights throughout the world and exclusive marketing
rights to all countries of the world except those in Europe. Subject to certain
conditions, GI received exclusive rights to market the product in Europe. The
agreement is terminable by GI in the event certain product development and
regulatory approval milestones are not reached.
Fabry Disease. Fabry disease is an X-linked lysosomal storage disease
caused by the deficiency of the enzyme -galactosidase. The disorder is
characterized by the accumulation of lipids in lysosomes of vascular endothelial
and smooth muscle cells and in a wide variety of other tissues. Patients with
classic Fabry disease of early onset, generally in adolescence, show diverse
clinical manifestations including severe pain and cardiovascular and renal
complications. It is estimated that there are about 2,000 patients in the U.S.
and a total of approximately 5,000 patients in the developed world. Current
treatment of the disease is limited to the reduction of symptoms. Clinical
trials of enzyme replacement therapy in the late 1970's have been reported using
infusions of -galactosidase purified from placenta, spleen or plasma. The
intravenous injection of the enzyme resulted in the transient reduction in the
plasma levels of the deleterious lipid but, due to the limited availability of
the enzyme obtained from human sources, insufficient quantities were available
for further studies.
The development of a safe and effective gene therapy product for the direct
delivery of -galactosidase using a gene therapy approach could result in an
elimination of pain symptoms, the medium- and long-term cardiovascular and renal
complications and in an increased life expectancy and improved quality of life.
TKT has produced purified -galactosidase from normal human fibroblasts and
demonstrated that the enzyme has the desired structural and functional
properties. Before proceeding to a gene therapy trial, it is important to
determine the safety and pharmacokinetics of the protein in humans. Towards
these ends, the Company is planning to file an IND in 1996 to study the protein
in a small Phase I clinical trial. Based on the data obtained, it is anticipated
that this study will allow the design of a follow-up gene therapy trial in 1997.
Long-term Gene Therapy Targets. The Company's long-term gene therapy
product development strategy is focused on products for the treatment of
commonly occurring diseases including both juvenile- and adult-onset diabetes,
hypercholesterolemia and osteoporosis. These are diseases for which either (i) a
proven therapeutic protein exists but effective treatment of the disease
requires complex patterns of regulation in the patient (for example, insulin is
widely used in the treatment of diabetes but delivery of insulin by conventional
methods is imprecise and does not prevent the serious complications of the
disease) or (ii) no protein has yet
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<PAGE> 37
been proven effective in treating the disease (for example, many proteins are
thought to have potential in the treatment of hypercholesterolemia, but that has
yet to be proven conclusively in patients).
Manufacturing. One of the critical aspects of any cell-based therapy is
the approach to manufacturing. As stated above, the manufacturing process takes
up to six weeks and it is essential to optimize the process to allow for a
commercially-viable product. The Company believes that this has been
accomplished and, for example, the Company believes that the cost for
manufacturing its single administration Factor VIII gene therapy product is less
than that for manufacture of a one year supply of purified Factor VIII protein
required by a typical patient. To produce early clinical materials, TKT has
constructed a pilot manufacturing facility that was designed to conform to FDA
guidelines for Current Good Manufacturing Practice ("CGMP"). For Phase III
clinical trials and commercialization, TKT intends to construct a CGMP-certified
facility.
The Company intends to manufacture its gene therapy products in central
manufacturing facilities. Initially, a single facility would be constructed to
serve the U.S. As the Company's product pipeline matures, it is anticipated that
demand will increase, possibly requiring the Company to construct an additional
central manufacturing facility in the U.S. Other gene therapy companies have
adopted a strategy wherein every large city (or potentially large hospital)
would have a cell processing facility, but TKT believes that the requirements
for strict quality control and the benefits of economy of scale are best
achieved using the central manufacturing strategy.
OTHER GENE THERAPY COLLABORATIONS
In 1994, the Company entered into a three-year collaboration with the
University of Freiburg. As part of that collaboration, TKT is sponsoring the
first gene therapy trial approved in Germany. The Phase I study is based on the
delivery of Interleukin-2 by genetically modified skin fibroblasts in order to
restore or enhance the ability of the immune system to attack the tumor cells in
patients with renal cancer and malignant melanoma. TKT has no role in the
manufacturing process. The trial was initiated in 1994 and 14 patients have been
enrolled to date. In addition to sponsoring the clinical trial, TKT has certain
rights to technologies developed for the non-viral gene therapy of certain
cancers.
In November 1995, the Company entered into a collaboration with the
Institute Pasteur (the "Institute") to study the gene therapy of Hurler disease,
a lysosomal storage disorder. The Institute has successfully delivered various
proteins in a number of animal models and the Company and the Institute are
working to improve expression of the missing enzyme in human cells. In addition,
the Company has certain rights to related technologies developed at the
Institute.
In July 1996, the Company entered into a collaboration with the Women's and
Children's Hospital, Adelaide (the "Hospital") to study gene and protein
replacement for the mucopolysaccharidoses, a group of lysosomal storage
disorders. The Company and the Hospital plan to work towards developing a series
of therapies for these related diseases, building on the Hospital's twenty years
of experience in their molecular biology and clinical features.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
Proprietary Issues. For many currently-marketed proteins, the product
manufactured using conventional genetic engineering techniques does not
represent the first time the protein was isolated and purified. As such, it was
generally not possible to obtain a broad composition of matter patent for many
of the currently-marketed proteins. In contrast, the isolated and purified DNA
sequences encoding these proteins, various vectors used to insert such DNA
sequences into production cell lines, cell lines modified by the insertion of
such DNA sequences, and corresponding methods (including methods of producing
proteins using this approach) led to issued patents in many cases. TKT believes
that, by completely avoiding the use of isolated and purified DNA sequences
encoding proteins of commercial interest, the Company's technology does not
infringe claims based on isolated and purified DNA sequences encoding such
proteins. Furthermore, the Company intends to avoid the use of technologies
(such as specific protein purification procedures) that are the subject of
patents that are not limited to protein products manufactured using conventional
genetic engineering techniques.
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Over the past decade, there has been a dramatic increase in the number of
approaches to gene therapy under development in both academic and industrial
laboratories. A large number of patent applications have been filed in the U.S.
and worldwide relating to this work, and a number of gene therapy patents have
issued to date. The Company requested, and the U.S. Patent and Trademark Office
(the "PTO") declared, an interference regarding an issued patent with broad
claims to ex vivo gene therapy. The participants in the interference are Genetic
Therapies, Inc. (a wholly-owned subsidiary of Novartis), Somatix Therapy
Corporation and TKT. The PTO proceeding will determine the patentability of the
subject matter of the interference and which of the parties first developed this
subject matter. The process to resolve the interference can take many years. The
outcome of interferences can be quite variable: for example, none of the three
parties may receive the desired claims, one party may prevail, or a settlement
involving two or more of the parties may be reached. There can be no assurance
that TKT will prevail in this interference or that, even if it does prevail,
that the Company can meaningfully protect its proprietary position. In the event
TKT does not prevail, there can be no assurance that TKT could obtain a license
to the disputed claims, and, if it can not, commercialization of the Company's
gene therapy products in the U.S. could be adversely affected. With the possible
exception of the patents involved in the interference, the Company believes its
Transkaryotic Therapy technology does not infringe on patents issued to date.
Currently, the Company has 19 pending patent applications in the U.S. to
protect its proprietary methods and processes; it has also filed corresponding
foreign patent applications for certain of these U.S. patent applications. The
U.S. patent applications relate to Gene Activation in general, DNA sequences
required for Gene Activation, vectors required for Gene Activation, cells
modified by Gene Activation, proteins produced by Gene Activation, corresponding
Gene Activation methods, Transkaryotic Therapy in general, methods of
propagating and transfecting cells, methods for obtaining expression of
therapeutic proteins and homologous recombination in cells, and cells modified
by the preceding methods. Where appropriate, the Company intends to file, or
cause to be filed on its behalf, additional patent applications relating to
future discoveries and improvements.
The Company believes that protection of the proprietary nature of its
products and technology is important to its business. Accordingly, it has
adopted and will maintain a vigorous program to secure and maintain such
protection. The Company's practice is to file patent applications with respect
to technology, inventions and improvements that are important to its business.
The Company also relies upon trade secrets, unpatented know-how, continuing
technological innovation and the pursuit of licensing opportunities to develop
and maintain its competitive position. There can be no assurance that others
will not independently develop substantially equivalent proprietary technology
or that the Company can meaningfully protect its proprietary position.
As a general matter, patent positions in the fields of biotechnology and
biopharmacology are highly uncertain and involve complex legal, scientific and
factual matters. To date, there has emerged no consistent policy regarding the
breadth of claims allowed in biotechnology patents. Consequently, although TKT
plans to prosecute aggressively its applications and defend its patents against
third parties, there can be no assurance that any of the Company's patent
applications relating to the technology used by the Company will result in the
issuance of patents or that, if issued, such patents will not be challenged,
invalidated or circumvented or will afford the Company protection against
competitors with similar technology. Should the Company become involved in any
litigation or interference proceedings regarding patent or other proprietary
rights, such litigation or interference proceedings may result in substantial
cost to the Company, regardless of outcome and, further, may adversely affect
TKT's ability to develop, manufacture and market its products and to form
strategic alliances.
The Company's technologies and potential products may conflict with patents
which have been or may be granted to competitors, universities or others. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's technologies and potential products may give rise to claims
that they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin
commercialization of a product or use of a technology. If any such actions are
successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to use such
technology or to manufacture or market such product or could be
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required to cease using such product or technology. There can be no assurance
that the Company would prevail in any such action or that any license required
under any such patent would be made available or would be made available on
acceptable terms. The Company believes that there may be significant litigation
in the Gene Activation and gene therapy fields regarding patent and other
intellectual property rights. In September 1996, the Company received a letter
from Amgen, Inc. ("Amgen") stating, without further elaboration, that in Amgen's
opinion any implication that the Company will be able to commercialize GA-EPO in
the United States is "materially false and misleading." The Company has received
an opinion of Hamilton, Brook, Smith & Reynolds, P.C., counsel to the Company
that the technologies employed by the Company and the method of their use in the
Company's products do not infringe U.S. Patent Numbers 4,703,008, 5,441,868 and
5,547,933, the principal Amgen patents, and would not infringe such patents
under the doctrine of equivalents. Based upon this opinion as well as its and
its counsel's review of other relevant patents, the Company believes that it
will be able to commercialize GA-EPO in the United States upon successful
completion of its clinical trials and receipt of FDA approval. This opinion,
however, is not binding on any court, and there can be no assurance that the
Company will not in the future become subject, in the United States or any other
country, to patent infringement claims, interferences, and other litigation
involving patents, including the three referenced Amgen patents, or any patents
that may issue on any pending patent applications, including Amgen patent
applications. See "Risk Factors -- Patents and Proprietary Rights." If the
Company becomes involved in such litigation, it could consume substantial
Company resources.
To further protect its trade secrets and other proprietary property, the
Company requires all employees, Scientific Advisory Board members, consultants
and collaborators having access to such proprietary property to execute
confidentiality and invention rights agreements in favor of the Company before
beginning their relationship with the Company. While such arrangements are
intended to enable the Company to better control the use and disclosure of its
proprietary property and provide for the Company's ownership of proprietary
technology developed on its behalf, they may not provide meaningful protection
for such property and technology in the event of unauthorized use or disclosure.
Licensing. The Company has entered into several licensing agreements under
which it has acquired certain worldwide rights to use proprietary genes and
related technology in its non-viral gene therapy products: The Company has a
nonexclusive license for certain non-viral gene therapy applications from GI
with respect to GI's patented Factor VIII genes and a nonexclusive sublicense
for non-viral gene therapy applications from British Technology Group plc
("BTG") with respect to BTG's patented Factor IX gene. TKT's rights under these
gene licenses and sublicenses are for the term of the last to expire patent
included in the licensed patent rights, subject to earlier termination in the
event of the Company's failure to meet certain specified milestones. Although
the Company is not currently in default under any of these agreements, there can
be no assurance that such defaults will not occur in the future. Should such a
default occur and any of these licenses or sublicenses be terminated in the
future, the Company could lose the right to continue to develop one or more of
its potential products, which loss could have a material adverse effect upon the
Company's business.
COMPETITION
Gene Activation. At present, the Company considers its primary competition
with respect to its Gene Activation technology to be companies involved in the
current production of therapeutic proteins. These companies have obtained patent
protection covering many of the techniques used to produce commercially-marketed
proteins using conventional genetic engineering techniques. These patent rights
have served as an effective entry barrier in the $11 billion (1995) protein
therapeutics market. Several pharmaceutical and biotechnology companies have an
established presence in the field of therapeutic protein production. For
example, erythropoietin is marketed by Johnson & Johnson and Amgen, Inc. in the
U.S.; by Boehringer Mannheim GmbH and Johnson & Johnson in Europe; and by Sankyo
Company Ltd. and Chugai Pharmaceutical Co., Ltd. in Japan. These and other
competitors have substantially greater financial and other resources than the
Company, including larger research and development staffs and more experience
and capabilities in conducting research and development activities, testing
products in clinical trials, obtaining regulatory approvals and manufacturing,
marketing and distributing products. There can be no assurance that TKT will
succeed in developing and marketing technologies and products that are more
clinically efficacious
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and cost-effective than the more established treatments or the new approaches
and products developed and marketed by its competitors.
The Company believes that the primary competitive factors in the market for
therapeutic proteins may include product safety, efficacy, distribution channels
and price, and disease management services. In addition, the length of time
required for products to be developed and to obtain regulatory and in some
cases, reimbursement approval are important competitive factors. The
biotechnology industry is characterized by rapid and significant technological
change. Accordingly, the Company's success will depend in part on its ability to
respond quickly to medical and technological changes through the development and
introduction of new products. The Company believes it competes favorably with
respect to these factors, although there is no assurance that it will be able to
continue to do so.
Gene Therapy. The Company's gene therapy system will have to compete with
other gene therapy systems as well as with conventional methods of treating the
diseases and conditions targeted by the Company and new non-gene therapy
treatments which may be developed in the future.
A number of commercial entities, including major established biotechnology
and pharmaceutical companies, as well as development stage entities, currently
are involved in the field of human gene therapy. Additional competitors may
enter the field in the future as gene therapy becomes better established. Some
of these existing competitors have and certain of these potential competitors
may have, substantially greater financial, technical, scientific, marketing or
other capabilities and resources than are available to the Company. Smaller
companies may obtain access to such skills and resources through collaborative
arrangements with pharmaceutical companies or academic institutions. Moreover,
existing or potential competitors may possess or acquire patents or other rights
to genes or technology which are necessary or useful for certain applications of
the Company's gene therapies, thereby hampering or preventing the Company from
exploiting such applications. See "Risk Factors -- Competition."
The Company is developing gene therapy products to address a variety of
diseases and conditions. For certain of the Company's potential products, an
important competitive factor may be timing of market entry. The speed with which
TKT can enter and complete human clinical trials and approval processes may
therefore be a significant competitive factor. The Company believes that product
efficacy, safety, reliability and price may also be important competitive
factors. The development by others of alternative or superior treatment methods
could render the Company's products obsolete or noncompetitive with respect to
some or all of these competitive factors. In addition, treatment methods not
clearly superior to the Company's could achieve greater market penetration
through competitors' superior sales, marketing or distribution capabilities. The
Company's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection, secure licenses of
necessary genes and technology from third parties, or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the typically substantial expenditures and period of time prior to commercial
sales of each product.
GOVERNMENT REGULATION
All the Company's products will require regulatory approval by U.S. and
foreign government agencies prior to commercialization in such countries. In
particular, protein therapeutics are subject to rigorous pre-clinical and
clinical testing, and other pre-market approval procedures administered by the
FDA and similar authorities in foreign countries. In addition, gene therapy is a
new technology, and regulatory approvals may be obtained more slowly than for
products produced using conventional technologies. In the U.S., various federal
and in some cases state and local, statutes and regulations also govern or
influence the manufacturing, labeling, storage, record keeping and marketing of
such products.
Obtaining approval from the FDA and other regulatory authorities for a
therapeutic product may take several years and involve substantial expenditures.
Moreover, ongoing compliance with applicable requirements can entail the
expenditure of substantial resources. Difficulties or unanticipated costs may be
encountered by the Company in its efforts to secure necessary governmental
approvals, which could delay or preclude the Company from marketing its
products.
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The activities required before a new pharmaceutical agent may be marketed
in the U.S. begin with pre-clinical testing. Pre-clinical tests include
laboratory evaluation and animal studies to assess the potential safety and
efficacy of the product. The results of these studies must be submitted to the
FDA as part of an Investigational New Drug Application ("IND"), which must be
reviewed and cleared by the FDA before proposed clinical testing can begin.
Clinical trials are conducted in accordance with specific federal regulations
(known as Good Clinical Practices). The clinical protocols detail the objectives
of the study, the parameters to be used to monitor safety and the efficacy
criteria to be evaluated. Each clinical protocol must be submitted to the FDA as
part of an IND. Further, each clinical study must be conducted under the
auspices of an independent Institutional Review Board ("IRB") at the institution
at which the study will be conducted. Each IRB will consider, among other
things, ethical factors, the safety of human subjects, and informed consent.
Clinical trials are typically conducted in three sequential phases. In
Phase I, clinical trials typically include a small number of subjects (often
healthy volunteers) to determine the early safety profile and the pattern of
drug distribution and metabolism. In Phase II, clinical trials are conducted
with larger groups of patients afflicted with a specific disease in order to
further test safety, and determine optimal dose amounts, dose schedules, and
routes of drug administration. In Phase III, larger-scale, multi-center,
comparative clinical trials are conducted with patients afflicted with a target
disease in order to provide enough data for a valid statistical test of efficacy
and safety required by the FDA and others. In the case of products for life-
threatening disease, the initial human testing may be done in patients rather
than healthy volunteers. Since these patients are already afflicted with the
target disease, it is possible that such studies may provide results
traditionally obtained in Phase II trials. These trials are frequently referred
to as Phase I/II trials. Although some of the Company's products are being
considered for patients with life-threatening diseases, there can be no
assurance that the FDA will allow Phase I/II studies, or that if Phase I/II
studies are permitted, that this study design would shorten the development time
for any of the Company's products. The FDA receives reports on the progress of
each phase of clinical testing and it may require the modification, suspension,
or termination of clinical trials if an unwarranted risk is presented to
patients, or if the design of the trial is insufficient to meet its stated
objectives.
After completion of clinical trials of a new product, FDA marketing
approval must be obtained. The Company expects that its products will be
regulated as biologics. Traditionally, both a Product License Application
("PLA") and an Establishment License Application ("ELA") have been required
prior to commercial marketing. The Company expects that both licenses will be
required for its gene therapy products. Recently the FDA has announced its
intention to simplify the licensing process for well-characterized biologics,
and put forth a regulatory mechanism to allow for a single license application,
a Biologics License Application ("BLA"), for well-characterized biologics. The
Company expects that its Gene Activation products will fall into this category
and require a single BLA. License applications submitted to the FDA have
historically taken, typically, two to five years to receive approval. In 1992,
at the same time of passage of the Prescription Drug User Fee Act, the FDA
committed to reviewing and acting on a complete license application within 12
months of the submission date. Nevertheless, if FDA determines that an
application is incomplete, or that important issues are unanswered by the data
in the application, approval times could be delayed significantly.
Notwithstanding the submission of relevant data, the FDA may ultimately decide
that the license application does not satisfy its criteria for approval. Even if
FDA clearances are obtained, a marketed product is subject to continual review.
Later discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restriction on the marketing of
a product or withdrawal of the product from the market as well as possible civil
or criminal sanctions. In addition, the manufacturing facility for the Company's
products will be subject to FDA inspection for adherence to CGMP prior to
marketing clearance and periodically following approval. This will require the
Company to observe rigorous manufacturing specifications.
The Company believes that many of its Gene Activation products are likely
to be reviewed within FDA by its Center for Biological Evaluation and Research
("CBER"). CBER currently has no "bioequivalence" pathway for the rapid approval
of closely-related biologics and the Company believes that its Gene Activated
products will be treated as new biologic entities and require a complete
regulatory and clinical program. However, these programs will often have the
advantage of focusing on Gene Activated products with
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conventional, previously approved, counterparts that are well-known to
regulatory authorities around the world (in contrast to a typical new chemical
entity, which has no related history concerning its safety and efficacy in
humans). In April 1996, the FDA issued a document entitled "FDA Guidance
Concerning Demonstration of Comparability of Human Biological Products,
Including Therapeutic Biotechnology-derived Products." This document describes
situations in which a manufacturer can establish the equivalence of a modified
version of their own product using physical, chemical, and/or pharmacological
methods, without the need for additional clinical trials. This is a departure
from traditional doctrine, in which biologics were deemed too complex to compare
using such methods, and reflects the increased purity of many products and
technical advances in the analytical methods currently in use. Although an
approval pathway for bioequivalent biologics does not exist, the Company
believes that increased analytical sophistication and enhanced purity of
biologic products will facilitate the development and regulatory review of its
Gene Activation products.
In addition to regulations enforced by FDA, the Company is also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. The Company's research and development involves the controlled use
of hazardous materials, chemicals, biological materials and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
For marketing outside the U.S., the Company also is subject to foreign
regulatory requirements governing human clinic trials and marketing approval for
products. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to country.
FACILITIES
TKT currently leases approximately 56,000 square feet of laboratory and
office space in a building located in Cambridge, Massachusetts. Approximately
8,000 square feet are utilized as office space, 43,000 square feet are utilized
for laboratory space and 5,000 square feet are dedicated to manufacturing of the
Company's gene therapy products for clinical testing. The Company has no
manufacturing facility for protein production and, under the agreements between
the Company and HMRI for the commercialization of GA-EPO, HMRI is responsible
for the manufacture of this product. The Company believes that its existing
facilities are adequate to meet its current needs. The Company also believes
that its current facilities comply with all material zoning requirements and
that it has all necessary permits and authorizations for such facilities.
LEGAL PROCEEDINGS
The Company is currently involved in a patent interference proceeding
before the United Stated Patent and Trademark office. See "Patents, Proprietary
Rights and Licenses." The Company is not a party to any other legal proceedings.
EMPLOYEES
As of August 15, 1996, the Company had 117 full-time employees, including
88 scientists and 29 development, manufacturing and administrative personnel.
The Company's employees are not covered by any collective bargaining agreement.
TKT considers relations with its employees to be good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
The directors, executive officers and key employees of the Company are as follows:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard F Selden, M.D., Ph.D. ........ 38 President; Chief Executive Officer; and Director
Christoph M. Adams, Ph.D. ............ 39 Vice President, Business Development
Kurt Gunter, M.D. .................... 42 Vice President, Clinical and Regulatory Affairs
Anthony R. Hall....................... 57 Vice President, Finance and Administration; Chief
Financial Officer
Douglas A. Treco, Ph.D. .............. 39 Vice President, Director of Research and Development
Andrea T. Jeffrey..................... 46 Director of Operations
Robert A. Pazzano, Pharm.D. .......... 49 Director of Manufacturing
William R. Miller(1)(2)............... 68 Director
Rodman W. Moorhead, III(1)............ 52 Director; Chairman of the Board
James E. Thomas(2).................... 36 Director; Secretary
<FN>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</TABLE>
Richard F Selden, M.D., Ph.D. is the founder of TKT. He has served as Chief
Scientific Officer, Chairman of the Scientific Advisory Board and a Director
since the Company's inception in 1988 and as President and Chief Executive
Officer since June 1994. Prior to founding TKT, Dr. Selden was a post-doctoral
fellow in the Department of Genetics at Harvard Medical School and a pediatric
resident at Massachusetts General Hospital. From 1989 to 1992, Dr. Selden held
an academic appointment as Instructor in the Harvard Medical School Department
of Pediatrics. He received an A.B. in Biology from Harvard College, an A.M. in
Biology from the Harvard University Graduate School of Arts and Sciences, a
Ph.D. in genetics from the Division of Medical Sciences at Harvard Medical
School and an M.D. from Harvard Medical School.
Christoph M. Adams, Ph.D. has served as Vice President, Business
Development of the Company since March 1994. From May 1991 to February 1994, Dr.
Adams was Business Development Manager and from 1989 to 1991, he was
International Product Manager at the Pharmaceuticals Division of Ciba-Geigy AG
in Basel, Switzerland. Dr. Adams received a Ph.D. in Organic Chemistry from the
University of Zurich and an M.B.A. from INSEAD, Fontainebleau, France.
Kurt Gunter, M.D. has served as a consultant to the Company since September
1993 and as Vice President, Clinical and Regulatory Affairs since July 1996.
From September 1993 to June 1996, Dr. Gunter worked at Children's National
Medical Center, most recently as Director of Stem Cell Processing, Hematology
and Blood Donor Center/Hematology Division. From 1988 to 1993, Dr. Gunter worked
at the Center for Biologics Evaluation and Research of the U.S. Food and Drug
Administration as Acting Deputy Director, Division of Cellular Therapies and
Gene Therapies and Chief, Cytokine and Cell Biology Branch. He received a B.S.
in Biological Sciences from Stanford University and an M.D. from the University
of Kansas School of Medicine.
Anthony R. Hall has served as the Vice President, Finance and
Administration, and Chief Financial Officer since June 1996. From September 1989
until May 1994, Mr. Hall served as Vice President, Fiduciary and Risk
Management, of Bristol-Myers Squibb Company ("BMS"), a pharmaceutical company
and from May 1994 to May 1996 as a consultant to BMS. From 1984 to 1989, Mr.
Hall served as Corporate Vice President and Assistant Treasurer of Bristol-Myers
Company. Mr. Hall is a Fellow of the Chartered Association of Certified
Accountants of the United Kingdom and received a B. Comm. from the University of
Capetown.
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Douglas A. Treco, Ph.D. has directed research at the Company since its
inception in 1988. Since June 1993, he has served as Vice President, Director of
Research and Development. From December 1990 to June 1993, he served as Director
of Research. From 1988 to 1990, he served as Manager of Research. From 1985 to
1988, Dr. Treco was a Research Fellow in Genetics, Department of Molecular
Biology, Massachusetts General Hospital and Department of Genetics, Harvard
Medical School. He received a Ph.D. in Biochemistry and Molecular Biology from
the State University of New York, Stony Brook.
Andrea T. Jeffrey has served as Director of Operations of the Company since
July 1993. From January 1992 to June, 1993, Ms. Jeffrey was Facility Director at
the Center for Blood Research at Harvard Medical School. From 1982 to 1991, she
was Director of Laboratory Services at BioTechnica International, a
biotechnology company in Cambridge, Massachusetts. Ms. Jeffrey received a B.S.
in Biology from Wheaton College.
Robert A. Pazzano, Pharm. D. has served as Director of Manufacturing of the
Company since October 1993. From 1988 to 1993, Mr. Pazzano was Director of
Manufacturing at Organogenesis Inc. and, from 1981 to 1988, he held related
positions at Damon Biotech, Inc., Medchem Products, Inc. and Delmed, Inc. Mr.
Pazzano received a B.S. in Pharmacy and a Pharm.D. in Industrial Pharmacy from
Massachusetts College of Pharmacy, and an M.S. in Pharmaceutical Business
Administration from Northeastern University.
William R. Miller has served as a Director since September 1991. In January
1991, he retired as Vice Chairman of the Board of Directors of BMS, which
position he had held since 1985. Mr. Miller was a member of the Board of
Pharmaceutical Manufacturers Associations from 1981 to 1990 and served as
Chairman from 1986 to 1987. He was Vice President and a member of the council of
the International Federation of Pharmaceutical Manufacturers Associations from
1988 until 1990. Mr. Miller is a member of the Board of Trustees of the Cold
Spring Harbor Laboratory and is a director of Imclone Systems, Inc., Isis
Pharmaceuticals, Inc., St. Jude Medical, Inc., and Westvaco Corporation, as well
as several private companies. In addition, Mr. Miller serves as Chairman of the
Board of Directors of SIBIA Neurosciences, Inc. and Vion Pharmaceuticals, Inc.
Rodman W. Moorhead, III has served as Chairman of the Board of Directors
since May 1992. Since 1973, he has been with E.M. Warburg, Pincus & Co., Inc.
("Warburg, Pincus"), a private investment firm, where he currently serves as a
Senior Managing Director. He is also a director of NeXstar, Inc., Value Health,
Inc. and a number of privately held companies.
James E. Thomas has served as a Director and Secretary of the Company since
May 1992. Mr. Thomas has served as a Managing Director of Warburg, Pincus since
January 1994, and prior to that served as Vice President from 1991 to 1994 and
Associate from 1989 to 1991. Mr. Thomas is also a director of Anergen, Inc.,
Celtrix Pharmaceuticals, Inc., Menley & James Laboratories, Inc. and a number of
privately held companies.
The Company currently has four Directors. All Directors hold office until
the next annual meeting of stockholders or until their successors are duly
elected and qualified. The officers serve until the next annual meeting of the
Board of Directors or until their earlier resignation or removal.
Directors are elected by the stockholders at each annual meeting to serve
until the next annual meeting of stockholders or until their successors are duly
elected and qualified. Effective upon the closing of this offering, at each
meeting of the Company's stockholders at which directors are to be elected, the
Company has agreed to nominate, recommend the election by the Company's
stockholders and use its best efforts to effect the election to the Board of
Directors of the Company of (i) two individuals designated by Warburg, Pincus
Capital Partners, L.P. ("Warburg"), as long as Warburg beneficially owns at
least 20% of the outstanding Common Stock of the Company and (ii) one individual
designated by Warburg, as long Warburg beneficially owns at least 10% or more,
but less than 20%, of the outstanding Common Stock of the Company. Officers are
selected by and serve at the discretion of the Board of Directors.
All of the current directors of the Company were elected pursuant to an
Amended and Restated Voting Rights Agreement. The Voting Rights Agreement will
expire by its terms upon the consummation of this offering.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries of each employee of the Company entitled to
a salary in excess of $150,000 and which exercises the authority of the Board
with respect to all incentive or stock option plans or arrangements established
by the Company. The Company also has an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent auditors.
DIRECTOR COMPENSATION
In general, the Company does not compensate Directors for service as
Directors but reimburses them for expenses incurred in connection with
attendance at meetings of the Board of Directors and committees thereof. Mr.
Miller is paid $1,000 for attendance at each meeting of the Board. For the
fiscal year ending December 31, 1995, Mr. Miller earned $3,000 in Director's
fees.
SCIENTIFIC ADVISORY BOARD
The Company is assisted in its research and development activities by its
Scientific Advisory Board ("SAB"), composed of leading scientists who meet
several times each year to review the Company's research and development
activities, discuss technological advances relevant to the Company and its
business, and otherwise assist the Company.
In addition to Dr. Selden, who serves as Chairman of the Scientific
Advisory Board, and Dr. Treco, the following persons are members of the
Scientific Advisory Board:
Bruce Furie, M.D. is Professor of Medicine and Biochemistry at Tufts
University School of Medicine. Chief of the Division of Hematology-Oncology at
New England Medical Center, Director of the Hemophilia Center at New England
Medical Center, and Co-Director of the Center for Hemostasis and Thrombosis
Research at New England Medical Center. He received an M.D. from the University
of Pennsylvania School of Medicine in 1970. Dr. Furie studies the molecular
basis of blood coagulation and related clinical disorders, including hemophilia.
Barbara C. Furie, Ph.D. is Professor of Medicine and Biochemistry at Tufts
University School of Medicine, Co-Director of the Center for Hemostasis and
Thrombosis Research at New England Medical Center, and a member of the Division
of Hematology-Oncology, New England Medical Center. She received a Ph.D. in
Chemistry from the University of Pennsylvania in 1970. Dr. Furie studies the
molecular basis of blood coagulation and platelet membrane cell adhesion
molecules.
Walter Gilbert, Ph.D. is the Carl M. Loeb University Professor at Harvard
University. He served as Chairman of the Department of Cellular and
Developmental Biology at Harvard University from 1987 to 1993. In 1980, Dr.
Gilbert (together with two others) received the Nobel Prize for Chemistry for
his work in developing one of the two rapid DNA sequencing techniques that have
provided a major stimulus to the study of gene structure. Dr. Gilbert received a
Ph.D. from Cambridge University in 1957. His current research interests include
molecular biology, molecular evolution and intron/exon gene structure.
Howard M. Goodman, Ph.D. is Professor of Genetics at Harvard Medical School
and Chief of the Department of Molecular Biology at Massachusetts General
Hospital. Dr. Goodman was a Professor of Biochemistry at the University of
California, San Francisco from 1970 to 1981. He received a Ph.D. in Biophysics
from Massachusetts Institute of Technology in 1964. Dr. Goodman has previously
studied the molecular biology of hormones and peptides and is currently engaged
in a plant genome project.
David D. Moore, Ph.D. is Associate Professor of Genetics in the Department
of Molecular Biology at Massachusetts General Hospital and in the Department of
Genetics at Harvard Medical School. He received a Ph.D. in Molecular Biology
from The University of Wisconsin, Madison in 1979. Dr. Moore studies the
molecular basis of hormone action and gene regulation in endocrine systems.
Gordon H. Sato, Ph.D. is Director Emeritus of the W. Alton Jones Cell
Science Center in Lake Placid, New York. Dr. Sato was Director of the Cell
Science Center from 1983 until his retirement in 1993. Dr. Sato received a Ph.D.
in Biophysics from the California Institute of Technology in 1955. He was a
Professor in the Graduate Department of Biochemistry at Brandeis University from
1958 to 1969, and he was a Professor of Biology at the University of California
San Diego from 1969 to 1983. Dr. Sato was elected to the National
44
<PAGE> 46
Academy of Sciences in 1984. Dr. Sato has studied the effects of hormones and
growth factors on cells in culture, and he established the first differentiated
mammalian cell lines.
Jack W. Szostak, Ph.D. is Professor of Genetics in the Department of
Molecular Biology at Massachusetts General Hospital and the Department of
Genetics at Harvard Medical School. He received a Ph.D. in Biochemistry from
Cornell University in 1977. Dr. Szostak studies the mechanism of ribozyme
function.
Except for Drs. Selden and Treco, each member of the SAB has entered into a
consulting agreement with the Company covering the terms of such person's
position as a consultant to the Company and member of the SAB. All scientific
advisors own shares of Common Stock of the Company, some of which shares are
subject to vesting. All of the Company's scientific advisors (other than Drs.
Selden and Treco) are employed by employers other than the Company and may have
other commitments to, or consulting or advisory contracts with, other entities
which may conflict or compete with their obligations to the Company. Generally,
scientific advisors are not expected to devote a substantial portion of their
time to Company matters.
EXECUTIVE COMPENSATION
<TABLE>
The table below sets forth certain compensation information for the Chief
Executive Officer of the Company and the three other most highly compensated
executive officers of the Company whose salary and bonus for the fiscal year
ended December 31, 1995 exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) RESTRICTED
-------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS($)(2) COMPENSATION($)(3)
- --------------------------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
Richard F Selden....................... $200,000 $86,000(4) -- $ 4,659
President and Chief Executive
Officer
Douglas A. Treco....................... 134,000 30,000 -- 3,125
Vice President, Director of Research
and Development
Christoph M. Adams..................... 142,000 17,500 -- 21,193(5)
Vice President, Business Development
Robert A. Pazzano...................... 106,000 3,000 -- 3,241
Director of Manufacturing
<FN>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total amount of annual salary and bonus for the
executive officer for the year ended December 31, 1995.
(2) No shares of restricted stock were awarded in the year ended December 31,
1995. As of December 31, 1995, Dr. Treco held an aggregate of 17,357 shares
of unvested restricted stock valued at $114,615. The value of the restricted
stock held by Dr. Treco at December 31, 1995 was determined by multiplying
the fair market value of the Common Stock determined by the Board of
Directors on the date of grant ($6.60) by the number of shares held and
subtracting the aggregate purchase price paid by Dr. Treco for such shares.
No dividends were paid in 1995 on the outstanding shares of restricted
stock.
(3) Includes the following: (a) the Company's contributions for Dr. Selden, Dr.
Treco, Dr. Adams and Mr. Pazzano under the Company's 401(k) Plan in the
amounts of $3,750, $2,945, $3,750 and $2,725, respectively; (b) the taxable
portion of group term life insurance premiums paid by the Company for Dr.
Selden, Dr. Treco, Dr. Adams and Mr. Pazzano in the amounts of $180, $180,
$180 and $516, respectively.
(4) Bonus earned in the year ended December 31, 1995 was paid in 1996.
(5) Includes reimbursement by the Company for costs associated with relocation.
</TABLE>
45
<PAGE> 47
Options Grants. The Company did not grant any stock options to the Named
Executive Officers during the fiscal year ended December 31, 1995.
In January 1996, the Company granted nonqualified stock options to Dr.
Selden (128,571 shares), Dr. Treco (25,714 shares), Dr. Adams (6,429 shares) and
Mr. Pazzano (5,143 shares) at an exercise price of $.01 per share. All such
options vest in equal annual installments over six years on the anniversary of
the grant date and expire on January 17, 2006.
<TABLE>
Year-End Option Table. The following table sets forth certain information
concerning exercisable and unexercisable stock options as of December 31, 1995.
None of the Named Executive Officers exercised options during the fiscal year
ended December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------- -------------------------
<S> <C> <C>
Richard F Selden..................... -- --
Douglas A. Treco..................... -- --
Christoph M. Adams................... 8,571/42,858 $119,927 / $599,679
Robert A. Pazzano.................... 5,143/10,286 $ 71,960 / $143,920
<FN>
- ---------------
(1) There was no public trading market for the Common Stock as of December 31,
1995. Accordingly, in accordance with the rules of the Securities and
Exchange Commission, these values have been calculated based on the assumed
initial public offering price of $14.00 per share (the mid-point of the
filing range) less the aggregate exercise price.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with certain of its
executive officers, including Drs. Selden, Adams and Treco and Mr. Pazzano. Each
employment agreement contains provisions for establishing the annual base salary
of each executive officer. Pursuant to the terms of the employment agreements,
the 1996 annual base salary for each of Drs. Selden, Treco and Adams and Mr.
Pazzano has been established at $210,000, $152,000, $152,000 and $111,000,
respectively. Under the terms of such employment agreements, if the employment
of Drs. Selden, Treco or Adams is terminated without cause, the Company is
required to pay to such executive severance payments at the executive's base
salary rate for 18 months in the case of Dr. Selden and 12 months in the case of
Drs. Treco and Adams (a "Severance Period"), to be reduced by an amount equal to
the amount of any other compensation earned by such individual during such
Severance Period. The executive shall be bound by certain non-compete
obligations for two years after termination of employment or such longer period
during which severance payments are paid under the employment agreement.
1993 LONG-TERM INCENTIVE PLAN
The Company's 1993 Long-Term Incentive Plan (the "1993 Incentive Plan") was
approved by the Board of Directors and the Company's stockholders in June 1993.
The 1993 Incentive Plan provides for awards in the form of stock options, stock
appreciation rights, restricted stock, long-term performance awards and stock
grants. Stock options may include options intended to qualify for preferential
tax treatment ("Incentive Stock Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock options
that do not qualify for such treatment. Employees, consultants and advisors of
the Company are eligible for awards under the 1993 Incentive Plan, but Directors
who are not employees of or consultants to the Company are not eligible for such
awards.
46
<PAGE> 48
The 1993 Incentive Plan is administered by the Compensation Committee,
which has complete authority to make awards thereunder. No member of the
Compensation Committee is eligible to receive an award under the 1993 Incentive
Plan, and no individual is eligible for membership on the Compensation Committee
within one year of having received an award under the 1993 Incentive Plan.
As amended to date, a total of 2,250,000 shares of Common Stock have been
reserved for issuance under the 1993 Incentive Plan. At August 15, 1996, options
to purchase 875,249 shares were outstanding under the 1993 Incentive Plan.
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company's 1993 Non-Employee Directors' Stock Option Plan (the "1993
Directors' Plan") was approved by the Board of Directors and the Company's
stockholders in June 1993. The 1993 Directors' Plan provides for automatic
option grants to each Director who (i) is not an employee of the Company or of
any subsidiary, affiliate or five or more percent stockholder of the Company and
(ii) does not own or hold any Common Stock which was purchased prior to the
approval of the 1993 Directors' Plan and which remains at the time the Director
is being considered for eligibility for any specific grant under the 1993
Directors' Plan subject to substantial risk of forfeiture under an agreement
entered into with the Company. Any Director who becomes such an employee shall
cease to be eligible for any further option grants under the 1993 Directors'
Plan while such an employee, but shall not, by reason of becoming such an
employee, cease to be eligible to retain options previously granted under the
1993 Directors' Plan.
Under the 1993 Directors' Plan, each eligible Director will receive an
option grant on the date immediately following each annual meeting of
stockholders. Each option grant shall consist of an option to acquire an
aggregate of 6,750 shares of Common Stock exercisable at a price equal to the
fair market value of the Common Stock at the time of the grant and vesting over
a period of three years. The 1993 Directors' Plan will be administered by the
Compensation Committee.
A total of 231,429 shares of Common Stock have been reserved for issuance
under the 1993 Directors' Plan. To date, no awards have been made under the 1993
Directors' Plan. None of the present Directors are currently eligible to receive
options under the 1993 Directors' Plan.
401(k) PLAN
In January 1992, the Company established the Company's 401(k) plan (the
"401(k) Plan") covering all full-time employees. Generally, an eligible employee
may become a participant in the 401(k) Plan on the first day of the month next
following completion of six months of employment. Pursuant to the 401(k) Plan,
an employee may elect to reduce his or her current compensation by up to 15
percent (subject to an overall dollar limitation under the Code of $9,240 of
1995) and have the amount of such reduction contributed to the 401(k) Plan. The
401(k) Plan allows the Company to make matching contributions to the Plan, and
the Company currently makes matching contributions equal to 50 percent of the
first five percent contributed to the 401(k) Plan by each employee during each
six month period. In 1995, the Company's matching contributions totalled
$84,456. The 401(k) Plan is intended to qualify under Section 401 of the Code so
that contributions by employees or the Company, and income earned thereon, are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company will be deductible by the Company when made. The
administrator of the 401(k) Plan invests each employee's account at the
direction of each such employee, who can choose among certain investment
alternatives provided. As of December 31, 1995, 86 of the 95 eligible employees
were enrolled in the 401(k) Plan.
LIMITATIONS ON DIRECTOR'S LIABILITY AND INDEMNIFICATION
The Company's Restated Certificate of Incorporation to be filed with the
State of Delaware upon the closing of this offering and Restated By-laws to be
effective upon the closing of this offering provide that the Company will
indemnify its directors and officers and may indemnify its employees and agents
to the fullest extent permitted by the Delaware General Corporation Law (the
"Delaware Law"). In addition, the Company's Restated Certificate of
Incorporation, as amended, provides that, to the fullest extent permitted by
47
<PAGE> 49
Delaware Law, the Directors will not be personally liable to the Company and its
stockholders for monetary damages for breach of fiduciary duty as Directors.
This provision in the Restated Certificate of Incorporation does not eliminate
the fiduciary duty as a Director, and in appropriate circumstances equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under Delaware Law. Each Director will continue to be subject
to liability for breach of the Director's duty of loyalty to the Company for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, for any willful or negligent violation concerning
the unlawful payment of dividends or the unlawful purchase or redemption of
stock, and for any transaction from which the Director derived any improper
personal benefit. This provision also does not affect a Director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors.
48
<PAGE> 50
CERTAIN TRANSACTIONS
Mr. Rodman W. Moorhead III and Mr. James E. Thomas, each a general partner
of Warburg, Pincus & Co., the sole general partner of Warburg, Pincus Capital
Company, L.P. ("Warburg"), and Dr. Richard Selden, the President and Chief
Executive Officer of the Company, were elected to the Board of Directors of the
Company pursuant to the terms of an Amended and Restated Voting Rights
Agreement, dated November 3, 1993 and amended on May 18, 1994, March 1, 1995,
October 26, 1995, July 10, 1996, and August 7, 1996, by and among the Company
and certain stockholders named therein (the "Voting Rights Agreement").
Effective upon the closing of this offering, at each meeting of the
Company's stockholders at which directors are to be elected, the Company has
agreed to nominate, recommend the election of the Company's stockholders and use
its best efforts to effect the election of the Board of Directors of the Company
of (i) two individuals designated by Warburg, Pincus Capital Partners, L.P.
("Warburg"), as long as Warburg beneficially owns at least 20% of the
outstanding Common Stock of the Company and (ii) one individual designated by
Warburg, as long as Warburg beneficially owns at least 10% or more, but less
than 20%, of the outstanding Common Stock of the Company.
Mr. William R. Miller was initially elected to the Board of Directors in
1991 pursuant to a Letter Agreement, dated September 1, 1991, by and between Mr.
Miller and the Company. The Company is not obligated to continue to nominate Mr.
Miller as a director pursuant to this letter agreement.
Since July 1988, the Company has sold in private financings shares of
Preferred Stock convertible into an aggregate of 8,614,026 shares of Common
Stock.
In July 1988 and May 1989, the Company sold to Warburg an aggregate of
3,000 shares of Class A Redeemable Convertible Preferred Stock at a price of
$1,000 per share. Pursuant to the Company's Restated Certificate of
Incorporation, as amended, all of such shares of Class A Redeemable Convertible
Preferred Stock will automatically convert into 214,286 shares of Common Stock
at an assumed initial public offering price of $14.00 per share (the mid-point
of the filing range) upon the closing of this offering.
In February 1990, the Company sold 3,000 shares of Class A Convertible
Preferred Stock at a price of $1,000 per share. Pursuant to the Company's
Restated Certificate of Incorporation, as amended, all of such shares of Class A
Convertible Preferred Stock will automatically convert into 214,285 shares of
Common Stock at an assumed initial public offering price of $14.00 per share
upon the closing of this offering.
In February 1992, the Company sold to Warburg an aggregate of 21,359 shares
of Class B Convertible Preferred Stock. Pursuant to the Company's Restated
Certificate of Incorporation, as amended, all of such shares of Class B
Convertible Preferred Stock will automatically convert into 1,261,979 shares of
Common Stock upon the closing of this offering.
In November 1993, the Company sold to Warburg an aggregate of 625,000
shares of Class C Convertible Preferred Stock. Pursuant to the Company's
Restated Certificate of Incorporation, as amended, all of such shares of Class C
Convertible Preferred Stock will automatically convert into 803,858 shares of
Common Stock upon the closing of this offering.
In May 1994 and March 1995, the Company entered into two License Agreements
(the "License Agreements") with HMRI (formerly named Marion Merrell Dow Inc.)
relating to joint research and development programs by the Company and HMRI (the
"Programs"). Under the License Agreements, TKT will receive payments from HMRI
upon the attainment of various development and commercialization milestones and
royalty payments from HMRI based on sales of products developed under the
Programs. In connection with the first License Agreement, HMRI purchased 280,367
shares of the Company's Class D Convertible Preferred Stock at a price per share
of $17.83 for an aggregate purchase price of $5,000,000. Pursuant to the
Company's Restated Certificate of Incorporation, as amended, all of such shares
of Class D Convertible Preferred Stock will automatically convert into 455,692
shares of Common Stock upon the closing of this offering. In connection with the
second License Agreement, HMRI purchased 523,560 shares of the Company's Class E
Preferred Stock at a price per share of $19.10 for an aggregate purchase price
of
49
<PAGE> 51
$10,000,000. Pursuant to the Company's Restated Certificate of Incorporation, as
amended, all of such shares will automatically convert into 672,947 shares of
Common Stock upon the closing of this offering.
Pursuant to the provisions of the Class D Preferred Stock Purchase
Agreement, at the closing of this offering, the Company agreed to sell to HMRI,
and HMRI agreed to purchase, at the initial public offering price, that number
of shares of Common Stock of the Company equal to $5,000,000 divided by the
initial public offering price. Accordingly, upon the closing of this offering,
TKT will sell to HMRI 357,143 shares of Common Stock at the assumed initial
public offering price of $14.00 per share (the mid-point of the filing range)
for aggregate consideration of $5,000,000. The actual number of shares will be
determined by dividing $5,000,000 by the initial public offering price. In
addition, with respect to such shares, the Company will grant to HMRI one demand
registration right exercisable after the expiration of the lock-up agreements on
substantially the same terms and conditions as those contained in the
Registration Rights Agreement by and among the Company and certain stockholders
named therein.
In December 1995, the Company sold to HMRI an aggregate of 564,286 shares
of Class F Convertible Preferred Stock. Pursuant to the Company's Restated
Certificate of Incorporation, as amended, all of such shares of Class F
Convertible Preferred Stock will automatically convert into 725,436 shares of
Common Stock upon the closing of this offering.
Holders of certain shares of Common Stock are entitled to certain
registration rights with respect to such shares. See "Description of Capital
Stock -- Registration Rights."
The Company believes that all transactions with affiliates have been made
on terms at least as favorable to the Company as could have been made for
similar transactions with unrelated third parties.
50
<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 15, 1996 as adjusted to
reflect the sale of the shares offered hereby: (i) by each person known by the
Company to beneficially own more than 5% of its Common Stock; (ii) by each
Director of the Company; (iii) by each Named Executive Officer; and (iv) by all
executive officers and Directors as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE OWNERSHIP
OWNED PRIOR TO -------------------------------------
NAME OFFERING(1) BEFORE OFFERING AFTER OFFERING(2)
- ------------------------------------------------- ------------------- --------------- -----------------
<S> <C> <C> <C>
Warburg, Pincus Capital.......................... 5,958,057 41.7% 34.7%
Company, L.P.(3)
466 Lexington Avenue
New York, NY 10017
Hoechst Marion Roussel, Inc...................... 1,854,075 13.4% 13.3%(4)
9300 Ward Parkway
Kansas City, MO 64114
Biotech Target, S.A.............................. 1,168,907 8.5% 7.0%
c/o BB Biotech AG
c/o Bellevue Asset Management AG
Grundstrasse 12
CH-6364 Rotkreuz
Switzerland
Christoph M. Adams(5)............................ 17,143 * *
William R. Miller................................ 28,928 * *
Rodman W. Moorhead, III(6)(7).................... 5,958,057 41.7% 34.7%
Robert Pazzano(8)................................ 7,715 * *
Richard F Selden(9).............................. 806,875 5.8% 4.8%
James E. Thomas(6)(7)............................ 5,958,057 41.7% 34.7%
Douglas A. Treco(10)............................. 236,404 1.7% 1.4%
All Directors and executive officers as a group % %
(10 persons)(11)............................... 7,063,800 49.3 41.1
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares beneficially owned.
Amounts shown include shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within the 60-day period following
August 15, 1996. The inclusion herein of shares of Common Stock listed as
beneficially owned does not constitute an admission of beneficial
ownership. The number and percentage of outstanding shares of Common Stock
owned after this offering gives effect to the purchase by HMRI of $5
million of Common Stock to be sold at the initial public offering price
pursuant to the HMRI New Investment and assumes that none of the other
listed stockholders will purchase additional shares of Common Stock in this
offering. The number of shares deemed outstanding for purposes of
calculating these percentages includes 13,811,653 shares of Common Stock
outstanding as of August 15, 1996 (after giving effect to the conversion
into shares of Common Stock of all of the outstanding shares of Preferred
Stock) and any shares issuable upon exercise of outstanding stock options
held by the person or entity in question exercisable within the 60-day
period following August 15, 1996.
(2) Assumes no exercise of the Underwriters' overallotment option. The
percentages of ownership after the offering were determined by including
the shares of Common Stock being offered by the Company hereby including
357,143 shares to be sold to HMRI in the HMRI New Investment.
(3) Includes 478,966 shares issuable upon the exercise of outstanding warrants
and 428,571 shares of Class A Redeemable Convertible Preferred Stock
converted at an assumed initial public offering price
51
<PAGE> 53
of $14.00 per share. The sole general partner of Warburg, Pincus Capital
Company, L.P. ("Warburg") is Warburg, Pincus & Co., a New York general
partnership ("WP"). E.M. Warburg, Pincus & Co., Inc. ("EMW"), through a
wholly-owned subsidiary, manages Warburg. WP owns all of the outstanding
stock of EMW and, as the sole general partner of Warburg, has a 20%
interest in the profits of Warburg. EMW owns 0.9% of the limited
partnership interests in Warburg. Lionel I. Pincus is the Managing Partner
of WP and may be deemed to control it. Rodman W. Moorhead, III, Chairman of
the Board of Directors, is a Senior Managing Director of EMW and a general
partner of WP. James E. Thomas, a director of the Company, is a Managing
Director of EMW and a general partner of WP. As such, Messrs. Moorhead and
Thomas may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Exchange Act) in an indeterminate portion
of the shares beneficially owned by Warburg. See Note (6) below.
(4) Includes 357,143 shares to be purchased in the HMRI New Investment at the
assumed initial public offering price. See "Certain Transactions."
(5) Reflects 17,143 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within the 60-day period following
August 15, 1996.
(6) All of the shares indicated as owned by Messrs. Moorhead and Thomas are
owned directly by Warburg and are included herein because of the
affiliation of Messrs. Moorhead and Thomas with Warburg. Messrs. Moorhead
and Thomas disclaim "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Exchange Act. See Note (3) above.
(7) Stockholder's address is c/o Warburg, Pincus Capital Company, L.P., 466
Lexington Avenue, New York, New York 10017.
(8) Reflects 7,715 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within the 60-day period following August 15,
1996.
(9) Dr. Selden's address is c/o the Company, 195 Albany Street, Cambridge,
Massachusetts 02139.
(10) Includes 17,357 shares of Restricted Stock, of which 5,786 shares will vest
on each of June 16, 1997, 1998 and 1999.
(11) Includes 24,858 shares of Common Stock that are issuable upon exercise of
outstanding stock options exercisable within the 60-day period following
August 15, 1996.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
After giving effect to the Company's Restated Certificate of Incorporation
of the Company to be filed upon the closing of this offering to authorize, among
other things, the elimination of the Class A Redeemable Convertible, Class A,
Class B, Class C, Class D, Class E, Class F and Class G Convertible Preferred
Stock, the authorized capital stock of the Company will consist of 30,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock").
The following summary contains an accurate description of the material
terms of the Company's Common Stock and Preferred Stock. Such summary is subject
to, and qualified in its entirety by, applicable law and by the provisions of
the Company's Restated Certificate of Incorporation and Restated By-laws, each
to be filed and effected, respectively, on or before the closing of this
offering and included as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend. Upon
the liquidation, dissolution or winding-up of the Company, holders of Common
Stock are entitled to receive ratably the net assets of the Company available
for distribution after the payment of all debts and other liabilities of the
Company and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered hereby will be, when issued and paid for, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of holders of shares of any
series of Preferred Stock that the Company may designate and issue in the
future.
As of August 15, 1996, there were 13,811,653 shares of Common Stock
outstanding held of record by 168 stockholders, after giving effect to
conversion of all outstanding shares of convertible Preferred Stock into an
aggregate of 8,614,026 shares of Common Stock effective upon the closing of this
offering. Based upon the number of shares of Common Stock outstanding as of that
date, and giving effect to (i) the issuance of the 2,500,000 shares of Common
Stock offered by the Company hereby (assuming no exercise of the Underwriters'
overallotment option), and (ii) the sale to HMRI of 357,143 shares of Common
Stock pursuant to the HMRI New Investment, there will be 16,668,796 shares of
Common Stock outstanding upon the closing of this offering. An additional
875,249 shares of Common Stock were issuable upon exercise of outstanding stock
options granted under the Company's 1993 Long-Term Incentive Plan.
WARRANTS
The Company has issued warrants (the "Warrants") to various entities
exercisable for an aggregate of 817,086 shares of Common Stock with exercise
prices ranging from $6.22 to $7.78 per share and a weighted average exercise
price of $7.53 per share, in each case subject to adjustment. The Warrants have
expiration dates ranging to November 3, 1998. The holders of the Warrants are
entitled to certain registration rights with respect to the Common Stock
issuable upon the exercise thereof. See "-- Registration Rights."
PREFERRED STOCK
The Board of Directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to 10,000,000 shares of Preferred Stock, in one or more series. Each
such series of Preferred Stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or
privileges as shall be determined by the Board of Directors, which may include,
among others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights.
53
<PAGE> 55
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. Upon the
closing of this offering, no shares of Preferred Stock will be outstanding. The
Company has no present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the Board of Directors and the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the Delaware Law relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
The Company's Restated Certificate of Incorporation also contains provisions
obligating the Company to indemnify its directors and officers to the fullest
extent permitted by the Delaware Law. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors.
The Company's Restated Certificate of Incorporation and By-laws also
provide that any action required or permitted to be taken by the stockholders of
the Company may be taken only at a duly called annual or special meeting of
stockholders and that the affirmative vote of the holders of at least two-thirds
(66 2/3%) of the Company's outstanding voting securities is required to amend
such provision. These provisions could have the effect of delaying until the
next stockholders' meeting stockholder actions which are favored by the holders
of a majority of the outstanding voting securities of the Company, particularly
since special meetings of stockholders may be called only by the Board of
Directors, the Chief Executive Officer or upon the request of the holders of 51%
of the Company's voting securities. These provisions may also discourage another
person or entity from making a tender offer for the Common Stock, because such
person or entity, even if it acquired a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
In addition, nomination for election to the Board of Directors at a meeting
of stockholders may be made either (i) by the Board of Directors or (ii) by a
stockholder who complies with certain notice provisions. The By-laws contain
similar advance notice provisions for stockholder proposals for action at
stockholder meetings. These provisions prevent stockholders from making
nominations for directors and stockholder proposals from the floor at any
stockholder meeting and require any stockholder making a nomination or proposal
to submit the name of the nominees for Board seats or such proposal, together
with certain information about the nominee or proposal prior to the meeting at
which such director is to be elected or action is to be taken. These provisions
ensure that stockholders have adequate time to consider nominations and
proposals before action is required, but they may also have the effect of
delaying action if the proper procedures are followed.
54
<PAGE> 56
REGISTRATION RIGHTS
Under the terms of a Registration Rights Agreement dated as of November 3,
1993 (as amended from time to time, the "Registration Rights Agreement") and
subject to certain conditions, certain stockholders are entitled to certain
rights with respect to registration under the Act of shares of Common Stock to
be received upon conversion of Preferred Stock and of shares of Common Stock to
be purchased by HMRI in the HMRI New Investment ("Registrable Securities"). If
the Company proposes to register any of its securities under the Act, either for
its own account or for the account of other security holders, the Company is
required under the Registration Rights Agreement to use its best efforts to
include such holders' Registrable Securities in such registration, subject to
such reduction as may be required by the Company's underwriters. In addition,
subject to certain conditions, the holders of not less than 30% of the
Registrable Securities may require the Company on not more than two occasions to
file a registration statement under the Act with respect to such Registrable
Securities. Furthermore, HMRI will have one demand registration right with
respect to the shares of Common Stock to be purchased by it in the HMRI New
Investment. See "Shares Eligible for Future Sale."
The holders of Registrable Securities have waived any rights to include any
Registrable Securities in this offering and have agreed not to exercise their
respective registration rights for a period of 180 days following the effective
date of this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be Boston
EquiServe.
55
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering the Company will have 16,668,796
shares of Common Stock outstanding, assuming no exercise of any of the
outstanding options and warrants to purchase Common Stock outstanding as of
August 15, 1996. Of these shares, the 2,500,000 shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, except for shares purchased by "affiliates" of the Company as
that term is defined in Rule 144 under the Securities Act.
The remaining 14,168,796 outstanding shares of Common Stock are deemed
"Restricted Shares" under Rule 144 and may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including Rule 144. Approximately 1,390,552 of these Restricted Shares will be
eligible for sale in the public market immediately after this offering pursuant
to Rule 144(k). Approximately 458,155 additional Restricted Shares will be
eligible for sale in the public market pursuant to Rule 144 or Rule 701 under
the Securities Act beginning 90 days after the effective date of this offering.
Beginning 180 days after the effective date of this offering, an additional
9,302,890 Restricted Shares will be eligible for sale pursuant to Rule 144 or
Rule 701 when the agreements between such holders and the Underwriters not to
sell such Restricted Shares expire. See "Underwriters." The remaining Restricted
Shares will become eligible from time to time thereafter upon the expiration of
the minimum two-year holding period under Rule 144 from the date such Restricted
Shares were acquired.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an Affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock (166,687 shares based on the number of
shares to be outstanding after this offering) or the average weekly trading
volume in the public market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
and notice of sale and the availability of public information concerning the
Company. Affiliates may sell shares not constituting Restricted Shares in
accordance with the foregoing volume limitations and other restrictions, but
without regard to the two-year holding period.
Further, under Rule 144(k), if a period of at least three years has elapsed
between the later of the date the Restricted Shares were acquired from the
Company or an Affiliate of the Company, a holder of such Restricted Shares who
is not an Affiliate of the Company at the time of the sale and has not been an
Affiliate of the Company for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume
restrictions and other conditions describe above.
The Securities and Exchange Commission has proposed an amendment to Rule
144 which would reduce the holding period required for shares subject to Rule
144(k) to become eligible for sale in the public market from three years to two
years, and from two years to one year in the case of Rule 144. If this proposal
is adopted, approximately 1,848,707 Restricted Shares would be eligible for sale
in the public market immediately after this offering pursuant to Rule 144(k) and
approximately 30,374 additional Restricted Shares would be eligible for sale in
the public market pursuant to Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the effective date of this offering. An additional
9,302,890 shares of Common Stock will become eligible for sale to the public
within 180 days after the Effective Date when agreements between certain
stockholders and the Underwriters not to sell such Restricted Shares expire.
The Company intends to file a registration statement under the Securities
Act to register all shares of Common Stock issuable under its stock option plan
as well certain other outstanding options and shares of Common Stock. This
registration statement is expected to be filed as soon as practicable after the
date of this Prospectus and is expected to become effective immediately upon
filing. Shares covered by that registration statement will be eligible for sale
in the public market after the effective date of such registration. Beginning 90
days after such effective date, it is anticipated that approximately 48,754
shares of Common Stock will become eligible for immediate resale upon the
exercise of such options and upon expiration of the lock-up agreements.
56
<PAGE> 58
Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Act for offer, and sales of securities issued
pursuant to certain compensatory benefit plans or written contracts of a company
not subject to the reporting requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any employee,
officer or director of or consultant to the Company who acquired shares of
Common Stock pursuant to the Company's 1993 Long-Term Incentive Plan or any
other written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell such shares without
having to comply with the public information, holding period, volume limitation,
or notice requirements of Rule 144 and permit Affiliates to sell their Rule 701
shares without having to comply with the holding period requirements of Rule 144
commencing, in each case, 90 days after the date of this Prospectus.
Rule 144A permits unlimited resales of Restricted Shares under certain
circumstances to Qualified Institutional Buyers, which are generally defined as
institutions with over $100 million invested in securities. Rule 144A allows
holders of Restricted Shares to sell their shares to such institutional buyers
without regard to any volume or other restrictions.
The Company, and the Company's officers, directors and other stockholders,
holding an aggregate of 11,869,398 shares of Common Stock, have agreed that they
will not, without the prior written consent of the representatives of the
Underwriters, offer for sale, sell, distribute or otherwise dispose of any
shares of Common Stock, or sell or grant options, rights or warrants with
respect to any shares of Common Stock, for a period of 180 days after the
effective date of this offering.
At the completion of this offering, certain persons and entities (the
"Rightholders") will be entitled to certain rights with respect to the
registration under the Act of a total of 8,971,169 shares of Common Stock
(including 357,143 shares of Common Stock to be sold to HMRI in the HMRI New
Investment) (the "Registrable Shares") under the terms of the Registration
Rights Agreement. The Registration Rights Agreement provides that in the event
the Company proposes to register any of its securities under the Act for its own
account at any time or times, subject to certain conditions or limitations,
including the right of the managing underwriter of any such offering to exclude
for certain reasons some or all of such Registrable Shares from such
registration, the Rightholders shall be entitled to include Registrable Shares
in such registration. Subject to certain conditions, at any time after the
completion of this offering, Rightholders holding at least 15% of the
Registrable Shares have the right to require the Company to file an unlimited
number of registration statements on Form S-3, provided that such right to
request the Company to file a registration statement on Form S-3 is not
exercised more than once during any consecutive twelve-month period. In
connection with the sale of 357,143 shares of Common Stock in the HMRI New
Investment, the Company will grant to HMRI one demand registration right with
respect to such shares exercisable after the expiration of the lock-up
agreement.
Prior to this offering, there has been no market for the Common Stock and
no precise predictions can be made as to the effect, if any, that market sales
of shares or the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market could adversely affect prevailing market
prices and could impair the Company's future ability to raise capital through
the sale of its equity securities. See "Risk Factors -- Shares Eligible for
Future Sale."
57
<PAGE> 59
UNDERWRITERS
<TABLE>
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), each of the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, UBS
Securities and Pacific Growth Equities are acting as Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite their respective
names below:
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.........................................
UBS Securities LLC........................................................
Pacific Growth Equities, Inc. ............................................
---------
Total........................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than those
covered by the overallotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After
the initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less the underwriting discounts and commissions. The
Underwriters may exercise such option to purchase solely for the purpose of
covering overallotments, if any, made in connection with this offering. To the
extent that such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares offered hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities under the Securities Act.
Each of the Company, the Company's officers, directors and other
stockholders, holding an aggregate of 12,023,307 shares of Common Stock, have
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the period
commenced on the date hereof and ending 180 days after the date of this
Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are now owned by or hereafter acquired), or (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common
58
<PAGE> 60
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, each such stockholder has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, for a period ending 180 days after the date of this
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
PRICING OF THE OFFERING
Prior to this offering, these has been no public market for the Common
Stock. The initial public offering price has been determined by negotiations
among the Company and the Representatives of the Underwriters. Among the factors
considered in determining the initial public offering price were the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. There can, however, be no
assurance that the prices at which the Common Stock will sell in the public
market after this offering will not be lower than the price at which it is sold
by the Underwriters.
59
<PAGE> 61
LEGAL MATTERS
The validity of the Common Stock to be issued in this offering is being
passed upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts.
Certain patent issues relating to this offering will be passed upon for the
Company by Hamilton, Brook, Smith & Reynolds, P.C., Lexington, Massachusetts.
Certain legal matters relating to this offering will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
Statements relating to patent matters in the portions of this Prospectus
entitled "Risk Factors -- Patents and Proprietary Rights" (except for the last
two paragraphs relating to licensing and employee confidentiality) and
"Business -- Patents, Proprietary Rights and Licenses," (except for the second
paragraph relating to the gene therapy interference and except for the last two
paragraphs relating to employee confidentiality and licensing) insofar as they
constitute summaries of matters of patent law, have been reviewed and passed on
by the Company's patent counsel, Hamilton, Brook, Smith & Reynolds, P.C. as
experts in patent laws.
The financial statements of Transkaryotic Therapies, Inc. at December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 appearing in this Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock being offered hereby. For
further information about the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the financial statements,
schedules and exhibits filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits thereto, may be inspected without
charge at the Commission's principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained from such office after payment of the fees prescribed by the
Commission. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
60
<PAGE> 62
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Financial Statements
Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 (unaudited) and Pro
Forma June 30, 1996 (unaudited).................................................. F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995, and
the six months ended June 30, 1995 and 1996 (unaudited) and the period July 7,
1988 (date of inception) through June 30, 1996 (unaudited)....................... F-4
Statements of Stockholders' Equity (Deficit) for the period July 7, 1988 (date of
inception) through December 31, 1995 and the six months ended June 30, 1996
(unaudited)...................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, and
the six months ended June 30, 1995 and 1996 (unaudited) and the period July 7,
1988 (date of inception) through June 30, 1996 (unaudited)....................... F-8
Notes to Financial Statements....................................................... F-10
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Transkaryotic Therapies, Inc.
We have audited the accompanying balance sheets of Transkaryotic Therapies,
Inc. (A Company in the Development Stage) (the Company) as of December 31, 1994
and 1995, and the related statements of operations, and cash flows for each of
the three years in the period ended December 31, 1995 and the statement of
stockholders' equity (deficit) for the period July 7, 1988 (date of inception)
through December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transkaryotic Therapies,
Inc. (A Company in the Development Stage) at December 31, 1994 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Boston, Massachusetts
February 23, 1996
F-2
<PAGE> 64
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 2,606,792 $ 11,539,531 $ 17,798,459 $ 46,268,461
Marketable securities........................................... 4,972,492 22,945,311 10,975,201 10,975,201
Prepaid expenses and other current assets....................... 268,148 97,010 243,139 243,139
------------ ------------ ------------ ------------
Total current assets...................................... 7,847,432 34,581,852 29,016,799 57,486,801
Property and equipment, net....................................... 4,902,961 3,998,653 3,754,445 3,754,445
Other assets...................................................... 721,793 637,014 854,318 854,318
------------ ------------ ------------ ------------
$ 13,472,186 $ 39,217,519 $ 33,625,562 $ 62,095,564
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 352,685 $ 515,335 $ 483,378 $ 483,378
Accrued expenses................................................ 449,231 541,352 575,382 575,382
Current portion of bank debt.................................... 1,097,945 -- -- --
------------ ------------ ------------ ------------
Total current liabilities................................. 1,899,861 1,056,687 1,058,760 1,058,760
Long-term portion of deferred rent................................ 268,800 179,200 134,400 134,400
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Redeemable Preferred Stock:
Class A redeemable preferred stock, $1.00 par value; 3,000
shares authorized, issued and outstanding ($3,540,000
aggregate liquidation preference)............................. 4,230,273 4,440,273 4,545,273 --
Stockholders' equity:
Class A preferred stock, $1.00 par value; 3,000 shares
authorized, issued and outstanding ($3,327,000 aggregate
liquidation preference)....................................... 3,000 3,000 3,000 --
Class B convertible preferred stock, $1.00 par value; 60,000
shares authorized; 49,339 shares issued and outstanding
($19,736,000 aggregate liquidation preference)................ 49,339 49,339 49,339 --
Class C convertible preferred stock, $1.00 par value; 1,875,000
shares authorized; 1,015,974 shares issued and outstanding
($8,128,000 aggregate liquidation preference)................. 1,015,974 1,015,974 1,015,974 --
Class D convertible preferred stock, $1.00 par value; 280,367
shares authorized; 280,367 shares issued and outstanding
($5,000,000 aggregate liquidation preference)................. 280,367 280,367 280,367 --
Class E convertible preferred stock, $1.00 par value; 523,560
shares authorized at December 31, 1995 (none in 1994); 523,560
shares issued and outstanding at December 31, 1995 (none in
1994) ($10,000,000 aggregate liquidation preference).......... -- 523,560 523,560 --
Class F convertible preferred stock, $1.00 par value; 1,071,429
shares authorized at December 31, 1995 (none in 1994);
1,071,429 shares issued and outstanding at December 31, 1995
(none in 1994) ($15,000,000 aggregate liquidation
preference)................................................... -- 1,071,429 1,071,429 --
Common stock, $.01 par value; 15,000,000 shares authorized;
5,171,759, 5,197,662, 5,197,662 (unaudited) and 14,168,796
(unaudited) shares issued and outstanding at December 31,
1994, 1995, June 30, 1996 and Pro Forma June 30, 1996,
respectively.................................................. 51,718 51,977 51,977 141,688
Additional paid-in capital........................................ 35,733,575 58,330,976 62,516,381 96,840,341
Accretion of redeemable preferred stock dividends................. (1,230,273) (1,440,273) (1,545,273) --
Deficit accumulated during the development stage.................. (27,218,176) (25,143,705) (31,131,049) (31,131,049)
Deferred Compensation............................................. (1,593,024) (1,243,897) (4,948,576) (4,948,576)
Unrealized gain (loss) on available-for-sale securities........... (19,248) 42,612 -- --
------------ ------------ ------------ ------------
Total stockholders' equity................................ 7,073,252 33,541,359 27,887,129 60,902,404
------------ ------------ ------------ ------------
$ 13,472,186 $ 39,217,519 $ 33,625,562 $ 62,095,564
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 65
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JULY 7, 1988
YEAR ENDED DECEMBER 31, JUNE 30, (DATE OF
----------------------------------------- -------------------------- INCEPTION)
1993 1994 1995 1995 1996 SIX MONTHS
----------- ----------- ----------- ----------- ----------- ENDED
JUNE 30,
(UNAUDITED) (UNAUDITED) 1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
License and contract fee
revenues from Hoechst
Marion Roussel, Inc.
(HMRI)................ $ -- $10,000,000 $15,400,000 $11,700,000 $ 1,975,000 $ 27,375,000
Costs and expenses:
Research and
development......... 6,253,051 9,125,732 10,066,700 5,205,074 6,839,398 43,566,814
General and
administrative...... 2,998,193 4,690,399 4,289,910 1,737,458 1,911,071 17,793,685
----------- ----------- ----------- ----------- ----------- ------------
Total costs and
expenses............ 9,251,244 13,816,131 14,356,610 6,942,532 8,750,469 61,360,499
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from
operations............ (9,251,244) (3,816,131) 1,043,390 4,757,468 (6,775,469) (33,985,499)
Other income (expense):
Interest income....... 168,878 470,888 1,129,301 445,772 788,125 3,247,234
Interest expense...... (393) (76,358) (13,220) (13,220) -- (307,784)
----------- ----------- ----------- ----------- ----------- ------------
Other income, net..... 168,485 394,530 1,116,081 432,552 788,125 2,939,450
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) before
provision for income
taxes................. (9,082,759) (3,421,601) 2,159,471 5,190,020 (5,987,344) (31,046,049)
Provision for income
taxes................. -- -- 85,000 85,000 -- 85,000
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss)....... $(9,082,759) $(3,421,601) $ 2,074,471 $ 5,105,020 $(5,987,344) $(31,131,049)
=========== =========== =========== =========== =========== ============
Pro forma net income
(loss) per share
(unaudited)........... $ 0.14 $ 0.35 $ (0.42)
=========== =========== ===========
Shares used in computing
pro forma net income
(loss) per share
(unaudited)........... 14,632,870 14,639,748 14,255,336
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 66
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CUMULATIVE
ACCRETION
PREFERRED STOCK COMMON STOCK ADDITIONAL OF
---------------------- -------------------- PAID-IN PREFERRED ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT COMPENSATION
--------- ---------- ---------- ------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock for
cash at September and
December 1988 ($.01 per
share)................. 3,905,356 $39,054 $ (38,379 )
Preferred stock dividend
accretion............... $ (19,753 )
Net loss................. $ (99,731 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1988.................... 3,905,356 39,054 (38,379 ) (19,753 ) (99,731 )
Sale of common stock for
cash at May, June and
August 1989 ($.01 per
share).................. 227,089 2,270 (2,231 )
Preferred stock dividend
accretion............... (160,520 )
Net loss................. (1,346,189 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1989.................... 4,132,445 41,324 (40,610 ) (180,273 ) (1,445,920 )
Sale of common stock for
cash at February, May
and November 1990 ($.01
per share).............. 71,222 712 (699 )
Repurchase of common
stock for cash at
January, May and
September 1990.......... (50,046) (500 ) 491
Sale of Class A Preferred
Stock for cash at
February 1990 ($1,000
per share).............. 3,000 $ 3,000 2,997,000
Preferred stock dividend
accretion............... (210,000 )
Net loss................. (2,478,131 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1990.................... 3,000 3,000 4,153,621 41,536 2,956,182 (390,273 ) (3,924,051 )
Sale of common stock for
cash at April, August
and September
1991 ($.01 per share)... 367,798 3,678 (3,615 )
Repurchase of common
stock for cash at August
1991.................... (1,446) (14 ) 14
Preferred stock dividend
accretion............... (210,000 )
Net loss................. (4,389,924 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1991.................... 3,000 3,000 4,519,973 45,200 2,952,581 (600,273 ) (8,313,975 )
Sale of common stock for
cash at March, May,
June, August and
December 1992 ($.01 per
share).................. 573,942 5,739 (5,640 )
Repurchase of common
stock for cash at
February, March, April,
May, July, October and
December 1992........... (46,170) (462 ) 454
Sale of Class B preferred
stock for cash and notes
at February 1992 ($400
per share).............. 39,459 39,459 15,259,265
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON TOTAL
AVAILABLE- STOCKHOLDERS'
FOR-SALE EQUITY
SECURITIES (DEFICIT)
------------ -------------
<S> <C> <C>
Sale of common stock for
cash at September and
December 1988 ($.01 per
share)................. $ 675
Preferred stock dividend
accretion............... (19,753 )
Net loss................. (99,731 )
-----------
BALANCE AT DECEMBER 31,
1988.................... (118,809 )
Sale of common stock for
cash at May, June and
August 1989 ($.01 per
share).................. 39
Preferred stock dividend
accretion............... (160,520 )
Net loss................. (1,346,189 )
-----------
BALANCE AT DECEMBER 31,
1989.................... (1,625,479 )
Sale of common stock for
cash at February, May
and November 1990 ($.01
per share).............. 13
Repurchase of common
stock for cash at
January, May and
September 1990.......... (9 )
Sale of Class A Preferred
Stock for cash at
February 1990 ($1,000
per share).............. 3,000,000
Preferred stock dividend
accretion............... (210,000 )
Net loss................. (2,478,131 )
-----------
BALANCE AT DECEMBER 31,
1990.................... (1,313,606 )
Sale of common stock for
cash at April, August
and September
1991 ($.01 per share)... 63
Repurchase of common
stock for cash at August
1991....................
Preferred stock dividend
accretion............... (210,000 )
Net loss................. (4,389,924 )
-----------
BALANCE AT DECEMBER 31,
1991.................... (5,913,467 )
Sale of common stock for
cash at March, May,
June, August and
December 1992 ($.01 per
share).................. 99
Repurchase of common
stock for cash at
February, March, April,
May, July, October and
December 1992........... (8 )
Sale of Class B preferred
stock for cash and notes
at February 1992 ($400
per share).............. 15,298,724
</TABLE>
F-5
<PAGE> 67
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
CUMULATIVE
ACCRETION
ADDITIONAL OF
PREFERRED STOCK COMMON STOCK PAID-IN PREFERRED ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT COMPENSATION
----- ------ --------- ------- ---------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Preferred stock dividend
accretion............... $ (210,000 )
Net loss................. $(6,399,841 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1992.................... 42,459 42,459 5,047,745 50,477 18,206,660 (810,273 ) (14,713,816 )
Sale of common stock for
cash at March, May and
August 1993($.01 per
share).................. 254,687 2,547 (874 )
Repurchase of common
stock for cash at
January, February,
April, June, July,
September and October
1993.................... (8,331) (83 ) 73
Sale of Class B preferred
stock for April 1993
($400 per share)........ 9,880 9,880 3,915,780
Sale of Class C preferred
stock for cash at
November 1993 ($8 per
share).................. 1,015,974 1,015,974 7,059,222
Deferred compensation
related to restricted
stock and stock options
granted (275,991 shares
granted with fair values
ranging from $2.33 per
share to $6.61 per
share).................. 1,661,002 $(1,661,002)
Compensation expense
related to equity
issuances............... 238,571
Preferred stock dividend
accretion............... (210,000 )
Net loss................. (9,082,759 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1993.................... 1,068,313.. 1,068,313 5,294,101 52,941 30,841,863 (1,020,273 ) (23,796,575 ) (1,422,431)
Repurchase of common
stock for cash at
January, February, June,
August and September
1994.................... (122,342) (1,223 ) (99,008 )
Sale of Class D preferred
stock to HMRI for cash
at May 1994 ($17.83 per
share).................. 280,367 280,367 4,455,053
Deferred compensation
related to restricted
stock and stock options
granted (128,365 shares
granted with fair values
ranging from $3.11 per
share to $6.22 per
share.)................. 535,667 (535,667)
Compensation expense
related to equity
issues.................. 365,074
Preferred stock dividend
accretion............... (210,000 )
Unrealized loss on
available-for-sale
securities..............
Net loss................. (3,421,601 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1994.................... 1,348,680.. 1,348,680 5,171,759 51,718 35,733,575 (1,230,273 ) (27,218,176 ) (1,593,024)
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON TOTAL
AVAILABLE- STOCKHOLDERS'
FOR-SALE EQUITY
SECURITIES (DEFICIT)
-----------
<S> <C> <C>
Preferred stock dividend
accretion............... $ (210,000 )
Net loss................. (6,399,841 )
----------- ------------
BALANCE AT DECEMBER 31,
1992.................... 2,775,507
Sale of common stock for
cash at March, May and
August 1993($.01 per
share).................. 1,673
Repurchase of common
stock for cash at
January, February,
April, June, July,
September and October
1993.................... (10 )
Sale of Class B preferred
stock for April 1993
($400 per share)........ 3,925,660
Sale of Class C preferred
stock for cash at
November 1993 ($8 per
share).................. 8,075,196
Deferred compensation
related to restricted
stock and stock options
granted (275,991 shares
granted with fair values
ranging from $2.33 per
share to $6.61 per
share)..................
Compensation expense
related to equity
issuances............... 238,571
Preferred stock dividend
accretion............... (210,000 )
Net loss................. (9,082,759 )
----------- ----------
BALANCE AT DECEMBER 31,
1993.................... 5,723,838
Repurchase of common
stock for cash at
January, February, June,
August and September
1994.................... (100,231 )
Sale of Class D preferred
stock to HMRI for cash
at May 1994 ($17.83 per
share).................. 4,735,420
Deferred compensation
related to restricted
stock and stock options
granted (128,365 shares
granted with fair values
ranging from $3.11 per
share to $6.22 per
share.).................
Compensation expense
related to equity
issues.................. 365,074
Preferred stock dividend
accretion............... (210,000 )
Unrealized loss on
available-for-sale
securities.............. $ (19,248) (19,248 )
Net loss................. (3,421,601 )
----------- -----------
BALANCE AT DECEMBER 31,
1994.................... (19,248) 7,073,252
</TABLE>
F-6
<PAGE> 68
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
CUMULATIVE
ACCRETION
PREFERRED STOCK COMMON STOCK ADDITIONAL OF
---------------------- -------------------- PAID-IN PREFERRED ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT COMPENSATION
--------- ---------- ---------- ------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock for
cash at June and August
1995 ($.01 per share)... 30,957 $ 310 $ (69 )
Repurchase of common
stock for cash at
January, June and
September 1995.......... (5,054) (51 ) 11
Sale of Class E preferred
stock to HMRI for cash
at March 1995 ($19.10
per share).............. 523,560 523,560 9,344,440
Sale of Class F preferred
stock for cash at
October and December
1995 ($14 per share).... 1,071,429 1,071,429 13,179,894
Deferred compensation
related to restricted
stock and stock options
granted (11,756 shares
granted with fair values
of $6.22 per share...... 73,125 (73,125)
Compensation expense
related to equity
issues.................. 422,252
Preferred stock dividend
accretion............... (210,000 )
Unrealized gain on
available-for-sale
securities..............
Net income............... 2,074,471
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT DECEMBER 31,
1995.................... 2,943,669 2,943,669 5,197,662 51,977 58,330,976 (1,440,273 ) (25,143,705 ) (1,243,897)
Sale of common stock for
cash at January and June
1996 ($.01 per share)
(unaudited)............. 289 3 (1 )
Repurchase of common
stock for cash at
January 1996
(unaudited)............. (289) (3 ) 1
Deferred compensation
related to restricted
stock and stock options
granted (672,895 shares
granted with fair values
of $6.22 per share
(unaudited)............. 4,185,405 (4,185,405)
Compensation expenses
related to equity issues
(unaudited)............. 480,726
Preferred stock dividend
accretion (unaudited)... (105,000 )
Unrealized loss on
available-for-sale
securities
(unaudited).............
Net loss (unaudited)..... (5,987,344 )
----- ------ --------- ------- ---------- --------- ----------- -------
BALANCE AT JUNE 30, 1996
(UNAUDITED)............. 2,943,669 $2,943,669 5,197,662 $51,977 $62,516,381 $(1,545,273) $(31,131,049) $(4,948,576)
===== ====== ========= ======= ========== ========= =========== =======
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON TOTAL
AVAILABLE- STOCKHOLDERS'
FOR-SALE EQUITY
SECURITIES (DEFICIT)
------------ -------------
<S> <C> <C>
Sale of common stock for
cash at June and August
1995 ($.01 per share)... $ 241
Repurchase of common
stock for cash at
January, June and
September 1995.......... (40 )
Sale of Class E preferred
stock to HMRI for cash
at March 1995 ($19.10
per share).............. 9,868,000
Sale of Class F preferred
stock for cash at
October and December
1995 ($14 per share).... 14,251,323
Deferred compensation
related to restricted
stock and stock options
granted (11,756 shares
granted with fair values
of $6.22 per share......
Compensation expense
related to equity
issues.................. 422,252
Preferred stock dividend
accretion............... (210,000 )
Unrealized gain on
available-for-sale
securities.............. 61,860 61,860
Net income............... 2,074,471
----------- ----------
BALANCE AT DECEMBER 31,
1995.................... 42,612 33,541,359
Sale of common stock for
cash at January and June
1996 ($.01 per share)
(unaudited)............. 2
Repurchase of common
stock for cash at
January 1996
(unaudited)............. (2 )
Deferred compensation
related to restricted
stock and stock options
granted (672,895 shares
granted with fair values
of $6.22 per share
(unaudited).............
Compensation expenses
related to equity issues
(unaudited)............. 480,726
Preferred stock dividend
accretion (unaudited)... (105,000 )
Unrealized loss on
available-for-sale
securities
(unaudited)............. (42,612) (42,612 )
Net loss (unaudited)..... (5,987,344 )
----------- -----------
BALANCE AT JUNE 30, 1996
(UNAUDITED)............. -- $ 27,887,129
=========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 69
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 7, 1988
---------------------------------------- JUNE 30, (DATE OF
1993 1994 1995 --------------------------- INCEPTION)
----------- ----------- ------------ 1995 1996 THROUGH
------------ ------------ JUNE 30, 1996
(UNAUDITED) (UNAUDITED) -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............. $(9,082,759) $(3,421,601) $ 2,074,471 $ 5,105,020 $ (5,987,344) $ (31,131,049)
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and
amortization............. 612,666 1,252,734 1,488,318 734,321 789,401 5,232,717
Compensation expense
related to equity
issuances................ 238,571 365,074 422,252 238,000 480,726 1,506,623
Forgiveness of loan and
interest receivable from
terminated employee...... 334,000 334,000
Accrued interest on
convertible debt......... 217,679
Changes in operating assets
and liabilities:
(Increase) decrease in
prepaid expenses and
other current assets..... (214,470) 100,035 171,138 79,378 (146,129) (302,139)
Increase (decrease) in
accounts payable......... 880,116 (820,943) 162,650 (99,320) (31,957) 483,378
Increase in accrued
expenses................. 191,567 276,988 2,521 (141,517) (10,770) 709,782
----------- ----------- ------------ ------------ ------------ ------------
Net cash provided (used) by
operating activities......... (7,374,309) (1,913,713) 4,321,350 5,915,882 (4,906,073) (22,949,009)
INVESTING ACTIVITIES
Sales of marketable
securities................... 6,821,432 41,850,807 29,655,524 27,033,777 75,706,016
Purchases of marketable
securities................... (2,398,499) (9,414,673) (59,761,766) (43,718,701) (15,106,279) (86,681,217)
Property and equipment
additions.................... (2,352,334) (2,837,450) (558,243) (178,301) (526,889) (8,901,132)
(Increase) decrease in employee
loans........................ 2,507 (20,901) (20,176) (440,868)
License additions.............. (10,714) (41,557) (122,403) (32,403) (53,225) (442,899)
(Increase) decrease in other
assets....................... (156,807) (47,107) 202,316 187,914 (182,383) (331,581)
----------- ----------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities......... (4,918,354) (5,516,848) (18,410,190) (14,106,143) 11,165,001 (21,091,681)
</TABLE>
F-8
<PAGE> 70
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 7, 1988
---------------------------------------- JUNE 30, (DATE OF
1993 1994 1995 --------------------------- INCEPTION)
----------- ----------- ------------ 1995 1996 THROUGH
------------ ------------ JUNE 30, 1996
(UNAUDITED) (UNAUDITED) -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Sale of Class A redeemable
preferred (September 1988 and
May 1989).................... $ 3,000,000
Sale of Class A preferred stock
(February 1990).............. 3,000,000
Sale of Class B convertible
stock........................ $ 3,925,660 14,006,705
Sale of Class C convertible
stock........................ 8,075,196 8,075,196
Sale of Class D convertible
preferred stock to HMRI...... $ 4,735,420 4,735,420
Sale of Class E convertible
preferred stock to HMRI...... $ 9,868,000 $ 9,868,000 9,868,000
Sale of Class F convertible
preferred stock.............. 14,251,323 14,251,323
Issuance of convertible debt... 5,000,000
Bank debt proceeds............. 50,000 1,447,147 1,497,147
Bank debt repayments........... (399,202) (1,097,945) (1,097,945) (1,497,147)
Sale (repurchase) of common
stock, net................... 1,663 (100,231) 201 203 (97,495)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities................... 12,052,519 5,683,134.. 23,021,579 8,770,258 61,839,149
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents......... (240,144) (1,747,427) 8,932,739 579,997 $ 6,258,928 17,798,459
Cash and cash equivalents at
beginning of period.......... 4,594,363 4,354,219 2,606,792 2,606,792 11,539,531 --
----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at
end of period................ $ 4,354,219 $ 2,606,792 $ 11,539,531 $ 3,186,789 $ 17,798,459 $ 17,798,459
=========== =========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING ACTIVITIES:
Conversion of convertible debt
and accrued interest for
Class B convertible preferred
stock........................ $ 5,217,679
===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 71
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF BUSINESS
Transkaryotic Therapies, Inc. (the Company) was incorporated in July 1988
and is a development-stage enterprise. The Company is dedicated to the
development and commercialization of therapeutic human proteins produced with
the Company's gene activation technology, and gene therapy products for the
long-term treatment and cure of a broad range of chronic human diseases. Since
inception, principal activities have been focused on the discovery and
development of technology and products in gene therapy and related fields, the
development of business plans, the seeking of financing, and the recruitment and
training of personnel. The Company's ability to progress beyond the development
stage is dependent upon the completion of additional financings and, ultimately,
the successful development and marketing of its products.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The balance sheet at June 30, 1996, the statements of operations and
statements of cash flows for the six months ended June 30, 1995 and 1996 and the
period from July 7, 1988 (date of inception) through June 30, 1996, and the
statement of stockholders' equity for the six months ended June 30, 1996 are
unaudited, but, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
results for these interim periods. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of results to be expected for
the entire year.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which
establishes criteria for the recognition and measurement of impairment loss
associated with long-lived assets. The Company adopted this standard in the
first quarter of 1996. Adoption of this standard did not have a material impact
on the Company's financial position or results of operation.
MARKETABLE SECURITIES
Marketable securities consist of highly liquid investments with a maturity
of more than three months when purchased. The Company uses these investments in
its cash management program. The investments are classified as
available-for-sale. Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Gains and losses on the sale of securities are determined
using the specific identification method.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments. The Company
maintains cash and cash equivalents with high-credit-quality financial
institutions and limits the amount of credit exposure to any one institution.
F-10
<PAGE> 72
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Equipment, furniture and fixtures are stated at cost and are being
depreciated using the straight-line method over estimated useful lives of three
to five years. Leasehold improvements are stated at cost and are being amortized
using the straight-line method over the term of the lease.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for its stock-based compensation plans rather than
the alternative fair value accounting provided under Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation."
REVENUE RECOGNITION
Revenues from nonrefundable license fees are recognized upon execution of
the underlying license agreement. Fees from research milestones are recognized
upon the achievement of the related milestones. Revenues from contract research
are recognized in accordance with the underlying agreement as research is
conducted.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRO FORMA BALANCE SHEET (UNAUDITED)
The unaudited pro forma balance sheet is presented to give pro forma effect
to the sale of 1,133,589 shares of Class G Convertible Preferred Stock at $22
per share in July and August 1996, and the assumed conversion of the Class A
Redeemable, Class A, Class B, Class C, Class D, Class E, Class F, and Class G
Convertible Preferred Stock into an aggregate of 8,614,026 shares of Common
Stock, and the sale of 357,143 shares of Common Stock to HMRI, assuming an
initial public offering price of $14 per share, both upon the completion of the
initial public offering as contemplated in this Prospectus.
PRO FORMA NET INCOME (LOSS) PER SHARE (UNAUDITED)
Pro forma net income (loss) per share is computed using the weighted
average number of common shares, convertible preferred shares assuming
conversion at date of issuance, and dilutive equivalent shares from stock
options and warrants using the treasury stock method. Pursuant to the
requirements of the Securities and Exchange Commission, shares and equivalent
shares issued by the Company during the twelve-month period prior to the
proposed offering have been included in the calculations as if they were
outstanding for all periods presented whether or not they are anti-dilutive
(using the treasury stock method and using the assumed initial public offering
price). Historical earnings per share have not been presented since such amounts
are not deemed meaningful due to the significant change in the Company's capital
structure that will occur in connection with this offering.
All shares of common stock and related per share amounts included in the
accompanying financial statements and notes thereto have been retroactively
restated to give effect to a 1.285714 for 1 stock split, effected in the form of
a stock dividend (see Note 10).
F-11
<PAGE> 73
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities at December 31,
1994 and 1995, and June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies................... $ 2,558,787 $ -- $ (1,591) $ 2,557,196
U.S. corporate securities.................... 3,500,111 -- (5,036) 3,495,075
Foreign corporate securities................. 999,551 -- (12,621) 986,930
----------- ------- -------- -----------
$ 7,058,449 $ -- $ (19,248) $ 7,039,201
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies................... $29,750,091 $ 44,886 $ (2,274) $29,792,703
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 (UNAUDITED)
-------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies................... $27,074,385 $ -- $ -- $27,074,385
=========== ======= ======== ===========
</TABLE>
These securities are classified in the accompanying balance sheet as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash equivalents............................. $2,066,709 $ 6,847,392 $16,099,184
Marketable securities........................ 4,972,492 22,945,311 10,975,201
--------- ---------- ----------
$7,039,201 $29,792,703 $27,074,385
========= ========== ==========
</TABLE>
Available-for-sale securities classified as cash equivalents at December
31, 1994, consist of obligations of U.S. government agencies.
F-12
<PAGE> 74
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair value of available-for-sale securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
--------------------------- ---------------------------
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
Government agencies:
Due in one year or less....... $18,360,507 $18,371,453 $27,074,385 $27,074,385
Due after one year through
three years................. 11,389,584 11,421,250 -- --
----------- ----------- ----------- -----------
$29,750,091 $29,792,703 $27,074,385 $27,074,385
=========== =========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996
------------------------- -----------
1994 1995
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements......................... $4,912,343 $5,015,967 $ 5,040,767
Laboratory equipment........................... 2,177,368 2,386,082 2,693,876
Office furniture and equipment................. 682,563 927,390 1,101,868
---------- ---------- ----------
7,772,274 8,329,439 8,836,511
Less accumulated depreciation and
amortization................................. 2,869,313 4,330,786 5,082,066
---------- ---------- ----------
Property and equipment, net.................... $4,902,961 $3,998,653 $ 3,754,445
========== ========== ==========
</TABLE>
Depreciation and amortization expense on property and equipment was
approximately $597,000, $1,233,000 and $1,463,000 in 1993, 1994 and 1995,
respectively.
5. EMPLOYEE LOANS
The Company has periodically provided loans to selected management
personnel. Outstanding loans of $166,000 at December 31, 1995, classified as
other assets in the accompanying balance sheet, will be repaid by 2003 and bear
interest at rates derived from the U.S. Treasury secondary market rate. The
loans may be prepaid and are secured by the employee's common shares and options
to purchase common shares. In 1994, one loan of $275,000 was forgiven as part of
a severance arrangement (see Note 13).
6. LICENSES
The Company has entered into licensing agreements with various universities
and research organizations. Under the terms of these agreements, the Company has
received exclusive and nonexclusive licenses to technology and technology
claimed in certain patents and patent applications. The Company is required to
make payments of nonrefundable license fees and royalties on future sales of
products employing the technology. In 1993, 1994 and 1995, the Company paid
license fees under these agreements totaling approximately $11,000, $42,000 and
$122,000, respectively.
F-13
<PAGE> 75
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and benefits............................. $204,946 $177,937 $ 172,401
Professional fees................................. 112,896 157,815 257,647
Deferred rent..................................... 89,600 89,600 89,600
Income taxes payable.............................. -- 85,000 --
Other............................................. 41,789 31,000 55,734
-------- -------- --------
$449,231 $541,352 $ 575,382
======== ======== ========
</TABLE>
8. BANK DEBT
At December 31, 1994, the Company had borrowed $1,497,000 subject to the
terms of a bank loan and a lease line of credit. Funds obtained under these
agreements were repayable over a 36-month term at interest rates ranging from
6.42% to 9.75%. In February 1995, the Company paid a fee of $10,000 and repaid
the obligations in full under the prepayment terms of these lending
arrangements.
9. REDEEMABLE PREFERRED STOCK
At December 31, 1995, the Company has authorized, issued and outstanding
3,000 shares of Class A Redeemable preferred stock. Each holder of Class A
Redeemable preferred stock is entitled to receive cumulative annual dividends of
$70 per share. At December 31, 1995, dividend payments in arrears were
$1,440,273. The carrying amount of the Class A Redeemable preferred stock has
been increased by periodic accretions equal to the cumulative unpaid dividends.
In the event seven consecutive dividend payments are in arrears and until all
such dividends are paid, the holders of the Class A Redeemable preferred shares
may vote as a class to elect one additional director to the Company's Board of
Directors. Class A Redeemable preferred stockholders have preemptive rights to
purchase all or part of any new securities that the Company proposes to issue.
These rights will terminate upon the closing of an initial public offering of
the Company's common stock.
In 1995, the Class A preferred stockholders agreed to amend the redemption
provisions of the stockholders' agreement, moving the commencement date of the
redemption from December 31, 1995 to December 31, 1997. Therefore, beginning on
December 31, 1997, the Company is required annually to redeem 750 shares of
Class A Redeemable preferred stock for $1,000 per share plus all accrued but
unpaid dividends. In the event of liquidation, the Class A Redeemable preferred
stockholders would be entitled to be paid an amount equal to $700 per share plus
all accrued but undeclared and declared but unpaid dividends thereon. Upon the
closing of an initial public offering of the Company's common stock, as
contemplated in this Prospectus, the Class A Redeemable preferred stock and all
rights to accrued dividends thereon will be automatically converted into the
number of shares of common stock of the Company determined by dividing
$3,000,000 by the initial public offering price per share. At an assumed initial
public offering price of $14.00, the Class A Redeemable preferred stock converts
into 214,286 shares of common stock.
10. STOCKHOLDERS' EQUITY
Class A Preferred Stock
At December 31, 1995, the Company has authorized, issued and outstanding
3,000 shares of Class A preferred stock. Class A preferred stockholders have
preemptive rights to purchase all or part of any new securities that the Company
proposes to issue. These rights will terminate upon the closing of an initial
public
F-14
<PAGE> 76
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
offering of the Company's common stock, as contemplated in this Prospectus. In
the event of liquidation, the Class A preferred stockholders would be entitled
to be paid an amount equal to $700 per share and cumulative annual dividends of
$70 per share. Upon the closing of an initial public offering of the Company's
common stock, as contemplated in this Prospectus, the Class A preferred stock
will be automatically converted into the number of shares of common stock of the
Company determined by dividing $3,000,000 by the initial public offering price
per share. At an assumed initial public offering price of $14.00, the Class A
preferred stock converts into 214,285 shares of common stock.
Convertible Preferred Stock
The Company has authorized five classes of convertible preferred stock:
Class B, Class C, Class D, Class E and Class F. Each Class has liquidation
preference over common stock, but subordinate to Class A preferred stock. Each
share of convertible preferred stock may be converted, at the option of the
holder, into shares of common stock at a defined ratio and will be automatically
converted into common stock upon the closing of an initial public offering of
the Company's common stock, as contemplated in this Prospectus. Each share of
convertible preferred stock is entitled to one vote for each share of common
stock issuable upon conversion thereof. Convertible preferred stockholders have
preemptive rights to purchase all or part of any subsequent issue of equity
securities by the Company, which rights will terminate upon the closing of an
initial public offering of the Company's common stock, as contemplated in this
Prospectus.
The liquidation preference and conversion ratio per share of each class of
convertible preferred stock are as follows:
<TABLE>
<CAPTION>
LIQUIDATION CONVERSION
PREFERENCE RATIO
----------- ----------
<S> <C> <C>
Class B............................................... $400.00 59:1
Class C............................................... 8.00 1.29:1
Class D............................................... 17.83 1.62:1
Class E............................................... 19.10 1.29:1
Class F............................................... 14.00 1.29:1
</TABLE>
In July 1996, the Company authorized 1,136,364 shares of $1.00 par value
Class G convertible preferred stock, of which 1,133,589 shares were sold during
July and August 1996 raising approximately $23,470,000 after deducting the costs
associated with the financing. The Class G convertible preferred stock has
liquidation preference over the common stock in the amount of $22.00 per share
and each share may be converted into 1.29 shares of common stock at the option
of the stockholder and will be automatically converted to common stock upon the
closing of an initial public offering of the Company's common stock, as
contemplated in this Prospectus. Class G convertible preferred stockholders have
preemptive rights to purchase, up to certain limits, their pro rata share of any
new securities that the Company proposes to issue. These rights will terminate
upon the closing of an initial public offering of the Company's common stock, as
contemplated in this Prospectus.
On July 22, 1996, the Board of Directors authorized, subject to shareholder
approval and the completion of the initial public offering as contemplated in
this Prospectus, 10,000,000 shares of undesignated preferred stock with a par
value of $.01 per share.
Common Stock
Certain shares of common stock are restricted by terms of stock purchase
agreements between the Company and certain employees and consultants. Restricted
shares vest at annual rates ranging from 16.7% to 33.3% subject to the terms of
the vesting agreements.
F-15
<PAGE> 77
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Upon termination of the services of the employee or consultant, the Company
has the right to repurchase any unvested shares at the original issue price of
$.01 per share. At December 31, 1995, there were 1,580,974 shares outstanding
under these agreements, of which 1,417,262 shares were vested. Cash dividends
may not be declared on common stock until all dividend rights of the preferred
stockholders have been fulfilled. As of December 31, 1995 a total of 9,932,000
shares of common stock have been reserved for issuance of stock options and
warrants and the conversion of preferred stock. For certain equity issuances,
the Company recognizes as compensation expense the excess of the deemed value
for accounting purposes of the common stock and common stock options (see Note
11) issued over the purchase price of the stock. This compensation expense is
amortized over the term of the vesting agreement. As of December 31, 1995 and
June 30, 1996, the Company had unamortized deferred compensation associated with
unvested equity awards aggregating $1,243,897 and $4,948,576, respectively.
Compensation expense recognized on outstanding common stock and options was
approximately $239,000, $365,000 and $422,000 for 1993, 1994 and 1995,
respectively, and $238,000 and $481,000 for the six months ended June 30, 1995
and 1996, respectively.
On July 22, 1996, the Board of Directors authorized, subject to shareholder
approval and the completion of the initial public offering as contemplated in
this Prospectus, an increase in the authorized shares of common stock from
15,000,000 to 30,000,000 shares.
On August 15, 1996, the Board of Directors approved a 1.285714 for 1 stock
split of common stock, effected in the form of a stock dividend. All shares of
common stock and related per share amounts included in the accompanying
financial statements and notes thereto have been retroactively restated to give
effect to the stock split.
11. STOCK-BASED INCENTIVE PLANS AND STOCK WARRANTS
Under the Company's 1993 Long-Term Incentive Plan, awards in the form of
stock options, stock appreciation rights, restricted stock, long-term
performance awards and stock grants may be issued to employees, consultants and
advisors of the Company at prices to be determined by the Compensation Committee
of the Board of Directors. At December 31, 1995, a total of 1,607,143 shares of
common stock have been reserved for issuance under the plan. On July 22, 1996,
the Board of Directors voted to increase the number of shares available for
issuance under the plan to 2,250,000, subject to shareholder approval. Options
vest over a period of six years and terminate ten years from date of grant.
Options to purchase 7,660 and 289 shares of common stock were exercised during
1995 and the six months ended June 30, 1996, respectively. At December 31, 1995
and June 30, 1996, respectively, options to purchase 136,344 and 810,315 shares
of common stock at nominal value were outstanding. Options for 27,519 and 39,759
shares were exercisable at December 31, 1995 and June 30, 1996, respectively.
The Company's 1993 Non-Employee Directors' Stock Option Plan provides for
automatic common stock option grants to each Director who is not an employee of
the Company and does not own any common stock of the Company which was purchased
prior to June 1993. Such eligible Directors will receive an annual option grant
to purchase 6,750 shares of common stock while the Director remains an active
member of the Board. The options will be exercisable ratably over a three-year
period and must be exercised within ten years from date of grant. The options
will entitle the holder to purchase shares at fair market value on the date of
grant. A total of 231,429 shares of common stock have been reserved for issuance
under the plan. At December 31, 1995, no awards had been made under this plan,
and no Directors were eligible to participate.
F-16
<PAGE> 78
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following exercisable common stock warrants are outstanding at December
31, 1995 and June 30, 1996:
<TABLE>
<CAPTION>
COMMON EXERCISE EXPIRATION
SHARES PRICE DATE
- ------- -------- --------------
<S> <C> <C>
86,786 $ 6.22 November 1997
77,181 6.91 April 1998
653,126 7.78 November 1998
</TABLE>
12. LICENSE AND CONTRACT FEE REVENUES FROM HOECHST MARION ROUSSEL, INC.
In May 1994 and March 1995, the Company entered into license and stock
purchase agreements with Hoechst Marion Roussel, Inc. (HMRI), whereby HMRI was
granted exclusive rights to make, use and sell worldwide two therapeutic
products produced under patent rights and technologies owned by the Company.
Under the terms of the agreements, the Company received $10 million in each of
1994 and 1995 as nonrefundable licensing fees. In 1995, the Company also
received an initial milestone payment of $2 million for successful completion of
certain research and $3.4 million for primarily contract research funding under
these agreements. In the six month period ended June 30, 1996, the Company
received an additional $1.7 million under these agreements. As part of these
agreements, HMRI will make additional payments of up to $83.3 million in the
form of equity purchases and payments due upon achievement of predetermined
milestones.
13. RETIREMENT PLAN AND OTHER BENEFITS
The Company maintains a 401(k) matched retirement savings plan which covers
substantially all employees who have completed at least six months of service to
the Company. The Company may match employee contributions up to 50% of the first
5% of employee compensation. Employees are fully vested in contributions they
make to the plan. Employer contributions vest at a rate of 20% per year after
the first year of service by the employee. The total expense related to the
retirement plan in 1993, 1994 and 1995 was approximately $45,000, $57,000 and
$83,000, respectively.
In 1994, a former officer and director terminated his association with the
Company. As part of the termination agreement, the Company forgave loans and
interest of approximately $334,000, repurchased 16,071 shares of its common
stock for $100,000 and made severance payments of approximately $210,000 to the
former executive.
14. INCOME TAXES
Prior to 1995, the Company had incurred only operating losses. Since the
Company expects that it will continue to incur substantial losses for at least
several years, management believes that as of December 31, 1995, it is more
likely than not that all of the deferred tax assets will not be realized and
therefore no tax benefit for the prior operating losses or other deferred tax
assets has been provided given uncertainty regarding their realization. In 1995,
the Company utilized approximately $1.6 million of tax benefit from net
operating loss carryforwards to offset the current year tax provision except for
$85,000 of income taxes due under the alternative minimum tax rules of the
Internal Revenue Code (the Code). At December 31, 1995, the Company had net
operating loss carryforwards of approximately $22 million which expire through
2009. For financial reporting purposes, a valuation allowance has been
recognized to offset the deferred tax assets relating to those carryforwards.
The future utilization of net operating loss carryforwards may be subject to
limitation under the change in stock ownership rules of the Code. Because of
this limitation, it is possible that taxable income in future years, which would
otherwise be offset by net operating losses, will not be offset and therefore
will be subject to tax.
F-17
<PAGE> 79
TRANSKARYOTIC THERAPIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has no
deferred tax liabilities as of December 31, 1994 and 1995. Significant
components of the Company's deferred tax assets as of December 31, 1994 and 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $10,975 $ 9,397
Tax credits.................................................... 1,801 2,479
Fixed assets................................................... 519 752
Other.......................................................... 298 40
-------- --------
Total deferred tax assets........................................ 13,593 12,668
Valuation allowance.............................................. (13,593) (12,668)
-------- --------
Net deferred tax assets.......................................... $ 0 $ 0
======== ========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating leases. The Company has a
five-year lease for additional space at its current facility. The lease allowed
for a reduced rental payment in the first year of the lease. For financial
reporting purposes, the aggregate rent expense of the entire lease period is
recognized ratably over the lease period, thus creating a deferred liability
which amounted to $268,800 at December 31, 1995. The lease agreement contains a
renewal option to extend the lease for two five-year periods.
Future annual minimum payments under all noncancelable operating leases are
as follows:
<TABLE>
<S> <C>
Year ended:
1996................................................... $1,154,000
1997................................................... 1,056,000
1998................................................... 1,028,000
----------
Total.......................................... $3,238,000
==========
</TABLE>
Rent expense was approximately $275,000, $1,087,000 and $992,000 in 1993,
1994 and 1995, respectively.
F-18
<PAGE> 80
[LOGO]
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
<CAPTION>
<S> <C>
SEC registration fee...................................................... $ 14,871
Nasdaq National Market fee................................................ 50,000
NASD filing fee and expenses.............................................. 4,813
Blue Sky fees and expenses................................................ 17,000
Printing and engraving expenses........................................... 100,000
Accounting fees and expenses.............................................. 100,000
Legal fees and expenses................................................... 370,000
Transfer Agent and Registrar fees......................................... 5,800
Miscellaneous............................................................. 17,516
--------
Total........................................................... $680,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees and agents of the Registrant against
actual and reasonable expenses (including attorneys' fees) incurred by them in
connection with any action, suit or proceeding brought against them by reason of
their status or service as a director, officer, employee or agent by or on
behalf of the Registrant, and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him in
connection with any such action, suit or proceeding, if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, and (ii) in the case of a criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. Except as ordered
by a court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the corporation where the person involved is
adjudged to be liable to the Registrant.
Article VII of the Registrant's Amended and Restated Certificate of
Incorporation provides that a director shall not be personally liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent that elimination or limitation of liability
is not permitted under the Delaware General Corporation Law as in effect when
such liability is determined.
Article VIII of the Registrant's Amended and Restated Certificate of
Incorporation provides that the Registrant shall, to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as amended
from time to time, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was, or has agreed to become a director or officer of
the Registrant, or is or was serving, or has agreed to serve at the request of
the Registrant as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise. The indemnification provided for in Article VIII is expressly not
exclusive of any other rights to which those seeking indemnification may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs, executors
and administrators of such persons. Article VIII further permits the Board of
Directors to authorize the grant of indemnification rights to other employees
and agents of the Registrant and such rights may be equivalent to, or greater or
less than, those set forth in Article VIII. Article VIII further permits the
Registrant to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee, fiduciary, or agent of the Registrant against
any liability asserted against and incurred by such person in any such capacity
or arising out of such person's position, whether or not the Registrant would
have the power to indemnify against such liability under the provisions set
forth in Article VIII.
II-1
<PAGE> 82
Article VIII, Section 8 of the Registrant's By-Laws provides that the
Registrant shall indemnify any and all of its directors or officers to the
fullest extent permitted by the General Corporation Law of the State of
Delaware.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 15, 1993, the Registrant has sold and issued the following
unregistered securities:
On November 3, 1993, the Registrant sold an aggregate of 507,987 Units,
each consisting of (i) two shares of Class C Preferred Stock and (ii) one Common
Stock Purchase Warrant to certain investors at a purchase price of $16.00 per
Unit for an aggregate consideration of $8,127,792.00.
On May 18, 1994, the Registrant sold an aggregate of 280,367 shares of
Class D Preferred Stock to HMRI (formerly named Marion Merrell Dow Inc.) at a
purchase price of $17.8338 per share for an aggregate consideration of
$5,000,000 in connection with a License Agreement relating to joint research and
development by the Company and HMRI.
On March 1, 1995, the Registrant sold an aggregate of 523,560 shares of
Class E Preferred Stock to HMRI at a purchase price of $19.10 per share for an
aggregate consideration of $10,000,000 in connection with a second License
Agreement relating to joint research and development between the Company and
HMRI.
On October 26, 1995 and December 4, 1995, the Registrant sold an aggregate
of 1,071,429 shares of Class F Preferred Stock to certain investors at a
purchase price of $14.00 per share for an aggregate consideration of
$15,000,000.
On July 10, 1996 and August 7, 1996, the registrant sold an aggregate of
1,133,589 shares of Class G Preferred Stock to certain investors at a purchase
price of $22.00 per share for an aggregate consideration of $24,938,958.
Between August 15, 1993 and August 15, 1996, the Registrant granted options
to purchase 930,529 shares of Common Stock to its employees and consultants
under its 1993 Long-Term Incentive Plan at an exercise price of $0.01 per share.
As of August 15, 1996, options to purchase 7,950 shares have been exercised,
options to purchase 47,336 shares have been cancelled and options to purchase
875,243 shares remain outstanding.
Between August 15, 1993 and August 15, 1996 the Registrant has granted
24,303 shares of Restricted Common Stock to its employees and consultants. As of
August 15, 1996, 15,303 shares have vested, no shares have been cancelled and
9,000 shares remain unvested.
No underwriter was engaged in connection with the foregoing sales of
securities. Sales of Common Stock to employees have been made in reliance upon
the exemption from the registration requirements afforded by Section 3(b) of the
Securities Act of 1933 (the "Act") and Rule 701 thereunder as sales of an
issuer's securities pursuant to a written contract relating to the compensation
of such individuals. Sales of the shares of Preferred Stock and issuances of
warrants to purchase shares of Common Stock were made in reliance upon Section
4(2) of the Act as transactions not involving any public offering and Regulation
D thereunder. The Registrant has reason to believe that all of the foregoing
purchasers were familiar with or had access to information concerning the
operations and financial condition of the Registrant, and all of those
individuals acquired the shares for investment and not with a view to the
distribution thereof. At the time of issuance, all of the foregoing shares of
Common Stock and Preferred Stock, or warrants to purchase shares, were deemed to
be restricted securities for the purposes of the Act, and the certificates
representing such securities bore legends to that effect.
II-2
<PAGE> 83
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
<TABLE>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.3 -- By-Laws of the Registrant.
3.4 -- Form of Amended and Restated By-Laws of the Registrant.
4.1 -- Specimen certificate for shares of Common Stock of the Registrant.
5.1 -- Opinion of Palmer & Dodge LLP as to legality of the shares being registered.
9.1 -- Amended and Restated Voting Rights Agreement, dated November 3, 1993 and
amended on May 18, 1994, March 1, 1995, October 26, 1995, July 10, 1996 and
August 7, 1996, by and among the Registrant and certain holders of the
Registrant's Preferred Stock named therein.
10.1 -- Stock Purchase Agreement, dated July 1988, by and between Warburg, Pincus
Capital Company, L.P. ("Warburg") and the Registrant.
10.2 -- Stockholders' Agreement, dated September 16, 1988, by and among Warburg,
certain individual investors and the Registrant.
10.3 -- Class B Preferred Stock Purchase Agreement, dated February 14, 1992 and
amended on April 20, 1993, by and among certain Purchasers and the Registrant.
10.4 -- Class B Preferred Stock Purchase Agreement, dated April 20, 1993, by and among
certain Purchasers and the Registrant.
10.5 -- Class C Preferred Stock and Warrant Purchase Agreement, dated November 3,
1993, by and among the Registrant and certain Purchasers named therein.
10.6 -- Class D Preferred Stock Purchase Agreement, dated May 18, 1994, by and among
the Registrant and certain Purchasers named therein.
10.7 -- Class E Preferred Stock Purchase Agreement, dated March 1, 1995, by and among
the Registrant and certain Purchasers named therein.
10.8 -- Class F Preferred Stock Purchase Agreement, dated October 26, 1995, by and
among the Registrant and certain Purchasers named therein.
10.9 -- Class G Preferred Stock Purchase Agreement, dated July 10, 1996, by and among
the Registrant and certain Purchasers named therein.
10.10 -- Supplemental Class G Preferred Stock Purchase Agreement, dated August 7, 1996,
by and among the Registrant and certain Purchasers named therein.
10.11 -- Amended and Restated Registration Rights Agreement, dated November 3, 1993 and
amended on May 13, 1994, March 1, 1995, October 26, 1995, July 10, 1996 and
August 7, 1996, by and among the Registrant and certain holders of the
Registrant's Preferred Stock named therein.
10.12 -- Lease Agreement, dated January 1, 1994, by and between the Trust under the
Will of Harry F. Stimpson for office space at 195 Albany Street, Cambridge,
Massachusetts.
10.13 -- Sublease Agreement, dated April 7, 1992, by and between the Massachusetts
Institute of Technology and the Registrant, for office space located at 185
Albany Street, Cambridge, Massachusetts.
10.14 -- 1993 Non-Employee Directors' Stock Option Plan.
10.15 -- 1993 Long-Term Incentive Plan.
10.16 -- Form of Letter Agreement re: Confidentiality, Inventions and Non-Disclosure.
10.17 -- Form of Letter Agreement re: Restricted Stock.
10.18 -- Form of Scientific Advisor Agreement.
10.19 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by the
Registrant to Dr. Richard F Selden, in the original principal amount of
$125,000.
10.20 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by the
Registrant to Dr. Douglas A. Treco, in the original principal amount of
$60,000.
</TABLE>
II-3
<PAGE> 84
<TABLE>
<S> <C> <C>
10.21 -- Amended and Restated Promissory Note, dated April 21, 1995, issued by the
Registrant to Dr. Christoph M. Adams, in the original principal amount of
$15,000.
10.22 -- Amended and Restated Promissory Note, dated May 5, 1995, issued by the
Registrant to Dr. Christoph M. Adams, in the original principal amount of
$20,000.
10.23 -- Employment Agreement, dated July 19, 1991, by and between Dr. Richard F Selden
and the Registrant.
10.24 -- Pledge Agreement, dated May 14, 1991, by and between Dr. Richard F Selden and
the Registrant.
10.25 -- Employment Agreement, dated July 26, 1991, by and between Dr. Douglas A. Treco
and the Registrant.
10.26 -- Pledge Agreement, dated August 15, 1991, by and between Dr. Douglas A. Treco
and the Registrant.
10.27 -- Employment Agreement, dated November 20, 1993, by and between Dr. Christoph M.
Adams and the Registrant.
10.28 -- Pledge Agreement, dated April 21, 1995, by and between Dr. Christoph M. Adams
and the Registrant.
10.29 -- Agreement, dated September 1, 1991, by and between Mr. William R. Miller and
the Registrant.
10.30 -- Agreement, dated July 30, 1993, by and between Warburg and the Registrant.
10.31 -- Common Stock Purchase Warrant, dated September 12, 1991.
10.32+ -- Collaboration and License Agreement, dated July 22, 1993 and amended on May
30, 1996, by and between Genetics Institute, Inc. and the Registrant.
10.33+* -- Amended and Restated License Agreement, dated March 1, 1995, by and between
Hoechst Marion Roussel, Inc. ("HMRI") and the Registrant.
10.34+* -- License Agreement, dated March 1, 1995, by and between HMRI and the
Registrant.
10.35 -- Agreement to Nominate, dated September 23, 1996, by and between Warburg and
the Registrant.
10.36 -- Fifth Amendment to Registration Rights Agreement dated October 1, 1996 by and
among the Registrant and certain holders of the Registrant's Preferred Stock
named therein.
11.1 -- Statement re: computation of earnings (loss) per share -- pro forma.
23.1 -- Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.2* -- Consent of Hamilton, Brook, Smith & Reynolds, P.C.
23.3* -- Consent of Ernst & Young LLP.
24.1 -- Power of Attorney.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
All other exhibits previously filed.
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
II-4
<PAGE> 85
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on October 15, 1996.
TRANSKARYOTIC THERAPIES, INC.
By: /s/ ANTHONY R. HALL
------------------------------------
Anthony R. Hall
Vice President, Finance
and Administration; Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
RICHARD F SELDEN* President, Chief Executive October 15, 1996
- --------------------------------------------- Officer, Treasurer and
Richard F Selden Director (principal
executive officer)
/s/ ANTHONY R. HALL Vice President, Finance and October 15, 1996
- --------------------------------------------- Administration; Chief
Anthony R. Hall Financial Officer (principal
financial and accounting
officer)
WILLIAM R. MILLER* Director October 15, 1996
- ---------------------------------------------
William R. Miller
RODMAN W. MOORHEAD, III* Director October 15, 1996
- ---------------------------------------------
Rodman W. Moorhead, III
JAMES E. THOMAS* Director October 15, 1996
- ---------------------------------------------
James E. Thomas
*By: /s/ ANTHONY R. HALL
- ---------------------------------------------
Anthony R. Hall
Attorney-in-fact
</TABLE>
II-6
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement. .......................................
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant. ...........................................................
3.2 -- Form of Amended and Restated Certificate of Incorporation of the
Registrant. ...........................................................
</TABLE>
<TABLE>
<S> <C> <C> <C>
3.3 -- By-Laws of the Registrant. ............................................
3.4 -- Form of Amended and Restated By-Laws of the Registrant. ...............
4.1 -- Specimen certificate for shares of Common Stock of the Registrant. ....
5.1 -- Opinion of Palmer & Dodge LLP as to legality of the shares being
registered. ...........................................................
9.1 -- Amended and Restated Voting Rights Agreement, dated November 3, 1993
and amended on May 18, 1994, March 1, 1995, October 26, 1995, July 10,
1996 and August 7, 1996, by and among the Registrant and certain
holders of the Registrant's Preferred Stock named therein. ............
10.1 -- Stock Purchase Agreement, dated July 1988, by and between Warburg,
Pincus Capital Company, L.P. ("Warburg") and the Registrant. ..........
10.2 -- Stockholders' Agreement, dated September 16, 1988, by and among
Warburg, certain individual investors and the Registrant. .............
10.3 -- Class B Preferred Stock Purchase Agreement, dated February 14, 1992 and
amended on April 20, 1993, by and among certain Purchasers and the
Registrant. ...........................................................
10.4 -- Class B Preferred Stock Purchase Agreement, dated April 20, 1993, by
and among certain Purchasers and the Registrant. ......................
10.5 -- Class C Preferred Stock and Warrant Purchase Agreement, dated November
3, 1993, by and among the Registrant and certain Purchasers named
therein. ..............................................................
10.6 -- Class D Preferred Stock Purchase Agreement, dated May 18, 1994, by and
among the Registrant and certain Purchasers named therein. ............
10.7 -- Class E Preferred Stock Purchase Agreement, dated March 1, 1995, by and
among the Registrant and certain Purchasers named therein. ............
10.8 -- Class F Preferred Stock Purchase Agreement, dated October 26, 1995, by
and among the Registrant and certain Purchasers named therein. ........
10.9 -- Class G Preferred Stock Purchase Agreement, dated July 10, 1996, by and
among the Registrant and certain Purchasers named therein. ............
10.10 -- Supplemental Class G Preferred Stock Purchase Agreement, dated August
7, 1996, by and among the Registrant and certain Purchasers named
therein. ..............................................................
10.11 -- Amended and Restated Registration Rights Agreement, dated November 3,
1993 and amended on May 13, 1994, March 1, 1995, October 26, 1995, July
10, 1996 and August 7, 1996, by and among the Registrant and certain
holders of the Registrant's Preferred Stock named therein. ............
10.12 -- Lease Agreement, dated January 1, 1994, by and between the Trust under
the Will of Harry F. Stimpson for office space at 195 Albany Street,
Cambridge, Massachusetts. .............................................
10.13 -- Sublease Agreement, dated April 7, 1992, by and between the
Massachusetts Institute of Technology and the Registrant, for office
space located at 185 Albany Street, Cambridge, Massachusetts. .........
10.14 -- 1993 Non-Employee Directors' Stock Option Plan. .......................
10.15 -- 1993 Long-Term Incentive Plan. ........................................
10.16 -- Form of Letter Agreement re: Confidentiality, Inventions and
Non-Disclosure. .......................................................
10.17 -- Form of Letter Agreement re: Restricted Stock. ........................
10.18 -- Form of Scientific Advisor Agreement. .................................
10.19 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by
the Registrant to Dr. Richard F Selden, in the original principal
amount of $125,000. ...................................................
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
------------
<S> <C> <C> <C>
10.20 -- Amended and Restated Promissory Note, dated June 16, 1993, issued by
the Registrant to Dr. Douglas A. Treco, in the original principal
amount of $60,000. ....................................................
10.21 -- Amended and Restated Promissory Note, dated April 21, 1995, issued by
the Registrant to Dr. Christoph M. Adams, in the original principal
amount of $15,000. ....................................................
10.22 -- Amended and Restated Promissory Note, dated May 5, 1995, issued by the
Registrant to Dr. Christoph M. Adams, in the original principal amount
of $20,000. ...........................................................
10.23 -- Employment Agreement, dated July 19, 1991, by and between Dr. Richard F
Selden and the Registrant. ............................................
10.24 -- Pledge Agreement, dated May 14, 1991, by and between Dr. Richard F
Selden and the Registrant. ............................................
10.25 -- Employment Agreement, dated July 26, 1991, by and between Dr. Douglas
A. Treco and the Registrant. ..........................................
10.26 -- Pledge Agreement, dated August 15, 1991, by and between Dr. Douglas A.
Treco and the Registrant. .............................................
10.27 -- Employment Agreement, dated November 20, 1993, by and between Dr.
Christoph M. Adams and the Registrant. ................................
10.28 -- Pledge Agreement, dated April 21, 1995, by and between Dr. Christoph M.
Adams and the Registrant. .............................................
10.29 -- Agreement, dated September 1, 1991, by and between Mr. William R.
Miller and the Registrant. ............................................
10.30 -- Agreement, dated July 30, 1993, by and between Warburg and the
Registrant. ...........................................................
10.31 -- Common Stock Purchase Warrant, dated September 12, 1991. ..............
10.32+ -- Collaboration and License Agreement, dated July 22, 1993 and amended on
May 30, 1996, by and between Genetics Institute, Inc. and the
Registrant. ...........................................................
10.33+* -- Amended and Restated License Agreement, dated March 1, 1995, by and
between Hoechst Marion Roussel, Inc. ("HMRI") and the Registrant. .....
10.34+* -- License Agreement, dated March 1, 1995, by and between HMRI and the
Registrant. ...........................................................
10.35 -- Agreement to Nominate, dated September 23, 1996, by and between Warburg
and the Registrant. ...................................................
10.36 -- Fifth Amendment to Registration Rights Agreement dated October 1, 1996
by and among the Registrant and certain holders of the Registrant's
Preferred Stock named therein. ........................................
11.1 -- Statement re: computation of earnings (loss) per share -- pro
forma. ................................................................
23.1 -- Consent of Palmer & Dodge LLP (included in Exhibit 5.1). ..............
23.2* -- Consent of Hamilton, Brook, Smith & Reynolds, P.C. ....................
23.3* -- Consent of Ernst & Young LLP. .........................................
24.1 -- Power of Attorney......................................................
27 -- Financial Data Schedule................................................
</TABLE>
- ---------------
* Filed herewith.
All other exhibits previously filed.
+ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
<PAGE> 1
EXHIBIT 10.33
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
AMENDED AND RESTATED
LICENSE AGREEMENT
between
TRANSKARYOTIC THERAPIES, INC.
and
MARION MERRELL DOW INC.
dated as of March 1, 1995
<PAGE> 2
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS.................................................... 1
1.1. "Affiliate".................................................. 1
1.2. "Customer"................................................... 2
1.3. "Development Committee"...................................... 2
1.4. "Development Phase" ......................................... 2
1.5. "Effective Date"............................................. 2
1.6. "ELA"........................................................ 2
1.7. "GA-EPO"..................................................... 2
1.8. "First Commercial Sale"...................................... 2
1.9. "FDA"........................................................ 2
1.10. "Fully Absorbed Costs"....................................... 2
1.11. "Gross Margin"............................................... 3
1.12. "IND"........................................................ 3
1.13. "MMD Territory".............................................. 3
1.14. "Manufacturing Know-How"..................................... 3
1.15. "Net Revenues"............................................... 3
1.16. "Net Sales".................................................. 3
1.17. "PLA"........................................................ 4
1.18. "Program".................................................... 5
1.19. "R&D Oversight Committee".................................... 5
1.20. "Research Phase"............................................. 5
1.21. "Research Program"........................................... 5
1.22. "Third Party"................................................ 5
1.23. "TKT Patent Rights".......................................... 5
1.24. "TKT Technology"............................................. 5
ARTICLE 2. SCOPE AND STRUCTURE............................................ 6
2.1. General...................................................... 6
2.2. Relationship of TKT and MMD.................................. 6
2.3. Commercialization of *******************..................... 6
2.3.1. Exclusive Rights to ******
Collaborations Prior to the ******
Anniversary of this Agreement...................... 6
2.3.2. ****** Collaborations After the ******
Anniversary and Prior to the *****
Anniversary of this Agreement...................... 6
2.3.3. ****** Collaborations Following the
***** Anniversary of this Agreement................ 7
2.3.4. Payments........................................... 7
2.3.5. Termination of Rights.............................. 7
2.3.6. Refund of Payments................................. 8
ARTICLE 3. LICENSE GRANTS; MANUFACTURING AND MARKETING
RIGHTS............................................................... 8
3.1. Grant of License Rights by TKT to MMD........................ 8
3.1.1. Exclusive GA-EPO License........................... 8
3.1.2. Sublicenses of GA-EPO.............................. 8
3.1.3. Exclusive Manufacturing Know-How
License............................................ 8
(i)
<PAGE> 3
3.1.4. Sublicenses of Manufacturing Know-How.............. 9
3.2. Grant of License Rights by MMD to TKT........................ 9
3.3. Reservation of Rights........................................ 9
3.3.1. TKT Reservation.................................... 9
3.3.2. MMD Reservation.................................... 9
3.3.3. Manufacture of GA-EPO.............................. 10
ARTICLE 4. THE RESEARCH PHASE............................................. 10
4.1. Conduct of the Research Program.............................. 10
4.1.1. General............................................ 10
4.1.2. Research Plan...................................... 10
4.1.3. Subcontracts....................................... 10
4.1.4. Data............................................... 10
4.1.5. Quarterly Reports by TKT........................... 11
4.1.6. Assistance by MMD.................................. 11
4.2. Funding of the Research Program.............................. 11
4.3. Term of the Research Phase................................... 11
4.3.1. Completion of the Research Phase................... 11
4.3.2. Term of the Research Phase......................... 12
ARTICLE 5. THE DEVELOPMENT PHASE.......................................... 12
5.1. Conduct of the Development Phase............................. 12
5.1.1. Commencement of the Development Phase.............. 12
5.1.2. Development Phase.................................. 12
5.1.3. Annual Development Plan............................ 13
5.1.4. Adjustment of Development Phase
Milestones......................................... 13
5.1.5. Attendance at Regulatory Meetings.................. 13
5.2. Funding of the Development Phase............................. 13
5.3. Development Information...................................... 13
5.3.1. Information for Regulatory Submissions............. 13
5.3.2. Reports to Development Committee................... 14
5.3.3. Regulatory Submissions. .......................... 14
5.3.4. Adverse Event Information.......................... 14
5.4. Certain Prohibited Actions................................... 14
5.5. Development Phase Manufacturing.............................. 14
5.6. Manufacturing Costs.......................................... 14
5.7. Assistance by TKT............................................ 15
5.8. Regulatory Matters and Commercialization..................... 15
5.8.1. Commercialization.................................. 15
5.8.2. Marketing Plans.................................... 15
5.8.3. Co-Development, Co-Promotion and Co-
Marketing.......................................... 15
ARTICLE 6. RESEARCH, DEVELOPMENT AND REGULATORY
COORDINATION......................................................... 16
6.1. R&D Oversight Committee...................................... 16
6.1.1. General............................................ 16
6.1.2. Minutes............................................ 17
6.2. Development Committee........................................ 17
6.2.1. General............................................ 17
6.2.2. Minutes............................................ 17
(ii)
<PAGE> 4
6.3. General Disagreements........................................ 17
6.4. Visit of Facilities.......................................... 18
6.5. Annual Review and Planning Meeting........................... 18
ARTICLE 7. MILESTONES AND ROYALTIES....................................... 18
7.1. Milestone Payments........................................... 18
7.2. Royalties.................................................... 19
7.2.1. Royalties Based on Net Sales of GA-EPO............. 20
7.2.2. Alternative Royalty Based on Gross
Margin............................................. 20
7.2.3. Sharing of Revenues From Sublicensees.............. 20
7.2.4. Adjustment of Royalty Rates........................ 20
7.3. Royalty Reports, Exchange Rates.............................. 21
7.4. Audits....................................................... 22
7.4.1. Procedure.......................................... 22
7.4.2. Expenses........................................... 22
7.4.3. Sublicenses........................................ 22
7.4.4. Confidential Treatment............................. 22
7.5. Royalty Payment Terms........................................ 22
7.6. Form of Payment.............................................. 23
7.7. Withholding Taxes............................................ 23
7.8. Interest on Late Payments.................................... 23
ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS................................... 23
8.1. Ownership.................................................... 23
8.1.1. Ownership of Discoveries and
Improvements....................................... 23
8.1.2. Cooperation of Employees........................... 24
8.2. Filing, Prosecution and Maintenance of TKT Patent
Rights and TKT Technology.................................... 24
8.2.1. Filing, Prosecution and Maintenance................ 24
8.2.2. Patent Filing Costs................................ 25
8.3. Cooperation.................................................. 25
8.4. Notification of Patent Term Restoration...................... 25
8.5. No Other Technology Rights................................... 26
8.6. Enforcement of TKT Patent Rights and TKT
Technology; Defense of Infringement Actions.................. 26
8.6.1. MMD's First Right to Respond....................... 26
8.6.2. No Adverse Settlement Without TKT
Consent............................................ 26
8.6.3. Sharing of Litigation and Settlement
Expenses........................................... 26
8.6.4. TKT's Second Right to Respond. ................... 27
8.6.5. TKT's Second Right to Defend
Infringement Actions; Payment of
Royalties by TKT................................... 27
8.7. Costs of Acquiring Additional Technology other
than Manufacturing Know-How.................................. 28
ARTICLE 9. CONFIDENTIALITY................................................ 28
9.1. Nondisclosure Obligations.................................... 28
9.1.1. General............................................ 28
(iii)
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
9.1.2. Limitations........................................ 28
9.2. Materials.................................................... 29
9.2.1. ******************************..................... 29
9.2.2. Samples............................................ 29
9.3. Terms of this Agreement...................................... 29
9.4. Publications................................................. 30
9.4.1. Procedure.......................................... 30
9.4.2. Delay.............................................. 30
9.4.3. Resolution......................................... 30
9.5. Injunctive Relief............................................ 30
ARTICLE 10. REPRESENTATIONS AND WARRANTIES................................ 30
10.1. General...................................................... 30
10.1.1. Authorization....................................... 30
10.1.2. No Inconsistent TKT Arrangements.................... 30
10.1.3. Exclusivity......................................... 31
10.1.4. Licensed Technology................................. 31
10.2. Patent Validity.............................................. 31
10.2.1. Title............................................... 31
10.2.2. No Encumbrances..................................... 31
10.2.3. Non-Infringement.................................... 31
10.3. Financial Statements......................................... 31
ARTICLE 11. INDEMNITY..................................................... 32
11.1. MMD Indemnity Obligations.................................... 32
11.2. TKT Indemnity Obligations.................................... 32
11.3. Procedure.................................................... 32
11.4. Insurance.................................................... 33
ARTICLE 12. TERM AND TERMINATION.......................................... 33
12.1. Expiration................................................... 33
12.2. Termination.................................................. 33
12.3. Effect of Termination........................................ 34
ARTICLE 13. MISCELLANEOUS................................................. 35
13.1. Force Majeure................................................ 35
13.2. Assignment................................................... 35
13.3. Severability................................................. 35
13.4. Notices...................................................... 36
13.5. Applicable Law............................................... 37
13.6. Dispute Resolution........................................... 37
13.7. Entire Agreement............................................. 37
13.8. Headings..................................................... 38
13.9. Independent Contractors...................................... 38
13.10. Agreement Not to Solicit Employees............................ 38
13.11. Exports....................................................... 38
13.12. Waiver........................................................ 38
13.13. Counterparts.................................................. 38
(iv)
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
AMENDED AND RESTATED LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT dated as of March 1, 1995 (the
"Agreement") is made between TRANSKARYOTIC THERAPIES, INC., a Delaware
corporation having its principal place of business at 195 Albany Street,
Cambridge, Massachusetts 02139 ("TKT"), and MARION MERRELL DOW INC., a Delaware
corporation having its principal place of business at 9300 Ward Parkway, Kansas
City, Missouri 64114-0480 ("MMD").
R E C I T A L S
WHEREAS, TKT has filed patent applications necessary to exploit
discoveries relating to the expression of gene-activated erythropoietin protein
in eukaryotic cells and possesses certain related know-how and expertise.
WHEREAS, MMD desires to license TKT's patent rights and certain related
know-how and expertise relating to gene-activated erythropoietin protein and
obtain TKT's assistance for development of such discoveries.
WHEREAS, TKT and MMD previously entered into that certain License
Agreement dated as of May 18, 1994 (the "Original License Agreement") regarding
gene-activated erythropoietin protein and now desire to amend and restate the
Original License Agreement in its entirety as follows.
NOW THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:
ARTICLE 1. DEFINITIONS
For purposes of this Agreement, the terms defined in this Article shall
have the meanings specified below:
1.1. "Affiliate" shall mean any corporation or other entity which
controls, is controlled by, or is under common control with a party to this
Agreement. A corporation or other entity shall be regarded as in control of
another corporation or entity if it owns or directly or indirectly controls more
than fifty percent (50%) of the voting stock or other ownership interest of the
other corporation or entity, or if it possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of the
corporation or other entity or the power to elect or appoint fifty percent (50%)
or more of the members of the governing body of the corporation or other entity.
Notwithstanding the foregoing, the Dow Chemical Company shall not be considered
an Affiliate of MMD for purposes of this Agreement.
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<PAGE> 7
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
1.2. "Customer" shall have the meaning set forth in Section 1.15.
1.3. "Development Committee" shall mean the joint committee composed of
representatives of TKT and MMD described in Section 6.2 of this Agreement.
1.4. "Development Phase" shall mean the second phase of the Program, which
shall commence **********************************
***********************************************************
*********************************************************
****************************** covered by the TKT Patent Rights or which uses
the TKT Technology and the preparation and filing of supporting regulatory
submissions until, with respect to each country in the MMD Territory, final
marketing approval for GA-EPO covered by the TKT Patent Rights or which uses the
TKT Technology is obtained in such country.
1.5. "Effective Date" shall mean May 18, 1994.
1.6. "ELA" shall mean the Establishment License Application filed with the
FDA to obtain approval of the facility to be used to manufacture GA-EPO covered
by the TKT Patent Rights or which uses the TKT Technology for sale in the United
States or any comparable application filed with the regulatory authorities of a
country other than the United States to obtain approval of production facilities
to be used to manufacture GA-EPO covered by the TKT Patent Rights or which uses
the TKT Technology for sale in such country.
1.7. "GA-EPO" shall mean all pharmaceutical and other formulations of
gene-activated erythropoietin protein, including all injectable and orally
available formulations, line extensions, combination products, delivery systems,
and dosage forms related thereto, but excluding **************************
************
1.8. "First Commercial Sale" of GA-EPO covered by the TKT Patent Rights or
which uses the TKT Technology shall mean the first sale for use or consumption
by the general public of GA-EPO covered by the TKT Patent Rights or which uses
the TKT Technology in a country in the MMD Territory after required marketing
and pricing approval has been granted by the governing health authority of such
country.
1.9. "FDA" shall mean the United States Food and Drug Administration.
1.10. "Fully Absorbed Costs" shall mean the direct variable and direct
fixed costs associated with the conduct of the Research Phase or the Development
Phase. Direct variable costs shall be deemed to be the cost of labor, raw
materials, supplies and other resources directly consumed in the conduct of the
Research Phase or the Development Phase. Direct fixed costs shall be deemed to
be the cost of utilities, insurance, equipment
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<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
depreciation and other fixed costs directly related to the conduct of the
Research Phase or the Development Phase. Fixed costs shall be allocated based
upon the proportion of such costs directly attributable to support of the
Research Phase or the Development Phase. All cost determinations made hereunder
shall be made in accordance with generally accepted accounting principles
consistently applied.
1.11. "Gross Margin" with respect to GA-EPO covered by the TKT Patent
Rights or which uses the TKT Technology shall mean Net Revenues from sales of
such GA-EPO less the cost of goods sold of MMD or its Affiliates for such
GA-EPO, determined in accordance with generally accepted accounting principles
consistently applied for all products manufactured by MMD.
1.12. "IND" shall mean an investigational new drug application filed with
the FDA prior to beginning clinical trials in humans or any comparable
application filed with the regulatory authorities of a country other than the
United States prior to beginning clinical trials in humans in that country, with
respect to GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology.
1.13. "MMD Territory" shall mean all of the countries in the world, which
shall be divided into the following groupings of countries:
**************************************************
*******************************************************
**************************************************************
************************************************************
***************************************************************
*********************************************************
*****************************************************************
**************************************************************
****************************************************************
*********************************************************** *****. Each of the
foregoing groupings of countries is referred to as a "Territory Block."
1.14. "Manufacturing Know-How" shall mean all inventions, discoveries,
improvements and other technology, whether or not patentable or copyrightable,
and any patent applications, patents or copyrights based thereon, relating to or
necessary or useful for the production and packaging of GA-EPO covered by the
TKT Patent Rights or which uses the TKT Technology.
1.15. "Net Revenues" with respect to GA-EPO covered by the TKT Patent
Rights or which uses the TKT Technology shall mean the invoiced amount billed by
MMD or its Affiliates for GA-EPO finished product in final packing form (whether
or not with final labels) to any MMD distributors or sublicensees which are not
Affiliates, including any royalties due to MMD or its Affiliates with respect to
such sales, less, whether or not such costs are invoiced separately to such
person or entity, the costs
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<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
identified in clauses (a) through (d) of subsection 1.16. The definitions of
Bundled Product and Combination Product set forth in subsection 1.16. shall also
apply to such sales mutatis mutandis.
1.16. "Net Sales" with respect to GA-EPO covered by the TKT Patent Rights
or which uses the TKT Technology shall mean the invoiced amount billed for
GA-EPO finished product in final packing form to the first Third Party trade
purchaser (a "Trade Customer") by MMD or its Affiliates or any MMD distributors
which are not Affiliates, or, to the extent permitted in subsection 3.1.2, by
permitted sublicensees of MMD (it being understood that wholesalers which are
not Affiliates of MMD shall be considered Third Party trade purchasers), less,
whether or not such costs are invoiced separately to such Trade Customer, (a)
amounts refunded or credited for GA-EPO which was rejected, spoiled, damaged,
out-dated or returned, (b) freight, shipment and insurance costs incurred in
transporting GA-EPO to such customers, (c) quantity, trade, cash, and other
discounts, rebates (including, without limitation, pursuant to governmental
regulation), chargebacks, retroactive price reductions, credits or allowances
allowed or taken (subject to post-period adjustment if allowed but not taken
within three months of the end of the calendar year in which such credit or
allowance is allowed), and (d) taxes, tariffs, customs duties and surcharges and
other governmental charges incurred in connection with the sale, exportation or
importation of GA-EPO. The transfer of GA-EPO by MMD or one of its Affiliates to
another Affiliate of MMD shall not be considered a sale; in such cases, Net
Sales shall be determined based on the invoiced sales price by the Affiliate to
the Trade Customer, less the deductions allowed under this Section . MMD shall
be deemed to have sold a "Bundled Product" if GA-EPO finished product is sold by
MMD pursuant to an agreement with a Trade Customer specifying, for a combination
of products or services, (i) a single price, (ii) other terms of purchase not
separately identifying either a price per product or the effective deductions
referred to above per product or (iii) a price for units of GA-EPO which is
discounted below MMD's standard invoice price per unit of GA-EPO by at least
five percentage points more than the amount that any other product or service in
the Bundled Product is discounted below such other product's or service's
standard invoice price. In order to calculate the Net Sales of GA-EPO included
in a Bundled Product (a) in the case of the foregoing clauses (i) and (ii), the
total Net Sales of the Bundled Product shall be multiplied by a fraction, the
numerator of which shall be ******************
*****************************************************************
************************* and the denominator of which shall be
***************************************************************
***********************************************************
***********************************************************
**************************************************************** and (b) in the
case of the foregoing clause (iii), the parties will determine whether an
adjustment to Net Sales is appropriate and, if so, a mutually agreeable method
of calculation. If GA-
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<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
EPO is formulated by MMD with one or more different active biological or
chemical ingredients and such formulation is sold in finished product form, then
MMD shall be deemed to have sold a "Combination Product." In order to calculate
the Net Sales of GA-EPO included in a Combination Product, the total invoice
price for the Combination Product shall be multiplied by a fraction, the
numerator of which shall be ********************************
*********************************************************
***********************************************, and the denominator of which
shall be **********************************
***************************************************************
**********************************************************
***************************************************************
********************. If it is not possible to determine the standard invoice
price for an active ingredient of the Combination Product, then the standard
invoice price for such individual active ingredient shall be the fully allocated
cost of manufacture therefor determined in accordance with standard cost
accounting principles, as adjusted to reflect MMD's standard profit margin for
like products. The amount of Net Sales for any period shall be determined on the
basis of sales recorded in the ordinary course on the books and records of MMD
(or any Affiliate of MMD) during such period in accordance with Generally
Accepted Accounting Principles and with past practice, without reference to the
effects of any subsequent audit adjustments which result in any of such sales
being recognized by MMD in another period.
1.17. "PLA" shall mean a product license application filed with the FDA
after completion of human clinical trials to obtain marketing approval for
GA-EPO covered by the TKT Patent Rights or which uses the TKT Technology in the
United States or any comparable application filed with the regulatory
authorities of a country other than the United States to obtain marketing
approval for GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology in that country.
1.18. "Program" shall mean the collaboration by TKT and MMD described in
this Agreement.
1.19. "R&D Oversight Committee" shall mean the joint committee composed of
representatives of TKT and MMD described in Section 6.1 of this Agreement.
1.20. "Research Phase" shall mean the first stage of the Program
commencing on the Effective Date, *******************
***********************************************************
***************************************************************
********************* The Research Phase is more fully described in Article 4.
1.21. "Research Program" shall mean the GA-EPO research program described
in Section 4.1 of this Agreement.
1.22. "Third Party" shall mean any entity other than TKT or MMD and their
respective Affiliates.
-5-
<PAGE> 11
1.23. "TKT Patent Rights" shall mean all present and, at MMD's election,
future patents, patent applications, patent extensions, certificates of
invention, or applications for certificates of invention, together with any
divisions, continuations or continuations-in-part thereof, which are owned or
controlled by TKT relating to or necessary or useful for the manufacture, use,
distribution or sale of GA-EPO, including without limitation those specified on
Schedule 1.23 hereto.
1.24. "TKT Technology" shall mean all present and future inventions, trade
secrets, copyrights, know-how, data, regulatory submissions and other
intellectual property of any kind (including any proprietary biological
materials, compounds or reagents but not including TKT Patent Rights) which are
owned or controlled by, or licensed ( with the right to sublicense) to, TKT
relating to or necessary or useful for the manufacture, use, distribution or
sale of GA-EPO, including but not limited to any patents or patent applications
licensed from Third Parties. With respect to TKT Technology which has been
licensed to TKT by a Third Party, (i) MMD agrees to assume and pay for its
portion of any costs, expenses, fees or royalties associated with its use of
sublicense rights relating to such licensed TKT Technology to the extent
described in Section 8.7, and (ii) if TKT does not currently have the right to
sublicense such intellectual property to MMD hereunder, such license is listed
on Schedule 1.24 hereto and TKT shall use commercially reasonable efforts to
obtain the right to sublicense such intellectual property (as well as any
intellectual property licensed to TKT hereafter which is included in the TKT
Technology), to MMD hereunder.
-6-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
ARTICLE 2. SCOPE AND STRUCTURE
2.1. General. TKT and MMD wish to establish an agreement with respect to
GA-EPO. During the course of the Program, TKT and MMD shall communicate
regularly and shall assume different rights and responsibilities, all as more
specifically described herein.
2.2. Relationship of TKT and MMD. During the term of this Agreement,
neither TKT or MMD, nor any of their Affiliates shall independently, or with a
Third Party, conduct research regarding, or engage in the development,
manufacture, marketing or sale of, pharmaceutical formulations of erythropoietin
protein, other than as part of the Program, except that either TKT or MMD may
develop, manufacture, market, distribute or sell "generic" or "non-branded"
pharmaceutical formulations of erythropoietin protein in any country if (i)
there are imminent Third Party sales of "generic" erythropoietin protein in such
country and (ii) GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology may not lawfully be substituted in such country as a "generic"
equivalent product for any prescription for a branded or "generic" form of
erythropoietin protein with respect to which sales by such Third Party are
imminent.
2.3. Commercialization of *******************.
TKT agrees that it shall not develop, manufacture, promote or
market ********************************** using ********************** with any
Third Party (a "****** Collaboration") except pursuant to this Section 2.3;
provided, however, that nothing in this Section 2.3. shall prohibit TKT from
retaining subcontractors to assist it in its own **** ******* development and
manufacturing efforts.
2.3.1. Exclusive Rights to ****** Collaborations Prior to the
****** Anniversary of this Agreement. Prior to the ****** anniversary of the
date hereof, TKT shall not enter into any agreement regarding a ******
Collaboration.
2.3.2. ****** Collaborations After the ****** Anniversary and
Prior to the ***** Anniversary of this Agreement. Except as provided for in
subsection 2.3.5 below, during the period from the ****** to the *****
anniversary of the date hereof, TKT shall not enter into any agreement regarding
a ****** Collaboration without complying with the provisions of this subsection
2.3.2.
2.3.2.1. Notice of Negotiations. Prior to the *****
anniversary of this Agreement, TKT shall promptly notify MMD if it enters into
any negotiations regarding a ****** Collaboration.
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<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
2.3.2.2. ****** Collaboration Notice. Prior to entering into
any agreement regarding a ****** Collaboration, TKT shall deliver a written
notice (the "Collaboration Notice") to MMD disclosing in reasonable detail the
terms and conditions of the proposed ****** Collaboration.
2.3.2.3. Right of First Refusal. MMD shall have the right (the
"First Refusal Right") at any time within ****** **** days after receipt of the
Collaboration Notice to accept the terms thereof, in which event the parties
shall use their best efforts to enter into an agreement, within ** days after
such acceptance, regarding a ****** Collaboration upon the terms specified in
the Collaboration Notice. If MMD does not exercise the First Refusal Right then
TKT shall be free, for a period of *** days from the expiration of such ** days,
to enter into an agreement regarding a ****** Collaboration upon the terms and
with the Third Party specified in the Collaboration Notice. Following the ***
day period specified in the preceding sentence, TKT shall not enter into an
agreement regarding a ****** Collaboration without complying with the terms of
this subsection 2.3.2.
2.3.3. ****** Collaborations Following the ***** Anniversary of this
Agreement. Following the ***** anniversary of the date of this Agreement, or any
earlier termination of MMD's rights under this Section pursuant to subsection
2.3.5, TKT shall be under no obligation to enter into a ****** Collaboration
with MMD but shall promptly notify MMD if it enters into negotiations for a
****** Collaboration.
2.3.4. Payments. In consideration of the obligations of TKT pursuant
to this Section 2.3.1, MMD shall pay to TKT the following amounts every
********** following the date of this Agreement (with the first payment due on
the date hereof):
Anniversary Amount
----------- ------
*********** $************
********** $************
************* $************
*************** $************
****************** $************
************* $************
***************** $************
**************** $************
****************** $************
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<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
***************** $************
2.3.5. Termination of Rights. MMD's rights under subsection 2.3.2
shall expire on the ***** anniversary of this Agreement. MMD may voluntarily
terminate its rights under subsection 2.3.2 at any time prior to the
************** anniversary of the date hereof by delivery of written notice to
TKT accompanied by $******* less any payments previously made to TKT under
subsection 2.3.4. MMD may voluntarily terminate its rights under subsection
2.3.2 at any time on or after the ************** anniversary of the date hereof
by delivery of written notice to TKT accompanied by all payments under
subsection 2.3.4. which would become due within the ********** following the
delivery of such written notice. In either event, such termination shall become
effective at the end of the period with respect to which payments have been made
under subsection 2.3.4. Except as provided in subsection 2.3.6, no payments made
by MMD pursuant to subsection 2.3.4 shall be refunded.
2.3.6. Refund of Payments. If (i) TKT enters into any agreement
regarding a ****** Collaboration with a Third Party at any time within the
******** period following the second anniversary of this Agreement or (ii) MMD
expresses its interest in entering into a ****** Collaboration with TKT at any
time prior to the ***** anniversary of this Agreement, MMD and TKT enter into
good faith negotiations regarding such a ****** Collaboration and fail to agree
upon mutually satisfactory terms and thereafter TKT successfully develops a
******************** ********** using **********************, then TKT shall
refund to MMD all payments made by MMD pursuant to subsection 2.3.4. upon the
consummation of such a ****** Collaboration or the market introduction of TKT's
own ***********************************
******************.
ARTICLE 3. LICENSE GRANTS; MANUFACTURING AND MARKETING RIGHTS
3.1. Grant of License Rights by TKT to MMD.
3.1.1. Exclusive GA-EPO License. TKT hereby grants to MMD the
worldwide, perpetual, and exclusive right and license under the TKT Patent
Rights and the TKT Technology to develop, make, have made, use, distribute for
sale and sell GA-EPO.
3.1.2. Sublicenses of GA-EPO. MMD shall have the right to grant
sublicenses under the TKT Patent Rights and the TKT Technology license granted
by TKT to MMD under subsection 3.1.1 to Affiliates of MMD and, with the written
consent of TKT, which shall not be unreasonably withheld, to entities which are
not Affiliates of MMD. In connection with such sublicense, MMD may provide that
the sublicensee shall pay directly to TKT any amounts which may become due in
accordance with Section 7.2, provided, however, that MMD shall in any event
remain liable for the payment of all such amounts notwithstanding any such
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<PAGE> 15
provision between MMD and its sublicensee. Upon TKT's request, and to the extent
that MMD is not contractually prohibited from doing so, MMD will provide a copy
of such sublicenses to TKT.
3.1.3. Exclusive Manufacturing Know-How License. TKT hereby grants
to MMD a worldwide, perpetual, and exclusive and, except as provided below,
fully paid-up and royalty-free right and license under Manufacturing Know-How
owned or controlled by, or licensed (subject to the provisions of this
subsection 3.1.3, with the right to sublicense) to, TKT to make or have made
GA-EPO covered by the TKT Patent Rights or which uses the TKT Technology. With
respect to Manufacturing Know-How which has been licensed to TKT by a Third
Party, (i) MMD agrees to assume and pay for any costs, expenses, fees or
royalties associated with its sublicense of such Manufacturing Know-How, and
(ii) if TKT does not currently have the right to sublicense such intellectual
property to MMD hereunder, such license is listed on Schedule 3.1.3 hereto and
TKT shall use commercially reasonable efforts to obtain the right to sublicense
such intellectual property (as well as any intellectual property licensed to TKT
hereafter which is included in the Manufacturing Know-How) to MMD hereunder for
such limited purposes.
3.1.4. Sublicenses of Manufacturing Know-How. MMD shall have the
right to grant sublicenses under the Manufacturing Know-How license granted by
TKT to MMD under subsection 3.1.3 to Affiliates of MMD and, with the written
consent of TKT, which shall not be unreasonably withheld, to entities which are
not Affiliates of MMD. MMD will provide a copy of such sublicenses to TKT.
3.2. Grant of License Rights by MMD to TKT. Subject to the last sentence
of this Section 3.2, upon the request of TKT, (i) MMD shall grant to TKT a
worldwide, perpetual, non-exclusive and fully paid-up and royalty-free right and
license, with the right to sublicense, under Manufacturing Know-How owned or
controlled by, or licensed (subject to the provisions of this Section 3.2, with
the right to sublicense) to MMD which is developed by a Third Party contract
manufacturer engaged by MMD and working with or receiving assistance from TKT,
to make or have made products (other than pharmaceutical formulations of
erythropoietin protein) worldwide which are not competitive with GA-EPO, and
(ii) MMD shall negotiate in good faith with TKT the terms of a license, with the
right to sublicense, which shall be on reasonable commercial terms, under
Manufacturing Know-How owned or controlled by, or licensed (subject to the
provisions of this Section 3.2, with the right to sublicense) to MMD to make or
have made products (other than pharmaceutical formulations of erythropoietin
protein) worldwide which are not competitive with GA-EPO. With respect to
Manufacturing Know-How described above which has been licensed to MMD by a Third
Party, (i) TKT agrees to assume and pay for any costs, expenses, fees or
royalties associated with its sublicense of such Manufacturing Know-How, and
(ii) if MMD does not have the right to sublicense such intellectual property to
TKT hereunder, MMD shall use
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<PAGE> 16
commercially reasonable efforts, as determined in good faith by MMD, to obtain
the right to sublicense such intellectual property to TKT hereunder for such
limited purposes.
3.3. Reservation of Rights.
3.3.1. TKT Reservation. Notwithstanding the license grants set
forth above, and subject to the provisions of Section 5.4 hereof, TKT at all
times reserves the right under the TKT Patent Rights, TKT Technology, and
Manufacturing Know-How owned either exclusively by TKT or jointly with MMD (i)
to make, have made and use GA-EPO for research and development uses as part of
the Program and (ii) subject, with respect to Manufacturing Know- How owned
jointly by TKT and MMD, to the consent of MMD, which consent shall not be
unreasonably withheld, to make, have made, use, sublicense, distribute for sale
and sell products other than GA-EPO.
3.3.2. MMD Reservation. Notwithstanding the license grants set
forth above, MMD at all times reserves the right under Manufacturing Know-How
owned either exclusively by MMD or jointly with TKT (i) to make, have made and
use GA-EPO for research and development uses as part of the Program, (ii) to
make, have made, use, sublicense, distribute for sale and sell GA-EPO and (iii)
subject, with respect to Manufacturing Know-How owned jointly by TKT and MMD, to
the consent of TKT, which consent shall not be unreasonably withheld, to make,
have made, use, sublicense, distribute for sale and sell products other than
GA-EPO.
3.3.3. Manufacture of GA-EPO. Notwithstanding anything else
contained in this Agreement, MMD shall have the right to make or have made
GA-EPO in any country in the world for use, distribution for sale or sale by
itself, its Affiliates or its permitted licensees or sublicensees in the
territories allocated to it under this Agreement.
ARTICLE 4. THE RESEARCH PHASE
4.1. Conduct of the Research Program.
4.1.1. General. The conduct of the Research Program shall be the
primary responsibility of TKT and shall take place primarily at TKT's facilities
in Cambridge, Massachusetts. The Research Program shall be conducted in good
scientific manner, and in compliance with all applicable good laboratory
practices and applicable legal requirements to achieve efficiently and
expeditiously its objectives. TKT shall proceed diligently with the work set out
in the Research Program using its best efforts using commercially reasonable
means consistent with those used by TKT for other projects with a similar
commercial potential.
4.1.2. Research Plan. The Research Program shall be conducted under
a research plan which describes the work to be pursued by TKT during the
Research Phase and which has been
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<PAGE> 17
approved by the R&D Oversight Committee prior to the date hereof. If at any time
during the Research Phase, TKT or MMD determine that a significant change to the
research plan is necessary or desirable, it shall prepare a written description
detailing the change to the research plan and shall submit such description to
the R&D Oversight Committee for its approval. An outline of the research plan is
attached to the Original License Agreement and describes the work to be pursued
during the Research Phase, including: (i) identifying the technical problems
involved and the general projects to be carried out regarding GA-EPO, (ii)
estimating the personnel to be committed for each project, and (iii) setting
forth a projected timetable for the work to be performed.
4.1.3. Subcontracts. Subject to the approval of the R&D Oversight
Committee and the provisions of Article 9, TKT may subcontract portions of the
Research Program to be performed by it in the normal course of its business to a
Third Party.
4.1.4. Data. TKT shall maintain records in sufficient detail and in
good scientific manner appropriate for regulatory filings and patent purposes
and as will properly reflect all work done and results achieved in the
performance of the Research Program (including all data in the form required to
be maintained under any applicable governmental regulations). Such records shall
include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the Research
Program. TKT shall provide MMD the right to inspect such records, and shall
provide copies of all requested records, to the extent reasonably required for
the performance of MMD's obligations under this Agreement; provided, however,
that MMD shall maintain such records and the information of TKT contained
therein in confidence in accordance with Article 9 hereof and shall not use such
records or information except to the extent otherwise permitted by this
Agreement.
4.1.5. Quarterly Reports by TKT. Within fourteen (14) days following
the end of each calendar quarter, or at the reasonable request (with mutually
agreed advance notice) of the R&D Oversight Committee, TKT shall provide to the
members of the R&D Oversight Committee a written report which shall summarize in
reasonable detail the work TKT has performed under the Research Program during
the preceding calendar quarter.
4.1.6. Assistance by MMD. MMD shall provide such assistance to TKT
in conducting the Research Program as TKT may reasonably request, and TKT will
reimburse MMD for its documented Fully Absorbed Costs incurred in providing such
assistance; provided, however, that prior to providing such assistance MMD shall
have provided to TKT an estimate of such Fully Absorbed Costs and TKT shall have
approved such estimate; provided, further, that no failure of MMD to undertake
or successfully
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<PAGE> 18
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
complete such assistance shall relieve TKT from its obligations hereunder or
affect MMD's right to terminate this Agreement pursuant to Section 12.2.
4.2. Funding of the Research Program. TKT shall bear all costs and
expenses in connection with the Research Program.
4.3. Term of the Research Phase.
4.3.1. Completion of the Research Phase. The term of the Research
Phase shall commence as of the first day of the month following the Effective
Date. ************************************************************
*****************************************************************
****************************************************************
**************************************************************
****************************************************************
***********************************************************
************************************************************
************************************************************
************************************************************** ******* The R&D
Oversight Committee shall promptly evaluate the data submitted by TKT and
determine, in its reasonable discretion, ************************************
****************************************************************
**********************************. The R&D Oversight Committee shall provide
TKT and MMD with prompt written notice of its decision. Upon notification of
*****************************************************************
****************************************************************
*************************************************************
********************************.
4.3.2. Term of the Research Phase. The term of the Research Phase
************************************************
**************************************************************
***************************************************************
***************************************************************
************************************* shall jointly determine on what terms the
Research Phase shall be extended and what additional terms, if any, in this
Agreement shall be modified as a result of such extension. If such a
determination cannot be reached within ******************** after the expiration
of the initial term of the Research Phase, then such determination shall be made
by arbitration in accordance with the procedures for arbitration described in
Section 13.6, unless the parties mutually agree to terminate this Agreement.
ARTICLE 5. THE DEVELOPMENT PHASE
5.1. Conduct of the Development Phase.
5.1.1. Commencement of the Development Phase. The Development Phase
will commence ******************************
***************************************************************
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
****************************************************************
***************************************************************
***********.
5.1.2. Development Phase. The conduct of the Development Phase
shall be the primary responsibility of MMD. MMD may subcontract with Third
Parties for portions of the Development Phase and for all or a portion of the
manufacture of GA-EPO. The Development Phase shall consist of the preparation
and filing of regulatory submissions and the preclinical and clinical
development of GA-EPO until, with respect to each country in the MMD Territory,
final marketing approval for GA-EPO is obtained in such country. MMD and TKT
will cooperate to achieve the milestones described in Appendix A using their
respective best efforts using commercially reasonable means consistent with
those used by them for other projects with a similar commercial potential. If
MMD has been unable to achieve any of the milestones described in Appendix A
within the time period indicated in Appendix A for reasons other than those
described in subsection 5.1.4, then the Chief Executive Officer of each of TKT
and MMD or their respective designees shall jointly determine on what terms the
time period for achieving such milestones should be extended and what additional
terms, if any, in this Agreement shall be modified as a result of such
extension. If such a determination cannot be reached within ********************
after the time period for any such milestone has expired, then such
determination shall be made by arbitration in accordance with the procedures for
arbitration described in Section 13.6, unless the parties mutually agree to
terminate this Agreement. MMD shall have primary responsibility for supervision
of the scale-up and the further characterization of the master cell bank, the
characterization of clinical trial material, and the supervision of the assembly
of all characterization data and other information required for regulatory
submissions. At MMD's request, TKT will perform, or assist MMD in performing,
the work described in the preceding sentence and provide such other assistance
to MMD as may be reasonably necessary to enable MMD to achieve the milestones
described in Appendix A, and TKT shall be compensated for such assistance in
accordance with Section 5.9. MMD will determine, in its sole discretion after
consultation with TKT, the appropriate entity to file and hold the PLA and the
ELA. MMD will coordinate preclinical and clinical testing of GA-EPO and work
with designated individuals at MMD and TKT in the preparation of regulatory
filings for GA-EPO within the MMD Territory.
5.1.3. Annual Development Plan. The Development Phase shall be
conducted under an annual development plan which shall describe the work to be
pursued by MMD and TKT under the supervision of the Development Committee with
respect to the development of GA-EPO. The first Development Plan will be
prepared by MMD for submission to the Development Committee within
**********************************************************
****************************************************************. Thereafter,
the annual development plan will be prepared by MMD
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
for submission to the Development Committee no later than ****** ********* prior
to the beginning of each calendar year.
5.1.4. Adjustment of Development Phase Milestones. If at any time
during the Development Phase MMD determines and is able to demonstrate to TKT's
reasonable satisfaction that *****
***************************************************************
*****************************************************************
*************************************************************
***********************************************************
******************************************************
****************************************************************
****************************************************************
***************************************************************** then the Chief
Executive Officer of each of MMD and TKT, or their respective designees, shall
determine on what terms the Research Phase shall be reinitiated and how the
milestones described in Appendix A are to be adjusted.
5.1.5. Attendance at Regulatory Meetings. MMD will provide TKT with
prior notice of all meetings between its representatives and drug regulatory
authorities regarding marketing approval of GA-EPO. TKT shall have the right to
have a representative present at all important meetings in the United States,
and upon request at all important meetings in other countries; provided,
however, that MMD may revoke this right with respect to any particular meeting
if, in its good faith reasonable judgment, the presence of any other party will
be a detriment to the success of the meeting. TKT will furnish, at MMD's
request, a representative to attend drug regulatory meetings regarding marketing
approval of GA-EPO.
5.2. Funding of the Development Phase. MMD shall bear all costs and
expenses in connection with the Development Phase. The assistance by TKT to MMD
and reimbursement to be provided by MMD to TKT during the Development Phase is
set forth in Section 5.7 hereof.
5.3. Development Information.
5.3.1. Information for Regulatory Submissions. TKT will provide MMD
with all documentation available to TKT reasonably required for regulatory
submissions by MMD, based on work performed during the Research Phase, including
********** ************************************************************
*************************************************************
*********************************************************
***************************************************************
*****************************************************************
*******************************************************
***************************.
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<PAGE> 21
5.3.2. Reports to Development Committee. MMD shall keep the
Development Committee informed as to its progress in the Development Phase of
GA-EPO. Within thirty (30) days following the end of each six month period
during the Development Phase, MMD shall provide a reasonably detailed report to
the Development Committee which shall describe the progress of the Development
Phase of GA-EPO.
5.3.3. Regulatory Submissions. MMD shall provide TKT with copies
of all submissions to United States drug regulatory authorities. Upon the
reasonable request of TKT, MMD shall also provide TKT with copies of all
submissions to drug regulatory authorities of other countries and the results of
all clinical trials conducted by, or under the supervision of, MMD with respect
to GA-EPO; provided, however, that MMD reserves the right to assess reasonable
copying charges for any such materials requested by TKT which exceed
approximately two cartons of material.
5.3.4. Adverse Event Information. Within six months after the
commencement of the Development Phase, MMD will establish a protocol for the
timely handling and transmission of adverse event information. MMD and TKT shall
promptly notify each other of any adverse event information relating to GA-EPO
in accordance with such protocol.
5.4. Certain Prohibited Actions. Notwithstanding the provisions of Section
2.2, TKT and its Affiliates shall not, directly or indirectly, market,
distribute or sell GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology in the MMD Territory.
5.5. Development Phase Manufacturing. Provided that TKT has successfully
met its obligations under the Research Program in the Research Phase, MMD shall
be primarily responsible for the production of GA-EPO during the Development
Phase. MMD will consult with TKT to determine the appropriate manufacturing
process for GA-EPO necessary for the Development Phase and for commercial
production, including selecting a suitable production process.
5.6. Manufacturing Costs. MMD shall bear all costs associated with the
manufacture of GA-EPO during the Development Phase, in accordance with the
provisions of this Article 5, and for commercial production for sale by MMD or
its sublicensees in the MMD Territory.
5.7. Assistance by TKT. At MMD's request, TKT will cooperate with MMD to
provide such technical assistance and characterization work as may be necessary
in connection with the manufacture and production of GA-EPO during the
Development Phase and subsequently in commercial production, and MMD will
reimburse TKT for its documented Fully Absorbed Costs incurred in connection
with providing such assistance; provided, however, that prior to providing such
assistance, TKT shall have provided
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
to MMD an estimate of such Fully Absorbed Costs and MMD shall have approved such
estimate and, provided further, that no failure of TKT to undertake or
successfully complete such assistance shall relieve MMD from its obligation to
achieve the milestones described in Appendix A or affect TKT's right to
terminate this Agreement pursuant to subsection 12.2.5. TKT will provide such
assistance to MMD as is consistent with the capacity and capabilities of TKT.
5.8. Regulatory Matters and Commercialization.
5.8.1. Commercialization. Upon the successful completion of the
Research Phase and Development Phase, MMD agrees to use its best efforts to
commercialize GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology throughout the MMD Territory using commercially reasonable means
consistent with those used for MMD products with similar commercial potential.
5.8.2. Marketing Plans. MMD shall promptly provide TKT with copies
of its United States marketing plans for GA-EPO covered by the TKT Patent Rights
or which uses the TKT Technology, and shall provide TKT with copies of its
marketing plans for other countries upon the reasonable request of TKT. Such
marketing plans shall not be disclosed to any Third Party without the prior
written consent of MMD.
5.8.3. Co-Development, Co-Promotion and Co- Marketing. In the
event that MMD determines, in its sole discretion, that co-development,
co-promotion or co-marketing of GA-EPO covered by the TKT Patent Rights or which
uses the TKT Technology is appropriate in any of the countries in the *****
*********************************************************** ******, then TKT
shall have the right of first negotiation (the "First Negotiation Right") to
become MMD's co-development, co- promotion or co-marketing partner, as the case
may be, in any such country on terms no less favorable to TKT than those which
MMD proposes to offer to any other co-development, co-promotion or co-marketing
partner for such country. MMD shall notify TKT in writing of its determination
to pursue co-development, co- promotion or co-marketing of GA-EPO covered by the
TKT Patent Rights or which uses the TKT Technology in a country in the *****
***************************************************************** (the
"Negotiation Notice"); provided, however, that, in the case of co-promotion or
co-marketing only and in the absence of co- development, MMD shall not be
entitled without TKT's consent, which shall not be unreasonably withheld, to
give TKT a Negotiation Notice with respect to any country in the MMD Territory
until all clinical trials necessary for the submission for regulatory approval
to market GA-EPO in that country are substantially complete. Unless TKT shall
have waived the First Negotiation Right in writing within 30 days following
receipt by TKT of the Negotiation Notice, MMD and TKT shall negotiate in
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<PAGE> 23
good faith a termsheet for such co-development, co-promotion or co-marketing
arrangement for a period of up to 60 days commencing on the date of the
Negotiation Notice and a definitive agreement for such co-development,
co-promotion or co-marketing for an additional period of up to 60 days
commencing on the date of such termsheet. If, at the end of either of such
periods, MMD and TKT are unable to agree on terms for the co-development,
co-promotion or co-marketing of GA-EPO in such country, then, unless the parties
agree to extend the negotiation period, MMD shall promptly deliver to TKT a
final proposal detailing the terms on which it would enter into such a
co-development, co-promotion or co-marketing arrangement (the "Final Proposal").
TKT shall have thirty (30) days from receipt of the Final Proposal to notify MMD
of its desire to enter into an arrangement on such terms. If TKT does not so
notify MMD, then MMD shall be free, for a period of one year (which shall be
extended for an additional four-month period if MMD has certified to TKT that it
is then in active negotiations with a single Third Party with respect thereto)
from the expiration of such 30 days, to enter into a co-development,
co-promotion or co-marketing arrangement for GA-EPO in the country identified in
the Negotiation Notice with a Third Party on terms no more favorable to the
Third Party than the terms contained in the Final Proposal. Following such
negotiation period, MMD shall not enter into a co-development, co-promotion or
co-marketing arrangement for GA-EPO in any country in the MMD Territory with a
Third Party without first complying with the provisions of this subsection.
Except as otherwise provided in this subsection 5.8.2, it is understood and
agreed to by the parties hereto that MMD shall have no obligation to enter into
a co-development, co-promotion, or co-marketing arrangement with respect to any
country in the MMD Territory with TKT. In the event that MMD enters into a
co-development arrangement for GA-EPO in a country with a Third Party after
complying with the provisions of this subsection, then TKT shall cooperate with
such Third Party in such country during the Development Phase to the same extent
that TKT would cooperate with MMD.
ARTICLE 6. RESEARCH, DEVELOPMENT AND REGULATORY COORDINATION
6.1. R&D Oversight Committee.
6.1.1. General. Promptly after the Effective Date, a joint
committee comprised of up to three named representatives of MMD and up to three
named representatives of TKT (the "R&D Oversight Committee") shall be appointed.
One of the representatives of TKT shall act as Chairman of the R&D Oversight
Committee. The R&D Oversight Committee shall be responsible for the supervision
of the Research Program. Such meetings shall be held at TKT's facilities located
in Cambridge, Massachusetts, and at such times as are agreed to by TKT and MMD,
or at such other locations or in such other form (e.g., telephone or video
conference) as the members of the R&D Oversight Committee shall agree, but no
less frequently than three times per year. At such meetings, the principal
function of the R&D Oversight Committee
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SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
will be to discuss the Research Program *************************
*************************************************************
************************************************** A party may change one or
more of its representatives to the R&D Oversight Committee at any time. Members
of the R&D Oversight Committee may be represented at any meeting by another
member of the R&D Oversight Committee so designated by the absent member, or by
a deputy. Any approval, determination or other action shall require the
affirmative vote of both TKT and MMD ********************************** as
determined by each party's representatives who are members of the R&D
Oversight Committee. Employees, subcontractors or consultants of either TKT
and MMD who are involved with the Program and who are not members of the R&D
Oversight Committee may attend meetings of the Committee as guests of either
party.
6.1.2. Minutes. The R&D Oversight Committee shall keep accurate
minutes of its deliberations. The Chairman shall be responsible for the
preparation of draft minutes. Draft minutes shall be sent to all members of the
R&D Oversight Committee within ten (10) business days after each meeting. All
records of the R&D Oversight Committee shall be available to both parties.
6.2. Development Committee.
6.2.1. General. Promptly after the Effective Date, a joint
committee comprised of up to four named representatives of MMD and up to four
named representatives of TKT (the "Development Committee") shall be appointed.
One of the representatives of MMD shall act as Chairman of the Development
Committee. Such meetings shall be held at TKT's facilities in Cambridge,
Massachusetts during the Research Phase, and thereafter in Kansas City,
Missouri, and, in any event, at times and places or in such form (e.g.,
telephone or video conference) as the members of the Development Committee shall
agree but no less frequently than three times per year. At such meetings, the
Development Committee will discuss the Development Phase of GA-EPO, including
but not limited to, preclinical and clinical testing and the preparation of
regulatory submissions for approval of GA-EPO in the MMD Territory. To the
extent reasonable or appropriate, meetings of the Development Committee will be
coordinated and held jointly with the R&D Oversight Committee. A party may
change one or more of its representatives to the Development Committee at any
time. Members of the Development Committee may be represented at any meeting by
another member of the Development Committee so designated by the absent member,
or by a deputy. Any approval, determination or other action shall require the
affirmative vote of a majority of the votes entitled to be cast,
********************************* ***************, and with such votes being
cast as determined by each party's representatives who are members of the
Development Committee. Employees, subcontractors or consultants of either TKT
and MMD who are involved with the Program and who are not
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
members of the Development Committee may attend meetings of the Committee as
guests of either party.
6.2.2. Minutes. The Development Committee shall keep accurate
minutes of its deliberations. The Chairman shall be responsible for the
preparation of draft minutes. Draft minutes shall be sent to all members of the
Development Committee within ten (10) business days after each meeting. All
records of the Development Committee shall at all times be available to both
parties.
6.3. General Disagreements. All disagreements within the R&D Oversight
Committee and the Development Committee shall be resolved in accordance with the
provisions of Section 13.6.
6.4. Visit of Facilities. Representatives of MMD may, upon reasonable
notice and at times reasonably acceptable to TKT, visit TKT's facilities where
the Research Program is being conducted and consult with personnel of TKT
performing work on the Research Program, and those of any permitted
subcontractors of TKT. Representatives of TKT and MMD may, with the other
party's prior approval, which approval shall not be unreasonably withheld, visit
manufacturing sites and the sites of any clinical trials or other experiments
being conducted by such other party in connection with the Development Phase. If
requested by the other party, TKT and MMD shall cause appropriate individuals
working on the Development Phase to be available for meetings at the location of
the facilities where such individuals are employed at times reasonably
convenient to the party responding to such request.
6.5. Annual Review and Planning Meeting. No less frequently than annually,
representatives of TKT and MMD shall meet at a place mutually agreed to by the
parties (which, prior to the First Commercial Sale, will be one of the R&D
Oversight Committee or Development Committee meetings)(the "Annual Meeting"), at
which meeting MMD shall review the clinical, regulatory and marketing activities
undertaken by MMD or its Affiliates since the previous Annual Meeting and shall
present its clinical, regulatory and marketing plans for GA-EPO for the ensuing
year. Within 30 days following each Annual Meeting, MMD shall submit to TKT a
written report detailing the information reviewed and presented at such Annual
Meeting.
ARTICLE 7. MILESTONES AND ROYALTIES
7.1. Milestone Payments. MMD and TKT acknowledge payment by MMD to TKT of
$1,000,000 *************************************
***********************************************************. In consideration of
TKT's work on the Research Program and the licenses granted to MMD hereunder,
MMD has paid or shall pay the following additional amounts to TKT upon the
achievement of each of the following milestones (except as noted below), prior
to any expiration or termination of this Agreement under Article 12 with respect
to the country to which such milestone relates, it being
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
understood and agreed to that TKT shall use a portion of such payments as
necessary to fund the performance of its obligations under the Program:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Milestone Payment
- --------------------------------------------------------------------------------
<S> <C>
Execution of the Original License $9,000,000 (Paid)
Agreement
$5,000,000 Preferred
Stock Investment(1)
(Paid)
- --------------------------------------------------------------------------------
Initial Public Offering (as defined $5,000,000 Common Stock
in the Class D Stock Purchase Investment(2)
Agreement) ("IPO") by TKT
Additional $5,000,000
Common Stock Investment
(2)
- --------------------------------------------------------------------------------
***************** Cell Line ****** $2,000,000
*******************
- --------------------------------------------------------------------------------
******************************** $**************
- --------------------------------------------------------------------------------
********************************** $**************
- --------------------------------------------------------------------------------
******************************** $**************
- --------------------------------------------------------------------------------
******************* $**************
- --------------------------------------------------------------------------------
************************************ $**************
************************************
***************
- --------------------------------------------------------------------------------
****************************** $**************
- --------------------------------------------------------------------------------
</TABLE>
(1) On the terms and subject to the conditions of the Class D Preferred Stock
Purchase Agreement dated as of May 18, 1994, by and between MMD and TKT
(the "Class D Stock Purchase Agreement").
(2) MMD shall purchase shares Common Stock of TKT in the IPO upon the terms
and subject to the conditions of the Class D Stock Purchase Agreement.
Either TKT or MMD shall notify the other in writing within ten (10)
business days following the occurrence of each of the milestones set forth
above. Within ten (10) business days after receipt of such notice, MMD shall pay
to TKT in United States dollars by check or other means acceptable to TKT, the
milestone payments set forth above. Milestone payments made to TKT pursuant to
this Section 7.1 are not refundable under any circumstances and will not be
credited against royalty payments due TKT under Section 7.2.
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<PAGE> 27
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
7.2. Royalties. In consideration of the licenses granted to MMD hereunder,
MMD shall pay to TKT royalties as follows:
7.2.1. Royalties Based on Net Sales of GA-EPO. Except as otherwise
provided in this Section 7.2., MMD shall pay to TKT a royalty based on the Net
Sales of GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology in each Territory Block, from the launch of such sales in such
Territory Block until, with respect to any country, the expiration or
termination of this Agreement, at the rates set forth below:
<TABLE>
<CAPTION>
********************************* ***************
******************************************* **************
- ------------------------------------------- ---------------
<S> <C>
************************** *****
********* *****
</TABLE>
***********************************************************
************************.
For the purpose of calculating ******************** in a Territory Block: (i)
Net Sales for the ************* and ***** ******* Territory Blocks
*****************, and such ************ ***** shall be deemed to be the
******************** for each of the ******************************* Territory
Blocks; (ii) *** ******************************* Territory Blocks ********
************************************* shall be deemed to be the
******************** for each of the ***************** Territory Blocks; and
(iii) with respect to sales in the *************, **********************
Territory Blocks by a Third Party sublicensee or a distributor which is not an
Affiliate of MMD, the Net Revenues shall be used in lieu of the Net Sales in the
foregoing calculation of ********************.
7.2.2. Alternative Royalty Based on Gross Margin. Notwithstanding
the provisions of subsection 7.2.1., in **************************************
Territory Blocks, the royalty payable by MMD to TKT shall be as follows: (i) if
MMD sells GA-EPO finished product in final packing form (whether or not with
final labels) covered by the TKT Patent Rights or which uses the TKT Technology
to a Third Party sublicensee or distributor which is not an Affiliate of MMD,
MMD shall pay to TKT a royalty equal to *************************************
**** *************; or (ii) if MMD does not sell such GA-EPO finished product
in final packing form (whether or not with final labels) to such Third Party
sublicensee or distributor, then TKT and MMD shall negotiate in good faith to
share ********************* all other monetary consideration received by MMD
from such Third Party sublicensee or distributor.
7.2.3. Sharing of Revenues From Sublicensees. If MMD grants a
sublicense hereunder to any Third Party to make,
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
have made, use, distribute for sale or sell GA-EPO covered by the TKT Patent
Rights or which uses the TKT Technology in any country in the MMD Territory, MMD
shall share with TKT, *************** *****, all up front monetary consideration
received by MMD from such Third Party in connection therewith which are not
based upon Net Sales or Net Revenues, as applicable, of GA-EPO sold by such
Third Party sublicensee in such country.
7.2.4. Adjustment of Royalty Rates. At the request of MMD, the
royalty rates set forth in subsection 7.2.1. shall be appropriately adjusted by
TKT and MMD (i) with respect to sales of "generic" or "non-branded" GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology by MMD in any
country within a Territory Block in which MMD elects to make such sales to
compete with sales by any Third Party of a "generic" or "non-branded"
pharmaceutical formulation of erythropoietin protein or (ii) with respect to
sales of "branded" GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology by MMD in any country within the MMD Territory in which MMD
experiences competition in the market for GA-EPO which was not in existence on
the Effective Date and the TKT Patent Rights have been judged to be invalid or
unenforceable. In addition, TKT agrees to meet with MMD at its request and
negotiate in good faith concerning whether other adjustments to the royalty
rates set forth in subsection 7.2.1. should be made in the event that MMD
demonstrates to TKT's reasonable satisfaction that there have been structural
changes in the market for GA-EPO in any country which have rendered the royalty
rates set forth in subsection 7.2.1. commercially unreasonable.
At the request of MMD, the royalty rates set forth in subsection 7.2.2.
shall be appropriately adjusted by TKT and MMD (i) with respect to sales of
"branded", "non-branded" or "generic" GA-EPO covered by the TKT Patent Rights or
which uses the TKT Technology in any country within a Territory Block in which
competitive conditions make it not feasible for MMD to maintain the level of its
Gross Margin or (ii) as may otherwise be necessary to maintain the commercial
viability of the product as contemplated by this Agreement.
7.3. Royalty Reports, Exchange Rates. During the term of this Agreement,
following the First Commercial Sale of GA-EPO covered by the TKT Patent Rights
or which uses the TKT Technology in any country in the MMD Territory, MMD shall
furnish to TKT a written quarterly report showing with respect to GA-EPO, on a
country by country basis (except as provided below): (i) the gross sales (except
for sales to which subsection 7.2.2 applies) of all GA-EPO covered by the TKT
Patent Rights or which uses the TKT Technology sold by MMD and its Affiliates,
its distributors and its permitted sublicensees in the MMD Territory during the
reporting period; (ii) the calculation of Net Sales (except for sales to which
subsection 7.2.2 applies) from such gross sales; (iii) the Gross Margin related
to sales to which subsection 7.2.2 applies and the calculation of such Gross
Margin; (iv) any revenues from sublicensees received by MMD during the reporting
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
period; (v) the royalties and other payments payable in United States dollars
which shall have accrued hereunder in respect of such Net Sales, Gross Margin
and sublicensee payments; (vi) withholding taxes, if any, required by law to be
deducted as a payment by TKT in respect of such Net Sales, Gross Margin and
sublicensee payments; (vii) the dates of the First Commercial Sales of GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology in any country
in the MMD Territory during the reporting period; and (viii) the exchange rates
used in determining the amount of United States dollars. All amounts payable
will first be calculated in the currency of sale and then converted into United
States dollars on a quarterly basis using as a rate of exchange the actual
foreign currency exchange rate on the last day of the month preceding the end of
the quarter or such other method as is consistent with MMD's internal foreign
currency translation procedures. MMD shall use its best efforts to provide such
reports on the sixtieth (60th) day following the close of each quarter. If no
royalty is due for any royalty period hereunder, MMD shall so report. MMD shall
keep complete and accurate records in sufficient detail to properly reflect all
gross sales, Net Sales and Gross Margin and to enable the royalties payable
hereunder to be determined.
7.4. Audits.
7.4.1. Procedure. Upon the written request of TKT or MMD, the
other party shall permit an internal auditor or independent public accountant
selected by TKT or MMD, as the case may be, and acceptable to the other party,
which acceptance shall not be unreasonably withheld, to have access during
normal business hours to such of the records of MMD or TKT, as the case may be,
as may be reasonably necessary to verify the accuracy of the royalty reports,
cost computations and final cost amounts described hereunder, in respect of any
fiscal year ending not more than *********************** prior to the date of
such request. All such verifications shall be conducted at TKT's or MMD's, as
the case may be, expense and not more than ******** in each calendar year.
7.4.2. Expenses. In the event such accountant concludes that
additional royalties or lower expense reimbursement were required during such
period, and the party receiving such audit request agrees with such conclusion,
the additional royalty shall be paid in accordance with Section 7.5 or the
excess expense reimbursement shall be promptly repaid. The fees charged by such
accountant shall be paid by the party requesting such audit, unless the audit
discloses and the party receiving such audit request agrees (i) in the case of
an audit by TKT, that the royalties payable by MMD, or, (ii) in the case of an
audit by MMD, that the cost computation estimates and final amounts hereunder,
for the audited period are incorrect by more than *****************, in which
case the audited party shall pay the reasonable fees and expenses charged by the
accountant.
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SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
7.4.3. Sublicenses. MMD shall use reasonable efforts to include in
each Third Party sublicense granted by it pursuant to this Agreement a provision
requiring the sublicensee to make reports to MMD, to keep and maintain records
of sales made pursuant to such sublicense and to grant access to such records by
TKT's independent accountant to the same extent required of MMD under this
Agreement. Upon the expiration of *********************** following the end of
any fiscal year, the calculation of royalties payable with respect to such year
shall be binding and conclusive upon TKT; and MMD and its sublicensees shall be
released from any liability or accountability with respect to royalties for such
year.
7.4.4. Confidential Treatment. Each party agrees that all
information subject to review under this Section 7.4 or under any sublicense
agreement is confidential and that such party shall cause its accountant to
retain all such information in confidence.
7.5. Royalty Payment Terms. Royalties shown to have accrued by each
royalty report provided for under this Agreement shall be due and payable on the
date such royalty report is due. Payment of royalties in whole or in part may be
made in advance of such due date. Royalties determined to be owing, and any
overpayments to be credited, with respect to any prior quarter shall be added or
credited, as the case may be, to the next quarterly payment hereunder.
7.6. Form of Payment. All research payments, milestone payments, royalties
and other payments due hereunder shall be paid in United States dollars. If at
any time legal restrictions prevent the prompt remittance of part or all
royalties with respect to any country of the MMD Territory where GA-EPO covered
by the TKT Patent Rights or which uses the TKT Technology is sold, payment shall
be made through such lawful means or methods as MMD may determine.
7.7. Withholding Taxes. All royalties payable to TKT hereunder shall be
paid without deductions of any withholding taxes, value-added taxes or other
taxes, levies or charges applicable to such payments, other than (i) United
States taxes payable by TKT and (ii) foreign taxes payable by TKT to the extent
that such taxes are imposed by reason of TKT's having a permanent establishment
in any country within the MMD Territory or otherwise being subject to taxation
by such country (except foreign taxes imposed solely by reason of the license
granted to MMD hereunder). MMD shall be credited for the net benefit realized by
TKT for any foreign tax deductions or credits taken by TKT with respect to such
amounts paid by MMD. In addition, any reorganization of TKT or an Affiliate of
TKT with or into an entity organized outside the United States shall not result
in any increased costs to MMD under this Agreement. Each party will assist the
other party in claiming tax refunds, deductions or credits at the other party's
request and will cooperate to
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
minimize the withholding tax, if available, under various treaties applicable to
any payment made hereunder.
7.8. Interest on Late Payments. Any payments by either party that are not
paid on or before the date such payments are due under this Agreement shall bear
interest, to the extent permitted by law, at the London Interbank Offering Rate
as set by Citibank, N.A. from time to time, plus 50 basis points, calculated on
the number of days payment is delinquent.
ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS
8.1. Ownership.
8.1.1. Ownership of Discoveries and Improvements. All right, title
and interest in all writings, inventions, discoveries, improvements and other
technology, whether or not patentable or copyrightable, and any patent
applications, patents or copyrights based thereon (collectively, the
"Inventions") that are discovered, made or conceived during and as a result of
the Research Phase or the Development Phase solely by employees of TKT or others
acting on behalf of TKT ("TKT Inventions") shall be owned by TKT.
***********************************************
*************************************************************
********************************************************
**************************************************************
*****************************************************************
*************************************************************
**************************************************************** ********. All
right, title and interest in all Inventions that are discovered, made or
conceived during and as a result of the Research Phase or the Development Phase
or thereafter solely by employees of MMD or others acting on behalf of MMD ("MMD
Inventions") shall be owned by MMD. All right, title and interest in all
Inventions that are discovered, made or conceived during and as a result of the
Research Phase or the Development Phase or thereafter jointly by employees of
TKT and MMD or others acting on their behalf (the "Joint Inventions") shall be
jointly owned by MMD and TKT. Each party shall promptly disclose to the other
party the making, conception or reduction to practice of Inventions by employees
or others acting on behalf of such party. The parties acknowledge that the
ownership rights set forth above are subject to the license grants set forth in
Article 3.
8.1.2. Cooperation of Employees. Each party represents and agrees
that its employees and consultants shall be obligated under a binding written
agreement to assign to such party, or as such party shall direct, all Inventions
made or conceived during and as a result of the Research Phase or the
Development Phase by such employee or consultant. In the case of non-employees
working for other companies or institutions on behalf of TKT or MMD, TKT or MMD,
as applicable, shall use reasonable efforts to obtain the right to license all
Inventions made by such non-employees on behalf of TKT or MMD, as
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
applicable, in accordance with the policies of the company or institution
employing such non-employee. TKT and MMD agree to undertake to enforce such
agreements with employees or others or such rights pertaining to non-employees
(including, where appropriate, by legal action) considering, among other things,
the commercial value of such Inventions.
8.2. Filing, Prosecution and Maintenance of TKT Patent Rights and TKT
Technology.
8.2.1. Filing, Prosecution and Maintenance. TKT shall be
responsible for the filing, prosecution (including oppositions) and maintenance
of all patent applications and patents which make up the TKT Patent Rights and
such other registrations related to the TKT Technology. For so long as any of
the license grants set forth in Article 3 remain in effect, TKT agrees to file
and prosecute patent applications and maintain the patents covering the TKT
Patent Rights and, to the extent applicable, for the registration or other
protection of the TKT Technology, in all countries in the MMD Territory in which
MMD customarily files for products of similar interest. TKT shall consult with
MMD and keep MMD fully informed of important issues relating to the preparation,
filing, prosecution and maintenance of such patent applications and patents,
including patent strategy with respect to both existing and future patent
applications, patents and patent extensions, and shall furnish to MMD copies of
documents relevant to such preparation, filing, prosecution or maintenance
sufficiently prior to filing such document or making any payment due thereunder
to allow for review and comment by MMD, and TKT shall seriously consider all
such comments. TKT and MMD shall mutually determine procedures for carrying out
the filing, prosecution (including oppositions) and maintenance, as applicable,
of patent applications and patents for all Joint Inventions and
******************************** *******, and both parties shall be kept fully
informed of and consult and cooperate with respect to all actions taken with
respect thereto; provided that, if either party elects to not ******************
of such activity with respect to a particular Joint Invention in a particular
country, then the other party may, ******************* and discretion, undertake
the filing, prosecution (including oppositions) and maintenance of such patent
or patent application in such country, and the party not participating in such
expenses shall assign its interest in such patent or patent application in such
country to the other party, including the rights to receive and collect from
third parties any royalties and damages from future or past infringement, but
reserving a perpetual royalty-free non-exclusive license in such country
(without the right to sublicense and subject to any limitations imposed by this
Agreement, including Section 2.2 hereof) to use such Joint Invention to make,
have made, use, distribute for sale and sell any products covered by such patent
covering such Joint Invention. The non-participating party will cooperate with
the other party, at the other party's expense, as necessary to enable the other
party to establish and protect its rights under this subsection 8.2.1.
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SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
If TKT elects not to continue to seek or maintain patent protection on any
patent or patent application which makes up the TKT Patent Rights or relates to
the TKT Technology in any country in the MMD Territory, MMD shall have the
right, at its option, but in the name of TKT ********************, to file,
prosecute (including oppositions) and maintain such patent applications and
patents as TKT shall have previously filed in at least one country, provided,
however, that the rights of the parties with respect to any such TKT Patent
Rights and TKT Technology shall in all other respects be as described in this
Agreement. TKT will advise MMD of all decisions taken with respect to any such
election in a timely manner in order to allow MMD to protect its rights under
this subsection 8.2.1.
8.2.2. Patent Filing Costs. *** shall bear all costs associated
with filing, prosecuting and maintaining patent applications and patents
covering the TKT Patent Rights in all countries in the MMD Territory.
8.3. Cooperation. Each party shall make available to the other party (or
to the other party's authorized attorneys, agents or representatives), its
employees, agents, subcontractors or consultants to the extent reasonably
necessary or appropriate to enable the appropriate party to file, prosecute and
maintain patent applications and resulting patents with respect to Inventions
owned by a party and for periods of time reasonably sufficient for such party to
obtain the assistance it needs from such personnel. Where appropriate, each
party shall sign or cause to have signed all documents relating to said patent
applications or patents at no charge to the other party. Notwithstanding the
foregoing, MMD shall not be precluded from contesting the validity or
enforceability of the TKT Patent Rights or TKT Technology.
8.4. Notification of Patent Term Restoration. *** shall notify *** of (i)
the issuance of each patent included within the TKT Patent Rights, giving the
date of issue and patent number for each such patent, and (ii) each notice
pertaining to any patent included within the TKT Patent Rights which it receives
as patent owner pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (hereinafter called the "Act"), or other similar laws
now or hereafter in effect, or pursuant to comparable laws or regulations in
other countries in the MMD Territory. The parties shall cooperate with each
other in applying for patent term extensions (including Supplementary Protection
Certificates in European Community Countries) where applicable in any country of
the MMD territory. *** shall also notify *** of each application filed for
patent term extension, any allegations of failure to show due diligence and all
awards of patent term extensions with respect to the TKT Patent Rights. Such
notices shall be given promptly, but in any event within ten (10) business days
after receipt of each such notice pursuant to the Act (or comparable laws or
regulations in other countries in the MMD Territory). *** shall notify *** of
each filing for patent term restoration under the Act (or comparable laws or
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regulations in other countries in the MMD Territory), any allegations of failure
to show due diligence and all awards of patent term restoration (extensions)
with respect to the TKT Patent Rights.
8.5. No Other Technology Rights. Except as otherwise expressly provided in
this Agreement, under no circumstances shall a party hereto, as a result of this
Agreement, obtain any ownership interest in or other right to any technology,
know-how, patents, pending patent applications, products, or biological
materials of the other party, including items owned, controlled or developed by
the other party, or transferred by the other party to said party, at any time
pursuant to this Agreement. It is understood and agreed that this Agreement does
not grant MMD any license or other right in the TKT Patent Rights for uses other
than the production, manufacture, use, distribution for sale and sale of GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology.
8.6. Enforcement of TKT Patent Rights and TKT Technology; Defense of
Infringement Actions. TKT and MMD shall each promptly, but in any event no later
than ten (10) business days after receipt of notice of such action, notify the
other in writing of any patent nullity actions, any declaratory judgment actions
or any alleged or threatened infringement of patents or patent applications or
misappropriation of intellectual property comprising the TKT Patent Rights or
the TKT Technology or if either party, or any of their respective Affiliates,
shall be individually named as a defendant in a legal proceeding by a Third
Party alleging infringement of a patent or other intellectual property right as
a result of the manufacture, production, use, distribution for sale or sale of
GA-EPO, or of any other information or notification regarding the TKT Patent
Rights or TKT Technology.
8.6.1. MMD's First Right to Respond. MMD shall have the first
right to respond to, defend or prosecute any actions, challenges, infringements,
misappropriations or proceeding by a Third Party alleging infringement described
in Section 8.6. In the event MMD elects to do so, TKT will cooperate with MMD
and its legal counsel, join in such suits as may be brought by MMD, and be
available at MMD's reasonable request to be an expert witness or otherwise to
assist in such proceedings. MMD will cooperate with TKT and its legal counsel
and keep TKT and its counsel reasonably informed at all times as to the status
of MMD's response or defense.
8.6.2. No Adverse Settlement Without TKT Consent. MMD will not
settle any suit involving the TKT Patent Rights or TKT Technology in a manner
that would compromise any rights of TKT without obtaining the prior written
consent of TKT.
8.6.3. Sharing of Litigation and Settlement Expenses. In the event
that MMD elects to respond to, defend or prosecute any actions, challenges,
infringements,
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
misappropriations or proceeding by a Third Party alleging infringement described
in Section 8.6., then: (i) legal fees and other costs and expenses associated
with such response or defense, including those incurred by TKT at MMD's request,
shall be shared **% by MMD and **% by TKT; (ii) costs of acquiring Third Party
patents or licenses and any settlement, court award, judgment or other damages
will be shared **% by MMD and **% by TKT; and (iii) amounts recovered from Third
Parties in connection with such response or defense shall first be applied, **%
to MMD and **% to TKT, to reimburse MMD and TKT for their respective costs and
expenses incurred pursuant to clause (i) above, and thereafter shall be divided
**% to MMD and **% to TKT. MMD shall advance all costs required to be paid by
TKT pursuant to clauses (i) and (ii) of this subsection 8.6.3. and shall recover
such advanced costs through credits against up to **% of the royalties otherwise
payable by MMD to TKT hereunder, until the amount so advanced by MMD is fully
recovered. TKT shall have no obligation to repay to MMD any amounts previously
paid by MMD to TKT hereunder to cover such costs; provided, that if this
Agreement is terminated or the sale of GA-EPO covered by the TKT Patent Rights
or which uses the TKT Technology is permanently enjoined in any country or
countries in the MMD Territory accounting for substantially all of the Net Sales
of GA-EPO covered by the TKT Patent Rights or which uses the TKT Technology by
MMD at a time when MMD has not recovered all of the costs advanced by MMD, then
TKT shall pay to MMD ****************************************** by MMD within a
reasonable period of time.
8.6.4. TKT's Second Right to Respond. In the event that MMD elects
not to respond to, defend or prosecute any actions, challenges, infringements,
misappropriations or proceeding by a Third Party alleging infringement described
in Section 8.6. within sixty (60) days of becoming aware of or being notified of
such actions, challenges, infringements, misappropriations or proceedings, then
TKT shall have the option to do so at TKT's sole cost, provided that in such
case all amounts so recovered from any Third Party shall be retained by TKT and
TKT shall have no further obligations to MMD with respect to the response or
defense thereof.
8.6.5. TKT's Second Right to Defend Infringement Actions; Payment
of Royalties by TKT. If MMD does not exercise its right to respond to or defend
against a legal proceeding by a Third Party alleging infringement of a patent or
other intellectual property right as a result of the manufacture, production,
use, distribution for sale or sale of GA-EPO within sixty (60) days of becoming
aware of or being notified of such action, or if MMD initially exercises such
right but subsequently abandons such response or defense, and in either event
such decision by MMD can reasonably be expected to have a material adverse
impact on the sale of GA-EPO in any country, then TKT shall have the option to
do so. If TKT elects to respond to or defend against such action, then the costs
of such response or defense, and any amounts recovered from Third Parties in
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
connection with such response or defense, shall be dealt with as provided in
subsection 8.6.3 except that the provisions in such subsection referring to MMD
shall be deemed to refer to TKT and vice versa; provided, however, in no event
shall MMD be required to pay to TKT any portion of such costs except through
credits against royalties otherwise payable to MMD by TKT. If TKT elects to
respond to or defend against such action, is successful in such response or
defense, and has exercised its right under subsection 12.2.4 to terminate this
Agreement with respect to the relevant portion of the MMD Territory and market
GA-EPO in such relevant portion directly or through sublicensees, then TKT shall
pay royalties to MMD based on cumulative Net Sales of GA-EPO covered by the TKT
Patent Rights or which uses the TKT Technology sold by TKT or its Affiliates or
by any sublicensee or distributor of TKT in the country in which TKT has assumed
such right at the rates set forth in Section 7.2 which would apply to sales of
GA-EPO by MMD or its Affiliates. In such event, the provisions of Sections 7.2
through 7.8 shall apply to TKT with respect to the royalties payable by TKT
hereunder and the obligations of MMD with respect to MMD Territory shall apply
mutatis mutandis to TKT with respect to such countries.
8.7. Costs of Acquiring Additional Technology other than Manufacturing
Know-How. In the event that either the R&D Oversight Committee or the
Development Committee determines that it is necessary or desirable for MMD to
acquire any Third Party patent or license in connection with the development or
manufacture of GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology in the MMD Territory, other than patents or licenses which are
included in Manufacturing Know-How, then the costs of acquiring such Third Party
patent or license shall be shared **% by MMD and **% by TKT. The cost sharing
provisions described in this Section 8.7 shall only apply to Third Party patent
or license acquisitions approved unanimously by the R&D Oversight Committee or
the Development Committee.
ARTICLE 9. CONFIDENTIALITY
9.1. Nondisclosure Obligations.
9.1.1. General. Except as otherwise provided in this Article 9,
during the term of this Agreement and for a period of ten (10) years thereafter,
both parties shall maintain in confidence and use only for purposes specifically
authorized under this Agreement (i) confidential information and data received
from the other party resulting from or related to the development of GA-EPO and
(ii) all information and data not described in clause (a) but supplied by the
other party under this Agreement marked "Confidential."
9.1.2. Limitations. For purposes of this Article 9, information
and data described in paragraph (a) or (b) shall be referred to as
"Information." To the extent it is reasonably necessary or appropriate to fulfil
its obligations or exercise
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
its rights under this Agreement, a party may disclose Information it is
otherwise obligated under this Section not to disclose to its Affiliates,
sublicensees, consultants, outside contractors and clinical investigators, on a
need-to-know basis on condition that such entities or persons agree to keep the
Information confidential for the same time periods and to the same extent as
such party is required to keep the Information confidential; and a party or its
sublicensees may disclose such Information to government or other regulatory
authorities to the extent that such disclosure is reasonably necessary to obtain
patents or authorizations to conduct clinical trials of, and to commercially
market, GA-EPO. The obligation not to disclose Information shall not apply to
any part of such Information that (i) is or becomes part of the public domain
other than by unauthorized acts of the party obligated not to disclose such
Information or its Affiliates or sublicensees; (ii) can be shown by written
documents to have been disclosed to the receiving party or its Affiliates or
sublicensees by a Third Party, provided such Information was not obtained by
such Third Party directly or indirectly from the other party under this
Agreement pursuant to a confidentiality agreement; (iii) prior to disclosure
under this Agreement, was already in the possession of the receiving party or
its Affiliates or sublicensees, provided such Information was not obtained
directly or indirectly from the other party under this Agreement pursuant to a
confidentiality agreement; (iv) can be shown by written documents to have been
independently developed by the receiving party or its Affiliates without breach
of any of the provisions of this Agreement; or (v) is disclosed by the receiving
party pursuant to oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand issued by a court or
governmental agency; provided that the receiving party notifies the other party
immediately upon receipt thereof (and provided that the disclosing party
furnishes only that portion of the Information which it is advised by counsel is
legally required).
9.2. Materials.
9.2.1. ******************************. ***********
*****************************************************************
****************************************************************
*******************************************************
***************************************************************
**********************************************************
***********************************************************
**************************************************************
****************************************************************
*****************************************************************
****************************************************************
*********************************************************
*******************************************.
9.2.2. Samples. Samples of compounds synthesized, purified or
developed in the course of the Research and
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Development Program shall not be supplied or sent by either party to any Third
Party, other than to regulatory agencies or for use in clinical trials, unless
protected by an appropriate materials transfer agreement. Samples of compounds
other than those described above provided by one party (the "supplying party")
to the other party (the "receiving party") in the course of the Research Program
shall not be supplied or sent by the receiving party to any Third Party, other
than to regulatory agencies or for use in clinical trials, without the written
consent of the supplying party.
9.3. Terms of this Agreement. TKT and MMD each agree not to disclose any
terms or conditions of this Agreement to any Third Party without the prior
consent of the other party, except as required by applicable law. If TKT
determines that it is required to file with the Securities and Exchange
Commission or other governmental agency this Agreement as an exhibit to the
registration statement relating to the IPO or otherwise, TKT shall request
confidential treatment of such portions of this Agreement as it and MMD shall
together determine. Notwithstanding the foregoing, within 15 days after the
execution of this Agreement, MMD and TKT shall agree upon the substance of
information that can be used as a routine reference in the usual course of
business to describe the terms of this transaction, and MMD and TKT may disclose
such information, as modified by mutual agreement from time to time, without the
other party's consent; provided, however, that if either party determines that
excessive use of such statement is made by the other party, then the party
determined to be using such statement excessively shall, upon notice by the
other party, cease making such statement.
9.4. Publications.
9.4.1. Procedure. Each party recognizes the mutual interest in
obtaining valid patent protection. Consequently, either party and its employees
or consultants or any other Third Party wishing to make a publication (including
any oral disclosure made without obligation of confidentiality) relating to work
performed by such party as part of the Program (the "Publishing Party") shall
transmit to the other party (the "Reviewing Party") a copy of the proposed
written publication at least ******************** prior to submission for
publication, or an abstract of such oral disclosure at least *****************
prior to submission of the abstract or the oral disclosure, whichever is
earlier. The Reviewing Party shall have the right (a) to propose modifications
to the publication for patent reasons, (b) to request a delay in publication or
presentation in order to protect patentable information, or (c) to request that
the information be maintained as a trade secret and, in such case, the
Publishing Party shall not make such publication.
9.4.2. Delay. If the Reviewing Party requests a delay as described
in subsection 9.4.1. (b) the Publishing Party shall delay submission or
presentation of the publication for a
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
period of **************** to enable patent applications protecting each party's
rights in such information to be filed.
9.4.3. Resolution. Upon the receipt of written
approval of the Reviewing Party, the Publishing Party may proceed
with the written publication or the oral presentation.
9.5. Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 9 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 9. It is understood that such injunctive relief
is intended solely as provisional relief pending the dispute resolution
procedures described in Section 13.6 hereof.
ARTICLE 10. REPRESENTATIONS AND WARRANTIES
10.1. General.
10.1.1. Authorization. Each party represents and warrants to the
other that it has the legal right and power to enter into this Agreement, to
extend the rights and licenses granted to the other in this Agreement, and to
fully perform its obligations hereunder, and that the performance of such
obligations will not conflict with its charter documents or any agreements,
contracts or other arrangements to which it is a party.
10.1.2. No Inconsistent TKT Arrangements. TKT represents and
warrants that it has full power and authority to grant the license set forth in
Article 3 hereof and that there are no agreements, assignments, encumbrances or
other arrangements inconsistent with this Agreement including, without
limitation, any obligations to governmental agencies, private foundations or
corporate entities resulting from acceptance of research grant monies, equity
investments, corporate sponsorships or otherwise.
10.1.3. Exclusivity. TKT represents and warrants that MMD is the
exclusive licensee of the TKT Technology owned by TKT and the TKT Patent Rights
with respect to the manufacture, use or sale of GA-EPO in the MMD Territory.
10.1.4. Licensed Technology. TKT represents and warrants that, as
of the Effective Date, the TKT Patent Rights and TKT Technology do not include
any intellectual property licensed to TKT from a Third Party other than those
included in a License Agreement *********************************************
**************************************************************.
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10.2. Patent Validity.
10.2.1. Title. TKT represents and warrants that as of the
Effective Date, it possesses the exclusive right, title and interest in and to
the TKT Technology owned by TKT and the TKT Patent Rights and that it has the
full legal right and power to: (i) enter into the obligations set forth in this
Agreement; and (ii) grant the rights and licenses set forth in Article 3.
10.2.2. No Encumbrances. TKT represents and warrants as of the
Effective Date, to the best of its actual knowledge and based upon the advice of
its counsel, to the best of such counsel's actual knowledge without undertaking
any independent investigation, (i) that there were no encumbrances, liens or
other claims affecting the TKT Technology owned by TKT or the TKT Patent Rights
and (ii) that such TKT Technology and TKT Patent Rights were valid, enforceable
and free from infringement, and that there were no pending or threatened
actions, suits or proceedings relating thereto or to GA-EPO.
10.2.3. Non-Infringement. TKT represents and warrants that as of
the Effective Date, to the best of its actual knowledge and based upon the
advice of its counsel, to the best of such counsel's actual knowledge without
undertaking any independent investigation, there were no legal obstacles,
including no patent rights or other proprietary rights of others, which will
prevent it from carrying out its obligations under this Agreement or prevent MMD
from carrying out its obligations under this Agreement or which will be
infringed by the performance of either party's obligations under this Agreement.
10.3. Financial Statements. TKT represents and warrants that Schedule 10.3
hereto sets forth TKT's most recent regularly prepared balance sheet, that such
balance sheet is true and correct and fairly presents the financial condition of
TKT as of its date, and that the total assets set forth thereon are less than
$10,000,000.
ARTICLE 11. INDEMNITY
11.1. MMD Indemnity Obligations. In the absence of TKT's negligence or a
breach of representation, warranty, covenant or agreement by TKT, MMD agrees to
defend, indemnify and hold TKT, its Affiliates and their respective employees
and agents harmless from all claims, losses, damages or expenses arising as a
result of (a) actual or asserted violations of any applicable law or regulation
by MMD or its Affiliates or sublicensees by virtue of which GA-EPO covered by
the TKT Patent Rights or which uses the TKT Technology manufactured, distributed
or sold shall be alleged or determined to be adulterated, misbranded, mislabeled
or otherwise not in compliance with any applicable law or regulation or (b)
claims for bodily injury, death or property damage attributable to MMD's
performance of its obligations under this Agreement or the manufacture,
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distribution, sale or use of GA-EPO covered by the TKT Patent Rights or which
uses the TKT Technology by MMD or its Affiliates or sublicensees.
11.2. TKT Indemnity Obligations. In the absence of MMD's negligence or a
breach of representation, warranty, covenant or agreement by MMD, TKT agrees to
defend, indemnify and hold MMD, its Affiliates and sublicensees and their
respective employees and agents harmless from all claims, losses, damages and
expenses arising as a result of (a) actual or asserted violations of any
applicable law or regulation by TKT or its Affiliates or licensees by virtue of
which GA-EPO covered by the TKT Patent Rights or which uses the TKT Technology
manufactured, distributed or sold shall be alleged or determined to be
adulterated, misbranded, mislabeled or otherwise not in compliance with any
applicable law or regulation or (b) claims for bodily injury, death or property
damage attributable to TKT's performance of its obligations under this
Agreement.
11.3. Procedure. A party or any of its Affiliates or their respective
employees or agents (the "Indemnitee") that intends to claim indemnification
under this Article 11 shall promptly notify the other party (the "Indemnitor")
of any claim, loss, damage, or expenses in respect of which the Indemnitee
intends to claim such indemnification reasonably promptly after the Indemnitee
is aware thereof, and the Indemnitor shall assume the defense of any related
third party action, suit or proceeding with counsel mutually satisfactory to the
parties; provided, however, that an Indemnitee shall have the right to retain
its own counsel, with the fees and expenses to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 11 shall not apply to
amounts paid in settlement of any claim, loss, damage or expense if such
settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure of an Indemnitee to deliver
notice to the Indemnitor within a reasonable time after becoming aware of any
such matter, if prejudicial to the Indemnitor's ability to defend such action,
shall relieve the Indemnitor of any liability to the Indemnitee under this
Article 11. The Indemnitor shall not have any liability to any Indemnitee
otherwise than under this Article 11. The Indemnitee under this Article 11 and
its employees and agents shall cooperate fully with the Indemnitor and its legal
representatives in the investigation of any matter covered by this
indemnification. The Indemnitor shall additionally be liable to pay the
reasonable legal costs and attorneys' fees incurred by the Indemnitee in
establishing a successful claim for indemnity hereunder.
11.4. Insurance. For the period starting with the First
Commercial Sale of GA-EPO MMD and TKT shall each maintain product
-36-
<PAGE> 42
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
liability insurance with respect to development, manufacture and sale of GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology in reasonable
amounts determined after consultation with each other, for the term of this
Agreement (if such insurance is an occurrence-basis policy) or for an additional
********* after the expiration or termination of this Agreement (if such
insurance is a claims-made basis policy).
ARTICLE 12. TERM AND TERMINATION
12.1. Expiration. Unless terminated earlier pursuant to Section 12.2, this
Agreement shall expire and the licenses granted by TKT to MMD hereunder shall
become fully paid, with respect to each country in the MMD Territory, upon the
later of (i) ********* after the First Commercial Sale of GA-EPO covered by the
TKT Patent Rights or which uses the TKT Technology by MMD or its Affiliates or
sublicensees in such country and (ii) the last to expire of any of the then
existing patents included in the TKT Patent Rights in such country.
12.2. Termination. This Agreement may be terminated in the following
circumstances:
12.2.1. By either party by reason of a material breach not
described in subsection 12.2.5 that the breaching party fails to remedy within
90 days after written notice thereof by the non-breaching party;
12.2.2. By MMD upon 180 days prior written notice with respect to
all or a portion of the MMD Territory, if, in its reasonable judgment, MMD
determines that toxicities or side effects directly attributable to GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology have rendered
it such a safety risk to the patient population that GA-EPO covered by the TKT
Patent Rights or which uses the TKT Technology is commercially nonviable;
12.2.3. By MMD, upon 180 days prior written notice, with respect
to any portion of the MMD Territory if, after consultation with TKT, MMD
determines that GA-EPO covered by the TKT Patent Rights or which uses the TKT
Technology is commercially nonviable;
12.2.4. By TKT, with respect to the country or relevant portion of
the MMD Territory, in the event that TKT elects to respond to or defend against
a legal proceeding by a Third Party alleging infringement of a patent or other
intellectual property right as a result of the manufacture, production, use,
distribution for sale or sale of GA-EPO in any country in the MMD Territory
pursuant to subsection 8.6.5 provided that the failure to so respond or defend
against such action would have had a material adverse impact on MMD's ability to
market GA-EPO, either directly or indirectly through sublicensees, in such
country or relevant portion of the MMD Territory;
-37-
<PAGE> 43
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
12.2.5. By TKT, with respect to the relevant portion of the MMD
Territory, in the event that either (i) MMD fails to use its best efforts to
meet the milestones described in Appendix A applicable to such portion of the
MMD Territory or (ii) MMD fails to use its best efforts to commercialize GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology in such
portion of the MMD Territory using commercially reasonable means consistent with
those used for MMD products with similar commercial potential, and, in either or
both events, MMD fails to remedy or take reasonable action to initiate a remedy
of such default within 90 days after notice thereof by TKT; provided that
termination by TKT pursuant to this subsection 12.2.5 shall be TKT's sole remedy
for any such failure by MMD to meet such milestones or commercialize GA-EPO
covered by the TKT Patent Rights or which uses the TKT Technology;
12.2.6. If a competing GA-EPO product is introduced into any
country in the MMD Territory, and TKT does not have issued patents or pending
claims under the patents included in the TKT Patent Rights which (if issued, in
the case of pending claims) will enable a patent infringement action to be
initiated, then MMD has the right to terminate as to any such country or the
Territory Block in which it is included on 180 days notice; or
12.2.7. By either party upon bankruptcy, insolvency, dissolution
or winding up of the other.
12.3. Effect of Termination. Expiration or termination of this Agreement
shall not relieve the parties of any obligation accruing prior to such
expiration or termination. The provisions of Section 3.2 (with respect only to
licenses granted prior to the time of expiration or termination and subject to
the terms described below) and Article 7 (with respect only to milestone
payments and royalties accrued at the time of expiration or termination but not
yet paid), Article 8, Article 9 and Article 11 shall survive the expiration or
termination of this Agreement. In the event of a termination of this Agreement
pursuant to subsections 12.2.1 to 12.2.7, then all TKT Patent Rights licensed
hereunder with respect to the portion of the MMD Territory terminated will be
returned to TKT and, except in the event that this Agreement is terminated by
TKT pursuant to subsection 12.2.1, copies of all regulatory filings and related
supporting and other materials prepared in connection with such terminated
portion of the MMD Territory shall also be delivered to and available for use by
TKT, and in any event MMD will immediately cease to sell GA-EPO covered by the
TKT Patent Rights or which uses the TKT Technology in the relevant portion of
the MMD Territory with respect to which this Agreement is terminated. In the
event of termination of this Agreement in all countries within the MMD
Territory, MMD will ***************************
*****************************************************************
*****************************************************************
*************************************************************
*************************************************************** ***********.
Except in the event that this Agreement is
-38-
<PAGE> 44
terminated by TKT pursuant to subsection 12.2.1, MMD shall, to the extent
legally permissible, take all additional action reasonably necessary to assign
all of its right, title and interest in and transfer possession and control to
TKT of the regulatory filings prepared by MMD to the extent that such filings
relate to GA-EPO covered by the TKT Patent Rights or which use the TKT
Technology and any regulatory approvals received by MMD to the extent that such
approvals relate to GA-EPO covered by the TKT Patent Rights or which use the
TKT Technology; provided, however, that MMD may retain a joint ownership
interest in such filings and approvals to the extent that such filings or
approvals are necessary under this Agreement for portions of the MMD Territory
with respect to which this Agreement has not been terminated or for the
development or commercialization by MMD of products other than GA-EPO covered by
the TKT Patent Rights or which use the TKT Technology. In the event of a
termination of this Agreement other than by TKT pursuant to subsections 12.2.1
or 12.2.5, TKT shall be obligated to pay to MMD compensation on such
commercially reasonable terms as shall be determined by mutual agreement of TKT
and MMD for the use of all licenses granted by MMD under Section 3.2.
ARTICLE 13. MISCELLANEOUS
13.1. 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 when
such failure or delay is caused by or results from causes beyond the reasonable
control of the affected party, including but not limited to fire, floods,
embargoes, war, acts of war (whether war is declared or not), insurrections,
riots, civil commotions, strikes, lockouts or other labor disturbances, acts of
God or acts, omissions or delays in acting by any governmental authority or the
other party.
13.2. Assignment. This Agreement may not be assigned or otherwise
transferred by either party without the consent of the other party; provided,
however, that either TKT or MMD may, without such consent, assign its rights and
obligations under this Agreement (i) in connection with a corporate
reorganization, to any Affiliate, all or substantially all of the equity
interest of which is owned and controlled by such party or its direct or
indirect parent corporation, or (ii) in connection with a merger, consolidation
or sale of substantially all of such party's assets to an unrelated third party;
provided, however, that such party's rights and obligations under this Agreement
shall be assumed by its successor in interest in any such transaction and shall
not be transferred separate from all or substantially all of its other business
assets, including those business assets that are the subject of this Agreement.
Any purported assignment in violation of the preceding sentence shall be void.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement.
-39-
<PAGE> 45
13.3. Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the parties would not have entered into this Agreement
without the invalid provisions.
13.4. Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by telephone, personal delivery or courier) or courier, postage
prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.
If to
TKT: Transkaryotic Therapies, Inc.
195 Albany Street
Cambridge, Massachusetts 02139
Attention: President
Telephone: (617) 349-0200
Telecopy: (617) 491-7903
with a copy to: Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attention: Peter Wirth, Esq.
Telephone: (617) 573-0100
Telecopy: (617) 227-4420
If to MMD: Marion Merrell Dow Inc.
9300 Ward Parkway
Kansas City, Missouri 64114-0480
Attention: General Counsel
Telephone: (816) 966-4000
Telecopy: (816) 966-3805
-40-
<PAGE> 46
with copies to: Marion Merrell Dow Inc.
2110 E. Galbraith Rd.
Cincinnati, OH 45215
Attention: General Patent Counsel
Telephone: (513) 948-7960
Telecopy: (513) 948-7961
and
Shook, Hardy & Bacon, P.C.
One Kansas City Place
1200 Main Street, Suite 3100
Kansas City, Missouri 64105
Attention: Randall B. Sunberg, Esq.
Telephone: (816) 474-6550
Telecopy: (816) 421-5547
13.5. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
choice of law provisions thereof.
13.6. Dispute Resolution. Any disputes arising between the parties
relating to, arising out of or in any way connected with this Agreement or any
term or condition hereof, or the performance by either party of its obligations
hereunder, whether before or after termination of this Agreement, shall be
promptly presented to the Chief Executive Officers of TKT and MMD for resolution
and if the Chief Executive Officers or their designees cannot promptly resolve
such disputes, then such dispute shall be finally resolved by binding
arbitration, except that disputes arising within the Development Committee shall
be ultimately resolved, without the use of arbitration, by the Chief Executive
Officer of MMD. Whenever a party shall decide to institute arbitration
proceedings, it shall give written notice to that effect to the other party. The
party giving such notice shall refrain from instituting the arbitration
proceedings for a period of sixty (60) days following such notice. Any
arbitration hereunder shall be conducted under the commercial rules of the
American Arbitration Association. Each such arbitration shall be conducted in
the English language by a panel of three arbitrators appointed in accordance
with such rules; provided, however, that both parties hereto shall be entitled
to representation by counsel, to appear and present written and oral evidence
and argument and to cross-examine witnesses presented by the other party. The
arbitral panel (i) shall have the authority to grant specific performance, (ii)
may allocate between the parties the costs of arbitration in such equitable
manner as they may determine, but (iii) shall not render an arbitral award
contrary to the provisions of this Agreement. The arbitral award shall be in
writing and the arbitral panel shall provide written reasons for its award. The
award of the arbitral panel shall be final and binding upon the parties hereto.
Any such arbitration shall be held in Chicago, Illinois, or any other mutually
agreed
-41-
<PAGE> 47
location. Judgment upon the award so rendered may be entered in any court having
jurisdiction or application may be made to such court for judicial acceptance of
any award and an order of enforcement, as the case may be. Notwithstanding the
provisions of this Section 13.7, in the event of a material breach of this
Agreement by TKT that TKT fails to remedy within 90 days after written notice
thereof by MMD, MMD shall have the right to bring an action for specific
performance by TKT or its Affiliates of TKT's obligations hereunder, to seek an
injunction with respect to any action by TKT or its Affiliates inconsistent with
any of TKT's obligations hereunder or to bring an action against TKT or its
Affiliates at law or in equity in any court or other tribunal in which such
action may properly be brought.
13.7. Entire Agreement. This Agreement, together with the Class D Stock
Purchase Agreement, contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes the Letter Agreement dated
March 18, 1994 between TKT and MMD and the Original License Agreement. All
express or implied agreements and understandings, either oral or written,
heretofore made are expressly merged in and made a part of this Agreement. This
Agreement may be amended, or any term hereof modified, only by a written
instrument duly executed by both parties hereto.
13.8. Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
13.9. Independent Contractors. It is expressly agreed that TKT and MMD
shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership, joint venture or agency. Neither TKT
nor MMD shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other, without the prior consent of the other party to do so.
13.10. Agreement Not to Solicit Employees. During the term of this
Agreement and for a period of two (2) years following the termination of this
Agreement, TKT and MMD agree not to seek to persuade or induce any employee of
the other company to discontinue his or her employment with that company in
order to become employed by or associated with any business, enterprise or
effort that is associated with its own business.
13.11. Exports. The parties acknowledge that the export of technical data,
materials or products is subject to the exporting party receiving any necessary
export licenses and that the parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either party. TKT and MMD agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under
-42-
<PAGE> 48
this Agreement in violation of any governmental regulations which may be
applicable, including, but not limited to, the Export Administration Act of
1979, as amended, its rules and regulations, including, but not limited to, Part
779 of the United States Export Control Regulations, published by the United
States Department of Commerce, and other applicable export control laws. TKT and
MMD agree to obtain similar covenants from their licensees, sublicensees and
contractors with respect to the subject matter of this Section 13.12.
13.12. Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
13.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-43-
<PAGE> 49
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
TRANSKARYOTIC THERAPIES, INC.
By:/s/ Richard F. Selden
-----------------------------------------------
Title: President and
Chief Executive Officer
MARION MERRELL DOW INC.
By: /s/ Terry J. Shelton
------------------------------------------------
Title: V.P., Licensing and Business
-----------------------------
Development
-----------------------------
-44-
<PAGE> 50
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
APPENDIX A
Milestones
***** ******
*****************************************
************************************
******************************************************
***********
****** *********
*************************** *********
******** *********
***************
*********** *********
************** *********
************ *********
-45-
<PAGE> 51
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
SCHEDULE 1.23
TKT PATENT RIGHTS
**************
****
***************
****** ***************************************
******************* **********
************** *********
*********** *********
******** *************************
******* *******
*************** ************************************
************************************
************************************
******
****** ****************************************
******************* **********
************** *******
*********** ***********
******* *******
*************** *****
****** *********************************
****************************************
****************
******************* **********
************** **********
*********** *********
******** *************************
*************** ************************************
***************************************
***************************************
**********
-46-
<PAGE> 52
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Schedule 1.24
TKT TECHNOLOGY WITHOUT SUBLICENSE RIGHTS
***************************************************
***********************************************
*******************************************************
*****************************************
-47-
<PAGE> 53
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Schedule 7.1
*******
*******
******
*******
*****
**********
*****
***********
**************
-48-
<PAGE> 1
EXHIBIT 10.34
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
LICENSE AGREEMENT
between
TRANSKARYOTIC THERAPIES, INC.
and
MARION MERRELL DOW INC.
dated as of March 1, 1995
<PAGE> 2
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS............................................ 1
1.1. "Affiliate"............................................. 1
1.2. "Customer".............................................. 1
1.3. "Development Committee"................................. 1
1.4. "Development Phase" .................................... 2
1.5. "Effective Date"........................................ 2
1.6. "ELA"................................................... 2
1.7. "First Commercial Sale"................................. 2
1.8. "FDA"................................................... 2
1.9. "Fully Absorbed Costs".................................. 2
1.10. " * "........................................... 2
1.11. "Gross Margin".......................................... 2
1.12. "IND"................................................... 3
1.13. "MMD Territory"......................................... 3
1.14. "Manufacturing Know-How"................................ 3
1.15. "Net Revenues".......................................... 3
1.16. "Net Sales"............................................. 3
1.17. "PLA"................................................... 4
1.18. "Program"............................................... 5
1.19. "Research Committee".................................... 5
1.20. "Research Phase"........................................ 5
1.21. "Research Program"...................................... 5
1.22. "Third Party"........................................... 5
1.23. "TKT Patent Rights"..................................... 5
1.24. "TKT Technology"........................................ 5
ARTICLE 2. SCOPE AND STRUCTURE............................................. 5
2.1. General................................................. 6
2.2. Relationship of TKT and MMD............................. 6
2.3. Commercialization of *******************................ 6
2.3.1. ****************************************
Collaborations Prior to the *******
Anniversary of this Agreement........... 6
2.3.2. **********************************
Collaborations Following the ******
Anniversary of this Agreement........... 7
2.4. Development and Commercialization of an
Additional Gene Activated Protein....................... 7
ARTICLE 3. LICENSE GRANTS; MANUFACTURING AND MARKETING
RIGHTS............................................................. 7
3.1. Grant of License Rights by TKT to MMD................... 7
3.1.1. Exclusive ************** License........ 7
3.1.2. Sublicenses of *************............ 7
3.1.3. Exclusive Manufacturing Know-How
License................................. 7
3.1.4. Sublicenses of Manufacturing Know-How... 8
3.2. Grant of License Rights by MMD to TKT................... 8
3.3. Reservation of Rights................................... 8
(i)
<PAGE> 3
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
3.3.1. TKT Reservation......................... 8
3.3.2. MMD Reservation......................... 9
3.3.3. Manufacture of ******************....... 9
ARTICLE 4. THE RESEARCH PHASE.............................................. 9
4.1. Conduct of the Research Program......................... 9
4.1.1. General................................. 9
4.1.2. Research Plan........................... 9
4.1.3. Subcontracts............................ 9
4.1.4. Data.................................... 9
4.1.5. Reports by TKT.......................... 10
4.1.6. Assistance by MMD....................... 10
4.1.7. ***************************............. 10
4.2. Funding of the Research Program......................... 10
4.3. Term of the Research Phase.............................. 11
4.3.1. Completion of the Research Phase........ 11
4.3.2. Term of the Research Phase.............. 11
ARTICLE 5. THE DEVELOPMENT PHASE........................................... 11
5.1. Conduct of the Development Phase........................ 11
5.1.1. Commencement of the Development Phase... 11
5.1.2. Development Phase....................... 11
5.1.3. Annual Development Plan................. 12
5.1.4. Adjustment of Development Phase
Milestones.............................. 12
5.1.5. Attendance at Regulatory Meetings....... 13
5.2. Funding of the Development Phase........................ 13
5.3. Development Information................................. 13
5.3.1. Information for Regulatory Submissions.. 13
5.3.2. Reports to Development Committee........ 13
5.3.3. Regulatory Submissions.................. 13
5.3.4. Adverse Event Information............... 13
5.4. Certain Prohibited Actions.............................. 13
5.5. Development Phase Manufacturing......................... 14
5.6. Manufacturing Costs..................................... 14
5.7. Assistance by TKT....................................... 14
5.8. Regulatory Matters and Commercialization................ 14
5.8.1. Commercialization....................... 14
5.8.2. Marketing Plans......................... 14
5.8.3. Co-Development, Co-Promotion and Co-
Marketing............................... 14
ARTICLE 6. RESEARCH, DEVELOPMENT AND REGULATORY
COORDINATION....................................................... 16
6.1. Research Committee...................................... 16
6.1.1. General................................. 16
6.1.2. Minutes................................. 16
6.2. Development Committee................................... 16
6.2.1. General................................. 16
6.2.2. Minutes................................. 17
6.3. General Disagreements................................... 17
6.4. Visit of Facilities..................................... 17
(ii)
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
6.5. Annual Review and Planning Meeting..................... 17
ARTICLE 7. MILESTONES AND ROYALTIES....................................... 17
7.1. Milestone Payments..................................... 17
7.2. Royalties.............................................. 18
7.2.1. Royalties Based on Net Sales of
* ........................... 18
7.2.2. Alternative Royalty Based on Gross
Margin................................. 19
7.2.3. Sharing of Revenues From Sublicensees.. 19
7.2.4. Adjustment of Royalty Rates............ 19
7.3. Royalty Reports, Exchange Rates........................ 20
7.4. Audits................................................. 21
7.4.1. Procedure.............................. 21
7.4.2. Expenses............................... 21
7.4.3. Sublicenses............................ 21
7.4.4. Confidential Treatment................. 21
7.5. Royalty Payment Terms.................................. 21
7.6. Form of Payment........................................ 21
7.7. Withholding Taxes...................................... 22
7.8. Interest on Late Payments.............................. 22
ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS................................... 22
8.1. Ownership.............................................. 22
8.1.1. Ownership of Discoveries and
Improvements........................... 22
8.1.2. Cooperation of Employees............... 23
8.2. Filing, Prosecution and Maintenance of TKT Patent
Rights and TKT Technology.............................. 23
8.2.1. Filing, Prosecution and Maintenance.... 23
8.2.2. Patent Filing Costs.................... 24
8.3. Cooperation............................................ 24
8.4. Notification of Patent Term Restoration................ 24
8.5. No Other Technology Rights............................. 25
8.6. Enforcement of TKT Patent Rights and TKT
Technology; Defense of Infringement Actions............ 25
8.6.1. MMD's First Right to Respond........... 25
8.6.2. No Adverse Settlement without TKT
Consent................................ 25
8.6.3. Sharing of Litigation and Settlement
Expenses............................... 25
8.6.4. TKT's Second Right to Respond.......... 26
8.6.5. TKT's Second Right to Defend
Infringement Actions; Payment of
Royalties by TKT....................... 26
8.7. Costs of Acquiring Additional Technology other
than Manufacturing Know-How............................ 26
ARTICLE 9. CONFIDENTIALITY................................................ 27
9.1. Nondisclosure Obligations.............................. 27
9.1.1. General................................ 27
9.1.2. Limitations............................ 27
(iii)
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
9.2. Materials............................................. 27
9.2.1. ******************************........ 28
9.2.2. Samples............................... 28
9.3. Terms of this Agreement............................... 28
9.4. Publications.......................................... 28
9.4.1. Procedure............................. 28
9.4.2. Delay................................. 29
9.4.3. Resolution............................ 29
9.5. Injunctive Relief..................................... 29
ARTICLE 10. REPRESENTATIONS AND WARRANTIES............................... 29
10.1. General............................................... 29
10.1.1. Authorization................................ 29
10.1.2. No Inconsistent TKT Arrangements............. 29
10.1.3. Exclusivity.................................. 29
10.1.4. Licensed Technology.......................... 29
10.2. Patent Validity....................................... 30
10.2.1. Title. ...................................... 30
10.2.2. No Encumbrances.............................. 30
10.2.3. Non-Infringement............................. 30
10.3. Financial Statements.................................. 30
ARTICLE 11. INDEMNITY.................................................... 30
11.1. MMD Indemnity Obligations............................. 30
11.2. TKT Indemnity Obligations............................. 30
11.3. Procedure............................................. 31
11.4. Insurance............................................. 31
ARTICLE 12. TERM AND TERMINATION......................................... 31
12.1. Expiration............................................ 31
12.2. Termination........................................... 32
12.3. Effect of Termination................................. 33
ARTICLE 13. MISCELLANEOUS................................................ 33
13.1. Force Majeure......................................... 33
13.2. Assignment............................................ 34
13.3. Severability.......................................... 34
13.4. Notices............................................... 34
13.5. Applicable Law........................................ 35
13.6. Dispute Resolution.................................... 35
13.7. Entire Agreement...................................... 37
13.8. Headings.............................................. 37
13.9. Independent Contractors............................... 37
13.10. Agreement Not to Solicit Employees.................... 37
13.11. Exports............................................... 37
13.12. Waiver................................................ 37
13.13. Counterparts.......................................... 37
(iv)
<PAGE> 6
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LICENSE AGREEMENT
THIS LICENSE AGREEMENT dated as of March 1, 1995 (the "Agreement") is
made between TRANSKARYOTIC THERAPIES, INC., a Delaware corporation having its
principal place of business at 195 Albany Street, Cambridge, Massachusetts 02139
("TKT"), and MARION MERRELL DOW INC., a Delaware corporation having its
principal place of business at 9300 Ward Parkway, Kansas City, Missouri
64114-0480 ("MMD").
R E C I T A L S
WHEREAS, TKT has filed patent applications necessary to exploit
discoveries relating to the expression of **************************************
********************************************************************************
*************************** and possesses certain related know-how and
expertise.
WHEREAS, MMD desires to license TKT's patent rights and certain related
know-how and expertise relating to *********************************************
*******************************************************************************
and obtain TKT's assistance for development of such discoveries.
NOW THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:
ARTICLE 1. DEFINITIONS
For purposes of this Agreement, the terms defined in this Article shall
have the meanings specified below:
1.1. "Affiliate" shall mean any corporation or other entity which
controls, is controlled by, or is under common control with a party to this
Agreement. A corporation or other entity shall be regarded as in control of
another corporation or entity if it owns or directly or indirectly controls more
than fifty percent (50%) of the voting stock or other ownership interest of the
other corporation or entity, or if it possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of the
corporation or other entity or the power to elect or appoint fifty percent (50%)
or more of the members of the governing body of the corporation or other entity.
Notwithstanding the foregoing, the Dow Chemical Company shall not be considered
an Affiliate of MMD for purposes of this Agreement.
1.2. "Customer" shall have the meaning set forth in Section
1.15.
-1-
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1.3. "Development Committee" shall mean the joint committee
composed of representatives of TKT and MMD described in Section
6.2 of this Agreement.
1.4. "Development Phase" shall mean the second phase of the Program,
which shall commence ***********************************************************
********************************************************************************
********************************** * covered by the TKT Patent Rights
or which uses the TKT Technology and the preparation and filing of supporting
regulatory submissions until, with respect to each country in the MMD Territory,
final marketing approval for * covered by the TKT Patent Rights or
which uses the TKT Technology is obtained in such country.
1.5. "Effective Date" shall mean the date hereof.
1.6. "ELA" shall mean the Establishment License Application filed with
the FDA to obtain approval of the facility to be used to manufacture *
covered by the TKT Patent Rights or which uses the TKT Technology for sale in
the United States or any comparable application filed with the regulatory
authorities of a country other than the United States to obtain approval of
production facilities to be used to manufacture * covered by the TKT
Patent Rights or which uses the TKT Technology for sale in such country.
1.7. "First Commercial Sale" of * covered by the TKT Patent
Rights or which uses the TKT Technology shall mean the first sale for use or
consumption by the general public of * covered by the TKT Patent
Rights or which uses the TKT Technology in a country in the MMD Territory after
required marketing and pricing approval has been granted by the governing health
authority of such country.
1.8. "FDA" shall mean the United States Food and Drug Administration.
1.9. "Fully Absorbed Costs" shall mean the direct variable and direct
fixed costs associated with the conduct of the Research Phase or the Development
Phase. Direct variable costs shall be deemed to be the cost of labor, raw
materials, supplies and other resources directly consumed in the conduct of the
Research Phase or the Development Phase. Direct fixed costs shall be deemed to
be the cost of utilities, insurance, equipment depreciation and other fixed
costs directly related to the conduct of the Research Phase or the Development
Phase. Fixed costs shall be allocated based upon the proportion of such costs
directly attributable to support of the Research Phase or the Development Phase.
All cost determinations made hereunder shall be made in accordance with
generally accepted accounting principles consistently applied.
1.10. " * " shall mean all pharmaceutical and other
formulations of **********************************************
-2-
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*****************************************************************
******************, including all injectable and orally available formulations,
line extensions, combination products, delivery systems, and dosage forms
related thereto*****************************************************.
1.11. "Gross Margin" with respect to * covered by the TKT
Patent Rights or which uses the TKT Technology shall mean Net Revenues from
sales of such * less the cost of goods sold of MMD or its Affiliates
for such * , determined in accordance with generally accepted
accounting principles consistently applied for all products manufactured by MMD.
1.12. "IND" shall mean an investigational new drug application filed
with the FDA prior to beginning clinical trials in humans, or any comparable
application filed with the regulatory authorities of a country other than the
United States prior to beginning clinical trials in humans in that country, with
respect to * covered by the TKT Patent Rights or which uses the TKT
Technology.
1.13. "MMD Territory" shall mean all of the countries in the world,
which shall be divided into the following groupings of
countries:***************************************************
*******************************************************
*************************************************************
************************************************************
*****************************************************************
********************************************************
**************************************************************
**************************************************************
****************************************************************
*********************************************************** *****. Each of the
foregoing groupings of countries is referred to as a "Territory Block."
1.14. "Manufacturing Know-How" shall mean all inventions, discoveries,
improvements and other technology, whether or not patentable or copyrightable,
and any patent applications, patents or copyrights based thereon, relating to or
necessary or useful for the production and packaging of * covered by
the TKT Patent Rights or which uses the TKT Technology.
1.15. "Net Revenues"with respect to * covered by the TKT
Patent Rights or which uses the TKT Technology shall mean the invoiced amount
billed by MMD or its Affiliates for * finished product in final
packing form (whether or not with final labels) to any MMD distributors or
sublicensees which are not Affiliates, including any royalties due to MMD or its
Affiliates with respect to such sales, less, whether or not such costs are
invoiced separately to such person or entity, the costs identified in clauses
(a) through (d) of subsection 1.16. The definitions of Bundled Product and
Combination Product set forth in subsection 1.16 shall also apply to such sales
mutatis mutandis.
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SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
1.16. "Net Sales" with respect to * covered by the TKT Patent
Rights or which uses the TKT Technology shall mean the invoiced amount billed
for * finished product in final packing form to the first Third Party
trade purchaser (a "Trade Customer") by MMD or its Affiliates or any MMD
distributors which are not Affiliates, or, to the extent permitted in subsection
3.1.2, by permitted sublicensees of MMD (it being understood that wholesalers
which are not Affiliates of MMD shall be considered Third Party trade
purchasers), less, whether or not such costs are invoiced separately to such
Trade Customer, (a) amounts refunded or credited for * which was
rejected, spoiled, damaged, out-dated or returned, (b) freight, shipment and
insurance costs incurred in transporting * to such customers, (c)
quantity, trade, cash, and other discounts, rebates (including, without
limitation, pursuant to governmental regulation), chargebacks, retroactive price
reductions, credits or allowances allowed or taken (subject to post-period
adjustment if allowed but not taken within three months of the end of the
calendar year in which such credit or allowance is allowed), and (d) taxes,
tariffs, customs duties and surcharges and other governmental charges incurred
in connection with the sale, exportation or importation of * . The
transfer of * by MMD or one of its Affiliates to another Affiliate of MMD
shall not be considered a sale; in such cases, Net Sales shall be determined
based on the invoiced sales price by the Affiliate to the Trade Customer, less
the deductions allowed under this Section. MMD shall be deemed to have sold a
"Bundled Product" if * finished product is sold by MMD pursuant to an
agreement with a Trade Customer specifying, for a combination of products or
services, (i) a single price, (ii) other terms of purchase not separately
identifying either a price per product or the effective deductions referred to
above per product or (iii) a price for units of * which is discounted
below MMD's standard invoice price per unit of * by at least five
percentage points more than the amount that any other product or service in the
Bundled Product is discounted below such other product's or service's standard
invoice price. In order to calculate the Net Sales of * included in a Bundled
Product (a) in the case of the foregoing clauses (i) and (ii), the total Net
Sales of the Bundled Product shall be multiplied by a fraction, the numerator of
which shall be **************************************************************
***************************************************************** and the
denominator of which shall be *************************
**************************************************************
***********************************************************
*************************************************************
************************************* and (b) in the case of the foregoing
clause (iii), the parties will determine whether an adjustment to Net Sales is
appropriate and, if so, a mutually agreeable method of calculation. If * is
formulated by MMD with one or more different active biological or chemical
ingredients and such formulation is sold in finished product form, then MMD
shall be deemed to have sold a "Combination Product." In order to calculate the
Net Sales of * included in a Combination Product, the total invoice
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SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
price for the Combination Product shall be multiplied by a fraction, the
numerator of which shall be ******************
****************************************************************
********************************************************, and the denominator of
which shall be **********************************
***************************************************************
**********************************************************
***************************************************************
********************. If it is not possible to determine the standard invoice
price for an active ingredient of the Combination Product, then the standard
invoice price for such individual active ingredient shall be the fully allocated
cost of manufacture therefor determined in accordance with standard cost
accounting principles, as adjusted to reflect MMD's standard profit margin for
like products. The amount of Net Sales for any period shall be determined on the
basis of sales recorded in the ordinary course on the books and records of MMD
(or any Affiliate of MMD) during such period in accordance with generally
accepted accounting principles and with past practice, without reference to the
effects of any subsequent audit adjustments which result in any of such sales
being recognized by MMD in another period.
1.17. "PLA" shall mean a product license application filed with the FDA
after completion of human clinical trials to obtain marketing approval for
* covered by the TKT Patent Rights or which uses the TKT Technology in
the United States or any comparable application filed with the regulatory
authorities of a country other than the United States to obtain marketing
approval for * covered by the TKT Patent Rights or which uses the TKT
Technology in that country.
1.18. "Program" shall mean the collaboration by TKT and MMD described
in this Agreement.
1.19. "Research Committee" shall mean the joint committee composed of
representatives of TKT and MMD described in Section 6.1 of this Agreement.
1.20. "Research Phase" shall mean the first stage of the Program
commencing on the Effective Date, **********************
*****************************************************************
************************************************************** **************.
The Research Phase is more fully described in Article 4.
1.21. "Research Program" shall mean the * research program
described in Section 4.1 of this Agreement.
1.22. "Third Party" shall mean any entity other than TKT or MMD and
their respective Affiliates.
1.23. "TKT Patent Rights" shall mean all present and, at MMD's
election, future patents, patent applications, patent extensions, certificates
of invention, or applications for certificates of invention, together with any
divisions,
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SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
continuations or continuations-in-part thereof, which are owned or controlled by
TKT relating to or necessary or useful for the manufacture, use, distribution or
sale of * , including without limitation those specified on Schedule
1.23 hereto.
1.24. "TKT Technology" shall mean all present and future inventions,
trade secrets, copyrights, know-how, data, regulatory submissions and other
intellectual property of any kind (including any proprietary biological
materials, compounds or reagents but not including TKT Patent Rights) which are
owned or controlled by, or licensed (with the right to sublicense) to, TKT
relating to or necessary or useful for the manufacture, use, distribution or
sale of * , including but not limited to any patents or patent
applications licensed from Third Parties. With respect to TKT Technology which
has been licensed to TKT by a Third Party, (i) MMD agrees to assume and pay for
its portion of any costs, expenses, fees or royalties associated with its use of
sublicense rights relating to such licensed TKT Technology to the extent
described in Section 8.7, and (ii) if TKT does not currently have the right to
sublicense such intellectual property to MMD hereunder, such license is listed
on Schedule 1.24 hereto and TKT shall use commercially reasonable efforts to
obtain the right to sublicense such intellectual property (as well as any
intellectual property licensed to TKT hereafter which is included in the TKT
Technology) to MMD hereunder.
ARTICLE 2. SCOPE AND STRUCTURE
2.1. General. TKT and MMD wish to establish an agreement
with respect to * . During the course of the Program,
TKT and MMD shall communicate regularly and shall assume
different rights and responsibilities, all as more specifically
described herein.
2.2. Relationship of TKT and MMD. During the term of this Agreement,
neither TKT or MMD, nor any of their Affiliates shall independently, or with a
Third Party, conduct research regarding, or engage in the development,
manufacture, marketing or sale of, pharmaceutical formulations of
******************************
*****************************************************************
**************, other than as part of the Program, except that either TKT or MMD
may develop, manufacture, market, distribute or sell "generic" or "non-branded"
pharmaceutical formulations of
*****************************************************************
****************************************** in any country if (i) there are
imminent Third Party sales of "generic"
*****************************************************************
*************************************************** in such country and (ii)
* covered by the TKT Patent Rights or which uses the TKT Technology
may not lawfully be substituted in such country as a "generic" equivalent
product for any prescription for a branded or "generic" form of
*****************
*****************************************************************
*************************************************** with respect to which sales
by such Third Party are imminent.
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2.3. Commercialization of *******************. TKT agrees that it shall
not develop, manufacture, promote or market
*****************************************************************
**************************************************************** with any Third
Party (a ****************** Collaboration") except pursuant to this Section 2.3;
provided, however, that nothing in this Section 2.3. shall prohibit TKT from
retaining subcontractors to assist it in its own ************ development and
manufacturing efforts.
2.3.1. ***************** Collaborations Prior to the *****
Anniversary of this Agreement. Prior to the ***** anniversary of this Agreement,
TKT shall not enter into any agreement regarding a *****************
Collaboration without complying with the provisions of this subsection 2.3.1.
2.3.1.1. Notice of Negotiation. TKT shall
promptly notify MMD if it enters into a negotiation regarding a
***************** Collaboration.
2.3.1.2. ***************** Collaboration
Notice. Prior to entering into any agreement regarding a *****************
Collaboration, TKT shall deliver a written notice (the "Collaboration Notice")
to MMD disclosing in reasonable detail the terms and conditions of the proposed
***************** Collaboration.
2.3.1.3. Right of First Refusal. MMD shall
have the right (the "First Refusal Right") at any time within *********** days
after receipt of the Collaboration Notice to accept the terms thereof, in which
event the parties shall use their best efforts to enter into an agreement,
within ** days after such acceptance regarding a ***************** Collaboration
upon the terms specified in the Collaboration Notice. The parties acknowledge
that the terms specified in such Collaboration Notice shall be different from
the terms of this *************************. If MMD does not exercise the First
Refusal Right, then TKT shall be free, for a period of ******** from the
expiration of such ****** period, to enter into an agreement with a Third Party
regarding a ****************** Collaboration upon the terms and with the Third
Party specified in the Collaboration Notice. Following the ******* period
specified in the preceding sentence, TKT shall not enter into an agreement
regarding a ***************** Collaboration without complying with the terms of
this subsection 2.3.1.2.
2.3.2. ***************** Collaborations Following the *****
Anniversary of this Agreement. Following the ***** anniversary of the date of
this Agreement, TKT shall be under no obligation to enter into a
****************** Collaboration with MMD but shall promptly notify MMD if it
enters into a negotiation for a ***************** Collaboration.
2.4. Development and Commercialization of an Additional Gene Activated
Protein. TKT commits that it is its intention to negotiate with MMD for the
joint development and
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commercialization of an additional gene activated protein at such time as such
development and commercialization appears desirable to both parties. Such
additional gene activated protein may be any protein of commercial interest to
TKT and MMD; provided, however, that such intention shall not apply to any gene
activated protein that TKT is developing internally or with a Third Party as of
the date such negotiations commence between TKT and MMD. Notwithstanding the
foregoing, TKT shall be under no obligation to develop or commercialize any
particular gene activated protein with MMD. However, TKT shall promptly notify
MMD if it enters into negotiations with any Third Party for the development or
commercialization of
*****************************.
ARTICLE 3. LICENSE GRANTS; MANUFACTURING AND MARKETING RIGHTS
3.1. Grant of License Rights by TKT to MMD.
3.1.1. Exclusive * License. TKT hereby grants to
MMD the worldwide, perpetual, and exclusive right and license under the TKT
Patent Rights and the TKT Technology to develop, make, have made, use,
distribute for sale and sell * .
3.1.2. Sublicenses of * . MMD shall have the right
to grant sublicenses under the TKT Patent Rights and the TKT Technology license
granted by TKT to MMD under subsection 3.1.1 to Affiliates of MMD and, with the
written consent of TKT, which shall not be unreasonably withheld, to entities
which are not Affiliates of MMD. In connection with such sublicense, MMD may
provide that the sublicensee shall pay directly to TKT any amounts which may
become due in accordance with Section 7.2, provided, however, that MMD shall in
any event remain liable for the payment of all such amounts notwithstanding any
such provision between MMD and its sublicensee. Upon TKT's request, and to the
extent that MMD is not contractually prohibited from doing so, MMD will provide
a copy of such sublicenses to TKT.
3.1.3. Exclusive Manufacturing Know-How License. TKT hereby
grants to MMD a worldwide, perpetual, and exclusive and, except as provided
below, fully paid-up and royalty-free right and license under Manufacturing
Know-How owned or controlled by, or licensed (subject to the provisions of this
subsection 3.1.3, with the right to sublicense) to, TKT to make or have made
* covered by the TKT Patent Rights or which uses the TKT Technology.
With respect to Manufacturing Know-How which has been licensed to TKT by a Third
Party, (i) MMD agrees to assume and pay for any costs, expenses, fees or
royalties associated with its sublicense of such Manufacturing Know-How, and
(ii) if TKT does not currently have the right to sublicense such intellectual
property to MMD hereunder, such license is listed on Schedule 3.1.3 hereto and
TKT shall use commercially reasonable efforts to obtain the right to sublicense
such intellectual property (as well as any intellectual property
-8-
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licensed to TKT hereafter which is included in the Manufacturing Know-How) to
MMD hereunder for such limited purposes.
3.1.4. Sublicenses of Manufacturing Know-How. MMD shall have
the right to grant sublicenses under the Manufacturing Know-How license granted
by TKT to MMD under subsection 3.1.3 to Affiliates of MMD and, with the written
consent of TKT, which shall not be unreasonably withheld, to entities which are
not Affiliates of MMD. MMD will provide a copy of such sublicenses to TKT.
3.2. Grant of License Rights by MMD to TKT. Subject to the last
sentence of this Section 3.2, upon the request of TKT, (i) MMD shall grant to
TKT a worldwide, perpetual, non-exclusive and fully paid-up and royalty-free
right and license, with the right to sublicense, under Manufacturing Know-How
owned or controlled by, or licensed (subject to the provisions of this Section
3.2, with the right to sublicense) to MMD which is developed by a Third Party
contract manufacturer engaged by MMD and working with or receiving assistance
from TKT, to make or have made products (other than pharmaceutical formulations
of ********************
*****************************************************************
********************) worldwide which are not competitive with * , and
(ii) MMD shall negotiate in good faith with TKT the terms of a license, with the
right to sublicense, which shall be on reasonable commercial terms, under
Manufacturing Know-How owned or controlled by, or licensed (subject to the
provisions of this Section 3.2, with the right to sublicense) to MMD to make or
have made products (other than pharmaceutical formulations of
*****************************************************************
**********************************************) worldwide which are not
competitive with * . With respect to Manufacturing Know-How described
above which has been licensed to MMD by a Third Party, (i) TKT agrees to assume
and pay for any costs, expenses, fees or royalties associated with its
sublicense of such Manufacturing Know-How, and (ii) if MMD does not have the
right to sublicense such intellectual property to TKT hereunder, MMD shall use
commercially reasonable efforts, as determined in good faith by MMD, to obtain
the right to sublicense such intellectual property to TKT hereunder for such
limited purposes.
3.3. Reservation of Rights.
3.3.1. TKT Reservation. Notwithstanding the license grants
set forth above, and subject to the provisions of Section 5.4 hereof, TKT at all
times reserves the right under the TKT Patent Rights, TKT Technology, and
Manufacturing Know-How owned either exclusively by TKT or jointly with MMD (i)
to make, have made and use * for research and development uses as part
of the Program and (ii) subject, with respect to Manufacturing Know-How owned
jointly by TKT and MMD, to the consent of MMD, which consent shall not be
unreasonably withheld, to make, have made, use, sublicense, distribute for sale
and sell products other than * .
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3.3.2. MMD Reservation. Notwithstanding the license grants
set forth above, MMD at all times reserves the right under Manufacturing
Know-How owned either exclusively by MMD or jointly with TKT (i) to make, have
made and use * for research and development uses as part of the
Program, (ii) to make, have made, use, sublicense, distribute for sale and sell
* and (iii) subject, with respect to Manufacturing Know-How owned
jointly by TKT and MMD, to the consent of TKT, which consent shall not be
unreasonably withheld, to make, have made, use, sublicense, distribute for sale
and sell products other than
* .
3.3.3. Manufacture of * . Notwithstanding anything
else contained in this Agreement, MMD shall have the right to make or have made
* in any country in the world for use, distribution for sale or sale
by itself, its Affiliates or its permitted licensees or sublicensees in the
territories allocated to it under this Agreement.
ARTICLE 4. THE RESEARCH PHASE
4.1. Conduct of the Research Program.
4.1.1. General. The conduct of the Research Program shall be
the primary responsibility of TKT and shall take place primarily at TKT's
facilities in Cambridge, Massachusetts. The Research Program shall be conducted
in good scientific manner, and in compliance with all applicable good laboratory
practices and applicable legal requirements to achieve efficiently and
expeditiously its objectives. TKT shall proceed diligently with the work set out
in the Research Program using its best efforts using commercially reasonable
means consistent with those used by TKT for other projects with a similar
commercial potential. Each party shall regularly communicate with the other
regarding planned and actual activities and resources utilized.
4.1.2. Research Plan. The Research Program shall be
conducted under a research plan prepared by TKT which describes the work to be
pursued by TKT during the Research Phase, including (i) identifying the
technical problems involved and the general projects to be carried out regarding
* , (ii) estimating the personnel to be committed for each project, and
(iii) setting forth a projected timetable for the work to be performed. TKT will
submit the research plan to the Research Committee for its approval within
ninety (90) days of the Effective Date. An outline of the research plan is
attached hereto as Schedule 4.1.2. If at any time during the Research Phase, TKT
or MMD determine that a significant change to the research plan is necessary or
desirable, it shall prepare a written description detailing the change to the
research plan and shall submit such description to the Research Committee for
its approval.
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4.1.3. Subcontracts. Subject to the approval of the Research
Committee and the provisions of Article 9, TKT may subcontract portions of the
Research Program to be performed by it in the normal course of its business to a
Third Party.
4.1.4. Data. TKT shall maintain records in sufficient detail
and in good scientific manner appropriate for regulatory filings and patent
purposes and as will properly reflect all work done and results achieved in the
performance of the Research Program (including all data in the form required to
be maintained under any applicable governmental regulations). Such records shall
include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the Research
Program. TKT shall provide MMD the right to inspect such records, and shall
provide copies of all requested records, to the extent reasonably required for
the performance of MMD's obligations under this Agreement; provided, however,
that MMD shall maintain such records and the information of TKT contained
therein in confidence in accordance with Article 9 hereof and shall not use such
records or information except to the extent otherwise permitted by this
Agreement.
4.1.5. Reports by TKT. Except as set forth below, within
fourteen (14) days following the end of each calendar quarter, or at the
reasonable request (with mutually agreed advance notice) of the Research
Committee, TKT shall provide to the members of the Research Committee a written
report which shall summarize in reasonable detail the work TKT has performed
under the Research Program during the preceding calendar quarter. For the first
year of the Research Program, TKT shall only be required to provide such reports
for the first and second six-month periods following the Effective Date. TKT
shall provide to MMD all reports necessary under Section 5.3.1.
4.1.6. Assistance by MMD. MMD shall provide such assistance
to TKT in conducting the Research Program as TKT may reasonably request, and TKT
will reimburse MMD for its documented Fully Absorbed Costs incurred in providing
such assistance; provided, however, that prior to providing such assistance MMD
shall have provided to TKT an estimate of such Fully Absorbed Costs and TKT
shall have approved such estimate; provided, further, that no failure of MMD to
undertake or successfully complete such assistance shall relieve TKT from its
obligations hereunder or affect MMD's right to terminate this Agreement pursuant
to Section 12.2.
4.1.7. ***************************. ***************
**************************************************************
*****************************************************************
**********************************************************
**********************************************************************.
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4.2. Funding of the Research Program. As funding for the Research
Program, MMD shall pay to TKT $************ upon the execution of this Agreement
and **************** payments of $*************, each on the dates occurring
************** ***************** following the execution of this Agreement. Such
funds shall be used by TKT for costs and expenses in connection with the
Research Program; provided, that, any excess of such funds that have not been so
used at the time that the Research Committee ******************************
described in subsection 4.3.1 may be used by TKT for any purpose. All payments
made by MMD pursuant to this subsection shall be in United States dollars and
shall be made by check or other means acceptable to TKT.
4.3. Term of the Research Phase.
4.3.1. Completion of the Research Phase. The term of the
Research Phase shall commence as of the Effective Date.
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
*****************************************************************
************************************************************
*************************************************************
*****************************************************************
***************. The Research Committee shall promptly evaluate the data
submitted by TKT and determine, in its reasonable discretion,
*****************************************************
*****************************************************************
*****************************************************************
*****************************************************************
****************************************************************
*********************************************************
*****************************************************************
*****************************************************************
*************************************************************
**************************************************************
*****************************************************************
***********************************************************
*****************************************************************
****************************************************************
***************************************************************** *********.
4.3.2. Term of the Research Phase. The term of the Research
Phase ************************************************
***************************************************************
****************************************************************
************************************************************* ******************
shall jointly determine on what terms the Research Phase shall be extended and
what additional terms, if any, in this Agreement shall be modified as a result
of such extension. If such a determination cannot be reached within
*************** **** after the expiration of the initial term of the Research
Phase, then such determination shall be made by
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arbitration in accordance with the procedures for arbitration described in
Section 13.6, unless the parties mutually agree to terminate this Agreement.
ARTICLE 5. THE DEVELOPMENT PHASE
5.1. Conduct of the Development Phase.
5.1.1. Commencement of the Development Phase. The
Development Phase will commence ********************************
*********************************************************
*************************************************************
***************************************************************
******.
5.1.2. Development Phase. The conduct of the Development
Phase shall be the primary responsibility of MMD. MMD may subcontract with Third
Parties for portions of the Development Phase and for all or a portion of the
manufacture of * . The Development Phase shall consist of the
preparation and filing of regulatory submissions and the preclinical and
clinical development of * until, with respect to each country in the
MMD Territory, final marketing approval for * is obtained in such
country. MMD and TKT will cooperate to achieve the milestones described in
Appendix A using their respective best efforts using commercially reasonable
means consistent with those used by them for other projects with a similar
commercial potential. If MMD has been unable to achieve any of the milestones
described in Appendix A within the time period indicated in Appendix A for
reasons other than those described in subsection 5.1.4, then the Chief Executive
Officer of each of TKT and MMD or their respective designees shall jointly
determine on what terms the time period for achieving such milestones should be
extended and what additional terms, if any, in this Agreement shall be modified
as a result of such extension. If such a determination cannot be reached within
******************** after the time period for any such milestone has expired,
then such determination shall be made by arbitration in accordance with the
procedures for arbitration described in Section 13.6, unless the parties
mutually agree to terminate this Agreement. MMD shall have primary
responsibility for supervision of the scale-up and the further characterization
of the master cell bank, the characterization of clinical trial material, and
the supervision of the assembly of all characterization data and other
information required for regulatory submissions. At MMD's request, TKT will
perform, or assist MMD in performing, the work described in the preceding
sentence and provide such other assistance to MMD as may be reasonably necessary
to enable MMD to achieve the milestones described in Appendix A, and TKT shall
be compensated for such assistance in accordance with Section 5.7. MMD will
determine, in its sole discretion after consultation with TKT, the appropriate
entity to file and hold the PLA and the ELA. MMD will coordinate preclinical and
clinical testing of * and work with designated individuals at MMD and
TKT in the
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preparation of regulatory filings for * within the MMD
Territory.
5.1.3. Annual Development Plan. The Development Phase shall
be conducted under an annual development plan which shall describe the work to
be pursued by MMD and TKT under the supervision of the Development Committee
with respect to the development of * . The first Development Plan will
be prepared by MMD for submission to the Development Committee
*************************************************************
***************************************************************. Thereafter, the
annual development plan will be prepared by MMD for submission to the
Development Committee no later than sixty (60) days prior to the beginning of
each calendar year.
5.1.4. Adjustment of Development Phase Milestones. If at any
time during the Development Phase MMD determines and is able to demonstrate to
TKT's reasonable satisfaction that *****
***************************************************************
**********************************************************
*****************************************************************
*************************************************************
************************************************************
*****************************************************************
********************************************************
***************************************************************
*****************************************************, then the Chief Executive
Officer of each of MMD and TKT, or their respective designees, shall determine
on what terms the Research Phase shall be reinitiated and how the milestones
described in Appendix A are to be adjusted.
5.1.5. Attendance at Regulatory Meetings. MMD will provide
TKT with prior notice of all meetings between its representatives and drug
regulatory authorities regarding marketing approval of * . TKT shall
have the right to have a representative present at all important meetings in the
United States, and upon request at all important meetings in other countries;
provided, however, that MMD may revoke this right with respect to any particular
meeting if, in its good faith reasonable judgment, the presence of any other
party will be a detriment to the success of the meeting. TKT will furnish, at
MMD's request, a representative to attend drug regulatory meetings regarding
marketing approval of * .
5.2. Funding of the Development Phase. MMD shall bear all costs and
expenses in connection with the Development Phase. The assistance by TKT to MMD
and reimbursement to be provided by MMD to TKT during the Development Phase is
set forth in Section 5.7 hereof.
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5.3. Development Information.
5.3.1. Information for Regulatory Submissions. TKT will
provide MMD with all documentation available to TKT reasonably required for
regulatory submissions by MMD, based on work performed during the Research
Phase, including **********
************************************************************
***************************************************************
***********************************************************
********************************************************
*************************************************************
*****************************************************************
****************
5.3.2. Reports to Development Committee. MMD shall keep the
Development Committee informed as to its progress in the Development Phase of
* . Within thirty (30) days following the end of each six month period
during the Development Phase, MMD shall provide a reasonably detailed report to
the Development Committee which shall describe the progress of the Development
Phase of * .
5.3.3. Regulatory Submissions. MMD shall provide TKT with
copies of all submissions to United States drug regulatory authorities. Upon the
reasonable request of TKT, MMD shall also provide TKT with copies of all
submissions to drug regulatory authorities of other countries and the results of
all clinical trials conducted by, or under the supervision of, MMD with respect
to * ; provided, however, that MMD reserves the right to assess
reasonable copying charges for any such materials requested by TKT which exceed
approximately two cartons of material.
5.3.4. Adverse Event Information. Within six months after
the commencement of the Development Phase, MMD will establish a protocol for the
timely handling and transmission of adverse event information. MMD and TKT shall
promptly notify each other of any adverse event information relating to
* in accordance with such protocol.
5.4. Certain Prohibited Actions. Notwithstanding the provisions of
Section 2.2, TKT and its Affiliates shall not, directly or indirectly, market,
distribute or sell * covered by the TKT Patent Rights or which uses
the TKT Technology in the MMD Territory.
5.5. Development Phase Manufacturing. Provided that TKT has
successfully met its obligations under the Research Program in the Research
Phase, MMD shall be primarily responsible for the production of *
during the Development Phase. MMD will consult with TKT to determine the
appropriate manufacturing process for * necessary for the Development
Phase and for commercial production, including selecting a suitable production
process.
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5.6. Manufacturing Costs. MMD shall bear all costs associated with the
manufacture of * during the Development Phase, in accordance with the
provisions of this Article 5, and for commercial production for sale by MMD or
its sublicensees in the MMD Territory.
5.7. Assistance by TKT. At MMD's request, TKT will cooperate with MMD
to provide such technical assistance and characterization work as may be
necessary in connection with the manufacture and production of *
during the Development Phase and subsequently in commercial production, and MMD
will reimburse TKT for its documented Fully Absorbed Costs incurred in
connection with providing such assistance; provided, however, that prior to
providing such assistance, TKT shall have provided to MMD an estimate of such
Fully Absorbed Costs and MMD shall have approved such estimate and, provided
further, that no failure of TKT to undertake or successfully complete such
assistance shall relieve MMD from its obligation to achieve the milestones
described in Appendix A or affect TKT's right to terminate this Agreement
pursuant to subsection 12.2.5. TKT will provide such assistance to MMD as is
consistent with the capacity and capabilities of TKT.
5.8. Regulatory Matters and Commercialization.
5.8.1. Commercialization. Upon the successful completion of
the Research Phase and Development Phase, MMD agrees to use its best efforts to
commercialize * covered by the TKT Patent Rights or which uses the TKT
Technology throughout the MMD Territory using commercially reasonable means
consistent with those used for MMD products with similar commercial potential.
5.8.2. Marketing Plans. MMD shall promptly provide TKT with
copies of its United States marketing plans for * covered by the TKT
Patent Rights or which uses the TKT Technology, and shall provided TKT with
copies of its marketing plans for other countries upon the reasonable request of
TKT. Such marketing plans shall not be disclosed to any Third Party without the
prior written consent of MMD.
5.8.3. Co-Development, Co-Promotion and Co- Marketing. In
the event that MMD determines, in its sole discretion, that co-development,
co-promotion or co-marketing of * covered by the TKT Patent Rights or
which uses the TKT Technology is appropriate in any of the countries in the ****
******************************************************, then TKT shall have the
right of first negotiation (the "First Negotiation Right") to become MMD's
co-development, co-promotion or co- marketing partner, as the case may be, in
any such country on terms no less favorable to TKT than those which MMD proposes
to offer to any other co-development, co-promotion or co-marketing partner for
such country. MMD shall notify TKT in writing of its determination to pursue
co-development, co-promotion or co-marketing of * covered by the TKT
Patent
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Rights or which uses the TKT Technology in a country in the *****
***************************************************************** (the
"Negotiation Notice"); provided, however, that, in the case of co-promotion or
co-marketing only and in the absence of co-development, MMD shall not be
entitled without TKT's consent, which shall not be unreasonably withheld, to
give TKT a Negotiation Notice with respect to any country in the MMD Territory
until all clinical trials necessary for the submission for regulatory approval
to market * in that country are substantially complete. Unless TKT
shall have waived the First Negotiation Right in writing within 30 days
following receipt by TKT of the Negotiation Notice, MMD and TKT shall negotiate
in good faith a termsheet for such co-development, co-promotion or co-marketing
arrangement for a period of up to 60 days commencing on the date of the
Negotiation Notice and a definitive agreement for such co-development,
co-promotion or co-marketing for an additional period of up to 60 days
commencing on the date of such termsheet. If, at the end of either of such
periods, MMD and TKT are unable to agree on terms for the co-development,
co-promotion or co-marketing of * in such country, then, unless the
parties agree to extend the negotiation period, MMD shall promptly deliver to
TKT a final proposal detailing the terms on which it would enter into such a
co-development, co-promotion or co-marketing arrangement (the "Final Proposal").
TKT shall have thirty (30) days from receipt of the Final Proposal to notify MMD
of its desire to enter into an arrangement on such terms. If TKT does not so
notify MMD, then MMD shall be free, for a period of one year (which shall be
extended for an additional four-month period if MMD has certified to TKT that it
is then in active negotiations with a single Third Party with respect thereto)
from the expiration of such 30 days, to enter into a co-development,
co-promotion or co-marketing arrangement for * in the country
identified in the Negotiation Notice with a Third Party on terms no more
favorable to the Third Party than the terms contained in the Final Proposal.
Following such negotiation period, MMD shall not enter into a co-development,
co-promotion or co-marketing arrangement for * in any country in the
MMD Territory with a Third Party without first complying with the provisions of
this subsection. Except as otherwise provided in this subsection 5.8.3, it is
understood and agreed to by the parties hereto that MMD shall have no obligation
to enter into a co-development, co-promotion, or co-marketing arrangement with
respect to any country in the MMD Territory with TKT. In the event that MMD
enters into a co-development arrangement for * in a country with a
Third Party after complying with the provisions of this subsection, then TKT
shall cooperate with such Third Party in such country during the Development
Phase to the same extent that TKT would cooperate with MMD.
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ARTICLE 6. RESEARCH, DEVELOPMENT AND REGULATORY COORDINATION
6.1. Research Committee.
6.1.1. General. Promptly after the Effective Date, a joint
committee comprised of up to three named representatives of MMD and up to three
named representatives of TKT (the "Research Committee") shall be appointed. One
of the representatives of TKT shall act as Chairman of the Research Committee.
The Research Committee shall be responsible for the supervision of the Research
Program. Such meetings shall be held at TKT's facilities located in Cambridge,
Massachusetts, and at such times as are agreed to by TKT and MMD, or at such
other locations or in such other form (e.g., telephone or video conference) as
the members of the Research Committee shall agree. At such meetings, the
principal function of the Research Committee will be to plan and evaluate the
progress of the Research Program********************************************
*********************************************. A party may change one or more of
its representatives to the Research Committee at any time. Members of the
Research Committee may be represented at any meeting by another member of the
Research Committee so designated by the absent member, or by a deputy. Any
approval, determination or other action shall require the affirmative vote of
both TKT and MMD**************************** ***** as determined by each party's
representatives who are members of the Research Committee. Employees,
subcontractors or consultants of either TKT and MMD who are involved with the
Program and who are not members of the Research Committee may attend meetings of
the Committee as guests of either party.
6.1.2. Minutes. The Research Committee shall keep accurate
minutes of its deliberations. The Chairman shall be responsible for the
preparation of draft minutes. Draft minutes shall be sent to all members of the
Research Committee within ten (10) business days after each meeting. All records
of the Research Committee shall be available to both parties.
6.2. Development Committee.
6.2.1. General. Promptly after the Effective Date, a joint
committee comprised of up to four named representatives of MMD and up to four
named representatives of TKT (the "Development Committee") shall be appointed.
One of the representatives of MMD shall act as Chairman of the Development
Committee. Such meetings shall be held at TKT's facilities in Cambridge,
Massachusetts during the Research Phase, and thereafter in Kansas City,
Missouri, and, in any event, at times and places or in such form (e.g.,
telephone or video conference) as the members of the Development Committee shall
agree. At such meetings, the Development Committee will discuss the Development
Phase of * , including but not limited to, preclinical and clinical
testing and the preparation of regulatory submissions for approval of
* in the MMD Territory. To the extent
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reasonable or appropriate, meetings of the Development Committee will be
coordinated and held jointly with the Research Committee. A party may change one
or more of its representatives to the Development Committee at any time. Members
of the Development Committee may be represented at any meeting by another member
of the Development Committee so designated by the absent member, or by a deputy.
Any approval, determination or other action shall require the affirmative vote
of a majority of the votes entitled to be cast, ******************************,
and with such votes being cast as determined by each party's representatives who
are members of the Development Committee. Employees, subcontractors or
consultants of either TKT and MMD who are not involved with the Program and who
are not members of the Development Committee may attend meetings of the
Committee as guests of either party.
6.2.2. Minutes. The Development Committee shall keep
accurate minutes of its deliberations. The Chairman shall be responsible for the
preparation of draft minutes. Draft minutes shall be sent to all members of the
Development Committee within ten (10) business days after each meeting. All
records of the Development Committee shall at all times be available to both
parties.
6.3. General Disagreements. All disagreements within the Research
Committee and the Development Committee shall be resolved in accordance with the
provisions of Section 13.6.
6.4. Visit of Facilities. Representatives of MMD may, upon reasonable
notice and at times reasonably acceptable to TKT, visit TKT's facilities where
the Research Program is being conducted and consult with personnel of TKT
performing work on the Research Program, and those of any permitted
subcontractors of TKT. Representatives of TKT and MMD may, with the other
party's prior approval, which approval shall not be unreasonably withheld, visit
manufacturing sites and the sites of any clinical trials or other experiments
being conducted by such other party in connection with the Development Phase. If
requested by the other party, TKT and MMD shall cause appropriate individuals
working on the Development Phase to be available for meetings at the location of
the facilities where such individuals are employed at times reasonably
convenient to the party responding to such request.
6.5. Annual Review and Planning Meeting. No less frequently than
annually, representatives of TKT and MMD shall meet at a place mutually agreed
to by the parties (which, prior to the First Commercial Sale, will be one of the
Research Committee or Development Committee Meetings)(the "Annual Meeting"), at
which meeting MMD shall review the clinical, regulatory and marketing activities
undertaken by MMD or its Affiliates since the previous Annual Meeting and shall
present its clinical, regulatory and marketing plans for * for the
ensuing year. Within 30 days following each Annual Meeting, MMD shall submit to
TKT a written
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report detailing the information reviewed and presented at such Annual Meeting.
ARTICLE 7. MILESTONES AND ROYALTIES
7.1. Milestone Payments. In consideration of TKT's work on the Research
Program and the licenses granted to MMD hereunder, MMD shall pay the following
amounts to TKT upon the achievement of each of the following milestones, prior
to any expiration or termination of this Agreement under Article 12 with respect
to the country to which such milestone relates, it being understood and agreed
to that TKT shall use a portion of such payments as necessary to fund the
performance of its obligations under the Program:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Milestone Payment
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Execution of this Agreement $10,000,000
$10,000,000 Preferred
Stock Investment(1)
- ------------------------------------------------------------------------------------------------------------------------
*********************************** $**************
*********
- ------------------------------------------------------------------------------------------------------------------------
************************** $**************
- ------------------------------------------------------------------------------------------------------------------------
********************************* $**************
- ------------------------------------------------------------------------------------------------------------------------
************************** $**************
- ------------------------------------------------------------------------------------------------------------------------
******************* $**************
- ------------------------------------------------------------------------------------------------------------------------
************************************ $**************
************************************
***************
- ------------------------------------------------------------------------------------------------------------------------
****************************** $**************
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On the terms and subject to the conditions of the Class E Preferred
Stock Purchase Agreement dated as of March 1, 1995, by and between MMD
and TKT (the "Class E Stock Purchase Agreement").
Either TKT or MMD shall notify the other in writing within ten (10)
business days following the occurrence of each of the milestones set forth
above. Within ten (10) business days after receipt of such notice, MMD shall pay
to TKT in United States dollars by check or other means acceptable to TKT, the
milestone payments set forth above. Milestone payments made to TKT pursuant to
this Section 7.1 are not refundable under any circumstances and will not be
credited against royalty payments due TKT under Section 7.2.
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7.2. Royalties. In consideration of the licenses granted to MMD
hereunder, MMD shall pay to TKT royalties as follows:
7.2.1. Royalties Based on Net Sales of * . Except
as otherwise provided in this Section 7.2, MMD shall pay to TKT a royalty based
on the Net Sales of * covered by the TKT Patent Rights or which uses
the TKT Technology in each Territory Block, from the launch of such sales in
such Territory Block until, with respect to any country, the expiration or
termination of this Agreement, at the rates set forth below:
************************************** ***************
******************************************* **************
************************** *****
**************** *****
***************************************************************************
************************.
For the purpose of calculating ******************** in a Territory Block: (i)
Net Sales for the ****************************** Territory Blocks
*****************, and such ***************** shall be deemed to be the
******************** for each of the ******************************* Territory
Blocks; (ii) Net Sales for the ***************** Territory Blocks *********
************************************ shall be deemed to be the
******************** for each of the ***** and ******* Territory Blocks; and
(iii) with respect to sales in the *************, **************************
Territory Blocks by a Third Party sublicensee or a distributor which is not an
Affiliate of MMD, the Net Revenues shall be used in lieu of the Net Sales in the
foregoing calculation of ********************.
7.2.2. Alternative Royalty Based on Gross Margin.
Notwithstanding the provisions of subsection 7.2.1., in ***** *******, ***** and
**********************************, the royalty payable by MMD to TKT shall be
as follows: (i) if MMD sells * finished product in final packing form
(whether or not with final labels) covered by the TKT Patent Rights or which
uses the TKT Technology to a Third Party sublicensee or distributor which is not
an Affiliate of MMD, MMD shall pay to TKT ************************************;
or (ii) if MMD does not sell such * finished product in final packing
form (whether or not with final labels) to such Third Party sublicensee or
distributor, then TKT and MMD shall negotiate in good faith to share on
************ ***** all other monetary consideration received by MMD from such
Third Party sublicensee or distributor.
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7.2.3. Sharing of Revenues From Sublicensees. If MMD grants
a sublicense hereunder to any Third Party to make, have made, use, distribute
for sale or sell * covered by the TKT Patent Rights or which uses the
TKT Technology in any country in the MMD Territory, MMD shall share with TKT
*******************, all up front monetary consideration received by MMD from
such Third Party in connection therewith which are not based upon Net Sales or
Net Revenues, as applicable, of * sold by such Third Party sublicensee
in such country.
7.2.4. Adjustment of Royalty Rates. At the request of MMD,
the royalty rates set forth in subsection 7.2.1. shall be appropriately adjusted
by TKT and MMD (i) with respect to sales of "generic" or "non-branded" *
covered by the TKT Patent Rights or which uses the TKT Technology by MMD in any
country within a Territory Block in which MMD elects to make such sales to
compete with sales by any Third Party of a "generic" or "non- branded"
pharmaceutical formulation of ****************************
******************************************* or (ii) with respect to sales of
"branded" * covered by the TKT Patent Rights or which uses the TKT
Technology by MMD in any country within the MMD Territory in which MMD
experiences competition in the market for * which was not in existence on
the Effective Date and the TKT Patent Rights have been judged to be invalid or
unenforceable. In addition, TKT agrees to meet with MMD at its request and
negotiate in good faith concerning whether other adjustments to the royalty
rates set forth in subsection 7.2.1. should be made in the event that MMD
demonstrates to TKT's reasonable satisfaction that there have been structural
changes in the market for * in any country which have rendered the royalty
rates set forth in subsection 7.2.1 commercially unreasonable.
At the request of MMD, the royalty rates set forth in subsection 7.2.2.
shall be appropriately adjusted by TKT and MMD (i) with respect to sales of
"branded", "non-branded" or "generic" * covered by the TKT Patent
Rights or which uses the TKT Technology in any country within a Territory Block
in which competitive conditions make it not feasible for MMD to maintain the
level of its Gross Margin or (ii) as may otherwise be necessary to maintain the
commercial viability of the product as contemplated by this Agreement.
7.3. Royalty Reports, Exchange Rates. During the term of this
Agreement, following the First Commercial Sale of * covered by the TKT
Patent Rights or which uses the TKT Technology in any country in the MMD
Territory, MMD shall furnish to TKT a written quarterly report showing with
respect to * , on a country by country basis (except as provided below):
(i) the gross sales (except for sales to which subsection 7.2.2 applies) of all
* covered by the TKT Patent Rights or which uses the TKT Technology sold by
MMD and its Affiliates, its distributors and its permitted sublicensees in the
MMD Territory during the reporting period; (ii) the calculation of Net Sales
(except for sales to which subsection 7.2.2 applies) from such gross sales;
(iii) the Gross Margin related sales to which subsection 7.2.2
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applies and the calculation of such Gross Margin; (iv) any revenues from
sublicensees received by MMD during the reporting period; (v) the royalties and
other payments payable in United States dollars which shall have accrued
hereunder in respect of such Net Sales, Gross Margin and sublicensee payments;
(vi) withholding taxes, if any, required by law to be deducted as a payment by
TKT in respect of such Net Sales, Gross Margin and sublicensee payments; (vii)
the dates of the First Commercial Sales of * covered by the TKT Patent
Rights or which uses the TKT Technology in any country in the MMD Territory
during the reporting period; and (viii) the exchange rates used in determining
the amount of United States dollars. All amounts payable will first be
calculated in the currency of sale and then converted into United States dollars
on a quarterly basis using as a rate of exchange the actual foreign currency
exchange rate on the last day of the month preceding the end of the quarter or
such other method as is consistent with MMD's internal foreign currency
translation procedures. MMD shall use best efforts to provide reports due on the
sixtieth (60th) day following the close of each quarter. If no royalty is due
for any royalty period hereunder, MMD shall so report. MMD shall keep complete
and accurate records in sufficient detail to properly reflect all gross sales,
Net Sales and Gross Margin and to enable the royalties payable hereunder to be
determined.
7.4. Audits.
7.4.1. Procedure. Upon the written request of TKT or MMD,
the other party shall permit an internal auditor or independent public
accountant selected by TKT or MMD, as the case may be, and acceptable to the
other party, which acceptance shall not be unreasonably withheld, to have access
during normal business hours to such of the records of MMD or TKT, as the case
may be, as may be reasonably necessary to verify the accuracy of the royalty
reports, cost computations and final cost amounts described hereunder, in
respect of any fiscal year ending not more than *********************** prior to
the date of such request. All such verifications shall be conducted at TKT's or
MMD's, as the case may be, expense and not more than ******** in each calendar
year.
7.4.2. Expenses. In the event such accountant concludes that
additional royalties or lower expense reimbursement were required during such
period, and the party receiving such audit request agrees with such conclusion,
the additional royalty shall be paid in accordance with Section 7.5 or the
excess expense reimbursement shall be promptly repaid. The fees charged by such
accountant shall be paid by the party requesting such audit, unless the audit
discloses and the party receiving such audit request agrees (i) in the case of
an audit by TKT, that the royalties payable by MMD, or, (ii) in the case of an
audit by MMD, that the cost computation estimates and final amounts hereunder,
for the audited period are incorrect by more than ****************** in which
case the audited party shall pay the reasonable fees and expenses charged by the
accountant.
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7.4.3. Sublicenses. MMD shall use reasonable efforts to
include in each Third Party sublicense granted by it pursuant to this Agreement
a provision requiring the sublicensee to make reports to MMD, to keep and
maintain records of sales made pursuant to such sublicense and to grant access
to such records by TKT's independent accountant to the same extent required of
MMD under this Agreement. Upon the expiration of ***********************
following the end of any fiscal year, the calculation of royalties payable with
respect to such year shall be binding and conclusive upon TKT; and MMD and its
sublicensees shall be released from any liability or accountability with respect
to royalties for such year.
7.4.4. Confidential Treatment. Each party agrees that all
information subject to review under this Section 7.4 or under any sublicense
agreement is confidential and that such party shall cause its accountant to
retain all such information in confidence.
7.5. Royalty Payment Terms. Royalties shown to have accrued by each
royalty report provided for under this Agreement shall be due and payable on the
date such royalty report is due. Payment of royalties in whole or in part may be
made in advance of such due date. Royalties determined to be owing, and any
overpayments to be credited, with respect to any prior quarter shall be added or
credited, as the case may be, to the next quarterly payment hereunder.
7.6. Form of Payment. All research payments, milestone payments,
royalties and other payments due hereunder shall be paid in United States
dollars. If at any time legal restrictions prevent the prompt remittance of part
or all royalties with respect to any country of the MMD Territory where
* covered by the TKT Patent Rights or which uses the TKT Technology is
sold, payment shall be made through such lawful means or methods as MMD may
determine.
7.7. Withholding Taxes. All royalties payable to TKT hereunder shall be
paid without deductions of any withholding taxes, value-added taxes or other
taxes, levies or charges applicable to such payments, other than (i) United
States taxes payable by TKT and (ii) foreign taxes payable by TKT to the extent
that such taxes are imposed by reason of TKT's having a permanent establishment
in any country within the MMD Territory or otherwise being subject to taxation
by such country (except foreign taxes imposed solely by reason of the license
granted to MMD hereunder). MMD shall be credited for the net benefit realized by
TKT for any foreign tax deductions or credits taken by TKT with respect to such
amounts paid by MMD. In addition, any reorganization of TKT or an Affiliate of
TKT with or into an entity organized outside the United States shall not result
in any increased costs to MMD under this Agreement. Each party will assist the
other party in claiming tax refunds, deductions or credits at the other party's
request and will cooperate to
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minimize the withholding tax, if available, under various treaties applicable to
any payment made hereunder.
7.8. Interest on Late Payments. Any payments by either party that are
not paid on or before the date such payments are due under this Agreement shall
bear interest, to the extent permitted by law, at the London Interbank Offering
Rate as set by Citibank, N.A. from time to time, plus 50 basis points,
calculated on the number of days payment is delinquent.
ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS
8.1. Ownership.
8.1.1. Ownership of Discoveries and Improvements. All right,
title and interest in all writings, inventions, discoveries, improvements and
other technology, whether or not patentable or copyrightable, and any patent
applications, patents or copyrights based thereon (collectively, the
"Inventions") that are discovered, made or conceived during and as a result of
the Research Phase or the Development Phase solely by employees of TKT or others
acting on behalf of TKT ("TKT Inventions") shall be owned by TKT.
***********************************************
*************************************************************
************************************************************
**************************************************************
*****************************************************************
***************************************************************
***************************************************************
****************. All right, title and interest in all Inventions that are
discovered, made or conceived during and as a result of the Research Phase or
the Development Phase or thereafter solely by employees of MMD or others acting
on behalf of MMD ("MMD Inventions") shall be owned by MMD. All right, title and
interest in all Inventions that are discovered, made or conceived during and as
a result of the Research Phase or the Development Phase or thereafter jointly by
employees of TKT and MMD or others acting on their behalf (the "Joint
Inventions") shall be jointly owned by MMD and TKT. Each party shall promptly
disclose to the other party the making, conception or reduction to practice of
Inventions by employees or others acting on behalf of such party. The parties
acknowledge that the ownership rights set forth above are subject to the license
grants set forth in Article 3.
8.1.2. Cooperation of Employees. Each party represents and
agrees that its employees and consultants shall be obligated under a binding
written agreement to assign to such party, or as such party shall direct, all
Inventions made or conceived during and as a result of the Research Phase or the
Development Phase by such employee or consultant. In the case of non-employees
working for other companies or institutions on behalf of TKT or MMD, TKT or MMD,
as applicable, shall use reasonable efforts to obtain the right to license all
Inventions
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made by such non-employees on behalf of TKT or MMD, as applicable, in accordance
with the policies of the company or institution employing such non-employee. TKT
and MMD agree to undertake to enforce such agreements with employees or others
or such rights pertaining to non-employees (including, where appropriate, by
legal action) considering, among other things, the commercial value of such
Inventions.
8.2. Filing, Prosecution and Maintenance of TKT Patent Rights and TKT
Technology.
8.2.1. Filing, Prosecution and Maintenance. TKT shall be
responsible for the filing, prosecution (including oppositions) and maintenance
of all patent applications and patents which make up the TKT Patent Rights and
such other registrations related to the TKT Technology. For so long as any of
the license grants set forth in Article 3 remain in effect, TKT agrees to file
and prosecute patent applications and maintain the patents covering the TKT
Patent Rights and, to the extent applicable, for the registration or other
protection of the TKT Technology, in all countries in the MMD Territory in which
MMD customarily files for products of similar interest. TKT shall consult with
MMD and keep MMD fully informed of important issues relating to the preparation,
filing, prosecution and maintenance of such patent applications and patents,
including patent strategy with respect to both existing and future patent
applications, patents and patent extensions, and shall furnish to MMD copies of
documents relevant to such preparation, filing, prosecution or maintenance
sufficiently prior to filing such document or making any payment due thereunder
to allow for review and comment by MMD, and TKT shall seriously consider all
such comments. TKT and MMD shall mutually determine procedures for carrying out
the filing, prosecution (including oppositions) and maintenance, as applicable,
of patent applications and patents for all Joint Inventions and
******************************** thereof, and both parties shall be kept fully
informed of and consult and cooperate with respect to all actions taken with
respect thereto; provided that, if either party elects to not ******************
of such activity with respect to a particular Joint Invention in a particular
country, then the other party may, ******************* and discretion, undertake
the filing, prosecution (including oppositions) and maintenance of such patent
or patent application in such country, and the party not participating in such
expenses shall assign its interest in such patent or patent application in such
country to the other party, including the rights to receive and collect from
third parties any royalties and damages from future or past infringement, but
reserving a perpetual royalty-free non-exclusive license in such country
(without the right to sublicense and subject to any limitations imposed by this
Agreement, including Section 2.2 hereof) to use such Joint Invention to make,
have made, use, distribute for sale and sell any products covered by such patent
covering such Joint Invention. The non-participating party will cooperate with
the other party, at the other party's expense, as
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necessary to enable the other party to establish and protect its rights under
this subsection 8.2.1.
If TKT elects not to continue to seek or maintain patent protection on
any patent or patent application which makes up the TKT Patent Rights or relates
to the TKT Technology in any country in the MMD Territory, MMD shall have the
right, at its option, but in the name of TKT ********************, to file,
prosecute (including oppositions) and maintain such patent applications and
patents as TKT shall have previously filed in at least one country, provided,
however, that the rights of the parties with respect to any such TKT Patent
Rights and TKT Technology shall in all other respects be as described in this
Agreement. TKT will advise MMD of all decisions taken with respect to any such
election in a timely manner in order to allow MMD to protect its rights under
this subsection 8.2.1.
8.2.2. Patent Filing Costs. *** shall bear all costs
associated with filing, prosecuting and maintaining patent applications and
patents covering the TKT Patent Rights in all countries in the MMD Territory.
8.3. Cooperation. Each party shall make available to the other party
(or to the other party's authorized attorneys, agents or representatives), its
employees, agents, subcontractors or consultants to the extent reasonably
necessary or appropriate to enable the appropriate party to file, prosecute and
maintain patent applications and resulting patents with respect to Inventions
owned by a party and for periods of time reasonably sufficient for such party to
obtain the assistance it needs from such personnel. Where appropriate, each
party shall sign or cause to have signed all documents relating to said patent
applications or patents at no charge to the other party. Notwithstanding the
foregoing, MMD shall not be precluded from contesting the validity or
enforceability of the TKT Patent Rights or TKT Technology.
8.4. Notification of Patent Term Restoration. *** shall notify *** of
(i) the issuance of each patent included within the TKT Patent Rights, giving
the date of issue and patent number for each such patent, and (ii) each notice
pertaining to any patent included within the TKT Patent Rights which it receives
as patent owner pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (hereinafter called the "Act"), or other similar laws
now or hereafter in effect, or pursuant to comparable laws or regulations in
other countries in the MMD Territory. The parties shall cooperate with each
other in applying for patent term extensions (including Supplementary Protection
Certificates in European Community Countries) where applicable in any country of
the MMD Territory. *** shall also notify *** of each application filed for
patent term extension, any allegations of failure to show due diligence and all
awards of patent term extensions with respect to the TKT Patent Rights. Such
notices shall be given promptly, but in any event within ten (10) business days
after receipt of each such notice pursuant to
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the Act (or comparable laws or regulations in other countries in the MMD
Territory). *** shall notify *** of each filing for patent term restoration
under the Act (or comparable laws or regulations in other countries in the MMD
Territory), any allegations of failure to show due diligence and all awards of
patent term restoration (extensions) with respect to the TKT Patent Rights.
8.5. No Other Technology Rights. Except as otherwise expressly provided
in this Agreement, under no circumstances shall a party hereto, as a result of
this Agreement, obtain any ownership interest in or other right to any
technology, know-how, patents, pending patent applications, products, or
biological materials of the other party, including items owned, controlled or
developed by the other party, or transferred by the other party to said party,
at any time pursuant to this Agreement. It is understood and agreed that this
Agreement does not grant MMD any license or other right in the TKT Patent Rights
for uses other than the production, manufacture, use, distribution for sale and
sale of * covered by the TKT Patent Rights or which uses the TKT
Technology.
8.6. Enforcement of TKT Patent Rights and TKT Technology; Defense of
Infringement Actions. TKT and MMD shall each promptly, but in any event no later
than ten (10) business days after receipt of notice of such action, notify the
other in writing of any patent nullity actions, any declaratory judgment actions
or any alleged or threatened infringement of patents or patent applications or
misappropriation of intellectual property comprising the TKT Patent Rights or
the TKT Technology or if either party, or any of their respective Affiliates,
shall be individually named as a defendant in a legal proceeding by a Third
Party alleging infringement of a patent or other intellectual property right as
a result of the manufacture, production, use, distribution for sale or sale of
* , or of any other information or notification regarding the TKT
Patent Rights or TKT Technology.
8.6.1. MMD's First Right to Respond. MMD shall have the
first right to respond to, defend or prosecute any actions, challenges,
infringements, misappropriations or proceeding by a Third Party alleging
infringement described in Section 8.6. In the event MMD elects to do so, TKT
will cooperate with MMD and its legal counsel, join in such suits as may be
brought by MMD, and be available at MMD's reasonable request to be an expert
witness or otherwise to assist in such proceedings. MMD will cooperate with TKT
and its legal counsel and keep TKT and its counsel reasonably informed at all
times as to the status of MMD's response or defense.
8.6.2. No Adverse Settlement Without TKT Consent. MMD will
not settle any suit involving the TKT Patent Rights or TKT Technology in a
manner that would compromise any rights of TKT without obtaining the prior
written consent of TKT.
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8.6.3. Sharing of Litigation and Settlement Expenses. In
the event that MMD elects to respond to, defend or prosecute any actions,
challenges, infringements, misappropriations or proceeding by a Third Party
alleging infringement described in Section 8.6, then: (i) legal fees and other
costs and expenses associated with such response or defense, including those
incurred by TKT at MMD's request, shall be shared *** by MMD and *** by TKT;
(ii) costs of acquiring Third Party patents or licenses and any settlement,
court award, judgment or other damages will be shared *** by MMD and *** by TKT;
and (iii) amounts recovered from Third Parties in connection with such response
or defense shall first be applied, *** to MMD and *** to TKT, to reimburse MMD
and TKT for their respective costs and expenses incurred pursuant to clause (i)
above, and thereafter shall be divided *** to MMD and *** to TKT. MMD shall
advance all costs required to be paid by TKT pursuant to clauses (i) and (ii) of
this subsection 8.6.3. and shall recover such advanced costs through credits
against up to *** of the royalties otherwise payable by MMD to TKT hereunder,
until the amount so advanced by MMD is fully recovered. TKT shall have no
obligation to repay to MMD any amounts previously paid by MMD to TKT hereunder
to cover such costs; provided, that if this Agreement is terminated or the sale
of * covered by the TKT Patent Rights or which uses the TKT Technology is
permanently enjoined in any country or countries in the MMD Territory accounting
for substantially all of the Net Sales of * covered by the TKT Patent
Rights or which uses the TKT Technology by MMD at a time when MMD has not
recovered all of the costs advanced by MMD, then TKT shall pay to
MMD************************** by MMD within a reasonable period of time.
8.6.4. TKT's Second Right to Respond. In the event that MMD
elects not to respond to, defend or prosecute any actions, challenges,
infringements, misappropriations or proceeding by a Third Party alleging
infringement described in Section 8.6 within sixty (60) days of becoming aware
of or being notified of such actions, challenges, infringements,
misappropriations or proceedings, then TKT shall have the option to do so at
TKT's sole cost, provided that in such case all amounts so recovered from any
Third Party shall be retained by TKT and TKT shall have no further obligations
to MMD with respect to the response or defense thereof.
8.6.5. TKT's Second Right to Defend Infringement Actions;
Payment of Royalties by TKT. If MMD does not exercise its right to respond to or
defend against a legal proceeding by a Third Party alleging infringement of a
patent or other intellectual property right as a result of the manufacture,
production, use, distribution for sale or sale of * within sixty (60)
days of becoming aware of or being notified of such action, or if MMD initially
exercises such right but subsequently abandons such response or defense, and in
either event such decision by MMD can reasonably be expected to have a material
adverse impact on the sale of * in any country, then TKT shall have the
option to do so. If TKT elects to respond to or
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defend against such action, then the costs of such response or defense, and any
amounts recovered from Third Parties in connection with such response or
defense, shall be dealt with as provided in subsection 8.6.3 except that the
provisions in such subsection referring to MMD shall be deemed to refer to TKT
and vice versa; provided, however, in no event shall MMD be required to pay to
TKT any portion of such costs except through credits against royalties otherwise
payable to MMD by TKT. If TKT elects to respond to or defend against such
action, is successful in such response or defense, and has exercised its right
under subsection 12.2.4 to terminate this Agreement with respect to the relevant
portion of the MMD Territory and market * in such relevant portion
directly or through sublicensees, then TKT shall pay royalties to MMD based on
cumulative Net Sales of * covered by the TKT Patent Rights or which
uses the TKT Technology sold by TKT or its Affiliates or by any sublicensee or
distributor of TKT in the country in which TKT has assumed such right at the
rates set forth in Section 7.2 which would apply to sales of * by MMD
or its Affiliates. In such event, the provisions of Sections 7.2 through 7.8
shall apply to TKT with respect to the royalties payable by TKT hereunder and
the obligations of MMD with respect to MMD Territory shall apply mutatis
mutandis to TKT with respect to such countries.
8.7. Costs of Acquiring Additional Technology other than Manufacturing
Know-How. In the event that either the Research Committee or the Development
Committee determines that it is necessary or desirable for MMD to acquire any
Third Party patent or license in connection with the development or manufacture
of * covered by the TKT Patent Rights or which uses the TKT Technology
in the MMD Territory, other than patents or licenses which are included in
Manufacturing Know-How, then the costs of acquiring such Third Party patent or
license shall be shared *** by MMD and *** by TKT. The cost sharing provisions
described in this Section 8.7 shall only apply to Third Party patent or license
acquisitions approved unanimously by the Research Committee or the Development
Committee.
ARTICLE 9. CONFIDENTIALITY
9.1. Nondisclosure Obligations.
9.1.1. General. Except as otherwise provided in this Article
9, during the term of this Agreement and for a period of ten (10) years
thereafter, both parties shall maintain in confidence and use only for purposes
specifically authorized under this Agreement (i) confidential information and
data received from the other party resulting from or related to the development
of * and (ii) all information and data not described in clause (i)
above but supplied by the other party under this Agreement marked
"Confidential."
9.1.2. Limitations. For purposes of this Article 9,
information and data described in subsection 9.1.1 shall be
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referred to as "Information." To the extent it is reasonably necessary or
appropriate to fulfil its obligations or exercise its rights under this
Agreement, a party may disclose Information it is otherwise obligated under this
Section not to disclose to its Affiliates, sublicensees, consultants, outside
contractors and clinical investigators, on a need-to-know basis on condition
that such entities or persons agree to keep the Information confidential for the
same time periods and to the same extent as such party is required to keep the
Information confidential; and a party or its sublicensees may disclose such
Information to government or other regulatory authorities to the extent that
such disclosure is reasonably necessary to obtain patents or authorizations to
conduct clinical trials of, and to commercially market, * . The
obligation not to disclose Information shall not apply to any part of such
Information that (i) is or becomes part of the public domain other than by
unauthorized acts of the party obligated not to disclose such Information or its
Affiliates or sublicensees; (ii) can be shown by written documents to have been
disclosed to the receiving party or its Affiliates or sublicensees by a Third
Party, provided such Information was not obtained by such Third Party directly
or indirectly from the other party under this Agreement pursuant to a
confidentiality agreement; (iii) prior to disclosure under this Agreement, was
already in the possession of the receiving party or its Affiliates or
sublicensees, provided such Information was not obtained directly or indirectly
from the other party under this Agreement pursuant to a confidentiality
agreement; (iv) can be shown by written documents to have been independently
developed by the receiving party or its Affiliates without breach of any of the
provisions of this Agreement; or (v) is disclosed by the receiving party
pursuant to oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand issued by a court or
governmental agency; provided that the receiving party notifies the other party
immediately upon receipt thereof (and provided that the disclosing party
furnishes only that portion of the Information which it is advised by counsel is
legally required).
9.2. Materials.
9.2.1. ******************************. ***********
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9.2.2. Samples. Samples of compounds synthesized, purified
or developed in the course of the Research and Development Program shall not be
supplied or sent by either party to any Third Party, other than to regulatory
agencies or for use in clinical trials, unless protected by an appropriate
materials transfer agreement. Samples of compounds other than those described
above provided by one party (the "supplying party") to the other party (the
"receiving party") in the course of the Research Program shall not be supplied
or sent by the receiving party to any Third Party, other than to regulatory
agencies or for use in clinical trials, without the written consent of the
supplying party.
9.3. Terms of this Agreement. TKT and MMD each agree not to disclose
any terms or conditions of this Agreement to any Third Party without the prior
consent of the other party, except as required by applicable law. If TKT
determines that it is required to file with the Securities and Exchange
Commission or other governmental agency this Agreement as an exhibit to the
registration statement relating to a public offering of its securities or
otherwise, TKT shall request confidential treatment of such portions of this
Agreement as it and MMD shall together determine. Notwithstanding the foregoing,
within 15 days after the execution of this Agreement, MMD and TKT shall agree
upon the substance of information that can be used as a routine reference in the
usual course of business to describe the terms of this transaction, and MMD and
TKT may disclose such information, as modified by mutual agreement from time to
time, without the other party's consent; provided, however, that if either party
determines that excessive use of such statement is made by the other party, then
the party determined to be using such statement excessively shall, upon notice
by the other party, cease making such statement.
9.4. Publications.
9.4.1. Procedure. Each party recognizes the mutual interest
in obtaining valid patent protection. Consequently, either party and its
employees or consultants or any other Third Party wishing to make a publication
(including any oral disclosure made without obligation of confidentiality)
relating to work performed by such party as part of the Program (the "Publishing
Party") shall transmit to the other party (the "Reviewing Party") a copy of the
proposed written publication at least ******************** prior to submission
for publication, or an abstract of such oral disclosure at least
***************** prior to submission of the abstract or the oral disclosure,
whichever is earlier. The Reviewing Party shall have the right (a) to propose
modifications to the publication for patent reasons, (b) to request a delay in
publication or presentation in order to protect patentable information, or (c)
to request that the information be maintained as a trade secret and, in such
case, the Publishing Party shall not make such publication.
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9.4.2. Delay. If the Reviewing Party requests a delay as
described in subsection 9.4.1. (b) the Publishing Party shall delay submission
or presentation of the publication for a period of **************** to enable
patent applications protecting each party's rights in such information to be
filed.
9.4.3. Resolution. Upon the receipt of written approval of
the Reviewing Party, the Publishing Party may proceed with the written
publication or the oral presentation.
9.5. Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 9 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 9. It is understood that such injunctive relief
is intended solely as provisional relief pending the dispute resolution
procedures described in Section 13.6 hereof.
ARTICLE 10. REPRESENTATIONS AND WARRANTIES
10.1. General.
10.1.1. Authorization. Each party represents and warrants to
the other that it has the legal right and power to enter into this Agreement, to
extend the rights and licenses granted to the other in this Agreement, and to
fully perform its obligations hereunder, and that the performance of such
obligations will not conflict with its charter documents or any agreements,
contracts or other arrangements to which it is a party.
10.1.2. No Inconsistent TKT Arrangements. TKT represents and
warrants that it has full power and authority to grant the license set forth in
Article 3 hereof and that there are no agreements, assignments, encumbrances or
other arrangements inconsistent with this Agreement including, without
limitation, any obligations to governmental agencies, private foundations or
corporate entities resulting from acceptance of research grant monies, equity
investments, corporate sponsorships or otherwise.
10.1.3. Exclusivity. TKT represents and warrants that MMD is
the exclusive licensee of the TKT Technology owned by TKT and the TKT Patent
Rights with respect to the manufacture, use or sale of * in the MMD
Territory.
10.1.4. Licensed Technology. TKT represents and warrants
that, as of the date hereof, the TKT Patent Rights and TKT Technology do not
include any intellectual property licensed to TKT from a Third Party other than
those included in a License
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**************************************************
10.2. Patent Validity.
10.2.1. Title. TKT represents and warrants that as of the
Effective Date, it possesses the exclusive right, title and interest in and to
the TKT Technology owned by TKT and the TKT Patent Rights and that it has the
full legal right and power to: (i) enter into the obligations set forth in this
Agreement; and (ii) grant the rights and licenses set forth in Article 3.
10.2.2. No Encumbrances. TKT represents and warrants, to the
best of its actual knowledge and based upon the advice of its counsel, to the
best of such counsel's actual knowledge without undertaking any independent
investigation, (i) that there are no encumbrances, liens or other claims
affecting the TKT Technology owned by TKT or the TKT Patent Rights and (ii) that
such TKT Technology and TKT Patent Rights are valid, enforceable and free from
infringement, and that there are no pending or threatened actions, suits or
proceedings relating thereto or to * .
10.2.3. Non-Infringement. TKT represents and warrants that,
to the best of its actual knowledge and based upon the advice of its counsel, to
the best of such counsel's actual knowledge without undertaking any independent
investigation, there are no legal obstacles, including no patent rights or other
proprietary rights of others, which will prevent it from carrying out its
obligations under this Agreement or prevent MMD from carrying out its
obligations under this Agreement or which will be infringed by the performance
of either party's obligations under this Agreement.
10.3. Financial Statements. TKT represents and warrants that Schedule
10.3 hereto sets forth TKT's most recent regularly prepared balance sheet, that
such balance sheet is true and correct and fairly presents the financial
condition of TKT as of its date, and that the total assets set forth thereon are
less than $10,000,000.
ARTICLE 11. INDEMNITY
11.1. MMD Indemnity Obligations. In the absence of TKT's negligence or
a breach of representation, warranty, covenant or agreement by TKT, MMD agrees
to defend, indemnify and hold TKT, its Affiliates and their respective employees
and agents harmless from all claims, losses, damages or expenses arising as a
result of (a) actual or asserted violations of any applicable law or regulation
by MMD or its Affiliates or sublicensees by virtue of which * covered
by the TKT Patent Rights or which uses the TKT Technology manufactured,
distributed or sold shall be alleged or determined to be adulterated,
misbranded, mislabeled or otherwise not in compliance with any
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
applicable law or regulation or (b) claims for bodily injury, death or property
damage attributable to MMD's performance of its obligations under this Agreement
or the manufacture, distribution, sale or use of * covered by the TKT
Patent Rights or which uses the TKT Technology by MMD or its Affiliates or
sublicensees.
11.2. TKT Indemnity Obligations. In the absence of MMD's negligence or
a breach of representation, warranty, covenant or agreement by MMD, TKT agrees
to defend, indemnify and hold MMD, its Affiliates and sublicensees and their
respective employees and agents harmless from all claims, losses, damages and
expenses arising as a result of (a) actual or asserted violations of any
applicable law or regulation by TKT or its Affiliates or licensees by virtue of
which * covered by the TKT Patent Rights or which uses the TKT
Technology manufactured, distributed or sold shall be alleged or determined to
be adulterated, misbranded, mislabeled or otherwise not in compliance with any
applicable law or regulation or (b) claims for bodily injury, death or property
damage attributable to TKT's performance of its obligations under this
Agreement.
11.3. Procedure. A party or any of its Affiliates or their respective
employees or agents (the "Indemnitee") that intends to claim indemnification
under this Article 11 shall promptly notify the other party (the "Indemnitor")
of any claim, loss, damage, or expenses in respect of which the Indemnitee
intends to claim such indemnification reasonably promptly after the Indemnitee
is aware thereof, and the Indemnitor shall assume the defense of any related
third party action, suit or proceeding with counsel mutually satisfactory to the
parties; provided, however, that an Indemnitee shall have the right to retain
its own counsel, with the fees and expenses to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 11 shall not apply to
amounts paid in settlement of any claim, loss, damage or expense if such
settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure of an Indemnitee to deliver
notice to the Indemnitor within a reasonable time after becoming aware of any
such matter, if prejudicial to the Indemnitor's ability to defend such action,
shall relieve the Indemnitor of any liability to the Indemnitee under this
Article 11. The Indemnitor shall not have any liability to any Indemnitee
otherwise than under this Article 11. The Indemnitee under this Article 11 and
its employees and agents shall cooperate fully with the Indemnitor and its legal
representatives in the investigation of any matter covered by this
indemnification. The Indemnitor shall additionally be liable to pay the
reasonable legal costs and attorneys' fees incurred by the Indemnitee in
establishing a successful claim for indemnity hereunder.
-35-
<PAGE> 41
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
11.4. Insurance. For the period starting with the First Commercial Sale
of * MMD and TKT shall each maintain product liability insurance with
respect to development, manufacture and sale of * covered by the TKT
Patent Rights or which uses the TKT Technology in reasonable amounts determined
after consultation with each other, for the term of this Agreement (if such
insurance is an occurrence-basis policy) or for an additional ********* after
the expiration or termination of this Agreement (if such insurance is a
claims-made basis policy).
ARTICLE 12. TERM AND TERMINATION
12.1. Expiration. Unless terminated earlier pursuant to Section 12.2,
this Agreement shall expire and the licenses granted by TKT to MMD hereunder
shall become fully paid, with respect to each country in the MMD Territory, upon
the later of (i) ********* after the First Commercial Sale of *
covered by the TKT Patent Rights or which uses the TKT Technology by MMD or its
Affiliates or sublicensees in such country and (ii) the last to expire of any of
the then existing patents included in the TKT Patent Rights in such country.
12.2. Termination. This Agreement may be terminated in the following
circumstances:
12.2.1. By either party by reason of a material breach not
described in subsection 12.2.5 that the breaching party fails to remedy within
90 days after written notice thereof by the non-breaching party;
12.2.2. By MMD upon 180 days prior written notice with
respect to all or a portion of the MMD Territory, if, in its reasonable
judgment, MMD determines that toxicities or side effects directly attributable
to * covered by the TKT Patent Rights or which uses the TKT Technology
have rendered it such a safety risk to the patient population that *
covered by the TKT Patent Rights or which uses the TKT Technology is
commercially nonviable;
12.2.3. By MMD, upon 180 days prior written notice, with
respect to any portion of the MMD Territory if, after consultation with TKT, MMD
determines that * covered by the TKT Patent Rights or which uses the
TKT Technology is commercially nonviable;
12.2.4. By TKT, with respect to the country or relevant
portion of the MMD Territory, in the event that TKT elects to respond to or
defend against a legal proceeding by a Third Party alleging infringement of a
patent or other intellectual property right as a result of the manufacture,
production, use, distribution for sale or sale of * in any country in
the MMD Territory pursuant to subsection 8.6.5 provided that the failure to so
respond or defend against such
-36-
<PAGE> 42
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
action would have had a material adverse impact on MMD's ability to market
* , either directly or indirectly through sublicensees, in such
country or relevant portion of the MMD Territory;
12.2.5. By TKT, with respect to the relevant portion of the
MMD Territory, in the event that either (i) MMD fails to use its best efforts to
meet the milestones described in Appendix A applicable to such portion of the
MMD Territory or (ii) MMD fails to use its best efforts to commercialize *
covered by the TKT Patent Rights or which uses the TKT Technology in such
portion of the MMD Territory using commercially reasonable means consistent with
those used for MMD products with similar commercial potential, and, in either or
both events, MMD fails to remedy or take reasonable action to initiate a remedy
of such default within 90 days after notice thereof by TKT; provided that
termination by TKT pursuant to this subsection 12.2.5 shall be TKT's sole remedy
for any such failure by MMD to meet such milestones or commercialize *
covered by the TKT Patent Rights or which uses the TKT Technology;
12.2.6. If a competing * product is introduced
into any country in the MMD Territory, and TKT does not have issued patents or
pending claims under the patents included in the TKT Patent Rights which (if
issued, in the case of pending claims) will enable a patent infringement action
to be initiated, then MMD has the right to terminate as to any such country or
the Territory Block in which it is included on 180 days notice; or
12.2.7. By either party upon bankruptcy, insolvency,
dissolution or winding up of the other.
12.3. Effect of Termination. Expiration or termination of this
Agreement shall not relieve the parties of any obligation accruing prior to such
expiration or termination. The provisions of Section 3.2 (with respect only to
licenses granted prior to the time of expiration or termination and subject to
the terms described below) and Article 7 (with respect only to milestone
payments and royalties accrued at the time of expiration or termination but not
yet paid), Article 8, Article 9 and Article 11 shall survive the expiration or
termination of this Agreement. In the event of a termination of this Agreement
pursuant to subsections 12.2.1 to 12.2.7, then all TKT Patent Rights licensed
hereunder with respect to the portion of the MMD Territory terminated will be
returned to TKT and, except in the event that this Agreement is terminated by
TKT pursuant to subsection 12.2.1, copies of all regulatory filings and related
supporting and other materials prepared in connection with such terminated
portion of the MMD Territory shall also be delivered to and available for use by
TKT, and in any event MMD will immediately cease to sell * covered by
the TKT Patent Rights or which uses the TKT Technology in the relevant portion
of the MMD Territory with respect to which this Agreement is terminated. In the
event of termination of this Agreement in all countries
-37-
<PAGE> 43
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
within the MMD Territory, MMD will ******************************
***************************************************************
************************************************************
************************************************************
****************************************************************
************************. Except in the event that this Agreement is terminated
by TKT pursuant to subsection 12.2.1, MMD shall, to the extent legally
permissible, take all additional action reasonably necessary to assign all of
its right, title and interest in and transfer possession and control to TKT of
the regulatory filings prepared by MMD to the extent that such filings relate to
* covered by the TKT Patent Rights or which use the TKT Technology and any
regulatory approvals received by MMD to the extent that such approvals relate to
* covered by the TKT Patent Rights or which use the TKT Technology;
provided, however, that MMD may retain a joint ownership interest in such
filings and approvals to the extent that such filings or approvals are necessary
under this Agreement for portions of the MMD Territory with respect to which
this Agreement has not been terminated or for the development or
commercialization by MMD of products other than * covered by the TKT
Patent Rights or which use the TKT Technology. In the event of a termination of
this Agreement other than by TKT pursuant to subsections 12.2.1 or 12.2.5, TKT
shall be obligated to pay to MMD compensation on such commercially reasonable
terms as shall be determined by mutual agreement of TKT and MMD for the use of
all licenses granted by MMD under Section 3.2.
ARTICLE 13. MISCELLANEOUS
13.1. 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 when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any govern
mental authority or the other party.
13.2. Assignment. This Agreement may not be assigned or otherwise
transferred by either party without the consent of the other party; provided,
however, that either TKT or MMD may, without such consent, assign its rights and
obligations under this Agreement (i) in connection with a corporate
reorganization, to any Affiliate, all or substantially all of the equity
interest of which is owned and controlled by such party or its direct or
indirect parent corporation, or (ii) in connection with a merger, consolidation
or sale of substantially all of such party's assets to an unrelated third party;
provided, however, that such party's rights and obligations under this Agreement
shall be assumed by its successor in interest in any such transaction and shall
not
-38-
<PAGE> 44
be transferred separate from all or substantially all of its other business
assets, including those business assets that are the subject of this Agreement.
Any purported assignment in violation of the preceding sentence shall be void.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement.
13.3. Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the parties would not have entered into this Agreement
without the invalid provisions.
13.4. Notices. Any consent, notice or report required or permitted to
be given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by telephone, personal delivery or courier) or courier, postage
prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.
If to
TKT: Transkaryotic Therapies, Inc.
195 Albany Street
Cambridge, Massachusetts 02139
Attention: President
Telephone: (617) 349-0200
Telecopy: (617) 491-7903
with a copy to: Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attention: Peter Wirth, Esq.
Telephone: (617) 573-0100
Telecopy: (617) 227-4420
-39-
<PAGE> 45
If to MMD: Marion Merrell Dow Inc.
9300 Ward Parkway
Kansas City, Missouri 64114-0480
Attention: General Counsel
Telephone: (816) 966-4000
Telecopy: (816) 966-3805
with copies to: Marion Merrell Dow Inc.
2110 E. Galbraith Rd.
Cincinnati, OH 45215
Attention: General Patent Counsel
Telephone: (513) 948-7960
Telecopy: (513) 948-7961
and
Shook, Hardy & Bacon, P.C.
One Kansas City Place
1200 Main Street, Suite 3100
Kansas City, Missouri 64105
Attention: Randall B. Sunberg, Esq.
Telephone: (816) 474-6550
Telecopy: (816) 421-5547
13.5. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the choice of law provisions thereof.
13.6. Dispute Resolution. Any disputes arising between the parties
relating to, arising out of or in any way connected with this Agreement or any
term or condition hereof, or the performance by either party of its obligations
hereunder, whether before or after termination of this Agreement, shall be
promptly presented to the Chief Executive Officers of TKT and MMD for resolution
and if the Chief Executive Officers or their designees cannot promptly resolve
such disputes, then such dispute shall be finally resolved by binding
arbitration, except that disputes arising within the Development Committee shall
be ultimately resolved, without the use of arbitration, by the Chief Executive
Officer of MMD. Whenever a party shall decide to institute arbitration
proceedings, it shall give written notice to that effect to the other party. The
party giving such notice shall refrain from instituting the arbitration
proceedings for a period of sixty (60) days following such notice. Any
arbitration hereunder shall be conducted under the commercial rules of the
American Arbitration Association. Each such arbitration shall be conducted in
the English language by a panel of three arbitrators appointed in accordance
with such rules; provided, however, that both parties hereto shall be entitled
to representation by counsel, to appear and present written and oral evidence
and argument and to cross-examine witnesses presented by the other party. The
arbitral panel (i) shall have the authority to grant specific performance, (ii)
may allocate between the parties the costs of arbitration in such equitable
manner as they may
-40-
<PAGE> 46
determine, but (iii) shall not render an arbitral award contrary to the
provisions of this Agreement. The arbitral award shall be in writing and the
arbitral panel shall provide written reasons for its award. The award of the
arbitral panel shall be final and binding upon the parties hereto. Any such
arbitration shall be held in Chicago, Illinois, or any other mutually agreed
location. Judgment upon the award so rendered may be entered in any court having
jurisdiction or application may be made to such court for judicial acceptance of
any award and an order of enforcement, as the case may be. Notwithstanding the
provisions of this Section 13.6, in the event of a material breach of this
Agreement by TKT that TKT fails to remedy within 90 days after written notice
thereof by MMD, MMD shall have the right to bring an action for specific
performance by TKT or its Affiliates of TKT's obligations hereunder, to seek an
injunction with respect to any action by TKT or its Affiliates inconsistent with
any of TKT's obligations hereunder or to bring an action against TKT or its
Affiliates at law or in equity in any court or other tribunal in which such
action may properly be brought.
13.7. Entire Agreement. This Agreement, together with the Class E Stock
Purchase Agreement, contains the entire understanding of the parties with
respect to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.
13.8. Headings. The captions to the several Articles and Sections
hereof are not a part of this Agreement, but are merely guides or labels to
assist in locating and reading the several Articles and Sections hereof.
13.9. Independent Contractors. It is expressly agreed that TKT and MMD
shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership, joint venture or agency. Neither TKT
nor MMD shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other, without the prior consent of the other party to do so.
13.10. Agreement Not to Solicit Employees. During the term of this
Agreement and for a period of two (2) years following the termination of this
Agreement, TKT and MMD agree not to seek to persuade or induce any employee of
the other company to discontinue his or her employment with that company in
order to become employed by or associated with any business, enterprise or
effort that is associated with its own business.
13.11. Exports. The parties acknowledge that the export of technical
data, materials or products is subject to the exporting party receiving any
necessary export licenses and that the parties cannot be responsible for any
delays attributable to
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<PAGE> 47
export controls which are beyond the reasonable control of either party. TKT and
MMD agree not to export or re-export, directly or indirectly, any information,
technical data, the direct product of such data, samples or equipment received
or generated under this Agreement in violation of any governmental regulations
which may be applicable, including, but not limited to, the Export
Administration Act of 1979, as amended, its rules and regulations, including,
but not limited to, Part 779 of the United States Export Control Regulations,
published by the United States Department of Commerce, and other applicable
export control laws. TKT and MMD agree to obtain similar covenants from their
licensees, sublicensees and contractors with respect to the subject matter of
this Section 13.11.
13.12. Waiver. The waiver by either party hereto of any right hereunder
or the failure to perform or of a breach by the other party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
13.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-42-
<PAGE> 48
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
TRANSKARYOTIC THERAPIES, INC.
By:/s/ Richard F. Selden
------------------------------------
Title: President and
Chief Executive Officer
MARION MERRELL DOW INC.
By: /s/ Terry J. Shelton
------------------------------------
Title:V.P., Licensing and Business
Development
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<PAGE> 49
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
APPENDIX A
Milestones
***** ******
*******************************
***********************************
**********
***************************************************************
****** *********
*************************** *********
******** *********
************
********** *********
************** *********
************ *********
<PAGE> 50
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
SCHEDULE 1.23
TKT PATENT RIGHTS
**************
*****
***************
**************************************************
***********************************
*********************************
*********** **********
***********************************
******* *******
*************** ************************************
************************************
************************************
******
*********************************************
************************************
************** *******
*********** ***********
*****************
*************** *****
*********************** *********************************
****************************************
*****************
******************* ***********
************** *********
*********** *********
***********************************
*************** ************************************
***************************************
***************************************
**********
<PAGE> 51
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Schedule 1.24
TKT TECHNOLOGY WITHOUT SUBLICENSE RIGHTS
***********************************************************
****************************************************************
************************************************************
***********
<PAGE> 52
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Schedule 4.1.2
I. ****************
A. **************************************************
1. **************************************************
***************
2. ************************************************
3. *****************************************
B. ****************************************************
******************************************
C. ************************************
1. ***************************************************
*********************************************
2. *************************************************
***********
3. ******************************************
**********************************************
****************
D. **************************
1. *************************************
2. **********************************************
E. ***************************************
1. **********************************************
************************************************
*********************************************
2. ********************************************
************************************************
************************************************
*****************
F. **********************************
1. ************************************************
************************************************
*************************************************
*******************************************
**************************************************
************
2. ************************************************
***********************************************
*********************************************
******************
3. **************************************************
*************************************************
*****
<PAGE> 53
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
G. **************************
1. ************************************************
**************************************************
***************************
II. ***********************************************************
***********************************************************
************************************************************
******************************************************
**************************************************
*******************************************************
************************************************************
**************************************************
A. ************
B. ************
C. ************
D. ************
E. ************
F. *************
G. *************
III. **************************************
A. *****************
1. *****************************************
2. ***************************
3. ******************
B. ******************
1. *******************
2. *****************************************
C. *******************
1. ***************************
2. ********************************
3. ******************
D. *******************
1. ***************************
2. ************************************************
<PAGE> 54
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Schedule 7.1
*******
*******
******
*******
*****
***********
*****
***********
**************
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INTELLECTUAL PROPERTY COUNSEL
HAMILTON, BROOK, SMITH & REYNOLDS, P.C.
TWO MILITIA DRIVE
LEXINGTON, MA 02173
October 11, 1996
We hereby consent to the reference to our firm under the captions "Risk
Factors", "Business", "Legal Matters" and "Experts" in the Prospectus that is a
part of the Registration Statement on Form S-1 of Transkaryotic Therapies, Inc.
Hamilton, Brook, Smith & Reynolds,
P.C.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts," and to the use of our report dated February 23,
1996, in Amendment No. 5 to the Registration Statement (Form S-1 No. 333-10845)
and related Prospectus of Transkaryotic Therapies, Inc.
ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 1996
