<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-27972
TREGA BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0336233
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3550 GENERAL ATOMICS COURT, SAN DIEGO, CA 92121
(619) 455-3814
(Address, including zip code, and telephone, including area code, of
registrant's principal executive offices)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 1997
------------------------ ----------------------------
Common stock, $0.001 par 13,528,626
value
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TREGA BIOSCIENCES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Consolidated Financial Statements (Unaudited):
<S> <C> <C>
Consolidated Balance Sheets at June 30, 1997 and December 31, 1996.......3
Consolidated Statements of Operations for the three and six months ended
June 30, 1997 and 1996. .................................................4
Consolidated Statements of Cash Flows for the six months ended June 30,
1997 and 1996............................................................5
Notes to Consolidated Financial Statements...............................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.......................................................17
Item 4 Submission of Matters to a Vote of Securityholders......................17
Item 6 Exhibits and Reports on Form 8-K........................................18
SIGNATURE.......................................................................19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TREGA BIOSCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------- -------------
Current assets: (Unaudited) (Note)
<S> <C> <C>
Cash and cash equivalents $ 8,344 $ 13,615
Short-term investments 15,832 13,828
Accounts receivable 56 481
Notes receivable 516 -
Other current assets 737 282
----------- ------------
Total current assets 25,485 28,206
Property and equipment, net 2,147 1,745
Notes receivable-long-term 549 -
Other assets 1,833 562
----------- ------------
$ 30,014 $ 30,513
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 741 $ 810
Accrued compensation 494 769
Other accrued liabilities 1,280 1,951
Current portion of obligations under capital lease 171 433
Current portion of notes 268 -
Deferred revenue 3,841 1,761
----------- ------------
Total current liabilities 6,795 5,724
Obligations under capital leases 428 633
Long-term notes payable 1,522 -
Stockholders' equity
Common stock, $.001 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 13,491,438 and 13,368,772 at
June 30, 1997 and December 31, 1996, respectively. 13 13
Additional paid-in capital 71,402 71,050
Common stock issuable 1,281 1,281
Deferred compensation, net (1,601) (1,931)
Accumulated deficit (49,826) (46,257)
----------- ------------
Total stockholders' equity 21,269 24,156
----------- ------------
$ 30,014 $ 30,513
=========== ============
</TABLE>
Note: The balance sheet at December 31, 1996, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
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TREGA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net sales $ - $ 553 $ 430 $ 1,113
Contract research and licenses fees 2,568 337 3,514 1,342
--------------- -------------- ------------- ---------------
2,568 890 3,944 2,455
Costs and expenses:
Cost of revenues 22 483 341 949
Research and development 3,384 3,003 6,229 5,169
Acquired in-process research and development - - 4 -
Selling, general and administrative 1,620 866 2,911 1,662
--------------- -------------- ------------- ---------------
5,026 4,352 9,485 7,780
--------------- -------------- ------------- ---------------
Loss from operations (2,458) (3,462) (5,541) (5,325)
Other income (expense):
Other income - - 67 -
Interest income 392 431 731 510
Interest expense (56) (17) (81) (43)
Gain on sale of MPS (4) - 1,255 -
--------------- -------------- ------------- ---------------
Net loss $ (2,126) $ (3,048) $ (3,569) $ (4,858)
=============== ============== ============= ===============
Net loss per share $ (0.16) $ (0.23) $ (0.27) $ (0.43)
=============== ============== ============= ===============
Shares used in computing
net loss per share 13,466,000 13,001,000 13,439,000 11,349,000
=============== ============== ============= ===============
</TABLE>
See accompanying notes.
4
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TREGA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,569) $ (4,858)
Adjustments to reconcile net loss to net cash flows
used for operating activities:
Depreciation and amortization 275 257
Realized loss on sale of investment 88 -
Amortization of deferred compensation 330 208
Gain on sale of MPS (1,255) -
Changes in operating assets and liabilities:
Accounts receivable (115) (196)
Other current assets (567) (263)
Accounts payable 150 271
Other accrued liabilities (724) 704
Deferred revenue 2,083 705
-------- --------
Net cash flows used for operating activities (3,304) (3,172)
INVESTING ACTIVITIES
Short-term investments (2,092) (25,540)
Additions to property and equipment, net (737) (135)
Net proceeds from sale of MPS 1,592 -
Notes receivable (1,065) -
Other assets (1,427) (168)
-------- --------
Net cash flows used for investing activities (3,729) (25,843)
FINANCING ACTIVITIES
Principal payments under capital lease obligations (226) (179)
Issuance of notes payable 1,664 -
Principal payments of notes payable (29) -
Redemption of preferred stock - (2,819)
Issuance of common and preferred stock 353 37,469
-------- --------
Net cash flows provided by financing activities 1,762 34,471
-------- --------
Net (decrease) increase in cash and cash equivalents (5,271) 5,456
Cash and cash equivalents at beginning of period 13,615 1,161
-------- --------
Cash and cash equivalents at end of period $ 8,344 $ 6,617
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 52 $ 40
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Property and equipment acquired under capital lease obligations $ - $ 49
======== ========
Deferred compensation related to stock options $ - $ 1,847
======== ========
</TABLE>
See accompanying notes
5
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TREGA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Trega
Biosciences, Inc. (the "Company"), formerly Houghten Pharmaceuticals, Inc., have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For more complete information, these financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 1996, included
in the Company's 1996 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.
Accounting Standard on Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. The new
requirement for calculating primary earnings per share excludes the dilutive
effect of stock options. The adoption of this statement is not expected to have
a material impact on the Company as it is currently in a net loss position.
Therefore, stock options and warrants are not included in the computation of
earnings per share because their effect is anti-dilutive.
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the periods, as adjusted for the effects of certain
rules of the Securities and Exchange Commission for the period prior to the
Company's initial public offering which ended April 3, 1996. The number of
shares used in computing net loss per share also includes the preferred stock
which converted into common stock upon the closing of the Company's initial
public offering, effective April 3, 1996, as if they were converted into common
stock on their original dates of issuance.
4. COLLABORATIVE ARRANGEMENTS
On June 18, 1997, the Company entered into a Research and Development
Agreement with Ono Pharmaceutical Co., Ltd. ("Ono") whereby the Company received
$2,000,000 as a license fee in connection with the screening by the Company of
certain of its combinatorial libraries against certain of its biological
screens. The Company also received $2,000,000 in July 1997, for work to be done
during the first 12 months under the agreement and, subject to Ono's right of
early termination, will receive an additional $2,000,000 in July 1998 for
further research during an additional 12 month period. The research related
payments are treated as deferred revenue and recognized as revenues as related
work is performed under the contract. The Company will also receive milestone
and royalty payments on products it discovers which are subsequently developed
and marketed by Ono, if any. Under the arrangement, the Company is responsible
for screening its small-molecule combinatorial libraries and Ono's compound
files for active compounds at the melanocortin 1 receptor. Rights to
6
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TREGA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
4. COLLABORATIVE ARRANGEMENTS (Continued)
commercialize products resulting from the arrangement, if any, will belong to
Ono in the Far East, to Ono (and the Company under certain circumstances) in
Europe, with the Company holding such rights with respect to North America and
the rest of the world.
Also, on June 16, 1997, the Company entered into an arrangement with
Northwest Neurologic, Inc. ("NNL") whereby the Company received a non-exclusive
license to patents covering certain melanocortin receptors. In return, NNL
received non-exclusive access to a limited number of Trega's combinatorial
libraries and a $300,000 license fee of which $175,000 was paid in June 1997
with an additional $125,000 due to NNL in May 1998. Each company will be
obligated to pay to the other milestones and royalties on compounds developed
and commercialized using licensed technology, if any.
Effective April 15, 1997, the Company entered into a Restated and Third
Amended Research and Option Agreement (the "Restated Agreement") with the Torrey
Pines Institute for Molecular Studies ("TPIMS"). The Restated Agreement
provides, among other things, for (i) the assignment of patent rights to the
Company for certain technology previously invented at TPIMS, and the elimination
of royalties related thereto, (ii) an extension, through July 14, 1998, of the
existing funded research relationship between the parties, with a further
extension through April 14, 2000, at the Company's option, upon agreement on a
work plan pertaining to such extension period, and (iii) scientific support from
TPIMS for the benefit of the Company in connection with the Company's
collaborations with biotechnology and pharmaceutical companies.
Under the terms of the Restated Agreement, the Company will pay $1,300,000 to
TPIMS, plus accrued interest, in connection with the assignment of patent rights
to certain technology to the Company and the elimination of the related
royalties discussed in (i) above. The payment date will be no later than April
14, 2000, but should the Company elect not to exercise the option to extend the
research relationship described above, then the payment date will be April 14,
1998.
In addition, the Company is committed to provide research funding to TPIMS of
$1,631,000, as described in (ii) above, for the twelve-month period commencing
April 15, 1997. The Company has the option to extend the research relationship
with TPIMS for an additional two years beyond April 15, 1998, for total funding
of $2,850,000. In the event the Company elects not to exercise this option, the
Company is committed to spend an additional $463,000 for research at TPIMS for
the period from April 15, 1998 through July 14, 1998.
Effective December 31, 1996, the Company entered into a drug discovery,
collaboration, and licensing arrangement with Chugai Biopharmaceuticals, Inc.
("Chugai"). Under the terms of this arrangement, the Company received, as an
advance towards future library access charges, a payment in January 1997 of
$1,250,000, and the Company will receive an additional payment of $1,000,000 in
December 1997. This arrangement includes both collaborative and independent
research and development activities by the parties utilizing therapeutic
targets provided by Chugai and small-molecule combinatorial libraries provided
by the Company. Collaborative activities, if successful, will result in the
joint ownership by Chugai and the Company, of new compounds directed at certain
specified therapeutic targets. Other therapeutic targets are the subject of
separate research and development work by each of the parties independent of
the other. This work, if successful, will result in the ownership by Chugai and
the Company of their own compounds directed at certain identified therapeutic
targets which do not conflict with their collaborative activities.
On February 13, 1996, the Company entered into a collaborative arrangement
with Novo Nordisk A/S whereby the Company received $2,000,000 for library access
charges and received an additional $2,000,000 in February 1997. Payments have
been treated as deferred revenue and are recognized as revenue as libraries are
shipped. The Company will also receive milestone and royalty payments on
products discovered and subsequently developed and marketed by Novo Nordisk A/S,
if any.
5. SALE OF MULTIPLE PEPTIDE SYSTEMS, INC.
On February 28, 1997, the Company sold all of the issued and outstanding
shares of the capital stock of Multiple Peptide Systems, Inc. ("MPS") to RAH
Acquisition Corp. ("Newco"), an entity formed by Richard A. Houghten, Ph.D.
("Dr. Houghten"). Dr. Houghten is the sole stockholder of Newco and is also a
founder of the Company. Prior to the sale of the MPS shares, Dr. Houghten also
was the Chief Technical Officer of the Company. In connection with such sale,
however, Dr. Houghten resigned as an officer of the Company. Dr. Houghten had
also been a Director of the Company, but did not stand for re-election at the
Annual Meeting of Stockholder's held on June 11, 1997. In addition to his
affiliation with the Company, Dr. Houghten is the founder
7
<PAGE> 8
TREGA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
5. SALE OF MULTIPLE PEPTIDE SYSTEMS, INC. (Continued)
of MPS and has been an executive officer and Director of that entity. Dr.
Houghten also is the founder, an executive officer and a Director of TPIMS, a
not-for-profit biomedical research institution which performs contract research
services for the Company.
Newco purchased the MPS shares for a purchase price of at least $2.25 million
plus interest. Of that amount, $500,000 and $512,421 were received in March and
June 1997, respectively. An additional $500,000, plus applicable interest, will
be due in December 1997 with further payments due on the third, fourth, and
fifth anniversaries of the sale in an aggregate amount of not less than
$750,000. As part of the arrangements made in connection with the sale, the
Company has agreed, for a period of seven years, not to (i) engage in certain
activities which would be competitive with the business of MPS or (ii) license
certain technologies (which are presently licensed from the Company to MPS) to
entities which are engaged primarily in a business similar to the business of
MPS.
Prior to the Company's sale of the MPS shares, the business of MPS was
comprised of manufacturing and marketing certain peptides and other compounds to
government entities, universities, research institutions and private companies.
6. EVENTS SUBSEQUENT TO JUNE 30, 1997
In July 1997, the Company entered into a $3,000,000 equipment financing line
with Lease Management Services, Inc. to fund capital acquisitions through July
1998.
Also, in July 1997, the Company advanced to its Chief Executive Officer,
Robert S. Whitehead, a forgivable loan in the amount of $100,000 due on or
before June 11, 2001. Interest on the loan, calculated at prime plus one percent
in effect from time to time, is payable quarterly with the principal balance to
be forgiven in equal quarterly installments until either the loan is totally
forgiven or the total amount of the forgiveness and principal paid in lawful
money equals the original principal amount of the note. The note becomes due and
payable upon the earlier termination of Mr. Whitehead's employment.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the matters discussed
in this quarterly report on Form 10-Q are forward-looking statements that
involve risks and uncertainties (such forward-looking statements include,
without limitation, statements using words such as "may," "potential,"
"expects," "believes," "estimates," "plans," "intends," "anticipates" and
similar expressions). These forward-looking statements are subject to risks and
uncertainties, including those set forth below and under the caption "Risk
Factors", that could cause actual results to vary materially from those
projected. These forward-looking statements speak only as of the date hereof.
The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
OVERVIEW
Trega Biosciences, Inc. (the "Company"), formerly Houghten Pharmaceuticals,
Inc., is a drug discovery company utilizing combinatorial chemistry and other
technologies to pursue the discovery of novel, small-molecule drug therapies.
The Company has devoted substantially all of its resources since its founding to
developing methods to synthesize and screen large libraries of chemicals for new
drug discovery and optimization, to developing a select number of chemical
compounds as potential pharmaceutical products, and to acquiring or developing
technologies with the potential to expand the methods available to generate drug
candidates.
The Company leverages its technology platform by entering into pharmaceutical
alliances, enabling partners to access the Company's technologies in exchange
for licensing fees and potential milestone payments and royalties, or by
establishing joint-discovery alliances with biotechnology companies. The timing
and amounts of revenues from such alliances, if any, are subject to significant
fluctuations and therefore the Company's results of operations for any period
may not be comparable to the results of operations for any other period. The
Company will be required to conduct significant research, development and
production activities during the next several years to fulfill its obligations
to corporate partners and for the development of its own compounds. The Company
has been unprofitable since its inception and does not anticipate having net
income in the next several years. As of June 30, 1997, the Company's accumulated
deficit was approximately $49,826,000.
Effective February 28, 1997, the Company sold all of the issued and
outstanding shares of the capital stock of its former subsidiary, Multiple
Peptide Systems, Inc. ("MPS"), to a company formed by Richard A. Houghten, Ph.D.
Dr. Houghten is the scientific founder of the Company. Newco purchased the MPS
shares for a purchase price of at least $2.25 million plus interest. Of that
amount, $500,000 and $512,421 were received in March and June 1997,
respectively. An additional $500,000, plus applicable interest, will be due in
December 1997 with further payments due on each of February 28, 2000, 2001 and
2002. (See Note 5 of Notes to the Company's Consolidated Financial Statements.)
The Company and its predecessors have been parties to a Research and Option
Agreement, as amended, since July 1, 1992, with the Torrey Pines Institute for
Molecular Studies ("TPIMS"). A primary purpose of the Company's relationship
with TPIMS has been to give the Company access to support services provided by
TPIMS scientific personnel and to give the Company a source of combinatorial
libraries and other discoveries to license and exploit in the conduct of its
business. As of April 15, 1997, the Company entered into a Restated and Third
Amended Research and Option Agreement with TPIMS (the "Restated Agreement"). The
Restated Agreement provides, among other things, for (i) the acquisition by the
Company of certain technology previously invented at TPIMS, and the elimination
of royalties related thereto, (ii) an extension through July 14, 1998, of the
existing funded research relationship between the parties, with a further
extension through April 14, 2000, at the Company's option, upon agreement of a
work plan pertaining to such extension period, and (iii) scientific support from
TPIMS for the benefit of the Company in connection with the Company's
collaborations with biotechnology and pharmaceutical companies. (See Note 4 of
Notes to the Company's Consolidated Financial Statements included elsewhere
herein.)
RESULTS OF OPERATIONS
The Company recorded revenues of approximately $2,568,000 for the second
quarter and $3,944,000 for the six-month period ended June 30, 1997, compared
with $890,000 and $2,455,000 for the same periods in 1996. The second quarter
revenues for 1997 were derived solely from collaborative research agreements
while second quarter revenues for 1996 include $553,000 derived from the sale of
custom peptides by the Company's former subsidiary, MPS. The remaining $337,000
in second quarter 1996 was generated from the shipment of combinatorial
libraries or individual compounds under collaborative agreements. Revenues from
9
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collaborative research arrangements for the six months ended June 30, 1997 and
1996 were approximately $3,426,000 and $1,342,000, respectively. Included in
contract research revenues for the six months ended June 30, 1997 is $88,000 of
grant revenue. The sale of custom peptides and combinatorial peptide libraries
by the Company's former subsidiary, MPS, accounted for revenues of approximately
$430,000 and $1,113,000 for the first six months of 1997 and 1996, respectively.
Revenues recorded for the three months and year-to-date ended June 30, 1997
include $2,000,000 as a license fee pertaining to an agreement with Ono
Pharmaceutical Co., Ltd. (See Note 4 of Notes to the Company's Consolidated
Financial Statements.)
As of June 30, 1997, the Company's financial statements reflect a liability
for deferred revenue in the amount of approximately $3,841,000. This represents
the excess of payments received from research collaborators over the revenue
recognized from libraries shipped. These payments are generally not refundable.
Cost of sales decreased to approximately $22,000 and $341,000 in the three
and six months ended June 30, 1997 from approximately $483,000 and $949,000 for
the respective periods in 1996. The decrease in cost of sales from 1996 to 1997
is primarily due to the sale of MPS on February 28, 1997.
The Company incurred research and development expenses totaling approximately
$3,384,000 for the three months ended June 30, 1997 and $6,229,000 for the six
months ended June 30, 1997, as compared to $3,003,000 and $5,169,000,
respectively, for the same periods in 1996. Increased spending in research and
development during the second quarter and first half of 1997 compared to the
same periods in 1996 resulted primarily from increased funding for (i) the
Company's combinatorial chemistry program, largely reflecting the commencement
of an internal combinatorial chemistry program (initiated in February 1996),
(ii) the Company's automation and robotics synthesis program, and (iii) the
Company's combinatorial biology technology program (conducted through its
subsidiary, ChromaXome Corporation ("ChromaXome"), acquired in August 1996). The
increased spending for the internal combinatorial chemistry program was
partially offset by reduced spending under arrangements with TPIMS (including
the Restated Agreement). Funding to TPIMS was $387,000 for the three months and
$964,000 for the six months ended June 30, 1997, as compared to $578,000 and
$1,322,000, respectively, for the same periods ended June 30, 1996. Research and
development expenses for the three and six months ended June 30, 1997 include
$500,000 and $439,000, respectively, compared to $607,000 and $785,000 for the
same periods in 1996, respectively, for the Company's collaboration with Dura
Pharmaceuticals, Inc. ("Dura") to evaluate delivery of the Company's lead
compound, HP 228, in Dura's dry powder inhalation system. This collaboration was
initiated in February 1996 and is a related party transaction. The Company
expects to incur continued and substantial increases in research and development
expenses relating to its combinatorial chemistry, product development and
clinical trials, as well as for the development of the combinatorial biology
technologies acquired through the acquisition of ChromaXome and the development
of other drug discovery technologies.
The Company's selling, general and administrative expenses total
approximately $1,620,000 and $2,911,000 for the three and six months ended June
30, 1997 as compared to $866,000 and $1,662,000, respectively, for the same
periods in 1996. These expenses include administrative salaries and legal,
finance and corporate development activities. Selling, general and
administrative expenses for the first half of 1997 increased compared to the
same period in 1996 primarily due to higher legal costs incurred for litigation,
patents and corporate development activities and costs associated with being a
public company. Selling, general and administrative expenses are expected to
increase as the Company's research and corporate development activities
increase.
The Company's interest income decreased to approximately $392,000 for the
second quarter ended June 30, 1997 compared to $431,000 for the same period in
1996 as a result of decreasing cash balances. However, the interest income for
the six months ending June 30, 1997 increased overall to $731,000 from $510,000
in the same period in 1996 as the proceeds from the Company's initial public
offering were not received until the second quarter of 1996.
In the first quarter of 1997, the Company recorded a gain of $1,259,000 in
connection with the sale of MPS on February 28, 1997. An adjustment of $4,000 to
this amount was made in the second quarter 1997, resulting in a final gain of
$1,255,000. (See Note 5 of Notes to the Company's Consolidated Financial
Statements.)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash, cash equivalents and short-term
investments totaling approximately $24,176,000 compared with $27,443,000 at
December 31, 1996.
10
<PAGE> 11
In June 1997, the Company entered into a Research and Development Agreement
with Ono Pharmaceutical Co., Ltd. ("Ono") whereby the Company received
$2,000,000 as a license fee in connection with the screening by the Company of
certain of its combinatorial libraries against certain of its biological
screens. The Company also received $2,000,000 in July 1997, for work to be done
during the first 12 months under the agreement and, subject to Ono's right of
early termination, will receive an additional $2,000,000 in July 1998. The
research related payments are treated as deferred revenue and recognized as
revenues as related work is performed under the contract. The Company will also
receive milestone and royalty payments on products it discovers which are
subsequently developed and marketed by Ono, if any. (See Note 4 of Notes to the
Company's Consolidated Financial Statements.)
Also, in June 1997, the Company entered into an arrangement with Northwest
Neurologic, Inc. ("NNL") whereby the Company received a non-exclusive license to
patents covering certain melanocortin receptors. In return, NNL received
non-exclusive access to a limited number of Trega's combinatorial libraries and
a $300,000 license fee of which $175,000 was paid in June 1997 with an
additional $125,000 due to NNL in May 1998. Each company will be obligated to
pay to the other milestones and royalties on compounds developed and
commercialized using licensed technology, if any. (See Note 4 of Notes to the
Company's Consolidated Financial Statements.)
The Company's research and development commitments include a research
agreement with TPIMS, restated to reflect amendments effective April 15, 1997.
Pursuant to the Restated Agreement, the Company is committed to spend
$1,631,000, due in quarterly installments, for the twelve-month period
commencing April 15, 1997 of which $473,000 has been paid through June 30, 1997.
The Company has also agreed to pay TPIMS the amount of $1,300,000 under the
terms of the Restated Agreement, plus accrued interest, in connection with the
acquisition of certain technology and the elimination of related royalties. The
payment date will be no later than April 14, 2000; however, if the Company does
not elect to exercise its option to extend research under the Restated Agreement
beyond July 14, 1998, then the payment date for such $1,300,000 will be April
14, 1998. (See Note 4 of Notes to the Company's Consolidated Financial
Statements.)
In connection with the Company's research agreement with Dura, the Company is
committed to fund $6,000,000 over four years in a drug discovery and development
collaboration using Dura's proprietary drug delivery technology and the
Company's Cytokine Regulating Agents (such as HP228). As of June 30, 1997,
$2,493,000 had been funded under the Dura agreement.
Pursuant to a drug discovery collaboration with Novo Nordisk A/S, the Company
received $2,000,000 in February 1996 as an advance payment of library access
fees and received an additional $2,000,000 in February 1997. Payments have been
treated as deferred revenue and are recognized as revenue as libraries are
shipped.
Effective December 31, 1996, the Company entered into a drug discovery
collaboration and license agreement with Chugai Biopharmaceuticals, Inc.
("Chugai"). Under the terms of the agreement, the Company received, as an
advance towards future library access charges, an upfront payment in January
1997 of $1,250,000 and will receive an additional payment of $1,000,000 in
December 1997.
The Company has financed a significant amount of its equipment purchases
through a master lease line of credit which had been exhausted in late 1996. In
July 1997, the Company obtained a $3,000,000 equipment financing line to fund
capital acquisitions through July 1998. This financing line covers up to
$475,000 for lab and scientific equipment purchased for cash between September
1996 and March 1997.
The Company's future cash requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
acquisition or initiation of new research and development programs, the scope
and results of clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patents, competing technological and market developments and the cost of product
commercialization. It is probable, however, that for the foreseeable future, the
Company's cash requirements will exceed its revenues. The Company intends to
seek additional funding through research and development agreements with
suitable corporate collaborators and through public or private financings. The
Company expects that its primary potential revenue source for the foreseeable
future will be additional collaborative agreements. There can be no assurances,
however, that such collaboration arrangements, or any public or private
financings, will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research or development programs or take other
measures to cut costs.
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<PAGE> 12
The Company estimates that its existing capital resources, together with
equipment financing, will be sufficient to fund its current and planned
operations through 1998. There can be no assurances, however, that changes in
the Company's research and development plans or other changes affecting the
Company's operating expenses will not result in the expenditure of such
resources before such time. In any event, the Company will need to raise
substantial additional capital to fund its operations in future periods.
RISK FACTORS
The Company wishes to caution readers that the following important factors,
among others detailed from time to time in the Company's filings with the
Securities and Exchange Commission (such as the Company's Annual Report on Form
10-K for 1996), in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results for future periods to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
NEW AND UNCERTAIN TECHNOLOGIES AND BUSINESS
Drug discovery methods based upon combinatorial chemistry technology are
relatively new compared to traditional methods of drug discovery and there can
be no assurance that these methods will lead to the discovery or development of
commercial pharmaceutical products or that the Company will be able to employ
these or other methods of drug discovery successfully. The Company's
combinatorial biology technology program (conducted through its subsidiary,
ChromaXome) is at an early stage of development, and there can be no assurance
that such technology will be developed or employed successfully. Moreover, the
Company's efforts to synthesize compounds through automation are at an early
state of development, and there can be no assurance that such automation will
work efficiently, be employed successfully or otherwise enhance the Company's
ability to engage effectively in drug discovery.
The types of combinatorial libraries the Company is capable of offering and
the nature of the compounds the Company is able to synthesize or have
synthesized will, in large part, determine the demand for the Company's drug
discovery capabilities. An inability to offer competitive libraries or an
inability to synthesize or have synthesized compounds that have actual or
potential utility would have a material adverse effect on the Company. Failures
in the field of drug discovery, including combinatorial chemistry, could have a
material adverse effect on the Company.
DEPENDENCE ON COLLABORATORS
The Company's strategy for the utilization of its drug discovery technologies
and for the development, clinical testing, manufacturing and commercialization
of any compounds depends upon the formation of collaborations and arrangements
with corporate collaborators, licensers, licensees and others. There may only be
a limited number of pharmaceutical and biotechnology companies that would
potentially collaborate with the Company. Historically, pharmaceutical and
biotechnology companies have conducted lead compound identification and
optimization within their own research departments, due to the highly
proprietary nature of the activities being conducted, the central importance of
these activities to their drug discovery and development efforts, and the desire
to obtain maximum patent and other proprietary protection on the results of
their internal programs. Pharmaceutical and biotechnology companies must be
convinced that the Company's drug discovery technologies and expertise justify
outsourcing these programs to the Company. The amount and timing of resources
that current and future collaborators, if any, devote to collaborations with the
Company are not within the control of the Company. There can be no assurance
that such collaborators will perform their obligations as expected or that the
Company will derive any additional revenue from such arrangements. Because the
Company's arrangements with its collaborators may entail the provision of
identical or similar libraries or compounds to multiple parties, there can be no
assurance that conflicts will not arise between collaborators as to proprietary
rights to particular libraries or as to particular compounds in the Company's
libraries. Moreover, the Company's collaborations may be terminated under
certain circumstances by its collaborators, which terminations could result in
the Company relinquishing rights to products developed jointly with its
collaborators. Any such termination could have a material and adverse effect on
the Company.
There can be no assurance that (i) the Company's present or any future
collaborators will not pursue their existing or alternative technologies in
preference to those of the Company, (ii) any product will be developed and
marketed as a result of such collaborations, (iii) the Company will be able to
negotiate additional collaborative arrangements in the future (or expand or
extend existing arrangements) on acceptable terms, if at all, or (iv) that such
current or future collaborative arrangements will be successful. To the extent
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<PAGE> 13
that the Company chooses not to or is unable to establish such arrangements, it
will require substantially greater capital to undertake the research,
development and marketing of products at its own expense. In addition, the
Company may encounter significant delays in developing compounds or find that
the development, manufacture or sale of its proposed products is materially and
adversely affected by the absence of such collaborative agreements.
EARLY STAGE OF PRODUCT DEVELOPMENT
To date, the Company has itself developed only one drug candidate (HP 228)
that has entered the early stages of human clinical testing. Even though HP 228
has demonstrated indications of efficacy in preclinical models and the results
of certain Phase I and II studies have shown no significant safety concerns,
there can be no assurance that HP 228 will be demonstrated to be effective in
treating human diseases or safe in further trials. Lack of progress, adverse
results or discontinuation of the HP 228 clinical programs could have a material
adverse effect on the Company. HP 228 or other compounds, if any, resulting from
the Company's research and development programs are not expected to be
commercially available for a number of years even if they are successfully
developed and proven to be safe and effective. There can be no assurance that
any of the Company's product development efforts will be successfully completed,
that a development arrangement with a pharmaceutical partner will be
established, that regulatory approvals will be obtained or will be as broad as
sought, that any candidate products will be capable of being produced in
commercial quantities at reasonable cost or that any products, if introduced,
will achieve market acceptance or profitability.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The continued development of the Company's technologies and compounds will
require the commitment of substantial additional funds to continue to maintain
the competitiveness of its drug discovery technologies and to conduct the costly
and time consuming research and preclinical and clinical testing necessary to
bring products to market. The Company's future capital requirements will depend
on many factors, including, among others, (i) continued scientific progress in
its research and development programs, (ii) the ability of the Company to
establish and maintain collaborative arrangements with respect to the Company's
drug discovery technologies and the clinical testing of candidate products,
(iii) progress with preclinical and clinical trials, (iv) the costs involved in
developing internal combinatorial chemistry capabilities, (v) the costs involved
in developing additional drug discovery technologies, including combinatorial
biology and the synthesis of compounds through automation, (vi) the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, (vii) competing technological and market developments, (viii) changes in
its existing research relationships, (ix) the exercise of the Company's option
to extend the term of the Company's present agreement with TPIMS and (x)
effective commercialization activities and arrangements. Although the Company
estimates that its existing capital resources will be sufficient to fund its
current and planned operations through 1998, there can be no assurance that
changes will not occur that would consume available capital resources before
such time.
The Company anticipates that it will be required to raise additional capital
over a period of several years in order to conduct its operations. Such capital
may be raised through research and development agreements with suitable
corporate collaborators and public or private financings. There can be no
assurance that additional financing will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
reduce the scope of or eliminate one or more of its research or development
programs or take other measures to cut costs, which could have a material
adverse effect on the Company.
COMPETITION
The Company is engaged in a highly competitive and rapidly changing industry.
The Company competes not only with other combinatorial chemistry companies, but
also with companies utilizing other technologies (such as combinatorial biology)
for the same objectives. Competition from fully integrated pharmaceutical
companies and biotechnology companies and other drug discovery companies is
intense and is expected to increase. Many pharmaceutical and biotechnology
companies, which represent the largest potential market for the Company's
combinatorial chemistry and other drug discovery technologies, have developed or
are developing internal combinatorial chemistry and other drug discovery
technology programs or have entered into collaborations with companies
conducting such programs. Many of these pharmaceutical companies, as compared
with the Company, have significantly greater
13
<PAGE> 14
financial resources and expertise in research and development, manufacturing,
preclinical and clinical testing, obtaining regulatory approvals and marketing.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and established
biotechnology companies. Academic institutions, governmental agencies and other
public and private research organizations also conduct research, seek patent
protection and establish collaborative arrangements for products and clinical
development and marketing which may be competitive with the Company's efforts.
These companies and institutions compete with the Company in recruiting and
retaining highly qualified scientific and management personnel. There is also
competition for access to novel pharmacophores and desirable assays to use for
screening of libraries, and any inability of the Company to develop novel
pharmacophores or maintain access to a sufficiently broad range of assays for
screening potential drugs would have a material adverse effect on the Company.
There can be no assurance that the Company's competitors will not develop more
effective or more affordable technologies or products, or achieve earlier
product development and commercialization than the Company, thus rendering the
Company's technologies and/or products obsolete, uncompetitive or uneconomical.
In combinatorial chemistry and other drug discovery technologies, the Company
faces competition based on a number of factors, including size and diversity of
libraries, ease of use of libraries, speed and costs of identifying and
optimizing potential lead compounds and patent position.
In addition, products and therapies that will compete directly with any
compounds that the Company seeks to develop (such as HP 228) currently exist or
are being developed. In product development and marketing, the Company will face
competition based on product efficacy and safety, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in large part on its ability to obtain
patents for its methodologies and the compounds and other products, if any,
resulting from the application of such methodologies, as well as defend patents
once obtained, maintain trade secrets and operate without infringing upon the
proprietary rights of others, both in the U.S. and in foreign countries. The
patent positions of pharmaceutical and biotechnology companies, and companies
utilizing drug discovery technologies such as combinatorial chemistry and
combinatorial biology, including the Company, are uncertain and involve complex
legal and factual questions for which important legal principles are largely
unresolved. There can be no assurance that the Company or TPIMS will develop or
obtain the rights to products or processes that are patentable, that patents
will issue from any of the pending applications or that claims allowed will be
sufficient to protect the Company's technologies or products. Pending patent
applications for which rights are uncertain include applications being
prosecuted by the Company on behalf of TPIMS for certain aspects of library
generation technology (libraries-from-libraries) and the Company with respect to
its combinatorial chemistry libraries and certain uses for HP 228, as well as
patent applications filed by the Company (through ChromaXome) with respect to
certain aspects of the combinatorial biology technologies being developed by the
Company (through ChromaXome). There can be no assurance that the patents of, or
with respect to which rights have been licensed to, the Company or TPIMS will
not be challenged, invalidated or circumvented, or that the rights granted or
licensed to the Company or TPIMS will provide proprietary protection or
competitive advantages to the Company. Such patents include a U.S. patent for
the Tea Bag technology, which is licensed to the Company, the Company's U.S.
patent for the composition of matter of HP 228 and certain uses of HP 228, a
U.S. patent of TPIMS for certain aspects of the positional scanning technology
and a further U.S. patent with respect to which rights have been licensed to
TPIMS (on a non-exclusive basis) for other aspects of the positional scanning
technology. The U.S. patent on the Tea Bag technology, that the Company believes
is important to the Company's business, expires in 2003. Competitors (some of
which have, or are affiliated with companies having, substantially greater
resources than the Company) may have filed applications, may have been issued
patents or may obtain additional patents and proprietary rights to or for the
use of certain methodologies relating to products or processes competitive with
those of the Company or which could block the Company's efforts to obtain
patents or conduct its business.
A number of pharmaceutical companies, biotechnology companies, universities
and research institutions have filed patent applications or received patents in
the fields of combinatorial chemistry, combinatorial biology and other drug
discovery technologies and with respect to products and therapies that may have
potential uses which are similar to the Company's current research and
development areas. The commercial success of the Company will depend in part on
the Company's not infringing patents or rights of third parties, and not
breaching the patent and know-how licenses upon which any of the Company's
technologies or compounds are based or having such licenses breached or
terminated by others. Certain patent applications or patents may conflict with
the Company's patent applications and patents, or rights under patent
applications and patents of third parties which are licensed to the Company
(such as from TPIMS), either by claiming the same methods or compounds or by
claiming methods or compounds which would dominate those of or licensed to the
Company. A U.S. patent application is maintained under conditions of
confidentiality
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<PAGE> 15
while the application is pending in the U.S. Patent and Trademark Office ("PTO")
so that the Company cannot determine the inventions being claimed in pending
patent applications filed by its competitors in the PTO. Any such conflicts
could result in a significant reduction of the coverage of the Company's issued
or licensed patents, or rights under patent applications and patents of third
parties which are licensed to the Company (such as from TPIMS), and materially
and adversely affect the Company's ability to benefit from the issuance of
significant patent protection from the Company's applications or the
applications of third parties (such as TPIMS) licensing rights to the Company.
In addition, if patents are issued to other companies which contain competitive
or conflicting claims, the Company may be required to obtain licenses to these
patents or to develop or obtain alternative technology. If any license is
required, there can be no assurance that the Company will be able to obtain any
such license on commercially favorable terms, if at all. If such licenses are
not obtained, the Company could be prevented from pursuing the development or
commercialization of its technologies or potential products. The Company's
breach of an existing license or failure to obtain a license to any technology
that it may require to commercialize its technologies or its potential products
may have a material adverse impact on the Company.
Litigation, which could result in substantial costs to the Company, may also
be necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of third party proprietary rights. There can be
no assurance that the Company's issued or licensed patents would be held valid
by a court of competent jurisdiction or that an alleged infringer would be found
to be infringing. Further, with respect to certain technology in-licensed by the
Company, the Company does not have the right to control any litigation with
respect to such technology. An adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology, any of
which could have a material adverse effect on the Company. Moreover, merely the
uncertainties resulting from institution and continuation of any
technology-related litigation could have a material adverse effect on the
Company's ability to compete in the marketplace pending resolution of the
disputed matters. If competitors of the Company prepare and file patent
applications in the U.S. that claim technology also claimed by the Company, the
Company may have to participate in interference proceedings declared by the PTO
to determine the priority of the invention, which could result in substantial
cost to the Company, even if the outcome is favorable to the Company. An adverse
outcome could subject the Company to significant liabilities to third parties
and require the Company to license disputed rights from third parties or
discontinue using the technology.
The Company also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable. The
Company attempts to protect its proprietary technology and processes in part
through confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance, however, that these agreements will not
be breached or terminated, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known or
be independently discovered by competitors. The Company, as well as its
consultants and research collaborators in their work for the Company, use
intellectual property owned by others. Disputes may arise as to the rights in
technology resulting from these collaborations and in the related know-how and
inventions. The Company relies on certain technologies to which it does not have
exclusive rights or which may not be patentable or proprietary and thus may be
available to competitors.
RELIANCE ON OUTSIDE CONTRACTOR FOR COMBINATORIAL CHEMISTRY
The Company presently has a relationship with an independent contractor,
TPIMS, to conduct a material portion of its combinatorial chemistry technology
program and synthesis of iterations of libraries previously developed by TPIMS.
TPIMS utilizes technology which is potentially important to the Company, some of
which is licensed to TPIMS from a third party. TPIMS is an independent entity
and the Company believes TPIMS is not within the control of the Company. The
contract between the Company and TPIMS permits TPIMS complete freedom to select
the methods to be used in pursuing its research on behalf of the Company. A
discontinuation of work by TPIMS for the Company could have a material adverse
effect on the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has experienced significant operating losses since inception. For
the years ended December 31, 1996, 1995 and 1994, the Company had net losses of
approximately $11,688,000, $9,490,000 and $9,052,000, respectively. For the six
months ended June 30, 1997, the Company recorded a net loss of $3,569,000 and
had an accumulated deficit at June 30, 1997 of approximately $49,826,000. The
Company expects to incur additional operating losses over the next several years
and expects cumulative losses to increase substantially as the Company's
research and development efforts and preclinical and clinical testing are
expanded. The
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<PAGE> 16
Company expects that its ability to achieve profitability will be largely
dependent upon the ability of the Company to enter into and achieve success
under additional collaborative arrangements. There can be no assurance that the
Company will be successful in entering into additional collaboration
arrangements that will result in revenues or that the Company will receive
additional revenues under existing collaboration arrangements. Any revenues from
the achievement of milestones, royalties or license fees from the discovery,
development or sale of a commercial drug by a collaborator are not expected to
be material to the Company's financial position for several years, if at all.
The Company is unable to predict when, if ever, it will become profitable.
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for securities of life sciences companies have been highly
volatile and the market has experienced significant price and volume
fluctuations, some of which are unrelated to the operating performance of
particular companies. Announcements of technological innovations or new
commercial products or failures of potential products by the Company or its
competitors, developments in the Company's relationships with current or future
collaborative partners, developments concerning proprietary rights, including
patents and litigation matters, publicity regarding actual or potential results
with respect to compounds under development by the Company (such as HP 228),
regulatory developments in both the U.S. and foreign countries, public concern
as to the efficacy of combinatorial chemistry or other new drug discovery
technologies, changes in reimbursement policies, general market conditions, as
well as quarterly fluctuations in the Company's revenues and financial results
and other factors, may have a significant impact on the market price of the
Company's Common Stock. In particular, the realization of any of the risks
described in these "Risk Factors" may have a material adverse impact on such
market price.
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<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 7, 1996, a complaint was filed in San Diego Superior Court
naming the Company, ChromaXome, and certain current and former officers and
directors of the Company as defendants. The complaint, filed by Michael Dickman
and Katie Thompson, the founders of ChromaXome, alleges various contract and
tort claims against the defendants, including that the defendants acted
wrongfully in connection with the Company's acquisition of ChromaXome to deny
Mr. Dickman and Ms. Thompson access to and employment with ChromaXome and to
prevent them from obtaining certain consideration in connection with the
ChromaXome acquisition. The complaint seeks compensatory and punitive damages
from the defendants as well as certain declaratory relief, including an
avoidance of certain non-competition provisions applicable to Mr. Dickman and
Ms. Thompson as part of the acquisition-related arrangements. The Company
believes that the claims of Mr. Dickman and Ms. Thompson are without merit.
Moreover, the Company believes it has valid claims, which it has raised, against
Mr. Dickman and Ms. Thompson regarding their conduct in connection with the
business of ChromaXome. Although there can be no assurances in this regard, the
Company believes that the claims of Mr. Dickman and Ms. Thompson, and any
related litigation, will have no material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on June 11, 1997 in San Diego, California.
Item 1. - Election of Directors.
Each of the nominees listed below was duly elected to the Board of
Directors of the Company at the Annual Meeting by the tally indicated:
Nominee Votes in Favor Votes Withheld
------- -------------- --------------
Class II
--------
Jeremy M. Levin 8,848,035 16,653
Anders Wiklund 8,851,597 13,091
Class III
---------
James C. Blair 8,851,697 12,991
Harry D. Lambert 8,851,697 12,991
Ronald R. Tuttle 8,851,697 12,991
Item 2. - Proposal to Increase Number of Shares Available under 1996
Stock Incentive Plan.
Votes in Favor Votes Against Abstain/Nonvotes
-------------- ------------- ----------------
5,857,550 309,458 304,028
Item 3. - Ratification of the Company's independent auditors.
Votes in Favor Votes Against Abstain/Nonvotes
-------------- ------------- ----------------
8,855,613 5,350 3,725
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<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -------------------
<S> <C>
(+) 10.1 Restated and Third Amended Research and Option Agreement
entered into as of April 15, 1997 between Torrey
Pines Institute for Molecular Studies and the Company.
(+) 10.2 Research and Development Agreement dated as of June 18, 1997
between Ono Pharmaceutical Co., Ltd. and the Company.
27 Financial Data Schedule
</TABLE>
(+) The Company has requested confidential treatment of certain
portions of these documents.
(b) Reports on Form 8-K
The Company filed one Form 8-K during the quarter ended June 30,
1997, which Report was dated May 1, 1997 and announced that the
Company changed its name from Houghten Pharmaceuticals, Inc. to
Trega Biosciences, Inc., effective May 1, 1997.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Trega Biosciences, Inc.
Date: 8/14/97 /s/ ROBERT S. WHITEHEAD
------------------------------------------------
Robert S. Whitehead
President and Chief Executive Officer
(Principal Executive Officer)
Date: 8/14/97 /s/ FARIBA F. GHODSIAN, Ph.D.
------------------------------------------------
Fariba Ghodsian, Ph.D.
Strategic and Financial Advisor and Acting Chief
Financial Officer
(Principal Financial and Accounting Officer)
19
<PAGE> 1
Exhibit 10.1
CONFIDENTIAL TREATMENT REQUESTED: PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED ARE MARKED "CONFIDENTIAL TREATMENT REQUESTED" AND APPROPRIATE
SECTIONS, WHERE TEXT HAS BEEN OMITTED, ARE NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESTATED AND THIRD AMENDED RESEARCH AND OPTION AGREEMENT
This Restated and Third Amended Research and Option Agreement (the
"Restated Agreement") is entered into as of the 15th day of April, 1997 (the
"Effective Date"), by and between TORREY PINES INSTITUTE FOR MOLECULAR STUDIES,
3550 General Atomics Court, San Diego, California 92121 ("TPIMS"), a California
nonprofit corporation, and HOUGHTEN PHARMACEUTICALS, INC., 3550 General Atomics
Court, San Diego, California 92121 ("HPI"), a Delaware corporation, with respect
to the facts set forth below.
RECITALS
WHEREAS, the PEPTIDE RESEARCH LIMITED PARTNERSHIP, a California limited
partnership ("PRLP"), entered in to a Research and Option Agreement with TPIMS,
dated March 23, 1990 setting forth terms and conditions of PRLP's option to
license; and
WHEREAS, HPI is the assignee and successor in interest of PRLP and
thereby has acquired certain rights from PRLP, including rights under the HPI
Technology, (as such term is defined below); and
WHEREAS, TPIMS is engaged in fundamental scientific biomedical research
with an emphasis on combinatorial chemistry libraries and their use in basic
research and drug discovery; and
WHEREAS, HPI is engaged in development of drug discovery technologies
based in part on previously assigned technology; and
WHEREAS, HPI is interested in further research and evaluation of such
drug discovery technologies and desires to conduct a collaborative research
program with TPIMS; and
WHEREAS, HPI desires to provide TPIMS with a portion of the financial
support necessary for TPIMS to conduct its fundamental research activities and
which are likely to have applicability to HPI's present or future business
interests; and
WHEREAS, TPIMS desires to grant HPI an option to an exclusive, worldwide
license to develop and market Licensed Products (as such term is defined below);
and
WHEREAS, TPIMS has the exclusive right to grant licenses to TPIMS
Inventions (as such term is defined below), subject only to any rights of the
U.S. Government resulting from U.S. Government funding of such TPIMS Inventions;
and
WHEREAS, TPIMS has determined that nonexclusive licensing will not be
effective in bringing discoveries and research to the commercial market and that
exclusive licensing is necessary for satisfactory development and distribution
of products utilizing TPIMS's discoveries and research;
1.
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
WHEREAS, TPIMS and HPI are parties to that certain Research and Option
Agreement entered into on July 1, 1992 (the "Agreement"), as amended by the
Amendment to Research and Option Agreement entered into as of April 30, 1995
(together with the Agreement, the "Amended Agreement"), as further amended by
the Second Amendment to Research and Option Agreement entered into on December
30, 1995 (together with the Amended Agreement, the "Second Amended Agreement");
and
WHEREAS, the parties now desire to further amend the Second Amended
Agreement and to restate the same as an aid in clarifying the agreement of the
parties;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
outlined herein, TPIMS and HPI hereby agree as follows:
ARTICLE I. DEFINITIONS
1.1 AFFILIATE. The term "Affiliate" shall mean any Person, which
directly or indirectly controls, is controlled by, or is under common control
with, another Person. A Person shall be regarded as in control of another Person
if it owns, or directly or indirectly controls, at least fifty percent (50%) of
the voting stock or other ownership interest of the other Person, or if it
directly or indirectly possesses the power to direct or cause the direction of
the management and policies of the other Person by any means whatsoever.
Notwithstanding anything in this Section 1.1, in no event shall [CONFIDENTIAL
TREATMENT REQUESTED] be deemed to be an Affiliate of either TPIMS or HPI.
1.2 [CONFIDENTIAL TREATMENT REQUESTED].
1.3 [CONFIDENTIAL TREATMENT REQUESTED].
1.4 ASSIGNED TPIMS TECHNOLOGY. The term "Assigned TPIMS Technology"
shall mean (i) any TPIMS Technology and all technology, matter or process which
is listed on Exhibit B attached hereto and (ii) any Licensed TPIMS Technology
which may be deemed to be "Assigned TPIMS Technology" pursuant to Section 5.6.
1.5 CONFIDENTIAL INFORMATION. The term "Confidential Information" shall
mean, subject to the exceptions set forth in Section 10.1 herein, any and all
information which may be exchanged between the parties at any time during the
term hereof.
1.6 COST OF MANUFACTURE. The term "Cost of Manufacture" shall mean the
fully allocated cost of manufacturing the Licensed Product, including the direct
and indirect cost of any raw materials, packaging materials and labor utilized
in such manufacturing (including formulation, filling, finishing, labeling and
packaging, as applicable) plus an appropriate share of all factory overhead,
both fixed and variable, allocated to the Licensed Product being
2.
<PAGE> 3
CONFIDENTIAL TREATMENT REQUESTED
manufactured, in accordance with generally accepted accounting principles and
the normal accounting practices for all other products manufactured in the
applicable facility.
1.7 COST OF MARKETING. The term "Cost of Marketing" shall mean the
following expenses incurred by HPI, to the extent allocable to the marketing,
promotion and sales of a Licensed Product: (i) costs of distribution and
shipping of the Licensed Products to distributors and customers for the Licensed
Products; and (ii) direct costs, specifically allocable to the Licensed Product,
incurred for the sales, advertising, promotion and marketing of the Licensed
Product through any means (including field sales force costs, advertisements,
promotional literature, market research, symposia, exhibits and direct mail) and
(iii) the cost of cost/benefit, outcomes, quality of life or other studies to
establish reimbursement or inclusion in a formulary by governmental authorities
or private payors for the use of a Licensed Product, all in accordance with
generally accepted accounting principles. "Cost of Marketing" will not include
general corporate overhead.
1.8 COST OF POST-MARKETING STUDIES. The term "Cost of Post-Marketing
Studies" shall mean the fully allocated cost of any clinical study undertaken
with regard to a Licensed Product following approval in any Major Market
Country.
1.9 HPI IMPROVEMENT. The term "HPI Improvement" shall mean any
improvement to Assigned TPIMS Technology or a Licensed TPIMS Improvement,
whether in the form of matter, process or technology, which arises on or after
July 1, 1992, and before the termination or expiration of this Restated
Agreement and which is developed, discovered, invented, conceived or reduced to
practice by HPI, its employees, consultants or subcontractors. Notwithstanding
the preceding sentence, an HPI Improvement shall not include any of the
following:
a) any compound or biological material, or the use of the foregoing,
which is developed, discovered, invented, conceived or reduced to
practice by HPI, its employees, consultants, subcontractors or
sublicensees, and which is identified from a compound library, when that
compound library contains or is comprised of either Assigned TPIMS
Technology or a Licensed TPIMS Improvement; or
b) any library of compounds or the use thereof which is developed,
discovered, invented, conceived or reduced to practice by HPI, its
employees, consultants, subcontractors or sublicensees, and which
results from the use or application of a process or technology when that
process or technology contains or is comprised of either Assigned TPIMS
Technology or a Licensed TPIMS Improvement.
1.10 HPI TECHNOLOGY. The term "HPI Technology" shall mean (i)
[CONFIDENTIAL TREATMENT REQUESTED] and all U.S. and foreign patents and patent
applications more particularly described in Exhibit C, as well as all
continuations, divisionals, continuations-in-part, reissues, re-examinations,
and extensions thereof, (ii) those disclosures which had been received by TPIMS
from HPI through July 1, 1992, as more fully set forth in Exhibit C, and (iii)
any know-how associated with the technology described in clauses (i) and (ii).
3.
<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
1.11 KIELY TECHNOLOGY. The term "Kiely Technology" shall mean those
inventions set forth on Exhibit E attached hereto.
1.12 LICENSED COMPOUND. The term "Licensed Compound" shall mean any
compound which is a Licensed Product.
1.13 LICENSED PRODUCT. The term "Licensed Product" shall mean any
product or process which (i) contains Licensed TPIMS Improvements or Licensed
TPIMS Know-How or (ii) could not have been discovered, developed, manufactured,
used or sold without the use of Licensed TPIMS Improvements or Licensed TPIMS
Know-How.
1.14 LICENSED TPIMS IMPROVEMENT. The term "Licensed TPIMS Improvement"
shall mean any TPIMS Improvement to which HPI obtains a license pursuant to
Section 4.3.
1.15 LICENSED TPIMS KNOW-HOW. The term "Licensed TPIMS Know-How" shall
mean any TPIMS Know-How to which HPI obtains a license pursuant to Section 4.3.
1.16 MAJOR MARKET COUNTRY. The term "Major Market Country" shall mean
France, Germany, Italy, Japan and the United Kingdom.
1.17 NET REVENUE. The term "Net Revenue" shall mean Revenue reduced by
the following costs incurred by HPI: (a) payments made by HPI to Third Parties
[CONFIDENTIAL TREATMENT REQUESTED] for licenses necessary for HPI or HPI's
sublicensee to make, use, sell, offer for sale or import the Licensed Product
with respect to which the Revenue is earned; (b) the Cost of Manufacture for the
Licensed Product with respect to which the Revenue is earned; (c) the Cost of
Marketing for the Licensed Product with respect to which the Revenue is earned;
and (d) the Cost of Post-Marketing Studies. In no event shall any given cost
incurred by HPI be included in more than one of the foregoing categories.
1.18 NET SALES. The term "Net Sales" shall mean revenue actually
received by HPI from the sales of Licensed Products, namely the gross amount
invoiced by HPI on all sales of Licensed Products, less (a) discounts actually
allowed, (b) credits for claims, allowances, rebates, retroactive price
reductions or returned goods, (c) insurance and transportation charges, and (d)
sales and use taxes, tariffs, import and export duties or other governmental
charges actually paid in connection with the sale (but excluding what are
commonly known as income taxes). For purposes of determining "Net Sales," a sale
shall be deemed to have occurred when payment is received for the sale.
1.19 OPTION RIGHTS. The term "Option Rights" shall have the meaning set
forth in Section 4.1.
1.20 PERSON. The term "Person" shall mean an individual, corporation,
partnership, trust, business trust, association, joint stock company, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.
4.
<PAGE> 5
1.21 REVENUE. The term "Revenue" shall mean the total revenue actually
received by HPI directly from Net Sales by HPI, and indirectly by HPI as royalty
and milestone payments from a Third Party sublicensee, but excludes amounts
received as a result of (i) any purchase of HPI securities made by a Third Party
to the extent the purchase price is equal to or less than the fair market value
of such securities and (ii) any funding received by HPI in any form from a Third
Party, whether as a payment or reimbursement, as compensation for research and
development services actually performed or to be performed by HPI.
1.22 TECHNOLOGY WORKPLAN. The term "Technology Workplan" shall have the
meaning set forth in Section 3.2.
1.23 THIRD PARTY. The term "Third Party" shall mean any Person other
than HPI, TPIMS and their respective Affiliates.
1.24 TPIMS IMPROVEMENT. The term "TPIMS Improvement" shall mean (i) any
improvement to TPIMS Technology, whether in the form of matter, process or
technology, which arises on or after the Effective Date and before the
termination or expiration of this Restated Agreement and which is developed,
discovered, invented, conceived or reduced to practice by TPIMS, its employees,
consultants or subcontractors and (ii) any matter, process or technology which
arises on or after the Effective Date and before the termination or expiration
of this Restated Agreement and which is developed, discovered, invented,
conceived or reduced to practice by TPIMS, its employees, consultants or
subcontractors pursuant to the TPIMS Research Program.
1.25 TPIMS INVENTION. The term "TPIMS Invention" shall mean,
individually and collectively, Assigned TPIMS Technology, Licensed TPIMS
Improvements and Licensed TPIMS Know-How.
1.26 TPIMS INVENTION PRODUCT. The term "TPIMS Invention Product" shall
mean any product or process which is developed by HPI, its sublicensees or its
Affiliates, and which (i) contains a TPIMS Invention or (ii) could not have been
discovered, developed, manufactured, used or sold without the use of a TPIMS
Invention.
1.27 TPIMS KNOW-HOW. The term "TPIMS Know-How" shall mean all
information, know-how and data which is not generally known, (i) which is
generated by TPIMS in the development of the Assigned TPIMS Technology or
Licensed TPIMS Improvements and (ii) which is necessary and useful in connection
with Assigned TPIMS Technology or Licensed TPIMS Improvements.
1.28 TPIMS PATENT RIGHTS. The term "TPIMS Patent Rights" shall mean each
United States and foreign patent and each application for any such patents which
claim any TPIMS Invention and all continuations, divisionals,
continuations-in-part, reissues, reexaminations, and extensions thereof.
5.
<PAGE> 6
CONFIDENTIAL TREATMENT REQUESTED
1.29 TPIMS RESEARCH PROGRAM. The term "TPIMS Research Program" shall
mean (i) that research program undertaken by TPIMS as described in the attached
Exhibit D, as funded by HPI pursuant to Section 3.1, having as its primary
objectives the development of [CONFIDENTIAL TREATMENT REQUESTED] and running
from April 15, 1997 to July 14, 1998 and (ii) in the event the parties can agree
on a Technology Workplan, pursuant to Section 3.2 that research program
undertaken by TPIMS as described in the Technology Workplan, as funded by HPI
pursuant to Section 3.1 and running from April 15, 1998 to April 14, 2000.
1.30 TPIMS RESEARCH PROGRAM TERM. The term "TPIMS Research Program Term"
shall mean the period of time commencing on the Effective Date and ending on the
following date:
(i) April 14, 2000, in the event the parties agree on a definitive
Technology Workplan prior to January 15, 1998; or
(ii) July 14, 1998, in the event the parties are unable to agree on a
definitive Technology Workplan prior to January 15, 1998.
1.31 TPIMS TECHNOLOGY. The term "TPIMS Technology" shall mean any and
all technology or matter which was owned by TPIMS on July 1, 1992, including
without limitation any idea, data, know-how, technique, method, matter, process,
use, composition, skill, confidential information, trade secret or configuration
of any kind, whether or not any such information would be protected as a trade
secret, the copying of which would be enjoined or restrained by a court as
constituting unfair competition, or is eligible for protection under the patent
laws of the United States or elsewhere. TPIMS Technology includes, but is not
limited to, that technology described on Exhibit A attached hereto.
Notwithstanding anything in this Restated Agreement, TPIMS Technology shall not
include that technology described on Exhibit F attached hereto.
ARTICLE II. BUYOUT OF ASSIGNED TPIMS TECHNOLOGY
2.1 SALE OF ASSIGNED TPIMS TECHNOLOGY. Pursuant to the terms set forth
below, HPI agrees hereby to buy from TPIMS and TPIMS hereby agrees to sell to
HPI, effective as of the Date hereof, the entire right, title and interest of
TPIMS in and to the Assigned TPIMS Technology and the Kiely Technology,
including, but not limited to the right of TPIMS to receive any payment of
royalties in respect thereof. Subject to (i) any United States government rights
with respect to any Assigned TPIMS Technology or Kiely Technology wholly or
partially funded by the United States pursuant to 35 U.S.C. Sections 201-211 and
the regulations promulgated thereunder and (ii) any Third Party rights in
Assigned TPIMS Technology and Kiely Technology in existence as of the date of
this Restated Agreement and (iii) any rights in such Assigned TPIMS Technology
and Kiely Technology retained or granted back to TPIMS pursuant to this Restated
Agreement, TPIMS without any further action, shall have assigned,
6.
<PAGE> 7
transferred and conveyed exclusively to HPI all rights, title and interest TPIMS
has in the Assigned TPIMS Technology and the Kiely Technology.
2.2 PAYMENT FOR ASSIGNED TPIMS TECHNOLOGY AND KIELY TECHNOLOGY. As
consideration for the sale of the Assigned TPIMS Technology and the Kiely
Technology, HPI shall pay to TPIMS, simultaneous with the execution of this
Restated Agreement, an amount equal to twenty-five thousand two hundred dollars
($25,200), which represents license fees due from HPI to TPIMS under previous
agreements between the parties. As additional consideration, HPI shall pay to
TPIMS an amount equal to one million three hundred thousand dollars ($1,300,000)
plus interest accrued from the Effective Date until the date of payment at the
rate of ten percent (10%) per annum. Such amount shall be paid no later than
April 14, 2000. Upon (i) the giving of notice of early termination of this
Restated Agreement, pursuant to either Section 11.3, 11.4 or 11.5 hereunder, or
(ii) on April 14, 1998 upon failure to agree upon the Technology Workplan
pursuant to Section 3.2 hereunder, such one million three hundred thousand
dollar ($1,300,000) amount, together with accrued interest to date at the
aforesaid rate, shall be placed into an escrow account and then shall be
immediately due and payable to TPIMS from such escrow account on the date the
termination becomes effective (in the case of clause (i)) or on July 14, 1998
(in the case of clause (ii)).
2.3 RELINQUISHMENT OF RIGHTS. As of the date hereof, (i) each of the
Agreement, the Amended Agreement and the Second Amended Agreement are hereby
terminated and (ii) HPI relinquishes all right, title and interest it may have
in any of the technology described on Exhibit F. In the event of any conflict
between surviving sections of any of the foregoing agreements and this Restated
Agreement, the terms of this Restated Agreement shall control.
2.4 COOPERATION TO ACCOMPLISH PURPOSE OF AMENDMENT. Each party agrees to
cooperate with the other and take all reasonable actions and execute such other
agreements, instruments, patent assignments, and documents as may be reasonably
required to perfect the interests of the other party and accomplish the intent
of Sections 2.1 to 2.3 of this Restated Agreement.
ARTICLE III. RESEARCH PROGRAM
3.1 FUNDING. HPI shall supply financial support for the TPIMS Research
Program in order to undertake the research described on Exhibit D and any
agreed-to Technology Workplan. TPIMS shall apply said funding to the TPIMS
Research Program and/or the purchase of equipment for the TPIMS Research
Program. Within sixty (60) days following each calendar quarter during the TPIMS
Research Program Term, TPIMS shall provide HPI with a summary report of all
expenditures incurred by TPIMS in furtherance of the TPIMS Research Program,
during the preceding calendar quarter. The sums to be provided to TPIMS in the
12 month periods commencing April 15 of each of the years set forth below is as
follows:
<TABLE>
<S> <C>
1997 $ 1,630,882
1998 $ 1,500,000
1999 $ 1,350,000
</TABLE>
7.
<PAGE> 8
CONFIDENTIAL TREATMENT REQUESTED
The foregoing amounts shall be divided into equal quarterly payments and paid no
later than each April 15, July 15, October 15 and January 15. Notwithstanding
the preceding sentence, amounts payable for the year commencing April 15, 1997
shall be paid as follows:
<TABLE>
<S> <C>
No later than April 15, 1997 $473,206
No later than July 15, 1997 $385,892
No later than October 15, 1997 $385,892
No later than January 15, 1998 $385,892
</TABLE>
3.2 TECHNOLOGY WORKPLAN. Prior to January 15, 1998, HPI and TPIMS shall
endeavor to agree upon a plan of work (the "Technology Workplan") to be
performed by TPIMS under the TPIMS Research Program during the twenty-four month
period commencing April 15, 1998. In this regard, TPIMS shall provide to HPI a
written draft of a proposed Technology Workplan no later than October 15, 1997.
If the parties agree on a definitive Technology Workplan prior to January 15,
1998, the TPIMS Research Program will extend until April 14, 2000 and HPI will
have the funding obligations described in Section 3.1 for 1998 and 1999. It is
understood and agreed by the parties that, in the event the TPIMS Research
Program Term extends until April 14, 2000, TPIMS Improvements will be deemed to
include any improvements to TPIMS Technology arising during the one year period
immediately following the end of the TPIMS Research Program Term and HPI will
continue to have the options set forth in Sections 4.1 and 4.2 with respect to
such improvements during the period ending April 14, 2001. If the parties are
unable to agree on a definitive Technology Workplan prior to January 15, 1998,
the TPIMS Research Program will extend only until July 14, 1998 and HPI will
only have the funding obligations described in Section 3.1 for the twelve month
period commencing April 15, 1997 (i.e., the entire $1,630,882) in addition to
those described in Section 11.1. The contents of a proposed Technology Workplan,
which has not been agreed to by HPI, shall be deemed to be Confidential
Information of TPIMS, provided, however, during the period prior to January 15,
1998 (i.e., when HPI is deciding whether to agree to the proposed Technology
Workplan), TPIMS shall not disclose the contents of such Technology Workplan to
any Third Party without the prior written consent of HPI. The contents of a
definitive Technology Workplan, which has been agreed to by the parties, shall
be deemed to be the joint Confidential Information of TPIMS and HPI.
Notwithstanding anything in this section, any TPIMS Improvements contained in a
proposed Technology Workplan shall be licensable by HPI pursuant to Section 4.1.
3.3 COLLABORATION SERVICES. TPIMS will provide the following services
for HPI during the TPIMS Research Program Term:
(a) Senior Scientists, Assistant Members, Associate Members and
Members of TPIMS ("Professional Staff") will interface directly with
external collaborators of HPI, attend HPI meetings related to these
collaborations and will analyze data for collaborators. During the first
Year of the TPIMS Research Program, HPI will be invoiced for such
services at a rate of [CONFIDENTIAL TREATMENT REQUESTED]
8.
<PAGE> 9
CONFIDENTIAL TREATMENT REQUESTED
for each three (3) month period commencing on April 15, 1997; July 15,
1997; October 15, 1997; and January 15, 1998. During each subsequent
Year of the TPIMS Research Program, HPI will be invoiced for such
services at a rate of [CONFIDENTIAL TREATMENT REQUESTED], as adjusted
for any increases in the CPI (as described below). Such invoiced amounts
shall be paid within ten (10) days by HPI. All travel expenses incurred
by Professional Staff will be reimbursable in full by HPI, within ten
(10) days of submission of documentation by TPIMS.
(b) TPIMS will synthesize mixtures and compounds for HPI's
external collaborators, in quantities not to exceed [CONFIDENTIAL
TREATMENT REQUESTED]. During the first Year of the TPIMS Research
Program, HPI will be invoiced for such services at a rate of
[CONFIDENTIAL TREATMENT REQUESTED] commencing on April 15, 1997; July
15, 1997; October 15, 1997; and January 15, 1998. During each subsequent
Year of the TPIMS Research Program, HPI will be invoiced for such
services at a rate of [CONFIDENTIAL TREATMENT REQUESTED], as adjusted
for any increases in the CPI (as described below). Such invoiced amounts
shall be paid within ten (10) days by HPI. The rates set forth in this
Section 3.3(b) will include the labor and materials required for
synthesis, analytical work, aliquoting, and preparation for shipment, in
addition to overhead.
TPIMS will provide the following services for HPI during the one year period
following the TPIMS Research Program Term:
(c) Professional Staff will interface directly with external
collaborators of HPI, attend HPI meetings related to these
collaborations and will analyze data for collaborators. During such
year, HPI will be invoiced for such services at a rate of [CONFIDENTIAL
TREATMENT REQUESTED], as adjusted for any increases in the CPI (as
described below). Such invoiced amounts shall be paid within ten (10)
days by HPI. All travel expenses incurred by Professional Staff will be
reimbursable in full by HPI, within ten (10) days of submission of
documentation by TPIMS.
(d) TPIMS will synthesize mixtures and compounds for HPI's
external collaborators, in quantities not to exceed [CONFIDENTIAL
TREATMENT REQUESTED]. During such year, HPI will be invoiced for such
services at a rate of [CONFIDENTIAL TREATMENT REQUESTED], as adjusted
for any increases in the CPI (as described below). Such invoiced amounts
shall be paid within ten (10) days by HPI. The rates set forth in this
Section 3.3(d) will include the labor and materials required for
synthesis, analytical work, aliquoting, and preparation for shipment, in
addition to overhead.
For the two year period commencing on the one year anniversary of the end of the
TPIMS Research Program Term, and only in the event TPIMS determines that it has
the capacity to
9.
<PAGE> 10
CONFIDENTIAL TREATMENT REQUESTED
provide the services described in subparagraphs (e) and (f) of this Section 3.3,
TPIMS will provide the following services for HPI:
(e) Professional Staff will interface directly with external
collaborators of HPI, attend HPI meetings related to these
collaborations and will analyze data for collaborators. During such
years, HPI will be invoiced for such services at a rate of [CONFIDENTIAL
TREATMENT REQUESTED], as adjusted for any increases in the CPI (as
described below). Such invoiced amounts shall be paid within ten (10)
days by HPI. All travel expenses incurred by Professional Staff will be
reimbursable in full by HPI, within ten (10) days of submission of
documentation by TPIMS.
(f) TPIMS will synthesize mixtures and compounds for HPI's
external collaborators, in quantities not to exceed [CONFIDENTIAL
TREATMENT REQUESTED]. During such years, HPI will be invoiced for such
services at a rate of [CONFIDENTIAL TREATMENT REQUESTED], as adjusted
for any increases in the CPI (as described below). Such invoiced amounts
shall be paid within ten (10) days by HPI. The rates set forth in this
Section 3.3(f) will include the labor and materials required for
synthesis, analytical work, aliquoting, and preparation for shipment, in
addition to overhead.
The dollar amounts payable by HPI under subsections (a) - (f) for services
provided during each Year (commencing with the Year starting April 15, 1998)
will be adjusted for each such Year to reflect the percent increase in the
United States Consumer Price Index (the "CPI") from April 15, 1997 to the April
15 on which such Year starts. If, for any Year starting with April 15, 1998 or
thereafter, in which TPIMS is providing services or synthesis under this Section
3.3, HPI has not paid TPIMS [CONFIDENTIAL TREATMENT REQUESTED] for such services
and synthesis, then, within thirty (30) days of the end of such Year, HPI shall
pay TPIMS the difference between [CONFIDENTIAL TREATMENT REQUESTED] and the
amounts paid for such Year. For purposes of this Section 3.3, "Year" shall mean
a year commencing on April 15 and ending on the following April 14.
3.4 SUPERVISION OF THE TPIMS RESEARCH PROGRAM. The TPIMS Research
Program shall be conducted under the direct supervision of Richard A. Houghten,
Ph.D., as the President of TPIMS. Should Dr. Houghten become permanently unable
to perform such duties, HPI shall have the right to terminate Article III and
Sections 4.1, 4.2, 4.3 and 4.4 of this Restated Agreement upon ninety (90) days
prior written notice, unless within ninety (90) days of Dr. Houghten's permanent
inability to perform such duties, TPIMS shall have appointed a successor of
comparable stature and expertise to Dr. Houghten with responsibility to directly
supervise the TPIMS Research Program. Such successor must be acceptable to HPI,
such acceptance not to be unreasonably withheld.
3.5 MODIFICATION OF TPIMS RESEARCH PROGRAM. The TPIMS Research Program
may be modified upon mutual written agreement of the parties.
10.
<PAGE> 11
CONFIDENTIAL TREATMENT REQUESTED
3.6 RESULTS OF RESEARCH. No later than each May 15 and November 15
during the TPIMS Research Program Term, TPIMS shall furnish to HPI a written
report summarizing the results of the TPIMS Research Program during the
six-month period ending on the previous April 15 and October 15, respectively.
Such report shall include a brief description of research activities conducted
during such six-month period and new developments or accomplishments, as well as
all manuscripts submitted, publications, applications for letters patent or
issued patents arising from the TPIMS Research Program during such six-month
period. No later than each February 15 and August 15 during the TPIMS Research
Program Term, TPIMS shall provide an oral report to HPI summarizing the results
of the TPIMS Research Program during the three-month period ending on the
preceding January 15 and July 15, respectively.
3.7 DISCLOSURES. HPI shall have reasonable access to the data and
records derived from the TPIMS Research Program. TPIMS agrees to promptly
disclose to HPI, in writing and in reasonable detail, each TPIMS Improvement
made during the TPIMS Research Program Term, and if such term extends to April
14, 2000, for twelve (12) months thereafter, in order for HPI to evaluate and
independently confirm such TPIMS Improvement. HPI shall have three (3) months
after receipt of such disclosure for a given TPIMS Improvement in which to
notify TPIMS whether HPI has decided to exercise its option to acquire a license
to such TPIMS Improvement, pursuant to Section 4.3.
ARTICLE IV. OPTIONS AND LICENSES
4.1 OPTION TO EXCLUSIVE LICENSE TO TPIMS IMPROVEMENTS. TPIMS hereby
grants to HPI an exclusive option (each, an "Option Right") to be granted an
exclusive, worldwide, royalty-bearing license under each TPIMS Improvement,
including the right to sublicense, to make, to have made, to use, to import, to
offer for sale, and to sell Licensed Products, subject to any rights of the U.S.
Government. In the event HPI exercises its right to be granted a license to a
given TPIMS Improvement, TPIMS shall retain the right to practice such TPIMS
Improvement for purpose of conducting academic research only, either alone or
with other not-for-profit entities.
4.2 OPTION TO NON-EXCLUSIVE LICENSE TO TPIMS KNOW-HOW. TPIMS hereby
grants to HPI a non-exclusive option to be granted a non-exclusive, worldwide
license under the TPIMS Know-How, including the right to sublicense, to make, to
have made, to use, to import, to offer for sale, and to sell Licensed Products,
subject to any rights of the U.S. Government and any rights held or retained by
[CONFIDENTIAL TREATMENT REQUESTED]. The foregoing option is limited to that
TPIMS Know- How which relates to the Assigned TPIMS Technology and those TPIMS
Improvements which are licensed to HPI pursuant to Section 4.1. TPIMS shall not
grant non-exclusive licenses to Licensed TPIMS Know- How to Third Parties
without concomitantly licensing or assigning rights to inventions, patents or
patent applications the practice of which relates to the use of such Licensed
TPIMS Know-How.
4.3 EXERCISE PERIOD. The "Option Rights Period" shall be, with respect
to each TPIMS Improvement disclosed to HPI by TPIMS pursuant to Section 3.7, and
the TPIMS Know-How related thereto, that time period commencing on the date that
such TPIMS
11.
<PAGE> 12
CONFIDENTIAL TREATMENT REQUESTED
Improvement was disclosed to HPI pursuant to Section 3.7 and expiring upon the
[CONFIDENTIAL TREATMENT REQUESTED] anniversary of such date. Subject to the
preceding sentence, the Option Rights Period for a TPIMS Improvement, and the
TPIMS Know-How related thereto, may extend beyond the termination of this
Restated Agreement and HPI shall be entitled to all Option Rights thereunder,
provided the Option Rights Period shall not extend beyond its normal
[CONFIDENTIAL TREATMENT REQUESTED] after disclosure. In order to exercise any
Option Right, HPI must provide written notice to TPIMS within the applicable
Option Rights Period that it is exercising such Option Right. If HPI does not
exercise its Option Rights to a particular TPIMS Improvement and the TPIMS
Know-How related thereto within the Option Rights Period, then TPIMS shall be
free to license to any Third Party said TPIMS Improvement and to license to any
Third Party on an exclusive basis the TPIMS Know-How related thereto and to use
said TPIMS Improvement and TPIMS Know-How for TPIMS's own purposes.
4.4 EXERCISE PROCESS. HPI shall exercise the Option Rights, if at all,
on a case by case basis with respect to each disclosure of a TPIMS Improvement
hereunder by providing written notice of each such exercise to TPIMS during the
applicable Option Rights Period.
4.5 HPI TECHNOLOGY, HPI IMPROVEMENTS AND ASSIGNED TPIMS TECHNOLOGY. HPI
hereby grants a worldwide, non-exclusive license, to TPIMS to use the HPI
Technology, the HPI Improvements and the Assigned TPIMS Technology for purpose
of conducting academic research only, either alone or with other not-for-profit
entities. HPI shall be and remain the owner of the HPI Technology and all
improvements thereto, whether conceived solely by HPI personnel, solely by TPIMS
personnel or jointly by HPI and TPIMS personnel. Notwithstanding the preceding
sentence, no rights in any HPI Technology, HPI Improvements or Assigned TPIMS
Technology are granted to TPIMS under this Section 4.5 with respect to the Kiely
Technology. Subject to Section 4.7, the licenses granted in this Section 4.5
shall be royalty-free.
4.6 RIGHT TO CONDUCT FUTURE RESEARCH USING [CONFIDENTIAL TREATMENT
REQUESTED]. During the term of this Restated Agreement, if TPIMS wishes to
obtain external funding other than from the United States government or other
not-for-profit source, to conduct any research at TPIMS outside of the TPIMS
Research Program which involves [CONFIDENTIAL TREATMENT REQUESTED], TPIMS will
notify HPI in writing (the "TPIMS Notice") of such intent and the identity of
[CONFIDENTIAL TREATMENT REQUESTED]. HPI shall have a period of thirty (30) days
after receipt of such written notice to respond in writing to TPIMS. If HPI
either fails to respond, or declines any interest in sponsoring such research,
within that period, then TPIMS may seek a Third Party as a sponsor of such
research, unless, at the time HPI declines its interest in sponsoring such
research, HPI provides written notice to TPIMS that it does not approve of such
a Third Party research collaboration; provided, however, HPI may only disapprove
of such a Third Party research collaboration if HPI, or a Third Party with whom
HPI has a research collaboration, was, at the time of the TPIMS Notice,
conducting research involving [CONFIDENTIAL TREATMENT REQUESTED]. If HPI is
interested in sponsoring the research, the parties shall negotiate a sponsored
research agreement in good faith, but if the parties are unable to reach an
agreement within sixty (60) days after HPI notifies TPIMS of an interest in
sponsoring the research, then TPIMS shall make
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CONFIDENTIAL TREATMENT REQUESTED
a final proposal containing all the material terms for sponsoring the research
to HPI and HPI shall have thirty (30) days to accept or reject such terms (the
"Final Decision Date"). If HPI rejects this final offer, then TPIMS may seek a
Third Party as sponsor of such research unless, by the Final Decision Date, HPI
provides written notice to TPIMS that it does not approve of such a Third Party
research collaboration; provided, however, HPI may only disapprove of such a
Third Party research collaboration if HPI, or a Third Party with whom HPI has a
research collaboration, was, at the time of the TPIMS Notice, conducting
research involving [CONFIDENTIAL TREATMENT REQUESTED]. For purposes of this
Section 4.6, [CONFIDENTIAL TREATMENT REQUESTED] shall mean those [CONFIDENTIAL
TREATMENT REQUESTED]. Furthermore any license by TPIMS to a Third Party pursuant
to this Section 4.6 shall be subject to a mutually acceptable and agreeable
reasonable royalty payments from TPIMS to HPI, the amount of which shall be
negotiated in good faith between the parties and shall take into account, among
other factors, (i) the contribution of the applicable technologies to the
development of the outlicensed technology, and (ii) any HPI obligations to Third
Party licensors with respect to such technologies.
4.7 OTHER LICENSES BY TPIMS. Following the TPIMS Research Program Term,
if TPIMS wishes to outlicense any technology or product which was discovered in
research sponsored solely or in part by United States government or other
governmental funding and which was discovered through the use of Assigned TPIMS
Technology, the Licensed TPIMS Improvements, the HPI Technology or the HPI
Improvements, TPIMS shall first offer HPI the right to such license in writing.
HPI shall have a period of thirty (30) days after receipt of such written offer
to respond in writing to TPIMS. If HPI either fails to respond, or declines any
interest in a license, within such thirty (30) day period, then TPIMS may seek a
Third Party as a licensee for such technology or product. If HPI is interested
in obtaining such a license, the parties shall negotiate in good faith, but if
the parties are unable to reach an agreement within sixty (60) days after HPI
notifies TPIMS of an interest in obtaining the license, then TPIMS shall make a
final proposal containing all the material terms for a license to such
technology or product to HPI and HPI shall have thirty (30) days to accept or
reject such terms. If HPI rejects this final offer, then TPIMS may seek a Third
Party as a licensee for such technology or product, provided, however, that the
terms offered to a Third Party, for a period of one year following the final
offer to HPI, may not be any more favorable to the Third Party than the terms
last offered to HPI. Furthermore any license by TPIMS to a Third Party pursuant
to this Section 4.7 shall be subject to a mutually acceptable and agreeable
reasonable royalty payments from TPIMS to HPI, the amount of which shall be
negotiated in good faith between the parties and shall take into account, among
other factors, (i) the contribution of the applicable technologies to the
development of the outlicensed technology, and (ii) any HPI obligations to Third
Party licensors with respect to such technologies.
ARTICLE V. LICENSE CONDITIONS
5.1 TERM OF LICENSE. Any license granted to HPI hereunder, shall be
deemed to be perpetual, subject to the right of TPIMS to terminate pursuant to
Section 11.4, and worldwide
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CONFIDENTIAL TREATMENT REQUESTED
and subject to any rights residing in the U.S. Government as a result of the use
of federal research funds in connection with the conception or reduction to
practice of the subject matters of such licenses.
5.2 SUBLICENSE. HPI shall have the right to grant sublicenses to any
Third Party with respect to any licenses granted to HPI under this Restated
Agreement. HPI agrees to inform TPIMS, in writing, prior to executing an
agreement to sublicense any Licensed TPIMS Improvements or Licensed TPIMS Know-
How; however, TPIMS's consent is not required for HPI to sublicense. TPIMS shall
have the right to grant sublicenses to Third Parties with respect to any
licenses granted to TPIMS under this Restated Agreement provided that (i) such
sublicenses are in connection with any agreements entered into with Third
Parties pursuant to Section 4.6 or Section 4.7 ("Article IV Agreements"); (ii)
such sublicenses do not exceed the duration of the term of such Article IV
Agreements nor the period during which TPIMS is undertaking substantive research
pursuant to such agreement; (iii) such sublicenses are for a period of no longer
than five years; and (iv) HPI consents to such sublicense, such consent not to
be unreasonably withheld. Each sublicense will be subject to restrictions,
exceptions, reports, termination provisions and such other provisions contained
in this Restated Agreement.
5.3 LICENSE FEES. As partial consideration for the grant of the licenses
hereunder and continuation thereof, HPI shall pay TPIMS the license fees as set
forth in this Section 5.3. Such amounts are due to TPIMS without regard to Net
Revenue, and TPIMS shall have no obligation to return any such amounts
notwithstanding the failure by HPI to develop the Licensed Product(s) or market
the Licensed Product(s) commercially, and notwithstanding the volume of sales of
the Licensed Product(s). Such license fees shall be payable as follows:
(a) [CONFIDENTIAL TREATMENT REQUESTED] within ten days
after the date on which HPI exercises each new option under the Option
Rights. If the patent attorney selected under Section 6.1 determines
prior to the exercise by HPI of the Option Rights with respect to a
particular TPIMS Improvement but within the Option Rights Period that
such TPIMS Improvement will be submitted in the United States as a
continuation-in-part of a claim contained within a Pre-existing Patent
Application, then HPI shall not owe any license fee with respect to that
TPIMS Improvement; provided, however, if the initial determination for a
given Licensed TPIMS Improvement is to submit such Licensed TPIMS
Improvement in the United States as a continuation-in-part of a
Pre-existing Patent Application but such Licensed TPIMS Improvement is
not in fact submitted as such a continuation-in-part within six (6)
months of the exercise of the Option Right by HPI, HPI shall promptly
pay the [CONFIDENTIAL TREATMENT REQUESTED] license fee to TPIMS. If the
determination that the TPIMS Improvement shall be submitted as a
continuation-in-part of a Pre-existing Patent Application is made after
exercise of the Option Rights and payment to TPIMS of the [CONFIDENTIAL
TREATMENT REQUESTED] license fee with respect thereto, HPI shall be
entitled to a prompt refund of the license fee from TPIMS. In the event
HPI files more than one patent application or divisional in the United
States on a given Licensed TPIMS Improvement, HPI shall pay TPIMS
[CONFIDENTIAL TREATMENT REQUESTED] for each filed patent application or
divisional, subject to any offsets for continuations-in-part contained
in such multiple applications, as previously described in this Section
5.3(a). For purposes of this Section 5.3(a), a
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<PAGE> 15
CONFIDENTIAL TREATMENT REQUESTED
"Pre-existing Patent Application" shall mean, with respect to any given
TPIMS Improvement, any patent or patent application within the HPI
Technology, Assigned TPIMS Technology or Licensed TPIMS Improvements
which is owned by, or has been licensed to, HPI as of the first day of
the Option Rights Period.
(b) [CONFIDENTIAL TREATMENT REQUESTED] upon the first
approval of the United States Food and Drug Administration (the "FDA")
or any comparable foreign equivalent with jurisdiction over a Major
Market Country for the sale of each Licensed Product which contains a
Licensed TPIMS Improvement or which could not have been developed,
manufactured, used or sold without the use of a Licensed TPIMS
Improvement. In the event that the development of a Licensed Product
described in the preceding sentence was funded in all material respects
by HPI, HPI shall owe an additional [CONFIDENTIAL TREATMENT REQUESTED]
to TPIMS. This license fee is payable only once for each given Licensed
Product and substantially similar Licensed Products.
The license fees as set forth in this Section 5.3 shall be creditable in their
entirety against earned royalties due pursuant to Section 5.4 below with the
credit available to offset up to [CONFIDENTIAL TREATMENT REQUESTED] of the
earned royalties due in any quarter, for so long as the credit remains unused.
5.4 ROYALTY. (a) With respect to Licensed TPIMS Improvements disclosed
by TPIMS pursuant to Section 3.7 on or before April 14, 1998 (or, in the event
the parties do not agree on the Technology Workplan pursuant to Section 3.2,
disclosed by TPIMS pursuant to Section 3.7 on or before July 14, 1998) (the
"1997 Licensed TPIMS Improvements"), HPI shall pay to TPIMS a running royalty at
the rates set forth below based on Net Revenue attributable to such Licensed
TPIMS Improvements, including any Licensed Products which contain such Licensed
TPIMS Improvements or which could not have been developed, manufactured, used or
sold without the use of such Licensed TPIMS Improvement.
Royalty rates with respect to sales of Licensed Products by HPI or HPI's
sublicensees (or royalty or milestone payments to HPI from HPI's sublicensees)
shall be based on the extent of activity undertaken by HPI with respect to the
discovery, development and commercialization of such Licensed Product as set
forth below. For purposes of this Section 5.4. "Development Costs" shall mean
the amount expended by HPI in the development of a Licensed Compound after
discovery and prior to marketing, including, without limitation, the burdened
cost of the time for scientific personnel employed or contracted for by HPI.
15.
<PAGE> 16
CONFIDENTIAL TREATMENT REQUESTED
HPI ACTIVITY ROYALTY RATE
(1) Net Revenue received by HPI from a [CONFIDENTIAL TREATMENT
Third Party with respect to a Licensed REQUESTED]
Compound, where HPI or a sublicensee
discovered the Licensed Compound but, as
of the date of receipt of such Net Revenue:
[CONFIDENTIAL TREATMENT
REQUESTED].
(2) Net Revenue received by HPI from a [CONFIDENTIAL TREATMENT
Third Party with respect to a Licensed REQUESTED]
Compound, where HPI or a sublicensee
discovered the Licensed Compound but, as
of the date of receipt of such Net Revenue:
[CONFIDENTIAL TREATMENT
REQUESTED].
(3) Net Revenue received by HPI from a [CONFIDENTIAL TREATMENT
Third Party with respect to a Licensed REQUESTED]
Compound, where HPI or a sublicensee
discovered the Licensed Compound but, as
of the date of receipt of such Net Revenue:
[CONFIDENTIAL TREATMENT
REQUESTED].
16.
<PAGE> 17
CONFIDENTIAL TREATMENT REQUESTED
(4) Net Revenue received by HPI from a [CONFIDENTIAL TREATMENT
Third Party with respect to a Licensed REQUESTED]
Compound, where royalties are not due
under subsection (1), (2) or (3) of this
Section 5.4(a).
The above royalty rates shall apply on a country-by-country basis (e.g., if HPI
is [CONFIDENTIAL TREATMENT REQUESTED] in the United States, but not in Japan,
subsection (4) shall apply to Net Revenues received with respect to the United
States, but subsection (1), (2) or (3) shall apply with respect to Japan). For
purposes of the above royalty rates, Licensed Compounds discovered by TPIMS upon
which HPI has exercised Option Rights hereunder shall be deemed to have been
"discovered" by HPI. The royalty rate for Net Revenue received by HPI in
connection with its sale of, or sublicensing of access rights to, Licensed TPIMS
Improvements not involving specific Licensed Compounds (i.e., access to
technology contained in the Licensed TPIMS Improvements or access to HPI's
general compound libraries) shall be [CONFIDENTIAL TREATMENT REQUESTED]. In the
event a Licensed Product falls into one or more of the foregoing categories,
royalties shall be payable at the highest applicable rate, but no more than one
royalty shall be charged and collected on any given Licensed Product. The
parties believe that Net Revenue for any given Licensed Product will fall into
one of the royalty categories set forth in this Section 5.4. In the event Net
Revenue is received by HPI which does not fall into any of the foregoing
categories, the applicable royalty rate shall be [CONFIDENTIAL TREATMENT
REQUESTED].
(b) With respect to Licensed TPIMS Improvements disclosed by TPIMS
pursuant to Section 3.7 after April 14, 1998 (assuming the Technology Workplan
is agreed to) but during the term of the TPIMS Research Program (the "Technology
Workplan Licensed TPIMS Improvements"), royalties will be negotiated
concurrently with the review and approval of the Technology Workplan. In no
event will royalties to be negotiated exceed [CONFIDENTIAL TREATMENT REQUESTED]
of Net Sales of Licensed Products. It is understood that additional royalties
may be negotiated with respect to amounts received by HPI other than Net Sales
(e.g. license fees, up-front payments, premiums on equity, as well as any
exceptions therefrom).
5.5 QUARTERLY PAYMENTS. Royalties shall be payable on a quarterly basis,
[CONFIDENTIAL TREATMENT REQUESTED], based upon the Net Revenue during each
calendar quarter, commencing with the calendar quarter in which Net Revenues are
first received.
With regard to royalties and other fees received by HPI made by a
sublicensee pursuant to Section 5.2 of this Restated Agreement, amounts due to
TPIMS from HPI in respect thereof shall be paid to TPIMS on a quarterly basis,
[CONFIDENTIAL TREATMENT REQUESTED].
5.6 ROYALTY BUYOUT. TPIMS hereby grants to HPI the right to extinguish
its obligation to pay any and all future royalties and license fees in respect
of Licensed Products.
17.
<PAGE> 18
CONFIDENTIAL TREATMENT REQUESTED
HPI may extinguish such obligation with respect to the 1997 Licensed TPIMS
Improvements by the payment to TPIMS of [CONFIDENTIAL TREATMENT REQUESTED]. The
prices for extinguishing royalty obligations related to Technology Workplan
Licensed TPIMS Improvements shall be negotiated by the parties in good faith
concurrent with the review and approval of the Technology Workplan. In no event
will the aggregate of such payments in respect of the 1997 Licensed TPIMS
Improvements and the Technology Workplan Licensed TPIMS Improvements exceed
[CONFIDENTIAL TREATMENT REQUESTED]. Any such payments shall be made at the time
such rights are exercised, which shall occur, if at all, prior to the end of the
TPIMS Research Program. On such date as HPI's obligation with respect to any
Licensed TPIMS Improvement is extinguished pursuant to this Section 5.6, all
right, title and interest in such Licensed TPIMS Improvement shall be deemed to
be assigned to HPI without any further action and, as of such date, such
Licensed TPIMS Improvement shall be deemed to be a part of the Assigned TPIMS
Technology.
5.7 DURATION OF ROYALTY OBLIGATION. HPI's royalty obligation shall
terminate on a country-by- country basis with the expiration of the last to
expire of TPIMS Patent Rights utilized by or in the Licensed Product in such
country, or [CONFIDENTIAL TREATMENT REQUESTED] from the date of first sale of
the Licensed Product in any such country in the event there are no TPIMS Patent
Rights utilized in or by the Licensed Product.
5.8 REPORTS. HPI shall furnish to TPIMS at the same time as each royalty
payment is made, a detailed written report of the Net Revenue of the Licensed
Product and the royalty due and payable, including any permitted offsets against
such royalty, on a country-by-country basis, for the calendar quarter upon which
the royalty payment is based. Such a report shall be furnished even if no
royalty payments are actually made, as a result of offsets permitted by this
Restated Agreement, but royalties would have otherwise been due in the absence
of such offsets.
5.9 RECORDS. HPI shall keep full, complete and proper records and
accounts of its sales of Licensed Products and any amounts received from Third
Party sublicensees in sufficient detail to enable the royalties payable on Net
Revenue to be determined. TPIMS shall have the right at its own expense to
appoint an independent certified public accounting firm approved by HPI, which
approval shall not be unreasonably withheld, to audit HPI records which are
necessary to verify the royalties payable pursuant to this Restated Agreement.
Such audit shall be at TPIMS' expense; provided, however, that if the audit
accurately discloses that TPIMS was underpaid royalties by at least
[CONFIDENTIAL TREATMENT REQUESTED] for any calendar quarter, then HPI shall
reimburse to TPIMS any such reasonable audit costs. In all events, HPI shall pay
TPIMS, within ten (10) days, an amount equal to the additional royalties to
which TPIMS is entitled as disclosed by the audit. TPIMS may exercise its right
no more frequently than once in any calendar year. The accounting firm shall
disclose to TPIMS only information relating solely to the accuracy of the
royalty payments. HPI shall preserve and maintain all such records required for
audit for a period of [CONFIDENTIAL TREATMENT REQUESTED] after the calendar
quarter for which the records apply.
5.10 FOREIGN SALES. The remittance of royalties payable on sales outside
the United States shall be payable to TPIMS in United States Dollar Equivalents
which shall be ascertained in accordance with HPI's standard accounting
practices of conversion of foreign currency for
18.
<PAGE> 19
external reporting purposes. If the transfer or the conversion into the United
States Dollar Equivalent of any such remittance in any such instance is not
lawful or possible, the payment of such part of the royalties as is necessary
shall be made by the deposit thereof, in the currency of the country where the
sale was made on which the royalty was based to the credit and account of TPIMS
or its nominee in any commercial bank or trust company of TPIMS's choice located
in that country, prompt notice of which shall be given by TPIMS to HPI.
5.11 FOREIGN TAXES. Any tax required to be withheld by HPI under the
laws of any foreign country for the account of TPIMS, shall be promptly paid by
HPI or its sublicensee as the case may be, for and on behalf of TPIMS to the
appropriate governmental authority, and HPI or its sublicensee as the case may
be, shall use its respective best efforts to furnish TPIMS with proof of payment
of such tax together with official or other appropriate evidence issued by the
appropriate government authority. Any such tax actually paid on TPIMS's behalf
shall be deducted from royalty payments due TPIMS.
ARTICLE VI. PATENT MATTERS
6.1 PATENT PROSECUTION AND MAINTENANCE. For each Licensed TPIMS
Improvement and for all Assigned TPIMS Technology and the Kiely Technology, HPI
shall, in its sole discretion, direct, control and conduct (or refrain from
directing, controlling and conducting) any patent application and prosecution
process (including interferences and foreign oppositions) and such process as
appropriate for extension, renewal or other maintenance, if any, of each
resulting patent, subject to such requirements, limitations and conditions as
are expressly set forth in this Restated Agreement. In the event HPI elects to
refrain from taking such action, it shall promptly notify TPIMS in writing of
such election.
6.2 PROVISION OF INFORMATION TO TPIMS. HPI shall keep TPIMS informed
with regard to the patent application and maintenance processes for Licensed
TPIMS Improvements and for all Assigned TPIMS Technology and the Kiely
Technology. HPI shall promptly deliver to TPIMS copies of all documentation and
correspondence related thereto, including, but not limited to, patent
applications, amendments, invoices from patent attorneys, patent assignments,
declarations and all other related matters.
6.3 PATENT COSTS. HPI shall pay for all reasonable expenses incurred in
preparing, filing and prosecuting patent applications and maintaining patents
which have been or are obtained for each Licensed TPIMS Improvement and for all
Assigned TPIMS Technology and the Kiely Technology. When requested by HPI, TPIMS
shall assist HPI in the preparation, filing and prosecution of patent
applications covering Licensed TPIMS Improvements and all Assigned TPIMS
Technology and the Kiely Technology and in the enforcement and defense of
patents issued in respect thereof. Furthermore, TPIMS shall otherwise cooperate
with HPI in the protection of Licensed TPIMS Improvements and the Assigned TPIMS
Technology and the Kiely Technology in all regards including, but not limited to
the signing and filing of such documents and certificates and undertaking such
other actions as HPI shall deem necessary or desirable to pursue, perfect or
protect its interest in the Licensed TPIMS Improvements and the
19.
<PAGE> 20
CONFIDENTIAL TREATMENT REQUESTED
Assigned TPIMS Technology and the Kiely Technology. With respect to each
Licensed TPIMS Improvement, HPI may deduct from its royalty payments due to
TPIMS pursuant to this Restated Agreement an amount equal to the out-of-pocket
expenses paid by HPI pursuant to this Section 6.3 for each Licensed TPIMS
Improvement, provided that, for any calendar quarter, HPI may not deduct more
than [CONFIDENTIAL TREATMENT REQUESTED] of the royalties payable for the
calendar quarter for reimbursement for said expenses.
6.4 OWNERSHIP. Each patent application filed and patent obtained for
each Licensed TPIMS Improvement shall be owned by TPIMS and shall be deemed a
part of TPIMS Patent Rights.
6.5 TPIMS RIGHT TO PURSUE PATENT PROTECTION. HPI may elect to cease
paying for further patent expenses for a Licensed TPIMS Improvement. HPI shall
give TPIMS at least sixty (60) days' prior written notice of such election.
TPIMS shall thereafter have the right to take whatever action TPIMS deems
appropriate to obtain or maintain the corresponding patent protection with
respect to such Licensed TPIMS Improvements at its own expense. If TPIMS pursues
patents under this Section 6.5, (i) HPI shall not lose any rights granted under
this Restated Agreement as a result thereof; and (ii) HPI agrees to cooperate
fully, including by providing, at no charge to TPIMS, all appropriate technical
data and executing all necessary legal documents.
6.6 INFRINGEMENT ACTIONS. HPI shall be entitled to prosecute and enforce
(or refrain from prosecuting and enforcing) any and all infringements of any
Licensed TPIMS Improvements and any Assigned TPIMS Technology and the Kiely
Technology to which HPI obtains rights hereunder and to defend all charges of
infringement arising as a result of said Licensed TPIMS Improvements and any
Assigned TPIMS Technology and the Kiely Technology, and to enter all
settlements, judgments or other arrangements respecting the same all at its own
expense, but all such settlements, judgments and other arrangements relating to
Licensed TPIMS Improvements must be approved by TPIMS, such approval not to be
unreasonably withheld. TPIMS shall permit any action to be brought in its name
if required by law. TPIMS shall be entitled to retain its own attorneys at HPI's
expense in connection with an action relating to Licensed TPIMS Improvements and
HPI shall hold TPIMS harmless from any costs, expense, or liability respecting
infringements or charges of infringement by HPI, its Affiliates and
sublicensees. TPIMS shall be entitled to retain its own attorneys, at TPIMS'
expense, in connection with an action relating to Assigned TPIMS Technology and
the Kiely Technology. Upon request of HPI, TPIMS agrees to provide reasonable
assistance of a technical nature that HPI may require in any litigation arising
in accordance with the provisions of this section. HPI agrees to reimburse TPIMS
for all reasonable out-of-pocket expenses incurred by TPIMS as a result of
providing such assistance requested by HPI. Any damages recovered shall be
applied pari passu to out-of-pocket expenses (including, but not limited to any
attorneys fees) incurred by HPI and TPIMS in prosecuting such infringement and
thereafter HPI shall be entitled to retain any remaining damages, provided that
such remaining damages shall be deemed to be included in Net Revenue. In the
event HPI fails to prosecute any such infringement, HPI shall notify TPIMS
promptly in writing and thereafter TPIMS shall have the right to prosecute such
infringement on its own behalf. Any damages or other recovery obtained by TPIMS
shall
20.
<PAGE> 21
first be applied pari passu to out-of-pocket expenses (including, but not
limited to any attorneys fees) incurred by HPI and TPIMS in prosecuting such
infringement. Any remaining recovery shall be retained solely by TPIMS.
ARTICLE VII. OBLIGATIONS RELATED TO COMMERCIALIZATION
7.1 FOREIGN REGISTRATION. HPI agrees to register this Restated Agreement
with a foreign governmental agency whenever required to do so by virtue of HPI's
actions, and HPI agrees to pay all costs and legal fees in connection therewith,
and to otherwise ensure that the local foreign laws affecting this Restated
Agreement are fully satisfied.
7.2 GOVERNMENTAL APPROVALS AND MARKETING OF TPIMS INVENTION PRODUCTS.
HPI shall be responsible for obtaining all necessary governmental approvals for
HPI's development, production, distribution and use of any TPIMS Invention
Product, at HPI's expense, including without limitation, any safety studies. HPI
shall have sole responsibility for any warning labels, packaging, instructions
as to use, and quality control as to such TPIMS Invention Product.
7.3 PRODUCT LIABILITY INDEMNITY. HPI hereby agrees to indemnify and
defend TPIMS and its trustees, officers, employees and scientists from and
against any liability or expense arising from any product liability claim
asserted by any Third Party as to any TPIMS Invention Product or as to the use
of any TPIMS Patent Rights pursuant to rights or obligations of HPI under this
Restated Agreement. Said indemnity and defense obligation shall apply to any
claims made by employees, subcontractors, sublicensees, or other agents of HPI,
as well as any member of the general public. HPI shall use its best efforts to
have TPIMS named as additional insured parties on any products liability
insurance policy maintained by HPI applicable to each TPIMS Invention Product
initiated with the commencement of clinical trials.
7.4 COMMERCIAL DEVELOPMENT OBLIGATION. HPI shall use reasonable efforts
and due diligence to develop the Licensed TPIMS Improvements and the Assigned
TPIMS Technology and the Kiely Technology into one or more commercially feasible
TPIMS Invention Products, as promptly as is reasonably and commercially
feasible. HPI shall keep TPIMS generally informed as to HPI's progress in the
development, including its efforts if any, to sublicense the Licensed TPIMS
Improvements and the Assigned TPIMS Technology and the Kiely Technology by
delivery to TPIMS of an annual written report and such other reports as TPIMS
may reasonably request. If TPIMS has a reasonable basis to believe that HPI is
not using reasonable efforts and due diligence to commercially develop TPIMS
Invention Products, upon notice by TPIMS to HPI which specifies the basis for
such belief, HPI and TPIMS shall negotiate in good faith to attempt to mutually
resolve the issue. In the event TPIMS and HPI cannot agree upon any matter
related to HPI's commercial development obligation hereunder, the parties agree
to utilize dispute resolution pursuant to Section XIII in order to resolve the
matter.
7.5 U.S. MANUFACTURE. To the extent required by applicable United States
law, if at all, HPI agrees that each TPIMS Invention Product to be sold in the
United States will be
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CONFIDENTIAL TREATMENT REQUESTED
manufactured in the United States, or its territories, subject to such waivers
as may be required, if at all, from the U.S. Department of Health and Human
Services, or its designee.
7.6 PATENT MARKING. To the extent required by applicable law, HPI shall
mark all TPIMS Invention Products or their container in accordance with the
patent marking laws of the country in which the TPIMS Invention Products are
manufactured, used or sold.
7.7 NO USE OF NAME. The use of the name "TORREY PINES INSTITUTE FOR
MOLECULAR STUDIES", or any variation thereof, in connection with the advertising
or sale of the TPIMS Invention Product is expressly prohibited without the
written consent of TPIMS.
ARTICLE VIII. WARRANTIES
8.1 WARRANTY OF TITLE: NO OTHER WARRANTIES. Subject to any rights of the
U.S. Government and any rights [CONFIDENTIAL TREATMENT REQUESTED], TPIMS hereby
warrants and represents that it has the full right and power to grant the
exclusive licenses, with the right of sublicense, and the options as set forth
in this Restated Agreement. TPIMS makes no other warranties concerning the TPIMS
Inventions covered by this Restated Agreement. TPIMS makes no expressed or
implied warranty of merchantability or fitness for a particular purpose as to
any TPIMS Invention Product. TPIMS makes no warranty or representation as to the
validity or scope of the TPIMS Patent Rights or that any TPIMS Invention Product
will be free from an infringement of patents of Third Parties, or that no Third
Parties are in any way infringing TPIMS Patent Rights.
ARTICLE IX. INTERESTS IN TPIMS PATENT RIGHTS
9.1 PRESERVATION OF TITLE. Except as otherwise provided in this Restated
Agreement, TPIMS shall retain full ownership and title to the TPIMS Improvements
and TPIMS Know-How and shall use its best efforts to preserve and maintain said
full ownership and title.
9.2 GOVERNMENTAL INTEREST. HPI and TPIMS acknowledge that TPIMS has
received and expects to continue to receive funding from the United States
Government in support of TPIMS research activities. HPI and TPIMS acknowledge
and agree that their respective rights and obligations pursuant to this Restated
Agreement with respect to TPIMS Patent Rights, as applicable, shall be subject
to TPIMS' obligations and the rights of the United States Government, if any,
which arise or result from TPIMS's receipt of research support from the United
States Government.
9.3 RESERVATION OF RIGHTS. All information related to TPIMS Patent
Rights, TPIMS Inventions and TPIMS Know-How shall be confidential information of
TPIMS and shall be held in strict confidence by HPI in accordance with the
provisions of Section 10.1 below.
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ARTICLE X. CONFIDENTIALITY AND PUBLICATION
10.1 CONFIDENTIAL INFORMATION. The parties agree that:
(i) for Confidential Information received during the TPIMS
Research Program Term, that during the TPIMS Research Program Term and for a
period of five (5) years after; and
(ii) for Confidential Information received after the TPIMS
Research Program Term, for a period of five (5) years after disclosure of a
particular item of Confidential Information;
a party receiving Confidential Information of the other party will not use or
disclose such Confidential Information to any Third Party without prior written
consent except with respect to disclosures by HPI or TPIMS to potential
collaborators or partners in which instances (i) consent by the disclosing party
shall not be required and (ii) the receiving party must enter into a
nondisclosure agreement with such potential collaborator containing terms
substantially similar to those contained in this Article 10. Notwithstanding the
above, HPI shall not have the right of disclosure of TPIMS Confidential
Information without prior TPIMS written consent with respect to a TPIMS
Improvement on which HPI has not yet exercised the Option Rights or has declined
to exercise (or failed to exercise within the Option Rights Period) the Option
Rights, provided, however, that HPI shall have no obligation of confidentiality
hereunder with respect to any information related to a Licensed TPIMS
Improvement. A party shall have no obligations with respect to any portion of
such Confidential Information which it can establish by competent proof:
(a) was at the time of disclosure in the public domain;
or
(b) after disclosure, became part of the public domain
by publication or otherwise, except by (i) breach of this Restated Agreement by
the recipient or (ii) disclosure by any Person or Affiliate to whom Confidential
Information was disclosed under this Restated Agreement; or
(c) was (i) in recipient's possession in documentary
form at the time of disclosure by the disclosing party or (ii) independently
developed by or for recipient by people who had no knowledge of or access to the
Confidential Information; or
(d) was received by recipient from a Third Party who
had the lawful right to disclose the Confidential Information and who did not
obtain the Confidential Information either directly or indirectly from the
disclosing party; or
(e) is independently developed by the recipient without
regard to the disclosed Confidential Information; or
(f) is required by law or regulation to be disclosed.
23.
<PAGE> 24
In the event that Confidential Information is required to be
disclosed pursuant to subsection (f), the party required to make disclosure
shall notify the other party to allow that other party to assert whatever
exclusions or exemptions may be available to the other party under such law or
regulation.
10.2 INJUNCTIONS. Each party hereby acknowledges and agrees that in the
event of any breach of Article 10 of this Restated Agreement including, without
limitation, the actual or threatened disclosure of a disclosing party's
Confidential Information without the prior express written consent of the
disclosing party, the disclosing party may suffer an irreparable injury, such
that no remedy at law will afford it adequate protection against, or appropriate
compensation for, such injury. Accordingly, each party hereby agrees that the
other party may be entitled to specific performance of recipient's obligations
under this Restated Agreement as may be granted by a court of competent
jurisdiction, as well as such further injunctive relief as may be granted by a
court of competent jurisdiction.
10.3 PUBLICATIONS. The parties agree that each party shall have a right
to publish. However, prior to publication, a party proposing to publish shall
submit to the other party copies of proposed publications which contain subject
matter relating to HPI Improvements, TPIMS Inventions, or a TPIMS Invention
Product, and afford the other party thirty (30) days to review the publications.
Upon such timely written request by the other party, the party proposing to
publish shall delay any such publication, not to exceed an additional thirty
(30) days, to permit the preparation and filing of a patent application pursuant
to Section 6.1. Notwithstanding the above provisions of Section 10.3, (i) TPIMS
shall have no right to review or request a delay in publication with respect to
intended publications that discuss a TPIMS Invention Product but do not discuss
TPIMS Inventions and (ii) HPI shall have no right to publish any information
provided by TPIMS to HPI which is not a TPIMS Invention. HPI shall be entitled
to prohibit the publication of any HPI Confidential Information and any
information related to or describing an HPI Improvement.
10.4 PUBLICITY. Except as otherwise provided herein or required by law,
no party shall originate any publication, news release or other public
announcement, written or oral, whether in the public press, or stockholders'
reports, or otherwise, relating to this Restated Agreement or to the performance
under this Restated Agreement, without the prior written approval of the other
party, which approval shall not be unreasonably withheld. Notwithstanding the
prior sentence, HPI shall not be obligated to obtain TPIMS approval for any
announcements regarding TPIMS Invention Products or screening collaborations
targeted to the identification of TPIMS Invention Products unless such TPIMS
Invention Product contains a TPIMS Invention.
ARTICLE XI. TERM AND TERMINATION
11.1 EXPIRATION IF THERE IS NO TECHNOLOGY WORKPLAN. In the event the
parties fail prior to January 15, 1998, to reach agreement on the Technology
Workplan, and unless terminated earlier in accordance with the terms herein,
Article III (except Section 3.3) and Sections 4.1, 4.2, 4.3 and 4.4 of this
Restated Agreement shall terminate as of July 14, 1998. HPI shall continue to
fund research at TPIMS through April 14, 1998 in the previously agreed
24.
<PAGE> 25
upon amount. During the period April 15, 1998 through July 14, 1998, HPI shall
fund research at TPIMS in an amount equal to 120% of the amount which HPI funded
TPIMS for the ninety (90) day period immediately preceding written notice to
TPIMS of termination.
11.2 EXPIRATION IF THERE IS A TECHNOLOGY WORKPLAN. In the event the
parties reach agreement on the Technology Workplan prior to January 15, 1998,
and unless terminated earlier in accordance with the terms herein, Article III
(except Section 3.3) and Sections 4.1, 4.2, 4.3 and 4.4 of this Restated
Agreement shall terminate on April 14, 2001. It is understood that during the
period from April 15, 2000 to April 14, 2001, no funding under Section 3.1 shall
be due from HPI, but HPI shall continue to have rights as set forth in this
Restated Agreement to TPIMS Inventions during such one-year period.
11.3 EARLY TERMINATION. During the period April 15, 1998 through January
15, 1999, HPI shall be entitled to voluntarily terminate Article III (except
Section 3.3) and Sections 4.1, 4.2, 4.3 and 4.4 of this Restated Agreement as of
July 14, 1999. HPI shall continue to fund research at TPIMS through April 14,
1999, in the previously agreed upon amount. During the period April 15, 1999,
through July 14, 1999, HPI shall fund research at TPIMS in an amount equal to
120% of the amount which HPI funded TPIMS for the ninety (90) day period
immediately preceding written notice to TPIMS of termination. Notwithstanding
anything else in this Restated Agreement, in the event HPI terminates Article
III (except Section 3.3) and Sections 4.1, 4.2, 4.3 and 4.4 of this Restated
Agreement pursuant to this Section 11.3, and TPIMS has met each of the research
milestones set forth in the Technology Workplan which, according to the
Technology Workplan, were to have been met prior to such termination date, then
TPIMS shall have the right to terminate immediately the licenses to all Licensed
TPIMS Inventions and Licensed TPIMS Know-How disclosed by TPIMS to HPI on or
after April 15, 1998 and HPI will have no ongoing rights in such Licensed TPIMS
Technology and Licensed TPIMS Know-How.
11.4 TERMINATION UPON DEFAULT. In the event of material default by a
party ("Defaulting Party"), the other party ("Non-Defaulting Party") may give
the Defaulting Party written notice of the default and the election to terminate
this Restated Agreement within sixty (60) days after receipt of the notice if,
within said time period, the Defaulting Party fails to resolve the material
default by (i) curing the default, (ii) providing a written explanation
satisfactory to the Non-Defaulting Party that a default has not occurred, or
(iii) entering into a written agreement with the Non-Defaulting Party for the
cure or other resolution of the default. Upon failure of the Defaulting Party to
resolve the default as required, the Non-Defaulting Party may terminate this
Restated Agreement by giving written notice to the Defaulting Party, said
termination to be effective upon the date specified in the notice. In the event
such termination is as a result of a material default by HPI with respect to a
given part of the Assigned TPIMS Technology or the Kiely Technology, HPI shall,
upon the termination date, be deemed to have assigned back to TPIMS, for no
additional consideration, all right, title and interest in and to that part of
the Assigned TPIMS Technology and the Kiely Technology with respect to which the
material default occurred and HPI shall have no further rights in such
technology, except as is set forth in the following sentence. It is understood
that, upon such reassignment, (i) TPIMS shall continue to be entitled to the
amounts set forth in Section 2.2 and (ii) HPI shall have a non-
25.
<PAGE> 26
exclusive license, under such reassigned technology, to make, use, sell, offer
for sale or import any product or process.
Such termination rights shall be in addition to and not in substitution
for any other remedies that may be available to the party serving such notice
against the party in default. Termination pursuant to this section shall not
relieve the party in default from liability and damages to the other party for
breach of this Restated Agreement. Waiver by either party of a single default or
a succession of defaults shall not deprive such party of any right to terminate
this Restated Agreement arising by reason of any subsequent default.
11.5 TERMINATION UPON BANKRUPTCY. This Restated Agreement may be
terminated by either party giving written notice of termination to the other
party upon the bankruptcy of said other party or the appointment of a receiver
of any of the party's assets, or the making by the party of any assignment for
the benefit of creditors, or the institution of any proceedings against the
party under any bankruptcy law. Termination shall be effective upon the date
specified in this notice. To the extent permitted by law, in the event of the
bankruptcy of HPI, or the appointment of a receiver of HPI's assets, or the
making by HPI of any assignment for the benefit of creditors, or the institution
of any proceedings against HPI under any bankruptcy law, HPI shall immediately
assign back to TPIMS all right, title and interest in the Assigned TPIMS
Technology and the Kiely Technology.
11.6 RIGHTS UPON EXPIRATION OF ARTICLE III AND SECTIONS 4.1, 4.2, 4.3
AND 4.4. Subject to Sections 11.3 and 11.4, any licenses (and all payment,
reporting and other obligations of HPI and TPIMS relating thereto) which were
granted prior to the expiration or early termination date of Article III (except
Section 3.3) and Sections 4.1, 4.2, 4.3 and 4.4, pursuant to Section 11.1, 11.2
or 11.3, shall survive such expiration or early termination date. Except as
otherwise provided in this Restated Agreement, upon such expiration or early
termination, HPI shall have no right to license, sublicense, develop,
manufacture or market any TPIMS Improvement, TPIMS Know-How or TPIMS Patent
Rights for which an option, as provided for in Section 4.1 of this Restated
Agreement, had not been exercised prior to such expiration. Upon such expiration
or early termination, HPI shall promptly return all materials, samples,
documents, information, and other matter which embody or disclose the TPIMS
Patent Rights, including TPIMS Improvements, which were not licensed under this
Restated Agreement; provided, however, HPI shall not be obligated to provide
TPIMS with proprietary information which HPI can show that it independently
developed. Any such expiration or early termination shall not relieve either
party from any obligations accrued to the date of such expiration or early
termination.
11.7 EFFECT OF TERMINATION. Expiration or termination of this entire
Restated Agreement shall not deprive any party of any right nor relieve a party
of any obligation accruing prior to such expiration or termination. The
provisions of Section 5.9 and Article X shall survive the expiration or earlier
termination of this Restated Agreement.
26.
<PAGE> 27
ARTICLE XII. ASSIGNMENT; SUCCESSORS
12.1 ASSIGNMENT. This Restated Agreement may not be assigned or
otherwise transferred, nor, except as expressly provided in this Restated
Agreement, may any right or obligations hereunder be assigned or transferred by
either party without the express written consent of the other party; provided,
however, that (a) HPI may, without such consent, assign this Restated Agreement
and its rights and obligations hereunder in connection with the transfer or sale
of all or substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction; and (b) HPI may,
without such consent, assign or transfer this Restated Agreement or its rights
and obligations hereunder, in whole or in part, to any Third Party which, before
giving effect to such assignment or transfer, has total assets and total cash
reserves attributable to its pharmaceutical and life sciences businesses of not
less than $6,292,165 and $4,146,704 respectively. Any purported assignment or
transfer in violation of this Section 12.1 shall be void. Any permitted assignee
shall assume all obligations of its assignor under this Restated Agreement.
12.2 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to the limitations on
assignment herein, this Restated Agreement shall be binding upon and inure to
the benefit of said successors in interest and assigns of TPIMS and HPI. Any
such successor or assign in a party's interest shall expressly assume in writing
the performance of all the terms and conditions of this Restated Agreement to be
performed by said party.
ARTICLE XIII. MEDIATION AND ARBITRATION
13.1 NEGOTIATION. In the event of any dispute, claim, question, or
disagreement arising out of or relating to this Restated Agreement or the breach
thereof, HPI and TPIMS first shall attempt in good faith to resolve any
controversy by negotiation. The negotiation process shall be started by written
notice by any party to the other party and the parties agree to negotiate in
good faith. To this effect, senior management shall consult and negotiate with
each other in good faith and, recognizing their mutual interests, attempt to
reach a just and equitable solution satisfactory to both parties. Such
negotiation shall include a direct discussion between the Chief Executive
Officer (CEO) of HPI and the President of TPIMS for a minimum of four (4) hours.
Each party may have legal counsel in attendance to present their respective
positions.
13.2 NO LITIGATION. No mediation nor arbitration may be commenced by any
party unless and until a negotiation complying with Section 13.1 has been
completed, and, except as contemplated by Section 10.2 hereof, no litigation or
other proceeding may ever be instituted in any court for the purpose of
adjudicating, interpreting or enforcing any of the rights or obligations of the
parties hereto or any rights or obligation relating to the subject matter
hereof, whether or not covered by the express terms of this Restated Agreement,
or for the purpose of adjudicating a breach or termination or the validity of
this Restated Agreement, or for the purpose of appealing any decision of an
arbitrator, except a proceeding instituted for the sole purpose of having the
award or judgment of an arbitration entered and enforced.
27.
<PAGE> 28
13.3 MEDIATION. If said dispute cannot be settled through direct
discussion within a period of thirty (30) days from the written notice specified
in Section 13.1, the parties agree to first endeavor to settle the dispute in an
amicable manner by mediation under the Commercial Mediation Rules of the
American Arbitration Association before resorting to arbitration, such mediation
to take place in San Diego, California. Each party will bear their own legal
expenses and equitably share any costs incurred in the mediation process.
13.4 BINDING ARBITRATION. Following efforts pursuant to Section 13.1 and
13.3 hereof, any unresolved controversy or claim arising out of or relating to
this contract or breach thereof, shall be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the Award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The arbitrator(s) will be
selected from a panel of persons having experience with and knowledge of
biotechnology, and at least one of the arbitrators selected will be an attorney.
Neither party nor the arbitrator(s) may disclose the existence, content, or
results of any arbitration hereunder without the prior written consent of both
parties.
13.5 ARBITRATION TIMING. Within three (3) months from the date of
request for arbitration, the parties will each submit a written brief of their
position and within twenty (20) days thereafter a written reply brief will be
submitted. The arbitrator shall have the discretion to order a pre-hearing
exchange of information by the parties, including, without limitation,
production of requested documents, exchange of summaries of testimony of
proposed witnesses, and examination by deposition of parties, provided, however,
that discovery shall be limited to four (4) months. A hearing will be scheduled
within thirty (30) days after the reply brief is due and each party will be
permitted up to two (2) days of hearings and each will have the right of
cross-examination. Each party will have thirty (30) minutes for closing
arguments and ten (10) days to submit a post hearing brief. The arbitrator(s)
will render a decision within thirty (30) days of receiving the post hearing
briefs. The decision of the arbitrator(s) will be final, binding and
non-appealable.
The arbitration shall be held in San Diego, California, or at such other
place as may be selected by mutual agreement. All fees and expenses of the
arbitration shall be borne by the parties equally. However, each party shall
bear the expense of its own counsel, experts, witnesses, and preparation and
presentation of proofs.
ARTICLE XIV. GENERAL PROVISIONS
14.1 INDEPENDENT CONTRACTORS. The relationship between TPIMS and HPI is
that of independent contractors. TPIMS and HPI are not joint venturers,
partners, principal and agent, master and servant, employer or employee, and
have no other relationship other than independent contracting parties. TPIMS
shall have no power to bind or obligate HPI in any manner, other than as is
expressly set forth in this Restated Agreement. Likewise HPI shall have no power
to bind or obligate TPIMS in any manner, other than as is expressly set forth in
this Restated Agreement.
28.
<PAGE> 29
14.2 AGREEMENT; MODIFICATION. This Restated Agreement sets forth the
entire agreement and understandings between the parties as to the subject
matters set forth in said Restated Agreement. Except as described in Section
2.3, there are no prior understandings, agreements or representations between
the parties relating to the subject matter of this Restated Agreement and this
Restated Agreement supersedes all prior understandings, agreements and
representations between the parties. There shall be no amendments or
modifications to this Restated Agreement, except by a written document which is
signed by both parties.
14.3 CALIFORNIA LAW. This Restated Agreement shall be construed and
enforced in accordance with the laws of the State of California.
14.4 HEADINGS. The headings for each article and section in this
Restated Agreement have been inserted for the convenience of reference only and
are not intended to limit or expand on the meaning of the language contained in
the particular article or section.
14.5 SEVERABILITY. If any provision of this Restated Agreement is
ultimately held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
14.6 NO WAIVER. Any delay in enforcing a party's rights under this
Restated Agreement or any waiver as to a particular default or other matter
shall not constitute a waiver of such party's rights to the future enforcement
of its rights under this Restated Agreement, excepting only as to an express
written and signed waiver as to a particular matter for a particular period of
time.
14.7 NAME. Whenever there has been an assignment or a sublicense as
permitted by this Restated Agreement, the terms "TPIMS" and "HPI" as used in
this Restated Agreement shall also include and refer to such assignee and
sublicensee.
14.8 NOTICES. Any notices given pursuant to this Restated Agreement
shall be in writing and shall be deemed delivered upon the earlier of (i) when
received at the address set forth below, or (ii) three (3) business days after
mailed by certified mail in the United States mail, postage prepaid and properly
addressed, with return receipt requested. Notices shall be delivered to the
respective parties as indicated:
FOR TPIMS: Torrey Pines Institute for Molecular Studies
3550 General Atomics Court
San Diego, California 92121
Attention: President
FOR HPI: Houghten Pharmaceuticals, Inc.
3550 General Atomics Court
San Diego, California 92121
Attention: President
29.
<PAGE> 30
14.9 COMPLIANCE WITH U.S. LAWS. Nothing contained in this Restated
Agreement shall require or permit TPIMS or HPI to do any act inconsistent with
the requirements of any United States law, regulation or executive order as the
same may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed this Restated Agreement as
of the date set forth above.
TORREY PINES INSTITUTE FOR HOUGHTEN PHARMACEUTICALS, INC.
MOLECULAR STUDIES
By:/s/ Richard A. Houghten By:/s/ Robert S. Whitehead
------------------------------- ---------------------------------
Name: Richard A. Houghten Name: Robert S. Whitehead
---------------------------- ------------------------------
Title: President Title: President and Chief Executive
--------------------------- Officer
-----------------------------
EXHIBITS
Exhibit A -- TPIMS Technology
Exhibit B -- Assigned TPIMS Technology
Exhibit C -- HPI Technology
Exhibit D -- TPIMS Research Program (First Year)
Exhibit E -- Kiely Technology
Exhibit F -- Retained Technology
30.
<PAGE> 31
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TPIMS TECHNOLOGY
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 32
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
ASSIGNED TPIMS TECHNOLOGY
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 33
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
HPI TECHNOLOGY
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 34
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
TPIMS RESEARCH PLAN
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 35
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
KIELY INVENTIONS
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 36
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT F
RETAINED TPIMS TECHNOLOGY
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 1
Exhibit 10.2
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT REQUESTED: PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED ARE MARKED "CONFIDENTIAL TREATMENT REQUESTED" AND APPROPRIATE
SECTIONS, WHERE TEXT HAS BEEN OMITTED, ARE NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
6/10/97
RESEARCH AND DEVELOPMENT AGREEMENT
THIS RESEARCH AND DEVELOPMENT AGREEMENT dated as of June 18, 1997 (the
"Agreement"), is entered into between TREGA BIOSCIENCES, INC., a Delaware
corporation ("TREGA"), having a place of business at 3550 General Atomics Court,
San Diego, California 92121, U.S.A., and ONO PHARMACEUTICAL CO., LTD., a
Japanese corporation ("ONO"), having a place of business at 1-5 Doshomachi,
2-chome, Chuo-ku, Osaka 541, Japan.
W I T N E S S E T H:
WHEREAS, TREGA possesses pharmaceutical drug discovery technologies
using certain combinatorial libraries, in vivo and in vitro assays, and
synthesis and high-throughput screening technologies which, when applied, may
reduce the time and expense of identifying and developing potentially useful
compounds for the diagnosis, prevention, treatment and monitoring of diseases,
states and conditions in humans, and has established certain technologies that
may enable it to discover and identify orally active small molecules to modulate
the production of [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL TREATMENT
REQUESTED] by specifically and selectively binding to melanocortin receptor 1.
WHEREAS, ONO desires to have TREGA conduct a research program to attempt
to identify such compounds, and to gather data and information which may be
useful to develop such compounds for medical use in humans.
WHEREAS, TREGA and ONO desire to utilize such technologies, compounds,
assays, data and information resulting from such research program to develop and
commercialize products for medical use in humans.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person. A Person shall be regarded as in control of another
Person if it owns, or directly or indirectly controls, greater than fifty
-1-
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
percent (50%) of the voting stock or other ownership interest of the other
Person (or greater than forty percent (40%) in those jurisdictions where
majority ownership by foreign Persons is prohibited), or if it directly or
indirectly possesses the power to direct or cause the direction of the
management and policies of the other Person by any means whatsoever.
1.2 "Benchmarks" shall mean the benchmarks as set forth in Exhibit A
attached to this Agreement. They are further defined as [CONFIDENTIAL TREATMENT
REQUESTED] Benchmarks which shall mean the benchmarks at the [CONFIDENTIAL
TREATMENT REQUESTED] following the Effective Date and as [CONFIDENTIAL TREATMENT
REQUESTED] Benchmarks which shall mean the benchmarks at the [CONFIDENTIAL
TREATMENT REQUESTED] following the Effective Date.
1.3 "Development Period" shall mean that period of time commencing with
ONO's choice of a Research Lead Compound for further pre-clinical and clinical
development by it pursuant to Section 6.1 herein and ending upon the earlier of
(i) termination of this Agreement pursuant to Section 11.2 herein or (ii)
marketing approval of Licensed Product in Japan.
1.4 "Effective Date" shall mean the date of the execution of this
Agreement by both parties as of the date written on the first page of this
Agreement.
1.5 "Europe" shall mean those member states of the European Union at the
time of the first NDA approval in any such member state, Norway and Switzerland.
1.6 "First Commercial Sale" shall mean, with respect to any Licensed
Product, the first sale for use or consumption by the general public of such
Licensed Product.
1.7 "IND" shall mean an Investigational New Drug notification filed with
the Koseisho, or its equivalent filed with the governing health authority in any
other country in the ONO Territory.
1.8 "Koseisho" shall mean the Japanese governmental agency responsible
for the review and approval of therapeutic or diagnostic products intended for
human use or its successor.
1.9 "Licensed Products" shall mean those ethical pharmaceutical products
comprised of, containing, or developed through the use of, or manufactured using
any of the Research Lead Compounds or TREGA Post Research Period Compounds,
whether modified, derivatized, or otherwise related thereto.
1.10 "Modified Compound" shall mean with respect to the Research Period
or thereafter any chemical substance prepared by ONO, which modulates the
production of [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL TREATMENT
REQUESTED] by binding selectively to melanocortin receptor 1, using chemical
synthesis through use of the TREGA Technology or
-2-
<PAGE> 3
CONFIDENTIAL TREATMENT REQUESTED
the TREGA Material including derivatives which are structurally similar to a
TREGA Material in that it is a Homolog, Isomer, Bioisostere, Analog or derived
from a TREGA Material requiring more than a [CONFIDENTIAL TREATMENT REQUESTED]
transformation (e.g. (i) [CONFIDENTIAL TREATMENT REQUESTED]; (ii) [CONFIDENTIAL
TREATMENT REQUESTED]; (iii) [CONFIDENTIAL TREATMENT REQUESTED]; (iv)
[CONFIDENTIAL TREATMENT REQUESTED]; and (v) [CONFIDENTIAL TREATMENT REQUESTED];
"Analog" herein shall mean a substance differing from a TREGA Material by
replacement of a [CONFIDENTIAL TREATMENT REQUESTED] by an analogous element
(i.e. [CONFIDENTIAL TREATMENT REQUESTED] vice versa, one [CONFIDENTIAL TREATMENT
REQUESTED] for another, a [CONFIDENTIAL TREATMENT REQUESTED], and [CONFIDENTIAL
TREATMENT REQUESTED], or [CONFIDENTIAL TREATMENT REQUESTED] in an aromatic
ring), "Bioisostere" herein shall mean the interchange of [CONFIDENTIAL
TREATMENT REQUESTED], [CONFIDENTIAL TREATMENT REQUESTED], [CONFIDENTIAL
TREATMENT REQUESTED] and [CONFIDENTIAL TREATMENT REQUESTED] group and other well
established bioisosteric interchanges and "Homolog" herein shall mean a compound
differing from a TREGA Material by a [CONFIDENTIAL TREATMENT REQUESTED] or
[CONFIDENTIAL TREATMENT REQUESTED].
1.11 "NDA" shall mean the application required to be filed with the
Koseisho for approval to market a product for the treatment of humans or such
other essentially equivalent product license application filed with the
governing health authority in any other country.
1.12 "Net Sales" shall mean, with respect to any Licensed Product, the
invoiced sales price of such Product billed to independent customers who are not
Affiliates, less to the extent included in the invoiced sales price, (a)
credits, allowances, discounts and rebates to, and chargebacks from the account
of, such independent customers (b) any deductions for spoiled, damaged,
out-dated, and returned but not replaced Licensed Product; (c) actual
contributions made by ONO to the Japanese Fund for Sufferers for Adverse Drug
Events, but not to exceed [CONFIDENTIAL TREATMENT REQUESTED] of what would be
Net Sales without giving effect to this section 1.12(b); (d) actual freight and
insurance costs incurred in transporting such Licensed Product in final form to
such customers; (e) cash, quantity and trade discounts and other price reduction
programs; (f) sales, use, value-added and other direct taxes incurred; and (g)
customs duties, surcharges and other governmental charges incurred in connection
with the exportation or importation of such Licensed Product in final form.
1.13 "ONO Know-How" shall mean all information and data, which is
possessed, owned by or licensed (other than by TREGA) to ONO during the Research
Period and Development Period, is not generally known (including, but not
limited to, formulae, procedures, protocols, techniques and results of
pre-clinical and clinical experimentation and testing), and is necessary or
useful to conduct screening or to develop, make, use, sell, offer for sale,
import or seek regulatory approval in the TREGA Territory to market a Licensed
Product; all to the extent and only to the
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<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
extent that ONO now has or hereafter will have the right to grant licenses,
immunities or other rights thereunder. ONO Know-How shall exclude all
information and data (including, but not limited to, formulae, procedures,
protocols, techniques and results of experimentation and testing) related to the
creation, assembly, generation, synthesis or manipulation of the ONO Libraries
and compounds (other than those embodied in the Research Lead Compounds).
1.14 "ONO Library" shall mean a collection of compounds owned by or
licensed to ONO and submitted by ONO to TREGA for screening pursuant to Section
3.2 herein and accepted by TREGA for such purpose hereunder.
1.15 "ONO Materials" shall mean any item provided hereunder by ONO to
TREGA and its affiliates or to third parties at the behest of ONO.
1.16 "ONO Mimetic Compound" shall mean a compound (other than
Preclinical Lead Compound Candidates) which meets [CONFIDENTIAL TREATMENT
REQUESTED] Benchmarks, modulates the production of [CONFIDENTIAL TREATMENT
REQUESTED] and [CONFIDENTIAL TREATMENT REQUESTED] by binding selectively to
melanocortin receptor 1 and is directly or indirectly conceived, designed,
synthesized or developed by ONO, its Affiliates or (sub)licensees and
incorporates, uses, is the result of, is based upon, is derived from or by use
of, or is a by-product of the TREGA Technology or the ONO Technology or a
biological receptor characterized in whole or in part by use of the TREGA
Technology or the ONO Technology.
1.17 "ONO Patent Rights" shall mean (a) all patent applications
heretofore or hereafter filed or having legal force in any country owned by or
licensed to ONO (other than by TREGA) or to which ONO otherwise acquires rights,
which claim (i)any compounds identified, conceived or derived from or through
the use of the ONO Libraries; or (ii) ONO Mimetic Compounds or (iii) the use or
the manufacturing process of the compositions described in clauses (i) and (ii)
above ; or (iv) the ONO Improvements pursuant to Section 10.1 herein, together
with any and all patents that have issued or in the future issue therefrom,
including utility, model and design patents and certificates of invention, and
(b) all divisionals, continuations, continuations-in-part, reissues, renewals,
extensions or additions to any such patents and patent applications; all to the
extent and only to the extent that ONO now has or hereafter will have the right
to grant licenses, immunities or other rights thereunder. Notwithstanding the
foregoing, "ONO Patent Rights" shall exclude all technology, information, patent
rights, methods, processes and all intellectual property rights related to the
generation, assembly, synthesis, creation or manipulation of the ONO Libraries
and compounds (other than the Research Lead Compounds) and iterations therefrom.
1.18 "ONO Research and Development Results" shall mean the information
and data resulting from work done solely by ONO, its
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<PAGE> 5
CONFIDENTIAL TREATMENT REQUESTED
Affiliates, or Persons on behalf of ONO relating directly or indirectly to the
Research Lead Compounds, during the Research Period and the Development Period
including, but not limited to, work done to confirm or complement the Research
Work in respect of the Research Lead Compounds and all pre-clinical, clinical,
manufacturing, and formulation and evaluation work done in respect of the
Research Lead Compounds and Licensed Products.
1.19 "ONO Royalty Term" shall mean, with respect to each Licensed
Product in each country in the ONO Territory, the period of time equal to
[CONFIDENTIAL TREATMENT REQUESTED] until the expiration of the last TREGA Valid
Patent Claim if the manufacture, use or sale of such Licensed Product in such
country was covered by a TREGA Valid Patent Claim, the term for which such TREGA
Valid Patent Claim was in effect and would, if in an issued patent, be infringed
but for the license granted by this Agreement.
1.20 "ONO Technology" shall mean, collectively, the ONO Patent Rights,
the ONO Know-How, and the ONO Research and Development Results.
1.21 "ONO Territory" shall mean the countries of Japan, Taiwan, China
and South Korea.
1.22 "ONO Valid Patent Claim" shall mean either (a) a claim of an issued
and unexpired patent included within the ONO Patent Rights, which has not been
held permanently revoked, unenforceable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be
invalid or unenforceable through reissue or disclaimer or otherwise or (b) a
claim of a pending patent application included within the ONO Patent Rights,
which claim was filed in good faith and has not been abandoned or finally
disallowed without the possibility of appeal or refiling of such application.
1.23 "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
1.24 "Preclinical Lead Compound Candidate" shall mean any and all
compounds satisfying the [CONFIDENTIAL TREATMENT REQUESTED] Benchmarks which
modulate the production of [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL
TREATMENT REQUESTED] by binding selectively to melanocortin receptor 1 and which
TREGA presents in accordance with Sections 3.1 and 3.3 herein without prejudice
to ONO's right provided in Section 3.3.2 herein.
1.25 "Research Lead Compound" shall mean, collectively,
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<PAGE> 6
Preclinical Lead Compound Candidates, Modified Compounds, ONO Mimetic Compounds
and TREGA Post-Research Period Compounds.
1.26 "Research Period" shall mean the period commencing on the Effective
Date and expiring on the second anniversary thereof, subject to ONO's earlier
right of termination set forth in Section 11.2.2, and further subject to
extension upon mutual agreement of the parties.
1.27 "Research Work" shall mean the screening, testing, evaluation, and
other activities conducted solely by TREGA, its Affiliates, or Persons acting on
behalf of TREGA during the Research Period, as set forth in the Research Plan
attached hereto as Exhibit A as hereafter modified.
1.28 "Third Party" shall mean any Person other than TREGA, ONO and their
respective Affiliates.
1.29 "TREGA Assays" shall mean those certain assays and the protocols,
data, methods, information, know-how and materials relating thereto which are
owned by or licensed to TREGA as of the Effective Date or during the Research
Period, as listed on Exhibit A hereto and hereafter modified.
1.30 "TREGA Know-How" shall mean the information and data which is
possessed, owned by or licensed (other than by ONO) to TREGA during the Research
Period and Development Period, is not generally known (including, but not
limited to, formulae, procedures, protocols, techniques, and results of
experimentation and testing), and is necessary or useful to conduct screening or
to develop, make, use, sell, offer for sale, import, or seek regulatory approval
to market a Licensed Product in the ONO Territory; all to the extent and only to
the extent that TREGA now has or hereafter acquires the right to grant licenses,
immunities, or other rights thereunder. TREGA Know-How shall exclude all
information and data (including, but not limited to, formulae, procedures,
protocols, techniques and results of experimentation and testing) related to the
creation, assembly, generation, synthesis or manipulation of the TREGA Libraries
and compounds (other than those embodied in the Research Lead Compounds).
1.31 "TREGA Libraries" shall mean those certain synthetic compound
libraries owned by or licensed to TREGA as of the Effective Date and during the
Research Period, each of which comprises a group of compounds having defined
permutations of one or more selected structural components of such compounds;
all to the extent and only to the extent that TREGA now has or hereafter will
have the right to grant licenses, immunities or other rights to ONO thereunder;
provided however, that TREGA Libraries shall not include (a) libraries initially
developed by Third Parties without a license from TREGA or its Affiliates or
licensees, using means other than those used by TREGA prior to the Effective
Date, and which are acquired by TREGA as part of the acquisition of such
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<PAGE> 7
CONFIDENTIAL TREATMENT REQUESTED
Third Party's on-going business; nor (b) any TREGA libraries that have been or
are hereafter developed by TREGA in the first instance as an internal or
external custom project under a written agreement with a Third Party which
provides that such Third Party shall have the exclusive rights to such custom
library.
1.32 "TREGA Materials" shall mean any item provided hereunder by TREGA
to ONO and its Affiliates or to Third Parties by TREGA at the behest of ONO.
1.33 "TREGA Post-Research Period Compound" shall mean a compound (other
than Preclinical Lead Compound Candidates) which meets [CONFIDENTIAL TREATMENT
REQUESTED] Benchmarks and modulates the production of [CONFIDENTIAL TREATMENT
REQUESTED] and [CONFIDENTIAL TREATMENT REQUESTED] by binding selectively to
melanocortin receptor 1, is directly or indirectly conceived, designed,
synthesized or developed by TREGA or its Affiliates within [CONFIDENTIAL
TREATMENT REQUESTED] years after the Research Period and incorporates, uses, is
the result of, is based upon, is derived from or by use of, or is a by-product
of the TREGA Technology or the ONO Technology or a biological receptor
characterized in whole or in part by use of the TREGA Technology or the ONO
Technology but only to the extent that TREGA has the right to sublicense the
same.
1.34 "TREGA Patent Rights" shall mean (a) all patent applications
heretofore or hereafter filed or having legal force in any country owned by or
licensed to TREGA (other than by ONO) or to which TREGA otherwise acquires
rights, which claim (i) the TREGA Assays, the TREGA Libraries, or any compounds
identified, conceived or derived from or through the use of such TREGA Assays or
TREGA Libraries; or (ii) TREGA Post-Research Period Compounds; or (iii) the use
or the manufacturing process of the compositions described in clauses (i) and
(ii) above or (iv) TREGA Improvements pursuant to Section 10.1 herein, together
with any and all patents that have issued or in the future issue therefrom,
including utility, model and design patents and certificates of invention, and
(b) all divisionals, continuations, continuations-in-part, reissues, renewals,
extensions or additions to any such patents and patent applications; all to the
extent and only to the extent that TREGA now has or hereafter will have the
right to grant licenses, immunities or other rights thereunder. Notwithstanding
the foregoing, "TREGA Patent Rights" shall exclude all technology, information,
patent rights, methods, processes and all intellectual property rights related
to the generation, assembly, synthesis, creation or manipulation of the TREGA
Libraries and compounds (other than the Research Lead Compounds) and iterations
therefrom.
1.35 "TREGA Research Results" shall mean the information and data
resulting from the Research Work done solely by TREGA, its Affiliates or Persons
on behalf of TREGA relating directly or indirectly to the Research Lead
Compounds during the Research Period; all to the extent and only to the extent
that TREGA now has or hereafter acquires the right to grant licenses,
immunities, or other rights thereunder. TREGA Research Results shall exclude
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<PAGE> 8
CONFIDENTIAL TREATMENT REQUESTED
all information and data (including, but not limited to, formulae, procedures,
protocols, techniques and results of experimentation and testing) related to the
creation, assembly, generation, synthesis or manipulation of TREGA Libraries and
compounds (other than those embodied in Research Lead Compounds).
1.36 "TREGA Royalty Term" shall mean, with respect each Licensed Product
in each country in the TREGA Territory, the period of time equal to
[CONFIDENTIAL TREATMENT REQUESTED] until the expiration of the last ONO Valid
Patent Claim if the manufacture, use or sale of such Licensed Product in such
country was covered by an ONO Valid Patent Claim, the term for which such ONO
Valid Patent Claim was in effect and would, if in an issued patent, be infringed
but for the license granted by this Agreement.
1.37 "TREGA Technology" shall mean, collectively, the TREGA Patent
Rights, the TREGA Know-How and the TREGA Research Results.
1.38 "TREGA Territory" shall mean all of the countries of the world not
included in the ONO Territory or Europe.
1.39 "TREGA Valid Patent Claim" shall mean either (a) a claim of an
issued and unexpired patent included within the TREGA Patent Rights, which has
not been held permanently revoked, unenforceable or invalid by a decision of a
court or other governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, and which has not been admitted
to be invalid or unenforceable through reissue or disclaimer or otherwise or (b)
a claim of a pending patent application included within the TREGA Patent Rights,
which claim was filed in good faith and has not been abandoned or finally
disallowed without the possibility of appeal or refiling of such application.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as follows:
2.1 Existence and Power. Such party (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction where it is
organized; (b) has the requisite power and authority and the legal right to own
and operate its property and assets, to lease the property and assets it
operates under lease, and to carry on its business as it is now being conducted,
and (c) is in compliance with all requirements of applicable law, except to the
extent that any noncompliance would not have a
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<PAGE> 9
material adverse effect on the properties, business, financial or other
condition of such party and would not materially adversely affect such party's
ability to perform its obligations under this Agreement.
2.2 Authorization and Enforcement of Obligations. Such party (a) has the
requisite power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder, and (b) has taken all necessary action
on its part to authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder. This Agreement has been duly executed
and delivered on behalf of such party, and constitutes a legal, valid, binding
obligation, enforceable against such party in accordance with its terms.
2.3 Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other Persons required to be obtained by such
party in connection with this Agreement have been obtained.
2.4 No Conflict. The execution and delivery of this Agreement and the
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of such
party.
2.5 DISCLAIMER OF WARRANTIES.
2.5.1 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION
MADE OR WARRANTY GIVEN BY EITHER PARTY THAT ANY PATENT WILL ISSUE BASED UPON ANY
PENDING PATENT APPLICATION WITHIN EITHER PARTY'S PATENT RIGHTS, THAT ANY PATENT
WITHIN EITHER PARTY'S PATENT RIGHTS WHICH ISSUES WILL BE VALID, OR THAT THE USE
OF ANY EITHER PARTY'S MATERIALS OR ANY EITHER PARTY'S TECHNOLOGY WILL NOT
INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER PERSON.
2.5.2 THE TREGA MATERIALS ARE PROVIDED BY TREGA "AS IS" AND WITHOUT
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE
WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR
WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES. IN NO
EVENT WILL TREGA OR ANY OF ITS THIRD PARTY LICENSORS WHOSE TECHNOLOGY IS
UTILIZED IN PROVIDING TREGA MATERIALS HEREUNDER BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE LICENSE RIGHTS
BY ONO HEREUNDER OR USE OF THE TREGA MATERIALS OR ANY LICENSED PRODUCTS.
2.5.3 THE ONO MATERIALS ARE PROVIDED BY ONO "AS IS" AND WITHOUT
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
THE WARRANTIES OF DESIGN, MERCHANTABILITY,
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CONFIDENTIAL TREATMENT REQUESTED
FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES OR WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR
TRADE PRACTICES. IN NO EVENT WILL ONO OR ANY OF ITS THIRD PARTY LICENSORS WHOSE
TECHNOLOGY IS UTILIZED IN PROVIDING ONO LIBRARIES HEREUNDER BE LIABLE FOR ANY
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE
LICENSE RIGHTS BY TREGA HEREUNDER OR USE OF THE ONO MATERIALS OR ANY LICENSED
PRODUCTS.
2.6 TREGA hereby represents that it has acquired a non-exclusive
license to a U.S. patent entitled DNA Encoding Melanocyte Stimulating
Hormone Receptor (Cone et al. No.5,532,347) and a patent application
entitled Mammalian Melanocyte Stimulating Hormone Receptors and Uses
(Cone et al WO93/21316), subject to the limitation set forth in Sections
5.1 and 5.2.
ARTICLE 3
TREGA RESEARCH PROGRAM
3.1 Research Work. During the Research Period, TREGA shall perform the
Research Work set forth in the Research Plan, in an effort to identify
Preclinical Lead Compound Candidates by using reasonable efforts comparable to
those used for TREGA's original research programs. TREGA shall not screen
libraries for ONO or deliver compounds therefrom or any other items to ONO which
would subject ONO to any obligations other than those set forth in the Agreement
without express written consent of ONO.
3.2 Supply of ONO Libraries. ONO shall supply TREGA with up to two ONO
Libraries within 4 months after the Effective Date.
3.3 Research Lead Compounds.
3.3.1 TREGA shall provide ONO with such reasonable quantity of any
Preclinical Lead Compound Candidate during the Research Period as determined by
the Management Committee together with the TREGA Research Results pertaining
thereto, provided that ONO shall not request a quantity of such Compound
exceeding TREGA's capability. ONO shall provide TREGA with the ONO Research and
Development Results pertaining to any Preclinical Lead Compound Candidate,
Modified Compound and/or ONO Mimetic Compound during the term of this Agreement.
A reasonable quantity of such Modified Compound and/or ONO Mimetic Compound
shall be provided to TREGA as determined by the Management Committee, for the
purpose of testing it only to confirm the ONO Research and Development Results.
3.3.2 ONO shall be entitled to request that TREGA provides ONO with such
reasonable quantity of a compound, as determined by the Management Committee,
satisfying the [CONFIDENTIAL TREATMENT REQUESTED] Benchmarks for the purpose of
testing it only to confirm the TREGA Research
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<PAGE> 11
Results, provided that ONO shall not request a quantity of such Compound
exceeding TREGA's capability.
3.4 Research Reports. Not later than 10 days following each month during
the Research Period, TREGA shall prepare and provide ONO with a brief written
research report, in reasonable detail describing the work performed and the
results obtained during such month.
3.5 Shipment of TREGA or ONO Materials.
3.5.1 Each shipment of the TREGA Materials or the ONO Materials under
this Agreement, whether Research Lead Compounds, or other items shall be
governed by the terms of this Agreement. None of the terms or conditions of any
order, invoices or similar instruments shall be applicable, except those
specifying quantity, delivery dates, designated carrier, special supply
instructions and invoice information, if any.
3.5.2 Title and risk of loss and damage to the TREGA Materials shall
pass to ONO upon release to ONO's designated carrier or, in the absence of such
designation by ONO, to a carrier designated by TREGA, subject to the provisions
of indemnity set forth in Article 12 hereto. Title and risk of loss and damage
to the ONO Materials shall pass to TREGA upon release to TREGA's designated
carrier or, in the absence of such designation by TREGA, to a carrier designated
by ONO, subject to the provisions of indemnity set forth in Article 12 hereto.
3.6 Restrictions on Use.
3.6.1 ONO shall have the right to test and evaluate the TREGA Materials
to confirm TREGA Research Results. ONO shall not, directly or indirectly, use,
modify or expand the TREGA Materials (other than the Research Lead Compounds
pursuant to Article 5) for any purpose other than as set forth in this
Agreement, or otherwise use them to build libraries, or authorize, cause or
assist in any way any Person in any of the foregoing.
3.6.2 TREGA shall have the right to test and evaluate the ONO Materials
to confirm the ONO Research and Development Results. TREGA shall not, directly
or indirectly, use, modify or expand the ONO Materials (other than the Research
Lead Compounds pursuant to Article 5) for any purpose other than as set forth in
this Agreement, or otherwise use them to build libraries, or authorize, cause or
assist in any way any Person in any of the foregoing.
3.6.3 Notwithstanding anything to the contrary in this Agreement,
TREGA shall be the sole owner of all TREGA Libraries and TREGA
Technology. TREGA shall have the sole right to prepare, file, prosecute,
maintain and abandon patents and patent applications on the TREGA
Technology. Nothing herein shall be deemed to grant to ONO rights in the
TREGA Materials or the TREGA Technology, except as expressly licensed to
ONO hereunder. ONO
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<PAGE> 12
shall not, directly or indirectly, (i) claim ownership to the TREGA Materials or
to the TREGA Technology, or (ii) transfer the TREGA Materials or TREGA
Technology to any Person other than to employees and consultants of ONO who are
working on activities directly related to this Agreement. Within thirty (30)
days after the expiration or earlier termination of the Research Period, ONO
shall return all unused TREGA Materials to TREGA.
3.6.4 Notwithstanding anything to the contrary in this Agreement, ONO
shall be the sole owner of all ONO Materials and ONO Technology. ONO shall have
the sole right to prepare, file, prosecute, maintain and abandon patents and
patent applications on the ONO Technology. Nothing herein shall be deemed to
grant to TREGA rights in the ONO Materials or the ONO Technology, other than as
expressly set forth in this Agreement. TREGA shall not, directly or indirectly,
(i) claim ownership to the ONO Materials or to ONO Technology, or (ii) transfer
the ONO Materials or the ONO Technology to any Person other than to employees
and consultants of TREGA who are working on activities directly related to this
Agreement. Within thirty (30) days after the expiration or earlier termination
of the Research Period, TREGA shall return all unused ONO Materials to ONO.
3.6.5 ONO UNDERSTANDS THAT THE TREGA MATERIALS ARE EXPERIMENTAL IN
NATURE, ARE FOR RESEARCH USE ONLY AND HAVE NOT BEEN APPROVED FOR USE IN THE
DIAGNOSIS OR TREATMENT OF HUMANS OR ANIMALS. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT, ONO SHALL NOT ADMINISTER THE TREGA MATERIALS TO
HUMANS IN ANY MANNER OR FORM.
3.6.6 TREGA UNDERSTANDS THAT THE ONO MATERIALS ARE EXPERIMENTAL IN
NATURE, ARE FOR RESEARCH USE ONLY AND HAVE NOT BEEN APPROVED FOR USE IN THE
DIAGNOSIS OR TREATMENT OF HUMANS OR ANIMALS. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT, TREGA SHALL NOT ADMINISTER THE ONO MATERIALS TO
HUMANS IN ANY MANNER OR FORM.
3.7 Management Committee. There shall be established a Management
Committee comprised of four representatives, two of whom shall be chosen from
time to time by ONO and two of whom shall be chosen from time to time by TREGA
to discuss between the parties hereto with respect to progress, direction and/or
modification of the Research Plan. Management Committee meetings shall (i) be
convened in person once each quarter during the Research Period and once each
year during the Development Period, or as otherwise reasonably requested by
either party hereto, (ii) take place alternating at between San Diego or Osaka,
(iii) be chaired by a representative of a party of the meeting place and (iv) be
participated in by the members of the Committee, provided, however, that each
party may have such other of its employees and consultants participate in the
meeting as may be required to adequately address the specific topics of the
meeting. The agenda of the meeting shall be coordinated between the parties and
established at least two (2) weeks prior to the meeting. In the
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CONFIDENTIAL TREATMENT REQUESTED
event that a party wishes to present to the other party the TREGA Research
Results or the ONO Research and Development Results, such party shall furnish
the other with such results, to the extent available, at least two (2) weeks
prior to the meeting. A draft of meeting minutes reflecting matters addressed at
such meeting shall be prepared by the party of the meeting place and provided to
the other for its review and comments. Such minutes shall be considered accurate
only upon signing by representatives of both parties. The parties acknowledge
that such Committee meeting is not authorized to make any decision of the
parties with regard to any material issues including but not limited to
modification of Benchmarks which shall only be authorized by such executed
minutes of the meeting or any other written form. A party may authorize
alternate members to act in the place of members of the Management Committee due
to their absence or other unavailability. The initial meeting of the Management
Committee shall be convened approximately one (1) month following the Effective
Date.
ARTICLE 4
FUNDING
4.1 Funding.
4.1.1 ONO shall pay to TREGA the following nonrefundable, non-
creditable amounts at the times indicated below. During the Research Period
within forty-five (45) days following the end of each six (6) month period,
TREGA shall provide ONO with a written report summarizing in reasonable detail
the expenses used for the Research Work incurred by TREGA during such six (6)
month period for ONO's tax purposes. The amount of expense so reported shall
have no effect on ONO's obligation to make the payments set forth below at the
times indicated.
<TABLE>
<S> <C>
(a) within ten (10) days of the US $ [CONFIDENTIAL
Effective Date TREATMENT
REQUESTED]
(b) within 30 days of the Effective Date US $ [CONFIDENTIAL
for Research Work to be done during the TREATMENT
initial 12 months by TREGA under this REQUESTED]
Agreement,
(c) within 30 days of the first US $ [CONFIDENTIAL
anniversary of the Effective Date for TREATMENT
Research Work to be done during the REQUESTED]
second 12 months by TREGA under this
Agreement
(d) a one time payment upon commencement US $ [CONFIDENTIAL
by or on behalf of ONO of GLP non- TREATMENT
clinical studies with a Research Lead REQUESTED]
Compound
</TABLE>
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CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
<S> <C>
(e) a one time payment upon commencement US $ [CONFIDENTIAL
by or on behalf of ONO of enrollment in a TREATMENT
Phase IIb clinical study with a Research REQUESTED]
Lead Compound
(f) a payment in respect of each TREGA US $ [CONFIDENTIAL
Post Research Period Compound, on a TREATMENT
product by product basis, upon the REQUESTED]
commencement of enrollment in an initial
Phase IIb clinical study
(g) a payment in respect of each Licensed US $ [CONFIDENTIAL
Product, on a product by product basis, TREATMENT
upon the commencement of enrollment in REQUESTED]
the initial Phase III clinical study in
Japan
(h) a payment in respect of each Licensed US $ [CONFIDENTIAL
Product, on a product by product basis, TREATMENT
upon the submission of an NDA in Japan REQUESTED]
(i) a payment in respect of each Licensed US $ [CONFIDENTIAL
Product, on a product by product basis, TREATMENT
upon each NDA approval (and NHI price REQUESTED]
listing) in Japan
</TABLE>
4.2 Royalties Payable by ONO. During the ONO Royalty Term, ONO shall pay
to TREGA royalties on Net Sales in the ONO Territory by ONO, its Affiliates and
(sub)licensees (i) equal to [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales of
each Licensed Product containing a Preclinical Lead Compound Candidate unless it
is a Modified Compound derived from a TREGA Library, and (ii) equal to
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales of each Licensed Product
containing a Preclinical Lead Compound Candidate derived from an ONO Library, a
Modified Compound, or an ONO Mimetic Compound. ONO, its Affiliates and
(sub)licensees shall not accept any consideration for the sale of Licensed
Products which is not expressly stated in the invoice for such Licensed Products
billed to independent customers who are not Affiliates.
4.3 Royalties Payable by TREGA. During the TREGA Royalty Term, TREGA
shall pay to ONO royalties on Net Sales in the TREGA Territory by TREGA, its
Affiliates and (sub)licensees, equal to [CONFIDENTIAL TREATMENT REQUESTED] of
Net Sales of each Licensed Product containing a Preclinical Lead Compound
Candidate derived from an ONO Library, a Modified Compound, or an ONO Mimetic
Compound. TREGA, its Affiliates, and (sub)licensees shall not accept any
consideration for the sale of such Licensed Products which is not expressly
stated in the invoice for such Licensed Products billed to independent customers
who are not Affiliates.
4.4 Royalty Reduction. Notwithstanding the provisions of Sections
4.2 and 4.3, the royalty rate for a Licensed Product shall be reduced on
a country by country basis by [CONFIDENTIAL TREATMENT REQUESTED]
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CONFIDENTIAL TREATMENT REQUESTED
at the time of expiration or invalidation of such other party's Valid Patent
Claims covering such Licensed Product as far as generic versions of such
Licensed Product do not attain aggregate unit sales volume equal to
[CONFIDENTIAL TREATMENT REQUESTED] of the Licensed Product. At such time during
the TREGA Royalty Term or the ONO Royalty Term, as the case may be, that generic
versions of a Licensed Product attain aggregate unit sales volume equal to
[CONFIDENTIAL TREATMENT REQUESTED] of the Licensed Product in a particular
country of such party's Territory following the expiration or invalidation of
all Valid Patent Claims in such country, the applicable royalty rate for the
Licensed Product shall be eliminated.
ARTICLE 5
GRANT OF LICENSES
5.1 ONO Research and Development License. Subject to the terms and
conditions of this Agreement, TREGA hereby grants to ONO a worldwide
royalty-free, nonexclusive license, under the TREGA Technology (but not with
respect to products intentionally designed to [CONFIDENTIAL TREATMENT REQUESTED]
to test, evaluate, and develop the Research Lead Compounds during the Research
Period and the Development Period, solely for the purpose of (a) performing
confirmatory and complementary work to the Research Work, (b) evaluating its
interest in Preclinical Lead Compound Candidates, and (c) performing its
development obligations hereunder. ONO may not grant sublicenses under such
license to any Third Party without the prior written consent of TREGA.
5.2 ONO Commercialization License. Subject to the terms and conditions
of this Agreement, TREGA hereby grants to ONO during the term of this Agreement
an exclusive, royalty-bearing license within the ONO Territory under the TREGA
Technology (but not with respect to products intentionally designed to
[CONFIDENTIAL TREATMENT REQUESTED], to the extent necessary to avoid
infringement, to test any and all Research Lead Compounds and Licensed Products
for the purpose of filing an NDA and to make, have made, use and sell the
Licensed Products within the ONO Territory. The foregoing license shall include
the right to grant sublicenses, subject to the terms and conditions of this
Agreement. ONO hereby agrees to remain liable for performance under this
Agreement by all such sublicensees. TREGA acknowledges that, subject to the
terms and conditions of this Agreement, a senyo jisshiken (an exclusive license
under the patent law of Japan) is granted hereby to ONO under the TREGA Patent
Rights to the extent such TREGA Patent Rights include patents issued in Japan
covering Research Lead Compounds or Licensed Products. Such senyo jisshiken will
be registered in the Japanese Patent Office under Article 77 of Patent Law of
Japan. ONO at its expense shall undertake such registration upon issuance of
such TREGA Patent Rights in Japan. TREGA shall at ONO's request sign legal
documents reasonably
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requested by Ono for such purpose after having provided to TREGA English
language translations thereof. The foregoing senyo jisshiken shall not be
construed to cause the parties to be joint owners under Article 73 of the Patent
Law of Japan.
5.3 TREGA Research and Development License. Subject to the terms and
conditions of this Agreement, ONO hereby grants to TREGA a worldwide,
royalty-free, nonexclusive license under the ONO Technology to test, evaluate,
and use the ONO Libraries during the Research Period and to test, evaluate, use,
and develop compounds therefrom during the Development Period, solely for the
purpose of (a) performing the Research Work and (b) performing its obligations
hereunder. TREGA may not grant sublicenses under such license to any Third Party
without the prior written consent of ONO.
5.4 TREGA Commercialization License. Subject to the terms and conditions
of this Agreement, ONO hereby grants to TREGA during the term of this Agreement
an exclusive, royalty-bearing license within the TREGA Territory under the ONO
Technology to the extend necessary to avoid infringement, to test any and all
Research Lead Compounds and Licensed Products for the purpose of filing an NDA
and to make, have made, use and sell the Licensed Products within the TREGA
Territory. The foregoing licenses shall include the right to grant sublicenses,
subject to the terms and conditions of this Agreement. TREGA hereby agrees to
remain liable for performance under this Agreement by all such sublicensees.
5.5 Joint License. The parties hereto agree that they shall jointly
develop Licensed Products of their mutual choosing for manufacture, sale, and
use in Europe and shall reasonably cooperate to reach mutual decisions with
regard to such development. In this regard, the parties agree to cooperate to
seek a single (sub)licensee for development and/or marketing of such Licensed
Product. The parties hereto shall share equally in any consideration derived
therefrom, including, but not limited to, license fees and/or milestone
payments, or any other form of payment of a similar nature, and royalty
payments. The parties hereto further agree to discuss in good faith and to
negotiate cooperatively to reach agreement on such other terms and conditions of
such joint development and commercialization in Europe as may be necessary or
desirable.
5.5.1 Joint Development License to ONO. Subject to the terms and
conditions of this Agreement, TREGA hereby grants to ONO during the term of this
Agreement a co-exclusive (with TREGA) paid-up license in Europe under the TREGA
Technology, to the extent necessary to avoid infringement, to test any and all
Research Lead Compounds and Licensed Products for the purpose of jointly
developing such Research Lead Compounds and Licensed Products with TREGA, filing
an NDA with respect thereto, and to make, have made, use, and sell Licensed
Products in Europe.
5.5.2 Joint Development License to ONO. Subject to the
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CONFIDENTIAL TREATMENT REQUESTED
terms and conditions of this Agreement, ONO hereby grants to TREGA during the
term of this Agreement a co-exclusive (with ONO) paid-up license in Europe under
the ONO Technology, to the extent necessary to avoid infringement, to test any
and all Research Lead Compounds and Licensed Products for the purpose of jointly
developing such Research Lead Compounds and Licensed Products with ONO, filing
an NDA with respect thereto, and to make, have made, use, and sell Licensed
Products in Europe.
5.6 Non-exclusive License on Improvements. Each party shall grant a
non-exclusive license to the other party within such other party's Territory
under such party's patents and patent applications relating to such party's
Improvements. Considerations for such non-exclusive license under this Section
5.6 shall be discussed in good faith based on the value of such Improvements.
5.7 Option to Acquire TREGA Post Research Period Compounds. During the
[CONFIDENTIAL TREATMENT REQUESTED] year period commencing with the end of the
Research Period, any TREGA Post Research Period Compounds, as to which TREGA has
rights to grant an exclusive license in the ONO Territory, shall be presented to
ONO, and promptly thereafter TREGA shall provide to ONO a reasonable quantity of
such TREGA Post Research Period Compounds as determined by the Management
Committee together with any data and information relating to such TREGA Post
Research Period Compounds for consideration under this Section 5.7. Following
presentation, ONO shall have [CONFIDENTIAL TREATMENT REQUESTED] months during
which to give notice to TREGA that such TREGA Post Research Period Compounds
shall be deemed to be a Preclinical Lead Compound Candidate hereunder, provided,
however, that ONO may extend such period, with the prior written consent of
TREGA. If such Compound is deemed by ONO to be a Preclinical Lead Compound
Candidate, Ono shall receive such Preclinical Lead Compound Candidate subject to
all the terms and conditions of this Agreement, except as expressly set forth
below, namely: (i) ONO shall pay [CONFIDENTIAL TREATMENT REQUESTED] to TREGA
upon designation of such compound as a Preclinical Lead Compound Candidate in
lieu of any payment under Section 4.1.1(d) herein; (ii) if such compound is the
second deemed Preclinical Lead Compound Candidate under this Section 5.7, the
payment set forth in clause (i) above shall be [CONFIDENTIAL TREATMENT
REQUESTED], and if such compound is the third or any subsequent deemed
Preclinical Lead Compound Candidate, the payment set forth in clause (i) above
shall be [CONFIDENTIAL TREATMENT REQUESTED] each; and (iii) the territory of
ONO's license rights to such deemed Preclinical Lead Compound Candidates shall
be limited to the ONO Territory and rights in Europe granted to ONO in Section
5.5 shall not apply to any TREGA Post Research Period Compound.
5.8 Termination for Failure to Commercialize.
5.8.1 At the time of [CONFIDENTIAL TREATMENT REQUESTED] in respect of a
Licensed Product in the ONO Territory, any licenses granted to ONO by TREGA
pursuant to Section 5.2 under the TREGA Technology related to any other Research
Lead Compounds which have not been actively developed for purposes of
[CONFIDENTIAL TREATMENT REQUESTED] in the ONO Territory for
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CONFIDENTIAL TREATMENT REQUESTED
more than [CONFIDENTIAL TREATMENT REQUESTED] months shall revert to TREGA
automatically without further action by TREGA. At the time of [CONFIDENTIAL
TREATMENT REQUESTED], ONO shall inform TREGA as to which Research Lead Compounds
there has been no such activity for a period of [CONFIDENTIAL TREATMENT
REQUESTED] months. Further, if at any time ONO suspends development of all
Research Lead Compounds for a period of at least [CONFIDENTIAL TREATMENT
REQUESTED] months without any reasonable justification which is acceptable to
TREGA, all licenses granted to ONO pursuant to Section 5.2 shall revert to TREGA
automatically without further action by TREGA.
5.8.2 At the time of [CONFIDENTIAL TREATMENT REQUESTED] in respect of a
Licensed Product in the TREGA Territory, any licenses granted to TREGA by ONO
pursuant to Section 5.4 under the ONO Technology related to any other Research
Lead Compounds which have not been actively developed for purposes of
[CONFIDENTIAL TREATMENT REQUESTED] in the TREGA Territory for more than
[CONFIDENTIAL TREATMENT REQUESTED] months shall revert automatically to ONO
without further action by ONO. At the time of any NDA filing, TREGA shall inform
ONO as to which Research Lead Compounds there has been no such activity for a
period of [CONFIDENTIAL TREATMENT REQUESTED] months. Further, if at any time
TREGA suspends development of all Research Lead Compounds derived from ONO
Libraries for a period of at least [CONFIDENTIAL TREATMENT REQUESTED] months
without any reasonable justification which is acceptable to ONO, all licenses
granted to TREGA pursuant to Section 5.4 to ONO Libraries shall revert to ONO
automatically without further action by ONO.
5.9 No Third Party License. Each party hereby represents to the other
that it will not present to the other any Research Lead Compound or derivative
pursuant to Section 3.3, as to which it has previously granted rights to an
Affiliate or Third Party or then is undertaking a bona fide effort to develop.
5.10 TREGA Reservation of Rights. Notwithstanding anything to the
contrary in this Agreement, TREGA expressly reserves the right for itself, and
the right to grant to Affiliates and Third Parties the right, to use the TREGA
Technology and the TREGA Materials for research, screening, testing and
evaluation purposes.
5.11 ONO Reservation of Rights. Notwithstanding anything to the contrary
in this Agreement, ONO expressly reserves the right for itself, and the right to
grant to Affiliates and Third Parties the right, to use the ONO Materials and
the ONO Technology for research, screening, testing and evaluation purposes.
ARTICLE 6
DEVELOPMENT OF PRODUCTS
6.1 ONO Development and Commercialization Efforts. In the event ONO
decides to commence Good Laboratory Practice ("GLP") pre-clinical studies
pursuant to Section 6.1.2 herein, it thereafter shall use its reasonable good
faith efforts (a) to
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conduct such further research and development activities as may be necessary or
desirable to develop such Research Lead Compounds, (b) to conduct such
preclinical and human clinical testing as necessary or desirable to obtain all
regulatory approvals to manufacture, use and sell such Research Lead Compounds
as ONO determines are commercially feasible, and (c) to diligently file and
prosecute such NDA with the applicable regulatory authorities to seek all
necessary approvals to manufacture, use and sell such Research Lead Compounds in
such countries of the ONO Territory as ONO determines are commercially feasible,
and (d) to commence marketing as soon as commercially practicable, and to
diligently market thereafter, each Research Lead Compound in each country in
which it has obtained all necessary regulatory approvals therefor. ONO shall be
responsible for funding the costs of all such research, development,
pre-clinical and clinical trials, regulatory approval and commercialization of
Licensed Products.
6.1.1 ONO shall initiate testing a Preclinical Lead Compound
Candidate promptly after its receipt of a quantity of such Compound in
accordance with Section 3.3 and shall diligently conduct such tests using
reasonable efforts comparable to those used for ONO's original research program
in order to determine its interest to commence GLP pre-clinical studies in
preparation for human clinical testing. ONO shall further furnish TREGA with the
ONO Research and Development Results related to such Preclinical Lead Compound
Candidate as soon as they become available. ONO shall notify TREGA within a
reasonable period of time whether or not ONO will commence GLP pre-clinical
studies with such Preclinical Lead Compound Candidate. ONO may also decide that
a Preclinical Lead Compound Candidate is subject to further modification,
derivatization or optimization, by ONO or through the use of ONO's own
technology by ONO's reasonable determination that Preclinical Lead Compound
Candidate is not commercially sufficient to develop and market in the ONO
Territory. ONO shall conduct such modification, derivatization or optimization
at its own discretion and expense and shall continue to provide TREGA with the
results related thereto.
6.1.2 In the event that ONO decides to commence GLP pre-clinical studies
with a Research Lead Compound and/or Licensed Product for the purpose of filing
an NDA with it in the ONO Territory, ONO shall provide TREGA from time to time
with its development plan as it changes. ONO shall further, at its own expenses,
use its reasonable best efforts comparable to other development programs of its
own to perform GLP pre- clinical and clinical studies for such purpose, to file
an NDA and/or to commence its marketing promptly after obtaining its approval of
the NDA in the ONO Territory.
6.1.3 At any time during the course of ONO's development pursuant to the
provision of Section 6.1.2 above, ONO may decide to i) terminate this Agreement
pursuant to Section 11.2.3, or ii) substitute such development for other
Research Lead Compounds and/or Licensed Products.
In the event that ONO decides to proceed
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with the development of such other Research Lead Compounds and/or Licensed
Products, ONO shall conduct its development in compliance with the provision of
this Section 6.1.
6.2 TREGA Development and Commercialization Efforts. TREGA shall at its
own expenses use its reasonable efforts comparable to other development programs
of its own to perform, or shall seek a partner or a (sub)licensee to have it
perform, GLP pre-clinical and clinical studies with a Research Lead Compound
and/or Licensed Product, to file an NDA with it and commence its marketing
promptly after obtaining its approval of the NDA in the TREGA Territory.
6.3 Cooperation between the Parties for Commercialization of the
Research Lead Compounds and/or Licensed Products.
6.3.1 To the extent feasible and consistent with the parties' intended
indications, each party shall endeavor to consult with each other to perform GLP
pre-clinical and clinical studies with an identical Research Lead Compound
and/or Licensed Product for commercialization in its own Territory.
6.3.2 The parties hereto agree that each party and its Affiliates shall
consult with the other party, and shall endeavor to accept the other party's
suggestions, in the preparation of protocols for GLP pre- clinical and clinical
studies so as to allow such studies to be utilized by the other party's NDA in
its Territory and to avoid performing such studies in duplicate, taking into
account discussions taking place at International Conference on Harmonization of
Technical Requirements for Registration of Pharmaceuticals for Human Use,
provided, however, that the party performing such studies shall be entitled to
make the final decision on the protocols of such studies. In the event that
TREGA's (sub)licensees in the territories of U.S.A. and/or Canada conducts such
GLP pre-clinical and clinical studies, TREGA shall endeavor to arrange
discussions between ONO and such TREGA's (sub)licensees for the purpose of the
provision of this Section.
6.3.3 In the event that each party utilizes, for its NDA in its
Territory, the results and data of GLP pre-clinical studies, pharmacokinetic
studies, toxicology studies, clinical studies, and other studies related to
development and commercialization that have been developed by the other party or
such other party's Affiliates or (sub)licensees then such party shall reimburse
the party performing such study for a part of the expenses that such other party
expended in proportion to the size of its Territory and the degree to which such
study was used. In making such calculation Japan, Korea, Taiwan and China shall
be considered one-third of the world, Europe shall be considered one-third of
the world and the remaining countries of the world shall be considered one-third
of the world. Only those results and data that allow a party, in connection with
the pursuit of its NDA, to avoid repeating work already done by the other party
hereto shall be deemed to be used under this Section 6.3.3. Results and data
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submitted, which do not comprise a fundamental portion of a party's NDA, but
which are relied upon or provided for informational purposes or in support of
safety shall not be deemed to have been used hereunder. Subject to the provision
of this Section, the parties shall freely share all studies, results, and data
arising by virtue of their activities in connection with this Agreement.
6.4 Records. ONO and TREGA shall maintain records, in sufficient detail
and in good scientific manner appropriate for product approval and patent
purposes, which shall reflect all work done and results achieved in the
performance of their respective research and development activities regarding
the Research Lead Compounds and/or Licensed Products(including all data in the
form required under all applicable laws and regulations).
6.5 Reports. In addition to any other research reports due under this
Agreement, during the term of this Agreement, each party shall prepare and
deliver to the other party every six (6) months written reports which shall
describe, in reasonably sufficient detail, information to update the prior
report filed hereunder with respect to the Research Lead Compounds and/or
Licensed Products under active development for filing an NDA in their respective
Territories, including without limitation, (a) a summary of respective research
and development performed to date, the work-in-progress and the current schedule
of anticipated events or milestones employing respective Research Results, (b)
the progress of the testing in human clinical trials, (c) the status of
obtaining the necessary approvals to manufacture and market the Research Lead
Compounds and/or Licensed Products, (d) the status of pre- launch marketing
plans, and (e) a summary of all activities relating to (sub)licensees employing
respective Research Results. In addition, each party shall provide the other
party with written notice of all regulatory filings and submissions regarding
the Research Lead Compounds and/or Licensed Products prior to the date of such
filings and submissions, and with written notice of all approvals obtained
promptly after obtaining such approvals.
6.6 Manufacturing. ONO shall at its own responsibility and expense have
the right to manufacture or have manufactured all its required quantities of
drug substance contained in the Licensed Product for use in the ONO Territory.
The parties hereto shall cooperate in, and exchange information regarding, the
reduction of the manufacturing costs of such drug substance. each party shall
transfer to the other copies of manufacturing data relating to such drug
substance as soon as they become available. Upon request of either party, both
parties agree to negotiate in good faith and reach an agreement as to which
party will manufacture and supply such drug substance, as well as to establish
commercially reasonable terms for such manufacture and supply.
ARTICLE 7
ROYALTY REPORTS AND ACCOUNTING
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7.1 Reports, Exchange Rates. During the term of this Agreement following
the First Commercial Sale of each Licensed Product, each party, its Affiliates
or (sub)licensees shall furnish to the other a quarterly written report by
forty-five (45) days following the end of each fiscal quarter of each calendar
year showing in reasonably specific detail with regard to each Licensed Product,
on a country by country basis, (a) the invoiced prices to its customers, the
gross sales and the Net Sales in quantity and value, sold by each party, its
Affiliates and its (sub)licensees in its own Territory during the reporting
period ; (b) in ONO's case, the royalties payable in United States dollars which
shall have accrued hereunder based upon Net Sales of each Licensed Products sold
by ONO in the ONO Territory or in TREGA's case, the royalties payable in
Japanese Yen which shall have accrued hereunder based upon Net Sales of each
Licensed Products sold by TREGA in the TREGA Territory; (c) the withholding
taxes, if any, required by law to be deducted in respect of such sales; (d) the
date of the First Commercial Sales of each Licensed Product in each country
during the reporting period; and (e) the exchange rates used in determining the
amount of United States dollars in ONO's case and the amount of Japanese Yen in
TREGA's case. The exchange rates shall be the rate used for the remittance of
the royalty payment hereunder. Notwithstanding the foregoing, TREGA acknowledges
that ONO's fiscal term is semi-annual basis and any royalty payments for the Net
Sales of the first and third quarters are tentative and are calculated based the
conditions used for the previous quarter. If any over- or underpayments are
identified in the calculation of the royalty using the conditions of such
current term at the end of ONO's official semi-annual term (the second and forth
ONO's fiscal quarter), then such over- or underpayments shall de deducted or
added respectively from the royalty payments of the second or forth ONO's fiscal
quarter.
7.2 Audits.
7.2.1 ONO and TREGA shall keep and maintain complete, accurate and
proper books and records as necessary to determine accurately the gross sales,
Net Sales and the royalty payable to the other party hereunder, for a period of
five (5) years following the date on which such royalties are reported and paid
hereunder. Upon the written request of a royalty recipient hereunder and not
more than once in each calendar year, a royalty payer hereunder shall permit an
independent certified public accounting firm of internationally recognized
standing, selected by the royalty recipient and reasonably acceptable to the
royalty payer, to have access during normal business hours to such of the
records of the royalty payer as may be reasonably necessary to verify the
accuracy of the royalty reports hereunder. The accounting firm shall disclose to
the royalty recipient only whether the royalty reports are correct or not and
the specific details concerning any discrepancies. No other information shall be
shared.
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7.2.2 If such accounting firm concludes that additional royalties were
owed during such period, the royalty payer shall pay the additional royalties
within thirty (30) days of the date the royalty recipient delivers to the
royalty payer such accounting firm's written report so concluding, provided,
however, that the royalty recipient shall no event be entitled to claim
underpayment of the royalty payer of more than retrospective five (5) years from
the original due date of such payment. The fees charged by such accounting firm
shall be paid by the royalty recipient; provided, however, if the audit
discloses that the royalties payable for the audited period are more than one
hundred and ten percent (110%) of the royalties actually paid for such period,
then the royalty payer shall pay the reasonable fees and expenses charged by
such accounting firm. If the overpayments are identified by such accounting
firm, an amount equivalent to such overpayments shall be deducted from the
following royalty payment owed by the royalty payer.
7.3 Confidential Financial Information. The parties shall treat all
financial information subject to review under this Article 7 as confidential,
and shall cause its accounting firm to retain all such financial information in
confidence.
ARTICLE 8
PAYMENTS
8.1 Payment Terms. Royalties shown to have accrued by each royalty
report provided for under Article 7 of 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.
8.2 Payment Method. Except as provided in this Section 8.2, all payments
under this Agreement shall be paid in United States dollars to TREGA and in
Japanese Yen to ONO by bank wire transfer in immediately available funds to such
account as designated by the recipient before such payment is due. Upon such
election by a recipient made in writing not less than thirty (30) days prior to
any payment date, the payer shall pay all royalties owing to the recipient
hereunder in the currency in which such royalties accrued, without conversion
into United States dollars or into Japanese Yen.
8.3 Exchange Control. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country where a
Licensed Product is sold, payment shall be made through such lawful means or
methods as the recipient reasonably shall determine.
8.4 Taxes. Other than (a) taxes imposed by the recipient's
jurisdiction on the recipient's income and (b) taxes imposed solely by
reason of a recipient having a permanent establishment in any
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other country or a recipient otherwise being subject to taxation by such country
(except solely by reason of the licenses granted under this Agreement), any tax
paid or required to be withheld by a payer on an account of royalties payable to
the other party shall be deducted from the amount of royalties otherwise due.
Such payer shall provide the other party with proof of any taxes withheld and
paid by such payer for the purpose of avoiding double taxation.
8.5 Late Payments. Unless otherwise provided in this Agreement, a payer
shall pay interest to the recipient hereunder on the aggregate amount of any
payments that are not paid on or before the date such payments are due under
this Agreement, at a rate per annum equal to the lesser of the prime rate of
interest as reported by Bank of America NT&SA in San Francisco, California, from
time to time in case that ONO is a payer, and by the Tokai Bank, Ltd. in Osaka,
Japan for TREGA royalty payments from time to time in case TREGA is a payer,
plus two percent (2%), or the highest rate permitted by applicable law,
calculated on the number of days such payment is delinquent.
ARTICLE 9
CONFIDENTIALITY
9.1 Confidential Information. During the term of this Agreement, and for
a period of ten (10) years following the expiration or earlier termination
hereof, each party shall maintain in confidence all information of the other
party disclosed by the other party and identified as, or acknowledged to be,
confidential (the "Confidential Information"), and shall not use, disclose or
grant the use of the Confidential Information except for the sole purpose of
using the Confidential Information to perform its rights and obligations hereof
and further except on a need-to-know basis to those directors, officers,
Affiliates, employees, consultants, clinical investigators or contractors, to
the extent such disclosure is reasonably necessary in connection with such
party's activities as expressly authorized by this Agreement. The foregoing
shall not obligate the parties to seek confidentiality agreements with its
directors, officers, Affiliates, employees, consultants, clinical investigators,
or contractors for a term extending beyond five (5) years. To the extent that
disclosure is authorized by this Agreement, prior to disclosure, each party
hereto shall obtain agreement of any such Person to hold in confidence and not
make use of the Confidential Information for any purpose other than those
permitted by this Agreement.
9.2 Permitted Disclosures. The confidentiality obligations contained in
Section 9.1 above shall not apply to the extent that (a) any receiving party
(the "Recipient") is required (i) to disclose information by law, order or
regulation of a governmental agency or a court of competent jurisdiction, or
(ii)
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to disclose information to any governmental agency for purposes of obtaining
approval to test or market any Licensed Product, provided in either case that
the Recipient shall provide written notice thereof to the other party and
sufficient opportunity to object to any such disclosure or to request
confidential treatment thereof; or (b) the Recipient can demonstrate that (i)
the disclosed information was public knowledge at the time of such disclosure to
the Recipient, or thereafter became public knowledge, other than as a result of
actions of the Recipient in violation hereof; (ii) the disclosed information was
rightfully known by the Recipient (as shown by its written records) prior to the
date of disclosure to the Recipient by the other party hereunder; (iii) the
disclosed information was disclosed to the Recipient on an unrestricted basis
from a source unrelated to any party to this Agreement and not under a duty of
confidentiality to the other party; or (iv) the disclosed information was
independently developed by the Recipient without access to or use of such
information.
9.3 Terms of this Agreement. TREGA and ONO shall not 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 or to Persons with whom
ONO or TREGA has entered into or proposes to enter into a business relationship,
provided that such Persons shall enter into a confidentiality agreement with, or
otherwise owe a duty of confidentiality to TREGA or ONO, as applicable.
Notwithstanding the foregoing, prior to execution of this Agreement, ONO and
TREGA shall agree upon the substance of information that can be used to describe
the terms of this transaction, and ONO and TREGA may disclose such information,
as modified by mutual agreement from time to time, without the other party's
consent.
9.4 Public Announcement. Except for announcements as required by law,
order or regulation of a governmental agency or a court of competent
jurisdiction, no other announcement, public release or notice of any kind may be
issued without the express written consent of both parties, which consent shall
not be unreasonably held, provided, however, the parties shall prepare a joint
press release announcing the transaction set forth in this Agreement to be
issued promptly upon execution and delivery hereof.
ARTICLE 10
INVENTIONS AND PATENTS
10.1 Ownership of Inventions. The entire right and title in and to any
and all compounds contained within or derived from the ONO Libraries, whether
modified, derivatized or optimized, and uses of such compounds related to the
Research Work under this Agreement ("ONO Inventions"), and any patent
applications, patents or other intellectual property rights based thereon, shall
be owned solely by ONO. The entire right and title in and to any and all
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compounds contained within or derived from the TREGA Libraries, whether
modified, derivatized or optimized, and uses of such compounds related to the
Research Work under this Agreement ("TREGA Inventions"), and any patent
applications, patents or other intellectual property rights based thereon, shall
be owned solely by TREGA. The entire right and title in all inventions,
discoveries and other technology including but not limited to uses,
pharmaceutical preparations or process thereof except for ONO and/or TREGA
Inventions as set forth in this Section 10.1 above, whether or not patentable,
and any patent applications, patents or other intellectual property rights based
thereon, conceived or reduced to practice during the Research Period and the
Development Period and arising as a result of the Research Work and the ONO
research and development work (collectively the "Improvements") (a) solely by
employees or others acting solely on behalf of TREGA or its Affiliates shall be
owned solely by TREGA (the "TREGA Improvements"), (b) solely by employees or
others acting solely on behalf of ONO or its Affiliates shall be owned solely by
ONO (the "ONO Improvements"), and (c) jointly by employees or others acting on
behalf of TREGA and by employees or others acting on behalf of ONO, or their
respective Affiliates, shall be owned jointly by TREGA and ONO (the "Joint
Improvements"). Each party promptly shall disclose to the other party the
conception or reduction to practice of Improvements by employees or others
acting on behalf of such party without prejudice to each party's right to
prepare patent applications related to each party's Inventions and/or
Improvements prior to such disclosure provided in Section 10.2 below. TREGA and
ONO each hereby represents that all employees and Persons acting on its behalf
in performing its obligations under this Agreement shall be obligated under a
binding written agreement to assign to it, or as it shall direct, all Inventions
or Improvements made or developed by such employees or Persons.
10.2 Patent Prosecution and Maintenance.
10.2.1 TREGA shall have the right, in its sole discretion and at its
sole expense, to control the preparation, filing, prosecution and maintenance of
all TREGA Patent Rights. TREGA shall be primarily responsible for filing,
prosecuting and maintaining the TREGA Valid Patent Claim which covers the
Research Lead Compounds and/or the Licensed Products under active development
and/or marketing in the ONO Territory, which is necessary to make, have made,
use and/or sell such Licensed Product in the ONO Territory and which would
infringe but the license granted in this Agreement. If TREGA elects not to file
a patent application or decides to abandon any pending application or issued
patent in any country in the ONO Territory which claims or pertains to a
Research Lead Compound, it shall provide reasonable notice to ONO and give ONO
the opportunity to file, prosecute or maintain such application or patent at its
own expense.
10.2.2 ONO shall have the right, in its sole discretion and at its
sole expense, to control the preparation, filing, prosecution and
maintenance of all ONO Patent Rights. ONO shall
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<PAGE> 27
be primarily responsible for filing, prosecuting and maintaining the ONO Valid
Patent Claim which covers the Research Lead Compounds and/or the Licensed
Products under active development and/or marketing in the TREGA Territory, which
is necessary to make, have made, use and/or sell such Licensed Product in the
TREGA Territory and which would infringe but the license granted in this
Agreement. If ONO elects not to file a patent application or decides to abandon
any pending application or issued patent in any country in the TREGA Territory
which claims or pertains to a Research Lead Compound, it shall provide
reasonable notice to TREGA and give TREGA the opportunity to file, prosecute or
maintain such application or patent at its own expense.
10.2.3 TREGA shall control the preparation, filing, prosecution and
maintenance of all patents and patent applications which claim the Joint
Improvements, and the parties shall share equally in the costs thereof. If
either party elects not to share such costs then such party shall transfer all
rights, title and interest of such patents and patent applications to the other
party, in which case such other party shall be entitled to take the
responsibility of the preparation, filing, prosecution and maintenance of such
patents and patent applications at its own name and expenses.
10.2.4 In the case of each patent application which claims a Research
Lead Compound, each party's Invention or Improvements or a Joint Improvement,
the controlling party shall use its good faith efforts to provide the other
party with an opportunity to review and comment on the text of each patent
application and selection of countries to file such application in such other
party's Territory before filing, and shall supply the other party with a copy of
such patent application as filed, together with notice of its filing date and
serial number.
10.2.5 Each party shall cooperate with the other party, execute all
lawful papers and instruments and make all rightful oaths and declarations as
may be necessary in the preparation, prosecution and maintenance of all
applications and patents described in this Section 10.2.
10.3 Enforcement of Patent Rights.
10.3.1 The party (the "Patent Party") with the right to control the
maintenance of the patents described in Section 10.2 above shall have the
primary responsibility for the appropriate course of action to take (or refrain
from taking) appropriate action i) to enforce such patents, ii) to abate the
infringement thereof or iii) to control any litigation or other enforcement
action and to enter into, or permit, the settlement of any such litigation or
other enforcement action with respect to such patents if a claim or proceedings
are brought against the other party alleging that the use, development,
manufacturing or sale of the Licensed Product in such other party's Territory
infringes any Third Party's patents or patent applications or if such patents
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<PAGE> 28
are infringed by any Third Party, and shall consider, in good faith, the
interests of the other party in so doing, provided, however, that in the event
the Patent Party does not so desire, then it shall provide reasonable notice to
the other party and such other party shall have the right to succeed such
responsibility at its own expense, provided further that the provision of this
Section 10.3.1 shall be subject to the other party's appropriate notification to
the Patent Party of such infringement or such claim or proceeding brought by a
Third Party, and to entrusting the Patent Party's actions in compliance with the
provisions of Section 10.3.3 below.
10.3.2 In the case of each patent described in Section 10.2.1, 10.2.2 or
10.2.3 above which claims the Research Lead Compounds or each party's Inventions
or Improvements or Joint Improvements, if the Patent Party does not, within six
(6) months of receipt of notice from the other party of any infringement or any
claim or proceedings brought by a Third Party within its Territory, abate the
infringement, file suit to enforce such patent against at least one infringing
party or take appropriate actions against such claim or proceedings, the other
party shall have the right to take whatever action it deems appropriate to
enforce such patent.
10.3.3 The party controlling any such enforcement action shall not
settle the action or otherwise consent to an adverse judgment in such action
that diminishes the rights or interests of the non-controlling party within its
Territory without the prior written consent of the other party. All moneys or
awards recovered upon the final judgment or settlement of any such suit in each
Territory shall be retained by the controlling party, except with regard to
Joint Improvements, in which case any moneys or awards shall be split between
the parties in accordance with their expenses incurred in undertaking
enforcement action.
10.3.4 Notwithstanding the foregoing, TREGA and ONO shall fully
cooperate with each other in the planning and execution of any action to enforce
the patents described in Sections 10.2.1, 10.2.2 and 10.2.3 above which claim
the Research Lead Compounds or each party's Inventions or Improvements or Joint
Improvements.
10.4 No Other Technology Rights. Except as otherwise provided in this
Agreement, under no circumstances shall a party, as a result of this Agreement,
obtain any ownership interest or other right in any technology, know-how,
patents, pending patent applications, patent or invention disclosures, products,
libraries, vaccines, antibodies, cell lines or cultures, or animals of the other
party, including items owned, controlled or developed by the other, or
transferred by the other to such party at any time pursuant to this Agreement.
It is understood and agreed by the parties that this Agreement does not grant to
either party any license or other right in basic technology of the other party
except to the extent set forth herein or necessary to enable the parties to
carry out their respective obligations hereunder.
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CONFIDENTIAL TREATMENT REQUESTED
10.5 Third Party License. In the event that the use, development,
manufacturing or sale of a Licensed Product by the other party in such other
party's Territory infringes any Third Party's patents or patent applications and
such other party is required to acquire a license from such Third Party to
continue such use, development, manufacturing or sale of the Licensed Product
without further infringing such Third Party's patents or patent applications,
then the royalty rate to the Patent Party herein shall be reduced by the royalty
rate to be required to acquire such license from such Third Party as long as
necessary, provided, however, that in any case the effective royalty rate to the
Patent Party shall not be less than [CONFIDENTIAL TREATMENT REQUESTED] of the
rate stated herein.
ARTICLE 11
TERM AND TERMINATION
11.1 Expiration. Unless terminated earlier pursuant to Section 11.2
below, the term of this Agreement shall expire on the expiration of the parties'
obligations to pay royalties under this Agreement. The parties' obligations to
pay royalties under this agreement shall expire on a country by country basis.
11.2 Termination for Cause.
11.2.1 A party may terminate this Agreement upon or after the breach of
any material provision of this Agreement, if the breaching party has not cured
such breach within ninety (90) days after written notice thereof from the other
party. The licenses granted hereunder to the non-breaching party shall survive a
termination of this Agreement under this Section 11.2.1 and shall remain in full
force and effect, so long as such non-breaching party so desires and shall
continue to comply with its obligations under this Agreement to the breaching
party in respect of such licenses (including without limitation, any reporting,
payment, funding, development, commercialization, or royalty obligations) as if
this Agreement had not been terminated.
11.2.2 In the event that ONO reasonably determines that TREGA fails to
perform the Research Work set forth on Exhibit A or to achieve "[CONFIDENTIAL
TREATMENT REQUESTED] Benchmarks" required to be done during the initial
[CONFIDENTIAL TREATMENT REQUESTED] of the Research Period hereunder, ONO shall
be entitled to terminate this Agreement by delivering written notice of such
termination to TREGA in lieu of prompt payment of the amount required pursuant
to Section 4.1.1(c) herein. In order to be effective such notice shall be
delivered no later than the time required for such payment. Such notice shall
terminate all licenses granted hereunder, and neither party hereto shall have
any obligation to the other as a result of such termination.
11.2.3 This Agreement shall be terminated without further action
by the parties if ONO decides not to commence GLP
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pre-clinical studies with any of the Research Lead Compounds pursuant to Section
6.1.1 of this Agreement. Such decision shall not affect any obligation of ONO to
make a payment hereunder which may have accrued prior to such decision.
11.2.4 ONO may terminate this Agreement after the Research Period, if
further development of a Research Lead compound and/or Licensed Product is not
justified due to ONO's reasonable determination that efficacy, safety, medical,
or scientific profile of, or the effectiveness of either party's Patent Rights
specifically related to, such Research Lead Compound and/or Licensed Product, or
substantial changes of economic factors prevents ONO from continuation of such
development, filing an NDA or obtaining an approval thereof in the ONO
Territory.
11.3 Effect of Expiration and Termination. Without prejudice to the
provision of Section 11.2.2 above, expiration or termination of this Agreement
shall not relieve the parties of any obligation accruing prior to such
expiration or termination. Upon expiration of this Agreement under Section 11.1
above, the licenses granted to ONO and/or TREGA under Article 5 shall survive
and thereafter shall be irrevocable without being required to pay any additional
consideration to the other party hereto. The provisions of Articles 9, 10 and 12
shall survive the expiration or termination of this Agreement.
ARTICLE 12
INDEMNITY
12.1 Direct Indemnity. Each party shall indemnify and hold the other
party, its Affiliates, directors, officers, employees, agents, licensors, and
stockholders harmless and hereby forever releases and discharges the other
party, its Affiliates, directors, officers, employees, agents, licensors, and
stockholders from and against all losses, liabilities, damages and expenses
(including reasonable attorneys' fees and costs) that the other party, its
Affiliates, directors, officers, employees, agents and stockholders may suffer
or incur as a result of any claims, demands, actions or other proceedings made
or instituted by a Third Party against any of them arising out of or relating to
(a) any breach by the indemnifying party of its obligations under this
Agreement, or (b) the negligence, recklessness or intentional acts or omissions
in connection with the work performed by or on behalf of the indemnifying party
hereunder.
12.2 Other Indemnity. Subject to the provision of Section 12.1 above,
each party shall indemnify and hold the other party, its Affiliates, directors,
officers, employees, agents and stockholders harmless and hereby forever
releases and discharges the other party, its Affiliates, directors, officers,
employees, agents and stockholders from and against all losses, liabilities,
damages and expenses (including reasonable attorneys' fees and
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costs) that the other party, its Affiliates, directors, officers, employees,
agents and stockholders may suffer or incur as a result of any claims, demands,
actions or other proceedings made or instituted by a Third Party against any of
them arising out of or relating to (a) the use by or on behalf of the
indemnifying party, its Affiliates or (sub)licensees of the indemnifying party's
Research Results, or (b) the research, development, manufacture, storage, use,
consumption, sale or advertisement of the indemnifying party's Licensed Product
developed or commercialized by or on behalf of the indemnifying party, its
Affiliates or (sub)licensees in its Territory.
12.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article 12 shall promptly notify the other party (the
"Indemnitor") of any claim, demand, action or other proceedings for which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall have
the right to participate in, and, to the extent the Indemnitor so desires,
jointly with any other indemnitor similarly noticed, to assume the defense
thereof with counsel selected by the Indemnitor; provided, however, that the
Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor, if representation of the Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between the Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity obligations under
this Article 12 shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Indemnitor, which consent shall not be unreasonably withheld or
delayed. The failure to deliver notice to the Indemnitor within a reasonable
time after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve the Indemnitor of any liability to the
Indemnitee under this Article 12, but the omission so to deliver notice to the
Indemnitor will not relieve it of any liability that it may have to the
Indemnitee otherwise than under this Article 12. The Indemnitor may not settle
the action or otherwise consent to an adverse judgment in such action that
diminishes the rights or interests of the Indemnitee without the express written
consent of the Indemnitee. The Indemnitee, its employees and agents, shall
cooperate fully with the Indemnitor and its legal representatives in the
investigation of any action, claim or liability covered by this indemnification.
12.4 Insurance.
ONO and TREGA each shall maintain, through self insurance or otherwise,
insurance with respect to the research, development, manufacture and sales of
the Licensed Products by ONO or TREGA, as the case may be, in such amount as ONO
or TREGA, respectively, customarily maintains covering its similar activities.
TREGA and ONO, as applicable, shall maintain such insurance for so long as each
continues to conduct such research, development, manufacture
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<PAGE> 32
or sales, and thereafter for so long as TREGA and ONO, as applicable, each
customarily maintains insurance for itself covering its similar activities.
ARTICLE 13
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 terms of this Agreement to the extent, and
for so long as, 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 be 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.
ARTICLE 14
ASSIGNMENT
This Agreement may not be assigned or otherwise transferred, nor, except
as expressly provided hereunder, may any right or obligations hereunder be
assigned or transferred to any Third Party by either party without the consent
of the other party; provided, however, that either TREGA or ONO may, without
such consent, assign this Agreement and its rights and obligations hereunder in
connection with the transfer or sale of all or substantially all of its
business, or in the event of its merger or consolidation or change in control or
similar transaction. Any permitted assignee shall assume all rights and
obligations of its assignor under this Agreement.
ARTICLE 15
SEVERABILITY
Each party hereby acknowledges 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 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 provisions. In case such provisions cannot be agreed upon, the invalidity
of one or
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<PAGE> 33
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.
ARTICLE 16
DISPUTE RESOLUTION
In case of any disputes arising between the parties hereto or
arising out of the performance of the obligations of either party hereunder,
both parties shall endeavor to settle such disputes amicably between themselves.
If the parties fail to resolve such disputes, then such disputes shall be
finally resolved by arbitration. Any arbitration hereunder shall be conducted by
a panel of three (3) arbitrators under the UNCITRAL Arbitration Rules. In the
event that the arbitrators are not appointed (or replaced) under such Rules,
then the appointing authority shall be the Court of Arbitration of the
International Chamber of Commerce. The language of the arbitration shall be
English. Any arbitrator may be of any nationality and need not be a lawyer or
hold any other professional status or membership, provided, however, that the
third presiding arbitrator selected pursuant to the UNCITRAL Arbitration Rules
shall be of neither American nor Japanese citizenship or residency and shall be
a lawyer. The award of such arbitration panel shall be in writing, shall state
the reasons for the award, and shall be final and binding upon the parties. Any
such arbitration shall be held in San Diego, California, the United States or
any other mutually agreed location if the arbitration is demanded by ONO, and in
Osaka, Japan if the arbitration is demanded by TREGA, or any other mutually
agreed location.
ARTICLE 17
MISCELLANEOUS
17.1 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties to the other shall be
in writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery, first class mail or courier), first class mail 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 addresser and (except as otherwise provided in this
Agreement) shall be effective upon receipt by the addressee.
If to TREGA: TREGA Biosciences, Inc.
3550 General Atomics Court
San Diego, California 92121
U.S.A.
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<PAGE> 34
Attention: President
Facsimile No. (619) 455-2544
with a copy to: Pillsbury Madison and Sutro LLP
235 Montgomery Street, 15th Floor
San Francisco, California 94104
U.S.A.
Attention: Thomas E. Sparks, Jr.
If to ONO: ONO Pharmaceutical Co., Ltd.
1-5 Doshomachi, 2-chome
Chuo-ku, Osaka 541
Japan
Attention: Director of Research
Headquarters
Facsimile No. +81 6 222 2381
17.2 Applicable Law and Language. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
regard to the conflicts of law principles thereof. The English language shall be
the official language of this Agreement and all notices and reports which may be
delivered hereunder.
17.3 Compliance with Applicable Laws. Each party, its Affiliates and
(sub)licensees shall use reasonable efforts to comply with all applicable laws,
regulations and governmental orders in connection with their respective
activities related to this Agreement, including without limitation the research,
development, manufacture, use and sale of the Research Lead Compounds and/or the
Licensed Products. Without limiting the foregoing, each party, its Affiliates
and (sub)licensees shall use reasonable efforts to observe and comply with all
applicable United States, Japanese and foreign laws with respect to the transfer
of items and related technical data to foreign countries, including without
limitation, the International Traffic in Arms Regulations and the Export
Administration Regulations.
17.4 Entire Agreement. This 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 superseded by this Agreement. This Agreement may be amended, or any
terms hereof modified, only by a written instrument duly executed by both
parties.
17.5 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.
17.6 Independent Contractors. It is expressly agreed that TREGA
and ONO shall be independent contractors and that the relationship
between the two parties shall not constitute a partnership, joint venture
or agency. Neither TREGA nor ONO shall
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<PAGE> 35
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 party to do so.
17.7 Waiver. The waiver by either party 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.
17.8 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
ONO PHARMACEUTICAL CO., LTD. TREGA BIOSCIENCES, INC.
By:/s/ Toshio Ueno By:/s/ Robert S. Whitehead
------------------------------ ------------------------------
Toshio Ueno Robert S. Whitehead
Title: President Title: President & CEO
-------------------------- --------------------------
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<PAGE> 36
CONFIDENTIAL TREATMENT REQUESTED
Exhibit A
Research Plan
Overview:
The objective of the [CONFIDENTIAL TREATMENT REQUESTED]-year Trega/Ono
research plan (the "Plan") is to identify promising compounds, which will be
predicted to be useful for the treatment for human disease by modulating the
production of [CONFIDENTIAL TREATMENT REQUESTED] by specific or highly selective
binding to the melanocortin receptor-l ("MC-1R"). Trega Biosciences, Inc.
("Trega") shall endeavor to identify such compounds by using its available
technologies which are in its possession at applicable times under the Plan,
such as combinatorial chemistry, high throughput screening systems, in vitro and
in vivo screening systems and technologies relating to melanocortin receptors
("MCRs"). Such promising compounds, when orally given to animals, should be
non-peptidic low molecular weight molecules which show biological advantages of
sufficient potency and safety so that clinical benefits can be predicted. All
words herein beginning with capital letters which are not specifically defined
herein shall have the same meanings as set forth in the Research and Development
Agreement to which this Plan is attached as Exhibit A (the "Research
Agreement"). In the event that there exists any conflict between the terms of
the Research Agreement and this Plan, the Research Agreement shall govern.
As necessary technologies for the success of the Plan within
[CONFIDENTIAL TREATMENT REQUESTED] years after initiation, Trega is in the
possession of combinatorial libraries consisting of over [CONFIDENTIAL TREATMENT
REQUESTED] representing [CONFIDENTIAL TREATMENT REQUESTED] structural templates,
and libraries of over [CONFIDENTIAL TREATMENT REQUESTED] single compounds.
Additional low molecular weight compounds which are released prior to the first
anniversary of the Effective Date of the Agreement shall be added to the
libraries. In addition,while under no affirmative obligation to screen libraries
of compounds which are released more than one year after the Effective Date of
the Agreement, in the event any such screening during the Research period
results in the identification of a compound with characteristics preferable over
compounds meeting [CONFIDENTIAL TREATMENT REQUESTED] Benchmarks, Trega shall
present such compounds to the Management Committee for discussion about the
possible development of such compounds.
In order to screen these compounds, Trega is in the possession of cell
lines in which each line expresses one of the [CONFIDENTIAL TREATMENT
REQUESTED]. Trega is also in possession of various in vitro and in vivo
screening systems which have been utilized for testing [CONFIDENTIAL TREATMENT
REQUESTED].
Rationale:
[CONFIDENTIAL TREATMENT REQUESTED]
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<PAGE> 37
CONFIDENTIAL TREATMENT REQUESTED
Research Phase:
The Research Phase will consist of two major phases. The first phase is
the [CONFIDENTIAL TREATMENT REQUESTED]. The second phase will consist of
[CONFIDENTIAL TREATMENT REQUESTED]. For any specific candidate, the second phase
should be initiated as soon as possible following selection of a promising
chemical lead compound. The steps and research schedule are outlined in the
attached flowchart and table. TREGA shall not screen libraries for ONO or
deliver compounds therefrom or any other items to ONO which would subject ONO to
any obligations other than those set forth in the Agreement without express
written consent of ONO.
The identification of chemical lead compounds shall be [CONFIDENTIAL
TREATMENT REQUESTED] and Preclinical Lead Compounds shall be [CONFIDENTIAL
TREATMENT REQUESTED].
[CONFIDENTIAL TREATMENT REQUESTED] FOR THE IDENTIFICATION OF CHEMICAL
LEAD COMPOUNDS.
1. Screening of combinatorial libraries: identification of hits
Ono Libraries and Trega Libraries which are now in the possession of
Trega and which will be prepared by Trega initially will be screened for binding
to MC-1R. [CONFIDENTIAL TREATMENT REQUESTED] All nonpeptidic small molecule
Trega Libraries which are in the possession of and released by Trega before the
first anniversary of the Effective Date of the Agreement, as to which Trega has
the right to grant licenses, will be screened in this assay. Ono may also submit
Ono Libraries which, upon acceptance by Trega, will also be screened for binding
to MC-1R pursuant to the terms of the Research Agreement.
2. Confirmation and Deconvolution:
Single compounds and Trega Library pools which exhibit
significant binding to MC-lR and designated as hit compounds ("Hit
Compounds") or hit pools ("Hit Pools"), respectively, will be
subjected to confirmatory assays. Such Hit Compounds and Hit Pools
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<PAGE> 38
CONFIDENTIAL TREATMENT REQUESTED
will be selected by Trega and the results of such selection shall be reported to
Ono promptly. [CONFIDENTIAL TREATMENT REQUESTED]. Trega Libraries consist of
mixtures of variable numbers of related compounds. [CONFIDENTIAL TREATMENT
REQUESTED]. The pools which show significant activity of displacing
[CONFIDENTIAL TREATMENT REQUESTED] will be subjected to a confirmatory assay
followed by deconvolution in order to identify active single compounds.
Individual compounds will be screened [CONFIDENTIAL TREATMENT REQUESTED]. A
compound with significant displacement activity [CONFIDENTIAL TREATMENT
REQUESTED] assay.
Iterative deconvolution is a process by which the compounds in the pool
are prepared as a number of subpools containing correspondingly fewer compounds
than were present in the original mixture. The active subpools are identified
and further deconvolution is carried out until individual compounds are
prepared.
During the primary screening process, Hit Pools and Hit Compounds will
also be tested for MCR selectivity. This will [CONFIDENTIAL TREATMENT REQUESTED]
to license and which are or will be in the possession of Trega before the first
anniversary of the Effective Date of the Agreement.
3. Functional Assays:
The promising individual compounds [CONFIDENTIAL TREATMENT REQUESTED]
will be selected by Trega for further functional assays and the results of such
selection shall be reported to Ono promptly.
Activation of melanocortin receptors in cells leads to the [CONFIDENTIAL
TREATMENT REQUESTED]. The primary functional screen will consist of determining
the [CONFIDENTIAL TREATMENT REQUESTED]. It is also possible to assess the
activation of MC-1R in these cells by detecting [CONFIDENTIAL TREATMENT
REQUESTED].
Functional activation of human MC-1R may also be assessed by determining
the ability of compounds to [CONFIDENTIAL TREATMENT REQUESTED]. Functional
activity at [CONFIDENTIAL TREATMENT REQUESTED] may be similarly assessed.
Compounds which exhibit functional activity [CONFIDENTIAL TREATMENT
REQUESTED] in the above assays will be tested [CONFIDENTIAL TREATMENT
REQUESTED]. The primary in vivo assay will be an assessment of the ability of
such compounds [CONFIDENTIAL TREATMENT REQUESTED] and to enhance [CONFIDENTIAL
TREATMENT REQUESTED].
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<PAGE> 39
CONFIDENTIAL TREATMENT REQUESTED
Experimental protocols for such assays will be discussed at the Management
Committee and will be utilized by mutual agreement between the parties.
[CONFIDENTIAL TREATMENT REQUESTED].
4. Analogs and Directed Libraries for Structure-Activity Relationships
(SAR):
Compounds with promising functional properties will be selected by Trega
for [CONFIDENTIAL TREATMENT REQUESTED] and the results of such selection shall
be reported to Ono promptly. The goal of these efforts will be [CONFIDENTIAL
TREATMENT REQUESTED] to assess progress toward this goal. Trega chemistry
efforts may include [CONFIDENTIAL TREATMENT REQUESTED]. More traditional
[CONFIDENTIAL TREATMENT REQUESTED].
Molecules with the following properties are desirable as chemical lead
compounds:
1. [CONFIDENTIAL TREATMENT REQUESTED].
2. [CONFIDENTIAL TREATMENT REQUESTED].
3. [CONFIDENTIAL TREATMENT REQUESTED].
4. [CONFIDENTIAL TREATMENT REQUESTED].
5. Chemical Lead Compounds.
Compounds which are found promising in [CONFIDENTIAL TREATMENT
REQUESTED] including [CONFIDENTIAL TREATMENT REQUESTED], shall be designated as
chemical lead compounds upon the confirmation of [CONFIDENTIAL TREATMENT
REQUESTED]. Following the designation of such compounds by mutual agreement
between the parties, medicinal chemistry optimization and preclinical
characterization efforts will be undertaken by conducting the following work
product steps. The identification of the chemical lead compounds shall be
completed within [CONFIDENTIAL TREATMENT REQUESTED].
[CONFIDENTIAL TREATMENT REQUESTED] FOR THE IDENTIFICATION OF PRECLINICAL LEAD
COMPOUND CANDIDATES.
6. Medicinal Chemistry Optimization:
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<PAGE> 40
CONFIDENTIAL TREATMENT REQUESTED
Medicinal chemistry efforts for SAR determination will continue on
chemical lead compounds as described in step 4. In order to guide the
optimization process, Trega will use [CONFIDENTIAL TREATMENT REQUESTED]. The
goal of these medicinal chemistry efforts will be to continue to improve
[CONFIDENTIAL TREATMENT REQUESTED]. Trega will conduct all necessary and
appropriate efforts for this purpose.
7. Profiling Assays
Medicinal chemistry efforts in step 6 will also be guided by
[CONFIDENTIAL TREATMENT REQUESTED] biological activities and pharmacological
properties of chemical lead compounds [CONFIDENTIAL TREATMENT REQUESTED]. In
addition to the functional assays described in step 3, profiling assays will
include an [CONFIDENTIAL TREATMENT REQUESTED] subject to Trega's capabilities.
Examples of [CONFIDENTIAL TREATMENT REQUESTED] assays which may be used in this
process [CONFIDENTIAL TREATMENT REQUESTED].
8. Animal Models:
In the final stage of medicinal chemistry efforts, compounds with the
most promising properties will be tested in at least one animal model of acute
inflammatory disease in order to select Preclinical Lead Compounds. The specific
animal model(s) chosen for this process and the number of compounds to be tested
will be determined by the Management Committee.
Acute Anti-inflammatory Models:
- [CONFIDENTIAL TREATMENT REQUESTED]
- [CONFIDENTIAL TREATMENT REQUESTED]
- [CONFIDENTIAL TREATMENT REQUESTED]
- [CONFIDENTIAL TREATMENT REQUESTED]
- [CONFIDENTIAL TREATMENT REQUESTED]
No later than [CONFIDENTIAL TREATMENT REQUESTED] after the initiation of
the Plan, the Management Committee will choose the number and type of acute
and/or chronic disease models for testing efficacy of compounds with the most
promising properties and will discuss the experimental protocols for the chosen
models. [CONFIDENTIAL TREATMENT REQUESTED].
9. Preliminary Non-GLP Safety:
Preliminary non-GLP safety studies will be completed on those potential
Preclinical Lead Compound Candidates selected by the Management Committee.
-40-
<PAGE> 41
CONFIDENTIAL TREATMENT REQUESTED
Potential Preclinical Lead Compound Candidates will be subjected to
studies in order to assess their safety. Safety studies and protocols will be
determined by the Management Committee.
10. Preclinical Lead Compound Candidates:
The following properties are desirable for the Preclinical Lead Compound
Candidates:
1. [CONFIDENTIAL TREATMENT REQUESTED]
2. [CONFIDENTIAL TREATMENT REQUESTED]
3. [CONFIDENTIAL TREATMENT REQUESTED]
4. [CONFIDENTIAL TREATMENT REQUESTED]
5. [CONFIDENTIAL TREATMENT REQUESTED]
6. [CONFIDENTIAL TREATMENT REQUESTED]
7. [CONFIDENTIAL TREATMENT REQUESTED]
8. [CONFIDENTIAL TREATMENT REQUESTED]
Ono will chose among Preclinical Lead Compound Candidates possessing the
above profile for further evaluation by Ono using necessary studies in order to
select Preclinical Lead Compounds which will be the subject of preclinical
development.
Benchmarks
In summary the overall objective of the Research Phase is the
identification of potential Preclinical Lead Compound Candidates.
[CONFIDENTIAL TREATMENT REQUESTED] Benchmarks for identification of
chemical lead compounds:
1. [CONFIDENTIAL TREATMENT REQUESTED]
-41-
<PAGE> 42
CONFIDENTIAL TREATMENT REQUESTED
2. [CONFIDENTIAL TREATMENT REQUESTED]
3. [CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] Benchmarks for identification of
Preclinical Lead Compound Candidates:
1. [CONFIDENTIAL TREATMENT REQUESTED]
2. [CONFIDENTIAL TREATMENT REQUESTED]
3. [CONFIDENTIAL TREATMENT REQUESTED]
-42-
<PAGE> 43
CONFIDENTIAL TREATMENT REQUESTED
Research Plan
Flow Chart
----------------------
Lead Discovery Primary Screen
[CONFIDENTIAL
TREATMENT REQUESTED]
----------------------
--------------------
Confirmation
[CONFIDENTIAL
TREATMENT REQUESTED]
--------------------
--------------------
Deconvolution
--------------------
----------------------
--------------------- [CONFIDENTIAL
Functional Assay TREATMENT REQUESTED]
--------------------- ----------------------
------------------------------
Chemical Lead Compounds
Identified
------------------------------
Lead Optimization ---------------------- ----------------------
Medicinal Chemistry [CONFIDENTIAL
- --------------- Optimization TREATMENT REQUESTED]
[CONFIDENTIAL ---------------------- ----------------------
TREATMENT
REQUESTED] ----------------------
[CONFIDENTIAL
- --------------- TREATMENT REQUESTED]
----------------------
-------------------------------
Preliminary Safety
-------------------------------
----------------------------------------
Preclinical Lead Compound Candidates
----------------------------------------
---------------------------------
Preclinical Lead Compounds
---------------------------------
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<PAGE> 44
CONFIDENTIAL TREATMENT REQUESTED
Research Schedule
- -----------------------------------------------------------------------
[CONFIDENTIAL TREATMENT REQUESTED]|[CONFIDENTIAL TREATMENT REQUESTED]
- -----------------------------------------------------------------------
Medicinal Chemistry Efforts
Screening and Selection Efforts
--------------------------------------------
Identification of Chemical Lead Compounds
--------------------------------------------
- Screening of [CONFIDENTIAL TREATMENT REQUESTED]
- Confirmation
- Deconvolution
- Functional Assays
- [CONFIDENTIAL TREATMENT REQUESTED]
--------------------------------------------------------
Optimization of Chemical Lead Compounds
Identification Preclinical Lead Compounds Candidates
--------------------------------------------------------
- Lead Optimization
- [CONFIDENTIAL TREATMENT REQUESTED]
- Characterization Assays
- [CONFIDENTIAL TREATMENT REQUESTED]
- Preliminary Safety
-44-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE
SHEET AT JUNE 30, 1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
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