<PAGE>
As filed with the Securities and Exchange Commission on October 27, 1999
Registration No. 333-89177
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
TULARIK INC.
(Exact name of registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 8731 94-3148800
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------
Two Corporate Drive
South San Francisco, California 94080
(650) 825-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
David V. Goeddel
Chief Executive Officer
Tularik Inc.
Two Corporate Drive
South San Francisco, California 94080
(650) 825-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Suzanne Sawochka Hooper, Esq. David A. Hahn, Esq.
Stephen N. Rosenfield, Esq. Christopher L. Kaufman, Esq.
Cooley Godward LLP Latham & Watkins
Five Palo Alto Square 701 B Street
3000 El Camino Real Suite 2100
Palo Alto, CA 94306-2155 San Diego, CA 92101
(650) 843-5000 (619) 236-1234
</TABLE>
---------------
Approximate date of proposed sale to the public: As soon as practicable
after the Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion, dated October 27, 1999
6,250,000 Shares
[TULARIK INC. LOGO]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering 4,781,250 shares in public offerings in the United States and
Canada and outside the United States and Canada. No public market
currently exists for our shares. We have applied to list our common
stock for quotation on the Nasdaq National Market under the symbol
"TLRK." We expect the initial public offering price to be between
$11.00 and $13.00 per share.
Pharma Vision 2000 AG, our largest stockholder, has expressed an interest in
acquiring additional shares in a direct offering of our common stock that
would allow it to maintain its 23.5% ownership interest in us. The
number of shares of common stock offered in the direct offering is
1,468,750. Any sales to Pharma Vision would be made at the
initial public offering price in a direct offering concurrently
with the public offerings.
Investing in the shares involves risks. "Risk Factors" begin on page 7.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discount............................................... $ $
Proceeds to Tularik................................................. $ $
</TABLE>
We have granted the U.S. underwriters and international managers 30-day options
to purchase up to an aggregate of 937,500 additional shares of common stock
solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
Lehman Brothers
Hambrecht & Quist
J.P. Morgan & Co.
Warburg Dillon Read LLC
, 1999
<PAGE>
Inside Front Cover Graphic #1
Title: Regulating Gene Expression
Description: Graphic depicting how pills amplify beneficial or block harmful
gene expression.
Inside Front Cover Graphic #2
Title: Gene Regulating Pathways Provide Multiple Drug Targets
Description: Graphic depicting an example of the complex pathways involved in
gene activation and components inside the cell that could be potential drug
targets.
Inside Gatefold Graphic #1
Title: Diverse Program Portfolio
Description: Graphic showing our program portfolio including cancer, CMV,
diabetes, obesity, inflammation, immune disorders, hypercholesterolemia,
bacterial diseases and orphan nuclear receptors and the status of each program
(e.g., lead optimization, preclinical, phase 1, phase 2.)
Inside Gatefold Graphic #2
Title: Product Pipeline
Description: Graphic of our product pipeline depicting discovery and
development stages, including the hits that are derived from high throughput
screening, the number of early leads, leads undergoing medicinal chemistry and
preclinical and clinical candidates.
Inside Back Cover Graphic
Title: Retain Substantial Commercial Rights
Description: Graphic depicting corporate collaboration partners' logos and
collaboration funding received to date.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 29
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 53
Related Party Transactions................................................. 65
Principal Stockholders..................................................... 67
Description of Capital Stock............................................... 69
Shares Eligible for Future Sale............................................ 71
Underwriting............................................................... 73
Legal Matters.............................................................. 77
Experts.................................................................... 77
Where You Can Find More Information........................................ 77
Index to Financial Statements ............................................. F-1
</TABLE>
----------------
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it
is unlawful. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"anticipates," "believes," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "seeks," "should" or "will" or the negative of these
terms or similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under "Risk Factors."
"Tularik" and the Tularik logo are trademarks of Tularik Inc. Other
trademarks and trade names appearing in this prospectus are the property of
their holders.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes appearing
elsewhere in this prospectus. Unless otherwise indicated, information in this
prospectus assumes that the underwriters do not exercise their over-allotment
options and assumes the conversion of all of our preferred stock into common
stock upon completion of these offerings.
Tularik
Tularik is engaged in the discovery and development of a broad range of novel
and superior orally available drugs based on gene regulation. Building on our
scientific strengths, we intend to become a world-class pharmaceutical company.
Our broad range of programs includes cancer, cytomegalovirus, known as CMV,
diabetes, obesity, inflammation, immune disorders, hypercholesterolemia and
bacterial diseases and a class of targets known as orphan nuclear receptors,
all of which represent large commercial markets. We have diversified our drug
discovery and development efforts not only across a large number of diseases,
but also across multiple promising targets and drug candidates for these
diseases. Our product pipeline includes two cancer drug candidates in clinical
testing, one cancer drug candidate for which an investigational new drug
application, known as an IND, has been filed, one preclinical anti-CMV drug
candidate and 14 early and advanced drug leads in our other programs.
Gene regulation is the selective activation and deactivation of genes within
a cell and is fundamental to the development or progression of most diseases.
Our drug discovery approach, which is based on gene regulation, is amenable to
the discovery of small molecule, orally available drugs. These drugs are well
suited for the treatment of chronic diseases requiring the daily administration
of medications over many years. We also selectively pursue drug candidates with
mechanisms of action other than gene regulation.
Our drug discovery and development expertise includes molecular biology,
biochemistry, structural biology, chemistry, pharmacology and clinical
development. To complement our internal capabilities, we collaborate with
world-renowned scientists and clinicians and with leading pharmaceutical
companies. We believe that our integration of biology, chemistry and
pharmacology enhances our ability to find novel gene regulating drugs and that
our drug discovery and development efforts are highly efficient and productive.
To date, we have:
. identified numerous validated targets and other novel proteins that
regulate the expression of disease-causing genes;
. established more than 80 biochemical and cell-based assays for high
throughput screening, known as HTS;
. conducted more than 15 million drug screens using a library of more than
500,000 distinct compounds and natural products;
. identified seven compounds that are early leads, seven compounds that are
being optimized by chemists, one compound that is in preclinical
development, one anti-cancer drug candidate for which we have filed an
IND application and one anti-cancer drug candidate that is in phase 1
clinical trials; and
. obtained a license for an anti-cancer drug candidate that we expect to
enter phase 2 clinical trials in 2000.
We have commenced or are preparing for clinical trials of three cancer drug
candidates, lometrexol, T138067, which we refer to as T67, and T900607, which
we refer to as T607. Our most advanced drug candidate is a novel antifolate
called lometrexol, which we recently licensed from Eli Lilly. The utility of
antifolates as anti-cancer agents has been proven by methotrexate, an
antifolate drug used extensively in the treatment of several tumor types. We
expect to commence phase 2 trials of lometrexol in 2000. T67 acts on tubulin,
the cellular target for known cancer drugs Taxol and vincristine. In contrast
to these agents, T67 retains its activity against tumor cells that are multiple
drug resistant, or MDR, and is able to cross the blood brain
4
<PAGE>
barrier. To date, 23 patients have been enrolled in phase 1 trials of T67.
Pending successful completion of these phase 1 trials, phase 2 trials of T67
will be initiated in several tumor types, including brain tumors. T607, an
analog of T67, also targets tubulin and is active against MDR positive tumors.
Animal studies indicate that T607 is distinguished from T67 in that T607 has a
reduced ability to cross the blood-brain barrier, which may make it suitable
for the treatment of different tumor types than T67. We recently filed an IND
for T607.
We intend to commercialize drugs independently and through collaborations
with pharmaceutical partners. To assist in the commercialization of some of our
products, and to fund research and development activities, we have established
and will continue to pursue collaborations with selected pharmaceutical and
biotechnology companies. We currently have corporate collaborations in six of
our research programs: with Knoll relating to obesity; with Japan Tobacco, or
JT, relating to orphan nuclear receptors; with Roche Bioscience relating to
inflammation; with JT relating to obesity/diabetes; with Taisho relating to
immune disorders; and with Sumitomo relating to hypercholesterolemia. We have
retained significant rights to independently market products resulting from
most of our programs, including worldwide commercialization rights to our
cancer, bacterial diseases and CMV programs and North American
commercialization rights in four of our externally funded programs. As of June
30, 1999, we had received a total of $108.8 million from our current and former
corporate collaborators, including $95.8 million in research funding and $13.0
million from equity purchases.
As of September 30, 1999, 44 U.S. patents based on our discoveries had been
issued or allowed. In addition, as of that date, we had 47 patent applications
pending in the United States and had filed several corresponding foreign patent
applications.
Tularik was incorporated in California in 1991 and reincorporated in Delaware
in 1997. Our principal office is located at Two Corporate Drive, South San
Francisco, California 94080, and our telephone number is (650) 825-7000.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered in the public offerings........ 4,781,250 shares
Common Stock offered in the direct offering......... 1,468,750 shares
Common Stock to be outstanding after the offerings.. 41,364,401 shares
Use of proceeds..................................... Research and development
and general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.............. "TLRK"
</TABLE>
Pharma Vision 2000 AG, which is our largest stockholder and owns 23.5% of our
outstanding stock, has expressed an interest in acquiring directly from us
additional shares of common stock that would allow it to maintain its
percentage ownership.
The number of shares of common stock to be outstanding after the offerings is
based on the number of shares outstanding as of June 30, 1999 and excludes:
. 6,044,896 shares of common stock underlying options outstanding as of
June 30, 1999 at a weighted average exercise price of $2.22 per share;
. 1,015,091 shares of common stock underlying warrants outstanding as of
June 30, 1999 at a weighted average exercise price of $10.17 per share;
. 496,929 shares available for issuance or future grant under our stock
option plans; and
. 500,000 shares available for issuance under our employee stock purchase
plan.
Since June 30, 1999, we have granted options to purchase an additional
110,500 shares of common stock under our option plans at a weighted average
exercise price of $3.00 per share, which reduced the number of shares available
for future grants under our option plans.
5
<PAGE>
Summary Consolidated Financial Data
The following tables summarize our consolidated financial data. The pro forma
information contained in the consolidated statements of operations data gives
effect to the automatic conversion of all convertible preferred stock into
common stock upon the completion of this offering. The as adjusted column of
the consolidated balance sheet data reflects the conversion of our preferred
stock into common stock and the sale of 6,250,000 shares of our common stock in
the public offerings and the direct offering at an assumed initial public
offering price of $12.00 per share, after deducting the estimated underwriting
discount and offering expenses payable by us.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Op-
erations Data:
Collaborative research
and development
revenue............... $ 5,618 $11,124 $15,297 $ 20,009 $ 21,362 $ 8,962 $11,993
Total operating ex-
penses(1)............. 12,153 15,980 22,252 49,468 38,297 18,424 24,439
Net loss(1)............ (5,898) (3,607) (5,480) (25,374) (10,539) (6,183) (9,879)
Pro forma basic and di-
luted net loss per
share................. $ (0.31) $ (0.29)
Shares used in comput-
ing pro forma basic
and diluted net loss
per share............. 33,687 34,110
</TABLE>
<TABLE>
<CAPTION>
As of As of June 30, 1999
December 31, ---------------------
1998 Actual As Adjusted
------------ -------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable
securities................................ $119,324 $111,197 $181,321
Working capital............................ 94,535 95,007 165,131
Total assets............................... 136,778 133,926 204,050
Long-term debt, less current portion....... 4,734 11,171 11,171
Deferred compensation...................... (679) (5,705) (5,705)
Accumulated deficit........................ (61,857) (71,736) (71,736)
Total stockholders' equity................. 110,898 103,336 173,460
</TABLE>
- --------
(1) Total operating expenses in 1997 include a non-cash charge of $18.9 million
for acquired in-process research and development in connection with our
acquisition of Amplicon Corp. You should read Note 6 of notes to
consolidated financial statements for information about this acquisition.
6
<PAGE>
RISK FACTORS
An investment in our common stock is risky. You should carefully consider the
following risks, as well as the other information contained in this prospectus.
If any of the following risks actually occurs, our business could be harmed. In
that case, the trading price of our common stock could decline, and you might
lose all or part of your investment. The risks and uncertainties described
below are not the only ones facing us. Additional risks and uncertainties not
presently known to us, or that we currently see as immaterial, may also harm
our business.
RISKS RELATED TO TULARIK
Our prospective products are in an early state of development, and there is a
high risk of failure.
We have no products that have received regulatory approval for commercial
sale. All of our product candidates are in early stages of development, and we
face the risks of failure inherent in developing drugs based on new
technologies. None of our prospective products, including lometrexol, T67 and
T607, is expected to be commercially available until at least 2004. Two of our
clinical candidates, T67 and T607, operate in a similar manner. Based on
results at any stage of clinical trials, we may decide to discontinue
development of one or both of these compounds. Additionally, even if the
clinical results are favorable for both compounds, we may decide to
commercialize only one of the compounds.
Our products must satisfy rigorous standards of safety and efficacy before
they can be approved by the U.S. Food and Drug Administration, or FDA, and
international regulatory authorities for commercial use. We will need to
conduct significant additional research and preclinical (animal) testing and
clinical (human) trials before we can file applications with the FDA for
product approval. Clinical trials are expensive and have a high risk of
failure. In addition, to compete effectively, our products must be easy to use,
cost-effective and economical to manufacture on a commercial scale. We may not
achieve any of these objectives. Any of our products may not attain market
acceptance. Typically, there is a high rate of attrition for products in
preclinical testing and clinical trials. Also, third parties may develop
superior products or have proprietary rights that preclude us from marketing
our products. If research and testing is not successful or we fail to obtain
regulatory approval, we will be unable to market and sell our future product
candidates.
The progress and results of our preclinical testing and clinical trials are
uncertain.
Commercialization of our product candidates depends upon successful
completion of clinical trials. We must provide the FDA and foreign regulatory
authorities with clinical data that demonstrate the safety and efficacy of our
products before they can be approved for commercial sale. Preclinical testing
and clinical development are long, expensive and uncertain processes. It may
take us several years to complete our testing, and failure can occur at any
stage of testing. Interim results of trials do not necessarily predict final
results, and acceptable results in early trials may not be repeated in later
trials. Success in preclinical testing and early clinical trials does not
ensure that later-stage or large-scale clinical trials will be successful. A
number of companies in the pharmaceutical industry, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. We have not developed any product
beyond phase 1 trials.
Any trial may fail to produce results satisfactory to the FDA. Preclinical
and clinical data can be interpreted in different ways, which could delay,
limit or prevent regulatory approval. Negative or inconclusive results or
adverse medical events during a trial could cause a trial to be repeated or a
program to be terminated. We typically rely on third-party clinical
investigators to conduct our clinical trials and other third-party
organizations to perform data collection and analysis, and as a result, we may
face additional delaying factors outside our control.
We do not know whether planned trials will begin on time or whether any of
our clinical trials will be completed on schedule or at all. We do not know
whether any trials will result in marketable products. Our
7
<PAGE>
product development costs will increase if we have delays in testing or
approvals or if we need to perform more or larger trials than planned. If the
delays are significant, our financial results and the commercial prospects for
our products will be harmed.
The length of time necessary to complete clinical trials and to submit an
application for marketing approval for a final decision by a regulatory
authority varies significantly and may be difficult to predict. Clinical
results are frequently susceptible to varying interpretations that may delay,
limit or prevent regulatory approvals. Additional factors that can cause delay
or termination of our clinical trials, or the costs of these trials to
increase, include:
. Slow patient enrollment due to the nature of the protocol, the proximity
of patients to clinical sites, the eligibility criteria for the study or
other factors;
. Inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring clinical trials;
. Delays in approvals from a study site's review board;
. Longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose;
. Lack of sufficient supplies of the product candidate;
. Adverse medical events or side effects in treated patients; and
. Lack of effectiveness of the product candidate being tested.
Any drug is likely to produce some toxicities or undesirable side effects in
animals and in humans when administered at sufficiently high doses and/or for
sufficiently long periods of time. Unacceptable toxicities or side effects may
occur at any dose level at any time in the course of studies in animals
designed to identify unacceptable effects of a drug candidate, known as
toxicological studies, or clinical trials of our potential products. The
appearance of any unacceptable toxicity or side effect could cause us or
regulatory authorities to interrupt, limit, delay or abort the development of
any of our product candidates and could ultimately prevent their clearance by
the FDA or foreign regulatory authorities for any or all targeted indications.
Our first three clinical candidates are directed to the treatment of cancer.
Cancer drugs generally have a narrow therapeutic window between efficacy and
toxicity. If unacceptable toxicity is observed in clinical trials, the trials
may be terminated at an early stage. Drug-related deaths may occur in phase 1
trials with anti-cancer drugs, because drugs for the treatment of cancer are
typically dangerous and phase 1 patients are critically ill and heavily pre-
treated. Several deaths occurred during Eli Lilly's phase 1 clinical trials of
lometrexol.
We do not know whether our existing or any future clinical trials will
demonstrate sufficient safety and efficacy necessary to obtain the requisite
regulatory approvals or will result in marketable products. Additionally, we
may not be able to submit a New Drug Application, or NDA, on schedule once
clinical trials are completed. Moreover, we cannot assure you that any NDA will
be reviewed and cleared by the FDA in a timely manner or at all. The length of
time, the level of expenditures and the laboratory and clinical information
required for approval of an NDA are substantial. The failure to adequately
demonstrate the safety and efficacy of our products under development could
adversely affect our operations.
We must obtain regulatory approval to market our products in the United States
and foreign jurisdictions.
We cannot predict whether regulatory clearance will be obtained for any
product we develop. The pharmaceutical industry is subject to stringent
regulation by various federal, state and local authorities. We must obtain
regulatory approval before marketing or selling our future drug products under
the requirements of the FDA and foreign regulatory authorities. Of particular
significance are the requirements covering research and development, testing,
manufacturing, quality control, labeling and promotion of drugs for human use.
A pharmaceutical product cannot be marketed in the United States until it has
completed rigorous preclinical testing and clinical trials and an extensive
regulatory clearance process implemented by the FDA. Satisfaction of these
regulatory requirements typically takes many years depending upon the type,
complexity and novelty of the product and requires the expenditure of
substantial resources.
8
<PAGE>
Before commencing clinical trials in humans, we must submit and receive
approval from the FDA of an IND. Additionally, submission of an IND does not
necessarily result in FDA authorization to commence clinical trials. Clinical
trials are subject to oversight by institutional review boards and the FDA and:
. must be conducted in conformance with the FDA's good laboratory practice
regulations;
. must meet requirements for institutional review board oversight;
. must meet requirements for informed consent;
. must meet requirements for good clinical practices;
. are subject to continuing FDA oversight;
. may require large numbers of test subjects; and
. may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the IND or the conduct
of these trials.
Before receiving FDA clearance to market a product, we must demonstrate that
the product is safe and effective on the patient population that will be
treated. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with applicable
FDA or other applicable regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, total or partial
suspension of production or injunction, as well as other regulatory action
against our potential products or us. Additionally, we have limited experience
in conducting and managing the clinical trials necessary to obtain regulatory
approval.
If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. Marketing or
promoting a drug for an unapproved indication is generally prohibited.
Furthermore, clearance may entail ongoing requirements for post-marketing
studies. Even if this regulatory clearance is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections by the FDA. Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on this
product or manufacturer, including costly recalls or withdrawal of the product
from the market. We cannot assure you that any compound developed by us, alone
or with others, will prove to be safe and efficacious in clinical trials and
will meet all of the applicable regulatory requirements needed to receive
marketing clearance.
Outside the United States, our ability to market a product is contingent upon
receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Community, or EC, registration
procedures are available to companies wishing to market a product in more than
one EC member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process
includes all of the risks associated with FDA clearance described above.
Failure to attract, retain and motivate skilled personnel and cultivate key
academic collaborations will delay our product development programs and
adversely affect our research and development efforts.
We are a small company with approximately 200 employees, and our success
depends on our continued ability to attract, retain and motivate highly
qualified management and scientific personnel and on our ability to develop and
maintain important relationships with leading academic institutions and
scientists. In particular, our product development programs depend on our
ability to attract and retain highly skilled chemists and clinical
9
<PAGE>
development personnel. Competition for personnel and relationships is intense.
If we lose the services of any of these personnel, it could impede
significantly the achievement of our research and development objectives. In
particular, the loss of David V. Goeddel, our Chief Executive Officer, would be
detrimental to us. If we fail to negotiate additional acceptable collaborations
with academic institutions and scientists, or if our existing academic
collaborations were to be unsuccessful, our product development programs may be
delayed. In addition, we will need to hire additional personnel and develop
additional academic collaborations as we continue to expand our research and
development activities. We do not know if we will be able to attract, retain or
motivate personnel or maintain relationships.
The drug discovery methods we employ are relatively new and may not lead to
drug products.
The drug discovery methods we employ based upon gene regulation are
relatively new. We do not know if these methods will lead to the discovery of
commercially viable drugs. None of our cancer product candidates undergoing
clinical testing acts by regulating gene expression. There is limited
scientific understanding generally relating to gene expression and the role of
genes in complex diseases and relatively few products based on gene discoveries
have been developed and commercialized by drug manufacturers. Even if we are
successful in identifying the essential cellular pathways that control the
expression of genes associated with specific diseases, these discoveries may
not lead to the development of drugs. Furthermore, our drug discovery efforts
are focused on a number of target genes, the functions of which have not yet
been fully identified. As a result, the safety and efficacy of drugs that alter
the expression of these genes have not yet been established. As a result, we
cannot assure you that our research and development activities will result in
any commercially viable products. We expect to continue to in-license or
acquire additional product candidates to augment the results of our internal
research activities, and in-licensed candidates may not prove to be successful.
If we cannot maintain our current corporate collaborations and enter into new
corporate collaborations, our product development will be delayed.
We rely, to a significant extent, on our corporate collaborators to provide
funding in support of our research and to jointly conduct some research and
preclinical testing functions, and we cannot control the amount and timing of
resources our corporate collaborators devote to our programs or potential
products. In addition, we expect to rely on our corporate collaborators for
commercialization of some of our products. If any of our corporate
collaborators were to breach or terminate their agreement with us or otherwise
fail to conduct the collaborative activities successfully and in a timely
manner, the preclinical or clinical development or commercialization of the
affected product candidates or research programs could be delayed or
terminated.
The continuation of any of our partnered drug discovery and development
programs may be dependent on the periodic renewal of our corporate
collaborations. All of our corporate collaborations have terms of six or fewer
years, which is less than the period required for the discovery, clinical
development and commercialization of most drugs. Each of our corporate
collaboration agreements provides that, upon expiration of a specified period
after commencement of the agreement, the corporate collaborator has the right
to terminate the agreement on short notice, and each corporate collaboration
agreement, other than the agreement with Roche Bioscience, provides that such
termination does not require cause. Our collaboration with Yamanouchi
Pharmaceutical Co. was terminated by Yamanouchi in November 1996, and our
collaboration with Merck & Co. was terminated by Merck in March 1999. Our
existing corporate collaboration agreements also may terminate before the full
term of the collaborations. Moreover, we may not be able to renew these
collaborations on acceptable terms, if at all. We believe that our Sumitomo
collaboration will expire and not be renewed at the end of its five-year term
in January 2000. Additionally, Taisho has the ability to terminate our
collaboration in March 2000. If funding from one or more of our corporate
collaborations were reduced or terminated, including the expected expiration of
the Sumitomo collaboration, we would be required to devote additional internal
resources to product development or scale back or terminate some development
programs or seek alternative corporate collaborators.
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There have been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced number of
potential future corporate collaborators. If business combinations involving
our corporate collaborators were to occur, the effect could be to diminish,
terminate or cause delays in one or more of our corporate collaborations.
Until recently, our corporate collaboration strategy focused on funding
early-stage research in gene regulation. Over the past two years, as we have
moved beyond the research phase for certain of our programs, our corporate
collaboration strategy has evolved. In addition to seeking collaborations for
our research-stage programs, we also seek to enter into later-stage
collaborations for the development of compounds discovered through our research
and development efforts. The timing of these later-stage collaborations may be
linked to clinical results of our product candidates. As a result, we expect
our net spending on research and development to increase significantly and that
our corporate collaborators will fund a smaller percentage of our expenses than
historically.
We may not be able to negotiate additional corporate collaborations on
acceptable terms, if at all, and these collaborations may not be successful.
Our quarterly operating results may fluctuate significantly depending on the
initiation of new corporate collaboration agreements or the termination of
existing corporate collaboration agreements.
If we do not realize value from our retained commercialization rights, we may
not achieve our commercial objectives.
If we do not effectively exploit the commercialization rights we have
retained, we may not achieve profitability. In most of our corporate
collaborations, we have retained various commercialization rights for the
development and marketing of pharmaceutical products, including rights for
specific pharmaceutical indications or in specified geographical regions. For a
description of programs for which we have retained commercialization rights,
see "Business--Corporate Collaborations." We may take advantage of these
currently retained rights directly or may exploit retained rights through
collaborations with others. The value of these rights, if any, will be largely
derived from our ability, directly or with collaborators, to develop and
commercialize drugs, the success of which is also uncertain.
The exploitation of retained commercialization rights requires sufficient
capital; technological, product development, manufacturing and regulatory
expertise and resources; and marketing and sales personnel. We may not be able
to develop or obtain these resources in sufficient quantity or of a sufficient
quality level to enable us to achieve our objectives. To the extent that we are
required to rely on third parties for these resources, failure to establish and
maintain our relationships will affect our ability to realize value from our
retained commercialization rights. If we seek to commercialize products for
which we have retained rights through joint ventures or collaborations, we may
be required to relinquish material rights on terms that may not be favorable to
us. We do not know whether we will be able to enter into any agreements on
acceptable terms, if at all, or that we will be able to realize any value from
our retained commercialization rights.
If we fail to obtain the capital necessary to fund our operations, we will be
unable to successfully develop products.
We expect that significant additional financing will be required in the
future to fund operations. We do not know whether additional financing will be
available when needed, or that, if available, we will obtain financing on terms
favorable to our stockholders or us. We have consumed substantial amounts of
cash to date and expect capital outlays and operating expenditures to increase
over the next several years as we expand our infrastructure and research and
development activities. We may raise this financing through public or private
equity offerings, debt financings or additional corporate collaboration and
licensing arrangements.
We believe that the net proceeds from this offering, existing cash and
investment securities and anticipated cash flow from existing collaborations
will be sufficient to support our current operating plan through at least
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the end of 2001. We have based this estimate on assumptions that may prove to
be wrong. Our future capital requirements depend on many factors, including:
. the progress of our research activities;
. the number and scope of our research programs;
. the progress of our preclinical and clinical development activities;
. the progress of the development efforts of our collaborators;
. our ability to establish and maintain current and new collaboration and
licensing arrangements;
. our ability to achieve our milestones and receive funding under
collaboration arrangements;
. the costs involved in enforcing patent claims and other intellectual
property rights;
. the costs and timing of regulatory approvals; and
. the costs of establishing sales, marketing and distribution capabilities.
To the extent we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. To the extent that we raise
additional funds through collaboration and licensing arrangements, we may be
required to relinquish some rights to our technologies or product candidates,
or grant licenses on terms that are not favorable to us. If adequate funds are
not available, we will not be able to continue developing our products.
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations.
We have generated operating losses since we began operations in November
1991. The extent of our future losses and the timing of profitability are
highly uncertain, and we may never achieve profitable operations. We have been
engaged in discovering and developing drugs since inception, which requires
significant research and development expenditures. To date, we have no products
that have generated any revenue. As of June 30, 1999, we had an accumulated
deficit of approximately $71.7 million. Even if we succeed in developing a
commercial product, we expect to incur losses for at least the next several
years and expect that these losses will increase as we expand our research and
development activities. If the time required to generate product revenues and
achieve profitability is longer than anticipated, we may not be able to
continue our operations. If we fail to obtain the necessary capital, we will
not be able to fund our operations.
The inability to compete successfully will harm our revenues and operating
results.
We face intensifying competition from large pharmaceutical and biotechnology
companies that are pursuing drugs that are competitive with our product
candidates and prospective product candidates. Our commercial opportunity will
be reduced or eliminated if our competitors develop and market products that
are more effective, have fewer side effects or are less expensive than our
product candidates. Our competitors include fully integrated pharmaceutical
companies and biotechnology companies that currently have drug and target
discovery efforts. In addition, companies pursuing different but related fields
represent substantial competition. Many of the organizations competing with us
have substantially greater capital resources, larger research and development
staffs and facilities, greater experience in drug development and in obtaining
regulatory approvals and greater marketing capabilities than we do. These
companies also compete with us to:
. attract qualified personnel;
. attract parties for acquisitions, joint ventures or other collaborations;
. attract academic research institutions as collaborators; and
. license the proprietary technology of these institutions that is
competitive with the technology we are practicing.
If our competitors successfully enter into partnering arrangements or license
agreements with academic research institutions, we will then be precluded from
pursuing those specific opportunities. Since each of these opportunities is
unique, we may not be able to find an acceptable substitute.
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Universities and public and private research institutions are also
competitors. While these organizations primarily have educational objectives,
they may develop proprietary technology and acquire patents that we may need
for the development of our drug products. We will attempt to license this
proprietary technology, if available. These licenses may not be available to us
on acceptable terms, if at all. In addition, we compete with a number of these
organizations to recruit personnel, especially scientists and technicians.
With respect to our drug discovery programs, other companies have novel small
molecule drugs in clinical trials to treat each of the diseases for which we
are seeking to discover and develop product candidates. These competing
potential drugs are further advanced in development than are any of our
potential products and may result in effective, commercially successful
products. Even if our collaborators or we are successful in developing
effective drugs, our products may not compete effectively with these products
or other successful products. Our competitors may succeed in developing and
marketing products either that are more effective than those that we may
develop, alone or with our collaborators, or that are marketed before any
products we develop are marketed.
Protecting our proprietary rights is difficult and costly.
Our commercial success will depend in part on obtaining patent protection on
our products and successfully defending these patents against third party
challenges. As of September 30, 1999, 44 U.S. patents based on our discoveries
have been issued or allowed. In addition, as of that date, we had 47 patent
applications pending in the United States and had filed several corresponding
foreign patent applications in multiple countries. The patent positions of
pharmaceutical and biotechnology companies can be highly uncertain and involve
complex legal and factual questions. No consistent policy regarding the breadth
of claims allowed in biotechnology patents has emerged to date. Accordingly, we
cannot predict the breadth of claims allowed in these companies' patents.
The degree of future protection for our proprietary rights is uncertain, and
we cannot assure you that:
. we were the first to make the inventions covered by each of our pending
patent applications;
. we were the first to file patent applications for these inventions;
. others will not independently develop similar or alternative technologies
or duplicate any of our technologies;
. any of our pending patent applications will result in issued patents;
. any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
. we will develop additional proprietary technologies that are patentable;
or
. the patents of others will not have an adverse effect on our ability to
do business.
In addition, we could incur substantial costs in litigation if we are
required to defend against patent suits brought by third parties or if we
initiate these suits.
Others may have filed and in the future are likely to file patent
applications covering genes, gene products or therapeutic products that are
similar or identical to ours. We cannot assure you that any patent application
will not have priority over patent applications filed by us. Any legal action
against our collaborators or us claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could, in
addition to subjecting us to potential liability for damages, require our
collaborator or us to obtain a license to continue to manufacture or market the
affected products and processes. We cannot predict whether we or our
collaborators would prevail in any of these actions or that any license
required under any of these patents would be made available on commercially
acceptable terms, if at all. We believe that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If we become involved in litigation, it could consume a substantial
portion of our managerial and financial resources.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. We may not be able to adequately protect our trade
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secrets or other proprietary information. While we require employees, academic
collaborators and consultants to enter into confidentiality agreements, we
cannot assure you that:
. proprietary information will not be disclosed;
. others will not independently develop substantially equivalent
proprietary information and techniques;
. others will not gain access to our trade secrets or disclose this
technology;
. these obligations of confidentiality will be honored; or
. we can meaningfully protect our rights to proprietary information.
We are a party to various license agreements that give us rights to use
specified technologies in our research and development processes. If we are not
able to continue to license this technology on commercially reasonable terms,
our product development and research may be delayed. In addition, we generally
do not control the prosecution of in-licensed technology, and accordingly are
unable to exercise the same degree of control over this intellectual property
as we exercise over our internally developed technology.
Our research collaborators and scientific advisors have rights to publish
data and information in which we have rights. If we cannot maintain the
confidentiality of our technology and other confidential information in
connection with our collaborations, then our ability to receive patent
protection or protect our proprietary information will be imperiled.
If we are unable to contract with third parties to manufacture our drug
products in sufficient quantities and at an acceptable cost, we may be unable
to meet demand for our products and lose potential revenues.
Completion of our clinical trials and commercialization of our product
candidates require access to, or development of, facilities to manufacture a
sufficient supply of our product candidates. We do not intend to develop or
acquire facilities for the manufacture of product candidates for clinical
trials or commercial purposes in the foreseeable future. We will depend on our
collaborators or third parties for the manufacture of compounds for
preclinical, clinical and commercial purposes in their FDA-approved
manufacturing facilities. Our products may be in competition with other
products for access to these facilities. Consequently, our products may be
subject to delays in manufacture if collaborators or outside contractors give
other products greater priority than our products. For this and other reasons,
our collaborators or third parties may not be able to manufacture these
products in a cost-effective or timely manner. If not performed in a timely
manner, the clinical trial development of our product candidates or their
submission for regulatory approval could be delayed, and our ability to deliver
products on a timely basis could be impaired or precluded. We may not be able
to enter into any necessary third-party manufacturing arrangements on
acceptable terms, if at all. Our current dependence upon others for the
manufacture of our products may adversely affect our future profit margin and
our ability to commercialize products on a timely and competitive basis. In
particular, our current supply of finished product of lometrexol is limited and
may not be sufficient for completion of all phases of clinical development. The
manufacture of lometrexol is complex, and it may be difficult to efficiently
manufacture or to secure an adequate supply of this compound in a timely manner
or on an economical basis.
If we are unable to create a sales, marketing and distribution capability or to
enter into agreements with third parties to do so, our ability to generate
revenues will be diminished.
We currently have no sales, marketing or distribution capability. We intend
to market some products directly and rely on relationships with one or more
pharmaceutical companies with established distribution systems and direct sales
forces to market other products. To market any of our products directly, we
must develop a marketing and sales force with technical expertise and with
supporting distribution capabilities. We may not be able to establish in-house
sales and distribution capabilities or relationships with third parties. To the
extent that we enter into co-promotion or other licensing arrangements, any
revenues we receive will depend upon the efforts of third parties, and these
efforts may not be successful.
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If we fail to obtain acceptable prices, or an adequate level of reimbursement,
for our drug products from third-party payors, our ability to generate revenues
will be diminished.
The continuing efforts of government and third-party payors to contain or
reduce the costs of health care through various means will adversely affect our
ability to successfully commercialize products. For example, in some foreign
markets, pricing and profitability of prescription pharmaceuticals are subject
to government control. In the United States, we expect that there will continue
to be a number of federal and state proposals to implement similar government
control. In addition, increasing emphasis on managed care in the United States
will continue to put pressure on the pricing of pharmaceutical products. Cost
control initiatives could decrease the price that any of our collaborators or
we would receive for any products in the future. Further, to the extent that
cost control initiatives have an adverse effect on our collaborators, our
collaborators' ability to commercialize our products, and our ability to
realize royalties from this commercialization, may be adversely affected.
Our ability to commercialize pharmaceutical products, alone or with
collaborators, may depend in part on the extent to which reimbursement for the
products will be available from:
. government and health administration authorities;
. private health insurers; and
. other third-party payors.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products. Third-party payors, including Medicare, are
challenging the prices charged for medical products and services. Government
and other third-party payors increasingly are attempting to contain health care
costs by limiting both coverage and the level of reimbursement for new drugs
and by refusing, in some cases, to provide coverage for uses of approved
products for disease indications for which the FDA has not granted labeling
approval. Third-party insurance coverage may not be available to patients for
any products we discover and develop, alone or with collaborators. If
government and other third-party payors do not provide adequate coverage and
reimbursement levels for our products, the market acceptance of these products
may be reduced.
Our collaborators, advisors and directors may have interests that are adverse
to you.
If conflicts arise between us and our corporate or academic collaborators or
scientific advisors, the other party may act in its self-interest and not in
the interest of our stockholders or us. Some of our corporate or academic
collaborators are conducting multiple product development efforts within each
disease area that is the subject of the collaboration with us. Generally, in
each of our collaborations, we have agreed not to conduct independently, or
with any third party, any research that is competitive with the research
conducted under our collaborations. Our collaborations may have the effect of
limiting the areas of research that we may pursue, either alone or with others.
Our collaborators, however, may develop, either alone or with others, products
in related fields that are competitive with the products or potential products
that are the subject of these collaborations. Competing products, either
developed by the collaborators or to which the collaborators have rights, may
result in their withdrawal of support for our product candidates.
Genentech, Inc. is a potential competitor of ours and is one of our
investors. David V. Goeddel, our Chief Executive Officer and a member of our
Board of Directors, is a consultant to Genentech. Mark J. Levin, a member of
our Board of Directors, is Chairman, President and Chief Executive Officer of
Millennium Pharmaceuticals, Inc., and Grant Heidrich, a member of our Board of
Directors, also serves on the board of directors of Millennium. Millennium has
publicly disclosed that it is pursuing an obesity program that is competitive
with, and may have scientific overlap with, our program.
We may incur significant costs if Year 2000 compliance issues are not properly
addressed.
We use and rely on a wide variety of information technologies, computer
systems and scientific equipment containing computer-related components, such
as programmable logic controllers and other embedded systems.
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Some of our older computer software programs and equipment are unable to
distinguish between the year 1900 and the year 2000. As a result, time-
sensitive functions of those software programs and equipment may misinterpret
dates after January 1, 2000 to refer to the twentieth century rather than the
twenty-first century. This could cause system or equipment shutdowns, failures
or miscalculations resulting in inaccuracies in computer output or disruptions
of operations, including inaccurate processing of financial information and/or
temporary inabilities to engage in normal business activities. In addition to
risks associated with our own computer systems and equipment, we have
relationships with, and are to varying degrees dependent upon, a large number
of third parties that provide information, goods and services to us. These
include financial institutions, suppliers, vendors, research partners and
governmental entities.
We have largely completed our assessment of our internal systems affected by
the Year 2000 issue and anticipate that we will not be required to modify or
replace significant portions of our software so that our computer systems will
properly utilize dates past December 31, 1999. We have initiated communications
with our significant suppliers to determine the extent to which we are
vulnerable to those parties' failure to solve their own Year 2000 issues. At
this time, we cannot predict the level of year 2000 readiness with respect to
our significant suppliers. We intend to continue to monitor the progress of
these third parties and will develop contingency plans in the event we become
aware that one or more of these third parties fails to solve their Year 2000
issues in such a way as to materially adversely affect our operations. If
significant numbers of these third parties experience failures in their
computer systems or equipment due to Year 2000 non-compliance, it could affect
our ability to engage in normal business activities.
Year 2000 issues affecting our business, if not adequately addressed by us,
our significant suppliers and our significant service providers could have a
number of "worst case" consequences. These include the loss of historical data
and our inability to continue our research efforts.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities.
The testing and marketing of medical products entail an inherent risk of
product liability. An inability to obtain sufficient product liability
insurance at an acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of pharmaceutical
products we develop, alone or with corporate collaborators. We currently carry
clinical trial insurance but do not carry product liability insurance. Our
corporate collaborators or we may not be able to obtain insurance at a
reasonable cost, if at all. While under various circumstances we are entitled
to be indemnified against losses by our corporate collaborators,
indemnification may not be available or adequate should any claim arise. If we
cannot successfully defend ourselves against these claims, we may incur
substantial liabilities and our operations will be harmed.
If we use biological and hazardous materials in a manner that violates laws, we
may be liable for damages.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We are subject to federal, state
and local laws and regulations governing the use, storage, handling and
disposal of these materials and specified waste products. The cost of
compliance with these laws and regulations could be significant. Although we
believe that our safety procedures for handling and disposing of these
materials comply with the standards prescribed by state and federal laws and
regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of contamination or
injury, we could be held liable for damages that result, and any liability
could exceed our resources.
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RISKS RELATED TO THE OFFERINGS
If our officers, directors and largest stockholders choose to act together,
they may be able to control our management and operations, acting in their best
interests and not necessarily those of other stockholders.
Following completion of the offerings, our directors, executive officers and
principal stockholders and their affiliates will beneficially own approximately
% of our common stock. Accordingly, they collectively will have the ability
to determine the election of all of our directors and to determine the outcome
of most corporate actions requiring stockholder approval. They may exercise
this ability in a manner that advances their best interests and not necessarily
those of other stockholders.
In particular, Pharma Vision 2000 AG, a closed-end mutual fund investing in
pharmaceutical companies such as Roche, Glaxo and Hoechst, currently owns
approximately 23.5% of our outstanding common stock. Pharma Vision has
expressed an interest in acquiring directly from us concurrently with the
public offerings additional shares of common stock that would allow it to
maintain its percentage ownership. Peter Sjostrand, a member of our Board of
Directors, and David V. Goeddel, our Chief Executive Officer and a member of
our Board of Directors, are members of the board of directors of Pharma Vision.
Pharma Vision is not a party to any standstill or other agreement limiting its
ability to acquire additional shares of our capital stock and may in the
future, through open market purchases or otherwise, acquire additional shares
of our common stock.
Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us, which may be beneficial to our stockholders, more
difficult.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would benefit our stockholders.
These provisions:
. establish that members of the board of directors may be removed only for
cause upon the affirmative vote of stockholders owning at least two-
thirds of our capital stock;
. authorize the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. limit who may call a special meeting of stockholders;
. prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
. establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon at
stockholder meetings.
In addition, until November 2000, Section 203 of the Delaware General
Corporation Law may discourage, delay or prevent a third party from acquiring
us.
Our stock price may be volatile, and your investment in our stock could decline
in value.
Prior to this offering, there has been no public market for the common stock
and an active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price will be
determined by negotiations between the representatives of the underwriters and
us and may not be indicative of future market prices. Among the factors to be
considered in determining the initial public offering price of the common
stock, in addition to prevailing market conditions, will be:
. estimates of our business potential and earnings prospects;
. an assessment of our management; and
. the consideration of the above factors in relation to market valuations
of companies in related businesses.
The market prices for securities of biotechnology companies in general have
been highly volatile and may continue to be highly volatile in the future. The
following factors, in addition to other risk factors described in this section,
may have a significant impact on the market price of our common stock:
. announcements of technological innovations or new commercial products by
our competitors or us;
. developments concerning proprietary rights, including patents;
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. developments concerning our collaborations;
. publicity regarding actual or potential medical results relating to
products under development by our competitors or us;
. regulatory developments in the United States and foreign countries;
. litigation;
. economic and other external factors or other disaster or crisis; or
. period-to-period fluctuations in financial results.
Substantial sales of shares may impact market price of our common stock.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. Such sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. After completion of the offerings, we
will have outstanding 41,521,375 shares of common stock, including 1,468,750
shares sold to Pharma Vision in the direct offering, and assuming no exercise
of outstanding options or warrants after September 30, 1999 and no exercise of
the underwriters' over-allotment option. Of these shares, the following will be
available for sale in the public market as follows:
. Unless held by affiliates, the 4,781,250 shares sold in the public
offerings, the 1,468,750 shares sold to Pharma Vision in the direct
offering and an additional 2,142,474 shares will be freely tradable upon
completion of the offerings;
. 424,249 shares will be eligible for sale beginning 90 days after the date
of this prospectus;
. 32,704,652 shares will be eligible for sale upon the expiration of lock-
up agreements, beginning 180 days after the date of this prospectus; and
. 3,709,202 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
In addition, holders of 26,953,539 shares of common stock, including warrants
to purchase 1,015,091 shares, have contractual rights to have those shares
registered with the SEC for resale to the public. We intend to file a
registration statement on Form S-8 covering an aggregate of 6,371,768 shares
issuable upon exercise of options to purchase common stock and common stock
reserved for issuance under our stock plans within 90 days after the effective
date of the Registration Statement of which this prospectus is a part and upon
filing any shares subsequently issued under these plans will be eligible for
sale in the public market, subject to compliance with Rule 144 in the case of
our affiliates. We are unable to predict the effect that sales may have on the
then prevailing market price of the common stock.
The offerings will cause dilution in net tangible book value.
Purchasers in the public offerings and the direct offering will experience
immediate and substantial dilution in the net tangible book value of the common
stock from the initial public offering price. Additional dilution is likely to
occur upon exercise of options and warrants granted by us.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements contained in this prospectus are forward-looking statements
concerning our operations, economic performance and financial condition.
Forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, are included, for example, in the
discussions about:
. our strategy;
. sufficiency of our cash resources;
. revenues from existing and new collaborations;
. product development;
. our research and development and other expenses;
. our operational and legal risks; and
. Year 2000 issues.
These statements involve risks and uncertainties. Actual results may differ
materially from those expressed or implied in those statements. Factors that
could cause these differences include, but are not limited to, those discussed
under "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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USE OF PROCEEDS
The net proceeds to us from the sale of the 4,781,250 shares of common stock
in the public offerings are estimated to be $52,858,750 ($60,862,557 if the
underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $12.00 per share and after deducting the estimated
underwriting discount and offering expenses. In addition, we will receive
$17,265,000 ($20,268,756 if the underwriters' over-allotment option is
exercised in full) of additional proceeds if the direct offering to Pharma
Vision is consummated. We intend to use the net proceeds for research and
development and general corporate purposes. We may also use a portion of the
net proceeds to acquire or invest in businesses, products and technologies that
are complementary to our own, although no acquisitions are planned or being
negotiated as of the date of this prospectus, and no portion of the net
proceeds has been allocated for any specific acquisition. Pending these uses,
the net proceeds will be invested in investment-grade interest-bearing
securities.
The principal purposes of the offerings are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus we cannot specify with certainty all of the particular uses for the
net proceeds we will have upon completion of the offerings. Accordingly, our
management will have broad discretion in the application of net proceeds.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable
future.
20
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of June 30, 1999.
Our capitalization is also presented:
. on a pro forma basis to give effect to the automatic conversion of all of
our preferred stock into an aggregate of 26,953,539 shares of common
stock, which will occur upon the closing of the offerings; and
. on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from the sale of 4,781,250 shares of common stock in the public
offerings and 1,468,750 shares of common stock to Pharma Vision in the
direct offering at an assumed initial public offering price of $12.00 per
share, after deducting the estimated underwriting discount and offering
expenses.
<TABLE>
<CAPTION>
As of June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
amounts)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 11,171 $ 11,171 $ 11,171
Stockholders' equity:
Preferred stock, $0.001 par value, 33,000,000
shares authorized, 26,953,539 shares issued
and outstanding, actual, none issued
pro forma and pro forma as adjusted......... 27 -- --
Common stock, $0.001 par value; 55,000,000
shares authorized; 8,160,862 shares issued
and outstanding, actual; 35,114,401 shares
issued and outstanding, pro forma; and
41,364,401 shares issued and outstanding,
pro forma as adjusted....................... 8 35 41
Additional paid-in capital................... 181,224 181,224 251,342
Notes receivable from stockholders........... (482) (482) (482)
Deferred compensation........................ (5,705) (5,705) (5,705)
Accumulated deficit.......................... (71,736) (71,736) (71,736)
-------- -------- --------
Total stockholders' equity................. 103,336 103,336 173,460
-------- -------- --------
Total capitalization..................... $114,507 $114,507 $184,631
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after the offerings is
based on the number of shares outstanding as of June 30, 1999 and excludes:
. 6,044,896 shares of common stock underlying options outstanding as of
June 30, 1999 at a weighted average exercise price of $2.22 per share;
. 1,015,091 shares of common stock underlying warrants outstanding as of
June 30, 1999 at a weighted average exercise price of $10.17 per share;
. 496,929 shares available for issuance or future grant under our stock
option plans; and
. 500,000 shares available for issuance under our employee stock purchase
plan.
See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included in this prospectus.
21
<PAGE>
DILUTION
The pro forma net tangible book value of the common stock as of June 30, 1999
was $103.3 million or $2.94 per share, after giving effect to the automatic
conversion of all outstanding shares of preferred stock into an aggregate of
26,953,539 shares of common stock, which will occur upon the closing of the
offerings. After giving effect to the sale of the common stock pursuant to the
public offerings and the direct offering to Pharma Vision at an assumed initial
public offering price of $12.00 per share, assuming that the underwriters'
over-allotment options are not exercised, and after deducting the estimated
underwriting discount and offering expenses, the adjusted pro forma net
tangible book value at June 30, 1999, would have been $172.6 million, or $4.17
per share.
Pro forma net tangible book value per share before the offerings has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at June 30, 1999. The offerings will result in an increase in pro
forma net tangible book value per share of $1.23 to existing stockholders and
dilution in pro forma net tangible book value per share of $7.83 to new
investors who purchase shares in the public offerings and the direct offering.
Dilution is determined by subtracting pro forma net tangible book value per
share after the public offerings and the direct offering from the assumed
initial public offering price of $12.00 per share. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $12.00
Pro forma net tangible book value per share at June 30, 1999.. $2.94
Increase attributable to new investors........................ 1.23
-----
Pro forma net tangible book value per share after the public
offerings and the direct offering............................ 4.17
------
Dilution in net tangible book value to new investors.......... $ 7.83
======
</TABLE>
If the underwriters' over-allotment options were exercised in full, the pro
forma net tangible book value per share after the offerings would be $4.33 per
share, the increase in net tangible book value per share to existing
stockholders would be $1.39 per share and the dilution in net tangible book
value to new investors would be $7.67 per share.
The following table summarizes, on a pro forma basis as of June 30, 1999, the
differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based on an assumed
public offering price of $12.00 per share:
<TABLE>
<CAPTION>
Shares Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
New investors................. 6,250,000 15.1% $ 75,000,000 30.0% $12.00
Existing stockholders......... 35,114,401 84.9 174,683,000 70.0 4.97
---------- ----- ------------ -----
Total....................... 41,364,401 100.0% $249,683,000 100.0%
========== ===== ============ =====
</TABLE>
These tables do not assume exercise of stock options and warrants outstanding
at June 30, 1999 and include 557,880 shares subject to repurchase by us at a
weighted average price of $1.84.
At June 30, 1999, there were 6,044,896 shares of common stock issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$2.22 per share and 1,015,091 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $10.17 per share.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our historical consolidated financial data. You should
read carefully the consolidated financial statements included in this
prospectus, including the notes to the consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected data in this section is not intended to replace the
consolidated financial statements.
We derived the consolidated statement of operations data for the years ended
December 31, 1996, 1997 and 1998 and the consolidated balance sheet data as at
December 31, 1997 and 1998 from the audited consolidated financial statements
included in this prospectus. Ernst & Young LLP, our independent auditors,
audited these consolidated financial statements. The consolidated statement of
operations data for the years ended December 31, 1994 and 1995 and the
consolidated balance sheet data at December 31, 1994, 1995 and 1996 are derived
from our audited financial statements that are not included in this prospectus.
The consolidated statement of operations data for the periods ended June 30,
1998 and 1999 and the consolidated balance sheet data at June 30, 1999 are
derived from our unaudited consolidated financial statements but have been
prepared on a basis consistent with our audited financial statements and the
notes thereto and include all adjustments (consisting only of normal recurring
adjustments) that we consider necessary for a fair presentation of the
information. Historical results are not necessarily indicative of future
results. See notes to the consolidated financial statements for an explanation
of the method used to determine the number of shares used in computing pro
forma basic and diluted loss per share.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenue:
Collaborative research
and development...... $ 5,618 $ 11,124 $ 15,297 $ 20,009 $ 21,362 $ 8,962 $ 11,993
Operating expenses:
Research and
development.......... 9,934 13,473 18,622 26,546 33,264 16,003 20,951
Acquired in-process
research and
development.......... -- -- -- 18,902 -- -- --
General and
administrative....... 2,219 2,507 3,630 4,020 5,002 2,421 2,648
Amortization of
deferred stock
compensation......... -- -- -- -- 31 -- 840
-------- -------- -------- -------- -------- ------- --------
12,153 15,980 22,252 49,468 38,297 18,424 24,439
-------- -------- -------- -------- -------- ------- --------
Loss from operations.... (6,535) (4,856) (6,955) (29,459) (16,935) (9,462) (12,446)
Interest income, net.... 637 1,249 1,475 4,085 6,396 3,279 2,567
-------- -------- -------- -------- -------- ------- --------
Net loss................ $ (5,898) $ (3,607) $ (5,480) $(25,374) $(10,539) $(6,183) $ (9,879)
======== ======== ======== ======== ======== ======= ========
Pro forma basic and
diluted net loss per
share.................. $ (0.31) $ (0.29)
======== ========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 33,687 34,110
======== ========
<CAPTION>
December 31,
------------------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and marketable
securities............. $ 22,338 $ 25,181 $ 77,078 $124,406 $119,324 $111,197
Working capital......... 15,236 15,193 69,394 116,527 94,535 95,007
Total assets............ 28,395 29,617 83,409 133,522 136,778 133,926
Long-term debt, net of
current portion........ 2,477 1,712 2,128 3,456 4,734 11,171
Deferred compensation... -- -- -- -- (679) (5,705)
Accumulated deficit..... (16,857) (20,464) (25,944) (51,318) (61,857) (71,736)
Total stockholders' eq-
uity................... 18,435 17,753 72,905 120,856 110,898 103,336
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the
"Selected Consolidated Financial Data," consolidated financial statements and
related notes included elsewhere in this prospectus.
Overview
Since our founding in November 1991, we have been engaged in the discovery
and development of a broad range of novel, small molecule drugs, most of which
act through the regulation of gene expression. We have incurred net losses
since inception and expect to incur substantial and increasing losses for at
least the next several years as we expand our research and development
activities. To date, we have funded our operations primarily through the sale
of equity securities, non-equity payments from collaborators and interest
income. As of June 30, 1999, our accumulated deficit was approximately $71.7
million. We expect our sources of revenue, if any, for the next several years
to consist primarily of payments under corporate collaborations and interest
income. The process of developing our products will require significant
additional research and development, preclinical testing and clinical trials,
as well as regulatory approval. These activities, together with our general and
administrative expenses, are expected to result in substantial operating losses
for the foreseeable future. We will not receive product revenue unless we or
our collaborative partners complete clinical trials, obtain regulatory approval
and successfully commercialize one or more of our products.
In order to accelerate product commercialization and finance research
activities, we have entered into collaborations with leading pharmaceutical
companies. We have ongoing collaborations with Knoll relating to obesity
(commenced in November 1998); JT relating to orphan nuclear receptors
(commenced in September 1998); Roche Bioscience relating to inflammation
(commenced in July 1997); JT relating to obesity/diabetes (commenced in
September 1996); Taisho relating to immune disorders (commenced in April 1995);
and Sumitomo relating to hypercholesterolemia (commenced in January 1995).
Previously, we also had collaborations with Yamanouchi relating to inflammation
(commenced in November 1993, ended in November 1996) and with Merck relating to
viral disease (commenced in December 1993, ended in March 1999). As of June 30,
1999, we had received $13.0 million in equity investments and $95.8 million in
research funding from our collaborators, including $14.0 million from
Yamanouchi and $20.4 million from Merck.
Acquisition
On October 31, 1997, we acquired Amplicon Corp., a research organization
engaged principally in identifying and characterizing human genes involved in
certain cancers. In connection with the acquisition, we issued 1,622,057 shares
of preferred stock and warrants to acquire an additional 245,456 shares of
preferred stock in exchange for all of Amplicon's outstanding capital stock. In
addition, all outstanding stock options to purchase Amplicon common stock were
replaced with options and warrants to purchase shares of our preferred stock.
The acquisition was recorded using the purchase method of accounting.
Accordingly, we allocated the purchase price to the assets acquired and
liabilities assumed based on their estimated fair values as of the date of
acquisition. The operating results of Amplicon are included in our consolidated
statements of operations data from the effective date of the acquisition.
At the date of the acquisition, Amplicon's activities consisted solely of
performing early-stage research and development to identify relevant genes that
may result in the development of diagnostic and therapeutic products for the
treatment of cancer. To date, no products have been developed and the future
benefits of the technology remain uncertain. To determine the value of the
technology in development, we considered, among other factors, the time and
resources necessary to identify, characterize, develop and obtain regulatory
approval for potential cancer diagnostics and therapeutics, and the related
market size and potential cash flows from developed products. We also
considered the risks associated with the development process, including the
inherent difficulties and uncertainties in successfully developing diagnostic
and therapeutic products, thereby achieving technological feasibility, and the
risks related to changes in target markets. Our analysis, performed
24
<PAGE>
using the income method, resulted in $18.9 million being charged to acquired
in-process research and development, which we believe represented the fair
value of the technology and did not exceed the amount a third party would pay
for the technology. Due to the uncertainties of the discovery process, we are
not able to predict the time and resources that will be necessary to obtain
regulatory approval for a product discovered using the acquired technology.
Stock Compensation
During the year ended December 31, 1998 and the six months ended June 30,
1999, in connection with the grant of stock options to employees, we recorded
deferred stock compensation totaling $6.6 million, representing the difference
between the deemed fair value of our common stock for financial reporting
purposes on the date such options were granted and the exercise price. Such
amount is included as a reduction of stockholders' equity and is being
amortized over the vesting period of the individual options, generally four
years, using the graded vesting method. The graded vesting method provides for
vesting of portions of the overall award at interim dates and results in higher
vesting in earlier years than straight-line vesting. We recorded amortization
of deferred stock compensation of $31,000 for the year ended December 31, 1998
and $840,000 for the six months ended June 30, 1999. At June 30, 1999, we had a
total of $5.7 million remaining to be amortized over the vesting periods of the
stock options. We anticipate that additional deferred compensation will be
recorded for options granted between July 1 and September 30, 1999. You should
read Note 2 of notes to consolidated financial statements.
Results of Operations
Six Months Ended June 30, 1999 and 1998
Collaborative research and development revenue. Collaborative research and
development revenue was $12.0 million for the six months ended June 30, 1999,
compared with $9.0 million during the six months ended June 30, 1998. The
increase in 1999 was principally attributable to revenue from new corporate
collaboration agreements signed in the second half of 1998. These included
agreements with JT in the area of orphan nuclear receptors and with Knoll in
obesity. The effect of these new agreements was partially offset by lower
revenue from the collaboration with Merck, which ended in March 1999. We expect
collaborative research and development revenue to decline for the foreseeable
future as existing collaborations end in accordance with their terms. We
believe that our Sumitomo collaboration will expire and not be renewed at the
end of its five-year term in January 2000. Additionally, Taisho has the ability
to terminate our collaboration with them in March 2000. Until recently, our
corporate collaboration strategy focused on funding early-stage research in
gene regulation. Over the past two years, as we have moved beyond the research
phase for certain of our programs, our corporate collaboration strategy has
evolved. In addition to seeking corporate collaborations for our research-stage
programs, we also seek to enter into later-stage collaborations for the
development of compounds discovered through our research and development
efforts. The timing of these later-stage collaborations may be linked to
clinical results of our product candidates.
Research and development expenses. Research and development expenses were
$21.0 million for the six months ended June 30, 1999, compared with $16.0
million during the six months ended June 30, 1998. This increase was primarily
attributable to increases in employee costs, clinical and preclinical costs and
higher occupancy costs associated with a second building at our South San
Francisco, California facility, which we occupied in January 1999. We expect
research and development expenses to increase significantly in future periods,
particularly as new and existing product candidates advance into later stages
of development. Additionally, we expect that corporate collaborations will fund
a smaller percentage of our research and development expenses than
historically.
General and administrative expenses. General and administrative expenses were
$2.6 million for the six months ended June 30, 1999, compared with $2.4 million
during the six months ended June 30, 1998. This increase was primarily
attributable to higher employee and occupancy costs. We expect that general and
administrative expenses will increase in the future to support continued growth
of our research and development efforts and to accommodate new demands
associated with operating as a public company.
25
<PAGE>
Amortization of deferred compensation. Amortization of deferred stock
compensation was $840,000 for the six months ended June 30, 1999. There was no
amortization of deferred stock compensation for the six months ended June 30,
1998. We recorded aggregate deferred stock compensation of $6.6 million in the
period from July 1, 1998 through June 30, 1999 for options awarded to employees
with exercise prices below the deemed fair value for financial reporting
purposes of our common stock on their respective grant dates.
Interest income, net. Net interest income was $2.6 million for the six months
ended June 30, 1999, compared with $3.3 million during the corresponding period
in 1998. The decrease in net interest income resulted from lower average
interest-bearing balances and higher debt balances during the 1999 period.
Years Ended December 31, 1998, 1997 and 1996
Collaborative research and development revenue. Collaborative research and
development revenue was $21.4 million in 1998, compared with $20.0 million in
1997 and $15.3 million in 1996. The increase in 1998 was principally
attributable to revenue from new collaboration agreements signed in 1998 with
JT in the area of orphan nuclear receptors and Knoll in obesity. The increase
in 1997 compared with 1996 was primarily due to a new collaboration with Roche
Bioscience to provide funding for our inflammation program after the
termination by Yamanouchi and the first full year of our collaboration with
Japan Tobacco in obesity/diabetes. These factors were partially offset by the
termination by Yamanouchi in November 1996 of its collaboration with us in the
inflammation area, which had accounted for $4.7 million of collaborative
research and development revenue during 1996.
Research and development expenses. Research and development expenses were
$33.3 million in 1998, compared with $26.5 million in 1997 and $18.6 million in
1996. The increase in 1998 was primarily attributable to increases in employee
costs and clinical and preclinical development expenses as we added a research
program in the area of orphan nuclear receptors, acquired Amplicon and
increased the level of resources committed to existing research efforts.
Employee costs and development expenses also contributed to the increase in
research and development expenses in 1997 as compared with 1996. In addition,
1997 was our first full year in a new facility in South San Francisco,
California, which we occupied in April 1996 to accommodate our growth. This new
facility led to higher occupancy costs in 1997 than we incurred in 1996.
Acquired in-process research and development of $18.9 million was written-off
during 1997 in connection with our acquisition of Amplicon, which was effective
October 31, 1997. You should read Note 6 of the notes to consolidated financial
statements.
General and administrative expenses. General and administrative expenses were
$5.0 million, $4.0 million and $3.6 million in 1998, 1997 and 1996,
respectively. These increases reflected higher employee costs associated with
growth of most functional areas in support of our expanding research and
development activities. During this three-year period, general and
administrative expenses increased an aggregate 39% compared with 79% growth in
research and development expenses.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation was $31,000 in 1998. There was no amortization of deferred stock
compensation in 1997 and 1996. In 1998, we recorded deferred stock compensation
of approximately $710,000 for options awarded to employees with exercise prices
below the deemed fair value for financial reporting purposes of our common
stock on their respective grant dates.
Interest income, net. Net interest income was $6.4 million, $4.1 million and
$1.5 million in 1998, 1997 and 1996, respectively. These increases were due
primarily to sequentially higher interest-bearing balances as a result of
preferred stock financings in 1997 and 1996.
Liquidity and Capital Resources
Since inception, our primary sources of funds have been the sale of equity
securities, non-equity payments from collaborators and interest income. As of
June 30, 1999, we had raised $159.9 million from the sale of
26
<PAGE>
equity securities, including $13.0 million from collaborators, and received
$95.8 million in non-equity payments from collaborators. Aggregate interest
income earned since our inception was $20.0 million through June 30, 1999.
We had cash, cash equivalents and marketable securities of $111.2 million at
June 30, 1999, a decrease of $8.1 million from December 31, 1998. Cash used in
operations during the six months ended June 30, 1999 was $12.1 million. Cash
used for purchases of equipment and leasehold improvements totaled $5.8 million
during the six months ended June 30, 1999 and cash received from financing
activities, principally equipment financing and stock option exercises, was
$9.8 million. We expect operating spending to increase in the future as we
expand operations to support the development of new and existing product
candidates while capital spending is expected to decrease moderately from 1999
levels now that leasehold improvements in our second building have been
completed.
During the three year period ended December 31, 1998, cash used in operating
and investing activities was $10.5 million and $70.7 million, respectively.
Uses of cash in operating activities were primarily to fund net losses,
excluding noncash charges. Uses of cash in investing activities included $58.9
million used for net purchases of available-for-sale securities, $9.2 million
for capital expenditures, $2.0 million in purchases of long-term investments
and $500,000 related to the acquisition of Amplicon. Financing activities
provided cash of $116.5 million during the three year period ended December 31,
1998. This amount represented primarily proceeds from the sale of equity
securities.
Our forecast of the period of time through which our financial resources will
be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary as a result of
a number of factors. We believe that our existing cash and investment
securities and anticipated cash flow from existing collaborations together with
the net proceeds of the public offerings and the direct offering to Pharma
Vision will be sufficient to support our current operating plan through at
least the end of 2001. We have based this estimate on assumptions that may
prove to be wrong. Our future capital requirements will depend on many factors,
including:
. the progress of our research activities;
. the number and scope of our research programs;
. the progress of our preclinical and clinical development activities;
. the progress of the development efforts of our collaborators;
. our ability to establish and maintain current and new collaboration and
licensing arrangements;
. our ability to achieve our milestones and receive funding under
collaboration arrangements;
. the costs involved in enforcing patent claims and other intellectual
property rights;
. the costs and timing of regulatory approvals; and
. the costs of establishing sales, marketing and distribution capabilities.
Future capital requirements will also depend on the extent to which we
acquire or invest in businesses, products and technologies. Until we can
generate sufficient levels of cash from our operations, which we do not expect
to achieve for at least several years, we expect to finance future cash needs
through the sale of equity securities, strategic collaborations and debt
financing as well as interest income earned on cash balances. We cannot assure
you that additional financing or collaboration and licensing arrangements will
be available when needed or that, if available, such financing will be obtained
on terms favorable to us or our stockholders. Insufficient funds may require us
to delay, scale back or eliminate some or all of our research or development
programs, to lose rights under existing licenses or to relinquish greater or
all rights to product candidates at an earlier stage of development or on less
favorable terms than we would otherwise choose or may adversely affect our
ability to operate as a going concern. If additional funds are raised by
issuing equity securities, substantial dilution to existing stockholders may
result.
Our cash and investments policy emphasizes liquidity and preservation of
principal over other portfolio considerations. We select investments that
maximize interest income to the extent possible given these two constraints. We
satisfy liquidity requirements by investing excess cash in securities with
different maturities to
27
<PAGE>
match projected cash needs and limit concentration of credit risk by
diversifying our investments among a variety of high credit-quality issuers.
As of December 31, 1998, we had federal net operating loss carryforwards of
approximately $37.9 million to offset future taxable income. We also had
federal research and development tax credit carryforwards of approximately $3.0
million. If not utilized, net operating loss and credit carryforwards will
begin to expire in 2007. Utilization of the net operating losses and credits
may be subject to a substantial annual limitation due to ownership change
limitations provided by the Internal Revenue Code of 1986. The annual
limitation may result in the expiration of our net operating losses and credits
before they can be used. You should read Note 11 of notes to consolidated
financial statements.
Year 2000 Compliance
We use and rely on a wide variety of information technologies, computer
systems and scientific equipment containing computer-related components, such
as programmable logic controllers and other embedded systems. Some of our older
computer software programs and equipment are unable to distinguish between the
year 1900 and the year 2000. As a result, time-sensitive functions of those
software programs and equipment may misinterpret dates after January 1, 2000 to
refer to the twentieth century rather than the twenty-first century. This could
cause system or equipment shutdowns, failures or miscalculations resulting in
inaccuracies in computer output or disruptions of operations, including
inaccurate processing of financial information and/or temporary inabilities to
engage in normal business activities. In addition to risks associated with our
own computer systems and equipment, we have relationships with, and are to
varying degrees dependent upon, a large number of third parties that provide
information, goods and services to us. These include financial institutions,
suppliers, vendors, research partners and governmental entities.
We have largely completed our assessment of our internal systems affected by
the Year 2000 issue and anticipate that we will not be required to modify or
replace significant portions of our software so that our computer systems will
properly utilize dates past December 31, 1999. We have initiated communications
with our significant suppliers to determine the extent to which we are
vulnerable to those parties' failure to solve their own Year 2000 issues. At
this time, we cannot predict the level of Year 2000 readiness with respect to
our significant suppliers. We intend to continue to monitor the progress of
these third parties and will develop contingency plans in the event we become
aware that one or more of these third parties fails to solve their Year 2000
issues in such a way as to materially adversely affect our operations. If
significant numbers of these third parties experience failures in their
computer systems or equipment due to Year 2000 non-compliance, it could affect
our ability to engage in normal business activities.
If we, our customers, our providers of hardware and software, or our third-
party computer network providers fail to remedy any Year 2000 issues, the
reasonably likely worst case scenario would be the loss of historical data and
interruption of our research programs, which could have a material adverse
effect on our business, financial condition and results of operations.
Presently we are unable to quantitatively estimate the duration and extent of
any such interruption, or estimate the effect such interruption may have on our
future revenue.
Disclosure About Market Risk
Our exposure to market risk is principally confined to our cash equivalents
and investments that have maturities of less than two years. We maintain a non-
trading investment portfolio of investment grade, liquid debt securities that
limits the amount of credit exposure to any one issue, issuer or type of
instrument. The securities in our investment portfolio are not leveraged, are
classified as available for sale and are therefore subject to interest rate
risk. We currently do not hedge interest rate exposure. If market interest
rates were to increase by 100 basis points, or 1%, from June 30, 1999 levels,
the fair value of our portfolio would decline by approximately $430,000. The
modeling technique used measures the change in fair values arising from an
immediate hypothetical shift in market interest rates and assumes ending fair
values include principal plus accrued interest.
28
<PAGE>
BUSINESS
Overview
Tularik is engaged in the discovery and development of a broad range of novel
and superior orally available drugs based on gene regulation. Building on our
scientific strengths, we intend to become a world-class pharmaceutical company.
Our broad range of programs includes cancer, CMV, diabetes, obesity,
inflammation, immune disorders, hypercholesterolemia and bacterial diseases and
a class of targets known as orphan nuclear receptors, all of which represent
large commercial markets. We have diversified our drug discovery and
development efforts not only across a large number of diseases, but also across
multiple promising targets and drug candidates for these diseases. Our product
pipeline includes two cancer drug candidates in clinical testing, one cancer
drug candidate for which an IND has been filed, one preclinical anti-CMV drug
candidate and 14 early and advanced drug leads in our other programs.
Background
Small Molecule Drugs. Because small molecule drugs are generally administered
orally, they remain the preferred treatment for most diseases, and are
particularly appropriate for the treatment of chronic diseases requiring the
daily administration of medications over many years. Historically, the
opportunity to commercialize small molecule drugs has been limited by the
difficulty inherent in discovering safe and effective small molecule
therapeutics.
Molecular Biology Revolution. Groundbreaking advances in molecular biology in
the late 1970s expanded the range of drug treatment options beyond small
molecule drugs. Early biotechnology companies, such as Amgen and Genentech,
capitalized on these scientific advances by utilizing the coding elements of
genes to produce protein therapeutics. Unlike many small molecule drugs,
protein therapeutics must be given by injection. Dr. David V. Goeddel, our
Chief Executive Officer, was instrumental in the discovery and
commercialization of numerous therapeutic proteins at Genentech, including
human insulin, growth hormone and tPA. These advances in molecular biology led
to other approaches as well, including monoclonal antibodies, antisense and
gene therapy. More recently, chemistry-based drug development disciplines have
been directed toward finding small molecule drugs that interact with specific
molecular targets to achieve a desired therapeutic effect.
Gene Expression. The human body is composed of specialized cells that perform
different functions and are organized into tissues and organs. All cells in the
human body contain the same set of approximately 100,000 genes, referred to as
the human genome. Approximately 10% of the total number of genes are activated,
or expressed, in an individual human cell, and different subsets of genes are
activated in distinct cell types. Most genes direct the production of specific
proteins through a two-step decoding process, resulting in the production of
approximately 10,000 different proteins in a typical cell. Proteins, such as
hormones, enzymes and receptors, carry out critical biological functions. Gene
activation is known as gene expression, and the selective activation of
different subsets of genes in distinct cell types is referred to as
differential gene expression. All functions of cells, tissues and organs are
controlled by differential gene expression. As an example, cells in the
pancreas known as beta cells make large amounts of the insulin protein, which
is secreted and which circulates throughout the body, regulating glucose
metabolism. The exclusive production of insulin by these cells reflects the
fact that its encoding gene, the insulin gene, is expressed only in these
specialized cells. In all other cells of the body, the insulin gene is not
expressed. Differential gene expression results in the carefully controlled, or
regulated, production of functional proteins, such as insulin.
Regulation of Gene Expression. Central to the process of differential gene
expression are the regulatory elements of genes that are responsible for
determining when and where in the body a gene is expressed, or switched on. The
regulatory elements of genes operate by interacting with a specialized category
of proteins called transcription factors, which are responsible for turning the
genes on and off. In addition, the activities of transcription factors are
themselves controlled by a network of gene regulation pathways composed of
proteins. Transcription factors and the other proteins in this network of gene
regulation pathways represent potential
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targets for therapeutic intervention, or drug discovery targets, because of
their potential to switch genes on and off. These protein targets reside inside
the cell.
The Role of Gene Regulation in Disease. When one or more steps in a normal
cellular pathway is upset or blocked, disrupting the normal balance or function
of essential proteins, disease may occur. This disruption can occur because of
an intrinsic defect, a harmful environmental stimulus or a combination of both.
Intrinsic defects arise from mutations in particular genes, which can either
affect the level of gene expression or alter the protein that is produced.
Inappropriate gene regulation, resulting in overexpression or underexpression
of a protein or group of proteins, plays an important role in numerous
diseases, including cardiovascular disease, inflammation and immune disorders
and metabolic diseases such as obesity and diabetes. Furthermore, infectious
agents, such as bacteria and viruses, rely on gene regulation to survive and
proliferate in the human body.
The Regulation of Genes with Small Molecule Drugs. Commencing in the 1970s, a
pioneering group of academic scientists, including Drs. Steven L. McKnight and
Robert Tjian, two of our founders, directed their research towards
understanding the regulatory elements of genes in order to clarify the
mechanisms responsible for turning genes on and off. The results of this
research suggested an approach to discovering novel drugs that target these
intracellular gene regulatory mechanisms. Protein therapeutics are
inappropriate for these targets because they are not small molecules and
therefore cannot penetrate the cell. By contrast, small molecules are ideally
suited for stimulating or inhibiting the function of intracellular targets.
Tularik Advantage
We are a pioneer in the application of gene regulation biology to drug
discovery. Our drug discovery platform is directed toward the discovery of gene
regulating pathways and orally available drugs that act on these pathways. We
believe that our understanding of gene regulation, the strength of our
scientific and management team and the efficiencies captured through our
integrated drug discovery and development platform place us in a leading
position to discover, develop and commercialize novel, orally available drugs.
Advantages of Gene Regulation Approach. Approaches to drug discovery that
seek drug targets through the random sequencing of portions of the human genome
generally do not lead to an understanding of the relevance of discovered genes
as drug targets. Similarly, the identification of genes or proteins without an
understanding of the pathways by which they operate may not permit
identification of the optimal point of pharmaceutical intervention. In
contrast, our approach based on gene regulation permits the identification of
multiple targets within a gene regulatory pathway or subpathway and increases
the likelihood that we will be able to identify the optimal target for
effective therapeutic intervention. The potential to regulate the part of the
pathway that causes a specific disease without impacting other parts of the
same pathway that perform other functions may allow us to develop drugs that
have fewer side effects than less specific drugs. Many intracellular targets
associated with gene regulation pathways are well suited for small molecule,
orally available drugs. In addition, we believe that understanding the
mechanism of action of drug candidates that act by regulating gene expression
may allow us to select clinical indications and design clinical trials that
have more predictable results than has typically been the case. Finally, gene
regulation is fundamental to the development or progression of most diseases
and, therefore, may have broad applicability.
Integrated Drug Discovery and Development Platform. We have developed a drug
discovery and development infrastructure that we believe positions us to become
a leading pharmaceutical company. Our drug discovery and development expertise
includes molecular biology, biochemistry, structural biology, chemistry,
pharmacology and clinical development. Our management team has extensive drug
discovery and development experience with large pharmaceutical companies. To
complement our internal capabilities, we collaborate with world-renowned
scientists and clinicians and with leading pharmaceutical companies. We believe
that our integration of biology, chemistry and pharmacology enhances our
ability to find novel gene regulating drugs and that our drug discovery and
development efforts are highly efficient and productive. To date, we have:
. identified numerous validated targets and other novel proteins that
regulate the expression of disease-causing genes;
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. established more than 80 biochemical and cell-based assays for high
throughput screening, known as HTS;
. conducted more than 15 million drug screens using a library of more than
500,000 distinct compounds and natural products;
. identified seven compounds that are early leads, seven compounds that are
being optimized by chemists, one compound that is in preclinical
development, one anti-cancer drug candidate for which we have filed an
IND and one anti-cancer drug candidate that is in phase 1 clinical
trials; and
. obtained a license for an anti-cancer drug candidate that we expect to
enter phase 2 clinical trials in 2000.
Clinical Candidates. We have commenced or are preparing for clinical trials
of three cancer drug candidates, lometrexol, T138067, which we refer to as T67,
and T900607, which we refer to as T607. Our most advanced drug candidate is a
novel antifolate called lometrexol, which we recently licensed from Eli Lilly.
The utility of antifolates as anti-cancer agents has been proven by
methotrexate, an antifolate drug that has been used extensively in the
treatment of several tumor types. We expect to commence phase 2 trials of
lometrexol in 2000. T67 acts on tubulin, the cellular target for the known
cancer agents Taxol and vincristine. In contrast to these drugs, T67 retains
its activity against tumor cells that are multiple drug resistant and is able
to cross the blood brain barrier. To date, 23 patients have been enrolled in
phase 1 trials of T67. Pending successful completion of these phase 1 trials,
phase 2 trials of T67 will be initiated in several tumor types, including brain
tumors. T607, an analog of T67, also targets tubulin and is active against
multiple drug resistant tumors. Animal studies indicate that T607 is
distinguished from T67 because T607 has a reduced ability to cross the blood-
brain barrier, which may make it suitable for the treatment of different tumor
types than T67. We recently filed an IND for T607.
Attractive Commercial Opportunities. Our broad range of programs includes
cancer, CMV, diabetes, obesity, inflammation, immune disorders,
hypercholesterolemia, bacterial diseases and a class of targets known as orphan
nuclear receptors, which offers potential opportunities to develop drugs for
many therapeutic indications. The significant unmet medical and quality-of-life
needs for these diseases represent large commercial markets. We intend to
commercialize drugs independently and through collaborations with
pharmaceutical partners, and to date we have retained significant rights to
independently market products resulting from most of our programs. The breadth
of our current activities and the potential for the application of our platform
to additional diseases reduces the risks associated with drug discovery,
development and commercialization.
Our Strategy
Our objective is to build a world-class pharmaceutical company that
discovers, develops and commercializes novel and superior drugs that act by
regulating gene expression. The key elements of our scientific and business
strategy to achieve our objective are:
Emphasize scientific excellence across our multidisciplinary drug discovery
and development platform. We intend to build on the excellence in biology
embodied in our target discovery, assay development and screening capabilities
by continuing to integrate high quality efforts in structural biology,
chemistry, pharmacology and preclinical and clinical development. We plan to
add management and technical expertise at each stage of our growth. Important
components of our strategy include entering into collaborations with leading
academic scientists and pharmaceutical companies and internally developing and
in-licensing state-of-the-art technologies as needed.
Focus on diseases representing large market opportunities with significant
unmet medical needs. Our drug discovery efforts generally target diseases that
represent large commercial opportunities and that are underserved by available
therapeutic alternatives. Shortcomings of currently available treatments may
include limited efficacy, side effects or method of delivery. In particular, we
believe that orally available drugs that treat disease with a high degree of
specificity without these shortcomings will have strong commercial potential.
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Develop orally available small molecule drugs. Our drug discovery and
development efforts focus on orally available small molecule drugs. The major
advantage of small molecule therapeutics is the potential for oral
administration. In addition, these drugs can be manufactured by conventional
methods, resulting in lower manufacturing costs and higher margins than for
other types of drugs, such as protein therapeutics.
Increase likelihood of commercial success through diversification. To reduce
the risks inherent in drug discovery and development and our reliance on any
one of our programs, we have diversified our drug discovery and development
efforts by pursuing a large number of diseases and multiple promising targets
and drug candidates for these diseases. Where appropriate, we intend to pursue
product candidates that act through mechanisms of action other than the
regulation of gene expression.
Sustain a pipeline of drug candidates and accelerate drug development. We
expect our productive and efficient drug discovery and development platform,
coupled with the breadth of our programs, to consistently yield a large number
of drug candidates. We subject each product candidate to rigorous preclinical
scrutiny and determine its mechanism of action before we enter clinical trials.
This enables us to obtain the best drug candidate for each indication and to
focus financial resources only on drug candidates that we believe are the most
likely to become drugs. We may be able to accelerate approval and
commercialization by developing a detailed understanding of our products'
characteristics, which may enable us to select optimal clinical indications and
design the most appropriate clinical trials. We intend to augment our internal
pipeline by obtaining licenses to promising clinical candidates.
Commercialize pharmaceuticals in selected markets. We intend to build a
world-class pharmaceutical company with the objective of bringing to market
novel and superior drugs that are proprietary to us. In North America, we
intend to develop a focused sales force to market products to specialty
physicians. We intend to seek corporate collaborations or joint ventures for
drugs prescribed by general practice physicians or a large number of
specialists. In addition, we also intend to continue to selectively collaborate
with pharmaceutical and biotechnology companies to accelerate product
commercialization in Asia and possibly Europe. Currently, six of our programs
are receiving funding from five corporate partners. We have retained worldwide
commercialization rights to our cancer, bacterial diseases and CMV programs and
North American commercialization rights in four of our externally funded
programs.
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Product Development
Our drug discovery and development system is broadly applicable to a wide
range of diseases. We have applied this system to diseases that represent large
medical markets with significant patient populations that are underserved by
current therapeutic products. Our pipeline includes two cancer drug candidates
in clinical testing, one cancer drug candidate for which an IND application has
been filed, one preclinical CMV drug candidate and 14 early and advanced drug
leads in our other programs. The following table summarizes key information in
our nine programs:
<TABLE>
<CAPTION>
Program Status (1) Key Achievements
- -------------------------------------------------------------------------------
<C> <C> <S>
Cancer
Lometrexol Preparing for phase 2 Licensed from Eli Lilly an
antifolate drug candidate
with phase 1 clinical
responses in a range of
human tumors.
T67 Phase 1 Discovered an agent that
binds to tubulin and
inhibits growth of multi-
drug resistant tumors in
animals.
T607 IND application filed Generated second-generation
analog of T67 that may have
advantages for treating
certain types of tumors.
- -------------------------------------------------------------------------------
CMV Preclinical Development Discovered compounds that
are orally active in animal
models of human CMV
infection and plan to file
an IND application in 2000.
- -------------------------------------------------------------------------------
Diabetes Lead Optimization Identified compounds with
activity in animal models
predictive of anti-diabetic
efficacy.
- -------------------------------------------------------------------------------
Obesity Lead Optimization Discovered a series of
compounds that increase the
level of circulating leptin.
- -------------------------------------------------------------------------------
Inflammation Lead Optimization Elucidated key gene
regulation pathways and
discovered numerous proteins
involved in inflammatory
gene regulation by
interleukin-1 and tumor
necrosis factor. Identified
a lead compound that
inhibits expression of
inflammatory response genes
in animal models.
- -------------------------------------------------------------------------------
Immune Disorders Lead Optimization Discovered and validated
human transcription factors
STAT6 and STAT4 as targets
for allergy/asthma and
autoimmune diseases,
respectively. Identified a
series of compounds that
inhibit STAT6.
- -------------------------------------------------------------------------------
Hypercholesterolemia Lead Optimization Identified lead compounds
that lower cholesterol in
animals. Discovered
regulatory pathways involved
in cholesterol metabolism.
- -------------------------------------------------------------------------------
Bacterial Diseases Lead Optimization Identified a series of
compounds that demonstrate
gram-positive antibacterial
activity and confirmed
protein target using genetic
techniques.
- -------------------------------------------------------------------------------
Orphan Nuclear Receptors Lead Optimization Discovered two nuclear
receptors. Developed novel
biochemical screening
technology to identify
nuclear receptor modulators.
Identified lead series and
initiated chemistry.
</TABLE>
- --------
(1) "Lead Optimization"
Ongoing chemistry effort to improve potency, toxicity,
specificity and/or other properties of drug leads.
Evaluation of drug leads in relevant models.
"Preclinical Development"
Pharmacology and toxicology testing in preclinical models
to gather data necessary to comply with applicable
regulatory protocols prior to submission of an IND
application to the FDA.
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Cancer
Cancer is a group of diseases characterized by uncontrolled growth and
proliferation of abnormal cells. This growth ultimately invades vital organs
and often results in death. The worldwide market for branded cancer drugs
totaled approximately $7.8 billion in 1998 and is projected to grow at an 8.5%
compound annual growth rate. Cancer is the second leading cause of death in the
United States, exceeded only by cardiovascular disease. In 1999, it is
estimated that 1.22 million people will be diagnosed with cancer, and more than
550,000 patients will die of cancer. The five-year survival rates for patients
with metastatic cancers, or cancers that have spread from the primary tumor,
are poor; for example: 13% for colorectal cancer, 12% for lung cancer and 21%
for breast cancer. These poor survival rates reflect the limitations of current
treatments and the fact that cancers develop resistance to currently available
treatments. In addition, current treatments are often associated with severe
side effects. As a result, there is a medical need for the development of more
effective and less toxic treatments.
We currently have three drug candidates in our cancer program.
Lometrexol. We have licensed an antifolate anti-cancer drug candidate known
as lometrexol from Eli Lilly. Antifolates, which disrupt the synthesis of the
building blocks of deoxyribonucleic acid, or DNA, have been validated for use
in the treatment of cancer. For example, methotrexate, which acts by a
mechanism of action similar to that of lometrexol, has been used extensively in
the treatment of breast, bladder and head and neck cancers. Eli Lilly conducted
phase 1 trials of lometrexol both with and without folic acid supplementation.
Several deaths were observed in phase 1 trials of lometrexol. However, patients
treated with lometrexol who received oral supplementation with folic acid
demonstrated greatly improved tolerance to the drug.
During the course of phase 1 clinical development, a total of five partial
responses and one complete response were observed in different tumor types and
in different centers. Partial responses were noted for patients with melanoma,
breast cancer, soft tissue sarcoma, ovarian cancer and non-small cell lung
cancer. Despite the fact that it is unusual to see complete responses in phase
1 trials because patients enrolling in these trials tend to be heavily pre-
treated and are typically at an advanced stage in the progression of their
disease, a complete response lasting more than 18 months was noted in a patient
with head and neck cancer.
We anticipate that we will commence phase 2 trials of lometrexol in 2000. We
have not yet selected the five or six tumor types to be treated during phase 2
trials, but we expect the trials will include melanoma and soft tissue sarcoma
patients. The primary endpoint of these studies will be efficacy, as assessed
by response rate.
T67. Our scientists have discovered T67, an anti-cancer compound that binds
irreversibly to tubulin, the cellular building block of microtubules, which are
essential to cell division. T67 disrupts microtubule function, causing the cell
to die and potentially resulting in tumor shrinkage. Since cancer cells divide
more rapidly than normal cells and microtubules are essential for cell
division, cancer cells are more sensitive than normal cells to treatment with
T67. This concept has been proven clinically by other tubulin-active agents
such as Taxol and vincristine; however, over time, many tumors become resistant
to these drugs.
T67 causes tumor shrinkage in a variety of human tumors implanted into mice.
T67 retains its activity against those tumors and cell lines that are MDR
positive. In contrast, these MDR positive cells and tumors were resistant to
Taxol and doxorubicin. T67 demonstrates enhanced activity when used in
combination with cisplatin against the MX-1 mammary tumor implanted into mice.
T67 is currently in phase 1 clinical trials. A total of four studies based on
varying dosing regimens are either ongoing or planned at major medical centers
in the United States. To date, 23 patients have been enrolled, and a dose-
limiting toxicity of neuropathy has been observed in one patient at the highest
administered dose. Additional patients will be enrolled at a lower dose level.
This lower dose results in drug levels that are sufficient to induce anti-tumor
activity in animals. Data from the phase 1 studies establishing a phase 2
infusion dose and schedule is expected to be available in
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2000. Assuming that a tolerable dose and schedule can be identified for repeat
administration, a number of phase 2 studies will then be initiated to determine
anti-tumor activity. One of these studies will be conducted in glioblastoma, a
type of brain cancer, exploiting the ability of T67 to cross the blood-brain
barrier. In the event that T67 has sufficient activity in refractory tumor
types for which no other treatment exists, T67 would be a potential candidate
for accelerated approval by the FDA.
T607. In September 1999, we submitted an IND application for T607, an analog
of T67. This drug also binds irreversibly to tubulin. Animal studies indicate
that T607 is different from T67 in that T607 may be given by rapid injection,
or bolus, and also has a reduced propensity to cross the blood-brain barrier.
This may be a desirable feature for treatment of peripheral tumors. Three
different dosing schedules of T607 will be evaluated in phase 1 studies.
Cancer Gene Discovery. We seek to discover cancer genes using a proprietary
technique known as representational difference analysis, or RDA. RDA works by
sampling DNA from healthy and diseased cells from the same person, and rapidly
comparing the samples to identify mutant cancer genes. RDA does not require
either prior hereditary clues or an extensive sample collection from high-risk
families that have a history of disease. Prior to the time we obtained a
license to RDA technology, RDA was utilized to isolate two tumor suppressor
genes, BRCA2 and PTEN.
CMV
CMV is a common virus that causes serious infection in patients with
compromised or immature immune systems, particularly transplant recipients,
AIDS patients and infants born to CMV-infected mothers. In the bone marrow and
solid organ transplant population, CMV can cause life-threatening pneumonia. In
the AIDS patient population, retinitis caused by CMV is the primary cause of
blindness. CMV infection in newborns can cause death or severe neurological
damage, typically deafness. In 1997, the incidence of CMV disease worldwide
totaled approximately 31,000 patients, and worldwide revenues for anti-CMV
drugs totaled approximately $143 million and are projected to grow at a 6.5%
compound annual growth rate. Current therapy for CMV disease is associated with
significant toxicity and poor oral bioavailability. These features limit the
utility of the current drugs in preventative therapy in patients at high risk,
such as patients receiving bone marrow transplants, and for treatment of active
infection in newborns.
We have identified a class of potent and orally available anti-CMV compounds
that interfere with the replication machinery of CMV. We believe that this
class of compounds is the first to target a specific CMV-encoded enzyme that is
necessary for initiating the synthesis of viral DNA. This class of compounds is
efficacious against clinical CMV taken from patients who have developed
resistance to current therapies. Animal toxicity studies to date suggest that
this class of compounds will be safer than current therapies. Because they can
be taken orally, our anti-CMV drug candidates may also be practical for use in
preventative settings, such as in transplant patients.
Preclinical testing of several advanced candidates is underway. We anticipate
filing an IND application on a lead compound in 2000. According to the terms of
our previous collaboration, Merck has the option to acquire this compound in
exchange for a fee, reimbursement of our costs incurred in connection with this
compound to date and milestones and royalties on product sales.
Diabetes
Diabetes mellitus is a chronic, progressively debilitating disease that
affected approximately 124 million people worldwide in 1997. Type II diabetes
represents 90% of the total population of people with diabetes, and its
prevalence is increasing as a function of the aging population and the
increasing population of obese people in the world. Worldwide sales for oral
type II diabetes drugs in 1998 totaled approximately $3.0 billion and are
expected to grow at a 35% compound annual growth rate. Type II diabetes usually
develops after the age of 40 and is characterized by the body's inability to
respond to insulin. Recently, a new class of drugs has been
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<PAGE>
introduced that permit type II diabetics to make better use of the insulin
produced by their bodies or taken by injection. Members of this class,
including the drug Rezulin, have proven to be moderately efficacious for the
treatment of type II diabetes but have also been associated with undesirable
side effects, such as liver toxicity and weight gain. These side effects limit
the number of eligible patients and increase the costs associated with
monitoring for adverse effects after initiation of treatment.
Our scientists have implemented a biochemical assay that employs the same
transcription factor that is targeted by Rezulin. Current efforts are focused
on optimizing a lead series of potent and orally available agents identified in
this assay that improve insulin sensitivity and lower blood glucose in animals.
We believe that this series offers the potential for an anti-diabetes drug with
improved profile relative to existing agents. Animal studies and a chemistry
effort to clarify and exploit these advantages are in progress.
We have collaborated with JT in obesity/diabetes research since September
1996.
Obesity
Body weight is determined and regulated by a variety of genetic and
environmental factors. Weight change is influenced by eating behavior and by
energy utilization as determined by exercise and metabolic rate. Obesity
increases the risk of serious human diseases, including type II diabetes,
coronary artery disease and hypertension. At least 70 million people in the
United States are currently classified as obese. There is a large, unmet need
for a treatment for obesity. Recently, two drugs have been approved for this
disease, Xenical and Meridia, and no other drugs are approved specifically for
obesity. Since the beginning of 1999, these products generated combined
revenues of more than $500 million.
We have a robust program that currently is focused upon three pathways
involved in obesity. The first of these pathways involves the obese, or Ob,
gene. The Ob gene encodes the protein leptin, is expressed exclusively in fat
tissue and is regulated by diverse stimuli. When administered intravenously to
obese mice, the leptin protein results in significant weight loss. Our
scientists have established an assay that uses a genetically altered fat cell
line that is sensitive to stimuli responsible for controlling Ob gene
expression, making it ideally suited for use in assays to identify compounds
that will regulate the Ob gene. We have identified a series of compounds in
this assay that increase leptin in the blood of laboratory animals. Further
studies of the mechanism by which these compounds regulate Ob gene expression
are in progress.
The second pathway we are evaluating involves the family of proteins known as
uncoupling proteins, or UCPs. Studies have shown that there is correlation
between metabolic rate and the ability to turn food calories into heat instead
of storing food calories in fat cells. The ability to dissipate food calories
as heat in turn relies on UCPs. UCPs play a major role in determining metabolic
rate and are an important class of potential targets for the treatment of
obesity. Our scientists have established a panel of biochemical and cell-based
assays directed towards the identification of small molecule compounds that
selectively modulate the activity of UCPs. HTS using these proprietary assays
is ongoing.
A third area of obesity research focuses on pathways involved in preventing
the creation of fat cells. In cell culture experiments using a compound we have
identified, our scientists have demonstrated that inhibiting a transcription
factor known as PPARg prevents the formation of fat cells.
We have collaborated with Knoll in obesity research since November 1998. We
have collaborated with JT in obesity/diabetes research since September 1996.
Inflammation
Under normal circumstances, inflammation is an important defense response to
injury and infection. An early step in the inflammatory response is the
recruitment of white blood cells, or leukocytes, from the circulatory system to
damaged or infected tissue. Excessive or prolonged accumulation of leukocytes
can lead to inflammatory conditions, including asthma, inflammatory bowel
disease, multiple sclerosis, psoriasis,
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<PAGE>
rheumatoid arthritis and septic shock. In 1998, a total of approximately 28
million individuals in the United States suffered from these diseases.
Worldwide sales of non-steroidal anti-flammatory drugs, or NSAIDs, totaled
approximately $6.0 billion in 1998 and are expected to grow at a 4% compound
annual growth rate. An estimated 400,000 individuals in the United States and
Europe have Crohn's disease, a serious chronic inflammatory disease of the
small and large intestine.
The inflammatory messengers known as tumor necrosis factor, or TNF, and
interleukin-1, or IL-1, act by binding to specific cell surface receptors that,
in turn, set off signaling events culminating in the expression of many
inflammatory response genes. The crucial roles played by TNF and IL-1 in
several inflammatory disease states have been clearly demonstrated by studies
utilizing antibodies and soluble receptors that neutralize TNF and IL-1
activities. The efficacy demonstrated by Enbrel, a soluble TNF receptor, has
validated this concept for the treatment of rheumatoid arthritis. We believe
that an orally available drug of comparable efficacy would represent formidable
competition for drugs that must be injected, such as Enbrel.
Several key inflammatory response genes are regulated by a single
transcription factor, NF-kB. Our scientists have discovered numerous novel
regulatory proteins in the gene regulation pathways leading from the TNF and
IL-1 receptors and have elucidated their roles in NF-kB activation. On the
basis of these landmark discoveries, our scientists are recognized as leaders
in this field of research.
Based upon this research, our scientists have determined that some of these
regulatory proteins appear to be exclusively dedicated to NF-kB activation and
the inflammatory response and therefore represent ideal drug discovery targets.
Several of these targets are being employed in HTS assays, and a lead compound
that inhibits one of the key components involved in NF-kB activation is
currently undergoing optimization. We believe that our discoveries and the
expertise we have developed in this disease area place us in a leading position
to identify the next generation of important anti-inflammatory drugs.
We have collaborated with Roche Bioscience in inflammation research since
July 1997.
Immune Disorders
Many diseases result from defects in the immune system, including allergic
rhinitis, asthma, type I diabetes and rheumatoid arthritis. It is estimated
that a total of approximately 55 million people in the United States suffered
from these common immune disorders in 1998. Respiratory therapies including
anti-asthmatic and allergy relief medications totaled approximately $11.2
billion in worldwide revenues in 1998 and are expected to grow at a 16%
compound annual growth rate.
Our scientists have discovered two human transcription factors, STAT6 and
STAT4, that are key proteins involved in immune regulation. When
overstimulated, these proteins are instrumental in the development of allergy
and asthma in the case of STAT6, and in the development of autoimmune diseases
such as rheumatoid arthritis and inflammatory bowel disease in the case of
STAT4. Experiments in animals have demonstrated that disabling these proteins
is safe and blocks inappropriate immune responses. These results demonstrate
that STAT6 and STAT4 are excellent drug discovery targets. Our goal is to
discover drugs capable of selectively blocking STAT6 or STAT4 function.
Toward this end, we developed cell-based assays for HTS that enable the
identification of compounds that interfere with functions controlled by STAT
proteins. We have also developed biochemical assays for HTS that permit the
identification of compounds that will inhibit STAT protein activation. Finally,
our scientists have identified short peptides, or protein fragments, that
inhibit STAT function. These peptides have served as leads for a chemistry
optimization program and have also enabled the synthesis of a drug candidate
that completely inhibits STAT6 function in cells, validating the underlying
basis of this approach. The structures of several proprietary STAT6 inhibitors
bound to specific sites on the target protein have been determined by X-ray
crystallography and are being utilized to guide our chemistry effort.
We have collaborated with Taisho in immune disorders research since April
1995.
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Hypercholesterolemia
Cardiovascular disease is the leading cause of death in the developed world.
The most clinically significant diseases, angina and myocardial infarction, are
causally related to elevated levels of low-density lipoprotein, or LDL,
cholesterol in the blood stream. The risk of death begins to increase when LDL
cholesterol levels rise above 126 mg/dl and progressively worsens with higher
levels. A total of approximately 39 million people in the United States have
LDL cholesterol levels above 168 mg/dl.
To date, statins are the most successful drugs for lowering LDL cholesterol
levels. Worldwide revenues for statins totaled approximately $9.6 billion in
1998 and are expected to grow at a 20% compound annual growth rate. Statins
lower LDL cholesterol levels in the bloodstream by indirectly increasing the
number of LDL receptors on the surface of cells. Despite the success of
statins, there is a significant patient population, particularly those
individuals having substantially elevated blood cholesterol levels, for which
these drugs alone are insufficient to achieve the desired efficacy. We believe
that a drug that either directly increases expression of LDL receptors or
induces cholesterol clearance mechanisms may show improved efficacy relative to
the current agents.
Toward this end, we have established proprietary assays for HTS that utilize
liver cells to measure the compound-induced activity of the LDL receptor gene.
Using this approach, we have identified compounds that lower serum cholesterol
in animal models. This class of compounds is the focus of a chemistry
optimization effort.
Our scientists have also extended the understanding of the mechanism
regulating an important enzyme that is responsible for the body's clearance of
cholesterol. These scientists have discovered important transcription factors
involved in the process. They have also identified a natural receptor for bile
acids, which are the end products of cholesterol metabolism and suppress the
expression of this enzyme. We have established proprietary biochemical assays
for HTS to detect inhibitors of this bile acid receptor and are presently
evaluating the therapeutic potential of early leads derived from the screening
effort.
We have a research collaboration with Professors Michael Brown and Joseph
Goldstein of the University of Texas Southwestern Medical School at Dallas, to
develop a detailed understanding of the intracellular events controlling
cholesterol metabolism. Professors Brown and Goldstein won a Nobel Prize for
their work in this area. This collaboration is currently focused upon
elucidating mechanisms involved in regulation of the transcription factors that
have been shown by Brown and Goldstein to activate the LDL receptor gene.
Efforts in this area have led to the establishment of a unique cell-based assay
for HTS to identify compounds that modulate a novel target discovered by Brown
and Goldstein. Compounds that are active in this assay are expected to lead to
increased expression of the LDL receptor gene. We have also established a
biochemical assay to complement the ongoing cell-based screening efforts. We
have been collaborating with Professors Brown and Goldstein since October 1992
and have the exclusive right to license the results of the Brown and Goldstein
research in this area.
We have collaborated with Sumitomo in hypercholesterolemia research since
January 1995.
Bacterial Diseases
The extensive use of antibiotics during the past three decades has
contributed significantly to the emergence of antibiotic-resistant strains of
bacteria. Worldwide revenues for broad-spectrum penicillins totaled
approximately $3.8 billion in 1998 and are expected to grow at a 4% compound
annual growth rate. Despite the wide variety of classes of antibiotics
currently available for clinical use, patients can die from an infection with
any one of multiple drug-resistant forms of bacteria, including Mycobacterium
tuberculosis, Staphylococcus aureus or Enterococcus faecalis. With an estimated
two million patients developing hospital-acquired infections in the U.S. each
year and 90,000 deaths resulting from those infections, the need to overcome
evolving bacterial resistance is the major driving force behind ongoing efforts
to discover and develop chemical classes of antibacterial agents for clinical
use.
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We have focused our efforts on a number of cellular processes essential for
bacterial growth. RNA polymerase is a bacterial enzyme that is a proven
antibacterial target, because the potent antibiotic rifampicin inhibits a
subunit of this enzyme. The clinical utility of rifampicin, however, is
diminished by the rapid emergence of drug resistance. We have identified a
novel class of inhibitors of RNA polymerase that have antibacterial activity
against rifampicin-resistant bacteria. The current focus of this program
involves a lead candidate that is undergoing chemistry optimization.
Orphan Nuclear Receptors
Nuclear receptors are a family of transcription factors that play important
roles in nearly all aspects of development and adult physiology and therefore
have relevance to multiple disease indications. These receptors are activated
by naturally occurring hormones known as ligands, and many have therefore been
discovered to be targets for important orally available drugs, including
Premarin for estrogen replacement, levothyroxine, or Synthroid, for
hypothyroidism, tamoxifen for breast cancer, Pulmicort for asthma and Rezulin
for type II diabetes. Worldwide revenues for these five drugs totaled an
aggregate of more than $4 billion in 1998.
Until the natural ligand corresponding to a nuclear receptor is identified,
members of the nuclear receptor family are classified as orphan nuclear
receptors, or ONRs. Of the nearly 50 nuclear receptors identified to date,
approximately two-thirds are ONRs. Although the exact functions of these ONRs
are not known, the fact that nuclear receptors are biologically important and
are activated by small molecules makes this an attractive opportunity for
discovery of important new medicines. As an example of the commercial potential
of ligands for ONRs, it has recently been discovered that the antidiabetic drug
Rezulin targets the ONR known as PPARg.
Our scientists are using proprietary screens to enable the discovery of both
stimulators and inhibitors for many ONRs and have discovered two novel human
ONRs. We are applying multiple technologies, such as gene knock-out and X-ray
crystallography, to both elucidate function and guide drug discovery in this
area. We have initiated several assays for HTS, and the first leads are
undergoing functional characterization in both cell-based and animal studies.
We have collaborated with JT in ONR research since September 1998.
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Drug Discovery and Development
We believe that our integrated drug discovery and development platform places
us in a leading position to discover, develop and commercialize novel, orally
available drugs. The following chart illustrates our drug discovery and
development system:
[FLOW CHART APPEARS HERE]
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Target Identification and Validation
A key focus of our scientists is to establish a link between specific genes
and diseases. Following the identification of such a link, we seek to identify
and characterize important proteins and regulatory pathways responsible for the
expression of these genes. Our ability to identify multiple targets within a
gene regulatory pathway or subpathway increases the likelihood that we will be
able to identify the optimal target for therapeutic intervention.
Our scientists use a combination of biochemical, molecular biological and
genetic approaches to discover novel regulatory proteins. Once a regulatory
protein has been identified, we clone and express the gene that encodes that
protein. Cloning the regulatory protein allows us to conduct target validation,
which is the biological evaluation of the protein's specific function in the
disease process. We evaluate the physiological function of potential drug
targets we discover by manipulating their expression in cells, by mapping the
pathways by which they interact with other regulatory proteins to regulate gene
expression and by understanding the cell types in which they are expressed.
This information can be critical to assessing the suitability of a gene
regulatory protein as a target for pharmaceutical intervention.
In our target discovery efforts, we also search publicly available genome
databases, including data derived from the Human Genome Project. In the cancer
area, we seek to discover novel cancer genes using RDA. Some of these cancer
genes may be targets for small molecule intervention.
Where the target validation process indicates that a particular regulatory
protein may not be the most appropriate molecular target for assay development,
we use cellular and molecular biology studies to identify other proteins
involved in the same biochemical pathway(s) that may be better molecular
targets for drug discovery and therapeutic intervention. The target validation
process also provides opportunities to discover additional components of the
cellular pathway that may lead to identification of additional drug discovery
targets.
Primary Assays
Primary assays specific to each target or program are used to rapidly search
our compound screening library for chemical structures that hold promise for
further study, or hits. We design and implement two main types of primary
assays as described below.
Biochemical Assays. Our scientists use the results of target identification
efforts to craft specialized biochemical assays in which one or more target
proteins are reconstituted in a system that closely mimics their native
environment. At this stage, the assay is adapted to an automated format to
allow for HTS. Biochemical assays provide several advantages in the search for
new drugs. In a biochemical assay, the components and mechanism of action of
the drug candidates are already known. This precision minimizes inaccurate
results and false-positive readings, thereby accelerating the discovery
process. Additionally, the identification of lead compounds using biochemical
assays bypasses the potential problems of false-negative readings associated
with the ability of a compound to penetrate a cell or the intrinsic ability of
cells to break down chemicals before they reach a target. Once hits are
identified, these properties can be subsequently manipulated through chemistry.
Since biochemical assays are usually highly amenable to HTS, results can be
obtained rapidly and reproduced consistently. We will perform HTS with
approximately 35 biochemical assays in 1999.
Cell-based Assays. HTS using intact cell-based assays complements and extends
our biochemical screening capabilities. A major advantage of cell-based assays
over biochemical assays is that cell-based assays allow analysis of sample
activity in an environment similar to the one in which a drug would act. In
addition, the toxicity and ability to penetrate into the cell can be assessed.
In contrast to biochemical assays, where the target protein for a drug is
known, cell-based assays offer an additional opportunity to discover drugs
interacting with novel, previously unknown, target proteins. We will perform
HTS with approximately ten cell-based assays during 1999.
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High Throughput Screening
We have developed innovative hardware and software systems to automate the
entire drug screening process, from the preparation of solutions of the test
substances for screening to the analysis of the data generated from the assays.
In our robotic screening facility, we can annually generate more than eight
million sample evaluations in our assays. Our robotic systems can be configured
to run a wide variety of assay formats. Our data management system stores the
data for hundreds of thousands of samples, each tested in dozens of assays.
This relationally integrated system manages sample inventories through a bar
code system, configures plates for a wide variety of experiments and
coordinates the screening of large numbers of plates across multiple assays.
The data management system electronically recalls and presents data in formats
that allow rapid recognition of active compounds or extracts. This gives each
of our scientists the ability to analyze the results for a given assay within
the context of the entire drug discovery database, including the results of all
past screening assays.
Screening Library
Access to large libraries of highly diverse molecular structures is an
important aspect of our drug discovery efforts. We currently have a library of
over 500,000 synthetic compounds and natural product extracts. This library
includes in excess of 300,000 individual synthetic compounds. The screening
collection also includes combinatorial chemical libraries that contain in
excess of 200,000 synthetic compounds incorporating desirable molecular
features. Our library includes a natural product collection that currently
numbers in excess of 118,000 independent samples derived from microbial, plant
and marine sources. This library is supplemented with chemical libraries
provided by our collaborators for specific programs.
Secondary Assays
Secondary assays are designed to eliminate those "hits" that lack potency or
specificity, or have unwanted characteristics. If a compound survives the
secondary assay screening process, it is then subjected to further testing and
ultimately chemistry optimization. Generally, hits with promising results in
animal models and desirable chemical characteristics become lead compounds.
Lead Optimization
Regardless of whether a lead compound is obtained from biochemical or cell-
based assays, the pharmaceutical properties of that compound must be improved
before clinical development. This is the process of lead optimization.
Chemistry. We carry out traditional structure-activity relationship studies
of potential lead compounds and conduct lead optimization utilizing chemistry
techniques to synthesize new analogs of a lead compound with improved
properties. Our natural products chemists handle the separation, isolation and
structure elucidation of bioactive components derived from our natural product
extracts. In addition, we have computational chemistry capabilities, including
molecular modeling, to support lead optimization.
We complement this activity with directed combinatorial chemistry, which
enables the synthesis of thousands of chemical analogs of lead compounds
quickly. We continue to expand our efforts in this area as we believe that the
continued development of combinatorial chemistry technology will streamline the
ability of our chemists to improve upon promising lead compounds and facilitate
the expansion of our proprietary screening library.
Structural Biology. Structural biology techniques aid in drug design and
optimization by providing molecular "snapshots" that allow scientists to
visualize the interactions between a drug or lead and its protein target. These
interactions are analogous to the fit between a lock and a key. Nuclear
magnetic resonance, or NMR, spectroscopy and X-ray crystallography comprise the
essential techniques of structural biology. We have
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established state of the art laboratories that allow us to readily utilize
these powerful tools for lead optimization. Utilizing structural information,
chemists can design and synthesize new analogs of lead compounds that are
likely to have a better fit with the target protein, and hence have greater
potency. We are applying structural biology broadly and have ongoing efforts in
many of our drug discovery programs.
Pharmacology and Preclinical Development
We believe that the rapid characterization and optimization of lead compounds
identified in HTS will generate high-quality preclinical development
candidates. Our pharmacology and preclinical development group facilitates lead
optimization by characterizing lead compounds with respect to pharmacokinetics,
potency, efficacy and selectivity. The generation of proof-of-principle data in
animals and the establishment of standard pharmacological models with which to
assess lead compounds represent integral components of lead optimization. As
programs move through the lead optimization stage, our pharmacology and
preclinical development group supports our chemists and biologists by
performing the necessary studies, including toxicology, for IND application
submissions.
Clinical Development
We have assembled a team of experts in drug development to design and
implement clinical trials and to analyze the data derived from these studies.
The clinical development group possesses expertise in project management.
Research and Development Expenses
Our research and development expenses were $21.0 million for the six months
ended June 30, 1999, $33.3 million in 1998, $26.5 million in 1997 and
$18.6 million in 1996.
Corporate Collaborations
To assist in product commercialization and fund research and development
activities, we have established and will continue to pursue corporate
collaborations with selected pharmaceutical and biotechnology companies. We
currently have corporate collaborations in six of our research programs: Knoll
relating to obesity; JT relating to orphan nuclear receptors; Roche Bioscience
relating to inflammation; JT relating to obesity/diabetes; Taisho relating to
immune disorders; and Sumitomo relating to hypercholesterolemia. As of June 30,
1999, we had received a total of $108.8 million, including $95.8 million in
research funding and $13.0 million from equity purchases, from these
collaborators as well as under a prior alliance with Yamanouchi that was
terminated by Yamanouchi in November 1996 and a prior alliance with Merck that
was terminated by Merck in March 1999. In addition, we have a number of
scientific collaborations with academic and medical institutions and
biotechnology companies under which we have in-licensed technology. We intend
to pursue further collaborations as appropriate.
Our corporate collaboration agreements generally contain the following terms.
Every corporate collaboration agreement, except the agreement with Knoll,
provides that each party will retain ownership of all inventions and any
related patents made solely by its employees during the course of the
collaboration, except as limited by each party's license rights described
below. In every corporate collaboration agreement, we have agreed not to
conduct research in specified areas, independently or with any commercial third
party, that is in the same field and in the same geographical territory as that
covered by the corporate collaboration agreement.
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Set forth below is a table summarizing the economic rights currently held by
us and our corporate collaborators in each of our programs and additional
details relating to specific corporate collaboration agreements.
<TABLE>
<CAPTION>
Economic Rights Holder
---------------------------------------------------------------------------------
Corporate
Program Collaborator North America Europe Asia (2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cancer (1) -- Tularik Tularik Tularik
- -------------------------------------------------------------------------------------------------------------------
CMV Merck (option) Tularik Tularik Tularik
- -------------------------------------------------------------------------------------------------------------------
Diabetes (certain JT Profit split Profit split Profit split
targets)
- -------------------------------------------------------------------------------------------------------------------
Obesity (certain Knoll Knoll (Royalties shared Knoll (Royalties shared Profit split (with JT)
targets) with JT) (3) with JT) (3)
- -------------------------------------------------------------------------------------------------------------------
Obesity (certain JT Profit split Profit split Profit split
targets)
- -------------------------------------------------------------------------------------------------------------------
Inflammation
Inflammatory bowel Roche Bioscience Tularik (Royalties to Tularik (Royalties to Tularik (Royalties to
disease, skin diseases Roche Bioscience) Roche Bioscience) Roche Bioscience)
and eye diseases
Other indications (3) Roche Bioscience Roche Bioscience Roche Bioscience Roche Bioscience
(Royalties to Tularik) (Royalties to Tularik) (Royalties to Tularik)
- -------------------------------------------------------------------------------------------------------------------
Immune Disorders Taisho Tularik Tularik Taisho (Royalties
(certain targets) to Tularik) (3)
- -------------------------------------------------------------------------------------------------------------------
Hypercholesterolemia Sumitomo Tularik Tularik Sumitomo (Royalties
(certain targets) to Tularik)
- -------------------------------------------------------------------------------------------------------------------
Bacterial Diseases -- Tularik Tularik Tularik
- -------------------------------------------------------------------------------------------------------------------
Orphan Nuclear Receptors JT Profit split Profit split Profit split
</TABLE>
(1) We have agreed to pay Eli Lilly a royalty and to make milestone payments on
sales of lometrexol, as described below.
(2) Composition of Asian territory varies by agreement.
(3) Also includes milestone payments.
Knoll AG (Obesity)
Effective November 1998, we established a five-year research collaboration
with Knoll to discover, develop and market compounds that act on specified
obesity-related targets. Under the collaboration agreement, Tularik has
established assays for regulators of gene expression for these target genes.
Knoll and Tularik are each to provide compound libraries, conduct screening and
provide expertise to support biology, pharmacology and chemistry for identified
lead compounds.
Once the parties select a compound for preclinical testing in the treatment
or prevention of obesity, Knoll has the right to enter into a separate license
agreement granting Knoll exclusive rights to develop, manufacture and sell the
compound in countries other than in specified Asian countries for indications
related to obesity. Such license would survive termination of the research
portion of the collaboration, and require Knoll to pay to us milestones and
royalties. Each party has certain rights to develop compounds identified during
the course of performance of the research collaboration for indications and
uses other than obesity, subject to the payment to the other party in certain
circumstances of a royalty on product sales. The collaboration agreement grants
us exclusive rights under collaboration technology and nonexclusive rights
under specified Knoll technology to develop, manufacture and sell obesity
products in specified Asian countries, subject to the payment of royalties
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to Knoll on sales of products if we obtain a license under applicable Knoll
technology. Knoll has a right of first refusal to obtain Asian rights in the
event that JT's rights terminate or expire. The rights retained in specified
Asian countries are subject to the JT obesity/diabetes agreement.
Knoll may terminate the collaboration agreement on the third or fourth
anniversary of the effective date upon prior written notice. Either party may
terminate the agreement at any time upon a material breach by the other party
of its obligations under the agreement. When the research collaboration
terminates, each party will retain rights to technology invented by it during
the collaboration or contributed by it to the collaboration, subject to the
rights and licenses described above. The parties would cross license to each
other the right to commercialize products already identified in the program.
Japan Tobacco, or JT (Orphan Nuclear Receptors)
Effective September 1998, we established a five-year collaboration with JT to
discover, develop and market compounds that act by regulating orphan nuclear
receptors. We have developed assays and screened library compounds against a
number of orphan nuclear receptors. Both parties will participate in chemistry
and other preclinical activities for identified lead compounds.
The collaboration is structured as a contractual joint venture in which both
expenses and profits on a worldwide basis will be split between Tularik and JT.
We retain exclusive marketing and sales rights in the United States and Canada.
JT retains exclusive marketing and sales rights in Japan and Korea. JT and we
jointly determine marketing strategy in other countries. JT will be required to
provide funding for our research efforts and to make benchmark payments to us
based on clinical progress.
The research collaboration may be terminated by JT at the end of the third
and fourth years of the five-year research collaboration, on prior written
notice. Either party may elect to terminate its participation in the co-
promotion of products upon prior written notice to the other party, in which
case the other party may exclusively commercialize such product subject to the
payment of a royalty to the party that elects not to participate in co-
promotion. Either party may terminate the agreement at any time upon a material
breach by the other party of its obligations under the agreement.
Roche Bioscience (Inflammation)
We established a five-year research and development collaboration with Roche
Bioscience in July 1997 to discover, develop and market anti-inflammatory gene
regulating drugs.
The agreement provides that we will establish assays for particular targets
within these signaling pathways and conduct HTS of compounds from the Roche
Bioscience and Tularik libraries. Roche Bioscience provides expertise and
funding to support molecular structure validation and chemistry. Roche
Bioscience has exclusive, worldwide manufacturing and marketing rights to
develop and commercialize identified compounds resulting from the research
program for specified indications. Roche Bioscience is obligated to pay us
benchmark payments based on clinical progress and royalties on sales of these
compounds for the Roche Bioscience indications. We have exclusive, worldwide
manufacturing and marketing rights to develop and commercialize other compounds
resulting from the research program for other specified indications. We are
obligated to pay Roche Bioscience royalties on sales of these compounds for
indications we have retained. Our retained indications include inflammatory
bowel disease, as well as eye and skin diseases. Tularik and Roche Bioscience
are responsible for funding preclinical testing and clinical development of
compounds for their respective indications.
Roche Bioscience retains rights of first negotiation and of first refusal to
develop and commercialize various types of compounds identified both within and
outside the scope of the collaboration.
Roche Bioscience may terminate the research collaboration at the end of the
third year of the five-year research collaboration, on prior written notice, if
the then current research plan does not provide opportunities
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for new products or if we have not discharged our obligations under the
research collaboration. For a specified period at the conclusion of the
collaboration, either party may commercialize compounds resulting from the
research program for all indications, subject to the payment of royalties on
sales of the compound. The first party to commence preclinical development of a
compound receives exclusive commercialization rights to the compound and must
pay the other party royalties on the compound and, in the case of compounds
commercialized by Roche Bioscience, benchmark payments. After the specified
period, the first party to commence preclinical development of a compound
resulting from the research program receives exclusive commercialization rights
to the compound and may commercialize the compound without paying royalties to
the other party. Either party may terminate the agreement at any time upon a
material breach by the other party or in connection with the other party's
bankruptcy.
JT (Obesity/Diabetes)
We established a five-year collaboration with JT in September 1996 to
research and develop products that regulate expression of genes implicated in
obesity and diabetes. The collaboration was amended in September 1998 and
currently addresses three gene regulatory pathways involved in obesity and
diabetes. We have developed assays and screened library compounds against a
number of obesity and diabetes targets. Both parties will participate in
chemistry and other preclinical activities for identified lead compounds.
The collaboration is currently structured as a contractual joint venture in
which both expenses and profits on a worldwide basis will be split between JT
and us. We retain exclusive marketing and sales rights in the United States and
Canada (with the exception of those obesity targets that have been committed to
Knoll). JT retains exclusive marketing and sales rights in Japan and Korea, and
JT and we will jointly determine a sales and marketing strategy other than for
those countries in which Knoll may have rights to products that are active
against specified targets. JT will be required to provide funding for our
research efforts and to make benchmark payments to us based on clinical
progress.
The research collaboration may be terminated by JT at the end of the fourth
year of the five-year research collaboration, on prior written notice. Either
party may elect to terminate its participation in the co-promotion of products
upon prior written notice to the other party, in which case the other party may
exclusively commercialize such product subject to the payment to the party
electing not to co-promote of a royalty on sales of such product. Either party
may terminate the agreement at any time upon a material breach by the other
party of its obligations under the agreement.
Under the terms of a related stock purchase agreement, JT purchased 600,000
shares of Series F Preferred Stock at $10.00 per share in September 1996, for
an aggregate purchase price of $6.0 million.
Taisho Pharmaceutical Co. (Immune Disorders)
Effective April 1995, we established a five-year research and development
collaboration with Taisho focused on therapeutic modulation of the human immune
function. In January 1998, the parties extended the alliance for an additional
year. The goals of the research collaboration are to identify and develop
compounds that inhibit or promote the activity of STAT6 and STAT4.
Provided the research collaboration continues for the full six-year term,
Taisho will have exclusive rights to manufacture and sell products resulting
from the collaboration for therapeutic modulation of immune function in Japan
and in specified other Asian countries. Taisho will be required to make
benchmark payments to us based on clinical progress and royalty payments based
on sales in Taisho's territory. We will have exclusive rights in the rest of
the world, without any payment obligation to Taisho, unless the research
collaboration terminates prior to the full six-year term for our default under
the agreement or bankruptcy.
Taisho has the right to terminate the collaboration with written notice
before the commencement of the sixth year. In this event, we will have
exclusive, worldwide, royalty-free rights to all products identified in the
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collaboration. Either party may terminate the agreement at any time upon a
material breach by the other party of its obligations under the agreement or
upon the other party's bankruptcy.
Sumitomo Pharmaceuticals Co. (Hypercholesterolemia)
Effective January 1995, we established a five-year research and development
collaboration with Sumitomo to discover, develop and market compounds that act
to upregulate the gene encoding the low density lipoprotein, or LDL, receptor
and thereby lower serum LDL cholesterol. Under the collaboration agreement, we
have established assays for upregulators of LDL receptor gene expression.
Sumitomo and Tularik are each to provide compound libraries, conduct screening
and provide expertise to support biology, pharmacology and chemistry for
identified lead compounds.
Sumitomo has the right to enter into a license agreement granting it
exclusive rights to develop, manufacture and sell in specified Asian countries
any compound selected for preclinical testing during the term of the
collaboration or during a specified period after expiration or termination of
the research program. Sumitomo must make benchmark payments to Tularik, and if
it obtains a license, as described above, royalty payments based on sales of
product in specified Asian countries. The collaboration agreement grants us
exclusive rights to develop, manufacture and sell licensed products in the rest
of the world, without payment obligation to Sumitomo. The license to Tularik
and the license to Sumitomo, if any, would survive termination of the research
portion of the collaboration, which we expect to terminate in January 2000 at
the expiration of the five-year term. When the research collaboration
terminates, each party will retain rights to technology invented by it during
the collaboration or contributed by it to the collaboration, subject to the
foregoing licenses. Any compound conceived during the research period and
reduced to practice within a year of termination will revert to us if not
licensed by Sumitomo within the specified period after the termination of the
research collaboration.
Under the terms of a related stock purchase agreement, Sumitomo purchased
400,000 shares of our Series E Preferred Stock at $7.50 per share in February
1995 for an aggregate purchase price of $3.0 million.
Other Agreements
Eli Lilly (lometrexol)
Effective September 24, 1999, we executed a license agreement with Lilly
under which we obtained an exclusive, worldwide, royalty-bearing license to
make, use and sell pharmaceutical products containing a compound known as
lometrexol, and purchased related inventory. We would owe to Lilly milestones
and royalties upon successful commercialization of lometrexol. Lilly filed an
IND application for lometrexol, a treatment for cancer, in August 1988, a
Clinical Trial Exemption for the United Kingdom in June 1991 and conducted
phase 1 trials of lometrexol in cancer patients in the United States and
Europe. Under the agreement, Lilly granted us a license under Lilly's
proprietary technology relating to lometrexol, and also a sublicense under the
exclusive license granted to Lilly by Princeton University relating to
lometrexol. Lilly has specified obligations under the agreement to maintain the
license from Princeton. Lilly has a right to match the material terms of any
offer made by a third party for commercialization of lometrexol products.
We may terminate the agreement with Lilly upon written notice. Lilly may
terminate our license in specified major countries if we fail to use reasonable
diligence to develop lometrexol products in such countries, and may terminate
the agreement if we fail to use appropriate diligence to develop lometrexol
products in a predetermined number of major countries. Each party has the right
to terminate the agreement if the other party becomes insolvent or fails to
cure a breach of the agreement. If Lilly terminates the agreement, Lilly
obtains a nonexclusive, royalty-bearing, worldwide license to our technical
improvements to lometrexol.
Cold Spring Harbor Laboratories, or CSHL (RDA)
Amplicon had been the exclusive licensee of the rights of CSHL in RDA, and we
acquired these rights held by Amplicon when we acquired Amplicon. In connection
with our acquisition of Amplicon, we
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established a research collaboration with CSHL. As part of this collaboration,
Dr. Michael Wigler of CSHL supervises research using RDA to search for tumor
suppressor genes and DNA sequences that are amplified in cancer. In addition,
we may elect to obtain licenses under inventions made under the research
collaboration. Either party may terminate the research collaboration for
breach. We may terminate the license agreement after October 2002. We intend to
utilize the results of this research collaboration and new discoveries from
Dr. Wigler's laboratory to develop proprietary HTS for drug discovery.
Merck & Co. (Viral Diseases)
Effective December 1993, we established a five-year collaboration with Merck
to discover and develop compounds for the prevention or treatment of specified
viruses. This research collaboration ended in March 1999. Merck has exclusive,
worldwide manufacturing and marketing rights to develop and commercialize
products resulting from the human immunodeficiency virus, or HIV, program,
subject to obligations to pay to us benchmark payments based on clinical
progress and royalties on sales of anti-HIV products.
Merck retains the option to assume responsibility for the development of our
anti-CMV drug candidate. If Merck exercises the option, Merck will pay to us an
exercise fee and will reimburse us for costs previously incurred by us in the
CMV program on a full-time equivalent basis, in addition to paying milestones
and royalties on products. If Merck does not exercise its option, we will be
free to pursue such program without restriction. We plan to submit information
to Merck in October 1999 to permit them to decide whether or not to exercise
this option. Merck has 90 days from receipt of this information to decide
whether to exercise this option.
Under the terms of a related stock purchase agreement, Merck purchased
400,000 shares of Series D Preferred Stock at $5.00 per share in January 1994
for an aggregate purchase price of $2.0 million.
Patents and Proprietary Rights
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
Accordingly, patents and other proprietary rights are an essential element of
our business. As of September 30, 1999, 44 U.S. patents based on our
discoveries had been issued or allowed. In addition, as of that date, we had 47
patent applications pending in the United States and had filed several
corresponding foreign patent applications. Our policy is to file patent
applications and to protect technology, inventions and improvements to
inventions that are commercially important to the development of our business.
We seek U.S. and international patent protection for the genes we discover, as
well as therapeutic products and processes, drug screening methodologies,
transgenic animals, diagnostics and other inventions based on these genes. Our
commercial success will depend in part on obtaining this patent protection. We
also intend to seek patent protection or rely upon trade secret rights to
protect other technologies that may be used to discover and characterize genes
and that may be used to develop novel drugs. We seek protection, in part,
through confidentiality and proprietary information agreements. We are a party
to various license agreements that give us rights to use technologies in our
research and development processes.
We believe that we have developed proprietary technology for use in gene
discovery, regulatory pathway identification and assay design and have filed a
number of patent applications in these areas. In addition, an increasing
percentage of our recent patent applications have been related to potential
product candidates, or compounds, that we have discovered.
Competition
We face, and will continue to face, intense competition from organizations
such as large pharmaceutical and biotechnology companies, as well as academic
and research institutions and government agencies. Our major competitors
include fully integrated pharmaceutical companies that have extensive drug
discovery efforts and are developing novel small molecule pharmaceuticals. We
face significant competition from organizations
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that are pursuing the same or similar technologies, including the discovery of
targets that regulate gene expression, as the technologies used by us in our
drug discovery efforts and from organizations that are pursuing pharmaceuticals
that are competitive with our potential products.
Many of these companies and institutions, either alone or together with their
collaborative partners, have substantially greater financial resources and
larger research and development staffs than we do. In addition, many of these
competitors, either alone or together with their collaborative partners, have
significantly greater experience than we do in:
. developing products;
. undertaking preclinical testing and clinical trials;
. obtaining FDA and other regulatory approvals of products; and
. manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before us. If we commence
commercial product sales, we will be competing against companies with greater
marketing and manufacturing capabilities, areas in which we have limited or no
experience.
In addition, any product candidate that we successfully develop may compete
with existing therapies that have long histories of safe and effective use.
Competition may also arise from:
. other drug development technologies and methods of preventing or reducing
the incidence of disease;
. new small molecules; or
. other classes of therapeutic agents.
Developments by others may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions, and for licenses to proprietary technology.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
Our ability to compete successfully will depend, in part, on our ability to:
. develop proprietary products;
. develop and maintain products that reach the market first, are
technologically superior to and/or are of lower cost than other products
in the market;
. attract and retain scientific and product development personnel;
. obtain patent or other proprietary protection for our products and
technologies;
. obtain required regulatory approvals; and
. manufacture, market and sell any product that we develop.
Government Regulation
The manufacturing and marketing of our potential products and our ongoing
research and development activities are subject to extensive regulation by
numerous governmental authorities in the United States and other countries.
Before marketing in the United States, any drug developed by us must undergo
rigorous preclinical testing and clinical trials and an extensive regulatory
clearance process implemented by the FDA under the federal Food, Drug and
Cosmetic Act. The FDA regulates, among other things, the development, testing,
manufacture, safety, efficacy, record keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of biopharmaceutical products.
None of our product candidates has been approved for sale in the United States
or any foreign market. The regulatory review and approval process, which
includes preclinical testing and clinical trials of each product candidate, is
lengthy, expensive and uncertain. Securing FDA approval requires the submission
of extensive preclinical and clinical data and supporting information to the
FDA for each indication to establish a product candidate's safety and efficacy.
The approval process takes many years,
49
<PAGE>
requires the expenditure of substantial resources, involves post-marketing
surveillance, and may involve ongoing requirements for post-marketing studies.
Before commencing clinical investigations in humans, we must submit to, and
receive approval from, the FDA of an IND application. We expect to rely on some
of our collaborative partners to file IND applications and generally direct the
regulatory approval process for certain of our products.
Clinical testing must meet requirements for institutional review board
oversight, informed consent and good clinical practices. Clinical testing must
be conducted under FDA oversight. Before receiving FDA clearance to market a
product, we must demonstrate that the product is safe and effective on the
patient population that will be treated. If regulatory clearance of a product
is granted, this clearance will be limited to those disease states and
conditions for which the product is useful, as demonstrated through clinical
studies. However, clearance may entail ongoing requirements for postmarketing
studies. After regulatory clearance is obtained, a marketed product, its
manufacturer and its manufacturing facilities are exposed to continual review
and periodic inspections by the FDA.
Any of our contract manufacturers and we also are required to comply with the
applicable FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control and quality assurance as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to inspection
by the FDA. Such facilities must be approved before we can use them in
commercial manufacturing of our products. Our contract manufacturers or we may
not be able to comply with the applicable good manufacturing practice
requirements and other FDA regulatory requirements. If our contract
manufacturers or we fail to comply, our business, financial condition and
results of operations may be materially adversely affected.
Outside the United States, our ability to market a product is contingent upon
receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Community, or EC, registration
procedures are available to companies wishing to market a product in more than
one EC member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process
involves all of the risks associated with FDA clearance set forth above.
Employees
As of September 30, 1999, we had 204 full-time employees, of whom 94 hold
Ph.D. and/or M.D. degrees and 26 hold other advanced degrees. Of our total
workforce, 173 are engaged in research and development activities and 31 are
engaged in business development, finance and administration. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced work stoppages. We believe that our relations with our employees
are good.
Facilities
Our facilities consist of approximately 146,000 square feet of research and
office space located at Two Corporate Drive, South San Francisco, California
that is leased to us until 2011. We have options to renew these leases for two
additional periods of five years each. We have leased approximately 14,500
square feet of research and office space located at 266 Pulaski Road,
Greenlawn, New York that is leased to us until 2005. We believe that the space
needed to accommodate our growth through the year 2003 is available.
Scientific Advisory Boards
We utilize scientists and physicians to advise us on scientific and medical
matters as part of our Scientific Advisory Board, or SAB, including experts in
human genetics, mouse genetics, molecular biology, biochemistry, cell biology,
chemistry, infectious diseases, immunology and structural biology. Generally,
each
50
<PAGE>
of our scientific and medical advisors and consultants has received our common
stock or an option to purchase our common stock.
Robert Tjian, Ph.D. is one of our founders and has been the Chairman of the
SAB since its inception. Dr. Tjian is an investigator of the Howard Hughes
Medical Institute at the University of California, Berkeley. Dr. Tjian is one
of the world leaders in the field of transcription factor biochemistry and was
the first to clone and characterize a promoter-selective human transcription
factor (Sp1 in 1986). He has been a member of the National Academy of Sciences
since 1991. Dr. Tjian received the California Scientist of the Year Award
in 1994.
The following is a list of our other SAB members:
James P. Allison, Ph.D. is Professor of Immunology and Co-Chairman of the
Department of Molecular & Cell Biology and an investigator of the Howard Hughes
Medical Institute at the University of California, Berkeley. Dr. Allison is a
leader in the field of cellular immunology. Dr. Allison was elected to the
National Academy of Sciences in 1997.
Paul A. Bartlett, Ph.D. is Professor of the Chemistry Department at the
University of California, Berkeley. Dr. Bartlett is an expert in the field of
bioorganic molecules, medicinal chemistry and combinatorial chemistry. He is
one of the founders of Pharmacopoeia, Inc.
Michael S. Brown, M.D. is Professor of Medicine and Genetics and Joseph L.
Goldstein, M.D. is Professor and Chairman of the Department of Molecular
Genetics at University of Texas Southwestern Medical Center at Dallas. Working
as a team, Drs. Brown and Goldstein pioneered a multidisciplinary approach to
the study of hypercholesterolemia by using a combination of biochemistry,
somatic cell genetics, molecular biology and, most recently, gene regulation
and cell biology. In 1985, Drs. Brown and Goldstein were awarded the Nobel
Prize in Medicine for their work in the regulation of cholesterol metabolism,
and in 1988 they received the National Medal of Science. They were elected to
the National Academy of Sciences in 1980.
E.J. Corey, Ph.D. is Sheldon Emery Professor of Organic Chemistry in the
Chemistry Department at Harvard University. Dr. Corey is a leader in organic
synthetic chemistry, including applications for manufacturing of
pharmaceuticals and applying computers to organic chemical problems. In 1988,
Dr. Corey received the National Medal of Science and in 1990, he was awarded
the Nobel Prize in Chemistry for his development of the theory and methodology
of organic synthesis.
Donald E. Ganem, M.D. is Professor of Microbiology and Medicine at the
University of California, San Francisco. Dr. Ganem is a leader in the area of
human viruses and microbial infectious agents.
Richard M. Losick, Ph.D. is Professor and Chairman of the Department of
Molecular & Cellular Biology at Harvard University. Dr. Losick is a leader in
the field of microbial development and gene regulation. Dr. Losick was elected
to the National Academy of Sciences in 1992 and to the American Academy of Arts
and Sciences in 1996.
Brian W. Matthews, Ph.D., D.Sc. is Professor of Physics and Molecular Biology
and an investigator of the Howard Hughes Medical Institute at the University of
Oregon, Eugene. He is one of the world's leaders in structural biology and
biophysics, with a special expertise in X-ray crystallography and is a pioneer
in the study of protein folding, protein:protein interactions and protein:DNA
interactions. Dr. Matthews was elected to the National Academy of Sciences in
1986.
Kim Nasmyth, Ph.D. is a Professor and Director of the Research Institute of
Molecular Pathology in Vienna. Dr. Nasmyth is an expert in the area of yeast
genetics, cell cycle regulation and cancer biology.
Bruce W. Stillman, Ph.D. is Director of the CSHL on Long Island, New York.
Dr. Stillman is an expert in the area of DNA replication, cell cycle control
and tumor biology. He is a fellow of the Royal Society.
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<PAGE>
James Wells, Ph.D. is co-founder and chief scientific officer of Sunesis,
Inc. Dr. Wells is a leader in the field of biomolecular design, protein
structure and function as well as molecular biology and phage display
technology. Dr. Wells was elected to the National Academy of Sciences in 1999.
Keith R. Yamamoto, Ph.D. is Chairman of the Department of Cellular and
Molecular Pharmacology at the University of California, San Francisco. Dr.
Yamamoto is a leader in the field of steroid receptors, a special class of
inducible transcriptional regulators. Dr. Yamamoto was elected to the National
Academy of Sciences in 1990.
Oncology Scientific Advisory Board
In addition to our SAB, we utilize a number of scientists and physicians to
advise us on scientific and medical matters as part of our Oncology Scientific
Advisory Board.
David Botstein, Ph.D. is a Professor at Stanford University and is the
chairman of the Stanford Department of Genetics. Dr. Botstein is a member of
the National Academy of Sciences.
Larry Norton, M.D. heads the Division of Solid Tumor Oncology at Memorial
Sloan Kettering Cancer Center. Dr. Norton is a leading clinical oncologist and
an expert in the treatment of breast cancer.
Bruce W. Stillman, Ph.D.--See above.
Michael Wigler, Ph.D. is an Investigator at Cold Spring Harbor Laboratory.
Dr. Wigler focuses his research on cancer genes, such as the ras oncogene and
tumor suppressor genes. Dr. Wigler is a member of the National Academy of
Sciences.
Clinical Oncology Scientific Advisory Board
A global oncology advisory panel guides our clinical oncology program.
Members include:
Dr. Hilary Calvert, University of Newcastle, UK
Dr. Ross Donehower, Johns Hopkins Hospital, Baltimore, USA
Dr. Axel Hanauske, Munich, Germany
Dr. David Newell, University of Newcastle, UK
Dr. Larry Norton, Memorial Sloan Kettering Cancer Center, New York, USA
Dr. Eric Rowinsky, Institute of Drug Development, San Antonio, Texas, USA
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of September 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David V. Goeddel, Ph.D............. 48 Chief Executive Officer and Director
Andrew J. Perlman, M.D., Ph.D...... 51 Executive Vice President
Yasunori Kaneko, M.D............... 46 Vice President, Business Development
Corinne H. Lyle.................... 39 Vice President, Chief Financial Officer
William J. Rieflin................. 39 Vice President, General Counsel and Secretary
Terry J. Rosen, Ph.D............... 40 Vice President, Research Operations
Pieter B.M.W.M. Timmermans, Ph.D... 49 Vice President, Pharmacology and Preclinical Development
Robert A. Swanson.................. 51 Chairman of the Board of Directors
A. Grant Heidrich, III............. 47 Director
Mark J. Levin...................... 49 Director
Paul A. Marks, M.D................. 73 Director
Edward R. McCracken................ 55 Director
Steven L. McKnight, Ph.D........... 50 Director
Peter J. Sjostrand, M.D............ 53 Director
</TABLE>
David V. Goeddel, Ph.D. co-founded Tularik in November 1991 and has served as
a member of our board of directors since inception and as our Chief Executive
Officer since April 1996. From April 1996 to December 1997, Dr. Goeddel served
as our President and from inception to March 1996, Dr. Goeddel served as our
Vice President, Research. Dr. Goeddel was the first scientist hired by
Genentech, Inc. and from 1978 to 1993 served in various positions, including
Fellow and Staff Scientist and Director of Molecular Biology. Dr. Goeddel's
pioneering work in the field of gene cloning and expression of human proteins
has been the basis for five significant marketed therapeutics developed by
Genentech, including human insulin, human growth hormone, interferon-alpha,
interferon-gamma and tPA. Based on his contributions in gene cloning and
expression of human proteins, Dr. Goeddel was elected to the National Academy
of Sciences and the American Academy of Arts and Sciences. Since 1998, Dr.
Goeddel has served on the board of directors of Pharma Vision 2000 AG, an
investor in Tularik. Dr. Goeddel holds a Ph.D. in Biochemistry from the
University of Colorado and subsequently performed postdoctoral research at
Stanford Research Institute.
Andrew J. Perlman, M.D., Ph.D. has served as our Executive Vice President
since September 1999. From November 1997 to September 1999, Dr. Perlman served
as our Vice President, Medical Research and Corporate Development. From January
1993 to November 1997, Dr. Perlman served as our Vice President of Medical
Research. Prior to joining Tularik, Dr. Perlman held senior clinical research
positions at Genentech, Inc. Previously, Dr. Perlman served as a faculty member
in the Department of Medicine at Stanford University. Dr. Perlman is a director
of SangStat Medical Corporation. Dr. Perlman holds an M.D. degree and Ph.D. in
Physiology from New York University.
Yasunori Kaneko, M.D. has served as our Vice President, Business Development
since June 1992. Dr. Kaneko served as our Chief Financial Officer from June
1992 to October 1996. Prior to joining Tularik, Dr. Kaneko held senior
positions at Isis Pharmaceuticals, Inc., Paribas Capital Markets Limited
(Tokyo, Japan) and Genentech, Inc. Since 1998, Dr. Kaneko has served on the
board of directors of Leukosite Inc. Dr. Kaneko holds an M.D. from Keio
University (Tokyo, Japan) and an M.B.A. from Stanford University.
Corinne H. Lyle has served as our Vice President, Chief Financial Officer
since October 1998. From April 1996 to August 1998, Ms. Lyle was an investment
banker at Warburg Dillon Read LLC. Previously, Ms. Lyle was with PaineWebber
Incorporated and Kidder Peabody & Co. Incorporated as an investment banker.
Ms. Lyle holds an M.B.A. from Harvard Business School.
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<PAGE>
William J. Rieflin has served as our Vice President, General Counsel and
Secretary since August 1996. From May 1992 to July 1996, Mr. Rieflin worked at
AMSCO International, Inc., serving in various positions, including Vice
President-Human Resources, General Counsel and Secretary. Previously, Mr.
Rieflin was an associate at the law firm of Sidley & Austin. Mr. Rieflin holds
a J.D. from Stanford Law School and an M.B.A. from the University of Chicago
Graduate School of Business.
Terry J. Rosen, Ph.D. has served as our Vice President, Research Operations
since October 1996. From June 1996 to October 1996, Dr. Rosen served as our
Vice President, Medicinal Chemistry and from October 1993 to June 1996 he
served as our Director, Medicinal Chemistry. Prior to joining Tularik, Dr.
Rosen worked at Pfizer Inc and Abbott Laboratories. Dr. Rosen holds a Ph.D. in
Organic Chemistry from the University of California, Berkeley.
Pieter B.M.W.M. Timmermans, Ph.D. has served as our Vice President,
Pharmacology and Preclinical Development since January 1997. From June 1984 to
December 1996, Dr. Timmermans worked at the DuPont Merck Pharmaceutical
Company, and its predecessor, E.I. DuPont de Nemours & Company, serving in
various positions including Vice President of Drug Discovery and Senior Vice
President of Research. While at DuPont, Dr. Timmermans led the team that
discovered the nonpeptide angiotensin II receptor antagonist, Cozaar, which is
currently marketed by Merck. Dr. Timmermans holds a Ph.D. in Pharmacology from
the University of Amsterdam.
Robert A. Swanson has served as our Chairman of the Board since June 1996.
Mr. Swanson, a founder of Genentech, Inc., served as Genentech's Chief
Executive Officer from April 1976 to February 1990 and served as its Chairman
of the Board from February 1990 to December 1996. Previously, Mr. Swanson was a
partner with Kleiner & Perkins and Citicorp Venture Capital Ltd. Mr. Swanson is
a member of the Biology Visiting Committee of, and has served as a Trustee for,
the Massachusetts Institute of Technology. Mr. Swanson is a member of the Royal
Swedish Academy of Engineering Sciences. Mr. Swanson holds an M.S. from the
Sloan School of Management at the Massachusetts Institute of Technology. Mr.
Swanson is currently on a medical leave of absence from our board of directors.
A. Grant Heidrich, III has served as a member of our board of directors since
November 1991. Mr. Heidrich joined Mayfield Fund in 1982 and is currently a
general partner of Mayfield Fund. Mr. Heidrich serves on the board of directors
of Millennium Pharmaceuticals, Inc. and several private companies. Mr. Heidrich
holds an M.B.A. from Columbia University Graduate School of Business.
Mark J. Levin has served as a member of our board of directors since November
1991. From November 1991 to March 1992, Mr. Levin served as our Chief Executive
Officer. Since November 1994, he has served as the Chief Executive Officer of
Millennium Pharmaceuticals, Inc. and has served as a member of its board of
directors since its inception in 1993 and as its Chairman of the Board since
March 1996. Previously, Mr. Levin was a partner at Mayfield Fund. Mr. Levin
serves on the board of directors of CytoTherapeutics Inc. Mr. Levin holds an
M.S. from Washington University in St. Louis.
Paul A. Marks, M.D. has served as a member of our board of directors since
December 1993. Since July 1980, Dr. Marks has served as the President and Chief
Executive Officer of Memorial Sloan-Kettering Cancer Center. Previously, Dr.
Marks was the Vice President for Health Sciences and Director of the Cancer
Center at Columbia University Medical Center. Dr. Marks is a member of the
National Academy of Sciences and the Institute of Medicine and is a Fellow of
the American Academy of Arts and Sciences. Dr. Marks serves on the board of
directors of several Dreyfus Mutual Funds. Dr. Marks holds an M.D. from the
College of Physicians and Surgeons, Columbia University.
Edward R. McCracken has served as a member of our board of directors since
August 1993. From 1984 to 1998, Mr. McCracken served as Chief Executive Officer
of Silicon Graphics, Inc. Before joining Silicon Graphics, Mr. McCracken spent
16 years with Hewlett-Packard Company, where he worked in a variety of senior
management positions. Mr. McCracken serves as Chairman of the Board of The
PRASAD Project, a
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<PAGE>
charitable foundation, and serves on the board of directors of CustomerCast
Inc., National Semiconductor Corporation and Minnesota Mining and Manufacturing
Company. Mr. McCracken holds an M.B.A. from Stanford University.
Steven L. McKnight, Ph.D. co-founded Tularik in November 1991 and has served
as a member of our board of directors since inception. From September 1992 to
September 1995, Dr. McKnight served as our Director, Biology. Since January
1997, Dr. McKnight has been a consultant to Tularik. Dr. McKnight has served as
Professor and Chairman of the Department of Biochemistry at the University of
Texas Southwestern Medical Center since 1995. Previously, Dr. McKnight was an
investigator at the Howard Hughes Medical Institute at the Carnegie Institution
of Washington. Dr. McKnight is recognized as one of the world leaders in gene
regulation based in part on his discovery of leucine zipper proteins. Dr.
McKnight is a member of the National Academy of Sciences and the American
Academy of Arts and Sciences. Dr. McKnight holds a Ph.D. in Biology from the
University of Virginia.
Peter J. Sjostrand, M.D. has served as a member of our board of directors
since October 1996. Dr. Sjostrand is a partner of the BZ Group of Switzerland.
From 1975 to 1993, Dr. Sjostrand held various senior management positions at
Astra AB, including Executive Vice President, Chief Financial Officer and
Regional Director of the Americas. Dr. Sjostrand serves on the board of
directors of Pharma Vision 2000 AG, an investor in Tularik, and AGA AB. Dr.
Sjostrand holds an M.D. from Karolinska Institute in Stockholm, Sweden.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers. No director has
a contractual right to serve as a member of our board of directors.
Board Committees
Audit Committee. Our audit committee, consisting of Mr. Heidrich and Mr.
Levin, reviews our internal accounting procedures and the services provided by
our independent auditors.
Compensation Committee. Our compensation committee, consisting of Mr.
Swanson, Mr. Heidrich and Mr. McCracken, reviews and recommends to our board of
directors the compensation and benefits of all our officers and establishes and
reviews general policies relating to compensation and benefits of our
employees. Mr. Swanson is currently on a medical leave of absence from our
board of directors.
Compensation Committee Interlocks and Insider Participation
During 1998, our compensation committee consisted of Mr. Swanson, Mr.
Heidrich and Mr. McCracken. None of the members of our compensation committee
has at any time been an officer or employee of Tularik. No interlocking
relationship exists between our board of directors or compensation committee
and the board of directors or compensation committee of any other company, nor
has any interlocking relationship existed in the past.
Compensation of Directors
We do not provide cash compensation to members of our board of directors for
serving on our board of directors or for attendance at committee meetings.
Members of our board of directors are reimbursed for some expenses in
connection with attendance at board and committee meetings. In April 1998 and
in April 1999, each of our non-employee directors received an option to
purchase 8,000 shares of common stock at an exercise price of $3.00 per share
under our 1997 Non-Employee directors' plan. In consideration for consulting
services, we granted Dr. McKnight additional options to purchase an aggregate
of 50,000 shares of common stock, 25,000 shares in each of June 1998 and in
June 1999, at an exercise price of $3.00 per share. The $3.00 per share
exercise price for these options was equal to the fair market value of the
common stock on the
55
<PAGE>
date of grant as determined by our compensation committee. These options vest
in a series of equal annual installments beginning on the grant date of the
option and extending through the next four years of service. For more
information, see "Benefit Plans--1997 Non-Employee Directors' Stock Option
Plan."
In consideration for consulting services, in addition to the options
described above, we pay Dr. McKnight $85,000 per year. Dr. McKnight spends
approximately 20% of his time providing consulting services to Tularik.
Between January 1995 and February 1998, we forgave $165,968 of the principal
and $24,780 of the interest due on a loan of $240,000 we provided to Dr.
McKnight in June 1992 to cover housing differential costs in connection with
his move to California from another state. In addition, we have paid $153,082
to Dr. McKnight to offset taxable income to him arising as a consequence of our
loan forgiveness. No amounts are due by Dr. McKnight on this loan.
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during 1998 to our Chief Executive Officer and each of the four other
most highly compensated executive officers that earned more than $100,000
during 1998. All option grants were made under our 1997 Equity Incentive Plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------------
Securities All Other
Name and Principal Position Salary($) Underlying Options Compensation($)(2)
- --------------------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
David V. Goeddel, Ph.D...... $324,077 150,000 $879
Chief Executive Officer and
Director
John P. McLaughlin(1)....... $275,000 500,000 $663
President
Yasunori Kaneko, M.D. ...... $246,671 50,000 $2,924
Vice President, Business
Development
Andrew J. Perlman, M.D.,
Ph.D....................... $234,231 50,000 $2,988
Vice President, Medical
Research and Corporate
Development
Pieter B.M.W.M. Timmermans,
Ph.D....................... $229,538 50,000 $876
Vice President,
Pharmacology and
Preclinical Development
</TABLE>
- --------
(1) Mr. McLaughlin resigned as President of Tularik effective as of September
30, 1999.
(2) Includes term-life insurance premiums paid by us on behalf of these named
executive officers, wellness benefits and taxable travel reimbursement.
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<PAGE>
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and each of our four other most
highly paid executive officers during 1998. Options granted to purchase shares
of our common stock under our 1997 Equity Incentive Plan are generally
immediately exercisable by the optionee but are subject to a right of
repurchase pursuant to the vesting schedule of each specific grant. In the
event that a purchaser ceases to provide service to Tularik and its affiliates,
we have the right to repurchase any of that person's unvested shares of common
stock at the original option exercise price. The exercise price per share is
equal to the fair market value of our common stock on the date of grant as
determined by our board of directors. The percentage of total options was
calculated based on options to purchase an aggregate of 1,849,700 shares of
common stock granted to employees under our 1997 Equity Incentive Plan in 1998.
The potential realizable value was calculated based on the ten-year term of the
options and assumed rates of stock appreciation of 5% and 10%, compounded
annually from the date the options were granted to their expiration date based
on the fair market value of the common stock on the date of grant. Twenty-five
percent of the initial option vests on the one year anniversary of employment
and the remainder vest in a series of equal monthly installments beginning on
the one year anniversary of employment and continuing over the next three years
of service. Options granted after the one year anniversary of employment vest
in a series of equal monthly installments beginning from the vesting start date
and continuing over the next four years of service. See "Benefit Plans" for a
description of the material terms of these options.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration -----------------
Name Granted Fiscal Year (per share) Date 5% 10%
- ---- ---------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David V. Goeddel,
Ph.D................... 150,000 8.1% $3.00 6/17/08 $283,003 $717,185
John P. McLaughlin...... 500,000 27.0% $3.00 1/21/08(1) $149,219 $305,507
Yasunori Kaneko, M.D.... 50,000 2.7% $3.00 6/17/08 $ 94,334 $239,062
Andrew J. Perlman, M.D.,
Ph.D................... 50,000 2.7% $3.00 6/17/08 $ 94,334 $239,062
Pieter B.M.W.M.
Timmermans, Ph.D....... 50,000 2.7% $3.00 6/17/08 $ 94,334 $239,062
</TABLE>
- --------
(1) In connection with Mr. McLaughlin's resignation, the expiration date for
250,001 of these options is December 31, 1999. The potential realizable
value calculations are based upon this expiration date. 249,999 of these
options were not vested as of September 30, 1999 and may not be exercised.
The following table sets forth summary information regarding the number and
value of options held as of December 31, 1998 for our Chief Executive Officer
and each of our four most highly compensated executive officers. Our Chief
Executive Officer and each of our four most highly compensated executive
officers did not acquire any shares upon exercise of options in 1998. Amounts
shown in the value of unexercised in-the-money options at December 31, 1998
column are based on the assumed initial public offering price of $12.00,
without taking into account any taxes that may be payable in connection with
the transaction, multiplied by the number of shares underlying the option, less
the aggregate exercise price payable for these shares.
1998 Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1998 December 31, 1998
------------------------- -------------------------
Name Vested Unvested Exercisable Unexercisable
- ---- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
David V. Goeddel,
Ph.D. ................. 493,750 356,250 $8,937,500 --
John P. McLaughlin...... 125,001 374,999 $4,500,000 --
Andrew J. Perlman, M.D.,
Ph.D. ................. 129,792 105,208 $2,433,750 --
Yasunori Kaneko, M.D. .. 118,750 131,250 $2,587,500 --
Pieter B.M.W.M.
Timmermans, Ph.D. ..... 22,223 61,110 $ 749,997 --
</TABLE>
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<PAGE>
Benefit Plans
Since 1991, we have established four plans under which employees, officers,
non-employee directors and consultants may purchase or receive common stock
through incentive stock options, nonstatutory stock options, restricted stock
and stock bonuses. These plans are the 1991 Stock Plan, the 1997 Equity
Incentive Plan, 1997 Non-Employee Directors' Stock Option Plan and the 1999
Employee Stock Purchase Plan. In addition, we have established two defined
contribution plans that are intended to be qualified under Section 401(a) of
the Internal Revenue Code, as amended ("Code"). They are the Tularik Salary
Savings Plan and the Tularik Matching Plan.
Long Term Incentive Plans
1991 Stock Plan. In November 1991, we adopted our 1991 Stock Plan. Our board
subsequently amended the 1991 plan in 1991, 1992, 1993, 1994, 1995 and 1996,
and the stockholders approved these amendments. The 1991 plan will terminate in
November 2001 unless it is terminated earlier by our board.
The 1991 plan provides for the grant of stock awards, including:
. incentive stock options, as defined by Section 422 of the Code that may
be granted solely to employees (including officers); and
. nonstatutory stock options (stock options other than incentive stock
options) and restricted stock purchase awards that may be granted to
employees (including officers) and consultants.
Stock Options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of
the fair market value of the common stock on the date of grant. The exercise
price for a nonstatutory stock option cannot be less than 85% of the fair
market value of the common stock on the date of grant. Options granted under
the 1991 plan vest at the rate specified in the option agreement.
In general, the term of stock options granted under the 1991 plan may not
exceed ten years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service
relationship with us, or any affiliate of ours, ceases due to disability or
death, the optionee (or his beneficiary) may exercise any vested options up to
12 months after the date such service relationship ends. If an optionee's
relationship with us, or any affiliate of ours, ceases for any reason other
than disability or death, the optionee may (unless the terms of the stock
option agreement provide for earlier termination) exercise any vested options
up to ninety days from cessation of service.
Acceptable consideration for the purchase of common stock issued under the
1991 plan is determined by our board of directors and may include cash, common
stock previously owned by the optionee, a deferred payment arrangement,
surrender of a portion of the option covering common stock having a fair market
value equal to the exercise price of all of the option, directions to a broker
to sell the common stock and deliver the exercise price from the sale proceeds,
an irrevocable subscription agreement obligating the optionee to pay for the
common stock within twelve months, and such other legal consideration approved
by our board.
Generally, an optionee may not transfer a stock option other than by will or
the laws of descent or distribution. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death.
Tax Limitations on Stock Option Grants. Under current tax laws, incentive
stock options may be granted only to our employees. The aggregate fair market
value, determined at the time of grant, of shares of our common stock with
respect to incentive stock options that are exercisable for the first time by
an optionee during any calendar year under all of our stock plans may not
exceed $100,000. No incentive stock option (and prior to our stock being
publicly traded, no nonstatutory stock option) may be granted to any person
who, at the
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time of the grant, owns or is deemed to own stock possessing more than 10% of
the total combined voting power of Tularik or any affiliate unless the
following conditions are satisfied:
. the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
. the term of any incentive stock option award must not exceed five years
from the date of grant.
Restricted Stock Awards. The purchase price for each restricted stock award
granted must be at least 50% of the fair market value of the stock on the date
of the award or at the time the purchase is consummated. The restricted stock
award may be exercised for a period not to exceed 30 days from the date of the
grant of the right. The restricted stock awards may be subject to a right of
repurchase given to Tularik under the terms of the restricted stock award
grant.
Changes in Control. Upon specified changes in control of Tularik as provided
under the 1991 plan, all outstanding options under the 1991 plan either will be
assumed or substituted for by any surviving entity or its parent or subsidiary
corporation, if any. For stock options granted prior to January 4, 1992, if the
surviving entity or its parent or subsidiary corporation, if any, determines
not to assume or substitute the options, the board of directors shall provide
for the options to be fully exercisable for a period of 15 days from the date
of notice. If the board of directors makes the options fully exercisable for
this 15-day period, the options will terminate at the end of this period.
Authorized Shares. An aggregate of 11,576,667 shares of common stock were
authorized for issuance under the 1991 plan. As of September 30, 1999, options
to purchase a total of 1,961,729 shares of our common stock were held by all
participants under the 1991 plan. As of September 30, 1999, a total of
2,100,000 shares of our common stock were purchased under restricted stock
awards. No shares of our common stock remained available for grant. Shares
subject to stock options that have expired or otherwise terminated without
having been exercised in full again become available for the grant of awards
under the 1991 plan. Shares issued under the 1991 plan may be previously
unissued shares or reacquired shares of common stock.
Plan Administration. Our board of directors administers the 1991 plan. Our
board of directors may delegate authority to administer the 1991 plan to a
committee of our board of directors. Subject to the terms of the plan, our
board of directors or its authorized committee determines recipients, the
numbers and types of stock awards to be granted, and the terms and conditions
of the stock awards including the period of their exercisability and vesting.
Subject to the plan limitations, our board of directors or its authorized
committee also determines the exercise price of options granted and the right
to purchase restricted stock.
Our board of directors or its designated committee may, in its sole
discretion, include additional provisions in any option or award granted or
made under the 1991 plan that are not inconsistent with the 1991 plan or
applicable law. Our board of directors or its designated committee may also, in
its sole discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1991 plan may be exercised. In
the event of a decline in the value of our common stock, our board of directors
or its designated committee has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options.
1997 Equity Incentive Plan. In March 1997, we adopted our 1997 Equity
Incentive Plan. The 1997 plan will terminate in March 2007 unless our board of
directors terminates it sooner.
The 1997 plan provides for the grant of stock awards, including:
. incentive stock options, as defined in Section 422 of the Code, that may
be granted solely to employees (including officers); and
. nonstatutory stock options, restricted stock purchase awards and stock
bonuses that may be granted to employees (including officers), non-
employee directors and consultants.
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Stock Options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of
the fair market value of the common stock on the date of grant. The exercise
price for a nonstatutory stock option cannot be less than 85% of the fair
market value of the common stock on the date of grant. Options granted under
the 1997 plan vest at the rate specified in the option agreement.
In general, the term of stock options granted under the 1997 plan may not
exceed ten years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service
relationship with us, or any affiliate of ours, ceases due to disability or
death, the optionee (or his beneficiary) may exercise any vested options up to
twelve months (eighteen months in the event of death) after the date such
service relationship ends. If an optionee's relationship with us, or any
affiliate of ours, ceases for any reason other than disability or death, the
optionee may (unless the terms of the stock option agreement provide for
earlier termination) exercise any vested options up to 90 days from cessation
of service.
Acceptable consideration for the purchase of common stock issued under the
equity 1997 plan is determined by our board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by our board of directors.
Generally, an optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides otherwise. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death.
Tax Limitations on Stock Option Grants. Under current tax laws, incentive
stock options may be granted only to our employees. The aggregate fair market
value, determined at the time of grant, of shares of our common stock with
respect to incentive stock options that are exercisable for the first time by
an optionee during any calendar year under all of our stock plans may not
exceed $100,000. No incentive stock option (and prior to our stock being
publicly traded, no nonstatutory stock option) may be granted to any person
who, at the time of the grant, owns or is deemed to own stock possessing more
than 10% of the total combined voting power of Tularik or any affiliate unless
the following conditions are satisfied:
. the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
. the term of any incentive stock option award must not exceed five years
from the date of grant.
Section 162(m). When we become subject to Section 162(m) of the Code (which
generally denies a corporate tax deduction to publicly held corporations for
some compensation paid to specified employees in a taxable year to the extent
that the compensation exceeds $1,000,000 and is not paid based on performance),
no person may be granted options under the 1997 plan covering more than
1,000,000 shares of common stock in any calendar year. In the event that our
board of directors exercises its authority to reprice outstanding options or to
offer optionees the opportunity to replace outstanding options with new options
for the same or a different number of shares, then both the original and new
options will count toward the Section 162(m) limitation.
Restricted Stock and Stock Bonus Awards. Prior to our stock being publicly
traded, the purchase price for each restricted stock award granted must be at
least 85% of the fair market value of the stock on the date of the award or at
the time the purchase is consummated. For restricted stock awards made on or
after the date that our stock is publicly traded, the purchase price for such
awards must be at least 50% of the fair market value of the stock on the date
of the award or at the time the purchase is consummated. Rights to acquire
shares under a stock bonus or restricted stock bonus agreement may not be
transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee. Certain
restricted stock awards made following the completion of this offering may be
otherwise transferable if the stock bonus agreement so provides. Restricted
stock purchase awards granted under the 1997 plan may include a repurchase
option in favor of Tularik that varies according to a service vesting schedule
determined by our board of directors. Stock bonuses may be awarded in
consideration for past services without a purchase payment.
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Changes in Control. Under specified changes in control, all outstanding
options under the 1997 plan either will be assumed, continued or substituted
for by any surviving entity. If the surviving entity does not assume, continue
or substitute for these awards, the vesting provisions of these stock awards
will be accelerated and these stock awards will be terminated upon the change
in control if not previously exercised.
Authorized Shares. An aggregate of 4,618,038 shares of common stock currently
are authorized for issuance under the 1997 plan. As of September 30, 1999,
options to purchase a total of 3,824,274 shares of our common stock were held
by all participants under the 1997 plan. A total of 304,112 shares of our
common stock remain available for grant. Shares subject to stock options that
have expired or otherwise terminated without having been exercised in full
again become available for the grant of awards under the 1997 plan. The share
reserve automatically will increase on December 31 every year through 2002 by a
number equal to 3.5% of the issued and outstanding shares of our common stock.
Shares issued under the 1997 plan may be previously unissued shares or
reacquired shares bought on the market or otherwise. No more than 2,000,000
shares of our common stock may be issued on the exercise of incentive stock
options during the term of the 1997 plan.
Plan Administration. Our board of directors administers the 1997 plan. Our
board of directors may delegate authority to administer the 1997 plan to a
committee. Subject to the terms of the plan, our board of directors or its
authorized committee determines recipients, the numbers and types of stock
awards to be granted, and the terms and conditions of the stock awards
including the period of their exercisability and vesting. Subject to the plan
limitations, our board or its authorized committee also determines the exercise
price of options granted and the right to purchase restricted stock.
Our board of directors or its designated committee may, in its sole
discretion, include additional provisions in any option or award granted or
made under the 1997 plan that are not inconsistent with the 1997 plan or
applicable law. Our board of directors or its designated committee may also, in
its sole discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1997 plan may be exercised. In
the event of a decline in the value of our common stock, our board of directors
or its designated committee has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options.
1997 Non-Employee Directors' Stock Option Plan. In January 1997, the
compensation committee of our board of directors adopted the 1997 Non-Employee
Directors' Stock Option Plan to provide for the automatic grant of options to
purchase shares of common stock to non-employee directors of Tularik. Our board
of directors administers the directors' plan, unless it delegates
administration to a committee. The maximum number of shares of common stock
that may be issued following exercise of options granted under the directors'
plan is 300,000.
Initial Grants. Under the terms of the directors' plan, each person serving
as a director of Tularik who is not an employee of Tularik and not already a
holder of one or more options to purchase stock of Tularik, is automatically
granted an option to purchase 25,000 shares of common stock effective on the
later of the approval of the directors' plan by the stockholders or the date
the director first becomes a member of our board.
Annual Grants. In addition, on the date of Tularik's annual meeting of
stockholders, each non-employee director who was a director on the last day of
the prior calendar year will automatically be granted an option to purchase
8,000 shares of common stock.
Vesting and Exercise Terms. Options under the directors' plan vest within
four years from the date of grant. The exercise price of options granted under
the directors' plan must equal the fair market value of the common stock on the
date of grant. No option granted under the directors' plan may be exercised
after the expiration of ten years from the date it was granted. Generally,
options granted under the directors' plan may only be transferable by will, the
laws of descent and distribution or for specified estate planning purposes. The
directors' plan will terminate at the discretion of our board of directors.
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Change In Control. Under specified changes in control, all outstanding
options under the directors' plan either will be assumed or substituted for by
any surviving entity. If the surviving entity does not assume or substitute for
such awards, the vesting provisions of the options will be accelerated and the
options will be terminated upon the change in control if not previously
exercised.
1999 Employee Stock Purchase Plan. In October 1999, we adopted our 1999
Employee Stock Purchase Plan, authorizing the issuance of common stock pursuant
to purchase rights granted to our employees or to employees of our affiliates,
if any. The purchase plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Code. As of the date hereof, no
shares of common stock had been issued or purchased under the purchase plan.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. The purchase plan is implemented by offerings
of rights to eligible employees. Generally, all regular employees, including
executive officers, who work at least 20 hours per week and are employed by
Tularik or one of its affiliates for at least five months per calendar year may
participate in the purchase plan and may authorize payroll deductions of up to
15% of their earnings for the purchase of common stock under the purchase plan.
Under the plan, we may specify offerings with a duration of not more than 27
months, and may specify shorter purchase periods within each offering. The
first offering will begin on the effective date of this offering and be
approximately 13 months in duration. Subsequent offering periods will begin on
each February 1st and continue for a duration of 24 months. Purchases will
occur each February 1st and August 1st.
Unless otherwise determined by our board of directors, common stock is
purchased for accounts of employees participating in the purchase plan at a
price per share equal to the lower of:
. 85% of the fair market value of a share of our common stock on the date
of commencement of participation in the offering; or
. 85% of the fair market value of a share of our common stock on the date
of purchase.
On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the purchase plan an option to
purchase shares of common stock as follows: the employee may authorize an
amount (a whole percentage from 1% to 15% of the employee's regular pay) to be
deducted by Tularik from his or her pay during the offering period. On the last
day of the offering period, the employee is deemed to have exercised the
option, at the option exercise price, to the extent of accumulated payroll
deductions.
If an employee is not a participant on the last day of the offering period,
the employee is not entitled to exercise any option, and the amount of the
employee's accumulated payroll deductions will be refunded. An employee's
rights under the purchase plan terminate upon voluntary withdrawal from the
purchase plan at any time, or when this employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has specified rights to elect to exercise the option to
purchase the shares that the accumulated payroll deductions in the
participant's account would purchase at the date of death.
Limitations. Eligible employees may be granted rights only if the rights,
together with any other rights granted under any other employee stock purchase
plans, do not permit the employee to purchase our common stock at a rate which
exceeds $25,000 of the fair market value of such stock for each calendar year
in which such rights are outstanding. No employee shall be eligible for the
grant of any rights under the purchase plan if immediately after such rights
are granted, the employee has voting power over 5% or more of our outstanding
capital stock (measured by vote or value).
Authorized shares. The purchase plan authorizes the issuance of a total of
500,000 shares of common stock under the purchase plan. This reserve amount
will be increased each January 1 beginning January 1, 2001 by 1% of the number
of shares of common stock outstanding on that date. However, our board of
directors has the authority to designate a smaller number of shares by which
the authorized number of shares of common stock will be increased on that date.
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Administration. Our board of directors administers the purchase plan. Our
board of directors may delegate authority to administer the purchase plan to a
committee that shall have the authority of our board of directors to adopt
resolutions governing the purchase plan.
Tax Qualified Plans. We sponsor the Tularik Salary Savings Plan and Matching
Plan as set forth below:
Savings Plan. Our savings plan, effective October 1, 1993, is intended to be
a tax-qualified defined contribution plan under Subsections 401(a) and 401(k)
of the Code. All employees are eligible to participate and may enter the 401(k)
plan as of their date of hire and on the first day of any month thereafter.
Each participant may contribute up to 20% of his or her pre-tax compensation to
the savings plan, subject to statutorily prescribed annual limits. Each
participant's contributions, and the corresponding investment earnings, are
generally not taxable to the participants until withdrawn. Employee
contributions are held in trust and invested by the savings plan trustee as
required by law. Individual participants may direct the trustee to invest their
accounts in authorized investment alternatives.
Matching Plan. Our matching plan, effective January 1, 1998, is intended to
be a tax-qualified defined contribution plan under Subsections 401(a) and
401(m) of the Code. All employees are eligible to participate and may enter the
matching plan as of the date they become eligible to participate in the savings
plan. Each participant who makes pre-tax contributions to the savings plan is
eligible to have a matching contribution in common stock made by Tularik to his
or her matching plan account in an amount up to 50% of the participant's
savings plan contribution with a maximum employee contribution of $1,500 per
year, subject to statutorily prescribed annual limits. We may make additional
discretionary contributions for all participants to the matching plan. Each
participant's contributions, and the corresponding investment earnings, are
generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
Limitations of Liability; Indemnification of Directors and Officers
In connection with the consummation of the offerings, we will adopt and file
an amended and restated certificate of incorporation and amended and restated
bylaws. As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation further provides that we must indemnify our
directors to the fullest extent permitted by Delaware law.
In addition, our amended and restated bylaws provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by Delaware law, subject to limited exceptions;
. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise prohibited by law,
our amended and restated certificate of incorporation, our bylaws or
agreements;
. we are required to advance expenses to our directors and executive
officers as incurred in connection with legal proceedings against them
for which they may be indemnified; and
. the rights conferred in the bylaws are not exclusive.
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We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify
each director and officer to the fullest extent permitted by Delaware law,
including indemnification for expenses such as attorneys' fees, judgments,
fines and settlement amounts incurred by the director or officer in any action
or proceeding, including any action by or in the right of Tularik, arising out
of the person's services as a director or officer of Tularik, any subsidiary of
ours or any other company or enterprise to which the person provides services
at our request. At present, we are not aware of any pending or threatened
litigation or proceeding involving any of our directors, officers, employees or
agents in which indemnification would be required or permitted. We believe that
our charter provisions and indemnification agreements are necessary to attract
and retain qualified persons as directors and officers.
Employment Agreements and Termination of Employment Agreements
At the time of commencement of employment, our employees generally sign offer
letters specifying basic terms and conditions of employment. In general, our
employees are not subject to written employment agreements. Each officer and
employee has entered into a standard form confidential information and
invention assignment agreement that provides that the employee will not
disclose any confidential information of Tularik received during the course of
employment and that, with some exceptions, the employee will assign to Tularik
any and all inventions conceived or developed during the course of employment.
In October 1999, we entered into an agreement with John P. McLaughlin, our
former President. Under the terms of the agreement, Mr. McLaughlin will receive
his salary and health benefits through December 31, 1999 and may receive his
salary and health benefits through June 30, 2000 if he does not secure
alternate employment prior to that date. In addition, the vesting of options to
purchase 37,500 shares of common stock was accelerated. We provided Mr.
McLaughlin with a one-year loan in the principal amount of $787,503 at an
annual interest rate of 5.54%, pursuant to a promissory note secured by a
pledge of 262,501 shares of common stock.
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RELATED PARTY TRANSACTIONS
Stock option grants to our executive officers and directors are described in
this prospectus under the heading "Management--Compensation of Directors, --
Executive Compensation and--Employment Agreements."
From January 1, 1996 through September 30, 1999, the following executive
officers, directors and holders of more than 5% of our voting securities
purchased securities in the amounts and as of the dates set forth below.
<TABLE>
<CAPTION>
Series F Series G
Preferred Preferred
Purchaser Common Stock Stock Stock
- --------- ------------ --------- ---------
<S> <C> <C> <C>
Directors and Executive Officers(1)
David V. Goeddel, Ph.D. .................... 550,001 -- --
John P. McLaughlin.......................... -- -- --
Yasunori Kaneko, M.D. ...................... 200,000 -- --
Corinne H. Lyle............................. -- -- --
Andrew J. Perlman, M.D., Ph.D. ............. 100,000 -- --
William J. Rieflin.......................... 183,334 -- --
Terry J. Rosen.............................. 63,000 -- --
Pieter B.M.W.M. Timmermans, Ph.D. .......... 116,667 -- --
Robert A. Swanson........................... 308,000 -- --
A. Grant Heidrich, III...................... -- -- --
Mark J. Levin............................... -- -- --
Paul A. Marks, M.D. ........................ 33,000 -- --
Edward R. McCracken......................... -- -- --
Steven L. McKnight, Ph.D. .................. -- -- --
Peter J. Sjostrand, M.D. ................... -- -- --
Entities Affiliated with Directors(1)
Mayfield Fund(2)............................ -- -- --
Pharma Vision 2000 AG(3).................... -- 3,280,000 5,000,000
Price Per Share(4).......................... $0.40 to $3.00 $ 10.00 $ 10.25
Date(s) of Purchase......................... 1/96-9/99 10/96 12/97
</TABLE>
- --------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) The entities affiliated with Mayfield Fund are Mayfield Associates,
Mayfield Medical Partners and Mayfield VI. Mr. Heidrich, one of our
directors, is a general partner of Mayfield Associates and of Mayfield VI
Management Partners. Mayfield VI Management Partners is the general partner
of Mayfield VI. Mayfield VI is a general partner of Mayfield Medical
Partners. Mr. Levin, one of our directors, is a general partner of Mayfield
Medical Partners.
(3) Dr. Goeddel, our Chief Executive Officer and director, is a director of
Pharma Vision. Dr. Sjostrand, a member of our board of directors, is a
director of Pharma Vision.
(4) The weighted average price per share for these purchases of our common
stock as of September 30, 1999 was $1.75.
We have entered into an Amended and Restated Registration Rights Agreement
with each of the purchasers of preferred stock set forth above, pursuant to
which these and other stockholders will have registration rights with respect
to their shares of common stock issuable upon conversion of their preferred
stock following the offerings.
We have entered into indemnification agreements with our directors and
certain officers for the indemnification and advancement of expenses to these
persons to the fullest extent permitted by law. We also
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intend to enter into those agreements with our future directors and officers.
See "Limitation of Liability; Indemnification of Directors and Officers."
In June 1996, we entered into an agreement with Mr. Swanson under which the
1987 Swanson Family Trust, a trust affiliated with Mr. Swanson, purchased
300,000 shares of common stock at a purchase price of $0.75 per share.
According to the terms of the stock purchase agreement, if Mr. Swanson ceases
to serve as a director of Tularik before June 2001, we have the right to
repurchase at the original purchase price a number of shares calculated using a
formula based on the number of days of Mr. Swanson's service as a director to
us over a four-year period.
In May 1997, we loaned Mr. Rieflin $250,000 that he used in connection with
relocating to California from another state. Mr. Rieflin has repaid the full
amount that was due on this loan. The loan was interest free and was secured by
a pledge of Mr. Rieflin's shares of our common stock.
In November 1997, we loaned Mr. Rieflin $94,132 that he used to cover housing
differential costs in his move to California from another state. We have
forgiven $23,533 of the principal of this loan and will forgive an additional
$23,533 each November if Mr. Rieflin continues to provide services to Tularik.
Mr. Rieflin has not repaid any amount due on this loan. The loan bears interest
at a rate of 6.10% per year, is secured by a pledge of Mr. Rieflin's shares of
our common stock and is due on November 14, 2001.
We believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to us than
could be obtained from unaffiliated third parties.
Pharma Vision, which is our largest stockholder and owns 23.5% of our
outstanding stock, has expressed an interest in acquiring directly from us
concurrently with the offerings additional shares of common stock that would
allow it to maintain its percentage ownership. Pharma Vision would purchase
1,468,750 shares of common stock, and if the underwriters exercised the over-
allotment options in full, Pharma Vision would purchase an additional 220,313
shares of common stock. Any sales of shares by us to Pharma Vision would be
made under a separate purchase agreement between us and Pharma Vision
containing customary terms. All shares to be sold to Pharma Vision under this
agreement would be sold at the public offering price set forth on the cover
page of this prospectus. These shares would be sold pursuant to the
registration statement of which this prospectus is a part and would not be
subject to any lock-up agreement with us or the underwriters. The underwriters
would not receive any discounts or commissions on the sale of these shares.
BZ Bank Limited, an affiliate of Pharma Vision, is one of the international
managers of the offering. Please see discussion under "Underwriting."
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PRINCIPAL STOCKHOLDERS
The following table provides summary information regarding the beneficial
ownership of our outstanding common stock as of September 30, 1999 for:
. each person or group who beneficially owns more than 5% of our common
stock;
. our chief executive officer;
. each of our four other most highly compensated executive officers whose
compensation exceeded $100,000 during 1998;
. each of our directors; and
. all of our directors and executive officers as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all shares of common stock held by them. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of
September 30, 1999 and not subject to repurchase as of that date are deemed
outstanding for calculating the percentage of outstanding shares of the person
holding these options, but are not deemed outstanding for calculating the
percentage of any other person. Applicable percentage ownership in the
following table is based on 35,271,375 shares of common stock outstanding as of
September 30, 1999, after giving effect to the conversion of all outstanding
shares of preferred stock into common stock upon the closing of the offerings,
and 41,521,375 shares of common stock outstanding immediately following the
completion of the public offerings and the direct offering to Pharma Vision.
Unless otherwise indicated, the address of each of the named individuals is c/o
Tularik Inc., Two Corporate Drive, South San Francisco, California 94080.
<TABLE>
<CAPTION>
Amount and Nature of Shares Beneficially Owned as of September 30, 1999
-----------------------------------------------------------------------------------
Percent of Total Outstanding
Shares Beneficially Owned
Shares Subject to Shares Issuable ---------------------------------
Outstanding a Right of Pursuant to Options Before the After the
Shares of Repurchase as of Exercisable within Public Offerings Public Offerings
Common September 30, 60 Days of and the and the
Name Stock(1) 1999(2) September 30, 1999 Direct Offering Direct Offering
- ---- ----------- ----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Pharma Vision 2000 AG(3)........... 8,280,000 -- -- 23.5 23.5
Spielhof 3
8750 Glaris Switzerland
Entities affiliated with Mayfield
Fund(4)........................... 3,966,474 -- -- 11.2 9.6
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
David V. Goeddel, Ph.D.(5)......... 9,658,125 171,876 549,999 29.0 28.3
John P. McLaughlin................. -- -- 225,001 * *
Yasunori Kaneko, M.D.(6)........... 395,000 -- 275,000 1.9 1.6
Andrew J. Perlman, M.D., Ph.D.(7).. 270,000 -- 205,000 1.3 1.1
Pieter B.M.W.M. Timmermans, Ph.D... 77,778 38,889 133,333 * *
Robert A. Swanson(8)............... 341,195 109,000 56,000 1.4 1.2
A. Grant Heidrich, III(9).......... 3,966,474 -- 41,000 11.3 9.6
Mark J. Levin(10).................. 479,818 -- 99,000 1.6 1.4
Edward R. McCracken................ -- -- 89,000 * *
Steven L. McKnight, Ph.D.(11)...... 784,751 6,249 399,000 3.3 2.8
Paul A. Marks, M.D. ............... 64,313 8,687 16,000 * *
Peter J. Sjostrand, M.D.(12)....... 8,280,000 -- 49,000 23.6 23.6
All executive officers and
directors as a group (15
people)(13)....................... 15,775,844 387,827 2,745,999 49.7 42.7
</TABLE>
- --------
* Less than one percent (1%).
(1) Excludes shares of common stock subject to a right of repurchase as of
September 30, 1999.
67
<PAGE>
(2) The unvested portion of the shares of common stock is subject to a right
of repurchase by us, at the original option exercise price, in the event
the holder ceases to provide service to us and our affiliates. The option
exercise prices range from $0.025 to $3.00. See "Management--Executive
Compensation" for more detail on our right to repurchase.
(3) Pharma Vision has expressed an interest in acquiring directly from us
concurrently with the public offerings additional shares of common stock
that would allow it to maintain its percentage ownership. The percentage
of total outstanding shares beneficially owned after the public offerings
and the direct offering by Pharma Vision includes 1,468,750 shares that
may be purchased by Pharma Vision in the direct offering. See "Related
Party Transactions" for more detail on the direct offering.
(4) Includes 158,659 shares held by Mayfield Associates, 479,818 shares held
by Mayfield Medical Partners and 3,327,997 shares held by Mayfield VI.
Mayfield VI Management Partners is the general partner of Mayfield VI and
Mayfield VI is a general partner of Mayfield Medical Partners. Mr.
Heidrich is a general partner of Mayfield Associates and of Mayfield VI
Management Partners. Mr. Levin is a general partner of Mayfield Medical
Partners.
(5) Includes 8,280,000 shares held by Pharma Vision and 1,468,750 shares that
may be purchased by Pharma Vision in the direct offering. Dr. Goeddel is a
director of Pharma Vision and disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in these shares.
Does not include 240,000 shares held in trust for Dr. Goeddel's children,
for which Dr. Goeddel is not the trustee and disclaims beneficial
ownership.
(6) Includes 200,000 shares held in trust for the Kaneko Family Trust for
which Dr. Kaneko disclaims beneficial ownership. Does not include 40,000
shares held in trust for Dr. Kaneko's minor children, for which Dr. Kaneko
is not the trustee and disclaims beneficial ownership.
(7) Includes 195,000 shares held in trust for the Perlman/Gardner Family Trust
for which Dr. Perlman disclaims beneficial ownership. Does not include
30,000 shares held in trust for Dr. Perlman's minor children, for which
Dr. Perlman is not the trustee and disclaims beneficial ownership.
(8) Includes 308,000 shares held by the 1987 Swanson Family Trust, a trust
affiliated with Mr. Swanson, and 142,195 shares held by the Swanson Family
Fund, Ltd.
(9) Includes 158,659 shares held by Mayfield Associates, 479,818 shares held
by Mayfield Medical Partners and 3,327,997 shares held by Mayfield VI. Mr.
Heidrich is a general partner of Mayfield Associates and of Mayfield VI
Management Partners. Mayfield VI Management Partners is the general
partner of Mayfield VI and Mayfield VI is a general partner of Mayfield
Medical Partners. Mr. Heidrich disclaims beneficial ownership of these
shares except to the extent of his proportionate partnership interest in
these shares.
(10) Includes 479,818 shares held by Mayfield Medical Partners. Mr. Levin is a
general partner of Mayfield Medical Partners and disclaims beneficial
ownership of these shares except to the extent of his proportionate
partnership interest in these shares.
(11) Includes 200,000 shares held in trust for Dr. McKnight's minor children
and 206,000 shares held in trust for the Steven L. McKnight Exempt Family
Trust. Dr. McKnight disclaims beneficial ownership of these shares.
(12) Includes 8,280,000 shares held by Pharma Vision and 1,468,750 shares that
may be purchased by Pharma Vision in the direct offering. Dr. Sjostrand is
a director of Pharma Vision and disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in these shares.
(13) Includes shares described in the notes above, as applicable.
68
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offerings and the filing of our amended and restated
certificate of incorporation, our authorized capital stock will consist of 65
million shares of common stock, $0.001 par value, and five million shares of
preferred stock, $0.001 par value.
Common Stock
As of September 30, 1999, there were 35,271,375 shares of common stock
outstanding that were held of record by approximately 374 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio. There will be 41,521,375 shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options) after giving effect to the sale of the shares
of common stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all matters
submitted to a vote of our stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive ratably any dividends out of assets
legally available therefor as our board of directors may from time to time
determine. Upon liquidation, dissolution or winding up of Tularik, holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
shares of preferred stock. Holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable.
Preferred Stock
Pursuant to our amended and restated certificate of incorporation, our board
of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, in one or
more series. Our board shall determine the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of any series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control of
Tularik, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.
Registration Rights of Stockholders
Upon completion of the offerings, holders of an aggregate of 26,953,539
shares of common stock and warrants to purchase an aggregate of 1,015,091
shares of common stock will be entitled to rights to register these shares
under the Securities Act. These rights are provided under an Investor Rights
Agreement, dated October 31, 1997, under an Amended and Restated Registration
Rights Agreement, dated August 15, 1999, and under agreements with similar
registration rights. If we propose to register any of our securities under the
Securities Act, either for our own account or for the account of others, the
holders of these shares are entitled to notice of the registration and are
entitled to include, at our expense, their shares of common stock in the
registration and any related underwriting, provided, among other conditions,
that the underwriters may limit the number of shares to be included in the
registration and in some cases, including this offering, exclude these shares
entirely. In addition, the holders of these shares may require us, at our
expense and on not more than two occasions at any time beginning six months
from the date of the closing of the offerings, to file a registration statement
under the Securities Act with respect to their shares of common stock, and we
will be required to use our best efforts to effect the registration. Further,
the holders may require us at our expense to register their shares on Form S-3
when this form becomes available.
69
<PAGE>
Anti-Takeover Provisions of Delaware Law and Charter Provisions
Until November 2000, we are subject to Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder unless:
. prior to the date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and by employee stock plans in which
shares held subject to the plan will be tendered in a tender or exchange
offer; or
. on or subsequent to this date, the business combination is approved by
our board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our amended and restated certificate of incorporation requires that upon
completion of the public offerings, any action required or permitted to be
taken by our stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by a consent in writing.
Additionally, our certificate of incorporation:
. substantially limits the use of cumulative voting in the election of
directors;
. provides that the authorized number of directors may be changed only by
resolution of our board of directors; and
. authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares.
Our amended and restated bylaws provide that candidates for director may be
nominated only by our board of directors or by a stockholder who gives written
notice to us no later than 60 days prior nor earlier than 90 days prior to the
first anniversary of the last annual meeting of stockholders. The authorized
number of directors is fixed in accordance with our certificate of
incorporation. Our board of directors currently consists of eight members who
will be elected at each annual meeting of our stockholders. Our board of
directors may appoint new directors to fill vacancies or newly created
directorships. Our bylaws also limit who may call a special meeting of
stockholders.
Delaware law and these charter provisions may have the effect of deterring
hostile takeovers or delaying changes in control of our management, which could
depress the market price of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota N.A.
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offerings, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Furthermore, since no shares
will be available for sale shortly after this offering because of contractual
and legal restrictions on resale as described below, sales of substantial
amounts of our common stock in the public market after these restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of the public offerings and the direct offering to Pharma
Vision, we will have outstanding an aggregate of 41,521,375 shares of common
stock, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants after September 30, 1999. Of these
shares, all of the shares sold in the public offerings and the direct offering
will be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by affiliates. The remaining
35,271,375 shares of common stock held by existing stockholders are restricted
securities. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration described
below under Rules 144, 144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:
. 2,142,474 shares will be eligible for sale upon completion of the
offerings;
. 424,249 shares will be eligible for sale beginning 90 days after the date
of this prospectus;
. 32,704,652 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
. 3,709,202 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
Lock-Up Agreements. All of our officers, directors and some of our
stockholders and option holders have agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock,
for a period of at least 180 days after the date of this prospectus. Transfers
or dispositions can be made sooner only with the prior written consent of
Lehman Brothers Inc. Shares purchased by Pharma Vision in the direct offering
would not be subject to any lock-up agreement with the underwriters or us.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, which
will equal approximately 415,214 shares immediately after the offerings;
or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
Tularik.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. 16,205,022
shares of our common stock will qualify as "144(k) shares" within 180 days
after the date of this prospectus.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a
71
<PAGE>
compensatory stock purchase plan or option plan or other written agreement will
be eligible to resell their shares beginning 90 days after the date of this
prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance with its holding period
requirements.
Registration Rights. Upon completion of this offering, the holders of
26,953,539 shares of our common stock, or their transferees, will be entitled
to rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in
these shares becoming freely tradeable without restriction under the Securities
Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.
Stock Options. Following the offerings, we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of common
stock reserved for issuance under our 1991 Stock Plan, 1997 Equity Incentive
Plan and 1999 Employee Stock Purchase Plan that will become effective upon
filing. Accordingly, shares registered under that registration statement will,
subject to Rule 144 volume limitations applicable to affiliates, be available
for sale in the open market after the filing, except those shares subject to
lockup agreements.
72
<PAGE>
UNDERWRITING
Under the U.S. underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the U.S.
underwriters named below, for whom Lehman Brothers Inc., Hambrecht & Quist LLC,
J.P. Morgan Securities Inc. and Warburg Dillon Read LLC are acting as U.S.
representatives, has agreed to purchase from us the number of shares of common
stock shown opposite its name below:
<TABLE>
<CAPTION>
Number
of
U.S. Underwriters Shares
----------------- ------
<S> <C>
Lehman Brothers Inc...................................................
Hambrecht & Quist LLC.................................................
J.P. Morgan Securities Inc............................................
Warburg Dillon Read LLC...............................................
----
Total...............................................................
====
</TABLE>
Under the international underwriting agreement, which is filed as an exhibit
to the registration statement relating to this prospectus, the international
managers named below, for whom Lehman Brothers Inc., Hambrecht & Quist LLC,
J.P. Morgan Securities Inc. and Warburg Dillion Read LLC are acting as lead
managers, have each agreed to purchase from us the respective number of shares
of common stock shown opposite its name below:
<TABLE>
<CAPTION>
Number
of
International Managers Shares
---------------------- ------
<S> <C>
Lehman Brothers Inc...................................................
Hambrecht & Quist LLC.................................................
J.P. Morgan Securities Inc............................................
Warburg Dillion Read LLC..............................................
BZ Bank Limited.......................................................
----
Total...............................................................
====
</TABLE>
We refer to the U.S. underwriters and international managers as the
underwriters and the U.S. representatives and international lead managers as
the representatives.
BZ Bank Limited, a licensed bank and broker-dealer in Switzerland, is one of
the international managers. BZ Bank is an affiliate of Pharma Vision 2000 AG,
which is our largest stockholder and currently owns 23.5% of our outstanding
common stock. Peter Sjostrand, a member of our Board of Directors is a member
of the Pharma Vision Board of Directors and is a partner of BZ Group, which
controls BZ Bank. David V. Goeddel, our Chief Executive Officer and a member of
our Board of Directors, is also a member of the Pharma Vision Board of
Directors. The representatives and we have agreed that BZ Bank shall purchase
from us and have the discretion to place approximately 26.5% of all shares of
common stock to be sold in the offerings, including the over-allotment options.
BZ Bank has advised us that it intends to sell these shares to investors in
Switzerland and other countries in Europe. BZ Bank will receive the selling
concession on those sales. The shares to be sold by BZ Bank will not be subject
to any lock-up agreement with the underwriters.
73
<PAGE>
The U.S. and international underwriting agreements provide that the
obligations of the underwriters to purchase shares of common stock depend on
the satisfaction of the conditions contained in the U.S. and international
underwriting agreements, respectively. The U.S. and international underwriting
agreements also provide that if any of the shares of common stock are purchased
by the underwriters, then all of the shares of common stock which the
underwriters have agreed to purchase under their respective underwriting
agreements, must be purchased. The conditions contained in each underwriting
agreement include the requirement that:
. the representations and warranties made by us to the underwriters are
true;
. there is no material change in the financial markets; and
. we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.
We have granted the U.S. underwriters an option to purchase up to 468,750
additional shares of common stock and the international managers an option to
purchase up to 248,437 additional shares of common stock, in each case
exercisable solely to cover over-allotments, if any, at the public offering
price less the underwriting discount shown on the cover page of this
prospectus. The U.S. underwriters and international managers may exercise these
options at any time until 30 days after the date of the underwriting
agreements. If these options are exercised, each U.S. underwriter and
international manager will be committed, so long as the conditions of the
underwriting agreements are satisfied, to purchase a number of additional
shares of common stock proportionate to such U.S. underwriter's or
international manager's initial commitment as indicated in the tables above,
and we will be obligated, under the over-allotment options, to sell the shares
of common stock to the U.S. underwriters and international managers.
We have agreed that, without the prior consent of Lehman Brothers, we will
not, directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities that may be converted into or exchanged for any
shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers, directors and holders of
substantially all of our outstanding capital stock have agreed under lock-up
agreements that, without the prior written consent of Lehman Brothers, they
will not, subject to limited exceptions, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities that may be
converted into or exchanged for any shares of common stock for the period
ending 180 days from the date of this prospectus. See "Shares Eligible for
Future Sale."
The U.S. underwriters and the international managers have entered into an
agreement among U.S. underwriters and international managers, pursuant to which
each U.S. underwriter has agreed that,
. it is not purchasing any of these shares for the account of anyone other
than a U.S. Person (as defined below), and
. it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
to anyone other than a U.S. Person.
In addition, pursuant to the agreement, each international manager has
agreed that,
. it is not purchasing any such shares for the account of a U.S. Person,
and
. it has not offered or sold, and will not offer, sell, resell, or deliver,
directly or indirectly, any of these shares or distribute any prospectus
to any U.S. Person.
74
<PAGE>
The limitations described above do not apply to stabilization transactions or
to certain other transactions specified in the underwriting agreements and the
agreement among U.S. underwriters and international managers, including
. certain purchases and sales between U.S. underwriters and the
international managers,
. certain offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion,
. purchases, offers or sales by a U.S. underwriter who is also acting as an
international manager or by an international manager who is also acting
as a U.S. underwriter and
. other transactions specifically approved by the representatives.
As used in this section, the term "U.S. Person" means any resident or
national of the United States or Canada, any corporation, partnership or other
entity created or organized in or under the laws of the United States or
Canada, or any estate or trust the income of which is subject to United States
or Canadian federal income taxation regardless of the source. The term "United
States" means the United States of America (including the District of Columbia)
and its territories, its possessions and other areas subject to its
jurisdiction, and the term "Canada" means Canada, its provinces, its
territories, its possessions and other areas subject to its jurisdiction.
Pursuant to the agreement among the U.S. underwriters and international
managers, sales may be made between the U.S. underwriters and the international
managers of the number of shares of common stock as may be mutually agreed. The
price of any shares so sold shall be the public offering price as then in
effect for the shares of common stock being sold by the U.S. underwriters and
the international managers less an amount equal to the selling concession
allocable to those shares of common stock, unless otherwise determined by
mutual agreement. To the extent that there are sales between the U.S.
underwriters and the international managers pursuant to the agreement among the
U.S. underwriters and the international managers, the number of shares of
common stock available for sale by the U.S. underwriters or by the
international managers may be more or less than the amount specified in the
tables set forth above.
Before this offering, there has been no public market for shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
. our capital structure;
. estimates of our business potential and earning prospects;
. an overall assessment of our management; and
. the consideration of the above factors in relation to market valuations
of companies in related businesses.
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "TLRK."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreements. We
have also agreed to contribute to payments that the underwriters may be
required to make for these liabilities.
Until the distribution of the common stock is complete, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
75
<PAGE>
The underwriters may create a short position in the common stock in
connection with the offerings. This means that they may sell more shares than
are shown on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and selling
group members. This means that, if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Each international manager has represented and agreed that:
. it has not offered or sold and, prior to the date six months after the
date of issue of the shares of common stock, will not offer to sell any
shares of common stock to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Regulation with respect to anything
done by it in relation to the shares of common stock in, from or
otherwise involving the United Kingdom; and
. it has only issued or passed on, and will only issue or pass on, to any
person in the United Kingdom any document received by it in connection
with the issue of the shares of common stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise be issued or passed upon.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the public offering price shown on the
cover page of this prospectus.
At our request, the underwriters have reserved up to shares of
the common stock offered by this prospectus for sale to our officers,
directors, employees and their family members and to our business associates.
These shares will be offered at the public offering price shown on the cover
page of this prospectus. These persons must commit to purchase no later than
the close of business on the day following the date of this prospectus. The
number of shares available for sale to the general public will be reduced to
the extent these persons purchase the reserved shares.
76
<PAGE>
BZ Bank Limited, a licensed bank and broker-dealer in Switzerland and an
international manager in the offering, is an affiliate of Pharma Vision 2000
AG, which is our largest stockholder and owns 23.5% of our outstanding common
stock. BZ Bank is not a member of the NASD. Under Rule 2720 of the Conduct
Rules of the NASD, however, BZ Bank may be deemed to have a "conflict of
interest" with us. The offering is being conducted in accordance with Rule
2720, which generally provides that, among other things, when an underwriter
participates in the underwriting of the equity securities of a company with
which it has a deemed "conflict of interest," the public offering price per
share can be no higher than that recommended by a "qualified independent
underwriter," or QIU, meeting certain standards. In accordance with this
requirement, Lehman Brothers has assumed the responsibilities of acting as QIU.
In its role as QIU, Lehman Brothers has performed a due diligence investigation
and reviewed and participated in the preparation of this prospectus and the
registration statement of which this prospectus is a part. We and the other
underwriters have agreed to indemnify Lehman Brothers in its capacity as QIU
against certain liabilities, including liabilities under the Securities Act.
Pharma Vision has expressed an interest in acquiring directly from us
concurrently with the offerings additional shares of common stock that would
allow it to maintain its percentage ownership in us. Please see the discussion
under the heading "Related Party Transactions."
77
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Palo Alto, California, will provide us with an opinion as
to the validity of the common stock offered under this prospectus. Latham &
Watkins, San Diego, California, will pass upon certain legal matters related to
the offerings for the underwriters. As of the date of this prospectus, certain
partners and associates of Cooley Godward LLP own an aggregate of 13,514 shares
of our common stock through investment partnerships.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We
have included our financial statements in this prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock offered under this prospectus. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedule to the registration statement. For further information with
respect to us and our common stock, we refer you to the registration statement
and to the exhibits and schedule to registration statement. Statements
contained in this prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance, we
refer you to the copy of the contract or other document filed as an exhibit to
the registration statement. Each of these statements is qualified in all
respects by this reference. You may inspect a copy of the registration
statement without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part of the registration statement may be obtained from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of fees prescribed by the SEC. The SEC maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the Web site is http://www.sec.gov. The SEC's toll free investor
information service can be reached at 1-800-SEC-0330. Information contained on
our website does not constitute part of this prospectus.
Upon completion of the offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and
quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information. Our telephone number is
(650) 825-7000.
78
<PAGE>
TULARIK INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Tularik Inc.
We have audited the accompanying consolidated balance sheets of Tularik Inc.
as of December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tularik Inc. at
December 31, 1997 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
February 19, 1999
F-2
<PAGE>
TULARIK INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
------------------ June 30, June 30,
1997 1998 1999 1999
-------- -------- -------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 74,545 $ 53,398 $ 36,339
Short-term investments............ 49,861 58,926 70,863
Restricted investment............. -- -- 3,995
Prepaid expenses and other current
assets........................... 881 1,582 2,453
-------- -------- --------
Total current assets............ 125,287 113,906 113,650
Property and equipment, net........ 6,209 11,950 15,940
Other investments.................. 1,000 9,050 2,050
Other assets....................... 1,026 1,872 2,286
-------- -------- --------
$133,522 $136,778 $133,926
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.................. $ 1,154 $ 1,570 $ 1,185
Accrued compensation and related
liabilities...................... 1,084 1,170 1,274
Accrued liabilities............... 1,052 1,377 2,440
Accrued construction costs........ -- 2,076 --
Current portion of long-term
debt............................. 1,222 2,330 4,471
Deferred revenue.................. 4,248 10,848 9,273
-------- -------- --------
Total current liabilities....... 8,760 19,371 18,643
Long-term debt, net of current
portion........................... 3,456 4,734 11,171
Other non-current liabilities...... 450 1,775 776
Commitments
Stockholders' equity:
Convertible preferred stock,
$0.001 par value; 33,000,000
shares authorized; 26,858,823,
26,903,885, and 26,953,539 shares
issued and outstanding in 1997,
1998 and at June 30, 1999,
respectively, and none pro forma,
issuable in series; aggregate
liquidation preference, $173,424
and $173,542 as of December 31,
1998 and June 30, 1999,
respectively..................... 27 27 27 $ --
Common stock, $0.001 par value;
55,000,000 shares authorized;
7,432,729, 7,560,603, and
8,160,862 shares issued and
outstanding in 1997, 1998 and at
June 30, 1999, respectively, and
35,114,401 shares pro forma...... 7 8 8 35
Additional paid-in capital........ 173,000 174,035 181,224 181,224
Notes receivable from
stockholders..................... (860) (636) (482) (482)
Deferred compensation............. -- (679) (5,705) (5,705)
Accumulated deficit............... (51,318) (61,857) (71,736) (71,736)
-------- -------- -------- --------
Total stockholders' equity......... 120,856 110,898 103,336 $103,336
-------- -------- -------- ========
$133,522 $136,778 $133,926
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
TULARIK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
-------------------------------- ---------------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative research
and development...... $ 15,297 $ 20,009 $ 21,362 $ 8,962 $ 11,993
Operating expenses:
Research and
development.......... 18,622 26,546 33,264 16,003 20,951
Acquired in-process
research and
development.......... -- 18,902 -- -- --
General and
administrative....... 3,630 4,020 5,002 2,421 2,648
Amortization of
deferred stock
compensation......... -- -- 31 -- 840
--------- --------- ---------- ------------ -------------
22,252 49,468 38,297 18,424 24,439
--------- --------- ---------- ------------ -------------
Loss from operations.... (6,955) (29,459) (16,935) (9,462) (12,446)
Interest income, net.... 1,475 4,085 6,396 3,279 2,567
--------- --------- ---------- ------------ -------------
Net loss................ $ (5,480) $ (25,374) $ (10,539) $ (6,183) $ (9,879)
========= ========= ========== ============ =============
Basic and diluted net
loss per share......... $ (1.09) $ (4.19) $ (1.55) $ (0.93) $ (1.37)
========= ========= ========== ============ =============
Weighted average shares
used in computing basic
and diluted net loss
per share.............. 5,033,799 6,062,651 6,790,512 6,654,398 7,198,168
========= ========= ========== ============ =============
Pro forma basic and
diluted net loss per
share.................. $ (0.31) $ (0.29)
========== =============
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share..... 33,686,853 34,110,329
========== =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
TULARIK INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Total
------------------- ----------------- Paid-In From Deferred Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
---------- -------- --------- ------- ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995........... 13,645,132 $ 37,813 4,970,855 $ 535 $ -- $(131) $ -- $(20,464) $ 17,753
Issuance of
Series F
convertible
preferred
stock.......... 6,272,000 59,857 -- -- -- -- -- -- 59,857
Issuance of
common stock
for stock
option and
employee
benefit plans,
net of
repurchases.... -- -- 1,823,712 1,302 -- (571) -- -- 731
Repayment of
notes
receivable..... -- -- -- -- -- 44 -- -- 44
Net loss........ -- -- -- -- -- -- -- (5,480) (5,480)
---------- -------- --------- ------- -------- ----- ------- -------- --------
Balance at
December 31,
1996........... 19,917,132 97,670 6,794,567 1,837 -- (658) -- (25,944) 72,905
Reincorporation
in Delaware.... -- (97,650) -- (2,609) 100,259 -- -- -- --
Issuance of
Series G
convertible
preferred
stock.......... 5,319,634 5 -- -- 54,467 -- -- -- 54,472
Issuance of
Series H
convertible
preferred stock
and warrants
for
Acquisition.... 1,622,057 2 -- -- 18,274 -- -- -- 18,276
Issuance of
common stock
for stock
option and
employee
benefit plans,
net of
repurchases.... -- -- 638,162 779 -- (263) -- -- 516
Repayment of
notes
receivable..... -- -- -- -- -- 61 -- -- 61
Net loss........ -- -- -- -- -- -- -- (25,374) (25,374)
---------- -------- --------- ------- -------- ----- ------- -------- --------
Balance at
December 31,
1997........... 26,858,823 27 7,432,729 7 173,000 (860) -- (51,318) 120,856
Issuance of
Series H
convertible
preferred stock
upon exercise
of stock
options........ 7,802 -- -- -- 6 -- -- -- 6
Conversion of
warrant, net... 37,260 -- -- -- -- -- -- -- --
Issuance of
common stock
for stock
option and
employee
benefit plans,
net of
repurchases.... -- -- 127,874 1 319 80 -- -- 400
Repayment of
notes
receivable..... -- -- -- -- -- 144 -- -- 144
Deferred
compensation... -- -- -- -- 710 -- (710) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 31 -- 31
Net loss........ -- -- -- -- -- -- -- (10,539) (10,539)
---------- -------- --------- ------- -------- ----- ------- -------- --------
Balance at
December 31,
1998........... 26,903,885 27 7,560,603 8 174,035 (636) (679) (61,857) 110,898
Conversion of
warrant, net
(unaudited).... 49,654 -- -- -- -- -- -- -- --
Issuance of
common stock
for stock
option and
employee
benefit plans,
net of
repurchases
(unaudited) ... -- -- 600,259 -- 1,323 (6) -- -- 1,317
Repayment of
notes
receivable
(unaudited).... -- -- -- -- -- 160 -- -- 160
Deferred
compensation
(unaudited).... -- -- -- -- 5,866 -- (5,866) -- --
Amortization of
deferred
compensation
(unaudited).... -- -- -- -- -- -- 840 -- 840
Net loss
(unaudited).... -- -- -- -- -- -- -- (9,879) (9,879)
---------- -------- --------- ------- -------- ----- ------- -------- --------
Balance at June
30, 1999
(unaudited).... 26,953,539 $ 27 8,160,862 $ 8 $181,224 $(482) $(5,705) $(71,736) $103,336
========== ======== ========= ======= ======== ===== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
TULARIK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
Years ended December 31, June 30,
------------------------------ ------------------
1996 1997 1998 1998 1999
-------- --------- --------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss.................. $ (5,480) $ (25,374) $ (10,539) $ (6,183) $ (9,879)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 2,027 1,918 2,423 1,133 1,808
Amortization of deferred
stock compensation....... -- -- 31 -- 840
Noncash stock
compensation............. -- -- 188 -- 250
Write-off of in-process
research and
development.............. -- 18,902 -- -- --
Changes in assets and
liabilities, net of
Acquisition:
Other assets............. (596) (240) (1,578) (1,185) (1,285)
Accounts payable and
accrued liabilities..... 1,351 1,002 827 18 (1,294)
Deferred revenue......... (3,127) (340) 7,873 1,078 (1,575)
Other liabilities........ -- 141 52 46 (999)
-------- --------- --------- -------- --------
Net cash used in
operating activities... (5,825) (3,991) (723) (5,093) (12,134)
-------- --------- --------- -------- --------
Investing activities
Maturities of available-
for-sale securities...... 8,981 103,693 140,982 71,514 60,876
Purchases of available-
for-sale securities...... (46,374) (109,132) (157,047) (81,788) (69,808)
Capital expenditures...... (1,189) (1,970) (6,057) (2,161) (5,798)
Purchases of long-term
investments.............. -- (1,000) (1,050) (750) --
Acquisition, net of cash
received................. -- (538) -- -- --
-------- --------- --------- -------- --------
Net cash used in
investing activities... (38,582) (8,947) (23,172) (13,185) (14,730)
-------- --------- --------- -------- --------
Financing activities
Proceeds from long-term
debt...................... -- 1,268 3,905 1,749 9,995
Payments of long-term
debt...................... (1,721) (1,490) (1,519) (635) (1,417)
Net proceeds from issuance
of preferred stock........ 59,857 54,472 6 6 --
Proceeds from issuances of
common stock, net......... 775 577 356 143 1,227
-------- --------- --------- -------- --------
Net cash provided by
financing activities... 58,911 54,827 2,748 1,263 9,805
-------- --------- --------- -------- --------
Net increase (decrease) in
cash and cash
equivalents............... 14,504 41,889 (21,147) (17,015) (17,059)
Cash and cash equivalents
at beginning of period.... 18,152 32,656 74,545 74,545 53,398
-------- --------- --------- -------- --------
Cash and cash
equivalents at end of
period................. $ 32,656 $ 74,545 $ 53,398 $ 57,530 $ 36,339
======== ========= ========= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
1. Basis of Presentation
Organization and Business
Tularik Inc. ("Tularik" or the "Company") was incorporated in the state of
California in November 1991 and reincorporated in the state of Delaware in June
1997. Since its founding, the Company has been engaged in the discovery and
development of a broad range of novel, small molecule drugs, most of which act
through the regulation of gene expression. Tularik has incurred net losses
since inception and is expected to incur substantial and increasing losses for
at least the next several years as research and development activities are
expanded. To date, the Company has funded its operations primarily through the
sale of equity securities, non-equity payments from collaborators and interest
income. Future revenue, if any, for at least the next several years is expected
to consist primarily of payments under corporate collaborations and interest
income. The process of developing products will require significant additional
research and development, preclinical testing and clinical trials, as well as
regulatory approval. These activities, together with general and administrative
expenses, are expected to result in substantial operating losses for the
foreseeable future. Tularik will not receive product revenue unless the Company
or its collaborative partners completes clinical trials, obtains regulatory
approval and successfully commercializes one or more of the Company's products.
In order to accelerate product commercialization and finance research
activities, Tularik has entered into collaborations with leading pharmaceutical
companies. The Company has ongoing collaborations with Knoll relating to
obesity (commenced in November 1998); JT relating to orphan nuclear receptors
(commenced in September 1998); Roche Bioscience relating to inflammation
(commenced in July 1997); JT relating to obesity (commenced in September 1996);
Taisho relating to immune disorders (commenced in April 1995); and Sumitomo
relating to hypercholesterolemia (commenced in January 1995). Previously,
Tularik also had collaborations with Yamanouchi relating to inflammation
(commenced in November 1993, ended in November 1996) and with Merck relating to
viral disease (commenced in December 1993, ended in March 1999). As of June 30,
1999, the Company has received $13.0 million in equity investments and $95.8
million in research funding from its collaborators, including $14.0 million
from Yamanouchi and $20.4 million from Merck.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Tularik and its
wholly owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments in debt securities with a
remaining maturity from the date of purchase of 90 days or less to be cash
equivalents. Cash equivalents consist of money market funds and corporate debt
securities and exclude demand deposits. The Company's short-term investments
include obligations of governmental agencies and corporate debt securities with
original maturities ranging between three and 12 months. By policy, the Company
limits concentration of credit risk by diversifying its investments among a
variety of high credit-quality issuers.
F-7
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
All cash equivalents and short-term investments are classified as available-
for-sale. Available-for-sale securities are carried at amortized cost, which
approximated fair value at December 31, 1997 and 1998. Material unrealized
gains and losses, if any, are reported in stockholders' equity and included in
other comprehensive loss. Fair value is estimated based on available market
information. The cost of securities sold is based on the specific
identification method. For the years ended December 31, 1997 and 1998, gross
realized gains and losses on available-for-sale securities were immaterial. See
Note 4 for a summary of available-for-sale securities at December 31, 1997 and
1998.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
equipment is calculated using the straight-line method over the lesser of the
estimated useful lives of the assets, generally three to four years, or the
lease term. Leasehold improvements are amortized over the term of the related
lease, which does not exceed their estimated useful lives.
Long-lived Assets
The Company accounts for its long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of" ("SFAS 121"). In accordance
with SFAS 121, the Company identifies and records impairment losses, as
circumstances dictate, on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No such events have occurred with respect to the
Company's long-lived assets, which consist primarily of machinery and equipment
and leasehold improvements.
Revenue Recognition
Collaborative research and development agreements provide for periodic
payments in support of the Company's research activities. Collaboration revenue
is recognized as earned based on actual costs incurred or as milestones are
achieved. Nonrefundable technology access fees are recognized immediately when
received and when all contractual obligations of the Company relating to the
fees have been fulfilled. Research support payments received in advance of work
performed are recorded as deferred revenue (see Note 3).
Stock-Based Compensation
The Company accounts for grants of stock options and common stock purchase
rights in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations ("APB
No. 25"). Pro forma net loss information, as required by Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), is included in Note 9. Any deferred stock compensation calculated
pursuant to APB No. 25 is amortized over the vesting period of the individual
options, generally four years, using the graded vesting method. The graded
vesting method provides for vesting of portions of the overall award at interim
dates and results in higher vesting in earlier years than straight-line
vesting.
Comprehensive Loss
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS
130 establishes new rules for the reporting and
F-8
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or stockholders' equity.
SFAS 130 requires unrealized gains or losses on the Company's available-for-
sale securities, which prior to adoption were reported separately in
stockholders' equity, to be included in comprehensive income, if material. The
Company's comprehensive loss was not materially different from the net loss for
the years ended December 31, 1997 and 1998 and for the six months ended June
30, 1999.
Net Loss Per Share
Net loss per share has been computed in accordance with the Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share," which
requires disclosure of basic and diluted earnings per share. Basic earnings per
share excludes any dilutive effects of options, shares subject to repurchase,
warrants, and convertible securities. Diluted earnings per share includes the
impact of potentially dilutive securities. The Company's potentially dilutive
securities were antidilutive and therefore were not included in the computation
of weighted-average shares used in computing diluted loss per share. Following
the guidance given by the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and preferred stock that has been issued or
granted for nominal consideration prior to the anticipated effective date of
the initial public offering must be included in the calculation of basic and
diluted net loss per common share as if these shares had been outstanding for
all periods presented. To date, the Company has not issued or granted shares
for nominal consideration.
The following is a reconciliation of the numerator and denominator of basic
and diluted net loss per share (in thousands, except share and per share
amounts):
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
----------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Net loss.............. $ (5,480) $ (25,374) $ (10,539) $ (6,183) $ (9,879)
========== =========== ========== ========== ==========
Weighted average
shares of common
stock outstanding.... 5,627,770 7,292,476 7,495,576 7,498,130 7,645,886
Less: weighted average
shares subject to
repurchase........... (593,971) (1,229,825) (705,064) (843,742) (447,718)
---------- ----------- ---------- ---------- ----------
Weighted average
shares used in
computing basic and
diluted net loss per
share................ 5,033,799 6,062,651 6,790,512 6,654,398 7,198,168
========== =========== ========== ========== ==========
Basic and diluted net
loss per share....... $ (1.09) $ (4.19) $ (1.55) $ (0.93) $ (1.37)
========== =========== ========== ========== ==========
Pro forma basic and
diluted:
Shares used above..... 6,790,512 7,198,168
Pro forma adjustment
to reflect weighted
average effect of
assumed conversion of
preferred stock...... 26,896,341 26,912,161
---------- ----------
Total weighted average
shares of common
stock outstanding pro
forma................ 33,686,853 34,110,329
========== ==========
Basic and diluted pro
forma loss per
share................ $ (0.31) $ (0.29)
========== ==========
</TABLE>
F-9
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
During all periods presented, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share, as their effect
would have been antidilutive. Such outstanding securities consist of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Convertible preferred
stock.................. 19,917,132 26,858,823 26,903,885 26,903,885 26,953,539
Outstanding options..... 2,972,750 3,685,108 5,333,347 5,107,002 6,026,934
Warrants................ 702,674 999,235 1,078,382 1,078,382 1,015,091
---------- ---------- ---------- ---------- ----------
Total................. 23,592,556 31,543,166 33,315,614 33,089,269 33,995,564
========== ========== ========== ========== ==========
Weighted average
exercise price of
options................ $ 0.61 $ 1.41 $ 1.99 $ 1.91 $ 2.22
========== ========== ========== ========== ==========
Weighted average
exercise price of
warrants............... $ 7.15 $ 8.88 $ 9.71 $ 9.71 $ 10.17
========== ========== ========== ========== ==========
</TABLE>
Unaudited Financial Statements
The accompanying unaudited financial statements for the six months ended June
30, 1998 and 1999 have been prepared on substantially the same basis as the
audited financial statements and include all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
financial information set forth therein. Results for any interim period are not
necessarily indicative of results for the full fiscal period.
3. Research and Development Collaborations
The Company has entered into multi-year research and development
collaborations in six of its research programs. Tularik received aggregate
research payments, including technology access fees, of $12.5 million, $20.0
million, and $29.2 million and recognized collaboration revenue of $15.3
million, $20.0 million, and $21.4 million in 1996, 1997, and 1998,
respectively. For the six months ended June 30, 1999, Tularik received research
funding of $9.0 million and recognized collaboration revenue of $12.0 million.
Under the terms of existing collaborations at June 30, 1999, the Company's
partners have agreed to provide future research funding of up to approximately
$62.3 million over a five-year period, including $34.4 million subject to
possible cancellation, as well as additional payments upon the achievement of
specific research and development milestones. All research payments are non-
refundable and the Company performs research pursuant to these agreements on a
"best efforts" basis. Costs incurred under research and development
collaborations approximate revenues earned and are included in research and
development expenses. In addition to providing the research funding summarized
above, certain of the Company's collaborators have also purchased equity
investments in Tularik. These equity purchases and other significant terms of
current and prior collaborations are described below.
In November 1998, Tularik and Knoll AG ("Knoll") established a five-year
collaboration to discover, develop and market compounds that act on obesity-
related targets. Once a compound is selected for preclinical development, Knoll
has the right to enter into a separate license agreement granting it exclusive
rights to develop, manufacture and sell the compounds in countries other than
Japan and other specified Asian countries, subject to milestone and royalty
obligations to Tularik. The agreement grants Tularik exclusive rights to
develop, manufacture and sell these products in Japan and other specified Asian
countries, without payment
F-10
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
obligation to Knoll. These retained rights are subject to a collaboration
agreement with JT in the area of obesity. Knoll has the right to terminate the
collaboration at the end of the third or fourth years of the five-year
agreement.
In September 1998, Tularik and Japan Tobacco Inc. ("JT") established a five-
year collaboration to discover, develop and market compounds that act by
regulating orphan nuclear receptors. The collaboration is structured as a joint
venture in which both expenses and profits on a worldwide basis will be split
evenly between Tularik and JT. Tularik retains exclusive marketing and sales
rights in the United States and Canada. JT retains exclusive marketing and
sales rights in Japan and Korea. JT has the right to terminate the
collaboration at the end of the third or fourth years of the five year
collaboration.
In July 1997, Tularik and Roche Bioscience ("Roche") established a five-year
collaboration to discover, develop and market anti-inflammatory therapeutics.
Under the collaboration, Roche has exclusive, worldwide manufacturing and
marketing rights to develop and commercialize drugs resulting from the research
program for specified indications, subject to benchmark and royalty obligations
to Tularik. Tularik has exclusive, worldwide manufacturing and marketing rights
to develop and commercialize other compounds resulting from the research
program, subject to royalty obligations to Roche. Roche has the right to
terminate the collaboration at the end of the third year if the then current
research plan does not provide opportunities for new products or if Tularik has
not discharged its obligations under the agreement.
In September 1996, the Company entered into a five-year collaboration with JT
to discover, develop and market compounds in the fields of obesity and
diabetes. Pursuant to a related stock purchase agreement, JT purchased 600,000
shares of Tularik's Series F preferred stock for $10.00 per share. In September
1998, Tularik and JT agreed to modify the structure of the original
collaboration. The collaboration is currently structured as a joint venture in
which both expenses and profits on a worldwide basis will be split evenly
between Tularik and JT. Tularik retains exclusive marketing and sales rights in
the United States and Canada. JT retains exclusive marketing and sales rights
in Japan and Korea. JT will be required to make benchmark payments to Tularik
based on clinical progress. JT has the right to terminate the collaboration at
the end of the fourth year of the five year collaboration.
In April 1995, Tularik established a five-year collaboration with Taisho
Pharmaceutical Co., Ltd. ("Taisho") focused on therapeutic modulation of the
human immune function. In January 1998, Tularik and Taisho extended the
collaboration for an additional year. The agreement gives Taisho the right to
manufacture and sell products resulting from the collaboration in Japan and in
certain other Asian countries, subject to milestone and royalty payments to
Tularik. The Company retains exclusive rights to manufacture and sell such
products in the rest of the world, without any payment obligation to Taisho.
Taisho has the right to terminate the collaboration prior to the commencement
of sixth year. In the event of early termination by Taisho, Tularik would have
exclusive, worldwide, royalty-free rights to all products identified in the
collaboration.
In January 1995, the Company entered into a five-year collaboration with
Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo") to fund research and
development in the field of hypercholesterolemia. Pursuant to a related stock
purchase agreement, Sumitomo purchased 400,000 shares of Tularik's Series E
preferred stock in February 1995 for $7.50 per share. Upon the selection of a
lead compound for certain preclinical studies, Sumitomo has the right to enter
into a separate license agreement granting Sumitomo exclusive rights to
develop, manufacture and sell the compound in Japan and in certain other Asian
countries, subject to royalty obligations to the Company. The collaboration
agreement grants Tularik exclusive rights to develop, manufacture and sell such
products in the rest of the world, without payment obligation to Sumitomo.
Sumitomo has the right to terminate the collaboration at any time after three
years of the five-year term.
F-11
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
In December 1993, Tularik established a collaboration with Merck & Co., Inc.
("Merck") to fund research and development in specified fields of human viral
disease. Pursuant to a related stock purchase agreement, Merck purchased
400,000 shares of the Company's Series D preferred stock in January 1994 for
$5.00 per share. In December 1996, the companies amended the original
agreement, extending its term to December 1999. In March 1999, in accordance
with early termination rights under the amended agreement, Merck terminated the
collaboration.
In November 1993, the Company entered into a five-year collaboration
agreement with Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi") to fund
research and development in the field of inflammation. Pursuant to a related
stock purchase agreement, Yamanouchi purchased 400,000 shares of Tularik's
Series D preferred stock in February 1994 for $5.00 per share. In November
1996, in accordance with early termination rights under the agreement,
Yamanouchi terminated the collaboration after three years of the five-year
term.
4. Investments
The following is a summary of available-for-sale securities at (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash equivalents:
Money market funds............................ $ 1,624 $ 2,659 $ 2,690
Corporate debt securities..................... 72,905 50,739 33,215
-------- -------- --------
$ 74,529 $ 53,398 $ 35,905
======== ======== ========
Short-term investments:
Obligations of domestic governmental
agencies..................................... $ 10,000 $ 12,999 $ 12,005
Corporate debt securities..................... 39,861 45,927 58,858
-------- -------- --------
$ 49,861 $ 58,926 $ 70,863
======== ======== ========
</TABLE>
As of December 31, 1997 and 1998, the average portfolio duration was
approximately three and five months, respectively.
5. Property and Equipment
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Laboratory and office equipment........................... $10,808 $15,063
Leasehold improvements.................................... 1,702 5,376
Construction in progress.................................. 31 235
------- -------
12,541 20,674
Less accumulated depreciation and amortization............ (6,332) (8,724)
------- -------
Property and equipment, net............................... $ 6,209 $11,950
======= =======
</TABLE>
6. Acquisition
On October 31, 1997, the Company acquired Amplicon Corporation ("Amplicon"),
a research organization engaged principally in identifying and characterizing
human genes involved in certain cancers,
F-12
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
whereby Amplicon became a wholly owned subsidiary of Tularik (the
"Acquisition"). Under the related Agreement and Plan of Merger and
Reorganization, Tularik issued a total of 1,622,057 shares of Tularik Series H
preferred stock and warrants to acquire an additional 245,456 shares of Tularik
Series H preferred stock in exchange for all of Amplicon's outstanding capital
stock. In addition, all outstanding stock options to purchase Amplicon common
stock were replaced with options to purchase 27,923 shares of Tularik Series H
preferred stock and warrants to purchase 4,544 shares of Series H preferred
stock. The acquisition was accounted for under the purchase method. The
purchase price was approximately $18.9 million including the fair value of the
Tularik Series H preferred stock and warrants as of the effective date of the
Acquisition, plus direct acquisition costs. The assets and liabilities assumed
by the Company were recorded based on their fair values at the date of
acquisition. The purchase price was allocated $18.9 to in-process research and
development and $24,000 to net tangible assets. The amount allocated to in-
process research and development was expensed at the time of acquisition. The
Company's results of operations include Amplicon's results from October 31,
1997.
In connection with the acquisition of Amplicon, the Company allocated
virtually all of the purchase price to acquired in-process research and
development. The Company estimated the fair value of the in-process research
and development using an income approach. This involved estimating the fair
value of the in-process research and development using the present value of
estimated after-tax cash flows that could be generated by pharmaceutical and
diagnostic products generated from the acquired in-process research and
development, using risk adjusted discount rates and revenue forecasts as
appropriate. The discount rate was selected based on consideration of the early
stage of the research and the risks associated with developing marketable
products from the research. The Company believes that the estimated in-process
research and development amount so determined represented fair value and did
not exceed the amount a third-party would pay for the technology.
At the date of acquisition, the in-process research and development had not
reached technological feasibility and had no alternative future uses. To date,
no products have been developed and the future benefits of the technology
remain uncertain. Accordingly, the value allocated to the research was expensed
at acquisition. If the research is not successful, the Company is unlikely to
realize the financial benefits estimated at the time of acquisition.
7. Long-Term Debt and Leases
At December 31, 1998, the Company's aggregate commitments under long-term
debt and noncancelable lease arrangements are as follows:
<TABLE>
<CAPTION>
Year ended Long-Term Operating
December 31, Debt Capital Leases Leases
------------ --------- -------------- ---------
(In thousands)
<S> <C> <C> <C>
1999...................................... $ 1,154 $ 1,424 $ 4,281
2000...................................... 1,263 1,424 4,662
2001...................................... 1,029 727 4,806
2002...................................... 204 191 4,661
2003...................................... -- -- 4,660
Thereafter................................ -- -- 44,512
------- ------- -------
Total minimum payment required............ 3,650 3,766 $67,582
=======
Less amount representing interest......... (352)
-------
Present value of future payments 3,414
Less current portion...................... (1,154) (1,176)
------- -------
$ 2,496 $ 2,238
======= =======
</TABLE>
F-13
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
Equipment and leasehold improvements financed under these arrangements are
included in property and equipment and related amortization is included in
depreciation expense. In 1998, the Company entered into sale and leaseback
agreements covering certain laboratory equipment. No gain or loss was
recognized on these transactions. The leases are classified as capital leases.
The cost of assets under secured financing arrangements was $6.7 million and
$10.2 million and the related accumulated depreciation and amortization was
$3.7 million and $5.0 million at December 31, 1997 and 1998, respectively.
Rent expense, principally for leased facilities under long-term operating
lease commitments, was $2.0 million, $2.3 million, and $2.4 million for 1996,
1997, and 1998, respectively. In connection with the sublease of space in the
Company's facilities, Tularik is entitled to receive minimum lease payments of
$502,000 in 1999, $512,000 in 2000, and $257,000 in 2001. The Company did not
receive sublease income in 1997 and 1998.
8. Convertible Preferred Stock
All series of preferred stock are convertible at the option of the holder at
any time into common stock on a one-for-one basis, subject to adjustment for
antidilution, and carry voting rights equivalent to common stock. Each share of
preferred stock automatically converts into one share of common stock in the
event of an initial public offering of the Company's common stock in which
gross offering proceeds exceed $10.0 million and the offering price is at least
$10.25 per share or upon the vote by holders of at least two-thirds of the
outstanding preferred stock. Holders of convertible preferred stock are
entitled to noncumulative dividends when and if declared by the board of
directors. No dividends have been declared through December 31, 1998.
In the event of a liquidation or winding up of the Company, holders of Series
A, B, C, D, E, F, G and H convertible preferred stock are entitled to a
liquidation preference of $1.00, $2.37, $3.70, $5.00, $7.50, $10.00, $10.25 and
$11.00 per share, respectively, together with any declared but unpaid
dividends. The preferred stock authorized, issued and outstanding at December
31, 1998 is as follows:
<TABLE>
<CAPTION>
Aggregate
Authorized Shares Issued and Liquidation
Shares Outstanding Preference
---------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Series A......................... 3,900,000 3,900,000 $ 3,900
Series B......................... 3,375,531 3,312,240 7,850
Series C......................... 5,400,000 5,270,152 19,500
Series D......................... 820,000 800,000 4,000
Series E......................... 440,000 400,000 3,000
Series F......................... 8,500,000 6,272,000 62,720
Series G......................... 7,500,000 5,319,634 54,526
Series H......................... 2,050,000 1,629,859 17,928
---------- ---------- --------
31,985,531 26,903,885 $173,424
========== ========
Undesignated..................... 1,014,469
----------
33,000,000
==========
</TABLE>
F-14
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
A summary of warrants to purchase preferred stock at December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Term
Number of Exercise in
Description Warrants Price Years Expiration
----------- --------- ------------- ----- ----------
<S> <C> <C> <C> <C>
Lease financing arrangements...... 188,263 $2.37-$7.50 7 1999-2002
Issuance of Series F preferred
stock............................ 253,600 $10.00 10 2006
Acquisition of Amplicon........... 296,949 $10.00-$13.00 10 2007
Facility lease agreement.......... 139,570 $13.00 10 2008
-------
878,382
=======
</TABLE>
9. Common Stock
Warrant
The Company issued a warrant to purchase 200,000 shares of common stock for
$7.50 per share in connection with a facility lease that was executed in 1995.
The warrant expires on the earlier of the five-year anniversary of the
Company's initial public offering or April 20, 2005. The value of the warrant
was determined to be immaterial at issuance. As of December 31, 1998, this
warrant has not been exercised.
Stock Awards
During 1997, the board of directors terminated the 1991 Stock Plan ("1991
Plan") and adopted the 1997 Equity Incentive Plan and the 1997 Non-Employee
Directors' Plan ("1997 Plans"). Termination of the 1991 Plan had no effect on
options outstanding under that plan. The 1997 Plans provide for stock options
and stock purchase rights to be granted to employees, directors and
consultants. Under the Equity Incentive Plan, shares available for grant are
increased by three and one-half percent of the total number of shares
outstanding at the end of each year from 1997 to 2002 up to a maximum of
2,000,000 shares per year. Options granted under the Equity Incentive Plan may
be incentive stock options or nonstatutory stock options. Exercise prices are
determined by the board of directors and may not be less than 100% of the fair
value of the Company's common stock (not less than 85% of fair value for
nonstatutory stock options granted under the Equity Incentive Plan) on the date
of grant. Options and purchase rights are exercisable upon grant, subject to
repurchase by the Company until vested and generally vest over four years. All
options expire no more than 10 years from the date of grant.
The Company has elected to follow APB No. 25 and related Interpretations in
accounting for its stock options and stock purchase rights because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options and rights.
During the year ended December 31, 1998 and during the six months ended June
30, 1999, in connection with the grant of certain share options to employees,
the Company recorded deferred stock compensation of $710,000 and $5.9 million,
respectively, representing the difference between the exercise price and the
deemed fair value of the Company's common stock on the date such stock options
were granted. Deferred compensation is included as a reduction of stockholders'
equity and is being amortized to expense on a graded vesting method. During the
year ended December 31, 1998 and during the six months ended June 30, 1999, the
Company recorded amortization of deferred stock compensation expense of
approximately $31,000 and $840,000, respectively. At June 30, 1999, the Company
had a total of approximately $5.7 million remaining to be amortized over the
corresponding vesting period of each respective option, generally four years.
F-15
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
Pro forma net loss and net loss per share information is required by SFAS
123, which also requires that the information be determined as if the Company
had accounted for its employee stock options and rights granted subsequent to
December 31, 1994 under the fair value method. The fair value for these options
and the purchase rights was estimated at the date of grant using the minimum
value method with the following weighted-average assumptions for 1996, 1997 and
1998, respectively: risk free interest rates of 6.6%, 6.0% and 5.5%; no
dividend yield; and a weighted-average expected life of the options of 5 years.
Pro forma information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
(In thousands, except per
share amounts)
<S> <C> <C> <C>
Net loss:
As reported................................. $(5,480) $(25,374) $(10,539)
======= ======== ========
Pro forma................................... $(5,576) $(25,692) $(11,179)
======= ======== ========
Net loss per share (basic and diluted):
As reported................................. $ (1.09) $ (4.19) $ (1.55)
======= ======== ========
Pro forma................................... $ (1.11) $ (4.24) $ (1.65)
======= ======== ========
</TABLE>
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Options Exercise Price
---------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1995...... 2,928,125 $0.44
Granted..................................... 2,186,000 0.91
Exercised................................... (1,851,877) 0.71
Forfeited................................... (289,498) 0.51
----------
Options outstanding at December 31, 1996...... 2,972,750 0.61
Granted..................................... 1,401,300 3.00
Exercised................................... (648,422) 1.21
Forfeited................................... (40,520) 1.40
----------
Options outstanding at December 31, 1997...... 3,685,108 1.41
Granted..................................... 2,065,700 3.00
Exercised................................... (273,894) 1.32
Forfeited................................... (143,567) 2.76
----------
Options outstanding at December 31, 1998...... 5,333,347 1.99
Granted (unaudited)......................... 1,391,000 3.00
Exercised (unaudited)....................... (608,821) 1.93
Forfeited (unaudited)....................... (88,592) 2.59
----------
Options outstanding at June 30, 1999
(unaudited).................................. 6,026,934 2.22
==========
</TABLE>
The weighted-average fair value of options granted during 1996, 1997 and 1998
was $0.27, $0.76 and $0.70, respectively. Exercise prices of options
outstanding as of December 31, 1998 ranged from $0.025 to $3.00 and 2,411,206
of such options were vested with a weighted-average exercise price of $1.39. As
of December 31, 1998, the remaining contractual life of outstanding options
ranged from 3.3 years to 9.9 years with a weighted-average contractual life of
7.9 years.
F-16
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
The information above does not include 13,962 options with exercise price
from $0.70 to $0.95 granted to employees in connection with the Acquisition and
4,000 options with an exercise price of $0.50 granted to a third party outside
of the Company's stock option plans.
Reserved Shares
Shares of common stock reserved for future issuance were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ----------
<S> <C> <C>
Warrants:
Outstanding warrants.............................. 1,078,382 1,015,091
Reserved for future issuance...................... 3,051 3,051
Stock option plans:
Outstanding options............................... 5,351,447 6,044,896
Reserved for future grants........................ 1,737,772 496,929
Convertible preferred stock:
Issued and outstanding............................ 26,903,885 26,953,539
---------- ----------
35,074,537 34,513,506
========== ==========
</TABLE>
As of December 31, 1998 and June 30, 1999, 472,713 and 557,880 shares,
respectively, of common stock issued and outstanding were subject to the
Company's right of repurchase.
10. Employee Savings Plan
The Company has an employee savings plan, which permits substantially all
employees to participate and to make contributions by salary reductions
pursuant to section 401(k) of the Internal Revenue Code. In 1998, the Company
began matching a percentage of employee contributions up to a specified amount
in the form of Tularik common stock. Under this plan, the Company contributed
34,235 shares of common stock to employee savings accounts and recognized
compensation expense of $188,000 in 1998.
F-17
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
11. Income Taxes
As of December 31, 1998, Tularik had federal net operating loss carryforwards
of approximately $37.9 million. The net operating loss carryforwards will
expire at various dates beginning on 2007 through 2018, if not utilized.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amount used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(In thousands)
<S> <C> <C>
Net operating loss carryforwards........................ $ 8,400 $ 13,200
Research credits (expiring 2007 to 2018)................ 1,700 3,000
Depreciation............................................ 2,500 1,200
Capitalized research and development.................... 700 3,200
Other, net.............................................. 200 --
-------- --------
Total deferred tax assets............................... 13,500 20,600
Valuation allowance for deferred tax assets............. (13,500) (20,600)
-------- --------
Net deferred tax assets................................. $ -- $ --
======== ========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by approximately $1.7 million, $3.0 million and $7.1 million during
the years ended December 31, 1996, 1997 and 1998, respectively.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to ownership change limitations provided by
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
12. Supplemental Cash Flow Information
Selected cash payments and noncash activities were as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December Six months ended
31, June 30,
-------------------- -----------------
1996 1997 1998 1998 1999
------ ------- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Interest paid....................... $ 556 $ 549 $ 508 $ 227 $ 437
====== ======= ===== ======== ========
Equipment and leasehold improvements
financed under capital leases...... $2,137 $ 1,185 $ -- $ -- $ --
====== ======= ===== ======== ========
Common stock issued for notes
receivable......................... $ 571 $ 263 $ 149 $ 143 $ 104
====== ======= ===== ======== ========
Issuance of preferred stock and
warrants in connection with
Acquisition........................ $ -- $18,276 $ -- $ -- $ --
====== ======= ===== ======== ========
</TABLE>
F-18
<PAGE>
TULARIK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
13. Subsequent Events (Unaudited)
Initial Public Offering
In October 1999, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public
Offering. If the offering contemplated by this prospectus is consummated, the
preferred stock outstanding as of the closing date will be converted into
shares of the Company's common stock. The pro forma stockholders' equity in the
accompanying consolidated balance sheet as of June 30, 1999 reflects conversion
of the outstanding preferred stock into 26,953,530 shares of common stock. Pro
forma net loss per share is computed as if the outstanding preferred stock has
been converted into common stock on the date of issuance.
Employee Option Grants
From July 1, 1999 to October 12, 1999, options to purchase 85,500 shares of
common stock were granted to employees pursuant to the 1997 Plans with an
exercise price of $3.00 per share. The Company estimates that deferred
compensation of $552,000 will be recorded as a result of these option grants
and amortized to compensation expense in accordance with the Company's policy.
License Agreement
On September 24, 1999, the Company paid $3.0 million to Eli Lilly ("Lilly")
in connection with a license agreement under which Tularik obtained exclusive,
worldwide rights to manufacture and sell lometrexol, a drug candidate that has
completed Phase 1 clinical trials in cancer patients. The Company's rights
under the agreement are subject to future milestone and royalty obligations to
Lilly. The amount paid to Lilly was recorded as in-process research and
development and was expensed at the time of payment.
1999 Employee Stock Purchase Plan
In October 1999, the Company adopted its 1999 Employee Stock Purchase Plan,
authorizing the issuance of common stock pursuant to purchase rights granted to
employees or to employees of affiliates, if any. The purchase plan authorizes
the issuance of a total of 500,000 shares of common stock. This reserve amount
will be increased each January 1 beginning January 1, 2001, by 1% of the number
of shares of common stock outstanding on that date. However, our board of
directors has the authority to designate a smaller number of shares by which
the authorized number of shares of common stock will be increased on that date.
F-19
<PAGE>
6,250,000 Shares
[TULARIK INC. LOGO]
Common Stock
------------
PROSPECTUS
, 1999
------------
Lehman Brothers
Hambrecht & Quist
J.P. Morgan & CO.
Warburg Dillon Read LLC
<PAGE>
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us, in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee................................................. $25,976
NASD filing fee...................................................... 9,844
Nasdaq National Market listing fee................................... *
Blue Sky Fees and Expenses........................................... *
Transfer Agent and Registrar fees.................................... *
Accounting fees and expenses......................................... *
Legal fees and expenses ............................................. *
Printing and engraving costs ........................................ *
Miscellaneous expenses .............................................. *
-------
Total.............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
We have entered into indemnification agreements with each of our directors
and certain officers. These agreements, among other things, require us to
indemnify each director and officer for certain expenses including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of Tularik,
arising out of the person's services as our director or officer, any subsidiary
of ours or any other company or enterprise to which the person provides
services at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Tularik, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
Item 15. Recent Sales Of Unregistered Securities
Since September 1, 1996, Tularik has sold and issued unregistered securities
to a limited number of persons, as described below. None of these transactions
involved any underwriters, underwriting discounts or commissions, or any public
offering, and Tularik believes that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. We believe that all recipients had adequate access
to information about Tularik, through their relationships with Tularik.
Since September 1, 1996, Tularik has sold and issued the following
unregistered securities:
(1) From September 1996 to September 1999, we granted incentive stock options
and nonstatutory stock options to purchase an aggregate of 5,544,000 shares of
Tularik's common stock at exercise prices ranging from $1.00 to $3.00 per share
to employees, directors and consultants under the 1991 Stock Plan, 1997 Equity
Incentive Plan and 1997 Non-Employee Directors' Stock Option Plan and issued an
aggregate of 2,445,212 shares upon the exercise of these and previously granted
options. Options to purchase 384,650 shares of common stock have been canceled,
and 18,343 of these options have lapsed without being exercised.
(2) In September 1996, we issued three warrants to purchase an aggregate of
200,000 shares of common stock at an exercise price of $7.50 per share.
Warrants to purchase 20,000 shares were issued to Brittania Investments, LLC,
warrants to purchase 90,000 shares were issued to National Electrical Benefit
Fund and warrants to purchase 90,000 shares were issued to SDK Incorporated.
(3) In September 1996, we sold an aggregate of 1,308,000 shares of Series F
preferred stock to six purchasers at a purchase price of $10.00 per share.
(4) In October 1996, we sold an aggregate of 4,964,000 shares of Series F
preferred stock to 32 purchasers at a purchase price of $10.00 per share.
(5) In October 1996, we issued two warrants to purchase an aggregate of
253,600 shares of Series F preferred stock at an exercise price of $10.00 per
share. Warrants to purchase 126,800 shares were issued to The Magnum Trust and
warrants to purchase 126,800 shares were issued to Broadview Limited.
(6) In September 1997, we sold an aggregate of 32,000 shares of Series G
preferred stock to four purchasers at a purchase price of $10.25 per share.
(7) In October 1997, we issued an aggregate of 1,620,004 shares of Series H
preferred stock to 22 former stockholders of Amplicon Corp. in exchange for
outstanding shares of Amplicon stock and issued 22 warrants to purchase
245,456 shares of Series H preferred stock at an exercise price of $13.00 per
share. These shares were issued as consideration for the acquisition of
Amplicon.
(8) In October 1997, we issued a warrant to purchase 50,000 shares of Series
H preferred stock to Broadview Limited at an exercise price of $10.00 per
share.
(9) In November 1997, we sold an aggregate of 285,634 shares of Series G
preferred stock to three purchasers at a purchase price of $10.25 per share.
(10) In December 1997, we sold an aggregate of 5,002,000 shares of Series G
preferred stock to two purchasers at a purchase price of $10.25 per share.
(11) In March 1998, we issued an aggregate of 37,260 shares of Series C
preferred stock to Frazier & Company L.P. upon cashless exercise of a warrant
to purchase shares of Series C preferred stock.
II-2
<PAGE>
(12) In June 1999, we issued an aggregate of 49,654 shares of Series B
preferred stock to Comdisco, Inc. upon cashless exercise of a warrant to
purchase shares of Series B preferred stock.
(13) In August 1999, we issued three warrants to purchase an aggregate of
139,570 shares of Series H preferred stock at an exercise price of $13.00 per
share. Warrants to purchase 125,613 shares were issued to Slough Estates USA
Inc., warrants to purchase 11,166 shares were issued to Bristow Investments,
L.P. and warrants to purchase 2,791 shares were issued to Laurence Shushan and
Magdalena Shushan, Trustees of the Laurence and Magdalena Shushan Family Trust.
(14) From November 1997 to September 1999, we issued an aggregate of 9,855
shares of Series H preferred stock to six former stockholders of Amplicon Corp.
upon the exercise of outstanding Amplicon options at exercise prices ranging
from $0.70 to $0.95 per share. In connection with the issuance of these 9,855
shares of Series H preferred stock, we issued seven warrants to purchase an
aggregate of 1,493 shares of Series H preferred stock at an exercise price of
$13.00 per share.
Item 16. (a) Exhibits and Financial Statement Schedules
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of Registrant to be
filed upon the closing of the offering made pursuant to this
Registration Statement.
3.2* Amended and Restated Bylaws of Registrant to be filed upon the
closing of the offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2+ Amended and Restated Registration Rights Agreement, dated August 15,
1999, between Registrant and holders of Registrant's Series A, Series
B, Series C, Series D, Series E, Series F and Series G preferred
stock and holders of warrants to purchase Registrant's common stock
of Series H preferred stock dated August 15, 1999.
4.3+ Investor Rights Agreement, dated October 31, 1997, between Registrant
and holders of Registrant's Series H preferred stock.
5.1* Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement.
10.2+ 1991 Stock Plan and related documents.
10.3* 1997 Equity Incentive Plan and related documents.
10.4* 1997 Non-Employee Directors' Stock Option Plan and related documents.
10.5* 1999 Employee Stock Purchase Plan.
10.6+++ Collaboration Agreement between Registrant and Sumitomo
Pharmaceuticals Co., Ltd., dated January 31, 1995, as amended March
13, 1997.
10.7+++ Research, Collaboration and License/Development Agreement between
Registrant and Taisho Pharmaceutical Co., Ltd., dated March 20, 1996,
as amended on January 1, 1998 and January 1, 1999.
10.8++ Amended and Restated Collaboration and License Agreement between
Registrant and Merck & Co., Inc., dated December 22, 1996.
10.9+++ Research Collaboration and License Agreement between Registrant and
the Roche Bioscience division of Syntex (U.S.A.) Inc., dated July 8,
1997, as amended on December 19, 1997.
10.10++ Research Agreement between Registrant and Cold Spring Harbor
Laboratory, dated October 3, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.11++ License Agreement between Registrant and Cold Spring Harbor
Laboratory, dated October 3, 1997.
10.12++ Collaboration Agreement between Registrant and Knoll AG, dated
November 1, 1998.
10.13+++ Preliminary Research, Development and Marketing Agreement between
Registrant and Japan Tobacco Inc., dated September 8, 1998.
10.14+++ Preliminary Research, Development and Marketing Agreement between
Registrant and Japan Tobacco Inc., dated September 20, 1998.
10.15+++ Screening Agreement between Registrant and Japan Tobacco Inc., dated
August 23, 1999.
10.16+++ Licensing Agreement between Registrant and Eli Lilly and Company,
dated September 24, 1999.
10.17+ Stock Purchase Agreement between Registrant and the 1987 Swanson
Family Trust, dated June 20, 1996, as amended August 17, 1996.
10.18+ Sublease between Registrant and AGY Therapeutics, Inc., dated January
25, 1999.
10.19+ Sublease between Registrant and Coulter Pharmaceuticals, Inc., dated
May 1, 1999.
10.20+ Sublease between Registrant and IGEN International, Inc., dated
August 20, 1999.
10.21+ Lease Agreement between Leonard Racanelli and The Rosa Racanelli 1998
Trust, dated July 23, 1998.
10.22+ Sublease between Registrant and GeneSoft Inc., dated November 16,
1998.
10.23+ Lease Agreement between Registrant and Brittania Developments, Inc.,
dated April 20, 1995.
10.24+ Lease Agreement between Registrant and Brittania Developments, Inc.,
dated February 10, 1998.
10.25+ Agreement and General Release between Registrant and John P.
McLaughlin, dated September 30, 1999.
22.1+ List of Subsidiaries.
23.1+ Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
++ Confidential treatment requested as to specific portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
+ Previously filed.
(b) Financial Statement Schedules
Independent Auditors' Report on Schedule
Item 17. Undertakings
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and
II-4
<PAGE>
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No.1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of South San Francisco, State of California, on the 27th day of
October, 1999.
TULARIK INC.
/s/ Corinne H. Lyle
By:__________________________________
Corinne H. Lyle
Chief Financial Officer
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chief Executive Officer October 27, 1999
______________________________________ and Director (Principal
David V. Goeddel Executive Officer)
/s/ Corinne H. Lyle Chief Financial Officer October 27, 1999
______________________________________ (Principal Finance and
Corinne H. Lyle Accounting Officer)
* Director October 27, 1999
______________________________________
A. Grant Heidrich, III
* Director October 27, 1999
______________________________________
Mark J. Levin
* Director October 27, 1999
______________________________________
Paul A. Marks
* Director October 27, 1999
______________________________________
Edward R. McCracken
* Director October 27, 1999
______________________________________
Steven L. McKnight
* Director October 27, 1999
______________________________________
Peter J. Sjostrand
</TABLE>
*By /s/ Corinne H. Lyle
- --------------------------------
(Attorney-In-Fact)
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of Registrant to
be filed upon the closing of the offering made pursuant to this
Registration Statement.
3.2* Amended and Restated Bylaws of Registrant to be filed upon the
closing of the offering made pursuant to this Registration
Statement.
4.1* Specimen Common Stock Certificate.
4.2+ Amended and Restated Registration Rights Agreement, dated August 15,
1999, between Registrant and holders of Registrant's Series A,
Series B, Series C, Series D, Series E, Series F and Series G
preferred stock and holders of warrants to purchase Registrant's
common stock or Series H preferred stock.
4.3+ Investor Rights Agreement, dated October 31, 1997, between
Registrant and holders of Registrant's Series H preferred stock.
5.1* Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement.
10.2+ 1991 Stock Plan and related documents.
10.3* 1997 Equity Incentive Plan and related documents.
10.4* 1997 Non-Employee Directors' Stock Option Plan and related
documents.
10.5* 1999 Employee Stock Purchase Plan.
10.6+++ Collaboration Agreement between Registrant and Sumitomo
Pharmaceuticals Co., Ltd., dated January 31, 1995, as amended March
13, 1997.
10.7+++ Research, Collaboration and License/Development Agreement between
Registrant and Taisho Pharmaceutical Co., Ltd., dated March 20,
1996, as amended on January 1, 1998 and January 1, 1999.
10.8++ Amended and Restated Collaboration and License Agreement between
Registrant and Merck & Co., Inc., dated December 22, 1996.
10.9+++ Research Collaboration and License Agreement between Registrant and
the Roche Bioscience division of Syntex (U.S.A.) Inc., dated July 8,
1997, as amended on December 19, 1997.
10.10++ Research Agreement between Registrant and Cold Spring Harbor
Laboratory, dated October 3, 1997.
10.11++ License Agreement between Registrant and Cold Spring Harbor
Laboratory, dated October 3, 1997.
10.12++ Collaboration Agreement between Registrant and Knoll AG, dated
November 1, 1998.
10.13+++ Preliminary Research, Development and Marketing Agreement between
Registrant and Japan Tobacco Inc., dated September 8, 1998.
10.14+++ Preliminary Research, Development and Marketing Agreement between
Registrant and Japan Tobacco Inc., dated September 20, 1998.
10.15+++ Screening Agreement between Registrant and Japan Tobacco Inc., dated
August 23, 1999.
10.16+++ Licensing Agreement between Registrant and Eli Lilly and Company,
dated September 24, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.17+ Stock Purchase Agreement between Registrant and the 1987 Swanson
Family Trust, dated June 20, 1996, as amended August 17, 1996.
10.18+ Sublease between Registrant and AGY Therapeutics, Inc., dated January
25, 1999.
10.19+ Sublease between Registrant and Coulter Pharmaceuticals, Inc., dated
May 1, 1999.
10.20+ Sublease between Registrant and IGEN International, Inc., dated August
20, 1999.
10.21+ Lease Agreement between Leonard Racanelli and The Rosa Racanelli 1998
Trust, dated July 23, 1998.
10.22+ Sublease between Registrant and GeneSoft Inc., dated November 16,
1998.
10.23+ Lease Agreement between Registrant and Brittania Developments, Inc.,
dated April 20, 1995.
10.24+ Lease Agreement between Registrant and Brittania Developments, Inc.,
dated February 10, 1998.
10.25+ Agreement and General Release between Registrant and John P.
McLaughlin, dated September 30, 1999.
22.1+ List of Subsidiaries.
23.1+ Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
++ Confidential treatment requested as to specific portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
+ Previously filed.
<PAGE>
Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.8
AMENDED AND RESTATED
COLLABORATION AND LICENSE AGREEMENT
between
TULARIK INC.
and
MERCK & CO., INC.
<PAGE>
Exhibit 10.8
AMENDED AND RESTATED
COLLABORATION AND LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 22nd day of December 1996 (the
"Amendment Date") by and between Tularik Inc., a California corporation
("Tularik"), and Merck & Co., Inc. ("Merck"), a corporation organized under the
laws of New Jersey, and amends in part and restates the Collaboration and
License Agreement dated as of December 22, 1993 by and between Tularik and
Merck.
RECITALS
WHEREAS, Tularik and Merck have previously entered into the Original
Agreement pursuant to which Tularik and Merck established a cooperative research
relationship based on screening of their respective compound libraries using
their respective assays and other jointly developed assays, and
WHEREAS, Tularik and Merck desire to continue their cooperative research
relationship to develop and market novel therapeutic products based on compounds
identified during such research as having viral regulatory properties;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
promises contained herein, the parties agree as follows:
1
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Affiliate" shall mean any entity that directly or indirectly Owns, is
Owned by or is under common Ownership, with a party to this Agreement, where
"Own" or "Ownership" means direct or indirect possession of at least fifty
percent (50%) of the outstanding voting securities of a corporation or a
comparable equity interest in any other type of entity.
1.2 "Agreement" shall mean this Amended and Restated Collaboration and
License Agreement.
1.3 "Agreement Compounds" shall mean, collectively, the Option Compounds
and the Program Compounds.
1.4 "Anti-Viral Activity" shall mean that level of activity of a Program
Substance in a Program Assay which [ * ], as appropriate for the target, which
is potentially or actually useful
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
1
<PAGE>
in the Field, as determined by the Research Committee.
1.5 "Confidential Information" shall mean, subject to the limitations set
forth in Section 12.1 hereof, all information disclosed to one party by the
other party.
1.6 "Core Targets" shall mean those targets applicable to the [ * ] set
forth on Appendix A, or otherwise designated by a majority of the members of the
entire Research Committee in writing, as well as any other targets designated by
the Research Committee in writing for other viruses which the parties may from
time to time designate or substitute.
1.7 "[ * ] Option Program" shall mean research and development pursuant to
this Agreement of all Option Compounds relating to all Option Targets applicable
to the [ * ].
1.8 "Effective Date" shall mean December 22, 1993.
1.9 "Exercise Data" shall mean data establishing the following criteria
with respect to an Option Program:
a) [ * ];
b) [ * ];
c) [ * ];
d) [ * ]; and
e) [ * ].
1.10 "Exercise Date" shall mean the date on which both of the following
have occurred (i) [ * ] and (ii) [ * ].
1.11 "FDA" shall mean the United States Food and Drug Administration.
1.12 "Field" shall mean all uses in the prevention or treatment of (i)
[ * ].
1.13 "Full Time Equivalent" or "FTE" shall mean the equivalent of a full-
time [ * ]. The portion of an FTE year devoted by a scientist or program manager
to the Research Program shall be determined by dividing the number of days
during any twelve (12) month period devoted by such employee to the Research
Program by the total number of working days during such twelve (12) month
period.
1.14 "GCP" means the Good Clinical Practice regulations promulgated by the
FDA.
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
2
<PAGE>
1.15 "GLP" means the Good Laboratory Practice regulations promulgated by
the FDA.
1.16 "GMP" means the Good Manufacturing Practice regulations promulgated by
the FDA.
1.17 "Government Approval" shall mean any approvals, licenses,
registrations or authorizations of any federal, state or local regulatory
agency, department, bureau or other government entity, foreign or domestic,
necessary for the manufacture, use, storage, import, transport or sale, of the
Products in a regulatory jurisdiction.
1.18 "[ * ] Option Program" shall mean research and development pursuant to
this Agreement of all Option Compounds relating to all Option Targets applicable
to the [ * ].
1.19 "IND" or "Investigational New Drug Application" shall mean an
application for regulatory approval by the FDA or its foreign equivalent in
[ * ], to commence human clinical testing of a drug, as defined by the FDA or
the foreign equivalent.
1.20 "Lead Defense Party" shall have the meaning assigned to it in Section
8.2(e)(2) hereof.
1.21 "Merck Know-How" shall mean all materials and information that Merck
owns, controls or has a license to (with a right to sublicense) as of the
Effective Date and from time to time during the Research Term, which arise
outside of the Research Program, but only insofar as the above are necessary or
useful for the conduct of the activities under the Research Program.
1.22 "Merck Option" shall mean the option by Merck to conduct research and
development activities with respect to any Option Program and to commercialize
Option Compounds, as further described in this Agreement.
1.23 "Merck Patents" shall mean any and all patents, both foreign and
domestic, which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal has been or can be taken, including
without limitation all substitutions, extensions, reissues, renewals,
supplementary protection certificates and inventors' certificates, (a) which (i)
are issued as of the Effective Date, (ii) subsequently issue from applications
(including divisionals, continuations and continuations-in-part) pending as of
the Effective Date, or (iii) issue from any such applications subsequently filed
on inventions made as of the Effective Date and (b) which Merck owns, controls
or has a license to (with the right to sublicense), and (c) which relate to the
development, manufacture, use or sale of the Products or the Program Assays.
1.24 "Merck Substances" shall mean those natural extracts, natural
compounds and synthetic compounds which Merck owns or has the right to license
or sublicense as of the
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3
<PAGE>
Effective Date or from time to time during the Research Program, and which Merck
has approved for screening under the Research Program.
1.25 "Merck Technology" shall mean, collectively, the Merck Patents and the
Merck Know-How.
1.26 "NDA" (or "New Drug Application") shall mean a new drug application as
defined by the U.S. FDA or the foreign equivalent in [ * ].
1.27 "Net Sales" shall mean, with respect to a Product, and on a
country-by-country basis, the gross invoice price of all quantities of such
Product sold by a party, its Affiliates or sublicensees to an independent third
party after deducting, if not already deducted in the amount invoiced [ * ].
With respect to sales of combination products, which shall consist of Products
combined with one or more additional active ingredients, Net Sales shall be
calculated on the basis of the [ * ].
1.28 "New Target" and "New Target Assay" shall have the meanings assigned
to each, respectively, in Section 2.3 hereof.
1.29 "Option Compound" shall mean a Program Substance (i) which as a result
of screening activities under the Research Program, [ * ] and (iii) as to which
Tularik has commenced and is proceeding with preliminary development activities
within [ * ] after the expiration of the Research Term.
1.30 "Option Product" shall mean any pharmaceutical product which results
during the Research Term [ * ], from research conducted with respect to an
Option Compound. Each Option Product shall be deemed to include [ * ].
1.31 "Option Program" shall mean either the [ * ] Option Program or the
[ * ] Option Program, as the case may be.
1.32 "Option Targets" shall mean those targets applicable to the [ * ] set
forth on Appendix A hereto, or otherwise designated by a majority of the members
of the entire Research Committee in writing.
1.33 "Original Agreement" shall mean the Collaboration and License
Agreement dated as of December 22, 1993 by and between Tularik and Merck.
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
4
<PAGE>
1.34 "Products" shall mean, collectively, the Option Products and the
Program Products.
1.35 "Program Assays" shall mean those assays relating to the Core Targets
or the Option Targets which, as of the Effective Date and from time to time
during the Research Term, each party respectively owns or has rights to (with a
right to sublicense), as set forth and periodically updated on Appendix A
hereto.
1.36 "Program Compound" shall mean a Program Substance which (i) as a
result of screening activities under the Research Program, [ * ], (ii) [ * ] and
(iii) is designated by the Research Committee for [ * ]. Program Compounds shall
also include all Option Compounds within any Option Program as to which Merck
has exercised the Merck Option.
1.37 "Program Know-How" shall mean all materials and information developed
in the course of the Research Program.
1.38 "Program Patents" shall mean any and all patents, both foreign and
domestic, which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal has been or can be taken, including
with out limitation, all substitutions, extensions, reissues, renewals,
supplementary protection certificates and inventors' certificates which cover
inventions or discoveries made in the course of the Research Program.
1.39 "Program Product" shall mean any pharmaceutical product which results
during the Research Term [ * ] from research conducted with respect to a Program
Compound. Each Program Product shall be deemed to include all indications,
formulations, line extensions or modes of administration thereof.
1.40 "Program Substances" shall mean the Merck Substances and the Tularik
Substances.
1.41 "Research Committee" shall mean that committee formed pursuant to
Section 2.2 hereof.
1.42 "Research Management Committee" or "RMC" shall mean Merck's Research
Management Committee.
1.43 "Research Program" shall mean the research program carried out by the
parties in the Field during the Research Term pursuant to Article 2 hereof, as
further described in Appendix B.
1.44 "Restricted Compound" shall mean any Program Compound or Option
Compound which Merck has designated as restricted in accordance with Sections
2.1(c) hereof.
[ * ] =Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
5
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1.45 "Third Party Screening Royalty" shall mean any royalty obligation owed
by Tularik or Merck to any third party, for the screening or use of any Program
Substance.
1.46 "Tularik Know-How" shall mean all materials and information that
Tularik owns, controls or has a license to (with a right to sublicense) as of
the Effective Date and from time to time during the Research Term, which arise
outside the Research Program, but only insofar as any of the above are necessary
or useful to the conduct of the activities carried out under the Research
Program.
1.47 "Tularik Patents" shall mean any and all patents, both foreign and
domestic, which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal has been or can be taken, including
without limitation all substitutions, extensions, reissues, renewals,
supplementary protection certificates and inventors' certificates, (a) which (i)
are issued as of the Effective Date, or (ii) subsequently issue from
applications (including divisionals, continuations and continuations-in-part)
pending as of the Effective Date, or (iii) issue from any such applications
subsequently filed on inventions made as of the Effective Date, (b) which
Tularik owns, controls or has a license to (with the right to sublicense), and
(c) which relate to the development, manufacture, use and sale of the Products
or the Program Assays.
1.48 "Tularik Substances" shall mean those natural extracts, natural
compounds and synthetic compounds which Tularik owns or has the right to license
or sublicense as of the Effective Date or from time to time during the Research
Program, and which Tularik has approved for screening under the Research
Program.
1.49 "Tularik Technology" means, collectively, the Tularik Patents and the
Tularik Know-How.
2
RESEARCH PROGRAM
2.1 Research Program. Tularik and Merck will conduct the Research Program
under the direction of the Research Committee. During the Research Term, Tularik
shall [ * ] the Research Program, including management of the Program. Tularik
shall appoint [ * ] to manage the Research Program. Tularik acknowledges that
the involvement of [ * ] in the Research Program is critical to the success of
the Research Program. Merck acknowledges that [ * ] will [ * ]. The parties
intend that the work of [ * ] relating to his employment responsibilities at the
[ * ], shall not be utilized in the Research Program; provided, however, that
[ * ]. Merck shall have the right to approve all changes in the management of
the Research Program, in its sole discretion.
(a) Provision of Program Substances. Merck shall provide the Merck
Substances in coded form, and Tularik shall provide the Tularik Substances, for
use in the
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
6
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Research Program, in accordance with Appendix B. It is understood that neither
party shall have an obligation to provide any particular amounts or types of
Substances. Each Merck or Tularik Substance that does not possess Anti-Viral
Activity will be returned to Merck or Tularik, as the case may be, and will
cease to be subject to the terms of this Agreement.
(b) Screening Activities. During the Research Term, each party shall
respectively make all Program Assays available for the Research Program. In the
event that either party develops or acquires new Program Assays during the
Research Term, such party shall promptly inform the Research Committee of the
existence of such Program Assay. Unless otherwise directed by the Research
Committee, Tularik shall conduct all screening of the Program Substances. To the
extent practicable, the Program Substances shall be screened contemporaneously
in Program Assays for both the Core Targets and Option Targets. Tularik shall
notify Merck promptly when a Program Substance demonstrates Anti-Viral Activity
in a Core Target or Option Target. Any Program Substance which does not
demonstrate Anti-Viral Activity in a Core Target or Option Target shall be
returned to the party which supplied such Program Substance, and shall not be
included further under the terms of the Agreement.
(c) [ * ] Compounds. Within [ * ] of the date Merck receives all
material data indicating whether or not a Merck Substance has reacted positively
in a Program Assay for a Core Target or an Option Target, Merck shall [ * ],
upon which occurrence [ * ]. In the event that Merck [ * ], the Research
Committee shall commence evaluation of such Merck Substance, or Tularik shall be
free to conduct further research, in the case of a Merck Substance [ * ],
subject to the terms and conditions of this Agreement. Merck will [ * ], as the
case may be, for which such [ * ] without the agreement of Tularik. It is
understood that there are [ * ].
2.2 Research Committee.
(a) Formation of Research Committee. The Research Committee shall
consist of six (6) members, Merck and Tularik each to appoint and substitute as
necessary from time to time three (3) members of such Committee. Each member
shall have appropriate technical credentials and knowledge and ongoing
familiarity with the Research Program. The Chairperson of the Research Committee
shall be one of the Merck-appointed members. Except as otherwise provided in
Sections 1.6, 1.8 and 1.32, all decisions of the Research Committee shall be
unanimous.
(b) Meetings of Research Committee. The Research Committee shall meet
quarterly, at such times as shall be mutually agreed upon by the parties. The
location of such meetings shall alternate between sites designated by Tularik
and sites designated by Merck.
(c) Responsibilities of the Research Committee. The Research Committee
shall carry out the following responsibilities during the Research Term and,
with respect to Option Compounds which continue to be subject to the Merck
Option, for [ * ]: (1) defining the yearly research objectives, (2) determining
whether a Program Substance has Anti-Viral Activity,
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
7
<PAGE>
(3) coordinating activities required to carry out the Research Program, (4)
periodically revising the Research Program, (5) monitoring progress of the
Research Program and (6) making recommendations regarding further pre-IND
development of Program Compounds and Option Compounds.
2.3 New Target Assays. In the event that Tularik develops any new
screening assays relating to any disease in the Field other than the Core
Targets and the Option Targets (each, a "New Target Assay" and "New Target,"
respectively) during the Research Term, Tularik hereby agrees to promptly
disclose to Merck the existence of each New Target Assay. Merck shall have the
right to [ * ] for the identification and/or development of compounds relating
to such New Target by delivering to Tularik within [ * ] of Tularik's disclosure
of the New Target Assay, [ * ]. Upon receipt by Tularik of [ * ] relating to the
New Target. [ * ].
2.4 Term and Termination of Research Program. The Research Program shall
be carried out for a period commencing on the Effective Date and ending on
December 31, 1999 (the "Research Term"), which Research Term may be extended at
Merck's option for additional one (1)-year periods; provided, however, that any
such extension shall be made upon [ * ] prior written notice to Tularik.
Anything in the foregoing sentence to the contrary notwithstanding, Merck may
terminate the Research Term upon [ * ] written notice given to Tularik any time
after December 31, 1998. In the event of any such termination, payments under
Section 5.1(b) shall be prorated to fund the Research Program to the effective
date of such termination. After expiration or termination of the Research Term,
Tularik may, in its sole discretion, screen Merck Compounds at Merck's request,
at fees and upon terms to be mutually agreed upon by the parties at such time.
3
DEVELOPMENT AND COMMERCIALIZATION OF OPTION PRODUCTS
3.1 Tularik Development of Option Compounds. Tularik shall have the right,
but not the obligation, to conduct research and development and to commercialize
all Option Compounds, subject only to the Merck Option.
3.2 Tularik to Keep Merck Informed. Tularik shall provide Merck with
semi-annual reports of its progress in developing each Option Compound for which
Merck may be entitled to exercise the Merck Option in such reasonable detail as
shall be necessary and appropriate to permit Merck to determine whether it
wishes to exercise the Merck Option.
3.3 Merck Option.
(a) Merck Option. Merck may give Tularik written notice of its
intention to conduct research and development activities with respect to an
Option Program at any time, but
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
8
<PAGE>
not later than the expiration of [ * ] following the Exercise Date relating to
such Option Program. Upon exercising the Merck Option by giving such notice in
such manner, all Option Compounds within such Option Program shall become
Program Compounds for all purposes of this Agreement. Upon exercise by Merck of
the Merck Option, Tularik will [ * ] for which the Merck Option has been
exercised or [ * ].
(b) Other Option Programs. Notwithstanding any exercise by Merck of
the Merck Option with respect to an Option Program, [ * ] relating to [ * ] and
[ * ] for which the Merck Option has not been exercised, subject to Section
3.3(a) above.
(c) Reimbursement. Merck shall reimburse Tularik for the reasonable
costs and expenses incurred by Tularik relating to studies and preliminary
development conducted on any Option Program as to which Merck exercises the
Merck Option. Such cost reimbursement shall be on a basis of [ * ], which
reimbursement shall include the items listed on Exhibit C hereto. Merck will
also reimburse Tularik for any additional outside expenses that it approves at
the time of such reimbursement, as necessary and appropriate.
3.4 Tularik Request for Exercise of Merck Option. Tularik shall notify
Merck that the Merck Option has become exercisable with respect to an Option
Program by submission to Merck of Exercise Data on the Exercise Date. In no
event shall Merck be obligated to consider exercise of the Merck Option with
respect to such Option Program unless Exercise Data for such Option Program
shall have been submitted to Merck. In the event Merck shall not exercise the
Merck Option with respect to such Option Program within [ * ] following the
Exercise Date, the Merck Option shall expire with respect to such Option
Program. Following such expiration: (i) [ * ]; (ii) Tularik shall [ * ]; and
(iii) Tularik may [ * ].
4
EXTRA-FIELD INDICATIONS
4.1 Extra-Field Indications. The parties acknowledge that the Program
Compounds and Option Compounds may prove to have applications for indications
outside the Field. Subject to the provisions of this Article 4, Merck shall have
the [ * ] and Tularik shall have the [ * ]. Notwithstanding the foregoing, the
parties acknowledge that each [ * ].
4.2 Royalty Obligations; Approvals. With respect to each Program Compound
or Option Compound developed by either party as set forth above for extra-Field
indications, the developing party shall be subject to the following royalty
obligations and approval requirements:
(a) Developing Party's Substance. With respect to the development and
commercialization of any Program Compound and Option Compound based upon its own
Program Substance [ * ], the developing party shall [ * ] from the other party
for such development and commercialization, [ * ] of such Program Compound or
Option Compound.
(b) Other Party's Substance. With respect to the development and
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
9
<PAGE>
commercialization of any Program Compound or Option Compound based upon the
non-developing party's Program Substance [ * ], the developing party shall be
subject to [ * ] in accordance with the following:
(1) If such Program Compound or Option Compound is subject only to the
developing party's patents or patents jointly owned by Merck and Tularik, such
development and commercialization shall [ * ], and [ * ] of such Program
Compound or Option Compound.
(2) If such Program Compound or Option Compound is either (i) not
covered by any patent of either party or any jointly-owned patent or (ii) is
covered by the other party's patents, such development and commercialization
shall [ * ] if the developing party is also [ * ] if the developing party is
[ * ].
(c) Meaning of the Term "Patent." For purposes of this Section 4.2,
"patent" shall mean, with respect to any Product, a valid United States
[ * ] patent covering such Program Compound or Option Compound, [ * ], which a
party owns, controls or has a license to as of such date.
5
PAYMENT TERMS
5.1 Research Program Funding.
(a) Initial Payment. In consideration for the activities performed by
Tularik under the Research Program with respect to the Core Targets, Merck shall
pay Tularik a sum of [ * ].
(b) Research Term Fees. For each of the [ * ] of the Research Term,
Merck shall pay Tularik a sum of [ * ].
(c) Research Term Extensions. In the event that Merck extends the
Research Term pursuant to Section 2.4 hereof, Merck shall pay Tularik for each
one (1)-year extension [ * ].
5.2 Equity Investment. Within fifteen (15) days of the Effective Date,
Tularik and Merck shall execute a Series D Preferred Stock Purchase Agreement,
pursuant to which Merck shall purchase [ * ] shares of Tularik Series D
Preferred Stock for a sum of [ * ]. After execution of such Stock Purchase
Agreement, this Agreement and such Stock Purchase Agreement shall have no
further relationship and each agreement will operate completely independently.
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
10
<PAGE>
5.3 [ * ].
5.4 Option Payments. Merck shall pay Tularik an exercise fee of
[ * ] with respect to each Option Program as to which Merck exercises the Merck
Option, at the time of each respective exercise and thereupon Tularik's rights
with respect to Option Compounds within such Option Program shall be governed by
Section 3.3(a).
5.5 Benchmark Payments. With respect to [ * ], Merck shall pay to
Tularik:
(a) [ * ];
(b) [ * ];
(c) [ * ];
(d) [ * ].
5.6 Royalties.
(a) Merck Royalty Payments for Program Products. Merck shall pay
to Tularik an annual running royalty on Net Sales of each Program Product sold
by it and/or its Affiliates or sublicensees for applications within the Field
(other than Program Products acquired by exercise of the Merck Option),
according to the following rates:
(1) [ * ]; and
(2) [ * ].
(b) Merck Royalty Payments for Merck Option Products. Subject to
Section 4.2 hereof, Merck shall pay Tularik an annual running royalty on Net
Sales of each Program Product acquired by exercise of the Merck Option and sold
by it and/or its Affiliates or sublicensees for applications within the Field,
according to the following rates:
(1) [ * ]
(2) [ * ]
(3) [ * ].
(c) Tularik Royalty Payments for Option Products. Tularik shall
pay to
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
11
<PAGE>
Merck an annual running royalty on Net Sales of each Option Product based upon,
derived from or which incorporates a Merck Substance and sold by it and/or its
Affiliates or sublicensees for applications within the Field, according to the
following rates:
(1) [ * ]; and
(2) [ * ].
(d) Third-Party Royalty Credit. In the event that either party is
required to make payments (including, without limitation, royalties, option fees
or license fees) other than the [ * ], to one or more third parties to obtain
licenses or similar rights to patent protected technology necessary to make, use
or sell a Product in the Field, the party marketing such Product may deduct
[ * ] of the actual cost of such payments from royalties payable to the other
party under this Section 5.6 with respect to such Product, provided, however,
that in no event shall the royalties due to either party be reduced by more than
[ * ] of the amount of royalties owed in any given calendar quarter. Unused
royalty credits may be carried over from one royalty period to the next, subject
to the [ * ] limitation set forth above.
5.7 Royalty Term.
(a) Non-Patented Products. For each Product the manufacture, use or
sale of which for applications within the Field is not covered by a Program
Patent, Merck Patent or a Tularik Patent in a country, royalties shall be
payable in such country until [ * ] from the date of first commercial sale of
the Product in such country.
(b) Patented Products. For each Product the manufacture, use or sale
of which for applications within the Field is covered by a Program Patent, Merck
Patent or Tularik Patent, royalties shall be payable in a country until the
later of (i) [ * ] from the first commercial sale of the Product in such
country, or [ * ].
5.8 Manner and Time of Royalty Payments. All royalty payments due
hereunder shall be made in accordance with the provisions of Article 7 hereof.
5.9 Date and Place of Sale. Products shall be considered sold when
invoiced by the selling party. The obligation to pay royalties on Net Sales of a
Product in the Field shall be imposed only once with respect to the same unit of
such Product.
6
GRANT OF RIGHTS
6.1 Research Program License.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
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<PAGE>
(a) Grant by Merck. Merck hereby grants to Tularik, during the
Research Term (and any extension thereof), (i) [ * ] in accordance with the
terms of the Research Program. Nothing herein shall be deemed to grant any
rights or other interests in favor of Tularik with respect to the Merck
Technology and the Merck-owned Program Patents other than as expressly set forth
in this Agreement.
(b) Grant by Tularik. Tularik hereby grants to Merck, during the
Research Term (and any extension thereof) (i) [ * ] in accordance with the terms
of the Research Program. Nothing herein shall be deemed to grant any rights or
other interests in favor of Merck with respect to the Tularik Technology and the
Tularik-owned Program Patents other than as expressly set forth in this
Agreement.
(c) Preliminary Development by Merck of Program Compounds. Tularik
hereby grants to Merck an exclusive (but for the license granted to Tularik
under Section 6.1(d) below) license under the (i) [ * ] as are necessary for
Merck to fulfill its obligations under the Research Program in accordance with
Appendix B.
(d) Preliminary Development by Tularik of Option Compounds. Subject
to the terms of the Merck Option, Merck hereby grants to Tularik an exclusive
(but for the license granted to Merck under Section 6.1(c) above) license under
(i) [ * ] with respect to any Option Compound within any Option Program. Such
license shall terminate as to Options Compounds within any Option Program with
respect to which the Merck Option shall have been exercised or shall have
terminated.
(e) Use Limitation. Each party agrees and acknowledges that use of the
Merck Substances and the Tularik Substances provided pursuant to Article 2 is
limited solely to those activities contemplated by the Research Program, unless
otherwise provided for in this Agreement. Each party understands and
acknowledges that the other party's substances are for research use only and
shall not be administered to humans in any manner or form, except in accordance
with the terms of this Agreement, and subject to appropriate Governmental
Approval.
6.2 License to Merck for Program Products. Tularik hereby grants to Merck
an exclusive, worldwide license to develop, make, have made, use, sell and have
sold Program Products in the Field under [ * ]. Tularik shall not conduct any
screening, development, manufacturing or commercialization activities with
respect to the [ * ], except as provided under this Agreement.
6.3 License to Tularik for Option Products. Merck hereby grants to Tularik
an exclusive, worldwide license to make, have made, use, sell, and have sold
Option Products in the Field as to which Merck has not exercised the Merck
Option, under the (i) [ * ].
6.4 Sublicenses. Each party shall have the right to grant sublicenses
under the licenses set forth in this Agreement, as appropriate.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
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6.5 Merck Due Diligence; Obligation to Inform.
(a) Diligent Development and Commercialization. Merck shall devote the
same degree of attention and diligence to [ * ]. The requirements for diligent
development and commercialization set forth in this Section 6.5(a) shall in no
way be interpreted to modify either party's respective obligations under the
Research Program.
(b) Obligation to Inform. Merck hereby agrees to keep Tularik
informed on a reasonable basis of the development of each Program Compound,
including but not limited to periodic written updates on the progress of each
filing with the FDA and its foreign equivalents in [ * ].
(c) No Material Breach. Notwithstanding the foregoing, any failure by
Merck to fulfill the development, commercialization and information obligations
set forth in this Section 6.5 with respect to any Program Compound shall not be
deemed a material breach of this Agreement, to the extent that such failure
results [ * ].
7
PAYMENTS; RECORDS; AUDIT
7.1 Payment; Reports. All amounts payable to either party under this
Agreement shall be paid in U.S. Dollars within [ * ] of the end of each calendar
quarter or as otherwise specifically provided herein. Each payment of royalties
shall be accompanied by a statement of the amount of Net Sales during such
quarter, the amount of aggregate worldwide Net Sales to date as of the end of
such quarter where necessary in determination of royalty rates, and the amount
of royalties due on such sales. Each party agrees that if it desires to sell or
otherwise place any Products in exchange for consideration, or in a manner, that
makes it impractical to calculate royalty due, [ * ]. The parties hereby agree
that [ * ].
7.2 Exchange Rate; Manner and Place of Payment. Royalty payments and
reports for the sale of Products (i) in the United States shall be calculated
and reported for each quarter ending on the last day of March, June, September
and December; and (ii) outside the United States shall be reported for each
quarter ending on the last day of February, May, August and November. Exchange
conversion of foreign sales into U.S. Dollars shall be made as necessary at the
rate of exchange [ * ]. All payments owed under this Agreement shall be made
by wire transfer, unless otherwise
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
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<PAGE>
specified by such party.
7.3 Records and Audit. During the term of this Agreement and for a period
of [ * ] thereafter, the parties shall each keep complete and accurate records
pertaining to the sale or other disposition of the Products commercialized by
it, in sufficient detail to permit the other party to confirm the accuracy of
all payments due hereunder. Each party shall have the right to cause an
independent, certified public accountant to audit such records to confirm the
other party's Net Sales and royalty payments for the preceding year; provided,
however, that such auditor shall not disclose the audited party's confidential
information to the other party, except to the extent such disclosure is
necessary to verify the amount of royalties due under this Agreement. Such
audits may be exercised once a year, within [ * ] after the royalty period to
which such records relate, upon notice to such other party and during normal
business hours. The party requesting the audit shall bear the full cost of such
audit [ * ]. The terms of this Section 7.3 shall survive any termination or
expiration of this Agreement for a period of [ * ].
7.4 Taxes. All turnover and other taxes levied on account of the royalties
accruing to each party under this Agreement shall be borne and paid by the party
receiving such royalty for its own account, including taxes levied thereon as
income to the receiving party. If provision is made in law or regulation for
withholding, such tax shall be deducted from the royalty paid by the party
making such payment to the proper taxing authority and a receipt of payment of
the tax secured and shall be promptly delivered to the party entitled to the
royalty. Each party agrees to reasonably assist the other party in claiming
exemption from such deductions or withholdings under any double taxation or
similar agreement or treaty from time to time in force.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
15
<PAGE>
8
OWNERSHIP; PATENTS
8.1 Ownership.
(a) Technology; Substances; Program Patents and Program Know-How.
Tularik acknowledges and agrees that Merck is and shall remain the sole owner of
the Merck Technology, the Merck-owned Program Patents, the Merck-owned Program
Know-How and the Merck Substances, and that Tularik has no rights in or to the
Merck Technology, the Merck-owned Program Patents, the Merck-owned Program Know-
How and Merck Substances, other than the license rights specifically granted
herein. Merck acknowledges and agrees that Tularik is and shall remain the sole
owner of the Tularik Technology, the Tularik-owned Program Patents, the Tularik-
owned Program Know-How and the Tularik Substances, and that Merck has no rights
in or to the Tularik Technology, Tularik-owned Program Patents, the Tularik-
owned Program Know-How and Tularik Substances other than the license rights
specifically granted herein. Each party acknowledges and agrees that each party
shall be the sole owner of the Program Assays and inventions or discoveries made
solely by it in the course of the Research Program, subject to right granted
under this Agreement, and that the other party has no rights in or to such
Program Assays and inventions or discoveries other than those rights
specifically granted to such other party herein. Program Assays and inventions
or discoveries jointly made by the parties in the course of the Research Program
shall be jointly owned.
(b) Program Know-How. Subject to the licenses granted under this
Agreement, Tularik and Merck shall each solely own the entire right, title and
interest in and to any Program Know-How made or discovered solely by it, and the
parties shall own jointly the entire right, title and interest in and to Program
Know-How jointly made or discovered.
8.2 Patents.
(a) Patent Prosecution.
(1) Tularik Patents and Merck Patents shall be prosecuted
and maintained by Tularik and Merck, respectively, at such party's option and
its own expense.
(2) Each party shall be responsible for filing, prosecuting
and maintaining those Program Patents covering inventions or discoveries made
solely by it, at its own expense. [ * ]. In the event that any party decides not
to proceed with prosecuting a patent application which it filed under this
Section, or to pay any annuity for a Program Patent as it becomes due, which
application or patent is relevant to the license rights of the other party under
this Agreement, such party shall give the other party sixty (60) days' notice
before any relevant deadline, and the other party shall have the right to
pursue, at its own expense, prosecution of such patent application or
maintenance of the patent. Upon request, the filing party may request
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
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<PAGE>
copies of notebook pages containing supporting experimental data. Upon request,
the filing party shall forward copies of official correspondence relating to the
relevant patent application filing.
(3) Each party specifically excludes any representation or
warranty, express or implied, that it will successfully obtain any Program
Patent.
(b) Perfection of Interest. Each party agrees to cooperate with the
other and take all reasonable additional actions and execute such agreements,
instruments, and documents as may be reasonably required to perfect the other's
ownership interest in accordance with the intent of this Article 8 including,
without limitation, the execution of necessary and appropriate instruments of
assignment.
(c) Patent Marking. Each party shall mark all Products manufactured,
used or sold under the terms of this Agreement, or their containers, in
accordance with the applicable patent marking laws, as required.
(d) Infringement of Patents by Third Parties.
(1) Each party shall promptly notify the other in writing of any
alleged or threatened infringement of the Tularik Patents, the Merck Patents, or
the Program Patents which may adversely impact the rights of the parties
hereunder, of which it becomes aware.
(2) Each party shall retain the right to bring, at such party's
expense, an appropriate action against any person or entity directly or
contributorily infringing a patent or Program Patent owned by such party. In
such event, the other party hereby agrees to cooperate reasonably with the owner
of such patent or Program Patent in any such efforts. Any recovery obtained by
the patent or Program Patent owner as a result of such action, whether obtained
by settlement or otherwise, shall be disbursed as follows: [ * ]. The non-owner
at its own election and expense shall have the right to be joined in any such
action as a party. No settlement, compromise or other disposition of any such
action which compromises the non-owner's rights under this Agreement shall be
entered into without such non-owner's prior written consent, which shall not be
unreasonably withheld. In the event that an alleged infringer is engaged in the
manufacture, use or sale of a drug product with applications in the Core Targets
or Option Targets in a country in which the non-owner [ * ], and the owner fails
to institute an infringement suit or take other reasonable action to protect the
relevant patent or Program Patent, the non-owner shall have the right, within [
* ] of notification to the owner of such alleged infringement, to institute such
suit or take other appropriate action at its own expense in the name of the
owner or non-owner, or both. In such event, the owner of the patent or Program
Patent shall cooperate reasonably with the non-owner, if applicable, in its
efforts to protect the relevant patent or Program Patent. Any recovery obtained
by the non-owner as a result of such proceeding, by settlement or otherwise,
shall be disbursed as follows: [ * ]. No settlement, compromise or other
disposition of any such proceeding which concerns the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
17
<PAGE>
validity of any patent or Program Patent shall be entered into without the
patent or Program Patent owner's prior written consent, which shall not be
unreasonably withheld.
(3) In the event that the parties become aware of any alleged or
threatened infringement of the jointly-owned Program Patents, including but not
limited to any certification filed under the U.S. Drug Price Competition and
Patent Term Restoration Act of 1984, the parties shall confer and may agree
jointly to prosecute such infringement. If the parties do not agree on whether
or how to proceed with enforcement activity within (i) [ * ] following the
notice of alleged infringement [ * ], whichever comes first, then either party
may act in its own name to commence litigation with respect to the alleged or
threatened infringement. In the event that a party brings an infringement
action, the other party shall reasonably cooperate, including if required to
bring such action, the furnishing of a power of attorney. Neither party shall
have the right to settle any patent infringement litigation under this Section
8.2(d)(3) in a manner that diminishes the rights or interests of the other party
without the consent of such other party. The costs of any litigation commenced
solely by one party, pursuant to this Section 8.2(d)(3), including attorneys'
fees and expenses, shall be borne entirely by such party. The costs of any
litigation commenced by the parties jointly, shall be borne equally by the
parties (unless they agree to a different cost sharing arrangements in any
particular matter) with such costs to be accounted for and reimbursed under this
Section 8.2(d)(3), without an allocation for internal resources devoted to
litigation. [ * ], after reimbursement of both parties' reasonable expenses in
prosecuting such actions.
(e) Infringement of Third Party Rights.
(1) In the event that any Product manufactured or sold hereunder
becomes the subject of a claim for patent, copyright or other proprietary right
infringement anywhere in the world, and irrespective of whether Merck or Tularik
is charged with said infringement, and the venue of such claim, the parties
shall promptly confer to discuss the claim.
(2) The party responsible for marketing the Product which is the
subject of the infringement claim (the "Lead Defense Party") shall have the
right, but not the obligation, to assume the primary responsibility for the
conduct of the defense of any such claim. In the event that the Lead Defense
Party decides to assume responsibility for such defense, it shall [ * ]. In such
event, the non-Lead Defense party shall have the right, but not the obligation,
to participate in any such suit, at its sole option [ * ]. If the Lead Defense
Party decides not to assume responsibility for the conduct of the defense, the
Non-Lead Defense shall have the right, but not the obligation to conduct the
defense of the claim. Each party shall reasonably cooperate with the party
conducting the defense of the claim, including if required to conduct such
defense, furnishing a power of attorney. Neither party shall enter into any
settlement that affects the other party's rights or interests without such other
party's written consent, which consent shall not be unreasonably withheld.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
18
<PAGE>
9
TERM; TERMINATION
9.1 Term. Except as provided under Section 9.2 below, (a) the term of
this Agreement shall commence upon the Effective Date and shall expire on the
expiration date of the last to expire royalty obligation, and (b) upon
expiration of this Agreement, [ * ].
9.2 Termination.
(a) Material Breach. If either party materially breaches the Agreement
and the breaching party has not (i) cured the breach or (ii) initiated good
faith efforts to cure such breach to the reasonable satisfaction of the non-
breaching party, within [ * ] of written notice of breach from the non-breaching
party, the non-breaching party may terminate this Agreement upon expiration of
such [ * ] period. In the event of termination of this Agreement for material
breach, [ * ].
(b) Insolvency or Bankruptcy. Either party may terminate this
Agreement effective immediately and without liability upon written notice to the
other party if such other party (a) becomes insolvent or declares bankruptcy,
(b) becomes the subject of any proceedings seeking relief, reorganization or
rearrangement under laws relating to insolvency, (c) makes an assignment for the
benefit of creditors, or (d) commences the liquidation, dissolution or winding
up of its business.
9.3 Surviving Rights. The obligations and rights of the parties under
Articles 4, 7, 8, 9, 10, 11, 12, 14 and 15 and Sections 16.3, 16.4, 16.5, 16.6,
16.9 and 16.10 shall survive termination. Section 5.3 shall survive termination
in accordance with the terms provided in such Section.
9.4 Accrued Rights; Surviving Obligations. The termination, relinquishment
or expiration of the Agreement for any reason shall be without prejudice to any
rights which shall have accrued to the benefit of either party prior to such
termination, relinquishment or expiration, including any damages arising from
any breach hereunder. Such termination, relinquishment or expiration shall not
relieve either party from obligations which are expressly indicated to survive
termination or expiration of the Agreement.
10
INDEMNIFICATION
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
19
<PAGE>
10.1 Indemnification by Tularik. Subject to Section 10.2 below, Tularik
hereby agrees to indemnify, hold harmless and defend Merck against any and all
expenses, costs or defense (including without limitation attorneys' fees,
witness fees, damages, judgments, fines and amounts paid in settlement) and any
amounts Merck becomes legally obligated to pay because of any claim or claims
against it to the extent that such claim or claims (i) [ * ].
10.2 Indemnification by Merck. Merck hereby agrees to indemnify, hold
harmless and defend Tularik against any and all expenses, costs of defense
(including without limitation attorneys' fees, witness fees, damages, judgments,
fines and amounts paid in settlement) and any amounts Tularik becomes legally
obligated to pay because of any claim or claims against it to the extent that
such claim or claims (i) [ * ].
11
PUBLICATION; PUBLICITY
11.1 Publication. Each party to this Agreement recognizes that the
publication of papers, including oral presentations and abstracts, regarding the
Program Know-How and the Program Patents, subject to reasonable controls to
protect Confidential Information, will be beneficial to both parties.
Accordingly, each party shall have the right to review and approve any paper
proposed for publication by the other party, including oral presentations and
abstracts, which utilizes data generated from the Research Program and/or
includes Program Know-How or Confidential Information of the other party. Before
any such paper is presented or submitted for publication, the party proposing
publication shall deliver a complete copy to the other party at least [ * ]
prior to presenting the paper to a publisher. The receiving party shall review
any such paper and give its comments to the publishing party within [ * ] of the
delivery of such paper to the receiving party. With respect to oral presentation
materials and abstracts, the parties shall make reasonable efforts to expedite
review of such materials and abstracts, and shall return such items as soon as
practicable to the publishing party with appropriate comments, if any, but in no
event later than [ * ] from the delivery date thereof to the receiving party.
The publishing party shall comply with the other party's request to delete
references to such other party's Confidential Information in any such paper and
agrees [ * ].
11.2 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 the existence of or the performance under
this Agreement, without the prior written approval of the other party, which
approval shall not be unreasonably withheld other than as may be necessary for
compliance with applicable governmental requirements.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchanage Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
20
<PAGE>
12
CONFIDENTIALITY
12.1 Confidential Information; Exceptions. During the term of this
Agreement, and for a period of [ * ] after termination thereof, each party will
maintain all Confidential Information in trust and confidence and will not
disclose any Confidential Information to any third party or use any Confidential
Information for any unauthorized purpose; in particular, Merck shall not use the
Tularik Know-How or the Tularik-owned Program Know-How, and Tularik shall not
use the Merck Know-How or the Merck-owned Program Know-How, for the manufacture
or sale of any products other than the Products, except as expressly authorized
by this Agreement. Each party may use such Confidential Information only to the
extent required to accomplish the purposes of this Agreement. Confidential
Information shall not be used for any purpose or in any manner that would
constitute a violation of any laws or regulations, including without limitation
the export control laws of the United States. Confidential Information shall not
be reproduced in any form except as required to accomplish the intent of this
Agreement. No Confidential Information shall be disclosed to any employee,
agent, consultant, Affiliate, or sublicensee who does not have a need for such
information. Each party will use at least the same standard of care as it uses
to protect proprietary or confidential information of its own to ensure that
such employees, agents, consultants and clinical investigators do not disclose
or make any unauthorized use of the Confidential Information. Each party will
promptly notify the other upon discovery of any unauthorized use or disclosure
of the Confidential Information.
Confidential Information shall not include any information which:
(a) is now, or hereafter becomes, through no act or failure to
act on the part of the receiving party, generally known or available;
(b) is known by the receiving party at the time of receiving such
information, as evidenced by its records;
(c) is hereafter furnished to the receiving party by a third
party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving party without any
breach of this Agreement; or
(e) is the subject of a written permission to disclose provided by
the disclosing party.
12.2 Financial Terms. The parties agree that the material financial
terms of the Agreement will be considered Confidential Information of both
parties. Notwithstanding the foregoing, either party may disclose such terms to
bona fide potential sublicensees, if necessary; in connection with any such
disclosure, each party agrees to use its best efforts to secure confidential
treatment of such information. [ * ].
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
21
<PAGE>
13
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants:
13.1 Corporate Power. Such party is duly organized and validly existing
under the laws of the state of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.
13.2 Due Authorization. Such party is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
13.3 Binding Agreement. This Agreement is a legal and valid obligation
binding upon it and is enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement by such party does not conflict with
any agreement, instrument or understanding, oral or written, to which it is a
party or by which it may be bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency having authority over
it.
13.4 Intellectual Property. Such party (i) has the full right to grant
the licenses granted by it under this Agreement; and (ii) [ * ].
13.5 Third Party Compounds. To the extent that any compounds owned by
third parties are supplied by such party for activities contemplated by this
Agreement, such party has full right and license to use such third party
compounds for the contemplated activities. Such party represents and warrants,
that to the best of its knowledge, the use of such third party compounds in
accordance with the terms of this Agreement will not [ * ].
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
22
<PAGE>
14
IMPORT AND EXPORT CONTROLS
14.1 United States Laws. The parties understand and acknowledge that each
of them is subject to regulation by agencies of the U.S. government, including
the U.S. Department of Commerce, which prohibit export or diversion of certain
products and technology to certain countries. Any and all obligations of Merck
or Tularik to provide access to or license any technology pursuant to this
Agreement, as well as any technical assistance shall be subject in all respects
to such United States laws and regulations as shall from time to time govern the
license and delivery of technology and products abroad by persons subject to the
jurisdiction of the United States, including the Export Administration Act of
1979, as amended, any successor or interim controlling legislation, and the
Export Administration Regulations issued by the Department of Commerce,
International Trade Administration, Bureau of Export Administration. Both
parties also agree to comply with the requirements of the U.S. Foreign Corrupt
Practices Act (the "Act") and shall refrain from making any payments to third
parties which would cause Merck or Tularik to violate the Act.
14.2 Non-United States Laws. Merck and Tularik shall each provide the
other party with such reasonable assistance as may be required for the party
requesting such assistance to comply with all non-United States laws,
ordinances, rules, regulations and the like of all governmental units or
agencies having jurisdiction pertaining to this Agreement, including without
limitation, obtaining all import, export and other permits, certificates,
licenses or the like required by such non-United States laws, ordinances, rules,
regulations and the like, necessary to permit the parties to perform hereunder
and to exercise their respective rights hereunder.
15
DISCLAIMER OF WARRANTIES; FURTHER ACTION
15.1 Disclaimers.
(a) Tularik Disclaimer. THE TULARIK TECHNOLOGY, INCLUDING THE
PROGRAM ASSAYS AND THE TULARIK SUBSTANCES, PROVIDED BY TULARIK HEREUNDER ARE
PROVIDED "AS IS" AND TULARIK EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES 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 ARISING FROM A COURSE OF
DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without
limiting the generality of the foregoing, Tularik expressly does not warrant (i)
the success of any study or test commenced pursuant to the Research Program, or
(ii) the safety or usefulness for any purpose of Tularik Technology or the
Program Know-How.
(b) Merck Disclaimer. THE MERCK TECHNOLOGY, INCLUDING THE
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
23
<PAGE>
PROGRAM ASSAYS AND THE MERCK SUBSTANCES, PROVIDED BY MERCK HEREUNDER ARE
PROVIDED "AS IS" AND MERCK EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES 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 ARISING FROM A COURSE OF
DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without
limiting the generality of the foregoing, Merck expressly does not warrant the
safety or usefulness for any purpose of the Merck Technology or the Program
Know-How.
16
MISCELLANEOUS
16.1 Waiver. No waiver by either party hereto of any breach or default of
any of the covenants or agreements herein set forth shall be deemed a waiver as
to any subsequent or similar breach or default.
16.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their permitted successors and assigns;
provided, however, that neither party shall assign any of its rights and
obligations hereunder except (i) as incident to the merger, consolidations,
reorganization, or acquisition of stock or assets affecting substantially all of
the assets or actual voting control of the assigning party, or (ii) to an
Affiliate, provided, however, that in no event shall either party's obligations
under the Research Program be assigned to an Affiliate without prior written
consent of the other party.
16.3 Notices. Any notice or other communication required or permitted to
be given to either party hereto shall be in writing and shall be deemed to have
been properly given and to be effective on the date of delivery if delivered in
person or by facsimile or five (5) days after mailing by registered or certified
mail, postage paid, to the other party at the following address:
In the case of Tularik: Tularik Inc.
Two Corporate Drive
S. San Francisco, CA 94080
Fax: (415) 829-4303
Attention: President
with a copy to: Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
Palo Alto, CA 94306
Fax: (415) 857-0663
Attention: Brian C. Cunningham, Esq.
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
24
<PAGE>
In the case of Merck: [ * ]
Either party may change its address for communications by a notice to the other
party in accordance with this section.
16.4 Headings. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
16.5 Amendment. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by both parties.
16.6 Construction of Agreement and Choice of Law, Jurisdiction and Venue.
This Agreement and its terms and conditions shall be governed exclusively by and
construed according to the laws of [ * ]. The official text of the Agreement and
any Notices given or accounts or statements required hereby shall be in English.
16.7 Force Majeure. Any delays in performance by any party under this
Agreement (other than either party's failure to pay money to the other party,
unless such failure results solely from wire transfer failures beyond the
control of the paying party, or the like) shall not be considered a breach of
this Agreement if and to the extent caused by occurrences beyond the reasonable
control of the party affected, including but not limited to acts of God,
embargoes, governmental restrictions, strikes or other concerted acts of
workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or
sabotage. The party suffering such occurrence shall immediately notify the other
party as soon as practicable and any time for performance hereunder shall be
extended by the actual time of delay caused by the occurrence.
16.8 Independent Contractors. In making and performing this Agreement,
Merck and Tularik act and shall act at all times as independent contractors and
nothing contained in this Agreement shall be construed or implied to create an
agency, partnership or employer and employee relationship between Tularik and
Merck. At no time shall one party make commitments or incur any charges or
expenses for or in the name of the other party.
16.9 Severability. If any term, condition or provision of this Agreement
is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this Agreement shall be deemed valid and enforceable to the
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
25
<PAGE>
full extent.
16.10 Cumulative Rights. The rights, powers and remedies hereunder shall
be in addition to, and not in limitation of, all rights, powers and remedies
provided at law or in equity, or under any other agreement between the parties.
All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
16.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
16.12 Entire Agreement. This Agreement and any and all Schedules and
Appendices referred to herein embodies the entire understanding of the parties
with respect to the subject matter hereof and shall supersede all previous
communications, representations or understandings, either oral or written,
between the parties relating to the subject matter hereof, including the
Original Agreement, which is superceded as of the Amendment Date by this
Agreement.
IN WITNESS WHEREOF, both Merck and Tularik have executed this Agreement, in
duplicate originals, by their respective officers hereunto duly authorized, as
of the Amendment Date.
Tularik Inc. Merck & Co., Inc.
By: /s/ David V. Goeddel By: /s/ Raymond V. Gilmartin
--------------------------- --------------------------------------
David V. Goeddel Raymond V. Gilmartin
Title:President and Title: Chairman, President & CEO
-----------------------------------
Chief Executive Officer
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
26
<PAGE>
APPENDIX A
Targets and Assays
Core Targets
- ------------
[ * ]
[ * ]
[ * ]
Core Target Assays
- ------------------
[ * ]
[ * ]
[ * ]
Option Targets
- --------------
[ * ]
[ * ]
Option Target Assays
- --------------------
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
27
<PAGE>
APPENDIX B
Research Program
The research program, and the responsibilities of the two parties, shall be
as follows:
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
28
<PAGE>
APPENDIX C
Merck Option Reimbursement
The reimbursement costs of [ * ] referenced in Section 3.3(c) shall include the
following:
Direct Expenses
[ * ]
Indirect Expenses
[ * ]
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
29
<PAGE>
[ * ]= Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
30
<PAGE>
Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.10
RESEARCH AGREEMENT
Research Agreement between Cold Spring Harbor Laboratory, hereinafter
referred to as "CSHL," and Tularik Inc., hereinafter referred to as "Sponsor".
This Agreement is entered into as of October 3, 1997 and will be effective upon
the consummation of the merger between Tularik Acquisition Corp., a wholly-owned
subsidiary of the Company, and Amplicon Corp. ("Effective Date").
WHEREAS, the research program contemplated by this Agreement is of mutual
interest and benefit to CSHL and to Sponsor, and will further the instructional
and research objectives of CSHL in a manner consistent with its status as a non-
profit, tax-exempt, research institution.
WHEREAS, CSHL and Sponsor entered into an agreement executed on even date
herewith entitled License Agreement (hereinafter "License Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
1. STATEMENT OF WORK. CSHL agrees to use its reasonable best efforts to
perform the "Research Program" described in Appendix A attached hereto and
incorporated herein. Work will be performed in accordance with the Research
Program Budget in Appendix B and any changes thereto will be subject to the
mutual consent of parties to this agreement. The Research Program and Research
Program Budgets will be reviewed and amended from time to time by mutual written
agreement of the parties to provide for [ * ].
<PAGE>
2. CONDUCT OF THE RESEARCH.
A. Principal Investigator - The Research Program will be supervised by
[ * ] of CSHL, as Principal Investigator. If, for any reason, he is unable or
unwilling to continue to serve as Principal Investigator, CSHL and Sponsor shall
use their reasonable best efforts to locate a suitable successor as Principal
Investigator to continue the Research Program, or select alternative research
work. If the parties cannot mutually agree on a successor or alternative
research work, and if Sponsor elects not to terminate the License Agreement as
provided in Section VII.B(3) of the License Agreement, then future funding
provided for under Section 4.A hereof shall be reduced by [ * ] commencing on
the date [ * ] becomes unable or unwilling to serve as Principal Investigator,
and Sponsor shall continue to pay to CSHL such reduced amount as [ * ]. The
schedule of reduced funding payments shall continue to be in accordance with
Section 5 hereof. The scientific contact to the Research Program from the
Company will be [ * ].
B. Other Researchers - The Principal Investigator shall only assign
personnel to the Research Program who are obliged to CSHL to assign all
inventions they may make under the Research Program to CSHL. If the Principal
Investigator wishes to involve any other persons or to collaborate with
individuals at other institutions on work under the Research Program, he shall
first consult with Sponsor and shall, for a period of [ * ] following the date
of such consultation, consider Sponsor's suggestions and comments. Following
such consultation, if Sponsor shall reasonably believe that the involvement of
other persons or collaborators will jeopardize the intellectual property rights
of Sponsor pursuant to Section 9 hereof, Sponsor shall have the right to appeal
such involvement to [ * ].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
2.
<PAGE>
C. Non-Competition - CSHL agrees that it will not, without Sponsor's
prior written consent, permit any for-profit third party to acquire rights to or
an interest in the work of Principal Investigator's group at CSHL that is
involved with developing and applying [ * ] using the methods claimed in U.S.
Patent Numbers [ * ] (such methods being known as [ * ], unless Sponsor has
already elected not to acquire exclusive rights to the results of such work as
provided under Section 9 of this Agreement. This obligation shall expire [ * ]
years from the Effective Date.
D. Information Exchange - The Principal Investigator shall keep Sponsor
informed as to the progress of the Research Program and will meet Sponsor on a
regular basis and as reasonably requested by Sponsor to discuss inventions that
have occurred thereunder. Sponsor shall have the right to access and use, for
its own purposes, the data and information developed under the Research Program.
Sponsor shall have the right to receive samples of materials developed under the
Research Program for commercial use, without additional compensation, pursuant
to a separate Materials Transfer Agreement. Sponsor will, however, respect the
academic tradition of the Principal Investigator's right to first publish and
disseminate the results of the Research Program to third parties, in accordance
with Section 8.
3. PERIOD OF PERFORMANCE. The term of this Agreement shall commence on the
Effective Date and continue until the expiration of the last Licensed Patent (as
that term is defined in the License Agreement) or until it is terminated early
in accordance with Section 7 (the "Research Term").
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3.
<PAGE>
4. FUNDING.
A. Research Program - To fund the Research Program, and subject to
Section 2 of this Agreement, Sponsor shall pay to CSHL in accordance with the
payment schedule in Section 5, [ * ] per year during the Research Term, adjusted
in accordance with Section 6 of this Agreement.
B. The [ * ] at CSHL - On [ * ], Sponsor shall pay to CSHL [ * ] as
financial support for [ * ] for the year ending December 31, 1998. Commencing
on [ * ] and continuing each [ * ], Sponsor shall increase the annual payment to
CSHL by the amount of [ * ] per year to provide support for an additional [ * ],
so that by [ * ] Sponsor's payments shall amount to [ * ] as annual support for
[ * ]. Such maximum payments shall continue until [ * ]. The post doctoral
research program shall be named the [ * ].
5. SCHEDULE OF RESEARCH PAYMENTS. Payments under Section 4.A shall be payable
by Sponsor in advance in U.S. dollars, net of taxes, in quarterly installments
as follows. The first payment under Section 4.A.is due on the Effective Date
and shall be pro-rated to cover the period from the Effective Date to December
1, 1997. Thereafter, quarterly payments in the amount of [ * ] each are to be
made on or before the first day of [ * ] during the Research Term. The last
payment shall be pro-rated to cover the period from the first day of the last
calendar quarter of the Research Program to the end of the Research Term. If a
full quarterly payment is made but the Research Program is then terminated in
the middle of a quarter, CSHL shall refund a portion of such payment pro-rated
to cover the remainder of the quarter after the Research Term ends.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
4.
<PAGE>
A final financial accounting of all costs incurred in the Research Program
and all funds received by CSHL hereunder shall be submitted to Sponsor [ * ] of
each year of the Research Program and following the completion of the project.
6. ADJUSTMENT FOR INFLATION. The base annual funding amount set forth in
Section 4.A. of this Agreement [ * ] shall be prospectively adjusted annually
commencing [ * ] to provide for future inflation by multiplying the base annual
funding amount by the percentage increase in the cost of living index published
by the United States Department of Labor Bureau of Labor Statistics (BLS) Annual
Average Producer Price Index (Finished Goods) for the New York Metropolitan Area
[Base Index, 1982 = 100] for the preceding calendar year of the Research
Agreement for which the adjusted payment is being made. If at any time the
Bureau of Labor Statistics (BLS) of the United States Department of Labor should
cease to publish the Producer Price Index, another annual average index
generally recognized as an authoritative indicator of changes in the United
States of equivalent costs (preferably an index published by the United States
Government) shall be used.
7. TERMINATION.
A. Termination for Default - This Agreement may be terminated for
default. In the event of default by a party ("Defaulting Party"), the other
party ("Non-Defaulting Party") shall give the Defaulting Party written notice of
the default and its election to terminate this Agreement at the expiration of a
probation period of [ * ] from the date of the notice. If the Defaulting Party
fails to resolve the default in the probation period 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
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
5.
<PAGE>
other resolution of the default, then the Non-Defaulting Party may terminate
this Agreement by giving written notice to the Defaulting Party. The termination
will be effective upon the date specified in the notice. The termination rights
under this Section 7.A shall be in addition to and not in substitution for any
other remedies that may be available to the Non-Defaulting Party. Termination
pursuant to this section shall not relieve the Defaulting Party from liability
and damages to the Non-Defaulting Party for default. Waiver by either party of a
single default or a succession of defaults shall not deprive such party of any
right to terminate this Agreement arising by reason of any subsequent default.
B. Termination of the License Agreement. [ * ], this Agreement may be
terminated by Sponsor without penalty in the event [ * ]. In such event,
termination of this Agreement shall be effective on the date [ * ].
C. Effect of Termination. Termination of this Agreement by Sponsor for
default by CSHL pursuant to Section 7.A shall not affect the License Agreement.
Any agreement between the parties entered into pursuant to Section 9 of this
Agreement shall not be affected by expiration or termination of this Agreement.
Sections 9 and 10 shall survive expiration or termination of this Agreement for
the periods of time set forth in such sections.
8. PUBLICATIONS. CSHL, a not-for-profit basic research institution, will be
free to publish or present the results of research under this Agreement in
accordance with this Section 8. A copy of each proposed publication or
presentation will be provided to Sponsor at least [ * ] prior to the planned
disclosure for publication. Sponsor shall notify CSHL within [ * ] of receipt of
such materials whether it desires CSHL to file patent applications on any
invention contained in the materials; and, if CSHL agrees, CSHL will promptly
proceed to file a patent application(s)
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
6.
<PAGE>
and CSHL and the Principal Investigator will delay publication and any other
disclosure if necessary for up to [ * ] to ensure that such filings are made
before publication or other disclosure. CSHL and the Principal Investigator
shall otherwise have final authority to determine the scope and content of any
publication, but CSHL and the Principal Investigator will consider in good faith
suggestions offered by Sponsor. Within [ * ] of being requested to do so by
Sponsor and before publication, CSHL will notify Sponsor if CSHL declines to
file a patent application under this paragraph. Sponsor will then have the right
to file patent applications in CSHL's name in accordance with Section 9.A.(5) of
this Agreement.
9. INTELLECTUAL PROPERTY.
A. From The Research Program -
(1) CSHL will disclose to Sponsor (i) all [ * ] ("Inventions"), and
(ii) all [ * ], provided that the Principal Investigator, or person(s) working
under his supervision, is an inventor, and such inventions and/or improvements
are disclosed to CSHL by the inventor(s) pursuant to an invention assignment
agreement between CSHL and the inventor(s). For purposes of this Agreement,
"improvements" means any modification of [ * ], provided such modification, if
unlicensed, would infringe one or more claims of the [ * ] patent without regard
to whether such modification actually infringes such claim or claims. Title to
any Invention shall remain with CSHL if made solely by the Principal
Investigator or CSHL researchers working under his supervision. Subject to
Sections 9.A(2), (3) and (5), CSHL shall have the sole right to determine the
disposition of any such Invention or other rights resulting therefrom, including
the right to determine whether or not a patent application will be filed, and
shall so notify Sponsor. Any Inventions made jointly by CSHL and Sponsor in the
performance of the Research Program shall
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
7.
<PAGE>
be owned jointly by CSHL and Sponsor. Any Inventions made solely by Sponsor in
the performance of the Research Program shall be owned solely by Sponsor.
Inventorship shall be determined under U.S. patent laws. Sponsor shall notify
CSHL of all Inventions made solely or jointly by Sponsor and provide CSHL with a
copy of any patent application claiming such an Invention prior to filing such
patent application.
(2) In the event that a patent application on an Invention is filed
by CSHL, or by Sponsor pursuant to Section 9.A(5) below, Sponsor shall be
entitled to elect one of the following Alternatives by notice in writing to CSHL
within [ * ] after written notification to Sponsor that a patent application has
been filed:
(i) Alternative 1 - A non-exclusive, non-transferable (without
the right to sub-license), [ * ] license to Sponsor for [ * ]; or
(ii) Alternative 2 - A non-exclusive, non-transferable (without
the right to sub-license), [ * ] license to Sponsor in the United States and/or
any foreign country elected by Sponsor (subject to Section 9.A(4) below) to
make, have made, use, offer for sale, sell and import products embodying or
produced through the use of such Invention; provided that Sponsor agrees to (a)
demonstrate reasonable efforts to commercialize the technology in the public
interest; (b) [ * ]; and (c) substantially manufacture in the United States
products to be sold in the United States unless CSHL, in its sole discretion,
deems there is justification for waiving such requirement; or
(iii) Alternative 3 - A [ * ] license (subject to the third
party rights of United States Government Grantee Agencies) to Sponsor, including
the exclusive right to sublicense, in the United States and/or any foreign
country elected by Sponsor (subject to Section
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
8.
<PAGE>
9.A(4) below) to diligently make, have made, use, offer for sale, sell and
import such Invention, or Primary or Secondary Products (as hereinafter defined)
embodying or produced through the use of such Invention, provided that Sponsor
agrees to reimburse CSHL for the costs of patent prosecution and maintenance in
the U.S. and any elected foreign country, and further agrees that any licensed
products sold in the United States shall be substantially manufactured in the
United States. For the purposes of this Agreement, Primary and Secondary
Products are defined as follows: (1) Primary Products means [ * ], and (2)
Secondary Products means [ * ]. Royalties shall be paid on Primary and Secondary
Products embodying or produced through the use of such Invention(s) in
accordance with the following schedule: (A) until the expiration of the
patent(s) utilized for such Invention, the royalty rates due CSHL on Primary
Products shall be [ * ] of the Net Sales (as defined in the License Agreement)
of Primary Products sold by Sponsor or its sublicensee and the royalty rate on
Secondary Products shall be [ * ] of the Net Sales of Secondary Products sold by
Sponsor or its sublicensee; (B) upon the expiration of the last of the patents
utilized for such Invention, the royalty rates due CSHL by Sponsor or its
sublicensee on Net Sales of such Primary and Secondary Products shall [ * ] for
Primary Products and [ * ] on Secondary Products, provided that a [ * ]. Payment
of such reduced royalties to CSHL shall continue until the last to expire of
Sponsor's patents, if any, on such Primary and/or Secondary Products, but in no
event shall full-rate and reduced royalties be paid for more than [ * ] years
from the first commercial sale of any Primary or Secondary Product. In the event
that a Primary and/or Secondary Product is licensed to Sponsor by CSHL, this
Alternative is subject to the negotiation of commercially reasonable terms
(other than financial terms, which shall be as set forth above).
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
9.
<PAGE>
In the event that the Invention is not a Primary or Secondary Product (it
being understood that [ * ] shall not be considered a Primary or Secondary
Product), this Alternative is subject to the negotiation of reasonable terms and
conditions, including financial terms as follows. If the parties are unable to
agree on such terms within [ * ] of the date this Alternative is elected by
Sponsor, either party may submit the terms in dispute to an arbitrator under
Section 15. In negotiating the financial terms under this Alternative in the
event that the Invention is not a Primary or Secondary Product, Sponsor and CSHL
will [ * ]. It is contemplated by the parties that the compensation payable by
Sponsor under this Alternative in the event that the Invention is not a Primary
or Secondary Product will be [ * ].
Should marketing of a Primary or Secondary Product require the payment of a
royalty to Sponsor under a license granted pursuant to Section III.A. of the
License Agreement, then the royalty payments due under this Section 9 for the
same Primary or Secondary Product will be [ * ].
This alternative is also subject to the right of CSHL to use all Inventions
in its non-commercial research and education activities.
(iv) Alternative 4 - The sharing with Sponsor of any Sublicense
Revenue, as defined in the License Agreement [ * ], received by CSHL in respect
of rights to such Invention, in an amount equal to [ * ] of such Sublicense
Revenue; provided, however, that Sponsor waives all rights to such Inventions,
patent applications and any resulting patents.
(3) In the event that Sponsor has not elected any of the foregoing
alternatives within [ * ] after notification that a patent application has been
filed, Sponsor shall [ * ].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
10.
<PAGE>
(4) If Sponsor elects Alternative "2" or "3", Sponsor shall notify
CSHL of those foreign countries in which its desires a license, in sufficient
time for CSHL to satisfy the patent law requirements of that country. Sponsor
shall [ * ].
(5) In the event that CSHL declines to file a patent application,
Sponsor may [ * ] file such patent application in the United States and/or
elsewhere, in the name of CSHL, and shall be entitled to elect from among the
above Alternatives no later than [ * ] after such filing date. In this case,
(i) [ * ], (ii) to the extent that a patent application is made for laboratory
methods (i.e., not products or manufacturing processes), CSHL reserves the right
to grant non-exclusive licenses to such patent rights to non-profit academic
institutions to use such laboratory methods for non-commercial use only and
(iii) to allow Sponsor to file a patent application, the Principal Investigator
will delay publication or other public disclosure of the Invention on which
Sponsor is filing such Application, for up to a period of time consistent with
Section 8 of this Agreement.
(6) Sponsor shall retain all Invention disclosures submitted by CSHL
in confidence and use its best efforts to prevent their disclosure to third
parties except as may be required by law. Sponsor shall be relieved of this
obligation only when this information becomes publicly available through no
fault of Sponsor, or when Sponsor exclusively licenses patent rights covering
such Invention.
(7) Title to and the right to determine the disposition of any
copyrights or copyrightable material first produced or composed in the
performance of this research shall remain with CSHL. CSHL hereby grants to
Sponsor an irrevocable, royalty-free, non-transferable, non-exclusive right and
license to use, reproduce, display, distribute and perform all
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
11.
<PAGE>
such copyrightable materials other than computer software and its documentation.
CSHL hereby grants to Sponsor an irrevocable, royalty-free, non-transferable,
non-exclusive right and license to use, reproduce, display and perform computer
software and its documentation specified to be developed and delivered under the
Research Program for Sponsor's internal purposes. Sponsor is entitled to elect
to negotiate a royalty bearing license (subject to prior third party rights, if
any) to use, reproduce, display, distribute, and perform such computer software
and its documentation for commercial purposes. Computer software for which a
patent application is filed shall be subject to Section 9.A(2), above.
(8) All licenses elected by Sponsor pursuant to this clause become
effective as of the date the parties sign a subsequent license agreement.
(9) This Agreement and the licenses and Alternatives under Section 9
are subject to the regulations and guidelines of Federal Grant Agencies which
contributed to the Research Program. In order to ensure that Sponsor is able to
obtain rights as provided in this Section 9.A, CSHL agrees that no funding from
any third party other than a Federal Grant Agency will be used in the Research
Program if acceptance of such funding would give such third party any rights or
interest in the work under the Research Program, unless the parties mutually
agree otherwise in writing before any such funding is used. CSHL further agrees
that it has not and will not enter into any other agreement or arrangement which
grants any third party any interest in any Inventions arising out of the
Research Program.
B. From the Tularik Fellows Program at CSHL - CSHL will provide to
----------------------------------------
Sponsor copies of any publications or presentations to be made by the post
doctoral researchers supported by Sponsor under Section 4.B of this Agreement,
prior to the submission of such papers for
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
12.
<PAGE>
publication or the date of the presentation. CSHL will provide to Sponsor an
annual report describing the work performed and results obtained by the post
doctoral researchers supported by Sponsor under Section 4.B of this Agreement.
Such annual reports shall be provided to Sponsor no later than sixty (60) days
after the end of each funding year.
To the extent that inventions made by any Tularik Fellow are not already
subject to prior rights of any for-profit third party, CSHL grants to Sponsor a
[ * ]. CSHL will disclose such inventions to Sponsor at the time a patent
application is filed and Sponsor will have a sixty (60) day period in which to
evaluate whether Sponsor wishes to license any such inventions.
Sponsor agrees to maintain as Confidential Information, in accordance with
Section 10 of this Agreement, any and all such papers, annual reports and
invention disclosures.
C. Survival - The terms of this Section 9 shall survive any
expiration or termination of this Agreement to allow Sponsor to exercise its
rights with respect to Inventions made under the Research Program or inventions
made by Tularik Fellows prior to the date this Agreement expires or is
terminated.
10. CONFIDENTIALITY. The parties agree that during the term of this Agreement
and any subsequent extension of this Agreement and for a period of [ * ] after
it terminates, a party receiving information from the other party designated as
"confidential" in writing ("Confidential Information") will not disclose such
Confidential Information to any third party or use such Confidential Information
except as provided in this Agreement without prior written consent. A party
shall have no obligations with respect to any portion of such Confidential
Information which:
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
13.
<PAGE>
(1) is publicly disclosed through no fault of any party hereto, either
before or after it becomes known to the receiving party; or
(2) was known to the receiving party prior to the date of this
Agreement, which knowledge was acquired independently and not from the other
party; or
(3) is subsequently disclosed to the receiving party in good faith by
a third party who has a right to make such a disclosure; or
(4) has been published by a third party as a matter of right; or
(5) is subsequently independently invented or discovered other than
pursuant to the Research Program by the receiving party without reference to the
other party's Confidential Information.
11. USE OF NAMES. Neither party will use the name of the other in any
advertising or other form of publicity without the written permission of the
other, in the case of CSHL, that of the Administrative Director, except as
required by law. Sponsor may refer to the terms of this Agreement in a bona
fide relationship or prospective relationship with financiers or investors.
12. NOTICES. Any notices required to be given or which shall be given under
this Agreement shall be in writing delivered by first class mail (air mail if
not domestic), express mail, or via facsimile (receipt confirmed) addressed to
the parties as follows:
COLD SPRING HARBOR LABORATORY TULARIK INC.
P.O. Box 100 Two Corporate Drive
One Bungtown Road South San Francisco, CA 94080
Cold Spring Harbor, New York 11724 Attn: Chief Executive Officer
Attn: Assistant Administrative Director
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
14.
<PAGE>
In the event notices, statements and payments required under this Agreement
are sent by certified or registered mail by one party to the other party at its
above address, they shall be deemed to have been given or made as of the date so
mailed, otherwise as of the date received.
13. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and the successors to substantially the entire business
and assets of the respective parties hereto. This Agreement shall not be
assignable by either party without the prior written consent of the other party,
except in connection with a merger or sale or other transfer of substantially
the entire business and assets of the party.
14. GOVERNING LAW. The validity and interpretation of this Agreement and the
legal relations of the parties to shall be governed by the laws of the State of
New York and the United States.
15. ARBITRATION. Any dispute or controversy arising out of or relating to this
Research Agreement, its construction or it actual or alleged breach, including a
dispute over [ * ], shall finally be decided by arbitration in the City and
State of New York by and in accordance with the Licensing Agreement Arbitration
Rules of the American Arbitration Association. Judgment upon the award rendered
may be entered in any high court or forum, state or federal, having
jurisdiction; provided, however, that the provisions of this Section shall not
apply to decisions on the validity of patent claims or to any dispute or
controversy as to which any treaty or law prohibits such arbitration.
16. GOVERNING LANGUAGE. In the event that a translation of this Agreement is
prepared and signed by the parties for the convenience of Sponsor, this English
language version shall be the official version and shall govern if there is a
conflict between the two.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
15.
<PAGE>
17. INDEMNIFICATION.
A. Sponsor hereby indemnifies and holds CSHL harmless from and against all
damages and cost from third party claims, causes of action or suits arising out
of or resulting from the claimed negligence of Sponsor in respect of (i)
Sponsor's activities under this Agreement or (ii) the manufacture, sale, offer
for sale, use and importation of products or services resulting from or licensed
or sub-licensed under this Agreement provided that CSHL shall promptly notify
Sponsor in writing of any suit or action for which such indemnity is sought,
shall permit Sponsor to control the defense thereof and shall cooperate in the
defense thereof as reasonably requested by Sponsor at Sponsor's expense.
B. CSHL hereby indemnifies and holds Sponsor harmless from and against all
damages and cost from third party claims, causes of action or suits arising out
of or resulting from the claimed negligence of CSHL in respect of CSHL's
activities under this Agreement provided that Sponsor shall promptly notify CSHL
in writing of any suit or action for which such indemnity is sought, shall
permit CSHL to control the defense thereof and shall cooperate in the defense
thereof as reasonably requested by CSHL at CSHL's expense.
C. Sponsor agrees to maintain liability insurance, including product
liability insurance, naming CSHL as an additional insured, in an amount
customary in the industry. Sponsor agrees to provide CSHL with evidence of such
insurance at CSHL's request.
18. EXPORT CONTROLS. It is understood that CSHL is subject to United States
laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities, and that its obligations
hereunder are contingent on compliance with applicable U.S. export laws and
regulations (including the Arms Export Control Act, as
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
16.
<PAGE>
amended, and the Export Administration Act of 1979). The transfer of certain
technical data and commodities may require a license from an agency of the
United States Government and/or written assurances by Sponsor that Sponsor will
not re-export data or commodities to certain, foreign counties without prior
approval of the cognizant government agency. While CSHL agrees to cooperate in
securing any license which the cognizant agency deems necessary in connection
with this Agreement, CSHL cannot guarantee that such licenses will be granted.
19. FORCE MAJEURE. CSHL shall not be responsible to Sponsor for failure to
perform any of the obligations imposed by this Agreement, provided such failure
shall be occasioned by fire, flood, explosion, lightning, windstorm, earthquake,
subsidence of soil, failure or destruction, in whole or in part, of machinery or
equipment or failure of supply of materials, discontinuity in the supply of
power, governmental interference, civil commotion, riot, war, strikes, labor
disturbance, transportation difficulties, labor shortage or any cause beyond the
reasonable control of CSHL.
20. ENTIRE AGREEMENT. Unless otherwise specified, this Agreement and the
License Agreement embody the entire understanding between CSHL and Sponsor for
this Research Program, and any prior or contemporaneous representations, either
oral or written are hereby superseded. No amendments or changes to this
Agreement, including without limitation, changes in the statement of work, total
estimated cost and period of performance, shall be effective unless made in
writing and signed by authorized representatives of the parties.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
17.
<PAGE>
COLD SPRING HARBOR TULARIK INC.
LABORATORY
/s/ John Maroney /s/ David V. Goeddel
- ---------------------------------- ---------------------------------
Signature Signature
John Maroney David V. Goeddel
Assistant Administrative Director President & CEO
- --------------------------------- ---------------------------------
Typed Name/Title Typed Name/Title
Dated: 10/3/97 Dated: 10/3/97
--------------------------- -------------------------
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
18.
<PAGE>
Appendix A
THE RESEARCH PROGRAM
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Appendix B
THE RESEARCH PROGRAM BUDGET
[ * ]
[ * ]
[ * ]
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Exhibit 10.11
LICENSE AGREEMENT
I. BACKGROUND
This Agreement is entered into this 3/rd/ day of October 1997 by and
between COLD SPRING HARBOR LABORATORY ("Licensor" or "CSHL"), a non-profit
research institution located in Cold Spring Harbor, New York; and TULARIK INC.
(which together with its Affiliate companies collectively shall be "Licensee"),
a corporation organized under the laws of the State of Delaware having its
principal office at Two Corporate Drive, South San Francisco, California 94080.
This Agreement will be effective upon the consummation of the merger between
Tularik Acquisition Corp., a wholly-owned subsidiary of the Company, and
Amplicon Corp. (the "Effective Date").
"AFFILIATE" means any present or future domestic or foreign corporation at least
Fifty-One Percent (51%) of whose voting and other capital stock shall at the
time be owned or controlled directly or indirectly by Licensee.
"RESEARCH AGREEMENT" means that certain Research Agreement by and between CSHL
and Licensee having an effective date of even date herewith.
II. LICENSE GRANT
A. Subject to (i) Licensor's right to use the Licensed Patents for
its non-commercial research and education programs, (ii) [ * ] and (iii) Section
X of this Agreement, Licensor grants
<PAGE>
to Licensee a royalty-bearing, worldwide, exclusive right and license to
practice the methods of the Licensed Patents and to make, have made, use, offer
for sale, sell and import Primary Products and Secondary Products (as defined
herein).
B. Subject to the conditions set forth in Section II.A., Licensor grants
to Licensee a worldwide, non-exclusive right and license to non-patented
technology and information necessary or useful for the practice of the Licensed
Patents, provided that such technology and information is [ * ]. [ * ] is the
Principal Investigator on the Research Program described in Appendix A to the
Research Agreement.
C. "Licensed Patents" include (1) [ * ], and any divisional,
continuations-in-part, reissues and extensions to the extent that any are
directed to the subject matter specifically described in such [ * ]; (2) [ * ]
and any divisionals, continuations-in-part, reissues and extensions to the
extent that they are directed to the subject matter specifically described in
such [ * ]; and (3) patents and patent applications directed to improvements in
[ * ], provided that [ * ]. Improvement(s), as used in this Agreement, means
any modification of [ * ], provided such modification, if unlicensed, would
infringe one or more claims of the Licensed Patents.
For the purposes of this Agreement, Primary and Secondary Products are
defined as follows: (1) Primary Products means [ * ], and (2) Secondary
Products means [ * ]. Primary and Secondary Products will remain assets of
Licensee or sublicensee.
D. Licensee shall have the exclusive right to enter into sublicensing
agreements for the rights, privileges and licenses granted hereunder. Licensee
shall notify Licensor, in writing, of the terms of any sublicense agreement
where collaborative efforts between Licensee and its sublicensee will be
undertaken, prior to the execution of such agreement, so that an allocation
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
2.
<PAGE>
can be made under Section III.B(2). If necessary, Licensee shall delay execution
of such agreement for up to [ * ] after Licensee notifies Licensor of the terms
of such sublicense agreement in order for the parties to agree on such an
allocation prior to execution of such agreement. If they cannot agree within
such time, Licensee may enter into the sublicense agreement and the parties
shall continue to work to determine the allocation as provided in Section
III.B(2). If the parties cannot determine such allocation, the matter shall be
referred to arbitration in accordance with Section XI.F. Licensee agrees to
provide to Licensor a copy of any and all sublicense agreements within [ * ] of
execution of such sublicense and further agrees to provide to Licensor annually
a copy of reports received by Licensee from its sublicensees during the
preceding [ * ] period under the sublicenses as shall be pertinent to a royalty
accounting under the sublicense agreements.
III. ROYALTIES AND OTHER PAYMENTS
A. Royalties shall be paid in accordance with the following schedule
on Primary and Secondary Products based upon the Licensed Patent(s) utilized in
the discovery or development of such Primary or Secondary Product:
1. Until the expiration of the Licensed Patent(s) utilized for such
Primary or Secondary Product: the royalty rate on Primary
Products shall be [ * ] of the Net Sales (as defined below) of
Primary Products sold by Licensee or its sublicensees; the
royalty rate on Secondary Products shall be [ * ] of the Net
Sales of Secondary Products sold by Licensee or its sublicensees;
2. Upon the expiration of the last of the Licensed Patents utilized
for such Primary or Secondary Product: the royalty rates due
Licensor on Net
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
3.
<PAGE>
Sales of Primary and Secondary Products by Licensee or its
sublicensees shall be [ * ], that is, [ * ] for Primary Products
and [ * ] on Secondary Products, provided that a method claimed
in a Licensed Patent was utilized in the discovery or development
of such Primary or Secondary Product prior to expiration of such
Licensed Patent. Payment of such reduced royalties to Licensor
shall continue until the last to expire of Licensee's patents, if
any, on such Primary and/or Secondary Products, but in no event
shall full-rate and/or reduced royalties be paid for more than
[ * ] years in the aggregate from the First Commercial Sale (as
hereinafter defined) of any Primary or Secondary Product.
If, upon the last to expire of Licensed Patents utilized in
the discovery or development of such Primary or Secondary
Product, Licensee has no issued patents but has (i) pending
applications covering the Primary and/or Secondary Product, or
(ii) files an application(s) covering such Product within [ * ]
of the expiration date of the applicable Licensed Patent,
Licensee's obligation to pay reduced royalties on such Primary or
Secondary Product shall continue until (i) the last to expire of
any patents issuing on such application, or if no such patents
issue (ii) [ * ] years from the expiration of the last of the
aforementioned Licensed Patents, as the case may be; provided
that [ * ]. Licensee shall promptly notify Licensor of each
Primary or Secondary Product discovered or identified during the
life of the Licensed Patents and shall further promptly notify
Licensor of
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
4.
<PAGE>
any and all applications for patent and/or patents on such
Primary and Secondary Products and provide to Licensor copies of
such applications and/or patents.
"Net Sales" shall mean the gross amounts received by Licensee, or its
sublicensees, for the commercial sale of Primary or Secondary Products, whether
invoiced or not, less: returns and allowances actually granted, packing,
insurance, freight out, taxes or excise duties imposed on the transaction (if
included in the gross amount received by Licensee), wholesaler discounts and
cash discounts.
Should marketing of a Primary or Secondary Product require the payment
of a royalty to Licensor under any license agreement executed between Licensor
and Licensee upon exercise of the rights granted to Licensee under the Research
Agreement, then [ * ].
Anything in this Section III. to the contrary notwithstanding, in no event
shall [ * ] require the payment of a royalty to Licensor.
B. Sublicensing Payments
---------------------
In the event Licensee enters into any agreement sublicensing rights under
the Licensed Patents, Licensee shall make the following payments with respect to
the sublicensed rights, in addition to the royalties set forth in Section III.A.
of this Agreement. The sublicensing payments to Licensor shall be determined by
the type of sublicensing agreement Licensee proposes to enter, as set forth
below:
1. For sublicensing agreements where no collaborative efforts
between Licensee and its sublicensee are undertaken [ * ],
Licensee shall pay to Licensor [ * ] of Sublicense Revenue (as
defined below), less Licensee's
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
5.
<PAGE>
Fully Burdened Costs (as defined below). "Sublicense Revenue"
shall mean [ * ]. "Fully Burdened Costs" as used above shall
include all [ * ]. In no event shall Fully Burdened Costs [ * ].
Each statement under Section III.B. shall specify the amount
of "Fully Burdened Costs" in connection with each sublicensing
agreement and shall be certified by an officer of Licensee, and
the calculation thereof shall be subject to review by Licensor.
2. For sublicensing arrangements [ * ] the "Transaction
Technology"). If the determined percentage contribution of the
Licensed Patents to the Transaction Technology is [ * ], then
Licensee shall pay to Licensor [ * ]. If the determined
percentage contribution of the Licensed Patents to the
Transaction Technology is less than [ * ], then Licensee shall
pay to Licensor [ * ] multiplied by the [ * ]. In the event the
parties cannot agree upon a fair apportionment within sixty (60)
days of the date Licensee notifies Licensor of the terms of the
sublicense agreement, the matter will be subject to arbitration
in accordance with Section XI.F. of this Agreement.
C. First Commercial Sale
---------------------
Licensee will notify Licensor within thirty (30) days of the First
Commercial Sale of each royalty-bearing Primary and Secondary Product. By "First
Commercial Sale" is intended the initial transfer by Licensee or a sublicensee
of a Primary or Secondary Product for cash or a cash equivalent.
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
6.
<PAGE>
D. Payments And Records
--------------------
Beginning with the date of the First Commercial Sale, Licensee shall pay to
Licensor the royalties due within ninety (90) days of the end of each calendar
half-year. Accompanying the payment will be a statement of the sales of Primary
and Secondary Products by Licensee and the applicable royalties in sufficient
detail to allow Licensor to calculate the royalties due. Licensee shall keep
accounts and records in sufficient detail to enable Licensor to determine
royalties due for sales of Primary and Secondary Products by Licensee and its
sublicensees.
Licensee agrees to make such records available for inspection by Licensor
or its authorized representative at such place or places where such records are
customarily kept upon reasonable notice and at reasonable hours of the day
during which the offices of Licensee shall be open for business. Licensor agrees
to hold strictly confidential in accordance with Section XI.C. all information
learned in the course of any audit or inspection hereunder, except to the extent
that it is necessary for Licensor to reveal such information in order to enforce
rights under this Agreement or to comply with the law. In any license from
Licensee to a third party for the making, using, offering for sale, selling
and/or importing of Primary and/or Secondary Products, Licensee shall provide
that such sublicensee shall assume substantially similar obligations as assumed
by Licensee for reporting and to allow for inspection by Licensor to determine
whether the royalties paid are correct. Within [ * ] of the expiration of the
term of this Agreement as provided for in Section VII, Licensee shall provide a
final report as to all royalties due which were not previously reported by
Licensee, accompanied by the payment due. [ * ].
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
7.
<PAGE>
E. Licensing Fees
--------------
In the event the Research Program described in the Research Agreement
terminates under the conditions set forth in Section 2 of the Research
Agreement, the research funding provided for in Section 4.A. of that Research
Agreement shall [*].
IV. DUE DILIGENCE
During the term of this exclusive license, Licensee shall use its
reasonable best efforts to use the Licensed Patents to discover Primary and/or
Secondary Products or, if Licensee itself does not do so, Licensee shall
sublicense to sublicensees that are committed to using their reasonable best
efforts to pursue such Primary or Secondary Products.
V. INDEMNITY
Licensee shall indemnify, hold harmless and defend Licensor from and
against any liability or expense arising from any product liability claim
asserted by any party as to any Primary or Secondary Products, [ * ]. Said
indemnity and defense obligation shall apply to any claims made by employees,
subcontractors, sublicensees or other agents of Licensee, as well as any member
of the general public.
Licensee shall defend, indemnify and hold Licensor harmless from and
against all liability, demands, damages, expenses and losses for death, personal
injury, illness or property damage arising out of the use by Licensee of any
Licensed Patents [ * ]. Licensee will not be obligated to indemnify Licensor
hereunder for the use of the Licensed Patents by others under this Agreement.
Licensee agrees to maintain liability insurance, naming Licensor as an
additional insured, [*], and shall provide evidence of such insurance at
Licensor's request.
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
8.
<PAGE>
Licensee shall have the exclusive right to control the defense of any
action pursuant to this Section V, including the right to select counsel to
defend Licensee and Licensor, and to settle any claim, provided that, without
the written consent of Licensor (which shall not be unreasonably withheld or
delayed), Licensee shall not agree to settle any claim against Licensor to the
extent such claim has a material or adverse effect on the Licensed Patents. The
provisions of this paragraph shall survive and remain in full force and effect
after any termination, expiration or cancellation of this Agreement or the term
of this Agreement as provided for in Section VII and obligations hereunder shall
apply whether or not such claims are rightfully brought.
VI. WARRANTIES; PATENT ENFORCEMENT
A. Disclaimers - Nothing in this Agreement shall be construed as:
1. a warranty or representation by Licensor [ * ]; or
2. a warranty or representation that [ * ]; or
3. an obligation to [ * ]; or
4. conferring by implication, estoppel or otherwise [ * ].
5. Licensor makes no representations other than those specified
herein.
LICENSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
B. Warranties - Each of Licensor and Licensee represent and warrant to
the other that it has the full right and authority to enter into this Agreement
and that this Agreement does not require the consent or approval of any other
person or entity.
[ * ] = Certain confidential information in this document, marked by brackets,
has been ommitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
9.
<PAGE>
C. Patent Enforcement - Each party shall promptly notify the other if it
learns of any infringement by third parties of the Licensed Patents. Licensee
shall have the first right, but not the obligation, to take commercially
reasonable action with respect to such infringement, including but not limited
to bringing and controlling an enforcement action against such third party (in
CSHL's name if necessary). CSHL agrees to provide all reasonable assistance
requested by Licensee in connection with any such action, including but not
limited to being named in such action and providing testimony, for which
Licensee shall reimburse CSHL for its out-of-pocket costs and expenses. Any
damages, judgments or other payments actually recovered from an infringing party
in litigation pursued by Licensee shall be [ * ]. In the event Licensee elects
not to take any action with respect to such infringement, Licensee shall so
notify CSHL and CSHL shall have the right, but not the obligation, to bring an
infringement action on its own behalf [ * ]; provided that only Licensee shall
have the right to grant a (sub)license to any such third party; provided further
that [ * ].
VII. TERM AND TERMINATION
A. Term
----
This Agreement shall expire upon the later of (i) the expiration of the
last to expire Licensed Patent or (ii) the expiration of all payment obligations
under Section III.A or III.B.
B. Termination
-----------
1. This Agreement shall be terminable upon the default of either
party. In the event of default by a party ("Defaulting Party"), the other party
("Non-Defaulting Party") shall give the Defaulting Party written notice of the
default and of its election to terminate this Agreement at the expiration of a
probation period of [ * ] from the date of the notice. If the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
10.
<PAGE>
Defaulting Party fails to resolve the default in the probation period 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, then the Non-Defaulting Party may terminate this Agreement by
giving written notice to the Defaulting Party. The termination will be effective
upon the date specified in the notice. All termination rights shall be in
addition to, and not in substitution for, any other remedies that may be
available to the Non-Defaulting Party. Termination pursuant to this section
shall not relieve the Defaulting Party from liability and damages to the Non-
Defaulting Party for default. Waiver by either party of a single default or a
succession of defaults shall not deprive such party of any right to terminate
this Agreement arising by reason of any subsequent default.
2. This Agreement may be terminated by Licensee by written notice
delivered to Licensor at any time after October 3, 2002, effective one year
after the date of such notice, in the event that Licensee determines that it
will no longer utilize the Licensed Patents.
3. This Agreement may be terminated by Licensee at any time upon
[ * ] prior written notice in the event that [ * ] is, for any reason, unable or
unwilling to continue to serve as Principal Investigator under the Research
Agreement and the parties cannot mutually agree on a successor or alternative
research work to be sponsored under the Research Agreement.
C. Effect of Expiration or Termination
-----------------------------------
Upon the expiration of the term of this Agreement, or any termination of
this Agreement by either Licensor or Licensee prior to the end of such term, the
licenses granted hereunder shall terminate to the extent that Licensee shall no
longer be licensed to practice the Licensed Patents
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
11.
<PAGE>
after the date of termination. The terms of this Agreement applicable to Primary
Products and Secondary Products discovered or developed through use of the
methods claimed in the Licensed Patents prior to the date of termination,
including the royalty provisions, shall continue to apply after termination of
this Agreement.
VII. RESEARCH SITE.
Unless Licensor and Licensee otherwise agree in writing, Licensee shall
[ * ]. Licensee further agrees that [ * ].
IX. ASSIGNMENT
This Agreement shall not be assignable by either of the parties without the
prior written consent of the other party except to a successor-in-interest to
all or substantially all of the business assets of a party hereto, whether by
way of merger, consolidation, sale of all or substantially all of a party's
assets, change of control or similar transaction.
Subject to the limitations on assignment herein, this Agreement shall be
binding upon and inure to the benefits of the successors-in-interest and assigns
of Licensor and Licensee. Any such successors to or assignee of a party's
interest shall expressly assume in writing the performance of all the terms and
conditions of this Agreement to be performed by said party.
X. THIRD PARTY RIGHTS
The Licensed Technology defined by the [ * ] was made with Government
support under contract [ * ] awarded by the National Institute of Health. This
Agreement is subject to the terms and conditions defined therein, including but
not limited to 37 C.F.R. Part 401 and 45 C.F.R. Parts 6 and 8 plus all
Amendments thereto.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
12.
<PAGE>
This Agreement is also subject to the terms of [ * ], a copy of which is
hereby acknowledged to have been provided in confidence by Licensor to Licensee.
XI. GENERAL PROVISIONS
A. Patent Marking
--------------
To the extent required by applicable law, Licensee shall mark all Primary
and Secondary Products in accordance with the patent marking laws of the country
in which such Primary and Secondary Products are manufactured, used, or sold.
B. No Use Of Name
--------------
The use of the name "Cold Spring Harbor Laboratory", or any variations
thereof, in connection with the advertising or sale of products or methods
covered by Licensed Patents is expressly prohibited, except as required by law.
Sponsor may refer to the terms of this Agreement in a bona fide relationship or
prospective relationship with financiers or investors.
C. Confidentiality
---------------
The parties agree that during the term of this Agreement and for a period
of [ * ] after it terminates, a party receiving information from the other party
designated as "confidential" in writing ("Confidential Information") will not
disclose such Confidential Information to any third party or use such
Confidential Information except as provided in this Agreement without prior
written consent. A party shall have no obligations with respect to any portion
of such Confidential Information which:
(1) is publicly disclosed through no fault of any party hereto, either
before or after it becomes known to the receiving party; or
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
13.
<PAGE>
(2) was known to the receiving party prior to the date of this
Agreement which knowledge was acquired independently and not from the other
party; or
(3) is subsequently disclosed to the receiving party in good faith by
a third party who has a right to make such a disclosure; or
(4) has been published by a third party as a matter of right; or
(5) is subsequently independently invented or discovered other than
pursuant to the Research Program by the receiving party without reference to the
other party's Confidential Information.
D. Independent Contractors
-----------------------
The relationship between Licensor and Licensee is that of independent
contractors. Licensor and Licensee are not joint venturers, partners, principal
and agent, master and servant, employer and employee, and have no other
relationship other than independent contracting parties. Licensor shall have no
power to bind or obligate Licensee in any manner, other than as is expressly set
forth in this Agreement. Likewise, Licensee shall have no power to bind or
obligate Licensor in any manner, other than as is expressly set forth in this
Agreement.
E. Entire Agreement; Modification
------------------------------
This Agreement, together with the Research Agreement, sets forth the entire
agreement and understanding between the parties as to the subject matter set
forth in this Agreement. There shall be no amendments or modifications to this
Agreement, except by a written document that is signed by both parties.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
14.
<PAGE>
F. Arbitration
-----------
Any dispute or controversy arising out of or relating to this License
Agreement, its construction or its actual or alleged breach, shall be finally
decided by arbitration conducted in the City and State of New York by and in
accordance with the Licensing Agreement Arbitration Rules of the American
Arbitration Association. The parties agree that any arbitration panel shall
include members knowledgeable as to evaluation of biopharmaceutical technology.
Judgment upon the award rendered may be entered in the highest court or forum,
state or federal, having jurisdiction; provided, however, that the provisions of
this Section shall not apply to decisions on the validity of patent claims or to
any dispute or controversy as to which any treaty or law prohibits such
arbitration.
G. Governing Law
-------------
This Agreement shall be construed and enforced in accordance with the laws
of the State of New York.
H. Headings
--------
The headings for each article and section of this 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.
I. Severability
------------
If any provision of his 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.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
15.
<PAGE>
J. No Waiver
---------
Any delay in enforcing a party's rights under this 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 Agreement,
excepting only as to an express written and signed waiver as to a particular
matter for a particular period of time.
K. Notices
-------
All notices required or permitted to be given by the terms of this
Agreement shall be given by prepaid registered or certified mail return receipt
requested or by facsimile transmission properly addressed to the other party at
the addresses designated below or to such other addresses as may be designated
in writing by such other party and shall be effective upon receipt.
For Licensor: Cold Spring Harbor Laboratory
One Bungtown Road
Cold Spring Harbor, NY 11724
Attn: Assistant Administrative Director
Telefax: (516) 367-8855
For Licensee: Tularik Inc.
Two Corporate Drive
South San Francisco, CA 94080
Attn: President
Telefax: (650) 829-4303
L. Compliance With Laws
--------------------
Nothing contained in this Agreement shall require or permit Licensor or
Licensee 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.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
16.
<PAGE>
COLD SPRING HARBOR LABORATORY TULARIK INC.
By: /s/ John Maroney By: /s/ David V. Goeddel
------------------------------------ ----------------------------------
John Maroney
Assistant Administrative Director David V. Goeddel
----------------------------------
Typed Name
Date: 10/3/97 President & CEO
---------------------------------- ----------------------------------
Title
Date: 10/3/97
----------------------------------
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
17.
<PAGE>
Exhibit 10.12
COLLABORATION AGREEMENT
between
TULARIK, INC.
and
KNOLL AG
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933 as amended.
<PAGE>
Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
COLLABORATION AGREEMENT
This Collaboration Agreement is entered into as of the first day of
November, 1998 (the "Effective Date") by and between Tularik Inc., a Delaware
corporation ("Tularik"), and Knoll Ag, a corporation organized under the laws of
Germany ("Knoll").
Recitals
Whereas, Tularik has developed proprietary screening assays and other
proprietary technology useful in the identification of compounds that directly
agonize or antagonize certain targets for the therapeutic treatment of obesity
and related diseases in humans; and
Whereas, Knoll and Tularik both possess substantial libraries of natural
and synthetic compounds that have potential therapeutic pharmaceutical utility;
and
Whereas, Tularik and Knoll desire to establish a cooperative research
relationship where the compound libraries of each Party will be screened using
the Tularik Assays (as hereinafter defined); and
Whereas, the Parties wish to develop and market novel therapeutic products
based on compounds identified during such research; and
Now, Therefore, in consideration of the foregoing and the covenants and
promises contained herein, the Parties agree as follows:
ARTICLE 1 Definitions
As used herein, the following terms shall have the following meanings:
1.1 "Additional Target" shall mean a Target that is added to Appendix A
pursuant to Section 2.7.2(i) and that it is not a Substitute Target. An
"Additional Target" may or may not also be a [ * ].
1.2 "Affiliate" shall mean any company or entity controlled by,
controlling or under common control with a Party and shall include without
limitation any company fifty percent (50%) or more of whose voting stock or
participating profit interest is owned or controlled, directly or indirectly, by
a Party, and any company that owns or controls, directly or indirectly, fifty
percent (50%) or more of the voting stock of a Party.
1.3 "Agreement" shall mean this Collaboration Agreement.
<PAGE>
1.4 "At Risk" shall mean a Body Mass Index greater than or equal to [ * ]
but less than [ * ], which may be revised from time to time in accordance with
generally accepted international and national scientific practice.
1.5 "Body Mass Index" shall mean weight in kilograms divided by height in
meters squared (kg/m2), as such index shall be revised from time to time in
accordance with generally accepted international and national scientific
practice.
1.6 "Collaboration Program" shall mean the research and development
program in the Field conducted pursuant to this Agreement.
1.7 "Collaboration Program Term" shall mean the period during which the
Collaboration Program is to be conducted as provided in Section 15.1.
1.8 "Commercialization Notice" shall have the meaning set forth in Section
5.1.
1.9 "Compound Libraries" means the Knoll Compound Library, the Tularik
Compound Library and the Research Compound Library.
1.10 "Compound Opportunity" shall have the meaning set forth in Section
2.7.1.
1.11 "Confidential Information" shall mean, subject to the limitations set
forth in Section 13.1 hereof, all information relating to the Collaboration
Program disclosed by one Party to the other Party pursuant to this Agreement.
1.12 "Contribution Royalty" shall mean a royalty determined in accordance
with the procedure set forth in Section 4.4.6.
1.13 "Current Program Target" shall mean one of the Program Targets
included on Appendix A at any given point in time. As of the Effective Date,
the two Current Program Targets are (1) [ * ] and (2) [ * ]. In the event
Additional Targets or Substitute Targets are added to Appendix A pursuant to
Section 2.7.2, at the time such targets are added, they shall be deemed to be
Current Program Targets.
1.14 "Developing Party" shall have the meaning given in Section 4.3.2 of
this Agreement.
1.15 "Development" shall mean the standard, internal program established by
a Party for drug development, which shall commence at the sole discretion of
that Party, but in no event shall such program be considered to have commenced
prior to the start of [ * ].
1.16 "Effective Date" shall have the meaning given in the introductory
paragraph of this Agreement.
1.17 "Extra-Field Products" shall mean products based upon or incorporating
Research Compounds to be commercialized (i) [ * ]; and (ii) [ * ], as set forth
in this Agreement.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
2
<PAGE>
"Extra-Field Products" include Knoll Extra-Field Products, Tularik Extra-Field
Products and Third Party Extra-Field Products.
1.18 "FDA" shall mean the United States Food and Drug Administration.
1.19 "Field" shall mean the research, development and commercialization of
products that are agonists or antagonists of the Program Targets and are useful
in the Indications.
1.20 "FTE" shall mean full-time equivalents.
1.21 "Hit" means a Library Compound that agonizes or antagonizes a Program
Target in an HTS performed as part of the Research Program.
1.22 "HTS" means high throughput screening.
1.23 "IND" stands for "Investigational New Drug Application" and shall mean
an application for approval by the FDA, or the equivalent non-U.S. regulatory
authority, to commence human clinical testing of a drug.
1.24 "Independent Research" shall have the meaning set forth in Section
3.1.2.
1.25 "Indications" means the [ * ] human patients and, in addition, may
include the [ * ]. Treatment shall include any [ * ] used in combination with
Program Products.
1.26 "Inventing Party" means the Party whose employees, agents or
consultants have made an Invention.
1.27 "Invention" means any possibly patentable discovery or invention,
whether patentable or not, made during the course of the Collaboration Program
and within the scope of the Research Plan. Determination of inventorship shall
be made in accordance with the patent laws of the United States of America.
1.28 [ * ]
1.29 [ * ].
1.30 "Knoll Compound Library" means the compound library consisting of
Knoll Substances.
1.31 "Knoll Extra-Field Products" shall mean all Extra-Field Products
synthesized by Knoll or its Affiliates.
1.32 "Knoll Know-How" shall mean all materials, know-how and information
(a) that exists as of the Effective Date, (b) that Knoll owns, controls or to
which it has a license (with the right to sublicense), during the Collaboration
Program Term and (c) that would be infringed or misappropriated by the conduct
of the Research Program or the development, manufacture, use or sale of Program
Products. Knoll Know-How shall not include Knoll Patents.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
3
<PAGE>
1.33 "Knoll Patents" shall mean any and all patents (other than Program
Patents), both foreign and domestic, that have not been held invalid or
unenforceable by a court of competent jurisdiction from which no appeal has been
or can be taken, including without limitation all extensions, reissues,
renewals, reexaminations, supplementary protection certificates and inventors'
certificates, (a) that (i) are issued as of the Effective Date, (ii)
subsequently issue from applications (including substitutions, divisionals,
continuations and continuations-in-part) pending as of the Effective Date or
(iii) issue from any such applications subsequently filed on inventions made as
of the Effective Date, (b) that Knoll owns, controls or to which it has a
license (with the right to sublicense), during the term of this Agreement and
(c) that would be infringed by the conduct of the Research Program or the
development, manufacture, use or sale of Program Products.
1.34 "Knoll Substances" shall mean those natural extracts, natural
compounds and synthetic compounds that either Knoll or its Affiliates owns or
has the right to license or sublicense as of the Effective Date or from time to
time during the Collaboration Program Term independently of the Collaboration
Program.
1.35 "Knoll Technology" shall mean, collectively, the Knoll Know-How, the
Knoll Patents and the Knoll Substances.
1.36 "Knoll Territory" shall mean [ * ].
1.37 "Library Compound" means a compound from a Knoll Compound Library or a
Tularik Compound Library.
1.38 "License Agreement" shall mean the license agreement or agreements to
be entered into between the Parties substantially in the form attached hereto as
Appendix C.
1.39 "NDA" stands for "New Drug Application" and shall mean an application
for regulatory approval by the FDA, or an equivalent non-U.S. authority,
required for the marketing and sale of a pharmaceutical product in a given
jurisdiction.
1.40 "New Target Candidates" shall mean any Target that is not, and has not
been, a Program Target. [ * ].
1.41 "New Targets" shall mean Additional Targets and Substitute Targets.
1.42 "Obese" shall mean a Body Mass Index greater than or equal to [ * ],
which may be revised from time to time in accordance with generally accepted
international and national scientific practice.
1.43 "Overweight" shall mean a Body Mass Index greater than or equal to [ *
] but less than [ * ], which may be revised from time to time in accordance with
generally accepted international and national scientific practice.
1.44 "Party" shall mean either Tularik or Knoll.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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1.45 "Patents" shall mean Program Patents and/or Research Compound Patents.
1.46 "Pharmaceutical Market" shall mean [ * ].
1.47 "Prior Interest" means a compound that, at the time of identification
as a Validated Hit: [ * ].
1.48 "Program Know-How" shall mean any know-how developed by either Party
pursuant to the Collaboration Program during the Collaboration Program Term.
Program Know-How shall not include Program Patents.
1.49 "Program Patents" shall mean any and all patents and patent
applications, both foreign and domestic, that have not been held invalid or
unenforceable by a court of competent jurisdiction in a decision from which no
appeal has been or can be taken, including without limitation all extensions,
reissues, reexaminations, renewals, supplementary protection certificates and
inventors' certificates, which cover inventions or discoveries made by either
Party or both Parties pursuant to the Collaboration Program during the
Collaboration Program Term. Program Patents shall not include any Research
Compound Patents.
1.50 "Program Product" shall have the meaning set forth in Section 5.1.
1.51 "Program Target" shall mean one of the targets included on Appendix A
at any time during the Collaboration Program Term.
1.52 "Program Technology" shall mean all Program Patents and Program Know-
How.
1.53 "Regulatory Approval" means all approvals (including pricing and
reimbursement approvals), product and/or establishment licenses, registrations
or authorizations of any regional, federal, state or local regulatory agency,
department, bureau or other governmental entity, necessary for the manufacture,
use, storage, import, export, transport or sale of Program Products in a
regulatory jurisdiction.
1.54 "RC" shall stand for "Research Committee" and shall mean that
committee formed pursuant to Section 2.2.1 hereof.
1.55 "Research Compound" means any compound that is based upon any Hit and
that is made, created, discovered, identified, invented, synthesized, optimized
or acquired by either Party pursuant to the Research Plan, in the course of the
Collaboration Program or at the direction of the RC.
1.56 "Research Compound Inventions" shall have the meaning given in Section
4.3.
1.57 "Research Compound Library" means all Research Compounds. The Research
Compound Library shall not include any Knoll Substances or Tularik Substances.
1.58 "Research Compound Patents" shall mean any and all patents and patent
applications, both foreign and domestic, that have not been held invalid or
unenforceable by a
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
5
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court of competent jurisdiction in a decision from which no appeal has been or
can be taken, including without limitation all extensions, reissues,
reexaminations, renewals, supplementary protection certificates and inventors'
certificates, which cover Research Compound Inventions made by either Party or
both Parties pursuant to the Collaboration Program during the Collaboration
Program Term. Research Compound Patents shall not include any patents or patent
applications claiming Program Patents.
1.59 "Research Opportunity" shall have the meaning set forth in Section
2.7.1.
1.60 "Research Plan" shall mean a detailed plan for conducting the
Collaboration Program directed toward the Field attached hereto as Appendix B,
as amended from time to time by the RC in accordance with Section 2.3.
1.61 "Research Program" shall mean the components of the Collaboration
Program in the Field occurring prior to the commencement of Development for each
Validated Hit or Program Product, as described in the Research Plan.
1.62 "Screening Library" means the Knoll Compound Library or the Tularik
Compound Library.
1.63 "SC" shall stand for "Steering Committee" and shall mean that
committee formed pursuant to Section 2.2.2 hereof.
1.64 "Section 12.4 Termination" shall have the meaning set forth in Section
15.1.
1.65 "Substitute Targets" shall mean a Target that is substituted for a
Current Program Target pursuant to Section 2.7.2(ii). Thereafter, such
Substitute Target shall be deemed to be a Current Program Target. A "Substitute
Target" may or may not also be a [ * ].
1.66 "Tail Period" shall mean the [ * ] period commencing on the date the
Collaboration Program Term expires or is terminated.
1.67 "Targets" shall mean biochemical components of a system determined by
Tularik to have potential to be agonized or antagonized by Research Compounds or
Library Compounds for use in the Indications.
1.68 "Third Party" shall mean a person or entity other than Tularik, Knoll
or an Affiliate of either Tularik or Knoll.
1.69 "Third Party Extra-Field Products" shall mean all Extra-Field Products
synthesized by a Third Party.
1.70 [ * ].
1.71 "Tularik Assays" shall mean those biochemical and cell-based assays
developed by, or on behalf of, Tularik for the Research Program.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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1.72 "Tularik Compound Library" means the library consisting of Tularik
Substances.
1.73 "Tularik Extra-Field Products" shall mean all Extra-Field Products
synthesized by Tularik or its Affiliates.
1.74 "Tularik Know-How" shall mean all materials, know-how and information
(a) that exists as of the Effective Date, (b) that Tularik owns, controls or to
which it has a license (with the right to sublicense), during the Collaboration
Program Term and (c) that would be infringed or misappropriated by the conduct
of the Research Program or the development, manufacture, use or sale of Program
Products. Tularik Know-How shall not include Tularik Patents.
1.75 "Tularik License Agreement" shall mean a license agreement or license
agreements entered into between the Parties pursuant to this Agreement and
substantially in the form of the License Agreement, with such changes as are
necessary to reflect the grant of licenses from Knoll to Tularik and the
consideration for such licenses described in this Agreement.
1.76 "Tularik Partner" shall mean one or more of: (i) [ * ]; (ii) any
Affiliates of the foregoing; and (iii) any successors of an entity described in
clause (i) or (ii).
1.77 "Tularik Patents" shall mean any and all patents (other than Program
Patents), both foreign and domestic, that have not been held invalid or
unenforceable by a court of competent jurisdiction in a decision from which no
appeal has been or can be taken, including without limitation all extensions,
reissues, renewals, reexaminations, supplementary protection certificates and
inventors' certificates, (a) that (i) are issued as of the Effective Date, (ii)
subsequently issue from applications (including substitutions, divisionals,
continuations and continuations-in-part) pending as of the Effective Date or
(iii) issue from any such applications subsequently filed on inventions made as
of the Effective Date, (b) that Tularik owns, controls or to which it has a
license (with the right to sublicense) during the term of this Agreement and (c)
that would be infringed by the conduct of the Research Program or the
development, manufacture, use or sale of Program Products.
1.78 "Tularik Product" shall have the meaning given in Section 5.3.1.
1.79 "Tularik Substances" shall mean those natural extracts, natural
compounds and synthetic compounds that Tularik owns or has the right to license
or sublicense as of the Effective Date or from time to time during the
Collaboration Program Term independently of the Collaboration Program. "Tularik
Substances" shall not include compounds that (i) prior to the Effective Date, [
* ]; or (ii) are natural extracts, natural compounds or synthetic compounds [ *
] as of the Effective Date or from time to time during the Collaboration Program
Term [ * ].
1.80 "Tularik Technology" shall mean, collectively, the Tularik Assays, the
Tularik Know-How, the Tularik Patents and the Tularik Substances.
1.81 "Tularik Territory" shall mean [ * ].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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1.82 [ * ] shall mean a biochemical component of a system that [ * ] that
is determined by the RC to have potential to be agonized or antagonized by
Research Compounds or Library Compounds for use against the Indications.
1.83 "Validated Hit" means a Library Compound or Research Compound that
agonizes or antagonizes a Program Target in confirmatory screening of Hits as
part of the Research Program.
ARTICLE 2 Program; Development.
2.1 Research Program. Tularik and Knoll shall conduct the Research Program
pursuant to the Research Plan. The goals and progress of the Research Program
shall be determined by and monitored under the direction of the RC as set forth
in Section 2.2. The Parties shall commence the Research Program upon the
Effective Date.
2.2 Research Program Management.
2.2.1 Research Committee ("RC").
(a) Tularik and Knoll will each appoint three (3)
representatives to the RC, which shall exist for the Collaboration Program Term
and then be dissolved.
(b) Each representative to the RC shall have appropriate
technical credentials and knowledge and ongoing familiarity with the Research
Program. Tularik's initial representatives to the RC will be [ * ]. Knoll's
initial representatives to the RC will be [ * ]. Either Party may change any or
all of its appointments to the RC at any time upon giving written notice to the
other Party. Each Party will designate one of its RC representatives to serve as
the liaison between the Parties and to undertake and coordinate any day-to-day
communications as may be required by and between the Parties. Tularik shall
designate the chairperson of the RC.
(c) The RC shall meet semi-annually, or more frequently as
mutually agreed, such agreement not to be unreasonably withheld or delayed,
during the Research Program Term to review the results of the Research Program
and to revise the Research Plan, as needed. The RC will report to the SC on the
outcome of such meetings.
(d) The RC shall carry out the following responsibilities:
(i) defining, periodically revising and recommending to
the SC the yearly objectives of the Research Program;
(ii) co-ordinating activities required to carry out the
Collaboration Program;
(iii) monitoring progress of the Collaboration Program;
(iv) delegating responsibility for the filing and
prosecution of Program Patents on inventions jointly discovered in the course of
the Collaboration Program Term; and
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
8
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(v) recommending Validated Hits according to the Research
Plan to the SC for Development.
All actions taken and decisions made by the Research Committee shall be by
unanimous agreement.
2.2.2 Steering Committee.
(a) Each Party shall appoint two (2) representatives to the SC,
which shall exist for the Collaboration Program Term and then be dissolved.
(b) Tularik's initial representatives to the SC will be its [ *
]. Knoll's initial representatives to the SC will be [ * ]. Either Party may
change its appointments to the SC at any time upon giving written notice to the
other Party. Knoll shall designate the chairman of the SC.
(c) The SC will meet promptly after the Effective Date to
establish such procedures and mechanisms as may be necessary for the operation
of the SC and the RC to assure the efficient conduct of the Research Program.
Thereafter, the SC will meet annually, or as otherwise mutually agreed, such
agreement not to be unreasonably withheld or delayed, during the Collaboration
Program Term.
(d) The SC shall have the authority to:
(i) recommend that Knoll approve or not approve the
annual Research Plan based on recommendations made by the RC;
(ii) recommend Validated Hits for Development by Knoll;
and
(iii) resolve disputes within the RC.
(e) Decisions of the SC shall be unanimous; [ * ].
(f) Anything in Section 2.2.2(e) to the contrary
notwithstanding, the following decisions require the unanimous vote of the SC:
(i) [ * ];
(ii) [ * ];
(iii) [ * ]; and
(iv) [ * ].
2.2.3. Meetings. The SC and the RC may meet by telephone or in person at
such times as are agreeable to the members of each such committee. The location
of each SC and RC meeting will be determined alternately by each Party, with
each Party bearing the expenses of its representatives attending SC or RC
meetings. Tularik will determine the location of the first meeting of each
committee. Members of a committee may be represented at any meeting by another
member of the committee, or by a deputy, either of whom may cast the absent
member's vote. The SC and
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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RC shall issue agendas in advance of each meeting. The chairperson shall appoint
someone to keep accurate minutes of the meetings, which shall be effective upon
approval of the other Party, such approval not to be unreasonably withheld or
delayed.
2.3 Research Program Review and Amendment. The RC will periodically
review the Research Program, including all screening results and new
developments regarding the Field, and propose changes to the Research Plan based
upon the results of prior work and new developments in the Field.
2.4 Screening and Development. For the purpose of identifying Validated
Hits that are suitable for designation as Program Products for development
within the Field, Tularik shall develop and perform the Tularik Assays during
the Collaboration Program Term to determine: (i) [ * ] of Library Compounds and
Research Compounds; and (ii) [ * ] of such Library Compounds and Research
Compounds. In addition, Tularik shall provide to Knoll the Tularik Assays to
enable Knoll to perform screening of Knoll Substances during the Collaboration
Program Term to identify Validated Hits that are suitable for designation as
Program Products for use in the Field.
2.5 Validated Hit Optimization. Both Parties shall undertake, under the
direction of the RC, target validation, medicinal chemistry, pharmacological
profiling and other preclinical activities with respect to Validated Hits and
otherwise as set forth in the Research Plan. Knoll shall perform such further
preclinical or other activities as shall enable it to prepare one or more
Validated Hits for Development; provided, however, that [ * ] on any Research
Compound or Library Compound within the Field shall not be commenced by or on
behalf of Knoll until [ * ].
2.6 Exchange of Data. All data and information obtained by either Party
pursuant to the Research Program will be provided to the RC. Tularik shall
apprise Knoll promptly following the discovery of compounds with [ * ];
provided, however, that the foregoing obligation shall terminate upon [ * ].
Knoll acknowledges and agrees that Tularik shall [ * ]; provided, however, that
Tularik shall not [ * ] will exchange data relating to Validated Hits [ * ] for
no additional fee or cost; provided, however, that the foregoing shall not
constitute an obligation to exchange reports compiled for submission to
authorities to receive Regulatory Approvals. The Parties may also make such
data available to their respective licensee(s) in the Field subject to the
payment of a reasonable fee to be separately agreed at the time such data is
made available to such licensee(s); provided, however, such data shall not be
made available to licensees until each has executed a standard confidentiality
agreement with respect thereto.
2.7 New Targets.
2.7.1 Tularik may, in its sole discretion, (i) [ * ] New Target
Candidates; (ii) [ * ] to determine whether compounds from the Tularik Compound
Library agonize and/or antagonize such New Target Candidates; and/or (iii) [ * ]
with respect to compounds that agonize and/or antagonize such New Target
Candidates. In the event Tularik determines, in its sole discretion, to [ * ]
as of the Effective Date, the opportunity: (A) to [ * ] a New Target Candidate
(a "Research Opportunity"); or (B) to [ * ] a New Target Candidate (a "Compound
Opportunity"); Tularik shall [ * ] in a written notice reasonably describing
such [ * ], or such [ * ] shall have no obligation to offer to Knoll any: (Y) [
* ]; or (Z) [ * ]; in which case Tularik shall
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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be obligated to offer to Knoll such [ * ] or such Compound Opportunity that
relates to such compound that [ * ].
2.7.2 In the event Tularik offers to Knoll a Research Opportunity
pursuant to Section 2.7.1, Knoll shall, within [ * ] of receipt of such written
notice, inform Tularik in writing whether Knoll: (i) wishes to [ * ]; (ii)
wishes to [ * ]; or (iii) does not wish to [ * ].
2.7.3 In the event Knoll elects the option contained in Section 2.7.2(i)
above, and the Research Opportunity relates to a New Target Candidate that is
not a [ * ], (i) Knoll shall pay Tularik [ * ] upon signing of the amended
Appendix A and (ii) Knoll shall [ * ], and such New Target Candidate shall be
added to Appendix A as [ * ];
2.7.4 In the event Knoll elects the option contained in Section 2.7.2(i)
above, and the Research Opportunity relates to a New Target Candidate that is a
[ * ], Knoll shall [ * ] and such New Target Candidate shall be added to
Appendix A as [ * ];
2.7.5 In the event Knoll elects the option contained in Section 2.7.2(ii)
above, Knoll shall not be required to [ * ] such New Target Candidate and such
New Target Candidate shall be added to Appendix A as [ * ]. Upon addition of a
New Target Candidate to Appendix A as a [ * ], one of the then-Current Program
Targets selected by the RC shall be [ * ] and Tularik may [ * ], both within and
outside of the Field, resulting from research relating to such Current Program
Target that has been deleted from Appendix A, either alone or with any Third
Party, [ * ]. Promptly after designation of a New Target Candidate as a [ * ]
hereunder, Knoll shall enter into a sole and exclusive, worldwide license with
Tularik, with the right to sublicense, under Knoll Patents and under Knoll's
interest in any Patents to make and use the [ * ] for research purposes and to
develop, make, have made, use, offer to sell, sell or import any products, both
within and outside of the Field, resulting from research relating to such [ * ],
subject to [ * ].
2.7.6 In the event Knoll elects the option contained in Section 2.7.2(iii),
Tularik may perform research relating to, and/or develop and commercialize,
products, both within and outside of the Field, resulting from research relating
to such [ * ], either alone or with any Third Party without [ * ]. Additionally,
if Knoll elects the option contained in Section 2.7.2(iii), Knoll shall provide
to Tularik all relevant scientific data and information generated by Knoll in
the course of evaluating such [ * ].
2.7.7 In the event Tularik offers to Knoll a [ * ] pursuant to Section
2.7.1, Knoll shall have a first right to [ * ] an exclusive, royalty-bearing
license to develop, make, have made, use, offer for sale, sell and import the [
* ] as described in this Section 2.7.7. Knoll shall provide written notice to
Tularik if Knoll wishes to exercise such right to negotiate for such [ * ] of
receipt by Knoll of the written notice provided by Tularik pursuant to Section
2.7.1. During the [ * ] period following receipt by Tularik of such written
notice, Knoll and Tularik shall negotiate in good faith regarding the terms and
conditions of such license; provided, however, that [ * ]. In the event Knoll
and Tularik are unable to agree upon mutually acceptable terms for any such
license or in the event that Knoll elects not to pursue the [ * ], Tularik may
develop and commercialize the [ * ] both within and outside of the Field, either
alone or with any Third Party, without any further obligation to Knoll.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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2.8 Due Diligence. Each Party shall devote commercially reasonable
efforts to its obligations under the Collaboration Program.
2.9 Research License.
2.9.1 Grant of Rights. Each Party hereby grants to the other Party a
non-exclusive license, without the right to sublicense (except to Affiliates of
Knoll that enter into the agreement with Tularik attached as Exhibit 2.9.1 or as
provided in the following sentence), under its interest in the Program
Technology, Knoll Technology or Tularik Technology, respectively, to the extent
applicable to the Field, for the purpose of conducting the Collaboration
Program. Knoll agrees that Tularik may sublicense [ * ] such non-exclusive
licenses for use in the research program [ * ] during the term of [ * ];
provided, however, that the foregoing right to [ * ] shall not apply unless: [
* ].
2.9.2 Limited Use. Each Party acknowledges and agrees that use of the
Library Compounds provided pursuant to Sections 4.1 and 4.2 is limited solely to
those activities contemplated by the Collaboration Program, unless otherwise
provided for in this Agreement, and that such Library Compounds are for research
use only and shall not be administered to humans in any manner or form, except
in accordance with the terms of this Agreement, subject to receipt of
appropriate governmental approvals for such use.
2.9.3 Use of a Party's Own Substances. Notwithstanding anything to
the contrary in Sections 2.4 and 2.9.2, but subject to Section 4.4, Knoll shall
retain the right to use freely Knoll Substances and Tularik shall retain the
right to use freely Tularik Substances, as the case may be, that are not Program
Products for purposes outside the Field and to file patent applications covering
any resulting inventions useful outside the Field. If a Commercialization Notice
is given and a Library Compound becomes a Program Product, such Library Compound
shall be removed from the Screening Library from which such Library Compound
originated until such time as a Party ceases using commercially reasonable
efforts to develop and market such Program Product.
2.10 List of Validated Hits. Knoll shall provide to Tularik a list of
Validated Hits in which Knoll has an interest for developing Program Products
based thereon within [*] after (i) expiration or termination of
the Collaboration Program; or (ii) receipt of the payments required by Section
5.3.3(A), (B) or (C).
ARTICLE 3 Collaboration Program.
3.1 Exclusivity/Third Party Agreements.
3.1.1 Exclusivity. The Parties shall work exclusively with each other
in the Field during the Collaboration Program Term, except as expressly provided
in this Article 3. Any research and development being conducted by the Parties
to discover and develop compounds having activity in the Field as of the
Effective Date shall be included as part of the Collaboration Program. During
the Collaboration Program Term, neither Party will develop or commercialize a
product in the Field other than pursuant to this Agreement. Anything in this
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of this Securities Act of 1933, as amended.
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<PAGE>
Article 3 to the contrary notwithstanding, the activities of [ * ], shall not be
deemed to violate the provisions of Article 3.
3.1.2 Activities Relating to the Field. Except as provided in this Section
3.1, neither Tularik nor Knoll shall, during the Collaboration Program Term, (a)
[ * ] pursuant to any agreement with any Third Party (collectively, "Third Party
Technology") or (b) [ * ] or (c) [ * ] outside the Research Program
("Independent Research"). Independent Research shall not include research [ * ].
3.1.3 Joint Decision-Making Process for Third Party Technology. If either
Party wishes to acquire or use any Third Party Technology or conduct or fund any
Independent Research, it shall present such opportunity to the SC. If the SC
wishes to include such Third Party Technology or Independent Research in the
Research Program, then the Parties shall mutually agree in writing on the terms
under which such Third Party Technology or Independent Research will be
incorporated into the Research Program; provided, however, that Knoll's
collaboration with [ * ] regarding [ * ] shall be included as Independent
Research under the Research Program to the extent permissible according to the
contractual arrangement between Knoll and [ * ]. If an agreement between a Party
and any Third Party is relevant to such decision, it shall be disclosed in full
to the other Party to the extent permissible under such Third Party agreement.
Each Party acknowledges that any rights that a Party obtains pursuant to any
such Third Party agreements that are incorporated into the Research Program are
and shall be subject to the terms of such agreements, notwithstanding any
provisions of this Agreement. If the SC does not agree to include such Third
Party Technology or Independent Research in the Research Plan on mutually-
agreeable terms, then the provisions of Section 3.1.5 shall apply.
3.1.4 Re-Presentation to SC. If a Party proposes to acquire Third Party
Technology and the SC does not agree unanimously to acquire such Third Party
Technology, then either Party may negotiate such an agreement with such Third
Party; provided, however, that the negotiating Party shall again present such
opportunity to the other Party pursuant to Section 3.1.3 promptly following
execution of such agreement.
3.1.5 Outside Activities. If the SC does not agree to include any
particular Third Party Technology or Independent Research in the Research Plan,
then, subject to Section 3.1.4, either Party may conduct or fund such
Independent Research, or use such Third Party Technology, outside the Research
Program (the "Outside Activities"); provided, however, that [ * ]. Should any [
* ] be imposed upon such activities or Program Products, the Party conducting
the Outside Activities shall indemnify the other Party for any [ * ]; provided,
however, that the other Party shall take commercially reasonable steps, if any
are possible or practical, to [ * ]; and provided further that the other Party
permits [ * ]. If a Party conducts or funds Independent Research outside the
Research Program, then such Party may not [ * ], except with the prior written
consent of the other Party, which consent may be withheld in its sole
discretion. Following the issuance of a Commercialization Notice with respect to
a Validated Hit or Program Product, and for so long as the Development of such
Program Product is conducted by Knoll in accordance with Section 5.4 hereof and
Section 2.1.2 of the License Agreement, Tularik shall [ * ].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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3.2 Third Party Agreements. Except as provided in Section 3.1.5 but
subject to Section 4.1 of the License Agreement, Knoll shall be responsible for
fulfilling all obligations of either Party or both Parties to Third Parties,
including but not limited to financial obligations, arising with respect to the
development and commercialization of Program Products in the Knoll Territory
(but not Third Party obligations arising with respect to research activities,
which Third Party obligations shall be fulfilled in accordance with Section 3.1)
under agreements with Third Parties relating to Third Party Technology,
Independent Research or any other agreements between either Party or both
Parties and Third Parties; provided, however, that such Third Party agreement
has been approved by the SC in accordance with Section 3.1.3.
ARTICLE 4 Compound Libraries And Research Compounds.
4.1 Knoll Compound Library. The Knoll Compound Library shall be used in
HTS against the Current Program Targets. Knoll shall provide structural
information on Validated Hits from the Knoll Compound Library within [ * ]. The
Knoll Compound Library shall be treated as Knoll's Confidential Information. In
no event shall [ * ]
4.2 Tularik Compound Library. The Tularik Compound Library shall be used
in HTS against the Current Program Targets. Except for the research license
granted to Knoll contained in Section 2.9.1, Knoll shall have no rights to make,
use or sell Tularik Substances in the Knoll Territory unless a Tularik Substance
becomes a Program Product and the Parties execute a License Agreement therefor
following a Commercialization Notice pursuant to Section 5.1. Tularik shall
provide structural information to Knoll on Validated Hits from the Tularik
Compound Library within [ * ]. The Tularik Compound Library shall be treated as
Tularik's Confidential Information.
4.3 Research Compound Library.
4.3.1 Ownership of Research Compounds. Subject to this Section
4.3, all Research Compounds and all Inventions relating to the composition or
use of Research Compounds ("Research Compound Inventions"), whether made solely
by a Party or jointly by both Parties, shall be jointly owned by the Parties
without regard to whether such Research Compound resulted from the optimization
of a Knoll Substance or Tularik Substance. Each Party agrees to execute, or have
its employees, agents or consultants execute, all paperwork necessary to
effectuate any such assignment necessary to achieve such joint ownership of
Research Compounds and Research Compound Inventions. Research Compound Patents
shall be jointly owned by the Parties and shall be prosecuted in accordance with
Section 8.2 hereof. The RC shall establish a common numbering system for the
Research Compounds to allow the Parties to coordinate their activities with
respect to such Research Compounds. Knoll expressly acknowledges that Tularik
may, as joint owner of Research Compound Inventions, [ * ] a license under
such Research Compound Inventions to make, have made, use, sell, have sold,
import and have imported Research Compounds and Program Products in the Tularik
Territory; provided, however, that the foregoing right to grant a license [ * ]
shall not apply unless: [ * ].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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4.3.2 Development of Extra-Field Products.
(a) The Parties intend that: (i) [ * ] may develop and market a Tularik
Extra-Field Product for use within the Pharmaceutical Market; (ii) [ * ] may
develop and market a Knoll Extra-Field Product for use within the Pharmaceutical
Market; (iii) [ * ] may develop and market any Knoll Extra-Field Product or
Tularik Extra-Field Product for use outside of the Pharmaceutical Market; and
(iv) [ * ] may develop and market a Third Party Extra-Field Product for use
within or outside the Pharmaceutical Market. A Party that is developing any
Extra-Field Product for any such use, or a Tularik Product, as the case may be,
shall be the "Developing Party" with respect to such Extra-Field Product and
such use or Tularik Product, as the case may be. If [ * ] desires to develop a
Tularik Extra-Field Product for use within the Pharmaceutical Market, [ * ]
shall disclose in writing to [ * ] the number assigned to the Research Compound
upon which such Tularik Extra-Field Product is based prior to [ * ] with respect
to such Tularik Extra-Field Product. Knoll shall disclose to Tularik the number
assigned to the Research Compound upon which: (i) a [ * ] is based, prior to [ *
] with respect to such [ * ]; or (ii) an Extra-Field Product for [ * ]. The
Developing Party shall disclose to the non-Developing Party the number assigned
to the Research Compound upon which: (i) a Third Party Extra-Field Product is
based, prior to [ * ] with respect to such Third Party Extra-Field Product; or
(ii) a Third Party Extra-Field Product for [ * ].
(B) The Parties shall not at any time [ * ]; provided, however, that
Knoll may, in accordance with Section 4.4.3, commercialize [ * ]; provided
further that Tularik may commercialize [ * ]. If a Developing Party ceases to
use commercially reasonable efforts to develop or market [ * ], then the other
Party may thereafter commence development and commercialization of such [ * ].
(C) Notwithstanding any other provision of this Agreement: (i) the
Developing Party shall not commence [ * ] until the Developing Party has
notified the other Party of its intention to develop such [ * ] for such use in
accordance with Section 4.3.2(a) and has executed a license agreement in the
form of the License Agreement or Tularik License Agreement as provided in
Section 4.4.1; (ii) Knoll shall not commence [ * ] of its intention to develop
such Knoll Extra-Field Product for such use in accordance with Section 4.3.2(a)
and has executed a license agreement as provided in Section 4.4.2; (iii) Knoll
shall not commercialize any [ * ] until Knoll shall have notified Tularik in
accordance with Section 4.3.2(a) and executed a license agreement with respect
thereto as provided in Section 4.4.4; and (iv) the Developing Party shall not
commence [ * ], until the Developing Party has notified the other Party of its
intention to develop such Third Party Extra-Field Product for such use in
accordance with Section 4.3.2(a). [ * ].
4.3.3 Use of Research Compounds During the Collaboration Program Term.
During the Collaboration Program Term: (a) each Party may use Research Compounds
in HTS as provided in Section 2.4 and otherwise to accomplish the purposes of
the Collaboration Program; (b) all data generated on Research Compounds as part
of the Research Program shall be made available to each Party; and (c) Knoll and
Tularik shall each provide to the other Party at such other Party's request
aliquots of Research Compounds that Knoll or Tularik have synthesized or have
been synthesized by a Third Party at the direction of
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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the RC. Notwithstanding Section 4.3.2, during the Collaboration Program Term,
if Tularik is the non-Developing Party with respect to such Research Compound,
Tularik shall [ * ], and shall have a license for such Tularik Extra-Field
Product under Section 4.3.5(b); provided, however, that Tularik shall [ * ].
4.3.4 Use of Research Compounds Following the Collaboration Program Term.
After the Collaboration Program Term, subject to Sections 4.3.2, 4.3.5, 4.4,
5.1, 5.2 and 5.3, (i) [ * ] may use Research Compounds to research, develop and
commercialize [ * ] in any manner the Developing Party deems appropriate; (ii) [
* ] may use Research Compounds to research, develop and commercialize [ * ] in
any manner [ * ] deems appropriate; (iii) [ * ] may use Research Compounds to
research, develop and commercialize [ * ] in any manner [ * ] deems appropriate;
(iv) [ * ] may use Research Compounds synthesized by Third Parties to
research, develop and commercialize [ * ] in any manner [ * ] deems appropriate;
and (v)(A) Tularik may use Research Compounds synthesized by Tularik in HTS; (B)
Knoll may use Research Compounds synthesized by Knoll in HTS; and (C) each Party
may use Research Compounds synthesized by a Third Party in HTS. The right to
develop and commercialize [ * ] identified through HTS pursuant to this Section
4.3.4 shall be as provided in Section 4.3.2. Each Party hereby covenants and
agrees to disclose to the other Party within [ * ] following completion of HTS
the relevant results of HTS performed pursuant to Section 4.3.4(v)(A)-(C);
provided, however, that neither Party shall be obligated to [ * ] from the
expiration or termination of the Collaboration Program Term. Research Compounds
synthesized by a Party that are based upon Research Compounds synthesized by a
Third Party shall be considered the Research Compounds of such Party.
4.3.5 Cross-License to [ * ].
(a) Promptly following receipt by Tularik of a notice from Knoll
pursuant to Section 4.3.2(a), Tularik shall grant to Knoll a sole and exclusive,
worldwide, royalty-bearing (in accordance with Section 4.4) license, with the
right to sublicense [ * ], under the Tularik Patents and under Tularik's
interest in any Patents to develop, make, have made, use, offer to sell, sell or
import [ * ], subject to the terms of Section 4.3. Any such license granted
with respect to [ * ] granted to Knoll pursuant to this Section 4.3.5(a) shall
be in the form of the License Agreement, subject to Section 4.4. The license
granted pursuant to this Section 4.3.5(a) shall survive the termination of this
Agreement.
(b) Promptly following receipt by Knoll of a notice from Tularik
pursuant to Section 4.3.2(a), Knoll shall grant to Tularik a sole and exclusive
worldwide, royalty-bearing (in accordance with Section 4.4.1) license, with the
right to sublicense, under the Knoll Patents and under Knoll's interest in any
Patents to develop, make, have made, use, offer to sell, sell or import [ * ],
subject to the terms of Section 4.3. The license granted pursuant to this
Section 4.3.5(b) shall be in the form of the Tularik License Agreement, subject
to Section 4.4. The license granted pursuant to this Section 4.3.5(b) shall
survive the termination of this Agreement.
(c) Promptly following receipt by the non-Developing Party of a
notice from the Developing Party pursuant to Section 4.3.2(a), the non-
Developing Party shall
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 Of the Securities Act of 1933, as amended.
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grant to the Developing Party a sole and exclusive worldwide, royalty-free
license, with the right to sublicense, under the non-Developing Party's Patents
and under the non-Developing Party's interest in any Patents to develop, make,
have made, use, offer to sell, sell or import [ * ], subject to the terms of
Section 4.3. The license granted pursuant to this Section 4.3.5(c) shall be in
the form (excluding financial terms) of the License Agreement or the Tularik
License Agreement, as the case may be. The license granted pursuant to this
Section 4.3.5(c) shall survive the termination of this Agreement.
4.4 Payments for Extra-Field Products.
4.4.1 Tularik Extra-Field Products Within the Pharmaceutical Market.
A license granted with respect to Tularik Extra-Field Products within the
Pharmaceutical Market pursuant to Section 4.3.5(a) or 4.3.5(b) shall provide for
the payment by [ * ] of both royalties based on net sales of such Tularik Extra-
Field Products and milestone payments with respect to such Tularik Extra-Field
Products in the amounts provided in Sections 4.1 and 4.2 of the License
Agreement.
4.4.2 Knoll Extra-Field Products Within the Pharmaceutical Market.
Any license granted with respect to Knoll Extra-Field Products within the
Pharmaceutical Market pursuant to Section 4.3.5(a) shall [ * ].
4.4.3 Tularik Extra-Field Products Outside the Pharmaceutical Market.
Except as provided in Section 4.4.5, any license granted with respect to Tularik
Extra-Field Products outside the Pharmaceutical Market pursuant to Section
4.3.5(a) shall [ * ].
4.4.4 Knoll Extra-Field Products Outside the Pharmaceutical Market.
Except as provided in Section 4.4.5, any license granted with respect to Knoll
Extra-Field Products outside the Pharmaceutical Market pursuant to Section
4.3.5(a) shall be [ * ].
4.4.5 Sublicenses by [ * ] of Extra-Field Products Outside the
Pharmaceutical Market. Any sublicense granted by [ * ] with respect to Extra-
Field Products outside the Pharmaceutical Market pursuant to Section 4.3.5(a):
(a) as part of a transaction in which rights in such Extra-Field Products
outside the Pharmaceutical Market are exchanged for rights in the products of a
Third Party outside the Pharmaceutical Market shall [ * ]; or (b) as part of any
other transaction shall be subject to the payment by [ * ] of revenues received
by [ * ] from a Third Party in consideration for the grant of a sublicense under
such rights. In no event shall a sublicense granted by [ * ] to an Affiliate of
[ * ] with respect to Extra-Field Products outside the Pharmaceutical Market
pursuant to Section 4.3.5(a) be subject to any payment to Tularik by [ * ] or
such Affiliate of [ * ].
4.4.6 Contribution Royalties. A Party shall provide written notice to
the other Party that such Party desires to obtain a license as provided in
Section 4.3.5 or 5.3 with respect to an Extra-Field Product or a Tularik
Product. Within [ * ] following receipt of such notice, the Parties shall meet
to negotiate in good faith the terms and conditions of such license. Such good
faith negotiation shall continue for a period of [ * ]. In the event the
foregoing negotiation shall not result in an agreement on the terms and
conditions of such license, the Parties shall select three mutually acceptable
arbitrators (the "Arbitrators") to determine the Contribution Royalty.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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One (1) of the three (3) Arbitrators shall be selected by Knoll, one (1) of the
Arbitrators shall be selected by Tularik and the third Arbitrator, who shall act
as chairperson, shall be selected by the mutual agreement of the other two (2)
Arbitrators within thirty (30) days of their selection; provided, however, if
within such time period the first two (2) selected Arbitrators are unable to
agree on a third member of the arbitration panel, such third member shall be
appointed by the President of the American Arbitration Association as soon as
practicable thereafter. The three (3) Arbitrators shall have relevant
biotechnology and/or pharmaceutical industry experience. Each Party shall submit
to the other Party and the Arbitrators, within [ * ] of the selection of the
chairperson of the Arbitrators, such Party's written proposal of the appropriate
royalty to be paid to the non-Developing Party, along with calculations
supporting such proposal. Such royalty estimates shall take into account [ * ].
Such royalty estimates shall reflect those royalty rates that are reasonable and
customary within the marketplace in which such Extra-Field Product shall be
sold. At the request of either Party, the Arbitrators shall hold a hearing to
determine the appropriate royalty rate. The Arbitrators shall rule on the
royalty estimate within [ * ] following the later to occur of receipt of such
estimates from the Party or such hearing. Such ruling shall [ * ]. The
Arbitrators shall [ * ]. Any arbitration herewith shall be conducted in the
English language to the maximum extent possible. Each Party shall bear its own
costs and attorneys' fees. A royalty percentage negotiated by the Parties or
determined by the Arbitrators in accordance with the procedure set forth in this
Section 4.4.6 shall be considered a "Contribution Royalty."
ARTICLE 5 Commercialization Of Program Products.
5.1 Commercialization Notice. Subject to Sections 5.2 and 5.4 below, at
any time prior to the initiation of [ * ] for a Validated Hit for use within the
Field in the Knoll Territory by or on behalf of Knoll, Knoll may notify Tularik
("Commercialization Notice") of its intention to develop and, if results of the
human clinical studies justify, to prepare and file an NDA for and commercialize
products based upon or incorporating such Validated Hit for use within the Field
in the Knoll Territory. Knoll may provide to Tularik a Commercialization Notice
on compounds with confirmed activity against [ * ] that would qualify as
Validated Hits had such compounds been discovered under this Agreement;
provided, however, that the foregoing right to provide a Commercialization
Notice on compounds discovered pursuant to [ * ]. Promptly after Tularik's
receipt of each Commercialization Notice, Tularik and Knoll shall enter into a
License Agreement with respect to the Validated Hit described in such
Commercialization Notice within the Field in the Knoll Territory and all
products based upon or incorporating such Validated Hit shall become, for all
purposes, collectively, a "Program Product". Knoll acknowledges and agrees that
[ * ]; provided, however, that [ * ].
5.2 Additional Program Products. Knoll may elect to issue multiple
Commercialization Notices, enter into additional License Agreements with Tularik
and undertake development of more than one Program Product; provided, however,
that, except as provided in Section 5.3.3, the Commercialization Notice for each
Validated Hit shall be given prior to [ * ]; provided further that any
Commercialization Notice given [ * ].
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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5.3 Rights to Validated Hits.
5.3.1 Tularik Products. In the event that Knoll: (i) does not provide
to Tularik a Commercialization Notice for a Validated Hit prior to [ * ] as
required by Sections 2.5 and 5.1; (ii) does not provide to Tularik a
Commercialization Notice for a Validated Hit prior to [ * ]; (iii) determines to
[ * ]; (iv) fails to [ * ] set forth in Section 5.4 hereof or Section 2.1.2 of
the License Agreement; or (v) does not provide to Tularik a Commercialization
Notice for a Validated Hit prior to [ * ] from the date upon which Knoll
completes [ * ] with respect to such Validated Hit as required by Section 5.4,
Knoll:
(a) shall not commercialize in the Field products based upon or
incorporating any Validated Hit [ * ] ("5.3.1(a) Product") unless Knoll provides
a Commercialization Notice to Tularik in accordance with Section 5.1 and enters
into a License Agreement with respect to the 5.3.1(a) Product described in such
Commercialization Notice within the Field in the Knoll Territory. Anything in
Section 5.3.1(ii) to the contrary notwithstanding, a Commercialization Notice
with respect to a 5.3.1(a) Product provided pursuant to this Section 5.3.1(a)
may be given [ * ];
(b) shall not grant to a Third Party any rights in or to the
Knoll Technology or Knoll's interest in Program Technology or Research Compound
Patents to commercialize in the Field products [ * ] ("Tularik Product");
(c) will grant to Tularik an exclusive (even as to Knoll),
sublicensable, worldwide license pursuant to a Tularik License Agreement to
develop, make, have made, use, offer for sale, sell and import any such [ * ]
under Knoll's interest in the Program Technology and Research Compound Patents
and subject to the payment by Tularik to Knoll of: (A) [ * ] in the event that
Tularik commercializes such Tularik Product; or (B) [ * ] of revenues (excluding
[ * ]) received by Tularik (after deduction of royalties payable by Tularik to
Knoll under Section 5.3.1(d) but including [ * ]) from a Third Party in
consideration for the grant of a sublicense under such rights; and
(d) will grant to Tularik a non-exclusive, sublicensable,
worldwide license pursuant to a Tularik License Agreement to develop, make, have
made, use, offer for sale, sell and import such Tularik Product in the Field
under any [ * ].
Upon the grant to Tularik of the licenses provided in this Section 5.3.1,
pursuant to a Tularik License Agreement, Tularik will be free to pursue clinical
development, registration and commercialization of such Tularik Product in the
Field throughout the world without further obligation to Knoll [ * ] .
5.3.2 Limitations on Section 5.3.1 during Commercialization by Knoll.
For so long as Knoll [ * ] Program Product, Knoll may determine, in its sole
discretion, that [ * ]. In the event that Knoll makes the determination set
forth in the immediately preceding sentence, [ * ] such Program Product.
5.3.3 Exceptions to Section 5.3.1(ii). Anything in Section 5.2 or
5.3.1(ii) to the contrary notwithstanding, (A) if Knoll terminates the
Collaboration Program at the end of the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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third year pursuant to Section 15.1 but makes an additional payment of [ * ] to
Tularik within [ * ] of the expiration of the Tail Period, Knoll may give
Tularik a Commercialization Notice as provided in, and with the effect stated
in, Section 5.1 above for an additional [ * ]; (B) if Knoll terminates the
Collaboration Program at the end of the fourth year pursuant to Section 15.1 but
makes an additional payment of [ * ] to Tularik within [ * ] of the expiration
of the Tail Period, Knoll may give Tularik a Commercialization Notice as
provided in, and with the effect stated in, Section 5.1 above for an additional
[ * ]; or (C) if the Collaboration Program terminates at the end of the fifth
year pursuant to Section 15.1 but Knoll makes an additional payment to Tularik
within [ * ] of the expiration of the Tail Period in an amount [ * ], Knoll may
give Tularik, as if the Collaboration Program had continued for an additional
year, a Commercialization Notice as provided in, and with the effect stated in,
Section 5.1 above.
5.3.4 Tularik Commercialization of 5.3.1(a) Products. In the event
Tularik desires to commercialize in the Field a 5.3.1(a) Product, Tularik may
provide written notice to Knoll of its intention to develop and, if results of
the human clinical studies justify, to prepare and file an NDA for and
commercialize such 5.3.1(a) Product for use within the Field anywhere in the
world, subject to the payment by Tularik to Knoll of: (A) [ * ] in the event
that Tularik commercializes such 5.3.1(a) Product; or (B) [ * ] of revenues
(excluding [ * ]) received by Tularik (including [ * ]) from a Third Party in
consideration for the grant of a sublicense to such Third Party. Such written
notice to Knoll may be given at any time following the expiration of the
Collaboration Program Term.
5.4 Diligence. Both Parties shall use commercially reasonable efforts to
discharge their respective responsibilities under the Research Plan. Knoll shall
use commercially reasonable efforts to develop Validated Hits, consistent with [
* ], unless and until it terminates this Agreement; provided, however, that
Knoll may elect to terminate development of a Validated Hit at any time for any
reason. If Knoll fails to use such efforts to develop Validated Hits, Tularik
may terminate this Agreement upon [ * ] prior written notice. If the Parties
disagree on whether Knoll is using commercially reasonable efforts as required
hereunder, [ * ]. In the event of termination of this Agreement for failure to
use such efforts, Knoll will grant to Tularik the licenses set forth in Sections
5.3.1(c) and 5.3.1(d) of this Agreement with respect to such Program Product,
subject to the payment by Tularik to Knoll of the amounts set forth in Sections
5.3.1(c) and 5.3.1(d) of this Agreement. Tularik will then be free to pursue
clinical development, registration and commercialization of any such Program
Product as a Tularik Product in the Field throughout the world without further
obligation to Knoll other than the payment of the foregoing amounts. Anything in
this Agreement to the contrary notwithstanding, Knoll may not issue a
Commercialization Notice on a Validated Hit following [ * ] from the date upon
which Knoll completes [ * ] with respect to such Validated Hit.
ARTICLE 6 Financial Support
6.1 Program Funding. Knoll will support the Research Program with the
payment of a technology access fee equal to [ * ]. In support of Tularik's
activities in the Research Program, Knoll shall pay Tularik (i) [ * ] and (ii) [
* ] The amounts set forth in Section 6.1(ii) shall be paid on each quarter-year
anniversary of the Effective Date in arrears until the end of the Collaboration
Program Term. The first quarterly payment shall be made on the [ * ] of the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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Effective Date, and shall constitute payment for the third quarter following the
Effective Date. In the event of a [ * ], Knoll shall pay to Tularik an amount
equal to [ * ]. Any payment required by the immediately preceding sentence shall
be made within [ * ] of the effective date of the Section 12.4 Termination.
6.2 Manner of Payment. Remittance of payments under Section 6.1(ii) will
be within [ * ] of the occurrence of the above specified events by means of
telegraphic transfer to Tularik's account in a bank in the United States to be
designated by Tularik. All payment amounts set forth in this Agreement,
including the Appendices, are stated net of withholding or similar taxes which
may be imposed by any governmental authority, other than U.S. income taxes;
provided, however, that Tularik has provided Knoll with a Certificate of
Exemption (Freistellungsbescheinigung) from the German Federal Tax Office
(Bundesamt fur Finanzen).
6.3 Personnel and Resources. Tularik shall [ * ] to carry out its
obligations under the Research Plan, along with the facilities and other
resources necessary to perform its obligations under this Agreement. Within [ *
] of each anniversary of the Effective Date, Tularik shall provide a report to
Knoll confirming [ * ] in performing under the Research Plan during the
preceding year.
6.4 Records, Reports, Inspection, Audit and Maintenance.
6.4.1 Tularik shall maintain scientific and financial records that
shall be complete, accurate and adequate to verify [ * ] its obligations under
this Agreement. Such records shall fully and properly reflect all work done and
results achieved in the performance of the Collaboration Program.
6.4.2 Knoll shall have the right, during normal business hours and
upon reasonable advance notice, to inspect and copy all records maintained
pursuant to Section 6.4.1 to the extent reasonably required for verification of
[ * ] the performance of Tularik's obligations under this Agreement. Tularik
shall have the right to delete any information contained in such records that
does not pertain to the Collaboration Program prior to any such inspection or
copying by Knoll.
ARTICLE 7 License To Tularik
7.1 Grant by Knoll to Tularik. Knoll shall grant to Tularik an exclusive
royalty-free, sublicensable, worldwide license under Knoll's interest in the
Program Technology and Research Compound Patents to develop, manufacture, use,
sell, offer for sale and import products based upon or incorporating Hits or
Validated Hits in the Field in the Tularik Territory and, under terms to be
separately agreed, a non-exclusive, sublicensable, worldwide license under any
then-existing Knoll Technology to the extent necessary to make, use, sell, offer
for sale and import products based upon or incorporating Hits or Validated Hits
in [ * ]. In no event shall Tularik receive rights in the Knoll
Compound Library without the written consent of Knoll.
7.2 Non-use of Technology Outside of the Field. Subject to Article 4
hereof, Knoll covenants and agrees that it will not use, directly or indirectly,
the Tularik Technology, Tularik's
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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Confidential Information or Tularik's interest in the Program Technology for any
purpose outside the Field other than developing, making, having made, using or
selling Extra-Field Products. Subject to Article 4 hereof, Tularik covenants and
agrees that it will not use, directly or indirectly, the Knoll Technology,
Knoll's Confidential Information or Knoll's interest in the Program Technology
for any purpose outside the Field other than developing, making, having made,
using or selling Extra-Field Products.
ARTICLE 8 Ownership; Patents
8.1 Ownership. Knoll shall have no rights in or to the Tularik Technology
except as expressly provided in this Agreement or any other agreement between
the Parties. Tularik shall have no rights in or to the Knoll Technology except
as expressly provided in this Agreement or any other agreement between the
Parties. Except as provided in Section 4.3.1, each Party shall solely own all
discoveries, information, technology or inventions made or created solely by its
employees, agents or consultants during the course of such Party's performance
under the Collaboration Program and all intellectual property rights related
thereto. The Parties shall jointly own all discoveries, information, technology
or inventions made or created jointly by employees, agents or consultants of
both Parties during the course of their performance under the Collaboration
Program and all intellectual property rights related thereto, without regard, in
the case of Validated Hits and Program Products, to whether a Knoll Substance or
Tularik Substance was selected as a Validated Hit upon which Program Products
may be based.
8.2 Patent Management.
8.2.1 Filing Party. Tularik Patents and Knoll Patents shall be
prosecuted and maintained by Tularik and Knoll, respectively, at such Party's
option and its own expense. Only one Party (the "Filing Party") shall be
responsible for the preparation, filing, prosecution and maintenance (the
"Patent Management") of a Program Patent, subject to the provisions of Section
8.2.2. The Inventing Party shall be initially responsible for the Patent
Management of any patent covering an Invention made solely by such Party's
employees, agents or consultants. With respect to Program Patents covering
Inventions owned jointly by the Parties ("Joint Inventions") and Research
Compound Patents, the RC shall designate initially the Filing Party for related
Patents in accordance with the relative inventive contributions of the Parties.
If Knoll commences development of a compound covered by a Patent as a Program
Product, then responsibility for Patent Management of such Patent shall be
transferred to Knoll if Knoll is not then the Filing Party for such Patent,
unless such compound is [ * ] If a Party commences development of an Extra-
Field Compound pursuant to Section 4.3.2, and if such Party is not then the
Filing Party for any Research Compound Patent upon which such Extra-Field
Compound is based, the Filing Party shall transfer responsibility for Patent
Management of such Research Compound Patents to the other Party, which shall
thereafter become the Filing Party therefor. If the Parties disagree upon the
designation of which Party should be the Filing Party for a particular Patent,
the matter shall be resolved in accordance with Section 2.2.3.
8.2.2 Review Procedures. The Filing Party shall provide the other
Party with drafts of any patent application covering an Invention (the
"Application") prior to filing the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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Application, with a request for review within a certain time period, which time
period shall be at least [ * ] if possible or practicable but in no event less
than [ * ]. The Filing Party shall endeavor in good faith to incorporate any
comments made by the other Party with respect to such Application. If the other
Party fails to respond within the time period specified by the Filing Party, the
Filing Party shall not be obligated to delay the filing of such Application. In
addition, the Filing Party shall provide the other Party with copies of all
substantive communications to and from the United States or any foreign patent
office regarding all patent Applications and resulting patents promptly,
allowing at least [ * ] for review and comment by the other Party prior to
the due date for the response to the patent office. Each Party shall maintain
any information received from the other Party relating to a patent as
Confidential Information of the other Party, [ * ]
8.3 Reversion. If (i) Tularik receives a license to develop a Tularik
Product pursuant to Section 5.3.1 that is covered by an Application for which
Knoll is the Filing Party, or (ii) the Filing Party elects upon prior written
notice to the other Party (given at least [ * ] prior to any relevant deadline)
either to discontinue prosecution or maintenance or not to file or conduct any
further activities (including conducting any interferences, re-examinations,
reissues, or oppositions) with respect to an Application or a resulting patent,
then the Filing Party shall offer to transfer such Application or patent to the
other Party, who may, at its sole discretion, accept such transfer and
thereafter become the Filing Party therefor.
8.4 Patent Costs. All fees and expenses paid to outside legal counsel and
other Third Parties in connection with Applications or resulting patents
("Patent Costs") covering Inventions owned solely by a Party that are included
in the Program Patents shall be borne solely by the Inventing Party unless and
until the other Party becomes the Filing Party therefor. All Patent Costs for
the Patents covering Joint Inventions shall be borne equally by the Parties,
regardless of which Party is the Filing Party therefor. The Party developing a
Research Compound shall pay the Patent Costs for Research Compound Patents
relating to such Research Compounds commencing as of the date the developing
Party notifies the other Party in accordance with Section 4.3.2.
8.5 Perfection of Interest. Each Party agrees to cooperate with the other
and take all reasonable additional actions and execute such agreements,
instruments and documents as may be reasonably required to perfect the other
Party's ownership interest in accordance with the intent of this Agreement
including, without limitation, the execution of necessary and appropriate
instruments of assignment.
8.6 Infringement of Patents. Infringement of Knoll Patents, Tularik
Patents or Patents by Third Parties as well infringement of Third Party patents
by Knoll shall be governed by the provisions of the License Agreement or the
Tularik License Agreement, as the case may be.
ARTICLE 9 Publication; Publicity
9.1 Publication. Each Party recognizes that the publication of papers,
including oral presentations and abstracts, regarding the Program Technology or
Research Compounds, subject to reasonable controls to protect Confidential
Information, will be beneficial to both Parties.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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Accordingly, each Party shall have the right to review and approve any paper
proposed for publication by the other Party, including oral presentations and
abstracts, that utilizes data generated from the Research Program and/or
includes Program Know-How, information relating to Research Compounds or
Research Compound Inventions or Confidential Information of the other Party.
Before any such paper is presented or submitted for publication, the Party
proposing to make a publication shall deliver a complete copy thereof to the
other Party at least [ * ] prior to presenting the paper to any Third Party
publisher. The Party receiving such proposed publication shall review any such
paper and provide comments thereon to the publishing Party within [ * ] of the
delivery of such paper to the receiving Party. With respect to oral presentation
materials and abstracts, the Parties shall make reasonable efforts to expedite
review of such materials and abstracts, and shall return such items as soon as
practicable to the publishing Party with appropriate comments, if any, but in no
event later than [ * ] from the date upon which such materials are received by
the receiving Party. The publishing Party shall comply with the other Party's
request to delete references to such other Party's Confidential Information in
any such paper and agrees to withhold publication of same for up to an
additional [ * ] in order to permit the Parties to obtain patent protection on
any patentable inventions disclosed therein, if either of the Parties deems it
necessary, in accordance with the terms of this Agreement. In addition, [ * ].
9.2 Publicity. Except as otherwise provided herein or required by law, no
Party shall make publicly available or provide to any Third Party any
publication, news release or other public announcement, written or oral, whether
in the public press, or stockholders' reports (if applicable), or otherwise,
relating to the existence of or the Parties' performance under this Agreement,
without the prior written approval of the other Party.
ARTICLE 10 Representations And Warranties
10.1 Representations and Warranties. Each Party hereby represents and
warrants that:
10.1.1 it has full corporate power and authority under the laws of the
state or country of its incorporation to enter into this Agreement and carry out
the provisions hereunder and that the person executing this Agreement on its
behalf has been duly authorized to do so by all requisite corporate action;
10.1.2 it will not take any material action or fail to take any material
action which would be in conflict with its obligations under this Agreement;
10.1.3 to its best knowledge as of the Effective Date: (i) it has full
power and authority to undertake the scientific activities required of it; (ii)
its [ * ]; and (iii) the [ * ];
10.1.4 as of the Effective Date, to the best of its knowledge, it is not
aware of any claims by Third Parties that [ * ];
10.1.5 this Agreement is a legal and valid obligation binding upon it
and is enforceable in accordance with its terms; and
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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10.1.6 the execution, delivery and performance of this Agreement
by it does not conflict with any agreement, oral or written, to which it is a
Party or by which it may be bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency having authority over
it.
10.2 Third Party Licenses. Each Party agrees to identify to the other
Party any Third Party Licenses and the technologies to which they pertain. Knoll
shall have no obligation to make any payments whatsoever with respect to such
Third Party Licenses of Tularik. Tularik shall have no obligation to make any
payments whatsoever with respect to such Third Party Licenses of Knoll.
ARTICLE 11 Disclaimer Of Warranties
11.1 Tularik Disclaimer. EXCEPT AS OTHERWISE PROVIDED IN SECTION 10.1,
THE TULARIK TECHNOLOGY PROVIDED HEREUNDER IS PROVIDED "AS IS" AND TULARIK
EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES 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 ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN
ALL CASES WITH RESPECT THERETO. Without limiting the generality of the
foregoing, Tularik expressly does not warrant (i) the success of any study or
test commenced pursuant to the Collaboration Program or (ii) the safety or
usefulness for any purpose of Tularik Technology.
11.2 Knoll Disclaimer. EXCEPT AS OTHERWISE PROVIDED IN SECTION 10.1,
THE KNOLL TECHNOLOGY PROVIDED HEREUNDER IS PROVIDED "AS IS" AND KNOLL EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES 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 ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL
CASES WITH RESPECT THERETO. Without limiting the generality of the foregoing,
Knoll expressly does not warrant the safety or usefulness for any purpose of the
Knoll Technology.
ARTICLE 12 Indemnification
12.1 Indemnification by Tularik. Tularik hereby agrees to indemnify,
hold harmless and defend Knoll, its employees, directors, officers, agents and
consultants against any and all claims, suits, actions, demands, liabilities,
expenses and/or losses (including without limitation reasonable attorneys' fees
and related legal and court expenses) (collectively, "Claims") for damage to
persons or property resulting directly or indirectly from actions in connection
with this Agreement, but only to the extent that such Claims [ * ], except to
the extent such Claims arise out of or are in connection with any occurrence for
which Knoll must indemnify Tularik pursuant to Section 12.2.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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12.2 Indemnification by Knoll. Knoll hereby agrees to indemnify, hold
harmless and defend Tularik, its employees, directors, officers, agents and
consultants against any and all Claims for damage to persons or property
resulting directly or indirectly from actions in connection with this Agreement,
but only to the extent that such Claims [ * ], except to the extent such Claims
arise out of or are in connection with any occurrence for which Tularik must
indemnify Knoll pursuant to Section 12.1.
12.3 Control of Defense. Any person or entity entitled to
indemnification under this Article 12 shall give notice to the indemnifying
Party of any Claims that may be subject to indemnification promptly after such
Party learns of such Claim. The indemnifying Party shall assume the defense of
such Claims using counsel reasonably satisfactory to the indemnified Party, and
the indemnifying Party will not be subject to any liability for any settlement
of such Claims made by the indemnified Party without the indemnifying Party's
consent (such consent not to be unreasonably withheld or delayed), and will not
be obligated to pay any fees and expenses of any separate counsel retained by
the indemnified Party with respect to such Claim.
12.4 Tularik Responsibilities. [ * ]
ARTICLE 13 Confidentiality
13.1 Confidential Information; Exceptions. Except to the extent
expressly authorized by this Agreement or otherwise agreed in writing by the
Parties, each Party agrees that, for the term of this Agreement and for [ * ]
thereafter, it shall keep confidential and shall not publish or otherwise
disclose, and shall not use for any purpose other than as provided for in this
Agreement, any Confidential Information furnished to it by the other Party
pursuant to this Agreement, except to the extent the receiving Party can
demonstrate by competent proof that such Confidential Information:
13.1.1 was already known to the receiving Party, other than under
an obligation of confidentiality, at the time of disclosure by the other Party;
13.1.2 was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving Party;
13.1.3 became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of any obligation of confidentiality
with respect thereto;
13.1.4 was disclosed to the receiving Party, other than under an
obligation of confidentiality to a Third Party, by a Third Party without breach
of any obligation of confidentiality with respect thereto; or
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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13.1.5 was independently discovered or developed by the receiving
Party without the use of Confidential Information of the disclosing Party.
Notwithstanding the foregoing, either Party may disclose Confidential
Information of the other Party to those of its employees, agents and consultants
who require such information to perform such Party's obligations under this
Agreement, provided that such employees, agents and consultants are bound by
obligations of confidentiality and non-use with respect to such Confidential
Information at least equivalent in scope with those provided in this Section
13.1.
13.2 Authorized Disclosure. Notwithstanding Section 13.1, each Party may
disclose Confidential Information belonging to the other Party to the extent
such disclosure is reasonably necessary in the following instances:
13.2.1 filing or prosecuting patents relating to Program Products;
13.2.2 making regulatory filings;
13.2.3 prosecuting or defending litigation;
13.2.4 complying with applicable governmental regulations;
13.2.5 conducting pre-clinical or clinical trials of Program
Products; and
13.2.6 as necessary to effectuate [ * ]
Notwithstanding the foregoing, in the event a Party is required to make a
disclosure of the other Party's Confidential Information pursuant to this
Section 13.2 it will, except where impracticable, give reasonable advance notice
to the other Party of such disclosure and endeavor in good faith to secure
confidential treatment of such information. In any event, the Parties agree to
take all reasonable action to avoid disclosure of Confidential Information
hereunder. The Parties will consult with one another and agree on the provisions
of this Agreement to be redacted in any filings made by the Parties with the
United States Securities and Exchange Commission or as otherwise required by
law.
13.3 Financial Terms. The Parties agree that the material financial
terms of the Agreement will be considered Confidential Information of both
Parties. Notwithstanding the foregoing, either Party may disclose such terms to
bona fide potential corporate parties or other sublicensees under the rights
granted herein, if necessary, provided that the Party disclosing such
information shall first enter into a confidentiality agreement with such
corporate partner or other sublicensee governing such disclosure providing
protections commensurate in scope with those provided in Section 13.1. In
connection with any such disclosure, each Party agrees to use its best efforts
to secure confidential treatment of such information. Tularik shall have the
further right to disclose the material financial terms of the Agreement to any
potential investor, investment banker, acquiror, merger partner, or other bona
fide potential financial partner, subject to a requirement of best efforts to
secure confidential treatment of such information.
ARTICLE 14 Government Controls
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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This Agreement is made subject to any restrictions concerning the export of
Program Products or technical information from the United States that may be
imposed upon or related to Tularik or Knoll from time to time by the government
of the United States and other applicable jurisdictions.
ARTICLE 15 Term; Termination
15.1 Term and Termination of Collaboration Program. The Collaboration
Program shall be performed during the five year period following the Effective
Date (the "Collaboration Program Term"); provided, however, that Knoll may
terminate the Collaboration Program upon either the third (3rd) or the fourth
(4th) anniversary of the Effective Date upon no less than one (1) year's prior
written notice to Tularik. Knoll may terminate the Collaboration Program at any
time during the Collaboration Program Term in the event an arbitration conducted
pursuant to Section 16.8 concludes, or Tularik acknowledges in writing, that
Tularik [ * ] ("Section 12.4 Termination"); provided, however, that, in the
event of a Section 12.4 Termination, Knoll shall provide to Tularik a written
acknowledgment that [ * ]. Additionally, the RC may terminate the Collaboration
Program at any time during the Collaboration Program Term if the RC unanimously
decides that the then-current Research Plan does not provide adequate
opportunities (i.e., New Targets are not available, the Program Targets and
related pathways have been fully exploited and insufficient opportunities remain
for developing and commercializing products within the Field). In case of such
an early termination of the Collaboration Program by Knoll or the RC, as the
case may be, Knoll shall not be obligated to make any payment(s) under Section
6.1 that would have become due and payable after the effective date of such
early termination.
15.2 Term. Except as provided under Section 15.3 below, the term of this
Agreement shall commence upon the Effective Date and shall expire on the later
to occur of (i) the expiration of the Tail Period, if the Parties have not
previously entered into any License Agreement or Tularik License Agreement
pursuant to this Agreement, or (ii) the expiration or termination of the last to
expire or last to terminate license that the Parties have entered into pursuant
to this Agreement.
15.3 Termination on Material Breach. If either Party materially breaches
this Agreement, including without limitation its diligence obligations under
Section 2.8, and the breaching Party has not (i) cured the breach or (ii)
initiated good faith efforts to cure such breach to the reasonable satisfaction
of the non-breaching Party, within [ * ] of notice of breach from the non-
breaching Party, the non-breaching Party may terminate this Agreement upon
expiration of such [ * ] period.
15.4 Surviving Rights. The obligations and rights of the Parties under
Sections 4.3 and 4.4 and Articles 5, 8, 9, 10, 11, 12, 13, 14, 15 and 16 shall
survive termination. In the event that Knoll terminates this Agreement pursuant
to Section 15.3 following the failure by Tularik to cure or initiate good faith
efforts to cure a material breach, the obligations contained in Section 5.3
shall not survive such termination. Additionally, the failure by Knoll to comply
with [ * ].
15.5 Accrued Rights; Surviving Obligations. The termination,
relinquishment or expiration of the Agreement for any reason shall be without
prejudice to any rights that shall have accrued to the benefit of either Party
prior to such termination, relinquishment or expiration,
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
28
<PAGE>
including any damages arising from any breach hereunder. Such termination,
relinquishment or expiration shall not relieve either Party from obligations
that are expressly indicated to survive termination or expiration of the
Agreement.
15.6 Return of Assays. Upon the expiration or earlier termination of the
Collaboration Program Term, Knoll shall return to Tularik the Tularik Assays
provided to Knoll pursuant to Section 2.4; provided, however, that, [ * ].
ARTICLE 16 Miscellaneous
16.1 Waiver. No waiver by either Party of any breach or default of any
of the covenants or agreements herein set forth shall be deemed a waiver as to
any subsequent or similar breach or default.
16.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties and their permitted successors and assigns; provided,
however, that neither Party shall assign any of its rights and obligations
hereunder except (i) as incident to the merger, consolidation, reorganization or
acquisition of stock or assets affecting substantially all of the assets or
actual voting control of the assigning Party or (ii) to an Affiliate; provided
further in no event shall either Party's obligations under the Collaboration
Program be assigned to an Affiliate without the prior written consent of the
other Party.
16.3 Notices. Any notice or other communication required or permitted to
be given to either Party shall be in writing and shall be deemed to have been
properly given and to be effective on the date of delivery if delivered in
person or by facsimile or five (5) days after mailing by registered or certified
mail, postage paid, to the other Party at the following address:
In the case of Tularik: Tularik Inc.
Two Corporate Drive
S. San Francisco, CA 94080
Fax: (650) 829-4303
Attention: Chief Executive Officer
In the case of Knoll: Knoll AG
Knollstrasse
67061 Ludwigshafen
Germany
Attention: Head of R&D
Either Party may change its address for communications by a notice to the
other Party in accordance with this Section.
16.4 Headings. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
29
<PAGE>
16.5 Amendment. No amendment or modification hereof shall be valid or
binding upon the Parties unless made in writing and signed by both Parties.
16.6 Governing Law and Language. This Agreement shall be governed
exclusively by laws of California, U.S.A., excluding any choice of law rules
that may direct the application of the law of any other jurisdiction. This
Agreement and the Appendices hereto were drafted in the English language, and
any notice to be given or accounts or statements required to be made under this
Agreement shall be in English. In the event of any dispute concerning the
construction or meaning of this Agreement, reference shall be made only to this
Agreement as written in English and not to any other translation into any other
language.
16.7 Force Majeure. Any delays in performance by any Party under this
Agreement (other than either Party's failure to pay money to the other Party,
unless such failure results solely from wire transfer failures beyond the
control of the paying Party, or the like) shall not be considered a breach of
this Agreement if and to the extent caused by occurrences beyond the reasonable
control of the Party affected, including but not limited to acts of God,
embargoes, governmental restrictions, strikes or other concerted acts of
workers, fire, flood, earthquake, explosion, riots, wars, civil disorder,
rebellion or sabotage. The Party suffering such occurrence shall immediately
notify the other Party as soon as practicable and any time for performance
hereunder shall be extended by the actual time of delay caused by the
occurrence, provided that the affected Party uses reasonable efforts to overcome
such delay.
16.8 Dispute Resolution. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement (other than those relating to the determination of Contribution
Royalties), the Parties shall try to settle their differences amicably between
themselves by referring the disputed matter to the SC. Any unresolved disputes
arising between the Parties arising out of, relating to, in connection with or
in any way connected with this Agreement or any term or conditions hereof, or
performance by either Party of its obligations hereunder, whether before or
after termination or expiration of this Agreement, shall be finally resolved by
binding arbitration, except that any disputes regarding the validity, scope or
enforceability of a patent shall be submitted to a court of competent
jurisdiction. The arbitration shall be held in San Francisco, California
according to the rules of the American Arbitration Association ("AAA"). The
arbitration will be conducted by a panel of three (3) arbitrators with
significant experience in the pharmaceutical industry appointed in accordance
with applicable AAA rules. Any arbitration herewith shall be conducted in the
English language to the maximum extent possible. Each Party shall bear its own
costs and attorneys' and witness' fees. Judgment on the award so rendered shall
be final and may be entered in any court having jurisdiction thereof.
16.9 Independent Contractors. In making and performing this Agreement,
Knoll and Tularik act and shall act at all times as independent contractors and
nothing contained in this Agreement shall be construed or implied to create an
agency, partnership or employer and employee relationship between Tularik and
Knoll. At no time shall one Party make commitments or incur any charges or
expenses for or in the name of the other Party.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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16.10 Severability. If any part of this Agreement is declared invalid by
any legally governing authority or court having jurisdiction over either Party,
then such declaration shall not affect the remainder of the Agreement and the
Parties shall revise the invalidated part in a manner that will render such
provision valid while achieving closely the Parties' original interest.
16.11 Cumulative Rights. The rights, powers and remedies hereunder shall
be in addition to, and not in limitation of, all rights, powers and remedies
provided at law or in equity, or under any other agreement between the Parties.
All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
16.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
16.13 Entire Agreement. This Agreement and any and all Appendices
referred to herein embodies the entire understanding of the Parties with respect
to the subject matter hereof and supersedes and terminates all previous
communications, representations or understandings, either oral or written,
between the Parties relating to the subject matter hereof.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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<PAGE>
In Witness Whereof, both Knoll and Tularik have executed this Agreement, as
of the Effective Date.
Tularik Inc. Knoll AG
By: /s/ David V. Goeddel By: /s/ Erich Schlich
---------------------------- ------------------------------
Head R&D
Title: Chief Executive Officer Title: /s/ Gottfried Freier
------------------------
General Counsel
Legal & Taxes
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
APPENDIX A
PROGRAM TARGETS
[ * ]
[ * ]
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
APPENDIX B
RESEARCH PLAN
The Research Program described in this Agreement is further described as
follows:
[ * ]
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
EXHIBIT 2.9.1
Tularik Inc.
Two Corporate Drive
South San Francisco, CA 94080
Attention: President
Knoll AG
Knollstrasse
67061 Ludwigshafen
Germany
Attention:
Dear Tularik and Knoll:
Knoll AG ("Knoll") and Tularik Inc. ("Tularik") have entered into a
Collaboration Agreement, dated as of November 1, 1998 (the "Collaboration
Agreement"). The undersigned ("Affiliate") is an Affiliate of Knoll. By this
letter, the undersigned agrees to be bound by, comply with and assume all terms,
conditions, rights, obligations, duties and restrictions of Knoll under the
Collaboration Agreement to the full extent as if the Affiliate were a party to
the Collaboration Agreement. Capitalized terms used herein but not otherwise
defined shall have the respective meaning given in the Collaboration Agreement.
Affiliate:______________________________
By:_____________________________________
Printed Name:___________________________
Title:__________________________________
Date:___________________________________
The undersigned acknowledge receipt of this letter:
Tularik Inc.
By:_____________________________________
Printed Name:___________________________
Date:___________________________________
Knoll AG
By:_____________________________________
Printed Name:___________________________
Date:___________________________________
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
APPENDIX C
FORM OF LICENSE AGREEMENT
between
TULARIK INC.
and
KNOLL A.G.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
LICENSE AGREEMENT
This License Agreement (the "Agreement") is made and entered into as of
_____________, ____ (the "Effective Date") by and between Tularik Inc., a
Delaware corporation ("Tularik"), and Knoll AG, a corporation organized under
the laws of Germany ("Knoll").
Recitals
Whereas, Tularik and Knoll have entered into a Collaboration Agreement
dated as of November 1, 1998 (the "Collaboration Agreement"); and
Whereas, the Parties have jointly engaged in researching certain compounds
potentially useful for the treatment of human disease by means of regulation of
[ * ], and Knoll has selected one of such compounds for development of Program
Products (as defined in the Collaboration Agreement) based thereon; and
Whereas, Knoll has given a Commercialization Notice as provided in the
Collaboration Agreement with respect to the compound listed in the
Commercialization Notice; and
Whereas, Knoll intends to [ * ] with respect to one or more Program
Products based on the compound listed in the Commercialization Notice and to
commence clinical development with the intention of obtaining Regulatory
Approval (as defined below) of at least one Program Product based on such
compound for commercialization; and
Now, Therefore, in consideration of the foregoing and the covenants and
premises contained herein, the Parties agree as follows:
ARTICLE 1 Definitions.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings given in the Collaboration Agreement. As used herein, the
following capitalized terms shall have the following meanings:
1.1 "Aggregate Amount" shall have the meaning ascribed in Section
4.1.2(a).
1.2 "Allocable Portion" shall have the meaning ascribed in Section
4.1.2(a).
1.3 "Confidential Information" shall mean, subject to the limitations set
forth in Section 7.1 hereof, all information disclosed by each Party to the
other Party pursuant to this Agreement.
1.4 "FDA" shall mean the United States Food and Drug Administration or any
successor thereto.
1.5 "Field" shall mean [ * ] (as such terms are defined in the
Collaboration Agreement) human patients and, in addition, may include [ * ].
"Field" shall also include any [ * ] used in combination with Program Products.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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1.6 "Licensed Validated Compounds" shall mean a Validated Hit (as defined
in Section 1.83 of the Collaboration Agreement) that agonizes or antagonizes a
Program Target (as defined in Section 1.51 of the Collaboration Agreement) and
that is set forth on Exhibit A, with respect to which Knoll has issued to
Tularik a Commercialization Notice (as defined in Section 1.7 of the
Collaboration Agreement).
1.7 "Net Sales" shall mean the gross sales price of Program Products in
finished form, invoiced by Knoll, its Affiliates and sublicensees from sales to
arm's-length Third Party purchasers, less, to the extent such amounts are
included in the invoiced sales price, taxes, shipping costs (including freight
and insurance) and duties and other governmental charges paid for and separately
identified on the invoice. Additional allowances will be permitted for (i) cash,
trade and/or quantity discounts actually allowed; (ii) amounts repaid or
credited by reason of rejection or return of goods; and (iii) discounts mandated
by or granted in response to law. Net Sales shall not be reduced for any
reserves or allowance for bad debts.
1.8 "Party" shall mean either Tularik or Knoll.
1.9 "Royalty Term" shall have the meaning ascribed in Section 4.3.
1.10 "Significant Market Products" shall have the meaning ascribed in
Section 4.1(a).
1.11 "Third Party" shall mean any person or entity other than Knoll and
Tularik, and their respective Affiliates.
1.12 "Third Party Royalties" means royalties payable by Tularik or Knoll
to a Third Party in respect of the sale of Program Products.
1.13 "Valid Claim" shall mean a claim in an issued, unexpired patent that
has not been held invalid or unenforceable in an unappealed and unappealable
judgment of a court of competent jurisdiction.
ARTICLE 2 Licenses.
2.1 License to Knoll. Subject to the other provisions of this Agreement,
Tularik hereby grants to Knoll a license for the development, manufacture, use,
sale and importation of the Program Product based upon or incorporating the
Licensed Validated Compound in the Knoll Territory under Tularik's interest in
Program Technology and Research Compound Patents and under the Tularik
Technology. Such license shall be exclusive and include the right to grant
sublicenses with respect to the Knoll Territory. Subject to Section 2.1.1,
Tularik is granting no licenses to Knoll outside the Knoll Territory.
2.1.1 Right of First Refusal. In the event [ * ], Tularik shall
grant Knoll a right of first refusal for an exclusive license, including the
right to grant sublicenses, to develop, make, have made, use, offer for sale,
sell and import Program Products based upon or incorporating the Licensed
Validated Compound in the Tularik Territory (the "Right of First Refusal").
Tularik shall negotiate exclusively with Knoll for [ * ] days for such licenses
prior to
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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<PAGE>
Tularik offering such opportunity to any Third Party. If the Parties have not
reached agreement by the end of such [ * ] day exclusive negotiation period,
Tularik may negotiate with Third Parties. When Tularik and such Third Party have
reached consensus on the financial terms and general scope of a proposed license
agreement, Tularik must offer Knoll the opportunity to enter into a license
agreement with Tularik on the same financial terms and general scope of such
proposed license agreement (the "Offer"). Knoll shall have [ * ] days to
unqualifiedly accept or decline such Offer in writing. If Knoll fails to respond
within such time period, it shall be deemed to have declined such Offer. If
Knoll declines the Offer, Tularik has no further obligation to grant such a
Right of First Refusal to Knoll with respect to the license opportunity that
Knoll has declined; provided, however, that [ * ]. Knoll has [ * ] days to
unqualifiedly accept or decline such re-Offer in writing. If Knoll fails to
respond within such time period, it shall be deemed to have declined such re-
Offer.
2.1.2 Due Diligence. Knoll shall use commercially reasonable efforts
to develop and market the Program Products based upon or incorporating the
Licensed Validated Compound, consistent with [ * ], unless and until it
terminates this Agreement. If Knoll fails to use such efforts, Tularik may
terminate this Agreement upon [ * ] prior written notice. If the Parties
disagree on whether Knoll is using commercially reasonable efforts as required
hereunder, (i) [ * ]. In the event of termination of this Agreement for failure
to use such efforts, Knoll will grant to Tularik the licenses set forth in
Sections 5.3.1(c) and 5.3.1(d) of the Collaboration Agreement with respect to
such Program Product, subject to [ * ]. Tularik will then be free to pursue
clinical development, registration and commercialization of any such Program
Product as a Tularik Product in the Field throughout the world without further
obligation to Knoll other than the payment of the foregoing amounts.
2.2 Obligation to Inform. Knoll agrees to keep Tularik fully informed on a
reasonable basis of the development and commercialization of all Program
Products based upon or incorporating the Licensed Validated Compound, including
but not limited to providing to Tularik periodic written updates on the progress
of each filing for Regulatory Approval.
ARTICLE 3 Product Development.
Knoll is responsible for funding and performing the preclinical and
clinical development plan for the Program Products based upon or incorporating
the Licensed Validated Compound in the Knoll Territory. Knoll will perform all
such preclinical and clinical studies in such manner that the data generated
therefrom will meet the regulatory requirements of the FDA or foreign equivalent
for approval of human pharmaceuticals.
ARTICLE 4 Payments.
4.1 Royalties.
4.1.1 Preliminary Royalties. Knoll will pay Tularik royalties on Net
Sales on a quarterly basis within [ * ] after the end of each calendar quarter.
The royalty rate for each Program Product for which Net Sales are less than [ *
] will be [ * ], subject to a possible increase in the royalty rate (and the
subsequent payment of additional amounts to Tularik) applicable to Net Sales of
any Program Products for which worldwide Net Sales are equal to or greater than
[ * ] = Certain confidential informatin contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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[ * ] in any given calendar year ("Significant Market Products"), as provided in
Section 4.1.2(c) below.
4.1.2 Additional Royalties. Within [ * ] after the end of each
calendar year during the term of this Agreement, Knoll shall make any additional
royalty payments that may be required by Section 4.1.2(c) to Tularik on Net
Sales of Significant Market Products during such calendar year. The amount of
any such additional royalties shall be determined as follows:
(a) First, the amount of Net Sales of Significant Market
Products shall be [ * ] "Aggregate Amount"). The portion of the Aggregate Amount
allocable to [ * ] under this Agreement is the "Allocable Portion."
(b) Second, [ * ] will be determined by ascertaining whether
the Effective Date precedes or follows the date on which the Parties executed
any license agreement (other than this Agreement) for which worldwide net sales
are equal to or greater than [ * ] in any given calendar year. The net sales of
products or of Significant Market Products under [ * ] shall be considered the
first net sales (i.e., sales from $1 upward) and the royalty rate applicable to
net sales of less than [ * ] of such product or Significant Market Product shall
be [ * ] Net sales of subsequently executed agreement(s) shall be considered
sales made in addition to net sales made under the earliest executed agreement.
The foregoing is illustrated in the following example:
[ * ].
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
(c) Knoll shall pay to Tularik any additional royalty due
pursuant to this Section 4.1.2 equal to the amount, if any, by which the amount
of royalties due to Tularik with respect to the Allocable Portion determined
pursuant to Section 4.1.2(a) and (b) exceeds the amount previously paid or due
and payable to Tularik pursuant to Section 4.1.1.
4.1.3 Royalty Offset. Knoll may offset [ * ] of any royalties it must
pay to Third Parties on Net Sales of Program Product pursuant to any licenses
necessary to sell such Program Product against royalties payable by Knoll to
Tularik pursuant to Section 4.1; provided, however, that Tularik's royalty is
not reduced hereunder by more than [ * ] of Net Sales.
4.2 Milestone Payments. Knoll will make the following payments to Tularik
in US Dollars upon the occurrence of the listed event in the Knoll Territory for
each Program Product based upon or incorporating the Licensed Validated
Compound:
Event Payment
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
Amounts due upon achievement of events [ * ] are payable [ * ] the event is
achieved for any Program Product based upon or incorporating a Licensed
Validated Compound in the Knoll Territory. Amounts due upon the achievement of
events [ * ] are payable [ * ] the event is achieved for a Program Product based
upon or incorporating the Licensed Validated Compound [ * ]. For any amount
payable upon achievement of [ * ]. In the event a Program Product based upon or
incorporating a Licensed Validated Compound achieves [ * ] of the listed events
above but does not achieve [ * ] events listed above, the listed events not
achieved by such Program Product shall be available to subsequent Program
Products based upon or incorporating a Licensed Validated Compound until such
time as [ * ] milestones shall have been paid by Knoll to Tularik for one or
more Program Products based upon or incorporating a Licensed Validated Compound.
4.3 Period of Royalty Obligation. The royalty obligation under Section 4.1
shall commence on the date of first commercial sale of a Program Product based
upon or incorporating a Licensed Validated Compound in a country and shall
expire, on a country-by-country and product-by-product basis, on the later of
the expiration of the last to expire patent licensed to Knoll under Section 2.1
above or the [ * ] anniversary of the first commercial sale of the Program
Product in such country ("Royalty Term").
ARTICLE 5 Payment: Record; Audit.
5.1 Payments; Reports. All amounts payable to Tularik under this Agreement
shall be paid in U.S. dollars. The royalty obligation under Section 4.1 shall
accrue at the time of sale of the Program Products to a Third Party. Royalty
obligations that accrue during a particular quarter shall be paid within [ * ]
after the end of such calendar quarter and other payments due to Tularik shall
be made as specified herein. Each payment of royalties and amounts due to
Tularik under Section 4.1 shall be accompanied by a statement of the amount of
Net Sales during such period on a product-by-product and country-by-country
basis, including all other information necessary to determine the appropriate
amount of such payments, and any additional information or reports required
under the Agreement.
5.2 Exchange Rate. The rate of exchange to be used in computing the amount
of currency equivalent in United States dollars due Tularik shall be made at the
period end rate of exchange quoted on the last business day of the royalty
period in the Wall Street Journal.
5.3 Records and Audit. During the term of this Agreement and for a period
of [ * ] thereafter, Knoll shall keep complete and accurate records pertaining
to the sale or other disposition of the Program Products commercialized by it
pursuant to this Agreement, in sufficient detail to permit Tularik to confirm
the accuracy of all payments due hereunder and compliance with the covenants set
forth in Section 2.1.2. Tularik shall have the right to cause an independent,
certified public accountant to audit such records to confirm Net Sales and
royalty payments due thereon to Tularik; provided, however, that such auditor
shall not disclose Knoll's Confidential Information to Tularik, except to the
extent such disclosure is necessary to verify the amount of royalties and other
payments due under this Agreement. Such audit right may b e
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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exercised once a year, within [ * ] years after the royalty period to which such
records relate, upon notice to Knoll and during normal business hours. Any
under-payment of amounts due to Tularik by such audits shall be paid immediately
with interest in the amount of [ * ] per month (or the maximum amount permitted
by law, if less) from the date that such amount should have been paid to Tularik
until Knoll actually pays such amount. Tularik shall bear the full cost of such
audit unless such audit discloses a variance in the amounts paid by Knoll of
more than [ * ] from the amount of royalties and/or other payments actually
owed. In such case, Knoll shall bear the full cost of such audit. The terms of
this Section 5 shall survive any termination or expiration of this Agreement for
a period of [ * ].
5.4 Withholding of Taxes. All payment amounts set forth in the Agreement
are stated net of withholding or similar taxes (other than U.S. income taxes)
that may be imposed by any governmental authority; provided, however, that
Tularik has provided Knoll with a Certificate of Exemption
(Freistellungsbescheinigung) from the German Federal Tax Office (Bundesamt fur
Finanzen).
5.5 Blocked Currency. In each country where the local currency is blocked
and cannot be removed from the country, royalties accrued in that country shall
be paid to Tularik in such country in local currency by deposit in a local bank
designated by Tularik.
5.6 Cross-Border Sales. Knoll agrees that it shall not, and that it shall
not grant the right to any affiliate or Third Party to, use, sell, offer for
sale or import Program Products in any country outside of the Knoll Territory,
and that Knoll shall use reasonable efforts to deter the importation of Program
Products into any country outside of the Knoll Territory by its affiliates and
licensees. Knoll and Tularik recognize that in certain territories, and in
particular in free trade regions, customers or other third parties may import
Program Products purchased in one country for use in another. If such activity
materially distorts the aggregate relative profitability of the parties from the
sale of Program Products in one or more countries, Tularik and Knoll shall [ * ]
to offset the economic effect of such cross-border transfers to the extent it is
practical to do so.
ARTICLE 6 Ownership; Patents.
6.1 Ownership. Provision is made in the Collaboration Agreement for
ownership of the Knoll Technology, the Tularik Technology, the Research Compound
Inventions and the Program Technology and such matters shall be governed
thereby.
6.2 Patents. Provision is made in the Collaboration Agreement for the
ownership, filing, prosecution and maintenance of Patents, Tularik Patents and
Knoll Patents and such matters shall be governed thereby.
6.3 Infringement of Program Patents.
6.3.1 Notice. Each Party shall promptly notify the other in writing
of any alleged or threatened infringement of the Patents that may adversely
impact the rights of the Parties hereunder, of which it becomes aware.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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6.3.2 Cooperation. Neither Party will notify a Third Party (except
for the Parties' outside litigation counsel) of the infringement of any of the
Patents by a Third Party in the Field without first obtaining the consent of the
other Party, which consent shall not be unreasonably withheld. Both Parties
shall use their best efforts in cooperating with each other to terminate such
infringement without litigation, with each Party being responsible for the
payment of its own out-of-pocket costs (including legal costs) relating thereto.
Any monetary settlement resulting from any such process shall first be allocated
to reimburse both Parties for such out-of-pocket costs, and the remainder shall
be [ * ].
6.3.3 Enforcement Action. In the event that any alleged or threatened
infringement of the Patents by a Third Party in the Field and in the Knoll
Territory cannot be terminated without litigation, Knoll shall have the first
right, but not the obligation, to take appropriate action against any person or
entity directly or contributorily infringing such Patent. In the event Knoll
fails to institute an infringement suit or take other reasonable action in
response to such infringement within [ * ] after notice in accordance with
paragraph 6.3(a) above, Tularik shall have the right, but not the obligation,
upon [ * ] notice to Knoll to institute such suit or take other appropriate
action in its own name, the joint owners' names or both. In the event that any
alleged or threatened infringement of the Patents by a Third Party in the Field
and in the Tularik Territory cannot be terminated without litigation, Tularik
shall have the first right, but not the obligation, to take appropriate action
against any person or entity directly or contributorily infringing such Patent.
If Tularik fails to institute an infringement suit or take other reasonable
action in response to such infringement within [ * ] after notice in accordance
with paragraph 6.3(a) above, Knoll shall have the right, but not the obligation,
upon [ * ] notice to Tularik to institute such suit or take other appropriate
action in its own name, the joint owners' names or both. Regardless of which
Party brings such enforcement action, the other Party hereby agrees to cooperate
reasonably in any such effort, including, if required, bringing a legal action
or furnishing a power of attorney. The Party not bringing the action shall have
the right to participate in such action at its own expense with its own counsel
and any recovery obtained by settlement or otherwise shall be disbursed as
follows: Each Party shall first recover any reasonable expenses incurred in such
action (including counsel fees). Thereafter, the Parties shall [ * ]; provided,
however, that in the event Knoll fails to institute an infringement suit or take
other appropriate action in the Knoll Territory and Tularik shall institute such
suit or take such action, [ * ].
6.4 Infringement of Tularik Patents and Knoll Patents. Subject to [ * ]
Tularik and Knoll shall defend and enforce the Tularik Patents and the Knoll
Patents respectively throughout the world.
6.5 Infringement of Third Party Patent Rights.
6.5.1 Joint Strategy. In the event that the manufacture, use or sale
of a Program Product based upon or incorporating the Licensed Validated Compound
becomes the subject of a claim of infringement of a patent, copyright or other
proprietary right anywhere in the world, and without regard to which Party is
charged with said infringement, or the venue of such claim, the Parties [ * ]
shall promptly confer to discuss the claim.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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6.5.2 Defense. Unless the Parties otherwise agree, Knoll shall assume
the primary responsibility at its expense for the conduct of the defense of any
such claim brought in the Knoll Territory. Tularik shall have the right, but not
the obligation, to participate in any such suit at its sole option and at its
own expense. Unless the Parties otherwise agree, Tularik shall assume the
primary responsibility at its expense for the conduct of the defense of any such
claim brought in the Tularik Territory. Knoll shall have the right but not the
obligation to participate in any such suit at its sole option and at its own
expense. Each Party shall reasonably cooperate with the Party conducting the
defense of the claim. Neither Party shall enter into any settlement that affects
the other Party's rights or interests without such other Party's written
consent, not to be unreasonably withheld. If Knoll and Tularik agree that
payment must be made to a Third Party (the "Third Party Payment") to avoid
infringement of such Third Party's patent in the Knoll Territory, [ * ].
6.6 Patent Marking. Knoll shall mark, if necessary, all products
manufactured, used or sold under the terms of this Agreement, or their
containers, in accordance with the applicable patent marking laws, as required.
ARTICLE 7 Confidentiality.
7.1 Confidentiality. Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing by the Parties, each Party agrees that,
for the term of this Agreement and for [ * ] thereafter, it shall keep
confidential and shall not publish or otherwise disclose and shall not use for
any purpose other than as provided for in this Agreement any Confidential
Information furnished to it by the other Party pursuant to this Agreement except
to the extent the receiving Party can demonstrate by competent proof that such
Confidential Information:
7.1.1 was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;
7.1.2 was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving Party;
7.1.3 became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of any obligation of confidentiality
with respect thereto;
7.1.4 was disclosed to the receiving Party, other than under an
obligation of confidentiality to a Third Party, by a Third Party without breach
of any obligation of confidentiality with respect thereto; or
7.1.5 was independently discovered or developed by the receiving
Party without the use of Confidential Information belonging to the disclosing
Party.
Notwithstanding the foregoing, either Party may disclose Confidential
Information of the other Party to those of its employees, agents and consultants
who require such information to perform such Party's obligations under this
Agreement, provided that such employees, agents
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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and consultants are bound by obligations of confidentiality and non-use with
respect to such Confidential Information at least equivalent in scope with those
provided in this Section 7.1.
7.2 Authorized Disclosure. Notwithstanding Section 7.1, each Party may
disclose Confidential Information belonging to the other Party to the extent
such disclosure is reasonably necessary in the following instances:
7.2.1 filing or prosecuting patents relating to Program Products;
7.2.2 making regulatory filings;
7.2.3 prosecuting or defending litigation;
7.2.4 complying with applicable governmental regulations;
7.2.5 conducting pre clinical or clinical trials of Program Products;
and
7.2.6 as necessary to effectuate the [ * ]
Notwithstanding the foregoing, in the event a Party is required to make a
disclosure of the other Party's Confidential Information pursuant to this
Section 7.2 it will, except where impracticable, give reasonable advance notice
to the other Party of such disclosure and endeavor in good faith to secure
confidential treatment of such information. In any event, the Parties agree to
take all reasonable action to avoid disclosure of Confidential Information
hereunder. The Parties will consult with one another and agree on the provisions
of this Agreement to be redacted in any filings made by the Parties with the
United States Securities and Exchange Commission or as otherwise required by
law.
ARTICLE 8 Publication; Publicity.
8.1 Publicity. Except as otherwise provided herein or required by law, no
Party shall make publicly available or provide to any Third Party any
publication, news release or other public announcement, written or oral, whether
in the public press, or stockholders' reports (if applicable), or otherwise,
relating to the existence of or the Parties' performance under this Agreement,
without the prior written approval of the other Party.
ARTICLE 9 Representations And Warranties.
9.1 Representations and Warranties. Each Party hereby represents and
warrants that:
9.1.1 it has full corporate power and authority under the laws of the
state or country of its incorporation to enter into this Agreement and carry out
the provisions hereunder and that the person executing this Agreement on its
behalf has been duly authorized to do so by all requisite corporate action;
9.1.2 it will not take any material action or fail to take any
material action which would be in conflict with its obligations under this
Agreement;
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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9.1.3 to its best knowledge as of the date of this Agreement: (i) it
has full power and authority to undertake the scientific activities required of
it; (ii) [ * ]; and (iii) the [ * ];
9.1.4 as of the date of this Agreement, to the best of its knowledge,
it is not aware of [ * ];
9.1.5 this Agreement is a legal and valid obligation binding upon it
and is enforceable in accordance with its terms; and
9.1.6 the execution, delivery and performance of this Agreement by it
does not conflict with any agreement, oral or written, to which it is a Party or
by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having authority over it.
9.2 Third Party Licenses. Each Party agrees to identify to the other Party
any Third Party Licenses and the technologies to which they pertain. Knoll shall
have no obligation to make any payments whatsoever with respect to such Third
Party Licenses of Tularik. Tularik shall have no obligation to make any payments
whatsoever with respect to such Third Party Licenses of Knoll.
9.3 Tularik Disclaimer. EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.1, THE
TULARIK TECHNOLOGY AND PROGRAM TECHNOLOGY LICENSED HEREUNDER ARE PROVIDED "AS
IS" AND TULARIK EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES 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 ARISING FROM A COURSE OF DEALING,
USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO.
ARTICLE 10 Indemnification.
10.1 Indemnification by Tularik. Tularik hereby agrees to indemnify, hold
harmless and defend Knoll, its employees, directors, officers, agents and
consultants against any and all claims, suits, actions, demands, liabilities,
expenses and/or losses (including without limitation reasonable attorneys' fees
and related legal and court expenses) (collectively, "Claims") for damage to
persons or property resulting directly or indirectly from actions in connection
with this Agreement, but only to the extent that such Claims [ * ], except to
the extent such Claims arise out of or are in connection with any occurrence for
which Knoll must indemnify Tularik pursuant to Section 10.2.
10.2 Indemnification by Knoll. Knoll hereby agrees to indemnify, hold
harmless and defend Tularik, its employees, directors, officers, agents and
consultants against any and all Claims for damage to persons or property
resulting directly or indirectly from actions in connection with this Agreement,
to the extent that such Claims [ * ], except to the extent such Claims arise out
of or are in connection with any occurrence for which Tularik must indemnify
Knoll pursuant to Section 10.1.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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10.3 Control of Defense. Any person or entity entitled to indemnification
under this Article 10 shall give notice to the indemnifying Party of any Claims
that may be subject to indemnification promptly after such Party learns of such
Claim. The indemnifying Party shall assume the defense of such Claims using
counsel reasonably satisfactory to the indemnified Party, and the indemnifying
Party will not be subject to any liability for any settlement of such Claims
made by the indemnified Party without the indemnifying Party's consent (such
consent not to be unreasonably withheld or delayed), and will not be obligated
to pay any fees and expenses of any separate counsel retained by the indemnified
Party with respect to such Claim.
ARTICLE 11 Government Controls.
This Agreement is made subject to any restrictions concerning the export of
Program Products or technical information from the United States that may be
imposed upon or related to the Parties from time to time by the government of
the United States and other applicable jurisdictions. Furthermore, each Party
agrees that it will not export, directly or indirectly, any technical
information acquired from the other under this Agreement or any Program Products
made using such technical information to any country for which the United States
government or any agency thereof, or any other applicable jurisdictions at the
time of export requires an export, license or other governmental approval,
without first obtaining the written consent to do so from the Department of
Commerce or other agency of the United States government, or any other
applicable jurisdictions when required by an applicable statute or regulation.
ARTICLE 12 Term And Termination Of Agreement.
12.1 Term. Except as provided under Section 12.2 below, the term of this
Agreement shall commence upon the Effective Date and shall expire on the
expiration date of the last to expire royalty obligation under Section 4.3.
12.2 Termination for Material Breach. Each Party shall have the right to
terminate the Agreement after [ * ] days written notice to the other that the
other is in material breach of the Agreement, unless the other Party cures the
breach before the expiration of such period of time, or, in the case that such
breach cannot be cured within such period, the Party continues to use diligent
efforts to cure such breach until actually cured. In addition, this Agreement
shall terminate in the event the Collaboration Agreement is terminated pursuant
to Section 15.2 or 15.3 thereof. Upon termination, all licenses granted to the
non-breaching Party shall survive and all licenses granted to the breaching
Party under the Agreement shall automatically terminate, but such termination
shall not impair any other rights the non-breaching Party may have at law or
equity. Upon any termination by Knoll for a breach of this Agreement by Tularik,
Tularik shall be entitled to receive a royalty equal to that provided in Section
4.1 until expiration of all Tularik Patents or Patents claiming the manufacture,
use or sale of such Program Products, reduced by any money damages that may be
awarded to Knoll in connection with any such breach by Tularik and by any costs
incurred in connection with the transition of Tularik's responsibilities under
this Agreement to Knoll, its Affiliate or sublicensee. The provisions of Section
4.3 and Article 5 shall apply with respect to any such amounts due to Tularik
hereunder.
12.3 Accrued Rights; Surviving Obligations. Termination of this Agreement
shall not affect any accrued rights of either Party. The terms of Section 5.3
and Article 7 (for the
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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period specified therein), and Articles 6, 8, 9, 10 and 13 and Sections 12.2 and
12.3 of this Agreement, shall survive termination of this Agreement.
ARTICLE 13 Miscellaneous.
13.1 Waiver. No waiver by either Party hereto of any breach or default of
any of the covenants or agreements herein set forth shall be deemed a waiver as
to any subsequent or similar breach or default.
13.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties and their permitted successors and assigns; provided,
however, that neither Party shall assign any of its rights and obligations
hereunder except (i) as incident to the merger, consolidation, reorganization or
acquisition of stock or assets affecting substantially all of the assets or
actual voting control of the assigning Party or (ii) to an Affiliate.
13.3 Notices. Any notice or other communication required or permitted to
be given to either Party hereto shall be in writing and shall be deemed to have
been properly given and to be effective on the date of delivery if delivered in
person or by facsimile or five (5) days after mailing by registered or certified
mail, postage paid, to the other Party at the following address:
In the case of Tularik: Tularik Inc.
Two Corporate Drive
S. San Francisco, CA 94080
Fax: (650) 829-4303
Attention: Chief Executive Officer
In the case of Knoll: Knoll AG
Knollstrasse
67061 Ludwigshafen
Germany
Attention: Head of R&D
Either Party may change its address for communications by a notice to the
other Party in accordance with this Section.
13.4 Headings. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
13.5 Amendment. No amendment or modification hereof shall be valid or
binding upon the Parties unless made in writing and signed by both Parties.
13.6 Governing Law and Language. This Agreement shall be governed
exclusively by laws of California, U.S.A., excluding any choice of law rules
that may direct the application of the law of any other jurisdiction. The
official text of this Agreement and any appendices, exhibits and schedules
hereto, or any notice given or accounts or statements required by this Agreement
shall be in English. In the event of any dispute concerning the construction or
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
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meaning of this Agreement, reference shall be made only to this Agreement as
written in English and not to any other translation into any other language.
13.7 Force Majeure. Any delays in performance by any Party under this
Agreement (other than either Party's failure to pay money to the other Party,
unless such failure results solely from wire transfer failures beyond the
control of the paying Party, or the like) shall not be considered a breach of
this Agreement if and to the extent caused by occurrences beyond the reasonable
control of the Party affected, including but not limited to acts of God,
embargoes, governmental restrictions, strikes or other concerted acts of
workers, fire, flood, earthquakes, explosion, riots, wars, civil disorder,
rebellion or sabotage. The Party suffering such occurrence shall immediately
notify the other Party as soon as practicable and any time for performance
hereunder shall be extended by the actual time of delay caused by the
occurrence, provided that the affected Party uses reasonable efforts to overcome
such delay.
13.8 Dispute Resolution. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, the
Parties shall try to settle their differences amicably between themselves by
referring the disputed matter to the SC (as defined in the Collaboration
Agreement). Any unresolved disputes arising between the Parties arising out of,
relating to, in connection with or in any way connected with this Agreement or
any term or conditions hereof, or performance by either Party of its obligations
hereunder, whether before or after termination or expiration of this Agreement,
shall be finally resolved by binding arbitration, except that any disputes
regarding the validity, scope or enforceability of a patent shall be submitted
to a court of competent jurisdiction. The arbitration shall be held in San
Francisco, California according to the rules of the American Arbitration
Association ("AAA"). The arbitration will be conducted by a panel of three (3)
arbitrators with significant experience in the pharmaceutical industry appointed
in accordance with applicable AAA rules. Any arbitration herewith shall be
conducted in the English language to the maximum extent possible. Each Party
shall bear its own costs and attorney's and witness' fees. Judgment on the award
so rendered shall be final and may be entered in any court having jurisdiction
thereof.
13.9 Independent Contractors. In making and performing this Agreement,
Knoll and Tularik act and shall act at all times as independent contractors and
nothing contained in this Agreement shall be construed or implied to create an
agency, partnership or employer and employee relationship between Tularik and
Knoll. At no time shall one Party make commitments or incur any charges or
expenses for or in the name of the other Party.
13.10 Severability. If any part of this Agreement is declared invalid by
any legally governing authority having jurisdiction over either Party, then such
declaration shall not affect the remainder of the Agreement and the Parties
shall revise the invalidated part in a manner that will render such provision
valid without impairing the Parties' original interest.
13.11 Cumulative Rights. The rights, powers and remedies hereunder shall
be in addition to, and not in limitation of, all rights, powers and remedies
provided at law or in equity, or under any other agreement between the Parties.
All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
13
<PAGE>
13.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
13.13 Entire Agreement. This Agreement, the Collaboration Agreement and
any and all Exhibits referred to herein embodies the entire understanding of the
Parties with respect to the subject matter hereof and supersedes and terminates
all previous communications, representations or understandings, either oral or
written, between the Parties relating to the subject matter hereof.
In Witness Whereof, the Parties have duly executed this Agreement.
Tularik Inc. Knoll AG
By: By:
----------------------------- -----------------------------
Title: Chief Executive Officer Title:
-------------------------- --------------------------
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
14
<PAGE>
Exhibit A
LICENSED VALIDATED COMPOUND
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Exhibit B
PROGRAM PATENTS AND PATENT APPLICATIONS
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Exhibit C
LICENSE UNDER KNOLL TECHNOLOGY
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
