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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 0-20713
ENTREMED, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 58-1959440
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(State of Incorporation) (I.R.S. Employer Identification No.)
Suite 200, 9610 Medical Center Drive, Rockville, MD 20850
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (301) 217-9858
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Securities registered pursuant to Section 12 (g) of the Act:
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Title of Each Class Name of Exchange on Which Registered
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Common Stock, Par Value $.01 Per Share Nasdaq National Market
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K [X]
As of March 25, 1999, 13,138,328 shares of common stock were outstanding and the
aggregate market value of the shares of common stock held by non-affiliates was
approximately $278,027,000.
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 and the Exhibit Index hereto.
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ENTREMED, INC. AND SUBSIDIARIES
FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 1998
Contents and Cross Reference Sheet
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Form 10-K Form 10-K Form 10-K
Part No. Item No. Description Page No.
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I 1 Business
The Company............................................................................3
Corporate Strategy.....................................................................5
Angiogenesis...........................................................................5
Antiangiogenesis Program...............................................................6
Cell Permeation Technology.............................................................9
Collaborations and License Agreements.................................................11
Academic Collaborations...............................................................13
Competition...........................................................................15
Manufacturing and Marketing...........................................................16
Patents and Proprietary Rights........................................................17
Government Regulation.................................................................19
Employees.............................................................................23
Risk Factors..........................................................................23
2 Properties..................................................................................34
3 Legal Proceedings...........................................................................34
4 Submission of Matters to a Vote of Security Holders.........................................35
II 5 Market for Registrant's Common Equity and
Related Stockholder Matters.................................................................35
6 Selected Financial Data.....................................................................37
7 Management's Discussion and Analysis of
Financial Conditions and Results of Operations
Overview..............................................................................38
Results of Operations.................................................................38
Liquidity and Capital Resources.......................................................39
Year 2000.............................................................................40
Inflation.............................................................................41
7(a) Quantitative and Qualitative Disclosures about Market Risk..................................41
8 Financial Statements and Supplementary Data.................................................41
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................................................41
III 10 - 13 Incorporated by reference from the Company's Proxy Statement................................41
IV 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................................................42
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Financial Statements.........................................................................................................F-1
Signatures..................................................................................................................II - 1
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This document includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements in
this Form 10-K that are not descriptions of historical facts are forward-looking
statements, based on management's estimates, assumptions and projections, that
are subject to risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable as of
the date hereof, actual results could differ materially from those currently
anticipated due to a number of factors, including risks relating to the early
stage of products under development; uncertainties relating to clinical trials;
dependence on third parties; future capital needs; and risks relating to the
commercialization, if any, of the Company's proposed products (such as
marketing, safety, regulatory, patent, product liability, supply, competition
and other risks). Additional important factors that could cause actual results
to differ materially from the Company's current expectations are included in the
section below entitled Risk Factors. The Company assumes no obligation to update
its forward-looking statements.
PART I
ITEM 1 BUSINESS
THE COMPANY
EntreMed, Inc. ("EntreMed" or the "Company") was organized in September
1991 and is engaged primarily in the research and development of
biopharmaceutical products that address the role of angiogenesis, the formation
of new blood vessels, in the prevention and treatment of a broad range of
diseases.
The Company is an innovative biopharmaceutical company with a research
and product focus on the role of angiogenesis in disease. Angiogenesis is the
biological process by which new blood vessels are formed and is a normal process
during the first three months of embryonic development, the reproductive cycle
of women, and in wound healing. At other times, angiogenesis is harmful when
associated with pathology, particularly that of cancer and macular degeneration,
a leading cause of blindness. The Company believes that antiangiogenic products,
which inhibit the abnormal growth of blood vessels, may have fewer adverse side
effects than traditional therapies for these diseases. EntreMed's portfolio of
potential therapeutics include the antiangiogenic compounds, Angiostatin(R)
protein, Endostatin(TM) protein, 2-Methoxyestradiol (2ME) and thalidomide
which are used to block the growth of blood vessels supplying primary and
metastatic tumors.
The Company's product candidates have been developed primarily through
sponsored research collaborations and licensing agreements. The Company's
sponsored research programs are augmented by its internal capabilities in the
angiogenesis field.
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To date, the Company has:
- Licensed from Children's Hospital four antiangiogenic molecules -
Angiostatin(R) protein, thalidomide and thalidomide analogs,
Endostatin(TM) protein and 2ME.
- Licensed to Bristol-Myers Squibb Company commercial rights to
Angiostatin(R) protein, thalidomide and thalidomide analogs.
- Isolated, identified, sequenced, cloned, and recombinantly
expressed Angiostatin(R) and Endostatin(TM) proteins in quantities
sufficient for preclinical studies. In preclinical studies,
Angiostatin(R) and Endostatin(TM) proteins appeared to inhibit
vascularization and growth of primary and metastatic tumors.
- Initiated scale-up manufacturing of Angiostatin(R) and
Endostatin(TM) proteins for clinical studies.
- Completed Phase II clinical trials evaluating the antiangiogenic
effects of thalidomide in inhibiting the progression of brain
cancer, prostate cancer, and Kaposi's sarcoma.
- Reacquired commercial rights to thalidomide, thalidomide analogs
and Angiostatin(R) protein from Bristol-Myers Squibb Company.
Assumed responsibility for preclinical, pharmaceutical development
and clinical studies of Angiostatin(R) protein from Bristol-Myers
Squibb Company.
- Signed a Cooperative Research and Development Agreement (CRADA)
with the National Cancer Institute ("NCI") to undertake
pharmacology and toxicology studies and also to develop commercial
production methods for Endostatin(TM) protein.
- Signed a sponsored research agreement with a Harvard Medical
School collaborator who has determined the crystal structure of
Endostatin(TM) protein.
- Announced product launch of Endostatin(TM) protein ACCUCYTE(TM)
Immunoassay Kit developed collaboratively with CytImmune Sciences
Inc. The kit is the first commercially available immunoassay kit
for the detection of human Endostatin(TM) protein in biological
fluids such as blood.
- Signed a contract with Covance Biotechnology Services, Inc. for
Good Manufacturing Practices ("GMP") production of Endostatin(TM)
protein for further preclinical and early clinical studies.
- Signed an agreement to sublicense commercial rights to thalidomide
to Celgene Corporation. Celgene and NCI have expanded clinical
trials to additional oncology applications.
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- Developed internally a portfolio of antiangiogenic molecules that
are in preclinical development.
CORPORATE STRATEGY
The Company's strategy is to discover and develop novel antiangiogenic
therapeutics as well as other promising technologies, such as cell permeation,
which the Company perceives to have clinical and commercial potential. The
principal elements of the Company's strategy are (i) to focus its resources on
current core technologies, (ii) to broaden its product and technology portfolio
through sponsored research collaborations with academic institutions, government
organizations and private enterprises, (iii) to augment product development with
its in-house research and development capabilities and (iv) to leverage its
resources through corporate partnerships in order to minimize the cost to the
Company of late-stage clinical trials and to accelerate product
commercialization. The Company's product candidates are in the developmental
stage and require further research, evaluation, and regulatory approval. No
assurance can be given that any product candidate will result in a product
capable of commercial use.
ANGIOGENESIS
Overview
Within the human body, a network of arteries, capillaries and veins,
known as the vasculature, functions to transport blood throughout the tissues.
The basic network of the vasculature is developed through angiogenesis, a
fundamental process by which new blood vessels are formed. The primary
angiogenic period in humans takes place during the first three months of
embryonic development. During this period, cytokines and growth factors, which
are normally suppressed, are activated to stimulate the growth of new blood
vessels. Once the general network of the blood vessels is complete, these
angiogenic stimulators are inhibited and blood vessels grow longer and larger in
diameter until adulthood through a different process termed vasculogenesis.
Angiogenesis and Cancer
The term cancer includes many different types of uncontrolled cellular
growth. Clusters of cancer cells, referred to as tumors, may destroy surrounding
organs, impair physiological function and often lead to death. In order to
survive, cancer cells require oxygen and nutrients, which they receive from the
body's blood supply. In order to access this blood supply, cancer cells initiate
a biochemical mechanism that stimulates angiogenesis to provide the blood supply
that nourishes the tumor. As cancer cells grow and metastasize (spread from
primary sites to other parts of the body) they require continuous angiogenesis.
Antiangiogenic drug candidates are intended to inhibit the growth of
tumor-feeding blood vessels and may prove to be effective in treating certain
cancers, with fewer adverse side effects than current therapies. Cancer is the
second leading cause of death in the United States and it is estimated that
approximately 1,200,000 new cases of cancer are expected to be diagnosed in
1998. (Source: American Cancer Society).
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Existing cancer treatments include surgery, radiation therapy and
chemotherapy. Surgery is an invasive method of removing tumors. However, some
tumors are currently deemed inoperable due to their location, extent of organ
infiltration or size. Radiation therapy produces ionized molecules within the
body that attack cancer cells, and may also damage surrounding healthy cells.
Chemotherapy involves the administration of toxic substances (cytotoxins)
designed to kill cancer cells and usually produces severe side effects. In
addition, resistance to chemotherapy occurs over time. The Company believes that
its antiangiogenic therapeutics may prove to have significant advantages over
traditional cancer therapies, including reduced toxicity, and lack of drug
resistance, and may be administered in conjunction with other antiangiogenic and
traditional therapies.
Angiogenesis and Blindness
Angiogenesis within the eye, a condition often associated with diabetes
and macular degeneration, is a major cause of blindness. Macular degeneration,
which is often age-related, and diabetic retinopathy, a secondary effect of
diabetes, both involve the formation of new blood vessels behind, or in front of
the retina, respectively. The blood vessels that grow in front of the retina
block vision and the blood vessels that grow behind the retina often hemorrhage
or cause retinal detachment each resulting in a decrease or loss of vision. It
is estimated that approximately eight million people in the U.S. have diabetic
retinopathy, and that twenty-five thousand cases result in blindness each year.
It is estimated that approximately thirteen million Americans suffer from
macular degeneration. Nearly two million of these people will develop vision
impairment, of which one hundred thousand will develop blindness each year.
(Source: Prevent Blindness America). Current treatments for diabetic retinopathy
and to a more limited extent, macular degeneration involve laser-based
photocoagulation therapy, which often causes additional damage to the retina and
surrounding cells.
Angiogenesis and Other Disease Indications
A variety of other disease indications are related to angiogenesis,
including rheumatoid arthritis, atherosclerosis, psoriasis and Crohn's disease.
The Company believes that its antiangiogenic technologies may be applicable to
such diseases. To date, the Company has not researched antiangiogenic therapy in
diseases outside of cancer or macular degeneration. There can be no assurance
that the Company will pursue research outside these two indications, that
product candidates will result from any research undertaken, or that any
products for these diseases will ever be commercialized.
ANTIANGIOGENESIS PROGRAM
The Company believes that certain small molecules or proteins that
exhibit antiangiogenic effects may be useful as therapeutics for diseases
involving angiogenesis. The Company currently focuses on angiogenesis
inhibition as a treatment for oncologic and ophthalmologic indications. Product
candidates under development include: (i) recombinant human Angiostatin(R) and
Endostatin(TM) proteins, each an angiogenesis inhibitor naturally produced by
the body; (ii) 2ME, an orally-active small molecule angiogenesis inhibitor, and
its chemical analogs; and (iii) chemical analogs of thalidomide which inhibit
angiogenesis. The Company is also developing vaccines
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against angiogenesis, and conducting research on other endogenous proteins that
exhibit potent antiangiogenic effects in preclinical studies. The Company
believes that, if successfully developed, these products could be used alone or
in combination with each other to treat certain angiogenic-related diseases.
Product Candidates
Recombinant Human Angiostatin(R) Protein and Endostatin(TM) Protein. The
Company is currently developing two endogenous proteins, Angiostatin(R) protein
and Endostatin(TM) protein, in a recombinant human form as potential long term
cancer therapeutics to prevent metastatic disease and as therapies for primary
tumors. These two proteins are different in molecular structure.
Metastatic tumor growth is attributed to the implantation and growth of
tumor cells at secondary sites. These tumor cells are released by a primary
tumor, or are released into circulation during surgical removal of the primary
tumor. Although surgeons generally remove significant amounts of healthy tissue
surrounding the tumor, in many cases "seed cancer cells" have already escaped
the primary tumor, circulated through the body, and become embedded elsewhere.
It has been observed that in certain cases, these seed cells, or metastases, do
not vascularize nor grow while the primary tumor is in place. However, after the
primary tumor is removed, metastatic tumors often grow rapidly.
In Company-sponsored research at Children's Hospital, a substance
associated with primary tumors was identified which appears to prevent
vascularization and growth of metastatic tumors. Based upon such research, the
Company believes that primary tumors secrete an enzyme that cleaves plasminogen,
a known protein associated with blood clotting, into a smaller, previously
undiscovered protein. The Children's Hospital team isolated and identified the
protein in 1995, which the Company named Angiostatin(R) protein. The Company has
cloned and expressed the gene that codes for Angiostatin(R) protein, and is now
pursuing recombinant production of Angiostatin(R) protein in anticipation of
clinical trials.
In 1996, the Children's Hospital team also isolated and identified a
second endogenous protein, named Endostatin(TM) protein. The gene for
Endostatin(TM) protein has been cloned and expressed by the Company. Preclinical
studies, including the murine Lewis Lung Carcinoma ("LLC") metastatic model,
demonstrated that both Angiostatin(R) and Endostatin(TM) proteins inhibited the
growth of metastatic tumors. In addition, the Angiostatin(R) protein was shown
to reduce the size of primary murine carcinomas and sarcomas as well as human
prostate, breast and colon cancers grown in immunodeficient mice.
Endostatin(TM) protein was also shown to reduce the size of primary rodent
carcinomas, including murine Lewis lung, melanoma and rat glioma, as well as
human prostate cancer grown in immonodeficient mice.
The Company is addressing additional required preclinical studies for
Angiostatin(R)protein and Endostatin(TM) protein. The Company is currently
working to produce both proteins in quantities sufficient for clinical studies.
In addition, the Company is collaborating with the NCI to pursue the preclinical
and clinical development of Endostatin(TM) protein.
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The Company currently anticipates that either or both the Angiostatin(R)
protein or Endostatin(TM) protein, as endogenous angiogenesis inhibitors, could
be administered as an adjunct therapy after cancer diagnosis and sustained
thereafter. The Company believes that there may be utility in using these
proteins in combination and that these proteins may also be effective in
inhibiting other angiogenic diseases such as diabetic retinopathy and macular
degeneration, although the Company has not conducted any research to date in
these areas. The Company has obtained exclusive licenses from Children's
Hospital for patent applications filed on the Angiostatin(R) and Endostatin(TM)
proteins and related technology.
2-Methoxyestradiol (2ME) and 2ME Analogs. In January 1997, the Company
licensed the worldwide rights to 2ME, an orally-active, small molecular weight
antiangiogenic and antiproliferative agent. In preclinical studies, this natural
estrogen metabolite discovered by Dr. Robert D'Amato and his colleagues,
inhibited the growth of human breast tumor cells in vivo and also yielded a
marked decrease in microvessel density associated with tumors.
The January 1, 1997 issue of Cancer Research reported the results of
collaborative preclinical trials of 2ME. Dr. D'Amato's report in this
distinguished medical journal indicated that 2ME acts by inhibiting the cellular
machinery involved in replicating cancer cells. However, 2ME further acts as an
antiangiogenic agent. The compound exhibits minimal toxicity in preliminary
animal studies and is administered orally. As a result of these initial
promising results, the NCI is collaborating with the Company in the clinical
development of 2ME and exploration of methods for commercial production of the
molecule.
In keeping with its business strategy, the Company may continue developing
2ME with the NCI, or may collaborate with a strategic partner for ultimate
commercialization.
Thalidomide and Thalidomide Analogs. The Company, together with its
collaborator Celgene, is evaluating the antiangiogenic properties of the drug
thalidomide. Thalidomide, which was widely prescribed as a sedative in Europe in
the late 1950s and early 1960s, caused severe birth defects when taken by
pregnant women. The Company believes that thalidomide may have affected fetal
development and caused birth defects by blocking new blood vessel growth, a
characteristic that may make thalidomide useful in the prevention and treatment
of angiogenic disorders. Thalidomide has been shown to block angiogenesis in
preclinical animal studies conducted at Children's Hospital.
In order to expand the Company's small molecule antiangiogenic portfolio
and obtain composition of matter patents, the Company has commenced research on
chemical analogs of thalidomide which have similar mechanisms of action and
focus on the antiangiogenic therapeutic potential of this drug. The Company
proposes to develop a thalidomide analog as an oral therapeutic to inhibit the
progression of certain angiogenic diseases, including cancer and certain causes
of blindness.
The Company and the NCI initiated Phase II clinical trials in 1996 to
evaluate the antiangiogenic effects of thalidomide in inhibiting the progression
of breast cancer, prostate cancer and Kaposi's sarcoma. The Company also
initiated and expanded a Phase II clinical trial for brain cancer in 1996. In
May 1997, the Company announced successful interim results in brain
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cancer and Kaposi's sarcoma patients treated with thalidomide. In June 1997,
the Company and the NCI announced an increase in the number of prostate cancer
patients in NCI-sponsored Phase II clinical trials of thalidomide. In August
1997, the Company reacquired the commercial rights to thalidomide in exchange
for renewing Bristol-Myers Squibb's warrant to purchase an additional
$10,000,000 of the Company's common stock. In December 1998, the Company
sublicensed commercial rights to thalidomide to Celgene in return for royalty
payments on thalidomide sales. Celgene will be responsible for further clinical
study and marketing of thalidomide. See "-- Collaborations and License
Agreements", "--Competition", and "--Patents and Proprietary Rights". The
Company continues to study the antiangiogenic effects of thalidomide analogs.
Thalidomide was additionally shown to inhibit the abnormal formation of
blood vessels in the eye in animal studies performed at Children's Hospital. The
Company is concluding Phase II clinical trials at the Scheie Eye Institute at
the University of Pennsylvania School of Medicine and with the Retina Associates
of Cleveland to evaluate the antiangiogenic effects of thalidomide in blindness
due to age-related macular degeneration. The Company has recently transferred
this IND application to Celgene.
Thalidomide has been approved for sale in the United States as a
treatment for patients with leprosy. Celgene Corporation received approval from
the U.S. Food and Drug Administration ("FDA") for the use of thalidomide in
erythema nodosum leprosum, an inflammatory skin condition of some leprosy
patients.
Other Antiangiogenesis Research
The Company maintains an internal discovery and development program and
also continues to sponsor and support research at Children's Hospital on
angiogenesis technologies with the aim of discovering additional antiangiogenic
products. The Company's research in these areas is currently early stage,
although the Company has identified other proteins and compounds with angiogenic
or antiangiogenic properties that may be candidates for further development.
CELL PERMEATION TECHNOLOGY
Overview
The Company is applying its expertise in the role of blood function to
the development of a cell permeation technology that may facilitate the delivery
into blood cells of drugs, genes or other therapeutic agents that otherwise
would not readily permeate through the cell membrane. To date, the Company has
focused its cell permeation research primarily on a method of enhancing the
oxygen delivery capabilities of blood.
Human blood is comprised of four components: red blood cells, white blood
cells, plasma and platelets. The principal functions of human blood are to
transport oxygen and nutrients to tissues, carry waste products away from
tissues and defend the body against infection. Hemoglobin, a protein-iron
molecule contained within red blood cells, is responsible for carrying oxygen
from the lungs to tissues throughout the body. Tissues and organs in the body
require oxygen to function properly, and oxygen deficiency may lead to tissue
damage or death. In human
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blood, each hemoglobin molecule normally carries four molecules of oxygen, but
releases only one. It has been proposed that inositol hexaphosphate ("IHP"), a
naturally occurring plant chemical, may enhance the oxygen releasing
capabilities of hemoglobin by allowing the release of up to three oxygen
molecules. The theory that IHP could enhance the oxygen releasing capacity of
hemoglobin has been proposed for several years. Scientists have observed that a
molecule similar to IHP found in the hemoglobin of birds is more efficient at
facilitating the release of oxygen than a corresponding molecule (2,3
diphosphoglycerate, or 2,3 DPG) found in human hemoglobin. However, IHP does
not readily diffuse through the cell membrane of human red blood cells and
previous techniques used to introduce IHP into red blood cells showed
significant problems and resulted in substantial cell damage. The Company's
research is focused on overcoming these problems.
The Company's research has led to the development of a prototype device
designed to introduce IHP into red blood cells without significant cell damage.
The Company intends to develop this application as a therapeutic in such chronic
and acute diseases as angina, congestive heart failure, heart attacks, and other
diseases involving inadequate circulation or respiratory functions. Existing
methods of treatment for these diseases, including surgical remedies, drug
therapies and non-surgical devices, treat such diseases by seeking to increase
blood flow, rather than increasing the blood's oxygen releasing capacity. As
IHP-treated blood may release more oxygen to tissues than untreated human blood,
it may also be possible that a smaller amount of IHP-treated blood can be
transfused to obtain equivalent tissue oxygenation.
Device for Oxygen Enhanced Blood Delivery
The Company has constructed a prototype device designed to introduce IHP
molecules into red blood cells, which may enhance the delivery of oxygen to
tissues and organs, and is sponsoring contract research and development on
IHP-treated blood. Several research prototype flow electroporation devices have
been constructed and the accompanying reagents have been developed, although
design activities are ongoing and there can be no assurance that a clinically
acceptable device will be completed. The Company intends to conduct preclinical
toxicology studies required to demonstrate the safety and efficacy of
IHP-treated red blood cells in enhancing the delivery of oxygen to tissues in
relevant disease states.
The Company's flow electroporation technology is based on Company
sponsored research previously conducted at the Center for Blood Research
Laboratories at Harvard Medical School ("CBRL"). In November 1992, the Company
obtained an exclusive worldwide license to this technology from the CBRL in
exchange for cash payments and royalties based on sales, and a United States
patent was received from the U.S. Patent and Trademark office in March 1998
covering the electroporation chamber, a core component of the Company's cell
permeation technology. Device and disposable component engineering and
development have and continue to be conducted by a contract
developer/manufacturer.
Other Cell Permeation Applications
In addition to IHP-treated red blood cells and platelets, the Company is
also exploring another application of its cell permeation technology. This
application involves platelets, which
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function to participate in the formation of blood clots and to help maintain
hemostatis. Through the use of the cell permeation technology and associated
reagents, platelets may be preserved for several months, as opposed to the
standard used today which is only five days.
The Company is in discussions with medical device companies and is
seeking to enter into collaborative arrangements with such companies to develop
and commercialize the Company's cell permeation technology. However, there can
be no assurance that any such agreements will be entered into with any of these
companies or that the terms of any agreement will be favorable to the Company.
COLLABORATIONS AND LICENSE AGREEMENTS
General. The Company intends to continue to develop in-licensed products
and to enter into collaborations and licensing agreements with corporate
partners for product development, manufacturing and marketing. The Company
believes that it will be necessary to enter into collaborative arrangements with
other companies in the future to develop, commercialize, manufacture and market
its cell permeation technology, as well as other products or technologies it may
acquire or develop.
Bristol-Myers Squibb Company Collaboration. In December 1995, the Company
entered into the BMS Collaboration to further the development of certain
antiangiogenic products. The BMS Collaboration provided for a five year research
program, the grant to Bristol-Myers Squibb of an exclusive license to the
Company's thalidomide, thalidomide analogs and Angiostatin(R) protein
technologies and an equity investment in the Company by Bristol-Myers Squibb.
The Company granted Bristol-Myers Squibb an exclusive worldwide
royalty-bearing sublicense to make, use and sell products that were based upon
the Company's thalidomide, thalidomide analogs and Angiostatin(R) protein.
Bristol-Myers Squibb's rights were subject to the terms of the Company's
licenses from Children's Hospital. The Company received an up-front license fee
of $1,000,000, a portion of which was paid to Children's Hospital pursuant to
the Company's license agreement with Children's Hospital. In the event that
Bristol-Myers Squibb brought any antiangiogenic product to market, Bristol-Myers
Squibb would pay royalties to the Company. If the Company received any royalties
from Bristol-Myers Squibb, the Company would pay a portion of such royalties to
Children's Hospital pursuant to its license agreement. The Company retained
certain co-promotion rights in the United States if Bristol-Myers Squibb
elected to seek a promotion partner with respect to any products covered by the
BMS Collaboration.
Pursuant to the research collaboration, Bristol-Myers Squibb provided
certain funding to the Company, and the Company performed certain research in
support of Bristol-Myers Squibb's efforts to develop antiangiogenic therapeutics
protein. Bristol-Myers Squibb paid the Company an initial sum of $2,500,000 in
consideration of know-how and research and development previously performed by
the Company. In addition, Bristol-Myers Squibb paid $730,000 to reimburse the
Company for thalidomide clinical studies. For research performed by the Company
under the research collaboration, Bristol-Myers Squibb agreed to provide funding
of $18,350,000, payable in ten semi-annual payments of $1,835,000, of which
$12,845,000 has been paid to date.
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Pursuant to the BMS Collaboration, Bristol-Myers Squibb purchased 541,666
shares of the Company's Common Stock for $12.00 per share in a private placement
in December 1995 and purchased an additional 333,333 shares of Common Stock
concurrent with the Company's June 1996 initial public offering at the initial
public offering price per share of $15.00 per share. The Company has granted to
Bristol-Myers Squibb certain registration rights with respect to all of these
shares.
Though as originally executed, the BMS Collaboration granted
Bristol-Myers Squibb licenses to thalidomide and thalidomide analogs,
Bristol-Myers Squibb has since relinquished its rights to these compounds. In
August 1997, the Company reacquired the commercial rights to thalidomide and in
October 1998, the Company reacquired the commercial rights to thalidomide
analogs.
In February 1999, the BMS Collaboration was modified and the Company
assumed the responsibility to conduct preclinical and clinical work on the
Angiostatin(R) protein. As a result, Bristol-Myers Squibb's rights of first
offer with respect to products or technology arising out of the Company's
agreement with Children's Hospital terminated, including those with respect to
Endostatin(TM) protein. Upon completion of Phase II clinical trial(s),
Bristol-Myers Squibb may elect to pay the Company a $1 million option exercise
fee to reacquire further development and marketing rights to Angiostatin(R)
protein. If the Company agrees to accept the Bristol-Myers Squibb payment, the
financial terms applicable to commercialization will remain as in the original
research collaboration, except that the Company's worldwide royalty rate will be
substantially increased. The Company also has an opportunity, prior to the
completion of Phase II clinical studies or the exercise of Bristol-Myers
Squibb's option, to license commercial rights to Angiostatin(R) protein to a
third party or to proceed with the development and/or commercialization of
Angiostatin(R) protein without a corporate partner. Bristol-Myers Squibb is
licensed, on a royalty free basis, to conduct further internal research with
regard to the Angiostatin(R) protein and will exchange with the Company any data
it obtains on the Angiostatin(R) protein. This license will continue for a
minimum of one year, and thereafter until the termination of Bristol-Myers
Squibb's option as described above. In addition, if Bristol-Myers Squibb
exercises its option pursuant to the February 1999 modification, the Company may
be entitled to receive additional payments based upon the achievement of
defined and primarily late-stage clinical development and regulatory filing
milestones.
The Bristol-Myers Squibb eighth semi-annual research support payment due
to the Company pursuant to the BMS Collaboration will be prorated in 1999 and
will be the final research payment under the research collaboration. All patent
and related costs incurred by the Company during the period covered by the final
research payment will be reimbursed to the Company by Bristol-Myers Squibb.
Under the February 1999 modification, Bristol-Myers Squibb will retain
its equity interest in the Company and is restricted from selling its full
interest in the Company without the Company's consent until at least December 1,
2001.
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Celgene Corporation Sublicense Agreement. In December of 1998 the Company
sublicensed on a worldwide basis its intellectual property covering thalidomide,
but not thalidomide analogs, to Celgene Corporation. According to the agreement,
Celgene will be responsible for the sales of thalidomide worldwide and for
obtaining regulatory approval for indications covered by the Company's and
Celgene's intellectual property. The Company will receive annual royalty
payments from Celgene based on all of Celgene's net sales of thalidomide
regardless of indication. Celgene has received approval from the FDA to sell
thalidomide in the U.S. for erythema nodosum leprosum, an inflammatory
complication of leprosy.
Covance Biotechnology Services, Inc. Contract. The Company has entered
into a contract with Covance under which Covance is responsible for scaling up
the production of Endostatin(TM) protein and for developing procedures that will
provide maximum yield of Endostatin(TM) protein. Under the contract, Covance
will produce clinically relevant quantities of Endostatin(TM) protein under GMP
conditions for the Company. The Company anticipates that completion of
production under the agreement will take place during 1999. In February 1999,
the Company entered into a letter of intent with Covance for the production of
Angiostatin(R) protein under GMP conditions.
ACADEMIC COLLABORATIONS
General. In addition to its in-house research program, the Company
collaborates with several academic institutions to sponsor research in areas of
the Company's product development interests. Usually, research sponsored at
outside academic institutions is performed in conjunction with additional
in-house research. Often, the faculty members responsible for supervision of the
research performed at the academic institution will participate further as
consultants to the Company's in-house effort.
Typically under these collaborations, the Company agrees to sponsor the
research with a specified budget over a specified time period, usually one to
three years. In return, the Company usually obtains an exclusive license, with
the right to grant sublicenses, and the right to further develop and market
products that arise out of the technology being sponsored. Under several of
these collaborations, the Company is required to meet specified milestones or
diligence requirements in order to retain its license of such technologies.
There can be no assurance that the Company will satisfy these milestones and
diligence requirements and be able to retain such licenses. In addition to
providing research support, the Company usually is required to pay royalties to
the academic institution on sales of any licensed products resulting from such
research. The Company, in most instances, files and prosecutes patent
applications on behalf of the institutions.
Children's Hospital. The Company's primary academic collaboration is with
Children's Hospital. In September 1993, the Company entered into a sponsored
research agreement with Children's Hospital to sponsor research conducted under
the direction of Dr. M. Judah Folkman on the role of angiogenesis in
pathological conditions for a period of three years. This agreement was amended
in 1995 to, among other things, extend its term through October 1999. Under the
agreement, as amended in August 1995, the Company agreed to pay to Children's
Hospital $11,000,000, of which $10,000,000 was paid through December 31, 1998
and the remaining
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$1,000,000 is due on March 29, 1999. The Company also granted Children's
Hospital options to acquire 83,334 shares of Common Stock at an exercise price
of $6.00 per share and 50,000 shares of Common Stock at an exercise price of
$6.38 per share. In return for the funding commitments, the Company received
certain options to fund additional research projects and to obtain licenses to
any intellectual property developed by Children's Hospital in any projects
sponsored by the Company.
The Company has an exclusive option to negotiate with Children's Hospital
to fund any new projects arising from Dr. Folkman's core laboratory activities.
If during this option period, no funding agreement is reached, Children's
Hospital may seek third party funding. However, for a period of one year,
Children's Hospital may not grant better terms to any third party without first
offering the funding opportunity to the Company on similarly favorable terms.
Any new technology discovered by Children's Hospital out of research
sponsored by the Company shall become the property of Children's Hospital.
Likewise, any new technology discovered by the Company in support of research
performed at Children's Hospital shall be the property of the Company. Joint
discoveries shall become the property of both the Company and Children's
Hospital. The Company has an exclusive nine month option to negotiate an
exclusive, worldwide, royalty-bearing license to any technology discovered by
Children's Hospital in any project sponsored by the Company. This period may be
extended by the Company for an additional six months if the Company pays for the
filing of a non-provisional patent application for such technology. If no
license agreement is reached during these periods, Children's Hospital may
license the technology to a third party. However, for a period of one year,
Children's Hospital may not offer a license to any third party on better terms
than those last offered by the Company without first offering the Company a
license on similar terms.
The Company exercised its option in May 1994 to obtain exclusive
worldwide licenses to certain oral antiangiogenic technology (thalidomide and
its analogs), cancer diagnostic and prognostic technology, endogenous
antiangiogenic technology and Angiostatin(R) protein. In December 1996, the
Company exercised its option to obtain the exclusive worldwide licenses to
EndostatinTM protein and 2ME, an orally available angiogenesis inhibitor. These
license agreements provide for certain milestone payments by the Company to
Children's Hospital as well as royalties based on sales of any products
developed from the licensed technologies. The milestone payments aggregate
$4,650,000, of which $915,000 has been paid through December 31, 1998, and are
based upon license fees and the achievement of regulatory approvals.
If the Company fails to make a required royalty payment, is not diligent
in working to fulfill a milestone, or fails to achieve any milestone by the
applicable deadline, Children's Hospital may have the right to terminate a
license upon 90 days notice. The Company has a one year period in which to cure
the lack of diligence under a milestone if the failure to meet a milestone is
due to circumstances outside of the Company's control as judged at the sole
discretion of Children's Hospital.
The Company may sublicense any technologies licensed from Children's
Hospital. The Company, however, must pay to Children's Hospital a portion of all
sublicensing payments, which do not include payments to support research and
development by the Company or equity
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investments in the Company. The Company must also pay to Children's Hospital a
portion of the royalty income it receives under any sublicense.
Other Collaborators. The Company also has collaborative relationships
with Columbia University (Cell Permeation Technology), Harvard Medical School
(Dr. Bjorn Olsen -- Endostatin(TM) protein), the University of Cincinnati (Cell
Permeation Technology), and Notre Dame University (Dr. Frances Castellino --
Angiostatin(R) protein/plasminogen). The Company is open to developing
additional relationships as appropriate to further its research interests.
The Company intends to continue to sponsor research at other companies,
or academic or other institutions in selected areas in exchange for rights to
technologies and products derived from such sponsored research. The Company
expects to focus on sponsored research in areas in which it has existing
expertise or where a strong market opportunity is perceived. The Company may
establish subsidiaries to develop and commercialize promising technologies or
products generated from this research, which may create opportunities for
separately financing and managing new development programs.
COMPETITION
Competition in the pharmaceutical, biotechnology and biopharmaceutical
industries is intense and based significantly on scientific and technological
factors, the availability of patent and other protection for technology and
products, the ability and length of time required to obtain governmental
approval for testing, manufacturing and marketing and the ability to
commercialize products in a timely fashion. Moreover, the biopharmaceutical
industry is characterized by rapidly evolving technology that could result in
the technological obsolescence of any products developed by the Company. The
Company competes with many specialized biopharmaceutical firms, as well as a
growing number of large pharmaceutical companies that are applying biotechnology
to their operations. Many biopharmaceutical companies have focused their
development efforts in the human therapeutics area, and many major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical
companies. These companies, as well as academic institutions, governmental
agencies and private research organizations, also compete with the Company in
recruiting and retaining highly qualified scientific personnel and consultants.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds may be developed and ultimately
approved by regulatory authorities. The Company may rely on third parties to
commercialize its products, and accordingly, the success of these products will
depend in significant part on these third parties' efforts and ability to
compete in these markets. The success of any collaboration will depend in part
upon the Company's collaborative partners' own competitive, marketing and
strategic considerations, including the relative advantages of alternative
products being developed and marketed by the Company's collaborative partners
and its competitors.
The Company is aware of companies and research institutions investigating
the role of angiogenesis generally and specifically as it may be useful in
developing therapeutics to treat various diseases associated with abnormal blood
vessel growth. In studies available to date, these
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angiogenic inhibitors have shown varying effectiveness in inhibiting
angiogenesis and differing degrees of bioavailability and toxicity. Significant
further preclinical and clinical development of these products is needed prior
to an assessment of the more significant competitive product candidates in the
antiangiogenic disease indications targeted by the Company.
The Company is aware of other companies developing thalidomide and
certain of its chemical analogs for various disease indications, including its
collaborative partner, Celgene Corporation, for the treatment of erythema
nodosum leprosum ("ENL"), AIDS-related cachexia (or wasting) and mouth ulcers,
and Andrulis Pharmaceuticals, for diabetes. Celgene has received approval from
the FDA for the use of thalidomide in ENL. In 1997, two patents licensed to the
Company were issued to Children's Hospital by the U.S. Patent and Trademark
Office covering the use of thalidomide to treat angiogenic-mediated diseases
including cancer, macular degeneration and rheumatoid arthritis. These patents
have, in turn, been sublicensed by the Company to Celgene. Although the Company
believes that these patent rights would preclude any company other than Celgene
from marketing thalidomide for antiangiogenic indications, there can be no
assurance that any patent will issue or afford meaningful protection. If a
competitor of Celgene and the Company receives approval to market thalidomide
for a particular disease indication, "off-label" use of thalidomide could
adversely affect the Company's business and operations. Although the FDA does
not permit a manufacturer or distributor to market or promote an approved drug
for an unapproved off-label use or dosage level, under its "practice of
medicine" policy, the FDA generally does not prohibit a physician from
prescribing an approved drug product for an unapproved use or dosage. In
addition, the FDA has from time to time proposed to liberalize its restrictions
on the dissemination of off-label information.
Although the Company's focus is on blood cell permeation, a number of
companies utilize or are developing cell permeation or drug delivery
technologies and competition for the development of drug delivery products is
intense. The Company also anticipates that IHP-treated blood (which is not
technically a blood replacement), will compete for use in blood transfusions
with readily available products, including whole human blood or packed red
blood cells, and products under development, such as blood substitutes.
Many of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than the Company
and may be better equipped to develop, manufacture and market products. In
addition, many of these competitors have extensive experience in preclinical
testing and human clinical trials and in obtaining regulatory approvals. The
existence of competitive products, including products or treatments of which the
Company is not aware, or products or treatments that may be developed in the
future, may adversely affect the marketability of products which may be
developed by the Company.
MANUFACTURING AND MARKETING
The Company's strategy is to enter into collaborative arrangements with
pharmaceutical and other companies for the development, manufacturing and
marketing of products requiring broad marketing capabilities and for overseas
marketing. These collaborators are generally expected to be responsible for
funding or reimbursing all or a portion of the development costs, including the
costs of clinical testing necessary to obtain regulatory clearances and for
commercial
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scale manufacturing, in exchange for exclusive or semi-exclusive rights to
market specific products in particular geographic territories. The Company had
elected to partner with Bristol-Myers Squibb for the development of
Angiostatin(R) protein, thalidomide, and thalidomide analogs. This partnership
agreement has been significantly modified. See "-- Collaborations and License
Agreements". The Company has formed a partnership with Celgene Corporation for
the development and commercialization of thalidomide. In addition, the Company
has entered into a contract with Covance under which Covance is responsible for
scale-up production and yield development procedures for Endostatin(TM) protein
manufacture. Under certain circumstances, the Company may elect to develop
and/or sell products alone. See "-- Collaborations and License Agreements".
The Company presently has all rights to Endostatin(TM) protein,
Angiostatin(R) protein, 2ME, and thalidomide analogs. Additionally, the Company
has entered into an agreement with the NCI for the preclinical and clinical
development of Endostatin(TM) protein. This agreement provides useful support
for these programs while preserving the Company's opportunities for
commercialization either alone or with a corporate partner. The Company may, in
the future, consider manufacturing or marketing certain products directly and
co-promoting certain products if it believes it is appropriate under the
circumstances.
The Company has no experience in manufacturing or marketing products on a
commercial scale and does not have the resources to manufacture or market by
itself on a commercial scale any of its product candidates. In the event the
Company decides to establish a manufacturing facility, the Company will require
substantial additional funds, and will be required to hire and train significant
additional personnel and comply with the extensive Good Manufacturing Practice
regulations applicable to such a facility.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain patent
protection for its products, both in the United States and abroad. The patent
position of biotechnology and pharmaceutical companies, in general, is highly
uncertain and involves complex legal and factual questions.
The intellectual property that the Company has licensed exclusively from
Children's Hospital includes three pending U.S. patent applications and seven
issued patents covering Angiostatin(R) protein, nucleic acid coding for the
Angiostatin(R) protein, the use of Angiostatin(R) protein as a therapeutic agent
and the use of Angiostatin(R) protein as a diagnostic agent. The Company has two
U.S. patent applications directed to peptides and proteins that bind
specifically to Angiostatin(R) protein.
The Company also has an exclusive, worldwide license from Children's
Hospital which includes nine pending U.S patent applications and three issued
patents covering the thalidomide molecule and thalidomide analogs as
antiangiogenic agents for the treatment of a wide variety of diseases that are
caused by uncontrolled angiogenesis. These patent applications also include
composition of matter coverage for certain thalidomide analogs. Composition of
matter patent
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protection is not available for the molecule "thalidomide". The Company is
aware of several other issued patents covering certain non-antiangiogenic uses
of thalidomide. Although the Company believes that the claims in such patents
will not interfere with the Company's proposed use of thalidomide, there can be
no assurance that the holders of such patents will not be able to exclude the
Company from using thalidomide for other non-antiangiogenic uses of
thalidomide. The Company has entered into a license agreement with Celgene
Corporation under which the Company has licensed to Celgene the use of
thalidomide for treatment of antiangiogenic-mediated diseases.
In addition, the Company has licensed technology from Children's Hospital
which covers molecules related to estrogenic compounds, such as 2ME, that are
anti-mitotic agents and antiangiogenic compounds. There are five pending U.S.
patent applications and two issued U.S. patents covering this technology. One of
the patent applications covers estrogenic-related compounds with anti-fungal
activity.
The Company has also exclusively licensed from Children's Hospital nine
pending U.S. patent applications and one issued patent covering the
Endostatin(TM) protein, nucleic acid coding for the Endostatin(TM) protein, the
use of Endostatin(TM) protein as a therapeutic agent and the use of
Endostatin(TM) protein as a diagnostic agent. The patent applications also cover
the combination of Endostatin(TM) protein and other chemotherapeutic agents,
such as Angiostatin(R) protein, as a therapeutic composition.
The Company has two U.S. patent applications pending and two issued
patents covering the device and method for introducing substances into cells by
flow electroporation. One of these patents has been licensed from the Center
for Blood Research Laboratories at Harvard University. These patent
applications and patents cover the electroporation chamber in the device, the
overall electroporation device and the treatment of a wide variety of diseases
using cells that have been treated in the electroporation device. One of the
issued patents has been exclusively licensed from the CBRL.
Patent applications corresponding to the above described U.S. patent
applications have been filed in Europe, Japan, Canada and other selected
countries.
The Company has registered the mark ENTREMED and the mark ANGIOSTATIN in
the U.S. Patent and Trademark Office and has filed trademark applications in the
U.S. Patent and Trademark Office for the marks "ENDOSTATIN" "VASCULOSTATIN",
"THERAMED", "ENTREVEST", "WE'RE NOT MAKING BETTER BLOOD, WE'RE MAKING BLOOD
BETTER" "THE ANGIOGENESIS COMPANY", "METASTATIN" and "DOING WELL BY DOING GOOD".
There can be no assurance that any future patents will be granted or that
patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection to the Company. Furthermore, there can be no assurance that others
will not independently develop similar products or, if patents are issued to the
Company or its collaborators, will not design around such patents.
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Furthermore, the enactment of the legislation implementing the General
Agreement on Tariffs and Trade ("GATT") has resulted in certain changes to
United States patent laws that became effective on June 8, 1995. Most notably,
the term of patent protection for patent applications filed on or after June 8,
1995 is no longer a period of seventeen years from the date of grant. The new
term of a United States patent will commence on the date of issuance and
terminate twenty years from the earliest effective filing date of the
application. Because the time from filing to issuance of biotechnology patent
application is often more than three years; a twenty-year term from the
effective date of filing may result in a substantially shortened term of patent
protection, which may adversely impact the Company's patent position if this
change results in a shorter period of patent coverage. The Company's business
could be adversely affected to the extent that the duration and level of the
royalties it is entitled to receive from a collaborative partner is based on the
existence of a valid patent.
The Company's potential products may conflict with patents which have
been or may be granted to competitors, universities or others. As the
biotechnology industry expands and more and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons could bring legal
actions against the Company claiming damages and seeking to enjoin clinical
testing, manufacturing and marketing of the affected products. If any such
actions are successful, in addition to any potential liability for damages, the
Company could be required to obtain a license to continue to manufacture or
market the affected products. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. If the Company becomes
involved in litigation, it could consume a substantial portion of the Company's
time and resources.
The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to unpatented trade secrets.
The Company requires its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreements generally provide that trade
secrets and all inventions conceived by the individual and all confidential
information developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics
is subject to extensive regulation by United States and foreign governmental
authorities.
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Regulation of Pharmaceutical Products. Products being developed by the
Company may be regulated by the FDA as drugs or biologics or, in some cases, as
medical devices. New drugs are subject to regulation under the Federal Food,
Drug, and Cosmetic Act, and biological products, in addition to being subject to
certain provisions of that Act, are regulated under the Public Health Service
Act. The Company believes that drug products developed by it or its
collaborators will be regulated either as biological products or as new drugs.
Both statutes and the regulations promulgated thereunder govern, among other
things, the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and other promotional practices involving biologics or new
drugs, as the case may be. FDA approval or other clearances must be obtained
before clinical testing, and before manufacturing and marketing, of biologics
and drugs.
Obtaining FDA approval has historically been a costly and time consuming
process. Generally, in order to gain FDA premarket approval, a developer first
must conduct preclinical studies in the laboratory and in animal model systems
to gain preliminary information on an agent's efficacy and to identify any
safety problems. The results of these studies are submitted as a part of an
investigational new drug ("IND") application, which the FDA must review before
human clinical trials of an investigational drug can start. The IND application
includes a detailed description of the clinical investigations to be undertaken.
In order to commercialize any products, the Company or its collaborator
must sponsor and file an IND and be responsible for initiating and overseeing
the clinical studies to demonstrate the safety, efficacy and potency that are
necessary to obtain FDA approval of any such products. For Company or
collaborator-sponsored INDs, the Company or its collaborator will be required to
select qualified investigators (usually physicians within medical institutions)
to supervise the administration of the products, and ensure that the
investigations are conducted and monitored in accordance with FDA regulations,
including the general investigational plan and protocols contained in the IND.
Clinical trials are normally done in three phases, although the phases may
overlap. Phase I trials are concerned primarily with the safety and preliminary
effectiveness of the drug, involve fewer than 100 subjects, and may take from
six months to over one year. Phase II trials normally involve a few hundred
patients and are designed primarily to demonstrate effectiveness in treating or
diagnosing the disease or condition for which the drug is intended, although
short-term side effects and risks in people whose health is impaired may also
be examined. Phase III trials are expanded clinical trials with larger numbers
of patients which are intended to evaluate the overall benefit-risk
relationship of the drug and to gather additional information for proper dosage
and labeling of the drug. Clinical trials generally take two to five years to
complete, but may take longer. The FDA receives reports on the progress of each
phase of clinical testing, and it may require the modification, suspension, or
termination of clinical trials if it concludes that an unwarranted risk is
presented to patients.
If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of a
Biologics License Application ("BLA") before commercial marketing of the
biologic. If the product is classified as a new drug, the Company must file a
New Drug Application ("NDA") with the FDA and receive approval before commercial
marketing of the drug. The NDA or BLA must include detailed information about
the drug and its manufacture and the results of product development, preclinical
studies and clinical trials. The testing and
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approval processes require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. NDAs
and BLAs submitted to the FDA can take up to two to five years to receive
approval. If questions arise during the FDA review process, approval can take
more than five years. Notwithstanding the submission of relevant data, the FDA
may ultimately decide that the NDA or BLA does not satisfy its regulatory
criteria for approval and deny approval or require additional clinical studies.
In addition, the FDA may condition marketing approval on the conduct of
specific post-marketing studies to further evaluate safety and effectiveness.
Even if FDA regulatory clearances are obtained, a marketed product is subject
to continual review, and later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from
the market as well as possible civil or criminal sanctions.
Thalidomide is regulated by the FDA's Center for Drug Evaluation and
Research. Although only recently approved for sale in the U.S. for limited
indications, thalidomide has been used as an investigational agent to treat
thousands of patients for leprosy and other diseases. The Company has filed an
IND application and started Phase II trials in macular degeneration, a leading
cause of blindness, and expects that the analysis of these results, together
with availability of necessary funding, could determine whether Phase III trials
may be attempted. The NCI, in collaboration with Celgene and the Company, has
begun Phase II trials in breast cancer, prostate cancer, brain cancer and
Kaposi's sarcoma. The Company has also filed an IND and initiated clinical
studies at the Dana Farber Institute in Boston to study the effects of
thalidomide in combination with BCNU in brain cancer patients. An additional
brain cancer study under NCI's IND in collaboration with the Radiation Oncology
Treatment Group has been initiated. Thalidomide must meet the standard
regulatory requirements of any new drug, and successful Phase III clinical
trials will be necessary to form the basis of an NDA. All future clinical
trials with thalidomide will be the responsibility of Celgene. See
"--Collaborations and License Agreements", Celgene Corporation.
Analogs of thalidomide and 2ME may be regulated as new chemical entities
by the FDA's Center for Drug Evaluation and Research. Although analogs of
thalidomide are in the discovery phase of research, it is expected that as new
chemical entities are discovered complete preclinical toxicology studies will be
required prior to studies in humans. 2ME is in late preclinical research, with
an IND filing for Phase I trials anticipated in 1999. The remainder of the
developmental and regulatory requirements will be similar to that of any new
drug.
Angiostatin(R) and Endostatin(TM) proteins, each a naturally occurring
substance, are considered biologics and will be regulated by the FDA's Center
for Biologics Evaluation and Research. As genetically engineered and endogenous
proteins, Angiostatin(R) protein and Endostatin(TM) protein will face unique and
specific regulation hurdles, such as those related to the manufacture of the
products and the behavior of the products in the body. The regulatory
requirements for recombinant proteins have been developed for other endogenous
molecules (e.g., Epogen(TM), Neupogen(TM) and interferons) and Angiostatin(R)
protein and Endostatin(TM) protein are expected to follow these established
guidelines. Successful preclinical studies and Phase I, II and III trials will
be necessary to form the basis for a BLA. The Company has assumed responsibility
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for conducting these clinical studies with Angiostatin(R) protein. See
"--Collaborations and License Agreements", Bristol-Myers Squibb Company.
The cell permeation technology, and specifically IHP-treated red blood
cells, will be regulated by the FDA's Center for Biologics Evaluation and
Research. In 1997, the FDA responded to a letter from the Company requesting a
product jurisdiction determination, designating the Center for Biologics
Evaluation and Research as the agency component with primary jurisdiction for
the premarket review and regulation of the product. The product will be reviewed
as a medical device under the premarket application ("PMA") provisions of the
Federal Food, Drug and Cosmetic Act (described below). Historically, the FDA's
Office of Blood Research and Review has had the most expertise and experience in
regulating blood, apheresis equipment and disposables associated with the
processing of human blood. Further development for IHP-treated blood is expected
to follow a similar path to that of any therapeutic biologic, with successful
completion of Phase I, Phase II and Phase III trials required to precede the
filing of a PMA. As the cell permeation technology requires the use of red blood
cells produced from humans, the Company will be required to comply with, or to
contract with suppliers that comply with, stringent regulation of blood
component collection. That regulation is designed to protect both donors and
recipients of blood products and involves significant record-keeping and other
burdens.
Regulation of Devices. Any device products which may be developed by the
Company are likely to be regulated by the FDA as medical devices rather than
drugs. In addition, as noted, the device used to insert IHP in blood cells also
may be regulated as a medical device. The nature of the FDA requirements
applicable to such products depends on their classification by the FDA. A
device developed by the Company would be automatically classified as a Class
III device, requiring pre-market approval, unless the device was substantially
equivalent to an existing device that has been classified in Class I or Class
II or to a pre-1976 device that has not yet been classified or the Company
could convince the FDA to reclassify the device as Class I or Class II. If the
Company were unable to demonstrate such substantial equivalence and unable to
obtain reclassification, it would be required to undertake the costly and
time-consuming process, comparable to that for new drugs, of conducting
preclinical studies, obtaining an investigational device exemption to conduct
clinical tests, filing a premarket approval application, and obtaining FDA
approval.
If the device were a Class I product, the "general controls" of the
Federal Food, Drug, and Cosmetic Act chiefly adulteration, misbranding, and Good
Manufacturing Practice requirements would nevertheless apply. If substantial
equivalence to a Class II device could be shown, the general controls plus
"special controls" such as performance standards, guidelines for safety and
effectiveness, and post-market surveillance would apply. While demonstrating
substantial equivalence to a Class I or Class II product is not as costly or
time-consuming as the pre-market approval process for Class III devices, it can
in some cases also involve conducting clinical tests to demonstrate that any
differences between the new device and devices already on the market do not
affect safety or effectiveness. If substantial equivalence to a pre-1976 device
that has not yet been classified has been shown, it is possible that the FDA
would subsequently classify the device as a Class III device and call for the
filing of premarket approval applications at
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that time. If the FDA took that step, then filing an application acceptable to
the FDA would be a prerequisite to remaining on the market.
It is likely that the review process will nevertheless occur in the
Center for Biologics Evaluation and Research. It is possible, however, that such
Center would consult with relevant officials in the FDA's Center for Devices and
Radiological Health. Such a consultation might further delay approval of the
device and thus of this technology.
Other. In addition to the foregoing, the Company's business is and will
be subject to regulation under various state and federal environmental laws,
including the Occupational Safety and Health Act, the Resource Conservation and
Recovery Act and the Toxic Substance Control Act. These and other laws govern
the Company's use, handling and disposal of various biological, chemical and
radioactive substances used in and wastes generated by its operations. The
Company believes that it is in material compliance with applicable environmental
laws and that its continued compliance therewith will not have a material
adverse effect on its business. The Company cannot predict, however, whether new
regulatory restrictions on the marketing of biotechnology products will be
imposed by state or federal regulators and agencies.
EMPLOYEES
As of March 26, 1999, the Company had 66 full-time employees, of which 45
were in research and development and 21 were in management and administration.
The Company intends to hire additional personnel. The Company also utilizes
part-time or temporary consultants on an as-needed basis. None of the Company's
employees is represented by a labor union and the Company believes its
relations with its employees are satisfactory.
RISK FACTORS
History of Losses; Accumulated Deficit and Anticipated Future Losses. To
date, the Company has been engaged primarily in research and development
activities and, with the exception of license fees and research and development
funding under the BMS Collaboration and research grants, has not derived any
revenues from operations. At December 31, 1998, the Company had an accumulated
deficit of approximately $45,300,000 and significant losses have continued and
are expected to continue for the foreseeable future. The Company will be
required to conduct substantial research and development and clinical testing
activities for all of its proposed products, which activities are expected to
result in operating losses for the foreseeable future, particularly due to the
extended time period before the Company expects to commercialize any products,
if ever. In addition, to the extent the Company relies upon others for
development and commercialization activities, the Company's ability to achieve
profitability will be dependent upon the success of such third parties. There
can be no assurance that the Company will be able to generate revenues from
operations or achieve profitability on a sustained basis, if at all.
Early Stage and Uncertainty of Product Development. The Company's
proposed products and research programs are in the early developmental stage and
require significant time-consuming and costly research and development, testing
and regulatory clearances. The successful development of any product is subject
to the risks of failure inherent in the
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development of products or therapeutic procedures based on innovative
technologies. These risks include the possibilities that any or all of these
proposed products or procedures are found to be ineffective or toxic, or
otherwise fail to receive necessary regulatory clearances; that the proposed
products or procedures are uneconomical to manufacture or market or do not
achieve broad market acceptance; that third parties hold proprietary rights
that preclude the Company from marketing them; or that third parties market a
superior or equivalent product. The failure of the Company's research and
development activities to result in any commercially viable products would
materially adversely affect the Company's future prospects.
Angiostatin(R) protein, Endostatin(TM) protein, 2ME and thalidomide
analogs, are at the preclinical stages of development. These product candidates
have only been tested on animals and not on humans. Although these product
candidates have demonstrated some success in preclinical studies in combating
tumors in mice, there is no assurance that the agents will be similarly
effective in combating tumors in humans. Although the scientific community
considers the study of mice useful, it is uncertain that agents successful in
treating tumors in mice will be either beneficial or non-toxic to humans. In the
cancer context, testing on mice occurs under different conditions than testing
in people including the manner in which tumors are introduced into mice
(injection as opposed to natural development), the genetic make-up of laboratory
mice populations (homogeneity as opposed to diversity), tumor location (near the
skin as opposed to deep-seated), or other unidentified factors. There are many
regulatory steps that must be taken before any of these product candidates will
be eligible for FDA approval and subsequent sale, including the completion of
preclinical (animal) and clinical (human) trials. With the exception of
thalidomide, the Company does not expect any of its product candidates to be
commercially available for several years, if ever.
Thalidomide is currently in Phase II of human clinical trials for cancer
indications. Thalidomide has received orphan drug designation from the FDA as a
treatment for Kaposi's sarcoma, a form of skin cancer most frequently
associated with AIDS, and for primary brain malignancies. Celgene, to whom the
Company has licensed the rights to commercialize thalidomide, has received
approval from the FDA to market thalidomide for the treatment of erythema
nodosum leprosum, an inflammatory skin condition of some leprosy patients. The
Food and Drug Administration, however, has not yet approved the marketing and
sale of thalidomide for cancer. The Company and Celgene still must pass
significant regulatory hurdles before thalidomide will be promoted for the
treatment of cancer, if ever.
Uncertainties Related to Clinical Trials. Before obtaining regulatory
approvals for the commercial sale of its products, the Company or its
collaborative partners will be required to demonstrate through preclinical
studies and clinical trials that the proposed products are safe and effective
for use in each target indication. The majority of the Company's product
candidates, including Endostatin(TM) protein, Angiostatin(R) protein, 2ME and
thalidomide analogs, have only been subjected to preclinical studies and have
not yet been taken to clinical trials. The results from preclinical studies and
early clinical trials may not be predictive of results that will be obtained in
large-scale testing, and there can be no assurance that the clinical trials
conducted by the Company or its partners will demonstrate sufficient safety and
efficacy to obtain the required regulatory approvals or will result in
marketable products.
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In the future, the Company or its collaborative partners will be required
to conduct clinical trials for Endostatin(TM) protein, Angiostatin(R) protein,
2ME and thalidomide analogs. The Company has limited experience in conducting
clinical trials and intends to rely primarily on pharmaceutical companies, the
NCI, and contract research organizations with which it may collaborate in the
future for clinical development and regulatory approval of its product
candidates. The Company cannot guarantee that the clinical trials conducted by
it or its partners will demonstrate sufficient safety and efficacy to obtain
the required regulatory approvals or will result in marketable products.
Clinical trials are often conducted with patients having the most
advanced stages of disease. During the course of treatment, these patients can
die or suffer other adverse medical effects for reasons that may not be related
to the pharmaceutical agent being tested, but which can nevertheless affect
clinical trial results. Various companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after attaining
promising results in earlier trials. Clinical trials for the product candidates
being developed by the Company and its collaborators may be delayed by many
factors, including that potential candidates for testing are limited in number.
Any delays in, or termination of, the clinical trials of any of the Company's
product candidates, or the failure of any clinical trials to meet applicable
regulatory standards, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Marketing Risks Related to the History of Thalidomide. One of the
Company's potential products, thalidomide, is believed to have caused severe
birth defects in children during the late 1950s and early 1960s. Although the
Company believes that the characteristics of thalidomide that may have affected
fetal development and caused birth defects by blocking new blood vessel growth
may make thalidomide useful in the prevention and treatment of angiogenic
disorders, there can be no assurance that clinical trials with the drug will
demonstrate its safety and efficacy or that the drug will not be associated with
other characteristics that prevent or limit its commercial use.
If thalidomide is demonstrated to be safe and effective for use in
treating angiogenic disorders, the Company may face difficulties in gaining
public acceptance of the drug based on its history of causing birth defects.
This may adversely affect the marketing efforts of its collaborator, Celgene
Corporation. In addition, the Company may be subject to liability arising out of
any adverse effects of thalidomide. Pursuant to its agreement with Celgene
Corporation, Celgene has agreed to indemnify the Company from any liability that
may arise from its sales of thalidomide. However, there can be no assurance that
the Company will be protected from such liability and the possible related
losses.
Dependence on Collaborative Partners and Licensees. The Company's
strategy is to grant the right to conduct development, manufacturing,
commercialization and marketing activities relating to certain of the Company's
antiangiogenesis technologies to collaborative partners. Accordingly, the
Company is substantially dependent on these partners for the development,
funding and commercial success of any of these product candidates. Payments from
collaborative partners may constitute a substantial portion of the Company's
revenues for the next
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several years. In the event a selected collaborative partner were to fail to
conduct its collaborative activities successfully and in a timely manner, the
preclinical and clinical development or commercialization of the licensed
antiangiogenesis product candidates would be delayed or terminated. Any such
delay or termination could have a material adverse effect on the Company's
business, financial condition and results of operations. The success of any
collaboration will depend in part upon a collaborative partner's own
competitive, marketing and strategic considerations, including the relative
advantages of alternative products being developed and marketed by the
collaborative partner and its competitors. In addition, if a partner is
unsuccessful in commercializing any product candidates, the Company's business,
financial condition and results of operations would be materially adversely
affected.
The Company has sublicensed to Celgene Corporation all of the rights to
commercialize and sell thalidomide worldwide. The Company will receive royalties
on all sales of thalidomide by Celgene. The success of the Celgene relationship
and the marketing of thalidomide will depend, in part, on Celgene's own
competitive, marketing, and strategic considerations, including the relative
advantages of alternative products being developed and marketed by its
competitors. In addition, if Celgene is not successful in marketing thalidomide,
the Company would be materially adversely affected.
The Company has relationships with collaborators at academic and other
institutions who conduct research either on the Company's behalf or whose
research the Company has the right to license and use. The Company's primary
research collaboration is with Children's Hospital. To date, the Company has
received licenses from Children's Hospital for Endostatin(TM) protein,
Angiostatin(R) protein, 2ME, thalidomide, and thalidomide analogs. The Company's
agreement with Children's Hospital is scheduled to expire in October 1999. The
Company may choose to or be unable to renew the agreement. The expiration of
this collaboration may adversely impact the Company's ability to acquire future
product candidates and adversely impact on the Company's business.
The Company intends to enter into additional corporate alliances to
develop and commercialize products based upon its cell permeation technology and
any other technologies that may be acquired or developed by the Company. The
Company expects to grant to its collaborative partners rights to commercialize
any products developed under these collaborative agreements, and the Company may
rely on its collaborative partners to conduct research and development efforts
and clinical trials on, obtain regulatory approvals for, and manufacture and
market any products licensed to these partners. The amount and timing of
resources devoted to these activities generally will be controlled by each such
individual partner. As the Company generally expects to retain only a royalty
interest in sales or a percentage of profits of products licensed to third
parties, its revenues may be less than if it retained all commercialization
rights and marketed products directly. In addition, there can be no assurance
that the corporate partners will not pursue alternative technologies or develop
competitive products as a means for developing treatments for the diseases
targeted by the Company's programs.
There can be no assurance that the Company will be successful in
establishing any additional collaborative arrangements, that products will be
successfully commercialized under any collaborative arrangement or that the
Company will derive any revenues from such
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arrangements. In addition, the Company's strategy involves entering into
multiple, concurrent strategic alliances to pursue commercialization of its
core technologies. There can be no assurance that the Company will be able to
manage simultaneous programs successfully. With respect to existing and
potential future strategic alliances and collaborative arrangements, the
Company will be dependent upon the expertise and dedication of sufficient
resources by these outside parties to develop, manufacture or market products.
Should a strategic alliance or collaborative partner fail to develop or
commercialize a product to which it has rights, the Company's business,
financial condition and results of operations could be materially and adversely
affected.
Uncertainty as to the Commercial Feasibility of Manufacturing
Endostatin(TM) Protein. The Company has entered into an agreement with Covance
Biotechnology Services, Inc. under which Covance is responsible for producing
sufficient amounts of Endostatin(TM) protein for preclinical toxicology studies
and for scaling-up the production of Endostatin(TM) protein in commercial
quantities under GMP conditions for clinical trials. The Company is reliant on
Covance for the production of sufficient quantities of Endostatin(TM) protein to
complete clinical studies. If the Company is required to change to a new
manufacturer, if any suitable manufacturer can be found, significant additional
time and funds would be required for technology transfer and testing. Delays in
Covance's scale-up to commercial quantities could result in delays of the
Company's clinical trials, regulatory submissions, and commercialization. There
is no assurance that it will be possible to manufacture commercial quantities
of Endostatin(TM) protein in a cost-effective manner.
Future Capital Needs and Commitments; Uncertainty of Additional Funding.
The Company has incurred negative cash flows since inception and has expended,
and expects to continue to expend, substantial funds to continue its research
and development programs. The Company anticipates that its existing resources
will be sufficient to meet the Company's planned expenditures during 1999,
although there can be no assurance that the Company will not require additional
funds. There can be no assurance that the results of research and development
activities, progress of preclinical studies or clinical trials, changes in or
terminations of relationships with strategic partners, changes in the focus,
direction or costs of the Company's research and development programs,
competitive and technological advances, the regulatory approval process or other
factors will not result in the expenditure of the Company's resources before
such time. The Company will require substantial funds in addition to existing
working capital to develop its product candidates and otherwise to meet its
business objective.
The Company is a party to external research programs and materials
production costs requiring it to fund $6,000,000 through 2000 (including
$1,000,000 to Children's Hospital). Pursuant to the terms of certain license
agreements, the Company is also obligated to exercise diligence in bringing
potential products to market and to make certain milestone payments that, in
some instances, are substantial. The Company's failure to make any required
sponsored research or milestone payment could result in the termination of the
relevant sponsored research or license agreement, which could have a material
adverse effect on the Company.
The Company may seek additional funding through collaborative
arrangements and public or private financing, including equity financing. There
can be no assurance that such collaborative arrangements or additional financing
will be available on acceptable terms or at all. If additional
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funds are raised by issuing equity securities, dilution to stockholders may
result. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research and
development programs or forfeit its rights to future technologies; to obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies,
product candidates or products that the Company would otherwise seek to develop
or commercialize itself; or to license the rights to such products on terms
that are not favorable to the Company.
Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process. The Company's research, development, preclinical and clinical trials,
manufacturing and marketing of most of its product candidates are subject to an
extensive regulatory approval process by the the FDA and other regulatory
agencies in the United States and abroad. The process of obtaining FDA and other
required regulatory approvals for drug and biologic products, including required
preclinical and clinical testing, is lengthy, expensive and uncertain. There can
be no assurance that, even after such time and expenditures, the Company will be
able to obtain necessary regulatory approvals for clinical testing or for the
manufacturing or marketing of any products. The Company or its collaborators
may encounter significant delays or excessive costs in their efforts to secure
necessary approvals or licenses. Even if regulatory clearance is obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown defects or failure to comply with the applicable regulatory
requirements may result in restrictions on a product's marketing or withdrawal
of the product from the market as well as possible civil or criminal sanctions.
Competition; Risk of Technological Obsolescence. The pharmaceutical
biotechnology industries are intensely competitive and competition from other
companies and other research and academic institutions is expected to increase.
Many of these companies have substantially greater financial and research and
development capabilities than the Company and have substantially greater
experience in undertaking preclinical and clinical testing of products,
obtaining regulatory approvals and manufacturing and marketing pharmaceutical
products. The Company is aware of other companies engaged in the development of
thalidomide for various disease indications, including Celgene Corporation and
Andrulis Pharmaceuticals, and a number of other companies and academic
institutions are pursuing angiogenesis research and are testing other
angiogenesis inhibitors.
If companies, other than Celgene, were to get FDA approval to market
thalidomide for other disease indications, "off-label" use of thalidomide could
adversely affect the Company's business and operations. The Company is aware of
other companies engaged in the development of thalidomide for various disease
indications. Although the FDA does not permit a manufacturer or distributor to
market or promote an approved drug for an unapproved "off label" use or dosage
level, under its "practice of medicine" policy, the FDA generally does not
prohibit a physician from prescribing an approved drug product for an unapproved
use or dosage. In addition, the FDA has from time to time proposed to liberalize
its restrictions on the dissemination of off-label information.
The Company's blood oxygen enhancement product candidate will also
compete for certain applications with numerous other available therapeutics and
with blood and blood
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substitute products in development by others. In addition to competing with
universities and other research institutions in the development of products,
technologies and processes, the Company may compete with other companies in
acquiring rights to products or technologies from universities.
Moreover, the pharmaceutical and biotechnology industries are rapidly
evolving fields in which developments are expected to continue at a rapid pace.
There can be no assurance that the Company will develop products that are more
effective or achieve greater market acceptance than competitive products, or
that the Company's competitors will not succeed in developing products and
technologies that are more effective than those being developed by the Company
or that would render the Company's products and technologies less competitive or
obsolete.
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Dependence on Patents and Other Proprietary Rights; Uncertainty of
Patent Position and Proprietary Rights. The Company's success will depend in
part on its ability to obtain patent protection for its products, both in the
United States and abroad. The patent position of biotechnology and
pharmaceutical companies in general is highly uncertain and involves complex
legal and factual questions. There can be no assurance that any additional
patents will be granted or that patents issued to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection to the Company. Furthermore, there can be
no assurance that others will not independently develop similar products or, on
patents issued to the Company or its collaborators, will not design around such
patents.
Composition of matter patent protection is not available for thalidomide
and 2ME. The Company has secured use patents for the use of thalidomide for the
treatment of angiogenic diseases and the use of 2ME for the treatment of
angiogenic diseases. The Company is aware of several issued patents covering
certain non-antiangiogenic uses of thalidomide. Although the Company believes
that the claims in such patents will not interfere with the Company's proposed
use of thalidomide, there can be no assurance that the holders of such patents
will not be able to exclude the Company from using thalidomide for other
non-antiangiogenic uses of thalidomide.
The enactment of the legislation implementing the General Agreement on
Tariffs and Trade has resulted in certain changes to United States patent laws
that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of seventeen years from the date of grant. The new term of a United
States patent will commence on the date of issuance and terminate twenty years
from the earliest effective filing date of the application. As the time from
filing to issuance of biotechnology patents is often more than three years, a
twenty-year term from the effective date of filing may result in a substantially
shortened term of patent protection, which may adversely impact the Company's
patent position. If this change results in a shorter period of patent coverage,
the Company's business could be adversely affected to the extent that the
duration and level of the royalties it is entitled to receive from a
collaborative partner is based on the existence of a valid patent.
The Company's potential products may conflict with patents which have
been or may be granted to competitors, universities or others. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's potential products may give rise to claims that they infringe
the patents of others. Such other persons could bring legal actions against the
Company claiming damages and seeking to enjoin clinical testing, manufacturing
and marketing of the affected products. Any such litigation could result in
substantial cost to the Company and diversion of effort by the Company's
management and technical personnel. If any such actions are successful, in
addition to any potential liability for damages, the Company could be required
to obtain a license in order to continue to manufacture or market the affected
products. There can be no assurance that the Company would prevail in any such
action or that any license required under any such patent would be made
available on acceptable terms, if at all. Failure to obtain needed patents,
licenses or proprietary information held by others may have a material adverse
effect on the Company's business. In addition, if the Company becomes involved
in such litigation, it could consume a substantial portion of the Company's
time and resources.
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The Company also relies on trade secret protection for its confidential
and proprietary information. However, trade secrets are difficult to protect
and there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to unpatented trade secrets.
The Company requires its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with the Company. The agreements generally provide that all trade
secrets and inventions conceived by the individual and all confidential
information developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except in specified
circumstances. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's proprietary information in the
event of unauthorized use or disclosure of such information.
To the extent that consultants, key employees or other third parties
apply technological information independently developed by them or by others to
the Company's proposed projects, disputes may arise as to the proprietary rights
to such information which may not be resolved in favor of the Company. Certain
of the Company's consultants are employed by or have consulting agreements with
third parties and any inventions discovered by such individuals generally will
not become property of the Company.
Dependence Upon Key Personnel and Consultants. The Company is dependent
on certain of its executive officers and scientific personnel, including John W.
Holaday, Ph.D., the Company's Chairman, President and Chief Executive Officer.
The Company has entered into a three-year employment agreement with Dr. Holaday
effective January 1, 1999. Competition for qualified employees among
pharmaceutical and biotechnology companies is intense, and the loss of certain
of such persons, or an inability to attract, retain and motivate additional
highly skilled scientific, technical and management personnel, could materially
adversely affect the Company's business and prospects. There can be no assurance
that the Company will be able to retain its existing personnel or attract and
retain additional qualified employees.
The Company may also be dependent, in part, upon the continued
contributions of the lead investigators of the Company's sponsored research
programs. The Company's scientific consultants and collaborators may have
commitments to or consulting or advisory agreements with other entities that may
affect their ability to contribute to the Company or may be competitive with the
Company. Inventions or processes discovered by such persons will not necessarily
become the property of the Company, but may remain the property of such persons
or of such persons' full-time employers.
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Risk of Product Liability; Availability of Insurance. The use of the
Company's potential products in clinical trials and the marketing of any
pharmaceutical products may expose the Company to product liability claims. The
Company has obtained a level of liability insurance coverage that it deems
appropriate for its current stage of development. However, there can be no
assurance that the Company's present insurance coverage is adequate. Such
existing coverage will not be adequate as the Company further develops
products, and no assurance can be given that in the future adequate insurance
coverage or indemnification by collaborative partners will be available in
sufficient amounts or at a reasonable cost. A successful product liability
claim could have a material adverse effect on the business and financial
condition of the Company.
Uncertainty Related to Health Care Reimbursement and Reform Measures. The
Company's success may depend, in part, on the extent to which reimbursement for
the costs of therapeutic products and related treatments will be available from
third-party payors such as government health administration authorities, private
health insurers, managed care programs and other organizations. Over the past
decade, the cost of health care has risen significantly, and there have been
numerous proposals by legislators, regulators and third-party health care payors
to curb these costs. Some of these proposals have involved limitations on the
amount of reimbursement for certain products. There can be no assurance that
similar federal or state health care legislation will not be adopted in the
future or that any products sought to be commercialized by the Company or its
collaborators will be considered cost-effective or that adequate third-party
insurance coverage will be available for the Company to establish and maintain
price levels sufficient for realization of an appropriate return on its
investment in product development. Moreover, the existence or threat of cost
control measures could have an adverse effect on the willingness or ability of
potential collaborators to pursue research and development programs related to
the Company's product candidates.
Hazardous Materials. The Company's research and development involves the
controlled use of hazardous biological, chemical and radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability could have a material adverse effect on of the Company.
No Manufacturing or Marketing Capacity. The Company does not generally
expect to engage directly in manufacturing or marketing of products in the near
term, but may elect to do so in certain cases. The Company does not currently
have the capacity to manufacture or market products or any experience in such
activities. If the Company elects to perform these functions, the Company will
be required to either develop these capacities, or contract with others to
perform some or all of these tasks. The Company may be dependent to a
significant extent on corporate partners, licensees or other entities for
manufacturing and marketing of products. If the Company engages directly in
manufacturing or marketing, the Company will require substantial additional
funds and personnel and will be required to comply with extensive regulations
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applicable to such a facility. There can be no assurance that the Company will
be able to develop or contract for these capacities when required in connection
with the Company's business.
The manufacture of pharmaceutical products can be an expensive, time
consuming, and complex process. Manufacturers often encounter difficulties in
scaling up production of new products, including problems involving production
yields, quality control and assurance, and shortages of personnel. Delays in
formulation and scale-up to commercial quantities could result in additional
expense, delays in the Company's clinical trials, regulatory submissions, and
commercialization. The manufacturing processes for several of the small
molecules and proteins the Company is developing as product candidates have not
yet been tested at commercial levels, and there can be no assurance that it will
be possible to manufacture these materials in a cost-effective manner.
Any manufacturer of the Company's product candidates will be subject to
applicable GMP prescribed by the FDA or other rules and regulations prescribed
by foreign regulatory authorities. The Company cannot guarantee that it or any
of its collaborators will be able to enter into or maintain relationships either
domestically or abroad with manufacturers whose facilities and procedures comply
or will continue to comply with GMP and who are able to produce the Company's
small molecules and proteins. Should manufacturing agreements be entered into,
the Company and its collaborators will be dependent on such manufacturers for
continued compliance with GMP. Failure by a manufacturer of the Company's
products to comply with GMP could result in significant time delays or the
Company's inability to commercialize or continue to market a product. Changes in
the Company's manufacturers could require new product testing and facility
compliance inspections. In the United States, failure to comply with GMP or
other applicable legal requirements can lead to federal seizure of violative
products, injunctive actions brought by the federal government, and potential
criminal and civil liability on the part of a company and its officers and
employees.
The Exercise of Outstanding Options and Warrants Will Dilute the Value of
Common Stock Shares. The Company has outstanding options and warrants to
purchase an aggregate of 2,650,689 shares of Common Stock at a weighted average
exercise price of $9.85 per share. Holders of such options and warrants are
likely to exercise them when, in all likelihood, the Company could obtain
additional capital on terms more favorable than those provided by the options
and warrants. In addition, the exercise of such options and warrants will result
in dilution to the interests of the Company's stockholders to the extent that
the exercise price is less than the fair market value of the Common Stock. See
Part II Item 5 "Market for Registrant's Common Equity and Related Stockholder
Matters".
Risks Related to Potential Year 2000 Problems. The Year 2000 Issue is the
result of computer programs being written using two digits rather than four to
define the applicable year. As a result, those computer programs having
time-sensitive software would recognize a date using "00" as the year 1900
rather than the year 2000.
Based on a recent assessment, the Company determined that its accounting
software will need to be updated or modified. This should be accomplished
through updates from the software
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manufacturer. However, if such updates are not made, or are not completed on
a timely basis, the Year 2000 issue could have a material impact on the Company.
The Company has queried its most significant supplier that does not also
share information systems with the Company. To date, the Company is not aware
that this, or any other supplier, has a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that suppliers will be Year 2000
ready. The inability of suppliers to complete the Year 2000 resolution process
in a timely fashion could materially impact the Company. The effect of
non-compliance by suppliers is not determinable.
The Company anticipates no other Year 2000 problems which are reasonably
likely to have a material adverse effect on the Company's operations. There can
be no assurance, however, that such problems will not arise.
The Company plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. Estimates on the status of completion and the expected
completion dates are based on costs incurred to date compared to total expected
costs. However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
ITEM 2. PROPERTIES
The Company has leased a new and larger facility with an aggregate of
approximately 46,000 square feet of office space (approximately 32,000 square
feet of which is laboratory space) in Rockville, Maryland pursuant to a lease.
The lease expires in October 2008. The lease provides for total annual rent
payments of approximately $658,000 during 1999, subject to specified annual
increases. In addition, the Company expects to pay approximately $89,000 in 1999
under prior lease agreements during the transition to the new company facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit initiated in August 1995 in
the United States District Court for the Eastern District of Tennessee by
Bolling, McCool & Twist ("BMT"), a consulting firm. In the suit, BMT asserts
that the Company breached an agreement between BMT and the Company by failing to
pay BMT certain fees it asserts are owed under the agreement. More specifically,
BMT has asserted a claim for the payment of services rendered in the approximate
amount of $50,000 and seeks a success fee in an unspecified amount in connection
with the BMS Collaboration. The judge in the case bifurcated the proceeding into
two phases: an adjudication of whether the Company breached its agreement with
BMT and then a damage phase. After a trial on the merits the jury found in favor
of BMT on the breach of contract claim. A trial to determine damages had been
scheduled for April 14, 1998. However, on April 6, 1998, the court issued an
Order pursuant to which damages were limited to those arising during the term of
the Agreement, which terminated on November 1, 1995. Damages for this period
amount to approximately $50,000 plus a possible charge for interest. The damage
portion of the trial has been postponed while the court reviews certain
submissions requested by the court. A hearing on certain of these submissions
will be held on April 19, 1999. Despite the jury verdict on the breach of
contract claim and the court's limitation with respect to damages, the Company
is unable to predict with certainty the eventual outcome of the lawsuit. The
Company intends to continue to contest the action vigorously and believes that
this proceeding will not have a material adverse effect on the Company or on
its financial condition, although there can be no assurance that this will be
the case.
34
<PAGE> 35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
EntreMed's Common Stock trades on the Nasdaq National Market under the
symbol "ENMD". The table below sets forth the high and low sales prices of the
Company's Common Stock as reported by the Nasdaq National Market for the periods
indicated. These prices are based on quotations between dealers, do not reflect
retail mark-up, mark-down or commissions, and do not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE RANGE
-----------
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter (January 1, 1997 - March 31, 1997) $18.50 $12.25
Second Quarter (April 1, 1997 - June 30, 1997) 14.75 8.50
Third Quarter (July 1, 1997 - September 30, 1997) 12.75 8.875
Fourth Quarter (October 1, 1997 - December 31, 1997) 15.50 6.50
1998
----
First Quarter (January 1, 1998 - March 31, 1998) $15.75 $9.75
Second Quarter (April 1, 1998 - June 30, 1998) 85.00 11.375
Third Quarter (July 1, 1998 - September 30, 1998) 36.125 15.375
Fourth Quarter (October 1, 1998 - December 31, 1998) 35.75 20.50
1999
----
First Quarter (January 1, 1999 - March 19, 1999) $35.3125 $12.00
</TABLE>
At March 19, 1999, there were approximately 794 shareholders of record,
and as of that date, the Company estimates there were approximately 20,922
beneficial owners holding stock in nominee or "street" name.
The Company has not paid any cash dividends and does not anticipate
paying any cash dividends in the foreseeable future.
In June 1996, the Registrant issued to Bristol-Myers Squibb Company
333,333 shares of Common Stock at a purchase price of $15.00 per share.
35
<PAGE> 36
In January through March 1996, the Registrant issued an aggregate of
83,991 shares of Common Stock to Samuel R. Dunlap, Jr., and a director of the
Registrant, upon the exercise of stock options exercisable at $1.50 per share.
In December 1996, the Registrant issued to a former employee an aggregate
of 15,686 shares of Common Stock upon the exercise of stock options for an
aggregate consideration of $99,998 or $6.375 per share.
During the year ended December 31, 1997, the Registrant issued an
aggregate of 244,170 shares of Common Stock upon the exercise of stock options
and warrants for an aggregate consideration of $504,632 at exercise prices
ranging from $1.50 to $9.00 per share.
During the year ended December 31, 1998, the Registrant issued an
aggregate of 869,263 shares of Common Stock upon the exercise of stock options
and warrants for an aggregate consideration of $4,748,740 at exercise prices
ranging from $1.50 to $15.00 per share.
Except as otherwise noted above, (i) the above transactions were private
transactions not involving a public offering and were exempt from the
registration provisions of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof, (ii) the sale of securities was without the use of an
underwriter and (iii) the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Securities Act of 1933, as amended.
36
<PAGE> 37
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
STATEMENTS OF OPERATIONS DATA: 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Collaborative research
and development $ 4,473,131 $ 4,342,369 $ 4,425,000 $ 347,501 $ -
License fees 200,000 200,000 200,000 16,667 -
Grant revenues 472,677 215,119 - 347,001 90,185
Other 15,675 - - - -
Total revenues 5,161,483 4,757,488 4,625,000 711,169 90,185
Expenses:
Research and development 15,084,993 8,998,705 7,553,793 5,939,512 3,673,929
General and administrative 5,760,215 4,915,724 3,435,501 2,458,976 1,549,705
Interest expense - 1,418 27,267 65,754 -
Interest income (2,169,955) (2,621,630) (1,621,729) (44,854) (18,993)
Net loss (basic and diluted) $(13,513,770) (6,536,729) $ (4,769,832) $ (7,708,219) $ (5,114,456)
Net loss per share (basic and diluted) $ (1.07) $ (0.54) $ (0.50) $ (1.41) $ (1.09)
Weighted average number of
shares outstanding 12,681,824 12,158,372 9,532,671 5,485,763 4,712,776
Pro forma net loss per share(1) $ (0.46) $ (1.03)
Pro forma weighted average
number of shares
outstanding (1) 10,422,781 7,485,763
BALANCE SHEET DATA:
Cash and cash equivalents
and short-term investments $ 35,171,060 $ 45,245,071 $ 52,720,829 $ 6,885,099 $ 218,619
Working capital 29,269,715 41,454,371 49,049,124 5,689,810 (332,427)
Total assets 39,574,003 47,838,663 54,146,339 10,146,383 843,742
Deferred revenue, less
current portion - 1,341,666 2,236,666 2,741,666 -
Accumulated deficit (45,307,302) (31,793,532) (25,256,803) (20,486,971) (12,778,752)
Total stockholders' equity 33,188,064 41,953,094 47,694,191 3,601,260 292,696
</TABLE>
- ---------
(1) Pro forma net loss per share and weighted average shares outstanding for the
years ended December 31, 1995 and 1996 give effect to the automatic conversion
of 3,000,000 outstanding shares of Preferred Stock into 2,000,000 shares of
Common Stock on June 19, 1996, the effective date of the Company's initial
public offering. See Notes 1 and 8 of Notes to Financial Statements.
37
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report. See"-- Risk Factors".
OVERVIEW
Since its inception in September 1991, the Company has devoted
substantially all of its efforts and resources to sponsoring and conducting
research and development on its own behalf and through collaborations with
corporate partners and academic research and clinical institutions, and
establishing its facilities and hiring personnel.
With the exception of license fees and research and development funding
from Bristol-Myers Squibb and certain research grants, the Company has not
generated any revenue from operations. For the period from inception to December
31, 1998, the Company incurred a cumulative net loss of approximately
$45,300,000. The Company has incurred additional losses since such date and
expects to incur additional operating losses for the foreseeable future. In
December 1995, the Company entered into the BMS Collaboration and, through
December 31, 1998, had received approximately $17,075,000 in license and
research and development fees and expense reimbursements and $11,500,000 in
equity investments pursuant to this alliance. The Company expects that its
revenue sources for at least the next several years will include royalty
payments from Celgene's sales of thalidomide, and research grants and future
collaboration payments from collaborators under arrangements that may be entered
into in the future. The timing and amounts of such revenues, if any, will likely
fluctuate sharply and depend upon the achievement of specified milestones, and
results of operations for any period may be unrelated to the results of
operations for any other period. See "Business -- Collaborations and License
Agreements".
RESULTS OF OPERATIONS
Years Ended December 31, 1998, 1997, and 1996.
Revenues under collaborative research and development agreements were
approximately $4,473,000, $4,342,000, and $4,425,000 and license fees were
$200,000, in each of the years ended December 31, 1998, 1997, and 1996. The
collaborative research and development fees relate to the amortization over
five years of a one-time payment of $2,500,000 ($500,000, was recognized in
each of 1998, 1997 and 1996); the amortization of the semi-annual payments of
$1,835,000 as called for under the BMS Collaboration ($3,670,000, was
recognized in each of 1998, 1997 and 1996); and $303,000, $172,000 and
$255,000 recognized in 1998, 1997 and 1996, respectively, as reimbursement for
clinical studies. The license fees represent the amortization over five years
of a one-time $1,000,000 license fee under the BMS Collaboration, a portion of
which was paid to Children's Hospital. In 1998, there were grant revenues of
approximately
38
<PAGE> 39
$455,000 from a Small Business Innovative Research program from the National
Institutes of Health and $215,000 in 1997.
Research and development expenses increased by 19.1% from approximately
$7,554,000 in 1996 to $8,999,000 in 1997 and in 1998 increased by 67.6% over
1997 to approximately $15,085,000, due primarily to increased efforts in the
Company's internal and sponsored research and product development programs
related to its antiangiogenesis and blood cell permeation technologies.
Research and development expenditures included sponsored research payments of
approximately $5,677,000, $3,700,000, and $3,461,000 and internal research and
development expenses of approximately $9,408,000, $5,300,000, and $4,093,000
in 1998, 1997 and 1996, respectively.
General and administrative expenses increased by 17.2% in 1998 to
approximately $5,760,000 from $4,916,000 in 1997 and increased by 43.1% in 1997
from $3,436,000 in 1996. The increases resulted primarily from increases in
administrative costs associated with adding administrative staff to support the
research and collaborative efforts the Company is conducting, investigating
potential strategic relationships, obtaining professional services, and costs
associated with becoming a public company. Interest income increased from
$1,622,000 to $2,622,000 in 1996 and 1997, respectively, and fell to $2,170,000
in 1998. The 1997 increase was due to the Company investing the net proceeds
from the IPO and the BMS Collaboration in interest-bearing securities. The
1998 decrease was due to decreases in cash balances. The Company had interest
expense of approximately $1,400, and $27,000 in 1997 and 1996, respectively, as
a result of capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1998, the Company financed its
operations from (i) the net proceeds of private placements of equity securities
which raised approximately $17,000,000, (ii) payments from Bristol-Myers Squibb,
including $9,700,000 received in December 1995 (of which $6,500,000 was an
equity investment), $11,535,000 received in 1996 (of which $5,000,000 was an
equity investment), $3,670,000 in 1997, and $3,670,000 in 1998, (iii)
various grants from the World Health Organization and Small Business Innovation
Research ("SBIR") grants totaling approximately $1,107,000, (iv) its June 1996
Initial Public Offering ("IPO") which raised net proceeds of approximately
$43,541,000 and (v) proceeds of approximately $654,000 under capital leases.
Bristol-Myers Squibb is obligated to make a final payment to the Company
of $611,667 in June 1999.
At December 31, 1998, the Company had working capital of approximately
$29,300,000. The Company's cash resources have been used to finance research and
development, including sponsored research, capital expenditures, including
leasehold improvements to the Company's new facility, and general and
administrative expenses. Over the next several years, the Company expects to
incur substantial additional research and development costs, including costs
related to early-stage research, preclinical and clinical trials, increased
administrative expenses to support its research and development operations and
increased capital expenditures for expanded research capacity, various
equipment needs and facility improvements.
39
<PAGE> 40
At December 31, 1998, the Company was a party to sponsored research
agreements requiring it to fund an aggregate of approximately $2,628,000
through 2000 (including $1,000,000 to Children's Hospital) and license
agreements requiring milestone payments of up to $4,650,000, of which $915,000
has been paid as of December 31, 1998, and additional payments upon attainment
of regulatory milestones. One of the milestones requires the Company to file an
IND application with the FDA regarding Angiostatin(R) protein during the fourth
quarter of 1999. The failure of the Company to file this IND application could
result in a loss of the Company's rights with regard to Angiostatin(R) protein.
The Company believes that it will be able to make this filing within the
required time period, but no assurance can be given that it will do so.
The Company is also a party to an office lease expiring in 2008 with
total future minimum lease payments of approximately $9,000,000. See Note 11 of
Notes to Financial Statements.
At December 31, 1998, the Company had available net operating loss
carryforwards of $53,149,000 to offset any future taxable income for federal tax
purposes. The utilization of the loss carryforwards to reduce future income
taxes will depend on the Company's ability to generate sufficient taxable income
prior to the expiration of the net operating loss carryforwards. The
carryforwards begin to expire in the year 2006. However, the Tax Reform Act of
1986 limits the maximum annual use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a corporation. For financial reporting purposes, a valuation allowance has
been recognized to reduce the net deferred tax assets to zero due to
uncertainties with respect to the Company's ability to generate taxable income
in the future sufficient to realize the benefit of deferred income tax assets.
See Note 7 of Notes to Financial Statements.
The Company believes that its existing resources will be sufficient to
meet the Company's planned expenditures during 1999, although there can be no
assurance the Company will not require additional funds. The Company's working
capital requirements will depend upon numerous factors, including the progress
of the Company's research and development programs (which may vary as product
candidates are added or abandoned), preclinical testing and clinical trials,
achievement of regulatory milestones, the Company's corporate partners
fulfilling their obligations to the Company, the timing and cost of seeking
regulatory approvals, the level of resources that the Company devotes to the
development of manufacturing, marketing and sales capabilities, if any,
technological advances, the status of competitors, the ability of the Company to
maintain existing and establish new collaborative arrangements with other
companies to provide funding to the Company to support these activities and
other factors. The Company will require substantial funds in addition to the
present existing working capital to develop its product candidates and
otherwise to meet its business objectives.
YEAR 2000
40
<PAGE> 41
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
those computer programs having time-sensitive software would recognize a date
using "00" as the year 1900 rather than the year 2000.
Based on a recent assessment, the Company determined that its accounting
software will need to be updated or modified. This should be accomplished
through updates from the software manufacturer. However, if such updates are not
made, or are not completed on a timely basis, the Year 2000 issue could have a
material impact on the Company.
The Company has queried its most significant supplier that does not also
share information systems with the Company. To date, the Company is not aware
that this, or any other supplier, has a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that suppliers will be Year 2000
ready. The inability of suppliers to complete the Year 2000 resolution process
in a timely fashion could materially impact the Company. The effect of
non-compliance by suppliers is not determinable.
The Company anticipates no other Year 2000 problems which are reasonably
likely to have a material adverse effect on the Company's operations. There can
be no assurance, however, that such problems will not arise.
The Company plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. Estimates on the status of completion and the expected
completion dates are based on costs incurred to date compared to total expected
costs. However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
INFLATION
Management does not believe that inflation has a material impact on the
Company's results of operations.
ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest income is sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in the U.S. interest rates
affect the interest earned on the Company's cash equivalents and short-term
investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report. See Index to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
41
<PAGE> 42
The information called for by Item 10: Directors and Executive Officers
of the Registrant; Item 11: Executive Compensation; Item 12: Security Ownership
of Certain Beneficial Owners and Management; and Item 13: Certain Relationships
and Related Transactions will be included in and is incorporated by reference
from the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the
close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS - See index to Consolidated Financial
Statements.
2. Schedules
All financial statement schedules are omitted because they are not
applicable, not required under the instructions or all the information required
is set forth in the financial statements or notes thereto.
3. Exhibits
<TABLE>
<S> <C> <C>
3.1* Amended and Restated Certificate of Incorporation of
the Registrant
3.1(a)*** Amendment to the Certificate of Incorporation
3.1(b)**** Certificate of Amendment to Amended and Restated
Certificate of Incorporation of EntreMed, Inc.
3.2* Form of Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of the
Registrant
3.3* By-laws of the Registrant
10.1* Research Collaboration and License Agreement, dated
December 7, 1995, between the Registrant and
Bristol-Myers Squibb Company ("BMS")
10.2* Restricted Stock Purchase Agreement, dated December
7, 1995, between the Registrant and BMS
10.3* Warrant to Purchase Common Stock, dated December 7,
1995, issued by the Registrant to BMS
10.4* Registration Rights Agreement, dated December 7,
1995, between the Registrant and BMS
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C>
10.5* Research Agreement, dated September 29, 1993,
between the Registrant and Children's Hospital
10.6* Amendment to Research Agreement, dated August 23,
1995, between the Registrant and Children's Hospital
10.7* License Agreement, dated May 26, 1994, between
Children's Medical Center Corporation ("CMCC") and
the Registrant
10.8* Amendment to License Agreement, dated August 23,
1995, between CMCC and the Registrant
10.9* License Agreement, dated May 26, 1994, between CMCC
and the Registrant
10.10* Amendment to License Agreement, dated August 23,
1995, between CMCC and the Registrant
10.11* Sponsored Research Agreement, dated November 5,
1992, between the Registrant and CBR Laboratories,
Inc. ("CBRL")
10.12* Licensing Agreement, dated November 5, 1992, between
the Registrant and CBRL
10.13* Employment Agreement, dated as of January 1, 1996,
between the Registrant and John W. Holaday, Ph.D.
10.14* 1992 Stock Incentive Plan
10.15* Amended and Restated 1996 Stock Option Plan
10.16* Form of Stock Option Agreement
10.17* Consulting Agreement between the Registrant and
Samuel R. Dunlap, Jr.
10.18* Consulting Agreement between the Registrant and
Steve Gorlin (superseded by Exhibit 10.18a)
10.18(a)* Termination Agreement dated May 15, 1996 effective
August 1, 1996, between the Registrant and Steve
Gorlin
10.19* Master Equipment Lease Agreement, dated April 10,
1995, between the Registrant and MMC/GATX
Partnership No. 1
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C> <C>
10.20* Lease between the Registrant and Red Gate III
Limited Partnership
10.21* Form of Indemnification Agreement
10.22* Research and License Agreement, dated August 1993,
between the Registrant and Innovative Therapeutics,
Inc.
10.23** Agreement between Cytokine Sciences, Inc. and
Innovative Therapeutics, Inc.
10.24*** License Agreement between Children's Hospital
Medical Center Corporation and EntreMed, Inc. signed
December 5, 1996 regarding Endostatin(TM) protein,
An Inhibitor of Angiogenesis
10.25*** License Agreement between Children's Hospital
Medical Center Corporation and EntreMed, Inc. signed
December 20, 1996 regarding Estrogenic Compounds as
Anti-Mitotic Agents
10.26*** Agreement between Bristol-Myers Squibb and
EntreMed, Inc. signed August 5, 1997 regarding
Termination of Collaborative Research and License
Agreement with Respect to Thalidomide Products
10.27***** Amendment to the 1996 Stock Option Plan
10.28+ License Agreement between Celgene Corporation and
EntreMed, Inc. signed December 9, 1998 regarding
thalidomide intellectual property
10.29+ Contract Manufacturing Agreement between Covance
Biotechnology Services, Inc. and EntreMed, Inc.
signed October 16, 1998 regarding Endostatin(TM)
protein
10.30***** Employment Agreement dated as of January 1, 1999,
between the Registrant and John W. Holaday, Ph.D.
10.31 Lease Agreement between EntreMed, Inc. and Red Gate
III Limited Partnership, dated June 10, 1998
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- -------------------------------
44
<PAGE> 45
* Incorporated by reference to the Company's Registration Statement
on Form S-1 (File No. 333-3536) declared effective by the
Securities and Exchange Commission on June 11, 1996.
** Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1996 previously filed with the Securities
and Exchange Commission.
*** Incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1997 previously filed with the Securities and
Exchange commission.
**** Incorporated by reference to the Company's Form 10-Q for the
quarter ended September 30, 1998 previously filed with the
Securities and Exchange Commission.
***** Compensatory Plan or Arrangement.
+ Portions of this Exhibit have been omitted pursuant to a
Confidential Treatment Request, which the Company has filed
separately with the Securities and Exchange Commission.
- -------------------
(b) No reports on Form 8-K were filed during the last quarter of 1998.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ENTREMED, INC.
By: /s/ John W. Holaday, Ph.D.
---------------------------------------
John W. Holaday, Ph.D., Chairman of the
Board, President and Chief Executive Officer
March 31, 1998
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoint John W. Holaday, Ph.D. as attorney-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the Registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report at the attorney-in-fact acting in the premises deems appropriate and
to file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------ ----
<S> <C> <C>
/s/ John W. Holaday, Ph. D. Chairman of the Board and 3/31/98
- ---------------------------- Chief Executive Officer
John W. Holaday, Ph. D. (principal executive officer)
/s/ R. Nelson Campbell Chief Financial Officer 3/31/98
- ---------------------------- (principal financial and
R. Nelson Campbell accounting officer)
/s/ John C. Thomas, Jr. Secretary/Treasurer 3/31/98
- ----------------------------
John C. Thomas, Jr.
/s/ Donald S. Brooks Director 3/31/98
- ----------------------------
Donald S. Brooks
</TABLE>
II-1
<PAGE> 47
<TABLE>
<S> <C> <C>
/s/Samuel R. Dunlap, Jr.
- -----------------------
Samuel R. Dunlap, Jr. Director 3/31/98
/s/Mark C. M. Randall
- -----------------------
Mark C. M. Randall Director 3/31/98
/s/Lee F. Meier Director 3/31/98
- -----------------------
Lee F. Meier
/s/Wendell M. Starke Director 3/31/98
- -----------------------
Wendell M. Starke
</TABLE>
II-2
<PAGE> 48
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1998
ENTREMED, INC.
ROCKVILLE, MARYLAND
<PAGE> 49
FORM 10-K - ITEM 14(a)(1) AND (2)
ENTREMED, INC. AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of EntreMed, Inc. and
subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors.........................................................................................F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997...........................................................F-2
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996.........................................................................................................F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996......................................................................................F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996.........................................................................................................F-5
Notes to Consolidated Financial Statements.............................................................................F-6
</TABLE>
The following consolidated financial statement schedules of EntreMed, Inc. and
subsidiaries are included in Item 14(d):
None
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE> 50
Report of Independent Auditors
Board of Directors
EntreMed, Inc.
We have audited the accompanying consolidated balance sheets of EntreMed, Inc.
as of December 31, 1998 and 1997, 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
EntreMed, Inc. at December 31, 1998 and 1997 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.
Atlanta, Georgia /s/ Ernst & Young LLP
February 10, 1999
F-1
<PAGE> 51
EntreMed, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-----------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,818,689 $ 18,232,491
Short-term investments 4,352,371 27,012,580
Accounts receivable 112,383 84,151
Interest receivable 186,927 520,457
Prepaid expenses and other 170,877 86,095
-----------------------------------------------
Total current assets 35,641,247 45,935,774
Furniture and equipment, net 2,979,237 1,498,781
Other assets 953,519 404,108
-----------------------------------------------
Total assets $ 39,574,003 $ 47,838,663
===============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,093,017 $ 683,201
Accrued liabilities 1,332,682 1,265,905
Deferred revenue (Note 5) 2,945,833 2,532,297
-----------------------------------------------
Total current liabilities 6,371,532 4,481,403
Deferred revenue, less current portion (Note 5) - 1,341,666
Minority interest 14,407 62,500
Stockholders' equity:
Convertible preferred stock, $1.00 par and $1.50 liquidation value:
5,000,000 shares authorized, none issued and outstanding at December 31,
1998 and 1997, respectively - -
Common stock, $.01 par value:
35,000,000 shares authorized, 13,123,031 and 12,253,768 shares issued and
outstanding at December 31, 1998 and 1997, respectively 131,230 122,538
Additional paid-in capital 78,364,136 73,624,088
Accumulated deficit (45,307,302) (31,793,532)
-----------------------------------------------
Total stockholders' equity 33,188,064 41,953,094
-----------------------------------------------
Total liabilities and stockholders' equity $ 39,574,003 $ 47,838,663
===============================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 52
EntreMed, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Collaborative research and development (Note 5) $ 4,473,131 $ 4,342,369 $ 4,425,000
Licensing (Note 5) 200,000 200,000 200,000
Grant revenues 472,677 215,119 -
Other 15,675 - -
-----------------------------------------------------------------
5,161,483 4,757,488 4,625,000
Costs and expenses:
Research and development 15,084,993 8,998,705 7,553,793
General and administrative 5,760,215 4,915,724 3,435,501
-----------------------------------------------------------------
20,845,208 13,914,429 10,989,294
Interest expense - (1,418) (27,267)
Investment income 2,169,955 2,621,630 1,621,729
-----------------------------------------------------------------
Net loss $(13,513,770) $(6,536,729) $(4,769,832)
=================================================================
Net loss per share (basic and diluted) $ (1.07) $ (0.54) $ (0.50)
=================================================================
Weighted average number of shares outstanding (basic and
diluted) 12,681,824 12,158,372 9,532,671
=================================================================
Pro forma net loss per share $ (0.46)
=====================
Pro forma weighted average number of
shares outstanding 10,422,781
=====================
</TABLE>
See accompanying notes.
F-3
<PAGE> 53
EntreMed, Inc.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 6,376,588 63,766 3,000,000 3,000,000
Issuance of common stock for options exercised 99,677 997 - -
Initial public offering of 3,200,000 shares of common stock and private
placement of 333,333 shares at $15.00 per share, net of offering costs of
approximately $4,459,000 3,533,333 35,333 - -
Automatic conversion of preferred stock to common stock
upon initial public offering 2,000,000 20,000 (3,000,000) (3,000,000)
Warrants issued for consulting services - - - -
Net loss - - - -
--------------------------------------------------
Balance at December 31, 1996 12,009,598 120,096 - -
Issuance of common stock for options and
warrants exercised 244,170 2,442 - -
Warrants issued for consulting services - - - -
Net loss - - - -
--------------------------------------------------
Balance at December 31, 1997 12,253,768 $122,538 - $ -
Issuance of common stock for options and
warrants exercised 869,263 8,692 - -
Net loss - - - -
--------------------------------------------------
Balance at December 31, 1998 13,123,031 $131,230 - $ -
==================================================
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
-----------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1996 21,024,465 (20,486,971) 3,601,260
Issuance of common stock for options exercised 225,002 - 225,999
Initial public offering of 3,200,000 shares of common stock and private
placement of 333,333 shares at $15.00 per share, net of offering costs of
approximately $4,459,000 48,505,431 - 48,540,764
Automatic conversion of preferred stock to common stock
upon initial public offering 2,980,000 - -
Warrants issued for consulting services 96,000 - 96,000
Net loss - (4,769,832) (4,769,832)
-----------------------------------------------
Balance at December 31, 1996 72,830,898 (25,256,803) 47,694,191
Issuance of common stock for options and
warrants exercised 502,190 - 504,632
Warrants issued for consulting services 291,000 - 291,000
Net loss - (6,536,729) (6,536,729)
-----------------------------------------------
Balance at December 31, 1997 $73,624,088 $(31,793,532) $41,953,094
Issuance of common stock for options and
warrants exercised 4,740,048 - 4,748,740
Net loss - (13,513,770) (13,513,770)
-----------------------------------------------
Balance at December 31, 1998 $78,364,136 $(45,307,302) $33,188,064
===============================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 54
EntreMed, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(13,513,770) $(6,536,729) %(4,769,832)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 740,847 336,668 190,960
Stock and warrants issued for compensation and consulting
expense - 291,000 96,000
Minority interest (48,093) 18,358 -
Changes in assets and liabilities:
Accounts receivable (28,232) (84,151) 2,500,000
Interest receivable 333,530 (118,784) (397,657)
Prepaid expenses and other (134,193) 9,075 (98,360)
Accounts payable 998,059 82,898 233,053
Accrued liabilities 66,777 308,187 615,942
Deferred revenue (Note 5) (928,130) (871,870) (589,999)
------------------------------------------------------
Net cash used by operating activities (12,513,205) (6,565,348) (2,219,893)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (12,257,054) (32,014,130) (34,563,369)
Maturities of short-term investments 34,917,263 24,671,173 14,893,746
Other investments (500,000) (300,000) (100,000)
Purchases of furniture and equipment (1,809,546) (1,010,890) (215,027)
------------------------------------------------------
Net cash used by investing activities 20,350,663 (8,653,847) (19,984,650)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 4,748,740 504,632 48,766,763
Payment of lease obligation - (104,152) (396,113)
------------------------------------------------------
Net cash provided by financing activities 4,748,740 400,480 48,370,650
------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 12,586,198 (14,818,715) 26,166,107
Cash and cash equivalents at beginning of year 18,232,491 33,051,206 6,885,099
------------------------------------------------------
Cash and cash equivalents at end of year $ 30,818,689 $ 18,232,491 $ 33,051,206
======================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NONCASH
INVESTMENT AND FINANCING ACTIVITIES
Interest paid $ - $ 1,418 $ 27,267
======================================================
Purchase of furniture and equipment in exchange for minority interest $ - $ - $ 44,118
======================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 55
EntreMed, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EntreMed, Inc. (the "Company") operates in a single segment and is engaged
primarily in the research and development of biopharmaceutical products that
address the role of blood and blood vessels in the prevention and treatment of
a broad range of diseases. The Company's core technologies include (i) an
antiangiogenesis program focused on the development of proprietary products
intended to inhibit the abnormal growth of new blood vessels associated with
cancer and certain causes of blindness and (ii) a blood cell permeation device
designed to enhance the ability of red blood cells to deliver oxygen to organs
and tissues and which may also be used to deliver drugs, genes or other
therapeutic agents that otherwise would not readily diffuse through blood cell
membranes.
The Company's strategy is to accelerate development of its antiangiogenesis and
cell permeation technologies as well as other promising technologies which the
Company perceives to have clinical and commercial potential. The principal
elements of the Company's strategy are (i) to focus its resources on current
core technologies, (ii) to deepen its product and technology portfolio through
sponsored research collaborations with academic institutions, government
organizations and private enterprises, (iii) to augment product development
with its in-house research and development capabilities and (iv) to leverage
its resources through corporate partnerships in order to minimize the cost to
the Company of late-stage clinical trials and to accelerate effective product
commercialization. All of the Company's product candidates are in the
development stage and require further research, development, testing and
regulatory clearances.
F-6
<PAGE> 56
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
The Company was organized in September 1991 as a Delaware Corporation and from
inception through December 1995 was in the development stage. In December 1995,
the Company and Bristol-Myers Squibb Company ("Bristol-Myers Squibb") entered
into a collaboration to develop and commercialize certain antiangiogenic
therapeutics (see Note 5). The Company received 92%, 95% and 100% of its
revenues from Bristol-Myers Squibb in 1998, 1997 and 1996, respectively.
The accompanying consolidated financial statements include the accounts of the
Company's 85% owned subsidiary, Cytokine Sciences, Inc. Cytokine was formed in
June 1996 for the purpose of acquiring the assets of Innovative Therapeutics,
Inc. in July 1996 in exchange for 15% of the common stock of Cytokine valued at
approximately $44,000. All intercompany balances and transactions have been
eliminated in consolidation. Minority interest expense of $48,093, $18,358 and
$24 is included in general and administrative expenses for the years ended
December 31, 1998, 1997 and 1996, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of independent proprietary research
and development costs, the costs associated with work performed under
collaborative research agreements and the Company's sponsored funding of
research programs performed by others. Research and development costs are
expensed as incurred.
PATENT COSTS
Costs incurred in filing, defending and maintaining patents are expensed as
incurred. Such costs aggregated approximately $778,000, $409,000 and $565,000
in 1998, 1997 and 1996, respectively.
F-7
<PAGE> 57
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The Company invests in various debt securities. These investments are accounted
for in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which
requires certain debt securities to be reported at amortized cost, certain debt
and equity securities to be reported at market with current recognition of
unrealized gains and losses, and certain debt and equity securities to be
reported at market with unrealized gains and losses as a separate component of
stockholders' equity.
Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and re-evaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for the amortization of premiums and accretion of discounts to
maturity. Such amortization is included as investment income. Realized gains
and losses and declines in value judged to be other-than-temporary on the
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and are depreciated over their
expected useful lives. Depreciation is provided on a straight-line basis.
Amortization associated with capitalized leases is included in depreciation
expense. Furniture and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------- -------------------
<S> <C> <C>
Furniture and equipment $4,432,566 $2,211,263
Less: accumulated depreciation (1,453,329) (712,482)
-------------------- -------------------
$2,979,237 $1,498,781
==================== ===================
</TABLE>
F-8
<PAGE> 58
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
Cash equivalents include cash and short-term investments with original
maturities of less than 90 days.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
REVENUE RECOGNITION
Revenue from the collaborative research and development agreement is recorded
when earned as defined under the terms of the agreement. Nonrefundable fees
received upon contract signing are recorded as deferred revenue and recognized
over the term of the agreement mentioned in Note 5. Revenues related to grants
received for specific project proposals are recognized in revenue as earned in
accordance with specified provisions, including performance requirements, in the
contracts. Other periodic research funding payments received which are related
to future performance are deferred and recognized as income when earned.
NET LOSS PER SHARE
Net loss per share (basic and diluted) was computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Common stock
equivalents were anti-dilutive and therefore were not included in the
computation of weighted average shares used in computing diluted loss per
share.
Pro forma net loss per common share is calculated using the weighted average
number of common and common equivalent shares outstanding during 1996 assuming
the conversion of the convertible preferred stock at the beginning of the year.
F-9
<PAGE> 59
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes new standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. These
new standards require that all items recognized as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. The Company adopted SFAS 130 in 1998
and has not presented a statement of comprehensive income as there are no
additional components of comprehensive income to be presented.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("SFAS 123") sets forth accounting and reporting standards for
stock based employee compensation plans (see Note 9). As permitted by SFAS 123,
the Company continues to account for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB No. 25, no compensation expense is recognized for
stock or stock options issued to employees at fair market value. Accordingly,
adoption of SFAS 123 has not affected the Company's results of operations or
financial position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
F-10
<PAGE> 60
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
2. RELATED PARTY TRANSACTIONS
The Company receives legal services from a law firm in which a Company director
is a partner. The cost of these services was negotiated on an arms length
basis and amounted to $360,000, $160,000 and $406,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
As of December 31, 1998 and 1997, the Company maintained approximately 51% and
87%, respectively, of its cash, cash equivalents and short-term investments
under the management of a registered investment advisory firm for which the
Company's Vice Chairman and director serves as chairman of the board. Such
assets under management are maintained by a high quality, third party financial
institution custodian.
The Company has an agreement with one of its directors under which the director
provides consulting services. During 1997, the Company paid $180,000 under
this agreement.
3. INVESTMENTS
All of the Company's investments are classified as available-for-sale and are
summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury securities $2,847,036 $ - $ - $2,847,036
U.S. corporate securities 1,505,335 1,505,335
-------------------------------------------------------------------------------
Total securities $4,352,371 $ - $ - $4,352,371
===============================================================================
</TABLE>
F-11
<PAGE> 61
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------------------
GROSS GROSS UNREALIZED ESTIMATED FAIR
AMORTIZED COST UNREALIZED GAINS LOSSES VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury securities $23,012,580 $ - $ - $23,012,580
U.S. corporate securities 4,000,000 4,000,000
-------------------------------------------------------------------------------
Total securities $27,012,580 $ - $ - $27,012,580
===============================================================================
</TABLE>
The Company had no realized gains or losses from the sale of short-term
investments for the years ended December 31, 1998, 1997 and 1996. All U.S.
Treasury and U.S. corporate securities have maturity dates of less than one
year as of December 31, 1998 and 1997.
4. SPONSORED RESEARCH PROGRAM AGREEMENTS
The Company has entered into several agreements to sponsor external research
programs. The Company's primary external research program agreement was entered
into in September 1993 with the Children's Hospital in Boston, Massachusetts,
an entity affiliated with Harvard Medical School ("Children's Hospital"). Under
this sponsored research agreement, the Company agreed to pay Children's
Hospital $11,000,000 over a six year period to support research on the role of
angiogenesis in pathological conditions. In accordance with the terms of this
sponsored research agreement, $10,000,000 has been paid as of December 31, 1998
and the remaining $1,000,000 is due on March 29, 1999. This sponsored research
agreement gives the Company an option to negotiate a worldwide, royalty-bearing
license for technology resulting from the research at Children's Hospital in
areas covered by the agreement. Amounts due under the sponsored research
agreement with Children's Hospital, which is cancelable by the Company upon six
months notice, are paid in advance every six months and are expensed as
incurred as research and development costs. See also Note 11.
The Company has also entered into an agreement with a bioprocessing services
firm for the production of materials to be used in the Company's research
activities.
As of December 31, 1998, the Company's total commitments for all external
research programs and materials production costs are as follows:
F-12
<PAGE> 62
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
4. SPONSORED RESEARCH PROGRAM AGREEMENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $5,730,400
2000 225,400
-------------------------
Total commitments $5,955,800
=========================
</TABLE>
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT AND SUBSEQUENT EVENT
In December 1995, the Company and Bristol-Myers Squibb entered into a
collaboration to develop and commercialize certain antiangiogenic therapeutics
("Original BMS Collaboration"). The Original BMS Collaboration provided for
Bristol-Myers Squibb to fund the Company's research, provided for milestone
payments to the Company, and provided for the payment to the Company of
royalties on net sales of any products developed under the Original BMS
Collaboration. In return, the Company granted Bristol-Myers Squibb exclusive
worldwide rights, held by the Company, to antiangiogenic applications of
thalidomide, thalidomide analogs and the Angiostatin(R) protein and a five-year
right of first refusal to negotiate for commercial rights with respect to the
development of any technology licensed, or to be licensed, by the Company from
Children's Hospital, in the field of antiangiogenic therapeutics. In August
1997, the Company reacquired the commercial rights to thalidomide in exchange
for renewing Bristol-Myers Squibb's warrant to purchase an additional
$10,000,000 of the Company's common stock as described below. In October 1998,
Bristol-Myers Squibb relinquished the rights to thalidomide analogs. In
February 1999, the Company assumed all responsibility for preclinical and
clinical work on the Angiostatin(R) protein.
Bristol-Myers Squibb was obligated under the Original BMS Collaboration to fund
$18.35 million over five years for costs to be incurred by the Company related
to specified research and development. The Company was eligible to receive an
additional $32 million if the Company attained certain late-stage clinical
development and regulatory filing milestones under the Original BMS
Collaboration, a portion of which could be credited against royalties. In
addition to this funding, Bristol-Myers Squibb reimbursed the Company $730,000
for clinical studies and ophthalmological trials. Bristol-Myers Squibb could
terminate the Original BMS Collaboration for any reason with six months notice
and on February 9, 1999, the Original BMS Collaboration was
F-13
<PAGE> 63
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT AND SUBSEQUENT
EVENT (CONTINUED)
modified such that the final payment under the agreement is due on June 5, 1999
(see below). As amended, Bristol-Myers Squibb has no further funding
obligation to the Company after August 9, 1999.
The Company also received a non-refundable, non-creditable licensing fee of $1
million in 1995 under the Original BMS Collaboration and an additional $2.5
million on March 31, 1996 in recognition of certain research and development
efforts of the Company. These amounts were recorded as deferred revenue and
were being recognized over five years, the initial term of the Original BMS
Collaboration agreement. On June 9, 1999, the due date of the final payment
under the Original BMS Collaboration, the remaining unamortized balance of such
deferred revenue will be recognized as revenue.
Concurrent with the signing of the Original BMS Collaboration, the Company
issued Bristol-Myers Squibb 541,666 shares of common stock for aggregate cash
proceeds of $6,500,000. Bristol-Myers Squibb also purchased 333,333 shares of
additional common stock of the Company at the initial public offering price of
$15 per share, or a total of $5,000,000, at the time the Company completed its
initial public offering in June 1996 and was granted the right to purchase an
additional $10,000,000 of the Company's common stock at $22.50 per share, or
444,444 shares from the Company at any time up to June 19, 1997. This warrant
was renewed and expired in November 1997.
During 1998, 1997 and 1996, the Company recognized approximately $4,748,000,
$4,542,000 and $4,625,000 in revenue, respectively, and incurred costs of
approximately $5,800,000, $5,200,000 and $4,000,000 related to the Original BMS
Collaboration.
On February 9, 1999 as noted above, the Company and Bristol-Myers Squibb agreed
to modify the Original BMS Collaboration as follows:
- - The Company will assume all responsibility for preclinical, pharmaceutical
development and clinical work on the Angiostatin(R) protein. Bristol-Myers
Squibb has agreed to provide the Company with advice on structuring its
clinical program but otherwise will have no direct involvement with the
development of the Angiostatin(R) protein.
F-14
<PAGE> 64
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT AND SUBSEQUENT
EVENT (CONTINUED)
- - Upon completion of Phase II clinical trials of Angiostatin(R), except as
described below, Bristol-Myers Squibb will have the option to review all of the
Company's data and exercise an option to reacquire further development and
marketing rights to the product. If Bristol-Myers Squibb elects to do so, it
will pay the Company a $1 million option exercise fee and the financial terms
applicable to commercialization will remain the same as those in the existing
research agreement, except that the Company's worldwide royalty will be
substantially increased and will not be subject to any offsetting credits.
- - If a third party wishes to license Angiostatin(R) protein and fund and
conduct development of Angiostatin(R) protein and commercialize it upon FDA
approval on terms satisfactory to the Company, or the Company decides to
proceed with the development and commercialization of Angiostatin(R) protein
without a corporate partner (in either case prior to the completion of Phase II
clinical trials and Bristol-Myers Squibb's exercise of its option),
Bristol-Myers Squibb's option will be terminated effective with the signing of
the Company's collaboration with such a third party or its giving of written
notice to Bristol-Myers Squibb that it intends to proceed without a corporate
partner.
- - Bristol-Myers Squibb's current rights of first offer/refusal with respect to
products or technology arising out of the Company's agreement with Children's
Hospital have terminated, including those rights with respect to Endostatin(TM)
protein.
- - Bristol-Myers Squibb is licensed, on a royalty free basis, to conduct further
internal research with regard to the Angiostatin(R) protein and will exchange
with the Company any data it obtains on Angiostatin(R) protein per se. This
license will continue for a minimum of one year and thereafter until the
termination of Bristol-Myers Squibb's option as described above.
- - Bristol-Myers Squibb will retain its equity interest in the Company but has
agreed to certain restrictions on its ability to sell its interest. These
restrictions will prevent Bristol-Myers Squibb from selling its full interest
in the Company until at least December 1, 2001, without the Company's consent.
F-15
<PAGE> 65
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT AND SUBSEQUENT
EVENT (CONTINUED)
- - The semi-annual research support payment due June 5, 1999 to the Company from
Bristol-Myers Squibb will be prorated to cover the period from June 5 to August
9, 1999 and will be the final research payment under the agreement. All patent
and related costs incurred by the Company prior to August 9, 1999 will be
reimbursed to the Company by Bristol-Myers Squibb.
6. LICENSE AGREEMENT
On December 9, 1998, the Company entered into a license agreement with Celgene
Corporation ("Celgene") whereby the Company granted Celgene an exclusive
license to certain of the Company's thalidomide patents. In exchange for this
license, Celgene agreed to pay royalties to the Company on sales of any product
which contains thalidomide. The royalties vary based on the volume of Celgene's
sales. Celgene also assumed certain milestone payment obligations to Children's
Hospital related to the license of thalidomide.
7. INCOME TAXES
The Company has net operating loss carryforwards for income tax purposes of
approximately $53,149,000 at December 31, 1998, that expire in years 2006
through 2013. The Company also has research and development tax credit
carryforwards of approximately $2,379,000 as of December 31, 1998, that expire
in years 2007 through 2013. These carryforwards include approximately
$12,300,000 related to exercises of stock options in 1998 and 1997 for which
the income tax benefit, if realized, would increase additional paid-in capital.
The utilization of the net operating loss and research and development
carryforwards may be limited in future years due to changes in ownership of the
Company pursuant to Internal Revenue Code Section 382. For financial reporting
purposes, a valuation allowance has been recognized to reduce the net deferred
tax assets to zero due to uncertainties with respect to the Company's ability
to generate taxable income in the future sufficient to realize the benefit of
deferred income tax assets.
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts
F-16
<PAGE> 66
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
used for income tax purposes. Significant components of the Company's deferred
income tax assets and liabilities as of December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------
<S> <C> <C>
Deferred income tax assets (liabilities):
Net operating loss carryforwards $ 20,196,000 $ 11,485,000
Research and development credit carryforward 2,379,000 1,719,000
Deferred revenues 1,119,000 918,000
Other 411,000 529,000
Depreciation 96,000 (4,000)
Valuation allowance for deferred income tax assets (24,201,000) (14,647,000)
------------------------------------------------
Net deferred income tax assets $ - $ -
================================================
</TABLE>
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C>
Tax benefit at statutory rate $(5,135,000) $(2,484,000) $(1,813,000)
Tax credits (660,000) (389,000) (90,000)
Other 18,000 12,000 12,000
Valuation allowance 5,777,000 2,861,000 1,891,000
---------------------------------------------------------------------
$ - $ - $ -
=====================================================================
</TABLE>
8. CONVERTIBLE PREFERRED STOCK
The preferred stock had certain preferential rights in the event of liquidation
or dissolution of the Company but did not have any preferences in regard to
voting rights or dividend distributions. The preferred stock was automatically
converted into the
F-17
<PAGE> 67
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
8. CONVERTIBLE PREFERRED STOCK (CONTINUED)
Company's common stock upon the effective date of the Company's initial public
offering of the Company's common stock.
9. STOCK OPTIONS AND WARRANTS
In 1992 and 1996, the Company adopted incentive and nonqualified stock option
plans whereby 2,983,333 shares of the Company's common stock were reserved for
grants to various executive, scientific and administrative personnel of the
Company as well as outside directors and consultants, of which 435,624 shares
remain available for grant as of December 31, 1998. These options vest over
periods varying from vesting immediately through vesting over four years and
generally expire 10 years from the date of grant.
Pro forma information regarding net income and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method subsequent to December 31,
1994. Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
5.38%, 5.97% and 6.36%; no dividend yields; volatility factors of the expected
market price of the Company's common stock of 1.04, 0.80 and 0.65; and a
weighted-average expected life of an option of 6 years, 7 years and 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
and warrants granted to employees are amortized to expense over the vesting
period. The weighted average fair value per option granted in 1998, 1997 and
1996 was $14.47, $7.90
F-18
<PAGE> 68
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
and $9.73, respectively. The weighted average fair value per warrant granted
to employees during 1997 was $13.00. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $(19,986,293) $(9,493,464) $(6,965,172)
Pro forma loss per share $ (1.58) $ (0.78) $ (0.71)
</TABLE>
A summary of the Company's stock options and warrants granted to employees, and
related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
----------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1996 1,564,369 $1.50 - $12.00
Exercised (99,677) $1.50 - $6.38
Granted 1,188,364 $9.00 - $16.25
Canceled (73,112) $6.38
------------------------
Outstanding at December 31, 1996 2,579,944 $1.50 - $16.25
Exercised (235,836) $1.50 - $ 9.00
Granted 761,575 $ 9.38 - $15.00
Canceled (5,734) $14.00
------------------------
Outstanding at December 31, 1997 3,099,949 $1.50 - $16.25
Exercised (697,828) $1.50 - $15.00
Granted 325,250 $10.50 - $31.94
Canceled (76,682) $6.38 - $14.00
------------------------
Outstanding at December 31, 1998 2,650,689 $1.50 - $31.94
========================
Exercisable at December 31, 1998 2,172,632 $1.50 - $31.94
========================
</TABLE>
F-19
<PAGE> 69
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes information about stock options and warrants granted
to employees outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- ---------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 LIFE IN YEARS PRICE AT 12/31/98 PRICE
- ------------------------ ------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 367,200 3.6 $1.50 367,200 $1.50
$6.00 - $9.50 684,981 6.6 $6.41 682,465 $6.39
$10.00 - $14.00 1,288,226 8.6 $11.62 840,966 $11.91
$15.00 - 18.38 162,782 7.5 $15.32 158,126 $15.32
$23.94 - $31.94 147,500 9.5 $25.16 123,875 $26.29
--------------------- ---------------------
2,650,689 7.4 $9.85 2,172,632 $9.49
===================== =====================
</TABLE>
The Company also granted 50,000 and 83,334 options to purchase common stock at
$6.38 and $6.00 per share during 1995 and 1993, respectively, to Children's
Hospital in connection with a sponsored research agreement (see Note 4). These
options are not covered by the incentive and nonqualified stock option plan and
are included in the table below.
F-20
<PAGE> 70
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS AND WARRANTS (CONTINUED)
In addition, the Company has granted warrants to consultants and certain third
parties. Warrants granted generally expire after 10 years from the date of
grant. Stock warrant activity to non-employees is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE PER
WARRANTS SHARE
------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1996 267,336 $6.00 - $7.65
Granted 10,000 $14.00
------------------------
Outstanding at December 31, 1996 277,336 $6.00 - $14.00
Granted 100,000 $13.00
Exercised (8,334) $6.00
------------------------
Outstanding at December 31, 1997 369,002 $1.50 - $14.00
Exercised (171,435) $1.50 - $14.00
------------------------
Outstanding at December 31, 1998 197,567 $6.38 - $13.00
========================
Exercisable at December 31, 1998 177,566 $6.38 - $13.00
========================
</TABLE>
The Company also granted warrants to Bristol-Myers Squibb in connection with
the Original BMS Collaboration described in Note 5 which expired in November
1997.
10. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and account receivable. As of December 31, 1998 and
1997, the Company maintained approximately 51% and 87%, respectively, of its
cash, cash equivalents and short-term investments (short-duration, high quality
debt securities) under the management of a registered investment advisory firm
for which the Company's Vice Chairman and
F-21
<PAGE> 71
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
10. FINANCIAL INSTRUMENTS (CONTINUED)
director serves as chairman of the board. Such assets under management are
maintained by a high credit quality, third party financial institution
custodian.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, account receivable and accounts payable
approximate their fair values.
11. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit initiated in August 1995 in the United
States District Court for the Eastern District of Tennessee by Bolling, McCool
& Twist ("BMT"), a consulting firm. In the suit, BMT asserts that the Company
breached an agreement between BMT and the Company by failing to pay BMT certain
fees it asserts are owed under the agreement. More specifically, BMT has
asserted a claim for the payment of services rendered in the approximate amount
of $50,000 and seeks a success fee in an unspecified amount in connection with
the original BMS Collaboration. The judge in the case bifurcated the proceeding
into two phases: an adjudication of whether the Company breached its agreement
with BMT and then a damage phase. After a trial on the merits, the jury found
in favor of BMT on the breach of contract claim. A trial to determine damages
had been scheduled for April 14, 1998. However, on April 6, 1998, the court
issued an Order pursuant to which damages were limited to those arising during
the term of the Agreement, which terminated on November 1, 1995. Damages for
this period amount to approximately $50,000 plus a possible charge for
interest. The damage portion of the trial has been postponed while the court
reviews certain submissions requested by the court. A hearing on certain of
these submissions will be held on April 19, 1999. Despite the jury verdict on
the breach of contract claim and the court's limitation with respect to
damages, the Company is unable to predict with certainty the eventual outcome
of the lawsuit. The Company intends to contest the action vigorously and
believes that this proceeding will not have a material adverse effect on the
Company or on its financial condition, although there can be no assurance that
this will be the case.
In May 1994, the Company entered into two license agreements, whereby the
Company acquired the exclusive, worldwide, royalty-bearing licenses to make,
use, and sell the Angiostatin(R) protein, thalidomide (see Note 5) and
thalidomide analogs, all inhibitors of angiogenesis developed by Children's
Hospital. In consideration for receiving the rights, the Company must pay a
royalty on any sublicensing fees, as defined in the agreements,
F-22
<PAGE> 72
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
to Children's Hospital. The Company is also required to pay certain amounts
upon the attainment of certain milestones. The milestone payments aggregate
$2,650,000, of which $915,000 has been paid to date, and are based upon license
fees and achievement of regulatory approvals.
In addition, in 1996, the Company entered into two license agreements with
Children's Hospital for the exclusive, worldwide, royalty-bearing licenses to
make, use and sell Endostatin(TM) protein and 2-Methoxyestradiol, both
inhibitors of angiogenesis. In consideration for receiving these rights, the
Company must pay a royalty on any sublicensing fees, as defined in the
agreements, to Children's Hospital. Each agreement obligates the Company to pay
up to $1,000,000 "upon the attainment of certain milestones." As of December 31,
1998, no payments were due under these agreements.
These license agreements require the Company to pay Children's Hospital a
specified percentage of the royalty income received on the first $100 million
in net sales of the licensed products, and an increased percentage thereafter,
with a minimum payment based on a percentage of net sales of the licensed
products by any sublicensees.
The Company leases its primary facilities through 2008. The lease agreement
provides for escalation of the lease payments over the term of the lease,
however, rent expense is recognized under the straight line method.
Additionally, the Company leases office equipment under an operating lease. The
future minimum payments under its facilities and equipment leases as of
December 31, 1998 are as follows:
<TABLE>
<S> <C> <C>
1999 $ 797,300
2000 820,900
2001 845,200
2002 859,500
2003 885,300
Thereafter 4,840,900
-------------------------
Total minimum payments $9,049,100
=========================
</TABLE>
Rental expense for the years ended December 31, 1998, 1997 and 1996 was
$253,000, $241,000 and $226,000, respectively.
F-23
<PAGE> 73
EntreMed, Inc.
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE RETIREMENT PLAN
The Company sponsors the EntreMed, Inc. 401(k) Plan and Trust. The plan covers
substantially all employees and enables participants to contribute a portion of
salary and wages on a tax-deferred basis. Contributions to the plan by the
Company are discretionary. No employer contributions were made in 1998, 1997 or
1996.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 1,154,971 $ 1,165,485 $ 1,343,437 $ 1,497,590
Research and development costs 3,499,431 2,345,299 4,481,485 4,758,778
General and administrative expenses 1,305,890 1,221,010 1,380,387 1,852,928
Net loss (3,112,126) (1,812,631) (3,959,309) (4,629,704)
Net loss per share $ (0.25) $ (0.15) $ (0.31) $ (0.35)
1997
Revenues $ 1,092,500 $ 1,092,500 $ 1,241,040 $ 1,331,448
Research and development costs 2,418,835 1,743,560 2,825,840 2,010,470
General and administrative expenses 749,660 1,219,501 882,078 2,064,485
Net loss (1,423,507) (1,180,443) (1,820,963) (2,111,816)
Net loss per share $ (0.12) $ (0.10) $ (0.15) $ (0.17)
</TABLE>
F-24
<PAGE> 1
ENTREMED, INC.
EXHIBIT 10.28
["..." INDICATES MATERIAL HAS BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST, WHICH THE COMPANY HAS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION]
AGREEMENT
by and between
ENTREMED, INC.
and
CELGENE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 - DEFINITIONS............................................................................1
1.1 "AFFILIATE"............................................................................2
1.2 "CALENDAR QUARTER".....................................................................2
1.3 "CELGENE DEVELOPED INTELLECTUAL PROPERTY"..............................................2
1.4 "CELGENE DEVELOPED PATENT RIGHTS"......................................................2
1.5 "CELGENE DEVELOPED TECHNOLOGY RIGHTS"..................................................2
1.6 "CELGENE EXISTING INTELLECTUAL PROPERTY"...............................................3
1.7 "CELGENE EXISTING PATENT RIGHTS".......................................................3
1.8 "CELGENE EXISTING TECHNOLOGY RIGHTS"...................................................3
1.9 "CMCC AGREEMENT".......................................................................3
1.10 "ENTREMED DEVELOPED PATENT RIGHTS".....................................................3
1.11 "ENTREMED DEVELOPED TECHNOLOGY RIGHTS".................................................4
1.12 "ENTREMED EXISTING PATENT RIGHTS"......................................................4
1.13 "ENTREMED EXISTING TECHNOLOGY RIGHTS"..................................................4
1.14 "ENTREMED INTELLECTUAL PROPERTY".......................................................4
1.15 "FIELD"................................................................................5
1.16 "FIRST COMMERCIAL SALE"................................................................5
1.17 "NCI AGREEMENT"........................................................................5
1.18 "NDA"..................................................................................5
1.19 "NET SALES"............................................................................5
1.20 "PATENT RIGHT(s)"......................................................................6
1.21 "PRODUCT"..............................................................................7
1.22 "SUBLICENSEE"..........................................................................7
1.23 "TECHNOLOGY RIGHTS"....................................................................7
1.24 "TERRITORY"............................................................................8
1.25 "THALIDOMIDE"..........................................................................8
1.26 "THIRD PARTY(IES)".....................................................................8
1.27 "VALID CLAIM"..........................................................................8
SECTION 2 - GRANT..................................................................................8
2.1 Grant of ENTREMED EXISTING PATENT RIGHTS
and ENTREMED EXISTING TECHNOLOGY RIGHTS................................................8
2.2 Grant of ENTREMED DEVELOPED PATENT RIGHTS and ENTREMED DEVELOPED TECHNOLOGY RIGHTS.....9
2.3 CELGENE'S Right To Sublicense..........................................................9
2.4 Assignment Of Investigational New Drug and Orphan Drug
Status Applications...................................................................10
2.5 Assignment Of Agreements..............................................................10
2.6 Technology Transfer...................................................................11
2.7 Understanding Regarding CMCC AGREEMENT................................................11
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3 - DUE DILIGENCE.........................................................................13
3.1 In the United States..................................................................13
3.2 Outside the United States.............................................................15
3.3 For PRODUCTS For Use In Animals.......................................................16
3.4 No Other ENTREMED Rights..............................................................17
3.5 Co-Promotion By CELGENE And ENTREMED..................................................17
3.6 Establishment Of A Scientific Committee...............................................19
SECTION 4 - ROYALTIES.............................................................................21
4.1 Royalty Payments......................................................................21
4.2 Sublicensing Payments and Royalties...................................................22
4.3 Later-Issued VALID CLAIM..............................................................23
4.4 "...".................................................................................23
4.5 THIRD PARTY Sales.....................................................................23
4.6 Recordkeeping.........................................................................24
4.7 Quarterly Payments and Reports........................................................25
4.8 Accounting Reports....................................................................25
SECTION 5 - CONFIDENTIALITY.......................................................................26
5.1 Confidential Information..............................................................26
5.2 Non-Confidential Information..........................................................26
5.3 Disclosure To THIRD PARTIES...........................................................27
5.4 Disclosure To Sublicensees............................................................28
5.5 Public Statements.....................................................................28
SECTION 6 - ADVERSE MEDICAL EXPERIENCES...........................................................28
6.1 Adverse Medical Experience Reporting..................................................28
SECTION 7 - PATENTS...............................................................................28
7.1 Patent Prosecution....................................................................28
7.2 Cooperation In Prosecution............................................................29
7.3 Infringement and Declaratory Judgment Actions.........................................29
SECTION 8 - REPRESENTATIONS AND WARRANTIES........................................................32
8.1 By Both Parties.......................................................................32
8.2 By ENTREMED...........................................................................32
SECTION 9 - INDEMNIFICATION AND INSURANCE.........................................................34
9.1 By CELGENE............................................................................34
9.2 By ENTREMED...........................................................................35
9.3 Conditions to Indemnification.........................................................36
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 10 - ASSIGNMENT AND SUCCESSORS.............................................................36
10.1 By Either Party.......................................................................36
10.2 By CELGENE............................................................................37
10.3 CELGENE As Guarantor..................................................................37
10.4 Binding Effect........................................................................37
SECTION 11 - FORCE MAJEURE.........................................................................37
SECTION 12 - TERMINATION...........................................................................38
12.1 Term..................................................................................38
12.2 By Reason Of FDA Action...............................................................38
12.3 Termination Of Royalty Obligations....................................................38
12.4 Breach................................................................................38
12.5 Insolvency............................................................................40
12.6 Work-In-Progress......................................................................41
12.7 Survival..............................................................................41
12.8 Reversion of Rights...................................................................41
SECTION 13 - GENERAL PROVISIONS....................................................................41
13.1 Relationship of Parties...............................................................41
13.2 Entire Understanding..................................................................42
13.3 Governing Law.........................................................................42
13.4 Headings..............................................................................42
13.5 No Waiver.............................................................................42
13.6 Export Controls.......................................................................42
13.7 Notices...............................................................................42
13.8 Original Counterparts.................................................................43
</TABLE>
-iii-
<PAGE> 5
AGREEMENT
This Agreement is effective this 9th day of December, 1998 (the "EFFECTIVE
DATE") by and between CELGENE CORPORATION, a Delaware corporation located at 6
Powder Horn Drive, Warren, New Jersey 07059 ("CELGENE"), and ENTREMED, INC., a
Delaware Corporation located at 9610 Medical Center Drive, Rockville, Maryland
20850 ("ENTREMED").
WHEREAS, CELGENE is a company that develops, manufactures, markets and
sells pharmaceutical products for healthcare, and that has developed and owns
certain patents, patent applications, proprietary technology, know-how, and
United States Food and Drug Administration ("FDA") filings relating to PRODUCTS,
as hereinafter defined; and
WHEREAS, ENTREMED is the owner or exclusive licensee of certain PATENT
RIGHTS as hereinafter defined, TECHNOLOGY RIGHTS, as hereinafter defined, and
FDA filings related to PRODUCTS, and has certain rights and obligations relating
to PRODUCTS pursuant to agreements with THIRD PARTIES, as hereinafter defined;
and
WHEREAS, CELGENE desires to obtain assignments and/or exclusive rights in
the TERRITORY in and to all of ENTREMED's PATENT RIGHTS, TECHNOLOGY RIGHTS,
rights by agreement, and FDA filings, whether presently existing or subsequently
developed, for the commercial development, use, and sale of PRODUCTS; and
WHEREAS, ENTREMED is willing to grant the assignments and/or exclusive
rights desired by CELGENE, as set forth herein, in order to transfer its entire
present and future right, title and interest in PRODUCTS to CELGENE.
NOW, THEREFORE, in consideration of the mutual promises and other good and
valuable consideration, the parties agree as follows:
SECTION 1 - DEFINITIONS
The terms used in this Agreement have the following meaning:
<PAGE> 6
1.1 The term "AFFILIATE" as applied to either party shall mean any
company or other legal entity other than the party in question in
whatever country organized, controlling controlled by or under
common control with that party. The term "control" means ownership
or control, directly or indirectly, of at least fifty percent (50%)
of the outstanding stock or voting rights entitled to elect
directors.
1.2 The term "CALENDAR QUARTER" shall mean the period of three (3)
consecutive calendar months ending on March 31, June 30, September
30 or December 31, as the case may be.
1.3 The term "CELGENE DEVELOPED INTELLECTUAL PROPERTY" shall mean
CELGENE DEVELOPED PATENT RIGHTS and CELGENE DEVELOPED TECHNOLOGY
RIGHTS.
1.4 The term "CELGENE DEVELOPED PATENT RIGHTS" shall mean any United
States or foreign patents or patent applications filed by CELGENE,
or an AFFILIATE, successor or assign thereof at any time subsequent
to the EFFECTIVE DATE, in which CELGENE has a transferrable
interest, relating to a modification of a PRODUCT described in any
ENTREMED INTELLECTUAL PROPERTY or a method of using such PRODUCT,
which modification is (a) necessary for the manufacture, use, or
sale of such PRODUCT, and (b) then currently in use by CELGENE at
the time ENTREMED exercises its rights under Section 12.4(b), for
the manufacture, use, or sale of such PRODUCT.
1.5 The term "CELGENE DEVELOPED TECHNOLOGY RIGHTS" shall mean any
TECHNOLOGY RIGHTS developed, obtained, or acquired by CELGENE or an
AFFILIATE, successor or assign thereof at any time subsequent to the
EFFECTIVE DATE, in which CELGENE has a transferrable interest,
relating to a modification of a PRODUCT described in any ENTREMED
INTELLECTUAL PROPERTY or a method of using or use of such PRODUCT,
which modification is (a) necessary for the
-2-
<PAGE> 7
manufacture, use, or sale of such PRODUCT, and (b) then currently in
use by CELGENE at the time ENTREMED exercises its rights under
Section 12.4(b), for the manufacture, use, or sale of such PRODUCT.
1.6 The term "CELGENE EXISTING INTELLECTUAL PROPERTY" shall mean CELGENE
EXISTING PATENT RIGHTS and CELGENE EXISTING TECHNOLOGY RIGHTS.
1.7 The term "CELGENE EXISTING PATENT RIGHTS" shall mean the United
States and foreign patents and patent applications relating to
PRODUCTS in which CELGENE has an interest, jointly or solely, as
owner, assignee, or licensee, whether exclusive or nonexclusive, as
of the EFFECTIVE DATE.
1.8 The term "CELGENE EXISTING TECHNOLOGY RIGHTS" shall mean any
TECHNOLOGY RIGHTS developed, obtained, or acquired, solely or
jointly, exclusively or non-exclusively, by CELGENE or an AFFILIATE,
successor or assign thereof as of the EFFECTIVE DATE.
1.9 The term "CMCC AGREEMENT" shall mean that certain License Agreement
entered into by and between ENTREMED and Children's Medical Center
Corporation ("CMCC"), dated May 26, 1994, as amended to the date
hereof, attached hereto as Exhibit A.
1.10 The term "ENTREMED DEVELOPED PATENT RIGHTS" shall mean any United
States or foreign patent applications relating to PRODUCTS assigned
to, licensed to or filed, solely or jointly, by ENTREMED, or an
AFFILIATE, successor or assign thereof at any time subsequent to the
EFFECTIVE DATE, including any United States or foreign patent
applications filed pursuant to the CMCC AGREEMENT or NCI AGREEMENT,
and the patents issuing therefrom, which patent applications and
patents shall be added to Appendix A and shall be
-3-
<PAGE> 8
included in this Agreement as PATENT RIGHTS and licensed to CELGENE
in accordance with Section 2 of this Agreement.
1.11 The term "ENTREMED DEVELOPED TECHNOLOGY RIGHTS" shall mean any
TECHNOLOGY RIGHTS developed, obtained, or acquired, solely or
jointly, exclusively or non-exclusively, by ENTREMED, or an
AFFILIATE, successor or assign thereof at any time subsequent to the
EFFECTIVE DATE, including any TECHNOLOGY RIGHTS developed or
obtained pursuant to the CMCC AGREEMENT or NCI AGREEMENT, which
TECHNOLOGY RIGHTS shall be included in this Agreement and licensed
to CELGENE in accordance with Section 2 of this Agreement.
1.12 The term "ENTREMED EXISTING PATENT RIGHTS" shall mean the PATENT
RIGHTS in which ENTREMED has an interest, jointly or solely, as
owner, assignee, or licensee, whether exclusive or nonexclusive, as
of the EFFECTIVE DATE.
1.13 The term "ENTREMED EXISTING TECHNOLOGY RIGHTS" shall mean any
TECHNOLOGY RIGHTS developed, obtained, or acquired, solely or
jointly, exclusively or non-exclusively, by ENTREMED, or an
AFFILIATE, successor or assign thereof as of the EFFECTIVE DATE,
including without limitation any TECHNOLOGY RIGHTS developed or
obtained pursuant to the CMCC AGREEMENT or NCI AGREEMENT. ENTREMED
EXISTING TECHNOLOGY RIGHTS expressly includes any regulatory data
and filings, including without limitation all FDA Investigational
New Drug and Orphan Drug Status applications, as set forth in
Appendix C.
1.14 The term "ENTREMED INTELLECTUAL PROPERTY" shall mean and include
ENTREMED DEVELOPED PATENT RIGHTS, ENTREMED DEVELOPED TECHNOLOGY
RIGHTS, ENTREMED EXISTING PATENT RIGHTS, and ENTREMED EXISTING
TECHNOLOGY RIGHTS.
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1.15 The term "FIELD" shall mean the use of THALIDOMIDE in humans and
animals, including without limitation any and all diagnostic,
prophylactic, therapeutic, and research and development uses.
1.16 The term "FIRST COMMERCIAL SALE" shall mean, in each country of the
TERRITORY, the first sale after the EFFECTIVE DATE in such country
to a THIRD PARTY in connection with the nationwide introduction of
any PRODUCT by CELGENE, its AFFILIATES or SUBLICENSEES following
marketing and/or pricing approval by the appropriate governmental
agency for the country in which the sale is to be made and, when
governmental approval is not required, the first sale in that
country in connection with the nationwide introduction of a PRODUCT
in that country.
1.17 The term "NCI AGREEMENT" shall mean that certain Agreement by and
between the Division of Cancer Treatment at the National Cancer
Institute ("NCI") and ENTREMED, dated November 16, 1994, and
executed on behalf of ENTREMED on November 23, 1994, and on behalf
of NCI on November 18, 1994, attached hereto as Exhibit B.
1.18 The term "NDA" shall mean a New Drug Application filed with the
United States Food and Drug Administration.
1.19 The term "NET SALES" means the gross amount received by CELGENE or
its AFFILIATES or SUBLICENSEES for sale of PRODUCT to THIRD PARTIES,
less: (i) cost of freight, postage, and freight insurance, (if paid
by seller); (ii) sales taxes, value added taxes, excise taxes, and
customs duties; (iii) cost of export licenses and any taxes, fees or
other charges associated with the exportation or importation of
PRODUCTS; (iv) rebates accrued, incurred or paid to Federal Medicaid
and State Medicare and any other price reductions required by a
governmental agency; (v) rejected shipments, returns, and
retroactive deductions; (vi) the amount received for sales which
become the subject of a subsequent temporary or partial recall
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by a regulatory agency for safety or efficacy reasons outside the
control of CELGENE; and (vii) customary cash, quantity, and trade
discounts; provided, however, that a sale or transfer to an
AFFILIATE or SUBLICENSEE for re-sale by such AFFILIATE or
SUBLICENSEE shall not be considered a sale for the purpose of this
provision but the resale by such AFFILIATE or SUBLICENSEE shall be a
sale for such purposes. A "sale" shall also include a transfer or
other disposition for consideration, but not such transfers or
dispositions, without consideration, for pre-clinical, clinical,
regulatory or governmental purposes prior to receiving marketing
approval for the specific indication for which such transfer is
made. In the event that consideration in addition to or in lieu of
money is received for PRODUCT, such consideration shall be added to
the NET SALES as valued on the day of receipt thereof by CELGENE. To
the extent that a PRODUCT is sold in other than an arms length
transaction, NET SALES shall be the fair market value of such
PRODUCT if sold in an arms length transaction, less the costs
identified in subsections (i)-(vi) of this Section 1.19. PRODUCT
shall be considered "sold" at the earlier of (a) the transfer of
title in such PRODUCT to a person other than an AFFILIATE or
SUBLICENSEE of CELGENE or (b) the shipment of such PRODUCT from the
manufacturing or warehouse facilities of CELGENE or its AFFILIATE or
SUBLICENSEE to a THIRD PARTY.
1.20 The term "PATENT RIGHT(s)" shall mean:
(a) the United States patent applications and patents listed in
Appendix A;
(b) the United States and foreign patents issued from applications
listed in Appendix A and from divisionals and continuations of
such applications;
(c) claims of United States continuation-in-part applications and
of equivalent foreign applications, and of the resulting
patent(s), that
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are directed to subject matter described in the United States
and foreign applications listed in Appendix A;
(d) claims of all later-filed foreign patent applications, and of
the resulting patents, that are directed to subject matter
described in the United States patents and/or patent
applications described in the foregoing subsections of this
Section 1.20;
(e) any reissues, re-examinations or extension of United States
patents described in the foregoing subsections of this Section
1.20; and
(f) ENTREMED DEVELOPED PATENT RIGHTS, when assigned to, licensed
to or filed, solely or jointly, by ENTREMED, or an AFFILIATE,
successor or assign thereof, pursuant to Section 1.10 of this
Agreement.
1.21 The term "PRODUCT" shall mean any article of manufacture, substance,
material, chemical, formulation or composition for use in the FIELD
which is or includes THALIDOMIDE as an active ingredient, including,
without limitation, a composition that comprises THALIDOMIDE and a
non-steroidal anti-inflammatory compound(s). PRODUCT expressly
excludes THALIDOMIDE analogs.
1.22 The term "SUBLICENSEE" shall mean any THIRD PARTY licensed by
CELGENE to make, have made, use, offer to sell, sell or import any
PRODUCT.
1.23 The term "TECHNOLOGY RIGHTS" shall mean any information relating to
PRODUCTS that is not covered by a patent or patent application,
including without limitation technical and non-technical
information, know-how, methods, processes, procedures, compositions,
devices, formulae, protocols, techniques, software, designs,
drawings, plans, diagrams, specifications, data, the results of
tests or assays, and all other information relating to PRODUCTS.
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1.24 The term "TERRITORY" shall mean all countries of the world.
1.25 The term "THALIDOMIDE" shall mean a compound with the chemical
structure described as
2-(2,6-Dioxo-3-piperidinyl)-1H-isoindole-1,3(2H)-dione, or as
otherwise defined in the Merck Index, entry 9390, 12th ed., and
pharmaceutically acceptable salts thereof.
1.26 The term "THIRD PARTY(IES)" shall mean a person or entity who or
which is neither a party hereto nor an AFFILIATE of a party hereto.
1.27 The term "VALID CLAIM" shall mean an issued claim of an unexpired
patent ("ISSUED VALID CLAIM") or a claim of a pending patent
application, which shall not have been withdrawn, canceled or
disclaimed, or held invalid or unenforceable by a court of competent
jurisdiction in an unappealed or unappealable decision.
Notwithstanding the foregoing to the contrary, a claim of a pending
patent application, divisional application or continuation-in-part
shall cease to be a VALID CLAIM if no patent has issued on such
claim on or prior to the fifth (5th) anniversary of the EFFECTIVE
DATE of this Agreement, provided that such claim shall once again
become a VALID CLAIM on the issue date of a patent that subsequently
issues and covers such claim.
1.28 The use herein of the plural shall include the singular, and the use
of the masculine shall include the feminine.
SECTION 2 - GRANT
2.1 Grant of ENTREMED EXISTING PATENT RIGHTS and ENTREMED EXISTING
TECHNOLOGY RIGHTS. ENTREMED hereby grants to CELGENE and CELGENE
hereby accepts from ENTREMED an exclusive, royalty bearing right and
license or sublicense, as the case may be, under the ENTREMED
EXISTING PATENT RIGHTS and the
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ENTREMED EXISTING TECHNOLOGY RIGHTS to make, have made, use,
offer to sell, sell, and import PRODUCTS in the TERRITORY.
2.2 Grant of ENTREMED DEVELOPED PATENT RIGHTS and ENTREMED
DEVELOPED TECHNOLOGY RIGHTS. ENTREMED hereby grants to
CELGENE, to the extent not prohibited by the United States
Government or by prior contractual obligations to any THIRD
PARTY, and CELGENE hereby accepts from ENTREMED:
(a) an exclusive, royalty bearing right and license under
the ENTREMED DEVELOPED PATENT RIGHTS and the ENTREMED
DEVELOPED TECHNOLOGY RIGHTS to make, have made, use,
offer to sell, sell, and import PRODUCTS in the
TERRITORY; and
(b) to the extent an exclusive license is not available to
CELGENE in a country under a particular ENTREMED
DEVELOPED PATENT RIGHT or ENTREMED DEVELOPED TECHNOLOGY
RIGHT, but a non-exclusive license would be available,
ENTREMED hereby grants CELGENE a nonexclusive, royalty
bearing right and license under such ENTREMED DEVELOPED
PATENT RIGHT(s) and ENTREMED DEVELOPED TECHNOLOGY
RIGHT(s) to make, have made, use, offer to sell, sell,
and import PRODUCTS in the TERRITORY.
2.3 CELGENE'S Right To Sublicense.
(a) In the United States. ENTREMED hereby grants to CELGENE
the right to sublicense ENTREMED INTELLECTUAL PROPERTY
in the United States with the consent of ENTREMED, to be
exercised in ENTREMED's sole discretion.
(b) Outside the United States. ENTREMED hereby grants to
CELGENE the right to sublicense ENTREMED INTELLECTUAL
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PROPERTY outside the United States with the written
consent of ENTREMED, which consent shall not be
unreasonably withheld. Outside the United States,
CELGENE shall use reasonable efforts to negotiate
sublicensing agreements that are commercially reasonable
according to contemporaneous prevailing standards within
the pharmaceutical industry.
2.4 Assignment Of Investigational New Drug and Orphan Drug Status
Applications. Within ten (10) days of the EFFECTIVE DATE,
ENTREMED and CELGENE shall notify the Food and Drug
Administration ("FDA") of the transfer of ENTREMED's rights in
PRODUCTS to CELGENE by submitting to the FDA letters
substantially in the form attached hereto as Exhibit C, and
ENTREMED shall notify CELGENE of its compliance with this
Section 2.4 by copies of such letters. ENTREMED shall take all
further steps necessary or helpful to assign to CELGENE all
Orphan Drug Status and Investigational New Drug applications
filed by ENTREMED as of the EFFECTIVE DATE, as set forth in
Appendix C. If the FDA declines to allow the assignment of any
of ENTREMED's Investigational New Drug and/or Orphan Drug
Status application(s) to CELGENE, for whatever reason, then
ENTREMED's rights under such application(s) will be included
in this Agreement as ENTREMED EXISTING TECHNOLOGY RIGHTS and
will be licensed to CELGENE in accordance with Section 2 of
this Agreement.
2.5 Assignment Of Agreements. Within ten (10) days of the
EFFECTIVE DATE, ENTREMED shall notify CMCC and NCI of the
sublicense and transfer, respectively, of its rights in
PRODUCTS to CELGENE, and shall take all steps necessary or
helpful to assign to CELGENE the NCI AGREEMENT, including
without limitation requesting consent to assign ENTREMED's
obligations and entire right, title, and interest, under such
agreement to CELGENE, and upon receipt of the consent of NCI
to assign the NCI AGREEMENT, CELGENE will expressly assume all
of
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ENTREMED's duties and obligations thereunder. In the event
that ENTREMED is not permitted to assign its rights under the
NCI AGREEMENT to CELGENE, ENTREMED's rights in any PATENT
RIGHTS or TECHNOLOGY RIGHTS resulting from the NCI AGREEMENT
will be included in this Agreement as ENTREMED DEVELOPED
PATENT RIGHTS and ENTREMED DEVELOPED TECHNOLOGY RIGHTS,
respectively, and will be licensed to CELGENE in accordance
with Section 2.2 of this Agreement.
2.6 Technology Transfer. As soon as reasonably possible following
the EFFECTIVE DATE, but in no event later than one (1) month
after such date, ENTREMED shall transfer to CELGENE all
ENTREMED EXISTING TECHNOLOGY RIGHTS and ENTREMED DEVELOPED
TECHNOLOGY RIGHTS not already in CELGENE's possession.
ENTREMED agrees to disclose and transfer all ENTREMED
DEVELOPED TECHNOLOGY RIGHTS to CELGENE promptly, as they are
obtained or developed. ENTREMED also agrees to provide, upon
reasonable notice from CELGENE, any technical, scientific,
statistical, and/or regulatory support necessary or useful to
CELGENE's understanding and/or use of ENTREMED EXISTING
TECHNOLOGY RIGHTS and ENTREMED DEVELOPED TECHNOLOGY RIGHTS.
2.7 Understanding Regarding CMCC AGREEMENT. To the extent
TECHNOLOGY RIGHTS and/or PATENT RIGHTS licensed to CELGENE
under this Agreement are rights which ENTREMED has licensed
from CMCC under the CMCC AGREEMENT, CELGENE and ENTREMED
understand and agree as follows:
(a) The rights licensed to CELGENE by ENTREMED are subject
to the terms, limitations, restrictions and obligations
of the CMCC AGREEMENT.
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(b) CELGENE will comply with the terms, obligations,
limitations and restrictions of sublicensees under
Articles II, V, VII, VIII, IX, X, XII, XIII, and XV of
the CMCC AGREEMENT.
(c) ENTREMED will, at its own expense, timely pay the
milestone payment of "..." due to CMCC upon completion
of a Phase II clinical trial for any indication,
pursuant to Section 4.1.3 of the CMCC AGREEMENT.
ENTREMED shall promptly provide written notice to
CELGENE of such payment.
(d) CELGENE will, at its own expense, timely pay the
milestone payment of "..." due to CMCC upon completion
of a Product License Application for any indication,
pursuant to Section 4.1.4 of the CMCC AGREEMENT, which
payment shall be made to ENTREMED and timely forwarded
by ENTREMED to CMCC; provided, however, that if (i) such
payment becomes due prior to January 1, 2000, and (ii)
CELGENE's annual sales in the year such payment becomes
due are less than "...", CELGENE may notify ENTREMED, in
writing, that it wishes ENTREMED to pay such amount to
CMCC directly, which ENTREMED hereby agrees to do, and,
by June 30, 2000 CELGENE shall reimburse ENTREMED the
amount paid to CMCC, plus interest calculated at the
annual rate of the sum of one percent (1%) plus the
prime interest rate quoted by Citibank, N.A. on the date
said payment is due. ENTREMED shall promptly provide
written notice to CELGENE of all payments under this
Section 2.7(d).
(e) ENTREMED will comply with the terms, obligations,
limitations and restrictions of the CMCC AGREEMENT,
including, without limitation, any provisions relating
to due diligence, notification with respect to
sublicenses, and milestone payments, subject to Sections
2.7(c) and (d) of this Agreement.
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(f) The CMCC AGREEMENT and ENTREMED's rights thereunder
shall remain in full force and effect for the life of
the last to expire patent issued under the Patent
Rights, as defined therein, unless earlier terminated
pursuant to Article XIII of the CMCC AGREEMENT.
SECTION 3 - DUE DILIGENCE
3.1 In the United States.
(a) CELGENE shall initiate and diligently use reasonable
efforts to develop, or to file for regulatory approval
of or register, and to market and sell PRODUCTS in the
United States. Reasonable efforts with respect to the
development and/or pursuit of regulatory approval or
registration for PRODUCTS in the United States shall be
demonstrated by CELGENE (i) developing and pursuing
regulatory approval for PRODUCTS for those uses CELGENE,
in good faith, determines to be commercially and
scientifically reasonable, including but not limited to
(a) one (1) "...", (b) one (1) "...", and (c) one (1)
"..."; and (ii) funding and conducting clinical trials
for PRODUCTS for other uses in order to enhance
scientific knowledge with regard to such PRODUCTS,
including for the publication of data and results in
scientific journals, whether or not such clinical trials
result in or facilitate the pursuit of regulatory
approval.
(b) ENTREMED agrees that, subject to Section 3.6 of this
Agreement, (i) the decision regarding which uses to
pursue regulatory approval of PRODUCTS for, and/or to
fund and conduct clinical trials of PRODUCTS for,
pursuant to Section 3.1(a) of this Agreement, shall be
made by and in the sole discretion of CELGENE; and (ii)
with respect to the manner in which regulatory approval
is sought and/or clinical trials are funded and
conducted, CELGENE shall
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have sole discretion, including, without limitation,
complete control over all regulatory submissions of
PRODUCTS to the appropriate regulatory agencies
worldwide, including whether, when, and how to file,
maintain, withdraw, or abandon an application for
regulatory approval of PRODUCTS.
(c) Within 90 days after the EFFECTIVE DATE, CELGENE shall
draft a Development Plan outlining CELGENE'S development
objectives for PRODUCTS, in accordance with Sections
3.1(a)(i) and (b) of this Agreement. CELGENE shall
consult with ENTREMED concerning the Development Plan.
The Development Plan shall include suitable clinical
milestones which are reasonably intended to lead to
regulatory approval of PRODUCTS, in accordance with
Sections 3.1(a)(i) and (b) of this Agreement.
(d) CELGENE shall provide a written summary report to
ENTREMED within thirty (30) days after June 30th and
December 31st of each calendar year concerning the
efforts being made in accordance with this Section 3.1
with respect to PRODUCTS. CELGENE shall provide ENTREMED
with any additional information reasonably requested by
ENTREMED in this respect.
(e) At ENTREMED'S reasonable request, CELGENE shall provide
ENTREMED access to all clinical trial data for PRODUCTS
conducted by CELGENE in accordance with the Development
Plan set forth in this Section 3.1. In the event that
rights are returned to ENTREMED under Section 3.1(f) of
this Agreement, ENTREMED shall have the right to review
and use the clinical trial data in its own clinical
program.
(f) In the event that CELGENE fails to meet any of its
obligations under this Section 3.1 with respect to
PRODUCTS in the United
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States, and such failure is not cured within sixty (60)
days after written notice thereof is received by CELGENE
from ENTREMED, then ENTREMED shall have the right and
option to terminate the license granted in this
Agreement and this Agreement by giving CELGENE sixty
(60) days prior written notice thereof.
3.2 Outside the United States.
(a) Diligence. CELGENE shall initiate and diligently use
reasonable efforts to develop, or to file for regulatory
approval of or register, and to market and sell PRODUCTS
in Europe, in Canada, and in the Pacific Rim, Japan, and
Australia (collectively, the "PACIFIC RIM"). Reasonable
efforts with respect to the development and/or pursuit
of regulatory approval or registration for PRODUCTS in
Europe, Canada, and the PACIFIC RIM shall be
demonstrated by CELGENE, or a sublicensee thereof,
pursuing regulatory approval for PRODUCTS (i) in Italy,
France, the United Kingdom, and Germany (in the case of
Europe), and in Japan and one other country of the
PACIFIC RIM (in the case of the PACIFIC RIM), within
"..." from the date of the first FDA approval of a
PRODUCT for an oncology indication or Crohn's disease,
whichever occurs earlier; and (ii) in Canada, within
"..." from the date of the first FDA approval of a
PRODUCT for an oncology indication or Crohn's disease,
whichever occurs earlier.
(b) CELGENE's Discretion. ENTREMED agrees that, subject to
Section 3.6 of this Agreement, (i) the decision
regarding which uses to pursue regulatory approval of
PRODUCTS for, and/or to fund and conduct clinical trials
of PRODUCTS for, pursuant to Section 3.2(a) of this
Agreement, shall be made by and in the sole discretion
of CELGENE; and (ii) with respect to the manner in
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which regulatory approval is sought and/or clinical
trials are funded and conducted, CELGENE shall have sole
discretion, including, without limitation, complete
control over all regulatory submissions of PRODUCTS to
the appropriate regulatory agencies worldwide, including
whether, when, and how to file, maintain, withdraw, or
abandon an application for regulatory approval of
PRODUCTS.
(c) Cooperation. If CELGENE fails to use reasonable efforts
in Europe, Canada, or the PACIFIC RIM, as set forth in
Section 3.2(a) of this Agreement, or to sublicense its
rights to a THIRD PARTY, then ENTREMED shall have the
right and option to either (i) terminate the licenses
granted in the region where such failure has occurred,
i.e., Europe, Canada, or the PACIFIC RIM, respectively,
by giving CELGENE sixty (60) days prior written notice
thereof, or (ii) cooperate with CELGENE to find an
appropriate SUBLICENSEE for such rights.
3.3 For PRODUCTS For Use In Animals.
(a) Diligence. CELGENE shall initiate and diligently use
reasonable efforts to develop, or to file for regulatory
approval of or register, and to market and sell PRODUCTS
for use in animals. Such reasonable efforts shall be
demonstrated by CELGENE obtaining regulatory approval
for the sale of a PRODUCT for use in animals within four
(4) years of the EFFECTIVE DATE in the United States
and, outside the United States, in one of the following
countries: Italy, France, the United Kingdom, or
Germany.
(b) Cooperation. If CELGENE fails to use reasonable efforts
either in the United States or outside the United
States, as set forth in Section 3.3(a) of this
Agreement, or to sublicense its rights in such regions
to a THIRD PARTY, then ENTREMED shall have the
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right and option to either (i) terminate CELGENE's
rights in the region where such failure has occurred,
i.e., in the United States or outside the United States,
respectively, in and to such PRODUCTS for use in animals
by giving CELGENE sixty (60) days prior written notice
thereof, or (ii) cooperate with CELGENE to find an
appropriate SUBLICENSEE for such rights.
3.4 No Other ENTREMED Rights. Except as otherwise expressly
provided in this Agreement, ENTREMED agrees that it has not
retained any rights under ENTREMED INTELLECTUAL PROPERTY to
PRODUCTS, and that is shall not (i) make, use, offer to sell,
sell, or import PRODUCTS in the TERRITORY, or (ii)
collaborate, negotiate, or deal with THIRD PARTIES with
respect to PRODUCTS.
3.5 Co-Promotion By CELGENE And ENTREMED.
(a) With Regard To PRODUCTS. If CELGENE, in its sole
discretion, decides to co-promote any PRODUCT or to seek
sales assistance in promoting any PRODUCT, including,
but not limited to, sales assistance for indications not
then promoted by CELGENE sales personnel, CELGENE shall,
in good faith, consider ENTREMED for the opportunity to
co-promote such PRODUCT(S) for such indications in the
United States.
(i) CELGENE will give ENTREMED due consideration for
the opportunity to co-promote such PRODUCT(S) as
set forth herein, provided that ENTREMED has a
sales force capable of providing the required
details to the targeted physician audience, or is
capable of assembling such a sales force within
six (6) months, and agrees to do so. If and only
if ENTREMED either has a sales force capable of
providing the required details to the targeted
physician audience, or commits to assembling such
a sales force
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within six (6) months, the decision to offer
ENTREMED the opportunity to co-promote such
PRODUCT(s) for such indications in the United
States shall be made, in good faith, by CELGENE,
and CELGENE shall notify ENTREMED of its decision
in writing.
(ii) If CELGENE offers ENTREMED the opportunity to
co-promote, pursuant to Section 3.5(a)(i) of this
Agreement, ENTREMED shall have thirty (30) days to
accept such offer by written notice to CELGENE. If
ENTREMED accepts such offer to co-promote
PRODUCTS, then the parties will negotiate, in good
faith, a co-promotion agreement setting forth the
substance of this Section 3.5 and other normal and
customary conditions within six (6) months of
CELGENE's receipt of ENTREMED's acceptance
pursuant to this Section 3.5(a)(ii).
(iii) ENTREMED's co-promotion efforts will focus on
detailing (product presentations) the PRODUCT to
the targeted physician audience. In such case,
ENTREMED's sales representatives will also have
the opportunity, from time to time, to participate
in seminars, in-service training, group
presentations, and other educational and
promotional activities initiated by CELGENE in
consultations with ENTREMED. In addition, ENTREMED
will assign a product manager to participate with
the CELGENE marketing team to provide input as
appropriate and to be the operational liaison
between CELGENE and ENTREMED's sales force.
(b) With Regard To Anti-angiogenic Compounds. If ENTREMED,
in its sole discretion, decides to co-promote an
anti-angiogenic compound or a composition containing, as
an active ingredient, such a compound, or to seek sales
assistance in promoting any
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such anti-angiogenic compound or composition, including,
but not limited to, sales assistance for indications not
then promoted by ENTREMED sales personnel, ENTREMED
shall, in good faith, consider CELGENE for the
opportunity to co-promote such anti-angiogenic compounds
and/or compositions. The decision to offer CELGENE the
opportunity to co-promote such anti-angiogenic compounds
and/or compositions shall be made in the sole discretion
of ENTREMED, and be subject, mutatis mutandis, to the
terms and conditions set forth in Sections 3.5(a)(ii)
and (iii) of this Agreement.
3.6 Establishment Of A Scientific Committee. CELGENE agrees to
conduct and fund a development program designed to obtain
approval to market PRODUCTS, in accordance with its
obligations under Section 3.1(a)(i) and 3.1(b) of this
Agreement (the "PROGRAM"). To ensure the continued
participation of ENTREMED in these development activities, the
PROGRAM will be monitored by a Scientific Committee as
described herein (the "COMMITTEE").
(a) Members. Within ten (10) days of the date hereof,
ENTREMED and CELGENE shall each appoint two (2) persons
to serve on the COMMITTEE. Each party will have the
right to change its representation on the COMMITTEE upon
written notice to the other.
(b) Chairperson. The COMMITTEE will be chaired by one
representative of CELGENE, who shall be chosen in the
sole discretion of CELGENE.
(c) Responsibilities. The COMMITTEE will have authority to:
(i) act in an advisory role and provide information,
including without limitation technical and
regulatory information and
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marketing and sales information, helpful in
connection with the PROGRAM;
(ii) make recommendations regarding the performance of
the PROGRAM and the conduct of the work pursuant
thereto, and monitor performance thereunder;
(iii) propose modifications to the PROGRAM;
(iv) review any and all proposed publication(s)
relating to the PROGRAM and the results therefrom;
and
(v) review all information and data resulting from the
PROGRAM.
(d) Meetings. The COMMITTEE will meet not less than four (4)
times a year during the term of the PROGRAM, at such
dates and times as agreed to by the parties. The
COMMITTEE will prepare written minutes of each meeting
and a written record of all decisions whether made at a
formal meeting or not. All decisions made and actions
taken by the COMMITTEE will be made or taken in the sole
discretion of CELGENE after good faith consideration of
the position or opinion of the ENTREMED members.
(e) Term and Termination. The PROGRAM will continue until
there are no longer any ongoing activities in pursuit of
regulatory approval, or any pending applications for
regulatory approval, for PRODUCTS, pursuant to Sections
3.1(a)(i) and (b) of this Agreement. Once all such
activities have been completed and all such regulatory
approvals have been obtained, CELGENE may, in its sole
discretion, extend the term of the PROGRAM to include
PRODUCTS in clinical trials for other uses, as set forth
in Sections 3.1(a)(ii) and (b) of this Agreement, in
which case the PROGRAM will continue until such clinical
trials have been completed or otherwise terminated or,
if applicable, until regulatory approval has
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been obtained, unless the PROGRAM is sooner terminated
by CELGENE.
SECTION 4 - ROYALTIES
4.1 Royalty Payments.
(a) First Twelve Years. CELGENE shall pay to ENTREMED the
following royalties on the NET SALES of PRODUCTS sold by
CELGENE or its AFFILIATES in each country of the
TERRITORY (i) for the first consecutive twelve (12)
years from the date of the FIRST COMMERCIAL SALE of a
PRODUCT in each country of the TERRITORY, and,
separately and independently, (ii) for the first
consecutive twelve (12) years from the date of the FIRST
COMMERCIAL SALE of each PRODUCT that contains, as a
second active ingredient, a compound other than
THALIDOMIDE, in each country of the TERRITORY:
(i) "..." of NET SALES up to "..." dollars of such
sales;
(ii) "..." of NET SALES between "..." dollars and "..."
dollars of such sales;
(iii) "..." of NET SALES between "..." and "..." dollars
of such sales; and
(iv) "..." of NET SALES over "..." dollars of such
sales.
(b) After Twelve Years. For each PRODUCT in each country in
the TERRITORY in which the twelve (12) year period
provided for in Section 4.1(a) of this Agreement shall
have terminated, CELGENE shall pay to ENTREMED the
following royalties on the NET SALES of such PRODUCT
covered by an ISSUED VALID CLAIM of the PATENT RIGHTS
that are sold by CELGENE or its AFFILIATES in such
country:
(i) "..." of NET SALES up to "..." dollars of such
sales;
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(ii) "..." of NET SALES between "..." dollars and "..."
dollars of such sales;
(iii) "..." of NET SALES between "..." and "..." dollars
of such sales; and
(iv) "..." of NET SALES over "..." dollars of such
sales;
and such royalties under this Section 4.1(b) shall be
payable until the last to expire PATENT RIGHT containing an
ISSUED VALID CLAIM covering such PRODUCT sold by CELGENE or
its AFFILIATES in such country.
4.2 Sublicensing Payments and Royalties.
(a) Under CELGENE's Rights. If CELGENE grants a sublicense
of its exclusive rights under this Agreement, pursuant
to Section 2.3 of this Agreement, in any country(ies) of
the TERRITORY, CELGENE shall pay to ENTREMED (i) "..."
of any non-royalty consideration, including but not
limited to any sublicensing and/or milestone payments
received by CELGENE pursuant to such sublicense and (ii)
"..." of the royalty income paid by SUBLICENSEES to
CELGENE on NET SALES of PRODUCTS.
(b) CELGENE-ENTREMED Cooperation. If CELGENE grants a
sublicense of any of its rights under this Agreement in
any area of the FIELD or any country of the TERRITORY
with respect to which ENTREMED and CELGENE are
cooperating pursuant to Sections 3.2 or 3.3 of this
Agreement, CELGENE shall pay to ENTREMED "..." of any
non-royalty consideration, including but not limited to
any sublicensing and/or milestone payments received by
CELGENE pursuant to such sublicense. CELGENE shall also
pay to ENTREMED, as applicable, the following: (i) if
CELGENE and ENTREMED are cooperating in any country(ies)
pursuant to Section 3.2 of this Agreement, "..." of the
royalty income paid by SUBLICENSEES to CELGENE on NET
SALES, in such country(ies), of PRODUCTS; and (ii) if
CELGENE and
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ENTREMED are cooperating in any country(ies) with regard
to PRODUCTS for use in animals pursuant to Section 3.3
of this Agreement, "..." of the royalty income paid by
SUBLICENSEES to CELGENE on NET SALES in such
country(ies) of such PRODUCTS.
4.3 Later-Issued VALID CLAIM. In the event that there is no ISSUED
VALID CLAIM of a PATENT RIGHT in a country within the
TERRITORY on the date the twelve (12) year period provided for
in Section 4.1(a) of this Agreement expires, no royalties
shall be owed by CELGENE to ENTREMED under Sections 4.1(b) and
4.2 of this Agreement on PRODUCTS sold by CELGENE or its
AFFILIATES in such country, provided, however, that if a VALID
CLAIM of a PATENT RIGHT thereafter issues in such country,
CELGENE shall pay ENTREMED royalties on the NET SALES in such
country of PRODUCTS covered by an ISSUED VALID CLAIM of the
PATENT RIGHTS that are sold by CELGENE or its AFFILIATES,
according to the royalty rates set forth in Sections 4.1(b)
and 4.2 of this Agreement, and such royalties under this
Section 4.3 shall be payable until the last to expire PATENT
RIGHT containing an ISSUED VALID CLAIM covering the PRODUCTS
sold by CELGENE, its AFFILIATES or SUBLICENSEE in such
country.
4.4 "..."
4.5 THIRD PARTY Sales. In any country where sales by a THIRD PARTY
of a PRODUCT(s) for a similar dosage form and/or route of
administration:
(a) are equal to or greater than "..." of the dollar market
share for such PRODUCT in such country ("MARKET SHARE"),
but less than "..." of the MARKET SHARE, then the
royalty payable to
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ENTREMED pursuant to Sections 4.1 and 4.3 of this
Agreement shall be reduced by "...";
(b) are equal to or greater than "..." of the MARKET SHARE,
but less than "..." of the MARKET SHARE, then the
royalty payable to ENTREMED pursuant to Sections 4.1 and
4.3 of this Agreement shall be reduced by "...";
(c) are equal to or greater than "..." of the MARKET SHARE,
but less than "..." of the MARKET SHARE, then the
royalty payable to ENTREMED pursuant to set Sections 4.1
and 4.3 of this Agreement shall be reduced by "..."; and
(d) are equal to or greater than "..." of the MARKET SHARE,
then the royalty payable to ENTREMED pursuant to
Sections 4.1 and 4.3 of this Agreement shall be reduced
by "...";
provided that royalties payable to ENTREMED shall never be
reduced below "..." of NET SALES in each royalty bracket. For
purposes of this Section 4.5, oral dosage forms shall include,
without limitation, all capsule, caplet, tablet, and liquid
formulations for oral administration.
4.6 Recordkeeping. CELGENE shall keep, and shall cause each of its
AFFILIATES and SUBLICENSEES to keep, full and accurate books
of account containing all particulars relevant to its sales of
PRODUCTS that may be necessary for the purpose of calculating
all royalties payable to ENTREMED. Such books of account shall
be kept at their principal place of business and, with all
necessary supporting data shall, for the three (3) years next
following the end of the calendar year to which each shall
pertain, be open for inspection by an independent certified
public accountant reasonably acceptable to CELGENE, upon
reasonable notice during normal business hours at ENTREMED'S
expense for the sole purpose of verifying royalty statements
or compliance with this Agreement. In the event the inspection
determines that royalties due
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ENTREMED for any period have been underpaid by five percent
(5%) or more, then CELGENE shall pay for all costs of the
inspection. In all cases, CELGENE shall pay to ENTREMED any
underpaid royalties promptly and with interest at the prime
rate available to ENTREMED from its bank plus two percent
(2%). All information and data reviewed in the inspection
shall be used only for the purpose of verifying royalties and
shall be treated as CELGENE CONFIDENTIAL INFORMATION subject
to the obligations of this Agreement. No audit by an agent of
ENTREMED shall occur more frequently than once during any
twelve (12) month period.
4.7 Quarterly Payments and Reports. In each year the amount of
royalty due shall be calculated quarterly as of the end of
each CALENDAR QUARTER and shall be paid quarterly within the
forty-five (45) days next following such date. Every such
payment shall be supported by the accounting described in
Section 4.8 of this Agreement. All royalties due ENTREMED are
payable in United States dollars. When PRODUCTS are sold for
currency other than United States dollars, the earned
royalties will first be determined in the foreign currency of
the country in which such PRODUCTS were sold and then
converted into equivalent United States funds. The exchange
rate will be that rate quoted in the Wall Street Journal on
the last business day of the CALENDAR QUARTER in which such
sales were made.
4.8 Accounting Reports. With each quarterly payment, CELGENE shall
deliver to ENTREMED a full and accurate accounting to include
at least the following information:
(a) Quantity of PRODUCT subject to royalty sold, by country,
by CELGENE, its AFFILIATES or SUBLICENSEES;
(b) Total receipts for each PRODUCT subject to royalty, by
country and, to the extent used in any royalty
calculations during such
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quarter, the exchange rate set forth in Section 4.7 of
this Agreement;
(c) Compensation on PRODUCTS received from SUBLICENSEES
pursuant to a sublicense of CELGENE's rights under this
Agreement; and
(c) Total royalties and/or compensation payable to ENTREMED.
SECTION 5 - CONFIDENTIALITY
5.1 Confidential Information. During the term of this Agreement,
it is contemplated that each party may disclose to the other,
proprietary and confidential technology, inventions, technical
information, material, reagents, biological materials and the
like which are owned or controlled by the party providing such
information or which that party is obligated to maintain in
confidence and which is designated by the party providing such
information as confidential ("CONFIDENTIAL INFORMATION"). Each
party agrees not to disclose the CONFIDENTIAL INFORMATION and
to maintain the CONFIDENTIAL INFORMATION in strict confidence,
to cause all of its agents, representatives and employees to
maintain the disclosing party's CONFIDENTIAL INFORMATION in
confidence and not to disclose any such CONFIDENTIAL
INFORMATION to a THIRD PARTY without the prior written consent
of the disclosing party, and not to use such CONFIDENTIAL
INFORMATION for any purpose other than as provided under this
Agreement. The secrecy obligations of the parties with respect
to CONFIDENTIAL INFORMATION shall continue for a period ending
ten (10) years from the termination of this Agreement.
5.2 Non-Confidential Information. The obligations of
confidentiality will not apply to information that:
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(a) was known to the receiving party or generally known to
the public prior to its disclosure hereunder through no
fault of the disclosing party or any agent,
representative or employee thereof; or
(b) subsequently becomes known to the public by some means
other than a breach of this Agreement, including
publication and/or laying open to inspection of any
patent applications or patents;
(c) is subsequently disclosed to the receiving party by a
THIRD PARTY having a lawful right to make such
disclosure and who is not under an obligation of
confidentiality to the disclosing party;
(d) is required by law, rule, regulation or bona fide legal
process to be disclosed, provided that the disclosing
party takes all reasonable stem to restrict and maintain
confidentiality of such disclosure and provides
reasonable notice to the non-disclosing party; or
(e) is approved for release by the parties.
5.3 Disclosure To THIRD PARTIES. The obligations of Section 5.1
notwithstanding, CELGENE or ENTREMED, as the case may be, may
disclose the CONFIDENTIAL INFORMATION licensed hereunder to
THIRD PARTIES
(a) who need to know the same in order to obtain regulatory
approval for a PRODUCT under this Agreement, provided
that the actions of such THIRD PARTY are not in conflict
with CELGENE's rights under this Agreement,
(b) who need to know the same in order to work towards the
commercial development of PRODUCT on behalf of CELGENE,
or
(c) for whom the non-disclosing party, ENTREMED or CELGENE,
as the case may be, has given prior written approval
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provided that such THIRD PARTIES are bound by
obligations of confidentiality and non-use at least as
stringent as those set forth herein.
5.4 Disclosure To Sublicensees. CELGENE may disclose
ENTREMED's CONFIDENTIAL INFORMATION to a SUBLICENSEE
without ENTREMED's approval, provided that such
SUBLICENSEES are bound by obligations of confidentiality
and non-use at least as stringent as those set forth
herein.
5.5 Public Statements. Neither CELGENE nor ENTREMED may
issue a public statement, including without limitation a
press release, with regard to this Agreement without the
prior written consent of the other party, which consent
shall not be unreasonably withheld. In accordance with
the rules and regulations promulgated by the Securities
and Exchange Commission, the parties will request that
this Agreement be treated as confidential.
SECTION 6 - ADVERSE MEDICAL EXPERIENCES
6.1 Adverse Medical Experience Reporting. CELGENE shall
comply fully with all applicable medical/adverse
experience reporting requirements in all countries where
CELGENE intends to carry out clinical trials and/or
market PRODUCT.
SECTION 7 - PATENTS
7.1 Patent Prosecution.
(a) ENTREMED shall use reasonable efforts to prepare,
file, prosecute and maintain patent applications
and patents directed to PATENT RIGHTS and PRODUCTS
through patent counsel selected by ENTREMED and
reasonably acceptable to CELGENE, who shall
consult with and keep CELGENE advised with respect
thereto.
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(b) CELGENE shall reimburse ENTREMED for all
reasonable costs and expenses incurred after the
EFFECTIVE DATE for the filing, prosecution and
maintenance of PATENT RIGHTS.
7.2 Cooperation In Prosecution.
(a) With respect to any PATENT RIGHTS, each patent
application, office action, response to office
action, request for terminal disclaimer, petition,
and request for reissue or reexamination of any
patent issuing from such application shall be
provided to CELGENE sufficiently prior to the
filing of such application, response, petition, or
request to allow for review and comment by
CELGENE. ENTREMED shall have the right to take any
action that, in its judgement, is necessary to
preserve such PATENT RIGHTS.
(b) Within a reasonable time from the EFFECTIVE DATE,
CELGENE and ENTREMED will discuss each party's
patent portfolio with regard to PRODUCTS, in
accordance with prior obligations of
confidentiality owed by each party to any THIRD
PARTY, and will use reasonable efforts to
coordinate their respective patent portfolio, to
the extent possible, so as to maximize the patent
protection for PRODUCTS.
7.3 Infringement and Declaratory Judgment Actions.
(a) Notification. In the event that either party
learns of the infringement of any PATENT RIGHT, or
the filing of a Declaratory Judgement action
alleging the invalidity, unenforceability, or
noninfringement of any PATENT RIGHT ("DJ ACTION"),
that party must promptly notify the other party of
the infringement or DJ ACTION, as the case may be,
in writing, and must provide reasonable evidence
of the infringement. Neither
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party will notify a THIRD PARTY of the infringement of
any PATENT RIGHT or of the filing of a DJ ACTION
directed to any PATENT RIGHT without first obtaining
consent of the other party, which consent shall not be
unreasonably withheld.
(b) CELGENE's Right To File Infringement Actions. To the
extent ENTREMED has the right to bring a suit or action
to compel the termination of infringement of the PATENT
RIGHTS, including to the extent provided in Article 7 of
the CMCC AGREEMENT, ENTREMED hereby grants CELGENE the
right and option, but not the obligation, to bring an
action for infringement or to defend against a DJ
action, at its sole expense, in the name of ENTREMED
and/or in the name of CELGENE, and to join ENTREMED as a
party plaintiff if required. No settlement, consent
judgment or other voluntary final disposition of a suit
that adversely affects PATENT RIGHTS may be entered into
without the consent of ENTREMED, which consent shall not
be unreasonably withheld.
(c) CELGENE's Right To Defend DJ ACTIONS. In the event that
a DJ ACTION is brought naming CELGENE as a defendant,
CELGENE shall have the right to proceed with the
litigation or settle such action provided, however, that
no settlement, consent judgment or other voluntary final
disposition of a suit that adversely affects PATENT
RIGHTS may be entered into without the consent of
ENTREMED, which consent shall not be unreasonably
withheld.
(d) CELGENE's Recovery. In the event that CELGENE shall
undertake the enforcement and/or defense of the PATENT
RIGHTS by litigation, any recovery of damages by CELGENE
for any such litigation shall be applied first in
satisfaction of any
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unreimbursed expenses and legal fees of CELGENE relating
to the suit. The balance remaining from any such
recovery shall, after ENTREMED receives its royalties
from lost sales, belong to CELGENE.
(e) ENTREMED's Right To Litigate. In the event that CELGENE
elects not to pursue an action for infringement or to
defend against a DJ action, as the case may be, CELGENE
shall notify ENTREMED in writing of such election and
ENTREMED shall have the right and option, but not the
obligation, at its cost and expense, to initiate
infringement litigation and to retain any recovered
damages.
(f) Cooperation. In any infringement suit either party may
institute to enforce or defend the PATENT RIGHTS
pursuant to this Agreement, the other party hereto
shall, at the request of the party initiating such suit,
cooperate in all respects and, to the extent possible,
have its employees testify when requested and make
available relevant records, papers, information,
samples, specimens, and the like. All reasonable
out-of-pocket costs incurred in connection with
rendering cooperation requested hereunder shall be paid
by the party requesting cooperation.
(g) THIRD PARTY Royalty Reduction. In the event that an
infringement action is brought by a THIRD PARTY against
CELGENE alleging that CELGENE's making, using, offering
to sell, selling, or importing of PRODUCTS under the
PATENT RIGHTS infringes a THIRD PARTY patent, and
results in a judgment or settlement requiring royalties
to be paid by CELGENE to such THIRD PARTY, the royalties
owed by CELGENE to ENTREMED under Section 4 of this
Agreement shall be reduced by an amount equal to "..."
of the royalties owed
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to such THIRD PARTY, provided that the royalties owed to
ENTREMED shall not be reduced under this Section 7.3(f)
to less than "..." of NET SALES, nor shall any specific
royalty payment be reduced under this Section 7.3(g) by
more than "...".
SECTION 8 - REPRESENTATIONS AND WARRANTIES.
8.1 By Both Parties. Each party hereby represents and warrants
that each has the full right and authority to enter into this
Agreement and that the entry into this Agreement does not
require the consent of a THIRD PARTY whose consent has not
been obtained.
8.2 By ENTREMED. ENTREMED represents and warrants as follows:
(a) that ENTREMED has not received any notice of
infringement of THIRD PARTY patents or notice of
interfering subject matter; that, without having made
any special investigation, ENTREMED is not aware of any
THIRD PARTY patents or patent applications that contain
any interfering subject matter, or any issued THIRD
PARTY patents that would be infringed by the making,
using, selling, offering for sale, or importing by
CELGENE of PRODUCTS covered by the ENTREMED EXISTING
PATENT RIGHTS or the ENTREMED EXISTING TECHNOLOGY RIGHTS
in any country in the TERRITORY, or by the exercise by
CELGENE of any right granted to it under this Agreement,
aside from those set forth in Appendix D;
(b) that the PATENT RIGHTS set forth in Appendix A and the
TECHNOLOGY RIGHTS transferred to CELGENE under this
Agreement, constitute the entirety of ENTREMED EXISTING
PATENT RIGHTS and ENTREMED EXISTING TECHNOLOGY RIGHTS;
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(c) that ENTREMED presently has no rights in PRODUCTS, nor
any option in or expectation of any rights in PRODUCTS,
apart from those identified in this Agreement and set
forth in the agreements listed in Appendix B, and that
ENTREMED is not in material breach or default of any of
the agreements set forth in Appendix B, and that if
ENTREMED acquires any such rights after the EFFECTIVE
DATE, the agreements setting forth those rights,
including all licenses and assignments for ENTREMED
DEVELOPED PATENT RIGHTS and ENTREMED DEVELOPED
TECHNOLOGY RIGHTS, shall be redacted to the extent they
do not relate to CELGENE's rights under this Agreement,
and attached hereto as independent Exhibits and
incorporated herein;
(d) that, with regard to PRODUCTS, ENTREMED has no
applications filed or pending with the FDA as of the
EFFECTIVE DATE, including without limitation any
Investigational New Drug or Orphan Drug Status
applications, apart from those set forth in Appendix C;
(e) that ENTREMED will comply with all obligations and
duties with regard to PRODUCTS under the CMCC AGREEMENT
and, unless and until it is assigned to CELGENE pursuant
to Section 2.5 of this Agreement, the NCI AGREEMENT,
including, without limitation, any notification
provisions necessary to maintain in effect this
Agreement or preserve CELGENE's exclusive or
non-exclusive rights under this Agreement, including
without limitation the preservation of CELGENE's rights
hereunder in the event that ENTREMED shall breach or
default on its obligations under the CMCC AGREEMENT or
the NCI AGREEMENT;
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(f) that ENTREMED understands and agrees that it has not
retained any rights under the ENTREMED INTELLECTUAL
PROPERTY to PRODUCTS in the TERRITORY, and that the
licenses and assignments granted in Sections 2.1, 2.2,
2.4, and 2.5 of this Agreement are exclusive of any
continuing right of ENTREMED, except as otherwise
provided herein; and
(g) that ENTREMED will not collaborate, negotiate, or deal
with THIRD PARTIES with respect to PRODUCTS, except as
expressly provided herein.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, ENTREMED MAKES
NO REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND
EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, NON-INFRINGEMENT OR VALIDITY OF ANY ENTREMED PATENT
OR OTHER INTELLECTUAL PROPERTY RIGHTS.
SECTION 9 - INDEMNIFICATION AND INSURANCE
9.1 By CELGENE. CELGENE will defend, indemnify and hold harmless
ENTREMED, its successors, AFFILIATES and licensors and their
employees, agents, officers, trustees, shareholders and
directors and each of them (the "ENTREMED Indemnified
Parties") from and against any and all THIRD PARTY claims,
causes of action and costs (including reasonable attorney's
fees) of any nature made or lawsuits or other proceedings
filed or otherwise instituted against the ENTREMED Indemnified
Parties in connection with any claims, suits or judgments
arising out of any theory of product liability concerning the
development, testing, manufacture, sale or use of any PRODUCT
by CELGENE, its AFFILIATES or its SUBLICENSEES.
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9.1.1 CELGENE's indemnification under this Section 9.1
shall not apply to any liability, damage, loss or
expense to the extent that it is directly
attributable to the negligent activity, reckless
misconduct or intentional misconduct of ENTREMED.
9.1.2 Commencing not later than the date of FIRST
COMMERCIAL SALE of a PRODUCT, CELGENE shall
obtain and carry in full force and effect product
liability insurance against any claims,
judgments, liabilities and expenses for which it
is obligated to indemnify ENTREMED and others
under Section 9.1 of this Agreement, in such
amounts and with such deductibles as are
customary at the time for companies engaged in a
similar business, and shall provide ENTREMED with
written evidence of such insurance upon request.
9.2 By ENTREMED. ENTREMED will defend, indemnify and hold harmless
CELGENE, its successors, AFFILIATES and licensors and their
employees, agents, officers, trustees, shareholders and
directors and each of them (the "CELGENE Indemnified Parties")
from and against any and all THIRD PARTY claims, causes of
action and costs (including reasonable attorney's fees) of any
nature made or lawsuits or other proceedings filed or
otherwise instituted against the CELGENE Indemnified Parties
in connection with any claims, suits or judgments arising out
of any theory of product liability concerning the development,
testing, manufacture, sale or use of any PRODUCT by ENTREMED,
its AFFILIATES or its SUBLICENSEES prior to the EFFECTIVE
DATE.
9.2.1 ENTREMED's represents and warrants that it presently
carries, in full force and effect, and will continue to
carry, product liability insurance against any claims,
judgments, liabilities and expenses incurred in
connection with the use of THALIDOMIDE in clinical
trials by or on behalf of
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ENTREMED, and shall provide CELGENE with written
evidence of such insurance upon request.
9.3 Conditions to Indemnification. A person or entity that intends
to claim indemnification under this Section 9 (the
"Indemnitee") shall promptly notify the party from whom
indemnification is sought (the "Indemnitor"), of any loss,
claim, damage, liability or action in respect of which the
Indemnitee intends to claim such indemnification, and the
Indemnitor shall assume the defense thereof with counsel
mutually satisfactory to the Indemnitee whether or not such
claim is rightfully brought; provided, however, that an
Indemnitee shall have the right to retain its own counsel,
with the fees and expenses to be paid by the Indemnitor if
Indemnitor does not assume the defense, or if representation
of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing
interests between such Indemnitee and any other person
represented by such counsel in such proceedings. The failure
to deliver notice to the Indemnitor within a reasonable time
after the commencement of any such action, only if prejudicial
to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this
Section 9, but the omission so to deliver notice to the
Indemnitor will not relieve it of any liability that it may
have to any Indemnitee otherwise than under this Section 9.
The Indemnitee under this Section 9, its employees and agents,
shall cooperate fully with the Indemnitor and its legal
representatives in the investigations of any action, claim or
liability covered by this indemnification.
SECTION 10 - ASSIGNMENT AND SUCCESSORS
10.1 By Either Party. This Agreement shall not be assignable by
either party without the written consent of the other party,
except that either party may assign this Agreement to an
AFFILIATE, successor in interest or
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transferee of all or substantially all of the portion of the
business to which this Agreement relates without the consent
of the other party.
10.2 By CELGENE. If CELGENE assigns or licenses its rights under
this Agreement to a SUBLICENSEE or an AFFILIATE, such
SUBLICENSEE or AFFILIATE shall be bound by the terms and
conditions of this Agreement. CELGENE shall advise ENTREMED of
any such assignment or license and provide ENTREMED with a
copy of any sublicense within thirty (30) days of execution of
such sublicense.
10.3 CELGENE As Guarantor. CELGENE shall guarantee and be
responsible for the payment of all royalties due and the
making of reports under this Agreement by reason of the
development and sales of any PRODUCTS by CELGENE, its
AFFILIATES and SUBLICENSEES and their compliance with all
applicable terms of this Agreement. Performance or
satisfaction of any obligations of CELGENE under this
Agreement by any of its AFFILIATES or SUBLICENSEES shall be
deemed performance or satisfaction of such obligation by
CELGENE.
10.4 Binding Effect. This agreement shall be binding upon and inure
to the benefit of said successors in interest and assignees to
the parties. Any such successor 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 and such Assignment shall not relieve the
Assignor of any of its obligations under this Agreement.
SECTION 11 - FORCE MAJEURE
11.1 Neither party shall be liable to the other party for damages
or loss occasioned by failure of performance by the defaulting
party if the failure is occasioned by war, fire, explosion,
flood, strike or lockout, embargo, or any similar cause beyond
the control of the defaulting party, provided that the party
claiming this exception has exerted all reasonable efforts to
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avoid or remedy such event and provided such event does not
extend for more than six (6) months.
SECTION 12 - TERMINATION
12.1 Term. Unless earlier terminated as hereinafter provided, this
Agreement shall remain in full force and effect until
CELGENE's obligations to pay royalties or other compensation
under Section 4 of this Agreement, either directly or pursuant
to a sublicense, terminate.
12.2 By Reason Of FDA Action. If the FDA withdraws or recalls
THALIDOMIDE from the market permanently, or in any other way
revokes or terminates CELGENE's regulatory approval to market
and sell THALIDOMIDE and/or PRODUCTS, CELGENE shall promptly
notify ENTREMED in writing, and this Agreement and all of
CELGENE's and ENTREMED's rights and obligations hereunder
shall terminate upon receipt by ENTREMED of such notice.
12.3 Termination Of Royalty Obligations. Upon termination of
CELGENE's obligation to pay royalties and other compensation
hereunder with respect to a specific country and specific
PRODUCT as to which CELGENE's license is then in effect, the
license granted to CELGENE with respect to such country and
such PRODUCT pursuant to Section 2 shall be deemed to be fully
paid and CELGENE shall thereafter have a royalty free,
exclusive right to use the PATENT RIGHTS to make, have made,
use, offer to sell, sell and import such PRODUCT in such
country.
12.4 Breach.
(a) By Either Party. This Agreement shall be terminable upon
the material breach or default of either party. In the
event of a material breach or default by a party
("Defaulting Party"), the other party ("Non-Defaulting
Party") shall give the Defaulting Party written
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<PAGE> 43
notice of the default. The Defaulting Party will then
have sixty (60) days to cure the breach. If cure has
not been affected within said sixty (60) days, the
Non-Defaulting Party shall have the right to terminate
this Agreement.
(b) By CELGENE.
(i) Payments. If and only if CELGENE materially
breaches this Agreement by failure to pay
royalties and/or sublicensing or milestone
payments due under Section 4 of this Agreement,
and fails to cure such material breach within
sixty (60) days of receiving written notice
thereof pursuant to Section 12.4(a) of this
Agreement then:
a) CELGENE's rights under this Agreement to
ENTREMED INTELLECTUAL PROPERTY shall
terminate; and
b) CELGENE shall grant to ENTREMED, to the
extent not prohibited by the United States
Government or by prior contractual
obligations to any THIRD PARTY, an
exclusive, worldwide, royalty-free license,
with the right to sublicense, under CELGENE
DEVELOPED INTELLECTUAL PROPERTY to make,
use, offer to sell, sell, and import
PRODUCTS in the TERRITORY.
(ii) Diligence. If and only if ENTREMED exercises its
right and option to terminate the license granted
to CELGENE in the entire TERRITORY, pursuant to
Section 3.1(f) of this Agreement, or ENTREMED
exercises its right and option to terminate the
license granted to CELGENE in Europe, Canada, or
the PACIFIC RIM, pursuant to Section 3.2(c)(i) of
this Agreement, then, either in the entire
TERRITORY
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<PAGE> 44
or in the region in which such termination has
occurred, i.e., Europe, Canada, or the PACIFIC
RIM, as applicable:
a) CELGENE's rights under this Agreement to
ENTREMED INTELLECTUAL PROPERTY shall
terminate; and
b) CELGENE shall grant to ENTREMED, to the
extent not prohibited by the United States
Government or by prior contractual
obligations to any THIRD PARTY, an
exclusive, worldwide, royalty-free license,
with the right to sublicense, under CELGENE
DEVELOPED INTELLECTUAL PROPERTY to make,
use, offer to sell, sell, and import
PRODUCTS.
The grant of rights by CELGENE to ENTREMED under this
Section 12.4 expressly excludes rights in any CELGENE
EXISTING INTELLECTUAL PROPERTY.
(c) Termination under this Section 12.4 will be effective
upon the date specified in the written 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 12.4 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 or
convert this Agreement arising by reason of any
subsequent default.
12.5 Insolvency. Either party to this Agreement may terminate this
Agreement upon receipt of notice that the other party has
become insolvent or has suspended business in all material
respects hereof, or has consented to an involuntary petition
purporting to be pursuant to any reorganization or insolvency
law of any jurisdiction, or has made an assignment for the
benefit of creditors or has applied for or consented to the
appointment of a
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<PAGE> 45
receiver or trustee for a substantial part of its property, by
giving written notice to the other party, and termination of
this Agreement will be effective upon receipt of such notice.
12.6 Work-In-Progress. Upon termination of this Agreement, CELGENE
shall be entitled to, but shall not be obligated to finish any
work-in-progress at the time of termination and sell the same
as well as all completed inventory of PRODUCTS which remains
on hand as of the date of the termination, so long as CELGENE
pays to ENTREMED the royalties applicable to said subsequent
sales in accordance with the same terms and conditions as set
forth in this Agreement.
12.7 Survival. The obligations of Sections 5 and 9, as well as
Sections 12.6, 12.7, 12.8, and 13.3, shall survive any
termination of this Agreement.
12.8 Reversion of Rights. Upon termination of this Agreement or of
the rights and licenses granted to CELGENE in any country of
the TERRITORY, CELGENE agrees not to use the TECHNOLOGY RIGHTS
or PATENT RIGHTS or information or technology derived
therefrom for the manufacture, use or sale of PRODUCTS in any
country other than those countries in which CELGENE retains a
license under this Agreement. In addition, all rights to the
TECHNOLOGY RIGHTS and PATENT RIGHTS in such country shall
revert to ENTREMED and may be used by ENTREMED without
restriction in any country other than those countries in which
CELGENE retains a license under this Agreement.
SECTION 13 - GENERAL PROVISIONS
13.1 Relationship of Parties. The relationship between ENTREMED and
CELGENE is that of independent contractors. ENTREMED and
CELGENE are not joint venturers, partners, principal and
agent, master and servant, employer or employee, and have no
relationship other than as independent contracting parties.
ENTREMED shall have no power to bind
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<PAGE> 46
or obligate CELGENE in any manner. Likewise, CELGENE shall
have no power to bind or obligate ENTREMED in any manner.
13.2 Entire Understanding. This Agreement sets forth the entire
agreement and understanding between the parties as to the
subject matter thereof and supersedes all prior agreements in
this respect. There shall be no amendments or modifications to
these Agreements, except by a written document which is signed
by both parties.
13.3 Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of Delaware, U.S.A.
without reference to its choice of law principles.
13.4 Headings. The headings in 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 or section or paragraph.
13.5 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 a party's right to the
future enforcement of its rights under this Agreement,
excepting only as to an expressed written and signed waiver as
to a particular matter for a particular period of time.
13.6 Export Controls. In conducting any activities under this
Agreement or in connection with the manufacture use or sale of
PRODUCT, CELGENE shall comply with all applicable laws and
regulations including, but not limited to, all Export
Administration Regulations of the United States Department of
Commerce.
13.7 Notices. Any notices given pursuant to this Agreement shall be
in writing and shall be deemed delivered upon the earlier of
(i) when received at the address set forth below, or (ii)
three (3) business days after mailed by certified or
registered mail postage prepaid and properly addressed, with
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<PAGE> 47
return receipt requested, or (iii) when sent, if sent by
facsimile, as confirmed by certified or registered mail.
Notices shall be delivered to the respective parties as
indicated below:
If To ENTREMED EntreMed, Inc.
9610 Medical Center Drive
Rockville, MD 20850
Attn: CEO
Fax: (301) 217-9594
If To CELGENE: Celgene Corporation
6 Powder Horn Drive
Warren, NJ 07059
Attn: President
Fax: (732) 805-3931
13.8 Original Counterparts. This Agreement may be executed in any
number of separate counterpart, each of which shall be deemed
to be an original, but which together shall constitute one and
the same instrument.
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<PAGE> 48
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
ENTREMED, INC. CELGENE CORPORATION
By: /s/ Edward R. Gubish By: /s/ John W. Jackson
------------------------------- --------------------------
Name: Edward R. Gubish Name: John W. Jackson
-------------------------------- ---------------------------
Title: Sr. V.P. R & D Title: Chairman & CEO
------------------------------- --------------------------
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<PAGE> 49
APPENDIX A
United States Patent No. 5,629,327
United States Patent No. 5,593,990
United States Patent Application Serial No. 08/025,046
United States Patent Application Serial No. 08/168,817
United States Patent Application Serial No. 08/371,987
United States Patent Application Serial No. 08/468,792
United States Patent Application Serial No. 08/918,610
United States Patent Application Serial No. 08/955,638
United States Patent Provisional Application Serial No. 60/028,708
United States Patent Application Serial No. 08/963,058
United States Patent Application Serial No. 09/107,578
United States Patent Application Serial No. 09/126,542
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<PAGE> 50
APPENDIX B
1. That certain License Agreement entered into by and between ENTREMED and
Children's Medical Center Corporation ("CMCC"), dated May 26, 1994, as
amended to the date hereof, attached as Exhibit A to this Agreement.
2. That certain Agreement by and between the Division of Cancer Treatment
at the National Cancer Institute ("NCI") and ENTREMED, dated November
16, 1994, and executed on behalf of ENTREMED on November 23, 1994, and
on behalf of NCI on November 18, 1994, attached as Exhibit C to this
Agreement.
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<PAGE> 51
APPENDIX C
Orphan Drug Designation Application (ODA) 97-1011 Primary Brain Malignancies
Orphan Drug Designation Application (ODA) 98-1149 Kaposis Sarcoma
Orphan Drug Designation Application (ODA) 98-1143 Prostate Cancer
Investigational New Drug Application 46,591 Ophthalmology
Investigational New Drug Application 55,966 Oncology
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<PAGE> 52
APPENDIX D
United States Patent No. 5,605,684 to Piacquadio
United States Patent No. 5,443,824 to Piacquadio
United States Patent No. 5,731,325 to Andrulis, Jr. et al.
United States Patent No. 5,654,312 to Andrulis, Jr. et al.
United States Patent No. 5,643,915 to Andrulis, Jr. et al.
United States Patent No. 5,434,170 to Andrulis, Jr.
-48-
<PAGE> 53
EXHIBIT A
CMCC AGREEMENT
-49-
<PAGE> 54
EXHIBIT B
NCI AGREEMENT
-50-
<PAGE> 55
EXHIBIT C
LETTER TO FDA INDICATING TRANSFER OF
RIGHTS IN INVESTIGATIONAL NEW DRUG
AND ORPHAN DRUG APPLICATIONS TO CELGENE
-51-
<PAGE> 1
ENTREMED, INC
EXHIBIT 10.29
["..." INDICATES MATERIAL HAS BEEN OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST, WHICH THE COMPANY HAS FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.]
BIOPROCESSING SERVICES AGREEMENT
This manufacturing services agreement dated this 16th day of October 1998 (the
"Agreement") between EntreMed, Inc. a Delaware corporation ("Sponsor") having
its principal place of business at 9610 Medical Center Drive, Suite 200,
Rockville, MD 20850 and Covance Biotechnology Services Inc., a Delaware
Corporation ("CBSI"), having its principal place of business at 6051 George
Watts Hill Drive, P. O. Box 13865, Research Triangle Park, NC 27709-3865.
WITNESSETH
WHEREAS, CBSI provides a full range of bioprocessing services to the
biopharmaceutical industry, including process development, fermentation, cell
culture, separation/purification, bioanalytical chemistry, quality control,
quality assurance, and regulatory affairs.
WHEREAS, sponsor desires CBSI to perform services in accordance with the terms
of this Agreement and the Scope of Work (as hereinafter defined) related to the
production of the material known as Endostatin(TM) (the "Product") and CBSI
desires to perform such services.
NOW, THEREFORE, in consideration of the above statements and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1.
SCOPE OF WORK
1) A detailed Scope of Work document ("Scope") to be provided by Sponsor or
prepared by CBSI under Sponsor's direction and approved by Sponsor will
be attached to this agreement as Appendix 1. CBSI will perform the
service or services ("Program") for Sponsor in accordance with the Scope.
The Scope will specify the program design, information desired, estimated
duration of the Program, and all other matters pertinent to completion of
the Program, and will be deemed a part of this Agreement and is
incorporated herein by reference.
2) CBSI will, at Sponsor's request, consult with Sponsor in developing the
Program design in a manner consistent with current regulatory guidelines.
However, CBSI does not warrant that the Product will be safe or
efficacious or that the CMC section prepared as result of performing the
Program will satisfy all the requirements of any regulatory agencies at
the time of submission.
3) CBSI's performance of the work will be based on technical information
provided by or for the Sponsor. This information will be translated into
development
<PAGE> 2
and/or manufacturing documents (development plans, batch records,
specifications, etc.) which will be reviewed and approved by the Sponsor.
These documents will form the basis upon which the work will be
performed.
Section 2.
PROGRAM PERFORMANCE
CBSI shall use its best efforts to provide facilities, supplies, and staff
necessary to complete the Program as provided in the Scope, as it may be
modified as provided herein, and in accordance with the terms of this Agreement.
In the event of any conflict between the Scope/Program and this Agreement, the
terms of this Agreement shall control.
CBSI will appoint a CBSI representative (the "Project Director") to be
responsible for the completion of the Program by CBSI. The Project Director will
coordinate performance of the Program with a representative designated by
Sponsor (the "Sponsor Representative"), which representative shall have
responsibility over all matters relating to performance of the Program on behalf
of Sponsor. Unless otherwise agreed in the Scope, all communications between
CBSI and the Sponsor regarding the conduct of the Program pursuant to the Scope
shall be addressed to or routed through the Project Director and Sponsor
Representative, directly. CBSI may, at its option, substitute the Project
Director during the course of the program.
Section 3.
PROGRAM MATERIALS
1) Sponsor will provide CBSI with sufficient amounts of raw materials or
other substances with which to perform the Program as specified in the
Scope, (the "Materials"), as well as all documentation and such other
data as may be available to apprise CBSI of the stability of the
Materials, process characteristics, proper storage, manufacturing and
safety requirements. Sponsor will also provide CBSI with all necessary
information to effect the reliable transfer of the process from the
Sponsor to CBSI.
2) Upon completion of the Program, any remaining samples of the Materials or
other substances provided to CBSI will be returned to Sponsor, at
Sponsor's option and/or retained by CBSI in compliance with regulatory
requirements.
Section 4.
COMPLIANCE WITH GOVERNMENT REGULATIONS
1) CBSI will perform the Program in accordance with the Scope, and the
current state of the Food and Drug Administration's current Good
Manufacturing Practices (cGMP's) when appropriate to do so. Subject to
paragraph b. of Section 4 below, CBSI will also comply in all material
respects with all applicable government regulatory requirements
concerning current Good Manufacturing Practices appropriate to the
Program.
2) Should such government regulatory requirements be changed, CBSI will make
every reasonable effort to satisfy the new requirements. In the event
that compliance with such new regulatory requirements necessitates a
change in the
<PAGE> 3
Scope for the Program, CBSI will submit to Sponsor a revised technical
and cost proposal for Sponsor's acceptance prior to making any changes in
the Scope or the Program.
3) In the event of a conflict in government regulations, Sponsor will
designate, in writing, which regulations shall be followed by CBSI in its
performance of the Program.
Section 5.
FACILITY VISITS
Sponsor's representatives may visit CBSI's facility at appropriate times
consistent with the Program to observe the progress of the Program. CBSI will
assist Sponsor in scheduling such visits which will be in compliance with
requirement to protect confidentiality of other clients.
Section 6.
COMPENSATION
1) The estimated budget for the Program is "..." for the activities leading
up to clinical production and an estimated additional "..." to "..." for
clinical production plus materials and other incidentals as specified in
the Scope; provided that such budget is subject to adjustment if (1)
Sponsor executes this Agreement later than 30 days after the date CBSI
has executed this Agreement and (2) the Materials or other data or
information required to conduct the Program is supplied or provided more
than 30 days after the date CBSI has executed this Agreement. CBSI shall
not exceed the budget for the Program without the prior written approval
of Sponsor.
2) Sponsor shall make payments as defined in the Payment Schedule. The
Payment Schedule with estimated payment dates is attached hereto as
Appendix 2. A "..." fee equal to "..." of CBSI's actual cost of materials
purchased for the Program will be added to materials invoices. The "..."
fee will be waived on the purchase of any single material that costs
"..." or more on a per manufacturing lot basis. "..." charges, such as
for "...", will be invoiced in the month that CBSI "...". Payments are
due 30 days from the date of invoice. Late payments are subject to an
interest charge of "...". Any payments that are greater than 90 days past
due constitute a breach of this Agreement unless there is a dispute
relative to such payments which has not yet been resolved pursuant to
Section 14.
Section 7.
CHANGE ORDERS
1) The estimated budget for the Program specified in Section 6 of this
Agreement and the individual budget components and time estimates
specified in the Scope are subject to a number of general and program
specific assumptions. The program specific assumptions relate to the
Program design and objectives, manpower requirements, timing, capital
expenditure requirements, if any, and other matters relating to the
completion of the Program as set forth in the Scope (the "Program
Assumptions"). CBSI also assumes that the Sponsor will
<PAGE> 4
cooperate and perform its obligations under the Agreement and Scope in a
timely manner, that no event outside the control of CBSI will occur,
including, without limitation, the events described in Section 17, and
that there are no material changes to any applicable laws, rules or
regulations which effect the Program (the foregoing assumptions together
with the Program Assumptions, collectively, the "Assumptions") In the
event that any of the Assumptions require modification or the Program
objectives cannot be achieved based on the Assumptions (each being, a
"Modification") then the Scope may be amended as provided in paragraph b)
of this Section 7.
2) In the event a Modification is identified by the Sponsor or by CBSI, the
identifying party shall notify the other party as soon as is reasonably
possible. CBSI shall provide Sponsor with a Change Order containing an
estimate of the required Modifications to the Program budget and timeline
specified in the Scope within 20 business days of receiving such notice.
Sponsor shall use best efforts to respond in writing to such Change Order
promptly. If Sponsor does not approve such Change Order and has not
terminated the Program but wants the Program to be modified to take into
account the Modification, then Sponsor and CBSI shall use best efforts to
agree on a Change Order that is mutually acceptable. If practicable, CBSI
shall continue work on the Program during any such negotiations, but
shall not commence work with respect to the Change Order unless
authorized in writing.
Section 8.
CONFIDENTIAL INFORMATION/LEGAL PROCEEDINGS
1) CBSI will not disclose, without Sponsor's written permission, any
information pertaining to Sponsor's Program unless such disclosure: 1) is
to an affiliate of CBSI who is under a similar obligation to keep such
information confidential; 2) is or becomes publicly available through no
fault of CBSI; 3) is disclosed by a third party entitled to disclose it;
4) is already known to CBSI as shown by its prior written records; or 5)
is required by any law, rule, regulation, order decision, decree,
subpoena or other legal process to be disclosed. If such disclosure is
requested by legal process, CBSI will make all reasonable efforts to
notify Sponsor of this request promptly prior to any disclosure to permit
Sponsor to oppose such disclosure by appropriate legal action.
2) CBSI will not transfer any materials without Sponsor's written permission
to any third party unless such transfer is to an affiliate bound by the
terms herein and is consistent with the Program.
3) If CBSI shall be obliged to provide testimony or records regarding any
Sponsor Program in any legal or administrative proceeding, then Sponsor
shall reimburse CBSI its out-of-pocket costs therefore plus an hourly fee
for its employees or representatives equal to the internal fully burdened
costs to CBSI of such employee or representative.
<PAGE> 5
Section 9.
WORK PRODUCT
1) All work outputs (e.g. reports) will be prepared on CBSI's standard
format unless otherwise specified in the Scope.
2) Sponsor will have title to all Materials, raw data, documentation,
records, protocols, specimens and other reports generated as a result of
this Program. All such written materials will be archived by CBSI for a
period of five years following completion of the Program unless otherwise
defined by the Program or required by applicable laws or regulations.
Five years after completion of the Program, all of the aforementioned
materials will be sent to the Sponsor and a reasonable return fee will be
charged. The Sponsor may elect to have the materials retained in the CBSI
Archives for an additional period of time at a reasonable additional
cost. If the Sponsor chooses to have CBSI dispose of the materials, a
reasonable disposal fee will be charged. CBSI will continue to retain
such documentation and materials as required by regulations and as may be
required by law, pertaining to such activities as well as for archival
purposes.
Section 10.
INVENTIONS, PATENTS, AND RESULTS OF THE PROGRAM
Any product or product improvement inventions or discoveries, including new uses
for product and related patent rights which arise as a result of the work
performed by CBSI will be owned by and assigned to Sponsor and CBSI will
cooperate with Sponsor in perfecting Sponsor's interest in such intellectual
property. Any process or process improvement inventions or discoveries made
solely by CBSI which arise as a result of the work performed by CBSI and related
patent rights will be owned by CBSI. Any such process or process improvement
inventions or discoveries and related patent rights which are made jointly by
the parties shall be owned jointly by the parties. CBSI hereby grants to Sponsor
an exclusive, royalty-free, paid up, perpetual, worldwide, sublicensable license
in the field of Anti-Angiogenesis under CBSI's sole and joint inventions and
related patent rights arising as a result of the work performed by CBSI
hereunder in order to make, have made, use, import, sell or offer to sell
Product.
Section 11.
INDEPENDENT CONTRACTOR
CBSI shall perform the Program as an independent contractor of Sponsor and shall
have complete and exclusive control over its facilities, equipment, employees
and agents. Nothing in this agreement or other arrangements for which it is made
shall constitute CBSI, or anyone furnished or used by CBSI in the performance of
the services, as employee, joint venture, partner, or servant of Sponsor.
Section 12.
INSURANCE
CBSI shall secure and maintain in full force and effect throughout the
performance of the Program policies of insurance for (a) Workmen's Compensation,
(b) General Liability, (c) Automobile Liability, and (d) Professional Liability
having policy limits, deductibles and other terms appropriate to the conduct of
CBSI's business in CBSI's sole and
<PAGE> 6
exclusive judgment. Certificates evidencing such insurance will be made
available for examination upon request of the Sponsor.
Section 13.
DEFAULT
1) If CBSI is in default of its material obligations under this Agreement,
then Sponsor shall promptly notify CBSI in writing of any such default.
CBSI shall have a period of 45 days from the date of receipt of such
notice within which to cure such default; provided that if such default
renders the Program invalid, then CBSI, shall, at Sponsor's option,
either (1) repeat the Program at its cost within a time period mutually
agreed to by it and Sponsor or (2) refund the contract price paid by
Sponsor. If CBSI shall fail to cure such default within the specified
cure period or repeat the Program, as the case may be, then this
Agreement shall, at Sponsor's option, immediately terminate. In the event
of such termination, Sponsor's sole remedy shall be, in the case where
such default has not rendered the Program invalid, a reduction in the
total contract price for the Program in an amount equal to the difference
between (1) the total contract price for the Program and (2) the value of
the work properly performed, and, in the case where such default does
render the Program invalid, a refund of the contract price; provided
however that under no circumstance shall CBSI be liable to Sponsor in an
amount that, in aggregate exceeds, the contract price paid for such
Program. In the event that any said default is directly attributable to
the grossly negligent acts or omissions of CBSI, the limitation of
remedies set forth in this section 12 (a) shall not apply.
2) If Sponsor is in default of its material obligations under this
Agreement, CBSI shall promptly notify Sponsor in writing of any such
default. Sponsor shall have a period of 45 days from the date of receipt
of such notice within which to cure such default; provided that if
Sponsor fails to cure such breach within the specified cure period, this
Agreement shall, at CBSI's option, immediately terminate.
3) Not withstanding anything herein to the contrary, UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY BE ENTITLED TO INCIDENTAL, INDIRECT, CONSEQUENTIAL OR
SPECIAL DAMAGES ARISING IN CONNECTION WITH THE DEFAULT OR BREACH OF ANY
OBLIGATION OF THE OTHER PARTY UNDER THIS AGREEMENT, THE SCOPE OR ANY
DOCUMENTS OR APPENDICES RELATED THERETO.
Section 14.
DISPUTE RESOLUTION
1) In the event any dispute shall arise between the Sponsor and CBSI with
respect to any of the terms and conditions of this Agreement or the
Protocol; then senior executives of the Sponsor and CBSI shall meet as
promptly as practicable after notice of such dispute to resolve in good
faith such dispute.
<PAGE> 7
2) If the Sponsor and CBSI are unable to satisfactorily resolve the dispute,
then such dispute shall be finally settled by an arbitrator in accordance
with this Section 13. The arbitration will be held in or around Raleigh,
North Carolina, and except as noted below, shall be conducted in
accordance with the rules of the American Arbitration Association by two
arbitrators appointed, one by each party. If the arbitrators appointed
cannot agree on the resolution of the dispute within sixty (60) days
after the dispute is submitted to them, they shall thereupon appoint a
third arbitrator, and if they fail to agree upon a third arbitrator
within 30 days after a deadlock is declared by either arbitrator, a third
arbitrator will be appointed by the American Arbitration Association upon
the request of either arbitrator. The arbitrators shall have no authority
to award consequential, punitive or exemplary damages or to vary from or
ignore the terms of this Agreement and shall be bound by controlling law.
Finally, the parties may seek judicial intervention for emergency relief,
such as restraining orders and injunctions where appropriate.
Any decision by the third arbitrator and either one of the other
arbitrators shall be binding upon the parties and may be entered as final
judgment in any court having jurisdiction. The cost of any arbitration
proceeding shall be borne by the parties as the arbitrators shall
determine if the parties have not otherwise agreed. The arbitrators shall
render their final decision in writing to the parties.
Section 15.
INDEMNIFICATION
1) CBSI shall indemnify Sponsor and its affiliates and their respective
officers, directors and employees from any loss, cost, damage or expense
(a "Loss") from any lawsuit, action, claim, demand, assessment or
proceeding (a "Claim") for personal injury to Program participants or
personal injury to any employee of Sponsor or property damage arising or
occurring during the conduct of the Program as a result of (i) CBSI's
negligence, gross negligence or intentional misconduct or inaction, or
(ii) CBSI's violation, non-compliance or non-performance of any terms of
this Agreement; provided that if such Loss or Claim arises in whole or in
part from Sponsor's negligence, gross negligence or intentional
misconduct or inaction, then the amount of the Loss that CBSI shall
indemnify Sponsor for pursuant to this Section 14 shall be reduced by an
amount in proportion to the percentage of Sponsor's responsibilities for
such Loss determined by a court of competent jurisdiction in a final and
non-appealable decision or in a binding settlement between the parties.
2) Sponsor shall indemnify CBSI and its affiliates and their respective
officers, directors, employees and agents (the "CBSI Group") from any
Claim or Loss arising from or related to (i) personal injury to a
participant in the Program or personal injury to any employee of the CBSI
Group directly or indirectly caused by the raw material, Product,
intermediates or the Program, (ii) CBSI's performance of or involvement
with the raw material, the Product or its obligations under this
Agreement or the Scope related thereto, (iii) CBSI's performance of the
Program violating or infringing on the patents, trademarks, tradenames,
servicemarks or copyrights of any third party with respect to Product
<PAGE> 8
and the process to manufacture Product, Product intermiediates, or raw
materials relating to Product, (iv) the harmful or otherwise unsafe
effect of the raw materials or Product, including, without limitation, a
Claim based upon Sponsor or any other person's use, consumption, sale,
distribution or marketing of any substance, including the raw material or
the Product, (v) the negligence, gross negligence or intentional
misconduct or inaction of Sponsor in the performance of its obligations
under this Agreement or Scope related to the Program, or (vi) the
Sponsor's violation, non-compliance or non-performance of any of the
terms of this Agreement; provided that if such Loss or Claim (other than
a Loss or Claim described in clause (iv) hereof) arises in whole or in
part from CBSI's negligence, gross negligence or intentional misconduct
or inaction, then the amount of such Loss that Sponsor shall indemnify
the CBSI Group for pursuant to this Section 14 shall be reduced by an
amount in proportion to the percentage of CBSI's responsibilities for
such Loss as determined by a court of competent jurisdiction in a final
and non-appealable decision or in a binding settlement between the
parties. Sponsor shall not indemnify the CBSI Group from any Loss from
any claim described in clause (iv) hereof arising solely from the willful
misconduct or inaction of CBSI.
3) Upon receipt of notice of any Claim which may give rise to a right of
indemnity from the other party hereto, the party seeking indemnification
(the "Indemnified Party") shall give written notice thereof to the other
party, (the "Indemnifying Party") with a Claim for indemnity. Such Claim
for indemnity shall indicate the nature of the Claim and the basis
therefore. Promptly after a claim is made for which the Indemnified Party
seeks indemnity, the Indemnified Party shall permit the Indemnifying
Party, at its option and expense, to assume the complete defense of such
Claim, provided that (i) the Indemnified Party will have the right to
participate in the defense of any such Claim at its own cost and expense,
(ii) the Indemnifying Party will conduct the defense of any such Claim
with due regard for the business interests and potential related
liabilities of the Indemnified Party and (iii) the Indemnifying Party
will, prior to making any settlement, consult with the Indemnified Party
as to the terms of such settlement. The Indemnified Party shall have the
right, at its election, to release and hold harmless the Indemnifying
Party from its obligations hereunder with respect to such Claim and
assume the complete defense of the same in return for payment by the
Indemnifying Party to the Indemnified Party of the amount of the
Indemnifying Party's settlement offer. The Indemnifying Party will not,
in defense of any such Claim, except with the consent of the Indemnified
Party, consent to the entry of any judgment or enter into any settlement
which does not include, as an unconditional term thereof, the giving by
the claimant or plaintiff to the Indemnified Party of a release from all
liability in respect thereof. After notice to the Indemnified Party of
the Indemnifying Party's election to assume the defense of such Claim,
the Indemnifying Party shall be liable to the Indemnified Party for such
legal or other reasonable expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof at the request
of the Indemnifying Party. As to those Claims with respect to which the
Indemnifying Party does not elect to
<PAGE> 9
assume control of the defense, the Indemnified Party will afford the
Indemnifying Party an opportunity to participate in such defense at the
Indemnifying Party's own cost and expense, and will not settle or
otherwise dispose of any of the same without the consent of the
Indemnifying Party.
Section 16.
REPRESENTATION
Sponsor hereby represents and warrants to CBSI that it has legal title and/or a
valid license to the raw material, expression systems and process patents and
the Product and that, to the best of its knowledge, CBSI's performance of the
Program will not violate or infringe on the patents, trademarks, tradenames,
servicemarks or copyrights of any third party.
Section 17.
FORCE MAJEURE
Either party shall be excused from performing its respective obligations under
this Agreement if its performance is delayed or prevented by any event beyond
such party's reasonable control, including, but not limited to, acts of God,
fire, explosion, weather, disease, war, insurrection, civil strife, riots,
government action, or power failure, provided that such performance shall be
excused only to the extent of and during such disability. Any time specified for
completion of performance in the Scope falling due during or subsequent to the
occurrence of any or such events shall be automatically extended for a period of
time to recover from such disability. CBSI will promptly notify Sponsor if, by
reason of any of the events referred to herein, CBSI is unable to meet any such
time for performance specified in the Scope. If any part of the Program is
invalid as a result of such disability, CBSI will, upon written request from
Sponsor, but at Sponsor's sole cost and expense, repeat that part of the Program
affected by the disability. If CBSI is likely to be unable to perform for a
period in excess of 60 days then the parties agree to negotiate in good faith a
mutually satisfactory approach to resolve the delay resulting from this
paragraph. If the parties cannot reach a mutually satisfactory approach within
60 days, then Sponsor shall be entitled to terminate this Agreement without
payment of liquidated damages (Section 20).
Section 18.
ALLOCATION OF RESOURCES
If delays in the agreed commencement or performance of the Program occur because
of the Sponsor's inability to supply CBSI with agreed Materials or any
information required to begin or perform the Program within 30 days of such
agreed time, CBSI may reallocate resources being held for performance of the
Program without incurring liability to Sponsor.
Section 19.
USE OF NAMES
Neither party shall use the name of the other party or the names of the
employees of the other party in any advertising or sales promotional material or
in any publication without prior written permission of such party, except
Sponsor may, as required by law or regulatory requirements, disclose that CBSI
has performed the Program.
<PAGE> 10
Section 20.
TERMINATION BY SPONSOR
1) Sponsor may at any time terminate the Program prior to completion by
giving 45 days written notice to CBSI. In such event CBSI shall comply
with such notice to terminate work on the Program and use its best
efforts to reduce cost to Sponsor, and Sponsor shall pay CBSI upon
receipt of CBSI's invoice all of its costs incurred or irrevocably
obligated, plus, as liquidated damages and not as a penalty, the
following: (i) if termination occurs prior to initiation of large scale
cGMP manufacturing, a cancellation fee equal to 10 % of the uninvoiced
portion of the budget; (ii) if termination occurs after initiation of
large scale cGMP manufacturing, a cancellation fee equal to 20 % of the
uninvoiced portion of the budget, not withstanding the foregoing ,
Sponsor shall not be responsible for payment of liquidated damages in the
event of CBSI's material breach or insolvency;
2) The termination of this Agreement for any reason shall not relieve either
party of its obligation to the other for obligations in respect of (i)
confidentiality of information, (ii) consents for advertising purposes
and publications, (iii) indemnification and, (iv) compensation for
services performed.
Section 21.
ASSIGNMENT
This Agreement shall not be assigned in whole or in part by either party without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed except Sponsor may assign without consent in the event of a
merger, acquisition, or transfer of all of its assets related to this Agreement.
Any attempt to assign this Agreement without such consent, where required, shall
be void and of no effect subject to the limitations on assignment herein. This
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the parties hereto.
Section 22.
NOTICE
All notices to be given as required in the Agreement shall be in writing and
shall be delivered personally, sent by telecopies, or mailed either by a
reputable overnight carrier or first class mail, postage prepaid to the parties
at the addresses set forth above or such other addresses as the parties may
designate in writing. Such notice shall be effective on the date sent, if
delivered personally or sent by telecopier, the date after delivery if sent by
overnight carrier and on the date received if mailed first class.
Section 23.
CHOICE OF LAW
This Agreement shall be construed and enforced in accordance with the laws of
the State of Delaware without regard to choice of law principles.
Section 24.
WAIVER/SEVERABILITY
No waiver of any provision of this Agreement, whether by conduct or otherwise,
in any
<PAGE> 11
one or more instances shall be deemed to be or be construed as a further or
continuing waiver of any such provision, or of any other provision or condition
of this Agreement. If any provisions hereof shall be determined to be invalid or
unenforceable, the validity and effect of the other provisions of this Agreement
shall not be effected thereby.
Section 25.
ENTIRE AGREEMENT; MODIFICATION/COUNTERPARTS
This instrument, the Confidential Disclosure Agreement with an effective date of
31 March 1998, and the Scope set forth the entire Agreement between the parties
hereto with respect to the performance of the Program by CBSI for Sponsor and as
such, supersedes all prior and contemporaneous negotiations, agreements,
representations, understandings, and commitments with respect thereto and shall
take precedence over all terms, conditions and provisions on any purchase order
form or form of order acknowledgment or other document purporting to address the
same subject matter. This Agreement shall not be waived, released, discharged,
changed or modified in any manner except by an instrument signed by the duly
authorized officers of each of the partied hereto, which instrument shall make
specific reference to this Agreement and shall express the plan or intention to
modify same. This Agreement may be executed in one or more counterparts each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
This Agreement becomes effective and binding on both parties on and as of the
last date that the parties hereto have executed this Agreement. Should terms
contained herein be at variance with the terms and conditions specified in
Sponsor's written acceptance, then the terms and conditions contained herein
take precedence.
ENTREMED, INC. COVANCE BIOTECHNOLOGY SERVICES INC.
By: /s/ John W. Holaday By: /s/ Charles T. White
---------------------------- ------------------------------------
Name: John W. Holaday, Ph.D. Name: Charles T. White, Ph.D.
-------------------------- ----------------------------------
Title: Chairman & CEO Title: Sr. V.P., Commercial Development
------------------------- ---------------------------------
Date: 10/27/98 Date: 10/16/98
------------------------- ---------------------------------
<PAGE> 12
APPENDIX 1
["..." INDICATES MATERIAL HAS BEEN OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST, WHICH THE COMPANY HAS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION]
SCOPE OF WORK FOR PRODUCTION OF ANIMAL TOXICOLOGY AND HUMAN CLINICAL MATERIAL
PREPARED FOR: ENTREMED
PREPARED BY: CBSI
DATE SUBMITTED: MAY 15, 1998
OCTOBER 16, 1998
<PAGE> 13
APPENDIX 1
TABLE OF CONTENTS
UNDERSTANDING OF THE PROJECT AND PROGRAM OBJECTIVES 3
PROGRAM ASSUMPTIONS 5
TECHNOLOGY TRANSFER 6
CELL BANKING AND TESTING 7
ASSAY QUALIFICATION 8
PROCESS DEVELOPMENT 10
PREPRODUCTION ACTIVITIES 12
"..." CGMP TOXICOLOGY RUNS 13
"..." DEMONSTRATION RUN 15
CLINICAL TRIAL MATERIAL MANUFACTURING 16
QUALITY FUNCTION 17
REGULATORY SUPPORT SERVICES 18
PROJECT MANAGEMENT 19
PRICE SUMMARY 20
Page 2 of 21
<PAGE> 14
APPENDIX 1
UNDERSTANDING OF THE PROJECT AND PROGRAM OBJECTIVE
UNDERSTANDING OF THE PROJECT
molecule of interest is Endostatin
molecule is expressed in Pichia pastoris
fermentation development work has been performed up to "..." scale at University
of Nebraska and purification development work has been performed at Sponsor
"..."
produce "..." of Product for use in clinical trials
current fermentation process produces harvest containing "..."
plan to begin pre-clinical studies in 4Q98
plan to begin Phase I clinical trials in late Q1 1999
OBJECTIVES FOR THE PROGRAM
The overall objectives for this collaboration are to provide five
deliverables over the course of the Program:
1) cGMP animal toxicology and pharmacology material
2) Process development services for fermentation, purification and
analytical protein chemistry
3) cGMP human clinical trial material
4) CBSI shall guarantee delivery of "..." of cGMP grade Endostatin.
5) CBSI shall deliver the "..." by "...".
CBSI plans to provide these deliverables as follows:
Transfer existing methodology of fermentation and purification processes from
Sponsor to CBSI to manufacture Product
Transfer methodology and qualify assays for in-process control (IPC), for
release testing of Product and for use in support of stability testing
Prepare cGMP Pichia pastoris Master and Working Cell Banks
Page 3 of 21
<PAGE> 15
APPENDIX 1
Perform "..." runs at the "..."(1) scale to determine reproducibility, stability
and robustness of the transferred fermentation, recovery and purification
processes
"..."
Perform "..." demonstration runs at the "..." scale (in the "...") in
preparation of the cGMP toxicology runs
Perform pre-production activities in preparation for cGMP manufacturing
including procurement, testing and release of raw materials, preparation of cGMP
documentation, and equipment and facility set-up
Perform cGMP toxicology lot production at the "..." scale and subsequent
purification to produce "..." of Product. ("..." runs are anticipated)
Perform "..." demonstration run at the "..." scale and perform subsequent
recovery and purification to demonstrate feasibility of the process at "..."
scale
Perform sufficient number of cGMP runs at the "..." scale and perform subsequent
recovery and purification to obtain "..." of Product to support Phase I clinical
trials. ("..." runs are anticipated)
Manage fill and finish of Product into the desired final package
Perform Quality Control testing and Quality Assurance activities in support of
release of Product
Provide manufacturing and QC/QA reports in support of Phase I IND filing for
Product in "..."
- -----------
(1) in "..."
Page 4 of 21
<PAGE> 16
APPENDIX 1
PROGRAM ASSUMPTIONS
Program assumptions have been listed to provide a framework by which the Program
may proceed. If these assumptions prove to be incorrect, then alternative
approaches will need to be considered to achieve the stated deliverables.
1. The fermentation can be performed "...".
2. The downstream process can be turned around to match timing from
fermentations.
3. Fermentation will be performed in the "..." through the "...";
Downstream processing will occur in "...".
4. Fermentation can be performed in "...".
5. Product quality and documentation will be consistent with industry
standards for "...".
6. Bulk specification for clinical material will be "...". Which are
approximately:
"..."
"..."
"..."
"..."
"..."
"..."
"..."
7. The process yield for "..." is an important term used throughout
this Agreement. This yield determination is defined as follows:
1. "..."
2. "..."
Yield Calculation for the purpose of determining the bench mark level of
"..."is calculated as follows:
Yield = "..."
Example: The "..." typically contains "...". If "..." is recovered,
then the yield is: "..."
These yields will then be used to generate "...".
Page 5 of 21
<PAGE> 17
APPENDIX 1
TECHNOLOGY TRANSFER
The purpose of this activity is to transfer from Sponsor to CBSI existing
methodology and process information to obtain a complete understanding of
the process as it currently exists.
TECHNOLOGY TRANSFER includes the following activities:
Sponsor will transfer existing methods and technical information
regarding the fermentation and purification processes and
analytical techniques for quantifying Product
CBSI will visit existing fermentation manufacturing site (ie.,
Univ. of Nebraska) to view process. CBSI will interact directly
and via Sponsor with Univ. of Nebraska where the fermentation and
recovery processes are being developed
CBSI will visit Sponsor to review the existing purification scheme
CBSI will verify raw materials and purchase long lead time
materials
CBSI will verify equipment requirements and purchase long lead
time items, if any
CBSI will identify any facility or equipment engineering issues
related to large scale manufacture
CBSI will outline the manufacturing plan that includes identifying
technical issues with the facility, scheduling of the facility,
and development of detailed timelines for specific production
activities, including change-over
Estimated Labor
This activity is expected to require approximately "..." to complete.
Pricing
The pricing for this section will be "...". This rate includes "...".
CBSI will notify Sponsor prior to purchasing any material exceeding "..." and
Sponsor will be invoiced separately. A "..." fee of the actual cost of materials
purchased for the Program will be added to material invoices. The "..." fee will
be waived on any single material that costs "..."."...".
Page 6 of 21
<PAGE> 18
APPENDIX 1
CELL BANKING AND TESTING
The objective of these activities is to generate and test a cGMP Master Cell
Bank (MCB) from a research cell bank and generate and test a Manufacturers
Working Cell Bank (MWCB) from the MCB.
a) CBSI will receive vials of the Pichia pastoris cell line following
confirmation of purity and non-host contamination by a qualified
sub-contractor. Certificates of Analysis and documentation of testing
must be received by CBSI prior to receipt of cells
b) CBSI will develop specifications for all raw materials based on
information provided by Sponsor. CBSI will order and release raw
materials according to CBSI Standard Operating Procedures
c) CBSI will generate batch records for the cell bank production activities.
Sponsor will review and approve all batch records prior to cell bank
production
d) CBSI will produce "...". CBSI Quality Group will provide support for
batch record review and approval, raw material release and environmental
monitoring
e) CBSI will provide temporary storage for cell banks ("..."). Sponsor and
CBSI will mutually determine the portion of the cell banks to be stored
at CBSI and at a designated third party approved by Sponsor, on a
permanent basis
f) CBSI will submit samples of the MCB and MWCB to a qualified
sub-contractor to perform the following. CBSI and Sponsor will agree to
suitable acceptance criteria for these tests:
"..."
"..."
"..."
"..."
"..."
g) CBSI will provide Sponsor with copies of the completed and approved batch
records. CBSI will retain the originals in its archives
h) "..." is not included in the scope of this proposal
Estimated Labor
This activity is expected to require approximately "...".
Pricing
The budget for this phase of the Program will be "...".
Page 7 of 21
<PAGE> 19
APPENDIX 1
ASSAY QUALIFICATION
NOTE: Please see Process Development section for development of assays.
Assays developed at CBSI will be qualified as part of analytical
development Phase and are not reflected in the price estimate for the
assay qualification Phase.
The purpose of this activity is to perform qualification of assays to
assess the performance capability of the assays used in support of cGMP
manufacturing and stability studies.
Sponsor and CBSI will jointly determine the specific assays to be used
for in-process control and Product release testing. The types of assays
listed below will assess the identity, purity, strength and homogeneity
of Product. The specific testing regimen will depend on the inherent
properties of Product.
Multiple samples of Product that are representative of the manufacturing
process will be tested according to methods transferred by Sponsor.
Results will be evaluated for consistency and methods may require
adjustment or further development. "..." are not included in the scope of
this section. (See Analytical Development Phase)
Sponsor/CBSI will provide Standard Reference Material for use in all
assays.
This Table lists the assays that will be employed for "..." of Product.
<TABLE>
<CAPTION>
ASSAY METHOD STATUS
----------------------------------------------------------------------------------------
<S> <C> <C>
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
--------------------------- ---------------------- -------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." See analytical development phase
----------------------------------------------------------------------------------------
"..." "..." Qualify at CBSI
----------------------------------------------------------------------------------------
"..." "..." Qualify at CBSI
----------------------------------------------------------------------------------------
"..." "..." Qualify at CBSI
</TABLE>
Page 8 of 21
<PAGE> 20
APPENDIX 1
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------------------
"..." "..." Qualify at CBSI
----------------------------------------------------------------------------------------
"..." "..." Qualify at CBSI
----------------------------------------------------------------------------------------
"..." "..." TBD
----------------------------------------------------------------------------------------
"..." "..." TBD
----------------------------------------------------------------------------------------
</TABLE>
Estimated Labor
The hours required for assay qualification is directly related to the
number and type of assays to be used in support of the in-process control
and Product release testing.
Pricing
The pricing for this section of the Program will be "...".
CBSI will notify Sponsor prior to purchasing any material exceeding "..."
and Sponsor will be invoiced separately. A "..." fee of the actual cost
of materials purchased for the Program will be added to material
invoices. "...".
Page 9 of 21
<PAGE> 21
APPENDIX 1
PROCESS DEVELOPMENT
The first part of Process Development "..." is "...".
- Perform "..." at the "..." scale to demonstrate successful process
transfer and show process reproducibility. The "..." process,
"..." will be used
- Perform "..." at the "..." scale to demonstrate successful process
transfer and show process reproducibility. The basic "..."
process, "..." will be used
- Develop a recovery process
- "..."
- Transfer/develop the following assays: "..."
- Develop "..."
CBSI will conduct appropriate Process Development efforts ("...") to
improve both "..." and control over production of the "...". PD
activities will enable greater control over the variability of these
"...".
This work could result in "...".
These process development efforts, fermentation, purification and
analytical activities, include some or all of proposals described below.
The efforts could result in significant process improvements in
performance and quality for both the cGMP animal toxicology and cGMP
human clinical material runs. In addition, continued experimentation
could result in substantial yield and process efficiency improvements
over the long term.
Page 10 of 21
<PAGE> 22
APPENDIX 1
<TABLE>
<CAPTION>
NO. OF TOTAL
"..." PERSONS NO. OF WEEKS FTE-WEEKS
=============================================================================================
<S> <C> <C> <C>
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
Total FTE-weeks needed "..."
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NO. OF TOTAL
"..." PERSONS NO. OF WEEKS FTE-WEEKS
=============================================================================================
<S> <C> <C> <C>
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
Total FTE-weeks needed "..."
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NO. OF TOTAL
"..." PERSONS NO. OF WEEKS FTE-WEEKS
=============================================================================================
<S> <C> <C> <C>
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
"..." "..." "..." "..."
---------------------------------------------------------------------------------------------
Total FTE-weeks needed "..."
---------------------------------------------------------------------------------------------
</TABLE>
Pricing
The pricing for this section will be "...". This rate includes
materials during "...". CBSI will notify Sponsor prior to
purchasing any material exceeding "..." and Sponsor will be
invoiced separately. A "..." fee of the actual cost of materials
purchased for the Program will be added to material invoices. The
"..." fee will be waived on any single material that costs "..."
or more on a single lot basis. "..."
Page 11 of 21
<PAGE> 23
APPENDIX 1
PREPRODUCTION ACTIVITIES
The purpose of this activity is for CBSI to perform the following
activities in preparation for cGMP manufacturing:
- Develop and finalize process flow sheets
- Complete engineering for processes
- Select, qualify and/or audit vendors, if necessary
- Prepare specifications, purchase, test and release all raw
materials
- Procure and release all necessary supplies
- Complete and qualify any necessary equipment modifications
- Prepare a detailed list of specifications, test methods, SOPs,
protocols and manufacturing procedures
- Translate Sponsor's procedures into CBSI facility specific
manufacturing procedures for implementation into the CBSI Batch
Record/Manufacturing Execution System
- Set up to perform small scale cGMP runs, large scale demonstration
runs and large scale cGMP runs
Estimated Labor
This activity is expected to require approximately "...".
Pricing
The pricing for this phase of the Program is will be "..."2
- -------------
(2) "..."
Page 12 of 21
<PAGE> 24
APPENDIX 1
"..." cGMP TOXICOLOGY RUNS
Prior to performing cGMP Toxicology runs, CBSI will initiate "..." non-GMP
demonstration runs. The purpose of performing non-GMP demonstration runs at the
"..." scale is to assess the reproducibility of the entire process prior to cGMP
toxicology lot production at the "..." scale.
- - Records for this stage of process will be kept in laboratory notebooks or
standardized data sheets or draft batch records
- - A limited number of analytical techniques to verify product identity and
quality will be performed on material from those demonstration runs using
pre-qualified assays and performed by the Process Development staff
- - Specific goals for yield and purity will be mutually agreed upon between
Sponsor and CBSI based on early development results, clinical needs and
project timelines. Goals will be dependent on the properties of Product.
The purpose of the cGMP toxicology lot production at the "..." scale is to
produce "..." of cGMP material for "..." lots of "..." and "..." for animal
toxicology and pharmacology studies. It is estimated that "..." runs will be
needed to achieve this goal. A sufficient number of "..." runs will be pooled,
following a pre-release3 of sub-lots, at the end of purification to provide the
"..." lots. The pooled lots will be tested and released as one lot according to
pre-determined specifications and QA review. To minimize product wastage during
this Phase, "...". The "..." plan will be finalized prior to initiating any cGMP
runs. Sponsor has "...". The final formulation, including "..." will be "...".
The qualified Pichia pastoris MWCB will be used for cGMP manufacturing of animal
toxicology material. Production activities include performance of "..." scale
fermentation runs through to purified Product including IPC and QC release
testing. "...".
Pricing
The budget of this phase of the Program will be "...".
A "..." fee of the actual cost of materials purchased for the Program will be
added to material invoices. The "..." fee will be waived on any single material
that costs "..." or more on a single lot basis. "..."
- --------------
(3) "..."
Page 13 of 21
<PAGE> 25
APPENDIX 1
The average yield ("...") from the "..." toxicology runs will be used in "..."
decision points in the scope.
1) The yield determines "...".
2) "..."
Page 14 of 21
<PAGE> 26
APPENDIX 1
"..." DEMONSTRATION RUN
- "..."and "..." will be performed according to the procedures
transferred/developed including any change in methods determined
to be useful following the "..." demonstration and cGMP toxicology
runs
- Additional "..." demonstration runs may be needed if unforeseen
scale-up issues arise
- Records for this stage of the process will be maintained using
DRAFT cGMP documents (batch records and formulation records)
- A limited number of "..." to verify "..." will be performed on
"..." using "..."
- "..."
Estimated Labor
The "..." activities will be performed in our "..." cGMP manufacturing area.
Each manufacturing run is expected to require "..." in the "..." fermentation
area and "..." in the "..." purification area. Assuming that the runs are
performed in series, "..." will be required for "..." and "..." will be required
for "..." and "...". There will be only "..." if the demonstration run is
followed immediately by the production runs.
Pricing
The budget for this phase of the Program will be "...".
Page 15 of 21
<PAGE> 27
APPENDIX 1
CLINICAL TRIAL MATERIAL MANUFACTURING
The purpose of this section is to produce cGMP quality material for use
in Phase I clinical trials.
The qualified Pichia pastoris MWCB will be used for cGMP manufacture of
clinical material.
cGMP documentation as prepared during pre-production activities and
modified during demonstration runs will be adhered to and manufacturing
will be performed under Quality Assurance oversight as described in the
Quality Function section.
CBSI will perform approximately "..."runs "..." to produce approximately
"..." of Product. It is hoped that PD activities to improve fermentation
and purification yields will result in a reduced number of runs.
CBSI is investigating all options to move Product into "..." scale
manufacturing by the end of 1998. If this is not possible, the option
exists to produce initial clinical material at the "..." scale. If the
initial clinical material is produced at the "..." scale, the price would
be "...".
Analytical methods to verify substance identity and quality will be
performed by "..." (See "...").
Bulk Product will be "...".
CBSI will provide Sponsor with copies of the completed and approved batch
records. All records will be in pre-approved cGMP documents subject to
full QA review. CBSI will retain the originals in its archives.
"..."
Estimated Pricing
The budget for this phase of the Program will be determined based on
yields obtained during the toxicology campaign at the "..." scale. See
Pricing Summary section for pricing details.
Page 16 of 21
<PAGE> 28
APPENDIX 1
QUALITY FUNCTION
The purpose of this activity is to provide Quality Control and Quality Assurance
support for cGMP manufacturing activities.
CBSI Quality Assurance will provide support to ensure cGMP compliance of
clinical production runs through issuance of controlled production records
including, but not limited to item specifications and batch records, release of
all equipment and manufacturing areas for cGMP manufacturing, preparation of
CofA and review of completed production records and environmental control for
manufacturing areas.
Product manufactured by CBSI will be tested according to qualified methods and
will be compared with reference standards to be supplied by Sponsor. CBSI
recommends that the Product release tests include:
<TABLE>
<S> <C>
"..." "..."
--------------------------------------
"..." "..."
--------------------------------------
"..." "..."
--------------------------------------
"..." "..."
--------------------------------------
"..." "..."
--------------------------------------
</TABLE>
Estimated Labor
The hours required for QC Product testing is directly related to the number and
type of assays used to test each sample.
Pricing
The pricing for this section of the Program is included in the price of the
appropriate section the activities are associated with.
Page 17 of 21
<PAGE> 29
APPENDIX 1
REGULATORY SUPPORT SERVICES
The purpose of this activity is to support the regulatory aspects of
manufacturing Product at the CBSI facility.
The Regulatory support segment includes the following activities:
- Prepare site documents
- Prepare scale-up/development and other reports
- Write the CMC sections for Phase I IND filing
- Respond to any questions raised by regulatory authorities
- Host any inspections
Estimated Labor :
This activity is expected to require approximately "...".
Pricing:
The budget for regulatory activities with the exception "..." will be "...".
"..."
Page 18 of 21
<PAGE> 30
APPENDIX 1
PROJECT MANAGEMENT
CBSI takes a "..." approach to managing all manufacturing projects. The "..."
would consist of a "...". The "..." would meet "..." via teleconference or in
person.
The Executive Committee will meet "..." (or as required) to review Program
progress, review budgetary progress and address any outstanding issues.
The Project Director is responsible for coordination of all technical aspects of
the Program, including monitoring financial and temporal progress of the Program
and submitting periodic reports.
Estimated Labor:
CBSI will provide a Project Director for the duration of the project. This
effort is estimated at "..." during the course of the Program.
Pricing:
The budget for this activity will be "...".
Page 19 of 21
<PAGE> 31
APPENDIX 1
PRICE SUMMARY
"..."
<TABLE>
<CAPTION>
ACTIVITY PRICE
- ----------------------------------------------------
<S> <C>
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APPENDIX 1
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"...".
CBSI ENTREMED
By: /s/ Charles T. White By: /s/ John W. Holaday
------------------------------ -------------------------
Date: 10/16/98 Date: 10/22/98
---------------------- ----------------------
Page 21 of 21
<PAGE> 1
EXHIBIT 10.30
Entremed, Inc.
Exhibit 10.30
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made this 1st day of January, 1999 by
and between ENTREMED, INC., a Delaware corporation having its principle office
at 9610 Medical Center Drive, Suite 200, Rockville, MD 20850 (the "Company") and
Dr. John W. Holaday, Jr., an individual residing at 6502 Hillmead Road,
Bethesda, MD 20817 ("Dr. Holaday").
FOR AND IN CONSIDERATION of the mutual premises, agreements and covenants
contained herein, the parties hereto, intending to be legally bound, do hereby
agrees as follows:
1. Employment; Position and Duties
The Company hereby agrees to employ Dr. Holaday to act as, and to exercise all
of the powers and functions of, its Chief Executive Officer and Chairman during
the Term hereof (as set forth in paragraph 4 herein) and to perform such acts
and duties and to generally furnish such services to the Company and its
subsidiaries (if any) as is customary for a senior management person with a
similar position in like companies; and he shall have such specific powers,
duties and Chief Executive Officer and Chairman responsibilities as the Board of
Directors of the Company (the "Board") shall from time to time reasonably
prescribe, provided that such duties are consistent with Dr. Holaday's senior
management position. Dr. Holaday hereby agrees to accept such employment and
shall perform and discharge faithfully, diligently, and to the best of his
abilities such duties and responsibilities and shall devote sufficient working
time and efforts to the business and affairs of the Company and its
subsidiaries; provided however, that, to the extent consistent with the needs of
the Company, Dr. Holaday shall be entitled to expend a reasonable amount of time
on civic, public, industry, and philanthropic activities and on the management
of his own investments and assets.
2. Place of Employment
During his employment hereunder, Dr. Holaday's principle place of employment
shall be located at the Company's corporate headquarters, wherever located as
designated from time to time by the Board; provided however, that
notwithstanding the foregoing Dr. Holaday shall be required to conduct his
duties and responsibilities hereunder (except for routine and customary business
travel) primarily from the executive offices located in Rockville, Maryland.
<PAGE> 2
3. Compensation
(a) Base Salary. The Company shall pay to Dr. Holaday an annual base salary
("Base Salary") of $325,000, payable in accordance with the Company's customary
payroll policy for its executives, and subject to applicable tax and payroll
deductions.
(b) Base Salary Adjustments. Dr. Holaday's Base Salary shall be reviewed
annually by the Company's Board of Directors which may make such upward
adjustments as within its discretion deems appropriate; however, the base salary
will be increased by at least a minimum of a 10% annually.
(c) Incentive Compensation. Dr. Holaday's Incentive Compensation, if any,
shall be determined annually by the Company's Board of Directors.
(d) Certain Other Benefits. During the Term of this Agreement, Dr. Holaday
shall be entitled to equally participate in any and all employee benefit plans
and arrangements which are available to senior executive officers of the
company, including without limitation, group medical and life insurance plans,
and automobile expense reimbursement allowances or company-provided automobiles.
4. Term
The term of Dr. Holaday's employment with the Company shall be for a three-year
period commencing January 1, 1999, or earlier and continuing through December
31, 2001 (the "Initial Term"); provided, however, that this Agreement shall be
automatically renewed for successive one-year periods (each a "Successor Term";
and together with the Initial Term, generally referred to "The Term") unless
either party hereto gives written notice of termination to the other party at
least twelve months prior to the expiration of the Initial Term or of any
Successor Term. By way of illustration, if neither party gives to the other
party a written notice of termination by December 31, 2000, this Agreement shall
be automatically renewed for a one-year period ending on December 31, 2002.
5. Stock Options
Periodic stock and incentive stock option grants to Dr. Holaday if any, shall be
determined by the Board of Directors.
6. Unauthorized Disclosure
While employed by the Company, Dr. Holaday shall not, without the written
consent of the Company, disclose to any person, other than person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by Dr. Holaday of his duties as an executive officer of the Company,
any material confidential information obtained by Dr. Holaday while in the
employ of the Company with respect to the businesses of the Company or any of
its subsidiaries, including but not limited to, operations, pricing, contractual
or personnel date, products, discoveries, improvements, trade secrets, license
agreements, marketing information, suppliers, dealers, principles, customers, or
methods of distribution, or any other confidential information the disclosure of
which knows, or in the exercise of reasonable care should know will be damaging
to the Company; provided,
2
<PAGE> 3
however, that confidential information shall not include any information known
generally to the public (other than as a result of unauthorized disclosure by
Dr. Holaday) or any information so otherwise considered by the Company to be
confidential.
7. Indemnification of Dr. Holaday
The Company shall immediately indemnify Dr. Holaday if Dr. Holaday is made a
party, or threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, because Dr. Holaday is or was an officer or director or the
Company or any of its subsidiaries, affiliates, or successors, against expenses
(including reasonable attorneys fees and disbursements), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding to the fullest extent and in the manner set
forth in a permitted by the General Corporation Law of the State of Delaware and
any other applicable law in effect from time to time and reimburse such costs as
incurred, but in any event no later than 30 days from date of presentment to the
Company. Such presentment may at the option of Dr. Holaday be in the form of an
invoice directly from Dr. Holaday's attorney or other provider, and in this
event, the Company agrees to reimburse said provider directly, as opposed to
having Dr. Holaday pay the invoice and then seek reimbursement from the Company.
8. Termination
(a) Termination Upon Death. If Dr. Holaday dies during the Term of this
Agreement, Dr. Holaday's legal representatives shall be entitled to receive the
Base Salary through the last day of the twelve months following the month in
which Dr. Holaday's death occurred. If in respect of the fiscal year in which
Dr. Holaday dies he would otherwise have been entitled to receive incentive
compensation under paragraph 3(c) by reason of the operations of the Company
during such fiscal year, Dr. Holaday's legal representatives shall be entitled
to receive a pro rata portion of such incentive compensation determined by
multiplying the dollar amount of the incentive compensation involved by a
fraction, the numerator of which shall be the number of complete calendar months
that elapsed during the fiscal year through the end of the month in which Dr.
Holaday died and denominator of which shall be twelve.
(b) Termination Upon Disability or Incapacity. The Company may terminate
Dr. Holaday's employment hereunder at the end of any calendar month by giving
written notice of termination to Dr. Holaday in the event of Dr. Holaday's
incapacity due to physical or mental illness which prevents the proper
performance of the duties of Chief Executive Officer as set forth herein or
established pursuant hereto for a substantial portion of any six-month period of
Dr. Holaday's Term of employment hereunder. Any questions as to the existence or
extent of illness or incapacity of Dr. Holaday, upon which the Company and Dr.
Holaday cannot agree, shall be determined by a qualified independent physician
selected by the Company and approved by Dr. Holaday(or, if Dr. Holaday is unable
to give such approval, by any adult member of the immediate family or the duly
appointed guardian of Dr. Holaday). The determination of such physician
certified in writing to the Company and to Dr. Holaday shall be final and
conclusive for all purposes
3
<PAGE> 4
of this Agreement. In the event of any such termination pursuant to this
subparagraph 8(b), Dr. Holaday shall be entitled to receive his Base Salary
through the last day of the six months in which this Agreement is terminated.
If in respect of the fiscal year in which Dr. Holaday's employment terminates
pursuant to his subparagraph 8(b) he would otherwise have been entitled to
receive incentive compensation under paragraph 3(c) by reason of the operations
of the Company during such fiscal year, Dr. Holaday shall be entitled to receive
a pro rata portion of such incentive compensation determined by multiplying the
dollar amount of the incentive compensation by a fraction, the numerator of
which shall be the number of complete calendar months that elapsed during the
fiscal year through the end of the month in which Dr. Holaday's employment
terminated pursuant to this subparagraph 8(b) and the denominator of which shall
be twelve.
(c) Termination for Cause. The Company may terminate Dr. Holaday's
employment hereunder for "cause" (as hereinafter defined) by giving written
notice of termination of this Agreement, the Company shall have "cause" to
terminate Dr. Holaday's employment hereunder upon Dr. Holaday's (i) habitual
drunkenness or drug addiction or willful failure materially to perform and
discharge his duties and responsibilities hereunder, or (ii) misconduct that is
materially and significantly injurious to the Company, or (iii) conviction of a
felony involving the personal dishonesty of Dr. Holaday or moral turpitude, or
(iv) conviction of Dr. Holaday of any crime or offense involving the property of
the Company. Upon any such termination for cause under this subparagraph 8(c)
the Company shall pay Dr. Holaday his Base Salary through the date of
termination, and the Company shall have no further obligations under this
Agreement.
(d) Termination without Cause. The Company shall have the right to
terminate Dr. Holaday's employment under this Agreement at any time, without
cause, by giving Dr. Holaday not less than sixty (60) days prior written notice
of such termination. Until the effective date of any such termination, the
Company shall continue to pay to Dr. Holaday the full compensation specified in
this Agreement. In addition, on the effective date of termination, the Company
shall pay to Dr. Holaday the full amount of all Base Salary to which Dr. Holaday
would otherwise have been paid throughout the remaining Term (including any
Successor Term, if applicable) of this Agreement.
9. Reimbursement of Legal Fees
The Company agrees to reimburse Dr. Holaday for reasonable attorneys fees
incurred if Dr. Holaday or the Company sues on this Agreement and the Company is
not wholly successful on the merits of the suit.
10. Application for Insurance
The Company at its option has the right to obtain a "key-man" life insurance
policy, at the Company's expense, with the Company being the sole beneficiary of
such policy. Dr. Holaday hereby agrees to undergo the necessary physical
examinations and disclose any pertinent disclaimers and information to obtain
said policy. The Company shall also
4
<PAGE> 5
be required to provide split-dollar insurance as is presently in place for the
benefit of Dr. Holaday's beneficiaries at the Company's expense.
11. Miscellaneous
(a) Assignments and Binding Effect. The respective rights and obligations
of the parties under this Agreement shall be binding upon the parties hereto and
their heirs, executors, administrators, successors, and assigns, including, in
the case of the Company, any other corporation or entity with which the Company
may be merged or otherwise combined or which may acquire all or substantially
all of the Company's assets and, in the case of Dr. Holaday, his estate or other
legal representatives; provided that Dr. Holaday may not assign his rights
hereunder without prior written consent of the Company.
(b) Governing Law. This Agreement shall be governed as to its validity,
interpretation and effect by the laws of the State of Maryland.
(c) Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid, illegal, or unenforceable for any
reason, the remaining provisions and portions of this Agreement shall remain in
full force and effect to the fullest extent permitted by law. Such invalid,
illegal or unenforceable provision(s) shall be deemed modified to the extent
necessary to make it (them) valid, legal, and enforceable.
(d) Entire Agreement; Amendments. This Agreement constitutes the entire
Agreement and understanding of the Company and Dr. Holaday with respect to the
terms of Dr. Holaday's employment with the Company and supersedes all prior
discussions, understandings and agreements with respect thereto except to those
agreements relating to the assignment of patents and inventions to which Dr.
Holaday acknowledges signing a Combined Non-disclosure and Patent Employee
Agreement which will remain in effect.
(e) Captions. All captions and headings used herein are for convenient
reference only and do not form part of this Agreement.
(f) Waiver. The waiver of a breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
(g) Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and shall be delivered by hand, or mailed by
registered or certified mail, return receipt requested, first class postage
prepaid, addressed as follows:
If to Dr. Holaday:
6502 Hillmead Road
Bethesda, Maryland 20877
5
<PAGE> 6
If to the Company:
EntreMed, Inc.
9610 Medical Center Drive, Suite 200
Rockville, Maryland 20850
Attn.: Chief Financial Officer
(h) Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
/s/ JOHN W. HOLADAY, JR.
-------------------------------
John W. Holaday, Jr.
ENTREMED, INC.
By: /S/ JOHN C. THOMAS
----------------------------
John C. Thomas, for the
Board of Directors Compensation Committee
6
<PAGE> 1
ENTREMED, INC.
EXHIBIT 10.31
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 10TH day of June, 1998 by and between RED
GATE III LIMITED PARTNERSHIP ("LANDLORD") and ENTREMED, INC. ("TENANT").
W I T N E S S E T H:
1. DEMISE OF PREMISES
Landlord hereby demises unto Tenant, and Tenant hereby leases from
Landlord for the terms and upon the conditions set forth in this Lease
46,267 square feet of space in the building located at 9640 Medical
Center Drive, Shady Grove Road, Rockville, Maryland 20850 (the
"Building"), all as set forth on Exhibit A and Exhibit B, hereto
attached, said space being referred to as the "Premises."
2. TERM
The term of this Lease shall be for a period of 10 years, commencing on
the 1st day of November, 1998, and terminating on the 31st day of
October, 2008, with two additional 5 year options on the same terms and
conditions in this Lease, provided that Tenant shall have given the
Landlord written notice of Tenant's intention to do so at least six (6)
months prior to the expiration of this Lease and that Tenant is not in
default under this Lease.
In the event the Landlord is not able to deliver possession of the
Premises to Tenant on the date this Lease is to commence because
Landlord has not fully completed the Landlord's Work as set forth on
Exhibit A, the commencement date shall be extended to the date said Work
is completed and the expiration date shall be similarly extended.
The date of delivery of the Premises by Landlord to Tenant shall be that
date on which all required improvements to be furnished by Landlord as
stated in Exhibit "A" have been substantially completed except for punch
list items and the occupancy certificate has been issued. Rent shall be
pro-rated for any portion of the initial month in which Tenant is
required to commence rental payments hereunder, which does not commence
with the first day thereof as set forth below.
Occupancy of the 46,267 square feet will occur in four phases, i.e. by
floor. Rent for each floor will commence when occupancy certificates are
issued for laboratories and offices. The Lease commences upon issuance
of the occupancy certificate for the third floor with rental to be paid
hereunder on a pro-rated basis in accordance with Exhibit B attached
hereto.
At any time prior to delivery of possession of the Premises, Tenant
shall have the right to enter upon the Premises for the purpose of
taking measurements and for completing Tenant's construction of
improvements, provided such entry does not unreasonably interfere with
or obstruct the progress of work being done by the Landlord.
3. RENT
The Tenant shall pay to the Landlord an annual rental (herein called
"Minimum Rent") in the amount of SEVEN HUNDRED EIGHTY SIX THOUSAND FIVE
HUNDRED THIRTY NINE and NO/100 DOLLARS ($786,539.00), subject to
adjustment as hereinafter set forth, payable without deduction or set
off in equal monthly installments of SIXTY FIVE THOUSAND FIVE HUNDRED
FORTY FOUR and 92/100 DOLLARS ($65,544.92) per month in advance, the
first installment of which is due and payable when occupancy
certificates are issued; all subsequent installments due and payable on
the first day of each calendar month thereafter during the term of the
Lease until the total rent provided for herein is paid. No payment by
Tenant or receipt of Landlord of a lesser amount than a monthly
installment of rent herein stipulated, or endorsement or statement on
any check or any letter accompanying any check for payment as rent be
deemed an accord and satisfaction, and Landlord may accept such check
for payment without prejudice to Landlord's right to recover the balance
of such rent or pursue any other remedy provided for in this Lease. (See
<PAGE> 2
Exhibit B for rent rate details).
4. ADJUSTMENT OF MINIMUM RENT
The Minimum Rent shall be increased at the end of each lease year during
the term hereby by three percent (3%) of the rent then being paid. There
shall be no additional pass-throughs of increases in operating expenses
except for real estate taxes or as otherwise provided for herein.
5. REAL ESTATE TAXES
In the event the real estate taxes levied or assessed against the land
and Building on which the Premises are a part in future tax years are
greater than the real estate taxes for the Base Year, the Tenant shall
pay within thirty (30) days after submission of the bill to Tenant for
the increase in real estate taxes, as additional rent, a proportionate
share of such increase, which proportionate share shall be computed at
100 % of the increase in taxes, but shall exclude any fine, penalty, or
interest charge for late or non-payment of taxes by Landlord. The Base
Year shall be July 1, 1998 to June 30, 1999.
6. UTILITIES
Tenant shall be responsible for the payment of all utilities used or
consumed by the Tenant in and upon the Premises. Electric, Gas, and
Water shall be separately metered by Landlord. In the event any utility
service to the Premises shall be interrupted for a period of more than
two (2) days due to the negligence or willful misconduct of Landlord,
its agents or servants, the Minimum and Additional Rent shall abate
until such services are fully rendered.
Landlord shall not be liable to Tenant for any damage or inconvenience
caused by the cessation or interruption of any utility service, or the
elevators in the Building, occasioned by fire, accident, strike or other
cause beyond Landlord's control.
7. USE OF PREMISES
Tenant shall use the Premises only for Offices and Laboratories purposes
including animal facilities and pilot production facilities, and for no
other purpose, except as approved by Landlord in advance, in writing,
which approval shall not be unreasonably withheld. Tenant shall not make
any use of the Premises which would disturb the quiet enjoyment of the
Landlord or other tenants in the Building or prejudice or increase the
fire insurance premiums for the Building, and shall comply with all laws
and regulations of all governmental authorities pertaining to Tenant's
use of Premises.
8. WASTE REMOVAL
Tenant shall be responsible for removal of waste generated by Tenant's
operation and direct payment for same. This includes waste service fees
levied by local jurisdictions.
<PAGE> 3
9. HAZARDOUS MATERIALS
Tenant shall be permitted to store Hazardous Materials on the Premises
and shall comply with all laws and regulations of all governmental
authorities pertaining to Tenant's use of the Premises, including,
without limitation, all Environmental Laws (as hereinafter defined) and
laws pertaining to Hazardous Materials and Air and Water Quality. The
term "Hazardous Materials" means and includes any petroleum products
and/or any hazardous toxic or other dangerous waste, substance or
material defined as such in the Environmental Laws. The term
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act, any "Superfund" or "Superlien" law, or
any other federal, state or local statute, law, ordinance, code,
regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning the use or storage of
Hazardous Materials. All such materials must be completely removed upon
expiration of this Lease, and any de-contamination certificates required
by the Landlord or any government authority must be obtained and
delivered to the Landlord.
Tenant shall obtain and maintain, in full force and effect, all
necessary government licenses, permits and approvals legally required
for materials used in the conduct of its business. If the presence of
any Hazardous Materials on the Premises caused or permitted by Tenant
results in any contamination of the Premises or any portion of the
Building or Common Areas, Tenant shall promptly take all actions, at its
sole expense, necessary to return the Premises to the condition existing
prior to the introduction of such Hazardous Materials, provided that all
such actions shall be subject to the approval of Landlord, which
approval shall not be unreasonably withheld.
At the Commencement Date of the Lease and on January 15 of each year
thereafter, Tenant shall disclose to Landlord the names and amounts of
all Hazardous Materials which are to be stored, used or disposed of on
the Premises.
Any Hazardous Materials stored or used on the Premises must not in any
way prejudice the Landlord's insurance or increase the fire hazards to a
greater extent than necessarily incident to the business for which the
Premises are leased.
10. LATE CHARGE
If any installment of rent accruing hereunder or any other sums payable
hereunder shall not be paid within thirty (30) days after written notice
to Tenant, such installment and other sums shall be increased without
affecting the Landlord's other rights under this Lease, by a late charge
of five percent (5%) of the delinquent installment.
11. REPAIRS AND MAINTENANCE
Landlord shall be responsible for all structural repairs, including
repairs to the structure, foundation, roof, exterior walls, exterior
doors, glazing systems and load-bearing walls of the Building, for
maintaining the parking area and sidewalks, and the Common Areas (as
hereinafter defined) in the Building. Landlord shall also be responsible
for repairing damage to non load-bearing walls caused by structural
defects. Landlord will provide elevator maintenance service and service
to building core electric, fire protection and plumbing. The Tenant
shall be responsible for the maintenance and repair of the Premises and
all fixtures, appliances and equipment therein, including, but not
limited to, the Heating and Air Conditioning system. Landlord will pay
for major Heating and Air Conditioning component replacement and all
repairs to the heating and air conditioning system in excess of Two
Hundred Fifty Dollars ($250.00) per occurrence/ per Heating and Air
Conditioning unit. Tenant shall also provide its own char service.
Landlord will repair and replace any glass breakage, provided it is not
the result of the Tenant's willful or negligent act. Tenant, at its sole
expense, shall keep all Tenant fixtures and equipment in the Premises in
safe and sanitary condition and good working order and repair, together
with related plumbing, electrical or other utility service, whether
installed by Tenant or by Landlord on Tenant's behalf. Tenant shall pay
for all damage to the Building and any fixtures and appurtenances
related thereto due solely to the malfunction, lack of repair, or
improper installation of the Tenant's fixtures and equipment.
Landlord warrants that the HVAC system will maintain at a temperature of
74(Degrees)F +/- 3(Degrees)F in the summer and 72(Degrees)F +/-
3(Degrees)F in the winter. Based on original equipment loads by Tenant,
the Landlord
<PAGE> 4
also warrants that the relative humidity in the Premises will be no
higher than 50% during summer months. Exceptions to these conditions
may occur in Tenant's cage wash area(s).
12. COMMON AREAS
Landlord will regularly maintain live plants in the atrium and maintain
external building lights. Landlord is responsible for maintaining common
areas, landscaping, external window cleaning and snow removal at
Landlord's expense.
13. LANDLORD'S WORK PRIOR TO COMMENCEMENT OF TERM
Landlord shall make the following improvements to the Premises prior to
the commencement of the term of the Lease:
(a) Construction in accordance with Exhibit A.
14. TENANT ALTERATIONS
All alterations, improvements, or additions to the demised Premises to
be made by Tenant shall be subject to the written consent of the
Landlord, which consent shall not be unreasonably withheld, provided
such alterations and improvements do not weaken the structural integrity
of the Building or detract from its dignity and/or uniformity. All
alterations and improvements and/or additions made by Tenant shall
remain upon the Premises at the expiration or earlier termination of
this Lease and shall become the property of the Landlord, unless
Landlord shall, at the time of approval of the alteration, provide
written notice to Tenant to remove the same, in which event Tenant
shall, at the expiration or earlier termination of this Lease, remove
such alterations, improvements and/or additions, and restore the
Premises to the same order and condition in which it was at the
commencement of this Lease, reasonable wear and tear and unavoidable
casualty excepted. Should Tenant fail to do so, Landlord may do so,
collecting the reasonable cost and expense thereof from Tenant as
additional rent.
15. TRADE FIXTURES
All trade fixtures, telephone equipment, and apparatus installed by
Tenant in the Premises shall remain the property of Tenant and shall be
removed at the expiration or earlier termination of this Lease and, upon
such removal, Tenant shall repair any damage caused by the removal and
shall promptly restore the Premises to their same order and condition in
which it was at the commencement of this Lease, reasonable wear and tear
and unavoidable casualty excepted. Any such trade fixture not removed
prior to such termination shall be considered abandoned property, but
such abandonment shall not release Tenant of its obligation to pay for
the cost of removing such trade fixtures and repairing any damage caused
by the removal.
16. QUIET ENJOYMENT
Landlord covenants that, upon payment of the rent herein provided and
performance by the Tenant of all other covenants herein contained,
Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises for the term hereof and options.
17. SURRENDER OF PREMISES
Upon the expiration or termination of this Lease, Tenant shall quit and
surrender the Premises to the Landlord. Tenant shall restore the
Premises to substantially the same order and condition in which it was
at the commencement of this Lease, reasonable wear and tear and
unavoidable casualty excepted, except as modified with Landlord's
approval as stipulated in Paragraph 14.
18. INSURANCE
Tenant covenants and agrees to maintain and carry, at all times during
the term of this Lease, in companies qualified and authorized to
transact business in the State of Maryland, general liability insurance
in amounts of $500,000.00 per person, $1,000,000.00 per occurrence and
$100,000.00 for damage to property on the Premises or arising out of the
use thereof by Tenant or its agents. All policies of insurance shall
provide that they may not be canceled, except on thirty (30) days
<PAGE> 5
written notice to Landlord, and all such policies shall name Landlord as
an additional insured.
Prior to commencement, Tenant shall furnish Landlord with satisfactory
proof that the insurance herein provided for is at all times in full
force and effect. If either party hereto is paid any proceeds under any
policy of insurance naming such party as an insured on account of any
loss, damage or liability, then such party hereby releases the other
party to (and only to) the extent of the amount of such proceeds, from
any and all liability for such loss or damage, notwithstanding negligent
or intentionally tortuous act or omission of the other party, its agents
or employees; provided, such release shall be effective only as to a
loss of damage occurring while the appropriate policy of insurance of
the releasing party provides that such release shall not impair the
effectiveness of such policy or the insured's ability to recover
thereunder. Each party hereto shall use reasonable efforts to have a
clause to such effect included in its said policies, and shall promptly
notify the other in writing if such clause cannot be included in any
such policy.
19. INDEMNIFICATION
Tenant shall indemnify and hold harmless the Landlord from, and name
LANDLORD as additional insured on policy regarding, any and all
liability, damage, expense, cause of action, or claims arising out of
injury to persons or to property on the Premises, except for the
negligence or willful misconduct of Landlord, its agents, employees, or
servants.
20. DAMAGE BY FIRE OR CASUALTY
If the Premises are damaged by fire or other casualty, but are not
thereby rendered untenantable in whole or in part, Landlord, at it's own
expense, and subject to the limitations set forth in this Lease, shall
cause such damage to be repaired and the Minimum Rent and Additional
Rent shall not be abated. If, by reason of any damage or destruction,
the Premises shall be rendered untenantable in whole or in part and
cannot be repaired and made tenantable within sixty (60) days after such
damage: (i) Landlord, at its option and its own expense, may cause the
damage to be repaired and the Minimum Rent and Additional Rent shall be
abated proportionately as to the portion of the Premises rendered
untenantable while it is untenantable; or (ii) Landlord shall have the
right, to be exercised by notice in writing delivered to tenant within
thirty (30) days of the occurrence of such damage or destruction, to
terminate this Lease, whereupon the Minimum Rent and Additional Rent
shall be adjusted as of the date of such termination. Landlord shall
provide Tenant with back-up space if available in another Landlord
building.
21. ASSIGNMENT OR SUBLETTING
Tenant acknowledges that Landlord has entered into this Lease because of
Tenant's financial strength, goodwill, ability and expertise and that
accordingly, this lease is personal to Tenant. Taking this into
consideration, tenant shall not assign, mortgage, sublet, pledge or
encumber this Lease, in whole or in part, except with the written
consent of the Landlord, which shall not be unreasonably withheld or
delayed. Tenant agrees that, in the event of any such assignment or
subletting, Tenant shall nevertheless remain liable for the performance
of all terms, covenants, and conditions of this Lease.
22. SUBORDINATION AND ATTORNMENT
This Lease shall be subject to and subordinate at all times to the lien
of any mortgage and/or deeds of trust and all land leases now or
hereafter made on any portion of the Premises, and to all advances
thereunder, provided the mortgagee or trustee named in said mortgage or
deed of trust shall agree to recognize this Lease and agrees, in the
event of foreclosure, not to disturb the Tenant's possession hereunder,
provided Tenant is not in default under this Lease. This subordination
shall be self-operative and no further instrument of subordination shall
be required.
If any proceedings are commenced to foreclose any mortgage or deed of
trust encumbering the Premises, Tenant agrees to attorn to the purchaser
at the foreclosure sale, if requested to do so by any such purchaser,
and to recognize such purchaser as the Landlord under this Lease,
provided purchaser shall agree that Tenant's rights hereunder shall not
be disturbed so long as Tenant has not committed any event of default as
to which the applicable cure period has not expired. Further, the
purchaser at a foreclosure sale as Landlord will be liable for all
terms, covenants and conditions of this Lease.
<PAGE> 6
23. CONDEMNATION
(a) If the whole of the Premises shall be taken by any public or
quasi-public authority under the power of eminent domain,
condemnation or conveyance in lieu thereof, then this Lease
shall terminate as of the date on which possession of the
Premises is required to be surrendered to the condemning
authority and the Tenant shall have no claim against Landlord or
the condemning authority for the value of the unexpired term of
this Lease. Tenant shall have the right to claim, however, the
unamortized cost of any improvements or additions made to the
Premises by Tenant at its cost, the value of any Tenant
fixtures and furnishings and any moving expenses.
(b) If a portion of the Premises shall be so taken or conveyed, and
if such partial taking or conveyance shall render the Premises
unsuitable for the business of the Tenant, then the term of this
Lease shall cease and terminate as of the date on which
possession of the portion of the Premises is surrendered to the
condemning authority, and Tenant shall have no claim against
Landlord or the condemning authority for the value of any
unexpired term of this Lease.
In the event such partial taking or conveyance is not extensive
enough to render the Premises untenantable for the business of
Tenant, as reasonably judged by both Landlord and Tenant, this
Lease shall continue in full force and effect, except that the
Minimum and Additional Rent shall be reduced in the same
proportion that the floor area of the Premises so taken or
conveyed bears to such floor area immediately prior to such
taking or conveyance.
In the event of such partial taking and continuation of Lease,
Landlord shall promptly restore the Premises, at Landlord's
expense, as nearly as practical to the condition comparable to
that which existed prior to the condemnation.
24. EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an event of
default hereunder:
(a) Failure of Tenant to pay installment of rent hereunder within
fifteen (15) days of the due date, or failure of Tenant to pay
within twenty (20) days after receipt of written notice of rent
or any other sum herein required to be paid by Tenant.
(b) Tenant's failure to perform any other covenant or condition of
this Lease within thirty (30) days after receipt of written
notice and demand, unless the failure is of such a character as
to require more than thirty (30) days to cure in which event
Tenant's failure to proceed diligently to cure such failure shall
constitute an event of default.
25. LANDLORD'S REMEDIES
Upon the occurrence of any event of default, Landlord may, at Landlord's
sole option, exercise any or all of the following remedies, together
with any such other remedies as may be available to Landlord at law or
in equity.
(a) Landlord may terminate this Lease by giving Tenant written
notice of its election to do so, as of a specified date not less
than sixty (60) days after the date of the giving of such notice
and this Lease shall then expire on the date so specified, and
Landlord shall then be entitled to immediately regain possession
of the Premises as if the date had been originally fixed as the
expiration date of the term of this Lease. Landlord may then
re-enter upon the Premises, either with or without due process
of law, and remove all persons therefrom, the statutory notice
to quit or any other notice to quit being hereby expressly
waived by Tenant. Tenant expressly agrees that the exercise by
Landlord of the right of re-entry shall not be a bar to or
prejudice in any way other legal remedies available to Landlord.
In that event, Landlord shall be entitled to recover from Tenant
as and for liquidated damages an amount equal to the rent and
additional rent reserved in this Lease less any and all amounts
received by Landlord from the rental of the Premises to another
tenant. Nothing herein contained, however, shall limit or
prejudice the right of Landlord to
<PAGE> 7
prove for and obtain as liquidated damages, by reason of such
termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing
the proceedings in which such damages are to be proved, whether
or not such amount may be greater, equal to, or less than the
amount of the difference referred to above, and Landlord may, in
his own name, but as agent for Tenant, re-let the Premises. Any
recovery by the Landlord shall be limited to the rent hereunder
(plus any reasonable costs incurred in re-letting) less any rent
actually paid by the new tenant.
(b) No termination of this Lease or any taking of possession of the
Premises shall deprive Landlord of any of its remedies or actions
against Tenant for past or future rent, nor shall the bringing of
any action for rent or breach of covenant, or the resort to any
other remedy herein provided for the recovery of rent, be
construed as a waiver of the right to obtain possession of the
Premises.
(c) In addition to any damages becoming due under this paragraph,
Landlord shall be entitled to recover from Tenant and Tenant
shall pay to Landlord an amount equal to all reasonable expenses,
including reasonable attorneys' fees, if any, incurred by the
Landlord in recovering possession of the Premises, and all
reasonable costs and charges for the care of said Premises while
vacant, which damages shall be due and payable by Tenant to
Landlord at such time or times as such expenses are incurred by
the Landlord.
(d) In the event of a default or threatened default by Tenant of any
of the terms or conditions of this Lease, Landlord shall have the
right of injunction and the right to invoke any remedy allowed by
law or in equity as if no specific remedies of Landlord were set
forth in this Lease.
(e) If default be made and a compromise and settlement shall be had
thereupon, it shall not constitute a waiver of any covenant
herein contained, nor of the Lease itself, unless otherwise
agreed to in writing by the parties.
26. RIGHTS OF LANDLORD
Landlord reserves the following rights with respect to the Premises:
During normal business hours, upon having given mutual agreeable notice,
to go upon and inspect the Premises, and at Landlord's option, to make
repairs, and/or install equipment in support of the Building of which
the Premises are a part, provided there is no interference with Tenant's
occupancy. An Agent of the Tenant shall be present for inspection, if
requested by Tenant.
27. HOLDING OVER
If Tenant holds possession of the Premises after the termination of this
Lease or any renewal or extension thereof, Tenant shall become a Tenant
from month to month at 115% of the then current rental rate.
28. WAIVER OF CLAIMS
Except as may result from their negligence, Landlord and Landlord's
agents, employees, and contractors shall not be liable for, and Tenant
hereby releases all claims for, damages to persons or property sustained
by Tenant (or any person claiming through Tenant) resulting from any
fire, accident, occurrence or condition in or upon the Premises or
Building, including but not limited to such claims for damage resulting
from (1) any defect in or failure of plumbing, heating or
air-conditioning equipment, electric wiring or installation thereof,
water pipes, stairs, railings or walks; (2) any equipment or apparatus
becoming out of repair; (3) the bursting, leaking or running of any
tank, washstand, water closet, waste pipe, drain or any other pipe or
tank, upon or about such building or premises; (4) the backing up of any
sewer pipe or downspout; (5) the escape of steam or hot water; (6)
water, snow or ice being upon or coming through the roof of any other
place upon or near the Building or Premises or otherwise; (7) the
falling of any fixtures, plaster or stucco; (8) broken glass; and (9)
any act or omission of occupants of adjoining or contiguous property of
buildings.
29. NOTICE
<PAGE> 8
All notices required under this Lease shall be given in writing and
shall be deemed to be properly served if sent by certified or registered
United States Mail, postage prepaid, or overnight courier with receipt
of delivery as follows:
<PAGE> 9
If to the Landlord: Red Gate III Limited Partnership
c/o W.M. Rickman Construction Co.
15215 Shady Grove Road
Rockville, Maryland 20850
If to the Tenant: EntreMed, Inc.
9640 Medical Center Drive
Rockville, Maryland 20850
or to such other address as either may have designated from time to time
by written notice to the other. The date of service of such notices
shall be the date such notices are deposited in any United States Post
Office or delivered upon receipt in the case of overnight courier
service.
30. COVENANTS OF TENANT
Tenant covenants and agrees:
(a) To give to Landlord prompt written notice of any accident, fire,
or damage occurring on or to the Premises.
(b) To keep the thermostats in the Premises set at a temperature
sufficient to prevent freezing of water pipes, fixtures and HVAC
units.
(c) To keep the Premises clean, orderly, sanitary, and free from all
objectionable odors and from insects, vermin and other pests as
reasonably possible.
(d) To comply with the requirements of the State, Federal and County
statutes, ordinances, and regulations applicable to Tenant and
its use of the Premises, and to save Landlord harmless from
penalties, fines, costs, and expenses resulting from failure to
do so, provided Tenant shall not be obligated to make structural
repairs or alterations to so comply.
(e) Tenant shall promptly pay all contractors, suppliers of material
and persons Tenant engages to perform work and provide materials
for construction work on the Premises so as to minimize the
possibility of a lien attaching to the Premises. Should any such
lien be made or filed, Tenant shall cause the same to be
discharged and released of record by bond or otherwise within
thirty (30) days of receipt of written request from Landlord.
31. LANDLORD'S RIGHT TO ALTER SITE PLAN
LANDLORD shall, from time to time, have the right to alter or modify the
site plan of the Building and to rearrange the driveways and parking
areas, as well as the entrance and exits to the Premises, provided such
alterations do not affect Tenant's access or use and occupancy of the
Premises.
32. PARKING SPACES
LANDLORD agrees to furnish no less than 100 unreserved parking spaces
contiguous to building 9640 Medical Center Drive.
33. ENTIRE AGREEMENT
This Lease contains the entire agreement of the parties. There are no
oral agreements existing between them.
<PAGE> 10
34. SUCCESSORS AND ASSIGNS
This Lease, and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon the Landlord, its successors
and assigns, and shall inure to the benefit of and be binding upon the
Tenant, its permitted successors and permitted assigns.
35. BANKRUPTCY
If Tenant shall make an assignment of its assets for the benefit of
creditors, or if Tenant shall file a voluntary petition in bankruptcy,
or if any involuntary petition in bankruptcy or for receivership be
instituted against the Tenant and the same be not dismissed within
thirty (30) days of the filing thereof, or if Tenant shall be adjudged
bankrupt, then and in any of said events, this Lease shall immediately
cease and terminate at the option of the Landlord upon written notice to
Tenant with the same force and effect as though the date of said event
was the date herein fixed for expiration of the term of this Lease.
36. NON-DELIVERY
In the event the Landlord shall be unable to give possession of the
Premises because construction of the Building is not complete for
cause(s) reasonably beyond the control of the Landlord, the Landlord
shall not be liable to Tenant for any damage resulting from failure to
give possession.
37. PARTIAL INVALIDITY
If any term, covenant, or condition of this Lease or the application
thereof to any person or circumstance shall be held to be invalid and
unenforceable, the remainder of this Lease, and the application of such
terms, covenants, or conditions shall be valid and enforceable to the
fullest extent permitted by law.
38. FORCE MAJEUR
With the exception of those provisions contained herein regarding the
payment of rent, the inability of either party to perform any of the
terms, covenants or conditions of this Lease shall not be deemed a
default if the same shall be due to any cause beyond the reasonable
control of that party.
39. ESTOPPEL CERTIFICATE
The Tenant shall from time to time, within ten (10) business days after
being requested to do so by the Landlord or any Mortgagee of Landlord,
execute, acknowledge and deliver to the Landlord (or, at the Landlord's
request, to any existing or prospective purchaser, transferee, assignee
or Mortgagee of any or all of the Premises) an instrument in recordable
form, certifying (a) that this Lease is unmodified and in full force and
effect (or, if there has been any modification thereof, that it is in
full force and effect as so modified, stating therein the nature of such
modification); (b) as to the dates to which the Minimum Rent and other
charges arising hereunder have been paid; (c) as to the amount of any
prepaid Rent or any credit due to the Tenant hereunder; (d) that the
Tenant has accepted possession of the Premises or a portion thereof, and
the date on which the Term commenced; (e) as to whether, to the best
knowledge, information and belief of the signer of such certificate, the
Landlord or the Tenant is then in default in performing any of its
obligations hereunder (and, if so, specifying the nature of each such
default); and (f) as to any other fact or condition reasonably requested
by the Landlord or such other addressee. In the event the Tenant fails
or refuses to provide such a certificate, Tenant shall be liable to
Landlord for any loss or damage (including reasonable counsel fees)
arising out of or in connection with such failure or refusal.
IN WITNESS WHEREOF, the parties have caused this Lease Agreement to be
executed on the year and date first written.
LANDLORD:
ATTEST: RED GATE III LIMITED PARTNERSHIP
<PAGE> 11
/s/ P.L. ENGLEHART /s/ WILLIAM M. RICKMAN
- ------------------------ ---------------------------
By: William M. Rickman
TENANT:
ATTEST: ENTREMED, INC.
/s/ R. NELSON CAMPBELL /s/ JOHN W HOLADAY, JR.
- ------------------------ ---------------------------
By:
<PAGE> 1
EntreMed, Inc.
Exhibit 21
SUBSIDIARIES OF ENTREMED, INC.
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- ---------- ----------------------
<S> <C>
Cytokine Science, Inc. Delaware
</TABLE>
<PAGE> 1
Entremed, Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 pertaining to the EntreMed, Inc. 1992 Stock Incentive Plan and in the
Registration Statement on Form S-8 pertaining to the EntreMed, Inc. 1992 Stock
Incentive Plan and the EntreMed, Inc. Amended and Restated 1996 Stock Option
Plan of our report dated February 10, 1998, with respect to the consolidated
financial statements of EntreMed, Inc. included in the Annual Report (Form 10-K)
for the year ended December 31, 1998.
ERNST & YOUNG LLP
Atlanta, Georgia
March 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 30,818,689 18,232,491
<SECURITIES> 4,352,371 27,012,580
<RECEIVABLES> 112,383 84,151
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 35,641,247 45,935,774
<PP&E> 4,432,566 2,211,263
<DEPRECIATION> 1,453,329 712,482
<TOTAL-ASSETS> 39,574,003 47,838,663
<CURRENT-LIABILITIES> 6,371,532 4,481,403
<BONDS> 0 0
0 0
0 0
<COMMON> 131,230 122,538
<OTHER-SE> 33,056,834 41,830,556
<TOTAL-LIABILITY-AND-EQUITY> 39,574,003 47,838,663
<SALES> 0 0
<TOTAL-REVENUES> 5,161,483 4,757,488
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 20,845,208 13,914,429
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 1,418
<INCOME-PRETAX> (13,513,770) (6,536,729)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (13,513,770) (6,536,729)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,513,770) (6,536,729)
<EPS-PRIMARY> (1.07) (0.54)
<EPS-DILUTED> (1.07) (0.54)
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