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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED JULY 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-27756
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ALEXION PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13-3648318
(State or Other Jurisdiction (I.R.S. Employer
of Identification No.)
Incorporation or Organization)
</TABLE>
25 SCIENCE PARK, NEW HAVEN, CONNECTICUT 06511
(Address of Principal Executive Offices) (Zip Code)
203-776-1790
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.0001
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate 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. / /
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the last sale price of the Common Stock reported on the
National Association of Securities Dealers Automated Quotation (NASDAQ) National
Market System on October 18, 1999, was approximately $148,000,000.
The number of shares of Common Stock outstanding as of October 18, 1999 was
11,331,310.
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DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
Portions of the registrant's proxy statement to be filed with the Securities
and Exchange Commission in connection with solicitations of proxies for the
registrant's upcoming 1999 Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference in Part III, Item 11 of this
Form 10-K.
<PAGE>
PART I
THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD
LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS
ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE
BY THE COMPANY'S MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE SET FORTH HEREIN UNDER "IMPORTANT FACTORS REGARDING
FORWARD-LOOKING STATEMENTS," ATTACHED HERETO AS EXHIBIT 99, AS WELL AS THOSE
NOTED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. UNLESS REQUIRED BY LAW,
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
HOWEVER, READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER
REPORTS OR DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ITEM 1. BUSINESS.
OVERVIEW
We are engaged in the development of products for the treatment of
cardiovascular, autoimmune and neurologic diseases caused by undesired effects
of the human immune system. Our product development programs are based on
proprietary technologies which are designed to block selected components of the
human immune system in order to reduce undesired inflammation while allowing
other beneficial aspects of the immune system to remain functional. Our two lead
product candidates are:
- 5G1.1-SC, in Phase II trials for the treatment of acute inflammation
caused by cardiopulmonary bypass surgery, which is being developed in
collaboration with Procter & Gamble; and
- 5G1.1, in Phase II trials for the chronic treatment of rheumatoid
arthritis and membranous nephritis, which we are developing ourselves.
In addition, we are developing our Apogen and UniGraft technologies in
preclinical studies. We are targeting our first Apogen product candidate, known
as MP4, for the treatment of patients with multiple sclerosis. We are also
developing our two UniGraft xenotransplantation product candidates, UniGraft-PD
and UniGraft-SCI, for the treatment of Parkinson's disease and spinal cord
injury.
THE IMMUNE SYSTEM
The human immune system defends the body from attack or invasion by
infectious agents or pathogens. This is accomplished through a complex system of
proteins and cells, primarily complement proteins, antibodies and white blood
cells, each with a specialized function. Under normal circumstances, complement
proteins, together with antibodies and white blood cells, act to protect the
body by removing:
- harmful microorganisms;
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- cells containing foreign proteins known as antigens; and
- disease-causing combinations of antigens and antibodies known as immune
complexes.
When activated by stimuli, the immune system triggers a series of enzymatic
and biochemical reactions called the complement cascade that results in an
inflammatory response. This inflammatory response is one of the immune system's
weapons against foreign pathogens or otherwise diseased tissue. However, under
certain circumstances, the complement cascade may be activated inappropriately
to direct an inflammatory response at healthy tissue, which may result in acute
and chronic inflammatory conditions.
Common heart diseases and procedures in which the complement cascade is
activated include:
- cardiopulmonary bypass surgery;
- myocardial infarction;
- unstable angina;
- angioplasty; and
- stroke and other peripheral vascular diseases.
Common autoimmune diseases in which the complement cascade is activated
include:
- rheumatoid arthritis;
- kidney diseases;
- lupus;
- inflammatory bowel diseases;
- inflammatory skin disorders; and
- multiple sclerosis.
T-cells, a type of white blood cell, play a critical role in the normal
immune response by recognizing cells containing antigens and initiating the
immune response. This response results in T-cells:
- attacking the antigen-containing tissue; and
- directing the production of antibodies by white blood cells to eliminate
the antigen-bearing foreign organism.
In autoimmune diseases, T-cells may mistakenly attack healthy host tissue
and may cause an inflammatory response resulting in tissue destruction. In the
case of multiple sclerosis, this may cause paralysis due to destruction of nerve
fibers in the brain.
PRODUCT DEVELOPMENT PROGRAMS
We have focused our product development programs on anti-inflammatory
therapeutics for diseases for which we believe current treatments are either
non-existent or inadequate. Currently available drugs for certain autoimmune,
cardiovascular and neurologic diseases, in which the immune system attacks the
patient's own tissue, broadly suppress the entire immune system, and may also
cause potentially severe side effects. Our lead product candidates, known as C5
Complement Inhibitors, are designed to selectively block the production of
inflammation-causing proteins in the complement cascade. We believe that
selective suppression of this immune response will provide a significant
therapeutic advantage relative to existing therapies.
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Additionally, we are developing selective T-cell inhibitors known as Apogens
and UniGraft xenotransplants for neurologic disorders.
C5 COMPLEMENT INHIBITORS
Complement proteins are a series of inactive proteins circulating in the
blood. When activated by stimuli, including those associated with both acute and
chronic inflammatory disorders, these inactive complement proteins are split by
enzymes known as convertases into activated byproducts through the complement
cascade.
Some of these byproducts, notably C3b, are helpful in fighting infections
and inhibiting autoimmune disorders. However, the byproducts generated by the
cleavage of C5, known as C5a and C5b-9, generally cause harmful inflammation.
The inflammatory byproducts of C5 cause:
- activation of white blood cells;
- attraction of white blood cells;
- production of injurious cytokines including tumor necrosis factor-alpha;
- activation of blood vessel-lining cells called endothelial cells, allowing
leakage of white blood cells into tissue; and
- activation of blood-clotting cells called platelets.
The following diagram describes the complement cascade:
[LOGO]
Because of the generally beneficial effects of the components of the
complement cascade prior to C5 and the greater inflammatory disease-promoting
effects of the cleavage products of C5, we have identified C5 as a potentially
effective anti-inflammatory drug target. Our first two C5 Inhibitors
specifically and tightly bind to C5 blocking its cleavage into harmful
byproducts and are designed to inhibit subsequent damage from the inflammatory
response.
In laboratory and animal models of human disease, we have shown that the
administration of C5 Inhibitor, as compared to placebo, is effective in:
- preventing inflammation during cardiopulmonary bypass;
- reducing heart tissue damage during myocardial infarction;
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- reducing brain damage in cerebral ischemia;
- enhancing survival in a model of lupus; and
- preserving kidney function in nephritis.
In addition, in initial human clinical trials, we have shown that C5
Inhibitors can reduce:
- inflammation during cardiopulmonary bypass surgery;
- heart tissue damage during cardiopulmonary bypass surgery;
- new cognitive deficits after cardiopulmonary bypass surgery;
- an objective measure of disease activity in rheumatoid arthritis patients;
and
- the incidence of proteinuria in lupus patients.
Our product candidates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRODUCT CANDIDATE TECHNOLOGY INDICATION STATUS
- ----------------- ------------------------ ------------------------ -----------------
5G1.1-SC C5 Complement Inhibitor Cardiopulmonary bypass Phase IIb ongoing
(single chain antibody) Myocardial infarction Preparing IND
(1) Thrombolysis to commence
(2) PTCA Phase II
5G1.1 C5 Complement Inhibitor Rheumatoid arthritis Phase II ongoing
(antibody) Membranous nephritis Phase II ongoing
Lupus Completed Phase I
MP4 Apogen Multiple sclerosis Preclinical
UniGraft-SCI Cell replacement Spinal cord injury Preclinical
UniGraft-PD Cell replacement Parkinson's disease Preclinical
</TABLE>
C5 INHIBITOR IMMUNOTHERAPEUTIC PRODUCT CANDIDATES
We are developing one of our two lead C5 Inhibitor product candidates,
5G1.1-SC, for the treatment of inflammation related to acute cardiovascular
diseases and procedures. Our initial indications for 5G1.1-SC are
cardiopulmonary bypass surgery and myocardial infarction. We are developing our
other C5 Inhibitor product candidate, 5G1.1, for the treatment of inflammation
related to chronic autoimmune disorders. Our initial indications for 5G1.1 are
rheumatoid arthritis and membranous nephritis. We have selected these four
initial indications because we believe each represents a clinical condition
which is:
- closely tied to the production of activated complement byproducts;
- characterized by clear development pathways;
- inadequately treated by current therapies;
- associated with substantial health care costs; and
- a significant market opportunity.
To date, 5G1.1-SC and 5G1.1 have been observed to be safe and well tolerated
in completed and ongoing controlled clinical trials in over 250 individuals
treated with either C5 Inhibitor or placebo.
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5G1.1-SC
5G1.1-SC is a humanized, single chain antibody that has been shown to block
complement activity for up to 20 hours at doses tested and is designed for the
treatment of acute inflammatory conditions. In January 1999, we entered into a
collaboration with Procter & Gamble to develop and commercialize 5G1.1-SC. Under
this collaboration, we will initially pursue the development of 5G1.1-SC for the
treatment of inflammation caused by various acute cardiovascular indications and
procedures such as cardiopulmonary bypass surgery, myocardial infarction and
angioplasty. Procter & Gamble has agreed to fund all clinical development and
manufacturing costs relating to 5G1.1-SC for these indications.
CARDIOPULMONARY BYPASS SURGERY
In cardiopulmonary bypass surgery, blood is diverted from a patient's heart
and lungs to a cardiopulmonary, heart-lung, bypass machine in the operating
room. The machine adds oxygen to the blood and circulates the oxygenated blood
to the organs in the patient's body. Significant side effects of cardiopulmonary
bypass surgery include tissue damage and excessive bleeding during and after the
procedure. We believe these side effects may result from activation of the
complement cascade when the patient's blood comes into contact with the plastic
lining of the machine, when insufficient blood flows through the heart as a
result of the procedure and after blood flow through the heart is reintroduced
following completion of the procedure. Activated complement byproducts may be
increased by over 1,000% in patients undergoing cardiopulmonary bypass surgery.
The inflammation is also characterized by activation of leukocytes, a type of
white blood cell, and platelets, cells responsible for clotting. We believe that
this leukocyte activation is associated with impaired lung, heart, brain and
kidney function. We further believe that platelet activation and subsequent
platelet dysfunction during the procedure impair a patient's ability to stop the
bleeding that occurs after extensive surgery.
5G1.1-SC is designed to rapidly penetrate the patient's tissues and to
inhibit complement activation in patients immediately before, during and after
cardiopulmonary bypass in order to reduce the cardiovascular and brain tissue
damage and bleeding complications. We believe inhibition of the inflammatory
response might reduce:
- incidence of death;
- incidence of heart tissue damage;
- incidence of stroke;
- post-operative complications;
- the time spent by patients in the intensive care unit;
- the scope of required treatments associated with cardiopulmonary bypass;
and
- the need for blood transfusions.
The American Heart Association estimates that in 1996, approximately 500,000
cardiopulmonary bypass operations were performed in the United States.
Currently, products utilized in patients undergoing cardiopulmonary bypass are
designed to enhance the coagulation of blood so as to reduce the need for blood
transfusions. However, we believe these products have little beneficial effect
on the heart and brain inflammatory complications associated with the surgery.
Our preclinical studies indicated that C5 Inhibitors can prevent activation
of platelets and leukocytes and the subsequent inflammatory response that occurs
during circulation of human blood in a closed-loop cardiopulmonary bypass
machine. These preclinical studies additionally indicated that administration of
a C5 Inhibitor reduces cardiac damage associated with reduced heart blood flow.
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CLINICAL TRIALS
In March 1996, we filed an investigational new drug application, or IND,
with the FDA for 5G1.1-SC, targeting the treatment of patients undergoing
cardiopulmonary bypass surgery. To date, we have initiated and completed four
human clinical trials of 5G1.1-SC administered intravenously. Although we
designed these early clinical studies primarily to assess dosing and safety, we
also collected biological and clinical results. These trials are described
below.
- In June 1996, we commenced a Phase I clinical trial in 33 healthy
volunteers receiving a single bolus administration of 0.5 to 2.0 mg/kg of
5G1.1-SC or placebo. In this trial, 5G1.1-SC:
- was safe and well tolerated in this study population as compared to
placebo; and
- showed dose-dependent reduction in complement activity in study
subjects.
- In October 1998, we commenced a Phase I clinical trial in 49 healthy
volunteers receiving a single bolus dose, double bolus dose, and single
bolus dose followed by continuous infusion administration of up to 6.8
mg/kg of 5G1.1-SC or placebo. In this trial, 5G1.1-SC:
- was safe and well tolerated in this study population as compared to
placebo; and
- showed dose-dependent reduction in complement activity in study
subjects.
- In October 1996, we commenced a Phase I/II clinical trial in 17 patients
undergoing cardiopulmonary bypass surgery receiving a single bolus
administration of 0.5 to 2.0 mg/kg of 5G1.1-SC or placebo. In this trial,
5G1.1-SC:
- was safe and well tolerated in this study population as compared to
placebo; and
- showed a dose-dependent reduction in the more than ten-fold increase in
activated complement byproducts experienced by placebo-treated
patients.
- In August 1997, we commenced a Phase IIa clinical trial in 18 patients
undergoing cardiopulmonary bypass surgery receiving a single bolus
administration of 1.0 or 2.0 mg/kg of 5G1.1-SC or placebo. In this trial,
5G1.1-SC:
- was safe and well tolerated in this study population as compared to
placebo; and
- showed dose-dependent reductions in activated complement byproducts.
In April 1998, we announced the combined results of our Phase I/II and
Phase IIa trials in cardiopulmonary bypass surgery patients. The results for
patients treated with either a 2.0 mg/kg bolus of 5G1.1-SC or placebo are shown
in the table below.
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CLINICAL RESULTS OF A SINGLE 2.0 MG/KG DOSE OF 5G1.1-SC
IN PATIENTS UNDERGOING CARDIOPULMONARY BYPASS
<TABLE>
<CAPTION>
BIOLOGICAL AND CLINICAL MEASUREMENTS 5G1.1-SC VS. PLACEBO
- ------------------------------------ --------------------
<S> <C>
C5 complement activation 100% less*
C3 complement activation No difference
Leukocyte activation 60% to 70% less*+
Heart tissue damage 40% less*
New cognitive deficits 80% less*
Blood loss 400 ml less*
</TABLE>
-----------------------------------------
* P less than or equal to .05 vs. placebo
+ Includes both patients treated with 1.0 mg/kg 5G1.1-SC and
patients treated with 2.0 mg/kg 5G1.1-SC
In January 1999, we announced that we had commenced dosing patients
undergoing coronary artery bypass graft surgery with or without accompanying
valve surgery during cardiopulmonary bypass in a Phase IIb clinical trial with
5G1.1-SC. This multi-center, double-blinded, randomized, placebo-controlled
study is expected to enroll approximately 1,000 patients and is designed to
gather clinical data to augment and extend previous findings regarding the
safety profile and pharmacokinetics of 5G1.1-SC and its efficacy in reducing the
life-threatening inflammatory complications, such as mortality, myocardial
infarction, heart failure and stroke, that can be triggered by cardiopulmonary
bypass procedures.
ACUTE MYOCARDIAL INFARCTION
Myocardial infarction is an acute cardiovascular disorder in which the
coronary arteries, the blood vessels that supply nutrients to the heart muscle,
are blocked to such an extent that the flow of blood is insufficient to supply
enough oxygen and nutrients to keep the heart muscle alive. With insufficient
supply of blood, oxygen, and nutrients, the heart muscle may subsequently
infarct or die. Upon the reduction in flow in the coronary artery, a complex
cascade of inflammatory events involving complement proteins, platelets and
leukocytes and their secreted factors, and endothelial cells commences within
the blood vessel. In patients suffering a myocardial infarction, activated
complement byproducts are significantly elevated. This severe inflammatory
response targeting the area of insufficient blood flow to cardiac muscle is
associated with subsequent death of heart muscle. Restoration of blood flow is
also associated with an additional inflammatory reaction with concomitant
production of activated complement byproducts. In addition to the high incidence
of sudden cardiac death at the onset, severe complications associated with the
initial survival of an acute myocardial infarction include congestive heart
failure, stroke, and death. The American Heart Association estimates that
approximately 1.0 million people in the United States will have a heart attack
in 1999.
We are developing 5G1.1-SC to inhibit inflammation associated with
complement activation in order to reduce the extent of death of heart muscle in
patients suffering an acute myocardial infarction. In contrast, most drugs
currently being developed or on the market to treat myocardial infarction are
designed to improve blood flow through the heart, rather than treating the
damaging effects of inflammation caused by myocardial infarction. We and our
scientific collaborators have performed preclinical studies in rodents which
have demonstrated that administration of a C5 Inhibitor during periods of
insufficient supply of blood to the heart muscle and prior to restoration of
normal flow to the heart muscle significantly reduced the extent of subsequent
death of heart muscle compared to control animal studies.
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Additionally, administration of a C5 Inhibitor significantly reduced the extent
of cardiac damage associated with reduced heart blood flow without subsequent
restoration of blood flow. The results of these preclinical studies are shown in
the table below.
PRECLINICAL RESULTS WITH C5 INHIBITOR ADMINISTRATION
IN ANIMAL MODELS OF MYOCARDIAL INFARCTION
<TABLE>
<CAPTION>
BIOLOGICAL AND CLINICAL MEASUREMENTS C5 INHIBITOR VS. PLACEBO
- ------------------------------------ ------------------------
<S> <C>
Complement activity 100% less*
Leukocyte activation > 90% less*
Heart tissue damage 50% less*
</TABLE>
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* P less than or equal to .05 vs. placebo
CLINICAL TRIALS
In October 1998, we commenced dosing subjects in a Phase I clinical trial in
healthy individuals that was designed to evaluate dosing regimens for subsequent
cardiopulmonary bypass and myocardial infarction clinical trials. We have used
the results of this trial to select dosing regimens for subsequent clinical
trials in acute myocardial infarction patients. The results of this trial
indicated that 5G1.1-SC was well tolerated at doses more than three times as
high as had been previously administered. Together with our collaborator
Procter & Gamble, we expect to file in 1999 an IND for use of 5G1.1-SC in two
Phase II trials with approximately 1,000 patients each for the treatment of
acute myocardial infarction.
5G1.1
5G1.1 is a humanized, monoclonal antibody that blocks complement activity
for one to two weeks at doses tested and is designed for the chronic treatment
of autoimmune diseases such as rheumatoid arthritis and nephritis. 5G1.1 is not
included in the collaboration with Procter & Gamble, and we have retained full
rights to 5G1.1.
RHEUMATOID ARTHRITIS
Rheumatoid arthritis is an autoimmune disease directed at various organ and
tissue linings, including the lining of the joints, causing inflammation and
joint destruction. Clinical signs and symptoms of the disease include weight
loss, joint pain, morning stiffness and fatigue. Further, the joint destruction
can progress to redness, swelling and pain with frequent and severe joint
deformity. Diagnostic procedures, which may include obtaining a sample of joint
fluid, routinely demonstrate substantial elevations in the levels of activated
complement byproducts in the joint fluid of affected rheumatoid arthritis
patients. Rheumatoid arthritis is generally believed to be caused by different
types of white blood cells, including T-cells, which both directly attack the
patient's joints and also activate B-cells to produce antibodies which activate
complement proteins in the joint leading to inflammation with subsequent tissue
and joint destruction. It is estimated that more than 2.0 million people are
currently affected by rheumatoid arthritis in the United States.
We are developing 5G1.1 for the treatment of patients with chronic
inflammatory diseases, including rheumatoid arthritis. We have performed
preclinical studies in rodent models of rheumatoid arthritis which have shown
that C5 Inhibitor administration, as compared to placebo-treated subjects:
- reduced the swelling in joints;
- prevented the onset of erosion of joints;
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- reduced the inflammatory white blood cell infiltration into the joints;
- prevented the spread of disease to additional joints;
- blocked the onset of clinical signs of rheumatoid arthritis; and
- ameliorated established disease.
Currently, there are a large number of anti-inflammatory drugs under
development or on the market for the treatment of patients with rheumatoid
arthritis. These drugs include non-steroidal anti-inflammatory drugs, and their
more recent analog the COX-2 inhibitors, which generally treat the symptoms of
the disease, but do not alter disease progression. There are also several
currently available drugs that are disease-modifying agents, but these are
associated with undesirable side effects. More recently, tumor necrosis factor,
or TNF, inhibitors have been approved or are under development to reduce the
inflammatory response. TNF is one of the many injurious substances that may be
generated downstream of the complement cascade. In contrast to these single
agent inhibitors like TNF inhibitors, by acting at C5 of the complement cascade,
we expect 5G1.1 both to block complement activation and reduce the production of
many of these downstream harmful substances. Because of this dual action, we
believe that 5G1.1 may provide a more potent anti-inflammatory effect.
CLINICAL TRIALS
In December 1997, we filed an IND with the FDA for 5G1.1 in the treatment of
rheumatoid arthritis patients.
- In July 1998, we commenced a Phase I/II multi-center, clinical trial in 42
rheumatoid arthritis patients receiving a single bolus administration of
0.1 to 8.0 mg/kg of 5G1.1. In this trial, 5G1.1:
-- was safe and well tolerated in this study population as compared to
placebo;
-- showed dose-dependent reduction in complement activity in study
subjects; and
-- at 8.0 mg/kg, showed a reduction in C-reactive protein blood levels in
study subjects.
C-reactive protein is considered by many physicians to be the most objective
component of the American College of Rheumatology's definition of efficacy
criteria for rheumatoid arthritis drug trials. Although this initial clinical
trial was designed to primarily assess dosing and safety, biological and
clinical results were collected. These results in the patients treated with a
8.0 mg/kg bolus of 5G1.1, announced in April 1999, are shown in the table below.
CLINICAL RESULTS OF A SINGLE 8.0 MG/KG DOSE OF 5G1.1
IN PATIENTS WITH RHEUMATOID ARTHRITIS
<TABLE>
<CAPTION>
AFTER 5G1.1 TREATMENT VS.
BIOLOGICAL AND CLINICAL MEASUREMENTS BEFORE 5G1.1 TREATMENT
- ------------------------------------ -------------------------
<S> <C>
Complement activity 100% reduction*
C-reactive protein blood level 30% decrease*
</TABLE>
-----------------------------------------
* P less than or equal to .05 vs. before treatment
In August 1999, we initiated a Phase II multi-center, double-blinded,
randomized, placebo-controlled clinical safety and efficacy trial with multiple
doses of 5G1.1 at one to four week dosing intervals that is intended to enroll
200 rheumatoid arthritis patients.
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MEMBRANOUS NEPHRITIS
The kidneys are responsible for filtering blood to remove toxic metabolites
and maintaining the minerals and proteins in the blood that are required for
normal metabolism. Each kidney consists of millions of individual filtering
units, or glomeruli. When glomeruli are damaged, the kidney can no longer
adequately maintain its normal filtering function. This may result in the
build-up of toxins in the blood and the loss of valuable minerals and proteins
in the urine. Clinically severe nephritis, or kidney inflammation, is found in
many patients suffering from lupus and other autoimmune diseases. This condition
occurs when more than 90% of the kidney is destroyed by disease. Kidney failure
is frequently associated with:
- hypertension;
- strokes;
- infections;
- anemia;
- heart, lung and joint inflammation;
- coma; and
- death.
Many forms of damage to the glomeruli are mediated by the immune system,
particularly by antibodies and activated complement proteins. Membranous
nephritis is a form of kidney inflammation that is believed to be caused by a
chronic autoimmune disorder that targets the kidney. We estimate that there are
approximately 100,000 to 300,000 people currently afflicted with membranous
nephritis in the United States.
Membranous nephritis is characterized by kidney inflammation and dysfunction
that may eventually progress to kidney failure. Diagnostic criteria for
membranous nephritis include kidney biopsies that may demonstrate the presence
of antibodies and activated complement byproducts in the kidneys of affected
patients. The subsequent kidney inflammation leads to the abnormal loss of
substantial amounts of protein in the patient's urine; this condition is known
as proteinuria and is recognized as an objective measurement of kidney disease.
Loss of protein in the urine disturbs the normal control of water in the blood
vessels and also is believed to directly further injure the kidney. Moreover,
clinical studies by others have shown that the degree of proteinuria is
associated with the incidence of subsequent kidney failure. Additional clinical
signs associated with proteinuria may include:
- abnormally low levels of protein in the blood;
- a propensity for abnormal clotting;
- abnormal lipid elevations; and
- substantial swelling in the abdomen and under the skin.
Current therapies for membranous nephritis include potentially toxic drugs
more frequently used in other indications such as cancer. These drugs generally
act to suppress broadly the proliferation of many types of cells, including
white blood cells. We believe that the use of such therapies is generally
limited due to their unfavorable side effects. Even with current therapies, in
such a severe disease population more than 30% of the patients are expected to
progress to renal failure, which may require dialysis or transplantation. In
contrast, 5G1.1 directly targets the inhibition of deleterious complement
activation. We believe 5G1.1 may exert more selective and effective
anti-inflammatory activity without the adverse effects associated with current
therapies.
We have performed preclinical studies in rodent models of nephritis and
observed that C5 Inhibitor administration, as compared to placebo-treated
subjects, substantially reduced:
- scarring of the kidney;
- breakdown of kidney tissue into the urine;
- clogging of the kidney filtering units; and
- proteinuria.
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CLINICAL TRIALS
We are developing 5G1.1 for a family of kidney and kidney-related chronic
autoimmune disorders, which include membranous nephritis, lupus nephritis, and
lupus. Our strategy is to develop 5G1.1 in kidney disease by initially obtaining
safety data in the more readily available lupus patient population and then to
commence efficacy trials in patients with a kidney disorder known as membranous
nephritis. We are initially starting efficacy trials with 5G1.1 for the
treatment of membranous nephritis patients because of the more uniform clinical
presentations of membranous nephritis patients as compared to lupus patients. We
then intend to expand our efforts to conduct advanced clinical trials in other
kidney diseases and lupus.
The results of our initial clinical trial in lupus patients are described
below.
- In July 1998, we commenced a Phase I single-center, clinical study in 24
lupus patients receiving a single bolus administration of 0.1 to 8.0 mg/kg
of 5G1.1 or placebo. In this trial, 5G1.1:
-- was safe and well tolerated in this study population as compared to
placebo;
-- showed dose-dependent reduction in complement activity in study
subjects; and
-- at 8.0 mg/kg, resulted in significantly lower incidence of proteinuria
in study subjects as compared to placebo.
Although we designed this initial clinical trial to assess primarily dosing
and safety, we also collected biological and clinical results. These results in
the patients treated with a 8.0 mg/kg bolus of 5G1.1, announced in June 1999,
are shown in the table below.
CLINICAL RESULTS OF A SINGLE 8.0 MG/KG DOSE
OF 5G1.1 IN PATIENTS WITH LUPUS
<TABLE>
<CAPTION>
BIOLOGICAL AND CLINICAL MEASUREMENTS 5G1.1 VS. PLACEBO
- ------------------------------------ -----------------
<S> <C>
Complement activity 100% less*
Incidence of proteinuria 100% less*
</TABLE>
-----------------------------------
* P less than or equal to .05 vs. placebo
In August 1999, we commenced a Phase II multi-center, double-blinded,
randomized, placebo-controlled clinical safety and efficacy trial with multiple
doses of 5G1.1 at two to four week dosing intervals that is intended to enroll
150 membranous nephritis patients.
LUPUS
Lupus is an autoimmune disorder that damages the brain, lungs, heart, joints
and especially the kidneys. In lupus, antibodies deposit within particular
organs causing complement activation, inflammation and tissue destruction. For
decades, clinical studies by others have demonstrated the presence of complement
activation in lupus patients undergoing flares. Studies have further shown an
abundant deposition of activated complement proteins with localized inflammation
in tissue biopsies from kidney or other tissues in lupus patients. The Lupus
Foundation estimates that approximately 1.4 million people in the United States
have lupus. Further, an estimated 70% of individuals afflicted with lupus have
nephritis. Although lupus may affect people of either sex, women are 10 to 15
times more likely to suffer from the disease than men.
Patients with active lupus may have a broad range of symptoms related to the
antibody and activated complement deposition and inflammation. Inflammation of
the brain may cause seizures and other neurologic abnormalities. Inflammation of
the heart may cause heart failure or sudden death. Lung inflammation causes
shortness of breath. Lupus may also cause the swollen joints and arthritis. One
of the most common complications associated with lupus, however, is kidney
disease, which often leads to kidney failure requiring dialysis or
transplantation.
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Current therapies generally act to suppress broadly the proliferation of
many types of cells, including white blood cells. In contrast, 5G1.1 directly
targets the inhibition of deleterious complement activation. We believe 5G1.1
may exert more selective and effective anti-inflammatory activity without the
adverse effects associated with current therapies.
We are developing 5G1.1 for the prevention and treatment of inflammation in
lupus patients. We have performed preclinical studies in a rodent model of
lupus. In this chronic rodent model that spontaneously develops a disease
similar to lupus, substantially more animals treated with a C5 Inhibitor
survived as compared to untreated control animals.
CLINICAL TRIALS
We filed an IND with the FDA in late December 1997 for 5G1.1 in the
treatment of patients suffering from lupus and began a Phase I clinical trial in
lupus patients in July 1998. As discussed above, in the Clinical Trials section
of Membranous Nephritis, we announced results of a 24 patient,
placebo-controlled clinical study in June 1999. This trial showed that a single
dose of 5G1.1 was safe and well tolerated, reduced complement activity in a
dose-dependent manner, and a single 8.0 mg/kg dose significantly lowered
incidence of proteinuria.
APOGEN T-CELL IMMUNOTHERAPEUTIC PRODUCT CANDIDATES
MP4
MP4 is a recombinant protein consisting of two brain-derived proteins. These
two proteins are believed to be major targets of disease-causing T-cells in
patients with multiple sclerosis. MP4 is designed to bind specifically to, and
induce cell suicide in, the small population of T-cells in multiple sclerosis
patients which are responsible for attacking the patient's brain cells, while
leaving the vast majority of uninvolved T-cells unaffected. In addition, MP4 is
designed to induce other white blood cells to suppress other inflammatory cells.
MULTIPLE SCLEROSIS
Multiple sclerosis is an autoimmune disease of the central nervous system
which hinders the ability of the brain and spinal cord to control movement,
speech and vision. Multiple sclerosis can be severely debilitating; long-term
disability is a common outcome. In severe cases, reduced motor strength may
confine the patient to a wheelchair. Multiple sclerosis is widely believed to be
caused by the attack of a patient's antigen-specific T-cells on the protective
myelin sheath surrounding nerve cells in the central nervous system. According
to the National Multiple Sclerosis Society, there are approximately 250,000
reported cases of multiple sclerosis in the United States.
Preclinical animal studies which we performed in an experimental rodent
model of multiple sclerosis have demonstrated that administration of our
proprietary Apogen multiple sclerosis drug candidate, MP4, at the time of
disease induction, effectively prevents the development of severe neurologic
disease. These studies also demonstrated that administration of MP4 after the
onset of disease ameliorates established disease by both eliminating
disease-causing T-cells and by inducing other T-cells to further suppress
inflammation.
In February 1998, we filed an IND with the FDA for MP4 for the treatment of
patients suffering from multiple sclerosis. After completion of additional
preclinical studies and amendment of the clinical protocol in line with the
preferred route of administration, we may initiate a Phase I/II clinical trial
in multiple sclerosis patients.
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THE UNIGRAFT XENOTRANSPLANTATION PROGRAM
Most transplant procedures today are whole organ transplants. We believe
that there is a far greater number of patients with medical disorders, such as
Parkinson's disease and spinal cord injury, that are caused by the functional
loss of highly specialized cells. The number of these patients is likely to grow
due to both the aging of the population, with subsequent increase in the
incidence of degenerative diseases, as well as the increasing incidence of
trauma. Therefore, cell transplantation could be an important benefit to a large
number of previously untreated, or severely under-treated patients suffering
from severe medical disorders. However, since there are no human donors of such
specialized cells, there is currently no available supply of such cells for
replacement therapy. Further, the immune system prevents the transplantation of
cells from other species, known as xenografts, as they are recognized by the
immune system as foreign and they are rejected. We are developing a portfolio of
UniGraft immunoregulatory technologies designed to permit the therapeutic
transplantation of such cells without rejection.
Although approximately 20,000 people received whole organ transplants in the
United States in 1998, there are many times that number of patients who have
disorders that may be amenable to cell or tissue transplantation. It is
estimated that this broader population includes approximately 200,000 patients
suffering from spinal cord injury and 1.0 million individuals with Parkinson's
disease. In particular, we believe that use of a safe and effective cell
transplantation therapy for patients with spinal cord injury or Parkinson's
disease would represent major therapeutic advances.
In February 1999, we terminated our collaboration agreement with US Surgical
under which we were jointly developing a xenotransplantation program. As part of
the termination, we obtained the exclusive rights to that program. We also
acquired manufacturing assets that had been developed by US Surgical in
connection with the program. We financed the purchase of the manufacturing
assets through a $3.9 million term note payable to US Surgical. Interest is 6.0%
per year and is payable quarterly. The principal balance under the note is due
in May 2005. Security for this term note is the manufacturing assets that we
purchased.
NEUROLOGIC CELL TRANSPLANTATION
We have developed methods of blocking the immune system which are designed
to permit the replacement of damaged human brain and other neurologic cells with
potentially highly therapeutic genetically modified porcine cells.
Rejection of non-human tissue by patients is generally believed to occur in
two stages:
- hyperacute phase, which is very rapid, extending from minutes to hours;
and
- acute phase, which is somewhat less rapid, extending from days to months.
Hyperacute rejection is generally believed to be mediated by
naturally-occurring antibodies in the patient, most of which target a sugar
antigen uniquely present on the surface of non-human tissue but not on the
patient's own tissue. After binding to the foreign tissue, these antibodies
stimulate the activation of the recipient's inactive complement proteins on the
surface of the donor tissue with subsequent destruction of the donor tissue.
Subsequently, acute rejection of xenografts is generally believed to be mediated
by white blood cells.
We are designing UniGraft cell products to resist
complement/antibody-mediated hyperacute rejection. We have commenced preclinical
studies employing the UniGraft technologies during transplantation of
genetically modified and proprietary porcine cells that are resistant to
destruction by human complement proteins. We are currently focusing our
immunoregulatory and molecular engineering technologies primarily on the
development of UniGraft cells to treat Parkinson's disease and injuries to the
spinal cord.
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<PAGE>
SPINAL CORD INJURY
In spinal cord injury patients, conduction of nerve signals between the
brain and those nerve cells below the injury site in the spinal cord is blocked.
These patients experience impaired or loss of normal bodily functions, including
the sense of touch and the ability to move. Since the level of injury differs
between patients, the degree and type of impairment also differs. Motor vehicle
crashes are the leading cause of spinal cord injury in the U.S. Additionally,
patients may develop spinal cord injury following traumatic injuries or, less
commonly, following an autoimmune disorder known as transverse myelitis.
According to the National Spinal Cord Injury Association, approximately 200,000
individuals in the United States suffer from debilitating spinal cord injury.
Steroids are the most common therapy for patients with spinal cord injury.
If administered to a patient within a very short time following the injury,
steroids are believed to limit initial swelling in the area of the injury.
However, steroid administration is not believed to allow nerve cells to
regenerate nor is it believed to reverse existing clinical disability.
Our UniGraft spinal cord injury cell therapy candidate, UniGraft-SCI,
consists of genetically modified pig cells. In preclinical rodent models of
spinal cord injury, these cells have been shown to:
- engraft at sites of spinal cord injury;
- ensheath damaged nerve cells with a protective myelin sheath; and
- restore conduction following partial cutting of the spinal cord.
We are currently performing additional preclinical studies in this program
and optimizing manufacturing methods.
PARKINSON'S DISEASE
Parkinson's disease is a progressive neurological disorder that is characterized
by a decrease in spontaneous movements and an increase in tremor. Nerve cells in
the brain which produce dopamine degenerate in these patients. Dopamine is an
important messenger in the brain without which normal neurological activities
are impaired. According to the National Parkinson Foundation, Parkinson's
disease is currently believed to affect over 1.0 million Americans.
The current drugs for Parkinson's disease act to non-specifically increase
dopamine throughout the body but can cause harmful side effects. We believe that
these therapies are unable to adequately restore levels of dopamine specifically
in damaged areas of the brain.
Our UniGraft Parkinson's disease cell therapy candidate, UniGraft-PD,
consists of genetically modified pig cells that, after transplant into rodents
with Parkinson's disease-like lesions:
- engraft into the brain;
- extend and make connections with the damaged areas of the brain;
- locally produce enzymes to restore dopamine levels; and
- restore brain function.
We are currently performing additional preclinical studies in this program
and optimizing manufacturing methods.
STRATEGIC ALLIANCE WITH PROCTER & GAMBLE
In January 1999, we entered into an exclusive collaboration with Procter &
Gamble to develop and commercialize 5G1.1-SC. Under this collaboration, we will
initially pursue the development of 5G1.1-SC for the treatment of inflammation
caused by cardiopulmonary bypass surgery, myocardial infarction and
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<PAGE>
angioplasty. Procter & Gamble has agreed to fund all clinical development and
manufacturing costs relating to 5G1.1-SC for these indications. In addition,
under this agreement, Procter & Gamble has agreed to pay us up to $95 million in
payments, which include a non-refundable upfront license fee, as well as
milestone and research and development support payments. In addition, we will
receive royalties on worldwide sales of 5G1.1-SC for all indications. We also
have a preferred position relative to third-party manufacturers to manufacture
5G1.1-SC worldwide. We share co-promotion rights with Procter & Gamble to sell,
market and distribute 5G1.1-SC in the United States, and have granted Procter &
Gamble the exclusive rights to sell, market and distribute 5G1.1-SC outside of
the United States. Through July 31, 1999, we received $17.8 million from Procter
& Gamble, including a non-refundable upfront license fee of $10.0 million and
$7.8 million in research and development support payments. Our collaboration
with Procter & Gamble does not involve any of our other product candidates.
GRANTS FROM ADVANCED TECHNOLOGY PROGRAM AND NATIONAL INSTITUTE OF STANDARDS AND
TECHNOLOGY
In August 1995, we were awarded cost-shared funding from the U.S. Commerce
Department's National Institute of Standards and Technology under its Advanced
Technology Program. Through the program, we may receive up to approximately
$2.0 million over three years to support our UniGraft cell, tissue, and organ
transplantation programs. Through July 31, 1999, we have received approximately
$1.9 million under this award. In September 1998, the three-year period was
amended to extend to September 1999.
In November 1997, both ourselves and US Surgical were awarded a three-year
$2.0 million cooperative agreement from NIST under its Advanced Technology
Program for funding a joint xenotransplantation project. In February 1999, this
funding was amended to a single company award to us with our reacquisition of
the rights to all aspects of our xenotransplantation program from US Surgical
which had been acquired by Tyco International Ltd. Through July 31, 1999, we had
received approximately $322,000 under this award.
In October 1998, we were granted our third award under this program, a
three-year grant supporting product development within our neurologic disorder
transplantation program. Through the program, we may receive up to approximately
$2.0 million over three years to support our UniGraft program to develop a
spinal cord injury product within our neurologic disorder xenotransplantation
program.
In October 1999, we were granted our fourth award under this program, a
three-year grant supporting product development within our UniGraft program.
Through the program, we may receive up to approximately $2.0 million over three
years to support our production of UniGraft products.
MANUFACTURING
We obtain drug product to meet our requirements for preclinical studies
using both internal and third-party contract manufacturing capabilities. At our
headquarters in New Haven, Connecticut, we have pilot manufacturing facilities
suitable for the fermentation and purification of certain of our recombinant
compounds for clinical studies. Our pilot plant has the capacity to manufacture
under cGMP regulations. We have also secured the production of clinical supplies
of certain other recombinant products through third-party manufacturers. In each
case, we have contracted product finishing, vial filling, and packaging through
third parties.
To date, we have not invested in the development of commercial manufacturing
capabilities. Although we have established a pilot manufacturing facility for
the production of material for clinical trials for certain of our potential
products, we do not have sufficient capacity to manufacture more than one drug
candidate at a time or to manufacture our drug candidates for later stage
clinical development or commercialization. In the longer term, we may contract
the manufacture of our products for commercial sale or may develop large-scale
manufacturing capabilities for the commercialization of some of our products.
The key factors which will be given consideration when making the determination
of which
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<PAGE>
products will be manufactured internally and which through contractual
arrangements will include the availability and expense of contracting this
activity, control issues and the expertise and level of resources required for
us to manufacture products. If we are unable to develop or contract for
additional manufacturing capabilities on acceptable terms, our ability to
conduct human clinical testing will be materially adversely affected, resulting
in delays in the submission of products for regulatory approval and in the
initiation of new development programs, which could have a material adverse
effect on our competitive position and our prospects for achieving
profitability. In addition, as our product development efforts progress, we will
need to hire additional personnel skilled in product testing and regulatory
compliance.
SALES AND MARKETING
We currently have no sales, marketing, or distribution capabilities. We will
need to establish or contract these capabilities to commercialize successfully
any of our drug candidates. We may promote our products in collaboration with
marketing partners or rely on relationships with one or more companies with
established distribution systems and direct sales forces. Under our
collaboration agreement, Procter & Gamble is obligated to sell, market and
distribute worldwide 5G1.1-SC for all approved indications. We share with
Procter & Gamble co-promotion rights for 5G1.1-SC in the United States. For
other future drug products, as well as for 5G1.1-SC in the United States, we may
elect to establish our own specialized sales force and marketing organization to
market our products.
PATENTS AND PROPRIETARY RIGHTS
We believe that patents and other proprietary rights are important to our
business. Our policy is to file patent applications to protect technology,
inventions and improvements to our technologies that are considered important to
the development of our business. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position.
We have filed several U.S. patent applications and international
counterparts of certain of these applications. In addition, we have exclusively
licensed several additional U.S. patents and patent applications. Of our owned
and exclusively licensed patents and patent applications as of July 31, 1999, 13
relate to technologies or products in the C5 Inhibitor program, seven relate to
the Apogen program, and 21 relate to the UniGraft program.
Our success will depend in part on our ability to obtain United States and
foreign patent protection for our products, to preserve our trade secrets and
proprietary rights, and to operate without infringing on the proprietary rights
of third parties or having third parties circumvent our rights. Because of the
length of time and expense associated with bringing new products through
development and regulatory approval to the marketplace, the health care industry
has traditionally placed considerable importance on obtaining patent and trade
secret protection for significant new technologies, products and processes.
We are aware of broad patents owned by third parties relating to the
manufacture, use, and sale of recombinant humanized antibodies, recombinant
humanized single-chain antibodies and genetically engineered animals. We have
received notice from certain of these parties regarding the existence of certain
of these patents which the owners claim may be relevant to the development and
commercialization of certain of our proposed products. With respect to certain
of these patents which we believe are relevant for the expeditious development
and commercialization of certain of our products as currently contemplated, we
have acquired licenses. With regard to certain other patents, we have either
determined in our judgment that our products do not infringe the patents or have
identified and are testing various approaches which we believe should not
infringe the patents and which should permit commercialization of our products.
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<PAGE>
It is our policy to require our employees, consultants, members of our
scientific advisory board, and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or collaborations with us. These agreements provide that all
confidential information developed or made known during the course of
relationship with us is to be kept confidential and not to be disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
GOVERNMENT REGULATION
The preclinical studies and clinical testing, manufacture, labeling,
storage, record keeping, advertising, promotion, export, and marketing, among
other things, of our proposed products are subject to extensive regulation by
governmental authorities in the United States and other countries. In the United
States, pharmaceutical products are regulated by the FDA under the Federal Food,
Drug, and Cosmetic Act and other laws, including, in the case of biologics, the
Public Health Service Act. At the present time, we believe that our products
will be regulated by the FDA as biologics.
The steps required before a novel biologic may be approved for marketing in
the United States generally include:
(1) preclinical laboratory tests and IN VIVO preclinical studies;
(2) the submission to the FDA of an IND for human clinical testing, which
must become effective before human clinical trials may commence;
(3) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product;
(4) the submission to the FDA of a biologics license application or BLA; and
(5) FDA review and approval of such application.
The testing and approval process requires substantial time, effort and
financial resources. We cannot be certain that any approval will be granted on a
timely basis, if at all. Prior to and following approval, if granted, the
establishment or establishments where the product is manufactured are subject to
inspection by the FDA and must comply with cGMP requirements enforced by the FDA
through its facilities inspection program. Manufacturers of biological materials
also may be subject to state regulation.
Preclinical studies include animal studies to evaluate the mechanism of
action of the product, as well as animal studies to assess the potential safety
and efficacy of the product. Compounds must be produced according to applicable
cGMP requirements and preclinical safety tests must be conducted in compliance
with FDA regulations regarding good laboratory practices. The results of the
preclinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an IND, which must become effective before
human clinical trials may be commenced. The IND will automatically become
effective 30 days after receipt by the FDA, unless the FDA before that time
requests an extension to review or raises concerns about the conduct of the
trials as outlined in the application. In such latter case, the sponsor of the
application and the FDA must resolve any outstanding concerns before clinical
trials can proceed. We cannot assure you that submission of an IND will result
in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational product to
healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail many items, including:
- the objectives of the study;
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- the parameters to be used to monitor safety; and
- the efficacy criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the IND. Further, each
clinical study must be reviewed and approved by an independent institutional
review board, prior to the recruitment of subjects.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is tested for safety and, as appropriate, for absorption,
metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics.
Phase II usually involves studies in a limited patient population to:
- evaluate preliminarily the efficacy of the drug for specific, targeted
indications;
- determine dosage tolerance and optimal dosage; and
- identify possible adverse effects and safety risks.
Phase III trials are undertaken to further evaluate clinical efficacy and to
test further for safety within an expanded patient population at geographically
dispersed clinical study sites. Phase I, Phase II or Phase III testing may not
be completed successfully within any specific time period, if at all, with
respect to any products being tested by a sponsor. Furthermore, the FDA may
suspend clinical trials at any time on various grounds, including a finding that
the subjects or patients are being exposed to an unacceptable health risk.
The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA as part of a BLA requesting approval for the marketing of
the product. The FDA may deny approval of the application if applicable
regulatory criteria are not satisfied, or if additional testing or information
is required. Post-marketing testing and surveillance to monitor the safety or
efficacy of a product may be required. FDA approval of any application may
include many delays or never be granted. Moreover, if regulatory approval of a
product is granted, such approval may entail limitations on the indicated uses
for which it may be marketed. Finally, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if safety or
manufacturing problems occur following initial marketing. Among the conditions
for approval is the requirement that the prospective manufacturer's quality
control and manufacturing procedures conform to cGMP requirements. These
requirements must be followed at all times in the manufacture of the approved
product. In complying with these requirements, manufacturers must continue to
expend time, monies and effort in the area of production and quality control to
ensure full compliance.
Both before and after the FDA approves a product, the manufacturer and the
holder or holders of the BLA for the product are subject to comprehensive
regulatory oversight. Violations of regulatory requirements at any stage,
including the preclinical and clinical testing process, the review process, or
at any time afterward, including after approval, may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or the license
holder. In addition, later discovery of previously unknown problems may result
in restrictions on a product, its manufacturer, or the license holder, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development.
For clinical investigation and marketing outside the United States, we are
also subject to foreign regulatory requirements governing human clinical trials
and marketing approval for drugs. The foreign regulatory approval process
includes all of the risks associated with FDA approval set forth above as well
as country-specific regulations.
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No xenotransplantation-based therapeutic product has been approved for sale
by the FDA. The FDA has not yet established definitive regulatory guidelines for
xenotransplantation, but has proposed interim guidelines in an attempt to reduce
the risk of contamination of transplanted organ and cellular products with
infectious agents. Definitive guidelines in the United States may never be
issued, if at all. Current companies involved in this field, including
ourselves, may not be able to comply with any federal final definitive
guidelines that may be issued.
COMPETITION
Currently, many companies, including major pharmaceutical and chemical
companies as well as specialized biotechnology companies, are engaged in
activities similar to our activities. Universities, governmental agencies and
other public and private research organizations also conduct research and may
market commercial products on their own or through joint ventures. Many of these
entities may have:
- substantially greater financial and other resources;
- larger research and development staffs;
- in the case of universities, lower labor costs; and/or
- more extensive marketing and manufacturing organizations.
Many of these companies have significant experience in preclinical testing,
human clinical trials, product manufacturing, marketing and distribution and
other regulatory approval procedures. They may also have a greater number of
significant patents and greater legal resources to seek remedies for cases of
alleged infringement of their patents by us to block, delay, or co-opt our own
drug development process.
We compete with large pharmaceutical companies that produce and market
synthetic compounds and with specialized biotechnology firms in the United
States, Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Many biotechnology companies have focused their developmental efforts in the
human therapeutics area, and many major pharmaceutical companies have developed
or acquired internal biotechnology capabilities or have made commercial
arrangements with other biotechnology companies. A number of biotechnology and
pharmaceutical companies are developing new products for the treatment of the
same diseases being targeted by us; in some instances these products have
already entered clinical trials. Other companies are engaged in research and
development based on complement proteins, T-cell therapeutics, gene therapy and
xenotransplantation.
Each of Avant Immunotherapeutics, Inc., Leukosite Inc., Abbott Laboratories,
Gliatech Inc. and Biocryst Pharmaceuticals Inc. has publicly announced
intentions to develop complement inhibitors to treat diseases related to trauma,
inflammation or certain brain or nervous system disorders. Avant has initiated
clinical trials for a proposed complement inhibitor to treat acute respiratory
distress syndrome, myocardial infarction, and lung transplantation. We are aware
that Pfizer, Inc., SmithKline Beecham Plc, and Merck & Co., Inc. are also
attempting to develop complement inhibitor therapies. We believe that our
potential C5 Inhibitors differ substantially from those of our competitors due
to our compounds' demonstrated ability to specifically intervene in the
complement cascade at what we believe to be the optimal point so that the
disease-causing actions of complement proteins generally are inhibited while the
normal disease-preventing functions of complement proteins generally remain
intact as do other aspects of immune function.
We further believe that, under conditions of inflammation, a complement
inhibitor compound which only indirectly addresses the harmful activity of
complement may be bypassed by pathologic mechanisms present in the inflamed
tissue. Each of Bayer AG, Immunex Corp., Pharmacia & Upjohn Inc. and Rhone-
Poulenc SA sells a product which is used clinically to reduce surgical bleeding
during cardiopulmonary bypass surgery, but has little beneficial effect on other
significant inflammatory morbidities associated with
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cardiopulmonary bypass surgery. We believe that each of these drugs does not
significantly prevent complement activation and subsequent inflammation that
lead to organ damage and blood loss during cardiopulmonary bypass surgery, but
instead each drug attempts to reduce blood loss by shifting the normal blood
thinning/blood clotting balance in the blood towards enhanced blood clotting.
Nextran Inc., a subsidiary of Baxter International Inc., and Imutran Ltd., a
wholly-owned subsidiary of Novartis Pharma AG, are seeking to develop pig cell
xenograft technology. Novartis Pharma AG is also collaborating with
Biotransplant Inc. to commercially develop xenograft organs. We are aware that
Diacrin Inc. and Genzyme Tissue Repair, Inc. are working in this field.
EMPLOYEES
As of October 1, 1999, we had 90 full-time employees, of which 81 were
engaged in research, development, manufacturing, and clinical development, and
nine in administration and finance. Doctorates are held by 28 of our employees.
Each of our employees has signed a confidentiality agreement.
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ITEM 2. PROPERTIES.
FACILITIES
Our headquarters, research and development facility, and pilot manufacturing
facility are located in New Haven, Connecticut, within close proximity to Yale
University. At this facility, we lease and occupy a total of approximately
60,000 square feet of space, which includes approximately 30,000 square feet of
research laboratories and 10,000 square feet of space dedicated to the pilot
manufacturing facility. We lease our facilities under three operating leases
which expired in December 1997, June 1998, and March 1999. We are currently
continuing the leases on a month-to-month basis while lease extensions are under
discussion. Current monthly rental on the facilities is approximately $36,000.
Our pilot manufacturing plant is currently being utilized for producing
compounds for our current clinical trials. We believe the laboratory space will
be adequate for our current research and development activities. In addition
through a wholly-owned subsidiary, we own a transgenic manufacturing facility
located in the Northeast.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on The Nasdaq National Market under the symbol
"ALXN." The following table sets forth the range of high and low sales prices
for our common stock on The Nasdaq National Market for the periods indicated
since August 1, 1997.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
- ----------- -------- --------
<S> <C> <C>
First Quarter
(August 1, 1997 to October 31, 1997)...................... $16.00 $ 9.25
Second Quarter
(November 1, 1997 to January 31, 1998).................... $14.88 $ 9.88
Third Quarter
(February 1, 1998 to April 30, 1998)...................... $15.00 $12.13
Fourth Quarter
(May 1, 1998 to July 31, 1998)............................ $13.75 $ 8.00
FISCAL 1999 HIGH LOW
First Quarter
(August 1, 1998 to October 31, 1998)...................... $10.25 $ 5.50
Second Quarter
(November 1, 1998 to January 31, 1999).................... $17.75 $ 8.38
Third Quarter
(February 1, 1999 to April 30, 1999)...................... $14.25 $ 8.38
Fourth Quarter
(May 1, 1999 to July 31, 1999)............................ $12.75 $ 8.75
</TABLE>
As of October 1, 1999, we had 158 stockholders of record of our common stock
and an estimated 2,500 beneficial owners. The closing sale price of our common
stock on October 1, 1999 was $15.19 per share.
DIVIDEND POLICY
We have never paid cash dividends. We do not expect to declare or pay any
dividends on our common stock in the foreseeable future. We intend to retain all
earnings, if any, to invest in our operations. The payment of future dividends
is within the discretion of our board of directors and will depend upon our
future earnings, if any, our capital requirements, financial condition and other
relevant factors.
23
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Contract research revenues...................... $18,754 $ 5,037 $ 3,811 $ 2,640 $ 136
------- ------- ------- ------- -------
Operating expenses:
Research and development...................... 23,710 12,323 9,079 6,629 5,637
General and administrative.................... 2,953 2,666 2,827 1,843 1,592
------- ------- ------- ------- -------
Total operating expenses........................ 26,663 14,989 11,906 8,472 7,229
------- ------- ------- ------- -------
Operating loss.................................. (7,909) (9,952) (8,095) (5,832) (7,093)
Other income (expense), net..................... 1,514 2,087 843 397 (29)
------- ------- ------- ------- -------
Net loss........................................ (6,395) (7,865) (7,252) (5,435) (7,122)
Preferred stock dividends....................... -- (900) -- -- --
------- ------- ------- ------- -------
Net loss applicable to common shareholders...... $(6,395) $(8,765) $(7,252) $(5,435) $(7,122)
======= ======= ======= ======= =======
Net loss per common share, basic and diluted.... $ (0.57) $ (0.87) $ (0.97) $ (1.02) $ (2.02)
======= ======= ======= ======= =======
Shares used in computing net loss per common
share......................................... 11,265 10,056 7,451 5,351 3,528
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995
------- ------- ------- ------- ------
Cash, cash equivalents, and marketable
securities.................................... $28,328 $37,494 $22,749 $18,598 $5,701
Total current assets............................ 35,662 37,840 22,981 19,064 5,874
Total assets.................................... 44,374 42,085 24,260 20,454 7,927
Notes payable, less current portion............. 4,383 832 -- 128 456
Total stockholders' equity...................... 33,301 39,190 21,846 18,285 5,119
</TABLE>
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. SUCH STATEMENTS ARE SUBJECT TO CERTAIN FACTORS WHICH MAY CAUSE
OUR PLANS AND RESULTS TO DIFFER SIGNIFICANTLY FROM PLANS AND RESULTS DISCUSSED
IN FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "IMPORTANT
FACTORS REGARDING FORWARD-LOOKING STATEMENTS" ATTACHED HERETO AS EXHIBIT 99.
OVERVIEW
Since our inception in January 1992, we have devoted substantially all of
our resources to drug discovery, research and product development. In 1998, we
began to focus more of our resources to clinical testing and trials. We are
conducting clinical trials of our two lead product candidates, 5G1.1-SC for the
treatment of inflammation caused by cardiopulmonary bypass surgery and 5G1.1 for
the chronic treatment of rheumatoid arthritis and membranous nephritis. To date,
we have not received any revenues from the sale of products. We have incurred
operating losses since our inception. As of July 31, 1999, we had an accumulated
deficit of $47.0 million. We expect to incur substantial and increasing
operating losses for the next several years due to expenses associated with:
- product research and development;
- preclinical studies and clinical testing;
- regulatory activities;
- manufacturing development and scale-up; and
- developing a sales and marketing force.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JULY 31, 1999, 1998 AND 1997
We earned contract research revenues of $18.8 million for the fiscal year
ended July 31, 1999, $5.0 million for the fiscal year ended July 31, 1998, and
$3.8 million for the fiscal year ended July 31, 1997. The increase in the fiscal
year ended July 31, 1999 as compared to the fiscal year ended July 31, 1998 was
primarily due to a non-refundable license fee of $10.0 million which we received
from Procter & Gamble in February 1999 in exchange for rights to sell, market
and distribute 5G1.1-SC. Additionally, during fiscal year ended July 31, 1999,
we received $7.8 million in contract revenues from Procter & Gamble under our
collaborative research and development agreement. The increase in the fiscal
year ended July 31, 1998 as compared to the fiscal year ended July 31, 1997 was
primarily due to revenues of $3.5 million which we received from United States
Surgical Corporation in exchange for licensing rights and other
xenotransplantation manufacturing assets. The revenues in the fiscal year ended
July 31, 1997 consisted principally of contract revenues of $1.8 million from
US Surgical and $1.1 million from Genetic Therapy, Inc., a subsidiary of
Novartis.
During the fiscal year ended July 31, 1999, we incurred expenses of
$23.7 million, on research and development activities. In the fiscal year ended
July 31, 1998, we incurred expenses of $12.3 million, and in the fiscal year
ended July 31, 1997 we incurred expenses of $9.1 million in research and
development activities.
Our increase in research and development expenses in the fiscal year ended
July 31, 1999 as compared to the fiscal year ended July 31, 1998 was primarily
attributable to an expansion of the clinical trials of our lead C5 Inhibitor
product candidates and process manufacturing development for our C5 Inhibitor
product
25
<PAGE>
candidates. In the fiscal year ended July 31, 1998, research and development
expenses increased $3.2 million as compared to the fiscal year ended
July 31, 1997 due principally to expanded preclinical development of our
research programs and process development for our C5 Inhibitor and Apogen
product candidates.
Our general and administrative expenses were $3.0 million for the fiscal
year ended July 31, 1999, $2.7 million for the fiscal year ended July 31, 1998,
and $2.8 million for the fiscal year ended July 31, 1997. The increase in
general and administrative expenses in the fiscal year ended July 31, 1999 was
primarily related to higher recruiting expenses, legal expenses related to
business development and patent costs in the fiscal year ended July 31, 1999 as
compared to the fiscal year ended July 31, 1998. The decrease in general and
administrative expenses in the fiscal year ended July 31, 1998 was primarily
related to lower legal and patent costs in the fiscal year ended July 31, 1998
as compared to the fiscal year ended July 31, 1997.
Other income (expense), net, representing primarily net investment income,
was $1.5 million for the fiscal year ended July 31, 1999, $2.1 million for the
fiscal year ended July 31, 1998, and $843,000 for the fiscal year ended
July 31, 1997. The decrease in the fiscal year ended July 31, 1999 was due to
lower cash balances available for investment as compared to the fiscal year
ended July 31, 1998. The increase in the fiscal year ended July 31, 1998 was due
to higher cash balances available for investment as compared to the fiscal year
ended July 31, 1997.
As a result of the above factors, we had incurred net losses of
$6.4 million for the fiscal year ended July 31, 1999, $7.9 million for the
fiscal year ended July 31, 1998, and $7.3 million for the fiscal year ended
July 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in January 1992, we have financed our operations and
capital expenditures principally through private placements of our common and
preferred stock, an initial public offering of our common stock, equipment and
leasehold improvements financing, other debt financing and payments under
corporate collaborations.
In the fiscal year ended July 31, 1998, we financed the purchase of
laboratory and process development equipment and leasehold improvements through
a $1.2 million secured term loan from a commercial bank. Principal payments of
$92,000 are payable quarterly through August 2001. As of July 31, 1999, the
outstanding balance on this term loan was $831,000. Principal is due with
interest at a variable rate which is reset quarterly. As of July 31, 1999, the
annualized interest rate was 7.1%. The term loan agreement requires us to
maintain a restricted cash balance equal to 115.0% of the outstanding loan
balance plus accrued interest in an interest earning money market account as
security for the note.
In February 1999, we acquired the manufacturing assets, principally land,
buildings and laboratory equipment, for the xenotransplantation program
developed by US Surgical. We financed the purchase of the manufacturing assets
through a $3.9 million term note payable to US Surgical. Interest is 6.0% per
annum and is payable quarterly. The principal balance under the note is due in
May 2005. Security for this term note is the manufacturing assets that we
purchased.
As of July 31, 1999, our cash, cash equivalents, and marketable securities
totaled $28.3 million. At July 31, 1999, our cash and cash equivalents consisted
of $24.2 million of cash we hold in short-term highly liquid investments with
original maturities of less than three months. As of July 31, 1999, we have
invested $10.8 million in property and equipment to support our research and
development efforts. We anticipate our research and development expense will
increase significantly for the foreseeable future to support our clinical and
manufacturing development of our product candidates.
We lease our administrative office and research and development facilities
under three operating leases which expired in December 1997, June 1998 and
March 1999. We are currently continuing the leases
26
<PAGE>
on a month-to-month basis while participating in ongoing discussions for new
leases of our current facilities.
Procter & Gamble has agreed to fund all clinical testing of our C5
Inhibitor, 5G1.1-SC, initially for use in cardiopulmonary bypass surgery,
myocardial infarction and angioplasty. The Procter & Gamble collaboration does
not involve any of our other product candidates.
We anticipate that our existing available capital resources and interest
earned on available cash and marketable securities should be sufficient to fund
our operating expenses and capital requirements as currently planned for at
least the next 18 months. While we currently have no material commitments for
capital expenditures, our future capital requirements will depend on many
factors, including:
- progress of our research and development programs;
- progress and results of clinical trials;
- time and costs involved in obtaining regulatory approvals;
- costs involved in obtaining and enforcing patents and any necessary
licenses;
- our ability to establish development and commercialization relationships;
and
- costs of manufacturing scale-up.
We expect to incur substantial additional costs, for:
- research;
- preclinical studies and clinical testing;
- manufacturing process development;
- additional capital expenditures related to personnel, and facilities
expansion; and
- manufacturing requirements.
In addition to funds we may receive from our collaboration with Procter &
Gamble, we will need to raise or generate substantial additional funding in
order to complete the development and commercialization of our product
candidates. In addition, if and when we achieve contractual milestones related
to product development and product license applications and approvals,
additional payments would be required if we elect to continue and maintain our
licenses with our licensors, aggregating up to a maximum of $2.0 million. Our
additional financing may include public or private debt or equity offerings,
bank loans and/or collaborative research and development arrangements with
corporate partners.
For tax reporting purposes, as of July 31, 1999, we had approximately
$44.1 million of federal net operating loss carryforwards which expire through
2019 and $2.2 million of tax credit carryforwards which expire commencing in
fiscal 2008. Provisions of the Tax Reform Act of 1986 may limit our ability to
utilize net operating loss and tax credit carryforwards in any given year if
certain events occur, including a provision relating to cumulative changes in
ownership interests in excess of 50% over a three-year period. We cannot assure
you that our ability to utilize the net operating loss and tax credit
carryforwards in future years will not be limited as a result of a change in
ownership.
YEAR 2000
The Year 2000 issue, or Y2K, refers to potential problems with computer
systems or any equipment with computer chips or software that use dates where
the date has been stored as just two digits. On January 1, 2000, any clock or
date recording mechanism incorporating date sensitive software which uses only
two digits to represent the year may recognize a date using "00" as the Year
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including,
27
<PAGE>
among other things, a temporary inability to process transactions, perform
laboratory analyses, or engage in similar business activities.
We are a biotechnology company and our proposed product candidates are not
software or computer based. Therefore, our proposed products are not directly
impacted by the Y2K problem. Our exposure to potential risks from this problem
involves computer and information technology systems, and other systems which
include embedded technology using date sensitive programs such as for:
- heating, ventilation, air conditioning, or HVAC;
- scientific instrumentation; and
- laboratory facilities.
Our internal information systems consist of off-the-shelf accounting and
e-mail systems, off-the-shelf application programs such as spreadsheet, word
processing, graphics, database management, and presentation software, and
certain instrumentation/data acquisition software. Non-informational technology
systems consist of HVAC and telecommunications.
We have taken actions to minimize the impact of the Y2K problem on our
systems and operations, excluding a systemic failure outside our control, such
as a prolonged loss of electrical or telephone service. We have inventoried and
reviewed our systems, scientific instrumentation, and laboratory facilities,
including querying third parties that have a material relationship with us, to
ascertain Y2K compliance. Our review included examining information from our
equipment and software vendors, literature supplied with software, and test
evaluations of our systems. Based upon our work and knowledge to date, which
included updating various software programs, we believe that the risk is minimal
that our internal systems, scientific instrumentation, and laboratory facilities
will be materially impacted by Y2K non-compliance disruptions. Most of our
existing systems, scientific instrumentation, and laboratory facilities are Y2K
compliant or are expected to be Y2K compliant by December 31, 1999.
Vendors for our off-the-shelf applications, including our accounting and
e-mail systems, have informed us that their products are Y2K compliant. To date,
our review has not disclosed otherwise. We have no reason to believe that these
applications are not Y2K compliant. If these applications are not Y2K compliant,
we expect, but cannot be certain, that the vendors will make appropriate
upgrades available to all of their customers at no cost or at minimal cost. We
believe that if it were necessary to replace our off-the-shelf software
applications, such software could be replaced at reasonable costs. For example,
the approximate replacement cost of our e-mail system would be $10,000.
We have identified a Y2K problem in our HVAC system. We have engaged an
outside contractor to correct the Y2K problem. We believe that the cost of
correcting this problem will be approximately $20,000 and expect the problem to
be corrected in December 1999 during a regularly scheduled maintenance cycle. As
a result of our personnel expansion, we upgraded our telecommunication system,
whether or not it had a Y2K problem. The cost of this upgrade, which is Y2K
compliant, was approximately $35,000 and also provided for future enhancements.
With regard to third-party risks, we continue to assess Y2K risks. Third
parties include research suppliers and partners, manufacturers, research
organizations and clinical study administrators. Our vendors and suppliers have
indicated that they will make every effort to be Y2K compliant before
December 31, 1999, but that no guarantees can be given. We have, for example,
been informed by our outside payroll processor that their payroll system is Y2K
compliant. We expect third parties to honor their contractual obligations.
The majority of our material third-party contracts relate to sites for
clinical trials of our product candidates, research and development, and our
collaboration with Procter & Gamble. We believe that there is no readily
available replacement for our collaboration agreement with Procter & Gamble. We
further believe that it would be difficult, time consuming, and costly to find
alternative clinical sites and
28
<PAGE>
research arrangements. We will continue to work with third parties to identify
and resolve any problems with Y2K compliance.
In a worst case scenario, we could experience delays in receiving research
and development and manufacturing supplies as well as managing and accessing
data on patients enrolled in clinical studies. These delays could slow clinical
development and research and development programs, or impact our ability to
effectively manage and monitor these programs. These delays could also have an
adverse impact on our stock price. Based on the information and assessments to
date, no contingency plans have been developed.
Any Y2K compliance problems which arise could materially and adversely
affect our business, results of operations, or cash flow. We will continue to
identify all Y2K problems that could materially adversely affect our business
operations. However, it is not possible to determine with complete certainty
that all Y2K problems affecting us or third parties which have a material
relationship with us, have been identified. It is not possible to insure
economically against all conceivable risks.
To date, we have incurred less than $5,000 in costs associated with our Y2K
program. This excludes the costs of older computer and scientific
instrumentation that have been replaced in the ordinary course as such systems
are upgraded or expanded. We believe that the costs associated with repairs or
upgrades and verification of our internal systems to become Y2K compliant will
not be more than $50,000. We believe that all such repairs or upgrades and
verification will be complete in December 1999 with the repair and upgrade to
our HVAC system discussed above. We expect to fund all these expenses from
working capital.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest income on the Company's marketable securities is carried in "Other
income (expense)." The Company accounts for its marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"). All of the
cash equivalents and marketable securities are treated as available-for-sale
under SFAS 115.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities which have seen a decline in market value due to
changes in interest rates. The Company's marketable securities are held for
purposes other than trading. The marketable securities as of July 31, 1999, had
maturities of less than two years. The weighted-average interest rate on
marketable securities at July 31, 1999 was 5.7%. The fair value of marketable
securities held at July 31, 1999 was $4.1 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data of the Company
required in this item are set forth at the pages indicated in Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
29
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.
Set forth below is certain information regarding our executive officers,
directors and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH ALEXION
- ---- -------- ---------------------
<S> <C> <C>
John H. Fried, Ph.D.(1) .................. 70 Chairman of the Board of Directors
Leonard Bell, M.D.(1) .................... 41 President, Chief Executive Officer,
Secretary, Treasurer, Director
David W. Keiser........................... 48 Executive Vice President, Chief Operating
Officer
Louis A. Matis, M.D. ..................... 49 Senior Vice President, Chief Scientific
Officer
Stephen P. Squinto, Ph.D. ................ 43 Senior Vice President, Chief Technology
Officer
Barry P. Luke............................. 41 Vice President of Finance and
Administration, Assistant Secretary
Nancy Motola, Ph.D. ...................... 47 Vice President of Regulatory Affairs and
Quality Assurance
James A. Wilkins, Ph.D. .................. 47 Vice President of Process Sciences and
Manufacturing
William Fodor, Ph.D.(2) .................. 41 Senior Director of Xenotransplantation
Christopher F. Mojcik, M.D., Ph.D.(2) .... 39 Senior Director of Clinical Development
Scott A. Rollins, Ph.D.(2) ............... 36 Senior Director of Project Management and
Drug Development
Jerry T. Jackson.......................... 58 Director
Max Link, Ph.D.(1)(3) .................... 59 Director
Joseph A. Madri, Ph.D., M.D. ............. 53 Director
Leonard Marks, Jr., Ph.D.(3) ............. 78 Director
Eileen M. More............................ 53 Director
R. Douglas Norby.......................... 64 Director
Alvin S. Parven(3)........................ 59 Director
</TABLE>
- ------------------------
(1) Member of our nominating committee.
(2) Key employee.
(3) Member of our audit committee and our compensation committee.
Each director will hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Each officer serves at the discretion of the
board of directors. Each of our executive officers is a party to an employment
agreement with us.
JOHN H. FRIED, PH.D. has been the Chairman of our board of directors of
Alexion since April 1992. Since 1992, Dr. Fried has been President of Fried &
Co., Inc., a health technology venture firm. Dr. Fried was a director of Syntex
Corp., a life sciences and health care company, from 1982 to 1994 and he served
as Vice Chairman of Syntex from 1985 to January 1993 and President of the Syntex
Research Division from 1976 to 1992. Dr. Fried has originated more than 200 U.S.
Patents and has authored more than 80 scientific publications. Dr. Fried
received his B.S. in Chemistry and Ph.D. in Organic Chemistry from Cornell
University.
LEONARD BELL, M.D. is the principal founder of Alexion, and has been a
director of Alexion since February 1992 and the Company's President and Chief
Executive Officer, Secretary and Treasurer since January 1992. From 1991 to
1992, Dr. Bell was an Assistant Professor of Medicine and Pathology and
30
<PAGE>
co-Director of the Program in Vascular Biology at the Yale University School of
Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the Yale-New
Haven Hospital and an Assistant Professor in the Department of Internal Medicine
at the Yale University School of Medicine. Dr. Bell was the recipient of the
Physician Scientist Award from the National Institutes of Health and
Grant-in-Aid from the American Heart Association as well as various honors and
awards from academic and professional organizations. His work has resulted in
more than 20 scientific publications and three patent applications. Dr. Bell is
a director of the Connecticut Technology Council and Connecticut United for
Research Excellence, Inc. He also served as a director of the Biotechnology
Research and Development Corporation from 1993 to 1997. Dr. Bell received his
A.B. from Brown University and M.D. from Yale University School of Medicine.
Dr. Bell is currently an Adjunct Assistant Professor of Medicine and Pathology
at Yale University School of Medicine.
DAVID W. KEISER has been Executive Vice President and Chief Operating
Officer of Alexion since July 1992. From 1990 to 1992, Mr. Keiser was Senior
Director of Asia Pacific Operations for G.D. Searle & Company Limited, a
manufacturer of pharmaceutical products. From 1986 to 1990, Mr. Keiser was
successively Licensing Manager, Director of Product Licensing and Senior
Director of Product Licensing for Searle. From 1984 to 1985, Mr. Keiser was New
Business Opportunities Manager for Mundipharma AG, a manufacturer of
pharmaceutical products, in Basel, Switzerland where he headed pharmaceutical
licensing and business development activities in Europe and the Far East. From
1978 to 1983, he was Area Manager for F. Hoffmann La Roche Ltd., a manufacturer
of pharmaceutical products, in Basel, Switzerland. Mr. Keiser received his B.A.
from Gettysburg College.
LOUIS A. MATIS, M.D. has been the Senior Vice President and Chief Scientific
Officer since March 1998 and Vice President of Research, Immunobiology, of
Alexion from August 1994 to March 1998. From January 1993 to July 1994,
Dr. Matis served as the Director of our Program in Immunobiology. Prior to
joining Alexion, from 1977 to 1992, Dr. Matis held various appointments at the
NIH and the FDA. From 1990 to 1992, Dr. Matis was a Senior Investigator in the
Laboratory of Immunoregulation at the National Cancer Institute and from 1987 to
1990 he was a Senior Staff Fellow in the Molecular Immunology Laboratory at the
Center for Biologics Evaluation and Research associated with the FDA. Dr. Matis
is the author of more than 100 scientific papers in the fields of T-cell
biology. Dr. Matis has received numerous awards including the NIH Award of
Merit. Dr. Matis received his B.A. from Amherst College and M.D. from the
University of Pennsylvania Medical School.
STEPHEN P. SQUINTO, PH.D. is a founder of Alexion and has held the positions
of Senior Vice President and Chief Technical Officer since March 1998, Vice
President of Research, Molecular Sciences, from August 1994 to March 1998,
Senior Director of Molecular Sciences from July 1993 to July 1994 and Director
of Molecular Development from April 1992 to July 1993. From 1989 to 1992,
Dr. Squinto held various positions at Regeneron Pharmaceuticals, Inc., most
recently serving as Senior Scientist and Assistant Head of the Discovery Group.
From 1986 to 1989, Dr. Squinto was an Assistant Professor of Biochemistry and
Molecular Biology at Louisiana State University Medical Center. Dr. Squinto's
work has led to over 70 scientific papers in the fields of gene regulation,
growth factor biology and gene transfer. Dr. Squinto's work is primarily in the
fields of regulation of eukaryotic gene expression, mammalian gene expression
systems and growth receptor and signal transduction biology. Dr. Squinto also
serves as a Director of the BRDC since 1997. Dr. Squinto received his B.A. in
Chemistry and Ph.D. in Biochemistry and Biophysics from Loyola University of
Chicago.
BARRY P. LUKE has been Vice President of Finance and Administration since
September 1998 and Senior Director of Finance and Administration of Alexion from
August 1995 to September 1998 and prior thereto was Director of Finance and
Accounting of the Company from May 1993. From 1989 to 1993, Mr. Luke was Chief
Financial Officer, Secretary and Vice President--Finance and Administration at
Comtex Scientific Corporation, a publicly held distributor of electronic news
and business information. From 1985 to 1989, he was Controller and Treasurer of
Softstrip, Inc., a manufacturer of computer peripherals and
31
<PAGE>
software. From 1980 to 1985, Mr. Luke was employed by the General Electric
Company where he held positions at GE's Corporate Audit Staff after completing
GE's Financial Management Program. Mr. Luke received a B.A. in Economics from
Yale University and an M.B.A. in management and marketing from the University of
Connecticut.
NANCY MOTOLA, PH.D. has been the Vice President of Regulatory Affairs and
Quality Assurance since 1998. From 1991 to 1998, Dr. Motola served as Assistant,
Associate, and then Deputy Director, Regulatory Affairs for the Bayer
Corporation Pharmaceutical Division where she was responsible for regulatory
aspects of product development programs for cardiovascular, neuroscience,
metabolic and oncology drugs and included drugs targeting arthritis, cardiac
disorders, stroke and cognitive dysfunction. Dr. Motola has been responsible for
the filing of numerous INDs, other regulatory submissions and has filed New Drug
Applications for marketing approval resulting in three currently marketed drugs.
Dr. Motola held regulatory affairs positions of increasing responsibility at
Abbott Laboratories from 1989 to 1991 and at E.R. Squibb and Sons, Inc. from
1983 to 1989. She has also served as past Chairperson of the Regulatory Affairs
Section of the American Association of Pharmaceutical Scientists. Dr. Motola
received her B.A. from Central Connecticut State University and M.S. and Ph.D.
degrees in medicinal chemistry from the University of Rhode Island.
JAMES A. WILKINS, PH.D. has been Vice President of Process Sciences and
Manufacturing of Alexion since September 1998 and has held the positions of
Senior Director of Process Sciences from August 1996 to September 1998, Senior
Director of Process Development from August 1995 to August 1996, and Director of
Process Development from September 1993 to August 1995. From 1989 to 1993,
Dr. Wilkins was Group Leader of the Protein Chemistry Department at Otsuka
America Pharmaceutical, Inc. From 1987 to 1989, Dr. Wilkins was a Scientist in
Recovery Process Development at Genentech, Inc. and from 1982 to 1987, he was an
Associate Research Scientist in the Thomas C. Jenkins Department of Biophysics
at Johns Hopkins University. He is the author of more than 25 presentations and
scientific articles in the fields of protein refolding and protein biochemistry.
Dr. Wilkins received a B.A. in Biology from University of Texas and a Ph.D. in
Biochemistry from University of Tennessee.
WILLIAM FODOR, PH.D. has been Senior Director of Xenotransplantation since
1997. After joining Alexion in 1992, Dr. Fodor was a Staff Scientist from 1992
to 1994, Principal Scientist from 1994 to 1996, and Director of
Xenotransplantation from 1996 to 1997. Dr. Fodor has been responsible for
managing the preclinical development and manufacturing of our
xenotransplantation product candidates. Prior to 1992, Dr. Fodor was a
postdoctoral research fellow in the Section of Immunobiology at Yale University
School of Medicine and at Biogen, Inc., a biopharmaceutical firm. Dr. Fodor's
work has led to over 30 scientific papers and patents in the fields of
immunobiology and molecular biology. Dr. Fodor received his B.S. in Genetics and
Ph.D. in Molecular Genetics from the Ohio State University.
CHRISTOPHER F. MOJCIK, M.D., PH.D. has been Senior Director of Clinical
Development since joining Alexion in July 1998. From 1996 until July 1998, he
was an Associate Director in the Metabolics/ Rheumatics Department at Bayer
Corporation's Pharmaceuticals Division. Dr. Mojcik was responsible for Phase II
and III development of certain arthritis programs and certain Phase IV programs
in cardiopulmonary bypass. From 1993 to 1996, he was a Senior Staff Fellow in
the Cellular Immunology Section of the Laboratory of Immunology in the NIAID at
the NIH. From 1991 to 1993, he completed his Fellowship in Rheumatology in the
National Institute of Arthritis and Musculoskeletal and Skin Diseases at the
NIH. He received his B.A. from Washington University in St. Louis, Missouri, and
his M.D. and Ph.D. from the University of Connecticut.
SCOTT A. ROLLINS, PH.D. is a co-founder of Alexion and has been Senior
Director of Project Management and Drug Development since August 1999, Senior
Director of Complement Biology from 1997 to 1999, Director of Complement Biology
from 1996 to 1997, Principal Scientist from 1994 to 1996, and Staff Scientist
from 1992 to 1994. Since 1994, Dr. Rollins has been responsible for the
preclinical development of our anti-inflammatory compound 5G1.1-SC. Since 1999,
Dr. Rollins has been additionally responsible
32
<PAGE>
for the project management functions of 5G1.1-SC, currently under joint
development with Procter & Gamble Pharmaceuticals. Prior to 1992, Dr. Rollins
was a postdoctoral research fellow in the Department of Immunobiology at Yale
University School of Medicine. Dr. Rollins' work has led to over 50 scientific
papers and patents in the fields of complement biology. He received his B.S. in
Cytotechnology and Ph.D. in Microbiology and Immunology from the University of
Oklahoma Health Sciences Center.
JERRY T. JACKSON has been a director of Alexion since September 1999. He was
employed by Merck & Co. Inc., a major pharmaceutical company, from 1965 until
his retirement in 1995. During this time, he had extensive experience in sales,
marketing and corporate management, including joint ventures. From 1993 until
1995, Mr. Jackson served as Executive Vice President of Merck with broad
responsibilities for numerous operating groups--including Merck's International
Human Health, Worldwide Human Vaccines, the AgVet Division, Astra/Merck U.S.
Operations, as well as worldwide marketing. During 1993, he was also President
of the Worldwide Human Health Division in 1993. He served as Senior Vice
President of Merck from 1991 to 1992 responsible for Merck's Specialty Chemicals
and previously, he was President of Merck's Sharp & Dohme International.
Mr. Jackson serves as a director of Cor Therapeutics, Inc., Molecular
Biosystems, Inc., SunPharm Corporation, and Crescendo Pharmaceuticals
Corporation. Mr. Jackson received his B.A. from University of New Mexico.
MAX LINK, PH.D. has been a director of Alexion since April 1992. From
May 1993 to June 1994, Dr. Link was Chief Executive Officer of Corange
(Bermuda), the parent company of Boehringer Mannheim Therapeutics, Boehringer
Mannheim Diagnostics and DePuy Orthopedics. From 1992 to 1993, Dr. Link was
Chairman of the Board of Sandoz Pharma, Ltd., a manufacturer of pharmaceutical
products. From 1987 to 1992, Dr. Link was the Chief Executive Officer of Sandoz
Pharma and a member of the Executive Board of Sandoz, Ltd., Basel. Prior to
1987, Dr. Link served in various capacities with the United States operations of
Sandoz, including as President and Chief Executive Officer. Dr. Link is also a
director of Protein Design Labs, Inc., Cell Therapeutics, Inc., and
Procept, Inc., each a publicly held pharmaceutical company, as well as Human
Genome Sciences Inc., a genomics company.
JOSEPH A. MADRI, PH.D., M.D. is a founder of Alexion and has been a director
of Alexion since February 1992. Since 1980, Dr. Madri has been on the faculty of
the Yale University School of Medicine and is currently a Professor of
Pathology. Dr. Madri serves on the editorial boards of numerous scientific
journals and he is the author of over 175 scientific publications. Dr. Madri
works in the areas of regulation of angiogenesis, vascular cell-matrix
interactions, cell-cell interactions, lymphocyte-endothelial cell interactions
and endothelial and smooth muscle cell biology and has been awarded a Merit
award from the National Institutes of Health. Dr. Madri received his B.S. and
M.S. in Biology from St. John's University and M.D. and Ph.D. in Biological
Chemistry from Indiana University.
LEONARD MARKS, JR., PH.D. has been a director of Alexion since April 1992.
Since 1985 Dr. Marks has served as an independent corporate director and
management consultant. Dr. Marks serves on the board of directors of Netvision
Technologies Inc. Dr. Marks served as a director of Airlease Management
Services, an aircraft leasing company (a subsidiary of Bank America Leasing &
Capital Corporation), from 1995 to March 1998, and Northern Trust Bank of
Arizona, a commercial and trust bank subsidiary of Northern Trust of Chicago,
from 1995 to March 1998. Prior to 1985, Dr. Marks held various positions in
academia and in the corporate sector including Executive Vice President,
Castle & Cooke, Inc. from 1972 to 1985. Dr. Marks received his B.A. in Economics
from Drew University and an M.B.A. and Doctorate in Business Administration from
Harvard University.
EILEEN M. MORE has been a director of Alexion since December 1993. Ms. More
has been associated since 1978 with Oak Investment Partners and has been a
General Partner of Oak since 1980. Oak is a venture capital firm and a
stockholder of Alexion. Ms. More is currently a director of several private high
technology and biotechnology firms including OraPharma, Inc., Halox
Technologies, Psychiatric Solutions and Teloquent Communication Corporation.
Ms. More studied mathematics at the University of Bridgeport and is a Chartered
Financial Analyst.
33
<PAGE>
R. DOUGLAS NORBY has been a director of Alexion since September 1999. Since
1996, Mr. Norby has been the Executive Vice President and Chief Financial
Officer of LSI Logic Corporation, a semiconductor company, and he also serves on
the Board of LSI. From September 1993 until November 1996, he served as Senior
Vice President and Chief Financial Officer of Mentor Graphics Corporation, a
software company. Mr. Norby served as President of Pharmetrix Corporation, a
drug delivery company, from July 1992 to September 1993, and from 1985 to 1992,
he was President and Chief Operating Officer of Lucasfilm, Ltd., an
entertainment company. From 1979 to 1985, Mr. Norby was Senior Vice President
and Chief Financial Officer of Syntex Corporation, a pharmaceutical company.
Mr. Norby received a B.A. in Economics from Harvard University and an M.B.A.
from Harvard Business School.
ALVIN S. PARVEN has been a director of Alexion since May 1999. Since 1997,
Mr. Parven has been President of ASP Associates, a management and strategic
consulting firm. From 1994 to 1997, Mr. Parven was Vice President at Aetna
Business Consulting, reporting to the Office of the Chairman of Aetna. From 1987
to 1994, Mr. Parven was Vice President, Operations at Aetna Health Plans. Prior
to 1987, he served in various capacities at Aetna including Vice President,
Pension Services from 1983 to 1987. Mr. Parven received his B.A. from
Northeastern University.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
information under the caption "Compensation of Executive Officers and Directors"
contained in the Proxy Statement.
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of October 1, 1999, except as
otherwise noted in the footnotes: (1) each person known by us to own
beneficially more than 5.0% percent of our outstanding common stock; (2) each
director and each named executive officer; and (3) all directors and executive
officers of Alexion as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER(1) OWNED(2) BENEFICIALLY OWNED
- --------------------------- ---------------- ------------------
<S> <C> <C>
BB Biotech AG
Vordergrasse 3
8200 Schaffhausen
CH/Switzerland(3)......................................... 1,824,113 16.1%
Zesiger Capital
320 Park Avenue, 30th floor
New York, NY 10022(4)..................................... 845,000 7.5%
The Kaufmann Fund, Inc.
140 E. 45th Street, 43rd floor
New York, NY 10017(5)..................................... 837,300 7.4%
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154(6)..................................... 828,600 7.3%
T. Rowe Price Associates
100 East Pratt Street
Baltimore, MD 21205(7).................................... 828,600 7.3%
OrbiMed Advisers, Inc.
41 Madison Avenue, 40th floor
New York, NY 10010(8)..................................... 750,500 6.6%
Leonard Bell, M.D.(9)....................................... 583,850 5.0%
Stephen P. Squinto, Ph.D.(10)............................... 180,450 1.6%
David W. Keiser(11)......................................... 167,300 1.5%
Louis A. Matis, M.D.(12).................................... 147,900 1.3%
Eileen M. More(13).......................................... 114,780 1.0 %
John H. Fried, Ph.D.(14).................................... 91,003 *
James A. Wilkins, Ph.D.(15)................................. 60,000 *
Joseph A. Madri, Ph.D., M.D.(16)............................ 57,467 *
Max Link, Ph.D.(17)......................................... 25,490 *
Leonard Marks, Jr., Ph.D.(18)............................... 15,967 *
Jerry T. Jackson(19)........................................ -- *
R. Douglas Norby(20)........................................ -- *
Alvin S. Parven(21)......................................... -- *
Directors and Executive Officers as a group
(15 persons)(22).......................................... 1,501,257 12.2%
</TABLE>
- ------------------------
* Less than one percent
(1) Unless otherwise indicated, the address of all persons is 25 Science Park,
New Haven, Connecticut 06511.
(2) To our knowledge, except as set forth below, the persons named in the table
have sole voting and investment power with respect to all shares of our
common stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes in this table.
35
<PAGE>
(3) This figure is based upon information set forth in Amendment No. 3 to
Schedule 13D filed on May 27, 1998, filed jointly by BB Biotech AG and
Biotech Target, S.A. Biotech Target, S.A., a Panamanian corporation, is a
wholly-owned subsidiary of BB Biotech AG. BB Biotech AG is a holding company
incorporated in Switzerland.
(4) This figure is based upon information set forth in Schedule 13G filed on
January 21, 1999.
(5) This figure is based upon information set forth in Schedule 13G filed on
August 20, 1999.
(6) This figure is based upon information independently obtained by us as of
October 14, 1999. The last publicly available disclosure filed with the SEC
by the stockholder was a Form 13F dated as of August 14, 1998.
(7) This figure is based upon information set forth in Schedule 13G filed on
February 5, 1999.
(8) This figure is based upon information set forth in Schedule 13G filed on
March 25, 1999.
(9) Includes 423,750 shares of our common stock that may be acquired upon the
exercise of options within 60 days of October 1, 1999 and 300 shares, in
aggregate, held in the names of Dr. Bell's three minor children. Excludes
161,250 shares obtainable through the exercise of options granted to
Dr. Bell which are not exercisable within 60 days of October 1, 1999 and
90,000 shares held in trust for Dr. Bell's children of which Dr. Bell
disclaims beneficial ownership. Dr. Bell disclaims beneficial ownership of
the shares held in the name of his minor children.
(10) Includes 123,750 shares of our common stock which may be acquired upon the
exercise of options within 60 days of October 1, 1999 and 6,200 shares, in
aggregate, held in the names of Dr. Squinto's two minor children of which
6,000 shares are in two trusts managed by his wife. Excludes 58,750 shares
obtainable through the exercise of options granted to Dr. Squinto which, are
not exercisable within 60 days of October 1, 1999. Dr. Squinto disclaims
beneficial ownership of the shares held in the name of his minor children
and the foregoing trusts.
(11) Includes 125,000 shares of our common stock which may be acquired upon the
exercise of options within 60 days of October 1, 1999 and 300 shares, in
aggregate, held in the names of Mr. Keiser's three minor children. Excludes
72,500 shares obtainable through the exercise of options granted to
Mr. Keiser, which, are not exercisable within 60 days of October 1, 1999.
Mr. Keiser disclaims beneficial ownership of the shares held in the name of
his minor children.
(12) Includes 133,750 shares of our common stock which may be acquired upon the
exercise of options granted to Dr. Matis within 60 days of October 1, 1999
and 150 shares, in aggregate, held in the names of Dr. Matis' three minor
children. Excludes 58,750 shares obtainable through the exercise of options,
granted to Dr. Matis, which, are not exercisable within 60 days of
October 1, 1999. Dr. Matis disclaims beneficial ownership of the shares held
in the name of his minor children.
(13) Includes 27,467 shares of our common stock which may be acquired upon the
exercise of options within 60 days of October 1, 1999 granted to Eileen
More. Also includes 76,406 shares owned by Oak Investment V Partners and
10,907 shares owned by Oak Investment V Affiliates, two affiliated limited
partnerships. Ms. More is a General Partner of these entities. Excludes
3,333 shares obtainable through the exercise of options granted to Ms. More
which are not exercisable within 60 days of October 1, 1999.
(14) Includes 14,967 shares of our common stock that may be acquired on the
exercise of options that are exercisable within 60 days of October 1, 1999.
Excludes 3,333 shares obtainable through the exercise of options granted to
Dr. Fried, which are not exercisable within 60 days of October 1, 1999.
(15) Excludes 45,000 shares obtainable through the exercise of options granted
to Dr. Wilkins, which are not exercisable within 60 days of October 1, 1999.
(16) Includes 12,467 shares of our common stock that may be acquired upon the
exercise of options within 60 days of October 1, 1999. Excludes 3,333 shares
obtainable through the exercise of options granted to Dr. Madri, which are
not exercisable within 60 days of October 1, 1999.
(17) Includes 167 shares of our common stock which, may be acquired upon the
exercise of options within 60 days of October 1, 1999. Excludes 3,333 shares
obtainable through the exercise of options, granted to Dr. Link, which are
not exercisable within 60 days of October 1, 1999.
(18) Includes 14,967 shares of our common stock which, may be acquired upon the
exercise of options within 60 days of October 1, 1999. Excludes 3,333 shares
obtainable through the exercise of options granted to Dr. Marks, which are
not exercisable within 60 days of October 1, 1999.
(19) Excludes 7,500 shares obtainable through the exercise of options granted to
Mr. Jackson, which are not exercisable within 60 days of October 1, 1999.
(20) Excludes 7,500 shares obtainable through the exercise of options granted to
Mr. Norby, which are not exercisable within 60 days of October 1, 1999.
(21) Excludes 7,500 shares obtainable through the exercise of options granted to
Mr. Parven, which are not exercisable within 60 days of October 1, 1999.
(22) Consists of shares beneficially owned by Drs. Bell, Fried, Link, Madri,
Marks, Matis, Motola, Squinto, and Wilkins, Messrs. Jackson, Keiser, Luke,
Norby and Parven, and Ms. More. Includes 993,335 shares of our common stock
which, may be acquired upon the exercise of options within 60 days of
October 1, 1999.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1998, through its wholly-owned subsidiary Biotech Target, S.A.,
BB Biotech AG, a single institutional investor, purchased 670,000 shares of our
common stock in a private placement at $13.175 per share, aggregating
$8.8 million. At October 1, 1999, BB Biotech beneficially owned 1,824,113 shares
of common stock, or approximately 16.1% of our outstanding shares of common
stock.
In September 1997, BB Biotech, through Biotech Target, purchased 400,000
shares of Series B Preferred Stock at $25.00 per share, convertible
automatically in six months, or at the election of the holder at any time after
the date of issuance, into 935,782 shares of common stock at $10.69 per share.
The net proceeds from this private placement were approximately $9.5 million.
The conversion price represented a 3.0% premium to the closing bid of $10.38 on
the day of pricing. The Series B Preferred Stock paid a dividend of $2.25 per
share of Series B Preferred Stock on March 4, 1998. In March 1998, the Series B
Preferred Stock was converted to 935,782 shares of our common stock, and we
elected to pay the dividend on the preferred stock in shares of common stock,
aggregating 70,831 shares.
In June and October 1992, we entered into patent licensing agreements with
Oklahoma Medical Research Foundation and Yale University. The agreements provide
that we will pay to these institutions royalties based on sales of products
incorporating technology licensed thereunder and also license initiation fees,
including annual minimum royalties that increase in amount based on the status
of product development and the passage of time. Under policies of OMRF and Yale,
the individual inventors of patents are entitled to receive a percentage of the
royalties and other license fees received by the licensing institution. Some of
our founders and scientific advisors are inventors under patent and patent
applications, including Dr. Bell, one of our directors and our President and
Chief Executive Officer, Dr. Madri, one of our directors, Dr. Squinto, Senior
Vice President and Chief Technology Officer, and Dr. Rollins, Senior Director of
Project Management and Drug Development with respect to patent applications
licensed from Yale and, therefore, entitled to receive a portion of royalties
and other fees payable by us.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) (1) FINANCIAL STATEMENTS:
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
(2) FINANCIAL STATEMENT SCHEDULES:
Schedules have been omitted because of the absence of conditions under which
they are required or because the required information is included in the
financial statements or notes thereto.
(3) EXHIBITS:
<TABLE>
<C> <S>
3.1 Certificate of Incorporation, as amended.*(1)
3.2 Bylaws.*(1)
4.1 Specimen Common Stock Certificate.*(1)
10.1 Employment Agreement, dated April 1, 1997, between the
Company and Dr. Leonard Bell.*(2)
10.2 Employment Agreement, dated October 22, 1997, between the
Company and David W. Keiser.*(3)
10.3 Employment Agreement, dated October 22, 1997, between the
Company and Dr. Stephen P. Squinto.*(3)
10.4 Employment Agreement, dated October 22, 1997, between the
Company and Dr. Louis A. Matis.*(3)
10.5 Employment Agreement, dated July 1993, between the Company
and Dr. James A. Wilkins, as amended.*(1)
10.6 Administrative Facility Lease, dated August 23, 1995,
between the Company and Science Park Development
Corporation.*(1)
10.7 Research and Development Facility Lease, dated August 23,
1995, between the Company and Science Park Development
Corporation.*(1)
10.8 Option Agreement, dated April 1, 1992 between the Company
and Dr. Leonard Bell.*(1)
10.9 Company's 1992 Stock Option Plan, as amended.*(4)
10.10 Company's 1992 Stock Option Plan for Outside Directors, as
amended.*(5)
10.11 Form of Investor Rights Agreement, dated December 23, 1994,
between the Company and the purchasers of the Company's
Series A Preferred Stock, as amended.*(1)
10.12 Exclusive License Agreement dated as of June 19, 1992 among
the Company, Yale University and Oklahoma Medical Research
Foundation.*(1)+
10.13 License Agreement dated as of September 30, 1992 between the
Company and Yale University, as amended July 2, 1993.*(1)+
10.14 License Agreement dated as of August 1, 1993 between the
Company and Biotechnology Research and Development
Corporation ("BRDC"), as amended as of July 1, 1995.*(1)+
10.15 License Agreement dated January 25, 1994 between the Company
and The Austin Research Institute.*(1)+
</TABLE>
38
<PAGE>
<TABLE>
<C> <S>
10.16 Exclusive Patent License Agreement dated April 21, 1994
between the Company and the National Institutes of
Health.*(1)+
10.17 License Agreement dated July 22, 1994 between the Company
and The Austin Research Institute.*(1)+
10.18 License Agreement dated as of January 10, 1995 between the
Company and Yale University.*(1)+
10.19 Advanced Technology Program ("ATP"), Cooperative Agreement
70NANB5H, National Institute of Standards and Technology,
entitled "Universal Donor Organs for Transplantation," dated
September 15, 1995.*(1)+
10.20 U.S. Department of Health and Human Services, National
Heart, Lung and Book Institute, Small Business Research
Program, Phase II Grant Application, entitled "Role of
Complement Activation in Cardiopulmonary Bypass," dated
December 14, 1994; and Notice of Grant Award dated September
21, 1995.*(3)+
10.21 Agreement to be Bound by Master Agreement dated as of August
1, 1993 between the Company and BRDC.*(1)
10.22 Research and Development Facility Lease, dated April 1,
1996, between the Company and Science Park Development
Corporation.*(6)
10.23 License Agreement dated March 27, 1996 between the Company
and Medical Research Council.*(6)+
10.24 License Agreement dated May 8, 1996 between the Company and
Enzon, Inc.*(6)+
10.25 Stock Purchase Agreement dated September 8, 1997 by and
between the Company and Biotech Target S.A. *(7)+
10.26 Stock Purchase Agreement dated March 4, 1998 by and between
the Company and Biotech Target S.A. *(7)+
10.27 Asset Purchase Agreement dated as of February 9, 1999
between the Company and United States Surgical
Corporation.++
10.28 Collaboration Agreement dated January 25, 1999 between the
Company and The Procter & Gamble Company, as amended.++
10.29 Letter agreement dated September 14, 1999 between the
Company and Leonard Bell.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
99.1 Risk Factors.
</TABLE>
- ------------------------
* Previously filed
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Reg. No. 333-00202).
(2) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1 (Reg. No. 333-19905) filed on April 4, 1997.
(3) Incorporated by reference to the Company's Annual report on Form 10-K for
the fiscal year ended July 31, 1997.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8 (Reg. No. 333-71879) filed on February 5, 1999.
39
<PAGE>
(5) Incorporated by reference to the Company's Registration Statement on
Form S-8 (Reg. No. 333-71985) filed on February 8, 1999.
(6) Incorporated by reference to the Company's Annual report on Form 10-K for
the fiscal year ended July 31, 1996.
(7) Incorporated by reference to the Company's Annual report on Form 10-K for
the fiscal year ended July 31, 1998.
+ Confidential treatment was granted for portions of such document.
++ A request for confidential treatment was filed for portions of such document.
Confidential portions have been omitted and filed separately with the
Commission as required by Rule 24b-2.
(B) REPORTS ON FORM 8-K:
Current Report on Form 8-K dated May 25, 1999 relating to the election of
Alvin S. Parven to the Company's Board of Directors.
Current Report on Form 8-K dated September 24, 1999 relating to the election
of Jerry T. Jackson and R. Douglas Norby to the Company's Board of Directors.
(C) EXHIBITS:
See (a) (3) above.
(D) FINANCIAL STATEMENT SCHEDULES:
See (a) (2) above.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
<TABLE>
<S> <C> <C>
ALEXION PHARMACEUTICALS, INC.
By: /s/ LEONARD BELL
-----------------------------------------
Leonard Bell, M.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER,
SECRETARY AND TREASURER
By: /s/ DAVID W. KEISER
-----------------------------------------
David W. Keiser
EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
President, Chief Executive
/s/ LEONARD BELL Officer, Secretary, Treasurer
------------------------------------------- and Director (principal October 18, 1999
Leonard Bell, M.D executive officer)
/s/ DAVID W. KEISER Executive Vice President and
------------------------------------------- Chief Operating Officer October 18, 1999
David W. Keiser (principal financial officer)
/s/ BARRY P. LUKE Vice President of Finance and
------------------------------------------- Administration (principal October 18, 1999
Barry P. Luke accounting officer)
/s/ JOHN H. FRIED
------------------------------------------- Chairman of the Board of October 18, 1999
John H. Fried, Ph.D. Directors
------------------------------------------- Director
Jerry T. Jackson
/s/ MAX LINK
------------------------------------------- Director October 18, 1999
Max Link, Ph.D.
</TABLE>
41
<PAGE>
<TABLE>
<C> <S> <C>
/s/ JOSEPH A. MADRI
------------------------------------------- Director October 18, 1999
Joseph A. Madri, Ph.D., M.D.
/s/ LEONARD MARKS
------------------------------------------- Director October 18, 1999
Leonard Marks, Jr., Ph.D.
/s/ EILEEN M. MORE
------------------------------------------- Director October 18, 1999
Eileen M. More
/s/ R. DOUGLAS NORBY
------------------------------------------- Director October 18, 1999
R. Douglas Norby
/s/ ALVIN S. PARVEN
------------------------------------------- Director October 18, 1999
Alvin S. Parven
</TABLE>
42
<PAGE>
ALEXION PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of July 31, 1999 and 1998.... F-3
Consolidated Statements of Operations for the Years Ended
July 31, 1999, 1998 and 1997.............................. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1999, 1998, and 1997................. F-5
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1999, 1998 and 1997.............................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Alexion Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Alexion
Pharmaceuticals, Inc. (a Delaware corporation) and subsidiary as of July 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended July 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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
Alexion Pharmaceuticals, Inc. and subsidiary as of July 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended July 31, 1999, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
August 27, 1999
F-2
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
JULY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 24,238 $ 31,509
Marketable securities..................................... 4,090 5,985
Reimbursable contract costs:
Billed.................................................. 4,577 --
Unbilled................................................ 2,285 137
Prepaid expenses.......................................... 472 209
-------- --------
Total current assets.................................. 35,662 37,840
PROPERTY, PLANT, AND EQUIPMENT, net......................... 7,413 2,357
SECURITY DEPOSITS AND OTHER ASSETS.......................... 1,299 1,888
-------- --------
Total assets.......................................... $ 44,374 $ 42,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 368 $ 368
Accounts payable.......................................... 3,544 810
Accrued expenses.......................................... 2,328 818
Deferred revenue.......................................... 450 67
-------- --------
Total current liabilities............................. 6,690 2,063
-------- --------
NOTES PAYABLE, less current portion included above.......... 4,383 832
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 1, 7, 9 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000 shares
authorized; none issued at July 31, 1999 and 1998....... -- --
Common stock $.0001 par value; 25,000 shares authorized;
11,304 and 11,237 shares issued at July 31, 1999 and
1998, respectively...................................... 1 1
Additional paid-in capital................................ 80,287 79,781
Accumulated deficit....................................... (46,987) (40,592)
Treasury stock, at cost, 12 shares........................ -- --
-------- --------
Total stockholders' equity............................ 33,301 39,190
-------- --------
Total liabilities and stockholders' equity............ $ 44,374 $ 42,085
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED JULY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CONTRACT RESEARCH REVENUES.................................. $18,754 $ 5,037 $ 3,811
------- ------- -------
OPERATING EXPENSES:
Research and development.................................. 23,710 12,323 9,079
General and administrative................................ 2,953 2,666 2,827
------- ------- -------
Total operating expenses................................ 26,663 14,989 11,906
------- ------- -------
OPERATING LOSS.............................................. (7,909) (9,952) (8,095)
OTHER INCOME, net........................................... 1,514 2,087 843
------- ------- -------
Net loss................................................ (6,395) (7,865) (7,252)
PREFERRED STOCK DIVIDENDS................................... -- (900) --
------- ------- -------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS.................. $(6,395) $(8,765) $(7,252)
======= ======= =======
NET LOSS PER COMMON SHARE--
BASIC AND DILUTED (NOTE 2)................................ $ (0.57) $ (0.87) $ (0.97)
======= ======= =======
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE................................. 11,265 10,056 7,451
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
CONVERTIBLE TREASURY STOCK,
PREFERRED STOCK COMMON STOCK ADDITIONAL AT COST
------------------- ------------------- PAID-IN ACCUMULATED -------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
-------- -------- -------- -------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1996............. -- $ -- 7,335 $ 1 $42,859 $(24,575) 12 $ --
Issuance of common stock, net of
issuance costs of $814......... -- -- 1,450 -- 10,424 -- -- --
Issuance of common stock from
exercise of warrants........... -- -- 38 -- 286 -- -- --
Issuance of common stock from
exercise of stock options...... -- -- 35 -- 83 -- -- --
Net change in unrealized gains on
marketable securities.......... -- -- -- -- 20 -- -- --
Net loss......................... -- -- -- -- -- (7,252) -- --
-------- ------- ------ ---- ------- -------- --- ----
BALANCE, July 31, 1997............. -- -- 8,858 1 53,672 (31,827) 12 --
Issuance of Series B convertible
preferred stock, net of
issuance
costs of $493.................. 400,000 -- -- -- 9,507 -- -- --
Issuance of common stock in
payment of preferred stock
dividend....................... -- -- 71 -- 900 (900) -- --
Conversion of Series B
convertible preferred stock
into
common stock................... (400,000) -- 936 -- -- -- -- --
Issuance of common stock, net of
issuance costs of $49.......... -- -- 837 -- 11,779 -- -- --
Issuance of common stock from
exercise of warrants........... -- -- 513 -- 3,858 -- -- --
Issuance of common stock from
exercise of stock options...... -- -- 22 -- 67 -- -- --
Net change in unrealized gains on
marketable securities.......... -- -- -- -- (2) -- -- --
Net loss......................... -- -- -- -- -- (7,865) -- --
-------- ------- ------ ---- ------- -------- --- ----
BALANCE, July 31, 1998............. -- -- 11,237 1 79,781 (40,592) 12 --
Issuance of common stock from
exercise of stock options...... -- -- 67 -- 383 -- -- --
Compensation expense, related to
grant of stock options......... -- -- -- -- 132 -- -- --
Net change in unrealized gains on
marketable securities.......... -- -- -- -- (9) -- -- --
Net loss......................... -- -- -- -- -- (6,395) -- --
-------- ------- ------ ---- ------- -------- --- ----
BALANCE, July 31, 1999............. -- $ -- 11,304 $ 1 $80,287 $(46,987) 12 $ --
======== ======= ====== ==== ======= ======== === ====
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, July 31, 1996............. $18,285
Issuance of common stock, net of
issuance costs of $814......... 10,424
Issuance of common stock from
exercise of warrants........... 286
Issuance of common stock from
exercise of stock options...... 83
Net change in unrealized gains on
marketable securities.......... 20
Net loss......................... (7,252)
-------
BALANCE, July 31, 1997............. 21,846
Issuance of Series B convertible
preferred stock, net of
issuance
costs of $493.................. 9,507
Issuance of common stock in
payment of preferred stock
dividend....................... --
Conversion of Series B
convertible preferred stock
into
common stock................... --
Issuance of common stock, net of
issuance costs of $49.......... 11,779
Issuance of common stock from
exercise of warrants........... 3,858
Issuance of common stock from
exercise of stock options...... 67
Net change in unrealized gains on
marketable securities.......... (2)
Net loss......................... (7,865)
-------
BALANCE, July 31, 1998............. 39,190
Issuance of common stock from
exercise of stock options...... 383
Compensation expense, related to
grant of stock options......... 132
Net change in unrealized gains on
marketable securities.......... (9)
Net loss......................... (6,395)
-------
BALANCE, July 31, 1999............. $33,301
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ALEXION PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (6,395) $ (7,865) $ (7,252)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 889 598 698
Compensation expense related to grant of stock
options............................................. 132 -- --
Change in assets and liabilities--
Reimbursable contract costs......................... (6,725) (137) --
Prepaid expenses.................................... (263) 23 235
Accounts payable.................................... 2,734 82 447
Accrued expenses.................................... 1,510 (384) 801
Deferred revenue.................................... 383 (279) (653)
-------- -------- --------
Net cash used in operating activities........... (7,735) (7,962) (5,724)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from marketable securities, net.................. 1,895 20 3,119
Purchases of property, plant, and equipment............... (1,912) (2,057) (749)
-------- -------- --------
Net cash (used in) provided by investing
activities.................................... (17) (2,037) 2,370
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and common
stock................................................... 383 25,211 10,793
Repayments of capital lease obligations................... -- (8) (29)
Borrowings under notes payable............................ -- 1,200 --
Repayments of notes payable............................... (369) (130) (321)
Security deposits and other............................... 467 (1,508) 163
-------- -------- --------
Net cash provided by financing activities....... 481 24,765 10,606
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (7,271) 14,766 7,252
CASH AND CASH EQUIVALENTS, beginning of period.............. 31,509 16,743 9,491
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 24,238 $ 31,509 $ 16,743
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense............................ $ 188 $ 42 $ 47
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Fixed assets acquired pursuant to seller financing........ $ 3,920 $ -- $ --
======== ======== ========
Preferred stock dividends................................. $ -- $ 900 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") was organized in
1992 and is a company engaged in the development of proprietary products for the
treatment of cardiovascular, autoimmune and neurologic diseases and disorders.
The Company is currently conducting Phase II clinical trials for its two lead C5
Inhibitor product candidates, 5G1.1-SC and 5G1.1. The Company is also developing
Apogen immunotherapeutic products affecting disease-causing T-cells. In
addition, the Company is developing therapies to permit transplantation of cells
from other species into humans known as xenotransplantation.
The Company has incurred consolidated losses since inception and has made no
product sales to date.
The Company will continue to need additional financing to obtain regulatory
approvals for its product candidates, fund operating losses, and, if deemed
appropriate, establish manufacturing, sales, marketing and distribution
capabilities. In addition, the Company operates in an environment of rapid
changes in technology, FDA guidelines and regulations, healthcare regulations
and competition from pharmaceutical and biotechnology companies and is dependent
upon the services of its employees and other third parties.
The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its products.
The Company will seek to raise necessary funds through public or private equity
or debt financings, bank loans, collaborative or other arrangements with
corporate sources, or through other sources of financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--
The accompanying consolidated financial statements include Alexion
Pharmaceuticals, Inc. and its wholly-owned subsidiary Columbus Farming
Corporation ("Columbus"). Columbus was formed on February 9, 1999 to acquire
certain manufacturing assets from United States Surgical Corporation ("US
Surgical") (See Notes 3 and 6). All significant inter-company balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS--
Cash and cash equivalents are stated at cost, which approximates market, and
include short-term highly liquid investments with original maturities of less
than three months.
MARKETABLE SECURITIES--
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount of
credit exposure with any one entity.
The Company has classified its marketable securities as "available for sale"
and, accordingly, carries such securities at aggregate fair value. Unrealized
gains or losses are included in stockholders' equity as a component of
additional paid-in capital. At July 31, 1999, the Company's marketable
securities had a
F-7
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
maximum maturity of less than two years with an average of approximately six
months. The following is a summary of marketable securities at July 31, 1999 and
1998 (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
--------- -------------- --------
<S> <C> <C> <C>
Federal agency obligations................... $2,088 $(9) $2,079
Corporate bonds.............................. 2,006 5 2,011
------ --- ------
Total marketable securities at July 31,
1999..................................... $4,094 $(4) $4,090
====== === ======
U.S. government obligations.................. $ 500 $-- $ 500
Federal agency obligations................... 2,000 -- 2,000
Corporate bonds.............................. 3,480 5 3,485
------ --- ------
Total marketable securities at July 31,
1998 $5,980 $ 5 $5,985
====== === ======
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT--
Property, plant, and equipment is recorded at cost and is depreciated over
the estimated useful lives of the assets involved. Depreciation commences at the
time the assets are placed in service and is computed using the straight-line
method over the estimated useful lives of the assets (see Note 3). Maintenance
and repairs are charged to expense when incurred.
<TABLE>
<CAPTION>
ASSET ESTIMATED USEFUL LIFE
- ----- ---------------------
<S> <C>
Building and building improvements........................ 15 years
Laboratory equipment...................................... 5 years
Office equipment.......................................... 3 years
Furniture................................................. 3 years
</TABLE>
LONG-LIVED ASSETS--
The Company accounts for its investments in long-lived assets in accordance
with Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
(SFAS 121). SFAS 121 requires a company to review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company has reviewed its
long-lived assets and determined that no impairments exist.
REVENUE RECOGNITION--
Contract research revenues recorded by the Company consist of research and
development support payments, license fees, and milestone payments under
collaborations with third parties and amounts received under various government
grants.
Research and development support revenues are recognized as the related work
and expenses are incurred under the terms of the contracts for development
activities. Revenues derived from the achievement of milestones are recognized
when the milestone is achieved. Non-refundable license fees received in
F-8
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
exchange for specific rights to the Company's technologies, research, potential
products and markets are recognized as revenues as earned in accordance with the
terms of the contracts.
Unbilled reimbursable contract costs as shown on the accompanying
consolidated balance sheets represent reimbursable costs incurred in connection
with research contracts which have not yet been billed. The Company bills these
costs and recognizes the costs and related revenues in accordance with the terms
of the contracts.
Deferred revenue results from cash received in advance of revenue
recognition under research and development contracts (see Note 8).
RESEARCH AND DEVELOPMENT EXPENSES--
Research and development costs are expensed in the period incurred.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME--
In July 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income (loss) and its components in a full set of
general purpose financial statements. The objective of the statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners ("comprehensive income (loss)").
The impact of adoption of this statement did not have a significant effect
on the Company's financial position and results of operations, as there was no
significant difference in comprehensive income (loss) and net loss represented a
gain (loss) on marketable securities of $(9,000), $(2,000), and $20,000 for the
years ended July 31, 1999, 1998 and 1997, respectively.
NET LOSS PER COMMON SHARE--
The Company computes and presents net loss per common share in accordance
with SFAS No. 128, "Earnings Per Share." There is no difference in basic and
diluted net loss per common share as the effect of stock options and warrants is
anti-dilutive for all periods presented. These outstanding stock options and
warrants entitled holders to purchase 2,568,587, 1,947,986, and 2,410,953 shares
of common stock at July 31, 1999, 1998 and 1997, respectively.
F-9
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT, AND EQUIPMENT:
A summary of equipment is as follows (dollars in thousand):
<TABLE>
<CAPTION>
JULY 31,
-------------------
<S> <C> <C>
1999 1998
------- -------
Land...................................................... $ 364 $ --
Building and building improvements........................ 3,080 --
Laboratory equipment...................................... 6,013 4,523
Office equipment.......................................... 648 352
Furniture................................................. 695 104
Equipment under capital leases............................ -- 378
------- -------
10,800 5,357
Less--Accumulated depreciation and amortization........... (3,387) (3,000)
------- -------
$ 7,413 $ 2,357
======= =======
</TABLE>
During 1999, the Company acquired land, building, and additional laboratory
equipment at a total cost of approximately $3.9 million financed with a note
payable to US Surgical (see Note 6).
4. SECURITY DEPOSITS AND OTHER:
A summary of security deposits and other assets is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Restricted cash held as collateral for note payable (see
Note 6)................................................... $ 955 $1,500
Other....................................................... 344 388
------ ------
$1,299 $1,888
====== ======
</TABLE>
5. ACCRUED EXPENSES:
A summary of accrued expenses is as follows (dollars in thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Research and development expenses........................... $1,333 $ 159
Payroll and employee benefits............................... 617 477
Professional fees........................................... 91 77
Other....................................................... 287 105
------ ------
$2,328 $ 818
====== ======
</TABLE>
F-10
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE:
A summary of notes payable is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Term loan payable to a bank requiring quarterly principal
payments of $92 payable through August 2001 bearing
interest at a variable rate which is repriced quarterly.
The rate as of July 31, 1999 was 7.1%. The term loan
agreement requires the Company to maintain a restricted
cash balance equal to 115% of the outstanding loan balance
plus accrued interest in an interest bearing account as
collateral for the note................................... $ 831 $1,200
Term note payable to US Surgical bearing interest at 6% per
annum, payable quarterly. The principal balance under the
note matures in May 2005. The note payable is secured by
certain manufacturing assets of Columbus.................. 3,920 --
------ ------
4,751 1,200
Less--Current portion....................................... 368 368
------ ------
Total long--term...................................... $4,383 $ 832
====== ======
</TABLE>
Future repayments of the notes payable are scheduled as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
2000.................................................... $ 368
2001.................................................... 463
2005.................................................... 3,920
------
$4,751
======
</TABLE>
7. LICENSE AND RESEARCH & DEVELOPMENT AGREEMENTS:
The Company has entered into a number of license and research & development
agreements since its inception. These agreements have been made with various
research institutions, universities, and government agencies in order to advance
and obtain technologies management believes important to the Company's overall
business strategy.
License agreements generally provide for an initial fee followed by annual
minimum royalty payments. Additionally, certain agreements call for future
payments upon the attainment of agreed to milestones, such as, but not limited
to, Investigational New Drug (IND) application or Product License Approval
(PLA). These agreements require minimum royalty payments based upon sales
developed from the applicable technologies, if any. The Company's policy is to
amortize capitalized licensed technology over a seven year period or over the
license term, whichever is shorter, using the straight-line method.
Research & development agreements generally provide for the Company to fund
future project research for one to four years. Based upon these agreements, the
Company may obtain exclusive and non-exclusive rights and options to the
applicable technologies developed as a result of the applicable research. The
Company's policy is to expense research and development payments as incurred.
F-11
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LICENSE AND RESEARCH & DEVELOPMENT AGREEMENTS: (CONTINUED)
The minimum payments (assuming non-termination of the above agreements) as
of July 31, 1999, for each of the next five years are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
RESEARCH
LICENSE DEVELOPMENT
YEAR ENDING JULY 31, AGREEMENTS AGREEMENTS
- -------------------- ---------- -----------
<S> <C> <C>
2000.............................................. $296 $50
2001.............................................. 296 50
2002.............................................. 389 50
2003.............................................. 389 50
2004.............................................. 274 --
</TABLE>
Should the Company achieve certain milestones related to product development
and product license applications and approvals, additional payments would be
required if the Company elects to continue and maintain its licenses. The
agreements also require the Company to fund certain costs associated with the
filing of patent applications.
8. CONTRACT RESEARCH REVENUES:
During the three years ended July 31, 1999, the Company recorded contract
research revenues from the Commerce Department's National Institute of Standards
and Technology (NIST) and National Institutes of Health (NIH).
In July 1995, the Company entered into a collaborative research and
development agreement in connection with its xenotransplantation program with US
Surgical. In September 1997, the Company modified its research and development
agreement with US Surgical. As part of the modification agreement, US Surgical
purchased 166,945 shares of common stock for $3.0 million. In February 1999, as
part of the termination of this agreement, the Company purchased certain
manufacturing assets and effected the return of all technology rights of its
xenotransplantation program from US Surgical. The Company financed the asset
purchase with a $3.9 million note payable (see Note 6).
In December 1996, the Company entered into a license and collaborative
research agreement with Genetic Therapy Inc. ("GTI/Novartis"), a subsidiary of
Novartis, Inc., relating to the Company's gene transfer technology. In
October 1998, in view of Alexion's increased focus on the advanced clinical
development of its anti-inflammatory drug candidates and GTI/Novartis' announced
restructuring and reorganization, the Company and GTI/Novartis agreed to
discontinue the collaborative gene therapy program.
In August 1995, the Company was awarded a three-year agreement, for
approximately $2 million, from NIST to fund a xenotransplantation project. In
November 1997, the Company and US Surgical were awarded a three-year,
$2 million cooperative agreement from NIST to fund a joint xenotransplantation
project. This agreement was modified into a single entity agreement in
February 1999. In October 1998, the Company was awarded another three-year
$2 million agreement from NIST to fund a xenotransplantation project.
In January 1999, the Company and Procter & Gamble Pharmaceuticals Inc.
("P&G") entered into an exclusive collaboration to develop and commercialize
5G1.1-SC, one of the Company's lead product candidates. Under this
collaboration, the Company will initially pursue the development of 5G1.1-SC for
F-12
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CONTRACT RESEARCH REVENUES: (CONTINUED)
the treatment of inflammation caused by cardiopulmonary bypass surgery, heart
attack, and angioplasty. P&G has agreed to fund all clinical development and
manufacturing costs relating to 5G1.1-SC for these indications. Additionally,
P&G has agreed to pay the Company up to $95 million in payments, which include a
non-refundable upfront license fee, milestone payments, and research and
development support payments. The Company will also receive royalties on
worldwide sales of 5G1.1-SC, if any, for all indications. The Company also has a
preferred position relative to third-party manufacturers to manufacture 5G1.1-SC
worldwide. The Company shares co-promotion rights with P&G to sell, market and
distribute 5G1.1-SC in the United States, and has granted P&G the exclusive
rights to sell, market and distribute 5G1.1-SC outside of the United States.
Through July 31, 1999, the Company recorded revenues of $17.8 million from P&G,
including receiving a non-refundable upfront license fee of $10 million and
$7.8 million for research and development support expenses.
A summary of revenues generated from contract research collaboration and
grant awards is as follows for the years ended July 31, (dollars in thousands):
<TABLE>
<CAPTION>
COLLABORATION/GRANT AWARDS 1999 1998 1997
- -------------------------- -------- -------- --------
<S> <C> <C> <C>
P&G................................................ $17,753 $ -- $ --
NIST and NIH....................................... 834 857 924
US Surgical........................................ -- 3,780 1,804
GTI/Novartis....................................... 167 400 1,083
------- ------ ------
$18,754 $5,037 $3,811
======= ====== ======
</TABLE>
9. COMMITMENTS:
The Company has entered into three-year and five-year employment agreements
with its executives. These agreements provide that these individuals will
receive aggregate annual base salaries of approximately $827,000 as of July 31,
1999. These individuals may also receive discretionary bonus awards, as
determined by the Board of Directors.
As of July 31, 1999, the Company leases its administrative and research &
development facilities under three operating leases which expired in
December 1997, June 1998, and March 1999. The Company is currently continuing
the leases on a month-to-month basis while discussions for new lease
arrangements continue. The Company believes it will reach an agreement regarding
such facilities on commercially adequate terms.
Lease expense for the Company's facilities was $420,000, $415,000 and
$216,000 for the years ended July 31, 1999, 1998, and 1997, respectively.
Future minimum annual rental payments as of July 31, 1999, under other
noncancellable operating leases (primarily for equipment) are approximately
$36,000, $34,000, $30,000, $30,000, and $30,000 for the five years ended
July 31, 2004, respectively.
F-13
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK AND PREFERRED STOCK:
FISCAL 1997 PRIVATE PLACEMENT--
In July 1997, the Company completed a private placement offering for
1,450,000 shares of common stock, resulting in net proceeds of approximately
$10.4 million.
FISCAL 1998 PRIVATE PLACEMENTS--
In September 1997, the Company completed the private placement of 400,000
shares of Series B convertible preferred stock for aggregate consideration of
$10 million to a single institutional investor, Biotech Target, S.A., a
wholly-owned subsidiary of BB Biotech AG. The net proceeds to the Company were
approximately $9.5 million. The investor was entitled to a dividend of $2.25 per
share of Series B convertible preferred stock if this stock was held through
March 4, 1998. In March 1998 the investor converted the preferred stock into
935,782 shares of common stock and dividends of $900,000 were paid by the
delivery of an additional 70,831 shares of the Company's common stock. Also, in
March 1998, Biotech Target S.A. purchased an additional 670,000 shares of common
stock for aggregate consideration of approximately $8.8 million.
In September 1997, the Company sold 166,945 shares of its common stock to US
Surgical for aggregate consideration of $3.0 million. The sale of common stock
was made in connection with the modification of the joint development agreement
between the Company and US Surgical.
11. STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS--
Under the Company's 1992 Stock Option Plan, as amended, incentive and
nonqualified stock options may be granted for up to a maximum of 3.1 million
shares of common stock to directors, officers, key employees and consultants of
the Company. Under the Company's 1992 Stock Option Plan for Outside Directors,
as amended, the Company has registered an additional 200,000 shares of common
stock for issuance upon exercise of options granted under the plan. Options
generally become exercisable in equal proportions over three to four years and
remain exercisable for up to ten years after the grant date, subject to certain
conditions.
Statement of Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation (SFAS 123) requires the measurement of the fair value
of stock options or warrants to be included in the statement of income or
disclosed in the notes to financial statements. The Company has determined that
it will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS 123. The Company has computed the pro forma disclosure
required under SFAS 123 for options granted using the Black-Scholes option
pricing model prescribed by SFAS 123. The weighted average assumptions used are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate........................... 5.00% 5.25% 6.25%
Expected dividend yield........................... 0% 0% 0%
Expected lives.................................... 5 years 5 years 5 years
Expected volatility............................... 65% 61% 53%
</TABLE>
F-14
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS: (CONTINUED)
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's net loss and pro forma net
loss per common share would have been increased to the pro forma amounts
indicated below (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(6,395) $(8,765) $(7,252)
Pro forma....................................... (8,419) (9,958) (7,815)
Net loss per common share:
As reported..................................... $ (0.57) $ (0.87) $ (0.97)
Pro forma....................................... (0.74) (0.99) (1.05)
</TABLE>
A summary of the status of the Company's stock option plans at July 31,
1999, 1998 and 1997 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at August 1.................. 1,727,986 $7.40 1,484,284 $ 6.63 1,207,334 $ 5.46
Granted................................ 780,750 9.64 279,750 $11.31 337,250 $10.37
Exercised.............................. (66,587) 5.75 (21,864) $ 3.16 (34,937) $ 2.38
Cancelled.............................. (93,562) 9.73 (14,184) $11.29 (25,363) $ 6.19
--------- ----- --------- ------ --------- ------
Outstanding at July 31................... 2,348,587 $8.10 1,727,986 $ 7.40 1,484,284 $ 6.63
========= ===== ========= ====== ========= ======
Options exercisable at July 31........... 1,238,398 $6.46 883,063 $ 5.73 574,690 $ 4.98
Weighted-average fair value of options
granted during the year................ $6.52 $ 6.42 $ 5.40
</TABLE>
During fiscal 1999, options to purchase 513,500 shares of common stock were
granted at an exercise price equal to the fair value of the stock at the date of
grant. The weighted average exercise price of these options was $9.98 per share.
The weighted average fair value of these options at the date of grant was $5.89
per option. In addition, options to purchase 267,250 shares of common stock were
granted subject to shareholders' approving an increase in total shares available
to be granted under the plan. These options were granted at an exercise price of
$9.00 per share which was equal to the fair value of the common stock at the
date of grant. The exercise price of these options was less than the fair value
of the stock at the date of shareholder approval. Accordingly, the Company is
recording compensation expense based upon this difference over the vesting
period associated with these options. Compensation expense associated with these
options was $132,000 for the year ended July 31, 1999. Aggregate compensation
expense of approximately $600,000 associated with these option grants is
expected to be recognized over the next three years. The weighted average fair
value of these options at the date of shareholder approval was $7.73 per option.
F-15
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS: (CONTINUED)
The following table presents weighted average price and life information
about significant option groups outstanding at July 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS) PRICE EXERCISABLE PRICE
- --------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.37-$2.50 555,448 5.4 $ 2.38 536,698 $ 2.38
$2.51-$8.24 166,000 3.5 7.47 152,250 7.54
$8.25-$10.50 1,359,839 8.4 9.69 512,552 9.95
$10.51-$13.25 267,300 8.7 12.25 36,898 12.87
--------- --- ------ --------- ------
2,348,587 7.4 $ 8.10 1,238,398 $ 6.46
========= === ====== ========= ======
</TABLE>
WARRANTS--
In connection with the Company's initial public offering, the Company sold
to its underwriter, for nominal consideration, warrants to purchase 220,000
shares of common stock. These warrants are exercisable at a price of $9.90 per
share for a period of forty-two (42) months commencing on August 27, 1997. None
of these warrants have been exercised as of July 31, 1999.
12. RIGHTS TO PURCHASE PREFERRED STOCK:
In February 1997, the Board of Directors of the Company declared a dividend
of one preferred stock purchase right for each outstanding share of common
stock. Under certain conditions, each right may be exercised to purchase one
one-hundredth of a share of a new series of preferred stock at an exercise price
of $75.00, subject to adjustment. The rights may be exercised only after a
public announcement that a party acquired 20% or more of the Company's common
stock or after commencement or public announcement to make a tender offer for
20% or more of the Company's common stock. The rights, which do not have voting
rights, expire on March 6, 2002, and may be redeemed by the Company at a price
of $0.01 per right at any time prior to their expiration or the acquisition of
20% or more of the Company's stock. The preferred stock purchasable upon
exercise of the rights will have a minimum preferential dividend of $10.00 per
year, but will be entitled to receive, in the aggregate, a dividend of 100 times
the dividend declared on a share of common stock. In the event of a liquidation,
the holders of the shares of preferred stock will be entitled to receive a
minimum liquidation payment of $100 per share, but will be entitled to receive
an aggregate liquidation payment equal to 100 times the payment to be made per
share of common stock.
In the event that the Company is acquired in a merger, other business
combination transaction, or 50% or more of its assets, cashflow, or earning
power are sold, proper provision shall be made so that each holder of a right
shall have the right to receive, upon exercise thereof at the then current
exercise price, that number of shares of common stock of the surviving company
which at the time of such transaction would have a market value of two times the
exercise price of the right.
F-16
<PAGE>
ALEXION PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. 401(K) PLAN:
The Company has a 401(k) plan. Under the plan, employees may contribute up
to 15 percent of their compensation with a maximum of $10,000 per employee in
calendar year 1999. Effective January 1998, Company matching contributions of
$0.50 for each dollar deferred (up to the first 6% deferred) have been
authorized by the Board of Directors. The Company had matching contributions of
approximately $85,000, $48,000 and $31,000 for the years ended July 31, 1999,
1998 and 1997, respectively.
14. INCOME TAXES:
At July 31, 1999, the Company has available for federal tax reporting
purposes, net operating loss carryforwards of approximately $44.1 million which
expire through 2019. The Company also has research and development credit
carryovers of approximately $2.2 million which begin to expire commencing in
fiscal 2008. The Tax Reform Act of 1986 contains certain provisions that may
limit the Company's ability to utilize net operating loss and tax credit
carryforwards in any given year if certain events occur, including cumulative
changes in ownership interests in excess of 50% over a three-year period.
Accordingly there can be no assurance that the Company's ability to utilize its
existing net operating loss and tax credit carryforwards in future periods will
not be limited as a result of the effect of changes in ownership in excess of
50% over a three-year period.
The Company follows SFAS No. 109, "Accounting for Income Taxes." This
statement requires that deferred income tax assets and liabilities reflect the
impact of "temporary differences" between the amount of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws and
regulations.
The components of deferred income taxes as of July 31, 1999 are as follows
(dollars in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $16,801
Tax credit carryforwards.................................. 2,218
Other..................................................... 144
-------
Total deferred tax assets................................... 19,163
Less: Valuation allowance for deferred tax assets........... 19,163
-------
Net deferred tax assets..................................... $ --
=======
</TABLE>
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of July 31, 1999 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire deferred tax asset.
F-17
<PAGE>
Exhibit 10.27
ASSET PURCHASE AGREEMENT
by and between
UNITED STATES SURGICAL CORPORATION, and
CFC ASSETS CORPORATION
as Sellers, and
COLUMBUS FARMING CORPORATION, and
ALEXION PHARMACEUTICALS, INC.
as Purchasers
Dated as of February 9, 1999
<PAGE>
ASSET PURCHASE AND REVERSION AGREEMENT
This Asset Purchase and Reversion Agreement (the "Agreement"), dated as of
February 9, 1999, is by and between United States Surgical Corporation
(hereinafter "USSC"), a corporation organized and existing under the laws of the
State of Delaware and having principal offices at 150 Glover Avenue, Norwalk,
Connecticut, CFC Asset Corporation (hereinafter "CAC"), a corporation organized
and existing under the laws of the State of Delaware and having principal
offices at 150 Glover Avenue, Norwalk, Connecticut (USSC and CAC hereinafter
collectively referred to as the "Sellers"), and Alexion Pharmaceuticals, Inc., a
corporation organized and existing under the laws of the State of Delaware and
having its principal office at 25 Science Park, Suite 360, New Haven, CT 06511
(hereinafter referred to as "Alexion"), and Columbus Farming Corporation
(hereinafter "CFC"), a corporation organized and existing under the laws of the
State of New York and having principal offices (*******) (Alexion and CFC
hereinafter collectively referred to as the "Purchasers") (Sellers and
Purchasers collectively hereinafter referred to as the "Parties"). Capitalized
terms used in this Agreement shall have the meanings given to them upon their
first use or in Section 16 hereof.
WITNESSETH
WHEREAS, USSC has been engaged in the business of the design, manufacture,
distribution and/or sale of medical devices, and has invested in technologies in
the field of xenotransplantation; and
WHEREAS, USSC holds licenses to certain intellectual property used by
Sellers in the said field; and
WHEREAS, USSC and Alexion have worked cooperatively in the development of
such xenotransplantation technologies, but USSC has decided to concentrate on
certain core businesses and therefore Sellers desire to divest themselves of
their business, properties and assets heretofore or currently used in connection
with their xenotransplantation business (the "Business"); and
WHEREAS, Sellers desire to sell and the CFC desires to buy, on the terms
and conditions set forth in this Agreement, the assets of the Business; and USSC
and Alexion have agreed that the licenses to certain intellectual property
granted by Alexion to USSC shall terminate and the technology and rights revert
to Alexion or shall otherwise be transferred to Alexion, all as set forth
herein.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties hereto agree as follows:
Section 1. Purchase and Sale of Purchased Assets.
(a) Subject to and upon the terms and conditions of this Agreement, the
Sellers covenant and agree to sell, assign, transfer and convey to the
Purchasers and the CFC agree to purchase from the Sellers, on the Closing Date
(as hereinafter defined), the assets of the Business which are listed below:
(i) The land (with the buildings and improvements thereon) described
in Schedule l(a)(i) hereto which the Parties agree shall be conveyed to CFC as
of the Closing Date;
(ii) All machinery and equipment, fixtures, furniture, furnishings,
tooting and instruments, which are used exclusively in the Business, including
without limitation, assets that are listed on Schedule l(a)(ii) hereto and any
other assets used exclusively in the Business acquired by the Sellers from the
date hereof to the Closing Date which the Parties agree shall be transferred to
CFC as of the Closing Date;
(iii) All of the Sellers' inventories and supplies including,
without limitation, raw materials, work-in-process and finished goods related to
the Business, (the "Inventory" except that "Inventory," shall be deemed not to
include livestock and biological materials which is part of the "Licensed
Technology" (hereinafter defined)), and the Parties agree that the Inventory
shall be transferred to CFC as of the Closing Date;
(iv) All Sellers' interest in the corporate name "Columbus Farming
Corporation", as well as CAC's post office box and telephone and facsimile
numbers shall be transferred to CFC as of the Closing Date;
(v) All rights and privileges of the Sellers under and pursuant to
any contracts, leases, licenses, and agreements to the extent incident to and
relating exclusively to the Business, all of which in an amount greater than
$5,000 are listed in Schedule l(a)(v) hereto, and any such contracts, leases,
licenses and agreements which are entered into in the ordinary course of the
Business from the date hereof to the Closing Date, to the extent that such
contracts are uncompleted and outstanding because, in the case of purchase
contracts, services have not been rendered to the Sellers or products or
supplies have not been received by the Sellers prior to the Closing Date, and,
in the case of the sales contracts, products have not been shipped by the
Sellers prior to the Closing Date shall be transferred to CFC as of the Closing
Date;
2
<PAGE>
(vi) All supplier lists, books, records and papers (1) of the
Sellers relaxing exclusively to the Business; and (2) of CAC; shall be
transferred to CFC as of the Closing Date except to the extent they are part of
the "Licensed Technology".
The items of property referred to in Sections l(a)(i) through l(a)(vi)
above, excluding the items described in Section 1(b) below, are hereinafter
collectively referred to as the "Purchased Assets".
(b) Excluded Assets. "Licensed Technology" (hereinafter defined) is
excluded from the definition of "Purchased Assets". Excluded from this sale and
from the definition of "Purchased Assets" is (i) the Adpro microwave transmitter
and related equipment located at CAC's (*******) facility, and ii) all know-how
specific to Sellers bioabsorbable compositions including, but not limited to,
the chemistry, formulation or composition of polymers developed, acquired or
licensed by USSC, specifically including those containing (*******) (referred to
as the "Bioabsorbable Know-how").
Section 2. Assumption of Liabilities: Termination of Prior Agreement.
I. Assumption of Liabilities.
(a) Except as set forth in Section 2 (b) below, CFC shall assume any and
all liabilities of the Sellers related exclusively to the Business set forth in
clauses (i), (ii), (iii) and (iv) below (collectively, the "Assumed
Liabilities"):
(i) The obligations of the Sellers under the contracts described in
Schedule l(a)(v) and the contracts which are entered into in the ordinary course
of the Business and consistent with past practices from the date hereof to the
Closing Date to the extent that such contacts are uncompleted and outstanding
because, in the ease of purchase contracts, services have not been rendered to
the Sellers or products or supplies have not been received by the Sellers, as
the case may be, prior to the Closing Date and, in the case of sales contracts,
products have nor been shipped by the Sellers prior to the Closing Date;
(ii) The obligations of USSC under National Institute of Standards
and Technology Cooperative Agreement No. 70NANB7H3065 (referred to as the "NIST
Agreement").
(iii) The obligations and liabilities, including product
liabilities, relating to products manufactured or sold by Purchasers after the
date of Closing and relating to the Business.
3
<PAGE>
(iv) All other liabilities and obligations arising out of or
resulting from the conduct of the Business after the date of the Closing.
(b) Accounts and other payables arising out of the conduct of the Business
are specifically not assumed by the Purchasers and will be paid by Sellers when
due.
(c) (i) To the extent that the assignment of any contract or any license,
permit, approval or qualification issued or to be issued by any government or
agency or instrumentality thereof relating to the Business or the Purchased
Assets including, without limitation, the Permits (defined below) to be assigned
to the CFC or Alexion pursuant to this Agreement shall require the consent of
any other party, this Agreement shall not constitute a contract to assign the
same if an attempted assignment would constitute a breach thereof. The Sellers
shall use its reasonable commercial efforts, and the CFC or Alexion shall
cooperate where appropriate, to obtain any consent necessary to any such
assignment. If any such consent is not obtained, then the Sellers shall
cooperate with the CFC and Alexion in any reasonable arrangement requested by
CFC or Alexion designed to provide to the Purchasers the benefits under any such
contract license, permit, approval or qualification and the Permits, including
enforcement of any and all rights of the Sellers against the other party thereto
arising out of breach or cancellation thereof by such other party or otherwise.
(ii) Seller agrees to cooperate to the extent reasonably necessary
to obtain approval of an Assignment of Seller's interest in the NIST Agreement
to Alexion. This includes, without limitation, executing of any letters
requested by Alexion directed to persons or entities designated by Alexion
indicating that Sellers will no longer involved in the performance of the NIST
Agreement and that the performance of its obligations will be undertaken by
Alexion. Sellers shall also execute any other letters Alexion reasonably
requires to obtain approval of the assignment of the NIST Agreement to Alexion.
(d) Obligations of the Sellers relating to the Business but not assumed by
Purchasers herein shall constitute the "Excluded Liabilities", which shall
remain the responsibility of the Sellers after the Closing and shall not be
obligations of the Purchasers.
II. Termination of Prior Agreement.
(a) "Licensed Technology" shall mean:
(i) To the extent that any transferable rights currently obtain, all
U.S. and foreign letters patent and patent applications of the Sellers
(including all licenses with respect thereto), and Sellers' right, title and
interest in all reissues, divisions, continuations-in-part, extensions thereof,
and any other U.S. or foreign letters patent or patent applications
4
<PAGE>
claiming priority therefrom, and all licenses, technology, know-how, technical
information, inventions, research records and other documentation, formulae,
processes, techniques, technical information, manufacturing and engineering
drawings and information and trade secrets; as set forth in any of subsections A
and B, as follows:
(A) all that are being used exclusively in or relate
exclusively to the Business; and
(B) all that are listed on Schedule 2 II (a)(i) hereto;
(ii) All rights and privileges of the Sellers under and pursuant to
the NIST Agreement, and all notebooks, data, knowledge and records (in whatever
media) relating to the research conducted under said NIST Agreement and all
results of the research conducted under said NIST Agreement (excluding
Bioabsorbable Know-how);
(iii) livestock and biological materials; and
(iv) all rights, privileges, licenses, and assets granted or
conveyed to USSC, including without limitation all licenses granted pursuant to
the Joint Development Agreement, all assets and rights transferred to USSC
pursuant to the Amendment to the Joint Development Agreement dated September 30,
1997, USSC Pigs referred to therein, and the Germline Constituents referred to
therein.
(b) Alexion and USSC hereby terminate their Joint Development Agreement
dated as of July 31, 1995, as amended in the Amendment to Joint Development
Agreement dated September 30, 1997 and Amendment No. 2 to Joint Development
Agreement dated January 8, 1998 (as so amended, the "Joint Development
Agreement"), and shall at Closing execute mutual general releases releasing each
of them from any obligations whatsoever under or arising from said Joint
Development Agreement, as amended, except for the obligations set forth in
Article 5 thereof. It is the intention of the parties by this Agreement that the
Licensed Technology shall revert and are hereby transferred to and shall become
the sole and exclusive property of Alexion, and USSC shall have no further
rights or obligations with respect thereto other than the obligations set forth
in Article 5 of the Joint Development Agreement.
(c) To the extent that Sellers have any interest in any of the Licensed
Technology which does not revert to Alexion as a result the termination of the
Joint Development Agreement, the same shall nevertheless be deemed transferred
and assigned to Alexion as of the Closing Date.
5
<PAGE>
Section 3. Purchase Price.
Subject to and upon the terms and conditions of this Agreement, and as
full and complete consideration for the sale of the assets set forth herein,
Purchasers hereby agrees to pay to USSC $3,920,307.96 (*******) (the "Purchase
Price"). Notwithstanding anything in this Agreement to the contrary, no portion
of the Purchase Price shall be deemed payable by Alexion, and no portion of the
Purchase Price shall be deemed allocable to any property reverting, transferred,
or to be transferred to Alexion pursuant to this Agreement.
Section 4. Closing and Payment of Purchase Price.
(a) A closing (the "Closing") shall take place at 10:00 a.m. on February
9, 1999 at the offices of the Sellers at 150 Glover Avenue, Norwalk, CT 06851
(the "Closing Date").
(b) (i) On the Closing Date, the Sellers shall transfer to CFC by all
necessary and appropriate bills of sale, deeds, assignments and other
instruments, all right, title and interest of the Sellers in and to the
Purchased Assets (and the Licensed Technology shall revert to and be transferred
and assigned to Alexion) free and clear of all Liens, claims and encumbrances
whatsoever (other than the "Irwin Lien", as hereinafter defined), and CFC shall
deliver to USSC a promissory note (the "Note") in the amount of $3,920,307.96
(the form of which is attached hereto as Exhibit B), a mortgage on the real
estate portion of the Purchased Assets (the form of which is attached hereto as
Exhibit C), and a security agreement and appropriate UCC financing statements on
the tangible personal property portion of the Purchased Assets (the forms of
which are attached hereto as Exhibits D and E).
(ii) UCC # (*******) in which the secured party is the United
States of America c/o Farm Service Agency is referred to as the "Irwin Lien."
Sellers covenant that Sellers, at Sellers' sole cost and expense, will cause
the Irwin Lien to be removed from the Purchased Assets on or before the
sixtieth day after the Closing Date unless CFC, in its sole discretion,
agrees that the Irwin Lien may remain in connection with an agreement reached
between CFC and the debtors described in the Irwin Lien.
(iii) If a certificate of occupancy has not yet been issued for any
building or improvement on the real property described on Schedule l(a)(i),
Sellers shall, at Sellers' sole cost and expense, cause it to be issued on or
before the sixtieth day after the date of this Agreement.
6
<PAGE>
(c) On or before the date of the Closing, the Sellers shall:
(i) deliver to the Purchasers at the Sellers' (*******) facility
physical possession of all tangible Purchased Assets of the Business and
Licensed Technology located therein;
(ii) make available for pick-up by the Buyers such of the Purchased
Assets as are located at USSC's facility in North Haven, Connecticut;
(iii) if CFC has so requested, deliver letters to third parties from
whom CAC has contracted for goods and services indicating that the contracts
have been assigned to CFC and indicating that rights and warranties of CAC have
been assigned to CFC;
(iv) deliver share of stock of (*******) properly transferred to
CFC free and clear of all Liens;
(v) deliver titles to any vehicles, machinery or equipment for which
titles have been issued which are part of the Purchased Assets properly
transferred to CFC; and
(vi) deliver any additional documents and make any payments as are
required to transfer title from Sellers to Purchasers of any Purchased Assets
and Licensed Technology as required pursuant to this Agreement fully paid and
free and clear of any liens and encumbrances (except with respect to the Irwin
Lien).
(vii) deliver the "Estimated Payables Amount" reflected on Schedule
4(e)(vii) to the trust account of Purchasers' attorneys', Golenbock, Eiseman,
Assor & Bell via wire transfer. Purchasers attorneys shall be deemed authorized
to disburse the "Estimated Payables Amount" to CFC on the date of the Closing
and thereafter shall be free of any and all responsibilities with respect to
such amount.
(d) (i) Schedule 4(c)(vii) sets forth all of the payables which Sellers
have estimated as arising from the purchase of assets by Sellers in connection
with the Business on or before the date of the Closing and the operation of the
Business on or before the date of the Closing. CFC shall apply the Estimated
Payables Amount to the payment of the payables of CAC and/or USSC arising from
the purchase of assets by one or both of them in connection with the Business on
or before the date of the Closing and the operation of the Business on or before
the date of the Closing. CFC may also elect to pay such payables out of its own
funds, but CFC is not obligated to do so. To the extent such payables are paid
by CFC out of its own funds, the payment shall be reimbursed by Sellers.
Notwithstanding anything herein to the contrary, Purchasers do not
7
<PAGE>
assume responsibility for the payment of any of the payables of Sellers except
to the extent CFC has agreed to apply the Estimated Payables Amount received by
it to the payables. If the Estimated Payables Amount is insufficient to pay such
payables, Sellers agree to pay the balance of the payables and to reimburse CFC
for any portion of the balance paid by CFC except for the payables to (*******).
(ii) On or before the sixtieth day after the date of the Closing
(the "Reconciliation Date") CFC shall submit to Sellers a schedule of the
payments made from the Estimated Payables Amount and the bills as CFC shall have
received supporting the payments made. If the aggregate of the amounts paid by
CFC on account of the payables is less than the Estimated Payables Amount, CFC
shall pay USSC the difference on or before the tenth day after the
Reconciliation Date. If the aggregate of the amounts paid by CFC on account of
the payables is more than the Estimated Payables Amount, USSC shall pay CFC the
difference on or before the tenth day after the Reconciliation Date. If USSC
fails to pay CFC any amounts owed CFC in accordance with this subsection (d),
the same shall be a credit to CFC which CFC may apply against payments due USSC
pursuant to the Note until the credit has been exhausted.
(e) As of the date of the Closing, all warranties inuring to the benefit
of CAC from any contractors, manufacturers, and/or suppliers shall be deemed
assigned to CFC. At any time after the date of the Closing, if CFC so requests,
Sellers shall deliver letters to third parties from whom CAC has contracted for
goods and services in connection with the Business indicating that the contracts
have been assigned to CFC and indicating that rights and warranties of CAC have
been assigned to CFC.
Section 5. Representations and Warranties of the Sellers.
The Sellers hereby represent and warrant to the Purchasers as follows:
(a) Due Organization: The Sellers are corporations duly organized, validly
existing and in good standing under the laws of the state of Delaware, with all
requisite power and authority to own, lease and operate their properties, to
carry on their businesses as presently conducted by them, to enter into this
Agreement and the other instruments and agreements of the Sellers provided for
herein, and to consummate the transactions contemplated hereby and thereby.
(b) Authorization. The execution and delivery by the Sellers of this
Agreement and the other instruments and agreements of the Sellers provided for
herein, and the performance of their obligations hereunder and thereunder, have
been duly and validly authorized by all necessary action on their parts, and
this Agreement and all other such instruments and agreements delivered or to be
delivered by the Sellers in connection wit the transactions
8
<PAGE>
contemplated hereby are, or (when executed and delivered in accordance herewith)
will be, the legal, valid and binding obligations of the Sellers, enforceable
against them in accordance with their respective terms.
(c) Non-Contravention. Neither the execution and delivery by the Sellers
of this Agreement, nor the performance by them of their obligations hereunder
and thereunder will, or with the giving of notice or the lapse of time, or both,
would:
(i) conflict with, result in a breach of, or constitute a default
under, any provision of the organizational documents of the Sellers or of any
contract, indenture, lease, sublease, loan agreement, restriction, Lien or other
obligation or liability to which the Sellers are parties or by which either of
them are bound, or result in or create in any party the right to accelerate,
terminate, modify or cancel any contract, license, indenture, lease, sublease or
loan agreement to which the Sellers are parties or by which they, or any of
their properties or assets, is affected or bound;
(ii) violate any order, writ, injunction, decree, law, statute, rule
or regulation applicable to the Sellers; or
(iii) result in the creation or imposition of any Lien upon any of
the Purchased Assets or Licensed Technology.
(d) Asset Listing. The Sellers have delivered to the Purchasers a true and
complete listing of the purchase price of the machinery and equipment related to
the Business dated December 31, 1998 (the "Asset Listing"), which is attached
hereto as Exhibit A. The Asset Listing has been prepared from the books and
records of the Sellers and fairly presents such assets at the specified date,
and there have been no material changes in such Asset Listing since said date.
(e) Title to Purchased Assets; Condition of Purchased Assets. The Sellers
have good and marketable title to and possession of all the Purchased Assets and
the Licensed Technology, free and clear of all Liens; and, to the best of
Sellers' knowledge and belief, no interest in or right to any such Purchased
Assets or the Licensed Technology is held, legally or beneficially by any person
or entity other than the Sellers. Purchased Assets have been properly maintained
and are in good operating condition, reasonable wear and tear excepted, and
there exists no outstanding notice of any violation of any statute relating to
them or to the Licensed Technology.
(g) Intellectual Property. Schedule 2 II (a)(i) sets forth a complete and
accurate list of all of the United States and foreign patents, and/or
applications therefor that are owned, possessed or held by the Sellers and used
in the conduct of the Business (the "Intellectual
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Property"). Unless otherwise indicated in such Schedule 2 II (a)(i), to the best
of Sellers' knowledge and belief, the Sellers exclusively owns the entire right,
title and interest in and to each item of Intellectual Property free and clear
of the rights of any other persons or entities (other than Purchasers).
(h) Contracts. Schedule 1(a)(v) lists all material contracts, leases,
agreements, letters of intent and commitments, whether written or oral, of an
amount equal to or greater than $5,000, to which the Sellers are a party or by
which the Sellers or any of the Purchased Assets or the Licensed Technology are
bound and which relate to the conduct of the Business (collectively, the
"Contracts"). Except as set forth in such Schedule 1(a)(v), (i) all of the
Contracts were entered into in the ordinary course of the Business, (ii) all of
the Contracts are currently in full force and effect, binding upon the parties
thereto, and enforceable against them in accordance with their terms, (iii) to
the best of Sellers' knowledge, the Sellers are complying in full with the terms
and provisions thereof, (iv) to the best knowledge of the Sellers, the other
parties to all of the Contracts are complying in full with the terms and
provisions thereof, (v) there are no progress payments, advances, or arrearages
in connection with any of the Contacts except as set forth on Schedule 1 (a)(v),
and (vi) the consummation of the transactions contemplated hereby will not
impair any right or privilege enjoyed by the Sellers or the Purchasers under any
Contract, or give rise to any right of termination or cancellation thereunder or
diminution of rights.
(i) Consents of Third Parties. No consent, approval or agreement of any
Person, party, court, government or entity is required to be obtained by the
Sellers in connection with the execution and delivery of this Agreement or the
other instruments or agreements provided herein or therein, or the consummation
of the transactions contemplated hereby or thereby.
(j) Litigation. There is no litigation, arbitration, claim, governmental
or other investigation or proceeding (formal or informal) pending or, to the
best knowledge of the Sellers, threatened with respect to the Business, or the
Purchased Assets, or the Licensed Technology, or the transactions contemplated
hereby and to the best knowledge of the Sellers there exists no basis or grounds
for any of the foregoing. To the best knowledge of the Sellers, the Sellers are
not in violation of, or in default with respect to, any order, judgment or
decree applicable to the Business or the Purchased Assets or the Licensed
Technology, and are not required to take any remedial action in order to avoid
such violation or default.
(k) Legal Matters. The Sellers are in compliance with all applicable laws,
including, without limitation, all environmental laws and other laws and
regulations of governmental agencies in connection with the Business and the
real property described in Schedule 1 (a)(i) and the buildings and improvements
thereon, except for any failure to comply which individually or in the aggregate
would not have a material adverse effect on the business, properties, assets or
condition (financial or otherwise) of CAC or CFC.
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(l) No Broker. No agent, broker, person or firm acting on behalf of the
Sellers, or under its authority, is or will be entitled to a financial advisory
fee, brokerage commission, finder's fee or like payment in connection with this
Agreement or any of the transactions contemplated hereby.
(m) New York Lien Law. Seller shall comply wit its obligations pursuant to
Section 13 of the New York Lien Law.
(n) NIST Agreement. Sellers have received no notice of default with
respect to the NIST Agreement, and to the best of Seller's knowledge, Sellers
are not in default of any of their obligations pursuant to the NIST Agreement.
(o) Franchise Taxes. All franchise taxes due to date for USSC and CAC have
been paid to date. If they have not, Sellers promise to pay them.
(p) Certificates of Occupancy. All work performed in connection with any
construction on the real property described on Schedule l(a)(i), including
without limitation, work performed by (******) and its subcontractors and
materials supplied by its materialmen have as been fully completed and paid for.
(q) Liens. The Licensed Technology and the Purchased Assets are not
subject to any lien or security interest (excluding the Irwin Lien).
(r) Residents. No person resides or has the right to reside on the real
property described on Schedule 1(a)(i) except (*******), an employee of CAC, has
been required to live on the real property as a part of his employment through
the date of this Closing. (*******) has no tenancy in or continuing right to
reside on the real property after the termination of his employment by CAC as of
the Closing Date.
Section 6. Representations and Warranties of the Purchasers. The
Purchasers represents and warrants to the Sellers as follows:
(a) Due Organization. Alexion is a corporation duly organized, validly
existing and in good standing under the laws of Delaware with all requisite
corporate power and authority to enter into this Agreement and the other
instruments and agreements to be delivered by it hereunder, and to consummate
the transactions contemplated hereby and thereby. CFC is a corporation duly
organized, validly existing and in good standing under the laws of New York
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with all requisite corporate power and authority to enter into this Agreement
and the other instruments and agreements to be delivered by it hereunder, and to
consummate the transactions contemplated hereby and thereby.
(b) Authorization. The execution and delivery by the Purchasers of this
Agreement and the other instruments and agreements of the Purchasers provided
for herein, and the performance of their obligations hereunder and thereunder,
have been duly and validly authorized by all necessary action on their parts,
and this Agreement and all other such instruments and agreements delivered or to
be delivered by the Purchasers in connection with the transactions contemplated
hereby are, or (when executed and delivered in accordance herewith) will be, the
legal, valid and binding obligations of the Purchasers, enforceable against them
in accordance with their respective terms.
(c) Non-Contravention. Neither the execution and delivery of this
Agreement by the Purchasers nor the performance by the Purchasers of their
obligations hereunder and thereunder will, or with the giving of notice or the
lapse of time, or both, would:
(i) conflict with, result in a breach of, or constitute a default
under, any provision of the Purchasers' charters or by-laws, or of any contract,
indenture, lease, sublease, loan agreement, Lien or other obligation or
liability to which the Purchasers are parties or by which they are bound; or
(ii) violate any order, writ, injunction, decree, law, statute, rule
or regulation applicable to or by which they or their properties are bound.
(d) Litigation. There is no litigation, arbitration, claim, governmental
or other investigation or proceeding (formal or informal) involving the
transactions contemplated hereby pending or, to the best knowledge of the
Purchasers, threatened, against the Purchasers and to the best knowledge of the
Purchasers there exists no bases or grounds for any of the foregoing.
(e) No Broker. No agent broker, person or firm acting on behalf of the
Purchasers or under their authority, is or will be entitled to a financial
advisory fee, brokerage commission, finder's fee or like payment in connection
with this Agreement or any of the transactions contemplated hereby.
(f) Consents of Third Parties. No consent, approval or agreement of any
Person, party, court, government or entity is required to be obtained by the
Purchasers in connection with the execution and delivery of this Agreement, or
the other instruments and agreements provided herein or the consummation of the
transactions contemplated hereby.
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Section 7. Covenants of the Sellers Pending the Closing.
The Sellers covenant and agree that between the date of this Agreement and
the Closing or termination of this Agreement prior to Closing:
(a) The Sellers will not take any action, or omit to take any action,
which action or omission would make any of the representations and warranties of
the Sellers untrue or incorrect in any material respect at the Closing Date, and
will not undertake any course of action inconsistent with this Agreement, or
which would render any of the conditions to Closing by the Purchasers unable to
be satisfied at or prior to the Closing Date.
(b) The Purchasers and their officers, employees, and other agents,
including accountants and counsel, shall have reasonable access to all of the
books of account, records, permits, franchises, plans and other business records
of the Sellers, at reasonable times during business hours, for the purpose of
examining and inspecting the same and making copies of and extracts from such
records and documents.
(c) The Sellers will carry on the Business in the ordinary course,
consistent with past practice. The Sellers will make no material change in the
Purchased Assets or Licensed Technology, its business, contracts, accounting
practices, methods of operation or management of its business and properties
relating to the Business without the Purchasers' prior written consent.
(d) The Sellers will use all reasonable efforts to (i) promptly make all
filings and seek to obtain all authorizations required under the Sellers'
Contracts and applicable laws with respect to the transactions contemplated
hereby and will cooperate with the Purchasers with respect thereto, (ii)
promptly take or cause to be taken all other actions necessary, proper or
appropriate to satisfy the conditions set forth in Section 9 and to consummate
and make effective the transactions contemplated by this Agreement on the terms
and conditions set forth herein and therein as soon as practicable, and (iii)
not take any action that would reasonably be expected to impair the ability of
the Sellers to consummate the transactions contemplated by this Agreement at the
earliest practicable time, including without limitation any action that would
impair efforts to secure any required authorizations for such transactions. The
reasonable efforts of the Sellers shall include, without limitation, good faith
response, in cooperation with the Purchasers, to all requests for information,
documentary or otherwise, by any governmental agency.
Section 8. Covenants of the Purchasers Pending the Closing.
The Purchasers hereby covenant and agree that between the date of this
Agreement and the Closing or termination of this Agreement prior to the Closing:
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(a) The Purchasers will not take any action, or omit to take any action,
which action or omission would make any of their representations and warranties
untrue or incorrect in any material respect at the Closing Date, and will not
undertake any course of action inconsistent with this Agreement, or which would
render any of the conditions to Closing by the Sellers unable to be satisfied at
or prior to the Closing Date.
(b) The Purchasers will use all reasonable efforts to (i) promptly make
all filings and seek to obtain all authorizations required to be made by the
Purchasers under applicable laws with respect to the transactions contemplated
hereby and will cooperate with the Sellers with respect thereto, (ii) promptly
take or cause to be taken all other actions necessary, proper or appropriate to
satisfy the conditions set forth in Section 10 and to consummate and make
effective the transactions contemplated by this Agreement on the terms and
conditions set forth herein and therein as soon as practicable, and (iii) not
take any action that would reasonably be expected to impair their ability to
consummate the transactions contemplated by this Agreement at the earliest
practicable time, including without limitation any action that would impair
efforts to secure any required authorizations for such transactions. The
reasonable efforts of the Purchasers shall include, without limitation, good
faith response, in cooperation with the Sellers, to all requests for
information, documentary or otherwise, by any governmental agency.
Section 9. Conditions Precedent to Closing by the Sellers.
The obligations of the Sellers to sell the Purchased Assets and to
consummate the transactions contemplated hereby are subject, at their sole
option, to the fulfillment prior to or at the Closing of each of the following
conditions:
(a) All of the representations and warranties made by the Purchasers in
this Agreement shall be true and correct in all respects both on and as of the
date of this Agreement and on and as of the Closing Date.
(b) The Purchasers shall have delivered the consideration set forth in
Section 4(b)(i) to the Sellers.
(c) All consents, approvals, authorizations and registrations,
qualifications or filings, required to have been made or obtained by the
Purchasers to permit the consummation by the purchasers of the transactions
contemplated hereby shall have been made or obtained, and all required
authorizations, consents and approvals of third parties to permit the
consummation of the transactions contemplated hereby shall have been obtained.
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(d) No action or proceeding before a court or other governmental body
shall have been instituted or threatened by any government or agency thereof, or
by any other third party, to restrain or prohibit the consummation of any of the
transactions contemplated hereby.
Section 10. Conditions Precedent to Closing by the Purchasers.
The obligations of the Purchasers to purchase the Purchased Assets and to
consummate the transactions contemplated hereby are subject, at its sole option,
to the fulfillment prior to or at the Closing of each of the following
conditions:
(a) All of the representations and warranties made by the Sellers in this
Agreement shall be true and correct in all respects both on and as of the date
of this Agreement and on and as of the Closing Date.
(b) All consents, approvals and authorizations and registrations,
qualifications or filings, required to have been made or obtained by the Sellers
to permit the consummation by the Sellers of the transactions contemplated
hereby shall have been made or obtained, and all required authorizations,
consents and approvals of third parties to permit the consummation by the
Sellers of the transactions contemplated hereby shall have been obtained, except
as otherwise specified herein. All required consents, approvals and
authorizations of third parties to permit the consummation by the Purchasers of
the transactions contemplated by this Agreement shall have been obtained, except
as otherwise specified herein.
(c) No action or proceeding before a court or other governmental body
shall have been instituted or threatened by any government or agency thereof, or
by any other third party, to restrain or prohibit the consummation of any of the
transactions contemplated hereby.
(d) The Purchasers shall have received from the Sellers appropriate
documentation, reasonably satisfactory to the Purchasers, to transfer the
Purchased Assets to the Purchasers.
Section II. Indemnification.
(a) The parties shall be entitled to rely upon the representations and
warranties of the other parties set forth in this Agreement, and except as
otherwise specifically provided herein, such representations and warranties
shall survive the Closing and remain in full force and effect for a period of
three years after the Closing and shall thereafter expire, except with respect
to matters as to which notice has been given to the indemnifying party within
three years of the Closing. Notwithstanding the foregoing, warranties and
representations relating to title and authority matters shall survive
indefinitely.
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(b) The Sellers hereby agree to indemnify and hold the Purchasers and
their officers, directors, employees, stockholders, agents and representatives,
harmless from and against and to pay for any loss, liability, claim, damage or
expense (including costs of litigation and reasonable legal fees and expenses)
(a "Loss") suffered or incurred by any such indemnified party based upon,
arising out of or resulting from any of the following:
(i) Any breach of any representation or warranty of the Sellers
contained in this Agreement or any other agreement or document delivered by them
pursuant hereto;
(ii) Any breach of any covenant of the Sellers contained in this
Agreement or any other agreement or document delivered by it pursuant hereto
requiring performance after the Closing Date;
(iii) Noncompliance with any so-called bulk sales law of any state
applicable to the transactions contemplated hereby; and
(iv) Excluded Liabilities.
(c) The Purchasers hereby agrees to indemnify the Sellers, and their
respective officers, directors, employees, stockholders, agents and
representatives, against and hold the Sellers harmless from and against and to
pay for any Loss suffered or incurred by the Sellers based upon, arising out of
or resulting from any of the following:
(i) Any breach of any representation or warranty of the Purchasers
contained in this Agreement or any other agreement, certificate or document
delivered by the Purchasers pursuant hereto;
(ii) Any breach of any covenant of the Purchasers contained in this
Agreement or any other agreement or document delivered by the Purchasers
pursuant hereto; and
(iii) Assumed Liabilities.
(d) Promptly after any person entitled to indemnification under this
Section 11 (the "Indemnified Party") has received notice of or has knowledge of
any claim against the Indemnified Party by a person not a party to this
Agreement (a "Third Person") or the commencement of any action or proceeding by
a Third Person, it shall give the other party (the "Indemnifying Party") written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the Loss. The Indemnifying Party shall have right to defend, at its
own expense and by its own counsel, any such matter so long as the indemnifying
Party pursues the same in good
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faith and diligently. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate with the Indemnifying Party and its
counsel in the defense thereof and in any settlement thereof provided the
settlement consists solely of payment of money by the Indemnifying Party. Such
cooperation shall include, but shall not be limited to, furnishing the
indemnifying Party with any personnel, books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. Notwithstanding the foregoing, the Indemnified Party
shall have the right to participate in any matter trough counsel of its own
choosing at its own expense (unless there is a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, in which case the Indemnifying Party will reimburse the Indemnified Party
for the expenses of its counsel); provided however, that the Indemnifying
Party's counsel shall always be lead counsel and shall determine all litigation
and settlement steps, strategy and the like, provided, that the Indemnifying
Party shall not be entitled to pursue or effect any settlement that involves
anything other than the payment of money by the Indemnifying Party. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim involving solely the payment of money
by the Indemnifying Party, such settlement shall require as an unconditional
term thereof that the Third Person deliver to the Indemnified Party a release
from all liability in respect of such claim. After Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person's claim shall be limited to the amount
so offered in settlement by said Third Person and the Indemnified Party shall
reimburse the Indemnifying Party for any additional costs of defense which it
subsequently incurs with respect to such claim. If the Indemnifying Party does
not undertake to defend such matter to which the Indemnified Party is entitled
to indemnification hereunder, or fails to diligently pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith.
(e) Anything to the contrary contained herein notwithstanding, neither
party shall be entitled to recovery from the other party with respect to any
inaccuracy or breach of any representation or warranty in Sections 5 or 6,
hereof, as applicable, unless and until the amount of such Losses suffered,
sustained or incurred by the asserting party, or to which such party becomes
subject, by reason of such inaccuracy or breach, shall exceed $40,000 calculated
on a cumulative basis and not on a per item basis (the "Basket Amount"), and
then only with respect
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to the excess over the Basket Amount, but in no event shall either party be
liable to the other, in each case in an aggregate amount in excess of the
Purchase Price; provided, that the Basket Amount shall not be applicable to any
representations or warranties with respect to title or authority matters.
Section 12. Termination of Agreement.
(a) This Agreement may be terminated at any time prior to the Closing:
(i) by mutual consent of the parties hereto;
(ii) by the Sellers, on the one hand, or by the Purchasers, on the
other hand, in the event of a material breach or default by the other party
hereto of any provision of this Agreement and, in the case of a breach or
default that is capable of being cured, continuation of such breach or default
for a period of 30 days after written notice thereof shall have been given to
the breaching party.
(b) Upon termination of this Agreement as provided in paragraph (a) above,
all obligations of the parties hereunder shall terminate, but such termination
will in no way limit any obligation or liability of any party based on or
arising from a breach or default by such party which occurs prior to such
termination with respect to any of his or its representations, warranties,
covenants or agreements contained in this Agreement. The provisions of this
Section 12 and of Sections 16, 17 and 18 shall survive the termination of this
Agreement.
Section 13. Additional Covenants and Agreements.
(a) Employee and Employee Benefit Matters.
Employment Status. The Sellers agree that they shall terminate the
employment of the Employees (as defined below) as of the date of Closing and
that they shall not discourage the Employees from accepting employment with the
Purchasers after the date of Closing. The Employees who accept such employment
shall become Employees of the Purchasers immediately after the Closing. As used
in this Section 13(a), "Employees" shall include all of those employees of the
Business, both salaried and hourly, who are listed on Schedule 13(a) hereto. The
parties hereto understand and agree that, to the maximum extent permitted by
applicable law, such employment shall continue to be employment at will.
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(b) Books, Records and Information.
(i) The Purchasers agree that all documents included in the
Purchased Assets delivered to the Purchasers by the Sellers pursuant to this
Agreement and all documents of the Business shall after the Closing be open for
inspection by representatives of the Sellers at any time during regular business
hours for reasonable and necessary purposes until such time as documents are
destroyed or possession thereof is given to the other party as provided for in
Section 13(b)(ii) hereof and that the Sellers may during such period at their
expense make such copies thereof as it may reasonably request for preparation of
Sellers' tax returns. The Sellers agrees that all documents that are retained by
the Sellers after the Closing Date and that are related to the Business (other
than tax records of the Sellers) shall be open for inspection by representatives
of the Purchasers at any time during regular business hours until such time as
documents are destroyed or possession thereof is given up to the other party as
provided for in Section 13(b)(ii) hereof and that the Purchasers may during such
period at its expense make such copies thereof as they may reasonably request.
(ii) Without limiting the generality of Section 13(b)(i), for a
period ending on the sixth anniversary of the Closing Date, neither the
Purchasers nor the Sellers shall destroy or give up possession of any item
referred to in Section 13(b)(i) hereof without first offering to the other the
opportunity, at such other's expense (but without any other payment) to obtain
the same. Thereafter each party shall be free to dispose of any such item as it
deems fit.
(iii) The Purchasers shall use reasonable efforts to afford the
Sellers access to employees who were previously employees of the Sellers, and
remain in the employ of the Purchasers and the Sellers shall reasonably request
for its proper business purposes, including, without limitation, the defense of
legal proceedings. Such access may include interviews or attendance at
depositions or legal proceedings. All out-of-pocket expenses reasonably incurred
by the Purchasers in connection with this Section 13(b)(iii) shall be paid or
promptly reimbursed by the Sellers.
(c) Tax Matters.
(i) Taxes Through Closing Date.
Sellers shall be solely responsible for and shall indemnify
and hold harmless Purchasers for all Taxes of CAC for all periods and also with
respect to the Business transferred to CFC and the Purchased Assets for or
pertaining to all periods up to and including the Closing Date, and which shall
be deemed included in "Excluded Liabilities." Purchasers shall be responsible
for and indemnify and hold harmless Sellers for all Taxes with respect to the
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Purchased Assets for or pertaining to all periods thereafter except that any
Taxes imposed upon the ownership of Purchased Assets on a particular date, or
similar tax, shall be prorated over the period ending on the Closing Date and
the period thereafter. Any claim for indemnification hereunder shall be subject
to the procedures set forth in Section II hereof.
(ii) Cooperation and Exchange of Information. Purchasers shall
provide Sellers with such cooperation and information as Sellers reasonably may
request with respect to the filing of any Return, amended Return or claim for
refund, the determination of a liability for Taxes, or a right to refund of
Taxes, or the conduct of any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
Returns, together with accompanying schedules and related work papers, documents
relating to rulings or other determinations by taxing authorities, and records
concerning the ownership and tax basis of property, which Purchasers may possess
concerning the Business. Purchasers shall make its employees available to
Sellers on a mutually convenient basis to provide explanation of any documents
or information provided hereunder. Notwithstanding the foregoing, Purchasers
shall not be required to prepare any documents, or determine any information not
ten in its possession in response to a request under this Section 13(c)(ii)
Sellers shall reimburse Purchasers for any reasonable out-of-pocket costs
incurred by Purchasers in providing any Return, document or other written
information, and shall reimburse Purchasers for any reasonable out-of-pocket
costs (excluding regular wages and salaries) of making employees available, upon
receipt of reasonable documentation of such costs. Except as otherwise provided
in this Agreement, Purchasers shall retain all Returns, schedules and work
papers and all material records or other documents relating thereto, until the
expiration of the period of time beginning on the Closing Date and ending on the
date on which taxes may no longer be assessed under the applicable statutes of
limitation, including the period of waivers or extensions thereof Any
information obtained under this Section 13(c)(ii) shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns or
claims for refund or in conducting any audit or other proceeding.
(iii) Purchasers and the Sellers recognize their mutual obligations
pursuant to Section 1060 of the Code to timely file IRS Form 8594 (the "Asset
Acquisition Statement") with each of their respective federal income tax
returns.
(iv) The Sellers shall pay any transfer tax in connection with the
transfer of the real estate component of the Purchased Assets, and the
Purchasers shall pay any mortgage recording tax in connection wit the mortgage
of the real estate component of the Purchased Assets.
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Section 14. Remedies.
The Sellers agree that the Purchased Assets are unique and that the
Purchasers will be irreparably harmed in the event that this Agreement,
including the obligations of the Sellers to sell and deliver the Purchased
Assets to the Purchasers are not specifically enforced. The parties further
agree it is impossible to measure in money the damage which will accrue by
reason of a refusal by the Sellers to perform such obligations under this
Agreement. Therefore, in the event that the Purchasers shall institute any
action to enforce such obligations, the Sellers hereby acknowledges that the
Purchasers do not have an adequate remedy at law and that injunctive or other
equitable relief will not constitute any hardship upon the Sellers.
Section 15. Definitions.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
(a) "Affiliate" means, when used with reference to a specified party, (i)
any entity that, directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
party, and (ii) any entity of which the specified party is, directly or
indirectly, the owner of an equity interest often (10) percent or more.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Lien" means any mortgage, lien, pledge, restriction, charge, security
interest, claims, encumbrance, or right, title and interest of others.
(d) "Person" means any individual, general partnership, limited
partnership, corporation, joint venture, trust, business trust, cooperative,
association or other form of organization.
(e) "To the best of the Sellers' Knowledge" means all information which is
currently and actually known by an executive officer or other managerial
employee of the Sellers.
Section 16. Confidentiality.
Neither of the parties hereto shall disclose the terms of any non-public
confidential information of the other parties hereto or any Affiliate thereof
obtained in connection with the proposed transactions hereunder without the
prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. The parties and their representatives
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shall, for a period of three (3) years from the date hereof, treat all
information of the other parties as confidential (except to the extent that such
information: (i) is now, or later comes to be, in the public domain, other than
through the acts of the receiving party or its representatives in breach of this
provision, (ii) can be shown to have been known by the receiving party prior to
the time of disclosure to it by the other party, (iii) is later disclosed to the
receiving party on a nonconfidential basis by a Person having no obligation to
the disclosing party in regard thereto, (iv) is independently developed, as
evidenced by written records, by the receiving party, or (v) is required to be
disclosed by law.
Section 17. Expenses.
Whether or not the transactions contemplated by this Agreement are
consummated, each party will pay its respective expenses, including all fees and
expenses of counsel, accountants and other advisors, incurred in connection with
the origination, negotiation, execution and performance of this Agreement.
Section 18. Further Assurances.
From time to time after the execution hereof, at the request of the
Purchasers and without further consideration, the Sellers shall execute and
deliver such other and further instruments of conveyance, assignment, transfer
and consent, and take such other action as the Purchasers may reasonably request
in connection with the transfer of the Purchased Assets and the business of the
Sellers and for the more effective consummation of the transactions contemplated
hereby.
Section 19. No Public Announcement.
Neither party shall make, or permit any of its directors, officers,
employees, agents, advisors, Affiliates or representatives to make, any press
release, public announcement or other public disclosure with respect to the
existence of this Agreement or the transactions contemplated hereby or thereby
without the prior consent of the other party, except as and to the extent that
counsel for such party shall determine that such announcement or disclosure is
required by law, rule, regulation or order of any governmental, regulatory or
judicial body and provided that the text of any such proposed announcement or
disclosure has been timely submitted to the other party for comment and such
comments, if timely made, have been considered in good faith.
Section 20. Entire Agreement.
This Agreement (including all attachments hereto) comprise the entire
agreement among the parties hereto as to the subject matter hereof and thereof,
and supersede all prior agreements
22
<PAGE>
and understandings between them relating thereto. All of the provisions of the
Agreement shall survive the Closing except as otherwise provided herein.
Section 21. Amendments and Waivers.
This Agreement may not be amended or modified, except by a writing
executed by the parties hereto. No extension of time for, or waiver of the
performance of, any obligation of any party hereto shall be effective unless it
is made in a writing signed by the party granting such extension or waiver.
Unless it specifically states otherwise, no waiver shall constitute or be
construed as a waiver of any subsequent breach or non-performance.
Section 22. Notices.
Any notice, request, demand, waiver, consent, approval or other
communication which is required or permitted to be given pursuant to this
Agreement shall be in writing and shall be given in person or by telecopy or by
certified or registered first-class mail or internationally recognized express
courier delivery service addressed as follows:
If to the Sellers: Columbus Farming Corporation
c/o United States Surgical Corporation
150 Glover Avenue
Norwalk CT 06S56
Attention: Legal Department
If to the Purchasers: Alexion Pharmaceuticals, Inc.
25 Science Park, Suite 360
New Haven, CT 06511
Attention: Executive V.P. & C.E.O.
Any such address may be changed by any party by written notice to the other
parties given in accordance herewith. Any notice shall be deemed to be given
three (3) days after being placed for delivery so addressed with postage or
other charges prepaid, provided, however, that any written notice actually
received by any party in less than three (3) days shall be deemed to be given,
for all purposes of this Agreement, at the time it is received.
Section 23. Governing Law.
This Agreement is made and shall be construed in accordance with the laws
of the State of New York without giving effect to the conflict of laws
principles thereof
23
<PAGE>
Section 24. Successors and Assigns.
This Agreement shall inure to the benefit of, and be binding upon and
enforceable against, the respective successors and assigns of the parties
hereto.
24
<PAGE>
Section 25. Captions.
Section headings and other captions are supplied herein for convenience
only and shall not be deemed a part of this Agreement for any purpose.
Section 26. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original for all purposes, and all of which together
shall constitute one agreement.
Section 27. Severability.
If any term or provision of this Agreement, or the application thereof to
any person or circumstance, shall to any extent be overly broad, invalid or
unenforceable, the remainder of this Agreement, or the application of such term
or provision to persons or circumstances other than those as to which it is
overly broad, invalid or unenforceable, shall not be affected thereby and each
term and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
UNITED STATES CORPORATION
By: /s/ Steven J. Amelio
---------------------------------------
Name: Steven J. Amelio
-------------------------------------
Title: VP & Controller USSC
------------------------------------
CFC ASSETS CORPORATION
By: /s/ Steven J. Amelio
---------------------------------------
Name: Steven J. Amelio
-------------------------------------
Title: VP
------------------------------------
COLUMBUS FARMING CORPORATION
By: /s/ Barry P. Luke
---------------------------------------
Name: Barry P. Luke
-------------------------------------
Title: VP
------------------------------------
ALEXION PHARMACEUTICALS, INC.
By: /s/ Barry P. Luke
---------------------------------------
Name: Barry P. Luke
-------------------------------------
Title: VP of Finance and Administration
------------------------------------
25
<PAGE>
Exhibit 10.28
Amendment
to
Collaboration Agreement
between
Procter & Gamble Pharmaceuticals, Inc.
and
Alexion Pharmaceuticals, Inc.
This Amendment is made on April 6, 1999, by and between and Procter &
Gamble Company (herein together with its Affiliate Procter & Gamble
Pharmaceuticals Inc., "Procter & Gamble"), an Ohio corporation with principle
offices at One Procter & Gamble Plaza, Cincinnati, Ohio 45202, and Alexion
Pharmaceuticals, Inc., a Delaware corporation with a principle office at 25
Science Park, New Haven, Connecticut (hereinafter, together with its Affiliates,
"Alexion") generally referred to herein individually as a "Party" or
collectively as the "Parties".
Background
The Parties entered into the Collaboration Agreement (the "Agreement") as of
January 25, 1999. The Parties wish to amend the Agreement as set forth herein.
Section 4.1 of the Agreement is hereby amended by deleting the first
sentence and replacing it with the following:
The parties will agree to finalize a Research & Development Plan within
ninety (90) days after the Effective Date.
All other terms and condition of the Agreement shall remain in force
without modification.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of
the date first set forth above.
Procter & Gamble Company
(Procter & Gamble)
By /s/ [ILLEGIBLE] Form MPM
--------------------------------- ------------------------------------
Title Vice President Execution AFM
------------------------------ -------------------------------
Alexion Pharmaceuticals, Inc.
(Alexion)
By /s/ David Keiser
---------------------------------
Title Exec. VP & COO
------------------------------
<PAGE>
Execution Copy
COLLABORATION AGREEMENT
between
THE PROCTER & GAMBLE COMPANY
and
ALEXION PHARMACEUTICALS, INC.
January 25, 1999
<PAGE>
Table of Contents
I. Definitions ....................................................... 2
II. License Grants .................................................... 9
III. Overview and Management of Collaboration .......................... 12
IV. Research and Development .......................................... 15
V. Manufacturing of Product .......................................... 19
VI. Health Registration Obligation .................................... 21
VII. Marketing of Products ............................................. 21
VIII. Milestones, Royalties, Payments and Accounting .................... 23
IX. Patents, Trademarks and Infringement .............................. 31
X. Confidentiality ................................................... 36
XI. Representations and Warranties .................................... 38
XII. Indemnification; Insurance ........................................ 42
XIII. Term, Termination, Change of Control .............................. 45
IV. Miscellaneous ..................................................... 59
XV. Execution ......................................................... 65
<PAGE>
COLLABORATION AGREEMENT
Made as of this 25th day of January, 1999, by and among:
The Procter & Gamble Company, an Ohio corporation having its principal
offices at One Procter & Gamble Plaza, Cincinnati, Ohio 45202 (hereinafter,
together with its Affiliate Procter & Gamble Pharmaceuticals, Inc., "Procter &
Gamble"), and
Alexion Pharmaceuticals, Inc., a Delaware corporation having its principal
office at 25 Science Park, New Haven, Connecticut (hereinafter, together with
its Affiliates, "Alexion").
The following sets forth the background for this Agreement:
Alexion conducts pharmaceutical research and development, based on
significant expertise in identifying and developing therapeutic agents
targeted at treating a variety of disorders, including without limitation
products having utility in the treatment of acute cardiovascular
disorders.
Procter & Gamble conducts research and develops and markets pharmaceutical
products for the treatment of a variety of disorders, including without
limitation products having utility in the treatment of cardiovascular
disorders.
Procter & Gamble and Alexion share a mutual interest in a collaboration
aimed at the further development of C5 complement inhibitor agents
identified by Alexion with Procter & Gamble to market resulting products.
Procter & Gamble and Alexion intend fully to utilize their capabilities,
capitalize on each other's expertise, and put forth commercially
reasonable efforts to achieve the objectives of this collaboration, and
recognize that Alexion is contributing valuable technologies, and each
party is contributing valuable expertise and capabilities to this effort
and that the combination of these compatible and complementary
technologies, expertise and capabilities creates the basis for a
successful collaboration.
<PAGE>
Accordingly, in consideration of the mutual promises, covenants and agreements
hereinafter set forth, the Parties agree to the following terms and conditions:
Article I - Definitions
1.1. "Affiliate" means any entity that directly or indirectly Owns, is
Owned by, or is under common Ownership with a Party to this Agreement. "Owns" or
"Ownership" means direct or indirect possession of more than fifty percent (50%)
of the votes of holders of a corporation's voting securities or a comparable
equity interest in any other type of entity.
1.2. "Alexion Indications" are described in Section 4.6.
1.3. "Agreement" means the present agreement together with all
attachments.
1.4. "Alexion Know-how" means Know-how owned or Controlled in the Field by
Alexion, but excluding Alexion Patents and Joint Patents.
1.5. "Alexion Patents" means all Patents owned or Controlled by Alexion
with the right to sublicense to the extent claiming, in the Field, a
Collaboration Inhibitor, research methods and materials used in performing
research and manufacturing processes or for discovering, identifying or testing
a Collaboration Inhibitor, or the manufacture, use, import, or sale of a
Collaboration Inhibitor or Product where such Patents cover (a) inventions made
prior to the date of this Agreement or (b) inventions made in the course of the
Research & Development Plan by employees of Alexion. Alexion Patents include,
without limitation, the patents and patent applications listed in Schedule 1.5
delivered to Procter & Gamble contemporaneously herewith (as may be amended as
appropriate). Continuations-in-part covered by Licensed Technology are limited
to continuations-in-part dominated by claims in any of the patents or
applications licensed to Alexion thereunder.
2
<PAGE>
1.6. "Alexion Product Cost" means [*******].
1.7. "Article" means any article of this Agreement.
1.8. "Collaboration Inhibitor" means [*******].
1.9. "Collaboration Term" means the period commencing on the Effective
Date and ending on the expiration of the Research & Development Plan, unless
terminated earlier pursuant to Sections 13.2, 13.3 or 13.4, or extended by
mutual agreement of the Parties.
1.10. "Commercially Reasonable Efforts" means efforts and resources
commonly used in the research-based pharmaceutical industry for a compound or
product at a similar stage of research, development or commercialization, and
having similar market potential. Commercially Reasonable Efforts shall be
determined taking into account the stage of research, development or
commercialization of the compound or product, the cost-effectiveness of efforts
or resources while optimizing profitability, the competitiveness of alternative
products that are or are expected to be in the relevant marketplace, the
proprietary position of the product, the regulatory and business environment,
the likelihood of regulatory approval and product reimbursement, the
profitability of the product, the existence of alternative products that may
also be developed by the Parties, and all other relevant factors. Commercially
Reasonable Efforts shall be determined on an indication-by-indication and
market-by-market basis, and it is anticipated that the level of effort will
change over time reflecting changes in the status of the compound, product and
the market involved.
1.11. "Competing Product" means [*******]
3
<PAGE>
and which is not a Product.
1.12. "Contract year" means the twelve (12) month period following the
Effective Date.
1.13. "Control" means, with respect to an item of information or
intellectual property right, the possession of the ability to grant a license or
sublicense as provided for herein under such item or right without violating the
terms of any agreement or other arrangement, express or implied, with any Third
Party.
1.14. "Direct Costs" means costs, of a nature, amount, and method of
calculation approved in advance by the Research & Development Steering Committee
via the Research & Development Plan, that are incurred by Alexion, based upon
efforts, funds and/or resources expended to perform its obligations under such
plan. Direct Costs may include the fully burdened costs associated with
activities performed by Alexion, or by a Third Party, for the research,
development, testing or manufacturing of Products. Direct Costs shall not
include any mark-up or profit above actual costs.
1.15. "Effective Date" means the date described in Section 13.1(a).
1.16. "Effort Year" means nineteen hundred and twenty (1,920) hours of
direct effort expended on or in furtherance of the Research & Development Plan
during a year.
1.17. "Field" means [*******].
1.18. "Fiscal Quarter" means each period of three (3) months ending on 31
March or 30 June or 30 September or 31 December. The first Fiscal Quarter starts
as of the Effective Date and ends on 31 March.
1.19. "Fiscal Year" means the twelve (12) month period of time from July
to June 30,
4
<PAGE>
except that the first Fiscal Year commences on the Effective Date and ends on
June 30, 1999, and the last Fiscal Year during the Term shall end on the
anniversary of the Effective Date in the Fiscal Year in which the Term expires
or is terminated pursuant to Article XIII.
1.20. "Full Time Equivalent" ("FTE") means one Effort Year of an employee
or class of employees.
1.21. "GAAP" means U.S. generally accepted accounting principles.
1.22. "Health Registration" means any and all consents, licenses,
authorizations, reimbursement pricing or approvals required by a regulatory
authority such as the USFDA or any other Ministry of Health, for the
distribution, sale, manufacture, or testing of the Product, including, without
limitation, an IND, NDA or supplemental NDA or other application or supplemental
application for a Health Registration.
1.23. "Joint Patents" means all Patents, to the extent claiming, in the
Field, a Collaboration Inhibitor, the manufacture or use of a Collaboration
Inhibitor, research methods and materials used in performing research and
manufacturing process or for discovering, identifying, or testing for a
Collaboration Inhibitor, where such Patents cover inventions made jointly by
employees or agents of Alexion and Procter & Gamble prior to the end of the
Collaboration Term. In determining inventorship and rights in joint inventions,
the laws of the United States shall apply to any particular patent.
1.24. "Know-how" means techniques and data specifically in the Field,
including, without limitation, inventions, practices, methods, knowledge,
know-how, skill, test data including pharmacological, toxicological and clinical
test data, analytical and quality control data, but excluding Alexion Patents,
Joint Patents, and Procter & Gamble Patents.
1.25. "Licensed Technology" means the technology licensed to Alexion under
the license agreements identified on Schedule 1.25 delivered contemporaneously
herewith.
5
<PAGE>
1.26. "Marketed Product" means a Product which is approved by a regulatory
agency for sale pursuant to this Agreement in any country in the Territory.
1.27. "Net Sales" shall mean, for any period, the gross sales (as defined
below) by Procter & Gamble, its Affiliates and sublicensees to Third Parties,
attributable to Products, determined by the gross amount invoiced to the
purchaser, including, if applicable, the value of all properties and services
received in consideration of sales of Products, less: (i) normal and customary
quantity and/or cash discounts, allowances, rebates, customer merchandising and
pricing funds (which includes price declines, Procter & Gamble's Business
Development Funds, and managed care discounts), fees paid to distributors
measured by the billing amount and chargebacks actually allowed or given from
the billed amount; (ii) freight, postage, shipping, and insurance expenses (if
separately identified in such invoice); (iii) credits or refunds actually
allowed for rejected, outdated or returned Product; and (iv) sales and other
taxes and duties directly related to the sale, to the extent that such items are
included in the gross invoice price (but not including taxes assessed against
the income derived from such sale) provided that any discounts, allowances and
rebates, based on overall purchases by the customer of the selling Party may be
applied to reduce Net Sales only to the extent of the pro rata amount of such
discounts or rebates attributable to the Products included in such overall
purchases. Any of the deductions listed above which involves a payment by
Procter & Gamble shall be taken as a deduction against aggregate sales for the
Fiscal Quarter in which the expense is accrued by Procter & Gamble. For purposes
of determining Net Sales, Product shall be deemed to be sold when shipped or to
be the subject of a sale upon the delivery of Products to the purchaser or a
common carrier at the risk of the purchaser and the transfer of title thereto to
the purchaser.
Sales between or among Procter & Gamble and its Affiliates shall be
excluded from the computation of Net Sales, but sales by such Parties to their
customers shall be included in such computation.
Where a sale is deemed consummated by the gift or other disposition of
Products for
6
<PAGE>
other than a selling price stated in cash, the term "Net Sales" shall mean the
average gross selling price billed by Procter & Gamble, an Affiliate or its
sublicensee, as the case may be, in consideration of comparable Products during
the three (3) month period immediately preceding such disposition, without
reduction of any kind. For such purposes, a gift shall not include product
samples distributed in customary manner for similar products in the
pharmaceutical industry and Products supplied for clinical studies.
In the event a Product incorporate or is sold in combination with one or
more other active ingredients ("Other Product"), Net Sales shall be calculated
by multiplying the Net Sales of the combination Product by a fraction
"A/A(A+B)," where "A" is the average gross selling price of the Product during
the preceding calendar quarter sold separately by Procter & Gamble and "B" is
the average gross selling price during such quarter of the Other Product sold
separately by Procter & Gamble or, in the event the Product and Other Product
are not sold separately, a fraction "C/(C+D)," where "C" is the cost of
manufacture or acquisition to Procter & Gamble of the Products alone and "D" is
the cost of manufacture or acquisition to Procter & Gamble of the Other Product;
provided, however, such fraction shall in no event be less than one-half (1/2).
1.28. "Party" means Alexion or Procter & Gamble.
1.29. "Patent" means all Valid Claims in all patent applications, and all
continuing and divisional patent applications, continuations-in-part and reissue
applications claiming priority, indirectly and directly, to such applications,
and all patents issuing therefrom in the Territory as well as extensions
thereof, including Supplementary Certificates of Protection of a member state of
the European Community.
1.30. "Primary Indication" means an indication for the Product for
treatment of [*******] as defined in an approved Research & Development Plan.
1.31. "Procter & Gamble Know-how" means Know-how owned or Controlled in
the
7
<PAGE>
Field by Procter & Gamble, but excluding Procter & Gamble Patents and Joint
Patents.
1.32. "Procter & Gamble Patents" means all Patents owned or Controlled by
Procter & Gamble to the extent claiming, in the Field, a Collaboration
Inhibitor, research methods and materials used in performing research and
manufacturing processes or for discovering, identifying or testing a
Collaboration Inhibitor, or the manufacture, sale or import of a Collaboration
Inhibitor or Product, where such Patents cover inventions made solely by
employees or agents of Procter & Gamble after the Effective Date and prior to
the end of the Term.
1.33. "Product" means any pharmaceutical composition containing any form
or dosage, including the Product in a vial, of a pharmaceutical or other product
or any process, which contains or is based upon a Collaboration Inhibitor or
which results from the manufacture, production or use of a claim of an Alexion
Patent or Joint Patent, wherever sold, which if not licensed, would infringe
upon Alexion Patents or Joint Patents (if issued).
1.34. "Research & Development Steering Committee" means the committee
described in Section 3.2.
1.35. "Secondary Indication" means an indication for the Product for
treatment of [*******] as defined in an approved Research & Development Plan.
1.36. "Section" means any section of this Agreement.
1.37. "Success Criteria" means the specific criteria that define the
minimum technical and commercial requirements for a Product[*******].
1.38. "Term" means the period of time specified in Section 13.1(b).
8
<PAGE>
1.39. "Territory" means the entire world.
1.40. "Tertiary Indication" means an indication for the Product for
[*******] defined in an approved Research & Development Plan as a Tertiary
Indication.
1.41. "Third Party" means any entity other than Alexion or Procter &
Gamble.
1.42. "Valid Claim" means any claim in a published or unexpired
application or patent included within a Patent which claim has not been held
unenforceable, unpatentable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been finally abandoned or
admitted to be invalid or unenforceable through disclaimer by the patenting
Party.
Article II - License Grants
2.1. License Grants.
(a) Patent License For Commercialization of Products. Alexion hereby
grants Procter & Gamble a worldwide, exclusive royalty-bearing license or
sublicense, in the Field, under Alexion Patents and Alexion's interest in Joint
Patents, with [*******], to make, have made, use, import, and offer for sale and
sell Products.
(b) Know-how License to Procter & Gamble. Alexion hereby grants to
Procter & Gamble:
(i) an [*******] license to use Alexion Know-how within the Field,
wherein such Know-how is [*******], in pursuance of the
Research & Development Plan, during the Collaboration Term,
and during the
9
<PAGE>
remaining Term of this Agreement.
(ii) a [*******] worldwide license to use Alexion Know-how
within the Field, wherein such Know-how [*******]
during the Collaboration Term, and during the remaining Term
of this Agreement.
(c) Research License to Procter & Gamble. With respect to any
Alexion Patents and Alexion's interest in Joint Patents, Procter & Gamble shall
have the worldwide right, within the Field and in pursuance of the Research &
Development Plan, for Products, [*******], with the [*******] as authorized by
the Research & Development Steering Committee to:
(i) to make, have made, use and have used, import and have
imported, but not to sell or have sold, any such discovery or
invention;
(ii) to practice and have practiced on its behalf any such
discovered or invented methods of making devices or materials,
provided any devices or materials made by said methods are not
offered for sale to non-Affiliate third parties; and
(iii) to use and have used on its behalf any such discovered
or invented methods of using devices or materials, provided said
devices or materials are not offered for sale to non-Affiliate Third
Parties.
2.2. [*******] Licenses to Alexion. Procter & Gamble hereby grants Alexion
a [*******] license, with the [*******] as authorized by the Research &
Development Steering Committee, to use Procter & Gamble Patents and Procter &
Gamble Know-how, within the Field in pursuance of the Research & Development
Plan, to perform research and development and manufacturing activities in
accordance with the Research & Development Plan, or for Products.
2.3. Sublicenses.
10
<PAGE>
(a) Procter & Gamble shall provide to Alexion [*******]. Procter &
Gamble shall provide to Alexion (i) a copy of all sublicense agreements promptly
after execution, and (ii) annually, together with the report required in Section
8.5 of this Agreement, copies of reports related to financial and research and
development performance received by Procter & Gamble from its sublicensees
during the preceding three (3) month period or twelve (12) month period, as the
case may be.
(b) If a Third Party licensor of Licensed Technology, wherein the
manufacture, use, importation or sale of a Marketed Product would, but for the
licenses granted by the Third Party, infringe the Third Party Valid Claim, shall
seek to terminate such license due to the default by Alexion, Alexion shall give
Procter & Gamble written notice specifying the nature of the breach. If Alexion
cannot or does not cure the Third Party breach and provided Procter & Gamble
shall have paid all amounts payable hereunder due (without reference to any
notice, cure, audit or other effective extension of the period of performance)
and fully complied with all of its obligations hereunder, including without
limitation, to commercialize the Product, then Procter & Gamble shall have the
right upon written notice to Alexion to cure the Third Party breach and credit
all amounts paid by it to the Third Party licensor against royalties payable by
it to Alexion pursuant to Section 8.2(a).
2.4. Certain Rights; No Implied License. In addition to all other rights
of Alexion under this Agreement, Alexion retains on behalf of itself the
perpetual, royalty-free, non-transferable right and license to practice all
technology exclusively licensed by it hereunder for research and educational
purposes, on a non-commercial basis, as approved by the Research
11
<PAGE>
& Development Steering Committee. Except as otherwise provided in this
Agreement, under no circumstances shall a Party hereto as a result of this
Agreement obtain any ownership interest or other right in any technology,
know-how, trade secrets, patents, pending patent applications, products,
vaccines, antibodies, cell lines or cultures, or animals of the other Party,
including items owned, controlled, developed by the other, or transferred by the
other to such Party at any time pursuant to this Agreement. The licenses and
rights granted in this Agreement shall not be construed to confer any rights
upon a Party by implication, estoppel or otherwise as to any technology not
specifically identified in this Agreement as or included within such license
rights, and no other assignments or licenses are made or granted by implication,
estoppel or otherwise, by this Agreement. All rights granted by Alexion to
Procter & Gamble under this Agreement which are now or in the future licensed to
Alexion are and shall be subject to the rights of the licensors and the terms of
the licenses thereof
2.5. Government. Procter & Gamble acknowledges that the Licensed
Technology hereunder or a portion thereof was developed with financial or other
assistance from the United States of America, and that applicable statutes,
regulations and Executive Orders of the United States of America may control,
apply to or affect the license granted hereunder and any sublicenses granted
hereunder. Procter & Gamble acknowledges that it is responsible for making its
own determination about the applicability of any statutes, regulations or
Executive Orders and the licensors' compliance therewith.
Article III - Overview and Management of Collaboration
3.1. Scope of Collaboration. The Parties will work together to research,
develop and commercialize Products pursuant to this Agreement. All such research
and development work shall be conducted according to a Research & Development
Plan during the Collaboration Term established and approved by the Research &
Development Steering Committee pursuant to Article III. The Research &
Development Plan will be conducted with the goals of (a) worldwide development
of product in Primary, Secondary and Tertiary Indications and exploration of
additional indications; and (b) development of efficient and economic processes
12
<PAGE>
for manufacture of Product. Procter & Gamble will commercialize Products
pursuant to Article V. Alexion and Procter & Gamble agree that they will conduct
the Research & Development Plan on a collaboration basis with the goal of
commercializing Products.
3.2. Research & Development Steering Committee Membership. The research
and development work under this Agreement, as set forth in Section 3.1, shall be
performed by the Parties pursuant to the oversight of the Research & Development
Steering Committee. Notwithstanding the overall responsibility of the Research &
Development Steering Committee for the management and direction of the
collaboration hereunder, it is the expectation of the Parties that the following
initial primary responsibilities shall be allocated between the parties, as
follows:
Initial Responsible Party for Primary
Secondary & Tertiary Indications
-------------------------------------
Function/Activity U.S. Global
----------------- ---- ------
non-clinical R&D [*******] [*******]
process development &
clinical manufacture [*******] [*******]
clinical packaging [*******] [*******]
clinical design [*******] [*******]
clinical implementation [*******] [*******]
clinical monitoring [*******] [*******]
* Indicating shared responsibility with the first named Party being the lead
Party.
The Research & Development Steering Committee has overall responsibility
for the definition, conduct and execution of the Research & Development Plan,
which will include without limitation defining Success Criteria, setting the
budget for Alexion activities, and determining allocation of work to be done by
Alexion, Procter & Gamble or Third Parties. The Research & Development Steering
Committee may delegate its responsibilities and activities to other committees
(e.g., to a Patent Committee, Research Committee, Finance Committee,
13
<PAGE>
Clinical Committee or such other committees as the Research & Development
Steering Committee may establish); however, the Research & Development Steering
Committee has final approval. The Research & Development Steering Committee will
be co-chaired by two (2) members with one (1) member designated by each Party.
The co-chairmen are senior R&D executives. The Parties will be free to change
their respective representatives, on notice to the other Party. Total
representation shall not exceed ten (10) members (five (5) members per Party)
unless otherwise agreed to by the Parties. The first Research & Development
Steering Committee meeting shall occur within thirty (30) days of the Effective
Date.
3.3. Meetings. The Research & Development Steering Committee will meet at
least quarterly, or as the Parties shall otherwise agree. Either Party may call
a special meeting of the Research & Development Steering Committee up to two (2)
times per year, on fifteen (15) days' written notice to the other Party. The
Party convening a special meeting shall send notices and agenda for such
meeting. Meetings will alternate between the offices of the Parties, or may be
held via teleconference, videoconference or such other place or manner as the
Parties may mutually agree. The Party hosting any meeting shall appoint a
secretary to the meeting who will record the minutes of the meeting which will
be circulated to the members of the Research & Development Steering Committee
promptly following the meeting for review, comment, and adoption.
3.4. Decision-making Criteria. All decisions of the Research & Development
Steering Committee shall be made by the co-chairmen and in the exercise of good
faith. Such decisions shall adhere to the ethical and legal standards for the
research-based pharmaceutical industry and shall be consistent with the use of
Commercially Reasonable Efforts to research and develop Products. Subject to the
foregoing, [*******] in the Research & Development Steering Committee.
3.5. Dispute Resolution. If Alexion does not agree with a decision by the
Research & Development Steering Committee, the matter shall be referred for
further review and resolution by the Chairman or CEO of Alexion and the
President of Procter & Gamble Pharmaceuticals (the
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"CEOs"), if both CEOs were not voting members of the Research & Development
Steering Committee. Action will be delayed until such meeting or discussion
between the CEOs. If the CEOs (or the Research & Development Steering Committee,
if the CEOs are both voting members) cannot resolve the issue within ten (10)
business days of such reference, the decision by Procter & Gamble's CEO shall be
binding.
3.6. Record-keeping. The Research & Development Steering Committee and all
other committees formed thereunder shall appoint one Party to keep complete and
accurate records pertaining to the committees' meetings and activities. The
other Party shall have the right to review such records upon reasonable notice
to the record-keeping party and at reasonable times.
3.7. Non-compete. Neither Alexion nor Procter & Gamble shall itself or in
conjunction with a Third Party enter into the development or commercialization
of a Competing Product during the Term of this Agreement.
Article IV - Research and Development
4.1. Research & Development Plan. The initial Research & Development Plan
is set forth in Schedule 4.1 delivered contemporaneously herewith. Prior to the
finalization of a Research & Development Plan, the Research & Development
Steering Committee, or designated subcommittee, will adopt a process for
managing project costs including but not limited to budget timing, forecast
updates, invoicing procedures, etc. The Parties will agree to finalize a
Research & Development Plan within sixty (60) days after the Effective Date. The
Research & Development Steering Committee is authorized to approve and amend the
Research & Development Plan (other than matters affecting Milestone payments or
minimum number of FTEs set forth in Section 4.2(a)). The Research & Development
Steering Committee may periodically modify the Research & Development Plan,
within the scope of and in a manner consistent with this Agreement, and the more
detailed responsibilities of each Party within the general scope of
responsibilities set forth herein, and revise the Research & Development Plan
accordingly. Procter & Gamble hereby designates Alexion as its favored
development and
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commercialization partner and collaborator with respect to Collaboration
Inhibitor except as otherwise specifically provided herein. The Research &
Development Plan shall include a line item description and budget for all
approved Alexion R&D activities and expenditures, including Alexion FTE
allocations and any Third Party costs incurred by Alexion which will be
reimbursed by Procter & Gamble.
4.2. Funding of Research & Development Plan.
(a) FTE-Based Funding and Other Funding. Procter & Gamble will fund
Alexion FTEs for work pursuant to the Research & Development Plan and approved
by the Research & Development Steering Committee. However, during the first
three (3) Contract Years of the Agreement, notwithstanding any re-allocation of
research effort or responsibility or any other changes to the Research &
Development Plan, but subject to Sections 13.2 and 13.7(a) below, Procter &
Gamble agrees to fund at least the following minimum number of Alexion FTEs
listed below per Contract Year for work pursuant to the Research & Development
Plan. Work includes without limitation, non-clinical research and development,
process development and clinical assays.
Contract Year Alexion FTEs
------------- ------------
[*******] [*******]
[*******] [*******]
[*******] [*******]
In addition to such FTE-based funding, Procter & Gamble shall pay or
reimburse Alexion for outside costs to Third Parties approved by the Research &
Development Steering Committee and incurred in connection with the Research &
Development Plan but such outside costs shall exclude the routine costs of
compensation, facilities, supplies and overhead of Alexion FTEs.
All Direct Costs associated with work done pursuant to the approved
Research & Development Plan shall be borne by Procter & Gamble.
(b) Alexion's FTE Rate; Payment. Calculation of any FTE rate
includes [*******]
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[*******]. Procter & Gamble's funding of Alexion's FTEs will be made at an
annual rate of [*******] per FTE. Such rate shall be adjusted for inflation by
multiplying the amount in the contract by the percentage change in the U.S. CPI
for all Urban Consumers as published by the U.S. Bureau of Labor Standards (the
"CPI") for the period January 1999 to the June immediately preceding the Fiscal
Year in question. An example calculation of the CPI adjustment is set forth in
Schedule 4.2(b) delivered contemporaneously herewith.
4.3. Alexion Obligations. Alexion shall use Commercially Reasonable
Efforts to diligently perform the obligations of Alexion set forth in the
Research & Development Plan, within the resources provided by Procter & Gamble.
[*******]. To the extent not related to Alexion Patents or Joint Patents,
[*******]. Alexion shall proceed diligently with the work to be performed by it
as set out in the Research & Development Plan by using its reasonable commercial
efforts within the resources provided by Procter & Gamble to provide allocation
of sufficient time and effort, using personnel with sufficient skills and
experience, to execute and substantially perform its obligations under the
Research & Development Plan. During the Collaboration Term, Alexion shall commit
such FTEs in its employ to the Research & Development Plan as determined by the
Research & Development Steering Committee on an annual basis, subject to this
Section 4.4 and Section 4.2.
4.4. P&G Obligations. Procter & Gamble shall use the Commercially
Reasonable Efforts to diligently complete the development of Products pursuant
to the Research & Development Plan, and to diligently perform the obligations
set forth in the Research &
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Development Plan. Procter & Gamble shall be responsible for all costs and
expenses in connection with such development efforts. In addition to Procter &
Gamble's obligation for funding pursuant to Section 4.2, Procter & Gamble agrees
to commit to the Research & Development Plan the resources which shall be
necessary to fulfill its obligation under the Research & Development Plan
(including extensions for the balance of the Collaboration Term).
4.5. Research and Development Communication. Alexion and Procter & Gamble
will submit reports to each other not less than two (2) times per year
presenting a meaningful summary of research and development activities performed
under this Agreement. Alexion and Procter & Gamble will make presentations of
such activities to each other, beyond that made to the Research & Development
Steering Committee, as reasonably requested by each other. All technology
generated by the Parties in the course of the Agreement, in the Field, shall be
disclosed pursuant to Section 10.1. The Parties shall use their best efforts to
communicate information only within the scope of this Agreement. Alexion and
Procter & Gamble will also communicate informally and through the Research &
Development Steering Committee to inform each other of research and development
done under this Agreement. Alexion will provide Procter & Gamble with raw data
in original form or a photocopy thereof for any and all work carried out under
this Agreement as reasonably requested by Procter & Gamble. Further, each Party
shall keep complete and accurate records pertaining to the Parties' activities
hereunder consistent with the creation and maintenance of raw data, records and
reports necessary or useful in the preparation, approval and maintenance of
Health Registrations for Products and Marketed Products and sufficient to
enable, for example, the efficient transfer of Product manufacturing Know-how
from Alexion to P&G. All information provided under this Section 4.5 is subject
to Article X.
4.6. Alexion Indications. During the term of the licenses granted to
Procter & Gamble pursuant to Article II, Alexion may propose to the Research &
Development Steering Committee indications which are not part of the Research &
Development Plan for clinical development (Alexion Indications). The Research &
Development Steering Committee shall evaluate the
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proposed Alexion Indication within sixty (60) days of such proposal. If the
Research & Development Steering Committee shall deem the Alexion Indication not
worthy of development, no such development shall occur.
If, however, the Research & Development Steering Committee shall deem the
Alexion Indication worthy of development, then (i) the Research & Development
Plan shall be so modified within such sixty (60) day period or (ii) the Parties
shall negotiate in good faith, within an additional sixty (60) day period, terms
for development of such Alexion Indication. If the Parties cannot agree on such
terms within ninety (90) days after Alexion proposes to Procter & Gamble an
Alexion Indication, then Alexion can proceed at its own cost to develop the
Alexion Indication in a manner approved by the Research & Development Steering
Committee. Any actions by Alexion under these conditions is contingent on such
actions being approved by the Research & Development Steering Committee and not
being to the disadvantage of the collaborative efforts under the Research &
Development Plan. At any time thereafter Procter & Gamble and Alexion will again
meet and negotiate in good faith terms to provide Procter & Gamble an
opportunity to buy back into the program for the development and
commercialization of the Alexion Indication. In any case, it is intended that
all work done on this indication continue to be discussed and approved by the
Research & Development Steering Committee.
4.7. No Solicitation of Employees. During the Collaboration Term and for a
period of two (2) years thereafter, neither Alexion nor Procter & Gamble nor
their respective Affiliates shall, without the prior consent of the other Party,
solicit the employment of any person who during the course of employment with
the other party or its Affiliate was involved with activities relating to the
Research & Development Plan.
Article V - Manufacturing of Product
5.1. Manufacturing of Product(s).
(a) Alexion shall be responsible for process development and
production of Collaboration Inhibitor and Product for the Research & Development
Plan. To the extent such
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activities are being conducted through Third Parties, the terms of such Third
Party agreement shall be approved by the Research & Development Steering
Committee. Procter & Gamble shall purchase for such purpose clinical bulk
material and/or vials of Product from Alexion at Alexion Product Cost calculated
according to GAAP, payable within thirty (30) days of invoice, and verifiable by
audit. Such supply of bulk material and vials of Product for clinical use shall
be in accordance with applicable specifications and requests made and approved
by the Research & Development Steering Committee.
(b) Alexion shall have the continuing right, at its election, to bid
for the manufacture of all or a portion of the commercial requirements of
Product. Subject to the provisions of this paragraph, award of all or a portion
of the right to manufacture commercial Product shall be determined by Procter &
Gamble. If Alexion has in place or will have in place manufacturing capacity and
Alexion shall meet required QA, regulatory, manufacturing and production
criteria and its bid be at a price no higher than that offered by a comparably
qualified bona fide Third Party contract manufacturer, Alexion shall have the
right to manufacture all or a portion of such commercial requirements of
Products upon [*******] to be negotiated by Alexion and the Research &
Development Steering Committee or Procter & Gamble, as the case may be. In the
event the Parties are unable to reach agreement, either Party shall be entitled
to submit the matter for settlement by arbitration in accordance with Section
14.4. During such periods as Alexion shall not be manufacturing all of the
requirements of Product, Alexion shall be entitled to recommend the other
contract manufacturing source, subject to final approval by the Research &
Development Steering Committee or Procter & Gamble. Alexion shall fully
cooperate in the license and transfer of the requisite manufacturing know-how to
such Third Party contract manufacturer as Procter & Gamble determines.
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Article VI - Health Registration Obligation
Seeking Approvals. Procter & Gamble and its Affiliates will be the sponsor
of Health Registrations where applicable in the Territory. Procter & Gamble and
Alexion shall share responsibilities for Health Registration filings,
interactions and correspondences related to the development, registration and
approval of a Product within the Territory. Alexion shall have primary
responsibility for the CMC part of regulatory filings. Alexion shall transfer
sponsorship of all current Health Registration applications for Products to
Procter & Gamble as established by the Research & Development Steering
Committee. To the extent that Alexion intends to develop an Alexion Indication,
the Research & Development Steering Committee shall provide the necessary access
to any regulatory filings (including applications for Health Registrations). All
costs associated with the Health Registration filings shall be borne by Procter
& Gamble.
Article VII - Marketing of Products
7.1. Marketing and Sales Strategy. As set forth herein, Procter & Gamble
shall make all decisions regarding the strategy and tactics of marketing,
selling and otherwise commercializing Marketed Products, [*******] method of
sales and distribution, organization and management of sales and marketing,
packaging and labeling, appointment of distributors pursuant to Section 7.2,
extent of Alexion's co-promotional activity pursuant to Section 7.3, and other
terms and conditions for such sales and marketing. Notwithstanding the
foregoing, Procter & Gamble will use Commercially Reasonable Efforts to
commercialize each Product that receives Regulatory Approval, taking into
account the scientific and commercial potential for such Product. Alexion will
provide thirty (30) days' notice to Procter & Gamble, if, in Alexion's opinion,
Procter & Gamble is not using such commercially reasonable and diligent efforts,
in order for the Parties to discuss the situation and for Procter & Gamble to
make diligent and continuing efforts to rectify the situation. If the Parties
agree that Procter & Gamble is not using such commercially reasonable and
diligent efforts, Procter & Gamble shall have an additional sixty (60) days to
rectify the situation. If no agreement is made within the thirty (30) day
period, then the matter may be taken to arbitration
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pursuant to Section 14.4.
7.2. Exclusive Distributor. Subject to Section 7.3 below, Procter & Gamble
may elect a Third Party to act as its agent in connection with the marketing,
sale and distribution of Marketed Products on a country basis in the Territory.
No amounts payable to or retained by any such agent shall affect the calculation
of Net Sales.
7.3. Alexion Co-Promotional Activities. Alexion will have an opportunity,
but not the obligation, to participate in the sales efforts in the United States
of a minimum [*******] of a Marketed Product's sales effort. Upon the Research &
Development Steering Committee's decision to prepare a Health Registration in
the United States, Procter & Gamble shall provide a written request to Alexion
regarding Alexion's intent to co-promote the Marketed Product. Said request
shall contain a comprehensive Product marketing plan, and number of details and
position, as defined in Schedule 7.3 [*******] and rate of reimbursement to
Alexion. Within thirty (30) days of receipt, Alexion shall provide its written
response. Should Alexion elect to participate, the Parties will immediately
begin negotiations to enter into a Co-Promotional Agreement. Said Agreement will
incorporate traditional provisions including but not limited to those set forth
in Schedule 7.3. Alexion shall be solely responsible for hiring and funding the
establishment of its internal sales organization. Procter & Gamble shall pay
Alexion an amount equal to Procter & Gamble's costs for details and sales call
position as if such details were made by Procter & Gamble's dedicated
field-based sales force or trained contract sales force. Calculation of
reimbursement to Alexion will be determined according to the proportion of
dedicated field-based sales force or trained contract sales force that Procter &
Gamble will employ for the promotion of Product in the U.S.
7.4. No Restrictions on Business. Except as otherwise specifically
provided herein, Alexion agrees that Procter & Gamble is in the business of
developing, manufacturing and selling of pharmaceutical products and nothing in
this Agreement shall be construed as restricting such business or imposing on
Procter & Gamble the duty to market and sell Marketed Products hereunder to the
exclusion of or in preference to any other product, provided such
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<PAGE>
product is not a Competing Product.
Article VIII - Milestones, Royalties, Payments and Accounting
8.1. Milestones. In consideration of Alexion's commitment to conduct the
Research & Development Plan and for the licenses granted hereunder, Procter &
Gamble agrees to pay, in addition to funding all of the research and development
costs related to Product incurred during this Agreement pursuant to Section 4.2,
the following non-refundable, non-creditable one-time milestone payments to
Alexion, contingent upon meeting the following milestones as follows:
Milestone Amount
--------- ------
(US $ Million)
Pre-Health Registration Events
Upon execution of this Agreement [*******]
[*******] [*******]
[*******] [*******]
[*******] [*******]
U.S. Health Registration Events
[*******] [*******]
[*******] [*******]
[*******] [*******]
[*******] [*******]
[*******] [*******]
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[*******] [*******]
Foreign Health Registration Events
[*******] [*******]
[*******] [*******]
[*******] [*******]
[*******] [*******]
8.2. Royalty Calculation.
(a) Procter & Gamble will pay to Alexion a royalty on [*******],
sold by Procter & Gamble, its Affiliates and sublicensees (including sales by
distributors) in the Territory at the applicable rate listed below multiplied by
the Annual Contribution:
[*******] Royalty
--------- -------
(US$)
[*******] Million* [*******]
[*******] Million* [*******]
[*******] Million* [*******]
[*******] Million* [*******]
For example, if [*******] in 1998 was [*******] Million, Procter &
Gamble would pay Alexion [*******] Million [*******].
If however, such royalty payment based on [*******] in any year was less
than a sum equal to [*******] of that year's annual Net Sales of the Products,
then Procter & Gamble shall pay Alexion a total percentage payment for that year
equal to [*******] of that year's annual Net Sales. With respect to each Product
sold by Procter & Gamble,
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<PAGE>
its Affiliates or sublicensees, Procter & Gamble shall pay Alexion hereunder, on
a country by country basis, until the expiration of the period equal to the
longer of (a) or (b) where (a) is the longer of (i) [*******] or (ii) [*******],
and (b) [*******]. In countries in which there exist a non-infringing, marketed
generic equivalent product (a product recognized and approved by the relevant
regulatory authorities as pharmaceutically equivalent, directly substitutable
and equivalent to the Marketed Product) in which sales of such product in such
country by such Third Party [*******] of sales of the Product, then the
royalties payable by Procter & Gamble to Alexion pursuant to Section 8.2(a)
shall be [*******]. Notwithstanding anything else in this Agreement, such
royalties shall not in any event be lower than the aggregate royalties payable
by Alexion to its licensors of Licensed Technology with respect to Products.
(b) In the case of Product sales in a country wherein (a) [*******]
(b) [*******].
(c) In addition to the royalties paid pursuant to Section 8.2(a) or
(b), Procter & Gamble will also pay Alexion the following additional milestone
payments based on Net Sales. These are one-time only payments triggered on the
first occurrence where total Fiscal Year Net Sales for Products exceeds Net
Sales threshold levels described below:
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Sales
Milestone
Net Sales Payments
--------- --------
(US$) (US $ Million)
[*******] [*******]
[*******] [*******]
[*******] [*******]
[*******] [*******]
[*******] [*******]
All payments will be made pursuant to Section 8.5(d). An example
calculation is set forth in Schedule 8.2(c) delivered contemporaneously
herewith.
* The Annual Contribution threshold levels in Section 8.2(a) and Net Sales
threshold levels in Section 8.2(c) shall be adjusted for inflation by
multiplying the value in the contract by the percentage change in the U.S. CPI
for all Urban Consumers as published by the U.S. Bureau of Labor Standards (the
CPI) for the period from January 1999, to the June immediately preceding the
Fiscal Year in question. An example calculation of the CPI adjustment is set
forth in Schedule 4.2(b) delivered contemporaneously herewith.
8.3. Sublicense Agreements. If Procter & Gamble, an Affiliate or
sublicensee of Procter & Gamble sublicenses Alexion Patents or Alexion Know-how
pursuant to Article V, or licenses or sublicenses Joint Patents, Procter &
Gamble shall pay to Alexion [*******] of all amounts received from the
sublicensee or licensee, including without limitation, [*******] in accordance
with Section 8.2(a) of all amounts paid to Alexion under this Section 8.3 for
which Procter & Gamble's licensee [*******] amounts payable to Procter & Gamble
under the terms of the applicable license or [*******] agreement delivered to
Alexion in accordance with Section 2.3.
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8.4. Cash Only. Procter & Gamble shall not receive from sublicensees
anything of value in lieu of cash payments in satisfaction of payment of
obligations under a sublicense and this Agreement unless the express written
permission of Alexion is obtained in advance. Procter & Gamble shall be entitled
to receive rights to improvements and other benefits from sublicensees under
sublicense agreements, without incurring any royalty obligations to Alexion in
respect thereof.
8.5. Payment.
(a) Milestones payable under Section 8.1 will be paid not later than
ten (10) calendar days following the event.
(b) The FTE-based and other funding contemplated by Section 4.2
shall be payable quarterly during each Contract Year. Within 10 days of the
Effective Date, Procter & Gamble will pay Alexion the pro rata payment for
minimum FTEs for the first quarter of the first Contract Year.
(c) Royalties payable under Section 8.2(a) and (b) and amounts
payable under Section 8.3 will be paid not later than fifty-five (55) calendar
days following the end of each Fiscal Quarter. All payments shall be accompanied
by a report in writing showing on a country by country basis for the Fiscal
Quarter for which such payment applies, the amount billed to Third Parties for
Products sold during such Fiscal Quarter, the deductions from the amount billed
to arrive at the Annual Contributions, the Annual Contributions for the Fiscal
Quarter, and the royalties due on such Annual Contributions, such report being
broken down by Marketed Product.
(d) Royalties payable under Section 8.2(c) will be paid not later
than fifty-five (55) calendar days following the end of each Fiscal Year. All
payments shall be accompanied by a report in writing showing the Fiscal Year for
which such payment applies, the Net Sales for the Fiscal Year, and the royalties
due on such Net Sales, such report being broken down by Marketed Product.
(e) Within ninety (90) days after the end of each Fiscal Year during
the term of this Agreement commencing with the year during which the first
commercial sale of a Product
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shall occur, Procter & Gamble shall provide to Alexion a report, prepared by
Procter & Gamble, relating to the sale of Products, containing:
(i) the total Net Sales of all Products sold by Procter & Gamble, it
Affiliates and its sublicensees during such year; and
(ii) the amounts owed to Alexion pursuant to this Agreement with
respect to such year.
(f) Any amounts owed pursuant to Sections 8.2(a), 8.2(b), 8.2(c) or
8.3 shall be paid in U.S. dollars using the average rate of exchange for the
currency of the country from which the royalties are payable for the applicable
period. Rates are averaged using those quoted in The Wall Street Journal (or
Citibank, N.A. if such rates are not available in The Wall Street Journal).
(g) Alexion shall submit a report to Procter & Gamble within sixty
(60) days after the end of each Fiscal Quarter detailing the number of Alexion
FTEs performing work pursuant to the Research & Development Plan, detailed
description of such work and other costs incurred pursuant to Section 4.2.
Alexion shall submit invoices in U.S. dollars to Procter & Gamble. Invoices
submitted to Procter & Gamble pursuant to this Section 8.5(g) are payable net
thirty (30) days after receipt and are subject to audit by Procter & Gamble in
addition to the audit provision pursuant to Section 8.8.
(h) All payments due under this Article VIII will be deposited by
Electronic Funds Transfer in a bank chosen by Alexion by the date due. Any
amounts or royalties prohibited from export by a particular country will be
deposited in a bank chosen by Alexion in such country. Any deductions for
withholding taxes imposed by the country in which Net Sales take place will be
withheld and paid as required by law. The amount of tax withheld shall be for
the account of Alexion. Procter & Gamble will provide prompt evidence of payment
of such taxes to the governmental or taxing authority. Procter & Gamble will
assist Alexion in claiming relief from double taxation and shall use reasonable
efforts to minimize any income taxes required to be withheld on behalf of
Alexion by Procter & Gamble, its Affiliates or sublicensees, and promptly shall
deliver to Alexion copies of all communications from or with such governmental
authority with respect thereto.
(i) Procter & Gamble shall report sales of Products by its
sublicensees and
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pay royalties on such sales on the same basis as if such sales had been made by
Procter & Gamble. Procter & Gamble shall ensure that its sublicense agreements
obligate sublicensees to pay royalties and report on such a basis, and shall
further give Alexion a right to require (to the extent permitted under the
applicable sublicense agreement) that Procter & Gamble initiate an audit of such
sublicensees' books. Alexion shall reimburse Procter & Gamble for Auditing costs
initiated at Alexion's request should the Auditor determine the cumulative
material discrepancy (Procter & Gamble and Sublicensee) is less than 3%.
8.6. Records. Procter & Gamble (and its Affiliates and Sublicensees) and
Alexion (and its Affiliates) will maintain, and will require their Affiliates to
maintain, complete and accurate written records which are relevant to costs,
expenses and payments under this Agreement and such records shall be open for
inspection by a designated representative of the other Party with reasonable
notice during reasonable business hours for a period of five years from creation
of individual records. Such inspections are limited to two times per year.
8.7. Interest Rate. Unless otherwise provided in this Agreement, any
payments past due will bear interest at the prime rate (such quoted in The Wall
Street Journal on the first day of the month of the accrual) plus two (2)
percentage points, compounded monthly.
8.8. Audit. Not more than once in any Fiscal Year and upon reasonable
advance notice to the other party to this Agreement, Alexion or Procter &
Gamble, as the case may be (the "Requesting Party"), shall be entitled to
nominate a reasonably acceptable representative or independent certified public
accountants reasonably acceptable to the other party to have access at
reasonable times during normal business hours and upon reasonable prior notice
(subject to signing a confidentiality agreement) to (a) Procter & Gamble's, its
Affiliates' or sublicensees' records for Annual Contribution and Net Sales of
Products (such audit of Procter & Gamble's sublicensee shall be initiated by
Procter & Gamble), as the case may be, as they relate to the relevant Products
for the purpose of verifying Procter & Gamble's calculation of royalty payments
due hereunder or (b) Alexion' s records for Alexion' s calculation of FTE costs,
Alexion Product Cost and any other costs to be paid by Procter & Gamble. Such
accounting firm
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shall not disclose to the Requesting Party or to any third party any financial
or other information relating to the business of the party whose records are
being audited (the "Audited Party") except that which is necessary to inform the
Requesting Party of the accuracy or inaccuracy of the Audited Party's
calculation. Should such accounting firm discover information indicating, in its
opinion, an inaccuracy in the calculation of the royalty payments or the Alexion
expenses subject to payment by Procter & Gamble, as the case may be, it shall so
notify the parties in writing thereof (and shall set out its preliminary
conclusions in reasonable detail).
The Audited Party shall advise the Requesting Party in writing within ten
business days of receiving such notice should the Audited Party disagree with
the determination of such representative or accounting firm. During the next 20
business days, such representative or accounting firm and the accountants of the
Audited Party shall attempt to resolve the issue in dispute. Failing such
agreement within such 20 day period, the accounting firm of the Requesting Party
and the accountants of the Audited Party shall appoint another independent,
nationally recognized accounting firm to conduct its own audit. The
determination by such second accounting firm (the "Auditors") shall be final and
binding on the parties. Any payments owed by the Audited Party shall be made
within ten (10) days of the Audited Party's receipt of the Auditor's
determination.
In the absence of material discrepancies [*******] in any request for
reimbursement or audit resulting from such examination or audit, the accounting
expense shall be paid by the Party requesting the examination or audit. If
material discrepancies adverse to the Party requesting the examination or audit
do result, the Audited Party shall bear the accounting expenses.
Notwithstanding the foregoing, neither Party shall audit the same records
twice.
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Article IX - Patents, Trademarks and Infringement
9.1. Disclosure. Alexion shall disclose to Procter & Gamble Know-how,
patents and developments in the Field included within Alexion Patents and
Alexion Know-how known prior to the Effective Date. Further, each Party shall
promptly disclose to the other Party any invention or Know-how or other
developments in the Field. Invention disclosures in the Field will be disclosed
in the normal course of the Agreement. Such disclosures will be made pursuant to
Article X.
9.2. Alexion Obligation. Alexion shall take all such actions within its
control required to maintain rights to Licensed Technology which is part of
Alexion Patents and Alexion Know-how and, where necessary, subject to Section
2.4(b), shall take such action as Procter & Gamble reasonably deems necessary to
enable Alexion to maintain such licenses, subject to the payment and performance
by Procter & Gamble of its obligations and responsibilities under this Agreement
and provided, that Alexion shall not be required to pay any licensor any funds
in respect of Sales by Procter & Gamble, its Affiliates or sublicensees which it
has not received from Procter & Gamble.
9.3. Patent Applications. Alexion and Procter & Gamble will discuss and
evaluate technology disclosed pursuant to Section 9.1, and confer regarding the
advisability of filing patent applications to cover any technology resulting
from the collaboration under this Agreement. The Party responsible for the
filing, prosecution and maintenance of patent applications (herein "Responsible
Party") shall be: (a) Procter & Gamble, if the subject invention is made solely
by employees of Procter & Gamble; or (b) Alexion, if the subject invention is
made solely by employees of Alexion or a licensor or agent thereof or (c)
determined by agreement of the Parties for all other inventions, taking into
account the nature of the invention and the relationship of the invention to
inventions claimed in other patents or applications. Any patent `for an
invention conceived or reduced to practice regarding technology during the
Agreement shall be owned: (i) by Alexion (and shall be an Alexion Patent), if
said invention is conceived and reduced to practice solely by employees of
Alexion; (ii) by Procter & Gamble
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(and shall be a Procter & Gamble Patent with respect to a Product) if said
invention is conceived and reduced to practice solely by employees of Procter &
Gamble; and (iii) by Procter & Gamble and Alexion (and shall be a Joint Patent),
if said invention is conceived and reduced to practice by employees of Procter &
Gamble and Alexion. Inventorship shall be determined according to the laws of
the USA. Any dispute regarding the inventorship of an invention made under the
Research & Development Plan shall be resolved by the decision of independent
patent counsel, mutually acceptable to the Parties, after consideration of all
evidence submitted by the Parties, except to the extent such decision is
inconsistent with the subsequent determination of the appropriate patent or
judicial authorities. Filing, prosecution, maintenance and enforcement of such
Patents shall be handled pursuant to Article IX. Alexion and Procter & Gamble
will discuss with each other the advisability of filing Patent applications
beyond the priority country.
9.4. Filing and Prosecution of Patents. The Responsible Party shall
diligently file, prosecute, seek prompt issuance of, and maintain patent
applications according to its own internal standards for effectively covering
other inventions made by its employees or consultants. The Responsible Party
will endeavor to ensure that all patent applications are filed before any public
disclosures so as to ensure validity of patent applications filed outside of the
United States. The Responsible Party will submit a substantially complete draft
of each patent application to the other Party at least thirty (30) days prior to
the contemplated filing date and consider any comments of the other Party,
provided that in those circumstances where the Responsible Party believes time
is of the essence, the Responsible Party will endeavor to provide the other with
such advance notice as it reasonably can under the circumstances. Alexion and
Procter & Gamble will confer with each other regarding the prosecution of such
Patent Applications and will copy each other with any official action and
submission in such Patent Applications. Except where otherwise noted, Procter &
Gamble will be responsible for expenses associated with filing, prosecution and
maintenance of Procter & Gamble patents and Alexion will be responsible for
expenses associated with its patents.
9.5. Alternate Responsibility for Prosecution. In the event a Party
determines that it will not file, prosecute or maintain, a Patent in the Field
in a particular country, it shall promptly
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notify the other Party, and such other Party shall then have the right, but not
obligation, to assume responsibility for the Patent, and thereby become the
Responsible Party for that Patent pursuant to Section 9.3. Such other Party
shall be given all necessary authority by the Party not so filing, prosecuting
or maintaining the Patent to file, prosecute, and maintain the Patent at the
expense of such other Party.
9.6. Infringement of Patents. Procter & Gamble and Alexion shall promptly
notify the other in writing of any infringement of a Patent within the Patent
rights licensed or to be licensed pursuant to Article II of which they become
aware. Procter & Gamble and Alexion shall also promptly notify the other party
in writing of any patent rights a Third Party may assert against a Product or
Marketed Product.
9.7. Enforcement of Patents.
(a) Third Party Licenses. If (a) Procter & Gamble believes that a
license to a Third Party patent is necessary for sale of Products in a country
outside the United States and (b) Alexion does not agree that such Third Party
license is necessary, then the Parties will submit the issue to a mutually
acceptable independent counsel who will determine whether such Third Party
license is necessary for sale of such Product in such country. If such
independent counsel determines that such Third Party license is necessary for
sale of Products in such country, or if Alexion agrees with Procter & Gamble's
assessment, the Parties will share license costs, with Alexion responsible for
[*******] of such costs and Procter & Gamble responsible for [*******] of such
costs. If such independent counsel determines that such license is not
necessary, Procter & Gamble may execute such Third Party license and be
responsible for all such costs.
(b) Defense and Settlement of Third Party Claims. If a Third Party
asserts that a patent or other right owned by it is infringed by the
manufacture, use or sale of any Product, then Procter & Gamble shall have the
right but not the obligation to defend against any such assertions at its own
expense, and Alexion shall have the right at its own expense to be represented
by counsel of its own choice. In the event that Procter & Gamble declines to
defend against such Third Party assertion, or Procter & Gamble fails to defend
within sixty (60) days, then Alexion may defend against such assertion at its
own expense.
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(c) Infringement of Licensed Technology by Third Parties with
Respect to Products. If any exclusively licensed Licensed Technology appears to
be infringed by a Third Party in any country in connection with the manufacture,
use, offer for sale, or sale of any Product or a functionally equivalent
competitive product in such country, the Party to this Agreement first having
knowledge of such infringement shall promptly notify the other in writing. The
notice shall set forth the facts of that infringement in reasonable detail, to
the knowledge of the Party. Alexion shall have the primary right, but not the
obligation, to institute, prosecute, and control any action or proceeding with
respect to such infringement, by counsel of its own choice, and Procter & Gamble
shall have the right, at its own expense, to be represented by counsel of its
own choice. If Alexion fails to bring an action or proceeding within a period of
twenty-five (25) days after having knowledge of infringement of an Alexion
Patent or a Joint Patent, Procter & Gamble shall have the right to bring and
control any such action by counsel of its own choice. Alexion will retain
control of non-exclusively licensed Licensed Technology and Procter & Gamble
shall have the right to be represented in any such action by counsel of its own
choice at its own expense. If one Party brings any such action or proceeding,
the other Party agrees to be joined as a party plaintiff if necessary to
prosecute the action and to give the first Party reasonable assistance and
authority to file and prosecute the suit. No Party shall be obligated to bring
or maintain more than one such suit at any time with respect to claims directed
to any one method of manufacture or composition of matter or method of use.
(d) Infringement of Certain Exclusively Licensed Alexion Patents
other than Licensed Technology or Joint Patents by Third Parties with Respect to
Products. If an exclusively licensed Alexion Patent, not including Licensed
Technology, or Joint Patent appears to be infringed by a Third Party in any
country in connection with the manufacture, use, offer for sale, sale or import
of any product including Product, the Party to this Agreement first having
knowledge of such infringement shall promptly notify the other in writing. The
notice shall set forth the facts of that infringement in reasonable detail, to
the knowledge of the Party. Procter & Gamble shall have the primary right, but
not the obligation to institute, prosecute, and control any action or proceeding
with respect to such infringement of such exclusively licensed Alexion Patent or
Joint Patent by counsel of its own choice, and Alexion shall have the right, at
its own expense, to be represented in any action involving an exclusively
licensed Alexion Patent or a
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Joint Patent by counsel of its own choice. If Procter & Gamble fails to bring an
action or proceeding within a period of twenty-five (25) days after having
knowledge of infringement, Alexion shall have the right to bring and control any
such action by counsel of its own choice, and Procter & Gamble shall have the
right to be represented in any action by counsel of its own choice at its own
expense. If one Party brings any such action or proceeding, the other Party
agrees to be joined as a party plaintiff if necessary to prosecute the action
and to give the first Party reasonable assistance and authority to file and
prosecute the suit. If the Parties do not agree on a common course of action for
any other such Patent within sixty (60) days following the notice provided under
this Section 9.7, each Party may take such action as it determines to be in its
best interest with respect to such apparent infringement.
(e) Infringement of Procter & Gamble Patent by Third Parties with
Respect to Products. If a Procter & Gamble Patent appears to be infringed by a
Third Party in any country in connection with the manufacture, use, offer for
sale, sale or import of any Product, the Party to this agreement first having
knowledge of such infringement shall promptly notify the other in writing. The
notice shall set forth the facts of that infringement in reasonable detail to
the knowledge of the Party. Procter & Gamble shall have the right, but not the
obligation, to institute, prosecute, and control any action or proceeding with
respect to such infringement.
(f) Monetary Awards. Any damages or other monetary awards recovered
by reason of litigation under Section 9.7(b), 9.7(c) or 9.7(d) shall be
allocated first to the costs and expenses of the Party bringing suit, then to
the costs and expenses, if any, of the other Party. Any amounts remaining
designated as lost profits shall be allocated to the Parties in a manner such
that Alexion receives as nearly as possible the same amount as if Procter &
Gamble had made Net Sales resulting in such lost profit. Any other amounts
remaining shall be allocated [*******] to the Party bringing suit and [*******]
to the other Party. No settlement or consent judgment or other voluntary final
disposition of a suit under Section 9.7(b), (c) or (d) may be entered into
without the consent of the Party not bringing the suit if such settlement,
judgment or other disposition shall waive or affect any rights of the Party not
bringing the suit or could result in the payment of money or impose any
obligation on the Party not bringing the suit.
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9.8. Trademarks. Procter & Gamble shall file, prosecute and maintain all
trademark applications and registrations for trademarks to be used for Products
or Marketed Products. Procter & Gamble shall pay all expenses in connection with
filing and prosecution of such trademarks which shall be owned by Procter &
Gamble.
9.9. Trademark Infringement and Enforcement. Alexion shall promptly notify
Procter & Gamble of any infringement of a trademark under this Section 9.9 of
which they become aware. Procter & Gamble may, but shall not be required to,
prosecute any such alleged infringement or threatened infringement. Alexion
shall cooperate fully with Procter & Gamble in such action. Any recovery
obtained shall belong to Procter & Gamble.
9.10. Unauthorized Use of Patent Rights. Neither Party shall willfully
take any action which would, directly or indirectly, infringe, or induce or
contribute to the infringement of, one or more claims of any issued Patent of
the other Party or its Affiliates, except to the extent such action is
authorized by a license granted under this Agreement. If either Party takes any
action, directly or indirectly, to challenge the validity of any issued patent
of the other Party or its Affiliates, then the other Party shall have the right
in its sole discretion to terminate the Research & Development Plan; provided,
however, in the circumstances where the challenged patent is included within the
patent rights of the other Party, the other Party additionally shall have the
right to terminate the licenses granted under Article V above, to the extent
permitted by law, on a country-by-country basis. A Party shall not be entitled
to withhold payment of any royalty accruing during any challenge to the validity
of a patent included within the patent rights of the other Party.
Article X - Confidentiality
10.1. Confidentiality and Non-Use Obligations. Each Party shall maintain
in confidence all information (herein "Information") which is:
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(a) disclosed to it by the other Party pursuant to Section 9.1;
(b) developed by the Party during the Term in the course of
performance of the obligations under this Agreement;
(c) the terms of the Agreement; or
(d) other information ("Other Information") disclosed by the other
Party which is outside the Field or otherwise not within the scope of the
collaboration and which is considered confidential by the other Party, and so
designated as confidential in writing when first disclosed or within thirty (30)
days after disclosure if the first disclosure is oral (except for patent
applications and related correspondence which shall be deemed confidential
without being marked or any such designation).
The Party shall take all reasonable precautions to:
(a) prevent disclosure of such Information to Third Parties, except
as set forth in Section 10.3 and Section 14.10, or as may be necessary for the
filing or prosecution of patent applications pursuant to Article IX; and
(b) use Patents and Know-how pursuant to the rights and obligations
of the Party pursuant to Article II.
The Party shall not use Other Information for any purpose.
These restrictions upon disclosure and use of Information shall terminate
ten (10) years after the date of the termination of the Agreement, but shall not
apply to any specific portion of Information which:
(i) is Information which can be demonstrated by the recipient
to have already been in the possession of the recipient at the time
of disclosure by the other Party;
(ii) is or later becomes available to the public, as evidenced
by documents which were generally published, other than by default
by the Party;
(iii) is received from a Third Party having legitimate
possession thereof and the independent legal right to make such
disclosure;
(iv) is Other Information developed by the Party entirely
without reference or use of Information, as established by probative
documentary evidence; or
(v) is required to be disclosed by law or government
regulation.
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10.2. Prior Non-Disclosure Agreements. The "Non- Disclosure Agreement"
dated July 16, 1998 between Alexion Pharmaceuticals, Inc. and Procter & Gamble
have separately been rendered void and all Information to be kept confidential
under such agreements as of the Effective Date will be subject to the terms of
Section 10.1 as if disclosed under this Agreement.
10.3. Research Manuscripts and Abstracts. It is understood that either
Party may publish or otherwise disclose the results of the Research &
Development Plan or of development studies of Collaboration Inhibitor in a
reputable scientific forum (for example, as an abstract, poster presentation,
lecture, article, book, or any other means of dissemination to the public). Such
disclosures may be made to a Third Party with the approval of the Research &
Development Steering Committee regarding (x) preclinical research; (y) clinical
research disclosures after a final report exists, if disclosure presents no
significant risk to regulatory filings and serves a compelling business reason
for publication; and (z) other work by the Parties, upon approval by the
Research & Development Steering Committee. No such disclosure shall be made to a
Third Party until a patent application has been filed adequately describing and
claiming any patentable technology embodied in such disclosure, pursuant to
Article VII. A party wishing to make any such disclosure shall submit a complete
written draft of the disclosure to the other Party at least thirty (30) days
prior to submission for the disclosure to a Third Party. The Party shall
consider any comments from the other Party. Any disputes regarding the
appropriateness, content and authors of any such disclosure shall be resolved by
the Research & Development Steering Committee.
Article XI -- Representations and Warranties
11.1. Governmental Compliance. Both Parties shall comply with all laws,
rules and regulations applicable to the activities undertaken by both Parties
hereunder.
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11.2. Alexion Representations and Warranties.
(a) Alexion represents and warrants to Procter & Gamble the
following, which shall be true and correct as of the Effective Date:
(i) Organization and Good Standing. Alexion is a corporation duly
organized, validly existing, and in good standing under the applicable
laws of incorporation and has full corporate power to own its properties
and conduct the business presently being conducted by it, and is duly
qualified to do business in, and is in good standing under, the laws of
all states and nations in which its activities or assets require such
status, except in any case where the failure to be so qualified and in
good standing would not be material.
(ii) Power and Authority. Alexion has full corporate right, power
and authority to perform its obligations pursuant to this Agreement, and
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of
Alexion. This Agreement has been duly and validly executed by Alexion.
Upon execution and delivery of this Agreement, it will be the valid and
binding obligation of Alexion enforceable in accordance with its terms,
subject to equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditor's right and
remedies generally.
(iii) Violations and Consent. The execution, delivery and
performance of this Agreement does not, and the consummation of the
transactions therein contemplated will not violate any law, rule,
regulation, order, judgment or decree binding on Alexion or result in a
breach of any term of the certificate of incorporation or by-laws of
Alexion or any contract, agreement or other instrument to which Alexion is
a party, except in each case to an extent not material.
(b) Alexion represents and warrants to Procter & Gamble the following,
which shall be true and correct as of the Effective Date:
(i) to the best of Alexion's knowledge, Alexion has disclosed to
Procter & Gamble technical, scientific and regulatory information
relating to the Collaboration Inhibitor, and has not intentionally
withheld any such material technical, scientific or regulatory
information; and
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(ii) it owns or Controls under valid licenses the requisite rights
to grant the licenses granted by it hereunder; and
(iii) Alexion has no actual knowledge of any information rendering
invalid or unenforceable any Patent licensed to Procter & Gamble
under Article II. Alexion will promptly inform Procter & Gamble
if it obtains such information after the Effective Date. Alexion has
no actual knowledge of any Patents and Know-how owned by a Third
Party that Alexion believes will prevent, inhibit, or limit the
Parties from conducting the research, development and
commercialization activities under this Agreement. Alexion warrants
that, except with respect to the agreements for the Licensed
Technology, it has not entered into any agreement with a Third Party
that Alexion believes will prevent, inhibit, or limit the Parties
from conducting the research, development and commercialization
activities under this Agreement.
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, ALEXION MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE ALEXION
PATENTS, ALEXION KNOW-HOW, COLLABORATION INHIBITOR OR OTHER LICENSED
TECHNOLOGY OR PRODUCTS, AND EXPRESSLY DISCLAIMS ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED
WARRANTIES WITH RESPECT TO THE CAPABILITIES, SAFETY, UTILITY OR COMMERCIAL
APPLICATION OF ALEXION PATENTS, ALEXION KNOW-HOW, COLLABORATION INHIBITOR
OR OTHER LICENSED TECHNOLOGY OR PRODUCTS.
ALEXION AND ITS LICENSORS SHALL NOT BE LIABLE FOR ANY DIRECT,
CONSEQUENTIAL OR OTHER DAMAGES SUFFERED BY PROCTER & GAMBLE OR ANY OTHERS
RESULTING FROM THE USE OF THE ALEXION
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PATENTS, ALEXION KNOW-HOW, COLLABORATION INHIBITOR OR OTHER LICENSED
TECHNOLOGY OR PRODUCTS EXCEPT IN THE CASE OF ALEXION AS IT RELATES TO
DIRECT DAMAGE PURSUANT TO ARTICLE XII.
11.3. Representations and Warranties of Procter & Gamble.
(a) Procter & Gamble represents and warrants to Alexion the
following, true and correct on the Effective Date:
(i) Organization and Good Standing. Procter & Gamble is a
corporation duly organized, validly existing, and in good standing under
the applicable laws of incorporation and has full corporate power to own
its properties and conduct the business presently being conducted by it,
and is duly qualified to do business in. and is in good standing under,
the laws of all states and nations in which its activities or assets
require such status, except in any case where the failure to be so
qualified and in good standing would not be material.
(ii) Power and Authority. Procter & Gamble has full corporate right,
power and authority to perform its obligations pursuant to this Agreement,
and this Agreement and the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of
Procter & Gamble. This Agreement has been duly and validly executed by
Procter & Gamble. Upon execution and delivery of this Agreement, it will
be the valid and binding obligation of Procter & Gamble enforceable in
accordance with its terms, subject to equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditor's rights and remedies generally.
(iii) Violations and Consent. The execution, delivery and
performance of this Agreement does not, and the consummation of the
transactions therein contemplated will not violate any law, rule,
regulation, order, judgment or decree binding on Procter & Gamble or
result in a breach of any term of the certificate of incorporation or
by-laws of Procter & Gamble or any contract, agreement or other instrument
to which Procter & Gamble is a party, except in each case to an extent
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not material. No authorization is required by Procter & Gamble for the
execution, delivery, or performance of this Agreement by Procter & Gamble,
except in each case to an extent not material.
(iv) Evaluation. Procter & Gamble possesses the expertise and skill
in the technical areas in which the Alexion Patents, Alexion Know-how,
Collaboration Inhibitor and Products are involved necessary to make, and
has made its own evaluation of the capabilities, safety, utility and
commercial application of the Alexion Patents, Alexion Know-how,
Collaboration Inhibitor and Products.
11.4. Limitation on Warranties. The Parties understand that the research
and development work to be conducted pursuant to this Agreement will involve
untested, experimental, and currently undeveloped technology and that neither
Alexion nor Procter & Gamble guarantees the safety or usefulness of any Product.
Except as otherwise provided in this Agreement, nothing herein shall be
construed as a representation or warranty by either Party to the other that any
Patent or Know-how or other intellectual property right owned or Controlled by
such Party is valid, enforceable, or not infringed by any Third Party, or that
the practice of such rights does not infringe any property right of any Third
Party or that any Patent will issue based upon a pending patent application or
that any such patent which issues will be valid.
11.5. Negative Covenants. Each Party hereby covenants to the other that
such Party shall not use or practice the other Party's Patents or Know-how in
any field or in any manner except as specifically licensed under this Agreement.
Article XII - Indemnification; Insurance
12.1. Indemnification.
(a) Research and Development Indemnification. Each party (the
"Indemnifying Party") shall indemnify, defend and hold the other Party (the
"Indemnified Party") harmless from
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and against any and all liabilities, claims, damages, costs, expenses or money
judgments incurred by or rendered against the Indemnified Party and its
sublicensees incurred in the defense or settlement of a Third Party lawsuit or
in a satisfaction of a Third Party judgment arising out of any injuries to
person and/or damage to property resulting from (i) the gross negligence or
willful or intentional misconduct in the performance by it of its
responsibilities under the Research & Development Plan or otherwise under this
Agreement, or (ii) personal injury to the Indemnified Party employees or agents
or damage to the Indemnified Party's tangible property resulting from acts
performed by, under the direction of, or at the request of the Indemnifying
Party in carrying out activities contemplated by this Agreement. Notwithstanding
the above, each Party shall indemnify and hold the other Party harmless from and
against that portion of any and all Losses due to the gross negligence or
willful or intentional misconduct of such Indemnifying Party. Further, Procter &
Gamble shall not indemnify, defend or hold harmless Alexion for any claims or
liabilities arising from the actions or inactions of Alexion prior to the date
of this Agreement.
(b) Indemnification for Marketing. With respect to Products
commercialized by Procter &Gamble under this Agreement, Procter & Gamble hereby
agrees to save, defend, indemnify, and hold harmless Alexion, its agents and
employees, and the principal investigator of the Licensed Technology and all
licensors thereof, their officers, directors, trustees, employees and agents and
all of their heirs, executors, administrators and legal representatives
("Indemnified Parties") from and against any and all such claims, actions,
demands, loss, liability, expense or damage (including investigative costs,
court costs and attorneys' fees) the Indemnified Parties may suffer, pay or
incur as a result of claims, demands or actions against any of the Indemnified
Parties to the extent arising or alleged to arise by reason of or in connection
with any and all personal injury, economic loss and property damage caused or
alleged to be caused or contributed to in whole or in part by the manufacture,
use, handling, storage, sale, sublicense or other disposition of Products by
Procter & Gamble, its Affiliates, agents or sublicensees, whether asserted under
a tort or contractual theory or any other legal theory, including but not
limited to any and all claims, demands, and actions in which it is alleged that
(1) an Indemnified Party's negligence or representations about the Products
caused any defect in their manufacture, design, labeling or performance or (2)
subject to in the case of patents and in
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respect to Alexion pursuant to Section 9.7, any alleged infringement of any
patent, trademark or copyright, causes or contributed in whole or in part to the
personal injury, economic loss of property damage.
(c) Affiliates; Sublicensees. Procter & Gamble shall be responsible
for and indemnify and hold Alexion and its licensors harmless from and against
all acts and omissions of its Affiliates and sublicensees, as if performed or
failed to be performed by it under this Agreement.
(d) Procedure. Subject to Section 9.7, in the event that an
Indemnified Party is seeking indemnification under Section 12.1(a), 12.1(b) or
12.1(c), it shall inform the Indemnifying Party of a claim as soon as reasonably
practicable after it received notice of the claim, shall permit the Indemnifying
Party to assume direction and control of the defense of the claim (including the
right to settle the claim solely for monetary consideration), and shall
cooperate as requested (at the expense of the Indemnifying Party) in the defense
of the claim.
12.2. Insurance.
(a) Without limiting Procter & Gamble's indemnity obligations under
Section 12.1. Procter & Gamble shall obtain or have obtained for it and it shall
maintain or have maintained for it throughout the term of this Agreement and for
at least ten (10) years after its termination or expiration (i) general
liability insurance in comprehensive form with a combined single limit of no
less than [*******], which shall cover at least bodily injury, personal injury,
liability, property damage and product liability claims with respect to any
technology licensed to it hereunder, Patents, or Product practiced, used,
manufactured or sold pursuant to any development, testing and commercialization
of technology, Patents, or Product, and (ii) contractual insurance in broad form
in amounts reasonable and prudent in light of the risks involved in development,
testing and commercialization of Products. All such policies shall include a
contractual endorsement naming the Indemnified Parties as additional insureds
and providing coverage for all liability which may be incurred by the
Indemnified Parties in connection with this Agreement and require the insurance
carrier(s) to provide Alexion with no less than thirty (30) days written notice
of any change in the terms or coverage of the policy(ies) or its cancellation.
In no event, however, shall Procter & Gamble be obligated to maintain any
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insurance in respect of Products manufactured or sold by Alexion.
(b) Notwithstanding the provisions of Section 12.2(a), if and so
long as Procter & Gamble shall have a consolidated net worth of at least
[*******], then the insurance coverage may be substituted by self-insurance
provisions as such net worth and self-insurance shall be certified by a
responsible corporate financial officer of Procter & Gamble. In such event,
Procter & Gamble shall hold Alexion, its agents and employees, the principal
investigators of the Licensed Technology and all licensors thereof, their
officers, directors, employees and agents and all of their heirs, executors,
administrators and legal representatives harmless from and against claims from
Third Parties and other liabilities in a manner and measure equivalent to the
insurance coverage otherwise required by this Section 12.2.
(c) Alexion has obtained insurance coverage customary for a company
of its size, engaged in the research and development of pharmaceutical products.
Article XIII - Term, Termination: Change of Control
13.1. Effective Date and Term.
(a) Effective Date. Within three (3) days of the date first written
above, the Parties shall file the appropriate documents with the U.S. Federal
Trade Commission and the U.S. Department of Justice pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and including
such Act's enabling regulations (collectively "HSR"). This Agreement shall
become effective upon such date that the applicable HSR waiting period has
expired or is otherwise terminated ("Effective Date").
(b) Term. Unless terminated earlier by the Parties pursuant to
Sections 13.2 or 13.3, this Agreement shall commence on the Effective Date and
expire on the later of (i) the date of the last to expire Alexion Patent or
Joint Patent having a Valid Claim or (ii) the date when royalty payments are no
longer payable pursuant to Section 8.2(a). Upon expiration of this Agreement in
accordance with clause (i) or (ii) of this Section, each Party shall grant to
the other Party a non-exclusive worldwide license to use its Know-how, within
the Field; provided, that Procter & Gamble shall continue to be responsible for
milestone payments in accordance with
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Sections 8.1 and 8.2(b) of this Agreement as if this Agreement shall not have so
expired.
13.2. Termination by Procter & Gamble.
(a) Failure to Meet Success Criteria. Procter & Gamble may terminate
the Agreement upon [*******] prior written notice to Alexion if at any
time, in the reasonable judgment of the Research & Development Steering
Committee while in effect and thereafter in the reasonable judgment of Procter &
Gamble, the licensed technology or the Product fails to meet Success Criteria,
to be effective at any time at least [*******] after the Effective Date.
(b) Collapse of Working Hypothesis. If, within [*******] after the
Effective Date, Procter & Gamble shall reasonably determine, that the working
hypothesis or scientific rationale underlying the Collaboration has collapsed
and is no longer scientifically viable, then, unless Alexion shall agree in
writing, Procter & Gamble shall be entitled to have such matter determined by
peer review consensus. In such event, the Parties shall promptly submit such
matter for determination by peer review consensus conducted by three scientists
having expertise in the Field, one selected by Alexion, another by Procter &
Gamble and the third by the two scientists so selected by the Parties. If
Alexion shall have so agreed in writing or if such peer review consensus shall
reasonably determine that the working hypothesis or scientific rationale
underlying the Collaboration has collapsed and is no longer scientifically
viable, then Procter & Gamble may terminate this Agreement by written notice to
Alexion. Such notice shall be effective to terminate the obligations of Procter
& Gamble under this Agreement upon receipt thereof by Alexion, except that, in
order to provide for the orderly transition of responsibilities from Procter &
Gamble to Alexion, the following obligations shall continue and the following
shall occur: (i) the obligations and responsibilities of Procter & Gamble to
fund FTEs at the level then in existence prior to such notice and make other
payments contemplated by Section 4.2 shall continue until expiration of
[*******] after Alexion's receipt of such written notice of termination (subject
to the reduction of such FTEs by Alexion in accordance with the orderly wind
down by Alexion of such program), (ii) Procter & Gamble shall continue to be
responsible for care and monitoring of clinical patients and other patients
which have been dosed and (iii) Procter & Gamble shall assist Alexion in winding
down any trials in progress in accordance with applicable industry standards and
applicable governmental regulations.
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13.3. Material Breach. Failure by either Party (the "Breaching Party") to
comply with any of the material obligations contained in this Agreement shall
entitle the other Party (the "Non-breaching Party") to give to the Breach Party
notice specifying the nature of the breach and requiring it to cure such breach.
(a) If such breach involves the payment of money and is not cured or
otherwise resolved by the Parties in writing within fifteen (15) days after
receipt by the Breaching Party of such notice, either Party shall be entitled to
initiate an audit under Section 8.8. In the event of such an audit, if the
Auditor shall render an award of monetary damages payable to the Non-Breaching
Party, and such amount shall remain unpaid for ten (10) days after the Breaching
Party receives a copy of such judgment from the Non-breaching Party, the
Non-breaching Party shall be entitled to terminate this Agreement.
(b) If such breach does not involve the payment of money, and is not
cured or otherwise resolved by the Parties in writing within sixty (60) days
after receipt by the Breaching Party of such notice, either Party shall be
entitled to initiate arbitration under Section 14.4 and at its sole discretion
suspend performance under this Agreement. If such breach is not cured or
otherwise resolved by the Parties in writing within such sixty (60) day period,
and neither Party initiates an arbitration, all licenses and other rights of the
Breaching Party under Patents and Know-how of the Non-breaching Party and all
rights thereunder shall terminate and revert to the Non-breaching Party.
(i) If the arbitrators find a material breach of this Agreement,
then the Breaching Party may pay to the Non-breaching Party an amount
[*******] of such award. If the Breaching Party makes such a payment
then the provisions of this Agreement shall continue in full force and
effect. If the Breaching Party does not make such payment as provided in
Section 13 .2(iii) below, this Agreement shall terminate and the Breaching
Party shall pay to the Non-breaching Party the amount of damages awarded
by the arbitrators.
(ii) If the arbitrators find a material breach of this Agreement,
then the
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Breaching Party may offer to pay to the Non-breaching Party, in
consideration for the Non-breaching Party's election not to terminate the
Agreement, [*******]. If the Non-breaching Party accepts such offer, the
provisions of this Agreement shall continue in full force and effect. If
the Breaching Party does not make such offer or if the Non-breaching Party
rejects such offer, this Agreement shall terminate and the Breaching Party
shall pay to the Non-breaching Party the amount of damages awarded by the
arbitrators.
(iii) Any payment required under the terms of Sections 13.3(a) or
13.3(b) shall be made in USD to the bank designated by the Party to be
paid hereunder within ten (10) days after the determination of the audit
contemplated by Section 8.7 or the decision of the arbitrators, as the
case may be.
(iv) Notwithstanding anything herein to the contrary, each Party may
avail itself of the provisions of clause (i) and (ii), collectively, on a
single occasion only.
13.4. Bankruptcy. A Party may terminate (the "Terminating Party") this
Agreement upon written notice, at any time after the other party (the "Bankrupt
Party") is (1) dissolved (other than pursuant to a consolidation, amalgamation
or merger); (2) becomes insolvent or is unable to pay its debts or fails or
admits in writing its inability generally to pay its debts as they become due;
(3) makes a general assignment, arrangement or composition with or for the
benefits of its creditors; (4) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting creditor's
rights, or a petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition instituted or presented against it,
such proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its
winding-up or liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or presentation
thereon (5) has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation or merger);
(6) seeks or becomes subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian
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or other similar official for it or for all or substantially all its assets; (7)
has a secured party take possession of all or substantially all of its assets or
has a distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all its assets and
such secured party maintains possession, or any such process is not dismissed,
discharged, stayed or restrained, in each case within thirty (30) days
thereafter; (8) causes or is subject to any event with respect to it which,
under the applicable law of any jurisdiction, has an analogous effect to any of
the events specified in clauses (1) to (7) (inclusive); or (9) takes any action
in furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the foregoing acts.
13.5. Termination by Mutual Consent. This Agreement may be terminated by
mutual written consent of the Parties and rights hereunder divided as the
Parties agree in writing.
13.6 Certain Effects of Termination.
(a) Termination by Procter & Gamble for Scientific Reasons;
Termination by Alexion. Effective upon a termination under Section 13.2 or by
Alexion in accordance with Section 13.3 or 13.7(b), the following shall occur:
(i) Procter & Gamble's licenses under the Alexion Patents and
Alexion Know-how shall automatically be deemed to have terminated and all rights
thereunder shall automatically be deemed to have reverted to Alexion; and
Procter & Gamble shall be deemed to have transferred title to Alexion of all raw
data generated from any clinical or nonclinical studies conducted hereunder by
Alexion for Procter & Gamble;
(ii) Procter & Gamble shall, at the option of Alexion, either
deliver to Alexion or discontinue to use and, with respect to materials other
than raw data and biologics, destroy, all copies of Alexion Confidential
Information and any other materials provided by Alexion to Procter & Gamble
hereunder in the possession or Control of Procter & Gamble, its Affiliates or
sublicensees, and shall furnish to Alexion an affidavit signed by a corporate
officer or the Associate General Counsel of Procter & Gamble certifying that
such delivery or destruction has been fully effected. Notwithstanding the
foregoing, and provided Procter &
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Gamble fulfills its obligations specified in this Agreement with respect to such
materials. Procter & Gamble's Associate General Counsel may continue to retain
solely for archival purposes a single copy of Alexion's Confidential Information
and any other materials provided by Alexion, except that all biologics and
original versions of raw data generated from any clinical or nonclinical studies
conducted hereunder by Alexion for Procter & Gamble shall be transferred to
Alexion.
(iii) Procter & Gamble shall be deemed to have granted to
[*******], to Procter & Gamble's entire right, title and interest in Joint
Patents, in the Field, which may be necessary for the sale of a Product and to
Procter & Gamble Know-how, to make, have made, use and have used, import and
have imported, offer for sale and sell and have sold Products, including all
inventions, discoveries and improvements to Alexion Patents, Alexion Know-how,
Collaboration Inhibitor and Products to which Procter & Gamble shall then have
any rights;
(iv) Procter & Gamble shall be deemed to have granted to
Alexion an [*******], to Procter & Gamble Patents, in the Field, which may be
necessary for the sale of Products. The royalty rate will be negotiated by the
Parties upon commercially reasonable terms, and will fairly reflect whether the
license is on an exclusive or non-exclusive basis. If the Parties are unable to
agree on such terms, either Party may submit such dispute to be settled by
arbitration in accordance with Section 14.4.
(v) Procter & Gamble shall transfer to the Alexion or its
designee title to and sponsorship of all Health Registrations, approvals and
rights with respect to the Product anywhere in the Territory, and if title to
and sponsorship of any such Health Registrations, approvals or rights is not
transferable, then Procter & Gamble shall use all Commercially Reasonable
Efforts to enable Alexion or its designee to make use of and prosecute such
Health Registrations, approvals or rights;
(vi) Procter & Gamble shall, if such termination shall occur
at any time after a trademark shall be used outside of Procter & Gamble for a
Product (in trials, pre-launch or otherwise), transfer to Alexion, or grant a
fully-paid royalty-free exclusive transferable license (with the right to
sublicense) to Alexion for use and control of, all trademarks for the Product
that
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are owned by Procter & Gamble anywhere in the Territory; and
(vii) Take any other steps which can only be taken by Procter
& Gamble, necessary for Alexion or its designee to be able to market, promote,
distribute, sell and manufacture Products in each country in the Territory
without undue delay; and
(viii) Procter & Gamble shall indemnify, defend and hold
Alexion harmless in accordance with Article XII above from the performance by it
of its responsibilities under Section 3.2 prior to the date of termination and
under Section 13.2(b) and this Section 13.6 after such termination.
(b) Breach by Alexion. If Procter & Gamble shall terminate this
Agreement in accordance with Section 13.3 due to a breach by Alexion, all
licenses and other rights granted by Alexion to Procter & Gamble shall terminate
and revert to Alexion, and Procter & Gamble shall continue to own the raw data
generated from any clinical or nonclinical studies theretofore conducted
hereunder by Alexion for Procter & Gamble. Alexion shall be entitled, at its
option, to purchase such raw data from Procter & Gamble upon terms commercially
reasonable, to be negotiated by the Parties. If the Parties are unable to agree
on such terms, either Party may submit such dispute to be settled by arbitration
in accordance with Section 14.4.
13.7. Chance of Control. In the event of a Change in Control, as that term
is defined in Section 13.9(a), of either the Parties or their respective
Affiliates that are primarily responsible for undertaking the obligations under
this Agreement (each collectively or individually then referred to as the
"Acquired Company"), then the Party affiliated with the Acquired Company shall
notify the other Party of any such Change in Control as soon as the Change in
Control may publicly be announced. Upon receipt of any such notification, the
other Party or an Affiliate thereof (the "Electing Company") shall have the
unilateral right to give notice to the Acquired Company within thirty (30) days
after its next regularly scheduled board meeting, but in no event longer than
sixty (60) days after receipt of the Acquired Company's notification that, the
Electing Company:
(a) if the Electing Company shall be Procter & Gamble, Procter &
Gamble may elect as provided in clause (i) or (ii) below:
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(i) Procter & Gamble may elect not to continue any one or more of
the three activities of Alexion under this Agreement specified below in
clauses (1), (2) and/or (3) (each an "Alexion Interest"), as follows:
(1) Research - [*******] or
(2) Co-Promotion - [*******] or
(3) Manufacturing - [*******]
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[*******]
The rights set forth above to terminate or discontinue Alexion's Research,
Co-Promotion and/or Manufacturing Interests under the circumstances set
forth above shall in no event affect or impair any of the parties rights
or obligation with respect to Patents and Know-how under this Agreement,
including without limitation the continuing obligation of Procter & Gamble
to make milestone, royalty and sublicense payments pursuant to Sections
8.1, 8.2 and 8.3 hereof, all of which shall survive any such termination
or discontinuance of Alexion's Research, Co-Promotion and/or Manufacturing
Interests. The right of Procter & Gamble to terminate such Interests is
divisible and can be exercised by Procter & Gamble with respect to one or
more of such Interests.
(ii) Procter & Gamble may elect to continue any one or more of
Alexion's Research, Co-Promotion and Manufacturing Interests, in which
case Procter & Gamble may [*******]
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[*******]
(b) if the Electing Party shall be Alexion, Alexion may [*******]
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13.8. Substantial Stock Accumulation. In the event of a Substantial Stock
Accumulation in either the Procter & Gamble Parent or the Alexion Parent, as
soon as the Party affiliated with the Affected Company has knowledge of the
Substantial Stock Accumulation, it shall give prompt notice to the other Party.
Such notice shall be separate from and in addition to the notice provided for in
Section 13.7 and must be given regardless of whether the Party affiliated with
the Affected Company regards the Substantial Stock Accumulation as being not in
the best interest of the collaboration. From the date on which the Party
affiliated with the Affected Company has notice of the Substantial Stock
Accumulation, the following provisions shall become effective and remain
effective until the Substantial Stock Accumulation is eliminated, unless
otherwise agreed:
(i) If the Party that is not affiliated with the Affected Company
reasonably determines in good faith that the person or entity making the
Substantial Stock Accumulation is [*******] such Party may so inform
the other Party in writing. Promptly after receipt of such notice, the
Party affiliated with the Affected Company shall establish a procedure
whereby no director or executive employee of the Affected Company who was
not a director or employee of the Affected Company prior to the
Substantial Stock Accumulation, and who was previously a director or
employee of the person or entity making the Substantial Stock Accumulation
(a "Tainted Director or Executive"), shall receive any of the following:
(x) confidential information of the other Party and its Affiliates; and
(y) of the collaboration, except that any such Tainted Director or
Executive confidential scientific Information can be given information as
to actual and projected sales and profits of the collaboration.
(ii) If the Party that is not affiliated with the Affected Company
does not give notice pursuant to this Section 13.8 the Party affiliated
with the Affected Company shall establish a procedure whereby no Tainted
Director or Executive shall receive confidential information of the other
Party and its Affiliates but need not place any restrictions on
confidential or other information of the collaboration.
(iii) In the event of a material violation of this Section 13.8, the
non-breaching Party may, without resort to the dispute resolution
procedure set forth in
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Section 14.4, bring an immediate court action or enjoin such violation and
to recover any damages that it may have incurred by reason of such
violation.
13.9. Definitions.
(a) For purposes of this Agreement, a "Change in Control" of a
company shall be deemed to have occurred in the event of (i) a merger,
combination, reorganization or consolidation of the company with or into another
corporation with respect to which [*******], (ii) the sale of all or
substantially all of the properties and assets of the company and its
subsidiaries, or (iii) the acquisition by any individual, firm, corporation, or
entity (other than any profit sharing or other employee benefit plan of the
company or any Affiliate, or any employee or group of employees or former
officers an/or directors of the company or its Affiliates) of beneficial
ownership, directly or indirectly, of securities of the company representing
[*******] of the combined voting power of the company's then outstanding voting
securities; provided, however, that no such event referred to in clause (i) or
(iii) above with respect to Alexion may result in a Change of control of Alexion
unless [*******]. Notwithstanding the foregoing, for purposes of this Section
13.9(a), a Change in Control shall only be deemed to occur for Procter & Gamble
if there is a Change in Control of The Procter & Gamble Company or Procter &
Gamble Pharmaceuticals, Inc.
(b) A "Substantial Stock Accumulation" of a company shall be deemed
to have occurred in the event of the accumulation by any individual, firm,
corporation, or entity (other than any profit sharing or other employee benefit
plan of the company or any Affiliate, or any employee or group of employees or
former officers an/or directors of the company or its Affiliates) of beneficial
ownership, directly or indirectly, of securities of the company representing
[*******] of the combined voting power of the company's then outstanding voting
securities.
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(c) The "Purchase Price" for purposes of Section 13.7 shall be
determined as follows:
(i) Purchase Price refers to such of Alexion's [*******] as
shall be the subject of an election by Procter & Gamble to purchase, and shall
be equal to the Valuation (as defined herein) of such Interest to be purchased
under this Agreement, determined as follows: Each Party shall designate an
investment banking firm of its choice, and each investment banking firm will be
asked to prepare an appraisal as to the fair market value of such of [*******]
that would be received in cash from a Third Party if a sale of such Interest or
Interests were made to a Third Party with the consent of the other Party, taking
into account any contractual obligation of either Party or its Affiliates to
refrain from manufacturing or marketing a product competitive with the products
in the Territory for any period, the value of the information, Patents and
Know-how, and other assets being licensed and the potential market for such
Products and Marketed Products in the Territory (a "Valuation"). For such
Valuation, Alexion shall be entitled (1) [*******] (2) to [*******]. The
investment bankers will be asked to submit their Valuations of Alexion's
Interest or Interests within thirty (30) days after the Purchase Date as defined
in Section 13.9(c)(v). In the event of a Party's failure to obtain an investment
banking firm's Valuation within thirty (30) days after the Purchase Date, the
Valuation will be the Valuation determined by the investment banking firm
appointed by the other Party.
(ii) If the difference between the lower Valuation and the higher
Valuation is [*******] of the higher Valuation, or if the Valuations are
equal, the final Valuation shall be the average of the Valuations. If the
difference between the two (2) Valuations is [*******] of the higher
Valuation, the investment bankers will select a third investment banking
firm from those known as major bracket investment banking firms, and that
firm shall also prepare a Valuation. The third investment banking firm
will not have access to the Valuations prepared by the
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other investment banking firms. The two (2) Valuations that are the
closest in value then shall be averaged, and the resulting average shall
be the final Valuation.
(iii) The purchase of an Alexion Interest shall thereafter be
consummated by payment of the Valuation within sixty (60) days after
receipt of all investment bankers' valuations or such later date upon
which all necessary regulatory approvals have been obtained and/or
regulatory waiting periods have expired.
(iv) Each Party shall bear the expense of obtaining the Valuation of
the investment bankers selected by such Party, and if a third investment
banker is selected, the expense of obtaining its Valuation shall be borne
equally by the Parties.
(v) Unless otherwise agreed in writing by the Parties, the Valuation
for an Alexion Interest shall be calculated as of the date of the Electing
Company's notice that it elects to exercise its option to purchase such
Alexion Interest or Interests under Section 13.7(a)(i) (such date shall
be referred to as the "Purchase Date").
(vi) During the pendency of the option election and valuation
process, the Parties shall continue to perform their customary activities
under this Agreement.
13.10. Surviving Rights. Except as modified in Sections 13.1(b), 13.3 and
13.6 hereof, the obligations and rights of the Parties under Articles VIII, X,
XI, XII and XIII shall survive termination or expiration of this Agreement.
13.11. Accrued Rights. Surviving Obligations. Termination or expiration of
this Agreement for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of either Party prior to such termination or
expiration, including, without limitation, the payment obligations under Section
4.2 and Article VIII hereof and any and all damages arising from any breach
hereunder. Such termination or expiration shall not relieve either Party from
obligations which are expressly indicated to survive termination or expiration
of the Agreement.
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13.12. Termination Not Sole Remedy. Termination is not the sole remedy
under this Agreement and, whether or not termination is affected, all other
remedies will remain available except as agreed to otherwise herein.
13.13. Certain Injunctive Relief. Due to the important confidentiality
concerns of the parties, and for other reasons, the parties will be irreparably
damaged in the event that the provisions of Articles X and XIII hereof are not
specifically enforced. In the event of a breach or threatened breach of the
terms, covenants and/or conditions of either such Article by any of the parties
hereto, the other party shall, in addition to any other remedies it may have, be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of such Articles.
Article XIV - Miscellaneous
14.1. Force Majeure. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or loss on account of failure of
performance by the Defaulting Party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the reasonable control of the Defaulting Party,
provided that the Party claiming force majeure has exerted all reasonable
efforts to avoid or remedy such force majeure and given prompt notice to the
other Party.
14.2. Notices. Any notices or communications provided for in this
Agreement to be made by either of the Parties to the other shall be in writing,
in English, and shall be made by prepaid air mail with return receipt addressed
to the other at its address set forth above. Any such notice or communication
may also be given by hand or facsimile to the appropriate designation with
confirmation of receipt. Either Party may by like notice specify an address to
which notices and communications shall thereafter be sent. Notices sent by mail
shall be effective upon receipt; notices given by hand shall be effective when
delivered.
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Notices for Alexion shall be sent to:
Alexion Pharmaceuticals, Inc.
Attn: President
25 Science Park
New Haven, Connecticut 06511
With copy to:
Golenbock, Eiseman, Assor & Bell
Attn: Lawrence M. Bell, Esq.
437 Madison Avenue
New York, New York 10022
Notices for Procter & Gamble shall be sent to:
Procter & Gamble Pharmaceuticals, Inc.
Attn: President
10200 Alliance Road
Cincinnati, Ohio 45242-4716
With copy to:
Procter & Gamble Pharmaceuticals, Inc.
Attn: Associate General Counsel
10200 Alliance Road
Cincinnati, Ohio 45242-4716
14.3. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, as such laws are applied to contracts entered into and to be
performed within such state. Any claim or controversy arising out of or related
to this Agreement or any breach hereof shall be submitted to arbitration
pursuant to Section 14.4. The United Nations Convention on Contracts for the
International Sale of Goods will not apply to this Agreement.
14.4. Arbitration. Except as otherwise provided in Sections 8.8, 9.3,
9.7(a), 13.11 and 13.13 of this Agreement, disagreements shall be settled by
arbitration in accordance with the
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commercial arbitration rules of the American Arbitration Association. However,
nothing contained herein shall prevent the party or parties hereinafter
indicated from pursuing any and all of their rights and remedies in the courts
of any competent jurisdiction, without submitting the same to arbitration or
consenting to the arbitration thereof as it relates to the following:
(i) Either Party, in the event of a default or alleged default
by the other Party in the payment of its monetary obligations under Section 4.2
or Article VIII hereof.
(ii) Either Party, in the event of the occurrence or alleged
occurrence of an event of a breach or alleged breach by the other of any of the
provisions of Article X or XII hereof.
The parties further agree that each such disagreement be submitted to a
panel of three (3) impartial arbitrators with each Party selecting one (1)
arbitrator within fifteen (15) days of a request for arbitration and the two (2)
selected arbitrators selecting a third arbitrator who is experienced in the
United States pharmaceutical industry within thirty (30) days after the request.
Any arbitration hereunder shall commence within thirty (30) days after
appointment of the third arbitrator and shall be held in Cincinnati, Ohio, if
such arbitration is requested by Alexion or New Haven, Connecticut, if such
arbitration is requested by Procter & Gamble. Upon reasonable notice and prior
to any hearing, the Parties will allow document discovery and will disclose all
materials relevant to the subject matter of the dispute. The arbitrators shall
make final determinations as to any discovery disputes. The decision of the
arbitrators shall be rendered no later than sixty (60) days after commencement
of arbitration. The costs of arbitration shall be split by the parties unless
the arbitrators decide otherwise. Any judgment or decision rendered by the panel
shall be binding upon the Parties and shall be enforceable by any court of
competent jurisdiction.
14.5. Non-waiver of Rights. Except as specifically provided for herein,
the waiver from time to time by any of the parties of any of their rights or
their failure to exercise any remedy shall not operate or be construed as a
continuing waiver of same or of any other of such Party's rights or remedies
provided in this Agreement.
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14.6. Severability. If any term, covenant, or condition of this Agreement
or the application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (i) the remainder of this Agreement,
or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant, or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law
and (ii) the Parties hereto covenant and agree to renegotiate any such term,
covenant, or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant, or condition of this Agreement or
the application thereof that is invalid or unenforceable, and in the event that
the Parties are unable to agree upon a reasonably acceptable alternative, then
the Parties agree that a submission to arbitration shall be made in accordance
with Section 14.4 to establish an alternative to such invalid or unenforceable
term, covenant, or condition of this Agreement or the application thereof, it
being the intent that the basic purposes of this Agreement are to be
effectuated.
14.7. Entire Agreement. This Agreement sets forth all the covenants,
promises, agreements, warranties, representations, conditions, and
understandings between the Parties hereto in the scope of the Collaboration,
with the exception of any agreements by the Parties executed at an even date
hereof, and supersedes and terminates all prior agreements and understanding
between the parties under this Agreement. No subsequent alteration, amendment,
change, or addition to this Agreement shall be binding upon the Parties hereto
unless reduced to writing and signed by the respective authorized officers of
the Parties.
14.8. Retained Rights. Nothing in this Agreement shall limit in any
respect the right of either Party to conduct research and development with
respect to and market products outside the Field using such Party's technology
including know-how and Patents.
14.9. Assignment.
(a) The Parties recognize that each may perform some of its
obligations hereunder through Affiliates; provided, however, that Procter &
Gamble and Alexion shall
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remain responsible and be guarantors of such performance by their Affiliates and
shall cause their Affiliates to comply with the provisions of this Agreement in
connection with such performance.
(b) Except as provided in Section 14.9(c) below, Procter & Gamble
and Alexion may only assign their rights under this Agreement in any country of
the Territory to a Third Party with written permission of the other Party, which
permission will only be given at its sole discretion.
(c) Upon a Change of Control of Alexion, Procter & Gamble may assign
all but not less than all of its rights under this Agreement to a financially
responsible Third Party, on the terms and conditions set forth in this Section
14.9(c). If Procter & Gamble shall intend to assign its rights under this
Agreement, it shall give Alexion written notice thereof, and Alexion or a parent
thereof shall be entitled, [*******] to negotiate a purchase of such rights from
Procter & Gamble.
If the Parties cannot agree within such [*******] and if Procter & Gamble
shall intend to assign its rights under this Agreement to a Third Party, it
shall give Alexion prior written notice, specifying the intended assignee, the
terms and conditions of such assignment and the intended closing date. Alexion
or a parent thereof shall have the first and prior right of refusal with respect
to the rights and properties to be assigned, at the same price and upon the same
terms and conditions as offered by the proposed Third Party assignee. Alexion
shall have a period of [*******] from the receipt of such written notice (which
shall include a copy or, to the extent confidential, describe the terms and
conditions of such Third Party offer) within which to accept or reject the same.
If Alexion elects to accept the terms of the Third Party offer, it shall so
signify within such [*******] by notice to Procter & Gamble. If Alexion fails to
accept such offer, Procter & Gamble shall have the right, during [*******] from
the date the last Third Party offer to Alexion expires, to assign its right
under this Agreement to the intended assignee, at the same price and upon the
same terms and conditions as were set forth in the notice of the proposed Third
Party assignee's offer last received by Alexion as herein provided, in a bona
fide transaction. If any of the price or terms offered to or by such intended
assignee shall change to be more favorable to the assignee, Procter & Gamble
shall give Alexion written notice thereof and Alexion or a parent thereof shall
have the right to purchase
63
<PAGE>
such rights and properties on such revised terms. If Alexion or a parent thereof
shall not accept any such revised offer within [*******] after receipt of the
latest revised offer, Procter & Gamble shall be entitled to make such assignment
to such Third Party on the terms last offered to Alexion. For such assignment to
be effective, such Third Party shall deliver to Alexion, prior to the effective
date of such assignment, a written confirmation of the agreement of such Third
Party to be bound by the provisions of this Agreement and its commitment to duly
and timely pay, perform and discharge all obligations of Procter & Gamble under
this Agreement, including without limitations, all of the obligations to be
performed by it under the existing Research & Development Plan, a copy of which
Plan shall accompany such written agreement. Such assignee shall not have the
right to further assign this Agreement under this clause (c).
14.10. Publicity.
(a) The Parties will jointly prepare and agree upon the public
announcements of the execution of this Agreement. Thereafter, Procter & Gamble
and Alexion will jointly discuss, based on the principles of this Section 14.10,
any press releases and any other public statements (other than those
contemplated by Section 10.3 above) regarding the subject matter of this
Agreement, the research to be conducted under this Agreement or any other aspect
of this Agreement, subject in each case to disclosure otherwise required by law
or regulation. Each Party shall afford the other Party a reasonable opportunity
to review a press release prepared by it.
(b) In the discussion and agreement of Section 14.10(a), the
principles observed by Procter & Gamble and Alexion will be accuracy, the
requirements for confidentiality under Article X, the advantage a competitor of
Procter & Gamble or Alexion may gain from any statement under Section 14.10(a),
the requirements of disclosure under any securities laws or regulations of the
United States, including those associated with SEC and regulatory filings and
public offerings, the restrictions imposed by the Federal Food, Drug and
Cosmetic Act, and the standards and customs in the pharmaceutical industry for
such disclosures by companies comparable to Procter & Gamble and Alexion.
64
<PAGE>
14.11. Counterparts. 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 in the same instrument.
Article XV - Execution
15.1. In witness whereof, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first
written above.
The Procter & Gamble Company
By: /s/ Mark A. Collar Form MPM
-------------------------------- --------------------------
Mark A. Collar Finance WCH
Vice President - Global Pharmaceuticals, -----------------------
Procter & Gamble Worldwide Execution AFM
---------------------
Alexion Pharmaceuticals, Inc.
By: /s/ Leonard Bell
--------------------------------
Leonard Bell
President and Chief Executive
Officer
65
<PAGE>
Schedule 1.5
Alexion Patents
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<PAGE>
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<PAGE>
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<PAGE>
Schedule 1.25
Licensed Technology
[THE CONTENTS OF THIS PAGE WERE OMITTED]
<PAGE>
Schedule 4.1
Research & Development Plan Outline
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<PAGE>
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<PAGE>
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<PAGE>
[A PORTION OF THIS PAGE WAS OMITTED]
4. Communication by the Parties
Both P&G and Alexion agree on the importance of frequent communication
between the parties on progress and key learnings made during the conduct of the
Research & Development Plan. A communication process (meeting frequencies,
principal contacts, etc) will be developed by the Research & Development
Steering Committee).
5. Development and Modification of the Research & Development Plan for the
PRODUCT
The Parties will develop a detailed "Research & Development Plan" for the
PRODUCT. The content of the "Research & Development Plan" will include
study outlines for all noncliical and clinical studies, details of the
process development work to be undertaken, development milestones and
timings.
As indicated in Section IV, the Research & Development Steering Committee
has the
<PAGE>
responsibility to determine the timing for all development milestones and
to modify this timing as appropriate if delays are encountered, and to
develop action steps to avoid delays if any of these development
milestones is judged to be in jeopardy and can be remedied by Commercially
Reasonable actions.
The "Research & Development Plan" is a working document developed by the
Parties and reviewed and approved by the Research & Development Steering
Committee together with study protocols. A key responsibility of the
Research & Development Steering Committee is to monitor progress of the
development against the development milestones, including but not limited
to the "Key Development Milestones" identified herein, and includes
monitoring the progress of key development activities, such as
investigator recruitment and patient enrollment in clinical studies.
6. Research & Development Steering Committee Guidelines
The Parties expect that the Research & Development Steering Committee will
have the primary role in managing the relationship and communication
between the Parties. In that role, the Research & Development Steering
Committee shall be responsible for managing all aspects of the
relationship between the Parties, including but not limited to: (a)
reviewing study protocols and making decisions on any proposed changes to
the Research & Development Plan; (b) monitoring and assisting progress of
clinical and non-clinical development consistent with the Research &
Development Plan timetable; (c) assessing the results of studies; and (d)
addressing any regulatory strategy and drug supply issues.
It is the desire of the Parties to reach decisions by consensus of the
Research & Development Steering Committee members or the co-chairs. The
Parties agree to work to promote effective communication between the
Parties and intend to frankly discuss and attempt to resolve in good faith
any conflicts, disagreements or disputes which may arise in ways which
will promote the continuing goodwill between the Parties. While the
Parties have set forth a dispute resolution process (Section 3.5), the
Research & Development Steering Committee will attempt to resolve issues
through discussion aimed at building consensus.
<PAGE>
[THE CONTENTS OF THIS PAGE WERE OMITTED]
<PAGE>
Schedule 4.2(b)
CPI Adjustment
Alexion's FTE rate in Section 4.2(b) and Annual Contribution thresholds in
Section 8.2(a) and Net Sales threshold levels in Section 8.2(c) shall be
adjusted for inflation [*******] each Fiscal Year utilizing the change in
[*******] as published by the U.S. Bureau of Labor Standards from the base CPI
of January, 1999, to the CPI published for June of the immediately preceding
Fiscal Year.
Example:
Fiscal Year 2000/2001 inflation factor
Base January, 1999 CPI = [*******]
June, 2000 CPI = [*******]
Fiscal Year 2000/2001 inflation factor = [*******]
= [*******]
Base FTE rate = [*******]
Fiscal Year 2000/2001 FTE rate
[*******]
[*******]
[*******]
[*******]
(Example for illustration purposes only)
<PAGE>
Schedule 7.3
Co-Promotion Agreement Terms
1. Alexion may only co-promote Marketed Products in the United States
pursuant to the terms and conditions of an agreed and executed
Co-Promotion Agreement meeting the requirements of Section 7.3 of the
Collaboration Agreement. The Parties shall negotiate such Agreement in
good faith, as quickly as possible after Alexion exercises its option to
participate pursuant to Section 7.3.
2. For any Fiscal Year during the term of such Co-Promotion Agreement (such
term to continue for the TERM), Alexion may make [*******] of the total
number of Details ( sum of first position Details plus second position
Details) forecast by Procter & Gamble for the promotion of the Marketed
Product in the United States for such year. The total number of Details
will be the sum of all Details planned for the Marketed Product. As the
term is used herein, "Detail" shall mean those activities normally
undertaken by a pharmaceutical company's sales force through an
interactive personal visit and discussion by a trained sales force
representative with a target physician prescriber during which a full
presentation is made to such health care professional on the Marketed
Product and the representative is fully equipped with all applicable
approved promotional materials such that the relevant characteristics of
the Marketed Product are described by the representative in a fair and
balanced manner consistent with the requirements of the FDA and of this
Agreement, and in a manner that is customary in the industry for the
purpose of promoting a prescription pharmaceutical product. A first
position Detail refers to a Detail in which the Marketed Product is the
first pharmaceutical product presented to the target physician prescriber
during an interactive personal visit, whereas a second position Detail
would refer to a Detail where the Marketed Product is the second
pharmaceutical product presented to the target physician prescriber during
such visit.
3. [*******] Details to be made by Alexion's sales force representatives, the
percent of such Details which are to be made in the first position and
second position, the target prescribing physician for such Details, the
promotional message to be delivered and the timing and frequency of
Details. [*******] a co-promotion coordination process and procedure so
that all of Alexion's Detail can be coordinated with [*******].
4. Procter & Gamble shall [*******]
<PAGE>
[*******]
5. [*******] shall specify the level of training and will train Alexion sales
personnel through Procter & Gamble's normal sales training practices,
[*******]
6. [*******] shall provide to Alexion at no cost to Alexion the [*******] in
the promotion of the Marketed Products being co-promoted by Alexion in the
same proportionate quantities as are available to Procter & Gamble's own
sales force.
7. In accordance with Section 7.1, [*******] with respect to the marketing,
planning, strategy and Co-Promotion of the Marketed Products. [*******]
for establishing and modifying the terms and conditions of the sale of the
Marketed Products, including, without limitation, terms and conditions
such as the price at which the Marketed Products will be sold, whether the
Marketed Products shall be subject to rebates and any discounts, and the
channels of distribution of the Marketed Products.
8. The Co-Promotion Agreement shall also contain standard provisions found in
such agreements, including, but not limited to the following:
A. [*******]
B. [*******]
C. [*******]
D. [*******]
E. Adverse reaction reporting and other Regulatory matters.
F. Returned/recalled Marketed Product
G. Term and termination
<PAGE>
Schedule 8.2
Annual Contribution Royalty Calculation
For the term of the contract, Procter & Gamble will pay to Alexion a Royalty on
[*******]. Royalties will be paid on a quarterly basis not later than fifty-five
(55) calendar days following the end of each Fiscal Quarter.
[*******] will be calculated in the fourth Fiscal Quarter of a specific Fiscal
Year. Royalty payments for the first three Fiscal Quarter of a specific Fiscal
Year will be based on the [*******] in the respective Fiscal Quarter. The fourth
Fiscal Quarter payment will include the outstanding royalty payment for the
fourth Fiscal Quarter, as well as a reconciliation payment, if royalty payments
on [*******] for the whole Fiscal Year exceed [*******] for the whole Fiscal
Year. The reconciliation payment will be adjusted to reflect the time value
(foregone interest) on the reconciliation payment for the difference between the
minimum royalty payments and the royalty payments on [*******] of the first
three Fiscal Quarters of a specific Fiscal Year.
Royalties on [*******] will be calculated as follows:
Royalties [*******] where
[*******]
[*******]
[*******]
[*******]
[*******]
[*******]
[*******]
<PAGE>
[*******]
RR Royalty Rate on [*******] in the specific Fiscal Year based on the
[*******] and royalty rates stated in Section 8.2(a) of the
contract. [*******] will be adjusted [*******] by multiplying the
individual Annual Contribution threshold levels stated in the
contract by the percentage change in the [*******] to June of the
immediately preceding [*******] .
The determination of royalty payments for a specific Fiscal Year is demonstrated
in examples on the following pages.
<PAGE>
[*******] Royalty Calculation - Payment Cycle
[THE CONTENTS OF THIS PAGE WERE OMITTED]
<PAGE>
[*******] Royalty Calculation - Example 1
[*******] Payment to Alexion
[THE CONTENTS OF THIS PAGE WERE OMITTED]
<PAGE>
[*******] Royalty Calculation - Example 2
[*******] Payment to Alexion
[THE CONTENTS OF THIS PAGE WERE OMITTED]
<PAGE>
Schedule 8.2(c)
Additional Milestone Payments [*******]
Procter & Gamble will make one-time only payments which are triggered on the
first occurrence during the Term where Fiscal Year Net Sales for Products
[*******] specified in 8.2(c) with such [*******] as described in Schedule
4.2(b).
Fiscal Year A [*******]
Fiscal Year B [*******]
Fiscal Year C [*******]
Fiscal Year D [*******]
<PAGE>
Exhibit 10.29
September 14, 1999
Leonard Bell, M.D.
59 Tumblebrook Road
Woodbridge, Connecticut 06525
Re: Amendments to the Employment Agreement, dated as of April 1, 1997,
by and between Alexion Pharmaceuticals, Inc. (the "Company") and
Leonard Bell (The "Executive" or "Optionee") and the Stock Option
Agreement, dated as of July 29, 1998, by and between the Company
and the Optionee
Dear Dr. Bell
I. With reference to the Employment Agreement, dated as of April 1,
1997, by and between the Company and the Executive (the "Employment
Agreement"), please execute the signature line below to confirm our
understanding as follows:
1. Section 9 of the Employment Agreement shall hereinafter be
referred to as Section 9(a); and
2. The following paragraph shall be added as Section 9(b) of the
Employment Agreement:
(b) If (i) the Company has not on or prior to sixty days
before the expiration of the Term of the Agreement (except for any
termination pursuant to Section 7(a)(3), 7(a)(4) or 7(b), offered
to enter into a new employment agreement with Executive on
substantially the same terms as the Current Employment Agreement
or on terms more favorable to the Executive, which offer shall not
have been revoked at any time prior to such expiration or (ii) upon
the expiration or termination of the agreement (except for any
termination pursuant to Section 7(a)(3), 7(a)(4) or 7(b), the
parties have not entered into a new employment agreement on
substantially the same terms as the Agreement or on terms more
favorable to the Executive, or (iii) the Executive is unable to
continue his employment/service due to his death or unable to
continue his employment
<PAGE>
and perform his duties due to physical or mental incapacity or
disability, with or without reasonable accommodation, in accordance
with applicable law, for a period of six months or more, all stock
options and stock awards (and similar equity rights), held by the
Executive prior to his death/disability, or the expiration or
termination of the Agreement, shall vest and become immediately
exercisable and remain exercisable through their original terms
with all rights. This Section 9(b) shall survive the expiration or
termination pursuant to Section 7(a)(3), 7(a)(4) or 7(b).
II. With reference to the Stock Option Agreement, dated as of July 29,
1998, by and between the Company and the Optionee (the "Stock
Option Agreement"), please execute the signature line to below to onfirm our
understanding as follows:
1. The first paragraph (and table included therein) of Section 3 of
the Stock Option Agreement is hereby amended to read in its
entirety as follows:
3. EXERCISE. Provided that the Optionee shall be in the
employ or service (as an officer, director, consultant or other
independent contractor or otherwise) by the Company or a subsidiary,
the Option to purchase 60,000 shares of Common Stock shall become
exercisable, subject to acceleration of such vesting as herein
provided and as provided in that certain Employment Agreement
between the Company and the Optionee, in effect from time to time,
in accordance with the following schedule:
<TABLE>
<CAPTION>
Event Relating To Vesting Cumulative Percentage Of Option Exercisable
------------------------- -------------------------------------------
<S> <C>
If Optionee is employed/in 33 1/3%
service on or after July 29, 1999
but not on or after July 29, 2000
If Optionee is employed/in 66 2/3%
service on or after July 29, 2000
but not on or after July 29, 2001
If Optionee is employed/in 100%
service on or after July 29, 2001
</TABLE>
2. The last sentence of Section 8(d) is hereby eliminated.
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned thereto in each agreement, respectively.
Very truly yours,
ALEXION PHARMACEUTICALS, INC.
By: /s/ John Fried
-----------------------
Name: John H. Fried, Ph.D.
Title: Chairman of the Board
AGREED AND ACCEPTED BY:
/s/ Leonard Bell
----------------------------
Leonard Bell, M.D.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements File numbers 333-19905, 333-24863, 333-29617, 333-41397,
333-47645, 333-71879 and 333-71985.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
October 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGE 3 AND 4 OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR-TO-DATE.
</LEGEND>
<CIK> 0000899866
<NAME> ALEXION PHARMACEUTICALS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 24,238
<SECURITIES> 4,090
<RECEIVABLES> 4,577
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,662
<PP&E> 10,800
<DEPRECIATION> 3,387
<TOTAL-ASSETS> 44,374
<CURRENT-LIABILITIES> 6,690
<BONDS> 4,383
0
0
<COMMON> 1
<OTHER-SE> 33,300
<TOTAL-LIABILITY-AND-EQUITY> 44,374
<SALES> 0
<TOTAL-REVENUES> 18,754
<CGS> 0
<TOTAL-COSTS> 26,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,514)
<INCOME-PRETAX> (6,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,395)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
<PAGE>
EXHIBIT 99.1
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
RISKS RELATED TO OUR BUSINESS
IF WE CONTINUE TO INCUR OPERATING LOSSES, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
We have incurred losses since our inception. As of July 31, 1999, we had an
accumulated deficit of approximately $47.0 million. If we continue to incur
operating losses and fail to become profitable or are unable to sustain
profitability, we may be unable to continue our operations. Since we began our
operations in January 1992, we have been engaged primarily in the research and
development of potential drug products. We currently have no products that are
available for commercial sale. We expect to continue to operate at a net loss
for at least the next several years as we increase our research and development
efforts, continue to conduct clinical trials and develop manufacturing, sales,
marketing and distribution capabilities. Our future profitability depends on our
receiving regulatory approval of our product candidates and our ability to
successfully manufacture and market approved drugs, either by ourselves or
jointly with others. The extent of our future losses and the timing of our
profitability are highly uncertain.
IF WE FAIL TO OBTAIN REGULATORY APPROVAL OF OUR PRODUCT CANDIDATES, OR IF
REGULATORY APPROVAL IS DELAYED FOR ANY REASON, WE WILL BE UNABLE TO
COMMERCIALIZE AND SELL OUR PRODUCTS AS WE EXPECT.
WE MUST OBTAIN REGULATORY APPROVAL TO MARKET OUR PRODUCTS IN THE U.S. AND
FOREIGN JURISDICTIONS.
We must obtain regulatory approval before marketing or selling our products. In
the United States, we must obtain approval from the U.S. Food and Drug
Administration, or FDA, for each product that we intend to commercialize. The
FDA approval process is typically lengthy and expensive, and approval is highly
uncertain. Products distributed outside the United States are also subject to
foreign government regulation. None of our product candidates has received
regulatory approval to be commercially marketed and sold and we do not
anticipate receiving approval of any of our product candidates for at least the
next several years. If we fail to obtain regulatory approval we will be unable
to market and sell our future products. Because of the risks and uncertainties
in biopharmaceutical development, our product candidates could take a
significantly longer time to gain regulatory approval than we expect or may
never gain approval. If regulatory approval is delayed, the value of our company
and our results of operations may be harmed.
The process of obtaining FDA and other required regulatory approvals, including
foreign approvals, often takes many years and can vary substantially based upon
the type, complexity and novelty of the products involved. Furthermore, this
approval process is extremely expensive and uncertain. We cannot guarantee that
any of our products under development will be approved for marketing by the FDA.
Even if regulatory approval of a product is granted, we cannot be certain that
we will be able to obtain the labeling claims necessary or desirable for the
promotion of that product.
1
<PAGE>
WE MAY NEED TO CONDUCT ADDITIONAL PRECLINICAL STUDIES AND WILL NEED TO CONDUCT
COSTLY AND LENGTHY CLINICAL TRIALS BEFORE ANY OF OUR PRODUCT CANDIDATES CAN BE
COMMERCIALIZED; THE RESULTS OF THESE STUDIES AND TRIALS ARE HIGHLY UNCERTAIN.
Many of our product candidates are in an early stage of development. As part of
the regulatory approval process, we may need to conduct preclinical studies on
animals and will need to conduct clinical trials in humans with each product
candidate and for each clinical indication. We may need to perform multiple
preclinical studies using various doses and formulations both before and after
we have commenced clinical trials, which could result in delays in our ability
to market any of our product candidates. Furthermore, even if we obtain
favorable results in preclinical studies on animals, the results in humans may
be different.
After we have conducted preclinical studies in animals we must, among other
requirements, demonstrate that our product candidates are safe and effective for
use in humans suffering from targeted indications in order to receive regulatory
approval for commercial sale. Currently, only two of our product candidates are
being tested in clinical trials. Adverse or inconclusive preclinical or clinical
results could cause us to abandon a product development program.
The completion of clinical trials of our potential products may be delayed or
terminated by many other factors. One factor is the rate of enrollment of
patients, which can vary greatly. Enrollment depends on many factors, including:
- patient receptivity to participate in experimental clinical trials;
- the size of the patient population and the number of clinical trial
sites;
- the proximity of patients to clinical trial sites;
- the performance of the clinical trial sites;
- the eligibility criteria for the clinical trial;
- the existence of competing clinical trials;
- the emergence of newly improved competing products; and
- the performance and reliability of contract research organizations.
We cannot control the rate of patient enrollment. For example, we are conducting
clinical trials in patients with acute cardiovascular conditions, the timing and
frequency of which cannot be predicted. The rate of patient enrollment may not
be sufficient to enable our clinical trials to be completed as expected, if at
all. Further, we cannot be certain that clinical trial research results will be
analyzed or produced in a timely manner, if at all.
Additional factors that can cause delay or termination of our clinical trials
include:
- longer treatment time required to demonstrate efficacy;
- lack of sufficient supplies of the product candidate;
- adverse medical events or side effects in treated patients;
2
<PAGE>
- lack of effectiveness of the product candidate being tested; and
- lack of sufficient funds.
Typically, if a drug product is intended to treat a chronic disease, safety and
efficacy data must be gathered over an extended period of time. In addition,
clinical trials on humans are typically conducted in three phases. In the final
phase of clinical testing, the FDA generally requires two pivotal clinical
trials that demonstrate substantial evidence of safety and efficacy and
appropriate dosing in a broad patient population at multiple sites to support an
application for regulatory approval.
Results from initial clinical trials may not reflect results that are obtained
in later stage clinical trials. Further, clinical trials of our product
candidates may demonstrate that our product candidates are not sufficiently safe
or effective to obtain the requisite regulatory approvals. Ultimately, our
product candidates may not result in marketable products.
WE WILL NOT BE ABLE TO SELL OUR PRODUCTS IF WE OR OUR THIRD-PARTY MANUFACTURERS
FAIL TO COMPLY WITH MANUFACTURING REGULATIONS.
Before we can begin commercially manufacturing our products we must either
secure manufacturing in an approved manufacturing facility or obtain regulatory
approval of our own manufacturing facility and process. In addition, manufacture
of our drug products must comply with the FDA's current Good Manufacturing
Practices requirements, commonly known as cGMP. The cGMP requirements govern,
among other things, quality control and documentation policies and procedures.
Our manufacturing facilities are continuously subject to inspection by the FDA,
before and after product approval. We cannot guarantee that we, or any
third-party manufacturer of our drug products, will be able to comply with cGMP
requirements. Material changes to the manufacturing processes of our drug
products after approvals have been granted are also subject to review and
approval by the FDA or other regulatory agencies.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT PROGRAMS.
In the future, we will need to raise substantial additional capital to fund
operations and complete our product development programs. Funding, whether from
a public or private offering of debt or equity, a bank loan or a collaborative
agreement, may not be available when needed or on favorable terms. If we raise
additional funds by selling stock, the percentage ownership of our then current
stockholders will be reduced. If we cannot raise adequate funds to satisfy our
capital requirements, we may have to limit, delay, scale-back or eliminate our
research and development activities or future operations. We might be forced to
license our technology or to commercialize our products with the help of others
when it would be more profitable or strategically important for us to not take
these actions. Any of these actions may harm our business.
We expect to continue to spend substantial amounts of capital for our operations
for the foreseeable future, including funds for:
- research and development programs;
- preclinical studies and clinical trials;
- regulatory approval processes;
3
<PAGE>
- production of product candidates for clinical trials;
- establishment of commercial scale manufacturing capabilities; and
- establishment of sales and marketing capabilities.
The amount of capital we may need depends on many factors, including:
- the progress, timing and scope of our research and development
programs;
- the progress, timing and scope of our preclinical studies and
clinical trials;
- the time and cost necessary to obtain regulatory approvals;
- the time and cost necessary to further develop manufacturing
processes, arrange for contract manufacturing or build
manufacturing facilities and obtain the necessary regulatory
approvals for those facilities;
- the time and cost necessary to respond to technological and market
developments;
- the time and cost necessary to develop sales, marketing and
distribution capabilities;
- any changes made or new developments in our existing collaborative,
licensing and other commercial relationships; and
- any new collaborative, licensing and other commercial relationships
that we may establish.
IF OUR COLLABORATION WITH PROCTER & GAMBLE IS TERMINATED, WE MAY BE UNABLE TO
COMMERCIALIZE 5G1.1-SC IN THE TIME EXPECTED, IF AT ALL.
We rely exclusively on Procter & Gamble to provide funding and additional
resources for the development and commercialization of 5G1.1-SC. These include
funds and resources for:
- clinical development and manufacturing;
- obtaining regulatory approvals; and
- sales, marketing and distribution efforts worldwide.
We cannot guarantee that Procter & Gamble will devote the resources necessary to
successfully develop and commercialize 5G1.1-SC. Either party may terminate the
agreement for specified reasons, including if the other party is in material
breach of the agreement or has experienced a change of control. In addition,
pursuant to the collaboration agreement, Procter & Gamble has the right to
develop 5G1.1-SC
4
<PAGE>
for any other indication, including those that we may be pursuing independently
with other product candidates.
If our agreement with Procter & Gamble is terminated, we will need to fund the
development and commercialization of 5G1.1-SC on our own or identify a new
development partner, either of which would cause significant delays and result
in additional development costs. A termination may also require us to repeat
development stages already completed with Procter & Gamble, which could result
in significant additional delay or costs.
IF WE ARE UNABLE TO ENGAGE AND RETAIN THIRD PARTY COLLABORATORS, OUR RESEARCH
AND DEVELOPMENT EFFORTS MAY BE DELAYED.
We depend upon third-party collaborators, including manufacturers, to assist us
in the development of our product candidates. If any of our collaborators
breaches or terminates its agreement with us or otherwise fails to conduct its
collaborative activities in a timely manner, we may experience significant
delays in the development or commercialization of the product candidate or the
research program covered by the agreement. In addition, we may be required to
devote additional funds or other resources to these activities or to terminate
them.
Our continued success will depend in large part upon the efforts of outside
parties. For the research, development, manufacture and commercialization of our
products, we will likely enter into various arrangements with other
corporations, licensors, licensees, outside researchers, consultants and others.
However, we cannot assure you that:
- we will be able to negotiate acceptable collaborative arrangements
to develop or commercialize our products;
- any arrangements with third parties will be successful; or
- current or potential collaborators will not pursue treatments for
other diseases or seek alternative means of developing treatments
for the diseases targeted by our programs.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
Our ability to secure patent protection and the extent of protection can be very
limited. Patent protection only currently lasts approximately 17 to 20 years
depending on the time of filing and, sometimes, the time required for FDA
approval. However, it can take many more years than offered by patent protection
to transform a drug discovery through testing and development into a
commercially-viable product. Moreover, once a drug has hit the marketplace, it
is often forced to compete not only with different drugs treating the same
ailments, but also with "copy-cat" drug products or even generic versions of the
same drug if the drug has lost its patent protection. Consequently, protection
of our patents and trade secrets and those of our licensors, is very important
to our ability to commercially succeed. Other pharmaceutical companies are
similarly very focused on protecting their patents and technology, so it is also
very important for us to avoid infringing the rights of others while developing
our own drug discoveries.
Patent applications filed by us or on our behalf may not result in patents being
issued to us. Even if a patent is issued, the patent may not afford protection
against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any of our technology.
It is possible that before any of our potential product candidates can be
commercialized, their related patents may expire, or remain in existence for
only a short period following commercialization, thus
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reducing any advantage of the patent. Moreover, composition of matter patent
protection, which gives patent protection for a compound or a composition per
se, may not be available for some of our product candidates.
Our processes and potential product candidates may conflict with patents that
have been or may be granted to competitors, universities or others. As the
biopharmaceutical industry expands, more patents are issued. Thus, the risk
increases that our processes and potential product candidates may give rise to
claims that they infringe the patents of others. These other patent holders
could bring legal actions against us claiming damages and seeking to prevent
clinical testing, manufacturing and marketing of the affected product or
process. If any of these actions are successful, in addition to any potential
liability for damages, we could be required to obtain a license in order to
continue to conduct clinical tests, manufacture or market the affected product
or use the affected process. Required licenses may not be available on
acceptable terms, if at all. Moreover, if we become involved in litigation or
legal disputes, it could consume a substantial portion of our financial
resources and the efforts of our personnel for uncertain results. In addition,
we may have to expend resources to protect our interests from possible
infringement by others.
We are aware of broad patents owned by third parties relating to the
manufacture, use and sale of recombinant humanized antibodies, recombinant
humanized single chain antibodies and genetically engineered animals. We have
received notice from certain of these parties regarding the existence of certain
of these patents which the owners claim may be relevant to the development and
commercialization of certain of our proposed product candidates. We have
acquired licenses with respect to certain of these patents, which we believe are
relevant for the timely development and commercialization of certain of our
product candidates. With regard to certain other patents, we have either
determined in our judgment that:
- our products do not infringe the patents;
- we do not believe the patents are valid; and/or
- we have identified and are testing various modifications which we
believe should not infringe the patents and which should permit
commercialization of our product candidates.
However, owners of these patents might still seek to enforce their patents
against our so-modified commercial products or against the development
activities related to the non-modified products. If we are unable to obtain
necessary licenses on commercially reasonable terms, we could encounter delays
in product market introductions while we attempt to design around such patent or
could find that the development, manufacture or sale of products requiring such
a license could be nearly impossible. Further, owners of patents that we do not
believe are relevant to our product development and commercialization might seek
to enforce their patents against us. Such action could result in litigation
which would be costly and time consuming.
In addition, our business requires using sensitive technology, techniques,
proprietary compounds, as well as cultivating relationships with outside
parties, including suppliers, outside scientists and potential customers and
sources of funding. Moreover, since we are a small pharmaceutical company with
no commercial products and limited resources, we rely heavily on collaboration
with other companies and other scientists in our research and development
efforts and expect to continue to do so since collaboration is important for
scientific research. Unfortunately, such arrangements and relationships carry
with them a strong risk of exposing our trade secrets often to the scrutiny of
others. As a result, we are susceptible to the loss of our trade secrets.
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We cannot assure you that:
- others will not independently develop substantially equivalent
proprietary information and techniques;
- others will not gain access to our trade secrets;
- our trade secrets will not be disclosed; or
- we can effectively protect our rights to unpatented trade secrets.
IF THE TESTING OR USE OF OUR PRODUCTS HARMS PEOPLE, WE MAY BE SUBJECT TO COSTLY
AND DAMAGING PRODUCT LIABILITY CLAIMS.
Our business exposes us to product liability risks that are inherent in the
testing, manufacturing, marketing and sale of drugs for use in humans, including
but not limited to, unacceptable side effects. Such side effects and other risks
could give rise to product liability claims against us or force us to recall our
products, if any, from the marketplace. Some of these risks are unknown at this
time. For example, little is known about the potential long-term health risks of
transplanting non-human tissue into humans, a goal of our UniGraft program.
In addition to product liability risks associated with sales of products, we may
be liable to the claims of individuals who participate in clinical trials of our
products. A number of patients who participate in such trials are already
critically ill when they enter a study. We cannot assure you that any waivers we
may obtain will protect us from liability or the costs of product liability
litigation. Our product liability insurance may not provide adequate protection
against potential liabilities. Moreover, we may not be able to maintain our
insurance on acceptable terms. As a result of these factors, a product liability
claim, even if successfully defended, could have a material adverse effect on
our business, financial condition and results of operations.
IF WE ARE UNABLE TO MANUFACTURE OUR DRUG PRODUCTS IN SUFFICIENT QUANTITIES AND
AT ACCEPTABLE COST, WE MAY BE UNABLE TO MEET DEMAND FOR OUR PRODUCTS WHICH WOULD
RESULT IN A LOSS OF POTENTIAL REVENUES.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. Our unproven manufacturing process may
not meet initial expectations as to schedule, reproducibility, yields, purity,
costs, quality, and other measurements of performance. Improvements in
manufacturing processes typically are very difficult to achieve and are often
very expensive. We cannot know with any certainty how long it might take to make
improvements if it became necessary to do so. If we contract for manufacturing
services with an unproven process, our, contractor is subject to the same
uncertainties, high standards and regulatory controls. If we are unable to
establish and maintain commercial scale manufacturing within our planned time
and cost parameters, sales of our products and our financial performance will be
adversely affected.
We may encounter problems with any of the following if we attempt to increase
the scale, process or size of manufacturing:
- design, construction and qualification of manufacturing facilities
that meet regulatory requirements;
- production yields from the manufacturing process;
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- purity of our drug products;
- quality control and assurance;
- shortages of qualified personnel; and
- compliance with FDA regulations.
IF WE ARE UNABLE TO ESTABLISH SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
TO ENTER INTO AGREEMENTS WITH THIRD PARTIES TO DO SO, WE MAY BE UNABLE TO
SUCCESSFULLY MARKET AND SELL ANY FUTURE DRUG PRODUCTS.
We currently have no sales, marketing or distribution capabilities. If we are
unable to establish sales, marketing or distribution capabilities either by
developing our own sales, marketing and distribution organization or by entering
into agreements with others, we may be unable to successfully sell our products.
If we are unable to effectively sell our drug products, our ability to generate
revenues will be harmed. We cannot guarantee that we will be able to hire in a
timely manner, the qualified sales and marketing personnel we need, if at all.
In addition, we cannot guarantee that we will be able to enter into any
marketing or distribution agreements on acceptable terms, if at all. If we
cannot establish sales, marketing and distribution capabilities as we intend,
either by developing our own capabilities or entering into agreements with third
parties, sales of our future drug products may be harmed.
We have recently entered into a collaboration with Procter & Gamble relating to
5G1.1-SC. Under the agreement, Procter & Gamble will be responsible for selling,
marketing and distributing 5G1.1-SC. We cannot guarantee Procter & Gamble or any
future collaborators will successfully sell any of our future drug products.
EVEN IF OUR PRODUCT CANDIDATES RECEIVE REGULATORY APPROVAL, WE MAY STILL FACE
DEVELOPMENT AND REGULATORY DIFFICULTIES RELATING TO THE DRUG PRODUCTS IN THE
FUTURE.
If we receive regulatory approval of any of our product candidates, the FDA or a
comparable foreign regulatory agency may, nevertheless, limit the indicated uses
of the product candidate. In addition, a marketed product, its manufacturer and
the manufacturer's facilities are subject to continual review and periodic
inspections by regulatory agencies. The discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
The failure to comply with applicable regulatory requirements can, among other
things, result in:
- warning letters;
- fines and other civil penalties;
- suspended regulatory approvals;
- refusal to approve pending applications or supplements to approved
applications;
- refusal to permit exports from the United States;
- product recalls;
- seizure of products;
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- injunctions;
- operating restrictions;
- total or partial suspension of production; and/or
- criminal prosecutions.
Even if we obtain regulatory approval, we may be required to undertake
post-marketing trials. In addition, identification of side effects after a drug
is on the market or the occurrence of manufacturing problems could result in
withdrawal of approval, or require reformulation of the drug, additional
preclinical testing or clinical trials, changes in labeling of the product,
and/or additional marketing applications.
If we receive regulatory approval, we will also be subject to ongoing FDA
obligations and continued regulatory review. In particular, we or our
third-party manufacturers will be required to adhere to requirements pertaining
to cGMP. Under cGMP, we are required to manufacture our products and maintain
our records in a prescribed manner with respect to manufacturing, testing and
quality control activities. Furthermore, we or our third-party manufacturers
must pass a preapproval inspection of manufacturing facilities by the FDA before
the product can obtain marketing approval. We will also be subject to ongoing
FDA requirements for submission of safety and other post-market information.
We have not made significant investments in the development of commercial
manufacturing, marketing, distribution or sales capabilities. Moreover, we have
insufficient capacity to manufacture more than one product candidate at a time
or to manufacture our product candidates for later stage clinical development or
commercialization. If we are unable to find an acceptable outside manufacturer
on reasonable terms, we will have to divert resources. As a result, our ability
to conduct human clinical testing would be materially adversely affected,
resulting in delays in the submission of products for regulatory approval and in
the initiation of new development programs. Our competitive position and our
prospects for achieving profitability could be materially and adversely
affected.
In addition, as our product development efforts progress, we may need to hire
additional personnel skilled in, or enter into collaborations with corporate
partners for, clinical testing, regulatory compliance and, if we develop
products with commercial potential, manufacturing, marketing and sales. We
cannot assure you that we will be able to acquire, or establish third-party
relationships to provide, any or all of these resources on a timely or
economically feasible basis, if at all.
IF WE ARE UNABLE TO OBTAIN ADEQUATE REIMBURSEMENT FROM GOVERNMENT HEALTH
ADMINISTRATION AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER ORGANIZATIONS, OUR
FUTURE BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE HARMED.
Our ability to commercialize our products successfully may depend in part on the
extent to which reimbursement for the cost of such products and related
treatments will be available from government authorities, private health
insurers and other organizations. Third-party payors are attempting to control
costs by limiting coverage of products and treatments and the level of
reimbursement for medical products and services. Significant uncertainty exists
as to the reimbursement status of newly approved healthcare products. If we
succeed in bringing any products to market, these products may not be considered
cost-effective and reimbursement may not be available. If reimbursement becomes
available, the payor's reimbursement policies may affect the market for our
product, thus materially adversely affecting the profitability of our products.
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XENOTRANSPLANTATION IS AN UNPROVEN TECHNOLOGY AND MAY ACHIEVE LIMITED MARKET
ACCEPTANCE DUE TO ETHICAL CONCERNS.
Our UniGraft Program may never result in the development of any therapeutic
products. Xenotransplantation technology is subject to extensive clinical
testing. We are not aware of any xenotransplantation technology that has been
approved for sale by the FDA or comparable foreign regulatory authorities. In
addition, there is currently very little regulatory guidance for how to conduct
research or use products developed in this area since the FDA has only issued
interim guidelines.
Xenotransplantation also poses a risk that viruses, prions or other animal
pathogens may be unintentionally transmitted not only to a human patient
recipient, but other human beings. While these viruses have not been shown to
cause any disease in pigs or humans, it is not known what effect, if any, such
viruses might have on humans. Recent scientific publications by others
demonstrate, under laboratory conditions, that porcine retroviruses have the
potential to infect human cells. The introduction of previously
non-transmittable viruses to the human species poses ethical concerns. Further
detection of infection of porcine virus in our preclinical and clinical testing
or the testing by our competitors in this field could adversely affect the
commercial acceptability of this research and our future ability to secure
research dollars.
Consequently, even if we succeed in developing xenotransplantation products, our
products may not be widely accepted by the medical community or third-party
payors until more facts are established and ethical consensus is reached. In
addition, such concerns may also create additional regulatory hurdles for FDA
approval or for consideration in use of our products by hospital ethics
committees. If accepted, the degree of acceptance may limit the size of the
market for our products. Moreover, due to the controversial nature of
xenotransplantation, our stock price may be subject to increased volatility.
IF WE FAIL TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS, OUR REVENUES AND
OPERATING RESULTS WILL BE HARMED.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours, or simply market their products more
successfully to patients or doctors. They may also obtain regulatory approvals
faster than we can obtain them or commercialize products before we do. These
companies also compete with us to attract qualified personnel and parties for
acquisitions, joint ventures or other collaborations. They also compete with us
to attract academic research institutions as partners and to license these
institutions' proprietary technology. If our competitors successfully enter into
such arrangements with academic institutions, we will then be precluded from
pursuing those specific unique opportunities and may not be able to find
equivalent opportunities elsewhere. In addition, products or treatments
developed in the future by third parties may adversely affect the marketability
of our products by rendering them less competitive or obsolete. For example, the
recent development of tumor necrosis factor inhibitors for rheumatoid arthritis
may render obsolete a number of current drugs used for treating such ailment
from the marketplace.
IF WE FAIL TO RECRUIT AND RETAIN PERSONNEL, OUR RESEARCH AND PRODUCT DEVELOPMENT
PROGRAMS MAY BE DELAYED.
We are highly dependent upon the efforts of our senior management and scientific
personnel. There is intense competition for qualified scientific and technical
personnel. Since our business is very science-oriented and specialized, we need
to continue to attract and retain such people. We may not be able to continue to
attract and retain the qualified personnel necessary for developing our
business. If we lose the services of, or fail to recruit, key scientific and
technical personnel, our research and product development programs would be
significantly and detrimentally affected.
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In particular, we highly value the services of Dr. Leonard Bell, our President
and Chief Executive Officer. The loss of his services could materially and
adversely affect our ability to achieve our development objectives.
IF WE EXPERIENCE ANY PROBLEMS WITH YEAR 2000 COMPLIANCE, OUR OPERATIONS MAY BE
DISRUPTED.
Beginning in the year 2000, the date fields coded in certain software products
and computer systems will need to accept four-digit entries in order to
distinguish 21(st) century dates from 20(th) century dates, commonly known as
the year 2000 problem. It is not clear what potential problems may arise as the
biotechnology industry, and other industries, try to resolve this year 2000
problem.
It is possible that our currently installed computer systems, software
applications or other business systems, or those of our suppliers or service
providers, working either alone or in conjunction with other software or
systems, will not accept input of, store, manipulate and output dates for the
years 1999, 2000 or subsequent years without error or interruption. We have
formed a team to review and resolve those aspects of the year 2000 problem that
are within our direct control and adjust to or influence those aspects that are
not within our direct control. The team has reviewed our software applications,
including those under development, and determined that most of our software
applications do not use date data and are year 2000 compliant or will be by
December 31, 1999. Our product candidates do not have any year 2000 exposure.
Based on representations from our vendors, the team has reviewed the year 2000
compliance status of our major internal information technology programs and
systems used for administrative requirements and determined that they are or are
expected to be year 2000 compliant by December 31, 1999. However, a number of
our vendors have not been able to guarantee such timely compliance.
Some risks associated with the year 2000 problem are beyond our ability to
control, including the extent to which our suppliers and service providers can
address the year 2000 problem. The failure by a third party to adequately
address the year 2000 issue could have an adverse effect on their operations,
which could have an adverse effect on us. We are assessing the possible effects
on our operations of the possible failure of our key suppliers and providers,
contractors and collaborators to identify and remedy potential year 2000
problems.
OUR COMMON STOCK PRICE MAY CONTINUE TO BE HIGHLY VOLATILE.
The market prices for our common stock and for securities of many biotechnology
companies have been volatile. The following factors may have a significant
impact on the market price of our common stock:
- announcements of technical innovations or new commercial products
by us or our competitors;
- government regulation;
- public concern as to the safety or other implications of
biotechnology products;
- patent or proprietary rights development;
- results of preclinical studies or clinical trials;
- positive or negative developments related to our collaborators;
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- conditions affecting the biotechnology industry; and/or
- stock market conditions.
FUTURE ACQUISITIONS OF OUR COMPANY MAY BE DISCOURAGED DUE TO ANTI-TAKEOVER
MEASURES ADOPTED BY OUR BOARD OF DIRECTORS, PROVISIONS OF DELAWARE LAW AND
FUTURE ISSUANCES OF PREFERRED STOCK.
Anyone seeking to acquire control of our company may encounter difficulties as a
result of our anti-takeover measures. Our board of directors has adopted a
shareholder rights plan, or "poison pill," which enables our board of directors
to issue preferred stock purchase rights triggered by an acquisition of 20% or
more of the outstanding shares of our common stock. In addition, our board of
directors is authorized to issue one or more series of preferred stock with
those preferences and rights that it may designate. These provisions and
specific provisions of Delaware Law relating to business combinations with
interested stockholders are intended to encourage any person interested in
acquiring us to negotiate with and obtain the approval of our board of directors
in connection with an acquisition or merger. However, these provisions could
have an opposite effect of delaying, deterring or preventing a merger or change
in control. Some of these provisions may discourage a future acquisition of our
company even if stockholders would receive an attractive value for their shares
or if a significant number of our stockholders believed such a proposed
transaction to be in their best interest. As a result, stockholders who desire
to participate in such a transaction may not have the opportunity to do so.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our existing shareholders or holders of securities exercisable for our common
stock sell a substantial number of these shares in the public market during a
relatively short period, our stock price may be depressed.
As of October 1, 1999, we have granted options to purchase an aggregate of
approximately 2,317,887 shares of our common stock under our stock option plans.
Warrants to purchase an aggregate of 220,000 shares of our common stock are also
outstanding under previous financing arrangements and other transactions. Many
of these options have exercise prices below the current market price of our
common stock. If the exercise prices of these options and warrants are less than
the net tangible book value of our common stock at the time these options and
warrants are exercised, our stockholders will experience an immediate dilution
in the net tangible book value of their investment. Many of the shares not
currently available for sale are subject to vesting restrictions and the holding
period, volume and other restrictions of Rule 144 under the Securities Act.
These restrictions have the effect of staggering the dates on which the shares
become available for sale and the number of shares that become available for
sale.
In addition, we may issue additional stock, warrants and/or options to raise
capital in the future or compensate employees or third parties. We regularly
examine opportunities to expand our technology base through means such as
licenses, joint ventures and acquisition of assets or ongoing businesses and may
issue securities in connection with these transactions. We may also issue
additional securities in connection with our stock option plans.
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