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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1997
Commission File Number 0-22962
HUMAN GENOME SCIENCES, INC.
(Exact name of registrant)
Delaware 22-3178468
(State of organization) (I.R.S. Employer Identification Number)
9410 Key West Avenue, Rockville, Maryland 20850-3331
(Address of principal executive offices and zip code)
(301) 309-8504
(Registrant's telephone Number)
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
The number of shares of the registrant's common stock outstanding on July 31,
1997 was 22,174,613.
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<PAGE>
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and six months
ended June 30, 1997 and 1996........................... 3
Balance Sheets at June 30, 1997 and December 31, 1996...... 4
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996........................... 5
Notes to Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 9
Item 5. Other Information.......................................... 10
Item 6. Exhibits and Reports on Form 8-K........................... 10
Signatures................................................. 11
Exhibit
Exhibit Index.............................................. Volume
2
<PAGE>
PART I. FINANCIAL INFORMATION
HUMAN GENOME SCIENCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
--------------- --------------- ---------------- ---------------
(dollars in thousands, except (dollars in thousands, except
per share amounts) per share amounts)
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Revenue - research and development
collaborative contracts............ $ 14,828 $ 13,050 $ 16,100 $ 26,984
Costs and expenses:
Research and development:
Direct expenditures............ 9,043 6,978 17,951 13,469
Payments under research
services agreement........
2,655 2,513 6,119 5,034
--------------- --------------- ---------------- ---------------
Total research and development.......... 11,698 9,491 24,070 18,503
General and administrative.............. 2,898 2,379 5,287 4,402
--------------- --------------- ---------------- ---------------
Total costs and expenses....... 14,596 11,870 29,357 22,905
--------------- --------------- ---------------- ---------------
Income (loss) from operations........... 232 1,180 (13,257) 4,079
Interest income......................... 2,942 1,603 4,618 3,189
Interest expense........................ (56) (103) (284) (211)
--------------- --------------- ---------------- ---------------
Income (loss) before taxes.............. 3,118 2,680 (8,923) 7,057
Provision (benefit) for income taxes.... 245 51 245 141
--------------- --------------- ---------------- ---------------
NET INCOME (LOSS)....................... $ 2,873 $ 2,629 $ (9,168) $ 6,916
=============== =============== ================ ===============
NET INCOME (LOSS) PER SHARE............. $ 0.13 $ 0.13 $ (0.44) $ 0.35
=============== =============== ================ ===============
Weighted average shares outstanding..... 22,723,247 19,599,038 20,770,145 19,537,641
=============== =============== ================ ===============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
HUMAN GENOME SCIENCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
---------------- ------------------
(dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 113,981 $ 27,341
Short-term investments................................................... 94,582 58,282
Prepaid expenses and other current assets................................ 13,658 2,935
---------------- ------------------
Total current assets................................................. 222,221 88,558
Long term investments......................................................... 0 30,493
Furniture and equipment (net of accumulated depreciation)..................... 18,769 18,031
Restricted investments........................................................ 1,417 1,705
Other assets.................................................................. 1,146 1,330
---------------- ------------------
TOTAL................................................................ $ 243,553 $ 140,117
================ ==================
LIABILITIES
Current liabilities:
Current portion of long-term debt........................................ $ 444 $ 444
Accounts payable and accrued expenses.................................... 2,491 3,361
Accrued payroll and related taxes........................................ 1,707 1,120
Current obligation under capital leases.................................. 590 811
Deferred income.......................................................... 2,999 2,537
---------------- ------------------
Total current liabilities............................................ 8,231 8,273
Long-term debt, net of current portion........................................ 2,668 2,668
Obligations under capital leases, net of current portion...................... 0 286
Other liabilities............................................................. 354 369
---------------- ------------------
TOTAL................................................................ 11,253 11,596
STOCKHOLDERS' EQUITY
Common stock.................................................................. 222 188
Additional paid-in capital.................................................... 275,578 162,583
Unrealized gain (loss) on investments available for sale...................... (203) (121)
Retained earnings (deficit)................................................... (43,297) (34,129)
---------------- ------------------
Total stockholders' equity........................................... 232,300 128,521
---------------- ------------------
TOTAL................................................................ $ 243,553 $ 140,117
================ ==================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
HUMAN GENOME SCIENCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
-------------- ---------------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................................. $ (9,168) $ 6,916
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Accrued interest on U.S. Treasury bills and commercial paper.................. (110) (536)
Depreciation.................................................................. 3,145 2,766
Loss (gain) due to disposal and write-down of fixed assets.................... (10) 66
Issuance of and accretion of compensatory stock and warrants.................. 0 339
Changes in operating assets and liabilities:
Prepaid expenses and other current assets.................................. (10,394) (11,559)
Other assets............................................................... 184 (1)
Accounts payable and accrued expenses...................................... (630) (300)
Accrued payroll and related taxes.......................................... 587 490
Deferred income............................................................ 462 (50)
Income taxes payable....................................................... 0 141
Other liabilities.......................................................... (15) 14
-------------- ---------------
Net cash used in operating activities......................................... (15,949) (1,714)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - furniture and equipment.................................... (4,113) (4,459)
Purchase of short-term investments and marketable securities...................... (60,127) (89,135)
Proceeds from sales and maturities of short-term investments...................... 54,020 73,624
-------------- ---------------
Net cash used in investing activities......................................... (10,220) (19,970)
CASH FLOWS FROM FINANCING ACTIVITIES:
Collateral on line of credit - restricted......................................... 287 301
Payments on capital lease obligations............................................. (507) (632)
Proceeds from issuance of common stock (net of expenses).......................... 113,028 18,747
-------------- ---------------
Net cash provided by financing activities..................................... 112,808 18,416
-------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: ................................ 86,639 (3,268)
Cash and cash equivalents - beginning of period....................................... 27,341 39,853
-------------- ---------------
CASH AND CASH EQUIVALENTS - END OF PERIOD.............................................$ 113,980 $ 36,585
============== ===============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest......................................................................$ 129 $ 100
Income taxes.................................................................. 0 0
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Human Genome Sciences, Inc. ( the
"Company") have not been audited by independent auditors, except for the balance
sheet at December 31, 1996. In the opinion of the Company's management, the
financial statements reflect all adjustments necessary to present fairly the
results of operations for the three and six month periods ended June 30, 1997
and 1996, the Company's financial position at June 30, 1997, and the cash flows
for the six month periods ended June 30, 1997 and 1996. These adjustments are of
a normal recurring nature.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly report on Form 10-Q.
Therefore these financial statements should be read in conjunction with the
Company's 1996 Annual Report on Form 10-K.
The results of operations for the three and six month periods ended June 30,
1997 are not necessarily indicative of future financial results.
NOTE 2. PUBLIC OFFERING OF COMMON STOCK
The Company completed in March 1997 a public offering of 3,000,000 shares of
Common Stock at $37.00 per share for total net proceeds of approximately $105.0
million. The Company subsequently sold in April 1997 an additional 192,750
shares of Common Stock at $37.00 per share pursuant to an over-allotment option
granted to the underwriters. The sale of additional shares increased total net
proceeds to approximately $113.0 million.
NOTE 3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted in the December 31,
1997 financial statements. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on the calculation of fully diluted earnings per share is not expected
to be material.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996.
RESULTS OF OPERATIONS
Revenues. The Company had revenues of $14.8 million for the three months
ended June 30, 1997 compared with revenues of $13.1 million for the three months
ended June 30, 1996. Revenues for the three months ended June 30, 1997 and June
30, 1996 consisted primarily of $7.5 million in annual license fees and research
payments from Schering Corporation and Schering-Plough Ltd. (collectively "SP")
pursuant to collaboration agreements entered into June 28, 1996 and $4.5 million
in annual license fees and research payments from Synthelabo pursuant to
collaboration agreements entered into June 30, 1996. For the six months ended
June 30, 1997, revenues were $16.1 million compared to $27.0 million for the six
month period ended June 30, 1996. The 1997 revenue consisted of $12.0 million in
annual license fees and research payments from collaboration with SP and
Synthelabo and $4.1 million in license fees and milestone payments from other
collaborators. The 1996 revenue consisted of $6.9 million for the achievement of
Milestone III pursuant to the Collaboration Agreement with SmithKline Beecham
("SB"), $8.1 million in license fees and milestone payments from collaborations
with Pioneer Hi-Bred International, Inc. ("Pioneer") and F. Hoffmann-La Roche
("Roche") entered in the first quarter of 1996 and $12.0 million in annual
license fees and research payments from collaborations with SP and Synthelabo.
The Company expects that its revenues may be limited to annual license fees and
research payments from SP, Synthelabo and Merck KGaA over the next three years,
interest income, payments under existing collaboration agreements which are
contingent on meeting certain product milestones, license fees, proceeds from
the sale of rights and other payments from other collaborators and licensees
under existing or future arrangements, to the extent that the Company enters
into any such further arrangements.
Expenses. Research and development expenses increased to $11.7 million for
the three months ended June 30, 1997 from $9.5 million for the three months
ended June 30, 1996. For the six months ended June 30, 1997, research and
development expenses increased to $24.1 million from $18.5 million for the six
months ended June 30, 1996. The Company's payments to The Institute for Genomic
Research ("TIGR") were $2.6 million and $6.1 million for the three and six
months ended June 30, 1997 and $2.5 million and $5.0 million for the three and
six months ended June 30, 1996. (See Item 5: Other Information). The Company's
direct expenditures for research and development increased to $9.0 million for
the three months ended June 30, 1997 from $7.0 million for the three months
ended June 30, 1996 and increased to $18.0 million for the six months ended June
30, 1997 from $13.5 million for the six months ended June 30, 1996. These
increases resulted primarily from significant expansions in the Company's cell
biology, protein expression and pharmacology departments and reflect the
Company's increasing emphasis on determining the biological functions and
possible medical utilities of genes and proteins discovered as a result of the
Company's gene discovery efforts. Expenses will continue to increase in support
of research and development on HGS potential products and in support of the new
collaborations.
General and administrative expenses increased to $2.9 million for the three
months ended June 30, 1997 from $2.4 million for the three months ended June 30,
1996 and increased to $5.3 million for the six months ended June 30, 1997 from
$4.4 million for the six months ended June 30, 1996. The increase resulted
primarily from significantly higher legal expenses associated with filing a
larger number of patent applications relating to genes and proteins discovered
by the Company. Interest income was significantly higher for the three and six
months ended June 30, 1997 compared to the three and six months ended June 30,
1996 due to higher cash balances.
Net Income. The Company recorded net income of $2.9 million, or $0.13 per
share, for the three months ended June 30, 1997 compared to net income of $2.6
million, or $0.13 per share, for the three months ended June 30, 1996. For the
six months ended June 30, 1997, the Company reported a net loss of $9.2 million,
or $0.44 per share, compared to net income of $6.9 million, or $0.35 per share,
for the six months ended June 30, 1996. The difference in results for the six
months ended June 30, 1997 and 1996 is primarily due to the higher revenues from
license fees and research payments received during the six months ended June 30,
1996, and higher expenses incurred during the six months ended June 30, 1997.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital plus long-term investments, which include
obligations of the U.S. government and corporate bonds that have maturities
greater than 12 months from the balance sheet date, of $214.0 million at June
30, 1997 as compared to $110.8 million at December 31, 1996. The increase
resulted from the sale of 3,192,750 shares of Common Stock in a public offering
for $37.00 per share for net proceeds of approximately $113.0 million offset by
the net loss generated during the six months, capital expenditures, and payments
on capitalized leases.
The Company expects to continue to incur substantial expenses relating to
its research and development efforts, which expenses are expected to increase
relative to historical levels as the Company focuses on preclinical and clinical
trials required for the development of therapeutic protein product candidates.
At June 30, 1997, the Company had outstanding commitments for construction and
equipment purchases totaling approximately $0.9 million. In addition, the
Company is planning the construction of a pilot scale production and process
development facility and has entered into a preliminary financing agreement with
respect to $30.0 million of the estimated $40.0 million construction cost of
such facility. The Company expects to finance the remaining $10.0 million with
equipment leases. There can be no assurance that the Company will be able to
obtain such financing on terms acceptable to the Company, or at all. In the
event that financing is not available on acceptable terms, the Company may
determine to use its own capital resources to finance all or part of the $40
million cost of the facility.
The Company expects that its existing funds, interest income, and committed
license fees and research payments from existing collaboration agreements will
be sufficient to fund the Company's operations for the foreseeable future. The
Company's future capital requirements and the adequacy of its available funds
will depend on many factors, including scientific progress in its research and
development programs, the magnitude of those programs, the ability of the
Company to establish collaborative and licensing arrangements, the cost involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims and
competing technological and market developments.
The Company's funds are currently invested in U.S. Treasury and government
agency obligations, investment- grade commercial paper and interest-bearing
securities. Such investments reflect the Company's policy regarding the
investment of liquid assets, which is to seek a reasonable rate of return
consistent with an emphasis on safety, liquidity and preservation of capital. As
a result of the Company's completion of its public offering of 3,192,750 shares
of Common Stock in 1997, the Company's management has reviewed its
classification of marketable securities and has classified all marketable
securities as short-term. This classification reflect management's belief that
these securities are available for current operations based on current operating
activities and future business plans.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in "Management's Discussions and Analysis of
Financial Condition and Results of Operations", including statements concerning
future collaboration agreements, royalties and other payments under
collaboration agreements, and product development and sales and other statements
are forward looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected in
the forward looking statements as a result of risks and uncertainties, including
but not limited to, the following: the scientific progress of the Company in its
research and development programs; the magnitude of these programs; the ability
of the Company to establish additional collaborative and licensing arrangements;
the extent to which the Company engages in clinical development of any products
of its own; the scope and results of pre-clinical testing and clinical trials;
the time and costs involved in obtaining regulatory approvals; the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims; competing technological and market developments; and whether conditions
to milestone payments are met and the timing of such payments, and other risks
and uncertainties detailed elsewhere herein and from time to time in the
Company's filings with the Securities and Exchange Commission.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders, held on May 14, 1997, the
following members were elected to the Board of Directors:
Affirmative Votes
Votes Withheld
----- --------
TERMS EXPIRING IN 2000
William A. Haseltine, Ph.D. 13,171,993 24,224
Melvin D. Booth 13,172,693 23,524
Robert D. Hormats 13,172,693 23,524
Joshua Ruch 13,172,693 23,524
TERMS EXPIRING IN 1999
James H. Cavanaugh, Ph.D. 13,172,693 23,524
Max Link, Ph.D. 13,172,193 24,024
Craig Rosen 13,172,693 23,524
Beverly Sills Greenough 13,172,593 23,624
TERMS EXPIRING IN 1998
Robert A. Armitage 13,172,693 23,524
Donald D. Johnston 13,172,593 23,624
James B. Wyngaarden, M.D. 13,172,693 23,524
The following proposals were approved at the Company's Annual meeting of
Shareholders:
<TABLE>
<CAPTION>
Affirmative Negative
Votes Votes Abstentions
------------------ --------------- -----------------
<S> <C> <C> <C>
1. Approval of the amendment to the 1994 Stock
Option Plan to increase the number of 12,713,824 433,473 48,920
shares available for issuance from
2,450,000 to 3,450,000.
2. Approval of amendments to the Certificate
of Incorporation to provide for the
classification of the Company's Board of 10,912,496 2,259,136 24,585
Directors into three classes and certain
related matters.
3. Ratification of the selection of Ernst &
Young, LLP as the Company's independent
auditors for the fiscal year ending
December 31, 1997. 13,173,238 6,499 16,480
</TABLE>
9
<PAGE>
ITEM 5. OTHER INFORMATION
In June 1997, The Institute for Genomic Research ("TIGR") and HGS
reached an agreement to terminate the Research Services Agreement
dated October 1, 1992, the Intellectual Property Agreement dated
October 1, 1992, the Lease Funding Agreement and Assignment dated
March 2, 1993, the HGS/TIGR Agreement of April 19, 1993 related to
human cDNA sequencing, and all other agreements entered into any time
prior to the Termination Date between the Company and TIGR. Pursuant
to the Termination Agreement, the Company retains rights in
intellectual property arising out of TIGR's research prior to June
20, 1997, but will have no rights to intellectual property resulting
from future research by TIGR. The Company is relieved of its
obligation to provide future funding (including all research funding
and lease funding) to TIGR, which would have amounted to
approximately $38.2 million. Certain limitations on TIGR's
publication of intellectual property and restrictions on TIGR
entering into commercial agreements contained in the prior agreements
were also terminated. However, pursuant to the Termination Agreement,
TIGR has agreed not to enter into commercial agreements for the next
four years on selected therapeutic proteins and associated diagnostic
tests in development by the Company. In addition, the Company will be
entitled to be paid a percentage of certain payments received by TIGR
from commercial agreements relating to human therapeutic proteins in
which TIGR grants or agrees to grant rights within two years.
In July 1997, the Collaboration Agreement with SmithKline Beecham
Corporation ("SB") was amended with respect to human diagnostic
products based on the Company's human gene technology. The amended
agreement simplified procedures for outlicense by SB of diagnostic
products based on the Company's human gene technology. In addition,
the new agreement permits the Company to develop and market
diagnostic tests that correspond to therapeutic products developed by
the Company pursuant to its collaboration agreement with SB and to
outlicense diagnostic tests corresponding to therapeutic products
outlicensed by the Company. Under the new agreement, SB has agreed to
pay a royalty to the Company which is at a rate that is competitive
in the diagnostic field on diagnostic products based on the Company's
human gene technology sold or outlicensed by SB. Except for the
modifications relating to human diagnostic products, this amended
agreement has no effect on the existing collaboration between the
Company and SB, nor does it have any effect on collaboration
agreements with the Company's and SB's collaboration partners.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1++ HGS/TIGR Agreement dated June 20, 1997.
10.2++ Amendment to SmithKline Beecham Corporation and SmithKline
Beecham p.l.c. and Human Genome Sciences, Inc. Collaboration
Agreement dated July 24, 1997.
11.1 Computation of per share data.
27.1 Financial data schedule.
-----------------------------------
++ Confidentiality treatment has been requested. The copy filed as
an exhibit omits the information subject to the confidentiality
request.
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUMAN GENOME SCIENCES, INC.
BY: /s/ MELVIN D. BOOTH
----------------------------------------
Melvin D. Booth
President and Chief Operating Officer
BY: /s/ STEVEN C. MAYER
----------------------------------------
Steven C. Mayer
Senior Vice President and
Chief Financial Officer
Dated: August 14, 1997
11
<PAGE>
EXHIBIT INDEX
Page
Exhibit
- -------
Number
------
10.1++ HGS/TIGR Agreement dated June 20, 1997.
10.2++ Amendment to SmithKline Beecham Corporation and SmithKline
Beecham p.l.c. and Human Genome Sciences, Inc. Collaboration
Agreement dated July 24, 1997.
11.1 Computation of per share data.
27.1 Financial data schedule.
-----------------------------------
++ Confidentiality treatment has been requested. The copy filed as
an exhibit omits the information subject to the confidentiality
request.
HGS/TIGR AGREEMENT
This Agreement, dated June 20, 1997 (the "Termination Date"), is by
and between Human Genome Sciences, Inc. ("HGS"), a Delaware corporation, having
its principal place of business at 9410 Key West Avenue, Rockville, Maryland,
and The Institute for Genomic Research ("TIGR"), a Maryland not-for-profit
corporation, having its principal place of business at 9712 Medical Center
Drive, Rockville, Maryland. The parties hereby agree:
1. As of the Termination Date, the Research Services Agreement dated October 1,
1992, the Intellectual Property Agreement dated October 1, 1992, the Lease
Funding Agreement and Assignment dated March 2, 1993, the HGS/TIGR Agreement of
April 19, 1993 related to human cDNA sequencing, and all other agreements
entered into any time prior to the Termination Date between HGS and TIGR (the
"Prior Agreements") are hereby terminated in full, notwithstanding any survival
provisions thereof (including Section 11.2 of the Intellectual Property
Agreement and Section 13.3 of the Research Services Agreement).
2. Except as provided in the letter attached as Exhibit 1 and Section 12, as of
the Termination Date, HGS shall have no further obligation to provide funding
(including all research funding and lease funding) to TIGR, and TIGR hereby
acknowledges that it has received all funding owed to TIGR by HGS for activities
performed prior to the Termination Date.
3. TIGR hereby agrees to review within two months of the Termination Date its
records and archives to insure that all sequencing data and all Information
related to bioinformatics software obligated to be transferred to HGS prior to
the Termination Date pursuant to the Prior Agreements have been transferred to
HGS, and to warrant that all such sequencing data have been transferred.
Notwithstanding TIGR's obligation to transfer such sequencing data, in the event
that such sequencing data are not transferred to HGS, TIGR hereby assigns and
agrees to assign all patent rights to any invention or discovery derived from
the use of such sequencing data that was not so transferred.
4. TIGR and HGS will prepare mutually agreed upon press releases announcing the
termination of the Prior Agreements and will prepare a mutually agreed upon
Question & Answer ("Q&A") document for responding to press questions. Other than
the mutually agreed upon press releases and Q&A, neither party will make any
public announcement concerning the terms of this agreement or the termination of
the Prior Agreements which is inconsistent with the press releases or the Q&A.
5. TIGR and HGS agree not to disparage, malign or otherwise make statements
critical of the other party or its affiliates, its stockholders, officers,
directors, trustees, agents, employees or representatives in public or private
statements. Each party shall use its best efforts to advise its affiliates, its
stockholders, officers, directors, trustees, agents, employees and
representatives not to disparage, malign or otherwise make statements critical
of the other party in public or private statements.
6. TIGR and HGS agree not to solicit or hire any current employee of the other
for a period of two years from the Termination Date without the written consent
of the other. For the purpose of this agreement, general solicitations directed
to the public (e.g., advertisements in newspapers or scientific journals) shall
not be considered solicitation.
7. The publishing limitations contained in the Prior Agreements relating to
unpublished Information, Inventions or TIGR Material shall cease as of the
Termination
<PAGE>
Date, except that TIGR shall not make public or publish sequencing data for
[***] prior to [***].
8. TIGR will use its best efforts to obtain funding, and if such funding is
received, to complete the sequencing of [***] and shall forward promptly the
results of that sequencing (including all bioinformatics analysis) to HGS. TIGR
grants and agrees to grant a non-exclusive non-cancelable, worldwide,
royaltyfree right and license to make, have made, import, sell or offer to sell
products under any patent rights resulting from such sequencing. TIGR agrees not
to make public or publish such sequencing data until [***] or until two business
days after disclosure of such results to HGS, whichever is later.
9. For a period of four years after the Termination Date, TIGR agrees not to
enter into any commercial agreement, solicit or receive governmental or
not-for-profit grants, or otherwise perform any research, development, or
commercial activities, in each case if such agreement, grant or activity is
targeted to the sequencing or therapeutic activity of any Designated Therapeutic
Protein or Related Diagnostic. For the purposes of this agreement, Therapeutic
Protein shall mean a polypeptide derived from a human cDNA or a human gene or
genes or any portion of such cDNA, gene or genes, which polypeptide may be
useful for the treatment or prevention of a disease or disorder in humans.
Related Diagnostic shall mean any product, process, substance, composition or
service that is intended to predict, detect or identify a human disease or a
pathologic condition in a human by determining the presence, abundance or
absence of a Designated Therapeutic Protein. A Designated Therapeutic Protein is
a Therapeutic Protein for which HGS has an active research, development or
commercialization program and has so notified TIGR in writing. At any one time,
the maximum number of Designated Therapeutic Proteins subject to the
restrictions of this section shall be [***], except that any Designated
Therapeutic Protein that enters clinical trials on behalf of HGS or which is at
the time the subject of a specific license to a third party under a pending or
issued patent for research, development or commercialization shall not be
included within the maximum number of Designated Therapeutic Proteins. HGS shall
also be free to name a substitute Designated Therapeutic Protein for any
Therapeutic Protein already designated. In the event that (i) a Designated
Therapeutic Protein is substituted for, or (ii) HGS ceases to actively research,
develop or commercialize and has not licensed the Designated Therapeutic Protein
to a third party (in which event HGS shall promptly so notify TIGR in writing),
the restrictions of this section shall no longer apply to that Designated
Therapeutic Protein. This section shall not apply to any Therapeutic Protein for
which TIGR has initiated and has ongoing an active research program specifically
directed to the Therapeutic Protein prior to HGS's designation to TIGR that such
protein is a Designated Therapeutic Protein.
10. HGS grants to TIGR a world-wide, nonexclusive, non-cancelable, royalty-free
right and license under all Inventions and Patent Rights only for the purpose of
conducting research; provided, that TIGR shall not assign or otherwise transfer
any or all of its interest in such license to any other person or entity without
the written consent of HGS, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, TIGR shall be free to grant a sublicense (with no
right for a further sublicense) to any governmental, academic or non-profit
collaborator of TIGR solely for the purpose of conducting research in
collaboration with TIGR. Any assignment or other transfer by TIGR in violation
of this section shall be void and without effect.
11. (a) In consideration of the rights granted in Section 10 for
research involving Therapeutic Proteins, TIGR agrees that, for any
commercial agreement with a for-profit corporation (including a
service agreement except as provided in subsection (d)) between TIGR
and a third party related to the sequencing or therapeutic activity
<PAGE>
of any Therapeutic Protein and in which TIGR grants or agrees to
grant rights to Therapeutic Proteins, TIGR shall pay to HGS within
thirty days of receipt:
(i) [***] of all monies received by TIGR from a third party
for reimbursement or prepayment of research services to be
performed pursuant to that commercial agreement; provided
that in the event that the commercial agreement provides for
a commercially reasonable allocation of the reimbursement or
prepayment specifically to work associated with identifying
Therapeutic Proteins, the [***] shall apply only to those
amounts specifically allocated to the Therapeutic Proteins;
(ii) [***] of all monies received by TIGR as upfront license
fees or other upfront payments; provided that in the event
that the commercial agreement provides for a commercially
reasonable allocation of fees or payments specifically to
rights associated with Therapeutic Proteins, the [***] shall
apply only to those amounts specifically allocated to the
Therapeutic Proteins;
(iii) [***] of all milestone payments or other similar
payments (other than payments described in subsection
(a)(i)) received by TIGR with respect to a Therapeutic
Protein Product; and
(iv) [***] of all running royalties received by TIGR
pursuant to such commercial agreement for sales of
Therapeutic Protein Products.
(b) This section shall only apply to commercial agreements entered
into on or before two years after the Termination Date, but shall
include all monies received from such agreements regardless of when
such monies are received.
(c) A Therapeutic Protein Product shall mean a Therapeutic Protein
for which a patent application is filed by TIGR, the third party or
their licenses or assignees in the United States or elsewhere on or
before [***] after the Termination Date.
(d) This section shall not apply to commercial agreements that
relate solely to "fee for service" contract sequencing in which TIGR
retains no rights (other than a nonexclusive research license) to
the sequence data generated pursuant to that agreement.
12 (a) TIGR assigns and agrees to assign all of its rights, title and
interest in and to any Invention and Patent Rights to HGS, subject
to the exceptions set forth below. TIGR shall not be obligated to
assign to HGS any process, use, article of manufacture, composition
of matter, or apparatus or corresponding patent and patent
applications which were not actually or constructively reduced to
practice prior to the Termination Date. Nothing in this agreement
shall affect HGS's ownership interest in Inventions and
corresponding Patent Rights which Inventions are conceived or
actually or constructively reduced to practice prior to the
Termination Date.
(b) TIGR shall cooperate, and cause its Investigators to cooperate,
with HGS in the preparation, filing, prosecution, maintenance,
assignment and enforcement of any Patent Rights, and shall perform
all necessary acts relating thereto, including executing,
acknowledging and delivering any and all papers, documents and
instruments required for effecting such prosecution, maintenance,
assignment and enforcement; provided, however, that HGS shall pay
all costs incurred by TIGR in complying with these requirements.
(c) To the extent that TIGR, prior to the Termination Date, has
entered into agreements with agencies, departments or
instrumentalities of the United States
<PAGE>
government and nonprofit organizations, foundations and similar
organizations (including but not limited to American Heart
Association, the Muscular Dystrophy Association and similar
organizations) ("Organizations") for funding of research at TIGR
which prevents TIGR from assigning all rights, title and interest to
HGS in and to Inventions and Patent Rights which result from such
funding (each agreement an "Organization Agreement" and each such
invention and patent right an "Organization Invention" and
"Organization Patent Right", respectively), TIGR grants to HGS and
HGS accepts from TIGR a world-wide, non-cancelable right and license
to make, have made, use and sell or have sold on its behalf any
product, process, machine, apparatus or article of manufacture or
composition, including the right to sublicense to third parties,
pursuant to the terms and conditions of this agreement, under any
Organization Invention or Organization Patent Right in which
ownership must be retained by TIGR or in which the Organization does
not permit ownership to be retained by HGS pursuant to any
Organization Agreement. This license is granted to the extent
permitted under United States law and is exclusive except as
provided in Section 10 and except as to the United States government
or other Organization, which may retain a comparable non-exclusive
royalty free license under such Organization Inventions and
Organization Patent Rights. HGS at its cost and expense shall file,
prosecute and maintain Organization Patent Rights licensed under
this section.
(d) HGS shall pay to TIGR a running royalty of [***] of net sales of
any product sold by HGS which is covered by a granted claim of
Organization Patent Right licensed to HGS under subsection (c)
above. HGS shall pay to TIGR the lesser of (i) [***] of the running
royalties received from a sublicensee for sale of product covered by
a granted claim of Organization Patent Right licensed to HGS or (ii)
[***] of the net sales of a product sold by a sublicensee which is
covered by a granted claim of Organization Patent Right licensed to
HGS. In the event that HGS is obligated to pay a royalty for a
product to a party other than an Affiliate ("Other Party Royalty")
for which product a royalty is also owed to TIGR, then [***] of such
Other Party Royalty shall be fully creditable against [***] of the
royalty owed to TIGR under this section.
13. Subject to Section 12(d), TIGR grants to HGS a royalty-free, worldwide,
non-cancelable, non-exclusive right and license to use and to transfer to third
parties Information and TIGR Material. Nothing in this Agreement shall affect
TIGR's ownership interest in Information and TIGR Material. TIGR shall not be
obligated to provide to HGS, and HGS shall not have any license rights with
respect to any data, formulas, know-how, process information or other
information or any material, substance, composition, or biological material
discovered, produced or derived by TIGR on or after the Termination Date.
14. HGS shall not assign ownership to Patent Rights obtained from TIGR under
this Agreement or the Prior Agreements to another entity without the written
consent of TIGR, which shall not be unreasonably denied or delayed, except such
consent shall not be required: (i) where such assignment is in conjunction with
a transfer of substantially all of the assets of HGS to an entity who is not an
Affiliate of HGS, or (ii) where such assignment is to an Affiliate that is a
wholly owned subsidiary of HGS. For the purposes of this Section, the granting
of a non-exclusive or exclusive license under Patent Rights shall not be an
assignment unless all or substantially all of the Patent Rights obtained from
TIGR are licensed in one transaction or a series of related transactions to
another entity.
<PAGE>
15. HGS has disclosed, and may disclose in the future, to TIGR and Investigators
proprietary and confidential technology, inventions, technical information,
biological materials and the like which are owned or controlled by HGS or which
HGS is obligated to maintain in confidence and which are designated by HGS as
confidential ("HGS Confidential Information"). Such HGS Confidential Information
specifically includes the identity of any Designated Therapeutic Protein and
Related Diagnostic. Except as otherwise provided in this Agreement, TIGR agrees
to retain such HGS Confidential Information in confidence and not to disclose
any such HGS Confidential Information to a third party, so long as such
information remains confidential, without the prior written consent of HGS. The
obligations of TIGR pursuant to this section hereof shall not apply to HGS
Confidential Information that:
(a) is known to TIGR or generally known to the public prior to its
disclosure hereunder; or
(b) becomes known to the public by some means other than a breach of
this Agreement, including publication and/or laying open to inspection
of any patent applications or patents; or
(c) is disclosed to TIGR by a third party having a lawful right to
make such disclosure, and who is not under any obligation of
confidentiality to HGS.
16. HGS agrees not to disclose to a third party Information, Inventions and TIGR
Material disclosed to HGS by TIGR or an Investigator, except under an obligation
of confidentiality. HGS's obligation under this section with respect to any
Information, Inventions or TIGR Material shall terminate one (1) year after
disclosure thereof to HGS. The foregoing obligation shall not apply to any
Information, TIGR Material or Invention which:
(a) is known to HGS or generally known to the public prior to its
disclosure hereunder; or
(b) becomes known to the public by some means other than a breach of
this Agreement, including publication and/or laying open to inspection
of any patent applications or patents; or
(c) is disclosed to HGS by a third party having a lawful right to make
such disclosure, and who is not under any obligation of
confidentiality to TIGR.
17. Each party shall notify the other upon receiving notice of any claim,
lawsuit or other proceeding relating to a product or process that incorporates
or is manufactured by use of an Invention, Information, TIGR Material, or Patent
Right. HGS agrees that it will indemnify and hold harmless TIGR and all
Investigators, and other members, researchers, employees, officers and trustees
of TIGR, and each of them (each an "Indemnified Party") from and against any and
all third party claims, causes of action and costs (including attorney's fees
and costs of appearing as witnesses or otherwise preparing to defend any such
claim or cause of action) of any nature made or lawsuits or other proceedings
filed or otherwise instituted against any Indemnified Party or Parties arising
out of the design, manufacture, sale or use of any such product or process by
any individual or entity; provided, however, that HGS shall not indemnify any
Indemnified Party from or against any claims, causes of action or costs that
result from the gross negligence or willful misconduct of such Indemnified Party
(except to the extent that any act of patent infringement is by its terms
considered willful, in which case HGS shall indemnify any Indemnified Party).
HGS also will assume responsibility for all costs and expenses
<PAGE>
relating to such claims and lawsuits for which it is obligated to indemnify any
Indemnified Party or Parties pursuant to this section including, but not limited
to, the payment of all attorney's fees and costs of litigation or other
defenses. TIGR shall promptly notify HGS of any such claim. HGS may elect to
assume the defense of any claim, lawsuit, or other proceeding identified in this
section, but TIGR and/or any Indemnified Party may retain additional counsel and
assume the defense of such suit if (i) HGS specifically authorizes the retaining
of such counsel and assumption of such defense or (ii) TIGR or any Indemnified
Party has been advised by counsel that one or more legal defenses may be
available to it which may not be available to HGS, in which case HGS shall not
be entitled to assume the defense of such suit, notwithstanding its obligation
to bear the fees and expenses of counsel to TIGR or any Indemnified Party. In
the event that any Indemnified Party elects to assume the defense of any suit
and retain counsel as permitted herein, in no event shall HGS be responsible for
the fees and expenses of more than one additional counsel for each such
Indemnified Party. Subject to the foregoing, HGS shall have the right to control
the defense, settlement or compromise of any claim which is indemnified
hereunder.
18. Except as otherwise provided, this Agreement shall not be assignable by
either of the parties without the prior written consent of the other party which
consent shall not be unreasonably withheld or delayed, except that HGS may
assign this Agreement without the consent of TIGR (i) with a transfer to an
entity other than an Affiliate of all or substantially all the business to which
this Agreement relates or (ii) to a wholly owned subsidiary. Any assignment in
violation of this section shall be void and without effect.
19. Subject to the limitations on assignment set forth herein, this Agreement
shall be binding upon and inure to the benefit of said successors in interest
and assigns of HGS and TIGR. Any such successor or assignee of a party's
interest shall expressly assume in writing the performance of all the terms and
conditions of this Agreement to be performed by said party.
20. Each party, on its own behalf and on behalf of its affiliates, stockholders,
directors, trustees, officers, agents, employees, representatives, successors,
predecessors and assigns, hereby waives, releases and forever discharges the
other party and its affiliates, stockholders, directors, trustees, officers,
agents, employees, representatives, successors, predecessors and assigns from
any and all claims, actions, causes of action, suits, demands, rights, damages,
and costs, of any kind or nature, ("Claims") relating to or arising from the
Prior Agreements or the other party's performance or non-performance of the
Prior Agreements. Without limiting the generality of the foregoing, said release
shall apply to Claims (i) whether or not they were asserted or could have been
asserted prior to or after the Termination Date , or (ii) that arose under
contract, tort or otherwise, at law or in equity.
21. Except for the letters attached hereto as Exhibits 1 and 2, this Agreement
constitutes the entire agreement between the parties relating to the subject
matter hereof and supersedes all previous writings and understandings relating
to such subject matter. No terms or provisions of this Agreement shall be varied
or modified by any prior or subsequent statement, conduct or act of either of
the parties, except that the parties may amend this Agreement by written
instruments specifically referring to and executed in the same manner as this
Agreement.
22. The following definitions shall apply to this agreement:
(a) "Affiliate" as applied to HGS shall mean any company,
partnership, joint venture, trust, or other legal entity or
organization, in whatever country
<PAGE>
organized, that controls, is controlled by, or is under common
control with HGS. The term "control" means possession, direct or
indirect, of the power to direct or cause the direction of
management and policies whether through the ownership of voting
securities, by contract or otherwise. For the purposes of this
Agreement, Plant and Animal Genome Sciences, Inc. shall be
considered an Affiliate of HGS.
(b) "Course of Work for TIGR" shall mean (i) in the performance of
scientific or technological work for or on behalf of TIGR or (ii)
using the time, materials or facilities of TIGR.
(c) "Information" shall mean any data, formulas, know-how, process
information, or other information that is produced by an
Investigator in the Course of Work for TIGR prior to the Termination
Date.
(d) "TIGR Material" shall mean any material, substance, composition,
or biological material, that is discovered, produced or derived by
an Investigator in the Course of Work for TIGR prior to the
Termination Date.
(e) "Invention(s)" shall mean any process, use, article of
manufacture, composition of matter, or apparatus, whether or not
patentable, that is conceived or first actually or constructively
reduced to practice by an Investigator in the Course of Work for
TIGR prior to the Termination Date.
(f) "Investigator" means (i) any member of TIGR's professional staff
or employee who is involved in scientific or technological work or
who may be reasonably expected to develop Information, Inventions,
or TIGR Material or (ii) a person who works at TIGR and is involved
in scientific or technological work or is reasonably expected to
develop Information, Inventions or TIGR Material or (iii) any person
who performs scientific or technological work for or on behalf of
TIGR.
(g) "Patent Right(s)" shall mean any United States patent
application, including any division, continuation, or
continuation-in-part thereof, and any foreign patent application or
the equivalent thereof, and any Letters Patent or the equivalent
thereof issuing thereon, and any reissue, re-examination or
extension thereof, insofar as it contains, represents, or asserts
one or more claims to an Invention.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed on its behalf, effective as of June 24, 1997.
HUMAN GENOME SCIENCES, INC. THE INSTITUTE FOR GENOMIC
RESEARCH
By: /s/ Melvin D. Booth By: /s/ J. Craig Venter
-------------------------- ----------------------------
Name: Melvin D. Booth Name: J. Craig Venter
Title: President & COO Title: President & CEO
<PAGE>
9712 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850
(301) 838-0200
(301) 838-0208 Fax
June 20,1997
HUMAN GENOME SCIENCES, INC.
9410 Key West Avenue
Rockville, Maryland 20850
Re: Equipment Leases with Dominion Ventures, Inc. dated January 31,
1993 and Comdisco, Inc. dated January 31, 1993
Gentlemen:
In conjunction with the agreement entered into by The Institute for Genomic
Research ("TIGR") and Human Genome Sciences, Inc. ("HGS") dated June 20, 1997,
this letter sets forth the agreement between TIGR and HGS concerning two
existing leases for equipment identified above, one between TIGR and Dominion
Ventures, Inc. ("Dominion") and the other between TIGR and Comdisco, Inc.
("Comdisco") (each a "Lease Agreement").
HGS agrees that it shall reach agreement with Dominion on a purchase price
for the equipment subject to the Dominion lease and pay such price and related
costs assessed by Dominion in full, so as to provide TIGR with full ownership of
such equipment. If HGS shall fail to reach agreement with Dominion for any
reason, HGS shall deliver to TIGR's facility, prior to the removal of such
equipment by Dominion under the Lease Agreement, other equipment of like
quality, usefulness and value reasonably satisfactory to TIGR which shall be
owned by TIGR and the purchase price therefor paid by HGS.
HGS agrees that it shall pay to TIGR on or before the 1st day of each
calendar quarter ("Payment Date(s)"), any payments from and including such
Payment Date to and excluding the next Payment Date and any applicable taxes,
fees or charges other than personal property taxes due under the Comdisco Lease
Agreement and consent to and pay a purchase price for the equipment subject to
the Comdisco Lease Agreement at the end of the initial term of the Comdisco
Lease Agreement or earlier, or to deliver to TIGR's facility, prior to the
removal of such equipment by Comdisco under the Lease Agreement, other equipment
of like quality, usefulness and value reasonably satisfactory to TIGR which
shall be owned by TIGR and the purchase price therefor paid by HGS.
<PAGE>
June 20, 1997
Page 2
At the request of HGS, TIGR has not made lease payments owed to Dominion
since the payment made for the month of February 1997, (nor has HGS paid TIGR
funds necessary to do so) for HGS' benefit in its on-going negotiations to reach
a mutually agreeable purchase price with Dominion. As you know, Dominion has
threatened TIGR with legal action to recover the payments and other costs, and
TIGR has continued not to pay lease payments at HGS' request. HGS agrees that it
will indemnify and hold harmless TIGR from and against any and all claims,
causes of action and costs (including attorney's fees and costs of appearing as
witnesses or otherwise preparing to defend any such claim or cause of action) of
any nature made or lawsuits or other proceedings filed or otherwise instituted
against TIGR arising out of the Lease Agreements, including without limitation,
any action brought by Dominion against TIGR for nonpayment under the Lease
Agreement and any action or claims brought by Comdisco in the future; provided,
however, that HGS shall not indemnify TIGR from or against any claims, causes of
action or costs that result from the gross negligence or willful misconduct of
TIGR (provided that TIGR's failure to pay lease payments under the Dominion
Lease Agreement shall not be considered willful for this purpose). HGS agrees to
assume the responsibility for all costs and expenses relating to such claims and
lawsuits for which it is obligated to indemnify TIGR, including, but not limited
to, the payment of all attorney's fees and costs of litigation.or other
defenses.
Sincerely,
/s/ J. Craig Venter
President/Director
Accepted and agreed:
HUMAN GENOME SCIENCES, INC.
By: /s/ Melvin D. Booth
-------------------------
Name: Melvin D. Booth
Title: President & COO
Date: 6/20/97
<PAGE>
9712 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850
(301) 838-0200
(301) 838-0208 FAX
June20, 1997
HUMAN GENOME SCIENCES, INC.
9410 Key West Avenue
Rockville, Maryland 20850
Gentlemen:
In conjunction with the agreement entered into by The Institute for Genomic
Research ("TIGR") and Human Genome Sciences, Inc. ("HGS") dated June 20, 1997,
this letter sets forth the agreement between TIGR and HGS concerning assignment
of rights received by HGS from third parties collaborating with TIGR under
certain agreements entered into by or among TIGR, such third parties and HGS,
which agreements are listed in an Attachment to this letter ("Collaboration
Agreement(s)").
HGS hereby assigns to TIGR any and all rights, title and interest HGS has
under Collaboration Agreements to any and all data, formulas, information,
software, materials, compositions, substances and other results of the
Collaboration Agreements conceived or actually or constructively reduced to
practice or otherwise discovered, produced or derived on or after June 20, 1997,
and any and all intellectual property rights thereto, including but not limited
to copyrights, patents, patent applications, or other rights however described
in the Collaboration Agreements (collectively, "Assigned Technology").
Nothing in this letter shall affect HGS' rights with respect to research
results covered under the Collaboration Agreements, and corresponding patents
and patent applications, which results are conceived or actually or
constructively reduced to practice prior to June 20, 1997.
If this assignment is effective only upon the consent of the third party,
then TIGR, at its election, may seek to obtain the consent of the third party or
request HGS to waive any rights it may have in Assigned Technology. If requested
to do so by TIGR, HGS agrees promptly to execute appropriate documentation to
effectuate such a waiver.
HGS also agrees that it will not enforce, and hereby waives its rights
under, any publishing limitations contained in any Collaboration Agreement,
inculding any provisions that require a delay upon disclosures of research
<PAGE>
June 20, 1997
Page 2
results, provide for advanced review by HGS of any manuscripts describing
research covered by the Collaboration Agreement, or grant to HGS the right to
delete any portions of such manuscripts before publication.
In the event an agreement that is similar to those listed in the
Attachment, but not included therein, comes to the attention of the parties,
then, subject to confirmation by each party, the Attachment will be amended to
include that agreement as a Collaboration Agreement.
Sincerely,
/s/ J. Craig Venter
President/Director
Attachment
Accepted and agreed:
HUMAN GENOME SCIENCES, INC.
By: /s/ Melvin D. Booth
-------------------------
Name Melvin D. Booth
Title: President & COO
Date 6/20/97
<PAGE>
EXHIBIT 2 ATTACHMENT
THE INSTITUTE FOR GENOMIC RESEARCH
COLLABORATION AGREEMENTS
INSTITUTION RESEARCH EFFECTIVE DATE
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SB/HGS DIAGNOSTIC LICENSE AGREEMENT
This Agreement is effective as of this 24th day of July, 1997
between, on the one hand, SmithKline Beecham Corporation, a corporation
organized under the laws of the Commonwealth of Pennsylvania, having a place of
business at One Franklin Plaza, Philadelphia, Pennsylvania 19101, U.S.A. ("SB
corp"), SmithKline Beecham p.l.c., a corporation organized under the laws of
England and having a place of business at Great West Road, Brentford, Middlesex,
U.K. ("SB p.l.c.") (individually and collectively "SB"), and, on the other hand,
Human Genome Sciences, Inc., 9410 Key West Avenue, Rockville, Maryland 20850
("HGS").
WITNESSETH THAT:
WHEREAS SB corp and HGS entered into the COLLABORATION AGREEMENT
(defined below) relating to sequencing of expressed genes and development of
practical applications therefor; and
WHEREAS SB and HGS now wish to amend the COLLABORATION AGREEMENT
with respect to HUMAN DIAGNOSTIC PRODUCTS (defined below);
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein, and intending to be legally bound, and otherwise to be bound
by proper and reasonable conduct, the parties agree as follows:
The parties now agree that the COLLABORATION AGREEMENT is superseded
in accordance with Paragraph 23.01 of such agreement and the AMENDED AND
RESTATED LICENSE AGREEMENT is superseded, both only with respect to HUMAN
DIAGNOSTIC PRODUCTS to read as follows:
1. DEFINITIONS
1.1. "AFFILIATE" shall mean any corporation, firm, partnership or other
entity, whether de jure or de facto, which directly or indirectly
owns, is owned by or is under common ownership with a party to this
Agreement to the extent of at least fifty percent (50%) of the equity
(or such lesser percentage which is the maximum allowed to be owned by
a foreign corporation in a particular jurisdiction) having the power
to vote on or direct the affairs of the entity and any person, firm,
partnership, corporation or other entity actually controlled by,
controlling or under common control with a party to this Agreement.
1.2. "AMENDED AND RESTATED LICENSE AGREEMENT" shall mean the agreement
between SB and HGS entered into May 31, 1995.
1.3. "ANTIBODY PRODUCT" shall mean an antibody (monoclonal or polyclonal)
and fragments and constructs thereof which may be useful for the
treatment or prevention of a disease or disorder in humans.
1.4. "BIOINFORMATICS" shall mean computer software and know-how useful for
the analysis, comparison, and curation of human nucleic acid
sequences; and information related to such sequences; and software for
the
<PAGE>
constructionand maintenance of databases for the compilation of such
sequences and their associated information; each developed from May
19, 1993 through the end of the INITIAL RESEARCH TERM. BIOINFORMATICS
shall include software for the prediction of the three-dimensional
structure of proteins from primary sequence information but
BIOINFORMATICS shall not include software for rational drug design
based on such three-dimensional structure. To the extent
BIOINFORMATICS includes software licensed from a THIRD PARTY such
THIRD PARTY software is not included except to the extent that a party
has the right to transfer to the other party such software and its use
and the other party agrees to pay any royalty owed to the THIRD PARTY
for such software and its use.
1.5. "cDNA" shall mean complementary DNA prepared from human cells.
1.6. "CLINICAL STUDY" shall mean a study in humans of a product which study
is intended for use in obtaining approval to sell the product in a
"Major Market." However, in the case of a product for which no human
clinical studies are required, then CLINICAL STUDY shall mean,
instead, initiation of country-wide sales of a product in a "Major
Market." By "Major Market" is meant the United States, Canada, Japan,
Great Britain, France, Germany, or Italy.
1.7. "COLLABORATION AGREEMENT" shall mean the Collaboration Agreement
entered into between SB and HGS effective as of May 19, 1993, as
amended as of immediately before the EFFECTIVE DATE.
1.8. "COLLABORATION PARTNER" shall mean those entities which are set forth
in Appendix B of the JUNE 1996 SB/HGS LICENSE AGREEMENT, and any
entity added to such Appendix pursuant to that agreement by mutual
written agreement between SB and HGS.
1.9. "COLLABORATION PARTNER AGREEMENT" shall mean an agreement among HGS
and SB and a COLLABORATION PARTNER and designated in writing by SB and
HGS as a COLLABORATION PARTNER AGREEMENT, pursuant to the JUNE 1996
SB/HGS LICENSE AGREEMENT.
1.10. "COLLABORATION PARTNER PATENT" shall mean all patents and patent
applications filed during the INITIAL RESEARCH TERM which are or
become owned by a COLLABORATION PARTNER or to which a COLLABORATION
PARTNER otherwise has, now or in the future, the right to grant
licenses, only to the extent HGS and SB have the rights to grant
licenses thereto under a COLLABORATION PARTNER AGREEMENT. Included
within the definition of COLLABORATION PARTNER PATENTS are all
continuations, continuations-in-part, divisions, patents of addition,
reissues, renewals, extensions, registrations,
<PAGE>
confirmations, re-examinations thereof and any provisional
applications and all SPCs.
1.11 "COLLABORATION PRODUCT" shall mean any product, process, substance,
composition or service which (i) is based on the use of or is derived
by use of HGS TECHNOLOGY and/or SB TECHNOLOGY and/or (ii) is covered
by a HGS PATENT and/or (iii) is covered by a SB PATENT; and/or (iv) is
covered by a COLLABORATION PARTNER PATENT; and/or (v) is based on or
is derived by use of a TARGET and/or is a THERAPEUTIC PROTEIN and/or
biological information on such TARGET or THERAPEUTIC PROTEIN all as to
which SB and/or HGS receives rights from a COLLABORATION PARTNER under
a COLLABORATION PARTNER AGREEMENT. An incidental or immaterial use (or
no use) of such technology or patents in (i)-(v) shall not cause a
product, process, substance, composition or service to become a
COLLABORATION PRODUCT.
1.12. "DIAGNOSTIC RESEARCH PLAN" shall mean a written plan for researching,
developing and commercializing a HUMAN DIAGNOSTIC PRODUCT. An example
of such a plan is shown in Appendix A. RESEARCH PROGRAMS under the
COLLABORATION AGREEMENT submitted prior to the EFFECTIVE DATE shall be
deemed, to the extent that they cover HUMAN DIAGNOSTIC PRODUCTS,
DIAGNOSTIC RESEARCH PLANS submitted by SB under this Agreement in
accordance with Section 4.1.
1.13. "DRUG PRODUCT" shall mean a product (including VACCINES, as defined in
the JUNE 1996 SB/HGS LICENSE AGREEMENT), which is not a THERAPEUTIC
PROTEIN, GENE THERAPY VACCINE (as defined in the JUNE 1996 SB/HGS
LICENSE AGREEMENT) or ANTIBODY PRODUCT, which may be useful for the
treatment or prevention of a disease or disorder in a human.
1.14. "EFFECTIVE DATE" shall mean the date first written above.
1.15. "GENE" shall mean a cDNA or a human gene or a family of such human
genes or any portion of such cDNA, gene or genes.
1.16. "HGS" shall mean Human Genome Sciences, Inc.
1.17. "HGS HUMAN DIAGNOSTIC PRODUCT" shall mean a COLLABORATION PRODUCT that
is a HUMAN DIAGNOSTIC PRODUCT to which HGS obtains rights in
accordance with Section 4 and as to which HGS retains rights under
this Agreement.
1.18. "HGS PATENT(S)" shall mean all patents and patent applications to the
extent they claim HGS TECHNOLOGY, which are or become owned by
<PAGE>
HGS or to which HGS otherwise has, now or in the future, the right to
grant licenses. Included within the definition of HGS PATENTS are all
continuations, continuations-in-part, divisions, patents of addition,
reissues, renewals, extensions, registrations, confirmations,
re-examinations thereof and any provisional applications and all SPCs.
1.19. "HGS PRODUCT" shall mean (1) a COLLABORATION PRODUCT in the HGS FIELD;
or (2) a COLLABORATION PRODUCT in the SB FIELD (a) to which HGS
obtains rights in accordance with the JUNE 1996 SB/HGS LICENSE
AGREEMENT; and/or (b) which is a THERAPEUTIC PROTEIN discovered or
developed by or on behalf of HGS after the INITIAL RESEARCH TERM;
and/or (c) which is a DRUG PRODUCT or ANTIBODY PRODUCT discovered or
developed by or on behalf of HGS at any time.
1.20. "HGS TECHNOLOGY" shall mean any and all data, substances, processes,
materials, formulae, know-how and inventions with respect to GENES
and/or expression products thereof (including sequence and function)
which are useful within the HGS FIELD, SB FIELD, and/or the field of
HUMAN DIAGNOSTIC PRODUCTS, and which are developed by or on behalf of
HGS during or prior to the INITIAL RESEARCH TERM and which are owned
by HGS or with respect to which HGS has a right to grant a license. In
the event HGS in-licenses from a THIRD PARTY a DRUG PRODUCT, ANTIBODY
PRODUCT, THERAPEUTIC PROTEIN or HUMAN DIAGNOSTIC PRODUCT in each case
discovered by a THIRD PARTY with no use of HGS TECHNOLOGY, such
product and information generated by HGS directly related to the
research and development of such product, shall not be HGS TECHNOLOGY.
1.21. "HGS SPECIAL TECHNOLOGY shall mean (1) all HGS TECHNOLOGY in existence
prior to June 28, 1996 and required to be transferred under the JUNE
1996 SB/HGS LICENSE AGREEMENT or transferred to SB under the
COLLABORATION AGREEMENT or the JUNE 1996 SB/HGS LICENSE AGREEMENT and
(2) all HGS TECHNOLOGY developed by or for HGS after June 28, 1996 and
during the INITIAL RESEARCH TERM required to be transferred under the
JUNE 1996 SB/HGS LICENSE AGREEMENT or transferred to SB by HGS under
the JUNE 1996 SB/HGS LICENSE AGREEMENT which is: (a) sequence data
with respect to cDNA and expression products thereof and
BIOINFORMATICS relating thereto, (b) information on biological
function of TARGETS and screens for such TARGETS, and/or (c)
biological information on THERAPEUTIC PROTEINS for their use as
TARGETS, and (3) HGS clones containing sequences in (1) and 2(a).
1.22. "HUMAN DIAGNOSTIC PRODUCTS" shall mean any substance, process,
composition or service intended to identify, analyze or detect one
<PAGE>
or more characteristics, genes, proteins, or any other molecule of, or
in an individual human, including but not limited to, forensics,
diagnosis, prognosis, or monitoring of a disease, predisposition to a
disease, or other abnormality or evaluation of health. HUMAN
DIAGNOSTIC PRODUCTS shall also include such products intended for
commercial sale for research in laboratory animals. It is expressly
understood that a HUMAN DIAGNOSTIC PRODUCT includes DIAGNOSTIC(S) as
defined in the JUNE 1996 SB/HGS LICENSE AGREEMENT.
1.23. "INITIAL RESEARCH TERM" shall mean the term beginning May 19, 1993 and
ending June 30, 2001.
1.24. "JUNE 1996 SB/HGS LICENSE AGREEMENT" shall mean the SB/HGS LICENSE
AGREEMENT entered into between SB and HGS effective as of June 28,
1996.
1.25. "make, have made, use and sell" shall mean all exclusionary rights now
or in the future conferred by a patent or equivalent of a patent
(e.g., a SPC), copyright, or trade secret law of each applicable
respective jurisdiction of the world, including but not limited to the
right to make, have made, use, offer to sell, sell, import, copy,
display, and distribute.
1.26. "NET SALES" shall mean gross receipts from sales of a SB HUMAN
DIAGNOSTIC PRODUCT or a HGS HUMAN DIAGNOSTIC PRODUCT, as the case may
be, (on a product-by-product basis) by SB or HGS or, except as
provided below, their respective AFFILIATES, licensees, distributors
trading on SB's or HGS's account or joint ventures or other associated
companies, less deductions for (i) transportation, shipping and
postage charges, including transportation, insurance, and customs
duties to the extent separately invoiced; (ii) sales and excise taxes
and duties paid or allowed by a selling party and any other
governmental charges imposed upon the production, importation, use or
sale of such product; (iii) normal and customary trade, quantity and
cash discounts allowed and rebates including but not limited to
Medicaid and Medicaid-like rebates; and (iv) allowances or credits to
customers on account of rejection or return of such product or on
account of retroactive price reductions affecting such product. Sales
between or among a party to this Agreement and its respective
AFFILIATES, licensees, distributors trading on SB's or HGS's account,
or joint ventures or other associated companies shall be included
within NET SALES only if such purchaser is an end-user of the
applicable HUMAN DIAGNOSTIC PRODUCT. Otherwise, NET SALES shall only
include the subsequent, final sales to THIRD PARTIES.
1.27. "PROTEIN RESEARCH PLAN" shall mean a written plan to research and
develop a THERAPEUTIC PROTEIN, as such plan is defined in the JUNE
1996 SB/HGS LICENSE AGREEMENT.
<PAGE>
1.28. "RESEARCH PLAN" shall have the same meaning as in the JUNE 1996 SB/HGS
LICENSE AGREEMENT, except that it shall also include DIAGNOSTIC
RESEARCH PLANS.
1.29. "RESEARCH PROGRAM" shall have the meaning ascribed to it in the
COLLABORATION AGREEMENT.
1.30. "RESEARCH TERM EXTENSIONS" shall mean extensions of the INITIAL
RESEARCH TERM obtained pursuant to Paragraph 6.1.
1.31. "SB" shall mean SmithKline Beecham Corporation and/or SmithKline
Beecham, p.l.c., and any past (from May 19, 1993 through the EFFECTIVE
DATE), present or future AFFILIATE thereof, which AFFILIATE holds the
relevant right and/or is or was or will be necessary or required to
perform any obligations of SB under this Agreement and/or obligations
of either of them are subsequently assigned and/or delegated pursuant
to Section 20 of this Agreement.
1.32. "SB FIELD" shall have the same meaning as in the JUNE 1996 SB/HGS
LICENSE AGREEMENT.
1.33. "SB HUMAN DIAGNOSTIC PRODUCT" shall mean a COLLABORATION PRODUCT that
is a HUMAN DIAGNOSTIC PRODUCT to which SB obtains rights pursuant to
Section 4 and as to which SB retains rights under this Agreement.
1.34. "SB PATENT(s)" shall mean all patents and patent applications to the
extent they claim SB TECHNOLOGY, which are or become owned by SB or to
which SB otherwise has, now or in the future, the right to grant
licenses. Included within the definition of SB PATENTS are all
continuations, continuations-in-part, divisions, patents of addition,
reissues, renewals, extensions, registrations, confirmations,
re-examinations thereof and any provisional applications and all SPCs.
SB PATENTS shall include TAKEDA PATENTS, as defined in the JUNE 1996
SB/HGS LICENSE AGREEMENT, to the extent such patents and patent
applications claim SB TECHNOLOGY.
1.35. "SB DIAGNOSTIC PATENT(s)" shall mean SB PATENT(s), only to the extent
such patents have claims that cover a HUMAN DIAGNOSTIC PRODUCT.
1.36. "SB TECHNOLOGY" shall mean any and all data, substances, processes,
materials, formulae, know-how, inventions and information useful
within the HGS FIELD, SB FIELD, and/or the field of HUMAN DIAGNOSTIC
PRODUCTS, which are based on the use of or derived by use of HGS
SPECIAL TECHNOLOGY and are developed by or on behalf of SB during the
INITIAL RESEARCH TERM, or RESEARCH TERM EXTENSIONS
<PAGE>
or under a RESEARCH PLAN submitted by SB pursuant to this Agreement
prior to the later of four (4) years after the INITIAL RESEARCH TERM
or four (4) years after RESEARCH TERM EXTENSIONS. SB TECHNOLOGY shall
not include technologies, reagents or materials made by SB merely
because of an incidental or immaterial use (or no use of) of HGS
SPECIAL TECHNOLOGY in the development of such technologies, reagents
or materials or merely because of an incidental or immaterial use of
(or no use of) such technologies, reagents or materials in a RESEARCH
PLAN. SB TECHNOLOGY shall include TAKEDA TECHNOLOGY, as defined in the
JUNE 1996 SB/HGS LICENSE AGREEMENT, to the extent that such TAKEDA
TECHNOLOGY is based on the use of or derived by use of (a) HGS SPECIAL
TECHNOLOGY, or (b) SB TECHNOLOGY as defined in the preceding two
sentences of this Paragraph.
1.37. "SPC" shall mean a right based upon a patent to exclude others from
making, using or selling a product, process, substance, composition or
service, such as a Supplementary Protection Certificate.
1.38. "SPECIAL SB TECHNOLOGY" shall mean (1) all SB TECHNOLOGY developed by
or on behalf of SB in existence prior to June 28, 1996 required to be
transferred under the JUNE 1996 SB/HGS LICENSE AGREEMENT or
transferred to HGS by SB under the COLLABORATION AGREEMENT or the JUNE
1996 SB/HGS LICENSE AGREEMENT, (2) all SB TECHNOLOGY developed by or
on behalf of SB after June 28, 1996 which SB is required to transfer
or transfers to HGS under the JUNE 1996 SB/HGS LICENSE AGREEMENT
and/or (3) SB TECHNOLOGY otherwise lawfully obtained by HGS. With
respect to information contained in a DIAGNOSTIC RESEARCH PLAN
submitted by SB pursuant to this Agreement, SPECIAL SB TECHNOLOGY
shall not include items of the type identified in Sections 1, 2, or 3
of the outline attached as Appendix A.
1.39. "TARGET" shall mean a GENE or expression product thereof (e.g.,
receptors, enzymes or ion channels) which could be used for screening
or other drug discovery purpose to identify compounds or antibodies
with a biochemical or pharmacological effect.
1.40. "TERRITORY" shall mean all the countries and territories in the world.
1.41. "THERAPEUTIC PROTEIN" shall mean a polypeptide derived from a GENE
(not including an ANTIBODY PRODUCT) which may be useful for the
treatment or prevention of a disease or disorder in humans.
1.42. "THIRD PARTY(IES)" shall mean any party other than a party to this
Agreement or an AFFILIATE of SB, or HGS.
<PAGE>
2. GRANTS
2.1. RESEARCH AND DEVELOPMENT
2.1.1. HGS hereby grants to SB a non-exclusive, world-wide license
under HGS SPECIAL TECHNOLOGY, claims of HGS PATENTS that
cover HGS SPECIAL TECHNOLOGY and COLLABORATION PARTNER
PATENTS to perform research and development of HUMAN
DIAGNOSTIC PRODUCTS during the INITIAL RESEARCH TERM and
RESEARCH TERM EXTENSIONS pursuant to this Agreement,
provided however that HGS will not have a license to make,
have made, use and sell a HUMAN DIAGNOSTIC PRODUCT based on
HGS diagnostic research except as described herein.
2.1.2. HGS hereby grants to SB a non-exclusive, world-wide, license
under HGS SPECIAL TECHNOLOGY, claims of HGS PATENTS that
cover HGS SPECIAL TECHNOLOGY and COLLABORATION PARTNER
PATENTS to perform research and development of HUMAN
DIAGNOSTIC PRODUCTS after the INITIAL RESEARCH TERM and
RESEARCH TERM EXTENSIONS pursuant to a DIAGNOSTIC RESEARCH
PLAN submitted by SB pursuant to this Agreement.
2.1.3. SB hereby grants to HGS a non-exclusive, world-wide, license
under SB DIAGNOSTIC PATENTS to perform research and
development of HUMAN DIAGNOSTIC PRODUCTS during the INITIAL
RESEARCH TERM and RESEARCH TERM EXTENSIONS, but not to the
extent that such SB DIAGNOSTIC PATENT covers any SB HUMAN
DIAGNOSTIC PRODUCT and/or any HUMAN DIAGNOSTIC PRODUCT which
is the subject of a DIAGNOSTIC RESEARCH PLAN filed by SB
during the INITIAL RESEARCH TERM.
2.1.4. SB hereby grants to HGS a non-exclusive, world-wide, license
under SB DIAGNOSTIC PATENTS to perform research and
development of HUMAN DIAGNOSTIC PRODUCTS after the INITIAL
RESEARCH TERM and RESEARCH TERM EXTENSIONS pursuant to a
DIAGNOSTIC RESEARCH PLAN submitted by HGS pursuant to this
Agreement, but not to the extent that such SB DIAGNOSTIC
PATENT covers any SB HUMAN DIAGNOSTIC PRODUCT and/or any
HUMAN DIAGNOSTIC PRODUCT which is the subject of a
DIAGNOSTIC RESEARCH PLAN filed by SB during the INITIAL
RESEARCH TERM.
2.1.5. HGS hereby grants to SB a non-exclusive, world-wide, license
under HGS SPECIAL TECHNOLOGY, HGS PATENTS AND COLLABORATION
PARTNER PATENTS to perform research
<PAGE>
and development in the HGS FIELD (as that term is defined in
the June 1996 SB/HGS LICENSE AGREEMENT) only in furtherance
of research and development of HUMAN DIAGNOSTIC PRODUCTS (i)
during the INITIAL RESEARCH TERM and RESEARCH TERM
EXTENSIONS, and (ii) after the INITIAL RESEARCH TERM under a
RESEARCH PLAN submitted by SB pursuant to this Agreement.
For the avoidance of doubt, no license is granted (other
than to perform research and development pursuant to this
Section 2.1.5) to SB hereunder to make, have made, use and
sell COLLABORATION PRODUCTS in the HGS FIELD.
2.2. SB HUMAN DIAGNOSTIC PRODUCTS
2.2.1. HGS hereby grants to SB an exclusive, sublicenseable
world-wide license under HGS SPECIAL TECHNOLOGY, claims of
HGS PATENTS that cover HGS SPECIAL TECHNOLOGY, and
COLLABORATION PARTNER PATENTS to make, have made, use and
sell in the TERRITORY, each SB HUMAN DIAGNOSTIC PRODUCT, as
to which SB obtains rights under Section 4 during the
INITIAL RESEARCH TERM.
2.2.2. HGS hereby grants to SB a non-exclusive, sublicenseable
world-wide license under HGS SPECIAL TECHNOLOGY, claims of
HGS PATENTS that cover HGS SPECIAL TECHNOLOGY, and
COLLABORATION PARTNER PATENTS to make, have made, use and
sell in the TERRITORY, each SB HUMAN DIAGNOSTIC PRODUCT, as
to which SB obtains rights under Section 4 during RESEARCH
TERM EXTENSIONS.
2.2.3. SB shall have the right to license SB HUMAN DIAGNOSTIC
PRODUCTS at any time.
2.2.4. Except for agreements permitted by Paragraph 7.2 or the JUNE
1996 SB/HGS LICENSE AGREEMENT, the rights granted to SB by
HGS under this Agreement and SB's rights to SB TECHNOLOGY
and SB PATENTS are licenseable and/or transferable by SB to
a THIRD PARTY only with respect to a SB HUMAN DIAGNOSTIC
PRODUCT, and only pursuant to an Agreement by which SB
grants a license to a THIRD PARTY for a SB HUMAN DIAGNOSTIC
PRODUCT as permitted under this Paragraph 2.2.3 and in which
the THIRD PARTY agrees to covenants and obligations with
respect to the use of such SB HUMAN DIAGNOSTIC PRODUCT, and
any HGS TECHNOLOGY, HGS PATENTS, SB PATENTS and SB
TECHNOLOGY to be licensed to such THIRD PARTY which are
essentially identical to the covenants and obligations of SB
under this Agreement.
<PAGE>
2.3. HGS HUMAN DIAGNOSTIC PRODUCTS
2.3.1. SB hereby grants to HGS a non-exclusive, sublicenseable
world-wide license under SB DIAGNOSTIC PATENTS to make, have
made, use and sell in the TERRITORY, each HGS HUMAN
DIAGNOSTIC PRODUCT as to which HGS obtains rights under
Section 4 during the INITIAL RESEARCH TERM and RESEARCH TERM
EXTENSIONS, but not to the extent that such SB DIAGNOSTIC
PATENT covers any SB HUMAN DIAGNOSTIC PRODUCT and/or any
HUMAN DIAGNOSTIC PRODUCT which is the subject of a
DIAGNOSTIC RESEARCH PLAN filed by SB during the INITIAL
RESEARCH TERM..
2.3.2. Except for agreements permitted by Paragraph 7.2, the rights
to SB DIAGNOSTIC PATENTS granted to HGS by SB under this
Agreement are licenseable and/or transferable by HGS to a
THIRD PARTY only with respect to a HGS HUMAN DIAGNOSTIC
PRODUCT, and only pursuant to an Agreement by which HGS
grants a license to a THIRD PARTY to a HGS HUMAN DIAGNOSTIC
PRODUCT as permitted under this Agreement and in which the
THIRD PARTY agrees to covenants and obligations which limit
the use of SB DIAGNOSTIC PATENTS which are essentially
identical to the covenants and obligations of HGS under this
Agreement.
2.3.3. Except for (i) licenses granted by HGS to SB under this
Agreement; and (ii) licenses granted to THIRD PARTIES with
respect to HGS HUMAN DIAGNOSTIC PRODUCTS as permitted by
Paragraph 2.3.2, during the INITIAL RESEARCH TERM, HGS shall
not grant any rights or license to HUMAN DIAGNOSTIC PRODUCTS
that are COLLABORATION PRODUCTS. In addition, during the
INITIAL RESEARCH TERM, HGS shall not grant to any THIRD
PARTY diagnostic research rights to access the database or
other diagnostic research and/or development rights other
than those associated with the licensing of a specific HGS
HUMAN DIAGNOSTIC PRODUCT as provided herein.
2.3.4. Notwithstanding anything else to the contrary, SPECIAL SB
TECHNOLOGY developed after June 28, 1996 and claims of SB
PATENTS developed after June 28, 1996, and RESEARCH PROGRAMS
submitted under the COLLABORATION AGREEMENT shall not be
disclosed by HGS to a THIRD PARTY until such patents and
technology have, prior to such disclosure, become generally
available to the public other than through a breach of this
Agreement.
<PAGE>
2.4. All the grants in this Section 2 are subject to all the terms and
conditions of the Agreement.
2.5. Except as expressly provided herein, SB retains all rights to SB
DIAGNOSTIC PATENTS.
3. PAYMENTS AND ROYALTIES
3.1. Payments to HGS
3.1.1. SB shall pay a royalty [***] of NET SALES of each SB HUMAN
DIAGNOSTIC PRODUCT sold by SB or SB licensees.
3.1.2. Royalty obligations on SB HUMAN DIAGNOSTIC PRODUCTS sold by
SB or SB licensees under this Agreement shall terminate on a
country-by-country and product-by-product basis on the later
of (i) ten (10) years after first country-wide launch of
each product in each country or (ii) expiration of the
COLLABORATION PARTNER PATENT, HGS PATENT or SB DIAGNOSTIC
PATENT which covers the making, using or selling of such
product in such country.
3.2. Payments to SB
3.2.1. If a HGS HUMAN DIAGNOSTIC PRODUCT is sublicensed to a THIRD
PARTY and such HGS HUMAN DIAGNOSTIC PRODUCT is covered by a
claim of a SB DIAGNOSTIC PATENT, then HGS shall pay a
royalty of [***] of NET SALES of each such HGS HUMAN
DIAGNOSTIC PRODUCT sold by such HGS licensee. Subject to
Section 3.3, no royalty is owed on sales by HGS.
3.2.2. Royalty obligations on HGS HUMAN DIAGNOSTIC PRODUCTS sold by
HGS licensees under this Agreement shall terminate on a
country-by-country and product-by-product basis on the later
of (i) ten (10) years after first country-wide launch of
each product in each country or (ii) expiration of the SB
DIAGNOSTIC PATENT which covers the making, using or selling
of such product in such country.
3.3. ROYALTIES TO THIRD PARTIES
3.3.1. Any royalties owed to a THIRD PARTY, including a
COLLABORATION PARTNER or TAKEDA, by HGS or SB, on the NET
SALES of a SB HUMAN DIAGNOSTIC PRODUCT shall be the sole
responsibility of SB.
3.3.2. Any royalties owed to a THIRD PARTY, including a
COLLABORATION PARTNER or TAKEDA, by HGS or SB, on the NET
SALES of a HGS HUMAN DIAGNOSTIC PRODUCT shall be the sole
responsibility of HGS.
<PAGE>
3.4. Except as provided in Sections 3.1, 3.2, or 3.3, no other payments or
obligations, including but not limited to copromotion payments,
milestones, and licensing fees, shall be owed by either SB or HGS to
the other for an SB DIAGNOSTIC PRODUCT or an HGS DIAGNOSTIC PRODUCT,
as the case may be, under this Agreement or any other agreement
between SB and HGS existing as of the EFFECTIVE DATE of this
Agreement.
4. DIAGNOSTIC RESEARCH PLANS
4.1. SB shall obtain rights in accordance with Section 2 of this Agreement
to a HUMAN DIAGNOSTIC PRODUCT, provided that SB is the first among the
parties to this Agreement to submit a DIAGNOSTIC RESEARCH PLAN for the
specific HUMAN DIAGNOSTIC PRODUCT during the INITIAL RESEARCH TERM or
any RESEARCH TERM EXTENSIONS. [***]
4.2. Subject to the provisions of Sections 4.1 and 4.3, HGS shall obtain
rights in accordance with Section 2 of this Agreement to a HUMAN
DIAGNOSTIC PRODUCT, provided that HGS is the first among the parties
to this Agreement to submit a DIAGNOSTIC RESEARCH PLAN for the
specific HUMAN DIAGNOSTIC PRODUCT during the INITIAL RESEARCH TERM or
any RESEARCH TERM EXTENSIONS.
4.3. During the INITIAL RESEARCH TERM, HGS may only submit DIAGNOSTIC
RESEARCH PLANS for HUMAN DIAGNOSTIC PRODUCTS in accordance with either
of the following conditions:
4.3.1. HGS may submit up to [***] DIAGNOSTIC RESEARCH PLANS for
HUMAN DIAGNOSTIC PRODUCTS, one such plan in connection with
each PROTEIN RESEARCH PLAN submitted by HGS pursuant to the
JUNE 1996 SB/HGS LICENSE AGREEMENT. The DIAGNOSTIC RESEARCH
PLAN shall cover only the same GENE as the PROTEIN RESEARCH
PLAN and/or expression product of such GENE and/or antibody
against such expression product.
4.3.2. HGS may submit a DIAGNOSTIC RESEARCH PLAN for a HUMAN
DIAGNOSTIC PRODUCT which corresponds to a HGS PRODUCT, other
than a THERAPEUTIC PROTEIN, at the time
<PAGE>
HGS or its licensee initiates a CLINICAL STUDY of such HGS
PRODUCT (i.e., a DRUG PRODUCT or an ANTIBODY PRODUCT). [***]
4.4. ALL DIAGNOSTIC RESEARCH PLANS submitted by either party shall be
submitted to the RC established under the JUNE 1996 SB/HGS LICENSE
AGREEMENT.
4.5. In the event that SB obtains rights to a SB HUMAN DIAGNOSTIC PRODUCT
pursuant to Section 4.1 and such diagnostic is directed to the same
GENE as a PROTEIN RESEARCH PLAN submitted by HGS pursuant to the JUNE
1996 SB/HGS LICENSE AGREEMENT, SB shall make such SB HUMAN DIAGNOSTIC
PRODUCT available to HGS or its therapeutic licensee on standard
commercial terms when such product becomes available as a commercial
product.
4.6. In the event that the research, development or commercialization of
the THERAPEUTIC PROTEIN or HGS PRODUCT in connection with which a
DIAGNOSTIC RESEARCH PLAN has been submitted by HGS pursuant to Section
4.3.1 or 4.3.2 is terminated by HGS, all HGS rights under HGS PATENTS
and know-how to the HGS HUMAN DIAGNOSTIC PRODUCT (which HGS HUMAN
DIAGNOSTIC PRODUCT was contained in the DIAGNOSTIC RESEARCH PLAN
submitted by HGS in conjunction with said THERAPEUTIC PRODUCT or HGS
PRODUCT) shall be assigned to SB.
5. PRODUCT DEVELOPMENT
5.1. SB shall have full control and authority over development,
registration and commercialization of SB HUMAN DIAGNOSTIC PRODUCT. HGS
shall have full control and authority over development, registration
and commercialization of HGS HUMAN DIAGNOSTIC PRODUCT.
5.2. Each party may delegate such responsibilities in whole or in part to
its licensees.
5.3. Each party shall keep the other informed of progress of its efforts to
develop and commercialize SB HUMAN DIAGNOSTIC PRODUCT or HGS
<PAGE>
HUMAN DIAGNOSTIC PRODUCT. Each party shall keep the other party
informed of its, and its licensees progress to develop and
commercialize SB HUMAN DIAGNOSTIC PRODUCTS or HGS HUMAN DIAGNOSTIC
PRODUCTS as the case may be.
5.4. SB shall use its diligent efforts to develop, market, promote and sell
SB HUMAN DIAGNOSTIC PRODUCT as to which SB obtains rights under
Section 4 equivalent to those efforts it uses with respect to products
of similar value and status, subject to SB's right to terminate such
efforts and surrender such rights in and to such product.
5.5. HGS shall use its diligent efforts to develop, promote and sell HGS
HUMAN DIAGNOSTIC PRODUCT as to which HGS obtains rights to under
Section 4 equivalent to those efforts it uses with respect to products
of similar value and status, subject to HGS's right to terminate such
efforts and surrender such exclusive rights in and to such product.
5.6. Within sixty (60) days after the end of each calendar year, SB and HGS
shall provide to each other in writing annual reports with respect to
work performed by or for it under DIAGNOSTIC RESEARCH PLANS which
shall consist of updates to DIAGNOSTIC RESEARCH PLANS substantially in
the form of the APPENDIX A.
5.7. SB and HGS shall not use any information or data in RESEARCH PLANS
submitted by the other, other than information which is HGS SPECIAL
TECHNOLOGY AND SPECIAL SB TECHNOLOGY as specified in Sections 1, 2 and
3 of a RESEARCH PLAN.
6. RESEARCH TERM EXTENSIONS
6.1. The INITIAL RESEARCH TERM may be extended by SB as RESEARCH TERM
EXTENSIONS for up to five (5) additional years on a year-by-year basis
by written notice to HGS at least sixty (60) days prior to the end of
the INITIAL RESEARCH TERM or any yearly extension thereof, provided
(1) such written notice is accompanied by a payment of [***] for each
additional year; and (2) SB has extended the INITIAL RESEARCH TERM of
the JUNE 1996 SB/HGS LICENSE AGREEMENT for the same period of time.
7. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
7.1. During the term of this Agreement and thereafter, irrespective of any
termination earlier than the expiration of the term of this Agreement,
HGS and SB shall not use or reveal or disclose to THIRD PARTIES any
information or materials received from the other party, without first
obtaining the written consent of such other party, except as permitted
hereunder. This confidentiality and non-use obligation shall not apply
to disclosures to or uses by TAKEDA pursuant to the SB/TAKEDA
AGREEMENT or disclosures to or uses by COLLABORATION PARTNERS pursuant
to COLLABORATION
<PAGE>
PARTNER AGREEMENTS. Unless otherwise restricted by this Agreement, the
confidentiality and non-use provisions of this Paragraph shall not
apply to such information which
a) was known to the receiving party or generally known to the
public prior to its disclosure hereunder;
b) subsequently becomes known to the public by some means other
than a breach of this Agreement;
c) is subsequently disclosed to the receiving party by a THIRD
PARTY having a lawful right to make such disclosure;
d) is required by law or bona fide legal process to be
disclosed, provided that the party required to make the
disclosure takes all reasonable steps to restrict and
maintain confidentiality of such disclosure and provides
reasonable notice to the party providing the information
and/or materials;
e) is approved for release by the parties, or
f) is independently developed by employees or agents of either
party or their respective parent corporation or their
AFFILIATES and/or subsidiaries without any knowledge of the
information and/or materials provided by the other party.
7.2.
7.2.1. Nothing in Paragraph 7.1 shall be construed as preventing
either party from disclosing any information to an AFFILIATE
or to a licensee, distributor or joint venture or other
associated company of either party for the purpose of
developing or commercializing SB HUMAN DIAGNOSTIC PRODUCT,
or HGS HUMAN DIAGNOSTIC PRODUCT as permitted by this
Agreement, provided such AFFILIATE, licensee, distributor or
joint venture or other associated company has undertaken a
similar obligation of confidentiality and non-use with
respect to the confidential information.
7.2.2. In the event that SB intends to transfer or disclose HGS
SPECIAL TECHNOLOGY or SB TECHNOLOGY to a THIRD PARTY
collaborator that is a not-for-profit entity (and/or an
investigator working for a not-for-profit entity) no such
transfer or disclosure shall take place until such THIRD
PARTY enters into an agreement with SB by which SB is
granted a license to all inventions and patent rights based
thereon which result from the use of such technology. To the
extent any such invention would be HGS TECHNOLOGY or SB
TECHNOLOGY if invented or discovered by SB and/or HGS, then
such invention shall be HGS TECHNOLOGY or SB TECHNOLOGY as
the case may be subject to the terms and conditions of this
Agreement. HGS agrees that SB may enter into agreements
pursuant to this Paragraph using an
<PAGE>
Agreement substantially in the form of MTAs used by SB
and/or HGS under the COLLABORATION AGREEMENT.
7.2.3. Either party may disclose HGS TECHNOLOGY and SB TECHNOLOGY
to THIRD PARTY contractors or collaborators to facilitate or
carry out research activities under this Agreement provided
that such THIRD PARTIES enter into an agreement with such
party which contains confidentiality provisions
substantially the same as those set forth herein and which
provides that all rights in inventions and which result from
the use of such technology by the THIRD PARTY shall be owned
by HGS or SB or exclusively licensed to HGS or SB as the
case may be with a right to grant licenses. To the extent
any such invention or discovery would be HGS TECHNOLOGY or
SB TECHNOLOGY if invented or discovered by SB and/or HGS,
then such invention or discovery shall be HGS TECHNOLOGY or
SB TECHNOLOGY as the case may be subject to the terms and
conditions of this Agreement.
7.3. All confidential information disclosed by one party to the other shall
remain the intellectual property of the disclosing party. In the event
that a court or other legal or administrative tribunal, directly or
through an appointed master, trustee or receiver, assumes partial or
complete control over the assets of a party to this Agreement based on
the insolvency or bankruptcy of such party, the bankrupt or insolvent
party shall promptly notify the court or other tribunal (i) that
confidential information received from the other party under this
Agreement remains the property of the other party and (ii) of the
confidentiality obligations under this Agreement. In addition, the
bankrupt or insolvent party shall, to the extent permitted by law,
take all steps necessary or desirable to maintain the confidentiality
of the other party's confidential information and to insure that the
court, other tribunal or appointee maintains such information in
confidence in accordance with the terms of this Agreement.
7.4. No public announcement concerning (i) the existence of or terms of
this Agreement (ii) research and/or discoveries made by a party and,
(iii) exercise of a party of rights granted under this Agreement shall
be made, either directly or indirectly, by the other party to this
Agreement without prior written notice to the other party and, except
as may be legally required, or as may be required for a public
offering of securities, or as may be required for recording purposes,
without first obtaining the approval of the other party and agreement
upon the nature and text of such announcement. The party desiring to
make any such public announcement shall inform the other party of the
proposed announcement or disclosure in reasonably sufficient time
prior to public release, and shall provide the other party with a
written copy thereof, in order to allow such other party to comment
upon such announcement or disclosure. This Paragraph shall not apply
to any information in a public announcement which is information
essentially
<PAGE>
identical to that contained in a previous public announcement agreed
to pursuant to this Paragraph.
7.5. For the avoidance of doubt, nothing in this Agreement shall be
construed as preventing or in any way inhibiting either party from
complying with statutory and regulatory requirements governing the
development, manufacture, use and sale or other distribution of
products in any manner which it reasonably deems appropriate,
including, for example, by disclosing to regulatory authorities
confidential or other information received from a party or THIRD
PARTIES. The parties shall take reasonable measures to assure that no
unauthorized use or disclosure is made by others to whom access to
such information is granted. Any materials provided by one party to
the other under this Agreement shall be subject to the confidentiality
and non-use provisions set out in this Section. All such materials
shall be used in compliance with all applicable laws and regulations.
SB and HGS each certifies that it is regularly engaged in conducting
tests in vitro or in animals used only for laboratory research
purposes, that all materials which SB or HGS receive under this
Agreement will actually be used for these purposes only, and that no
animal used for such tests will be used for any food purposes or kept
as a domestic pet or livestock.
7.6. SB and HGS agree to comply with any applicable law or regulation of
the United States or any country governing the export or reexport of
products (including test equipment), software, and technical data (and
the product of such data).
7.7. All rights and licensing granted under or pursuant to this Agreement
by HGS to SB are, and shall irrevocably be deemed to be, "intellectual
property" as defined in Section 101(56) of the Bankruptcy Code. In the
event of the commencement of a case by or against either party under
any Chapter of the Bankruptcy Code, this Agreement shall be deemed an
executory contract and all rights and obligations hereunder shall be
determined in accordance with Section 365(n) thereof. Unless a party
rejects this Agreement and the other party decides not to retain its
rights hereunder, the other party shall be entitled to a complete
duplicate of (or complete access to, as appropriate) all intellectual
property and all embodiments of such intellectual property held by the
party and the party shall not interfere with the rights of the other
party, which are expressly granted hereunder, to such intellectual
property and all embodiments of such intellectual property from
another entity. Further, this Agreement shall be deemed, upon
presentation to another entity, to be the same as an express
instruction by the party to such other entity to provide such
intellectual property and all embodiments of such intellectual
property directly to the other party. Without limiting the foregoing
provisions in this Paragraph, the other party shall be entitled to all
post-bankruptcy-petition improvements, updates, or developments of
intellectual property created
<PAGE>
hereunder. If such intellectual property is not fully developed as of
the commencement of any bankruptcy case, the other party shall have
the right to complete development of the property.
7.8. Nothing in this Agreement shall be construed as requiring HGS to
disclose HGS SPECIAL TECHNOLOGY to SB or SB to disclose SB SPECIAL
TECHNOLOGY to HGS other than as already required under Section 12.1 of
the JUNE 1996 SB/HGS LICENSE AGREEMENT.
8. PATENT PROSECUTION AND LITIGATION
8.1. Each party shall have and retain sole and exclusive title to all
inventions, discoveries, designs, works of authorship and other
know-how which are made, conceived, reduced to practice or generated
only by its employees, agents, or other persons acting under its
authority. Each party shall own an equal undivided interest in all
such inventions, discoveries, designs, works of authorship and other
know-how made, conceived, reduced to practice or generated jointly by
employees, agents, or other persons acting under the authority of both
parties. In the event of jointly owned inventions, HGS shall have the
first right to file, prosecute and maintain patents and applications
directed thereto under the terms and conditions of Paragraph 8.2. If a
joint owner does not desire to file, prosecute or maintain a patent or
patent application to a joint inventions, such owner shall assign its
ownership interest therein to the other. All patents and patent
applications to joint inventions which are HGS SPECIAL TECHNOLOGY and
SPECIAL SB TECHNOLOGY shall be both SB PATENTS and HGS PATENTS,
subject to the terms and conditions of this Agreement; otherwise, any
joint owner shall be free to dispose of its interest therein without
accounting to the other joint owner.
8.2. HGS shall have the right within its sole discretion and at its expense
to prepare, file, prosecute and maintain HGS PATENTS. With respect to
HGS PATENTS as to which SB retains a license hereunder, subject to
Paragraph 8.9, HGS shall keep SB informed with respect to the filing
and prosecution thereof. In the event that SB desires that HGS obtain
and maintain patent protection in any country with respect to HGS
SPECIAL TECHNOLOGY as to which SB retains a license hereunder, HGS
shall do so at the cost and expense of SB.
8.3. SB shall have the right within its sole discretion and at its expense
to prepare, file, prosecute and maintain SB PATENTS. With respect to
SB PATENTS as to which HGS retains a license hereunder, subject to
Paragraph 8.10, SB shall keep HGS informed with respect to the filing
and prosecution thereof. In the event that HGS desires that SB obtain
and maintain patent protection in any country with respect to SPECIAL
SB TECHNOLOGY as to which HGS retains a license hereunder, SB shall do
so at the cost and expense of HGS.
<PAGE>
8.4. Each party, on behalf of itself and its directors, employees,
officers, shareholders, agents, successors and assigns hereby waives
any and all actions and causes of action, claims and demands
whatsoever, in law or equity of any kind it or they may have against
the other party, its officers, directors, employees, shareholders,
agents, successors and assigns, which may arise in any way, except as
a result of gross negligence, recklessness, or willful misconduct, in
performance of patent activities under this Section.
8.5. In the event that HGS or SB becomes aware of actual or threatened
infringement of a SB PATENT or HGS PATENT anywhere in the TERRITORY,
that party shall promptly notify the other party in writing. The owner
of the SB PATENT or HGS PATENT shall have the first right but not the
obligation to bring, at its own expense, an infringement action
against any THIRD PARTY and to use the other party's name in
connection therewith. If the owner of the patent does not commence a
particular infringement action within thirty (30) days, the other
party, after notifying the owner in writing, shall be entitled to
bring such infringement action at its own expense to the extent that
such party is licensed thereunder and in its own name and/or in the
name of the owning party. The foregoing notwithstanding, in the event
that an alleged infringer certifies pursuant to 21 USC
355(b)(2)(A)(vii)(IV) or (j)(2)(A)(iv) against an issued HGS PATENT or
SB PATENT covering a HUMAN DIAGNOSTIC PRODUCT, the party receiving
notice of such certification shall immediately notify the other party
of such certification, and if fourteen (14) days prior to expiration
of the forty five (45) day period set forth in 21 USC 355(c)(3)(C) or
(j)(4)(B)(iii), the owner of the HGS PATENT or SB PATENT fails to
commence an infringement action, the party receiving notice, in its
sole discretion, at its own expense and to the extent that it is
licensed under the HGS PATENT or SB PATENT, shall be entitled to bring
such infringement action in its own name and/or in the name of the
owning party. The party conducting such action shall have full control
over its conduct, including settlement thereof provided such
settlement shall not be made without the prior written consent of the
other party if it would adversely affect the patent rights of the
other party. In any event, HGS and SB shall assist one another and
cooperate in any such litigation at the other's request without
expense to the requesting party.
8.6. HGS and SB shall recover their respective actual out-of-pocket
expenses, or equitable proportions thereof, associated with any
litigation or settlement thereof from any recovery made by any party.
Any excess amount shall be shared between SB and HGS in an amount
proportional to their respective losses and expenses.
8.7. The parties shall keep one another informed of the status of and of
their respective activities regarding any such litigation or
settlement thereof.
<PAGE>
8.8. The owner of a SB PATENT or HGS PATENT shall have the first right to
seek extensions of the terms of the patent and to seek to obtain SPCs.
A party who is developing, selling or planning to sell a product
covered by a patent shall have the second right. Each party shall
assist the other in the obtaining of such extensions or SPCs including
by authorizing the other party to act as its agent.
8.9. The disclosure obligations of Paragraph 8.2 shall only apply to HGS
PATENTS which include HGS SPECIAL TECHNOLOGY which HGS has disclosed
to SB pursuant to the JUNE 1996 SB/HGS LICENSE AGREEMENT.
8.10. The disclosure obligations of Paragraph 8.3 shall only apply to SB
PATENTS which claim SPECIAL SB TECHNOLOGY which SB has disclosed to
HGS pursuant to the JUNE 1996 SB HGS LICENSE AGREEMENT.
9. TRADEMARKS AND NON-PROPRIETARY NAMES
9.1. SB, at its expense, shall be responsible for the selection,
registration and maintenance of all trademarks which it employs in
connection with SB HUMAN DIAGNOSTIC PRODUCT and shall own and control
such trademarks. Nothing in this Agreement shall be construed as a
grant of rights, by license or otherwise, to HGS to use such
trademarks for any purpose other than as provided in this Agreement.
9.2. SB, at its expense, shall be responsible for the selection and
registration of non-proprietary names employed by SB for SB HUMAN
DIAGNOSTIC PRODUCT.
9.3. HGS, at its expense, shall be responsible for the selection,
registration and maintenance of all trademarks which it employs in
connection with HGS HUMAN DIAGNOSTIC PRODUCT and shall own and control
such trademarks. Nothing in this Agreement shall be construed as a
grant of rights, by license or otherwise, to SB to use such trademarks
for any purpose other than as provided in this Agreement.
9.4. HGS, at its expense, shall be responsible for the selection and
registration of non-proprietary names employed by HGS for HGS HUMAN
DIAGNOSTIC PRODUCT.
10. STATEMENTS AND REMITTANCES
10.1. Each party, as the case may be, shall keep and require its licensees
to keep complete and accurate records of all NET SALES of HGS HUMAN
DIAGNOSTIC PRODUCT and SB HUMAN DIAGNOSTIC PRODUCT, subject to
royalties under the licenses granted herein. Each party shall have the
right, at its expense, through a certified public accountant or like
person reasonably acceptable to the other party, to examine such
records during
<PAGE>
regular business hours during the life of this Agreement and for six
(6) months after its termination; provided, however, that such
examination shall not take place more often than once a year and
provided further that such accountant shall report only as to the
accuracy of the royalty statements and payments, including the
magnitude and source of any discrepancy. Neither party nor their
licensees shall be required to maintain such records for more than
three (3) years.
10.2. Within sixty (60) days after the close of each calendar quarter, each
party shall deliver to the other a true accounting of all SB HUMAN
DIAGNOSTIC PRODUCT, or HGS HUMAN DIAGNOSTIC PRODUCT sold by it and its
licensees and distributors during such quarter for which royalties are
payable and shall at the same time pay all royalties due. Such
accounting shall show sales on a country-by-country and
product-by-product basis.
10.3. Any tax paid or required to be withheld on account of the licensing
party based on royalties payable under this Agreement shall be
deducted from the amount of royalties otherwise due. Taxes paid or
withheld from monies due SB by its licensees shall be deducted
proportionately from the amount of monies otherwise due HGS. Each
party shall secure and send to the other proof of any such taxes
withheld and paid.
10.4. All royalties due under this Agreement shall be payable in U.S.
dollars. If governmental regulations prevent remittances from a
foreign country with respect to sales made in that country, the
obligation to pay royalties on sales in that country shall be
suspended until such remittances are possible. Each party shall have
the right, upon giving written notice to the other, to receive payment
in that country in local currency.
10.5. Monetary conversions from the currency of a foreign country, in which
a product is sold, into United States currency shall be made at the
official exchange rate in force in that country for financial
transactions on the last business day of the calendar quarter or half
year for which the royalties are being paid. If there is no such
official exchange rate, the conversion shall be made at the rate for
such remittances on that date as certified by Citibank, N.A., New
York, New York, U.S.A.
11. TERM AND TERMINATION
11.1. This Agreement shall come into effect as of the EFFECTIVE DATE and
shall remain in full force and effect unless earlier terminated as
provided in this Section 11.
11.2. In the event HGS fails to make a payment to SB under this Agreement
with respect to a HGS HUMAN DIAGNOSTIC PRODUCT when due, or fails to
meet its obligations under Section 5 with respect to a HGS HUMAN
DIAGNOSTIC PRODUCT, in addition to any other remedy which it may
<PAGE>
have, SB may notify HGS in writing that all of HGS's rights with
respect to such HGS HUMAN DIAGNOSTIC PRODUCT shall terminate as of
sixty (60) days after such written notice and HGS's rights with
respect thereto shall terminate unless such payment is made or such
failure is cured, prior to the expiration of such sixty (60) day
period.
11.3. In the event SB fails to make a payment to HGS under this Agreement
with respect to a SB HUMAN DIAGNOSTIC PRODUCT when due, or fails to
meet its obligations under Section 5 with respect to a SB HUMAN
DIAGNOSTIC PRODUCT, in addition to any other remedy which it may have,
HGS may notify SB in writing that all of SB's rights with respect to
such SB HUMAN DIAGNOSTIC PRODUCT shall terminate as of sixty (60) days
after such written notice and SB's rights with respect thereto shall
terminate unless such payment is made or such failure is cured, prior
to the expiration of such sixty (60) day period.
11.4. Either party may terminate this Agreement if, at any time, the other
party shall file in any court or agency pursuant to any statute or
regulation of any state or country, a petition in bankruptcy or
insolvency or for reorganization or for an arrangement or for the
appointment of a receiver or trustee of the party or of its assets, or
if the other party proposes a written agreement of composition or
extension of its debts, or if the other party shall be served with an
involuntary petition against it, filed in any insolvency proceeding,
and such petition shall not be dismissed within sixty (60) days after
the filing thereof, or if the other party shall propose or be a party
to any dissolution or liquidation, or if the other party shall make an
assignment for the benefit of creditors.
11.5. Notwithstanding the bankruptcy of HGS or SB, or the impairment of
performance by HGS or SB of its obligations under this Agreement as a
result of bankruptcy or insolvency of HGS or SB, the other party shall
be entitled to retain the licenses granted herein, subject to rights
of a party to terminate this Agreement for reasons other than
bankruptcy or insolvency as expressly provided in this Agreement.
11.6. Neither party shall have the right to terminate this Agreement except
under Paragraph 11.4, provided however that nothing in this Agreement
shall limit any remedies for breach which may be available pursuant to
a judgment of a court, in law or equity, including termination of this
Agreement or of any or all rights hereunder.
12. RIGHTS AND DUTIES UPON TERMINATION
12.1. Upon termination of this Agreement in its entirety or with respect to
any SB HUMAN DIAGNOSTIC PRODUCT or HGS HUMAN DIAGNOSTIC PRODUCT or to
any country, each party shall notify the other of the amount of such
product it and its licensees and distributors then have on hand, the
sale of which would, but for the termination, be subject to
<PAGE>
royalty, and such party and its licensees and distributors shall
thereupon be permitted to sell that amount of the product provided
that the party shall pay the royalty thereon at the time herein
provided for.
12.2. Termination of this Agreement shall terminate all outstanding
obligations and liabilities between the parties arising from this
Agreement except those described in Paragraphs 2.2.4, 2.3.2, 2.3.4,
7.1, 7.3, 7.5, and 8.1 and Sections 10, 12, 14, 16, and 23, as well as
any provision not specified in this Paragraph which is clearly meant
to survive termination of this Agreement.
12.3. Termination of the Agreement in accordance with the provisions hereof
shall not limit remedies which may be otherwise available in law or
equity.
13. WARRANTIES AND REPRESENTATIONS
Nothing in this Agreement shall be construed as a warranty that SB
PATENTS, COLLABORATION PARTNER PATENTS or HGS PATENTS are valid or
enforceable or that their exercise does not infringe any patent rights
of THIRD PARTIES. A holding of invalidity or unenforceability of any
such patent, from which no further appeal is or can be taken, shall
not affect any obligation already accrued hereunder, but shall only
eliminate royalties otherwise due under such patent from the date such
holding becomes final.
13.1. Each party warrants and represents that it has the right to enter into
this Agreement and to perform in accordance therewith.
13.2. Except as otherwise expressly set forth herein neither party makes any
representations or extends any warranties of any kind, either express
or implied, including, but not limited to, warranties of
merchantability or fitness for a particular purpose.
13.3. Each party guarantees that its respective AFFILIATES will perform all
obligations under this Agreement as if such AFFILIATES were
signatories of this Agreement.
14. INDEMNIFICATION
14.1. SB shall defend, indemnify and hold harmless HGS, AFFILIATES of HGS,
licensors of HGS and their respective directors, officers,
shareholders, agents and employees, from and against any and all
liability, loss, damages and expenses (including attorneys' fees) as
the result of claims, demands, costs or judgments which may be made or
instituted against any of them arising out of the manufacture,
possession, distribution, use, testing, sale or other disposition by
or through SB or any THIRD PARTY granted rights by SB under this
Agreement of any SB HUMAN DIAGNOSTIC PRODUCT. SB's obligation to
defend, indemnify and hold harmless shall include claims, demands,
costs or judgments, whether for
<PAGE>
money damages or equitable relief by reason of alleged personal injury
(including death) to any person or alleged property damage, provided,
however, the indemnity shall not extend to any claims against an
indemnified party which result from the gross negligence or willful
misconduct of such indemnified party. SB shall have the exclusive
right to control the defense of any action which is to be indemnified
in whole by SB hereunder, including the right to select counsel
acceptable to HGS to defend HGS and to settle any claim, provided
that, without the written consent of HGS (which shall not be
unreasonably withheld or delayed), SB shall not agree to settle any
claim against HGS to the extent such claim has a material adverse
effect on HGS. The provisions of this Paragraph shall survive and
remain in full force and effect after any termination, expiration or
cancellation of this Agreement and obligation hereunder shall apply
whether or not such claims are rightfully brought. SB shall require
each licensee to agree to indemnify HGS in a manner consistent with
this Paragraph.
14.2. HGS shall defend, indemnify and hold harmless SB, AFFILIATES of SB,
licensors of SB and their respective directors, officers,
shareholders, agents and employees, from and against any and all
liability, loss, damages and expenses (including attorneys' fees) as
the result of claims, demands, costs or judgments which may be made or
instituted against any of them arising out of the manufacture,
possession, distribution, use, testing, sale or other disposition by
or through HGS or its AFFILIATES or any THIRD PARTY granted rights by
HGS under this Agreement of any HGS HUMAN DIAGNOSTIC PRODUCT. HGS's
obligation to defend, indemnify and hold harmless shall include
claims, demands, costs or judgments, whether for money damages or
equitable relief by reason of alleged personal injury (including
death) to any person or alleged property damage, provided, however,
the indemnity shall not extend to any claims against an indemnified
party which result from the gross negligence or willful misconduct of
such indemnified party. HGS shall have the exclusive right to control
the defense of any action which is to be indemnified in whole by HGS
hereunder, including the right to select counsel acceptable to SB to
defend SB and to settle any claim, provided that, without the written
consent of SB (which shall not be unreasonably withheld or delayed),
HGS shall not agree to settle any claim against SB to the extent such
claim has a material adverse effect on SB. The provisions of this
Paragraph shall survive and remain in full force and effect after any
termination, expiration or cancellation of this Agreement and HGS
obligation hereunder shall apply whether or not such claims are
rightfully brought. HGS shall require each licensee to agree to
indemnify SB in a manner consistent with this Paragraph.
14.3. A person or entity that intends to claim indemnification under this
Section 14 (the "Indemnitee") shall promptly notify the other party
(the "Indemnitor") of any loss, claim, damage, liability or action in
respect of which the Indemnitee intends to claim such indemnification,
and the
<PAGE>
Indemnitor, after it determines that indemnification is required of
it, shall assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an Indemnitee
shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor if Indemnitor does not assume
the defense; or, if representation of such Indemnitee by the counsel
retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceedings. The indemnity
agreement in this Section 14 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action is such
settlement is effected without the consent of the Indemnitor, which
consent shall not be withheld unreasonably. The failure to deliver
notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to
the Indemnitee under this Section 14, but the omission so to deliver
notice to the Indemnitor will not relieve it of any liability that it
may have to any Indemnitee otherwise than under this Section 14. The
Indemnitee under this Section 14 its employees and agents, shall
cooperate fully with the Indemnitor and its legal representatives in
the investigations of any action, claim or liability covered by this
indemnification. In the event that each party claims indemnity from
the other and one party is finally held liable to indemnify the other,
the Indemnitor shall additionally be liable to pay the reasonable
legal costs and attorneys' fees incurred by the Indemnitee in
establishing its claim for indemnity.
15. FORCE MAJEURE
15.1. If the performance of any party of this Agreement by either party, or
of any obligation under this Agreement, is prevented, restricted,
interfered with or delayed by reason of any clause beyond the
reasonable control of the party liable to perform, unless conclusive
evidence to the contrary is provided, the party so affected shall,
upon giving written notice to the other party, be excused from such
performance to the extent of such prevention, restriction,
interference or delay, provided that the affected party shall use its
reasonable best efforts to avoid or remove such causes of
non-performance and shall continue performance with the utmost
dispatch whenever such causes are removed. When such circumstances
arise, the parties shall discuss what, if any, modification of the
terms of this Agreement may be required in order to arrive at an
equitable solution.
16. GOVERNING LAW
16.1. This Agreement shall be deemed to have been made in the Commonwealth
of Pennsylvania and its form, execution, validity, construction and
effect shall be determined in accordance with the laws of the
Commonwealth of Pennsylvania, U.S.A. 17.
<PAGE>
17. SEPARABILITY
17.1. In the event any portion of this Agreement shall be held illegal, void
or ineffective, the remaining portions hereof shall remain in full
force and effect.
17.2. If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or
provisions shall be deemed inoperative to the extent that they may
conflict therewith and shall be deemed to be modified to conform with
such statute or rule of law.
17.3. In the event that the terms and conditions of this Agreement are
materially altered as a result of Paragraphs 17.1 or 17.2, the parties
will renegotiate in good faith the terms and conditions of this
Agreement to resolve any inequities.
18. ENTIRE AGREEMENT
18.1. This Agreement, the JUNE 1996 SB/HGS LICENSE AGREEMENT, and the
COLLABORATION PARTNER AGREEMENTS entered into as of the date written
above, constitutes the entire agreement between the parties relating
to the subject matter hereof and supersedes all previous writings and
understandings relating to such subject matter. No terms or provisions
of this Agreement shall be varied or modified by any prior or
subsequent statement, conduct or act of either of the parties, except
that the parties may amend this Agreement by written instruments
specifically referring to and executed in the same manner as this
Agreement.
18.2. The headings and titles to the Sections and Paragraphs of this
Agreement are inserted for convenience only and shall not be deemed a
part hereof or affect the construction or interpretation of any
provision hereof.
19. NOTICES
19.1. Any notice required or permitted under this Agreement shall be sent by
air mail, postage pre-paid, courier or fax to the following addresses
of the parties or such other addresses as may be notified to the
parties as provided herein:
HGS: HUMAN GENOME SCIENCES, INC.
Key West Avenue
Rockville, Maryland 20850
Attention: Chief Executive Officer
fax: 301-309-0092
copy to: HGS: HUMAN GENOME SCIENCES, INC.
Key West Avenue
Rockville, Maryland 20850
Attention: General Counsel
fax: 301-309-8439
<PAGE>
SB: SMITHKLINE BEECHAM CORPORATION
Swedeland Road
King of Prussia, Pennsylvania 19103
Attention: Director,
Alliances & Technologies Group
SmithKline Beecham Pharmaceuticals
fax: 610-270-6663
copy to: SMITHKLINE BEECHAM CORPORATION
Swedeland Road
P.O. Box 1539
King of Prussia, Pennsylvania 19406
Attention: Corporate Intellectual Property
fax: 610-270-4026
19.2. Any notice required or permitted to be given concerning this Agreement
shall be effective upon receipt by the party to whom it is addressed.
20. ASSIGNMENT
20.1. This Agreement and the licenses herein granted shall be binding upon
and inure to the benefit of the successors in interest of the
respective parties. Neither this Agreement nor any interest hereunder
shall be assignable by either party without the written consent of the
other provided, however, that SB or HGS may assign this Agreement or
any of its rights or obligations hereunder to any AFFILIATE or to any
THIRD PARTY with which it may merge or consolidate, or to which it may
transfer all or substantially all of its assets to which this
Agreement relates, without obtaining the consent of the other party,
provided the assigning party remains liable under this Agreement and
that the THIRD PARTY assignee or surviving entity assumes in writing
all of its obligations under this Agreement.
21. RECORDING
21.1. SB and HGS shall have the right, at any time, to record, register, or
otherwise notify this Agreement in appropriate governmental or
regulatory offices anywhere in the TERRITORY, and the other party
shall provide reasonable assistance to the notifying party in
effecting such recording, registering or notifying.
22. DISPUTE RESOLUTION
22.1. Senior management of SB and HGS shall endeavor to resolve all disputes
under this Agreement.
22.2. If senior management does not timely resolve any such dispute, then
either party may submit such to binding arbitration pursuant to the
SB/HGS
<PAGE>
arbitration agreement dated 19 August, 1993 as may be amended from
time to time.
23. COVENANTS
23.1.
23.1.1. SB agrees not to use SB TECHNOLOGY except
23.1.1.1. during the INITIAL RESEARCH TERM and RESEARCH
TERM EXTENSIONS to perform research and
development of HUMAN DIAGNOSTIC PRODUCTS and
after the INITIAL RESEARCH TERM and RESEARCH
TERM EXTENSIONS to perform research and
development of a SB HUMAN DIAGNOSTIC PRODUCT
pursuant to a DIAGNOSTIC RESEARCH PLAN
submitted by or on behalf of SB pursuant to
this Agreement, 23.1.1.2. in the HGS FIELD (as
defined in the JUNE 1996 SB/HGS LICENSE
AGREEMENT) only (i) in furtherance of research
and development of HUMAN DIAGNOSTIC PRODUCTS
during the INITIAL RESEARCH TERM AND RESEARCH
TERM EXTENSIONS, and (ii) after the INITIAL
RESEARCH TERM AND RESEARCH TERM EXTENSIONS
only in furtherance of research and
development of SB HUMAN DIAGNOSTIC PRODUCTS
pursuant to a DIAGNOSTIC RESEARCH PLAN
submitted by or on behalf of SB pursuant to
this Agreement, 23.1.1.3. to make, have made,
use, and sell SB HUMAN DIAGNOSTIC PRODUCT
(other than SB HUMAN DIAGNOSTIC PRODUCTS to
which SB's rights have been terminated
pursuant to Paragraph 11.3), 23.1.1.4. to
grant licenses that SB is otherwise permitted
to grant pursuant to this Agreement, and
23.1.1.5. as otherwise permitted in the JUNE
1996 SB/HGS LICENSE AGREEMENT.
23.1.2. During and after the INITIAL RESEARCH TERM, SB
agrees not to use HGS SPECIAL TECHNOLOGY
except as licensed and permitted pursuant to
this Agreement or the JUNE 1996 SB/HGS LICENSE
AGREEMENT.
23.1.3. Notwithstanding the preceding, SB shall have
the right to use SB TECHNOLOGY that is solely
based on or derived from published information
and/or information which otherwise becomes
lawfully known to SB independently of this
Agreement, unless: (i) the information is
claimed in a published HGS PATENT or SB PATENT
and there is no THIRD PARTY patent application
or patent with an earlier priority date which
discloses the information or
<PAGE>
(ii) the SB TECHNOLOGY results from a
DIAGNOSTIC RESEARCH PLAN undertaken by SB.
23.2. HGS shall not use SPECIAL SB TECHNOLOGY except as licensed or
permitted under this Agreement. Notwithstanding the preceding, HGS
shall have the right to use SPECIAL SB TECHNOLOGY independently of
this Agreement if such SPECIAL SB TECHNOLOGY is solely based on or
derived from published information and/or information which otherwise
becomes lawfully known to HGS independently of this Agreement, unless:
the information is claimed in a published HGS PATENT or SB PATENT and
there is no THIRD PARTY patent application or patent with an earlier
priority date which discloses the information.
23.3. Notwithstanding anything else to the contrary, the following uses of
SB TECHNOLOGY and/or HGS SPECIAL TECHNOLOGY shall not be a breach of
this Agreement by SB:
23.3.1. use of unpatented HGS TECHNOLOGY outside a RESEARCH PLAN
submitted by SB in accordance with this Agreement or the
JUNE 1996 SB/HGS LICENSE AGREEMENT after the later of the
end of the INITIAL RESEARCH TERM or RESEARCH TERM EXTENSIONS
which HGS TECHNOLOGY at the time of such use is generally
available to the public, and/or
23.3.2. use of SB TECHNOLOGY outside a RESEARCH PLAN submitted by SB
in accordance with this Agreement or the JUNE 1996 SB/HGS
LICENSE AGREEMENT developed after the later of the end of
the INITIAL RESEARCH TERM or RESEARCH TERM EXTENSIONS which
is SB TECHNOLOGY only as a result of the use of unpatented
HGS TECHNOLOGY which is generally available to the public at
the time of such use; and/or
23.3.3. use of BIOINFORMATICS after the end of the INITIAL RESEARCH
TERM or RESEARCH TERM EXTENSION which BIOINFORMATICS is SB
TECHNOLOGY; and/or 23.3.4. use of SB TECHNOLOGY with respect
to any products discovered four (4) years after the later of
the end of the INITIAL RESEARCH TERM or RESEARCH TERM
EXTENSIONS outside a RESEARCH PLAN submitted by SB in
accordance with this Agreement or the JUNE 1996 SB/HGS
LICENSE AGREEMENT.
24. COUNTERPARTS
24.1. This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed an original instrument, but all such
counterparts together shall constitute but one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties, through their authorized officers,
have executed this Agreement as of the date first written above.
SmithKline Beecham Corporation
By:______________________________
SmithKline Beecham, p.l.c.
By:______________________________
Human Genome Sciences, Inc.
By:______________________________
<PAGE>
Appendix A
SAMPLE DIAGNOSTIC RESEARCH PLAN
1. Background
a. Target Identification (HGS Sequence ID#)
b. Brief description of data regarding potential diagnostic
utility
2. Key milestones
a. List key milestones and anticipated dates for achievement
b. Describe current status of project relative to milestones
and associated dates for accomplishments
3. Clinical Evaluation
a. List clinical utility claims desired
b. Briefly describe the studies needed for clinical evaluation
and status of those studies.
4. Patent Status
EXHIBIT 11.1
COMPUTATION OF PER SHARE DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS).................................... $ 2,873 $ 2,629 $ (9,168) $ 6,916
=============== ============== ============== ==============
PRIMARY:
Weighted average number of common shares 22,059 18,655 20,770 18,546
outstanding...............................
Shares issuable upon exercise of dilutive stock
options and warrants --- net of shares
assumed to be repurchased (at the average
market price for the period) from exercise
proceeds.................................. 664 944 0 991
--------------- -------------- -------------- --------------
Shares used for computation.......................... 22,723 19,599 20,770 19,537
=============== ============== ============== ==============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(PRIMARY)............................................ $ 0.13 $ 0.13 $ (0.44) $ 0.35
=============== ============== ============== ==============
ASSUMING FULL DILUTION:
Weighted average number of common shares 22,059 18,655 20,770 18,546
outstanding...............................
Shares issuable upon exercise of dilutive stock
options and warrants --- net of shares
assumed to be repurchased (at the higher
of period-end market price or the average
market price for the period) from exercise
proceeds.................................. 664 944 0 991
--------------- -------------- -------------- --------------
Shares used for computation.......................... 22,723 19,599 20,770 19,537
=============== ============== ============== ==============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(ASSUMING FULL DILUTION) (1)........................ $ 0.13 $ 0.13 $ (0.44) $ 0.35
=============== ============== ============== ==============
NOTES & ASSUMPTIONS:
(1) Not presented as dilution is less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 113,981
<SECURITIES> 94,582
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 222,221
<PP&E> 34,305
<DEPRECIATION> 15,536
<TOTAL-ASSETS> 243,553
<CURRENT-LIABILITIES> 8,231
<BONDS> 2,668
222
0
<COMMON> 0
<OTHER-SE> 232,300
<TOTAL-LIABILITY-AND-EQUITY> 243,553
<SALES> 0
<TOTAL-REVENUES> 16,100
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284
<INCOME-PRETAX> (8,923)
<INCOME-TAX> 245
<INCOME-CONTINUING> (9,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,168)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
