<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended September 30, 1997
OR
__ Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 Commission file number 0-21379
CUBIST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3192085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Emily Street
Cambridge, Massachusetts 02139
(Address of principal executive offices)
(617) 576-1999
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of October 31, 1997, there were 10,580,689 shares outstanding of the
Company's common stock, $0.001 per value per share.
<PAGE>
CUBIST PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets as of September 30, 1997 and
December 31, 1996 3
Condensed Statements of Operations for the three
months ended September 30, 1997 and 1996 and for the
nine months ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 5
Notes to the Unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CUBIST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 8,357,100 $ 19,329,353
Short-term investments........................................................... 6,578,808 --
Accounts receivable.............................................................. 111,000 505,267
Prepaid expenses and other current assets........................................ 419,338 286,642
------------- -------------
Total current assets............................................................. 15,466,246 20,121,262
Property and equipment............................................................. 5,834,144 4,898,538
Less: Accumulated depreciation and amortization.................................. (2,454,054) (1,741,152)
------------- -------------
Property and equipment, net...................................................... 3,380,090 3,157,386
Long-term investments.............................................................. 5,515,413 --
Other assets....................................................................... 180,294 173,799
------------- -------------
Total assets................................................................... $ 24,542,043 $ 23,452,447
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................. $ 332,185 $ 741,409
Accrued expenses................................................................. 395,715 484,732
Deferred revenue................................................................. 42,300 126,900
Current portion of long-term debt................................................ 205,681 188,062
Current portion of capital lease obligations..................................... 613,586 559,767
------------- -------------
Total current liabilities...................................................... 1,589,467 2,100,870
Long-term debt, net of current portion............................................. 133,754 291,683
Long-term capital lease obligation, net of current portion......................... 1,111,864 761,284
------------- -------------
Total liabilities.............................................................. 2,835,085 3,153,837
------------- -------------
Commitments
Stockholders' Equity:
Common Stock--$.001 par value;
authorized: 25,000,000 shares, 1997 and 1996;
issued: 10,577,544 shares, 1997 and 9,544,373 shares, 1996....................... 10,578 9,544
Additional paid-in capital......................................................... 42,042,289 36,019,608
Accumulated deficit................................................................ (20,345,909) (15,730,542)
------------- -------------
Total stockholders' equity..................................................... 21,706,958 20,298,610
------------- -------------
Total liabilities and stockholders' equity..................................... $ 24,542,043 $ 23,452,447
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
3
<PAGE>
CUBITS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ---------- ------------ ------------
Sponsored research revenues................................ $ 402,667 $ 960,879 $ 2,081,267 $ 3,007,532
Operating expenses:
Research and development.................................. 2,450,564 1,656,048 6,754,724 4,838,657
General and administrative................................ 783,139 463,121 2,362,476 1,336,707
------------ ---------- ------------ ------------
Total operating expenses................................. 3,233,703 2,119,169 9,117,200 6,175,364
Interest income............................................ 237,643 68,409 771,400 111,641
Interest expense........................................... (64,187) (65,494) (184,168) (172,397)
Other income (Note C)...................................... 1,833,334 -- 1,833,334 --
------------ ---------- ------------ ------------
Net loss................................................... ($824,246)($1,155,375) ($4,615,367) ($3,228,588)
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
Net loss per common share.................................. ($0.08) ($0.85) ($0.47) ($2.37)
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
Weighted average number of common shares................... 10,384,786 1,361,200 9,828,971 1,363,235
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
4
<PAGE>
CUBIST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash Flows from operating activities:
Net loss........................................................... $ (4,615,367) $ (3,228,588)
Adjustments to reconcile net loss to net cash provided by/
(used in) operating activities:
Depreciation and amortization.................................... 759,180 490,814
Changes in assets and liabilities:
Accounts receivable............................................ 394,267 988,000
Prepaid expenses and other current assets...................... (132,696) (739,838)
Other assets................................................... (6,495) (12,689)
Accounts payable and accrued expenses.......................... (498,241) 898,634
Deferred revenue............................................... (84,600) --
----------- -----------
Total adjustments............................................ 431,415 1,624,921
----------- -----------
Net cash used in operating activities................................ (4,183,952) (1,603,667)
Cash flows from investing activities:
Purchase of fixed assets........................................... (841,128) (405,019)
Leasehold improvements............................................. (94,478) (266,683)
Purchase of short-term investments................................. (6,578,808) --
Redemption of short-term investments............................... -- 1,006,569
Purchase of long-term investments.................................. (5,515,413) --
----------- -----------
Net cash provided by/(used in) investing activities.................. (13,029,827) 334,867
----------- -----------
Cash flows from financing activities:
Issuance of stock.................................................. 5,977,437 3,955,392
Repayments of debt................................................. (140,310) (124,519)
Proceeds from capital lease financing.............................. 890,644 383,525
Principal payments of capital lease obligations.................... (486,245) (330,168)
----------- -----------
Net cash provided by financing activities............................. 6,241,526 3,884,230
----------- -----------
Net increase (decrease) in cash and cash equivalents.................. (10,972,253) 2,615,430
Cash and cash equivalents,
beginning of period.................................................. 19,329,353 2,049,555
----------- -----------
Cash and cash equivalents,
end of period........................................................ $8,357,100 $ 4,664,985
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest............................... $184,168 $ 172,397
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
financial statements.
5
<PAGE>
CUBIST PHARMACEUTICALS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A. NATURE OF BUSINESS
Cubist Pharmaceuticals, Inc. ("Cubist" or the "Company") is a
biopharmaceutical company founded in May 1992 and is engaged in the research,
development and commercialization of novel classes of antiinfective drugs to
treat infectious diseases caused by bacteria and fungi, primarily those
resistant to existing antiinfective drugs. Cubist has established multiple
technology licenses and collaborations and has established a network of advisors
and collaborators. The Company is located in Cambridge, Massachusetts.
NOTE B. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are necessary, in
the opinion of management, for a fair presentation of the results of the interim
periods presented. Interim results are not necessarily indicative of results for
a full year. These unaudited condensed financial statements do not include all
information and footnote disclosures required by generally accepted accounting
principles and therefore should be read in conjunction with the Company's
audited financial statements and related footnotes for the year ended December
31, 1996 which are included in the Company's Annual Report on Form 10-K. Such
Annual Report on Form 10-K was filed by the Company with the Securities and
Exchange Commission (the "Commission") on March 31, 1997.
NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury stock
method) outstanding after certain adjustments described below. Common equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except that, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve-month period prior to the filing with
the Commission of the registration statement relating to the Company's initial
public offering, even when anti-dilutive, have been included in the calculation
as if they were outstanding for all periods, using the treasury stock method and
the initial public offering price of $6.00 per share.
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share", which will require
the disclosure of Basic Earnings per Common Share and Diluted Earnings per
Common Share, both as defined in the standard, for all periods presented. Early
application of SFAS 128 is not allowed, but pro forma disclosure is allowed. The
Company does not expect this to have a material impact on the earnings per share
computation.
NOTE C. COLLABORATIVE AGREEMENT
The Company and Novalon Pharmaceutical Corporation ("Novalon") entered
into a collaborative research agreement on May 5, 1997 to accelerate and
broaden the development of technologies to screen genomic targets. On
September 29, 1997, the Company extended its collaboration with Novalon
through February 2001. The extended collaboration will focus on utilizing
these targets to identify lead compounds active against the Company's
antibacterial and antifungal targets. In addition, the Company agreed to
terminate its option to acquire Novalon and sold its existing equity position
back to Novalon for $2.0 million resulting in a gain of $1.8 million included
in other income. In connection with such transaction, the Company was granted
an option to purchase up to twenty percent of the outstanding shares of
Novalon from existing shareholders.
6
<PAGE>
On September 25, 1997, the Company expanded its research collaboration with
Merck & Co., Inc. ("Merck"), adding additional aminoacyl-tRNA synthetase targets
that are proprietary to the Company and Merck's natural products compound
library to the drug discovery program.
NOTE D. FINANCING
On July 18, 1997, the Company completed a private equity financing in which
the Company raised $6.0 million by issuing 979,594 common shares at $6.125 per
share.
NOTE E. SUBSEQUENT EVENT
LICENSE AGREEMENT
On November 7, 1997, the Company entered into a license agreement with Eli
Lilly and Company ("Eli Lilly") pursuant to which the Company acquired exclusive
worldwide rights to develop, manufacture and market daptomycin. Daptomycin is a
novel, natural product being developed for the treatment of Staphylococcus
aureus and enterococcal infections. The Company anticipates that it will begin
clinical trials of daptomycin in late 1998. In exchange for such license, the
Company has agreed to pay an upfront license fee in cash and, if certain drug
development milestones are achieved, to pay milestone payments by issuing
shares of Common Stock to Eli Lilly. In addition, the Company will be required
to pay royalties to Eli Lilly on worldwide sales of daptomycin.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, this quarterly
Report on Form 10-Q may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, but not limited to, (i)
statements about the adequacy of the Company's cash, cash equivalents, other
capital resources, interest income, other income and future revenues due
under the Company's collaborative agreements to fund its operating expenses
and capital requirements as currently planned through mid-1998, (ii)
statements about the amount of capital expenditures that the Company expects
to incur in 1997, (iii) statements about the Company's plans to begin
clinical trials of daptomycin in late 1998, and (iv) certain statements
identified or qualified by words such as "likely", "will", "suggests", "may",
"would", "could", "should", "expects", "anticipates", "estimates", "plans",
"projects", "believes", or similar expressions (and variants of such words or
expressions). Investors are cautioned that forward-looking statements are
inherently uncertain. Actual performance and results of operations may differ
materially from those projected or suggested in the forward-looking
statements due to certain risks and uncertainties, including, but not limited
to, the risks and uncertainties described or discussed in the section "Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996. The forward-looking statements contained herein
represent the Company's judgment as of the date of this quarterly report on
Form 10-Q, and the Company cautions readers not to place undue reliance on
such statements.
OVERVIEW
Since its incorporation on May 1, 1992 and commencement of operations in
February 1993, Cubist has been engaged in the research, development and
commercialization of novel antiinfective drugs to treat infectious diseases
caused by bacteria and fungi, primarily those resistant to existing
antiinfective drugs. The Company has a limited history of operations and has
experienced significant operating losses since inception. The Company expects to
incur significant additional operating losses over the next several years and
expects cumulative losses to increase substantially due to expanded research and
development efforts, pre-clinical and clinical trials and development of
manufacturing, marketing and sales capabilities.
A key element of the Company's strategy is to enhance certain of its drug
discovery and development programs and to fund its capital requirements, in
part, by entering into collaborative agreements with major pharmaceutical
companies. The Company is party to collaborative agreements based specifically
on its aminoacyl-tRNA synthetase program with Bristol-Myers Squibb Company
("Bristol-Myers Squibb") and Merck & Co., Inc. ("Merck"). Under these
collaborative agreements, the Company is entitled to receive research support
payments and, if certain drug development milestones are achieved, milestone
payments. In addition, the Company will be entitled to receive royalties on
worldwide sales of any drug developed and commercialized from these
collaborations.
On November 7, 1997, the Company entered into a license agreement with Eli
Lilly and Company ("Eli Lilly") pursuant to which the Company acquired exclusive
worldwide rights to develop, manufacture and market daptomycin. Daptomycin is a
novel, natural product being developed for the treatment of Staphylococcus
aureus and enterococcal infections. The Company anticipates that it will begin
clinical trials of daptomycin in late 1998. In exchange for such license, the
Company has agreed to pay an upfront license fee in cash and, if certain drug
development milestones are achieved, to pay milestone payments by issuing
shares of Common Stock to Eli Lilly. In addition, the Company will be required
to pay royalties to Eli Lilly on worldwide sales of daptomycin.
The Company and Novalon Pharmaceutical Corporation ("Novalon") entered into
a collaborative research agreement on May 5, 1997 to accelerate and broaden the
development of technologies to screen genomic targets. On
8
<PAGE>
September 29, 1997, the Company extended its collaboration with Novalon
through February 2001. The extended collaboration will focus on utilizing
these targets to identify lead compounds active against the Company's
antibacterial and antifungal targets. In addition, the Company agreed to
terminate its option to acquire Novalon and sold its existing equity position
back to Novalon for $2.0 million resulting in a gain of $1.8 million included
in other income. In connection with such transaction, the Company was granted
an option to purchase up to twenty percent of the outstanding shares of
Novalon from existing shareholders.
On September 25, 1997, the Company expanded its research collaboration with
Merck, adding additional aminoacyl-tRNA synthetase targets that are proprietary
to the Company and Merck's natural products compound library to the drug
discovery program.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES. Total revenues in the three months ended September 30, 1997 were
$403,000 compared to $961,000 in the three months ended September 30, 1996, a
decrease of $558,000 or 58.1%. The revenue earned in the three months ended
September 30, 1997 consisted of research support funding from the Bristol-Myers
Squibb and Merck collaborations, and SBIR funding. In the three months ended
September 30, 1996, revenues consisted of research support funding from the
Bristol-Myers Squibb and Pfizer collaborations, and SBIR funding. The decrease
in revenues was primarily due to the absence of Pfizer research support funding
for the three months ended September 30, 1997 as compared to the three months
ended September 30, 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
in the three months ended September 30, 1997 were $2,451,000 compared to
$1,656,000 in the three months ended September 30, 1996, an increase of $795,000
or 47.9%. The increase was largely due to (i) amortization of the Company's
purchase option in Novalon over the term of the Company's option to acquire
Novalon, and (ii) purchases of laboratory research supplies.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in
the three months ended September 30, 1997 were $783,000 compared to $463,000 in
the three months ended September 30, 1996, an increase of $320,000 or 69.1%. The
increase was largely due to (i) increased costs related to additional personnel
and recruiting, (ii) the cost of premiums for directors' and officers'
insurance, (iii) investor and public relation expenses which did not exist prior
to the Company's initial public offering, and (iv) increased legal expenses .
INTEREST INCOME AND EXPENSE. Interest income in the three months ended
September 30, 1997 was $238,000 compared to $68,000 in three months ended
September 30, 1996, an increase of $170,000 or 250.0%. The increase in interest
income was due primarily to a higher average cash, cash equivalent and
investment balance during the three months ended September 30, 1997 as compared
to the three months ended September 30, 1996. Interest expense in the three
months ended September 30, 1997 was $64,000 as compared to $65,000 during the
three months ended September 30, 1996.
OTHER INCOME. Other income in the three months ended September 30, 1997 was
$1,833,000 and consisted entirely of gain on the sale of the Company's equity
position in Novalon.
NET LOSS. The net loss during the three months ended September 30, 1997 was
$824,000 compared to $1,155,000 during the three months ended September 30,
1996, a decrease of $331,000 or 28.6%. The decrease was primarily due to the
gain on the sale of the Company's equity position in Novalon.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES. Total revenues in the nine months ended September 30, 1997
were $2,081,000 compared to $3,008,000 in the nine months ended September 30,
1996, a decrease of $927,000 or 30.8%. The revenue recognized in the nine
months ended September 30, 1997 consisted of research support payments from
Bristol-Myers Squibb, Merck and Pfizer; milestone payments from Bristol-Myers
Squibb; and SBIR grant funding. In the nine months ended September 30, 1996,
revenues consisted of research support payments from Bristol-Myers Squibb,
Merck and Pfizer; technology license fee revenues from Merck and SBIR grant
funding.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
in the nine months ended September 30, 1997 were $6,755,000 compared to
$4,839,000 in the nine months ended September 30, 1996, an increase of
$1,916,000 or 39.6%. The increase was largely due to (i) amortization of the
Company's purchase option in Novalon over the term of the Company's option to
acquire Novalon, (ii) increased costs related to ten additional employees hired
by the Company in connection with its research and development programs and
(iii) purchases of laboratory research supplies that were required by such
additional personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in
the nine months ended September 30, 1997 were $2,362,000 compared to $1,337,000
in the nine months ended September 30, 1996, an increase of $1,025,000 or 76.6%.
The increase was primarily due to (i) increased costs related to additional
personnel and recruiting, (ii) the cost of premiums for directors' and officers'
insurance, (iii) costs associated with the Company's investor and public
relations program, which did not exist prior to the Company's initial public
offering and (iv) increased legal expenses.
INTEREST INCOME AND EXPENSE. Interest income in the nine months ended
September 30, 1997 was $771,000 compared to $112,000 in the nine months ended
September 30, 1996, an increase of $659,000 or 588.4%. The increase in interest
income was due primarily to a higher average cash, cash equivalent and
investment balance during the nine months ended September 30, 1997 as compared
to the nine months ended September 30, 1996. Interest expense in the nine months
ended September 30, 1997 was $184,000 as compared to $172,000 during the nine
months ended September 30, 1996.
OTHER INCOME. Other income in the nine months ended September 30, 1997 was
$1,833,000 and consisted entirely of gain on the sale of the Company's equity
position in Novalon.
NET LOSS. The net loss during the nine months ended September 30, 1997 was
$4,615,000 compared to $3,229,000 during the nine months ended September 30,
1996, an increase of $1,386,000 or 42.9%. The increase was primarily due to (i)
a decrease in revenues during the nine months ended September 30, 1997, (ii) an
increase in expenses incurred by the Company to support the advancement of the
Company's internal research programs, and (iii) costs associated with the
Company's investor and public relations program. This increase in net loss was
partially offset by the non-recurring gain on the sale of the Company's equity
position in Novalon.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through the sale of
equity securities, equipment financing, sponsored research revenues, license
revenues and interest earned on invested capital. The Company's total cash, cash
equivalent and investments balance at September 30, 1997 was $20,451,000
compared to $19,329,000 at December 31, 1996. For the three months ended
September 30, 1997, the Company received $608,000 in sponsored research
payments.
On July 18, 1997, the Company completed a private equity financing in which
the Company raised $6.0 million by issuing 979,594 common shares at $6.125 per
share.
On September 29, 1997, the Company received a cash payment of $2.0
million from Novalon in connection with the purchase of the Company's equity
position in Novalon.
Through September 30, 1997, the Company's collaborative partners have
provided the Company with $7.6 million of research support payments and
technology licensing fees, and $4.0 million in an equity investment. There can
be no assurance that the Company will receive any additional funding from any of
the Company's collaborative partners.
As of September 30, 1997, the Company had invested an aggregate of
$5,834,000 (of which $57,000 was invested during the three months then ended) in
property and equipment, primarily in facility renovations and laboratory
equipment under capital leases. The obligations under capital leases at
September 30, 1997 were $1,725,000. Minimum annual principal payments due under
capital leases total $837,000 in 1997. Principal payments decline each year
thereafter until expiration in 2001. The Company made principal payments under
its capital lease obligations of $486,000 in the nine months ended on September
30, 1997. The Company expects its capital expenditures in 1997 to be
approximately $1,000,000 consisting of laboratory and other equipment purchases.
The Company believes that its existing capital resources, interest income
and future revenues due under the Bristol-Myers Squibb and Merck collaborative
agreements will be sufficient to fund its operating expenses and capital
requirements as currently planned through mid-1998. The Company's actual cash
requirements may vary materially from those now planned and will depend on
numerous factors. There can be no assurance that the Company's existing cash,
cash equivalents, other capital resources, interest income and future revenues
due under the Bristol-Myers Squibb and Merck collaborative agreements will be
sufficient to fund its operating expenses and capital requirements during such
period. Thereafter, the Company will need to raise substantial additional
capital to fund its operations. The Company intends to seek such additional
funding through public or private financing or collaborative or other
arrangements with corporate partners.
EARNINGS PER SHARE
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards 128 (SFAS 128) "Earnings per share", which will require the
disclosure of Basic Earnings per Common Share and Diluted Earnings per Common
Share, both as defined in the standard, for all periods presented. Early
application of SFAS 128 is not allowed, but pro forma disclosure is allowed. The
Company does not expect to have a material impact on the earnings per share
computation.
11
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On July 18, 1997, the Company completed a private equity financing in
which the Company raised $6.0 million by issuing 979,594 common shares at
$6.125 per share. The issuance and sale of such common shares by the Company
was made in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act").
(d) The Company's Registration Statement on Form S-1 (Reg. No. 333-6795) in
connection with the Company's initial public offering of Common Stock was
declared effective by the Securities and Exchange Commission (the "SEC") on
October 25, 1996. On October 25, 1996, the Company also filed another
Registration Statement on Form S-1 (Reg. No. 333-5880) with the SEC, which
became effective immediately upon its filing with the SEC pursuant to Rule
462(b) promulgated under the Securities Act. Such Registration Statements
(together, the "IPO Registration Statement") provided for the registration under
the Securities Act of 2,875,000 shares of the Company's Common Stock. On October
25, 1996, the Company entered into an Underwriting Agreement with UBS Securities
LLC, Hambrecht & Quist LLC and Pacific Growth Equities, Inc., as representatives
of the several underwriters named on Schedule A thereto (the "Underwriters"),
pursuant to which (x) the Underwriters agreed to purchase from the Company
2,500,000 shares of its Common Stock at the public offering price of $6.00 per
share, less underwriting discounts and commissions of $0.42 per share, and (y)
the Company granted to the Underwriters an option to purchase an additional
375,000 shares of Common Stock, solely to cover over-allotments, at the public
offering price of $6.00 per share, less underwriting discounts and commissions
of $0.42 per share. On October 30, 1996, the Underwriters consummated the
purchase of such 2,500,000 shares of Common Stock, and on November 6, 1996, the
Underwriters consummated the purchase of such additional 375,000 shares of
Common Stock upon exercise of the Underwriters' over-allotment option.
The aggregate initial public offering price for all 2,875,000 shares of
Common Stock registered under the Securities Act pursuant to the IPO
Registration Statement was $17,250,000, the aggregate amount paid by the Company
to the Underwriters in respect of underwriting discounts and commissions
relating to the issuance and distribution of all of such 2,875,000 shares of
Common Stock was $1,207,500, and the aggregate amount of other expenses paid by
the Company in connection with such issuance and distribution was $890,000. The
aggregate amount of all expenses (including underwriting discounts and
commissions) paid by the Company in connection with such issuance and
distribution was $2,097,500. All of such expenses consisted of direct payments
to persons, none of which was a director or officer of the Company, holder of 10
percent or more of any class of equity securities of the Company or other
affiliate of the Company. The net proceeds to the Company from such issuance and
distribution, after deducting the aggregate amount of expenses (including
underwriting discounts and commissions) paid by the Company in connection
therewith, were $15,152,500.
Of such net proceeds, an aggregate of $6,878,000 has been spent through
September 30, 1997 for the following uses and in the following amounts per use:
$245,000 in construction of plant, building and facilities; $777,000 for
repayment of indebtedness; $5,856,000 for working capital. All amounts spent by
the Company for such uses consisted of direct payments to persons or entities,
none of which was a director or officer of the Company, holder of 10 percent or
more of any class of equity securities of the Company or other affiliate of the
Company. The remaining balance of such net proceeds, consisting of $8,274,500,
are held in cash or cash equivalents.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 19, 1997. Of the
9,557,057 shares issued and outstanding and eligible to vote as of the record
date of April 11, 1997, a quorum of 6,945,215 shares or 72.7% of the eligible
shares were present in person or represented by proxy.
The following matters were voted on at such meeting:
(a) Re-election of the following Class I Directors:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
WITHHELD
FOR AUTHORITY
---------- -----------------
<S> <C> <C>
Terrance G. McGuire.................................... 5,268,607 18,009
Ellen M. Feeney........................................ 5,268,607 18,009
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) Exhibits
+10.1-- Research Collaboration and License
Agreement with Novalon Pharmaceutical
Corporation
+10.2-- Addendum to the Research and License
Agreement with Novalon Pharmaceutical
Corporation
+10.3-- Licensing Agreement with Eli Lilly and
Company
11-- Statement of Computation of Earnings Per
Share
27-- Financial Data Schedule
</TABLE>
_____________
+Confidential treatment requested as to certain portions
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1997.
13
<PAGE>
SIGNATURE
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.
CUBIST PHARMACEUTICALS, INC.
November 14, 1997 BY: /s/ Thomas A. Shea
--------------------------------
Thomas A. Shea,
Director of Finance
& Administration and Treasurer
(Authorized Officer and Principal
Finance and Accounting Officer)
14
<PAGE>
Exhibit 10.1
Research Collaboration and
License Agreement
Cubist Pharmaceuticals, Inc.
Novalon Pharmaceuticals Corporation
Dated as of May 5, 1997
<PAGE>
Research Collaboration and License Agreement
RESEARCH COLLABORATION AND LICENSE AGREEMENT, dated as of May 5, 1997 (the
Effective Date), by and between Cubist Pharmaceuticals, Inc., a Delaware
corporation (Cubist) and Novalon Pharmaceutical Corporation, a Delaware
corporation (Novalon).
WHEREAS, Cubist and Novalon have entered into a Series B Convertible
Preferred Stock Purchase Agreement, dated as of May 5, 1997 (the Stock Purchase
Agreement), pursuant to which Cubist purchased shares of the Series B
Convertible Preferred Stock of Novalon and agreed to engage in a collaborative
"BioKeys" research project and the "ElectroScreen" research project with
Novalon.
WHEREAS, pursuant to Section 7.6 of the Stock Purchase Agreement, Cubist
and Novalon agreed to negotiate and enter into this Agreement to set forth in
greater detail the rights and obligations of the parties with respect to the
research projects.
WHEREAS, Novalon has the right to grant licenses with respect to certain
Novalon Patent Rights and Novalon Technology (as each is defined herein) and
desires to grant a license thereto; and
WHEREAS, Cubist desires to obtain a license to use and practice the Novalon
Patent Rights and Novalon Technology to develop products;
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Cubist and Novalon hereby agree as
follows:
Section 1. Definitions. Capitalized terms used in this Agreement shall
have the meanings set forth in Schedule I annexed hereto.
Section 2. Research Collaboration.
2.1 Collaboration.
(a) Cubist and Novalon hereby agree (i) to engage in the
Collaborative "BioKeys" Research Project and the "ElectroScreen"
Research Project, all as described in Exhibit A, (ii) to engage in the
research activities described in Section 2.1(b) and (c) below and
(iii) to engage in such other research activities as the parties may
agree upon from time to time. The terms and Conditions of the
Collaboration and of all research activities of the parties pursuant
to the Collaboration
<PAGE>
shall be governed by, to the extent applicable, the provisions of this
Agreement and such other provisions as the parties may agree upon in
writing from and after the date hereof. The term of the Collaboration
shall commence on the date hereof and end on [ ]*, provided
that Cubist shall be entitled to terminate the Collaboration at any
time from and after the end of the Minimum Research Period by giving
Novalon at least thirty (30) days prior written notice of termination.
(b) During the Minimum Research Period, Cubist and Novalon shall engage in
the research activities described in Exhibit A. The respective tasks,
activities and obligations of the parties during the Minimum Research
Period are set forth in Exhibit A.
(c) In the event that Cubist elects not to exercise the Acquisition
Option, Cubist shall, within [ ]* after the Acquisition
Option Expiration Date, deliver to Novalon a schedule listing all of
the research programs then being conducted by Cubist (the Specified
Research Programs, Exhibit B describes the current research programs
at Cubist). During the Remaining Research Period, Novalon and Cubist
shall (i) continue the research activities described in Exhibit A,
(ii) engage in such research, screening, target discovery and
validation, and drug discovery and development activities as Cubist
shall request, provided that such research, screening, target
discovery and validation, and drug discovery and development
activities are related to, or involve, biological targets that are
within the scope of the Specified Research Programs and (iii) engage
in such other research activities as the parties may agree upon from
time to time. The respective tasks, activities and obligations of the
parties in connection with any of the matters on which the parties are
collaborating during the Remaining Research Period shall be mutually
agreed upon by the parties.
2.2 Funding.
(a) On the first day of each month during the Minimum Research Period and
on the first day or the first month immediately after the Minimum
Research Period, Cubist shall reimburse Novalon for any payments made
by Novalon during the immediately preceding month in respect of (i)
salary and fringe benefits payable by Novalon to no more than
[ ]* employed by Novalon and
________________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
2
<PAGE>
engaged solely in activities relating to the Collaboration, and (ii)
laboratory supplies for use solely in activities relating to the
Collaboration; provided, however, that the amount of any monthly
payment that Cubist shall be required to make to Novalon pursuant to
the foregone provisions of this Section 2.2(a) shall in no event
exceed [ ]* (it being understood that any expenses incurred
or payments, made by Novalon in connection with (the Collaboration in
any month during the Minimum Research Period in excess of
[ ]* shall be Novalon's sole responsibility and Cubist shall
have no obligation to reimburse Novalon with respect to any such
excess). [ ]*
(b) On the first day of each month during the Remaining Research Period
and on the first day of the first month immediately after the
Remaining Research Period, Cubist shall reimburse Novalon for the
direct costs incurred by Novalon in connection with activities
relating to the Collaboration, provided that such costs shall not
exceed [ ]* (it being understood that any costs incurred by
Novalon in connection with the Collaboration activities that are in
excess of [ ]* shall be Novalon's sole responsibility and
Cubist shall have no obligation to reimburse Novalon with respect to
any such excess).
2.3 Obligations Following Termination of Collaboration. Except for
Cubist's obligation, pursuant to Section 2.2(a) above, to make a payment to
Novalon on the first day of the first month immediately after the Remaining
Research Period and except for any other payment obligations of Cubist in
connection with the Collaboration which are agreed upon by the parties in
writing after the date hereof and which by their own terms survive the
Collaboration Termination Date, Cubist shall have no obligations or liabilities
to Novalon pursuant to this Section 2 (including, without limitation, the
obligation to make payments to Novalon in connection with the Collaboration)
from and after the Collaboration Termination Date.
2.4 Exclusivity.
(a) Until [ ]* Novalon shall not engage in any research
collaboration, any drug discovery or drug development collaboration,
partnership or alliance, any licensing transactions or any other kind
of transaction, involving all or any portion of Novalon's intellectual
property or know-how or the intellectual property or know-how of any
Person; provided, however, that the foregoing provisions of this
Section 2.4(a) shall not preclude Novalon from
_____________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
3
<PAGE>
engaging in the Collaboration. The restrictions set forth in this
Section 2.4(a) may be waived, in any instant, by written consent of
Cubist.
(b) During the period commencing upon the expiration of the restrictions
set forth in Section 2.4(a) above and ending on the Collaboration
Termination Date, Novalon shall not engage in any research or
screening activities or programs, any research collaborations, any
drug discovery or drug development collaborations, partnerships or
alliances, any licensing transactions, or any other kind of
transactions, in the anti-bacterial and anti-fungal therapeutic area;
provided, however, that the foregoing provisions of this Section
2.4(b) shall not preclude Novalon from engaging in (i) the
Collaboration, or (ii) any research or screening activity or program
so long as it (A) covers, a finite number of specific biological
targets for drug discovery and development, none of which have been
subject to research and development activities pursuant to the
Collaboration, (B) provides for Novalon to engage in active research,
discovery and development activities with respect to all of such
biological targets, (C) provides for the payment to Novalon of
commercially reasonable consideration and (D) does not preclude
Novalon from entering into similar arrangements with other parties
(including Cubist) relating to other targets in the same or any
different field of pathogen. The restrictions set forth in this
Section 2.4(b) may be waived. in any instance, by written consent of
Cubist.
(c) Until [ ]* Novalon, subject to any applicable nondisclosure
agreements between Novalon and third parties, shall discuss and
coordinate in advance with Cubist any contacts, meetings, discussions
or negotiations that Novalon proposes to make or in which Novalon
proposes to participate, to the extent that such proposed contacts,
meetings, discussions or negotiations relate to any research or
screening activities or programs, any research collaboration, any drug
discovery or drug development collaboration, partnership or alliance,
any licensing transaction, or any other kind of transaction, involving
all or any portion of Novalon's intellectual property or know-how or
the intellectual property or know-how of any Person; provided,
however, that the foregoing provisions of this Section 2.4(c) shall
not apply to the Collaboration.
___________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
4
<PAGE>
Section 3. License. Subject to all of the terms of this Agreement,
Novalon hereby grants to Cubist a worldwide right and license to use the Novalon
Patent Rights and the Novalon Technology, for purposes of (i) researching,
screening for, discovering or developing anti-bacterial or anti-fungal drug
candidates or antibacterial or anti-fungal drug discovery targets or (ii)
selling, licensing, marketing or otherwise commercializing anti-bacterial or
anti-fungal drugs discovered or developed using any portion of the Novalon
Patent Rights and the Novalon Technology. The license shall be perpetual and
irrevocable. The license shall be exclusive with respect to any Novalon Patent
Rights and Novalon Technology that were developed in the course of the research
and development activities provided for in Section 2 hereof. Cubist shall have
the right to sublicense the license granted to Cubist pursuant to this Section
3. Except for any payments made or required to be made by Cubist to Novalon
pursuant to Section 2.2 or Section 4.1 in connection with the Collaboration,
Cubist shall not have to pay or otherwise owe to Novalon any consideration of
any kind in connection with the license.
Section 4. Royalties & Payments.
Section 4.1 Royalties. In consideration for the license granted under this
Agreement, Cubist shall pay royalties (collectively, the Royalties) to Novalon,
within [ ]* after the end of each calendar quarter, in the amount of
[ ]* of all revenue actually received by Cubist from third parties to
the extent that such revenue is directly attributable to (a) Net Sales of
Products for such quarter, (b) drug development milestone payments actually
received by Cubist during such quarter on account of any antibacterial or
antifungal drug candidate that was discovered or developed as a result of the
use of the Novalon Patent Rights or the Novalon Technology, and (c) any
licensing fees actually received by Cubist during such quarter with respect to
any Sublicense.
Section 4.2 Payments. All payments due under this Agreement shall be paid
(a) in full without deduction of exchange, collection, taxes or other fees that
may be imposed by any government and (b) in United States dollars at Novalon's
office in Chapel Hill, North Carolina or at such other place as Novalon may
designate consistent with applicable law. Currency conversions shall be made by
reference to the prevailing exchange rate for bank transfers from the foreign
currency to U.S. Dollars, as quoted at BankBoston on the last business day of
the calendar quarter immediately preceding the payment due date. If by law,
regulation or fiscal policy of any country, conversion from that country's
currency into U.S. dollars is restricted or forbidden, written notice thereof
shall be given to Novalon and payment of amounts from that country shall be made
through such lawful means as Novalon shall designate, including, without
limitation, deposit of local currency in such recognized banking institution as
________________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
5
<PAGE>
Novalon shall designate. When in any country the law or regulation prohibits
both the transmittal and the deposit of royalties as sales in that country,
royalty payments from that country will be suspended for as long as the
prohibition is in effect and, as soon as the prohibition ceases, all royalties
that Cubist or its Sublicensees would have been obligated to pay, but for the
prohibition, will promptly be deposited or transmitted, as (be case may be, to
the extent then allowed.
Section 5. Intellectual Property.
Section 5.1 Ownership Rights. Novalon shall own all Technology and
inventions made, developed or discovered solely by its employees or agents or by
the employees or agents of any of its Affiliates, and shall own all Patent
Rights relating to such Technology and inventions. Cubist shall own all
Technology and inventions made, developed or discovered solely by its employees
or agents or by the employees or agents of any of its Affiliates, and shall own
all Patent Rights relating to such Technology and inventions. Cubist and
Novalon shall own all Technology and inventions developed jointly by the
employees or agents of Novalon and Cubist or their respective Affiliates, and
shall own all Patent Rights relating to such Technology and inventions. Subject
to the provisions of Section 5.2 below, Novalon retains all rights to file and
prosecute any and all patent applications included within the Novalon Patent
Rights, and Cubist retains all rights to file and prosecute any and all patent
applications included within the Cubist Patent Rights.
Section 5.2 Patent Filings. Novalon shall, at its expense and using
patent attorneys selected by it, apply for, seek issuance of and maintain the
Novalon Patent Rights and other patents based on the Novalon Technology in the
United States and in such other countries as are identified in the Patent List
hereto or as Cubist may request in writing; provided that Cubist shall cooperate
with Novalon in such prosecutions filing and maintenance. Cubist shall be given
at least ten (10) days to advise and comment upon such filings and actions as
are undertaken by Novalon. Novalon may, in its discretion, decline to apply
for, prosecute or maintain any Novalon Patent Rights in any country, but shall
give timely notice to Cubist of any such determination, whereupon Cubist may
undertake such action, in the name and on behalf of Novalon, at its own expense.
Novalon agrees to cooperate with Cubist as reasonably necessary to permit
Cubist to be able to prosecute or maintain any Novalon Patent Rights in those
countries that Novalon declines to undertake action. Novalon also agrees to
cooperate with Cubist as reasonably necessary to permit Cubist to be able to
prosecute or maintain any Cubist Patent Rights arising from the Collaboration in
those countries selected by Cubist.
6
<PAGE>
Section 6. Indemnification.
Section 6.1 Indemnification. Cubist shall at all times defend and hold
Novalon, and its officers, directors, employees, agents and Affiliates
(together, Novalon Indemnitees) harmless from and against all claims, suits,
demands, liability and expenses, including legal expenses and reasonable
attorneys' fees, arising out of (a) the death of or injury to any person or
persons, (b) damage to property, or (c) any other claim, proceeding, demand,
expense and liability of any kind whatsoever resulting from (i) the production,
manufacture, shipping, handling, use (in commerce or otherwise), sale, lease,
consumption, promotion or advertisement of the Products by Cubist or any
Sublicensee or (ii) any obligation or activity of Cubist under this Agreement or
of any Sublicensee under any Sublicense; provided that Cubist shall have no
obligation to indemnify Novalon to the extent of liability attributable to the
Novalon's gross negligence or willful misconduct.
Section 6.2 Indemnification. Novalon shall at all times defend and hold
Cubist, its officers, directors, employees, agents and Affiliates (together,
Cubist Indemnitees) harmless from and against all claims, suits, demands,
liability and expenses, including legal expenses and reasonable attorneys' fees,
arising out of any claim, proceeding, demand, expense and liability of any kind
whatsoever resulting from (i) the Novalon Patent Rights and the Novalon
Technology or (ii) any obligation or activity of Novalon under this Agreement;
provided that Novalon shall have no obligation to indemnify Cubist to the extent
of liability attributable to the Cubist's gross negligence or willful
misconduct.
Section 7. Infringement.
Section 7.1 Notice. Cubist shall notify Novalon promptly in writing of
any alleged Infringement of the Novalon Patent Rights by a third party and shall
provide any available evidence thereof.
Section 7.2 Prosecution By Novalon. Novalon shall have the right, at its
sole discretion, to prosecute, at its own expense, any alleged infringements of
the Novalon Patent Rights. Cubist agrees to allow Novalon to include Cubist, at
Novalon's expense, as a party plaintiff in any suit brought with respect to
infringement alleged to have occurred during the Collaboration within the
antibacterial and anti-fungal therapeutic area. In the event that Novalon takes
the lead counsel role with respect to the commencement or defense of any action,
the total cost shall be borne by and any recovery or damages shall be paid
solely to Novalon. Cubist shall have the right to participate in any action, at
Cubist's expense, and Novalon agrees to consult with counsel for Cubist on any
significant matters related to the litigation.
7
<PAGE>
Section 7.3 Prosecution By Cubist.
(a) Procedure. If Novalon, within six (6) months after having been
notified of an alleged infringement, shall have been unsuccessful in negotiating
with the alleged infringer to cease and desist such infringement and shall not
have brought an infringement action, or if Novalon shall notify Cubist at any
time prior thereto or its intention not to bring suit against any alleged
infringer, then Cubist shall have the right, but shall not be obligated, to
prosecute at its own expense any such infringement of the Novalon Patent Rights.
Cubist shall be entitled to offset the costs of any such litigation against any
amounts due by Cubist to Novalon under this Agreement. In such circumstances,
Cubist may use the name of Novalon as the plaintiff if necessary for the
prosecution of the infringement suit. Notwithstanding anything in the foregoing
to the contrary, no settlement, consent judgment or other voluntarily final
disposition of any such suit may be entered into without the consent of Novalon,
which consent shall not be unreasonably withheld.
(b) Damages. In the event that Cubist undertakes litigation pursuant to
Section 7.3(a) for the enforcement of Novalon Patent Rights, any recovery of
damages by Cubist for each suit shall be applied as follows: (a) first, to
Cubist to reimburse Cubist for the expenses of the litigation or suit, including
reasonable attorneys' fees, (b) then, second, to Novalon to reimburse Novalon
for its expenses of the litigation or case, including reasonable attorneys' fees
and any Running Royalty Amounts and licensing Fees withheld by Cubist pursuant
to Section 8.3(a), (c) then, third, an amount equal to the aggregate dollar
amount of sales revenue made by the infringing person would be allocated
[ ]* to Cubist and [ ]* to Novalon and (d) then, the balance
would be allocated [ ]* between Cubist and Novalon.
Section 7.4 Actions Against Cubist or Novalon.
(a) In the event that an action alleging invalidity or noninfringement of
any of the Novalon Patent Rights shall be brought against Cubist or against
Novalon (whether as an independent action or as a counterclaim of a suit filed
by Cubist pursuant to Section 7.3(a)), Novalon, at its sole option, shall have
the right, within thirty (30) days after the commencement of such action, to
take or regain control of the action at its own expense. If Novalon shall
determine not to exercise this right, Cubist may take over or remain as lead
counsel for the action at Cubist's sole expense, with any settlement or recovery
subject to the approval provisions of Section 7.3(a) and allocation provisions
of Section 7.3(b).
_____________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
8
<PAGE>
(b) In the event that an action alleging any of the Novalon Patent Rights
or Novalon Technology infringes, or resulted from the misappropriation of, any
third party shall be brought against Cubist or against Novalon (whether as an
independent action or as a counterclaim of a suit filed by Novalon pursuant to
Section 7.2), Cubist, at its sole option, shall have the right, within thirty
(30) days after the commencement of such action, to take or regain control of
the action at its own expense. If Cubist shall determine not to exercise this
right, Novalon may take over or remain as lead counsel for the action at
Novalon's sole expense.
Section 7.5 Cooperation. In any infringement suit, either party shall be
entitled to request the cooperation and assistance of the other party, at the
requesting party's expense, as may be reasonably necessary for the suit. Each
party agrees to make available relevant records, papers, information, samples
and specimens, as well as to have its employees testify upon request.
Section 7.6 Third Party Licenses. If Cubist and Novalon mutually
determine that sales of Products or use of the Novalon Patent Rights or Novalon
Technology would be impractical or impossible without obtaining a
royalty-bearing license from a third party, Cubist may enter into a license with
such third party, and Cubist shall be permitted to offset royalties or any other
amounts paid thereunder as a deduction within the calculation of Royalties,
unless the third party is an Affiliate of Cubist; provided, however, that Cubist
shall be entitled to offset no more than [ ]* of the Royalties
otherwise payable to Novalon.
Section 8. Dispute Resolution.
Section 8.1 Scope and Enforcement. Any controversy or claim arising
between the parties in connection with this Agreement shall be resolved by
binding arbitration in accordance with the terms and conditions of this Section
9; provided, that actions by either party seeking equitable or declaratory
relief may be brought in court pursuant to Section 9. This agreement to
arbitrate shall continue in full force and effect despite the expiration,
rescission or termination of this Agreement. All arbitration shall be
undertaken in accordance with the federal policy favoring arbitration, as set
forth in the Federal Arbitration Act, and the decision of the arbitrator(s)
shall be enforceable in any court of competent jurisdiction. The parties
knowingly and voluntarily waive their rights to have their dispute tried and
adjudicated by a judge and jury except as expressly provided herein. The
arbitrator(s) shall apply the law of the Commonwealth of Massachusetts and the
arbitration shall be held in Boston, Massachusetts or in such other city as the
parties may mutually agree.
_______________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
9
<PAGE>
Section 8.2 Procedure. Any party may demand arbitration by sending
written notice to the other party. The arbitration and the selection of the
arbitrator(s) shall he conducted in accordance with such rules as may be agreed
upon by the parties, or, failing agreement within thirty (30) days after
arbitration is demanded, under the Commercial Arbitration Rules of the American
Arbitration Association (AAA), as such rules may be modified by this Agreement.
If the parties are unable to agree upon a single arbitrator within sixty (60)
days, three (3) arbitrators shall be used, one selected by each party within ten
(10) days after the conclusion of the sixty (60) day period and a third selected
by the first two within ten (10) days thereafter. The arbitrator or arbitrators
shall be accredited by the AAA and shall be individuals with relevant business
experience in structuring and negotiating biotechnology research collaborations;
provided, however, that the parties may mutually agree in writing to waive
either UT both of the foregoing requirements. Unless the parties agree
otherwise, they shall be limited in their discovery to directly relevant
documents- Responses or objections to a document request shall be served twenty
(20) days after receipt of the request. The arbitrator(s) shall resolve any
discovery disputes.
Section 8.3 Awards. The arbitrator(s) shall have the authority to award
actual money damages (with interest on unpaid amounts from the date due),
specific performance, and temporary injunctive relief, but the arbitrator(s)
shall not have the authority to award exemplary or punitive damages, and the
parties expressly waive any claimed right to such damages. The arbitration
shall be of each party's individual claims only, and no claim of any other party
shall be subject to arbitration in such proceeding. The parties are unable to
agree on the appointment of a single arbitrator, each party shall bear the cost
of the arbitrator appointed by such party and the cost of the third arbitrator
shall be shared equally by both parties. Each party shall be responsible for
all costs incurred by it in preparing for and participating in the arbitration.
Except as otherwise required by law, the parties and the arbitrator(s) agree to
maintain as confidential all information or documents obtained during the
arbitration process, including the resolution of the dispute.
Section 9. General Provisions.
Section 9.1 Remedies. The parties acknowledge and agree that, in the
event of a breach or a threatened breach by either party of' Section 9.4 hereof,
the other party may suffer irreparable damage for which it will have no adequate
remedy at law and, accordingly, shall be entitled to injunctive and other
equitable remedies to prevent or restrain such breach or threatened breach,
without the necessity of posting any bond or surety, in addition to any other
remedy it might have at law or at equity.
10
<PAGE>
Section 9.2 Governing Law. This Agreement shall be governed and construed
in accordance with the internal laws of' the State of Delaware, without regard
to its rules concerning conflicts of laws.
Section 9.3 Exclusive Venue; Consent to Jurisdiction. Any action, suit or
other proceeding pursuant to, arising under, or touching or concerning this
Agreement or the transactions contemplated hereby (other than those for which
arbitration pursuant to Section 8 is the sale forum) shall be brought
exclusively in any court of competent jurisdiction in the State of' Delaware.
The parties agree to take any and all necessary or appropriate action to submit
to the exclusive jurisdiction of any such court. In any such action, suit or
proceeding, the successful or prevailing party shall be entitled to recover its
reasonable attorneys' fees and other costs incurred in connection with that
action, suit or proceeding, in addition to any other relief to which such party
may be entitled.
Section 9.4 Confidentiality. It is contemplated that in the course of the
performance of this Agreement each party may, from time to time, disclose
Confidential Information to the other. Each party agrees to take all reasonable
steps to prevent disclosure of Confidential Information; provided that no
provision of this Agreement shall be construed to preclude such disclosure of
Confidential Information as may be necessary or appropriate to obtain from any
governmental agency any necessary approval or license or to obtain patents that
are to be included in Novalon Patent Rights.
Section 9.5 Amendment and Waiver. No provision of or right under this
Agreement shall be deemed to have been waived by any act or acquiescence on the
part of either party, its agents or employees, but only by an instrument in
writing signed by an authority officer of each party. No waiver by either party
of any breach of this Agreement by the other party shall be effective as to any
other breach, whether of the same or any other term or condition and whether
occurring before or after the date of such waiver.
Section 9.6 Independent Contractors. Each party represents that it is
acting on its own behalf as an independent contractor and is not acting as an
agent for or on behalf of any third party. This Agreement and the relations
hereby established by and between Cubist and Novalon do not constitute a
partnership, joint venture, agency or contract of employment between them.
Section 9.7 Assignment. Neither party may assign its rights or
obligations hereunder without the prior written consent of the other party,
which consent shall not be unreasonably withheld in the case of any assignment
pursuant to a merger, consolidation or sale of substantially all of the assets
or stock of a party, provided that (a) nothing contained in this Section 9.7
shall prohibit sublicensing, and (b) the proposed assignee under this Section
9.7 agrees in writing to assume all of the obligations of such party under this
Agreement.
11
<PAGE>
Section 9.8 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 9.9 Use of Names. Neither party shall use the name of the other
party or any officer, employee or consultant of the other party or any
adaptation thereof in any advertising, promotional or sales literature,
publicity or In any document employed to obtain funds or financing without the
prior written approval of the party or individual whose name is to be used;
provided that Cubist may state that it is licensed by Novalon under the Novalon
Patent Rights and the Novalon Technology and may make such disclosure as is
required by the Securities Act of 1933, the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder.
Section 9.10 Notices. All communications hereunder shall be in writing
and shall he deemed to have been duly given upon receipt by the addressee at the
addresses set forth below or such other address as either party may specify by
notice sent in accordance with this Section:
If to Cubist:
Cubist Pharmaceuticals, Inc.
24 Emily Street
Cambridge, MA 02139
Boston, MA 02118
Attention: Scott M. Rocklage, Ph.D.
Telecopier: (617) 576-0232
With a copy to,
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Julio E. Vega, Esquire
Telecopier: (617) 951-8736
(i) If to Novalon:
Novalon Pharmaceutical Corporation
214 West Cameron Avenue, Suite B
Chapel Hill, N.C. 27516
Attention: Dana M. Fowlkes, NM, Ph.D.
Telecopier: (919) 968-9255
12
<PAGE>
with a copy to:
Jenner & Block
12th Floor
601 Thirteenth Street, N. W.
Washington, D.C. 20005
Attention: D. Joe Smith, Esquire
Telecopier: (203) 639-6066
Section 9.11 Severability. In the event any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other term or provision hereof. The parties agree that they will negotiate in
good faith or will permit a court or arbitrator to replace any provision hereof
so held invalid, illegal or unenforceable with a valid provision which is as
similar as possible in substance to the invalid, illegal or unenforceable
provision.
Section 9.12 Conflict or Inconsistency. In the event of any conflict or
inconsistency between the terms and conditions hereof and any terms or
conditions set forth in any purchase order or other document relating to the
transactions contemplated by this Agreement, the terms and conditions set forth
in this Agreement shall prevail.
Section 9.13 Captions. Captions or the sections and subsections of this
Agreement are for reference purposes only and do not constitute terms or
conditions of this Agreement and shall not limit or affect the terms and
conditions hereof.
Section 9.14 Word Meanings. Words such as herein, hereinafter, hereof and
hereunder refer to this Agreement as a whole and not merely to a section or
paragraph in which such words appear, unless the context otherwise requires.
The singular shall include the plural, and each masculine, feminine and neuter
reference shall include and refer also to the others, unless the context
otherwise requires.
Section 9.15 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the transactions and matters
contemplated hereby, supersedes all prior agreements and understandings relating
to the subject matter hereof (including, without limitation, Section 7 of' the
Stock Purchase Agreement), and no representations, inducements, promises or
agreements, whether oral or otherwise, between such parties not contained herein
or incorporated herein by reference shall be of any force or effect.
Section 9.16 Acquisition. This Agreement shall immediately terminate upon
consummation of the Acquisition.
13
<PAGE>
Section 9.17 Rules of Construction. The parties agree that they have
participated equally in the formation of this Agreement and that the language
and terms of this Agreement shall not be presumptively construed against either
of them.
Section 9.18 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, and have duly delivered
and executed this Agreement under seal as of the date first set forth above.
CUBIST PHARMACEUTICALS, INC. NOVALON PHARMACEUTICAL CORPORATION
/s/ Mark Carthy for Scott M. Rocklage /s/ Dana M. Fowlkes
- ------------------------------------- ------------------------------
By: Scott M. Rocklage By: Dana M. Fowlkes
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
14
<PAGE>
Schedule I
Definitions
When used as capitalized terms in the Research Collaboration and License
Agreement to which this Schedule I is attached, the following terms shall have
the respective meanings set forth below:
AAA has the meaning specified in Section 10.
Acquisition means the acquisition by Cubist of all of the outstanding
shares of Novalon's capital stock.
Acquisition Option means Cubists option to acquire all of the outstanding
shares of Novalon's capital stock pursuant to that certain Acquisition Option
Agreement, dated May 5, 1997.
Acquisition Option Expiration Date means the earlier of (i) [ ]*
or (ii) such date as the Acquisition Option terminates pursuant to that certain
Acquisition Option Agreement, dated May 5, 1997.
Affiliate means with respect to any person or Entity, any other person or
Entity that controls, is controlled by or is under common control with the
specified person or Entity. As used in this definition, the term control means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an Entity, whether through ownership
of voting securities, by contract or otherwise.
Agreement means the research collaboration and license agreement to which
this Schedule I is attached, together with all Schedules and Exhibits annexed
thereto, as the same shall be modified and in effect from time to time.
Collaboration means the collaboration and other research activities engaged
in by Cubist and Novalon pursuant to Section 2 of this Agreement.
Collaboration Termination Date means the earlier of (i) [ ]* or
(ii) the effective date of termination of the Collaboration pursuant to the
provision, of Section 2.1(a) of this Agreement.
Confidential Information means all information and data provided by the
parties to each other hereunder in written or other tangible medium and
_____________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
1
<PAGE>
marked as confidential, or if disclosed orally, confirmed in writing within
thirty (30) days after disclosure, except any portion thereof which:
(a) is known to the receiving party, as evidenced by the receiving party's
written record, before receipt thereof under this Agreement;
(b) is disclosed to the receiving party by a third person who has a right
to make such disclosure; or
(c) is or becomes generally known in the trade through no fault of the
receiving party.
Cubist Indemnitee has the meaning specified in Section 6.2.
Cubist Patent Rights means Patent Rights which are owned by Cubist or any
of its Affiliates or which Cubist or any of its Affiliates has the right to
license or sublicense to persons or Entities.
Cubist Technology means Technology which is owned by Cubist or any of its
Affiliates or which Cubist Or any of its Affiliates has the right to license or
sublicense to persons or Entities.
Effective Date has the meaning set forth in the preamble to this Agreement.
Entity means any corporation, association, partnership (general or
limited), joint venture, trust, estate, limited liability company, limited
liability partnership or other legal entity or organization.
Exhibit A means Exhibit A to this Agreement, as said Exhibit A may be
amended and in effect from time to time.
Minimum Research Period means the period commencing on the Effective Date
and ending on the later of [ ]* or [ ]* after the Acquisition
Option Expiration Date.
Net Sales means all gross amounts billed to any person or Entity (other
than an Affiliate of such person or Entity) at the earliest of invoice, shipment
or payment in respect of Products, less the sum of the following amounts:
(a) sales and use taxes, tariffs, duties and the like imposed directly and
with reference to particular sales or leases; plus
(b) outbound shipping prepaid or actually allowed; plus
_____________________
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
2
<PAGE>
(c) amounts allowed on credits or returns; plus
(d) discounts allowed in amounts customary in the trade.
Novalon Indemnitee has the meaning specified in Section 6.1.
Novalon Patent Rights means Patent Rights as they relate to Cubist's
Specified Research Program as described in 2.1 c. which are owned by Novalon or
any of its Affiliates or which Novalon or any of its Affiliates has the right to
license or sublicense to persons or Entities. Without limiting the generality
of the foregoing, the term Novalon Patent Rights shall include all Patent Rights
of Novalon as they relate to Cubist's Specified Research Program as described in
2.1 c. with respect to the patents and patent applications listed in the Patent
List.
Novalon Technology means Technology as it relates to Cubist's Specified
Research Program as described in 2.1 c which is owned by Novalon or any of its
Affiliates or which Novalon or any of its Affiliates has the right to license or
sublicense to persons or Entities.
Patent List means Exhibit C annexed hereto as they may be amended and in
effect from time to time.
Patent Rights means all rights related to any of the following:
(a) all United States and foreign patent applications and provisional
applications;
(b) all patents issued with respect to all United States and Foreign
patent applications and provisional applications and with respect to
divisionals and continuations of these applications;
(c) claims of United States and foreign continuation-in-part applications,
and of resulting patents, that are directed to subject matter
described in the patent applications described in clause (a) above;
(d) claims of all foreign patent applications and of the resulting patents
that are directed to the subject matter described in the United States
patents and patent applications described in clauses (a), (b) or (c)
hereof, and
(e) any reissues of United States patents described in (a), (b) or (c)
hereof
3
<PAGE>
Products means any anti-bacterial or anti-fungal drug that was discovered
or developed as a result of the use of the Novalon Patent Rights or the Novalon
Technology.
Remaining Research Period means the period commencing at the end of the
Minimum Research Period and ending on the Collaboration Termination Date.
Royalties has the meaning set forth in Section 4.1.
Sublicense means any license or right granted by Cubist to any person or
Entity (and any such license or right granted by such person or Entity to any
other person or Entity) to use the Novalon Patent Rights or the Novalon
Technology to the same extent as Cubist is entitled pursuant to this Agreement,
together with all agreements between the parties related thereto.
Sublicensor means any person or Entity (including without limitation,
Cubist) who grants a Sublicense.
Sublicensee Any person or Entity to whom a Sublicense is granted.
Technology means all proprietary developments, ideas, designs, concepts,
techniques, processes, inventions, cell lines, discoveries, improvements,
research results, toxicology data, assays, preclinical data, mask Works,
manufacturing processes, clinical results, regulatory submissions, approvals and
licenses, product licenses, papers, photographs, computer programs and
databases, manuals, prototypes, models, plans, drawings, formulations,
specifications, methods, shop-practices, formulas, supplier lists, engineering
and manufacturing information costing information, accounting and financial
data, and strategic plans (without regard to whether they are Confidential
Information, patentable or copyrightable) of a person but that are not included
within Patent Rights, including without limitation,
(a) inventions that are the subject of patent applications for which
patents do not issue or are invalidated (from and after the date a
final determination is made from which no further appeal may be
taken);
(b) inventions that directly relate to the Patent Rights but do not
infringe a valid, unexpired or pending claim contained in the Patent
Rights;
(c) from and after the abandonment of a claim of a patent contained in the
Patent Rights or after the removal of a patent from the list of Patent
Rights, inventions formerly covered thereby; and
4
<PAGE>
(d) in countries where the parties hereto have agreed that obtaining
patent protection is not economically viable or advisable, all
inventions that directly relate to the Patent Rights.
5
<PAGE>
Exhibit 10.2
CONFIDENTIAL
Addendum to the Research Collaboration and License Agreement
ADDENDUM to the RESEARCH COLLABORATION AND LICENSE AGREEMENT, dated as of May
5, 1997 (the Effective Date), by and between Cubist Pharmaceuticals, Inc., a
Delaware corporation (Cubist) and Novalon Pharmaceutical Corporation, a
Delaware corporation (Novalon).
WHEREAS, Cubist and Novalon have entered into a Series B Convertible
Preferred Stock Purchase Agreement, dated as of May 5, 1997 (the Stock
Purchase Agreement), pursuant to which Cubist purchased shares of the Series
B Convertible Preferred Stock of Novalon and agreed to engage in a
collaborative "BioKeys" research project and the "ElectroScreen" project with
Novalon.
WHEREAS, pursuant to Section 7.6 of the Stock Purchase Agreement, Cubist
and Novalon negotiated and entered into a Research Collaboration and License
Agreement, dated May 5, 1997, to set forth the rights and obligations of the
parties with respect to the research projects.
WHEREAS, Cubist and Novalon wish to amend said Research Collaboration and
License Agreement with this Addendum; and
WHEREAS, Cubist and Novalon wish to maintain in full force and effect all
provisions of the Research Collaboration and License Agreement except for
those provisions that are amended herein.
NOW, THEREFORE, in consideration with the mutual promises and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Cubist and Novalon hereby
agree as follows:
Section 1. Definitions. Capitalized terms used in this Agreement shall
have the meanings set forth in the Research Collaboration and License
Agreement, dated May 5, 1997, except for the following terms which will have
the meaning as set forth below:
Collaboration Targets List means a schedule, as amended from time to
time, listing Targets subject to the provisions of this Section 2 and Section
3 that Cubist has an intention to screen and for which Novalon will make its
best efforts to develop assays.
<PAGE>
Cubist Patent Rights means Patent Rights which are owned by Cubist or any
of its Affiliates at any time and from time to time or which Cubist or any of
its Affiliates has the right at any time and from time to time to license or
sublicense to persons or Entities. The term Cubist Patent Rights shall not
include any Patent Rights that are included within Joint Patent Rights.
Cubist Technology means Technology which is owned by Cubist or any of its
Affiliates at any time and from time to time or which Cubist or any of its
Affiliates has the right at any time and from time to time to license or
sublicense to persons or Entities. The term Cubist Technology shall not
include any Technology that is included within the Joint Technology.
Joint Patent Rights means Patent Rights that are jointly owned by Cubist
and Novalon and that relate to Joint Technology.
Joint Technology means Technology that is developed jointly by the
employee, or agents of Novalon and Cubist or their respective Affiliates
during the term of the Collaboration.
Novalon Patent Rights means Patent Rights which are owned by Novalon or
any of its Affiliates at any time and from time to time or which Novalon or
any of its Affiliates has the right at any time and from time to time to
license or sublicense to persons or Entities. Without limiting the
generality of the foregoing, the term Novalon Patent Rights shall include all
Patent Rights of Novalon with respect to the patents and patent applications
listed in the Patent List. The term Novalon Patent Rights shall not include
any Patent Rights that are included within the Joint Patent Rights.
Novalon Technology means Technology which is owned by Novalon or any of
its Affiliates at any time and from time to time or which Novalon or any of
its Affiliates has the right at any time and from time to time to license or
sublicense to persons or Entities. The term Novalon Technology shall not
include any Technology that is included within the Joint Technology.
RCLA means the Research Collaboration and License Agreement.
-2-
<PAGE>
Research Collaboration and License Agreement means that certain Research
Collaboration and License Agreement, dated May 5, 1997, by and between Cubist
Pharmaceuticals, Inc. and Novalon Pharmaceutical Corporation, as amended from
time to time.
Sublicense means any license or right granted by Cubist to any person or
Entity (and any such license or right granted by such person or Entity to any
other person or Entity) to use the Novalon Patent Rights, the Novalon
Technology, the Joint Patent Rights, and the Joint Technology to the same
extent as Cubist is entitled pursuant to this Agreement, together with all
agreements between the parties related thereto.
Target means a macromolecule, including but not limited to the amino acid
sequence (if known) or nucleic acid sequence (if known) of said macromolecule.
Target Activation Date means the date Cubist lists a Target on the
Collaboration Targets List, as described in Section 2 herein.
Target Exclusivity Fee means a fee of [ ]* per Target per year
as described in Section 3 herein to maintain Cubist's exclusive license
and/or collaborative relationship for the use of Novalon's technology to
research a Target.
Section 2 Research Collaboration
The following Section 2-1 (c) supersedes and replaces Section 2.1 (c) of
the RCLA.
Section 2.1 Collaboration
(c) In the event that Cubist elects not to exercise the Acquisition
Option, Cubist shall, within [ ]* after the Acquisition
Option Expiration Date, deliver to Novalon a schedule listing not more
than ten (10) Targets that comprise the Collaboration Targets List.
The aforementioned Targets will be the focus of the Minimum Research
Period. Within
- -------------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-3-
<PAGE>
[ ]* after the end of the Minimum Research Period and in
the event that the Collaboration continues to be in effect pursuant
to the RCLA, Cubist and Novalon will mutually agree
upon the number of Targets that shall be added to the Collaboration
Targets List to be worked on in the Collaboration during the Remaining
Research Period in addition to those Targets that comprised the
Collaboration Targets List during the Minimum Research Period,
provided that said Targets shall not have been previously listed on
the Collaboration Targets List and are not the subject of a research
agreement with any third party that would preclude Novalon or Cubist
from collaborating to research said Targets with each other. The
parties may modify the Collaboration Targets List at any time upon
mutual agreement. Novalon shall have the right to remove any Target
from the Collaboration Targets List at any time after the last day of
the eighteenth month following the Target's respective Target
Activation Date by giving Cubist thirty (30) days written notice,
provided, however, that the foregoing shall not give Novalon the right
to remove a Target if Cubist has paid the Target Exclusivity Fee for
such Target for the current period pursuant to Section 3 hereof During
the Remaining Research Period, Novalon and Cubist shall (i) continue
the research activities described in Exhibit A, (ii) engage in such
research, screening, target discovery and validation, and drug
discovery and development activities as Cubist shall request, provided
that such research, screening, target discovery and validation, and
drug discovery and development activities arc related to, or involve,
Targets that arc listed on the Collaboration Targets List and (iii)
engage in such other research activities as the parties may agree upon
from time to time. The respective tasks, activities and obligations
of the parties in connection with any of' the matters on which the
parties are collaborating during the Remaining Research Period shall
be mutually agreed upon by the parties.
The following Section 2.4 (b) supersedes and replaces Section 2.4 (b) of
the RCLA.
- -------------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-4-
<PAGE>
Section 2.4 Exclusivity.
(b) During the period commencing upon the [ ]*, Novalon
shall not engage in any research or screening activities or programs,
any research collaborations, any drug discovery or drug development
collaborations, partnerships or alliances, any licensing transactions,
or any other kind of transactions in the antibacterial and anti-fungal
therapeutic area; provided, however, that the foregoing provisions of
this Section 2.4 (b) shall not preclude Novalon from engaging in (i)
the Collaboration, or (ii) any research or screening activity or
program so tong as it (A) covers a finite number of specific
biological Targets for drug discovery and development, (B) provides
for Novalon to engage in active research, discovery and development
activities with respect to all of such biological Targets, (C)
provides for the payment to Novalon commercially reasonable
consideration, (D) does not involve Targets that are listed on the
Collaboration Targets List at the time the research or screening
activity or program is entered into, and (E) does not preclude Novalon
from entering into similar arrangements with other parties (including
Cubist) relating to other Targets in the same or any different field
or pathogen. The restrictions set forth in this Section 2.4 (b) may
be waived, in any instance, by written consent of Cubist.
Section 3. License.
The following Section 3 supersedes and replaces Section 3 of the RCLA.
Section 3. License. Subject to all of the terms and conditions of this
Agreement, Novalon hereby grants to Cubist an exclusive, worldwide right and
license to use the Novalon Patent Rights, the Novalon Technology, the Joint
Patent Rights, and the Joint Technology, for purposes of (i) researching,
screening for, discovering or developing anti-bacterial or anti-fungal drug
candidates or anti-bacterial or anti-fungal drug discovery targets derived from
research on Targets listed on the Collaboration Targets List or (ii) selling,
licensing, marketing or otherwise commercializing antibacterial or anti-fungal
drugs discovered Or developed using any portion of the Novalon
- -------------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-5-
<PAGE>
Patent Rights, the Novalon Technology, the Joint Patent Rights, and Joint
Technology in research on Targets listed on the- Collaboration Targets List,
The license granted hereunder with respect to each Target listed on the
Collaboration Targets List shall be for a term of eighteen (18) months'
following the Target Activation Date for such Target, provided that Cubist
may extend the term of the license by one year for each such Target by the
payment to Novalon of' a Target Exclusivity Fee of [ ]* on or before
the first day of the nineteenth month following the Target Activation Date
for such Target. Cubist may extend the license for such Target for
successive one-year terms by the payment to Novalon of an additional Target
Exclusivity Fee of [ ]* on each anniversary date of the due date of
the first payment of the Target Exclusivity Fee for such Target. In the
event that Cubist fails to make any such Target Exclusivity Fee payment,
Novalon may, upon giving Cubist thirty (30) days written notice and upon
Cubist's failing to make such Target Exclusivity Fee payment, remove such
Target from the Collaboration Targets List and revoke the license granted
hereunder with respect to such Target. Upon the revocation of a license with
respect to any such Target, Cubist shall not thereafter have the right to
reinstate such license unless Novalon shall consent thereto in writing.
Except for the foregoing, Cubist's license shall be perpetual and
irrevocable. Cubist shall have the right to sublicense the license granted to
Cubist pursuant to this Section 3. Except for any payments made or required
to be made by Cubist to Novalon pursuant to Section 2.2, Section 3 or Section
4.1 of the RCLA and in connection with the Collaboration, Cubist shall not
have to pay or otherwise owe to Novalon any consideration of any kind in
connection with the license.
Section 4. Confidentiality and Use of Names.
The following Section 9.4 supersedes and replaces Section 9.4 of the RCLA.
Section 9.4 Confidentiality. It is contemplated that in the course of
the performance of this Agreement each party may, from time to time, disclose
Confidential Information to the other. Each party agrees to take all
reasonable steps to prevent disclosure of Confidential Information;
- -------------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-6-
<PAGE>
provided that no provision of this Agreement shall be construed to preclude
such disclosure of Confidential Information as may be necessary or
appropriate to obtain from any governmental agency any necessary approval or
license or to obtain patents that are to be included in Novalon Patent Rights
and Joint Patent Rights.
The following Section 9.9 supersedes and replaces Section 9.9 of the RCLA.
Section 9.9 Use of Names. Neither party shall use the name of the other
party or any officer, employee or consultant of the other party or any
adaptation thereof in any advertising, promotional or sales literature,
publicity or in any document employed to obtain funds or financing without
the prior written approval of the party or individual whose name is to be
used; provided that Cubist my state that it is licensed by Novalon under the
Novalon Patent Rights, the Novalon Technology, the Joint Patent Rights, and
the Joint Technology and may make such disclosure as is required by the
Securities Act of 1933, the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder.
Section 5. Joint Rights.
The following Section 10 is hereby added to the RCLA.
Section 10. Joint Rights.
Section 10.1 Ownership Rights. Cubist and Novalon shall jointly and
equally own all Technology and inventions developed jointly by the employees
or agents of Novalon and Cubist or their respective Affiliates, and shall
jointly and equally own all Patent Rights relating to such Technology and
inventions. Subject to the provisions of Section 5.2 of the RCLA, Novalon
retains all rights to file and prosecute any and all patent applications
included within the Novalon Patent Rights, and Cubist retains all rights to
file and prosecute any and all patent applications included within the Cubist
Patent Rights.
Section 10.2 Patent Filings. Novalon shall, using patent attorneys
selected by Novalon, apply for, seek issuance of and maintain the Joint
Patent Rights and other patents based on the Joint Technology in the United
States and in such other countries as Novalon identifies or as Cubist may
request in writing, provided that Cubist shall cooperate with Novalon in such
prosecution, filing and maintenance. Cubist shall be given at least
twenty-five (25) days to advise and comment upon such
-7-
<PAGE>
filings and actions as are undertaken by Novalon. Costs relating to patent
filings shall be shared equally between Novalon and Cubist. Cubist may, in
its discretion, decline to participate in the prosecution and maintenance of
any Joint Patent Rights in any country, provided, however, that in doing so,
Cubist shall convey all of its ownership interests in such Joint Patent
Rights to Novalon and Novalon shall bear all subsequent patent costs for such
Joint Patent Rights. Novalon may, in its discretion, decline to apply for,
prosecute or maintain any Joint Patent Rights in any country, but shall give
timely notice to Cubist of any such determination, provided, however, that in
doing so, Novalon shall convey all of its ownership interests in such Joint
Patent Rights to Cubist and Cubist shall bear all subsequent patent costs for
such Joint Patent Rights. Novalon agrees to cooperate with Cubist as
reasonably necessary to permit Cubist to be able to prosecute or maintain any
Joint Patent Rights in those countries where Novalon declines to undertake
action.
Section 6. Infringement of Joint Rights.
The following Section 11 is hereby added to the RCLA.
Section 11. Infringement of Joint Rights.
Section 11.1 Notice. Cubist shall notify Novalon promptly in writing
upon becoming aware of any alleged infringement of the Joint Patent Rights by
a third party and shall provide any available evidence thereof, Novalon shall
notify Cubist promptly in writing upon becoming aware of any alleged
infringement of the Joint Patent Rights by a third party and shall provide
any available evidence thereof.
Section 11.2 Prosecution By Novalon Related to Joint Rights. Novalon
shall have the right, at its sole discretion, to prosecute any alleged
infringements of the Joint Patent Rights. Cubist agrees to allow Novalon to
include Cubist, at Novalon's own expense, as a party plaintiff in any suit
brought with respect to infringement. In the event that Novalon takes the
lead role with respect to the commencement or defense of any action, the
total costs shall be borne by Novalon, and any recovery or damages shall be
applied as follows: (a) first, to Novalon to reimburse Novalon for the
expenses of the litigation or suit, including reasonable attorneys' fees and
(b) then, the balance would be allocated equally between Cubist and Novalon.
Cubist shall have the right to participate in any action, and Novalon agrees
to consult with counsel for Cubist on any significant matters related to the
litigation.
-8-
<PAGE>
Section 11.3 Prosecution By Cubist Related to Joint Rights.
(a) Procedure. If Novalon, within six (6) months after having been
notified of an alleged infringement, shall have been unsuccessful in
negotiating with the alleged infringer to cease and desist such infringement
and shall not have brought an infringement action, or if Novalon shall notify
Cubist at any time prior thereto of its intention not to bring suit against
any alleged infringer, then Cubist shall have the right, but shall not be
obligated, to prosecute at its own expense any such infringement of the Joint
Patent Rights. Cubist shall be entitled to offset the costs of any such
litigation against any amounts due by Cubist to Novalon under this Agreement.
In such circumstances, Cubist may use the name of Novalon as the plaintiff
if necessary for the prosecution of the infringement suit. Notwithstanding
anything in the foregoing to the contrary, no settlement, consent judgment or
other voluntarily final disposition of any such suit may be entered into
without the consent of Novalon, which consent shall not be unreasonably
withheld.
(b) Damages. In the event that Cubist undertakes litigation pursuant to
Section 11.3 (a) for the enforcement of Joint Patent Rights, any recovery of
damages by Cubist or Novalon, as the case may be, for each suit shall be
applied as follows: (a) first, to Cubist to reimburse Cubist for the expenses
of the litigation or suit, including reasonable attorneys' fees, (b) then,
second, to Novalon to reimburse Novalon for its expenses of the litigation or
case, including reasonable attorneys' fees [ ]* and (c) then the
balance would be allocated [ ]* between Cubist and Novalon.
Section 11.4 Actions Against Cubist or Novalon Related to Joint Rights.
(a) In the event that an action alleging invalidity or noninfringement
of any of the Joint Patent Rights shall be brought against Cubist or against
Novalon (whether as an independent action or as a counterclaim of a suit
filed by either Novalon pursuant to Section 11.2 or Cubist pursuant to
Section 11.3(a)), Novalon, at its sole option, shall have the right, within
thirty (30) days after the commencement of such action, to take or regain
control of the action at its own expense. If Novalon shall determine not to
exercise this right, Cubist may take over or remain as
- -------------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-9-
<PAGE>
lead counsel for the action at Cubist's sole expense, with any settlement or
recovery subject to the approval provisions of Section 11.3(a) and allocation
provisions or Section 11.3(b).
(b) In the event that an action alleging any of the Joint Patent Rights
or Joint Technology infringes, or resulted from the misappropriation of, any
third party shall be brought against Cubist or against Novalon (whether as an
independent action or as a counterclaim of a suit filed by either Novalon
pursuant to Section 11.2 or Cubist. pursuant to Section 11.3 (a)), Novalon,
at its sole option, shall have the right, within thirty (30) days after the
commencement of such action, to take or regain control of the action at its
own expense. If Novalon shall determine not to exercise this right, Cubist
may take over or remain as lead counsel for the action at Cubist's sole
expense.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, and have duly
delivered and executed this Agreement under seal as of the date first set
forth above.
Novalon Pharmaceutical Corporation Cubist Pharmaceuticals, Inc.
/s/ Dana M. Fowlkes /s/ Scott M. Rocklage
- ----------------------------------- -----------------------------
By: Dana M. Fowlkes, M.D., Ph.D. By: Scott M. Rocklage, Ph.D.
Title: Chairman, President, and CEO Title: President and CEO
-11-
<PAGE>
Exhibit 10.3
License Agreement
This Agreement is made this 7th day of November, 1997 (the "Effective Date"),
by and between ELI LILLY & COMPANY having its principal place of business at
Lilly Corporate Center, Indianapolis, Indiana 46285 and its Affiliates
(collectively, "ELI LILLY") and Cubist Pharmaceuticals Incorporated, a
Delaware corporation having its principal place of business at 24 Emily
Street, Cambridge, MA, 02139 and its Affiliates (collectively "CUBIST") as
follows:
Article 1
Definitions
As used throughout this Agreement, the following terms shall have the
meanings indicated in this Article.
"Affiliate" means any corporation or other entity which directly or
indirectly controls, is controlled by or is under common control with a party
to this Agreement. A corporation or other entity shall be regarded as in
control of another corporation or entity if it owns or directly or indirectly
controls more than [ ]* of the outstanding voting stock or other
ownership interest of the other corporation or entity, or if it possesses,
directly or indirectly, the power to manage, direct or cause the direction of
the management and policies of the corporation or other entity or the power
to elect or appoint [ ]* or more of the members of the governing body
of the corporation or other entity. Any such other relationship as in fact
results in actual control over the management, business and affairs of a
corporation or other entity shall also be deemed to constitute control.
"Average Market Price" shall mean the average closing price for CUBIST common
stock for twenty consecutive trading days, the last day of which is
immediately prior to five days prior to the event that triggered such payment
of CUBIST common stock to ELI LILLY.
"Compound" means [ ]* or a pharmaceutically acceptable salt thereof
or a pharmaceutically acceptable formulation thereof which is in Lilly's
possession on the Effective Date.
- ---------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
<PAGE>
"Confidential Information" means any information and data received by a party
from the other party, as well as the terms of this Agreement. Notwithstanding
the foregoing, Confidential Information shall not include any part of such
Confidential Information that: (1) is or becomes part of the public domain
other than by unauthorized acts of the party obligated not to disclose such
Confidential Information; (ii) can be shown by written documents to have been
disclosed to the receiving party by a third party, provided such Confidential
Information was not obtained by such third party directly or indirectly from
the disclosing party with an obligation for such third party to maintain the
confidentiality of such information; (iii) prior to disclosure under this
Agreement, was already in the possession of the receiving party and such
possession can be evidenced by written documents, provided such Confidential
Information was not obtained directly or indirectly from the disclosing party
with an obligation to maintain the confidentiality of such information, (iv)
can be shown by written documents to have been independently developed by the
receiving party without breach of any of the provisions of this Agreement and
such independent development can be evidenced by written documents', or (v)
is disclosed by the receiving party pursuant to interrogatories, requests for
information or documents, subpoena, civil investigative demand issued by a
court or governmental agency or as otherwise required by law, provided,
however, that the receiving party notifies the disclosing party immediately
upon receipt thereof, giving such disclosing party sufficient advance notice
to permit it to seek a protective order or other similar order with respect
to such Confidential Information and provided, further, that the receiving
party furnishes only that portion of the Confidential Information which it is
advised by counsel is legally required whether or not a protective order or
other similar order is obtained by the disclosing party.
"ELI LILLY Program" shall mean a research, development and/or marketing
project that ELI LILLY, its Affiliates, and/or a third party, pursuant to an
Agreement with ELI LILLY, have been committing non-trivial financial and/or
human resources to advance.
"Field" shall mean the treatment of infectious diseases except, [ ]*
"Know-How" means all information and data reasonably useful for the
development, process development, regulatory approval, manufacture,
- ---------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-2-
<PAGE>
use, formulation or sale of Compound in the Field which (i) is in the
possession of ELI LILLY as of the Effective Date or is created by ELI LILY
after the Effective Date, (ii) ELI LILLY can provide using reasonble efforts
and (iii) ELI LILLY is free to provide without obligation to any third party.
Such Know-How may include information that is secret, whether or not
patentable, relating to materials, methods, processes, procedures, protocols,
techniques, formulae and data reasonably useful for the development,
regulatory approval, manufacture or use of Compound in the Field.
"Major Market Country" shall mean the United States, Canada, Japan, the
United Kingdom, Germany, France, Italy, Spain, Switzerland, Netherlands and
Belgium.
"Net Sales" means the amounts received by CUBIST and/or its sublicensees on
sales or other transfers for commercial use of Compound, and products
incorporating Compound, to independent third parties in bona fide arms length
transactions, less the following deductions actually allowed and taken by
such independent third parties and not otherwise recovered by or reimbursed
by CUBIST or its sublicensees:
(a) [ ]*;
(b) [ ]*;
(c) [ ]*; and
(d) [ ]*.
If CUBIST or its sublicensees sell or transfer Compound, or any products
incorporating Compound for commercial use, other than (i) reasonable
quantities of promotional samples or (ii) to an independent third party in a
bona fide arm's length transaction, Net Sales shall be determined based upon
the resale or other retransfer to an independent third party in an arm's
length transaction by the entity to whom such Compound, or product, was sold
or transferred by Cubist or its sublicensee. If there is no such resale or
retransfer, Net Sales shall be determined based on the average Net Sales
price as determined in the immediately preceding royalty accounting period as
set forth in Section 4.02.
- ---------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-3-
<PAGE>
In the event Compound is sold as a component of a combination of functional
elements, Net Sales for purposes of determining royalty payments on such
combination shall be calculated by multiplying the Net Sales price of such
combination by the fraction [ ]* In the event no separate sale of
either such above-designated Compound or such above-designated non-Compound
portion of the combination is made during the accounting period in which the
sale of the combination was made, Net Sales shall be calculated by
multiplying the Net Sales price of the combination by the fraction [ ]
*.
"Patent(s)" means any of ELI LILLY's patents, pending patent applications,
and future. patent applications, including, but not limited to, those set
forth on Exhibit 3 attached hereto, which claim Compound, formulations of
Compound, processes for preparing Compound or use of Compound in the Field,
any United States or foreign counterpart patents and applications, and any
continuing, divisional, reissue, re-examination and substitute patents and
applications based, in whole or in part, on any of the foregoing patents and
patent applications, together with all continuations, continuations-in-part,
divisions, patents of addition, reissues, renewals, extensions, supplementary
protection certificates and complementary protection certificates of any of
the foregoing which are owned by ELI LILLY and under which ELI LILLY has
rights to grant a sublicenses.
"Phase II Clinical Trial" shall mean clinical studies conducted in accordance
with Good Clinical Practices ("GCPs") in a small number of healthy volunteers
to establish efficacy and obtain a preliminary indication of the dosage of
Compound.
"Phase III Clinical Trial" shall mean large scale clinical studies in
patients conducted in accordance with GCPs primarily to establish safety and
efficacy of Compound.
"Valid Claim" shall mean a claim of an issued and unexpired Patent which has
not been withdrawn, canceled, revoked, disclaimed, or held invalid,
unenforceable or unpatentable by a final and unappealed (within the time
allowed for appeals) or unappealable judgment or decision of a court or other
governmental agency of competent jurisdiction.
- ---------------
* Confidential Treatment requested: material has been omitted and filed
separately with the Commission.
-4-
<PAGE>
Article 2
License Grant
2.00 ELI LILLY grants to CUBIST the following worldwide, exclusive licenses
subject to the conditions set forth herein below in Section 2.01:
(a) Under the Patents, to develop, manufacture, formulate, have
manufactured, import, use, distribute for sale, market and sell Compound in
the Field; and
(b) To use the Know-How for the development, manufacture, formulation,
use, distribution for sale, marketing, and sale of Compound consistent with
the terms of this Agreement.
2.01 (i) Subject to Section 2.01(ii) below, CUBIST shall have the right to
grant sub-licenses under the Patents and Know-How, for use in the Field,
provided that the terms and conditions of such sub-licenses are consistent
with and no less restrictive than the terms and conditions of this Agreement,
and any such disclosure or transfer of Compound shall be limited to use
solely in the Field.
(ii) In the event that, during the term of this Agreement, CUBIST
actively seeks to grant a sub-license to a third party for the development of
the Compound in the Field which sublicense includes, but is not necessarily
limited to, the right to develop and/or commercialize an oral or intravenous
formulation of the Compound, CUBIST agrees to inform ELI LILLY of such
determination by written notice, which notice shall include (a) a description
in reasonable detail of the subject matter of the proposed sub-license and
(b) the terms on which CUBIST would be willing to grant ELI LILLY such rights
(the "Sublicense Notice"). ELI LILLY shall thereupon have a period of
[ ]* (the "Notice Period") to either accept CUBIST's terms in writing
or to make a written counter-proposal. If ELI LILLY accepts CUBIST's
proposal or makes a counter-proposal, the parties will, for a period of up to
[ ]* from receipt by ELI LILLY of the Sublicense Notice (the
"Negotiation Period"), seek in good faith to enter into a definitive
agreement for such rights. If ELI LILLY does not by the expiration of the
Notice Period either accept CUBIST's proposal or make a counter-proposal, or
the parties negotiate in
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-5-
<PAGE>
good faith and fail to reach agreement by the expiration of the Negotiation
Period, CUBIST shall be free to enter into a sub-license for such rights with
a third party,[ ]*.
2.02 CUBIST shall notify ELI LILLY within [ ]* of the identity of
each sublicensee together with a summary of the principal terms of any
sub-license, and shall take all reasonable steps in the event of a breach of
any sub-license by the sub-licensee to enforce the same.
2.03 CUBIST acknowledges that ELI LILLY has disclosed certain Know-How to
CUBIST prior to the execution of this Agreement and CUBIST shall treat such
Know-How in accordance with the terms of this Agreement. During the term of
this Agreement, ELI LILLY shall disclose to CUBIST such other Know-How as is
directly related to CUBIST's activities under the license granted in Article
2.00 and which ELI LILLY can provide to CUBIST using reasonable efforts.
2.04 Promptly after the Effective Date, ELI LILLY may provide CUBIST with
reasonable access to consult with pertinent ELI LILLY employees that have had
prior experience working with Compound in the Field at ELI LILLY to enhance
the preclinical or clinical development and manufacturing of the Compound,
provided that such consultation shall occur at a mutually agreeable time and
place and that ELI LILLY will only provide such access to current employees
which are reasonably able to provide CUBIST with ELI LILLY Know-How relating
to the scale-up, manufacture, or formulation of Compound for use in the
Field. CUBIST shall be responsible for all reasonable expenses its own
personnel and ELI LILLY personnel incur in association with any such
consultations. Upon CUBIST's request, ELI LILLY shall provide CUBIST and its
sublicensees with all Know-How, information and data owned by ELI LILLY which
ELI LILLY can provide using reasonable efforts to the extent such Know-How,
information and data is reasonably required to further CUBIST's or its
sub-licensees' ability to develop, scale-up, obtain regulatory approval for,
manufacture, distribute, use, formulate or sell Compound for use in the
Field. CUBIST agrees to treat all Know-How disclosed to it as Confidential
Information of ELI LILLY.
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-6-
<PAGE>
2.05 ELI LILLY shall deliver to CUBIST, ELI LILLY's available inventory of
Compound. ELI LILLY shall not be required to perform any manufacturing of
Compound for CUBIST.
Article 3
Diligence and
Regulatory
3.00 CUBIST shall use commercially reasonable efforts to develop and test
the Compound in the Field, to perform all pre-clinical, clinical and other
studies of such Compound necessary to obtain regulatory approval for the
manufacture, use and sale of Compound, and to market and sell Compound in the
Field in all countries in which it is commercially reasonable to market such
Compound. CUBIST shall fully fund these efforts, as well as any other work
that is required for CUBIST to develop and market Compound in the Field.
CUBIST has prepared and provided to ELI LILLY a preliminary development plan
attached hereto as Exhibit 2, which contains CUBIST's estimate, based upon
data currently available to CUBIST concerning the subject matter of this
Agreement, of the probable course of Compound development hereunder. As
Compound development progresses, CUBIST will revise the plan from time to
time to reflect the development and evolution of its plans regarding
development, regulatory approvals, manufacturing and formulation, and
clinical trials, and will provide ELI LILLY with a copy of any such
materially revised plan as soon as reasonably possible after such revision
occurs. [ ]*. The terms under which ELI LILLY shall acquire back
all such rights shall be the subject of a separate agreement to be negotiated
in good faith by the parties.
3.01 CUBIST represents that it intends to conduct clinical testing of
Compounds to the extent that such testing is supported by safety and efficacy
data required by the applicable regulatory agency.
3.02 Within thirty (30) days of the Effective Date, ELI LILLY shall deliver
to CUBIST a copy of the Investigational New Drug Application filed with the
United States Food and Drug Administration and foreign equivalents, if any
relating to the Compound, and as soon thereafter as is commercially
practicable, ELI LILLY shall transfer all other reasonably
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-7-
<PAGE>
transferable information used in regulatory filings, laboratory data,
clinical data, toxicology data, and scale-up, manufacturing and formulation
information relating to Compound to CUBIST in a commercially reasonable time
frame.
3.03 Both ELI LILLY and CUBIST shall submit information and file reports to
various governmental agencies to the extent they are lawfully required on
compounds under clinical investigation, compounds proposed for marketing, or
marketed drugs. Information must be submitted at the time of initial filing
for investigational use in humans and at the time of a request for market
approval of a new drug. In addition, supplemental information must be
provided on compounds at periodic intervals and adverse drug experiences must
be reported at more frequent intervals depending on the severity of the
experience. Consequently, ELI LILLY and CUBIST agree, to the extent required
by applicable law or regulations, to:
1) provide to one another for initial and/or periodic submission to
governmental agencies significant information on Compound from pre-clinical
laboratory, animal toxicology and pharmacology studies, as well as serious or
unexpected adverse experience reports from clinical trials and marketed
commercial experiences with Compound.
2) report to one another in such a manner and time so as to enable
each party to comply with all governmental laws and regulations in
territories for which registration is or will be sought.
Serious adverse experience means any experience that suggests a
significant hazard, contraindication, side effect or precaution, or any
experience that is fatal or life threatening, is permanently disabling,
requires or prolongs inpatient hospitalization, or is a congenital anomaly,
cancer or overdose.
Unexpected adverse experience is one not identified in nature,
specificity, severity or frequency in a current investigator brochure for
Compound, or in CUBIST's labeling for Product.
3.04 CUBIST also agrees that if it contracts with a third party for
research to be performed by such third party on Compound or if it sublicenses
its rights herein to a third party, it will require such third party to
comply with the reporting obligations (both to ELI LILLY and to regulatory
agencies) set forth in this Section.
-8-
<PAGE>
3.05 CUBIST shall comply with all applicable laws and regulations regarding
the care and use of experimental animals, in a country where the development
is carried out. All animals used to evaluate Compound shall be provided
humane care and treatment in accordance with the most acceptable veterinary
practices.
Article 4
Payments
4.00 Cubist will pay [ ]* to ELI LILLY as a license fee upon the
Effective Date of this Agreement.
4.01 CUBIST will also pay to ELI LILLY the following payments:
(a) [ ]* as a license fee, to be paid upon the earlier of (i)
completion of CUBIST or CUBIST's sub-licensee's first Phase II Clinical Trial
in a Major Market Country or (ii) upon the initiation of CUBIST or CUBIST's
sub-licensees of patient dosing in the first Phase III Clinical Trial in a
Major Market Country; said license fee to be paid in CUBIST common stock
based on the Average Market Price for such CUBIST common stock;
(b) [ ]* as a license fee, to be paid upon the date of
CUBIST's or CUBIST's sub-licensee's first regulatory submission in a Major
Market Country for a license to market Compound, said license fee to be paid
in CUBIST common stock, based on the Average Market Price for such CUBIST
Common Stock; and
(c) [ ]* as a license fee, to be paid upon the date of
CUBIST's or CUBIST's sub-licensee's first regulatory approval in a Major
Market Country for their application to market Compound, said license fee to
be paid in CUBIST common stock, based on the Average Market Price for such
CUBIST Common Stock.
4.02 During the first [ ]* after the first commercial sale of
Compound in a Major Market Country, CUBIST will pay ELI LILLY royalties of
[ ]* on the first [ ]* of aggregate annual Net Sales of
Compounds and [ ]* on aggregate Net Sales between [ ]* and
[ ]* and [ ]* on aggregate annual Net Sales in excess of
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-9-
<PAGE>
$150,000,000 in all countries ("Protected Countries") for so long as (a) the
manufacture, use or sale of Compound is covered by a Valid Claim, or (b)
there is no significant generic competition which causes a reduction of Net
Sales of Compound by [thirty (30) percent]* or more in any [twelve month]*
period.
After the expiration of the first [ ]* after first commercial sale in
a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]*
on the first [ ]* of aggregate annual Net Sales of Compound and
[ ]* on aggregate annual Net Sales between [ ]* and
[ ]* and [ ]* on aggregate annual Net Sales in excess of
[ ]* in all countries ("Protected Countries") for so long as (a) the
manufacture, use or sale of a Compound is covered by a Valid Claim, or (b)
there is no significant generic competition which causes a reduction of Net
Sales of Compound by [ ]* or more in any [twelve month]* period.
4.03 For a period of [ ]* following first commercial sale in a
Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* of
aggregate annual Net Sales in all countries that are not Protected Countries,
but where the manufacture, use, sale or transfer of Compound utilizes
Know-How provided to CUBIST by ELI LILLY. [ ]* of Net Sales in
countries that are not Protected Countries shall be included in aggregate
annual Net Sales of Compound calculated pursuant to Section 4.02 for purposes
of determining the appropriate royalty percentage in Section 4.02.
4.04 In the event that CUBIST can demonstrate that external factors beyond
its control (such as government-imposed price controls) have materially
reduced CUBIST's profitability on sales of Compound in any Country, ELI LILLY
agrees to consider in good faith an equitable reduction in the royalty rate
applicable to such country under Section 4.02 or 4.03, as applicable.
4.05 The first payment under Articles 4.04 and 4.05 shall be due within
[ ]* after December 31 or June 30, whichever such date occurs first
after the first commercial sale or transfer of Compound. Thereafter,
payments under Articles 4.04 and 4.05 shall be made within [ ]* of
each of December 31 and June 30 of each year. Payments shall be
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-10-
<PAGE>
accompanied by a report showing all facts necessary to the calculation of
amounts due.
4.06 All royalty payments to ELI LILLY shall be in United States dollars.
Royalty payments based on Net Sales in currencies other than United States
dollars shall be converted to US dollars according to the average official
rate of exchange for that currency as published in the Wall Street Journal on
the first and last days of the six-month period in which that royalty accrued
(or, if not published on that day, the first and last publication days for
the Wall Street Journal during that six month period). If such exchange rate
is not published in the Wall Street Journal, then the rate shall be
determined using average conversion rates that are accepted in the industry
on the first and last days of the six month period in which the royalty
accrued. All payments that are not to be made in CUBIST common stock, as
specified herein. shall be paid in United States dollars.
4.07 If by law, regulation, or fiscal policy of a particular country,
conversion into United States dollars or transfer of funds of a convertible
currency to the United States is restricted or forbidden, CUBIST shall give
ELI LILLY prompt written notice and shall pay the royalty due under this
Article 4 through such means or methods as are lawful in such country as ELI
LILLY may reasonably designate. Failing the designation by ELI LILLY of such
lawful means or methods within thirty (30) days after such written notice is
given to ELI LILLY, CUBIST shall deposit such royalty payment in local
currency to the credit of ELI LILLY in a recognized banking institution
designated by ELI LILLY, or if none is designated by ELI LILLY within the
thirty (30) day period described above, in a recognized banking institution
selected by CUBIST In and identified in a written notice to ELI LILLY by
CUBIST, and such deposit shall fulfill all obligations of CUBIST with respect
to such royalties.
4.08 CUBIST and its sub-licensees, if any, shall maintain complete and
accurate books and records with respect to sale and use of Compound and all
other information necessary to permit calculation and verification of amounts
due under this Article 4 and Article 5 and Article 6, set forth below. Upon
reasonable prior written notice to CUBIST, ELI LILLY may cause an independent
agent to audit the books and records of CUBIST and its sub-licensees, if any,
pertaining to the payment to ELI LILLY hereunder, for the sole purpose of
confirming the amounts due, and the accuracy of the payments and reports;
provided that no such audit shall
-11-
<PAGE>
be permitted for periods exceeding [ ]* prior to the date CUBIST
receives such written notice. Any such audit shall be performed at ELI
LILLY's expense during normal business hours and shall, if so required by
CUBIST, be performed by a firm of independent public accountants reasonably
acceptable to CUBIST. The independent agent shall report only such
information as would properly be included in such a report. In the event of
an underpayment, CUBIST shall promptly remit to ELI LILLY all amounts due.
CUBIST shall require any sublicensee to agree to comply with all of the terms
of this paragraph, including but not limited to making such report,
maintaining such records, and permitting such audit.
[ ]*
4.09 Any late payments due to ELI LILLY shall be subject to interest
charges which rate shall be established at [ ]* above the prime
interest rate in effect on the date that such payment was first due to ELI
LILLY.
Article 5
Minimum Royalties
5.00 [ ]* after December 31 or June 30, whichever date occurs
first, following the first twelve (12) month period after the first
commercial sale of Compound in a Major Market Country, CUBIST will pay ELI
LILLY [ ]* as a minimum royalty.
5.01 [ ]* after December 31 or June 30, whichever date occurs
first, following the second twelve (12) month period after the first
commercial sale of Compound in a Major Market Country, CUBIST will pay to ELI
LILLY [ ]* as a minimum royalty.
5.02 [ ]* after December 31 or June 30, whichever date occurs
first, following the third twelve (12) month period after the first
commercial sale of Compound in a Major Market Country, CUBIST will pay ELI
LILLY [ ]* as a minimum royalty.
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-12-
<PAGE>
5.03 CUBIST shall deduct any withholding taxes from the payments agreed
upon under this Agreement and pay them to the proper tax authorities as
required by applicable law. CUBIST shall maintain official receipts of any
withholding taxes and forward these receipts to ELI LILLY. The parties will
exercise their best efforts to ensure that any withholding taxes imposed are
reduced as far as legally possible under the provisions of any treaties
applicable to any payment made hereunder.
Article 6
Indemnification, Insurance and Limitation of Damages
6.00 CUBIST shall indemnify ELI LILLY and its directors, officers,
employees and agents, as set forth in Article 6.02, with respect to (a) any
third party claim or action against ELI LILLY based on CUBIST's or CUBIST's
sublicensee's developing, making, distributing, selling, marketing, using or
otherwise transferring Compound and (b) breach of any representation or
warranty contained in Article 7 by CUBIST, provided, however that CUBIST
shall have no duty to indemnify ELI LILLY to the extent that any such claim
or action is subject to ELI LILLY's duty of indemnification set forth in
Article 6.01.
6.01 ELI LILLY shall indemnify CUBIST, as set forth in Article 6.02, with
respect to (a) any third party claim or action against CUBIST based on (i)
activities of ELI LILLY, Its employees, or its agents with respect to
Compound prior to the Effective Date, (ii) the negligence or willful
misconduct of ELI LILLY, its employees and agents, and (b) breach of any
representation or warranty contained in Article 7 by ELI LILLY, provided,
however, that ELI LILLY shall have no duty to indemnify CUBIST to the extent
that any such claim or action Is subject to CUBIST's duty of indemnification
set forth in Article 6.00.
6.02 With respect to the claims and actions referenced in Articles 6.00 and
6.01 above, the indemnifying party shall defend any such claim or action
against the indemnified party and shall pay all damages, judgments, costs,
expenses (including attorneys' fees, but only to the extent that the
indemnifying party fails to promptly assume the defense of such claims and
actions) and liability awarded against the indemnified party, or settlements
entered into, with respect to such claim or action, provided that the
indemnified party (a) provides prompt written notice to the indemnifying
party of any such claim or action, (b) allows the indemnifying party to
assume the defense and settlement thereof, with counsel of its choice, and
(c) provides reasonable assistance to the indemnifying party in connection
with the defense and settlement thereof.
-13-
<PAGE>
6.03 Prior to administration of Compound to any human, CUBIST shall provide
to ELI LILLY an endorsement verifying customary levels of insurance for
damages, judgments, costs, expenses (including attorneys' fees) and liability
with respect to any third party claim or action based on CUBIST's or CUBIST's
sublicensee's manufacture, distribution, use, marketing or sale of Compound,
naming ELI LILLY, its directors, officers and employees as additional
insureds on the policy, and shall have copies of such insurance policies
delivered to ELI LILLY as soon as reasonably practical. In addition,
evidence of insurance in the form of such endorsement shall be furnished to
ELI LILLY at the inception of each subsequent phase of human clinical trials,
as well as upon granting of NDA and PLA, but in no event less than annually
upon the insurance policy renewal date. Such insurance shall remain in
effect at customary levels throughout the term of this Agreement. ELI LILLY
shall be informed thirty (30) days prior to any cancellation of or material
decrease in the amount of coverage of such insurance by CUBIST or any other
action that CUBIST reasonably should believe will result in decrease or
cancellation of such insurance, or immediately upon receipt by CUBIST of a
notice of cancellation of such insurance, on the effective date of which
cancellation or decrease, clinical use of Compound must immediately cease,
subject to CUBIST obtaining adequate replacement insurance. The foregoing
shall not be interpreted to limit the scope or amount of CUBIST's
indemnification obligation under Article 6.00.
Notwithstanding the foregoing, CUBIST shall be entitled to adopt an insurance
program containing self insurance elements, to the extent that CUBIST is able
to demonstrate to the reasonable satisfaction of ELI LILLY that such a
program is not unusual in the industry for companies similarly situated
(including financial condition to support such a program) or with respect to
products with a risk profile similar to products licensed hereunder.
6.04 Other than as set forth elsewhere in this Agreement, in no event shall
either party be liable for any special, consequential, indirect, or
incidental damages, however caused and on any theory of liability, arising
out of this Agreement. These limitations shall apply notwithstanding any
failure of essential purpose of any limited remedy.
-14-
<PAGE>
Article 7
Representations, Warranties And Disclaimer
7.00 Each party represents and warrants to the other party that (a) it has
the right to enter into this Agreement; (b) this Agreement has been duly
authorized by all necessary action of such party and (c) the execution of
this Agreement by the party will not conflict with or breach any other
agreement to which it is a party or by which it is bound.
7.01 ELI LILLY represents that (a) it is party to an agreement with
Ophidian which Agreement includes a covenant not to compete (b) if CUBIST
notifies ELI LILLY that it desires to develop Compound for the treatment of
clostridium difficile-induced colitis, ELI LILLY shall notify CUBIST if such
covenant has expired or is terminated, (c) there is no other agreement known
to ELI LILLY to which it is a party and by which it is bound that would
conflict with or be breached by ELI LILLY granting the license in Article 2,
(d) except as previously disclosed in writing to CUBIST, no other person or
entity has claimed, or to ELI LILLY's knowledge has, any rights to or
interest in the Patents and the Know- How in the Field to be licensed
hereunder, and that to its knowledge, the manufacture, use, distribution,
marketing or sale of the Compound(s) can be performed without infringing the
patent rights of any third party, and (e) as of the Effective Date ELI LILLY
is conducting no development program relating to analogs or derivatives of
the Compound, provided that ELI LILLY shall be free to commence and conduct
any such program at any time hereafter.
7.02 ELI LILLY makes no representation or warranty that Compound made,
used, or sold under the licenses granted herein is or will be free of claims
of infringement of the patent rights of any third party (although it
represents and warrants that it has no knowledge of (i) such infringement not
heretofore disclosed to Cubist and (ii) any payment obligations that CUBIST
will have to third parties in connection with CUBIST's development,
manufacturing, marketing or sale of Compound) and makes no warranty or
representation that any of the Patents to be licensed hereunder are valid or
enforceable.
7.03 EXCEPT AS SET FORTH IN ARTICLES 7.00 AND 7.01 ABOVE, ELI LILLY
EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
OR NON-INFRINGEMENT.
-15-
<PAGE>
7.04 CUBIST acknowledges that the Compound(s) are highly experimental in
nature [ ]*.
7.05 CUBIST warrants that all CUBIST common stock to be paid to ELI LILLY
pursuant to this Agreement shall be properly issued and all legal
requirements associated with such issuance to ELI LILLY shall be fulfilled.
The number of shares of CUBIST common stock payable to ELI LILLY shall be
determined by dividing the payment amount by the Average Market Price to
determine the number of shares.
For illustration purposes only, upon completion of CUBIST's first Phase II
Clinical Trial, CUBIST shall pay ELI LILLY [ ]* in CUBIST common
stock. The number of shares to be transferred to ELI LILLY shall be
determined by dividing [ ]* by the Average Market Price.
Article 8
Patents And Know-How
8.00 In the event either of the parties shall learn of the infringement, or
a challenge to the validity, enforceability, or title of any Patent
(including any action for a declaratory Judgment) right licensed hereunder,
or an action for unauthorized use or misappropriation of Know-How licensed
hereunder, such party shall promptly notify the other party thereof in
writing and shall provide the other party with any evidence in its possession
of such infringement, challenge or action.
8.01 Actions Affecting Other ELI LILLY Programs.
(i) During the term of this Agreement, ELI LILLY shall have the sole
right, but no obligation, to bring or defend any suit or action relative to
the patenting or patent enforcement directly relating to Compound,
manufacture, use, distribution, marketing or sale of Compound in the Field
which suit or action also materially affects intellectual property rights of
ELI LILLY that relate to an active ELI LILLY Program, including the fight to
recover for past infringement, or the unauthorized use or misappropriation of
Know-How in the Field. If ELI LILLY finds it necessary or desirable to join
CUBIST in such suit or action, CUBIST
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-16-
<PAGE>
shall execute all papers and perform such other acts as may reasonably be
required, at ELI LILLY's expense, to join CUBIST in such suit or action.
CUBIST may, at its option, join as a party to such suit and be, at its
expense, represented by counsel of its choice, provided that ELI LILLY shall
continue to control the prosecution or defense of such suit. Unless CUBIST
and ELI LILLY otherwise agree, any amount recovered in any such action,
whether by judgment or settlement, after deducting ELI LILLY's reasonable
expenses (including attorneys' fees), and payment to CUBIST of damages in
respect of CUBIST's lost profits for which ELI LILLY recovers payment and
CUBIST's reasonable expenses (including attorneys' fees) incurred in
connection with an action or suit in which ELI LILLY requested that CUBIST be
Joined or in which CUBIST voluntarily joined, shall be paid to or retained by
ELI LILLY.
(ii) In the event ELI LILLY faIls to take action with respect to such
infringement, or challenge to validity, enforceability or title, or action
for unauthorized use or misappropriation of Know-How in the Field which
materially affect intellectual property rights of ELI LILLY that relate to an
active ELI LILLY program, within a reasonable period, no less than three (3)
months, following receipt by ELI LILLY of reliable evidence of infringement,
CUBIST shall have the right, but no obligation, to bring, or defend any such
suit or action. ELI LILLY may, at its option, join as a party to such suit
and be, at its expense, represented by counsel of its choice, provided that
CUBIST shall continue to control the prosecution or defense of such suit. If
CUBIST finds it necessary to join ELI LILLY in such suit or action, ELI LILLY
shall execute all papers and perform such other acts as may be reasonably
required at CUBIST's expense. Unless CUBIST and ELI LILLY otherwise agree,
any amount recovered in any such action or suit, whether by judgment or
settlement, after deducting CUBIST's reasonable expenses (including
attorneys' fees) and payment to ELI LILLY of damages in respect of ELI
LILLY's lost royalties for which CUBIST recovers payment and after payment to
ELI LILLY of its reasonable expenses (including attorneys' fees) incurred in
connection with an action or suit in which CUBIST requested that ELI LILLY be
joined or which ELI LILLY voluntarily owned, shall be paid to or retained
entirely by CUBIST.
-17-
<PAGE>
8.02 Actions Not Affecting Other Lilly Programs.
(i) During the term of this Agreement, CUBIST shall have the sole
right, but no obligation, to bring or defend any suit or action relative to
the patenting or patent enforcement directly relating to Compound,
manufacture, use, distribution, marketing or sale of Compound in the Field
which suit or action does not materially affect intellectual property rights
of ELI LILLY that relate to an active ELI LILLY Program, including the right
to recover for past infringement, or the unauthorized use or misappropriation
of Know-How in the Field. If CUBIST finds it necessary or desirable to join
ELI LILLY in such suit or action, CUBIST shall execute all papers and perform
such other acts as may reasonably be required, at CUBIST's expense, to join
ELI LILLY in such suit or action. ELI LILLY may, at its option, join as a
party to such suit and be, at its expense, represented by counsel of its
choice, provided that CUBIST shall continue to control the prosecution or
defense of such suit. Unless CUBIST and ELI LILLY otherwise agree, any
amount recovered in any such action or suit, whether by Judgment or
settlement, after deducting CUBIST's reasonable expenses (including
attorneys' fees) and payment to ELI LILLY of damages in respect of ELI
LILLY's lost royalties for which CUBIST recovers payment and after payment to
ELI LILLY of its reasonable expenses (including attorneys' fees) in
connection with an action or suit in which CUBIST requested that ELI LILLY be
joined or which ELI LILLY voluntarily joined, shall be paid to or retained
entirely by CUBIST.
(ii) In the event CUBIST faIls to take action with respect to such
infringement, or challenge to validity, enforceability or title, or action
for unauthorized use or misappropriation of Know-How in the Field which does
not materially affect intellectual property rights of ELI LIILLY that relate
to an active ELI LILLY program, within a reasonable period, no less than
three (3) months, following receipt by CUBIST of reliable evidence of
infringement, ELI LILLY shall have the right, but no obligation, to bring, or
defend any such suit or action. If ELI LILLY finds it necessary to join
CUBIST in such suit or action, CUBIST shall execute all papers and perform
such other acts as may be reasonably required at ELI LILLY's expense. CUBIST
may, at its option, join as a party to such suit and be, at its expense,
represented by counsel of its choice, provided that ELI LILLY shall continue
to control the prosecution or defense of such suit. Unless CUBIST and ELI
LILLY otherwise agree, any amount recovered in any such action, whether by
judgment or settlement, after deducting ELI LILLY's reasonable expenses
(including attorneys' fees), and payment to CUBIST of damages in respect of
CUBIST's lost profits
-18-
<PAGE>
for which ELI LILLY recovers payment and CUBIST's reasonable expenses
(including attorneys' fees) incurred in connection with an action or suit in
which ELI LILLY requested that CUBIST be joined or in which CUBIST
voluntarily joined, shall be paid to or retained by ELI LILLY.
8.03 If CUBIST determines in good faith in consultation with ELI LILLY that
the manufacture, use or sale of Compound in the Field would infringe the
intellectual property rights of a third party unaffiliated with either CUBIST
or ELI LILLY, and it therefore becomes necessary to pay a royalty, license
fee or other compensation to that party to avoid a claim of infringement,
then CUBIST and ELI LILLY shall each bear [ ]* provided that ELI
LILLY's share of such obligation shall be deducted from CUBIST's royalty
payments due to ELI LILLY, and further provided that CUBIST's payment,
pursuant to this Agreement, to ELI LILLY in any one (1) year would never be
reduced by more than [ ]*. If, as a result of the preceding
sentence, CUBIST bears more than [ ]* of the royalty, license fee or
other compensation due to a third party under this Section 8.04, the amount
of the excess may be carried forward and used by CUBIST as a credit against
royalties due ELI LILLY in subsequent royalty periods, provided that in no
event shall CUBIST's royalty payments to ELI LILLY be reduced by more than
[ ]*.
8.04 Each party agrees to cooperate with the other in legal action taken to
enforce, defend or maintain a Patent licensed hereunder or concerning
Know-How licensed hereunder, including litigation proceedings.
8.05 ELI LILLY shall take all steps necessary to maintain the Patents in
the Field, including without limitation the preparation, filing and
prosecution of new patent applications, through an attorney of their choice.
CUBIST shall reimburse ELI LILLY for one half (1/2) of its reasonable
out-of-pocket expenses incurred after the Effective Date paid to third
parties for patent preparation, reasonable attorney fees, patent filing fees,
applications for patent term extensions and SPC's, translation fees for
patent purposes, and patent maintenance fees for Patents licensed hereunder
within thirty (30) days of receipt of an itemized expense report from ELI
LILLY for such patent related expenses.
(a) If CUBIST reasonably believes that ELI LILLY is failing to maintain
one or more of its Patents in the Field, CUBIST shall provide
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-19-
<PAGE>
ELI LILLY sixty (60) days written notice of its intent to assume maintenance
of such Patents itself If ELI LILLY fails to resume maintenance of the
Patents in the Field that CUBIST reasonably believes that ELI LILLY is
failing to maintain or to provide reasonable evidence demonstrating that ELI
LILLY is maintaining these Patents in the Field at the expiration of such
sixty (60) day period, CUBIST may, through an attorney of their choice, take
all necessary actions to maintain the Patents, and shall be entitled to
deduct [ ]* of the costs and expenses incurred from any of CUBIST's
payments pursuant to Article 4.04. In such event, ELI LILLY shall complete
all acts and execute and deliver all instruments and other documents and
render CUBIST assistance as is necessary or desirable for CUBIST to assume
the filing, prosecution and maintenance of such Patents in the Field that ELI
LILLY has not resumed maintenance of or demonstrated that it is maintaining.
(b) ELI LILLY shall keep CUBIST currently advised as to the status of all
patents and patent applications which relate to Patents and to supply CUBIST
promptly with copies of all patents, patent applications, substantive patent
office actions, substantive responses received or filed in connection with
such applications. CUBIST may itself or through its attorney offer comments
and suggestions with respect to the matters that are the subject of this
Article 8.06, and ELI LILLY agrees to consider carefully such comments and
suggestions; however, nothing herein shall obligate ELI LILLY to follow such
comments or suggestions.
(c) ELI LILLY shall notify CUBIST of their intention to abandon a patent
or patent application which relates to Patents (either a total series of
Patents or patent applications or on a country by country basis). At CUBIST's
option, CUBIST may maintain such patent or patent application relating to
Patent that ELI LILLY plans to abandon either a total series of Patents or
patent applications or on a country by country basis) at CUBIST's sole
expense, and CUBIST shall receive title to such patent or patent application
and such patent shall no longer then be considered a Patent for purposes of
this Agreement.
8.06 CUBIST shall take all steps necessary to maintain its patents and
patents relating to Compound in the Field, including without limitation the
preparation, filing and prosecution of new patent applications through
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-20-
<PAGE>
an attorney of its choice, provided that a copy of any new patent
applications relating to Compound in the Field, to be filed by CUBIST or a
sub-licensee of CUBIST, will be supplied to ELI LILLY at least thirty (30)
days prior to the filing date of such patent application.
CUBIST shall keep ELI LILLY currently advised as to the status of all
patents and patent applications which relate to patents filed by CUBIST in
the Field and to supply ELI LILLY promptly with copies of all patents, patent
applications, patent office actions, responses and other papers received or
filed in connection with such applications. ELI LIILLY may itself or through
its attorney offer the other comments and suggestions with respect to the
matters that are the subject of this Article 8.06, and CUBIST agrees to
consider carefully such comments and suggestions, however, nothing herein
shall obligate CUBIST to follow such comments or suggestions.
Article 9
Assignment
9.00 Neither party may assign or delegate any of its rights or duties under
this Agreement without the prior written consent of the other, except that
either party may assign this Agreement to a person or party that has
purchased or succeeded to all or substantially all of the business and assets
of the assignor to which the Agreement relates, and that has assumed in
writing or by operation of law such party's obligations under this Agreement,
provided that CUBIST shall be permitted to sub-license its rights hereunder
as provided under Section 2.01 above. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto and their
respective successors and assigns insofar as this Agreement is assignable.
The assignor of this Agreement shall guarantee the performance of the
obligation of this Agreement by such successor or assigns. Nothing herein is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
-21-
<PAGE>
Article 10
Term And Termination
10.00 The term of this Agreement shall be for the period commencing as of
the Effective Date and ending on the later of [ ]* unless and until
earlier terminated as provided in this Article. Upon the expiration of this
Agreement, CUBIST shall retain a fully paid-up, royalty free license under
the Know-How for purposes consistent with this Agreement and limited to use
in the Field.
10.01 If either party defaults in the performance of its material
obligations hereunder, including but not limited to CUBIST's failure to use
commercially reasonable efforts to develop Compound (provided, however, that
this shall not be construed as a guarantee that any Compound will be
successfully developed), and if any such default is not corrected within
[ ]* after it shall have been called to the attention of the
defaulting party, in writing, by the other party, then the other party, at
its option, may, in addition to any other remedies it may have, thereupon
terminate this Agreement by giving written notice of termination to the
defaulting party.
10.02 This Agreement may be terminated by either party, on notice, (i) upon
the institution by the other party of insolvency, receivership or bankruptcy
proceedings, (ii) upon the institution of such proceedings against the other
party, which are not dismissed or otherwise resolved in such party's favor
within sixty (60) days thereafter, and (iii) upon the other party's
dissolution or ceasing to do business in the normal course.
10.03 CUBIST may terminate this Agreement at any time, upon thirty (30) days
prior written notice to ELI LILLY and upon a reasonable determination by
CUBIST that continued development of the Compound hereunder is not
commercially reasonable. [ ]*.
10.04 Termination of this Agreement for any reason shall not result in any
obligation by ELI LILLY to repay any payments made to it by CUBIST prior to
such termination.
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-22-
<PAGE>
10.05 Upon termination of this Agreement for any reason, the sub-licenses
shall be automatically assigned to ELI LILLY, and ELI LILLY shall be bound by
the terms of such sub-licenses provided that the sub-licensees continue to
perform in accordance with their respective sublicense agreements.
Notwithstanding the foregoing, ELI LILLY's obligations to any such
sublicensee shall not be interpreted to extend beyond any obligations to
CUBIST hereunder with respect to the subject matter of the sub-license.
10.06 Upon termination of this Agreement for any reason, except for
termination caused by material breach by ELI LILLY, all licenses granted to
CUBIST pursuant to Article 2 shall terminate, Cubist furthermore shall
transfer to ELI LILLY all regulatory filings and regulatory correspondence,
patent filings and patent office correspondence, any and all other clinical
and non-clinical data, records and tabulations related to the Compound; and
shall execute any and all documents of such patent offices and/or patent
receiving offices, and/or regulatory agencies, including the US FDA, so as to
allow ELI LILLY to make immediate use of such data, records, patent
applications and/or patents and regulatory filings. ELI LILLY shall not be
obligated to treat such information received pursuant to this Section 10.06
as Confidential Information and may use such information, data and know-how
for any purpose at ELI LILLY's discretion.
If CUBIST terminates this Agreement due to ELI LILLY's material
breach, CUBIST's licenses pursuant to Article 2 shall continue for so long as
CUBIST continues to fulfill their payment obligations pursuant to Articles 4
and 5.
10.07 Termination of this Agreement for any reason shall not terminate the
provisions set forth in Article 6 with respect to actions arising with
respect to periods prior to termination, as well as Articles 7, 10, 13, 15,
and 17 hereof The obligations of those Articles shall continue in full force
and effect following any such termination.
10.08 Upon termination of this Agreement for any reason, neither party shall
be relieved of obligations with respect to periods prior thereto, including
any obligation to make payments, including but not limited to obligations
pursuant to Articles 4, 5, 6 or 10, or reports regarding sale prior to such
termination.
-23-
<PAGE>
10.09 If CUBIST determines that it will not develop or market Compound in
one or more countries, either by itself or through the efforts of a
sublicensee, or if ELI LILLY makes written request to CUBIST to develop or
sell Compound in one or more countries and in which countries CUBIST either
by itself or through the efforts of a sublicensee, has taken no action, all
rights including rights to develop, market and sell Compound in that
country(ies) shall revert to ELI LILLY [ ]* after CUBIST receives
written notice of ELI LILLY's intent to pursue those rights is received by
CUBIST if CUBIST either by itself or through the efforts of a sublicensee,
has taken no action toward such development or marketing prior to the end of
that year.
Article II
Force Majeure
11.00 If the performance of this Agreement or any obligations hereunder,
except the making of payments, is prevented, restricted or interfered with by
reason of fire or other casualty or accident, earthquake, supplier delay,
strikes or labor disputes, war or other violence, any law, order,
proclamation, regulations, ordinance, demand or requirement of any government
agency, or any other act or condition beyond the reasonable control of the
parties hereto ("Event of Force Majeure"), the party so affected upon giving
prompt notice to the other party shall be excused from such performance to
the extent of such prevention, restriction, or interference; provided that
the party so affected shall use its reasonable best efforts to avoid or
remove such causes of nonperformance and shall continue performance hereunder
with the utmost dispatch and that such party exercises due diligence to
overcome such circumstances.
11.01 The party suffering an Event of Force Majeure shall notify the other
party within fifteen (15) days of the occurrence of such Events of Force
Majeure and within thirty (30) days shall furnish the other party with a
recovery plan of action. Without limiting the foregoing, a party suffering
an Event of Force Majeure shall use its reasonable best efforts to limit the
impact of the Event of Force Majeure on such party's performance of this
Agreement.
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-24-
<PAGE>
Article 12
Notices
12.00 Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been sufficiently given for
all purposes five (5) days after having been mailed by first class certified
or registered mail, postage prepaid or by fax which is confirmed by certified
mail. Unless otherwise specified in writing, the mailing addresses of the
parties shall be as described below.
For ELI LILLY
ELI LILLY & COMPANY
Attn: Legal Division
Lilly Corporate Center
Indianapolis, Indiana 46285
For CUBIST:
Mark Carthy
Chief Business Officer
Cubist Pharmaceuticals Incorporated
24 Emily Street
Cambridge, MA 02139
with a copy to:
CUBIST's Legal Counsel:
Michael Lytton
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Article 13
Governing Law
13.00 This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Indiana, United States of America, without reference
to conflict of laws principles.
In the event of any action, controversy or claim arising out of or relating
to any provision of this Agreement or the breach, termination or
enforceability thereof, ELI LILLY and CUBIST shall make all efforts to settle
those conflicts amicably between themselves. Should they fail to
-25-
<PAGE>
agree, the parties may assert any remedy available at law or in equity to
enforce its rights under this Agreement.
Article 14
Partial Validity
14.00 If any provision of this Agreement shall be found or be held to be
invalid or unenforceable by a court of competent jurisdiction in which this
Agreement is being performed, then the meaning of said provision shall be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it shall be
severed from the remainder of this Agreement, which shall remain in full
force and effect. In such event, the parties shall negotiate, in good faith,
a substitute, valid and enforceable provision which most nearly effects the
parties' intent in entering into this Agreement.
Article 15
Confidentiality
15.00 Except as otherwise provided in this Article 15, during the term of
this Agreement and for a period of [ ]* the parties shall maintain
the Confidential Information in confidence and use it only for purposes
specifically authorized under this Agreement. To the extent it is reasonably
necessary or appropriate to fulfill its obligations or exercise its rights
under this Agreement: (i) a party may disclose Confidential Information it is
otherwise obligated under this Article 15 not to disclose to third parties,
on a need-to- know basis and on condition that such entities or persons agree
to keep the Confidential Information confidential for the same time periods
and to the same extent as such party is required to keep the Confidential
Information confidential hereunder; and (ii) a party may disclose such
Confidential Information to government or other regulatory authorities as
required by law or statute. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 15 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf Accordingly, each party shall be entitled to, but not limited to, the
granting of injunctive relief by a court of competent Jurisdiction against
any action that constitutes any such breach of this Article 15.
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-26-
<PAGE>
15.01 Notwithstanding the provisions of Section 15.00 above, CUBIST shall be
free to make disclosures to third parties of Confidential Information of ELI
LILLY consisting of data regarding the Compound in the Field under
circumstances where, in CUBIST's reasonable business judgment, such
disclosures will (i) further the development and commercialization of the
Compound and (ii) not adversely affect any patent rights of ELI LILLY of
which it is aware, provided, however, that in the case of (a) technical
papers disclosing such Confidential Information, or (b) other disclosures
where LILLY's name is used or would reasonably be implied from the context,
CUBIST will provide a copy of the proposed paper or disclosure to ELI LILLY
at least [ ]* in advance of publication and will not proceed with
such publication or disclosure without the consent of ELI LILLY, which
consent will not be unreasonably withheld; and further, provided, that in the
case of all other written disclosures of Confidential Information, CUBIST
will provide to ELI LILLY a copy of the material incorporating such
disclosure as promptly as is practicable, and in no event later than one (1)
week after the disclosure takes place.
15.02 ELI LILLY will make no public pronouncements referencing this
Agreement or CUBIST without CUBIST's express written approval. No license or
rights are granted to either party to use the name of the other without
express written approval. CUBIST's first public announcement of this
Agreement, attached hereto as Exhibit 4, may be released by CUBIST upon full
execution of this Agreement. Except as provided by Exhibit 4, CUBIST shall
not release any information regarding the existence or terms of this
Agreement that is not required by law.
Article 16
Entire Agreement
16.00 The terms and conditions herein contained, including the Exhibits
hereto, constitute the entire agreement and understanding of the parties
relating to the subject matter of this Agreement and supersedes all previous
communications, proposals, representations, and agreements, whether oral or
written, relating to the subject matter of this Agreement.
- ---------------
* Confidential Treatment requested: material has been omitted and
filed separately with the Commission.
-27-
<PAGE>
No agreement or understanding varying or extending the same shall be binding
upon either party hereto unless in a written document which expressly refers
to this Agreement and which is signed by both parties to be bound thereby.
Article 17
Miscellaneous
17.00 It is understood and agreed that each party shall have the status of
an independent contractor under this Agreement and that nothing in this
Agreement shall be construed as authorization for either ELI LILLY or CUBIST
to act as agent for the other. Nothing contained herein or done in pursuance
of this Agreement shall constitute either party the agent of the other party
for any purpose or in any sense whatsoever, or constitute the parties as
partners or joint venturers.
17.01 The failure of either party to enforce at any time any of the
provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the validity of either party to enforce
each and every such provision thereafter.
17.02 The headings set forth at the beginning of the various Articles of
this Agreement are for reference and convenience and shall not affect the
meanings of the provisions of this Agreement.
17.03 During the term of this Agreement, ELI LILLY shall not, directly or
indirectly through or in connection with any third party, conduct research,
develop, make or market Compound for use in the Field.
17.04 This Agreement may not be amended, supplemented, or otherwise modified
except by an instrument in writing signed by both parties.
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in duplicate by duly authorized officers or representatives as of the
date first above written.
ELI LILLY & COMPANY CUBIST PHARMACEUTICALS
INCORPORATED
By:/s/ William R. Ringo By:/s/ Mark Carthy
-------------------------- ---------------------------
William R. Ringo
President, Infectious Diseases Print name: Mark Carthy
--------------------
Business Unit Title: Vice President and Chief
---------------------------
Business Officer
---------------------------
-29-
<PAGE>
EXHIBIT 11
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
<S> <C> <C>
1997 1996
------------ ----------
Beginning Balance June 30.............................................................. 9,567,211 1,006,154
Issuance/Repurchase of Common Stock.................................................... 817,575 (1,121)
Issuance of Cheap Stock................................................................ -- 356,167
------------ ----------
Weighted Average Shares at September 30................................................ 10,384,786 1,361,200
Net Loss Third Quarter................................................................. ($824,246) ($1,155,375)
Net Loss per Share..................................................................... ($0.08) ($0.85)
------------ ----------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Beginning Balance January 1............................................................. 9,544,373 1,016,662
Issuance/Repurchase of Common Stock..................................................... 284,598 (9,594)
Issuance of Cheap Stock................................................................. -- 356,167
---------- ----------
Weighted Average Shares at September 30................................................. 9,828,971 1,363,235
Net Loss................................................................................ ($4,615,367) ($3,228,588)
Net Loss per Share...................................................................... ($0.47) ($2.37)
---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912183
<NAME> CUBIST PHARMACEUTICALS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,357,100
<SECURITIES> 12,094,221
<RECEIVABLES> 111,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,466,246
<PP&E> 5,834,144
<DEPRECIATION> (2,454,054)
<TOTAL-ASSETS> 24,542,043
<CURRENT-LIABILITIES> 1,589,467
<BONDS> 0
0
0
<COMMON> 10,578
<OTHER-SE> 21,696,380
<TOTAL-LIABILITY-AND-EQUITY> 24,542,043
<SALES> 0
<TOTAL-REVENUES> 2,081,267
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,117,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,420,566)
<INCOME-PRETAX> (4,615,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,615,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,615,367)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
</TABLE>
