<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. 333-31435
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OSIRIS THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8071 34-1728301
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification
of incorporation or Classification Code Number) Number)
organization)
</TABLE>
------------------------
2001 ALICEANNA STREET
BALTIMORE, MARYLAND 21231
(410) 522-5005
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JAMES S. BURNS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OSIRIS THERAPEUTICS, INC.
2001 ALICEANNA STREET
BALTIMORE, MARYLAND 21231
(410) 522-5005
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------------
COPIES TO:
ALAN L. DYE, ESQ. GORDON M. BAVA, ESQ.
GEORGE P. BARSNESS, ESQ. ALLEN Z. SUSSMAN, ESQ.
HOGAN & HARTSON L.L.P. MANATT, PHELPS & PHILLIPS, LLP
555 THIRTEENTH STREET, N.W. 11355 WEST OLYMPIC BOULEVARD
WASHINGTON, DC 20004-1109 LOS ANGELES, CALIFORNIA 90064
(202) 637-5600 (310) 312-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS , 1997
- --------------------------------------------------------------------------------
2,500,000 Shares
[LOGO]
Common Stock
- ---------------------------------------------------------------
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
Osiris Therapeutics, Inc. ("Osiris" or the "Company").
Prior to this offering (the "Offering"), there has not been a public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price. Application has been made to have the Common
Stock quoted on The Nasdaq Stock Market's National Market under the symbol
"OSRS."
Of the 2,500,000 shares offered hereby, 250,000 will be offered to a stockholder
of the Company pursuant to a contractual pre-emptive right. See "Underwriting."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Per Common Share $ $ $
- ----------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) FOR INFORMATION REGARDING INDEMNIFICATION OF THE UNDERWRITERS, SEE
"UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $650,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
375,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
IF ANY. SEE "UNDERWRITING." IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY.
The shares of Common Stock are being offered by the Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the shares of Common Stock
offered hereby will be available for delivery on or about , 1997, at
the office of SBC Warburg Dillon Read Inc., New York, New York.
SBC WARBURG DILLON READ INC. HAMBRECHT & QUIST
<PAGE>
[ARTWORK OR SCHEMATIC DEPICTING THE MESENGENIC PROCESS]
SCHEMATIC DIAGRAM DEPICTING THE EVENTS WHICH THE COMPANY BELIEVES ARE INVOLVED
IN THE REGENERATION OF TISSUE. MESENCHYMAL STEM CELLS ("MSCS") FIRST UNDERGO
MULTIPLE DIVISIONS (PROLIFERATION), AFTER WHICH THEY PROCEED DOWN A PARTICULAR
TISSUE DEVELOPMENT PATHWAY (COMMITMENT), LEADING ULTIMATELY TO THE FORMATION OF
SPECIALIZED CELLS (DIFFERENTIATION) AND THE FABRICATION OF UNIQUE EXTRACELLULAR
MATRIX COMPONENTS (MATURATION) CHARACTERISTIC OF HEALTHY, MATURE CONNECTIVE
TISSUE.
[ARTWORK OR SCHEMATIC DEPICTING PROPOSED REGENERATIVE TISSUE THERAPY]
SCHEMATIC DIAGRAM DEPICTING THE PROCESS WHICH THE COMPANY BELIEVES WOULD BE
INVOLVED IN CLINICAL REGENERATIVE TISSUE THERAPY. A SMALL SAMPLE OF BONE MARROW
WOULD BE HARVESTED FROM THE PATIENT, AFTER WHICH MSCS WOULD BE ISOLATED,
PURIFIED AND CULTURE-EXPANDED (MULTIPLIED) UNDER CONTROLLED MANUFACTURING
CONDITIONS AND THEN EITHER REINFUSED DIRECTLY INTO THE PATIENT AS SUPPORTIVE
TREATMENT FOLLOWING CANCER CHEMOTHERAPY OR FORMULATED AS AN IMPLANT TO
REGENERATE CONNECTIVE TISSUE. THE COMPANY HAS NOT YET COMPLETED THE DEVELOPMENT
OF, OR RECEIVED FDA APPROVAL OF, ANY OF ITS POTENTIAL MSC-BASED PRODUCTS.
[ARTWORK OR SCHEMATIC DEPICTING MESENCHYMAL STEM CELL (MSC) PLATFORM TECHNOLOGY]
SCHEMATIC DIAGRAM DEPICTING THE MULTIPLE PRODUCT APPLICATIONS THAT MAY BE
DEVELOPED FROM THE COMPANY'S MSC PLATFORM TECHNOLOGY. THE COMPANY HAS NOT YET
COMPLETED THE DEVELOPMENT OF, OR RECEIVED FDA APPROVAL OF, ANY OF ITS POTENTIAL
MSC-BASED PRODUCTS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, THE
INFORMATION IN THIS PROSPECTUS: (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION; (II) ASSUMES APPROVAL BY THE COMPANY'S STOCKHOLDERS AND
EFFECTUATION OF A PROPOSED 1-FOR-1.7 REVERSE STOCK SPLIT; AND (III) GIVES EFFECT
TO THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO 5,510,002
SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING. SEE "GLOSSARY OF
SCIENTIFIC TERMS" FOR DEFINITIONS OF CERTAIN TERMS USED HEREIN.
THE COMPANY
Osiris Therapeutics, Inc. ("Osiris" or the "Company") is engaged in the
research and development of therapeutic products for the regeneration of human
connective tissues (E.G., bone marrow stroma, bone, cartilage, muscle, tendon,
ligament and fat) through the use of mesenchymal stem cells ("MSCs") which the
Company believes to be the progenitor cells responsible for the formation of
such tissues. The Company believes that its proprietary MSC technology will
provide a broad platform for developing and commercializing cell therapy
products and biopharmaceuticals for the regeneration of connective tissues
damaged through injury, aging or degenerative disease.
Connective tissue disorders, including orthopaedic injuries and degenerative
diseases, rank first among all disorders in terms of frequency of visits to
physicians and second in terms of frequency of hospitalizations. In the field of
cancer treatment, damage to bone marrow typically occurs following high-dose
chemotherapy or radiation, which often destroys the patient's hematopoietic
(I.E., blood-forming) system and bone marrow stroma. The Company believes that
its tissue regeneration technology, if developed successfully, could improve the
treatment of connective tissue disorders by restoring the natural functioning of
the tissue, improving the quality of the repair and providing a better long-term
and cost-effective result compared to current therapies.
In the early embryo, the middle layer of cells (known as the mesoderm) and
certain portions of the outer cell layers give rise to groups of cells that
differentiate into bone marrow stroma, bone, cartilage, muscle, tendon,
ligament, fat and other connective tissues. Based upon laboratory and
preclinical research to date, the Company believes that the process of tissue
regeneration follows a sequence of events similar to that of embryonic tissue
formation and that throughout life, individuals maintain a reserve of
mesenchymal progenitor cells that are capable of differentiating into new
connective tissues. The Company refers to the progenitor cells that initiate
tissue formation as mesenchymal stem cells and the formation of these tissues as
"mesengenesis."
The Company believes that the field of tissue regeneration is moving toward
a new class of treatments involving cell therapy. The Company intends to
commercialize products that result in site-directed tissue regeneration based on
the use of MSCs. Such products would originate from a small sample of bone
marrow cells collected by needle aspiration from a patient using a local
anesthetic. The bone marrow aspirate would be transferred to the Company's
processing facilities and the MSCs would be isolated and culture-expanded. The
culture-expanded cells would then be returned to the patient for infusion or
implantation. The MSCs would be combined in some instances with a biodegradable
matrix or other delivery device capable of stabilizing the cells at the implant
site.
Osiris is focusing its initial product development efforts on the
regeneration of bone marrow stroma following high-dose cancer chemotherapy and
on the regeneration of bone in long bone and spinal defects. In addition, the
Company is collaborating with Novartis Pharma AG, one of the world's largest
pharmaceutical companies, and its U.S. affiliate, Novartis Pharmaceuticals
Corporation (collectively, "Novartis"), for the research and development of MSC
products for treating degenerative diseases such as osteoporosis and
osteoarthritis, for regenerating damaged cartilage and for certain potential
gene therapy applications using MSCs as target delivery cells.
3
<PAGE>
The Company intends to selectively pursue strategic research, development
and marketing collaborations with pharmaceutical and medical device companies in
order to accelerate the introduction of MSC products. In June 1997, the Company
entered into a multi-year collaboration with Novartis under which Novartis
Pharma AG purchased 692,059 shares of the Company's Common Stock (representing
7.9% of the Company's outstanding Common Stock) for $10,000,250, and Novartis
Pharmaceuticals Corporation made an up-front payment to the Company of
$3,000,000. In connection with the collaboration as currently contemplated, the
Company also may receive from Novartis Pharmaceuticals Corporation up to
$143,000,000, consisting of up to $50,000,000 of research and development
support and up to $93,000,000 of milestone payments. There can be no assurance,
however, that the Company will become entitled to the full amount of the
research and development funding or that any or all of the products currently
contemplated for development will achieve the specified milestones entitling the
Company to any or all of the milestone payments. In consideration for its
funding, Novartis has received the exclusive, worldwide license to use and sell
certain MSC products to be developed during the collaboration. In addition,
Novartis has agreed to pay the Company royalties based upon the net sales, if
any, of such products. The Company has retained the right to manufacture for
sale in North America any MSC products in the osteoporosis, osteoarthritis and
cartilage injury fields. See "Business--Collaborative Research and Licensing
Agreements--Novartis Agreement."
The Company and its academic collaborators have isolated, purified and
culture-expanded MSCs from both humans and animals. Culture-expanded MSCs have
been transplanted to the site of an injured animal tissue to regenerate that
tissue in a number of preclinical models, thereby establishing the scientific
proof-of-principle and preclinical safety and efficacy of such technique. In
addition, an initial human clinical safety study of cancer patients in remission
using autologous (I.E., derived from a patient's own cells) MSCs has been
completed successfully. A second human clinical safety study in advanced breast
cancer patients, under an approved Investigational New Drug ("IND") application,
is currently underway at the University Hospitals of Cleveland, Ireland Cancer
Center.
The Company owns or has an exclusive license to five patents granted in the
United States relating to: (i) isolated human mesenchymal stem cells and
therapeutic compositions containing such cells; (ii) producing bone or cartilage
through the use of human mesenchymal stem cells; (iii) repairing connective
tissue damage through the use of human mesenchymal stem cells; (iv) isolated
human mesenchymal stem cells transfected with genetic material for potential use
in gene therapy; and (v) certain antibodies against human osteogenic cells and
the use thereof. The Company also owns or has licenses to over 40 United States
and foreign patent applications directed to MSC technology. The Company intends
to continue to use its scientific expertise to pursue additional patent filings
for new compositions, methods and uses of human mesenchymal stem cells and
related know-how to enhance the Company's leadership in MSC technology.
The Company was incorporated in Delaware on December 23, 1992. The Company
is currently in the development stage; its operations consist primarily of
research and development activities, and it has not completed the development of
or begun to record revenues from any of its potential products. The Company's
principal executive offices are located at 2001 Aliceanna Street, Baltimore,
Maryland, and its telephone number is (410) 522-5005.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... 2,500,000 shares
Common Stock to be outstanding after this
Offering................................... 11,263,166 shares (1)
Use of proceeds.............................. Research and development, preclinical and
human clinical trials, capital expenditures,
working capital and general corporate
purposes.
Proposed Nasdaq National Market symbol....... OSRS
</TABLE>
- ------------------------
(1) Based on the number of outstanding shares of Common Stock as of September
30, 1997, after giving effect to the conversion of all outstanding shares of
Preferred Stock into 5,510,002 shares of Common Stock upon the completion of
this Offering. Does not include: (i) 901,739 shares of Common Stock reserved
for issuance under the Company's 1994 Incentive Stock Plan (the "Stock
Plan"), pursuant to which options to purchase a total of 462,904 shares are
outstanding at a weighted average exercise price of $1.80 per share; and
(ii) 659,051 shares of Common Stock issuable upon exercise of outstanding
warrants to purchase Common and Preferred Stock at a weighted average
exercise price of $5.11 per share.
5
<PAGE>
SUMMARY FINANCIAL AND PRO FORMA DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FROM FROM
INCEPTION TO YEAR ENDED DECEMBER 31, INCEPTION TO SEPTEMBER 30,
DECEMBER 31, ------------------------------- DECEMBER 31, --------------------
1993 1994 1995 1996 1996 1996 1997
------------- --------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and grant
income........................ $ -- $ 33 $ -- $ 1,067 $ 1,100 $ 565 $ 5,756
Interest income................. 30 230 169 522 951 280 488
------------- --------- --------- --------- ------------- --------- ---------
Total revenues.............. 30 263 169 1,589 2,051 845 6,244
------------- --------- --------- --------- ------------- --------- ---------
Expenses:
Research and development........ 338 2,341 4,533 7,364 14,576 4,586 7,341
General and administrative...... 822 1,266 1,477 1,861 5,426 1,316 1,257
Interest expense................ 8 10 97 576 691 408 570
------------- --------- --------- --------- ------------- --------- ---------
Total expenses.............. 1,168 3,617 6,107 9,801 20,693 6,310 9,168
------------- --------- --------- --------- ------------- --------- ---------
Net loss.......................... $ (1,138) $ (3,354) $ (5,938) $ (8,212) $ (18,642) $ (5,465) $ (2,924)
------------- --------- --------- --------- ------------- --------- ---------
------------- --------- --------- --------- ------------- --------- ---------
Net loss per common share and
common share equivalents........ $ (.56) $ (1.32) $ (2.14) $ (2.93) $ (1.95) $ (.95)
Weighted average common shares and
common share equivalents
outstanding..................... 2,032 2,537 2,776 2,806 2,804 3,081
<CAPTION>
FROM
INCEPTION TO,
SEPTEMBER 30,
1997
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and grant
income........................ $ 6,856
Interest income................. 1,440
-------------
Total revenues.............. 8,296
-------------
Expenses:
Research and development........ 21,917
General and administrative...... 6,683
Interest expense................ 1,261
-------------
Total expenses.............. 29,861
-------------
Net loss.......................... $ (21,565)
-------------
-------------
Net loss per common share and
common share equivalents........
Weighted average common shares and
common share equivalents
outstanding.....................
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
-------------------- --------------------------
1995 1996 ACTUAL AS ADJUSTED (1)
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale........... $ 6,926 $ 9,612 $ 18,455 $ 45,705
Working capital.................................................... 5,927 7,973 12,893 40,143
Total assets....................................................... 9,425 18,778 28,765 56,015
Long-term debt and capital lease obligations, less current
portion.......................................................... 1,277 6,660 5,854 5,854
Deficit accumulated during the development stage................... (10,430) (18,642) (21,565) (21,565)
Total stockholders' equity......................................... 6,995 9,887 16,550 43,800
</TABLE>
- ------------------------
(1) Gives effect to: (i) the sale of 2,500,000 shares of Common Stock in the
Offering assuming an initial public offering price of $12.00 per share (the
mid-point of the range of the estimated initial public offering prices per
share) and the application of the net proceeds as described in "Use of
Proceeds" and (ii) the conversion of all outstanding shares of Preferred
Stock into 5,510,002 shares of Common Stock upon the completion of this
Offering.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS REGARDING THE COMPANY'S STRATEGIES, PLANS,
OBJECTIVES AND INTENTIONS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED OR DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
UNPROVEN TECHNOLOGY; EARLY STAGE OF DEVELOPMENT
Osiris Therapeutics, Inc. is engaged in the research and development of
therapeutic products for the regeneration of human connective tissues (E.G.,
bone marrow stroma, bone, cartilage, muscle, tendon, ligament and fat) through
the use of mesenchymal stem cells ("MSCs"), which the Company believes to be the
progenitor cells responsible for the formation of such tissues. The Company's
product candidates are designed to deliver MSCs to tissue defect sites requiring
regeneration of connective tissue. The effectiveness of the Company's technology
is untested in human clinical trials and is not well-known in or accepted
generally by the clinical medical community. The physiology of connective tissue
regeneration is highly complex and the biological processes involved are not
fully understood. Although research and preclinical data gathered by the Company
and its scientific founders and collaborators support the Company's approach,
there can be no assurance that MSCs give rise to all human connective tissues,
or that the Company's technology will be able to control consistently the
ability of MSCs to mature and differentiate into connective tissues following
isolation and expansion. Furthermore, there can be no assurance that MSCs or the
Company's product candidates can be implanted successfully at tissue defect
sites, that, once implanted, they will generate connective tissue at all, or
that such tissue will be of therapeutic benefit. Results attained in preclinical
studies and early human clinical trials of the Company's product candidates may
not be indicative of results that will be obtained in later human clinical
trials. The failure of the Company to establish the efficacy of its technology
or the ability to implant successfully its product candidates at tissue defect
sites would have a material adverse effect on the Company. See "Business--
Mesenchymal Stem Cell Technology," "--Cell Therapy Using Mesenchymal Stem
Cells," "--Gene Therapy" and "--Biopharmaceuticals."
UNCERTAINTY OF PRODUCT DEVELOPMENT
The Company has not completed the development of any products and does not
expect to have products to sell commercially for at least two years, if ever.
The Company's potential therapeutic products are in early stages of research and
development and will require substantial additional research and development
time and expense, as well as preclinical and clinical testing, prior to
commercialization, which may never occur. The Company's potential products for
regeneration of bone marrow stroma are currently in clinical and preclinical
studies, and the Company's product candidates for bone regeneration are
currently in preclinical trials. The Company's proposed cartilage and tendon
regeneration products are currently undergoing animal studies, and the Company's
biopharmaceutical, gene therapy, cardiac muscle and other soft tissue and
degenerative disorder product candidates are all in early research stages. There
can be no assurance that any of the Company's product candidates will be
developed successfully, perform in the manner anticipated or be commercially
viable. Development of the Company's products will depend on acquiring or
developing biodegradable matrix materials and delivery devices for use in its
products. There can be no assurance that such matrix materials and delivery
devices can be developed or obtained from third parties. There can also be no
assurance that the Company's proposed therapeutic products, if developed, will
prove to be safe and efficacious in human clinical trials, will receive the
necessary regulatory approvals, will be accepted by the clinical medical
community, will be commercially producible at prices acceptable to the medical
and insurance communities or will be of superior therapeutic benefit compared to
existing competitive products. Finally, there can be no assurance that
competitors will not hold proprietary rights which preclude the Company from
marketing its products, or that competitors do not or will not offer superior
products. The likelihood of the Company's future success must be considered in
light of these and other difficulties, expenses and delays frequently
encountered in connection with the
7
<PAGE>
development and commercialization of therapeutic products. See
"Business--Product Development Programs" and "--Government Regulation."
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES
The Company has incurred a net loss in each year since its inception,
including net losses of approximately $8,212,000 during 1996 and $2,924,000
during the nine months ended September 30, 1997. These losses have resulted in
an accumulated deficit of $21,565,000 at September 30, 1997. The Company expects
to incur substantial additional losses over at least the next several years,
which will likely increase as the Company expands its research and development
efforts. The Company has not generated any revenues from product sales to date.
Most of the Company's revenues have been generated from payments under
collaborative research agreements and research grants. The Company's ability to
generate significant revenue and become profitable in the future will depend in
large part on its receipt of additional research grants and its ability to enter
into additional collaborative agreements, obtain regulatory approvals on a
timely basis where necessary and, with its collaborators, successfully develop
and commercialize the Company's potential products. There can be no assurance
that the Company will ever generate significant revenues or become profitable
even if it is able to commercialize any of its products. The failure of the
Company to generate significant additional revenues and achieve profitability
could impair the Company's ability to sustain its operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
DEPENDENCE UPON COLLABORATIVE PARTNERS
A principal element of the Company's strategy is to enter into collaborative
arrangements with established multinational pharmaceutical and medical device
companies which will finance or otherwise assist in the development, marketing
and manufacture of products incorporating the Company's technology. The Company
expects to derive its revenues for the foreseeable future principally from
research and development fees, license fees, milestone payments and royalties
from collaborative partners such as Novartis. The Company's prospects,
therefore, will depend in large part upon its ability to attract and retain
collaborative partners and to develop technologies and products that meet the
requirements of prospective collaborative partners. In addition, the Company's
collaborative partners will generally have the right to abandon research
projects and terminate applicable agreements, including funding obligations,
prior to or upon the expiration of the agreed-upon research terms. There can be
no assurance that the Company will be successful in establishing future
collaborative arrangements on acceptable terms or at all, that current or future
collaborative partners will not terminate funding before completion of projects,
that the Company's existing or future collaborative arrangements will result in
successful product commercialization or that the Company will derive any
revenues from such arrangements. To the extent that the Company is not able to
maintain existing or establish new collaborative arrangements, it would require
substantial additional capital to undertake research, development and
commercialization activities on its own. See "Risk Factors--Need for Substantial
Additional Funds."
In varying degrees for each of its products, the Company will likely rely on
its collaborative partners to research, develop, conduct human clinical trials
on, obtain regulatory approvals for, manufacture, market and/or commercialize
its products. Such partners' diligence and dedication of resources in conducting
these activities will depend on, among other things, their own competitive,
marketing and strategic considerations, including the relative advantages of
competitive products. The failure of the Company's collaborative partners to
conduct their collaborative activities successfully and diligently would have a
material adverse effect on the Company. In addition, the Company anticipates
that most collaborative partners will receive exclusive or co-exclusive rights
to market products incorporating the Company's technology in a particular field
of use or a particular territory. The grant of such rights will limit the
Company's alternatives in commercializing certain of its products. Furthermore,
while the Company may enter into multiple concurrent collaborative arrangements
to pursue the development of therapeutic
8
<PAGE>
products in different disease areas, there can be no assurance that the Company
will be able to manage multiple collaborative arrangements or be able to develop
simultaneous products successfully. See "Risk Factors--Lack of Manufacturing,
Marketing or Sales Capabilities," "Business--Collaborative Research and
Licensing Agreements" and "Business--Government Regulation."
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS
The development and operation of the Company's business will require
substantial additional capital resources. The Company believes that its existing
capital resources and the net proceeds from this Offering will be sufficient to
fund its projected operating and capital expenditures through the next two
years, although there can be no assurance that the Company will not require, or
choose to raise, additional funds prior to the end of such period. In addition,
the Company's future capital requirements may vary materially based on many
factors, such as the progress of research and development programs, results of
human clinical trials, agreements with corporate collaborators, changes in
existing collaborative arrangements and establishment of future collaborative
arrangements, the costs of prosecuting and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
the costs of establishing manufacturing and marketing capacity, the cost of
acquiring additional technologies or businesses and other competitive and
regulatory factors. While the Company may be able to obtain additional funds
through research contracts, strategic collaborations, additional equity
offerings or other sources, there can be no assurance that such funds will be
available to the Company when required or on terms acceptable to the Company, if
at all. Future equity financings may result in significant dilution to existing
stockholders. In the event the Company is unable to raise additional funds, the
Company may be required to delay, reduce or eliminate certain of its research
and development programs or relinquish marketing, distribution, development,
manufacturing or other rights to the Company's products under development. Any
of such actions could have a material adverse effect on the Company. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
LIMITED CLINICAL TRIAL EXPERIENCE
Although physician-sponsored human clinical studies involving MSC technology
have been conducted to date, neither the Company nor its collaborators have
sponsored directly any human clinical trials with respect to any of the
Company's product candidates. The clinical testing process is governed by
stringent regulation and is highly complex and time-consuming. While certain of
the Company's personnel have been involved in clinical testing in connection
with prior employment, there can be no assurance that the Company has or will
possess the necessary expertise to establish, conduct and organize the results
of human clinical trials in a manner compliant with regulatory requirements or
sufficient to establish the safety and efficacy of any product candidates. In
addition, the Company may not be able to procure the financing, study subjects
and other resources necessary to commence and sustain proper clinical testing
through the successful development of any product candidates. Further, there can
be no assurance that the Company's corporate collaborators will conduct human
trials successfully. Finally, there can be no assurance that the U.S. Food and
Drug Administration (the "FDA") or other regulatory authorities will agree with
the Company's interpretation of testing results or that such results will be
favorable to the development, commercialization, clinical acceptance or
reimbursement for any of the Company's potential products. The failure of the
Company or its collaborators to conduct human clinical trials successfully or of
the Company to capitalize on the results of human clinical trials for its
product candidates would have a material adverse effect on the Company.
LACK OF MANUFACTURING, MARKETING OR SALES CAPABILITIES
The Company has not established manufacturing, marketing or sales
capabilities. In the event the Company decides to establish such capabilities,
it will require substantial additional funds and personnel
9
<PAGE>
and, in the case of manufacturing resources, compliance with extensive
regulations applicable to such manufacturing facilities. The decision to develop
such capabilities will be based in part upon the availability of alternatives to
in-house manufacturing, marketing and sales activities, such as licensing
arrangements, partnerships and other collaborations with third parties. There
can be no assurance that the Company will be able to develop successfully its
own manufacturing, marketing and sales capabilities or alternatives thereto. In
addition, for certain applications of its MSC technology, the Company intends to
enter into collaborative development, manufacturing and marketing agreements,
which would grant limited exclusive or co-exclusive manufacturing or marketing
rights. There can be no assurance that the Company will be able to consummate
collaborative partner agreements on terms satisfactory to the Company, if at
all, or that the Company's collaborative partners will be successful in
manufacturing or marketing its products. The failure of the Company to develop
its own manufacturing, marketing and sales capabilities or to develop
alternative third-party arrangements could have a material adverse effect on the
Company.
UNCERTAINTY OF REGULATORY APPROVAL; EXTENSIVE GOVERNMENT REGULATION
The Company's research and development activities, preclinical studies,
human clinical trials and anticipated manufacturing and marketing of its
potential products are subject to extensive regulation by the FDA and other
regulatory authorities in the United States and abroad. In the United States,
the Company's product candidates are potentially subject to regulation as
cellular tissue-based or biological products under the Public Health Service
Act, as medical devices under the Federal Food, Drug and Cosmetic Act, or as
combination biological products/medical devices. Different regulatory
requirements may apply to the Company's product candidates depending on how they
are categorized by the FDA under these laws. The FDA is in the process of
developing its requirements with respect to cellular and tissue-based products
and recently proposed a framework for their regulation. Depending on whether
this proposal is finalized and the nature of the product candidates, the FDA may
require extensive multi-center human clinical trials prior to market approval.
Any such additional regulatory or approval requirement could significantly delay
the introduction of the Company's product candidates to the market and have a
material adverse effect on the Company. Until the FDA issues definitive
regulations covering the Company's product candidates, the regulatory
requirements for approval of such product candidates will continue to be subject
to significant uncertainty.
The Company has not yet submitted any of its potential products to the FDA
or any other regulatory authority for approval. Before marketing, the products
developed by the Company will likely undergo an extensive regulatory approval
process. This process, which includes preclinical studies and human clinical
trials to establish safety and efficacy, takes many years and requires
substantial resources. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
FDA approval. In addition, the Company may experience delays or rejections based
upon changes in FDA policy and regulations during the period of product
development or the approval process. Similar delays may be encountered in
foreign countries. There can be no assurance that, even after the expenditure of
substantial time and financial resources, regulatory approval will be obtained
for any products developed by the Company. The failure of the Company to obtain
regulatory approval of any of its principal product candidates would have a
material adverse effect on the Company. Moreover, if regulatory approval of a
product is obtained, such approval may be subject to limitations on the
indicated uses for which the product may be marketed. Further, an approved
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections by the FDA, and discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including a withdrawal of the
product from the market. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution, any
of which could have a material adverse effect on the Company. In addition to the
FDA, approval of regulatory authorities of foreign countries where the Company's
products may be marketed will be required, which may impose
10
<PAGE>
requirements more stringent than those of the FDA. Further, additional
government regulation may be established which could prevent or delay regulatory
approval of the Company's product candidates. See "Business--Government
Regulation."
UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT
The Company's ability to successfully commercialize its product candidates
will depend in part on the extent to which the costs of such products and
related treatments will be reimbursed by government health administrative
authorities, private health insurers and other organizations, both in the United
States and other countries. Significant uncertainty exists as to the
reimbursement of newly approved health care products, and there can be no
assurance that adequate third-party insurance coverage will be available for the
Company to establish and maintain price levels sufficient to realize an
appropriate return on its investment in developing new therapies. Payors are
increasingly attempting to contain health care costs by limiting both coverage
and reimbursement for newly approved therapeutic products and, in some cases, by
refusing coverage entirely for development-stage products for certain disease
indications which have not yet received full marketing approval of the FDA.
Failure by payors to cover adequately and reimburse usage of the Company's
products could have a material adverse effect on the Company's ability to
generate revenues.
INTENSE COMPETITION
The Company is engaged in fields which are characterized by extensive
worldwide research efforts and intense competition by pharmaceutical companies,
medical device companies, specialized biotechnology companies and academic
institutions. The Company's future success will depend in large part on its
ability to maintain a competitive position within its areas of research and
development. The use of MSCs to regenerate bone marrow stroma, bone, cartilage
and soft tissues (E.G., tendon, ligament, muscle and fat) will compete with
existing therapies such as allograft bone, tendon, ligament and cartilage
tissue, synthetic bone tissue substitutes and metal/polymer prostheses. Most of
the Company's numerous competitors have substantially greater financial,
research and development, clinical, regulatory, production, marketing and sales
resources than the Company and are better equipped than the Company to develop,
market and manufacture competitive products. Several competitors have developed,
or have initiated active product development programs for the development of,
osteogenic tissue growth factors, cell transplantation and allograft tissues, as
well as synthetic soft and hard tissues. There can be no assurance that existing
or future therapies developed by others will not render the Company's potential
products obsolete or noncompetitive. See "Business--Competition."
RAPID TECHNOLOGICAL CHANGE
The Company conducts its research and development activities in an
environment of rapidly evolving biotechnology. The Company's MSC technology is
in its early stages of development. The Company's competitors and other entities
are pursuing related avenues of research and therapy which are likely to affect
the commercial viability of the Company's MSC technology and the course of the
Company's future research and development activities. There can be no assurance
that the Company will be able to remain abreast of the evolving knowledge,
research and technologies having significant implications for its own research
and development activities, and failure to do so could adversely affect the
Company's ability to develop and market commercially useful products.
UNCERTAINTY AND DIFFICULTY IN OBTAINING AND ENFORCING PATENTS AND PROPRIETARY
RIGHTS
The Company's success will depend in large part on its ability to obtain
patents on its products, obtain licenses to use third-party technologies,
protect its trade secrets and operate without infringing the proprietary rights
of others. The Company owns or has an exclusive license to five patents granted
in the United States relating to: (i) isolated human mesenchymal stem cells and
therapeutic compositions
11
<PAGE>
containing such cells; (ii) producing bone or cartilage through the use of human
mesenchymal stem cells; (iii) repairing connective tissue damage through the use
of human mesenchymal stem cells; (iv) isolated human mesenchymal stem cells
transfected with genetic material for potential use in gene therapy; and (v)
certain antibodies against human osteogenic cells and the use thereof. The
Company also owns or has licenses to over 40 United States and foreign patent
applications directed to MSC technology. The Company intends to continue to use
its scientific expertise to pursue and patent new developments with respect to
uses, compositions and factors related to mesenchymal stem cells to enhance the
Company's leadership in the MSC field. The protection afforded by the granted
United States patents with respect to isolated human mesenchymal stem cells and
transfected human mesenchymal stem cells, respectively, will not be obtained
outside the United States. Legal standards regarding the scope of claims and
validity of biotechnology patents are uncertain and evolving. There can be no
assurance that the Company's pending patent applications will be approved, that
any issued or pending patent will provide the Company with significant
competitive advantages, or that challenges will not be instituted against the
validity or enforceability of any patent owned by the Company. The cost of
litigation to uphold the validity and prevent infringement of a patent is
substantial. Furthermore, there can be no assurance that others will not
independently develop substantially equivalent technologies not covered by
patents to which the Company owns rights or obtain access to the Company's
know-how. In addition, the laws of certain countries may not adequately protect
the Company's intellectual property. Competitors of the Company may possess or
obtain patents on products or processes that are necessary or useful to the
development, use or manufacture of the Company's products. The Company is aware
of a granted United States patent owned by a subsidiary of Novartis which covers
the use of EX VIVO gene therapy in humans. If a license is not obtained under
such patent, the Company or any of its future collaborators may not be able to
exploit in the United States EX VIVO gene therapy with the Company's mesenchymal
stem cell technology. There can be no assurance that such a license will be
available on commercially acceptable terms, if at all. The Company is aware of a
start-up company, working in the area of mesenchymal stem cells, that has
asserted that the United States Patent Office has allowed claims directed to the
start-up companys' mesenchymal stem cell technology. There can be no assurance
that the Company's proposed technology will not infringe patents or proprietary
rights owned by others, with the result that others may bring infringement
claims against the Company and require the Company to license such proprietary
rights, which may not be available on commercially reasonable terms, if at all.
No assurance can be given that any such litigation, if instituted, will not have
a material adverse effect on the Company, including the imposition of monetary
penalties, diversion of management resources and injunction against continued
manufacture, use or sale of certain products or processes. Certain of the
Company's technology has resulted and will result from research funded by
agencies of the United States government. As a result of such funding the United
States government has certain rights in the technology developed with the
funding. These rights include a non-exclusive, paid-up, worldwide license under
such inventions for any governmental purpose. In addition, under certain
conditions, the government has the right to require the Company to grant third
parties licenses to such technology. Any of the foregoing events could have a
material adverse effect on the Company.
The Company also relies upon nonpatented proprietary know-how. There can be
no assurance that the Company can adequately protect its rights in such
nonpatented proprietary technology, or that others will not independently
develop substantially equivalent proprietary information or techniques or gain
access to the Company's proprietary know-how. While it is the Company's policy
to enter into confidentiality agreements with its officers, employees,
consultants, contractors, manufacturers, outside scientific collaborators and
other parties, there can be no assurance that such agreements will be honored or
found to be enforceable or that adequate remedies for the breach of such
agreements will be available. Furthermore, there can be no assurance that former
employers of the Company's present and future employees will not assert claims
that such employees improperly disclosed confidential or proprietary information
to the Company. Any such claims, with or without merit, can be time consuming
and expensive to defend, cause product development delays or require the Company
to enter into licensing agreements,
12
<PAGE>
which may not be available on favorable terms, if at all. See
"Business--Collaborative Research and Licensing Agreements" and "--Patents and
Intellectual Property."
POTENTIAL PRODUCT LIABILITY AND UNCERTAIN AVAILABILITY OF INSURANCE
The testing and use of human cell therapeutics and biopharmaceuticals entail
an inherent risk of adverse effects or medical complications to patients and, as
a result, product liability claims may be asserted against the Company. A
product liability claim or product recall could have a material adverse effect
on the Company. The Company currently has product liability insurance in the
aggregate amount of $2,000,000 per occurrence per year for the
physician-sponsored clinical trial currently underway at the University
Hospitals of Cleveland, Ireland Cancer Center ("University Hospitals" or "UHC").
There can be no assurance, however, that product liability insurance will
continue to be available to the Company in the future on acceptable terms, if at
all, or that the coverage will be adequate to protect the Company against
product liability claims. The Company has obtained indemnification from Novartis
relating to liabilities arising from the manufacture, sale or use of products by
Novartis in its collaboration with the Company. The Company also will attempt to
obtain indemnification from its collaborative partners against product liability
claims for products that are developed and commercialized by such partners.
However, there can be no assurance that such partners will honor any such
indemnification obligations to the Company or that such indemnification will be
adequate to offset any liability of the Company. In the event of a successful
claim against the Company, insufficient insurance or indemnification rights
could result in liability to the Company which could have a material adverse
effect on the Company.
DEPENDENCE ON KEY PERSONNEL
Because of the specialized nature of the Company's technology and its
contribution to the development of future products, the Company is highly
dependent upon existing personnel and on its ability to attract and retain
qualified executive officers and scientific personnel for research, clinical
studies and development activities conducted or sponsored by the Company. As a
development stage company, the Company currently is seeking to recruit
additional qualified scientific and technical personnel. There is intense
competition for qualified personnel in the Company's fields of research and
development, and there can be no assurance that the Company will be able to
continue to attract and retain the personnel necessary for the development and
commercialization of its product candidates. See "Management." The loss of, or
the failure to recruit, scientific, technical and managerial personnel could
have a material adverse effect on the Company. In addition, the Company relies
on its scientific advisory board and consultants to formulate research and
development strategy, all of whom have other professional commitments which
limit their availability to the Company.
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS
Upon completion of this Offering, the Company's executive officers and
directors and their affiliates will beneficially own up to 20.6% of the
Company's Common Stock (20.0% if the Underwriters' over-allotment option is
exercised in full). Accordingly, the Company's executive officers and directors
and their affiliates will be able to influence the election of directors and
corporate actions requiring stockholder approval. See "Principal Stockholders"
and "Certain Transactions." In addition, the Company is obligated under certain
circumstances to nominate a representative of Novartis for election to the Board
of Directors.
HANDLING OF HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled use
of hazardous materials, chemicals, human blood and tissue, biological waste and
various radioactive compounds. The risk of accidental contamination or injury
from these materials cannot be completely eliminated. The Company is subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling
13
<PAGE>
and disposal of such materials and certain waste products. In the event of any
contamination or injury from these materials, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. Furthermore, the failure to comply with current or future
regulations could result in the imposition of substantial fines against the
Company, suspension of production or operations, alteration of its manufacturing
processes or cessation of operations. There can be no assurance that the Company
will not be required to incur significant costs to comply with any such laws and
regulations in the future, or that such laws or regulations will not have a
material adverse effect on the Company. Any failure by the Company to control
the use, disposal, removal or storage of, to adequately restrict the discharge
of, or to assist in the cleanup of hazardous, infectious or toxic chemicals or
substances could subject the Company to significant liabilities, including joint
and several liability under certain statutes. The imposition of such liabilities
could have a material adverse effect on the Company.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Restated Certificate of Incorporation, as amended, and Bylaws,
as amended, as well as Delaware corporate law, contain certain provisions that
could have the effect of delaying, deferring or preventing a change in control
of the Company. These provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. Certain of
such provisions allow the Company to issue, without stockholder approval,
Preferred Stock having rights senior to those of the Common Stock. Other
provisions impose various procedural and other requirements that could make it
difficult for stockholders to effect certain corporate actions. See "Description
of Capital Stock-- Delaware Law and Certain Charter, Bylaw and Other Provisions"
and "--Preferred Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
The existing stockholders of the Company acquired their shares of Common
Stock at an average cost substantially below the offering price set forth on the
cover page of this Prospectus. Accordingly, investors in this Offering will
suffer an immediate and substantial dilution in the pro forma net tangible book
value of the Common Stock of $8.12 assuming an initial public offering price of
$12.00 per share (the mid-point of the range of estimated initial offering
prices per share). To the extent that outstanding options or warrants are
exercised, there will be further dilution to new investors. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
this Offering could adversely affect the prevailing market price of the Common
Stock and the Company's ability to raise capital in the future. Upon completion
of this Offering, the Company will have a total of 11,263,166 shares of Common
Stock outstanding, of which the 2,500,000 shares offered hereby will be freely
tradable without restriction under the Securities Act of 1933, as amended (the
"Securities Act") by persons other than "affiliates" of the Company, as defined
under the Securities Act. The remaining 8,763,166 shares of Common Stock
outstanding are "restricted securities" as that term is defined by Rule 144
promulgated under the Securities Act (the "Restricted Shares"). Of the
Restricted Shares, 7,773,860 shares will become eligible for sale in the public
market 90 days after completion of the Offering, subject in some cases to
certain volume restrictions and other conditions imposed under Rules 144 and
701. The remaining 989,306 shares will be eligible for sale upon the expiration
of their respective holding periods as set forth in Rule 144. Notwithstanding
these rights, however, 8,552,171 of the Restricted Shares are subject to lock-up
agreements and may not be sold for up to 180 days following the date of this
Prospectus. See "Underwriting" and "Shares Eligible for Future Sale."
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 shares of Common Stock issuable
under its 1994 Amended and Restated Stock Incentive Plan. Of the 1,176,471
shares issuable under the Stock Plan, 462,904 shares are subject to outstanding
options as of September 30, 1997, 346,696 of which shares are subject to the
above-referenced
14
<PAGE>
lock-up agreements. Subject to the lock-up agreements, shares issued upon the
exercise of such options will upon issuance to employees pursuant to the Stock
Plan immediately be eligible for sale in the public market. In addition, the
Company has issued warrants to purchase 659,051 shares of Common and Preferred
Stock which are currently exercisable, of which 532,026 shares are subject to
the lock-up agreements referenced above. See "Management--Stock Option and
Employee Benefit Plans," "Certain Transactions" and "Shares Eligible for Future
Sale."
The holders of approximately 2,701,465 shares of Common Stock, including
shares acquired upon exercise of certain outstanding warrants, are entitled to
certain registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock. See
"Description of Capital Stock--Registration Rights Agreements" and "Shares
Eligible for Future Sale." In addition, if the Company is required to include in
a registration statement shares held by such persons pursuant to "piggyback"
registration rights, such sales could have a material adverse effect on the
Company's ability to raise capital.
NO DIVIDENDS
The Company has not paid cash dividends on its Common Stock and does not
expect to do so in the foreseeable future. See "Dividend Policy."
POSSIBLE LOSS OF NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1997, for federal income tax purposes, the Company had
generated net operating loss carryforwards of approximately $21,000,000, which
are scheduled to expire on various dates beginning from the year 2008 through
2011 if not utilized. However, there may be limitations on the annual
utilization of these net operating loss carryforwards as a result of certain
changes in the Company's ownership, including prior ownership changes, this
Offering and future issuances of securities of the Company. See Note 6 of Notes
to Consolidated Financial Statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NO PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this Offering there has been no public market for the Common Stock
and an active public market for the Common Stock may not develop or be
sustained. The initial public offering price will be determined through
negotiation between the Company and the Representatives of the Underwriters
based on several factors that may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The trading price of the Common Stock and the
price at which the Company may sell securities in the future could be subject to
wide fluctuations in response to a wide variety of factors, including but not
limited to announcements of clinical results, research activities, technological
innovations or new products of the Company or its competitors, changes in
government regulation, developments concerning proprietary rights, variations in
the Company's operating results, announcements by the Company of regulatory
developments, litigation, disputes concerning patents or proprietary rights,
public concern regarding the safety, efficacy or other implications of the
Company's products or methodologies, general market conditions or the Company's
liquidity or ability to raise additional funds. In addition, the stock markets
have experienced extreme fluctuations in price and volume. This volatility has
significantly affected the market prices for securities of emerging
biotechnology companies for reasons frequently unrelated to or disproportionate
to the operating performances of such companies. These market fluctuations as
well as general fluctuations in the stock markets may adversely affect the
market price of the Common Stock.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$27,250,000 ($31,435,000 if the Underwriters exercise their over-allotment
option in full), at an assumed initial public offering price of $12.00 per share
(the mid-point of the range of the estimated initial public offering prices per
share) and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The Company intends to use approximately $15,100,000 of the net proceeds to
fund product development activities, including preclinical and human clinical
trials; approximately $5,850,000 for research activities; approximately
$4,800,000 for MSC process development activities; and approximately $1,500,000
for capital expenditures, including the construction of a pilot manufacturing
facility and possible expansion of the Company's research and development
facilities during 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
remaining net proceeds will be used for working capital and other general
corporate purposes, including scheduled repayments of obligations under
equipment leases. The Company also expects from time to time to evaluate the
acquisition of products, technologies and businesses that complement the
Company's business, for which a portion of the net proceeds also may be used.
The Company does not have any agreements, arrangements or understandings with
respect to any such acquisitions and no portion of the net proceeds has been
allocated for any specific acquisition. Pending such uses, the net proceeds will
be invested in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
It is the present policy of the Company's Board of Directors to retain earnings,
if any, to finance the development of the Company's business. The payment of
dividends is within the discretion of the Company's Board of Directors, and will
depend upon, among other things, the Company's earnings, financial condition and
capital requirements, general business conditions and any restrictions in credit
agreements.
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<PAGE>
DILUTION
The Company's pro forma net tangible book value at September 30, 1997 was
$16,490,122, or $1.88 per share. Pro forma net tangible book value per share
represents the Company's tangible net worth (net tangible assets less total
liabilities) divided by the number of shares of Common Stock outstanding as of
September 30, 1997, after giving effect to: (i) the proposed 1-for-1.7 reverse
stock split; and (ii) the conversion of all outstanding shares of Preferred
Stock into Common Stock.
After giving effect to the sale of 2,500,000 shares of Common Stock in this
Offering at an assumed initial public offering price of $12.00 per share (the
mid-point of the range of the estimated initial public offering prices per
share) and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, the pro forma net tangible book value
of the Company as of September 30, 1997 would have been $43,740,122, or $3.88
per share. This represents an immediate increase in pro forma net tangible book
value of $2.00 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $8.12 per share to purchasers of Common
Stock in this Offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 12.00
Pro forma net tangible book value per share as of September 30, 1997... $ 1.88
Increase per share attributable to new investors....................... 2.00
---------
Pro forma net tangible book value per share after this Offering.............. 3.88
---------
Dilution per share to new investors.......................................... $ 8.12
---------
---------
</TABLE>
The following table summarizes, as of September 30, 1997, on a pro forma
basis and after giving effect to the 1-for-1.7 reverse stock split and the
Offering, the differences between the existing stockholders and the new
investors with respect to the number of shares of Common Stock purchased, the
total consideration paid and the average price per share paid (based upon an
assumed initial public offering price of $12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 8,763,166 78% $ 38,303,663 54% $ 4.37
New investors...................................... 2,500,000 22 30,000,000 46 $ 12.00
------------ --- ------------- ---
Total.......................................... 11,263,166 100% $ 68,303,663 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
The foregoing tables assume no exercise of outstanding options or warrants.
At September 30, 1997, 901,739 shares of Common Stock were reserved for issuance
under the Stock Plan, pursuant to which options to purchase a total of 462,904
shares are outstanding at a weighted average exercise price of $1.80 per share,
and 659,051 shares of Common Stock are issuable upon exercise of outstanding
warrants to purchase Common and Preferred Stock at a weighted average exercise
price of $5.11 per share. In the event such options and warrants are exercised,
investors may experience further dilution. See "Management--Stock Option and
Employee Benefit Plans," "Description of Capital Stock--Warrants" and Notes 8
and 14 of Notes to Consolidated Financial Statements.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997: (i) on an actual basis adjusted for a 1-for-1.7 reverse
stock split; (ii) on a pro forma basis to give effect to the conversion into
5,510,002 shares of Common Stock of all outstanding shares of Preferred Stock
upon completion of this Offering; and (iii) on a pro forma as adjusted basis to
give effect to the sale by the Company of the 2,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per share
(the mid-point of the range of the estimated initial public offering prices per
share) and the application of the net proceeds therefrom as described under "Use
of Proceeds." This table is qualified in its entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Long-term debt:
Note payable, net of current portion...................................... $ 587 $ 587 $ 587
Obligations under capital leases, net of current portion.................. 5,267 5,267 5,267
---------- ----------- -----------
Total long-term debt................................................ 5,854 5,854 5,854
---------- ----------- -----------
Stockholders' equity:
Preferred Stock, $.001 par value, 20,000,000 shares authorized; 9,268,963
shares issued and outstanding, actual; no shares issued and outstanding,
pro forma as adjusted (1)............................................... 28,460 -- --
Common Stock, $.001 par value; 30,000,000 shares authorized; 3,253,164
shares issued and outstanding, actual; 8,763,166 shares issued and
outstanding, pro forma; 11,263,166 shares issued and outstanding, pro
forma as adjusted (1)................................................... 3 9 11
Additional paid-in capital.................................................. 10,041 38,494 65,742
Deferred compensation and loans to officers for the purchase of stock....... (388) (388) (388)
Deficit accumulated during the development stage............................ (21,565) (21,565) (21,565)
---------- ----------- -----------
Total stockholders' equity.............................................. 16,550 16,550 43,800
---------- ----------- -----------
Total capitalization................................................ $ 22,404 $ 22,404 $ 49,654
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Does not include: (i) 901,739 shares of Common Stock reserved for issuance
under the Stock Plan, pursuant to which options to purchase a total of
462,904 shares are outstanding at a weighted average exercise price of $1.80
per share and (ii) 659,051 shares of Common Stock issuable upon exercise of
outstanding warrants to purchase Common and Preferred Stock at a weighted
average exercise price of $5.11 per share. See "Management--Stock Option and
Employee Benefit Plans," "Description of Capital Stock--Warrants" and Notes
8 and 14 of Notes to Consolidated Financial Statements.
18
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected financial data of the Company. The
selected financial data as of December 31, 1995 and 1996 and for each of the
years ended December 31, 1994, 1995 and 1996 and for the period from inception
to December 31, 1996 have been derived from the Company's audited consolidated
financial statements included elsewhere in the Prospectus. The selected
financial data as of December 31, 1993 and 1994 and for the period from the
Company's inception to December 31, 1993 have been derived from the Company's
audited consolidated financial statements not included in the Prospectus. The
selected financial data as of September 30, 1997, for each of the nine-month
periods ended September 30, 1996 and 1997 and for the period from inception to
September 30, 1997 have been derived from the Company's unaudited consolidated
financial statements included elsewhere in the Prospectus. The Company's
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the consolidated financial
position and consolidated results of operations for this period. The data set
forth below are qualified by reference to, and should be read in conjunction
with, the consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
FROM FROM ENDED SEPTEMBER 30, FROM
INCEPTION TO YEAR ENDED DECEMBER 31, INCEPTION TO INCEPTION TO
DECEMBER 31, ------------------------------- DECEMBER 31, -------------------- SEPTEMBER 30,
1993 1994 1995 1996 1996 1996 1997 1997
------------- --------- --------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative research and
grant income................ $ -- $ 33 $ -- $ 1,067 $ 1,100 $ 565 $ 5,756 $ 6,856
Interest income............... 30 230 169 522 951 280 488 1,440
------------- --------- --------- --------- ------------- --------- --------- -------------
Total revenues.......... 30 263 169 1,589 2,051 845 6,244 8,296
------------- --------- --------- --------- ------------- --------- --------- -------------
Expenses:
Research and development...... 338 2,341 4,533 7,364 14,576 4,586 7,341 21,917
General and administrative.... 822 1,266 1,477 1,861 5,426 1,316 1,257 6,683
Interest expense.............. 8 10 97 576 691 408 570 1,261
------------- --------- --------- --------- ------------- --------- --------- -------------
Total expenses.......... 1,168 3,617 6,107 9,801 20,693 6,310 9,168 29,861
------------- --------- --------- --------- ------------- --------- --------- -------------
Net loss........................ $ (1,138) $ (3,354) $ (5,938) $ (8,212) $ (18,642) $ (5,465) $ (2,924) $ (21,565)
------------- --------- --------- --------- ------------- --------- --------- -------------
------------- --------- --------- --------- ------------- --------- --------- -------------
Net loss per common share and
common share equivalents...... $ (.56) $ (1.32) $ (2.14) $ (2.93) $ (1.95) $ (.95)
Weighted average common shares
and common share equivalents
outstanding................... 2,032 2,537 2,776 2,806 2,804 3,081
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1997
------------------------------------------ -------------
1993 1994 1995 1996 ACTUAL
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.............. $ 4,052 $ 4,797 $ 6,926 $ 9,612 $ 18,455
Working capital....................................................... 4,292 4,035 5,927 7,973 12,893
Total assets.......................................................... 4,679 5,988 9,425 18,778 28,765
Long-term debt and capital lease obligations, less current portion.... -- 184 1,277 6,660 5,854
Deficit accumulated during the development stage...................... (1,138) (4,492) (10,430) (18,642) (21,565)
Total stockholders' equity............................................ 4,432 5,019 6,995 9,887 16,550
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION
CONTAINED IN THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES
THERETO AND THE OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE HEREIN.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS REGARDING THE COMPANY'S STRATEGIES, PLANS,
OBJECTIVES AND INTENTIONS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED OR DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS.
OVERVIEW
Since its inception, the Company has been in the development stage and has
engaged in research and product development, both on its own and in conjunction
with various collaborative partners. The Company expects that its revenue
sources for at least the next several years will continue to be limited to grant
revenues and research funding, milestone payments and licensing fees from
corporate collaborators. In certain circumstances, such as under the Company's
Research Collaboration and License Agreement with Novartis Pharmaceuticals
Corporation, a collaborator may conduct and fund product development and
regulatory approval activities for certain of the Company's product candidates.
The timing and amount of revenues, if any, will be subject to significant
fluctuations, based in part on the success of the Company's research activities,
the timing of the achievement of certain milestones and the extent to which
associated costs are reimbursed under grant or other arrangements. Research and
development expenses may fluctuate as various expenditures arise during the
several stages of the Company's research and clinical development programs and
are expected to increase as product development programs and applications
progress. As a result of these factors, the Company's results of operations have
fluctuated and are expected to continue to fluctuate significantly from year to
year and from quarter to quarter and therefore may not be comparable to or
indicative of the results of operations for other periods.
The Company's material agreements that may provide future revenues include
its agreements with Novartis and the U.S. Defense Advanced Research Projects
Agency ("DARPA"). In June 1997, the Company entered into a multi-year
collaboration with Novartis, under which Novartis provided an initial up-front
payment of $3,000,000 to the Company and purchased 692,059 shares of the
Company's Common Stock (representing 7.9% of the Company's outstanding Common
Stock) for $10,000,250. In addition, Novartis agreed to fund, during the
five-year term of the collaboration, up to $50,000,000 of MSC research by the
Company and to fund all costs for clinical development, regulatory approvals,
manufacturing and marketing of the MSC products developed from the
collaboration. The Company could also receive milestone payments of up to
$93,000,000, contingent upon the achievement of specified regulatory milestones
in connection with the development of products pursuant to the Novartis
collaboration. There can be no assurance that the Company will become entitled
to the full amount of the research and development funding or any or all of the
milestone payments. As consideration for its funding, Novartis received
exclusive worldwide rights to use and sell certain MSC products in the
osteoporosis, osteoarthritis, cartilage injury and gene therapy fields developed
during the collaboration. Novartis agreed to pay the Company royalties based
upon the net sales, if any, of such products. See "Business--Collaborative
Research and Licensing Agreements--Novartis Agreement."
In June 1996, DARPA awarded a sole-source, multi-year research contract to
the Company for research into the use of MSCs as a strategic platform for
detection and treatment of biological and chemical agents. The DARPA agreement
provided $6 million in funding to the Company, consisting of $2 million per year
for three years (supplemented by cost-sharing contributions from the Company in
the form of equipment and indirect costs), which the Company will use to conduct
two projects focusing on
20
<PAGE>
(i) a novel delivery system for vaccines using MSCs, and (ii) a novel detection
system for toxic or biological agents using MSCs. The Company retained all
commercial rights to inventions resulting from its research under the DARPA
agreement. In May 1997, the Company received approval for the second year of
funding under the contract, having successfully completed the first year's
milestones. See "Business-- Collaborative Research and Licensing
Agreements--Defense Advanced Research Projects Agency Agreement."
Over the past several years, the Company's net loss has increased,
consistent with the growth in the scope and size of the Company's research and
development activities. In the near term, the Company plans to expand its
personnel in the areas of product development, research, clinical and regulatory
affairs and administration and if such expansion occurs, the Company's operating
expenses will continue to increase as a result. The Company has been
unprofitable since its inception and does not anticipate having net income in
the foreseeable future. Through September 30, 1997, the Company had an
accumulated deficit of $21,565,000. There can be no assurance that the Company
will be able to achieve profitability on a sustained basis, if at all.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
REVENUES. Total revenues were $6,244,000 in the nine months ended September
30, 1997 compared to $845,000 in the same period in 1996. The increase is
principally associated with payments received under the Novartis Agreement
entered into in June 1997 ($4,681,231) and the research contract with the DARPA
awarded in the second quarter of 1996 ($974,711). Interest income was $488,000
in the first nine months of 1997 compared to $280,000 in the first nine months
of 1996.
EXPENSES. Total expenses were $9,168,000 in the nine months ended September
30, 1997 and $6,310,000 in the nine months ended September 30, 1996. The
increase in costs and expenses is primarily the result of an increase in
research and development expense to $7,341,000 in the 1997 period from
$4,587,000 in 1996. The increase in research and development expense reflects an
increase in research, preclinical studies, clinical development and product
development activities. These principally include additional expenses associated
with staffing increases, related laboratory supplies, equipment rental and costs
associated with the Company's laboratory facilities. These expenses were
incurred in the Company's internal and externally funded research programs.
General and administrative expenses were $1,257,000 in the nine months ended
September 30, 1997 and $1,316,000 in the same period in 1996. The decrease in
general and administrative expenses in the first 9 months of 1997 reflects a
slight decrease in finance, legal and other administrative expenses, which are
expected to increase in support of the Company's increasing product development
and research activities. Interest expense was $570,000 in the nine-month period
in 1997 and $408,000 in the same period in 1996, reflecting varying amounts
outstanding under capital leases during the periods.
NET LOSS. The Company's net loss was $2,924,000 in the nine months ended
September 30, 1997 and $5,465,000 in the same period in 1996. The Company
expects to report substantial net losses for the foreseeable future.
FISCAL 1996, 1995 AND 1994
REVENUES. Total revenues were $1,589,000 in 1996, $169,000 in 1995 and
$263,000 in 1994. Collaborative research and grant revenues increased to
$1,067,000 in 1996 from $0 in 1995, which had decreased from $33,000 in 1994,
reflecting the timing of the receipt of payments under the research contract
with DARPA and grant awards and related research activities to the extent that
associated costs are reimbursed under the grants. Research and grant revenues
accounted for 67%, 0% and 13% of total revenues for the years ended December 31,
1996, 1995 and 1994, respectively, and are recorded on a milestone achievement
and cost-reimbursement basis. The amount and timing of revenue recognition under
the DARPA contract
21
<PAGE>
is dependent upon the achievement of specific research milestones defined in the
contract. Accordingly, revenue recognition may fluctuate based upon achievement
of these specific milestones as compared to cost-reimbursed revenue recognition
under other governmental grants. Interest income was $522,000 in 1996, $169,000
in 1995 and $230,000 in 1994. The increase in interest income in 1996 is due
primarily to corresponding increases in the levels of cash, cash equivalents and
short-term investments for such periods.
EXPENSES. Total expenses were $9,801,000 in 1996, $6,107,000 in 1995 and
$3,617,000 in 1994. The increase in costs and expenses is primarily the result
of an increase in research and development expense to $7,364,000 in 1996 from
$4,533,000 in 1995 and $2,341,000 in 1994. The increase in research and
development expense reflects an increase in research, preclinical studies,
clinical development and product development activities. These principally
include additional expenses associated with staffing increases, related
laboratory supplies, equipment rental and costs associated with the Company's
laboratory facilities. These expenses were incurred in the Company's internal
and externally funded research programs. General and administrative expenses
were $1,861,000 in 1996, $1,477,000 in 1995 and $1,266,000 in 1994. The increase
in general and administrative expenses in 1996 and 1995 reflects an increase in
finance, legal and other administrative expenses which are expected to continue
to increase in support of the Company's increasing product development and
research activities. Interest expense was $576,000 in 1996, $97,000 in 1995 and
$10,000 in 1994, reflecting varying amounts outstanding under capital leases
during the periods.
NET LOSS. The Company's net loss was $8,212,000 in 1996, $5,938,000 in 1995
and $3,354,000 in 1994. The Company expects to report substantial net losses for
the foreseeable future.
TAXATION
The Company has not generated any net income to date and therefore has not
paid any federal or state income taxes since inception. At December 31, 1996,
the Company had deferred tax assets totaling $7,345,000, consisting primarily of
net operating loss carryforwards and research tax credits that begin to expire
from 2008 through 2011, if not utilized. A full valuation allowance for deferred
tax assets has been provided. Utilization of federal income tax carryforwards is
subject to certain limitations under Section 382 of the Internal Revenue Code of
1986, as amended. The completion of this Offering and prior ownership changes
are likely to limit the Company's ability to utilize federal income tax
carryforwards under Section 382. The annual limitation could result in
expiration of net operating losses and research and development credits before
their complete utilization.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
private placements of securities. Net proceeds from such issuances since
inception through September 30, 1997 have totaled approximately $37,278,000. To
a lesser degree, the Company has financed its operations through grant funding,
payments received under research agreements and collaborations, interest earned
on cash, cash equivalents and short-term investments and funding under equipment
leasing agreements. These financing sources have historically allowed the
Company to maintain adequate levels of cash and other liquid investments.
The Company's combined cash, cash equivalents and securities
available-for-sale totaled $18,455,000 at September 30, 1997. The primary uses
of cash, cash equivalents and securities available-for-sale during fiscal 1997
to date include $2,052,000 in property and equipment additions and $747,000 in
principal payments on capital lease obligations and bank borrowings. In addition
to the Novartis purchase of Common Stock in June 1997 for $10,000,250, during
fiscal 1996 the Company received $10,852,000 in net proceeds from sales of
Common Stock, Series D and Series E Convertible Preferred Stock. The Company
plans to continue its policy of investing excess funds in short-term,
investment-grade, interest-bearing instruments.
In June 1997, the Company completed construction of a pilot manufacturing
facility in its Baltimore, Maryland headquarters. The Company plans to invest a
total of $1,500,000 during 1997 to construct and
22
<PAGE>
equip the pilot manufacturing facility. These expenditures will be funded out of
existing cash balances maintained by the Company and potentially a portion of
the proceeds from this Offering. In addition, the Company anticipates that it
will spend approximately $750,000 in other capital expenditures during 1997 for
its research and development activities and is currently conducting a
feasibility study for expansion of its research and development facility to
accommodate an increase in staffing for Novartis funded research and Company
funded product and process development. The proposed expansion would include the
exercise of an expansion option in the Company's current lease agreement for an
additional 50,000 square feet. Pursuant to the lease agreement, the State of
Maryland has a best efforts commitment to finance or guarantee financing for up
to $7,000,000 in tenant improvements for this planned expansion. In addition,
the Company has the option to purchase the building under certain circumstances.
To date, the Company has not entered into any firm commitment for this
expansion.
The Company's future cash requirements will depend on many factors,
including continued scientific progress in the Company's research and
development programs, the scope and results of human clinical trials, the time
and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting and enforcing patents, competing technological and market
developments and the costs of product commercialization. The Company does not
expect to generate a positive cash flow from operations for several years, if at
all, due to the expected increase in spending for research and development
programs and the expected cost of commercializing product candidates.
Total facility related future minimum lease payments as of December 31, 1996
were approximately $7,317,000, of which approximately $580,000 is due in fiscal
1997. Total equipment related future minimum lease payments as of December 31,
1996 were approximately $2,598,000, of which approximately $986,000 is due in
fiscal 1997. In October 1994, the Company entered into a sponsored Research
Agreement and extensions to consulting agreements with the founding scientists
with Case Western Reserve University that commits a total amount of $1,440,000
in research funding over a three-year period commencing in January 1995.
Approximately $120,000 will be paid in fiscal 1997. In addition, in July 1997
the Company entered into a sponsored Research Agreement with the Centro di
Biotecnologie Avanzate that commits a total amount of $1,000,000 in research
funding over a three-year period commencing in July 1997.
The Company anticipates that the net proceeds of this Offering, together
with the Company's available cash, cash equivalents and securities
available-for-sale, and expected interest income thereon, will be sufficient to
finance its research and development and other working capital requirements for
at least two years. The Company expects that its primary sources of capital for
the foreseeable future will be through collaborative arrangements and the public
or private sale of its equity securities. There can be no assurance that such
collaborative arrangements, or any public or private financing transactions,
will be available on acceptable terms, if at all, or can be sustained in the
future. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research and
development programs, which could have a material adverse effect on the Company.
See "Risk Factors--Dependence Upon Collaborative Partners" and "--Need for
Substantial Additional Funds" and Notes to Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"), which specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS 128 is
effective for financial statements ending after December 15, 1997. The Company
does not anticipate that the adoption of SFAS 128 will have a material effect on
its financial statements.
23
<PAGE>
BUSINESS
GENERAL
Osiris Therapeutics, Inc. ("Osiris" or the "Company") is engaged in the
research and development of therapeutic products for the regeneration of human
connective tissues (E.G., bone marrow stroma, bone, cartilage, muscle, tendon,
ligament and fat) through the use of mesenchymal stem cells ("MSCs") which the
Company believes to be the progenitor cells responsible for the formation of
such tissues. The Company believes that its proprietary MSC technology will
provide a broad platform for developing and commercializing cell therapy
products and biopharmaceuticals for the regeneration of connective tissues
damaged through injury, aging or degenerative disease.
Connective tissue disorders, including orthopaedic injuries and degenerative
diseases, rank first among all disorders in terms of frequency of visits to
physicians and second in terms of frequency of hospitalizations. In the field of
cancer treatment, damage to bone marrow typically occurs following high-dose
chemotherapy or radiation, which often destroys the patient's hematopoietic
(I.E., blood-forming) system and bone marrow stroma.
The Company and its academic collaborators have isolated, purified and
expanded MSCs from both humans and animals and transplanted the culture-expanded
MSCs to the site of injured animal tissue to regenerate that tissue in a number
of preclinical models, thereby establishing the scientific proof-of-principle
and preclinical safety and efficacy of such techniques. In addition, an initial
physician-sponsored human clinical safety study of cancer patients in remission
using autologous (I.E., derived from a patient's own cells) MSCs has been
completed successfully. A second physician-sponsored human clinical safety study
in advanced breast cancer patients, under an approved IND, is underway currently
at the University Hospitals of Cleveland, Ireland Cancer Center ("UHC").
The Company believes that its tissue regeneration technology, if developed
successfully, could improve the treatment of connective tissue disorders by
restoring the natural functioning of the tissue, improving the quality of the
repair, and by providing a better long-term and cost-effective result compared
to current therapies. For example, (i) regenerating bone marrow stroma following
high-dose cancer chemotherapy could reduce the need for costly platelet and
growth factor infusions, decrease the length, number and costs of hospital stays
and improve patient tolerance to higher or more frequent doses of cancer
chemotherapy; (ii) regenerating bone in spinal fusion and segmental defect
procedures could eliminate the need for harvesting normal bone tissue from the
patient or donors; and (iii) regenerating cartilage in defects that could
otherwise result in joint osteoarthritis could obviate the need for treating the
end-stage disease with a joint implant.
Osiris is focusing its initial product development efforts on the
regeneration of bone marrow stroma following high-dose cancer chemotherapy and
on the regeneration of bone in long bone and spinal defects. In addition, the
Company is collaborating with Novartis in the research and development of MSC
products for treating degenerative diseases such as osteoporosis and
osteoarthritis, for regenerating cartilage damaged by injury, and for certain
gene therapy applications using MSCs as delivery cells.
The Company intends to selectively pursue the establishment of strategic
research, development and marketing collaborations with pharmaceutical and
medical device companies to accelerate the introduction of MSC products. In June
1997, the Company entered into a multi-year collaboration with Novartis of
Basel, Switzerland, one of the world's largest pharmaceutical companies, which
was formed in December 1996 through the merger of Sandoz AG and Ciba-Geigy AG.
Under the Novartis collaboration, Novartis paid to the Company an initial
up-front payment of $3,000,000 and purchased 692,059 shares of the Company's
Common Stock (representing 7.9% of the Company's outstanding Common Stock) for
$10,000,250. In addition, Novartis has agreed to fund, during the five-year term
of the collaboration, up to $50,000,000 of MSC research by the Company and to
fund all costs for clinical development, regulatory approvals, manufacturing and
marketing of the MSC products developed from the collaboration. The
24
<PAGE>
Company also could receive milestone payments of up to $93,000,000, contingent
upon the achievement of specified regulatory milestones in connection with the
development of products pursuant to the Novartis collaboration. There can be no
assurance, however, that the Company will become entitled to the full
$50,000,000 of research and development funding or that any or all of the
products currently contemplated for development pursuant to the Novartis
Agreement will achieve the specified milestones entitling the Company to any or
all of the $93,000,000 of milestone payments. In consideration for its funding,
Novartis has received an exclusive, worldwide license to use and sell MSC
products to be developed during the collaboration. Novartis has agreed to pay
the Company royalties based upon the net sales, if any, of such products. The
Company has retained the right to manufacture for sale in North America any MSC
products in the osteoporosis, osteoarthritis and cartilage injury fields.
The Company owns or has an exclusive license to five patents granted in the
United States relating to: (i) isolated human mesenchymal stem cells and
therapeutic compositions containing such cells; (ii) producing bone or cartilage
through the use of human mesenchymal stem cells; (iii) repairing connective
tissue damage through the use of human mesenchymal stem cells; (iv) isolated
human mesenchymal stem cells transfected with genetic material for potential use
in gene therapy; and (v) certain antibodies against human osteogenic cells and
the use thereof. The Company also owns or has licenses to over forty United
States and foreign patent applications directed to MSC technology. The Company
intends to continue to use its scientific expertise to pursue addtional patent
filings for new compositions, methods and uses of human mesenchymal stem cells
and related know-how to enhance the Company's leadership in MSC technology.
PLATFORM TECHNOLOGY
The Company is developing its MSC technology as a broad, proprietary
platform capable of being applied to multiple products and disease indications.
The Company believes that tissue regeneration through MSC cell therapy may be
able to address multiple types of connective tissues with a common class of
therapies and prove effective for multiple types of damage to the same tissue,
such as damage arising from injury, aging or degenerative diseases (including
osteoporosis, osteoarthritis and age-related bone fractures). Advances in the
Company's research and development of MSC technology, including the results of
preclinical studies and clinical trials in various tissue disorders, may provide
support for future submissions to the FDA in other indications. Furthermore,
success in treating multiple tissue disorders may also provide the Company with
a valuable database for exploring new opportunities in cardiac tissue
regeneration, skin regeneration and reconstructive surgery. In the area of
biopharmaceuticals, the Company believes its MSC research may provide new drug
targets for the treatment of connective tissue disorders and cancer. The Company
believes that successful development of its MSC technology as a platform with
multiple applications would provide Osiris with a leading position in this
emerging market.
BUSINESS STRATEGY
The Company's goal is to sustain its leadership in MSC technology and to
achieve leadership in the emerging tissue regeneration therapy market. The
Company's strategy involves the following elements:
PURSUE PRODUCT COMMERCIALIZATION. The Company intends to actively pursue
opportunities to commercialize its MSC technology. One of the Company's initial
objectives is to complete the formulation and commence human clinical trials of
MSC products for the regeneration of bone marrow stroma and bone and, in
conjunction with Novartis, products for the treatment of osteoporosis and
osteoarthritis and the regeneration of articular cartilage. In addition, the
Company has initiated validation procedures for its newly constructed pilot
plant for the production of autologous MSCs for human clinical trials and plans
to seek FDA certification for the facility in early 1998.
ESTABLISH STRATEGIC CORPORATE COLLABORATIONS. The Company intends to
selectively pursue the establishment of corporate collaborations to accelerate
the introduction of MSC products. The Company has
25
<PAGE>
entered into a collaboration with Novartis in the areas of osteoporosis,
osteoarthritis, cartilage regeneration and selected aspects of MSC gene therapy.
The Company intends to pursue additional corporate collaborations for specific
areas of its MSC technology. This strategy would allow the Company to build and
sustain leadership in MSC technology, while utilizing the clinical expertise,
distribution infrastructure and financial resources of multiple strategic
partners. The Company intends to develop potential products to a late
preclinical or early clinical stage and then to collaborate with pharmaceutical
or medical device companies for the later stages of clinical development and
commercialization. The Company will, however, also consider developing certain
products on its own.
ENHANCE MSC RESEARCH LEADERSHIP. MSC technology was pioneered by the
Company and its scientific founders. The Company intends to continue focusing
its core research and development programs on the characterization and mechanism
of action for the growth, differentiation and maturation of MSCs, both IN VITRO
and IN VIVO. Increasing the Company's understanding of the role of mesenchymal
stem cells in tissue formation and interactions with surrounding tissue will be
important in tailoring MSC products to specific disorders. The Company also
intends to continue expanding its network of academic research and clinical
collaborators and advisors, both in support of its core MSC technology and in
related technologies. Through this network, located throughout the U.S. and
Europe, the Company intends to identify additional indications for MSC products
and to extend the research on existing applications.
SUSTAIN AND PROTECT INTELLECTUAL PROPERTY ADVANTAGE. The Company intends to
sustain and protect its intellectual property advantage in MSC technology by:
(i) accelerating the rate of new patent filings for its MSC technology; (ii)
licensing related technology from members of its academic and clinical network;
(iii) disseminating the Company's MSC technology to selected academic
researchers in exchange for licenses to new applications of such technology; and
(iv) vigorously protecting the Company's patents and know-how.
OPTIMIZE STRATEGIC AND FINANCIAL FLEXIBILITY. The Company intends to
optimize its strategic and financial flexibility by, among other things,
obtaining multi-year research, development and milestone funding from the
Company's corporate collaborators. The Company intends, where possible, to have
corporate collaborators fund a substantial portion of the expenses for product
development programs, most or all of the costs involved in multi-site human
clinical trials and all of the costs of regulatory submissions. In addition, the
Company plans to continue seeking non-equity grant support to fund new research
initiatives for its MSC technology. To date, the Company has been awarded U.S.
Government contracts and grants worth approximately $9,000,000 for MSC research.
These funds allow the Company to explore multiple MSC opportunities
simultaneously while reducing financial and operating risks.
MESENCHYMAL STEM CELL TECHNOLOGY
MESENGENESIS
In the early embryo, the middle layer of cells (known as the mesoderm) and
certain portions of the outer cell layers give rise to groups of cells that
differentiate into bone marrow stroma, bone, cartilage, muscle, tendon,
ligament, fat and other connective tissues. Based upon laboratory and
preclinical research to date, the Company believes that the process of tissue
regeneration follows a sequence of events similar to that of embryonic tissue
formation and that throughout life, individuals maintain a reserve of
mesenchymal progenitor cells that are capable of differentiating into new
connective tissues. The Company refers to the progenitor cells that initiate
tissue formation as mesenchymal stem cells and the formation of these tissues as
mesengenesis.
The schematic on the inside cover of this Prospectus illustrates the
sequence of events which the Company believes are involved in the formation of
connective tissues. MSCs proliferate (I.E., undergo multiple divisions) to
generate increased numbers of MSCs. Many of these expanded MSCs then undergo
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a commitment step and enter a particular lineage pathway (E.G., bone-forming,
cartilage-forming or tendon-forming), leading ultimately to the formation of
differentiated, tissue-specific cells.
Once committed to a specific pathway, the cells undergo distinctive
conformational changes during the process of lineage progression. Eventually,
the cells in each pathway undergo a differentiation process in which they no
longer divide, but rather fabricate unique components (E.G., extracellular
matrix, membrane receptors, bioactive factors) in a sequence of synthesis and
assembly steps comparable to that originally observed when the embryo first
develops specialized mesodermal tissues. The modulation of these synthesis and
assembly steps is often referred to as maturation, as the newly formed tissue
takes on its final form.
CELL THERAPY USING MESENCHYMAL STEM CELLS
The Company believes that the field of tissue regeneration is moving toward
a new class of treatments involving cell therapy. The Company intends to
commercialize products that result in site-directed tissue regeneration based on
the use of MSCs. Such products would originate from a small sample of bone
marrow cells collected by needle aspiration from a patient using a local
anesthetic. The bone marrow aspirate would be transferred to the Company's
processing facilities and the MSCs would be isolated and culture-expanded. The
culture-expanded cells would then be returned to the patient for infusion or
implantation. The MSCs would be combined in some instances with a biodegradable
matrix or other delivery device capable of stabilizing the cells at the implant
site.
Results of preclinical studies indicate that, by increasing the quantity of
MSCs at the defect site, the natural progression of mesengenesis will result in
the regeneration of tissue and the repair of tissue defects. As a result, the
Company intends to commercialize custom, autologous MSC infusions for treating
the destructive effects of cancer chemotherapy and radiation therapy and custom,
autologous MSC implants for orthopaedic tissue regeneration. The schematic on
the inside cover of this Prospectus illustrates the process which the Company
intends to utilize for clinical tissue regeneration.
GENE THERAPY
Gene therapy is a novel approach to the treatment of disease in which genes
are inserted into a patient's cells to induce these cells to produce therapeutic
proteins or to replace defective or missing genes. The Company believes that
MSCs may be useful clinically for gene therapy applications, including the IN
VIVO production of therapeutic drugs through their expression in connective
tissues. The Company has shown that therapeutic genes can be transferred into
MSCs in a highly efficient and reliable manner and can serve as a delivery
vehicle for gene therapy applications. MSCs could be useful particularly as
delivery cells for gene therapy based on the evidence that MSCs can: (i)
efficiently incorporate the gene into MSCs, which can then be expanded in
culture to produce a sufficient quantity of genetically-engineered cells for
therapeutic treatment; (ii) replicate as stem cells IN VIVO to provide
additional quantities of gene-modified cells; and (iii) retain gene expression
during cellular differentiation into the desired connective tissue.
The Company's business opportunity will depend, in part, upon the successful
development of individual gene therapy applications currently under development
by third parties such as Novartis. The Company's collaboration with Novartis is
limited to three specific genes, together with a right of first refusal to
additional genes specified on or before December 31, 1997. The Company currently
retains the ability to license rights to develop therapies for additional gene
targets outside of the scope of the Novartis collaboration.
BIOPHARMACEUTICALS
The Company believes that specific hematopoietic and mesengenic factors
exist that control and modulate mesengenesis. The isolation of these factors
could lead to biopharmaceuticals for regulating MSC proliferation and
stimulating their differentiation into new mesenchymal tissues. These
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biopharmaceuticals could be used alone or in conjunction with the Company's MSC
cell therapy applications. The development of these factors is complementary to
the development of the Company's MSC technology because such factors could,
among other things, enhance the production of MSCs during the culture-expansion
phase of MSC manufacturing. To date, the Company has identified eight novel
target molecules for possible biopharmaceutical development and has discovered
the presence on MSCs of four target molecules previously identified by other
groups, which are thought to play a direct role in MSC proliferation and
differentiation.
PRODUCT DEVELOPMENT PROGRAMS
The MSC platform technology is being developed by the Company and with
collaborative partners who provide funding, research and development and
commercialization expertise for multiple MSC product applications. The Company's
product development programs and the commercialization rights and development
status of such programs are summarized below:
<TABLE>
<CAPTION>
COMMERCIALIZATION
PRODUCT DEVELOPMENT PROGRAMS RIGHTS DEVELOPMENT STATUS (1)
- ---------------------------------------- -----------------------
<S> <C> <C>
CELL THERAPY
Treatment following cancer Company Phase I Clinical
chemotherapy Trials, Preclinical
Trials
Bone Regeneration:
Spinal fusion Company Preclinical Trials
Bone defects/Non-unions Company Preclinical Trials
Cartilage Regeneration Novartis(2) Animal Studies
Degenerative Disorders:
Osteoporosis Novartis(2) Animal Studies
Osteoarthritis Novartis(2) Research
Tendon Regeneration Company Animal Studies
Cardiac Muscle and Other Soft Tissue Company Research
GENE THERAPY
Vaccine delivery Company Research/Development
Three therapeutic genes Novartis Research
Other therapeutic genes Company Research
BIOPHARMACEUTICALS
Mesengenic Factors Company Research
Hematopoietic Factors Company Research
</TABLE>
- --------------------------
(1) Development Status refers to the following stages ranging from early
research through human clinical trials leading to market approval by the FDA
or other regulatory agencies.
(a) "Clinical Trials" refer to physician-sponsored human safety and efficacy
studies.
(b) "Preclinical Trials" refer to various animal studies which determine a
product's initial safety and efficacy in preparation for filing of IND
applications.
(c) "Animal Studies" refer to various animal models which are used to
demonstrate clinical proof-of-principle for a therapeutic approach or
procedure. The same animal studies may serve as the basis for an IND
application.
(d) "Development" refers to laboratory studies leading to a product
prototype which may be subsequently used in animal or preclinical
studies.
(e) "Research" refers to exploratory studies or to basic studies which may
lead ultimately to a product development effort.
(2) The Company has retained the right to manufacture for sale in North America
MSC products in the osteoporosis, osteoarthritis and cartilage injury
fields.
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CELL THERAPY
STROMA REGENERATION
Autologous bone marrow transplants and peripheral blood progenitor cell
transplants are used increasingly as supportive therapy for cancer patients who
have undergone high-dose chemotherapy, particularly for lymphoma, leukemia,
breast cancer and several other types of solid tumors. These transplants are
required because certain cancer drugs, radiation treatments and high-dose
chemotherapy regimens destroy hematopoietic and mesenchymal cells, which limits
the patient's ability to recover. Mesenchymal stem cells give rise to marrow
stromal cells, which produce the spongy stromal matrix that comprises the bone
marrow microenvironment. These marrow stromal cells contribute directly to blood
cell formation by producing the extracellular matrix in which blood cell
development takes place and by providing cytokines and other molecules that
direct or stimulate the production of mature blood cells.
MSCS FOR CANCER THERAPY. The Company's research is seeking to determine
whether MSC therapy is able to regenerate the bone marrow microenvironment and
restore normal marrow function. The benefits of MSC therapy may include
decreases in: (i) costly platelet and growth factor infusions following
transplantation; (ii) length and costs of hospital stay and the number of
readmissions; and (iii) fatalities associated with the use and readministration
of high-dose chemotherapy procedures. In addition, MSC cell therapy may also be
used to restore the marrow microenvironment in certain diseases characterized by
stromal failure, such as multiple myeloma, spontaneous cytopenias and aplastic
anemia.
DEVELOPMENT STATUS. The Company has completed four preclinical studies of
stromal cell regeneration at the Fred Hutchinson Cancer Research Center in
Seattle, Washington. These studies have shown that infusion of therapeutic doses
of MSCs is safe and does not result in adverse side effects. Preliminary data
from these studies also suggest a reduction in the time for hematopoietic cell
recovery, with fewer platelet infusions and without the use of growth factor
infusions during recovery. In addition, these preclinical studies indicate that
intravenously infused MSCs localize to the bone marrow, a critical proof-
of-concept for use in cancer therapy.
In a physician-sponsored clinical trial conducted at UHC, MSCs were isolated
and culture-expanded from a small starting sample of autologous bone marrow
collected from 15 volunteer cancer patients either at the time of bone marrow
harvest or during routine diagnostic bone marrow evaluation. As reported in the
December 1995 issue of BONE MARROW TRANSPLANTATION, reinfusions of 1,000,000,
10,000,000 and 50,000,000 autologous MSCs into groups of five patients at each
cell level in this dose-escalation safety study were well tolerated and did not
produce any significant adverse effects.
The Company has also provided a grant-in-aid to researchers at UHC to help
support a Phase I safety study using autologous MSCs infused into advanced
breast cancer patients following high-dose chemotherapy. The goal of this
clinical trial, which was initiated in October 1996, is to demonstrate the
safety of MSCs in a therapeutic setting in breast cancer patients receiving
co-administration of autologous hematopoietic progenitor cell infusions. The
therapeutic goal of this and future clinical studies is to improve the marrow
microenvironment, to facilitate engraftment of peripheral blood progenitor cells
and to enhance recovery of blood counts after ablative therapy.
The Company is evaluating the preclinical and clinical results to date and
formulating plans for a Phase I/II human clinical trial of MSC technology for
stroma regeneration. The Company plans to commence such Phase I/II human
clinical trials for stroma regeneration in 1998.
MARKET OPPORTUNITY. Nearly 30,000 bone marrow transplants are performed
annually worldwide involving hematopoietic reconstitution following chemotherapy
or radiation of solid tumors and other bone marrow disorders. With improved
clinical outcomes for solid tumor treatment and increased third-party coverage,
the Company believes that the opportunity for the use of hematopoietic and
mesenchymal stem cell therapy could more than triple to over 100,000 transplants
annually by 2001. In the breast cancer
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setting specifically, there are approximately 190,000 new cases in the U.S. per
year, of which 25-30% involve metastatic spread, which may benefit from
intensified chemotherapy and MSC stromal regeneration therapy. In addition, the
Company believes that oncologists will increasingly use high-dose chemotherapy
with bone marrow transplants for ovarian, testicular and other solid tumors, as
well as for leukemia and lymphoma.
The Company estimates that as many as 300,000 patients could benefit from
combination high-dose chemotherapy and stem cell reinfusion protocols using both
hematopoietic progenitor and mesenchymal stem cell therapy. However, there can
be no assurances that any safe and efficacious MSC product for stroma
regeneration will be developed or receive regulatory approval. Successful
development of the Company's MSC product for stroma regeneration will require
additional research and development, including clinical testing, and will be
subject to the Company's ability to finance such activities. See "Risk
Factors--Uncertainty of Product Development" and "--Need for Substantial
Additional Funds."
BONE REGENERATION
Many bone fracture patients suffer difficult or prolonged healing
situations, such as non-unions, delayed unions, malunions and age-related
fractures. While internal fixation, external fixation and bone growth
stimulation devices comprise the principal products which currently assist in
the repair of complex fractures, many of these high-risk fractures require bone
grafts or other extensive surgical intervention. Currently, bone graft
procedures using either a patient's own bone ("autograft") or donor-derived bone
("allograft") are performed in connection with the surgical procedures to repair
non-unions, delayed unions, spinal fusions and tumor resections of long bone.
The Company believes that allograft bone transplants now account for over
one-half of the bone graft market, having replaced the exclusive use of bone
autografts obtained by surgical excision of patients' normal tissue. Despite the
reduction of operative risks, chronic pain and deformity associated with
autografts, bone allografts often do not integrate fully with surrounding normal
tissue, are not completely penetrated by host blood vessels and may not be
tolerated immunologically in some patients.
Segmental bone defects often arise when sections of long bones are removed
surgically as a result of metastatic bone cancer, osteosarcoma (I.E., primary
bone cancer) or multiple myeloma (I.E., bone marrow cancer). If malignant, both
the involved and adjacent tissues are typically resected, generally leaving a
large segmental bone defect which will not regenerate and which cannot generally
be reconstructed.
Spinal fusions are performed to treat degenerative diseases, deformities and
spinal conditions created by traumatic injuries. Degenerative diseases typically
occur in mature adults and result in immobility, pinched nerves and associated
pain for the patient. Deformities, unless treated at a young age, prevent proper
growth of the spine and can be life threatening if allowed to progress.
Currently, spinal implants are used to facilitate the fusion of two or more
vertebrae in the spine.
MSCS FOR BONE REGENERATION. MSCs are advantageous because they can directly
form the cells and matrix of mature bone tissue (I.E., osteogenic). By adding an
optimal number of MSCs to the repair site in an appropriate formulation, the
Company believes that it will be able to accelerate the proliferation of MSCs,
the differentiation of MSCs into bone-forming cells and the vascularization of
bone tissue. The MSC product will likely consist of autologous MSCs formulated
with FDA-approved biodegradable matrix materials. The Company believes that MSC
cell therapy will result in: (i) an improvement in the rate and quality of bone
regeneration; (ii) elimination of painful autograft procedures; (iii) a delay,
reduction or elimination of costly second-site tissue harvests; (iv) a cost
reduction and decrease in the amount of time spent by physicians performing
autograft procedures; and (v) a higher rate of healing in multi-level spinal
fusions.
DEVELOPMENT STATUS. Results from the Company's research studies have
established that culture-expanded MSCs can rapidly fill a porous matrix with
bone. These results suggest that MSCs could be
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<PAGE>
useful in an autologous grafting technique for spinal fusion, reconstruction of
long bone after tumor excision, joint reconstruction, prosthesis fixation and
repair of age-related fractures.
The Company is continuing to build on its research experience with further
studies in preclinical models involving the regeneration of bone following
surgical resection and spinal fusion. The Company has shown that MSCs have been
able to regenerate bone in large femoral defects in small animal models, and the
Company is collaborating with Tufts University to demonstrate this effect in
larger animal models. In addition, the Company is sponsoring a collaborative
study at the Cleveland Clinic Foundation, and will commence projects at other
academic institutions, to study spinal fusion in large animal models. Initial
results in both indications show that MSCs can regenerate new bone directly into
large bone defects. In addition, the Company has demonstrated in
immune-deficient animal models that human MSCs can regenerate a large bone
defect, a critical proof-of-principle for the use of human MSCs in regenerating
bone.
The Company is testing a number of formulations of MSCs and matrix materials
for bone regeneration in preclinical models, evaluating the preclinical results
to date and formulating plans for a Phase I/II human clinical trial of MSC
technology for bone regeneration. The Company plans to initiate human clinical
trials of the MSC technology in bone regeneration in 1999.
MARKET OPPORTUNITY. The Company believes that there is a significant
commercial opportunity for MSC technology to regenerate bone in orthopaedic
procedures. The number of procedures for which the Company believes MSC bone
regeneration products could be used exceeds 1.1 million in the United States.
These procedures include non-healing fractures (170,000), spinal fusions
(202,000), maxillofacial reconstructions (219,000), prosthetic fixations
(541,000) and gap fillings (31,000).
In addition, the Company estimates that there are approximately 1.3 million
age-related fractures each year in the U.S. Of these, approximately one-third
are hip fractures, one-third are vertebral fractures and the remaining are wrist
and upper arm fractures. The Company believes that age-related fractures
represent a substantial market for bone regeneration products utilizing MSC cell
therapy. However, there can be no assurances that any safe and efficacious MSC
product for bone regeneration will be developed or receive regulatory approval.
Successful development of the Company's MSC products for bone regeneration will
require additional research and development, including clinical testing, and
will be subject to the Company's ability to finance such activities. See "Risk
Factors--Uncertainty of Product Development" and "--Need for Substantial
Additional Funds."
CARTILAGE REGENERATION
Joint cartilage is designed to absorb the repeated shock of compressive and
mechanical stress on the surface of articulating joints. Articular cartilage
damage generally occurs as a result of a sports injury, traumatic injury or
osteoarthritic degeneration. Despite various attempts to regenerate cartilage
using collagen implants and cartilage tissue transplants, there is currently no
reliable or proven treatment to regenerate damaged cartilage.
MSC THERAPY FOR CARTILAGE REGENERATION. The Company's research and
development is directed toward developing products for articular cartilage
regeneration using autologous human MSCs, which can form both cartilage and
bone. The Company believes that MSCs will be able to differentiate into
cartilage-forming and bone-forming cells and regenerate tissue in full-thickness
osteochondral (I.E., articular cartilage and underlying bone) defects with the
appropriate formulation for stabilizing the implant in the cartilage defect
during the regeneration process. Unlike MSC therapy, current chondrocyte
therapies cannot repair osteochondral defects, nor are they indicated for the
treatment of osteoarthritic lesions. The Company believes that an MSC product
for cartilage regeneration could: (i) decrease the long-term risk of developing
osteoarthritis; (ii) increase the repair rate for certain surgical procedures;
and (iii) potentially restore naturally functioning cartilage. In addition, the
Company has entered into a corporate collaboration with Novartis to develop MSC
cell therapy products for the regeneration of surface and full-thickness
cartilage defects. See "Business--Collaborative Research and Licensing
Agreements--Novartis Agreement."
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DEVELOPMENT STATUS. The Company and its collaborators have conducted
preclinical studies using transplanted MSCs that have resulted in the
regeneration of articular cartilage which appeared to be equivalent to normal
joint cartilage as determined by microscopy and immuno-histochemistry.
Preclinical studies to date have been conducted principally in small animal
models. In addition, the Company has made substantial advances in understanding
the structure of natural cartilage extracellular matrix. Collectively, these
results have helped the Company establish formulations, surgical techniques and
demonstration of feasibility to permit pivotal preclinical studies commencing in
1998.
MARKET OPPORTUNITY. The Company believes that a substantial market
opportunity exists for MSC products for cartilage regeneration. In 1995, there
were approximately 570,000 recreational and sports-associated cartilage injuries
in the United States. Nearly half of these injuries were treated surgically,
including meniscectomies to repair knee cartilage between joint articulating
surfaces. However, there can be no assurances that any safe and efficacious MSC
product for cartilage regeneration will be developed or receive regulatory
approval. Successful development of the Company's MSC products for cartilage
regeneration will require additional research and development, including
clinical testing, and will be subject to the Company's ability to maintain and
operate successfully under its collaborative agreement with Novartis. See "Risk
Factors--Uncertainty of Product Development."
DEGENERATIVE DISORDERS
OSTEOPOROSIS. Osteoporosis is a progressive disease characterized by loss
of bone mass and subsequent risk of brittle bone fractures, resulting mainly
from the decrease in naturally occurring estrogen levels in postmenopausal
women. Hormone replacement therapy and antiresorption products that decrease the
rate of bone loss are currently the most effective methods for preventing or
treating osteoporosis. However, the Company believes that approximately 10-20%
of postmenopausal women do not tolerate these products or may not respond to
conventional osteoporosis treatments. The Company believes that MSCs may be
useful in treating patients by directly regenerating bone lost during
osteoporosis. The goal is to reverse osteoporosis by forming bone directly from
MSCs (I.E., osteogenesis).
OSTEOARTHRITIS. Osteoarthritis is the final, end-stage of cartilage and
joint failure. Hip and knee osteoarthritis are the two most common forms of
joint cartilage degeneration. Osteoarthritis can be a primary degenerative
process or result from childhood joint disorders. More frequently,
osteoarthritis develops following adult joint injury, infection, metabolic
disorder or abnormal bone formation. Many acute injuries of articular joint
cartilage treated by current methods result in osteoarthritic lesions within a
5-10 year period. The Company believes that MSCs may be useful in regenerating
osteoarthritic lesions of joint cartilage by forming new cartilage and the
underlying bone at the defect site. The goal of the Company's research program
in osteoarthritis is to stabilize or reverse the arthritic process using
cartilage-forming MSCs (I.E., chondrogenesis).
DEVELOPMENT STATUS. The Company is sponsoring research studies involving
infusions of MSCs in animal models of osteoporosis. Preliminary results suggest
an osteogenic effect of MSCs. In osteoarthritis, research is focusing on the
formulation of MSCs for introduction into the arthritic joint. MSC
osteoarthritis products are likely to develop from formulations used for acute
cartilage defects. In collaboration with Novartis, the Company is conducting
further research on systemic infusions or local implants of MSCs with the goal
of reversing bone loss in osteoporosis and reforming joint cartilage in
osteoarthritis.
MARKET OPPORTUNITY. According to the National Osteoporosis Foundation,
osteoporosis affects as many as 24 million postmenopausal women in the U.S., and
the Company believes that more than twice that number are affected throughout
Europe and Asia. Osteoporosis accounts for approximately 1.3 million bone
fractures per year in the U.S. with as many as two to three times that number
throughout other developed countries. Osteoarthritis is one of the most common
chronic connective tissue disorders, affecting nearly 16 million patients in the
United States. Each year, 1.1 million patients are admitted to U.S. hospitals
for osteoarthritis treatment. In addition, there are more than 500,000 total hip
and knee
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replacements and as many as 250,000 non-weight bearing joint replacements
performed in the U.S. each year, principally the result of degenerative
arthritis.
However, there can be no assurance that any safe and efficacious MSC product
for degenerative disorders will be developed or receive regulatory approval.
Successful development of the Company's MSC products for degenerative disorders
will require additional research and development, including clinical testing,
and will be subject to the Company's ability to maintain and operate
successfully under its collaborative agreement with Novartis. See "Risk
Factors--Uncertainty of Product Development."
TENDON REGENERATION
No products currently exist to regenerate torn tendons and ligaments.
Various materials have been tested by others, but these materials generally
produce inadequate results, such as poor compatibility, tissue rejection,
ligament breakage or irritating debris. Even autologous grafts are not without
problems, including graft weakness, extensive time to revascularize, progressive
joint laxity and muscle weakness above the graft site.
DEVELOPMENT STATUS. The Company believes that MSC products for tendon
regeneration can speed the healing rate of torn tissue and potentially provide a
treatment for large gap tendon ruptures. The Company has demonstrated that MSCs
are able to regenerate a torn tendon in a critical size tendon defect in small
animal models. Results from the Company's tendon regeneration studies
demonstrate that MSCs can regenerate severed tendons to approximately two-thirds
the strength of normal tissue within as little as four weeks. The Company plans
to continue these studies utilizing a proprietary MSC tendon fixation device for
which the Company has a pending patent application. The tendon fixation device
would serve to stabilize the tendon defect and provide a support for the MSC
products. In March 1997, the Company was awarded a $750,000 Phase II Small
Business Innovation Research ("SBIR") grant to develop further the potential of
MSCs for tendon regeneration.
MSC PRODUCTS FOR TENDON REGENERATION. There are currently over 150,000
surgical procedures annually involving the repair of tendons and rotator cuffs.
However, there can be no assurance that any safe and efficacious MSC product for
tendon regeneration will be developed or receive regulatory approval. Successful
development of the Company's MSC products for tendon regeneration will require
additional research and development, including clinical testing, and will be
subject to the Company's ability to finance such activities. See "Risk
Factors--Uncertainty of Product Development" and "--Need for Substantial
Additional Funds."
CARDIAC MUSCLE AND OTHER SOFT TISSUE
The Company believes that a substantial opportunity exists for the
regeneration of cardiac (heart) muscle damaged by ischemic (I.E., tissue death)
heart disease from congestive heart failure ("CHF") or by other cardiac
diseases. Heart disease is a leading cause of death and disability in the United
States, with more than 1,000,000 CHF patients who will die within two years
following their diagnosis. The market for MSC regeneration of cardiac muscle is
estimated by the Company at 300,000 patients in the United States, and over
1,000,000 patients worldwide. The Company believes that cardiac tissue
regeneration represents an important application for its MSC technology because:
(i) prior studies have shown that MSCs are capable of differentiating into
muscle cells; (ii) recent research by other groups have demonstrated the
potential for implanted tissue to integrate into cardiac muscle; and (iii) a
significant economic benefit exists for treating heart muscle otherwise
incapable of regenerating itself. In October 1997, the Company was awarded a
grant in the amount of $2,000,000 from the U.S. Department of Commerce, National
Institute for Standards and Technology ("NIST") to pursue research into cardiac
muscle regeneration using MSC technology.
The Company also intends to pursue research and development of fat tissue
regeneration with a view toward MSC products for plastic and reconstructive
surgery using a patient's own fat-generating MSCs.
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<PAGE>
The Company believes that improved contours and implant retention would result
from soft tissue implants or injections that combine MSCs with an appropriate
collagen matrix. The Company believes that approximately 100,000 craniofacial
and breast augmentation patients could be candidates for plastic or
reconstructive treatment involving MSC products each year in the United States.
The Company intends to seek research grants and corporate collaborators to
co-develop MSC products for both cardiac muscle and fat tissue regeneration.
However, there can be no assurance that the Company will be awarded any grants,
that the funding will be adequate, that corporate collaborations can be
developed, or that research results will be suitable to commercialize any MSC
products for cardiac muscle regeneration or plastic and reconstructive surgery.
See "Risk Factors--Uncertainty of Product Development" and "--Need for
Additional Substantial Funds."
GENE THERAPY
Gene therapy is a therapeutic approach with the potential to alter the
course of certain genetic diseases and to deliver useful drugs within the body.
Gene therapies are generally designed to introduce a missing normal gene into
otherwise defective human tissue, or to introduce a novel biopharmaceutical into
the body via a gene not present. The therapeutic gene of interest is inserted
into a suitable vector that can be used to transport and integrate the gene into
the DNA of the target cell. The gene then produces the newly coded protein
within the target cell. The Company believes that MSCs may be useful clinically
for gene therapy to correct inborn or acquired tissue disorders or for the IN
VIVO production of therapeutic drugs through their expression in tissues derived
from genetically modified MSCs.
MSCS FOR GENE THERAPY. The Company believes that the ability to incorporate
into MSCs a desired DNA sequence through a vector represents a significant
enabling technology for gene therapy. The ability to use a self-renewing stem
cell that can be culture-expanded and provides continuing gene expression IN
VIVO has eluded gene therapy companies. The Company has demonstrated that MSCs
can be isolated and culture-expanded directly IN VITRO, maintain their stem cell
state and express inserted genes at high frequency IN VIVO. Furthermore,
mesenchymal tissues are replaced at a slower rate than hematopoietic cells,
permitting potentially longer term gene expression.
DEVELOPMENT STATUS. The Company has demonstrated that MSCs can be
transduced at high efficiency and that MSCs containing the added DNA (I.E.,
transduced cells) can be further expanded to high levels of purity in culture.
The Company was issued a U.S. patent covering transduced MSCs for use in gene
therapy. The Company intends to focus further research activities on improving
the efficiency of its core gene transduction technology. In addition, research
will be directed toward the expression of other genes IN VIVO. The Company has
entered into a collaboration with Novartis to pursue these studies in three
target genes. See "Business--Collaborative and Licensing Agreements--Novartis
Agreement."
MSC PRODUCTS FOR GENE THERAPY. There are no gene therapy products on the
market, although a number are undergoing human clinical trials. Significant
research is being conducted currently in the field of gene therapy and therapies
may be developed for the treatment of inflammatory and autoimmune diseases,
neurodegenerative diseases, cardio-pulmonary diseases and other diseases
resulting from a missing or defective gene. However, there can be no assurance
that the Company will be able to develop safe and efficacious applications of
MSC products for gene therapy. Successful development of the Company's MSC
products for gene therapy will require substantial additional research and
development, including clinical testing, and will be subject to the Company's
ability to operate successfully under its collaborative agreement with Novartis,
enter into additional collaborations and finance such activities on its own
where necessary. See "Risk Factors--Uncertainty of Product Development" and
"--Need for Substantial Additional Funds."
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BIOPHARMACEUTICALS
MESENGENIC FACTORS
The Company is conducting research into mesengenic growth and
differentiation factors, focusing on molecules that regulate MSC growth and
stimulatory factors for lineage commitment. Osiris has commenced research to
identify the growth factors and stimulatory factors that are required for the
self-renewal, proliferation and differentiation of MSCs. To date, the Company
has identified a number of mesengenic factors which are unique or novel to MSCs.
If successful in identifying and purifying these factors, the Company intends to
pursue further development of these factors as biopharmaceuticals which affect
the proliferation and differentiation of MSCs. These factors could be used alone
or in conjunction with cell therapy products containing MSCs. The Company
intends to pursue commercialization of mesengenic biopharmaceuticals through one
or more corporate collaborators.
HEMATOPOIETIC FACTORS
Mesenchymal stem cells and hematopoietic stem cells are distinct and unique
progenitors, each of which can give rise to complex, multicellular pathways that
ultimately produce cells and tissues which have completely different structures
and functions. Both stem cells appear to be in close cell-to-cell contact and
are believed to be the source of yet unidentified growth factors, principally
those made by MSCs, which are partly responsible for regulating the formation of
mature blood cells. The interaction of the two stem cells in the bone marrow
represents a major new field of cell transplant medicine and immune system
biology. The Company believes that the interaction between MSCs and HSCs in bone
marrow could lead to a new class of biopharmaceuticals that are based on the
expression of unique cross-signaling molecules between MSCs and HSCs.
The Company is using its knowledge of mesenchymal and hematopoietic stem
cells to detect molecules that regulate HSC proliferation and differentiation
into mature blood cells. The Company has initiated research on mesengenic
factors that affect the signaling pathways associated with hematopoietic stem
cells in order to develop novel biopharmaceuticals for the treatment of cancer,
blood and immune disorders. The Company intends to pursue commercialization of
hematopoietic biopharmaceuticals through one or more corporate collaborators.
However, there can be no assurance that any safe and efficacious mesenchymal
or hematopoietic biopharmaceuticals will be developed by the Company or receive
regulatory approval. Successful development of the Company's mesenchymal and
hematopoietic biopharmaceuticals will require substantial additional research
and development, including clinical testing, and will be subject to the
Company's ability to enter into and operate successfully under future
collaborative agreements and finance such activities on its own, where
necessary. See "Risk Factors--Uncertainty of Product Development" and "--Need
for Substantial Additional Funds."
COLLABORATIVE RESEARCH AND LICENSING AGREEMENTS
Where consistent with its business strategy, the Company intends to enter
into collaborations or to license product and marketing rights to selected
strategic collaborators to capitalize on the research, production, development,
regulatory and marketing capabilities of these organizations. The Company's
principal collaborative research, license and technology agreements are set
forth below.
NOVARTIS AGREEMENT
In June 1997, the Company entered into a Research and Licensing Agreement
with Novartis Pharmaceuticals Corporation (the "Novartis Agreement") for the
development of MSC products for osteoporosis, osteoarthritis, cartilage injury
and selected gene therapy applications. Pursuant to the Novartis Agreement, the
Company is entitled, subject to certain conditions, to receive up to $50,000,000
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during the five-year period of the agreement for research and development
funding of the Company's osteoporosis, osteoarthritis, cartilage and certain
portions of its gene therapy research programs. The Company also could receive
milestone payments of up to $93,000,000, contingent upon the achievement of
specified regulatory milestones in connection with the development of products
pursuant to the Novartis Agreement. There can be no assurance, however, that the
Company will become entitled to the full $50,000,000 of research and development
funding or that any of the products currently contemplated for development
pursuant to the Novartis Agreement will achieve the specified milestones
entitling the Company to any of the milestone payments. In connection with
entering into the Novartis Agreement, Novartis Pharmaceuticals Corporation also
paid the Company an initial up-front payment of $3,000,000 and Novartis Pharma
AG purchased 692,059 shares of Common Stock (representing 7.9% of the Company's
outstanding Common Stock) for $10,000,250.
In return, Novartis Pharmaceuticals Corporation received exclusive worldwide
rights to use and sell certain MSC products in the osteoporosis, osteoarthritis,
cartilage injury and gene therapy fields developed during the collaboration.
Novartis Pharmaceuticals Corporation is required to pay the Company royalties
based upon net sales, if any, for such products. The Company has retained
exclusive rights to manufacture MSC products for sale in North America in the
osteoporosis, osteoarthritis and cartilage injury fields at cost plus a
percentage profit, subject to certain conditions.
Under the Novartis Agreement, in addition to the up-front payment, the
equity investment and the research and milestone payments noted above, Novartis
Pharmaceuticals Corporation is responsible for funding the cost of all clinical
development, regulatory submissions, marketing and sales and manufacturing
(excluding North America) of MSC products, if any, developed pursuant to the
collaboration. As a result, the Company is dependent upon Novartis
Pharmaceuticals Corporation to seek regulatory approvals for, to conduct trials
for and to determine the ultimate commercialization of the MSC products subject
to the collaboration.
DEFENSE ADVANCED RESEARCH PROJECTS AGENCY AGREEMENT
In June 1996, the U.S. Defense Advanced Research Projects Agency ("DARPA"),
awarded a sole-source, multi-year research contract to the Company for research
into the use of human MSCs as a strategic platform for detection and treatment
of biological and chemical agents. The $6,000,000 in funding provided under the
DARPA Agreement, consisting of $2,000,000 per year for three years (supplemented
by cost-sharing contributions from the Company in the form of equipment and
indirect costs), is being used to conduct two projects focusing on: (i) a novel
delivery system for vaccines using MSCs; and (ii) a novel detection system for
toxic or biological agents using MSCs. The Company retains all commercial rights
to inventions which result from its research under the DARPA agreement. In May
1997, the Company received approval for the second year of funding under the
contract, having successfully completed the first year's milestones.
NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY COOPERATIVE AGREEMENT
In October 1997, NIST awarded the Company a single recipient cooperative
agreement (the "NIST Agreement") for research into the use of human MSCs to
regenerate cardiac muscle tissue. The $2,000,000 in funding provided under the
NIST Agreement, consisting of $666,666 per year for three years (supplemented by
cost-sharing contributions from the Company in the form of direct and indirect
costs), is being used to conduct research focusing on the differentiation of
MSCs into cardiac tissue in the body and restoration of function to damaged
heart tissue. The Company retains all commercial rights to inventions which
result from its research under the NIST Agreement.
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SMALL BUSINESS INNOVATION RESEARCH GRANTS
In March 1997, the Company was awarded a $750,000 Phase II SBIR grant for a
two-year continuation of research into tendon regeneration. The Company intends
to match the funding received under this grant in order to accelerate its
product development efforts in tendon regeneration. Under the SBIR program, the
Company retains the rights to commercialize technology developed with the SBIR
funding, subject to certain limitations. Previously, the Company was awarded two
Phase I research grants under the SBIR Program for research on the use of MSC
therapy in tendon regeneration and facial joint repair.
ACADEMIC COLLABORATIONS
CASE WESTERN RESERVE UNIVERSITY. In February 1995, the Company entered into
a three-year, $1,440,000 agreement with Case Western Reserve University ("CWRU")
for research in the laboratories of the Company's scientific founders. The CWRU
research agreement is focused on research in four areas of the Company's
long-term product interest, namely: (i) the regeneration of bone which has been
depleted by osteoporosis; (ii) the regeneration of joint cartilage which has
degenerated through osteoarthritis; (iii) the regeneration of meniscal knee
cartilage to prevent subsequent osteoarthritis; and (iv) the identification and
synthesis of a bioactive factor(s) which support the IN VIVO proliferation of
MSCs. Rights to discoveries and patentable inventions resulting from the CWRU
research agreement are licensed exclusively to the Company. Under the Technology
Transfer and License Agreement with CWRU (the "CWRU License Agreement"), the
Company purchased the rights to its first three issued patents and, subject to
rights retained by the U.S. Government and research rights retained by CWRU, the
Company has an exclusive, worldwide license to all additional MSC patents
relating thereto developed by Drs. Caplan and Haynesworth or persons working
under their direction at CWRU. The License Agreement provides for royalty-free
ownership under the first three patents and requires the Company to pay
royalties on revenues related to technology covered by subsequent CWRU patents,
with royalty payments commencing on the third anniversary of the date on which
such products are first sold.
THE JOHNS HOPKINS UNIVERSITY. In December 1994, Gryphon Pharmaceuticals,
Inc. ("Gryphon") entered into a Research and License Agreement with The Johns
Hopkins University (the "JHU Agreement") under which Gryphon agreed to sponsor
for up to five years the hematopoietic stem cell research of Drs. Curt I. Civin
and Donald Small. Research under the JHU Agreement is focused specifically on
identifying unique cell signaling molecules that regulate the self-renewal,
commitment and differentiation of hematopoietic stem cells and their progenitor
cells. Dr. Civin is the original discoverer of the CD34 antibody that is used
commercially to separate hematopoietic stem cells and their progenitor cells
from mature blood cells and platelets during bone marrow transplantation.
Gryphon is a majority-owned subsidiary of the Company and was formed to
research, develop and ultimately commercialize HSC growth factors,
differentiation molecules and the biopharmaceuticals based on the Civin/Small
technology. Gryphon will provide $2,200,000 in research funding to the
Civin/Small laboratories over five years. Under a Share and Warrant Purchase
Agreement dated December 23, 1994, the Company agreed to provide Gryphon
$1,200,000 over a three-year period ending July 1, 1997, as well as a $1,000,000
loan over the following two-year period, for use towards this research funding.
In exchange for this research funding, Gryphon will receive worldwide exclusive
commercial rights to hematopoietic stem and progenitor cell discoveries under
the JHU Agreement. Gryphon has granted the Company an exclusive license to
mesenchymal stem cell discoveries under a separate License Agreement dated
December 23, 1994.
Gryphon is expected to conduct the majority of its research and development
activities through its own staff and facilities and those of The Johns Hopkins
School of Medicine. Gryphon intends to pursue, as part of its primary
commercialization strategy, research and development agreements with
biotechnology companies and with major international pharmaceutical companies to
substantially broaden and accelerate development of its hematopoietic stem cell
technology. It is anticipated that Gryphon will require
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substantial additional funds to conduct its planned operations prior to the
time, if ever, that Gryphon realizes revenues from such agreements, product
sales or royalties on product sales. There can be no assurance that Gryphon will
be able to obtain additional funds through such means or any other means. If
additional funds are raised by issuing equity securities, the Company's
ownership interest in Gryphon will be diluted and the Company may no longer own
a majority of Gryphon's outstanding voting stock.
CENTRO DI BIOTECNOLOGIE AVANZATE, GENOA, ITALY. In July 1997, the Company
entered into a three-year, $1,000,000 agreement with the Centro di Biotecnologie
Avanzate for research in the laboratories of Dr. Ranieri Cancedda (the "CBA
Agreement"). The CBA Agreement is focused on research in three areas of the
Company's long-term product interest, namely: (i) regeneration of bone marrow
stroma and other elements of bone marrow following chemotherapy; (ii)
regeneration of bone which has been depleted by cancer chemotherapy or
osteoporosis; and (iii) regeneration of damaged skeletal and connective tissue
in orthopaedic applications. Rights to discoveries and patentable inventions
resulting from the CBA Agreement will be licensed exclusively to the Company.
FRED HUTCHINSON CANCER RESEARCH CENTER. The Company is sponsoring
preclinical studies for stromal cell reconstitution at the Fred Hutchinson
Cancer Research Center in Seattle, Washington. The goal of these studies is to
determine the ability of MSCs to enhance hematopoietic reconstitution and marrow
engraftment following cancer chemotherapy or radiation ablation therapy. See
"Business--Stroma Regeneration--Development Status" for details on the content
and results of this research collaboration.
IRELAND CANCER CENTER AT UNIVERSITY HOSPITALS OF CLEVELAND. Osiris has
provided a grant-in-aid in support of an investigator-sponsored clinical trial
using human MSCs derived from the bone marrow of patients receiving ablative
chemotherapy treatment for advanced breast cancer. The trial is primarily a
safety study to identify any toxicities associated with infusion of MSCs and to
determine whether the combination of MSCs and peripheral blood stem/progenitor
cells accelerates engraftment and blood-formation relative to historical
controls.
TUFTS UNIVERSITY AND THE CLEVELAND CLINIC FOUNDATION. The Company is
sponsoring preclinical studies at Tufts University to determine the efficacy of
MSCs for the regeneration of segmental bone defects and acute cartilage
injuries. The Company is sponsoring preclinical studies at the Cleveland Clinic
Foundation to determine the efficacy of MSCs for the regeneration of bone in a
spinal fusion indication.
PATENTS AND INTELLECTUAL PROPERTY
The Company seeks to protect its technology through normal trade secret
protection and, where appropriate, U.S. and foreign patent filings. The Company
owns or has an exclusive license to five patents granted in the United States
relating to: (i) isolated human mesenchymal stem cells and therapeutic
compositions containing such cells; (ii) producing bone or cartilage through the
use of human mesenchymal stem cells; (iii) repairing connective tissue damage
through the use of human mesenchymal stem cells; (iv) isolated human mesenchymal
stem cells transfected with genetic material for potential use in gene therapy;
(v) certain antibodies against human osteogenic cells and the use thereof. The
Company also owns or has licenses to over forty United States and foreign patent
applications directed to MSC technology.
The Company intends to continue to use its scientific expertise to pursue
and patent new developments with respect to uses, compositions and factors
related to MSCs to enhance the Company's leadership in the MSC field. However,
the protection afforded by the granted United States patents with respect to the
composition of human MSCs and transduced human MSCs, respectively, will not be
obtained outside the United States. In addition, the Company is aware of a
granted United States patent owned by a subsidiary of Novartis which covers the
use of EX VIVO gene therapy in humans. If a license is not obtained under such
patent, the Company or any of its future collaborators may not be able to
exploit in the United States EX VIVO gene therapy with the Company's MSC
technology. There can be no assurance
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that such a license will be available on commercially acceptable terms, if at
all. Also, certain of the Company's technology has resulted and will result from
research funded by agencies of the United States government. As a result of such
funding, the United States government has certain rights in the technology
developed with the funding. These rights include a non-exclusive, paid-up,
world-wide license under such inventions for any governmental purpose. In
addition, under certain conditions, the government has the right to require the
Company to grant to third parties licenses of such technology. Any of the
foregoing limitations on the Company's proprietary rights with respect to its
MSC technology could have a material adverse effect on the Company.
The Company also relies on trade secrets and unpatentable know-how which it
seeks to protect, in part, by confidentiality agreements. It is the Company's
policy to require its officers, employees, consultants, contractors,
manufacturers, outside scientific collaborators and sponsored researchers and
other advisors to execute confidentiality agreements. These agreements provide
that all confidential information developed or made known to the individual
during the course of the individual's relationship with the Company is to be
kept confidential and not disclosed to third parties except in specific limited
circumstances. The Company also requires signed confidentiality or material
transfer agreements from any company that is to receive its confidential data.
In the case of employees, consultants and contractors, the agreements generally
provide that all inventions conceived by the individual while rendering services
to the Company shall be assigned to the Company as the exclusive property of the
Company. There can be no assurance, however, that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets or unpatentable know-how will not otherwise become
known or be independently developed by competitors. See "Risk Factors--Patents
and Proprietary Rights."
COMPETITION
The Company is developing products that compete with existing products and
may compete with products being developed by other companies. Competition in the
development of human therapeutics is particularly intense and includes many
large pharmaceutical and medical device companies, biopharmaceutical companies,
specialized biotechnology firms, universities and other research institutions.
Some of these competitors have extensive financial, marketing and human
resources which give them a significant competitive advantage. Pharmaceutical
companies have extensive experience in conducting human clinical trials, in
obtaining regulatory approval to market products and in large-scale
manufacturing. Other biopharmaceutical companies also have more resources and
experience in these areas than the Company. A number of pharmaceutical companies
have entered or expanded their presence in biotechnology by collaborating with
these companies.
The technology underlying the development of human therapeutic products is
expected to continue to undergo rapid and significant advancement and change. In
the future, the Company's technological and commercial success will be based on
its ability to develop proprietary positions in key scientific areas and
efficiently evaluate potential product opportunities.
The Company's products may compete directly with various morphogenic
proteins (I.E., growth factors) being developed by certain companies for the
repair of musculoskeletal tissue. Genetics Institute, Inc., Chiron Corporation,
Genentech, Inc., Creative BioMolecules, Inc. and Amgen Inc. are developing
recombinant morphogenic proteins for enhancing or augmenting the repair of
musculoskeletal defects. In addition, the Company believes that a number of
pharmaceutical companies, such as Bristol-Myers Squibb Company, Merck & Co.,
Inc., Rhone-Poulenc Rorer Inc., Eli Lilly & Company and SmithKline Beecham Plc,
are developing other recombinant human proteins (primarily growth factors) for
use in the repair of musculoskeletal defects.
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Other products and therapies that may compete with the Company's MSC
products include various bone fill or bone replacement products such as
demineralized bone matrix, hydroxyapatite and tricalcium phosphate ceramics.
Certain companies, such as Osteotech, Inc., CryoLife, Inc. and LifeCell
Corporation, are processing allograft musculoskeletal tissues and derivative
products for the repair of tissue defects. While these products have proven to
be effective in treating certain musculoskeletal injuries, their widespread use
may be limited by availability of cadaver donor tissue. Other companies utilize
electrical or ultrasonic stimulation devices to augment the repair of
fractures-at-risk and bone non-unions.
In the area of soft tissue repair, companies such as Advanced Tissue
Sciences, Inc., Integra LifeSciences Corporation, Genzyme Corporation (Genzyme
Tissue Repair Division) and Organogenesis Inc. are pursuing projects to develop
products for cartilage repair, with or without the inclusion of cultured
chondrocytes. The Company believes that these approaches will not be as
effective as MSC products because, unlike MSCs, they may not form the proper
extracellular matrix characteristic of normal tissue formed from stem cells.
A number of biotechnology and pharmaceutical companies are pursuing the
development of recombinant growth factors and hormones for the treatment of
osteoporosis. These companies include Chiron Corporation, Amgen Inc., Creative
BioMolecules, Inc., Genetics Institute, Inc. and others. Other major
pharmaceutical companies have developed or are pursuing the development of
traditional drugs for the prevention of osteoporosis. The Company believes that
it is the only company seeking to develop an autologous cell-based osteoporosis
treatment for the regeneration of bone to reverse the course of bone loss.
In addition to competing with pharmaceutical and biotechnology companies,
the Company's products and technologies will also compete with those developed
by academic institutions, governmental agencies and other public organizations
conducting research that may discover new therapies, seek patent protection or
establish collaborative arrangements for product research.
The Company believes that in addition to patent position, efficacy and
price, the timing of a product's introduction may be a major factor in
determining eventual commercial success and profitability. Early entry may have
important advantages in gaining product acceptance and market share.
Accordingly, the relative speed with which the Company can complete preclinical
and clinical testing, obtain regulatory approvals and supply commercial
quantities of the product is expected to have an important impact on the
Company's competitive position, both in the United States and international
markets. Other companies may succeed in developing similar products that are
introduced earlier, are more effective or are produced and marketed more
effectively. There can be no assurance that research and development by others
will not render any of the Company's products obsolete or noncompetitive. See
"Risk Factors--Rapid Technological Change; Competition."
SALES AND MARKETING
The Company's strategy is to market products through large pharmaceutical,
medical device or biotechnology companies. Implementation will depend in large
part on the market potential of any products the Company develops as well as on
the Company's financial resources. Novartis has the worldwide right to market
future products, if any, resulting from the collaboration with the Company with
respect to osteoporosis, osteoarthritis, cartilage repair and selected gene
therapy applications. The Company does not expect to have a direct sales
capability for at least the next several years. For the foreseeable future, the
Company plans to focus its activities on the research, development and
manufacturing of multiple products from its broad MSC technology platform.
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MANUFACTURING
The Company has completed construction of a 1,300 square foot pilot
manufacturing plant at its facility in Baltimore, Maryland, for use in its
planned human clinical trials for MSC products. The Company is pursuing the
validation and certification of the facility by the FDA for use as a clinical
cell processing facility in early 1998. As such, the facility will be subjected
to regulation by the FDA under current and planned Good Manufacturing Practices
("GMP") procedures for the operation of a cell processing facility. There can be
no assurance that the facility will be validated or approved for the manufacture
of MSC products for clinical use. In addition, the Company will be required to
develop a production scale processing facility for the manufacture of products,
if any are developed, for its MSC technologies. The inability to finance,
validate or manufacture any MSC product could adversely affect the Company's
ability to develop and deliver commercially feasible products on a timely and
competitive basis. See "Risk Factors--Lack of Manufacturing, Marketing or Sales
Capabilities."
GOVERNMENT REGULATION
Biological products, medical devices, combination products and human tissue
products, including the Company's products under development, are subject to
extensive and rigorous regulation by the federal government, principally the
FDA, and by state and local governments. If these products are marketed outside
the U.S., they also are subject to export requirements and to regulation by
foreign governments. The applicable regulatory clearance process, which must be
completed prior to the commercialization of a product, is lengthy and expensive.
There can be no assurance that the Company or its collaborative partners will be
able to obtain necessary regulatory approvals on a timely basis, if at all, for
any of the Company's products under development. Delays in or failure to receive
such approvals, the loss of previously received approvals, or failure to comply
with existing or future regulatory requirements could have a material adverse
effect on the Company.
The FDA requirements for the Company's products under development will vary
depending upon whether the product is regulated as a biological product, medical
device, combination product or cellular or tissue-based product. Because the
Company is still at the early stages of product development and because certain
FDA policies with regard to tissue products are still evolving, it is not
possible to determine which statutory and regulatory requirements will apply to
any products eventually developed by the Company. It is not possible at the
present time to predict either the timeframe for completion of various
regulatory initiatives which could affect the Company's future products, or the
ultimate effect that they could have, if any, on the products under development
by the Company.
Furthermore, it is uncertain if and when the Company or its corporate
collaborators will submit any applications, if required, for any of its cell
therapy products and biopharmaceuticals under development for any indications.
There can be no assurance that any studies will be completed or, if completed,
will demonstrate that the products are safe and effective for their intended
uses, or that approval, if required, will be granted by the FDA or other
comparable international agency on a timely basis, or at all, for any of these
products for any studied indications. Failure of the Company or its corporate
collaborators to obtain any required marketing approval of any of its products
would have a material adverse effect on the Company.
FDA PROPOSED REGULATION OF HUMAN CELLULAR AND TISSUE-BASED PRODUCTS
In March 1997, the FDA proposed a comprehensive framework for the regulation
of human cellular and tissue-based products ("FDA's Proposed Approach to
Regulation of Cellular and Tissue-Based Products"). Although this announcement
represents the FDA's current view in this area of regulation, it is only at the
proposed stage and there is no assurance that this is the framework the agency
ultimately will adopt. If this proposal is implemented, it may apply to some of
the Company's cell therapy products and
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biopharmaceuticals. The products for which it does not apply will be regulated
under the FDA's biological product, medical device and combination product laws
and regulations.
The FDA's Proposed Approach to Regulation of Cellular and Tissue-Based
Products would subject human cell and tissue products to a tiered approach to
regulation. The level of regulation will depend on the level of risk posed by
the product. Under this proposed scheme, disease screening, testing and
manufacturing under "Good Tissue Practices" ("GTPs") would be recommended for
tissue that is processed only through minimal manipulation. Minimally processed
structural tissue (E.G., ligaments, bones, cartilage, tendons) used for its
normal function and having no non-tissue parts would be subject to GTPs, but
would not require a premarket approval submission to the FDA. Metabolic tissue
(I.E., tissue that affects the function of the entire body) that has been
manipulated, or is used for other than its normal function, or has nontissue
parts, would be subject to more comprehensive processing controls than GTPs, and
premarket approval by the FDA would be required. Given the nature of the
Company's products, premarket approval is likely to be required for the
Company's cell therapy products and biopharmaceuticals under development. If
premarket approval is required, the standard for effectiveness would be
consistent with that required for comparable medical devices and biological
product approvals.
Certain of the Company's cell therapy products under development utilize
autologous MSCs taken from a patient and isolated, purified and expanded IN
VITRO using the Company's proprietary process. After expansion, the cells are
transplanted back to the same patient to regenerate injured or defective tissue.
The FDA currently considers the isolation, purification and expansion processes
as more than minimal manipulation and is likely to require that a Biologic
License Application ("BLA") under the FDA's biological product regulations be
filed for MSC products. See "--Regulation of Biological Products."
ORPHAN PRODUCT STATUS
The Company may seek orphan product designation for certain cell therapy
products intended for low incidence (fewer than 200,000 patients) indications.
Before a product can receive marketing exclusivity associated with orphan
product status, it must receive orphan product designation. If a product
receives such designation and it is the first FDA-approved application for the
specified indication, the applicant would receive seven years of marketing
exclusivity. The Company or its collaborative partners ultimately may not seek
orphan product designation. Further, if such designation is sought, the FDA may
not grant it. Moreover, other companies also may receive orphan designation and
obtain FDA marketing approval first. If this occurs and another company receives
seven-year marketing exclusivity for the same product, the Company and its
collaborative partners would not be permitted to market its product in the U.S.
during the exclusivity period. If the FDA regulates the product as a cell,
tissue or medical device rather than as a biological, the product would not be
eligible for orphan drug designation, approval or exclusivity.
REGULATION OF BIOLOGICAL PRODUCTS
Some of the Company's cell therapy products and biopharmaceuticals may be
subject to the biological product regulations. During their clinical
development, biological products are regulated pursuant to IND requirements.
Product development and approval takes a number of years, involves the
expenditure of substantial resources and is uncertain. Many biological products
that appear promising ultimately do not reach the market because they cannot
meet FDA or other regulatory requirements. In addition, there can be no
assurance that the current regulatory framework will not change through
regulatory, legislative or judicial actions or that additional regulation will
not arise during the Company's product development that may affect approval,
delay the submission or review of an application, if required, or require
additional expenditures by the Company.
The activities required before a new biological product may be approved for
marketing in the U.S. primarily begin with preclinical testing, which includes
laboratory evaluation and animal studies to assess
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the potential safety and efficacy of the product as formulated. Results of
preclinical studies are summarized in an IND application to the FDA. Human
clinical trials may begin 30 days following submission of an IND application,
unless the FDA requires additional time to review the application.
Clinical testing involves the administration of the biological product to
healthy human volunteers or to patients under the supervision of a qualified
principal investigator, usually a physician, pursuant to an FDA-reviewed
protocol. Each clinical study is conducted under the auspices of an
institutional review board ("IRB") at each of the institutions at which the
study will be conducted. A clinical plan, or "protocol," accompanied by the
approval of an IRB, must be submitted to the FDA prior to commencement of each
clinical trial. Human clinical trials are conducted typically in three
sequential phases. Phase I trials consist of, primarily, testing the product's
safety in a small number of patients or healthy volunteers. In Phase II, the
safety and efficacy of the product is evaluated in a patient population. Phase
III trials typically involve additional testing for safety and clinical efficacy
in an expanded population at geographically dispersed sites. The FDA may order
the temporary or permanent discontinuance of a preclinical or clinical trial at
any time for a variety of reasons, particularly if safety concerns exist.
A company seeking FDA approval to market a biological product must file a
BLA. In addition to reports of the preclinical and human clinical trials
conducted under the FDA-approved IND application, the BLA includes evidence of
the product's safety, purity, potency and efficacy, as well as manufacturing,
product identification and other information. Submission of a BLA does not
assure FDA approval for marketing. The application review process generally
takes one to three years to complete, although reviews of drugs and biological
products for life-threatening diseases may be accelerated or expedited. However,
the process may take substantially longer.
The FDA requires at least one and often two properly conducted, adequate and
well-controlled clinical studies demonstrating efficacy with sufficient levels
of statistical assurance. However, additional information may be required.
Notwithstanding the submission of such data, the FDA ultimately may decide that
the BLA does not satisfy the regulatory criteria for approval and not approve
the application. The FDA may impose post-approval obligations, such as
additional clinical tests following BLA approval to confirm safety and efficacy
(Phase IV human clinical trials). The FDA may, in some circumstances, also
impose restrictions on the use of the biological product that may be difficult
and expensive to administer. Further, the FDA requires reporting of certain
safety and other information that becomes known to a manufacturer of an approved
biological product. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems occur after the product
reaches the market.
Prior to approving an application, the FDA will inspect the prospective
manufacturer to ensure that the manufacturer conforms to the FDA's current GMP
regulations. To comply with the GMP regulations, manufacturers must expend time,
money and effort in product recordkeeping and quality control to assure that the
product meets applicable specifications and other requirements. The FDA
periodically inspects manufacturing facilities in the U.S. and abroad in order
to assure compliance with applicable GMP requirements. Failure of the Company to
comply with the FDA's GMP regulations or other FDA regulatory requirements could
have a significant adverse effect on the Company.
After a product is approved for a given indication in a BLA, subsequent new
indications or dosage levels for the same product are reviewed by the FDA via
the filing and approval of a BLA supplement. The BLA supplement is more focused
than the BLA and deals primarily with safety and effectiveness data related to
the new indication or dosage. The Company will be required to comply with
certain post-approval obligations, such as compliance with GMPs.
REGULATION OF COMBINATION PRODUCTS
Some of the cell therapy products which the Company intends to develop may
be regulated as combination biological product/medical devices. The cellular
therapy products, which the Company anticipates will include both MSCs and
biomatrices, may be considered combination biological/medical
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devices. If a product is a combination product, in most instances a single
application will be filed with the FDA and one center at the FDA (E.G., the
Center for Biologics Evaluation and Research) will have primary jurisdiction
over the application. The application may contain both a medical device
premarket approval ("PMA") application and a BLA. Accordingly, both sets of
applicable regulations to the product (E.G., the biological products laws and
regulations and, as described in detail below, the medical device laws and
regulations) may be applied to the combination product.
REGULATION OF MEDICAL DEVICES
If a product contains a device as part of a combination product, the Company
and/or its collaborative partners will need to obtain premarket clearance or PMA
for the device component from the FDA under the medical device authorities of
the FDC Act. In general, companies are required to obtain clearance of a
premarket notification ("510(k) notification") submission or approval of a PMA
application from the FDA before it begins to market a medical device in the
United States.
If a medical device manufacturer or distributor can establish that a device
is "substantially equivalent" to a legally marketed predicate device, the
manufacturer or distributor may seek clearance from the FDA to market the device
by filing a 510(k) notification. If a manufacturer of a medical device cannot
establish that a proposed device is substantially equivalent to a legally
marketed predicate device, the manufacturer must seek PMA of the proposed device
from the FDA through the submission of a PMA application. A PMA application,
like a BLA, must be supported by extensive data, including preclinical and
clinical trial data, to demonstrate the safety and effectiveness of the device.
If human clinical trials of a device are required and the device presents a
"significant risk," the manufacturer of the device must file an investigational
device exemption ("IDE") application prior to commencing human clinical trials.
Following receipt of the PMA application, if the FDA determines that the
application is sufficiently complete to permit a substantive review, the agency
will "file" the application. Once the submission is filed, the FDA begins a
review of the PMA application. The FDA has 180 days to review a PMA application,
although the reviews of such applications more often occur over a significantly
protracted time period of two years or more from the date of filing.
During the review of a PMA application, an advisory committee likely will be
convened to review and evaluate the application. Although the committee's
recommendation is not binding on the agency, the vote likely will influence the
agency's decision. In addition, prior to approval, the FDA will inspect the
manufacturing facility to ensure compliance with the FDA quality system
regulations for medical devices. If granted, the PMA may include significant
limitations on the indicated uses for which the product may be marketed, and the
agency may require post-marketing studies of the device. The FDA also requires
reporting of certain safety and other information that becomes known to the
manufacturer.
FOREIGN REQUIREMENTS
Whether or not FDA approval has been obtained, approval of a product by the
comparable regulatory authorities of foreign countries must be obtained prior to
the commencement of marketing of the product in those countries. The approval
process varies from country to country and the time required may be longer or
shorter than that required for FDA approval. The export of unapproved products
also is subject to FDA regulation.
OTHER REGULATIONS
The Company is subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially
hazardous substances. In addition, advertising and promotional materials
relating to biological products and medical devices are, in certain instances,
subject to regulation by the Federal Trade Commission or the FDA. There can be
no assurance that the Company will not be required to incur
44
<PAGE>
significant costs to comply with such laws and regulations in the future or that
such laws or regulations will not have a materially adverse effect upon the
Company's ability to do business.
PERSONNEL
The Company currently has 92 full-time employees and one part-time employee,
of which 83 are engaged in research and development activities (34 with M.D.,
Ph.D. or D.V.M. degrees) and the remainder in general and administrative
functions. The Company plans to hire additional research and administrative
personnel by the end of 1997, in part to meet the contractual requirements of
the Novartis, DARPA, NIST and SBIR research agreements. None of the Company's
employees are covered by collective bargaining agreements and management
considers relations with its employees to be good.
FACILITIES
The Company entered into a Sublease Agreement with the Maryland Economic
Development Corporation to lease its principal offices and laboratories in the
Fells Point area of Baltimore's Inner Harbor. Under terms of the Sublease
Agreement, the State of Maryland provided grants, guaranteed renovation loans
and bond financing of approximately $4,700,000 to construct 30,000 square feet
of office and wet lab facilities. The Company has the right to lease 50,000
square feet or more of expansion space and to purchase the building
(approximately 185,000 square feet) under certain circumstances. The State of
Maryland has committed its best efforts to arrange additional expansion
financing for the Company of up to $7,000,000.
In June 1997, the Company completed construction of a pilot processing
facility to provide MSC isolation, culturing and processing services to support
the Company's plans for human clinical studies for bone marrow stroma
reconstitution and other clinical studies over the next several years. The
Company has initiated validation procedures for its newly constructed pilot
plant for the production of autologous MSCs for human clinical trials and plans
to seek FDA certification for the facility in early 1998. This facility, located
within the Company's principal laboratory and office facility, will have the
ability to handle multiple clinical trials and has a capacity of approximately
300 patients per year, which the Company expects will increase with improvements
in MSC culture-expansion techniques.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings, although from
time to time it may become involved in disputes in connection with the operation
of its business.
45
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, KEY EMPLOYEES AND CONSULTANTS
The following table sets forth certain information regarding the Company's
directors, executive officers, key employees and consultants:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --------- --------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Max E. Link, Ph.D. (1)(2)(3)................ 57 Chairman of the Board
James S. Burns (1).......................... 50 President, Chief Executive Officer and
Director
Daniel R. Marshak, Ph.D..................... 40 Senior Vice President, Research and
Development and Chief Technology Officer
Michael J. Demchuk, Jr...................... 42 Vice President & Chief Financial Officer and
Secretary
David J. Fink, Ph.D......................... 54 Vice President, International Technology
Development
Stephen L. Gordon, Ph.D..................... 53 Vice President, Advanced Technology
Development
Jack L. Bowman(2)........................... 64 Director
Peter Friedli (1)(2)(3)..................... 43 Director and Consultant
Mark Novitch, M.D........................... 65 Director
OTHER KEY EMPLOYEES AND CONSULTANTS
Stewart Craig, Ph.D......................... 36 Vice President, Product & Process
Development
Ernst B. Hunziker, M.D...................... 49 Executive Director, Orthopaedic Research
Scott P. Bruder, M.D., Ph.D................. 35 Director, Bone Regeneration
Mark A. Thiede, Ph.D........................ 42 Director, Cancer & Metabolic Bone Disease
Randell G. Young, D.V.M..................... 39 Associate Director, Tendon Regeneration &
Preclinical Studies
Frank P. Barry, Ph.D........................ 40 Associate Director, Cartilage Regeneration &
Analytical Biochemistry
Joseph D. Mosca, Ph.D....................... 44 Associate Director, Immunology & Gene
Therapy
Mark F. Pittenger, Ph.D. ................... 41 Associate Director, Muscle Regeneration &
Cell Biology
</TABLE>
- ------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
46
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
MAX E. LINK, PH.D., has been Chairman of the Board since December 1994. Dr.
Link has extensive experience in pharmaceutical and biotechnology management,
with particular emphasis on the creation of major transplant and immune therapy
businesses based on stem cells, immunosuppressants for organ and tissue
transplants and monoclonal antibodies. From 1993 to 1994, he was the Chief
Executive Officer of Corange, Limited/Boehringer Mannheim (U.K.), a diversified,
multinational health care company with major market positions in
biopharmaceuticals, therapeutics, clinical diagnostics and orthopaedic devices.
From 1987 to 1993, Dr. Link was the Chief Executive Officer and subsequently the
Chairman of Sandoz Pharma Ltd., based in Basel, Switzerland, a worldwide
developer and marketer of pharmaceuticals, particularly transplant
pharmaceuticals. Prior thereto, Dr. Link was President and Chief Executive
Officer of Sandoz, Inc., the U.S. subsidiary of Sandoz AG. Dr. Link currently
serves on the Boards of Directors of Procept, Inc., Protein Design Labs, Inc.,
Human Genome Sciences, Inc., Cell Therapeutics, Inc., Cheung Laboratories, Inc.
and CytRx Corporation. Dr. Link received his Ph.D. in Economics from St. Gallen
University in Switzerland.
JAMES S. BURNS is a founder of the Company and has served as President and
Chief Executive Officer since its inception in December 1992. Mr. Burns has
extensive experience in founding, managing and funding new companies based on
biomedical science. Prior to founding the Company, he was the Vice Chairman of
HealthCare Investment Corporation and was a founding general partner of
HealthCare Ventures, L.P., venture capital funds specializing in forming new
health care product and service companies. Previously, Mr. Burns was Group
President of Becton Dickinson and Company, responsible for biotechnology and
emerging health care businesses. He also served as Vice President and Partner
for Technology Management Services at Booz Allen & Hamilton, Inc., a
multinational management consulting firm. He earned his B.S. and M.S. degrees in
Biological Sciences from the University of Illinois and an M.B.A. from DePaul
University.
DANIEL R. MARSHAK, PH.D., has served as the Company's Senior Vice President,
Research and Development and Chief Technology Officer since October 1994. From
April 1986 until October 1994, Dr. Marshak was Senior Staff Investigator at the
Cold Spring Harbor Laboratory, Cold Spring Harbor, New York. He also served as
Assistant Professor, Department of Physiology & Biophysics, School of Medicine,
State University of New York at Stony Brook and Assistant Professor, Departments
of Biochemistry & Cell Biology, Graduate School, State University of New York.
Dr. Marshak has extensive research experience in the isolation, purification,
cloning and characterization of cells and signal transduction molecules involved
in cancer and neurological disorders. Dr. Marshak received his B.S. from Harvard
University and his Ph.D. from the Rockefeller University.
MICHAEL J. DEMCHUK, JR., has served as the Company's Vice President & Chief
Financial Officer and Secretary since November 1996. Mr. Demchuk has extensive
experience in the financial and administrative management of emerging life
science and health care service companies. From February 1995 until October
1996, Mr. Demchuk was Vice-President--Acquisitions for Integrated Health
Services, Inc., a national post-acute health care services provider. From
September 1992 until January 1995, he served as Vice President and Chief
Financial Officer for Gliatech, Inc., a company engaged in the development of
products for the prevention of surgical adhesions and central nervous system
disorders. He has also served as the Vice President and Chief Financial Officer
for Nova Pharmaceutical Corporation, a bio-pharmaceutical research and
development company focused on drugs for treating inflammatory and neurological
disorders. Mr. Demchuk is a certified public accountant and received his B.S. in
Business Administration from the University of Maryland.
DAVID J. FINK, PH.D., has served as Vice President, International Technology
Development since June 1997 having previously served as the Vice President of
Osiris Research, Inc. since December 1994 and as Director, Biomatrix
Development, since January 1993. He is also Adjunct Assistant Professor in the
Department of Biology at Case Western Reserve University. Dr. Fink has served as
President of Bio-
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Integration Incorporated and was previously President of CollaTek, Inc. which
developed a novel processing technology for manufacturing medical implant
devices from biopolymers. Dr. Fink was previously a research manager at the
Battelle Columbus Division where he managed or participated in over 100 research
projects. Dr. Fink received his Ph.D. in Chemical Engineering from the
University of Michigan.
STEPHEN L. GORDON, PH.D., has served as Vice President for Advanced
Technology Development since July 1995, responsible for academic collaborations,
seeking external support of specific research projects and managing grant
research programs at the Company. From 1979 until 1995, Dr. Gordon served as the
Chief, Musculoskeletal Diseases Branch, of the National Institute of Arthritis
and Musculoskeletal and Skin Diseases. He managed, planned, developed and
evaluated a large grant portfolio in orthopaedic and related research. Dr.
Gordon received his B.S., M.S. and Ph.D. from Drexel University.
JACK L. BOWMAN has been a Director since June 1997. Mr. Bowman has extensive
prior experience as a senior executive in multinational health care companies,
with particular emphasis on ethical and OTC pharmaceuticals, clinical
diagnostics and medical devices. From 1987 to 1994, he was Group Chairman of
Johnson & Johnson, responsible for much of its global pharmaceutical, diagnostic
and OTC businesses. From 1980 to 1987, Mr. Bowman served as Executive Vice
President of American Cyanamid and as President of its Lederle Laboratories
Division. Prior thereto, he served as the Executive Vice President,
Pharmaceutical Division of the Ciba-Geigy Corporation. Mr. Bowman is a Director
of NeoRx Corporation, Cell Therapeutics, Inc., CytRx Corporation, Targeted
Genetics Corporation and Cellegy Pharmaceuticals, Inc. Mr. Bowman received his
B.A. in Education and is a graduate of the Stanford University Senior Executive
and Financial Management Programs.
PETER FRIEDLI, a director of the Company since January 1996, has been a
principal of the investment banking firm Friedli Corporate Finance, Inc. since
1986. He worked in the field of international management consulting for service
and industrial companies in Europe and the United States from 1978 until 1986.
He has over a decade of experience as an independent investment manager in
corporate finance and has successfully managed various venture investment
companies in the United States. Mr. Friedli is actively involved in the
management of several public and private companies and serves on the Boards of
Directors of five of those private companies.
MARK NOVITCH, M.D., a director of the Company since September 1993, retired
in December 1993 as Vice Chairman of The Upjohn Company, where he was
responsible for pharmaceutical control, regulatory affairs, strategy and
planning, business development, legal, government affairs and public relations.
Dr. Novitch also previously served as Executive Vice President and as Senior
Vice President, Science Administration at The Upjohn Company. Prior thereto, Dr.
Novitch served as Acting Commissioner and as Deputy Commissioner of the FDA. He
has also served as Associate Commissioner for Health Affairs and as a Federal
Executive Fellow at the Brookings Institution. Presently, Dr. Novitch serves as
Adjunct Professor of Health Care Sciences at George Washington University. Dr.
Novitch was the recipient of the FDA Award of Merit and the Presidential
Meritorious Executive Award. Dr. Novitch serves on the Boards of Directors of
Alteon, Inc., Calypte Biomedical Corporation, Guidant Corporation, Kos
Pharmaceuticals, Inc. and Neurogen Corporation. He received an A.B. from Yale
University and an M.D. from New York Medical College.
OTHER KEY EMPLOYEES AND CONSULTANTS
STEWART CRAIG, PH.D., is Vice President, Product & Process Development.
Prior to joining Osiris, from June 1995 to June 1996 Dr. Craig served as Vice
President, Product & Process Development and Quality Compliance and from January
1994 to June 1995 as Director of Protein Chemistry at Systemix Inc., a
hematopoietic stem cell therapy company. At SyStemix, Dr. Craig was responsible
for managing the development of methods, devices and controls for the isolation,
analysis and EX VIVO manipulation of hematopoietic stem cells for clinical
application. From 1987 through 1993, Dr. Craig served in various research and
development positions at British Biotech Pharmaceuticals Ltd., Oxford, England,
working on
48
<PAGE>
design, purification and characterization of various recombinant cytokine,
growth factor and thrombolytic protein molecules. Dr. Craig received his B.Sc.
in Biochemistry and Ph.D. in Physical Biochemistry from the University of
Newcastle Upon Tyne, UK.
ERNST B. HUNZIKER, M.D., has been Executive Director, Orthopaedic Research,
responsible for the Company's research programs in cartilage regeneration, bone
regeneration and osteoarthritis since July 1997. He is also a member of the
osteoporosis and tendon program teams. Since 1989, Dr. Hunziker has served as
Professor of Biomechanics and Director of the M. E. Muller Institute for
Biomechanics at the University of Bern, Switzerland. Dr. Hunziker is the author
of many studies covering the structure, function and repair of cartilage and
bone. He is the Co-Chairman of the Swiss Connective Tissue Society and serves on
the Editorial Boards of the Journal of Bone and Joint Surgery (U.S.) and the
Journal of Histochemistry and Cell Biology. Dr. Hunziker received his M.D.
degree from the University of Bern.
SCOTT P. BRUDER, M.D., PH.D., has been Senior Research Scientist with the
Company since February 1994 and has served as Director, Bone Regeneration,
responsible for establishing cell biology and biochemical assay methods for the
isolation and purification of mesenchymal stem cells, as well as the Company's
research efforts in bone regeneration products since February 1997. Dr. Bruder
is also Adjunct Assistant Professor in the Department of Orthopaedics at CWRU.
He completed a medical internship and was pursuing an ophthalmology residency
prior to joining Osiris. Dr. Bruder received his M.D. and Ph.D. degrees from
CWRU.
MARK A. THIEDE, PH.D., has been a Senior Research Scientist with the Company
since October 1994 and is presently Director, Cancer & Metabolic Bone Disease,
responsible for the development of MSC products used in bone marrow stroma
regeneration and osteoporosis. Dr. Thiede also leads the Company's program to
identify mesengenotrophic agents produced by hematopoietic cells. From 1991
until joining the Company, Dr. Thiede was a Senior Research Scientist with the
Osteoporosis Group at Pfizer Central Research where he designed and implemented
preclinical IN VIVO studies which provided molecular profiles of promising drug
discovery candidates. Prior thereto, Dr. Thiede completed a postdoctoral
fellowship with the Osteoporosis and Bone Biology Group at Merck Sharp and Dohme
Research Laboratories and remained on thereafter as a Senior Research
Biochemist. Dr. Thiede received his Ph.D. in Molecular Biology from the
University of Connecticut Health Center.
RANDELL G. YOUNG, D.V.M., has been a Senior Research Scientist since
November 1993 and has served as Associate Director, Tendon Regeneration &
Preclinical Studies since July 1997. Dr. Young previously served as a Senior
Research Associate in the Skeletal Research Center at CWRU from 1991 to November
1993, where he was responsible for designing and implementing the various animal
protocols used to test the role of mesenchymal stem cell transplants for
cartilage, tendon, ligament, bone and muscle disorders. Dr. Young is also a
principal veterinary surgeon involved in collaborative research programs with
the Department of Orthopaedics at the University Hospitals of Cleveland. He
received his D.V.M. degree from Ohio State University.
FRANK P. BARRY, PH.D., has served as a Senior Research Scientist since
October 1994 and has served since July 1997 as Associate Director, Cartilage
Regeneration & Analytical Biochemistry, responsible for the development of
biomatrix materials for use in mesenchymal stem cell implants, with particular
emphasis on cartilage regeneration. From 1992 until joining the Company, Dr.
Barry was a Research Fellow at Shriners Hospital for Crippled Children, Tampa,
Florida, and Assistant Professor in Biochemistry and Molecular Biology at the
University of South Florida College of Medicine. Prior thereto, he was a College
Lecturer in Biochemistry at the National University of Ireland, preceded by
research studies at the Kennedy Institute of Rheumatology in London, England.
Dr. Barry received his Ph.D. from the National University of Ireland.
JOSEPH D. MOSCA, PH.D., has served as Senior Research Scientist since
January 1996 and has served since July 1997 as Associate Director, Immunology &
Gene Therapy, responsible for human mesenchymal stem cell surface expression,
MSC interactions with hematopoietic progenitor cells as related to the use of
49
<PAGE>
the MSC as an antigen presenting cell. Before joining Osiris, Dr. Mosca spent
seven years as Principal Investigator at the Henry M. Jackson Foundation.
Previous to that, Dr. Mosca was an Assistant Professor at The Johns Hopkins
Oncology Center. Dr. Mosca has extensive research experience in interferon
research, herpes virology, gene therapy at both the stromal and hematopoietic
level, human immunodeficiency virus type-1 expression and inhibition, in
addition to stimulation of T cells through the CD28 receptor. Dr. Mosca received
his Ph.D. in Biochemistry from Temple University Medical Center in Philadelphia,
and did his post-doctoral work at The Johns Hopkins University.
MARK F. PITTENGER, PH.D., has served as Senior Research Scientist since
October 1994 and has served since September 1997 as Associate Director, Muscle
Regeneration and Cell Biology, responsible for cell characterization and the
development of in vitro assays using mesenchymal stem cells as therapeutic
agents for tissue regeneration. From March 1989 until joining the Company, Dr.
Pittenger was a Staff Associate at Cold Spring Harbor Laboratory in New York.
Dr. Pittenger received his Ph.D. in Biological Chemistry from The Johns Hopkins
University School of Medicine.
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
Osiris has established a Scientific Advisory Board ("SAB") consisting of
scientists and clinicians in the fields of cartilage regeneration, implantable
biomaterials, orthopaedic surgery, osteoarthritis, cell biology, tissue
biochemistry, cell cycle and differentiation, soft tissue medicine and molecular
biology. The SAB and the Company's consultants evaluate projects and
collaborations proposed by the Company's management, evaluate the Company's
research programs, advise the Company with respect to MSC technology and
50
<PAGE>
related matters, and recommend personnel and academic and industry
collaborations. The SAB members and consultants are as follows:
<TABLE>
<CAPTION>
NAME POSITION/AFFILIATION AREA OF EXPERTISE
- --------------------------------- ------------------------------------- ----------------------------
<S> <C> <C>
Victor M. Goldberg, M.D.......... Professor & Chairman, Orthopaedic Surgery and
Department of Orthopaedics Bio-Orthopaedics
Case Western Reserve University
David L. Butler, Ph.D. .......... Professor of Engineering Orthopaedic Soft Tissue
Mechanics and Biomedical Engineering Biomechanics
University of Cincinnati
Arnold I. Caplan, Ph.D. ......... Director of Skeletal Research Center Developmental Biology and
Professor of Biology, Biophysics and MSC Research
Physiology
Case Western Reserve University
Curt I. Civin, M.D. ............. Director and King Fahd Stem Cell Regulation,
Professor of Pediatric Oncology Cancer & Transplantation
The Johns Hopkins University
Stanton L. Gerson, M.D. ......... Professor and Director Bone Marrow Stroma
Division of Hematology-Oncology and Gene Therapy
Case Western Reserve University
Dick K. Heinegard, M.D., Ph.D. .. Professor of Physiological Chemistry Cartilage Proteins and
University of Lund, Sweden Biochemistry
Daniel R. Marshak, Ph.D. ........ Senior Vice President, Cell and Molecular Biology,
Research & Development Protein Chemistry and
Osiris Therapeutics, Inc. Cell Cycle Regulation
Randolph C. Steer, M.D., Ph.D.... Pharmaceutical Consultant Preclinical/Clinical
Studies;
Scientific/Regulatory
Affairs
</TABLE>
VICTOR M. GOLDBERG, M.D., a founder of the Company, is Professor & Chairman,
Department of Orthopaedics, Case Western Reserve University. He is also Director
of the University Musculoskeletal Institute at the University Hospitals of
Cleveland, one of the largest multidisciplinary academic clinical centers in the
U.S. specializing in the entire range of bone, muscle, joint and spine
disorders. Dr. Goldberg's research activity over the past two decades has
involved the basic mechanisms of cartilage degeneration and repair,
osteoarthritis progression, allograft bone and cartilage transplants. He has
served as a member of the National Musculoskeletal NIH Study Section, the
National Arthritis Advisory Board and as President of the Orthopaedic Research
Society. Dr. Goldberg has twice received the Kappa Delta Award for Research
Excellence in Orthopaedic Surgery from the American of Orthopaedic Surgeons.
DAVID L. BUTLER, PH.D., is Professor of Engineering Mechanics and Biomedical
Engineering, University of Cincinnati. Dr. Butler's research over the past
twenty years has focused on the biomechanics of soft tissue, particularly,
tendon, ligament and cartilage tissues. Dr. Butler has authored or co-authored
over 150 publications dealing with the repair or replacement of tendon and
ligaments after injury. He is a Founding Fellow of the American Institute of
Medical and Biological Engineering. Dr. Butler is the recipient of numerous
honors for his work in orthopaedic biomechanics, including the Kappa Delta Award
from the American Academy of Orthopaedic Surgeons, the Cabaud Award from the
American Orthopaedic Society
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<PAGE>
of Sports Medicine and the Gustus L. Larson Memorial Award from the American
Society of Mechanical Engineers.
ARNOLD I. CAPLAN, PH.D., a founder of the Company, is Professor, Department
of Biology; Professor of General Medical Sciences; Professor of Biophysics and
Physiology; and Director of the Skeletal Research Center at Case Western Reserve
University. For more than 20 years, Dr. Caplan has led the field of tissue
embryogenesis, resulting in the identification and isolation of human
mesenchymal stem cells in 1988. Dr. Caplan has been responsible for over $15
million in research grants focusing on the cellular mechanisms underlying the
regeneration of bone, ligament, tendon and cartilage. Dr. Caplan is a recipient
of the Elizabeth Winston Lanier/Kappa Delta Award given by the American Academy
of Orthopaedic Surgeons for his pioneering work in MSCs.
CURT I. CIVIN, M.D., is the Director and King Fahd Professor of Pediatric
Oncology, The Johns Hopkins University and Medical Institutions. Dr. Civin has
extensive research experience in hematopoietic stem cell biology, as well as in
leukemia biology and monoclonal antibodies. His discovery of the CD34 monoclonal
antibody pioneered hematopoietic stem cell purification for research and
clinical stem cell transplants used in the treatment of cancer and selected
inherited disorders and in gene therapy. Dr. Civin's current research focuses on
the discovery and functional investigation of stem cell molecules involved in
the developmental regulation of the hematopoietic and immune systems. His
clinical practice is concentrated on the care of childhood cancers, with special
focus on leukemia and bone marrow transplantation. Dr. Civin has served on
numerous extramural research committees and corporate boards, and is the
recipient of key honors such as Scholar of the Leukemia Society of America.
STANTON L. GERSON, M.D., is Professor of Medicine, Director of the Division
of Hematology-Oncology, Department of Medicine, Case Western Reserve University
School of Medicine. Dr. Gerson has had extensive research and clinical
experience in the treatment of leukemias/lymphomas and the protection of normal
cells during treatment. He is also a principal investigator on the use of MSCs
during bone marrow transplantation and their use as gene therapy for the
treatment of single gene tissue disorders. Dr. Gerson is a member of the
National Cancer Institute Gene Therapy Programs Review Committee and the
National Cancer Institute Special Review Committee.
DICK K. HEINEGARD, M.D., PH.D., is Chairman and Professor, Department of
Medical and Physiological Chemistry at Lund University. Dr. Heinegard's
extensive research has focused on the identification, purification and
characterization of proteoglycans and matrix proteins from bone and cartilage,
working toward determining the role of various matrix constituents in bone and
cartilage matrix assembly/ disassembly. Of particular interest are several bone
proteins which mediate bone resorption and turnover. Dr. Heinegard was the 1989
recipient of the Hilda and Alfred Erikssons prize for "contributions to the
understanding of disease" by the Swedish Royal Academy of Sciences.
DANIEL R. MARSHAK, PH.D., is described under "Executive Officers, Directors,
Key Employees and Consultants" above.
RANDOLPH C. STEER, M.D., PH.D., is a leading independent regulatory
consultant with a broad background in the commercial development of drugs,
biologics and medical devices. He serves as senior advisor to numerous
pharmaceutical and biotechnology companies and has played a key role in the
strategic planning and launch of products in multiple therapeutic areas,
including oncology, gastroenterology, hepatology, cardiology, hematology and
infectious diseases. From 1985 to 1989, he served as Chairman, and from
1988-1989, as President and Chief Executive Officer of ATC International, a
multinational pharmaceutical regulatory, marketing and publishing company. Prior
thereto, he served as a Medical Director at CIBA-GEIGY Pharmaceuticals following
a position in the Research and Development Division of Marion Laboratories. Dr.
Steer received his M.D. from the Mayo Medical School and his Ph.D. from the
University of Minnesota, where he also completed residency and subspecialty
training in laboratory medicine and chemical pathology.
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BOARD DESIGNATION RIGHT OF NOVARTIS
In connection with the Company's sale of 692,059 shares of Common Stock to
Novartis, the Company agreed to use reasonable best efforts to cause, at the
request of Novartis, the election to the Board of Directors a nominee of
Novartis deemed reasonably acceptable by the Board of Directors. Novartis' right
to nominate a representative to the Board of Directors expires upon the earlier
of the termination of the Novartis Agreement or the first date following June
16, 2000 on which Novartis owns less than 4% of the Company's outstanding shares
of Common Stock. In lieu of designating a nominee to the Board of Directors,
Novartis may designate a representative, reasonably acceptable to the Company,
who shall be permitted to attend meetings of the Board of Directors as an
observer. To date, Novartis has not elected to designate a representative to
serve on the Company's Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee which has the
powers and authority of the full Board of Directors on all matters, except as
those limited by law. Dr. Link, Mr. Friedli and Mr. Burns are the members of the
Executive Committee. The Company has also established a Compensation Committee
which is responsible for determining compensation for the Company's executive
officers and administering the Stock Plan. Dr. Link and Mr. Friedli are the
members of the Compensation Committee. The Company has also established an Audit
Committee of non-employee directors which is responsible for making
recommendations concerning the engagement of independent public accountants,
reviewing the plans and results of the audit engagement with the independent
public accountants, reviewing the independence of the independent public
accountants, considering the range of audit and non-audit fees and reviewing the
adequacy of the Company's internal accounting controls. Dr. Link and Mr. Friedli
are the members of the Audit Committee.
TERM AND COMPENSATION OF DIRECTORS
Each of the Company's directors is elected at the Company's annual meeting
of stockholders (except for those designated by the Board to fill newly created
directorships) and holds office until his or her successor is duly elected and
qualified.
Directors of the Company do not receive cash for their services. However,
directors who are not employees of the Company receive an initial grant of
options under the Stock Plan to purchase 11,029 shares of Common Stock vesting
over a three-year period and receive grants of 294 shares of Common Stock for
each Board meeting that they attend. An aggregate of 11,765 shares of Common
Stock have been granted to date to the directors pursuant to such arrangements.
No other non-cash compensation was paid to directors of the Company in their
capacities as directors during 1996. For a discussion of certain consulting
arrangements between the Company and Dr. Link and Mr. Friedli, respectively, see
"-- Compensation Committee Interlocks and Insider Participation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Link and Mr. Friedli served as members of the Company's Compensation
Committee during 1996. In November 1994, the Company and Dr. Link entered into a
consulting agreement (the "Link Agreement") pursuant to which the Company agreed
to retain Dr. Link to provide business and financial advisory services for a
three-year term and to serve as the Company's Chairman of the Board. Under the
terms of the Link Agreement, Dr. Link purchased 47,059 shares of Common Stock
for a purchase price of $0.58 per share and purchased 52,550 shares of the
Company's Series D Convertible Preferred Stock (the "Series D Preferred Stock")
at $2.55 per share. Of such shares of Common Stock, 5,882 were issued without
vesting restrictions and the remaining vest over three years and upon the
satisfaction of certain performance milestones. The Company expects that all
outstanding shares of Series D Preferred Stock will convert into Common Stock
upon completion of the Offering.
53
<PAGE>
In November 1995, the Company and Friedli Corporate Finance AG ("Friedli
AG") entered into a Consulting Agreement (the "Friedli AG Agreement") pursuant
to which the Company agreed to retain Friedli AG to provide business and
financial advisory services for a seven-year term. In consideration of the
services provided by Friedli AG, the Company pays a fee of $4,000 per month and
will also pay for certain expenses of Friedli AG, up to $15,000 per year. In
addition, pursuant to the Friedli AG Agreement, the Company granted to Friedli
AG a pre-emptive right to purchase up to 10% of the shares offered by the
Company in its initial public offering at the price to the public of such
offering. Accordingly, 250,000 shares (and 10% of any shares purchased upon
exercise of the Underwriters' over-allotment option) of Common Stock will be
offered to Friedli AG in this Offering. See "Underwriting." Mr. Friedli and
certain related entities also have purchased securities in various private
placements by the Company since 1993.
The Company retained Friedli AG, with which Mr. Friedli was previously
affiliated, to act as its European Placement Agent in connection with its
private placements of Series D Preferred Stock and Series E Convertible
Preferred Stock (the "Series E Preferred Stock"). In connection with the 1995
private placement of its Series D Preferred Stock, the Company sold to Friedli
AG, for nominal consideration, warrants to purchase from the Company 133,310
shares of Common Stock at an exercise price of $5.10 per share pursuant to the
Series D European Placement Agency Agreement. A total of 89,381 warrants will be
exercisable until December 1, 2002, and 43,929 will be exercisable until January
1, 2003. In addition, the following entities affiliated with Mr. Friedli
purchased shares in the offering: Pine, Inc., 120,000 shares; Joyce Ltd., 20,000
shares; Nikatech, Inc, 333,340 shares; and U.S. Ventech, Inc., 170,000 shares.
For the nature of the affiliation between Mr. Friedli and each of these
entities, see "Principal Stockholders."
In connection with the 1996 private placement of Series E Preferred Stock,
the Company sold to Friedli AG, for nominal consideration, warrants to purchase
from the Company 50,985 shares of Common Stock at an exercise price of $7.65 per
share pursuant to the Series E European Placement Agency Agreement. Such
warrants will be exercisable until January 1, 2003. In addition, the following
entities affiliated with Mr. Friedli purchased shares in the offering: Spring
Technology, Inc., 166,000 shares; and US Ventech, Inc. 80,000 shares. For the
nature of the affiliation between Mr. Friedli and these entities see "Principal
Stockholders."
EXECUTIVE COMPENSATION
The following table summarizes the 1996 compensation paid to or earned by
the Company's Chief Executive Officer and the only other executive officer whose
salary and bonus for services rendered in all capacities to the Company during
1996 exceeded $100,000 (the "Named Executive Officers").
54
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- -----------------
OTHER ANNUAL ALL OTHER SECURITIES UNDER-
NAME AND PRINCIPAL POSITION(S) SALARY ($) COMPENSATION ($) COMPENSATION ($) (1) LYING OPTIONS (#)
- ----------------------------------------- ---------- ---------------- --------------------- -----------------
<S> <C> <C> <C> <C>
James S. Burns........................... $ 250,000 -- $ 3,264 --
President and Chief
Executive Officer
Daniel R. Marshak, Ph.D.................. 161,343 $ 18,500(2) 1,535 25,000
Senior Vice President,
Research and Development
</TABLE>
- ------------------------
(1) These amounts represent the premium for life insurance policies which the
Company maintains on Mr. Burns and Dr. Marshak for the benefit of their
designees.
(2) This amount represents the forgiveness of $12,500 of a $50,000 loan to Dr.
Marshak for the relocation of his residence pursuant to his employment
agreement and an automobile allowance of $500 per month.
1996 OPTION GRANTS
The following table contains information about stock option grants to the
Named Executive Officers in 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
PERCENTAGE OF TOTAL FOR OPTION
NUMBER OF OPTIONS GRANTED TERM (3)
SECURITIES UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------------ ----------------------- ----------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James S. Burns................ -- -- -- -- -- --
Daniel R. Marshak, Ph.D....... 14,706(1) 8% $ 1.36(2) 3/8/2006 $ 12,578 $ 31,875
</TABLE>
- ------------------------
(1) The option vested 20% immediately and the remaining 80% vest in four equal
annual installments beginning on March 8, 1997.
(2) The exercise price of the option is equal to the fair market value of the
underlying shares of Common Stock on the date of grant, as determined by the
Board of Directors.
(3) The 5% and 10% assumed rates of appreciation are established by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
55
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table provides information about the exercise of options by
the Named Executive Officers during 1996 and the number and value of options
held by the Named Executive Officers at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS AT
UNDERLYING UNEXERCISED FISCAL
OPTIONS AT FISCAL YEAR END
SHARES YEAR END (1)
ACQUIRED ON VALUE -------------------------- -----------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------------------- ----------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
James S. Burns............................. -- -- -- -- --
Daniel R. Marshak, Ph.D.................... -- -- 5,882 8,824 $ 10,000
<CAPTION>
NAME UNEXERCISABLE
- ------------------------------------------- -------------
<S> <C>
James S. Burns............................. --
Daniel R. Marshak, Ph.D.................... $ 15,000
</TABLE>
- ------------------------
(1) The option value represents the fair market value of the underlying
securities on December 31, 1996 minus the aggregate exercise price of the
option. For purposes of this calculation, a fair market value of $3.06 per
share was used, the fair market value of the securities on December 31, 1996
as determined by the Board of Directors.
EMPLOYMENT AGREEMENTS
On March 11, 1993, the Company and James S. Burns entered into an Employment
Agreement (the "Burns Agreement") pursuant to which the Company agreed to employ
Mr. Burns as the President and Chief Executive Officer of the Company for a
period of three years, beginning on January 1, 1993, subject to renewal for
two-year periods unless otherwise terminated. Under the terms of the Burns
Agreement, as amended in 1995, Mr. Burns is entitled to receive $250,000 in
annual base compensation through December 31, 1997. Mr. Burns is also entitled
to receive a bonus payment each year of up to 50% of base compensation based on
the satisfaction of milestones established for such year by the Board of
Directors. Mr. Burns is also entitled to receive certain employee benefits and
other perquisites, including: (i) coverage for him and his dependents under the
Company's medical and disability plans; (ii) $1,000,000 of life insurance naming
Mr. Burns' designees as the beneficiaries; and (iii) an option to purchase
22,059 shares of the Company's Common Stock.
In the event of a termination without cause, Mr. Burns is entitled to
receive severance pay equal to the greater of: (i) the cash compensation Mr.
Burns would have received through the end of the remaining employment term; and
(ii) the cash compensation he would have received during a twelve month period,
in each case based on the cash compensation for the immediately preceding year
of service. Mr. Burns is also entitled to continue his participation in the
Company's medical and disability plans for the same period of time on which his
severance pay is based. In the event of a termination resulting from Mr. Burns'
death or disability, Mr. Burns is entitled to receive a severance payment
calculated in the same manner as described in the preceding sentence but based
on a period of twelve months; however, in the case of a termination upon Mr.
Burns' death, such payment is subject to a dollar-for-dollar offset by the
proceeds of any life insurance maintained by the Company for the benefit of Mr.
Burns or his designees. The Burns Agreement contains confidentiality and
intellectual property covenants and a two-year non-compete covenant.
On October 1, 1994, the Company and Daniel R. Marshak, Ph.D., entered into
an Employment Agreement (the "Marshak Agreement") pursuant to which the Company
agreed to employ Dr. Marshak as Senior Vice President, Research and Development
and Chief Technology Officer of the Company for a period of three years, subject
to renewal for two-year periods unless otherwise terminated. Under the
56
<PAGE>
terms of the Marshak Agreement, Dr. Marshak is entitled to receive $150,000 in
annual base compensation, which increases each October 1 by the greater of the
Company's local consumer price index ("CPI") or 5%. Dr. Marshak is also entitled
to receive a bonus payment each year of up to 30% of base compensation based on
the satisfaction of certain milestones established by the Chief Executive
Officer and approved by the Board of Directors. Dr. Marshak is also entitled to
receive certain employee benefits and other perquisites. In addition, Dr.
Marshak purchased 117,647 shares of Common Stock for a purchase price of $0.58
per share, which purchase amount of $68,000 was loaned to Dr. Marshak by the
Company. Of such shares, 11,029 were issued to Dr. Marshak and the remaining
shares vest over two years and upon the satisfaction of certain performance
milestones. The Marshak Agreement also contains provisions regarding
termination, severance payments, confidentiality, intellectual property and non-
competition which are substantially similar to those contained in the Burns
Agreement.
STOCK OPTION AND EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
The Company has adopted the Amended and Restated 1994 Stock Incentive Plan
(the "Stock Plan"), under which up to 1,176,471 shares of the Company's Common
Stock may be granted pursuant to stock options or granted or sold as restricted
stock to directors, officers and employees of and consultants and advisors to
the Company. As of September 30, 1997, 901,739 shares of Common Stock were
reserved for issuance under the Stock Plan, pursuant to which options to
purchase a total of 462,904 shares were outstanding, and 222,496 shares of
restricted stock were granted or sold to officers, employees and consultants.
All of these options and shares are subject to vesting requirements based on
duration of employment (typically 25% per year of employment) or satisfaction of
certain performance milestones, and as of September 30, 1997, 118,885 of such
shares had vested.
The Stock Plan is administered by the Compensation Committee of the Board of
Directors. Subject to limitations set forth in the Stock Plan, the Committee
determines to whom options are granted, the option term, the exercise price,
vesting schedules and the rate at which options may be exercised. The maximum
term of options granted under the Stock Plan is ten years and the exercise price
may be equal to, less than or greater than the fair value of such shares. Under
the Stock Plan, the exercise price may be payable in cash or, at the discretion
of the Board of Directors, in Common Stock or a combination of cash and Common
Stock.
SAVINGS PLAN
The Company has adopted the Osiris Therapeutics, Inc. Retirement Savings
Plan (the "Savings Plan"). The Savings Plan is intended to be a qualified
retirement plan under the Internal Revenue Code. Employees of the Company are
eligible to participate in the Savings Plan upon the completion of three
consecutive months of employment. Participants may make salary deferral
contributions to the Savings Plan, subject to limitations imposed by the
Internal Revenue Code. The Company may, but is not required to, make matching
contributions to the Savings Plan based on the participants' contributions.
Employer contributions are subject to a graduated vesting schedule based upon
length of service with the Company. The Company has not made any matching
contributions under the Savings Plan to date.
57
<PAGE>
CERTAIN TRANSACTIONS
From its inception in December 1992 to the date of this Prospectus, the
Company has sold and issued Common Stock and Preferred Stock which will convert
into an aggregate of 5,510,002 shares of Common Stock. For the period from July
1, 1994 through September 30, 1997, the Company sold the following shares of its
Common Stock and Preferred Stock in private placements: 164,706 shares of Common
Stock at a price of $0.58 per share; 100,000 shares of Series D Preferred Stock
at $2.55 per share (each convertible into .59 shares of Common Stock); 3,599,070
shares of Series D Preferred Stock at $3.00 per share (each convertible into .59
shares of Common Stock); warrants to purchase 135,586 shares of Common Stock at
$5.10 per share pursuant to the Series D European Placement Agency Agreement;
2,246,224 shares of Series E Preferred Stock at $4.50 per share (each
convertible into .59 shares of Common Stock); warrants to purchase 50,985 shares
of Common Stock at $7.65 pursuant to the Series E European Placement Agency
Agreement; 692,059 shares of Common Stock at $14.45 per share; and 11,029 shares
of Common Stock at $8.50 per share.
The purchasers of the Preferred Stock and Common Stock included, among
others, the following executive officers, directors and beneficial holders of
more than 5% of the Company's Common Stock. The Company believes that all such
parties purchased their shares in arm's-length transactions on terms
substantially equivalent to those offered to non-affiliates.
<TABLE>
<CAPTION>
COMMON SERIES D SERIES E
------------------------ ----------------------- -----------------------
PURCHASE PURCHASE PURCHASE
NAME SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------------------- --------- ------------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter Friedli (1).................... 344,195 - 643,340 $ 1,930,020 301,333 $ 1,356,000
Novartis Pharma AG (2)............... 692,059 $ 10,000,250
James S. Burns (3)................... 66,668 $ 200,000
Arnold I. Caplan, Ph.D.(3)........... 20,000 $ 60,000
Max E. Link, Ph.D. (4)............... 47,059 $ 27,200 52,550 $ 134,000 53,333 $ 240,000
Daniel R. Marshak, Ph.D.(5).......... 117,647 $ 68,000
Jack L. Bowman (6)................... 11,029 $ 93,750
</TABLE>
(1) Includes 55,333 shares of Series E Preferred Stock and 124,706 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Friedli.
Includes the following shares as to which Mr. Friedli has (except as
provided below) sole investment power: 20,000 shares of Series D Preferred
Stock and 124,784 shares of Common Stock issuable upon exercise of warrants
held by Joyce Ltd. (of which Mr. Friedli is Investment Manager); 333,340
shares of Series D Preferred Stock held by Nikatech, Inc. (of which Mr.
Friedli owns 3% of the outstanding capital stock and is President); 120,000
shares of Series D Preferred Stock and 74,117 shares of Common Stock
issuable upon exercise of warrants held by Pine, Inc. (of which Mr. Friedli
is Investment Manager); 166,000 shares of Series E Preferred Stock and
20,588 shares of Common Stock issuable upon the exercise of warrants held by
Spring Technology Corp. (of which Mr. Friedli is Investment Manager); and
170,000 shares of Series D Preferred Stock and 80,000 shares of Series E
Preferred Stock held by USVentech, Inc. (of which Mr. Friedli is Investment
Manager).
(2) On June 16, 1997, the Company issued and sold 692,059 shares of Common Stock
to Novartis Pharma AG pursuant to the Novartis Agreement.
(3) Mr. Burns and Dr. Caplan were issued shares of Series D Preferred in lieu of
cash compensation owed to them pursuant to their employment and consulting
agreements with the Company.
(4) In November 1994, the Company and Dr. Link entered into a consulting
agreement pursuant to which the Company agreed to retain Dr. Link to provide
business and financial advisory services for a three-year term and to serve
as the Company's Chairman of the Board. Under the terms of the Link
58
<PAGE>
Agreement, Dr. Link purchased 47,059 shares of Common Stock for a purchase price
of $0.58 per share and purchased 52,550 shares of Series D Preferred Stock
at $2.55 per share. Of such shares of Common Stock, 5,882 were issued
without vesting restrictions and the remaining vest over three years and
upon the satisfaction of certain performance milestones.
(5) In October 1994, in connection with the commencement of his employment with
the Company, Dr. Marshak purchased 117,647 shares of Common Stock for a
purchase price of $0.58 per share, which purchase amount of $68,000 was
loaned to Dr. Marshak by the Company. Of such shares, 11,029 were issued to
Dr. Marshak and the remaining shares vest over two years and upon the
satisfaction of certain performance milestones.
(6) In July 1997, in connection with the commencement of his service on the
Board of Directors, Mr. Bowman purchased 11,029 shares of Common Stock at
$8.50 per share, which purchase amount of $93,750 was loaned to Mr. Bowman
by the Company.
Since June 30, 1994, the Company has granted an aggregate of 11,765 shares
of Common Stock to its directors as compensation for attending Board of Director
meetings.
On February 22, 1995, the Company entered into a sponsored Research
Agreement with Drs. Caplan, Goldberg and Haynesworth that will provide $1.44
million in funding for mesenchymal stem cell research in their laboratories over
a three-year period ($120,000 per quarter) commencing January 1, 1995. The
Company will receive exclusive, worldwide rights to any intellectual property
resulting from such research that is not already the subject of the Technology
Transfer and License Agreement between CWRU and the Company, effective January
1, 1993. In addition, the researchers received an extension of their current
Consulting Agreements (Dr. Caplan for five years, Drs. Goldberg and Haynesworth
each for three years) providing for consulting fees of $60,000 per year. The
Research Agreement with Dr. Caplan and Dr. Goldberg has been extended for an
additional two years with no changes in the per annum level of funding.
For a discussion of certain relationships between the Company and Dr. Link
and Mr. Friedli, see "Management--Compensation Committee Interlocks and Insider
Participation."
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of October 18, 1997 (adjusted to reflect the
conversion of all outstanding shares of Preferred Stock into Common Stock) and
as adjusted to reflect the sale of 2,500,000 shares of Common Stock in this
Offering: (i) by each person (or group of affiliated persons) known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock; (ii) by each of the Named Executive Officers; (iii) by each director of
the Company; and (iv) by all of the Company's directors and executive officers
as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARED BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
(1) (1)
----------------------- -----------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Peter Friedli (2).................................................... 1,630,959 17.9% 1,630,959 14.1%
Novartis Pharma AG (3)............................................... 692,059 7.9 692,059 6.1
Arnold I. Caplan, Ph.D. (4).......................................... 609,412 7.0 609,412 5.4
James S. Burns (4)................................................... 496,128 5.7 496,128 4.4
Invesco Trust Company (5)............................................ 490,196 5.6 490,196 4.4
Daniel R. Marshak, Ph.D. (6)......................................... 135,000 1.5 135,000 1.1
Max Link, Ph.D....................................................... 126,402 1.4 126,402 1.1
Mark Novitch, M.D.................................................... 12,794 * 12,794 *
Jack L. Bowman....................................................... 11,029 * 11,029 *
All directors and executive officers as a group (9 persons).......... 2,447,607 26.8% 2,447,607 20.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise
has or shares voting power and/or investment power and as to which such
person has the right to acquire such voting and/or investment power within
60 days. Percentage of beneficial ownership as to any person or group as of
a particular date is calculated by dividing the number of shares
beneficially owned by such person or group by the sum of the number of
shares outstanding as of such date and the number of shares as to which such
person or group has the right to acquire voting and/or investment power
within 60 days.
(2) Includes 179,365 shares and 124,706 shares issuable upon exercise of
warrants. Also includes the following shares and shares issuable upon the
exercise of warrants, as to which Mr. Friedli has (except as provided below)
sole investment power: 165,941 shares held by Ascent Holding AG (of which
Mr. Friedli owns 4% of the outstanding capital stock and is President);
64,706 shares held by Cruiseinvest Ltd. (of which Mr. Friedli is Investment
Manager); 70,588 shares held by Eagle Growth Ltd. (of which Mr. Friedli is
Investment Manager); 62,104 shares and 124,784 shares issuable upon exercise
of warrants held by Joyce Ltd. (of which Mr. Friedli is Investment Manager);
196,082 shares held by Nikatech, Inc. (of which Mr. Friedli owns 3% of the
outstanding capital stock and is President); 58,824 shares and 74,117 shares
issuable upon exercise of warrants held by Pine, Inc. (of which Mr. Friedli
is Investment Manager); 137,389 shares and 20,588 shares issuable upon
exercise of warrants held by Spring Technology Corp., (of which Mr. Friedli
is Investment Manager); 147,059 shares held by USVentech, Inc. (of which Mr.
Friedli is Investment Manager); and 204,706 shares held by Venturetec, Inc.
(of which Mr. Friedli owns 2% of the outstanding capital stock and is
President). Does not include any shares pursuant to Friedli AG's pre-emptive
right to purchase up to 10% of the shares offered by the Company in its
initial public offering, pursuant to which 250,000 shares (and 10% of any
shares purchased upon exercise of the Underwriters' over-allotment option)
will be offered to Friedli AG in this Offering. See "Underwriting." Mr.
Friedli's business address is c/o Freigutstrasse 5, 8002 Zurich,
Switzerland.
(3) The address of Novartis Pharma AG is CH-4002 Basel, Switzerland.
60
<PAGE>
(4) The address of Arnold I. Caplan, Ph.D., and James S. Burns is c/o Osiris
Therapeutics, Inc., 2001 Aliceanna Street, Baltimore, MD 21231.
(5) The address of Invesco Trust Company is 7800 East Union Drive, Suite 800,
Denver, Colorado 80237.
(6) Includes 12,941 shares issuable upon exercise of stock options.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock, $0.001
par value per share. Upon the consummation of this Offering, the Company will
have 11,513,166 shares of Common Stock outstanding (including 5,510,002 shares
of Common Stock to be issued upon conversion of all outstanding shares of
Preferred Stock). Each stockholder of record is entitled to one vote for each
outstanding share of Common Stock owned by him on every matter properly
submitted to the stockholders for their vote. Stockholder actions generally
require the approval of the holders of a majority of the Company's outstanding
shares of Common Stock.
Subject to the preferences which may be granted to holders of the Preferred
Stock, holders of Common Stock are entitled to any dividend declared by the
Board of Directors out of funds legally available for such purpose and to
receive on a pro rata basis all assets of the Company available for distribution
to the stockholders after the payment of liabilities in the event of the
liquidation, dissolution, or winding up of the Company. Holders of Common Stock
do not have any conversion, preemptive or other rights to become subscribers or
purchasers of additional shares of any class of the Company's capital stock, and
there are no redemption rights or sinking fund provisions with respect to the
Common Stock.
PREFERRED STOCK
As of the closing of this Offering, no shares of Preferred Stock will be
outstanding. Thereafter, the Board of Directors will be authorized, without
further stockholder approval, to issue up to 20,000,000 shares of Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences and to fix the number of
shares constituting any series and the designations of such series.
The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company and may discourage bids for the
Company's Common Stock at a premium over the market price of the Common Stock.
The issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to the holders of Common Stock or could adversely
affect the rights and powers, including voting rights, of the holders of the
Common Stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock. The Company currently has no
plans to issue any shares of Preferred Stock.
WARRANTS
In connection with certain of its private placements of Preferred Stock and
business transactions, the Company has granted, or sold for nominal
consideration, warrants to purchase Common Stock and Preferred Stock to certain
investors, placement agents and business partners. The Company has outstanding
warrants to purchase an aggregate of 181,766 shares of Common Stock at $4.42 per
share, which are exercisable through September 24, 1998; warrants to purchase up
to an aggregate of 136,762 shares of Preferred Stock (convertible into an
aggregate of 80,448 shares of Common Stock) at $3.00 per share, which are
exercisable through the fifth anniversary of the completion of this Offering;
warrants to purchase an aggregate of 190,776 shares of Common Stock at $5.10 per
share, which are exercisable through December 1, 2002; warrants to purchase an
aggregate of 135,663 shares of Common Stock at $5.10 per share, which are
exercisable through January 1, 2003; warrants to purchase an aggregate of 50,985
shares
61
<PAGE>
of Common Stock at $7.65 per share, which are exercisable through January 1,
2002; and warrants to purchase an aggregate of 33,000 shares of Preferred Stock
(convertible into an aggregate of 19,412 shares of Common Stock) at $3.00 per
share, which are exercisable through seven years from date of grant. Upon
consummation of the Offering, all warrants to purchase Preferred Stock will
become exercisable to purchase an equal number of shares of Common Stock at an
equal exercise price.
REGISTRATION RIGHTS AGREEMENTS
Following the sale of the shares of Common Stock offered hereby, the holders
of 1,909,546 shares issued upon the conversion of the Preferred Stock will have
certain rights to register those shares under the Securities Act. These rights
are provided under the terms of certain agreements among the Company and the
holders of such shares.
SERIES C AND SERIES C1 CONVERTIBLE PREFERRED STOCK. In connection with the
Company's issuance of its Series C and Series C1 Convertible Preferred Stock,
(the "Series C and Series C1 Preferred Stock"). purchasers received certain
demand and piggyback registration rights with respect to the Common Stock
issuable upon conversion of those shares (the "Converted Series C and C1
Shares"). At any time following the earlier of six months after the effective
date of the registration statement for this Offering and May 25, 1998, the
holders of at least 50% of the Converted Series C and C1 Shares may require, on
two occasions, that the Company register such shares for public resale. In
addition, if the Company registers any of its securities for its own account
(other than for the sale of securities under a stock option or employee benefit
plan), the holders of registrable shares are entitled to include their shares in
such registration. The participation of such holders in any registration of the
Company's securities is subject to the right of the underwriters to limit the
number of shares included in these offerings. The holders of the Converted
Series C and C1 Shares may also require the Company, on two occasions every 12
months, to register all or a portion of their registrable securities on Form
S-3, when use of such form becomes available to the Company. These registration
rights, however, are subject to certain limitations, including a requirement
that the aggregate selling price must be at least $1,000,000. All of the
foregoing registration rights expire upon the fifth anniversary of the Company's
initial public offering of securities which yields at least $7,500,000 in gross
proceeds and a price per share to the public of at least $23.12. With certain
exceptions, all fees, costs and expenses of registrations will be borne by the
Company. All holders of the Series C and C1 Preferred Stock have waived the
right to include their shares in this Offering.
SERIES D CONVERTIBLE PREFERRED STOCK. One of the holders of the Series D
Preferred Stock has certain demand and piggyback registration rights with
respect to the Common Stock issuable upon conversion of those shares (the
"Converted Series D Shares"). Within 30 days after the completion of this
Offering, the holder of the Converted Series D Shares may request that the
Company register no later than 180 days after completion of this Offering such
shares for public resale. In addition, if the Company registers any of its
securities for its own account (other than for the sale of securities under a
stock option or employee benefit plan), the holder is entitled to include its
shares in such registration. The participation of such holder in any
registration of the Company's securities is subject to the right of the
underwriters to limit the number of shares included in these offerings. With
certain exceptions, all fees, costs and expenses of registrations will be borne
by the Company.
SERIES E CONVERTIBLE PREFERRED STOCK. The holders of the Series E Preferred
Stock have certain demand registration rights with respect to the Common Stock
issuable upon conversion of those shares (the "Converted Series E Shares").
Within 30 days after the completion of this Offering, the holder of the
Converted Series E Shares may request that the Company register no later than
180 days after completion of this Offering such shares for public resale. These
registration rights expire on December 22, 1997. With certain exceptions, all
fees, costs and expenses of registrations will be borne by the Company.
COMMON STOCK. Novartis has certain demand and piggyback registration rights
with respect to the 692,059 shares of Common Stock it purchased under the
Novartis Agreement. If and when the Company
62
<PAGE>
becomes eligible to use Form S-3 (or similar short-form registration) under the
Securities Act, Novartis, on up to three occasions, may request that the Company
register on Form S-3 Novartis' shares of the Company's Common Stock having a
market value of at least $3,000,000. In addition, beginning on the first
anniversary of the Novartis Agreement, Novartis may request that the Company
include its shares of Common Stock whenever the Company proposes to register
other securities, subject to certain exceptions and the ability of the
underwriters to limit the number of shares offered.
WARRANTS. Certain holders of the Company's warrants to purchase Common
Stock and Preferred Stock (which will be exercisable for 659,051 shares of
Common Stock upon consummation of this Offering) have certain demand and
piggyback registration rights with respect to the Common Stock issuable upon
exercise of those warrants (the "Warrant Shares"). If the Company registers any
of its securities for its own account (other than for the sale of securities
under a stock option or employee benefit plan), all such warrant holders are
entitled to include their Warrant Shares in such registration. The participation
of such holders in any registration of the Company's securities is subject to
the right of the underwriters to limit the number of shares included in these
offerings. In addition, certain warrant holders may require, on two occasions,
that the Company register their Warrant Shares for public resale. Other holders
of the Company's warrants may, subject to certain limitations, require the
Company, on two occasions, to register all or a portion of their Warrant Shares
on Form S-3, when use of such form becomes available to the Company.
The existence and exercise of the foregoing registration rights may hinder
efforts by the Company to arrange future financing for the Company and may have
an adverse effect on the market price of the Common Stock. See "Risk
Factors--Need For Substantial Additional Funds."
DELAWARE LAW AND CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
The Company's Restated Certificate of Incorporation (the "Charter") allows
the Company to issue, without stockholder approval, Preferred Stock having
rights senior to those of the Common Stock. In addition, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law. Section 203 prohibits publicly held Delaware corporations from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. These provisions could have the effect of
delaying, deferring or preventing a change in control of the Company or reducing
the price that certain investors might be willing to pay in the future for
shares of the Common Stock.
The Charter limits the personal liability of the Company's directors to the
fullest extent permitted by the Delaware General Corporation Law. Therefore, the
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock; or (iv) for
any transaction from which the director derives an improper personal benefit. As
a result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Additionally, the Charter provides for indemnification of the Company's
directors and officers to the fullest extent permitted by law. The Company has
entered into indemnification agreements with its directors and officers which
may, in certain cases, be broader than the specific indemnification provisions
63
<PAGE>
contained under applicable law. The indemnification agreements may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers of the Company, to advance the expenses incurred by such
parties as a result of any threatened claims or proceedings brought against them
as to which they could be indemnified and to cover such officers or directors
under the Company's directors' and officers' liability insurance policies to the
maximum extent that insurance coverage is maintained.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Sales of substantial amounts of Common Stock in the public
market following this Offering could adversely affect the prevailing market
price of the Common Stock and the Company's ability to raise capital in the
future.
Upon completion of this Offering, the Company will have a total of
11,263,166 shares of Common Stock outstanding, of which the 2,500,000 shares
offered hereby will be freely transferable without restriction under the
Securities Act by persons other than "affiliates" of the Company as defined in
Rule 144 under the Securities Act.
The remaining 8,763,166 shares of Common Stock outstanding are "restricted
securities" as the term is defined in Rule 144 (the "Restricted Shares"). Of the
Restricted Shares, 7,773,860 shares will become eligible for sale 90 days after
completion of the Offering, subject in some cases to certain volume restrictions
and other conditions imposed under Rules 144 and 701. The remaining 989,306
shares will be eligible for sale upon the expiration of their respective holding
periods as set forth in Rule 144. In addition, the holders of approximately
2,601,605 of the Restricted Shares, including shares acquired upon exercise of
certain outstanding warrants, are entitled to certain registration rights with
respect to such shares. See "Description of Capital Stock--Registration Rights
Agreements." Notwithstanding these rights, however, 8,552,171 of the Restricted
Shares are subject to lock-up agreements and may not be sold for 180 days
following the date of this Prospectus, although such agreements provide that SBC
Warburg Dillon Read Inc. may, in its sole discretion and at any time without
notice, release all or a portion of the shares from these lock-up agreements.
Following the date of this Prospectus, the Company may register on one or
more registration statements on Form S-8 shares of Common Stock issuable under
the Stock Plan. Of the 1,176,471 shares issuable under the Stock Plan, 462,904
are subject to outstanding options as of September 30, 1997, 346,696 of which
are subject to lock-up agreements. Subject to the lock-up agreements, shares
covered by such registration statements will upon issuance pursuant to the Stock
Plan immediately be eligible for sale in the public market. In addition, the
Company has issued warrants to purchase 659,051 shares of Common Stock which are
currently exercisable, of which 532,026 shares are subject to the lock-up
agreements described above. See "Management--Stock Option and Employee Benefit
Plans."
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year (including holding periods of prior owners other than affiliates)
is entitled to sell, within any three-month period commencing 90 days after the
closing of this Offering, a number of shares that does not exceed the greater
of: (i) 1% of the then outstanding Common Stock (approximately 113,000 shares
immediately after this Offering, assuming no exercise of the Underwriters'
over-allotment option); or (ii) the average weekly trading volume in the public
market during the four calendar weeks preceding the sale, subject to the filing
of a Form 144 with respect to the sale and other limitations. In general, shares
issued in compliance with Rule 701 may be sold by non-
64
<PAGE>
affiliates subject to the manner of sale requirements of Rule 144, but without
compliance with the other requirements of Rule 144. Affiliates may sell shares
they acquired under Rule 701 in compliance with the provisions of Rule 144,
except that there is no required holding period. A person who is not an
affiliate, has not been an affiliate within three months prior to sale and has
beneficially owned restricted securities for at least two years, is entitled to
sell such shares under Rule 144 without regard to any of the limitations
described above.
The Company has also agreed not to sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or grant any rights to acquire
Common Stock for a period of 180 days after the date of this Prospectus, without
the prior written consent of SBC Warburg Dillon Read Inc., subject to certain
limited exceptions (including exercises of stock options).
65
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below (the
"Underwriters") has severally agreed to purchase, and the Company has agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
SBC Warburg Dillon Read Inc................................................
Hambrecht & Quist LLC......................................................
-----------------
Total.................................................................. 2,500,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions,
including the effectiveness of the Registration Statement of which this
Prospectus is a part and the absence of any material adverse change in the
Company's condition from that reflected in this Prospectus. The Underwriters are
obligated to take and pay for all shares of Common Stock offered hereby (other
than those covered by the over-allotment option described below) if any such
shares are taken.
The Underwriters, for whom SBC Warburg Dillon Read Inc. and Hambrecht &
Quist LLC are acting as the representatives (the "Representatives"), propose to
offer part of the shares directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $ per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the initial offering of the shares to the public, the public
offering price and such concessions may be changed by the Representatives. The
Representatives have advised the Company that the Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 375,000 additional
shares of Common Stock at the price to public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company, its officers and directors, and certain stockholders of the
Company, holding in the aggregate approximately 9,430,893 shares of Common
Stock, have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of SBC Warburg
Dillon Read Inc., offer, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock of the Company or any securities convertible into, or
exercisable or exchangeable for, Common Stock.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Shares
of Common Stock included in this Offering has been determined by negotiations
between the Company and the Representatives. Among the factors considered in
determining such price were the history of and prospects for the Company's
business and the industry in which it competes, an assessment of the Company's
management and the present state of development of the Company and its proposed
products, the past and present revenues of the Company, the prospects for
earnings of the Company, the current state of the economy in the United States
and the current level of economic activity in the industry in which the Company
competes and in related or
66
<PAGE>
comparable industries, and currently prevailing conditions in the securities
markets, including current market valuations of publicly traded companies which
are comparable to the Company.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
At the request of the Company, approximately 125,000 shares of Common Stock
offered hereby are being reserved for sale to certain persons, including Company
employees and others who have a business relationship with the Company. In
addition, the Underwriters will offer 250,000 shares (and 10% of any shares
purchased upon exercise of the Underwriters' over-allotment option) to Friedli
AG in satisfaction of a pre-emptive right under a consulting agreement between
the Company and Friedli AG. See "Management--Compensation Committee Interlocks
and Insider Participation."
In connection with this Offering and in compliance with applicable law, the
Underwriters may over-allot (I.E., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchases of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
syndicate short position created in connection with the Offering. A syndicate
short position may be covered by exercise of the option described above rather
than by open market purchases. In addition, the contractual arrangements among
the Underwriters include a provision whereby, if, prior to termination of price
and trading restrictions, the Representatives purchase Common Stock in the open
market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost to the
syndicate or may recover from (or decline to pay to) the Underwriter or selling
group member in question, the selling concession applicable to the securities in
question. The Underwriters are not required to engage in any of these activities
and any such activities, if commenced, may be discontinued at any time.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal
matters will be passed upon for the Underwriters by Manatt, Phelps & Phillips,
LLP, Los Angeles, California.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996, and for the
period December 23, 1992 (date of inception) to December 31, 1996 included in
this Prospectus have been included herein in reliance upon the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The statements in this Prospectus concerning the patents and patent
applications either owned or licensed by the Company under the captions "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights" and
"Business--Patents and Proprietary Rights" and the other references herein
concerning the patents and patent applications either owned or licensed by the
Company have been reviewed and approved by Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein, P.A., Roseland, New Jersey, patent counsel to the
Company, as experts on such matters and are included herein in reliance upon
that review and approval.
67
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act, of which this
Prospectus is a part, with respect to the Common Stock offered hereby. This
Prospectus omits certain information contained in the Registration Statement and
reference is made to the Registration Statement for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents and when any such document is an exhibit to the Registration
Statement, each such statement is qualified in its entirety by reference to the
copy of such document filed with the Commission. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge at
the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and the Commission's Regional Offices at Seven World Trade Center,
New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511 and copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement,
including all exhibits and schedules and such reports and other information may
also be accessed electronically by means of the Commission's site on the World
Wide Web, at http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent certified public accountants and
make available to its stockholders quarterly reports containing unaudited
financial data for the first three quarters of each fiscal year.
68
<PAGE>
GLOSSARY OF SCIENTIFIC TERMS
ABLATION: Surgical, chemotherapeutic or radiation excision of any part of
the body, such as bone marrow during high-dose chemotherapy.
ACUTE: Term used to describe disorders or symptoms that occur abruptly or
disorders or symptoms that run a short course.
ALLOGRAFT: A cellular, organ or tissue transplant derived from another
genetically distinct individual of the same species.
APLASTIC ANEMIA: A serious, progressive disease characterized by the bone
marrow's inability to produce blood cells, caused by certain medications,
diseases or toxic substances.
ARTICULAR SURFACE: The tissue surface of a joint which is composed of
cartilage.
AUTOLOGOUS: A cellular, organ or tissue transplant derived from the same
individual.
BIOMATRIX: A biological or biodegradable material used to contain MSCs or
other therapeutic material in a tissue regeneration implant.
BONE MARROW STROMA: The bone marrow matrix (derived from mesenchymal stem
cells) which provides a structural and growth factor microenvironment for
hematopoiesis.
BONE MARROW TRANSPLANTATION (BMT): The removal and storage of bone marrow
and subsequent transplantation following high-dose radiation and/or
chemotherapy. BMT involves the transplant of autologous marrow (patient to self)
or allogeneic marrow (donor to patient).
CARTILAGE: A white, cushiony connective tissue attached to the articular
ends of bone.
CHEMOTHERAPY: Treatment of disease by using chemicals that have a direct
effect on disease-causing organisms or disease cells; widely used in the
treatment of cancer.
CHONDROCYTES: Cartilage-forming and cartilage-maintaining cells,
respectively.
CHONDROGENESIS: The process of forming cartilage from mesenchymal stem
cells.
CHRONIC: Term used to describe long-lasting diseases or conditions.
COLLAGEN: A group of fibrous protein constituents of bone, cartilage and
connective tissue.
CONNECTIVE TISSUE: Tissue of the embryonic mesoderm characterized by
extensive fibrous material which forms the human body's basic support structure.
EXTRACELLULAR MATRIX: Molecular scaffolding located outside of the cell.
GENE: Structure (DNA sequence) within a chromosome that is responsible for
inheritance of a particular characteristic.
GENE THERAPY: Direct insertion of a foreign gene or DNA sequence into a
host cell's genetic material to change the way cells function, to alter the
production of proteins that cells should make but cannot, or to stop the
production of aberrant or excess proteins.
HEMATOPOIESIS: The human body's replenishment process for the
differentiation, growth and maturation of all of the various blood cell
lineages.
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<PAGE>
HEMATOPOIETIC STEM CELLS (HSCS): An undifferentiated, self-renewing,
pluripotent progenitor cell population consisting of less than 0.05% of bone
marrow cells which gives rise to all red and white blood cells.
LIGAMENT: Sheet or band of fibrous tissue connecting two or more bones or
cartilages.
MESENCHYMAL STEM CELLS (MSCS): Embryonic-like cell capable of
differentiating into multiple tissues of the mesoderm, including cartilage,
bone, tendon, ligament, muscle, stroma and fat.
MESENCHYMAL TISSUE: Structural and connective tissues of the body resulting
from the differentiation of mesenchymal stem cells and the subsequent production
of tissue-specific extracellular matrix.
MESENGENESIS: The proliferation, commitment, differentiation and maturation
of cells forming structural and connective tissue arising from mesenchymal stem
cells.
MESENGENIC FACTORS: Biologic factors, including stimulating factors,
cytokines and interleukins, which cause the differentiation, growth,
proliferation and maturation of specific cells in mesenchymal tissue.
MESODERM: The embryonic middle layer from which develop connective tissue,
bone, cartilage, muscle, ligament, tendon, the urogenital tract and vascular
system.
MULTIPLE MYELOMA: A blood cancer beginning in the bone marrow.
OSTEOARTHRITIS: Degenerative joint disease.
OSTEOCHONDRAL: Bone and cartilage components of a full-thickness joint
defect.
OSTEOGENESIS: The process of forming bone from mesenchymal stem cells.
OSTEOPOROSIS: A disease characterized by bone loss, resulting from
undersynthesis of new bone, especially in postmenopausal women.
OSTEOSARCOMA: A form of bone cancer.
PLATELETS: Blood components that promote coagulation.
PROGENITOR CELLS: Embryonic-like cells from which cells of one or more
phenotype are derived.
PROTEIN: One of the classes of complex biological macromolecules, composed
of amino acids; essential for the growth, structure maintenance and repair of
tissue.
REGENERATION OF TISSUE: The process by which culture-expanded mesenchymal
stem cells are transplanted into an injured or diseased tissue to cause an
embryonic-like reformation of structurally and functionally normal tissue.
RESECTION: The surgical removal of part of an organ or tissue.
SEGMENTAL BONE DEFECT: Large gaps in long bones resulting from resection,
usually the result of bone tumor excision.
STEM CELL: A self-renewing cell capable of differentiating into cells of
mature tissue.
STROMA OF MARROW: The connective tissue on which blood cells form in bone
marrow.
SYSTEMIC: Affecting or pertaining to the entire body rather than one of its
parts, usually referring to that which is delivered by way of the blood vessels.
TENDON: A band of tough, inelastic fibrous tissue which connects a muscle
to bone.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-------------
<S> <C>
Report of Independent Accountants.................................................................. F-2
Consolidated Balance Sheets........................................................................ F-3
Consolidated Statements of Operations.............................................................. F-4
Consolidated Statements of Stockholders' Equity.................................................... F-5
Consolidated Statements of Cash Flows.............................................................. F-6
Notes to Consolidated Financial Statements......................................................... F-7 to F-21
</TABLE>
F-1
<PAGE>
Upon approval of the 1-for-1.7 reverse stock split discussed in Note 1 to
the consolidated financial statements, we will be in position to issue the
following report:
/s/ Coopers & Lybrand L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Osiris Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of Osiris
Therapeutics, Inc. and Subsidiaries (the "Company"), a Development Stage
Enterprise, as of December 31, 1995 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 and for the period December
23, 1992 (date of inception) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Osiris
Therapeutics, Inc. and Subsidiaries as of December 31, 1995 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 and for the period December
23, 1992 (date of inception) to December 31, 1996, in conformity with generally
accepted accounting principles.
Rockville, Maryland
January 31, 1997, except as to the
reverse stock split discussed in
Note 1, as to which the date
is October 22, 1997.
F-2
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ SEPTEMBER 30, ------------------
1995 1996 1997 SEPTEMBER 30, 1997
----------- ----------- ------------- ------------------
<S> <C> <C> <C> <C>
(NOTE 14)
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents (Note 2)............... $ 6,925,613 $ 3,267,649 $ 2,281,728 $ 2,281,728
Securities available-for-sale (Note 2)........... -- 6,344,804 16,172,894 16,172,894
Contract revenue receivable...................... -- 347,862 -- --
Other current assets............................. 154,469 243,752 799,105 799,105
----------- ----------- ------------- ------------------
Total current assets........................... 7,080,082 10,204,067 19,253,727 19,253,727
Property and equipment, net (Note 4)............... 2,184,812 8,327,179 9,262,986 9,262,986
Other assets....................................... 160,053 246,931 248,147 248,147
----------- ----------- ------------- ------------------
Total assets................................... $ 9,424,947 $18,778,177 $28,764,860 $ 28,764,860
----------- ----------- ------------- ------------------
----------- ----------- ------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 206,012 $ 568,888 $ 849,345 $ 849,345
Accrued expenses (Note 11)....................... 651,195 597,421 1,069,136 1,069,136
Note payable (Note 5)............................ 48,913 65,217 65,217 65,217
Deferred revenue from collaborative research
agreements, net (Note 14)...................... -- -- 3,318,769 3,318,769
Obligations under capital leases (Note 9)........ 247,000 999,456 1,058,139 1,058,139
----------- ----------- ------------- ------------------
Total current liabilities...................... 1,153,120 2,230,982 6,360,606 6,360,606
Note payable (Note 5).............................. 701,087 635,870 586,957 586,957
Obligations under capital lease (Note 9)........... 575,456 6,024,321 5,267,322 5,267,322
----------- ----------- ------------- ------------------
Total liabilities.............................. 2,429,663 8,891,173 12,214,885 12,214,885
----------- ----------- ------------- ------------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible Preferred Stock, issuable in series
$.001 par value, authorized 20,000,000 shares;
issued and outstanding 6,326,187 shares,
9,268,963 shares, 9,268,963 shares (unaudited),
respectively; no shares (unaudited) issued and
outstanding pro forma (liquidation preference
of $31,470,253 at December 31, 1996 and
September 30, 1997 (unaudited))................ 17,266,547 28,459,961 28,459,961 --
Common Stock, $.001 par value, authorized
30,000,000 shares; issued and outstanding
2,520,008 shares, 2,548,304 shares and
3,253,164 shares (unaudited), respectively;
8,763,166 shares (unaudited) issued and
outstanding pro forma.......................... 2,520 2,548 3,253 8,763
Additional paid-in-capital....................... 300,478 310,911 10,040,774 38,495,225
Deferred compensation and loans to officers for
the purchase of stock.......................... (144,750) (244,551) (388,528) (388,528)
Deficit accumulated during the development
stage.......................................... (10,429,511) (18,641,865) (21,565,485) (21,565,485)
----------- ----------- ------------- ------------------
Total stockholders' equity..................... 6,995,284 9,887,004 16,549,975 16,549,975
----------- ----------- ------------- ------------------
Total liabilities and stockholders' equity..... $ 9,424,947 $18,778,177 $28,764,860 $ 28,764,860
----------- ----------- ------------- ------------------
----------- ----------- ------------- ------------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-3
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM FOR THE NINE MONTHS PERIOD FROM
FOR THE YEAR ENDED DECEMBER 31, INCEPTION TO ENDED SEPTEMBER 30 INCEPTION TO
------------------------------------- DECEMBER 31, ------------------------ SEPTEMBER 30,
1994 1995 1996 1996 1996 1997 1997
----------- ----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
Collaborative research and
grant income.............. $ 33,305 $ -- $ 1,066,984 $ 1,100,289 $ 564,976 $ 5,755,964 $ 6,856,253
Interest income............. 229,435 169,505 521,886 951,119 280,490 488,637 1,439,756
----------- ----------- ----------- ------------ ----------- ----------- -------------
Total revenues............ 262,740 169,505 1,588,870 2,051,408 845,466 6,244,601 8,296,009
----------- ----------- ----------- ------------ ----------- ----------- -------------
Expenses:
Research and development.... 2,340,873 4,533,374 7,364,086 14,575,575 4,586,616 7,341,080 21,916,655
General and
administrative............ 1,266,136 1,476,807 1,860,981 5,426,395 1,315,803 1,257,128 6,683,523
Interest expense............ 9,608 96,934 576,157 691,303 408,171 570,013 1,261,316
----------- ----------- ----------- ------------ ----------- ----------- -------------
Total expenses............ 3,616,617 6,107,115 9,801,224 20,693,273 6,310,590 9,168,221 29,861,494
----------- ----------- ----------- ------------ ----------- ----------- -------------
Net loss...................... $(3,353,877) $(5,937,610) $(8,212,354) $(18,641,865) $(5,465,124) $(2,923,620) $(21,565,485)
----------- ----------- ----------- ------------ ----------- ----------- -------------
----------- ----------- ----------- ------------ ----------- ----------- -------------
Net loss per common share and
common share equivalents.... $ (1.32) $ (2.14) $ (2.93) $ (1.95) $ (.95)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares
and common share equivalents
outstanding................. 2,536,799 2,775,950 2,806,186 2,803,959 3,081,386
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
AND LOANS
CONVERTIBLE TO OFFICERS
PREFERRED STOCK COMMON STOCK ADDITIONAL FOR THE
------------------------ --------------------- PAID-IN PURCHASE
SHARES AMOUNT SHARES AMOUNT CAPITAL OF STOCK
----------- ----------- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 23, 1992........................ -- $ -- -- $ -- $ -- $ --
Initial capital contribution ($.002261 per share)... -- -- 123,529 124 156 --
Stock issued pursuant to Exchange Agreement
($.000476 per share).............................. -- -- 1,058,824 1,059 (559) --
Stock sold pursuant to Employee and Consulting
Agreements ($.0034 per share)..................... -- -- 562,497 562 2,258 --
Stock sold pursuant to License Agreement ($.002261
per share)........................................ -- -- 52,941 53 67 --
Stock sold pursuant to subscription and Board of
Directors Agreements ($.0068 per share)........... -- -- 352,941 353 2,047 --
Conversion of convertible note payable ($3.40 per
share)............................................ -- -- 36,765 37 124,963 --
Conversion of convertible note payable, related
parties ($3.00 per share)......................... 58,625 175,000 -- -- -- --
Issuance of Preferred Stock Series A, net of
offering expenses ($3.00 per share)............... 2,010,000 5,264,357 -- -- -- --
Net loss for the period December 23, 1992 (date of
inception) to December 31, 1993................... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------------
Balance at December 31, 1993........................ 2,068,625 5,439,357 2,187,497 2,188 128,932 --
Issuance of Preferred Stock Series B, net of
offering expenses ($3.00 per share)............... 619,750 1,723,503 -- -- -- --
Stock sold pursuant to 1994 Stock Incentive Plan
($.0068 to $.578 per share)....................... -- -- 196,324 196 103,859 --
Stock sold pursuant to Consulting, Board of
Directors and Stock Purchase Agreements ($.51 to
$.578 per share).................................. -- -- 30,735 31 15,644 --
Issuance of Preferred Stock Series C, net of
offering expenses ($3.40 per share)............... 735,294 2,197,878 -- -- -- --
Loans made to officers for the purchase of stock.... -- -- -- -- -- (100,550)
Net loss for the year ended December 31, 1994....... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------------
Balance at December 31, 1994........................ 3,423,669 9,360,738 2,414,556 2,415 248,435 (100,550)
Issuance of Preferred Stock Series D, net of
offering expenses ($3.00 per share)............... 2,902,518 7,905,809 -- -- -- --
Stock sold pursuant to 1994 Stock Incentive Plan
($.51 to $.578 per share)......................... -- -- 49,570 49 19,798 --
Stock sold pursuant to Consulting and Research
Agreements ($.51 to $.578 per share).............. -- -- 55,882 56 32,244 --
Loans made to officers for the purchase of stock.... -- -- -- -- -- (44,200)
Net loss for the year ended December 31, 1995....... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------------
Balance at December 31, 1995........................ 6,326,187 17,266,547 2,520,008 2,520 300,477 (144,750)
Issuance of Preferred Stock Series D, net of
offering expenses ($3.00 per share)............... 579,884 1,555,324 -- -- -- --
Issuance of Preferred Stock Series D, pursuant to
Consulting and Employment Agreements ($3.00 per
share)............................................ 116,668 350,004 -- -- -- (110,001)
Issuance of Preferred Stock Series E, net of
offering expenses ($4.50 per share)............... 2,246,224 9,288,086 -- -- -- --
Stock transactions pursuant to Consulting,
Employment and Research Agreements................ -- -- 16,531 16 (1,215) 10,200
Issuance of Common Stock for services rendered by
Directors ($.578 to 2.55 per share)............... -- -- 11,765 12 11,649 --
Net loss for the year ended December 31, 1996....... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------------
Balance at December 31, 1996........................ 9,268,963 $28,459,961 2,548,304 2,548 $ 310,911 $ (244,551)
Issuance of Common Stock ($14.45 per share)......... -- -- 692,059 692 9,430,773 --
Deferred compensation from stock option grants...... -- -- -- -- 200,325 (50,227)
Exercise of warrant to purchase common stock........ -- -- 493 1 2,178 --
Stock sold pursuant to 1994 Stock Incentive Plan.... -- -- 1,279 1 2,848 --
Purchase of Common Stock at (8.50 per share)........ -- -- 11,029 11 93,739 (93,750)
Net loss for the nine months ended September 30,
1997.............................................. -- -- -- -- --
----------- ----------- ---------- --------- ----------- ----------------
Balance at September 30, 1997 (unaudited)........... 9,268,963 28,459,961 3,253,164 3,253 10,040,774 (388,528)
Pro forma conversion of Convertible Preferred Stock
(unaudited)....................................... (9,268,963) (28,459,961) 5,510,002 5,510 28,454,451 --
----------- ----------- ---------- --------- ----------- ----------------
Pro forma Balance, September 30, 1997 (unaudited)... -- $ -- 8,763,166 $ 8,763 $38,495,225 $ (388,528)
----------- ----------- ---------- --------- ----------- ----------------
----------- ----------- ---------- --------- ----------- ----------------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------ ------------
<S> <C> <C>
Balance at December 23, 1992........................ $ -- $ --
Initial capital contribution ($.002261 per share)... -- 280
Stock issued pursuant to Exchange Agreement
($.000476 per share).............................. -- 500
Stock sold pursuant to Employee and Consulting
Agreements ($.0034 per share)..................... -- 2,820
Stock sold pursuant to License Agreement ($.002261
per share)........................................ -- 120
Stock sold pursuant to subscription and Board of
Directors Agreements ($.0068 per share)........... -- 2,400
Conversion of convertible note payable ($3.40 per
share)............................................ -- 125,000
Conversion of convertible note payable, related
parties ($3.00 per share)......................... -- 175,000
Issuance of Preferred Stock Series A, net of
offering expenses ($3.00 per share)............... -- 5,264,357
Net loss for the period December 23, 1992 (date of
inception) to December 31, 1993................... (1,138,024) (1,138,024)
------------ ------------
Balance at December 31, 1993........................ (1,138,024) 4,432,453
Issuance of Preferred Stock Series B, net of
offering expenses ($3.00 per share)............... -- 1,723,503
Stock sold pursuant to 1994 Stock Incentive Plan
($.0068 to $.578 per share)....................... -- 104,055
Stock sold pursuant to Consulting, Board of
Directors and Stock Purchase Agreements ($.51 to
$.578 per share).................................. -- 15,675
Issuance of Preferred Stock Series C, net of
offering expenses ($3.40 per share)............... -- 2,197,878
Loans made to officers for the purchase of stock.... -- (100,550)
Net loss for the year ended December 31, 1994....... (3,353,877) (3,353,877)
------------ ------------
Balance at December 31, 1994........................ (4,491,901) 5,019,137
Issuance of Preferred Stock Series D, net of
offering expenses ($3.00 per share)............... -- 7,905,809
Stock sold pursuant to 1994 Stock Incentive Plan
($.51 to $.578 per share)......................... -- 19,848
Stock sold pursuant to Consulting and Research
Agreements ($.51 to $.578 per share).............. -- 32,300
Loans made to officers for the purchase of stock.... -- (44,200)
Net loss for the year ended December 31, 1995....... (5,937,610) (5,937,610)
------------ ------------
Balance at December 31, 1995........................ (10,429,511) 6,995,284
Issuance of Preferred Stock Series D, net of
offering expenses ($3.00 per share)............... -- 1,555,324
Issuance of Preferred Stock Series D, pursuant to
Consulting and Employment Agreements ($3.00 per
share)............................................ -- 240,003
Issuance of Preferred Stock Series E, net of
offering expenses ($4.50 per share)............... -- 9,288,086
Stock transactions pursuant to Consulting,
Employment and Research Agreements................ -- 9,001
Issuance of Common Stock for services rendered by
Directors ($.578 to 2.55 per share)............... -- 11,660
Net loss for the year ended December 31, 1996....... (8,212,354) (8,212,354)
------------ ------------
Balance at December 31, 1996........................ $(18,641,865) $9,887,004
Issuance of Common Stock ($14.45 per share)......... -- 9,431,465
Deferred compensation from stock option grants...... -- 150,098
Exercise of warrant to purchase common stock........ -- 2,179
Stock sold pursuant to 1994 Stock Incentive Plan.... -- 2,849
Purchase of Common Stock at (8.50 per share)........ -- --
Net loss for the nine months ended September 30,
1997.............................................. (2,923,620) (2,923,620)
------------ ------------
Balance at September 30, 1997 (unaudited)........... (21,565,485) 16,549,975
Pro forma conversion of Convertible Preferred Stock
(unaudited)....................................... -- --
------------ ------------
Pro forma Balance, September 30, 1997 (unaudited)... $(21,565,485) $16,549,975
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, FROM
------------------------------------------- INCEPTION TO
1994 1995 1996 DECEMBER 31, 1996
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Development stage activities:
Net loss................................................... $ (3,353,877) $ (5,937,610) $ (8,212,354) $ (18,641,865)
Adjustments to reconcile net loss to net cash used in
development stage activities:
Depreciation and amortization.......................... 124,806 390,071 1,167,116 1,681,993
Non cash compensation expense.......................... -- -- 251,663 251,663
Increase (decrease) in cash resulting from changes in
assets and liabilities:
Increase in contract revenue receivable................ -- -- (347,862) (347,862)
Other current assets................................... 14,115 3,916 (89,283) (108,557)
Other assets........................................... (41,412) (26,753) (86,878) (163,870)
Accounts payable....................................... 293,554 (118,858) 362,876 568,889
Deferrred revenue from collaborative research
agreements, net...................................... -- -- -- --
Accrued expenses and other............................. (27,792) 463,381 (53,774) 597,421
------------- ------------- ------------- -------------------
Net cash used in development stage activities.............. (2,990,606) (5,225,853) (7,008,496) (16,162,188)
Investing activities:
Purchases and sales of short-term investments, net....... -- -- (6,344,804) (6,344,804)
Purchases of property and equipment...................... (637,471) (1,006,807) (312,550) (2,005,182)
Technology rights........................................ -- -- -- (83,061)
------------- ------------- ------------- -------------------
Net cash used in investing activities...................... (637,471) (1,006,807) (6,657,354) (8,433,047)
------------- ------------- ------------- -------------------
Financing activities:
Proceeds from bank borrowing............................. -- 750,000 -- 750,000
Principal payments on capital lease obligations and bank
borrowing.............................................. (17,642) (166,959) (844,525) (1,029,126)
Proceeds from note payable, officer...................... -- -- -- 50,500
Proceeds from convertible notes payable.................. -- -- -- 250,000
Restricted cash.......................................... (216,000) 216,000 -- --
Proceeds from the issuance of preferred and common stock,
net.................................................... 4,156,561 7,562,562 10,852,411 27,841,511
------------- ------------- ------------- -------------------
Net cash provided by financing activities................ 3,922,919 8,361,603 10,007,886 27,862,885
------------- ------------- ------------- -------------------
Net increase (decrease) in cash and cash equivalents....... 294,842 2,128,943 (3,657,964) 3,267,650
Cash and cash equivalents at beginning of period........... 4,501,828 4,796,670 6,925,613 --
------------- ------------- ------------- -------------------
Cash and cash equivalents at end of period................. $ 4,796,670 $ 6,925,613 $ 3,267,649 $ 3,267,650
------------- ------------- ------------- -------------------
------------- ------------- ------------- -------------------
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 8,857 $ 96,934 $ 576,157 $ 690,552
Supplemental schedule of noncash investing and financing
activities:
Conversion of note payable, officer to preferred stock... -- -- -- $ 50,000
Conversion of convertible notes payable, related party to
preferred stock........................................ -- -- -- $ 125,000
Conversion of convertible notes payable to common
stock.................................................. -- -- -- $ 125,000
Capital lease obligation incurred to acquire equipment
and facilities......................................... $ 258,081 $ 748,976 $ 6,996,933 $ 8,003,990
Loans to officers for the purchase of stock.............. $ 100,550 $ 44,200 $ (10,200) $ 134,550
Preferred stock sold pursuant to subscription............ -- $ 135,195 -- $ 135,195
Preferred stock issued pursuant to advance
subscriptions.......................................... -- $ 216,000 -- $ 216,000
Preferred stock issued to placement agent for services
rendered............................................... -- $ 300,000 -- $ 300,000
Preferred stock issued pursuant to employment and
consulting agreements.................................. -- -- $ 350,004 $ 350,004
Common stock issued to directors for services rendered... -- -- $ 11,660 $ 11,660
Deferred compensation from stock option grants........... -- -- -- --
<CAPTION>
FOR THE PERIOD
FOR THE NINE MONTHS FROM
ENDED SEPTEMBER 30, INCEPTION TO
---------------------------- SEPTEMBER 30,
1996 1997 1997
------------- ------------- -----------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Development stage activities:
Net loss................................................... $ (5,465,124) $ (2,923,620) $ (21,565,485)
Adjustments to reconcile net loss to net cash used in
development stage activities:
Depreciation and amortization.......................... 799,838 1,116,450 2,798,443
Non cash compensation expense.......................... -- 150,098 401,761
Increase (decrease) in cash resulting from changes in
assets and liabilities:
Increase in contract revenue receivable................ -- 347,862 --
Other current assets................................... 10,262 (555,353) (663,910
Other assets........................................... 33,578 (1,216) (165,086)
Accounts payable....................................... 132,596 280,457 849,345
Deferrred revenue from collaborative research
agreements, net...................................... -- 3,318,769 3,318,769
Accrued expenses and other............................. (286,546) 471,715 1,069,136
------------- ------------- -----------------
Net cash used in development stage activities.............. (4,775,396) 2,205,162 (13,957,027
Investing activities:
Purchases and sales of short-term investments, net....... (9,254,375) (9,828,090) (16,172,891)
Purchases of property and equipment...................... (782,414) (2,052,257) (4,057,439)
Technology rights........................................ -- -- (83,061)
------------- ------------- -----------------
Net cash used in investing activities...................... (10,036,789) (11,880,347) (20,313,394)
------------- ------------- -----------------
Financing activities:
Proceeds from bank borrowing............................. -- -- 750,000
Principal payments on capital lease obligations and bank
borrowing.............................................. (590,526) (747,229) (1,776,355)
Proceeds from note payable, officer...................... -- -- 50,500
Proceeds from convertible notes payable.................. -- -- 250,000
Restricted cash.......................................... -- -- --
Proceeds from the issuance of preferred and common stock,
net.................................................... 10,855,651 9,436,493 37,278,004
------------- ------------- -----------------
Net cash provided by financing activities................ 10,265,125 8,689,264 36,522,149
------------- ------------- -----------------
Net increase (decrease) in cash and cash equivalents....... (4,547,060) (985,921) 2,281,728
Cash and cash equivalents at beginning of period........... 6,925,613 3,267,649 --
------------- ------------- -----------------
Cash and cash equivalents at end of period................. $ 2,378,553 $ 2,281,728 $ 2,281,728
------------- ------------- -----------------
------------- ------------- -----------------
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 408,171 $ 570,014 $ 1,260,566
Supplemental schedule of noncash investing and financing
activities:
Conversion of note payable, officer to preferred stock... -- -- $ 50,000
Conversion of convertible notes payable, related party to
preferred stock........................................ -- -- $ 125,000
Conversion of convertible notes payable to common
stock.................................................. -- -- $ 125,000
Capital lease obligation incurred to acquire equipment
and facilities......................................... $ 6,490,039 -- $ 8,003,990
Loans to officers for the purchase of stock.............. -- $ 93,750 $ 228,300
Preferred stock sold pursuant to subscription............ -- -- $ 135,195
Preferred stock issued pursuant to advance
subscriptions.......................................... -- -- $ 216,000
Preferred stock issued to placement agent for services
rendered............................................... -- -- $ 300,000
Preferred stock issued pursuant to employment and
consulting agreements.................................. -- -- $ 350,004
Common stock issued to directors for services rendered... -- -- $ 11,660
Deferred compensation from stock option grants........... -- $ 200,325 $ 200,325
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
BUSINESS
Osiris Therapeutics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the research and development of novel therapeutic products for
regenerative tissue therapy of diseased or injured tissue based on human
mesenchymal stem cells, the progenitor cells responsible for the formation of
structural and connective tissues, including bone marrow stroma, bone,
cartilage, muscle, tendon, ligament, fat and other connective tissues. The
Company is developing cell therapy products to regenerate tissue damaged by
acute injury or degenerative diseases and biopharmaceuticals that regulate the
growth and differentiation of human mesenchymal stem cells during tissue
regeneration.
The Company began operations on December 23, 1992 and is currently in the
development stage, as operations consist primarily of research and development
activities and securing adequate capital for anticipated growth and operations.
REGISTRATION STATEMENT
In July 1997, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission for the initial public
offering of shares of the Company's Common Stock.
REVERSE STOCK SPLIT
On October 22, 1997, subject to approval of the shareholders, the Board of
Directors approved a proposed 1-for-1.7 reverse stock split. All references to
common stock, options, warrants, per share data, and the conversion rates of the
convertible preferred stock have been restated to give effect to the reverse
split.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of Osiris
Therapeutics, Inc., its wholly owned subsidiary Osiris Research, Inc. and its
65% owned subsidiary Gryphon Pharmaceuticals, Inc. ("Gryphon"), a development
stage enterprise formed as a joint venture with The Johns Hopkins University
School of Medicine (see Note 10). The Company records 100% of Gryphon's net loss
in consolidation. Intercompany transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
SECURITIES AVAILABLE-FOR-SALE
Marketable securities at December 31, 1996 are considered available-for-sale
and are carried at amortized cost which approximates fair market value, with
unrealized gains and losses, if any, reported as a separate component of
stockholders' equity.
The Company's marketable securities are held for an unspecified period of
time and are sold to meet liquidity needs. Accordingly, marketable securities at
December 31, 1996 are classified as current assets.
F-7
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company has invested its excess cash, generally, in securities of the
U.S. Treasury, U.S. Government Agencies, commercial paper with strong credit
ratings, overnight repurchase agreements and deposits with a major bank. The
Company has not experienced any significant losses on its investments. The
Company's contract revenue receivable consists of amounts due from its
collaborative partners. The Company periodically assesses the financial strength
of its collaborative partners and provides allowances for anticipated losses
when necessary.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Laboratory and office equipment
and leasehold improvements are depreciated using the straight-line method over
the shorter of the estimated useful life or the term of the lease (four to seven
years).
LONG-LIVED ASSETS
The Company evaluates the recoverability of the carrying value of property
and equipment and intangible assets in accordance with the provisions of
Statement of Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of". The Company considers historical
performance and anticipated future results in its evaluation of potential
impairment. Accordingly, when indicators of impairment are present, the Company
evaluates the carrying value of these assets in relation to the operating
performance of the business and future and undiscounted cash flows expected to
result from the use of these assets. Impairment losses are recognized when the
sum of expected future cash flows are less than the assets' carrying value. No
such impairment losses have been recognized to date.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation. SFAS 123 allows the Company to account for its
stock-based compensation plans based upon either a fair value method or the
intrinsic value method, as prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." The Company has elected the
intrinsic value method to account for options issued to employees. However, SFAS
123 requires certain other disclosures regarding the impact which the fair value
method would have had on the results of the Company's operations (see Note 8).
Options issued to non-employees are accounted for in accordance with the
provisions of SFAS 123.
REVENUE
Revenue from research grants is recognized as the related research
expenditures are incurred. Revenue from contract research agreements is recorded
when earned as defined under the terms of the agreement.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
F-8
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax liabilities and assets are recognized for the estimated future
tax consequences of temporary differences and income tax credits. Temporary
differences are primarily the result of the differences between the tax bases of
assets and liabilities and their financial reporting amounts. Deferred tax
liabilities and assets are measured by applying enacted statutory tax rates
applicable to the future years in which deferred tax liabilities or assets are
expected to be settled or realized. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense consists of the taxes payable for the current period and the
change during the period in deferred tax assets and liabilities.
NET LOSS PER SHARE
Net loss per common share is based upon the weighted average number of
common shares outstanding for all periods presented. Common shares and common
share equivalents issued by the Company at prices below the public offering
price during the twelve-month period prior to the proposed offering date have
been included in the calculation of common share and common share equivalents as
if they were outstanding for all periods presented. Common share equivalents
granted by the Company prior to the aforementioned twelve-month period have not
been included in the calculation of net loss per common share because such items
were antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"), which specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS 128 is
effective for financial statements ending after December 15, 1997. The Company
does not anticipate that the adoption of SFAS 128 will have a material effect on
its financial statements.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform to the 1996
financial statement presentation.
F-9
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS
During 1995, the Company loaned $50,000 to an officer of the Company to aid
in the relocation of his residence. The loan earns interest at 7.5% and is
forgiven at a rate of 25% per annum, beginning in 1996, pending the officer's
continued employment by the Company. Forgiven loan amounts are charged to the
officer as additional compensation and are taxed accordingly. At December 31,
1996, $37,500 was included in other assets related to this loan.
The Company has entered into agreements for the provision of research and
financial consulting services with three non-management members of the Board of
Directors. The aggregate compensation paid under these agreements was $168,000
per annum in 1995 and 1996. Consulting compensation for any individual
non-management director did not exceed $60,000 per annum. In addition, a member
of the Board of Directors was previously affiliated with the European Placement
Agent used by the Company for its Series D and Series E Preferred Stock
Offerings (See Note 8).
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Research and development facility................................ $ 309,217 $ 6,560,733
Computer and laboratory equipment................................ 1,175,240 3,355,585
Construction in progress......................................... 1,215,232 92,854
------------ -------------
2,699,689 10,009,172
Less accumulated depreciation and amortization................... (514,877) (1,681,993)
------------ -------------
$ 2,184,812 $ 8,327,179
------------ -------------
------------ -------------
</TABLE>
5. NOTE PAYABLE
During June 1995, the Company issued a $750,000 promissory note to Signet
Bank in connection with certain site and facility renovations to the Company's
facility in Baltimore, Maryland (see Note 9). The note, which contains a partial
guarantee of $500,000 by the State of Maryland, matures in December 2007 and
bears interest at LIBOR plus 2.0% to 2.5% (7.4% to 7.9% at December 31, 1996).
Compensating balance arrangements with Signet Bank require the Company to
maintain a cash balance of 105.0% of the non-guaranteed portion of the note,
which balance is wholly restricted and may not be used for any other purpose. At
December 31, 1996 and 1995, the Company's compensating bank balance was
$262,500.
F-10
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTE PAYABLE (CONTINUED)
Annual maturities of the note payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- ----------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 65,217
1998.............................................................................. 65,217
1999.............................................................................. 65,217
2000.............................................................................. 65,217
2001.............................................................................. 65,217
Thereafter........................................................................ 375,002
----------
$ 701,087
----------
----------
</TABLE>
6. INCOME TAXES
The components of the Company's net deferred tax asset as of December 31 are
as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 3,934,000 $ 6,957,000
Research and experimentation credit carryforwards............. 133,000 327,000
Fixed assets.................................................. 18,000 109,000
Other......................................................... 6,000 42,000
------------- -------------
4,091,000 7,435,000
Valuation allowance............................................. (4,091,000) (7,435,000)
------------- -------------
Net deferred tax asset.......................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The realization of deferred tax assets is dependent, primarily, on the
Company's ability to generate future taxable income, which is uncertain.
Accordingly, a full valuation allowance was recorded against these assets as of
December 31, 1995 and 1996.
As of December 31, 1996, the Company had available, for federal income tax
purposes, $18,000,000 of net operating loss carryforwards and $327,000 of
research and experimentation credit carryforwards, which expire beginning in
2008. The net operating loss carryforwards may be subject to limitation on
utilization as a result of certain ownership changes since the Company's
inception.
F-11
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PREFERRED STOCK RIGHTS AND PREFERENCES
The Company's Convertible Preferred Stock consists of the following
designated shares at December 31:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Series A Convertible Preferred Stock, $.001 par value; designated 2,122,000 shares;
issued and outstanding 2,068,625 shares at December 31, 1995 and 1996............ $ 5,439,357 $ 5,439,357
Series B Convertible Preferred Stock, $.001 par value; designated 750,000 shares;
issued and outstanding 619,750 shares at December 31, 1995 and 1996.............. 1,723,503 1,723,503
Series C Convertible Preferred Stock, $.001 par value; designated 739,999 shares;
issued and outstanding 735,294 shares at December 31, 1995 and 1996.............. 2,197,878 2,197,878
Series C-1 Convertible Preferred Stock, $.001 par value; 1 share designated; none
issued or outstanding............................................................ -- --
Series D Convertible Preferred Stock, $.001 par value; designated 3,600,000 shares;
issued and outstanding 2,902,518 shares at December 31, 1995 and 3,599,070 shares
at December 31, 1996............................................................. 7,905,809 9,811,137
Series E Convertible Preferred Stock, $.001 par value; designated 2,788,000 shares;
none issued and outstanding at December 31, 1995; issued and outstanding
2,246,224 shares at December 31, 1996............................................ -- 9,288,086
------------- -------------
$ 17,266,547 $ 28,459,961
------------- -------------
------------- -------------
</TABLE>
The rights and preferences of the Convertible Preferred Stock are as
follows:
CONVERSION PROVISION
The holders of Preferred Stock are entitled at any time to convert 1.7
shares of Preferred Stock into one share of Common Stock (the "Conversion
Rate"). The Conversion Rate is subject to adjustment upon the occurrence of
certain events. On September 24, 1998, shares of Series A, Series B, Series D
and Series E Preferred Stock then outstanding will automatically be converted
into shares of Common Stock at the Conversion Rate. Outstanding shares of Series
A, Series B, Series D and Series E Preferred Stock will also be automatically
converted into shares of Common Stock at the Conversion Rate upon the occurrence
of certain specific events, subject to certain terms and conditions, including
an underwritten public offering or immediately prior to the consummation of a
consolidation or merger of the Company with or into another corporation.
Each share of Series C and Series C-1 Preferred Stock will automatically be
converted into shares of Common Stock at the Conversion Rate immediately upon
the consummation of an underwritten public offering of Common Stock of the
Company, subject to certain terms and conditions, or on the date specified by
written consent or agreement of the holders of 66 2/3% of the then outstanding
shares of Series C and Series C-1 Preferred Stock, consenting or agreeing
together as a single class.
F-12
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PREFERRED STOCK RIGHTS AND PREFERENCES (CONTINUED)
The holder of any shares of Preferred Stock converted into common stock in
connection with such a public offering or other transaction will be entitled to
payment of all declared but unpaid dividends, if any, payable with respect to
such shares up to and including the date of the closing of such public offering
or other transaction.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company as
defined ("Liquidation Event"), the stockholders of the Company are entitled to
preferential liquidating distributions as follows:
<TABLE>
<CAPTION>
ORDER OF DISTRIBUTION STOCK CLASSIFICATION DISTRIBUTION PREFERENCE
- ---------------------- ---------------------- -----------------------------------------------------------------
<S> <C> <C>
First................. Series E $1.10 per share liquidation distribution
Second................ Series E, Series C and $0.40 per share liquidation distribution
Series C-1
Third................. All Preferred Stock $3.00 per share liquidation distribution plus accumulated and
unpaid dividends, if any
Fourth................ Common Stock $.51 per share liquidation distribution
Fifth................. Series C and C-1, Remainder (Series C and C-1 subject to the limits noted below)
Common Stock
</TABLE>
Notwithstanding the foregoing, the aggregate amount per share to be received
by the holders of Series C and Series C-1 Preferred Stock shall not exceed $8.00
if the Liquidation Event takes place on or before May 26, 1997 and $12.00 if the
Liquidation Event occurs after May 26, 1997.
DIVIDENDS AND VOTING RIGHTS
Holders of Convertible Preferred Stock are entitled to receive dividends on
an as-if-converted basis at the same rate as common stockholders, if and when
declared. In addition, holders of Convertible Preferred Stock are entitled to a
number of votes per share of Convertible Preferred Stock equal to the number of
shares of Common Stock into which such shares of Convertible Preferred Stock are
convertible. Holders of Convertible Preferred Stock vote together with the
holders of Common Stock as a single class, except as otherwise required by law.
REGISTRATION RIGHTS
In the event that the Company completes an initial public offering of any of
its securities, certain holders of Preferred Stock have demand registration
rights, subject to certain terms and conditions. In addition, holders of the
Series C and Series C-1 Preferred Stock have certain other demand registration
rights. The registration rights granted to the holders of Series C and Series
C-1 Preferred Stock will terminate after five years following the consummation
of the sale of securities pursuant to a registration statement filed by the
Company in connection with a firm commitment underwritten offering of its
securities to the general public.
The Company will bear the expenses of the registration of the investors'
shares, except any underwriting discounts and commissions.
F-13
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK, OPTIONS AND WARRANTS
Since inception, the Company has sold Common Stock to certain officers,
directors, employees, founding consultants and Scientific Advisory Board
members. A portion of the shares purchased is subject to forfeiture, through
calendar 1997, if certain vesting requirements are not satisfied.
The Company has reserved sufficient shares of Common Stock for issuance upon
the conversion of outstanding Preferred Stock and the exercise of stock options
and stock warrants.
In connection with the 1993 Private Placement Offering of Series A Preferred
Stock, the Company sold, for nominal consideration, warrants to purchase from
the Company 182,259 shares of Common Stock pursuant to the Placement Agency
Agreement. The exercise price for shares purchased upon exercise of such
warrants is $4.42 per share at December 31, 1996, as adjusted pursuant to
"weighted average" anti-dilution provisions that are triggered if the Company
sells shares of Common Stock or Common Stock Equivalents at a price per share
less than $4.42 (except in the case of sales to employees, directors,
consultants and other limited exceptions). Such warrants will be exercisable
until September 24, 1998.
In connection with the 1995 Private Placement Offering of Series D Preferred
Stock, the Company sold, for nominal consideration, warrants to purchase from
the Company 135,663 shares of Common Stock at an exercise price of $5.10 per
share pursuant to an agreement with the European Placement Agent. A total of
89,381 warrants will be exercisable until December 1, 2002, and 46,282 will be
exercisable until January 1, 2003. In addition, the Company also sold, for
nominal consideration, warrants to purchase from the Company 190,776 shares of
Common Stock at an exercise price of $5.10 per share to certain holders of
Series A Preferred Stock. Such warrants will be exercisable until December 1,
2002.
In connection with the 1996 Series E Preferred Stock sale, the Company sold,
for nominal consideration, warrants to purchase from the Company 50,985 shares
of Common Stock at an exercise price of 7.65 per share pursuant to an agreement
with the European Placement Agent. Such warrants will be exercisable until
January 1, 2003.
The Company's 1993 Stock Incentive Plan (the "1993 Plan") was replaced by
the Company's 1994 Amended and Restated Stock Incentive Plan (the "1994 Plan").
The 1994 Plan provides for the granting of restricted stock and option rights,
consisting of incentive stock options or nonqualified stock options, to
officers, employees, consultants and advisors to purchase shares of Common Stock
at prices which may be equal to, less than or greater than such fair market
value of the stock on the dates options are granted and vest over a period of up
to four years. Options expire no more than ten years after grant. The Company
has reserved 1,176,471 shares of Common Stock for issuance under the 1994 Plan.
As of December 31, 1996, a net total of 547,341 shares of restricted stock and
options to purchase Common Stock have been granted under the 1994 Plan and
70,306 shares are available for grant. As of December 31, 1996, a net total of
211,467 shares of restricted stock have been issued of which 114,706 shares are
subject to certain vesting terms.
F-14
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
Stock option activity in the 1994 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
----------- -----------------
<S> <C> <C>
Balance, December 31, 1993...................................... 60,294 .26
Granted....................................................... 56,735 .56
Exercised..................................................... (735) .02
Forfeited..................................................... -- --
-----------
Balance, December 31, 1994...................................... 116,294 $ .41
Granted....................................................... 61,985 .75
Exercised..................................................... (16,103) .02
Forfeited..................................................... (28,529) .54
-----------
Balance, December 31, 1995...................................... 133,647 .58
Granted....................................................... 188,947 2.02
Exercised..................................................... (34,117) .29
Forfeited..................................................... (3,559) 1.31
-----------
Balance, December 31, 1996...................................... 284,918 1.56
-----------
-----------
</TABLE>
All options and restricted stock purchase awards for Common Stock were made
at an exercise or purchase price equal to the fair market value at the date of
grant in 1996 and 1995. At December 31, 1996 the range of exercise prices for
all the outstanding stock options was $0.58 to $2.55. Of the outstanding options
at December 31, 1996, 86,450 were exercisable at a weighted average exercise
price of $.80 per share. At December 31, 1996, the weighted-average contractual
life of all the outstanding stock options was 8.45 years.
The Company adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, STOCK BASED COMPENSATION ("SFAS 123"), for its
stock option plans. Had compensation cost for the Company's stock option plans
been determined on the fair value on the date of grant for awards in 1995 and
1996, consistent with the provisions of SFAS 123, the Company's net loss for
1995 and 1996 would have increased by $23,844 and $58,437 (with no change in the
net loss per share) respectively. The weighted average fair value at the date of
grant for Common Stock options granted during 1995 and 1996 was $.54 and $1.56,
respectively.
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
ALL YEARS
-----------
<S> <C>
Expected life (years)............................................................... 5
Risk free interest rate............................................................. 7.5%
Volatility.......................................................................... 100%
Dividend Yield...................................................................... N/A
</TABLE>
F-15
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS
FACILITY LEASE
Rent expense was $114,707 and $120,636 for the years ended December 31, 1994
and 1995, respectively, and $236,903 for the period from inception to December
31, 1996. There was no recorded rent expense for the year ended December 31,
1996 because in January 1996 the Company relocated to a new facility, the lease
for which was recorded as a capital asset with a related short and long-term
liability.
During January 1995, the Company entered into a sublease agreement with the
Maryland Economic Development Corporation, whereby the Company agreed to
relocate its principal offices and laboratories to Baltimore, Maryland. Certain
site and tenant improvements, consisting of the construction of approximately
30,000 sq. ft. of office and wet lab facilities, were made to a portion of the
building occupied by the Company.
The initial lease term is 6 1/2 years, expiring in December 2001 and
contains an initial extension term of 6 1/2 years plus two 5 year terms
thereafter. The sublease also contains a purchase and an expansion option. The
purchase option provides the Company with the right to purchase the entire
facility, consisting of 185,000 sq. ft., for a purchase price ranging from $6.1
million to $6.7 million through June 30, 1998, plus additional payments
associated with the site and tenant improvements. The expansion option provides
the Company with the right to lease up to 50,000 additional sq. ft. through June
30, 1998 and a right of first offer as to other expansion space within the
building. The Company occupied the facility in January 1996, upon completion of
the tenant improvements.
In consideration for arranging the financing and providing the guarantees
discussed above, the Company granted to the State of Maryland (the "State") and
City of Baltimore (the "City") warrants for the purchase of 33,000 shares of
Series D Convertible Preferred Stock (convertible into an aggregate of 19,412
shares of Common Stock) at $3.00 per share for a term of seven years. As an
additional incentive, the State and City purchased 233,338 shares of Series D
Convertible Preferred Stock at $3.00 per share from the Company.
EQUIPMENT LEASES
The Company leases certain of its equipment under various financing
arrangements. In February 1994, the Company entered into a Master Lease Line
Agreement (the "Lease Line") with Dominion Ventures, Inc. ("Dominion") in the
amount of $1,500,000, whereby the Company would use the Lease Line to acquire
computers and laboratory equipment. During June 1995, pursuant to an amendment,
the Company increased the Lease Line to $4,300,000. Lease terms range from 36 to
48 months.
The Lease Line includes a grant by the Company to Dominion for a warrant to
purchase 52,762 shares of Series A Convertible Preferred Stock (convertible into
an aggregate of 31,036 shares of Common Stock) at a price of $3.00 per share. As
additional consideration for the increase in the Lease Line to $4,300,000, the
Company granted to Dominion a warrant to purchase up to 84,000 shares of Series
D Preferred Stock (convertible into an aggregate of 49,412 shares of Common
Stock) at a price of $3.00 per share. Both warrants are exercisable until the
later of the tenth anniversary of the date of grant or the fifth anniversary of
the Company's initial public offering.
F-16
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS (CONTINUED)
The terms of these facility and equipment arrangements meet the criteria
requiring capitalization specified in Statement of Financial Accounting
Standards No. 13, ACCOUNTING FOR LEASES. Included in the balance sheets are the
following amounts at December 31, 1995 and 1996, for capitalized leases:
<TABLE>
<CAPTION>
1995 1996
---------- -------------
<S> <C> <C>
Research and development facility................................. $ -- $ 5,003,163
Computer and laboratory equipment................................. 1,007,057 3,000,827
Less accumulated amortization..................................... (184,151) (1,217,089)
---------- -------------
$ 822,906 $ 6,786,901
---------- -------------
---------- -------------
</TABLE>
Future minimum annual rental commitments under these facility and equipment
arrangements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 FACILITY EQUIPMENT TOTAL
- ---------------------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
1997.................................................................. $ 580,415 $ 985,585 $ 1,566,000
1998.................................................................. 580,415 935,313 1,515,728
1999.................................................................. 601,359 532,284 1,133,643
2000.................................................................. 608,817 144,824 753,641
2001.................................................................. 616,537 -- 616,537
Thereafter............................................................ 4,329,798 -- 4,329,798
------------- ------------ -------------
Total minimum lease payments.......................................... 7,317,341 2,598,006 9,915,347
------------- ------------ -------------
Less amounts representing interest.................................... (2,502,862) (388,708) (2,891,570)
------------- ------------ -------------
Present value of minimum lease payments............................... $ 4,814,479 $ 2,209,298 $ 7,023,777
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
AGREEMENTS
The Company has entered into a Technology Transfer and License Agreement
(the "License Agreement") with Case Western Reserve University ("CWRU") under
which the Company has purchased any and all rights to certain human MSC and
related technology and patents thereto and has an exclusive, worldwide license
to newly developed MSC technology and patents developed by the scientific
founders or persons working under their direction at CWRU since the Company's
inception (the "CWRU Developed Technology"). The License Agreement is
royalty-free as to purchased patents and requires the Company to pay royalties
on revenues related to CWRU Developed Technology covered by issued patents with
royalty payments commencing on the third anniversary of the date on which
products are sold. As a result of the License Agreement, the Company currently
owns three issued U.S. patents, numerous U.S. patent applications which are
pending or in preparation and is licensed by CWRU on one issued U.S. patent and
a number of other U.S. patent applications covering CWRU Developed Technology.
The Company has also commenced filing its own patent applications relating to
composition-of-matter for MSC products, clinical uses for MSC technology and its
delivery thereof.
F-17
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS (CONTINUED)
In October 1994, the Company agreed to enter into a sponsored Research
Agreement and extensions to consulting agreements with the founding scientists
that will provide $1,440,000 in funding for mesenchymal stem cell research in
their laboratories over a three-year period ($120,000 per quarter) commencing in
January 1995. The Company will receive exclusive, worldwide rights to any
intellectual property resulting from such research that is not already the
subject of the Technology Transfer and License Agreement between CWRU and the
Company.
10. GRYPHON PHARMACEUTICALS, INC.
In December 1994, the Company entered into a Share Purchase Agreement,
Stockholders Agreement and Registration Rights Agreement (the "Gryphon
Agreement") with The Johns Hopkins University School of Medicine ("JHU") for
research funding and the purchase of equity in Gryphon Pharmaceuticals, Inc.
("Gryphon"), a newly incorporated entity. Gryphon, a Delaware corporation, is
engaged in the research and development of human hematopoietic stem cell and
progenitor cell growth factors, regulatory molecules and the biopharmaceuticals
based on these molecules. Pursuant to the Gryphon Agreement:
- The Company purchased 3,000,000 shares of Gryphon Series A Convertible
Preferred Stock entitling the Company to 65% voting control.
- The Company was issued a warrant to purchase 1,000,000 shares of Gryphon
common stock at $.01 per share, subject to certain terms and conditions.
- The Company will provide Gryphon with $1,200,000 in research funding over
a three-year period through 1997. In addition, at the option of Gryphon,
the Company will provide $1,000,000 in contingent funding over a two-year
period in the form of a loan if certain financing milestones are not
achieved. Gryphon will use all such research support money to fund work at
the JHU laboratories of Drs. Curt I. Civin and Donald Small to further
develop core licensed technologies. During 1996 and 1995, the Company paid
$425,000 and $490,000, respectively, to Gryphon for research funding at
JHU.
- Gryphon entered into a License Agreement with JHU regarding rights to
commercially develop, manufacture and distribute products resulting from
the funded research.
The Company and Gryphon entered into a separate cross-license agreement,
specifying that Gryphon discoveries relating to mesenchymal stem cells will be
licensed to the Company and jointly-owned discoveries relating to hematopoiesis
will be licensed to Gryphon.
F-18
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACCRUED EXPENSES
Accrued expenses of the Company consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Accrued external research............................................. $ 197,400 $ 353,205
Accrued private placement agent fees.................................. 200,000 --
Accrued professional fees............................................. 121,250 --
Other................................................................. 132,545 244,216
---------- ----------
$ 651,195 $ 597,421
---------- ----------
---------- ----------
</TABLE>
12. DEFINED CONTRIBUTION PLAN
In 1994, the Company adopted a 401(k) plan available to all employees.
Employee contributions are voluntary and are determined on an individual basis
up to the amount allowable under federal tax regulations. Employer contributions
to the plan are at the discretion of management. Employer contributions vest
over a seven-year period, beginning after the third year of eligibility. No
employer contributions have been made to date.
13. RESEARCH COLLABORATION AGREEMENTS
In June 1996, the Company was awarded a sole source, $6,000,000, three year
research agreement from the U.S. Defense Advanced Research Projects Agency
("DARPA"). Annual funding of $2,000,000 from DARPA will be supplemented by
approximately $1,000,000 of cost-sharing contributions from the Company in the
form of equipment and indirect costs. The research is aimed at developing human
mesenchymal stem cell systems genetically engineered for the sequential release
of multiple vaccines and the recognition and neutralization of toxic or
infectious agents. Under the agreement, the Company retains worldwide
intellectual property and commercialization rights subject to a non-exclusive,
paid-up license to the U.S. government. During 1996, the Company recognized
$1,025,289 of revenue pursuant to the agreement with DARPA.
14. UNAUDITED INFORMATION
BASIS OF PRESENTATION
The unaudited interim consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. The unaudited interim consolidated
financial statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the consolidated financial position, results of operations and changes in cash
flows as of and at the end of the periods presented. The unaudited interim
consolidated financial information should be read in conjunction with the
audited consolidated financial statements and related notes thereto, appearing
elsewhere herein.
F-19
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. UNAUDITED INFORMATION (CONTINUED)
The results for the interim periods presented are not necessarily indicative of
results to be expected for the full year.
Unaudited pro forma financial information gives effect to the conversion of
all outstanding shares of Preferred Stock into 5,510,002 shares of Common Stock.
Pro forma net loss per share was $1.10 and $0.35, respectively, for the year
ended December 31, 1996 and the nine months ended September 30, 1997.
Pro forma net loss per share is based upon the net loss and the weighted
average number of common shares and common share equivalents outstanding during
that period. Common shares and common share equivalents issued by the Company at
prices below the public offering price during the twelve-month period preceding
the proposed offering date have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method. Common
share equivalents issued by the Company prior to the aforementioned twelve-month
period have not been included in the per share calculation because their
inclusion would be anti-dilutive. Upon completion of the Company's proposed
initial public offering, all 9,268,963 shares of Preferred Stock will
automatically convert into 5,510,002 shares of Common Stock. As a result, all
outstanding shares of Preferred Stock are assumed to have been converted to
Common Stock at the time of issuance, except for those shares issued during the
aforementioned twelve-month period which are treated as outstanding for all
periods presented.
NOVARTIS AGREEMENT
In June 1997, the Company entered into a research and licensing agreement
with Novartis Pharmaceuticals Corporation ("the Novartis Agreement") for the
development of MSC products for osteoporosis, osteoarthritis, cartilage injury
and selected gene therapy applications. Pursuant to the Novartis Agreement, the
Company is entitled, subject to certain conditions, to receive up to $50,000,000
during the five-year period of the agreement for research and development
funding of certain portions of the Company's bone, cartilage and gene therapy
research programs. The Company could also receive milestone payments of
$93,000,000 if it achieves all of its development and regulatory objectives. In
addition, Novartis paid the Company an initial up-front payment of $3,000,000
and purchased 692,059 shares of Common Stock for $10,000,250.
In return, Novartis received exclusive worldwide rights to use and sell
certain MSC products developed in the osteoporosis, osteoarthritis, cartilage
injury and gene therapy fields. Novartis is required to pay the Company
royalties based upon net sales, if any, for such products. The Company has
retained the option to manufacture MSC products in the osteoporosis,
osteoarthritis and cartilage therapy field at cost plus a percentage profit,
subject to certain conditions.
Under the Novartis Agreement, in addition to making the equity investment
and the research and milestone payments noted above, Novartis is responsible for
funding the cost of all clinical development, regulatory submissions, marketing,
sales and manufacturing (excluding North America) of MSC products, if any,
developed pursuant to the collaborations. As a result of these collaborations,
the Company is dependent upon Novartis to seek regulatory approvals for, to
conduct trials and to determine the ultimate commercialization of the MSC
products subject to the collaboration.
F-20
<PAGE>
OSIRIS THERAPEUTICS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. UNAUDITED INFORMATION (CONTINUED)
Pursuant to the Novartis Agreement, the $3,000,000 initial up-front payment
was recorded as income in the quarter ended June 30, 1997. Under the Agreement,
the up-front payment is neither refundable nor creditable against any future
obligations and thus is recordable as immediate income. The milestone payments
will be earned and recognized as income upon the occurrence of the specific
regulatory or development events to which they relate. Under the Agreement,
milestone payments are creditable in part against future royalty obligations,
and thus the Company will record appropriate deferrals of portions of future
milestone payments.
OTHER AGREEMENTS
In March 1997, the Company was awarded a $750,000 Phase II Small Business
Innovation Research Grant for a two-year continuation of research into tendon
regeneration.
In May 1997, the Company's cost sharing contribution to DARPA was increased
to $1.6 million per annum.
In July 1997, the Company entered into a three-year $1,000,000 agreement
with the Centro di Biotechnologie Avanzate whereby the Company will help fund
research and development activities related to: (i) regeneration of stroma and
other elements of bone marrow following chemotherapy; (ii) regeneration of bone
which has been depleted by cancer chemotherapy or osteoporosis; and (iii)
regeneration of damaged skeletal and connective tissue in orthopedic
applications.
COMMON STOCK OPTIONS
Stock option activity for the nine months ended September 30, 1997 was as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER OF SHARES PER SHARE
----------------- -----------------
<S> <C> <C>
Balance, December 31, 1996............................... 284,918 $ 1.56
Granted................................................ 196,647 5.41
Exercised.............................................. (12,308) 7.85
Forfeited.............................................. (6,353) 2.87
--------
Balance, September 30, 1997.............................. 462,904 $ 1.80
--------
--------
</TABLE>
The Company calculated deferred compensation expense of $200,325 related to
certain options granted during the nine months ended September 30, 1997 and has
recognized compensation expense over the vesting period of those stock options.
F-21
<PAGE>
[ARTWORK DEPICTING MESENCHYMAL STEM CELL DIFFERENTIATION INTO VARIOUS CONNECTIVE
TISSUE]
MESENCHYMAL STEM CELL (MSCS) ARE ISOLATED, PURIFIED AND EXPANDED IN THE
COMPANY'S CELL PROCESSING FACILITIES. MSCS CAN DIFFERENTIATE INTO CHONDROCYTES
(CARTILAGE); OSTEOCYTES (BONE); TENOCYTES (TENDON); OR ADIPOCYTES (FAT).
PHOTOGRAPHS SHOW SPECIFIC MARKERS FOR EACH TISSUE: CARTILAGE (TYPE II COLLAGEN
IN GREEN); BONE (MINERALIZED BONE MATRIX IN BLUE); TENDON (CRIMP PATTERN OF NEW
TENDON UNDER POLARIZED LIGHT); AND FAT (LIPID VACUOLES IN RED).
<PAGE>
No dealer, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus in connection with the offer contained
herein, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or
by any of the Underwriters. This Prospectus does not constitute an
offer of any securities other than those to which it relates or an
offer to sell, or a solicitation of an offer to buy, those to which
it relates in any state to any person to whom it is not lawful to
make such offer in such state. The delivery of this Prospectus at
any time does not imply that the information contained herein is
correct as of any time subsequent to its date.
TABLE OF CONTENTS
-------------------------------------------------------
<TABLE>
<CAPTION>
Prospectus Summary.............................. 3
<S> <C>
Risk Factors.................................... 7
Use of Proceeds................................. 16
Dividend Policy................................. 16
Dilution........................................ 17
Capitalization.................................. 18
Selected Financial Data......................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 20
Business........................................ 24
Management...................................... 46
Certain Transactions............................ 58
Principal Stockholders.......................... 60
Description of Capital Stock.................... 61
Shares Eligible for Future Sale................. 65
Underwriting.................................... 66
Legal Matters................................... 67
Experts......................................... 67
Additional Information.......................... 68
Glossary of Scientific Terms.................... 69
Index to Consolidated Financial Statements...... F-1
</TABLE>
Until , 1997 (25 days after the commencement of the
Offering), all dealers effecting transactions in the Common Stock,
whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with
respect to their unsold allotments or subscriptions.
PROSPECTUS , 1997
2,500,000 Shares
[LOGO]
Common Stock
SBC WARBURG DILLON READ INC.
HAMBRECHT & QUIST
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts shown are
estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Securities and Exchange Commission registration fee............................... $ 11,326
NASD filing fee................................................................... 4,611
Nasdaq National Market fee........................................................ 50,000
Blue sky qualification fees and expenses.......................................... 20,000
Accounting fees and expenses...................................................... 110,000
Legal fees and expenses........................................................... 275,000
Printing and engraving expenses................................................... 115,000
Transfer agent and registrar fees................................................. 7,500
Miscellaneous expenses............................................................ 56,937
----------
Total......................................................................... $ 650,000
----------
----------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation, as amended, (the "Charter")
provides for the indemnification of the Company's directors and officers to the
fullest extent permitted by law. Insofar as indemnification for liabilities
under the Securities Act may be permitted to directors, officers or controlling
persons of the Company pursuant to the Charter and Bylaws, as amended, of the
Company and the Delaware General Corporation Law, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
The Charter limits the personal liability of the Company's directors to the
fullest extent permitted by the Delaware General Corporation Law. Therefore, the
directors of the Company are not personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock; or (iv) for
any transaction from which the director derives an improper personal benefit. As
a result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Additionally, the Company has entered into indemnification agreements, in
the form attached hereto as Exhibit 10.31 with certain of its directors,
officers and other key personnel, which may, in certain cases, be broader than
the specific indemnification provisions contained under applicable law. The
indemnification agreement may require the Company, among other things, to
indemnify such officers, directors and key personnel against certain liabilities
that may arise by reason of their status or service as directors, officers or
employees of the Company, to advance the expenses incurred by such parties as a
result of any threatened claims or proceedings brought against them as to which
they could be indemnified and to cover such officers, directors and key
employees under the Company's directors' and officers' liability insurance
policies to the maximum extent that insurance coverage is maintained. The
Company maintains an
II-1
<PAGE>
insurance policy, providing an aggregate of $2,000,000 in coverage, insuring all
of its directors and officers against certain liabilities arising from actions
taken in their official capacities as directors and officers.
The Underwriting Agreement, in the form attached hereto as Exhibit 1.1,
provides for the indemnification of directors, officers, employees, agents and
controlling persons of the Company by the Underwriters under certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 1, 1994, the Company entered into a three-year consulting
agreement with Max Link, Ph.D., Chairman of the Company's Board of Directors.
The agreement entitled Dr. Link to purchase a total of 47,059 shares of Common
Stock at a price of $0.58 per share and to purchase 100,000 shares of Series D
Preferred Stock for $2.55 per share.
On January 18, 1995, the Company entered into a Sublease Agreement with the
Maryland Economic Development Corporation ("MEDCO") for 30,000 square feet of
renovated laboratory and office space in Baltimore, Maryland. Under the Sublease
Agreement and related agreements, MEDCO (together with the City of Baltimore)
guaranteed renovation bond financing for up to $3,600,000 to renovate the
Company's facilities. As part of the transaction, the State of Maryland and the
City of Baltimore purchased $700,000 of the Series D Preferred Stock and
received warrants to purchase 33,000 shares of Series D Preferred Stock at an
exercise price of $3.00 per share.
On various dates in 1995 and 1996, the Company sold 3,599,070 shares of
Series D Preferred Stock for an aggregate of $10,623,004 to various existing and
new investors. In connection with these sales, the Company sold, for nominal
consideration, warrants to purchase 135,586 shares of Common Stock at an
exercise price of $5.10 per share pursuant to an agreement with the European
Placement Agent.
On various dates in 1996, the Company sold 2,246,224 shares of Series E
Preferred Stock for an aggregate of $10,108,004 to various existing and new
investors. In connection with these sales, the Company sold, for nominal
consideration, warrants to purchase 50,985 shares of Common Stock at an exercise
price of $7.65 per share pursuant to an agreement with the European Placement
Agent.
On June 16, 1997, the Company issued and sold 692,059 shares of Common Stock
to Novartis Pharma AG ("Novartis") for $10,000,250. In addition, the Company
entered into a Research and Licensing Agreement with Novartis Pharmaceuticals
Corporation, the U.S. affiliate of Novartis, pursuant to which Novartis
Pharmaceuticals Corporation paid the Company an initial up-front payment of
$3,000,000 for rights to the MSC technology in the fields of treating
degenerative diseases, regenerating cartilage and certain gene therapy
applications. In exchange, the Company will receive, subject to certain
conditions, up to $50,000,000 over five years for research and development
funding of certain portions of the Company's bone, cartilage and gene therapy
research programs.
Since June 30, 1994, the Company has granted an aggregate of 11,765 shares
of Common Stock to its directors as compensation for attending Board of Director
meetings.
On July 28, 1997, in a connection with the commencement of his service on
the Board of Directors, the Company sold to Jack L. Bowan 11,029 shares of
Common Stock at $8.50 per share. The purchase amount of $93,750 was loaned to
Mr. Bowman by the Company.
The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation, as amended.**
3.1.1 Proposed Form of Amendment to Restated Certificate of Incorporation, as amended.**
3.2 Form of Bylaws, as amended.**
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the legality of the securities being
registered.*
10.1 Share Purchase Agreement for Gryphon Pharmaceuticals, Inc. stock, dated December 23, 1994, by
and between the Company and The Johns Hopkins University.**
10.2 Stockholders Agreement for Gryphon Pharmaceuticals, Inc., dated December 23, 1994, by and
between the Company and The Johns Hopkins University.**
10.3 Registration Rights Agreement for Gryphon Pharmaceuticals, Inc. stock, dated December 23,
1994, by and between the Company and The Johns Hopkins University.**
10.4 Form of Registration Rights Agreement by and among the Company and the Investors in the
Series C Convertible Preferred offering.**
10.5 Form of Registration Rights Agreement by and among the Company and the Investors in the
Series D Convertible Preferred offering.**
10.6 Form of Registration Rights Agreement by and among the Company and the Investors in the
Series E Convertible Preferred offering.**
10.7 Stock Purchase Agreement, dated June 16, 1997, by and between the Company and Novartis Pharma
AG.**
10.8 Technology Transfer and License Agreement, dated March 31, 1993, by and between the Company
and Case Western Reserve University.+
10.9 Research and License Agreement, dated December 23, 1994, by and between Gryphon
Pharmaceuticals, Inc. and The Johns Hopkins University.+
10.10 License Agreement, dated December 23, 1994, by and between the Company and Gryphon
Pharmaceuticals, Inc.+
10.11 Research Agreement, dated February 22, 1995, by and between the Company and Case Western
Reserve University.+
10.12 Material Transfer and Research Agreement, dated April 1, 1995, by and between the Company and
the Fred Hutchinson Cancer Research Center, with amendments.**
10.13 Research Contract, dated June 11, 1996, as amended on May 31, 1997, by and between the
Company and the Defense Advanced Research Projects Agency.+
10.14 Clinical Study Support Agreement, dated October 28, 1996, by and between the Company,
University Hospitals of Cleveland, Ireland Cancer Center and Case Western Reserve
University.**
10.15 Research and Licensing Agreement, dated June 16, 1997, by and between the Company and
Novartis Pharmaceuticals Corporation.+
10.16 Master Equipment Lease Agreement, dated as February 28, 1994 and as amended on June 20, 1995,
by and between Dominion Ventures, Inc. and Osiris Therapeutics, Inc.**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.17 Master Lease Agreement, dated January 18, 1995, by and between Saga Limited Partnership and
Maryland Economic Development Corporation.**
<S> <C>
10.18 Sublease Agreement effective January 18, 1995, as amended on June 2, 1995, by and between
Maryland Economic Development Corporation and Osiris Therapeutics, Inc.**
10.19 Financing and Construction Loan Agreement, dated as of June 2, 1995, by and among Maryland
Economic Development Corporation, The Whiting-Turner Contracting Company, Mayor and City
Council of Baltimore, Signet Trust Company and the Company.**
10.20 Loan Agreement, dated June 1, 1995, by and between the Company and Signet Bank/ Maryland.**
10.21 Consulting Agreement, dated March 11, 1993, by and between the Company and Arnold I. Caplan,
Ph.D.**
10.22 Consulting Agreement, dated March 11, 1993, by and between the Company and Victor M.
Goldberg, M.D.**
10.23 Consulting Agreement, dated March 11, 1993, by and between the Company and Stephen
Haynesworth, Ph.D.**
10.24 Employment Agreement, dated March 11, 1993, as amended, by and between the Company and James
S. Burns.**
10.25 Employment Agreement, dated October 1, 1994, by and between the Company and Daniel R.
Marshak, Ph.D.**
10.26 Consulting Agreement, dated November 23, 1994, by and between the Company and Max Link,
Ph.D.**
10.27 1994 Amended and Restated Stock Incentive Plan, as amended, and form of Stock Option
Agreements.**
10.28 Consulting Agreement, dated November 1, 1995, by and between the Company and Friedli
Corporate Finance AG.**
10.29 Employment Agreement, dated November 1, 1996, by and between the Company and Michael J.
Demchuk, Jr.**
10.30 Employment Agreement, dated June 1, 1997, by and between the Company and David J. Fink,
Ph.D.**
10.31 Form of Indemnification Agreement.**
10.32 Research Agreement between the Company and the Centro di Biotecnologie Avanzate.+
11.1 Statement re computation of pro forma net loss per share.**
21.1 Subsidiaries.**
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).*
23.3 Consent of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, P.A.*
24.1 Power of Attorney (see page II-6).**
27.1 Financial Data Schedule.**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Portions have been omitted pursuant to a request for confidential treatment.
Unredacted agreement has been submitted to the Commission.
II-4
<PAGE>
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is included elsewhere in the Consolidated Financial
Statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Form S-1 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Baltimore, State of Maryland on the 5th day of November, 1997.
OSIRIS THERAPEUTICS, INC.
By: /s/ JAMES S. BURNS
-----------------------------------------
James S. Burns
President, Chief Executive Officer,
Treasurer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Form S-1 Registration Statement has been signed by the following
persons in the capacities indicated on the 5th day of November, 1997.
NAME TITLE
- ------------------------------ ---------------------------
President, Chief Executive
/s/ JAMES S. BURNS Officer,
- ------------------------------ Treasurer and Director
James S. Burns (Principal Executive
Officer)
Vice President & Chief
Financial
/s/ MICHAEL J. DEMCHUK, JR. Officer, Secretary and
- ------------------------------ Assistant Treasurer
Michael J. Demchuk, Jr. (Principal Financial and
Accounting Officer)
* Chairman of the Board
- ------------------------------
Max Link, Ph.D.
* Director
- ------------------------------
Jack L. Bowman
* Director
- ------------------------------
Peter Friedli
* Director
- ------------------------------
Mark Novitch, M.D.
*By: /s/ MICHAEL J.
DEMCHUK, JR.
- ------------------------------
Michael J. Demchuk, Jr.
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation, as amended.**
3.1.1 Proposed Form of Amendment to Restated Certificate of Incorporation, as amended.**
3.2 Form of Bylaws, as amended.**
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the legality of the securities being
registered.*
10.1 Share Purchase Agreement for Gryphon Pharmaceuticals, Inc. stock, dated December 23, 1994, by
and between the Company and The Johns Hopkins University.**
10.2 Stockholders Agreement for Gryphon Pharmaceuticals, Inc., dated December 23, 1994, by and
between the Company and The Johns Hopkins University.**
10.3 Registration Rights Agreement for Gryphon Pharmaceuticals, Inc. stock, dated December 23,
1994, by and between the Company and The Johns Hopkins University.**
10.4 Form of Registration Rights Agreement by and among the Company and the Investors in the
Series C Convertible Preferred offering.**
10.5 Form of Registration Rights Agreement by and among the Company and the Investors in the
Series D Convertible Preferred offering.**
10.6 Form of Registration Rights Agreement by and among the Company and the Investors in the
Series E Convertible Preferred offering.**
10.7 Stock Purchase Agreement, dated June 16, 1997, by and between the Company and Novartis Pharma
AG.**
10.8 Technology Transfer and License Agreement, dated March 31, 1993, by and between the Company
and Case Western Reserve University.+
10.9 Research and License Agreement, dated December 23, 1994, by and between Gryphon
Pharmaceuticals, Inc. and The Johns Hopkins University.+
10.10 License Agreement, dated December 23, 1994, by and between the Company and Gryphon
Pharmaceuticals, Inc.+
10.11 Research Agreement, dated February 22, 1995, by and between the Company and Case Western
Reserve University.+
10.12 Material Transfer and Research Agreement, dated April 1, 1995, by and between the Company and
the Fred Hutchinson Cancer Research Center, with amendments.**
10.13 Research Contract, dated June 11, 1996, as amended on May 31, 1997, by and between the
Company and the Defense Advanced Research Projects Agency.+
10.14 Clinical Study Support Agreement, dated October 28, 1996, by and between the Company,
University Hospitals of Cleveland, Ireland Cancer Center and Case Western Reserve
University.**
10.15 Research and Licensing Agreement, dated June 16, 1997, by and between the Company and
Novartis Pharmaceuticals Corporation.+
10.16 Master Equipment Lease Agreement, dated as February 28, 1994 and as amended on June 20, 1995,
by and between Dominion Ventures, Inc. and Osiris Therapeutics, Inc.**
10.17 Master Lease Agreement, dated January 18, 1995, by and between Saga Limited Partnership and
Maryland Economic Development Corporation.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<S> <C>
10.18 Sublease Agreement effective January 18, 1995, as amended on June 2, 1995, by and between
Maryland Economic Development Corporation and Osiris Therapeutics, Inc.**
10.19 Financing and Construction Loan Agreement, dated as of June 2, 1995, by and among Maryland
Economic Development Corporation, The Whiting-Turner Contracting Company, Mayor and City
Council of Baltimore, Signet Trust Company and the Company.**
10.20 Loan Agreement, dated June 1, 1995, by and between the Company and Signet Bank/ Maryland.**
10.21 Consulting Agreement, dated March 11, 1993, by and between the Company and Arnold I. Caplan,
Ph.D.**
10.22 Consulting Agreement, dated March 11, 1993, by and between the Company and Victor M.
Goldberg, M.D.**
10.23 Consulting Agreement, dated March 11, 1993, by and between the Company and Stephen
Haynesworth, Ph.D.**
10.24 Employment Agreement, dated March 11, 1993, as amended, by and between the Company and James
S. Burns.**
10.25 Employment Agreement, dated October 1, 1994, by and between the Company and Daniel R.
Marshak, Ph.D.**
10.26 Consulting Agreement, dated November 23, 1994, by and between the Company and Max Link,
Ph.D.**
10.27 1994 Amended and Restated Stock Incentive Plan, as amended, and form of Stock Option
Agreements.**
10.28 Consulting Agreement, dated November 1, 1995, by and between the Company and Friedli
Corporate Finance AG.**
10.29 Employment Agreement, dated November 1, 1996, by and between the Company and Michael J.
Demchuk, Jr.**
10.30 Employment Agreement, dated June 1, 1997, by and between the Company and David J. Fink,
Ph.D.**
10.31 Form of Indemnification Agreement.**
10.32 Research Agreement between the Company and the Centro di Biotecnologie Avanzate.+
11.1 Statement re computation of pro forma net loss per share.**
21.1 Subsidiaries.**
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).*
23.3 Consent of Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, P.A.*
24.1 Power of Attorney (see page II-6).**
27.1 Financial Data Schedule.**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Portions have been omitted pursuant to a request for confidential treatment.
Unredacted agreement has been submitted to the Commission.
<PAGE>
Certain portions of this
exhibit have been
omitted based upon
a request for confidential
treatment. Omitted portions
have been separately filed
with the Securities and
Exchange Commission.
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
Between
CASE WESTERN RESERVE UNIVERSITY
and
OSIRIS THERAPEUTICS, INC.
This agreement effective as of the 1st day of January, 1993 ("Effective
Date"), is between OSIRIS THERAPEUTICS, Inc., corporation domiciled in the
State of Ohio having an address at 11000 Cedar Avenue, Cleveland OH 44106
("OSIRIS"), and Case Western Reserve University, an Ohio non-profit
corporation having Its principal office at 2040 Adelbert Road, Cleveland,
Ohio ("CWRU").
BACKGROUND
CWRU, with principal activities in teaching and scholarship, makes its
capabilities available to commercial entities for research to the extent that
it complements and does not conflict with CWRU's principal activities. In this
spirit, CWRU is prepared to continue Its development relationship with OSIRIS
(a company created to commercialize the mesenchymal stem cell technology) and
to license the Technology, as that Item is defined in Article X below,
including that established by Dr. Arnold I. Caplan while working as a full-
time professor at CWRU. This license transfers the state-of-the-art of the
mesenchymal stem cell technology to OSIRIS, according to the terms and
conditions set forth below. This state-of-the-art includes patents and know-
how. Future. patents based on
<PAGE>
this know-how will be made in the name of CWRU and will be covered by the
royalty agreement stated herein If substantially invented at CWRU in the
future.
AGREEMENT
ARTICLE I: LICENSE
1.1 Grant and Subject Matter. CWRU grants OSIRIS a sole and exclusive
worldwide License, under Technology, Existing Patent Rights (to the extent not
owned by OSIRIS) and Developed Patent Rights ("License") to make, have made,
use and sell Product and Process (terms defined in Section 10), including the
right to grant sublicenses.
1.2 Term of Agreement. This Agreement shall be in full force and effect
from the date first set forth above and shall remain in effect for twenty-five
(25) years or until all patents Issued in all countries in accordance with this
License hereunder have expired or until otherwise terminated by operation of
law, whichever is last to occur, or by the acts of the parties in accordance
with the terms of this Agreement.
1.3 Retained Rights. CWRU will retain a royalty-free right to use the
Technology and patent rights of the License for any nonclinical research,
testing or educational purpose of CWRU. In no event shall CWRU have any right
to use the Technology or the patent rights of the License for any commercial
purpose whatsoever. In addition, the License will be subject to such rights as
are required to be accorded to any governmental agency as a consequence of
prior or contemporaneous funding for research or development of the subject
matter of the License.
1.4 Sublicenses. OSIRIS agrees to forward to CWRU a copy of any and all
fully executed sublicense agreements, and further agrees
<PAGE>
to forward annually a copy of such reports received by OSIRIS from Its
sublicensees during the preceding twelve (12) month period under the
sublicenses as shall be pertinent to a royalty accounting to CWRU under said
sublicense agreement.
1.5 The license granted under Existing Patent Rights is royalty-free.
1.6 The license granted under Developed Patent Rights is royalty-
bearing as provided in Paragraph 6.2.
ARTICLE II: TITLE
Except as provided in Section 3.1, CWRU shall retain title to the
subject matter of the License.
ARTICLE III: PATENTS
3.1 To the extent permitted by existing obligations, CWRU hereby
assigns all right, title and interest in and to Existing Patent Rights to
OSIRIS. OSIRIS shall bear all responsibility for, and shall take all actions
in connection with, the prosecution of the Existing Patent Rights. CWRU shall
cooperate with OSIRIS with respect to such prosecutions.
3.2 New Applications. CWRU shall own all Developed Patent Rights. In
the event either party hereto believes a patent application should be filed
with respect to the Technology, such party shall notify the other party hereto.
If OSIRIS fails to file such application within sixty (60) days after the date
of such notice, CWRU shall have the right to file the application in its own
name, at its own expense; provided, however, that CWRU's application must be
filed within six (6) months after the expiration of OSIRIS' sixty (60) day
filing period.
<PAGE>
If CWRU does not file within such six-month period, CWRU must give a new
notice to OSIRIS, and the process described above must be repeated in its
entirety, before CWRU shall have the right to file such application.
3.3 OSIRIS shall own any patent application which is directed to an
invention made by an employee of OSIRIS or by an Investigator when the
Investigator is working on the premises of OSIRIS.
3.4 Cost. OSIRIS will pay the cost of all patent applications filed by
it pursuant to Section 3.2.
3.5 Reports. The party filing the patent application pursuant to
Section 3.2 above shall keep the other informed in a timely manner of the
status of the application.
3.6 Infringement. Each party shall promptly notify the other party if
it becomes aware of any infringement of any patents licensed as part of this
Agreement. Neither OSIRIS nor CWRU shall have any obligation to Initiate
litigation to protect any patent or proprietary right granted under this
Agreement. However, each party will have the unqualified right to Initiate
legal action, or to fully participate in any legal action Initiated by the
other party, to protect its interests. In any litigation, each party and
their respective attorneys will cooperate with the other party. If OSIRIS
elects to institute suit against any third party to protect any patent or
proprietary rights granted under this Agreement, fifty percent (50%) of
associated costs (including reasonable attorneys' fees) which have been paid
by OSIRIS may be offset against royalties owed to CWRU pursuant to Article
VI, but such offsetting shall not exceed fifty percent (50%) of the total
royalties owed to CWRU. All damages awarded in any suit will belong
exclusively to the party Initiating the suit, except that
<PAGE>
the amounts offset pursuant to this Section 3.6 will be reimbursed to CWRU
from damages awarded to OSIRIS after OSIRIS's own legal costs have been
reimbursed.
3.7 In the event that litigation against OSIRIS is Initiated by a third-
party charging OSIRIS with Infringement of a patent of the third party as a
result of the manufacture, use or sale by OSIRIS of Product or Process for
which royalties are due to CWRU hereunder, OSIRIS shall promptly notify CWRU
in writing thereof. OSIRIS's costs as to any such defense shall be creditable
against any and all payments due and payable to CWRU under Article VI of this
Agreement but no royalty payment after taking into consideration any such
credit shall be reduced by more than 50%.
ARTICLE IV: CONFIDENTIALITY
4.1 Confidentiality. CWRU and OSIRIS agree to advise their respective
employees that it is necessary to hold in confidence all information received
from the other party in connection with the License ("Information") for a
period of two years following disclosure. The receiving party will use
reasonable efforts to prevent disclosure of such Information during such
period. This Section 4.1 shall not apply, however, to Information which:
(i) is now in or shall enter the public domain as the result of
its disclosure in a publication, the issuance of a patent or otherwise
without the legal fault of the receiving party;
(ii) the receiving party can prove was in Its possession in
written form at the time of disclosure by the other party; or
<PAGE>
(iii) comes into the hands of the receiving party by means of a
third party who is entitled to make such disclosure and who has no
obligation of confidentiality toward the disclosing party.
(iv) where disclosure is required under any applicable ruling,
regulation or law, including but not limited to regulatory filings.
(v) where disclosure is made through the filing of a patent
application.
Notwithstanding the foregoing, OSIRIS can disclose information to a
third party under an obligation of confidentiality similar to the obligation of
confidentiality under this agreement.
4.2 Remedies. Each party shall be entitled to injunctive relief if
there is a threat that Information that is the subject matter of the License
will be disclosed by the other party contrary to the terms of this agreement.
Each party shall notify the other party in writing of any proposed release of
Information thirty (30) days prior to release of such Information. The party
receiving such notice will have thirty (30) days to review the materials and
shall not unreasonably withhold permission for the Information to be released.
4.3 (a) During the period in which OSIRIS holds a license, CWRU and
Investigators (as defined in Paragraph 10.9) shall not, without OSIRIS' prior
written approval, distribute or allow Material (as defined in Paragraph 10.8)
to be distributed to for-profit entities or persons known to be employed
thereby or consulting or performing research therefor.
(b) CWRU and Principal Investigator (as defined in Paragraph 10.7)
shall have the right to transfer Material to not-for-profit entities or persons
known to be affiliated therewith provided that such entities
<PAGE>
or persons sign a material transfer agreement mutually agreed to by the
parties to this Agreement.
(c) Prior to any such distribution of any such Material, CWRU and
OSIRIS shall use best efforts to consider the patentability of such Material
and cooperate to file, where appropriate, a patent application for such
Material prior to Its distribution, in accordance with Article III of this
Agreement.
ARTICLE V: PUBLICATION
CWRU will provide OSIRIS with a copy of any proposed publication
relating to the Technology thirty (30) days prior to their submission for
publication. OSIRIS will have thirty (30) days from the date of receipt of
each such proposed publication to review the materials. Upon receipt within the
thirty-day (30) period of a written notice from OSIRIS identifying those
portions of the proposed publication for which it wishes publication delayed,
CWRU will use its best efforts either to cause the materials identified to be
deleted or to cause publication to be delayed for ninety (90) days
ARTICLE VI: ROYALTIES, CONSIDERATION AND PAYMENTS
6.1 Payment. OSIRIS agrees to pay to CWRU an amount equal to $83,061
for the licenses and rights granted under this Agreement and for the filing and
prosecution of Existing Patent Rights. Such amount shall be paid within
thirty (30) days of the initial financing of OSIRIS, which financing shall be
in an amount of at least $2,000,000, ("Initial Capitalization").
<PAGE>
6.2 Royalties. As consideration for the License, OSIRIS will pay CWRU
a royalty on all Product or Process providing that such Product or Process
where sold is covered by a claim of a granted patent which is a Developed
Patent Right licensed under this Agreement ("Royalty Bearing Product") as
follows.
(i) [*CONFIDENTIALITY REQUESTED*] of the Net Sales of Royalty Bearing
Products sold by OSIRIS; and
(ii) [*CONFIDENTIALITY REQUESTED*] of the royalties received by OSIRIS
from Its SUBLICENSEES' sales of a Royalty Bearing Product.
Provided, however, that with respect to each Royalty Bearing -Product
covered under either (I) or (II) above, no royalty shall be payable for the
first three years in which such Royalty Bearing Product is sold. Net Sales
shall be defined as the amount received from sales of all Royalty Bearing
Products less discounts, returns, transportation costs, insurance costs and
taxes of any kind whatsoever.
6.3 Royalty Payments. (a) Royalties due will be paid to CWRU every
year for the term of this Agreement on the 31st of March, and shall be
calculated according to the Net Sales of all Royalty Bearing Products during
the calendar year immediately preceding the year in which such royalty payments
are due. Each royalty payment shall be accompanied by an accounting showing
the calculation of net sales for the calendar year in question.
6.4 In the event that royalties are to be paid by OSIRIS to a party who
is not an Affiliate of OSIRIS for Royalty Bearing Product ("Other Royalties"),
for which royalties are also due to CWRU pursuant to Paragraph 6.2 then the
royalties to be paid to CWRU by OSIRIS pursuant to Paragraph 6.2 shall be
reduced by 50% of the amount of such Other
<PAGE>
Royalties, but in no event shall any royalties under Paragraph 6.2 be reduced
by more than fifty percent (50%).
6.5 Equity Interest to CWRU. CWRU will be sold 1,200 shares of
OSIRIS' Common Stock based on the Founders' capitalization in Appendix A.
The Initial Capitalization shall mean the first capitalization of the company
in which the total capital contribution is at least two million dollars. The
selling price shall be $0.10 per share. The shares will be sold in accordance
with a Restricted Stock Purchase Agreement which contains terms among others
that prior to an initial public offering OSIRIS or its designee will have a
right of first refusal with respect to a any transfer of the shares; and that
the shares will be subject to underwriter "lock-up" restrictions in any
underwritten offering.
6.6 Foreign currency conversions. When royalties accrue for currencies
other than United States dollars, payment to CWRU shall be in United States
dollars converted from that foreign currency at the average of the rates
established by BankAmerica for that foreign currency on the last business day
of each month of the calendar year which ended immediately preceding the day on
which OSIRIS pays such royalties to CWRU.
6.7 Audit Rights. CWRU has the right to inspect any books or records
of OSIRIS containing information which may be reasonably necessary for the
purpose of verifying the royalties payable to CWRU. This inspection is to be
made by an independent certified public accountant of CWRU's choice to whom
OSIRIS has no reasonable objection. The inspection is to be done at the
expense of CWRU, upon reasonable notice, during normal business hours and no
more than once per year.
<PAGE>
6.8 Initial Capitalization. If, by December 31, 1993, OSIRIS has not
received funding of at least $2 million ($2,000,000), this Agreement shall
terminate, unless extended by mutual agreement and OSIRIS shall, at its sole
expense, transfer to CWRU all right, title and interest in the Existing Patent
Rights.
6.9 Minimum Performance. if, after the sixth anniversary of the
Initial capitalization of OSIRIS, payments due to CWRU under Article VI fall
below fifty thousand dollars ($50,000) per year, the License granted by this
Agreement shall be terminated unless OSIRIS pays CWRU the difference between
the amount due and fifty thousand dollars ($50,000), unless extended by mutual
agreement.
ARTICLE VII: BREACH AND TERMINATION
7.1 Breach. If either party at any time commits any material breach of
the Agreement and fails to remedy It within thirty (30) days after receiving
written notice of the breach or such additional time as may be reasonably
required to effect the cure so long as the curing party Is continuing to
diligently pursue its efforts to cure, the aggrieved party may, at its option,
cancel this Agreement by notifying the other in writing. This remedy is in
addition to any other remedies to which it may be entitled. Any failure
to cancel this Agreement for any breach will not constitute a waiver by the
aggrieved party of its right to cancel this Agreement for any other breach
whether similar or dissimilar in nature.
7.2 Bankruptcy. CWRU may terminate this Agreement if OSIRIS files or
has filed against it a petition in bankruptcy which is not dismissed within
thirty (30) days, or files an assignment for benefit of creditors, or if a
receiver is appointed for all or part of its assets, or if it petitions for or
consents to any relief under any applicable insolvency,
<PAGE>
moratorium or similar statute. All rights and licenses granted to OSIRIS under
or pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights
to "intellectual property" as defined under Section 101(60) of the Bankruptcy
Code. The parties hereto agree that so long as OSIRIS, as a licensee of
such rights under this Agreement, shall continue to perform all obligations
under this Agreement, including but not limited to the making of timely
royalty payments, OSIRIS shall retain and may fully exercise all of its rights
and elections under the Bankruptcy Code, and pursuant to Section 365(n),
OSIRIS shall have the right to receive all current embodiments of the licensed
intellectual property. The parties hereto further agree that, in the event
that CWRU files or has filed against it a petition in bankruptcy which Is not
dismissed within thirty (30) days, or files an assignment for benefit of
creditors, or if a receiver Is appointed for all or part of its assets, or if
it petitions for or consents to any relief under any applicable insolvency,
moratorium or similar statue, OSIRIS shall have the right to retain and
enforce Its rights under this Agreement with respect to the Technology,
Existing Patent Rights and Developed Patent Rights.
7.3 Force Majeure. Each of the parties will be excused from
performance of this Agreement only to the extent that performance Is prevented
by conditions beyond the reasonable control of the party affected. The parties
will, however, use their best efforts to avoid or cure such conditions. The
party claiming such conditions as an excuse for delaying performance will give
prompt written notice of the conditions, and its intent to delay performance,
to the other party and will resume its performance as soon as performance Is
possible.
<PAGE>
7.4 Effect of Termination. OSIRIS' License shall terminate
simultaneously with any termination of this Agreement. Except as provided in
Section 6.8 above, expiration, cancellation or termination of this Agreement
will not affect any previously vested or accrued rights of either party under
this Agreement. Upon termination of this Agreement by either party, in whole
or as to any specified patent or any claim of such patent, OSIRIS shall provide
CWRU with a written inventory of all products affected by such termination in
process of manufacture, in use or in stock and shall request each sublicensee
to provide such written inventory. OSIRIS and Its sublicensees shall have the
right to sell off such inventory unless OSIRIS is the subject of a pending or
threatened product liability claim.
7.5 Effect of termination of this Agreement on sublicenses. Any
sublicense granted by OSIRIS under this Agreement shall provide for automatic
assignment to CWRU of OSIRIS interest therein upon termination of this
Agreement. CWRU agrees to accept such assignment and the sublicense shall
remain in full force and effect as a direct license from CWRU in accordance
with the terms and conditions thereof. CWRU agrees to confirm in writing Its
obligations under this Paragraph to a sublicensee at the request of OSIRIS.
7.6 Termination. OSIRIS shall have the right to terminate this
Agreement or any of the licenses granted hereunder in any country upon
providing CWRU with sixty (60) days prior written notice.
<PAGE>
ARTICLE VIII: REPRESENTATIONS AND WARRANTIES
8.1 Agreements. Each party represents that, to the best of its
knowledge, this Agreement does not violate any of its prior commitments or
agreements.
8.2 Claims. Each party represents that, to the best of Its knowledge,
there are no legal actions, pending or threatened, which would question this
Agreement or the right of either party to perform its obligations under
this Agreement.
8.3 Authorization by CWRU. CWRU warrants that execution and
performance of this Agreement have been duly authorized by all necessary
corporate actions.
8.4 Authorization by OSIRIS. OSIRIS warrants that execution and
performance of this Agreement have been duly authorized by all necessary
corporate actions.
8.5 Patentability, Infringement. CWRU makes no representation or
warranties of any kind other than those of this Article VIII including but not
limited to warranties of patentability, merchantability or fitness for a
particular purpose.
8.6 CWRU represents that to the best of its knowledge, CWRU owns all
right, title and interest in and to Existing Patent Rights and that all
Investigators will be obligated to assign all right, title and interest in and
to Technology and Developed Patent Rights to CWRU.
ARTICLE IX: MISCELLANEOUS
9.1 Indemnification.
(a) OSIRIS will defend, indemnify and hold CWRU harmless from any loss,
cost, damage, liability or expense imposed, on CWRU as a
<PAGE>
result of any third party claim arising from OSIRIS' use, application or
marketing of any Product or Process arising from this Agreement.
(b) CWRU will defend, indemnify and hold OSIRIS harmless from any loss,
cost, damage, liability or expense imposed on OSIRIS as a result of any claim
arising from CWRU's breach of any term or provision of this Agreement.
(c) The party to be indemnified shall promptly notify the indemnifying
party of any claim to be indemnified. The indemnifying party shall have the
right to control the defense, settlement or compromise of any claim.
9.2 Insurance. OSIRIS shall not commence selling on a commercial
basis of any Products in connection with this License until it has obtained
for itself or for CWRU at Its own cost or special arrangements and expense,
comprehensive general liability and products liability insurance with limits
of at least $3,000,000 per occurrence/$3,000,000 aggregate, and naming CWRU
as additional insured. Upon the start of human clinical trials of any Product
OSIRIS shall obtain comprehensive general liability insurance in accordance
with the foregoing. Such insurance shall be provided by insurers of
recognized responsibility and well-rated by national organizations, and each
policy shall state that the insurer will not terminate it or significantly
reduce coverage without giving CWRU at least forty-five (45) days prior
written notice. The product liability insurance shall provide worldwide
coverage and shall be on an "occurrence" basis. If such insurance is not
available when OSIRIS is ready to commence human clinical trials or selling
Products, CWRU agrees to waive the insurance requirement until such insurance
becomes available if and only if OSIRIS has and maintains a net worth of at
least $3,000,000
<PAGE>
as determined by a review of OSIRIS' books conducted at OSIRIS' expense by an
independent firm of certified public accountants mutually satisfactory to CWRU
and OSIRIS. After the Initial review, CWRU may have further reviews conducted
from time to time, but not more than once each year.
9.3 Sublicense. OSIRIS shall require all of Its sublicensees
hereunder to indemnify and hold harmless CWRU under the same terms as stated
in Section 9.1(a) and to carry comprehensive general liability insurance and
product liability insurance with limits of at least $3,000,000 per
ocurrence/$3,000,000 aggregate naming CWRU as an additional insured under the
same terms as Section 9.2.
9.4 Independent Contractors. OSIRIS and CWRU are independent
contractors, and neither shall have any responsibility for the work performed
by or on behalf of the other except to the extent expressly set forth in this
Agreement.
9.5 Use of Name. OSIRIS will not use the name of CWRU, related schools
or departments in any publication or marketing materials without the written
consent of CWRU. CWRU will not use the name of OSIRIS in any publication or
marketing materials without the written consent of OSIRIS.
9.6 Assignment. This Agreement Is not assignable or transferable
except with the written consent of both parties; consent will not be withheld
unreasonably, except that OSIRIS without the consent of CWRU may assign this
Agreement to an Affiliate or to a transferee of all or substantially all of
the portion of the business to which this Agreement relates. Any such
assignee or transferee of OSIRIS' interest shall expressly assume in writing
the performance of all of the terms and
<PAGE>
conditions of this Agreement to be performed by OSIRIS and such assignment
shall not relieve OSIRIS of any of its obligations under this Agreement. Any
assignment or transfer without such consent or covered by such exception
shall be void.
9.7 Registration. OSIRIS agrees to register this Agreement when
required by local or federal law and to pay all costs and legal fees connected
with such registration.
9.8 Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of and be binding upon the respective successors,
permitted assigns and legal representatives of the parties hereto.
9.9 Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio, excluding that body of law
applicable to choice of law.
9.10 Headings. The headings and captions used in this Agreement do not
form part of this Agreement, but are included solely for convenience.
9.11 Notices. All notices required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or five (5) days after deposit with the
United States Postal Service, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party below, or at such other address as such party may designate by ten (10)
days prior notice to the other party hereto:
<PAGE>
If to OSIRIS: Copy to:
OSIRIS Therapeutics, Inc. Elliot M. Olstein, Esq.
Carella, Byrne, Bain, Gilfilian,
11000 Cedar Avenue Cecohi & Stewart
Cleveland, Ohio 44106 6 Becker Farm Road Roseland,
Attn: President New Jersey 07068
If to CWRU:
Dean of Graduate Studies and Research
Case Western Reserve University
2040 Adelbert Road
Cleveland, Ohio 44106
9.12 Amendments and Waivers. No modification of this Agreement will
be signed by both parties.
9.13 Illegality. If any term or condition of this Agreement is
contrary to applicable law, that term or condition will not apply and will not
invalidate any other part of this Agreement. However, if Its deletion
materially and adversely changes the position of either of the parties, the
affected party may terminate the Agreement by giving thirty (30) days written
notice.
9.14 Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior discussions, understandings and
agreements with respect thereto.
<PAGE>
ARTICLE X: DEFINITIONS
10.1 Technology. The term "Technology" shall mean any and all existing
or future information, technical data, inventions, discoveries or know-how, and
materials whether or not patented or patentable, related to or useful for the
identification, Isolation, purification, propagation or use of mesenchymal
stem cells and/or cells or products derived from or produced by mesenchymal
stem cells, which are conceived, developed or reduced to practice by an
Investigator during the term of this Agreement while performing research at
CWRU.
10.2 Product(s). The term "Product(s)" shall mean any article,
composition, apparatus, substance, chemical, material, method or service which
is, incorporates or utilizes Technology or the use, manufacture, import or sale
of which is covered by a claim of any patent licensed hereunder.
10.3 Process(es). The term "Process(es)" shall mean any process or
method for the production, manufacture or use of any Product or which is
covered by any patent licensed hereunder.
10.4 The term "Affiliate" as applied to OSIRIS shall mean any company
or other legal entity other than OSIRIS in whatever country organized,
controlling, or controlled by or under common control with OSIRIS. The term
"control" means possession, direct or indirect, of the powers to direct or
cause the direction of the management and policies whether through the
ownership of voting securities, by contract or otherwise.
10.5 Principal Investigator. The term "Principal Investigator" shall
mean either or both of Drs. Arnold I. Caplan and Stephen E Haynesworth
<PAGE>
10.6 Material. The term "Material(s)" shall mean any material,
biologic, or substance, which is Technology, including but not limited to,
cells, cell lines, vectors, antibodies, DNA (RNA) sequences, libraries,
plasmids, cytokines, peptides, and proteins, which is discovered, produced or
derived by an Investigator during the term of this Agreement.
10.7 Investigator. The term "Investigator" shall mean Principal
Investigators, any other member of CWRU staff, graduate student, undergraduate
student or employee of CWRU who works with or under the direction of a
Principal Investigator.
10.8 "Existing Patent Rights" shall mean (I) A Method for Isolating,
Purifying and Culturally Expanding Marrow-Derived Mesenchymal Cells (U.S.
Patent Application No. 615,430) ; (II) Monoclonal Antibodies Specific for
Marrow-Derived Mesenchymal Cells (U.S. Patent Application No. 718,917); (III)
A Method and Device for Enhancing the Implantation and Differentiation of
Marrow-Derived Mesenchymal Cells (U.S. Patent Application No. 614,915); and
(IV) A Method and Device for Treating Connective Tissue Disorders (U.S. Patent
Application No. 614,912); any division, continuation, or continuation-in-part
thereof and any foreign patent application or equivalent corresponding thereto
and any Letters Patent or the equivalent thereof in any country of the world
issuing thereon or reissue or reexamination or extension thereof.
10.9 "Developed Patent Rights" shall mean any and all patents and
patent applications anywhere in the world which contains one or more claims
directed to Technology, which is not an Existing Patent Right.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
on the dates indicated below:
CWRU: OSIRIS:
FOR CASE WESTERN RESERVE FOR OSIRIS THERAPEUTICS, INC.
UNIVERSITY:
_/s/ R. James Hendersen__________ _/s/ James S. Burns________________
Name: R. James Hedersen Name: James S. Burns
Title: VP Finance & Administration Title: President
Date: March 25, 1993 Date: March 30, 1993
<PAGE>
Appendix A
OSIRIS THERAPEUTICS, INC.
Founders & Case Western Reserve University Capitalization
FOUNDING SCIENTISTS* FOUNDERS
Shareholder Shares % Shareholder Shares %
Arnold I. Caplan 15,600 65.0 Arnold I. Caplan 15,600 55.7
Victor M. Goldberg 6,720 28.0 Victor M. Goldberg 6,720 24.0
S. E. Haynesworth 1,660 7.0 S. E. Haynesworth 1,680 6.0
Case Western R. U. 1,200 4.3
James S. Burns ** 2,800 10.0
________ _____ ______ _____
TOTAL 24,000 100.0 28,000 100.0
* Case Western Reserve University ("CWRU") purchases 1,200 shares of
Osiris Therapeutics, Inc. Common Stock at a price of $0.10 per share,
equivalent to 5.0% of the Common Stock issued to the Company's three
founding scientists (the "Founding Scientists"). Upon issuance of shares
of Osiris Common Stock to Case Western Reserve University, the
Founding Scientists and CWRU will together constitute the Company's
founders (collectively, the "Founders")
** James S. Burns, the Company's Chairman, President & Chief Executive
Officer has purchased 2,800 shares of Osiris Common Stock on the same
basis as the Founders in exchange for funding the Company's initial
working capital requirements. The CEO's and Founders' Common Stock
will together constitute the Company's founding shareholders prior to the
sale of additional shares to key employees, adivsors, or investors in the
Company's Initial Capitalization.
<PAGE>
Certain portions of this
exhibit have been
omitted based upon
a request for confidential
treatment. Omitted portions
have been separately filed
with the Securities and
Exchange Commission.
RESEARCH AND LICENSE AGREEMENT
This Agreement dated 23rd day of December, 1994 is between The Johns
Hopkins University, a corporation of the State of Maryland, having a principal
place of business at 720 Rutland Avenue, Baltimore, Maryland 21205 (hereinafter
referred to as "JHU" and Gryphon Pharmaceuticals, Inc., a Delaware corporation
(hereinafter the "Company") having an initial address at 1629 Thames Street,
Suite 400, Baltimore, MD 21231.
WITNESSETH:
WHEREAS, as a center for research and education, JHU is interested in
licensing PATENT RIGHTS (hereinafter defined) in a manner that will benefit
the public by facilitating the distribution of useful products and the
utilization of new methods, but is without capacity to commercially develop,
manufacture and distribute any such products or methods; and
WHEREAS, Company desires to commercially develop, manufacture, use and
distribute such products and processes covered by PATENT RIGHTS throughout the
world;
ARTICLE 1 - DEFINITIONS
1.1 "AFFILIATED COMPANY" or "AFFILIATED COMPANIES" shall mean any
corporation, company, partnership, joint venture or other entity which
controls, is controlled by or is under common control with the Company. For
purposes of this Paragraph 1.1, control shall mean the direct or indirect
ownership of at least fifty percent (50 %). In addition, for purposes of this
Agreement, Company and Osiris Therapeutics, Inc. ("OSIRIS") are not AFFILIATED
COMPANIES.
1.2 The term "AGREEMENT YEAR" shall mean the twelve month period
beginning on the EFFECTIVE DATE, and each subsequent twelve (12) month period
thereafter.
1.3 The term "BACKGROUND MATERIALS" shall mean the following biological
materials currently existing in the JHU laboratories of PRINCIPAL
INVESTIGATORS: (i) CD34+ cell fractions and (ii) cDNA and other libraries
derived from CD34+ mRNA.
<PAGE>
1.4 The term "PATENT RIGHT(s)" shall mean (i) any patent application or
patent or equivalent thereof, anywhere in the world including, but not limited
to any division, continuation, or continuation-in-part re-examination, reissue
or extension issuing thereon, which is owned by JHU and it contains one or
more claims to any RESEARCH TECHNOLOGY and/or BACKGROUND MATERIALS, and (ii)
the patents and patent applications tabulated in Exhibit B.
1.5 "EFFECTIVE DATE" of this License Agreement shall mean the date the
last party hereto has executed this Agreement.
1.6 "EXCLUSIVE LICENSE" shall mean a grant by JHU to Company of its
entire right and interest in the PATENT RIGHTS, subject to rights retained by
the United States government in accordance with P.L. 96-517, as amended by P.L.
98-620, and subject to the retained right of JHU to make, have made, provide
and use LICENSED PRODUCT(S) and LICENSED SERVICES, for its and The Johns
Hopkins Health Systems' non-profit, noncommercial research purposes or with
LICENSED PRODUCT obtained from LICENSEE for the treatment or diagnosis of
patients by JHU or the Johns Hopkins Health System and in such case Company
will exert reasonable efforts to make such LICENSED PRODUCT available to
JHU or in the alternative JHU may produce same if not available from the
Company.
1.7 The term "FIELD OF RESEARCH" shall mean the isolation,
purification and identification of novel hematopoietic and/or mesenchymal
stem/progenitor cell populations, their genes and gene products and other
materials, reagents and biologics (such as, for example, growth factor
receptors, protein kinases and other signal transduction molecules) involved
in the self renewal, proliferation, inhibition or differentiation of
hematopoietic and/or mesenchymal stem/progenitor cells.
1.8 "FOUNDING SCIENTISTS" shall mean, collectively, Drs. Curt l. Civin
and Donald Small.
1.9 The term "INVESTIGATOR" shall mean PRINCIPAL INVESTIGATORS, JHU
faculty members, graduate students, undergraduate students, fellows or
employees of JHU who shall work under the direction of PRINCIPAL INVESTIGATORS
on the research funded in whole or part by the Company pursuant to this
Agreement.
<PAGE>
1.10 The term "LICENSED PRODUCT" shall mean any article, composition,
apparatus, substance, chemical, material, method, process or service the
manufacture, import, sale or use of which is covered by PATENT RIGHTS.
1.11 "LICENSED SERVICE(S)" means the performance on behalf of a third
party of any method or the use of any product or composition, the manufacture,
use or sale of which is covered by PATENT RIGHTS.
1.12 The term "LICENSED TERRITORY" shall mean all countries of the
world.
1.13 "NET SALES" subject to Paragraph 4.9 shall mean gross sales
revenues received by the Company or an AFFILIATED COMPANY from the sale of
LICENSED PRODUCT(S) less trade discounts allowed, refunds, returns and recalls,
rebates, transportation and transportation-related insurance costs, itemized
on a bill or invoice, and sales taxes.
In the event that Company, AFFILIATED COMPANY or SUBLICENSEE sells a
LICENSED PRODUCT in combination with other ingredients or components which are
not LICENSED PRODUCT(S) (such other ingredients or components being "Other
Items"), then the NET SALES for purposes of royalty payments on the
combination shall be calculated as follows:
(a) If all LICENSED PRODUCT(S) and Other Items contained in the
combination are available separately, the NET SALES for purposes of royalty
payments will be calculated by multiplying the NET SALES of the combination by
the fraction M(A+B), where A is the separately available price of all LICENSED
PRODUCT(S) in the combination, and B is the separately available price for all
Other Items in the combination.
(b) If the combination includes Other Items which are not sold
separately (but all LICENSED PRODUCT(S) contained in the combination are
available separately), the NET SALES of the combination multiplied by the
fraction A/C, where A is as defined above and C is the invoiced price of the
combination.
(c) If the LICENSED PRODUCTS contained in the combination are
not sold separately, the NET SALES for such combination shall be NET SALES
multiplied by D/C where C is as defined above and D is the fair market value of
LICENSED PRODUCTS in the combination. The fair market value will be determined
by negotiation between the
<PAGE>
parties; should the parties fail to reach an agreement, the issue will be
brought to binding arbitration in accordance with the rules of the American
Arbitration Association, as set forth in Paragraph 7.5.
The term "Other Items" does not include solvents, diluents, carriers,
excipients, or the like used in formulating a product.
1.14 "NET SERVICE REVENUES" shall mean actual revenues received for
the performance of LICENSED SERVICE less sales and/or use taxes imposed upon
and with specific reference to the LICENSED SERVICE, trade discounts allowed,
refunds and rebates.
If a LICENSED SERVICE is offered in combination with another service or
services, NET SERVICE REVENUES for purposes of determining royalties on the
LICENSED SERVICE shall be calculated by multiplying the NET SERVICE REVENUES
[as defined above, but applied to the combination services], by the fraction
A/(A+B), where A is the invoice price of the LICENSED SERVICE and B is the
invoice price of the other service or services in the combination if sold
separately.
1.15 The term "PRINCIPAL INVESTIGATOR(S)" shall mean Dr. Curt Civin and
Dr. Donald Small.
1.16 The term "RESEARCH TECHNOLOGY" shall mean any data, formulas,
process information or other information, material, substance, invention or
discovery, whether or not patentable, conceived or first actually or
constructively reduced to practice during the period when research is being
supported under this Agreement solely or jointly by at least one INVESTIGATOR
while acting as an INVESTIGATOR and in his capacity as a JHU faculty member,
graduate student, undergraduate student, fellow or employee of JHU, which is in
the FIELD OF RESEARCH or which is the direct result of research funded in whole
or in part by the Company pursuant to Paragraph 5.1 of this Agreement.
1.17 The term "SUBLICENSEE" shall mean any non-AFFILIATED COMPANY
licensed by Company to make, have made, import, use or sell any LICENSED
PRODUCT.
1.18 "VALID CLAIM" shall mean a claim of an issued patent which has not
lapsed or become abandoned or been declared invalid or unenforceable by a
court of competent jurisdiction or an administrative agency from which no
appeal can be or is taken.
<PAGE>
ARTICLE 2- GRANTS
2.1 Subject to the terms and conditions of this Agreement JHU hereby
grants to the Company an EXCLUSIVE LICENSE under the PATENT RIGHTS and a non-
exclusive license under RESEARCH TECHNOLOGY and BACKGROUND MATERIAL to make,
have made, use and sell the LICENSED PRODUCT(S) and to provide the LICENSED
SERVICE(S) in the LICENSED TERRITORY.
2.2 Company may sublicense others under this Agreement and shall
provide a copy of each such sublicense agreement to JHU promptly after it is
executed. Each sublicense shall be consistent with the non-financial terms of
this Agreement.
2.3 Company shall have the right to extend its license rights granted
under Paragraph 2.1 to its AFFILIATED COMPANIES; however, such AFFILIATED
COMPANIES must agree in writing to be bound by the terms of this Agreement with
a copy of such agreement promptly sent to JHU after it is executed.
ARTICLE 3- PATENT INFRINGEMENT
3.1 Each party will notify the other promptly in writing when any
infringement of the PATENT RIGHTS by another is uncovered or suspected.
3.2 Company shall have the first right to enforce any patent within
PATENT RIGHTS against any infringement or alleged infringement thereof, and
shall at all times keep JHU informed as to the status thereof. Company may, in
its sole judgment and at its own expense, institute suit against any such
infringer or alleged infringer and control, settle, and defend such suit in a
manner consistent with the terms and provisions hereof and recover, for its
account, any damages, awards or settlements resulting therefrom, subject to
Paragraph 3.4. This right to sue for infringement shall not be used in an
arbitrary or capricious manner. JHU shall reasonably cooperate in any such
litigation at Company's expense.
3.3 If Company elects not to enforce any patent within the PATENT
RIGHTS, then it shall so notify JHU in writing within six (6) months of
receiving notice that an infringement exists, and JHU may, in its sole judgment
and at its own expense, take steps to enforce any patent and control, settle,
and defend such suit in a manner consistent with the terms
<PAGE>
and provisions hereof, and recover, for its own account, any damages, awards
or settlements resulting therefrom.
3.4 Any recovery by Company under Paragraph 3.2 shall be deemed to
reflect loss of commercial sales, and Company after reimbursing JHU out of the
recovery for amounts credited pursuant to the next sentence shall pay to JHU
fifteen percent (15 %) of the recovery net of all reasonable costs and
expenses associated with each suit or settlement. One-half (1/2) of the costs
and expenses incurred by the Company pursuant to Paragraph 3.2 shall be
credited against royalties payable by Company to JHU hereunder in connection
with sales in the country of such legal proceedings, provided, however, that
any such credit under this Paragraph 3.4 shall not exceed fifty percent (50 %)
of the royalties otherwise payable to JHU with regard to sales in the country
of such action in any one calendar year, with any excess credit being carried
forward to future calendar years.
3.5 In the event that litigation against Company is initiated by a
third party charging Company with infringement of a patent of the third party
in a country as a result of the manufacture, use or sale by Company of a
LICENSED PRODUCT or LICENSED SERVICE in that country Company shall promptly
notify JHU in writing thereof. Company's costs as to any such defense in that
country shall be creditable against any and all payments due and payable to
JHU under Paragraph 4.5 of this Agreement with respect to that LICENSED PRODUCT
and/or LICENSED SERVICE in that country. No royalty payment after taking into
consideration any such credit under this Paragraph 3.5 shall be reduced by
more than fifty percent (50%).
3.6 In the event of a judgment in any suit in which a court of
competent jurisdiction rules that the manufacture, use or sale by Company in
a country of a LICENSED PRODUCT or LICENSED SERVICE covered by a PATENT RIGHT,
in that country has infringed on a third party's patent requiring Company to
pay damages or a royalty to said third party in that country, or in the event
of a settlement of such suit requiring damages or back royalty payments to be
made, payments due to JHU under Paragraph 4.5 of this Agreement arising from
the applicable LICENSED PRODUCT or LICENSED SERVICE shall be correspondingly
reduced in that country by the amounts due under the requirement of such
judgment or under the terms of such settlement. The royalty payment after
taking into
<PAGE>
consideration any such reduction under this Paragraph 3.6 shall not be
reduced by more than fifty percent (50%).
3.7 In any infringement suit against a third party, either party hereto
may institute to enforce the PATENT RIGHTS pursuant to this Agreement, the
other party hereto shall, at the request of the party initiating such suit,
cooperate in all respects and, to the extent possible, have its employees
testify when requested and make available relevant records, papers,
information, samples, specimens, and the like. All reasonable out-of-pocket
costs incurred in connection with rendering cooperation requested hereunder
shall be paid by the party requesting cooperation.
ARTICLE 4- PAYMENTS. ROYALTY. RESEARCH SUPPORT AND EQUITY
4.1 Company shall reimburse JHU for JHU's past and future costs
associated with preparing, filing, maintaining and prosecuting PATENT RIGHTS in
accordance with Article 6.
4.2 The Company shall reimburse JHU for its costs in outside legal fees
to review the corporate formation and shareholder documents; such reimbursement
shall not exceed [*CONFIDENTIALITY REQUESTED*].
4.3 The Company shall pay to JHU an up front processing fee of
[*CONFIDENTIALITY REQUESTED*]; of which [*CONFIDENTIALITY REQUESTED*] is
due within thirty (30) days from the EFFECTIVE DATE of this Agreement, and
[*CONFIDENTIALITY REQUESTED*] is due on May 30, 1995. For each new invention
in RESEARCH TECHNOLOGY for which an original (i.e., not continuational or
divisional) U.S. Patent application is filed, Company shall pay JHU an
additional [*CONFIDENTIALITY REQUESTED*] processing fee at the time of such
filing.
4.4 The Company shall pay to JHU a [*CONFIDENTIALITY REQUESTED*] annual
maintenance fee due within thirty (30) days of each anniversary of the
EFFECTIVE DATE of this Agreement.
4.5 The Company shall pay to JHU one of the following royalties which
shall be due and payable sixty (60) days after June 30 and December 31 for
LICENSED PRODUCTS sold or LICENSED SERVICES provided in the respective half-
year period:
<PAGE>
a. [*CONFIDENTIALITY REQUESTED*] of NET SALES of LICENSED PRODUCTS or
NET SERVICE REVENUE of LICENSED SERVICES which are therapeutics,
and [*CONFIDENTIALITY REQUESTED*] of NET SALES of LICENSED PRODUCTS
or NET SERVICE REVENUE of LICENSED SERVICES in the case of
diagnostics, sold or provided by the Company or an AFFILIATED
COMPANY licensed under this Agreement which in the country where
made, sold or provided are covered by a VALID CLAIM included in
PATENT RIGHTS.
b. The higher of (i) [*CONFIDENTIALITY REQUESTED*] of royalties
received by the Company from a SUBLICENSEE other than Osiris
Therapeutics, Inc. or its affiliates hereunder for LICENSED PRODUCTS
sold or LICENSED SERVICES provided by such SUBLICENSEE which in the
country where made, sold or provided is covered by a VALID CLAIM
included in PATENT RIGHTS or (ii) an amount equal to
[*CONFIDENTIALITY REQUESTED*] of such SUBLICENSEE'S NET SALES from
LICENSED PRODUCTS sold or NET SERVICE REVENUE of LICENSED SERVICES
provided by such SUBLICENSEES and covered by a VALID CLAIM included
in PATENT RIGHTS. However, if Osiris Therapeutics, Inc. or its
affiliates are the SUBLICENSEE, Company shall pay [*CONFIDENTIALITY
REQUESTED*] of NET SALES of LICENSED PRODUCTS or NET SERVICE REVENUE
of LICENSED SERVICES sold or produced by Osiris Therapeutics, Inc.
which in the country where made, sold or provided is covered by a
VALID CLAIM included in PATENT RIGHTS.
4.6 In the event royalties are due hereunder with respect to a LICENSED
SERVICE solely because such service, involves the use of a LICENSED PRODUCT,
for the purposes of calculating royalties hereunder, NET SALES for the
LICENSED PRODUCT and/or NET SERVICE REVENUES for the LICENSED SERVICE shall be
based on the price of the LICENSED PRODUCT, respectively in arm's length
transactions. If no such transactions have taken place, such price shall be
determined by mutual agreement of the parties and if such agreement is not
reached within sixty (60) days, either party shall have the right to submit a
<PAGE>
determination of price to binding arbitration according to the rules of the
American Arbitration Association as set forth in Paragraph 7.5.
4.7 The Company shall provide to JHU within sixty (60) days of the end
of each June 30 and December 31, after the EFFECTIVE DATE of this Agreement, a
written report to JHU of the amount of LICENSED PRODUCTS sold, and LICENSED
SERVICES sold, the total NET SALES and NET SERVICE REVENUES of such LICENSED
PRODUCTS and LICENSED SERVICES, and the running royalties due to JHU as a
result of NET SALES and NET SERVICE REVENUES by Company, AFFILIATED COMPANIES
and SUBLICENSEES. Payment of any such royalties due shall accompany such
report. So long as Company, an AFFILIATED COMPANY or a SUBLICENSEE is
developing a LICENSED PRODUCT under this Agreement, a report shall be
submitted at the end of every June 30 and December 31 after the EFFECTIVE
DATE of this Agreement and will include a full written report describing the
Company's, AFFILIATED COMPANIES or SUBLICENSEE'S technical efforts under
Article 7.
4.8 The Company shall make and retain, for a period of three (3) years
following the period of each royalty report required by Paragraph 4.7, true
and accurate records, files and books of account containing all the data
reasonably required for the full computation and verification of sales and
other royalty related information required in Paragraph 4.7. Such books and
records shall be in accordance with generally accepted accounting principles
consistently applied. The Company shall permit the inspection and copying of
such records, files and books of account by JHU or its agents during regular
business hours upon ten (10) business days' written notice to the Company.
Such inspection shall not be made more than once each calendar year. All costs
of such inspection and copying shall be paid by JHU, provided that if any
such inspection shall reveal that an underpayment error has been made in the
amount equal to ten percent (10%) or more of such payments in a calendar year,
such costs shall be borne by the Company. The Company shall include in any
agreement with its AFFILIATED COMPANIES or SUBLICENSEES which permits
such party to make, use or sell the LICENSED PRODUCT(S) or provide LICENSED
SERVICES, a provision requiring such party to retain records of sales of
LICENSED PRODUCT(S) and records of LICENSED
<PAGE>
SERVICES and other information as required in Paragraph 4.7 and permit JHU to
inspect such records as required by this Paragraph 4.8.
4.9 In order to insure JHU the full royalty payments contemplated
hereunder, the Company agrees that in the event any LICENSED PRODUCT shall be
sold to an AFFILIATED COMPANY, then the royalty due hereunder shall be based on
the higher of (i) NET SALES of the LICENSED PRODUCT to the AFFILIATED COMPANY
or (ii) the NET SALES of the AFFILIATED COMPANY from the resale of such
LICENSED PRODUCT.
4.10 In order to insure JHU the full royalty payments contemplated
hereunder, the Company agrees that in the event any LICENSED PRODUCT or
LICENSED SERVICE shall be sold to other than an AFFILIATED COMPANY for partial
or full future compensation then such future compensation when received shall
be included in NET SALES for the purpose of paying royalties hereunder. In
addition, if Company sells LICENSED PRODUCT or LICENSED SERVICES to a person or
entity in whom Company has an ownership interest other than an AFFILIATED
COMPANY and JHU can demonstrate that such sale was other than an arms length
transaction, then NET SALES shall include any additional amount that would have
been paid in an arms length transaction.
4.11 All payments under this Agreement shall be made in U.S. Dollars.
4.12 To the extent royalty is owed to a third party for patents held by
that party covering the making, using or selling of a LICENSED PRODUCT or
LICENSED SERVICE in a particular country, the royalty due to JHU under
Paragraph 4.5 for such LICENSED PRODUCT or LICENSED SERVICE in such country
will be reduced by one-half (1/2) such royalty paid to such third party;
however, in no event shall such royalty due to JHU for such LICENSED PRODUCT or
LICENSED SERVICE be less that [*CONFIDENTIALITY REQUESTED*] of NET SALES or NET
SERVICE REVENUES.
4.13 Any tax required to be withheld by Company under the laws of any
foreign country for the account of JHU, shall be promptly paid by Company for
and on behalf of JHU to the appropriate governmental authority, and Company
shall use its best efforts to furnish JHU with proof of payment of such tax.
Any such tax actually paid on JHU's behalf shall be deducted dollar for dollar
from royalty payments due JHU.
<PAGE>
4.14 Only one royalty shall be due and payable for the manufacture, use
and sale of a LICENSED PRODUCT or a LICENSED SERVICE irrespective of the number
of patents or claims thereof which cover {he manufacture, use or sale of such
LICENSED PRODUCT or LICENSED SERVICE.
4.15 The Company shall pay to JHU the following payments which are due
on the occurrence of each of the following milestones:
[*CONFIDENTIALITY REQUESTED*] upon completion of Phase II
or J/II FDA trial for each LICENSED PRODUCT
[*CONFIDENTIALITY REQUESTED*] upon issuance of NDA or PLA
for each LICENSED PRODUCT
ARTICLE 5 - SPONSORED BASIC RESEARCH
5.1 Company shall provide the following research support (full direct
and normal JHU indirect expenses) to JHU to support research in the JHU
laboratories of PRINCIPAL INVESTIGATORS pursuant to Paragraph 5.2; the
research support (full direct and normal JHU indirect expenses) for each
annual period shall be paid quarterly on July 1st, October 1st, January 1st,
April 1st:
Annual Support Period
[*CONFIDENTIALITY REQUESTED*] July 1, 1994 - June 30, 1995
[*CONFIDENTIALITY REQUESTED*] July 1, 1995 - June 30, 1996
[*CONFIDENTIALITY REQUESTED*] July 1, 1996 - June 30, 1997
[*CONFIDENTIALITY REQUESTED*] July 1, 1997 - June 30, 1998
[*CONFIDENTIALITY REQUESTED*] July 1, 1998 - June 30, 1999
Failure to make any of the above quarterly research payments will be a
material breach of this License Agreement.
<PAGE>
The parties acknowledge that Company has already advanced
[*CONFIDENTIALITY REQUESTED*] towards the first years payment. Accordingly, it
is agreed that [*CONFIDENTIALITY REQUESTED*] will be paid by Company to JHU on
January 1, 1995 and [*CONFIDENTIALITY REQUESTED*] on April 1, 1995.
5.2 (a) Each quarterly amount provided under Paragraph 5.1 will be
equally ivided between PRINCIPAL INVESTIGATORS and used for basic research
activities in identifying natural or synthesized molecules involved in the
proliferation, commitment differentiation and regulation of hematopoietic stem/
progenitor cells and their progeny. JHU, based on the recommendation of the
Founding Scientists, will prepare a budget for the upcoming year and a
statement of work. The budget and work statement for the first year will be
completed within ninety (90) days after the effective date of this Agreement
and attached hereto as Exhibit D.
(b) If a PRINCIPAL INVESTIGATOR ceases to be employed by JHU, the
research specified above will be reduced one half (1/2) and applied to the
laboratory of the remaining PRINCIPAL INVESTIGATOR; however, if both PRINCIPAL
INVESTIGATOR(S) leave the employment of JHU, the research funding will be
reduced by one hundred percent (100%). The Company agrees to enter into a
written agreement substantially in the form of this Agreement with such
PRINCIPAL INVESTIGATOR'(S) new employing institution relative to continuing
the research funding and licensing of technology provided that such
institution is willing to enter into such agreement, PRINCIPAL INVESTIGATORS
are a third party beneficiary of Company's obligations under this Paragraph
5.2(b).
(c) Within sixty (60) days after the end of each AGREEMENT YEAR,
JHU shall provide Company with an accounting of the expenditure of research
funds for such year in accordance with JHU's standard procedures for such
accounting. Any funds granted hereunder which have not been expended by JHU
within the year shall be continued to be used to fund research under this
Agreement. Any funds which have not been expended upon any termination of the
research funding shall be returned to the Company.
(d) During the period during which Company is funding research
under this Agreement, neither PRINCIPAL INVESTIGATOR may seek or accept funding
from a commercial sponsor in the FIELD OF RESEARCH but may accept funding from
the
<PAGE>
government, not-for-profit organizations and other universities. Company
acknowledges that the PRINCIPAL INVESTIGATORS can continue to receive funding
from Ceilco Incorporated, pursuant to a Research Agreement signed March 23,
1994 and that research conducted under such Research Agreement will not be in
violation of any terms and conditions of this Agreement; provided that the
scope of the work currently being performed under that Research Agreement will
not be expanded nor will that Research Agreement be amended without the prior
approval of Company.
(e) Beginning on the effective date of this Agreement and
thereafter unless sooner terminated, JHU shall:
(i) through the PRINCIPAL INVESTIGATORS conduct research, and
apply the funds paid by Company to support the expenses of research and shall
use reasonable efforts and diligence consistent with JHU's professional
standards to achieve the goals for such research;
(ii) promptly and systematically disclose to Company, RESEARCH
TECHNOLOGY and Company shall be entitled to use such RESEARCH TECHNOLOGY
pursuant to Paragraph 2.1;
(iii) for the purpose of facilitating disclosure to Company of
RESEARCH TECHNOLOGY, permit duly authorized employees of or representatives of
Company to visit the PRINCIPAL INVESTIGATORS' laboratories at JHU or other JHU
facilities where research is conducted at reasonable times and with reasonable
notice;
(iv) promptly advise Company of any Invention and adequate
advance notice of the intent to file, filing, allowance and issuance of any
PATENT RIGHT;
(v) at Company's request provide Company with BACKGROUND
MATERIALS and reasonable research quantities of materials produced or derived
from the research conducted herein ("MATERIALS"); and
(vi) JHU shall, on a continuing basis, advise Company of the
results of the research sponsored hereunder and at least once every twelve (12)
months provide Company with written progress reports concerning such research.
A final written report setting forth in detail the results achieved under and
pursuant to such research shall be submitted by JHU to Company within ninety
(90) days of termination of the research. Such final report shall
<PAGE>
include (1) a complete summary of the research carried out; (2) a scientific
assessment by the PRINCIPAL INVESTIGATORS of the research; and (3) detailed
experimental protocols of the assays performed in the course of the research.
5.3 The PRINCIPAL INVESTIGATORS will assure that all faculty, students,
fellows or other employees of JHU working in their laboratories on the
research project or collaborating with them on the research funded by Company
hereunder sign the Invention Agreement (Exhibit A).
5.4 (a) During the period in which Company holds a license, JHU and
PRINCIPAL INVESTIGATORS shall not, without Company's prior written approval,
distribute or knowingly allow any materials which are RESEARCH TECHNOLOGY to
be distributed to for-profit entities or persons known to be employed thereby
or consulting or performing research therefor other than under a license
permitted under this Agreement.
(b) JHU and PRINCIPAL INVESTIGATORS shall have the right to
transfer materials which are RESEARCH TECHNOLOGY to (i) not-for-profit entities
or persons known to be affiliated therewith, or (ii) to any person or entity,
if required by a journal in connection with a publication or if required by
Government rules and/or regulations, provided that such entities or persons
sign the Material Transfer Agreement set forth in Exhibit C or a modification
thereto agreeable to JHU and Company. The PRINCIPAL INVESTIGATORS shall notify
Company before any such distribution is made.
(c) Prior to any such distribution of any such MATERIALS, JHU and
Company shall use reasonable efforts to consider the patentability of such
MATERIALS and cooperate to file, where appropriate, PATENT RIGHTS protecting
such MATERIALS prior to their distribution.
5.5 Notwithstanding anything else to the contrary, JHU and PRINCIPAL
INVESTIGATORS agree not to publish or disclose to third parties RESEARCH
TECHNOLOGY without supplying Company with a copy of the material to be
disclosed or published to third parties at time of submission for publication
or disclosure so that Company may evaluate such material to determine whether
the material contains patentable subject matter on which a patent application
should be filed, Company shall review the material within fifteen (15) days of
submission to Company. At Company's request, JHU initially will delay
<PAGE>
publication and/or disclosure for an additional thirty (30) days in order to
enable the preparation and filing of a patent application on any such
patentable subject matter. Notwithstanding anything to the contrary, JHU will
not be required to withhold publication of such material for a period which is
more than forty-five (45) days after Company is first provided with the
material to be disclosed or published.
ARTICLE 6 - PATENT RIGHTS AND CONFIDENTIAL INFORMATION
6.1 (a) JHU, at the Company's expense, shall file, prosecute and
maintain all patents and patent applications specified under PATENT RIGHTS upon
authorization of the Company and the Company shall be licensed thereunder.
Tide to all such patents and patent applications shall reside in JHU. JHU
shall have full and complete control over all patent matters in connection
therewith under the PATENT RIGHTS. The Company will provide payment
authorization to JHU at least one (1) month before an action is due, provided
that the Company has received timely notice of such action from JHU. Failure
to provide authorization can be considered by JHU as a Company decision not to
authorize an action. In any country where the Company elects not to have a
patent application filed or to pay expenses associated with filing,
prosecuting, or maintaining a patent application or patent, JHU may file,
prosecute, and/or maintain a patent application or patent at its own expense
and for its own exclusive benefit and the Company thereafter shall not be
licensed under such patent or patent application.
(b) For patent applications in PATENT RIGHTS that are jointly
owned by JHU and the Company, the Company shall file, prosecute and maintain
all such patents and patent applications and the Company shall be licensed
thereunder. Title to all such patents and patent applications shall reside
jointly in JHU and the Company.
(c) The parties shall first consult with each other as to the
preparation, filing, prosecution and maintenance of such applications and
patents. Each party shall keep the other advised as to all developments with
respect to all patent applications and patents included in PATENT RIGHTS and
shall promptly supply the other: (i) copies of all official correspondence from
the U.S. Patent Office or from a patent office in any other country within a
reasonable time after receipt; and (ii) copies of all substantive papers to be
filed in the U.S. Patent Office or a patent office in any other country a
reasonable time prior to filing to provide
<PAGE>
sufficient time to comment thereon. In any country where a party elects not
to file a patent application or to pay expenses associated with filing,
prosecuting, or maintaining a patent application or patent, the other party
may file, prosecute, and/or maintain a patent application or patent at
its own expense and for its own exclusive benefit and thereafter the party so
electing shall not have tide to or be licensed under such patent or patent
application.
6.2 Company agrees that all packaging containing individual LICENSED
PRODUCT(S) sold by Company, AFFILIATED COMPANIES and SUBLICENSEES will be
marked with the number of the applicable patent(s) licensed hereunder in
accordance with each country's patent laws.
6.3 If necessary, the parties will exchange information which they
consider to be confidential. The recipient of such information agrees to accept
the disclosure of said information which is marked as confidential at the time
it is sent to the recipient, and to employ all reasonable efforts to maintain
the information secret and confidential, such efforts to be no less than the
degree' of care employed by the recipient to preserve and safeguard its own
confidential information. The information shall not be disclosed or revealed
to anyone except employees of the recipient who have a need to know the
information and who have entered into a secrecy agreement with the recipient
under which such employees are required to maintain confidential the
proprietary information of the recipient and such employees shall be advised
by the recipient of the confidential nature of the information and that the
information shall be treated accordingly. The recipient's obligations under
this Paragraph 6.3 shall not extend to any part of the information:
a. that can be demonstrated to have been in the public domain or publicly
known and readily available to the trade or the public prior to the
date of the disclosure; or
b. that can be demonstrated, from written records to have been in the
recipient's possession or readily available to the recipient from
another source not under obligation of secrecy to the disclosing party
prior to the disclosure; or
c. that becomes part of the public domain or publicly known by
publication or otherwise, not due to any unauthorized act by the
recipient.
<PAGE>
d. that can be demonstrated, from written records, to have been developed
by the recipient independently of the disclosed information.
The obligations of this Paragraph 6.3 shall also apply to AFFILIATED COMPANIES
and/or SUBLICENSEES provided such information by Company. JHU's, the
Company's, AFFILIATED COMPANIES, and SUBLICENSEES' obligations under this
Paragraph 6.3 shall extend until three (3) years after the termination of this
Agreement. Notwithstanding the foregoing, Company, AFFILIATED COMPANIES and/or
SUBLICENSEES shall have the right to disclose Confidential Information of JHU
to a third party who undertakes an obligation of confidentiality and non-use
with respect to such information at least as restrictive as the obligations
under this Paragraph 6.3
ARTICLE 7- TERM. MILESTONES AND TERMINATION
7.1 This Agreement shall expire in each country on the date of
expiration of the last to expire patent included within PATENT RIGHTS in that
country or if no patents issue seventeen (17) years from the EFFECTIVE DATE of
this Agreement at which time Company shall have a fully paid up noncancellable
license.
7.2 For each PATENT RIGHT Company agrees to exercise reasonable efforts
and to take effective steps, within a reasonable time to (i) identify product
candidate(s) which are LICENSED PRODUCT(S) (ii) perform pre-clinical animal
and toxicological studies for each identified product candidate, (iii) conduct
clinical studies aimed at obtaining FDA regulatory approval for each
identified product candidate and (iv) develop and commercialize each such
product, provided however, a LICENSED PRODUCT need not be identified and
developed for a PATENT RIGHT if a similar product is being developed under
another PATENT RIGHT. Company's obligations under this paragraph shall take
into account the stage of development thereof and regulatory consideration and
requirements. The efforts of a SUBLICENSEE, an AFFILIATE, a collaborator and
research funded under this Agreement shall be considered as efforts of the
Company.
7.3 (a) As part of the efforts under Paragraph 7.2, Company shall
exercise reasonable efforts to meet the following milestones within the time
set forth below:
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(i) within four (4) years from the earlier of (i) the closing
of the Second Round Financing (as defined in the Stock Purchase Agreement
between the parties), or (ii) October 1, 1997 initiate Phase I clinical trials
of a LICENSED PRODUCT.
(ii) within three (3) years from the identification of a
product candidate as set forth in Paragraph 7.2, start the Phase I clinical
study of such LICENSED PRODUCT.
(iii) within seven (7) years from the start of the Phase I
Study of each product candidate, obtain FDA commercial approval (NDA/PLA) of
such LICENSED PRODUCT
(b) JHU will; not unreasonably withhold its consent to Company's
request for a reasonable extension of any of the above milestones if the
Company can demonstrate that its inability to meet such milestone occurred as a
result of reasons beyond the control of Company (including scientific or
regulatory reasons beyond the control of Company).
(c) If, as to a specific LICENSED PRODUCT, Company fails to
exercise reasonable efforts as required by Paragraphs 7.2 or meet milestones
required by 7.3, as its sole and exclusive remedy JHU may terminate Company's
license with respect thereto, provided however, if in good faith Company has
pursued research and development of such LICENSED PRODUCT and in good faith
Company intends to pursue research and development of such LICENSED PRODUCT and
reasonably appears to have the ability to do so and thereafter in good faith
does continue to do so, JHU's sole and exclusive remedy shall be conversion
of the exclusive rights and license for such specifically defined LICENSED
PRODUCT to non-exclusive rights and licenses.
7.4 Company can market and sell LICENSED PRODUCT(S) and LICENSED
SERVICE(S) to third parties at a sales price determined by Company in its sole
discretion.
7.5 Any matter or disagreement arising under Paragraphs 1.13(c), 4.6,
7.2 or 7.3 shall be submitted to a mutually selected single arbitrator to so
decide any such matter or disagreement. The arbitrator shall conduct the
arbitration in accordance with the Rules of the American Arbitration
Association, unless the parties agree otherwise. If the parties are unable to
mutually select an arbitrator, the arbitrator shall be selected in accordance
with the procedures of the American Arbitration Association. The decision by
the arbitrator shall be final and
<PAGE>
binding and may be enforced in any court of competent jurisdiction. Any
arbitration pursuant to this section shall be held in Washington, D.C., or
such other place as may be mutually agreed upon in writing by the parties.
7.6 After NDA or PLA has been obtained from the FDA, Company shall
exercise commercially reasonable efforts to market a product included in
LICENSED PRODUCTS in the U.S. and worldwide, provided that Company has obtained
regulatory approval in a particular foreign nation or region.
7.7 In the event that a third party notifies JHU that it desires to
develop and market a LICENSED PRODUCT which is not being researched and/or
developed and/or marketed by Company, an AFFILIATED COMPANY or SUBLICENSEE, JHU
shall notify Company in writing thereof. If Company does not notify JHU within
ninety (90) days of such written notice that Company or an AFFILIATED
COMPANY or SUBLICENSEE intends to research and develop such LICENSED PRODUCT
and does not initiate such research and development in accordance with the
provisions of paragraph 7.2 hereof with a reasonable time thereafter, Company
shall enter into good faith negotiations with such third party for granting a
sublicense for such LICENSED PRODUCT unless the granting of such sublicense
would have a potential adverse commercial effect upon marketing and/or selling
of a LICENSED PRODUCT which is being researched, developed, or sold pursuant
to this Agreement.
7.8 Except as provided in Paragraphs 7.2 and 7.3, upon breach or
default of any of the terms and conditions of this Agreement, the defaulting
patty shall be given written notice of such default in writing and a period of
sixty (60) days after receipt of such notice to correct the default or breach.
If the default or breach is not corrected within said sixty (60) day period,
the party not in default shall have the right to terminate this Agreement.
7.9 Company may terminate this Agreement or any of the licenses granted
herein under any PATENT RIGHT in any country, for any reason, upon giving JHU
sixty (60) days written notice.
7.10 Termination shall not affect JHU's right to recover unpaid
royalties or fees or reimbursement for patent expenses incurred pursuant to
Paragraph 6.1 prior to termination. Upon termination all rights in and to the
licensed technology (including PATENT RIGHTS) shall revert to JHU at no cost to
JHU.
<PAGE>
7.11 Upon any termination of this Agreement Company, at its option,
shall be entitled to finish any work-in-progress which is completed within six
(6) months of termination of this Agreement and to sell any completed inventory
of a LICENSED PRODUCT covered by this Agreement which remains on hand as of the
date of the termination, so long as Company pays to JHU the royalties
applicable to said subsequent sales in accordance with the same terms and
conditions as set forth in this Agreement.
7.12 In the event that this Agreement and/or the rights and licenses
granted under this Agreement to Company are terminated, any sublicense granted
under this Agreement shall remain in full force and effect as a direct license
between JHU and the SUBLICENSEE under the terms and conditions of the
sublicense agreement, subject to the SUBLICENSEE agreeing to be bound directly
to JHU under such terms and conditions of the sublicense as well as all the
relevant duties and obligations of a licensee under this Agreement (other
than royalty and other payment obligations which shall be paid in accordance
with the sublicense provided the JHU receives a royalty of at least two
percent of the SUBLICENSEE's NET SALES) within thirty (30) days after JHU
provides written notice to the SUBLICENSEE of the termination of Company's
rights and licenses under this Agreement, provided further that JHU's
obligations under such sublicense are no greater than currently existing
under this Agreement. At the request of the Company, JHU will acknowledge to a
SUBLICENSEE, JHU's obligations to the SUBLICENSEE under this paragraph.
ARTICLE 8- MISCELLANEOUS
8.1 All notices pertaining to this Agreement shall be in writing and
sent certified mail, return receipt requested, to the parties at the following
addresses or such other address as such party shall have furnished in writing
to the other party in accordance with this Paragraph 8.1:
FOR JHU: Dr. Francis J. Meyer
Assistant Dean for Technology Licensing
The Johns Hopkins University
School of Medicine
2024 East Monument Street
Suite 2-100
<PAGE>
Baltimore, MD 21205
FOR COMPANY: Mr. James S Burns
President and CEO
Gryphon Pharmaceuticals, Inc.
1629 Thomas Street
Suite 400
Baltimore, MD 21231
CC: Carella, Byrne, Bain, Gilfillan,
Ceechi, Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
Attn: Elliot M. Olstein, Esq.
8.2 All written progress reports, royalty and other payments, and any
other related correspondence shall be in writing and sent to:
FOR JHU: Francis 3. Meyer, Ph.D.
Assistant Dean for Technology Licensing
The Johns Hopkins University
School of Medicine
2024 East Monument Street
Suite 2-100
Baltimore, MD 21205
or such other addressee which JHU may designate in writing from time to time.
Checks are to be made payable to "The Johns Hopkins University".
8.3 This Agreement is binding upon and shall inure to the benefit of
Company, its successors and assignees and shall not be assignable to another
party without the written consent of JHU, which consent shall not be reasonably
withheld, except that the Company shall have the right to assign this
Agreement to another party without the consent of JHU in the case of the sale
or transfer or merger or consolidation of the Company or sale or transfer by
the Company to that party of all, or substantially all, of its assets or all
or substantially all of the portion of its assets to which this Agreement
relates, provided the assignee undertakes to be bound by and perform the
obligations of the assignor under this Agreement.
8.4 In the event that any one or more of the provisions of this
Agreement should for any reason be held by any court or authority having
jurisdiction over this Agreement,
<PAGE>
or over any of the parties hereto to be invalid, illegal or unenforceable,
such provision or provisions shall be reformed to approximate as nearly as
possible the intent of the parties, and if unreformable, shall be divisible
and deleted in such jurisdictions; elsewhere, this Agreement shall not be
affected.
8.5 The construction, performance, and execution of this Agreement
shall be governed by the laws of the State of Maryland.
8.6 (a) The Company and its AFFILIATED COMPANIES and its SUBLICENSEES
shall not use the names, likenesses, or logos of JHU or any of its schools or
divisions or The Johns Hopkins Health Systems or any of its constituent parts
and affiliated hospitals and companies, such as The Johns Hopkins Hospital or
any contraction or derivative thereof or the names of JHU's faculty members,
employees, and students in any press releases, general publications,
advertising, marketing, promotional or sales literature without prior written
consent from an authorized official of JHU which consent shall not be
unreasonably withheld. It should be understood that JHU does not allow any
use of its name for the endorsement of products.
(b) Notwithstanding Paragraph 8.6(a), the Company shall have the
right to use the name of JHU in agreements between Company and OSIRIS and in
any SEC filing (including but not limited to 8K statements), fundraising
documents and the like and in any case where such use is required by law, rule
or regulation provided that the Company shall provide JHU with the appropriate
documents and papers which use the name of JHU for JHU's review and comment no
less than three (3) business days prior to the anticipated date of submission
of such documents or papers.
(c) All notifications relating to the use of JHU's name as
required herein shall be made to the person listed below:
Francis J. Meyer, Ph.D.
Assistant Dean of Technology Licensing
Johns Hopkins University
Office of Technology Licensing
2024 East Monument Street
Suite 2-100
Baltimore, MD 21205
<PAGE>
8.7 JHU warrants that it has good and valid title to its interest in
the inventions claimed under PATENT RIGHTS with the exception of certain
retained rights of the United States government. In addition, JHU warrants that
it has not licensed or assigned any right or interest in or to PATENT RIGHTS to
any third party, and the granting of such rights to Company hereunder does not
require the consent of a third party; and JHU is not aware as of the
EFFECTIVE DATE of this Agreement of any legal or contractual restriction which
would inhibit its ability to perform the terms and conditions imposed on it by
this Agreement. JHU does not warrant the validity of any patents or that
practice under such patents shall be free of infringement. EXCEPT AS EXPRESSLY
SET FORTH IN THIS PARAGRAPH 8.7, Company, AFFILIATED COMPANIES AND
SUBLICENSEES AGREE THAT THE PATENT RIGHTS ARE PROVIDED "AS IS", AND THAT JHU
MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE PERFORMANCE OF
LICENSED PRODUCT(S) AND LICENSED SERVICES INCLUDING THEIR SAFETY,
EFFECTIVENESS, OR COMMERCIAL VIABILITY. JHU DISCLAIMS ALL WARRANTIES WITH
REGARD TO PRODUCT(S) AND SERVICES LICENSED UNDER THIS AGREEMENT, INCLUDING,
BUT NOT LIMITED TO, ALL WARRANTIES, EXPRESS OR IMPLIED, OF MERCHANTABILITY
AND FITNESS FOR ANY PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER P
MENT, JHU ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE PART
OF JHU AND INVESTIGATORS, FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, DIRECT,
INDIRECT, SPECIAL, AND CONSEQUENTIAL DAMAGES, ATTORNEYS' AND EXPERTS' FEES,
AND COURT COSTS (EVEN IF JHU HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, FEES OR COSTS), WHICH DAMAGES ARISE OUT OF OR RESULT FROM THE
MANUFACTURE, USE, OR SALE OF THE PRODUCT(S) AND SERVICES LICENSED UNDER THIS
AGREEMENT. Company, AFFILIATED COMPANIES AND SUBLICENSEES A AS DEFINED IN
THIS AGREEMENT.
<PAGE>
8.8 The Company shall defend and hold JHU, The Johns Hopkins Health
Systems, their present and former trustees, officers, inventors of PATENT
RIGHTS, agents, faculty, employees and students harmless as against any third-
party judgments, fees, expenses, or other costs arising from or incidental to
any product liability or other lawsuit, claim, demand or other action brought
as a consequence of the practice of the inventions of LICENSED PRODUCTS or
LICENSED SERVICES by Company or its AFFILIATED COMPANIES or its SUBLICENSEES
or those operating for its account or third parties who purchase LICENSED
PRODUCT(S) or LICENSED SERVICES from any of the foregoing entities whether
or not JHU or said inventors, either jointly or severally, is named as a party
defendant in any such lawsuit, except those which arise from the gross
negligence or willful misconduct of any of parties indemnified hereunder.
Practice of the inventions covered by LICENSED PRODUCT(S) and LICENSED
SERVICES, by an AFFILIATED COMPANY or an agent or a SUBLICENSEE or a third
party on behalf of or for the account of the Company or by a third party who
purchases LICENSED PRODUCT(S) and LICENSED SERVICES from the Company, shall
be considered the Company's practice of said inventions for purposes of this
Paragraph 8.8. The obligation of the Company to defend and indemnify as set
out in this Paragraph 8.8 shall survive the termination of this Agreement.
8.9 Prior to initiating first commercial sale of any LICENSED PRODUCT
or LICENSED SERVICE as the case may be in any particular county, the Company
shall establish and maintain, or in the alternative maintain for JHU in each
country in which Company, an AFFILIATED COMPANY or SUBLICENSEE shall test
or sell LICENSED PRODUCT(S) and LICENSED SERVICES, product liability
or other appropriate insurance coverage with respect to LICENSED PRODUCT(S)
and LICENSED SERVICES which coverage shall be similar to that maintained by
Companies at a stage of development similar to Company for similar products
provided that such insurance is available at terms, conditions and costs which
are commercially reasonable and prudent under the circumstances. Upon JHU's
request, the Company will furnish JHU with a Certificate of Insurance of each
product liability insurance policy obtained. JHU shall be listed as an
additional insured in Company's said insurance policies.
8.11 This Agreement constitutes the entire understanding between the
parties with respect to the obligations of the parties with respect to the
subject matter hereof, and
<PAGE>
supersedes and replaces all prior agreements, understandings, writings, and
discussions between the parties relating to said subject matter.
8.12 This Agreement may be amended and any of its terms or conditions
may be waived only by a written instrument executed by the authorized officials
of the parties or, in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect its right at a later time to
enforce the same. No waiver by either party of any condition or term in any
one or more instances shall be construed as a further or continuing waiver of
such condition or term or of any other condition or term.
8.13 This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns.
8.14 Upon termination of this Agreement for any reason, Paragraphs 6.3,
7.1, 7.10, 8.6, 8.7, 8.8, 8.9 (to the extent Company, AFFILIATED COMPANIES and/
or SUBLICENSEES are selling or providing LICENSED PRODUCTS or LICENSED SERVICES
under the licenses granted under this agreement) and 8.14 shall survive
termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF the respective parties hereto have executed this
Agreement by their duly authorized officers on the date appearing below their
signatures.
THE JOHNS HOPKINS UNIVERSITY GRYPHON PHARMACEUTICALS, INC.
By: _/s/ David A. Blake____________ By: _/s/ James S. Burns_______________
David A. Blake, Ph.D. James S. Burns
Executive Vice Dean President and CEO
Date: _12/29/94___________________ Date: _12/23/94____________________
I have read, understand and agree to abide by the terms of this Agreement
By: _/s/ Curt I. Civin____ By: _/s/ Donald Small________
Curt I. Civin, M.D. Donald Small, M.D., Ph.D.
Date: _12/23/94 Date: _12/23/94
<PAGE>
EXHIBIT A
INVENTION AGREEMENT
The following individuals who are employees or students of THE JOHNS
HOPKINS UNIVERSITY (hereinafter ?'JHU") hereby agree to assign to JHU all their
right and title to all inventions, mprovements and applicable patent rights
conceived and/or made by them during the course of their research at JHU with
respect to which Gryphon Pharmaceuticals, Inc. ("Gryphon") has rights under a
Research and License Agreement with JHU. The following individuals further
acknowledge that the invention will be licensed pursuant to the JHU/Gryphon
Research and License Agreement and that, only if listed as an inventor on an
issued patent, will he or she be entitled to participate in the running
royalties if any received, for such invention as allocated pursuant to
University policy.
Signature: Signature:
Name: Name:
Title: Title:
Date: Date:
Signature: Signature:
Name: Name:
Title: Title:
Date: Date:
Signature: Signature:
Name: Name:
Title: Title:
Date: Date:
<PAGE>
Signature: Signature:
Name: Name:
Title: Title:
Date: Date:
<PAGE>
EXHIBIT B
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
EXHIBIT C
Dear :
John Hopkins University (JHU) agrees to provide you the material(s)
indicated below, which you requested from __________________________ for your
nonclinical research studies as such studies are described in Appendix A
attached hereto. In order to protect JHU's proprietary rights in the
material(s) or its (their) progeny portions, and derivatives thereof
(hereinafter "Materials"), we request that you and an authorized official of
your institution sign, date, and return this letter agreement to us.
Material(s) identification:
Acceptance of the Material(s) by your institution confirms your agreement
to the following conditions:
1. This agreement and the resulting transfer of the Material(s)
constitute a nonexclusive license to use the Material(s) for
nonprofit, nonclinical research purposes only as described in
Appendix A. The Material(s) will not be used in humans and will be
stored, used, and disposed of in accordance with applicable law and
regulations. The Material(s) will not be used for research for any
commercial purpose or in research sponsored by a commercial entity.
This agreement is not assignable and the Material(s) may not be
transferred to another party.
2. You are free to publish your work involving this Material(s). You
agree to provide JHU with a copy of any publication which contains
results obtained from use of the Material(s).
3. JHU makes no representations whatsoever as to the Material(s). They
are experimental in nature and are provided WITHOUT WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. JHU MAKES NO REPRESENTATION OR
WARRANTY THAT THE USE OF THE MATERIAL(S) WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHT.
4. Except where precluded by Federal law and to the extent allowed by
State law, you and your institution agree to defend, indemnify, and
hold harmless JHU, its trustees, officers, employees, and agents
from any loss, claim, damage, or liability, of any kind whatsoever,
which may arise from you or your institution's use, storage, or
disposal of the Material(s) or any other material that could not
have been made but for the Material(s), except to the extent such
arise due to the gross negligence of JHU.
<PAGE>
To indicate you and your institution's agreement to these conditions,
you and an authorized official should sign and date this letter in the spaces
indicated below and return it to me. If you have any questions concerning
this agreement, you may call me at 410-955-4666.
Sincerely,
Francis J. Meyer, Ph.D.
Assistant Dean for Technology Licensing
FJM:
Signature: ____________________________________
(Recipient Investigator Signature)
Name:
Title:
Date:
RECIPIENT INSTITUTION'S AUTHORIZED OFFICIAL
An Authorized Signature is that of an Institutional Official or Company
Officer specifically authorized to execute documents of this type on behalf
of the Institution.
Institution/Company: ________________________
Signature: __________________________________
Name:
Title:
Date:
<PAGE>
Certain portions of this
exhibit have been
omitted based upon
a request for confidential
treatment. Omitted portions
have been separately filed
with the Securities and
Exchange Commission.
LICENSE AGREEMENT
This Agreement dated _23rd_ day of December, 1994 is between Osiris
Therapeutics, Inc., a corporation of the State of Delaware, having a principal
place of business at 11000 Euclid Avenue, Wearn Building, 4th Floor,
Cleveland, Ohio 44106 (hereinafter referred to as "OSIRIS" if and Gryphon
Pharmaceuticals, Inc., a Delaware corporation (hereinafter "GRYPHON") having
an initial address at 1629 Thames Street, Suite 400, Baltimore, MD 21231.
WITNESSETH:
WHEREAS, OSIRIS desires to obtain an exclusive license in and to certain
patents owned by or licensed to GRYPHON.
WHEREAS, GRYPHON is willing to grant the exclusive license desired by
OSIRIS.
NOW THEREFORE in consideration of the mutual promises and other good and
valuable consideration, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 "AFFILIATED COMPANY" or "AFFILIATED COMPANIES" shall mean any
corporation, company, partnership, joint venture or other entity which
controls, is controlled by or is under common control with OSIRIS. For
purposes of this Paragraph 1.1, control shall mean the direct or indirect
ownership of at least fifty percent (50 %). For the purposes of this
Agreement, GRYPHON and OSIRIS are not AFFILIATED COMPANIES.
1.2 The term "PATENT RIGHT(s)" shall mean (i) any patent application or
patent or equivalent thereof, anywhere in the world including, but not limited
to any division, continuation, or continuation-in-part, re-examination,
reissue or extension issuing thereon, which is owned by GRYPHON or which is
licensed to GRYPHON by Johns Hopkins University ("JHU") or which is licensed
to GRYPHON by an entity other than JHU and as to which GRYPHON has a
transferable interest in each case prior to or during the term of this
Agreement insofar as it contains one or more claims to any TECHNOLOGY.
PATENT RIGHTS shall not include JOINT PATENT RIGHTS.
<PAGE>
1.3 "EFFECTIVE DATE" of this License Agreement shall mean the date the
last party hereto has executed this Agreement.
1.4 The term "HEMATOPOIETIC FIELD" shall mean making, using or selling
of hematopoietic stem cells, hematopoietic progenitor cells, their progeny and
any other hematopoietic cells and/or tissue, and the making, using and selling
of products, processes and compositions for the isolation, proliferation,
purification, differentiation, inhibition, growth, repair or renewal of such
cells and/or tissue and shall include cross-signaling molecules for regulating
hematopoietic stem and progenitor cells.
1.5 The term "JOINT PATENT RIGHTS" shall mean patents and patent
applications anywhere in the world jointly owned by GRYPHON and OSIRIS and
including, but not limited to, any division, continuation or continuation-in-
part, re-examination, reissue or extension thereof.
1.6 The term "LICENSED FIELD" shall mean making, using or selling of
mesenchymal stem cells, mesenchymal progenitor cells, their progeny and any
other mesenchymal cells and/or tissue (including, but not limited to, stroma,
bone, tendon, muscle and cartilage), and the making, using and selling of
products, processes and compositions for the isolation, proliferation,
purification, differentiation, inhibition, growth, repair or renewal of such
mesenchymal cells and/or tissue and shall include cross-signaling molecules
for regulating mesenchymal stem and progenitor cells.
1.7 The term "LICENSED PRODUCT" shall mean any article, composition,
apparatus, substance, chemical, material, method, process or service in the
LICENSED FIELD, the manufacture, import, sale or use of which is covered by
PATENT RIGHTS.
1.8 "LICENSED SERVICE(S)" means the performance on behalf of a third
party of any method or the use of any product or composition in the LICENSED
FIELD, the manufacture, use or sale of which is covered by PATENT RIGHTS.
1.9 The term "LICENSED TERIIITORY" shall mean all countries of the
world.
1.10 "NET SALES" shall mean gross sales revenues received by OSIRIS or
an AFFILIATED COMPANY from the sale of LICENSED PRODUCT(S) less trade discounts
<PAGE>
allowed, refunds, returns and recalls, rebates, disallowed reimbursements,
transportation and transportation related insurance costs, itemized on a bill
or invoice, and sales taxes.
In the event that OSIRIS, AFFILIATED COMPANY or SUBLICENSEE sells a
LICENSED PRODUCT in combination with other ingredients or components which are
not LICENSED PRODUCT(S) (such other ingredients or components being "Other
Items"), then the NET SALES for purposes of royalty payments on the
combination shall be calculated as follows:
(a) If all LICENSED PRODUCT(S) and Other Items contained in the
combination are available separately, the NET SALES for purposes of royalty
payments will be calculated by multiplying the NET SALES of the combination by
the fraction A(A+B), where A is the separately available price of all LICENSED
PRODUCT(S) in the combination, and B is the separately available price for all
Other Items in the combination.
(b) If the combination includes Other Items which are not sold
separately (but all LICENSED PRODUCT(S) contained in the combination are
available separately), the NET SALES of the combination multiplied by the
fraction A/C, where A is as defined above and C is the invoiced price of the
combination.
(c) If the LICENSED PRODUCTS contained in the combination are not
sold separately, the NET SALES for such combination shall be NET SALES
multiplied by D/C where C is as defined above and D is the fair market value of
LICENSED PRODUCTS in the combination. The fair market value will be determined
by negotiation between the parties; should the parties fail to reach an
agreement the issue will be brought to binding arbitration in accordance to the
Rules of The American Arbitration Association pursuant to Paragraph 6.5.
The term "Other Items" does not include solvents, diluents, carriers,
excipients, or the like used in formulating a product.
1.11 "NET SERVICE REVENUES" shall mean actual revenues received for the
performance of LICENSED SERVICE less sales and/or use taxes imposed upon and
with specific reference to the LICENSED SERVICE, trade discounts allowed,
refunds and rebates.
If a LICENSED SERVICE is offered in combination with another service
or services, NET SERVICE REVENUES for purposes of determining royalties on the
LICENSED
<PAGE>
SERVICE shall be calculated by multiplying the NET SERVICE REVENUES [as
defined. above, but applied to the combination services], by the fraction
A/(A+B), where A is the invoice price of the LICENSED SERVICE and B is the
invoice price of the other service or services in the combination if sold
separately.
1.12 The term "TECHNOLOGY" shall mean any data, formulas, process
information or other information, material, substance, invention or discovery
in the LICENSED FIELD, whether or not patentable, owned by GRYPHON prior to or
during the term of this Agreement or which is licensed to GRYPHON by JHU
prior to or during the term of this Agreement or which is licensed to GRYPHON
by an entity other than JHU and as to which GRYPHON has a transferable right
on the EFFECTIVE DATE or during the term of this Agreement. TECHNOLOGY
includes all of the foregoing even if same is also applicable outside the
LICENSED FIELD. In the event a compound has clinical utility both within and
outside the LICENSED FIELD, the parties will discuss, in good faith, how such
compound will be developed and commercialized.
1.13 The term "SUBLICENSEE" shall mean any non-AFFILIATED COMPANY
licensed by OSIRIS to make, have made, import, use or sell any LICENSED PRODUCT.
1.14 "VALID CLAIM" shall mean a claim of an issued patent which has not
lapsed or become abandoned or been declared invalid or unenforceable by a
court of competent jurisdiction or an administrative agency from which no
appeal can be or is taken.
ARTICLE 2- GRANTS
2.1 Subject to the terms and conditions of this Agreement GRYPHON
hereby grants to OSIRIS a sole and exclusive license under the PATENT RIGHTS
and a non-exclusive license under TECHNOLOGY to make, have made, use and sell
the LICENSED PRODUCT(S) and to provide the LICENSED SERVICE(S) in the LICENSED
TERRITORY.
2.2 OSIRIS may sublicense others the rights and licenses granted under
this Agreement and shall provide a copy of each such sublicense agreement to
GRYPHON promptly after it is executed. Except as to royalties and other
payments, each sublicense shall be consistent with the terms of this Agreement.
<PAGE>
2.3 OSIRIS shall have the right to extend its license rights granted
under Paragraph 2.1 to its AFFILIATED COMPANIES; however, such AFFILIATED
COMPANIES must agree in writing to be bound by the terms of this Agreement with
a copy of such agreement promptly sent to GRYPHON after it is executed.
2.4 OSIRIS acknowledges that GRYPHON retains the exclusive right and
title to TECHNOLOGY and PATENT RIGHTS directed to cross-signaling materials for
use in the HEMATOPOIETIC FIELD.
2.5 OSIRIS hereby grants to GRYPHON a royalty free worldwide, sole
and exclusive, sublicenseable license under OSIRIS' interest in JOINT PATENT
RIGHTS in the HEMATOPOIETIC FIELD. GRYPHON hereby grants to OSIRIS a royalty
free, worldwide, sole and exclusive sublicensable license under GRYPHON's
interest in JOINT PATENT RIGHTS in the LICENSED FIELD.
ARTICLE 3 - PATENT INFRINGEMENT
3.1 Each party will notify the other promptly in writing when any
infringement of the PATENT RIGHTS by another is uncovered or suspected.
3.2 OSIRIS shall have the first right to enforce any patent within
PATENT RIGHTS against any infringement or alleged infringement thereof in the
LICENSED FIELD, and shall at all times keep GRYPHON and JHU informed as to the
status thereof. OSIRIS may, in its sole judgment and at its own expense,
institute suit against any such infringer or alleged infringer and control,
settle, and defend such suit
<PAGE>
in a manner consistent with the terms and provisions hereof and recover, for
its account, any damages, awards or settlements resulting therefrom, subject
to Paragraph 3.4. This right to sue for infringement shall not be used in an
arbitrary or capricious manner. GRYPHON shall reasonably cooperate in any such
litigation at OSIRIS's expense.
3.3 If OSIRIS elects not to enforce any patent within the PATENT
RIGHTS, under Paragraph 3.2, then it shall so notify GRYPHON in writing within
six (6) months of receiving notice that an infringement exists, and GRYPHON or
JHU may, in its sole judgment and at its own expense, take steps to enforce any
patent and control, settle, and defend such suit in a manner consistent with
the terms and provisions hereof, and recover, for its own account, any
damages, awards or settlements resulting therefrom.
3.4 Any recovery by OSIRIS under Paragraph 3.2 shall be deemed to
reflect loss of commercial sales, and OSIRIS after reimbursing GRYPHON out of
the recovery for amounts credited pursuant to the next sentence shall pay to
GRYPHON fifteen percent (15 %) of the recovery net of all reasonable costs and
expenses associated with each suit or settlement. One-half (1/2) of the costs
and expenses incurred by OSIRIS pursuant to Paragraph 3.2 shall be credited
against royalties payable by OSIRIS to GRYPHON hereunder in connection with
sales in the country of such legal proceedings, provided, however, that any
such credit under this Paragraph 3.4 shall not exceed fifty percent (50%) of
the royalties otherwise payable to GRYPHON with regard to sales in the country
of such action in any one calendar year, with any excess credit being carried
forward to future calendar years.
3.5 In the event that litigation against OSIRIS is initiated by a third
party charging OSIRIS with infringement of a patent of the third party in a
country as a result of the manufacture, use or sale by OSIRIS of a LICENSED
PRODUCT or LICENSED SERVICE in that country OSIRIS shall promptly notify
GRYPHON in writing thereof. OSIRIS's costs as to any such defense in that
country shall be creditable against any and all payments due and payable to
GRYPHON under Paragraph 4.2 of this Agreement with respect to that LICENSED
PRODUCT and/or LICENSED SERVICE in that country. No royalty payment after
taking into consideration any such credit under this Paragraph 3.5 shall be
reduced by more than fifty percent (50%).
3.6 In the event of a judgment in any suit in which a court of
competent jurisdiction rules that the manufacture, use or sale by OSIRIS in a
country of a LICENSED PRODUCT or LICENSED SERVICE covered by a PATENT RIGHT, in
that country has infringed on a third party's patent requiring OSIRIS to pay
damages or a royalty to said third party in that country, or in the event of a
settlement of such suit requiring damages or back royalty payments to be made,
payments due to GRYPHON under Paragraph 4.2 of this Agreement arising from the
applicable LICENSED PRODUCT or LICENSED SERVICE shall be correspondingly
reduced in that country by the amounts due under the requirement of such
judgment or under the terms of such settlement. The royalty payment after
taking into
<PAGE>
consideration any such reduction under this Paragraph 3.6 shall not be reduced
by more than fifty percent (50%).
3.7 In any infringement suit either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request of the party initiating such suit, cooperate in all respects and, to
the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like. All reasonable out of-pocked costs incurred in connection with rendering
cooperation requested hereunder shall be paid by the party requesting
cooperation.
ARTICLE 4 - PAYMENTS. ROYALTY RESEARCH SUPPORT AND EQUITY
4.1 OSIRIS shall reimburse GRYPHON for future costs associated with
preparing, filing, maintaining and prosecuting such PATENT RIGHTS as specified
in Paragraph 5.1.
4.2 OSIRIS shall pay to GRYPHON one of the following royalties which
shall be due and payable sixty (60) days after June 30 and December 31 for
LICENSED PRODUCTS sold or LICENSED SERVICES provided in the respective half-
year period:
a. [*CONFIDENTIALITY REQUESTED*] of NET SALES of LICENSED PRODUCTS or
LICENSED SERVICE sold or provided by OSIRIS or an AFFILIATED COMPANY
licensed under this Agreement which in the country where made, sold or
provided is covered by a VALID CLAIM included in PATENT RIGHTS.
b. [*CONFIDENTIALITY REQUESTED*] of royalties received by OSIRIS from a
SUBLICENSEE hereunder for LICENSED PRODUCTS sold or LICENSED SERVICES
provided by such sublicensee which in the country where made, sold or
provided is covered by a VALID CLAIM included in PATENT RIGHTS but in
no event shall royalties paid hereunder be less than [*CONFIDENTIALITY
REQUESTED*] of such SUBLICENSEE'S NET SALES from LICENSED PRODUCTS
sold or LICENSED SERVICES provided by such SUBLICENSES and covered by
a VALID CLAIM included in PATENT RIGHTS.
<PAGE>
4.3 In the event royalties are due hereunder with respect to a LICENSED
SERVICE solely because such service involves the use of a LICENSED PRODUCT,
for the purposes of calculating royalties hereunder, NET SALES for the
LICENSED PRODUCT and/or NET SERVICE REVENUES for the LICENSED SERVICE shall be
based on the price of the LICENSED PRODUCT in arm's length transactions. If no
such transactions have taken place, such price shall be determined by mutual
agreement of the parties and if such agreement is not reached within sixty
(60) days, either party shall have the right to submit a determination of
price to binding arbitration according to the Rules of American Arbitration
Association as set forth in Paragraph 6.5.
4.4 OSIRIS shall provide to GRYPHON within sixty (60) days of the end
of June and December after the EFFECTIVE DATE of this Agreement, a written
report to GRYPHON of the amount of LICENSED PRODUCTS sold, and LICENSED
SERVICES sold, the total NET SALES and NET SERVICE REVENUES of such LICENSED
PRODUCTS and LICENSED SERVICES, and the running royalties due to GRYPHON as a
result of NET SALES and NET SERVICE REVENUES by OSIRIS, AFFILIATED COMPANIES
and SUBLICENSEES thereof. Payment of any such royalties due shall accompany
such report. Until OSIRIS, an AFFILIATED COMPANY or a SUBLICENSEE has achieved
a first commercial sale of a LICENSED PRODUCT and received FDA market approval,
a report shall be submitted at the end of every June and December after the
EFFECTIVE DATE of this Agreement and will include a full written report
describing OSIRIS, AFFILIATED COMPANIES or SUBLICENSEE's technical efforts
under Article 6.
4.5 OSIRIS shall make an retain, for a period of three (3) years
following the period of each royalty report required by Paragraph 4.4, true and
accurate records, files and books of account containing all the data reasonably
required for the full computation and verification of sales and other royalty
related information required in Paragraph 4.4. Such books and records shall
be in accordance with generally accepted accounting principles consistently
applied. OSIRIS shall permit the inspection and copying of such records, files
and books of account by GRYPHON or JHU or its agents during regular business
hours upon ten (10) business days' written notice to OSIRIS. Such inspection
shall not be made more than once each calendar year. All costs of such
inspection and copying shall be paid by GRYPHON or JHU,
<PAGE>
as the case may be, provided that if any such inspection shall reveal that an
error has been made in the amount equal to ten percent (10%) or more of such
payments in a calendar year, such costs shall be borne by OSIRIS. OSIRIS shall
include in any agreement with its AFFILIATED COMPANIES or its SUBLICENSEES
which permits such party to make, use or sell the LICENSED PRODUCT(S) or
provide LICENSED SERVICES, a provision requiring such party to retain records
of sales of LICENSED PRODUCT(S) and records of LICENSED SERVICES and other
information as required in Paragraph 4.4 and permit GRYPHON to inspect such
records as required by this Paragraph 4.5.
4.6 In order to insure GRYPHON the full royalty payments contemplated
hereunder, OSIRIS agrees that in the event any LICENSED PRODUCT shall be sold
to an AFFILIATED COMPANY then the royalty due hereunder shall be based on the
higher of (i) NET SALES of the LICENSED PRODUCT to the AFFILIATED COMPANY or
(ii) the NET SALES of the AFFILIATED COMPANY from the re-sale of such LICENSED
PRODUCT.
4.7 In order to insure GRYPHON the full royalty payments contemplated
hereunder, OSIRIS agrees that in the event any LICENSED PRODUCT or LICENSED
SERVICE shall be sold to other than an AFFILIATED COMPANY for partial or full
future compensation then such future compensation shall be included in NET
SALES for the purpose of paying royalties hereunder. In addition, if OSIRIS
sells LICENSED PRODUCT or LICENSED SERVICES to a person or entity in whom
OSIRIS has an ownership interest other than an AFFILIATED COMPANY and GRYPHON
can demonstrate that such sale was other than an arms length transaction, then
NET SALES shall include any additional amount that would have been paid in an
arms length transaction.
4.8 All payments under this Agreement shall be made in U.S. Dollars.
4.9 To the extent royalty is owed to a third party for patents held by
that party covering the making, using or selling of a LICENSED PRODUCT or
LICENSED SERVICE in a particular country, the royalty due to GRYPHON under
Paragraph 4.2 for such LICENSED PRODUCT or LICENSED SERVICE in such country
will be reduced by [*CONFIDENTIALITY REQUESTED*] such royalty paid to such
third party, however, in no event shall such royalty for such LICENSED PRODUCT
or LICENSED SERVICE be less than [*CONFIDENTIALITY REQUESTED*] of NET SALES or
NET SERVICES REVENUES.
<PAGE>
4.10 Any tax required to be withheld by OSIRIS under the laws of any
foreign country for the account of GRYPHON, shall be promptly paid by OSIRIS
for and on behalf of GRYPHON to the appropriate governmental authority, and
OSIRIS shall use its best efforts to furnish GRYPHON with proof of payment of
such tax. Any such tax actually paid on GRYPHON's behalf shall be deducted
dollar for dollar from royalty payments due GRYPHON.
4.11 Only one royalty shall' be due and payable for the manufacture,
use and sale of a LICENSED PRODUCT or a LICENSED SERVICE irrespective of the
number of patents or claims thereof which cover the manufacture, use or sale of
such LICENSED PRODUCT or LICENSED SERVICE.
ARTICLE 5 - PATENT RIGHTS AND CONFIDENTIAL INFORMTION
5.1 (a) Except as provided in Paragraph 5.1(1)) and (d) GRYPHON, at
OSIRIS' expense, shall file or cause to be filed, prosecute and maintain all
patents and patent applications specified under PATENT RIGHTS licensed to
OSIRIS hereunder upon authorization of OSIRIS and OSIRIS shall be licensed
thereunder. Title to all such patents and patent applications (other than
those licensed to GRYPHON) shall reside in GRYPHON. GRYPHON shall have full
and complete control over all patent matters in connection therewith under the
PATENT RIGHTS (other than those licensed to GRYPHON). OSIRIS will provide
payment authorization to GRYPHON at least one (1) month before an action is
due, provided that OSIRIS has received timely notice of such action from
GRYPHON. Failure to provide authorization can be considered by GRYPHON as an
OSIRIS decision not to authorize an action. In any country where OSIRIS elects
not to have a patent application filed or to pay expenses associated with
filing, prosecuting, or maintaining a patent application or patent, GRYPHON
may file, prosecute, and/or maintain a patent application or patent at its own
expense and for its own exclusive benefit and OSIRIS thereafter shall not be
licensed under such patent or patent application.
(b) For patent applications in JOINT PATENT RIGHTS OSIRIS shall
file, prosecute and maintain all such patents and patent applications and
GRYPHON and OSIRIS shall equally share the cost and expense thereof. Title to
all such patents and patent applications shall reside jointly in GRYPHON and
OSIRIS
<PAGE>
(c) The parties shall first consult with each other as to the
preparation, filing, prosecution and maintenance of such applications and
patents. Each party shall keep the other advised as to all developments with
respect to all patent applications and patents included in PATENT RIGHTS and
shall promptly supply to the other: (i) copies of all official correspondence
from the U.S. Patent Office or from a patent office in any other country within
a reasonable time of receipt; and (ii) copies of all substantive papers to be
filed in the U.S. Patent Office or a patent office in any other country a
reasonable time prior to filing to provide sufficient time to comment thereon.
The costs of filing, prosecuting and maintaining jointly owned patent
applications and patents shall be borne equally by the parties hereto. In any
country where a party elects not to file a patent application or to pay
expenses associated with filing, prosecuting, or maintaining a patent
application or patent, the other party may file, prosecute, and/or maintain a
patent application or patent at its own expense and for its own exclusive
benefit and thereafter the party so electing shall not have title to or be
licensed under such patent or patent application.
(d) To the extent PATENT RIGHTS licensed hereunder are related
both to the LICENSED FIELD and the HEMATOPOIETIC FIELD and OSIRIS is licensed
exclusively in the LICENSED FIELD hereunder, OSIRIS shall reimburse GRYPHON for
fifty percent (50 %) of future costs associated with preparing filing,
maintaining and prosecuting such PATENT RIGHTS. OSIRIS shall directly
reimburse GRYPHON, as aforesaid, within thirty (30) days of receipt of each
invoice.
5.2 OSIRIS agrees that all packaging containing individual LICENSED
PRODUCT(S) sold by OSIRIS, AFFILIATED COMPANIES and SUBLICENSEES of OSIRIS
will be marked with the number of the applicable patent(s) licensed hereunder
in accordance with each country's patent laws.
5.3 If necessary, the parties will exchange information which they
consider to be confidential. The recipient of such information agrees to accept
the disclosure of said information which is marked as confidential at the time
it is sent to the recipient, and to employ all reasonable efforts to maintain
the information secret and confidential, such efforts to be no less than the
degree of care employed by the recipient to preserve and safeguard its own
confidential information. The information shall not be disclosed or revealed
to anyone except
<PAGE>
employees of the recipient who have a need to know the information and who
have entered into a secrecy agreement with the recipient under which such
employees are required to maintain confidential the proprietary information of
the recipient and such employees shall be advised by the recipient of the
confidential nature of the information and that the information shall be
treated accordingly. The recipient's obligations under this Paragraph 5.3
shall not extend to any part of the information:
a. that can be demonstrated to have been in the public domain or
publicly known and readily available to the trade or the public
prior to the date of the disclosure; or
b. that can be demonstrated, from written records to have been in the
recipient's possession or readily available to the recipient from
another source not under obligation of secrecy to the disclosing
party prior to the disclosure; or
c. that becomes part of the public domain or publicly known by
publication or otherwise, not due to any unauthorized act by the
recipient.
d. that can be demonstrated, from written records, to have been
developed by the recipient independently of the disclosed
information.
The obligations of this Paragraph 5.3 shall also apply to AFFILIATED COMPANIES
and/or SUBLICENSEES provided such information by OSIRIS. GRYPHON's, the
OSIRIS's, AFFILIATED COMPANIES, and SUBLICENSEES' obligations under this
Paragraph 5.3 shall extend until three (3) years after the termination of this
Agreement.
Notwithstanding the foregoing, OSIRIS, AFFILIATED COMPANIES and
SUBLICENSEE shall have the right to disclose Confidential Information of
GRYPHON to a third party who undertakes an obligation of confidentiality and
non-use with respect to such information, at least as restrictive as the
obligation under this Paragraph 5.3.
<PAGE>
ARTICLE 6 - TERM. MILESTONES AND TERMINATION
6.1 This Agreement shall expire in each country on the date of expiration
of the last to expire patent included within PATENT RIGHTS in that country or
if no patents issue seventeen (17) years from the EFFECTIVE DATE of this
Agreement at which time OSIRIS shall have a fully paid up noncancellable
license.
6.2 For each PATENT RIGHT, OSIRIS agrees to exercise reasonable efforts
and to take effective steps, within a reasonable time to (i) identify product
candidate(s) which are LICENSED PRODUCT(S) (ii) perform pre-clinical animal and
toxicological studies for an identified product candidate, (iii) conduct
clinical studies aimed at obtaining FDA regulatory approval for each
identified product candidate and (iv) develop and commercialize each such
product, provided however, a LICENSED PRODUCT need not be identified and
developed for a PATENT RIGHT if a similar product is being developed under
another PATENT RIGHT. OSIRIS' obligations under this paragraph shall take into
account the stage of development thereof and regulatory consideration and
requirements. The efforts of a SUBLICENSEE, an AFFILIATE, a collaborator
and research funded under the Research and License Agreement between JHU and
GRYPHON shall be considered as efforts of OSIRIS.
6.3 (a) As part of the efforts under Paragraph 6.2, Company shall
exercise reasonable efforts to meet the following milestones within the time
set forth below:
(i) within three (3) years from the identification of a
product candidate as set forth in Paragraph 6.2, start the Phase I clinical
study of such LICENSED PRODUCT.
(ii) within seven (7) years from the start of the Phase I
Study, obtain FDA commercial approval (NDA/PLA) of such LICENSED PRODUCT
(b) GRYPHON will not unreasonably withhold its consent to OSIRIS'
request for a reasonable extension of any of the above milestones if OSIRIS can
demonstrate that its inability to meet such milestone occurred as a result of
reasons beyond the control of OSIRIS (including scientific or regulatory
reasons beyond the control of the OSIRIS).
(c) If, as to a specific LICENSED PRODUCT, OSIRIS fails to exercise
reasonable efforts as required by Paragraphs 6.2 or 6.3, as its sole and
exclusive remedy GRYPHON may terminate OSIRIS' license with respect thereto,
provided however, if in good faith OSIRIS has pursued research and development
of such LICENSED PRODUCT and in good
<PAGE>
faith OSIRIS intends to pursue research and development of such LICENSED
PRODUCT and reasonably appears to have the ability to do so and thereafter in
good faith does continue to do so, GRYPHON's sole and exclusive remedy shall
be conversion of the exclusive rights and license for such specifically
defined LICENSED PRODUCT to non-exclusive rights and licenses.
6.4 (a) GRYPHON acknowledges that OSIRIS is in the business of
developing, manufacturing and selling of medical processes and products and
nothing in this Agreement shal1 be construed as restricting such business or
restricting the research, development, marketing and sale of product(s) other
than LICENSED PRODUCT(S) and LICENSED SERVICE(S).
(b) OSIRIS can market and sell LICENSED PRODUCT(S) and LICENSED
SERVICE(S) to third parties at a sales price determined by OSIRIS in its sole
discretion.
6.5 Any matter or disagreement arising under Paragraphs 1.11, 4.3, 6.2
and 6.3 shall be submitted to a mutually selected single arbitrator to so
decide any such matter or disagreement. The arbitrator shall conduct the
arbitration in accordance with the Rules of the American Arbitration
Association, unless the parties agree otherwise. If the parties are unable to
mutually select an arbitrator, the arbitrator shall be selected in accordance
with the procedures of the American Arbitration Association. The decision by
the arbitrator shall be final and binding and may be enforced in any court of
competent jurisdiction. Any arbitration pursuant to this section shall be held
in Washington, D.C., or such other place as maybe mutually agreed upon in
writing by the parties.
6.6 In the event GRYPHON is notified by JHU that a third party desires
to develop and market a LICENSED PRODUCT which is not being researched and/or
developed and/or marketed by OSIRIS, an AFFILIATED COMPANY or SUBLICENSEE,
GRYPHON shall notify OSIRIS in writing thereof. If OS IRIS does not notify
GRYPHON within ninety (90) days of such written notice that OSIRIS or its
sublicensee intends to research and develop such LICENSED PRODUCT and does
not initiate such research and development in accordance with the provisions
of paragraph 6.2 hereof within a reasonable time thereafter, OSIRIS shall
enter into good faith negotiations with such third party for granting a
sublicense for such LICENSED PRODUCT unless the granting of such sublicense
would have a potential adverse commercial effect upon marketing and/or selling
of a LICENSED PRODUCT which is being researched, developed, or sold pursuant
to this Agreement.
<PAGE>
6.7 Except as provided in Paragraph 6.2 and 6.3, upon breach or default
of any of the terms and conditions of this Agreement, the defaulting party
shall be given written notice of such default in writing and a period of sixty
(60) days after receipt of such notice to correct the default or breach. If the
default or breach is not corrected within said sixty (60) day period, the
party not in default shall have the right to terminate this Agreement.
6.8 OSIRIS may terminate this Agreement or any of the licenses granted
herein under any PATENT RIGHT in any country, for any reason, upon giving
GRYPHON sixty (60) days written notice.
6.9 Termination shall not affect GRYPHON's right to recover unpaid
royalties or fees or reimbursement for patent expenses incurred pursuant to
Paragraph 5.1 prior to termination. Upon termination all rights in and to the
licensed technology (including PATENT RIGHTS) shall revert to GRYPHON at no
cost to GRYPHON.
6.10 Upon any termination of this Agreement OSIRIS, at its option,
shall be entitled to finish any work-in-progress which is completed within six
(6) months of termination of this Agreement and to sell any completed inventory
of a LICENSED PRODUCT covered by this Agreement which remains on hand as of
the date of the termination, so long as OSIRIS pays to GRYPHON the royalties
applicable to said subsequent sales in accordance with the same terms and
conditions as set forth in this Agreement.
6.11 In the event that this Agreement and/or the rights and licenses
granted under this Agreement to OSIRIS are terminated, any sublicense granted
under this Agreement shall remain in full force and effect as a direct license
between GRYPHON and the SUBLICENSEE under the terms and conditions of the
sublicense agreement, subject to the SUBLICENSEE agreeing to be bound directly
to GRYPHON under such terms and conditions as well as the relevant duties and
obligations under this License Agreement (other than royalty and other payment
obligations which shall be paid in accordance with the sublicense provided
GRYPHON receives a royalty of at least two percent of the SUBLICENSEE's
NET SALES) within thirty (30) days after GRYPHON provides written notice to
the SUBLICENSEE of the termination of OSIRIS's rights and licenses under this
Agreement, provided further that GRYPHON's obligations under such sublicense
are no greater than currently existing under this
<PAGE>
Agreement. At the request of the OSIRIS, GRYPHON will acknowledge to a
SUBLICENSEE, GRYPHON's obligations to the SUBLICENSEE under this paragraph.
ARTICLE 7- MISCELLANEOUS
7.1 All notices pertaining to this Agreement shall be in writing and
sent certified mail, return receipt requested, to the parties at the following
addresses or such other address as such party shall have furnished in writing
to the other party in accordance with this Paragraph 7.1:
FOR GRYPHON: Gryphon Pharmaceuticals, Inc.
1629 Thomas Street
Suite 400
Baltimore, MD 21231
Attn: CEO
FOR OSIRIS: Osiris Pharmaceuticals, Inc.
11000 Euclid Avenue
Wearn Building, 4th Floor
Cleveland, Ohio 44106
Attn: CEO
cc: Carella, Byrne, Bain, Gilfilian,
Cecchi, Stewart & Olstein
6 Becker Farm Road
Roseland, NJ 07068
Attn: Elliot M. Olstein, Esq.
7.2 All written progress reports, royalty and other payments, and any
other related correspondence shall be in writing and sent to GRYPHON at the
above address or such other addressee which GRYPHON may designate in writing
from time to time.
7.3 This Agreement is binding upon and shall inure to the benefit of
OSIRIS and GRYPHON, their successors and assignees and shall not be assignable
to a third party without the written consent of the other party hereto, which
consent shall not be reasonably withheld, except that either party shall have
the right to assign this Agreement to another parry without consent of the
other party in the case of the sale or transfer or merger or consolidation of
such party or sale or transfer by such party of all, or substantially all, of
its assets or
<PAGE>
all or substantially all of the portion of its assets to which this agreement
relates, provided the assignee undertakes to be bound by and perform the
obligations of the assignor under this Agreement.
7.4 In the event that any one or more of the provisions of this
Agreement should for any reason be held by any court or authority having
jurisdiction over this Agreement, or over any of the parties hereto to be
invalid, illegal or unenforceable, such provision or provisions shall be
reformed to approximate as nearly as possible the intent of the parties, and if
unreformable, shall be divisible and deleted in such jurisdictions; elsewhere,
this Agreement shall not be affected.
7.5 The construction, performance, and execution of this Agreement
shall be governed by the laws of the State of Maryland.
7.6 (a) GRYPHON warrants that it has good and valid title to its
interest in the inventions claimed under PATENT RIGHTS with the exception of
certain retained rights of the United States government. In addition, GRYPHON
warrants that it has not licensed or assigned any right or interest in or to
PATENT RIGHTS licensed hereunder to any third party; that the granting of such
rights to OSIRIS does not require the consent of a third party; and GRYPHON is
not aware of any legal or contractual restriction which would inhibit its
ability to perform the terms and conditions imposed on it by this Agreement.
GRYPHON does not warrant the validity of any patents or that practice under
such patents shall be free of infringement. EXCEPT AS EXPRESSLY SET FORTH
HEREIN GRYPHON MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE
PERFORMANCE OF LICENSED PRODUCT(S) AND LICENSED SERVICES INCLUDING THEIR SAFETY,
EFFECTIVENESS, OR COMMERCIAL VIABILITY. GRYPHON DISCLAIMS ALL WARRANTIES
WITH REGARD TO PRODUCT(S) AND SERVICES LICENSED UNDER THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO, ALL WARRANTIES, EXPRESS OR IMPLIED, OF
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.
(b) OSIRIS acknowledges and agrees to the extent that any rights
or licenses granted to OSIRIS hereunder are in the form of a sublicense,
OSIRIS' rights and licenses are limited to those rights and licenses licensed
to GRYPHON and are subject to the terms and conditions of the Agreement by and
between GRYPHON and its licensor.
<PAGE>
7.7 OSIRIS shall defend and hold GRYPON and JHU, The Johns Hopkins
Health Systems, their present and former trustees, directors, officers,
inventors of PATENT RIGHTS, agents, faculty, employees and students harmless as
against any third-party judgments, fees, expenses, or other costs arising from
or incidental to any product liability or other lawsuit, claim, demand or other
action brought as a consequence of the practice of the inventions of LICENSED
PRODUCTS or LICENSED SERVICES by OSIRIS or its AFFILIATED COMPANIES or its
SUBLICENSEES or those operating for its account or third parties who purchase
LICENSED PRODUCT(S) or LICENSED SERVICES from any of the foregoing entities
whether or not GRYPHON, JHU or said inventors, either jointly or severally, is
named as a party defendant in any such lawsuit, except those which arise from
the gross negligence or willful misconduct of any of the indemnified parties.
Practice of the inventions covered by LICENSED PRODUCT(S) and LICENSED
SERVICES, by an AFFILIATED COMPANY or an agent or a SUBLICENSEE or a third
party on behalf of or for the account of OSIRIS or by a third party who
purchases LICENSED PRODUCT(S) and LICENSED SERVICES from OSIRIS, shall be
considered OSIRIS' practice of said inventions for purposes of this Paragraph
7.7. The obligation of OSIRIS to defend and indemnify as set out in this
Paragraph 7.7 shall survive the termination of this Agreement.
7.8 Prior to initiating first commercial sale of any LICENSED PRODUCT
or LICENSED SERVICE as the case may be in any particular county, OSIRIS shall
establish and maintain, or in the alternative maintain for GRYPHON and JHU
where there is a sublicense under JHU rights, in each country in which OSIRIS,
an AFFILIATED COMPANY or SUBLICENSEE shall test or sell LICENSED PRODUCT(S)
and LICENSED SERVICES, product liability or other appropriate insurance
coverage with respect to LICENSED PRODUCT(S) and LICENSED SERVICES which
coverage shall be similar to that maintained by Companies at a stage of
development similar to OSIRIS for similar products provided that such
insurance is available at terms, conditions and costs which are commercially
reasonable and prudent under the circumstances. Upon GRYPHON's request, OSIRIS
will furnish GRYPHON and, if applicable, JHU with a Certificate of Insurance
of each product liability insurance policy obtained. GRYPHON and, if
applicable, JHU shall be listed as an additional insured in OSIRIS's said
insurance policies.
<PAGE>
7.9 This Agreement constitutes the entire understanding between the
parties with respect to the obligations of the parties with respect to the
subject matter hereof, and supersedes and replaces all prior agreements,
understandings, writings, and discussions between the parties relating to said
subject matter.
7.10 This Agreement may be amended and any of its terms or conditions
may be waived only by a written instrument executed by the authorized officials
of the parties or, in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect its right at a later time to
enforce the same. No waiver by either party of any condition or term in any
one or more instances shall be construed as a further or continuing waiver of
such condition or term or of any other condition or term.
7.11 This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns.
7.12 Upon termination of this Agreement for any reason, Paragraphs 5.3,
6.9, 7.6, 7.7, 7.8 (to the extent OSIRIS, AFFILIATED COMPANIES or SUBLICENSEES
are selling or providing LICENSED PRODUCT or LICENSED SERVICES under the
LICENSES granted under this Agreement), 7.12 and 7.13 shall survive termination
of this Agreement.
7.13 (a) OSIRIS and its AFFILIATED COMPANIES and its SUBLICENSEES
shall not use the names, likeness', or logos of JHU or any of its schools or
divisions or The Johns Hopkins Health Systems or any of its constituent parts
and affiliated hospitals and companies, such as The Johns Hopkins Hospital or
any contraction or derivative thereof or the names of JHU's faculty members,
employees, and students in any press releases, general publications,
advertising, marketing, promotional or sales literature without prior written
consent from an authorized official of JHU which consent shall not be
unreasonably withheld. It should be understood that JHU does not allow any
use of its name for the endorsement of products.
(b) Notwithstanding Paragraph 17.3(a), OSIRIS shall have the
right to use the name of JHU in agreements between GRYPHON and OSIRIS and in
any SEC filing (including, but not limited to 8K statements) fundraising
documents and the like and in any case where such use is required by law, rule
or regulation provided that OSIRIS shall provide JHU with the appropriate
documents and papers which use the name of JHU for JHU's review and comment
<PAGE>
no less than three (3) business days prior to the anticipated date of
submission of such documents or papers.
(c) All notifications relating to the use of JHU's name as required
herein shall be made to the person listed below:
Francis J. Meyer, Ph.D.
Assistant Dean of Technology Licensing
Johns Hopkins University
Office of Technology Licensing
2024 East Monument Street
Suite 2-100
Baltimore, MD 21205
IN WITNESS WHEREOF the respective parties hereto have executed this
Agreement by their duly authorized officers on the date appearing below their
signatures
OSIRIS THERAPEUTICS, INC. GRYPHON PHARMACEUTICALS, INC.
By: _/s/ James S. Burns_______ By: _/s/ James S. Burns_______________
Date: _12/23/94_______________ Date: _12/23/94_______________________
<PAGE>
Certain portions of this
exhibit have been
omitted based upon
a request for confidential
treatment. Omitted portions
have been separately filed
with the Securities and
Exchange Commission.
AGREEMENT
BETWEEN
OSIRIS THERAPEUTICS, INC.
2001 Aliceanna Street
Baltimore, MD 21231-2001
AND
DEFENSE ADVANCED RESEARCH PROJECTS AGENCY
3701 NORTH FAIRFAX DRIVE
ARLINGTON, VA 22203-1714
CONCERNING
SEQUENTIAL RELEASE OF VACCINES USING MESENCHYMAL STEM CELLS
TWO-COMPONENT CELL SYSTEMS USING MESENCHYMAL STEM CELLS
Agreement No.: MDA972-96-3-0018
ARPA Order No.: D850/00
Total Amount of the Agreement: $ 3,006,356.00
Total Estimated Government Funding of the Agreement: $2,000,000.00
Funds Obligated: $2,000,000.00
Authority: 10 U.S.C. ~ 2371
Line of Appropriation:
AA 9760400 1320 D850 P6D1O 2525 DPAC 6 5145 503733: $1,359,500.00
AB 9760400 1320 D850 P6Y1O 2525 DPAC 6 5145 503733: $640,500.00
This Agreement is entered into between the United States of America,
hereinafter called the Government, represented by The Defense Advanced
Research Projects Agency (DARPA), and OSIRIS
THERAPEUTICS, INC. pursuant to and under U.S. Federal law.
FOR OSIRIS THERAPEUTICS, INC. FOR THE UNITED STATES OF AMERICA
DEFENSE ADVANCED RESEARCH
PROJECTS AGENCY
/s/ James S. Burns 6/11/96 /s/ Ron G. Register
(Name, Title) RON H. REGISTER
Deputy Director, Management
James S. Burns
President & CEO
<PAGE>
TABLE OF CONTENTS
ARTICLES PAGE
ARTICLE I Scope of the Agreement 3
ARTICLE II Term 8
ARTICLE III Management of the Project 9
ARTICLE IV Agreement Administration 11
ARTICLE V Obligation and Payment 12
ARTICLE VI Disputes 14
ARTICLE VII Patent Rights 16
ARTICLE VIII Data Rights 22
ARTICLE IX Foreign Access to Technology 24
ARTICLE X Civil Rights Act 27
ARTICLE XI Execution 27
ATTACHMENTS
ATTACHMENT 1 Statement of Work
ATTACHMENT 2 Report Requirements
ATTACHMENT 3 Schedule of Payments and Payable Milestones
ATTACHMENT 4 Funding Summary (NOT APPLICABLE)
ATTACHMENT 5 List of OSIRIS Therapeutics, Inc. Representatives
<PAGE>
ARTICLE I: SCOPE OF THE AGREEMENT
A. BACKGROUND
The Secretary of Defense has determined that there exists (1) a formidable
disparity between the magnitude of the biological weapons threat faced by the
warfighter, and his or her ability to react to their use by an adversary, and
(2) a critical and urgent need to reduce, if not eliminate, that disparity in
part through the development of advanced real-time sensing technologies, and
advanced biological countermeasures. [See Testimony, Director of DARPA, SASC
Subcommittee on Acquisition and Technology, 20 March 1996.] The Mesenchymal
Stem Cells (MSC) Program, a subset of DARPA Biological Warfare Defense
Program, exists to address these disparities and these critical needs.
Traditional biological warfare defense technology has relied upon sensors,
physical barriers, and the use of pre- and post-exposure drugs. The
application of stem cell biology to the development of biological warfare
defenses is, in itself, an advanced concept. The further application of MSC
to the development of biological warfare defenses is truly revolutionary. The
majority (--greater than--95%) of the research done to date in this area has
concentrated on the use of modified hematopoietic stem cells (HSC). HSCs are
progenitor cells that give rise to blood cells; current work in the field has
demonstrated their potential to act as effective agents in identifying and
neutralizing blood-based pathogens. Bio-threat agents, however, are capable
of significant damage beyond the bloodstream, i.e., inside body tissues. At
this crucial biological battlefield, it is expected that mesenchymal stem
cells (progenitor cells for tissue and cartilage) have the potential to spawn
a complementary breakthrough, resulting in MSCs that can effectively identify
and neutralize bio-threat agents before they enter and destroy target
tissues. At the present time, no significant work with MSCs is being done to
exploit this potential, therefore, the MSC Program expects to fill this
critical R&D shortfall.
[*CONFIDENTIALITY REQUESTED*]
B. Scope
1. OSIRIS Therapeutics, Inc. (OSIRIS) shall perform a research and
development program (Program) designed to develop a mesenchymal stem cells
program. The research shall be carried out in accordance with the Statement
of Work incorporated in this Agreement as Attachment 1. OSIRIS shall submit
or otherwise provide all documentation required by Attachment 2, Report
Requirements.
2. OSIRIS shall be paid for each Payable Milestone accomplished in
accordance with the Schedule of Payments and Payable Milestones set forth in
Attachment 3 and the procedures of Article V. Both the Schedule of Payments
and the Funding Schedule set forth in Attachments 3 and 4 respectively may be
revised or updated in accordance with Article III.
3. The Government and OSIRIS (Parties) estimate that the Statement of Work
of this Agreement can only be accomplished with an OSIRIS aggregate resource
contribution of [*CONFIDENTIALITY REQUESTED*] from the effective date of this
Agreement through [*CONFIDENTIALITY REQUESTED*] thereafter. OSIRIS intends
and, by entering into this Agreement, undertakes to cause these funds to be
provided. OSIRIS contributions will be provided as set forth in Attachment 3.
If either DARPA or OSIRIS is unable to provide its respective total
contribution, the other Party may reduce its project funding by a
proportional amount.
C. Goals/Objectives
1. DARPA's overall goal of its Biological Warfare Defense Program is to
remove the threat of biological weapons as a factor in the planning for and
conducting military operations. The specific goals for its MSC Program are:
(a) To develop one or more technologies that detect and detoxify a
biological agent through the use of OSIRIS's Two-Component Cell System.
(b) To develop one or more stable platforms for delivering vaccines at
several sequential time points.
2. The Government will have continuous involvement with OSIRIS. The
Government will also obtain access to research results and certain rights in
data and patents pursuant to Articles VII and VIII. DARPA and OSIRIS are
bound to each other by a duty of good faith and best research effort in
achieving the goals of the Program.
3. This Agreement is an "other transaction" pursuant to 10 U.S.C.
Section 2371. The Parties agree that the principal purpose of this Agreement
is for the Government to support and stimulate OSIRIS to provide its best
efforts in advanced research and technology development and not for the
acquisition of property or services for the direct benefit or use of the
Government. The Federal Acquisition Regulation (FAR) and Department of Defense
FAR Supplement (DFARS) apply only as specifically referenced herein. This
Agreement is not a procurement contract or grant agreement for purposes of
FAR Subpart 31.205-18.
<PAGE>
ARTICLE II: TERM
A. The Term of this Agreement
The Program shall commence on the date of the last signature hereon, and shall
continue for thirty-six (36) months, which term, for the purpose of
performance, progress measurement and funding, shall be divisible into three
twelve (12) month periods. For each period, if all funds are expended prior
to the twelve (12)-month duration, the Parties have no obligation to continue
performance and may elect to cease development at that point. Provisions of
this Agreement, which, by their express terms or by necessary implication,
apply for periods of time other than specified herein, shall be given effect,
notwithstanding this Article.
B. Termination Provisions
Subject to a reasonable determination that the program will not produce
beneficial results commensurate with the expenditure of resources, either
Party may terminate this Agreement by written notice to the other Party,
Provided that such written notice is preceded by consultation between the
Parties. In the event of a termination of the Agreement, it is agreed that
disposition of Data developed under this Agreement, shall be in accordance
with the provisions set forth in Article VIII, Data Rights. The Government
and OSIRIS will negotiate in good faith a reasonable and timely adjustment
of all outstanding issues between the Parties as a result of termination.
Failure of the Parties to agree to a reasonable adjustment will be resolved
pursuant to Article VI, Disputes. The Government has no obligation to
reimburse OSIRIS beyond the last completed and paid milestone if OSIRIS
decides to terminate.
C. Extending the Term
The Parties may extend by mutual written agreement the term of this Agreement
if funding availability and research opportunities reasonably warrant. Any
extension shall be formalized through modification of the Agreement by the
Agreements Officer and the OSIRIS' Administrator.
<PAGE>
ARTICLE III: MANAGEMENT OF THE PROJECT
A. Management and Program Structure
OSIRIS shall be responsible for the overall technical and program management
of the Program, and technical planning and execution shall remain with
OSIRIS. The DARPA Program Manager shall provide recommendations to Program
developments and technical collaboration and be responsible for the review and
verification of the Payable Milestones
B. Program Management Planning Process
Program planning will consist of an Annual Program Plan with inputs and review
from OSIRIS and DARPA management, containing the detailed schedule of research
activities and payable milestones. The Annual Program Plan will consolidate
quarterly adjustments in the research schedule, including revisions/
modification to payable milestones.
l. Initial Program Plan: OSIRIS will follow the initial program
plan that is contained in the Statement of Work (Attachment 1), and the
Schedule of Payments and Payable Milestones (Attachment 3).
2. Overall Program Plan Annual Review
(a) OSIRIS, with DARPA Program Manager review, will prepare
an overall Annual Program Plan in the first quarter of each Agreement year.
(For this purpose, each consecutive twelve (12) month period from (and
including) the month of execution of this Agreement during which this
Agreement shall remain in effect shall be considered an "Agreement Year".)
The Annual Program Plan will be presented and reviewed at an annual site
review which will be attended by OSIRIS Management, the DARPA Program Manager,
Senior DARPA management as appropriate, and other DARPA program managers and
personnel as appropriate. OSIRIS, with DARPA participation and review, will
prepare a final Annual Program Plan.
(b) The Annual Program Plan provides a detailed schedule of
research activities, commits OSIRIS to use its best efforts to meet specific
performance objectives, includes forecasted expenditures and describes the
Payable Milestones. The Annual Program Plan will consolidate all prior
adjustments in the research schedule, including revisions/modifications to
payable
<PAGE>
milestones. Recommendations for changes, revisions or modifications to the
Agreement which result from the Annual Review shall be made in accordance
with the provisions of Article III, Section C.
C. Modifications
l. As a result of quarterly meetings, annual reviews, or at
any time during the term of the Agreement, research progress or results may
indicate that a change in the Statement of Work and/or the Payable Milestones,
would be beneficial to program objectives. Recommendations for modifications,
including justifications to support any changes to the Statement of Work
and/or the Payable Milestones, will be documented in a letter and submitted by
OSIRIS to the DARPA Program Manager with a copy to the DARPA Agreements
Officer. This documentation letter will detail the technical, chronological,
and financial impact of the proposed modification to the research program.
OSIRIS shall approve any Agreement modification. The Government is not
obligated to pay for additional or revised Payable Milestones until the
Payable Milestones Schedule (Attachment 3) is formally revised by the DARPA
Agreements Officer and made part of this Agreement.
2. The DARPA Program Manager shall be responsible for the
review and verification of any recommendations to revise or otherwise modify
the Agreement Statement of Work, Schedule of Payments or Payable Milestones,
or other proposed changes to the terms and conditions of this Agreement.
3. For minor or administrative Agreement modifications
(e.g. changes in the paying office or appropriation data, changes to
Government or OSIRIS personnel identified in the Agreement, etc.) no signature
is required by OSIRIS.
<PAGE>
ARTICLE IV: AGREEMENT ADMINISTRATION
Unless otherwise provided in this Agreement, approvals permitted or required
to be made by DARPA may be made only by the DARPA Agreements Officer.
Administrative and contractual matters under this Agreement shall be referred
to the following representatives of the parties:
DARPA: C. Alan Frederick (Agreements Officer)
(703) 696-0047
OSIRIS: Robert J. Walden (Administrator)
(410) 522-5005
Technical matters under this Agreement shall be referred to the following
representatives:
DARPA: CDR Shaun B. Jones, MC, USN (Program Manager)
(703) 696-4427
OSIRIS: Daniel R. Marshak, Ph.D
(410) 522-5005
Each party may change its representatives named in this Article by written
notification to the other party.
<PAGE>
ARTICLE V: OBLIGATION AND PAYMENT
A. Obligation
l. The Government' 5 liability to make payments to OSIRIS
is limited to only those funds obligated under the Agreement or by
modification to the Agreement. DARPA may obligate funds to the Agreement
incrementally.
2. If modification becomes necessary in performance of
this Agreement, pursuant to Article III, paragraph B, the DARPA Agreements
Officer and OSIRIS Administrator shall execute a revised Schedule of Payable
Milestones consistent with the then current Program Plan.
B. Payments
l. OSIRIS has an established and agrees to maintain an
established accounting system which complies with Generally Accepted
Accounting Principles and the requirements of this Agreement, and shall ensure
that appropriate arrangements have been made for receiving, distributing and
accounting for Federal funds. An acceptable accounting system is one in which
all cash receipts and disbursements are controlled and documented properly.
2. OSIRIS shall document the accomplishments of each
Payable Milestone by submitting or otherwise providing the Payable Milestones
Report required by Attachment 2, Part D. OSIRIS shall submit an original and
one (1) copy of all invoices to the Agreements Officer for payment approval. -
After written verification of the accomplishment of the Payable Milestone by
the DARPA Program Manager, and approval by the Agreements Officer, the
invoices will be forwarded to the payment office within fifteen (15) calendar
days of receipt of the invoices at DARPA. Payment approval for the final
Payable Milestone will be made after reconciliation of DARPA funding with
actual OSIRIS contributions. Payments will be made by DAO-DE BOLLING/FS, 110
Luke Avenue, Room 280, Bolling AFB, DC 20332-0112 within fifteen (15) calendar
days of DARPA' s transmittal. Subject to change only through written
Agreement modification, payment shall be made to the address of the OSIRIS
Administrator set forth below.
<PAGE>
3. Address of Payee:
OSIRIS THERAPEUTICS, INC.
2001 Aliceanna Street
Baltimore, MD 21231-2001
4. Limitation of Funds: In no case shall the Government' s
financial liability exceed the amount obligated under this Agreement
5. Financial Records and Reports: OSIRIS shall maintain
adequate records to account for Federal funds received under this Agreement
and shall maintain adequate records to account for OSIRIS funding provided for
under this Agreement. Upon completion or termination of this Agreement,
whichever occurs earlier, the OSIRIS Administrator shall furnish to the
Agreements Officer a copy of the Final Report required by Attachment 2, Part
E. OSIRIS' relevant financial records are subject to examination or audit on
behalf of DARPA by the Government, by an auditing agency mutually agreeable to
both parties, for a period not to exceed three (3) years after expiration of
the term of this Agreement. The Agreements Officer or designee shall have
direct access to sufficient records and information of OSIRIS, to ensure full
accountability for all funding under this Agreement. Such audit, examination,
or access shall be performed during business hours on business days upon prior
written notice and shall be subject to the security requirements of the
audited party.
<PAGE>
ARTICLE VI: DISPUTES
A. General
The Parties shall communicate with one another in good faith and in a timely
and cooperative manner when raising issues under this Article.
B. Dispute Resolution Procedures
l. Any disagreement, claim or dispute between DARPA and
OSIRIS concerning questions of fact or law arising from or in connection with
this Agreement, and, whether or not involving an alleged breach of this
Agreement, may be raised only under this Article.
2. Whenever disputes, disagreements, or misunderstandings
arise, the Parties shall attempt to resolve the issue(s) involved by
discussion and mutual agreement as soon as practicable. In no event shall a
dispute, disagreement or misunderstanding which arose more than three (3)
months prior to the notification made under subparagraph B.3 of this article
constitute the basis for relief under this article unless the Director of
DARPA in the interests of justice waives this requirement.
3. Failing resolution by mutual agreement, the aggrieved
Party shall document the dispute, disagreement, or misunderstanding by
notifying the other Party (through the DARPA Agreements Officer or Consortium
Administrator, as the case may be) in writing of the relevant facts, identify
unresolved issues, and specify the clarification or remedy sought. Within
five (5) working days after providing notice to the other Party, the aggrieved
Party may, in writing, request a joint decision by the DARPA Deputy Director
for Management and James S Burns, President and Chief Executive Officer,
OSIRIS. The other Party shall submit a written position on the matter(s) in
dispute within thirty (39) calendar days after being notified that a decision
has been requested. The Deputy Director for Management and the senior
executive shall conduct a review of the matter(s) in dispute and render a
decision in writing within thirty (30) calendar days of receipt of such
written position. Any such joint decision is final and binding.
4. In the absence of a joint decision, upon written request
to the Director of DARPA, made within thirty (30) calendar days of the
expiration of the time for a decision under subparagraph B.3
<PAGE>
above, the dispute shall be further reviewed. The Director of DARPA may elect
to conduct this review personally or through a designee or jointly with James
S Burns, President and Chief Executive Officer, OSIRIS. Following the review,
the Director of DARPA or designee will resolve the issue(s)and notify the
Parties in writing. Such resolution is not subject to further administrative
review and, to the extent permitted by law, shall be final and binding.
5. Subject only to this article and 41 U.S.C. 321-322, if
not satisfied with the results of completing the above process, either Party
may within thirty (30) calendar days of receipt of the notice in subparagraph
B.4 above pursue any right and remedy in a court of competent jurisdiction.
C. Limitation of Damages
Claims for damages of any nature whatsoever pursued under this Agreement shall
be limited to direct damages only up to the aggregate amount of DARPA funding
disbursed as of the time the dispute arises. In no event shall DARPA be
liable for claims for consequential, punitive, special and incidental damages,
claims for lost profits, or other indirect damages. (OSIRIS disclaims any
liability for consequential, indirect, or special damages, except when such
damages are caused by willful misconduct of OSIRIS personnel In no event
shall OSIRIS's liability under this Agreement exceed the funding it has
received up to the time of incurring such liability.
<PAGE>
ARTICLE VII: PATENT RIGHTS
A. Definitions
l. "Invention" means any invention or discovery which is or
may be patentable or otherwise protectable under Title 35 of the United
States Code.
2. "Made" when used in relation to any invention means the
conception or first actual reduction to practice of such invention.
3. "Practical application" means to manufacture, in the
case of a composition of product; to practice, in the case of a process or
method, or to operate, in the case of a machine or system; and, in each case,
under such conditions as to establish that the invention is capable of being
utilized and that its benefits are, to the extent permitted by law or
Government regulations, available to the public on reasonable terms.
4. "Subject invention" means any invention conceived or
first actually reduced to practice in the performance of work under this
Agreement.
B. Allocation of Principal Rights
Unless OSIRIS shall have notified DARPA (in accordance with subparagraph C.2
below) that OSIRIS does not intend to retain title, OSIRIS shall retain the
entire right, title, and interest throughout the world to each subject
invention consistent with the provisions of this Article and 35 U.S.C. 202.
With respect to any subject invention in which OSIRIS retains title, DARPA
shall have a nonexclusive, nontransferable, irrevocable, paid-up license to
practice or have practiced on behalf of the United States the subject
invention throughout the world.
C. Invention Disclosure, Election of Title, and Filing of Patent Application
l. OSIRIS shall disclose each subject invention to DARPA
within four (4) months after the inventor discloses it in writing to his
company personnel responsible for patent matters. The disclosure to DARPA
shall be in the form of a written report and shall identify the Agreement
under which the invention was made and the identity of the inventor(s). It
shall be sufficiently complete in technical detail to convey a clear
understanding to
<PAGE>
the extent known at the time of the disclosure, of the nature, purpose,
operation, and the physical, chemical, biological, or electrical
characteristics of the invention. The disclosure shall also identify any
publication, sale, or public use of the invention and whether a manuscript
describing the invention has been submitted for publication and, if so,
whether it has been accepted for publication at the time of disclosure.
OSIRIS shall also submit to DARPA an annual listing of subject inventions.
2. If OSIRIS determines that it does not intend to retain
title to any such invention, OSIRIS shall notify DARPA, in writing, within
eight (8) months of disclosure to DARPA. However, in any case where
publication, sale, or public use has initiated the one (1)-year statutory
period wherein valid patent protection can still be obtained in the United
States, the period for such notice may be shortened by DARPA to a date that
is no more than sixty (60) calendar days prior to the end of the statutory
period.
3. OSIRIS shall file its initial patent application on a
subject invention to which it elects to retain title within one (1) year after
election of title or, if earlier, prior to the end of the statutory period
wherein valid patent protection can be obtained in the United States after a
publication, or sale, or public use. OSIRIS may elect to file patent
applications in additional countries (including the European Patent Office and
the Patent Cooperation Treaty) within either ten (10) months of the
corresponding initial patent application or six (6) months from the date
permission is granted by the Commissioner of Patents and Trademarks to file
foreign patent applications, where such filing has been prohibited by a
Secrecy Order.
4. Requests for extension of the time for disclosure
election, and filing under Article VII, paragraph C, may, at the discretion of
DARPA, and after considering the position of OSIRIS, be granted.
D. Conditions When the Government May Obtain Title
Upon DARPA' s written request, OSIRIS shall convey title to any subject
invention to DARPA under any of the following conditions:
l. If OSIRIS fails to disclose or elects not to retain
title to the subject invention within the times specified in paragraph C of
this Article; provided, that DARPA may only request title within sixty (60)
calendar days after learning of the failure of OSIRIS to disclose or elect
within the specified times.
<PAGE>
2. In those countries in which OSIRIS fails to file patent
applications within the times specified in paragraph C of this Article;
provided, that if OSIRIS has filed a patent application in a country after the
times specified in paragraph C of this Article, but prior to its receipt of
the written request by DARPA, OSIRIS shall continue to retain title in that
country; or
3. In any country in which OSIRIS decides not to continue
the prosecution of any application for, to pay the maintenance fees on, or
defend in reexamination or opposition proceedings on, a patent on a subject
invention.
E. Minimum Rights to OSIRIS and Protection of OSIRIS's Right to File
l. OSIRIS shall retain a nonexclusive, royalty-free license
throughout the world in each subject invention to which the Government
obtains title, except if OSIRIS fails to disclose the invention within the
times specified in paragraph C of this Article. The OSIRIS license extends
to the domestic (including Canada) subsidiaries and affiliates, if any, within
the corporate structure of which OSIRIS is a party and includes the right to
grant licenses of the same scope to the extent that OSIRIS was legally
obligated to do so at the time the Agreement was awarded. The license is
transferable only within the approval of DARPA, except when transferred to
the successor of that part of the business to which the invention pertains.
DARPA approval for license transfer shall not be unreasonably withheld.
2. The OSIRIS domestic license may be revoked or modified
by DARPA to the extent necessary to achieve expeditious practical application
of the subject invention pursuant to an application for an exclusive license
submitted consistent with appropriate provisions at 37 CFR Part 404. This
license shall not be revoked in that field of use or the geographical areas in
which OSIRIS has achieved practical application and continues to make the
benefits of the invention reasonably accessible to the public. The license in
any foreign country may be revoked or modified at the discretion of DARPA to
the extent OSIRIS, its licensees, or the subsidiaries or affiliates have
failed to achieve practical application in that foreign country.
3. Before revocation or modification of the license, DARPA
shall furnish OSIRIS a written notice of its intention to revoke or modify the
license, and OSIRIS shall be allowed thirty (30) calendar days (or such other
time as may be authorized for good
<PAGE>
cause shown) after the notice to show cause why the license should not be
revoked or modified.
F. Action to Protect the Government's Interest
l. OSIRIS agrees to execute or to have executed and
promptly deliver to DARPA all instruments necessary to (i) establish or
confirm the rights the Government has throughout the world in those subject
inventions to which OSIRIS elects to retain title, and (ii) convey title to
DARPA when requested under paragraph D of this Article and to enable the
Government to obtain patent protection throughout the world in that subject
invention.
2. OSIRIS agrees to require, by written agreement, its
employees, other than clerical and nontechnical employees, to disclose
promptly in writing to personnel identified as responsible for the
administration of patent matters and in a format suggested by OSIRIS each
subject invention made under this Agreement in order that OSIRIS can comply
with the disclosure provisions of paragraph C of this Article. OSIRIS shall
instruct employees, through employee agreements or other suitable educational
programs, on the importance of reporting inventions in sufficient time to
permit the filing of patent applications prior to U.S. or foreign statutory
bars.
3. OSIRIS shall notify DARPA of any decisions not to
continue the prosecution of a patent application, pay maintenance fees, or
defend in a reexamination or opposition proceedings on a patent, in any
country, not less than thirty (30) calendar days before the expiration of the
response period required by the relevant patent office.
4. OSIRIS shall include, within the specification of any
United States patent application and any patent issuing thereon covering a
subject invention, the following statement: "This invention was made with
Government support under Agreement No. MDA972-96-3-0018 awarded by DARPA.
The Government has certain rights in the invention."
G. Lower Tier Agreements
OSIRIS shall include this Article, suitably modified, to identify the Parties,
in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
<PAGE>
H. Reporting on Utilization of Subject Inventions
OSIRIS agrees to submit, during the term of the Agreement, periodic reports no
more frequently than annually on the utilization of a subject invention or on
efforts at obtaining such utilization that are being made by OSIRIS or
licensees or assignees of the inventor. Such reports shall include
information regarding the status of development, date of first commercial sale
or use, gross royalties received by OSIRIS, and such other data and
information as the agency may reasonably specify. OSIRIS also agrees
to provide additional reports as may be requested by DARPA in connection
with any march-in proceedings undertaken by DARPA in accordance with
paragraph J of this Article. Consistent with 35 U.S.C. 202(c) (5), DARPA
agrees it shall not disclose such information to persons outside the
Government without permission of OSIRIS.
I. Preference for American Industry
Notwithstanding any other provision of this clause, OSIRIS agrees that it
shall not grant to any person the exclusive right to use or sell any subject
invention in the United States or Canada unless such person agrees that any
product embodying the subject invention or produced through the use of the
subject invention shall be manufactured substantially in the United States or
Canada. However, in individual cases, the requirements for such an agreement
may be waived by DARPA upon a showing by OSIRIS that reasonable but
unsuccessful efforts have been made to grant licenses on similar terms to
potential licensees that would be likely to manufacture substantially in the
United States or that, under the circumstances, domestic manufacture is not
commercially feasible.
J. March-in Rights
OSIRIS agrees that, with respect to any subject invention in which it has
retained title, DARPA has the right to require OSIRIS, an assignee, or
exclusive licensee of a subject invention to grant a non-exclusive license to
a responsible applicant or applicants, upon terms that are reasonable under
the circumstances, and if OSIRIS, assignee, or exclusive licensee refuses such
a request, DARPA has the right to grant such a license itself if DARPA
determines that:
l. Such action is necessary because OSIRIS or assignee has
not taken effective steps, consistent with the intent of this Agreement, to
achieve practical application of the subject invention;
2. Such action is necessary to alleviate health or safety
needs which are not reasonably satisfied by OSIRIS, assignee, or their
licensees;
3. Such action is necessary to meet requirements for public
use and such requirements are not reasonably satisfied by OSIRIS, assignee,
or licensees; or
4. Such action is necessary because the agreement required
by paragraph (I) of this Article has not been obtained or waived or because a
licensee of the exclusive right to use or sell any subject invention in the
United States is in breach of such Agreement.
<PAGE>
ARTICLE VIII: DATA RIGHTS
A. Definitions
l. "Government Purpose Rights", as used in this article,
means rights to use, duplicate, or disclose Data, in whole or in part and in
any manner, for Government purposes only, and to have or permit others to do
so for Government purposes only.
2. "Unlimited Rights", as used in this article, means
rights to use, duplicate, release, or disclose, Data in whole or in part, in
any manner and for any purposes whatsoever, and to have or permit others to
do so.
3. "Data", as used in this article, means recorded
information, regardless of form or method of recording, which includes but is
not limited to, technical data, software, trade secrets, and mask works. The
term does not include financial, administrative, cost, pricing or management
information and does not include subject inventions included under Article VII.
B. Allocation of Principal Rights
l. This Agreement shall be performed with mixed Government
and OSIRIS funding. The Parties agree that in consideration for Government
funding, OSIRIS intends to reduce to practical application items, components
and processes developed under this Agreement.
2. OSIRIS agrees to retain and maintain in good condition
until five (5) years after completion or termination of this Agreement, all
Data necessary to achieve practical application. In the event of exercise of
the Government's March-in Rights as set forth under Article VII or
subparagraph B.3 of this article, OSIRIS agrees, upon written request from the
Government, to deliver at no additional cost to the Government, all Data
necessary to achieve practical application within sixty (GO) calendar days
from the date of the written request. The Government shall retain Unlimited
Rights, as defined in paragraph A above, to this delivered Data.
3. OSIRIS agrees that, with respect to Data necessary to
achieve practical application, DARPA has the right to require OSIRIS to
deliver all such Data to DARPA in accordance with its reasonable directions if
DARPA determines that:
<PAGE>
(a) Such action is necessary because OSIRIS or
assignee has not taken effective steps, consistent with the intent of this
Agreement, to achieve practical application of the technology developed
during the performance of this Agreement;
(b) Such action is necessary to alleviate health or
safety needs which are not reasonably satisfied by OSIRIS, assignee, or
their licensees; or
(c) Such action is necessary to meet requirements
for public use and such requirements are not reasonably satisfied by OSIRIS,
assignee, or licensees.
4. With respect to Data delivered pursuant to Attachment
2 (and listed below), the Government shall receive Government Purpose Rights,
as defined in paragraph A above. With respect to all Data delivered, in the
event of the Government's exercise of its right under subparagraph B.2 of this
article, the Government shall receive Unlimited Rights.
C. Marking of Data
Pursuant to paragraph B above, any Data delivered under this Agreement shall
be marked with the following legend:
Use, duplication, or disclosure is subject to the restrictions as stated in
Agreement MDA972-96-3-0018 between the Government and OSIRIS.
D. Lower Tier Agreements
OSIRIS shall include this Article, suitably modified to identify the Parties,
in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
<PAGE>
ARTICLE IX: FOREIGN ACCESS TO TECHNOLOGY
This Article shall remain in effect during the term of the Agreement and for
five (5) years thereafter.
A. Definition
l. "Foreign Firm or Institution" means a firm or
institution organized or existing under the laws of a country other than the
United States, its territories, or possessions. The term includes, for
purposes of this Agreement, any agency or instrumentality of a foreign
government; and firms, institutions or business organizations which are
owned or substantially controlled by foreign governments, firms,
institutions, or individuals.
2. "Know-How" means all information including, but not
limited to discoveries, formulas, materials, inventions, processes, ideas,
approaches, concepts, techniques, methods software, programs, documentation,
procedures, firmware, hardware, technical data, specifications, devices,
apparatus and machines.
3. "Technology" means discoveries, innovations, Know-How
and inventions, whether patentable or not, including computer software,
recognized under U.S. law as intellectual creations to which rights of
ownership accrue, including, but not limited to, patents, trade secrets,
maskworks, and copyrights developed under this Agreement.
B. General
The Parties agree that research findings and technology developments arising
under this Agreement may constitute a significant enhancement to the national
defense, and to the economic vitality of the United States. Accordingly,
access to important technology developments under this Agreement by Foreign
Firms or Institutions must be carefully controlled. The controls contemplated
in this Article are in addition to, and are not intended to change or
supersede, the provisions of the International Traffic in Arms Regulation
(22 CFR pt. 121 et seq.), the DOD Industrial Security Regulation (DoD
5220.22-R) and the Department of Commerce Export Regulation (15 CFR pt. 770 et
seq.)
<PAGE>
C. Restrictions on Sale or Transfer of Technology to Foreign Firms or
Institutions
l. In order to promote the national security interests of
the United States and to effectuate the policies that underlie the regulations
cited above, the procedures stated in subparagraphs C.2, C.3, and C.4 below
shall apply to any transfer of Technology. For purposes of this paragraph, a
transfer includes a sale of the company, and sales or licensing of
Technology. Transfers do not include:
(a) sales of products or components, or
(b) licenses of software or documentation related to
sales of products or components, or
(c) transfer to foreign subsidiaries of OSIRIS for
purposes related to this Agreement, or
(d) transfer which provides access to Technology to
a Foreign Firm or Institution which is an approved source of supply or
source for the conduct of research under this Agreement provided that such
transfer shall be limited to that necessary to allow the firm or institution
to perform its approved role under this Agreement.
2. OSIRIS shall provide timely notice to DARPA of any
proposed transfers from OSIRIS of Technology developed under this Agreement
to Foreign Firms or Institutions. If DARPA determines that the transfer may
have adverse consequences to the national security interests of the United
States, OSIRIS, its vendors, and DARPA shall jointly endeavor to find
alternatives to the proposed transfer which obviate or mitigate potential
adverse consequences of the transfer but which provide substantially
equivalent benefits to OSIRIS.
3. In any event, OSIRIS shall provide written notice to the
DARPA Program Manager and Agreements Officer of any proposed transfer to a
foreign firm or institution at least sixty (60) calendar days prior to the
proposed date of transfer. Such notice shall cite this Article and shall
state specifically what is to be transferred and the general terms of the
transfer. Within thirty (30) calendar days of receipt of OSIRIS's written
notification, the DARPA Agreements Officer shall advise OSIRIS whether it
consents to the proposed transfer. In cases where DARPA does not concur or
sixty (60) calendar days after receipt
<PAGE>
and DARPA provides no decision, OSIRIS may utilize the procedures under
Article VI, Disputes. No transfer shall take place until a decision is
rendered.
4. Except as provided in subparagraph C.1 above or in the
event the transfer of Technology to Foreign Firms or Institutions is approved
by DARPA, OSIRIS shall (a) refund to DARPA funds paid for the development of
the Technology and (b) negotiate a license with the Government to the
Technology under terms that are reasonable under the circumstances.
D. Lower Tier Agreements
OSIRIS shall include this Article, suitably modified, to identify the Parties,
in all subcontracts or lower tier agreements, regardless of tier, for
experimental, developmental, or research work.
<PAGE>
ARTICLE X: CIVIL RIGHTS ACT
This Agreement is subject to the compliance requirements of Title VI of the
Civil Rights Act of 1964 as amended (42 U.S.C. 2000-d) relating to
nondiscrimination in Federally assisted programs. OSIRIS has signed an
Assurance of Compliance with the nondiscriminatory provisions of the Act.
ARTICLE XI: EXECUTION
This Agreement constitutes the entire agreement of the Parties and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions among the Parties, whether oral or written, with respect to the
subject matter hereof. This Agreement may be revised only by written consent
of OSIRIS and the DARPA Agreements Officer. This Agreement, or modifications
thereto, may be executed in counterparts each of which shall be deemed as
original, but all of which taken together shall constitute one and the same
instrument.
<PAGE>
ATTACHMENT 1
STATEMENT OF WORK
OSIRIS THERAPEUTICS, INC
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
ATTACHMENT 2
REPORT REQUIREMENTS
A. QUARTERLY REPORT
On or before ninety (90) calendar days after the effective date of the
Agreement and quarterly thereafter throughout the term of the Agreement,
OSIRIS shall submit or otherwise provide a quarterly report. Two (2) copies
shall be submitted or otherwise provided to the DARPA Program Manager, one (1)
copy shall be submitted or otherwise provided to the DARPA Agreements Officer
and one (1) copy shall be submitted or otherwise provided to DARPA/Defense
Sciences Office (DSO), Attn: CDR Shaun B. Jones, MC, USN (Program Manager).
The report will have two (2) major sections
l. Technical Status report. The technical status report
will detail technical progress to date and report on all problems, technical
issues, major developments, and the status of external collaborations during
the reporting period.
2. Business Status report. The business status report
shall provide summarized details of the resource status of this Agreement,
including the status of OSIRIS contributions. This report will include a
quarterly accounting of current expenditures as outlined in the Annual Program
Plan. Any major deviations shall be explained along with discussions of the
adjustment actions proposed. This report shall also identify any interest
earned on government funds on account.
B. ANNUAL PROGRAM PLAN DOCUMENT
OSIRIS shall submit or otherwise provide to the DARPA Program Manager one (1)
copy of a report which describes the Annual Program Plan as described in
Article III, Section B. This document shall be submitted not later than thirty
(30) calendar days following the Annual Site Review as described in Article
III, Section B.
<PAGE>
C. SPECIAL TECHNICAL REPORTS
As agreed to by OSIRIS and the DARPA Program Manager, OSIRIS shall submit or
otherwise provide to the DARPA Program Manager one (1) copy of special reports
on significant events such as significant target accomplishments by OSIRIS,
significant tests, experiments, or symposia.
D. PAYABLE MILESTONES REPORTS
OSIRIS shall submit or otherwise provide to the DARPA Program Manager,
documentation describing the extent of accomplishment of Payable Milestones.
This information shall be as required by Article V, paragraph B and shall be
sufficient for the DARPA Program Manager to reasonably verify the
accomplishment of the milestone of the event in accordance with the Statement
of Work.
E. FINAL REPORT
l OSIRIS shall submit or otherwise provide a Final Report
making full disclosure of all major developments by OSIRIS upon completion of
the Agreement or within sixty (60) calendar days of termination of this
Agreement. With the approval of the DARPA Program Manager, reprints of
published articles may be attached to the Final Report. Two (2) copies shall
be submitted or otherwise provided to the DARPA Program Manager and one (1)
copy shall be submitted or otherwise provided to DARPA/Defense Sciences Office
(DSO), Attn: CDR Shaun B. Jones, MC, USN (Program Manager). One (1) copy shall
be submitted to the Defense Technical Information Center (DTIC) addressed to
Bldg. 5/Cameron Station, Alexandria, VA 22314.
2. The Final Report shall be marked with a distribution
statement to denote the extent of its availability for distribution, release,
and disclosure without additional approvals or authorizations. The Final
Report shall be marked on the front-page in a conspicuous place with the
following marking:
<PAGE>
"DISTRIBUTION STATEMENT B Distribution authorized to U.S. Government
agencies only to protect information not owned by the U.S. Government and
protected by a contractor' S "limited rights" statement, or received with
the understanding that it not be routinely transmitted outside the U.S.
Government. Other requests for this document shall be referred to DARPA/
Technical Information Officer.
<PAGE>
ATTACHMENT 3
SCHEDULE OF PAYMENTS AND
PAYABLE MILESTONES
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
ATTACHMENT 5
LIST OF GOVERNMENT
AND
OSIRIS THERAPEUTICS, INC. REPRESENTATIVES
GOVERNMENT: C. Alan Frederick
DARPA/CMO
3701 N. Fairfax Drive
Arlington, VA 22203-1714
phone: (703) 696-0047
FAX: (703) 696-2208
Email: [email protected]
CDR Shaun B. Jones, MC, USN
DARPA/DSO
3701 N. Fairfax Drive
Arlington, VA 22203-1714
phone: (703) 696-4427
FAX: (703) 696-3999
Email: [email protected]
OSIRIS: Daniel R. Marshak, Ph.D
OSIRIS Therapeutics, Inc.
2001 Aliceanna Street
Baltimore, MD 21231-2001
phone: (410) 522-5005
FAX: (410) 522-6999
Email:
Robert J. Walden
Vice President
Finance & Administration
OSIRIS Therapeutics, Inc.
2001 Aliceanna Street
Baltimore, MD 21231-2001
phone: (410) 522-5005
FAX: (410) 522-6999
Email:
<PAGE>
An Agreement Between
OSIRIS THERAPEUTICS, INC.
2001 Aliceanna Street
Baltimore, Maryland 21231-2001
And
DEFENSE ADVANCED RESEARCH PROJECTS AGENCY
3701 North Fairfax Drive
Arlington, Virginia 22203-1714
Concerning
SEQUENTIAL RELEASE OF VACCINES USING MESENCHYMAL STEM CELLS & TWO-
COMPONENT CELLS SYSTEMS USING MESENCHYMAL STEM CELLS
Agreement No: MDA972-96-3-0018
Modification No: 0001
DARPA Order No: N/A (Admin)
Total Amount of Agreement: No Change
Total Estimate, Government Funding: No Change
Funds Obligated: No Change
Authority: 10 U.S.C. 2371
Line(s) of Accounting: N/A (Admin)
l. Purpose. To change the identification of the Paying Office, and
to add information in support of payment by Electronic Funds Transfer (EFT)
2. Paying Office. The identification and address of the Paying
Office that appears in Article V, Paragraph B2, is changed to read: Defense
Accounting Office, DAO/DFAS-IN-AKA, Attn: Vendor Pay, 8899 East 56th Street,
Indianapolis, Indiana 46249-1325.
3. Electronic Funds Transfer. The Contractor shall be paid by EFT.
The data in support of paying the Contractor in this manner is attached
hereto, and made part of this Agreement 5 Exhibit A to Article V.
For the United States: /s/ C. Alan Frederick 11/27/96
C ALAN FREDERICK
AGREEMENTS OFFICER
<PAGE>
Certain portions of this
exhibit have been
omitted based upon
a request for confidential
treatment. Omitted portions
have been separately filed
with the Securities and
Exchange Commission.
RESEARCH COLLABORATION AND LICENSE AGREEMENT
This Agreement made as of ... June 1997 (the "Effective Date"), between OSIRIS
THERAPEUTICS, INC., a company organized under the laws of the State of
Delaware, of 2001 Aliceanna Street, Baltimore, Maryland 21231-2001, USA
(hereinafter "Osiris") and NOVARTIS PHARMACEUTICALS CORPORATION, a corporation
organized under the laws of the State of Delaware, of Route 10, East Hanover,
New Jersey, USA (hereinafter "Novartis").
WITNESSETH
WHEREAS, Osiris owns, or is exclusive licensee with the right to sublicense,
certain patent rights and know-how relating to the isolation and use of
mesenchymal stem cells as hereinafter defined (hereinafter "MSCs "); and
WHEREAS, Novartis desires to obtain a license from Osiris to manufacture, use
and sell products containing MSCs for certain therapeutic uses under such
patent rights and know-how; and
WHEREAS, both Osiris and Novartis desire to enter into a research
collaboration in the Field as hereinafter defined; and
WHEREAS, Novartis' Affiliate Novartis Pharma AG desires to make an equity
investment in Osiris;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE 1. DEFINITIONS
The following terms shall have the following meanings:
1.1 "Affiliate" means any corporation or other entity which
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 fifty percent (50%) of the voting stock or other ownership interest
of the other corporation or entity, or if it possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the corporation or other entity.
1.2 "Area" means a subdivision of the Field, which is either the
Bone Therapy Area, the Cartilage Therapy Area, or the Gene Therapy Area.
1.3 "Bone Therapy Area" means the systemic or local treatment of
diagnosed osteoporosis (OP), but does not include acute and non-degenerative
bone defects, other degenerative bone defects, and large segmental defects.
1.4 "Cartilage Therapy Area" means the treatment of acute articular
hyaline cartilage injury, other non-degenerative articular hyaline cartilage
defects, and diagnosed osteoarthritis (OA).
<PAGE>
1.5 "E.U. Countries" means the Member States of the European Union
as of the Effective Date, and such other countries as may in the future join
the European Union, in each case for so long as such country remains a member
of the European Union.
1.6 "FDA" means the United States Food and Drug Administration.
1.7 "Field" means all three of the Areas Cartilage Therapy, Bone
Therapy and Gene Therapy, as defined herein, or, to the extent that the Field
has been restricted according to the provisions of Art. 4.7, any one or two of
said Areas.
1.8 "First Commercial Sale" of Product shall mean the first bona
fide sale for use or consumption by the general public of Product in a
country after required marketing and pricing approval has been granted by
the governing health authority of such country.
1.9 "Gene Therapy Area" means the use of transduced MSCs for the
delivery of a gene and/or polypeptide, which becomes part of the Gene
Therapy Area pursuant to any part of Article 4.8.
1.10 "Gene Therapy Product" means a product or process which
comprises or is used for producing transduced MSCs for the delivery of a gene
and/or polypeptide and which is in the Gene Therapy Area.
1.11 "IND" means an Investigational New Drug application, or an
Investigational Device Exemption (IDE), as defined in the US Food, Drug and
Cosmetic Act and the regulations promulgated thereunder for initiating
clinical trials in the USA, or any corresponding application in a country
other than the USA.
1.12 "Joint Patent Rights" means patent rights which are jointly
owned by Novartis and by Osiris under the provisions of Art. 11.1.
1.13 "JSC" means the Joint Steering Committee set up under the
provisions of Art. 5.
1.14 "Making and having made" includes the expansion and/or
differentiation of MSCs in vitro and/or combining such MSCs or differentiated
products thereof with a delivery vehicle.
1.15 "MSCs" means human mesenchymal stem cells which can
differentiate into cells of more than one connective tissue type.
1.16 "MSC Product" means a product, process or service in the
Cartilage Therapy Area or the Bone Therapy Area and containing non-transduced
or transduced MSCs, or cells derived from isolated MSCs which have been
differentiated in vitro into a specific lineage.
1.17 "NDA" means a New Drug Application; a Biologics License
Application; or a Pre-Marketing Approval for a device, as defined in the US
Food, Drug and Cosmetic Act and the regulations promulgated thereunder or any
other governmental approval to market a Product in the USA,
<PAGE>
or any corresponding application for marketing approval in a country other
than the USA.
1.18 "Net Sales" with respect to any Product means the gross invoice
price of such Product sold to Third Parties in bona fide, arms-length
transactions by Novartis or its Affiliates, licensees or sublicensees, less
(i) quantity and/or cash discounts actually allowed or taken; (ii) freight,
postage and insurance; (iii) amounts repaid or credited by reasons of
rejections or return of goods or because of retroactive price reductions
specifically identifiable to Product; (iv) amounts payable resulting from
Governmental (or agency thereof) mandated rebate programs; (v) third-party
rebates to the extent actually allowed; vi) custom duties and taxes (excluding
income, value-added and similar taxes), if any, directly related to the sale;
and (vii) any other specifically identifiable amounts included in Product's
gross sales that will be credited for reasons substantially equivalent to
those listed hereinabove; all as determined in accordance with Novartis'
standard allocation procedure and accountancy methods, which are in accordance
with generally acceptable accountancy principles {GAAP}).
In the event a Product is sold in a combination product with other
pharmacologically active components, Net Sales, for purposes of royalty
payments on the combination product, shall be calculated by multiplying the
Net Sales of that combination product by the fraction A/B, where A is the
gross selling price of the Product sold separately and B is the gross selling
price of the combination product. In the event that no such separate sales
are made by Novartis or an Affiliate, licensee or sublicensee, Net Sales for
royalty determination shall be calculated by multiplying Net Sales of the
combination product by the fraction C/(C+D) where C is the fully allocated
cost of the Product and D is the fully allocated cost of such other
pharmacologically active component. In no event shall Net Sales of any
Product calculated under this provision with respect to any combination
product be less than fifty percent of the Net Sales of such combination
product.
1.19 "North America" means Canada, Mexico and the United States of
America, its territories and possessions, including Puerto Rico.
1.20 "Novartis Know-How" means any and all data, substances,
processes, materials, formulas, inventions (whether or not patentable),
results or information which is useful for the research, development, making,
or using of MSCs or products produced therefrom and which is owned by Novartis
or its Affiliates or as to which Novartis or its Affiliates has transferable
rights.
1.21 "Novartis Patent Rights" means any and all patents and patent
applications owned by Novartis or its Affiliates or including Novartis'
interest in Joint Patent Rights or as to which Novartis or its Affiliates has
transferable rights, in each case to the extent that they claim Novartis
Know-How.
1.22 "Osiris Know-How" means any and all data, substances, processes,
materials, formulas, inventions (whether or not patentable), results or
information which is useful for the research, development, making or using of
Product and which results from Novartis funding and/or is owned by Osiris or
to which Osiris has transferable rights, including rights obtained from Osiris
Affiliates.
1.23 "Osiris Patent Rights" means any and all patents and patent
applications owned by Osiris including Osiris' interest in Joint Patent Rights
or as to which Osiris has a transferable rights in each case to the extent
that they claim Osiris Know-How. The Osiris Patent Rights include the patents
and applications of Schedule B.
<PAGE>
1.24 "Patents and patent applications" includes divisions,
continuations, reissues, provisional applications, continuations-in part,
reexaminations, extensions and supplemental protection certificates.
1.25 "Primary Country" means any of the United States, Canada, Japan,
France, Germany, Italy, the United Kingdom and Switzerland.
1.26 "Product" means an MSC Product or a Gene Therapy Product.
1.27 "Research Program" means the program of research described in
the detailed plan set out in Schedule C of this Agreement for the first two
years of the Research Term, and as subsequently amended or extended as
provided in this Agreement.
1.28 "Research Term" means, with respect to an Area and the Products
in the Area, the period during which research by Osiris in an Area is being
funded by Novartis.
1.29 "Royalty Term" means with respect to each Product in each
country the period of time equal to the longer of (a) ten (10) years from the
date of the First Commercial Sale of such Product in such country or (b) if
after such ten (10) year period the manufacture, use or sale of such Product
in such country is covered by a Valid Patent Claim of an Osiris Patent Right,
the term for which such Valid Patent Claim or any new Valid Patent Claim
remains in effect and would if in a granted patent be infringed but for the
license granted by this Agreement.
1.30 "Start-up Date" means 1 July 1997.
1.31 "Territory" means all countries in the world.
1.32 "Third Party" means any party other than Osiris, Novartis and
their Affiliates.
1.33 "Valid Patent Claim" means either (a) a claim of an issued and
unexpired patent which has not been held permanently revoked, unenforceable
or invalid by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal,
and which has not been admitted to be invalid or unenforceable through reissue
or disclaimer or otherwise or (b) a claim of a pending patent application
which claim was filed in good faith and has not been abandoned or finally
disallowed without the possibility of appeal or refiling of said application.
ARTICLE 2. LICENSE GRANT
2.1 License Grant by Osiris: Subject to the terms and conditions of
this Agreement, Osiris hereby grants to Novartis an exclusive license, or
where applicable an exclusive sublicense, under Osiris Patent Rights and
Osiris Know-How to use, import, sell and offer to sell Product in the
Territory; to make and to have made Gene Therapy Product in the Territory; to
make and to have made MSC Product for sale and use in all countries of the
Territory other than North America; and to the extent that Novartis is granted
the right to make or have made MSC Product for sale and use in North America
under the provisions of Article 14.2 or the Supply Agreement entered between
the parties pursuant to Article 14.1, to make and to have made MSC Product
for sale and use in North America. It is expressly
<PAGE>
understood that Novartis shall not have the right to grant a sublicense under
the licenses granted to Novartis hereunder, except as provided in Article 2.5.
2.2 Exclusivity Term in E.U.: Respecting E.U. Countries, the
exclusivity provided by Osiris in respect of a specific Product shall be
limited to a period of ten (10) years from First Commercial Sale of that
Product in an EU Country, provided, however, that in the E.U. Countries in
which Patent Rights relevant to that Product remain valid after expiration of
the ten-year period, the exclusivity will continue until expiration of said
Patent Rights. For avoidance of doubt, Novartis acknowledges that termination
of exclusivity in E.U. Countries pursuant to the preceding sentence shall not
reduce, impair or otherwise affect Novartis' obligation to continue to pay
royalties provided in Article 8 hereof, in such countries.
2.3 DARPA Agreement: It is expressly understood that no rights are
transferred by Osiris with respect to developments under the Agreement between
Defense Advanced Research Projects Agency (DARPA) and Osiris.
2.4 License Grant by Novartis:
2.4.1 Novartis on behalf of itself and its Affiliates grants to Osiris
an exclusive royalty free license in the Field under Novartis Know-How and
under Novartis Patents with respect to any and all Products in any and all
countries as to which Product and country(ies) the license granted to Novartis
by Osiris hereunder has been terminated under the provisions of Art. 4.7, 6.5,
6.6, 17.2, 17.3, or 17.4.
2.4.2 Novartis on behalf of itself and its Affiliates grants to Osiris
a royalty bearing worldwide license under Novartis Know-How and under Novartis
Patents to use, import, sell, offer to sell, make and have made any and all
products outside the Field. The license shall be exclusive except as to
Novartis and its Affiliates. The royalty shall be negotiated in good faith
between the parties and if the parties cannot reach agreement, the royalty
shall be submitted to arbitration pursuant to Schedule A hereto.
2.4.3 The licenses granted under Sections 2.4.1 and 2.4.2 include the
right to grant sublicenses.
2.5 Sublicenses:
2.5.1 Novartis shall have the right to grant a sublicense to any
Novartis Affiliate. Further, Novartis shall have the right to grant a
sublicense to a Third Party with the prior consent of Osiris, which shall not
be unreasonably withheld. In any sublicense granted by Novartis, Novartis
shall require the sublicensee to become bound to the terms and conditions of
Articles 6, 9.5, 16.1, 16.4, 18.2.2, 18.2.3, 18.4 and 18.6 of this Agreement,
with Osiris being made a third party beneficiary of such obligations of the
sublicense. A breach of such terms by the sublicensee shall be a breach by
Novartis under this Agreement. Any such sublicense shall prohibit any further
sublicensing and shall provide that a termination of Novartis' license shall
terminate the sublicensed rights.
2.5.2 To the extent that a party to this Agreement receives a license
under this Agreement which is a sublicense under an agreement with a Third
Party ("Third Party Agreement"), the party receiving such sublicense
understands and agrees as follows:
<PAGE>
(i) The sublicense granted under this Agreement is subject to the
terms, limitations, restrictions and obligations of the Third
Party Agreement; and
(ii) such party will comply with the terms, obligations, limitations
and restrictions of such Third Party Agreement applicable to a
sublicensee, to the extent that such party is advised thereof.
2.5.3 Subject to the rights retained by Case Western Reserve
University (Case Western), Osiris is the exclusive licensee of Case Western to
US Patent 5,591,625 and to US patent applications [*CONFIDENTIALITY REQUESTED*]
and equivalents thereof, which are included in the Patent Rights set out in
Schedule B of this Agreement. Osiris warrants that it has the right to grant
sublicenses under such Patent Rights, and that Novartis shall have no direct
financial or other liability to Case Western as a result of entering into this
Agreement with Osiris.
2.5.4 If Novartis receives a sublicense under Osiris Know-How or
Osiris Patent Rights as to which Osiris has transferable rights under a
license from a Third Party, and said license was obtained from said Third
Party during the Research Term, then no payment additional to those specified
in Articles 7 and 8 shall be required in order for Novartis to make use of
such sublicense, and any royalties due to said Third Party shall be paid by
Osiris. If Novartis receives a sublicense under Osiris Know-How or Osiris
Patent Rights as to which Osiris has transferable rights under a license from
a Third Party, and said license was obtained from said Third Party subsequent
to the Research Term, then if Novartis wishes to make use of such sublicense
any royalties due to said Third Party shall be paid by Novartis in addition to
the royalty payments due to Osiris.
ARTICLE 3. KNOW-HOW
Insofar as this has not already occurred, Osiris shall disclose to
Novartis the existing Osiris Know-how within thirty (30) days of the Effective
Date. Osiris and Novartis shall further disclose to one another all Osiris
Know-how and Novartis Know-how hereinafter developed or acquired by either
party during the term of this Agreement, to the extent that it is licensed to
the other party.
ARTICLE 4. RESEARCH PROGRAM
4.1. Conduct of the Research Program: The conduct of the Research
Program shall be the primary responsibility of Osiris with participation by
Novartis and its Affiliates. The Research Program shall be conducted in
compliance, where required, with Good Laboratory Practice, and in all
material respects with applicable legal requirements, to attempt to achieve
efficiently and expeditiously its objectives described in the work plan set
forth in Schedule C hereto. Osiris and Novartis shall proceed diligently with
the work set out in the Research Program by using their respective good faith
efforts considering, in the case of Osiris, the funding received from Novartis.
4.2. Use of Research Funding: Osiris shall apply the research
funding it receives from Novartis under this Agreement for the purpose of
identification and pre-clinical development of Products, applying the number
of Full Time Equivalents (FTEs) specified in Schedule C. At least 25% (twenty
five percent) of the FTEs specified for each Area shall be assigned to the
Research Program in that Area within one (1) month from the Start-up Date, at
least 60% (sixty percent) within two (2) months from the Start-up Date, and at
least 100% (one hundred percent) within three (3) months from the Start-up
Date, whereby any under-allocation of FTEs during this initial
<PAGE>
three (3) month period shall be made good by the first anniversary of the
Start-up Date. It is also understood and agreed that an FTE may be provided by
one, two or more persons. For each Area, a senior scientist, mutually
acceptable to both parties, shall be appointed as Program Leader for the
Research Program in that Area.
In no event shall Osiris be obligated to perform work under the Research
Program beyond that which is funded by Novartis, except as otherwise provided
in Art. 4.6. It is expressly understood that no representations or warranties
or agreement is made that the objectives set forth in the work plan will in
fact be achieved.
With respect to each Area, during the period which Novartis is
funding research in such Area under this Agreement, Osiris agrees not to
perform any research and development work for any Third Party in such Area.
It is also expressly understood that the research funding may be employed for
research to be performed by Osiris under this Agreement and/or for research to
be performed under a subcontract, as provided in Article 4.3.
4.3. Subcontracts: Subject to the provisions of Art. 16, Osiris and
Novartis may each subcontract portions of the Research Program to be performed
by them in the normal course of their business to a Third Party without the
prior consent of the other; provided, however, that the other party is
informed, and that either such Third Party has entered into an appropriate
confidentiality agreement with Osiris or Novartis, or such subcontracting
would not require the transfer of confidential information to the Third Party.
The use of subcontractors by Osiris shall not add to the financial liabilities
of Novartis under this Agreement, whether in terms of Research Funding, of
royalties, or in any other respect; however, the research funding may be used
for funding any such subcontracts.
4.4. Data: Osiris and Novartis and their respective Affiliates and
subcontractors shall each maintain records in sufficient detail and in good
scientific manner appropriate for patent purposes and as will properly reflect
all work done and results achieved in the performance of the Research
Program (including all data in the form required to be maintained under any
applicable governmental regulations). Osiris and Novartis shall each provide
the other the right to inspect such records, and shall provide copies of all
requested records, to the extent reasonably required for the performance of
the requesting party's obligations under this Agreement; provided, however,
that each party shall maintain such records and the information of the other
contained therein in confidence in accordance with Article 16 below and shall
not use such records or information except to the extent otherwise permitted
by this Agreement.
4.5 Term of Research Funding: The term during which Novartis will
fund the research of Osiris shall be determined independently for each of the
Areas. For each of the Bone Therapy and the Cartilage Therapy Areas,
independently, the term shall be five (5) years from the Start-up Date,
unless earlier terminated by Novartis in its sole discretion. Such notice of
early termination may be given by Novartis no later than twenty four (24)
months from the Start-up Date, to take effect at thirty (30) months from the
Start-up Date; or no later than forty two (42) months from the Start-up Date,
to take effect at forty eight (48) months from the Start-up Date. For the
Gene Therapy Area, the term shall be thirty (30) months from the Start up
Date provided, however, that Novartis shall have the right to extend such
term for an additional thirty (30) months with respect to the Gene Therapy
Area as it exists as of such date upon agreement by the parties to the funding
therefor, which funding shall
<PAGE>
be no less than $500,000 per calendar quarter, and subject to termination by
Novartis, in its sole discretion, eighteen months after the start of such
extended term, by at least six months prior written notice.
4.6 Amount of Research Funding: Novartis will fund the research of
Osiris in the Field, subject to the provisions of Art. 4.5, by quarterly
payments in advance throughout the Research Term, beginning on the Start-up
Date. The amount of each of the first ten quarterly payments shall be
[*CONFIDENTIALITY REQUESTED*]. Thereafter, the amount of each quarterly payment
shall depend upon the agreed budget for those Areas in which research is still
being funded, but shall not be less than [*CONFIDENTIALITY REQUESTED*] if one
of the Cartilage Therapy and Bone Therapy Areas is being funded, and not less
than [*CONFIDENTIALITY REQUESTED*] if both of said Areas are being funded. This
funding shall provide the number of FTEs in each Area as specified in Schedule
C hereto, inclusive of personnel costs, lab materials and supplies, electronic
data processing expenditures, travel expenditures, depreciation, occupancy fees
and all other costs. One FTE shall be provided by Osiris for each
[*CONFIDENTIALITY REQUESTED*] of funding provided by Novartis; in addition,
Osiris shall provide, at its own cost and without further charge to Novartis,
one (1) FTE in the Cartilage Therapy Area and one (1) FTE in the Bone Therapy
Area in each full year of the Research Term for such Area, provided, however,
that Osiris shall not be obligated to provide such FTE in an Area as from the
date of notice of early termination of research funding for such Area according
to Art. 4.5.
4.7 Restriction of Rights on early Termination: If Novartis gives
notice of early termination of research funding for the Bone Therapy Area
and/or the Cartilage Therapy Area under the provisions of Article 4.5, the
Areas for which research funding has been terminated shall no longer be part
of the Field, the license granted to Novartis for MSC Product in each such
Area shall be terminated and Novartis shall have no further rights in respect
of such Area.
4.8 Scope of Gene Therapy Area:
4.8.1 Initial Designation: Within ninety (90) days of the Effective
Date, Novartis shall designate three genes or polypeptides which shall be used
for transducing MSCs for delivery of a gene and/or polypeptide and the use of
such transduced MSCs shall become part of the Gene Therapy Area.
4.8.2 Right of First Refusal: Novartis may at any time up to 31
December 1997 propose to Osiris that the use in transduced MSCs of one or more
of the specific genes or polypeptides in a list given to Osiris within ninety
(90) days of the Effective Date shall be added to the Gene Therapy Area within
this Agreement. The list shall include only those genes and polypeptides the
use of which Novartis in good faith believes may be added to the Gene Therapy
Area. When such genes and polypeptides are proposed, the parties shall then
discuss the financial terms upon which the Gene Therapy Area may be so
extended. Such terms [*CONFIDENTIALITY REQUESTED*] as set out in this
agreement. Non-financial terms of this Agreement shall not be affected. If the
parties have not reached agreement upon such terms within sixty (60) days
from the date of Novartis' proposal, Osiris may offer a license for such
subject matter to a Third Party provided that the financial terms thereof, as
a whole, are no more favorable to such Third Party than those last offered to
Novartis. If Osiris desires to offer a Third Party a license for such subject
matter at terms more favorable, then Osiris shall offer such more favorable
terms to Novartis and if within thirty (30) days of such offer, Novartis
informs Osiris that it is prepared to enter into an agreement with Osiris in
accordance with such terms, Osiris shall conclude such agreement with Novartis
upon such terms. If no such
<PAGE>
statement is made by Novartis within said thirty (30) days, Osiris shall be
free to enter into an agreement in accordance with such terms with a third
party.
4.8.3 Right of First Negotiation: Novartis may at any time up to 31
December 1997 propose to Osiris that the use in transduced MSCs of one or more
genes or polypeptides other than those listed in Art. 4.8.2 above shall be
added to the Gene Therapy Area within this Agreement, and the parties shall
then discuss the financial terms upon which the Gene Therapy Area may be so
extended. Such terms [*CONFIDENTIALITY REQUESTED*] shall not change the
royalty rates as set out in this Agreement. Non-financial terms of this
Agreement shall not be affected. If the parties have not reached agreement
upon such terms within sixty (60) days from the date of Novartis' proposal,
Osiris shall be free to enter into a license agreement for such subject matter
with a Third Party without further reference to Novartis.
4.8.4 Amendment to Schedule C: When the scope of the Gene Therapy
Area is initially defined or extended by the provisions of Art. 4.8.1, 4.8.2
or 4.8.3, Schedule C of this Agreement shall be modified accordingly.
4.9 Visit to Premises: At any time during the Research Term for any
Area, Novartis members of the JSC or other designated employees of Novartis or
its Affiliates may upon reasonable notice visit the premises of Osiris or its
subcontractors in order to inform themselves of the progress of work funded by
Novartis under this Agreement.
ARTICLE 5. JOINT STEERING COMMITTEE
5.1 Membership and Responsibilities: A Joint Steering Committee
("JSC") shall be established, consisting of three (3) representatives
appointed by each of Novartis and Osiris. Each party may replace its JSC
representatives at any time, after discussion with the other party, with
subsequent written notice to the other party. Osiris and Novartis shall each
appoint one of their JSC representatives to be responsible for co-ordinating
communications between Osiris and Novartis (the "Primary Contact Person").
The JSC shall be chaired by a research manager appointed by Novartis. The JSC
shall have responsibility, inter alia, for:
(i) monitoring the progress of the parties' research in the Field
and assaying its overall scientific and therapeutic relevance
and competitiveness;
(ii) fostering the collaborative relationship between Osiris and
Novartis
(iii) facilitating all required technology transfer; and
(iv) reviewing and allocating annual FTEs, within the framework of
the contractually agreed funding level. Modifications of the
Research Program and of individual Program budget items within
the contractually agreed overall yearly funding level may be
made only with the approval of the JSC.
(v) clearance of scientific publications relating to the Field,
containing work from either party.
5.2. Quarterly Reports: Within thirty (30) days following the end of
each calendar quarter, Osiris and Novartis shall each provide to the members
of the JSC written reports which shall summarize in reasonable detail the work
each has performed under the Research Program during the preceding calendar
quarter by the parties and any subcontractors of either party, and, in the
case of Osiris, shall give an account of its allocation of FTEs in that
quarter. In addition, Osiris
<PAGE>
shall report on a monthly basis the activities
and results of the FTEs assigned to the Research Program.
5.3 Decision Making: Decisions of the JSC shall be made by
unanimous approval. In the event the parties are unable to agree, the dispute
will be referred to Osiris's President (or designee of similar rank) and
Novartis's CEO (or designee of similar rank), who shall promptly meet in
person or by means of telephone or video conference and endeavour to resolve
the dispute in a timely manner. In the event such individuals are unable to
resolve the dispute, it shall be settled by binding arbitration in accordance
with Schedule A hereto.
5.4 JSC Meetings: During the Research Term, the JSC shall meet at
regular intervals, as agreed by the parties, in person at such locations as
the parties agree, or by means of telephone or video conference. With the
consent of the parties, other representatives of Osiris or Novartis may
attend JSC meetings as nonvoting observers. The party hosting a particular
JSC meeting shall promptly prepare and deliver to the members of the JSC,
within thirty (30) days after the date of each meeting, minutes of such
meeting setting forth, inter alia, all decisions of the JSC, and including a
report on the progress of the research in each Area. In case of telephone and
video conferences, this responsibility will alternate between the parties.
5.5 Voting: Each party shall have one vote at each JSC meeting and
a quorum for such a meeting shall require at least one member appointed by
each party. A failure to establish a quorum for a meeting on which a matter
is to be voted shall be considered a disagreement under Article 5.3.
ARTICLE 6. DEVELOPMENT OF PRODUCT
6.1 Responsibilities: Novartis will plan and execute all clinical
development and registration activities within the Field in the Territory, at
its own expense. Novartis shall own all registration dossiers, INDs and NDAs.
6.2 Reasonable Commercial Efforts: Novartis agrees to use
reasonable commercial efforts, similar to those used for products originating
in Novartis, to obtain NDA approval in all Primary Countries and to market and
sell Product in all Primary Countries as promptly as is reasonably
practicable, and thereafter to use reasonable commercial efforts, as for
products originating in Novartis, to continue to market and sell Product in
all Primary Countries.
6.3 Notification of Lack of Interest: If at any time Novartis does
not have a meaningful interest in developing, marketing and selling and
continuing to develop, market and sell any Product in any country, Novartis
shall notify Osiris promptly thereof.
6.4 Reporting: Novartis shall provide Osiris with written reports
within thirty (30) days after June 30 and December 31 of each year concerning
the efforts being made by Novartis, its Affiliates and licensees to research,
develop, obtain regulatory approval, market and sell Product, and shall
provide Osiris with any other information reasonably requested by Osiris in
this respect. To the extent that Novartis makes reports to the Joint Steering
Committee under Article 5.2, such reports shall satisfy the obligation of this
Article 6.4.
<PAGE>
6.5 Right to Terminate for Primary Countries: In the event that
Novartis does not meet its obligations with respect to a Product in a Primary
Country, or Novartis notifies Osiris that Novartis does not have an interest
in continuing to develop, market or sell a Product in a Primary Country,
Osiris shall have the right to terminate the rights and licenses granted to
Novartis under this Agreement with respect to such Product in such country
or countries by sixty (60) days written notice and such rights and licenses
shall be terminated after sixty (60) days unless such failure is cured prior
thereto.
6.6 Right to Terminate for other Countries: In the event that
Novartis' rights are terminated with respect to a Product in a Primary
Country (other than by reason of Novartis surrendering rights in such Primary
Country) or in the event that Novartis notifies Osiris that Novartis does not
have an interest in developing or marketing or continuing to develop or market
a Product in a country other than a Primary Country, then in the case where
Novartis' rights have been terminated with respect to a Product in a Primary
Country, Osiris will have the right to terminate Novartis' right with respect
to such Product in any country other than a Primary Country for which Novartis
is not exerting reasonable commercial efforts, similar to those used for
products originating in Novartis, to research, develop, obtain regulatory
approval and to market and sell such Product in such a country by written
notice to Novartis and such rights shall be terminated in such country or
countries unless within sixty (60) days after such notice, Novartis cures such
failure; or in the case where Novartis notifies Osiris that it does not have
an interest in a country with respect to a Product, then Osiris shall have the
right to terminate Novartis' rights to such Product in such country by
written notice to Novartis.
ARTICLE 7. UPFRONT AND MILESTONE PAYMENTS
7.1 Upfront Payment: Novartis shall pay Osiris the sum of
$3,000,000 (three million dollars), due upon the Effective Date. This payment
shall be non-refundable and non-creditable against future earned royalties.
7.2 Milestone Payments
7.2.1 Bone Therapy Area: When each separate Product developed in the
Bone Therapy Area shall reach one of the following milestones, Novartis shall
pay the indicated sum to Osiris:
[*CONFIDENTIALITY REQUESTED*]
The total milestone payments made by Novartis in respect of the Bone
Therapy Area shall not [*CONFIDENTIALITY REQUESTED*] for each separate Product
which is commercially introduced.
7.2.2 Cartilage Therapy Area: One the first occasion on which a
Product developed in the Cartilage Therapy Area for the indication acute
articular hyaline cartilage injury shall reach one of the following
milestones, Novartis shall pay the indicated sum to Osiris:
<PAGE>
[*CONFIDENTIALITY REQUESTED*]
For each occasion on which each separate Product developed for any indication
in the Cartilage Therapy Area, (other than the first Product for acute
articular hyaline cartilage injury, for which the milestone payments set out in
this Art. 7.2.2 above shall apply) shall reach one of the said milestones,
Novartis shall pay to Osiris the corresponding sum as set out in Art. 7.2.1
above. The total milestone payments made by Novartis in respect of the
Cartilage Therapy Area shall not exceed (a) [*CONFIDENTIALITY REQUESTED*] in
respect of the first Product to be commercially introduced for the indication
acute articular hyaline cartilage injury, [*CONFIDENTIALITY REQUESTED*] in
respect of the first separate Product which is commercially introduced for any
other indication in the Area, and (c) [*CONFIDENTIALITY REQUESTED*] for each
subsequent separate Product which is commercially introduced for any indication
in the Area.
7.2.3 Gene Therapy Area: When each separate Product developed in the
Gene Therapy Area shall reach one of the following milestones, Novartis shall
pay the indicated sum to Osiris:
[*CONFIDENTIALITY REQUESTED*]
The total milestone payments made by Novartis in respect of the Gene
Therapy Area shall not exceed [*CONFIDENTIALITY REQUESTED*], for each separate
Product which is commercially introduced.
7.2.4 Back-up Products: If a Product is abandoned during development
after one or more of the first three (3) milestone payments according to Art.
7.2.1, 7.2.2 or 7.2.3 above has been made, and if a back-up Product is
developed to replace such abandoned Product, then no milestone payment shall
be made in respect of the back-up Product which milestone payment has already
been made in respect of the abandoned Product.
7.2.5 Separate Products: A later developed or later introduced
Product shall be considered as separate from an earlier Product in the same
Area, and therefore as potentially giving rise to a new set of milestone
payments, if at least one of the following criteria is met:
a) [*CONFIDENTIALITY REQUESTED*]
<PAGE>
b) [*CONFIDENTIALITY REQUESTED*]
c) [*CONFIDENTIALITY REQUESTED*]
In the event of a dispute between the parties as to whether or not a
later developed or later introduced Product is a separate Product according to
this Article 7.2.5, the dispute shall be settled by the arbitration procedure
of Schedule A to this Agreement.
7.2.6 Overlap of Area: If a Gene Therapy Product containing
transduced cells also meets the definition of an MSC Product, it shall be
considered as an MSC Product for the purpose of determining milestone payments
under this Agreement, and only the milestone payments appropriate for the Bone
Therapy Area or the Cartilage Therapy Area, as the case may be, shall be
payable by Novartis.
7.3 Refunds and Credits: The milestone payments made according to
Art. 7.2 above shall be non-refundable, [*CONFIDENTIALITY REQUESTED*], for the
same Product, provided that the total royalties due within any one calendar
year, as adjusted by Art. 8.3 if applicable, [*CONFIDENTIALITY REQUESTED*] as
a result of this provision shall be carried forward for future deduction.
7.4 Reports: Novartis shall promptly report to Osiris the
occurrence of any event which would trigger a milestone payment according to
Art. 7.2 above.
ARTICLE 8. ROYALTIES
8.1 Royalty levels:
8.1.1 MSC Products: Novartis shall pay Osiris, for each separate MSC
Product, the following royalties as a percentage of all Net Sales of that
Product in the Territory by Novartis, its Affiliates, licensees and
sublicensees:
Annual World-wide Net Sales (Million dollars) Applicable royalty
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
For the avoidance of doubt, the above table means, for example, that the
royalty payable upon world-wide Net Sales of a Product of [*CONFIDENTIALITY
REQUESTED*].
If a Product has world-wide Net Sales above [*CONFIDENTIALITY
REQUESTED*], the applicable royalty shall be calculated as a percentage of the
total Net Sales by applying the overall royalty rate shown below:
Annual World-wide Net Sales (Million dollars) Applicable overall royalty
[*CONFIDENTIALITY REQUESTED*]
8.1.2 Gene Therapy Products: Novartis shall pay Osiris, for each
individual Gene Therapy Product, the following royalties as a percentage of
all Net Sales of that Product in the Territory made by Novartis, its
Affiliates, licensees and sublicensees:
Annual world-wide Net Sales (Million dollars) Applicable royalty
[*CONFIDENTIALITY REQUESTED*]
For the avoidance of doubt, the above table means, for example, that
the royalty payable upon world-wide Net Sales of a Gene Therapy Product
of [*CONFIDENTIALITY REQUESTED*]
8.1.3. Overlap of Areas: If a Gene Therapy Product containing
transduced cells also meets the definition of an MSC Product, it shall be
considered as an MSC Product for the purpose of determining royalty payments
under this Agreement, and the applicable royalty rates will be as set out in
Art. 8.1.1.
<PAGE>
In no event shall royalty payments be additive for the same Product.
8.2 Third Party Royalties: If Novartis is required to pay royalties
to any Third Party in order to exercise its rights to sell a Product in a
country, then [*CONFIDENTIALITY REQUESTED*] of the royalties payable to such
Third Party in any calendar quarter for such Product in such country shall be
deductible from the royalties paid to Osiris under this Agreement in respect
of that Product for the same calendar quarter for such Product in such
country, provided that a) such deduction shall not reduce the royalty payment
due under Art. 8.1 in respect of that Product for that quarter in such country
by [*CONFIDENTIALITY REQUESTED*],and b) in no event shall the royalty due
[*CONFIDENTIALITY REQUESTED*] of Net Sales for an MSC Product or
[*CONFIDENTIALITY REQUESTED*]of Net Sales for a Gene Therapy Product. For the
purposes of this Art. 8.2, the royalties payable for a Product in a country
shall be calculated based upon the average worldwide royalty rate for such
Product in the applicable calendar year
8.3 Unlicensed Competition: If in any country a Third Party sells a
Product ("Third Party Product") and such Third Party Product in such country
is not covered by a Valid Patent Claim of an Osiris Patent Right and/or a
patent or patent application owned by or licensed to Novartis and in such
country such Third Party Product directly competes with a Product sold by
Novartis for which Novartis owes royalties to Osiris under this Agreement,
then for the period in which the sales of such Third Party Product in such
country are [*CONFIDENTIALITY REQUESTED*] of the sales of the Product sold
by Novartis in such country, the royalties owed by Novartis for such Product
in such country for such period shall be [*CONFIDENTIALITY REQUESTED*] of the
royalties provided in Section 8.1, but in no event shall the royalties owed
for such Product in such country when combined with [*CONFIDENTIALITY
REQUESTED*] provided under Article 8.2 reduce the royalties for such Product
in such country by [*CONFIDENTIALITY REQUESTED*]. For the purposes of this
Art. 8.3, the royalties payable for a Product in a country shall be calculated
based upon the average worldwide royalty rate for such Product in the
applicable calendar year
8.4 Paid-up License: For each country, following expiration of the
Royalty Term in respect of a Product, Novartis shall have a perpetual
nonexclusive transferable paid-up royalty free license under Osiris Know-How
and under Osiris Patent Rights, in each case which are in existence at the end
of the Royalty Term, to use and sell that Product in that country and to make
Product for use and sale in that country, subject to any Supply Agreement for
North America as contemplated in Article 14.1. Any such transfer shall be
subject to the confidentiality and non-use obligations of this Agreement.
ARTICLE 9. RECORDS AND PAYMENTS
9.1 Research Funding, Upfront and Milestone Payments: Payments to
be made under Articles 4.6, 7.1 and 7.2 shall be paid by Novartis upon
presentation of an invoice by Osiris. Payment shall be made no later than (a)
the due date or (b) thirty (30) days after receipt of the corresponding
invoice, whichever is the later.
9.2 Royalties: Royalties as provided in Article 8 shall be
calculated quarterly on the last day of each calendar quarter during the term
of this Agreement and shall be paid to Osiris within sixty
(60) days after said last day with an accounting report showing the amount of
each Product sold by Novartis and its Affiliates, licensees and sublicensees
during each quarterly period; total receipts for each Product; an accounting
and calculation of Net Sales for each such Product; an accounting for amounts
deductible, if any against royalty; and total royalties payable to Osiris for
each Product. In
<PAGE>
addition, Novartis shall respond to reasonable inquiries by Osiris with
respect to any report made to Osiris under this Agreement.
9.3 Royalty Calculation: Royalties provided to Osiris shall be
determined on the basis of Novartis' monthly standard account of sales
which represents the conversion of all local currency sales to Swiss Francs at
the average monthly exchange rate of sales, as calculated by Novartis in the
ordinary course of business. The royalty report provided under Art. 9.2 shall
provide information as to such calculation for each Product.
9.4 Method of Payment: Royalties and payments provided to Osiris
shall be made in United States dollars by telegraphic transfer to Osiris's
bank account as directed by Osiris. The exchange rate between the Swiss Franc
and US Dollar shall be the rate published in the London Times at the close of
business in London on the last business day of the calendar quarter for which
the royalties are being paid.
9.5 Records: Novartis and its Affiliates shall keep accurate
records and books of accounts in accordance with generally accepted accounting
principles consistently applied and containing all the data reasonably
required for calculation and verification of payments made. During the term of
this Agreement and two (2) years thereafter, Novartis shall retain accounting
records of the previous three (3) years. At Osiris's request, Novartis shall
make records available, no more than twice per year, during reasonable working
hours for review by an independent accounting firm acceptable to both parties,
at Osiris's expense, for the sole purpose of verifying their accuracy. In the
event that any such review indicates an underpayment of royalties by Novartis
in excess of five percent (5%), Novartis shall pay the cost of such review.
Any reported underpayment of royalties shall be immediately due and payable.
9.6 Confidentiality: Osiris agrees that all information subject to
review under Art. 9.5. or under any sublicense agreement is confidential and
that Osiris shall cause its accountant to retain all such information in
confidence.
9.7 Taxes: All royalty amounts required to be paid to Osiris
pursuant to this Agreement shall be paid with deduction for withholding for or
on account of any taxes (other than taxes imposed on or measured by net
income) or similar governmental charge imposed by a jurisdiction other than
the U.S. on Osiris ("Withholding Taxes"). Novartis shall provide Osiris a
certificate evidencing payment of any Withholding Taxes hereunder and provide
reasonable assistance to recover such taxes.
ARTICLE 10. EQUITY INVESTMENT
Novartis or its designate shall make an equity investment of $10 Million in
Osiris according to the terms and conditions set out in the Stock Purchase
Agreement of even date herewith.
ARTICLE 11. INVENTIONS AND PATENTS
11.1. Ownership of Inventions: The entire right, title and interest in
all inventions within the Field, and any patent applications, or patents based
thereon (collectively, the "Inventions") that are made or conceived (i) solely
by employees of Osiris or others acting on behalf of Osiris ("Osiris
Inventions") shall be owned by Osiris (ii) solely by employees of Novartis or
others acting on behalf of Novartis ("Novartis Inventions") shall be owned by
Novartis and (iii) jointly by employees
<PAGE>
or others acting on behalf of Osiris and Novartis ("Joint Inventions") shall
be owned jointly by Novartis and Osiris. Each party shall promptly disclose
to the other party the Inventions made by employees or others acting on behalf
of such party to the extent that the other party has a license thereto under
this Agreement. Each party represents and agrees that all employees and
other persons acting on its behalf in performing its obligations under this
Agreement shall be obligated under a binding written agreement to assign to
such party, or as such party shall direct, all Inventions made by such
employee or other person, or in the case of non-employees working for other
companies or institutions on behalf of Osiris or Novartis and using Novartis
research funding, Osiris or Novartis, as applicable, shall have the right to
license all Inventions made by such non-employees on behalf of Osiris or
Novartis, as applicable, in accordance with the policies of said company or
institution. Osiris and Novartis agree to undertake to enforce such
agreements (including, where appropriate, by legal action) considering, among
other things, the commercial value of such Inventions.
11.2. Patent Applications
11.2.1. Priority filings: When an Osiris Invention or a Joint
Invention has been made which may reasonably be considered to be patentable
and as to which Novartis is licensed under this Agreement, a priority patent
application shall be filed by Osiris in the United States as soon as
reasonably possible. Osiris shall give Novartis an opportunity to review the
text of any application for a Joint Invention before filing and shall supply
Novartis with a copy of the application as filed, together with a note of its
filing date and serial number. The costs of such priority filings shall be
borne by Osiris in the case of an Osiris Invention, and by Novartis in the
case of a Joint Invention.
11.2.2. Foreign Filing Decisions: No later than nine (9) months
following the filing date of a priority patent application filed according to
Art. 11.2.1., the parties shall consult together, through the JSC or
otherwise, and agree whether such priority application should be abandoned
without replacement; abandoned and refiled; proceeded with in the country of
filing only; or used as the basis for a claim of priority under the Paris
Convention for corresponding applications in other countries. The same shall
apply to any priority patent application which, as of the Effective Date, is
part of the Osiris Patent Rights and for which no corresponding foreign
applications have been filed.
11.2.3 Osiris Patent Rights: Any patent application filed in any
country in respect of an Osiris Invention as to which Novartis is licensed
under this Agreement shall be added to the Osiris Patent Rights.
11.2.4 Prosecution and Maintenance: Osiris shall bear cost and
responsibility for prosecution and maintenance of the Osiris Patent Rights. At
regular intervals, or upon request, Osiris shall provide Novartis with updated
information on its patent portfolio as to which Novartis is licensed under
this Agreement, and Schedule B hereto shall be amended accordingly. Novartis
shall bear the cost for prosecution and maintenance of the Joint Patent Rights
with Osiris having responsibility therefor in the United States and Novartis
in the rest of the world. Novartis and Osiris shall consult with each other as
to the prosecution and maintenance of such patent applications and patents. If
at any time Novartis or Osiris shall elect not to continue to prosecute or
maintain any patent application or patent included in the Joint Patent Rights
or the Osiris Patent Rights respectively, the party making such election shall
so notify the other party within thirty (30) days of such determination. If
<PAGE>
Novartis shall elect not to continue to prosecute or maintain any patent
application or patent included in the Joint Patent Rights, then that patent
application or patent shall be transferred to the sole ownership of Osiris,
and shall not be included in the licensed Osiris Patent Rights. If Osiris
shall elect not to continue to prosecute or maintain any patent application
or patent included in the Osiris Patent Rights, then Osiris shall give
Novartis the timely opportunity to direct Osiris to continue to prosecute
or maintain the patent application or patent in Osiris' name and at Novartis'
expense.
11.3. Notification of Patent Term: Osiris shall notify Novartis of
the issuance of each patent included within the Osiris Patent Rights as to
which Novartis is licensed under this Agreement, giving the date of issue,
patent number and normal expiry date for each such patent. Osiris shall
notify Novartis of each filing for patent term restoration under the United
States Drug Price Competition and Patent Term Restoration Act of 1984, any
allegations of failure to show due diligence, and all awards of patent term
restoration in the United States and extensions (including the grant of
Supplemental Protection Certificates) in other countries with respect to the
Osiris Patent Rights as to which Novartis is licensed under this Agreement.
Novartis shall make corresponding notifications to Osiris in respect of any
patent included within the Joint Patent Rights, or within the Novartis Patent
Rights licensed to Osiris under this Agreement.
ARTICLE 12. PATENT INFRINGEMENT
12.1 Enforcement: Each party shall promptly notify the other of its
knowledge of any actual or potential infringement of the Osiris Patent Rights
or the Joint Patent Rights (collectively, the "Patent Rights") by a Third
Party with respect to a Product as to which Novartis is licensed under this
Agreement. Novartis shall have the right to enforce the Patent Rights in the
Territory in its discretion with respect to a Product as to which Novartis is
licensed under this Agreement. If within six (6) months following receipt of
notice from Osiris, Novartis fails to take action to halt infringement, Osiris
shall, in its sole discretion, have the right, at its expense, to take such
action in its own name or jointly with Novartis. Each party agrees to
render such reasonable assistance as the prosecuting party may request. Costs
of maintaining any such action therefrom shall be paid by the party or parties
bringing the action. Neither party shall enter into any settlement which
admits or concedes that any aspect of the Patent Rights is invalid or
unenforceable without the prior written consent of the other party.
Notwithstanding the foregoing, in the event either party receives notice of a
Third Party who has filed an Abbreviated NDA ("ANDA") or paper NDA with
respect to a Product as to which Novartis is licensed under this Agreement
containing a certification of patent invalidity or non-infringement of one or
more of the Osiris Patent Rights in the United States, the notified party
shall notify the other party within ten (10) days thereof. Novartis shall have
the right, but not the obligation, to bring an action for infringement within
twenty (20) days from the date it receives notice, or if Novartis fails to
bring such action, Osiris shall, in its sole discretion, have the right, at
its expense, to take such action in its own name or jointly with Novartis.
Any recovery of damages by Novartis with respect to any such suit shall be
applied first to satisfy the expenses and legal fees of Novartis with respect
to such suit. The balance remaining from any such recovery shall be divided
between Novartis and Osiris such that Osiris receives the royalty Osiris would
have received under this Agreement if such sales had been made by Novartis.
With respect to any such suit brought by Novartis, Osiris shall have the right
within its sole discretion to join such suit as a plaintiff at its sole cost
and expense.
<PAGE>
12.2 Infringement Claims: If the manufacture, sale or use of Product
pursuant to this Agreement results in any claim, suit or proceeding lodged by
a Third Party alleging patent infringement by Osiris or Novartis (or its
licensees or sublicensees), or by an Affiliate of Osiris or Novartis, such
party shall promptly notify the other party hereto in writing. The party
subject to such claim shall have the exclusive right to defend and control the
defence of any such claim, suit or proceeding, at its own expense, using
counsel of its own choice; provided, however, that Novartis shall not enter
into any settlement which admits or concedes that any aspect of the Osiris
Patent Rights is invalid or unenforceable without the prior written consent of
Osiris. The party subject to the claim shall keep the other party hereto
reasonably informed of all material developments in connection with any such
claim, suit or proceeding.
12.3 Enforcement by Osiris: The rights and obligations of Article
12.1 shall apply mutatis mutandis with respect to Novartis Patent Rights,
Products and products outside the Field as to which Osiris is licensed under
this Agreement.
ARTICLE 13. TRADEMARKS
Novartis shall be free to use and to register in any trademark office
any trademark for use with Product it desires in its sole discretion.
Novartis shall own all right, title and interest in and to any trademark in
its own name during and after the term of this Agreement. Nothing in this
Article 13 is to be construed as granting any rights to Novartis with respect
to any trademark owned by Osiris.
ARTICLE 14. MANUFACTURING AND SUPPLY
14.1 Supply by Osiris: Novartis shall notify Osiris when any MSC
Product being developed by Novartis or its Affiliates enters into Clinical
Phase 3. Within thirty (30) days of such notification, Osiris may at its
discretion notify Novartis that Osiris wishes to supply Novartis and its
Affiliates with that MSC Product for sale in North America. If Osiris does not
make such notification within said thirty (30) day period, then Novartis'
license under this Agreement shall include a license to make and have made
said MSC Product for sale in North America. If such notification by Osiris is
timely made, then, subject to Art. 14.3 below, Novartis and its Affiliates
agree to purchase exclusively from Osiris, and Osiris agrees to sell
exclusively to Novartis and its Affiliates during the term of the Agreement,
Novartis and its Affiliates' total requirements for said MSC Product for sale
in North America. No later than ninety (90) days after such notification by
Osiris, the parties or their Affiliates shall enter into a separate
Manufacturing, Supply and Distribution Agreement ("Supply Agreement") for such
Product which shall provide, among other matters, for a system of advance
ordering of requirements by Novartis and its Affiliates; for quality control
of Product; and for a system whereby, for autologous MSC products, bone
marrow is collected from patients, dispatched to an Osiris manufacturing
facility for isolation and culture of MSCs and manufacture of Product, and
the Product is returned to the doctor or hospital at which the Product will be
delivered to the patient. If no agreement is reached within the above ninety
(90) day period on the terms of such Supply Agreement, the terms shall be
settled by binding arbitration as described in Schedule A. Such Supply
Agreement shall provide for a full and free mutual exchange of manufacturing
technology for such Product between the parties. Such Supply Agreement shall
terminate no later than the expiry of Novartis' obligation to pay royalties on
sales of said MSC Product in all North American countries. No later than six
(6) months before such date, Novartis shall notify Osiris whether it wishes to
extend the supply period for all or part of Novartis' North American
requirements for Product for a further period, in which case a further
Supply Agreement will be negotiated in good
<PAGE>
faith and entered into by the parties to the first Supply Agreement. If no
such further Supply Agreement is concluded between the parties, then Novartis
or a Novartis Affiliate shall have the right to manufacture Product itself or
have Product manufactured by a Third Party of its choice.
14.2 U.S. Manufacturing Facility: The Supply Agreement shall provide
that Osiris will assume full cost and responsibility for constructing,
operating and maintaining one or more United States manufacturing facilities
together capable of supplying the expected commercial requirements of Novartis
and its Affiliates in North America with respect to MSC Product for which an
NDA has been approved in the United States. Such Supply Agreement shall
provide that if Osiris is unable to supply such MSC Product in accordance with
the forecasting requirements set forth in such Agreement, then to the extent
that Osiris cannot meet such requirements, and for the period for which Osiris
cannot meet such requirements, Novartis or a Novartis Affiliate shall have the
right to manufacture itself or to have a Third Party manufacture such MSC
Product. Such period shall be extended to the extent that a Thirty Party
manufacturer requires Novartis to obligate itself to a longer period of
supply, whereby the Supply Agreement shall define a maximum duration for such
permissible extension. The Supply Agreement shall give a precise definition of
the term "unable to supply". Osiris shall provide Novartis or such Third Party
with sufficient technical information to enable the manufacture of such
Product, all under suitable confidentiality requirements and requirements that
it be used only to the extent necessary to manufacture for Novartis and its
Affiliates the amount of MSC Product which Osiris cannot provide, and for the
period for which Novartis is required to obligate itself to have a Third Party
manufacture such MSC Product.
14.3 Supply Price: The Supply Agreement shall provide that Osiris
shall supply Product to Novartis and its Affiliates at [*CONFIDENTIALITY
REQUESTED*], and shall set out the elements which are to be taken into
account in calculating [*CONFIDENTIALITY REQUESTED*]. It shall further
provide that if a Third Party supplier can manufacture MSC Product in the
United States of a quality which is equivalent to that provided by Osiris,
without using Osiris' proprietary information, under the same terms and
conditions and specifications as that provided in the Supply Agreement, and
the bona fide price which is to be charged by such Third Party to Novartis and
its Affiliates for such MSC Product is [*CONFIDENTIALITY REQUESTED*] of the
price being charged by Osiris, then Novartis and its Affiliates shall have the
right to purchase such MSC Product from such Third Party unless Osiris reduces
the price charged to Novartis and its Affiliates for such MSC Product to the
price charged by such Third Party. In addition, the Supply Agreement shall
also provide that if Novartis itself or by an Affiliate is able to produce
Product in its own manufacturing facility in the United States (after making
allowance for economy of scale adjustments) which is of equivalent quality
and which meets the specifications of the MSC Product to be provided by
Osiris and Novartis' cost for producing such MSC Product is [*CONFIDENTIALITY
REQUESTED*] of Osiris' cost for producing such MSC Product, with such costs
being calculated on an equivalent basis, then Novartis and its Affiliates
shall have the right to manufacture such MSC Product in such facility in the
United States unless Osiris reduces the cost for such MSC Product used
in calculating the price to be charged to Novartis for such MSC Product such
that it is equal to Novartis' cost for producing such MSC Product.
14.4 Gene Therapy Products: Novartis shall have the right to
manufacture Gene Therapy Products for sale in any country of the Territory,
including North America. If Novartis does not intend by itself or by an
Affiliate to manufacture Gene Therapy Products for sale in North America,
Novartis shall obtain its requirements of MSCs for Gene Therapy Products for
sale in North America from Osiris,
<PAGE>
upon the same conditions as set out above for MSC Products, as specified
in a corresponding Supply Agreement. Any vectors for the transformation of
such MSCs shall be manufactured by Novartis or its Affiliate.
14.5 Non-Commercial Supply: All quantities of Product reasonably
required by Novartis for commercial samples and clinical trials shall be
supplied by Osiris at cost price plus [*CONFIDENTIALITY REQUESTED*].
ARTICLE 15. PRODUCT LIABILITY
15.1 Indemnification by Novartis: Novartis shall defend, indemnify
and hold harmless Osiris, Affiliates of Osiris, licensors of Osiris, and their
respective directors, officers, shareholders, agents and employees (each an
"Osiris Indemnified Party"), from and against any and all liability, loss,
damages and expenses (including attorneys' fees) as the result of claims,
demands, costs or judgments which may be made or instituted against any of
them arising out of the manufacture, possession, distribution, use, testing,
sale or other disposition of Products by or through Novartis or its
Affiliates, licensees or sublicensees. Novartis' obligation to defend,
indemnify and hold harmless shall include claims, demands, costs or judgments,
whether for money damages or equitable relief by reason of alleged personal
injury (including death) to any person or alleged property damage, provided,
however, the indemnity shall not extend to any claims against an Osiris
Indemnified Party which result from the gross negligence or willful misconduct
of an Osiris Indemnified Party. Novartis shall have the exclusive right to
control the defense of any action which is to be indemnified in whole by
Novartis hereunder, including the right to select counsel acceptable to Osiris
to defend Osiris, and to settle any claim, provided that, without the written
consent of Osiris (which shall not be unreasonably withheld or delayed),
Novartis shall not agree to settle any claim against Osiris to the extent such
claim has a material adverse effect on Osiris. The provisions of this
paragraph shall survive and remain in full force and effect after any
termination, expiration or cancellation of this Agreement and Novartis'
obligation hereunder shall apply whether or not such claims are rightfully
brought.
15.2 Indemnification by Osiris: Osiris shall defend, indemnify and
hold harmless Novartis and its Affiliates, licensors of Novartis, and their
respective directors, officers, shareholders, agents and employees (each a
"Novartis Indemnified Party"), from and against any and all liability, loss,
damages and expenses (including attorneys' fees) as the result of claims,
demands, costs or judgments which may be made or instituted against any of
them arising out of the manufacture, possession, distribution, use, testing,
sale or other disposition of Product by or through Osiris or its Affiliates
(or their licensees or sublicensees) as to which product Osiris has been
granted a license by Novartis under this Agreement. Osiris' obligation to
defend, indemnify and hold harmless shall include claims, demands, costs or
judgments, whether for money damages or equitable relief by reason of alleged
personal injury (including death) to any person or alleged property damage,
provided, however, the indemnity shall not extend to any claims against an
indemnified party which result from the gross negligence or willful misconduct
of a Novartis Indemnified Party. Osiris shall have the exclusive right to
control the defense of any action which is to be indemnified in whole by
Osiris hereunder, including the right to select counsel acceptable to Novartis
to defend Novartis, and to settle any claim, provided that, without the
written consent of Novartis (which shall not be unreasonably withheld or
delayed), Osiris shall not agree to settle any claim against Novartis to the
extent such claim has a material adverse effect on Novartis. The provisions
of this paragraph shall survive and remain in full force and effect after any
termination,
<PAGE>
expiration or cancellation of this Agreement and Osiris' obligation
hereunder shall apply whether or not such claims are rightfully brought.
15.3 Procedure in Event of Claim: Any Osiris Indemnified Party or
Novartis Indemnified Party that intends to claim indemnification under this
Article 15 (the "Indemnitee") shall promptly notify the other party (the
"Indemnitor") of any loss, claim, damage, liability or action in respect of
which the Indemnitee intends to claim such indemnification, and the Indemnitor
shall assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an Indemnitee shall have the right to retain
its own counsel, with the fees and expenses to be paid by the Indemnitor if
Indemnitor does not assume the defense; or, if representation of such
Indemnitee by the counsel retained by the Indemnitor would be inappropriate
due to actual or potential differing interests between such Indemnitee and any
other party represented by such counsel in such proceedings. The indemnity
agreement in this Article 15 shall not apply to amounts paid in settlement
of any loss, claim, damage, liability or action if such settlement is effected
without the consent of the Indemnitor, which consent shall not be withheld
unreasonably. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to
its ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 15, but the omission to
deliver notice to the Indemnitor will not relieve it of any liability
that it may have to the Indemnitee otherwise than under this Article 15. The
Indemnitee under this Article 15, its employees and agents, shall cooperate
fully with the Indemnitor and its legal representatives in the investigation
of any action, claim or liability covered by this indemnification. In the
event that each party claims indemnity from the other and one party is
finally held liable to indemnify the other, the Indemnitor shall additionally
be liable to pay the reasonable legal costs and attorneys' fees incurred by
the Indemnitee in establishing its claim for indemnity.
15.4 Reporting: Each party hereto agrees to report promptly to the
other party any information concerning serious or unexpected side effects,
injury, toxicity, reactions or any unexpected event associated with clinical,
investigational or commercial use whether or not finally attributable to
Product. Such information shall also include pre-existing diseases, syndromes,
or abnormal diagnostic tests results which re-appear or are exacerbated by use
of Product. Upon receipt of such information by either party hereto, both
parties shall promptly consult each other and use best efforts to arrive at a
mutually acceptable procedure for taking the appropriate actions under the
circumstances; provided, however, that nothing contained herein shall restrict
the right of either party to make a submission to a regulatory authority or
take other actions it deems to be appropriate or necessary.
ARTICLE 16. SECRECY
16.1 Confidential Information: Except as otherwise contemplated by
this Agreement, any information supplied by one party to the other pursuant
to, or in contemplation of, this Agreement shall be retained in confidence and
not used or disclosed by the recipient during the term of this Agreement and
for five (5) years thereafter. The confidentiality obligations provided herein
shall not apply to information which
(i) is or becomes known publicly through no fault of the receiving party;
<PAGE>
(ii) is obtained by the receiving party without duty of non-disclosure from a
Third Party entitled to disclose it;
(iii) was already known by the receiving party at the time of disclosure
hereunder as shown by prior written records of the receiving party; or
(iv) is developed by the receiving party independently of
information obtained or disclosed hereunder.
16.2 Permitted use: Notwithstanding the provisions of the above,
each party shall have a right to use such information for development,
production and marketing of products, processes and services in accordance
with the licenses granted under this Agreement as provided in this Agreement
and further has a right to disclose such information to a governmental agency
or other competent body as and when required by law and regulation, or to an
Affiliate. Notwithstanding the provisions of the above, each party shall have
a right to disclose such information to a Third Party for the purpose of
exercising rights granted to it under this Agreement provided that such Third
Party enters into an agreement of confidentiality and non-use essentially
identical to those set forth in this Agreement and that such Third Party
agrees that the party whose confidential information is being disclosed to
such Third Party shall be a third party beneficiary with respect to such
obligation of confidentiality and non-use.
16.3 Nondisclosure of terms: Each of the parties agrees not to
disclose to any Third Party the terms of this Agreement without the prior
written consent of the other party, except to such party's attorneys,
advisors, investors, potential investors and others on a need to know basis
under circumstances that reasonably ensure the confidentiality thereof, or to
the extent required by law, rules and regulations (including, but not limited
to, disclosure required by U.S. securities laws). Notwithstanding the
foregoing, the parties shall agree upon a press release to announce the
execution of this Agreement, thereafter, Osiris and Novartis may each disclose
to Third Parties the information contained in such press release without the
need for further approval by the other. Other than the above, neither party
nor its officers and employees shall make any public statements as to the
contents of this Agreement without the prior written consent of the other
party, which consent shall not be unreasonably withheld.
16.4. Publications: During the term of this Agreement, Osiris and
Novartis each acknowledge the other party's interest in publishing certain of
its results to obtain recognition within the scientific community and to
advance the state of scientific knowledge. Each party also recognizes the
mutual interest in obtaining valid patent protection. Consequently, either
party, its employees or consultants wishing to make a publication (including
any oral disclosure made without obligation of confidentiality) relating to
work performed by such party as part of the Research Program (the "Publishing
Party") shall transmit to the other party (the "Reviewing Party") a copy of
the proposed written publication at least forty-five (45) days prior to
submission for publication; or an abstract for oral disclosure or poster
presentation at least fifteen (15) days prior to submission of the abstract;
or slides or overheads for an oral presentation without abstract at least
fifteen (15) days prior to the oral disclosure. The Reviewing Party shall
have the right (a) to propose modifications to the publication for patent
reasons and (b) to request a delay in publication or presentation in order
to protect patentable information. If the Reviewing Party requests such a
delay, the Publishing Party shall delay submission or presentation of the
publication
<PAGE>
for a period of sixty (60) days to enable patent applications
protecting each party's rights in such information to be filed. Upon the
expiry of forty-five (45) days, in the case of proposed written disclosures,
or fifteen (15) days, in the case of an abstract of proposed oral disclosures,
from transmission of such proposed disclosures to the Reviewing Party, the
Publishing Party shall be free to proceed with the written publication or the
oral presentation, respectively, unless the Reviewing Party has requested the
delay described above. Nothing in this Article 16.4 is to be construed as
permitting a party to disclose or publish confidential information of the
other party without the other party's permission.
ARTICLE 17. TERM AND TERMINATION
17.1 Term: Except as set forth below, the term of this Agreement
shall begin as of the Effective Date and continue in full force and effect, on
a country-by-country basis, unless terminated earlier as provided in this
Article 17, until Novartis has no remaining royalty payment obligations in
any country.
17.2 Termination for Cause: Either party to this Agreement may
terminate this Agreement in the event that the other party shall have
materially breached or defaulted in the performance of any of its material
obligations hereunder, and such breach or default shall have continued for
thirty (30) days with respect to a payment breach or for sixty (60) days with
respect to other breaches after written notice thereof was provided to the
breaching party by the nonbreaching party. Any termination shall become
effective at the end of such thirty (30) or sixty (60) day period unless the
breaching party has cured any such breach or default prior to the expiration
of the thirty (30) or sixty (60) day period. A breach under any Supply
Agreement entered into by the parties pursuant to Article 14.1 shall be a
breach of this Agreement.
17.3 Termination for Insolvency: If voluntary or involuntary
proceedings by or against a party are instituted in bankruptcy under any
insolvency law, or a receiver or custodian is appointed for such party, or
proceedings are instituted by or against such party for corporate
reorganization or the dissolution of such party, which proceedings, if
involuntary, shall not have been dismissed within sixty (60) days after the
date of filing, or if such party makes an assignment for the benefit of
creditors, or substantially all of the assets of such party are seized or
attached and not released within sixty (60) days thereafter, the other party
may immediately terminate this Agreement effective upon notice of such
termination.
17.4 Permissive Termination: At any time after the end of the
Research Term for all Areas, Novartis may terminate this Agreement at its
discretion upon one hundred and eighty (180) days written notice.
17.5 Effect of Termination:
17.5.1: Upon termination of this Agreement by Osiris or Novartis in
accordance with Article 17.2 or 17.3, or by Novartis in accordance with 17.4 ,
the licenses granted to Novartis hereunder shall be forthwith terminated, and
Novartis shall cease to develop and market Product and discontinue the use of,
and return to Osiris within sixty (60) days after termination, all Osiris Know-
how (including INDs and NDAs, if any) and shall assign, free of charge, to
Osiris, any governmental approvals of Novartis with respect to Product to
assure an orderly transfer of rights and transition of responsibility for such
<PAGE>
documentation. Notwithstanding the above, Novartis may sell existing
inventory of Product for up to six (6) months after the date of termination,
provided royalties are paid thereon. The provisions of this Article 17.5.1
shall also be applicable, mutatis mutandis, to the termination of a license
to a Product in a country according to Art. 6.5 or 6.6.
17.5.2: Termination of this Agreement for any reason shall not release
any party hereto from any liability which, at the time of such termination,
has already accrued to the other party or which is attributable to a period
prior to such termination, nor preclude either party from pursuing all rights
and remedies it may have hereunder or at law or in equity with respect to any
breach of this Agreement.
17.6 Survival: Articles 2.4, 9.5, 13, 15, 16, 17.5.2, 17.6 & 18 of
this Agreement shall survive the expiration or termination of this Agreement
for any reason.
ARTICLE 18. MISCELLANEOUS PROVISIONS
18.1 Governing Laws: This Agreement and any dispute arising from
the construction, performance or breach hereof shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without resort to its choice of law principles.
18.2 Warranties & Covenants
18.2.1: Osiris and Novartis each warrants to the other that it has full
right and authority to enter into this Agreement; and that the performance of
this Agreement does not conflict with any obligations under other contracts,
or with obligations under funding schemes from any private or public funding
agency.
18.2.2 Novartis agrees that Novartis will use Novartis Know-How with
respect to MSCs or products produced thereby and Osiris Know-How only for
research, development, making, using and selling of Product for which Novartis
retains a license from Osiris under this Agreement and only with respect to
those countries for which Novartis retains a license under this Agreement.
18.2.3 Osiris and Novartis each warrants, represents and agrees that
each of its Affiliates shall comply with the terms, obligations and conditions
of this Agreement as if they were signatories to this Agreement and Osiris and
Novartis each unconditionally guarantees such compliance and performance by
its Affiliates.
18.2.4 Osiris warrants that, as of the date of this Agreement, to its
knowledge all granted patents within the Osiris Patent Rights were validly
obtained and are enforceable.
18.3 Waiver: It is agreed that no waiver by any party hereto of any
breach or default of any of the covenants or agreements herein set forth
shall be deemed a waiver as to any subsequent and/or similar breach or default.
18.4 Assignment: Subject to Art. 8.4 above, this Agreement shall not
be assignable by either party to any Third Party without the written consent
of the other party hereto except in the case of Novartis to an Affiliate,
except that, subject to Art. 17.5, either party may assign this Agreement,
without such consent, to an entity that acquires all or substantially all of
the business or assets of such
<PAGE>
party, whether by merger, reorganization, acquisition, sale, or otherwise.
This Agreement shall be binding upon and inure to the benefit of any
permitted assignee, and any such assignee shall agree to perform the
obligations of the assignor. Novartis may, without assignment of the entire
Agreement, assign any of its rights and obligations under this Agreement to
a designated Novartis Affiliate.
18.5 Independent Contractors: The relationship of the parties
hereto is that of independent contractors. The parties hereto are not
deemed to be agents, partners or joint venturers of the others for any purpose
as a result of this Agreement or the transactions contemplated thereby.
18.6 Compliance with Laws: In exercising their rights under this
license, the parties shall fully comply in all material respects with the
requirements of any and all applicable laws, regulations, rules and orders
of any governmental body having jurisdiction over the exercise of rights under
this license including, without limitation, those applicable to the discovery,
development, manufacture, distribution, import and export and sale of medical
products pursuant to this Agreement.
18.7 Severability: In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, and the parties shall amend the Agreement to
the extent feasible to lawfully include the substance of the excluded term to
as fully as possible realize the intent of the parties and their commercial
bargain, unless the invalid provision is of such essential importance to this
Agreement that it is to be reasonably assumed that the parties would not have
entered into this Agreement without the invalid provision.
18.8 Force Majeure: Non-performance of any party (except for payment
obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure to
perform is beyond the reasonable control and not caused by the negligence,
intentional conduct or misconduct of the non-performing party, provided such
party uses its best efforts to resume performance as promptly as possible.
18.9 No Consequential Damages: In no event shall any party to this
Agreement have any liability to the other for any special, consequential or
incidental damages arising under this Agreement under any theory of liability.
18.10 Complete Agreement: This Agreement with its Schedules,
constitutes the entire agreement between the parties with respect to the
subject matter hereof, and all prior agreements respecting the subject matter
hereof, either written or oral, expressed or implied, shall be null and void
and of no effect. No amendment or addition hereto shall be effective or
binding on either of the parties unless reduced to writing and executed by the
respective duly authorized representatives of Osiris and Novartis.
18.11 Notices: Any notice required, or permitted to be given, under
this Agreement, shall be deemed sufficiently given, if sent to the party to be
notified at its address, shown at the beginning of this Agreement or at such
other address as may be furnished in writing to the notifying party, by
facsimile transmission, confirmed by certified or registered mail, or by an
internationally recognized overnight delivery service. Time of notice or other
communication shall be deemed to be the date of postmark.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized representatives and delivered in duplicate
originals as of the Effective Date.
NOVARTIS PHARMACEUTICALS OSIRIS THERAPEUTICS, INC.
CORPORATION
By: /s/ Wayne P. Yetter By: /s/ James S. Burns
Name: Wayne P. Yetter Name: James S. Burns
Title: President & CEO Title: President & CEO
SCHEDULES:
A: Arbitration Provision
B: List of Patent Rights
C: Research Plan
<PAGE>
SCHEDULE A: ARBITRATION PROVISION
In the event tha parties are unable to reach agreement with respect to
any matter which is subject to arbitration in accordance with the Agreement, as
applicable, such will be determined through binding arbitration in New York, NY,
in accordance with the Commercial Rules of Arbitration of the American
Arbitration Association.
The arbitration panel shall be comprised of three (3) arbitrators. Each
party shall be entitled to appoint one arbitrator. The parties shall appoint
their respective arbitrators within thirty (30) days after submission for
arbitration. If either party shall fail to make timely appointment of its
arbitrator, the arbitration shall be heard and decided by the sole arbitrator
duly appointed by the other party. Where both parties have timely appointed
their respective arbitrators, the two arbitrators so appointed shall agree on
the appointment of the third arbitrator from the list of arbitrators maintained
by the American Arbitration Association. If the parties' appointed arbitrators
all fail to agree within thirty (30) days from the date both parties'
arbitrators have been appointed, on the identity of the third arbitrator, then
such arbitrator shall be appointed by the appropriate administrative body of the
American Arbitration Association.
Within ten (10) days of appointment of the full arbitration panel, the
parties shall exchange their final proposed positions with respect to the
matters to be arbitrated, which shall approximate as closely as possible the
closest positions of the parties previously taken in the submit to the
arbitrators a copy of the proposed position which it previously delivered to the
other party, together with a brief or other written memorandum supporting the
merits of its proposed position. The arbitration panel shall promptly convene a
hearing, at which time each party shall have one (1) hour to argue in support of
its proposed posititon. the parties will not call any witnesses in support of
their arguments.
The arbitration panel shall select either of the party's proposed
position on the issue as the binding final decision to be embondied as an
agreement between the parties. In making their selection, the arbitrators
shall not modify the terms or conditions of either party's proposed position;
nor will the arbitrators combine provisions from both proposed positions. In
making their selection, the arbitrators shall consider the terms and conditions
of this Agreement, the relative merits of the proposed position and the written
and oral arguments of the parties. In the event the arbitrators seek the
guidance of the law of any jurisdiction, the law of the State of New York shall
govern.
The arbitrators shall make their decision known to the parties as quickly
as possible by delivering written notice of their decision to both parties.
Such written notice need not justify their decision. The parties will execute
any and all papers necessary to obligate the parties to the positin selected by
the parties to the position selected by the arbitration panel within five (5)
business days of receipt of notice of such selection. The decision of the
arbitrators shall be final and binding on the parties, and specific performance
may be ordered by any court of competent jurisdiction.
The parties will bear their own costs in preparing for the arbitration.
The costs of the arbitrators will be equally dived between the parties.
<PAGE>
Notwithstanding anything to the contraty, prior to initiating
arbitration, the issues shall be submitted to the Chief Executive Officer of
each of the parties in an attmept to resolve the isssues by good faith,
mediation or negotiations by such Chief Executive Officers. If the issues have
not been resolved within thirty (30) days after submission to the Chief
Executive Officers, then either party may initiate arbitration as set forth
herein.
<PAGE>
SCHEDULE B: LIST OF PATENTS AND PATENT APPLICATIONS INCLUDED
WITHIN THE OSIRIS PATENT RIGHTS
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
SCHEDULE C RESEARCH PLAN FOR FIRST TWO YEARS OF RESEARCH TERM
[*CONFIDENTIALITY REQUESTED*
<PAGE>
Certain portions of this
exhibit have been
omitted based upon
a request for confidential
treatment. Omitted portions
have been separately filed
with the Securities and
Exchange Commission.
RESEARCH AGREEMENT
This Agreement is made by and between Osiris Therapeutics, Inc., a
Delaware, U.S.A. Corporation, having its business address at 2001 Aliceanna
Street, Baltimore, Maryland 21231-2001 (hereinafter "OSIRIS") and the
Consorzio per la gestione del Centro Di Biotecnologie Avanzate, having its
principal offices at Largo Rosanna Benzi, 16132 Genova, Italy (hereinafter the
"CBA").
SUBJECT
WHEREAS the parties to this Research Agreement (the "AGREEMENT") wish to
promote the increase of useful knowledge through research relating to tissue
regeneration based on the differentiation of mesenchymal stem and progenitor
cells;
WHEREAS with this aim in mind, the parties have previously signed a
letter of intent between them whereby the parties indicated their intention to
enter into a co-operation agreement with respect to research in the FIELD OF
RESEARCH as defined hereinbelow;
WHEREAS, OSIRIS desires to both fund certain work to be performed at
CBA in the FIELD OF RESEARCH, and to acquire rights to all research carried
out by CBA within the FIELD OF RESEARCH, whether or not funded by OSIRIS, on
the conditions set out under this AGREEMENT, such rights to be granted to
OSIRIS in accordance with a separate standard License Agreement attached
hereto as Exhibit A (the "LICENSE AGREEMENT");
WHEREAS, CBA desires to receive such funding and recognizes that the
right to acquire the rights to the work to be performed hereunder will be
granted to OSIRIS under this
<PAGE>
AGREEMENT and in accordance with the LICENSE AGREEMENT.
WHEREAS, the parties therefore wish to establish in detail to which
specific projects in the FIELD OF RESEARCH Osiris wishes to contribute,
and on what basis CBA shall ensure that the relevant qualified staff shall
work on such specific projects.
WHEREAS, this Agreement is in conformity with Article 12 of the
Convention signed between CBA and the IST, the Istituto Nazionale per la
Ricerca sul Cancro, or, the Institute for Cancer Research, which latter forms
part of the CBA consortium, and CBA shall therefore sign this Agreement both
on its and IST's behalf pursuant to the said Convention.
IT IS AGREED
1.0 DEFINITIONS
1.1 The term "AFFILIATE" as applied to OSIRIS, shall mean any
company or other legal entity other than OSIRIS, in whatever country
organized, controlling or controlled by OSIRIS. The term "control" means
possession of the power to direct or cause the direction of the management and
policies whether through the ownership of voting securities, by contract or
otherwise. The term "CBA AFFILIATE" as applied to CBA, shall mean any
company or other legal entity other than CBA, including by definition the
Institute for Cancer Research (the "INSTITUTE"), in whatever country
organized, controlling or controlled by CBA.
1.2 The term "AGREEMENT YEAR" shall mean the twelve month period
beginning on July 1, 1997 (the "EFFECTIVE DATE"), and each subsequent twelve
(12) month period thereafter.
1.3 The term "BACKGROUND TECHNOLOGY" shall mean any data, formulas,
<PAGE>
inventions, process information or other information, materials and substances
belonging to the FIELD OF USE known to CBA through PRINCIPAL INVESTIGATOR on
the EFFECTIVE DATE and in and to which CBA has a transferable right, which
includes but is not limited to: MESENCHYMAL STEM CELLS
1.4 The term "FIELD OF RESEARCH" shall mean the isolation,
purification, expansion, characterization and use of human MESENCHYMAL STEM
CELLS in the laboratories of the PRINCIPAL INVESTIGATOR.
1.5 "FIELD OF USE" means the isolation, purification,
characterization, culture-expansion, clinical use and manufacture of
MESENCHYMAL STEM CELLS in cancer, orthopaedics and other tissue repair and
regeneration indications.
1.6 The term "INVESTIGATOR" shall mean PRINCIPAL INVESTIGATOR, CBA
or CBA AFFILIATE faculty members, graduate students, fellows, consultants or
employees of CBA or a CBA AFFILIATE who shall work under the direction of
PRINCIPAL INVESTIGATOR on the FIELD OF RESEARCH.
1.7 The term "LICENSED PRODUCT" shall mean any article, composition,
apparatus, substance, chemical, material, method, process or service the
manufacture, use or sale of which is covered by PATENT RIGHTS or which
incorporates or uses TECHNOLOGY.
1.8 "LICENSED SERVICE(S)" means the performance on behalf of a
third party of any method or the use of any product or composition, the
manufacture, use or sale of which is covered by PATENT RIGHTS or which
incorporates or uses TECHNOLOGY.
1.9 The term "LICENSED TERRITORY" shall mean all countries of the
world.
1.10 "MATERIAL" shall mean any material or substance which is
TECHNOLOGY.
1.11 The term "MESENCHYMAL STEM CELL" or "MSC" shall mean the:
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
1.12 The term "PATENT RIGHT(s)" shall mean (i) any patent application
or patent or equivalent thereof, anywhere in the world including, but not
limited to any division, continuation, or continuation-in-part, re-
examination, reissue or extension issuing thereon, which is owned by CBA and
contains one or more claims to any TECHNOLOGY.
1.13 The term "PRINCIPAL INVESTIGATOR" shall mean Dr. Ranieri
Cancedda, a professor of the University of Genoa, at the Faculty of
Medicine, who has been appointed Laboratory Head under an agreement between
the University of Genoa and IST, and who is currently seconded by IST itself
to CBA.
1.14 "RESEARCH" shall mean the specific research in the FIELD OF
RESEARCH set out in more detail in Exhibit B, attached hereto, and such
other research as the parties shall decide, by mutual consent, to add to
Exhibit B hereto.
1.15 The term "RESEARCH TECHNOLOGY" shall mean any data, formulas,
process information or other information, material, substance, invention or
discovery, whether or not patentable, conceived or first actually or
constructively reduced to practice during the period when research is being
supported under this AGREEMENT solely or jointly by at least one INVESTIGATOR
which is in the FIELD OF RESEARCH or which is the direct result of RESEARCH.
<PAGE>
1.16 "RETAINED RIGHTS" shall mean any rights retained by any
government research granting agencies and public bodies, and any retained
right of CBA to make, have made, provide and use LICENSED PRODUCT(S)
and LICENSED SERVICES for its non-profit, non-commercial research purposes, or
with LICENSED PRODUCT obtained from OSIRIS for the treatment or diagnosis of
patients by CBA. In such case, OSIRIS will make such LICENSED PRODUCT
available to CBA at its most favorable academic medical center discount for a
period of five (5) years following EU regulatory approval.
1.17 "TECHNOLOGY" means individually and collectively BACKGROUND
TECHNOLOGY and/or RESEARCH TECHNOLOGY.
2.0 RESEARCH PROJECT
2.1 In accordance with Paragraph 3.1 below, OSIRIS shall provide a
maximum of US: $ 1,000,000 (One million) in total research support (full
direct and indirect costs and expenses) to CBA in the annual installments
described in the detailed budget set out in Exhibit C hereto to support
RESEARCH in the FIELD OF USE from, July 1, 1997 to, June 30, 2000 in the
laboratories of the PRINCIPAL INVESTIGATOR. Subject to Paragraph 2.2 and
Article 3 below, the research support (direct and indirect expenses) for the
1997-1998 period from July 1, 1997 to June 30, 1998 shall be paid quarterly on
July 1st 1997, September 1st 1997, January 1st, 1998 and April 1st 1998, and
shall be paid in similar quarterly installments during each succeeding
AGREEMENT YEAR. OSIRIS and CBA will negotiate the terms and extension, if
any, to the RESEARCH, if applicable, for each one year period following the
initial term of the AGREEMENT as set out above (the "INITIAL TERM").
2.2 If PRINCIPAL INVESTIGATOR ceases to be employed by CBA, then
OSIRIS at
<PAGE>
its option, may elect to continue the research funding so long as CBA provides
a suitable substitute, acceptable to OSIRIS, for the PRINCIPAL INVESTIGATOR
to supervise other INVESTIGATORS with respect to RESEARCH. Conversely,
OSIRIS may elect to terminate RESEARCH according to Paragraph 9.1 below, in
which event neither party shall be due any further sum from the other under
this Agreement. All terms under this AGREEMENT which apply to the PRINCIPAL
INVESTIGATOR shall apply in the same manner to any substitute for the
PRINCIPAL INVESTIGATOR.
2.3 The relationship between OSIRIS and CBA shall be exclusive.
CBA may not furnish MATERIAL under this AGREEMENT or the LICENSE AGREEMENT
attached hereto or enter into discussions with other commercial organizations
without the prior approval of OSIRIS.
2.4 To the extent practicable, OSIRIS shall submit joint research
applications with CBA in the FIELD OF USE for Italian Government and/or EU
research funding.
3.0 OBLIGATIONS OF CBA
3.1 Within sixty (60) days following the end of each AGREEMENT
YEAR, CBA shall provide OSIRIS with an accounting of the expenditure
of research funds for such year in accordance with CBA'S standard procedures
for such accounting. Any funds granted hereunder which have not been expended
by CBA within any such AGREEMENT YEAR shall continue to be used to fund
RESEARCH under this AGREEMENT during the following AGREEMENT YEAR. Any funds
which have not been expended upon termination of this AGREEMENT shall be
returned to OSIRIS.
3.2 During the period in which OSIRIS is funding research under
this AGREEMENT, CBA shall undertake to ensure that PRINCIPAL INVESTIGATOR
shall not seek or accept
<PAGE>
funding from a commercial sponsor in the FIELD OF RESEARCH
without the prior written approval of OSIRIS but may accept funding from the
government, not-for-profit organizations and other universities.
3.3 Beginning on the EFFECTIVE DATE of this AGREEMENT and thereafter
unless sooner terminated, CBA shall:
(i) Through the PRINCIPAL INVESTIGATOR conduct the RESEARCH,
and apply the funds paid by OSIRIS to support the expenses of RESEARCH
including for the employment of INVESTIGATORS hereinafter and shall use
reasonable efforts and diligence consistent with CBA'S professional standards
to achieve the goals for such RESEARCH;
(ii) promptly and systematically disclose TECHNOLOGY to
OSIRIS, and shall promptly advise OSIRIS of any invention which is
TECHNOLOGY in the manner specified in more detail in Article 8 below;
(iii) for the purpose of facilitating disclosure to OSIRIS of
TECHNOLOGY, permit duly authorized employees or representatives of OSIRIS to
visit the PRINCIPAL INVESTIGATOR'S laboratories at CBA where RESEARCH is
conducted at reasonable times and with reasonable notice;
(iv) promptly advise OSIRIS of any invention which is RESEARCH
TECHNOLOGY;
(v) at OSIRIS' request, provide OSIRIS with reasonable
research quantities of MATERIALS; and
(vi) advise, on a continuing basis, OSIRIS of the results of
the RESEARCH and at least once every four (4) months provide OSIRIS with
written progress reports concerning the RESEARCH. A final written report
setting forth in detail the results achieved under and pursuant
<PAGE>
to such RESEARCH shall be submitted by CBA to OSIRIS within ninety (90) days
of termination of each AGREEMENT YEAR and of the RESEARCH. Such final report
shall include (1) a complete summary of all research carried out; (2) a
scientific assessment by the PRINCIPAL INVESTIGATOR of all research carried
out; and (3) detailed experimental protocols for the experiments performed in
the course of the research, it being understood that the latter protocols
shall not be sent to OSIRIS but shall be kept at CBA's premises and shall be
at the disposition of OSIRIS should its representatives wish to examine them
there..
(vii) ensure that all results of RESEARCH shall be the property
of CBA free of any third party rights and shall indemnify and hold OSIRIS
harmless from any claims for damages or of any other nature whatsoever raised
by third parties with respect to such results and shall undertake to ensure
that all non-employees of CBA working in their laboratories on RESEARCH or
collaborating with them on the research funded by OSIRIS hereunder sign the
Invention Agreement attached hereto as Exhibit D.
4.0 FACILITIES
CBA agrees to furnish such laboratory facilities and equipment and
secretarial support as it and OSIRIS shall, by mutual consent, determine
necessary for the RESEARCH and as set out in more detail in Exhibit C
hereto (the "FACILITIES"). Any addition or change to the FACILITIES as
set out in Exhibit C shall be agreed by mutual consent between the parties,
and shall be made by CBA at its own expense. Any equipment provided by
OSIRIS for CBA's use in the RESEARCH shall be subject to CBA's approval.
5.0 EMPLOYMENT OF INVESTIGATORS
5.1 The RESEARCH shall be carried out by those of the
INVESTIGATORS specifically indicated in Exhibit E hereto which shall include,
inter alia, the PRINCIPAL
<PAGE>
INVESTIGATOR or Laboratory Head , other senior research staff,
research staff, research scientists, junior research scientists, graduate
students, a chief technician, junior technicians and technician students more
particularly described in Exhibit E hereto (respectively senior research
staff being referred to as the "Senior Research Staff ", research staff and
the chief technician being referred to as the "Research Staff", research
scientists being referred to as the "Research Scientists", and junior research
scientists, graduate students, junior technicians and technician students
being referred to as the "Fellowship Holders" ). CBA shall ensure that
each of the said INVESTIGATORS shall devote their time and energies to the
RESEARCH in accordance with the specific provisions set out in Exhibit E hereto.
5.2 PRINCIPAL INVESTIGATOR shall continue to be jointly appointed
by the University of Genoa and IST and seconded to CBA from IST, and CBA shall
pay him appropriate incentive payments from the funding provided by OSIRIS
with respect to the RESEARCH in conformity with applicable Italian law
currently in force and on the basis of the conditions provided for by the
entity(ies) by which PRINCIPAL INVESTIGATOR is appointed.
5.3 The Senior Research Staff shall be seconded to CBA in accordance
with certain specific conventions between CBA and IST or such other entity as
they are employed by, and CBA shall pay them appropriate incentive payments
from the funding provided by OSIRIS with respect to the RESEARCH in conformity
with applicable Italian law currently in force and on the basis of the
conditions provided for by the entity(ies) by which the Senior Research Staff
is appointed. They shall be subject to an appropriate non-competition
obligation under such contracts in the RESEARCH FIELD which shall apply
throughout the duration of the contracts and for a period of two years
following the termination of the contracts.
5.4 The Research Staff shall be seconded to CBA in accordance with
certain
<PAGE>
specific conventions between CBA and IST or such other entity as they are
employed by and CBA shall pay them appropriate incentive payments from the
funding provided by OSIRIS with respect to the RESEARCH in conformity with
applicable Italian law currently in force and on the basis of the conditions
provided for by the entity by which the Research Staff is appointed. They
shall be subject to an appropriate non-competition obligation under such
contracts in the RESEARCH FIELD which shall apply throughout the duration of
the contracts and for a period of two years following the termination of the
contracts.
5.5 The Research Scientists shall be directly employed by CBA as
employees on a temporary basis. Under the employment contracts established
between the Research Scientists and CBA, the Research Scientists shall be
subject to an appropriate non-competition obligation in respect of the
restricted field of the specific project of the RESEARCH on which they shall
work. Such non-competition obligation shall apply throughout the duration of
their respective employment contracts, and for a period of one year following
termination of such employment contract, only as regards commercial
organizations conducting work similar to the RESEARCH FIELD, as opposed to
academic posts which they may be offered.
5.6 The Fellowship Holders shall carry out RESEARCH in return for
the award of a fellowship from CBA for the three (3) year duration of the
RESEARCH, which shall be provided from the funding provided by OSIRIS with
respect to the RESEARCH.
6.0 PUBLICATION
6.1 OSIRIS agrees that INVESTIGATORS engaged in the RESEARCH shall
be permitted to present or publish at their own choosing, methods and results
of the RESEARCH; provided, however, that OSIRIS shall have been furnished
copies of any abstract, proposed presentation, or publication thirty (30) days
prior to submission to scientific meeting organizers or
<PAGE>
scientific publications.
6.2 Notwithstanding anything else to the contrary, CBA undertakes
that it shall not, and undertakes to ensure that PRINCIPAL INVESTIGATOR shall
not, publish or disclose to third parties TECHNOLOGY without supplying OSIRIS
with a copy of the material to be disclosed or published to third parties at
the time of submission for publication or disclosure so that OSIRIS may
evaluate such material to determine whether the material contains patentable
subject matter on which a patent application should be filed. OSIRIS shall
review the material within thirty (30) days of submission to OSIRIS.
6.3 At OSIRIS'S request, CBA will delay publication and/or
disclosure of TECHNOLOGY for an additional sixty (60) days in order to
enable the preparation and filing of a patent application in the United
States, Europe or other jurisdiction on any such patentable subject matter.
Notwithstanding anything to the contrary, CBA will not be required to withhold
publication of such material for a period which is more than ninety (90) days
after OSIRIS is first provided with the material to be disclosed or published.
6.4 Nothing in this Agreement shall entitle CBA to disclose to
others or publish any information disclosed to CBA by OSIRIS that is
confidential within the meaning of article 7.0 without the prior written
approval of OSIRIS.
7.0 CONFIDENTIALITY
7.1 The parties agree and undertake to keep confidential all and any
information, whether written or oral, which is imparted to them by the other
in confidence or which is confidential and which is acquired by one party in
connection with this Agreement or the research to be carried out under it
including, for the avoidance of doubt, all such information relating to the
activities, business or affairs or the other party ("CONFIDENTIAL
INFORMATION").
<PAGE>
CONFIDENTIAL INFORMATION shall not be disclosed or revealed to
anyone except employees of the recipient who have a need to know the
information and who have entered into a secrecy agreement with the recipient
under which such employees are required to maintain confidential the
proprietary information of the recipient and such employees shall be advised
by the recipient of the confidential nature of the information and that the
information shall be treated accordingly. The recipient's obligations under
this Paragraph 7.1 shall not extend to any part of the information:
a. that can be demonstrated to have been in the public
domain or publicly known and readily available to the trade
or the public prior to the date of the disclosure; or
b. that can be demonstrated, from written records to have
been in the recipient's possession or readily available to the
recipient from another source not under obligation of secrecy
to the disclosing party prior to the disclosure; or
c. that becomes part of the public domain or publicly
known by publication or otherwise, not due to any unauthorized
act by the recipient.
d. that can be demonstrated, from written records, to have
been developed by the recipient independently of the disclosed
information.
7.2 The obligations of Paragraph 7.1 shall also apply to AFFILIATES
and/or SUBLICENSEES provided such information by OSIRIS. CBA'S, OSIRIS', and
AFFILIATES' obligations under Paragraph 7.1 shall extend until three (3) years
after the termination of this AGREEMENT. Notwithstanding the foregoing,
OSIRIS and AFFILIATES shall, with the prior consent of CBA, have the right to
disclose CONFIDENTIAL INFORMATION of CBA to a third party who undertakes
an obligation of confidentiality and non-use with respect to such information
<PAGE>
at least as restrictive as the obligations under Paragraph 7.1.
8.0 PATENT AND OTHER RIGHTS AND LICENSE OPTIONS
8.1 CBA agrees to promptly notify OSIRIS of any invention, whether
or not patentable, made by or disclosed to CBA which is TECHNOLOGY
(hereinafter an "INVENTION") within thirty (30) days after receipt of an
invention disclosure from the inventor or draft of a manuscript and prior to
its submission for publication, in accordance with article 6 above. The
titles, serial numbers and other identifying data of patent applications
claiming an INVENTION shall become part of the PATENT RIGHTS, it being
understood between the parties, however, that, where such an INVENTION is
patentable, CBA shall decide whether or not to patent it at its discretion.
In the event that it decides not to patent any patentable INVENTION, it shall
grant OSIRIS the right to patent such INVENTION in return for a one-off
payment of US $5,000.
8.2 With respect to any invention made by or disclosed to CBA
referred to in Paragraph 8.1 above and which must be notified to OSIRIS in
accordance with that Paragraph and which is the direct result of RESEARCH,
OSIRIS shall be automatically granted an exclusive license subject to the
RETAINED RIGHTS under the PATENT RIGHTS and under TECHNOLOGY to make, have
made, use and sell the LICENSED PRODUCT(S) and to provide the LICENSED
SERVICE(S) in the LICENSED TERRITORY (collectively, the "RESEARCH RIGHTS").
The relevant RESEARCH RIGHTS shall automatically vest in OSIRIS under the
specific terms and conditions set out in the LICENSE AGREEMENT, in particular,
its clause 2, which shall constitute the entire agreement with respect to the
RESEARCH RIGHTS.
8.3 With respect to any invention made by or disclosed to CBA
referred to in Paragraph 8.1 above and which must be notified to OSIRIS in
accordance with that Paragraph and which is not the direct result of RESEARCH,
OSIRIS shall have an option to obtain an exclusive license
<PAGE>
subject to the RETAINED RIGHTS under the PATENT RIGHTS and under TECHNOLOGY to
make, have made, use and sell the LICENSED PRODUCT(S) and to provide the
LICENSED SERVICE(S) in the LICENSED TERRITORY (collectively, the "RIGHTS").
8.4 Within 30 days of notification of an INVENTION in accordance
with Paragraph 8.1 above, OSIRIS shall notify CBA as to whether it wishes to
exercise the option referred to in Paragraph 8.2 above. Exercise of the
option shall automatically vest the relevant RIGHTS in OSIRIS under the
specific terms and conditions set out in the LICENSE AGREEMENT, which shall
constitute the entire agreement with respect to the RIGHTS.
9.0 TERMINATION
9.1 OSIRIS may terminate this AGREEMENT immediately by giving CBA
simple written notice thereof in the event of any breach of CBA of any of its
obligations under Paragraphs 3.1, 3.3, 6.0 and 8.1 of this AGREEMENT, or in
the event that OSIRIS decides to terminate this AGREEMENT in accordance with
Paragraph 2.2 above..
9.2 Without prejudice to Clause 9.1 above, either of the parties may
terminate this AGREEMENT for its breach by the other party, in the event that
the party in breach does not remedy such breach within sixty (60) days of
receiving written notice of the breach from the party which is not in breach.
9.3 In the event of early termination of this AGREEMENT under
Article 9.2 above, or under Article 9.1 above for breach of CBA, the following
provisions shall apply:-
(i) Where the termination is due to breach of the Agreement
by OSIRIS, OSIRIS shall pay all costs accrued by CBA as of the date of
termination including non-cancelable obligations for the term of this
Agreement, and non-cancelable payment obligations to all INVESTIGATORS
appointed before the effective date of termination specifically to work on the
<PAGE>
RESEARCH funded by OSIRIS for a period of one year;
(ii) Where termination is due to breach of the Agreement by
CBA, CBA shall pay back all sums already paid to it by OSIRIS and not yet used.
10.0 NEGATION OF WARRANTY
10.1 CBA makes no representation other than those specified in this
Agreement. In particular, CBA MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF DATA OR
TECHNICAL INFORMATION DERIVED FROM THIS RESEARCH PROJECT OR OF ANY
TANGIBLE OR INTANGIBLE PROPERTY OR PROPERTY RIGHT.
11.0 ASSIGNMENT
This AGREEMENT shall be binding upon and inure to the benefit of the
respective parties and their permitted successors and assignees.
Notwithstanding the above, in the case of OSIRIS this AGREEMENT shall be
assignable by OSIRIS to any AFFILIATE of OSIRIS or other party with the
prior written consent of CBA, such consent not to be unreasonably withheld.
OSIRIS shall also have the right to assign this AGREEMENT to another party
without the consent of CBA in the case of the sale or transfer or merger or
consolidation of OSIRIS or sale or transfer by OSIRIS to that party of
all, or substantially all, of its assets or all or substantially all of the
portion of its assets to which this AGREEMENT relates, provided the assignee
undertakes to be bound by and perform the obligations of the assignor under
this AGREEMENT.
12.0 PUBLICITY
The COMPANY and CBA and their AFFILIATES and SUBLICENSEES shall not use
the names, likenesses, or logos of CBA or OSIRIS or any of their constituent
parts and affiliated
<PAGE>
hospitals and companies, in any press releases, general publications,
advertising, marketing, promotional or sales literature without
prior written consent from an authorized official of OSIRIS or CBA, which
consent shall not be unreasonably withheld. OSIRIS shall, however, have the
right to use the name of CBA in agreements between OSIRIS and SUBLICENSEES,
in shareholder communications and news releases, and in any US Securities and
Exchange Commission (SEC) or comparable EU filing, fundraising documents and
the like and in any case where such use is required by law, rule or regulation.
13.0 NOTICES
Notices, invoices, payments and other communications hereunder shall be
deemed to have been made when delivered, sent by telex, or when mailed first
class, postage prepaid, or by commercial international courier service and
addressed to the party at the address given below, or such other address as
may hereafter be designated by notice in writing:
OSIRIS THERAPEUTICS, INC. 2001 Aliceanna Street
Baltimore, Maryland 21231-2001
Attention: James S. Burns, President
and Chief Executive Officer
CC: Brosio, Casati E Associati
C.so Vittorio Emanuele II, 68
10121 Torino, Italy
Attn: Jane Golding, Esq. and
Avv. Donatella De Rosa
Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
Attention: Elliot M. Olstein, Esq.
CENTRO DI BIOTECNOLOGIE AVANZATE:
<PAGE>
If administrative: Leonardo Santi, M.D., Ph.D.
Chief Executive Officer
Consorzio per la gestione
Centro de Biotecnlogie Avanzate
Largo Rosanna Benzi 10
16132 Genova, Italy
If technical: Prof. Ranieri Cancedda, M.D.
Director
Laboratorio di Differenziazione
Cellulare
Centro di Biotecnologie Avanzate
Largo Rosanna Benzi 10
16132 Genova, Italy
14.0 MISCELLANEOUS
14.1 CBA and OSIRIS agree that, in performing their activities as
regards the RESEARCH, INVESTIGATORS are acting as employees of CBA or the
INSTITUTE and nothing contained in this Agreement shall allow the
INVESTIGATORS to be or be deemed to be the agent or the employee of OSIRIS for
any purpose whatsoever.
14.2 This AGREEMENT shall be governed by and construed according to
the laws of Italy.
14.3 The parties shall make reasonable efforts to settle in an
amicable way any dispute that may arise between them in connection with this
AGREEMENT or the carrying out of the transaction contemplated herein.
14.4. Should either party consider it not possible to reach an
amicable settlement, then the dispute shall be resolved through arbitration
with a panel of three arbitrators.
14.5. The first arbitrator shall be appointed by the party initiating
the arbitration proceedings within its demand for arbitration to the other
party; the second arbitrator shall be appointed by the other party within 30
days from the date on which it has received notice of the
<PAGE>
demand for arbitration; and the third arbitrator, as Chairman of the panel,
shall be designated by agreement of the first two arbitrators within 30 days
from the appointment of the second arbitrator or, failing such agreement, by
the President of the Court of Genoa, Italy, upon request of one party. The
President of the Tribunal of Genoa, Italy, upon request of one party, shall
also designate an arbitrator in the same manner if the party required to make
such appointment shall not have done so within the period of time specified
above.
14.6. The appointment of the arbitrator shall be carried out by
formally notifying it to the other party through the judicial officer.
14.7. In the event that more than two parties legitimately are party
to the arbitration proceedings, then the dispute shall be resolved by a panel
of three arbitrators appointed by agreement of the various parties to the
procedure or, failing such agreement, by the President of the Tribunal of
Genoa, Italy, upon request of one party.
14.8. The arbitration procedure shall be held in accordance with the
customary Italian Procedure Law.
14.9. The arbitrators shall come to a decision in accordance with
Italian Law ("arbitrato rituale di diritto") and within a term of 180 days
after their appointment be it by the parties, or by the President of Tribunal
of Genoa, Italy; the arbitrators' award shall not be subject to any form of
appeal or recourse.
14.10. The arbitration proceedings shall take place in Genoa, Italy and
shall be held in English.
14.11 This AGREEMENT includes Exhibits "A" through "E" as an integral
part hereof and it supersedes any prior agreement between the parties hereto
and constitutes the entire agreement of the parties with respect to its
subject matter. Any amendments hereto must be in writing and
<PAGE>
signed by duly authorized representatives of both parties hereto.
The parties hereto have caused this AGREEMENT to be executed by duly
authorized representatives effective as of the later date indicated below.
OSIRIS THERAPEUTICS, INC. CONSORZIO PER LA GESTIONE
CENTRO DI BIOTECNOLOGIE AVANZATE
By:/s/ James S. Burns By: /s/ Leonardo Santi
Name: James S. Burns Name: Leonardo Santi, M.D., Ph.D.
Title: President & Chief Executive Officer Title: Chief Executive Officer
Date: _7/25/97_______________ Date: _7/15/97_________________
I have read, understand and agree to abide by the terms of this AGREEMENT.
By: /s/ Ranieri Cancedda
Name: Ranieri Cancedda, M.D.
Title: Professor Date: 7/15/97
<PAGE>
Exhibit A
LICENSE AGREEMENT
This Agreement is made by and between Osiris Therapeutics, Inc.,
a Delaware, U.S.A. corporation (hereinafter "OSIRIS") having its principal
place of business at 2001 Aliceanna Street, Baltimore, MD 21231-2001, and the
Consorzio per la gestione del Centro Di Biotecnologie Avanzate, having its
principal offices at Largo Rosanna Benzi 10, 16132 Genova, Italy (hereinafter
the "CBA").
SUBJECT
WHEREAS, OSIRIS and CBA have entered into a separate Research Agreement
(the "RESEARCH AGREEMENT"), which grants OSIRIS automatic rights to certain
work, and an option to obtain rights to other research carried out in the
FIELD OF RESEARCH (as defined hereinafter) under this License Agreement (the
"AGREEMENT"); and
WHEREAS, CBA desires to receive such funding and recognizes that the
rights to the work to be performed hereunder will be granted to OSIRIS under
the RESEARCH AGREEMENT and the AGREEMENT.
WHEREAS, CBA is interested in licensing PATENT RIGHTS (hereinafter
defined) to facilitate the distribution of useful products and the utilization
of new clinical methods, but does not intend to commercially develop,
manufacture or distribute any such products or methods; and
WHEREAS, OSIRIS desires to commercially develop, manufacture, use and
distribute such products and processes covered by PATENT RIGHTS throughout the
world;
WHEREAS, this Agreement is in conformity with Article 12 of the
Convention signed between CBA and the IST, the Istituto Nazionale per la
Ricerca sul Cancro, or, the Institute for Cancer Research, which latter forms
part of the CBA consortium, and CBA shall therefore sign this Agreement both
on its and IST's behalf pursuant to the said Convention.
<PAGE>
NOW THEREFORE in consideration of the mutual promises and other good and
valuable consideration, the parties agree as follows:
IT IS AGREED
SECTION 1 - DEFINITIONS
1.1 The term "AFFILIATE" as applied to OSIRIS, shall mean any
company or other legal entity other than OSIRIS, in whatever country
organized, controlling or controlled by OSIRIS. The term "control" means
possession of the power to direct or cause the direction of the management and
policies whether through the ownership of voting securities, by contract or
otherwise. The term "CBA AFFILIATE" as applied to CBA, shall mean any company
or other legal entity other than CBA, including by definition the Institute
for Cancer Research (the "INSTITUTE"), in whatever country organized,
controlling or controlled by CBA.
1.2 The term "AGREEMENT YEAR" shall mean the twelve month period
beginning on [July 1, 1997] (the "EFFECTIVE DATE"), and each subsequent twelve
(12) month period thereafter.
1.3 The term "BACKGROUND TECHNOLOGY" shall mean any data, formulas,
inventions, process information or other information, materials and substances
belonging to the FIELD OF USE known to CBA through PRINCIPAL INVESTIGATOR on
the EFFECTIVE DATE and in and to which CBA has a transferable right, which
includes but is not limited to MESENCHYMAL STEM CELLS.
1.4 "EFFECTIVE DATE" of this License Agreement shall mean the later
of the date first appearing on this AGREEMENT or July 1, 1997.
1.5 "FIELD OF RESEARCH" shall mean the isolation, purification,
characterization and use of human MESENCHYMAL STEM CELLS in the laboratories
of the PRINCIPAL INVESTIGATOR.
1.6 "FIELD OF USE" means the isolation, purification,
characterization, culture-expansion, clinical use and manufacture of
MESENCHYMAL STEM CELLS in cancer., orthopaedics and other tissue repair and
regeneration indications.
1.7 The term "INVESTIGATOR" shall mean PRINCIPAL INVESTIGATOR,
CBA or CBA AFFILIATE faculty members, graduate students, fellows, consultants
or employees of
<PAGE>
CBA who shall work under the direction of PRINCIPAL INVESTIGATOR on the FIELD
OF RESEARCH.
1.8 The term "LICENSED PRODUCT" shall mean any article, composition,
apparatus, substance, chemical, material, method, process or service the
manufacture, use or sale of which is covered by PATENT RIGHTS or which
incorporates or uses TECHNOLOGY or which incorporates or uses a MATERIAL.
1.9 "LICENSED SERVICE(S)" means the performance on behalf of a third
party of any method or the use of any product or composition, the manufacture,
use or sale of which is covered by PATENT RIGHTS or which incorporates or uses
TECHNOLOGY or which incorporates or uses a MATERIAL.
1.10 The term "LICENSED TERRITORY" shall mean all countries of the
world.
1.11 The term "MESENCHYMAL STEM CELL" or "MSC" shall mean the:
[*CONFIDENTIALITY REQUESTED*]
1.12 "NET SALES" subject to Paragraph 5.9 shall mean gross sales
revenues received by OSIRIS or an AFFILIATE from the sale of LICENSED
PRODUCT(S) less trade discounts allowed, refunds, returns and recalls,
rebates, transportation and transportation-related insurance costs, itemized
on a bill or invoice, and sales taxes. In the event that OSIRIS, an AFFILIATE
or SUBLICENSEE sells a LICENSED PRODUCT in combination with other ingredients
or components which are not LICENSED PRODUCT(S) (such other ingredients or
components being "Other Items"), then the NET SALES for purposes of royalty
payments on the combination shall be calculated as follows:
(a) If all LICENSED PRODUCT(S) and Other Items contained in
the combination are available separately, the NET SALES for purposes of
royalty payments will be calculated by multiplying the NET SALES of the
combination by the fraction A/(A+B), where A is
<PAGE>
the separately available price of all LICENSED PRODUCT(S) in the combination,
and B is the separately available price for all Other Items in the combination.
(b) If the combination includes Other Items which are not
sold separately (but all LICENSED PRODUCT(S) contained in the combination are
available separately), the NET SALES of the combination multiplied by the
fraction A/C, where A is as defined above and C is the invoiced price of the
combination.
(c) If the LICENSED PRODUCTS contained in the combination are
not sold separately, the NET SALES for such combination shall be NET SALES
multiplied by D/C where C is defined above and D is the fair market value of
LICENSED PRODUCTS in the combination. The fair market value will be
determined by negotiation between the parties; should the parties fail to
reach an agreement, the issue will be brought for a finding to arbitration in
accordance with the rules of customary Italian Procedural Law relating to
arbitrations, as set forth in Clause 8 below.
The term "Other Items" does not include solvents, diluents,
carriers, excipients, or the like used in formulating a product.
1.13 "NET SERVICE REVENUES" shall mean actual revenues received for
the performance of LICENSED SERVICE less sales and/or use taxes imposed upon
and with specific reference to the LICENSED SERVICE, trade discounts allowed,
refunds and rebates. If a LICENSED SERVICE is offered in combination with
another service or services, NET SERVICE REVENUES for purposes of
determining royalties on the LICENSED SERVICE shall be calculated by
multiplying the NET SERVICE REVENUES (as defined above, but
applied to the combination services), by the fraction A/(A+B), where A is the
invoice price of the LICENSED SERVICE and B is the invoice price of the
other service or services in the combination if sold separately.
1.14 "MATERIAL" shall mean any material or substance which is
TECHNOLOGY.
1.15 The term "PATENT RIGHT(s)" shall mean any patent application or
patent or equivalent thereof, anywhere in the world including, but not limited
to any division, continuation, or continuation-in-part, re-examination,
reissue or extension issuing thereon, which is owned by CBA and contains one
or more claims to any TECHNOLOGY.
1.16 The term "PRINCIPAL INVESTIGATOR" shall mean Dr. Ranieri
Cancedda a professor of the University of Genoa, at the Faculty of Medicine,
who has been appointed Laboratory
<PAGE>
Head under an agreement between the University of Genoa and IST, and who is
currently seconded by IST itself to CBA.
1.17 "RETAINED RIGHTS" shall mean any rights retained by any
government research granting agencies and public bodies, and any retained right
of CBA to make, have made, provide and use LICENSED PRODUCT(S) and LICENSED
SERVICES for its non-profit, non-commercial research purposes, or with
LICENSED PRODUCT obtained from OSIRIS for the treatment or diagnosis of
patients by CBA. In such case, OSIRIS will make such LICENSED PRODUCT
available to CBA at its most favorable academic medical center discount for a
period of five (5) years following EU regulatory approval.
1.18 "RESEARCH AGREEMENT" means the Research Agreement by and
between CBA and OSIRIS dated as of the date of this AGREEMENT.
1.19 The term "RESEARCH TECHNOLOGY" shall mean any data, formulas,
process information or other information, material, substance, invention or
discovery, whether or not patentable, conceived or first actually or
constructively reduced to practice during the period when research is being
supported by OSIRIS under the RESEARCH AGREEMENT solely or jointly by at
least one INVESTIGATOR which is in the FIELD of RESEARCH or which is the
direct result of research funded in whole or in part by OSIRIS pursuant to the
RESEARCH AGREEMENT.
1.20 The term "SUBLICENSEE" shall mean any non-AFFILIATE licensed by
OSIRIS to make, have made, import, use or sell any LICENSED PRODUCT or
LICENSED SERVICE.
1.21 "TECHNOLOGY" means individually and collectively BACKGROUND
TECHNOLOGY and/or RESEARCH TECHNOLOGY.
1.22 "VALID CLAIM" shall mean a claim of an issued patent which has
not lapsed or become abandoned or been declared invalid or unenforceable by a
court of competent jurisdiction or an administrative agency from which no
appeal can be or is taken.
SECTION 2 - GRANTS OF LICENSES
2.1 Subject to the terms and conditions of this AGREEMENT, CBA
hereby grants to OSIRIS an exclusive license, subject to any RETAINED RIGHTS
under the PATENT RIGHTS and under TECHNOLOGY to make, have made, use and sell
the LICENSED PRODUCT(S) and to provide the LICENSED SERVICE(S) in the LICENSED
TERRITORY.
<PAGE>
2.2 OSIRIS may sublicense others under this AGREEMENT provided that
it gives prior notice of the fundamental elements of any sub-license which it
may wish to enter into to CBA and CBA does not raise substantial objections to
such proposed sub-license within 60 days of the date of such notice and shall
provide a copy of each sublicense agreement to CBA after it is executed.
2.3 OSIRIS shall have the right to extend its license rights granted
under Paragraph 2.1 above to its AFFILIATES; however, such AFFILIATES must
agree in writing to be bound by the terms of this AGREEMENT with a copy of
such agreement furnished to CBA after it is executed.
SECTION 3 -OBLIGATIONS OF CBA REGARDING MATERIALS
3.1 During the period in which OSIRIS holds a license, CBA, and CBA
shall ensure that the PRINCIPAL INVESTIGATOR shall not, without OSIRIS'S prior
written approval, distribute or knowingly allow any MATERIALS to be
distributed to for-profit entities or persons known to be employed thereby or
consulting or performing research therefor other than under a license
permitted under this AGREEMENT.
3.2 CBA shall have the right, and CBA may allow PRINCIPAL
INVESTIGATOR to transfer MATERIALS to (i) not-for-profit entities or persons
known to be affiliated therewith, or (ii) to any person or entity, if required
by a journal in connection with a publication or if required by Government
rules and/or regulations, provided that such entities or persons sign a
Material Transfer Agreement in accordance with the terms set out in Annex A
hereto. CBA shall ensure that the PRINCIPAL INVESTIGATOR shall notify
OSIRIS before any such distribution is made.
3.3 Prior to distribution of any such MATERIALS, CBA and OSIRIS
shall use reasonable efforts to consider the patentability of such MATERIALS
and cooperate to file, where appropriate, PATENT RIGHTS protecting such
MATERIALS prior to their distribution.
SECTION 4 - DEVELOPMENT OF LICENSED PRODUCTS AND SERVICES
4.1 For each PATENT RIGHT, OSIRIS agrees to exercise reasonable
efforts and to take effective steps, within a reasonable time to (i) identify
product candidate(s) which are LICENSED PRODUCT(S) (ii) perform pre-clinical
animal and toxicological studies for each
<PAGE>
identified product candidate, (iii) conduct clinical studies aimed at
obtaining FDA and/or EU regulatory approval for each identified product
candidate and (iv) develop and commercialize each such product; provided
however, a LICENSED PRODUCT need not be identified and developed for a
PATENT RIGHT if a similar product is being developed under another PATENT
RIGHT. OSIRIS'S obligations under this paragraph shall take into account the
stage of development thereof and regulatory consideration and requirements.
The efforts of a SUBLICENSEE, an AFFILIATE, a collaborator and research
funded under this AGREEMENT shall be considered as efforts of OSIRIS.
4.2 If, as to a specific LICENSED PRODUCT, OSIRIS fails to exercise
reasonable efforts as required by Paragraph 4.1, as its sole and exclusive
remedy CBA may convert OSIRIS'S license with respect thereto to non-exclusive
rights and licenses; provided however that, if in good faith, OSIRIS has
pursued development of such LICENSED PRODUCT and in good faith OSIRIS
intends to pursue development of such LICENSED PRODUCT, and reasonably
appears to have the ability to do so, and thereafter in good faith does
continue to do so, OSIRIS'S performance obligation will have been fulfilled.
4.3 OSIRIS may market and sell LICENSED PRODUCT(S) and LICENSED
SERVICE(S) to third parties at a sales price determined by OSIRIS in its sole
discretion.
4.4 After a NDA, PLA or BLA has been obtained from the FDA, OSIRIS
shall exercise commercially reasonable efforts to market a product included in
LICENSED PRODUCTS in the US and worldwide, provided that OSIRIS has obtained
regulatory approval in a particular foreign country or region.
4.5 In the event that a third party notifies CBA that it desires to
develop and market a LICENSED PRODUCT which is not being researched and/or
developed and/or marketed by OSIRIS, an AFFILIATE or SUBLICENSEE, CBA shall
notify OSIRIS in writing thereof. If OSIRIS does not notify CBA within ninety
(90) days of such written notice that OSIRIS or an AFFILIATE or SUBLICENSEE
intends to develop such LICENSED PRODUCT and does not initiate such
development in accordance with the provisions of Paragraph 4.1 hereof within a
reasonable time thereafter, CBA shall enter into good faith negotiations with
such third party for granting a sublicense for such LICENSED PRODUCT unless
the granting of such sublicense would have a potential adverse commercial
effect upon marketing and/or selling of a LICENSED PRODUCT which is being
researched, developed, or sold pursuant to this AGREEMENT.
<PAGE>
SECTION 5 - LICENSE PAYMENTS, ROYALTIES AND RESEARCH MILESTONES
5.1 For each new invention after the initial AGREEMENT YEAR for
which an original (i.e., not continuational or divisional) US Patent
application is filed, OSIRIS shall pay to [*CONFIDENTIALITY REQUESTED*] within
sixty (60) days following such filing.
5.2 OSIRIS shall pay to CBA one of the following royalties which
shall be due and payable sixty (60) days after June 30 and December 31 for
LICENSED PRODUCTS sold or LICENSED SERVICES provided in the respective
half-year period:
(a) (i) [*CONFIDENTIALITY REQUESTED*] of NET SALES of
LICENSED PRODUCTS or NET SERVICE REVENUE of LICENSED SERVICES which are
[*CONFIDENTIALITY REQUESTED*] of NET SALES of LICENSED PRODUCTS or NET
SERVICE REVENUE of LICENSED SERVICES in the case of
[*CONFIDENTIALITY REQUESTED*], sold or provided by OSIRIS or an AFFILIATE
licensed under this AGREEMENT which in the country where made, sold or
provided are covered by a VALID CLAIM included in PATENT RIGHTS; (ii)
[*CONFIDENTIALITY REQUESTED*] of NET SALES of LICENSED PRODUCTS for
therapeutics and [*CONFIDENTIALITY REQUESTED*] of NET SALES of LICENSED
PRODUCTS in case of [*CONFIDENTIALITY REQUESTED*] in all other countries; it
being understood that, in the case of any LICENSED PRODUCTS or LICENSED
SERVICES which shall, in the future, be covered by a VALID CLAIM included in
PATENT RIGHTS for which registration has been requested but not yet granted,
the royalty amounts provided for under (ii) above shall be paid until the
grant of the PATENT RIGHTS, and, if and when such PATENT RIGHTS are granted,
those royalty amounts provided for under (i) above shall apply from the date
of such grant, and shall also be paid retroactively for the period from the
date at which registration of such PATENT RIGHTS was requested to the date of
such grant.
(b) (i) [*CONFIDENTIALITY REQUESTED*] received by OSIRIS
from a SUBLICENSEE for LICENSED PRODUCTS sold or LICENSED SERVICES provided
by such SUBLICENSEE which in the country where made, sold or provided are
covered by a VALID CLAIM included in PATENT RIGHTS; (ii)
[*CONFIDENTIALITY REQUESTED*] received by OSIRIS from a SUBLICENSEE for
LICENSED PRODUCTS sold or LICENSED SERVICES provided by such SUBLICENSEE in
all other countries.
5.3 In the event royalties are due hereunder with respect to a
LICENSED SERVICE solely because such service involves the use of a LICENSED
PRODUCT, for the
<PAGE>
purposes of calculating royalties hereunder, NET SALES for the LICENSED
PRODUCT and/or NET SERVICE REVENUES for the LICENSED SERVICE shall be
based on the price of the LICENSED PRODUCT, respectively, in arm's length
transactions. If no such transactions have taken place, such price shall be
determined by mutual agreement of the parties and if such agreement is not
reached within sixty (60) days, either party shall have the right to submit a
determination of price to binding arbitration in accordance with Section 8
below.
5.4 OSIRIS shall provide to CBA within sixty (60) days of the end
of each June 30 and December 31, after the market introduction of LICENSED
PRODUCTS or LICENSED SERVICES in any country of the LICENSED TERRITORY, a
written report to CBA of the amount of LICENSED PRODUCTS sold, and LICENSED
SERVICES sold, the total NET SALES and NET SERVICE REVENUES of such LICENSED
PRODUCTS and LICENSED SERVICES, and the running royalties due to CBA as a
result of NET SALES and NET SERVICE REVENUES by OSIRIS, AFFILIATES and
SUBLICENSEES. Payment of any such royalties due shall accompany such report.
So long as OSIRIS, an AFFILIATE or a SUBLICENSEE is developing a LICENSED
PRODUCT under this AGREEMENT, a report shall be submitted at the end of every
June 30 and December 31 after the EFFECTIVE DATE of this AGREEMENT and will
include a full written report describing OSIRIS'S, AFFILIATE'S or
SUBLICENSEE'S technical efforts under Section 7.
5.5 OSIRIS shall make and retain, for a period of three (3) years
following the period of each royalty report required by Paragraph 5.4, true
and accurate records, files and books of account containing all the data
reasonably required for the full computation and verification of sales and
other royalty related information required in Paragraph 5.4. Such books and
records shall be in accordance with generally accepted accounting principles
consistently applied. OSIRIS shall permit the inspection and copying of such
records, files and books of account by CBA or its agents during regular
business hours upon ten (10) business days' written notice to OSIRIS. Such
inspection shall not be made more than once each calendar year. All costs of
such inspection and copying shall be paid by CBA, provided that if any such
inspection shall reveal that an underpayment error has been made in the amount
equal to ten percent (10%) or more of such payments in a calendar year, such
costs shall be borne by OSIRIS. OSIRIS shall include in any agreement with its
AFFILIATES or SUBLICENSEES which permits such party to make, use or sell
the LICENSED PRODUCT(S) or provide LICENSED SERVICES, a provision requiring
such party to retain records of sales of LICENSED PRODUCT(S) and records of
LICENSED SERVICES and other information
<PAGE>
as required in Paragraph 5.4 and permit the CBA to inspect such records as
required by this Paragraph 5.5.
5.6 OSIRIS agrees that in the event any LICENSED PRODUCT shall be
sold to an AFFILIATE, then the royalty due hereunder shall be based on the
higher of (i) NET SALES of the LICENSED PRODUCT to the AFFILIATE or (ii) the
NET SALES of the AFFILIATE from the resale of such LICENSED PRODUCT. In the
event any LICENSED PRODUCT or LICENSED SERVICE shall be sold to other than an
AFFILIATE for partial or full future compensation then such future
compensation when received shall be included in NET SALES for the purpose of
paying royalties hereunder.
5.7 All payments under this AGREEMENT shall be made in US Dollars.
5.8 To the extent royalty is owed to a third party for patents held
by that party covering the making, using or selling of a LICENSED PRODUCT or
LICENSED SERVICE in a particular country, the royalty due to CBA under
Paragraph 5.2 for such LICENSED PRODUCT or LICENSED SERVICE in such country
will be[*CONFIDENTIALITY REQUESTED*] such royalty paid to such third party;
however, in no event shall such royalty due to CBA for such LICENSED PRODUCT
or LICENSED SERVICE be [*CONFIDENTIALITY REQUESTED*].
5.9 Any tax required to be withheld by OSIRIS under the laws of any
foreign country for the account of CBA, shall be promptly paid by OSIRIS for
and on behalf of CBA to the appropriate governmental authority, and OSIRIS
shall use its best efforts to furnish CBA with proof of payment of such tax.
Any such tax actually paid on CBA'S behalf shall be deducted dollar for dollar
from royalty payments due CBA.
5.10 Only one royalty shall be due and payable for the manufacture,
use and sale of a LICENSED PRODUCT or a LICENSED SERVICE irrespective of
the number of patents or claims thereof which cover the manufacture, use or
sale of such LICENSED PRODUCT or LICENSED SERVICE.
SECTION 6 - PATENT INFRINGEMENT
6.1 Each party will notify the other promptly in writing when any
infringement of the PATENT RIGHTS by another is uncovered or suspected.
6.2 OSIRIS shall have the first right to enforce any patent within
PATENT RIGHTS against any infringement or alleged infringement thereof, and
shall at all times keep CBA
<PAGE>
informed as to the status thereof. OSIRIS may, in its sole
judgment and at its own expense, institute a suit against any such infringer
or alleged infringer and control, settle, and defend such suit in a manner
consistent with the terms and provisions hereof and recover, for its account,
any damages, awards or settlements resulting therefrom, subject to Paragraph
6.4. CBA shall reasonably cooperate in any such litigation at OSIRIS'S
expense.
6.3 If OSIRIS elects not to enforce any patent within the PATENT
RIGHTS, then it shall so notify CBA in writing within six (6) months of
receiving notice that an infringement exists, and CBA may, in its sole
judgment and at its own expense, take steps to enforce any patent and control,
settle, and defend any suit that it brings in a manner consistent with the
terms and provisions hereof, and recover, for its own account, any damages,
awards or settlements resulting therefrom.
6.4 Any recovery by OSIRIS under Paragraph 6.2 shall be deemed to
reflect loss of commercial sales, and OSIRIS shall pay to CBA fifteen percent
(15%) of the recovery net of all reasonable costs and expenses, associated
with each suit or settlement, actually borne by OSIRIS. One-half (1/2) of the
costs and expenses incurred by OSIRIS pursuant to Paragraph 6.2 shall be
credited against royalties payable by OSIRIS to CBA hereunder in connection
with sales in the country of such legal proceedings; provided, however, that
any such credit under this Paragraph 6.4 shall not exceed fifty percent (50%)
of the royalties otherwise payable to CBA with regard to sales in the country
of such action in any one calendar year, with any excess credit being carried
forward to future calendar years, and also provided that OSIRIS shall
reimburse to CBA one half of the costs recovered from the counterpart in any
such legal proceedings, always within the limits of the amount actually
credited against royalties.
6.5 In the event that litigation against OSIRIS is initiated by a
third party charging OSIRIS with infringement of a patent of the third party
in a country as a result of the manufacture, use or sale by OSIRIS of a
LICENSED PRODUCT or LICENSED SERVICE in that country, OSIRIS shall promptly
notify CBA in writing thereof. One-half (1/2) of the costs and expenses
incurred by OSIRIS pursuant to this Paragraph 6.5 shall be credited against
royalties payable by OSIRIS to CBA hereunder in connection with sales in the
country of such legal proceedings, provided, however, that any such credit
under this Paragraph 6.5 shall not exceed fifty percent (50%) of the royalties
otherwise payable to CBA with regard to sales in the country of such action in
any one calendar year, with any excess credit being carried forward to future
calendar years.
<PAGE>
6.6 In the event of a judgment in any suit in which a court of
competent jurisdiction rules that the manufacture, use or sale by OSIRIS in a
country of a LICENSED PRODUCT or LICENSED SERVICE covered by a PATENT RIGHT in
that country has infringed a third party's patent requiring OSIRIS to pay
damages or a royalty to said third party in that country, or in the event of a
settlement of such suit requiring damages or back royalty payments to
be made, payments due to CBA under Paragraph 5.2 of this AGREEMENT arising
from the applicable LICENSED PRODUCT or LICENSED SERVICE shall be
correspondingly reduced in that country by the amounts due under the
requirement of such judgment or under the terms of such settlement. The
royalty payment after taking into consideration any such reduction under this
Paragraph 6.6 shall not be reduced by more than fifty percent (50%) in any one
calendar year, with any excess credit being carried forward to future calendar
years.
6.7 In any infringement suit against a third party, should either
party hereto institute to enforce the PATENT RIGHTS pursuant to this
AGREEMENT, then the other party hereto shall, at the request of the party
initiating such suit, cooperate in all respects and, to the extent possible,
have its employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like. All reasonable out-of-
pocket costs incurred in connection with rendering cooperation requested
hereunder shall be paid by the party requesting cooperation.
SECTION 7 - PATENT RIGHTS AND CONFIDENTIAL INFORMATION
7.1 (a) OSIRIS shall have the right at its cost and expense to
file, prosecute and maintain patent applications and patents which are PATENT
RIGHTS in CBA'S or IST'S name through patent counsel selected by OSIRIS who
shall consult with and keep CBA advised with respect thereto: such patent
applications which are PATENT RIGHTS and filed in CBA's or IST's name shall,
however, always have been filed previously in Italy in accordance with
applicable Italian law currently in force prior to any filing of them in any
other country in which they are patentable. For the purposes of the above,
CBA shall notify OSIRIS as to whether any such patent application should be
filed in CBA's, or in IST's name.
(b) In any country where OSIRIS elects not to have a patent
application filed or to pay expenses associated with filing, prosecuting, or
maintaining a patent application or
<PAGE>
patent which is a PATENT RIGHT, CBA may file, prosecute, and/or maintain a
patent application or patent at its own expense and for its own exclusive
benefit.
(c) For patent applications in PATENT RIGHTS that are jointly
owned by CBA and OSIRIS since they relate to INVENTIONs which are the result
of the work of inventors from both OSIRIS and CBA (the "JOINT PATENT RIGHTS"),
OSIRIS shall file, prosecute and maintain all such patents and patent
applications and OSIRIS shall be licensed thereunder. Title to all such
patents and patent applications shall reside jointly in CBA and OSIRIS.
(d) The parties shall first consult with each other as to the
advisability, preparation, filing, prosecution and maintenance of such
applications and patents. Each party shall keep the other advised as to all
developments with respect to all patent applications and patents included in
PATENT RIGHTS, it being understood that whichever of the parties first
receives correspondence concerning such patent applications and patents shall
forward copies thereof to the other party. In any event, OSIRIS shall, in
accordance with Paragraph 7.1(a) above, be responsible for maintaining all
files with respect to such applications and patents, except as provided under
this Article 7, and shall maintain at its principal offices for review by CBA:
(i) copies of all official correspondence from the US Patent Office or from a
patent office in any other country within a reasonable time after receipt; and
(ii) copies of all substantive papers to be filed in the US Patent Office or a
patent office in any other country a reasonable time prior to filing to
provide sufficient time to comment thereon.
7.2 OSIRIS agrees that all packaging containing individual LICENSED
PRODUCT(S) sold by OSIRIS, AFFILIATES and SUBLICENSEES will be marked with the
number of the applicable patent(s) licensed hereunder in accordance with each
country's patent laws.
7.3 The parties agree and undertake to keep confidential all and any
information, whether written or oral, which is imparted to them by the other
in confidence or which is confidential and which is acquired by one party in
connection with this Agreement or the research to be carried out under it
including, for the avoidance of doubt, all such information relating to the
activities, business or affairs or the other party ("CONFIDENTIAL
INFORMATION"). The information shall not be disclosed or revealed to anyone
except employees of the recipient who have a need to know
<PAGE>
the information and who have entered into a secrecy agreement with the
recipient under which such employees are required to maintain confidential the
proprietary information of the recipient and such employees shall be advised
by the recipient of the confidential nature of the information and that the
information shall be treated accordingly. The recipient's obligations under
this Paragraph 7.3 shall not extend to any part of the information:
a. that can be demonstrated to have been in the
public domain or publicly known and readily
available to the trade or the public prior to the
date of the disclosure; or
b. that can be demonstrated, from written
records to have been in the recipient's possession
or readily available to the recipient from another
source not under obligation of secrecy to the
disclosing party prior to the disclosure; or
c. that becomes part of the public domain or
publicly known by publication or otherwise,
not due to any unauthorized act by the recipient.
d. that can be demonstrated, from written
records, to have been developed by the recipient
independently of the disclosed information.
The obligations of this Paragraph 7.3 shall also apply to AFFILIATES and/or
SUBLICENSEES provided such information by OSIRIS. CBA'S, OSIRIS'S,
AFFILIATES', and SUBLICENSEES' obligations under this Paragraph 7.3 shall
extend until five (5) years after the termination of this AGREEMENT.
Notwithstanding the foregoing, OSIRIS, AFFILIATES and/or SUBLICENSEES
shall have the right to disclose CONFIDENTIAL INFORMATION of CBA to a third
party who undertakes an obligation of confidentiality and non-use with respect
to such information at least as restrictive as the obligations under this
Paragraph 7.3.
<PAGE>
SECTION 8 - TERM AND TERMINATION
8.1 This AGREEMENT shall expire in each country on the date of
expiration of the last to expire patent included with PATENT RIGHTS in that
country or, if no patents are issued, ten (10) years from the EFFECTIVE DATE
of this AGREEMENT at which time OSIRIS shall have a fully paid up
noncancellable license to all TECHNOLOGY with respect to which it has
exercised the option under Article 8 of the Research Agreement.
8.2 Any matter or disagreement arising under Paragraphs 1.13 (c),
5.3, 4.1 or 4.2 shall be submitted to the arbitration procedure set out under
Section 9 below.
8.3 Except as provided in Paragraphs 4.1 and 4.2 above, upon breach
or default of any of the terms and conditions of this AGREEMENT, the
defaulting party shall be given written notice of such default in writing and
a period of ninety (90) days after receipt of such notice to respond in
writing to the notice of default or breach. If the default or breach is not
corrected within an additional ninety (90) day period, the party not in
default shall have the right to terminate this AGREEMENT.
8.4 OSIRIS may terminate this AGREEMENT for all or some of the
licenses granted herein under in any country under any PATENT RIGHT, for any
reason, upon giving CBA ninety (90) days written notice. In such case, the
provisions of Paragraph 8.1 shall not be applicable and CBA shall have the
right to freely use all those PATENT RIGHTS covered by such termination.
8.5 Termination shall not affect CBA'S right to recover unpaid
royalties or fees or reimbursement for patent expenses incurred, if any,
pursuant to Paragraph 7.1 prior to termination. Upon termination all rights
in and to the licensed technology (including PATENT RIGHTS) shall revert to
CBA at no cost to CBA.
8.6 Upon any termination of this AGREEMENT, OSIRIS at its option,
shall be entitled to finish any work-in-process which is completed within six
(6) months of termination of this AGREEMENT and to sell any completed
inventory of a LICENSED PRODUCT covered by this AGREEMENT which remains on
hand as of the date of the termination, so long as OSIRIS pays to CBA the
royalties applicable to said subsequent sales in accordance with the same
terms and conditions as set forth in this AGREEMENT.
8.7 In the event that this AGREEMENT and/or the rights and licenses
granted under this AGREEMENT to OSIRIS are terminated, any sublicense granted
under this AGREEMENT shall remain in full force and effect as a direct license
between CBA and the
<PAGE>
SUBLICENSEE under the terms and conditions of the sublicense agreement,
subject to the SUBLICENSEE agreeing to be bound directly to CBA under such
terms and conditions of the sublicense as well as all the relevant duties and
obligations of a licensee under this AGREEMENT (other than royalty and other
payment obligations which shall be paid in accordance with the sublicense
provided that CBA receives a [*CONFIDENTIALITY REQUESTED*] of the
SUBLICENSEE'S NET SALES) within thirty (30) days after CBA provides
written notice to the SUBLICENSEE of the termination of OSIRIS'S rights and
licenses under this AGREEMENT, provided further that CBA'S obligations under
such sublicense are no greater than currently existing under this AGREEMENT.
At the request of OSIRIS, CBA will acknowledge to a SUBLICENSEE, CBA'S
obligations to the SUBLICENSEE under this paragraph.
SECTION 9 - MISCELLANEOUS
9.1 All notices pertaining to this AGREEMENT shall be in writing and
sent certified mail, return receipt requested, to the parties at the following
addresses or such other address as such party shall have furnished in writing
to the other party in accordance with this Paragraph 9.1:
CENTRO DI BIOTECNOLOGIE AVANZATE:
If administrative: Leonardo Santi, M.D., Ph.D.
Chief Executive Officer
Consorzio per la gestione
Centro de Biotecnologie Avanzate
Largo Rosanna Benzi 10
16132 Genova, Italy
If technical: Prof. Ranieri Cancedda, M.D.
Director
Laboratorio di Differenziazione Cellulare
Centro di Biotecnologie Avanzate
Largo Rosanna Benzi 10
16132 Genova, Italy
OSIRIS THERAPEUTICS, INC.: Osiris Therapeutics, Inc.
2001 Aliceanna Street
Baltimore, Maryland 21231-2001
Attention: James S. Burns, President
<PAGE>
CC: Brosio, Casati E Associati
C.so Vittorio Emanuele II, 68
10121 Torino, Italy
Attn: Jane Golding, Esq. And
Avv. Proc. Donatella De Rosa
Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
Attention: Elliot M. Olstein, Esq.
9.2 All written progress reports, royalty and other payments, and
any other related correspondence shall be in writing and sent to CBA at the
address noted above, or such other addressee which CBA may designate in
writing from time to time. Checks are to be made payable to CBA.
9.3 This AGREEMENT shall be binding upon and inure to the benefit of
and be enforceable by CBA and its successors and permitted assigns. This
AGREEMENT is binding upon and shall inure to the benefit of OSIRIS, its
successors and assignees and shall not be assignable to another party without
the written consent of CBA, which consent shall not be reasonably withheld,
except that OSIRIS shall have the right to assign this AGREEMENT to another
party without the consent of CBA in the case of the sale or transfer or merger
or consolidation of OSIRIS or sale or transfer by OSIRIS to that party of all,
or substantially all, of its assets or all or substantially all of the portion
of its assets to which this AGREEMENT relates, provided the assignee
undertakes to be bound by and perform the obligations of the assignor under
this AGREEMENT.
9.4 In the event that any one or more of the provisions of this
AGREEMENT should for any reason be held by any court or authority having
jurisdiction over this AGREEMENT, or over any of the parties hereto to be
invalid, illegal or unenforceable,
<PAGE>
such provision or provisions shall be reformed to approximate as nearly as
possible the intent of the parties, and if unreformable, shall be divisible
and deleted in such jurisdictions; elsewhere, this AGREEMENT shall not be
affected.
9.5 The parties shall make reasonable efforts to settle in an
amicable way any dispute that may arise between them in connection with this
Agreement or the carrying out of the transaction contemplated herein.
9.6. Should either party consider it not possible to reach an
amicable settlement, then the dispute shall be resolved through arbitration
with a panel of three arbitrators, in particular, as regards any matter or
disagreement arising under Paragraphs 1.13 (c), 5.3, 4.1 or 4.2.
9.7. The first arbitrator shall be appointed by the party initiating
the arbitration proceedings within its demand for arbitration to the other
party; the second arbitrator shall be appointed by the other party within 30
days from the date on which it has received notice of the demand for
arbitration; and the third arbitrator, as Chairman of the panel, shall be
designated by agreement of the first two arbitrators within 30 days from the
appointment of the second arbitrator or, failing such agreement, by the
President of the Court of Genoa, Italy, upon request of one party. The
President of the Tribunal of Genoa, Italy, upon request of one party, shall
also designate an arbitrator in the same manner if the party required to make
such appointment shall not have done so within the period of time specified
above.
9.8. The appointment of the arbitrator shall be carried out by
formally notifying it to the other party through the judicial officer.
9.9. In the event that more than two parties legitimately are party
to the arbitration proceedings, then the dispute shall be resolved by a panel
of three arbitrators appointed by agreement of the various parties to the
procedure or, failing such agreement, by the President of the Tribunal of
Genoa, Italy, upon request of one party.
<PAGE>
9.10. The arbitration procedure shall be held in accordance with the
customary Italian Procedure Law.
9.11. The arbitrators shall come to a decision in accordance with
Italian Law ("arbitrato rituale di diritto") and within a term of 180 days
after their appointment be it by the parties, or by the President of Tribunal
of Genoa, Italy; the arbitrators' award shall not be subject to any form of
appeal or recourse.
9.12. The arbitration proceedings shall take place in Genoa, Italy and
shall be held in English.
9.13. This Agreement shall be governed by and constructed according to
the laws of Italy.
9.14 OSIRIS and its AFFILIATES and its SUBLICENSEES shall not use the
names, likenesses, or logos of CBA or any of its constituent parts and
affiliated hospitals and companies, in any press releases, general
publications, advertising, marketing, promotional or sales literature without
prior written consent from an authorized official of CBA, which consent shall
not be unreasonably withheld. OSIRIS shall, however, have the right to use
the name of CBA in agreements between OSIRIS and SUBLICENSEES and in any SEC
filing (including but not limited to 8K statements), fundraising documents and
the like and in any case where such use is required by law, rule or regulation.
9.15 CBA warrants that it has good and valid title to its interest in
the inventions claimed under PATENT RIGHTS with the exception of certain
retained rights of any government, or public body. In addition, CBA warrants
that it has not licensed or assigned any right or interest in or to PATENT
RIGHTS to any third party, and the granting of such rights to OSIRIS hereunder
does not require the consent of a third party; and CBA is not aware as of the
EFFECTIVE DATE of this AGREEMENT of
<PAGE>
any legal or contractual restriction which would inhibit its ability to
perform the terms and conditions imposed on it by this
AGREEMENT. CBA does not warrant the validity of any patents or that practice
under such patents shall be free of infringement. EXCEPT AS EXPRESSLY SET
FORTH IN THIS PARAGRAPH 9.14, OSIRIS, AFFILIATES AND SUBLICENSEES AGREE THAT
THE PATENT RIGHTS ARE PROVIDED AS IS, AND THAT CBA MAKES NO REPRESENTATION
OR WARRANTY WITH RESPECT TO THE PERFORMANCE OF LICENSED PRODUCT(S) AND
LICENSED SERVICES INCLUDING THEIR SAFETY, EFFECTIVENESS, OR COMMERCIAL
VIABILITY. CBA DISCLAIMS ALL WARRANTIES WITH REGARD TO PRODUCT(S) AND
SERVICES LICENSED UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ALL
WARRANTIES, EXPRESS OR IMPLIED, OF MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, CBA ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON
THE PART OF CBA AND INVESTIGATORS, FOR DAMAGES, INCLUDING BUT NOT LIMITED
TO, DIRECT, INDIRECT, SPECIAL, AND CONSEQUENTIAL DAMAGES, ATTORNEYS' AND
EXPERTS' FEES, AND COURT COSTS (EVEN IF CBA HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, FEES OR COSTS), WHICH DAMAGES ARISE OUT OF
OR RESULT FROM THE MANUFACTURE, USE, OR SALE OF THE PRODUCT(S) AND
SERVICES LICENSED UNDER THIS AGREEMENT. OSIRIS, AFFILIATES AND
SUBLICENSEES ASSUME ALL RESPONSIBILITY AND LIABILITY FOR LOSS OR
DAMAGE CAUSED BY A PRODUCT AND SERVICE MANUFACTURED, USED OR SOLD
BY OSIRIS, ITS SUBLICENSEES AND AFFILIATES WHICH IS A LICENSED PRODUCT OR
LICENSED SERVICE AS DEFINED IN THIS AGREEMENT.
<PAGE>
9.16 OSIRIS shall defend and hold CBA, their present and former
trustees, officers, inventors of PATENT RIGHTS, agents, faculty, employees
and students harmless as against any third-party judgments, fees, expenses, or
other costs arising from or incidental to any product liability or other
lawsuit, claim, demand or other action for personal injury including death or
property damage brought as a consequence of the practice of the inventions of
LICENSED PRODUCTS or LICENSED SERVICES by OSIRIS or its AFFILIATED COMPANIES
or its SUBLICENSEES or those operating for its account or third parties who
purchase LICENSED PRODUCTS(S) or LICENSED SERVICES from any of the foregoing
entities whether or not CBA or said inventors, either jointly or severally, is
named as a party defendant in any such lawsuit, except those which arise from
the gross negligence or willful misconduct of any of parties indemnified
hereunder. Practice of the inventions covered by LICENSED PRODUCT(S) and
LICENSED SERVICES, by an AFFILIATE or an agent or a SUBLICENSEE or a third
party on behalf of or for the account of OSIRIS or by a third party who
purchases LICENSED PRODUCT(S) and LICENSED SERVICES from OSIRIS, shall be
considered OSIRIS'S practice of said inventions for purposes of this Paragraph
9.15. The obligation of OSIRIS to defend and indemnify as set out in this
Paragraph 9.15 shall survive the termination of this AGREEMENT. OSIRIS shall
have the sole right to defend, settle and compromise any claim or action
indemnified hereunder. OSIRIS shall be promptly notified of any claim, suit,
demand or action which is to be indemnified hereunder.
9.17 Prior to initiating the first commercial sale of any LICENSED
PRODUCT or LICENSED SERVICE as the case may be in any particular county,
OSIRIS, AFFILIATES and/or SUBLICENSEES shall establish and maintain product
liability or other appropriate insurance coverage with respect to LICENSED
PRODUCT(S) and LICENSED SERVICES, which coverage
<PAGE>
shall be similar to that maintained by companies at a stage of development
similar to OSIRIS for similar products, provided that such insurance is
available on terms, conditions and costs which are commercially reasonable
and prudent under the circumstances. Upon CBA'S request, OSIRIS will furnish
CBA with a Certificate of Insurance for each product liability insurance
policy obtained.
9.18 This AGREEMENT constitutes the entire understanding between
the parties with respect to the obligations of the parties with respect to the
subject matter hereof, and supersedes and replaces all prior agreements,
understandings, writings, and discussions between the parties relating to said
subject matter.
9.19 This AGREEMENT may be amended and any of its terms or conditions
may be waived only by a written instrument executed by the authorized
officials of the parties or, in the case of a waiver, by the party waiving
compliance. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by either party of any condition or
term in any one or more particular instances shall be construed as a further
or continuing waiver of such condition or term or of any other condition or
term.
9.20 Upon termination of this AGREEMENT for any reason, Paragraphs
7.3, 8.1, 8.4, 8.5, 8.6, 9.6, 9.7, 9.8, 9.9 (to the extent OSIRIS, AFFILIATES
and/or SUBLICENSEES are selling or providing LICENSED PRODUCTS or LICENSED
SERVICES under the licenses granted under this agreement) and this Paragraph
9.13 shall survive termination of the AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the respective parties hereto have executed this
AGREEMENT by their duly authorized officers on the date appearing below
their signatures.
<PAGE>
CONSORZIO PER LA GESTIONE OSIRIS THERAPEUTICS, INC.
CENTRO DE BIOTECNOLOGIE AVANZATE
By: /s/ Leonardo Santi By: /s/ James S. Burns
Name: Leonardo Santi, M.D., Ph.D. Name: James S. Burns
Title: Chief Executive OfficerTitle: President and CEO
Date:_7/15/97______________ Date:_7/25/97_________
I have read, understand and agree to abide by the terms of this AGREEMENT.
By:_/s/ Ranieri Cancedda___
Ranieri Cancedda, M.D.
Title:_Professor_____________ Date:_7/15/97_______________
<PAGE>
ANNEX A
MATERIAL TRANSFER AGREEMENT
From: prof. Ranieri Cancedda,
Centro di Biotecnologie Avanzate
Largo Rosanna Benzi, 10
16132 Genova, Italy
Fax: +39 10 5737405
e-mail: [email protected]
To:
Date:
Re: General terms for the transfer of materials
Dear dr. ...........,
in order to avoid conflict of interest, and because of potential commercial
applications for some of the material that are distributed by our laboratory,
we ask each investigator who requests material (cells, antibodies, DNA probes,
and others) to agree to condition as specified below. Please complete, sign,
make a copy for your record and return the original to me
prof. Ranieri Cancedda
- -------------------------------------------------------------------------------
Please indicate the material(s) requested:
The material(s) requested will be used in this lab for studies concerning:
My institution is non-profit, and I will not be responsible for preventing
the material(s) or its derivatives to be used for commercial purposes.
I will be responsible for preventing the material(s) form being passed on to
other investigators outside my authority.
I will send you a copy of each abstract or paper in which we include
information about the materials(s).
Signature:
Title:
Address:
Fax:
e-mail:
Date:
<PAGE>
EXHIBIT B
RESEARCH PROPOSAL
[*CONFIDENTIALITY REQUESTED*]
MAIN REFERENCES
Agematsu K, Nakahori Y. Recipient origin of bone marrow-derived fibroblastic
stromal cells during all periods following bone marrow transplantation. Br J
Haematol 79:359-365, 1991.
Allay J, Dennis J, Haynesworth SE, Clapp DW, Lazarus HM, Caplan AI, Gerson SL.
Retroviral transduction of marrow derived mesenchymal precursors. Blood 82
(suppl.l):477a, 1993.
Allen TD, Dexter TM, Simmons PJ. Marrow biology and stem cells in colony-
stimulating factors: Molecular and Cellular Biology (Eds. Dexter TM, Garland JM,
Testa NG) Marcel Dekkes, New York pp 1-38, 1990.
Andlesaria P, Kase K, Glowacki J, Holland CA, Sakakeeny MA, Wright IA,
FitzGerald TJ, Lee CY, Greenberger JS. Engraftment of a clonal bone marrow
stromal cell line in vivo stimulates hematopoietic recovery from total body
irradiation. Proc Natl Acad Sci USA 84:7681-7685, 1987
Athanasou NA, Quinn J, Brenner MK. Origin of bone marrow stromal cells and
haemopoietic chimerism following boine marrow transplantation determined by in
situ hybridization. Br J Cancer 61:385-389, 1990.
Barnett JM, Eaves CJ, Phillips G, et al. Successful autografting in chronic
myeloid leukemia after maintenance of marrow in culture. Bone Marrow Transplant
4:345 351, 1989
Bentley SA, Knutsen T, Whang-Peng J. The origin of the hematopoietic
microenvironment in continuous bone marrow culture. Exp Hematol 10:367-372, 1982
Beresford, J.N. Osteogenic stem cells and the stromal system of bone and marrow.
Clin. Orthop. 240:279-280. 1989.
Buckwalter J.A., Rosenberg L.C., Hunziker E.B. Articular cartilage: composition,
structure, response to injury and methods of facilitating repair, in: Articular
Cartilage and Knee Function: Basic Science and Arthroscopy, 19-55, Raven Press,
New York. 1990
<PAGE>
EXHIBIT C
RESEARCH BUDGET
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
EXHIBIT D
INVENTION AGREEMENT
I soggetti sott indicati che a qualunque titolo, differente da rapporto di
dipendenza (a titolo meramente esemplificativo e non esaustivo: borsisti,
dottorandi, contrattisti, studenti, frequentatori ed altro), svolgono la
Laboratorio......................riconoscono che la tiolarita
di tutte le invenzioni, risulatati, prodotti, procedimenti, sviluppi e diritti
brevettuali e non, che derivano nel corso della ricerca svolat dagli stessi
presso il Laboratorio ............................ Appartengono
all'ente da cui il Laboratorio ........................dipende.
FIRMA
NOME
QUALIFICA
DATA
<PAGE>
EXHIBIT E
FACILITIES
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
EXHIBIT F
RESEARCH PERSONNEL
[*CONFIDENTIALITY REQUESTED*]
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 31, 1997, except as to the reverse stock split discussed
in Note 1 as to which the date is October 22, 1997, on our audits of the
consolidated financial statements of Osiris Therapeutics, Inc. and its
subsidiaries as of December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996 and the period December 23, 1992 (date
of inception) to December 31, 1996. We also consent to the reference to our
firm under the caption "Experts".
/s/Coopers & Lybrand L.L.P.
McLean, Virginia
November 5, 1997
