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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-28218
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AFFYMETRIX, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0319159
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3380 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices) (Zip Code)
(408) 522-6000
(Registrant's telephone number including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant (based on the closing price for the Common Stock on the Nasdaq
National Market on March 24, 1997) was approximately $342,785,000.
As of March 24, 1997, 22,582,383 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Proxy Statement to be filed in connection with
the 1997 Annual Meeting of Shareholders are incorporated by reference into
Part III.
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AFFYMETRIX, INC.
FORM 10-K
DECEMBER 31, 1996
TABLE OF CONTENTS
Item Page No.
PART I
1. Business........................................................... 3
2. Properties......................................................... 27
3. Legal Proceedings.................................................. 27
4. Submissions of Matters to a Vote of Security Holders............... 27
PART II
5. Market for Registrant's Common Equity and Related Shareholder
Matters.......................................................... 27
6. Selected Financial Data............................................ 28
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 29
8. Financial Statements and Supplementary Data........................ 33
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 49
PART III
10. Directors and Executive Officers of the Registrant................. 49
11. Executive Compensation............................................. 49
12. Security Ownership of Certain Beneficial Owners and Management..... 49
13. Certain Relationships and Related Transactions..................... 49
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 50
Signatures......................................................... 52
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PART I
ITEM 1. BUSINESS
The business and operations of Affymetrix, Inc. ("Affymetrix" or the
"Company") were commenced in 1991 by Affymax N.V. and subsidiaries
("Affymax") and were initially conducted within Affymax. In March 1992,
Affymetrix, a California corporation, was incorporated as a wholly-owned
subsidiary of Affymax, which was later acquired by Glaxo plc, now Glaxo
Wellcome, plc ("Glaxo"). As a result of subsequent financings by the Company,
Glaxo currently holds 33% of the outstanding Common Stock. Affymetrix has
developed and intends to establish its GeneChip-TM- system as the platform of
choice for acquiring, analyzing and managing complex genetic information in
order to improve the diagnosis, monitoring and treatment of disease. The
Company's GeneChip system consists of disposable DNA probe arrays containing
gene sequences on a chip, instruments to process the probe arrays, and
software to analyze and manage genetic information from the probe arrays. The
Company commenced commercial sales of the GeneChip system and HIV probe
arrays for research use in April 1996. As of December 31, 1996, the Company
had sold 17 of its GeneChip systems.
INDUSTRY BACKGROUND
GENES AND DISEASE
Genes provide a fundamental basis for understanding human health and
disease. Genomics, the study of genes and their functions, will lead to new
approaches to diagnose, monitor and treat disease.
The entire genetic content of an organism is known as its genome. DNA is
the molecule that makes up genes and encodes the genetic instructions. These
instructions are embodied in the sequence of the four nucleotide bases (A, C, G
and T) that are the chemical building blocks of DNA. The DNA molecule is a
combination of two strands held together by chemical bonds between nucleotide
bases on one strand and the bases on the other strand. Only certain pairs of
nucleotide bases can form these bonds: C always pairs with G, and A always pairs
with T. Such paired DNA strands are said to be complementary. When two DNA
strands are complementary, they bind together to form a double helix in a
process called hybridization. In humans, the DNA molecule contains 3 billion
nucleotide pairs organized into 46 chromosomes. The human genome is believed to
contain over 100,000 genes.
Cells carry out their normal biological functions through the genetic
instructions encoded in their DNA. This genetic process, known as gene
expression, involves several steps. In the first step, nucleotides in a gene are
copied into a related nucleic acid molecule called messenger RNA. Messenger RNA
instructs the cell to produce proteins. Proteins are molecules that regulate or
perform most of the physiological functions of the body. Because the order of
nucleotides in each gene is different, each gene directs the production of a
different protein. Each organism's characteristics are thus ultimately
determined by proteins encoded in its DNA.
The diversity of living organisms results from variability in their
genomes. Variability stems from differences in the sequences of genes and from
differences in levels of gene expression. Changes in the sequences of normal
genes may be introduced by environmental or other factors, such as errors in
replication of genes. These changes are known as polymorphisms, and the affected
genes can be passed from generation to generation. In some cases, polymorphisms
have no effect on the biology of the organism. However, in other cases,
polymorphisms can result in altered function of the protein encoded by the gene.
Such polymorphisms are called mutations. Mutations in single genes have been
associated with diseases such as cystic fibrosis, and mutations in multiple
genes have been associated with diseases such as cancer and cardiovascular
disease. Similarly, it has recently been discovered that polymorphisms in the
genome of HIV, the virus that causes AIDS, enable that virus to develop
resistance to antiviral drugs, resulting in disease progression and ultimately
death. In order to understand how mutations in particular genes cause disease,
scientists must compare genes from healthy and diseased people. These efforts
are laborious and time consuming, requiring the repeated sequencing of the same
genes from a large number of people.
The genes expressed in a given cell, as well as the timing and levels of
their expression, determine differences among cell types in an organism.
Although most cells contain an organism's full set of genes, each cell expresses
only a small fraction of this set. The expression of the wrong or defective
genes, or the expression of too much or too little of genes normally expressed,
causes disease. Such abnormalities in gene expression have been associated with
human diseases, including many types of cancer. The role of gene expression in
disease requires an
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understanding of how genes interact to cause disease and how external
stimuli, such as drugs, cause variations in levels of gene expression.
THE ROLE OF GENOMICS IN UNDERSTANDING DISEASE
Increased knowledge of how DNA molecules encode the functions of living
organisms has generated a worldwide effort to identify and sequence genes of
many organisms, including the estimated 100,000 genes within the human genome.
This effort is being led by the Human Genome Project and related academic,
government and industry research projects. Once the genes and their nucleotide
sequences are identified, it is anticipated that many years of additional
research will be required to understand the specific function of each gene and
its role in disease. This research, commonly referred to as genomics, may lead
to new opportunities in drug discovery and diagnostics.
The general processes by which researchers are attempting to discover genes
fall into two principal categories: genetic mapping and high-throughput
sequencing. Once a gene has been identified, either through mapping or
sequencing, researchers must understand the function of the gene and how
variability in the gene leads to disease. Many diseases are caused by either
changes in the sequence of the gene or by changes in the expression of the gene.
Understanding the role of a gene in disease requires either quantitative gene
expression monitoring or large scale polymorphism screening.
GENETIC MAPPING. Researchers use genetic mapping to identify the gene
or genes causing an observable and well-characterized disease or genetic
disorder. The gene mapping process is extensive and typically begins by
assembling tissue samples and histories from families where the disease of
interest is prevalent. Researchers then attempt to locate the position of the
gene responsible for the disease using a technique called linkage analysis.
This technique relies on the identification of genes using DNA sequences
called markers, whose specific locations are known among the three billion
base pairs of the human genome. By comparing the patterns of markers in
generations of healthy and diseased people, researchers can link genes to
markers and thereby determine that a particular marker is located near the
gene responsible for the disease. By using more markers, genes can be more
precisely mapped. Since many major diseases, such as diabetes and
atherosclerosis, are believed to be caused by the interplay of numerous
genes, it is often necessary to try to map several genes simultaneously. This
mapping process requires extensive efforts and significant computational
capabilities. It is expected that increasing the speed and accuracy of
genetic mapping and improving the ability to analyze information from
thousands of different markers may accelerate the identification of disease
associated genes.
HIGH-THROUGHPUT SEQUENCING. High-throughput sequencing involves first
identifying genes and subsequently determining their function and possible role
in disease. When a gene is expressed in a particular cell, its DNA is copied
into messenger RNA. In this process, sequences that do not code for an expressed
gene are removed. Thus, messenger RNA contains only expressed gene sequences.
Using high-throughput sequencing methods, DNA copies of the messenger RNA can be
sequenced and thereby reveal the sequence of a gene. Corporate, academic and
government efforts have been successful in identifying a substantial number of
the 100,000 genes in the human genome using such techniques.
GENE EXPRESSION MONITORING. By monitoring the expression of a large
number of genes, researchers seek to correlate changes in expression patterns
with particular diseases. The effectiveness of monitoring gene expression is
a function of the number of genes that can be monitored simultaneously, the
sensitivity of the method (ability to measure small changes or low levels of
gene expression) and the ability of the method used to provide qualitative
information. Relative levels of gene expression are currently monitored
primarily through an intensive process of sequencing many copies of genes.
Scientists believe that the development of technologies that can
quantitatively monitor thousands of genes simultaneously will increase the
effectiveness of gene expression monitoring as a tool for understanding the
roles of genes in disease.
POLYMORPHISM SCREENING. Using polymorphism screening, researchers seek
to correlate variability in the sequence of genes with a specific disease. By
sequencing a gene of interest from a large number of healthy and diseased
persons, researchers are able to statistically correlate specific gene
mutations with the disease. Currently, the polymorphism screening process is
done using gel-based sequencing. A typical polymorphism screening project
might require sequencing 10 genes of 5,000 nucleotide bases each in up to
1,000 patients, or a total of 50 million bases, to understand the role of
these 10 genes in one disease. Using high-throughput sequencing techniques,
even at a cost of cents per base, such projects are expensive and time
consuming. It is expected that new technologies will
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be needed to effectively screen the more than 100,000 human genes for
polymorphisms that correlate with many known diseases.
OPPORTUNITIES IN DIAGNOSTICS AND THERAPEUTICS
Current diagnostic tests can monitor the physiological effects of disease,
detect infectious organisms by growing them in culture, or use specific markers,
such as proteins, known to be associated with disease. Diagnostic tests rely on
a patient sample of tissue, blood, or urine, and detect the physiological
effect, the infectious organism or the marker in the sample. For example,
immunoassays detect and measure specific proteins already known to be associated
with a disease using antibodies generated against those proteins. However,
protein markers are not available or are not useful for diagnosing many
diseases. Diagnostic tests that monitor physiological effects are also limited
because different diseases can cause the same effect. For example, an elevated
white blood cell count can be caused by appendicitis, an acute infection or
leukemia.
Most infectious diseases are viral, bacterial or fungal. Diagnosis of
bacterial and fungal infections is generally achieved by growing a culture,
which may take several days. Even after the infectious organism is identified,
further analysis may be required to determine which antibiotics, if any, may be
effective in treating the disease. In the case of many viruses, diagnosis
depends on immunoassay tests that detect antibodies to the virus. However, these
tests provide no information as to whether the virus is resistant to drug
therapy or if the infection is active or latent.
Recent advances in gene-based diagnostic tests using DNA probes, DNA
amplification techniques and sequencing technologies have begun to address these
shortcomings by directly examining the genes associated with a given disease
rather than relying on physiological parameters or antibodies. For example,
amplification of specific genes from an infectious organism eliminates the need
to grow that organism in culture.
However, current techniques for gathering genetic information for diagnosis
and monitoring of disease have limitations. For example, gel-based sequencing
techniques used in some approaches are time-consuming, require skilled
operators, and can analyze only limited lengths of contiguous DNA sequences in a
given run. Gene-based diagnosis often requires rapid turnaround and examination
of noncontiguous DNA sequences. As a result, new techniques and tools are being
developed to improve the diagnosis, monitoring and treatment of disease.
Using genetic mapping and high-throughput sequencing, scientists have been
successful in discovering many genes. Technological improvements that increase
the speed and decrease the cost of gene expression monitoring and polymorphism
screening will improve the ability of researchers to understand the function of
these genes and their role in disease. Such knowledge may assist in the
development of therapeutics with greater efficacy and fewer side effects, as
well as diagnostic products with greater sensitivity and accuracy.
BUSINESS STRATEGY
Affymetrix' objective is to establish the GeneChip system as the
platform of choice for acquiring, analyzing and managing complex genetic
information in order to improve the diagnosis, monitoring and treatment of
disease. The Company's GeneChip system consists of disposable DNA probe
arrays containing gene sequences on a chip, instruments to process the probe
arrays, and software to analyze and manage genetic information from the probe
arrays. The Company intends to commercialize the GeneChip system in two
principal areas: genomics and diagnostics.
GENOMICS
- ESTABLISH GENECHIP TECHNOLOGY AS A PLATFORM FOR GENOMICS RESEARCH.
The Company intends to develop the GeneChip system for use in several
applications where Affymetrix believes it has substantial advantages
over conventional tools used for DNA sequence analysis in the
identification of genes and their role in disease. Initially, four
such applications have been identified: gene discovery, gene mapping,
gene expression monitoring and polymorphism screening, all of which
require analyzing and processing large amounts of genetic
information.
- COMMERCIALIZE CUSTOM PROBE ARRAYS THROUGH CORPORATE PARTNERSHIPS. The
Company intends to sell custom probe arrays to pharmaceutical and
biotechnology companies through collaborative agreements. The Company
will seek to receive revenue through design and development fees,
milestone payments and sales of DNA probe arrays and instruments to
collaborative partners. If a collaborative partner is successful in
discovering products
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through the use of the GeneChip technology, the Company would also seek
to receive royalties from the sale of such products.
- PARTICIPATE IN THE COLLECTION AND APPLICATION OF GENETIC INFORMATION.
Affymetrix intends to use the DNA sequence analysis capabilities of
the GeneChip technology to measure gene expression in order to create
databases containing information on the function of genes and their
role in disease. Affymetrix anticipates that such databases will be
developed and commercialized through partnerships with pharmaceutical
and biotechnology companies.
DIAGNOSTICS
- IMPROVE ACCURACY AND SPEED OF DIAGNOSIS. Affymetrix intends to
develop DNA probe arrays to obtain genetic information from patient
samples so that specific diseases can be rapidly diagnosed.
Furthermore, such probe arrays will be designed to simultaneously
collect additional relevant information, including drug resistance
data.
- ESTABLISH DIRECT SALES EFFORTS AND PARTNERSHIPS. Affymetrix intends
to initially market its GeneChip products, for research use only,
directly to academic research centers and reference laboratories that
conduct the majority of gene-based diagnostic tests. In addition, the
Company will seek to partner with, or license technology to,
established diagnostic companies which could develop, seek regulatory
approval, and commercialize probe arrays for broader clinical use.
- DISCOVER NOVEL DIAGNOSTIC MARKERS. The Company intends to use
information from the Human Genome Project and related efforts to
identify genes associated with particular diseases and use the
proteins encoded by these genes in new diagnostic tests. The Company
will seek to partner with established diagnostic companies by
providing these novel protein markers for development and
commercialization as conventional immunoassays.
There can be no assurance that the Company will be successful in
implementing its strategy or marketing its GeneChip system for these genomics
and diagnostic applications. The Company's GeneChip system and other potential
products will require significant additional development and investment,
including testing to further validate performance and demonstrate cost
effectiveness. While the Company's initial product sales for research use have
not required regulatory approvals, the Company expects that such approvals will
be required for diagnostic applications in the future. The Company may need to
undertake costly and time-consuming efforts to obtain required approvals. There
can be no assurance that any further products will be successfully developed, be
proven to be accurate and efficacious in any markets, meet applicable regulatory
standards in a timely manner or at all, be protected from competition by others,
avoid infringing the proprietary rights of others, be manufactured in sufficient
quantities or at reasonable costs or be marketed successfully.
TECHNOLOGY
Affymetrix' probe array technology and systems integrate semiconductor
fabrication techniques, molecular biology, solid phase chemistry, software and
robotics. The Company's GeneChip system consists of four integrated parts:
disposable DNA probe arrays containing genetic information on a chip housed in a
cartridge, a fluidics station for introducing the test sample to the probe
arrays, a scanner to read the data from the probe arrays, and software to
control the instruments and to analyze and manage the genetic information. The
GeneChip system is designed for use by pharmaceutical and biotechnology
companies, academic research centers and reference laboratories. The base price
of the Company's GeneChip system (scanner, software, workstation and fluidic
station) currently starts at approximately $135,000. The Company's HIV probe
arrays, currently being sold commercially for research use, are priced at $45
per array, with two arrays (one for each strand of DNA) presently used per test.
DNA PROBE ARRAYS. The Company produces its DNA probe arrays using a
process based on semiconductor photolithographic fabrication techniques,
which enables it to assemble vast amounts of genetic information on a small
glass chip called a probe array. The genetic information is contained in
sequences of DNA probes that are built on the probe array. This process uses
technology initially developed at Affymax and now assigned to the Company.
The Company believes that this technology enables the efficient use of a
large number of DNA probes to analyze DNA or RNA sequences in a test sample.
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The Company uses photolithography to synthesize large numbers of DNA
sequences simultaneously in specific locations on a glass chip. Photolithography
is a technique which uses light to induce chemical reactions that create
exposure patterns on the glass chip. The process begins by coating the chip with
light-sensitive chemical compounds (defined as "protecting" groups) that prevent
chemical coupling. Lithographic masks, which consist of predetermined patterns
that either block or transmit light, are used to selectively illuminate the
glass surface of the chip. Only those areas exposed to light are deprotected and
thus activated for chemical coupling through removal of the light-sensitive
protecting groups. The entire surface is then flooded with a solution containing
the first in a series of DNA building blocks (A, C, G or T). Coupling only
occurs in those regions which have been deprotected through illumination. The
new DNA building block also bears a light-sensitive protecting group so that the
cycle can be repeated. This process of exposure to light and subsequent chemical
coupling can be repeated on the same chip in order to generate an array of DNA
sequences. The intricate illumination patterns allow the Company to build arrays
of many diverse DNA sequences in a small area. The Company can manufacture a
large number of identical DNA probe arrays on a large glass wafer, which is then
diced into individual probe arrays.
Each probe array contains thousands of "features." Each feature contains
millions of copies of the same single-stranded DNA sequence, or probe. The
patterns of photolithographic masks and the order of DNA building blocks used in
the synthesis process dictate the sequence of the probes in each feature on the
chip surface. The number of synthesis cycles determines the length of the DNA
probes in each feature.
The Company's GeneChip technology enables it to effectively synthesize a
large number of DNA sequences, which would not be possible with existing
technologies. Unlike conventional synthesis, which generally uses a linear
process to create compounds, the Company's synthesis technology is
combinatorial, in that the number of compounds synthesized grows exponentially
with the number of cycles in the synthesis. For example, in a 40 cycle process,
Affymetrix has developed a probe array with over one million features, each
containing a unique DNA sequence. This process would take over ten million
cycles using standard DNA synthesis techniques.
The function of each single-stranded probe on the GeneChip probe array is
to bind to its complementary single strand of DNA or RNA from the patient
sample. Each feature on the GeneChip probe array contains identical copies of a
single strand of DNA. The nucleic acid to be tested is isolated from a sample,
such as blood or biopsy tissue, and fluorescently labeled by one of several
standard biochemical methods. The test sample is then washed over the probe
array surface and the labeled test sample binds, or hybridizes, to the
complementary probes if they are present in the probe array. When scanned by the
laser in the GeneChip scanner, the hybridized test sample generates a
fluorescent signal. The presence and sequence of the nucleic acid sample can be
determined by detecting these signals since the sequence and position of each
complementary DNA probe on the probe array are known. The Company currently
manufactures probe arrays containing from 16,000 to more than 100,000 features.
INSTRUMENTATION. The fluidics station controls the introduction of the
test sample to the probe array and the hybridization process. A technician
places the test sample in a small container in the fluidics station, which
introduces the test sample into the cartridge containing the DNA probe array.
The technician uses a computer to control the delivery of reagents and the
timing and temperature required for hybridization of the test sample to the
probe array. The process concludes with a reagent wash that leaves only the
hybridized test sample bound to the probe array. The fluidics station can
process four probe arrays simultaneously, typically taking less than one hour
to process these arrays.
After completion of hybridization on the fluidics station, the
technician places the cartridge in the scanner which reads the probe array.
The GeneChip scanner consists of a laser, high resolution optics, robotics to
position and scan the cartridge, a fluorescence detector and an interface to
a personal computer. The label on the test sample emits fluorescent signals
when exposed to the light from the laser. The intensity of the fluorescent
signal is recorded by the scanner and stored in the computer. The Company's
first generation commercial scanner can read 1.28 centimeter ("cm") by 1.28
cm probe arrays with up to 64,000 features. The second generation scanner can
read 1.28 cm by 1.28 cm probe arrays with up to 400,000 features, which was
developed in collaboration with Hewlett-Packard Company ("HP") and is
expected to be shipped to customers in the second quarter of 1997.
SOFTWARE. The GeneChip product software is supplied as part of the
integrated system and runs on a Windows platform. The fluorescence intensity
data captured from the scanner are used in conjunction with computer files
containing the sequence and location of all the probes on the probe array to
determine the nucleotide sequence of the test sample. For the HIV GeneChip
product, the analysis takes less than 90 seconds for one probe array and the
resulting sequence is displayed on the computer. Customized software enables
the technician to rapidly identify
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polymorphisms in the test sample and to compare genetic sequences across test
samples. Other GeneChip software windows enable custom probe array users to
simultaneously evaluate the relative expression levels of thousands of genes.
The GeneChip software package is compatible with most database formats.
GENOMICS APPLICATION AREAS
Affymetrix is applying the GeneChip technology to create a platform for
genomics and pharmaceutical research. Genomics applications include gene
discovery, genetic mapping, gene expression monitoring and polymorphism
screening.
GENE DISCOVERY. The discovery of genes will be an important means to
understand disease and design new therapies. A large number of the genes
identified to date have been classified into families based on common
sequences within these genes. One approach to gene discovery uses these
common sequences to search for and identify previously unknown members of
these gene families. To facilitate this approach, the Company can design DNA
probe arrays containing a large number of probes for both common and variable
regions of known genes. Using this technology, samples containing DNA can be
screened against the probe arrays, and, for genes that are already known,
both the variable and common regions are detected from the sample. For
previously unknown genes, only the common regions are detected, thus
identifying a new gene.
The Company believes that this approach to gene discovery may aid in new
gene identification. In November 1994, Affymetrix established a collaboration
with Genetics Institute ("GI") to apply the GeneChip technology to the discovery
of new genes and uses of genes in selected gene areas.
GENETIC MAPPING. Genetic mapping is an important method for linking
diseases to particular genes. Over the last five years, over 60 genes have
been linked to known diseases by this method. However, the current
technologies for mapping genes are slow and labor intensive. This problem is
exacerbated when looking at complex diseases such as diabetes, asthma, and
cardiovascular disease which are believed to be associated with multiple
genes. Using genetic mapping, researchers attempt to find disease genes by
using markers. The correlation between markers in diseased and healthy people
enables researchers to link such genes to a particular disease state.
Research to identify markers is currently being conducted by various academic
and scientific groups to improve genetic mapping techniques. The Company has
established a collaboration with the Whitehead Institute for Biomedical
Research at the Massachusetts Institute of Technology to design probe arrays
with new markers identified by Whitehead scientists. The Company intends to
develop mapping probe arrays based upon publicly available markers as well as
custom probe arrays based upon proprietary markers. The Company intends to
market these arrays to pharmaceutical and biotechnology companies for
conducting genetic mapping. There can be no assurance that these arrays will
be successfully developed or marketed to these or other customers.
GENE EXPRESSION MONITORING. Currently, large amounts of genetic
sequence information are being generated, through the Human Genome Project
and related efforts, yet relatively little is understood about the function
of most genes. Affymetrix believes that monitoring gene expression is
fundamental for understanding the function of genes and their role in
disease. To facilitate the monitoring of gene expression, the Company designs
probe arrays with DNA probes that are complementary to a sequence within a
gene of interest. By providing sequence information, these probe arrays may
enable researchers to identify the particular gene and quantitatively measure
its level of expression compared to other genes of interest in the test
sample. By synthesizing specific probes for multiple genes on a single probe
array, the Company also enables researchers to quickly, quantitatively and
simultaneously monitor the expression of a large number of genes of interest.
By monitoring the expression of such genes at different times, researchers
can use the probe arrays to understand gene expression and how it is related
to disease progression. The Company believes that such information will be an
important tool in the understanding of gene function and the development of
new therapeutics.
Under its 1994 collaboration with GI, the Company received research funding
to develop probe arrays for gene expression monitoring. Pursuant to a second
agreement, executed in 1995, the Company will also design, manufacture, and
supply custom probe arrays for GI to monitor the expression patterns of up to
15,000 genes to be specified by GI. GI retains all rights to discovered genes
and their uses. Affymetrix will supply custom probe arrays for specified fees
and may receive milestone payments and royalties on certain therapeutic products
based on the discovered genes. In April 1996, the Company also entered into an
agreement with Incyte Pharmaceuticals, Inc. ("Incyte") to explore the potential
use of DNA probe arrays in the area of gene expression. In November 1996, the
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Company and Incyte entered into an agreement to use the Company's gene
expression chips to develop a database of expression information to be licensed
to pharmaceutical and biotechnology companies.
POLYMORPHISM SCREENING. As the identity of genes in the human genome is
determined, the need to understand the significance of the variability of
nucleotide sequences in these genes increases. Researchers must determine the
normal sequence of the gene, which mutations exist and how these mutations
correlate with a disease. This requires the sequencing of samples from a
large number of affected and unaffected individuals. Using sequencing
strategies developed for the HIV probe array, Affymetrix believes that
GeneChip probe arrays could significantly reduce the cost and time of
polymorphism screening, which is currently done through more labor intensive
gel-based sequencing techniques. In May 1996, the Company entered into an
agreement with Glaxo to design, test and supply probe arrays to demonstrate
use of the arrays in detecting polymorphisms in specific genes.
DIAGNOSTIC PRODUCTS AND RESEARCH APPLICATIONS
Affymetrix intends to use the GeneChip platform in conjunction with public
and private gene databases to discover and develop diagnostic products. The
Company is pursuing diagnostic products and research applications in infectious
diseases, cancer and other areas, including drug metabolism.
INFECTIOUS DISEASES. The Company believes its GeneChip technology may
enable it to develop tests which, by assaying large amounts of genetic
information, can provide information that could improve treatments for
infectious diseases.
Industry sources, estimate that in North America and Europe, approximately
1.5 million persons are infected with HIV and that approximately 100,000 persons
are diagnosed with AIDS annually. Many HIV symptomatic patients receive
antiviral treatment with reverse transcriptase inhibitors, such as AZT, or
protease inhibitors, both of which block proteins required for the virus to
replicate. The HIV genome encodes the reverse transcriptase and protease gene
proteins within approximately 1,400 bases (or approximately 15%) of the viral
genome. Mutations in the viral genome result from errors in replication. Some of
these mutations confer resistance to the antiviral drugs being administered to
the patient. It is believed that the identity of nucleotides in the reverse
transcriptase and protease genes will be essential in order to monitor a
patient's drug resistance profile.
Affymetrix has developed the GeneChip system with an HIV probe array as
its first product for commercialization. The Company believes this GeneChip
system will enable researchers to identify the mutations associated with drug
resistance in HIV infected patients and allow researchers to identify new
mutations. The HIV probe array contains DNA probes in approximately 20,000
features that represent sequences of the reverse transcriptase and protease
genes of the virus. These features can identify mutations at sites in the
genes that have been associated with drug resistance. The Company is
marketing the HIV product for research use to identify the correlation
between mutations in the virus and drug resistance. The Company believes that
monitoring drug resistance related mutations during therapy may become a
valuable aspect of patient management. As of December 31, 1996, Affymetrix
had placed eight GeneChip systems for the HIV application in academic
research centers and pharmaceutical companies for evaluation and validation.
The Company will rely on third parties to manufacture and service its
instruments. The Company has no prior experience in introducing a commercial
product. There can be no assurance that technicians will not experience
difficulties with the system that would prevent or limit its use. In
addition, there can be no assurance that the efficiency and accuracy of the
HIV probe array in providing sequence information from HIV will be better
than current technologies, such as gel-based sequencing.
In October 1996, the Company and bioMerieux Vitek, Inc. ("bioMerieux")
signed a collaboration agreement to develop GeneChip probe arrays for
clinical diagnostic kits for bacterial identification and antibiotic
resistance analysis, to be marketed exclusively by bioMerieux worldwide. The
Company is evaluating the development of additional GeneChip probe tests for
other infectious organisms. The Company intends to seek collaborators to
participate in the funding, development and marketing of these tests.
CANCER. In the United States, approximately 1.1 million new cases of
cancer are diagnosed annually and the incidence of cancer deaths is
approximately 520,000 individuals each year. Colorectal, breast, prostate and
lung cancer account for approximately half of all diagnoses.
The p53 gene encodes a protein whose normal function is to control cell
replication. However, mutations in the p53 gene can result in the loss of this
function and are known to contribute to the aggressive growth of some types
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of cancer, including colorectal, breast and bladder cancers. Mutations have
been observed to date at more than 400 distinct sites in the p53 gene
sequence. Currently available diagnostic tests include IN VITRO assays that
use antibodies to detect the accumulation of p53 molecules in cells but
cannot directly detect mutations in the p53 gene. Gel-based sequencing
methods are impractical because mutations can occur over a large area of the
genome, requiring significant effort to sequence the entire gene. As a
result, these methods are unable to predict the rate of cancer progression.
Understanding the rate of progression is often necessary to determine whether
to treat the cancer with chemotherapy, radiation or surgery.
The Company is currently developing a GeneChip p53 probe array that
contains DNA probes to detect known mutation sites, as well as to detect
areas of the p53 gene where other mutations may occur but have currently not
been identified. Initially, the Company intends to market these p53 probe
arrays to academic research centers and reference laboratories to study the
p53 gene. In September 1996, Affymetrix entered into a collaboration
agreement with OncorMed, Inc. ("OncorMed") under which Affymetrix will make
p53 and potentially other chip products that may be used by OncorMed in its
clinical reference laboratory. Pursuant to the agreement with OncorMed, the
Company will also be able to sell these products to third parties under
specified financial terms. The Company is currently evaluating other genes
associated with cancer for potential product development. There can be no
assurance that the p53 probe array or other cancer products will be
developed, receive regulatory approvals or be successfully commercialized.
OTHER APPLICATIONS. The Company is developing its GeneChip technology
to address other applications in pharmaceutical research, such as monitoring
drug metabolism.
Monitoring drug metabolism is an essential component in drug development.
Drug metabolism determines how quickly or slowly a drug is eliminated or
rendered inactive and whether any of the drug is processed into a toxic
compound. Genetic differences among patients are an important factor in drug
metabolism. Variations in drug metabolism are important to the development of
new drugs because these variations determine how patients will react to drugs
and which drugs will have relatively uniform effects across a broad population.
Certain of the genes coding for metabolic enzymes have been identified and
sequenced by researchers. Patients who have mutations in these genes may be poor
metabolizers of drugs and may suffer from excessive drug accumulation and severe
toxicity from standard drug doses.
Pursuant to its 1994 collaboration with HP, Affymetrix has developed a
GeneChip p450 probe array to detect mutations in two genes coding for
metabolic enzymes. Mutations in these two genes have been associated with
patients who are poor metabolizers of numerous drugs including tricyclic
antidepressants and beta blockers. Under the terms of the revised agreement
between the Company and HP announced in February 1997, Affymetrix has
re-acquired all marketing rights for its GeneChip products, including the
co-developed p450 drug metabolism assay. There can be no assurance that these
DNA probe arrays will be developed or commercialized or will result in
revenues to the Company.
There can be no assurance that the Company's genomic or diagnostic
collaborative partners will perform their obligations as expected or will devote
sufficient resources to the development, testing or marketing of the Company's
potential products developed under the collaborations. Further, there can be no
assurance that any products for genomics or diagnostic applications will be
successfully developed, be proven to be accurate and efficacious in any markets,
be protected from competition by others, avoid infringing the proprietary rights
of others, be manufactured in sufficient quantities or at reasonable costs, or
be marketed successfully.
MANUFACTURING
The Company's current strategy is to manufacture its disposable DNA probe
arrays in-house and contract with third-party suppliers to manufacture the
fluidics station and scanner for its GeneChip system.
The Company is currently manufacturing limited quantities of probe arrays
for internal and collaborative purposes and for initial "research use only"
product sales. The Company's probe array manufacturing process involves wafer
preparation, probe synthesis, dicing of synthesized wafers into chips, assembly
of chips into cartridges, and quality control. Affymetrix has developed software
programs that automatically design photolithographic masks used in probe array
manufacturing and control the probe array manufacturing lines. Glass wafers are
prepared for synthesis through the application of chemical coatings. DNA probes
are synthesized on the wafers using the Company's proprietary photolithographic
process. The completed wafers are then diced to yield individual probe arrays,
which are assembled into disposable cartridges and packaged for shipment. The
Company's
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probe array synthesis, dicing and assembly processes use robotics, but the
overall manufacturing process is only partially automated. The Company
intends to further automate the manufacturing process. There can be no
assurance that manufacturing and quality control problems will not arise as
the Company attempts to scale-up its manufacturing facilities or that such
scale-up can be achieved in a timely manner or at commercially reasonable
costs.
The Company relies on outside vendors to manufacture its fluidics stations
and scanners. The Company's first generation scanner, which can read up to
64,000 features per 1.28 cm by 1.28 cm probe array was manufactured for the
Company by Molecular Dynamics, Inc. ("Molecular Dynamics"). The Company's HIV
probe array currently has 20,000 features on a 1.28 cm by 1.28 cm probe array
and may be used with the Molecular Dynamics scanner.
As part of the Company's 1994 collaboration agreement with HP, HP and
Affymetrix developed a higher resolution scanner. The HP scanner is designed to
read probe arrays with up to 400,000 features per 1.28 cm by 1.28 cm probe
array. The Company expects that the HP scanner will be commercially available to
ship for use with the Company's probe arrays in the second quarter of 1997. The
Company and HP entered into a revised agreement in February 1997. Under the
terms of the revised agreement, Affymetrix has re-acquired all marketing rights
for its GeneChip products, including the co-developed p450 drug metabolism
assay. Additionally, Affymetrix expanded its right to sell the HP GeneArray
scanner as part of the Affymetrix GeneChip System to all potential markets. The
new agreement provides for continued cooperation between Affymetrix and HP for
worldwide marketing and distribution services and requires Affymetrix to
purchase a minimum number of HP GeneArray scanners from HP over a three-year
period.
In November 1995, the Company entered into an agreement with RELA, Inc.
("RELA"), a private company, for the supply of fluidics stations. Pursuant to
the Company's supply agreement with RELA, the Company must provide a
six-month rolling forecast of its purchase requirements for fluidics stations
and is obligated to make certain minimum purchases, at prices that vary
depending on the volume ordered.
There can be no assurance that the HP scanner will be introduced and
marketed successfully. Further, no assurance can be given that scanners,
fluidics stations or reagents will be available in commercial quantities at
acceptable costs. If the Company is required to seek alternative sources of
supply, it could be time consuming and expensive. In addition, the Company is
dependent on its vendors to provide components of appropriate quality and
reliability and to meet applicable regulatory requirements. Consequently, in the
event that supplies from these suppliers were delayed or interrupted for any
reason, the Company's ability to develop and supply its products could be
impaired, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The GeneChip system is a complex set of instruments and includes DNA probe
arrays, which are produced in an innovative and complicated manufacturing
process. During the beta testing phase of the GeneChip system's development, the
Company and its vendors have encountered and satisfactorily addressed a number
of technical problems, including software failures, improper alignment of probe
array wafers, valve and tube failures in the fluidics station, sensor wiring
issues and scanner control problems. Due to the complexity and lack of operating
history of these products, the Company anticipates that additional technical
problems may occur or be discovered as more systems are placed into operation.
If these problems cannot be readily addressed, they could cause delays in
shipments, warranty expenses and damages to customer relationships, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Although the Company does not currently need to comply with Good
Manufacturing Practices ("GMP") to manufacture probe arrays and related
instrumentation for sale for research purposes, it may need to be GMP compliant
to sell these products to clinical reference laboratories and it will need to be
compliant to sell these products for clinical use. There can be no assurance
that manufacturing and quality control problems will not arise as the Company
attempts to scale-up its manufacturing facilities or that such scale-up can be
achieved in a timely manner at commercially reasonable costs.
SALES AND MARKETING
The Company intends to market the GeneChip system for diagnostic
applications through direct sales efforts and collaborative arrangements with
corporate partners and distributors. The Company intends to market the
GeneChip system for genomics applications through collaborations with
corporate partners. The Company's near
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term strategy is to commercialize the GeneChip system for research use only.
The Company's longer term strategy is to seek regulatory approval for and to
commercialize GeneChip systems as diagnostic tests for clinical use. As of
December 31, 1996, the Company had sold 16 systems for research use in the
United States. Six of these systems were sold for HIV applications.
The Company believes that the primary market for diagnostic applications in
the United States will be academic research centers, pharmaceutical and
biotechnology companies and reference laboratories. The Company intends to
establish a direct sales force to market to these potential customers for
research use. The Company believes that academic research centers could use the
GeneChip system in their disease related research. Affymetrix believes
pharmaceutical companies could use the GeneChip system to study genetic
variations in patients participating in clinical trials of new drugs. Currently,
there are three major reference laboratory companies in the United States, two
of which are associated with large pharmaceutical companies. These reference
laboratories are specialized laboratories at multiple locations that conduct
complex testing for the diagnosis and monitoring of disease and clinical trials
and testing for pharmaceutical and biotechnology companies. The Company believes
that each of these reference laboratories could be a customer for the GeneChip
system and may require multiple systems at each location depending on the volume
and complexity of the tests.
The Company believes that the primary international customers for
diagnostic applications of its GeneChip system will be academic research
centers, pharmaceutical and biotechnology companies, and independent testing
laboratories. The Company initially intends to market to these customers through
collaborative partners. As of December 31, 1996, one GeneChip system had been
placed outside the United States.
Affymetrix believes that the primary customers for genomics applications of
its GeneChip system will be pharmaceutical and biotechnology companies that
would use the GeneChip system to understand gene function and variability in
order to discover new therapeutics. Affymetrix intends to market to these
customers directly and to form non-exclusive contracts for the design,
manufacture and supply of custom GeneChip probe arrays to these customers.
Affymetrix currently has a small internal technical support group to
service its GeneChip system, which the Company intends to expand as
necessary. The Company believes that it will need to develop a larger
technical support infrastructure to service these collaborations.
Market acceptance will depend on many factors, including convincing
researchers the GeneChip system is an attractive alternative to current
technologies for the acquisition, analysis and management of genetic
information; the receipt of regulatory clearances in the United States, Europe,
Japan and elsewhere; the need for laboratories to license other technologies,
such as amplification technologies that may be required to use the GeneChip
system for certain applications; and the availability of new proprietary markers
that may be important to the diagnosis, monitoring and treatment of disease for
incorporation with the Company's probe arrays. Market acceptance may be
adversely affected by ethical concerns that may limit the use of the GeneChip
system for certain diagnostic applications or the analysis of genetic
information. In addition, potential customers will need skilled laboratory
technicians to operate the GeneChip system. Market acceptance of the GeneChip
system could also be adversely affected by limited funding available for
academic research centers and other research centers that are the potential
customers for the GeneChip system. The Company anticipates a long sales cycle to
market the GeneChip system to its potential customers. There can be no assurance
that the Company will be able to establish a direct sales force or to establish
collaborative or distribution arrangements to market its products. Failure to do
so would have a material adverse effect on the Company's business, financial
condition and results of operations.
RESEARCH AND DEVELOPMENT
The Company believes that substantial investment in research and
development is essential to obtaining a competitive position in the genetic
information and diagnostics markets. Affymetrix focuses on three types of
research and development: applied research, including diagnostic product
research and discovery; core technology development, including manufacturing
process refinement, new instrumentation design, and novel chemical synthesis;
and basic research to explore and expand the potential uses of DNA probe arrays
and to discover new technologies.
APPLIED RESEARCH. Affymetrix has diagnostic research projects in three
major diagnostic fields: infectious disease, cancer and other diseases. In
the infectious disease area, the Company is evaluating probe array
applications
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for several infectious organisms, such as tuberculosis and CMV. The Company's
research in cancer is focused on monitoring mutations associated with cancer
progression and the discovery of diagnostic markers for cancers such as
breast and colorectal cancers.
CORE TECHNOLOGY DEVELOPMENT. The Company conducts research in several
areas, including novel and improved synthesis chemistries, manufacturing
processes, new manufacturing instrumentation, and enhancements in the design
of fluidics stations and scanners. Significant research effort is dedicated
to designing data analysis software to extract information from DNA probe
arrays.
BASIC RESEARCH. Affymetrix' basic research efforts are focused on
expanding the applications of the GeneChip system and developing related new
technologies. These efforts are focused on improving sensitivity, increasing
capacity and conducting more complex assays.
The Company's research and development expenses for the years ended
December 31, 1996, 1995 and 1994, were $18.8 million, $12.4 million and $9.5
million, respectively.
Genomics and diagnostic technologies have undergone and are expected to
continue to undergo rapid and significant change. Rapid technological
development by the Company or others may result in products or technologies
becoming obsolete. In addition, any products offered by the Company would be
made obsolete by less expensive or more effective tests based on other
technologies or by new therapeutic or prophylactic agents that obviate the need
for diagnostic and monitoring information. There is no assurance that the
Company will be able to make the enhancements to its technology necessary to
compete successfully with newly emerging technologies.
COLLABORATIVE AGREEMENTS AND GRANTS
The Company's strategy regarding collaborative agreements is to expand the
applications of the Company's technology and to acquire access to complementary
technologies and resources, such as manufacturing and marketing, from its
collaborative partners. Accordingly, the Company's agreements emphasize
preserving the Company's rights to technological improvements and future
business opportunities rather than large up-front fees or sizable commitments of
research funding from its partners.
GENETICS INSTITUTE, INC.
In November 1994, the Company entered into a collaboration with GI to
develop and apply new technologies for understanding the functions of human
genes. Under the agreement, GI has provided research funding to the Company for
the development of DNA probes to enable GI to discover new genes and uses for
genes and to rapidly screen for the expression of specified genes in both normal
and diseased tissues.
The initial term of the research collaboration with GI was three years. The
Company completed performance of the 1994 agreement and, accordingly,
development funding under the agreement has been discontinued. The agreement
provides that as the Company enters into similar agreements for gene expression
with other third parties, it may be required to refund a portion of the
development funding received from GI. As a result of the agreement entered into
with Incyte in April 1996, the Company expects to refund a portion of such
funding to GI.
Affymetrix has agreed to supply custom probe arrays to GI for gene
discovery and gene expression research in certain designated fields in return
for specified payments for up to five years from the end of the research
collaboration. GI was obligated to pay Affymetrix milestone payments. GI will
have all rights to therapeutic compounds discovered through the use of DNA
probes provided by the Company, and the Company will receive royalties on
certain such therapeutic compounds. The Company retains all rights to
enhancements to the GeneChip system technology developed in the collaboration.
In December 1995, the Company and GI expanded their relationship by
entering into a supply agreement under which the Company will manufacture and
supply additional custom probe arrays based on specific genes identified and
selected by GI. Unlike the 1994 agreement with GI, this agreement does not
provide research funding to the Company. Pursuant to the agreement, GI is
obligated to purchase and the Company is obligated to supply certain minimum
quantities of the custom probe arrays developed for GI until the later of 2001
or four years after development of specified probe arrays. The Company will
receive fees for the design and delivery of the custom probe arrays, as well as
certain milestone payments and royalties on most therapeutic compounds, if
developed by GI using these probe arrays.
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As of December 31, 1996, the Company had received a total of $2.8 million
from GI, a portion of which is subject to refund.
HEWLETT-PACKARD COMPANY
In November 1994, the Company entered into a collaborative agreement with
HP to combine the Company's GeneChip technology and HP's measurement and
instrument capabilities to develop and manufacture a more advanced scanner for
use with GeneChip probe arrays. The agreement granted certain marketing rights
to HP. Pursuant to the agreement, the Company agreed to develop and manufacture
probe arrays and HP agreed to develop and manufacture instruments to read the
arrays. Each of the parties agreed to supply the components of the system
developed by it to the other party. Under certain circumstances, if either party
ceased to supply its component, the other party could obtain the manufacturing
rights to such component. The Company and HP entered into a revised agreement in
February 1997. Under the terms of the revised agreement, Affymetrix has
re-acquired all marketing rights for its GeneChip system. Additionally,
Affymetrix expanded its right to sell the HP GeneArray scanner as part of the
Affymetrix GeneChip System to all potential markets. The new agreement provides
for continued cooperation between Affymetrix and HP for worldwide marketing and
distribution services and requires Affymetrix to purchase a minimum number of HP
GeneArray scanners from HP over a three-year period.
As of December 31, 1996, the Company had received a total of $3.6 million
from HP under this collaboration, consisting of research funding, license fees
and option payments. Of these funds, $292,000 had not been earned by the Company
and were refunded in 1997 pursuant to the revised agreement between HP and the
Company.
BIOMERIEUX VITEK, INC.
In September 1996 the Company and bioMerieux entered into a collaborative
development agreement and associated probe array supply agreement for probe
arrays directed to identifying the species and drug resistance profile of
bacterial organisms causing human infection. The agreement provides that the
Company will not market or provide probe arrays for such tests to others that
are in a format that would reasonably be considered approvable by the United
States Food and Drug Administration ("FDA"). Under the terms of the agreements,
bioMerieux provides research and development support and will make payments to
Affymetrix upon achievement of certain development goals. In addition,
bioMerieux will pay specified prices for supply of probe arrays and royalties
on any resulting products. bioMerieux has an option to extend the agreement on a
non-exclusive basis to viral agents.
ADVANCED TECHNOLOGY PROGRAM (UNITED STATES DEPARTMENT OF COMMERCE)
In October 1994, the Company and Molecular Dynamics were awarded a $31.5
million five-year grant to develop novel point-of-care diagnostic systems
under the National Institute of Standards and Technology's Advanced
Technology Program ("ATP"). Pursuant to the grant, $20.8 million is
designated for the Company and its subcontractors and $10.7 million for
Molecular Dynamics and its subcontractors subject to the requirement of each
company to match such funding. The grant specifies the development of an
advanced miniaturized nucleic acid diagnostic device intended to reduce the
costs and increase the speed and reliability of DNA diagnostic tests. The
device would be used in point-of-care settings, such as hospitals, clinics
and doctors' offices. The research agreements between the Company and its
subcontractors under the ATP grant (the University of California, Stanford
University and the University of Washington) require that the universities
assign the rights to any project inventions made by them to the Company,
subject to specified royalty payments. The ATP agreement provides that the
Company and Molecular Dynamics retain rights in their respective fields to
intellectual property developed as part of the project.
The ATP grant is administered by the United States Department of Commerce.
As of December 31, 1996, the Company had received $2.9 million under the ATP
grant. The grant is subject to yearly appropriations by the United States
Congress for the ATP program, and legislation has been introduced to eliminate
the program. There can be no assurance that funding for the ATP program will not
be reduced or eliminated at any time. The reduction or elimination of the ATP
grant could have a material adverse effect on the Company's business, financial
condition and results of operations.
NATIONAL INSTITUTES OF HEALTH
In August 1995, the Company received a three-year grant for approximately
$6.0 million from the National Institute of Health ("NIH") National Center for
Human Genome Research, for a project entitled "Sequencing and Mapping with DNA
Probe Arrays." Under the project, the Company is developing applications of DNA
probe
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arrays for larger scale gene sequencing and creating a laboratory at the
Company for use by outside researchers. The grant also includes a subcontract
with Stanford University to continue research and development of the DNA
probe array technology. The Company has been awarded approximately $4.0
million for the first two years of the grant, and the remaining amounts are
subject to yearly appropriations by the NIH. There can be no assurance that
the NIH will obtain the necessary funding from the United States Congress to
continue to fund this grant.
INTELLECTUAL PROPERTY
In 1993, Affymetrix and Affymax entered into a technology license
agreement (the "Technology License Agreement") pursuant to which Affymax
granted to Affymetrix an exclusive, worldwide, royalty-free license with
right to sublicense to certain patents and patent applications (and any
foreign counterparts) to develop, make, use and sell certain products for the
clinical diagnostic and research supply markets, including rights to sell DNA
probe arrays.
In February 1997, the Company entered into an agreement with Affymax and
several of its affiliated entities that supersedes the earlier Technology
License Agreement effective as of 1995 (the "1997 Technology Agreement").
Under the terms of the 1997 Technology Agreement, Affymax assigned to
Affymetrix all rights in patents relating to light directed synthesis and
probe array technologies. Affymetrix' license rights in certain technologies,
including "encoded synthetic library" technology, were terminated. Affymetrix
retains or was assigned rights to use certain trademarks, including
"Affymetrix."
Effective as of December 31, 1996 and pursuant to the 1997 Technology
Agreement, Affymetrix held 72 pending United States patent applications and
had 21 issued patents in the United States. Many of these patents and
applications have been filed and/or issued in one or more foreign countries.
Affymetrix also relies upon copyright protection, trade secrets, know-how,
continuing technological innovation and licensing opportunities to develop
and maintain its competitive position. The Company's success will depend in
part on its ability to obtain patent protection for its products and
processes, to preserve its copyright and trade secrets and to operate without
infringing the proprietary rights of third parties.
The Company is party to various license option and license agreements with
third parties (including Stanford University, Scientific Generics, Ltd.,
Concordia University, and the University of California) which give it rights to
use certain technologies. Failure of the Company to maintain rights to such
technology could have a material adverse effect on the Company's business,
financial condition and results of operations. For example, inability of the
Company to exercise the option for the Stanford technology under commercially
reasonable terms could have an adverse effect on the ability of the Company to
sell certain of its products.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any of the Company's
pending patent applications will result in issued patents, that the Company will
develop additional proprietary technologies that are patentable, that any
patents issued to the Company or its strategic partners will provide a basis for
commercially viable products or will provide the Company with any competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the ability of the Company to do
business. In addition, patent law relating to the scope of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights, therefore, is uncertain.
Furthermore, there can be no assurance that others will not independently
develop similar or alternative technologies, duplicate any of the Company's
technologies, or, if patents are issued to the Company, design around the
patented technologies developed by the Company. In addition, the Company could
incur substantial costs in litigation to defend itself in patent suits brought
by third parties, or if it initiates such suits.
The commercial success of the Company also depends in part on the Company
neither infringing patents or proprietary rights of third parties nor breaching
any licenses that may relate to the Company's technologies and products. For
example, the Company, its collaborators and customers may need to acquire a
license for an amplification technology to use the GeneChip system, and there is
no assurance such a license will be available on commercially reasonable terms.
The Company is aware of third-party patents that may relate to the Company's
technology, including reagents used in probe array synthesis and in probe array
assays, probe array scanners, synthesis techniques, oligonucleotide
amplification techniques, assays, and probe arrays. There can be no assurance
that the Company will not infringe on these patents or other patents or
proprietary rights of third parties. In addition,
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the Company has received and may in the future receive a notice claiming
infringement from third parties as well as invitations to take licenses under
third party patents. On March 3, 1997, Hyseq, Inc. ("Hyseq") filed a lawsuit
in United States District Court for the Northern District of California (the
San Jose Division) alleging that certain Affymetrix products infringe United
States patents 5,202,231 and 5,525,464.
The Hyseq action and any other legal action against the Company or its
collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the affected products and processes could, in addition to
subjecting the Company to potential liability for damages, require the Company
or its collaborative partners to obtain a license in order to continue to
manufacture or market the affected products and processes. While the Company
believes the Hyseq complaint is without merit, there can be no assurance that
the Company will prevail in the Hyseq action or that the Company or its
collaborative partners will prevail in any other action nor can there be any
assurance that any license (including licenses proposed by third parties)
required would be made available on commercially acceptable terms, if at all.
There are a significant number of United States and foreign patents and patent
applications in the Company's areas of interest, and the Company believes that
there may be significant litigation in the industry regarding patent and other
intellectual property rights. The Hyseq action and any other such litigation
could consume substantial managerial and financial resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company or those of
its licensors. To determine the priority of inventions, the Company may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office that could result in substantial cost to the Company. No
assurance can be given that any such patent application will not have priority
over patent applications filed by the Company.
The enactment of legislation implementing the General Agreement on Trade
and Tariffs has resulted in certain changes in United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period of
seventeen years from the date of grant. The new term of United States patents
will commence on the date of issuance and terminate twenty years after the
earliest effective filing date of the application. Because the time from filing
to issuance of biotechnology patent applications in the Company's area of
interest is often more than three years, a twenty-year term after the effective
date of filing may result in a substantially shortened term of the Company's
patent protection which may adversely affect the Company's patent position.
The Company also relies upon copyright and trade secret protection for its
confidential and proprietary information. There can be no assurance, however,
that such measures will provide adequate protection for the Company's trade
secrets or other proprietary information. In addition, there can be no assurance
that proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's copyrights and trade
secrets or disclose such technology, or that the Company can effectively protect
its trade secrets.
The Company's academic collaborators have certain rights to publish data
and information in which the Company has rights. There is considerable pressure
on academic institutions to publish discoveries in the genetics and genomics
fields. There can be no assurance that such publication would not adversely
affect the Company's ability to obtain patent protection for some genes in which
it may have a commercial interest.
GOVERNMENT REGULATION
The Company anticipates that the manufacturing, labeling, distribution and
marketing of some or all of the Company's diagnostic products will be subject to
government regulation in the United States and in certain other countries.
In the United States, the FDA regulates, as medical devices, most
diagnostic tests and IN VITRO reagents that are marketed as finished test kits
or equipment. Some clinical laboratories, however, purchase individual reagents
intended for specific analytes, and use those reagents to develop and
prepare their own finished diagnostic tests. Although the FDA has not generally
exercised regulatory authority over these individual reagents or the finished
tests prepared from them by the clinical laboratories, the FDA has recently
proposed a rule that, if adopted, would regulate reagents sold to clinical
laboratories as medical devices. The proposed rule would also restrict sales of
these reagents to clinical laboratories certified under Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") as high
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complexity laboratories. The Company intends to market some diagnostic
products as finished test kits or equipment and others as individual
reagents; consequently, some or all of these products will be regulated as
medical devices.
The Food, Drug, and Cosmetic Act requires that medical devices introduced
to the United States market, unless exempted by regulation, be the subject of
either a premarket notification clearance (known as a "510(k)") or an approved
premarket approval ("PMA"). Some of the Company's products and those of its
collaborators may require a PMA and others may require a 510(k). With respect to
devices reviewed through the 510(k) process, a company may not market a device
until an order is issued by the FDA finding the product to be substantially
equivalent to a legally marketed device known as a "predicate device." A 510(k)
submission may involve the presentation of a substantial volume of data,
including clinical data, and may require a substantial review. The FDA may agree
that the product is substantially equivalent to a predicate device and allow the
product to be marketed in the United States. The FDA, however, may (i) determine
that the device is not substantially equivalent and require a PMA, or (ii)
require further information, such as additional test data, including data from
clinical studies, before it is able to make a determination regarding
substantial equivalence. By requesting additional information, the FDA can
further delay market introduction of a company's products. If the FDA indicates
that a PMA is required for any of the Company's products, the application will
require extensive clinical studies, manufacturing information and likely review
by a panel of experts outside the FDA. Clinical studies to support either a
510(k) submission or a PMA application would need to be conducted in accordance
with FDA requirements. Failure to comply with FDA requirements could result in
the FDA's refusal to accept the data or the imposition of regulatory sanctions.
FDA review of a PMA application could take significantly longer than that for a
510(k).
There can be no assurance that the Company or its collaborators will be
able to meet the FDA's requirements or that any necessary approval will be
received. Once granted, a 510(k) clearance or PMA approval may place substantial
restrictions on how the device is marketed or to whom it may be sold. Even where
a device is exempted from 510(k) clearance or PMA approval, the FDA may impose
restrictions on its marketing. In addition to requiring clearance or approval
for new products, the FDA may require clearance or approval prior to marketing
products that are modifications of existing products. There can be no assurance
that any necessary 510(k) clearance or PMA approval will be granted on a timely
basis or at all. FDA imposed restrictions could limit the number of customers to
whom particular products could be marketed or what may be communicated about
particular products. Delays in receipt of or failure to receive any necessary
510(k) clearance or PMA, or the imposition of stringent restrictions on the
Company's labeling and sales of its products could have a material adverse
effect on the Company.
As a medical device manufacturer, the Company would also be required to
register and list its products with the FDA. In addition, the Company would be
required to comply with the FDA's GMP regulations, which require that medical
devices be manufactured and records be maintained in a prescribed manner with
respect to manufacturing, testing and control activities. Further, the Company
would be required to comply with FDA requirements for labeling and promotion of
its medical devices. For example, the FDA prohibits cleared or approved devices
from being marketed for uncleared or unapproved uses. In addition, the medical
device reporting regulation would require that the Company provide information
to the FDA whenever there is evidence to reasonably suggest that one of its
devices may have caused or contributed to a death or serious injury, or that
there has occurred a malfunction that would be likely to cause or contribute to
a death or serious injury if the malfunction were to recur.
Medical device manufacturers are subject to periodic inspections by the FDA
and state agencies. Additionally, FDA will conduct a preapproval inspection for
all PMA devices and in some cases for 510(k) devices as well. If the FDA
believes that a company is not in compliance with applicable laws or
regulations, it can institute proceedings to issue a warning letter apprising of
violative conduct, detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the company, its
officers or its employees. In addition, clearances or approvals could be
withdrawn in appropriate circumstances. Failure to comply with regulatory
requirements or any adverse regulatory action could have a material adverse
effect on the Company.
Medical device laws and regulations are also in effect in many of the
countries in which the Company may do business outside the United States. These
range from comprehensive device approval requirements for some or all of the
Company's medical device products to requests for product data or
certifications. The number and scope of these requirements are increasing.
Medical device laws and regulations are also in effect in some states in which
the Company does business. There can be no assurance that the Company will
obtain regulatory approvals in such countries or that it will not be required to
incur significant costs in obtaining or maintaining its foreign regulatory
approvals. In addition, the export by the Company of certain of its products
which have not yet been cleared for
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domestic commercial distribution may be subject to FDA export restrictions.
The failure to obtain product approvals in a timely fashion or to comply with
state or foreign medical device laws and regulations may have a material
adverse impact on the Company.
In addition, federal, state and foreign laws and regulations regarding the
manufacture and sale of medical devices are subject to future changes. For
example, the FDA is currently considering significant changes to its GMP and to
other regulations. The Company cannot predict what impact, if any, such changes
might have on its business; however, such changes could have a material impact
on the Company.
Any of the Company's customers using its diagnostic devices for clinical
use in the United States may be regulated under the CLIA. CLIA is intended to
ensure the quality and reliability of clinical laboratories in the United States
by mandating specific standards in the areas of personnel qualifications,
administration, participation in proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations promulgated
under CLIA establish three levels of diagnostic tests ("waived," "moderately
complex" and "highly complex") and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. CLIA requirements may
prevent some clinical laboratories from using certain of the Company's
diagnostic products. In addition, the FDA has recently proposed regulation of
certain "analyte specific reagents" used in clinical reference laboratories.
There can be no assurance that the CLIA regulations and future administrative
interpretations of CLIA or future regulatory requirements of the FDA will not
have a material adverse impact on the Company by limiting the potential market
for the Company's products.
The Company is also subject to numerous environmental and safety laws and
regulations, including those governing the use and disposal of hazardous
materials. Any violation of, and the cost of compliance with, these regulations
could have a material adverse effect on the Company's business, financial
condition and results of operations.
REIMBURSEMENT
The Company's ability to successfully commercialize its products may depend
on the Company's ability to obtain adequate levels of third-party reimbursement
for use of certain diagnostic tests, in the United States, Europe and other
countries. Currently, the availability of third-party reimbursement is limited
and uncertain for genetic tests.
In the United States, the cost of medical care is funded, in substantial
part, by government insurance programs, such as Medicare and Medicaid, and
private and corporate health insurance plans. Third-party payors may deny
reimbursement if they determine that a prescribed device or diagnostic test has
not received appropriate FDA or other governmental regulatory clearances, is not
used in accordance with cost-effective treatment methods as determined by the
payor, or is experimental, unnecessary or inappropriate. The Company's ability
to commercialize certain of its products successfully may depend on the extent
to which appropriate reimbursement levels for the costs of such products and
related treatment are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). Third-party payors are increasingly challenging the prices charged for
medical products and services. The trend towards managed health care in the
United States and the concurrent growth of organizations such as HMOs, which
could control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care or reduce
government insurance programs, may all result in lower prices for certain of the
Company's products. The cost containment measures that health care providers are
instituting and the impact of any health care reform could have an adverse
effect on the Company's ability to sell certain of its products and may have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
Competition in genomics and diagnostics is intense and expected to
increase. Further, the technologies for discovering genes associated with
significant diseases and approaches for commercializing those discoveries are
new and rapidly evolving.
Currently, the Company's principal competition comes from existing
technologies that are used to perform many of the same functions for which the
Company plans to market its GeneChip systems. In the diagnostic field,
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these technologies are provided by established diagnostic companies such as
Abbott Laboratories, Boehringer Mannheim GmbH, Roche, Johnson & Johnson, and
SmithKline Beecham plc. These technologies include a variety of established
assays, such as immunoassays, histochemistry, flow cytometry and culture, and
newer DNA probe diagnostics to analyze certain limited amounts of genetic
information. In the genomics field, competitive technologies include
gel-based sequencing using instruments provided by companies such as the
Applied Biosystems division of Perkin Elmer and Pharmacia Biotech AB. In
order to compete against existing technologies, the Company will need to
demonstrate to potential customers that the GeneChip system provides improved
performance and capabilities. Additional competition arises from smaller
companies in the genomics and diagnostic markets.
The market for diagnostic products derived from gene discovery is currently
limited and will be highly competitive. Many companies are developing and
marketing DNA probe tests for genetic and other diseases. Other companies are
conducting research on new technologies for diagnostic tests based on advances
in genetic information. Established diagnostic companies could provide
significant competition to Affymetrix through the development of new products.
These companies have the strategic commitment to diagnostics, the financial and
other resources to invest in new technologies, substantial intellectual property
portfolios, substantial experience in new product development regulatory
expertise, manufacturing capabilities and the distribution channels to deliver
products to customers. These companies also have an installed base of
instruments in several markets, including clinical and reference laboratories,
which are not compatible with the GeneChip system. In addition, these companies
have formed alliances with genomics companies which provide them access to
genetic information that may be incorporated into their diagnostic tests.
In the genomics field, future competition will likely come from existing
competitors as well as other companies seeking to develop new technologies for
sequencing and analyzing genetic information. In addition, pharmaceutical and
biotechnology companies, such as Genome Therapeutics Corporation, Human Genome
Sciences, Inc., Incyte, Millennium Pharmaceuticals, Inc., Myriad Genetics, Inc.
and Sequana Therapeutics, Inc. have significant needs for genomic information
and may choose to develop or acquire competing technologies to meet these needs.
Smaller companies such as Synteni, Inc., Hyseq, and Nanogen, Inc. also are
developing or have developed DNA probe based assays, some of which may be
competitive with the products of the Company. There can be no assurance that
such companies will not be successful in capturing a portion of the market of
the Company.
Genomics and diagnostic technologies have undergone and are expected to
continue to undergo rapid and significant change. The Company's future success
will depend in large part on its ability to maintain a competitive position with
respect to these technologies. Rapid technological development by the Company or
others may result in products or technologies becoming obsolete. In addition,
products offered by the Company would be made obsolete by less expensive or more
effective tests based on other technologies or by new therapeutic or
prophylactic agents that obviate the need for diagnostic and monitoring
information. There is no assurance that the Company will be able to make the
enhancements to its technology necessary to compete successfully with newly
emerging technologies.
EMPLOYEES
As of March 24, 1997, Affymetrix had 161 full-time employees, 37 of whom
hold Ph.D. degrees. The employee group includes chemists, engineers, computer
scientists, mathematicians and molecular biologists with experience in the
diagnostic products, medical products, semiconductor, computer software and
electronics industries. None of the Company's employees is represented by a
collective bargaining agreement, nor has the Company experienced work
stoppages. The Company believes that it maintains good relationships with its
employees. Affymetrix' success will depend in large part on its ability to
attract and retain skilled and experienced employees. There can be no
assurance that the Company will be successful in hiring or retaining
qualified personnel, and its failure to do so could have a material adverse
impact on the business and financial condition of the Company.
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ADDITIONAL RISK FACTORS
This Form 10-K contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
document.
EARLY STAGE OF DEVELOPMENT
The Company has not commercialized significant quantities of products
based on its technologies. As of December 31, 1996, the Company had placed
only 19 GeneChip systems, all of which have been solely for research use and
only 17 of which have been purchased by customers. The majority of the
Company's revenues have been derived from payments from collaborative
research and development agreements and government research grants.
The Company's GeneChip system and other potential products will require
significant additional development and investment, including testing to further
validate performance and demonstrate cost effectiveness. While the Company's
initial product sales for research use have not required regulatory approval,
the Company expects that such approval will be required in the future. The
Company may need to undertake costly and time-consuming efforts to obtain this
approval. There can be no assurance that any future products will be
successfully developed, be proven to be accurate and efficacious in any markets,
meet applicable regulatory standards in a timely manner or at all, be protected
from competition by others, avoid infringing the proprietary rights of others,
be manufactured in sufficient quantities or at reasonable costs, or be marketed
successfully.
The Company has experienced significant operating losses since inception
and expects these losses to continue for at least the next several years.
Whether the Company can successfully manage the transition to a commercial-scale
enterprise will depend upon a number of factors including establishing its
commercial manufacturing capability, developing its marketing capabilities,
establishing a direct sales force and entering into collaborative arrangements
to market its products. Failure to make such a transition successfully would
have a material adverse effect on the Company's business, financial condition
and results of operations.
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES; NEED FOR ADDITIONAL RESEARCH
AND DEVELOPMENT
The Company intends to develop its GeneChip system for genomics and
diagnostics applications. The GeneChip system involves several new technologies,
including a complex chemical synthesis process necessary to create DNA probe
arrays. In addition, technicians using the GeneChip system require new technical
skills and training. There can be no assurance that technicians will not
experience difficulties with the system that would prevent or limit its use. The
instrumentation and software that comprise the GeneChip system are new and have
not been previously used in commercial applications. As the system is used, it
is possible that previously unrecognized defects will emerge. In addition, DNA
probe arrays are tested only on a random sample basis, and quality problems
could develop with the untested arrays. Further, in order for the Company to
address new applications for the GeneChip system, the Company may be required to
reduce the size of its probe arrays, increase the number of features on these
arrays, develop instruments capable of processing the information from such
probe arrays, and design software capable of managing such information. There
can be no assurance that the Company will be capable of validating or achieving
the improvements in the components of the GeneChip system necessary for its
successful commercialization. The Company's GeneChip technology will also need
to compete against well-established techniques and enhancements to such
techniques for analyzing genes and for diagnostics. There can be no assurance
that the GeneChip system will replace or compete successfully against existing
techniques and instruments. Furthermore, there can be no assurance that the
Company's GeneChip technology will be useful in providing information on the
function of genes or for the analysis of larger sequences of genes.
The development of research, diagnostic, and therapeutic products based on
the Company's technologies will be subject to the risks of failure inherent in
the development of products based on new technologies. These risks include
possibilities that any products based on these technologies will be found to be
ineffective, unreliable or unsafe, or otherwise fail to receive necessary
regulatory clearances; that products will be difficult to manufacture on a large
scale or will be uneconomical to market; that proprietary rights of third
parties will preclude the Company or its collaborative partners from marketing
products; or that third parties will market superior or equivalent products.
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Furthermore, there can be no assurance that the Company's research and
development activities will result in any commercially viable products.
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the Company's GeneChip system will depend upon
market acceptance by academic research centers, pharmaceutical and biotechnology
companies and reference laboratories. Market acceptance will depend on many
factors, including convincing researchers that the GeneChip system is an
attractive alternative to current technologies for the acquisition, analysis and
management of genetic information; the receipt of regulatory clearances in the
United States, Europe, Japan and elsewhere; the need for laboratories to license
other technologies, such as amplification technologies that may be required to
use the GeneChip system for certain applications; and the availability of new
proprietary markers that may be important to the diagnosis, monitoring and
treatment of disease for incorporation on the Company's probe arrays. Market
acceptance may be adversely affected by ethical concerns that may limit the use
of the GeneChip system for certain diagnostic applications or the analysis of
genetic information. In addition, potential customers will need skilled
laboratory technicians to operate the GeneChip system. Market acceptance of the
GeneChip system could also be adversely affected by limited funding available
for academic research centers and other research organizations that are the
potential customers for the GeneChip system.
Potential customers of the GeneChip system will need to acquire the
Company's fluidics station and probe array scanner in order to utilize the DNA
probe arrays. The cost of this instrumentation may deter certain potential
customers from purchasing probe arrays. The Company may be required to discount
the price of its GeneChip system in order to place the system with customers.
The failure of the Company to place sufficient quantities of the instruments for
the GeneChip system would have a material adverse effect on its ability to sell
the disposable probe arrays. There can be no assurance that academic research
centers, pharmaceutical or biotechnology companies or reference laboratories
will replace existing instrumentation and techniques with the GeneChip system.
Because of these and other factors, there can be no assurance that the Company's
products will gain market acceptance.
The Company expects that its customers will be concentrated in a small
number of academic research centers, pharmaceutical and biotechnology companies
and reference laboratories. As a result, the Company's financial performance may
depend on large orders from a limited number of customers. There are only three
major reference laboratories in the United States, two of which are associated
with large pharmaceutical companies. There can be no assurance that the Company
will be able to successfully market the GeneChip system to reference
laboratories or that the affiliation of these laboratories with pharmaceutical
companies will not adversely affect their decision to purchase GeneChip systems.
The Company's dependence on sales to a few large reference laboratories may also
strengthen the purchasing leverage of these potential customers, which could
reduce the sales price of the GeneChip system. Also, the Company believes that
the sales cycle for the GeneChip system will be lengthy due to the need to
educate potential customers about its characteristics. The failure of the
Company to gain additional customers, the loss of any customer or a significant
reduction in the level of sales to any customer would have a material adverse
effect on the Company's business, financial condition and results of operations.
UNCERTAINTIES RELATED TO THE HIV PROBE ARRAY
The first commercial application of the Company's GeneChip system is an HIV
probe array designed to detect mutations in HIV, the virus that causes AIDS. The
HIV probe array provides sequence information from the reverse transcriptase and
protease genes of HIV and the system includes a fluidics station, a scanner and
related software. In April 1996, the Company introduced the HIV probe array for
research purposes only. As of December 31, 1996, the Company had placed only 8
Genechip systems at HIV probe array customer sites. These systems have been in
operation for only a limited period of time, and their accuracy and efficacy
have not been fully demonstrated. There are other uncertainties relating to the
system, including that the Company has no prior experience in introducing a
commercial product, that technicians may encounter difficulties with the system
that would prevent or limit its use, and that the Company will rely on third
parties to manufacture and service its instruments. Furthermore, there can be no
assurance that the accuracy of the HIV probe array in providing sequence
information from HIV will be better than current technologies, such as gel-based
sequencing techniques.
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As new therapies and combinations of therapies for treating HIV are
employed, new mutations in the HIV genome may be discovered that would require
the Company to redesign its current probe array or develop new probe arrays.
Advanced therapies could be discovered that target other components of the virus
or which do not generate drug resistance. In addition, cost containment
pressures for treating HIV patients may limit the price the Company may be able
to charge potential customers for its HIV probe array. There can be no assurance
that the HIV probe array will provide useful diagnostic and monitoring
information, that it will operate without difficulties, that technicians will
have adequate training to use the system, or that the Company will not
experience manufacturing or marketing difficulties selling the HIV probe array
to academic research centers, pharmaceutical and biotechnology companies and
reference laboratories. Furthermore, there can be no assurance that the HIV
probe array will gain regulatory approval for clinical use. There can be no
assurance that these revenues will be realized in the near term, or at all.
Failure of the Company to successfully commercialize the HIV probe array could
have a material adverse effect on the Company's business, financial condition
and results of operations, and may adversely affect the Company's ability to
commercialize future products.
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES
The Company has incurred operating losses in each year since its inception,
including net losses of approximately $10.7 million during the year ended
December 31, 1995, and $12.2 million during the year ended December 31, 1996,
and at December 31, 1996, the Company had an accumulated deficit of
approximately $44.7 million. The Company's losses have resulted principally
from costs incurred in research and development and from general and
administrative costs associated with the Company's operations. These costs have
exceeded the Company's interest income and revenues which, to date, have been
generated principally from collaborative research and development agreements and
government research grants. The Company expects to incur substantial additional
operating losses over the next several years as a result of increases in its
expenses for research and product development, manufacturing scale-up, expanding
sales and marketing and capital expenditures.
PROFITABILITY UNCERTAIN
The Company has experienced substantial operating losses and has never been
profitable. The Company may have to discount the price of the GeneChip system to
gain market acceptance, which could adversely affect gross margins. The
Company's future gross margins, if any, will be dependent on, among other
factors, the Company's ability to cost-effectively manufacture the GeneChip
system, its product mix and the degree of price discounts required to market its
products to academic research centers, pharmaceutical and biotechnology
companies and reference laboratories. The amount of future operating losses and
time required by the Company to reach profitability, if ever, are highly
uncertain. The Company's ability to generate significant revenues and become
profitable is dependent in large part on the ability of the Company to enter
into additional collaborative arrangements and on the ability of the Company and
its collaborative partners to successfully commercialize products developed
under the collaborations. In addition, delays in receipt of any necessary
regulatory approvals by the Company or its collaborators, or receipt of
approvals by competitors, could adversely affect the successful
commercialization of the Company's technologies. There can be no assurance that
the Company will successfully commercialize any product or that the Company will
achieve profitability.
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly operating results will depend upon the volume and
timing of orders for GeneChip systems and probe arrays received and delivered
during the quarter, variations in payments under collaborative agreements,
including milestones, royalties, license fees, and other contract revenues, and
the timing of new product introductions by the Company. The Company's quarterly
operating results may also fluctuate significantly depending on other factors,
including the introduction of new products by the Company's competitors;
regulatory actions; market acceptance of the GeneChip system and other potential
products; adoption of new technologies; manufacturing capabilities; variations
in gross margins of the Company's products; competition; the cost, quality and
availability of reagents and components; the mix of products sold; changes in
government funding; and third-party reimbursement policies.
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DEPENDENCE UPON COLLABORATIVE PARTNERS
An important element of the Company's business strategy involves
collaborations with pharmaceutical, diagnostic and biotechnology companies that
have discovered genes and may seek to use the Company's technologies to discover
genetic mutations or develop diagnostic and therapeutic products. The Company
has significant collaborations with HP, bioMerieux, Incyte and GI.
The Company has received a material portion of its revenue since inception
from its collaborative partners and intends to enter into collaborative
arrangements with other companies to apply its technology, fund development,
commercialize potential future products, and assist in obtaining regulatory
approval. There can be no assurance that any of the Company's present or future
collaborative partners will perform their obligations as expected or will devote
sufficient resources to the development, clinical testing or marketing of the
Company's potential products developed under the collaborations. Any parallel
development by a partner of alternative technologies or components of the
GeneChip system, preclusion of the Company from entering into competitive
arrangements, failure to obtain timely regulatory approvals, premature
termination of an agreement, or failure by a partner to devote sufficient
resources to the development and commercialization of the Company's products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's agreements with consultants and collaborators are complex.
There may be provisions within such agreements which give rise to disputes
regarding the rights and obligations of the parties. These and other possible
disagreements could lead to delays in collaborative research, development or
commercialization of certain products, or could require or result in litigation
or arbitration, which would be time-consuming and expensive, and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
There can be no assurance that the Company will be able to negotiate future
collaborative arrangements on acceptable terms, if at all, or that such
collaborations will be successful.
ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC PREDISPOSITION TESTING
The Company's success will depend in part upon the Company's ability to
develop genetic tests for genes discovered by the Company and others. Genetic
tests, such as certain of the Company's GeneChip tests, may be difficult to
perform and interpret and may lead to misinformation or misdiagnosis. Further,
even when a genetic test identifies the existence of a mutation in an
individual, the interpretation of the result is often limited to the
identification of a statistical probability that the tested individual will
develop the disease or condition for which the test is performed. In addition,
once available, such tests may be subject to ethical concerns or reluctance to
administer or pay for tests for conditions that are not treatable. Further, it
is possible that gene-based diagnostic tests marketed by other companies could
encounter specific difficulties, resulting in societal and governmental concerns
regarding genetic testing.
The prospect of broadly available genetic predisposition testing has raised
issues regarding the appropriate utilization and the confidentiality of
information provided by such testing. It is possible that discrimination by
insurance companies could occur through the raising of premiums by insurers to
prohibitive levels, outright cancellation of insurance or unwillingness to
provide coverage to patients shown to have a genetic predisposition to a
particular disease. In addition, employers could discriminate against employees
with a positive genetic predisposition due to the increased risk for disease
resulting in possible cost increases for health insurance and the potential for
lost employment time. Finally, governmental authorities could, for social or
other purposes, limit the use of genetic testing or prohibit testing for genetic
predisposition to certain conditions which could adversely affect the use of the
Company's products. There can be no assurance that ethical concerns about
genetic testing will not adversely affect market acceptance of the Company's
GeneChip system.
LIMITED MANUFACTURING CAPABILITY; SOLE SOURCE SUPPLIERS
The Company has limited experience manufacturing products for commercial
purposes. To date, the Company has a small scale facility providing limited
quantities of probe arrays for internal and collaborative purposes and initial
sales of the GeneChip system to the research market. To achieve the production
levels of probe arrays necessary for successful commercialization of its
products, the Company will need to scale-up its manufacturing facilities and
establish automated manufacturing capabilities. The Company may also need to
comply with the
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current GMP prescribed by the FDA for sale of products in the United States,
ISO standards for sale of products in Europe, as well as other standards
prescribed by various federal, state and local regulatory agencies in the
United States and other countries. Although the Company does not currently
need to comply with GMP to manufacture probe arrays and related
instrumentation for sale for research purposes, it may need to be GMP
compliant to sell these products to clinical reference laboratories, and it
will need to be compliant to sell these products for clinical use. There can
be no assurance that manufacturing and quality control problems will not
arise as the Company attempts to scale-up its manufacturing facilities or
that such scale-up can be achieved in a timely manner or at commercially
reasonable costs.
The Company's probe array manufacturing process is complex and involves a
number of technologies that have never before been combined in the manufacture
of a single product. The Company tests only selected probe arrays from each
wafer and only selected probes on each probe array. It is therefore possible
that defective probe arrays might not be identified before they are shipped. The
Company therefore relies on quality control procedures, including controls on
the manufacturing process and sample testing, to verify the correct completion
of the manufacturing process. In addition, there may be certain aspects of the
Company's manufacturing that are not fully understood and cannot be readily
replicated for commercial use. If the Company is unable to manufacture probe
arrays on a timely basis because of these or other factors, its business,
financial condition and results of operations could be adversely affected.
As the Company's technologies evolve, new manufacturing techniques and
systems will be required. For example, it is anticipated that batch processing
systems will be needed to meet the Company's future probe array manufacturing
needs. Further, as products requiring increased density are developed,
miniaturization of the features on the arrays will be necessary, requiring new
or modified manufacturing equipment and processes. Further, the Company's
manufacturing equipment requires significant capital investment. The Company
presently relies on a single manufacturing facility for its probe arrays for the
foreseeable future. This manufacturing facility is subject to natural disasters
such as earthquakes and floods. The former are of particular significance since
the manufacturing facility is located in an earthquake prone area. In the event
that its manufacturing facility were to be affected by accidental or natural
disasters, the Company would be unable to manufacture products for sale until
the facility was replaced or restored to operation.
Certain key parts of the GeneChip system, such as the scanner, the fluidics
station, and certain reagents, are currently available only from a single source
or a few sources. The Company currently obtains the scanners for its GeneChip
probe arrays from HP. The Company is dependent on HP for quality testing and
service of this instrument. The Company's ability to commercialize a probe
array with more features is dependent upon successful introduction of the HP
scanner. The Company has contracted with RELA to supply the fluidics station
that is part of the GeneChip system. No assurance can be given that scanners,
fluidics stations or reagents will be available in commercial quantities at
acceptable costs. If the Company is required to seek alternative sources of
supply, it could be time consuming and expensive. In addition, the Company is
dependent on its vendors to provide components of appropriate quality and
reliability and to meet applicable regulatory requirements. Consequently, in the
event that supplies from these suppliers were delayed or interrupted for any
reason, the Company's ability to develop and supply its products could be
impaired, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTIES RELATED TO GOVERNMENT FUNDING
A significant portion of the Company's products for research use are likely
to be sold to universities, government research laboratories, private
foundations and other institutions where funding is dependent upon grants from
government agencies such as the NIH. Research funding by the government,
however, may be significantly reduced under several budget proposals being
discussed by the United States Congress. Any such reduction may materially
affect the ability of the Company's prospective research customers to purchase
the Company's products for research use.
The Company has received and expects to continue to receive significant
funds under various United States Government research and technology programs.
While the programs are generally multi-year awards, they are subject to a yearly
appropriations process in the United States Congress. Proposed legislation being
debated in the United States Congress would eliminate or reduce the program
under which the Company's ATP grant is funded by the Department of Commerce.
There can be no assurance that the Company will receive the entire $20.8 million
of
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funding designated for it under the ATP grant, and termination of the ATP
grant could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's grants from the Departments of Commerce and Energy and the
NIH give the government certain rights to license for its own use inventions
resulting from funded work. There can be no assurance that the Company's
proprietary position will not be adversely affected should the government
exercise these rights.
ATTRACTION AND RETENTION OF KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on the principal members of its management
and scientific staff. The loss of services of any of these persons could have a
material adverse effect on the Company's product development and
commercialization objectives. In addition, recruiting and retaining qualified
scientific personnel to perform future research and development work will be
critical to the Company's success. There can be no assurance that the Company
will be able to attract and retain such personnel.
Product development and commercialization will require additional personnel
in areas such as diagnostic testing, regulatory affairs, manufacturing and
marketing. The inability to acquire such services or to develop such expertise
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the Company relies on its scientific advisors to assist the
Company in formulating its research and development strategy. All of the
scientific advisors are employed by employers other than the Company and have
commitments to other entities that may limit their availability to the Company.
Some of the Company's scientific advisors also consult for companies that may be
competitors of the Company.
EXPOSURE TO PRODUCT LIABILITY CLAIMS
The Company's business exposes it to potential product liability claims
that are inherent in the testing, manufacturing, marketing and sale of human
diagnostic and therapeutic products. The Company intends to acquire additional
insurance, should it be desirable, for clinical liability risks. There can be no
assurance that it will be able to obtain such insurance or general product
liability insurance on acceptable terms or at reasonable costs or that such
insurance will be in sufficient amounts to provide the Company with adequate
coverage against potential liabilities. A product liability claim or recall
could have a material adverse effect on the Company's business, financial
condition and results of operations.
CONTROL BY GLAXO, MANAGEMENT AND RELATED PERSONS
Glaxo beneficially owns approximately 33% of the Company's outstanding
Common Stock and executive officers, directors and principal shareholders (other
than Glaxo) beneficially own approximately 14% of the Company's outstanding
Common Stock. Accordingly, Glaxo and these shareholders may be able to influence
the outcome of shareholder votes, including votes concerning the election of
directors, adoption of amendments to the Company's Articles of Incorporation and
Bylaws and approval of mergers and other significant corporate transactions.
Glaxo and the Company have executed a governance agreement that confers rights
on Glaxo in certain circumstances.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
and certain other contractual provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, or control the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. Certain of these provisions allow the Company to
issue Preferred Stock with rights senior to those of the Common Stock without
any further vote or action by the shareholders, eliminate the right of
shareholders to act by written consent which could make it more difficult for
shareholders to affect certain corporate actions. These provisions could also
have the effect of delaying or preventing a change in control of the Company.
The issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to the holders of Common Stock or could
-25-
<PAGE>
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.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock could be subject to
significant fluctuations in response to announcements of results of research
activities, collaborative agreements, technological innovations, or new
commercial products by the Company, collaborative partners or competitors,
changes in government regulations, regulatory actions, changes in patent laws,
developments concerning proprietary rights, quarterly variations in operating
results, litigation and other events. The stock market has from time to time
experienced significant price and volume fluctuations which have particularly
affected the market prices of the stocks of technology companies, and which may
be unrelated to the operating performance of particular companies. Further,
there has been particular volatility in the market prices of securities of
biotechnology and other life sciences companies.
-26-
<PAGE>
ITEM 2. PROPERTIES
Affymetrix leases 47,000 square feet in Santa Clara, California for
research laboratories and administrative offices under a lease expiring in
2003. The Company has leased an additional 45,000 square feet, beginning in
the first half of 1997, in the same business complex of Santa Clara and for
the same lease term. The Company leases 20,000 square feet of space for
manufacturing operations in Sunnyvale, California under a lease that expires
in 2000. The Company has options to renew this lease for two successive
three-year terms. The Company also leases 31,000 square feet of research and
development space in Sunnyvale, California under a lease that expires in
1999. The Company may need to add to its existing facilities, including
manufacturing facilities, over the next few years.
ITEM 3. LEGAL PROCEEDINGS
On March 3, 1997, Hyseq, Inc. filed a complaint against the Company for
infringement of United States patent 5,202,231 and 5,525,464 in United States
District Court for the Northern District of California (the San Jose
Division). If the outcome of this or any other litigation is unfavorable to
the Company, it could have a material adverse effect on the Company's
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol of AFFX. The following table sets forth, for the
periods indicated, the low and high bid prices per share for the Company's
Common Stock as reported by the Nasdaq National Market.
1996 Low High
---- --- ----
Second Quarter $14.50 $17.88
(beginning June 6, 1996)
Third Quarter $ 9.00 $19.00
Fourth Quarter $15.88 $23.50
As of December 31, 1996, there were approximately 290 holders of record
of the Company's Common Stock.
No dividends have been paid on the Common Stock. The Company currently
intends to retain all future earnings, if any, for use in its business and
does not anticipate paying any cash dividends in the foreseeable future.
-27-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical information have been derived from the
audited financial statements of the Company. The financial statements as of
December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996 are derived from the financial statements which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Form 10-K. The table should be read in conjunction with
Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Item 8. "Financial Statements and Supplementary
Data."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product........................................... $ 1,389 $ - $ - $ - $ -
Contract and grant................................ 10,583 4,625 1,574 1,413 43
-------- -------- -------- -------- -------
Total revenue................................. 11,972 4,625 1,574 1,413 43
-------- -------- -------- -------- -------
Cost and expenses:
Cost of product revenue........................... 2,178 - - - -
Research and development.......................... 18,762 12,420 9,483 6,566 4,106
General and administrative........................ 7,569 3,833 2,303 577 582
-------- -------- -------- -------- -------
Total cost and expenses....................... 28,509 16,253 11,786 7,143 4,688
-------- -------- -------- -------- -------
Loss from operations................................. (16,537) (11,628) (10,212) (5,730) (4,645)
Interest income (expense), net....................... 4,310 881 532 138 (15)
-------- -------- -------- -------- -------
Net loss............................................. $(12,227) $(10,747) $ (9,680) $ (5,592) $(4,660)
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Pro forma net loss per share......................... $ (0.61) $ (0.61) $ (0.55) $ (0.52)
Shares used in computing pro forma net loss
per share (1).................................... 20,131 17,664 17,653 10,715
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments... $108,982 $ 38,883 $ 17,805 $ 20,392 $ 94
Working capital...................................... 107,668 36,070 15,677 17,452 (320)
Total assets......................................... 118,860 44,552 19,861 22,817 813
Long-term obligations................................ 741 948 7,135 - 564
Accumulated deficit.................................. (44,743) (32,516) (21,769) (12,089) (6,497)
Total shareholders' equity (net capital deficiency).. 112,493 38,519 9,170 19,214 (181)
</TABLE>
(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
-28-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operation contains forward-looking statements, such
as financial projections, information and expectations about the Company's
products and markets, which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements, as a result of certain factors, including those
set forth under the heading "Additional Risk Factors" and elsewhere in this
Form 10-K.
OVERVIEW
Affymetrix is focused on developing GeneChip based systems and related
applications and technologies for the acquisition, analysis and management of
complex genetic information. The business and operations of Affymetrix were
commenced in 1991 by Affymax and were initially conducted within Affymax. In
March 1992, Affymetrix was incorporated as a California corporation and
became a wholly-owned subsidiary of Affymax. Beginning in September 1993,
Affymetrix issued equity securities which diluted Affymax' shareholding in
Affymetrix. In March 1995, Glaxo purchased Affymax, including its then 65%
interest in Affymetrix. Glaxo owned approximately 46% of Affymetrix at
December 31, 1995. Glaxo's ownership of Affymetrix at December 31, 1996 was
approximately 33%. Through March 31, 1996, Affymetrix was in the development
stage. In April 1996, Affymetrix commenced commercial sales of the GeneChip
system and an HIV probe array for research use. Therefore Affymetrix is no
longer considered to be in the development stage.
Affymetrix has a limited operating history that, to date, has focused
primarily on the development of its technology. Based on its GeneChip technology
platform, Affymetrix is developing a portfolio of products for academic research
centers, pharmaceutical and biotechnology companies and reference laboratories.
As of December 31, 1996, Affymetrix had placed 19 of its GeneChip systems with
customers for validation, initial testing and certain research applications. The
Company commercially introduced its first product, the research use only
GeneChip system and the HIV probe array, in April 1996. Payments received for
certain systems prior to April 1996 were recorded as contract revenues pursuant
to development agreements. Failure of the Company to successfully develop,
manufacture and market additional products or to realize product revenues would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has incurred operating losses in each year since its inception,
including net losses of approximately $12.2 million during the year ended
December 31, 1996 and, as of such date, had an accumulated deficit of
approximately $44.7 million. The Company's losses have resulted principally from
costs incurred in research and development and from general and administrative
costs associated with the Company's operations. These costs have exceeded the
Company's interest income and revenues which to date have been generated
principally from collaborative research and development agreements and
government research grants. The Company expects to incur substantial additional
operating losses over the next several years as a result of increases in its
expenses for research and product development, general and administrative,
manufacturing and marketing capabilities.
The Company's quarterly operating results will depend upon the volume and
timing of orders for GeneChip systems and probe arrays received and delivered
during the quarter, variations in payments under collaborative agreements,
including milestones, royalties, license fees, and other contract revenues, and
the timing of new product introductions by the Company. The Company's quarterly
operating results may also fluctuate significantly depending on other factors,
including the introduction of new products by the Company's competitors;
regulatory actions; market acceptance of the GeneChip system and other potential
products; adoption of new technologies; manufacturing capabilities; variations
in gross margins of the Company's products; competition; the cost, quality and
availability of reagents and components; the mix of products sold; changes in
government funding; and third-party reimbursement policies.
Affymetrix may have to discount the price of the GeneChip system to gain
market acceptance, which could adversely affect gross margins. The Company's
future gross margins, if any, will be dependent on, among other factors, the
Company's ability to cost-effectively manufacture the GeneChip system, product
mix and the degree of price discounts required to market its products to
academic research centers, pharmaceutical companies and
-29-
<PAGE>
reference laboratories. The amount of future operating losses and time
required by the Company to reach profitability are uncertain. The Company's
ability to generate significant revenues and become profitable is dependent
in large part on the ability of the Company to enter into additional
collaborative arrangements and on the ability of the Company and its
collaborative partners to successfully commercialize products incorporating
the Company's technologies. In addition, delays in receipt of any necessary
regulatory approvals by the Company or its collaborators, or receipt of
approvals by competitors, could adversely affect the successful
commercialization of the Company's technologies.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
PRODUCT REVENUE. In April 1996, Affymetrix commenced commercial sales of
the GeneChip system and an HIV probe array for research use. Product revenue
of $1.4 million and costs of product revenue of $2.2 million were recognized
in the last nine months of 1996 as a result.
CONTRACT AND GRANT REVENUE. Contract and grant revenue increased to $10.6
million for 1996 from $4.6 million for 1995 as a result primarily of its ATP
grant, NIH grant and revenue earned from collaborative agreements with GI, HP
and bioMerieux.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
to $18.8 million for 1996 compared to $12.4 million for 1995. The increase in
research and development expenses was attributable primarily to the hiring of
additional research and development personnel, costs incurred to further product
development and increased purchases of research supplies.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $7.6 million in 1996 compared to $3.8 million for 1995. The
increase in general and administrative expenses was attributable primarily to
the hiring of additional management personnel and the incurring of legal and
other professional fees in connection with the overall scale-up of operations
and business development efforts.
INTEREST INCOME. Interest income was $4.4 million for 1996 compared to
$1.3 million for 1995. The increase resulted from the investment of net proceeds
from Affymetrix' private placement of Series B Senior Convertible Preferred
Stock in August 1995 and net proceeds from its initial public offering in June
1996. Interest expense decreased to $106,000 for 1996 from $420,000 in 1995 as a
result of the conversion of a $6.0 million subordinated convertible promissory
note held by Affymax in August 1995.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
CONTRACT AND GRANT REVENUE. Contract and grant revenue increased to $4.6
million for 1995 from $1.6 million for 1994 primarily as a result of the
Company's ATP grant and revenue earned from collaborative agreements with GI and
HP.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
to $12.4 million for 1995 compared to $9.5 million for 1994. The increase in
research and development expenses was attributable primarily to the hiring of
additional research and development personnel, costs incurred to establish a
pilot manufacturing facility, and increased purchases of research supplies.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.8 million for 1995 compared to $2.3 million for 1994. The
increase in general and administrative expenses was attributable primarily to
the hiring of additional management personnel and the incurring of legal and
other professional fees in connection with the overall scale-up of operations
and business development efforts.
INTEREST INCOME. Interest income was $1.3 million for 1995 compared to
$575,000 for 1994. The increase resulted from the investment of net proceeds
from Affymetrix' private placement of Series B Senior Convertible Preferred
Stock in August 1995. Interest expense resulted from lease financing for
manufacturing equipment and facilities.
-30-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities, contributions from Affymax, government grants,
collaborative agreements, and interest income. Proceeds raised through the
sale of equity securities include net proceeds of $85.1 million from its
initial public offering in June 1996 and aggregate net proceeds of $53.6
million from private placements in August 1995 and September 1993.
Affymetrix' cash and cash equivalents increased by $11.7 million during
1996. Net cash used in operating activities was $11.8 million in 1996 compared
to $10.2 million for 1995 and $7.4 million for 1994. The cash used for
operations was primarily to fund research and development expenses and
manufacturing start-up costs related to the introduction and support of
Affymetrix' products. Affymetrix has also received collaborative research and
government grant funding totaling $11.0 million, of which $10.6 million has been
recognized as contract and grant revenue.
Net cash used by the Company in investing activities was $61.6 million in
1996 compared to $26.7 million for 1995 and $1.1 million of cash provided by
investing activities in 1994. Capital expenditures totaled $3.5 million for 1996
compared to $2.3 million in 1995 and $1.2 million in 1994. Purchases of
available-for-sale securities were $149.4 million, $38.4 million and $3.0
million for 1996, 1995 and 1994, respectively. Proceeds from sales and
maturities of available-for-sale securities were $91.3 million, $14.0 million
and $5.3 million for 1996, 1995 and 1994, respectively.
Net cash provided by financing activities was $85.0 million in 1996
compared to $32.7 million and $6.5 million in 1995 and 1994, respectively.
These cash flows from financing activities are primarily the result of public
and private placements of securities, contributions from Affymax and
equipment lease financing.
As of December 31, 1996, Affymetrix had cash, cash equivalents, and
short-term investments of approximately $109.0 million. The Company anticipates
that these existing capital resources will enable it to maintain currently
planned operations through at least 1999. However, this expectation is based on
the Company's current operating plan, which could change and the Company could
require additional funding sooner than anticipated. In addition, the Company may
choose to raise additional capital due to market conditions or strategic
considerations even if it continues to have sufficient funds for its operating
plan. The Company's requirements for additional capital will be substantial and
will depend on many factors, including payments received under existing and
possible collaborative agreements; the availability of government research grant
payments; the progress of the Company's collaborative and independent research
and development projects; the costs of preclinical and clinical trials for the
Company's products; the prosecution, defense and enforcement of patent claims
and other intellectual property rights; and the development of manufacturing,
sales and marketing capabilities. The Company has no credit facility or other
committed sources of capital. To the extent capital resources, including
payments from existing and possible future collaborative agreements and grants,
together with the net proceeds of the offering are insufficient to meet future
capital requirements, the Company will have to raise additional funds to
continue the development of its technologies. There can be no assurance that
such funds will be available on favorable terms, or at all. To the extent that
additional capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities could result in dilution to the
Company's shareholders. If adequate funds are not available, the Company may be
required to curtail operations significantly or to obtain funds through entering
into collaborative agreements on unattractive terms. The Company's inability to
raise capital would have a material adverse effect on the Company's business,
financial condition and results of operations.
Affymetrix expects its capital requirements to increase over the next
several years as it expands its facilities and acquires scientific equipment to
support manufacturing and research and development efforts. The Company's
expenditure requirements will depend on numerous factors, including the progress
of its research and development programs; the development of commercial scale
manufacturing capabilities; its ability to maintain existing collaborative
arrangements and establish and maintain new collaborative arrangements; the
costs involved in preparing, filing, prosecuting, defending and enforcing
intellectual property rights; the effectiveness of product commercialization
activities and arrangements and other factors.
-31-
<PAGE>
As of December 31, 1996, Affymetrix has net operating loss carryforwards
for income tax purposes of approximately $31.0 million which will expire at
various dates beginning in 2008 through 2011, if not utilized. Because
Affymetrix has experienced ownership changes, future utilization of these
carryforwards may be subject to certain limitations as defined by Internal
Revenue Code and similar state regulations. As a result of the annual
limitation, a portion of these carryforwards may expire before ultimately
becoming available to reduce income tax liabilities.
-32-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
PAGE NO.
AFFYMETRIX, INC.
Report of Ernst & Young LLP, Independent Auditors ........................ 34
Balance Sheets............................................................ 35
Statements of Operations.................................................. 36
Statement of Shareholders' Equity......................................... 37
Statements of Cash Flows.................................................. 38
Notes to Financial Statements............................................. 39
SUPPLEMENTARY DATA
- ------------------
All schedules are omitted because they are not required or the required
information is included in the financial statements or notes thereto.
-33-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Affymetrix, Inc.
We have audited the accompanying balance sheets of Affymetrix, Inc. at
December 31, 1996 and 1995, and the related statements of operations,
shareholder's equity, and cash flows for each of the three years in the
period ended 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 financial position of Affymetrix, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Palo Alto, California,
January 23, 1997
-34-
<PAGE>
AFFYMETRIX, INC.
BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
December 31,
-------------------
1996 1995
--------- --------
Current assets:
Cash and cash equivalents.............................. $ 14,143 $ 2,481
Short-term investments................................. 94,839 36,402
Accounts receivable.................................... 1,888 1,342
Inventories............................................ 1,901 670
Other current assets................................... 523 260
--------- --------
Total current assets................................. 113,294 41,155
Property and equipment
Equipment and furniture.............................. 7,307 4,254
Leasehold improvements............................... 946 586
--------- --------
8,253 4,840
Less accumulated depreciation and amortization....... (2,856) (1,583)
--------- --------
Net property and equipment............................. 5,397 3,257
Other assets............................................. 169 140
--------- --------
$ 118,860 $ 44,552
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 5,023 $ 2,469
Payable to Affymax..................................... - 89
Deferred revenue....................................... 396 2,340
Current portion of capital lease obligation............ 207 187
--------- --------
Total current liabilities............................ 5,626 5,085
Noncurrent portion of capital lease obligation........... 741 948
Commitments and contingencies
Shareholders' equity:
Convertible Preferred Stock, no par value; 27,500,000
shares authorized; none and 23,166,666 shares issued
and outstanding at December 31, 1996 and 1995,
respectively......................................... - 70,439
Common stock, no par value; 50,000,000 shares authorized;
22,535,203 and 536,267 shares issued and outstanding at
December 31, 1996 and 1995, respectively............. 158,687 2,717
Note receivable from officer........................... (40) (42)
Unrealized gain on available-for-sale securities....... 49 281
Deferred compensation.................................. (1,460) (2,360)
Accumulated deficit.................................... (44,743) (32,516)
--------- --------
Total shareholders' equity........................... 112,493 38,519
--------- --------
$ 118,860 $ 44,552
--------- --------
--------- --------
See Accompanying Notes
-35-
<PAGE>
AFFYMETRIX, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Product........................................................... $ 1,389 $ - $ -
Contract and grant................................................ 10,583 4,625 1,574
-------- -------- --------
Total revenue................................................... 11,972 4,625 1,574
-------- -------- --------
COSTS AND EXPENSES:
Cost of product revenue........................................... 2,178 - -
Research and development.......................................... 18,762 12,420 9,483
General and administrative........................................ 7,569 3,833 2,303
-------- -------- --------
Total costs and expenses (includes related-party expense of
$1,422, $1,432 and $1,647, respectively)...................... 28,509 16,253 11,786
-------- -------- --------
Loss from operations............................................ (16,537) (11,628) (10,212)
Interest income................................................. 4,416 1,301 575
Interest expense (includes related-party expense of $320 in
1995)......................................................... (106) (420) (43)
-------- -------- --------
Net loss........................................................ $(12,227) $(10,747) $ (9,680)
-------- -------- --------
-------- -------- --------
Historical net loss per share................................... $ (0.82)
--------
--------
Shares used in computing historical net loss per share.......... 14,834
--------
--------
Pro forma net loss per share.................................... $ (0.61) $ (0.61) $ (0.55)
-------- -------- --------
-------- -------- --------
Shares used in computing pro forma net loss per share........... 20,131 17,664 17,653
-------- -------- --------
-------- -------- --------
</TABLE>
See Accompanying Notes
-36-
<PAGE>
AFFYMETRIX, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED COMMON RECEIVABLE UNREALIZED DEFERRED
STOCK STOCK FROM OFFICER GAIN/(LOSS) COMPENSATION
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993...................... $ 31,283 $ 100 $ (80) $ - $ -
Issuance of 74,200 shares of Common Stock
upon exercise of stock options.............. - 22 - - -
Interest accrued on notes receivable from
officers.................................... - - (4) - -
Unrealized loss on available-for-sale
securities.................................. - - - (382) -
Net loss...................................... - - - - -
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1994...................... 31,283 122 (84) (382) -
------------- ------------- ------------- ------------- -------------
Issuance of 7,333,333 shares of Series B
Senior Convertible Preferred Stock for
cash, net of issuance costs................ 32,836 - - - -
Conversion of note payable to Affymax into
1,333,333 shares of Series B Senior
Convertible Preferred Stock................. 6,000 - - - -
Issuance of 62,749 shares of Common Stock
for cash upon exercise of stock options..... - 23 - - -
Issuance of 65,320 shares of Common Stock
for financing commissions................... - 44 - - -
Issuance of warrants to Affymax for 202,441
shares of Series 2 Subordinated Convertible
Preferred Stock in lieu of interest......... 320 - - - -
Interest received on notes receivable from
officer..................................... - - 2 - -
Reclassification of notes receivable from
officers to other assets.................... - - 40 - -
Compensation from accelerated options......... - 40 - - -
Deferred compensation related to grant of
stock options............................... - 2,488 - - (2,488)
Amortization of deferred compensation......... - - - - 128
Unrealized gain on available -for-sale
securities.................................. - - - 663 -
Net loss...................................... - - - - -
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1995...................... 70,439 2,717 (42) 281 (2,360)
------------- ------------- ------------- ------------- -------------
Issuance of 215,945 shares of Common Stock
exercise of stock options................... - 127 - - -
Conversion of 23,166,166 shares of Preferred
Stock to 15,629,991 shares of
Common Stock................................ (70,119) 70,119 - - -
Conversion of warrants to purchase 202,441
shares of Series 2 Subordinated Convertible
Preferred Stock to warrants to purchase
134,961 shares of Common Stock.............. (320) 320 - - -
Issuance of 6,153,000 shares of Common Stock,
net of issuance costs and commissions....... - 85,069 - - -
Interest received on notes receivable from
officer..................................... - - 2 - -
Deferred compensation related to grant of
stock options............................... - 335 - - (335)
Amortization of deferred compensation......... - - - - 1,235
Unrealized loss on available-for-sale
securities.................................. - - - (232) -
Net loss...................................... - - - - -
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1996...................... $ - $ 158,687 $ (40) $ 49 $ (1,460)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
------------- -------------
Balance, December 31, 1993...................... $ (12,089) $ 19,214
Issuance of 74,200 shares of Common Stock
upon exercise of stock options.............. - 22
Interest accrued on notes receivable from
officers.................................... - (4)
Unrealized loss on available-for-sale
securities.................................. - (382)
Net loss...................................... (9,680) (9,680)
------------- -------------
Balance, December 31, 1994...................... (21,769) 9,170
------------- -------------
Issuance of 7,333,333 shares of Series B
Senior Convertible Preferred Stock for
cash, net of issuance costs................ - 32,836
Conversion of note payable to Affymax into
1,333,333 shares of Series B Senior
Convertible Preferred Stock................. - 6,000
Issuance of 62,749 shares of Common Stock
for cash upon exercise of stock options..... - 23
Issuance of 65,320 shares of Common Stock
for financing commissions................... - 44
Issuance of warrants to Affymax for 202,441
shares of Series 2 Subordinated Convertible
Preferred Stock in lieu of interest......... - 320
Interest received on notes receivable from
officer..................................... - 2
Reclassification of notes receivable from
officers to other assets.................... - 40
Compensation from accelerated options......... - 40
Deferred compensation related to grant of
stock options............................... - -
Amortization of deferred compensation......... - 128
Unrealized gain on available -for-sale
securities.................................. - 663
Net loss...................................... (10,747) (10,747)
------------- -------------
Balance, December 31, 1995...................... (32,516) 38,519
------------- -------------
Issuance of 215,945 shares of Common Stock
exercise of stock options................... - 127
Conversion of 23,166,166 shares of Preferred
Stock to 15,629,991 shares of
Common Stock................................ - -
Conversion of warrants to purchase 202,441
shares of Series 2 Subordinated Convertible
Preferred Stock to warrants to purchase
134,961 shares of Common Stock.............. - -
Issuance of 6,153,000 shares of Common Stock,
net of issuance costs and commissions....... - 85,069
Interest received on notes receivable from
officer..................................... - 2
Deferred compensation related to grant of
stock options............................... - -
Amortization of deferred compensation......... - 1,235
Unrealized loss on available-for-sale
securities.................................. - (232)
Net loss...................................... (12,227) (12,227)
------------- -------------
Balance, December 31, 1996...................... $ (44,743) $ 112,493
------------- -------------
------------- -------------
See Accompanying Notes
-37-
<PAGE>
AFFYMETRIX, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $ (12,227) $(10,747) $ (9,680)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................. 1,286 701 689
Amortization of deferred compensation......................... 1,235 128 -
Other......................................................... (518) 357 565
Changes in operating assets and liabilities:
Accounts receivable......................................... (546) (1,252) (90)
Inventories................................................. (1,231) (670) -
Other assets................................................ (292) (252) 560
Accounts payable and other accrued liabilities.............. 945 1,263 295
Accrued warranty............................................ 1,609 160 -
Payable to Affymax.......................................... (89) (165) (1,320)
Deferred revenue............................................ (1,944) 253 1,627
---------- -------- --------
Net cash used in operating activities..................... (11,772) (10,224) (7,354)
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (3,488) (2,283) (1,207)
Proceeds from sale of available-for-sale securities.............. 48,417 8,538 5,308
Proceeds from maturities of available-for-sale securities........ 42,859 5,485 -
Purchases of available-for-sale securities....................... (149,363) (38,428) (2,990)
---------- -------- --------
Net cash provided by(used in) investing activities........ (61,575) (26,688) 1,111
---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of Common Stock, net................................... 85,196 23 22
Issuances of Preferred Stock, net................................ - 32,880 -
Proceeds from capital lease obligation........................... - - 1,307
Principal payments on capital lease obligation................... (187) (169) (3)
Issuance of convertible note payable to Affymax.................. - - 6,000
Principal payments on notes payable.............................. - - (819)
---------- -------- --------
Net cash provided by financing activities................. 85,009 32,734 6,507
---------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 11,662 (4,178) 264
Cash and cash equivalents at beginning of year..................... 2,481 6,659 6,395
---------- -------- --------
Cash and cash equivalents at end of year........................... $ 14,143 $ 2,481 $ 6,659
---------- -------- --------
---------- -------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of note payable and contributions from Affymax
to Preferred Stock.............................................. $ - $ 6,000 $ -
---------- -------- --------
---------- -------- --------
Assets purchased under capital lease obligation.................. $ - $ - $ 1,297
---------- -------- --------
---------- -------- --------
</TABLE>
See Accompanying Notes
-38-
<PAGE>
NOTE 1 - NATURE OF OPERATIONS
Affymetrix, Inc. ("Affymetrix" or the "Company") is focused on developing
GeneChip-TM- based products and related technology for the acquisition,
analysis, and management of complex genetic data. The business and operations
of Affymetrix commenced in 1991 by Affymax N.V. and subsidiaries ("Affymax")
and were initially conducted within Affymax. In March 1992, Affymetrix was
incorporated as a California corporation and became a wholly owned subsidiary of
Affymax. Beginning in September 1993, Affymetrix issued equity securities which
diluted Affymax' shareholding in Affymetrix. In March 1995, Glaxo plc, now Glaxo
Wellcome plc ("Glaxo"), purchased Affymax, including its then 65% interest in
Affymetrix. Affymax owned approximately 46% of Affymetrix on December 31, 1995.
Glaxo owns approximately 33% of Affymetrix at December 31, 1996. Through March
31, 1996, the Company was in the development stage. In April 1996, the Company
commenced commercial sales of the GeneChip system and an HIV probe array for
research use. Therefore the Company is no longer considered to be in the
development stage.
Affymetrix' success will depend on timely development and market
acceptance of new products, the impact of competitive products and
technological change, the impact of intellectual property, limited
manufacturing capability and sole source providers, and dependence on
collaborative partners. The factors that could affect the performance of the
Company are more fully described elsewhere in this document. Actual results
could differ materially from those anticipated in any forward-looking
statements, and Affymetrix does not undertake any obligation to publicly
release the result of any revisions to the forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of any unanticipated events.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist
the reader in understanding and evaluating the financial statements. These
policies are in conformity with generally accepted accounting policies.
Certain amounts for prior years have been reclassified to conform to current
year presentation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Contract and grant revenue is recorded as earned as defined within the
specific agreements. Payments received in advance under these arrangements are
recorded as deferred revenue until earned. Direct costs associated with these
contracts and grants are reported as research and development expense. Revenue
for product shipment during the development stage are recorded as contract
revenue pursuant to the development agreements. The Company recognizes product
revenue from the sale of its products upon shipment to its customers. Reserves
are provided for anticipated product returns and warranty expenses at the time
of shipment.
Revenue from customers representing 10% or more of total contract and grant
revenue during fiscal 1996, 1995 and 1994 is as follows:
1996 1995 1994
------- ------- -------
CUSTOMER:
A 18% 25% -
B 18% 23% -
C 15% 22% -
D 19% 17% 54%
E - - 29%
-39-
<PAGE>
Product sales were approximately $1.4 million in the year ended December
31, 1996 and none for the years ended December 31, 1995 and 1994.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for internal,
contract and grant-sponsored research and development. These costs include
direct and research-related overhead expenses.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, convertible notes
payable, Convertible Preferred Stock, and warrants) issued during the 12 months
prior to the initial filing of the proposed offering at prices below the assumed
public offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method for stock
options and warrants and the if-converted method for Convertible Preferred
Stock).
Historical net loss per share information for the years ended December 31,
1996, 1995 and 1994 is summarized as follows:
1996 1995 1994
---------- --------- ---------
Net loss per share..................... $(0.82) $(1.38) $(1.24)
Shares used in computing net loss per
share................................ 14,834,000 7,812,000 7,801,000
Pro forma per share data is provided to show the calculation on a
consistent basis for the periods presented. It has been computed as
described above and also gives retroactive effect from the date of issuance
to the conversion of Preferred Stock which automatically converted to common
shares upon the closing of the Company's initial public offering.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents and short-term investments consist of debt securities.
Management determines the appropriate classification of debt securities at the
time of purchase. As of December 31, 1996, Affymetrix' debt securities are
classified as available-for-sale and are carried at fair value with unrealized
gains and losses reported in shareholders' equity. Affymetrix reports all liquid
securities with maturities at date of purchase of three months or less that are
readily convertible into cash and have insignificant interest rate risk as cash
equivalents. All other available-for-sale securities are recorded as short-term
investments. The cost of debt securities is adjusted for amortization of
premiums and discounts to maturity. This amortization is included in interest
income. Realized gains and losses on available-for-sale securities are included
in interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income. The fair values of
securities are based on quoted market prices.
INVENTORIES
Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market and consist of $358,000 of raw materials, $178,000
of work in progress and $1.4 million of finished goods at December 31, 1996 and
entirely of finished goods at December 31, 1995.
-40-
<PAGE>
PROPERTY AND EQUIPMENT
The costs of property and equipment, including equipment under capital
leases, are depreciated for financial reporting purposes using the straight-line
method over the estimated useful lives of the assets ranging from two to five
years. Leasehold improvements are amortized over the useful lives of the assets
or the lease-term, whichever is shorter.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1996 and 1995,
consist of the following
(in thousands):
1996 1995
-------- --------
Accounts payable................................. $ 1,284 $ 928
Accrued compensation and related................. 445 576
Accrued warranty................................. 1,769 160
Collaborative research refund.................... 450 360
Other............................................ 1,075 445
-------- -------
Total................................... $ 5,023 $ 2,469
-------- -------
-------- -------
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
"Accounting for Stock-Based Compensation" ("Statement No. 123") which is
effective for fiscal 1996. Under Statement No. 123, stock-based compensation
expense is measured using either the intrinsic-value method as prescribed in APB
Opinion No. 25 or the fair value method described in Statement No. 123.
Affymetrix has adopted the disclosure only alternative under Statement No. 123
and, accordingly, Affymetrix has disclosed the pro forma net income or loss and
per share amounts in the notes to the financial statements using the fair value
based method.
CONCENTRATIONS OF RISK
Cash equivalents and investments are financial instruments which
potentially subject Affymetrix to concentrations of risk to the extent of
amounts recorded in the Balance Sheet. Corporate policy restricts the amount of
credit exposure to any one issuer and to any one type of investment, other than
securities issued by the United States Government.
NOTE 3 - COLLABORATIVE AGREEMENTS AND GRANTS
The Company has agreements with several entities to develop and test probe
arrays for the detection of certain gene sequences, mutations or organisms.
Under such agreements, the Company is typically paid a development fee and may
receive milestone payments upon achievement of certain technical goals. The
Company also has research agreements with several universities and research
organizations. The Company generally obtains rights to intellectual property
arising from these agreements. If a project is successful, the Company and the
third-party collaborator would negotiate the right to commercialize products
resulting from such project. The Company has received a substantial portion of
its revenues since inception from its collaborative partners and intends to
enter into collaborative arrangements with other companies to apply its
technology, fund development, commercialize potential future products, and
assist in obtaining regulatory approval. Total costs incurred under contract and
grant arrangements for the years ended December 31, 1996, 1995 and 1994 were
approximately $8.8 million, $5.2 million and $1.5 million, respectively, and are
included in research and development expenses.
In November 1996, Incyte Pharmaceuticals, Inc. ("Incyte") and Affymetrix
entered into a joint program to develop and commercialize novel and
disease-specific gene expression databases and services. This agreement is an
-41-
<PAGE>
expansion of a feasibility agreement initiated in April 1996. Under the terms
of the agreement, novel and disease-specific genes will be selected from
Incyte's LifeSeq-TM- genomic databases to generate DNA probe arrays using the
Affymetrix GeneChip system. The resulting LifeChip products will allow the
generation of information on the preselected genes across biological
specimens to identify molecules and expression patterns associated with human
disease. Initially, chips derived from LifeSeq information will be designed
for use in such fields as prostate and breast cancer, inflammation, and
G-protein coupled receptor pathways. Affymetrix and Incyte will share all
profits and co-own the intellectual property generated under the
collaboration.
In October 1996, bioMerieux Vitek, Inc. ("bioMerieux") and Affymetrix
executed a collaboration agreement to develop DNA probe arrays using the
Affymetrix GeneChip technology for clinical diagnostic kits for bacterial
identification and antibiotic resistance analysis. The agreement provides for
certain research funding, license and milestone payments. bioMerieux will
also fund certain research activities at Affymetrix for a minimum of three
years. Additionally, a manufacturing agreement was signed under which
Affymetrix will manufacture GeneChip probe arrays for sale to bioMerieux. The
agreement provides for royalties to Affymetrix on bioMerieux' sales of
GeneChip probe arrays.
In September 1996, OncorMed, Inc. ("OncorMed") and Affymetrix entered
into an agreement to collaborate in the development and clinical validation
of genetic testing services using the Affymetrix GeneChip system for analysis
of genes associated with cancer. The collaborative effort will begin with the
p53 gene and may include genes involved with breast, colon, ovarian and other
cancers.
Affymetrix began its collaboration with Genetics Institute ("GI") in
November 1994 to develop and apply new technologies for understanding the
functions of human genes. Under this agreement, GI funded Affymetrix' research
to determine the feasibility of this application of GeneChip technology and
agreed to make milestone and royalty payments. Under certain circumstances,
Affymetrix may pay royalty payments to GI. As a result of entering into similar
agreements for gene expression with third parties, Affymetrix is required to
refund a portion of the development funding received from GI.
In December 1995, Affymetrix and GI expanded their relationship by entering
into a supply agreement in the field of genomics under which Affymetrix will
manufacture and supply additional custom probe arrays based on specific genes
identified and selected by GI. Unlike the 1994 agreement with GI, this agreement
does not provide research funding to Affymetrix. Pursuant to the agreement, GI
is obligated to purchase and Affymetrix is obligated to supply certain minimum
quantities of custom probe arrays developed for GI until the later of 2001 or
four years after development of specified probe arrays. Affymetrix will receive
fees for the design and delivery of the custom probe arrays, and may receive
milestone payments and royalties on therapeutic compounds if developed by GI
using these probe arrays. GI has exclusive rights to specific probe arrays
supplied by Affymetrix.
In August 1995, Affymetrix received a three-year grant from the National
Institutes of Health ("NIH") National Center for Human Genome Research for
approximately $6.0 million. The Company has been awarded approximately $4.0
million for the first two years of the grant, and the remaining amounts are
subject to yearly appropriations by the NIH.
In November 1994, the Company entered into a collaborative agreement with
Hewlett-Packard Company ("HP") to combine the Company's GeneChip technology and
HP's measurement and instrument capabilities to develop and manufacture a more
advanced scanner for use with GeneChip probe arrays. In exchange for certain
rights, Affymetrix received and would receive certain payments, including
milestone payments, as defined research and development objectives are achieved.
The Company expects that HP will be the sole source for its scanners.
Accordingly, if the HP scanner does not become available on a timely basis or
fails to meet its performance and cost specifications, it would have a material
adverse effect on the Company's business.
-42-
<PAGE>
In November 1994, Affymetrix received a license payment from HP of $1.2
million that was classified as deferred revenue at December 31, 1995. Due to
the expiration of certain restrictions, this amount was recognized as grant
revenue in November 1996.
In October 1994, Affymetrix and Molecular Dynamics, Inc. ("Molecular
Dynamics") were awarded a five-year matching grant for a total of $31.5 million
under the Advanced Technology Program within the National Institute of Standards
and Technology to develop a miniaturized DNA diagnostic device, of which
approximately $10.7 million will be available to Molecular Dynamics. The
contract provides that Affymetrix will receive matching funding up to $20.8
million, some of which will be used to fund activities at collaborating academic
institutions. The award is subject to yearly congressional authorization, which
is uncertain. Affymetrix expects to receive payments monthly based on costs
incurred and has received $2.9 million of funding to date.
NOTE 4 - AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities as of December
31, 1996 (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated Fair
Cost Gains Losses Value
--------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 88,758 $ 134 $ 86 $ 88,806
U.S. Corporate securities 17,017 9 8 17,018
--------- ------ ----- ---------
Total securities $ 105,775 $ 143 $ 94 $ 105,824
--------- ------ ----- ---------
--------- ------ ----- ---------
Amounts included in:
cash equivalents $ 10,985 $ - $ - $ 10,985
short-term investments 94,790 143 94 94,839
--------- ------ ----- ---------
Total securities $ 105,775 $ 143 $ 94 $ 105,824
--------- ------ ----- ---------
--------- ------ ----- ---------
</TABLE>
The following is a summary of available-for-sale securities as of
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated Fair
Cost Gains Losses Value
--------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 38,115 $ 309 $ 27 $ 38,397
--------- ------ ----- ---------
--------- ------ ----- ---------
Amounts included in:
cash equivalents $ 1,995 $ - $ - $ 1,995
short-term investments 36,120 309 27 36,402
--------- ------ ----- ---------
Total securities $ 38,115 $ 309 $ 27 $ 38,397
--------- ------ ----- ---------
--------- ------ ----- ---------
</TABLE>
The realized gains and losses on sales of available-for-sale securities
were immaterial for the years ended December 31, 1996 and 1995.
-43-
<PAGE>
The following is a summary of the contractual maturity of
available-for-sale securities at December 31, 1996 (in thousands):
Estimated Fair
Value
--------------
Mature in one year or less $ 59,544
Mature after one year through three years 46,280
--------------
Total $ 105,824
--------------
--------------
NOTE 5 - RELATED PARTY TRANSACTIONS
In December 1994, Affymetrix issued a $6.0 million subordinated convertible
promissory note to Affymax. In August of 1995, the note was converted into
1,333,333 shares of Series B Senior Convertible Preferred Stock issued at $4.50
per share. Affymetrix also exercised an option to satisfy interest due on the
note through July 1995, amounting to $319,856, by issuing Affymax five-year
warrants to purchase 202,441 shares of Series 2 Subordinated Convertible
Preferred Stock at $5.50 per share. In connection with the Company's initial
public offering, the Preferred Stock converted to 888,888 shares of Common Stock
and the warrants converted to warrants to purchase 134,960 shares of Common
Stock at $8.25 per share. Affymetrix and Affymax are parties to a technology
license agreement whereby Affymetrix retains an exclusive worldwide royalty-free
license from Affymax to certain technology and to certain future inventions in
diagnostics and research supply markets.
Two directors of Affymetrix are each employees of a subsidiary of Glaxo.
Affymetrix received legal services from Townsend and Townsend and Crew LLP
("Townsend") related to the intellectual property rights of Affymetrix. A
partner of Townsend was also an employee of Affymetrix on a part time basis. The
employee is now a full-time employee of the Company. Legal expenses related to
services performed by Townsend are approximately $793,000 in 1996, $612,000 in
1995 and $369,000 in 1994.
In December 1994, in connection with a lease agreement between Affymetrix
and a third party, Affymax, with approval of the third party lessor, agreed to
release Affymetrix of certain financial covenants to the third party. In
exchange for this release, Affymetrix issued a five-year warrant to Affymax to
purchase 103,382 shares of Series 2 Subordinated Convertible Preferred Stock at
$5.50 per share. In connection with the Company's initial public offering, the
warrant was converted to a warrant to buy 68,921 shares of Common Stock at $8.25
per share.
NOTE 6 - COMMITMENTS
CAPITAL LEASES
In December 1994, Affymetrix entered into a financing arrangement with a
leasing company for existing equipment. Under the terms of the lease, Affymetrix
received a single minimum aggregate lease payment of $1.3 million at the
inception of the lease. The leaseback contract includes a five-year term
expiring January 2, 2000, with an option to purchase the equipment at the
greater of the residual value or fair market value. Under certain provisions,
the lease may be extended for an additional year. The amount included in
property and equipment related to the lease is $1.2 million with accumulated
depreciation of $1.2 million and $818,000 at December 31, 1996 and December 31,
1995, respectively. Amortization of this property and equipment is included in
depreciation expense.
OPERATING LEASES
Since January 1, 1993, Affymetrix has been occupying a research facility in
Santa Clara, California originally leased to Affymax. In February 1994,
Affymetrix entered into an operating sublease agreement with Affymax for a 33
month period. Amounts expensed under this agreement are approximately $534,000
in 1996, $529,000 in 1995
-44-
<PAGE>
and $472,000 in 1994. In May 1996, Affymetrix canceled the sublease with
Affymax and is directly leasing the facility from a third party.
In December 1994, Affymetrix entered into a five-year lease for the
rental of a manufacturing facility in Sunnyvale, California. Affymetrix has
options to renew the lease for two additional three-year terms.
In October 1995, Affymetrix entered into a four-year lease, and a 17 month
sublease, for the rental of a research and development facility in Sunnyvale,
California.
Rent expense related to operating leases was approximately $950,000 in
1996, $664,000 in 1995 and $472,000 in 1994.
Future minimum lease obligation at December 31, 1996 under all leases
are as follows (in thousands):
Capital Operating
Leases Leases
--------- ---------
1997....................................................... $ 292 $ 1,543
1998....................................................... 292 1,706
1999....................................................... 291 1,816
2000....................................................... 280 1,292
2001....................................................... - 1,228
Thereafter................................................. - 2,047
--------- ---------
Total minimum lease payments............................... 1,155 $ 9,632
---------
---------
Less amount representing interest.......................... (207)
---------
Present value of minimum lease payments.................... 948
Less current portion....................................... (207)
---------
Noncurrent obligation under capital lease.................. $ 741
---------
---------
NOTE 7 - SHAREHOLDERS' EQUITY
PREFERRED SHARES
In March 1996, the Board authorized the filing of a registration statement
with the Securities and Exchange Commission permitting Affymetrix to sell shares
of its Common Stock to the public. Also, the Board of Directors approved a
two-for-three reverse stock split of its Common Stock through an amendment to
its Articles of Incorporation which was effective on May 20, 1996. As a result,
all of the then outstanding Preferred Stock automatically converted into
15,629,991 shares of Common Stock at the completion of the offering in June
1996. All common share and per share amounts have been retroactively adjusted to
reflect this event. The conversion rates for the various issues of Preferred
Stock have been retroactively adjusted to reflect the reverse stock split as
well as an anti-dilution adjustment, where required. Each share of Series A,
Series B and Series 1 Preferred Stock converted into approximately 0.6823,
0.6667, and 0.6775 shares of Common Stock, respectively, at the completion of
the offering.
COMMON SHARES
The Company's initial public offering on June 6, 1996 generated net
proceeds of approximately $83.0 million from the sale of 6,000,000 shares of
Common Stock. In July 1996, the Company's underwriters purchased 153,000
shares of Common Stock pursuant to the over-allotment option, for additional
net proceeds of $2.1 million. Total number of shares reserved for future
issuance is 3,500,000 shares.
-45-
<PAGE>
STOCK WARRANTS
At December 31, 1996, there were outstanding warrants to purchase
203,881 shares of Common Stock at $8.25 per share which expire at various
dates beginning December 1999 through July 2000.
STOCK OPTION AND BENEFIT PLANS
In 1993, the Board adopted the Affymetrix 1993 Stock Plan (the "Stock
Plan") under which incentive stock options, nonqualified stock options and
purchase rights may be granted to employees and outside consultants.
Options granted under the Stock Plan expire no later than ten years from
the date of grant. The option price shall be at least 100% of the fair value on
the date of grant (110% in certain circumstances), as determined by the Board of
Directors. Options may be granted with different vesting terms from time to time
but not to exceed five years from the date of grant. As of December 31, 1996, a
total of 3,700,000 million shares of Common Stock have been reserved for
issuance under the Stock Plan and 106,400 shares were subject to repurchase
by the Company.
In March 1996, the Board adopted the 1996 Nonemployee Directors Stock
Option Plan (the "Directors Plan"). There are 300,000 shares of Common Stock
reserved for issuance under the Directors Plan. Only nonemployee directors
of the Company are eligible to participate in the Directors Plan and only
nonstatutory stock options can be granted.
Activity under the stock plans through December 31, 1996 are as follows:
Outstanding options
--------------------------
Weighted
Number of Average Price
shares per share
--------- -------------
Balance at December 31, 1993.................. 380,749 $ 0.30
Options granted.................................... 634,238 0.52
Options exercised.................................. (74,200) 0.30
Options canceled................................... (38,799) 0.30
--------- -------------
Balance at December 31, 1994.................. 901,988 0.47
Options granted.................................... 1,423,917 0.68
Options exercised.................................. (62,749) 0.36
Options canceled................................... (104,032) 0.43
--------- -------------
Balance at December 31, 1995.................. 2,159,124 0.60
Options granted.................................... 309,167 10.26
Options exercised.................................. (215,945) 0.59
Options canceled................................... (20,403) 0.75
--------- -------------
Balance at December 31, 1996.................. 2,231,943 $ 0.60
--------- -------------
--------- -------------
For options granted through June 6, 1996, Affymetrix recognized an
aggregate of $2.8 million as deferred compensation for the excess of the
deemed fair value for financial statement presentation purposes of the Common
Stock issuable on exercise of such options over the exercise price. The
deferred compensation expense is being recognized over the vesting period of
the options.
-46-
<PAGE>
Exercise prices for options outstanding as of December 31, 1996 ranged
from $0.30 to $21.56 per share. The weighted-average contractual life of
those options is 8.42 years as summarized below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Remaining Average Average
Range of Contractual Life Exercise Price Exercise Price
Exercise Prices Number (in years) Per Share Number Per Share
- --------------- --------- ----------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.30 - 0.675 2,009,193 8.42 $ 0.609 471,113 $ 0.570
4.80 - 12.000 52,250 9.30 5.144 3,600 4.800
2.625 - 21.563 170,500 8.14 16.196 - -
- --------------- --------- ----------------- -------------- ------- --------------
$ 0.30 - 21.563 2,231,943 8.42 $ 1.935 474,713 $ 0.602
- --------------- --------- ----------------- -------------- ------- --------------
- --------------- --------- ----------------- -------------- ------- --------------
</TABLE>
PRO FORMA DISCLOSURE UNDER STATEMENT NO. 123
In accordance with the provisions of Statement No. 123, the Company is
disclosing pro forma information regarding net loss and net loss per share as
if the Company had accounted for its stock based compensation plans under the
fair value method of Statement No. 123.
The fair value of options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for 1996
and 1995: risk free interest rate of 6.36%; a dividend yield of zero;
volatility factors of the expected market price of the Company's Common Stock
price of .53; and a weighted average expected option term of one year from
vested date.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
The weighted average fair value of options granted during 1996 and 1995
was $4.72 and $0.30, respectively. For purposes of pro forma disclosures the
estimated fair value of the options in excess of the expense recognized in
conjunction with the amortization of deferred compensation is amortized to
expense over the options' vesting period, generally five years. The pro
forma effect on net loss is not necessarily indicative of potential pro forma
effects on results for future years. The Company's pro forma information as
of December 31, 1996 and 1995 is as follows (in thousand excepts per share
amounts):
1996 1995
--------- ---------
Pro forma net loss $ (12,345) $ (10,747)
--------- ---------
--------- ---------
Pro forma net loss per share $ (0.62) $ (0.61)
--------- ---------
--------- ---------
NOTE 8 - INCOME TAXES
As of December 31, 1996, Affymetrix has net operating loss carryforwards of
approximately $31.0 million, which will expire at various dates beginning on
2008 through 2011, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
-47-
<PAGE>
Significant components of Affymetrix deferred tax assets as of December 31,
1996 and 1995 are as follows (in thousands):
1996 1995
--------- ---------
Net operating loss carryforwards......... $ 10,705 $ 8,063
Research credits......................... 1,457 1,167
Deferred revenue......................... 126 1,041
Other-net................................ 2,425 532
--------- ---------
Total deferred tax assets................ 14,713 10,803
Valuation allowance for deferred tax
assets................................. (14,713) (10,803)
--------- ---------
Net deferred tax assets.................. $ - $ -
--------- ---------
--------- ---------
The valuation allowance increased by $3.9 million, $4.9 million and $3.7
million during 1996, 1995, and 1994, respectively.
NOTE 9 - CONTINGENCIES
The Company routinely receives communications from third parties
asserting patent or other rights covering its products and technologies.
Based upon the Company's evaluation, it may take no action or it may seek to
obtain a license. There can be no assurance in any given case that a license
will be available on terms the Company considers reasonable, or that
litigation will not ensue.
NOTE 10 - EVENTS SUBSEQUENT TO BALANCE SHEET DATE (UNAUDITED)
In February 1997, Affymetrix and Affymax, as well as certain Affymax and
Glaxo affiliates, entered into a revised technology agreement. Under the
terms of the agreement, the Affymax entities assigned all rights in their
light directed synthesis technology patents to Affymetrix and canceled their
prior agreements relating to technology licensing and Affymetrix relinquished
its licenses to certain technologies including encoded synthetic libraries.
In February 1997, Affymetrix and HP announced the availability of HP's
GeneArray scanner as a part of the Affymetrix GeneChip system. Affymetrix and
HP also redefined their 1994 business alliance. Under the terms of the
revised agreement, Affymetrix has re-acquired all marketing rights for its
GeneChip products and has expanded its right to sell the HP GeneArray scanner
as part of the Affymetrix GeneChip system to all potential markets.
In March 1997, Hyseq Inc. ("Hyseq") filed a suit against Affymetrix in
the United States District Court alleging that Affymetrix infringes United
States patent 5,202,231 and 5,525,464 issued to Drs. Drmanac and
Crkvenjakov. In the opinion of management, the outcome of the action will not
have a material adverse effect on the Company's financial position.
-48-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the sections of the Company's definitive
proxy statement for the 1997 Annual Meeting of Shareholders entitled
"Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the sections of the Company's definitive
proxy statement for the 1997 Annual Meeting of Shareholders entitled
"Executive Compensation," "Compensation Committee Report on Executive
Compensation," "Compensation Committee Interlocks and Insider
Participation," and "Compensation of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section of the Company's definitive
proxy statement for the 1997 Annual Meeting of Shareholders entitled
"Ownership of Principal Shareholders and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the section of the Company's definitive
proxy statement for the 1997 Annual Meeting of Shareholders entitled "Certain
Transactions."
-49-
<PAGE>
PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Index to Financial Statements set forth in response to Item 8.
(a)(2) The schedules have been omitted because they are not applicable or
are not required or the information required to be set forth
therein is included in the Financial Statements or notes thereto.
(a)(3) Exhibits:
Exhibit
Number Description of Document
- --------- -----------------------
(1) 3.1 Amended and Restated Articles of Incorporation
(1) 3.2 Form of Amended and Restated Articles, to be effective upon closing
of the Registrant's initial public offering
(1) 3.3 Bylaws
(1) 3.4 Form of Certificate of Amendment of Amended and Restated Articles of
Incorporation
(1)10.1 1993 Stock Plan, as amended
(1)10.2 1996 Nonemployee Directors Stock Option Plan
*(1)10.3 Collaboration Agreement by and between Hewlett-Packard Company and
Affymetrix, Inc. dated November 11, 1994
*(1)10.4 Development and Supply Agreement between Affymetrix, Inc. and
Genetics Institute, Inc. dated November 15, 1994
*(1)10.5 Supply Agreement with Genetics Institute, Inc. dated December 8,
1995
*(1)10.6 Technology License Agreement among Affymax N.V., Affymax
Technologies, N.V., the Affymax Research Institute, and
Affymetrix, Inc. dated January 1, 1993
(1)10.7 Severance Agreement and Release between Affymetrix, Inc. and
David B. Singer dated June 15, 1995
(1)10.8 Loan and Pledge Agreement between David B. Singer and Affymetrix,
Inc. effective December 7, 1993
*(1)10.9 ATP Participation Agreement between Affymetrix, Inc. and Molecular
Dynamics, Inc. dated January 12, 1995 pursuant to the National
Institute of Standards and Technology's Advanced Technology
Program.
(1)10.10 Amendment 1 to the ATP Participation Agreement between Affymetrix,
Inc. and Molecular Dynamics, Inc. effective January 13, 1996
*(1)10.11 Governance Agreement between Affymetrix, Inc. and Glaxo Wellcome
plc dated July 6, 1995
(1)10.12 Services Agreement between Affymax Research Institute and
Affymetrix, Inc. effective October 1, 1993
(1)10.13 Loan Agreement between Affymax Technologies N.V. and Affymetrix,
Inc. dated December 1, 1994
(1)10.14 Lease between Solar Oakmead Joint Venture and Affymetrix, Inc.
dated October 20, 1995
(1)10.15 Sublease between Salutar, Inc. and Affymetrix, Inc. dated
October 20, 1995
(1)10.16 Sublease between Affymax Research Institute and Affymetrix, Inc.
dated February 1, 1994
*(1)10.17 Manufacturing and Supply Agreement between Affymetrix, Inc. and
RELA, Inc. dated November 27, 1995
(1)10.18 Loan and Pledge Agreement between Stephen P.A. Fodor and
Affymetrix, Inc. effective December 7, 1993
(1)10.19 Agreement between Stephen P.A. Fodor and Affymetrix, Inc. dated
November 1, 1994
(1)10.20 Form of Director and Officer Indemnification Agreement
*(1)10.21 Demonstration Agreement between Affymetrix, Inc. and Glaxo
Wellcome, Inc. dated May 1, 1996
(1)10.22 Lease between Harry Locklin and Affymetrix, Inc. dated December 5,
1994
(2)10.23 Lease between Sobrato Interest and Affymetrix, Inc. dated May 31,
1996 (3380 Central Expressway, Santa Clara, CA)
(2)10.24 Lease between Sobrato Interest and Affymetrix, Inc. dated May 31,
1996 (3450 Central Expressway, Santa Clara, CA)
*10.25 Collaboration Agreement between bioMerieux Vitek, Inc. and
Affymetrix, Inc. effective as of September 1, 1996
*10.26 Manufacturing Agreement between bioMerieux Viteck, Inc. and
Affymetrix, Inc. effective as of September 1, 1996
-50-
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
10.27 Collaboration Agreement between Incyte Pharmaceuticals, Inc. and
Affymetrix, Inc. made as of November 11, 1996
11.1 Statement of computation of net loss per share
23.1 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney (included on page 52)
27.0 Financial Data Schedule
__________
(1) Incorporated by reference to the same number exhibit filed with
Registrant's Registration Statement on Form S-1 (File No. 333-3648),
as amended
(2) Incorporated by reference to the same number exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996
* Confidential treatment requested
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fiscal quarter ended December 31, 1996
-51-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AFFYMETRIX, INC.
(Registrant)
March 26, 1997 By /s/ Stephen P.A. Fodor, Ph.D.
----------------------------------------------------
Stephen P.A. Fodor, Ph.D.
Chief Executive Officer and Director
March 26, 1997 By /s/ Kenneth J. Nussbacher
----------------------------------------------------
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen P.A. Fodor, Ph.D. and Kenneth J.
Nussbacher, or either of them, each with the power of substitution, his
attorney-in-fact, to sign any amendments to this Form 10-K (including
post-effective amendments), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 26, 1997 By /s/ Stephen P.A. Fodor, Ph.D.
----------------------------------------------------
Stephen P.A. Fodor, Ph.D.
Chief Executive Officer and Director
(Principal Executive Officer)
March 26, 1997 By /s/ Kenneth J. Nussbacher
----------------------------------------------------
Kenneth J. Nussbacher
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 26, 1997 By /s/ John D. Diekman, Ph.D.
----------------------------------------------------
John D. Diekman, Ph.D.
Chairman of the Board
March 26, 1997 By /s/ Paul Berg, Ph.D.
----------------------------------------------------
Paul Berg, Ph.D.
Director
March 26, 1997 By /s/ Douglas M. Hurt
----------------------------------------------------
Douglas M. Hurt
Director
March 26, 1997 By /s/ Vernon R. Loucks, Jr.
----------------------------------------------------
Vernon R. Loucks, Jr.
Director
March 26, 1997 By /s/ Barry C. Ross, Ph.D.
----------------------------------------------------
Barry C. Ross, Ph.D.
Director
-52-
<PAGE>
March 26, 1997 By /s/ David B. Singer
----------------------------------------------------
David B. Singer
Director
March 26, 1997 By /s/ Lubert Stryer, M.D.
----------------------------------------------------
Lubert Stryer, M.D.
Director
March 26, 1997 By /s/ John A. Young
----------------------------------------------------
John A. Young
Director
March 26, 1997 By /s/ Alejandro C. Zaffaroni, Ph.D.
----------------------------------------------------
Alejandro C. Zaffaroni Ph.D
Director
-53-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- --------- -----------------------
(1) 3.1 Amended and Restated Articles of Incorporation
(1) 3.2 Form of Amended and Restated Articles, to be effective upon closing
of the Registrant's initial public offering
(1) 3.3 Bylaws
(1) 3.4 Form of Certificate of Amendment of Amended and Restated Articles
of Incorporation
(1)10.1 1993 Stock Plan, as amended
(1)10.2 1996 Nonemployee Directors Stock Option Plan
*(1)10.3 Collaboration Agreement by and between Hewlett-Packard Company and
Affymetrix, Inc. dated November 11, 1994
*(1)10.4 Development and Supply Agreement between Affymetrix, Inc. and
Genetics Institute, Inc. dated November 15, 1994
*(1)10.5 Supply Agreement with Genetics Institute, Inc. dated December 8,
1995
*(1)10.6 Technology License Agreement among Affymax N.V., Affymax
Technologies, N.V., the Affymax Research Institute, and
Affymetrix, Inc. dated January 1, 1993
(1)10.7 Severance Agreement and Release between Affymetrix, Inc. and
David B. Singer dated June 15, 1995
(1)10.8 Loan and Pledge Agreement between David B. Singer and Affymetrix,
Inc. effective December 7, 1993
*(1)10.9 ATP Participation Agreement between Affymetrix, Inc. and Molecular
Dynamics, Inc. dated January 12, 1995 pursuant to the National
Institute of Standards and Technology's Advanced Technology
Program.
(1)10.10 Amendment 1 to the ATP Participation Agreement between Affymetrix,
Inc. and Molecular Dynamics, Inc. effective January 13, 1996
*(1)10.11 Governance Agreement between Affymetrix, Inc. and Glaxo Wellcome
plc dated July 6, 1995
(1)10.12 Services Agreement between Affymax Research Institute and
Affymetrix, Inc. effective October 1, 1993
(1)10.13 Loan Agreement between Affymax Technologies N.V. and Affymetrix,
Inc. dated December 1, 1994
(1)10.14 Lease between Solar Oakmead Joint Venture and Affymetrix, Inc.
dated October 20, 1995
(1)10.15 Sublease between Salutar, Inc. and Affymetrix, Inc. dated October
20, 1995
(1)10.16 Sublease between Affymax Research Institute and Affymetrix, Inc.
dated February 1, 1994
*(1)10.17 Manufacturing and Supply Agreement between Affymetrix, Inc. and
RELA, Inc. dated November 27, 1995
(1)10.18 Loan and Pledge Agreement between Stephen P.A. Fodor and
Affymetrix, Inc. effective December 7, 1993
(1)10.19 Agreement between Stephen P.A. Fodor and Affymetrix, Inc. dated
November 1, 1994
(1)10.20 Form of Director and Officer Indemnification Agreement
*(1)10.21 Demonstration Agreement between Affymetrix, Inc. and Glaxo
Wellcome, Inc. dated May 1, 1996
(1)10.22 Lease between Harry Locklin and Affymetrix, Inc. dated December 5,
1994
(2)10.23 Fourth Amendment to Lease between Sobrato Interest and Affymetrix,
Inc. dated May 31, 1996 (3380 Central Expressway, Santa Clara, CA)
(2)10.24 Lease between Sobrato Interest and Affymetrix, Inc. dated
May 31, 1996 (3450 Central Expressway, Santa Clara, CA)
*10.25 Collaboration Agreement between bioMerieux Vitek, Inc. and
Affymetrix, Inc. effective as of September 1, 1996
*10.26 Manufacturing Agreement between bioMerieux Viteck, Inc. and
Affymetrix, Inc. effective as of September 1, 1996
*10.27 Collaboration Agreement between Incyte Pharmaceuticals, Inc. and
Affymetrix, Inc. made as of November 11, 1996
11.1 Statement of computation of net loss per share
23.1 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney (included on page 52)
27.0 Financial data schedule
__________
(1) Incorporated by reference to the same number exhibit filed with
Registrant's Registration Statement on Form S-1 (File No. 333-3648),
as amended
(2) Incorporated by reference to the same number exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996
* Confidential treatment requested
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
- --------------------------------------------------------------------------------
COLLABORATION AGREEMENT
between
BIOMERIEUX VITEK, INC.
and
AFFYMETRIX, INC.
- --------------------------------------------------------------------------------
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
COLLABORATION AGREEMENT
AGREEMENT effective as of September 1, 1996 (the "Effective Date") between
AFFYMETRIX, INC., a California corporation having its principal place of
business at 3380 Central Expressway, Santa Clara, California 95051 (hereinafter
referred to as "AFFX") and BIOMERIEUX VITEK, INC., a Missouri corporation,
having its principal place of business at 595 Anglum Drive, Hazelwood, Missouri
63042-2395 (hereinafter referred to as "BMX").
INTRODUCTION
BMX plans to develop DNA probe-based diagnostic systems for a wide variety
of indications, including, but not limited to, microbiology, [ * ], and
genetic screening. The systems will make use of disposable reagent kits which
incorporate DNA probe arrays. BMX intends that this system ultimately be self-
contained and fully automated including sample preparation, amplification,
detection, data analysis and reporting of results. However, BMX may initially
offer a system which is not self-contained or fully automated in order to
achieve early product launch. BMX desires to use AFFX Licensed Core Technology,
as defined below, for detection and identification of bacterial and fungal
micro-organisms and certain viral agents and for determination of the
susceptibility of those micro-organisms and agents to treatment, for use in
Clinical Diagnosis in the Licensed Field, as defined below, with such additional
options for the [ * ] and [ * ] fields as are provided herein.
<PAGE>
AFFX has research and development facilities and experienced scientists,
engineers, technical associates and assistants and other personnel and has
rights to and has developed certain AFFX Licensed Core Technology that can be
applied to clinical diagnostics and related areas.
BMX has research and development facilities and experienced scientists,
engineers, technical associates and assistants and other personnel which enable
it to conduct research and development activities in clinical diagnostics and
related areas defined in this Agreement.
AFFX has agreed to manufacture DNA Probe Arrays pursuant to a Manufacturing
Agreement of even date herewith.
Accordingly, AFFX and BMX desire to enter into a collaboration, and, in
consideration of the mutual covenants and promises contained in this Agreement
and other good and valuable consideration, AFFX and BMX agree as follows:
-2-
<PAGE>
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the following meanings:
1.1 "Affiliate" of a Party means at any time any corporation or other
active business entity which controls, is controlled by or is under common
control with a Party. For purposes of this Section 1.1, "control" shall mean
direct or indirect ownership of at least 50% of the voting interest or income
interest in a corporation or entity, or such other relationship as, in fact,
constitutes actual control. As of the Effective Date, AFFX represents that it
has no Affiliates actively engaged in business, and BMX represents that the
Affiliates of BMX actively engaged in business are listed in Schedule 6 hereto.
1.2 "AFFX Collaboration Technology" shall mean all Collaboration
Technology developed solely by AFFX employees and/or consultants.
1.3 "AFFX Licensed Core Technology" means Know-how and Copyrights of AFFX
developed during or before the Collaboration, together with any improvements and
related developments which do not constitute Collaboration Technology which are
reasonably useful or necessary or required to develop, use, manufacture,
maintain, incorporate in disposable reagent kits, read and interpret diagnostic
results obtained through use of, DNA Probe Arrays developed in the Collaboration
or based on specifications derived from prototypes so developed, and which AFFX
has the right to legally license hereunder (subject to any third party royalty
commitments), and the patents listed as owned by,
-3-
<PAGE>
licensed to or otherwise available to AFFX that are set forth on Schedule 2
attached hereto and made a part hereof as well as all continuations in whole or
in part, divisions, reissues, reexaminations, and foreign counterparts thereof,
and any improvements thereof licensable hereunder before June 1, 2002 and which
do not constitute Collaboration Technology. AFFX will not unreasonably delay
filing to avoid capture by this Agreement. The foregoing shall include
technology licensed by AFFX from third parties for which AFFX has the right to
make the grants herein, subject to reimbursement by inclusion in Fully Loaded
Manufacturing Cost of any out-of-pocket cost of AFFX. In addition, AFFX
Licensed Core Technology shall include such improvements and developments to be
made available pursuant to Section 2.4 hereof.
1.4 "Agreed Budget" and "Agreed Workplan" mean, respectively, the budget
and Workplan for each Contract Year during the Collaboration for collaborative
research to be conducted at AFFX under this Agreement, as reviewed and approved
by the Committee pursuant to Section 2.5. The initial Agreed Budget and Agreed
Workplan are set forth in Schedule 1, to this Agreement.
1.5 "Bacteriology Field" means the field of only (i) detection and/or
identification of bacterial and fungal microorganisms, and (ii) the
determination of antibiotic resistance of such bacterial and fungal
microorganisms, both for use in the Clinical Diagnosis of human disease.
1.6 "BMX Collaboration Technology" shall mean Collaboration Technology
developed solely by BMX employees and/or consultants.
-4-
<PAGE>
1.7 "Clinical Diagnosis" means a process in which a sample of fluid or
other material collected from humans is used to aid in diagnosis of one or more
human diseases for communication to such persons or their physicians or other
caregivers for clinical decisions and other clinical uses in connection with
such humans.
1.8 "Collaboration" means the research and development program jointly
conceived, planned, organized, controlled and performed by AFFX and BMX pursuant
to this Agreement.
1.9 "Collaboration Technology" means the Patents, Know-how and Copyrights
developed by the Parties pursuant to the Collaboration. Such technology shall
include and be limited to all technology developed by AFFX pursuant to Agreed
Workplans or otherwise with funding from BMX hereunder and all technology
developed by BMX relating to the adaptation of AFFX Licensed Core Technology for
use in BMX diagnostic instrumentation and systems as the same exist or may be
developed. Such technology does not include the AFFX Licensed Core Technology
as it exists or may be developed outside of the Collaboration, and does not
include the BMX instrumentation and system as it exists or may be developed, nor
the BMX patents and applications referred to in Section 12.2(c).
1.10 "Confidential Information" means all information and materials,
patentable or otherwise, of a Party which is disclosed by or on behalf of such
Party to the other Party, including, but not limited to, DNA sequences, vectors,
cells substances, formulations, techniques, methodology, equipment, data,
reports, know-how, preclinical and clinical trials and the results thereof,
sources of supply, patent positioning and business
-5-
<PAGE>
plans, including any negative developments, which do not fall within any of the
exceptions set forth in Section 8.2 of this Agreement, whether or not related to
the Collaboration.
1.11 "Contract Year" means any year commencing on the Effective Date and
ending on a day prior to an anniversary of the Effective Date during the term of
this Agreement.
1.12 "Copyrights" means copyrights of a Party (whether solely or jointly
owned or licensed to such Party), to the extent the same is licensable hereunder
and related to the subject matter of the Collaboration.
1.13 "Development Coordinating Committee" or the "Committee" means the
committee defined in Section 2.2 to aid in coordinating the Collaboration.
1.14 "DNA Probe Array" means any DNA probe array (including, as applicable,
any RNA probe array) designed for use in Clinical Diagnosis in the Licensed
Field.
1.15 "Full-Time Equivalent" or "FTE" means the equivalent of a full-time
technical employee's work time over a 12-month period (including normal
vacations and holidays); the portion of a Full-Time Equivalent year devoted by a
technical employee to the Collaboration shall be determined by dividing the
number of days during any 12-month period devoted by such employee to the
Collaboration by the total number of working days during the 12-month period
(including in each case an appropriate portion of normal vacations and
holidays). As used in this Section 1.15, a "technical employee" shall include
any scientist, engineer, technical associate or assistant and/or other personnel
(whether an employee or consultant) assigned to the Collaboration.
-6-
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
1.16 "Fully Loaded Manufacturing Cost" means (a) costs [ * ] including
but not limited to, [ * ] on account of the manufacture of the Licensed DNA
Probe Arrays to the extent that [ * ] plus [ * ] being determined in
accordance with United States generally accepted cost accounting practices,
and shall additionally include amounts [ * ] if the Parties so elect.
1.17 "High Density Probe Array" means (i) a DNA Probe Array having a
Probe density of equal to or greater than [ * ] Probes per square centimeter
(Probes/cm(2)), or (ii) a DNA Probe Array having such lesser number of
Probes/cm(2), such Probe Array the subject of an applicable Valid Patent
Claim included in the AFFX Licensed Core Technology issued to AFFX for the
United States, by the European Patent Office of the European Union or for
Japan, or (iii) a DNA Probe Array having fewer
-7-
<PAGE>
Probes/cm(2) than included in (i) or (ii) above based on or derived from a
Licensed DNA Probe Array or on prototypes thereof developed in connection with
the Collaboration wherein the Probes are selected making substantial and
material use of information derived from use of DNA Probe Arrays supplied to BMX
by AFFX hereunder or pursuant to the Manufacturing Agreement, which use requires
and is pursuant to the license granted hereby.
1.18 "Joint Collaboration Technology" means the Collaboration Technology
which is jointly developed by employees and/or consultants of AFFX and BMX.
1.19 "Know-How" means unpatented information, patentable or otherwise, of a
Party (whether solely or jointly owned or licensed to such Party) in which such
Party has any proprietary rights recognized under applicable trade secret or
other law, to the extent the same is licensable hereunder and related to the
subject matter of the Collaboration.
1.20 "Licensed Diagnostic Assay" means a disposable diagnostic assay or
reagent kit for use in Clinical Diagnosis, which assay or kit incorporates a
Licensed DNA Probe Array supplied by AFFX to BMX pursuant to the Manufacturing
Agreement or permissibly manufactured by BMX in accordance with Section 3.5 of
the Manufacturing Agreement.
1.21 "Licensed Diagnostic Product" means (i) a Licensed Diagnostic Assay or
(ii) any Other Licensed Diagnostic Product.
1.22 "Licensed DNA Probe Array" means any High Density DNA Probe Array
developed in the Collaboration, or based on specifications derived from
prototypes so developed, in all cases the manufacture, use, sale or importation
of which is subject to
-8-
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
the AFFX Licensed Core Technology or AFFX Collaboration Technology licensed to
BMX hereunder.
1.23 "Licensed Field" means the field which encompasses only (i) the
Bacteriology Field and (ii) the field of detection, identification and/or
determination of resistance to treatment of four viral agents commonly included
in bacteriology testing, to be elected by BMX in accordance with Section 4.5,
for use only in Clinical Diagnosis. [ * ] Research product applications are
specifically excluded from the Licensed Field.
1.24 "Major Market Country" shall have the meaning set forth in Section
5.7(c)(i).
1.25 "Manufacturing Agreement" means the Manufacturing Agreement entered
into by the Parties concurrently herewith, as the same may be modified, amended
or supplemented from time to time.
1.26 "Net Sales" means, with respect to any Licensed Diagnostic Assays for
a given period, the aggregate of [ * ]. No
-9-
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
[ * ] except as permitted pursuant to clauses (a), (b), (c) and (d) of the
foregoing sentence. Net Sales shall not include any transfer between BMX and
any of its Affiliates for resale. In the event that BMX or any of its
Affiliates shall make any transfer of Licensed Diagnostic Assays to third
parties for other than monetary value in whole or in part, such transfer
shall be considered a sale hereunder for accounting and royalty purposes.
Net Sales for any such transfers shall be determined on a country-by-country
basis and shall be the [ * ]
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[ * ] Notwithstanding the foregoing, no transfer of Licensed Diagnostic Assays
for test or developmental purposes or as samples shall be considered a part
of Net Sales unless such transfer is for monetary value.
1.27 "Other Licensed Diagnostic Product" means any instrument, reader,
software, peripheral equipment or other product(s), excluding Licensed
Diagnostic Assays and DNA Probe Arrays, used in connection therewith in the
Licensed Field in connection with Licensed Diagnostic Assays to permit,
facilitate or otherwise effect interpretation or diagnosis, or otherwise to
carry out related operations or maintenance, which incorporates or is otherwise
subject to AFFX Licensed Core Technology or AFFX Collaboration Technology
licensed to BMX hereunder.
1.28 "Party" means AFFX or BMX; "Parties" means AFFX and BMX.
1.29 "Patents" or "Patent Rights" means patents and patent applications of
a Party (whether solely or jointly owned or licensed to such Party), to the
extent the same is licensable hereunder and subject to any applicable
limitations.
1.30 "Probes" means oligonucleotides selected for use in the DNA Probe
Arrays.
1.31 "Project Director" means either of the senior scientists for the
Collaboration designated from time to time by AFFX or BMX.
1.32 "Related Funded Activities" are as defined in Section 3.3 of this
Agreement.
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1.33 "Valid Patent Claim" means a claim of an unexpired Patent which shall
not have been withdrawn, canceled or disclaimed, nor held invalid or
unenforceable by a court of competent jurisdiction in an unappealed or
unappealable decision, or the claim of a Patent application which claims
priority to a date not more five (5) years earlier.
1.34 "Workplan" means any plan for collaborative research to be conducted
under this Agreement, as provided in Section 2.5. Initial Workplans are set
forth in Schedule 1 to this Agreement.
ARTICLE II. THE COLLABORATION
2.1 PURPOSE. The purpose of the Collaboration shall be to collaborate on
the further development and application of AFFX's existing AFFX Licensed Core
Technology for use in and/or with Licensed Diagnostic Assays in the Licensed
Field and otherwise as provided herein. The initial focus of the Collaboration
shall be to develop Licensed DNA Probe Arrays for use in Licensed Diagnostic
Assays in conjunction with the Other Licensed Diagnostic Products which read and
interpret such assays, for use in the Licensed Field. BMX shall contribute its
expertise in the general area of clinical diagnostics and its significant
resources to adapt and apply AFFX Licensed Core Technology and Collaboration
Technology and diligently develop the Licensed Diagnostic Assays for the
Licensed Field. The Collaboration and its purpose may be extended pursuant to
the options provided in Section 5.3, subject to the terms thereof.
2.2 COMMITTEE. The parties will form the Development Coordinating
Committee (the "Committee") to aid in coordinating
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their joint collaborative effort to adopt and develop AFFX Licensed Core
Technology for use in diagnostic systems of BMX for use in Clinical Diagnostics
in the Licensed Field. BMX will propose specific products for development in
accordance with the terms of this Agreement. The Committee will have general
responsibility for directing the research effort of the Collaboration and
monitoring the work done and costs incurred pursuant to the Collaboration for
such products. The Committee shall be composed of such representatives of AFFX
and BMX as each shall respectively appoint, and each Party by its
representative(s) shall cast one vote on the Committee. A quorum shall consist
of at least one Committee representative from each Party. The Committee shall
act only with the concurring votes of both Parties. A Party's representatives
shall serve at the discretion of such Party and may be substituted for or
replaced at any time by such Party. The Committee shall meet at least quarterly
per Contract Year during the term of the Collaboration. The site of such
meetings shall alternate between the offices of AFFX and BMX, or be arranged by
video conference (or any other site mutually agreed upon by the Parties). The
proceedings of all meetings of the Committee shall be summarized in writing and
sent to both Parties.
2.3 FACILITIES. The Collaboration shall be conducted at and/or
coordinated from the facilities of each Party under the supervision and
direction of its Project Director. Each Party shall be responsible for the
administrative management and fiscal control of the activities for the
Collaboration conducted from its facilities.
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2.4 COMMITMENT. The development portion of the Collaboration will entail
an initial commitment of each party of not less than three (3) years. Following
completion of the initial commitment, AFFX will continue to collaborate, at the
expense of BMX in accordance with the annual Agreed Budgets and Workplans (and
otherwise in accordance with the Manufacturing Agreement) in the ongoing efforts
of BMX to develop and place on the market Licensed Diagnostic Assays and such
Other Licensed Diagnostic Products as may be required for their use. In this
connection, and pursuant to the Manufacturing Agreement as applicable AFFX shall
use reasonable efforts, on a timely basis, to advise BMX of such improvements
and developments included in AFFX Licensed Core Technology and to make the same
available to the Collaboration and for inclusion in Licensed Diagnostic
Products, and further shall use reasonable efforts to obtain for BMX, in the
event it becomes necessary for BMX to assume any responsibilities for
manufacture, the right to use any third-party intellectual property necessary
for such manufacture to the extent and on the same terms as the same is
available to AFFX. The Parties recognize that in certain cases third parties
may decline to allow such extension of rights, in which case the Parties will
consult so as to obtain a reasonable solution.
2.5 AGREED BUDGETS AND WORKPLAN. In consultation with AFFX
representatives, BMX representatives will prepare, for each Contract Year,
Workplans for work to be done at BMX and AFFX facilities in pursuit of the
collaboration and will prepare for such period a budget for work to be done at
AFFX ("Budget"). Such annual Workplans and Budget shall be submitted to the
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Committee sufficiently in advance to allow adequate discussion and comment and
shall be approved by the Committee at least three (3) months prior to the
commencement of the Contract Year to which they pertain. All Workplans
including the work to be performed at BMX facilities shall be subject to review
by the Committee; and the Workplan and Budget relating to work at AFFX shall be
subject to written approval by the Committee (the "Agreed Budget" and "Agreed
Workplan"). The Agreed Budget and Agreed Workplan for the first Contract Year
and the Workplan for work to be done at BMX for the first Contract Year are
annexed hereto as Schedule 1. Within a given Contract Year, all material
changes to the Agreed Budget and Agreed Workplan and the Workplan for work to be
done at AFFX shall require the written consent of both Parties, which consent
shall not be unreasonably withheld. The Parties acknowledge that it may be
necessary to make changes to Workplans during the course of the Collaboration
and will consider in good faith any changes required for technical reasons or to
avoid waste or unnecessary expenditures.
2.6 REPORTS. AFFX and BMX shall each provide the Committee and the other
Party with written progress reports summarizing the technical progress of the
Collaboration on a quarterly basis within thirty (30) days after the end of each
consecutive three (3) month period during each Contract Year so long as the
Collaboration continues. AFFX shall similarly keep the Committee and BMX
informed of all improvements and developments of the AFFX Licensed Core
Technology that may be relevant to the Collaboration; provided, however, that
AFFX shall not be obligated to report any manufacturing technology to BMX under
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this provision. Each Party shall also provide the Committee and the other Party
with additional oral progress reports as requested from time to time by the
Committee or the other Party. The Parties will further report on a mutual basis
to track know-how ownership and use, determine whether and when know-how may
have entered the public domain, determine ownership of Collaboration Technology
and resolve similar matters of mutual concern.
2.7 STAFFING. Each Party shall, as soon as practicable, assemble a team
of scientists, engineers, technical associates, consultants, and/or assistants
and shall designate a Project Director of its own to manage its activities in
the Collaboration, including its implementation of applicable Workplans.
(a) AFFX shall initially make available a minimum of [ * ] Full-Time
Equivalent ("FTE") scientific staff, whether employees or consultants, to the
Collaboration, and in consultation with the Committee AFFX shall use good
faith efforts to make available such additional scientific staff, services
and facilities as the Agreed Budget and Agreed Workplan currently in effect
may require, subject to reimbursement at the FTE funding level set forth in
Section 3.1 and subject further to reasonable recognition of the other plans,
obligations and programs of AFFX to the extent implementation of such plans,
obligations and programs is reasonably consistent with the burdens and
obligations of AFFX hereunder. BMX shall use all reasonable efforts to avoid
requests for additional staff or reductions in staff that cause irregular
fluctuations of Collaboration staff at
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AFFX. BMX shall give twelve (12) months notice of any reduction in AFFX
staffing for the Collaboration. To the extent that such twelve (12)-month
notice is not given, BMX shall pay at the pre-notice FTE support level for the
time equal to the difference between the notice period and twelve (12) months.
AFFX shall not be obligated to assign any staff to the Collaboration that are
not being funded in accordance with the Agreed Budget.
(b) BMX will carry out a collaborative effort to adapt and develop
its diagnostic technology and systems for use with AFFX Licensed Core Technology
in the Licensed Field. BMX may, with reasonable advance notice and with the
approval of the Committee, arrange that members of its own scientific staff work
directly with AFFX employees at AFFX facilities and request AFFX to assign
additional qualified staff to the Collaboration, all at BMX expense. The
Parties expect that at least one BMX employee will be stationed at AFFX for such
efforts. The Parties recognize that such individuals may be required to execute
an adequately protective confidentiality agreement in such connection, which
agreement shall otherwise be in a form reasonably acceptable to the parties and
shall include restrictions on communication by such BMX employee of appropriate
information to BMX.
2.8 INSPECTION. BMX shall have the right to arrange for its employees and
consultants involved in the Collaboration, and other designated employees as it
deems appropriate, to visit AFFX's facilities at BMX's expense to make all
appropriate inquiries and inspections with respect to the Collaboration,
including verification of compliance with applicable provisions
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of Article 2 and Section 3.5, and to discuss the implementation of any
applicable Workplan in detail with AFFX's technical personnel. BMX may also
request that certain employees and consultants of AFFX travel to BMX facilities
at BMX expense in order to assist BMX in such inquiries and inspections within
Agreed Budgets, and AFFX, in its reasonable discretion, shall endeavor to
accommodate such requests. AFFX shall have an independent right, at its
expense, to arrange for its employees and consultants involved in the
Collaboration to visit BMX's facilities and discuss AFFX concerns including any
applicable Workplan and implementation thereof with BMX's technical personnel.
All such visits by either Party to the facilities of the other shall be on
mutually convenient dates and during mutually convenient business hours and
shall not unreasonably interrupt the operations of the other Party, provided,
however, that such other Party shall use reasonable efforts to accommodate such
visits.
2.9 PATENT ASSIGNMENT AND CONFIDENTIALITY AGREEMENTS. Each Party shall
require each of its employees and consultants assigned to the Collaboration to
execute an agreement for the assignment of inventions and for the protection of
Confidential Information in such reasonable form as may from time to time be
used by such Party and approved by the other Party.
2.10 RESOLUTION OF IMPASSE. In the event that the Committee is unable to
reach a decision by unanimous action with respect to any matter and such
inability continues for a period of forty-five (45) days after the date on which
the matter is first submitted to the Committee, each Party shall refer the
matter to
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the chief operating or executive officers of AFFX and BMX for resolution. Each
Party shall set forth in writing a proposed solution to the impasse and, if a
compromise solution is not achieved within fifteen (15) days after the date on
which the matter is referred to the chief operating or executive officers,
either Party may request that the more suitable of the two proposed solutions as
finally submitted by the Parties be determined and adopted (without alteration)
pursuant to arbitration as provided in Section 14.1. Any such arbitration shall
be on an expedited basis. The Parties shall use reasonable efforts to maintain
the Collaboration pending conclusion of the arbitration and the arbitrators may
direct by interim award or otherwise how applicable time periods of the
Collaboration and of this Agreement may be adjusted to permit protection of the
rights of the Parties hereunder.
ARTICLE III. FUNDING
3.1 COLLABORATION FUNDING. BMX shall fund the research work at AFFX
pursuant to the Agreed Budget and Agreed Workplan on an annual basis at a
level of not less than [ * ] FTEs at AFFX's facility for a period of not less
that [ * ] years. BMX may request that AFFX assign additional qualified
staff to the Collaboration, and AFFX shall endeavor to meet such requests,
subject to reasonable notice and increased funding to cover added FTEs. BMX
shall fund the technical support development efforts at AFFX at an initial
rate equal to [ * ] per budgeted FTE per Contract Year in accordance with the
Agreed Budget and Agreed Workplan. BMX may request that such
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FTE support be based on fractional time of individuals at AFFX. The Parties
recognize that BMX's FTE support requirements at AFFX will vary, and that
from year to year BMX's budgeted support may vary by [ * ] BMX shall
increase its funding at the foregoing rate to meet any additional
requirements of an Agreed Budget and Agreed Workplan in excess of [ * ]. The
yearly budgeted amount shall be paid to AFFX in equal monthly installments,
the first such installment being payable upon execution of this Agreement and
the remaining installments being payable on the first day of each month
during each Contract Year thereafter. AFFX shall devote such FTE resources
as are required to perform its respective tasks in the Agreed Workplan, up to
the AFFX FTE resources as in the Agreed Budget, subject to further assignment
by the Committee in the event of over allocation of resources. After the
first two (2) years of the Collaboration and annually thereafter, the rate of
funding per FTE shall be adjusted, as necessary, to reflect the actual FTE
cost to AFFX. AFFX will obtain concurrence from its independent auditors as
to any such change in costs, if required by BMX. Additional resources shall
be allocated, subject to reasonable notice, as necessary to accommodate
Agreed Workplans, at the expense of BMX. BMX shall also fund at its sole
expense its own FTEs and all development efforts at BMX facilities in
furtherance of the Collaboration.
3.2 DIRECT EXPENSES AND CAPITAL FUNDING FOR EQUIPMENT. BMX shall
reimburse AFFX for any project specific direct expenses (such as manufacture of
Additional DNA Probe Arrays, except to the extent otherwise provided under
Section 4.2 herein) and any
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capital equipment required originally for the Collaboration (costing over
$10,000) as authorized by the Committee, provided that such expenses have not
otherwise been or will not otherwise be reimbursed. For example, AFFX and
BMX may mutually agree on direct reimbursement for an item of capital
equipment (excluding DNA Probe Array manufacturing assets) to be used in the
development phase or may decide to load such costs into the cost per Licensed
DNA Probe Array, but not both. If BMX and AFFX agree to reimburse such
equipment through loaded costs of the DNA Probe Arrays, BMX shall reimburse
any unreimbursed costs if use of such equipment is discontinued before
recovery of the cost of such equipment provided that such discontinuance is
otherwise than for fault of AFFX. In the absence of agreement as to a
different mode of reimbursement, such an authorized capital expenditure
required for development work shall be directly reimbursed. Capital
expenditures and costs related to manufacture shall be paid or financed by
AFFX and shall be [ * ] In the event a given capital asset may have utility
during both the development and manufacturing phases or may be useful both
for purposes of the Collaboration and other activities of AFFX the Parties
shall negotiate in good faith the manner in which relevant costs shall be
borne and allocated. In the absence of agreement, each Party shall set forth
a proposed allocation of the relevant costs between the development and
manufacturing phases, and such proposals shall be submitted for arbitration
on an expedited basis as provided in Section 14.1. The arbitrator shall
select one proposal without alteration, which proposal
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shall be adopted by the Parties. Any investment in equipment at BMX facilities
shall be borne solely by BMX.
3.3 RELATED ACTIVITIES. Subject to the determination of the Committee
that such activities are related to the objectives of the Collaboration, up to
twenty-five percent (25%) of each Contract Year's total FTE funding at AFFX
shall be allocated by the Committee to fund technology development activities
which indirectly support the Collaboration (the "Related Funded Activities");
provided, however, that in no event shall such allocation exceed the funding
allocable to one FTE.
3.4 OTHER EXPENDITURES. Except as provided in Sections 3.1 and 3.2
hereof, each Party shall bear its own expenses in connection with the
Collaboration.
3.5 MILESTONE PAYMENTS. BMX will pay to AFFX a nonrefundable payment of
[ * ] within thirty (30) days of signing this Agreement. Additional
payments, totalling [ * ] in the aggregate, shall be paid within thirty (30)
days of notice of completion of each of the following milestones, or in the
case where BMX is the first Party aware of the completion of the milestone,
then thirty (30) days after such completion, which milestones may be met and
for which the payment shall become due without regard to any particular order:
(a) [ * ] upon completion of [ * ] as determined in accordance with
criteria set forth in Schedule 3;
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(b) [ * ] upon agreement by the Committee regarding [ * ] Such
payment shall in no event be made later than six (6) months after the
Effective Date of this Agreement;
(c) [ * ] upon achievement of [ * ] Such payment will be made in
ten (10) months if [ * ] within three (3) months after the Effective Date;
(d) [ * ] upon [ * ]
(e) [ * ] upon the [ * ]
(f) [ * ] upon
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[ * ] whichever is first;
(g) [ * ] upon receipt of [ * ] and
(h) [ * ] upon receipt of [ * ]
Any late payments of amounts due hereunder shall bear interest at the rate of
[ * ] percentage points above the prime interest rate quoted by the Bank of
America on the unpaid amounts for the period of late payment.
ARTICLE IV. DEVELOPMENT OBLIGATIONS
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4.1 GENERAL OBLIGATIONS. BMX shall have responsibility for over-all
system planning and development, including, without limitation, instrument
development, integrated device development, amplification technology
development, DNA Probe Array packaging, regulatory approval and marketing, and
shall use commercially reasonable efforts to commercialize products pursuant to
this Agreement. In a manner responsive to over-all planning needs, AFFX shall
assume primary responsibility for DNA Probe Array manufacturing process
development and DNA Probe Array production, and the Parties shall share the
tasks of Probe selection, DNA Probe Array design, optimization and assay
development. BMX will have primary responsibility for all other aspects of the
development. Drawing on the work of this Collaboration and subject to
priorities by the Committee, BMX shall be free to develop Specifications for all
products within the Licensed Field and to arrange for manufacture, according to
the Manufacturing Agreement, of the corresponding Licensed DNA Probe Arrays
under the Manufacturing Agreement.
4.2 SUPPLY OF DNA PROBE ARRAYS. During the development phase of the
Collaboration and for use by BMX and AFFX in the Collaboration's development
efforts, AFFX shall provide, at no additional charge to BMX, [ * ] DNA Probe
Arrays per each fully funded AFFX FTE in the first Contract Year, [ * ] DNA
Probe Arrays for each fully funded AFFX FTE in the second Contract Year, and
[ * ] DNA Probe Arrays for each fully funded AFFX FTE in the third and each
subsequent Contract Year, for use in connection with research and development
pursuant to the Collaboration. Such DNA Probe Arrays
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shall be packed by AFFX for shipment as diced wafers as reasonably directed
by BMX and reasonably acceptable to AFFX. During the development phase BMX
may purchase additional DNA Probe Arrays ("Additional DNA Probe Arrays") for
such use [ * ] and AFFX shall use reasonable efforts to comply with
requested schedules for delivery. DNA Probe Arrays and Additional DNA Probe
Arrays shall be supplied in batch sizes of not less than one hundred (100)
DNA Probe Arrays per order. AFFX shall not be obligated to supply more than
[ * ] Additional DNA Probe Arrays [ * ] in any Contract Year, or in the
aggregate more than [ * ] Additional DNA Probe Arrays, and any greater
numbers shall be supplied [ * ] DNA Probe Arrays required for clinical trials
of BMX products will be supplied pursuant to the Manufacturing Agreement [ * ]
BMX and its designated Affiliates shall have the right to use the DNA Probe
Arrays supplied under this Section in the Licensed Field for internal DNA
Probe Array diagnostic product research (excluding research as to the matters
referred to in Section 5.6), product development, process development and
manufacturing purposes in furtherance of the Collaboration. Except for
transfers to Affiliates contemplated by the foregoing sentence, BMX shall
have no right to sell or transfer the DNA Probe Arrays, including, without
limitation, Additional Probe Arrays, provided under this Section 4.2 to third
parties without the express written permission of AFFX. It is understood
that BMX intends to work
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with a nonaffiliated collaborator to develop amplification, related technology
and assays for use in association with Licensed Diagnostic Assays, and AFFX will
permit the use of Licensed DNA Probe Arrays in such work, together with such
exchange of information as may be reasonably necessary therefor, subject to
AFFX' reasonable requirements as to preservation of confidentiality.
4.3 TRANSITION FROM DEVELOPMENT TO MANUFACTURE. The Collaboration shall
continue as provided herein during the term of initial commitment and the term
of any Agreed Budget and Agreed Workplan and thereafter, unless terminated
pursuant to Section 9.2. The DNA Probe Arrays and prototypes for such arrays
developed in the Collaboration shall serve as the basis for specifications for
manufacture of Licensed DNA Probe Arrays, as provided in the Manufacturing
Agreement.
4.4 BMX SUPPLY. If requested by AFFX, BMX will supply automated readers
and related products (or major components thereof to be provided at BMX' sole
reasonable discretion) developed in the Collaboration for use in agreed
markets as mutually determined and outside the Licensed Field or other fields
of activity of BMX or its Affiliates in accordance with normal commercial
terms and conditions on the basis of an arm's length transfer price which
shall reflect [ * ] together with an additional [ * ] to be negotiated in
good faith by the Parties, substantially equivalent to the royalty, if any,
to be received
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by AFFX in connection with sale of AFFX High Density Probe Assays, based on
similar considerations of cost savings in manufacture and product transfer
price, and taking into account whether or not there are BMX Patent Rights
covering such products. In no event will BMX be expected to supply readers
for use in the Licensed Field or for use in the [ * ] or [ * ] field,
regardless of the outcome of negotiations as to those Fields under Sections
5.3 and 5.4. In connection with any sale of such readers and other products
to AFFX, and subject to disclaimer of indemnity to the extent of any matter
within the Scope of AFFX Licensed Core Technology which may be incorporated
therein, BMX shall indemnify AFFX for any infringement of any third party
intellectual property rights resulting from the manufacture and/or sale of
any such readers or other product to AFFX or the use or sale by AFFX of such
reader or other product in the manner authorized above by BMX, up to the
amount of the payments received.
4.5 VIRAL AGENT ELECTION. Within [ * ] of the Effective Date of this
Agreement, BMX shall notify AFFX in writing of the [ * ] viral agents of
those typically included in bacteriology test panels that it is electing for
incorporation into the Licensed Field, such viral agents to be selected from
those listed on Schedule 4 hereto. If BMX has not selected [ * ] viral
agents within such period, AFFX shall be free to transfer rights to any
unselected agents to third parties and shall have no further obligation to
BMX with regard thereto.
ARTICLE V. OWNERSHIP; TECHNOLOGY RIGHTS
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5.1 OWNERSHIP OF COLLABORATION DEVELOPMENTS. AFFX shall own all AFFX
Collaboration Technology. Such ownership shall be subject to the license and
rights as provided in Sections 5.2(a) and (b). BMX shall own all BMX
Collaboration Technology. Such ownership shall be subject to the license and
rights as provided in Section 5.2(c). AFFX and BMX shall own jointly all Joint
Collaboration Technology, subject to the provisions of Section 5.2(d) and (e).
5.2 LICENSES.
(a) Subject to the provisions of Sections 5.5-5.7 regarding
exclusivity and other matters, AFFX hereby grants BMX the following licenses for
the Licensed Field only, which shall be exclusive, subject to Sections 5.5 and
5.7, for the Bacteriology Field and non-exclusive for the balance of the
Licensed Field:
(i) A worldwide license under the Patent Rights, Know-How and
Copyrights included in AFFX Licensed Core Technology and AFFX Collaboration
Technology to import, use, distribute and sell (and copy and display in
connection therewith as applicable) Licensed DNA Probe Arrays, and to
incorporate or cause the incorporation of such Licensed DNA Probe Arrays,
through processes of manufacture, into Licensed Diagnostic Assays, and to
manufacture and have manufactured Licensed Diagnostic Assays (other than the
Licensed DNA Probe Array component thereof except that such manufacturing
license shall extend to such Licensed DNA Probe Array component under the
limited circumstances provided in the Manufacturing Agreement), and to use,
import, distribute and sell (and to copy and display in connection therewith as
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applicable) Licensed Diagnostic Assays. Such licenses are subject to the
royalties provided in Sections 6.1 and 6.2 as applicable. Except as explicitly
provided in this subsection, no manufacture or have manufactured rights are
included as to DNA Probe Arrays.
(ii) With respect to Other Licensed Diagnostic Products that are
to be used (A) solely with High Density Probe Arrays supplied by AFFX or
permissibly made by BMX under this Agreement or the Manufacturing Agreement or
(B) with High Density Probe Arrays and with one or more DNA Probe Arrays that
have [ * ] or fewer Probes/cm(2) and are not otherwise included as a High
Density Probe Array, a worldwide, license in the Licensed Field (i) under the
Patent Rights included in the AFFX Licensed Core Technology and the AFFX
Collaboration Technology to make, have made, use, import, distribute and sell
and (ii) under the Know-how and Copyrights included in the AFFX Licensed Core
Technology and AFFX Collaboration Technology to make, have made, copy, display,
distribute, use, import and sell, all such Other Licensed Diagnostic Products
solely for use in the Licensed Field.
(iii) With respect to Other Licensed Diagnostic Products that
are to be used solely with a DNA Probe Array that has [ * ] or fewer
Probes/cm(2) and is not included as a High Density Probe Array ("Low Density
Probe Array"), AFFX agrees to grant BMX a nonexclusive, worldwide license in
the Licensed Field (A) under the Patent Rights included in the AFFX Licensed
Core Technology and the AFFX Collaboration Technology to make, have made,
use, import, distribute and sell and (B) under the Know-how
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and Copyrights included in the AFFX Licensed Core Technology and the AFFX
Collaboration Technology to make, have made, copy, display, distribute, use,
import and sell, all such Other Licensed Diagnostic Products for use with such
Low Density Probe Arrays solely for use in the Licensed Field on terms to be
negotiated in good faith by the Parties, such terms not to be less favorable to
BMX than those contained herein, any applicable compensation or royalty for such
use not to exceed such royalty rates as may from time-to-time be applicable for
sale of Licensed Diagnostic Assays.
(iv) With respect to any DNA Probe Array that is not a High
Density Probe Array, and that has more than [ * ] and is otherwise not a High
Density Probe Array, AFFX will negotiate in good faith with BMX if requested
an extension of the definition of High Density Probe Array hereunder to
include such probe array and to arrange for manufacture of the same subject
to AFFX' reasonable ability to expand its manufacturing capacity to include
such product, all on terms which are substantially similar to and not more
onerous for either Party than the terms and conditions applicable hereunder
in respect of High Density Probe Arrays. With respect to any of the foregoing
Licenses, BMX shall have the right to sublicense only its Affiliates provided
that any such Affiliate must agree to abide by all of the terms of this
Agreement. The term of such licenses shall continue on a product-by-product
and country-by-country basis until the expiration of the last to expire
Patent of the AFFX Licensed Core Technology and AFFX Collaboration Technology
encompassed in such
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Licensed Diagnostic Assay in the country in question and during the life of any
subsequently issued AFFX patent included in the AFFX Licensed Core Technology
and AFFX Collaboration Technology and so encompassed in such Licensed Diagnostic
Assays in the country in question, and thereafter on a continuing basis in
respect of any Know-how or Copyright thereof embodied in the Licensed Diagnostic
Assay or its manufacture or use. All licenses may be terminated for breach
and/or limited or modified for lack of diligence as set forth in this Article 5.
(b) In addition to the foregoing license under Section 5.2(a) above,
AFFX grants BMX, (i) with respect to AFFX Collaboration Technology, a
nonexclusive, worldwide, research-use only license to use the AFFX Collaboration
Technology (A) outside of the Licensed Field for BMX's own research purposes
pertaining to Clinical Diagnostics, and (B) for the Licensed Field for BMX's
purposes pertaining to this Collaboration and research and development in
furtherance thereof; provided, however, that such license shall not include any
rights under AFFX Licensed Core Technology or any rights to research or develop
technology relating to the manufacture of Licensed DNA Probe Arrays; and
provided that such research license may be sublicensed only to Affiliates or in
connection with the research authorized hereby; and (ii) with respect to the
AFFX Core Technology and the AFFX Collaboration Technology, a limited
nonexclusive, worldwide research use only license to use High Density Probe
Arrays referred to in Section 1.17(i) and (ii) to select probes for and only to
select probes for development of High Density Probe Arrays referred to in
Section 1.17(iii) for the Licensed Field
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all for internal purposes of BMX and its Affiliates, not on a contract basis for
third parties.
(c) With respect to any BMX Collaboration Technology, BMX hereby
grants to AFFX (i) for the Licensed Field, a nonexclusive, worldwide,
research-use only license to use BMX Collaboration Technology in the
Collaboration and as permitted under the Manufacturing Agreement; and (ii) a
nonexclusive license for use of the BMX Collaboration Technology outside the
Licensed Field for uses which do not compete with the activities of BMX and its
Affiliates. Such license under subsection (ii) shall be subject to any
additional restrictions provided in Section 5.11 in the event AFFX exercises its
rights under such section and shall be sublicensable only with and for use with
AFFX's AFFX Licensed Core Technology (and subject to the same limitations
imposed on any concomitant license of such technology) to copy, display,
distribute, make, have made, use, import and sell DNA Probe Arrays and products
and services associated with and dependent upon use of such probe arrays. Such
license shall be royalty free to AFFX except that AFFX shall be responsible for
the payment of any royalty obligation incurred by BMX in connection with such
use by AFFX.
(d) With respect to Joint Collaboration Technology, the Parties shall
each have plenary rights in common to use such technology within and without the
Licensed Field and to sublicense the same for such use to their Affiliates;
provided, however, that, with respect to Joint Collaboration Technology as
specifically applied to design and function of Licensed DNA Probe Arrays
(Specific DNA Probe Technology), BMX shall have rights in
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the Licensed Field only within the scope of its license grants under Section 5.2
hereof and to sublicense the same to its Affiliates and AFFX shall have the sole
right to use and license or sublicense such Specific DNA Probe Technology
outside the Licensed Field; and provided further, that, in the event AFFX
exercises its rights under Section 5.11 hereof, its use of any Collaboration
Technology shall be subject to the limitations there provided. Except as
provided above as to Specific DNA Probe Technology, BMX hereby grants AFFX the
exclusive right to license Joint Collaboration Technology to third parties (so
subject to Section 5.11) outside of the Licensed Field, subject to (i) the
provisions of Section 5.2(e), (ii) BMX's right to share in revenues from such
license as may be agreed to in good faith by the Parties, and (iii) the
obligation to consult with BMX as to the grant and terms of such license. In
the event that AFFX does not pursue any licensing opportunity brought to its
attention by BMX within [ * ] then BMX shall have the right to
pursue such opportunity and share revenues therefrom in accordance with the good
faith agreement of the Parties. In the absence of agreement as to sharing of
revenue, the matter shall be resolved as provided in Section 2.10 hereof, except
that each Party shall set forth its proposal for such sharing and, if agreement
is not reached, the more suitable proposal shall be determined and adopted
without change from such Party's final proposal pursuant to arbitration as
provided in Section 14.1 hereof.
(e) With respect to grant of license of Joint Collaboration
Technology to third parties for use outside the
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Licensed Field, in cases where BMX's Patent Right(s) or Know-how other than
Joint Technology dominate such technology, the Parties agree as follows:
(i) if such Joint Collaboration Technology is proposed to be
licensed principally for use with AFFX Licensed Core Technology, then AFFX shall
have primary responsibility for negotiating the terms and conditions of any such
license but shall consult with BMX as to the grant and terms of such license;
(ii) if such Joint Collaboration Technology is proposed to be
licensed for any other use then BMX shall have primary responsibility for
negotiating the terms and conditions of any such license but shall consult with
AFFX as to the grant and terms of such license.
In all cases under (i) and (ii) above each Party shall be entitled to share in
revenues from the license as may be agreed in good faith by the Parties, and
absent such agreement, sharing shall be determined as provided in the last
sentence of Section 5.2(d). In no event shall either Party grant a license of
technology of the other Party (other than Joint Collaboration Technology as
provided above) without such other Party's consent.
5.3 OPTION FOR NON-EXCLUSIVE LICENSES IN THE [ * ] AND [ * ] FIELDS.
Subject to pre-existing agreements, AFFX grants BMX non-exclusive options (the
"Options") to enter into non-exclusive licenses under AFFX Licensed Core
Technology (and Collaboration Technology, as applicable) to expand BMX's
products for Clinical Diagnosis (and otherwise subject to the limitations of the
Licensed Field except as expanded to include [ * ] and [ * ] as specified
herein) that would use Licensed DNA Probe Arrays to
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include categories of products for [ * ] (not otherwise included in the
license granted hereby) ([ * ] Option") and products for the testing of [ * ]
(for any condition, except for the diagnosis of [ * ] to the extent that such
rights have been previously granted on an exclusive basis to a third party)
([ * ] Option"). Exercise of each Option shall be conditional upon AFFX and
BMX executing a definitive agreement with regard to the relevant field,
including a mutually acceptable work plan (and an appropriate budget, license
fees, milestones and royalties no greater, in each case, than those agreed to
for the exclusive license in the Bacteriology Field) not later than [ * ]
after AFFX shall have sent BMX a substantive proposal in such regard. Prior
to conclusion of any definitive agreement or any payment for the extension of
the right to exercise an option as provided below, AFFX shall, at the request
of BMX, disclose the existence and extent of any other agreements with third
parties, or known third party rights or claims to which any option rights
would potentially be subject. If a definitive agreement has not been signed
under either Option by the end of the Initial Option Period, BMX may elect to
extend either Option or both Options for a one-year period by paying [ * ]
per Option extended on or before the end of the Initial Option Period. If,
however, an agreement with respect to one such Option is concluded on or
prior to the end of the Initial Option Period, the right to exercise the
other Option will be automatically extended six (6) months from the end of
the Initial Option Period (the "Second
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Option Period"), and the right to exercise such other Option may be further
extended for a one-year period by paying [ * ] on or before the end of the
Second Option Period.
5.4 INDUSTRIAL TESTING AND OTHER FIELDS. Subject to pre-existing
agreements and within AFFX's sole discretion, AFFX shall give reasonable
consideration to requests by BMX to expand the definition of Licensed Field to
include the use of AFFX Licensed Core Technology and AFFX Collaboration
Technology in conjunction with Licensed DNA Probe Arrays for Industrial Testing
applications (food, pharmaceuticals, cosmetics), upon reasonable commercial
terms, including without limitation, license fees, milestone payments, royalties
and appropriate manufacturing arrangements. The Parties may also carry out good
faith discussions as to extension of the Collaboration to other fields and for
other applications as they may deem to be in their respective best interests.
5.5 EXCLUSIVITY OF LICENSE. Except as otherwise provided herein, the
license granted BMX pursuant to Section 5.2(a) shall be the exclusive license of
the AFFX Core Technology and the AFFX Collaboration Technology for assays
containing DNA Probe Arrays for Clinical Diagnosis in the Bacteriology Field,
except for fluorescence readers sold to hospitals (to the extent rights have
been granted to a third party) for which the license shall be nonexclusive (such
exclusivity being subject to the conditions set forth below), and nonexclusive
in the balance of the Licensed Field. BMX may not assign its license rights and
may grant sublicenses only to Affiliates.
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5.6 LIMITATIONS OF LICENSE. It is expressly understood that AFFX does not
grant and has not granted BMX any license under any AFFX Licensed Core
Technology or AFFX Collaboration Technology or any other AFFX technology or
intellectual property rights, either express or implied, for research supply
products, or to conduct any basic genomic research (e.g., gene expression, gene
discovery, gene sequencing, marker discovery, functional discovery, or gene
mapping, or polymorphism screening) with the Licensed DNA Probe Arrays (while
the parties recognize that chips that are made for diagnostic purposes may
incidentally result in genetic discoveries), or to manufacture or have a third
party manufacture any DNA probe arrays, except as explicitly provided here and
in the Manufacturing Agreement. BMX may not sublicense or assign the rights
herein except as expressly provided herein.
5.7 TERMS AND CONDITIONS OF EXCLUSIVITY.
(a) To retain its exclusivity in the Bacteriology Field, BMX shall
use reasonable commercial efforts, comparable to those applied to its sole
developments of its own major products, in the development, marketing and sales
of Licensed Diagnostic Assays hereunder. The provisions below are to be
considered as specific requirements for BMX to retain its exclusivity and not as
an exhaustive description of the diligence obligations.
(b) BMX shall have the following specific diligence obligations
(provided that AFFX shall have fulfilled preconditions to BMX's meeting such
requirements, including disclosure in full to BMX in a timely fashion of the
results of any research and development work for which it is responsible and
which is relevant to fulfillment of such BMX obligations).
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Initially, the exclusivity of the license in the Bacteriology Field shall
continue for [ * ] (or any extension of such time
period to which the Parties mutually agree) from the Effective Date of this
Agreement, except that such license shall become nonexclusive upon failure of
BMX to meet any of the following development milestones within the time period
indicated (or any extension of such time period to which the Parties mutually
agree). All such time periods are to be measured from the Effective Date of
this Agreement.
MILESTONES TIME PERIOD
(i) [ * ] [ * ]
(ii) [ * ] [ * ]
(iii) [ * ] [ * ]
(iv) [ * ] [ * ]
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MILESTONES TIME PERIOD
(v) [ * ] [ * ]
The time periods indicated may be extended by the Committee and shall be
extended as necessary where BMX's inability to comply results from failure of
AFFX to fulfill preconditions that would have reasonably been necessary for BMX
to meet the foregoing milestones.
(c) In the event BMX maintains the exclusivity of its license in
accordance with the foregoing milestones, such exclusivity shall continue during
the remaining term of the license, except that such license shall become
non-exclusive upon failure by BMX to meet any of the following criteria unless
such failure is reasonably attributable to failure by AFFX to fulfill its supply
obligations under the Manufacturing Agreement or other AFFX obligations
hereunder:
(i) BMX shall have launched and be diligently marketing a
Licensed Diagnostic Assay in three of the following four countries by [ * ]
Japan, France, Italy and Germany (together with the United States,
hereinafter referred to as the "Major Market Countries");
(ii) BMX shall have made appropriate applications by [ * ] to
the United States Food and Drug Administration for approval of a Licensed
Diagnostic Assay;
(iii) BMX shall attain the following minimum worldwide Net Sales
of all Licensed Diagnostic Assays (in the
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aggregate, "Worldwide Aggregate Net Sales") during the calendar years set forth
below:
Minimum
Calendar Net
Year Sales
-------- -------
2001 $ [ * ]
2002 [ * ]
2003 [ * ]
2004 [ * ]
2005 [ * ]
2006 [ * ]
2007 [ * ]
(provided, however, that if actual Worldwide Aggregate Net Sales in any [ * ]
calendar years between 2001 and 2007 fall short of the minimum sales set
forth above, but are not less than [ * ] of such minimum sales, BMX shall
have the right to maintain exclusivity by payment to AFFX of an amount that
is equal to [ * ] of the difference, in dollars, between the minimum
Worldwide Net Sales figure and the actual Worldwide Aggregate Net Sales for
the calendar year in question).
5.8 SPECIFIC TESTS. Notwithstanding any termination of exclusivity in the
Bacteriology Field which is due solely to failure to meet the criteria of
Section 5.7(c)(iii) above, the exclusivity of BMX's rights Licensed Diagnostic
Assays to the specific Licensed DNA Probe Arrays it is diligently selling in the
Bacteriology Field at the time of such termination shall continue during the
term of the license, provided that and so long as BMX is continuing to sell such
product with reasonable diligence.
(a) AFFX shall retain the sole right and no license is granted herein
to supply instruments and components, including, without limitation, DNA Probe
Arrays based on AFFX Licensed Core
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Technology, to third parties for "home brew" tests for targets in the
Bacteriology Field in countries in which BMX is not diligently marketing a
Licensed Diagnostic Assay that is configured substantially in such manner as to
be approvable in the USFDA (or, in the case of the United States, is approved by
the USFDA), if the same were to be offered for commercial sale in the United
States. BMX shall have no obligation to sell readers, instruments or other
products to AFFX for this purpose. AFFX shall act reasonably at all times to
ensure its reasonable ability to terminate such supply in the country in
question no later than such time as BMX shall commence the diligent marketing
thereof a Licensed Diagnostic Assay that is substantially so configured as to be
approvable by the USFDA for such target(s) that is a comparable substitute in
performance and end-use for the "home brew" product concerned. Upon notice that
BMX is commencing such marketing, AFFX shall reasonably endeavor promptly to
terminate any such supply, provided that BMX will make such comparable
substitute configured as above for sale in such country. Subject to the
foregoing, AFFX shall not be obligated to terminate any such existing supply
arrangement in such manner as to cause breach or default of such arrangement by
AFFX. Upon commencement of such marketing as above, and except to the extent of
any "home brew" supply arrangement which has not yet been terminated, in each
case BMX shall then be accorded exclusivity with respect to such test(s) in the
Bacteriology Field in accordance with the terms of this Article 5.
5.9 ASSAYS SUBJECT TO THIRD PARTY RIGHTS. If BMX retains its exclusivity
in the Bacteriology Field after [ * ]
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AFFX may, from time to time, request that BMX endeavor to include in one or
more of its Licensed Diagnostic Assays an assay whose manufacture, use or
sale is subject to intellectual property rights of a third party. If such
request concerns an assay within the Bacteriology Field which the parties
reasonably agree would have worldwide sales in excess of [ * ] per year
("Significant Assay") and would not compete with any assay already included
or projected for inclusion in such Licensed Diagnostic Assays, BMX shall use
reasonable efforts to seek, with the cooperation of AFFX, to obtain all
licenses requisite for such assay or, if necessary, to develop an alternative
means to make, use and sell such assay. If within [ * ] following such
request BMX is unable or unwilling to make arrangements for development of
such assay, the Parties will further consult, and, if AFFX so requests, BMX
will make a limited and partial waiver of the exclusivity of its license in
the Bacteriology Field solely to the extent necessary to permit development
of such an assay by a third party under a separate license from AFFX and
supply of DNA Probe Arrays therefor by AFFX. The terms and limitations of
such waiver shall be set forth in writing by BMX and BMX shall retain all
rights to develop or cause the development of such a product at a later time,
if it should obtain the necessary rights from the third party or otherwise.
Any waiver of exclusivity in the Bacteriology Field for purposes of
introduction of a product under this section shall not be deemed to
constitute a loss of exclusivity in such Field for the purposes of any other
section of this Agreement.
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5.10 OTHER ASSAYS. In the event AFFX desires at any time during the term
of this Agreement to develop or have a third party develop an assay in the
Bacteriology Field that is not provided for in Section 5.8 and is not developed
by BMX (such as where, for example, there may be an interest to have an assay
developed to demonstrate clinical utility in a selected market), whether or not
such assay is covered by any third party intellectual property rights, and AFFX
can reasonably demonstrate that (i) the assay addresses only a limited
geographic or otherwise selected market portion of the potential markets for the
assay that would not compete significantly with any assay that is marketed, is
being developed by or is projected to be developed by BMX, and (ii) BMX has no
existing bona fide plans to develop such an assay, and (iii) AFFX presents a
reasonable plan for development of such an assay by itself or in conjunction
with a third party, and a reasonable level of detail regarding such product and
the plan for development and funding of same, then BMX shall make a limited and
partial written waiver in the manner described above, permitting development of
such assay by AFFX or a third party under a separate license from AFFX, in
accordance with such plan without prejudice to subsequent introduction of such a
product by BMX provided, however, that if for any reason BMX elects not to make
such a waiver, then BMX shall promptly generate, and provide to AFFX, a
development plan for expeditiously and diligently developing and marketing the
assay that is the subject of the waiver request, on a priority level at least as
high as the other similar products then-currently under development, and fund
such development within the Collaboration.
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In connection with any such BMX plan, AFFX shall be prepared to make available
to BMX cooperative arrangements and related benefits substantially as favorable
as any that were to be offered to a third party under the plan for development
originally presented by AFFX. If BMX fails to expeditiously develop such a plan
and fund such development in reasonably timely fashion taking account of all
relevant commitments hereunder, BMX shall be deemed to have granted the
foregoing waiver of exclusivity, and AFFX shall be free to develop such assay
with a third party and supply DNA Probe Arrays therefor under a separate license
from AFFX. Any waiver of exclusivity in the Bacteriology Field for purposes of
introduction of a product under this section shall not be deemed to constitute a
loss of exclusivity in such Field for the purposes of any other section of this
Agreement. BMX shall have no obligation to sell readers, instruments or other
products to AFFX for this purpose. Such supply relationship between AFFX and
such third party shall be rendered non-exclusive as to BMX and BMX may exercise
its applicable rights hereunder and under the Manufacturing Agreement as related
to Licensed DNA Probe Arrays pertaining to such assay if so requested by BMX
upon notice that BMX represents in good faith that it would commence the
diligent marketing of a Licensed Diagnostic Assay for such target(s) that is a
comparable substitute in performance and end-use for the assay concerned.
Subject to the foregoing, AFFX shall not be obligated to take any action with
respect to such supply arrangement so as to cause breach or default of such
arrangement by AFFX. Upon commencement of marketing by BMX of the assay
concerned or an assay which is a
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comparable substitute in performance or end-use therefor and except to the
extent of any continuing third party arrangements as aforesaid with respect to
the assay developed pursuant to the AFFX proposal, in each case BMX shall then
again be accorded exclusivity with respect to such test(s) in the Bacteriology
Field in accordance with the terms of this Article 5.
5.11 LOSS OF RIGHT TO INTRODUCE NEW ASSAYS AND OTHER PRODUCTS.
(a) In the event that, BMX decides to market no broad-ranged
Licensed Diagnostic Assay, (i.e., an assay capable of testing for [ * ]
hereinafter referred to as a "Broad-Ranged Assay") in the Bacteriology Field
in all or any of the three major world regions of the United States, Europe
or Asia (the "Regions"), but still desires to sell Licensed Diagnostic
Products (other than Broad Ranged Assays in the Bacteriology Field and
Region), BMX's license to the Licensed Diagnostic Products it is then
developing shall thereafter be non-exclusive in such Region(s), and BMX shall
have no further right to make, have made, use, import, distribute or sell, or
have AFFX manufacture, New Licensed Diagnostic Products using AFFX Licensed
Core Technology or AFFX Collaboration Technology in the Region concerned. A
product shall be considered a "New Licensed Diagnostic Product" (as such term
is used herein) unless, at the time of the applicable loss of the rights with
respect to New Licensed Diagnostic Products, such product or an earlier
version thereof which differs only
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evolutionarily from such product was being sold by BMX in any Region or was in
clinical trials or subsequent stages of development, or an application for
regulatory approval had been filed in a Major Market Country.
(b) In addition, BMX shall lose all rights under its license to make,
have made, use, import, distribute or sell, or have AFFX manufacture, New
Licensed Diagnostic Products using AFFX Licensed Core Technology or AFFX
Collaboration Technology as of the close of any calendar year referred to below
in which it shall fail to meet the following worldwide sales for such year:
Minimum Number
Calendar of Licensed Diagnostic
Year Assays
--------- -----------------------
2001 [ * ]
2002 [ * ]
2003 [ * ]
2004 [ * ]
2005 [ * ]
2006 [ * ]
2007 [ * ]
and, for each year thereafter until the end of the calendar year 2010, minimum
requirements of Licensed DNA Probe Arrays equal to the minimum of such sales for
the preceding calendar year plus [ * ] of such minimum.
(c) To maintain its licenses of AFFX Licensed Core Technology in
respect of its Licensed Diagnostic Assays hereunder, notwithstanding any
termination of exclusivity, BMX shall continue to have an obligation of
reasonable diligence in the circumstances respecting such Licensed Diagnostic
Assays as it shall continue to be permitted to sell, comparable to the diligence
it normally exercises in connection with other
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comparable products. In the event of lack of such reasonable diligence in
respect of any such assay or of Licensed Diagnostic Assays in general, AFFX may
call upon BMX to relinquish its license for such product or products, as
applicable, but in such circumstances any loss of license rights shall be
subject to a reasonable phase-out permitting orderly fulfillment of third-party
obligations and business expectations.
5.12 ENTRY BY AFFX. Beginning on the seventh anniversary of the Effective
Date, AFFX may exercise the right to make, use and sell diagnostic products
including DNA Probe Arrays in the Bacteriology Field using AFFX's AFFX Licensed
Core Technology on a co-exclusive basis with BMX, upon repayment by AFFX to BMX
of one-half of the total amount of R&D support and one-half of the total amount
of milestone payments received from BMX under this Agreement. In such case,
AFFX shall have no right to sublicense, except to Affiliates. AFFX will in no
case commence research or development work related to any such product until
after July 1, 1999. This provision is not intended to give AFFX any rights or
license to BMX intellectual property or instrumentation. AFFX shall have no
right to use any technology developed at BMX's expense (other than the Related
Funded Technology) in connection with the Collaboration in competing products or
systems serving the same diagnostic purpose and market as the BMX products
resulting from the Collaboration. In the event that AFFX converts BMX's license
to a co-exclusive license as described in this provision, (i) the provisions and
requirements of Section 5.10 shall cease to be applicable and (ii) the minimum
Worldwide Aggregate Net Sales referred to above in Section 5.7(b)(iii) for
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maintaining exclusivity shall be reduced by one-half on a going-forward basis,
and, if BMX fails to meet such reduced minimums, its license shall be converted
from co-exclusive to non-exclusive.
5.13 PATENT MARKING, LICENSE LEGEND AND TRADEMARKS. BMX shall mark each
Licensed Diagnostic Assay and Other Licensed Product (i) with appropriate patent
and copyright notices, (ii) with notices that the Licensed Diagnostic Assays are
licensed for one-time use only and only in the Licensed Field, and not for
research purposes, and (iii) with a trademark and other logo of AFFX, all in
accordance with reasonable instructions to be provided by AFFX, and reasonably
acceptable to BMX. BMX shall notify AFFX when such notice must be provided for
each product release.
ARTICLE VI. ROYALTIES
6.1 ROYALTIES PAYABLE TO AFFX IN RESPECT OF SALE OF AFFX HIGH DENSITY
PROBE ARRAYS.
(a) For the license to AFFX Licensed Core Technology and AFFX
Collaboration Technology under Section 5.2(a)(i), AFFX shall receive a royalty
based on the applicable royalty rate described below as applied to Net Sales of
Licensed Diagnostic Assays by BMX and its Affiliates to non-Affiliated third
parties, such sales being broken down by category depending upon the type of
Licensed DNA Probe Array included in such Licensed Diagnostic Assays. For each
quarter the applicable royalty rate shall be computed based on a fraction
consisting of (A) [ * ]
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[ * ] as the numerator over (B) the denominator consisting of the Net Sales
of the applicable Licensed Diagnostic Assays for such quarter expressed as a
percentage (the "Cost Ratio") for that particular product. If the Cost Ratio
is greater than or equal to [ * ] there shall be no royalty. If the Cost
Ratio is greater than or equal to [ * ] but less than [ * ] the royalty rate
shall be [ * ] less [ * ] of the Cost Ratio. If the Cost Ratio is greater
than or equal to [ * ] but less than [ * ], the royalty rate shall be [ * ]
less [ * ] of the Cost Ratio. If the Cost Ratio is less than [ * ] the
royalty rate shall be [ * ] the Cost Ratio. Upon expiration or loss of
exclusivity pursuant to Section 5.7, the royalty for such Licensed Diagnostic
Assays under Section 5.2(a)(i) during the remainder of the royalty term shall
be reduced by [ * ]
(b) The Parties recognize that the above royalty structure is based
on the assumption that BMX's dominant or sole source of profit in the Licensed
Field is on disposable kits. Should BMX's business model change such that a
significant profit source of BMX is in the distribution of instrumentation,
software, data or otherwise, the Parties will confer to modify the above royalty
structure accordingly.
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6.2 ROYALTY TERM. The royalty obligation shall continue during the life
of any patent upon any invention included by way of patent or application in the
licensed AFFX Licensed Core Technology and during the life of any subsequently
issued AFFX patent included therein the claims of which cover the applicable
Licensed Diagnostic Assay. In any event, royalties shall be payable on a
product-by-product basis in each of the three major Regions for a minimum of ten
(10) years from first sale of a Licensed Diagnostic Assay in a major country of
each such Region, and in respect of any product as to which BMX has rights
hereunder related to Know-how for the duration of such rights, provided that
such Know-how is secret and substantial, and provided further that after the
above-mentioned ten (10) year period and expiration of Patents in any territory,
the royalty rate then applicable shall be reduced by [ * ] and provided
further that if the only remaining AFFX Licensed Core Technology used in
connection with the product consists of Copyright(s), the royalty rate for use
thereof shall be a reasonable rate for such use to be agreed by the Parties.
6.3 REPORTS AND PAYMENT. BMX shall deliver to AFFX within sixty (60) days
after the end of each calendar quarter a written report showing its computation
of royalties due upon Licensed Diagnostic Assays under this Agreement upon Net
Sales by BMX and its Affiliates during such calendar quarter. All Net Sales
shall be segmented in each such report according to sales of applicable
categories of Licensed Diagnostic Assays by BMX and each Affiliate, as well as
on a country-by-country basis, including the rates of exchange used to convert
such royalties to United
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States Dollars from the currency in which such sales were made. Such
calculation shall be made in accordance with the internal accounting procedures
of bioMerieux S.A. as of the Effective Date and described in Schedule 7 hereto.
Subject to the provisions of Section 6.4 of this Agreement, simultaneously with
the delivery of each such report, BMX shall tender payment in United States
Dollars of all royalties shown to be due therein. The balance remaining unpaid
fifteen (15) days after the due date shall bear interest at the rate of [ * ]
percentage points above the prime interest rate quoted by the Bank of America on
the unpaid balance.
6.4 TAXES. Any and all taxes imposed or levied on account of royalties
payable under this Agreement which are required to be withheld by BMX or its
Affiliates shall be withheld by BMX and its Affiliates, as the case may be, and
shall be paid to the proper taxing authority. Proof of payment shall be secured
and sent to AFFX by BMX as evidence of such payment. Such taxes shall be
deducted from the royalty that would otherwise be remittable by BMX and its
Affiliates.
6.5 RECORDS. BMX shall keep, and shall require all its Affiliates to
keep, for a period of at least three years, full, true and accurate books of
account and other records containing all information and data which may be
necessary to ascertain and verify the royalties payable hereunder. During the
term of this Agreement and for a period of three years following its
termination, AFFX shall have the right from time to time (not to exceed once
during each calendar year) to inspect in confidence, or have an agent,
accountant or other representative inspect in
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confidence, such books, records and supporting data. If the inspection
report discloses an underpayment of [ * ] or more in the amounts due, the
cost of such inspection shall be borne by BMX and the underpaid amount shall
be paid to AFFX within thirty (30) days of such reporting.
6.6 SPECIAL ARRANGEMENT AS TO CERTAIN THIRD PARTY ROYALTIES. The Parties
acknowledge that the practice of the Know-how that is within the scope of the
AFFX Core Technology as such scope is described on Schedule 6.6 hereto may
involve the use of proprietary rights of third parties. The Parties shall
endeavor to find a means of practicing such Know-how which does not fall within
the ambit of any such third party rights or otherwide maintain such costs at a
low level.
ARTICLE VII. PATENT PROSECUTION AND INFRINGEMENT RIGHTS
7.1 RESPONSIBILITY FOR PATENTING OF TECHNOLOGY.
(a) Except as otherwise provided in this Agreement, AFFX shall have
the right to seek or continue to seek or maintain patent protection on any AFFX
Collaboration Technology and any Joint Collaboration Technology in any country,
in reasonable consultation with BMX and consistent with ownership and rights as
herein agreed. If AFFX elects not to seek or continue to seek or maintain
patent protection on any such AFFX Collaboration Technology or Joint
Collaboration Technology in any country, BMX shall have the right, at its
expense, (i) to require AFFX to file, procure or maintain any patent or patent
application encompassed within AFFX Collaboration Technology, in AFFX's name, in
such countries and (ii) to require AFFX to or to file, procure
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and maintain in such countries patents on Joint Collaboration Technology. AFFX
agrees to advise BMX of all significant decisions taken with respect to this
section in a timely manner in order to allow BMX to protect its rights under
this Section. Except as otherwise provided in this Agreement, BMX shall have
the right to seek or continue to seek or maintain patent protection on any BMX
Collaboration Technology in any country. Each Party shall bear all costs
incurred by it in exercising the foregoing rights.
(b) Each Party shall provide the other Party with copies of all
substantive communications from all patent offices regarding applications or
patents on any Joint Collaboration Technology promptly after the receipt
thereof. Each Party shall provide the other Party with copies of all proposed
substantive communications to such patent offices regarding applications or
patents on any Joint Collaboration Technology in sufficient time before the due
date in order to enable the other Party an opportunity to comment on the content
thereof.
(c) Each Party shall make available to the other Party or its
authorized attorneys, agents or representatives, such of its employees whom the
other Party in its reasonable judgment deems necessary in order to assist it in
obtaining patent protection for the Joint Collaboration Technology. Each Party
shall sign or use its reasonable efforts to have signed all legal documents
necessary to file and prosecute patent applications or to obtain or maintain
patents at no cost to the other Party.
7.2 INFRINGEMENT.
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(a) Each Party shall promptly report in writing to the other Party
during the term of this Agreement, with respect to the Licensed Diagnostic
Products and the subject matter of the Collaboration, any (i) known infringement
or suspected infringement of any of the Patent Rights, (ii) known infringement
or suspected infringement of any of the Copyrights, or (iii) unauthorized use or
misappropriation of Know-How or Confidential Information by a third party of
which it becomes aware, and shall provide the other Party with all available
evidence supporting said infringement, suspected infringement or unauthorized
use or misappropriation.
(b) Each Party shall have the right to initiate an infringement or
other appropriate suit against any third party who at any time has infringed, or
is suspected of infringing, any of such Party's solely owned Patent Rights or
Copyrights or of using without proper authorization all or any portion of such
Party's solely owned Know-How. Except as provided in subsection (d) below, AFFX
shall have the first right to initiate an infringement or other appropriate suit
against any third party who at any time has infringed, or is suspected of
infringing, any of the Patent Rights constituting Joint Collaboration Technology
or Copyrights constituting Joint Collaboration Technology or of using without
proper authorization all or any portion of the Know-How constituting Joint
Collaboration Technology. With respect to any suit involving such Joint
Collaboration Technology, AFFX shall give BMX sufficient advance notice of its
intent to file said suit and the reasons therefor, and shall provide BMX with an
opportunity to make suggestions and comments
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regarding such suit. AFFX shall keep BMX promptly informed, and shall from time
to time consult with BMX regarding the status of any such suit and shall provide
BMX with copies of all documents filed in, and all written communications
relating to, such suit.
(c) AFFX shall have the sole and exclusive right to select counsel
for any suit involving the Joint Collaboration Technology referred to in
subsection (b) above and shall, except as provided below, pay all expenses of
the suit, including without limitation attorneys' fees and court costs. BMX,
in its sole discretion, may elect, within sixty (60) days after the
commencement of such litigation, to contribute a fixed percentage of up to
[ * ] of the costs incurred by AFFX in connection with such litigation,
including, without limitation, reimbursement of AFFX's expenses hereunder.
If it so elects, any damages, royalties, settlement fees or other
consideration received by AFFX or any of its Affiliates for past infringement
or misappropriation as a result of such litigation shall be shared by the
Parties pro-rata based on their respective sharing of the costs of such
litigation. In the event that BMX elects not to contribute to the costs of
such litigation, AFFX and/or its Affiliates shall be entitled to retain any
damages, royalties, settlement fees or other consideration for past
infringement or misappropriation resulting therefrom. If necessary or
desirable, BMX shall join as a party to the suit but shall be under no
obligation to participate except to the extent that such participation is
required as the result of being a named party to the suit. If AFFX requires
BMX to join in such suit and BMX has not elected to contribute to the costs
of such
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suit, AFFX shall indemnify and defend BMX against any claims or damages arising
out of the initiation of such suits or any claims for injunctive relief against
such third party infringers. BMX shall have the right to participate and be
represented in any such suit by its own counsel at its own expense. BMX shall
offer reasonable assistance to AFFX in connection therewith at no charge to AFFX
except for reimbursement of reasonable out-of-pocket expenses, including
salaries of BMX's personnel, incurred in rendering such assistance. BMX shall
have the right to participate and be represented in any such suit by its own
counsel at its own expense.
(d) In the event that AFFX elects not to initiate an infringement or
other appropriate suit involving the Joint Collaboration Technology pursuant to
subsection (b) above, AFFX shall promptly advise BMX of its intent not to
initiate such suit, and BMX shall have the right, at its expense, of initiating
an infringement or other appropriate suit against any third party who at any
time has infringed, or is suspected of infringing, any of the Patent Rights
constituting Joint Collaboration Technology or Copyrights constituting Joint
Collaboration Technology or of using without proper authorization all or any
portion of the Know-How constituting Joint Collaboration Technology. In
exercising its rights pursuant to this subsection (d), BMX shall have the sole
and exclusive right to select counsel and shall, except as provided below, pay
all expenses of the suit including without limitation attorneys' fees and court
costs. AFFX in its sole discretion, may elect, within sixty (60) days after the
commencement of such litigation, to contribute a fixed percentage
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
of up to [ * ] of the costs incurred by BMX in connection with
such litigation, including, without limitation, reimbursement of BMX's expenses
hereunder. If it so elects, any damages, royalties, settlement fees or other
consideration received by BMX or any of its Affiliates for past infringement or
misappropriation as a result of such litigation shall be shared by the Parties
pro rata based on their respective sharing of the costs of such litigation. In
the event that AFFX elects not to contribute to the costs of such litigation,
BMX and/or its Affiliates shall be entitled to retain any damages, royalties,
settlement fees or other consideration for past infringement or misappropriation
resulting therefrom. If necessary or desirable, AFFX shall join as a party to
the suit but shall be under no obligation to participate except to the extent
that such participation is required as a result of being a named party to the
suit. At BMX's request, AFFX shall offer reasonable assistance to BMX in
connection therewith at no charge to BMX except for reimbursement of reasonable
out-of-pocket expenses, including salaries of AFFX's personnel, incurred in
rendering such assistance. If BMX requires AFFX to join in such suit and AFFX
has not elected to contribute to the costs of such suit, BMX shall indemnify and
defend AFFX against any claims or damages arising out of the initiation of such
suits or any claims for injunctive relief against such third party infringers.
AFFX shall have the right to participate and be represented in any such suit by
its own counsel at its own expense.
7.3 CLAIMED INFRINGEMENT.
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(a) In the event that a third party at any time provides written
notice of a claim to, or brings an action, suit or proceeding against, either
Party or any of their respective Affiliates, including claims made to BMX by
distributors or customers, claiming infringement of its patent rights or
copyrights or unauthorized use or misappropriation of its know-how, based upon
an assertion or claim arising out of the development, use, manufacture,
importation, distribution and/or sale of Licensed Diagnostic Products, such
Party shall promptly upon learning thereof notify the other Party of the claim
or the commencement of such action, suit or proceeding, enclosing a copy of the
claim and/or all papers served. Each Party agrees to make available to the
other Party its advice and counsel regarding the technical merits of any such
claim at no cost to the other Party.
(b) EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE FOREGOING
STATES THE ENTIRE RESPONSIBILITY OF THE PARTIES IN THE CASE OF ANY CLAIMED
INFRINGEMENT OR VIOLATION OF ANY THIRD PARTY'S PATENT RIGHTS OR COPYRIGHTS OR
UNAUTHORIZED USE OR MISAPPROPRIATION OF ANY THIRD PARTY'S KNOW-HOW.
ARTICLE VIII. CONFIDENTIAL INFORMATION
8.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each Party hereto shall
maintain the Confidential Information of the other Party in confidence, and
shall not disclose, divulge or otherwise communicate such Confidential
Information to others, or use it for any purpose, except as permitted or
contemplated by this Agreement or pursuant to, and in order to carry out, the
terms and objectives of this Agreement, and hereby agrees to exercise
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every reasonable precaution to prevent and restrain the unauthorized disclosure
of such Confidential Information by any of its directors, officers, employees,
consultants, collaborators, subcontractors, agents, Affiliates, Distributors or
Sublicensees. Each party agrees to use reasonable efforts to maintain in
confidence the Know-how licensed to or communicated to the Other Party;
provided, however, that the foregoing shall not limit either party from
disclosing its confidential information under appropriate terms of
confidentiality to third party licensees as appropriate (but only if and to the
extent AFFX can disclose such confidential AFFX information without making any
disclosure of BMX confidential information).
8.2 RELEASE FROM RESTRICTIONS. The provisions of Section 8.1 shall not
apply to any Confidential Information disclosed hereunder which:
(a) was known or used by the receiving Party or its Affiliates prior
to its date of disclosure to the receiving Party, as evidenced by the prior
written records of the receiving Party or its Affiliates or was independently
developed by employees or consultants of the receiving party who had no access
to such Confidential Information of the disclosing party; or
(b) either before or after the date of the disclosure to the
receiving Party is lawfully disclosed without restriction on disclosure to the
receiving Party or its Affiliates by an independent, unaffiliated third party
rightfully in possession of the Confidential Information; or
(c) either before or after the date of the disclosure to the
receiving Party becomes published or generally known to
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the public through no fault or omission on the part of the receiving Party or
its Affiliates; or
(d) is required to be disclosed by the receiving Party to comply with
applicable laws, to defend or prosecute litigation or to comply with
governmental regulations, provided that the receiving Party provides prior
written notice of such disclosure to the other Party and takes reasonable and
lawful actions to avoid and/or minimize the degree of such disclosure.
8.3 PUBLICATIONS. The following restrictions shall apply with respect to
the disclosure in scientific journals or publications or oral communications at
any trade show or conference by any Party or any of its Affiliates or any
employee or consultant of any Party or any of its Affiliates of Confidential
Information of the other Party relating to the Collaboration:
(a) a Party (the "publishing Party") shall provide the other Party
with an advance copy or summary of any proposed publication or communication
(which may be in draft form) and such other Party shall have a reasonable
opportunity to recommend any changes it reasonably believes are necessary to
preserve patent rights, copyrights or know-how belonging in whole or in part to
AFFX or BMX, and the incorporation of such recommended changes shall not be
unreasonably refused; and
(b) if such other Party informs the publishing Party, within thirty
(30) days of receipt of an advance copy or summary of a proposed publication or
communication, that such publication in its reasonable judgment could be
expected to have a material adverse effect on any patent rights, copyrights or
know-how
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belonging in whole or in part to AFFX or BMX, the publishing Party shall, to the
extent permitted by its agreements with its employees and consultants, delay or
prevent such publication as proposed. In the case of inventions, the delay
shall be sufficiently long, but not less that ninety (90) days, to permit the
timely preparation and filing of a patent application or application(s) for a
certificate of invention on the information involved.
ARTICLE IX. TERMINATION
9.1 TERM OF AGREEMENT. Unless earlier terminated in accordance with the
provisions of this Article IX, this Agreement shall remain in effect until the
later of (a) the expiration of the licenses granted in Section 5.2(a) of this
Agreement or (b) the supply obligations set forth in the Manufacturing
Agreement.
9.2 TERMINATION OF COLLABORATION. AFFX may cause the development portion
of the Collaboration to terminate, without prejudice to the licenses granted by
this Agreement and the other provisions hereof, and without prejudice to the
Manufacturing Agreement, upon six (6) months prior notice to BMX, provided that
no such termination shall be effective until the completion of the term of the
initial commitment as described in Section 2.4 and the substantial fulfillment
of AFFX's obligations under any Agreed Budget and Agreed Workplan; provided,
however, that without the written consent of BMX AFFX shall not terminate the
development portion of the collaboration at such time or in such manner as to
prevent the formulation of such specifications as may be reasonably necessary to
permit implementation of the
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Manufacturing Agreement as contemplated hereby. In the event that AFFX
terminates the Collaboration pursuant to this Section 9.2 upon completion of the
initial commitment as described in Section 2.4 and, notwithstanding request by
BMX for continuation of the Collaboration for an additional Contract Year fails
to negotiate in good faith such continuation, then the Collaboration shall cease
without prejudice to the other obligations of the Parties as provided in Section
9.1; provided, however, that the licenses to AFFX under BMX's Collaboration
Technology shall also terminate. BMX may cause the development portion of the
Collaboration to terminate upon six (6) months prior notice to AFFX provided
that termination occurs after completion of the initial commitment as described
in Section 2.4 and the substantial fulfillment of BMX'S obligations under any
Agreed Budget and Agreed Workplan. Such termination by BMX as permitted hereby
shall be without prejudice to the licenses granted hereby, which shall continue
in effect.
9.3 TERMINATION BY BMX. In the event that, at any time prior to first
launch by BMX of a Licensed Diagnostic Assay in the Bacteriology Field in a
Major Market Country, BMX decides not to continue to support the Agreed Budget
and Agreed Workplan (and provided that BMX and AFFX are unable to agree on
appropriate modifications to such Budget and Workplan), BMX shall promptly so
notify AFFX in writing that it wishes to terminate the Collaboration and this
Agreement and all licenses to AFFX technology hereunder shall terminate. In the
event of such termination, to the extent BMX has not already funded its minimum
commitment under Section 3.1 or under any Agreed Budget, as
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applicable, BMX shall pay such amounts to AFFX, together with such additional
amount as may be necessary to assure that AFFX receives funding at the level
previously agreed by BMX for a 12-month period following notice of termination,
and AFFX shall be free to use such funds on its own behalf or otherwise without
any obligation to BMX.
9.4 TERMINATION OF AGREEMENT FOR BREACH. Each Party shall be entitled
(but not required) to terminate this Agreement by written notice to the other
Party in the event that the other Party shall be in default of any of its
material obligations hereunder or if the other Party shall have materially
breached a covenant, representation or warranty made in this Agreement, and
shall fail to remedy any such default or breach within forty-five (45) days
after notice thereof by the non-breaching Party; provided, however, that in the
event of any dispute as to the existence of a default or the adequacy of remedy
thereof the Party charged with breach or failure to remedy may require that the
right to terminate be determined in arbitration pursuant to Section 14.1 and in
the event the arbitrator(s) determine there were reasonable grounds for the
Party so charged to dispute termination and that such Party acted in good faith,
the arbitrator(s) may afford reasonable opportunity to cure upon such terms as
they may direct. Any notice by a Party of termination pursuant to this section
shall specifically state that the non-breaching Party intends to terminate this
Agreement in the event that the breaching Party shall fail to remedy the
default. Upon termination of this Agreement pursuant to this Section 9.4, all
licenses and sublicenses granted pursuant to this Agreement shall
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terminate. The election by a Party to terminate this Agreement shall be without
prejudice to any other rights a Party may have with respect to such putative
breach.
9.5 SURVIVAL OF OBLIGATIONS: RETURN OF CONFIDENTIAL INFORMATION. Upon
any termination of this Agreement, neither Party shall be relieved of any
obligations incurred prior to such termination. Notwithstanding any termination
of this Agreement, the obligations of the Parties under Article 9 and Sections
6.3, 7.3, 10.1, Article 8 and Section 14.1, as well as under any licenses which
are maintained in effect and any other provisions which by their nature are
intended to survive any such termination, shall survive and continue to be
enforceable. Upon any termination of this Agreement, each Party shall promptly
return to the other Party all written Confidential Information, and all copies
thereof, of the other Party which is not covered by a license surviving such
termination, except for one copy thereof that may be retained by a Party's legal
department for archival purposes.
ARTICLE X. INDEMNIFICATION AND LIABILITY LIMITATIONS
10.1 PRODUCT LIABILITY INDEMNIFICATION.
(a) Except to the extent otherwise provided herein and in the
Manufacturing Agreement, BMX agrees to defend AFFX [ * ]
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[ * ] The indemnity set forth in the foregoing sentence shall not apply in
the case of any Losses attributable to (i) [ * ]
(b) Except to the extent otherwise provided herein and in the
Manufacturing Agreement, AFFX agrees to defend BMX and [ * ]
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by Affymetrix, Inc.
[ * ] The indemnity set forth in the foregoing sentence shall not apply in
the case of [ * ]
10.2 INDEMNIFICATION OF BMX. Except to the extent otherwise provided
herein and in the Manufacturing Agreement, and [ * ] AFFX agrees to defend
BMX [ * ]
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by Affymetrix, Inc.
[ * ]
In addition to the foregoing indemnification, in the event of
substantial and extended inability of AFFX to practice the AFFX Licensed Core
Technology or to deliver Licensed DNA Probe Arrays due to circumstances as to
which BMX would be indemnified under subsection (i) above, the Parties shall
consult in good faith and, absent cure within a reasonable time, BMX shall be
free to terminate this Agreement and the Manufacturing Agreement.
10.3 PROCEDURE FOR INDEMNIFICATION. In the event of any such claim against
an indemnified party or its Affiliates or any of their agents, directors,
officers or employees, the indemnified party shall promptly notify the
indemnifying party in writing of the claim and the indemnifying party shall
manage and control, at its sole expense, the defense of the claim and the
settlement, the indemnified party shall cooperate with the indemnifying party
and may, at its option and expense, be represented in any such action or
proceeding. The parties shall consult as to any proposal for settlement of an
indemnified claim
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and neither party shall agree to any settlement which materially prejudices the
interests of the other party without the prior written consent of such other
party which shall not be unreasonably withheld. The indemnifying party shall
not be liable for any settlements, litigation costs or expenses incurred by the
indemnified party without the indemnifying party's written authorization.
ARTICLE XI. EXPORT
11.1 ACKNOWLEDGMENT. The Parties acknowledge that the export of technical
data, materials or products is subject to the exporting Party receiving the
necessary export licenses and that the Parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of either Party. The Parties agree that regardless of any disclosure made by
the Party receiving an export of an ultimate destination of any technical data,
materials or products, the receiving Party will not reexport either directly or
indirectly, any technical data, material or products without first obtaining the
applicable validated or general license from the United States Department of
Commerce, United States Food and Drug Administration and/or any other agency or
department of the United States Government, as required. The receiving Party
shall provide the exporting Party with any information, materials,
certifications or other documents which may be reasonably required in connection
with such exports under the Export Administration Act of 1979, as amended, its
rules and regulations, the Federal Food, Drug and Cosmetic Act and other
applicable export laws.
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11.2 WRITTEN ASSURANCE. Without limitation of the foregoing, and in
support of maintaining a general license for the export of technical data under
this Agreement, a Party receiving an export agrees to not knowingly export or
reexport any technical data or materials furnished to such Party under this
Agreement, any part thereof or any direct product thereof, directly or
indirectly, without first obtaining permission to do so from the United States
Department of Commerce, the United States Food and Drug Administration and/or
other appropriate United States governmental agencies, into any country to which
restrictions apply.
ARTICLE XII. REPRESENTATIONS AND WARRANTIES
12.1 REPRESENTATIONS AND WARRANTIES OF AFFX. AFFX represents and warrants
to BMX as follows:
(a) POWER AND AUTHORITY. The execution and delivery of this
Agreement and the Manufacturing Agreement and the performance of the
transactions contemplated hereby and thereby have been duly authorized by all
appropriate corporate action, and AFFX has all requisite power and authority
to enter into this Agreement and the Manufacturing Agreement and to perform its
obligations hereunder and thereunder, and each of this Agreement and the
Manufacturing Agreement constitutes a valid and binding obligation of AFFX,
enforceable against AFFX in accordance with its terms.
(b) NO BREACH. The performance by AFFX of any of the terms and
conditions of this Agreement on its part to be performed does not and will not
constitute a breach of any other
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agreement or understanding, whether written or oral, to which it or any of its
Affiliates is a party.
(c) RIGHTS TO INTELLECTUAL PROPERTY.
(i) Set forth on Schedule 2 is a listing, to the extent known as
of the date hereof, identifying the Patents of AFFX (such Patents, along with
associated Know-how and Copyrights referred to as the "AFFX IP") to be utilized,
in the Collaboration and in connection with the Manufacturing Agreement.
(ii) AFFX owns or has the right to use pursuant to license,
sublicense, agreement or permission all the AFFX IP.
12.2 REPRESENTATIONS AND WARRANTIES OF BMX.
(a) POWER AND AUTHORITY. The execution and delivery of this
Agreement and the Manufacturing Agreement and the performance of the
transactions contemplated hereby and thereby have been duly authorized by all
appropriate corporate action, and BMX has all requisite power and authority
to enter into this Agreement and the Manufacturing Agreement and to perform its
obligations hereunder and thereunder, and each of this Agreement and the
Manufacturing Agreement constitutes a valid and binding obligation of BMX,
enforceable against BMX in accordance with its terms.
(b) NO BREACH. The performance by BMX of any of the terms and
conditions of this Agreement on its part to be performed does not and will not
constitute a breach of any other agreement or understanding, whether written or
oral, to which it or any of its Affiliates is a party.
(c) RIGHTS TO INTELLECTUAL PROPERTY.
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(i) Set forth on Schedule 5 is a listing, to the extent known as
of the date hereof, identifying the Patents of BMX (such Patents, along with
associated Know-how and Copyrights to the extent deemed applicable to the
purposes of the Collaboration referred to as the "BMX IP") to be utilized to the
extent that BMX deems it useful, in the Collaboration and in connection with the
Licensed Diagnostic Products.
(ii) BMX owns or has the right to use pursuant to license,
sublicense, agreement or permission all the BMX IP.
ARTICLE XIII. MISCELLANEOUS
13.1 PUBLICITY. Neither Party, nor any of its Affiliates, shall originate
any publicity, news release or other public announcement, written or oral,
relating to this Agreement or the existence of an arrangement between the
Parties, without the prior written approval of the other Party, which approval
shall not be unreasonably withheld, except as otherwise required by law.
13.2 ASSIGNMENT. Except as otherwise provided in this Agreement, neither
this Agreement nor any of the rights or obligations hereunder may be assigned by
either Party without the prior written consent of the other Party, except that
either Party may assign to an Affiliate, or to a party who acquires all or
substantially all of the relevant business relating to the subject matter of
this Agreement by merger, acquisition, sale of assets or otherwise.
13.3 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of California
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(without regard to its or any other jurisdiction's choice of law principles)
except that any arbitration hereunder shall be subject to the federal law
applicable to arbitration.
13.4 FORCE MAJEURE. In the event that either Party is prevented from
performing or is unable to perform any of its obligations under this Agreement
due to any act of God; fire; casualty; flood; war; strike; lockout; failure of
public utilities; injunction or any act, exercise, assertion or requirement of
governmental authority; epidemic; destruction of production facilities; riots;
insurrection; inability to procure or use materials, labor, equipment,
transportation or energy; or any other cause beyond the reasonable control of
the Party invoking this Section 13.4 if such Party shall have used its best
efforts to avoid such occurrence, such Party shall give notice to the other
Party in writing promptly, and thereupon the affected Party's performance shall
be excused and the time for performance shall be extended for the period of
delay or inability to perform due to such occurrence.
13.5 WAIVER. The waiver by either Party of a breach or a default of any
provision of this Agreement by the other Party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either Party to exercise or avail itself of
any right, power or privilege that it has or may have hereunder operate as a
waiver of any right, power or privilege by such Party.
13.6 NOTICES. Any notice or other communication in connection with this
Agreement must be in writing and if by mail,
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by certified mail, return receipt requested, and shall be effective when
delivered to the addressee at the address listed below or such other address as
the addressee shall have specified in a notice actually received by the
addressor.
If to AFFX: Affymetrix, Inc.
3380 Central Expressway
Santa Clara, California 95051
Attention: President
If to BMX: bioMerieux Vitek, Inc.
595 Anglum Drive
Hazelwood, Missouri 63042-2395
Attention: President
13.7 CALENDAR AND BUSINESS DAYS. Unless otherwise expressly stated to be
business days, all references to days shall mean calendar days; provided,
however, that if the last date or the deadline for the giving of notice or
performance of any other act or fulfillment or satisfaction of any condition set
forth in this Agreement shall fall on a day which is not a business day, then
the time for the giving of such notice or performance of such act or fulfillment
or satisfaction of such condition shall be extended to the next business day.
As used herein, the term "business days" shall mean all days other than
Saturdays, Sundays or state or federal holidays.
13.8 NO AGENCY. Nothing herein shall be deemed to constitute either Party
as the agent or representative of the other Party, or both Parties as joint
venturers or partners for any purpose. Each Party shall be an independent
contractor, not an employee or partner of the other Party, and the manner in
which a Party renders its services under this Agreement shall be within such
Party's sole discretion. Neither Party shall be responsible for the acts or
omissions of the other Party, and
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neither Party will have authority to speak for, represent or obligate the other
Party in any way without prior written authority from the other Party.
13.9 ENTIRE AGREEMENT. This Agreement, the Manufacturing Agreement and
the Schedules, Annexes and Exhibits hereto and thereto (which Schedules, Annexes
and Exhibits are deemed to be a part of this Agreement and the Manufacturing
Agreement for all purposes) contain the full understanding of the Parties with
respect to the subject matter hereof and supersede all prior understandings and
writings relating thereto. No waiver, alteration or modification of any of the
provisions hereof shall be binding unless made in writing and signed by the
Parties by their respective officers thereunto duly authorized.
13.10 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not be considered in construing this
Agreement.
13.11 SEVERABILITY. In the event that any provision of this Agreement is
held by a court or arbitral panel of competent jurisdiction to be unenforceable
because it is invalid or in conflict with any law of any relevant jurisdiction,
the validity of the remaining provisions shall not be affected, and the rights
and obligations of the Parties shall be construed and enforced as if the
Agreement did not contain the particular provisions held to be unenforceable.
13.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their successors and permitted
assigns.
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13.13 THIRD PARTIES. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any third party.
13.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
ARTICLE XIV. ARBITRATION
14.1 ARBITRATION. In the event of any controversy or claim relating to,
arising out of or in any way connected to any provision of this Agreement
("Dispute"), the Parties shall seek to settle their differences amicably between
themselves. Any unresolved Dispute shall be finally resolved by final and
binding arbitration, subject to the patent exception referred to below (the
"Patent Exception"). Whenever a Party shall decide to institute arbitration
proceedings, it shall give written notice to that effect to the other Party.
The Party giving such notice shall refrain from instituting the arbitration
proceedings for a period of ten (10) days following such notice to allow the
Parties to attempt to resolve the Dispute between themselves. If the Parties
are still unable to resolve the dispute, the Party giving notice may institute
the arbitration proceeding under the rules of the International Chamber of
Commerce ("ICC Rules"). Arbitration shall be held in Chicago, Illinois. The
arbitration shall be conducted before a single arbitrator mutually chosen by the
Parties, but if the parties have not agreed upon a single arbitrator within
fifteen (15) days after notice of the
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institution of the arbitration proceeding, then the arbitration will be
conducted by a panel of three arbitrators. In such case, each Party shall
within thirty (30) days after notice of the institution of the arbitration
proceedings appoint one arbitrator. The presiding arbitrator shall then be
appointed in accordance with ICC Rules. All arbitrator(s) eligible to conduct
the arbitration must undertake in writing as a condition of service to render
their opinion(s) promptly after the final arbitration hearing. No arbitrator
(nor the panel of arbitrators) shall have the power to award punitive damages or
any award of multiple damages under this Agreement and such awards are expressly
prohibited. Decisions of the arbitrator(s) shall be final and binding on the
Parties. Notwithstanding the foregoing, if within ten (10) days of the first
occasion when the Parties' representatives meet with the arbitrator(s) a Party
give notice by written designation of any matter relating solely to the validity
or scope of any Patent as being subject to the Patent Exception referred to
above, the matter so designated shall be set aside by the arbitrator(s) and
shall not be decided by them, provided that the matter so designated constitutes
a matter of which a United States District Court would have jurisdiction
pursuant to 28 U.S.C. Section 1338(a), whether by way of action for declaratory
judgement or otherwise, and provided further that such matter is submitted by
the designating Party for decision by such court upon a complaint filed within
thirty (30) days of such designation, to be decided as such court may determine.
In such case, the non-designating Party may elect (no later than the date on
which it files its answer to the complaint
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in the District Court) to refer the entire matter in controversy to such court,
but if such Party does not make such election the arbitrator(s) shall proceed to
decide the remaining matter before them to the extent feasible and shall take
such other action in such regard as they deem appropriate. Judgment on the
award of the arbitrator(s) may be entered in any court having jurisdiction
thereof. Except to the extent entry of judgment and any subsequent enforcement
may require disclosure, all matters relating to the arbitration, including the
award, shall be held in confidence by the Parties.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as a sealed instrument in their names by their properly and duly
authorized officers or representatives as of the date first above written.
AFFYMETRIX, INC. bioMERIEUX VITEK, INC.
By: /s/ Stephen P.A. Fodor By: /s/ Philippe Archinard
----------------------------- -------------------------------
Its: President Its: President
----------------------------- -------------------------------
Date: October 14, 1996 Date: September 26, 1996
----------------------------- -------------------------------
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
Schedule 1
Initial Agreed Budget and Agreed Workplan
WORKPLAN FOR [ * ]
Overview The agreement between bioMeriux and Affymetrix includes the objective
of developing a new integrated DNA probe based diagnostic system for launch in
major markets and submission to FDA by [ * ]. This workplan details the
early phases of the work to establish the Product Concept and Technical
Feasibility. It is intended to complement the parallel Workplan for the
Mycobacterial Chip.
Concept/feasibility - [ * ]
Product Concept - The first objective of the concept/feasibility stage is to
formulate, and then test with marketing studies, a product concept for the first
generation system by [ * ]. This market concept will include:
[ * ]
A broad concept "goal" has been set as follows and will be refined through
technical studies and market feedback during this concept/feasibility phase.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Feature [ * ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Menu [ * ]
- --------------------------------------------------------------------------------
[ * ]
- --------------------------------------------------------------------------------
Contamination control [ * ]
- --------------------------------------------------------------------------------
Multidetection [ * ]
- --------------------------------------------------------------------------------
First result available [ * ]
- --------------------------------------------------------------------------------
Throughput [ * ]
- --------------------------------------------------------------------------------
Automation and sample prep [ * ]
- --------------------------------------------------------------------------------
Disposable [ * ]
- --------------------------------------------------------------------------------
Quantification [ * ]
- --------------------------------------------------------------------------------
Target market [ * ]
- --------------------------------------------------------------------------------
Target launch date [ * ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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[ * ]- The second objective of the concept/feasibility phase is to
[ * ]
Technical approach - [ * ] will all be tested and scored.
[ * ]
[ * ]- The third objective of the concept/feasibility phase [ * ]
Technical Approach - [ * ] and cost will be estimated.
[ * ]
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[ * ]
Technical Approach - [ * ] will be studied.
Concept/Feasibility Demonstration - [ * ]
The goal of the concept/feasibility phase is define the different elements of
[ * ] The project aims to demonstrate a level of feasibility as described
below, on or before [ * ]
[ * ]
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Schedule 2
AFFX Licensed Patents
[ * ]
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Schedule 3
[ * ] Milestone 3.5(a) Performance Criteria
Milestone: [ * ] as follows:
1. [ * ]
2. [ * ]
3. [ * ]
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Schedule 4
Viral Agent Candidates
[ * ]
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Schedule 5
BMX Collaboration Related Patents
[To be provided in good faith by BMX within one (1) week of the Effective Date
and included herein.]
[ * ]
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Schedule 6
[ * ]
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Schedule 7
Currency Exchange
The currency exchange rates used to covert Net Sales made in currencies
other than the United States dollar by Affiliates of BMX shall be as follows.
1. Net Sales of Affiliates of BMX that are made in [ * ] (for which BMX
will provide AFFX copies in English at AFFX' request), shall be calculated,
and the Net Sales in such month converted using such conversion rate.
Royalty reports shall state the aggregate Net Sales for the applicable
quarter in U.S. dollars as so calculated, and shall state the conversion
rates applicable for each month in such quarter.
2. Net Sales of Affiliates of BMX that are made neither in [ * ] in the
manner set forth in paragraph 1. Royalty reports shall state the aggregate
Net Sales of each country for the applicable quarter in U.S. dollars as so
calculated, and shall state the conversion rates applied in each month to
calculate the [ * ] if available, or otherwise the [ * ] or another
applicable rate.
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TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS.................................................... 3
1.1 "Affiliate"....................................................... 3
1.2 "AFFX Collaboration Technology"................................... 3
1.3 "AFFX Licensed Core Technology"................................... 3
1.4 "Agreed Budget" and "Agreed Workplan"............................. 4
1.5 "Bacteriology Field".............................................. 4
1.6 "BMX Collaboration Technology".................................... 5
1.7 "Clinical Diagnosis".............................................. 5
1.8 "Collaboration"................................................... 5
1.9 "Collaboration Technology"........................................ 5
1.10 "Confidential Information"........................................ 5
1.11 "Contract Year"................................................... 6
1.12 "Copyrights"...................................................... 6
1.13 "Development Coordinating Committee".............................. 6
1.14 "DNA Probe Array"................................................. 6
1.15 "Full-Time Equivalent"............................................ 6
1.16 "Fully Loaded Manufacturing Cost"................................. 7
1.17 "High Density Probe Array"........................................ 7
1.18 "Joint Collaboration Technology".................................. 8
1.19 "Know-How"........................................................ 8
1.20 "Licensed Diagnostic Assay"....................................... 8
1.21 "Licensed Diagnostic Product"..................................... 9
1.22 "Licensed DNA Probe Array"........................................ 9
1.23 "Licensed Field".................................................. 9
1.24 "Major Market Country"............................................ 9
1.25 "Manufacturing Agreement"......................................... 9
1.26 "Net Sales"....................................................... 10
1.27 "Other Licensed Diagnostic Product"............................... 11
1.28 "Party"........................................................... 11
1.29 "Patents" or "Patent Rights"...................................... 11
1.30 "Probes".......................................................... 12
1.31 "Project Director"................................................ 12
1.32 "Related Funded Activities"....................................... 12
1.33 "Valid Patent Claim".............................................. 12
1.34 "Workplan"........................................................ 12
ARTICLE II. THE COLLABORATION............................................ 12
2.1 Purpose........................................................... 12
2.2 Committee......................................................... 13
2.3 Facilities........................................................ 14
2.4 Commitment........................................................ 14
2.5 Agreed Budgets and Workplan....................................... 15
2.6 Reports........................................................... 16
2.7 Staffing.......................................................... 16
2.8 Inspection........................................................ 18
2.9 Patent Assignment and Confidentiality Agreements.................. 19
2.10 Resolution of Impasse............................................. 19
ARTICLE III. FUNDING...................................................... 20
3.1 Collaboration Funding............................................. 20
3.2 Direct Expenses and Capital Funding for Equipment................. 21
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3.3 Related Activities................................................ 22
3.4 Other Expenditures................................................ 23
3.5 Milestone Payments................................................ 23
ARTICLE IV. DEVELOPMENT OBLIGATIONS....................................... 25
4.1 General Obligations............................................... 25
4.2 Supply of DNA Probe Arrays........................................ 26
4.3 Transition from Development to Manufacture........................ 28
4.4 BMX Supply........................................................ 28
4.5 Viral Agent Election.............................................. 29
ARTICLE V. OWNERSHIP; TECHNOLOGY RIGHTS................................... 29
5.1 Ownership of Collaboration Developments........................... 30
5.3 Option for Non-exclusive Licenses in the [ * ] and [ * ] Fields... 37
5.4 Industrial Testing and Other Fields............................... 38
5.5 Exclusivity of License............................................ 39
5.6 Limitations of License............................................ 39
5.7 Terms and Conditions of Exclusivity............................... 39
5.9 Assays Subject to Third Party Rights.............................. 44
5.10 Other Assays...................................................... 45
5.11 Loss of Right to Introduce New Assays and Other Products.......... 47
5.12 Entry by AFFX..................................................... 50
5.13 Patent Marking, License Legend and Trademarks..................... 50
ARTICLE VI. ROYALTIES..................................................... 51
6.1 Royalties Payable to AFFX in Respect of Sale of AFFX High Density
Probe Arrays...................................................... 51
6.2 Royalty Term...................................................... 52
6.3 Reports and Payment............................................... 53
6.4 Taxes............................................................. 54
6.5 Records........................................................... 54
6.6 Special Arrangement as to Certain Third Party Royalties........... 55
ARTICLE VII. PATENT PROSECUTION AND INFRINGEMENT RIGHTS................... 55
7.1 Responsibility for Patenting of Technology........................ 55
7.2 Infringement...................................................... 56
7.3 Claimed Infringement.............................................. 61
ARTICLE VIII. CONFIDENTIAL INFORMATION ................................... 61
8.1 Treatment of Confidential Information............................. 61
8.2 Release from Restrictions......................................... 62
8.3 Publications...................................................... 63
ARTICLE IX. TERMINATION................................................... 64
9.1 Term of Agreement................................................. 64
9.2 Termination of Collaboration...................................... 64
9.3 Termination by BMX................................................ 65
9.4 Termination of Agreement for Breach............................... 66
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9.5 Survival of Obligations: Return of Confidential Information...... 67
ARTICLE X. INDEMNIFICATION AND LIABILITY LIMITATIONS...................... 68
10.1 Product Liability Indemnification................................. 68
10.2 Indemnification of BMX............................................ 70
10.3 Procedure for Indemnification..................................... 71
ARTICLE XI. EXPORT........................................................ 71
11.1 Acknowledgment.................................................... 71
11.2 Written Assurance................................................. 72
ARTICLE XII. REPRESENTATIONS AND WARRANTIES............................... 73
12.1 Representations and Warranties of AFFX............................ 73
12.2 Representations and Warranties of BMX............................. 73
ARTICLE XIII. MISCELLANEOUS............................................... 75
13.1 Publicity........................................................ 75
13.2 Assignment....................................................... 75
13.3 Governing Law.................................................... 75
13.4 Force Majeure.................................................... 75
13.5 Waiver........................................................... 76
13.6 Notices.......................................................... 76
13.7 Calendar and Business Days....................................... 77
13.8 No Agency........................................................ 77
13.9 Entire Agreement................................................. 77
13.10 Headings......................................................... 78
13.11 Severability..................................................... 78
13.12 Successors and Assigns........................................... 78
13.13 Third Parties.................................................... 78
13.14 Counterparts..................................................... 78
ARTICLE XIV. ARBITRATION.................................................. 79
14.1 Arbitration....................................................... 79
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MANUFACTURING AGREEMENT
between
BIOMERIEUX VITEK, INC.
and
AFFYMETRIX, INC.
Confidential
<PAGE>
MANUFACTURING AGREEMENT effective as of September 1, 1996 ("Effective
Date") between AFFYMETRIX, INC., a California corporation having its principal
place of business at 3380 Central Expressway, Santa Clara, California 95051
(hereinafter referred to as "AFFX") and BIOMERIEUX VITEK, INC., a Missouri
corporation, having its principal place of business at 595 Anglum Drive,
Hazelwood, Missouri 63042-2395 (hereinafter referred to as "BMX").
RECITALS
WHEREAS, pursuant to a Collaboration Agreement of even date herewith
(the "Collaboration Agreement") between AFFX and BMX, AFFX and BMX have agreed
with respect to certain terms of a collaboration for the purpose of developing
DNA probe array based products that will, among other things, assist BMX in the
development of DNA probe based diagnostic systems to detect the presence,
identity and/or susceptibility of bacterial, fungal and certain viral
microorganisms for use in the clinical diagnosis of human disease and such other
uses as the parties may agree; and
WHEREAS, in connection with and following upon such Collaboration
(such term, and all other capitalized terms not otherwise defined herein having
the meanings ascribed to them in the Collaboration Agreement), AFFX has agreed
to supply and BMX has agreed to purchase BMX's requirements of certain DNA Probe
Arrays to be manufactured by AFFX on the terms and conditions set
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forth herein and to be used by BMX only as permitted pursuant to the licenses
granted in the Collaboration Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Manufacturing Agreement and other good and valuable
consideration, AFFX and BMX hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Manufacturing Agreement, the following terms shall
have the following meanings, and additional capitalized terms shall have the
meanings set out in the Collaboration Agreement:
1.1 "Base Technical Specifications" shall have the meaning set forth
in Section 2.1(a).
1.2 "Chip Product(s)" means the Licensed DNA Probe Arrays for which
there are Specifications.
1.3 "Event of Force Majeure" means an act of nature, acts of the
public enemy, freight embargoes, quarantine restrictions, labor strife or
strikes, insurrection, riot or other such event or events beyond the control of
AFFX or BMX.
1.4 "FCA Place of Manufacture" means that term as defined in
INCOTERMS (1990) with delivery to the carrier being made by AFFX at its
manufacturing facility for the Chip Product.
1.5 "Firm Order" shall have the meaning set forth in Section 4.2.
1.6 "Fully-Loaded Manufacturing Cost" means (a) costs [ * ]
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[ * ]including, but not limited to [ * ] on account of the manufacture of
product to the extent that [ * ] plus [ * ] including but not [ * ] being
determined in accordance with United States generally accepted cost
accounting practices, and shall additionally include amounts [ * ] of the
Collaboration Agreement if the Parties so elect. AFFX's [ * ] but shall be
separately billed on each invoice as applicable.
1.7 "Good Manufacturing Practices" means current Good Manufacturing
Practices as defined in 21 CFR Section 210 et seq. as amended from time to
time.
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1.8 "Governmental Entity" means any federal, state, local, executive,
judicial, legislative, administrative or other governmental or public agency,
board, body or authority, as applicable.
1.9 "Governmental Rules" means all federal, state or local statutes,
regulations, ordinances, rules, guidelines, orders, actions, or policies,
whether now in effect or enacted after the date of this Manufacturing Agreement.
1.10 "Lead-time" means the time elapsed from the date of issuance of
BMX's P.O. through the Ship Date.
1.11 "Manufacturing Agreement" means this agreement, together with
all of the terms and conditions hereof and attachments and exhibit(s) annexed
hereto, as the same may be modified, amended or supplemented from time to time.
1.12 "On-time" means on, or no more than [ * ] days prior to or
later than, Ship Date.
1.13 "Parties" means the two parties (BMX and AFFX) named in the
heading of this Manufacturing Agreement.
1.14 "Purchase Order" ("P.O.") means the written notification from
BMX to AFFX to the effect that BMX shall buy from AFFX a specified amount of
Chip Products.
1.15 "Price" means the Price BMX shall pay for certain Chip
Product(s) as set forth in Section 5.1 hereof.
1.16 "Process Know-How" means with respect to any party to this
Manufacturing Agreement, all Know-How used by such party pursuant to performance
of its obligations under this Manufacturing Agreement, and all other commercial
and technical information, including but not limited to techniques, formulae,
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trade secrets, processes, patent rights, and procedures, developed or used by
such-party in connection with the performance of its obligation under this
Manufacturing Agreement.
1.17 "Ship Date" means the bill of lading date or the airway bill
date for the purchased Chip Product(s).
1.18 "Specification(s)" means those acceptance and performance
specifications for a Chip Product, including probe selection layout and other
material characteristics, inspection standards and procedures therefor, based
upon or derived from the Base Technical Specifications established pursuant to
Section 2.2.
1.19 "Standards" means the applicable standards as detailed in the
Technical Information, applicable government and regulatory agency requirements
(such as FDA, CSA, CLIA, TUV, VDE), and other such Standards that apply to the
design, manufacture, and sale of the Chip Products.
1.20 "Standard Manufacturing Process" ("SMP") means with respect to a
Chip Product, characteristics of such Chip Product, as documented and recorded
pursuant to Section 3.4.
1.21 "Technical Information" means all technical knowledge,
information, data, trade secrets, manufacturing and test data, and technical
information involving or relating to the manufacture, production, maintenance
and operation of the Chip Products as have heretofore been or may hereafter be
disclosed to AFFX.
1.22 "Term" means the period commencing on the date of this
Manufacturing Agreement during which the Parties continue to be bound hereby.
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ARTICLE 2
MANUFACTURE AND TECHNICAL INFORMATION
2.1 DELIVERY OF TECHNICAL INFORMATION AND DOCUMENTATION.
(a) Based on DNA Probe Arrays or prototypes developed in the
Collaboration, BMX and AFFX, following consultation with the Development
Coordinating Committee, and in full consideration of the results of the research
work performed during the course of the Collaboration (the applicable results of
which shall have been disclosed in a timely manner and in full by AFFX to BMX
and by BMX to AFFX to the extent each is responsible for such work), shall
establish certain technical specifications in accordance with the terms of this
paragraph, which specifications are intended to set forth the entire range of
specifications foreseeably applicable to the DNA Probe Arrays to be manufactured
pursuant to this Agreement (the "Base Technical Specifications"). The Base
Technical Specifications shall be proposed by BMX in consultation with AFFX, and
shall be subject to the written approval of AFFX, which approval shall not be
unreasonably withheld. The Base Technical Specifications shall state, for each
such foreseeably relevant specification, a range of potential variations of such
specifications (which could include, for example, references to the physical
characteristics of the Licensed DNA Probe Array, the configuration of the
Licensed DNA Probe Array, or any other characteristic of the Licensed DNA Probe
Array deemed relevant to the manufacture or use of the Licensed DNA Probe
Array). The Base Technical Specifications will include minimum and maximum chip
sizes and feature sizes for
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the DNA Probe Arrays. The currently anticipated specifications for the DNA
Probe Arrays are set forth in Exhibit 1.
(b) The Base Technical Specifications shall be reviewed, periodically
as necessary but no less than annually after their establishment in accordance
with the preceding paragraph, and may be revised by mutual, written agreement of
the Parties to the extent the Parties deem it necessary to do so, based upon the
then-current results of work in the Collaboration and/or any other relevant
factors. It is recognized that from time to time the Base Specifications will
need to be revised to improve performance, increase information content, and
improve reliability of BMX's products. Such changes may be proposed by either
Party at an annual review, and will be reasonably considered by the other Party.
In the event that a mutually agreed upon change of Base Technical Specifications
or any agreed upon future revision thereof results in the need for changes to
instrumentation associated with the DNA Probe Arrays (i) AFFX shall continue to
manufacture DNA Probe Arrays of earlier designs during a reasonable instrument
phase-out program by BMX or until DNA Probe Arrays in accordance with the
revised Specifications are fully available, whichever is later, and (ii) AFFX
shall adapt its facilities, equipment and processes for manufacture of DNA Probe
Arrays in accordance with the revised specifications in a commercially
reasonable timeframe, and (iii) BMX shall adapt its instrumentation within a
commercially reasonable timeframe.
(c) In the event that (i) AFFX has proposed changes to the
specifications for the DNA Probe Arrays after [ * ] and is prepared to
commit as to a material reduction in
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manufacturing cost and transfer price as a result of such changes, (ii) such
specifications are met by other DNA Probe Arrays manufactured by AFFX in
quantity for use in similar applications as those of BMX and of similar quality,
and are able to be read on instrumentation of similar cost having technical
characteristics reasonably available to BMX pursuant to refitting or
substitution of instrumentation the cost of which would be commercially
reasonable, and (iii) BMX elects not to modify the specifications for such DNA
Probe Arrays, the "Cost Ratio" of the DNA Probe Arrays utilized in calculations
of royalties in Section 6.1 of the Collaboration Agreement commencing six (6)
months after such election shall [ * ]
2.2 DETAILED SPECIFICATIONS FOR LICENSED DNA PROBE ARRAYS. At least
six (6) months prior to the expected submission of the first P.O. for the Chip
Product(s), the Parties shall agree in writing on the Specifications for the
Chip Product(s) to be manufactured hereunder. AFFX will not unreasonably
withhold approval for such Specifications. The detailed Specifications shall be
consistent with the Base Technical Specifications. Thereafter BMX in
consultation with AFFX shall from time to time submit changes in the detailed
Specifications for existing Chip
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Products, as may be required, together with detailed Specifications for new Chip
Products. All such Specifications shall be subject to consent of AFFX as to
technical characteristics and mode of manufacture. Such consent shall not be
unreasonably withheld and if withheld the reasons therefor shall be given with
suggested technical modifications as appropriate to enable BMX to modify the
Specifications to permit manufacture and supply to the extent reasonably
feasible of any Chip Products within the Licensed Field. BMX recognizes that
such changes may impact AFFX' previously forecast cost of goods sold.
ARTICLE 3
MANUFACTURE AND PURCHASE OF CHIP PRODUCTS
3.1 MANUFACTURE AND PURCHASE OBLIGATIONS OF AFFX AND BMX. AFFX shall
manufacture, supply and deliver to BMX, and BMX shall purchase from AFFX, Chip
Products as are required to be so manufactured, supplied, delivered and
purchased as provided in this Article 3, and such other products referred to in
Section 3.3 for which valid P.O.s are submitted by BMX to, and accepted by,
AFFX. AFFX's obligation hereunder shall include an obligation to make use as
BMX may require of any third-party technology which AFFX has licensed to BMX
under the Collaboration Agreement or to which BMX may obtain a license for the
purposes hereof. Any cost of use of such third-party technology shall be
included in Fully-Loaded Manufacturing Cost as appropriate unless directly borne
by BMX.
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3.2 REQUIREMENTS. Subject to BMX's defined and limited right to
manufacture and have manufactured Chip Products as set forth in Section 3.5(b) -
(f) below, BMX shall be obligated to purchase from AFFX and AFFX shall be
obligated to supply BMX's Requirements for all High Density Probe Arrays in the
Licensed Field. For the purposes hereof, "Requirements" shall mean all High
Density Probe Arrays to be used or sold by BMX in the Licensed Field. In the
event that AFFX is unable to manufacture any portion of BMX Requirements whether
due to technical obstacles, difficulty of compliance with proposed
specifications, impediments created by third-party patent rights or other
causes, each Party shall use reasonable commercial efforts to seek to overcome
such inability, in such manner as to assure supply to BMX.
3.3 OTHER DISCRETIONARY P.O.s. In addition to the P.O.s relating to
purchased products as described in Section 3.2, BMX may, from time to time,
submit P.O.s for products not otherwise required to be purchased from AFFX, or
initiate the solicitation of a bid from AFFX with respect to such products. In
such case AFFX may, in its discretion, accept such P.O. and render performance
in connection therewith, or submit a bid with respect to such product.
3.4 PREPARATION FOR MANUFACTURE OF CHIP PRODUCTS. The following
terms and conditions shall apply to the Chip Product manufacturing process
development and shall be in addition to the terms and conditions set forth in
the Collaboration Agreement with respect to such manufacturing process
development.
(a) BMX's Obligations.
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(i) BMX Know-How. To the extent BMX deems necessary, BMX may
provide AFFX with any BMX Know-How relating to the BMX Collaboration Technology
and any other information concerning the processes, quality control standards,
methods and apparatus for manufacturing Chip Products which may be reasonably
necessary in order for AFFX to manufacture the Chip Products pursuant to this
Manufacturing Agreement.
(ii)Testing of Chip Products. BMX and AFFX shall, respectively,
develop processes for evaluation and testing of Chip Products, and shall share
such information for use in testing of the Chip Products. Such information may
from time to time be reflected or incorporated in applicable specifications.
(b) AFFX's Obligations.
(i) AFFX Know-How. AFFX shall provide BMX in a timely manner
with all of AFFX's Know-How reasonably necessary or appropriate in order for BMX
and AFFX to establish the Specifications for each Chip Product. In so doing,
AFFX shall draw upon the full range as relevant of the AFFX Licensed Core
Technology and AFFX Collaboration Technology, including, without limitation,
manufacturing procedures for manufacture of the Chip Products and all other
information necessary or appropriate for the manufacture of the Chip Products.
All such information shall be documented and recorded by AFFX in the SMP of the
applicable Chip Product.
(ii) Standard Manufacturing Process Procedures; Capital
Modifications. AFFX shall develop the SMP for each Chip Product and the
procedural process improvements, and shall scale-up its facilities as may be
reasonably necessary for manufacture
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of the Chip Products in the quantities required under this Manufacturing
Agreement. AFFX shall provide all reasonable assistance reasonably requested by
BMX in implementing process improvements based upon AFFX's general production
experience and/or as recommended by BMX. In addition and subject to the limits
set forth in this Manufacturing Agreement and other obligations of AFFX to third
parties presently existing and as shall have been revealed to BMX in connection
with due diligence inquiries or assumed in the future and reasonably consistent
with its burdens and obligations hereunder, AFFX shall use reasonable commercial
efforts to make such additional capital modifications to its facilities as are
reasonably necessary or appropriate to effect the process improvements, reduce
manufacturing costs, increase production capacity and implement Process
Know-How; provided, however, that, to the extent commercially reasonable and
consistent with its obligation to manufacture hereunder, AFFX may avoid any
changes to its facilities that would have a material negative impact on AFFX's
processes or would materially increase existing costs associated with products
that AFFX is manufacturing for itself or third parties. BMX may consult with
AFFX in connection with development of the SMP and may revise and suggest
changes to the SMP which shall be duly considered. The SMP (and any
modifications thereto) promulgated by AFFX shall be consistent with the Chip
Product Specifications, and shall enable AFFX to manufacture and deliver the
Chip Products in the quantities and with the quality standards required under
this Manufacturing Agreement including, as applicable for a particular product,
GMP and ISO-9000 requirements.
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(iii) Confirmation of Intent and Ability to Manufacture.
Within a reasonable time after achievement of the Milestones referred in
Section 3.5(e) of the Collaboration Agreement and in any event prior to [ * ]
BMX may elect to have AFFX and BMX carry out a consultation process in order
to confirm AFFX's ability to supply BMX Requirements as contemplated in the
Manufacturing Agreement. Such process shall be conducted at BMX' expense.
In this connection, it is understood and agreed that the Chip Products are
unique and not available from other manufacturing sources and that BMX will
be dependent for the success of its business on supply of Chip Products by
AFFX. As part of the consultation process, BMX, assisted by such consultants
as it may reasonably appoint and subject to such reasonable assurances of
confidentiality as AFFX may request, shall carry out an audit of AFFX's
ability to manufacture, including determination of remaining problems to be
resolved and additional steps taken to assure timely achievement of AFFX
ability to manufacture on a regular and reliable basis. AFFX shall confer
with BMX as to such audit and shall prepare a report of the results thereof
and in consideration of such report AFFX shall state in writing how it will
resolve or deal with any material issues or problems raised in the audit and
shall affirmatively represent to BMX that it shall be prepared to manufacture
and supply the Requirements of BMX on a timely basis. The Parties will use
best efforts on an ongoing basis to resolve any difficulties raised in the
audit.
(iv) Low-Cost Production. In consideration of BMX's reasonable
commercial efforts to manufacture and market
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Licensed Diagnostic Assays, AFFX shall exert reasonable commercial efforts to
produce Chip Products as efficiently and at as low a cost as practicable
consistent with AFFX's internal quality standards, the maintenance of the
quality requirements for the Chip Product, and AFFX's presently existing
obligations to third parties and such future obligations of AFFX which AFFX may
undertake which are reasonably consistent with its burdens and obligations
hereunder, and the SMPs shall be developed by AFFX in accordance with this
objective. For each calendar year during the term of this Agreement, AFFX shall
provide BMX with its standard Fully Loaded Manufacturing Cost for the Chip
Product at the beginning of each calendar year and at mid-year based on
reasonable commercial efforts to forecast such Cost.
(v) Disposal of Materials. AFFX shall be responsible for the
proper disposal of all materials resulting from the manufacturing process and
not constituting the Chip Product and shall effect such disposal in accordance
with all applicable Governmental Rules.
(vi) Regulatory Compliance. AFFX shall be responsible for all
process and equipment validation required by any applicable Governmental Entity
and shall take all steps necessary to pass inspection by such Governmental
Entity. All Chip Products shall be manufactured by AFFX in accordance with Good
Manufacturing Practices. At BMX's expense, AFFX shall also reasonably assist
BMX in preparing and updating any submission or other document required by a
Governmental Entity for approval of the Chip Product.
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(c) Joint Obligations. The Parties recognize that from time-to-time
changes to the Chip Product may be desirable. AFFX and BMX agree to work
cooperatively and expeditiously to change Chip Products and the SMP for such
Chip Products in ways that will reduce total costs and/or improve Chip Product
performance. Notwithstanding the foregoing, AFFX, shall not be obligated to the
extent commercially reasonable and consistent with its obligations to
manufacture hereunder to make changes to its processes or equipment that would
negatively, materially impact AFFX's manufacturing processes and costs of
manufacture of products for third parties, and any changes to the SMPs shall be
at the sole discretion of AFFX, provided that AFFX shall make available SMPs as
advantageous as those applicable to AFFX's best customers.
3.5 MANUFACTURING RIGHTS OF BMX. BMX shall have the right to
manufacture or have others manufacture the Chip Products only as provided below
in this Section 3.5:
(a) Manufacture of Probe Arrays. BMX has the right to manufacture
or have manufactured DNA probe arrays having a Probe density of [ * ]
Probes/cm(2) or less and may cause the same to be form-factor compatible with
High Density Probe Arrays manufactured by AFFX and sold by BMX pursuant to
this Agreement. Subject to the terms and conditions of this Agreement, BMX
shall have the right to manufacture or have manufactured High Density Probe
Arrays in the circumstances described in Section 3.5(b) - (f) below.
(b) Failure to Meet Supply Obligations.
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(i) The Parties shall consult regularly as to the manner of
performance hereunder, and to assure reliability and continuity of supply of
Chip Product. If at any time either Party is of the view that AFFX may not be
able to meet future binding orders from BMX for Chip Product, such Party shall
notify the other Party in writing, and the Parties shall in good faith cooperate
and endeavor to make appropriate arrangements for a continuous and adequate
supply of Chip Product to BMX. In the event that AFFX becomes aware of any
occurrences or developments that could reasonably be anticipated to create
problems or impediments to supply of BMX Requirements, or to delay or interrupt
supply of such Requirements, AFFX shall give BMX reasonable advance notice
thereof and the Parties shall consult as to the resolution of the matter. If
AFFX has reason to believe the situation will result in an Initial Supply
Failure or a Further Supply Failure, as hereinafter defined, pursuant to which
BMX would be entitled to make other arrangements to manufacture any Deficiency
(as hereinafter defined) of Chip Products, then AFFX shall make reasonable
efforts to so notify BMX and, to mitigate loss. AFFX may elect to offer to BMX
early access to the manufacturing rights as referred to under Section 3.5 (b)
(c) and (d), subject to negotiation of any such proposal on a basis mutually
agreeable to the Parties.
(ii)If during the term of this Manufacturing Agreement AFFX
fails to supply on an "On-Time" basis and in accordance with applicable
rejection standards at least [ * ] of the units of Chip Products that are
subject to Firm Orders received from BMX for any quarter ("Initial Supply
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Failure"), then BMX shall give written notice, referring to the procedures of
this Section ("Section 3.5 Notice"), and the Parties shall meet promptly to
discuss the reasons for such failure to supply and attempt to arrive at an
appropriate remedy. (Firm Orders shall be taken into consideration for the
purposes of determining any Initial Supply Failure and any Further Supply
Failure (as hereinafter defined) only to the extent that such Firm Orders do
not exceed the limits based on prior forecasting as set forth in clauses (a)
and (b) set forth in the last paragraph of Section 4.2.(iii). If AFFX
continues in its failure to supply BMX's Requirements with respect to the
period referred to below which is consecutive to the quarter in which the
Initial Supply Failure occurred, a Further Supply Failure (as hereinafter
defined) shall occur, then BMX shall have the rights, subject to obligations
and limitations, as set forth below. Any of the following shall constitute a
Further Supply Failure if occurring in an applicable period consecutive to a
quarter in which an Initial Supply Failure has occurred and BMX has timely
given the Section 3.5 Notice: Supply on an "On-Time" basis and in accordance
with applicable rejection standards of: (a) less than [ * ] of total units
of Chip Product subject to Firm Orders for the three months comprising the
next consecutive quarter; (b) less than [ * ] of units of Chip Product
subject to Firm Orders for the first forty-five (45) days of the next
consecutive quarter; (c) less than [ * ] of units of Chip Product subject to
Firm Orders for the first of the three (3) months comprising such quarter.
In the event an Initial Supply Failure is followed in the next consecutive
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applicable period, as above, by a Further Supply Failure then, at any time
within the [ * ] days after the close of such subsequent period BMX
may upon written notice to AFFX ("Manufacturing Assumption Effective Date")
elect to be relieved of its obligation to purchase a portion of its future
Requirements of units of Chip Product from AFFX, measured as follows. The
difference between the number of units of Chip Products subject to Firm Orders
for the quarter in which the Initial Supply Failure occurred and the number of
such units in fact Supplied for such quarter shall be determined and such
difference shall be added to the difference between the number of units of Chip
Products subject to Firm Orders for the period as to which the Further Supply
Failure occurred (six months, one and one-half months, or one month) and the
number of such units in fact Supplied for such period and the sum of the two
differences shall be divided by the number of months (whole or fractional)
included in the applicable periods, the resulting monthly average being
hereinafter referred to as the "Deficiency." In manufacturing any Chip Products
as to which an Initial or Further Supply Failure shall have occurred BMX shall
follow applicable Specifications previously submitted to AFFX (so long as AFFX
is continuing manufacturing operations hereunder), subject to normal evolution
and adaptation of such specifications for commercial or technical reasons
unrelated to any difficulties of manufacture which had a causative role in the
supply failure. BMX shall be required to make royalty payments pursuant to
Section 3.5(e)(ii) hereof, and BMX may manufacture or have manufactured such
number of units of Chip Products (including Chip Products for internal
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testing and maintenance of supply) as will permit availability for use in
Licensed Diagnostic Assays of no more than 12 times such Deficiency in any year.
AFFX shall provide all reasonable assistance to enable BMX or its third party
manufacturer to manufacture the Chip Products permitted to be manufactured by
BMX hereunder. At such time as AFFX can give assurance of future performance
reasonably satisfactory to BMX that it is able to supply all of BMX's
Requirements of Chip Product, AFFX shall give notice thereof to BMX, and BMX
shall give reasonable consideration to allowing AFFX to resume supplying the
portion of its Purchase Orders consisting of the Deficiency; provided, however,
that BMX may (within the above limitations) take such commercial steps as it
deems reasonably necessary to assure an ongoing source of supply for such
Deficiency in or regarding future periods, and in the event it has made
significant investment or undertaken significant obligations hereunder in such
manufacturing operation shall be under no obligation to discontinue the same.
(c) Know-How Transfer. Promptly after the Manufacturing Assumption
Effective Date, AFFX will deliver to BMX, at BMX's request and expense, the
following "manufacturing assistance items" (all subject to the confidentiality
restrictions herein): SMPs for the Chip Product(s), specifications of all
tools, fixtures and equipment which were designed and built expressly for the
manufacture and testing of the purchased Chip Products, and all engineering
drawings, manufacturing documents or instructions and such other written
materials (including lists of AFFX's suppliers and their
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addresses and AFFX's consent, where required, to the sale of such supplies to
BMX) which are used by AFFX and are necessary or useful to enable BMX to make or
have made Chip Products. In addition, AFFX shall, from and after the
Manufacturing Assumption Effective Date, upon BMX's request and expense, provide
technical assistance and other information as may be reasonably requested to
enable BMX to make or have made the Chip Products.
(d) BMX's Right to Manufacture. Pursuant to licenses granted to BMX
herein and in the Collaboration Agreement, after the Manufacturing Assumption
Effective Date and only up to the amount of the Deficiency that BMX is permitted
to manufacture pursuant to Section 3.5(b), BMX shall have the right under the
AFFX Licensed Core Technology and AFFX Collaboration Technology to make or have
others make Chip Products but only for the licensed uses permitted under the
Collaboration Agreement. In such case, BMX shall have sole responsibility and
obligation for the performance criteria, SMP, product characteristics, quality
control and other similar matters in respect of the Chip Products manufactured
by it. AFFX will be entitled to reasonably review all such products before
introduction to ensure that they will be sold in the appropriate field.
(e) Applicable Royalty After Manufacturing Assumption Effective Date.
(i) Upon assumption by BMX of its limited right to manufacture
Chip Products, AFFX's failure to supply any units of Chip Product which are not
subject to a Firm Order by BMX but are manufactured by BMX shall not be deemed
to constitute a breach of this Agreement. Except for such limited right of
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manufacture, this Agreement shall continue in full force and effect (including
minimum royalty provisions which would otherwise be applicable) and BMX and AFFX
shall respectively be obligated to purchase and to supply all units of Chip
Products subject to future Firm Orders.
(ii) BMX shall continue to make royalty payments to AFFX pursuant
to Article VI of the Collaboration Agreement after the Manufacturing Assumption
Effective Date. The royalty rate for assays using Licensed DNA Probe Arrays
manufactured by BMX shall be the royalty rate as of the close of the quarter
preceding the Manufacturing Assumption Effective Date. In the event of
successive Manufacturing Assumption Effective Dates relating to successive
Deficiencies, a pro rata application as to applicable royalty rates shall be
made.
ARTICLE 4
FORECASTS AND PURCHASE ORDERS
4.1 BMX'S PURCHASE OBLIGATIONS. Nothing contained in this
Manufacturing Agreement shall require BMX to purchase any specified amount of
Licensed DNA Probe Arrays; it being understood that BMX's obligation to buy is
limited to its Requirements of Chip Product, if any, which is required by BMX.
4.2 ROLLING PURCHASE FORECAST AND PVP SCHEDULE. At least six (6)
months prior to BMX's first need for manufactured Chip Products, BMX shall
deliver to AFFX its preliminary purchase forecast, showing BMX's projected
requirements for Chip Products, by type of Chip Product and quantity thereof,
for each of the
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first twelve (12) months of manufacturing ("Preliminary Forecast Period"),
including reference to the Specifications for each type of Chip Product. Within
thirty (30) days after AFFX's receipt of the preliminary forecast, AFFX shall
deliver to BMX a detailed proposed price/volume/production schedule for the Chip
Products ("PVP Schedule") for the Preliminary Forecast Period, reflecting the
requirements of BMX as indicated in its forecast and AFFX's reasonable
estimation of its ability to satisfy those requirements (and in such regard AFFX
shall use its best reasonable efforts to assure that supply is sufficient to
permit BMX to attain applicable milestones related to the exclusivity of its
licenses as provided in the Collaboration Agreement). In response thereto, and
ninety (90) days or more before commencement of the first month when Chip
Products shall be required, BMX shall deliver to AFFX a forecast of its
projected purchases of Chip Product during the first twelve (12) months.
(i) Projected purchases during the first three (3) months of such
forecast will constitute firm orders ("Firm Orders").
(ii) Projected purchases for the following three (3) months will
permit AFFX to purchase required materials, for which AFFX may request
reimbursement if BMX does not purchase the corresponding Chip Products within a
reasonable time.
(iii) The forecast for the remaining six (6) months shall be made in
good faith but shall be for planning purposes only.
Thereafter, ninety (90) days or more before the first day of each
succeeding month, BMX shall deliver to AFFX a
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forecast of its projected purchases of Chip Product during the following twelve
(12) months (forecast for the "Rolling Year").
When the forecast for a new Rolling Year is delivered, the purchases
projected for the third month thereof shall become a Firm Order, but in no
case (without the consent of AFFX, which shall not be unreasonably withheld):
shall the Firm Order for Chip Products to be purchased in such month having
the same Base Technical Specifications, apply to a number of units of Chip
Product which, when combined with all units of Chip Products having the same
Base Technical Specification which were the subject of Firm Orders for the
two (2) previous months, would constitute (a) more than [ * ] or less than
[ * ] of the units of such Chip Products having such Specifications as were
projected to be purchased in the same three-month period in the forecast for
the Rolling Year that commenced three (3) months prior to commencement of
such new Rolling Year (such months then constituting the fourth, fifth and
sixth months of such Rolling Year); or (b) more than [ * ] or less than [ * ]
of the units of Chip Product having such Specifications as were projected to
be purchased in the same three-month period in the forecast for the Rolling
Year that commenced six (6) months prior to commencement of the new Rolling
Year (such months then constituting the seventh, eighth and ninth months of
such Rolling Year). In the event that any purchases projected for such third
month exceed the applicable maximum and AFFX elects to withhold its consent
to inclusion of such excess in the Firm Order it shall so notify BMX within
thirty (30) days of receipt of such forecast but no later
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than ten (10) days after specific written inquiry by BMX. In the event of a
deficiency in the amount of units subject to Firm Order for such month and AFFX
withholds its consent hereto as permitted hereby, it shall so notify BMX within
ten (10) days after specific written inquiry by BMX and, absent contrary
instruction by BMX, shall supply such deficiency by reference to units of Chip
Product as previously forecast by BMX for such month.
4.3 PURCHASE ORDERS. This Manufacturing Agreement is not a P.O. and
does not authorize delivery of or payment for any Chip Products and/or services
as described herein, except pursuant to implementation of the specific
provisions herein. Such authority or order shall be evidenced by P.O.s issued
by BMX pursuant to this Manufacturing Agreement.
(a) Form and Content of P.O. BMX's rolling purchase forecasts shall
be accompanied by P.O.s for the third month of each such forecast, stating:
BMX's P.O. number(s), BMX's and AFFX's part numbers, quantity ordered, requested
Ship Date and desired carrier for shipping to the destination specified by BMX.
In addition, each P.O. will reference this Manufacturing Agreement. Terms and
conditions printed on the face or reverse side of BMX's P.O. form and/or AFFX's
acknowledgment form shall not be part of this Manufacturing Agreement or add to
or modify the terms of this Manufacturing Agreement unless both Parties hereto
expressly agree in writing to include any such terms or conditions.
(b) Issuance of P.O. and Acceptance by AFFX. Subject to the last
sentence of subsection (a) above, AFFX agrees to
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accept any P.O. that is in compliance with the terms and conditions of this
Manufacturing Agreement. For expediency purposes, BMX may issue P.O.s by
facsimile or electronic mail.
(c) Verification of Active P.O.s. BMX may periodically request AFFX
to verify all active P.O. delivery commitment quantities and schedules. AFFX
shall respond to such request within five (5) working days after receipt of
request by BMX.
(d) Preferential Treatment of BMX. AFFX shall consider BMX a
preferred customer, such that BMX shall be accorded treatment at least equal to
that accorded AFFX's other most favored customers. For example, if the case
arises whereby AFFX's production capacity, Events of Force Majeure, or other
limiting factors require that AFFX determine an allocation of material and/or
resources, BMX's preferential status will assure BMX that AFFX will fulfill its
obligations to BMX with priority at least equal to that accorded AFFX's other
best customers. In addition, AFFX shall take reasonable steps to ensure
continuity of supply to BMX and shall from time-to-time if requested by BMX
report as to available stock of Chip Products.
(e) Cancellation of P.O. Should resale market conditions occur which
both Parties agree are justifiable reasons for the cancellation of any P.O.s,
the Parties shall endeavor to negotiate a just and equitable solution, including
cancellation terms for such P.O.s.
(f) Special Orders. Special orders shall be accepted by AFFX for
Additional DNA Probe Arrays required for purposes of the Collaboration, Licensed
DNA Probe Arrays for purposes of
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clinical trials (both as provided in Section 4.2 of the Collaboration Agreement)
and Licensed DNA Probe Arrays required after product introduction for marketing
promotion and other applications for which BMX does not receive any revenue,
only for use in or with Licensed Diagnostic Assays in the Licensed Field. To
the extent applicable, such orders will be processed in the manner provided with
respect to other orders hereunder, except that the Parties will consult
informally as to a reasonable schedule for production and delivery.
ARTICLE 5
PRICING AND PAYMENT
5.1 PRICING.
(a) Price. The Price for the Chip Products, including those for
clinical trials, (except the Chip Products for which a different price is
negotiated pursuant to the terms hereof and the DNA Probe Arrays supplied
pursuant to Section 4.2 of the Collaboration Agreement) shall be equal to
[ * ] The price for Additional DNA Probe Arrays shall be [ * ]. The Price
for orders of DNA Probe Arrays required for clinical trials shall be capped
at [ * ] each. The Price for special orders of DNA Probe Arrays purchased
after market launch for marketing promotions and other applications for which
BMX receives no revenue shall be capped at [ * ] each.
(b) Terms of Shipment. Unless otherwise specified, all shipments
shall be F.C.A. Place of Manufacture and the
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invoice accompanying shipment shall separately state the Price and the cost of
shipment and insurance applicable to such shipment, if purchased by AFFX on
BMX's behalf. In the event AFFX purchases insurance or pays any shipment costs
on BMX's behalf, BMX shall reimburse AFFX for such expenditures at the time of
its payment of the invoices for the Chip Product in question.
(c) Calculation. As Price is [ * ], AFFX agrees to update its
calculation of such cost on a regular basis (not more than twice per year)
and to provide BMX with a new PVP Schedule and updated pricing for future
P.O.s.
5.2 TERMS OF PAYMENT. BMX agrees to pay all invoices within sixty
(60) days after the later of (a) the date of receipt of the applicable
invoice or (b) the date of delivery of the Chip Product. All payments to
AFFX shall be made by check or bank draft to AFFX's address as provided in
Section 13.6 of the Collaboration Agreement and shall indicate to which
invoice(s) the payment applies. Late payments shall bear interest at the
rate of [ * ] per month on the unpaid balance.
5.3 AUDIT RIGHTS.
(a) Procedures. BMX shall have the right, upon thirty (30) days
notice and at its own expense, to appoint an independent auditor, reasonably
acceptable to AFFX, to examine and audit AFFX's books and records relating to
costs (including Fully Loaded Manufacturing Costs) with respect to Chip Products
under this Manufacturing Agreement. Such right shall include the
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right to make copies or extracts of such books and records as may be reasonably
necessary for such audit. The audit shall not be used as a channel for
transmission of manufacturing information except as may be strictly relevant to
the audit itself. The auditor shall inform BMX and AFFX whether the costs and
payments made have been in compliance with this Agreement or not, or the extent
of any adjustment that in its opinion is required. Such audit shall occur
during regular business hours no more frequently than once a year.
(b) Adjustments. In the event that such examination or audit
indicates an adjustment to payments made hereunder is necessary, then
appropriate payments shall be made to the Party entitled thereto within
thirty (30) days after such Party receives written demand therefor from the
other Party. In the event such examination discloses an overstatement of
fully loaded manufacturing cost of [ * ] or more, the cost of such
examination shall be borne by AFFX and the overpaid amount (accounting for
all necessary adjustments to the transfer price and royalty calculations)
shall be offset against amounts otherwise due to AFFX or otherwise be
refunded to BMX with payment of interest at an annual rate of two percentage
points above the prime interest rate quoted by Bank of America on the date of
such reporting, for the period from the date of excess payment to the date of
refund.
(c) Confidential Information. Any information furnished or acquired
pursuant to this Section 5.3 shall be deemed Confidential Information to be
treated in accordance with Article VIII of the Collaboration Agreement.
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ARTICLE 6
SHIPPING AND DELIVERY
6.1 AUTHORIZED MEANS OF TRANSPORTATION. BMX reserves the right to
designate a freight forwarder or carrier reasonably satisfactory to AFFX for the
shipment of Chip Products.
6.2 ON-TIME DELIVERY. AFFX shall use reasonable commercial efforts
to ship Chip Products to BMX On-time. In the event Chip Products are not
expected to be shipped on the agreed Ship Date, and the delay is the fault of
AFFX, AFFX shall immediately notify BMX, and AFFX shall bear the difference
between shipping cost via normal transit and expedited transit, including air
freight.
6.3 PACKAGING OF CHIP PRODUCTS. AFFX shall provide Licensed DNA
Probe Arrays in diced form, left on plastic sheets or in the form of undiced
wafers, as BMX may direct on reasonable advance notice to AFFX. In the event
AFFX is to carry out dicing of the wafers, it shall consult with BMX as to cost
and shall give BMX the benefit of the most cost efficient methods available to
it. The Parties will consult on the best means for packaging for ease of
handling and to ensure maximum protection of the Chip Products from damage due
to rough handling and any other hazard which might occur in transit.
6.4 FCA PLACE OF MANUFACTURE. AFFX shall deliver the Chip Products
FCA Place of Manufacture and BMX shall include the destination for delivery in
the P.O.s. Title and liability for loss and damage shall pass to BMX upon
delivery to the common carrier specified by BMX. BMX shall be responsible for
the cost
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of obtaining any export control or other clearance required for export outside
the U.S. BMX will provide reasonable assistance in obtaining any export
clearances required to ship outside of the U.S.
6.5 RESCHEDULING. On reasonable notice, AFFX shall endeavor to
accommodate BMX's request to reschedule deliveries. Furthermore, BMX reserves
the right to reschedule without charge if the Chip Products do not meet
Specifications therefor upon quality testing at AFFX's facility.
6.6 COMPLIANCE WITH GOVERNMENTAL RULES. In the event of export of
any Chip Product supplied hereunder, the Parties shall comply with all
applicable Governmental Rules and AFFX shall supply all documentation which may
be required under applicable Governmental Rules, which costs shall be included
in Fully Loaded Manufacturing Costs for the Chip Product.
ARTICLE 7
QUALITY
7.1 COMPLIANCE WITH SMP SPECIFICATIONS; TESTING BY AFFX. BMX expects
and AFFX agrees to use all commercially reasonable efforts to supply one hundred
percent (100%) of the Chip Products purchased herein meeting the Specifications
therefor. AFFX shall be in material compliance with the manufacturing
processes, quality control procedures and specifications set forth in the
relevant SMP applicable to such Chip Product, and shall conform to all
applicable Good Manufacturing Practices and other relevant Governmental Rules,
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including all such rules and standards compliance with which may be reasonable
and necessary to permit maximization of sales in all markets served by BMX.
Such compliance shall include but is not limited to the performance of quality
control and quality assurance testing on the Chip Product to be delivered to
BMX. BMX and AFFX shall mutually agree on who will serialize Chip Products to
track them. Serialization costs above AFFX normal production processes shall be
borne by BMX
7.2 FACILITY ACCESS. BMX shall, upon reasonable advance notice to
AFFX, have access during normal business hours to AFFX's facilities where the
Chip Product is being manufactured, tested, inspected, packaged and/or stored in
order to observe and inspect the manufacturing, quality control and testing
processes for, and the records of all production and quality assurance data
related to, the Chip Product. Any persons conducting such inspection shall be
required to enter into a confidentiality agreement with AFFX in form and content
reasonably satisfactory to AFFX and BMX.
7.3 TESTING AND STANDARDS OF REJECTION.
(a) Incoming and Source Inspection. BMX reserves the right to
process incoming Chip Product dock-to-stock with no incoming inspection. BMX
shall, however, retain the right to conduct, at BMX's expense, incoming
inspection of Chip Products at the designated destination in accordance with the
inspection standards and procedures set forth in the Specifications.
Alternatively, upon prior written notice, BMX shall have the right to conduct,
at BMX's expense, source inspection at AFFX's site, in accordance with the
inspection standards and procedures
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
set forth in the Specifications. Any shipment of Chip Product delivered to
BMX hereunder shall be deemed accepted if not rejected by BMX within [ * ]
days of receipt thereof.
(b) Standards of Rejection. BMX shall use a commercially reasonable
standard for the industry in determining whether to reject the Chip Products
based on the failure to meet Specifications therefor.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 REPRESENTATIONS AND WARRANTIES OF AFFX. AFFX represents and
warrants to BMX as follows:
(a) Power and Authority. The execution and delivery of this
Manufacturing Agreement and the performance of the transactions contemplated
hereby have been duly authorized by all appropriate corporate action, and AFFX
has all requisite power and authority to enter into this Manufacturing Agreement
and to perform its obligations hereunder, and this Manufacturing Agreement
constitutes a valid and binding obligation of AFFX, enforceable in accordance
with its terms.
(b) No Breach. The performance by AFFX of any of the terms and
conditions of this Manufacturing Agreement on its part to be performed does not
and will not constitute a breach of any other agreement or understanding,
whether written or oral, to which it or any of its affiliates is a party.
(c) Product Warranty. All Chip Products delivered to BMX pursuant to
this Manufacturing Agreement shall conform in all
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material respects to the Specifications and the applicable SMP and Good
Manufacturing Practices, excluding any warranty for defects in Chip Products
solely related to the Specifications as provided by BMX, or due to user abuse or
misapplication.
(d) Title to Chip Products. All right, title and interest in and to
the Chip Products will pass directly to BMX under this Manufacturing Agreement
free and clear of any and all liens and encumbrances.
8.2 REPRESENTATIONS AND WARRANTIES OF BMX.
(a) Power and Authority. The execution and delivery of this
Manufacturing Agreement and the performance of the transactions contemplated
hereby have been duly authorized by all appropriate corporate action, and BMX
has all requisite power and authority to enter into this Manufacturing Agreement
and to perform its obligations hereunder, and this Manufacturing Agreement
constitutes a valid and binding obligation of BMX, enforceable in accordance
with its terms.
(b) No Breach. The performance by BMX of any of the terms and
conditions of this Manufacturing Agreement on its part to be performed does not
and will not constitute a breach of any other agreement or understanding,
whether written or oral, to which it or any of its affiliates is a party.
ARTICLE 9
REMEDIES FOR NON-CONFORMANCE WITH WARRANTY
If Chip Products are found not in conformity with the warranty
provided in Section 8.1(d), determined in accordance
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
with a commercially reasonable standard in the industry, the following exclusive
remedies shall be available to BMX:
9.1 INCOMING INSPECTION. In case of Chip Product rejection at
BMX's incoming inspection, at AFFX's election, one of the following
corrective actions shall be made: [ * ] All returns of defective Chip
Products will be at AFFX's expense. Notwithstanding the foregoing, [ * ]
9.2 SOURCE INSPECTION. In case of Chip Product rejection during
source inspection, AFFX shall promptly perform a failure analysis, screening,
rework and re-submission of the failed Chip Products to a mutually agreed
schedule.
9.3 FAILURE ANALYSIS. If a sufficient quantity of Chip Products
fail to meet Specifications such that BMX has rejected more than [ * ] of the
DNA Probe Arrays in any calendar year, upon request by BMX, AFFX shall
perform a failure analysis of a reasonable number of such defective Chip
Products and shall deliver to BMX, in writing, detailed results of the
failure analysis and proposed corrective actions to prevent recurrence.
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Such analysis shall be provided no later than thirty (30) working days after
receipt of any defective Chip Product by AFFX.
9.4 DEFECTIVE PRODUCTS INCORPORATED IN ASSAYS. If BMX includes a
Chip Product in a Licensed Diagnostic Assay, responsibility for performance of
the final product rests with BMX, subject to the Chip Product warranty as
provided in Section 8.1(d). Notwithstanding the foregoing, if BMX demonstrates
to AFFX's reasonable satisfaction that any failure of a Licensed Diagnostic
Assay was caused solely by a Chip Product manufactured by AFFX within the
aforesaid warranty, and not caused by BMX's handling or packaging, AFFX agrees
to cooperate with BMX to review all relevant materials and procedures used to
manufacture such Chip Product and to use its best efforts to determine the cause
and to implement corrective action to prevent recurrence.
ARTICLE 10
INTELLECTUAL PROPERTY
Nothing contained in this Manufacturing Agreement shall be construed
as granting or implying any rights by license, estoppel or otherwise, to BMX's
or AFFX's ideas, inventions, or patents that are issued now or in the future,
copyrights, trademarks, trade secrets, or any other intellectual property,
either with respect to Chip Products manufactured for BMX under this
Manufacturing Agreement or with respect to any other of BMX's or AFFX's
products, services, technologies or background technologies, respectively, not
covered by this Manufacturing Agreement.
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
ARTICLE 11
INDEMNIFICATION
11.1 AFFX'S INDEMNITY. AFFX agrees to indemnify, defend and hold
harmless BMX, [ * ] provided, however, that:
(i) in no event shall the foregoing indemnity include or apply
to [ * ] and
(ii) in no event shall the foregoing indemnity include or apply
to [ * ] and
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
(iii) the aggregate liability of AFFX under the foregoing
indemnity for Claims and Losses relating to the matters referred to above [ * ]
11.2 BMX'S INDEMNITY. BMX agrees to indemnify, defend and to hold
harmless AFFX, [ * ] provided, however, that in no event shall the foregoing
indemnity include or apply to any Claims and Losses relating solely to the
matters referred to in Section 11.1 above. BMX shall, at its costs and
expense, obtain
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and maintain appropriate product liability insurance covering the Licensed
Diagnostic Products with limits of not less than US$20 million covering all
markets where the Licensed Diagnostic Products are sold or used.
11.3 OTHER LIMITATIONS OF LIABILITY. NOTWITHSTANDING ANYTHING WHICH
MAY BE CONTAINED IN THIS MANUFACTURING AGREEMENT TO THE CONTRARY, IN NO EVENT
WILL THE INDEMNITY OBLIGATIONS OF AFFX OR BMX UNDER SECTIONS 11.1 AND 11.2 ABOVE
INCLUDE (AND IN NO EVENT SHALL EITHER PARTY OTHERWISE BE LIABLE TO THE OTHER
FOR) ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECULATIVE DAMAGES, WHETHER
SUCH ALLEGED DAMAGES ARE LABELED IN TORT, CONTRACT, OR INDEMNITY.
ARTICLE 12
TERMINATION
12.1 TERMINATION OF AGREEMENT FOR BREACH. Each Party shall be
entitled (but not required) to terminate this Manufacturing Agreement by written
notice to the other Party in the event that the other Party shall be in default
of any of its material obligations hereunder or of the Collaboration Agreement,
and shall fail to remedy any such default within thirty (30) days after notice
thereof by the non-breaching Party; provided, however, that in the event of any
dispute as to the existence of a default or the adequacy of remedy thereof, the
Party charged with breach or failure to remedy may require that the right to
terminate be determined in arbitration pursuant to Section 14.1 of the
Collaboration Agreement and in the event the arbitrator(s)
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determine there were reasonable grounds for the Party so charged to dispute
termination and that such Party acted in good faith, the arbitrator(s) may
afford reasonable opportunity to cure upon such terms as they may direct. Any
notice by a Party of termination pursuant to this section shall specifically
state that the non-breaching Party intends to terminate this Manufacturing
Agreement in the event that the breaching Party shall fail to remedy the
default. Notwithstanding the foregoing, BMX may not terminate this
Manufacturing Agreement by reason of any inability of AFFX to supply Chip
Products hereunder other than a failure to supply substantially all BMX's
Requirements of Chip Product continuing over a period in excess of six (6)
months. As to any such inability or defaults, BMX may have recourse to any
other remedies authorized by law or made available hereunder, including such
rights as are provided in Section 3.5.
12.2 TERMINATION FOR OTHER CAUSES. Either Party may also (but shall
not be required to) terminate this Manufacturing Agreement in the event of (a)
the insolvency of the other Party (however such insolvency may be evidenced,
including the inability of such Party to meet its debts as they mature); (b) the
complete or partial liquidation or suspension of the business of the other
Party; (c) the filing by or against the other Party of a voluntary or
involuntary petition pursuant to any present or future bankruptcy law or law for
the protection of debtors; (d) the institution of any proceeding by or against
the other Party for any relief under law relating to the relief of debtors,
adjustment of indebtedness, reorganizations,
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arrangements, compositions or extensions; (e) the dissolution thereof; or (f)
the termination of the Collaboration Agreement due to breach by the other Party
or expiration of applicable licenses under the Collaboration Agreement, or,
after the expiration of the licenses granted pursuant to Section 5.2(a)(I) of
the Collaboration Agreement, in the event that there is a substantial
elimination of Requirements hereunder such that continued production is no
longer economical.
12.3 EFFECT OF TERMINATION ON P.O.S. In the event of termination of
this Manufacturing Agreement pursuant to Sections 12.1 or 12.2 above the
terminating Party may at its sole discretion cancel by prompt notice any P.O.s
for the Chip Products which are unshipped at the date of such cancellation.
12.4 RETURN OF DOCUMENTS. Upon the termination of this
Manufacturing Agreement pursuant to Sections 12.1 or 12.2 above, each Party
shall promptly return to the other Party all documents, letters, records,
notebooks, papers, writings, designs, drawings, models, blueprints and all other
materials and all copies thereof embodying or showing any of the Technical
Information provided by a Party to the other Party or any Confidential
Information disclosed by the other Party, then in the Party's possession or
under its control, by whomever prepared, and all other tooling or property owned
by the Party shall be returned.
12.5 EFFECT OF TERMINATION ON DUTIES AND OBLIGATIONS. Unless
otherwise expressly provided in this Manufacturing Agreement or in any exhibit
hereto, upon the termination of this Manufacturing Agreement pursuant to
Sections 12.1 or 12.2 above,
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neither AFFX nor BMX shall have any further duties or obligations under this
Manufacturing Agreement; provided, however, that no such termination shall
relieve either Party hereto from any liability which it is otherwise responsible
for under this Manufacturing Agreement (including liabilities under Article 11
hereof) with respect to any event, act, transaction or failure to act which
occurred prior to the date of such termination or with respect to any Claims and
Losses relating to Chip Products or Licensed Diagnostic Products made or shipped
prior to the date of such termination.
ARTICLE 13
AFFX'S EMPLOYEES NOT DEEMED EMPLOYEES OF BMX
Except as otherwise expressly provided in the Collaboration Agreement,
both Parties agree that AFFX is retained as an independent contractor and in no
event will employees or agents hired by AFFX be or be considered employees of
BMX. Matters governing the terms and conditions of employment of AFFX's
employees are entirely within the control of AFFX. BMX will have no right to
control any of the actions of the employees of AFFX. AFFX's matters such as
work schedules, wage rates, withholding income taxes, disability benefits or the
manner and means through which the work under this Manufacturing Agreement will
be accomplished are entirely within the discretion of AFFX.
ARTICLE 14
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ORDER OF PRECEDENCE
In the event of an inconsistency in the various documents which govern
the Parties, performance under this Manufacturing Agreement, the order of
precedence will be: (A) this Manufacturing Agreement; (B) the face side of the
P.O. attached hereto; and (C) the reverse side of the P.O. attached hereto.
ARTICLE 15
MISCELLANEOUS/ARBITRATION
15.1 FURTHER ASSISTANCE. From time to time, each Party shall execute
and deliver such instruments of transfer or other documents, and take such other
actions, as may be reasonably requested by the other Party in order to carry out
the purposes and intent of this Manufacturing Agreement and consummate the
transactions contemplated hereunder.
15.2 REMEDIES CUMULATIVE. Except as expressly provided for herein,
all of the rights and remedies permitted or available to either Party under this
Manufacturing Agreement or at law or equity shall be cumulative and not
alternative, and invocation of any such right or remedy shall not constitute a
waiver or election of remedies with respect to any other permitted or available
right or remedy.
15.3 ADDITIONAL PROVISIONS. The following numbered and captioned
provisions of the Collaboration Agreement shall be deemed to be incorporated and
restated herein as if set out in full and shall constitute a part of this
Manufacturing Agreement:
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Section 13.1 Publicity
Section 13.2 Assignment
Section 13.3 Governing Law
Section 13.4 Force Majeure
Section 13.5 Waiver
Section 13.6 Notices
Section 13.7 Calendar and Business Day
Section 13.8 No Agency
Section 13.9 Entire Agreement
Section 13.10 Headings
Section 13.11 Severability
Section 13.12 Successors and Assigns
Section 13.13 Third Parties
Section 13.14 Counterparts
Section 14.1 Arbitration
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IN WITNESS WHEREOF, this Manufacturing Agreement has been executed and
delivered as of the date first above written.
BIOMERIEUX VITEK, INC.
By: /s/ Philippe Archinard
-------------------------------------------
Name: Philippe Archinard
------------------------------------
Title: President
-----------------------------------
AFFYMETRIX, INC.
By: /s/ Stephen P.A. Fodor
-------------------------------------------
Name: Stephen P.A. Fodor
------------------------------------
Title: President
-----------------------------------
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
EXHIBIT 1
PRELIMINARY DNA PROBE ARRAY SPECIFICATIONS
Minimum Maximum
Wafer Size [ * ] [ * ]
Wafer Thickness [ * ] [ * ]
Wafer Material [ * ] [ * ]
Die Size Goal: [ * ] [ * ]
Probe Number [ * ] [ * ]
Probe Length [ * ] [ * ]
Probe Density [ * ] [ * ]
Dicing Ring [ * ] [ * ]
Die per Wafer [ * ] [ * ]
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TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS............................................... 2
ARTICLE 2 MANUFACTURE AND TECHNICAL INFORMATION..................... 6
2.1 Delivery of Technical Information and Documentation....... 6
2.2 Detailed Specifications for Licensed DNA Probe Arrays..... 9
ARTICLE 3 MANUFACTURE AND PURCHASE OF CHIP PRODUCTS................. 9
3.1 Manufacture and Purchase Obligations of AFFX and BMX...... 9
3.2 Requirements.............................................. 10
3.3 Other Discretionary P.O.s................................. 10
3.4 Preparation for Manufacture of Chip Products.............. 11
3.5 Manufacturing Rights of BMX............................... 16
ARTICLE 4 FORECASTS AND PURCHASE ORDERS............................. 22
4.1 BMX's Purchase Obligations................................ 22
4.2 Rolling Purchase Forecast and PVP Schedule................ 22
4.3 Purchase Orders........................................... 25
ARTICLE 5 PRICING AND PAYMENT....................................... 27
5.1 Pricing................................................... 27
5.2 Terms of Payment.......................................... 28
5.3 Audit Rights.............................................. 28
ARTICLE 6 SHIPPING AND DELIVERY..................................... 30
6.1 Authorized Means of Transportation........................ 30
6.2 On-time Delivery.......................................... 30
6.3 Packaging of Chip Products................................ 30
6.4 FCA Place of Manufacture.................................. 31
6.5 Rescheduling.............................................. 31
6.6 Compliance with Governmental Rules........................ 31
ARTICLE 7 QUALITY................................................... 31
7.1 Compliance with SMP Specifications; Testing By AFFX....... 31
7.2 Facility Access........................................... 32
7.3 Testing and Standards of Rejection........................ 32
ARTICLE 8 REPRESENTATIONS AND WARRANTIES............................ 33
8.1 Representations and Warranties of AFFX.................... 33
8.2 Representations and Warranties of BMX..................... 34
ARTICLE 9 REMEDIES FOR NON-CONFORMANCE WITH WARRANTY................ 35
9.1 Incoming Inspection....................................... 35
9.2 Source Inspection......................................... 36
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TABLE OF CONTENTS (Continued)
PAGE
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9.3 Failure Analysis.......................................... 36
9.4 Defective Products Incorporated in Assays................. 36
ARTICLE 10 INTELLECTUAL PROPERTY..................................... 37
ARTICLE 11 INDEMNIFICATION........................................... 37
11.1 AFFX's Indemnity.......................................... 37
11.2 BMX's Indemnity........................................... 38
11.3 Other Limitations of Liability........................... 39
ARTICLE 12 TERMINATION............................................... 40
12.1 Termination of Agreement for Breach...................... 40
12.2 Termination for Other Causes............................. 41
12.3 Effect of Termination on P.O.s........................... 42
12.4 Return of Documents..................................... 42
12.5 Effect of Termination on Duties and Obligations.......... 42
ARTICLE 13 AFFX'S EMPLOYEES NOT DEEMED EMPLOYEES OF BMX.............. 43
ARTICLE 14 ORDER OF PRECEDENCE....................................... 43
ARTICLE 15 MISCELLANEOUS/ARBITRATION................................. 44
15.1 Further Assistance....................................... 44
15.2 Remedies Cumulative...................................... 44
15.3 Additional Provisions.................................... 44
EXHIBIT 1............................................................... 47
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Confidential Treatment Requested
by Affymetrix, Inc.
COLLABORATION AGREEMENT
INCYTE PHARMACEUTICALS, INC.
and
AFFYMETRIX, INC.
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COLLABORATION AGREEMENT
THIS AGREEMENT is made as of the 11th day of November, 1996 (the "Effective
Date") by and between Affymetrix, Inc. ("AFFX"), a California corporation
having its principal place of business at 3380 Central Expressway, Santa Clara,
California 95051, and Incyte Pharmaceuticals, Inc. ("INCYTE"), a Delaware
corporation having its principal place of business 3174 Porter Drive, Palo Alto,
California 94304.
WHEREAS, AFFX has research, development, and manufacturing capabilities and
facilities, and has developed and has certain rights to DNA probe array based
technology and inventions, know-how and materials concerning computer analysis
technology, and software for the measurement of expression of genes, the
analysis of genotypes and phenotypes, the compilation of information relating
to the field of genomics, and the resulting compiled information;
WHEREAS, INCYTE has performed research and developed inventions, know-how,
and materials concerning its proprietary high-throughput automated cDNA
sequencing, computer analysis technology and software development for the
discovery of genes, the analysis of genotypes, and the analysis of the
expression profile of gene transcripts present in a given cell or tissue type,
and has compiled and is compiling and owns certain information pertaining to the
field of genomics in proprietary databases made available on a commercial
basis;
WHEREAS INCYTE and AFFX desire to enter into an agreement whereby 1) AFFX
will supply DNA probe arrays containing INCYTE's proprietary gene sequence
and/or gene expression information which may be provided on a commercial basis
to third parties, for generation of genomic information, and 2) the Parties will
generate databases containing such information to be provided on a commercial
basis to third parties;
WHEREAS, AFFX and INCYTE have agreed that AFFX will make its GeneChip-TM-
Technology available and that INCYTE will make its gene sequences and
bioinformatics capabilities available for generation of such DNA probe arrays
and databases of information, commercialized for the mutual benefit of both AFFX
and INCYTE;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, INCYTE and AFFX do hereby agree as follows:
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1.0 DEFINITIONS
1.1 "AFFILIATE": shall mean any corporation, firm, partnership, or other legal
entity, which is, as of the Effective Date, directly or indirectly owned or
under common ownership by a Party to the extent of which the common stock
or other equity ownership thereof is one hundred percent (100%) owned by a
Party; provided however, that where local laws require a minimum percentage
of local ownership, the status of the Affiliate will be established if a
Party directly or indirectly owns or controls one hundred percent (100%)
of the maximum ownership percentage that may, under such local laws, be
owned or controlled by foreign interests.
1.2 "AFFX TECHNOLOGY": shall mean all Technology of AFFX relating to AFFX
probe array technology, including but not limited to DNA probe arrays
which is proprietary to AFFX at the time provided to INCYTE and which, on
the Effective Date of this Agreement or at any time during the term of this
Agreement, AFFX owns or has a right to grant license; provided, however,
that AFFX Technology shall exclude LifeChip Inventions and software
developed by INCYTE.
1.3 "ANNOTATION INFORMATION": shall mean information associated with
individual cDNAs in each and/or all of the Incyte Database Product(s) as
applicable, including, but not limited to, Gene Expression Profiles,
homology information, and gene cluster identifiers which are developed
outside of the performance of this Agreement.
1.4 "CONFIDENTIAL INFORMATION": shall mean technical and business information
belonging to the disclosing party including, where appropriate and without
limitation, any information, business, financial and scientific data,
transcript and nucleic acid sequence data, gene associations, patent
disclosures, patent applications, structures, models, techniques,
processes, compositions, compounds, hardware configurations, apparatus and
the like, and software in various stages of development or any software
product (source code, object code or otherwise), including its audiovisual
components (menus, screens, structure and organization) and any human or
machine readable form of the program, and any writing or medium in which
the program or information therein is stored, written or described,
including, without limitation, diagrams, flow charts, designs, drawings,
specifications, models, data, bug reports and customer information and the
like, disclosed in written form and identified as confidential, or
disclosed in or oral form and confirmed in writing within 30 days of oral
disclosure.
1.5 "DNA SEQUENCE(S)": shall mean the nucleotide sequences provided by INCYTE
to AFFX and shall not include sequences which are not part of Incyte
Database Product(s), except with permission of AFFX.
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
1.6 "DNA SEQUENCE SET(S)": shall mean a set of DNA Sequences selected by
INCYTE using INCYTE Database Information which includes gene sequences
and/or associations of genes which are not in the public domain at the time
that the LifeChip is designed and are provided by INCYTE to AFFX for
LifeChip Project(s), including any minimally relevant subset thereof which
is not in the public domain at the time the LifeChip is designed. DNA
Sequence Set(s) constitute proprietary INCYTE Materials. DNA Sequence
Set(s) specifically excludes other sets of DNA sequences which are supplied
to AFFX by third parties without knowledge of DNA Sequence Set(s), and
which independent supply of such information can be documented by AFFX.
1.7 "EFFECTIVE DATE": shall mean the date first written above.
1.8 "GENE EXPRESSION PROFILE(S)": shall mean a listing of cDNAs by name with
each cDNA assessed by a homology score to be:
[ * ]
This profile, resulting from a given RNA transcript image analysis in the
Incyte Database, includes transcript abundance and certain annotation
information regarding such cDNA derived from Incyte and public databases,
but does not include any DNA sequence information.
1.9 "GENECHIP-TM- READER": shall mean a current Molecular Dynamics GeneChip
Scanner fluorescent reader supplied by AFFX to INCYTE pursuant to this
Agreement for use with and only with GeneChips, including associated
software for use with such instruments. Incyte may update such reader to
an HP reader when available commercially under standard terms and
conditions at AFFX' cost.
1.10 "INCYTE DATABASE PRODUCT(S)": shall mean any or all of INCYTE's products
including but not limited to gene expression, mapping, microbial, and
nucleotide sequence databases and related software and documentation which
are developed outside of the LifeChip Projects or LifeChip Products.
1.11 "INCYTE DATABASE INFORMATION": shall mean all or any part of the
Annotation Information, Gene Expression Profiles, DNA Sequence Sets and DNA
Sequence information in each and/or all of the Incyte Database Product(s).
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1.12 "INCYTE MATERIALS": shall mean all materials developed by INCYTE,
including but not limited to: cDNA templates, partial cDNAs and their
corresponding full length cDNAs, and gene products and proteins encoded
therefrom.
1.13 "INCYTE TECHNOLOGY": shall mean all Technology of INCYTE including
Database Information and Incyte Database Products, software developed by
INCYTE for analysis and storage of data generated using LifeChip Products
and not charged as Operating Expenses, DNA sequence information, DNA
Sequence(s), DNA Sequence Set(s), Annotation Information, information
relating to gene products and/or proteins relating thereto and INCYTE
applications thereof, and INCYTE information relating thereto, and INCYTE's
high throughput DNA sequencing or analysis technology, including transcript
imaging technologies, proprietary to INCYTE at the time provided to AFFX
which, on the Effective Date of this Agreement or at any time during the
term of this Agreement, INCYTE owns or has a right to grant license;
provided, however, that INCYTE Technology shall exclude LifeChip
Inventions.
1.14 "INVENTION": shall mean any patentable discovery or invention conceived of
or reduced to practice in the course of a LifeChip Program, including but
not limited to novel processes, methods, formulas and techniques.
1.15 "LIFECHIP(S)": shall mean DNA probe arrays generated pursuant to this
Agreement and utilizing any INCYTE Technology and/or proprietary Incyte
Materials along with probe array technology provided by AFFX.
1.16 "LIFECHIPDB(S)": is defined in Section 2.1 of this Agreement
1.17 "LIFECHIP INVENTION": shall mean all Inventions first conceived or first
reduced to practice by a Party or the Parties during and under a LifeChip
Project, including: 1) those Inventions arising from novel processes,
methods, formulas and techniques which may be used in conjunction with
nucleic acid based array technology, including but not limited to sample
preparation techniques, hybridization solutions, and detection methods and
probe array production techniques ("Technology Inventions"), and 2) all
other Inventions, including but not limited to those inventions comprising
novel genetic sequences, alleles, polymorphisms, and mutations identified
with LifeChips, gene expression data generated using LifeChips, software
analysis techniques, therapeutic compounds identified utilizing data
generated with LifeChips, and novel therapeutic uses of known compounds
identified through use of LifeChips ("Gene Inventions"). For purposes of
clarity, inventions conceived and reduced to practice other than as
described above shall not be LifeChip Inventions.
1.18 "LIFECHIP MANAGEMENT COMMITTEE": is defined in Section 2.3 of this
Agreement.
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
1.19 "LIFECHIP PROJECTS": shall mean the design and construction of LifeChips,
generation of LifeChipDbs, and provision of LifeChip Services.
1.20 "LIFECHIP PROJECT TEAM": shall mean employees of a Party assigned by that
Party to perform work under LifeChip Projects. Such work includes the
design and production of LifeChips, generation of data for LifeChipDbs, and
performance of Lifechip Services. The kind and number of personnel on the
LifeChip Project Team will be determined by the LifeChip Project Management
Committee. All members of the LifeChip Project Team shall be aware of and
agree to the terms and conditions of this Agreement regarding
confidentiality.
1.21 "LIFECHIP PRODUCT(S)": shall mean any or all of LifeChip(s) (if agreed at
a future date by the Parties), LifeChipDb(s), and/or LifeChip Services.
1.22 "LIFECHIPDB(S)": is defined in Section 2.1 of this Agreement.
1.23 "LIFECHIP SERVICE(s)": is defined in Section 2.1 of this Agreement.
1.24 "OPERATING EXPENSES": shall mean direct expenses incurred by AFFX and
INCYTE solely in the generation, marketing and distribution of LifeChip
Products as specified below. Direct expenses will be determined based on
actual costs consisting of: actual salaries, benefits, related payroll
taxes, reagents, chemicals, lab supplies and any other LifeChip
Product-related expenses accounted for on a Generally Accepted Accounting
Principles ("GAAP") basis. Expenses will be approved by the Project
Management Committee quarterly in advance.
Operating Expenses for LifeChips shall mean [ * ] charged by AFFX per
LifeChip or less as provided in Section 2.6(b).
Operating Expenses for LifeChip Database(s) and LifeChip Service(s)
shall mean expenses incurred by INCYTE or AFFX solely in the
generation, marketing and distribution of LifeChip Databases and
LifeChip Services. Direct expenses will be determined based on actual
costs consisting of: actual salaries, benefits, related payroll taxes,
reagents, chemicals, lab supplies and any other LifeChip
Product-related expenses accounted for on a Generally Accepted
Accounting Principles ("GAAP") basis.
Operating Expenses for LifeChip Inventions shall mean AFFX and INCYTE
patent costs associated with the filing, maintenance, licensing and
litigation of patents under LifeChip Inventions. All significant
(above $500) patent costs
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
for LifeChip Inventions must be approved first by the LifeChip
GeneChip Project Management Committee prior to being incurred.
1.25 "PARTY": shall mean AFFX or INCYTE and, when used in the plural, shall
mean AFFX and INCYTE.
1.26 "TECHNOLOGY": shall mean (i) all trade secrets, whether or not patentable,
copyrightable or trademarkable; (ii) all rights in and to any and all
patents, patent applications, continuations, continuations-in-part,
divisionals, reissue applications, and any equivalent of such applications;
(iiii) all copyrighted or copyrightable material; (iv) all trademarked or
trademarkable material. Technology shall include, without limitation, all
data, documents, substances, processes, materials, formulas, algorithms,
tools, source code, software and hardware configurations, drawings,
specifications, engineering and laboratory notebooks, devices, equipment,
prototypes, models, methods, procedures, and any other tangible
manifestation of said proprietary rights and technical information which
now exist or come into control or proprietary possession of the party.
2.0 LIFECHIP PROGRAM
2.1 PURPOSE: To create LifeChip(s) which 1) will be made available upon
mutual agreement on a commercial basis to third parties, and 2) will be
utilized by INCYTE to provide research services on a commercial basis to
third parties ("LifeChip Services"), and 3) will be used by INCYTE to
create commercial databases of genomic information to be provided on a
commercial basis to third parties ("LifeChipDb(s)").
2.2 LIFECHIP PROJECTS: INCYTE and AFFX will mutually agree upon a minimum of
[ * ] LifeChip Projects to be undertaken during and under this Agreement.
The [ * ] initially planned LifeChip Projects and the initial chip
specification for all projects are set forth in Attachment A of this
Agreement. The workplan for the LifeChip Projects is set forth in
Attachment B of this Agreement. The Parties expect to cooperate in at least
[ * ] LifeChip Projects during the first six months of this Agreement.
2.3 LIFECHIP MANAGEMENT COMMITTEE: The LifeChip Projects will be managed by a
Project Management Committee which shall be responsible for planning and
overseeing the LifeChip Projects. The Management Committee shall be
composed of three representatives from each of AFFX and INCYTE.
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2.4 EXPENSES: Unless otherwise agreed or as provided herein, INCYTE and AFFX
will each be responsible for their own expenses hereunder.
2.5 INCYTE CONTRIBUTIONS:
(a) GENE SEQUENCES: INCYTE will 1) in cooperation with AFFX, identify and
define LifeChip Projects, and 2) provide DNA Sequence Sets from its
Incyte Database Product(s) for such identified LifeChip Projects at
no cost to AFFX on a non-exclusive basis for use in generating
LifeChips for LifeChip Projects. INCYTE and AFFX will, in
cooperation, utilize such sequences provided by INCYTE to design probe
arrays for LifeChip Projects.
(b) During the term of this Agreement, INCYTE will, after AFFX designs
probes for a particular LifeChip design, allow the use of all genes
represented on such chips in LifeChip Products .
(c) STAFFING AND OTHER RESOURCES: INCYTE will designate scientists to
work on the LifeChip Projects under the Workplan, and shall designate
a Project Director to conduct the activities allocated to INCYTE under
the Workplan. INCYTE will use reasonably diligent efforts to identify
and procure tissue and cell samples to generate data for LifeChip
Projects.
(d) MARKETING: INCYTE will 1) market the LifeChipDbs and LifeChip
Services to third parties in cooperation with AFFX, and 2) if mutually
agreeable to both Parties, cooperate with AFFX for AFFX to market the
LifeChips to third parties, each according to a marketing plan to be
agreed by the LifeChip Management Committee. Subject to approval of
INCYTE, consistent with Section 3.5 of this Agreement, AFFX and INCYTE
agree to develop a plan to provide LifeChip Products to third parties
other than Incyte Database subscribers.
2.6 AFFX CONTRIBUTION:
(a) TECHNOLOGY ACCESS: During the term of this Agreement, AFFX will
provide access to AFFX Technology relevant to the LifeChip Projects
to INCYTE for LifeChip Projects at no cost to INCYTE.
(b) LIFECHIPS: During the term of this Agreement, AFFX will provide
LifeChips to INCYTE for LifeChip Projects in numbers and within a
timeframe consistent with that which AFFX provides GeneChips to other
customers. Such LifeChips will be for single use only and will be
charged against
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
[ * ] AFFX warrants that no material profit will be derived
from the LifeChips provided to INCYTE under this Agreement. If there
is a significant reduction in AFFX cost which would result in such a
profit, then AFFX will reduce the price of the LifeChips provided to
INCYTE under this Agreement accordingly.
(c) During the term of this Agreement, AFFX will, after designing probes
for a particular LifeChip design, 1) continue to manufacture such
LifeChips for LifeChip Projects, and 2) allow INCYTE to include all
data from such LifeChip(s) in LifeChip Products.
(d) GENECHIP READERS: AFFX will provide INCYTE with at least one (1)
GeneChip Reader within thirty (30) days of the Effective Date for
analysis of LifeChips at INCYTE's facilities for use in conjunction
with LifeChip Projects. AFFX will provide INCYTE with at least one (1)
additional GeneChip Reader upon delivery of the first probe arrays
delivered to INCYTE pursuant to this Agreement. Such GeneChip Readers
shall be provided by AFFX under AFFX's normal terms and conditions,
charged as Operating Expenses under this Agreement at no greater than
the amount charged to other third parties for a similar instrument.
AFFX will provide product support for GeneChip Readers at INCYTE
consistent with the level of support provided to any other third party
customer. Upgrades will be provided at AFFX cost during the term of
this Agreement. GeneChip Readers shall be available to LifeChip
customers under terms and conditions which are at least as favorable
as those terms and conditions provided by AFFX for GeneChip Readers to
third parties under conditions which, taken as a whole, are similar to
those herein.
3.0 COMMERCIALIZATION OF LIFECHIP PRODUCTS
3.1 PROFITS:: "Operating Profits" shall be calculated quarterly in arrears by
subtracting Operating Expenses for the period, as defined herein, from
revenues from LifeChip Products for the same period. For revenue from
LifeChip Products, excluding GeneChip-TM-Readers, INCYTE and AFFX will share
Operating Profits equally after reimbursing both parties pro rata for
expenses incurred from the Effective Date until the date such Operating
Profits are recorded.
3.2. RECORDS AND ACCOUNTING: The Parties agree to keep relevant accounting
records of net revenues and operating expenses for a period of at least
three years after
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
revenues are recognized or expenses incurred, sufficient in detail to
enable the verification of revenues and Operating Expenses calculated
hereunder. Both Parties will provide accounting for revenues and Operating
Expenses from LifeChip Projects no later than seven days after the end of
each calendar year quarter to enable both Parties to account for this
collaboration in their quarterly financial statements. Once a year a
nationally recognized, independent certified public accountant mutually
acceptable to AFFX and INCYTE, will audit these records solely to the
extent necessary to verify such calculations, and satisfy both Parties'
need to undergo an annual audit of their respective financial statements as
required by the Securities and Exchange commission, provided that such
accountant has entered into a confidentiality agreement limiting the use
and disclosure of such information to purposes germane to this Section 3.0.
Audit results of any such examinations shall be made available to both AFFX
and INCYTE. The expense of such examination will be shared equally, unless
such examination reveals a discrepancy of [ * ] or greater in either Party's
favor, then the expenses shall be paid by the Party that has overcharged
collaborative expenses.
3.3 DETAILED ACCOUNTING PROCEDURE: Detailed accounting procedures will be
mutually agreed upon by the Parties within six months of the Effective Date
and no later than the receipt of the first revenues.
3.4 PRICING STRUCTURES FOR LIFECHIP PRODUCTS: Pricing structures for LifeChip
Products sold by either Party to third parties will be determined by the
LifeChip Project Management Committee prior to manufacture of any
LifeChips. Prices of the LifeChip Products to third parties shall be
consistent with prices of other AFFX product offerings. Pricing structures
for LifeChip Products sold by either Party to third parties may be changed
during this Agreement by mutual consent of the Parties. Pricing of the
LifeChipDbs shall be based on an independently attributable value of the
Database. Attachment C provides an overall pricing structure for the
LifeChip Products.
3.5 DISTRIBUTION: INCYTE and AFFX will agree to designate third parties which
may receive LifeChip Products. INCYTE shall perform all LifeChip Services
at INCYTE or INCYTE Affiliates' facilities, and INCYTE shall generate and
provide access to all LifeChipDbs. To ensure adequate customer service for
hardware, AFFX will retain the right to sell LifeChips (and associated
instruments) to designated third parties, if any, through a marketing
system to be agreed upon by the LifeChip Management Committee, which will
ensure that Incyte approves in advance all LifeChip orders, and AFFX can
effectively provide and service LifeChips to customers. All LifeChip
Products will bear the trademarks of both parties. The LifeChip trademark
will be co-owned, and will be used only for LifeChip Products
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unless agreed in writing by the Parties. The sale of LifeChips to third
parties shall be pursuant to AFFX standard genomics terms and conditions of
sale. All use of trademarks of the others will allow for reasonable
quality control and trademark use approval of the other to ensure for
trademark protection of the Parties.
3.6 LIFECHIP ACCESS: Initially, AFFX and INCYTE agree to offer LifeChip
Products solely to Incyte Database subscribers. At such time as any
LifeChip Product is offered to a non-Incyte Database subscriber, INCYTE
shall have the sole right to determine 1) reasonable access of such
non-Incyte Database subscriber to INCYTE Materials, and 2) reasonable
payment terms and conditions for commercial access to any INCYTE Materials
to non-Incyte Database subscribers.
3.7 INCYTE acknowledges that AFFX may provide AFFX Technology to any third
party for any purpose, except that which would prevent AFFX from fulfilling
its obligations under this Agreement), and that such third party customers
and collaborators may use AFFX Technology for any purpose. Nothing in this
Agreement prevents AFFX from independently providing AFFX Technology to
third parties including Incyte Database subscribers. However, it is
explicitly understood that 1) provision of any and all LifeChip Products by
AFFX shall occur solely during and under this Agreement, and 2) that AFFX
may not provide any INCYTE Technology or any INCYTE Materials to any third
party except as LifeChips to LifeChip customers under this Agreement,
except AFFX may provide probe arrays using DNA sequences and/or DNA
sequence sets (which may also be included in INCYTE Materials and/or INCYTE
Technology) when AFFX can demonstrate that the INCYTE Materials and/or
INCYTE Technology:
(a) was in its possession prior to receipt; or
(b) was in the public domain at the time of receipt; or
(c) becomes part of the public domain through no fault of the AFFX; or
(d) is lawfully received by AFFX from a third party having a right to
disclose it to AFFX; or
(e) is independently discovered or developed without use of of INCYTE
Materials or INCYTE Technology, as can be documented by written
records created at the time of such independent discovery or
development.
3.8 AFFX acknowledges that Incyte may provide INCYTE Materials and/or INCYTE
Technology, including DNA Sequence Sets, to any third party for any
purpose, except that which would prevent INCYTE from fulfilling its
obligations under this Agreement, and that such third party customers and
collaborators may use Incyte Materials for any purpose. Nothing in this
Agreement prevents INCYTE from independently providing INCYTE Technology to
third parties including LifeChip
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
customers. However, it is explicitly understood that INCYTE may not provide
any AFFX Technology to any third party except as LifeChip Products except
INCYTE may provide any technology to third parties when INCYTE can
demonstrate that such technology:
(a) was in its possession prior to receipt; or
(b) was in the public domain at the time of receipt; or
(c) becomes part of the public domain through no fault of the AFFX; or
(d) is lawfully received by INCYTE from a third party having a right to
disclose it to INCYTE; or
(e) is independently discovered or developed without use of of AFFX
Materials or INCYTE Technology, as can be documented by written
records created at the time of such independent discovery or
development.
4.0 INTELLECTUAL PROPERTY
4.1 Each Party shall promptly report to the other Party all LifeChip
Inventions.
4.2 The Parties undertake that they shall do all things which are reasonably
necessary or desirable to establish, maintain and assert any rights or
interest of the Parties, including the execution of all documents necessary
or desirable so that title or other rights can be established and
maintained and so that any patent filings permitted hereunder can be made,
prosecuted and maintained.
4.3 TECHNOLOGY INVENTIONS: All Technology Inventions shall be co-owned by the
Parties. AFFX shall have primary responsibility for filing, prosecution and
maintenance of Technology Inventions. AFFX shall bear all costs incurred in
acquiring patent rights for Technology Inventions AFFX shall have the
primary responsibility for licensing Technology Inventions to third
parties. All patent decisions and all licensing terms and conditions will
be mutually agreed by the Parties. All patents arising from Technology
Inventions will be licensed in separately from other AFFX patents, i.e. not
a package license, [ * ]
4.4 GENE INVENTIONS: All Gene Inventions shall be co-owned by the Parties.
INCYTE shall have primary responsibility for filing, prosecution and
maintenance of Gene Inventions. INCYTE shall bear all costs incurred in
acquiring patent rights for Gene Inventions. INCYTE shall have the primary
responsibility for licensing Gene Inventions to third parties. All patent
decisions and all licensing terms and conditions will be mutually agreed by
the Parties. All patents arising from Gene Inventions will
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
be licensed in separately from other INCYTE patents, i.e. not a package
license, [ * ]
4.5 Except as otherwise provided under the terms of this Agreement, AFFX and
INCYTE will each retain all proprietary rights to their respective AFFX
Technology and INCYTE Technology. Nothing in this Agreement grants either
Party any rights to patents, patent applications, copyrights, trade
secrets, or other proprietary rights of the other Party, except as
expressly provided herein, even if background patents are required to
practice any patents arising from Inventions developed hereunder. INCYTE
acknowledges that AFFX may hold patents and pending patent applications
which cover compositions, methods and uses of the AFFX Technology. Except
as provided herein, AFFX retains all rights to AFFX Technology. AFFX
acknowledges that INCYTE may hold patents and pending patent applications
which cover compositions, methods and uses of the INCYTE Technology.
Except as provided herein, INCYTE retains all rights to INCYTE Technology.
4.6 INCYTE reserves the right under the Incyte Technology to access for its own
benefit, and to grant access to third parties to the Incyte Database
Product(s), including without limitation the Annotation Information and the
DNA Sequence Information including, but not limited to any DNA sequence
which may be in a DNA Sequence Set, provided that this right shall not
include the right to use AFFX Technology except as provided herein.
4.7 AFFX reserves the right under AFFX Technology to access for its own
benefit, and to grant access and licenses to third parties to the
GeneChip-TM-Technology, provided that this right shall not include the right
to use proprietary INCYTE Materials and/or INCYTE Technology except as
provided herein.
5.0 CONFIDENTIALITY
5.1 The Parties acknowledge that during the course of this Agreement they will
each receive from the other Confidential Information, including the
specific terms of this Agreement, which is proprietary to the disclosing
Party. Except as otherwise contemplated by this Agreement, or unless by
mutual written agreement, the Parties agree, for the term of this Agreement
and for ten (10) years thereafter, to hold in confidence and not disclose,
use (except pursuant and in pursuit of this Agreement), or deliver to any
person, firm, corporation or entity, Confidential Information which a Party
receives from the other Party, except for that which such Party can
demonstrate:
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(a) was in its possession prior to receipt; or
(b) was in the public domain at the time of receipt; or
(c) becomes part of the public domain through no fault of the recipient;
or
(d) is lawfully received by the recipient from a third party having a
right to disclose it to the recipient; or
(e) is independently discovered or developed without use of Materials or
Technology received from the other Party, as can be documented by
written records created at the time of such independent discovery or
development or;
(f) is required to be disclosed in a judicial or administrative proceeding
or to an administrative agency after all reasonable legal remedies or
steps for maintaining such information in confidence have been
utilized, in which case, the disclosing Party will notify the other
Party of disclosure.
5.2 All Incyte Database Information is confirmed to be INCYTE Confidential
Information and shall not be subject to the 10 year limitation above.
5.3 INCYTE will not reverse engineer any of the LifeChips or GeneChip Readers
or associated hardware or software. AFFX will provide INCYTE with machine
executable code software for the generation of gene expression data in a
defined file format. INCYTE may use this information and software for
LifeChip Projects only. Any resulting software developed by INCYTE shall be
owned by INCYTE and be provided to AFFX and AFFX customers under a separate
licensing agreement on a non-exclusive basis. Such software will be
available to AFFX, if it is commercially available any third party, under
terms and conditions which are consistent with other INCYTE product
offerings. AFFX may make additional software or data structures available
to INCYTE that is useful in data processing upstream to the generation of
gene expression data. All software created by INCYTE based on or using such
AFFX software or data structures for the purposes of such upstream data
processing will be owned by INCYTE and will be made available on a
non-exclusive basis to AFFX and its customers royalty free.
5.4 PUBLICATION: Publications are expected to be generated as part of this
project and form an important component of the project for both Parties.
Publication of any data arising from LifeChip Projects shall require the
consent of both Parties. Confidential Information or Materials of the other
Party shall not be included in any publication without first obtaining
written approval from the Party to include such Confidential Information or
Materials. The Parties agree to acknowledge contributions, as
scientifically appropriate, of each Party.
6.0 REPRESENTATIONS AND WARRANTIES; COVENANTS
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6.1 REPRESENTATIONS AND WARRANTIES: Each Party represents and warrants to the
other Party that:
(a) it has the corporate power and authority and the legal right to enter
into this Agreement and to perform its obligations hereunder;
(b) the execution and delivery of this Agreement and the performance of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action of such Party;
(c) the execution and delivery of this Agreement and the performance by
such Party of any of its obligations under this Agreement do not and
will not (i) conflict with, or constitute a breach or violation of,
any other contractual obligation to which it is a party, any judgment
of any court or governmental body applicable to such Party or its
properties or, to such Party's knowledge, any statute, decree, order,
rule or regulation of any court or governmental agency or body
applicable to such Party or its properties, and (ii) with respect to
the execution and delivery of this Agreement, require any consent or
approval of any governmental authority or other person;
(d) each Party shall to the best of its knowledge without undertaking a
special investigation, disclose to the other Party any material
adverse proceedings, claims or action that arise, relating to their
Technology which would materially interfere with that Party's
performance of its obligations under this Agreement;
(e) each Party's employees have executed or will execute agreements
whereby all right, title and interest in any technology and
invention(s) will be assigned to their respective employers.
6.2 COMPLIANCE WITH LAW: AFFX and INCYTE each represent and warrant that it
shall comply with all applicable laws, regulations and guidelines in
connection with that Party's performance of its obligations and rights
pursuant to this Agreement. Without limiting the generality of the
foregoing, each Party shall be responsible for compliance with all
applicable product safety, product testing, product labeling, package
marking, and product advertising laws and regulations with respect to its
own activities and products. Further, AFFX and INCYTE shall each comply
with the regulations of the United States and any other relevant nation
concerning any export or other transfer of technology, services, or
products. INCYTE and AFFX shall comply with all safety and environmental
rules of the other Party when at the facilities of the other Party.
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
6.3 DISCLAIMERS:
(a) EXCEPT AS EXPLICITLY STATED HEREIN, THE PARTIES MAKE NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THEIR
RESPECTIVE AFFX TECHNOLOGY, INCYTE TECHNOLOGY, OR LIFECHIP INVENTIONS,
EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OR
VALIDITY, ENFORCEABILITY, SCOPE, AND MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. EXCEPT AS EXPLICITLY STATED HEREIN, ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY, NOVELTY OR FITNESS OF GENE PRODUCTS, LIFESEQ
DATABASE INFORMATION OR GENECHIPS FOR ANY PARTICULAR PURPOSE, ARE
EXCLUDED. LIFECHIPS ARE PROVIDED BY AFFX AS-IS. INCYTE MAKES NO
WARRANTY THAT THE DATABASE INFORMATION DOES NOT CONTAIN ERRORS.
(b) EXCEPT AS EXPLICITLY STATED HEREIN NEITHER PARTY WILL BE LIABLE FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES OF ANY NATURE ARISING FROM SUCH
PARTY'S ACTIVITIES UNDER THIS AGREEMENT; PROVIDED, HOWEVER, THAT THIS
LIMITATION SHALL NOT LIMIT THE INDEMNIFICATION OBLIGATION OF SUCH
PARTY UNDER SECTION 8.2 BELOW FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES
RECOVERED BY A THIRD PARTY.
7.0 TERM AND TERMINATION
7.1 Either Party may terminate this Agreement after one year upon 30 days
written notice to the other Party.
7.2 Upon termination of this Agreement, INCYTE may purchase its GeneChip
Readers from AFFX for no greater than [ * ] unless termination is for
breach by INCYTE.
7.3 After termination of this Agreement, AFFX will return all LifeChips to
INCYTE for sole use in generating and selling LifeChip Products. [ * ] In
the event of termination for breach of INCYTE, AFFX may destroy all
LifeChips.
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
7.4 During this Agreement and for a period of 5 years thereafter, AFFX
Technology will be made available to INCYTE under reasonable commercial
terms to be negotiated unless a) AFFX Technology is no longer available on
a non-exclusive basis to third parties, or b) INCYTE has infringed on the
intellectual property rights of AFFX, and such infringement can be
documented by AFFX. During this Agreement and for a period of 5 years
thereafter the LifeSeq Database will be made available to AFFX under
reasonable commercial terms to be negotiated unless a) the LifeSeq
Database is no longer available on a non-exclusive basis to third parties,
or b) AFFX has infringed on the intellectual property rights of INCYTE, and
such infringement can be documented by INCYTE.
7.5 Relevant provisions of this Agreement regarding confidentiality,
intellectual property, representations and warranties (Sections 4, 5,
and 6) shall survive termination of this Agreement.
8.0 INDEMNITY
8.1 INDEMNITY: [ * ]
AFFX acknowledges and agrees that with respect to the nature of INCYTE's
Technology, there can be no adequate remedy at law for any breach of
INCYTE's obligations with regard to the confidentiality and distribution
of INCYTE Materials and INCYTE Technology, and that any such breach may
result in irreparable harm to INCYTE, and therefore, that upon any such
breach INCYTE shall be entitled to appropriate equitable relief in addition
to whatever remedies it might have at law, including injunctive relief,
specific performance or such other relief as Incyte may request to enjoin
or otherwise restrain any act prohibited hereby, [ * ]
INCYTE acknowledges and agrees that with respect to the nature of AFFX'
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[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
Technology, there can be no adequate remedy at law for any breach of AFFX
obligations with regard to the confidentiality and distribution of AFFX
Technology, and that any such breach may result in irreparable harm to
AFFX, and therefore, that upon any such breach AFFX shall be entitled to
appropriate equitable relief in addition to whatever remedies it might have
at law, including injunctive relief, specific performance or such other
relief as Incyte may request to enjoin or otherwise restrain any act
prohibited hereby, [ * ]
8.2 PROCEDURE: A Party (the "Indemnitee") that intends to claim
indemnification under this Section 8 shall promptly notify the other Party
(the "Indemnitor") of any loss, liability, damage, expense, claim, demand,
action or other proceeding in respect of which the Indemnitee or any of its
affiliates intend to claim such indemnification, and the Indemnitor shall
have the right to participate in, and, to the extent the Indemnitor so
desires, jointly with any other Indemnitor similarly noticed, to assume the
defense thereof with counsel selected by the Indemnitor and reasonably
satisfactory to the Indemnitee; provided, however, that an Indemnitee shall
have the right to retain its own counsel, with the fees and expenses to be
paid by the Indemnitee, if representation of such Indemnitee by the counsel
retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity agreement in
this Section 8 shall not apply to amounts paid in settlement of any loss,
liability, damage, expense, claim, demand, action or other proceeding 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
Section 8, but the omission so to deliver notice to the Indemnitor will not
relieve it of any liability that it may have to any Indemnitee otherwise
than under this Section 8. The Indemnitor may not settle the action or
otherwise consent to an adverse judgment in action or other proceeding that
materially diminishes the rights or interests of the Indemnitee without the
express written consent of the Indemnitee. The Indemnitee under this
Section 8 and 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.
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9.0 MISCELLANEOUS PROVISIONS
9.1 PRE-ARBITRATION: No arbitration with reference to this Agreement shall
arise until the following procedures have been satisfied. In the event of
any dispute with respect to the interpretation of any provision of this
Agreement or with respect to the performance of either party under this
Agreement, written notice shall be provided, specifying the terms of
disagreement in reasonable detail, and referring to this Paragraph of this
Agreement. Upon receipt of such notice, the chief executive officers of
INCYTE and AFFX shall enter into good faith negotiations for the purpose of
resolving such disagreement. If mutual agreement is not reached within
sixty (60) days after receipt of such written notice, then the parties
agree to submit to arbitration.
9.2 ARBITRATION: Any controversy arising under or related to this Agreement,
or any disputed claim by either Party against the other under this
Agreement, excluding any dispute relating to patent validity or
infringement arising under this Agreement, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Upon request of either Party, arbitration will be
by a) a third party arbitrator mutually agreed upon in writing by AFFX and
INCYTE within thirty (30) days of such arbitration request; or b) an
appointed member of the American Arbitration Association. The Parties shall
be entitled to discovery in like manner as if the arbitration were a civil
suit in the California Federal court. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
If the claim is filed by a Party, the venue for arbitration shall be Palo
Alto, CA. Each Party shall pay its own expenses in connection with the
arbitration proceeding, while the expenses and fees of the arbitrator shall
be shared equally by AFFX and INCYTE.
9.3 COMPLIANCE: INCYTE and AFFX agree that their respective activities under
this Agreement will be carried out in compliance with all applicable laws,
regulations and guidelines.
9.4 RELATIONSHIP BETWEEN THE PARTIES: INCYTE and AFFX recognize and agree that
each is operating as an independent contractor and not as an agent of the
other. Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, distributorship, employer-employee or
joint venture relationship between the Parties. No Party shall incur any
debts or make any commitments for the other, except to the extent, if at
all, specifically provided herein.
9.5 PUBLIC ANNOUNCEMENTS: Except as may otherwise be required by law or
regulation, or in connection with a registration of securities, neither
party shall make any public
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announcement concerning this Agreement or the subject matter hereof without
first submitting a copy of the proposed announcement to the other Party for
review. The other party shall have seven (7) business days to review such
announcement and provide its comments and suggestions and to provide its
consent to the publication of such announcement, such consent not to be
unreasonably withheld or delayed.
PUBLICITY:
(a) INCYTE shall not use the names likenesses, or logos of AFFX or any
AFFX products in any press releases, general publications,
advertising, marketing, promotional or sales literature without prior
written consent from an officer of AFFX.
(b) AFFX shall not use the names likenesses, or logos of INCYTE or any
INCYTE products, including the Incyte Database, in any press releases,
general publications, advertising, marketing, promotional or sales
literature without prior written consent from an officer of INCYTE.
9.6 SEVERABILITY: In the event 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 either of the Parties to be invalid,
illegal or unenforceable, such provision or provisions shall be validly
reformed to as nearly as possible approximate the intent of the Parties
and, if unenforceable, shall be divisible and deleted in such jurisdiction;
elsewhere, this Agreement shall not be affected so long as the Parties are
still able to realize the principal benefits bargained for in this
Agreement.
9.7 ENTIRE AGREEMENT: This Agreement constitutes and contains the entire
understanding and agreement of the Parties and cancels and supersedes any
and all prior negotiations, correspondence, understandings and agreements,
whether verbal or written, between the Parties respecting the subject
matter hereof. No waiver, modification or amendment of any provision of
this Agreement shall be valid or effective unless made in writing and
signed by a duly authorized officer of each of the Parties.
9.8 NOTICES: All notices and other communications to be given hereunder shall
be given in writing by registered or certified mail, postage prepaid,
return receipt requested, or by overnight courier, mail-gram, telex or
facsimile to the respective parties at the following addresses, unless such
addresses are changed and the other Party is notified of the change in
writing:
Affymetrix, Inc.
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<PAGE>
3380 Central Expressway
Santa Clara, CA 95051
FAX: 408-481-0422
Attention: Stephen P.A. Fodor, Ph.D., President and COO
Incyte Pharmaceuticals, Inc.
3174 Porter Drive
Palo Alto, CA 94304
FAX: 415-845-4500
Attention: Roy A. Whitfield, President and CEO
9.9 APPLICABLE LAW: This Agreement shall be construed, interpreted, and
applied with the laws of the State of California.
9.10 NO ASSIGNMENT: Neither Party shall have the right to assign or transfer,
directly or indirectly, in whole or in part, this Agreement or its rights
or obligations hereunder, whether voluntarily, by operation of law, change
in control or otherwise, without the prior express written consent of the
other Party which may be withheld for any reason whatsoever. For purposes
of this Section 9.10, a "change in control" of a party shall mean the
change in the beneficial ownership of fifty (50%) or more of the
outstanding voting securities of such Party, whether in one or a series of
transactions.
Any assignment not in accordance with the above shall be void.
9.11 ATTORNEY'S FEES: In any litigation or arbitration relating to or arising
out of this Agreement, the prevailing Party shall be entitled to its
reasonable attorneys' fees, including expert witness costs, and all costs
of proceedings incurred in such litigation, in addition to any other relief
it may be awarded.
9.12 ENVIRONMENTAL AND SAFETY: Each Party agrees to abide by and become
familiar with the safety and environmental rules of the other when
performing its obligations pursuant to this Agreement at the facilities of
the other Party.
9.12 FORCE MAJEURE: Force Majeure shall mean an Act of God, flood, fire,
explosion, earthquake, strike, lockout, casualty or accident, war, civil
commotion, act of public enemies, blockage or embargo, or any injunction,
law, order, proclamation, regulation, ordinance, demand or requirement of
any government or any subdivision,
Page 21
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<PAGE>
authority representative thereof, or the inability to procure or use
materials, labor, equipment, transportation or energy sufficient to meet
manufacturing needs without the necessity of allocation, or any other cause
whatsoever, whether similar or dissimilar to those enumerated above, which
are beyond the reasonable control of such Party, which the Party affected
has used its reasonable best efforts to avoid, and which prevent, restrict
or interfere with the performance by a Party of its obligations hereunder.
The Party affected by Force Majeure shall give notice to the other Party
promptly in writing and whereupon shall be excused from those obligations
hereunder, to the extent of such prevention, restriction or interference,
provided that the affected party shall use its commercially reasonable
efforts to avoid or remove such cause(s) of non-performance and shall
continue performance whenever such cause(s) is removed.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate
originals by their duly authorized officers or representatives.
AFFYMETRIX, INC. INCYTE PHARMACEUTICALS, INC.
By: /s/ Stephen P.A. Fodor By: /s/ Randal W. Scott
------------------------- ------------------------------
Stephen P. A. Fodor, Ph.D. Randal W. Scott, Ph.D.
Title: PRESIDENT & COO Title:EXECUTIVE VICE PRESIDENT & CSO
------------ - ------- --------- ---- --------- - ---
Date: November 14, 1996 Date: November 11, 1996
------------------------ -----------------------------
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CONFIDENTIAL
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
ATTACHMENT A
------------
INITIAL LIFECHIP PROJECTS
-------------------------
[ * ]
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CONFIDENTIAL
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
ATTACHMENT B
------------
WORKPLAN
--------
[ * ]
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CONFIDENTIAL
<PAGE>
[ * ] Confidential Treatment Requested
by Affymetrix, Inc.
ATTACHMENT C
------------
PRICING STRATEGY
----------------
[ * ]
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CONFIDENTIAL
<PAGE>
EXHIBIT 11.1
AFFYMETRIX, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net loss......................................................... $(12,227) $(10,747) $(9,680)
-------- -------- -------
-------- -------- -------
Historical primary and fully diluted number of shares:
Weighted average common shares............................... 12,983 409 398
Shares related to SAB Topic 4D:
Common shares............................................ 50 201 201
Stock options and warrants............................... 356 1,424 1,424
Preferred shares......................................... 1,445 5,778 5,778
-------- -------- -------
Shares used in computing net loss per share...................... 14,834 7,812 7,801
-------- -------- -------
-------- -------- -------
Net loss per share............................................... $ (0.82) $ (1.38) $ (1.24)
-------- -------- -------
-------- -------- -------
Pro forma number of shares:
Weighted average common shares............................... 12,983 409 398
Shares related to SAB Topic 4D:
Common shares............................................ 50 201 201
Stock options and warrants............................... 356 1,424 1,424
Preferred shares......................................... 1,445 5,778 5,778
Convertible preferred shares, as if converted................ 5,297 9,852 9,852
-------- -------- -------
Shares used in computing pro forma net loss per share............ 20,131 17,664 17,653
-------- -------- -------
-------- -------- -------
Pro forma net loss per share..................................... $ (0.61) $ (0.61) $ (0.55)
-------- -------- -------
-------- -------- -------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Affymetrix, Inc. (Form S-8 File Number 333-11299) of our report dated January
23, 1997, with respect to the financial statements of Affymetrix, Inc. included
in the Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Palo Alto, California
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Item
8. of Form 10-K for the period ended December 31, 1996 and is qualified in
its entirety by reference to such 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,143
<SECURITIES> 94,839
<RECEIVABLES> 1,888
<ALLOWANCES> 0
<INVENTORY> 1,901
<CURRENT-ASSETS> 113,294
<PP&E> 8,253
<DEPRECIATION> (2,856)
<TOTAL-ASSETS> 118,860
<CURRENT-LIABILITIES> 5,626
<BONDS> 0
0
0
<COMMON> 158,687
<OTHER-SE> (46,194)
<TOTAL-LIABILITY-AND-EQUITY> 118,860
<SALES> 1,389
<TOTAL-REVENUES> 11,972
<CGS> 2,178
<TOTAL-COSTS> 2,178
<OTHER-EXPENSES> 18,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,227)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
