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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[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
For the transition period from to
Commission file number: 0-28150
NEUROCRINE BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0525145
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3050 SCIENCE PARK ROAD, SAN DIEGO, CA 92121
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (619) 658-7600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$0.001 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the 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 the voting stock of the issuer held by
non-affiliates of the issuer on February 28, 1997 was approximately
$141,041,532, based upon the closing price of such stock on February 28, 1997.
As of February 28, 1997, 16,846,331 shares of Common Stock of the registrant
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Parts I and III of Form 10-K is
incorporated by reference from the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on May 27, 1997 (the "Proxy Statement"),
which will be filed with the Securities and Exchange Commission within 120 days
after the close of the Registrant's fiscal year ended December 31, 1996.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Neurocrine Biosciences, Inc. is a leading neuroimmunology company
focused on the discovery and development of novel therapeutics to treat diseases
and disorders of the central nervous and immune systems. The Company's
neuroscience and immunology disciplines provide a biological understanding of
the molecular interactions between the central nervous, immune and endocrine
systems leading to therapeutic opportunities for diseases and disorders such as
anxiety, depression, Alzheimer's disease, obesity and multiple sclerosis.
Neurocrine is leveraging its resources through strategic alliances and
other financing mechanisms to build its internal product development and
commercialization capabilities. To date, Neurocrine has entered into strategic
alliances with Janssen Pharmaceutica, N.V. ("Janssen"), a subsidiary of Johnson
& Johnson, focused on the treatment of anxiety, depression and substance abuse;
Ciba-Geigy Limited ("Ciba-Geigy") for the treatment of multiple sclerosis; and
Eli Lilly and Co. ("Lilly") for the treatment of central nervous system
disorders including obesity and dementias such as Alzheimer's disease. In
conjunction with a number of institutional investors, the Company has also
established a research and development subsidiary in Canada, Neuroscience Pharma
(NPI) Inc. ("NPI"), to develop additional compounds for the treatment of
Alzheimer's disease and other neurodegenerative diseases and disorders.
The following Business section contains forward-looking statements
concerning the continuation of the Company's strategic alliances and the receipt
of payments thereunder, the anticipated dates of selection of lead compounds for
clinical development, the commencement and successful conclusion of clinical
trials, the receipt of regulatory approvals, and the development of potential
future products. Such forward-looking statements necessarily 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 but not limited to uncertainties regarding the successful continuation
of the Company's collaborative arrangements, the successful completion of
clinical trials, the difficulty of obtaining the required regulatory approvals,
and the failure to achieve product development and commercialization goals.
RISKS INHERENT IN THE COMPANY'S BUSINESS
Neurocrine was founded in 1992 and all of its product candidates are in
research or early stages of development. The Company has not requested nor
received regulatory approval for any product from the FDA or any other
regulatory body. Any products resulting from the Company's research and
development programs are not expected to be commercially available for the
foreseeable future, if at all.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that the potential products
will be found ineffective or cause harmful side effects during preclinical
testing or clinical trials, fail to receive necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical, fail to achieve
market acceptance or be precluded from commercialization by proprietary rights
of third parties.
The Company's product candidates require significant additional
research and development efforts. No assurance can be given that any of the
Company's development programs will be successfully completed, that any
investigational new drug application ("IND") will be accepted by the FDA, that
clinical trials will commence as planned, that required regulatory approvals
will be obtained on a timely basis, if at all, or that any products for which
approval is obtained will be commercially successful. If any of the Company's
development programs are not successfully completed, required regulatory
approvals are not obtained, or products for which approvals are obtained are not
commercially successful, the Company's business, financial condition and results
of operations would be materially adversely affected.
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BACKGROUND
Corticotropin Releasing Factor ("CRF")
Corticotropin releasing factor, the central regulator of the body's overall
response to stress, affects multiple systems by functioning both as an endocrine
factor and a neurotransmitter. CRF acts as a hormone at the pituitary gland
causing the secretion of the steroid cortisol from the adrenal glands resulting
in a number of metabolic effects, including suppression of the immune system.
CRF also functions as a neurotransmitter in the brain and plays a critical role
in coordinating psychological and behavioral responses to stress such as
increased heart rate, anxiety, arousal and reduced appetite. In addition to
neuroendocrine and neurotransmitter roles, accumulating evidence suggests that
CRF may also integrate actions between the immune and central nervous systems in
response to physiological and psychological stressors.
The body has several mechanisms to regulate the effects of CRF. The
Company's recent cloning of human CRF receptors suggests that the diverse
functions of CRF are mediated through distinct receptor subtypes which are
differentially distributed in specific brain areas and in tissues outside of the
central nervous system. These receptors may offer a mechanism to modulate
specific actions of CRF without affecting the broad range of its activities.
There are several diseases and disorders such as anxiety, depression and
substance abuse in which CRF levels are increased. The deleterious effects of
high levels of CRF may be countered by the administration of selective CRF
receptor antagonists. A protein in the brain that binds to CRF and holds it in
an inactive state, CRF-binding protein ("CRF-BP"), tightly regulates levels of
CRF in certain brain regions. CRF-BP may provide a novel target to selectively
increase levels of CRF in diseases that are associated with decreased levels of
CRF, such as Alzheimer's disease and obesity.
Altered Peptide Ligands
The immune system employs highly specific T-cells that recognize and attack
foreign antigens that invade the body. Occasionally, certain T-cells arise that
inappropriately recognize the body's own tissues as foreign and attack healthy
cells, resulting in autoimmune diseases such as multiple sclerosis and Type I
diabetes. Recently, it has been found that the peptide recognition site on
healthy tissue can be altered, creating molecular decoys that can be developed
as potential drug candidates. The Company believes that these molecules, known
as altered peptide ligands, are capable of binding to and deactivating T-cells
implicated in certain autoimmune diseases.
Multiple sclerosis is a chronic disease caused by the immune system's
attack on myelin, the insulating material that surrounds and protects nerve
fibers in the central nervous system ("CNS"). This autoimmune reaction is led by
T-cells which come in contact with myelin by utilizing T-cell receptors specific
for myelin proteins. This interaction leads to a destructive inflammatory
response mediated by molecules of the immune system known as cytokines.
Cytokines such as gamma interferon, tumor necrosis factor-alpha and
interleukin-6 are found at the site of inflammation and demyelination and play a
role in further advancing nerve cell destruction. The use of altered peptide
ligands of dominant antigens in autoimmune diseases may inactivate certain
T-cells and decrease the production of destructive cytokines.
Neurosteroids
Neurosteroids are a class of steroidal compounds produced in the central
nervous system that show a wide range of effects on neurons.
Dehydroepiandrosterone ("DHEA") is the most abundant adrenal steroid in humans.
Blood levels of this hormone peak by age 20 and then decrease throughout life,
reaching their lowest levels by age 65. DHEA levels have been found to be
decreased in Alzheimer's patients while DHEA has been shown to have
memory-enhancing effects in animal studies. For example, studies have been
performed in aged mice which perform more poorly than young mice in certain
memory tasks. Administration of DHEA in the older animals has been shown to
improve memory to the high levels seen in the younger animals. DHEA has also
been shown to significantly reverse pharmacologically-induced amnesia and memory
impairment in these animals.
In addition to the memory-enhancing effects of DHEA, preliminary data
suggest that this steroid also increases neuronal survival. DHEA may also induce
neuroprotection through inhibition of inflammatory cytokines in the brain which
have recently
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been implicated in neurodegeneration. In view of its cognitive enhancing and
neuroprotective potential, DHEA replacement therapy may be beneficial for the
treatment of neurodegenerative disorders such as Alzheimer's disease.
Neurogenomics
The brain and spinal cord are comprised of two major cell types--glial
cells and neurons. Glial cells are the most prevalent cell type in the central
nervous system, comprising over 75% of all brain cells. The gene products from
these cells are crucial for the survival and development of neurons. Neurons are
CNS cells which transmit and receive complex electrical and chemical messages
from other neurons to control all cognitive processes. In certain pathological
states, excessive glial activity results in the activation of cytosine and
related genes. The proteins encoded by these genes may be implicated in the
degenerative cascade leading to neurological disorders such as Alzheimer's
disease, stroke, multiple sclerosis, Parkinson's disease, epilepsy and AIDS
dementia. For example, in AIDS, the HIV virus does not attack neurons but does
infect glial cells which in turn release inflammatory cytokines and other
factors which are toxic to neurons. Similarly, in Alzheimer's disease,
accumulating evidence suggests complex interactions between neurons, glia and a
protein fragment known as beta amyloid leading to formation of senile plaques
and neurodegeneration. Currently, it is estimated that only a small fraction of
genes involved in neurodegeneration or regeneration have been identified. The
identification of novel CNS genes involved in the neurodegenerative process may
yield new therapeutic and diagnostic opportunities.
BUSINESS STRATEGY
The Company's strategy is to utilize its understanding of the biology of
the central nervous, immune and endocrine systems to identify and develop novel
therapeutics. There are five key elements to the Company's business strategy:
Target Multiple Product Platforms. Neurocrine is focusing on research and
development programs which utilize its distinct biological and technological
competencies. The Company believes certain central nervous system drug targets,
such as CRF, CRF-BP and neurosteroids, represent significant market
opportunities in psychiatric, neurologic and metabolic disorders. Immunological
targets, such as altered peptide ligands, offer product opportunities related to
autoimmune diseases. Neurogenomics allows the Company to combine its
neuroscience and immunology expertise with new drug discovery technologies to
identify novel gene-related product or gene therapy opportunities.
Identify Novel Neuroscience and Immunology Drug Targets for the Development
of Therapeutics Which Address Large Unmet Market Opportunities. Neurocrine
employs molecular biology as an enabling discipline to identify novel drug
targets such as receptors, genes and gene-related products. The Company uses
advanced technologies, including combinatorial chemistry, high-throughput
screening, gene sequencing and bioinformatics, to discover and develop novel
small molecule therapeutics for diseases and disorders of the central nervous
and immune systems including anxiety, depression, Alzheimer's disease, obesity
and multiple sclerosis.
Leverage Strategic Alliances to Enhance Development and Commercialization
Capabilities. Neurocrine intends to leverage the development, regulatory and
commercialization expertise of its corporate partners to accelerate the
development of its potential products, while retaining full or co-promotion
rights in North America. The Company intends to further leverage its resources
by continuing to enter into strategic alliances and novel financing mechanisms
to enhance its internal development and commercialization capabilities. To date,
Neurocrine has entered into a strategic alliance with Janssen focusing on CRF
receptor antagonists to treat anxiety, depression, and substance abuse; with
Ciba-Geigy to develop altered peptide ligands for the treatment of MS; and with
Lilly to collaborate in the discovery, development and commercialization of CRF
binding protein ligand inhibitors for the treatment of central nervous system
disorders including obesity and dementias such as Alzheimer's disease. The
Company has also formed NPI, a research and development subsidiary, to finance
its Neurosteroid and Neurogenomics programs.
Outsource Capital Intensive and Non-Strategic Activities. Neurocrine
intends to focus its resources on research and development activities by
outsourcing its requirements for manufacturing, preclinical testing, and
clinical monitoring activities. The Company utilizes contract current Good
Manufacturing Processes ("cGMP") manufacturing for both its Neurosteroid and
Altered Peptide Ligand programs. Neurocrine believes that the ease of
manufacturing of small molecule therapeutics will allow the Company to focus on
its core discovery and development programs to generate additional product
opportunities.
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Acquire Complementary Products in Clinical Development. Neurocrine plans to
acquire rights to products in various stages of clinical development in the
fields of neurology and immunology to take advantage of the development and
future commercialization capabilities it is developing in cooperation with its
strategic partners. For example, Neurocrine has licensed rights to DHEA for the
treatment of Alzheimer's disease which is currently being evaluated in a
physician investigational new drug application ("physician-IND") Phase II
clinical trial and in a Company-sponsored Phase II/III clinical trial in Canada
under the regulatory authority of the Canadian Health Protection Board ("HPB").
TECHNOLOGY
Neurocrine utilizes advanced technologies to enhance its drug discovery
capabilities and to accelerate the drug development process. These technologies
include:
High-Throughput Screening. Neurocrine has assembled a chemical library of
diverse, low molecular weight organic molecules for lead compound
identification. The Company has implemented robotic screening capabilities
linked to its library of compounds that facilitate the rapid identification of
new drug candidates for multiple drug targets. The Company believes that the
utilization of high-throughput screening and medicinal and peptide chemistry
will enable the rapid identification and optimization of lead molecules.
Combinatorial Chemistry. Neurocrine has developed an automated
combinatorial chemistry technology (Rapid Microscale Synthesis or "RMS") which
is capable of rapidly producing large quantities of highly purified small
organic molecules for evaluation as drug candidates. Unlike other combinatorial
chemistry technologies, RMS enables individual chemists to optimize candidate
compounds quickly and efficiently by producing hundreds of variations of
existing lead molecules. In collaboration with Hewlett-Packard Company ("HP"),
Neurocrine has automated this technology by adapting HP instrumentation with
robotics leading to a flexible, bench top instrument.
Molecular Biology. Neurocrine scientists have utilized novel techniques for
examination of gene expression in a variety of cellular systems. The Company has
developed a sophisticated technique to evaluate the type and quantity of genes
in various cellular systems prior to the isolation of genes. Neurocrine has also
developed unique expression vectors and cell lines that allow for the highly
efficient protein expression of specific genes.
Gene Sequencing. Neurocrine applies integrated automated DNA sequencing and
gene identification technology in its Neurogenomics program. The systems
utilized by Neurocrine allow for extended gene analysis in a rapid,
high-throughput format with independent linkage into a sequence identification
database. Neurocrine has optimized gene sequencing instrumentation for
"differential display," a technique that may facilitate the rapid identification
of novel genes.
Bioinformatics. Neurocrine's Neurogenomics program creates a significant
amount of genetic sequence information. Applied genomics relies on information
management systems to collect, store and rapidly analyze thousands of gene
sequences. Neurocrine has developed a bioinformatics system which the Company
believes will allow it to identify novel genes which are involved in
neurodegeneration. Data are collected by automated instruments and stored and
analyzed by Neurocrine using customized computational tools. To date,
Neurocrine's molecular biologists have identified over 4,500 novel genes.
PRODUCTS UNDER DEVELOPMENT
The following table summarizes Neurocrine's most advanced products in
development. This table is qualified in its entirety by reference to the more
detailed descriptions appearing elsewhere in this Form 10-K.
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<TABLE>
<CAPTION>
PROGRAM INDICATION STATUS (1) COMMERCIAL RIGHTS
------- ---------- ---------- -----------------
<S> <C> <C> <C>
Corticotropin Releasing Factor
Receptor Antagonists Anxiety Preclinical Janssen/Neurocrine
Depression Preclinical Janssen/Neurocrine
Stroke Development Neurocrine
Substance Abuse Research Janssen/Neurocrine
Binding Protein Antagonists Alzheimer's Disease Development Lilly/Neurocrine
Obesity Development Lilly/Neurocrine
Altered Peptide Ligands Multiple Sclerosis Phase II Ciba-Geigy/Neurocrine
Type I Diabetes Research Neurocrine
Neurosteroids Alzheimer's Disease Physician-IND Neurocrine/NPI
Phase II;
Phase II/III
Neurogenomics Neurodegenerative
Diseases Research Neurocrine/NPI
</TABLE>
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(1) "Research" indicates identification and evaluation of compounds in in vitro
and animal models.
"Development" indicates that lead compounds have been discovered that meet
certain in vitro and in vivo criteria. These compounds may undergo structural
modification and more extensive evaluation prior to selection for preclinical
development.
"Preclinical" indicates that Neurocrine is conducting pharmacology testing,
toxicology testing, formulation, process development and/or manufacturing, and
is in the process of preparing an IND for regulatory submission.
"Physician-IND Phase II" indicates that an independent physician has received
FDA approval to evaluate one of the Company's products in humans to determine
safety and efficacy in an expanded patient population. This clinical trial is
not under full control of the Company.
"Phase II" indicates that the Company has received FDA approval to evaluate one
of the Company's products in humans to determine safety and efficacy in an
expanded patient population.
"Phase II/III" indicates that the Company has received regulatory approval from
the Canadian HPB to evaluate in Canada a multi-center Phase II/III clinical
trial of DHEA.
Corticotropin Releasing Factor -- Receptor Antagonist Program
Anxiety
Anxiety is among the most commonly observed group of CNS disorders, which
includes phobias or irrational fears, panic attacks, obsessive-compulsive
disorders and other fear and tension syndromes. Estimates by the National
Institute of Mental Health suggest that the most commonly diagnosed forms of
anxiety disorders may affect 10% of the United States population. Of the
pharmaceutical agents that are currently marketed for the treatment of anxiety
disorders, a class of compounds known as the benzodiazepines, such as Valium, is
the most frequently prescribed. In spite of their therapeutic efficacy, several
side effects limit the utility of these anti-anxiety drugs. Most problematic
among these are drowsiness, ataxia (the inability to stand up), amnesia, drug
dependency and withdrawal reactions following the cessation of therapy.
Neurocrine is developing a new class of therapeutics that target
stress-induced anxiety. In view of the evidence implicating CRF in
anxiety-related disorders, Neurocrine is developing small molecule CRF receptor
antagonists as anti-anxiety agents which
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block the effects of overproduction of CRF. The Company believes that these
compounds represent a class of molecules based on a novel mechanism of action
which may offer the advantage of being more selective, thereby providing
increased efficacy with reduced side effects. In animal studies used to evaluate
anti-anxiety drugs, Neurocrine scientists have demonstrated the efficacy of its
lead candidates following oral administration without evidence of apparent side
effects. Neurocrine's corporate partner, Janssen, selected a drug candidate in
1996 and is currently undertaking preclinical testing on the drug candidate.
Results obtained in animals are not necessarily predictive of results obtained
in man, and no assurance can be given that the Company's partner will
successfully complete preclinical testing or progress to clinical trials in a
timely manner, or at all.
Depression
Depression is one of a group of neuropsychiatric disorders that is
characterized by extremes of elation and despair, loss of body weight, decrease
in aggressiveness and sexual behavior, and loss of sleep. This condition is
believed to result from a combination of environmental factors, including
stress, as well as an individual's biochemical vulnerability, which is
genetically predetermined. The biochemical basis of depression is thought to
involve elevated secretion of CRF and abnormally low levels of other
neurotransmitters in the brain such as serotonin. Clinical depression was
reported to affect 6% of the population, or approximately 25 million individuals
in the United States in 1994. Current antidepressant therapies, including
Prozac, increase the levels of several chemicals in the brain, such as
serotonin. Because these drugs affect a wide range of neurotransmitters, they
have been associated with a number of side effects. While newer, more selective
drugs offer some safety improvement, their side effect profiles are still
inadequate due to their unwanted effects on gastrointestinal and sexual
function, and on appetite. Furthermore, most existing antidepressant therapies
are limited by their slow onset of action.
Neurocrine is developing small molecule therapeutics to block the effects
of overproduction of CRF for the treatment of depression. The Company has
developed several CRF receptor antagonists and its corporate partner, Janssen,
selected a drug candidate in 1996 for preclinical development. However, no
assurance can be given that the Company's partner will successfully complete
preclinical testing or progress to clinical trials in a timely manner, or at
all.
Stroke
Stroke is an acute neurologic event caused by blockage or rupture of
vessels which supply blood to the brain. Neuronal damage progresses over a
period of four to six hours. According to the National Institutes of Health
("NIH") estimates, approximately 500,000 patients experience a stroke in the
United States each year, with an approximately equal incidence in the rest of
the world. Stroke results in an estimated 150,000 fatalities each year, making
it the leading cause of death behind heart disease and cancer, and an estimated
additional 150,000 stroke victims suffer permanent neurological damage.
Survivors of stroke are at significantly increased risk of suffering another
episode. Current treatments for stroke consist of surgery, steroid therapy and
anti-platelet therapy. These treatments may help increase blood flow but do not
affect the secondary mechanisms which cause nerve cell death.
Neurocrine believes its CRF receptor antagonist program may have utility in
the treatment of stroke. Preliminary experiments in animal models of stroke show
substantial enhancement of neuronal survival following treatment with a CRF
receptor antagonist. The survival benefit is independent of increased blood flow
and may be acting on secondary mechanisms. The Company is currently optimizing
several series of small molecules. The Company selected a preclinical candidate
in late 1996 and is currently involved in preclinical testing. However, no
assurance can be given that the Company will successfully complete preclinical
testing in a timely manner, or at all.
Substance Abuse
Substance abuse, including the use of cocaine and overuse of alcohol, was
estimated to affect nearly 15 million individuals in the United States in 1994.
Stress has been reported to enhance the reinforcement and withdrawal properties
of abused substances such as cocaine, amphetamines and alcohol. Currently there
are no pharmaceuticals marketed for most forms of drug abuse.
In view of the primary role of CRF in modulating stress responses,
Neurocrine is developing orally active, small molecule drugs which block the CRF
receptor. A small molecule CRF receptor antagonist may be effective not only for
acute cocaine
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detoxification, but also for long-term prophylaxis in the context of a drug
prevention or treatment program. The same compounds developed for anxiety and
depression may be used for the treatment of substance abuse. In collaboration
with Janssen, Neurocrine intends to develop CRF receptor antagonists for this
indication. However, no assurance can be given that the Company will
successfully identify suitable candidate compounds for development in a timely
manner, or at all.
Corticotropin Releasing Factor -- Binding Protein Antagonist Program
Alzheimer's Disease
Alzheimer's disease is a neurodegenerative brain disorder which leads to
progressive memory loss and dementia. Alzheimer's disease generally follows a
predictable course of deterioration over eight years or more, with the earliest
symptom being impairment of short-term memory. Gradually, memory loss increases,
reasoning abilities deteriorate, and individuals become depressed, agitated,
irritable and restless. In the final stages of the disease, patients become
unable to care for themselves. According to the National Alzheimer's
Association, in 1994 over four million individuals in the United States suffered
from Alzheimer's disease. Alzheimer's disease is the fourth leading cause of
death for adults, responsible for over 100,000 deaths in 1994. Marketed
therapies currently available for the treatment of Alzheimer's disease are
severely limited. Tacrine, a therapy which has been recently approved, shows
limited memory improvement in Alzheimer's patients; however, concerns regarding
drug-induced elevations in liver enzymes have limited the widespread use of this
product.
Neurocrine scientists have found that there are significant decreases in
CRF levels in the brain areas that are affected in Alzheimer's disease. In spite
of reduced CRF concentrations, CRF-BP levels are not decreased in areas of the
brain affected by Alzheimer's disease, thereby providing the Company with a
novel target for drug intervention. Consequently, Neurocrine is developing
CRF-BP antagonists to displace CRF from the binding protein and effectively
increase the amount of "free CRF" available to interact with the CRF receptors.
This strategy is expected to selectively raise the concentration of CRF in brain
areas involved in learning and memory processes. Because the therapeutic is
designed to restore normal levels of CRF only in these areas, the Company
believes that the drug will not induce the side effects associated with
administering CRF directly, such as anxiety. The Company has identified a number
of lead compounds which show efficacy following oral administration in animal
models of learning and memory. Efforts are underway to further optimize these
molecules, and the Company and its corporate partner, Lilly, expect to select
lead compounds for development in 1997. However, no assurance can be given that
the Company and its corporate partner will successfully identify suitable
candidate compounds for development in a timely manner, or at all.
Obesity
Obesity is the most common nutritional disorder in Western societies. As
many as three in 10 adult Americans weigh at least 20% in excess of their ideal
body weight, with 35 million people in the United States characterized as
clinically obese. Increased body weight is a significant public health problem
because it is associated with a number of serious diseases, including type II
diabetes, hypertension, hyperlipidemia and several cancers. Although obesity has
been commonly considered to be a behavioral problem, there is now evidence that
body weight is physiologically regulated. The regulation of body weight is
complex and appears to consist of both centrally and peripherally acting
mechanisms. Recently, d-fenfluramine has received FDA approval for the treatment
of obesity and is being marketed by American Home Products. This drug displayed
statistically significant weight reducing effects in a large multi center
clinical trial. The Company believes that d-fenfluramine's actions on weight
reduction may in part be due to modulation of CRF. The use of a CRF-BP
antagonist may directly increase CRF levels without the inadvertent activation
of other neurotransmitter systems.
Preliminary data indicate that CRF may act as a central regulator of both
appetite and metabolism. Neurocrine has evaluated CRF-BP antagonists in a
genetically mutant strain of obese animals as well as in animal models which
were pharmacologically induced to overeat. Treatment with CRF-BP antagonists
consistently normalized feeding behavior and weight in both types of models and
did so without inducing excess CRF-related side effects such as anxiety.
Neurocrine has developed several active series of lead molecules. Medicinal
chemistry efforts have resulted in the generation of high-affinity molecules
that show efficacy in elevating brain CRF levels. Neurocrine and its corporate
partner, Lilly, anticipate selecting lead compounds in 1997 for further
development. However, no assurance can be given that the Company and its
corporate partner will successfully identify suitable candidate compounds for
development in a timely manner, or at all.
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Altered Peptide Ligand Program
Multiple Sclerosis ("MS")
Multiple sclerosis is a chronic immune mediated disease characterized by
recurrent attacks of neurologic dysfunction due to damage in the CNS. The
classic clinical features of MS include impaired vision and weakness or
paralysis of one or more limbs. Patients develop a slow, steady deterioration of
neurologic function over an average duration of approximately 30 years. The
cause of MS is unknown but immunologic or infectious factors have been
implicated. According to the National Multiple Sclerosis Society, there are an
estimated 350,000 cases of multiple sclerosis in the United States and an equal
number of patients in Europe with approximately 20,000 new cases diagnosed in
the world each year. Currently available treatments for MS offer only limited
efficacy. Steroids have been used to reduce the severity of acute flare-ups and
speed recovery. Experimental therapy with other immunosuppressive agents has
been tried, but with limited success. Betaseron (a form of beta-interferon) has
been shown to delay the onset of flare-ups of the symptoms in approximately 30%
of patients and has been approved for marketing by the FDA. In addition, Avonex,
a similar form of beta-interferon, has received FDA advisory panel
recommendation for approval. Clinical trial results show these therapies slowed,
but did not prevent, the growth of lesions in the CNS which cause the disease.
Patients treated with beta-interferon experience a variety of side effects,
including "flu-like" symptoms.
One of the Company's co-founders, Dr. Lawrence Steinman, identified the
dominant invading T-cell in the brains of patients who had died of MS. Dr.
Steinman further identified the dominant target or recognition site on the
myelin sheath to which invading T-cells bind. Neurocrine has exclusively
licensed this technology and has designed altered peptide ligands which resemble
native disease-causing molecules of the myelin sheath. These molecules have been
altered to attract and bind to disease-causing T-cells and inhibit their
destructive capabilities. Neurocrine's altered peptide ligand for the treatment
of MS has been shown to reverse disease in animal models of MS and decrease the
production of cytokines such as gamma interferon and tumor necrosis factor-alpha
which contribute to the disease. These same molecules demonstrate the ability to
turn off pathogenic T-cells from MS patients in vitro. Quantities of the
Company's drug candidate were produced under cGMP conditions in preparation for
a Phase I clinical trial. Together with Ciba-Geigy, the Company's collaborative
partner for this program, Neurocrine filed an IND and received approval in 1996
to commence clinical trials. The Company and its corporate partner have
completed Phase I clinical trials and are planning to enter multiple Phase II
clinical trials in mid-1997. However, results obtained in animals or in earlier
phases of clinical trials are not necessarily predictive of results obtained in
humans, and no assurance can be given that the Company will successfully
complete clinical trials in a timely manner, if at all.
Type I Diabetes
Type I diabetes, or juvenile-onset diabetes, is an autoimmune disease
resulting from the destruction of insulin producing cells, causing impaired
glucose metabolism resulting from a deficiency in the action of the hormone
insulin. It is one of the most prevalent chronic conditions in the United
States, afflicting approximately 500,000 patients in all age groups in 1994.
Diabetics suffer from a number of complications of the disease including heart
disease, circulatory problems, kidney failure, neurologic disorders and
blindness. Current therapy for type I diabetes consists of daily insulin
injections to regulate blood glucose levels.
Neurocrine is developing altered peptide ligands which target dominant
antigens on insulin producing cells to treat type I diabetes. Pre- diabetic
patients can now be identified using immune markers of the disease several years
before they become insulin dependent. The Company believes that an altered
peptide ligand specific for autoimmune T-cells involved in diabetes may stop the
destruction of the insulin secreting cells in these pre-diabetic patients, thus
allowing them to delay or avoid chronic insulin therapy. The Company believes
that this program can leverage the technological expertise the Company has
developed in its MS program to discover and design altered peptide ligand
therapy useful in treating diabetics and pre-diabetics. Neurocrine has begun
collaborations with a leading diabetes center, the Barbara Davis Center for
Childhood Diabetes at the University of Colorado, to study the effects of
altered peptide ligands on human T-cells from diabetic patients. However, no
assurance can be given that the Company will successfully identify suitable
candidate compounds for development in a timely manner, or at all.
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Neurosteroid Program
Alzheimer's Disease
Alzheimer's disease is a neurodegenerative brain disorder which leads to
progressive memory loss and dementia. The Company believes that DHEA, a
naturally occurring hormone, may be useful in treatment of this disease based on
a variety of mechanisms. DHEA may protect neurons from death by increasing
growth factor levels in the brain, such as insulin-like growth factor-1. DHEA
also appears to modulate several cytokines involved in inflammation, which are
believed to be involved in the pathology of Alzheimer's disease. In addition,
DHEA improves memory and learning processes in both animal models and humans and
may prove beneficial in slowing the memory loss seen in Alzheimer's disease.
Because DHEA is naturally occurring, it is expected to have few toxicity
problems, which differentiates this drug from other compounds that are currently
being tested as therapeutics for Alzheimer's disease.
A double-blind, placebo-controlled, physician-IND Phase II clinical trial
of DHEA, is being conducted with investigators from the Alzheimer's Clinic at
the University of California, San Francisco. This trial has been designed to
determine efficacy as measured by improving memory in mild to moderate
Alzheimer's patients. It is anticipated that approximately 60 patients will be
treated for six months with either active drug or a placebo. These patients will
be evaluated throughout the study to assess the progress of disease and
retention of memory. The Company anticipates that this trial will be completed
by the end of 1997. If results of this study are positive, the Company intends
to initiate company-sponsored clinical trials. However, no assurance can be
given that the Company will conclude the trial in a timely manner, or that the
Company will begin its own clinical trials in a timely manner, or at all.
The Company has obtained regulatory approval and initiated a multi-center
Phase II/III clinical trial of DHEA in Canada. This trial has been designed to
determine efficacy as measured by improving memory in mild to moderate
Alzheimer's patients. The Company anticipates that this trial will be completed
by the end of 1998. However, results obtained in earlier clinical trials are not
necessarily predictive of results obtained in later trials, and no assurance can
be given that the Company will successfully complete clinical trials in a timely
manner, if at all. Even if regulatory approval is granted in Canada, the Company
may be required to undertake additional clinical testing to obtain regulatory
approval from the FDA for sales in the United States.
Neurogenomics Program
Neurodegenerative Diseases and Disorders
Neurodegenerative diseases and disorders involve damage to the cellular
structure of the brain either acutely, as in stroke or trauma, or chronically,
as in epilepsy and Alzheimer's disease. To date, only a limited number of
effective therapeutics exist to treat neurological disorders, resulting in
significant economic and social costs. In 1994, over 26 million people in the
United States were affected by neurological disorders.
Activation of glial cells is a common feature of many neurodegenerative
diseases. The primary goal of Neurocrine's Neurogenomics program is to identify
and characterize novel genes that are induced in glial cells under conditions
that lead to neurodegeneration or regeneration. The Company is focusing on
stroke, multiple sclerosis, AIDS dementia, epilepsy, Parkinson's disease and
Alzheimer's disease. The unique conditions leading to neurodegeneration in each
of the disorders have been established in both animal and cellular models of the
disease. Neurocrine is actively isolating and analyzing genes associated with
neuronal cell death utilizing state of the art molecular biology, gene
sequencing and bioinformatics. In addition, activated genes which are
neuroprotective or allow for the regeneration of neurons may also be identified.
Novel neurodegenerative genes that are discovered may include proteins,
enzymes or receptors. Protein signaling molecules or the genes encoding such
molecules may be utilized as therapeutics, while enzymes and receptors may serve
as new targets for drug discovery. Neurocrine currently intends to place the
receptors and enzymes encoded by these genes in high-throughput screens in an
attempt to discover small molecule therapeutics to treat neurodegenerative
disorders. To date, the Company has identified more than 4,500 novel genes of
which a number are undergoing biological evaluation in in vitro and animal
models. The Company currently intends to identify candidate genes as drugs or
drug targets for one or more neurological diseases.
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However, there can be no assurance that the Company will successfully identify
suitable gene candidates for development in a timely manner, or at all.
STRATEGIC ALLIANCES
The Company's business strategy is to utilize strategic alliances and novel
financing mechanisms to enhance its development and commercialization
capabilities. To date, Neurocrine has completed the following alliances:
Janssen Pharmaceutica, N.V.
On January 1, 1995, Neurocrine entered into a research and development
agreement (the "Janssen Agreement") with Janssen to collaborate in the
discovery, development and commercialization of CRF receptor antagonists
focusing on the treatment of anxiety, depression and substance abuse. The
collaboration utilizes Neurocrine's expertise in cloning and characterizing CRF
receptor subtypes, CRF pharmacology and medicinal chemistry. Pursuant to the
Janssen Agreement, the Company has received $2.0 million in license payments, of
which $1 million was received in 1996. Janssen is obligated to provide
Neurocrine with $3.0 million in sponsored research payments per year during the
term of the research program. The term of the research program is three years,
subject to extension by mutual agreement of the parties. Janssen has the right
to terminate the Janssen Agreement without cause at any time. However, in the
event of such termination, Janssen remains obligated to continue all sponsored
research payments for the term of the research program and all product and
technology rights become the exclusive property of Neurocrine. In connection
with the Janssen Agreement, Johnson & Johnson Development Corporation ("JJDC")
purchased $5 million of the Company's Common Stock.
Neurocrine is entitled to receive up to $10.0 million in milestone payments
for the indications of anxiety, depression, and substance abuse, and up to $9.0
million in milestone payments for other indications, if certain development
milestones are achieved, of which $750,000 was received in 1995 and $1 million
was received in 1996. The Company has granted Janssen an exclusive worldwide
license to manufacture and market products developed under the Janssen
Agreement. The Company is entitled to receive royalties on product sales
throughout the world. The Company has certain rights to co-promote such products
in North America. Janssen is responsible for funding all clinical development
and marketing activities, including reimbursement to Neurocrine for its
promotional efforts, if any. There can be no assurance that the Company's
research under the Janssen Agreement will be successful in discovering any
potential products or that Janssen will be successful in developing, receiving
regulatory approvals or commercializing any potential products that may be
discovered. As a result, there can be no assurance that any product development
milestone or royalty payments will be made.
Ciba-Geigy Limited
In January 1996, the Company entered into a binding letter agreement with
Ciba-Geigy (which has subsequently changed its name to Novartis) to develop
altered peptide ligand therapeutics for the treatment of MS based upon the
Company's drug development candidates and expertise in immunology and protein
chemistry. In December 1996, the Company and Ciba-Geigy entered into a
definitive agreement (the "Ciba-Geigy Agreement") incorporating the terms and
conditions set forth in the letter agreement and certain other terms and
conditions agreed to by the Company and Ciba-Geigy. Ciba-Geigy paid the Company
a $5 million non-refundable fee prior to executing the Ciba-Geigy Agreement. In
connection with the Ciba-Geigy Agreement, Ciba-Geigy purchased $10.0 million of
the Company's Common Stock. Pursuant to the Ciba-Geigy Agreement, Ciba-Geigy is
obligated to provide the Company with $3.5 million in research and development
funding, plus certain other program expenses, each year for five years ending on
December 31, 2000. In event that no product license application ("PLA") has been
filed as a result of the collaboration by December 31, 2000, then Ciba-Geigy may
be obligated to provide the Company with an additional $2.5 million per year
thereafter until a Product License Application is filed, except in certain
circumstances. Neurocrine is also entitled to receive milestone payments if
certain research, development and regulatory milestones are achieved. Ciba-Geigy
has the right to terminate the Ciba-Geigy Agreement on six months' notice which
may be given at any time after December 30, 1997.
The Company has granted Ciba-Geigy an exclusive license outside of the
United States and Canada to market altered peptide ligand products developed
under the Ciba-Geigy Agreement for multiple sclerosis. The Ciba-Geigy Agreement
provides that the Company and Ciba-Geigy will collaborate in the marketing of
products developed under the Ciba-Geigy Agreement in the United States and
Canada. The Company has the option to discontinue the collaborative marketing
effort in the United States
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and Canada, in which case Ciba-Geigy will have exclusive marketing rights in
such territory. Neurocrine is entitled to receive royalties on product sales.
Neurocrine is entitled to receive a share of the profits resulting from sales of
altered peptide ligand products in North America subject to the recoupment of a
portion of Ciba-Geigy's development costs. Neurocrine retains the right to
convert its profit share to the right to receive royalty payments at its sole
discretion in which case no repayment of development costs are due to
Ciba-Geigy. Neurocrine is obligated to repay a portion of the development costs
of any potential product developed pursuant to the collaboration unless the
Company elects to convert to the right to receive royalty payments. There can be
no assurance that the Company and Ciba-Geigy will be successful in developing or
commercializing any potential products. As a result, there can be no assurance
that any product development milestone, royalty, or profit sharing payments will
be made.
Eli Lilly and Co.
On October 15, 1996, Neurocrine entered into a research and license
agreement (the "Lilly Agreement") with Eli Lilly and Company to collaborate in
the discovery, development and commercialization of CRF binding protein ligand
inhibitors for the treatment of central nervous system disorders including
obesity and dementias such as Alzheimer's disease. As of December 31, 1996,
Neurocrine had received $1.3 million in research payments and received an
additional $5.0 million in research payments in January 1997. Neurocrine expects
to receive an additional $15.7 million in research payments over the first three
years of the Lilly Agreement as well as additional sponsored research payments
over the subsequent two-year period if certain milestones are met, and up to an
additional $49.0 million in milestone payments for the first two products for
dementia or obesity if certain development and regulatory milestones are
achieved. The Company has granted Lilly an exclusive worldwide license to
manufacture and market CRF binding protein ligand inhibitor products. Lilly is
obligated to fund clinical development and marketing expenses (except as set
forth below) and is responsible for clinical development, regulatory compliance,
and manufacturing of products. Neurocrine is entitled to royalties on product
sales. At its option, Neurocrine is entitled to receive a portion of the profits
resulting from sales of products for the treatment of dementia in the United
States subject to the Company's obligation to pay a portion of the development
costs for such product. Lilly has agreed to provide the Company with access to a
portion of its chemical compound library for screening against targets outside
of the field of the Lilly Agreement and other Lilly program areas, subject to
the Company's obligation to pay Lilly royalties on sales of products developed
based on compounds in such library and milestone payments based upon certain
development and regulatory milestones for such products. There can be no
assurance that the Company's research under the Lilly Agreement will be
successful in discovering any potential products or that Lilly will be
successful in developing, receiving regulatory approvals, or commercializing any
potential products that may be discovered. As a result there can be no assurance
that any product development milestone, royalty, or profit sharing payments will
be made.
Neuroscience Pharma Inc.
In March 1996, Neurocrine formed Neuroscience Pharma (NPI) Inc. ("NPI"), a
research and development company. Neurocrine licensed to NPI certain technology
and Canadian marketing rights to the Company's Neurosteroid and Neurogenomics
programs in exchange for 49% of the outstanding Common Stock of NPI. A group of
Canadian institutional investors have invested approximately $9.5 million in NPI
in exchange for Preferred Stock of NPI which may be converted into 51% of the
outstanding Common Stock of NPI. The Preferred Stock may also be converted into
the Company's Common Stock at $7.45 per share. Pursuant to a Research and
Development Agreement NPI has committed to expend an aggregate amount of $9.5
million for clinical development of the Neurosteroid program for Alzheimer's
disease and for research activities related to the Neurogenomics program.
Pursuant to such Research and Development Agreement, NPI is entitled to receive
royalties on sales of products developed in these programs as well as exclusive
Canadian marketing rights for such products in the event that the Company has
not terminated the technology license and the marketing rights or that the
investors have not converted their NPI Preferred Stock into shares of the
Company's Common Stock. In connection with their investment in NPI, such
investors received warrants exercisable for shares of the Company's Common Stock
and are eligible to receive additional warrants in the future in the event that
NPI receives certain Canadian government incentives for research activities.
Hewlett-Packard Company
The Company and Hewlett-Packard Company ("HP") have entered into a
collaboration to adapt the Company's RMS combinatorial chemistry technology to
certain HP instruments. In 1996, the parties collaborated to modify existing
instrumentation to provide customers with a flexible automated method for
generation of large numbers of chemical compounds.
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Neurocrine received research funding and equipment from HP in exchange for
technical support and consultation. The term of the collaboration has expired
and the parties are currently determining whether to renew the collaboration for
an additional term. There can be no assurance that the collaboration will be
renewed or that, if renewed, the collaboration will be successful in developing
an automated method for generating large numbers of chemical compounds.
Dependence on Strategic Alliances
The Company is dependent upon its corporate partners to provide adequate
funding for certain of its programs. Under these arrangements, the Company's
corporate partners are responsible for (i) selecting compounds for subsequent
development as drug candidates, (ii) conducting preclinical testing and clinical
trials and obtaining required regulatory approvals for such drug candidates,
and/or (iii) manufacturing and commercializing any resulting drugs. Failure of
these partners to select a compound discovered by the Company for subsequent
development into marketable products, gain the requisite regulatory approvals or
successfully commercialize products would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
strategy for development and commercialization of certain of its products is
dependent upon entering into additional arrangements with research
collaborators, corporate partners and others, and upon the subsequent success of
these third parties in performing their obligations. There can be no assurance
that the Company will be able to enter into additional strategic alliances on
terms favorable to the Company, or at all. Failure of the Company to enter into
additional strategic alliances would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company cannot control the amount and timing of resources which its
corporate partners devote to the Company's programs or potential products. If
any of the Company's corporate partners breach or terminate their agreements
with the Company or otherwise fail to conduct their collaborative activities in
a timely manner, the preclinical testing, clinical development or
commercialization of product candidates will be delayed, and the Company will be
required to devote additional resources to product development and
commercialization, or terminate certain development programs. The Company's
strategic alliances with Janssen, Ciba-Geigy and Lilly are subject to
termination by Janssen, Ciba-Geigy, or Lilly, respectively. There can be no
assurance that Janssen, Ciba-Geigy, or Lilly will not elect to terminate its
strategic alliance with the Company prior to its scheduled expiration. In
addition, if the Company's corporate partners effect a merger with a third
party, there can be no assurance that the strategic alliances will not be
terminated or otherwise materially adversely affected. Ciba-Geigy is in the
process of completing a merger with Sandoz Ltd., another major pharmaceutical
company. The termination of any current or future strategic alliances could have
a material adverse effect on the Company's business, financial condition and
results of operations. Neurocrine's corporate partners may develop, either alone
or with others, products that compete with the development and marketing of the
Company's products. Competing products, either developed by the corporate
partners or to which the corporate partners have rights, may result in their
withdrawal of support with respect to all or a portion of the Company's
technology, which would have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that disputes will not arise in the future with respect to the
ownership of rights to any products or technology developed with corporate
partners. These and other possible disagreements between corporate partners and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive, and
would have a material adverse effect on the Company's business, financial
condition and results of operations.
MANUFACTURING
The Company has in the past utilized, and intends to continue to utilize,
third-party manufacturing for the production of material for use in clinical
trials and for the potential commercialization of future products. The Company
has no experience in manufacturing products for commercial purposes and does not
have any manufacturing facilities. Consequently, the Company is dependent on
contract manufacturers for the production of products for development and
commercial purposes. In the event that the Company is unable to obtain or retain
third-party manufacturing, it will not be able to commercialize its products as
planned. The manufacture of the Company's products for clinical trials and
commercial purposes is subject to cGMP regulations promulgated by the FDA. No
assurance can be given that the Company's third-party manufacturers will comply
with cGMP regulations or other regulatory requirements now or in the future. The
Company's current dependence upon third parties for the manufacture of its
products may adversely affect its profit margin, if any, on the sale of future
products and the Company's ability to develop and deliver products on a timely
and competitive basis.
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MARKETING, SALES, AND PHARMACEUTICAL PRICING ISSUES
Neurocrine has retained certain marketing or co-promotion rights in North
America to its products under development, and plans to establish its own North
American marketing and sales organization. The Company currently has no
experience in marketing or selling pharmaceutical products and does not have a
marketing and sales staff. In order to achieve commercial success for any
product candidate approved by the FDA, Neurocrine must either develop a
marketing and sales force or enter into arrangements with third parties to
market and sell its products. There can be no assurance that Neurocrine will
successfully develop such experience or that it will be able to enter into
marketing and sales agreements with others on acceptable terms, if at all. If
the Company develops its own marketing and sales capabilities, it will compete
with other companies that currently have experienced and well funded marketing
and sales operations. To the extent that the Company enters into co-promotion or
other marketing and sales arrangements with other companies, any revenues to be
received by Neurocrine will be dependent on the efforts of others, and there can
be no assurance that such efforts will be successful.
The Company's business may be materially adversely affected by the
continuing efforts of government and third-party payers to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control in such jurisdictions. In addition, an
increasing emphasis on managed care in the United States has put, and will
continue to put, pressure on pharmaceutical pricing. Such initiatives and
proposals, if adopted, could decrease the price that the Company receives for
any products it may develop and sell in the future, and thereby have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, to the extent that such proposals or initiatives have a
material adverse effect on other pharmaceutical companies that are corporate
partners or prospective corporate partners for certain of the Company's
potential products, the Company's ability to commercialize its potential
products may be materially adversely affected.
The Company's ability to commercialize pharmaceutical products may depend
in part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health insurers and other third-party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payors are increasingly challenging the prices charged
for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any products
developed by the Company. Government and other third-party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products, and by refusing, in
some cases, to provide coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for the Company's products, the market acceptance of these products would
be materially adversely affected.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid and
intense technological change. The Company faces, and will continue to face,
competition in the development and marketing of its product candidates from
academic institutions, government agencies, research institutions and
biotechnology and pharmaceutical companies. Competition may arise from other
drug development technologies, methods of preventing or reducing the incidence
of disease, including vaccines, and new small molecule or other classes of
therapeutic agents. There can be no assurance that developments by others will
not render the Company's product candidates or technologies obsolete or
noncompetitive.
Betaseron, a form of beta-interferon marketed by Berlex BioSciences, has
been approved for the treatment of relapsing remitting multiple sclerosis.
Avonex, a similar form of beta-interferon produced by Biogen, Inc., and Capoxen,
produced by Teva, have recently been approved by the FDA for marketing in the
United States. Tacrine, marketed by Warner-Lambert Co., and Aricept, marketed by
Pfizer Inc, have recently been approved for the treatment of Alzheimer's
dementia. Sales of these drugs may reduce the available market for any product
developed by the Company for these indications. The Company is developing
products for the treatment of anxiety disorders, which will compete with well-
established products in the benzodiazepene class, including Valium, marketed by
Hoffman-La Roche, Inc., and depression, which will compete with well-established
products in the anti-depressant class, including Prozac, marketed by Eli Lilly &
Co. Certain technologies under development by other pharmaceutical companies
could result in treatments for these and other diseases and disorders being
pursued by the Company.
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For example, a number of companies are conducting research on molecules to block
CRF to treat anxiety and depression. Other biotechnology and pharmaceutical
companies are developing compounds to treat obesity, and one such drug,
d-fenfluramine, is being marketed by American Home Products Corporation. In the
event that one or more of these products and/or programs are successful, the
market for the Company's products may be reduced or eliminated.
In addition, if Neurocrine receives regulatory approvals for its products,
manufacturing efficiency and marketing capabilities are likely to be significant
competitive factors. At the present time, Neurocrine has no commercial
manufacturing capability, sales force or marketing experience. In addition, many
of the Company's competitors and potential competitors have substantially
greater capital resources, research and development resources, manufacturing and
marketing experience and production facilities than does Neurocrine. Many of
these competitors also have significantly greater experience than does
Neurocrine in undertaking preclinical testing and clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory approvals.
PATENTS AND PROPRIETARY RIGHTS
The Company files patent applications both in the United States and in
foreign countries, as it deems appropriate, for protection of its proprietary
technology and products. As of December 31, 1996, only one patent has been
issued to the Company; however the Company otherwise owns or has received
exclusive licenses to four issued patents. The Company owns 64 patent
applications pursuant to license agreements with academic and research
institutions including the Beckman Research Institute of the City of Hope, the
Salk Institute for Biological Studies, and Leland Stanford Junior University.
The Company intends to file additional United States and foreign applications in
the future as appropriate.
The Company's success will depend on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third parties
from infringing upon its proprietary rights, and operate without infringing upon
the proprietary rights of others, both in the United States and internationally.
Because of the substantial length of time and expense associated with
bringing new products through the development and regulatory approval processes
in order to reach the marketplace, the pharmaceutical industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, the Company intends to seek
patent protection for its proprietary technology and compounds. There can be no
assurance as to the success or timeliness in obtaining any such patents, that
the breadth of claims obtained, if any, will provide adequate protection of the
Company's proprietary technology or compounds, or that the Company will be able
to adequately enforce any such claims to protect its proprietary technology and
compounds. Since patent applications in the United States are confidential until
the patents issue, and publication of discoveries in the scientific or patent
literature tend to lag behind actual discoveries by several months, the Company
cannot be certain that it was the first creator of inventions covered by pending
patent applications or that it was the first to file patent applications for
such inventions.
The degree of patent protection afforded to pharmaceutical inventions is
uncertain and any patents which may issue with regard to the Company's potential
products will be subject to this uncertainty. There can be no assurance that
competitors will not develop competitive products outside the protection that
may be afforded by the claims of the Company's patents. For example, the Company
is aware that other parties have been issued patents and have filed patent
applications in the United States and foreign countries which claim alternative
uses of DHEA, a potential product of the Company, and cover other therapeutics
for the treatment of multiple sclerosis. DHEA is not a novel compound and is not
covered by a composition of matter patent. The issued patents licensed to the
Company covering DHEA are use patents containing claims covering therapeutic
methods and the use of specific compounds and classes of compounds for
neuroregeneration. Other potential products which the Company may develop may
not consist of novel compounds and therefore would not be covered by composition
of matter patent claims. Competitors may be able to commercialize DHEA products
for indications outside of the protection provided by the claims of any use
patents that may be issued to the Company. In this case, physicians, pharmacies
and wholesalers could then substitute a competitor's product for the Company's
product. Use patents may be unavailable or may afford a lesser degree of
protection in certain foreign countries due to the patent laws of such
countries.
The Company may be required to obtain licenses to patents or proprietary
rights of others. As the biotechnology industry expands and more patents are
issued, the risk increases that the Company's potential products may give rise
to claims that such products infringe the patent rights of others. At least one
patent containing claims covering compositions of matter consisting
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of certain altered peptide ligand therapeutics for use in modulating the immune
response has issued in Europe, and the Company believes that this patent has
been licensed to a competitor of the Company. There can be no assurance that a
patent containing corresponding claims will not issue in the United States. In
addition, there can be no assurance that the claims of the European patent or
any corresponding claims of any future United States patents or other foreign
patents which may issue will not be infringed by the manufacture, use or sale of
any potential altered peptide ligand therapeutics developed by the Company or
Ciba-Geigy. Furthermore, there can be no assurance that the Company or
Ciba-Geigy would prevail in any legal action seeking damages or injunctive
relief for infringement of any patent that might issue under such applications
or that any license required under any such patent would be made available or,
if available, would be available on acceptable terms. Failure to obtain a
required license could prevent the Company and Ciba-Geigy from commercializing
any altered peptide ligand products which they may develop.
No assurance can be given that any licenses required under any patents or
proprietary rights of third parties would be made available on terms acceptable
to the Company, or at all. If the Company does not obtain such licenses, it
could encounter delays in product introductions while it attempts to design
around such patents, or could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed. Litigation may be
necessary to defend against or assert such claims of infringement, to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the scope and validity of the proprietary rights of
others. In addition, interference proceedings declared by the United States
Patent and Trademark Office may be necessary to determine the priority of
inventions with respect to patent applications of the Company or its licensors.
Litigation or interference proceedings could result in substantial costs to and
diversion of effort by, and may have a material adverse impact on, the Company.
In addition, there can be no assurance that these efforts by the Company would
be successful.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its commercial partners, collaborators,
employees and consultants. The Company also has invention or patent assignment
agreements with its employees and certain, but not all, commercial partners and
consultants. There can be no assurance that relevant inventions will not be
developed by a person not bound by an invention assignment agreement. There can
be no assurance that binding agreements will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.
GOVERNMENT REGULATION
Regulation by government authorities in the United States and foreign
countries is a significant factor in the development, manufacture and marketing
of the Company's proposed products and in its ongoing research and product
development activities. The nature and extent to which such regulation will
apply to the Company will vary depending on the nature of any products which may
be developed by the Company. It is anticipated that all of the Company's
products will require regulatory approval by government agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical testing and clinical trials and other approval procedures
of the FDA and similar regulatory authorities in foreign countries. Various
federal and state statutes and regulations also govern or influence testing,
manufacturing, safety, labeling, storage and record-keeping related to such
products and their marketing. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and state statutes and
regulations require the expenditure of substantial time and financial resources.
Any failure by the Company or its collaborators or licensees to obtain, or any
delay in obtaining, regulatory approval could adversely affect the marketing of
any products developed by the Company, its ability to receive product or royalty
revenues and its liquidity and capital resources.
Preclinical testing is generally conducted in laboratory animals to
evaluate the potential safety and the efficacy of a product. The results of
these studies are submitted to the FDA as a part of an IND, which must be
approved before clinical trials in humans can begin. Typically, clinical
evaluation involves a time consuming and costly three-phase process. In Phase I,
clinical trials are conducted with a small number of subjects to determine the
early safety profile, the pattern of drug distribution and metabolism. In Phase
II, clinical trials are conducted with groups of patients afflicted with a
specific disease in order to determine preliminary efficacy, optimal dosages and
expanded evidence of safety. In Phase III, large-scale, multi-center,
comparative trials are conducted with patients afflicted with a target disease
in order to provide enough data to demonstrate the efficacy and safety required
by the FDA. The FDA closely monitors the progress of each of the three phases of
clinical trials and may, at its discretion, re-evaluate,
-16-
<PAGE> 17
alter, suspend or terminate the testing based upon the data which have been
accumulated to that point and its assessment of the risk/benefit ratio to the
patient.
A physician-IND is an IND that allows a physician to conduct a clinical
trial under less rigorous regulatory review standards. A physician-IND clinical
trial does not replace the need for Company-sponsored clinical trials, but can
provide a preliminary indication as to whether further clinical trials are
warranted and may sometimes facilitate the more formal regulatory review
process.
The results of preclinical testing and clinical trials are submitted to the
FDA in the form of an NDA or PLA for approval to commence commercial sales. In
responding to an NDA or PLA, the FDA may grant marketing approval, request
additional information or deny the application if the FDA determines that the
application does not satisfy its regulatory approval criteria. There can be no
assurance that approvals will be granted on a timely basis, or at all. Similar
regulatory procedures must also be complied with in countries outside the United
States.
To date the Company has submitted two IND applications in the United States
and Canada with regard to its product candidates and has commenced clinical
trials with regard to one potential product. A physician-IND Phase II clinical
trial was initiated in March 1996 with regard to the use of DHEA for the
treatment of Alzheimer's disease. However, such clinical trials are not under
the full control of the Company. In addition, a physician-IND clinical trial
does not replace the need for Company-sponsored clinical trials. A multi-center
Phase II/III clinical trial was initiated in Canada in early 1997 with respect
to the same potential product under the regulatory authority of the Canadian
HPB. Even if Canadian regulatory approval is obtained, the Company may be
required to undertake additional clinical testing to obtain FDA regulatory
approval in the United States. No assurance can be given that the Company will
be able to obtain FDA or other governmental regulatory approval for any
products.
The results from preclinical testing and early clinical trials may not be
predictive of results obtained in later clinical trials, and there can be no
assurance that clinical trials conducted by the Company or its corporate
partners will demonstrate sufficient safety and efficacy to obtain the requisite
regulatory approvals or will result in marketable products. In addition,
clinical trials are often conducted with patients having the most advanced
stages of disease. During the course of treatment, these patients can die or
suffer other adverse medical effects for reasons that may not be related to the
pharmaceutical agent being tested but which can nevertheless adversely affect
clinical trial results. A number of companies in the biotechnology and
pharmaceutical industries have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. If the
Company's drug candidates are not shown to be safe and effective in clinical
trials, the resulting delays in developing other compounds and conducting
related preclinical testing and clinical trials, as well as the potential need
for additional financing, would have a material adverse effect on the Company's
business, financial condition and results of operations.
The rate of completion of clinical trials conducted by the Company or its
corporate partners may be delayed by many factors, including slower than
expected patient recruitment or unforeseen safety issues. Any delays in, or
termination of, the Company's clinical trials would have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that Neurocrine will be permitted by regulatory
authorities to undertake clinical trials for its products or, if such trials are
conducted, that any of the Company's product candidates will prove to be safe
and efficacious or will receive regulatory approvals.
The Company is required to conduct its research activities in compliance
with NIH Guidelines for Research Involving Recombinant DNA Molecules and
Animals. The Company is also subject to various Federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
manufacturing practices, and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's research. The extent of government
regulation which might result from future legislation or administrative action
cannot be predicted accurately.
SCIENTIFIC ADVISORY BOARD
Neurocrine has assembled a Scientific Advisory Board that currently
consists of 16 individuals. Members of the Scientific Advisory Board are leaders
in the fields of neurobiology, immunology, endocrinology, psychiatry and
medicinal chemistry. Scientific Advisory Board members meet as a group at least
yearly to advise the Company in the selection, implementation and
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<PAGE> 18
prioritization of its research programs. Certain members meet more frequently to
advise the Company with regard to its specific programs.
The Scientific Advisory Board presently consists of the following
individuals:
Floyd E. Bloom, M.D., is Chairman of the Department of Neuropharmacology
at The Scripps Research Institute. Dr. Bloom is an internationally recognized
expert in the fields of neuropharmacology and neurobiology. He is the current
editor of the journal, Science.
Michael Brownstein, M.D., Ph.D., is Chief of the Laboratory of Cell Biology
at the National Institute of Mental Health. He is a recognized expert in
molecular pharmacology as it applies to the field of neuroendocrinology, where
he has defined many of the pharmaceutically important neurotransmitter receptors
and transporter systems.
Iain Campbell, Ph.D., is an Associate Member of the Department of
Neuropharmacology at The Scripps Research Institute. Dr. Campbell is an expert
in cytosine activation in autoimmune diseases and neuronal degeneration.
Burton G. Christensen, Ph.D., is currently retired from his position as
Senior Vice President of Chemistry at Merck Research Laboratories. In his
capacity as Senior Vice President, Dr. Christensen directed over 400 scientists
and groups, who, under his direction, were responsible for the synthesis of
finasteride (Proscar), a 5-alpha-reductase inhibitor for the treatment of benign
prostatic hypertrophy.
George P. Chrousos, M.D., Sc.D., is Chief of the Pediatric Endocrinology
Section at the National Institute of Child Health and Human Development. He has
investigated the role of stress hormones in pathological conditions such as
Cushing's disease, anxiety-related disorders and rheumatoid arthritis.
Caleb E. Finch, Ph.D., is the Arco and William F. Kieschnick Professor of
Neurobiology of Aging at the University of Southern California. He is an
internationally recognized expert in the field of molecular gerontology and the
genomic control of mammalian development and aging. His recent work has focused
on the role of cytokines in neuronal protection and aging.
Stephen M. Hedrick, Ph.D., is Professor and Chairman of Cell Biology at
the University of California, San Diego. Dr. Hedrick is an expert in T-cell
immunology and codiscovered the first T-cell receptor genes and identified the
regions responsible for antigen binding. He is an editor for the Journal of
Immunology.
Florian Holsboer, M.D., Ph.D., is Director at the Max Planck Institute fur
Psychiatrie. Dr. Holsboer is an international expert on the role of
glucocorticoids and neuropeptides, particularly CRF, in neuropsychiatric
disorders. He coordinates the efforts of several hundred scientists and
clinicians at the Max Planck Institute, a major European neuropsychiatric
institute.
George F. Koob, Ph.D., is a Member of the Department of Neuropharmacology
at The Scripps Research Institute and an Adjunct Professor in the Departments of
Psychology and Psychiatry at the University of California, San Diego. Dr. Koob
is an internationally recognized behavioral pharmacology expert on the role of
peptides in the central nervous system, the neurochemical basis of addiction and
in the development of preclinical behavioral procedures for the screening of
anxiolytic and antidepressant drugs and memory enhancers.
Phillip J. Lowry, Ph.D., is Professor and Head of the Department of
Biochemistry and Physiology at the University of Reading in Great Britain. Dr.
Lowry is an internationally recognized biochemical endocrinologist whose work
has focused on the purification and characterization of some of the key
hormonal mediators of the endocrine response to stress. Dr. Lowry is a member
of the European Neuroscience Steering Committee, the European Neuroendocrine
Association and the Committee of British Endocrinology.
Joseph B. Martin, M.D., Ph.D., is Chancellor and Professor of Neurology at
the University of California, San Francisco. Dr. Martin is an internationally
recognized expert in clinical and basic research in neurology and
neuroendocrinology and the etiology of hypothalamic diseases, and was one of the
first neurologists to embrace the role of the central nervous system on immune
function.
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<PAGE> 19
Bruce S. McEwen, Ph.D., is Professor and Head of the Harold and Margaret
Milliken Hatch Laboratory of Neuroendocrinology at The Rockefeller University.
Dr. McEwen has identified and studied the function of intracellular receptors
for neuroactive steroid hormones in the brain and immune system, in relation to
stress and sex differences. Dr. McEwen is also President of the Society for
Neuroscience.
Charles B. Nemeroff, M.D., Ph.D., is Chairman and Professor of the
Department of Psychiatry and Behavioral Sciences at Emory University School of
Medicine. Dr. Nemeroff is an internationally recognized expert on the effects of
neuropeptides on behavior and their relevance in clinically important conditions
such as depression, anxiety and schizophrenia, and has published over 400
articles on this subject.
Lawrence J. Steinman, M.D., is Chief Scientist, Neuroimmunology of the
Company and a member of Neurocrine's Founding Board of Scientific and Medical
Advisors and its Executive Committee. See "Item 10 -- Executive Officers and
Directors of the Registrant."
Wylie W. Vale, Ph.D., is Chief Scientist, Neuroendocrinology of the
Company and a member of Neurocrine's Founding Board of Scientific and Medical
Advisors and its Executive Committee. See "Item 10 -- Executive Officers and
Directors of the Registrant."
Stanley J. Watson, Jr., M.D., Ph.D., is Professor and Associate Chair for
Research in the Department of Psychiatry and Co-Director of the Mental Health
Research Institute at the University of Michigan. Dr. Watson is a recognized
expert in neuropeptides and their receptors and their role in psychiatric
diseases and behavior. Dr. Watson is also a member of the Institute of Medicine
of the National Academy of Sciences.
Each of the members of the Scientific Advisory Board have signed consulting
agreements that contain confidentiality provisions and restrict the members of
the Scientific Advisory Board from competing with the Company for the term of
the agreement. Each member of the Scientific Advisory Board receives either a
per diem consulting fee or a retainer fee and is anticipated to provide at least
five days of consulting per year. Each member also has received stock or stock
options in the Company, which vest over time. All but one member of the
Scientific Advisory Board is a full-time employee of a university or research
institute that has regulations and policies which limit the ability of such
personnel to act as part-time consultants or in other capacities for any
commercial enterprise, including the Company. A change in these regulations or
policies could adversely affect the relationship of the Scientific Advisory
Board member with the Company.
INSURANCE
The Company maintains product liability insurance for clinical trials in
the amount of $5.0 million per occurrence and $5.0 million in the aggregate. The
Company intends to expand its insurance coverage to include the sale of
commercial products if marketing approval is obtained for products in
development. However, insurance coverage is becoming increasingly expensive, and
no assurance can be given that the Company will be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect the Company
against losses due to liability. There can also be no assurance that the Company
will be able to obtain commercially reasonable product liability insurance for
any products approved for marketing. A successful product liability claim or
series of claims brought against the Company could have a material adverse
effect on its business, financial condition and results of operations.
EMPLOYEES
As of December 31, 1996, the Company had 103 employees, consisting of 90
full-time and 13 part-time employees. Of the full-time employees, 35 hold Ph.D.,
M.D., or equivalent degrees. None of the Company's employees are represented by
a collective bargaining arrangement, and the Company believes its relationship
with its employees is good. The Company is highly dependent on the principal
members of its management and scientific staff. The loss of services of any of
these personnel could impede the achievement of the Company's development
objectives. Furthermore, recruiting and retaining qualified scientific personnel
to perform research and development work in the future will also be critical to
the Company's success. There can be no assurance that the Company will be able
to attract and retain personnel on acceptable terms given the competition among
biotechnology, pharmaceutical and health care companies, universities and
non-profit research institutions for experienced
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<PAGE> 20
scientists. In addition, the Company relies on members of its Scientific
Advisory Board and a significant number of consultants to assist the Company in
formulating its research and development strategy.
ITEM 2. PROPERTIES
The Company leases approximately 48,000 square feet of laboratory facilities at
3050 Science Park Road, San Diego, California. The lease extends through 2006.
The Company has sublet 19,000 square feet of this facility to a third party for
up to four years. The Company has also leased an additional 2,000 square-foot
animal facility for a term of two years. The Company believes that its
facilities will be adequate to meet its research and development needs through
1998.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 21
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
System under the symbol NBIX since the Company's initial public offering on May
23, 1996. Prior to that time there was no established public trading market for
the Company's Common Stock. The following table sets forth for the periods
indicated the high and low sale price for the Common Stock.
<TABLE>
<CAPTION>
High Low
------------ ------------
<S> <C> <C>
FISCAL YEAR 1996
4th Quarter . . . . . . . . . . . . $ 13 $ 9-1/4
3rd Quarter . . . . . . . . . . . . 12-3/8 6-1/2
2nd Quarter (from May 23, 1996) . 13-1/4 8-1/8
</TABLE>
As of February 28, 1997, there were approximately 482 holders of record of
Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the Financial
Statements of the Company, which have been audited by Ernst & Young LLP, whose
reports appear elsewhere herein. The information presented below should be read
in conjunction with the Company's Financial Statements and Notes thereto
included elsewhere in this Form 10-K. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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<PAGE> 22
SELECTED FINANCIAL DATA
(In thousands, except net income (loss) per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sponsored research $ 7,344 $ 3,000 $ -- $ -- $ --
License fees 5,000 2,000 -- -- --
Milestones 4,000 750 -- -- --
Other revenues 2,872 356 162 -- --
-------- -------- -------- -------- --------
Total revenues 19,216 6,106 162 -- --
Operating expenses:
Research and development 12,569 7,740 6,231 2,804 406
General and administrative 3,697 2,728 2,223 1,550 216
-------- -------- -------- -------- --------
Total operating expenses 16,266 10,468 8,454 4,354 622
-------- -------- -------- -------- --------
Income (loss) from operations 2,950 (4,362) (8,292) (4,354) (622)
Interest income, net 2,598 839 627 118 15
Other income (expense) 574 177 (41) -- --
-------- -------- -------- -------- --------
Net income (loss) before income taxes 6,122 (3,346) (7,706) (4,236) (607)
-------- -------- -------- -------- --------
Income taxes 248 -- -- -- --
Net income (loss) 5,874 (3,346) (7,706) (4,236) (607)
======== ======= ======== ======== ========
Net income (loss) per share 0.35 (0.27) (0.67) (0.64) (0.49)
======== ======= ======== ======== ========
Shares used in computing net income
(loss) per share 16,589 12,184 11,433 6,635 1,247
======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term $ 69,920 $ 18,696 $ 18,228 $ 21,639 $ 2,010
investments
Total assets 77,957 24,012 22,344 24,436 2,475
Accumulated deficit (10,022) (15,895) (12,549) (4,843) (607)
Total stockholders' equity 72,767 19,225 18,743 22,137 2,445
</TABLE>
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 Operations of Neurocrine Biosciences, Inc. ("Neurocrine" or the
"Company") contains forward-looking statements which involve risks and
uncertainties, pertaining generally to the expected continuation of the
Company's collaborative agreements, the receipt of research payments thereunder,
the future achievement of various milestones in product development and the
receipt of payments related thereto, the potential receipt of royalty payments,
financial results and operations. Actual results could differ materially from
those anticipated in such forward-looking statements as a result of various
factors, including those set forth below, and those outlined in "Item 1 --
Business" above.
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<PAGE> 23
OVERVIEW
Since the founding of the Company in January 1992, Neurocrine has been
engaged in the discovery and development of novel pharmaceutical products for
diseases and disorders of the central nervous and immune systems. To date,
Neurocrine has not generated any revenues from the sale of products, and does
not expect to generate any product revenues for the foreseeable future. The
Company's revenues are expected to come from its strategic alliances. Neurocrine
has incurred a cumulative deficit of approximately $10.0 million as of December
31, 1996 and expects to incur additional operating losses in the future which
are potentially greater than losses in prior years.
RESULTS OF OPERATIONS
Revenues increased to $19.2 million in 1996 compared with $6.1 million in
1995 and $162,000 in 1994. These increases were primarily due to increased
sponsored research, license fees, and milestone revenues recognized under the
Janssen, Ciba-Geigy, and Eli Lilly collaborations.
Research and development expenses increased to $12.6 million in 1996
compared with $7.7 million in 1995 and $6.2 million in 1994. These increases
reflect continued additions to scientific personnel and related support
expenditures as the Company increased its research, development, and clinical
activities primarily in the CRF and Altered Peptide Ligand programs.
General and administrative expenses increased to $3.7 million in 1996
compared with $2.7 million in 1995 and $2.2 million in 1994. These increases
reflect the additional administrative staff required to support increased
research, development and clinical activities, increased facility expenses and
expanded business development activities.
Interest income increased to $2.9 million in 1996 compared with $1.1
million in 1995 and $786,000 in 1994. These increases were due to increased
investment income attributable to increased cash and short term investments
purchased with proceeds from the Company's initial public offering in May 1996
and from payments received under its corporate collaborations.
Net income increased to $5.9 million or $0.35 per share for 1996 compared
with a net loss of $3.3 million or $0.27 per share in 1995 and $7.7 million or
$0.67 per share in 1994. The increase in net income over 1995 and 1994 was
primarily attributable to the increased revenues earned under the Janssen,
Ciba-Geigy and Eli Lilly corporate collaborations. The increase in net income
per share for 1996 was partially offset by the inclusion of dilutive common
stock equivalents in the calculation of weighed average shares used in computing
net income per share.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company's cash, cash equivalents, and short-term
investments totaled $69.9 million. This excludes approximately $9.1 million held
by NPI which is available to fund certain of the Company's research and
development activities.
Net cash provided by operating activities in 1996 increased to $6.7 million
compared with a net use of cash in operating activities of $2.4 million in 1995
and $7.1 million in 1994. The 1996 increase in cash provided by operating
activities and the 1995 decline in cash used in operating activities was
primarily the result of the timing of cash receipts under the Janssen,
Ciba-Geigy and Eli-Lilly collaborations.
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<PAGE> 24
Cash used in investing activities in 1996 was $48.6 million compared with
$933,000 provided by investing activities in 1995 and $13.8 million used in
investing activities in 1994. The 1996 increase in cash used in investing
activities was the result of the purchase of additional short-term investments
with proceeds from the Company's initial public offering and the sale of Common
Stock to corporate collaborators in May 1996. The 1995 increase in cash provided
by investing activities over the 1994 use of cash in investing activities was
the result of timing differences of various investment purchases and
sales/maturities and fluctuations in the Company's portfolio mix between cash
and cash equivalent and short-term investment holdings.
Cash provided by financing activities in 1996 was $46.8 million compared
with $3.2 million in 1995 and $3.9 million in 1994. This 1996 increase was the
result of proceeds received from the Company's initial public offering and the
sale of Common Stock to corporate collaborators in May 1996. The 1995 decrease
was the result of the decline in number of securities sold to corporate
collaborators and other private investors.
Neurocrine has primarily financed its operations through proceeds from the
sale of Common Stock and corporate collaborations. In February 1994, the Company
completed the final closing of a private placement offering which resulted in
net proceeds of approximately $27.6 million. In May 1996, the Company sold 3.5
million shares of Common Stock in an initial public offering resulting in net
proceeds to the Company of approximately $34.2 million. Concurrent with this
offering the Company sold 714,286 shares of Common Stock to corporate
collaborators, resulting in aggregate net proceeds to the Company of
approximately $7.2 million. In June 1996 the Company sold an additional 180,000
shares of Common Stock to the underwriters of the initial public offering to
cover over-allotments. This transaction resulted in net proceeds to the Company
of approximately $1.8 million.
In February 1995, the Company entered into a three to five year
collaborative research and development agreement with Janssen for the
development of CRF receptor antagonists for the treatment of anxiety, depression
and substance abuse. In 1996 Janssen paid the Company $3.0 million in sponsored
research payments and $1.0 million in milestone payments.
In January 1996, the Company entered into an agreement with Ciba-Geigy to
develop altered peptide ligands for the treatment of multiple sclerosis. In 1996
Ciba-Geigy paid the Company $8.5 million in license fees and research funding
and $3.0 million in milestone payments.
In March 1996, the Company completed the formation of a research and
development subsidiary, Neuroscience Pharma (NPI), Inc., with a group of
Canadian investors.
In October 1996, the Company entered into a Collaborative Research
Agreement with Eli Lilly and Company to discover and develop corticotropin
releasing factor (CRF) - binding protein ligand inhibitors for the treatment of
central-nervous system disorders, including obesity and dementia, such as that
associated with Alzheimer's disease. Lilly paid the Company $1.3 million in
research payments in 1996 and an additional $5.0 million in research payments in
January 1997.
See "Business - Strategic Alliances," and Note 4 of "Notes to Financial
Statements."
The Company believes that its existing capital resources, together with
interest income and future payments due under the strategic alliances, will be
sufficient to satisfy its current and projected funding requirements at least
through 2000. However, no assurance can be given that such capital resources and
payments will be sufficient to conduct its
-24-
<PAGE> 25
research and development programs as planned. The amount and timing of
expenditures will vary depending upon a number of factors, including progress of
the Company's research and development programs.
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations of Neurocrine Biosciences, Inc. ("Neurocrine" or the
"Company") as well as other sections of this Form 10-K contain forward-looking
statements which involve risks and uncertainties, pertaining generally to the
expected continuation of the Company's collaborative agreements, the receipt of
research payments thereunder, the future achievement of various milestones in
product development and the receipt of payments related thereto, the potential
receipt of royalty and profit-sharing payments, the anticipated dates of
commencement of selection of development candidates and the commencement of
clinical trials the successful continuation of the Company's research and
development programs and the development of future products, the period of time
the Company's existing capital resources will meet its funding requirements, and
the Company's financial results and operations. Actual results could differ
materially from those anticipated in such forward-looking statements as a result
of various factors, including those set forth below, and those outlined in "Item
1 -- Business" above.
The Company's business is subject to significant risks, including but not
limited to, the risks inherent in its research and development activities,
including the successful continuation of the Company's strategic collaborations,
the successful completion of clinical trials, the lengthy, expensive and
uncertain process of seeking regulatory approvals, uncertainties associated both
with obtaining and enforcing its patents and with patent rights of others,
uncertainties regarding government reforms and of product pricing and
reimbursement levels, technological change and competition, manufacturing
uncertainties and dependence on third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
product will be ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
Neurocrine will require substantial additional funding for the continuation
of its research and product development programs, for progress with preclinical
testing and clinical trials, for operating expenses, for the pursuit of
regulatory approvals for its product candidates, for the costs involved in
filing and prosecuting patent applications and enforcing patent claims, if any,
the cost of product in-licensing and any possible acquisitions, and may require
additional funding for establishing manufacturing and marketing capabilities in
the future. The Company may seek to access the public or private equity markets
whenever conditions are favorable. The Company may also seek additional funding
through strategic alliances and other financing mechanisms, potentially
including off-balance sheet financing. There can be no assurance that adequate
funding will be available on terms acceptable to the Company, if at all. If
adequate funds are not available, the Company may be required to curtail
significantly one or more of its research or development programs or obtain
funds through arrangements with collaborative partners or others. This may
require the Company to relinquish rights to certain of its technologies or
product candidates.
Neurocrine expects to incur substantial additional operating expenses over
the next several years as its research, development, preclinical testing and
clinical trial activities increase. To the extent that the Company is unable to
obtain third-party funding for such expenses, the Company expects that increased
expenses will result in increased losses from operations. There can be no
assurance that the Company's products under development will be successfully
developed or that its products, if successfully developed, will generate
revenues sufficient to enable the Company to earn a profit.
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<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See the list of the Company's Financial Statements filed with this Form
10-K under Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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<PAGE> 27
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
(a) Information about the Company's directors required by this item will be
contained in the Company's Notice of 1997 Annual Meeting of Stockholders and
Proxy Statement, pursuant to Regulation 14A, to be filed with the Securities and
Exchange Commission within 120 days after December 31, 1996. Such information is
incorporated herein by reference.
(b) The information required by this Item concerning compliance with
Section 16(a) of the Exchange Act is incorporated by reference from the section
captioned "Compliance with Section 16(a) of the Exchange Act" contained in the
Company's Notice of 1997 Annual Meeting of Stockholders and Proxy Statement,
pursuant to Regulation 14A, to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1996.
(c) The executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry F. Hixson, Jr., Ph.D. (1) . . . . . . . . . 58 Chairman of the Board
Gary A. Lyons . . . . . . . . . . . . . . . . . . 45 President, Chief Executive Officer and Director
Wylie W. Vale, Ph.D. (1)(2) . . . . . . . . . . . 55 Chief Scientist, Neuroendocrinology and Director
Lawrence J. Steinman, M.D. (2) . . . . . . . . . 49 Chief Scientist, Neuroimmunology
Errol B. De Souza, Ph.D. . . . . . . . . . . . . 43 Executive Vice President, Research and Development
Paul W. Hawran . . . . . . . . . . . . . . . . . 45 Senior Vice President and Chief Financial Officer
Stephen G. Marcus, M.D. . . . . . . . . . . . . . 43 Senior Vice President, Medical and Regulatory Affairs
and Chief Medical Officer
</TABLE>
- -----------
(1) Member of Audit Committee.
(2) Part-time commitment pursuant to a consulting agreement.
Harry F. Hixson, Jr., Ph.D., has served as a Director and Chairman of the
Board of the Company since September 1992. Dr. Hixson worked with Amgen, Inc.
("Amgen") from July 1985 through February 1991, most recently as President,
Chief Operating Officer and director. While at Amgen, he was responsible for
pharmaceutical development, manufacturing and United States and international
marketing and sales. Dr. Hixson is a director of Biocircuits, Inc. and Somatix
Therapy Corporation. Dr. Hixson holds a Ph.D. in Physical Biochemistry from
Purdue University and an M.B.A. from the University of Chicago.
Gary A. Lyons has served as President, Chief Executive Officer and a
Director of the Company since February 1993. Prior to joining the Company in
February 1993, Mr. Lyons was Vice President of Business Development at
Genentech, Inc. ("Genentech") since 1989. At Genentech, he was responsible for
international licensing, acquisitions and partnering which resulted in over 20
corporate relationships. He was also responsible for Genentech's Corporate
Venture Program which participated in early financing and/or formation of a
number of biotechnology start-up companies such as Xenova Ltd., Tularik, Inc.,
Nexagen, Inc., CytoTherapeutics, Inc., Khepri, Incyte Pharmaceuticals, Inc.,
Genomyx, Inc. and GenVec. Mr. Lyons serves as Chairman of the Board of Genomyx,
Inc. a privately held bio-instrumentation company. In addition, Mr. Lyons had
operating responsibility for Genentech's two subsidiaries, Genentech Canada,
Inc. and Genentech Limited (Japan). Previously, he served as Vice President of
Sales and was responsible for building the marketing and sales organization for
the commercial introduction of Genentech's first two pharmaceutical products,
Protropin (human growth hormone) and Activase (TPA). Mr. Lyons holds a B.S. in
Marine Biology from the University of New Hampshire and an M.B.A. from
Northwestern University's J.L. Kellogg Graduate School of Management.
Wylie W. Vale, Ph.D., is a Founder and Chief Scientist, Neuroendocrinology
and Chairman of the Company's Founding Board of Scientific and Medical Advisors
and its Executive Committee. Dr. Vale was elected a Director of the Company in
September 1992. He is a Professor at The Salk Institute for Biological Studies
("The Salk Institute") and is the Senior Investigator and Head of The Clayton
Foundation Laboratories for Peptide Biology at The Salk Institute, where he has
been employed for 25 years. Dr. Vale is the current Chairman of the Faculty and
a current Member of the Board of Trustees of The Salk Institute. Dr. Vale is
-27-
<PAGE> 28
recognized for his work on the identification of neuroendocrine factors such as
somatostatin, growth hormone releasing factor, corticotropin releasing factor,
CRF-BP, gonadotropin releasing hormone, activin and the activin receptor, the
CRF1 receptor and urocortin, the native ligand for the CRF2 receptor. These
scientific advances have distinguished him as one of the 10 most cited
scientific authors in the world in the past decade. Dr. Vale received a B.A. in
Biology from Rice University, and a Ph.D. in Physiology and Biochemistry from
the Baylor College of Medicine.
Lawrence J. Steinman, M.D., became Chief Scientist, Neuroimmunology and a
member of Neurocrine's Founding Board of Scientific and Medical Advisors and
its Executive Committee in September 1992. Dr. Steinman is a Professor in the
Department of Neurology and Neurological Sciences, Pediatrics and Genetics at
Stanford University School of Medicine where he has been employed for more than
the last five years, and is Professor of Immunology at the Weizmann Institute.
Dr. Steinman has substantial expertise in the basic and clinical biology of
immunological diseases of the central nervous system. Dr. Steinman has been
honored with the Weir Mitchell Award of the American Academy of Neurology and
the Senator Jacob Javits Neuroscience Investigators Award from the United
States Congress. Dr. Steinman is a member of the Board of Directors of
Centocor, Inc.
Errol B. De Souza, Ph.D., is a Founder and Executive Vice President,
Research and Development for the Company. Dr. De Souza has served as
President, Chief Executive Officer, and a Director of Neuroscience Pharma
(NPI), Inc. since April 1996. Prior to joining the Company in October 1992,
Dr. De Souza was Director of Central Nervous System Diseases Research for The
Du Pont Merck Pharmaceutical Company ("Du Pont Merck"), where he directed the
discovery efforts of over 100 scientists in the fields of neurobiology,
molecular biology, pharmacology and chemistry commencing in May 1990. Prior to
joining Du Pont Merck, Dr. De Souza was Chief of the Laboratory of Neurobiology
at the National Institute on Drug Abuse, and he was an Associate Professor in
the Department of Pathology at The Johns Hopkins University School of Medicine.
Dr. De Souza received a B.A. in Physiology and a Ph.D. in Endocrinology from
the University of Toronto and pursued post-doctoral training at The Johns
Hopkins University School of Medicine and the University of Kentucky.
Paul W. Hawran became Senior Vice President and Chief Financial Officer of
the Company in February 1996. In March 1996, Mr. Hawran became Vice President
and Chief Financial Officer of Neuroscience Pharma, Inc., a subsidiary of the
Company. Prior to joining the Company in May 1993 as Vice President, Mr. Hawran
was employed by SmithKline Beecham Corporation ("SmithKline") from July 1984 to
May 1993, most recently as Vice President and Treasurer. Prior to joining
SmithKline in 1984, Mr. Hawran held various financial positions at Warner
Communications (now Time Warner) where he was involved in corporate finance,
financial planning and domestic and international budgeting and forecasting. Mr.
Hawran received a B.S. in Finance from St. John's University and an M.S. in
Taxation from Seton Hall University. He is a Certified Public Accountant and a
member of the American Institute of Certified Public Accountants, California and
Pennsylvania Institute of Certified Public Accountants and the Financial
Executives Institute.
Stephen G. Marcus, M.D. has served as Senior Vice President, Medical
and Regulatory Affairs and Chief Medical Officer since February 1997. Prior to
joining the Company, Dr. Marcus served as Vice President, Clinical and
Regulatory Affairs for Genetic Therapy, Inc., since 1993. Dr. Marcus was
responsible for all clinical and regulatory activities at Genetic Therapy,
Inc., where he filed numerous INDs, led clinical and regulatory activities
leading to human gene therapy trials, and developed a gene therapy product for
malignant brain tumors from Phase I clinical trials to Phase III trials in the
U.S., Canada and Europe. From 1992 to 1993, Dr. Marcus was Vice President,
Medical and Regulatory Affairs for Systemix, Inc., and from 1990 to 1992 was
Director, Oncology Research Worldwide for Schering-Plough Corporation. Dr.
Marcus received a B.S. from Brooklyn College in 1973 and an M.D. from New York
Medical College in 1976. He is certified by the American Board of Internal
Medicine and the American Board of Medical Examiners.
ADDITIONAL INFORMATION
Officers of the Company serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors, executive officers
or key employees. No executive officer, key employee, promoter, or control
person of the Company has, in the last five years, been subject to bankruptcy
proceedings, criminal proceedings, or legal proceedings related to the violation
of state or federal commodities or securities laws.
-28-
<PAGE> 29
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be contained in the Company's Notice
of 1997 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after December 31, 1996 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be contained in the Company's Notice
of 1997 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after December 31, 1996 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be contained in the Company's Notice
of 1997 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after December 31, 1996 and is incorporated herein by this reference.
-29-
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. List of Financial Statements. The following financial
statements of Neurocrine Biosciences, Inc. and Report of Ernst
& Young LLP, Independent Accountants are included in this
report:
Balance Sheet as of December 31, 1996, 1995, and 1994
Statement of Operations for the years ended December 31, 1996,
1995, 1994, 1993, and 1992
Statement of Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994
Statement of Cash Flows for the years ended December 31, 1996,
1995, and 1994 Notes to Financial Statements
Report of Ernst & Young LLP, Independent Accountants
2. List of all Financial Statement schedules:
(i) All schedules are omitted because they are not
applicable or the required information is shown in the
Financial Statements or notes thereto.
3. List of Exhibits Required by Item 601 of Regulation S-K. See
part (c) below.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1996.
(c) Exhibits. The following exhibits are filed as part of, or
incorporated by reference into, this report:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------------------
<S> <C>
3.1* Articles of Incorporation of Neurocrine Biosciences,
Inc., a Delaware corporation, as amended.
3.2* Bylaws of the Registrant.
4.1* Form of Lock-Up Agreement.
4.2* Form of Common Stock Certificate.
4.3* Form of warrant issued to existing warrant holders.
4.4* Form of Series A Warrant issued in connection with the
execution by the Registrant of the Unit Purchase
Agreement (see Exhibit 10.20).
4.5* New Registration Rights Agreement dated March 29, 1996
among the Registrant and the investors signatory
thereto.
10.1* Information and Registrations Rights Agreement dated
September 15, 1992, as amended to date.
10.2* 1992 Incentive Stock Plan, as amended, and form of
incentive stock option agreement and nonstatutory stock
option agreement
</TABLE>
-30-
<PAGE> 31
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------------------
<S> <C>
10.3* 1996 Employee Stock Purchase Plan.
10.4* 1996 Director Stock Option Plan and form of stock option
agreement.
10.5* Form of Director and Officer Indemnification Agreement.
10.6* Employment Agreement dated March 1, 1993, between the
Registrant and Gary A. Lyons, as amended.
10.7* Employment Agreement dated July 1, 1993, between the
Registrant and Errol B. De Souza, Ph.D.
10.8* Employment Agreement dated May 8, 1993, between the
Registrant and Paul W. Hawran.
10.9* Consulting Agreement dated September 25, 1992, between
the Registrant and Wylie A. Vale, Ph.D.
10.10* Consulting Agreement effective as of January 1, 1992,
between the Registrant and Lawrence J. Steinman, M.D.
10.11* Lease Agreement dated June 1, 1993, between the
Registrant and Hartford Accident and Indemnity Company,
as amended.
10.12* Exclusive License Agreement dated as of July 1, 1993, by
and between the Beckman Research Institute of the City
of Hope and the Registrant covering the treatment of
nervous system degeneration and Alzheimer's disease.
10.13* Exclusive License Agreement dated as of July 1, 1993, by
and between the Beckman Research Institute of the City
of Hope and the Registrant covering the use of
Pregnenolone for the enhancement of memory.
10.14* License Agreement dated May 20, 1992, by and between The
Salk Institute for Biological Studies and the
Registrant.
10.15* License Agreement dated July 17, 1992, by and between
The Salk Institute for Biological Studies and the
Registrant.
10.16* License Agreement dated November 16, 1993, by and
between The Salk Institute for Biological Studies and
the Registrant.
10.17* License Agreement dated October 19, 1992, by and between
The Board of Trustees of the Leland Stanford Junior
University and the Registrant.
10.18* Agreement dated January 1, 1995, by and between the
Registrant and Janssen Pharmaceutica, N.V.
10.19* Letter Agreement dated January 19, 1996, by and between
the Registrant and Ciba-Geigy Limited.
10.20*# Unit Purchase Agreement dated March 29, 1996, by and
between Neuroscience Pharma (NPI) Inc., the Registrant
and the investors signatory thereto.
10.21*# Exchange Agreement dated March 29, 1996, by and between
Neurocrine Biosciences (Canada) Inc., the Registrant and
the investors signatory thereto.
10.22*# Research and Development Agreement dated March 29, 1996,
by and between Neurocrine Biosciences (Canada) Inc. and
Neuroscience Pharma (NPI) Inc.
10.23*# Intellectual Property and License Grants Agreement dated
March 29, 1996, by and between the Registrant and
Neurocrine Biosciences (Canada) Inc.
</TABLE>
-31-
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------
<S> <C>
10.24** Development and Commercialization Agreement dated
December 20, 1996, by and between Ciba-Geigy Ltd. and
the Registrant.
10.25** Letter and Purchase Order dated June 7, 1996, by and
between Ciba-Geigy and the Registrant.
10.26** Third Lease Amendment dated June 6, 1996, by and between
Talcott Realty I Limited Partnership and the Registrant.
10.27** Research and License Agreement dated October 15, 1996,
between the Registrant and Eli Lilly and Company.
11.1 Computation of Net Earnings per Share.
21.1* List of subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of Attorney (reference is made to the following
page of this Form 10-K).
27.1 Financial data schedule.
</TABLE>
* Incorporated herein by reference to the same-numbered exhibit
previously filed with the Company's Registration Statement on Form S-1
(Registration No. 333-03172).
** Confidential treatment has been requested with respect to certain
portions of the exhibit.
# Confidential treatment has been granted with respect to certain
portions of the exhibit.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
-32-
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEUROCRINE BIOSCIENCES, INC.
a Delaware Corporation
By: /s/ Gary A. Lyons
------------------------------
Gary A. Lyons
President and Chief Executive Officer
Date: March 27, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary A. Lyons and Paul Hawran, jointly
and severally his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendment to this Report on Form
10-K, 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 or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Gary A. Lyons President, Chief Executive Officer and March 27, 1997
------------------------------------ Director (Principal Executive Officer)
Gary A. Lyons
/s/ Paul Hawran Chief Financial Officer (Principal Financial March 27, 1997
------------------------------------ and Accounting Officer)
Paul Hawran
/s/ Harry F. Hixson, Jr. Chairman of the Board of Directors March 27, 1997
------------------------------------
Harry F. Hixson, Jr.
/s/ Howard C. Birndorf Director March 27, 1997
------------------------------------
Howard C. Birndorf
Director March , 1997
------------------------------------
David E. Robinson
/s/ David Schnell Director March 27, 1997
------------------------------------
David Schnell
/s/ Wylie W. Vale Director March 27, 1997
------------------------------------
Wylie W. Vale
</TABLE>
<PAGE> 34
NEUROCRINE BIOSCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . F-1
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of Operations . . . . . . . . . . . . . . . . . . . . F-3
Statement of Stockholders' Equity . . . . . . . . . . . . . . . F-4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . F-6
</TABLE>
<PAGE> 35
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Neurocrine Biosciences, Inc.
We have audited the accompanying balance sheets of Neurocrine Biosciences, Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' 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 Neurocrine Biosciences, Inc.
at 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.
/s/ ERNST & YOUNG LLP
----------------------------
Ernst & Young LLP
San Diego, California
February 14, 1997
F-1
<PAGE> 36
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 11,325,361 $ 6,392,749
Short-term investments, available-for-sale (Note 2) 58,594,853 12,303,460
Receivable under collaborative agreements (Note 6) 1,329,513 1,000,000
Other current assets 840,962 234,334
------------- -----------
Total current assets 72,090,689 19,930,543
Furniture, equipment and leasehold improvements, net 3,546,420 2,772,844
(Note 3)
Licensed technology and patent application costs, net 1,443,403 919,049
(Notes 3 and 5)
Other assets 876,070 389,296
-------------- -----------
Total assets $ 77,956,582 $24,011,732
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 800,157 $ 820,883
Accrued liabilities (Note 3) 1,564,889 879,287
Deferred revenue 918,750 500,000
Current portion of obligations under capital leases 783,718 741,294
(Note 5) ------------- -----------
Total current liabilities 4,067,514 2,941,464
Obligations under capital leases, less current portion 846,744 1,631,404
(Note 5)
Deferred rent 275,356 213,925
Commitments (Note 5)
Stockholders' equity (Notes 2 and 4):
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding
Common stock, no par value:
Authorized shares-100,000,000
Issued and outstanding shares - 16,776,614 in 1996,
and 11,723,101 in 1995 83,251,404 35,597,941
Deferred compensation (377,057) (342,679)
Notes receivable from stockholders (127,704) (138,177)
Unrealized gains on short-term investments 41,870 3,319
Accumulated deficit (10,021,545) (15,895,465)
-------------- -----------
Total stockholders' equity 72,766,968 19,224,939
-------------- -----------
Total liabilities and stockholders' equity $ 77,956,582 $24,011,732
============== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 37
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sponsored research $ 7,343,750 $3,000,000 $ -
License fees 5,000,000 2,000,000 -
Milestones 4,000,000 750,000 -
Other revenues 2,871,912 355,750 161,533
------------- ----------- -----------
Total revenues 19,215,662 6,105,750 161,533
Operating expenses:
Research and development 12,569,114 7,740,128 6,230,483
General and administrative 3,696,515 2,728,342 2,222,967
------------- ----------- -----------
Total operating expenses 16,265,629 10,468,470 8,453,450
Income (loss) from operations 2,950,033 (4,362,720) (8,291,917)
Interest income 2,870,407 1,137,004 785,640
Interest expense (272,464) (297,675) (157,960)
Other income (expense) 573,627 177,001 (41,398)
------------- ----------- -----------
Income (loss) before income taxes 6,121,603 (3,346,390) (7,705,635)
Income taxes 247,683 - -
------------- ----------- -----------
Net income (loss) $ 5,873,920 $(3,346,390) $(7,705,635)
============= =========== ===========
Net income (loss) per share $ 0.35 $ (0.27) $ (0.67)
============= =========== ===========
Shares used in computing net income
(loss) per share
16,589,415 12,183,582 11,433,482
============= =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 38
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NOTES GAINS
RECEIVABLE (LOSSES) ON TOTAL
DEFERRED FROM SHORT-TERM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION STOCKHOLDERS INVESTMENTS DEFICIT EQUITY
------ ------ ------------ ------------ ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 10,205,954 $27,141,773 $ -- $(160,924) -- $ (4,843,440) $22,137,409
Issuance of Common Stock for
cash, net . . . . . . . . . 879,592 4,087,884 -- -- -- -- 4,087,884
Repurchase of shares . . . . (26,120) (1,359) -- -- -- -- (1,359)
Payment on notes receivable . -- -- -- 12,661 -- -- 12,661
Compensation related to grant
of stock options . . . . . -- 235,368 -- -- -- -- 235,368
Unrealized losses on short-
term investments . . . . . -- -- -- -- (23,535) -- (23,535)
Net loss . . . . . . . . . . -- -- -- -- -- (7,705,635) (7,705,635)
---------- ---------- -------- --------- ---------------- ------------ -----------
Balance at December 31, 1994 11,059,426 31,463,666 -- (148,263) (23,535) (12,549,075) 18,742,793
Issuance of Common Stock for
cash . . . . . . . . . . . 659,635 3,730,000 -- -- -- -- 3,730,000
Issuance of Common Stock for
services . . . . . . . . . 4,040 20,200 -- -- -- -- 20,200
Payment on notes receivable . -- -- -- 10,086 -- -- 10,086
Deferred compensation related
to grant of stock options . -- 384,075 (384,075) -- -- -- --
Amortization of deferred
compensation . . . . . . -- -- 41,396 -- -- -- 41,396
Unrealized gains on short-term
investments . . . . . . . -- -- -- -- 26,854 -- 26,854
Net loss . . . . . . . . . . -- -- -- -- -- (3,346,390) (3,346,390)
---------- ---------- -------- --------- ---------------- ------------ -----------
Balance at December 31, 1995 11,723,101 35,597,941 (342,679) (138,177) 3,319 (15,895,465) 19,224,939
Issuance of Common Stock for
cash . . . . . . . . . . . 5,053,513 47,539,591 -- -- -- -- 47,539,591
Payments on notes receivable -- -- -- 10,473 -- -- 10,473
Deferred compensation related
to grant of stock options . -- 113,872 (113,872) -- -- -- --
Amortization of deferred
compensation . . . . . . . -- -- 79,494 -- -- -- 79,494
Unrealized gains on short-term
investments . . . . . . . -- -- -- -- 38,551 -- 38,551
Net income . . . . . . . . . -- -- -- -- -- 5,873,920 5,873,920
---------- ----------- --------- --------- ---------------- ------------ ------------
Balance at December 31, 1996 16,776,614 $83,251,404 $(377,057) $(127,704) $ 41,870 $(10,021,545) $ 72,766,968
========== =========== ========= ========= ================ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 39
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
--------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,873,920 $(3,346,390) $(7,705,635)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 980,833 715,398 515,294
Deferred revenue 418,750 500,000 -
Compensation expense recognized for stock options 79,494 41,396 235,368
Deferred rent 61,431 213,925 -
Loss on sale of assets 25,370 - -
Common Stock issued for technology - 20,200 -
Write-off of licensed technology and patent
application costs - - 190,720
Change in operating assets and liabilities:
Accounts payable and accrued liabilities 664,876 356,429 (786)
Receivable under collaborative agreements (329,513) (1,000,000) -
Other assets (486,774) 9,516 (88,448)
Other current assets (606,628) 67,797 (223,953)
---------- ---------- ----------
Net cash flows provided by (used in) operating 6,681,759 (2,421,729) (7,077,440)
activities
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of short-term investments (85,171,207) (17,854,139) (43,394,769)
Sales/maturities of short-term investments 38,918,365 19,098,351 29,859,531
Purchase of licensed technology and expenditures for
patent application costs (663,796) (263,261) (235,541)
Purchases of furniture, equipment and leasehold
improvements (1,640,337) (47,657) -
----------- ---------- ----------
Net cash flows provided by (used in) investing (48,556,975) 933,294 (13,770,779)
activities
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of Common Stock, net 47,539,591 3,730,000 4,087,884
Principal payments on obligations under capital leases (742,236) (574,954) (222,875)
Payments received on notes receivable from shareholders 10,473 10,086 12,661
Advance received on capital lease - - 49,399
Repurchase of Common Stock - - (1,359)
---------- ---------- ----------
Net cash flows provided by financing activities 46,807,828 3,165,132 3,925,710
========== ========== ==========
Net increase (decrease) in cash and cash equivalents 4,932,612 1,676,697 (16,922,509)
Cash and cash equivalents at beginning of year 6,392,749 4,716,052 21,638,561
---------- ---------- ----------
Cash and cash equivalents at end of year $11,325,361 $6,392,749 $ 4,716,052
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 272,464 $ 298,332 $ 157,960
========== ========== ==========
Taxes paid $ 40,000 $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND ========== ========== ==========
FINANCING ACTIVITIES
Furniture and equipment financed with obligations under $ - $ 689,791 $ 1,477,457
capital leases ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 40
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity: Neurocrine Biosciences, Inc. (the
"Company") was incorporated in California on January 17, 1992 and was
reincorporated in Delaware in March 1996. The Company is engaged in the
discovery and development of therapeutics for the treatment of diseases and
disorders of the central nervous and immune systems which includes anxiety,
depression, Alzheimer's disease, obesity, stroke and multiple sclerosis.
Cash Equivalents: The Company considers as cash equivalents all
highly liquid investments with a maturity of three months or less when
purchased.
Short-Term Investments Available-for-Sale: In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Debt and Equity Securities," short-term investments are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other-than-temporary, if any, on
available-for-sale securities are included in investment 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 Company invests its excess cash in high-grade commercial paper,
investment grade debt instruments, and marketable debt securities of U.S.
government agencies. Management has established guidelines relative to
diversification and maturities that maintain safety and liquidity.
Furniture, Equipment and Leasehold Improvements: Furniture, equipment
and leasehold improvements are carried at cost. Depreciation and amortization
are provided over the estimated useful lives of the assets, ranging from five
to seven years, using the straight-line method.
Licensed Technology and Patent Application Costs: Licensed technology
consists of exclusive, worldwide, perpetual licenses to patents related to the
Company's platform technology, which are capitalized at cost and amortized over
periods of 10 to 17 years.
Asset Impairment: The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective
January 1, 1996. There was no effect on the financial statements from the
adoption of SFAS No. 121.
Research and Development Revenue and Expenses: Revenue under
strategic alliances is recognized over the term of the agreement. Advance
payments received in excess of amounts earned are classified as deferred
revenue. Research and development costs are expensed as incurred.
Net Income (Loss) Per Share: Net income (loss) per share is computed
using the weighted average number of shares of common stock outstanding during
each period. Common stock equivalent shares from stock options, warrants, and
convertible preferred shares are excluded from the computation when their
effect is antidilutive, except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common and common equivalent shares
issued at prices substantially below the public price during the 12-month
period prior to the filing of the initial public offering have been included in
the calculation as if they were outstanding for all periods through that date
(using the treasury stock method). Income per share on a fully diluted basis
was unchanged.
Reliance on Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-6
<PAGE> 41
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Reclassifications: Certain amounts in the financial statements as of
and for the years ended December 31, 1995 and 1994 have been reclassified to
conform with current classifications.
2. SHORT-TERM INVESTMENTS
The following is a summary of short-term investments:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- --------- ---------- ---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agency securities $7,973,645 $ 24,706 $ (26,388) $ 7,971,963 $ 6,982,363 -- $ (6,213) $6,976,150
Certificates of
deposit . . . . . . . 484,022 -- -- 484,022 222,310 -- -- 222,310
Commercial paper . . 3,972,292 -- -- 3,972,292 -- -- -- --
Corporate debt
securities . . . . 46,123,024 80,288 (36,736) 46,166,576 5,095,468 9,532 -- 5,105,000
----------- --------- ---------- ----------- ----------- --------- --------- ----------
Total debt securities $58,552,983 $104,994 $(63,124) $58,594,853 $12,300,141 $ 9,532 $ (6,213) $12,303,460
=========== ========= ========== =========== =========== ========= ========= ==========
</TABLE>
Gross realized gains and losses were not material for any of the
reported periods. The amortized cost and estimated fair value of debt
securities, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, 1996 COST FAIR VALUE
------------ ------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . $14,793,352 $14,790,710
Due after one year through five years . . . . . 43,759,631 43,804,143
------------ ------------
$58,552,983 $58,594,853
============ ===========
</TABLE>
3. BALANCE SHEET DETAILS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
------------ ------------
<S> <C> <C>
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . $3,738,213 $2,705,757
Furniture and fixtures . . . . . . . . . . . . . . . . . . . 1,123,956 788,958
Leasehold improvements . . . . . . . . . . . . . . . . . . . 646,939 418,155
------------ ------------
5,509,108 3,912,870
Less accumulated depreciation and amortization . . . . . . . (1,962,688) (1,140,026)
------------ ------------
Net furniture, equipment and leasehold improvements . . . . . $3,546,420 $2,772,844
------------ ------------
</TABLE>
Licensed technology and patent application costs consisted of
$1,744,240 and $1,081,590 at December 31, 1996 and 1995, respectively, and
accumulated amortization was $300,837 and $162,541 at December 31, 1996 and
1995, respectively.
F-7
<PAGE> 42
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued employee benefits . . . . . $ 414,971 $ 259,394
Accrued clinical trial costs . . . 256,141 --
Accrued income taxes . . . . . . . 206,883 --
Accrued professional fees . . . . . 143,407 335,000
Other accrued liabilities . . . . . 543,487 284,893
========== ==========
$1,564,889 $ 879,287
========== ==========
</TABLE>
4. STOCKHOLDERS' EQUITY
Common Stock Issuances: The Company sold approximately 5,880,000
shares of Common Stock at $5.00 per share in various private financings from
September 1993 through February 1994, resulting in net proceeds to the Company
of approximately $27.6 million.
Concurrent with collaborative research and development agreements
entered into in 1995 and 1996, the Company sold 434,783 shares to Johnson &
Johnson Development Corporation ("JJDC"), an affiliate of Janssen
Pharmaceutica, N.V. ("Janssen"), for $2.5 million, and 645,161 shares to
Ciba-Geigy Limited ("Ciba-Geigy") at $7.75 per share.
In 1996, the Company sold 3,680,000 shares in an initial public
offering resulting in net proceeds of approximately $36.0 million. Concurrent
with the offering, JJDC and Ciba-Geigy purchased an aggregate of 714,286 shares
for $7.5 million.
Options: The Company has reserved 3,300,000 shares of Common Stock
for issuance upon exercise of options or stock purchase rights granted under
the 1992 Incentive Stock Option Plan ("The Plan"). The Plan provides for the
grant of stock options and stock purchase rights to officers, directors, and
employees of, and consultants and advisors to, the Company. Options under the
Plan have a term of up to 10 years from the date of grant and may be designated
as incentive stock options or nonstatutory stock options.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. As a result, deferred compensation is recorded only in the
event that the fair market value of the stock on the date of the option grant
exceeds the exercise price of the options. Such deferred compensation is
amortized over the vesting period of the options. Compensation expense
recognized during the years ended December 31, 1996 and 1995 was $79,494 and
$41,396, respectively.
Pro forma information regarding net income (loss) and income (loss)
per share is required by Statement 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model using the
following weighted-average assumptions for both 1995 and 1996: a risk-free
interest rate of 6.1%, dividend yield of 0.0%, a volatility factor of the
expected market price of the Company's common stock of .41; and a weighted
average expected life of the option of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options granted is amortized to expense over the options' vesting period. The
Company's pro forma information for the years ended December 31, 1996 and 1995
follows:
F-8
<PAGE> 43
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Pro forma net income (loss) (in thousands) $5,375 ($3,474)
Pro forma income (loss) per share $ 0.33 ($ 0.29)
</TABLE>
The pro forma effect on net income for 1996 and net loss for 1995 is
not likely to be representative of the effects on reported net income or loss
in future years because these amounts reflect only two years or one year of
vesting, respectively.
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
OPTIONS OPTIONS OPTIONS
(IN WEIGHTED-AVERAGE (IN WEIGHTED-AVERAGE (IN WEIGHTED-AVERAGE
THOUSANDS) EXERCISE PRICE THOUSANDS) EXERCISE PRICE THOUSANDS) EXERCISE PRICE
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 1,415 $3.61 906 $3.22 540 $2.51
Granted (below market) 255 $6.90 638 $4.28 380 $4.28
Granted (at market) 123 $9.30 - - - -
Exercised 11 $3.60 - - - -
Forfeited 43 $4.41 129 $4.18 14 $4.59
---------- ---------- ----------
Outstanding-end of year 1,739 $4.48 1,415 $3.61 906 $3.22
========== ========== ==========
</TABLE>
The weighted-average fair value of options granted was $3.76 and $2.54
in 1996 and 1995, respectively.
A summary of options outstanding and exercisable as of December 31,
1996 follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
(IN THOUSANDS) RANGE EXERCISE PRICE CONTRACTUAL LIFE
-------------- ----- -------------- ----------------
<S> <C> <C> <C>
539 $2.50 $2.50 6.8 years
926 $4.25 to $5.95 $4.41 8.3 years
274 $7.01 to $10.13 $8.58 9.7 years
OPTIONS EXERCISABLE EXERCISE WEIGHTED-AVERAGE
(IN THOUSANDS) PRICE RANGE EXERCISE PRICE
------------------- ----------- ----------------
<S> <C> <C>
500 $2.50 $2.50
424 $4.25 to $5.95 $4.38
14 $7.01 to $10.13 $8.38
</TABLE>
Warrants: The Company has outstanding warrants to purchase 898,944
shares of Common Stock at exercise prices of $5.00 to $10.50 per share. The
warrants generally expire between 1998 and 2007. At December 31, 1996, 168,005
warrants were exercisable, and the remainder will become exercisable in 1997.
Employee Stock Purchase Plan: In March 1996, the Board of Directors
adopted the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). A total of
125,000 shares of Common Stock is reserved for issuance under the Purchase
Plan. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions at a purchase price equal to 85% of the lesser of
the fair market value per share of Common Stock on the start date of an
offering period or on the date on which the shares are purchased. Through
December 31, 1996 no shares had been issued pursuant to the Purchase Plan.
F-9
<PAGE> 44
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Director Option Plan: In March 1996 the Board of Directors adopted
the 1996 Director Option Plan (the "Director Plan") which generally provides
for the grant of ten-year options to purchase 10,000 shares of Common Stock to
each non-employee director of the Company at each annual meeting of the
stockholders commencing in 1997. Such options become exercisable over a
three-year period following the date of grant. Through December 31, 1996 no
shares had been issued pursuant to the Director Plan.
The following shares of Common Stock are reserved for future issuance
at December 31, 1996:
<TABLE>
<S> <C>
Stock Options 1,945,458
Warrants 898,944
Employee stock purchase plan 125,000
Director option plan 100,000
----------
Total 3,069,402
==========
</TABLE>
Of the shares available for future issuance under the stock option
plan, 1,738,840 are outstanding grants and 206,618 remain available for future
grant.
5. COMMITMENTS
Leases: The Company leases its corporate and laboratory facilities
under an operating lease which expires in June 2006. Rent expense was
approximately $1,298,000, $798,000 and $667,000 for the years ended December
31, 1996, 1995 and 1994, respectively, and sublease rental revenue totaled
approximately $598,000, $177,000 and $133,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
Furniture and equipment under capital leases were approximately
$3,368,000 at December 31, 1996 and 1995. Accumulated depreciation of furniture
and equipment under capital leases totaled $1,679,000 and $1,043,000 at
December 31, 1996 and 1995, respectively.
Future minimum payments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . $ 919,179 $ 1,336,496
1998 . . . . . . . . . . . . . . . . . . . 758,411 1,316,327
1999 . . . . . . . . . . . . . . . . . . . 129,190 1,355,816
2000 . . . . . . . . . . . . . . . . . . . -- 1,396,491
2001 . . . . . . . . . . . . . . . . . . . -- 1,438,386
Thereafter . . . . . . . . . . . . . . . . -- 7,031,941
--------- -----------
Total minimum payments . . . . . . . . . . 1,806,780 $13,875,457
===========
Amount representing interest . . . . . . . 176,318
---------
Present value of net minimum payments . . . 1,630,462
Less current portion . . . . . . . . . . . 783,718
---------
Long-term obligations under capital leases $ 846,744
=========
</TABLE>
Future minimum rental income to be received under noncancellable
subleases at December 31, 1996 will be $570,237, $512,257, $527,625, $543,453
and $559,757 for the five years ending December 31, 1997 through 2001,
respectively.
F-10
<PAGE> 45
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Licensing and Research Agreements: The Company has entered into
licensing agreements with various universities and research organizations.
Under the terms of these agreements, the Company has received licenses to
technology, or technology claimed, in certain patents or patent applications.
The Company is required to pay royalties on future sales of products employing
the technology or falling under claims of a patent, and, certain agreements
require minimum royalty payments. Certain agreements also require the Company
to make payments of up to an aggregate of approximately $4.9 million upon the
achievement of specified milestones.
6. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Janssen: In January 1995, the Company entered into a research and
development agreement with Janssen (the "Janssen Agreement"), under which
Janssen paid the Company $2.0 million in up-front license fees and is obligated
to provide the Company with $3.0 million in sponsored research payments per year
during the three-year term of the research program, with Janssen having the
right to extend such term for up to two additional years.
The Company is entitled to receive up to $9.0 million in milestone
payments if certain development milestones are achieved, of which $1,750,000
has been received through December 31, 1996. The Company has granted Janssen an
exclusive worldwide license to manufacture and market products developed under
the Janssen Agreement. The Company is entitled to receive royalties on product
sales throughout the world. The Company has certain rights to co-promote such
products in North America. Janssen is responsible for funding all clinical
development and marketing activities, including reimbursement to Neurocrine for
its promotional efforts, if any.
Janssen has the right to terminate the Agreement upon six months
notice. However, in the event of termination, other than termination by Janssen
for cause or as a result of the acquisition of Neurocrine, Janssen remains
obligated to continue all sponsored research payments for the term of the
research program and all product and technology rights become the exclusive
property of Neurocrine.
Ciba-Geigy: In January 1996, the Company entered into an agreement
with Ciba-Geigy under which Ciba-Geigy paid the Company $5.0 million in up-front
license fees and is obligated to provide Neurocrine with $7.0 million in
research and development funding during the first two years of the agreement and
up to $15.5 million in further research and development funding thereafter. In
addition, the Company is also entitled to receive milestone payments if certain
development and regulatory milestones are achieved, of which $3.0 million has
been received through December 31, 1996. In return, Ciba-Geigy received
manufacturing and marketing rights outside of North America and will receive a
percentage of profits on sales in North America. The Company will receive
royalties for all sales outside North America and a percentage of profits on
sales in North America, which the Company may at its option convert to a right
to receive royalties on product sales. Neurocrine is obligated to repay a
portion of the development costs for potential products developed in such
collaboration unless the Company elects to convert to the right to receive
royalty payments.
Eli Lilly: In October 1996, the Company entered into an agreement
with Eli Lilly and Company ("Eli Lilly") under which the Company expects to
receive up to $22.0 million in research payments. The Company is also entitled
to milestone payments if certain development and regulatory accomplishments are
achieved. In January 1997 Eli Lilly paid the Company a $5.0 million research
payment. The Company will have the option to receive copromotion rights and
share profits from commercial sales of select products which result from the
collaboration in the U.S. or receive royalties on U.S. product sales. The
Company will receive royalties on product sales for the rest of the world.
7. INCOME TAXES
At December 31, 1996, the Company had federal income tax net operating
loss carryforwards of approximately $8.7 million and federal and California
research tax credit carryforwards of approximately $740,000 and $116,000,
respectively, which will begin to expire in 2007 unless previously utilized.
The Company also has federal Alternative Minimum Tax credit carryforwards of
approximately $130,000 which will carryforward indefinitely.
F-11
<PAGE> 46
NEUROCRINE BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of
the Company's net operating loss and credit carryforwards may be limited
because of cumulative changes in ownership of more than 50% which occurred
during 1992 and 1993. However, the Company does not believe such changes will
have a material impact upon the utilization of these carryforwards.
The provision for income taxes in 1996 consists of federal alternative
minimum taxes. Significant components of the Company's deferred tax assets as of
December 31, 1995 and 1996 are shown below. A valuation allowance, which was
decreased by $2.3 million in 1996, has been recognized to fully offset the
deferred tax assets as of December 31, 1996 and 1995 as realization of such
assets is uncertain.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . $ 3,038,000 $ 5,279,000
Tax credits . . . . . . . . . . . . . . . . . . . 946,000 884,000
Capitalized research and development . . . . . . 594,000 656,000
Other, net . . . . . . . . . . . . . . . . . . . 69,000 157,000
----------- -----------
Total deferred tax assets . . . . . . . . . . . . . . 4,647,000 6,976,000
Valuation allowance for deferred tax assets . . . (4,647,000) (6,976,000)
----------- -----------
Net deferred tax assets . . . . . . . . . . . . . . . $ $
=========== ===========
</TABLE>
8. NEUROSCIENCE PHARMA (NPI) INC.
In March 1996, the Company established Neuroscience Pharma (NPI) Inc.
("NPI"), a subsidiary of the Company in Canada. The Company licensed to NPI
certain technology and Canadian marketing rights.
A group of Canadian institutional investors (the "Canadian Investors")
invested approximately $9.5 million in NPI in exchange for Preferred Stock of
NPI which may be converted into a majority ownership interest in NPI or into
1,279,584 shares of the Company's Common Stock at the option of the investors.
NPI has committed to use these funds for research and clinical development of
certain of the Company's programs in exchange for royalties on sales of
products developed in these programs as well as exclusive Canadian marketing
rights for such products in certain situations. The Company has the right to
terminate the agreement upon the purchase of the shares of NPI Preferred Stock
held by the Canadian Investors in exchange for Common Stock at a predetermined
price. In connection with their investment in NPI, the Canadian Investors
received warrants exercisable for 383,875 shares of the Company's Common Stock
at an exercise price of $10.50 per share and are also eligible to receive
additional warrants in the future upon attainment of certain additional
funding.
Since the Company does not have a majority interest in NPI, NPI is not
consolidated. The Company will recognize its pro rata share of the cumulative
profits of NPI as they are earned. All cumulative losses of NPI will be
allocated to the majority owners as the Company has not contributed any assets
with an accounting basis to NPI.
As of December 31, 1996 NPI had total assets consisting primarily of
cash and cash equivalents of $9.4 million stated in U.S. dollars.
F-12
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------------------
<S> <C>
3.1* Articles of Incorporation of Neurocrine Biosciences,
Inc., a Delaware corporation, as amended.
3.2* Bylaws of the Registrant.
4.1* Form of Lock-Up Agreement.
4.2* Form of Common Stock Certificate.
4.3* Form of warrant issued to existing warrant holders.
4.4* Form of Series A Warrant issued in connection with the
execution by the Registrant of the Unit Purchase
Agreement (see Exhibit 10.20).
4.5* New Registration Rights Agreement dated March 29, 1996
among the Registrant and the investors signatory
thereto.
10.1* Information and Registrations Rights Agreement dated
September 15, 1992, as amended to date.
10.2* 1992 Incentive Stock Plan, as amended, and form of
incentive stock option agreement and nonstatutory stock
option agreement
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit
Number Description
------- --------------------------------------------------------
<S> <C>
10.3* 1996 Employee Stock Purchase Plan.
10.4* 1996 Director Stock Option Plan and form of stock option
agreement.
10.5* Form of Director and Officer Indemnification Agreement.
10.6* Employment Agreement dated March 1, 1993, between the
Registrant and Gary A. Lyons, as amended.
10.7* Employment Agreement dated July 1, 1993, between the
Registrant and Errol B. De Souza, Ph.D.
10.8* Employment Agreement dated May 8, 1993, between the
Registrant and Paul W. Hawran.
10.9* Consulting Agreement dated September 25, 1992, between
the Registrant and Wylie A. Vale, Ph.D.
10.10* Consulting Agreement effective as of January 1, 1992,
between the Registrant and Lawrence J. Steinman, M.D.
10.11* Lease Agreement dated June 1, 1993, between the
Registrant and Hartford Accident and Indemnity Company,
as amended.
10.12* Exclusive License Agreement dated as of July 1, 1993, by
and between the Beckman Research Institute of the City
of Hope and the Registrant covering the treatment of
nervous system degeneration and Alzheimer's disease.
10.13* Exclusive License Agreement dated as of July 1, 1993, by
and between the Beckman Research Institute of the City
of Hope and the Registrant covering the use of
Pregnenolone for the enhancement of memory.
10.14* License Agreement dated May 20, 1992, by and between The
Salk Institute for Biological Studies and the
Registrant.
10.15* License Agreement dated July 17, 1992, by and between
The Salk Institute for Biological Studies and the
Registrant.
10.16* License Agreement dated November 16, 1993, by and
between The Salk Institute for Biological Studies and
the Registrant.
10.17* License Agreement dated October 19, 1992, by and between
The Board of Trustees of the Leland Stanford Junior
University and the Registrant.
10.18* Agreement dated January 1, 1995, by and between the
Registrant and Janssen Pharmaceutica, N.V.
10.19* Letter Agreement dated January 19, 1996, by and between
the Registrant and Ciba-Geigy Limited.
10.20*# Unit Purchase Agreement dated March 29, 1996, by and
between Neuroscience Pharma (NPI) Inc., the Registrant
and the investors signatory thereto.
10.21*# Exchange Agreement dated March 29, 1996, by and between
Neurocrine Biosciences (Canada) Inc., the Registrant and
the investors signatory thereto.
10.22*# Research and Development Agreement dated March 29, 1996,
by and between Neurocrine Biosciences (Canada) Inc. and
Neuroscience Pharma (NPI) Inc.
10.23*# Intellectual Property and License Grants Agreement dated
March 29, 1996, by and between the Registrant and
Neurocrine Biosciences (Canada) Inc.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------
<S> <C>
10.24** Development and Commercialization Agreement dated
December 20, 1996, by and between Ciba-Geigy Ltd. and
the Registrant.
10.25** Letter and Purchase Order dated June 7, 1996, by and
between Ciba-Geigy and the Registrant.
10.26** Third Lease Amendment dated June 6, 1996, by and between
Talcott Realty I Limited Partnership and the Registrant.
10.27** Research and License Agreement dated October 15, 1996,
between the Registrant and Eli Lilly and Company.
11.1 Computation of Net Earnings per Share.
21.1* List of subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
24.1 Power of Attorney (reference is made to page 33 of this
form 10-K).
27.1 Financial data schedule
</TABLE>
* Incorporated herein by reference to the same-numbered exhibit
previously filed with the Company's Registration Statement on Form S-1
(Registration No. 333-03172).
** Confidential treatment has been requested with respect to certain
portions of the exhibit.
# Confidential treatment has been granted with respect to certain
portions of the exhibit.
<PAGE> 1
EXHIBIT 10.24
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
BY AND BETWEEN
CIBA-GEIGY LIMITED
AND
NEUROCRINE BIOSCIENCES, INC.
December 20, 1996
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS......................................................-1-
1.1 "Affiliate"...................................................-1-
1.2 "Ciba Territory"..............................................-2-
1.3 "Collaboration Products"......................................-2-
1.4 "Control".....................................................-2-
1.5 "Cumulative Pre-Tax Operating Losses".........................-2-
1.6 "Development Program".........................................-2-
1.7 "Development Plan and Budget".................................-2-
1.8 "Europe"......................................................-2-
1.9 "FDA".........................................................-2-
1.10 "Field".......................................................-2-
1.11 "FTE".........................................................-3-
1.12 "IND".........................................................-3-
1.13 "Infeasibility Event".........................................-3-
1.14 "Marketing Collaboration".....................................-3-
1.15 "Major Country"...............................................-3-
1.16 "Manufacturing Costs".........................................-3-
1.17 "Net Sales"...................................................-3-
1.18 "Neurocrine Profit Share".....................................-4-
1.19 "Neurocrine Technology".......................................-4-
1.19.1 "Neurocrine Patents"................................-4-
1.19.2 "Neurocrine Know-How"...............................-4-
1.20 "North America"...............................................-4-
1.21 "Phase II"....................................................-4-
1.22 "Phase III"...................................................-4-
1.23 "PLA".........................................................-4-
1.24 "Plans and Budgets"...........................................-4-
1.25 "Pre-Tax Operating Profit"....................................-4-
1.26 "Programs"....................................................-5-
1.27 "Recoupable Development Costs"................................-5-
1.28 "Research Program"............................................-5-
1.29 "Research Plan and Budget"....................................-5-
1.30 "Steering Committee"..........................................-6-
1.31 "Sublicensee".................................................-6-
1.32 "Third Party Agreement".......................................-6-
1.33 "Valid Claim".................................................-6-
1.34 Accounting Terms..............................................-6-
ARTICLE 2 STEERING COMMITTEE...............................................-6-
2.1 Steering Committee............................................-6-
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2.2 Membership....................................................-7-
2.3 Steering Committee Meetings...................................-7-
2.4 Decision Making...............................................-7-
2.5 Project Team and Its Operations...............................-7-
2.5.1 Composition of the Project Team.....................-7-
2.5.2 Responsibilities of the Project Team Leader.........-8-
2.5.3 Responsibilities of the Project Team Members........-8-
2.6 Other Matters.................................................-8-
ARTICLE 3 PLANS AND BUDGETS................................................-8-
3.1 General.......................................................-8-
3.2 Plans and Budgets.............................................-9-
3.2.1 Plans and Budgets...................................-9-
3.2.2 Annual Approval.....................................-9-
3.2.3 Periodic Reviews....................................-9-
ARTICLE 4 RESEARCH AND DEVELOPMENT........................................-10-
4.1 Research Program.............................................-10-
4.2 Development Program..........................................-10-
4.2.1 Selection of Collaboration Products................-10-
4.2.2 Responsibilities...................................-10-
4.3 Neurocrine FTEs..............................................-10-
4.4 Regulatory Filings...........................................-11-
ARTICLE 5 RECORD KEEPING; PUBLICATION.....................................-11-
5.1 Reports and Records..........................................-11-
5.1.1 Records............................................-11-
5.1.2 Reports............................................-11-
5.2 Review of Publication........................................-11-
5.2.1 Notice.............................................-11-
5.2.2 Publication Rights.................................-12-
5.2.3 Delay of Publication...............................-12-
ARTICLE 6 PROGRAM FUNDING; PRE-MARKET PAYMENTS............................-12-
6.1 Advance Payment.............................................-12-
6.2 Funding of Research and Development.........................-13-
6.2.1 Ciba Obligations..................................-13-
6.2.2 Other Expenses....................................-13-
6.2.3 Payment...........................................-13-
6.3 Milestone Payments..........................................-14-
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6.3.1 Milestones.........................................-14-
6.3.2 Credit Against Future Payments.....................-15-
6.3.3 Other Payment Terms................................-15-
ARTICLE 7 USE OF PRECLINICAL AND CLINICAL DATA............................-16-
7.1 Exchange.....................................................-16-
ARTICLE 8 MARKETING RIGHTS................................................-16-
8.1 Ciba Territory. ............................................-16-
8.2 North America................................................-16-
8.2.1 Marketing Collaboration............................-16-
8.2.2 Operations.........................................-16-
8.2.3 Cost and Profit Sharing............................-17-
8.2.4 Ciba Exclusive.....................................-17-
8.3 Sublicensees.................................................-17-
8.4 Covenants....................................................-17-
8.5 Conflicts of Interest........................................-17-
ARTICLE 9 ROYALTIES.......................................................-18-
9.1 Neurocrine Profit Share..........................................-18-
9.1.1 Calculation of Neurocrine Profit Share for Canada
and USA................................................-18-
9.1.2 Repayment of Recoupable Development Costs..............-18-
9.1.3 Neurocrine Election....................................-20-
9.2 Running Royalties................................................-20-
9.3 Calculation of Royalties.........................................-21-
9.3.1 Annual Net Sales.......................................-21-
9.3.2 No Patents.............................................-21-
9.3.3 Several Patents........................................-21-
9.4 Third Party Payments.............................................-21-
9.4.1 Reimbursement to Neurocrine............................-21-
9.4.2 Ciba Third Party Agreements/Credits to Ciba............-21-
9.4.3 Canada and USA.........................................-22-
9.5 Minimum Royalty Rate.............................................-22-
ARTICLE 10 PAYMENTS; BOOKS AND RECORDS....................................-22-
10.1 Royalty Reports and Payments.................................-22-
10.2 Payment Method...............................................-22-
10.3 Currency Conversion..........................................-22-
10.4 Taxes........................................................-23-
10.5 Records; Inspection..........................................-24-
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10.5.1 Generally..................................-24-
10.5.2 Reimbursable Costs.........................-24-
ARTICLE 11 DUE DILIGENCE.........................................-24-
11.1 Ciba................................................-24-
11.2 Exclusivity of Efforts..............................-24-
ARTICLE 12 MANUFACTURING RIGHTS..................................-25-
12.1 Manufacturing.......................................-25-
12.1.1 Generally.................................-25-
12.1.2 Manufacture in U.S........................-25-
12.1.3 Manufacture by Chiron.....................-25-
12.2 Clinical Materials..................................-25-
12.3 Canada and USA......................................-26-
ARTICLE 13 LICENSE GRANTS........................................-26-
13.1 Grant to Ciba.......................................-26-
13.2 Grant to Neurocrine.................................-26-
13.3 No Rights Beyond Collaboration Products.............-26-
ARTICLE 14 INTELLECTUAL PROPERTY.................................-27-
14.1 Ownership of Inventions.............................-27-
14.2 Patent Prosecution..................................-27-
14.2.1 Neurocrine's Sole Inventions..............-27-
14.2.2 Ciba's Sole Inventions....................-27-
14.2.3 Joint Inventions..........................-27-
14.2.4 Sharing Other Costs.......................-28-
14.2.5 Cooperation...............................-28-
14.3 Defense of Third Party Infringement Claims..........-29-
14.4 Enforcement.........................................-29-
14.4.1 Initiating Actions........................-29-
14.4.2 Recoveries................................-30-
14.5 Third Party Rights..................................-30-
ARTICLE 15 REPRESENTATIONS AND WARRANTIES........................-30-
15.1 Neurocrine Warranties...............................-30-
15.2 Ciba Warranties.....................................-30-
15.3 Disclaimer of Warranties............................-31-
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ARTICLE 16 CONFIDENTIALITY............................................-31-
16.1 Confidential Information.................................-31-
16.2 Permitted Disclosures....................................-31-
ARTICLE 17 INDEMNIFICATION............................................-32-
17.1 Indemnification of Neurocrine............................-32-
17.2 Indemnification of Ciba..................................-32-
17.3 Procedure................................................-32-
ARTICLE 18 TERM AND TERMINATION.......................................-33-
18.1 Term.....................................................-33-
18.2 Termination for Cause....................................-33-
18.3 Termination Upon Notice..................................-33-
18.4 Termination For Infeasibility............................-33-
18.5 Effect of Termination....................................-34-
18.5.1 Accrued Obligations............................-34-
18.5.2 Survival.......................................-34-
ARTICLE 19 DISPUTE RESOLUTION.........................................-35-
19.1 Disputes.................................................-35-
19.2 Full Arbitration.........................................-36-
19.2.1 Arbitrators....................................-36-
19.2.2 Proceedings....................................-36-
ARTICLE 20 MISCELLANEOUS ..............................................-36-
20.1 Governing Law............................................-36-
20.2 Force Majeure............................................-37-
20.3 No Implied Waivers; Rights Cumulative....................-37-
20.4 Independent Contractors..................................-37-
20.5 Notices..................................................-37-
20.6 Assignment...............................................-37-
20.7 Modification.............................................-38-
20.8 Severability.............................................-38-
20.9 Publicity................................................-38-
20.10 Counterparts.............................................-38-
20.11 Headings.................................................-38-
20.12 Export Laws..............................................-38-
20.13 Entire Agreement.........................................-38-
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<PAGE> 7
EXHIBIT A..............................................................-40-
EXHIBIT B..............................................................-41-
EXHIBIT C..............................................................-42-
EXHIBIT D..............................................................-43-
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<PAGE> 8
DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
This DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (the "Agreement"),
effective as of December 20, 1996 (the "Effective Date"), is made by and between
Neurocrine Biosciences, Inc, a California corporation having offices at 3050
Science Park Road, San Diego, California 92121-1102 ("Neurocrine"), and
Ciba-Geigy Limited, a Swiss corporation having offices at Klybeckstrasse 141
CH-4002 Basel, Switzerland ("Ciba").
BACKGROUND
A. Ciba and Neurocrine desire to collaborate on the development and
commercialization of altered peptide ligand compounds for the diagnosis,
treatment and/or prevention of multiple sclerosis ("MS") in humans, on the terms
and conditions set forth below.
B. Ciba and Neurocrine have entered into that certain Letter
Agreement dated January 19, 1996, which agreement outlines the terms and
conditions for this Agreement (the "Letter Agreement");
C. Ciba and Neurocrine have entered into those certain Stock
Purchase Agreements executed January 22, 1996 and April 3, 1996, pursuant to
which Ciba has acquired Neurocrine Common Stock, all as provided therein.
NOW THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
as follows:
ARTICLE 1
DEFINITIONS
1.1 "Affiliate" shall mean any entity which controls, is controlled
by or is under common control with Ciba or Neurocrine. An entity shall be
regarded as in control of another entity for purposes of this definition if it
owns or controls more than fifty percent (50%) of the shares of the subject
entity entitled to vote in the election of directors (or, in the case of an
entity that is not a corporation, for the election of the corresponding managing
authority). A "Controlled Affiliate" shall mean an entity that is controlled by
a party to this Agreement.
<PAGE> 9
1.2 "Ciba Territory" shall mean all countries of the world, but
excluding North America as defined under Section 1.20 below.
1.3 "Collaboration Products" shall mean the product or products
within the Field selected by Ciba in accordance with Section 4.2.1 below for
development and commercialization under this Agreement.
1.4 "Control" shall mean possession of the ability to grant an
exclusive license or sublicense as provided for herein without violating the
terms of any agreement or other arrangements with any third party.
1.5 "Cumulative Pre-Tax Operating Losses" shall mean, with respect to
a Collaboration Product in a country of North America, the total cumulative
amount of Pre-Tax Operating Losses (as defined in Section 1.25 below) with
respect to Net Sales of such Collaboration Product in such country from the date
of the first commercial sale of such Collaboration Product in such country after
PLA approval through the end of the first calendar month for which there is
Pre-Tax Operating Profit for such Collaboration Product in such country.
1.6 "Development Program" shall mean preclinical and clinical testing
of the Collaboration Products, and regulatory affairs activities in each case as
are necessary to obtain approval of governmental health regulatory authorities
to manufacture and market Collaboration Products in the Major Countries.
1.7 "Development Plan and Budget" shall mean the plan and budget for
the Development Program as established from time to time, in accordance with
Article 3 below.
1.8 "Europe" shall mean Switzerland and all countries which are
members of the European Union as of the Effective Date, whether or not such
countries thereafter continue to be European Union members, and any countries
which become members of the European Union after the Effective Date.
1.9 "FDA" shall mean the U.S. Food and Drug Administration.
1.10 "Field" shall mean the development, manufacture, use and sale of
[ * ] compounds for diagnosis, treatment and/or prevention of [ * ], the
mechanism of action of which is to modulate the [ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 10
1.11 "FTE" shall mean one full time equivalent personnel working on
the Research Program and/or the Development Program, wherein "one full time
equivalent personnel" shall mean a full-time person dedicated to the Research
Program or the Development Program or, in the case of less than a full-time
dedicated person, a full-time, equivalent person year, based upon a total of one
thousand eight hundred eighty (1,880) hours per year of work related to the
Research Program or the Development Program. It is understood that each FTE
shall be a qualified scientist or expert, as provided in Section 4.3 below.
1.12 "IND" shall mean an Investigational New Drug Application for a
Collaboration Product, as defined in the U.S. Food, Drug and Cosmetic Act and
the regulations promulgated thereunder, or a comparable filing in another
country.
1.13 "Infeasibility Event" shall have the meaning defined in Section
9.1.2(b) below.
1.14 "Marketing Collaboration" shall have the meaning defined in
Section 8.2.1 below.
1.15 "Major Country" shall mean the United States, Canada and/or any
country in Europe.
1.16 "Manufacturing Costs" with respect to units of Collaboration
Products shall mean (i) the direct costs set forth in Exhibit B associated with
manufacturing such units ("Direct Manufacturing Costs") together with a
reasonable allocation for Ciba's overhead costs associated with such manufacture
of up to [ * ] of the Direct Manufacturing Costs, which allocation for
manufacturing overhead shall be made in accordance with generally accepted cost
accounting principles consistently applied by Ciba across all similar
pharmaceutical manufacturing operations; and it being further understood that
Direct Manufacturing Costs shall not include costs associated with excess
capacity (except in the case the parties have agreed that a single-purpose plant
be set up for the manufacture of Products), excess direct labor, inefficiencies,
unusable material, except the usual rejects, waste, etc. or any other costs
related to such manufacture that do not add value or that are not ongoing in the
manufacturing process for such Collaboration Products; or (ii) with respect to
Collaboration Products acquired from a non-Affiliate vendor, reasonable amounts
actually paid to the vendor for such Collaboration Products.
1.17 "Net Sales" shall mean the total amount invoiced to third parties
by Ciba, its Affiliates or permitted Sublicensees, upon sales of Collaboration
Products, less the following reasonable and customary deductions to the extent
deducted by the customer (or charged separately on the invoice and paid by the
customer) from amounts invoiced: (i) all trade, cash and quantity credits,
discounts, refunds or government rebates; (ii) amounts for claims or credits for
returns; and (iii) duties and other governmental charges (including value added
tax), all as determined in accordance with generally accepted accounting
principles (as described in 1.34 below), as consistently applied by Ciba across
all pharmaceutical products for financial reporting purposes. For the removal of
doubt, Net Sales shall not include sales by Ciba to its Affiliates or its
permitted Sublicensees for resale. A "sale" shall also include a transfer or
other disposition for consideration other than cash, in which case such
consideration shall be valued at the fair market value thereof.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 11
1.18 "Neurocrine Profit Share" shall have the meaning defined in
Section 9.1 below.
1.19 "Neurocrine Technology" shall mean Neurocrine Patents and
Neurocrine Know-How.
1.19.1 "Neurocrine Patents" shall mean all patents and all
reissues, renewals, re-examinations and extensions thereof, and patent
applications therefor, and any divisions or continuations, or
continuations-in-part, thereof, to the extent the same claim (i) a composition
of matter comprising a Collaboration Product or (ii) the manufacture, sale or
use of a Collaboration Product and which in each case are Controlled by
Neurocrine during the term of this Agreement.
1.19.2 "Neurocrine Know-How" shall mean confidential information,
tangible and intangible, and materials, including, but not limited to:
pharmaceutical, chemical, biological and biochemical products; technical and
non-technical data and information, and/or the results of tests, assays, methods
and processes; and specifications and/or other documents containing said
information and data; in each case that is discovered, developed or acquired by
Neurocrine prior to or during the term of this Agreement, to the extent such
relates to the manufacture, sale or use within the Field of a Collaboration
Product and to the extent that Neurocrine controls the same.
1.20 "North America" shall mean Canada and the United States of
America including its territories and possessions including the Commonwealth of
Puerto Rico ("USA"). References in this Agreement to Canada and the United
States shall be deemed to include their respective territories and possessions.
1.21 "Phase II" shall mean that portion of the clinical studies for
the FDA submission and approval process which provides for the initial trials of
a Collaboration Product on a sufficient number of patients for the purposes of
determining the efficacious therapeutic dose range and evaluating safety in the
proposed therapeutic indication as more fully defined in 21 C.F.R. ss.213.21(b),
or a similar clinical study in a country other than the United States.
1.22 "Phase III" shall mean that portion of the clinical studies for
the FDA submission and approval process which provides for continued trials of a
Collaboration Product on sufficient numbers of patients to establish the safety
and efficacy of such Collaboration Product to support regulatory approval in the
proposed therapeutic indication as more fully defined in 21 C.F.R. ss.312.21(c),
or a similar clinical study in a country other than the United States.
1.23 "PLA" shall mean a Product License Application or a New Drug
Application filed with the FDA or equivalents in any country.
1.24 "Plans and Budgets" shall mean, collectively, the Research Plan
and Budget and the Development Plan and Budget in effect from time to time.
1.25 "Pre-Tax Operating Profit" shall mean, with respect to a
Collaboration Product in a country of North America, Net Sales of such
Collaboration Product in such country, [ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 12
[ * ] If for any calendar quarter the calculation of Pre-Tax Operating Profit
is less than zero, such amount shall be referred to herein also as a "Pre-Tax
Operating Loss."
1.26 "Programs" shall mean, collectively, the Research Program and
Development Program.
1.27 "Recoupable Development Costs" shall mean [ * ] of: (i) all
direct costs set forth in Exhibit D incurred by Ciba in performing the
Development Program ("Direct Development Costs") in accordance with the
Development Plans and Budgets in effect from the effective date of the Letter
Agreement (other than those paid to Neurocrine), as specified in Exhibit D; (ii)
amounts paid to Neurocrine under Section 6.2.1 below in reimbursement for
Neurocrine personnel to the extent such personnel were engaged in performing the
Development Program, and (iii) amounts paid to Neurocrine under Section 6.2.2
below in reimbursement for expenses incurred by Neurocrine in performing the
Development Program. It is understood that no overhead will be applied to the
amounts described in part (ii) or (iii) of this Section 1.27. It is understood
that, without limitation, the amounts paid to Neurocrine under Section 6.1 or
6.3, or under Section 6.2.1 below for Neurocrine personnel engaged in performing
the Research Program, shall not be Recoupable Development Costs.
1.28 "Research Program" shall mean the developmental research
activities within the Field relating to: (i) elucidation of the mechanism of
action of APLs and their effects on pathology and cytokine modulation with the
aim to identify surrogate markers for monitoring patients; (ii) performance of
ADME, and clinical assay development (including surrogate markers); (iii)
development of APLs for secondary target both to support broad patent claims and
for potentially expanding patient/market segments; and (iv) such other research
activities within the Field as the parties may agree upon; in each case as set
forth in the Research Plan and Budget in effect from time to time.
1.29 "Research Plan and Budget" shall mean the plan and budget for the
Research Program as established from time to time, in accordance with Article 3
below.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 13
1.30 "Steering Committee" shall have the meaning set forth in Section
2.1 below.
1.31 "Sublicensee" shall mean, with respect to a particular
Collaboration Product, a third party to whom Ciba has granted a right or license
to make, use or sell such Collaboration Product. As used in this Agreement,
"Sublicensee" shall also include a third party who distributes such
Collaboration Product, provided that such third party conducts marketing and
promotion of such Collaboration Product within the applicable territory.
1.32 "Third Party Agreement" shall mean that certain License Agreement
between Neurocrine and Leland Stanford Junior University effective as of
November 30, 1994; and any other license or similar agreement entered into by
Neurocrine or Ciba with respect to patent rights or technology, which license or
other agreement Ciba and Neurocrine agree at any time are reasonably necessary
to allow the manufacture, use or sale of any Collaboration Product in the
applicable territory.
1.33 "Valid Claim" shall mean a claim of an issued and unexpired
patent or a claim of a pending patent application within the Neurocrine Patents
which has not been held invalid or unenforceable by a court or other government
agency of competent jurisdiction from which no appeal can be or has been taken,
and has not been admitted to be invalid or unenforceable through reexamination,
disclaimer or otherwise; provided that if a claim of a pending application has
not issued as a claim of an issued patent within the Neurocrine Patents within
ten (10) years after the filing date from which such claim takes priority, such
pending claim shall not be a Valid Claim for purposes of this Agreement.
1.34 Accounting Terms. With respect to accounting terms used herein,
including without limitation "direct costs," it is understood that the same
shall be calculated by Ciba in accordance with the International Accounting
Standards code ("IASC"); provided, however, that for purposes of calculating
costs and expenses, to the extent Ciba's calculation in accordance with the IASC
is different than a calculation of such costs and expenses in accordance with
U.S. generally accepted accounting principles, such costs and expenses for
purposes of this Agreement shall not exceed the amounts calculated in accordance
with U.S. GAAP.
ARTICLE 2
STEERING COMMITTEE
2.1 Steering Committee. Ciba and Neurocrine shall establish a
steering committee to oversee, review and coordinate the Programs and the
implementation thereof ("Steering Committee"). From time to time, the Steering
Committee may establish subcommittees to oversee particular projects or
activities (such as separate subcommittees to oversee the Research Program and
the Development Program), and such subcommittees will be constituted as the
Steering Committee agrees.
-6-
<PAGE> 14
2.2 Membership. The Steering Committee shall be comprised of an equal
number of representatives from each of Ciba and Neurocrine, selected by such
party. The exact number of such representatives shall be three (3) for each of
Ciba and Neurocrine (or such other number as the parties agree), with each party
designating representatives from the research, clinical development and business
organizations of each party. Subject to the foregoing provisions of this Section
2.2, Neurocrine and Ciba may replace its Steering Committee representatives or
nominate deputies at any time, with prior written notice to the other party.
2.3 Steering Committee Meetings. During the performance of the
Programs, the Steering Committee shall meet semi-annually, or as otherwise
agreed by the Steering Committee Members. Unless the Steering Committee Members
agree otherwise, at least one (1) meeting of the Steering Committee per full
calendar year will be held at each party's facilities. At its meetings, the
Steering Committee will (i) formulate and review the Research Program objectives
and Development Program objectives, as appropriate, (ii) monitor the progress of
the Research Program and Development Program toward the respective objectives,
and (iii) review and approve the Plans and Budgets, pursuant to Section 3.2
below. With the consent of the Steering Committee Members, other representatives
of Neurocrine or Ciba may attend Steering Committee or subcommittee meetings as
non-voting observers.
2.4 Decision Making. Except as set forth in this Section 2.4,
decisions of the Steering Committee shall be made by majority approval. In the
event the required majority for a decision cannot be found within 30 days and
all the members of each party take the same opposing positions in a matter of
importance, the matter shall be submitted to the [ * ] who shall meet and
discuss in good faith to resolve such matter; provided, however, that if such
meeting and good faith discussions do not result in mutual agreement, [ * ]
Non-attending members of the Steering Committee may represent themselves
by proxies or deputies in any decision.
2.5 Project Team and Its Operations. A project team appointed by the
Parties shall be charged with planning, implementation and coordinating the
conduct of the Programs (the "Project Team").
2.5.1 Composition of the Project Team. Promptly following the
Effective Date, the Parties agree to identify and communicate to the other Party
the Project Team members in their organization. It is understood that the
Project Team members have to be knowledgeable with respect to the activities to
be carried out under the Plans and Budgets. The Project Team shall not be
required to hold meetings, but may communicate by teleconference and other
appropriate means. Nevertheless, the Project Team members shall be fully
integrated in the Project Team. The Project Team leader (the "Project Team
Leader") shall be appointed by Ciba.
2.5.2 Responsibilities of the Project Team Leader. The Project
Team Leader shall have the responsibility for the operational aspects of the
Programs, and shall prepare and submit to
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 15
the Steering Committee issues and problems to be decided by the Steering
Committee. In particular, the Project Team Leader shall (i) prepare those
aspects of the Research Plan and Budget and the Development Plan and Budget as
provided in Section 3.2 below based upon the Ciba standard format (after giving
consideration to input from Neurocrine), in accordance with the Development
objectives approved by the Steering Committee, including a detailed Research and
Development task list as the basis for the Steering Committee to assign the
various tasks to the Project Team, (ii) implement the Plans and Budgets through
the Project Team; such implementation shall give due regard to the aim of a
worldwide product registration and be in strict compliance with Good Laboratory
Practice, Good Clinical Practice and Good Manufacturing Practice, as well as all
applicable law and regulations in the country where the Programs are performed
for the registration of Collaboration Products; (iii) interact with the Steering
Committee on a regular basis to keep it apprised of the progress of the
Programs, to bring to its attention any problems or issues which may have an
impact on the content of the Plans and Budgets or the timing of the Programs
(e.g. regulatory submissions) and to submit to its approval any deviations from
the Plans and Budgets; and (iv) update the Plans and Budgets as often as may be
requested by the Steering Committee.
2.5.3 Responsibilities of the Project Team Members. The Project
Team members shall carry out the tasks assigned to them by the Project Team
Leader in accordance with the Plans and Budgets and comply with Ciba working
techniques; they shall be available for advice and consultation to the Project
Team Leader, in particular in connection with the drafting and updating of the
Plans and Budgets.
2.6 Other Matters. It is understood that nothing in this Article 2
shall be deemed to limit the right of Ciba or Neurocrine to raise issues or
topics to be dealt with by the Steering Committee, within the scope of Sections
2.1 and 2.3 above.
ARTICLE 3
PLANS AND BUDGETS
3.1 General. Subject to the terms and conditions set forth herein,
Ciba and Neurocrine shall cooperate during the performance of the Programs (i)
with respect to the Research Program in accordance with a Research Plan and
Budget, and (ii) with respect to the Development Program in accordance with the
Development Plan and Budget, all as established in accordance with Section 3.2
below. The activities conducted in connection with the Programs will be overseen
and administered by the Steering Committee, pursuant to Article 2.
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3.2 Plans and Budgets.
3.2.1 Plans and Budgets.
(a) Within thirty (30) days of the Effective Date of this
Agreement, the parties shall meet and agree on an initial Research Plan and
Budget and an initial Development Plan and Budget, each of which shall be fixed
through December 31, 1996, except as otherwise determined by the Steering
Committee.
(b) By July 15 of each year, Ciba with the input of
Neurocrine as to the activities proposed to be performed by Neurocrine as set
forth in Section 3.2.1(c) below, shall prepare and provide to the Steering
Committee a reasonably detailed Research Plan and Budget and Development Plan
and Budget for the next calendar year pursuant to which the performance of the
Research Program and the performance of the Development Program, respectively,
will be carried out. By the same date a best estimate forecast of the overall
budget for the year after the next calendar year shall be prepared ("the
Estimate"). The Research Plan and Budget shall specify the objectives and work
plan activities with respect to the Research Program, and the headcounts and
other costs and expenses of the Research Program, including consultants and
third party contractors. The Development Plan and Budget shall specify the
objectives and work plan activities with respect to the Development Program, the
headcounts and other costs and expenses associated therewith, including
consultants and third party contractors, and shall include only such activities
and expenses as are necessary for and specific to development of Collaboration
Products for the purpose of obtaining regulatory approval for such Collaboration
Products in the Major Countries.
(c) During the performance of the Programs, by June 1 of
each year, Neurocrine shall submit to Ciba its proposed contributions to the
Research Plan and Budget and Development Plan and Budget as well as the Estimate
to be submitted to the Steering Committee for approval for the following
calendar year.
3.2.2 Annual Approval. The Steering Committee shall review the
proposed Plans and Budgets submitted by Ciba under Section 3.2.1 above as soon
as reasonably feasible and shall establish and approve no later than August 31
of such year the final Plans and Budgets for the next succeeding year. All Plans
and Budgets adopted pursuant to this Article 3 shall be reasonable and customary
in relation to other similar products in the field of MS and shall be consistent
with the other terms and conditions of this Agreement.
3.2.3 Periodic Reviews. The Steering Committee shall review the
Research Plan and Budget and Development Plan and Budget on an ongoing basis and
may make changes thereto; provided, however, the Plans and Budgets in effect for
a year shall not be modified except as approved by the Steering Committee.
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ARTICLE 4
RESEARCH AND DEVELOPMENT
4.1 Research Program. The Research Program shall be conducted by
Neurocrine, and Neurocrine shall use all diligent efforts to conduct the
Research Program in accordance with the Research Plan and Budget then in effect.
Ciba shall pay to Neurocrine the funding for the activities conducted pursuant
to the Research Program in accordance with the Research Plan and Budget then in
effect, subject to Section 6.2 below.
4.2 Development Program.
4.2.1 Selection of Collaboration Products. It is understood that
the Programs will focus on the development and commercialization of Neurocrine
product compound candidates NBI [ * ] and/or such other compounds within the
Field as are selected by Ciba, during the period specified in this Section 4.2.1
below, from compounds discovered in the course of performing the Research
Program. Ciba shall have the right to select as Collaboration Products from time
to time one or more of such compounds to be developed pursuant to the
Development Program, by so notifying Neurocrine in writing at any time within
five (5) years after the Effective Date.
4.2.2 Responsibilities. Subject to the requirements of Section
4.3, [ * ] shall be primarily responsible for conducting, directly or through
third parties, the Development Program with respect to Collaboration Products in
accordance with the Development Plan and Budget then in effect, including the
time schedules therein [ * ] shall be consulted and kept fully informed with
respect to the Development Program through its representatives on the Steering
Committee and as otherwise reasonably requested. [ * ] will assist in or
conduct portions of the Development Program as set forth in the Development Plan
and Budget then in effect, and as contemplated in Section 4.3 below, which
activities Ciba shall fund as set forth in Section 6.2 below. [ * ] shall not
commission any such activities to contract research/development organizations
without the prior agreement by the Steering Committee.
4.3 Neurocrine FTEs. During the five (5) year period beginning
January 1, 1996, and ending December 31, 2000, Neurocrine shall devote to the
Research Program and the Development Program a minimum of [ * ] Neurocrine
FTEs per year. Thereafter, if a PLA has not been filed in the United States for
a Collaboration Product, Neurocrine shall devote to the Research Program and the
Development Program a minimum of [ * ] Neurocrine FTEs per year until such a
PLA is filed (except as otherwise provided in Section 6.2.1 below). The Plans
and Budgets shall at all times provide for such minimum numbers of Neurocrine
FTEs. The Steering Committee shall allocate those responsibilities to be
conducted by the Neurocrine FTEs between the Research Program and the
Development Program; provided, however, that at least [ * ] of such Neurocrine
FTEs shall at all times be allocated to the Development Program unless
Neurocrine and Ciba otherwise agree. It is understood that the FTEs assigned to
the Research Program and/or the Development Program shall be qualified
scientists or experts (of whom at least half shall have a Ph.D., M.D., or
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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equivalent degree or experience) as may be required for work to be conducted
under the Research and/or Development Plans and Budgets then in effect.
Neurocrine shall at all times during the Research and Development Programs keep
contemporaneous written records of FTEs allocated to the Research Program and
the Development Program.
4.4 Regulatory Filings. Ciba shall be responsible for the preparation
and filing of all regulatory documents with respect to the Collaboration
Products, which shall be prepared and filed in the name of Ciba in accordance
with the Development Plan and Budget then in effect.
ARTICLE 5
RECORD KEEPING; PUBLICATION
5.1 Reports and Records.
5.1.1 Records. Neurocrine and Ciba shall maintain records of the
Programs (or cause such records to be maintained) in sufficient detail and in
good scientific manner as will properly reflect all work done and results
achieved in the performance of the Programs (including all data in the form
required under any applicable governmental regulations). Each party shall allow
the other to have, subject to Article 16 below, prompt access to all records,
materials and data generated on behalf of such party with respect to each
Collaboration Product at reasonable times and in a reasonable manner. Such
access shall be limited to access by representatives on the Steering Committee
and such other representatives as the other party reasonably approves.
5.1.2 Reports. Each party shall on a quarterly basis provide the
Steering Committee with an oral or written report summarizing the progress of
those aspects of the Research Program and/or Development Program performed by
such party with respect to each Collaboration Product during the preceding
calendar quarter. Such reports shall be due within thirty (30) days after the
end of each calendar quarter during the performance of the Research Program and
Development Program, unless otherwise agreed by the parties.
5.2 Review of Publication. For scientific data resulting from the
Research Program or the Development Program which the Steering Committee has
approved in principle should be published, the party who produced such results
shall have the right to publish the same in accordance with this Section 5.2.
The Steering Committee shall approve (with or without conditions) or disapprove
any such publication within thirty (30) days of a request to do so, taking into
consideration the commercial and competitive consequences of such publication;
and if the Steering Committee fails to so approve or disapprove within such
period (other than due to an action or inaction of the party proposing such
publication), the publication shall be deemed approved.
5.2.1 Notice. As soon as is practicable prior to the oral public
disclosure, and prior to the submission to any outside person for publication of
a manuscript describing any such scientific
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data resulting from any stage of the Research Program or Development Program, in
each case to the extent the contents of the oral disclosure or manuscript have
not been previously disclosed pursuant to this Section 5.2 before such proposed
disclosure, Neurocrine or Ciba, as the case may be, shall provide to the other
party a written summary of any oral disclosure to be made, a copy of any visual
or audiovisual aid to be used in conjunction with such oral disclosure, or a
copy of the manuscript to be submitted, and shall allow the other party at least
thirty (30) days to determine whether such oral disclosure or manuscript
contains subject matter for which patent protection should be sought prior to
publication or which either party believes should be modified to avoid
disclosure of confidential information. With respect to publications by
investigators or other third parties, such publications shall be subject to
review by the other party under this Section 5.2 only to the extent that
Neurocrine or Ciba (as the case may be) has the right to do so. It is understood
that each party shall only have the right to publish under this Section 5.2
scientific data which such party (or its third party contractors) generated in
performing the Research Program or Development Program.
5.2.2 Publication Rights. After the expiration of thirty (30)
days from the date of mailing such manuscript or written summary of an oral
disclosure, unless Neurocrine or Ciba has received a written notice as specified
in Section 5.2.3 below, the authoring party shall be free to submit such
manuscript for publication or to orally disclose or publish the disclosed
research results in any manner consistent with academic standards.
5.2.3 Delay of Publication. Prior to the expiration of the thirty
(30) day period specified in Section 5.2 above, the other party may notify the
submitting party in writing of its determination that such oral presentation or
manuscript contains confidential or proprietary material of such other party or
material that consists of patentable subject matter for which patent protection
should be sought. The notified party shall withhold its proposed public
disclosure and confer with the other party to determine the best course of
action to take in order to modify the disclosure or to obtain patent protection.
After resolution of the confidentiality, regulatory or other issues, or the
filing of a patent application or due consideration as to whether a patent
application can reasonably be filed, but in no event more than sixty (60) days
after the submitting party's receipt of the notice described above, the
submitting party shall be free to submit the manuscript and/or make its public
oral disclosure, subject to Article 16 below.
ARTICLE 6
PROGRAM FUNDING; PRE-MARKET PAYMENTS
6.1 Advance Payment. The parties acknowledge that Ciba has paid to
Neurocrine a non- refundable, non-creditable fee in the amount of Five Million
Dollars ($5,000,000) prior to the execution of this Agreement.
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6.2 Funding of Research and Development.
6.2.1 Ciba Obligations. During the five (5) year period beginning
January 1, 1996, and ending December 31, 2000, Ciba shall pay to Neurocrine
[ * ] Dollars [ * ] per year to support [ * ] Neurocrine FTEs working
on the Research Program and/or the Development Program. Thereafter, if a PLA has
not been filed in the United States for a Collaboration Product, Ciba shall
continue to pay to Neurocrine [ * ] Dollars [ * ] per year to support
[ * ] Neurocrine FTEs working on the Development Program until such a PLA is
filed, [ * ] for such period shall be proportionately reduced. It is
understood that, except as provided in Section 6.2.2 below, the FTE costs to be
paid under this Section 6.2.1 include all costs to be reimbursed to Neurocrine
with respect to Neurocrine's performance of its responsibilities under the
Research and/or Development Plans and Budgets. Neurocrine shall have no
obligation to make performances in excess of those compensated by the amounts to
be paid to Neurocrine under this Section 6.2.1 and Section 6.2.2 below.
6.2.2 Other Expenses. In addition to the funding for the
Neurocrine FTEs performing the Programs pursuant to Section 6.2.1, Ciba shall
reimburse Neurocrine for other expenses, if any, (i) expressly provided for in
the applicable Research and/or Development Plans and Budgets, and (ii) incurred
by Neurocrine in performing the Research and/or Development Programs in
accordance with such Plans and Budgets. Such other reimbursable expenses would
include, for example, costs paid to clinical trial sites with respect to
clinical trials, costs of clinical trial materials, preclinical toxicology and
other studies, and other research and development expenses paid to third parties
with respect to activities the Steering Committee decides Neurocrine shall
manage.
6.2.3 Payment. Ciba shall pay to Neurocrine semiannually in
advance the amounts provided for in Sections 6.2.1 and 6.2.2 above, not later
than January 1 and July 1 of each year; such payments to be used solely for the
purposes as set out in this Agreement. [ * ] For the period from the end of
the calendar month of the Effective Date through December 31, 1996, such
amounts, to the extent they have not been paid before, shall be paid within ten
(10) days from the Effective Date. Within thirty (30) days following the end of
each calendar half-year in which Neurocrine FTEs are engaged in activities
pursuant to the Research and/or Development Program for whom reimbursement is
provided hereunder, Neurocrine shall provide to Ciba a summary of FTEs actually
devoted to the programs, and other expenses to be reimbursed under Section
6.2.2, actually incurred by Neurocrine during such calendar half-year. If at the
end of a calendar half-year the number of FTEs applied by Neurocrine to the
Programs from January 1, 1996 through the end of such calendar half-year were
less than those reimbursed to Neurocrine by Ciba hereunder, Neurocrine shall
apply additional FTEs to the Programs in the next succeeding periods to make up
such shortfall.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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If the number of FTEs applied by Neurocrine to the Programs during a calendar
half-year were more than those reimbursed by Ciba, Neurocrine's obligation to
supply FTEs in subsequent periods shall be reduced by the number of such
additional FTEs. If the other expenses incurred by Neurocrine in accordance with
Section 6.2 were less than those reimbursed in advance by Ciba, Ciba shall be
entitled to credit the amount of the overpayment to the next payment due under
this Section 6.2; and if such expenses reasonably incurred by Neurocrine were in
excess of the amounts so advanced by Ciba, Ciba shall pay the difference to
Neurocrine within thirty (30) days of receiving Neurocrine's report to such
effect. Notwithstanding the above, Neurocrine shall not deviate from the
approved Plans and Budgets without the prior approval of the Steering Committee,
which shall not be withheld unreasonably.
6.3 Milestone Payments.
6.3.1 Milestones. Ciba agrees to make the following payments to
Neurocrine upon the occurrence of each milestone specified below for the first
Collaboration Product which meets such milestone:
MILESTONES PAYMENT
---------- -------
[ * ]
TOTAL OF 1-6:
It is understood that an IND shall be considered "filed" when accepted by the
FDA or its equivalent in another country. For the avoidance of doubt, it is
understood and agreed that in the event Ciba develops a Collaboration Product
for a different indication or route of administration, or one or more
Collaboration Products different from that for which the milestones above have
been paid to
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Neurocrine, no further milestones shall be due for such different indications,
routes, or Collaboration Products (i.e., Ciba shall not have to pay Neurocrine
more than one time for achievement of each of the milestones above, irrespective
of how many different indications, routes of administration, or Collaboration
Products the parties may decide to develop pursuant to this Agreement).
6.3.2 Credit Against Future Payments.
(a) [ * ] of the milestone payments set forth
in Section 6.3.1 above with respect to milestones 4, 5 and 6 above shall be
creditable against the royalty and Neurocrine Profit Share payments accrued
under Article 9 on Net Sales of such Collaboration Products. The milestone
payments due upon occurrence of milestones 1, 2 or 3 above shall not be
creditable.
(b) Notwithstanding any of the foregoing, no royalty or
Neurocrine Profit Share payment with respect to a Collaboration Product shall be
reduced by more than [ * ] by reason of the credits under this Section 6.3.2;
and in no event shall the credit under this Section 6.3.2 reduce the Neurocrine
Profit Share to less than [ * ] of Pre-Tax Operation Profits.
6.3.3 Other Payment Terms.
(a) If at the time any milestone is achieved, any prior
milestones (other than those under Milestone 1 above) have not been achieved,
the payments for such prior milestones shall then be due. In addition, it is
understood that certain Phase II trials currently anticipated for the first
Collaboration Product may be designated as pivotal for PLA filing purposes
without further pivotal studies being required prior to PLA filing; accordingly,
in the event that Ciba determines to file a PLA using the results of such trials
as pivotal data for registration purposes, Milestone 4 above shall be deemed to
have been met for purposes of such Collaboration Product upon such determination
by Ciba.
(b) Notwithstanding the foregoing, in the event one or more
research milestones specified in Milestone 1 above remains unachieved at the
time Milestone 4 or 5 (whichever is earlier) is achieved, the payment for such
unachieved research milestone(s) shall then be due.
(c) The payments set forth in this Section 6.3 shall each
be due and payable within thirty (30) days after the occurrence of the milestone
event. Neurocrine and Ciba each agree to promptly notify the other in writing of
its achievement of any milestone. For milestones accomplished by Neurocrine,
such payment shall be due within thirty (30) days after written notice thereof
to Ciba, subject to Ciba's verification during such thirty (30) day period that
the milestone occurred.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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ARTICLE 7
USE OF PRECLINICAL AND CLINICAL DATA
7.1 Exchange. Ciba and Neurocrine shall each have access to and
subject to the terms and conditions under this Agreement the right to use in
connection with the Development Program, including incorporation in any
regulatory filing for a Collaboration Product, any preclinical and/or clinical
data with respect to Collaboration Products developed in the course of the
Research Program or the Development Program. Ciba will provide to Neurocrine
access to all regulatory filings made for clinical trial and marketing approval
by Ciba in any country with respect to each Collaboration Product, together with
the underlying preclinical and clinical data, at reasonable times and on
reasonable notice, to the extent Ciba has the right to do so.
ARTICLE 8
MARKETING RIGHTS
8.1 Ciba Territory. Ciba shall have the exclusive right, with the
right to further grant the right, to market, sell, and distribute the
Collaboration Products for use in the Ciba Territory in full autonomy, subject
to all other terms and conditions of this Agreement. Ciba agrees not to market,
promote or distribute directly or indirectly any Collaboration Product for use
outside of the Ciba Territory, except as provided in Section 8.2 below, and Ciba
further agrees, subject to Section 8.2.4 below, not to provide Collaboration
Products to any third party if Ciba knows or has reason to believe that
Collaboration Products provided to such third party will be sold for use or used
outside the Ciba Territory.
8.2 North America. Rights to market, sell, and distribute the
Collaboration Products for use in North America shall be as follows:
8.2.1 Marketing Collaboration. Except as provided in Sections
8.2.4 and 9.1.3 below, Ciba and Neurocrine shall establish a marketing
collaboration with respect to the marketing, promotion and distribution of the
Collaboration Products in North America (the "Marketing Collaboration"). Upon
request by either party prior to the first commercial sale of a Collaboration
Product in Canada and/or USA, the parties shall determine the appropriate legal
structure(s) for such Marketing Collaboration (which may be different in Canada
and USA) to implement the arrangement contemplated in Sections 8.2.2, 8.2.3 and
9.1 below, and shall enter into a more detailed agreement(s) defining such
arrangement (the "Marketing Collaboration Agreement"). The Marketing
Collaboration Agreement(s) shall be solely between the respective Affiliates of
Ciba in Canada and USA respectively and Neurocrine.
8.2.2 Operations. The respective Affiliates of Ciba shall be
responsible for the establishment, control and implementation of the promotion,
distribution and marketing strategy
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plans and budgets for Collaboration Products in the USA and Canada through the
Marketing Collaboration. However, to the extent consistent with the optimal
commercialization of the Collaboration Products in Canada and/or USA, Neurocrine
shall have the right to reasonably participate in the sales, marketing, and
promotion activities in Canada and USA for such Collaboration Products.
Neurocrine's role in the sales, marketing and promotion of the Collaboration
Product will be defined more specifically in the respective Marketing
Collaboration Agreements. In any case the Collaboration Products will be
marketed under a trademark and a brand logo selected by Ciba.
8.2.3 Cost and Profit Sharing. [ * ] of the Marketing
Collaboration will be shared by the parties in accordance with Section
9.1 below. Ciba (itself or through its Affiliates) shall be responsible for
providing sales, marketing, and all other services necessary for the
commercialization of each Collaboration Product in Canada and USA, and for the
Marketing Collaboration to meet its obligations, including without limitation
any costs associated with the launch, marketing and promotion of the
Collaboration Product and reimbursement of costs incurred by Neurocrine in
accordance with the Marketing Collaboration Agreement or in accordance with
Section 8.2.2 above in connection with such launch, marketing, distribution and
promotion. Accordingly, it is understood that Net Sales from Collaboration
Products within the Marketing Collaboration will be credited to Ciba.
8.2.4 Ciba Exclusive. In the event that Neurocrine elects not to
enter into or continue the Marketing Collaboration for a Collaboration Product
in Canada and USA in accordance with Section 9.1.3 below, Ciba shall have the
exclusive right to market, sell and distribute such Collaboration Product in
Canada and USA in full autonomy, subject to the payment of the amounts set forth
in Section 9.1.3 and all other terms and conditions of this Agreement.
8.3 Sublicensees. Subject to Article 11 below Ciba may grant
sublicenses under its rights to market, sell and distribute Collaboration
Products in the Ciba Territory and, with Neurocrine's approval, in North
America; provided, however, that if Ciba has the exclusive right to market, sell
and distribute such Collaboration Product in North America under Section 8.2.4
above, or if the desired sublicensee is an Affiliate of Ciba, then no such
approval shall be required.
8.4 Covenants. It is understood that, with respect to any particular
Collaboration Product, whether or not the manufacture, use and sale of such
Collaboration Product by Neurocrine and/or Ciba in any country requires a
license under intellectual property rights of the other, neither Neurocrine nor
Ciba shall market, sell or distribute a Collaboration Product anywhere in the
world except in accordance with this Agreement.
8.5 Conflicts of Interest. To avoid conflicts of interest with
respect to other products and services of Ciba and its Affiliates, Ciba agrees
that neither it nor its Controlled Affiliates shall price or discount
Collaboration Products in a manner that discriminates against such Collaboration
Products in favor of such other products or services.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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ARTICLE 9
ROYALTIES
9.1 Neurocrine Profit Share.
9.1.1 Calculation of Neurocrine Profit Share for Canada and USA.
With respect to the sales of a Collaboration Product for use in
Canada and USA through the Marketing Collaboration for such
Collaboration Product, Ciba (itself or through its U.S. or
Canadian Affiliates) shall pay to Neurocrine the Neurocrine
Profit Share for such Collaboration Product. As used herein, the
"Neurocrine Profit Share" for a Collaboration Product shall mean
[ * ] of [ * ] from Net Sales of such Collaboration Product in
Canada and USA; provided, however, that (on a country-by-country
and product-by-product basis) Ciba shall be entitled to retain an
additional [ * ] (the "Ciba Differential") (i.e., so that the
Neurocrine Profit share is only [ * ] until such time as the
cumulative Ciba Differential retained by Ciba in the U.S. and
Canada, respectively, equals or exceeds the sum of (i) the
Recoupable Development Costs for such Collaboration Product and
(ii) the [ * ] for such Collaboration Product from such Net Sales
in such country. It is understood and agreed that once any
Recoupable Development Costs have been recovered by Ciba through
the mechanism outlined in this Section 9.1.1 or otherwise
reimbursed to Ciba, such recovered or reimbursed amounts shall
cease to be Recoupable Development Costs for all purposes of this
Agreement.
9.1.2 Repayment of Recoupable Development Costs.
(a) In the event that a Collaboration Product can reasonably be
commercialized in neither the United States nor Canada, Ciba may
terminate this Agreement in accordance with Section 9.1.2(c) and
Section 18.4 below, at which point Neurocrine shall repay to Ciba
[ * ] of the Recoupable Development Costs (to the extent such
Recoupable Development Costs have not otherwise been recouped by
Ciba). At Neurocrine's election, such payment shall be made in
cash, and/or in shares of Neurocrine Common Stock (the "Shares")
valued at a price (the "Repayment Price") equal to the greater of
[ * ] per share [ * ] or the fair market value thereof as of the
date of such election by Neurocrine. In the event that the Shares
shall be subdivided or combined after the date hereof by way of
stock split, reverse stock split, or other form of corporate
re-organization of Neurocrine, the Repayment Price of [ * ] per
share shall be proportionately adjusted.
(b) For purposes of this Section 9.1.2, it will be deemed
that a Collaboration Product can reasonably be commercialized neither in the
United States nor in Canada if one of the following events or an event of
similar magnitude occurs (each of these events being referred to as an
"Infeasibility Event"):
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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(i) Both of the following conditions are met: (A) the
potential Collaboration Product would necessarily infringe, in a manner that
would block the commercialization of such Product, a patent owned by a third
party that is issued in the USA and Canada ("Infringed Rights"); and (B) neither
party is able to secure a license under such Infringed Rights on reasonable
terms and conditions within a reasonable time period.
(ii) All three (3) of the following conditions are met:
(A) [ * ] (B) no other Collaboration Products with similar market potential are
then part of the Plan and Budget then in effect, and (C) it is likely that the
nature of the adverse events described in (A) above would result from all
Collaboration Products.
(iii) Both of the following conditions are met: (A)
[ * ] and (B) no other Collaboration Products with similar market potential are
then part of a Plan and Budget then in effect or all data produced with respect
to remaining Collaboration Products demonstrate that [ * ]
(iv) Both of the following conditions are met: If (A)
[ * ] and (B) Ciba and/or Neurocrine as a consequence of this notification
decide(s) not to market the Collaboration Product in the USA or give(s) up
marketing the Collaboration Product in the USA, provided that Ciba can show
reasonable grounds for this consequence.
(c) To exercise its right to terminate pursuant to this
Section 9.1.2, Ciba shall provide to Neurocrine a notice of Ciba's intention to
terminate under this Section 9.1.2, describing the particular Infeasibility
Event which Ciba believes has occurred. The Steering Committee shall determine
within sixty (60) days after Neurocrine's receipt of such notice whether the
Infeasibility Event has in fact occurred. If the Steering Committee finds that
the Infeasibility Event has occurred, Ciba shall have the right to terminate the
Agreement under Section 18.4 within one hundred twenty (120) days after Ciba's
notice, which termination shall take effect upon ninety (90) days notice, unless
Neurocrine has provided to the Steering Committee a reasonable plan to overcome
the Infeasibility Event, which plan shall be duly considered by the Steering
Committee. If there is any other dispute as to whether an Infeasibility Event
has occurred, the matter shall be resolved in accordance with Sections 19.1 and
19.2 below. Unless Ciba withdraws its notice of termination under this Section
within ninety (90) days after its delivery to Neurocrine, this Agreement shall
terminate at the end of such period regardless of whether the Steering Committee
agrees that an Infeasibility Event has occurred or whether Neurocrine disputes
Ciba's right to terminate under this Section 9.1.2. If any such dispute proceeds
to arbitration and the arbitration
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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concludes that Ciba did not have the right to terminate under this Section
9.1.2, the termination shall be deemed a termination by Ciba under Section 18.3
below.
9.1.3 Neurocrine Election. At Neurocrine's election with respect
to any Collaboration Product, to be notified to Ciba [
* ]
the Marketing Collaboration(s) shall not be formed, or if formed shall thereupon
terminate, with respect to such Collaboration Product, and Ciba or its
Affiliates shall have the exclusive rights with respect to such Collaboration
Product provided in Section 8.2.4 above. In addition, in such event Section
9.1.2 shall not apply with respect to any Recoupable Development Costs
attributable to such Collaboration Product incurred before or after Neurocrine's
election, and in lieu of the Neurocrine Profit Share described in Section 9.1.1
above, Ciba shall pay to Neurocrine royalties on Annual Net Sales by Ciba, its
Affiliates and Sublicensees of such Collaboration Product in North America equal
to the following percentages of such Annual Net Sales in North America:
Annual Net Sales in North Royalty on Incremental
America Amount of Net Sales
- -------------------------------------------------------------------------------
[ * ] [ * ]
In the event that it is impracticable for Ciba to consolidate sales for Canada
and the United States, the parties agree to establish separate royalty scales,
consistent with the foregoing, to allow for separate calculations of royalties
on Canadian and U.S. Net Sales and achieve the same results as if they were
consolidated. [
*
].
9.2 Running Royalties. In addition to the amount to be paid under
Section 9.1 above, Ciba shall pay royalties to Neurocrine equal to the following
percentages of Annual Net Sales by Ciba, its Affiliates and permitted
Sublicensees permitted of Collaboration Products sold for use in the Ciba
Territory:
Annual Net Sales in the Ciba Royalty on Incremental
Territory Amount of Net Sales
- -------------------------------------------------------------------------------
[ * ] [ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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9.3 Calculation of Royalties.
9.3.1 Annual Net Sales. For purposes of Section 9.1.3 and Section
9.2 above, "Annual Net Sales" for a territory shall mean total Net Sales of
Collaboration Products for use in such territory for a particular calendar year
after the first commercial sale of the first Collaboration Product in the
applicable territory (i.e. Canada and USA, in the case of Section 9.1.3 above,
and the Ciba Territory in the case of Section 9.2 above), and units of
Collaboration Products shall be considered sold in the year in which the order
is accepted, the units are shipped to a customer, or the invoice is sent,
whichever occurs first. In the event that during the term of this Agreement
Annual Net Sales for a territory are accumulated in a period of less than one
(1) full calendar year, for purposes of determining the incremental royalty rate
under Section 9.1.3 above and/or Section 9.2 for such period, the royalty to be
paid shall be based on annualizing the Annual Net Sales according to the formula
(12/X)(Y), where X is the number of calendar months (any calendar month in which
sales activity occurs in the territory on fifteen (15) or more days shall
qualify as a calendar month for purposes of this calculation) in the period, and
Y is the sum of all Net Sales during the period in that territory.
9.3.2 No Patents. Subject to Section 9.5 below, in the event that
the sale of a Collaboration Product is not covered by a Valid Claim in the
country in which such Collaboration Product is sold, the royalty rates in
Section 9.1.3 and Section 9.2 above payable with respect to Net Sales of such
Collaboration Products in such country shall be reduced by [ * ]
9.3.3 Several Patents. No cumulation of royalties shall be made
in the event a Collaboration Product is covered by Valid Claims of more than one
patent.
9.4 Third Party Payments.
9.4.1 Reimbursement to Neurocrine. Subject to Section 9.4.3
below, Ciba shall reimburse Neurocrine for [ * ] of the running royalties paid
by Neurocrine under that certain License Agreement between Stanford University
and Neurocrine effective as of November 30, 1994 (the "Stanford Agreement"), and
subject to Section 9.4.2 below, [ * ] percent [ * ] of any running royalty by
Neurocrine under any other Third Party Agreement entered into by Neurocrine, in
each case as a result of the development and commercialization of Collaboration
Products in accordance with this Agreement.
9.4.2 Ciba Third Party Agreements/Credits to Ciba. Ciba shall
also be solely responsible for the payment of any running royalties due on Net
Sales to third parties under Third Party Agreements entered into by Ciba;
provided, however, that subject to Section 9.5 below, [ * ] of (i) payments made
by Ciba pursuant to such a Third Party Agreement, and (ii) amounts paid to
Neurocrine under Section 9.4.1 above with respect to Third Party Agreements
other than the Stanford Agreement, shall be credited against royalties due to
Neurocrine under Section 9.1.3 and Section 9.2 above on Net Sales of the
Collaboration Product and country for which such payments were made under such
Third Party Agreements, up to a maximum of [ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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percent [ * ] of amount of the royalties due Neurocrine under Section 9.1.3 and
Section 9.2 above on such Net Sales.
9.4.3 Canada and USA. In the event that a Marketing Collaboration
is formed for a Collaboration Product in Canada and USA pursuant to Section 8.2
above, all running royalties due to third parties under the Third Party
Agreements on Net Sales of Collaboration Products for use in Canada and USA
shall be deducted from the resulting revenues to the Marketing Collaboration as
costs of goods prior to determining the [ * ] (or [ * ] as the case may be), and
Ciba shall pay or reimburse Neurocrine for such running royalties under the
Third Party Agreements on Net Sales through the Marketing Collaboration.
9.5 Minimum Royalty Rate. Notwithstanding any other provision of this
Agreement, in no event shall the net royalties paid to Neurocrine on Net Sales
of Collaboration Products under Section 9.1.3 or Section 9.2 above be reduced to
less than [ * ] of such Net Sales. As used in this Section 9.5, "net royalties"
shall mean the amount of royalties actually paid to and retained by Neurocrine
after all credits and adjustments provided under this Agreement, and after
deducting any amounts paid by Neurocrine to third parties under any Third Party
Agreement(s) and not reimbursed by Ciba thereunder.
ARTICLE 10
PAYMENTS; BOOKS AND RECORDS
10.1 Royalty Reports and Payments. After the first commercial sale of
a Collaboration Product in any country, Ciba agrees to make quarterly written
reports to Neurocrine within seventy-five (75) days after the end of each
calendar quarter, which report shall include, in reasonable detail (i) a
calculation of royalties due to Neurocrine with respect to net sales of
Collaboration Products in such quarter, and (ii) the Neurocrine Profit Shares
for such quarter, each such report shall state the number, description, and
aggregate Net Sales of the Collaboration Product sold during the calendar
quarter. Concurrently with the making of such reports, Ciba shall pay to
Neurocrine the royalties and Neurocrine Profit Shares specified in Article 9.
10.2 Payment Method. All payments under this Agreement shall be made
by bank wire transfer in immediately available funds to a bank account
designated by Neurocrine. All payments hereunder shall be made in U.S. dollars.
10.3 Currency Conversion. Sales outside the United States accrued in
currencies other than Swiss Francs shall be converted into Swiss Francs
according to Ciba's standard method of exchange conversion of foreign sales for
statistical purposes, such as used for Ciba's annual report to its shareholders.
The conversion of amounts payable under this Agreement from Swiss Francs into
U.S. dollars shall be made using the average of the buying and selling rates of
exchange as published in The Wall Street Journal on the last business day of the
month in which such payment was due.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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10.4 Taxes.
10.4.1 General. All payments under this Agreement will be made
without any deduction or withholding for or on account of any tax unless such
deduction or withholding is required by any applicable law. If the paying party
is so required to deduct or withhold such party will:
(1) promptly notify the other party of such requirement;
(2) pay to the relevant authorities the full amount
required to be deducted or withheld promptly upon the earlier of determining
that such deduction or withholding is required or receiving notice that such
amount has been assessed against the other party;
(3) promptly forward to the other party an official receipt
(or certified copy), or other documentation reasonably acceptable to the other
party, evidencing such payment to such authorities.
In case the other party cannot take a full credit against its tax liability for
the withholding tax deducted or withheld by the paying party then such party may
propose a change to the then current arrangement with respect to the flow of
monies under this Agreement in order to reduce or eliminate the extra cost for
any party.
In case no solution can be found in order to reduce or eliminate above referred
extra cost or the other party has sound business reasons to reject the paying
party's proposals and the other Party can demonstrate by means of written
documentation, certified by a mutually agreed external auditor, that the other
party cannot take a full credit against its tax liability then the amount of
taxes to be paid by the other party exceeding the tax credit, if any, will be
reimbursed by the paying party up to fifty percent (50%) of such amount.
10.4.2 Marketing Collaboration. In the event Neurocrine and one
or more of Ciba's Affiliates enter into the Marketing Collaboration in Canada
and USA pursuant to Section 8.2, then (a) the Affiliate of Ciba which is party
to the Marketing Collaboration Agreement with respect to the jurisdiction in
question (the "Ciba Affiliate Party") shall indemnify Neurocrine and any deemed
joint venture established pursuant to the Marketing Collaboration Agreement from
and against any tax or similar governmental charge assessed with respect to and
directly attributable to the Ciba Affiliate Party's interest in the income or
assets of any such deemed joint venture as to which taxes or governmental
charges should be allocated to the Ciba Affiliate Party, and (b) Neurocrine
shall indemnify the Ciba Affiliate Party and any deemed joint venture
established pursuant to the Marketing Collaboration Agreement from and against
any tax or similar governmental charge assessed with respect to and directly
attributable to Neurocrine's interest in the income or assets of any such deemed
joint venture as to which taxes or governmental charges should be allocated to
Neurocrine.
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10.5 Records; Inspection.
10.5.1 Generally. Ciba, Neurocrine and their Affiliates and
Sublicensees shall keep complete, true and accurate books of account and records
for the purpose of determining the amounts payable or accountable hereunder.
Such books and records shall be kept at one of the prin cipal place of business
of Ciba, its Affiliate or Sublicensee as the case may be, for at least three (3)
years following the end of the calendar quarter to which they pertain. Such
records will be open for inspection during such three (3) year period by a
independent auditor of Neurocrine for the purpose of verifying the amounts
payable by Ciba pursuant to Article 9. Such inspections may be made no more than
once each calendar year, at reasonable times mutually agreed by Neurocrine and
Ciba. The auditing party's representative or agent will be obliged to execute a
reasonable confidentiality agreement prior to commencing any such inspection.
Such auditor shall only report inaccuracies in amounts payable under this
Agreement. With respect to audits of Ciba's books and records, Ciba may request
that an independent auditor familiar with Ciba's record keeping systems be
present at the audit to assist Neurocrine's auditor in using Ciba's internal
record management system. Each party shall bear the costs and expenses of its
representative for inspections conducted under this Section 10.5, unless a
variation or error producing an underpayment in amounts payable exceeding five
percent (5%) of the amount paid for any period covered by the inspection is
established in the course of any such inspection, whereupon all costs relating
to the inspection for such period and any unpaid amounts that are discovered
will be paid by the party to the favor of which the deviation occurred, together
with interest on such unpaid amounts at the rate specified in Section 10.2
above.
10.5.2 Reimbursable Costs. Without limiting Section 10.5.1 above,
it is understood that Section 10.5.1 shall apply with respect to Recoupable
Development Costs, Manufacturing Costs and Other Operating Costs, provided that
for such items the three (3) year period specified in 10.5.1 shall begin with
the period in which Ciba recoups such amounts under Section 9.1 above. Within
seventy-five (75) days after the end of each year during the term of the
Development Program until all Recoupable Development Costs are recouped by Ciba
under Section 9.1 above, Ciba shall provide to Neurocrine a written report
describing in reasonable detail the Recoupable Development Costs incurred during
such year, and the total Recoupable Development Costs incurred from the
commencement of the Development Program through the end of such year.
ARTICLE 11
DUE DILIGENCE
11.1 Ciba. Ciba shall use the same diligent efforts with respect to
the development, marketing, sale, promotion and monitoring of each Collaboration
Product as Ciba expends for its own products being developed with similar market
potential.
11.2 Exclusivity of Efforts. During the performance of the Programs,
and thereafter until the approval of a PLA for a Collaboration Product in a
Major Country, Ciba and Neurocrine each
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agree not to develop or commercialize a product within the Field or to grant to
a third party a license to sell any product specifically intended, at the time
the license is granted, for use within the Field, other than Collaboration
Products under this Agreement, subject to the following: In the event that such
Collaboration Product can be developed additionally for (an) indication(s) other
than MS ("Other Indications"), the parties may agree to develop and
commercialize such Collaboration Product for Other Indications according to the
terms of this Agreement. If Neurocrine does not agree to such development, Ciba
may perform such development on its own and at its own expense; provided,
however, to the extent Section 8.2 and Section 9.1.2 above would otherwise apply
to such Collaboration Product: (i) no costs associated with such Other
Indications for such Collaboration Product shall be included in Recoupable
Development Costs hereunder; (ii) all costs associated with such Other
Indications for a Collaboration Product, including without limitation the costs
to launch and promote such Collaboration Product for such Other Indications, as
well as the revenues from sales of such Collaboration Product for such Other
Indications, shall all be excluded from the calculation of Pre-Tax Operating
Profit for purposes of determining Neurocrine's Profit Share from such
Collaboration Product; and (iii) the royalties specified in Article 9 above
shall apply to all Net Sales of such Collaboration Product for such Other
Indications throughout the world.
ARTICLE 12
MANUFACTURING RIGHTS
12.1 Manufacturing.
12.1.1 Generally. Subject to Sections 12.2 and 12.3 below, Ciba
shall have the exclusive right to manufacture or have manufactured the
Collaboration Products anywhere in the world for sale or use throughout the
world. Neurocrine shall use its best efforts to make available to Ciba any
necessary and/or useful manufacturing know-how of third parties manufacturing
Collaboration Products.
12.1.2 Manufacture in U.S.. To the extent required by 35 U.S.C.
ss.200 et seq, all Collaboration Products for sale in the United States shall be
substantially manufactured in the United States. Neurocrine agrees to use good
faith efforts to obtain a waiver of any such requirement under the Stanford
License.
12.1.3 Manufacture by [ * ]. Neither [ * ] nor any entities
controlled by [ * ] shall manufacture the Collaboration Products for the
Marketing Collaboration without the written consent of Neurocrine.
12.2 Clinical Materials. Neurocrine shall use reasonable efforts to
manufacture or have manufactured and supply to Ciba, and Ciba shall purchase
from Neurocrine, such quantities of Collaboration Products as are reasonably
required by Ciba to perform its obligations under the Development Program
through Phase II trials in the United States pursuant to the Development
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Plan and Budget then in effect. All other Collaboration Products for use in the
Development Program shall be manufactured or supplied by Ciba. The transfer
price that Ciba shall pay to Neurocrine for quantities of such Collaboration
Products pursuant to Section 6.2.2 shall be one hundred percent (100%) of
Neurocrine's Manufacturing Costs of such Collaboration Products.
12.3 Canada and USA. In the event that a Marketing Collaboration is
formed under Section 8.2 above to market a Collaboration Product in Canada and
USA and Ciba elects to manufacture the Collaboration Product for
commercialization in the USA and/or Canada, Ciba shall supply Collaboration
Products for sale in Canada and USA at a price equal to Ciba's Manufacturing
Cost for such Collaboration Products; provided, however, that if a third party
can supply the Collaboration Product to the Marketing Collaboration in
equivalent quality and reliability, in sufficient quantities and at a price that
is less than Ciba's Manufacturing Cost for such Collaboration Product, either
(i) the Collaboration Product shall be supplied to the Marketing Collaboration
from such third party, or (ii) the Collaboration Product shall be supplied by
Ciba at a price equal to the unit price at which the third party would supply
such Collaboration Product. In connection with the Marketing Collaboration
Agreement, the parties shall enter into a supply agreement ("Supply Agreement")
with Ciba or their Affiliates on reasonable and customary terms with respect to
the supply arrangements contemplated in this Section 12.3 for such Collaboration
Products in Canada and USA.
ARTICLE 13
LICENSE GRANTS
13.1 Grant to Ciba. Subject to the terms and conditions of this
Agreement, Neurocrine hereby grants to Ciba an exclusive license with the right
to sublicense, under the Neurocrine Technology to manufacture, have
manufactured, develop, use, sell, import, and otherwise distribute Collaboration
Products for use within the Ciba Territory and North America. Without limiting
the foregoing, it is understood that the license granted hereunder shall extend
to the use of Collaboration Products for MS as well as any other indication
outside the Field.
13.2 Grant to Neurocrine. Unless Neurocrine elects, pursuant to
Section 8.2 above, not to establish or continue the Marketing Collaboration for
a Collaboration Product in Canada and USA, Ciba hereby grants to Neurocrine such
non-exclusive licenses under Ciba's patents and technology, as are necessary for
the Marketing Collaboration as contemplated in Article 8 above. Such licenses
shall be specified in further detail in the Marketing Collaboration Agreement.
13.3 No Rights Beyond Collaboration Products. Except as expressly
provided in Section 11.2, nothing in this Agreement shall be deemed to grant to
Ciba rights in products or technology other than the Collaboration Products or
be deemed to restrict Neurocrine's right to exploit any Neurocrine Technology,
as applicable, in products other than Collaboration Products.
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ARTICLE 14
INTELLECTUAL PROPERTY
14.1 Ownership of Inventions. Title to all inventions and other
intellectual property made solely by Ciba personnel in connection with the
Research Program or the Development Program shall be owned by Ciba. Title to all
inventions and other intellectual property made solely by Neurocrine personnel
in connection with the Research Program or the Development Program shall be
owned by Neurocrine. Title to all inventions and other intellectual property
made jointly by personnel of Neurocrine and Ciba in connection with the Research
Program or the Development Program shall be jointly owned by Ciba and
Neurocrine. Subject to the exclusive rights granted to Ciba under this
Agreement, and subject to the exclusivity of efforts described in Section 11.2,
it is understood that neither party shall have any obligation to account to the
other for profits, or to obtain any approval of the other party to license or
exploit a joint invention, by reason of joint ownership of any invention or
other intellectual property.
14.2 Patent Prosecution.
14.2.1 Neurocrine's Sole Inventions. Subject to Section 14.2.3
below, Neurocrine shall control, at its own expense (subject to 14.2.4 below),
the worldwide preparation, filing, prosecution and maintenance of the patent
applications and patents based on inventions within the Neurocrine Technology in
consultation with Ciba under 14.2.5 below, in such countries as it deems
appropriate, and conduct of any interferences, re-examinations, reissues,
oppositions or requests for patent term extensions within the Neurocrine
Technology using counsel of its choice.
14.2.2 Ciba's Sole Inventions. Subject to Section 14.2.1 above
and 14.2.3 below, Ciba shall control, at its own expense (subject to 14.2.4
below), the worldwide preparation, filing, prosecution and maintenance of patent
applications and patents owned or controlled by Ciba or its Controlled
Affiliates relating to a Collaboration Product or its manufacture, sale or use
(the "Ciba Patents") in consultation with Neurocrine under 14.2.5 below in such
countries as it deems appropriate, and conduct of any interferences,
re-examination, re-issues, oppositions or requests for patent term extensions
within the Ciba Patents using counsel of its choice.
14.2.3 Joint Inventions. Subject to prior submission to
Neurocrine, Ciba shall have the right to file, prosecute and maintain patent
applications, patents and other intellectual property protection for inventions
that are owned jointly by Ciba and Neurocrine under Section 14.1 above, and
Neurocrine agrees to take all reasonable action to cooperate with Ciba in this
regard. Ciba shall keep Neurocrine informed of the status of each joint
invention for which patent applications have been filed and shall consult with
Neurocrine with respect to the drafting of such patent applications and
responses required during prosecution in each country wherein patent protection
is sought for such joint invention prior to submission of such patent
application(s) and/or response(s). Each party shall promptly reimburse the other
for one-half (1/2) of the reasonable out-of-pocket expenses in connection with
such activities as they are incurred, unless and until Neurocrine notifies Ciba
that
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Neurocrine will no longer reimburse Ciba for any further costs under this
Section 14.2.3 related to any patent or patent application, in which case all
right, title and interest in and to such patent or application (as the case may
be) and any patents issuing thereon shall be owned by Ciba (in which case such
patent applications and patents issuing therefrom shall be within the Ciba
Patents for purposes of this Agreement), and in such event Neurocrine shall
promptly execute any document(s) required to transfer Neurocrine's right, title
and interest in and to such patent application(s) or patent(s) subsequent to
such notification to Neurocrine. In the event Ciba elects not to take such
action or reimburse Neurocrine's costs with respect to any jointly owned
inventions in accordance with this Section 14.2, then Neurocrine shall have the
right to file, prosecute and maintain such patent applications or patents at its
sole expense, in which case all right, title and interest in and to such patent
or application (as the case may be) and any patents issuing thereon shall be
owned by Neurocrine and, in such event, Ciba shall promptly execute any
document(s) required to transfer Ciba's entire right, title and interest in and
to such patent application(s) or patent(s) upon receipt of a request from
Neurocrine to do so.
14.2.4 Sharing Other Costs. Ciba and Neurocrine shall share
equally the reasonable out-of-pocket expenses incurred by Neurocrine or Ciba
with respect to the filing, prosecution, and maintenance of patents (i) under
the Stanford License Agreement and (ii) any other patents, patent applications
or other intellectual property (including the Neurocrine Patents) owned by Ciba
or Neurocrine (except joint inventions by the said parties) or licensed to
Neurocrine or Ciba (individually or collectively, the "Third Party Technology")
which the parties reasonably agree are necessary or materially beneficial to the
commercialization of the Collaboration Products. With respect to any
interferences, re-examinations, reissues, oppositions, requests for patent term
extensions or the like, Ciba shall pay the costs thereof for the Ciba Territory,
and Neurocrine shall bear a percentage of the cost of such proceedings in [ * ]
equal to the percentage of [ * ] (i.e. [ * ]), if any, in effect at the time
such costs are incurred. With respect to any such action for which Ciba shall
pay more than one-half (1/2) of the out-of-pocket costs, Ciba shall have the
right to control such action; if in such case Ciba fails to commence the
particular action within the earlier of one hundred twenty (120) days after a
request by Neurocrine to do so, or the time by which such action must be taken
to preserve the right to do so, or Ciba thereafter fails diligently to pursue
such action, Neurocrine shall have the right to take such action at its own
expense, in which case the license granted to Ciba hereunder with respect to any
Neurocrine Patent that is the subject of such action shall thereafter become
non-exclusive, and Section 11.2 shall not apply with respect to any grant by
Neurocrine of a license thereunder.
14.2.5 Cooperation. Each of Neurocrine and Ciba shall keep the
other reasonably informed as to the status of patent matters pertaining to the
Neurocrine Patents and Ciba Patents, as applicable, including providing to the
other party copies of any significant documents that such party receives from or
sends to patent offices, such as notices of interferences, re-examinations,
oppositions or requests for patent term extensions, all as reasonably requested
by the other party. Neurocrine and Ciba shall each cooperate with and assist the
other in connection with such activities, at the other party's request and
expense, and shall use good faith efforts to consult with
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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each other regarding the prosecution and maintenance of the Ciba Patents and the
Neurocrine Patents as is reasonably appropriate.
14.3 Defense of Third Party Infringement Claims. If the production, sale
or use of any Collaboration Product pursuant to this Agreement results in a
claim, suit or proceeding (collectively, "Actions") alleging patent infringement
against Neurocrine or Ciba (or their respective Affiliates or Sublicensees),
such party shall promptly notify the other party hereto in writing. The party
subject to such Action shall have the exclusive right to defend and control the
defense of any such Action using counsel of its own choice, and the Action,
subject to Article 17, shall be at such party's own expense; provided, however,
that the other party may participate in the defense and/or settlement thereof at
its own expense with counsel of its choice. Except as agreed in writing by Ciba
and Neurocrine, the party named in the Action shall not enter into any
settlement relating to a Collaboration Product, if such settlement admits the
invalidity or unenforceability of any patent within the Neurocrine Patents or
the Ciba Patents, as applicable, of the other party. The party in the Action
agrees to keep the other party hereto reasonably informed of all material
developments in connection with any such Action.
14.4 Enforcement. Subject to the provisions of this Section 14.4, in the
event that Neurocrine or Ciba reasonably believes that any Neurocrine Patents or
Ciba Patents necessary for the manufacture, use or sale of a Collaboration
Product is infringed or misappropriated by a third party or is subject to a
declaratory judgment action arising from such infringement in such country, in
each case with respect to the manufacture, sale or use of a product within the
Field, Ciba or Neurocrine (respectively) shall promptly notify the other party
hereto. The party whose patent is so allegedly infringed or misappropriated, or
is subject to such declaratory judgment action, (for purposes of this Section
14.4, the "Owner") shall have the initial right (but not the obligation) to
enforce such patent or defend any declaratory judgment action with respect
thereto (for purposes of this Section 14.4, an "Enforcement Action").
14.4.1 Initiating Actions. In the event that the Owner fails to
initiate an Enforcement Action to enforce the Neurocrine Patents or the Ciba
Patents, as applicable, against a commercially significant infringement by a
third party in a country, which infringement consists of the manufacture, sale
or use of a product within the Field in such country, within one hundred eighty
(180) days of a request by the other party to this Agreement ("Other Party") to
initiate such Enforcement Action, such Other Party may initiate an Enforcement
Action against such infringement at its own expense with the Owner's prior
written approval, which approval shall not be unreasonably withheld. The Owner
shall cooperate in such Enforcement Action at the Other Party's expense,
provided that the Other Party indemnifies the Owner against any liability to
other parties to the litigation arising therefrom. The party initiating or
defending any such Enforcement Action shall keep the Other Party hereto
reasonably informed of the progress of any such Enforcement Action, and such
Other Party shall have the right to participate with counsel of its own choice
at its own expense.
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14.4.2 Recoveries. The party initiating the Enforcement Action
under this Section 14.4 shall have the right to retain any recoveries therein
but shall reimburse the Other Party all the cost and expenditure as documented
which the latter may have reasonably incurred at the initiating party's request
in the context of the infringement.
14.5 Third Party Rights. The foregoing provisions of this Article 14
shall be subject to and limited by any Third Party Agreements pursuant to which
Neurocrine and Ciba, as the case may be, acquired any particular Neurocrine
Patents or Ciba Patents.
ARTICLE 15
REPRESENTATIONS AND WARRANTIES
15.1 Neurocrine Warranties. Neurocrine warrants and represents to Ciba
that (i) it has the full right and authority to enter into this Agreement and
grant the rights and licenses granted herein; (ii) it has not previously granted
and will not grant any rights in conflict with the rights and licenses granted
herein; (iii) to its knowledge and belief and after diligent search, Neurocrine
has not received from a third party notice that the manufacture, sale or use of
a product in the Field would infringe any intellectual property rights of such
third party and no action, suit or claim has been initiated or threatened
against Neurocrine with respect to the Neurocrine Technology or its right to
enter into and perform its obligations under this Agreement; (iv) it has not
previously granted, and will not grant during the term of this Agreement, any
right, license or interest in or to the Neurocrine Technology, or any portion
thereof, to manufacture, sell or use a Collaboration Product that is in conflict
with the rights or licenses granted under this Agreement; and (v) the agreements
listed in Exhibit A is a complete and accurate list of all agreements between
Neurocrine and third parties pertaining to the Collaboration Products that are
in existence as of the Effective Date.
15.2 Ciba Warranties. Ciba warrants and represents to Neurocrine that
(i) it has the full right and authority to enter into this Agreement and grant
the rights and licenses granted herein; (ii) it has not previously granted and
will not grant any rights in conflict with the rights and licenses granted
herein; (iii) to its knowledge and belief and after diligent search, Ciba has
not received from a third party notice that the manufacture, sale or use of a
product in the Field would infringe any intellectual property rights of such
third party and no action, suit or claim has been initiated or threatened
against Ciba with respect to the Ciba Technology or its right to enter into and
perform its obligations under this Agreement; (iv) it has not previously
granted, and will not grant during the term of this Agreement, any right,
license or interest in or to the Ciba Technology, or any portion thereof, to
manufacture, sell or use a Collaboration Product that is in conflict with the
rights or licenses granted under this Agreement; and (v) as of the Effective
Date, Ciba has not entered into an agreement with any third party to acquire
rights to any patent or technology which Ciba believes is reasonably necessary
to allow the manufacture, use or sale of a Collaboration Product in any country
and which would require the payment of royalties on Net Sales of such
Collaboration Product.
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15.3 Disclaimer of Warranties. NEUROCRINE AND CIBA EXPRESSLY DISCLAIM
ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH
RESPECT TO THE RESEARCH, PRODUCT DEVELOPMENT, AND THE NEUROCRINE AND CIBA
INTELLECTUAL PROPERTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY
OF NEUROCRINE OR CIBA TECHNOLOGY, PATENTED OR UNPATENTED, AND NONINFRINGEMENT OF
THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
ARTICLE 16
CONFIDENTIALITY
16.1 Confidential Information. Except as expressly provided herein,
the parties agree that, for the term of this Agreement and for seven (7) years
thereafter, the receiving party shall not publish or otherwise disclose and
shall not use for any purpose any information furnished to it by the other party
hereto pursuant to this Agreement which if disclosed in tangible form is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature or if disclosed orally is confirmed in writing within a
reasonable time after such disclosure to be confidential or proprietary by the
party disclosing such information at the time of such disclosure ("Confidential
Information"). Notwithstanding the foregoing, Confidential Information shall not
include information that, in each case as demonstrated by written documentation:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement; or
(d) was subsequently lawfully disclosed to the receiving party
by a person other than a party or developed by the receiving party without
reference to any information or materials disclosed by the disclosing party.
16.2 Permitted Disclosures. Notwithstanding the provisions of Section
16.1 above, each party hereto may disclose the other party's Confidential
Information to the extent such disclosure is reasonably necessary to exercise
the rights granted to it under this Agreement (including the right to grant
sublicenses, as applicable), in filing or prosecuting patent applications,
prosecuting or defending litigation, as required by law or applicable
governmental regulations, submitting
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information to tax or other governmental authorities, or conducting clinical
trials hereunder with respect to Collaboration Products, provided that if a
party is required by law or applicable governmental regulations, to make any
such disclosure of the other party's Confidential Information, to the extent it
may legally do so, it will give reasonable advance notice to the latter party of
such disclosure and, save to the extent inappropriate in the case of patent
applications or otherwise, will use its reasonable efforts to secure
confidential treatment of such information prior to its disclosure (whether
through protective orders or otherwise). If the party whose Confidential
Information is to be disclosed has not filed a patent application with respect
to such Confidential Information, it may require the other party to delay the
proposed disclosure (to the extent the disclosing party may legally do so), for
a reasonable period of time to allow for the filing of such an application.
ARTICLE 17
INDEMNIFICATION
17.1 Indemnification of Neurocrine. Ciba shall indemnify each of
Neurocrine and its Affiliates and the directors, officers, and employees of
Neurocrine and such Affiliates and the successors and assigns of any of the
foregoing (the "Neurocrine Indemnitees"), and hold each Neurocrine Indemnitee
harmless from and against any and all liabilities, damages, settlements, claims,
actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees and other expenses of litigation) (any of
the foregoing, a "Claim") incurred by any Neurocrine Indemnitee, arising from or
occurring as a result of (a) claims relating to any Collaboration Product(s)
used, sold or otherwise distributed by Ciba, its Affiliates or Sublicensees,
except to the extent such claim is caused by the negligence or willful
misconduct of a Neurocrine Indemnitee and/or breach of Neurocrine's
representations and warranties under Article 15; or (b) subject to Section 9.4.2
above, infringement claims brought by third parties with respect to the
manufacture, sale or use of Collaboration Products hereunder or the conduct of
the Research Program or Development Program.
17.2 Indemnification of Ciba. Neurocrine shall indemnify each of Ciba
and its Affiliates and the directors, officers, and employees of Ciba and such
Affiliates and the successors and assigns of any of the foregoing (the "Ciba
Indemnitees"), and hold each Ciba Indemnitee harmless from and against any and
all liabilities, damages, settlements, claims, actions, suits, penalties, fines,
costs or expenses (including, without limitation, reasonable attorneys' fees and
other expenses of litigation) (any of the foregoing, a "Claim") incurred by any
Ciba Indemnitee, arising from or occurring as a result of (i) the negligence or
willful misconduct of Neurocrine, or (ii) breach by Neurocrine's representations
and warranties under Article 15.
17.3 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article shall promptly notify the other party (the
"Indemnitor") in writing of any loss, claim, damage, liability or action in
respect of which the Indemnitee or any of its Affiliates, Sublicensees or their
directors, officers, employees or agents intend to claim such indemnification,
and, except for matters
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described in Section 17.1(b) above, the Indemnitor shall have sole control of
the defense and/or settlement thereof. The indemnity agreement in this Article
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Indemnitor, which consent shall not be withheld unreasonably. The failure to
deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article but the omission so to deliver written notice to the Indemnitor
shall not relieve the Indemnitor of any liability that it may have to any
Indemnitee otherwise than under this Article. The Indemnitee under this Article,
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.
ARTICLE 18
TERM AND TERMINATION
18.1 Term. This Agreement shall become effective as of the Effective
Date and, unless earlier terminated pursuant to the other provisions of this
Article 18, shall continue in full force and effect on a product-by-product and
country-by-country basis, until the later of: (i) such time as neither the
manufacture, sale nor use of the particular Collaboration Product would infringe
a Valid Claim in such country; or (ii) [ * ] years after the first commercial
sale of such Collaboration Product in such country.
18.2 Termination for Cause. Either party to this Agreement may terminate
this Agreement in the event the other party shall have materially breached or
defaulted in the performance of any of its material obligations hereunder, and
such default shall have continued for sixty (60) days after written notice
thereof was provided to the breaching party by the non-breaching party. Any
termination shall become effective at the end of such sixty (60) day period
unless the breaching party (or any other party on its behalf) has cured any such
breach or default prior to the expiration of the sixty (60) day period.
18.3 Termination Upon Notice. Ciba may terminate this Agreement upon six
(6) months written notice to Neurocrine; provided, however, that such notice may
not be delivered prior to December 30, 1997.
18.4 Termination For Infeasibility. Ciba may terminate this Agreement
according to the procedure defined in Section 9.1.2 above upon the occurrence of
any Infeasibility Event referring to all Collaboration Products under
development; provided that such termination shall not take effect prior to
January 1, 1998.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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18.5 Effect of Termination.
18.5.1 Accrued Obligations. Termination of this Agreement for any
reason shall not release any party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination nor preclude either party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.
18.5.2 Survival. Articles 1, 16, 18, 19 and 20, Sections 5.1.1,
10.2, 10.3, 10.4, 10.5, 13.3, 14.1 and 14.2.3 of this Agreement shall survive
expiration or termination of this Agreement for any reason. In addition:
(a) It is understood that following an expiration (but not
an earlier termination, except as provided in this Section 18.5), this Agreement
shall not be deemed to prevent Ciba from continuing to commercialize
Collaboration Products in the Ciba Territory without obligation to Neurocrine,
other than with respect to paying any royalties or other obligations owed to
third parties as a result of such commercialization under any Third Party
Agreement(s).
(b) Upon the expiration, but not an earlier termination, of
this Agreement, any Marketing Collaboration formed with respect to a
Collaboration Product shall survive, and the provisions of Section 8.2, 8.3,
8.4, 8.5, 9.1.1, 9.1.3, 9.4.3, 12.3 and Article 10, applicable to such
Collaboration Product shall also survive. In the event that Neurocrine has
elected not to enter into or continue or in the event that Neurocrine elects not
to continue a Marketing Collaboration for a Collaboration Product this Agreement
shall not be deemed to prevent Ciba from continuing respectively from starting
to commercialize such Collaboration Product in Canada and USA without obligation
to Neurocrine other than with respect to paying any royalties or other
obligations owed to third parties as a result of such commercialization and any
Third Party Agreements(s).
(c) In the event of a termination by Ciba under Section 18.2
by reason of a material breach by Neurocrine, Ciba shall have an exclusive,
worldwide license, with the right to grant and authorize sublicenses, under the
Neurocrine Technology to make, have made, develop, use and sell the
Collaboration Products and in addition to the other Articles surviving as set
forth above, Sections 8.3, 9.1.3, 9.2, 9.3, 9.4, 9.5, 14.3, 14.4 and 14.5, and
Article 10, shall also survive provided that (i) any royalties thereafter
payable by Ciba to Neurocrine with respect to sales of such Collaboration
Product shall be reduced by [ * ] of the amounts stated in Article 9 above.
(d) In the event of a termination of this Agreement by
Neurocrine under Section 18.2 by reason of a material breach by Ciba, or by
reason of a termination of this Agreement by Ciba under Section 18.3 or 18.4:
(i) Ciba's obligations and Neurocrine's rights (but not Ciba's rights or
Neurocrine's obligations) under Section 5.2 and Sections 5.1.1 and 7.1 shall
also survive; (ii) Neurocrine shall have an exclusive, worldwide license, with
the right to grant and authorize sublicenses under any Ciba Patents (as defined
in 14.2.2 above), to import, export, make, use and
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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sell Collaboration Products; (iii) Neurocrine shall have the right to use and
disclose to third parties for any purpose the items and information described in
Sections 5.1.1 and 7.1, or provided to Neurocrine as described below (including
without limitation the right to reference any regulatory filings made with
respect to Collaboration Products); and (iv) with respect to a termination by
Ciba under Section 18.4, Neurocrine's obligations under Section 9.1.2 shall also
survive. In any such event, Ciba shall provide to Neurocrine within thirty (30)
days of such termination all data, including all clinical data developed or
obtained by Ciba pursuant to the Development Program; and any regulatory
documents prepared for submission or submitted by Ciba to any health regulatory
agency with respect to any Collaboration Product. Upon any termination described
in this part 18.5.2(d), Ciba shall diligently proceed in good faith to assign to
Neurocrine all governmental filings, including all INDs, PLAs, NDAs and the like
(and any foreign equivalents thereof) with respect to Collaboration Products and
to otherwise assist Neurocrine as Neurocrine may reasonably request to enable
Neurocrine or its designee to commercialize the Collaboration Product(s) in an
expeditious manner. In the event that Neurocrine elects to exercise the license
granted to it under (ii) above with respect to a Collaboration Product (it being
understood that Neurocrine may terminate such license with respect to any
particular Ciba Patent(s) or Collaboration Products(s) by so notifying Ciba),
Neurocrine shall pay to Ciba a reasonable royalty on net sales by Neurocrine of
such Collaboration Product the sale of which would, but for such license,
infringe a valid claim of an issued patent within the Ciba Patents in the
country for which such Collaboration Product is sold; such royalty shall not
exceed [ * ] of the royalties specified in Section 9.2 above, applied on a
worldwide basis. If the parties are unable to agree upon such royalty the matter
shall be resolved, consistent with the foregoing, pursuant to Section 19.2
below, except that the arbitration shall be completed within sixty (60) days
after the appointment of the Panel.
(e) It is understood that upon a termination by Ciba under
Section 18.3 or 18.4 above, Ciba's obligation to make payments under Section 6.2
above shall continue until the effective date of such termination. In addition,
in such event, Ciba shall reimburse Neurocrine for any noncancellable
commitments that were pre-approved by the Steering Committee. In the event of
such a termination, the parties shall agree upon a reasonable plan to wind-down
Ciba's activities under the Development Program.
ARTICLE 19
DISPUTE RESOLUTION
19.1 Disputes. If the parties are unable to resolve any dispute
between them arising out of this Agreement, either party may, by written notice
to the other, have such dispute referred to the Chief Executive Officer of
Neurocrine and a member of the Management Committee of the Pharmaceutical
Division of Ciba, for attempted resolution by good faith negotiations within
twenty-one (21) days after such notice is received. Unless otherwise mutually
agreed, the negotiations between the designated officers should be conducted by
telephone, with three (3) days and times
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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within the period stated above offered by the designated officer of Ciba to the
designated officer of Neurocrine for consideration.
19.2 Full Arbitration. Any dispute, controversy or claim arising out
of or relating to the validity, construction, enforceability or performance of
this Agreement, including disputes relating to alleged breach or to termination
of this Agreement shall be settled by binding arbitration in the manner
described in this Section 19.2. The arbitration shall be conducted pursuant to
the Commercial Rules and Supplementary Procedures for Large, Complex Disputes of
the American Arbitration Association then in effect. Notwithstanding those
rules, the following provisions shall apply to the arbitration hereunder:
19.2.1 Arbitrators. The arbitration shall be conducted by a
single arbitrator; provided that at the request of either party, the arbitration
shall be conducted by a panel of three (3) arbitrators, with one (1) arbitrator
chosen by each of Neurocrine and Ciba and the third appointed by the other two
(2) arbitrators. If the parties are unable to agree upon a single arbitrator, or
the third arbitrator in case of a panel of three (3), such single or third
arbitrator (as the case may be) shall be appointed in accordance with the rules
of the American Arbitration Association. In any event, the arbitrator or
arbitrators selected in accordance with this Section 19.2.1 are referred to
herein as the "Panel."
19.2.2 Proceedings. The parties and the arbitrators shall use
their best efforts to complete the arbitration within six (6) months after the
appointment of the Panel under Section 19.2.1 above, unless a party can
demonstrate to the Panel that the complexity of the issues or other reasons
warrant the extension of one or more of the time tables. In such case, the Panel
may extend such time table as reasonably required. The Panel shall, in rendering
its decision, apply the substantive law of the State of New York, without regard
to its conflict of laws provisions, except that the interpretation of and
enforcement of this Article 19 shall be governed by the U.S. Federal Arbitration
Act. The proceeding shall be conducted in English and shall take place in New
York, New York. The fees of the Panel shall be paid by the losing party which
party shall be designated by the Panel. If the Panel is unable to designate a
losing party, it shall so state and the fees shall be split equally between the
parties. Neither party shall initiate an arbitration hereunder unless it has
attempted to resolve the matter in accordance with Section 19.1 above. Any award
with respect to late payments due hereunder shall include interest at
commercially reasonable rates from the date such payments were due.
ARTICLE 20
MISCELLANEOUS
20.1 Governing Law. This Agreement and any dispute arising from the
performance or breach hereof shall be governed by and construed and enforced in
accordance with, the laws of the State of New York, without reference to
conflicts of laws principles or the U.N. Convention on the Sale of Goods.
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20.2 Force Majeure. Nonperformance of any party shall be excused to
the extent that performance is rendered impossible by strike, fire, earthquake,
flood, governmental acts or orders or restrictions, failure of suppliers, or any
other reason where failure to perform is beyond the reasonable control of the
nonperforming party.
20.3 No Implied Waivers; Rights Cumulative. No failure on the part of
Neurocrine or Ciba to exercise and no delay in exercising any right under this
Agreement, or provided by statute or at law or in equity or otherwise, shall
impair, prejudice or constitute a waiver of any such right, nor shall any
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right.
20.4 Independent Contractors. Nothing contained in this Agreement is
intended implicitly, or is to be construed, to constitute Neurocrine or Ciba as
partners in the legal sense. No party hereto shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of any other party or to bind any other party to any contract, agreement or
undertaking with any third party.
20.5 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
respective address specified below, or such other address as may be specified in
writing to the other parties hereto:
Ciba: Ciba-Geigy Limited
Klybeckstrasse 141 CH-4002
Basel, Switzerland
Attn: Head, Pharma Licensing
cc: Legal Department, Pharma Counsel
Neurocrine: Neurocrine Biosciences, Inc,
3050 Science Park Road
San Diego, California 92121-1102
Attn: Gary A. Lyons, President, CEO
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Kenneth A. Clark, Esq.
20.6 Assignment. This Agreement shall not be assignable by either
party to any third party hereto without the written consent of the other party
hereto; except that either party may assign this Agreement without the other
party's consent to a Controlled Affiliate and/or an entity that acquires
substantially all of the business or assets of the assigning party, in each case
whether by merger, acquisition, or otherwise; provided that in the case of an
assignment to a Controlled Affiliate, the
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assigning party shall remain fully responsible for all of its obligations
hereunder. It is understood that Ciba or its successor may assign this Agreement
to an entity that acquires substantially all of its pharmaceutical business and
assets.
20.7 Modification. No amendment or modification of any provision of
this Agreement shall be effective unless in writing signed by all parties
hereto. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by all parties.
20.8 Severability. If any provision hereof should be held invalid,
illegal or unenforceable in any jurisdiction, the parties shall negotiate in
good faith a valid, legal and enforceable substitute provision that most nearly
reflects the original intent of the parties and all other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties hereto
as nearly as may be possible. Such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of such provision in
any other jurisdiction.
20.9 Publicity. Each of the parties hereto agrees not to disclose to
any third party the terms of this Agreement without the prior written consent of
the other party hereto, except to advisors, investors and others on a strict
need-to-know basis, or to the extent required by law. Notwithstanding the
foregoing, the parties shall agree upon a press release to announce the
execution of this Agreement, together with a corresponding Question & Answer
outline for use in responding to inquiries about the Agreement; thereafter, Ciba
and Neurocrine may each disclose to third parties the information contained in
such press release and Question & Answer outline at the agreed date and time and
thereafter without the need for further approval by the other.
20.10 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, and all of which
together, shall constitute one and the same instrument.
20.11 Headings. Headings used herein are for convenience only and
shall not in any way affect the construction of or be taken into consideration
in interpreting this Agreement.
20.12 Export Laws. Notwithstanding anything to the contrary contained
herein, all obligations of Neurocrine and Ciba are subject to prior compliance
with United States and foreign export regulations and such other United States
and foreign laws and regulations as may be applicable, and to obtaining all
necessary approvals required by the applicable agencies of the governments of
the United States and foreign jurisdictions. Neurocrine and Ciba shall cooperate
with each other and shall provide assistance to the other as reasonably
necessary to obtain any required approvals.
20.13 Entire Agreement. This Agreement and the Exhibits hereto
constitute the entire agreement, both written or oral, with respect to the
subject matter hereof, and supersede all prior or contemporaneous understandings
or agreements, including but not limited to the Letter Agreement
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dated January 19, 1996, whether written or oral, between Neurocrine and Ciba
with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in duplicate originals as of the date first above
written.
NEUROCRINE BIOSCIENCES, INC.
By: /s/ GARY LYNN
-------------------------------
Name: Gary Lynn
-----------------------------
Title: President/CEO
----------------------------
CIBA-GEIGY LIMITED
By: /s/ HANS F. MOHR
-------------------------------
Hans F. Mohr
Head, Pharma Licensing
By: /s/ OLIVIER BASSI
-------------------------------
Olivier Bassi
Division Counsel
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<PAGE> 47
EXHIBIT A
NEUROCRINE THIRD PARTY AGREEMENTS
1. Agreement pertaining to "Peptide Determinant Associated with Immunity"
dated as of November 30, 1994 between Neurocrine and The Board of Trustees
of the Leland Stanford Junior University;
2. Cooperative Research and Development Agreement between Neurocrine and the
National Institutes of Health, Neuroimmunology Branch executed as of June
30, 1995.
Any provisions of such Third Party Agreements that are required to be included
in this Agreement are hereby incorporated by reference.
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<PAGE> 48
EXHIBIT B
DIRECT MANUFACTURING COSTS
As used in Section 1.16, and subject to Section 1.34, "direct costs"
shall mean the following items:
[ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 49
EXHIBIT C
OTHER OPERATING COSTS
As used herein, "Other Operating Costs" shall mean a reasonable allocation for
Ciba's overhead costs associated with the following items to the manufacture and
sale of a Collaboration Product in the United States or Canada, which allocation
shall be made in accordance with generally accepted cost accounting principles
consistently applied by Ciba across all similar pharmaceutical operations:
[ * ]
[ * ]
* not allocated elsewhere
** no allocation shall be made for manufacturing operations if the
Collaboration Product is manufactured by a Third Party
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT D
DIRECT COSTS INCURRED BY CIBA
PERFORMING THE DEVELOPMENT PROGRAM
As used in Section 1.27, and subject to Section 1.34, "direct costs"
shall mean the following items:
[ * ]
* Certain information on this page has been omitted anf filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT 10.25
Pharmaceuticals Division CIBA
Ciba-Geigy Corporation
556 Morris Avenue
Summit, NJ 07901-1398
Telephone 908 277-5000
Mr. Gary Lyons
Neurocrine Biosciences, Inc.
3050 Science Park Road
San Diego, CA 92121-1102
Dear Gary:
This is to confirm the need for, and Ciba's commitment to fund, the production
of [ * ] of NBI-5788, subject to the contractual standards and cGMP
regulations. Production and subsequent delivery are anticipated to be staggered
per the purchase order or as agreed between Ciba and Neurocrine Biosciences with
payment due upon delivery or shortly thereafter, as requested.
Should you have any questions, do not hesitate to contact me at (908) 277-7283.
Sincerely,
/s/ RONALD M. CALIFRE
- --------------------------------
Ronald M. Califre
Senior Vice President,
Medicine & Clinical Development
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
NEUROCRINE PAGE NO. P.O. NO. ORDER DATE VEND. NO.
- ---------- 1 17806 06/07/96 BAC
Biosciences, Inc.
3050 Science Park Road
San Diego, CA 92121-1102
Phone: (619) 658-7600 PURCHASE ORDER
FAX: (619) 658-7602
V S
E BACHEM, INC. H NEUROCRINE BIOSCIENCES
N P. O. Box 3426 I 3050 SCIENCE PARK RD
D TORRANCE, CA 90510 P SUITE 100
O FAX: (310) 530-1571 SAN DIEGO, CA 92121
R T DR. PRASAD SUNKARA
O
ORDER DATE CANCELLATION DATE SHIP VIA F.O.B. TERMS
06/07/96 12/31/99 NET 30
RESALE NO. RESPONSIBILITY BRANCH
PRASAD SUNKARA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ITEM NO. REQ. DATE QUANTITY QUANTITY QTY UNIT
MFG. NO. DESCRIPTION LOCATION ORDERED BACK ORD. REC PRICE EXTENSION
[ * ] NBI PEPTIDE 06/07/96 1 [ * ] [ * ]
#5788 AT THE PRICE OF [ * ] ACCORDING TO ACCOMPANYING
CONTRACT FOR MANUFACTURE AND cGMP REGULATIONS. DELIVERY
IS AS FOLLOWS: [ * ] THIS INFORMATION IS PROPRIETARY
AND SHOULD REMAIN CONFIDENTIAL
SUB TOTAL
[ * ] [ * ]
PURCHASE ORDER # TOTAL
ORDER
17806 VALUE
</TABLE>
/SIG/
- ----------------------------------
Authorized Signature
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
ORDER TERMS AND CONDITIONS
1. Invoices must bear exact same prices and terms or authorization for
changes must be received from our company in writing prior to shipping.
2. Gods not in accordance with specifications will be rejected and held at
vendor's risk awaiting disposal. Vendor must pay freight on all
rejected material.
3. The right is reserved to cancel all or part of this order if not
delivered within the time specified.
4. Packing slips must accompany all shipments.
5. By acceptance of this order, vendor warrants that all merchandise
shipped under this order does comply with all laws and regulations of
Federal and State governments.
6. Back orders must be prepaid when less than a minimum freight shipment.
7. In the event of interruption of our business in whole or in part by
reason of fire, flood, windstorm, earthquake, war, strike, embargo,
acts of God, governmental action, or any causes beyond our control, we
shall have the option of cancelling undelivered orders in whole or
part.
8. Acceptance of this purchase order, or shipment of any part of it will
constitute an agreement to all of its specifications as to terms,
delivery and prices.
<PAGE> 1
EXHIBIT 10.26
THIRD LEASE AMENDMENT
This Lease Amendment (Amendment) is made as of June 6, 1996, between
TALCOTT REALTY I LIMITED PARTNERSHIP (Landlord) and NEUROCRINE BIOSCIENCES, INC.
(Tenant).
RECITALS:
Landlord's predecessor-in-interest, Hartford Accident and Indemnity
Company, and Tenant entered into a lease dated June 1, 1993, as amended by First
Lease Amendment dated July 8, 1993, Landlord's Subordination Agreement dated
December 6, 1993, Landlord's Subordination Agreement dated November 18, 1994,
Second Lease Amendment dated June 30, 1995, and Letter Agreement dated December
20, 1995 (Lease) for space known as Suite 100 (Premises) in the building located
at 3050 Science Park Road, San Diego, California (Building). Tenant desires to
extend the Term of the Lease and to expand the Premises to include the entire
Building and Landlord has agreed to such extension and expansion, subject to the
terms hereof. Any capitalized term used herein and not otherwise defined shall
have the meaning given to it in the Lease.
NOW THEREFORE, the parties hereby agree to amend the Lease as
follows:
1. The Termination Date of the Lease shall be the later of June 30,
2006 or the last day of the 120th full calendar month after the Hybritech Space
Commencement Date (as defined in Section 2 of this Amendment).
2. Commencing on the later of June 17, 1996 or the date Landlord
delivers possession of the Hybritech Space, as defined in and subject to Section
8 of this Amendment (the Hybritech Space Commencement Date):
(a) In Section II.A. of the Lease, the Premises shall be deemed
to consist of the entire Building (approximately [ * ] rentable square feet).
(b) Sections II.J. & K. of the Lease shall be modified as
follows:
(1) From the Hybritech Space Commencement Date to the date which
is 61 days after the Hybritech Space Commencement Date (expected to be June 17,
1996 to August 16, 1996), the Monthly Installments of Base Rent shall be at the
rate of [ * ] per month, and effective the 62nd day after the Hybritech Space
Commencement Date (expected to be August 17, 1996), the Base Rent shall be [ * ]
per annum and Monthly Installments of Base Rent shall be [ * ]. For purposes of
illustration only, if the Hybritech Space Commencement Date is June 17, 1996,
the Monthly Installments of Base Rent for the months of June, July and August of
1996 would be computed as follows:
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
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For the month of June: on June 1, 1996, Tenant would have paid a
Monthly Installment of Base Rent in the amount of [ * ] (Old Monthly
Installment). After prorating the Old Monthly Installment for 16 days and the
Monthly Installment of Base Rent at the rate payable for the last 14 days of
June, the resulting payment for June would be [ * ], entitling Tenant to a
credit of $1,144.16 against the Monthly Installment of Base Rent for July.
For the month of July: [ * ], computed by deducting the credit from
June from the Monthly Installment of Base Rent at the rate due for July.
For the month of August: [ * ], computed by prorating the Monthly
Installment of Base Rent at the rate due for the first 16 days of August and the
Monthly Installment of Base Rent at the rate due for the last 15 days of August.
(2) The Base Rent shall thereafter increase as follows: commencing
on the first day of the fourth Lease Year (January 1, 1997) and on the first day
of each Lease Year thereafter, the Base Rent to be paid by Tenant during such
Lease Year shall automatically increase, without notice to Tenant, to the
greater of (A) an amount equal to [ * ] percent of the Base Rent for the
immediately preceding Lease Year or (B) the lesser of (1) an amount equal to
[ * ] percent of the Base Rent for the immediately preceding Lease Year or (2)
the "CPI Amount". The CPI Amount shall be determined as follows: the level of
the CPI (as defined below) on the first day of the third Lease Year shall be
deemed to be the "base level". If the CPI on the first day of the fourth Lease
Year or on any anniversary of such date thereafter is in excess of the base
level, the CPI Amount for such Lease Year shall be an amount equal to the Base
Rent for the third Lease Year increased by the same percentage as the percentage
change in the CPI above the base level. For purposes of this section, the Base
Rent for the third Lease Year shall be deemed to be [ * ] plus the product of
the Monthly Amortization Payment (as defined in Section 6(b)) multiplied by 12.
"CPI" shall mean the United States Bureau of Labor Statistics Consumer Price
Index for Urban Wage Earners and Clerical Workers (Revised Series), All Items,
San Diego, California. The CPI for a specific date (as required by this Lease)
shall be deemed to mean the CPI published on that date or, if not published on
that date, the most recent publication of the CPI prior to such date. If the CPI
is changed or no longer published, the most comparable index (in the reasonable
opinion of Landlord) then published shall be used for these purposes. Monthly
Installments of Base Rent shall be increased accordingly.
(c) In Section II.L. of the Lease, Tenant's Proportionate Share
shall be 100 percent. Tenant's Proportionate Share of Excess Expenses for
calendar year 1996 shall be prorated based on Tenant's Proportionate Share of
49.72 percent from January 1, 1996 through the Hybritech Space Commencement Date
and 100 percent from that date through December 31, 1996.
(d) Landlord and Tenant acknowledge that, as of the date of this
Amendment, Landlord is holding security required under Section 11.0.(i) of the
Lease in cash in the amount of [ * ] (Cash). The security required under Section
II.O.(i) shall be increased to [ * ] and the additional [ * ] (Additional
Subsection (i) Security) shall be delivered
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
-3-
to Landlord upon the execution of this Amendment in cash or as a Letter of
Credit, in the form attached to the Lease as Attachment 10. If Tenant delivers
the Additional Subsection (i) Security in cash, it will be held by Landlord
subject to the same requirements regarding the payment of interest on the Cash.
If this Amendment is terminated pursuant to Section 8 hereof, then the
Additional Subsection (i) Security shall be immediately returned to Tenant.
(e) In Section II.T. of the Lease, Tenant shall be entitled to a
maximum of 72 covered parking spaces in the parking facility which is shown on
the Land and Building Plan. In addition, Tenant shall be entitled to the
nonexclusive use in common with Landlord and others in the Building (and others
in the building located at 3040 Science Park Road to the extent applicable) a
maximum of 69 uncovered parking spaces in the parking facility which is shown on
the Land and Building Plan.
(f) Delete Attachment 2 of the Lease (Plan showing the Premises) and
add Attachment 2A (Revised Plan showing the Premises) attached hereto.
3. In Section II.P., Landlord's Mailing Address shall be 100 Pearl
Street, Hartford, Connecticut 06103.
4. Delete Section 7 of the Additional Terms and substitute the
following:
Line 3 after "Premises' add ", including repairing and maintaining
the elevator, security system, chillers and air handling equipment serving the
Building".
Line 4 after "maintain" add "the roof (including the roof membrane),
foundation, load bearing walls and structural portions of the Building, common
areas outside the Building, the "shell" of the Premises and".
Line 5 after "Section 11)." add "If replacement of the elevator,
security system, or chillers serving the Building is necessary prior to the
Termination Date, in Landlord's reasonable judgment, Landlord shall replace such
items at Landlord's expense (subject to the Expense Escalation attachment to the
Lease). "
5. Delete Section II.A. of the Additional Terms.
6. (a) Landlord acknowledges that Tenant may desire to make certain
alterations to the Premises (in accordance with the Lease) and may purchase from
Hybritech Incorporated certain laboratory benches in the Hybritech Space
(collectively the Work). At Tenant's request, Landlord shall make available to
Tenant up to [ * ] (Allowance) for so much of the Work as is completed within
210 days after the Hybritech Space Commencement Date. So much of the Allowance
as equals the cost of the Work (up to the total amount of the Allowance) shall
be paid to Tenant within 30 days after receipt from Tenant of copies of the
invoices for which payment is requested together with: (1) Tenant's
certification that each invoice is true and complete, that the full amount shown
thereon is due and owing to the party requesting payment, that Tenant has not
received nor shall it receive any rebate, setoff or other similar consideration
from the party
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 4
-4-
to whom the payment is due (other than payments to a parent, subsidiary or
affiliate of Tenant which are not in excess of market value) and that the total
amount shown on the invoices submitted to Landlord represents the total amount
due and owing Tenant under this Section 6, (2) lien waivers for all the Work,
and Tenant's certification that the lien waivers represent all the Work and (3)
Tenant's certification and the certification of Tenant's architect (if any) and
Tenant's contractor that the Work is substantially completed in a good and
workmanlike manner, subject to normal punchlist items, and has been accepted by
Tenant. If Landlord fails to pay to Tenant the Allowance (or any portion
thereof) as and when the Allowance (or portion thereof) becomes due and payable
hereunder, then Tenant shall, subject to Section 6(b) of this Amendment, have
the right to offset against all future payments of Base Rent any and all amounts
that Landlord so fails to pay, until such amounts are exhausted.
(b) To the extent the Allowance is paid to Tenant in accordance with
Section 6(a) of this Amendment (Paid Allowance), the Paid Allowance shall be
amortized monthly with interest at the rate of 12 percent per annum over a
period equal to the number of full calendar months in the Term remaining after
such payment is made (Monthly Amortization Payment). Monthly Installments of
Base Rent shall thereafter be increased by an amount equal to the Monthly
Amortization Payment and Base Rent shall be increased by an amount equal to the
product of the Monthly Amortization Payment multiplied by 12.
(c) For purposes of illustration only, if the Paid Allowance equals
[ * ] and is paid to Tenant on November 17, 1996, then the Monthly Amortization
Payment would be [ * ], assuming the Hybritech ISpace Commencement Date is June
17, 1996 (based on an amortization period of 115 months) and the Monthly
Installment of Rent due on December 1, 1996 would be increased to [ * ]. If the
CPI for January 1, 1997, determined in accordance with Section 2(a), is 3
percent higher than the "base level", then the Base Rent due for calendar year
1997, beginning with the installment due on January 1, 1997, would be [ * ]
(computed by increasing the Base Rent for calendar year 1996, deemed to be [ * ]
[ * ] plus [ * ], by 3 percent). Monthly Installments of Base Rent would be
[ * ].
7. Landlord acknowledges that Tenant may sublet a portion of the
Premises (Immusol Space) to Immusol, Inc. (Immusol) for a period of 2 to 5
years, subject to Landlord's consent which shall not be unreasonably withheld.
Immusol may desire to construct certain improvements in such space, subject to
the terms of the Lease. Pursuant to the sublease between Tenant and Immusol,
Tenant may grant to Immusol an allowance (Immusol Allowance) to construct such
improvements. Landlord hereby agrees that if Immusol elects to construct such
improvements, Tenant may, subject to the requirements of Section 6 of this
Amendment and such additional requirements as Tenant may impose in the sublease,
use the Allowance to finance the Immusol Allowance and that, accordingly, the
Allowance also may be used to pay for improvements made by Immusol.
8. Tenant acknowledges that Hybritech Incorporated (Hybritech)
currently leases that portion of the Building not occupied by Tenant (Hybritech
Space) and the Hybritech lease expires on June
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 5
16, 1996 (Expected Expiration Date) . If Landlord is unable to deliver
possession of the Hybritech Space to Tenant within 90 days after the Expected
Expiration Date (the Outside Commencement Date), then Tenant, as its sole
remedy, may terminate this Amendment by notice to Landlord given within 10 days
after the Outside Commencement Date. Landlord shall not be liable to Tenant or
any third party for its failure to deliver possession of the Hybritech Space to
Tenant. If Landlord fails to deliver the Hybritech Space to Tenant within one
year after the Expected Expiration Date, this Amendment shall terminate and
Landlord and Tenant shall have no further obligations to the other, except as
may otherwise be provided in this Lease.
9. After the Hybritech Space Commencement Date has been determined,
Landlord and Tenant shall execute a supplemental agreement specifying the
Hybritech Space Commencement Date, Termination Date and such other information
as Landlord shall reasonably require.
10. In Section 4 of the General Terms, Covenants and Conditions, in
Line 3 after "office use" add "or the Permitted Use".
11. Delete Section 29 of the General Terms, Covenants and
Conditions.
12. (a) Landlord shall deliver the Hybritech Space to Tenant in "as
is" condition and Landlord shall have no responsibility for making any
improvements to the Hybritech Space. For purposes of the first sentence of this
Section 12, "as is" condition shall be deemed to mean the condition then
existing on the Hybritech Space Commencement Date subject to the following:
(1) Notwithstanding the foregoing, Tenant acknowledges that
Hybritech has notified Landlord of its intent to remove certain items from the
Hybritech Space (Hybritech Items). If Hybritech removes such items or any other
items before or after the Hybritech Space Commencement Date, Tenant shall be
responsible for the replacement of such items (provided, however, that Tenant
shall not be obligated to replace any of such items) and Landlord shall have no
responsibility for such replacement. The Allowance may be utilized for such
costs. If the removal causes any damage to the Premises, Landlord shall promptly
repair such damage at its expense.
(2) Tenant further acknowledges that Hybritech has been notified by
Landlord's property manager that Landlord believes the Hybritech Items claimed
by Hybritech are Landlord's property and may not be removed. If Hybritech
nevertheless proceeds to remove such items (or any other items which are the
property of Landlord), Landlord shall, upon Tenant's reasonable request, attempt
to prevent their removal or, if necessary, seek damages from Hybritech after
removal, provided Tenant shall indemnify and defend Landlord for, from and
against all claims, expenses, liabilities and losses, including reasonable
attorneys' fees, resulting from such action. Landlord may, in its sole
discretion, assign to Tenant any claim it may have against Hybritech for the
removal of such items, in which event Landlord shall cooperate with Tenant in
any action commenced by Tenant in its reasonable judgment, provided that Tenant
shall reimburse Landlord for its reasonable expenses incurred with regard to
such cooperation.
(3) Anything in Sections 12(a)(1) and (2) to the contrary
notwithstanding and without waiving any rights or claims either Landlord or
Tenant may otherwise have with respect to the
<PAGE> 6
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Hybritech Items, the parties wish to avoid the expense and aggravation a dispute
over such items would create and, therefore, Tenant may pursue a settlement
regarding the Hybritech Items, including the payment of a fee as consideration
to Hybritech for the assignment of any rights Hybritech may have in the
Hybritech Items. Subject to delivery to Landlord of the settlement documentation
and a certification from Hybritech that Tenant has satisfied all conditions of
such a settlement (including the payment, if any, of any consideration
therefor), Landlord hereby consents to such a settlement and assigns any right,
title and interest it may have in such items to Tenant. A "quitclaim" bill of
sale for the Hybritech Items executed by Hybritech shall be deemed to satisfy
the requirement of settlement documentation.
(b) For purposes of Section 8 of the General Terms, Covenants and
Conditions, Tenant shall not be required to remove any of the improvements
existing in the Hybritech Space as of the date hereof. For purposes of the first
sentence of Section 12 of the General Terms, Covenants and Conditions, the
Hybritech Space shall be separately considered from the remainder of the
Premises and Tenant's possession shall be deemed to begin on the Hybritech Space
Commencement Date. For purposes of the second sentence of Section 12 of the
General Terms, Covenants and Conditions: (1) the following items shall be deemed
to be Landlord's property and not removable by Tenant: the items designated as
"Landlord's Property" on the schedule entitled "List of Property" (attached to
this Amendment); any items paid for out of the Allowance; and, except to the
extent identified as "Tenant's Property" on the List of Property, any items paid
for out of the initial allowance provided Tenant under the lease; and (2) the
following items shall be deemed to be Tenant's property: the items identified as
"Tenant's Property" on the List of Property; the Hybritech Items (or any of
them) which Tenant acquires from Hybritech pursuant to Section 12(a)(3) of this
Amendment; and any item installed and paid for by Tenant.
13. Section 30 of the General Terms, Covenants and Conditions is
restated here for purposes of this Amendment. Landlord shall be responsible for
any commission due CB Commercial Real Estate Services arising from or in
connection with the transaction contemplated by this Amendment.
14. If the Building (including leasehold improvements in the
Premises, but excluding Tenant's property) is damaged by earthquake, Tenant
shall be responsible for the payment to Landlord of 50 percent of the deductible
amount under a policy of earthquake insurance carried by Landlord covering the
Premises (to the extent such deductible amount is allocable to the Premises),
which payment shall be amortized without interest in equal monthly payments over
the greater of: (a) the number of months remaining in the Term as of the date of
the casualty and (b) 60 months. Such payments shall be made with Monthly
Payments of Base Rent, provided that in no event shall Tenant be required to
make any payments becoming due after the Termination Date (i.e., if the
amortization period exceeds the remaining number of months in the Term).
Anything in Section l(b) in the Expense Escalation attachment to the Lease to
the contrary notwithstanding, Landlord shall not include the remaining 50
percent of the cost of such repair in Operating Expenses. Landlord shall seek
the lowest, economically reasonable deductible for earthquake insurance coverage
for the Building (consistent with Landlord's national insurance program), which
at the date hereof is deemed to be not greater than 5 percent of the total
insurable value of
<PAGE> 7
the Building. Landlord shall not obtain a higher deductible without first
discussing it with Tenant (e.g., Tenant may choose to pay for a smaller
deductible).
15. Except as modified herein, the Lease is ratified and confirmed
and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment.
(Landlord) (Tenant)
TALCOTT REALTY I LIMITED NEUROCRINE BIOSCIENCES, INC.
PARTNERSHIP
By Talcott Equities Limited Partnership
Its Managing General Partner By [SIG.]
By Talcott Corporation -------------------------
Its General Partner
-------------------------
[Print Name]
By JAMES H. KIMENKER Its Senior Vice President & CFO
------------------------- ----------------------------
James H. Kimenker [Title]
Senior Vice President
<PAGE> 8
LIST OF PROPERTY
Landlord's Property
1. Control air compressor.
2. Dryer for control air compressor.
3. Boiler, low pressure.
4. CO2 distribution system.
5. Chiller.
6. Control equipment (h.v.a.c.r.).
7. D.I. water system (first floor).
8. Electrical distribution equipment.
9. Emergency management equipment.
10. Emergency generator.
11. Evaluation equipment (panic hardware).
12. Fire alarm system.
13. Fire fighting equipment.
14. Filter systems (air).
15. Glass ware racks.
16. Lab benches.
17. Liquid nitrogen tanks or equipment.
18. Neutralization system.
19. Reagent racks.
20. 23 fume hoods first floor. NBI may remove energy valves on 19 of
these and restore to normal operating efficiency.
21. Scrubbers (air).
22. Ultraviolet sterilizes (water).
<PAGE> 9
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23. Wall mounted casework.
24. Water heater.
25. Circulation pumps.
Tenant's Property
1. Air compressor.
2. Air dryer.
3. Autoclaves.
4. Boiler high pressure.
5. Bio safety hoods.
6. Clean rooms.
7. Cage washer.
8. Dish washer.
9. Dish dryer.
10. Filter systems (water).
11. High purity water system.
12. Liopizer.
13. 6 fume hoods second floor (tenant's property).
14. Security systems.
15. Vacuum systems.
16. Water purification system.
17. Telephone systems (P.B.X.)
18. Gas distribution equipment.
19. DI water system (second floor).
<PAGE> 10
[FIRST FLOOR MAP]
[ATTACHMENT 2A]
<PAGE> 11
[SECOND FLOOR MAP]
<PAGE> 1
EXHIBIT 10.27
RESEARCH AND LICENSE AGREEMENT
This Agreement, effective as of October 15, 1996 ("Effective Date"),
between ELI LILLY AND COMPANY, a corporation organized under the laws of the
State of Indiana, having its principal place of business at Lilly Corporate
Center, Indianapolis, Indiana 46285, and its Affiliates, hereinafter
collectively called "Lilly",
AND
NEUROCRINE BIOSCIENCES, INC., a corporation organized under the laws of the
State of Delaware, having its principal place of business at 3050 Science Park
Road, San Diego, California 92121-1102, and its Affiliates, hereinafter
collectively called "Neurocrine".
RECITALS
1. Neurocrine is in the business of conducting research in the field of
mammalian receptor systems. An objective of Neurocrine's research is the
discovery of potential human drug receptor targets, assays for use in drug
discovery and compounds having activity at such receptor targets.
2. Neurocrine is engaged in a specific research program aimed at
understanding the pharmacological implications of Corticotropin Releasing Factor
and, in particular, Corticotropin Releasing Factor-Binding Protein and
Corticotropin Releasing Factor-Receptor 2. The purpose of such program is to
identify high affinity Corticotropin Releasing Factor-Binding Protein Ligand
Inhibitors and Corticotropin Releasing Factor-Receptor 2 Agonists, as well as to
<PAGE> 2
Page 2
Research and License Agreement
better understand the interaction between Corticotropin Releasing Factor,
Corticotropin Releasing Factor-Binding Protein and Corticotropin Releasing
Factor-Receptor 2 and various disease states, such as Alzheimer's disease and
eating disorders.
3. Lilly is in the business of discovering, developing and marketing
pharmaceuticals and animal health products. Lilly has substantial experience and
expertise in developing drugs which are useful in nervous system disorders.
4. Lilly is interested in funding and collaborating with Neurocrine in
screening compounds developed by Lilly or Neurocrine using Corticotropin
Releasing Factor-Binding Protein and Corticotropin Releasing Factor-Receptor 2
assay systems developed by Neurocrine, looking to the possible commercial
development of therapeutic agents useful in treating Corticotropin Releasing
Factor related disorders. Lilly is also interested in funding and collaborating
with Neurocrine on increasing the level of understanding regarding the
interaction between Corticotropin Releasing Factor and Corticotropin Releasing
Factor Receptor-2 and various Corticotropin Releasing Factor related disorders.
5. Neurocrine is willing to collaborate with Lilly on identifying
compounds suitable for commercial development for treating Corticotropin
Releasing Factor related disorders and to use its novel Corticotropin Releasing
Factor-Binding Protein and Corticotropin Releasing Factor- Receptor 2 assay
systems (providing same to Lilly as appropriate) in screening compounds
furnished by Lilly and Neurocrine. Neurocrine is also willing to continue
research on Corticotropin Releasing Factor-Binding Protein and Corticotropin
Releasing Factor-Receptor 2 to make the results of its research available to
Lilly.
<PAGE> 3
<PAGE> 4
Research and License Agreement Page 3
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants hereinafter recited, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.00 General. When used in this Agreement, each of the following
terms shall have the meaning, set forth in this Article I.
Section 1.01 "Affiliate" means (a) any corporation or business entity of
which Lilly or Neurocrine, at the time in question, owns or controls, directly
or indirectly, fifty percent (50%) or more of the stock of said corporation
having the right to vote for directors thereof or otherwise control the
management of said corporation or business entity, or (b) any corporation,
individual or business entity which now or hereafter owns or controls, directly
or indirectly, fifty percent (50%) or more of the stock of Lilly or Neurocrine
having the right to vote for directors thereof.
Section 1.02 "Corticotropin Releasing Factor" means that certain 41
amino acid peptide referred to as rat/human Corticotropin Releasing Factor and
described in Rivier, et al., Characterization of rat hypothalamic
corticotropin-release factor, Vol. 80 Proceedings of the National Academy of
Sciences (1983).
Section 1.03 "Corticotropin Releasing Factor-Binding Protein" means
that certain protein described in Potter, et al., Cloning and characterization
of the cDNAs for the human and rat corticotropin releasing factor binding
proteins, Vol. 349 Nature (1991), homologs or splice variants that bind
bioactive compounds,
<PAGE> 5
Research and License Agreement Page 4
including but not limited, to Corticotropin Releasing Factor or Urocortin, with
an affinity of at least [ * ].
Section 1.04 "Corticotropin Releasing Factor-Binding Protein Ligand
Inhibitor" means a compound which inhibits or dissociates the binding of
bioactive compounds including, but not limited to, Corticotropin Releasing
Factor or Urocortin from Corticotropin Releasing Factor-Binding Protein at a
concentration of [ * ].
Section 1.05 "Corticotropin Releasing Factor-Receptor 1" means that
certain receptor described in Chen, et al., Expression cloning of a
humancorticotropin releasing factor receptor, Vol. 90 Proceedings of the
National Academy of Sciences (1993).
Section 1.06 "Corticotropin Releasing Factor-Receptor 2" means that
certain receptor described in Liaw, et al., Cloning and characterization of the
human corticotropin-releasing factor-2 receptor complimentary deoxyribonucleic
acid, Vol. 137 Endocrinology (1966), homologs or splice variants that bind
Corticotropin Releasing Factor or Urocortin with an affinity of at least [*].
Section 1.07 "Corticotropin Releasing Factor-Receptor 2 Agonist" means a
compound which activates the Corticotropin Releasing Factor-Receptor 2 and has
selectively for such Receptor over Corticotropin Releasing Factor-Receptor 1 and
other neuropeptide receptors.
Section 1.08 "Cost of Manufacturing" shall include standard cost of
production, variances, royalties, distribution expenses, and all other amounts
customarily deducted by Lilly as determined in accordance with the method of
accounting normally employed by Lilly in compiling cost of goods in accordance
with United States generally accepted accounting principles ("GAAP"). In
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 6
Research and License Agreement Page 5
determining such Cost pursuant to this Agreement, Lilly will treat such
determination in the same manner as for all other products sold by Lilly.
Section 1.09 "Dementia" means a disorder characterized by a general loss
of intellectual abilities involving impairment of memory, judgment and abstract
thinking as well as changes in personality. Such disorders include disorders
caused by Alzheimer's disease, multi-infarct dementia, central nervous system
infection, brain trauma, Wernicke-Korsakoff syndrome, Huntington's chorea,
multiple sclerosis and Parkinson's disease, but do not include disorders caused
by delirium, depression or other functional mental disorder.
Section 1.10 "Direct Marketing Expenses" includes all costs necessary,
at Lilly's discretion, to market Product for sale. Such costs will include, but
not necessarily be limited to, promotional materials, advertising campaigns,
compensation and benefits of assigned marketing personnel, marketing surveys,
supplies, telephone, telecommunication costs, facilities, and other costs
associated with Product. Expenses will be determined from the books and records
of Lilly maintained in accordance with GAAP. In determining such Expenses
pursuant to this Agreement, Lilly will treat such determination in the same
manner as for all other products sold by Lilly.
Section 1.11 "Excluded Compound" means a Lilly Compound which (i) is
either a Project Team Compound or is actively being considered by Lilly as a
candidate for becoming a Project Team Compound as of the Effective Date or (ii)
operates as a pharmaceutically active agent via a mechanism of action other than
through Corticotropin Releasing Factor receptors or as a Corticotropin Releasing
Factor-Binding Protein Ligand Inhibitor and, as a consequence of which, Lilly,
therefore, does not develop or promote in its Phase III Clinical Trials as
having
<PAGE> 7
Research and License Agreement Page 6
pharmaceutical activity via a Corticotropin Releasing Factor receptor or as a
Corticotropin Releasing Factor-Binding Protein Ligand Inhibitor mechanism of
action. A list of compounds falling within the scope of (i), above, is set forth
in Appendix I attached hereto. Further, should Lilly ever determine, or have
Neurocrine determine, a dose response curve on any compound listed in Appendix I
in any assay which utilizes Existing Neurocrine Technology or Project
Technology, such compound shall no longer be considered an Excluded Compound if
such response curve indicates that such compound's affinity is weaker than [ * ]
Section 1.12 "Existing Lilly Compound" means any Lilly Compound in
Lilly's possession on or before October 31, 1996, the identification, selection
or development of which as a pharmaceutical health product for the treatment of
indications associated with the Field is based upon the use of Existing
Neurocrine Technology or Project Technology. The individual optical isomers of a
racemic mixture and the salts and solvates of a chemical compound in Lilly's
possession on or before October 31, 1996, shall be deemed to also be in Lilly's
possession as of that time.
Section 1.13 "Existing Neurocrine Compound" means any Neurocrine
Compound in Neurocrine's possession on or before October 31, 1996, the
identification, selection or development of which as a pharmaceutical health
product for the treatment of indications associated with the Field is based upon
the use of Existing Neurocrine Technology or Project Technology. The individual
optical isomers of a racemic mixture and the salts and solvates of a chemical
compound in Neurocrine's possession on or before October 31, 1996, shall be
deemed to also be in Neurocrine's possession as of that time.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 8
Research and License Agreement Page 7
Section 1.14 "Existing Neurocrine Technology" means Neurocrine's
confidential and/or proprietary technical information, data and materials
including DNA sequences, target cell lines, expression vectors and genes in the
Field, to the extent such Technology was in Neurocrine's possession on or before
October 31, 1996.
Section 1.15 "Field" means Corticotropin Releasing Factor-Binding
Protein Ligand Inhibitors and Corticotropin Releasing Factor-Receptor 2 Agonists
and all diseases and disorders associated with same which are mediated by the
central nervous system regardless of peripheral effects.
Section 1.16 "Gross Profits" means Net Sales of Product in the United
States less the sum of (i) the Cost of Manufacturing such Products plus [ * ]
and (ii) Direct Marketing Expenses.
Section 1.17 "Joint Compound" means a chemical compound conceived and
synthesized jointly by Lilly and Neurocrine.
Section 1.18 "Lilly Compound" means a chemical compound conceived and
synthesized or acquired by Lilly.
Section 1.19 "Lilly Information" means information and data provided to
Neurocrine by Lilly concerning Lilly Compounds and data and information
generated by Neurocrine concerning Lilly Compounds. Such Information shall be
the property of Lilly.
Section 1.20 "Lilly's Strategic Focus" means those therapeutic areas and
diseases in which Lilly, at the time in question, has an interest in developing
and marketing pharmaceutically active agents.
Section 1.21 "Major Europe" means Germany, Italy, France and the
United Kingdom.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Section 1.22 "Net Sales" means, with respect to Product, the gross
amount invoiced by Lilly to unrelated third parties for the Product less:
(a) trade, quantity and cash discounts allowed;
(b) commissions, discounts, refunds, rebates, chargebacks,
retroactive price adjustments, and any other allowances
which effectively reduce the net selling price;
(c) actual product returns and allowances;
(d) that portion of the sales value associated with delivery
systems to the extent such delivery systems can be sold
separately from Product;
(e) any tax imposed on the production, sale, delivery or use
of the product;
(f) allowance for distribution expenses; and
(g) any other similar and customary deductions.
Such amounts shall be determined from the books and records of Lilly maintained
in accordance with GAAP consistently applied. Such formula for determining Net
Sales shall, furthermore, be employed by Lilly in substantially the same manner
in determining the net sales of all of Lilly's other products.
In the event Product is sold as part of a combination product or as a
bundle of products (hereinafter "combination product"), the Net Sales from the
combination product, for the purposes of determining royalty payments, shall be
determined by multiplying the Net Sales of the combination product (as defined
in the above Net Sales Definition) by the fraction, A/A+B where A is the average
sale price of Product when sold separately in finished form and B is the average
sale price of the other product(s) sold separately in finished form. In the
event that
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such average sale price cannot be determined for both Product and other
product(s) in combination, Net Sales for purposes of determining royalty
payments shall be calculated by multiplying the Net Sales of the combination
products by the fraction C/C+D where C is Lilly's cost of goods of Product and D
is Lilly's cost of goods of the other product(s), determined in accordance with
the method of accounting normally employed by Lilly in computing cost of goods.
Section 1.23 "Neurocrine Compound" means a chemical compound conceived
and synthesized or acquired by Neurocrine provided Neurocrine has the ability to
transfer rights to same to Lilly.
Section 1.24 "New Compound" means any Lilly Compound or Neurocrine
Compound synthesized or acquired by Lilly or Neurocrine, respectively, on or
after November 1, 1996, the identification, selection or development of which as
a pharmaceutical health product for the treatment of indications associated with
the Field is based upon the use of Existing Neurocrine Technology or Project
Technology.
Section 1.25 "Obesity" means a condition involving an increase in body
weight beyond the limitation of skeletal and physical requirements and disorders
associated with such condition such as diabetes mellitus, atherosclerosis and
hypertension.
Section 1.26 "Patent Rights" means patents and patent applications owned
or controlled by Neurocrine or by Lilly relating to Products, Project Technology
or Existing Neurocrine Technology and all divisions, continuations,
continuations-in-part, reissues, extensions and foreign counterparts thereof at
least one claim of which covers the making, using or selling of Products,
Project Technology or Existing Neurocrine Technology. "Neurocrine Patent Rights"
means patents and
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patent applications owned or controlled by Neurocrine. "Lilly Patent Rights"
means patents and patent applications owned or controlled by Lilly. A list of
certain particularly relevant Neurocrine Patent Rights is set forth in Appendix
II.
Section 1.27 "Phase I Clinical Trials" means small scale human clinical
trials, the protocols of which are as previously disclosed to Neurocrine prior
to the start of such trials, conducted in normal volunteers and designed to
indicate product safety.
Section 1.28 "Phase II Clinical Trials" means small scale human clinical
trials, the protocols of which are as previously disclosed to Neurocrine prior
to the start of such trials, conducted in patients and designed to indicate a
statistically significant level of efficacy in the particular indication tested,
as well as to obtain some indication of the dosage regimen required.
Section 1.29 "Phase III Clinical Trials" means large scale human
clinical trials, the protocols of which are as previously disclosed to
Neurocrine prior to the start of such trials, conducted in patients and designed
to establish Product efficacy in the particular indication tested and required
to obtain clinical registration of Product with health regulatory authorities.
Successful completion of such Clinical Trials shall be deemed to have occurred
if such Trials establish the end points they were designed to show.
Section 1.30 "Positive Hit" means a compound from the Research Records
Cassette which, in Neurocrine's reasonable opinion, has interesting activity in
the assay system employed and has a KI of less than [ * ].
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Section 1.31 "Product" means a composition for use as a pharmaceutical
consisting of an Existing Lilly Compound, an Existing Neurocrine Compound, a New
Compound or a Joint Compound, but excluding Excluded Compounds.
Section 1.32 "Product Decision" means a decision made at [ * ]
discretion after completion of Phase II Clinical Trials that the compound tested
in such trials continues to be a viable pharmaceutical candidate for the
treatment of Dementia or Obesity and that, therefore, Phase III Clinical Trials
on such compound for either or both of such indications are warranted.
Section 1.33 "Project" means the research and development program to be
conducted by Neurocrine in the Field in collaboration with Lilly according to
the schedule and staffing in Appendix III and the screening by Neurocrine of
Neurocrine Compounds, Joint Compounds and those Lilly Compounds submitted by
Lilly pursuant to Section 2.03.
Section 1.34 "Project Team Compound" means a compound which has been
accepted for further development by Lilly's Project Team Approval Committee, or
its successor, or by whatever decision making mechanism is employed by Lilly in
deciding what compounds are suitable for clinical development and is provided
resources for such development by Lilly's Portfolio Management Committee, or its
successor, or by whatever decision making mechanism is employed by Lilly in
deciding how resources should be allocated for clinical development. In making a
decision as to whether to accept any Existing Lilly Compound, Existing
Neurocrine Compound, New Compound or Joint Compound for further development, or
in deciding to provide resources for the development of such Compound, Lilly
agrees that it shall treat any of such
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Compounds in the same manner as it treats its own compounds of similar
commercial significance.
Section 1.35 "Project Technology" means the confidential and/or
proprietary technical information and data concerning Corticotropin Releasing
Factor-Binding Protein Ligand Inhibitors, Corticotropin Releasing
Factor-Receptor 2 Agonists and related DNA sequences, binding assays, functional
assays, in vivo assays and biological materials, including target cell lines,
expression vectors and genes, developed or acquired by Lilly and/or Neurocrine
in connection with the Project during the term of the Project. Non-patented
Project Technology which relates to Corticotropin Releasing Factor-Binding
Protein Ligand Inhibitors and Corticotropin Releasing Factor-Receptor 2
Agonists, as well as formulations thereof and methods of using same, shall be
the property of Lilly. All other non-patented Project Technology shall be the
property of Neurocrine.
Section 1.36 "Research Records Cassette" means a library, as presented
to Neurocrine on September 12, 1996, consisting of approximately [ * ] compounds
preselected from Lilly's archive historical library, wherein the compounds are
provided in 96-well format.
Section 1.37 "Research Team" means six (6) representatives, three (3)
from Neurocrine and three (3) from Lilly, who are designated to direct and
monitor the Project.
Section 1.38 "Scientific Person Year" means a total of 47 weeks or 1,880
person hours per year of scientific work, on or directly related to the Project,
carried out by Neurocrine employees having at least a Bachelors Degree in a
science, or experience equivalent thereto.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Scientific work on or directly related to the Project to be performed by
Neurocrine employees can include, but is not limited to, experimental laboratory
work, recording and writing up results, reviewing literature and references,
holding scientific discussions, attending appropriate seminars and symposia,
managing and leading scientific staff, and carrying out Project management
duties or such other activities as may be appropriate to the conduct of the
Project.
Section 1.39 "United States" means the United States of America and its
territories and possessions.
Section 1.40 "Urocortin" means the certain sequence described in
Donaldson, et al, Cloning and characterization of human urocortin, Vol. 137
Endocrinology (1996).
ARTICLE II
STAFFING, PLANNING AND EXECUTION OF PROJECT
Section 2.00 Neurocrine Effort on Project. Neurocrine and Lilly shall
use reasonably diligent efforts to conduct work on the Project so as to endeavor
to achieve the schedule and goals set forth in Appendix III. Initially
Neurocrine shall assign the personnel specified in Appendix III to the Project.
Neurocrine may reassign any of these personnel to any other project without the
approval of the Research Team, provided that if Neurocrine fails to achieve its
goals as set forth in Appendix III within the timetable set by the Research Team
for the attainment of such goals, Lilly shall then have the right to review
Neurocrine's staffing of the Project and Lilly may, further, request that
certain Neurocrine employees be utilized on the Project. Lilly shall, further,
have the ability to request that Neurocrine shift its focus on the Project from
research to
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development if Lilly believes such shift will further the progress of the
Project. If any of these personnel ceases to be an employee of Neurocrine,
Neurocrine shall assign a substitute of equal suitability as evidenced by equal
or greater educational background or laboratory experience. Neurocrine shall for
each year during the term of the Project assign to the Project sufficient
personnel to devote [ * ] Scientific Person Years. At least [ * ] of the
Scientific Person Years shall be provided by scientists with a Ph.D. degree or
equivalent scientific experience. In 1997 and each year thereafter during the
term of the Project, the Research Team will by October 31 of that year prepare
and submit to Lilly and Neurocrine the schedules, goals, staffing and budget for
the upcoming year.
Section 2.01 Research Team Formation. Promptly upon signing of this
Agreement by both parties, Neurocrine and Lilly shall each appoint[ * ]
representatives to serve as members of the Research Team. The respective
individual representatives for each party may be changed, from time to time at
the discretion of Neurocrine or Lilly, upon written notification by the party
making such change to the other. Neurocrine and Lilly within sixty (60) days
after the Effective Date shall agree upon an initial plan for research tasks to
be completed under the Project. Such plan, once complete, shall be attached to
this Agreement as Appendix III. The Research Team shall review (and where
necessary modify), and approve subject, of course, to final review by Lilly and
Neurocrine, all plans for research to be done under the Project, and shall
review the personnel assigned to the Project and all results of work done under
the Project. From time to time, the Research Team may establish subcommittees to
oversee particular projects or activities, and such subcommittees will be
constituted as the Research Team agrees. The Research Team shall meet regularly
according to a mutually
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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agreed schedule (alternating sites of the meeting between San Diego and
Indianapolis, with each Party being responsible for the travel, lodging and
other expenses incurred by its own members of the Research Team), provided such
meetings occur at least semi-annually, to review the Project, to modify the
scope and goals of the Project if deemed necessary by the Research Team, to
prepare the schedules and budget pursuant to Section 2.00 and to prepare the
reports required under Section 4.00. Upon conclusion of any meeting of the
Research Team, the Team shall appoint one of its members to prepare written
minutes of the meeting, which minutes shall be reviewed and approved, if
appropriate, by both Lilly and Neurocrine. Any modification to the scope and
goals of the Project as described in Appendix III shall require the approval of
the Research Team, and the appropriate written amendment to Appendix III.
Decisions with regard to the scope and goals of the Research Team shall be made
by [ * ] and if the Research Team is unable to reach such [ * ] on any such
issue involving the Project, the issue shall be referred to the [ * ] or the
equivalent thereof, for further discussion. If such discussions fail to resolve
such issue, if the issue arises prior to the start of Phase I Clinical Trials on
any Product associated with such issue, the parties may then resolve such issue
by any mechanism available, including litigation. For all unresolved issues
which arise after the start of Phase I Clinical Trials on any Product associated
with such issue, the [ * ] or the equivalent thereof, shall have the final
decision.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Section 2.02 Conduct of Studies. All work done in connection with the
Project shall be carried out in strict compliance with any federal, state, or
local laws, regulations, or guidelines governing the conduct of research at the
site where such work is being conducted.
Section 2.03 Screening Lilly Compounds. As a part of the Project, Lilly
shall have the right to submit such Lilly Compounds as it deems appropriate to
Neurocrine for testing using assay systems developed by Neurocrine in connection
with Existing Neurocrine Technology or Project Technology. The number and
scheduling of such submissions and the particular assays used shall be
determined by the Research Team. Neurocrine agrees that it shall not subject any
Lilly Compound so submitted to any binding or other assay which has not been
previously specifically authorized by the Research Team. Complete results from
any such assay shall be provided to Lilly pursuant to the schedule established
by the Research Team.
Section 2.04 Treatment of Lilly Compounds. Neurocrine agrees that it
will not chemically or physically analyze or have analyzed any Lilly Compound to
determine its structure. Neurocrine shall not permit any third party to observe
or have access to any Lilly Compound. All information, results and data
generated in connection with any assay of Lilly Compounds shall be Project
Technology. Lilly agrees to provide Neurocrine with handling instructions
including all safety information relating to the particular compound known to
Lilly.
Section 2.05 Screening of Neurocrine Compounds and Joint Compounds. As
part of the Project, Neurocrine shall test all Neurocrine Compounds and Joint
Compounds using assay systems developed by Neurocrine in connection with
Existing Neurocrine Technology or Project Technology. The scheduling of such
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testing and the particular assays used shall be determined by the Research Team.
Complete results from any such assay shall be provided to Lilly pursuant to the
schedule established by the Research Team. All information, results and data
Generated in connection with any assay of Joint Compounds or Neurocrine
Compounds shall be Project Technology.
Section 2.06 Electronic Mail Transmissions. If Lilly and Neurocrine
determine that, during the term of the Project, it is necessary to communicate
with one another by electronic mail or some other similar medium of
communication, Lilly and Neurocrine shall each bear its own out-of-pocket
expenses required in order to provide such method of communication. Further, if
such a method of communication is employed, the parties will utilize all
reasonably appropriate diligence in order to protect the confidentiality and
security of information transmitted between Lilly and Neurocrine.
ARTICLE III
FUNDING OF PROJECT
Section 3.00 Duration and Amount of Funding. Lilly shall provide
Neurocrine with financial support for the Project for the period from November
1, 1996 to October 31, 1999, unless the Project is terminated early pursuant to
Article X. The financial support provided to Neurocrine by Lilly shall be [*]
per Scientific Person Year for [*] Scientific Person Years for each twelve (12)
month period of the Project. The amount per Scientific Person Year set forth
above shall not be adjusted for inflation during the term of the Project.
Consistent with the foregoing, the budget prepared by the Research Team and
submitted to Neurocrine and Lilly by September 15 of each year pursuant to
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Section 2.00 shall be a total budget including costs for the proposed Scientific
Person Years and any other anticipated Project expenses and shall be reviewed
and approved with or without modification by both Lilly and Neurocrine within
sixty (60) days of submission by the Research Team. In the event that the
parties cannot agree on a budget for the upcoming year before the end of the
sixty-day period, the budget for that upcoming year will be for the number of
Scientific Person Years provided hereinabove, i.e., [*] and the activities of
the Project shall be adjusted accordingly. The amount per Scientific Person Year
shall be the total amount paid to Neurocrine by Lilly for Neurocrine's effort on
the Project with Neurocrine being responsible for all wages, supplies,
facilities, utilities and all other employee-related expenses in connection with
performing services for the Project.
Section 3.01 Manner of Payments. All funding by Lilly during this
Project shall be paid to Neurocrine by Lilly in U.S. Dollars. Unless otherwise
agreed in writing by Lilly, payments shall be made in four equal installments.
During the first year of the Project, the first installment shall be paid within
thirty (30) days of the Effective Date, and the remaining three installments
shall be paid on or before February 15, May 15 and August 15, respectively.
During subsequent years of the Project, such installments shall be paid on or
before November 15, February 15, May 15 and August 15, respectively.
Section 3.02 Accounting. Neurocrine shall provide Lilly on a semi-annual
basis during the term of the Project a report detailing how Neurocrine allocated
Scientific Person Years to the Project. Such report shall provide Lilly with the
names of the Neurocrine employees which make up the Scientific Person Years the
amount of each employees time devoted to the Project, associated with the
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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tasks listed in Appendix III during the semi-annual period at issue. Neurocrine
shall, further, maintain records in reasonable detail of all monies paid by
Neurocrine for research under the Project and shall provide Lilly, within ninety
(90) days of the end of each calendar year, with a report stating the dollar
amount of funds supplied by Lilly that were expended on research activities
during any year for which the report is made, using Neurocrine's standard
project accounting procedures, and such supporting details as are reasonably
required by Lilly.
Within one year from receipt of the reports, Lilly may, at its expense,
request an audit by Neurocrine's independent certified public accountants. The
independent certified public accountant shall have the right to examine all
necessary records kept pursuant to this Section and report to Lilly the findings
of said examination of records insofar as necessary to verify the reports. Said
findings shall be maintained in confidence by Lilly.
ARTICLE IV
RESULTS OF PROJECT
Section 4.00 Reports. Neurocrine shall disclose to the Research Team all
Project Technology reasonably promptly following its discovery. Disclosure of
Project Technology may take the form of visits by Lilly personnel, at reasonable
times and upon reasonable prior notice, to the facilities being used for the
Project to permit observation of the procedures being employed. The Research
Team shall submit to Neurocrine and Lilly a detailed written report on the
progress of the Project within sixty (60) days following each calendar quarter
of the term of
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the Project and, within ninety (90) days after completion of the Project, shall
provide Neurocrine and Lilly with a comprehensive final written report.
Section 4.01 Assay Materials. During the Project, Neurocrine shall
provide Lilly promptly upon Lilly's request with samples of cell lines or any
materials required to conduct in vitro assays which are Existing Neurocrine
Technology, as set forth in Appendix IV, as well as those in vitro or in vivo
assays which are produced or developed within the scope of the Project,
immediately upon development by Neurocrine, along with sufficient technical
information and know how to enable Lilly to conduct such in vitro or in vivo
assays or binding studies and/or functional assays with such cell lines or
materials. Lilly shall then be entitled to use same to test any Lilly Compound
Lilly so desires or any Neurocrine Compound or Joint Compound the Research Team
desires. All information, results and data generated in connection with any such
testing by Lilly during the course of the Project shall be Project Technology.
No later than sixty (60) days following termination of the Project, Neurocrine
shall provide to Lilly any remaining Existing Neurocrine Technology and the
Project Technology including without limitation DNA sequences encoding
Corticotropin Releasing Factor-Binding Protein and Corticotropin Releasing
Factor-Receptor 2, binding sites, binding assays, functional assays and in vitro
or in vivo assays.
Section 4.02 Patentable Inventions. If a patentable invention is
conceived in the course of the parties' work on the Project and is reduced to
practice during such work on the Project or within six months of termination of
the Project, Lilly and Neurocrine shall discuss such invention and the
desirability of filing a United States patent application covering such
invention as well as any foreign counterparts. The party owning the invention
(or both parties if the invention is a
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joint invention) shall make the final decision with respect to any such filings.
All patent applications and patents on inventions made in the course of the
parties' work on the Project solely by employees of Lilly shall be owned by
Lilly. All patent applications and patents on inventions made in the course of
the parties' work on the Project solely by employees of Neurocrine shall be
owned by Neurocrine. All patent applications and patents on inventions made
jointly by employees of Lilly and employees of Neurocrine shall be jointly
owned. If such joint invention is within the Field, Article V shall determine
Lilly's rights with respect to Neurocrine's interest in such joint invention. If
such joint invention is outside the Field, Lilly shall have a right of first
negotiation as to Neurocrine's interest in such joint invention and the parties
shall negotiate in good faith the terms under which Lilly can exclusively
commercialize such invention. Should Lilly choose not to commercialize such
invention, Neurocrine shall then have a right of first negotiation as to Lilly's
share of such joint invention and the parties shall negotiate in good faith the
terms under which Neurocrine can exclusively commercialize such invention. If
the parties, despite good faith negotiations, fail to reach agreement on terms
which would allow either Lilly or Neurocrine, as appropriate, to exclusively
commercialize such invention, either party may develop and commercialize such
invention and such development/commercialization shall not in any way affect the
other parties right to develop and commercialize such joint invention as well.
Lilly shall bear its own expenses incurred in filing, prosecuting and
maintaining patent applications, and any patents resulting therefrom, under this
Section 4.3. Lilly shall, further, file all applications on joint inventions and
Lilly shall be totally responsible for the preparation, prosecution and
maintenance of
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such applications and any patents resulting therefrom. Neurocrine agrees to
cooperate with Lilly as needed in the preparation and prosecution of such
applications covering joint inventions.
Neurocrine shall bear its own expenses incurred in filing, prosecuting
and maintaining patent applications and any patents resulting therefrom under
this Section 4.3 or the Neurocrine Patent Rights set forth in Appendix II to the
extent such patents or applications do not contain claims to an Existing
Neurocrine Compound or a New Compound which is a Neurocrine Compound. If such
patent applications or patents contain claims to an Existing Neurocrine Compound
or a New Compound which is a Neurocrine Compound, the parties shall share
equally all expenses incurred in filing, prosecuting and maintaining such
applications/patents, provided such expenses were incurred after the Effective
Date.
Each party shall provide to the other a copy of any patent application
which discloses Existing Neurocrine Technology or Project Technology, prior to
filing in the United States if reasonably possible, for review and comment by
the other party. Any such patent application shall be maintained in confidence
by the receiving party pursuant to Section 9.00.
If Lilly files a patent application on a joint invention encompassed by
this Article and yet, later, decides that it no longer wishes to continue
prosecution and/or maintenance of such application (or any patent resulting
therefrom), Lilly shall inform Neurocrine of its decision to discontinue
prosecution and/or maintenance prior to discontinuance. Neurocrine may then
elect to continue prosecution and/or maintenance of such application or patent
at its sole expense, provided that if it does elect to continue prosecution
and/or maintenance,
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Neurocrine shall reimburse Lilly for all out-of-pocket expenses previously
incurred by Lilly in filing, prosecuting or maintaining such application or
patent and Lilly shall provide all reasonable assistance (including preparing
any papers required to allow Neurocrine to prosecute and/or maintain such
application) required by Neurocrine in prosecuting and/or maintaining such
application or patent. If Lilly elects to discontinue prosecuting and/or
maintenance of an application or patent encompassed hereunder, and Neurocrine
elects to continue prosecution and/or maintenance of such application or patent,
Lilly shall lose all ownership rights to such application or patent and such
rights shall vest totally in Neurocrine. The decision by Lilly not to proceed
into the National Phase of the Patent Cooperation Treaty patenting process in
every country originally designated as a Designated Country in any Patent
Cooperation Treaty patent application encompassed by this Article, shall not, by
itself, be considered as an election to discontinue prosecution.
If Neurocrine files during the term of this Agreement or has filed prior
to the Effective Date a patent application on Existing Neurocrine Technology or
Project Technology owned by Neurocrine and yet, later, decides that it no longer
wishes to continue prosecution and/or maintenance of such application (or any
patent resulting therefrom), Neurocrine shall inform Lilly of its decision to
discontinue prosecution and/or maintenance prior to discontinuance. Lilly may
then elect to continue prosecution and/or maintenance of such application or
patent at its sole expense, provided that if it does elect to continue
prosecution and/or maintenance, Lilly shall reimburse Neurocrine for all
out-of-pocket expenses previously incurred by Neurocrine in filing, prosecuting
or maintaining such application or patent and Neurocrine shall provide all
reasonable assistance
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(including preparing any papers required to allow Lilly to prosecute and/or
maintain such application) required by Lilly in prosecuting and/or maintaining
such application or patent. If Neurocrine elects to discontinue prosecuting
and/or maintenance of an application or patent encompassed hereunder, and Lilly
elects to continue prosecution and/or maintenance of such application or patent,
Neurocrine shall lose all ownership rights to such application or patent and
such rights shall vest totally in Lilly. The decision by Neurocrine not to
proceed into the National Phase of the Patent Cooperation Treaty patenting
process in every country originally designated as a Designated Country in any
Patent Cooperation Treaty patent application encompassed by this Article, shall
not, by itself, be considered as an election to discontinue prosecution. Should
Neurocrine ever fail to inform Lilly in a timely manner of its decision to
discontinue prosecution or maintenance of a patent or patent application
encompassed hereunder prior to such discontinuance, and such patent or patent
application, therefore, goes abandoned, Lilly shall have the right to deduct
from any payments owed Neurocrine by Lilly pursuant to Article V the damages
caused to Lilly by Neurocrine's action. Should the parties fail to mutually
agree on the extent of Lilly's damages, both parties agree to submit the issue
of damages to a third party who is mutually acceptable to both parties and such
third party's decision on such issue shall be final.
Section 4.03 Publications. Lilly and Neurocrine agree that neither party
shall publish the results of their studies carried out under this Agreement
without the prior approval of the other party. Each party agrees to provide the
other the opportunity to review any proposed manuscripts or abstracts which
relate to the Project at least thirty (30) days prior to their intended
submission for
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publication and to not submit such manuscript or abstracts without the written
authorization of the reviewing party. If such written authorization is not
provided, within such period, authorization shall be presumed to be granted.
Furthermore, such authorization shall not be unreasonably denied. Nothing
contained in this Section 4.4 shall prohibit the inclusion of information
necessary for a patent application provided the non-filing party is given a
reasonable opportunity to review the information to be included. Finally, Lilly
and Neurocrine both agree to withhold publication of any manuscript or abstract
for a maximum of sixty (60) days if either party reasonably believes such
manuscript or abstract would jeopardize the patentability of any invention made
under this Agreement.
ARTICLE V
COMMERCIAL RIGHTS
Section 5.00 License to Lilly. In consideration for the payments made to
Neurocrine by Lilly pursuant to Article VI and Article III, as well as in
consideration for access to the Research Records Cassette as described in
Article VII and the co-promotion option granted by Lilly as described in Article
VIII, Neurocrine grants Lilly
(a) an exclusive, worldwide, right and license within the
Field to make, use and have used Existing Neurocrine
Technology and Project Technology owned or acquired by
Neurocrine for the purpose of assay modification or
development, and the screening, identification,
selection and/or development of drugs subject to
Neurocrine retaining the right to use Existing
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Neurocrine Technology and Project Technology owned or
acquired by Neurocrine for Lilly's benefit in connection
with this Agreement;
(b) an exclusive, worldwide, right and license to make, have
made, use, sell and have sold for any indication within
the Field any New Compound synthesized or developed by
Neurocrine in the course of the Project or any Existing
Neurocrine Compound;
(c) an exclusive, worldwide, right and license to make, have
made, use, sell and have sold for any indication within
the Field Neurocrine's interest in any Joint Compounds;
and
(d) an exclusive, worldwide, license within the Field under
any Neurocrine Patent Rights which would be infringed by
Lilly's exercise of its rights under this Agreement.
Section 5.01 Collaboration. In the event the parties become aware of
technology of a third party within the Field, the Research Team will determine
whether such technology should be brought into the Project and how the cost of
acquiring the technology should be shared by the parties. Any such cost sharing
will recognize those expenses already incurred by a party hereto in connection
with acquiring the technology. The Research Team will make a recommendation to
Neurocrine and Lilly concerning the acquisition of technology and the sharing of
cost. Each party shall then have thirty (30) days in which to accept or reject
the recommendation or propose an alternative arrangement. The parties will
conduct any negotiations concerning acquiring such technology in good faith with
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Research and License Agreement Page 27
the interest of advancing the Project. Neurocrine and Lilly shall not
collaborate with any third party on research within the Field during the term of
the Project.
Section 5.02 Commercialization Efforts. Lilly agrees to exercise
reasonably diligent efforts toward developing and commercializing Products
according to its usual business practices for products of similar potential and
value. In connection with developing a particular Existing Lilly Compound,
Existing Neurocrine Compound, Joint Compound or New Compound, Lilly shall
provide to Neurocrine an annual report summarizing the efforts devoted to such a
Compound in that year, including all protocols used by Lilly to test any of such
Compounds in any Phase I, Phase II and/or Phase III Clinical Trials conducted by
Lilly during that year. All such reports and all information contained in such
reports, including without limitation, information relating to the purpose for
which such Compounds are being developed, which of such Compounds are being
developed and the status of such development, are Lilly Information. The
obligation to provide such reports shall begin upon selection of a particular
Existing Lilly Compound, Existing Neurocrine Compound, Joint Compound or New
Compound for development and shall continue until development is terminated or
upon the first sale of Product consisting of such Compound, provided however,
upon the sale by Neurocrine of all or substantially all of its assets to which
this Agreement relates, such reporting obligations shall be limited, at Lilly's
option, to stating that such development is continuing or is terminated and
reporting when the milestones of Section 6.1(e) have been reached.
Section 5.03 Sublicenses. [ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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[ * ]
Section 5.04 Assay of Excluded Compounds. Neurocrine acknowledges and
agrees that subjecting an Excluded Compound to assays using Existing Neurocrine
Technology or Project Technology shall not result in any royalty or milestone
obligations to Neurocrine.
Section 5.05 Regulatory Responsibility. Unless otherwise agreed between
the parties, [ * ] shall have sole responsibility for all governmental health
authority regulatory aspects associated with developing Products.
ARTICLE VI
COMMERCIAL TERMS
Section 6.00 Payment by Lilly. In addition to the Project funds of
Article III, Lilly agrees to pay Neurocrine the following monies in
consideration for the rights and licenses granted by Neurocrine and the
obligations assumed by Neurocrine hereunder:
(a) [ * ] United States Dollars [ * ] to be paid by Lilly to
Neurocrine within thirty (30) days of the date when Neurocrine
informs Lilly, in writing, that it has finished screening the
Research Records Cassette against Neurocrine's Corticotropin
Releasing Factor-Binding Protein Ligand Inhibitor assays (to the
extent such
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Research and License Agreement Page 29
payment has not already been made to Neurocrine pursuant to
Section 10.8, below);
(b) A running royalty, subject to Section 8.3, of [ * ] of the Net
Sales of each Product sold by Lilly for the treatment of
Dementia in countries outside of the United States;
(c) A running royalty of [ * ] of the Net Sales of each Product sold
by Lilly for the treatment of indications associated with the
Field other than Dementia in countries outside of the United
States;
(d) A running royalty of [ * ] of the Net Sales of each Product sold
by Lilly for the treatment of indications associated with the
Field other than Dementia in the United States; and
(e) Milestone payments as follows:
<TABLE>
<CAPTION>
Milestone Payment
(United States Dollars)
First Product for Second Product
Dementia or for Dementia or
Milestone Event Obesity Obesity
<S> <C> <C>
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Research and License Agreement Page 30
The milestones set forth above will be paid for the first
Product to achieve the required status and the first of such
Products to obtain Project Team Compound status shall determine
the milestone stream associated with the particular indication
at issue (i.e., if the first Product to obtain Project Team
Compound status is being developed for the treatment of Obesity,
the larger milestone stream set forth in the table above shall
be associated with Obesity and the smaller milestone stream set
forth in the Table above shall be associated with Dementia and
vice versa if the first Product to obtain Project Team Compound
status is being developed for the treatment of Dementia).
Further, no Product will receive more than one milestone stream
(i.e., no milestone payment required for a second indication of
any Product) and no milestone payment need be made more than
once.
Section 6.01 Term of Royalty Payment. Running royalties paid by Lilly
pursuant to Section 6.1(b), (c) or (d) shall be paid on a country-by-country
basis from the date of the first sale of each Product in a particular country
until the later of (a) the last to expire of any Patent Rights in the particular
country for which a valid claim thereof covers the sale of the Product or (b)
the last to expire of any Patent Rights in the country in which the Product is
manufactured for which a valid claim of such Patent Rights covers all making,
using or selling of the Product in the country of manufacture. As used herein,
the term "valid claim" refers to a claim of an issued patent which has not been
found to be unpatentable,
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Research and License Agreement Page 31
invalid or unenforceable by a court or other authority in the subject country,
from which decision no appeal is taken or can be taken.
Section 6.02 Payments. Royalty payments hereunder shall be made to
Neurocrine or its designee quarterly within sixty (60) days following the end of
each calendar quarter for which royalties are due and shall be made in United
States dollars. Each royalty payment shall be accompanied by a statement stating
the Net Sales of Product during the relevant three (3) month period. Lilly's
current standard exchange rate methodology will be employed for the translation
of foreign currency sales into United States dollars. This methodology is used
by Lilly in the translation of its foreign currency operating results for
external reporting, is consistent with generally accepted accounting principles,
and is approved and reviewed by Lilly's independent certified public
accountants.
Section 6.03 Records. Lilly shall keep and maintain records of sales of
Product. Such records shall be open to inspection, at any reasonable time within
two (2) years after the royalty period to which such records relate, by Lilly's
independent certified public accountant and such inspection shall be at
Neurocrine's expense. The independent certified public accountant shall have the
right to examine the records kept pursuant to this Section 6.4 and report to
Neurocrine the findings of said examination of records insofar as necessary to
verify the statements made pursuant to Section 6.3. Said findings shall be
maintained in confidence by Neurocrine. If the accountant's findings vary by
more than five (5) percent from Lilly's statement and such variance is to the
disadvantage of Neurocrine, Lilly will refund Neurocrine the cost of such audit
examination.
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Research and License Agreement Page 32
Section 6.04 Taxes. Any and all taxes levied on account of royalties
accruing under this Article shall be paid by Neurocrine. If laws or regulations
require withholding of said taxes, such taxes will be deducted by Lilly from
such remittable royalty and will be paid by Lilly to the proper taxing
authority, and proof of payment shall be sent to Neurocrine, in the form of a
copy of the wire transfer Lilly utilized to make such payments, within sixty
(60) days following payment thereof.
ARTICLE VII
RESEARCH RECORDS CASSETTE
Section 7.00 Supply of the Research Records Cassette. By January 1,
1997, Lilly shall supply Neurocrine with a copy of the Research Records Cassette
(or a portion thereof should Lilly have insufficient quantities of any of the
compounds contained in such Cassette). The compounds contained within such
Cassette shall be supplied to Neurocrine in the form of [ * ] solution and all
compounds supplied to Neurocrine hereunder shall be supplied blinded. Neurocrine
agrees that it (i) will store the Research Records Cassette in a locked, secure
facility and will ensure that only authorized Neurocrine employees have access
to the Research Records Cassette; (ii) will not test the compounds of the
Research Records Cassette other than as allowed in Section 7.2; (iii) will not
attempt to determine the structures of the compounds contained in the Research
Records Cassette; and (iv) will not attempt to replicate the Research Records
Cassette or any compound contained therein without Lilly's prior written
permission. Neurocrine, further, agrees that Lilly shall have the ability to
audit Neurocrine's compliance with its obligations with respect to the Research
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 34
Research and License Agreement Page 33
Records Cassette under this Section at such times and intervals as is reasonably
convenient to both parties.
Section 7.01 Neurocrine's Use of the Research Records Cassette. Should
Neurocrine develop or obtain an assay outside the Field and wish to test the
Research Records Cassette against such assay in order to assess the activity of
the compounds contained within such Cassette in such assay system, Neurocrine
may do so provided at least [ * ] of such assays are predictive of
pharmacological uses which fall within Lilly's Strategic Focus. Prior to
actually testing the compounds contained within such Cassette against the assay
at issue, Neurocrine shall supply Lilly with sufficient information regarding
the assay system, and the known and the potential pharmacological uses
associated with such assay system, for Lilly to determine whether the
pharmacological uses associated with such assay system fall within Lilly's
Strategic Focus. Lilly shall consider the information supplied by Neurocrine as
expeditiously as reasonably practical, and shall then inform Neurocrine, in
writing, as to whether the pharmacological uses associated with the assay system
fall within Lilly's Strategic Focus, should such uses fall within Lilly's
Strategic Focus, Lilly shall have the ability to prevent Neurocrine's testing of
the Research Records Cassette in the assay at issue only if (i) Lilly has an
internal program which would compete with the assay at issue; (ii) Lilly already
has a contractual obligation, or has a good faith belief that it is about to
enter into a transaction for which Lilly had been engaged in substantial
negotiations prior to receipt of the information from Neurocrine, which would
prohibit Neurocrine from testing the Research Records Cassette in the assay at
issue, (iii) Lilly has a good faith belief that it has already tested the
Research Records Cassette in the assay at issue; or (iv) Lilly has
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 35
Research and License Agreement Page 34
a good faith belief that the assay at issue is not predictive of the
pharmacological utility claimed by Neurocrine. All other tests of the Research
Records Cassette by Neurocrine within Lilly's Strategic Focus shall be allowed.
Furthermore, all tests of the Research Records Cassette by Neurocrine outside of
Lilly's Strategic Focus shall be allowed, provided Neurocrine complies with the
requirements in this first sentence of this Section 7.2 that at least[ * ]
assays tested by Neurocrine are predictive of pharmacological uses which fall
within Lilly's Strategic Focus. At the time Lilly informs Neurocrine as to
whether the pharmacological uses associated with the assay system fall within
Lilly's Strategic Focus, Lilly shall also notify Neurocrine, in writing, as to
whether any of items (i) - (iv), above, apply.
Section 7.02 Results. Once Neurocrine has completed its testing of the
compounds contained within the Research Records Cassette, it shall provide Lilly
with a written copy of its test results and shall, further, advise Lilly, in
writing, of any Positive Hits which resulted from its testing. Neurocrine shall,
further, at Lilly's discretion, destroy or return to Lilly all remaining
portions of the Cassette. Within thirty (30) days of receipt of the list of
Positive Hits from Neurocrine, Lilly shall then provide Neurocrine with the
structures of such Positive Hits, such additional quantity of material as is
reasonably necessary for Neurocrine to conduct dose response curve studies on
such Positive Hits and a list of any patents and/or patent applications which
Lilly owns the claims of which cover the Positive Hits, to the extent Lilly does
not have pre-existing obligations with respect to such Hits which would prevent
such disclosure.
Section 7.03 Ownership and Patent Applications. To the extent Lilly does
not already own a patent or patent application which covers any particular
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 36
Research and License Agreement Page 35
Positive Hit, Neurocrine shall own all inventions, patentable or otherwise,
information and data generated during the course of its work under this Article
with respect to such Hit. Should a patentable invention arise during the course
of such work, Lilly and Neurocrine shall consult with each other as to the
desirability of filing a patent application on such invention. If the parties
concur that filing of a patent application is appropriate, Neurocrine shall file
such application and Neurocrine shall be totally responsible for the
preparation, prosecution and maintenance of such application and any patents
resulting therefrom. Lilly agrees to cooperate with Neurocrine as needed in the
preparation and prosecution of such application. Neurocrine agrees that, if such
application contains a claim which encompasses the Positive Hit within the scope
of such claim, it will grant Lilly a worldwide, non-exclusive license (with
right to sublicense) with respect to such Positive Hit and will supply Lilly
with a copy of such patent application within fifteen (15) days of the filing of
such application with the United States Patent Office so that Lilly can consider
whether such filings unduly prejudices its interests in the Positive Hit or
compounds similar in structure thereto. If Lilly reasonably believes such filing
unduly prejudices its interest, Lilly and Neurocrine agree to discuss in good
faith how to ameliorate Lilly's concerns regarding such application. Should
Neurocrine ultimately commercialize such Positive Hit, the non-exclusive license
granted to Lilly above shall terminate.
Finally, if Neurocrine files a patent application on an invention
encompassed by this Article and yet, later, decides that it no longer wishes to
continue prosecution and/or maintenance of such application (or any patent
resulting therefrom), Neurocrine shall inform Lilly of its decision to
discontinue
<PAGE> 37
Research and License Agreement Page 36
prosecution and/or maintenance prior to discontinuance. Lilly may then elect to
continue prosecution and/or maintenance of such application or patent at its
sole expense, provided that if it does elect to continue prosecution and/or
maintenance, Lilly shall reimburse Neurocrine for all out-of-pocket expenses
previously incurred by Neurocrine in filing, prosecuting or maintaining such
application or patent and Neurocrine shall provide all reasonable assistance
(including preparing any papers required to allow Lilly to prosecute and/or
maintain such application) required by Lilly in prosecuting and/or maintaining
such application or patent. If Neurocrine elects to discontinue prosecuting
and/or maintenance of an application or patent encompassed hereunder, and Lilly
elects to continue prosecution and/or maintenance of such application or patent,
Neurocrine shall lose all ownership rights to such application or patent and
such rights shall vest totally in Lilly. The decision by Neurocrine not to
proceed into the National Phase of the Patent Cooperation Treaty patenting
process in every country originally designated as a Designated Country in any
Patent Cooperation Treaty patent application encompassed by this Article shall
not, by itself, be considered as an election to discontinue prosecution.
Section 7.04 License. Lilly shall grant Neurocrine a worldwide license
to any patents owned by Lilly which would be infringed by Neurocrine's exercise
of its rights under this Agreement, to the extent Lilly does not have a
pre-existing obligation which would be inconsistent with such license grant to
Neurocrine. Such license grant, moreover shall be limited to Positive Hits
(non-exclusive license unless such Positive Hit is being commercially developed
by Neurocrine in which case the license shall be exclusive) and those
pharmacological uses associated with same as disclosed to Lilly by Neurocrine
pursuant to Section 7.00,
<PAGE> 38
Research and License Agreement Page 37
above (exclusive license). All other uses shall remain the exclusive property of
Lilly. Any licenses granted to Neurocrine herein may be sublicensed to a third
party provided the terms of such sublicense are consistent with the terms of
Neurocrine's license as described in this Article.
Section 7.05 Compensation. Compensation to Lilly for providing
Neurocrine access to the Research Records Cassette and for the licenses granted
to Neurocrine pursuant to Section 7.5, above, shall be as set forth in Sections
7.7 and 7.8, below.
Section 7.06 License Outside of Lilly's Strategic Focus. As compensation
for pharmaceutical uses which are not within Lilly's Strategic Focus (as
determined pursuant to the provisions of Section 7.2, above), Neurocrine agrees
to pay Lilly the following monies:
(a) a running royalty of [ * ] of the net sales (where net sales
shall be as defined in Section 1.23 above except that
"Neurocrine" shall be substituted for "Lilly" and "product"
shall be substituted for "Product" in the definition set forth
in such Section) of any product [where product shall be defined
as the Positive Hit or any compound generated by Neurocrine as
part of a structure activity relationship (SAR) study around
such Positive Hit] sold by Neurocrine, or any sublicensees
thereof, for such pharmaceutical uses in any country in the
world; and
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 39
Research and License Agreement Page 38
(b) milestone payments as follows:
Milestone Payment
Milestone Event (U.S. Dollars)
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
The milestones set forth above in this Section 7.4 will be paid
for each product which achieves the required status and such
milestones shall be payable upon the first to occur of (i) the
sublicense of Neurocrine's rights on product to a third party
(in which case such sublicense milestone and any milestones
previously achieved by Neurocrine shall be payable) or (ii) FDA
approval of the product (in which case all milestones shall be
payable).
Section 7.07 License Inside Lilly's Strategic Focus. With respect to any
license granted to Neurocrine pursuant to the provisions of Section 7.5, above,
which encompasses pharmaceutical uses which are within Lilly's Strategic Focus
(as determined pursuant to the provisions of Section 7.1, above), Neurocrine
agrees to grant Lilly a first right of negotiation should Neurocrine elect to
seek a partner to develop such Positive Hit (or any compound generated by
Neurocrine as part of an SAR study around such Positive Hit) for any of such
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 40
Research and License Agreement Page 39
pharmaceutical uses. Such first right of negotiation shall last for a [ * ]
month period, which period shall commence upon Neurocrine's notification to
Lilly, via registered mail, that Neurocrine is interested in collaborating with
another party on developing the Positive Hit or any compound generated by
Neurocrine as part of an SAR study around such Positive Hit.
Should Neurocrine and Lilly, despite good faith negotiations, fall to
reach agreement on an appropriate co-development agreement during the requisite
[ * ] month period, Neurocrine shall then be free to pursue opportunities with
other partners. Lilly, moreover, shall have the right to continue to negotiate
with Neurocrine on an appropriate co-development agreement even after expiration
of Lilly's [ * ] month period of exclusivity. However, in order to accept an
opportunity with a partner other than Lilly, Neurocrine must achieve economics
greater than [ * ] above the last offer received from Lilly (to the extent Lilly
has made an offer), calculated as follows:
[ * ]
[ * ]
[ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 41
Research and License Agreement Page 40
Item (c) above, shall be calculated by multiplying the probability of reaching
each clinical development milestone from the following chart by the milestone
payment set forth below.
[ * ]
The discount rate for the probablized net present value cash flow calculation
shall be [ * ] Should Neurocrine be able to obtain an arrangement with a party
other than Lilly which exceeds the economics described above, Neurocrine shall
pay Lilly the following monies:
(a) a running royalty of [ * ] of the net sales (where net sales is
as defined in Section 7.7, above) of any product (where product
is also as defined in Section 7.7, above) sold by Neurocrine, or
any sublicensee thereof, for pharmaceutical uses within Lilly's
Strategic Focus in any country in the world; and
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Research and License Agreement Page 41
(b) milestone payments as follows:
[ * ]
The milestones set forth above will be paid for each product
which achieves the required status and such milestones shall be
payable upon the first to occur of (i) the sublicense of
Neurocrine's rights on product to a third party (in which case,
such sublicense milestone and any milestones previously achieved
by Neurocrine shall be payable) or (ii) FDA approval of the
product (in which case, all milestones shall be payable).
Finally, should Neurocrine be unable to obtain an arrangement with a
party other than Lilly which exceeds the economics described above within [ * ]
year of the expiration of Lilly's right of first negotiation, Neurocrine shall
then grant Lilly a further first right of negotiation with respect to such
product. Such additional first right of negotiation shall last for a [ * ]
period as well. If, after expiration of this additional first right of
negotiation period, the parties still are unable to reach an arrangement with
respect to the product, Neurocrine shall then be free and clear to make an
arrangement with another party.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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However, upon expiration of such additional first right of negotiation
period, Neurocrine shall pay Lilly all of the milestones set forth above except
for the sublicense milestone. Such sublicense milestone, moreover, shall become
payable should Neurocrine later sublicense its rights on product to a third
party.
However, in the event that Lilly does not make a good faith offer to
Neurocrine in the additional [ * ] first right of negotiation period, upon
expiration of such period, Neurocrine shall be obligated to pay to Lilly any
milestones heretofore achieved, and shall be further obligated to pay remaining
milestones as follows: (i) upon the sublicense of Neurocrine's rights on product
to a third party (in which case, such sublicense milestone and any additional
milestones achieved by Neurocrine as of the time of such sublicense shall be
payable) or (ii) upon FDA approval of the product (in which case, all milestones
shall be payable).
Section 7.08 Term of Royalty Payment. Running royalties paid by
Neurocrine, or a sublicensee thereof, pursuant to Section 7.7(a) or 7.8(a),
shall be paid on a country-by-country basis from the date of the first
commercial sale of each product in a particular country until the later of (a)
the last to expire of any patent rights in the particular country for which a
valid claim thereof covers the sale of the product, or (b) the last to expire of
any patent rights in the country in which the product is manufactured for which
a valid claim of such patent rights covers all making, using or selling of the
product in the country of manufacture. As used herein, the term "valid claim"
refers to a claim of an issued patent which has not been found to be
unpatentable, invalid or unenforceable by a court or other authority in the
subject country, from which decision no appeal is taken or can be taken.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Section 7.09 Payments. Royalty payments made pursuant to this Article
shall be made to Lilly or its designee quarterly within sixty (60) days
following the end of each calendar quarter for which royalties are due and shall
be made in United States dollars. Each royalty payment shall be accompanied by a
statement stating the net sales of product during the relevant three (3) month
period. Exchange rates obtained from the Wall Street Journal as of the close of
each calendar quarter for which royalties are due will be employed for the
translation of foreign currency sales into United States dollars.
Section 7.10 Records. Neurocrine shall keep and maintain records of
sales of product. Such records shall be open to inspection, at any reasonable
time within two (2) years after the royalty period to which such records relate,
by Neurocrine's independent certified public accountant and such inspection
shall be at Lilly's expense. The independent certified public accountant shall
have the right to examine the records kept pursuant to this Section 7.11 and
report to Lilly the findings of said examination of records insofar as necessary
to verify the statements made pursuant to Section 7.10. Said findings shall be
maintained in confidence by Lilly. If the accountants' findings vary by more
than five (5) percent from Neurocrine's statement, and such statement is to the
disadvantage of Lilly, Neurocrine will refund Lilly the cost of such audit
examination.
Section 7.11 Taxes. Any and all taxes levied on account of royalties
accruing under this Article shall be paid by Lilly. If laws or regulations
require withholding of said taxes, such taxes will be deducted by Neurocrine
from such remittable royalty and will be paid by Neurocrine to the proper taxing
authority, and proof of payment shall be sent to Lilly within sixty (60) days
following payment thereof.
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Research and License Agreement Page 44
Section 7.12 Commercialization Efforts. Should any Positive Hits result
from Neurocrine's testing pursuant to this Article, Neurocrine agrees to
exercise reasonably diligent efforts toward developing and commercializing any
products which result from such Hits according to its usual business practices
for products of similar potential and value. In connection with developing such
Hits, or any compound generated by Neurocrine as part of an SAR study around
such Positive Hit, Neurocrine shall provide to Lilly an annual report
summarizing the efforts devoted to such a compound in that year. All such
reports and all information contained in such reports, including without
limitation, information relating to the purpose for which such compounds are
being developed, which of such compounds are being developed and the status of
such development, shall be maintained in confidence by Lilly. The obligation to
provide such reports shall begin once a compound is identified as a Positive Hit
and shall continue until development of such compound, or any compound generated
by Neurocrine as part of an SAR study around such compound, is terminated or
upon the first sale of product comprising any of such compounds.
ARTICLE VIII
CO-PROMOTION
Section 8.00 Co-Promotion Option. Lilly hereby grants to Neurocrine an
option to co-promote any Product sold by Lilly for Dementia in the United
States. Lilly shall totally fund the development effort of any such Product up
to [ * ]. At that point in time Lilly shall advise Neurocrine, in
writing, of the fact that a Product being developed for Dementia has reached
[ * ] and shall provide Neurocrine with an estimate of all remaining
costs required to
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 46
Page 45
obtain FDA approval of Product for Dementia and a budget for such costs.
Neurocrine shall then have [ * ] in which to advise Lilly, in writing, as to
whether it intends to exercise its co-promotion option. If Neurocrine elects to
exercise its option, Neurocrine shall then be responsible for [ * ] of all
further external expenses associated with obtaining regulatory approval of such
Product from the FDA. Neurocrine shall, further, be responsible for [ * ] of any
internal expenses incurred by Lilly in obtaining such regulatory approval as
well, and such internal expenses shall be charged to Neurocrine on a fully
allocated basis. Should Neurocrine elect not to exercise its co-promotion option
within the requisite [ * ] day period, Neurocrine shall lose all rights to
co-promote such Product for Dementia and Lilly shall then remain totally
responsible for obtaining regulatory approval of such Product from the FDA.
Section 8.01 Compensation/Exercise of Options. If Neurocrine elects to
exercise its option to co-promote as set forth in Section 8.1, above, Neurocrine
shall receive [ * ] of the Gross Profits on sales of such Product for Dementia
in the United States. To retain its right to co-promote such Product for
Dementia in the United States, Neurocrine shall provide at least [ * ] of the
sales details (as determined by IMS audit or any other sales or promotional
audit mutually acceptable to the parties) required for such Product on an annual
basis.
Alternatively, if Neurocrine determines that it would like to provide
less than [ * ] of the sales details, Neurocrine may do so and still retain its
right to co-promote, provided it reimburses Lilly for the additional details
which Lilly is then required to conduct in order to adequately detail the
market.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Such reimbursement to Lilly shall be on a fully allocated cost per
detail basis. In no respect, however, shall Neurocrine's level of detail effort
fall below [ * ] of the sales details required for such Product on an annual
basis. Should Neurocrine ever be unable to participate even at this minimal
[ * ] detail level, Neurocrine will lose its right to co-promote such Product
for Dementia in the United States. Compensation to Neurocrine for such sales of
Product for Dementia in the United States shall then be provided by a running
royalty of [ * ] of the Net Sales of such Product for Dementia in the United
States.
With respect to such co-promotion arrangement, each party agrees to bear
their own costs of promotion and detailing. All methods and materials used in
any such co-promotion shall be within the bounds of the New Drug Application for
the Product and shall be subject to prior review by Lilly. The remaining
conditions of a co-promotion agreement between the parties, including the
procedures utilized to establish the total details expected by the parties on an
annual basis, shall be negotiated and agreed upon no later than [ * ] months
prior to the anticipated introduction of Product in the United States and shall
contain such terms as are normal and customary in the pharmaceutical industry
for similar co-promotion arrangements.
Section 8.02 Co-Promotion/No Exercise of Option. If Neurocrine fails to
exercise its option to co-promote as set forth in Section 8.1, above, within the
requisite [ * ] day time period, Neurocrine shall lose its right to
co-promote such Product for Dementia in the United States. Compensation to
Neurocrine for such sales of Product for Dementia in the United States shall
then be provided by a running royalty of [ * ] of the Net Sales
of such Product for
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 48
Research and License Agreement Page 47
Dementia in the United States. In addition, the running royalty rate on Net
Sales of such Product for Dementia in countries outside of the United States
shall increase from [ * ] to [ * ]
Section 8.03 Co-Promotion/Obesity. Within [ * ] after Lilly notifies
Neurocrine, in writing, of the [ * ] for
any Product for Obesity, Neurocrine may notify Lilly, in writing, of its desire
to co-promote such Product. The parties will then meet promptly to discuss in
good faith whether it would be commercially appropriate, and on what basis it
would be commercially appropriate, for Neurocrine to participate in marketing
such Product with Lilly in the United States. The ultimate decision as to
whether or not it is commercially appropriate for Neurocrine to participate in
marketing such Product, however, shall be [ * ], provided [ * ] makes such
decision in good faith.
ARTICLE IX
CONFIDENTIALITY
Section 9.00 Except as otherwise expressly provided in this Agreement,
both Lilly and Neurocrine shall use their best efforts to retain in confidence
and not use except as provided in this Agreement all information relating to
Existing Neurocrine Technology or Project Technology or received from the other
during the course of the Project including Lilly Information. Such information
may, however, be disclosed insofar as such disclosure is necessary (where
possible, with adequate safeguards for confidentiality) to allow either party to
defend against litigation with a third-party, to file and prosecute patent
applications or to comply with governmental regulations provided Neurocrine
shall not use Lilly
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 49
Research and License Agreement Page 48
Information in any patent application without Lilly's written approval
and Lilly shall not use Existing Neurocrine Technology or Project Technology
owned by Neurocrine in any patent application without Neurocrine's written
approval. Such obligation of confidentiality shall be waived as to information
which (i) is in the public domain, (ii) comes into the public domain through no
fault of the party claiming waiver, (iii) the party claiming waiver can show by
written records was known by it prior to disclosure hereunder, or (iv) is
disclosed to the party claiming waiver without obligation of confidentiality by
a third party having a lawful right to make such disclosure. Either Neurocrine
or Lilly, in furtherance of the objectives of the Project, may disclose
confidential information obtained or generated under this Agreement to third
parties who have agreed in writing to be bound by the same or similar
obligations of confidence set forth herein, and provided such third parties
agree not to use such confidential information other than in furtherance of the
objectives of the Project. All obligations of confidentiality and nonuse imposed
upon Neurocrine and Lilly under this Agreement shall expire on the later of ten
years from termination of the Project, as such term is described in Section
10.2, or expiration of all royalty obligations pursuant to Article VI or Article
VII whichever is later.
ARTICLE X
TERM AND TERMINATION
Section 10.00 Agreement Term. This Agreement shall become effective on
the Effective Date and shall remain in effect, unless terminated earlier
pursuant to Sections 10.5 or 10.6, until the later of the expiration of all
royalty obligations pursuant to Article VI or Article VII, or the expiration of
all obligations of
<PAGE> 50
Research and License Agreement Page 49
confidentiality under Article IX, whereupon Lilly shall have fully paid up
licenses pursuant to Section 5.1.
Section 10.01 Project Term. Unless extended pursuant to Sections 10.3 or
10.4, or terminated early pursuant to Sections 10.5 or 10.6, the Project shall
terminate on October 31,1999.
Section 10.02 Voluntary Extension of Project. By mutual agreement of
Neurocrine and Lilly, the Project may be extended for additional periods which
contemplate additional funding by Lilly and continuing studies by Neurocrine and
Lilly.
Section 10.03 Mandatory Extension of Project. The term of the Project
shall be automatically extended for two (2) additional years provided at least
one (1) Project Team Compound results from Project during the first three years
of the Project and either (i) Neurocrine and Lilly discover a new disease or
disorder within the Field other than Obesity or Dementia or (ii) the Research
Team determines that continuation of the Project is of interest to both Lilly
and Neurocrine. If at least two (2) Project Team Compounds have not resulted
from the Project, Lilly may terminate Project early, with three (3) months
written notice to Neurocrine, provided such notice may not be provided to
Neurocrine prior to July 31, 2000. During such mandatory extension of Project,
Lilly agrees that during the fourth year of such Project, Lilly shall provide
funding for the Project pursuant to the provisions of Article III. In the fifth
year of such Project, however, the Research Team shall determine the goals to be
achieved during such fifth year and then shall determine, in good faith, whether
Neurocrine is able to provide [ * ] Scientific Person Years worth of expertise
capable of helping achieve the goals set by the Research Team. If the Research
Team, in
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 51
Research and License Agreement Page 50
good faith, determines that Neurocrine is not able to provide such amount of
expertise, Lilly can then reduce the number of Scientific Person Years being
funded at Neurocrine, provided, however, that in no event shall Lilly reduce the
number of Scientific Person Years being funded at Neurocrine to less than nine
(9) Scientific Person Years. If such mandatory extension of Project occurs, all
terms of the present Agreement, except for the number of Scientific Person Years
funded by Lilly in the fifth year of the Project, shall apply to such extension.
Section 10.04 Early Termination-Breach. If either party shall be in
default of any of its material obligations under this Agreement and shall fail
to remedy such default within ninety (90) days after receipt of written notice
thereof, the party not in default shall have the option of terminating the
Project or this Agreement upon giving three (3) months written notice of such
termination. In the event Neurocrine assigns this Agreement to an acquiring
third-party pursuant to Section 15.6, Neurocrine's co-promotion options under
Article VIII shall terminate but all other provisions of this Agreement shall
survive.
Section 10.05 Early Termination-Blocking Patents. If any third party
patents which would make it impractical to continue the Project and/or this
Agreement come to the attention of either of the Parties, both Parties shall
have the right to terminate the Project or this Agreement upon giving three (3)
months written notice of such termination.
Section 10.06 Effect of Termination-Project. Termination of the Project
shall not affect the rights and obligations of the parties accrued under this
Agreement prior to termination. In particular, all licenses granted under
Articles V (provided Lilly is not the defaulting party) and VII (provided
Neurocrine is not a defaulting party), all royalties owed under Articles VI and
<PAGE> 52
Research and License Agreement Page 51
VII, Neurocrine's co-promotion options under Article VIII (provided Neurocrine
is not a defaulting party) and all obligations under Article IX shall survive.
All levels of continued funding from the notice of termination, if termination
is pursuant to Section 10.5, above, until the effective date of termination
shall be in accordance with the budget then in effect at the time of notice of
termination.
Section 10.07 Effect of Termination-Agreement. Termination of this
Agreement shall not affect the rights and obligations of the parties accrued
under this Agreement prior to termination. In particular, all royalties owed
under Articles VI and VII and all obligations under Article IX shall survive.
Section 10.08 Failure to Timely Deliver Records and Cassette. If Lilly
fails to deliver the Research Records Cassette by January 1, 1997, such failure
to deliver the Cassette in a timely manner shall be considered a breach of this
Agreement. Neurocrine's sole remedy for such breach shall be a lump sum payment
from Lilly to Neurocrine of [ * ] United States dollars [ * ] which payment
shall be considered liquidated damages recompensing Neurocrine's injuries for
Lilly's breach.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 53
Research and License Agreement Page 52
ARTICLE XI
DISCLOSURE OF AGREEMENT
Section 11.00 Disclosure of Agreement. Except as provided below, neither
Neurocrine nor Lilly shall release any information to any third party with
respect to the existence and terms of this Agreement without the prior written
consent of the other. This prohibition includes, but is not limited, to further
press releases, educational and scientific conferences, promotional materials,
governmental filings, and discussions with public officials and the media.
If either party determines a release of further information is required
by law or governmental regulation, it shall notify the other in writing at least
thirty (30) days before the time of the proposed release. The notice shall
include the exact text of the proposed release and the time and manner of the
release. At the other party's request and before the release, the party desiring
to release such further information shall consult with the other party on the
necessity for the disclosure and the text of the proposed further release. In no
event shall a release include further information regarding the existence or
terms of this Agreement that is not required by law or governmental regulation
or unless already publicly disclosed.
Appendix V is a press release, and questions and answers thereto, and
other information regarding the Agreement, which the parties will prepare and
release within thirty (30) days of signing this Agreement. Lilly and Neurocrine
acknowledge that release of the materials contained in Appendix V does not
violate the provisions of this Section 11.1. Except for those materials in
Appendix V, the restriction of Section 11.1 shall apply.
<PAGE> 54
Research and License Agreement Page 53
ARTICLE XII
REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
Section 12.00 Warranty of Title. Lilly and Neurocrine hereby warrant
that they have the right to enter into this Agreement, to grant the rights
contained herein and to provide the information and biological materials
hereunder.
Section 12.01 Prior Art. Except for broad-based university-owned patents
for which non-exclusive licenses are available, Lilly and Neurocrine represent
and warrant that, as of October 1, 1996, they and their employees have no
knowledge of any United States or foreign pending patent application or issued
patent which might be infringed by the practice of Existing Neurocrine
Technology or in carrying out the Project.
Section 12.02 Employee Obligations. Lilly and Neurocrine represent and
warrant that all of their respective employees, officers, and consultants have
legal obligations whether imposed by agreement or law requiring assignment to
Neurocrine or Lilly, as appropriate, all inventions relating to Existing
Neurocrine Technology, Project Technology and Existing Lilly Compound made
during the course of and as the result of their association with Neurocrine or
Lilly, as appropriate, and obligating the individual to maintain as confidential
Neurocrine's or Lilly's, as appropriate, confidential information as well as any
confidential information of a third party which Neurocrine or Lilly may receive.
Section 12.03 Acknowledgment of Reliance. Neurocrine acknowledges that
Lilly in entering into this Agreement has materially relied on the
representations and warranties of Neurocrine contained in this Article XII.
Lilly acknowledges that Neurocrine in entering into this Agreement has
materially relied on the representations and warranties of Lilly contained in
this Article XII.
<PAGE> 55
Research and License Agreement Page 54
Section 12.04 Acknowledgment of Lilly's Research. Neurocrine
acknowledges and agrees that Lilly has substantial existing technology relating
to Dementia, Obesity as well as, potentially, other disorders associated with
Corticotropin Releasing Factor, and that Lilly will continue to maintain an
ongoing independent research effort outside the Field directed to Dementia,
Obesity and such other disorders. This effort may result in drugs with no
royalty obligations to Neurocrine. This research effort will not affect any
royalties owed to Neurocrine under this Agreement.
ARTICLE XIII
INFRINGEMENT OF THIRD PARTY'S RIGHTS
Section 13.00 Settlement. If a third party asserts that a patent or
other right owned by it is infringed by the unauthorized use of Existing
Neurocrine Technology or Project Technology or the making, use or sale by Lilly
or its sublicenses of an Existing Neurocrine Compound, a Joint Compound or a New
Compound developed or acquired by Neurocrine, Neurocrine and Lilly working
together may attempt to resolve the problem raised by the asserted infringement.
The matter shall be deemed resolved if Neurocrine or Lilly obtains: (a) a
license permitting Lilly to use Existing Neurocrine Technology and Project
Technology and to make, have made, use and sell such Existing Neurocrine
Compound, Joint Compound or New Compound in such country with no additional
royalties payable by Lilly; or (b) a statement or representation from such third
party that: (1) no action will be taken against Lilly or Lilly's sublicenses, or
(2) that the patent or other right is not infringed by Lilly or Lilly's
sublicensees; or (c) a holding that
<PAGE> 56
Research and License Agreement Page 55
the patent is invalid, or the patent or other right is unenforceable or not
infringed by a court of competent jurisdiction from which no appeal has or can
be taken.
Section 13.01 Litigation. If the use of Existing Neurocrine Technology
or Project Technology or the making, use or sale of an Existing Neurocrine
Compound, a Joint Compound or a New Compound developed or acquired by
Neurocrine, results in a claim for patent infringement against Lilly, the party
to this Agreement first having notice of such claim shall promptly notify the
other party in writing, which notice shall set forth the facts of such claim in
reasonable detail. Neurocrine shall cooperate with Lilly at Lilly's request and
expense, in the defense of any such claim. Neurocrine shall have the right to be
represented by counsel of its own choice and at Neurocrine's expense.
Section 13.02 Royalty Reduction. If, as a result of settlement
procedures or litigation under Sections 13.1 or 13.2, Lilly is required to pay
the third party a royalty or make any payment of any kind for the right to make,
have made, use, and sell or continue to make, have made, use, and sell such
Existing Neurocrine Compound, Joint Compound or New Compound, or to use Existing
Neurocrine Technology or Project Technology in a particular country, Lilly may
deduct, from the amount of royalties owed to Neurocrine in connection with the
same country, [ * ] of the amount of the royalty or such other amount payable to
the third party up to, but no more than, [ * ] of the amounts otherwise payable
to Neurocrine in connection with the particular country.
Section 13.03 Third Party Infringement. If any patent obtained by
Neurocrine for Existing Neurocrine Technology, Project Technology, an Existing
Neurocrine Compound or a New Compound which is a Neurocrine Compound is
infringed by a third party, the party to this Agreement first having knowledge
of
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 57
Research and License Agreement Page 56
such infringement shall promptly notify the other in writing, which notice shall
set forth the facts of such infringement in reasonable detail. Neurocrine shall
have the primary right, but not the obligation, to institute, prosecute, and
control any action or proceeding with respect to such infringement of its Patent
Rights, by counsel of its own choice, and Lilly shall have the right, at its own
expense, to be represented in such action by counsel of its own choice. If
Neurocrine shall fail to bring such action or proceeding within a period of one
hundred twenty (120) days after receiving written notice from Lilly or otherwise
having knowledge of such infringement, Lilly shall have the right to bring and
control any such action by counsel of Lilly's own choice, and Neurocrine shall
have the right, at its own expense, to be represented in any such action by
counsel of its own choice. If one party brings any such action or proceeding,
the second party agrees, if necessary, to be joined as a party plaintiff and to
give the first party reasonable assistance and authority to file and to
prosecute such suit. The costs and expenses of all suits brought by either party
under this Section 13.4 shall be reimbursed on a pro-rata basis to both parties
out of any damages or other monetary awards recovered therein in favor of
Neurocrine and/or Lilly. Any remaining damages shall then belong to the party
bringing and prosecuting such action or proceeding. No settlement or consent
judgment or other voluntary final disposition of a suit under this Section 13.4
may be entered into without the joint consent of Neurocrine and Lilly (which
consent shall not be withheld unreasonably).
<PAGE> 58
Research and License Agreement Page 57
ARTICLE XIV
GOVERNMENT CONTROL
Section 14.00 Authority. This Agreement is made subject to any
restrictions concerning the export of products or technical information from the
United States which may be imposed upon or related to Neurocrine or Lilly from
time to time by the government of the United States. Furthermore, each party
hereto agrees that it will not export, directly or indirectly, any technical
information acquired from the other under this Agreement or any products using
such technical information to any country for which the United States government
or any agency thereof at the time of export requires an export license or other
governmental approval, without first obtaining the written consent to do so from
the Department of Commerce or other agency of the United States government when
required by an applicable statute or regulation.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.00 No Agency. It is understood and agreed that Neurocrine
shall have the status of an independent contractor under this Agreement and that
nothing in this Agreement shall be construed as authorization for either Lilly
or Neurocrine to act as agent for the other. Members of the Research Team shall
be and shall remain employees of Neurocrine or Lilly, as the case may be, and
Lilly shall not incur any liability for any act or failure to act by members of
the Research Team who are employees of Neurocrine. Likewise, Neurocrine shall
not incur any liability for any act or failure to act by employees of Lilly,
including members of the Research Team who are employees of Lilly.
<PAGE> 59
Research and License Agreement Page 57
Section 15.01 Force Majeure. Both parties to the Agreement shall be
excused from the performance of their obligations under this Agreement if such
performance is prevented by force majeure and notice of such prevention of
performance is promptly provided by the nonperforming party to the other party.
Such excuse shall be continued so long as the condition constituting force
majeure continues and the nonperforming party takes reasonable efforts to remove
the condition. For purposes of this Agreement, force majeure shall include
conditions beyond the control of the parties, including without limitation, an
act of God, voluntary or involuntary compliance with any regulation, law or
order of any government, war, civil commotion, epidemic, failure or default of
public utilities or common carriers, destruction of production facilities or
materials by fire, earthquake, storm or like catastrophe.
Section 15.02 Amendment. This Agreement may not be amended,
supplemented, or otherwise modified except by an instrument in writing signed by
both parties.
Section 15.03 Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been
sufficiently given for all purposes if mailed by first class certified or
registered mail, postage prepaid. Unless otherwise specified in writing, the
mailing addresses of the parties shall be as described below.
For Neurocrine: Neurocrine Biosciences, Inc.
3050 Science Park Road
San Diego, California 92121-1102
Attention: President
For Lilly: Eli Lilly and Company
<PAGE> 60
Research and License Agreement Page 59
Lilly Corporate Center
Indianapolis, Indiana 46285
Attention: Patent Division
Section 15.04 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana excluding any
choice of law rules which may direct the application of the law of any other
jurisdiction.
Section 15.05 Assignment. Neither party may assign its rights and
obligations under this Agreement without the prior written consent of the other
except a party may make such an assignment without the other party's consent in
the event of a merger or in connection with the sale of all or substantially all
of its assets to which this Agreement relates.
Section 15.06 Consents Not Unreasonably Withheld. Whenever provision is
made in this Agreement for either party to secure the consent or approval of the
other, such consent or approval shall not unreasonably be withheld, and whenever
in this Agreement provisions are made for one party to object to or disapprove a
matter, such objection or disapproval shall not unreasonably be exercised.
Section 15.07 No Strict Construction. This Agreement has been prepared
jointly and shall not be strictly construed against either party.
Section 15.08 Entire Agreement. The parties acknowledge and agree that
this Agreement includes the Appendices and, in combination with the
Confidentiality Agreement previously executed between Lilly and Neurocrine, and
the amendments thereto effective January 26 and March 27, 1996, respectively
(Appendix VI), constitutes the entire agreement and understanding relating to
<PAGE> 61
Research and License Agreement Page 60
the subject matter of this Agreement, provided, however, that should there be
any conflict between the terms of this Agreement (excluding Appendices) and the
terms of an Appendix, then this Agreement (excluding Appendices) shall control.
As such, with the exception of the Confidentiality Agreement, and the amendments
thereto, between Lilly and Neurocrine, the instant Agreement supersedes all
previous communications, proposals, representations and agreements, whether oral
or written, relating to the subject matter of this Agreement.
Section 15.09 Severability Each party agrees that, should any provision
of this Agreement be determined by a court of competent jurisdiction to violate
or contravene any applicable law or policy, such provision will be severed or
modified by the court to the extent necessary to comply with the applicable law
or policy, and such modified provision and the remainder of the provisions
hereof will continue in full force and effect.
Section 15.10 Waiver The waiver of a breach hereunder may be effected
only by a writing signed by the waiving party and shall not constitute a waiver
of any other breach.
Section 15.11 Headings The captions or headings of the Sections and
Articles are inserted only as a matter of convenience or for reference and shall
have no effect on the meaning of the provisions hereof.
Section 15.12 Counterparts This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement.
<PAGE> 62
Research and License Agreement Page
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate originals, by their respective officers thereunto duly authorized, the
day and year herein written.
ELI LILLY AND COMPANY NEUROCRINE BIOSCIENCES, INC.
By: /SIG/ By: GARY A. LYONS
-------------------------- --------------------------
Sidney Taurel Gary A. Lyons
President and Chief Operating Officer President
Date: Oct 15, 1996 Date: Oct 12, 1996
-------------------------- --------------------------
<PAGE> 63
APPENDIX I
PROJECT TEAM COMPOUNDS AND POTENTIAL PROJECT TEAM COMPOUNDS
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
The above-mentioned list shall include the non-salt, salt, and solvate forms of
any compounds set forth above, as well as the racemate and stereoisomer forms of
any chiral compounds.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 64
APPENDIX II
NEUROCRINE PATENT RIGHTS
<TABLE>
<CAPTION>
TITLE SERIAL NUMBER FILING DATE STATUS
====================================== ========================= ===================== =================
<S> <C> <C> <C>
[ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ]
[ * ] [ * ] [ * ] [ * ]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 65
APPENDIX III
RESEARCH AND DEVELOPMENT PROGRAM
<PAGE> 66
APPENDIX IV
EXISTING NEUROCRINE TECHNOLOGY PROVIDED PURSUANT TO SECTION 4.01
[ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 67
[ * ]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 68
APPENDIX V
PRESS RELEASE
<PAGE> 69
APPENDIX VI
MUTUAL CONFIDENTIALITY AGREEMENT
In order to encourage a complete and free exchange of information during
discussions regarding neurosteroids for the treatment of central nervous system
disorders, and regarding CRF receptor antagonists and CRF binding proteins for
the same use to be held in the period ending November 30, 1993, between
Neurocrine Biosciences, Inc. having an address at 1020 Prospect Street, Suite
317, La Jolla, California 92037, (NEUROCRINE) and Eli Lilly and Company having
an address at Lilly Corporate Center, Indianapolis, Indiana 46285 (LILLY), and
specifically to protect the confidential and proprietary name of certain
information to be disclosed during the discussions ("Information"), the parties
agree as follows:
Each party receiving Information from the other agrees:
1. To receive and to hold such Information in confidence;
2. To exercise all reasonable precautions to prevent the
disclosure of such Information to others; and
3. To use such Information only to evaluate a possible
future relationship between the parties.
The foregoing commitments shall expire on November 30, 1998, and shall
not impose any obligation upon any party with respect to any portion of the
Information which such party can establish:
1. Was known to the receiving party prior to the receipt of
the same directly or indirectly from the disclosing
party; or
2. Is now, or becomes in the future, public knowledge other
than through acts or omissions of the receiving party;
or
3. Is disclosed at any time to the receiving party by a
third party that had a lawful right to disclose it.
<PAGE> 70
Information disclosed other than in written form shall be subject to the
terms of this Agreement only if confirmed in writing to the other parties within
thirty (30) days of initial disclosure and specifying with particularity that
Information disclosed other than in written form which is subject to the
Agreement.
It is further agreed that the furnishing of Information shall not
constitute any grant, option, or license under any patent or other rights now or
hereinafter held by any party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
NEUROCRINE BIOSCIENCES, INC. LILLY RESEARCH LABORATORIES
A Division of
ELI LILLY AND COMPANY
By: GARY LYONS By: JOHN G. WHITNEY
------------------------- -------------------------
Printed: John G. Whitney, Ph.D.
Title: Vice President
Date: 6/9/93 Date: 5/27/93
----------------------- ----------------------
-2-
<PAGE> 71
AMENDMENT
TO
MUTUAL CONFIDENTIALITY AGREEMENT
AMENDMENT (effective as of the date of signature by the last signing
party) to the Mutual Confidentiality Agreement, dated as of June 9, 1993, (the
"Agreement"), by and between Neurocrine Biosciences, Inc. ("Neurocrine"), and
Eli Lilly and Company ("Lilly").
WHEREAS, Neurocrine and Lilly desire to amend the Agreement, as more
fully set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereby agree to amend the
Agreement as follows:
The scope of the Agreement shall be enlarged to cover discussions
regarding antagonist(s) of the interaction of CRF and CRF binding protein.
Additionally, the Agreement shall relate to discussions held on or after
December 20, 1995. The Agreement shall now expire on December 20, 2000.
All other terms of the Agreement shall remain in place without revision.
NEUROCRINE BIOSCIENCES, INC.
By: /SIG/
-------------------------------
Title: Exec. V.P. R&D
Date: 7/26/96
-----------------------------
ELI LILLY AND COMPANY
By: /SIG/
-------------------------------
Title: Vice President
Date: Dec 20, 1995
-----------------------------
<PAGE> 72
AMENDMENT
TO
MUTUAL CONFIDENTIALITY AGREEMENT
AMENDMENT (effective as of the date of signature by the last signing
party) to the Mutual Confidentiality Agreement, dates as of June 3, 1993 and as
amended January 26, 1996 (the "Agreement") by and between Neurocrine
Biosciences, Inc. ("Neurocrine"), and Eli Lilly and Company ("Lilly").
WHEREAS, Neurocrine and Lilly desire to amend the agreement solely for
the purpose of allowing Eli Lilly to more fully evaluate Neurocrine's
CRF-binding protein program;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereby agree to amend the
Agreement as follows:
Neurocrine will provide information regarding chemical structures to
Lilly. With regard to any such information regarding chemical structures, Lilly
agrees to use such information solely for the purposes of evaluating a possible
future relationship between the parties, and shall not use the information for
any other purpose, including use in the development of any compounds or to
assist in the development of any research or commercial program. Upon the
request of Neurocrine, all information provided to Lilly regarding chemical
structures shall be returned or destroyed, with the exception that one copy of
the information may be retained solely for the purpose of insuring compliance
with the restrictions provided herein.
Notwithstanding anything set forth above, the foregoing commitments
shall not impose any obligation on Lilly with respect to any information
regarding the structures which Lilly can establish:
1. Was known to Lilly prior to the receipt of same from Neurocrine;
or
<PAGE> 73
2. Is now, or becomes in the future, public knowledge other than
through acts or omissions of Lilly; or
3. Is disclosed at any time to Lilly by a third party that had a
lawful right to disclose it.
All other terms of the Agreement shall remain in place without revision
including the Agreements expiration on December 20, 2000.
NEUROCRINE BIOSCIENCES, INC. ELI LILLY AND COMPANY
By: /SIG/ By: STEVEN M. PAUL
----------------------------- -----------------------------
Title: /TITLE/ Title: Steven M. Paul, Vice President
-------------------------- --------------------------
Date: 3/27/96 Date: 3/26/96
--------------------------- ---------------------------
<PAGE> 1
EXHIBIT 11.1
NEUROCRINE BIOSCIENCES, INC.
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share data)
Year Ended December 31,
----------------------------
1994 1995 1996
---- ---- ----
Net income (loss) ............................ $(7,706) $(3,346) $ 5,875
======= ======= =======
Weighted average common shares outstanding
during the period .......................... 10,934 11,685 14,981
Common equivalent shares outstanding during
the period:
Dilutive stock options, convertible
preferred stock and warrants (computed
using the modified treasury stock
method) ................................ -- -- 1,608
Shares related to SAB No. 55, 64, and 83.. 499 499 --
Shares used in computing net income (loss)
per share .................................. 11,433 12,184 16,589
======= ======= =======
Primary net income (loss) per common share(1). $ (0.67) $ (0.27) $ 0.35
======= ======= =======
- ---------------
(1) Fully diluted net income (loss) per share is within 3% of primary net
income (loss) per share.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated February 14, 1997, included
in the 1996 Annual Report (Form 10-K) of Neurocrine Biosciences, Inc. for the
year ended December 31, 1996.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-14589) pertaining to the 1992 Incentive Stock
Option Plan, 1996 Employee Stock Purchase Plan and the 1996 Director Option
Plan of Neurocrine Biosciences, Inc. of our report dated February 14, 1997,
with respect to the financial statements included in this Annual Report (Form
10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
--------------------------------
ERNST & YOUNG LLP
San Diego, California
March 27, 1997
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,325,361
<SECURITIES> 58,594,853
<RECEIVABLES> 1,329,513
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<PP&E> 3,546,420
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<TOTAL-ASSETS> 77,956,582
<CURRENT-LIABILITIES> 4,067,514
<BONDS> 0
0
0
<COMMON> 83,251,404
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 77,956,582
<SALES> 0
<TOTAL-REVENUES> 19,215,662
<CGS> 0
<TOTAL-COSTS> 16,265,629
<OTHER-EXPENSES> (573,627)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272,464
<INCOME-PRETAX> 6,121,603
<INCOME-TAX> 247,683
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 5,873,920
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
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