UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
Delaware 94-3049219
(State of incorporation) (IRS Employer Identification No.)
1387 Marina Way South
Richmond, California 94804
(Address of principal executive offices)
(510) 215-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b)
of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common stock $.001 Par Value
(Title of class)
Check 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation SB contained herein, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. X
Registrant's revenues for its most recent fiscal year were $506,242.
As of June 30, 1996, the Registrant had 6,512,485 shares of Common Stock,
$.001 par value, outstanding, and the aggregate market value of the shares held
by non-affiliates on that date was $43,145,213 based upon the last sale price of
the Issuer's Common Stock reported on the Nasdaq National Market.
DOCUMENTS INCORPORATED BY REFERENCE
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Items 9 through 12 of Part III incorporate by reference information from
the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on November 14, 1996.
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PART I
ITEM 1. BUSINESS
Overview
Neurobiological Technologies, Inc. ("NTI" or the "Company") is a
biopharmaceutical company identifying and developing potential therapeutic
products based on advances in neuroscience research. NTI's strategy is to
in-license drug candidates that target major medical needs, have shown clear
evidence of preclinical efficacy and safety, and appear to have a clear path
through clinical testing and regulatory approval. NTI's experienced management
team then focuses on the drug development and clinical testing necessary to
bring its drug candidates to commercialization.
The Company is currently evaluating three drug candidates in human clinical
trials:
Corticotropin-Releasing Factor ("CRF") is a natural human peptide which the
Company believes has novel anti-inflammatory properties. CRF is being evaluated
for its ability to reduce edema (swelling) resulting from brain tumors, and to
reduce the inflammation associated with rheumatoid arthritis. The Company is
currently conducting a double blind, placebo-controlled Phase II trial in
patients with rheumatoid arthritis. The Company has completed Phase I/II trials
of CRF in patients with brain tumors, and expects to begin a follow-on Phase II
trial in fiscal 1997.
Dynorphin A is a natural human peptide being developed for its ability to
provide relief from severe pain. Dynorphin A initially is being evaluated as an
adjunct to morphine and other opiates for the management of chronic and acute
severe pain. The Company has conducted preliminary studies which showed that
Dynorphin A, when administered in conjunction with morphine, lowered the amount
of morphine needed to obtain an analgesic effect. An adjunct to morphine
allowing lower doses of opioid may also reduce the severity and frequency of
opioid-related adverse side effects, including respiratory depression, sedation,
and mental confusion.
Memantine is being evaluated as a potential neuroprotectant drug therapy
for the treatment of injured and dying neurons. Memantine is an orally available
compound which acts to modulate the N-methyl-D-aspartate (NMDA) receptor in the
central nervous system. Modulating the NMDA receptor may protect against
neuronal injury and death associated with a number of conditions, including both
chronic conditions of neuropathic pain, dementia, and Alzheimer's disease, as
well as acute conditions of traumatic brain injury and stroke. The Company is
initially planning to evaluate Memantine for the treatment of neuropathic pain
and AIDS dementia and currently is conducting a Phase I pharmacokinetics trial
of Memantine in normal volunteers and in AIDS patients. The Company is also
sponsoring research by leading neuroscientists to synthesize and test novel
neuroprotective compounds.
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Strategy
NEW PRODUCT SOURCING
The Company identifies new product opportunities through its network of
research scientist collaborators and stockholders. With its Scientific Advisory
Board, the Company regularly evaluates new product opportunities which may be
useful in a variety of medical applications. Early access to research in the
fields of neuropharmacology, endocrinology, and immunology has led to the
identification of the Company's lead products and continues to be the Company's
primary source of new product opportunities. The compounds selected for further
commercialization are those that the Company believes target major medical
needs, can be rapidly commercialized, and for which the Company can obtain
proprietary rights.
PRODUCT DEVELOPMENT
After it selects a compound for clinical evaluation, the Company implements
a development plan designed to maximize the chances for rapid regulatory
approval. The Company combines the drug discovery and development experience of
its management team and staff with the expertise of its Scientific Advisory
Board to manage product development, relying primarily upon third-party
contractors to carry out manufacturing, preclinical, and clinical development.
These contractors are selected because they have the experience and
qualifications necessary to conduct the required studies to the standards of the
Company and the Food and Drug Administration ("FDA"). The Company also intends
to establish arrangements for the manufacture, packaging, labeling and
distribution of any products approved for marketing.
FUTURE COMMERCIALIZATION
As the Company continues its product development and commercialization
efforts, it is seeking to enter into corporate alliances, which may include the
granting of licenses and marketing rights for selected products in certain
geographic regions and markets. Through alliances, the Company may seek to
secure additional funding for the continued clinical development of its
potential products, to secure potential long term revenue through royalty or
profit sharing arrangements, to obtain assistance with foreign regulatory
approvals and to capitalize on the technical, development, production, and
marketing capabilities of its potential collaborators. Although the Company is
currently seeking corporate development partners for its drug candidates, there
can be no assurance that any alliances will be entered into on terms acceptable
to the Company, or if alliances are entered into, that they will be successful.
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Products in Development
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MCORTICOTROPIN-RELEASING FACTORM
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CRF is a natural neuroendocrine peptide hormone found both centrally
(within the brain) and peripherally (outside the brain). CRF was originally
discovered to be a key brain hormone involved in stimulating the release of
natural corticosteroids, which modulate the body's immune system and
inflammatory response. Much of the ensuing research on CRF has been related to
the activity of CRF within the brain. Recently, the importance of CRF receptors
outside the brain has also been recognized. Research by an NTI scientist
collaborator revealed that CRF inhibited the acute inflammatory response
associated with a variety of forms of physical trauma.
In response to tissue damage, small blood vessels become permeable, leading
to the leakage of fluid, plasma proteins, and white blood cells into the
surrounding tissues, which causes swelling, a condition referred to as edema.
This fluid leakage is primarily due to the release of inflammatory mediators
that appear to facilitate the opening of spaces between the endothelial cells
lining the blood vessels. CRF appears to inhibit acute vascular leakage by
acting on the endothelial and epithelial cells lining and surrounding the blood
vessels near the site of tissue damage.
Preclinical studies sponsored by the Company have shown that CRF reduces
the leakage of fluids through blood vessels at sites of tissue injury produced
by trauma and inhibits the cascade of inflammation in several animal models of
inflammatory disease. Specifically, the Company has shown that CRF injected
systemically into animals can reduce brain edema after injury, brain edema
associated with cancer tumors, inflammation associated with arthritis, and
swelling in muscle tissue following surgical incision.
A therapeutic agent that inhibits edema associated with inflammation would
be valuable in the treatment of many kinds of injury and illnesses, some that
are life threatening. These include tumor associated edema, traumatic brain
injury, certain forms of stroke, rheumatoid arthritis, cosmetic and
reconstructive surgery, neurosurgery, and burns and other wounds. Current
therapies for these conditions, including corticosteroids, are in many cases
inadequate or have serious adverse side effects. These side effects can include
muscle wasting, immunosuppression, osteoporosis, hyperglycemia, glaucoma, and
other potentially dose limiting side effects. Although CRF functions naturally
to regulate the release of natural corticosteroids, studies sponsored by the
Company have shown that CRF exerts its anti-inflammatory action independent of
corticosteroid release. The Company believes, based on CRF's pharmacological
profile, that CRF may be efficacious without the adverse side effects associated
with current therapies.
CRF has been safely administered to several hundred healthy volunteers and
patients as reported in numerous studies published by third parties. In early
human clinical trials sponsored by the Company in over 200 patients, CRF was
well tolerated and appeared to be safe.
PRODUCT DEVELOPMENT STATUS
Based on observations of CRF's action in several animal models of various
medical conditions, the Company has commenced clinical trials in a number of
indications including cerebral edema, rheumatoid arthritis, and tissue damage
from surgical incision.
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Cerebral Edema Cerebral edema is swelling in the brain, a serious
complication commonly associated with a number of medical conditions, including
brain tumors, head injury, and stroke.
The Company is initially testing CRF for the treatment of cerebral edema
caused by brain tumors (peritumoral brain edema). In these patients, the tumor
promotes increased permeability of the small blood vessels in the brain,
resulting in the leakage of fluids into the brain, swelling of brain tissue, and
a consequent loss of neurological function. The Company has completed two Phase
I/II pilot trials of CRF in patients with peritumoral brain edema. In these
trials, CRF was well tolerated and appeared to improve neurological function by
42% in seven patients who were treated for seven days by continuous infusion.
Based on these results, we are in the process of designing a larger Phase II
trial planned to begin later this fiscal year.
In addition to the current clinical program for peritumoral edema, the
Company is also pursuing a pre-clinical research effort to assess CRF's
potential to reduce cerebral edema associated with traumatic brain injury. In
traumatic brain injury, nerve tissue, blood vessels and the tissues surrounding
the brain are damaged. This damage results in swelling, subsequent decreased
flow of blood to the brain and decreased brain function. In addition, edema
increases pressure inside the skull, which can lead to the fatal rupture of
brain tissue through naturally occurring openings at the base of the skull.
A stroke occurs when a blood vessel becomes obstructed, restricting blood
flow into or within the brain. When brain blood-flow drops below a certain
threshold, brain tissue dies and edema occurs. The degree of edema is roughly
proportional to the amount of brain tissue affected. As with head injuries,
edema following stroke promotes further neurologic damage and may lead to fatal
rupture of brain tissue.
Rheumatoid Arthritis Rheumatoid arthritis ("RA") is a chronic inflammatory
disorder characterized by pain, swelling and damage to the body's joints. The
onset of RA may either be acute, resulting in pain, swelling, and redness of
multiple joints, or chronic, resulting in gradual onset of symptoms preceding
overt arthritis by several months. As the disease progresses, joint pain and
swelling result in functional impairment and disability. The currently available
therapies are not completely effective and their chronic use is often associated
with serious toxicities.
The Company's preclinical results demonstrated that CRF has potent
anti-inflammatory properties that may be useful for the treatment of RA. The
Company believes CRF's ability to inhibit microvascular leakage may limit the
migration of inflammatory cells and the flow of inflammatory molecules into the
rheumatic joint, and thus reduce the swelling and tissue damage associated with
the condition.
The Company completed a pilot Phase I/II clinical trial in December 1995.
In this trial, CRF was well tolerated and appeared to reduce joint inflammation
and pain in the five evaluable patients. In March 1996, the Company announced
the start of a 100 patient double-blind placebo-controlled Phase II trial in RA
patients. This trial, conducted in several centers throughout the country, is
designed to evaluate CRF's potential to reduce joint inflammation. The protocol
calls for self administration of CRF or placebo once a day for 14 days.
Improvement measures include tender joint count, swollen joint count, and
several other criteria defined by the American College of Rheumatology. The
Company expects to complete enrollment of patients in this trial in September
1996.
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Cosmetic and Reconstructive Surgery Tissues injured by surgery may manifest
all of the classical aspects of inflammation, including swelling and pain. Such
post-surgical symptoms are generally treated with analgesics and occasionally
corticosteroids.
The Company has completed a Phase I/II trial designed to evaluate the
effect of CRF on the swelling associated with blepharoplasty, a cosmetic surgery
that removes excess skin and fat from the area around the eyelids. The Company
used this indication as a model for the treatment of a number of other potential
cosmetic and reconstructive surgical applications. The results of this trial
demonstrated that CRF is safe and well tolerated when used as a single-dose
treatment for post-surgical facial swelling. In addition, all CRF treatment
groups experienced reduced average post-surgical swelling compared to placebo.
Due to the relatively small number of subjects tested and the large variability
between subjects, statistical significance was not achieved. The Company is
seeking a partner before developing this indication further.
Additional Indications Because of the anti-inflammatory action of CRF, the
Company has in the past investigated various other potential indications. During
1995, the Company initiated two clinical trials of CRF in patients with asthma.
The results of these trials showed that there was no statistically significant
difference in improvement of asthma symptoms between those who received
treatment compared to those who received placebo. The results may have been in
part due to the short duration of treatment, and the Company is currently
evaluating different treatment regimens in asthma patients.
Second Generation Anti-Inflammatory Product The Company is engaged in the
synthesis and exploration of a family of small peptide analogues of CRF. The
objective of this research is to generate a second generation orally active
anti-inflammatory product having CRF's pharmacological activity to expand CRF's
clinical and market potential.
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MDYNORPHIN AM
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Dynorphin A is a natural human peptide being evaluated for its ability to
provide analgesia for severe pain. The Company has conducted several clinical
trials of Dynorphin A to evaluate its potential to enhance the analgesia
provided by opioids (generally morphine) in patients with severe pain. The
Company has evaluated Dynorphin A as an adjunct to morphine in both the acute
and chronic severe pain settings. In these preliminary trials, patients who were
administered Dynorphin A as an adjunct to opioid used substantially less
morphine and experienced comparable pain relief.
Morphine, first prescribed in the nineteenth century, remains one of the
most effective analgesics available, and is the standard by which other opioid
analgesics are evaluated. Morphine and other opioids are used as analgesics for
relief of both acute and chronic severe pain. However, opioids are associated
with adverse side effects which can be dose limiting. Opioid side effects
include respiratory depression, nausea, sedation, and constipation. The Company
believes that administration of Dynorphin A as an adjunct to morphine in order
to lower the amount of opioid needed to provide analgesia may provide
significant clinical benefit to patients whose pain is insufficiently relieved
by chronic opioid therapy, or who wish to avoid the adverse side effects.
In preclinical studies, Dynorphin A has been shown to restore morphine
induced analgesia when used in conjunction with morphine in animals tolerant to
morphine. In addition, the Company and its collaborators have discovered that
certain Dynorphin A peptides can provide analgesia by
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mechanisms different than those commonly associated with opioids. In animal
studies, these peptides provided analgesia when administered systemically in the
absence of opioids, with potency similar to that of morphine. The Company has
developed a synthetic version of Dynorphin A [Dynorphin A-(1-13)], which has
been evaluated in several human clinical trials for its potential analgesic
effect. In these trials, Dynorphin A has been well tolerated and has not caused
sedation or mental confusion.
Chronic Pain Morphine and other opioids are used as long term medications
for the relief of chronic pain, such as back pain or pain induced by cancer and
cancer therapies. Over time, pain may increase and the body may develop a
tolerance to opioids, leading to the need for progressively higher doses to
maintain the same degree of pain relief. Drawing on the preclinical data that
Dynorphin A restores morphine induced analgesia in animals tolerant to morphine,
the Company has conducted three clinical trials in patients with chronic severe
pain. During the past year, the Company concluded a pilot Phase II study of
Dynorphin A in nine chronic pain patients. In this trial, patients were given
50% of their normal maintenance dose of morphine followed by either Dynorphin A
or placebo. Dynorphin A appeared to be more effective than placebo in providing
pain relief and extended the period before patients re-medicated with morphine.
Acute Pain Opioids are also used as short term analgesics to provide relief
of acute pain. However, opioids can produce a number of undesirable central
nervous system side effects. The most dangerous side effect is respiratory
depression, which may occur in patients following administration for
post-surgical pain. An adjunct to opioids that would allow lower doses of opioid
while maintaining satisfactory pain relief may have the potential to reduce the
frequency and severity of adverse opioid side effects. To evaluate the potential
of Dynorphin A to maintain satisfactory analgesia in combination with a reduced
use of morphine, the Company has conducted a double-blind, placebo-controlled
Phase II trial in patients with post-surgical severe pain. In this trial,
Dynorphin A or placebo was administered intravenously to 31 patients four times
over a 24-hour period following hip or knee replacement surgery. During the
trial, patients were free to self-administer morphine and the amount of morphine
used by each patient was recorded. A primary endpoint of the trial was the
amount of morphine required to maintain sufficient pain relief. The results of
this trial showed that Dynorphin A reduced the amount of morphine required to
adequately manage post-operative pain. The median total morphine usage by
patients receiving placebo was 44% greater than for patients receiving Dynorphin
A.
Ongoing research The Company has an active research program to investigate
the potential therapeutic uses of Dynorphin A peptides. As a part of this
research effort, scientists are investigating the mechanism of action of
Dynorphin A. In animal studies, Dynorphin A has been shown to relieve pain as a
single agent by mechanisms distinct from morphine and other opioids. The Company
continues to evaluate this finding and to search for the receptor associated
with Dynorphin A.
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MMEMANTINEM
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Memantine is a compound in a class of potential neuroprotective agents
called NMDA receptor antagonists. Recent research has indicated that modulating
the NMDA receptor may protect against neuronal injury and death associated with
a number of medical conditions.
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Increasing evidence from several independent research laboratories
indicates that overstimulation of NMDA receptors contributes to the injury and
death of neurons in a variety of acute neurological conditions, including
traumatic brain injury, hypoxic/ischemic injury secondary to stroke and
prolonged open heart or brain surgery, as well as chronic neurodegenerative
diseases, including neuropathic pain, dementia, Alzheimer's disease,
Huntington's disease, and Amyotrophic Lateral Sclerosis. There are currently no
neuroprotective treatments approved for any of the pathologies associated with
NMDA receptor overstimulation.
Nerve cells in the brain communicate by sending signals to excite or
inhibit each other. These signals are sent by compounds known as
neurotransmitters. The principal excitatory neurotransmitter is glutamate, which
binds to the NMDA receptor embedded in the cell membrane of the neuron. When
glutamate binds to the receptor, a channel into the neuron opens through which
charged calcium molecules flow. Normally, the presence of calcium triggers
chemical reactions that cause the neuron to change its electrical charge and
fire a message to neighboring neurons. This basic function of the NMDA receptor
is essential for movement, sensation, memory, and cognition. In certain medical
conditions, glutamate levels surrounding neurons are elevated, which has the
effect of overstimulating the NMDA receptor, causing the calcium channel to
remain open for too long. In these situations, excessive amounts of calcium
enter the neuron, causing it to swell and burst, releasing internal stores of
glutamate into the surrounding area. This glutamate further stimulates NMDA
receptors on neighboring neurons, causing a cascade of neuronal cell death
throughout the area.
Scientists are now trying to find a way to prevent the damaging influx of
excess calcium into neurons. One approach is to prevent glutamate from binding
to the receptor, which can be accomplished by using a blocker, otherwise known
as a competitive NMDA receptor antagonist. If such an antagonist interferes with
the binding process for too long, it may impede the normal functioning of the
NMDA receptor, causing side effects including hallucinations, paranoia,
delirium, and amnesia. Memantine, on the other hand, is a non-competitive NMDA
receptor antagonist which may interfere relatively little with normal
functioning, while reducing the abnormal signals associated with excessive
calcium influx.
PRODUCT DEVELOPMENT STATUS
Neuropathic Pain Neuropathic pain is associated with a type of injury to
neurons that produces abnormal pain signals, and frequently includes persistent
pain in the absence of an obvious stimulus. The condition includes pain
resulting from irritation or injury to peripheral nerves and destruction of
terminals of small nerves as a result of diabetes and chemotherapeutic
neuropathies. In diabetic patients, high levels of blood sugar may damage nerves
which transmit pain signals, leading to the experience of neuropathic pain.
Current treatments for this condition are limited, and may only provide short
term benefit.
NMDA receptor stimulation appears to be an important mechanism contributing
to neuropathic pain. Memantine has inhibited abnormal pain signals through its
modulation of the NMDA receptor in several animal models of neuropathic pain.
Based on the results of these studies, the Company is planning a trial to
evaluate Memantine for the treatment of neuropathic pain.
AIDS Recent research indicates that infection of the central nervous system
with HIV, the virus associated with AIDS, initiates the overstimulation of NMDA
receptors, leading to neuronal damage.
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Such damage may result in an assortment of neurological complications, including
loss of cognition, movement and sensation, referred to as AIDS dementia.
Approximately one-half of children and one-third of adults with AIDS eventually
develop these symptoms. There are currently no therapies specifically directed
towards HIV-associated neuronal damage.
Many AIDS patients may also experience painful peripheral neuropathies due
to overstimulation of the NMDA receptors. A predominantly sensory neuropathy
occurs in the later stages of AIDS, which results in a burning pain of the feet
and pain from anything that touches the skin. Walking in particular may become
extremely difficult. Effective treatments are still unavailable for this
incapacitating condition, and anti-retroviral therapy for AIDS may unmask or
potentiate this type of neuropathic pain.
Memantine has been shown to reduce NMDA receptor-mediated neuronal damage
in both in vitro experiments as well as animal models. The neuronal injury
caused by AIDS was shown to be modified by antagonists of the NMDA receptor,
including Memantine.
The Company is now conducting a Phase I clinical trial to verify the safety
and pharmacokinetics (serum half-life) of Memantine in AIDS patients and healthy
volunteers.
In the second quarter of this fiscal year, NTI expects to begin a Phase II
clinical trial in collaboration with the Division of AIDS of the National
Institutes of Health to evaluate the ability of Memantine to provide relief from
dementia and neuropathic pain symptoms in AIDS patients. The trial protocol
submitted under our Investigational New Drug application recently allowed by the
Food and Drug Administration calls for the enrollment of 120 AIDS patients with
painful peripheral neuropathies and symptoms of dementia, all of whom will have
been treated with an FDA-approved anti-retroviral drug for at least eight weeks
prior to study entry. The Division of AIDS plans to conduct the clinical trial,
and the Company will supply Memantine and have the exclusive right to use the
resulting data for commercialization.
AIDS Dementia The Division of AIDS trial will evaluate Memantine's ability
to ameliorate dementia in AIDS patients. Memantine's efficacy in reducing
neurological symptoms associated with AIDS dementia will be evaluated by
assessing the patients' neuropsychological function and quality of life.
Neuroprotection Research Program The Company has initiated a research
program directed toward the identification of novel neuroprotective compounds.
The Company is sponsoring research by leading neuroscientists to discover novel
NMDA receptor antagonists.
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MADDITIONAL PRODUCT OPPORTUNITIESM
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The Company's network of scientist stockholders and collaborators has been
instrumental in identifying new product opportunities for evaluation by NTI. In
addition to the current products under clinical development, several other
possible product opportunities are being considered by the Company for future
development.
Patents and Proprietary Technology
Patents and other proprietary rights are critical to the Company's
business. The Company's policy is to file patent applications seeking to protect
technology, inventions and improvements to its
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inventions that are considered important to the development of its business. The
Company has also sought, and intends to continue to seek, to obtain licenses
from third parties to patent rights covering the technology, inventions and
improvements that the Company considers important to the development of its
business. The Company is obligated to pay royalties pursuant to these license
agreements and is responsible for the costs of patent prosecution of a number of
the patent applications to which it has exclusive licenses. In addition, most of
the license agreements can be terminated by the licensor if the Company does not
demonstrate diligence in commercializing the licensed rights.
The Company may be required to obtain additional licenses from third
parties in order to continue to develop its existing product candidates and to
expand its product development program. There can be no assurance that such
licenses will be available on commercially reasonable terms, if at all.
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The patent positions of pharmaceutical and biotechnology companies,
including NTI, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before a patent is issued. Consequently, the Company does not know
whether any of its patent applications, or the patent applications it has
licensed from others, will result in the issuance of patents or if any of the
patents which have issued or may issue will provide significant proprietary
protection. Since patent applications are maintained in secrecy until patents
are issued in the United States or their foreign counterparts, if any, are
published, the Company cannot be certain that it or any licensor was the first
to file patent applications for such inventions. Moreover, the Company might
have to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome were favorable.
There can be no assurance that the Company's patents, or the patents which the
Company has licensed, will be held valid or enforceable by a court or that a
competitor's technology or product would be found to infringe such patents.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's or any of its licensors' technologies or patent applications. Such
conflict could limit the scope of the patents, if any, that the Company may be
able to obtain or to which it has a license or result in the denial of the
Company's patent applications or the patent applications which the Company has
licensed. In addition, if patents that cover the Company's activities have been
or are issued to other companies, there can be no assurance that the Company
would be able to obtain licenses to these patents, at all, or at a reasonable
cost, or be able to develop or obtain alternative technology.
In addition to patent protection, the Company relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology or that the Company can meaningfully
protect its trade secrets.
CRF The Company has a non-exclusive worldwide license to issued U.S.
patents and U.S. patent applications covering the composition of matter of CRF
and various CRF analogues, together with the corresponding foreign patents and
patent applications. The Company also has exclusive rights to patents and patent
applications covering uses of CRF and analogues of CRF. In addition, the Company
has an exclusive worldwide license to patents and a patent application covering
novel peptide analogues of CRF. The Company is responsible for the costs of
prosecuting the patent applications related to CRF for which it has exclusive
licenses. In addition to the patents and pending applications the Company has
licensed from others, the Company has filed a use patent application related to
CRF.
Dynorphin A The Company holds licenses to patents covering the composition
of matter of Dynorphin A, as well as analogues and fragments of Dynorphin A. The
Company also has exclusive licenses to patents covering certain uses of
dynorphins and has a pending application for the use of fragments of Dynorphin A
in direct peripheral non-opioid pain relief.
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Memantine The Company has an exclusive license to a series of patents and
patent applications relating to certain non-ophthalmic uses of Memantine.
Certain of these patents and patent applications cover the use of antagonists of
NMDA receptor mediated neuronal damage to treat AIDS-related neuronal damage.
Memantine and similar compounds are generally considered to be such compounds.
In addition, certain of these patents and patent applications cover the use of
Memantine for certain other medical indications, including peripheral
neuropathy. The Company also has an option to license exclusively any patentable
compounds or combination of compounds discovered in the course of the research
the Company is sponsoring at Children's Hospital of Boston, Massachusetts.
Manufacturing
NTI currently uses outside contractors to manufacture compounds for the
Company's preclinical studies and clinical trials. The manufacturers of clinical
products have represented to the Company that they are qualified to produce
drugs under FDA regulations and that they follow current Good Manufacturing
Practice requirements ("cGMP") prescribed by the FDA. The Company performs
audits on manufacturers from time to time to assess compliance with the cGMP
regulations. Dynorphin A, CRF, and Memantine are manufactured by established
methods using chemical synthesis and are manufactured to NTI specifications.
Alternative cGMP suppliers of the bulk drugs and of finished dosage form
products are available to the Company.
The Company currently has no plans to build or develop an in-house
manufacturing capability. The Company has agreed in one of its Dynorphin A
license agreements that, under certain limited circumstances, it would use a
manufacturing facility affiliated with the licensor to manufacture the compounds
licensed thereunder.
Government Regulation
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
products which may be developed by the Company. The nature and the extent to
which such regulation may apply to the Company will vary depending on the nature
of any such products. All of the Company's products will require regulatory
approval prior to commercialization. In particular, human therapeutic products
are subject to rigorous preclinical and clinical testing and other FDA
requirements in the United States and similar health authorities in foreign
countries. Various federal and, in some cases, state statutes and regulations
also govern or influence the manufacturing, safety, labeling, storage,
recordkeeping and marketing of such products, including the use, manufacture,
storage, handling and disposal of hazardous materials and certain waste
products. The process of obtaining these approvals and the subsequent compliance
with appropriate federal, state and foreign statutes and regulations require the
expenditure of substantial resources. The Company cannot yet accurately predict
when it might first submit for approval any products to the FDA or other
regulatory review agency.
In order to test clinically, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of an investigational new drug in the
United States, a company must file an IND and receive no objection from the FDA.
This application contains a summary of the chemistry and manufacturing
information and of the
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preclinical studies which were carried out to characterize the drug, including
toxicity and safety, as well as an in-depth discussion of the human clinical
studies which are being proposed.
The human clinical testing program required for approval by the FDA of an
investigational new drug typically involves a time-consuming and costly
three-phase process. In Phase I, clinical trials are conducted with a small
number of patients or healthy volunteers to determine the early safety profile
and the pattern of drug distribution and metabolism. Phase II clinical trials
are conducted with groups of patients afflicted with a target disease in order
to determine preliminary efficacy, optimal dosage and expanded evidence of
safety. When initial human testing is performed in patients afflicted with the
disease, rather than healthy volunteers, such studies may provide preliminary
evidence of efficacy traditionally obtained in Phase II trials. Such trials are
frequently referred to as "Phase I/II" trials. In Phase III, large-scale,
multi-center, comparative clinical trials are conducted with patients afflicted
with the specific disease in order to provide enough data for statistical proof
of efficacy and safety required by the FDA and non-U.S. regulatory agencies.
Clinical trials may be sponsored by a company or be
"investigator-sponsored." An investigator-sponsored clinical trial is defined as
a clinical trial conducted by an investigator under an IND issued in such
investigator's own name, rather than in a company's name.
The FDA closely monitors the progress of each of the three phases of
clinical testing and may, at its discretion, reevaluate, alter, suspend or
terminate the testing based on the data which have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient. Estimates of
the total time required for carrying out such clinical testing vary between two
and ten years. Upon completion of such clinical testing, a company typically
submits a New Drug Application ("NDA") to the FDA which summarizes and analyzes
the results and observations of the clinical trials. The NDA also provides
detailed manufacturing information. Based on its review of the NDA, the FDA will
decide whether or not to approve the drug. This review process can be quite
lengthy, and approval may not be granted at all. Thus, the process of seeking
and obtaining approval for the marketing of a new pharmaceutical product can
require a number of years and substantial funding. There can be no assurance
that any approvals will be granted on a timely basis, if at all. Among the
requirements for product approval is the requirement that each domestic
manufacturer of the product conform to the FDA's cGMP regulations, which must be
followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, money and effort in the
area of production and quality control to ensure full technical compliance.
Once the sale of a product is approved, FDA regulations govern the
manufacturing process and marketing activities, and a post-marketing testing and
surveillance program may be required to continuously monitor a product's usage
and effects. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained. Other countries, in which any products developed by
the Company may be marketed, impose a similar regulatory process. For marketing
outside the United States, the Company also is subject to foreign regulatory
requirements governing human clinical trials and marketing approval for drugs.
The requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country.
Competition
Competition in the biopharmaceutical industry is intense and is expected to
increase. The development and sale of drugs for the treatment of the therapeutic
targets being pursued by the
<PAGE>
Company is highly competitive. There are existing therapies approved and under
development for each of these therapeutic targets. There can be no assurance
that the Company will develop products that will be as efficacious or as
cost-effective as currently-marketed products. The Company has exclusive
licenses to patent rights covering certain uses of CRF, Memantine, and Dynorphin
A. However, certain of the Company's licenses for CRF, Memantine, and Dynorphin
A are non-exclusive and there is no composition of matter patent in the United
States for Memantine. Consequently, others may develop, manufacture and market
products that could compete with those being developed by the Company.
<PAGE>
The Company will be faced with intense competition from pharmaceutical,
chemical and biotechnology companies both in the United States and abroad in its
attempt to discover, develop and market such drugs. Companies that complete
clinical trials, obtain required regulatory approvals and commence commercial
sales of their products before their competitors may achieve a significant
competitive advantage. In addition, significant levels of research in
biotechnology and medicine occur in universities and other nonprofit research
institutions. These entities have become increasingly active in seeking patent
protection and licensing revenues for their research results.
The Company believes that its ability to compete successfully will depend
on its ability to create and maintain scientifically advanced technology,
develop proprietary products, attract and retain scientific personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market products either alone or
through other parties. Most of the Company's competitors have substantially
greater financial, marketing and human resources than those of the Company.
Therefore, the Company expects to encounter significant competition.
Human Resources
As of August 31, 1996, the Company had 25 employees. The Company's
scientific staff includes individuals with expertise in clinical medicine,
chemistry, biochemistry, cell biology, immunology, pharmacology,
neuropharmacology, pharmaceutics and pharmaceutical manufacturing.
It is the Company's policy that each employee enter into a confidentiality
agreement which contains provisions generally prohibiting the disclosure of
confidential information to anyone outside the Company and requiring disclosure
to the Company of ideas, developments, discoveries or inventions conceived
during employment and assignment to the Company of proprietary rights to such
matters related to the business and technology of the Company.
Risk Factors
Except for the historical information contained herein, this report
contains forward looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed in this
report. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed below. The forward looking statements in
this report represent the Company's judgement as of the date of this report. The
Company disclaims, however, any intent or obligation to update these forward
looking statements.
Early Stage of Development; Technological Uncertainty NTI is at an early
stage of development and currently has no marketed products. All of the
Company's potential products are in research, preclinical development or
clinical development, and no revenues have been generated from product sales. To
date, most of the Company's resources have been dedicated to the research and
development of selected candidate pharmaceutical products, and there can be no
assurance that the Company will be able to develop a candidate product that will
receive required regulatory approvals or be successfully commercialized. The
Company is currently evaluating three potential products in early stage clinical
trials. Results attained in preclinical studies and in such early stage clinical
trials are not necessarily indicative of results that will be obtained upon
further human clinical testing. The potential products currently under
development by the Company will require significant additional
<PAGE>
clinical testing prior to submission of any regulatory application for
commercial use. Such activities will require substantial resources and will
necessitate the raising of substantial additional capital.
The Company's potential products are subject to the risks of failure
inherent in the development of products based on new technologies. These risks
include the possibilities that any or all of the potential products will be
found to be unsafe, ineffective or toxic, or otherwise fail to receive necessary
regulatory clearances; that the products, if safe and effective, will be
difficult to manufacture on a large scale or uneconomical to market; that
proprietary rights of third parties will preclude the Company from marketing
products, or that third parties market or will market superior or equivalent
products. There can be no assurance that the Company's development activities
will result in any commercially viable products. The Company does not expect to
be able to commercialize any products for a number of years, if at all.
Future Capital Needs; Uncertainty of Additional Funding The Company will
require substantial additional funds to conduct the research and development and
preclinical and clinical testing of its potential products and to market any
products that may be developed. Although the Company currently plans to contract
with third parties to manufacture clinical and commercial scale quantities of
its potential products, to the extent the Company subsequently determines to
establish its own manufacturing facilities, the Company will require substantial
additional capital. The Company's capital requirements depend on numerous
factors, including the progress of its research, preclinical development and
clinical development programs, the time and cost involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending, and enforcing
patent claims and other intellectual property rights, competing technological
and market developments, changes in the Company's existing research
relationships, the ability of the Company to establish collaborative
relationships, the development of commercialization activities and arrangements
and the purchase of additional capital equipment. The Company believes that its
available cash and investments will be sufficient to fund its operations through
the end of fiscal 1997. Thereafter, the Company will need to raise substantial
additional capital to fund its operations. The Company intends to seek such
additional funding through public or private financings, collaborative or other
arrangements with corporate partners, or from other sources. There can be no
assurance that additional financing will be available from any of these sources,
or, if available, that it will be available on acceptable terms. The Company may
seek to raise additional funds whenever market conditions so permit. If
additional funds are raised by issuing equity securities, further significant
dilution to existing stockholders may result. If adequate funds are not
available, the Company may be required to delay, scale back, or eliminate one or
more of its research, discovery, or development funds or to obtain funds through
entering into arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company would not otherwise relinquish.
Dependence on Third Parties The Company has only limited internal resources
and thus the Company has relied and will continue to rely heavily on others for
research, development, manufacturing and commercialization of its potential
products. The Company has entered into various arrangements (many of which are
non-exclusive) with consultants, academic collaborators, licensors, licensees,
contractors and others, and it is dependent upon the level of commitment and
subsequent success of these outside parties in performing their
responsibilities. Certain of these agreements place responsibility for
preclinical testing and human clinical trials and for preparing and submitting
submissions for regulatory approval for potential products on the collaborator,
licensor or contractor. Should such collaborator, licensor or
<PAGE>
contractor fail to perform, the Company's operating results may be adversely
affected.
<PAGE>
The Company has entered into certain agreements and licenses with third
parties, a number of which require the Company to pay royalties. The Company has
relied on scientific, technical, clinical, commercial and other data supplied
and disclosed by others in entering into these agreements and will rely on such
data in support of applications to enter human clinical trials for its potential
products. Although the Company has no reason to believe that this information
contains errors or omissions of fact, there can be no assurance that there are
no errors or omissions of fact that would change materially the Company's view
of the future likelihood of FDA approval or commercial viability of these
potential products.
Government Regulation and Product Approval The FDA and state and local
agencies, and comparable agencies and entities in foreign countries impose
substantial requirements on the manufacturing and marketing of human
therapeutics through lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time consuming procedures.
Satisfaction of these requirements typically takes many years and varies
substantially based on the type, complexity, and novelty of the drug. The effect
of government regulation may be to delay for a considerable period of time or
prevent the marketing of any product that the Company may develop and/or to
impose costly procedures upon the Company's activities, the result of which may
be to furnish an advantage to its competitors. There can be no assurance that
FDA or other regulatory approval for any products developed by the Company will
be granted on a timely basis or at all. Any such delay in obtaining or failure
to obtain such approvals would adversely affect the marketing of the Company's
proposed products and its ability to earn product revenues or royalties. In
addition, success in preclinical or early stage clinical trials does not assure
success in later stage clinical trials. As with any regulated product,
additional government regulations may be promulgated which could delay
regulatory approval of the Company's potential products. Adverse government
regulation which might arise from future legislation or administrative action
cannot be predicted.
Uncertainty of Protection of Patents and Proprietary Rights The Company's
success will depend, in large part, on its ability to obtain or license patents,
protect trade secrets and operate without infringing upon the proprietary rights
of others. A substantial number of patents have been issued to other
pharmaceutical, biotechnology and biopharmaceutical companies. Moreover, other
competitors may have filed patent applications for, or may have been issued
patents or may obtain additional patents and proprietary rights relating to,
products or processes competitive with those of the Company.
There can be no assurance that any of the patent applications licensed to
the Company will be approved, that the Company will develop proprietary products
that are patentable, that any issued patents licensed to the Company will
provide the Company with adequate protection for its inventions or will not be
challenged by others, or that the patents of others will not impair the ability
of the Company to do business. The patent position of biotechnology firms
generally is highly uncertain, involving complex legal and factual questions,
and has recently been the subject of much litigation. No consistent policy has
emerged from the United States Patent and Trademark Office regarding the breadth
of claims allowed or the degree of protection afforded under biotechnology
patents. Finally, there can be no assurance that others will not independently
develop similar products, duplicate any of the Company's potential products, or
design around any potential patented products of the Company. As a result, there
can be no assurance that patent applications relating to the Company's potential
products or processes will result in patents being issued, or that patents, if
issued, will provide protection against competitors who successfully challenge
the Company's patents, obtain
<PAGE>
patents that may have an adverse effect on the Company's ability to conduct
business, or be able to circumvent the Company's patent position. In view of the
time delay in patent approval and the secrecy afforded United States patent
applications, the Company does not know if other applications that would have
priority over the Company's applications have been filed.
Manufacturing Limitations The Company currently does not have its own
manufacturing facilities to manufacture products under cGMP. The Company has
established arrangements with contract manufacturers to supply potential
products for preclinical and clinical trials and intends to establish similar
arrangements for the manufacture, packaging, labeling and distribution of
products, if approved for marketing. If the Company's contractors are unable to
supply sufficient quantities of product candidates manufactured in accordance
with cGMP on acceptable terms, the Company's preclinical and human clinical
testing schedule would be delayed. If the Company should encounter delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute its products, market introduction and subsequent sales of
such products would be adversely affected. Moreover, contract manufacturers that
the Company may use must adhere to cGMP regulations enforced by the FDA through
its facilities inspection program. If these facilities cannot pass a
pre-approval plant inspection, the FDA pre-market approval of the products would
be adversely affected. The Company's dependence on third parties for the
manufacture of products may adversely affect the Company's results of operations
and its ability to develop and deliver products on a timely and competitive
basis.
Risk of Product Liability Clinical trials or marketing of any of the
Company's potential products may expose the Company to liability claims from the
use of such products. The Company's product liability insurance does not cover
commercial sales of products. The Company has a limited amount of product
liability insurance to cover liabilities arising from clinical trials. There can
be no assurance that the Company's insurance will be adequate to cover any
liabilities arising from the Company's clinical trials, that the Company will be
able to obtain product liability insurance covering commercial sales or, if
obtained, that sufficient coverage can be acquired at a reasonable cost. An
inability to obtain insurance at acceptable cost or otherwise protect against
potential product liability claims could prevent or inhibit commercialization of
any products developed by the Company.
Dependence on Qualified Personnel and Advisors The Company is highly
dependent upon its scientific and management staff and on consultants and
advisors, the loss of whose services might significantly delay the achievement
of planned development objectives. In addition, the Company is dependent on
collaborators at research institutions. Recruiting and retaining qualified
personnel, collaborators, advisors and consultants will be critical to the
Company's success. There is intense competition for such qualified personnel in
the area of the Company's activities, and there can be no assurance that the
Company will be able to continue to attract and retain the personnel necessary
for the development of the Company's business. The Company's planned activities
will require additional expertise in areas such as clinical trial management,
regulatory affairs, manufacturing, and marketing. Such activities will require
the addition of new personnel including management and the development of
additional expertise by existing management personnel. The inability to acquire
such services or to develop such expertise could have a material adverse effect
on the Company's operating results.
Possible Enforcement Proceedings In late January 1996, two executive
officers of the Company purchased an aggregate of 1,600 shares of the Company's
Common Stock prior to the Company's
<PAGE>
proposed public offering of common stock. After these officers informed the
Company's outside legal counsel of such purchases, such counsel advised the
Company that such purchases constituted a violation of Rule 10b-6 under the
Securities and Exchange Act of 1934, as amended. Rule 10b-6 prohibits, among
other things, bids or purchases of an issuer's stock by executive officers of an
issuer on whose behalf a distribution is being made for a certain period before
commencement of offers or sales of the issuer's stock. The SEC has instituted a
voluntary informal inquiry into this matter. It is possible that the SEC may
seek enforcement action against the Company and/or the officers who made the
purchases. Given the preliminary stage of the inquiry, there can be no assurance
as to what action, if any, the SEC will take, or the effect of such action on
the Company. Any actions taken by the SEC with respect to the matter may have a
material adverse effect on the Company's financial position and results of
operations.
Volatility of Stock Price; Limited Market Capitalization The market price
of the shares of Common Stock, like that of the common stock of many other
biotechnology companies, has been and is likely to continue to be, highly
volatile. Factors such as the results of preclinical studies and clinical trials
by the Company, or its competitors, other evidence of the safety or efficacy of
products of the Company or its competitors, announcements of technological
innovations or new therapeutic products by the Company or its competitors,
government regulation, health care legislation, developments in patent or other
proprietary rights of the Company or its competitors including litigation,
fluctuations in the Company's operating results, and market conditions for life
sciences stocks in general could have a significant adverse impact on the future
price of the Common Stock. In addition, the average daily trading volume of the
Company's Common Stock since public trading of the Common Stock commenced has
been relatively low compared to that of other biopharmaceutical companies. To
the extent this trading pattern continues, the price of the Common Stock may
fluctuate significantly as a result of changes in demand for such shares and
sales of stock by stockholders.
ITEM 2. PROPERTIES
NTI's executive offices are located in Richmond, California. NTI leases a
12,500 square foot facility. The lease is for five years starting April 1995.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1996.
<PAGE>
PART II
ITEM 5. MARKET PRICE OF NTI COMMON STOCK; DIVIDENDS
NTI's common stock is traded on the Nasdaq National Market under the symbol
"NTII."
As of June 30, 1996, there were approximately 250 holders of record of the
Company's common stock and 6,512,485 shares of common stock outstanding. No
dividends have been paid on the common stock since the Company's inception, and
the Company does not anticipate paying any dividends in the foreseeable future.
The price range of the Company's common stock for the past two fiscal years
is shown below.
FISCAL 1995 HIGH LOW
---------------------------------------------------------------
First Quarter $9.50 $4.75
Second Quarter $4.75 $2.50
Third Quarter $5.25 $2.88
Fourth Quarter $4.50 $3.00
FISCAL 1996 HIGH LOW
---------------------------------------------------------------
First Quarter $6.00 $4.00
Second Quarter $5.75 $3.12
Third Quarter $5.25 $3.00
Fourth Quarter $9.00 $4.25
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Neurobiological Technologies, Inc. ("NTI" or the "Company") is a
biopharmaceutical company identifying and developing potential therapeutic
products based on advances in neuroscience research. NTI's strategy is to
in-license drug candidates that target major medical needs, have shown clear
evidence of preclinical efficacy and safety, and appear to have a clear path
through clinical testing and regulatory approval. NTI's experienced management
team then focuses on the drug development and clinical testing necessary to
bring its drug candidates to commercialization.
The Company is currently advancing three product candidates through human
clinical trials. NTI is developing Corticotropin-Releasing Factor (CRF), a human
peptide for reduction of edema and inflammation in patients with brain tumors
and rheumatoid arthritis. NTI has also licensed and is developing Dynorphin A, a
natural analgesic peptide, for use with morphine in managing severe pain. NTI is
also developing Memantine, an orally available NMDA receptor antagonist, which
has potential as a neuroprotective agent. Memantine is initially being developed
for treatment of neuropathic pain and AIDS-related dementia. Significant
additional preclinical testing and clinical testing will be required prior to
submission of any regulatory application for the commercial use of these
products. There can be no assurance that future clinical trials will demonstrate
an adequate level of safety or efficacy for commercialization.
<PAGE>
Since 1987 when the Company was founded, NTI has applied substantially all
of its resources to its research and development programs. The Company is a
development stage company, has not received any revenue from the sale of
products, and does not anticipate receiving revenue from the sale of products in
the near future. The Company has incurred losses since its inception and expects
to incur substantial, increasing losses over the next several years due to the
ongoing and planned research and development efforts.
Results of Operations
The Company's research and development expenses increased from $2,645,000
in fiscal 1994 to $4,452,000 in fiscal 1995 and decreased to $4,321,000 in
fiscal 1996. The decrease in fiscal 1996 was due to lower non-clinical
development activity, including toxicology studies, as compared to the prior
year. The increase from 1994 to 1995 was primarily due to expansion of the
Company's preclinical studies, funding of clinical trials and the hiring of
technical personnel.
General and administrative expenses increased from $1,261,000 in fiscal
1994 to $1,512,000 in fiscal 1995 and decreased to $1,397,000 in fiscal 1996
primarily due to changes in use of legal and other professional services.
Interest income increased from $236,000 in fiscal 1994 to $633,000 in
fiscal 1995 and decreased to $506,000 in fiscal 1996, primarily due to changes
in average cash balances.
The Company expects to incur substantial additional costs in fiscal 1997
primarily for preclinical studies and clinical trials for its development
programs and related administrative support. The Company expects that its
expenditures will continue to increase as its products move through Phase II and
potentially, Phase III clinical trials.
Liquidity and Capital Resources
The Company expects its cash requirements to increase significantly in
future periods. Future cash requirements will depend on numerous factors,
including: the progress on research and clinical development programs; the
in-licensing of potential drug candidates; the time and costs involved in
obtaining regulatory approvals; the ability of the Company to establish
collaborative arrangements; product commercialization activities; and the
acquisition of manufacturing or laboratory facilities. Since NTI uses qualified
third-party contractors to conduct preclinical studies and clinical trials, and
to manufacture clinical quantities of its products, the Company does not
anticipate incurring significant capital expenditures during fiscal 1997. Over
the same period, the number of employees is not expected to grow significantly
from current levels.
During the 1996 fiscal year, the Company completed a public offering of
stock, raising $7.1 million in net proceeds. From inception through June 30,
1996, the Company has raised a total of $29.2 million in net proceeds from the
sale of common and preferred stock.
The Company believes that its available cash, cash equivalents and
investments of $10.8 million as of June 30, 1996 are adequate to fund its
operations through the end of fiscal 1997. NTI will need to raise substantial
additional capital to fund subsequent operations. The Company intends to seek
such funding through public or private financings, arrangements with corporate
partners, or from other sources. The Company may seek to raise additional funds
whenever market conditions permit.
<PAGE>
However there can be no assurance that funding will be available on favorable
terms from any of these sources, if at all.
ITEM 7. FINANCIAL STATEMENTS
Report of Independent Auditors
The Board of Directors and Stockholders
Neurobiological Technologies, Inc.
We have audited the accompanying balance sheets of Neurobiological
Technologies, Inc. (a development stage company) as of June 30, 1996 and 1995,
and the related statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1996, and for the
period from August 27, 1987 (inception) through June 30, 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 Neurobiological
Technologies, Inc. at June 30, 1996 and 1995, and the result of its operations
and its cash flows for each of the three years in the period ended June 30,
1996, and for the period from August 27, 1987 (inception) through June 30, 1996,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Francisco, California
August 30, 1996
<PAGE>
<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
BALANCE SHEETS
<CAPTION>
June 30, June 30,
1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,602,815 $ 2,181,880
Short-term investments 4,642,153 6,569,835
Prepaid expenses and other 337,422 184,828
- - ---------------------------------------------------------------------------------------------------------------------------
Total current assets 9,582,390 8,936,543
Long-term investments 1,515,490 --
Property and equipment, net 229,267 197,103
Patents and licenses, net 65,216 130,436
- - ---------------------------------------------------------------------------------------------------------------------------
$ 11,392,363 $ 9,264,082
- - ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 198,205 $ 78,948
Accrued expenses 694,947 711,866
- - ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 893,152 790,814
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none outstanding -- --
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,512,485 shares issued and outstanding
at June 30, 1996 and 3,948,132 shares at June 30, 1995
at amounts paid in 29,302,546 22,065,160
Deficit accumulated during development stage (18,803,335) (13,591,892)
- - ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 10,499,211 8,473,268
- - ---------------------------------------------------------------------------------------------------------------------------
$ 11,392,363 $ 9,264,082
- - ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF OPERATIONS
<CAPTION>
Period from
August 27, 1987
(inception)
Years ended June 30, through
1996 1995 1994 June 30,1996
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 506,242 $ 632,715 $ 236,320 $ 1,624,863
Grant income -- 49,900 -- 49,900
- - ---------------------------------------------------------------------------------------------------------------------------
Total revenue 506,242 682,615 236,320 1,674,763
EXPENSES
Research and development 4,321,059 4,452,482 2,645,002 14,785,231
General and administrative 1,396,626 1,511,787 1,261,405 5,692,867
- - ---------------------------------------------------------------------------------------------------------------------------
Total expenses 5,717,685 5,964,269 3,906,407 20,478,098
- - ---------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (5,211,443) $ (5,281,654) $ (3,670,087) $ (18,803,335)
- - ---------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (1.05) $ (1.35) $ (1.55)
- - ---------------------------------------------------------------------------------------------------------------------------
Shares used in net loss
per share calculation 4,985,229 3,913,028 2,362,150
- - ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Deficit
Accumulated
Preferred Common Stock in Development
Stock Shares Amount Stage Total
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period from August 27, 1987
(inception) through June 30, 1993
Issuance of common stock $ -- 740,863 $ 1,616,706 $ -- $ 1,616,706
Issuance of common stock for services -- 72,428 84,500 -- 84,500
Issuance of common stock for license
rights -- 10,820 12,625 -- 12,625
Issuance of warrants to purchase
179,786 shares of common stock -- -- 2,790 -- 2,790
Exercise of warrants -- 137,143 64,000 -- 64,000
Exercise of options -- 41,544 135,313 -- 135,313
Issuance of 5,691,000 shares of Series A
preferred stock, net of issuance costs 5,573,194 -- -- -- 5,573,194
Net loss -- -- -- (4,640,151) (4,640,151)
- - ---------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993 5,573,194 1,002,798 1,915,934 (4,640,151) 2,848,977
Exercise of options -- 548 3,450 -- 3,450
Issuance of common stock under
employee stock purchase plan -- 3,980 16,915 -- 16,915
Issuance of 2,657,881 shares of Series B
preferred stock, net of issuance costs 1,653,888 -- -- -- 1,653,888
Issuance of common stock at $8.00 per
share in connection with initial
public offering, net of issuance costs -- 1,840,000 12,817,000 -- 12,817,000
Conversion of preferred stock in connection
with the initial public offering (7,227,082) 1,046,912 7,227,082 -- --
Net loss -- -- -- (3,670,087) (3,670,087)
- - ---------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 -- 3,894,238 21,980,381 (8,310,238) 13,670,143
Exercise of warrants -- 5,357 6,252 -- 6,252
Exercise of options -- 31,435 36,791 -- 36,791
Issuance of common stock under
employee stock purchase plan -- 17,102 41,736 -- 41,736
Net loss -- -- -- (5,281,654) (5,281,654)
- - ---------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 -- 3,948,132 22,065,160 (13,591,892) 8,473,268
Exercise of options -- 13,093 40,284 -- 40,284
Issuance of common stock under
employee stock purchase plan -- 21,260 53,823 -- 53,823
Issuance of common stock at $3.25 per
share in connection with public
offering, net of issuance costs -- 2,530,000 7,143,279 -- 7,143,279
Net loss -- -- -- (5,211,443) (5,211,443)
- - ---------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 $ -- 6,512,485 $ 29,302,546 $ (18,803,335) $10,499,211
- - ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
STATEMENTS OF CASH FLOWS
<CAPTION>
Period from
August 27, 1987
(inception)
Years ended June 30, through
1996 1995 1994 June 30, 1996
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,211,443) $ (5,281,654) $ (3,670,087) $ (18,803,335)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 123,095 95,697 37,531 345,239
Issuance of common stock and warrants
for license rights and services -- -- -- 99,275
Changes in assets and liabilities:
Prepaid expenses and other (152,594) (162,832) (98,496) (337,422)
Accounts payable and accrued expenses 102,338 430,791 168,460 893,152
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,138,604) (4,917,998) (3,562,592) (17,803,091)
INVESTING ACTIVITIES
Purchase of investments (11,263,339) (5,950,413) (11,385,720) (32,376,955)
Maturity of investments 11,675,531 10,848,225 756,762 26,219,312
Purchases of property and equipment (90,039) (147,620) (15,380) (356,660)
Additions to patents and licenses -- -- -- (283,062)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities 322,153 4,750,192 (10,644,338) (6,797,365)
FINANCING ACTIVITIES
Proceeds of short-term borrowings -- -- -- 235,000
Issuance of common stock 7,237,386 84,780 12,837,365 21,976,189
Issuance of preferred stock -- -- 1,653,888 6,992,082
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by
financing activities 7,237,386 84,780 14,491,253 29,203,271
Increase (decrease) in cash and
cash equivalents 2,420,935 (83,026) 284,323 4,602,815
Cash and equivalents at beginning of period 2,181,880 2,264,906 1,980,583 --
- - ---------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 4,602,815 $ 2,181,880 $ 2,264,906 $ 4,602,815
- - ---------------------------------------------------------------------------------------------------------------------------
Conversion of short-term borrowings
to Series A preferred stock $ -- $ -- $ -- $ 235,000
- - ---------------------------------------------------------------------------------------------------------------------------
Conversion of preferred stock to
common stock $ -- $ -- $ 7,227,082 $ 7,227,082
- - ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
Notes to Financial Statements
Neurobiological Technologies, Inc. (a development stage company)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Neurobiological Technologies, Inc. ("NTI" or the "Company") is a
biopharmaceutical company identifying and developing potential therapeutic
products based on advances in neuroscience research. NTI's strategy is to
in-license drug candidates that target major medical needs, have shown clear
evidence of preclinical efficacy and safety, and appear to have a clear path
through clinical testing and regulatory approval. NTI's experienced management
team then focuses on the drug development and clinical testing necessary to
bring its drug candidates to commercialization.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and investments
Cash and cash equivalents include investments with original maturities of
90 days or less. Short-term investments consist of investments with original
maturities of greater than 90 days but less than a year, while long-term
investments are those that mature greater than one year from the balance sheet
date. The Company has not realized any losses on its investments, which are
highly liquid and subject to little risk. Furthermore, the Company reduces its
credit risk by limiting the amount of credit exposure to any one financial
institution.
In fiscal 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). SFAS 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Adoption of this statement had no effect
on the Company's financial position or results of operations.
All of the Company's investment securities are classified as available for
sale and are stated at amounts which approximate fair market value. The Company
did not have any material realized or unrealized gains or losses on its
investments. Realized gains or losses, amortization of premiums, accretion of
discounts and earned interest are included in investment income.
<PAGE>
The following is a summary of available-for-sale securities at fair market
value, which approximates amortized cost, at June 30, 1996 and 1995:
1996 1995
- - -------------------------------------------------------------------------------
US Government obligations $233,862 $1,007,500
Corporate obligations 8,041,959 5,480,407
Commercial paper 2,346,545 1,586,549
Accrued interest 115,684 74,638
Total $10,738,050 $8,149,094
- - -------------------------------------------------------------------------------
Such available-for-sale securities have been recorded at June 30, 1996 as
cash and cash equivalents ($4,580,407), short-term investments ($4,642,153) and
long-term investments ($1,515,490). By policy, the Company does not invest in
securities that mature in more than 18 months. At June 30, 1996, all securities
in the investment portfolio are scheduled to mature in less than 14 months.
Property and equipment
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method based on estimated useful lives of 5 to 7 years.
The balances at June 30, 1996 and 1995 consisted of the following:
1996 1995
- - --------------------------------------------------------------------------------
Machinery and Equipment $190,882 $132,319
Furniture and fixtures 165,778 134,302
- - --------------------------------------------------------------------------------
356,660 266,621
Less Accumulated depreciation (127,393) (69,518)
$229,267 $ 197,103
- - --------------------------------------------------------------------------------
Patents and licenses
Patents and licenses consist of the costs relating to license agreements
covering certain patent rights to the Company's products. The costs are
amortized using the straight-line method over the shorter of the life of the
patent or its economic useful life. Accumulated amortization at June 30, 1996
and 1995 was $217,846 and $152,626, respectively.
Net loss per share
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is anti-dilutive,
except that, pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common equivalent shares from stock, stock options and
<PAGE>
warrants issued at prices below the public offering price during the 12-month
period prior to the initial public offering have been included in the
calculation as if they were outstanding for all the periods presented through
December 31, 1993 (using the treasury stock method and the initial public
offering price of $8 per share for common stock, stock options and warrants, and
the as-if-converted method for preferred stock).
All shares in the accompanying financial statements have been retroactively
adjusted to reflect the 9.333-for-one reverse stock split that occurred in
February 1994.
NOTE 2. LEASE
The Company leases its current premises in Richmond, California through
April 2000. Rent expense for the years ended June 30, 1996, 1995, and 1994 was
$143,000, $81,000 , and $64,000, respectively.
At June 30, 1996, future minimum payments under leases with initial terms
of one year or more consisted of the following:
1997 $132,000
1998 132,000
1999 132,000
2000 110,000
$506,000
- - -------------------------------------------------------------------------------
NOTE 3. STOCKHOLDERS' EQUITY
Effective with the closing of the Company's initial public offering in
February 1994, the Board of Directors authorized 25,000,000 shares of common
stock, $.001 par value, and 5,000,000 shares of preferred stock, $.001 par
value.
Preferred stock
At June 30, 1993, preferred stock consisted of 5,691,000 shares of series A
preferred stock. Each share converted into 1.25 shares of series B preferred
stock upon the consummation of the series B preferred stock financing. In
December 1993, the Company issued 2,657,881 shares of Series B preferred stock.
In February 1994, all preferred stock automatically converted into common stock
and the Company effected a 9.333-for-1 reverse split.
Warrants to purchase common stock
At June 30, 1996, warrants to purchase 798,393 shares of common stock were
outstanding at a weighted average exercise price of $6.83 per share. Of these,
37,286 shares of common stock at a price of $5.60 were issued for licensing
rights and consulting services and have expiration dates through June, 2001;
warrants to purchase 381,107 shares at $7.47 per share were issued in connection
with the Series A preferred offering and expire on April 9, 1997; and warrants
to purchase 160,000 shares at $9.60 per share and 220,000 shares at $3.90 per
share were issued to the underwriters of the
<PAGE>
initial public offering and the 1996 public offering, respectively, and expire
on February 15, 1999 and 2001, respectively.
Stock option plan
Under the Company's 1993 Stock Plan, 1,500,000 shares of common stock have
been reserved for issuance. In general, options are granted at fair market value
on the date of the grant, have a term of 10 years and become exercisable over a
period of up to 48 months. However, 90,000 options outstanding, of which 13,000
are exercisable at June 30, 1996, are subject to accelerated vesting based on
the achievement of certain performance-based milestones.
Information as to activity under the plan is as follows:
Number of Shares Exercise Price
Subject to Options per Share
- - ------------------------------------------------------------------------------
Balance at June 30, 1993 269,841 $1.17-$7.00
Options granted 751,361 $3.73-$8.50
Options canceled (244,595) $3.73-$8.50
Options exercised (548) $3.73-$7.00
- - ------------------------------------------------------------------------------
Balance at June 30, 1994 776,059 $1.17-$8.00
Options granted 182,668 $2.88-$5.00
Options canceled (19,906) $1.17-$8.00
Options exercised (31,435) $1.17-$3.73
- - ------------------------------------------------------------------------------
Balance at June 30, 1995 907,386 $2.88-$8.00
Options granted 73,760 $3.50-$6.63
Options canceled (34,225) $2.88-$6.75
Options exercised (21,376) $2.88-$3.73
- - ------------------------------------------------------------------------------
Balance at June 30, 1996 925,545 $2.88-$8.00
- - ------------------------------------------------------------------------------
At June 30, 1996, options to purchase 521,516 shares of common stock
remained available for grant, and options to purchase 582,273 shares of common
stock were exercisable at prices ranging from $2.88 to $8.00
Stock purchase plan
Effective February 1994, the Company established an employee stock purchase
plan (the "Plan") under which the employees may purchase common stock at 85% of
the lower of the share price at the beginning or end of a designated period.
Under the Plan, 50,000 shares have been reserved for issuance of which 42,342
have been issued through June 30, 1996.
NOTE 4. INCOME TAXES
The Company uses the liability method to account for income taxes as
required by FASB Statement No.109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
<PAGE>
liabilities and are measured using enacted tax rules and laws that will be in
effect when the differences are expected to reverse.
<PAGE>
Significant components of the Company's deferred tax assets (in thousands)
are as follows at June 30, 1996 and 1995:
1996 1995
- - -------------------------------------------------------------------------------
Net operating loss carryforwards $ 6,500 $ 4,950
Research and development credit carryforward 700 690
Capitalized research and development 450 --
- - -------------------------------------------------------------------------------
Gross deferred tax assets 7,650 5,640
Valuation allowance (7,650) (5,640)
Net deferred tax assets $ -- $ --
- - -------------------------------------------------------------------------------
The valuation allowance increased by $2,010,000 and $2,400,000 in fiscal
1996 and 1995, respectively.
At June 30, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $18,000,000 and
$5,000,000 respectively, which expire in the tax years 1996 through 2010. The
Company has federal tax credit carryforwards of approximately $4,000,000 which
expire in the tax years 2006 through 2010.
During the years ended June 30, 1991 and 1994, the Company experienced a
"change of ownership" as defined in Section 382 of the Internal Revenue Code. As
a result, utilization of the company's net operating loss and credit
carryforwards incurred prior to the "change of ownership" may be subject to an
annual limitation. If an additional "change of ownership" occurs, the
availability of the Company's net operating loss and credit carryforwards
incurred subsequent to the 1994 "change of ownership" may also be subject to an
annual limitation.
NOTE 5. POSSIBLE ENFORCEMENT PROCEEDINGS
In late January 1996, two executive officers of the Company purchased an
aggregate of 1,600 shares of the Company's Common Stock prior to the Company's
proposed public offering of common stock. After these officers informed the
Company's outside legal counsel of such purchases, such counsel advised the
Company that such purchases constituted a violation of Rule 10b-6 under the
Securities and Exchange Act of 1934, as amended. Rule 10b-6 prohibits, among
other things, bids or purchases of an issuer's stock by executive officers of an
issuer on whose behalf a distribution is being made for a certain period before
commencement of offers or sales of the issuer's stock. The SEC has instituted a
voluntary informal inquiry into this matter. It is possible that the SEC may
seek enforcement action against the Company and/or the officers who made the
purchases. Given the preliminary stage of the inquiry, there can be no assurance
as to what action, if any, the SEC will take, or the effect of such action on
the Company. Any actions taken by the SEC with respect to the matter may have a
material adverse effect on the Company's financial position and results of
operations.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
<PAGE>
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and executive officers is hereby
incorporated by reference to the section entitled "Election of Directors" in the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Company's 1996 Annual Meeting of
Stockholders (the "Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
to the section entitled "Executive Compensation" in the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is hereby incorporated by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference
to the section entitled "Certain Transactions" in the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The following are incorporated herein by reference to the financial
statements included under Part II.
Report of Independent Auditors
Balance Sheets at June 30, 1996 and 1995
Statements of Operations for each of the three years in the period
ended June 30, 1996 and for the period from August 27, 1987 (inception)
through June 30, 1996
Statement of Stockholders' Equity for each of the three years in the
period ended June 30, 1996 and for the period from August 27, 1987
(inception) through June 30, 1996
Statement of Cash Flows for each of the three years in the period ended
June 30, 1996 and for the period for August 27, 1987 (inception)
through June 30, 1996
Notes to Financial Statements
Schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the
financial statements or notes thereto.
(B) REPORTS ON FORM 8-K
None.
<PAGE>
(C) EXHIBITS
<TABLE>
The following exhibits are incorporated by reference or filed as part of
this report.
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
3.5* Restated Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1* Form of Common Stock Certificate.
4.2* Form of Warrant issued to Van Kasper & Co.
4.3* Form of Warrant issued to Van Kasper & Co. and Gerard Klauer Mattison & Co., LLC.
10.2* 1993 Stock Plan of Neurobiological Technologies, Inc.***
10.3* Employee Stock Purchase Plan of Neurobiological Technologies, Inc.***
10.4* Form of Indemnity Agreement between the Registrant and its directors and officers.***
10.5* Series B Preferred Stock Purchase and Exchange Agreement dated as of December 6, 1993.
10.6* License Agreement between the Registrant and Research Corporation Technologies, Inc.
dated May 30, 1990.**
10.7* License Agreement among the Registrant, Dynorphin Partnership,
Nancy M. Lee and Horace C. Loh dated April 1, 1989, as amended.**
10.8* License Agreement between the Registrant and ImmunoDynorphin Partnership
dated October 1, 1990.**
10.9* License Agreement between the Registrant and des-Tyr Dynorphin Partnership
dated December 20, 1992.**
10.10* License Agreement between the Registrant and DUZ Partnership dated December 20, 1992.**
10.11* License Agreement between the Registrant and The Salk Institute for Biological Studies
dated March 31, 1989, as amended.**
10.12* License Agreement between the Registrant and the Regents of the University of California
dated June 13, 1990, as amended.**
10.13* Option Agreement between the Registrant and the Regents of the University of California
dated December 1, 1992.**
10.14**** Lease dated August 22, 1994 between Registrant and Marina
Westshore Partners, a California limited partnership.
10.15** License Agreement between the Registrant and Children's Hospital effective September 11, 1995,
as amended on March 11, 1996.
10.16*** Employment Agreement between the Registrant and Michael S. Ostrach dated June 22, 1996.
24.1 Power of Attorney.
<FN>
*Previously filed as an exhibit to the Company's Registration Statement on Form
SB-2 (Registration No. 33-74118-LA) and incorporated herein by reference.
**Confidential treatment has been requested with respect to certain portions of these agreements.
***This exhibit is a management contract or compensatory plan or arrangement.
**** Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended
June, 30, 1995.
</FN>
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: September 25, 1996
Neurobiological Technologies, Inc.
/s/ Jeffrey S. Price
---------------------
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
POWER OF ATTORNEY
<TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey S. Price his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute may lawfully do or cause to be done by virtue hereof.
<CAPTION>
Signature Title Date
----------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Jeffrey S. Price President, Chief Executive Officer September 25, 1996
--------------------
Jeffrey S. Price (Principal Executive Officer) and Director
/s/ Michael S. Ostrach Executive Vice President September 25, 1996
----------------------
Michael S. Ostrach Chief Operating Officer and Director
/s/ Shawn K. Johnson Director of Finance, September 25, 1996
--------------------
Shawn K. Johnson Principal Accounting Officer
/s/ Abraham E. Cohen Chairman of the Board September 25, 1996
--------------------
Abraham E. Cohen
/s/ Enoch Callaway Director September 25, 1996
------------------
Enoch Callaway
/s/ Theodore L. Eliot, Jr. Director September 25, 1996
--------------------------
Theodore L. Eliot, Jr.
/s/ Lawrence G. Mohr Jr. Director September 25, 1996
------------------------
Lawrence G. Mohr, Jr.
/s/ John B. Stuppin Director September 25, 1996
-------------------
John B. Stuppin
</TABLE>
[CERTAIN INFORMATION HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER 24b-2. THE
REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION]
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
CHILDREN'S MEDICAL CENTER CORPORATION
AND
NEUROBIOLOGICAL TECHNOLOGIES, INC.
CMCC 314
<PAGE>
TABLE OF CONTENTS
Articles Page(s)
-------
I. DEFINITIONS......................................................1
II. GRANT............................................................4
III. DUE DILIGENCE....................................................6
IV. ROYALTIES AND OTHER PAYMENTS.....................................8
V. REPORTS AND RECORDS............................................ 11
VI. PATENT PROSECUTION............................................. 13
VII. INFRINGEMENT................................................... 13
VIII. INDEMNIFICATION AND INSURANCE PROVISIONS....................... 15
IX. EXPORT CONTROLS................................................ 16
X. NON-USE OF NAMES............................................... 17
XI. ASSIGNMENT..................................................... 17
XII. DISPUTE RESOLUTION AND ARBITRATION............................. 18
XIII. TERM AND TERMINATION........................................... 19
XIV. PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS.................... 20
XV. COMMERCIAL DEVELOPMENT......................................... 20
XVI. GENERAL PROVISIONS............................................. 21
-i-
<PAGE>
EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT is made and entered into as of the date last written
below (the "Effective Date"), by and between CHILDREN'S MEDICAL CENTER
CORPORATION, a charitable corporation duly organized and existing under the laws
of the Commonwealth of Massachusetts and having its principal office at 300
Longwood Avenue, Boston, Massachusetts, 021 15, U.S.A. (hereinafter referred to
as "CMCC"), and NEUROBIOLOGICAL TECHNOLOGIES, INC., a business corporation
organized and existing under the laws of the state of Delaware and having its
principal office at 1387 Marina Way South, Richmond, California 94804
(hereinafter referred to as "Licensee").
WHEREAS, CMCC is the owner (or co-owner with the President and Fellows
of Harvard College ("Harvard")) of certain Patent Rights (as that term shall be
defined hereinafter) and has the right to grant exclusive licenses under said
Patent Rights, subject only to a royalty-free, nonexclusive license heretofore
granted to the United States Government for those patents developed with U.S.
Government funding; and
WHEREAS, CMCC desires to have the Patent Rights utilized in the public
interest and is willing to grant a license thereunder on the terms and
conditions described herein; and
WHEREAS, Licensee has represented to CMCC that Licensee is ready,
willing and able to engage in the commercial development, production,
manufacture, marketing and sale of Licensed Products (as that term shall be
defined hereinafter) and/or the use of Licensed Processes (as that term shall be
defined hereinafter) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights in accordance with the terms
and conditions described herein so that public utilization shall result
therefrom; and
WHEREAS, Licensee desires to obtain an exclusive license under the
Patent Rights on the terms and conditions of this Agreement:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
For the purpose of this Agreement, the following words and phrases
shall have the meanings set forth below:
A. "Affiliate" shall mean any company or other legal entity
controlling, controlled by or under common control with Licensee. For purposes
of the definition of "Affiliate" the term "control" shall mean: (i) in the case
of a corporate entity, the
-1-
<PAGE>
direct or indirect ownership of at least a majority of the stock or
participating shares entitled to vote for the election of directors of that
entity; (ii) in the case of a partnership, the power customarily held by a
general partner to direct the management and policies of such partnership; or
(iii) in the case of a joint venture, whether in corporate, partnership or other
legal form, a more than nominal economic interest and managerial role. NewCo,
defined below, shall be considered an Affiliate for the purposes of this
Agreement.
B. "Combination Product(s) or Process(es)" shall mean a product or
process that includes a Licensed Product or Licensed Process sold in combination
with another component(s) whose manufacture, use or sale by an unlicensed party
would not constitute an infringement of the Patent Rights.
C. "Field of Use" shall mean the treatment and diagnosis of all
diseases and conditions in humans and animals except ophthalmologic diseases and
conditions.
D. "First Commercial Sale" shall mean with respect to each country: (i)
the first sale of any Licensed Product or Licensed Process by Licensee,
following approval of such Licensed Product's or Licensed Process's marketing by
the appropriate governmental agency, if any such approval is necessary, for the
country in which the sale is to be made; or (ii) when governmental approval is
not required, the first sale in that country of the Licensed Product or Licensed
Process.
E. "Licensed Product" shall mean with respect to each country any
product or part thereof:
1. The manufacture, use or sale of which would infringe any
one of the issued, valid, enforceable, unexpired claim(s) or any one of
the pending claim(s) contained in the Patent Rights in that country.
2. The manufacture of which uses a "Licensed Process" as that
term shall be defined hereinafter.
F. "Licensed Process" shall mean with respect to each country any
process that would infringe any one of the issued, valid, enforceable, unexpired
claim(s) or any one of the pending claim(s) contained in the Patent Rights in
that country.
G. "Licensee" shall mean Licensee and/or its successor(s) or
assignee(s) and/or its Affiliates.
H. "Net Sales" shall mean gross receipts received by Licensee for
Licensed Products and Licensed Processes, less the sum of the following:
1. Discounts allowed in amounts customary in the trade.
-2-
<PAGE>
2. Sales taxes, tariff duties and/or use taxes directly
imposed and with reference to particular sales.
3. Outbound transportation and delivery charges (including
insurance premiums related to transportation and delivery) prepaid or
allowed.
4. Amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they are with independent sales agencies or regularly employed by Licensee and
on its payroll or for the cost of collections. Licensed Products and Licensed
Processes shall be considered "sold" when billed out or invoiced.
Notwithstanding anything herein to the contrary, the following shall not be
considered a sale of a Licensed Product or Licensed Process under this
Agreement: (i) the transfer of a Licensed Product or Licensed Process to an
Affiliate for sale by the Affiliate in a transaction that will be royalty
bearing; (ii) the transfer of a Licensed Product or Licensed Process to a third
party without consideration to Licensee in connection with the development or
testing of a Licensed Product or Licensed Process; or (iii) the transfer of a
Licensed Product or Licensed Process to a third party without consideration in
connection with the marketing or promotion of the Licensed Product or Licensed
Process.
I. "Patent Rights" shall mean all of the following intellectual
property which CMCC owns or has rights to during the term of this Agreement:
1. The United States and foreign patents and/or patent
applications listed in Appendix 1 attached hereto and incorporated
herein by reference and divisionals and continuations thereof,
including any patents or patent applications and divisionals and
continuations thereof that may be added to Appendix 1 subsequent to the
effective date of this Agreement in accordance with the terms of any
sponsored research agreement that be executed between Licensee and CMCC
or between Licensee and Children's Hospital.
2. The United States and foreign patents issued from the
applications listed in Appendix 1 and from divisionals and
continuations of those applications.
3. Claims of United States and foreign continuation-in-part
applications, and of the resulting patents, which relate to subject
matter specifically described in the United States and foreign patent
applications described in Appendix 1.
4. Claims of all later filed foreign patent applications, and
of the resulting patents, which relate to subject matter specifically
described in the United States patent and/or patent applications
described in subparagraphs 1, 2 or of this Article I, Paragraph I.
-3-
<PAGE>
5. Any reissues, divisions, amendments or extensions of the
United States or foreign patents described in subparagraphs 1, 2, 3 or
4 of this Article I, paragraph I.
J. "Sublicensee" shall mean a person or entity unaffiliated with
Licensee to whom Licensee has granted am arm's length sublicense under this
Agreement.
K. "NewCo" shall mean a subsidiary formed by NTI for the purpose of
holding and commercializing the Patent Rights.
L. "ACTG Trial" shall mean the AIDS Clinical Trial Group clinical trial
#301.
M. "Ophthalmologic Licensee" shall mean the company to which CMCC has
licensed, or will license, the Patent Rights for the field of use of treatment
of ophthalmologic disease.
N. "Strategic Partnership" shall mean a contractual relationship
related to the commercial development of Licensed Products and Licensed
Processes between Licensee and the Ophthalmologic Licensee other than the
relationship defined in Section XV.
[CONFIDENTIAL TREATMENT REQUESTED]
ARTICLE II. GRANT
A. CMCC hereby grants to Licensee the worldwide right and exclusive
license to make, have made, use, lease and sell the Licensed Products and to
practice the Licensed Processes for the Field of Use to the expiration of the
last Patent Rights, unless sooner terminated as provided in this Agreement. Upon
expiration of the last-to-expire Patent Right in a country, CMCC grants to
Licensee a fully-paid-up, royalty-free license to make, have made, use, lease
and sell the Licensed Products and to practice the Licensed Processes for the
Field of Use in that country.
B. Notwithstanding anything above to the contrary, each of CMCC and
Harvard shall retain a royalty-free, nonexclusive, irrevocable license of
practice, and to sublicense other non-profit research organizations to practice,
the Patent Rights it owns for noncommercial research purposes only.
C. Notwithstanding anything above to the contrary, the license granted
hereunder shall be subject to the rights of the United States government, if
any, under Public Laws 96-517, 97-226, and 98-620, codified at 35 U.S.C. secs.
200-212 and any regulations promulgated thereunder.
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D. Licensee agrees that Licensed Products leased or sold in the United
States shall be manufactured substantially in the United States.
E. In order to establish exclusivity for Licensee, CMCC hereby agrees
that it shall not, without Licensee's prior written consent, grant to any other
commercial party a license to make, have made, use, lease and/or sell Licensed
Products or to use the Licensed Processes in the Field of Use during the period
of time in which this Agreement is in effect, except as otherwise specified in
this Agreement or as required by law to grant rights to the United States
Government.
F. Licensee shall have the right to enter into sublicensing agreements
with respect to any of the rights, privileges, and licenses granted hereunder,
subject to the terms and conditions hereof. Such sublicenses will terminate upon
the termination of Licensee's rights granted herein unless events of default are
cured by Licensee or Sublicensee within thirty (30) days of notification by CMCC
of default and/or as provided by the terms of this Agreement.
G. Licensee agrees that any sublicense granted by it shall provide that
the obligations to CMCC of Articles II (Grant), V (Reports and Records), VII
(Infringement), VIII (Insurance and Indemnification), IX (Export Controls), X
(Non-Use of Names), XI (Assignment), XII (Dispute Resolution), XIII (Term and
Termination) and XV (Miscellaneous Provisions) of this Agreement shall be
binding upon the sublicensee as if it were a party to this Agreement. Licensee
further agrees to attach a copy of this Agreement to all sublicense agreements,
deleting economic terms when and as appropriate.
H. Licensee agrees to provide to CMCC notice of any sublicense granted
hereunder and to forward to CMCC a copy of any and all fully executed sublicense
agreements. Licensee further agrees to forward to CMCC annually a copy of such
reports received by Licensee from its sublicensees during the preceding twelve
(12) month period as shall be pertinent to a royalty accounting under the
applicable sublicense.
I. Licensee shall advise CMCC in writing of any consideration received
from sublicensees. Licensee shall not accept from any sublicensee anything of
value in lieu of cash payments to discharge sublicensee's payment obligations
under any sublicense granted under this Agreement, without the express written
permission of CMCC, which permission shall not be unreasonably withheld.
J. CMCC agrees that if Licensee has provided to CMCC notice that
Licensee has granted a sublicense to a sublicensee under this Agreement, then in
the event CMCC terminates this Agreement for any reason provided hereinafter,
CMCC shall provide to such sublicensee no less than thirty (30) days prior to
the effective date of said termination, written notice of said termination at
the address specified by Licensee to CMCC in Licensee's notice to CMCC under
Paragraph H of this Article II. CMCC agrees that upon the sublicensee's notice
as described below
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and provided the sublicensee is not in breach of its sublicense, CMCC shall
grant to such sublicensee license rights and terms equivalent to the sublicense
rights and terms which the sublicense shall have granted to said sublicensee;
provided that the sublicensee shall remain a sublicensee under this Agreement
for a period of at least sixty (60) days following receipt of notice from CMCC.
Sublicensee shall during said sixty (60) day period provide to CMCC notice
wherein the sublicensee: (i) reaffirms the terms and conditions of this
Agreement as it relates to the rights the sublicensee has been granted under the
sublicensee; (ii) agrees to abide by all of the terms and conditions of this
Agreement applicable to sublicensees and to discharge directly all pertinent
obligations of Licensee which Licensee is obligated hereunder to discharge; and
(iii) acknowledges that CMCC shall have no obligations to the sublicensee other
than its obligations set forth in this Agreement with regard to Licensee.
K. The license granted hereunder shall not be construed to confer any
rights upon Licensee by implication, estoppel or otherwise as to any technology
not described in the Patent Rights.
L. As a result of an agreement dated December 7, 1994, and existing
prior to this Agreement, CMCC has agreed not to assert, and Licensee hereby
agrees not to assert, any of the Patent Rights resulting from U.S. patent
application [CONFIDENTIAL TREATMENT REQUESTED], its continuations, or foreign
counterparts (further described in Appendix 2) against [CONFIDENTIAL TREATMENT
REQUESTED], or its sublicensees or assignees with regard to the following fields
of use: any manufacture, use or sale of [CONFIDENTIAL TREATMENT REQUESTED]. The
obligations of this Paragraph L shall expire with the expiration or termination
of the December 7 agreement.
ARTICLE III. DUE DILIGENCE
A. Licensee shall use its good faith and diligent efforts to bring one
or more Licensed Products and/or Licensed Processes to market as soon as
reasonably practicable, consistent with sound and reasonable business practices
and judgment, through a thorough, vigorous and diligent commercial development
program. Thereafter, Licensee agrees that until expiration or termination of
this Agreement, Licensee shall continue active and diligent efforts to keep
Licensed Products and/or Licensed Processes reasonably available to the public.
In the event Licensee decides not to practice under a licensed Patent Right, it
shall promptly inform CMCC in writing and shall surrender to CMCC its license to
that Patent Right.
B. As part of its Due Diligence, Licensee shall cause the formation of
NewCo within three (3) months of the Effective Date of this Agreement, shall
assign rights under this Agreement to NewCo in accordance with the provisions of
Article XI Paragraph e, and shall obtain financing of at least [CONFIDENTIAL
TREATMENT REQUESTED] for NewCo within twelve (12) months of the Effective Date
of this Agreement.
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<PAGE>
C. Within sixty (60) days of the Effective Date Licensee shall provide
to CMCC a written commercialization development plan reasonably acceptable to
CMCC ("Development Plan") setting forth the initial indications and markets for
Licensed Products and Licensed Processes, including to the extent practicable:
(i) time-delimited targets for pre-clinical development, clinical trials,
regulatory approval, manufacturing and marketing that represent reasonable
efforts, consistent with industry norms for similar technology and applications,
to bring Licensed Products and Licensed Processes to the marketplace; and (ii)
actual or projected financial resources and/or strategic alliances that will be
required to implement the Development Plan. The Development Plan shall be
attached hereto as Appendix 3 and shall be incorporated herein by reference.
D. Licensee shall use good faith and diligent efforts to accomplish the
milestones set forth in the Development Plan and to manufacture and distribute
Licensed Products and Licensed Processes.
E. Notwithstanding anything above to the contrary, CMCC shall not
unreasonably withhold its assent to any revision of the objective(s) set forth
in the Development Plan when requested in writing by Licensee and supported by
evidence reasonably acceptable to CMCC: (i) of technical difficulties or delays
in the clinical studies or regulatory process that Licensee could not have
reasonably avoided; or (ii) that Licensee, its Affiliates and/or sublicensees
have expended good faith and diligent efforts and adequate resources to meet
said objective.
F. In the event CMCC reasonably believes that Licensee is not
diligently seeking to achieve the objectives set forth in the Development Plan
in a timely manner, CMCC shall so notify Licensee in writing. Licensee shall
have the option, exercisable by written notice to CMCC provided within ten (10)
days after receipt of any such notice, to either: (i) receive a three (3) month
grace period to establish to CMCC's reasonable satisfaction that Licensee is
expending its good faith and diligent efforts and adequate resources to achieve
said objectives; or (ii) agree to CMCC's termination of this Agreement as
provided hereinafter. In the event Licensee agrees to termination of this
Agreement, CMCC shall immediately terminate the license granted to License under
this Agreement. In the event Licensee fails to establish its diligence to CMCC's
reasonable satisfaction as provided above prior to expiration of the three (3)
month grace period, CMCC shall have the right to terminate the license granted
to Licensee under this Agreement or to convert the license granted to Licensee
hereunder to a non-exclusive license on financial terms and conditions mutually
agreed to by CMCC and Licensee.
G. In the event Licensee fails to meet the objective(s) set forth in
the Development Plan in a timely manner, CMCC shall notify Licensee thereof in
writing, and Licensee shall have thirty (30) days following such notification to
establish to the reasonable satisfaction of CMCC that (i) it has met such
objective(s); or (ii) a revision to the Development Plan is necessary and
appropriate as contemplated above. In the event Licensee fails to establish the
same to CMCC's reasonable satisfaction,
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<PAGE>
CMCC shall have the right in its discretion to terminate the license granted to
Licensee under this Agreement or to convert the license granted to Licensee
hereunder to a nonexclusive license on financial terms and conditions mutually
agreed to by CMCC and Licensee.
ARTICLE IV. ROYALTIES AND OTHER PAYMENTS
A. For the rights, privileges and exclusive licenses granted hereunder,
Licensee shall pay to CMCC the following amounts in the manner hereinafter
provided until the end of the term of the last to expire Patent Right, unless
this Agreement shall be sooner terminated as hereinafter provided:
1. A license issue fee of
(a) [CONFIDENTIAL TREATMENT REQUESTED]
(b) [CONFIDENTIAL TREATMENT REQUESTED], payable
upon commencement of the ACTG Trial provided
that Licensee is chosen to be the supplier
of the drug for said trial
(c) [CONFIDENTIAL TREATMENT REQUESTED] upon
receipt from [CONFIDENTIAL TREATMENT
REQUESTED] of the memantine preparation
previously provided to [CONFIDENTIAL
TREATMENT REQUESTED] by [CONFIDENTIAL
TREATMENT REQUESTED], provided that such
memantine is provided in a form, quality
(including appropriate documentation) and
timeliness sufficient to initiate and
conduct the ACTG Trial.
2. As further consideration for granting this License
Agreement, upon formation of NewCo, CMCC shall be granted an option to
obtain an equity interest of [CONFIDENTIAL TREATMENT REQUESTED]
anti-dilution provisions such that CMCC's equity interest will be
[CONFIDENTIAL TREATMENT REQUESTED] until NewCo has received at least
[CONFIDENTIAL TREATMENT REQUESTED] in equity financing.
3. Licensee shall make, or induce NewCo to make, the following
milestone payments to CMCC, in cash, or in stock if both parties agree,
upon the occurrence of the following events ("Milestones"):
# Milestone Payment ($)
- - ----------- -----------
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<PAGE>
(i) Licensee's decision to proceed with clinical [CONFI-
development of memantine following completion of DENTIAL
ACTG Trial TREATMENT
REQUESTED]
(ii) Initiation of the first clinical trial sufficient [CONFI-
to support an NDA for memantine DENTIAL
TREATMENT
REQUESTED]
(iii) Filing an NDA for memantine
(iv) First commercial sale of a Licensed Product in [CONFI-
[CONFIDENTIAL TREATMENT REQUESTED] DENTIAL
TREATMENT
REQUESTED]
(v) Licensee's receipt of [CONFIDENTIAL TREATMENT [CONFI-
REQUESTED] as an up-front cash payment from CMCC's DENTIAL
Ophthalmologic Licensee for a Strategic TREATMENT
Partnership REQUESTED]
Notwithstanding the foregoing, if Licensee has provided funding for
sponsored research to be conducted in Dr. Stuart Lipton's laboratory, up to
[CONFIDENTIAL TREATMENT REQUESTED] of such funding for work to be conducted
during the period beginning September 1, 1995 and ending December 31, 1996 may
be credited against payment of Milestone (ii) above, and up to [CONFIDENTIAL
TREATMENT REQUESTED] of such funding for work to be conducted during the period
beginning January 1, 1997 and ending December 31, 1997 may be credited against
payment of Milestone (iii) above.
4. Licensee shall pay CMCC a [CONFIDENTIAL TREATMENT
REQUESTED] royalty on Net Sales of Licensed Products or Licensed
Processes used, leased or sold by and/or for Licensee and/or its
Affiliates, provided that
(a) The royalty rate will be reduced by [CONFIDENTIAL
TREATMENT REQUESTED] during any period in any country in which
Licensee can demonstrate there is significant unlicensed
competition in sales in the Field of Use (i.e., [CONFIDENTIAL
TREATMENT REQUESTED] or more of sales in the Field of Use of
products or processes that infringe upon the Patent Rights by
third parties other than the Ophthalmologic Licensee), and
(b) The license issuance fees paid by Licensee under
Paragraph 1 of this Section IV.A and the milestone payments
paid by Licensee under Paragraph 3 of this Section IV.A may be
credited
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<PAGE>
against royalty payments up to a limit of [CONFIDENTIAL
TREATMENT REQUESTED] of the royalty due in a given payment
period.
5. In the event Licensee has granted sublicenses under this
Agreement, [CONFIDENTIAL TREATMENT REQUESTED] of any and all payments
received by Licensee from said sublicensees in consideration of
permitting the sublicensee to practice the Patent Rights, including but
not limited to sublicense issue fees, any lump sum payments, milestone
payments, technology transfer payments or other similar fees, and
royalties, but not including any payments designated and actually used
for research, development or commercialization of Licensed Products or
Licensed Processes; provided that with respect to running royalties in
connection with a sublicensee's sales of Licensed Products or Licensed
Processes, if the product is covered by a composition of matter patent,
Licensee shall pay to CMCC hereunder an amount equal to the royalty
CMCC would have received from Licensee if such sales had been made by
Licensee.
B. No multiple royalties shall be payable because any Licensed Product
or Licensed Process, its manufacture, use, lease or sale are or shall be covered
by more than one Patent Rights patent application or Patent Rights patent
licensed under this Agreement.
C. To the extent that Licensee obtains subsequent to the date of this
Agreement licenses to third party patents or other intellectual property that
are necessary to produce or sell Licensed Products or Licensed Processes,
Licensee may deduct from the royalty due to CMCC [CONFIDENTIAL TREATMENT
REQUESTED] of the royalties due on such third party patents or intellectual
property up to an amount equal to [CONFIDENTIAL TREATMENT REQUESTED] of
royalties hereunder.
D. For purposes of calculating royalties, in the event that a Licensed
Product or Licensed Process includes both component(s) covered by a valid claim
of a Patent Right ("Patented Component") and a component which is diagnostically
usable or therapeutically active alone or in a combination which does not
require the Patented Component, and such component is not covered by a valid
claim of a Patent Right ("Unpatented Component"), then Net Sales of the
Combination Product or Combination Process shall be calculated using one of the
following methods; provided that in no event shall royalties payable to CMCC
hereunder by reduced to less than [CONFIDENTIAL TREATMENT REQUESTED] of those
otherwise due hereunder:
1. By multiplying the Net Sales of the Combination Product or
Combination Process during the applicable royalty accounting period
("accounting period") by a fraction, the numerator of which is the
aggregate gross selling price of the Patented Component(s) contained
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<PAGE>
in the Combination Product or Combination Process if sold separately,
and the denominator of which is the sum of the gross selling price of
both the Patented Component(s) and the Unpatented Component(s)
contained in the Combination Product or Combination Process if sold
separately; or
2. In the event that no such separate sales are made of the
Patented Component(s) or the Unpatented Components during the
applicable accounting period, Net Sales for purposes of determining
royalties payable hereunder shall be calculated by multiplying the Net
Sales of the Combination Product or Combination Process by a fraction,
the numerator of which is the fully allocated production cost of the
Patented Component(s) and the denominator of which is the sum of the
fully allocated production costs of the Patented Component(s) and the
Unpatented Component(s) contained in the Combination Product or
Combination Process. Such fully allocated costs shall be determined by
using Licensee's standard accounting procedures, which procedures must
conform to standard cost accounting procedures.
E. Royalty payments shall be paid in United States dollars in Boston,
Massachusetts, or at such other place as CMCC may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
the currency conversion shall be required in connection with the payments of
royalties or other amounts hereunder, the conversion shall be made by using the
exchange rate prevailing at the Bank of Boston on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
F. The royalty payments set forth in this Agreement shall, if overdue,
bear interest until payment at a per annum rate of four percent (4%) above the
prime rate in effect at the Bank of Boston on the due date. The payment of such
interest shall not foreclose CMCC from exercising any other rights it may have
as a consequence of the lateness of any payment.
ARTICLE V. REPORTS AND RECORDS
A. Licensee shall keep, and shall require its Affiliates and
sublicensees to keep, full, true and accurate books of account in accordance
with generally accepted accounting principles and containing sufficient detail
to enable CMCC to determine the royalty and other amounts payable to CMCC under
this Agreement. Said books of account shall be kept at Licensee's principal
place of business or the principal place of business of the appropriate division
of Licensee to which this Agreement relates. Said books and the supporting data
shall be retained for at least five (5) years following the end of the calendar
year to which they pertain.
B. CMCC shall have the right to audit the books of account described
above from time to time to the extent necessary to verify the reports provided
for
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<PAGE>
herein or compliance in other respects with this Agreement. CMCC or its agents
shall perform these audits at CMCC's expense during Licensee's regular business
hours.
C. Licensee shall deliver to CMCC true and accurate reports by March
31, for the period July 1 through December 31 of the previous year, and on
September 30, for the period January 1 through June 30 of the current year,
giving such particulars of the business conducted by Licensee, its Affiliates
and its sublicensees under this Agreement as shall be pertinent to a royalty
accounting hereunder and to verify Licensee's activities with respect to
achieving the objectives of the Development Plan described in Article III above.
These reports shall include at least the following:
1. Number of Licensed Products and Licensed Processes
manufactured and sold.
2. Aggregate billings for Licensed Products and Licensed
Processes sold.
3. Accounting for all Licensed Products and Licensed
Processes sold.
4. Applicable deductions.
5. Total royalties due.
6. Names and addresses of all sublicensees of Licensee.
7. Payments received by Licensee from Affiliates and
sublicensees.
8. Royalties and Fees received from sublicensees.
9. Licensed Products manufactured and sold to the U.S.
Government. No royalty obligations shall arise from sales or use by,
for or on behalf of the U.S. Government in view of a royalty free,
nonexclusive license that may heretofore have been granted to the U.S.
Government.
D. Until the First Commercial Sale of a Licensed Product or Licensed
Process, Licensee shall provide to CMCC at least annually reasonable detail
regarding the activities of Licensee and Licensee's Affiliates and sublicensees
relative to achieving the objectives set forth in the Development Plan in a
timely manner, including but not limited to, reports of financial expenditures
to achieve said objectives, research and development activities, regulatory
approvals, strategic alliances and manufacturing, sublicensing and marketing
efforts.
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<PAGE>
E. With each such report submitted, Licensee shall pay to CMCC the
royalties due and payable under this Agreement. If no royalties shall be due,
Licensee shall so report.
F. On or before the ninetieth (90th) day following the close of
Licensee's fiscal year, Licensee shall provide CMCC with Licensee's certified
financial statements for the preceding fiscal year, including at a minimum a
balance sheet and an operating statement.
ARTICLE VI. PATENT PROSECUTION
A. CMCC shall apply for, seek prompt issuance of, and maintain during
the term of this Agreement the Patent Rights set forth in Appendix 1. The
prosecution, filing and maintenance of all Patent Rights applications and
patents shall be the primary responsibility of CMCC. Licensee shall have
reasonable opportunities to advise CMCC and shall cooperate with CMCC in the
prosecution, filing and maintenance of the Patent Rights.
B. Licensee shall reimburse to CMCC the amount of all fees and costs
relating to the filing, prosecution and maintenance of the Patent Rights
incurred after the date of this Agreement unless any of those Rights are also
licensed to a third party in a field of use other than the Field of Use, in
which case, Licensee shall reimburse CMCC for half of the costs relating to the
filing, prosecution and maintenance of those Patent Rights that are so licensed
to said third party. CMCC shall provide to Licensee an itemized invoice of all
such fees and Licensee shall pay to CMCC all amounts due under said invoice
within ten (10) days of the date of said invoice.
C. In the event CMCC elects not to pursue, maintain or retain a
particular Patent Right licensed to Licensee hereunder, CMCC shall so notify
Licensee in sufficient time for Licensee to assume the filing, prosecution
and/or maintenance of such application or patent at Licensee's expense. In such
event, CMCC shall provide to Licensee any authorization necessary to permit
Licensee to pursue and/or maintain such Patent Right. Licensee shall have no
further royalty obligations under this Agreement with respect to any such Patent
Right.
ARTICLE VII. INFRINGEMENT
A. Licensee and CMCC shall each inform the other promptly in writing of
any alleged infringement by a third party of the Patent Rights in the Field of
Use and of any available evidence thereof.
B. During the term of this Agreement, CMCC shall have the right, but
shall not be obligated, to prosecute at its own expense any infringement of the
Patent Rights and, in furtherance of such right, Licensee hereby agrees that
CMCC may include Licensee as a party plaintiff in any such suit, without expense
to Licensee.
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<PAGE>
The total cost of any such infringement action commenced or defended solely by
CMCC shall be borne by CMCC. CMCC shall keep any recovery or damages for past
infringement derived therefrom.
C. If within six (6) months after having been notified of any alleged
infringement, CMCC shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if CMCC shall notify Licensee at any time
prior thereto of its intention not to bring suit against any alleged infringer
then, and in those events only, Licensee shall have the right, but shall not be
obligated, to prosecute at its own expense any infringement of the Patent
Rights, and Licensee may, for such purposes, use the name of CMCC as party
plaintiff; provided, however, that such right to bring such an infringement
action shall remain in effect only for so long as the license granted hereunder
remains exclusive. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the consent of CMCC, which
consent shall not be unreasonably withheld. Licensee shall indemnify CMCC
against any order for costs that may be made against CMCC in such proceedings.
D. In the event Licensee shall undertake the enforcement and/or defense
of the Patent Rights by litigation, Licensee may withhold up to fifty percent
(50%) of the payments otherwise thereafter due to CMCC under Article IV above
and apply the same toward reimbursement of up to fifty percent (50%) of
Licensee's expenses, including reasonable attorney's fees, in connection
therewith. Any recovery of damages by Licensee for each such suit shall be
applied first in satisfaction of any unreimbursed expenses and legal fees of
Licensee relating to such suit and next toward reimbursement of CMCC for any
payments under Article IV past due or withheld and applied pursuant to this
Article VII. The balance remaining from any such recovery shall be divided
equally between Licensee and CMCC.
E. In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the Patent Rights shall be brought against
Licensee, CMCC, at its option, shall have the right, within thirty (30) days
after commencement of such action, to intervene and participate in the defense
of the action at its own expense.
F. In any infringement suit which either party may institute to enforce
the Patent Rights pursuant to this Agreement, the other party hereto shall, at
the request and the expense of the party initiating such suit, cooperate in all
reasonable respects and, to the extent reasonably possible, have its employees
testify when requested and make available relevant records, papers, information,
samples, specimens, and the like.
G. Licensee shall during the exclusive period of this Agreement have
the sole right subject to the terms and conditions hereof to sublicense any
alleged infringer for future use of the Patent Rights. Any upfront fees paid to
Licensee as
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<PAGE>
part of such a sublicense shall be shared equally between Licensee and CMCC. Any
other royalties shall be treated as set forth in Article IV, Paragraph 5.
ARTICLE VIII. INDEMNIFICATION AND INSURANCE PROVISIONS
A. Licensee shall indemnify, defend and hold harmless CMCC and HARVARD,
its corporate affiliates, current or future directors, trustees, officers,
faculty, medical and professional staff, employees, students and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss or expense (including reasonable attorney's fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or any one
of them in connection with any claims, suits, actions, demands or judgments
arising out of any theory of product liability (including, but not limited to,
actions in the form of tort, warranty, or strict liability) concerning any
product, process or service made, used or sold pursuant to any right or license
granted under this Agreement.
B. Licensee's indemnification under Article VIII, Paragraph A above
shall not apply to any liability, damage, loss or expense to the extent that it
is directly attributable to the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees.
C. Licensee agrees, at its own expense, to provide attorneys reasonably
acceptable to CMCC to defend against any actions brought or filed against any
party indemnified hereunder with respect to the subject of indemnity contained
herein, whether or not such actions are rightfully brought.
D. Article VIII, Paragraphs A through C shall survive expiration or
termination of this Agreement.
E. Beginning at the time as any such product, process or service is
being commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Licensee or by a sublicensee, Affiliate or agent of
Licensee, Licensee shall, at its sole cost and expense, procure and maintain
commercial general liability insurance in amounts not less than $2,000,000 per
incident and $2,000,000 annual aggregate and naming the Indemnitees as
additional insureds. Such commercial general liability insurance shall provide
(i) product liability coverage and (ii) contractual liability coverage for
Licensee's indemnification under Article VIII, Paragraphs A through C of this
Agreement. If Licensee elects to self-insure all or part of the limits described
above (including deductibles or retentions which are in excess of $250,000
annual aggregate), such self-insurance program must be acceptable to CMCC and
the Risk Management Foundation of the Harvard Medical Institutions, Inc. The
minimum amount of insurance coverage required under this Article VIII, Paragraph
E. shall not be construed to create a limit of Licensee's liability with respect
to its indemnification under Article VIII, Paragraphs A through C of this
Agreement.
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<PAGE>
F. Licensee shall provide CMCC with written evidence of such insurance
upon request of CMCC. Licensee shall provide CMCC with written notice at least
fifteen (15) days prior to the cancellation, non-renewal or material change in
such insurance. If Licensee does not obtain replacement insurance providing
comparable coverage within such fifteen (15) day period, CMCC shall have the
right to terminate this Agreement effective at the end of such fifteen (15) day
period without notice of any additional waiting periods.
G. Licensee shall maintain such commercial general liability insurance
during (i) the period that any such product, process or service is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Licensee or by a sublicensee, Affiliate or agent of
Licensee and (ii) a reasonable period after the period referred to above, which
in no event shall be less than fifteen (15) years.
H. Article VIII, Paragraphs E through G shall survive expiration or
termination of this Agreement.
I. OTHER THAN WARRANTIES SET FORTH HEREIN, CMCC MAKES NO WARRANTY,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH
PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO LICENSEE
HEREUNDER AND HEREBY DISCLAIMS THE SAME.
J. Licensee shall indemnify defend and hold harmless [CONFIDENTIAL
TREATMENT REQUESTED] and their respective corporate affiliates, current or
future directors, trustees, officers, faculty, medical and professional staff,
employees, students and agents and their respective successors, heirs and
assigns (collectively, the "[CONFIDENTIAL TREATMENT REQUESTED]-related
Indemnitees") against any claims, liability, damage, loss or expense (including
reasonable attorney's fees and expenses of litigation) incurred by or imposed
upon the [CONFIDENTIAL TREATMENT REQUESTED]-Related Indemnitees or any one of
them in connection with any claims, suits, actions, demands or judgments which
may ever accrue to [CONFIDENTIAL TREATMENT REQUESTED] or their respective heirs,
executors, legal representatives, successors or assigns in any way pertaining to
or arising out of [CONFIDENTIAL TREATMENT REQUESTED] activities with respect to
memantine or the ACTG Trial or any dealings with the [CONFIDENTIAL TREATMENT
REQUESTED]-related Indemnitees.
ARTICLE IX. EXPORT CONTROLS
It is understood that CMCC is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the
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Export Administration Act of 1979), and that its obligations hereunder are
contingent on compliance with applicable United States export laws and
regulations. The transfer of certain technical data and commodities may require
a license from the cognizant agency of the United States Government and/or
written assurances by Licensee that Licensee shall not export data or
commodities to certain foreign countries without prior approval of such agency.
CMCC neither represents that a license shall not be required, nor that if
required, it shall be issued.
ARTICLE X. NON-USE OF NAMES
Licensee shall not use the name of Children's Medical Center
Corporation or HARVARD nor the name of any of their respective corporate
affiliates or employees, nor any adaptation thereof, in any advertising,
promotional or sales literature without prior written consent obtained from CMCC
in each case, except that Licensee may state that it is licensed by CMCC under
one or more of the patents and/or applications comprising the Patent Rights, and
Licensee may comply with disclosure requirements of all applicable laws relating
to its business, including United States and state security laws.
ARTICLE XI. ASSIGNMENT
A. Except as otherwise provided herein, this Agreement is not
assignable in whole or in part, and any attempt to do so shall be void and of no
force and effect.
B. CMCC may assign this Agreement at any time to any corporate
affiliate of CMCC without the prior consent of Licensee.
C. Except as provided in Article XI, Paragraph D and Paragraph E below,
Licensee may assign this Agreement to another entity only with the prior written
consent of CMCC, which consent shall not be unreasonably withheld or delayed.
D. Notwithstanding anything herein to the contrary, in the event
Licensee merges with another entity, is acquired by another entity, or sells all
or substantially all of its assets to another entity, Licensee may assign its
rights and obligations hereunder to, in the event of a merger or acquisition,
the surviving entity, and in the event of a sale, the acquiring entity, without
CMCC's consent so long as: (i) Licensee is not then in breach of this Agreement;
(ii) the proposed assignee has a net worth at least equivalent to the net worth
Licensee had as of the date of this Agreement; (iii) the proposed assignee has
available resources and sufficient scientific, business and other expertise
comparable to Licensee in order to satisfy its obligations hereunder; (iv)
Licensee provides written notice of the assignment to CMCC, together with
documentation sufficient to demonstrate the requirements set forth in
subparagraphs (i) through (iii) above, at least thirty (30) days prior to the
effective date of the assignment; and (v) CMCC receives from the assignee, in
writing, at least thirty (30) days prior to the effective date of the
assignment: (a) reaffirmation of the terms of this Agreement; (b) an agreement
to be bound by the
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terms of this Agreement; and (c) an agreement to perform the obligations of
Licensee under this Agreement.
E. Licensee may assign this Agreement to NewCo under terms that are
reasonably acceptable to CMCC; such terms shall provide, among other matters,
that Licensee shall remain liable for the performance of all obligations under
this Agreement.
ARTICLE XII. DISPUTE RESOLUTION AND ARBITRATION
A. Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm, any and all claims, disputes or controversies between CMCC and
Licensee arising under, out of, or in connection with the Agreement, including
any dispute relating to patent validity or infringement, which the parties shall
be unable to resolve within sixty (60) days shall be mediated in good faith. The
party raising such dispute shall promptly advise the other of such claim,
dispute or controversy in writing, describing the dispute in reasonable detail.
By no later than five (5) business says after the recipient has received such
notice of dispute, each party shall have selected a representative who shall
have the authority to bind such party and shall have advised the other party in
writing of the name and title of such representative.
B. Within fifteen (15) days of receipt of a request for mediation as
described above, the parties agree to commence mediation in the City of Boston,
Commonwealth of Massachusetts in accordance with the policies and procedures of
Endispute, Inc. ("Endispute"), or in the event that Endispute is no longer in
operation, in accordance with the policies and procedures of the American
Arbitration Association. The parties shall select a mediator acceptable to both
of them from a list provided by Endispute. The parties agree to cooperate in
good faith in said mediators efforts to assist the parties to resolve the
dispute. Each party agrees to pay fifty percent (50%) of the costs of said
mediation. If the matter has not been resolved within thirty (30) days of the
commencement of mediation, either party may request in writing that the matter
be submitted to arbitration in accordance with the following subparagraph.
C. Any and all claims, disputes or controversies arising under, out of,
or in connection with this Agreement, which have not been resolved by good faith
negotiations between the parties or by mediation shall be resolved by final and
binding arbitration in Boston, Massachusetts, in accordance with the rules of
the American Arbitration Association ("AAA") then obtaining and all expenses, in
connection therewith, will be shared equally, except for the expense of the
parties' respective legal counsels. A single arbitrator shall be mutually agreed
upon and if the parties are unable to agree on a mutually acceptable arbitrator,
an arbitrator shall be chosen in accordance with AAA rules. Any award rendered
in such arbitration shall be final and may be enforced by either party.
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D. Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE XIII. TERM AND TERMINATION
A. The term of this Agreement shall be not less than [CONFIDENTIAL
TREATMENT REQUESTED] years or the life of the last expiring Patent Right,
whichever period is the longer term.
B. CMCC may terminate this Agreement immediately upon the bankruptcy,
insolvency, liquidation, dissolution or cessation of operations of Licensee; or
the filing of any voluntary petition for bankruptcy, dissolution, liquidation or
winding-up of the affairs of Licensee; or any assignment by Licensee for the
benefit of creditors; or the filing of any involuntary petition for bankruptcy,
dissolution, liquidation or winding-up of the affairs of Licensee which is not
dismissed within ninety (90) days of the date on which it is filed or commenced.
C. CMCC may terminate this Agreement upon thirty (30) days' prior
written notice in the event of Licensee's failure to pay to CMCC royalties due
and payable hereunder in a timely manner, unless Licensee shall make all such
payments to CMCC within said thirty (30) day period. Upon the expiration of the
thirty (30) day period, if Licensee shall not have made all such payments to
CMCC, the rights, privileges and licenses granted hereunder shall terminate.
D. Except as otherwise provided in Paragraph C above, CMCC may
terminate this Agreement upon ninety (90) days' prior written notice in the
event of Licensee's breach or default of any material term or condition or
warranty contained in this Agreement, unless Licensee shall cure such breach to
CMCC's reasonable satisfaction within said ninety (90) day period. Upon the
expiration of the ninety (90) day period, if Licensee shall not have cured said
breach to the reasonable satisfaction of CMCC, the rights, privileges and
license granted hereunder shall terminate.
E. Prior to the first offering for sale of a Licensed Product in any
country, Licensee may terminate this Agreement upon three (3) months' prior
written notice to CMCC without cause or penalty and upon payment by Licensee of
all amounts due CMCC through the effective date of termination. If such
termination takes place prior to the completion of the ACTG Clinical Trial #301,
all information, data and drug material NTI develops in preparing to supply the
ACTG Trial will be provided to CMCC.
F. After the first offering for sale of a Licensed Product in a
country, Licensee may terminate this Agreement in whole or as it pertains to
that country upon twelve (12) months' prior written notice to CMCC without cause
or penalty and upon payment by Licensee of all amounts due CMCC through the
effective date of termination.
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G. Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. Licensee and any sublicensee
thereof may, however, after the effective date of such termination, sell all
Licensed Products and complete Licensed Products in the process of manufacture
at the time of such termination and sell the same, provided that Licensee shall
pay to CMCC the royalties thereon as required under this Agreement and shall
submit the reports required under this Agreement on the sales of Licensed
Products.
H. In the event of termination of this Agreement for any reason, all
payments due or made to CMCC by Licensee shall be nonrefundable.
ARTICLE XIV. PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS
A. All payments, notices, reports and/or other communications made in
accordance with this Agreement, shall be sufficiently made or given on the date
of the mailing if delivered by hand, by facsimile or sent by first class mail
postage prepaid and addressed as follows:
In the case of CMCC:
Director, Technology Transfer
Office of Research Administration
Children's Hospital
300 Longwood Avenue
Boston, MA 02115
In the case of Licensee:
President
Neurobiological Technologies, Inc.
1387 Marina Way South
Richmond, California 94804
or such other address as either party shall notify the other in writing.
ARTICLE XV. COMMERCIAL DEVELOPMENT
A. Licensee shall be responsible for all research and development
activi- ties required for commercial development of Licensed Products in the
Field of Use at Licensee's sole cost.
B. All applications required for regulatory approval of Licensed
Products (e.g., INDs, NDAs, PLAs, etc.) shall be filed by Licensee, shall be at
its sole cost, in its name, and be owned by it.
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C. Licensee shall be free to source all raw materials needed to pursue
the commercialization of Licensed Products from vendors of Licensee's choice.
D. Licensee shall be responsible for all sales, marketing, and
distribution of all Licensed Products at its sole cost.
E. Licensee shall select and register trademarks for brand names for
all Licensed Products and such trademarks shall be the sole property of
Licensee.
F. Licensee acknowledges that CMCC has licensed or intends to license
the Patent Rights to CMCC's Other Licensee for fields of use other than the
Licensee's Field of Use. It is the intent of CMCC that each of Licensee and
CMCC's Other Licensee focus and limit its commercial development efforts to its
respective field of use. Licensee has requested that CMCC provide Licensee with
the name, address, and description of the field of use of CMCC's Other Licensee
and the name and telephone number of the principal contact of the other licensee
within thirty (30) days of execution of a definitive agreement with the other
licensee. Licensee and CMCC agree that the provisions detailed in Appendix 3
shall govern the interaction and communication between LICENSEE and Other
Licensee. CMCC warrants that it will require reciprocal provisions in any
agreement with CMCC's Other Licensee. To ensure that each licensee is aware of
these reciprocal provisions, copies of the appropriate sections of the
respective agreements dealing with matters in this Article and Appendix 3 shall
be provided to Licensee and CMCC's Other Licensee.
ARTICLE XVI. GENERAL PROVISIONS
A. All rights and remedies hereunder will be cumulative and not
alterna- tive, and this Agreement shall be construed and governed by the laws of
the Commonwealth of Massachusetts.
B. This Agreement may be amended only by written agreement signed by
the parties.
C. It is expressly agreed by the parties hereto that CMCC and Licensee
are independent contractors and nothing in this Agreement is intended to create
an employer relationship, joint venture, or partnership between the parties. No
party has the authority to bind the other.
D. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all proposals,
negotiations and other communications between the parties, whether written or
oral, with respect to the subject matter hereof.
E. If any provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be impaired thereby.
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F. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original as against the party whose signature
appears thereon, but all of which taken together shall constitute but one and
the same instrument.
G. The failure of either party to assert a right to which it is
entitled or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other party.
H. Licensee agrees to mark any Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practices of the country of manufacture or
sale.
I. Each party hereto agrees to execute, acknowledge and deliver such
further instruments and do all such further acts as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
J. The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date last written below.
CHILDREN'S MEDICAL CENTER LICENSEE
CORPORATION
By: /s/ William New By: /s/ Michael S. Ostrach
------------------------------- -------------------------------------
Name: William New Name: Michael S. Ostrach
----------------------------- -----------------------------------
Title: Director, Research Affairs Title: Executive Vice President & C.O.O
---------------------------- ----------------------------------
Date: 8/11/95 Date: September 11, 1995
----------------------------- -----------------------------------
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APPENDIX 1
[CONFIDENTIAL TREATMENT REQUESTED]
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APPENDIX 2
[CONFIDENTIAL TREATMENT REQUESTED]
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APPENDIX 3
INTERACTION AND COMMUNICATION BETWEEN
LICENSEE AND CMCC'S OTHER LICENSEE
A. Licensee agrees to establish a Scientific Management Committee
(hereinafter "SMC") to allow Licensee and CMCC's Other Licensee to communicate
with one another and/or receive information from one another concerning the
commercial development of the Patent Rights. The SMC shall consist of four
members, two appointed by Licensee and two appointed by CMCC's Other Licensee.
The Chairperson of the SMC shall be appointed alternately from the
representatives of each licensee and shall hold position for one year. Licensee
shall appoint the first Chairperson. CMCC and the Massachusetts Eye and Ear
Infirmary shall each have the right to select a representative to participate in
the SMC as an observer. In addition, Dr. Stuart Lipton will be provided
opportunities to be engaged by Licensee as consultants, as appropriate, for
their expertise, advise, and counsel. The SMC will meet as soon as reasonably
possible following the execution of this Agreement and notification by CMCC that
CMCC has entered into a definitive agreement with CMCC's Other Licensee. The SMC
shall meet, thereafter, at six (6) month intervals, or as otherwise agreed
between Licensee and CMCC's Other Licensee to communicate progress on research
activities and to review and recommend possible research projects for joint
sponsorship and funding. Minutes of these meetings shall be taken and
distributed to Licensee, CMCC, and CMCC's Other Licensee as a formal record of
the proceedings and actions, if any.
B. All data and information generated by Licensee's research and
development activities with respect to the Patent Rights shall remain the
exclusive property of Licensee and all data and information generated by CMCC's
Other Licensee's research and development activities with respect to the Patent
Rights shall remain the exclusive property of CMCC's Other Licensee. Neither
Licensee nor CMCC's Other Licensee shall have the right to use the other's data
and information for any purpose without written permission from the other. To
the extent that the licensees agree to cosponsor and co-fund certain research
activities during their development of the Patent Rights, both parties shall
jointly own the resulting data and information and shall both have the right to
use the data and information as they see fit. Notwithstanding the above, the
licensees shall communicate to one another how they intend to use such joint
data and information through the SMC and the SMC shall coordinate the use, and
the timing of the use, of such joint data and information by both licensees to
ensure that neither licensee is unfairly disadvantaged by such use.
C. Licensee and CMCC acknowledge that Licensee and CMCC's Other
Licensee may develop, market and sell the same dosage form and strength of the
same compound for different indications. It is CMCC's intent that each licensee
focus only on its licensed field of use. However, if significant Net Sales of
one licensee can be shown to have been made for indications within the other
licensee's field of use, a rebate to compensate the other licensee will be
provided by the
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licensee receiving the profits from said sales in the other licensee's field of
use. Such a rebate, if any, shall be determined based upon the Net Sales booked
by each licensee and the percent of prescriptions attributed to indications
and/or the appropriate prescribers within the licensee's field of use as
measured by NDTI, PDDA, or other agreed upon prescription audit. Such rebate
shall be equal to the profit the other licensee would have received if it had
made the sale in its field of use but shall not exceed the profit actually
realized by the licensee making the sale.
D. CMCC will grant or cause CMCC's Other Licensee to grant a first
right of refusal to Licensee to obtain an exclusive royalty-bearing license
outside CMCC's Other Licensee's field of use to make, have made, use, and sell
any pharmaceutical composition covered under the Patent Rights that is
discovered by CMCC's other licensee during the term of this Agreement.
E. Licensee agrees CMCC will grant or Licensee will grant a first right
of refusal to CMCC's Other Licensee to obtain an exclusive royalty-bearing
license within CMCC's Other Licensee's field of use to make, have made, use, and
sell any pharmaceutical composition covered under the Patent Rights that is
discovered by Licensee during the term of this agreement.
F. The provisions of this Appendix 3 may be changed only with the
mutual consent of Licensee, CMCC's Other Licensee, and CMCC. CMCC shall not
unreasonably withhold or delay consent to any change agreed to by Licensee and
CMCC's Other Licensee.
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[CERTAIN INFORMATION HAS BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER 24b-2. THE
REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION]
AMENDMENT TO
EXCLUSIVE LICENSE AGREEMENT
This Amendment to the Exclusive License Agreement (the "License
Agreement") made as of September 11, 1995 by and between CHILDREN'S MEDICAL
CENTER CORPORATION ("CMCC") and NEUROBIOLOGICAL TECHNOLOGIES INC. ("Licensee")
is made as of the first day of March, 1996.
WHEREAS, Children's Hospital and Licensee are entering into, as of the
date of this Agreement, a Sponsored Research Agreement ("Research Agreement")
which provides for funding by Licensee of research at Children's Hospital;
WHEREAS, the parties wish to modify the License Agreement provision for
crediting the consideration provided under the Research Agreement against
Milestone payments due under the License Agreement;
NOW, THEREFORE, in consideration of the premises and the execution of
the Research Agreement, the parties hereto agree as follows:
The last paragraph of Article IV.A.3 of the License Agreement is hereby
replaced in its entirety by the following paragraph:
"Notwithstanding the foregoing, if Licensee has provided
funding or equipment for sponsored research to be conducted in
Dr. Stuart Lipton's laboratory, up to [CONFIDENTIAL TREATMENT
REQUESTED] of such consideration provided during the period
beginning September 1, 1995 and ending December 31, 1996 may
be credited against payment of Milestone(ii) above, and up to
[CONFIDENTIAL TREATMENT REQUESTED] of such consideration
provided during the period January 1, 1997 and ending December
31, 1997, together with any such consideration in excess of
[CONFIDENTIAL TREATMENT REQUESTED] in value provided in the
previous period, may be credited against payment of Milestone
(iii) above. For purposes of this paragraph, amounts paid by
Licensee as lease payments for equipment provided to the
laboratory or the value of equipment actually purchased
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shall be deemed to be consideration eligible for the above
credit."
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CHILDREN'S MEDICAL CENTER LICENSEE
CORPORATION
By: /s/ William New By: /s/ Michael S. Ostrach
------------------------------- --------------------------------------
Name: William New Name: Michael S. Ostrach
----------------------------- ------------------------------------
Title: Director, Research Affairs Title: Executive Vice President & C.O.O
---------------------------- -----------------------------------
Date: 3/11/96 Date: 3/5/96
----------------------------- ------------------------------------
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