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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NO.
DECEMBER 31, 1997 0-23930
TARGETED GENETICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1549568
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1100 OLIVE WAY, SUITE 100
SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 623-7612
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
WARRANTS FOR THE PURCHASE OF SHARES OF COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS, $.01 PAR VALUE
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Indicate the aggregate market value of voting stock held by nonaffiliates of
the Registrant as of March 6, 1998: $26,557,036.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of March 6, 1998:
TITLE OF CLASS NUMBER OF SHARES
-------------- ----------------
Common Stock, $.01 par value 20,216,714
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on May 5, 1998, are incorporated by reference into Part III of this
report.
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements within the following description of the business of
Targeted Genetics Corporation and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: technological uncertainty; results of
clinical trials; ability to obtain adequate financing in the future;
uncertainty regarding patents and proprietary rights; changes in, or failure
to comply with, governmental regulations; competition; rapid technological
change; availability of key personnel and scientific collaborators; ability to
manufacture and market products; and dependence on corporate collaborators.
See "Factors Affecting Forward-Looking Information".
OVERVIEW
Targeted Genetics is focused on the development of gene and cell therapies
for the treatment of certain acquired and inherited diseases. The Company is
developing a broad base of core technologies that it believes will allow it to
address a variety of such diseases. These technologies include proprietary
viral and non-viral gene delivery systems as well as novel techniques for
cytotoxic T lymphocyte ("CTL") immunotherapy. The Company is using its core
technology platform to develop potential products for the treatment of various
genetic disorders, cancer and infectious diseases.
The Company believes that in the area of gene therapy, different disease
targets will require different methods of gene delivery, depending on the
target cell to be modified, the duration of gene expression required and the
need for in vivo or ex vivo delivery. Accordingly, the Company has focused its
efforts on multiple gene delivery systems based on three different vector
technologies: adeno-associated viral ("AAV"), non-viral and retroviral. The
Company believes these systems may provide it with the flexibility necessary
to develop gene therapies for a broader range of diseases than would be
possible using a single gene delivery system.
In the area of cell therapy, the Company's expertise with CTLs enables it to
isolate from patients and efficiently multiply antigen-specific CTLs, which
are immune cells that target and kill specific diseased cells ("Targeted
CTLs"). This expertise forms the basis for a series of potential
immunotherapies for the treatment of infectious diseases and cancer. Targeted
CTLs are based on the Company's proprietary Rapid Expansion Method ("REM")
technology, which is used to grow CTLs ex vivo prior to infusion into the
patient. The Company has demonstrated that REM enables it to grow billions of
CTLs from individual cloned cells over several weeks, while preserving the
cells' specific disease-fighting capabilities.
The Company's three product development programs are summarized in the
following table.
<TABLE>
<CAPTION>
TECHNOLOGY GENE STATUS
---------------- -------------------- -----------
<S> <C> <C> <C>
CYSTIC FIBROSIS
Maxillary sinus AAV vector CFTR Phase II
Lung/nose AAV vector CFTR Phase I
Lung--aerosol AAV vector CFTR Preclinical
CANCER
Ovarian/breast non-viral vector E1A tumor suppressor Phase I
Head and neck/breast/lung non-viral vector E1A tumor suppressor Phase I
INFECTIOUS DISEASE
HIV Targeted CTLs -- Phase I
Hepatitis B Targeted CTLs -- Preclinical
</TABLE>
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In addition to the product development programs summarized above, the
Company is performing research, both internally and through outside
collaborators, oriented toward identifying promising new applications of its
technology base. Also, the Company is collaborating with certain academic
researchers who are using its retroviral vectors in Phase I clinical trials
focused on HIV infection, melanoma and leukemia.
PRODUCT DEVELOPMENT PROGRAMS
Cystic Fibrosis
Cystic fibrosis is the most common single-gene deficiency affecting the
Caucasian population, afflicting approximately 30,000 people in the United
States and 60,000 people worldwide. The disease is caused by a dysfunctional
cystic fibrosis transmembrane regulator ("CFTR") gene, which results in a
build-up of mucus in the lungs, infections and early death. Current treatments
for cystic fibrosis offer only symptomatic relief and cannot cure or halt the
progression of the disease.
tgAAV-CFTR. Based on preclinical findings by the Company and its scientific
collaborators, the Company believes that the persistence of expression and
lack of toxicity observed with its AAV-based gene delivery vector potentially
make it better suited than other types of vectors for delivery of the CFTR
gene to the lung. In preclinical studies in rabbits, the Company and its
collaborators at The Johns Hopkins University ("Johns Hopkins") were able to
detect expression of the CFTR gene in the lung for periods of up to six months
with no observed side effects. These results were confirmed in similar studies
in rhesus monkeys, in which gene transfer occurred in up to 50% of target
airway cells, and gene expression, which was confirmed in all animals,
persisted for up to six months. Based on these preclinical data, the Company
began two clinical trials in late 1995 to evaluate the safety and feasibility
of in vivo gene therapy for the treatment of cystic fibrosis by direct
delivery of the CFTR gene using an AAV vector. The Company's AAV-CFTR product
("tgAAV-CFTR") has been granted orphan drug status by the United States Food
and Drug Administration (the "FDA").
The first clinical trial, which began in November 1995, is a Phase I
clinical trial at Johns Hopkins and the University of Florida in which tgAAV-
CFTR is delivered to the nose and lung of adult cystic fibrosis patients
having mild lung disease. The trial is designed as an interpatient dose
escalation trial enrolling a total of 18 patients, two at each of nine
escalating dose levels. The tgAAV-CFTR is administered in an open-label single
dose to the right lower lobe of the lung via bronchoscopy and to one nostril.
Patients are monitored for, among other things, safety and assessment of gene
transfer and expression. A total of 19 patients have been treated in this
clinical trial with no apparent side effects related to the study drug.
A second clinical trial began in December 1995 at Stanford University. This
trial was designed as a Phase I/II trial, pursuant to which tgAAV-CFTR is
administered to the maxillary sinuses of cystic fibrosis patients with chronic
sinusitis. The Phase I part of this trial, designed as a dose escalation
study, was completed in 1996. A total of ten patients were enrolled, and 15
sinuses were treated, in five cohorts receiving escalating doses. The results
of the trial suggests that tgAAV-CFTR is safe and well tolerated with no
resulting inflammatory response or other side effects, even after repeat
delivery. Furthermore, administration of tgAAV-CFTR resulted in consistent
gene transfer and, in the only patient measured at such timepoint, persistence
of the gene for at least 70 days after treatment. Additionally, the dose level
was established for the Phase II part of the trial, in which up to 50 patients
are to receive tgAAV-CFTR in one sinus and a placebo in the other. Patients in
the Phase II trial are monitored to assess the ability of tgAAV-CFTR to
prevent the relapse of chronic sinusitis. The Phase II part of the trial began
in February 1997 and the Company expects to complete patient treatment in the
first half of 1998.
The Company is preparing to initiate a Phase I clinical trial in 1998
involving the aerosol delivery of tgAAV-CFTR to the whole lung. The Company
expects to begin a toxicology study in non-human primates in the first half of
1998, which must be completed prior to beginning the clinical trial.
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Cancer
Cancer is the second leading cause of death in the United States, with over
one million new cases diagnosed each year. The Company's approach to the
treatment of cancer utilizes a proprietary non-viral delivery system to
deliver in vivo an E1A tumor suppressor gene to cancer cells.
tgDCC-E1A. Cancer arises when the genetic pathways that control normal cell
growth and division are disrupted. Certain of these pathways are regulated by
cellular oncogenes or tumor suppressor genes. Cancer may result from the
structural alteration and abnormal expression of cellular oncogenes or from
mutation or deletion of tumor suppressor genes. Some viruses have evolved
genes that may mimic functions normally exhibited by cellular genes. One such
example is the E1A gene of the adenovirus type 5. The E1A gene was shown, by
Dr. Mien Chie Hung and his colleagues at University of Texas M.D. Anderson
Cancer Center ("M.D. Anderson"), to function as a suppressor of the HER-2/neu
oncogene, which is known to be overexpressed in certain cancers. In
preclinical mouse studies, E1A was shown to inhibit expression of the HER-
2/neu oncogene, to inhibit growth and metastasis of cancer cells, and to
increase significantly the long-term survival of the mice. The Company has
worldwide rights to the use of the E1A gene as a tumor suppressor under
patents filed by Dr. Hung.
Other research, conducted by Dr. Steven Frisch and his colleagues at the
Burnham Institute, has suggested that E1A may have other tumor suppression
activity unrelated to the inhibition of HER-2/neu expression. Preclinical in
vitro experiments have shown that E1A, when introduced to a variety of tumor
cell lines, is capable of altering tumor cells such that they appear to have
characteristics of normal cells. Furthermore, in vivo mouse studies involving
tumor cells not overexpressing HER-2/neu showed reduced tumor growth rates
with the administration of E1A versus the same tumor cells without E1A. E1A
was also shown in preclinical studies to sensitize tumor cells to killing by
certain chemotherapeutic agents. The Company has worldwide rights to patents
filed by Dr. Frisch that are complementary to those filed by Dr. Hung.
The Company's E1A product ("tgDCC-E1A") is a formulation that combines the
E1A tumor suppressor gene with the Company's proprietary non-viral gene
delivery system based on the cationic lipid DC cholesterol ("DC Chol"). In the
Company's first Phase I clinical trial, which began in July 1996 at M.D.
Anderson, 18 patients with ovarian or breast cancer received weekly doses of
tgDCC-E1A for up to six months. In early 1997, two additional sites were added
to the study, Rush Presbyterian Medical Center in Chicago ("Rush") and
Virginia Mason Medical Center in Seattle. This trial was conducted as an
interpatient, escalating dose study with doses of tgDCC-E1A delivered
intraperitoneally in the ovarian cancer patients and intrapleurally in the
breast cancer patients. The objectives of the trial were to assess safety,
levels of gene transfer and expression and tumor response. Data from the study
are currently being analyzed.
A second Phase I clinical trial began in early 1997 at M.D. Anderson, Rush,
and Wayne State University in Detroit, in which 18 patients with inoperable
primary head or neck tumors or metastatic breast or lung tumors were
administered up to ten weekly doses of tgDCC-E1A, injected directly into the
patient tumor. The trial was conducted as an interpatient escalating dose
study with up to six patients in each of four dose cohorts. The objectives of
the trial were to assess safety, levels of gene transfer and expression and
tumor response. A total of 18 patients were treated in the trial, which was
completed in December 1997. Data from the study are currently being analyzed.
Based on the data obtained from the two Phase I clinical trials described
above, the Company has begun planning a Phase II clinical trial of tgDCC-E1A
in head and neck cancer. This trial is expected to begin in the second half of
1998.
In 1996, the Company entered into a license, research and marketing
agreement with Laboratoires Fournier S.C.A. ("Fournier") under which Fournier
received exclusive rights to develop and commercialize tgDCC-E1A
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in Europe. Fournier is conducting a Phase I clinical trial in ovarian cancer
patients at five hospitals in the United Kingdom and plans to begin additional
clinical trials in 1998. See "Research and Development Collaborations."
Infectious Diseases
Human Immunodeficiency Virus ("HIV"). HIV is a retrovirus that is the cause
of AIDS, a condition that is characterized by loss of CD4 cells and
progressive immunologic impairment and death. According to the Centers for
Disease Control and Prevention, approximately one million people in the United
States have been infected with HIV. The World Health Organization estimates
that approximately 17 million people worldwide have been infected with HIV and
projects that the worldwide incidence of HIV infection will grow to 30 million
to 40 million people by the end of the century.
The Company and certain other researchers believe that the key to successful
long-term treatment of HIV infection may lie in manipulating and harnessing
the cell-mediated arm of the immune response. Researchers have found that HIV-
infected people who remain symptom-free for prolonged periods have high levels
of CTLs that suppress viral proliferation in CD4 cells. The Company believes
that the provision of large quantities of cloned HIV-specific CTLs may provide
a means of allowing HIV-infected people to maintain an effective immune
response, thereby preventing progression to AIDS.
In early 1996, the Company began a Phase I clinical trial at the Fred
Hutchinson Cancer Research Center (the "Hutchinson Center") in which six HIV-
infected patients were administered five escalating doses of Targeted CTLs
specific to the HIV gag protein. The first three doses consisted of unmarked
cells and the last two consisted of cells modified with a retroviral vector
containing a marker gene. Patients in the trial are monitored for safety,
persistence of the infused Targeted CTLs and changes in viral burden. The
results of the trial are expected to be published in 1998. The Company and its
collaborators at the Hutchinson Center are evaluating options related to
additional trials in HIV.
Hepatitis B. Hepatitis B virus ("HBV") is a disease of global significance,
with over 300 million carriers worldwide. HBV is the cause of up to 80% of
cases of primary liver cancer. Over 75% of the chronic carriers of HBV are in
Asia. It is estimated that 200,000 to 300,000 HBV infections occur annually in
the United States and that chronic infection develops in approximately 10% of
those cases.
During acute HBV infection most patients develop a strong immune response
that is capable of clearing the virus. In contrast, the CTL response to HBV is
usually not detectable in chronically infected patients. The lack of core
specific CTL response may contribute to failure of virus elimination resulting
in chronic inflammation. Thus, the Company believes that restoring the immune
response by administering Targeted CTLs specific for HBV may provide an
effective means to treat patients with this chronic disease.
In 1997, the Company took the necessary steps to adapt its Targeted CTL
technology to the treatment of HBV in preparation for a preclinical study in
which chimpanzees chronically infected with HBV are to be administered
Targeted CTLs. The objective of the study, which began in late 1997, is to
establish safety of the therapy and, potentially, obtain proof of concept that
HBV-specific Targeted CTLs may be promising as a treatment for humans infected
with HBV.
CORE TECHNOLOGIES
The Company is developing a broad range of core technologies that it
believes will allow it to address issues specific to a variety of diseases.
The Company believes that in the area of gene therapy, different disease
targets will require different methods of gene delivery, depending on the
target cell to be modified, the duration of gene expression required and the
need for in vivo or ex vivo delivery. Accordingly, the Company is developing
multiple gene delivery systems based on three different vector technologies:
AAV, non-viral and retroviral. In certain treatments, for which in vivo
modification of slowly dividing or nondividing target cells is required or
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preferred, such as modification of lung cells to treat cystic fibrosis, the
Company is utilizing its AAV vector technology. The Company uses its
retroviral vector technology in therapeutic areas where permanent modification
of rapidly dividing cells is necessary. In therapeutic indications where the
use of AAV and retroviral vectors is not desirable or feasible, the Company is
utilizing its non-viral delivery systems. The Company believes that non-viral
vectors may provide greater flexibility relating to the size and sequence of
transferred genes and may also allow targeted delivery in vivo.
In the area of cell therapy, the Company's expertise in isolating and
multiplying CTLs forms the basis for a series of potential immunotherapies.
Gene Therapy
Overview. Gene therapy is an approach to the treatment and prevention of
genetic and acquired diseases that involves the insertion of genetic
information into target cells to produce specific proteins needed to correct
or modulate disease conditions. Proteins are the fundamental components of all
living cells and are essential to cellular structure, growth and function.
Proteins are produced by cells from a set of genetic instructions encoded in
DNA, which contains all the information necessary to control cellular
biological processes. DNA is organized into segments called genes, with each
gene containing the information required to express, or produce, a specific
protein.
An alteration in the function of, or absence of, specific genes is
responsible for causing some diseases, including inherited diseases such as
cystic fibrosis and certain types of cancer. Gene therapy may be used to treat
such diseases by replacing a missing or defective gene to facilitate the
normal protein production capabilities of cells. In addition, gene therapy may
be used to enable cells to perform additional roles in the body, such as
enhancing the function of the immune system to fight infectious diseases or
cancer. Gene therapy may also be used to inhibit production of undesirable
proteins or viruses within cells.
A key factor in the progress of gene therapy is the development of safe and
efficient methods of transferring genes into cells. For transfer into cells,
the gene is incorporated into a delivery system called a vector. Vectors may
be derived from either viral or non-viral systems. The most common gene
delivery approach to date relies on viral gene transfer, whereby modified
viruses are used to transfer the desired genetic material into host cells. The
process of gene transfer can be accomplished ex vivo (outside the body), in
which cells are removed from the patient, genetically modified, and then
reinfused into the patient, or in vivo (inside the body), in which vectors are
introduced directly into the patient's body.
The use of viruses takes advantage of their natural ability to introduce
genes into host cells and use the host's metabolic machinery to produce
proteins essential for the survival and function of the virus. In gene therapy
applications, viruses are genetically modified to contain the desired genes
and to inhibit the ability of the virus to reproduce. Successful application
of viral gene transfer to indications requiring long-term gene expression
entails a number of essential technical requirements, including the ability of
the viral vector to carry desired segments of genes, to transfer genes into a
sufficient number of target cells and to enable genes contained in the viral
vector to persist in the host cell. A number of different viral vectors,
including AAV and retroviral vectors, are being used for potential gene
therapy applications requiring long-term gene expression.
Current non-viral vector systems generally consist of DNA incorporating the
desired gene, combined with various compounds aimed at enabling the DNA to be
taken up by the host cell. These in vivo gene delivery approaches include
encapsulating genes into lipid carriers such as liposomes, which facilitate
the entry of DNA into cells; ionically binding negatively charged DNA to the
surface of cationic lipids which are positively charged prior to infusion;
injecting pure plasmid or "naked" DNA in an aqueous solution; and directing
DNA to receptors on target cells by combining the gene with protein carriers
that are taken up by the cell.
AAV Vectors. Targeted Genetics and its scientific collaborators have
developed significant expertise with respect to the design and use of AAV
vectors in gene therapy. The Company believes that certain features of
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AAV vectors make them particularly well suited for the treatment of a number
of diseases: (i) AAV has never been associated with causing any human disease;
(ii) AAV generally cannot replicate without the presence of a helper virus;
(iii) AAV vectors contain no viral genes that, if present, might produce
unwanted immune responses leading to side effects or reduced efficacy; (iv)
unlike some other types of viral systems, AAV vectors can introduce genes into
nondividing or slowly dividing cells, such as cells lining the airway of the
lung; (v) AAV vectors may persist in the host cell to provide relatively long-
term expression; and (vi) AAV vectors can be purified and concentrated, and
thereby may allow for more efficient manufacturing.
The Company is building its proprietary position in AAV through the
development or acquisition of exclusive rights to inventions that (i) provide
important enhancements to AAV vectors; (ii) demonstrate novel approaches to
the use of AAV vectors for gene therapy; and (iii) establish new and improved
methods for large-scale production of AAV vectors. The Company has exclusive
rights from the National Institutes of Health (the "NIH") to an issued patent
for use of a novel AAV vector for cystic fibrosis.
In addition to its development program for cystic fibrosis, the Company is
conducting research to assess the potential for delivery of genes to other
target cells using AAV vectors. To date, the Company has focused its internal
efforts in this area to cells of the cardiovascular system and the
gastrointestinal tract. The Company plans to examine the use of its AAV
vectors in additional cell types, both internally, to the extent resources are
available to do so, and through academic collaborators.
Non-Viral Vectors. The Company has exclusive rights to a significant body of
non-viral gene delivery technology based on the use of cationic lipids to
promote the uptake of DNA into cells. The Company believes that non-viral
vectors may have several characteristics that may make them particularly well
suited for the treatment of certain diseases, including (i) the ability to
target such vectors to a specific cell type; (ii) relative ease of
manufacture; and (iii) the ability to transfer relatively large segments of
DNA in a single vector. These non-viral vectors are formulated by complexing
negatively charged DNA with cationic lipids which are positively charged to
promote DNA uptake by cells. Such complexes appear to have good safety
profiles and can be used in vivo as well as ex vivo. For in vivo use, these
complexes can potentially be delivered topically, intravenously,
intraperitoneally, intrapleurally or by aerosol.
The Company is working to develop a series of these non-viral delivery
systems based on discoveries by Dr. Leaf Huang of the University of
Pittsburgh. His original DC Chol system, which appears to have a favorable
clinical toxicity profile, was used in two clinical trials by unaffiliated
investigators prior to the Company using it in its tgDCC-E1A cancer clinical
trials. The Company has acquired an exclusive or co-exclusive license to an
issued U.S. patent for the original DC Chol system for the treatment of cancer
and certain other diseases. Dr. Huang is developing a series of non-viral
delivery systems for which the Company has obtained exclusive worldwide rights
in the field of gene therapy from the University of Pittsburgh. One type of
system under development employs additional analogs of DC Chol that may have
an even more favorable toxicity profile. In another system, the DNA is
condensed into particles of defined size that have gene transfer efficiency
that is fifty- to eighty-fold higher than the original DC Chol system. An
alternate version of this system is being developed that includes specific
ligands to enhance delivery to specific target cells and to increase stability
when delivered intravenously. An additional system being developed also has
increased efficiency of gene transduction and higher stability in serum for
intravenous delivery. The Company's initial internal efforts in this area,
based on the work of Dr. Huang, are devoted to the development of an efficient
lipid-based delivery vehicle with properties suitable for systemic delivery of
genes to target tissues via the bloodstream.
Retroviral Vectors. The Company uses retroviral vectors to modify T cells
and stem cells. These cells multiply to generate large numbers of progeny
(daughter) cells and are well suited as targets for retroviral vectors that
can modify only rapidly dividing cells. The Company believes that it has
positioned itself at the forefront of retroviral gene delivery technology
through its exclusive relationship with Dr. A. Dusty Miller, a leader in the
development of packaging cell lines for retroviral vectors. One of Dr.
Miller's more recent inventions in this area is an improved retroviral vector
packaging cell line called PG13, which the Company has licensed
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exclusively from the Hutchinson Center. Vectors produced in this cell line
have been shown to have improved efficiency for ex vivo transfer of genes to
human blood cells such as T cells and stem cells.
To date, the Company's internal efforts with retroviral vectors have been
primarily oriented toward improvements in the design, manufacture and methods
of using such vectors for gene transfer and expression. Additionally, the
Company has manufactured retroviral vectors for several investigator-sponsored
clinical trials.
Targeted CTLs
Overview. The immune system is the body's major defense mechanism
responsible for protecting against disease. It functions through a complex
interplay of components and allows the body to detect foreign agents and
thereby defend against infections and diseases. The immune system recognizes
parts of proteins called antigens that are present on the surface of diseased
cells but are not present on normal cells. The immune response to an antigen
involves the integrated action of various classes of white blood cells,
including lymphocytes. Lymphocytes comprise two major classes: B cells, which
produce antibodies that mediate humoral immunity, and T cells, which direct
cell-mediated immunity.
T cells direct cell-mediated immunity by recognizing antigens on diseased
cells. The two main classes of T cells are CD4 cells and CD8 cells. In
general, CD8 cells are CTLs that recognize, contact and kill the diseased
cells. CD4 cells are primarily helper cells that coordinate the function of
other immune cells, including CTLs, by secreting growth factors known as
cytokines. CTLs are disease-specific, i.e., they individually recognize and
bind to only a single, specific antigen. Furthermore, only in the presence of
CD4 helper cells do these specific CTLs proliferate to produce the large
population of antigen-specific CTLs required to elicit an effective immune
response.
In some disease states, the immune system fails to mount or maintain an
effective immune response. For infectious diseases and cancer, it is believed
such failure may be associated with an inadequate CTL response. For example,
HIV infects and kills CD4 cells, which leads to subsequent loss of CTL
function and, thus, to destruction of the immune system by the virus.
Targeted CTL Cell Therapy. Targeted Genetics is working to develop a highly
targeted form of cell therapy, which is intended to produce a powerful,
disease-specific immune response through the infusion of large numbers of
antigen-specific CTLs. In the Company's Targeted CTL program, antigen-specific
CTLs are isolated from a small sample of the patient's blood, multiplied to
large numbers ex vivo and then reinfused into the patient. In essence, these
Targeted CTLs are intended to amplify the natural disease-fighting function of
the immune system relating to specific infected or cancerous cells.
The Company believes that its Targeted CTL program represents an improvement
over other approaches to immunotherapy because it is based on cloned, antigen-
specific CTLs. The Company believes that Targeted CTLs may be more effective
than other immunotherapy approaches because virtually all of the reinfused
cells will be CTLs targeting the specific diseased cells. The Company also
believes that the safety and side effect profile may be improved over other
immunotherapy approaches because of the uniformity and consistency of the
reinfused cells.
The Company's focus on Targeted CTLs originated from research conducted by
its collaborators at the Hutchinson Center, Drs. Philip Greenberg and Stanley
Riddell. These researchers conducted a Phase I clinical trial to evaluate the
safety of infusing donor-derived, CMV-specific CTLs to bone marrow transplant
patients, and the potential of this approach for providing an immune response
against CMV during the short period in which transplant patients have a high
probability of developing CMV. This trial, which was published in The New
England Journal of Medicine in October 1995, was the first clinical trial in
which cloned, antigen-specific CTLs had been used. None of the 14 patients
receiving the CTLs developed CMV viremia or disease. Dr. Riddell is now
conducting a Phase II clinical trial following up on the promising results
observed in Phase I.
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Rapid Expansion Method. The Targeted CTL program is based on the Company's
proprietary REM technology, which is used to rapidly grow CTLs prior to
infusion into the patient. REM represents a significant improvement over other
methods of multiplying T cell clones. Using REM, CTL clones can be multiplied
over a thousandfold in less than two weeks. The Company has demonstrated that
REM enables it to grow billions of CTLs from individual cloned cells over
several weeks, while preserving the cells' disease-fighting capabilities in
vitro. The Company has seen consistent results from REM in both CD8 and CD4 T
cells and for all disease specificities tested to date. The Company has shown
that REM is effective for growing Targeted CTLs specific for HIV, CMV, HBV,
malignant melanoma and prostate tumor peptides. The Company has filed patent
applications, on a worldwide basis, relating to the original REM process and
to subsequent process improvements.
RESEARCH AND DEVELOPMENT COLLABORATIONS
Laboratoires Fournier S.C.A.
In May 1996, the Company and Fournier entered into a license, research and
marketing agreement under which Fournier received exclusive rights to develop
and commercialize in Europe tgDCC-E1A and any other product candidates based
on the E1A tumor suppressor gene and developed pursuant to the agreement.
Fournier has agreed to coordinate development of tgDCC-E1A in Europe by
conducting clinical trials, preparing and filing submissions for regulatory
approval in its territory and paying all associated costs, while the Company
has corresponding responsibilities with respect to development and
commercialization in the United States.
Fournier has paid a $5 million upfront license fee and $2.5 million of
milestone payments through the end of 1997. The agreement provides that
Fournier will make additional milestone payments to the Company upon the
achievement of specified goals by Fournier or the Company and royalties on
sales of resulting products, if any. In addition, if the parties are able to
negotiate a mutually acceptable supply agreement, the Company will be entitled
to manufacture products for Fournier in return for manufacturing fees.
Pursuant to the agreement, the Company has agreed to indemnify Fournier with
respect to claims incurred as a result of the manufacture, supply or sale of
tgDCC-E1A. The agreement may be terminated if the parties mutually agree on or
about the second anniversary of the agreement that the results of the
collaboration are unsatisfactory.
Pasteur Merieux
In December 1995, the Company entered into an agreement with Pasteur Merieux
pursuant to which Pasteur Merieux was granted an exclusive worldwide license
and sublicense to certain technology and patent rights relating to DC Chol as
an immunoadjuvant in traditional vaccines. In consideration of such grant,
Pasteur Merieux paid a process development fee and an upfront license fee. The
Company has a supply agreement under which it sells DC Chol to Pasteur
Merieux. In addition, the Company may receive milestone payments upon
realization of certain benchmarks and a royalty on sales of the products, if
any, incorporating the underlying technology.
RELATIONSHIP WITH IMMUNEX CORPORATION
Targeted Genetics was formed in 1989 as a subsidiary of Immunex Corporation
("Immunex"), a biotechnology company developing immunoregulatory proteins as
therapeutics. In February 1992, Targeted Genetics and Immunex entered into a
technology license agreement. In exchange for shares of Preferred Stock, which
were converted into 1,920,000 shares of Common Stock at the time of the
Company's initial public offering, Immunex granted a worldwide, exclusive
field of use license to Targeted Genetics for certain Immunex proprietary
technology specifically applicable to Targeted Genetics' gene therapy
business. The technology transferred from Immunex to Targeted Genetics relates
to gene identification and cloning, panels of retroviral vectors, packaging
cell technology, recombinant cytokines, DNA constructs, cell lines,
promoter/enhancer elements and immunological assays. In addition, until
February 1999, the Company has the option to acquire a nonexclusive,
worldwide, fully paid royalty-free license (and in certain cases an
opportunity to negotiate the
10
<PAGE>
conversion of a nonexclusive license into an exclusive license) for certain
additional technology relating to Targeted Genetics' gene therapy business.
Targeted Genetics granted to Immunex a right of first offer and a 30-day right
of first refusal on technology the Company intends to out-license that is
based on Immunex technology. The Company may accept or reject any offers made
by Immunex under such rights. Immunex currently owns approximately 13% of the
Company's outstanding common stock.
PATENTS AND PROPRIETARY RIGHTS
Patents and licenses are important to the Company's business. The Company's
policy is to file patent applications to protect technology, inventions and
improvements to inventions that are considered important to the development of
its business. The Company also relies on trade secrets, know how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. To date, the Company has filed or exclusively
licensed 56 patent applications relating to its product and technology
development programs with the United States Patent and Trademark Office (the
"USPTO"), as well as foreign counterparts of certain of these applications in
Europe, Japan and certain other countries. Of these patent applications, 17
patents have been issued or allowed by the USPTO.
In addition to the intellectual property that Targeted Genetics owns or has
exclusively licensed, the Company has licensed several issued and pending
patents that relate to its development programs on a nonexclusive basis. Among
these are the two key patents that relate to the use of AAV vectors for gene
therapy licensed from the NIH and the University of Florida Research
Foundation. In addition, the Company has acquired nonexclusive rights to the
cystic fibrosis gene being delivered in an AAV vector.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in
regard to human therapeutic uses. 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 patent applications will
result in the issuance of patents or, if any patents are issued, whether the
patents will be subjected to further proceedings limiting their scope, whether
they will provide significant proprietary protection or will be circumvented
or invalidated. Since patent applications in the United States are maintained
in secrecy until patents issue and patent applications in certain other
countries generally are not published until more than 18 months after they are
filed, and since publication of discoveries in scientific or patent literature
often lags behind actual discoveries, the Company cannot be certain that it or
any licensor was the first creator of inventions covered by pending patent
applications or that it or such licensor was the first to file patent
applications for such inventions. Moreover, the Company is currently involved
in one patent interference proceeding declared by the USPTO to determine
priority of invention relating to certain components that may be useful in
retroviral vectors and may have to participate in additional interference
proceedings. Although the Company does not anticipate that material
expenditures will be made in connection with such proceedings, participation
could result in substantial cost to the Company, even if the eventual outcome
were favorable to it. In addition, although the Company believes that the
technology which is the subject of the current patent interference proceeding
is not material to its current product development programs, there can be no
assurance that such technology will not become material in the future. If the
outcome of the current or any additional interference proceeding were
unfavorable, the Company may be unable to obtain rights to the invention
involved. There can be no assurance that the Company's patents, if issued,
would be held valid or enforceable by a court or that a competitor's
technology or product would be found to infringe such patents. Litigation,
which could result in substantial cost to the Company, may be necessary to
enforce the Company's patents or to determine the scope and validity of other
parties' proprietary rights. If the outcome of any such litigation were
adverse, the Company's business could be materially adversely affected. The
Company is unable to predict how courts will resolve any future issues
relating to the validity and scope of its patents should they be challenged.
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
11
<PAGE>
technologies or patent applications. Such conflict could limit the scope of
the patents, if any, that the Company may be able to obtain or result in
denial of the Company's patent applications. In addition, if patents that
cover the Company's activities are issued to other companies, there can be no
assurance that the Company would be able to develop or obtain alternative
technology.
Furthermore, as the biotechnology industry expands and more patents are
issued, the risk increases that the Company's processes and potential products
may give rise to claims that they infringe the patents of others. Such other
persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the
affected product or use of the affected process. Litigation may be necessary
to enforce patents issued to the Company, to protect trade secrets or know how
owned by the Company or to determine the enforceability, scope and validity of
proprietary rights of others. If the Company becomes involved in such
litigation, it could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. If there were an adverse outcome of any such litigation, the
Company's business could be materially adversely affected. In addition to any
potential liability for significant damages, the Company could be required to
obtain a license to continue to manufacture or market the affected product or
use the affected process. Costs associated with any licensing arrangement may
be substantial and could include ongoing royalties. There can be no assurance
that any license required under any such patent would be made available to the
Company on acceptable terms, if at all.
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. To protect its trade
secrets, the Company requires its employees, consultants, scientific advisors
and parties to collaborative agreements to execute confidentiality agreements
upon the commencement of employment, the consulting relationship or the
collaboration with the Company. In the case of employees, the agreements also
provide that all inventions resulting from work performed by them while in the
employ of the Company will be the exclusive property of the Company. There can
be no assurance, however, that these agreements will provide meaningful
protection of the Company's trade secrets or adequate remedies in the event of
unauthorized use or disclosure of such information.
COMPETITION
The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy and cell
therapy treatments, including early-stage gene therapy companies, fully
integrated pharmaceutical companies, universities, research institutions,
governmental agencies and other healthcare providers. In addition, the
Company's potential products will be required to compete with existing
pharmaceutical products, or products developed in the future, that are based
on established technologies. Many of the Company's competitors have
substantially more financial and other resources, larger research and
development staffs, and more experience and capabilities in researching,
developing and testing products in clinical trials, in obtaining FDA and other
regulatory approvals, and in manufacturing, marketing and distribution than
the Company. In addition, the competitive positions of other early-stage
companies may be enhanced significantly through their collaborative
arrangements with large pharmaceutical companies or academic institutions. The
Company's competitors may succeed in developing, obtaining patent protection
for, receiving FDA and other regulatory approvals for, or commercializing
products more rapidly than the Company. If the Company is successful in
commercializing its products, it will be required to compete with respect to
manufacturing efficiency and marketing capabilities, areas in which it has no
experience. The Company also competes with others in acquiring products or
technology from research institutions or universities. The Company's
competitors may develop new technologies and products that are available for
sale prior to the Company's potential products or that are more effective than
the Company's potential products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's potential
products. Such developments could render the Company's potential products less
competitive or obsolete, and could have a material adverse effect on the
Company's business, financial condition and results of operations.
12
<PAGE>
GOVERNMENTAL REGULATION
All of the Company's potential products will require regulatory approval by
U.S. and foreign governmental agencies prior to commercialization in such
countries. Human therapeutic products are subject to rigorous preclinical and
clinical testing and other premarket approval procedures administered by the
FDA and similar authorities in foreign countries. The FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, reporting, quality control, advertising, promotion,
export and sale of the Company's potential products. Similar requirements are
imposed by foreign regulators. In some cases, state requirements also apply.
Gene therapy and cell therapy are relatively new technologies and have not
been extensively tested in humans. The regulatory requirements governing gene
and cell therapy products and related clinical procedures are uncertain and
are subject to change. Obtaining approval from the FDA and other regulatory
authorities for a new therapeutic product is likely to take several years, if
ever, and involve substantial expenditures. Moreover, ongoing compliance with
applicable requirements can entail the expenditure of substantial resources.
Difficulties or unanticipated costs may be encountered by the Company in its
efforts to secure necessary governmental approvals, which could delay or
preclude the Company from marketing its products.
The activities required before a new therapeutic agent may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation and may require animal studies to assess the product's
potential safety and efficacy. Animal safety studies must be conducted in
accordance with the FDA's Good Laboratory Practice regulations. The results of
these studies must be submitted to the FDA as part of an Investigational New
Drug application ("IND"), which must be reviewed and cleared by the FDA before
proposed clinical testing can begin. Clinical trials must be conducted in
accordance with Good Clinical Practices under protocols that detail the
objectives of the trial, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA
as part of the IND. The FDA's review or approval of a study protocol does not
necessarily mean that, if the trial is successful, it will constitute proof of
efficacy or safety. Further, each clinical trial must be approved by and
conducted under the auspices of an independent Institutional Review Board
("IRB") at the institution at which the trial will be conducted. The IRB will
consider, among other things, ethical factors, the safety of human subjects
and the possible liability of the institution. The IRB is also responsible for
continuing oversight of the approved protocols in active trials. An IRB may
require changes in a protocol, and there can be no assurance that an IRB will
permit any given trial to be initiated or completed.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, gene therapy clinical trials generally are
conducted with a small number of patients, who may or may not be afflicted
with a specific disease, to determine the preliminary safety profile. In Phase
II, clinical trials are conducted with larger groups of patients afflicted
with a specific disease in order to determine preliminary efficacy and optimal
dosages and to obtain expanded evidence of safety. In Phase III, large-scale,
multicenter, comparative clinical trials are conducted with patients afflicted
with a target disease in order to provide enough data for the statistical
proof of efficacy and safety required by the FDA and others for market
approval. The FDA receives reports on the progress of each phase of clinical
testing, and it may require the modification, suspension or termination of
clinical trials if an unwarranted risk is presented to patients. Because gene
therapy products are a new category of therapeutics, there can be no assurance
as to the length of the clinical trial period or the number of patients the
FDA will require to be enrolled in the clinical trials in order to establish
to its satisfaction the safety and efficacy of such products.
FDA marketing approval must be obtained after completion of clinical trials
of a new product. The Company expects that its products will be regulated as
biologic drugs. According to the FDA's 1993 notice outlining its regulatory
approach to somatic and gene therapy products, these products are also subject
to the drug provisions of the Federal Food, Drug and Cosmetic Act. This notice
also stated, however, that the FDA's regulatory approach may evolve as
scientific knowledge increases in the area of somatic and gene therapy.
Current regulations relating to biologic drugs will require the Company to
submit to the FDA both a Product
13
<PAGE>
License Application ("PLA") and an Establishment License Application ("ELA"),
which must be approved by the FDA before commercial marketing is permitted.
The PLA/ELA must include results of product development activities,
preclinical studies and clinical trials, in addition to detailed manufacturing
information. FDA approval of PLA/ELAs generally takes at least one year. The
process may take substantially longer if the FDA has questions or concerns
about a product. The FDA may also request additional data relating to safety
or efficacy. Notwithstanding the submission of relevant data, the FDA may
ultimately decide that a PLA/ELA does not satisfy its regulatory criteria for
approval. The FDA may also modify the scope of the desired claims or require
the addition of warnings or other safety-related information and require
additional clinical tests following approval to confirm product safety and
efficacy (Phase IV trials). Even if FDA regulatory clearances are obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on marketing a product or
in withdrawal of the product from the market, as well as possible civil or
criminal sanctions.
The FDA recently amended its regulations to eliminate the ELA requirement
for therapeutic DNA plasmid products, therapeutic synthetic peptide products
of 40 or fewer amino acids, monoclonal antibody products for in vivo use, and
therapeutic recombinant DNA-derived products. Manufacturers of these products
will instead be required to submit a biologics license application, which will
include, among other information, nonclinical and clinical data demonstrating
that the manufactured product meets prescribed standards for safety, purity
and potency, and information pertaining to manufacturing methods. It is
unclear whether any of the Company's products will fall within the category of
products for which the ELA requirement has been eliminated, or what effect
such elimination may have on product development and FDA review.
The FDA requires that manufacturers of a product comply with current Good
Manufacturing Practices ("cGMP") requirements, both as a condition of product
approval and on a continuing basis. In complying with cGMP requirements,
manufacturers must expend time, money and effort on a continuing basis in
production, record keeping and quality control. Manufacturing facilities are
subject to periodic inspections by the FDA to ensure compliance. Failure to
pass such inspections may subject the manufacturer to possible FDA action such
as the suspension of manufacturing, seizure of the product, withdrawal of
approval or other regulatory sanctions. The FDA may also require the
manufacturer to recall a product.
In addition to regulations enforced by the FDA, the Company is also subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other federal, state and local regulations. The Company's
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any resulting damages, and any such
liability could exceed the Company's resources.
HUMAN RESOURCES
At December 31, 1997, Targeted Genetics had 90 full time equivalent
employees; effective February 15, 1998, the Company reduced its workforce to
64 full time equivalent employees in order to reduce the amount of cash being
used to fund operations. Of the remaining employees, 50 are directly involved
in research and development, of whom 9 have Ph.D. or M.D. degrees. A
significant number of the Company's management and professional employees have
prior experience with other biotechnology or pharmaceutical companies. The
Company considers its relations with its remaining employees to be good.
The Company's success will depend in large part on its ability to attract
and retain key employees and scientific advisors. Competition among
biotechnology and pharmaceutical companies for highly skilled scientific and
management personnel is intense. After the recent workforce reduction, the
Company put into place several programs involving restructuring and repricing
of stock options and cash retention bonuses in order to provide
14
<PAGE>
appropriate incentive to all retained employees to continue their employment
with the Company. However, there can be no assurance that the Company will be
successful in retaining its existing personnel or advisors, or in attracting
additional qualified employees.
EXECUTIVE OFFICERS
The following are the executive officers of Targeted Genetics who will serve
in the capacities noted until their successors are duly appointed and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- ----------------------------------------
<C> <C> <S>
H. Stewart Parker 42 President, Chief Executive Officer and
Director
Barrie J. Carter, Ph.D. 53 Executive Vice President and Director of
Research and Development
James A. Johnson 41 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
</TABLE>
H. Stewart Parker managed the formation of Targeted Genetics as a wholly
owned subsidiary of Immunex and has been President, Chief Executive Officer
and a director since the Company's inception in 1989. She served in various
capacities at Immunex from August 1981 through December 1991, most recently as
Vice President, Corporate Development. Ms. Parker also served as President and
a director of Receptech Corporation, a company formed by Immunex in 1989 to
accelerate the development of soluble cytokine receptor products
("Receptech"), from February 1991 to January 1993. She received her B.A. and
M.B.A. from the University of Washington.
Barrie J. Carter is Executive Vice President and Director of Research and
Development of Targeted Genetics. He joined the Company in August 1992. For
the previous 22 years he was employed by the NIH in Bethesda, Maryland where
he was Chief of the Laboratory of Molecular and Cellular Biology in the
National Institute for Diabetes and Digestive and Kidney Diseases from 1982 to
1992. Dr. Carter received his B.Sc. (Honors) from the University of Otago,
Dunedin, New Zealand and his Ph.D. in the Biochemistry Department of the
University of Otago Medical School. He then spent a period of postdoctoral
training at the Imperial Cancer Research Fund Laboratories in London, England
before joining the NIH. His long-term research interests are in molecular
biology of viruses, development of AAV vectors and gene therapy. Dr. Carter
serves on the Editorial Boards of Human Gene Therapy and Molecular
Therapeutics: Gene Therapy & Oligonucleotides and as an Associate Editor of
Virology. Since 1995, he has been an Affiliate Professor of Medicine at the
University of Washington Medical School.
James A. Johnson joined the Company in March 1994 as Vice President,
Finance, Chief Financial Officer, Treasurer and Secretary. He was employed by
Immunex from January 1988 to February 1994, initially as Director of Finance
and as Vice President, Finance since February 1990. While at Immunex, Mr.
Johnson served as Treasurer of Targeted Genetics from its inception in 1989.
From November 1989 to January 1993, he also served as Treasurer and Assistant
Secretary of Receptech. He received his B.A. from the University of
Washington.
FACTORS AFFECTING FORWARD-LOOKING INFORMATION
Need for Additional Capital. The Company expects negative cash flow from
operations to continue in the foreseeable future. The Company will require
substantial additional funds to continue the development and commercialization
of its potential products. Adequate funds, whether obtained through financial
markets or from collaborative or other arrangements with corporate partners or
other sources, may not be available when needed or may not be available on
terms favorable to the Company. If additional funds are raised by issuing
equity securities, dilution to existing shareholders may result. If funding is
insufficient at any time in the future, the Company may be required to delay,
scale back or eliminate some or all of its research and development
15
<PAGE>
programs. Furthermore, if at any time the Company's funds are depleted, the
Company may be required to cease operations. The Company estimates that its
cash, cash equivalents and securities available for sale will be sufficient to
meet its needs until May 1998.
Early Stage of Product Development, Technological Uncertainty. The Company
has no commercial products and all of its potential products are in research,
development or early-stage clinical trials. Prior to any commercial use, these
potential products will require significant additional research and
development, extensive clinical testing and regulatory approval. There can be
no assurance that the Company's efforts to develop, test and gain regulatory
approval of its potential products will be successful.
History of Losses and Uncertainty of Future Results. Targeted Genetics is a
development stage company and has generated minimal revenues and significant
net losses since inception. The Company expects to incur substantial
additional losses over at least the next several years. To achieve profitable
operations, Targeted Genetics, alone or with corporate collaborative partners,
must successfully develop, manufacture, obtain regulatory approvals and market
its potential products. There can be no assurance that the Company's efforts
in these areas will be successful.
Uncertainties Relating to Clinical Trials. Existing data on the safety and
efficacy of gene and cell therapy treatments are very limited. There can be no
assurance that clinical trials of the Company's potential products will
demonstrate safety and efficacy. Furthermore, there can be no assurance that
the Company will not encounter unacceptable side effects or other problems in
clinical trials of its potential products that will cause the Company to delay
or discontinue development of such products. The rate of completion of the
Company's clinical trials depends on, among other factors, the rate of patient
enrollment. Delays in patient enrollment may result in increased costs, delays
or termination of clinical trials.
Uncertainty of Patent Position and Proprietary Rights. The failure of the
Company or its licensors to obtain and maintain patent protection for the
Company's technology could have a material adverse effect on the Company.
Patent positions in the biotechnology field are highly uncertain and involve
complex legal, scientific and factual questions. There can be no assurance
that any patent application relating to the technology used by the Company
will result in a patent being issued or that, if issued, the patent will
afford protection against competitors. As the biotechnology industry expands
and more patents are issued, the risk increases that the Company's processes
and potential products may give rise to claims that they infringe the patents
of others. If the Company becomes involved in patent litigation, it could
result in substantial expense to the Company and significant diversion of
effort by the Company's technical and management personnel. In addition to any
potential liability for significant damages, the Company could be required to
obtain a license to continue to manufacture or market the affected product or
use the affected process. There can be no assurance that any license required
under any such patent would be made available to the Company on acceptable
terms, if at all. The Company also relies upon unpatented proprietary
technology. There can be no assurance that the Company can meaningfully
protect its rights in such unpatented proprietary technology. See "Business--
Patents and Proprietary Rights."
Uncertainty of Governmental Regulatory Requirements; Lengthy Approval
Process. The process of obtaining regulatory approvals for clinical trials or
for the manufacturing or marketing of the Company's potential products is
costly and time-consuming and is subject to unanticipated delays. There can be
no assurance that the Company will be able to obtain the necessary regulatory
approvals for manufacturing or marketing any of its product candidates. Even
if regulatory approval of a potential product is obtained, later discovery of
previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on marketing a product or
withdrawal of the product from the market, as well as possible criminal or
civil sanctions. All manufacturing operations also are subject to the FDA's
current Good Manufacturing Practice ("cGMP") requirements on an ongoing basis.
There can be no assurance that the Company will be able to attain or maintain
compliance with cGMP requirements. See "Business--Governmental Regulation."
16
<PAGE>
Dependence on Corporate Collaborators. The Company will depend to a
significant extent on collaborative partners, licensees or other entities for
development, manufacturing and commercialization of its potential products.
Although the Company believes that such collaborative partners would have an
economic motivation to commercialize products that result from the Company's
research and development efforts, the amount and timing of resources devoted
to these activities would be controlled by such partners. Furthermore, there
can be no assurance that present or future collaborators will not pursue
existing or alternative technologies in preference to potential products being
developed in collaboration with the Company.
Competition. The Company is experiencing intense competition from companies
developing gene and cell therapy technologies as well as those using more
traditional approaches to treating human diseases. Many of these competitors
have substantially more financial and other resources, larger research and
development staffs, and more experience and capabilities in researching,
developing and testing products in clinical trials, in obtaining FDA and other
regulatory approvals, and in manufacturing, marketing and distribution than
the Company. Consequently, the Company's competitors may succeed in
commercializing products more rapidly than the Company. The Company's
competitors may also manufacture and market competitive products more
successfully than the Company's potential products. Such developments could
render the Company's potential products less competitive or obsolete. See
"Business--Competition."
Rapid Technological Change. Gene and cell therapy are new and rapidly
evolving fields and are expected to continue to undergo significant and rapid
technological change. Rapid technological development could result in actual
and proposed technologies, products or processes of the Company becoming
obsolete prior to successful commercialization.
Dependence on Key Personnel and Scientific Collaborators. The Company's
success will depend in large part on its ability to attract and retain key
employees and scientific collaborators. There can be no assurance that the
Company will be successful in retaining its existing personnel or in
attracting additional qualified employees. The Company also depends on the
continued availability of outside scientific collaborators who perform
research in certain areas relevant to the Company's research. There can be no
assurance that the Company will be successful in maintaining its relationships
with scientific collaborators, or that inventions or processes developed by
the Company's collaborators will become the property of the Company.
No Commercial Manufacturing or Marketing Capability. The Company's current
facilities and staff will need to be expanded, or supplemented through the use
of contract providers, for large-scale clinical or commercial production of
its potential products. In addition, the Company has no experience in sales
and marketing. To market any products that may result from its development
programs, Targeted Genetics will have to develop marketing and sales
capabilities, either on its own or in conjunction with others. There can be no
assurance that the Company will be successful in obtaining the necessary
manufacturing or marketing capabilities. Furthermore, the Company's dependence
upon third parties for the manufacture, marketing and sale of its potential
products may materially adversely affect the Company's ability to develop and
deliver products on a timely and competitive basis.
Hazardous Materials; Environmental Matters. The Company's research and
development activities involve the controlled use of hazardous materials,
chemicals, biological materials and radioactive compounds. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by applicable laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any resulting damages, and any such
liability could exceed the Company's resources.
Product Liability. The testing, manufacture, marketing and sale of human
healthcare products entail the inherent risk of liability claims or product
recalls and associated adverse publicity. The Company currently has a limited
amount of product liability insurance. Such insurance is expensive and there
can be no assurance that it will continue to be available in sufficient
amounts and on acceptable terms, if at all. A product liability claim or
17
<PAGE>
product recall could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 2. PROPERTIES
Targeted Genetics currently occupies approximately 33,000 square feet of
laboratory and office space in a single facility in Seattle, Washington. The
lease expires on April 1, 1999 and includes options to extend the lease term
for three consecutive five-year periods. The average annual rent payment
during the initial term of the lease is approximately $408,000. In 1996, the
company entered into a lease for approximately 4,700 square feet of office
space in an office complex adjoining its primary facility. The lease expires
on March 31, 2004 and includes options to extend the lease term for two
consecutive five-year periods. The average annual rent payment during the
initial term of the lease is approximately $95,000. The Company believes its
current facilities, together with approximately 2,000 square feet of expansion
space remaining in its primary facility and additional expansion space
available in the adjoining office complex, will be adequate to meet its
projected needs for the next several years. Within that time frame, the
Company may be required to locate alternative facilities, depending on the
Company's growth and development.
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 its fiscal year ended December 31, 1997.
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<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol TGEN. At March 6, 1998, there were approximately 3,500 holders of the
Company's common stock. The Company has never paid cash dividends and does not
anticipate paying them in the foreseeable future. The following table sets
forth for each calendar quarter indicated, the high and low bid quotations for
the Company's common stock. These quotes reflect inter-dealer prices, without
retail mark-up or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
1996
----
<S> <C> <C>
1st Quarter........................... $7 1/4 $4
2nd Quarter........................... 6 1/4 3 7/8
3rd Quarter........................... 5 2 7/8
4th Quarter........................... 5 1/4 3 1/2
<CAPTION>
1997
----
<S> <C> <C>
1st Quarter........................... $5 3/4 $3 3/8
2nd Quarter........................... 3 5/8 2 1/2
3rd Quarter........................... 6 7/16 2 7/8
4th Quarter........................... 5 1/2 2 1/4
</TABLE>
On March 15, 1997, the Company issued to The Burnham Institute a warrant to
purchase up to 50,000 shares of the Company's common stock (the "Burnham
Warrant") as partial consideration for the execution of a license agreement.
The Burnham Warrant vested 16,667 shares upon execution of such license
agreement; additional shares vest upon the occurrence of certain milestones
relating to pre-clinical animal studies and the issuance of patents. The
vested portion of the Burnham Warrant is exercisable until March 15, 2004 at
an exercise price per share of $4.50. On May 15, 1997, the Company issued to
Francis Chisari a warrant to purchase up to 25,000 shares of the Company's
common stock (the "Chisari Warrant") as partial consideration for the
execution of a consulting agreement. The Chisari Warrant vested 5,000 shares
immediately; on each May 15, beginning on May 15, 1998, the warrant vests with
respect to an additional 5,000 shares. The vested portion of the Chisari
Warrant is exercisable until May 15, 2004 at an exercise price per share of
$3.13. Each of the Burnham Warrant and the Chisari Warrant provides for
accelerated vesting in the event of certain mergers or other similar
transactions that result in a change in control of the Company. Each of the
Burnham Warrant and the Chisari Warrant were issued in a transaction not
involving a public offering and therefore exempt pursuant to Section 4(2) of
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues................ $ 1,978,477 $ 2,254,178 $ 842,460 $ 448,822 $ 412,076
Expenses................ 16,166,251 28,292,220 10,764,744 8,848,167 5,477,588
Net loss................ (14,187,774) (26,038,042) (9,922,284) (8,399,345) (5,065,512)
Basic and diluted net
loss per share......... (.70) (1.59) (.94) (1.40) N.M.(/1/)
FINANCIAL CONDITION
Cash, cash equivalents
and securities
available for sale..... $ 5,037,821 $ 19,051,070 $14,442,562 $11,474,787 $ 6,797,182
Total assets............ 9,767,084 25,139,052 19,960,460 17,045,881 12,115,184
Long-term obligations,
including current
portion................ 2,547,324 3,378,420 3,286,508 2,837,370 1,184,706
Shareholders' equity.... 5,591,587 19,507,788 15,772,836 13,242,145 12,115,184
</TABLE>
- --------
(/1/)Per share amounts are not meaningful.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Targeted Genetics Corporation, a development stage company, was incorporated
in March 1989 as a wholly owned subsidiary of Immunex Corporation. The
Company's activities were carried out as a project within Immunex through
December 31, 1991. In 1992, the Company began to operate independently from
Immunex and raised $16.6 million, net of expenses, in a private placement of
preferred stock. Through additional public offerings, the Company has raised
an additional $38.4 million. In June 1996, the Company completed a merger with
RGene Therapeutics, Inc. ("RGene"), a privately-held biotechnology company.
Currently, the Company's only significant revenue sources are a research and
development collaborative agreement related to the European development of the
Company's tgDCC-E1A cancer product and interest income earned on investments.
The Company has generated an accumulated deficit of $67.8 million through
December 31, 1997.
It is not anticipated that the Company will have any product-related
revenues for a number of years. Accordingly, the Company expects to generate
substantial additional losses in the future attributable to the continuation
of preclinical and clinical research programs, development of manufacturing
capabilities and the preparation for commercialization of its products under
development. The Company's ability to achieve profitability depends in part on
its ability, alone or with others, to complete the development of product
candidates, obtain regulatory approvals, comply with applicable regulatory
requirements and manufacture and market such products, of which there can be
no assurance.
RISKS AND UNCERTAINTIES
This discussion contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. The Company's future cash requirements and
expense levels will depend on many factors, including continued scientific
progress in its research and development programs; the results of research and
development, preclinical studies and clinical trials; acquisition of products
or technology, if any; relationships with corporate collaborators; competing
technological and market developments; the time and costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities; and other factors. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this report. The Company undertakes no
obligation to publicly release the results of any revisions to these forward-
looking statements that may be made to reflect events or circumstances after
the date of this report or to reflect the occurrence of unanticipated events.
See "Factors Affecting Forward-Looking Information".
RESULTS OF OPERATIONS
Revenue under collaborative agreements decreased to $888,000 for the year
ended December 31, 1997, from $1.2 million for the year ended December 31,
1996. The decrease primarily resulted from a reduction in milestone payments
received under the Company's collaborative agreement with Laboratoires
Fournier S.C.A. ("Fournier"). Similarly, the increase in 1996 versus 1995 was
attributable to receipts from Fournier.
Investment income decreased to $651,000 for the year ended December 31,
1997, from $924,000 for the year ended December 31, 1996. The decrease
resulted from a lower average cash balance and securities available for
investment. The increase in 1996 versus the year ended December 31, 1995 was
attributable to a higher average investment balance during the year and higher
rates of return on those balances.
Research and development expenses increased to $13.0 million for the year
ended December 31, 1997, from $11.5 million for the year ended December 31,
1996. Although internal expenses for research and development leveled off in
1997, the Company experienced an increase in external expenses related to
intellectual property and to the continued progression of the Company's
clinical trial programs. Of the increase, approximately $1.4 million related
to these two areas. The increase in 1996 versus the year ended December 31,
1995 was
20
<PAGE>
approximately $3.3 million, of which $1.6 million related to the RGene
acquisition and continuation of the acquired research, development and
clinical programs. Of this amount, approximately $1.3 million represented
recurring, routine charges and approximately $300,000 represented non-
recurring charges. Also contributing to the increase in expenses in 1996 over
1995 were a moderate increase in the level of expenses supporting the
advancement of clinical, manufacturing process development and regulatory
programs as well as additional employees and related expenses in preclinical
immunology.
A one-time expense resulting from the acquisition of RGene was charged
against income in 1996. Of the total RGene purchase price, $13.5 million was
allocated to RGene's existing in-process technology and was written-off in the
second quarter to in-process research and development expense.
General and administrative expenses decreased slightly to $2.8 million for
the year ended December 31, 1997, from $2.9 million for the year ended
December 31, 1996. Consistent with internal research and development expenses,
general and administrative expenses leveled off in 1997. The increase in 1996
expenses versus the year ended December 31, 1995 reflected $338,000 of non-
recurring expenses incurred as a result of the RGene acquisition. Other
factors contributing to the increase in 1996 expenses were increases in
business development and investor relations activities and, to a lesser
extent, modest growth in administrative staff.
Interest expense decreased to $338,000 for the year ended December 31, 1997,
from $397,000 for the year ended December 31, 1996. This expense resulted from
obligations under capital leases used to purchase laboratory and computer
equipment, furniture and leasehold improvements. The decrease from the prior
year was due to a declining principal balance under the related lease
obligations. The increase in 1996 versus the year ended December 31, 1995 was
due to an increase in the amount of equipment purchases financed. The Company
expects that it will continue to finance equipment purchases, if favorable
terms are available.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash, cash equivalents and securities
available for sale totaling $5.0 million, compared to $19.1 million at
December 31, 1996. The decrease was primarily attributable to the Company's
use of $12.5 million to fund its operations for the year. Also, $1.3 million
was used for payments under equipment leases and notes and $705,000 was used
for purchases of equipment. These cash outflows were offset partially by the
receipt of $468,000 from equipment financing transactions and $277,000 from
the exercise of warrants by existing shareholders.
In February 1998, the Company reorganized in order to reduce its cash burn
rate, in the process reducing its employee headcount by 29% to approximately
64 full-time equivalent employees. Taking into account the effect of the
reorganization, the Company estimates that its cash, cash equivalents and
securities available for sale at December 31, 1997 will be sufficient to meet
its cash needs until May 1998. Therefore, the Company must raise additional
capital in the near term in order to continue its operations beyond such time.
The Company expects to raise such capital through a private placement of
equity securities. There can be no assurance, however, that the Company will
be successful in completing such a private placement. If the Company is unable
to raise sufficient capital, it may be required to scale back its programs,
dispose of technology or cease operations.
Over the long-term, the Company will need to raise substantial additional
funds in the future to continue the development and commercialization of its
products. The Company's business strategy involves entering into agreements
with corporate partners that provide license fees, milestone payments,
research and development funding and, potentially, equity investment. There
can be no assurance, however, that the Company will be successful in
establishing any such collaborative arrangements or that any such future
partner would be successful in commercializing products. Regardless of its
success in partnering, the Company expects that it will need to seek
additional sources of public or private equity capital in the future. There
can be no assurance that adequate funds will be available to the Company
through such sources when needed or will be available on terms favorable to
the Company. If at any time the Company is unable to obtain sufficient funds,
the Company will be
21
<PAGE>
required to delay, restrict or eliminate some or all of its research or
development programs, dispose of assets or technology, or cease operations.
IMPACT OF YEAR 2000
The Company has completed a computer system assessment and will have to
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is estimated at less than $100,000, which includes
approximately $50,000 for the purchase of new software that will be
capitalized and approximately $50,000 that will be expensed as incurred. To
date, the Company has not incurred any costs for the development of a
modification plan or for the purchase new software. The project is estimated
to be completed no later than June 30, 1999, which is prior to any anticipated
impact on its operating systems.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
required by this item are set forth at the pages indicated in Item 14(a)1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a) The information required by this item concerning the Company's directors
is incorporated by reference from the section captioned "ELECTION OF
DIRECTORS" in the Company's definitive Proxy Statement for the annual meeting
to be held on May 5, 1998.
(b) The information required by this item concerning the Company's executive
officers is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "EXECUTIVE COMPENSATION" in the Company's definitive Proxy
Statement for the annual meeting to be held on May 5, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "PRINCIPAL TARGETED GENETICS SHAREHOLDERS" in the Company's
definitive Proxy Statement for the annual meeting to be held on May 5, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The following Financial Statements are submitted in a separate section
beginning on Page F-1 of this report.
<TABLE>
<CAPTION>
PAGE(S) IN
10-K
----------
<S> <C>
Report of Ernst and Young LLP, Independent Auditors................ F-1
Balance Sheets at December 31, 1997 and 1996....................... F-2
Statements of Operations for the years ended December 31, 1997,
1996, and 1995 and for the period from March 9, 1989 (date of
inception) through December 31, 1997.............................. F-3
Statements of Shareholders' Equity for the period from March 9,
1989 (date of inception) through December 31, 1997................ F-4
Statements of Cash Flows for the years ended December 31, 1997,
1996, and 1995 and for the period from March 9, 1989 (date of
inception) through December 31, 1997.............................. F-6
Notes to Financial Statements...................................... F-7
</TABLE>
2. Financial Statement Schedules
All financial statement schedules have been omitted because the required
information is either included in the financial statements or the notes
thereto or is not applicable.
3. Exhibits
<TABLE>
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of April 16, 1996, by and (E)
among Targeted Genetics Corporation, TGC Acquisition Corporation
and RGene Therapeutics, Inc. (Exhibit 2.1)
3.1 Amended and Restated Articles of Incorporation (Exhibit 3.1) (I)
3.2 Amended and Restated Bylaws (Exhibit 3.2) (I)
4.1 Warrant to Purchase 11,000 shares of the Common Stock of Targeted (D)
Genetics Corporation, issued to MMC/GATX Partnership No. 1 on
December 27, 1993, as amended (Exhibit 4.1)
4.2 Warrant to Purchase 11,000 shares of the Common Stock of Targeted (A)
Genetics Corporation, issued to LINC Capital Management, Ltd. on
December 27, 1993 (Exhibit 4.2)
4.3 Warrant to Purchase 18,701 shares of the Common Stock of Targeted (B)
Genetics Corporation, issued to MMC/GATX Partnership No. 1 on
November 30, 1994 (Exhibit 4.3)
4.4 Warrant Agreement between Targeted Genetics Corporation and First (D)
Interstate Bank of Washington, N.A., as Warrant Agent (Exhibit
4.4)
4.5 First Amendment to the Warrant Agreement between Targeted Genetics (L)
Corporation and First Interstate Bank of Washington, N.A., as
Warrant Agent (Exhibit 3.1)
4.6 Specimen Warrant Certificate (Exhibit 4.5) (C)
4.7 Warrant to Purchase 21,315 shares of the common stock of Targeted (D)
Genetics Corporation, issued to Financing for Science
International, Inc. on November 30, 1995 (Exhibit 4.6)
4.8 Rights Agreement, dated as of October 17, 1996, between Targeted (H)
Genetics Corporation and ChaseMellon Shareholder Services
(Exhibit 2.1)
4.9 Warrant to purchase 50,000 shares of the Common Stock of Targeted (J)
Genetics Corporation, issued to the Burnham Institute on March
15, 1997 (Exhibit 4.1)
4.10 Warrant to purchase 25,000 shares of the Common Stock of Targeted (K)
Genetics Corporation, issued to Francis Chisari on May 15, 1997
(Exhibit 4.1)
</TABLE>
23
<PAGE>
<TABLE>
<C> <S> <C>
10.1 Form of Indemnification Agreement between the registrant and its (A)
officers and directors (Exhibit 10.6)
10.2 Form of Senior Management Employment Agreement between the (I)
registrant and its executive officers (Exhibit 10.2)
10.3 Non-exclusive License Agreement, dated as of November 19, 1991, (A)
between the Fred Hutchinson Cancer Research Center and Immunex
Corporation* (Exhibit 10.7)
10.4 Gene Transfer Technology License Agreement, dated as of February (A)
18, 1992, between Immunex Corporation and Targeted Genetics
Corporation* (Exhibit 10.8)
10.5 License Agreement, dated as of June 1, 1992, between Wisconsin (A)
Alumni Research Foundation and Targeted Genetics Corporation*
(Exhibit 10.9)
10.6 License Agreement, dated as of August 14, 1992, between Leland (A)
Stanford Junior University and Targeted Genetics Corporation*
(Exhibit 10.10)
10.7 PHS Patent License Agreement--Non-exclusive, dated as of July 13, (A)
1993, between National Institutes of Health Centers for Disease
Control and Targeted Genetics Corporation* (Exhibit 10.13)
10.8 Non-exclusive Patent License Agreement, dated as of December 25, (A)
1993, between The University of Florida Research Foundation,
Inc. and Targeted Genetics Corporation* (Exhibit 10.14)
10.9 Research and Exclusive License Agreement, dated as of January 1,
1994, between Targeted Genetics Corporation and the Fred
Hutchinson Cancer Research Center*
10.10 PHS Patent License Agreement--Exclusive, dated as of March 10,
1994, between National Institutes of Health Centers for Disease
Control and Targeted Genetics Corporation*
10.11 Exclusive License Agreement, dated as of March 14, 1994, between
Medical College of Ohio and Targeted Genetics Corporation*
10.12 License Agreement, dated as of March 16, 1994, between the Johns (A)
Hopkins University and Targeted Genetics Corporation* (Exhibit
10.17)
10.13 License Agreement, dated as of March 28, 1994, between Targeted
Genetics Corporation and the University of Michigan*
10.14 Exclusive License Agreement dated as of March 23, 1994, between
the Fred Hutchinson Cancer Research Center and Targeted Genetics
Corporation*
10.15 Exclusive License Agreement, dated as of August 25, 1994, between (B)
Targeted Genetics Corporation and the Fred Hutchinson Cancer
Research Center* (Exhibit 10.20)
10.16 Development Agreement dated April 6, 1994, by and between Argus (F)
Pharmaceuticals, Inc. and RGene Therapeutics, Inc.* (Exhibit
10.28)
10.17 Patent and Technology License Agreement effective as of March 1, (F)
1994, by and among the Board of Regents of the University of
Texas M.D. Anderson Cancer Center and RGene Therapeutics, Inc.*
(Exhibit 10.29)
10.18 First Amended and Restated License Agreement effective October (F)
12, 1995 between The University of Tennessee Research
Corporation and RGene Therapeutics, Inc.* (Exhibit 10.30)
10.19 Amendment to the First Amended and Restated License Agreement, (G)
between The University of Tennessee Research Corporation and
RGene Therapeutics, Inc., dated as of June 19, 1996* (Exhibit
10.1)
10.20 Exclusive Sublicense Agreement effective July 23, 1996 by and (I)
between Alkermes, Inc. and Targeted Genetics Corporation.*
(Exhibit 10.20)
</TABLE>
24
<PAGE>
<TABLE>
<C> <S> <C>
10.21 Revised License Agreement effective October 1, 1996, by and (I)
between the University of Pittsburgh--of the Commonwealth System
of Higher Education and Targeted Genetics Corporation* (Exhibit
10.21)
10.22 Agreement dated as of May 28, 1996 by and between RGene (F)
Therapeutics, Inc. and Laboratoires Fournier S.C.A.* (Exhibit
10.32)
10.23 License Agreement, dated as of March 15, 1997, between the
Burnham Institute and Targeted Genetics Corporation*
10.24 Olive Way Building Lease, dated as of November 20, 1993, between (A)
Metropolitan Federal Savings and Loan Association and Targeted
Genetics Corporation (Exhibit 10.21)
10.25 First Amendment to Olive Way Building Lease, dated as of December (B)
10, 1994, between Targeted Genetics Corporation and Metropolitan
Federal Savings and Loan Association (Exhibit 10.22)
10.26 Second Amendment to Olive Way Building Lease, dated as of June (I)
12, 1996, between Targeted Genetics Corporation and Ironwood
Apartments, Inc. (successor in interest to Metropolitan Federal
Savings and Loan Association) (Exhibit 10.25)
10.27 Office Lease, dated as of October 7, 1996, by and between (I)
Benaroya Capital Company, LLC and Targeted Genetics Corporation
(Exhibit 10.26)
10.28 MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of (A)
December 27, 1993 (Exhibit 10.22)
10.29 LINC Capital Management, Ltd. Equipment Lease Agreement, dated as (A)
of December 27, 1993 (Exhibit 10.23)
10.30 Loan and Security Agreement, dated as of November 30, 1994, (B)
between MMC/GATX Partnership No. 1 and Targeted Genetics
Corporation (Exhibit 10.25)
10.31 Master Equipment Lease Agreement, dated as of October 17, 1995, (D)
between Financing for Science International, Inc. and Targeted
Genetics Corporation (Exhibit 10.28)
10.32 Registration Rights Agreement dated as of April 27, 1992, among (A)
Targeted Genetics Corporation and the holders of Series A and
Series B Convertible Preferred Stock (Exhibit 10.26)
10.33 1992 Restated Stock Option Plan (Exhibit 10.33) (I)
10.34 Stock Option Plan for Nonemployee Directors
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- --------
* Confidential treatment has been granted by or requested from the
Securities and Exchange Commission for portions of these exhibits.
(A) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-77054) filed on March
30, 1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-91500) filed on April
24, 1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(E) Incorporated by reference to the designated exhibit included with the
Company's Form 8-K filed April 16, 1996.
25
<PAGE>
(F) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 333-03592) filed on April
16, 1996, as amended.
(G) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996.
(H) Incorporated by reference to the designated exhibit included with the
Company's Form 8-A filed October 22, 1996.
(I) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(J) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ending March 31,
1997.
(K) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ending June 30,
1997.
(L) Incorporated by reference to the designated exhibit included with the
Company's Form 8-A/A filed July 29, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
26
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TARGETED GENETICS CORPORATION
/s/ H. Stewart Parker
By: _________________________________
H. STEWART PARKER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Date: March 18, 1998
POWER OF ATTORNEY
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ H. Stewart Parker President and Chief March 18, 1998
____________________________________ Executive Officer, Director
H. STEWART PARKER (Principal Executive
Officer)
/s/ James A. Johnson Vice President, Finance, March 18, 1998
____________________________________ Chief Financial Officer,
JAMES A. JOHNSON Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Jeremy L. Curnock Cook Chairman of the Board, March 18, 1998
____________________________________ Director
JEREMY L. CURNOCK COOK
/s/ Jack L. Bowman Director March 18, 1998
____________________________________
JACK L. BOWMAN
/s/ Stephen A. Duzan Director March 18, 1998
____________________________________
STEPHEN A. DUZAN
/s/ James D. Grant Director March 18, 1998
____________________________________
JAMES D. GRANT
/s/ Donald E. O'Neill Director March 18, 1998
____________________________________
DONALD E. O'NEILL
/s/ Mark Richmond, Ph.D. Director March 18, 1998
____________________________________
MARK RICHMOND, PH.D.
/s/ Martin P. Sutter Director March 18, 1998
____________________________________
MARTIN P. SUTTER
</TABLE>
27
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Targeted Genetics Corporation
We have audited the accompanying balance sheets of Targeted Genetics
Corporation (a development stage company) as of December 31, 1997 and 1996,
and the related statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997 and the
period from March 9, 1989 (date of inception) through December 31, 1997. 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 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 Targeted Genetics
Corporation (a development stage company) at December 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997 and the period from March 9, 1989 (date
of inception) through December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
company will continue as a going concern. As more fully described in Note 1,
the Company has incurred substantial operating losses and negative operating
cash flows. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classifications of assets and liabilities that may result from the outcome
of this uncertainty.
/s/ Ernst & Young LLP
Seattle, Washington
February 3, 1998
F-1
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................ $ 1,011,845 $ 3,532,568
Securities available for sale.................... 4,025,976 15,518,502
Prepaid expenses and other....................... 248,278 468,671
------------ ------------
Total current assets........................... 5,286,099 19,519,741
Property, plant and equipment, net................. 3,927,533 4,991,017
Other assets....................................... 553,452 628,294
------------ ------------
$ 9,767,084 $ 25,139,052
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable................................. $ 1,352,297 $ 1,887,880
Accrued payroll and other liabilities............ 275,876 364,964
Current portion of long-term obligations......... 1,030,562 1,250,263
------------ ------------
Total current liabilities...................... 2,658,735 3,503,107
Long-term obligations.............................. 1,516,762 2,128,157
Commitments
Shareholders' equity:
Preferred stock, $.01 par value, 6,000,000 shares
authorized,
none outstanding................................ -- --
Common stock, $.01 par value, 40,000,000 shares
authorized,
20,211,114 and 20,136,468 outstanding at
December 31, 1997
and 1996, respectively.......................... 73,401,141 73,115,362
Unrealized gains on securities available for
sale............................................ 5,181 19,387
Deficit accumulated during development stage..... (67,814,735) (53,626,961)
------------ ------------
Total shareholders' equity..................... 5,591,587 19,507,788
------------ ------------
$ 9,767,084 $ 25,139,052
============ ============
</TABLE>
See accompanying notes to the financial statements
F-2
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 9,
1989
(DATE OF
INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------- DECEMBER 31,
1997 1996 1995 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Collaborative
agreements........... $ 888,335 $ 1,202,965 $ 75,000 $ 2,166,300
Investment income..... 650,892 923,720 667,835 3,651,894
Other................. 439,250 127,493 99,625 666,368
------------ ------------ ----------- ------------
Total revenues...... 1,978,477 2,254,178 842,460 6,484,562
------------ ------------ ----------- ------------
Expenses:
Research and
development.......... 13,043,288 11,502,584 8,194,913 47,316,992
In-process research
and development...... -- 13,517,911 -- 13,517,911
General and
administrative....... 2,784,806 2,874,316 2,267,516 12,233,842
Interest.............. 338,157 397,409 302,315 1,230,552
------------ ------------ ----------- ------------
Total expenses...... 16,166,251 28,292,220 10,764,744 74,299,297
------------ ------------ ----------- ------------
Net loss................ $(14,187,774) $(26,038,042) $(9,922,284) $(67,814,735)
============ ============ =========== ============
Basic and diluted net
loss per share......... $ (0.70) $ (1.59) $ (0.94)
============ ============ ===========
Shares used in
computation of basic
and diluted net loss
per share.............. 20,196,325 16,407,928 10,532,950
============ ============ ===========
</TABLE>
See accompanying notes to the financial statements
F-3
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM MARCH 9, 1989 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) DEFICIT
ON ACCUMULATED
COMMON STOCK ADVANCES SECURITIES DURING TOTAL
PREFERRED ---------------------- FROM AVAILABLE DEVELOPMENT SHAREHOLDERS'
STOCK SHARES AMOUNT IMMUNEX FOR SALE STAGE EQUITY
------------ ---------- ----------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss from March 9,
1989 (date of
inception) through
December 31, 1991...... $ -- -- $ -- $ 2,807,316 $ -- $ (2,807,316) $ --
Sale of common stock... -- 1,080,000 27,600 -- -- -- 27,600
Issuance of 1,920,000
shares of Series A
preferred stock to
Immunex in repayment
of advances........... 2,807,316 -- -- (2,807,316) -- -- --
Sale of 3,675,986
shares of Series B
preferred stock, net
of issuance costs of
$772,415.............. 16,597,399 -- -- -- -- -- 16,597,399
Issuance of common
stock as compensation. -- 120,000 66,000 -- -- -- 66,000
Net loss--1992......... -- -- -- -- -- (1,394,462) (1,394,462)
------------ ---------- ----------- ----------- --------- ------------ -----------
Balance at December 31,
1992................... 19,404,715 1,200,000 93,600 -- -- (4,201,778) 15,296,537
Net loss--1993......... -- -- -- -- -- (5,065,512) (5,065,512)
------------ ---------- ----------- ----------- --------- ------------ -----------
Balance at December 31,
1993................... 19,404,715 1,200,000 93,600 -- -- (9,267,290) 10,231,025
Sale of common stock in
initial public
offering, net of
issuance costs of
$1,404,056............ -- 2,154,345 11,522,014 -- -- -- 11,522,014
Conversion of Series A
and B preferred stock
to common stock....... (19,404,715) 5,595,986 19,404,715 -- -- -- --
Exercise of stock
options............... -- 8,500 4,555 -- -- -- 4,555
Unrealized losses on
securities available
for sale.............. -- -- -- -- (116,104) -- (116,104)
Net loss--1994......... -- -- -- -- -- (8,399,345) (8,399,345)
------------ ---------- ----------- ----------- --------- ------------ -----------
Balance at December 31,
1994................... -- 8,958,831 31,024,884 -- (116,104) (17,666,635) 13,242,145
Sale of common stock
and 830,598 warrants,
net of issuance costs
of $214,519........... -- 3,322,392 12,244,461 -- -- -- 12,244,461
Exercise of stock
options............... -- 35,960 26,091 -- -- -- 26,091
Unrealized gains on
securities available
for sale.............. -- -- -- -- 182,423 -- 182,423
Net loss--1995......... -- -- -- -- -- (9,922,284) (9,922,284)
------------ ---------- ----------- ----------- --------- ------------ -----------
Balance at December 31,
1995................... $ -- 12,317,183 $43,295,436 $ -- $ 66,319 $(27,588,919) $15,772,836
</TABLE>
See accompanying notes to the financial statements
F-4
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY--(CONTINUED)
PERIOD FROM MARCH 9, 1989 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) DEFICIT
ON ACCUMULATED
COMMON STOCK ADVANCES SECURITIES DURING TOTAL
PREFERRED ---------------------- FROM AVAILABLE DEVELOPMENT SHAREHOLDERS'
STOCK SHARES AMOUNT IMMUNEX FOR SALE STAGE EQUITY
---------- ---------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ -- 12,317,183 $43,295,436 $ -- $ 66,319 $(27,588,919) $ 15,772,836
Sale of common stock,
net of issuance costs
of $1,476,779......... -- 4,025,000 14,623,221 -- -- -- 14,623,221
Issuance of common
stock in RGene
acquisition........... -- 3,636,364 14,854,546 -- -- -- 14,854,546
Exercise of stock
options............... -- 78,460 44,179 -- -- -- 44,179
Exercise of warrants... -- 61,000 285,480 -- -- -- 285,480
Issuance of common
stock in payment for
consulting and license
fees.................. -- 18,461 12,500 -- -- -- 12,500
Unrealized losses on
securities available
for sale.............. -- -- -- -- (46,932) -- (46,932)
Net loss--1996......... -- -- -- -- -- (26,038,042) (26,038,042)
---------- ---------- ----------- ---------- --------- ------------ ------------
Balance at December 31,
1996................... -- 20,136,468 73,115,362 -- 19,387 (53,626,961) 19,507,788
Exercise of stock
options............... -- 15,380 8,414 -- -- -- 8,414
Exercise of warrants... -- 59,266 277,365 -- -- -- 277,365
Unrealized losses on
securities available
for sale.............. -- -- -- -- (14,206) -- (14,206)
Net loss--1997......... -- -- -- -- -- (14,187,774) (14,187,774)
---------- ---------- ----------- ---------- --------- ------------ ------------
Balance at December 31,
1997................... $ -- 20,211,114 $73,401,141 $ -- $ 5,181 $(67,814,735) $ 5,591,587
========== ========== =========== ========== ========= ============ ============
</TABLE>
See accompanying notes to the financial statements
F-5
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 9, 1989
(DATE OF
INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31,
1997 1996 1995 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............... $(14,187,774) $(26,038,042) $ (9,922,284) $(67,814,735)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
In-process research and
development........... -- 12,867,986 -- 12,867,986
Depreciation and
amortization.......... 1,641,151 1,919,510 1,484,549 6,723,542
Expenses paid with
common stock.......... -- 12,500 -- 78,500
(Increase) decrease in
prepaid expenses and
other................. 38,789 (201,575) (49,865) (458,076)
(Increase) decrease in
accrued interest on
securities available
for sale.............. 162,497 (72,570) (9,287) 6,999
Increase (decrease) in
current liabilities... (190,996) 1,141,275 (17,955) 1,720,270
------------ ------------ ------------ ------------
Net cash used in
operating activities. (12,536,333) (10,370,916) (8,514,842) (46,875,514)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property,
plant and equipment... (704,896) (1,542,594) (1,335,876) (9,418,087)
Purchases of securities
available for sale.... (814,251) (23,574,123) (13,047,852) (79,478,896)
Sales of securities
available for sale.... 12,130,074 20,369,007 10,119,622 75,451,101
Net cash received in
RGene acquisition..... -- 1,594,386 -- 1,594,386
Increase in other
assets................ (50,000) (145,000) (76,500) (769,179)
------------ ------------ ------------ ------------
Net cash provided by
(used in) investing
activities........... 10,560,927 (3,298,324) (4,340,606) (12,620,675)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Net proceeds from sale
of capital stock...... 285,779 14,952,880 12,270,552 55,660,779
Advances from Immunex.. -- -- -- 2,807,316
Proceeds from equipment
financing
transactions.......... 468,363 1,097,588 1,089,789 5,412,245
Payments under capital
leases and installment
loans................. (1,299,459) (1,003,474) (657,058) (3,372,306)
------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities........... (545,317) 15,046,994 12,703,283 60,508,034
------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ (2,520,723) 1,377,754 (152,165) 1,011,845
Cash and cash
equivalents, beginning
of period.............. 3,532,568 2,154,814 2,306,979 --
------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................. $ 1,011,845 $ 3,532,568 $ 2,154,814 $ 1,011,845
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES
OF NON-CASH INVESTING
AND FINANCING
ACTIVITIES:
Deferred sales tax on
leasehold improvements
and equipment......... $ -- $ -- $ 16,407 $ 509,588
============ ============ ============ ============
Preferred stock issued
to Immunex in payment
of advances........... $ -- $ -- $ -- $ 2,807,316
============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements
F-6
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Targeted Genetics Corporation (the "Company") is developing gene therapy
products for the treatment of certain acquired and inherited diseases. As a
development stage company, the Company has devoted substantially all its
efforts to date to conducting research and development activities, recruiting
personnel and raising capital.
The Company was incorporated in the state of Washington in March 1989 as a
wholly owned subsidiary of Immunex Corporation ("Immunex"). In February 1992,
the Company issued 1,920,000 shares of Series A convertible preferred stock to
Immunex in exchange for the grant of a license to certain technology,
settlement of advances from Immunex and cancellation of 40,000 shares of
common stock issued by the Company to Immunex on March 28, 1989. At December
31, 1997, Immunex held approximately 13% of the outstanding stock of the
Company.
The Company has incurred operating losses and negative cash flows from
operations each year since inception. As of December 31, 1997, the Company had
an accumulated deficit of $67.8 million. The financial statements have been
prepared assuming the Company will continue as a going concern and do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets and liabilities that may result
from the outcome of this uncertainty.
As a result of its significant development efforts, the Company has required
substantial working capital to fund its operations. To date, the Company has
financed it operations principally through the net proceeds from its equity
offerings. As of December 31, 1997, the Company had cash, cash equivalents and
securities available for sale of $5.0 million. The funds will enable the
company to sustain operations until approximately May 1998. The Company is
actively pursuing additional working capital, through a private placement of
equity securities, to meet its future operational requirements. If the Company
is not able to secure additional sources of working capital, it will be forced
to curtail operations or dispose of assets or technology. There can be no
assurance such funds will be available as needed or on terms that are
acceptable to the Company or that the Company will successfully complete other
steps necessary to continue as a going concern.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all short-term investments with a purchased maturity
of three months or less to be cash equivalents. Cash equivalents, valued at
cost which approximates market, consist principally of money market accounts
and short-term government obligations.
Securities Available for Sale
Securities available for sale consist primarily of corporate debt securities
and U.S. Government notes, all of which mature within one year. Management
currently classifies the Company's entire investment portfolio, other than
cash equivalents, as securities available for sale. Such securities are stated
at market value, with the unrealized gains and losses included as a component
of shareholders' equity. The cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity,
which are included in investment income. Realized gains and losses and
declines in value judged to be other than temporary on securities available
for sale are also included in investment income. The cost of securities sold
is calculated using the specific identification method.
F-7
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of furniture
and equipment is provided using the straight-line method over the assets'
estimated useful lives, ranging from three to seven years. Furniture and
equipment under capitalized leases are amortized over the life of the lease.
Leasehold improvements are amortized over the life of the improvements or the
term of the lease, whichever is shorter.
Stock Compensation
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("Statement 123"), whereby it will apply Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its stock option plan.
Accordingly, the Company's stock-based compensation expense is recognized
based on the intrinsic value of the option on the date of the grant.
Recognition of the stock-based compensation under Statement 123 requires the
use of fair value method to value stock options using option value models
which were developed for purposes other than valuing employee stock options.
Revenue Under Collaborative Agreements
Revenue under collaborative agreements is recognized as defined under the
terms of the respective collaborative agreements. Revenue related to
milestones is recognized upon the achievement of the related milestone and
when collection is probable. Royalty payments and other similar payments due
as a direct result of such revenues being earned and received are offset
against and recognized in the same period as such revenue.
Net Loss Per Share
In February 1997, The Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("Statement 128"). Under Statement 128, the
Company is required to present basic and diluted earnings per share for all
years presented. Basic net loss per share is computed based upon the weighted
average number of common shares outstanding during the period. Diluted net
loss per share includes the impact of stock options, warrants and other
potentially dilutive securities unless the effect of their inclusion would be
antidilutive. There was no restatement required due to the adoption of
Statement 128.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
F-8
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. SECURITIES AVAILABLE FOR SALE
All securities available for sale at December 31, 1997 mature within one
year. Securities available for sale consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. corporate securities... $ 2,485,485 $ 5,779 $ 133 $ 2,491,131
U.S. Treasury securities and
obligations of U.S.
government agencies........ 1,535,310 -- 465 1,534,845
----------- ------- ------- -----------
$ 4,020,795 $ 5,779 $ 598 $ 4,025,976
=========== ======= ======= ===========
December 31, 1996:
U.S. corporate securities... $ 3,905,454 $ 4,311 $ 4,665 $ 3,905,100
U.S. Treasury securities and
obligations of U.S.
government agencies........ 11,593,661 26,686 6,945 11,613,402
----------- ------- ------- -----------
$15,499,115 $30,997 $11,610 $15,518,502
=========== ======= ======= ===========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$4,448, $27,300 and $25,047 and the gross realized losses totaled $5,806,
$1,097 and $48,013, in 1997, 1996, and 1995, respectively.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
Furniture and equipment............................. $ 5,648,213 $5,248,913
Leasehold improvements.............................. 4,484,365 4,420,590
----------- ----------
10,132,578 9,669,503
Less accumulated depreciation and amortization...... 6,205,045 4,678,486
----------- ----------
$ 3,927,533 $4,991,017
=========== ==========
</TABLE>
The Company has leased furniture and equipment, primarily laboratory
equipment. The total cost of leased furniture and equipment capitalized at
December 31, 1997 and 1996 was $4,321,900 and $3,796,152, respectively, with
related accumulated depreciation of $2,788,565 and $1,840,284 at December 31,
1997 and 1996, respectively.
At December 31, 1997, the Company had pledged furniture and equipment,
having a net book value of $295,799, as collateral under an installment loan
agreement.
F-9
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred state sales tax............................. $ 400,056 $ 467,540
Installment note payable, effective rate of 16.73%,
due in monthly installments through 1999............ 403,335 634,609
Capitalized lease obligations (see note 8)........... 1,743,933 2,276,271
---------- ----------
2,547,324 3,378,420
Less current portion................................. 1,030,562 1,250,263
---------- ----------
$1,516,762 $2,128,157
========== ==========
</TABLE>
The state of Washington granted the Company a deferral of state sales tax on
new construction and equipment used in research and development activities.
The remaining obligation is payable over the next four years.
Principal payments related to long-term obligations for each of the five
years ending December 31, 2002 are $1,030,562, $886,068, $518,035, $81,973,
and $30,686, respectively.
NOTE 6. SHAREHOLDERS' EQUITY
Warrants
In July 1995, the Company issued warrants to purchase 830,598 shares of
common stock in conjunction with an offering of its common stock. At December
31, 1997, 710,332 of such warrants were outstanding and exercisable at a price
of $4.68 per share, expiring January 1998. The Company has issued a total of
137,016 warrants related to equipment financing, collaborative and license
agreements. These warrants have a weighted average price of $4.77 per share
and expire from May 1999 to December 2003. At December 31, 1997, 847,348
shares of common stock were reserved for all such warrants.
Shareholder Rights Plan
In October 1996, the Company adopted a Shareholder Rights Plan under which
it distributed a dividend of one right for each outstanding share of common
stock. The issuance of these rights had no dilutive effect, did not impact
reported earnings per share and is not taxable to the Company or the Company's
shareholders. These rights could cause substantial dilution to certain persons
or groups that attempt to acquire the Company on terms not approved by the
Board of Directors.
Stock Options
The Company has two stock option plans under which 2,300,000 shares of
common stock were reserved for issuance. Generally, options vest in annual
increments over a three- or five-year period. All options expire ten years
from date of grant.
Options have been granted at market value or, prior to the Company's initial
public offering, at the estimated fair value at the date of grant as
established by the Company's Board of Directors. As of December 31, 1997,
options on 464,998 shares were available for future grant.
F-10
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of activity related to the Company's stock option plans follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Balance, January 1, 1995.............................. 838,000 $2.44
Granted............................................. 253,237 4.09
Exercised........................................... (35,960) 0.73
Cancelled........................................... (22,860) 4.00
--------- -----
Balance, December 31, 1995............................ 1,032,417 2.87
Granted............................................. 332,157 4.86
Exercised........................................... (78,460) 0.56
Cancelled........................................... (71,700) 2.67
--------- -----
Balance, December 31, 1996............................ 1,214,414 3.57
Granted............................................. 571,728 3.75
Exercised........................................... (15,380) 0.55
Cancelled........................................... (74,060) 4.42
--------- -----
Balance, December 31, 1997............................ 1,696,702 $3.62
=========
</TABLE>
Options for 611,465, 390,884 and 268,620, shares were exercisable at
December 31, 1997, 1996 and 1995, respectively. The following table summarizes
information related to outstanding and exercisable options at December 31,
1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------ ----------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICES SHARES PRICE LIFE SHARES PRICE
------------ --------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.50--$3.00 646,480 $1.89 7.19 283,460 $0.82
3.63-- 4.88 600,365 4.38 8.15 131,891 4.13
5.00-- 6.25 449,857 5.10 7.24 196,114 5.12
------------ --------- ----- ---- ------- -----
$0.50-- 6.25 1,696,702 $3.62 7.55 611,465 $2.91
========= =======
</TABLE>
F-11
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". In
conformity with the provisions of SFAS No. 123, the Company has elected to
follow the intrinsic value method allowed under the statement for its stock
option plans and present pro forma disclosures using the fair value accounting
approach. Had compensation costs been recorded, the following amounts would
have been reported:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net loss--as reported............. $(14,187,774) $(26,038,042) $ (9,922,284)
Net loss--pro forma............... (15,068,834) (26,558,542) (10,156,530)
Basic and diluted net loss per
share--as reported............... (.70) (1.59) (.94)
Basic and diluted net loss per
share--pro forma................. (.75) (1.62) (.96)
The fair value of each option is estimated on the date of grant using the
Black-Scholes multiple-option approach pricing model with the following
weighted average assumptions:
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Expected dividend rate............ nil nil nil
Expected stock price volatility... .696 .664 .664
Risk-free interest rate........... 6.53% 6.03% 7.16%
Expected life of options from vest
date............................. 3 years 3 years 3 years
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 was $2.51, $3.11 and $2.64, respectively, per share.
NOTE 7. ACQUISITION OF RGENE THERAPEUTICS, INC.
On June 19, 1996, the Company completed its acquisition of RGene
Therapeutics, Inc. ("RGene"), a privately-held gene therapy company. The
Company issued 3,636,364 shares of common stock in exchange for all the
outstanding capital stock of RGene. The acquisition was accounted for as a
purchase and the consideration issued by the Company was allocated to RGene's
tangible and intangible assets acquired based on their relative fair values on
the acquisition date. The amount allocated to acquired in-process research and
development was written off to operations in 1996. The allocation of the
aggregate purchase price was as follows:
<TABLE>
<S> <C>
Cash and cash equivalents................ $ 3,911,901
Other current assets..................... 392,174
In-process technology.................... 13,517,911
-----------
$17,821,986
===========
</TABLE>
The Company may issue up to $5 million in additional common stock to RGene's
former stockholders based on the achievement of certain clinical and business-
related milestones prior to December 31, 1998. The Company has also assumed
certain long-term consulting and research funding agreements as a result of
the merger.
NOTE 8. COMMITMENTS
The Company leases its research and office facilities under two
noncancellable operating leases which expire beginning April 1, 1999. The
leases may be extended under specific renewal options at the then prevailing
fair market value rental rate.
F-12
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental payments under noncancellable leases at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
Year Ending December 31:
1998.............................................. $ 563,635 $ 775,420
1999.............................................. 210,067 819,670
2000.............................................. 94,428 403,830
2001.............................................. 94,428 60,963
2002.............................................. 107,688 --
Thereafter........................................ 134,610 --
---------- ----------
Total minimum lease payments........................ $1,204,856 2,059,883
==========
Less amount representing interest................... 315,950
----------
Present value of minimum capitalized lease payments. $1,743,933
==========
</TABLE>
In January 1998, four capital leases were extended. As such, the annual
future minimum rental payments for capital leases will be increased by
$244,344, $264,724, $122,697 and $33,847 beginning in 1998, respectively. Rent
expense under operating leases for the years ended December 31, 1997, 1996 and
1995 was $533,155, $432,335 and $396,220, respectively.
NOTE 9. EMPLOYEE RETIREMENT PLAN
The Company sponsors an Employee Retirement Plan in accordance with Section
401(k) of the Internal Revenue Code. All employees 21 years old or older are
eligible to participate in the plan. Contributions made into the plan are at
the discretion of the Company's Board of Directors. The Company incurred
$99,426 and $81,364 of expense in 1997 and 1996 related to contributions to
the plan. There were no contributions to the plan made by the Company in 1995.
NOTE 10. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
$52,547,000 and research and experimental credit carryforwards of $1,439,000.
The carryforwards are available to offset future federal income taxes and
begin to expire in 2008. The Company has provided a valuation allowance to
offset the excess of deferred tax assets over the deferred tax liabilities due
to the uncertainty of realizing the benefits of the net deferred tax asset.
The valuation allowance increased by $5,032,000 and $5,717,000 during 1997 and
1996, respectively.
F-13
<PAGE>
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $17,866,000 $13,352,000
Research and experimental credit carryforwards... 1,439,000 1,074,000
Depreciation..................................... 559,000 401,000
Other............................................ 135,000 140,000
----------- -----------
Total deferred tax assets...................... $19,999,000 $14,967,000
=========== ===========
Valuation allowance for deferred tax assets........ $19,999,000 $14,967,000
=========== ===========
</TABLE>
Utilization of federal income tax carry forwards is subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986. The
Company's past sales and issuances of common stock have resulted in "ownership
changes" as defined under Section 382, resulting in limitations on the future
use of carry forwards. At December 31, 1997, the Company calculated its annual
limitation to be approximately $3,782,000. However, this annual limitation is
not expected to have a material adverse effect on the Company's utilization of
its net operating loss and research credit carryforwards.
F-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of April 16, 1996, by and (E)
among Targeted Genetics Corporation, TGC Acquisition Corporation
and RGene Therapeutics, Inc. (Exhibit 2.1)
3.1 Amended and Restated Articles of Incorporation (Exhibit 3.1) (I)
3.2 Amended and Restated Bylaws (Exhibit 3.2) (I)
4.1 Warrant to Purchase 11,000 shares of the Common Stock of Targeted (D)
Genetics Corporation, issued to MMC/GATX Partnership No. 1 on
December 27, 1993, as amended (Exhibit 4.1)
4.2 Warrant to Purchase 11,000 shares of the Common Stock of Targeted (A)
Genetics Corporation, issued to LINC Capital Management, Ltd. on
December 27, 1993 (Exhibit 4.2)
4.3 Warrant to Purchase 18,701 shares of the Common Stock of Targeted (B)
Genetics Corporation, issued to MMC/GATX Partnership No. 1 on
November 30, 1994 (Exhibit 4.3)
4.4 Warrant Agreement between Targeted Genetics Corporation and First (D)
Interstate Bank of Washington, N.A., as Warrant Agent (Exhibit
4.4)
4.5 First Amendment to the Warrant Agreement between Targeted Genetics (L)
Corporation and First Interstate Bank of Washington, N.A., as
Warrant Agent (Exhibit 3.1)
4.6 Specimen Warrant Certificate (Exhibit 4.5) (C)
4.7 Warrant to Purchase 21,315 shares of the common stock of Targeted (D)
Genetics Corporation, issued to Financing for Science
International, Inc. on November 30, 1995 (Exhibit 4.6)
4.8 Rights Agreement, dated as of October 17, 1996, between Targeted (H)
Genetics Corporation and ChaseMellon Shareholder Services
(Exhibit 2.1)
4.9 Warrant to purchase 50,000 shares of the Common Stock of Targeted (J)
Genetics Corporation, issued to the Burnham Institute on March
15, 1997 (Exhibit 4.1)
4.10 Warrant to purchase 25,000 shares of the Common Stock of Targeted (K)
Genetics Corporation, issued to Francis Chisari on May 15, 1997
(Exhibit 4.1)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.1 Form of Indemnification Agreement between the registrant and its (A)
officers and directors (Exhibit 10.6)
10.2 Form of Senior Management Employment Agreement between the (I)
registrant and its executive officers (Exhibit 10.2)
10.3 Non-exclusive License Agreement, dated as of November 19, 1991, (A)
between the Fred Hutchinson Cancer Research Center and Immunex
Corporation* (Exhibit 10.7)
10.4 Gene Transfer Technology License Agreement, dated as of February (A)
18, 1992, between Immunex Corporation and Targeted Genetics
Corporation* (Exhibit 10.8)
10.5 License Agreement, dated as of June 1, 1992, between Wisconsin (A)
Alumni Research Foundation and Targeted Genetics Corporation*
(Exhibit 10.9)
10.6 License Agreement, dated as of August 14, 1992, between Leland (A)
Stanford Junior University and Targeted Genetics Corporation*
(Exhibit 10.10)
10.7 PHS Patent License Agreement--Non-exclusive, dated as of July 13, (A)
1993, between National Institutes of Health Centers for Disease
Control and Targeted Genetics Corporation* (Exhibit 10.13)
10.8 Non-exclusive Patent License Agreement, dated as of December 25, (A)
1993, between The University of Florida Research Foundation,
Inc. and Targeted Genetics Corporation* (Exhibit 10.14)
10.9 Research and Exclusive License Agreement, dated as of January 1,
1994, between Targeted Genetics Corporation and the Fred
Hutchinson Cancer Research Center*
10.10 PHS Patent License Agreement--Exclusive, dated as of March 10,
1994, between National Institutes of Health Centers for Disease
Control and Targeted Genetics Corporation*
10.11 Exclusive License Agreement, dated as of March 14, 1994, between
Medical College of Ohio and Targeted Genetics Corporation*
10.12 License Agreement, dated as of March 16, 1994, between the Johns (A)
Hopkins University and Targeted Genetics Corporation* (Exhibit
10.17)
10.13 License Agreement, dated as of March 28, 1994, between Targeted
Genetics Corporation and the University of Michigan*
10.14 Exclusive License Agreement dated as of March 23, 1994, between
the Fred Hutchinson Cancer Research Center and Targeted Genetics
Corporation*
10.15 Exclusive License Agreement, dated as of August 25, 1994, between (B)
Targeted Genetics Corporation and the Fred Hutchinson Cancer
Research Center* (Exhibit 10.20)
10.16 Development Agreement dated April 6, 1994, by and between Argus (F)
Pharmaceuticals, Inc. and RGene Therapeutics, Inc.* (Exhibit
10.28)
10.17 Patent and Technology License Agreement effective as of March 1, (F)
1994, by and among the Board of Regents of the University of
Texas M.D. Anderson Cancer Center and RGene Therapeutics, Inc.*
(Exhibit 10.29)
10.18 First Amended and Restated License Agreement effective October (F)
12, 1995 between The University of Tennessee Research
Corporation and RGene Therapeutics, Inc.* (Exhibit 10.30)
10.19 Amendment to the First Amended and Restated License Agreement, (G)
between The University of Tennessee Research Corporation and
RGene Therapeutics, Inc., dated as of June 19, 1996* (Exhibit
10.1)
10.20 Exclusive Sublicense Agreement effective July 23, 1996 by and (I)
between Alkermes, Inc. and Targeted Genetics Corporation.*
(Exhibit 10.20)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.21 Revised License Agreement effective October 1, 1996, by and (I)
between the University of Pittsburgh--of the Commonwealth System
of Higher Education and Targeted Genetics Corporation* (Exhibit
10.21)
10.22 Agreement dated as of May 28, 1996 by and between RGene (F)
Therapeutics, Inc. and Laboratoires Fournier S.C.A.* (Exhibit
10.32)
10.23 License Agreement, dated as of March 15, 1997, between the
Burnham Institute and Targeted Genetics Corporation*
10.24 Olive Way Building Lease, dated as of November 20, 1993, between (A)
Metropolitan Federal Savings and Loan Association and Targeted
Genetics Corporation (Exhibit 10.21)
10.25 First Amendment to Olive Way Building Lease, dated as of December (B)
10, 1994, between Targeted Genetics Corporation and Metropolitan
Federal Savings and Loan Association (Exhibit 10.22)
10.26 Second Amendment to Olive Way Building Lease, dated as of June (I)
12, 1996, between Targeted Genetics Corporation and Ironwood
Apartments, Inc. (successor in interest to Metropolitan Federal
Savings and Loan Association) (Exhibit 10.25)
10.27 Office Lease, dated as of October 7, 1996, by and between (I)
Benaroya Capital Company, LLC and Targeted Genetics Corporation
(Exhibit 10.26)
10.28 MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of (A)
December 27, 1993 (Exhibit 10.22)
10.29 LINC Capital Management, Ltd. Equipment Lease Agreement, dated as (A)
of December 27, 1993 (Exhibit 10.23)
10.30 Loan and Security Agreement, dated as of November 30, 1994, (B)
between MMC/GATX Partnership No. 1 and Targeted Genetics
Corporation (Exhibit 10.25)
10.31 Master Equipment Lease Agreement, dated as of October 17, 1995, (D)
between Financing for Science International, Inc. and Targeted
Genetics Corporation (Exhibit 10.28)
10.32 Registration Rights Agreement dated as of April 27, 1992, among (A)
Targeted Genetics Corporation and the holders of Series A and
Series B Convertible Preferred Stock (Exhibit 10.26)
10.33 1992 Restated Stock Option Plan (Exhibit 10.33) (I)
10.34 Stock Option Plan for Nonemployee Directors
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- --------
* Confidential treatment has been granted by or requested from the
Securities and Exchange Commission for portions of these exhibits.
(A) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-77054) filed on March
30, 1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-91500) filed on April
24, 1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(E) Incorporated by reference to the designated exhibit included with the
Company's Form 8-K filed April 16, 1996.
<PAGE>
(F) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 333-03592) filed on April
16, 1996, as amended.
(G) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996.
(H) Incorporated by reference to the designated exhibit included with the
Company's Form 8-A filed October 22, 1996.
(I) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(J) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ending March 31,
1997.
(K) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ending June 30,
1997.
(L) Incorporated by reference to the designated exhibit included with the
Company's Form 8-A/A filed July 29, 1997.
<PAGE>
REDACTED VERSION
EXHIBIT 10.9
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1997
"[ * ]" = omitted, confidential material, which material
has been separately filed with the Securities and Exchange Commission pursuant
to a request for confidential treatment.
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
EXHIBIT 10.9
RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
----------------------------------------
This Agreement is made as of the 1st day of January, 1994 between:
Fred Hutchinson Cancer Research FHCRC
1124 Columbia Street
Seattle, WA 98104
(hereinafter "FHCRC")
and
Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
(hereinafter "TGC")
RECITALS
WHEREAS, FHCRC is or will be the owner by assignment from the University of
Washington, Seattle, WA 98195 (hereinafter the "UNIVERSITY"), and from Dr.
Philip Greenberg ("Dr. Greenberg"), Dr. Stanley Riddell ("Dr. Riddell") and Dr.
Brad Nelson of certain patent rights to be defined in this Agreement, together
with all confidential information currently in the possession of FHCRC, or to be
provided to TGC under the terms of this Agreement; and
WHEREAS, TGC desires to obtain an exclusive worldwide license to such know-
how and patent rights, and to manufacture, use and sell in the commercial market
the products made in accordance therewith; and
WHEREAS, TGC is prepared to provide support for FHCRC of research by Drs.
Greenberg and Riddell in the field of methods of conferring immunity in humans
by adoptive transfer of genetically-modified cytotoxic T lymphocytes providing
it receives certain license rights under inventions, biological materials and/or
know-how; and
WHEREAS, FHCRC is committed to a policy that ideas or creative works
produced at FHCRC should be used for the greatest possible public benefit and
believes that every reasonable incentive should be provided for the prompt
introduction of such ideas into public use, all in a manner consistent with the
public interest; and
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, FHCRC and TGC agree as follows:
AGREEMENT
ARTICLE 1 - DEFINITIONS
1.1 "LICENSED PATENT RIGHTS" shall mean rights and claims in and to the
inventions in the FIELD which are described in, and rights covered by, the VALID
CLAIM(s) of the issued United States patents and patent applications listed on
Appendix A to this Agreement, as well as all continuations, continuations-in-
part, divisions and renewals thereof, and foreign counterparts thereof which
will automatically be deemed incorporated in and added to this Agreement and
shall periodically be listed in Appendix A hereto. The term LICENSED PATENT
RIGHTS shall further include any and all patents and patent applications, as
well as all continuations, continuations-in-part, divisions and renewals
thereof, and foreign counterparts thereof which cover any inventions arising in
the FIELD out of the RESEARCH PROGRAM as to which TGC has exercised its option
to license as provided in Section 3.2.
1.2 "LICENSED PROCESSES" shall mean processes the relevant practice of
which would in the applicable jurisdiction, in the absence of the License,
infringe upon a VALID CLAIM.
1.3 "LICENSED PRODUCTS" shall mean any product for the diagnosis,
prophylaxis or treatment of human diseases the practice of which would, in the
applicable jurisdiction, in the absence of the license infringe upon a VALID
CLAIM.
1.4 "LICENSED MATERIALS" shall mean materials which exist as of the
EFFECTIVE DATE and are covered by the LICENSED PATENT RIGHTS, or which are first
produced in the performance of this Agreement, including, but not limited to
structural genes, genetic sequences, promoters, enhancers, probes, linkage
probes, vectors, plasmids, transformed cell lines, transgenic animals, proteins,
biological modifiers, antigens, antibodies, cell lines and other biologically
active material.
1.5 "FIELD" shall mean the methods of conferring immunity in humans by
adoptive transfer of genetically-modified cytotoxic T lymphocytes.
1.6 "NET SALES" shall mean the amount billed or invoiced on sales of
LICENSED PRODUCTS less:
3
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
(a) Customary trade, quantity or cash discounts and non-affiliated
brokers' or agents commissions, actually allowed and taken;
(b) Amounts repaid or credited by reason of rejection or return
and/or;
(c) To the extent separately stated on purchase orders, invoices or
other documents of sales, taxes levied and/or other governmental
charges made as to production, sale, transportation, delivery or
use and paid by or on behalf of TGC.
1.7 "AFFILIATES" shall mean any company, corporation, or business in which
TGC owns or controls at least a fifty percent (50%) ownership interest or which
directly or indirectly owns or controls more than a fifty percent (50%)
ownership interest in TGC.
1.8 "INVESTIGATORS" shall mean Dr. Philip Greenberg and Dr. Stanley
Riddell and any persons working under the direct supervision of Dr. Greenberg
and/or Dr. Riddell.
1.9 "VALID CLAIM" shall mean any claim, or claims of the LICENSED PATENT
RIGHTS that have not been held invalid or unenforceable by a final judgment of a
court of competent jurisdiction which is unappealable or as to which the
applicable time for appeal has expired without an appeal being filed.
1.10 "RESEARCH PROGRAM" shall mean the research to be conducted at FHCRC
under the direction of the INVESTIGATORS under this Agreement.
1.11 "FOUNDATION" shall mean the Fred Hutchinson Cancer Research
Foundation, and its successors, assigns and subcontractors, including, without
limitation, FHCRC.
1.12 The "EFFECTIVE DATE" of this Agreement shall mean January 1, 1994.
ARTICLE 2 - RESEARCH PROGRAM
2.1 For the three years ending December 31, 1996, TGC agrees as set forth
below, to pay the FOUNDATION funds to entirely support the RESEARCH PROGRAM, and
the FOUNDATION agrees to supply the services of requisite personnel and to
furnish the necessary facilities to carry out such RESEARCH PROGRAM, all
according to a Plan for Research and Budget to be agreed upon by
4
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
TGC and FHCRC as set forth in Section 2.2. INVESTIGATORS shall be precluded from
conducting any clinical trials in humans under the RESEARCH PROGRAM.
2.2 FOUNDATION shall annually submit to TGC a proposed Plan for Research
and Budget for each of the three (3) Agreement Years following the Effective
Date of this Agreement (each Agreement Year being defined to mean the twelve-
month period commencing with the Effective Date or anniversary thereof). The
Plan for Research and Budget for the first Agreement Year shall be negotiated in
good faith by the parties and agreed to on or before June 30, 1994. For each of
the two Agreement Years thereafter, FOUNDATION shall submit a proposed Plan for
Research and Budget at least ninety (90) days prior to the first and second
anniversaries of the Effective Date. The parties will negotiate in good faith
and use their best efforts to finalize such Plan for Research and Budget. If
FOUNDATION and TGC are not able to agree upon the Plan for Research and Budget
after good faith negotiations, TGC may notify FOUNDATION at least sixty (60)
days prior to the beginning of the subsequent Agreement Year that it will not
support the RESEARCH PROGRAM for such year. Notification less than sixty (60)
days prior to the beginning of the Agreement Year will not be effective. As its
sole liability upon termination, TGC shall pay FOUNDATION for all reasonable
expenses incurred or committed to be expended as of the effective termination
date up to a maximum of fifty thousand dollars ($50,000).
2.3 For as long as the INVESTIGATORS remain at FHCRC, the RESEARCH PROGRAM
shall be under their direction. During the term of this Agreement the
INVESTIGATORS shall not conduct research for other commercial organizations in
the FIELD without the prior written consent of TGC.
2.4 In the event that the services of Dr. Greenberg or Dr. Riddell become
unavailable during the course of the RESEARCH PROGRAM, under circumstances that
TGC reasonably believes to be permanent, TGC shall have the right to terminate
its obligation to fund the RESEARCH PROGRAM, except that TGC shall be required
to pay FHCRC for reasonable expenses incurred or committed to be expended as of
the termination date up to a maximum of fifty thousand dollars ($50,000).
2.5 Except as otherwise provided in Section 3.5, termination of the
RESEARCH PROGRAM shall not affect TGC's rights or obligations with respect to
the LICENSED PATENT RIGHTS that have been incorporated and added to this
Agreement as of the date of such termination, and with respect to
commercialization of LICENSED PRODUCTS and LICENSED PROCESSES covered by such
LICENSED PATENT RIGHTS.
5
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
2.6 Within thirty (30) days after each anniversary of the Effective Date,
the INVESTIGATORS shall provide TGC a written report of the results of the
RESEARCH PROGRAM obtained during the preceding twelve (12) months. In the event
of termination of the RESEARCH PROGRAM, TGC shall receive a final summary report
of the work carried out and all inventions conceived of and/or reduced to
practice under the RESEARCH PROGRAM.
2.7 FOUNDATION shall have the right to subcontract a portion of the work
to be performed under the RESEARCH PROGRAM to the UNIVERSITY subject to
appropriate supervision of such work by the INVESTIGATORS. The indirect cost
rate applied to such work shall be negotiated in good faith by the parties on or
before June 30, 1994.
ARTICLE 3 - INTELLECTUAL PROPERTY
3.1 FHCRC and TGC will promptly notify the other of any inventions it
becomes aware of, whether or not patentable, that arise out of the RESEARCH
PROGRAM in the FIELD ("INVENTIONS"). INVENTIONS which are conceived solely by
employees of FHCRC shall be assigned to FHCRC ("FHCRC INVENTIONS"). INVENTIONS
which are conceived solely by employees of TGC shall be assigned to TGC.
INVENTIONS which are jointly conceived by employees of FHCRC and TGC shall be
jointly assigned to FHCRC and TGC ("JOINT INVENTIONS").
3.2 TGC is hereby granted the option to license, under the terms and
conditions stated in this Agreement, all FHCRC INVENTIONS and JOINT INVENTIONS
on an exclusive, worldwide basis. TGC will have thirty (30) days from the date
it is notified by FHCRC of any INVENTION, or from the date TGC becomes aware of
an INVENTION, as the case may be, to exercise the option by giving written
notice of the election to FHCRC and using its best efforts to take the necessary
steps to file a patent application or other application for intellectual
property protection at the earliest possible time. Upon exercise of the option,
the patent application or other application for intellectual property protection
which is the subject of such exercised option shall automatically be deemed
incorporated into the LICENSED PATENT RIGHTS.
3.3 FHCRC, including the INVESTIGATORS, and TGC shall cooperate fully in
the preparation, filing, prosecution and maintenance of LICENSED PATENT RIGHTS
and of all patents and patent applications licensed to TGC hereunder, executing
all papers and instruments or requiring members of FHCRC to execute such papers
and instruments so as to enable TGC to apply for, to prosecute and to maintain
patent applications and patents in FHCRC's name in any country.
6
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
Each party shall provide the other prompt notice as to all matters which come to
its attention and which may affect the preparation, filing, prosecution or
maintenance of any such patent applications or patents. TGC shall bear all costs
incurred in connection with such preparation, filing, prosecution and
maintenance of all LICENSED PATENT RIGHTS foreign and domestic; provided that
TGC shall first consult with FHCRC as to the preparation, filing, prosecution
and maintenance of such patent applications and patents. TGC shall keep FHCRC
advised as to all developments with respect to all patent applications and
patents included in LICENSED PATENT RIGHTS and shall promptly supply to FHCRC:
(i) copies of all official correspondence from the U.S. Patent Office or from a
patent office in any country within two weeks of receipt; and (ii) copies of all
substantive papers to be filed in the U.S. Patent Office or a patent office in
any country at least thirty (30) days prior to filing to provide FHCRC
sufficient time to comment thereon. Up to twenty thousand dollars ($20,000) in
patent prosecution and interference expenses reasonably incurred by TGC for each
of the initial patent applications filed by TGC in the U.S. Patent and Trademark
Office for Inventions (i.e., continuations, continuations-in-part and divisions
are excluded for the purposes of calculating this credit) and included in the
LICENSED PATENT RIGHTS may be credited against royalties due by FHCRC under
Section 6.2, but such credit will not reduce the amount which would otherwise be
due FHCRC in any year by more than 50%. Any unused credit amount may be carried
forward by TGC each year until the full amount of the credit has been exhausted.
3.4 So long as TGC is not in default or in breach of this Agreement, FHCRC
grants to TGC an option to license any invention developed under the RESEARCH
PROGRAM that is not in the FIELD. The parties shall exercise their good faith
best efforts to negotiate commercially reasonable terms based on the relative
contribution to such inventions and the commercial value thereof. The option
granted by this Section 3.4 may be exercised by TGC by giving written notice to
FHCRC within ninety (90) days from the date of disclosure of the invention. If
the option is not exercised within the ninety (90) day period, it will expire.
3.5 If TGC fails to financially support the preparation, filing,
prosecution or maintenance of any patent application, patent or other
intellectual property included in the LICENSED PATENT RIGHTS, TGC shall have
deemed to have surrendered its rights under such patent application, patent or
other intellectual property. In that event, FHCRC may, at its sole expense,
prepare, file, continue prosecution over or maintain any such patent
application, patent or other intellectual property protection.
7
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
ARTICLE 4 - GRANT
4.1 FHCRC hereby grants to TGC and TGC accepts, subject to the terms and
conditions hereof: (a) an exclusive, worldwide license to make, to have made,
to use, to sell and to have sold LICENSED MATERIALS; and (b) an exclusive
worldwide license, under LICENSED PATENT RIGHTS, to make, to have made, to use,
to sell, and to have sold LICENSED PRODUCTS, and to practice the LICENSED
PROCESSES, for the Term permitted in Article 5 of this Agreement (the
"License"). The License granted to TGC by FHCRC hereunder is limited to the
FIELD. Any license in any other field (including with respect to FHCRC
INVENTIONS and JOINT INVENTIONS) shall be the subject of a separate agreement
and shall require TGC's submission of evidence demonstrating its willingness and
ability to develop and commercialize the kinds of products or processes likely
to be encompassed in such other field. The License includes the right to grant
sublicenses, subject to the provisions of Section 4.2(e) below. TGC agrees
during the period of exclusivity of this license in the United States that any
LICENSED PRODUCT produced for sale in the United States will be manufactured
substantially in the United States.
4.2 The License is subject to the following policies, obligations and/or
conditions:
(a) FHCRC's Patents and Inventions Policy adopted September 30, 1983,
Public Law 98-620 and FHCRC's obligations under agreement with
other sponsors of research. Any right granted in this Agreement
greater than that permitted under Public Law 98-620 shall be
subject to modification as may be required to conform to the
provisions of the statute.
(b) For research purposes only and not for any commercial purpose,
FHCRC retains the right to practice LICENSED PROCESSES in the
FIELD, to make and to use LICENSED MATERIALS, and to grant non-
exclusive licenses of these same rights to other not-for-profit
organizations for noncommercial research purposes only ("Research
License"). In the event that TGC can provide convincing written
evidence to FHCRC that a not-for-profit organization that has
been granted a Research License is developing inventions either
solely or in collaboration with a third party for commercial
manufacture or in lieu of purchase if the inventions are
available as commercial products, then TGC can request that FHCRC
terminate its Research License with
8
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
such organization, such request not to be unreasonably withheld.
(c) TGC shall use its best efforts to introduce the LICENSED PRODUCTS
into the commercial market as soon as practicable, consistent
with sound and reasonable business practices and judgment, and
thereafter endeavor to keep LICENSED PRODUCTS reasonably
available to the public.
(d) FHCRC shall have the right to terminate or render the License
granted under this Agreement non-exclusive at any time after
three (3) years from the EFFECTIVE DATE, if in FHCRC's reasonable
judgment, TGC:
(i) has not put the licensed subject matter into commercial use
in the country or countries where licensed, directly or
through a sublicense, and is not keeping the licensed
subject matter reasonably available to the public, or
(ii) is not demonstrably engaged in research, development,
manufacturing, marketing or licensing program, as
appropriate, directed toward these ends; or
(iii) has not expended at least three hundred thousand dollars
($300,000) in the twelve (12) month period beginning three
(3) years from the EFFECTIVE DATE, or in any (12) twelve
month period beginning anytime thereafter, on internal and
external personnel, their benefits, supplies and equipment,
related to research and development of the LICENSED
PRODUCTS.
In making this determination FHCRC shall take into account the
normal course of such programs conducted with sound and
reasonable business practices and judgment and shall take into
account the reports provided hereunder by TGC.
(e) TGC shall not grant any sublicense without FHCRC's prior written
consent, such consent not to be unreasonably withheld. All
sublicenses granted by TGC hereunder shall include a requirement
that the sublicensee use its best efforts to bring the subject
matter of the sublicense into commercial use as quickly as is
reasonably possible, shall comply with Section 10.5 of this
Agreement, and shall expressly bind the sublicensee to meet
9
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
TGC's obligations to FHCRC under this Agreement. Copies of all
sublicense agreements shall promptly be provided to FHCRC.
(f) In the event FHCRC becomes aware of third parties that wish to
license the LICENSED PATENT RIGHTS in specific fields of use that
would not result in direct or indirect competition to TGC, FHCRC
shall notify TGC and TGC shall exercise one of the following
options:
(i) commence active research and development of LICENSE PRODUCTS
under the LICENSED PATENT RIGHTS in that field of use;
(ii) grant a sublicense to said third parties to make, use and
sell LICENSED PRODUCTS under the LICENSED PATENT RIGHTS in
that field of use; or
(iii) grant the right to FHCRC to directly license said third
parties to make, use and sell LICENSED PRODUCTS under the
LICENSED PATENT RIGHTS in that field of use.
4.3 Notwithstanding the foregoing provisions of Article 4, TGC shall have
the right to assign the license granted under Article 4 to an AFFILIATE or to
any organization that acquires all or substantially all of TGC's business,
subject to the terms and conditions hereof.
4.4 This Agreement shall have no effect upon any and all rights reserved
to the United States Government and others under Public Law 98-620.
ARTICLE 5 - TERM OF AGREEMENT
5.1 This Agreement becomes effective as of the date first above written
(the "Effective Date"), and, subject to earlier termination as provided in
Article 10, shall remain in effect until the last to expire of the LICENSED
PATENT RIGHTS (the "Term").
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
ARTICLE 6 - ROYALTIES
6.1 In consideration for the granting of the License, TGC shall pay to
FHCRC a non-refundable license fee ("Upfront Fee") in the sum of [ *
] within thirty (30) days of the execution of this Agreement.
6.2(a) During the Term, TGC shall pay to FHCRC a royalty in the amount of
[ * ] of the NET SALES of all LICENSED PRODUCTS and all
products using LICENSED PROCESSES and all services utilizing LICENSED PRODUCTS
or LICENSED PROCESSES which are sold by TGC and its AFFILIATES or sublicensees
on a country-by-country basis ("FHCRC Royalties").
6.2(b) Notwithstanding the foregoing, if TGC is required to pay royalties
to an unaffiliated third party(ies) for sales of LICENSED PRODUCTS or to
practice LICENSED PROCESSES for which payments are also due to FHCRC ("Third
Party Royalties"), then the royalties be paid by TGC to FHCRC shall be reduced
by the amount that the sum of the FHCRC Royalties and Third Party Royalties are
in excess of [ * ] of NET SALES of LICENSED PRODUCTS, but in
no event shall the FHCRC Royalties be reduced to less than
[ * ] of NET SALES of LICENSED PRODUCTS.
6.3 TGC shall pay to FHCRC at least the following amounts in royalties in
the following contract years (the "Maintenance Royalties"):
(a) [ * ] due upon the earlier of the issuance of
the first patent arising from [ * ] entitled [
* ] or a continuation, continuation-in-part or division
thereof, or June 30, 1996. Notwithstanding the foregoing, in the
event that such patent issues with claims that [ *
], or if such claims are not pending in the patent application as
of June 30, 1996, then the amount due under this Article 6.3(a)
shall be reduced to [ * ];
(b) [ * ], due upon issuance of any patent included
in the LICENSED PATENT RIGHTS relating to methods for expanding T
cells, on which patent the INVESTIGATORS are named as inventors.
Notwithstanding the foregoing, the amount due under this Article
6.3(b) shall not be due and payable by
[*] Confidential Treatment Requested
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
TGC until the end of the first calendar month following the first
calendar year that the research funding provided by TGC under
this Agreement is less than one hundred fifty thousand dollars
($150,000);
(c) [ * ], due upon the earlier of the first
approval to commence Phase 2 clinical trials (as defined by 21
Code of Federal Regulations, Chapter 1) for a LICENSED PRODUCT or
December 31, 1997. Notwithstanding the foregoing, the amount due
under this Article 6.3(c) shall not be due and payable by TGC
until the end of the first calendar month following the first
calendar year that the research funding provided by TGC under
this Agreement is less than one hundred fifty thousand dollars
($150,000);
(d) [ * ], due upon the earlier of the first
approval to commence Phase 3 clinical trials (as defined by 21
Code of Federal Regulations, Chapter 1) for a LICENSED PRODUCT
for cytomegalovirus (CMV) disease or December 31, 1999;
(e) [ * ], due upon the earlier of the first
approval to commence Phase 3 clinical trials (as defined by 21
Code of Federal Regulations, Chapter 1) for a LICENSED PRODUCT
for HIV disease or cancer or December 31, 1999;
(f) [ * ], due upon the earlier of the first
approval of a New Drug Application ("NDA") or Product License
Application ("PLA") (as defined by 21 Code of Federal
Regulations, Chapter 1) for a LICENSED PRODUCT or December 31,
2001;
(g) FHCRC shall credit against any royalties due by TGC to FHCRC
hereunder the amount equal to [ * ] of all
amounts actually paid to FHCRC under this Article 6.3
6.4 No multiple royalties shall be payable because any LICENSED PRODUCT
which TGC manufacturers, uses, leases or sells is covered by multiple claims
under the LICENSED PATENT RIGHTS.
[*] Confidential Treatment Requested
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
6.5 If TGC transfers or otherwise sublicenses LICENSED PATENT RIGHTS to a
third party, for value other than NET SALES, TGC shall also pay FHCRC a
percentage of [ * ] of all proceeds including, but not limited
to, licensing fees, receivable by TGC in connection therewith ("Non-Royalty
Fees"). Any such payment to FHCRC shall be made within thirty (30) days after
receipt of such proceeds by TGC. Any such sale or transfer shall not affect
TGC's obligations to pay royalties under Sections 6.2 and 6.3 above. In no
event shall Non-Royalty Fees include any payment or other value due to or
received by TGC from a third party as, for example, an upfront fee, research and
development payments, milestone payments, equity, or any equivalent of the
foregoing, or of any payment that is not explicitly due to or received by TGC in
consideration for a grant by TGC to a third party to make, have made, use and
sell LICENSED PRODUCTS, or practice LICENSED PROCESSES, under LICENSED PATENT
RIGHTS.
In the event that TGC transfers or otherwise sublicenses LICENSED PATENT
RIGHTS to a third party in combination with patents(s) and/or other rights(s) of
a third party(ies) and TGC is due and receives Non-Royalty Fees, then TGC shall
pay FHCRC an equitable portion of such Non-Royalty Fees as to be determined by
the good faith negotiations of TGC and FHCRC.
ARTICLE 7 - REPORTING AND ROYALTY PAYMENT TERMS
7.1 Upon or before execution of this Agreement, TGC shall provide to FHCRC
a written research and development plan pursuant to which TGC intends to bring
the subject matter of the License granted hereunder into commercial use,
including projections of sales and proposed marketing efforts.
7.2 TGC shall report to FHCRC the date of first sale of LICENSED PRODUCTS
(or results of LICENSED PROCESSES) in each country within thirty (30) days of
occurrence.
7.3 TGC shall provide written annual reports within sixty (60) days after
December 31 of each calendar year which shall include the following information:
reports of progress on research and development, regulatory approvals,
manufacturing, sublicensing, marketing and sales during the preceding twelve
(12) months as plans for the coming year. If TGC's progress differs from that
anticipated
[*] Confidential Treatment Requested
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
in the plan provided to FHCRC under Section 7.1, TGC shall explain the reasons
for the difference and propose a modified plan for FHCRC's review and approval.
TGC shall also provide any reasonable additional data FHCRC requires to evaluate
TGC's performance.
7.4 Beginning with the first NET SALES, TGC shall submit to FHCRC within
sixty (60) days after June 30 and December 31 of each calendar year during the
Term, and upon the effective termination of this Agreement, reports for the
preceding six (6) month period identifying the amount of the LICENSED PRODUCTS
sold by TGC, its AFFILIATES and sublicensees in each country, the sales volume
and NET SALES, and the amount of royalty due to FHCRC together with payment of
such royalty amount. Such report shall be certified as correct by an officer of
TGC and shall include a detailed listing of all deductions from NET SALES,
sublicensee income or from royalties as specified herein. If no royalties are
due to FHCRC for any reporting period, the written report shall so state. All
royalties due hereunder shall be payable in United States dollars. Conversion
of foreign currency to U.S. dollars shall be made at the conversion rate
existing in the United States on the date the royalty payments by TGC are due as
quoted in the Wall Street Journal for that day.
7.5 All such reports shall be maintained in confidence by FHCRC, except as
otherwise required by law, including Public Law 98-620.
ARTICLE 8 - RECORD KEEPING
8.1 TGC shall maintain complete and accurate books of account and records
showing all sales of LICENSED PRODUCTS and all NET SALES (broken down by gross
sales and allowable deductions) attributable to such sales. For purposes of
verifying the accuracy of the royalties paid by TGC pursuant to this Agreement
or verifying performance of TGC of any other obligation to FHCRC or the
FOUNDATION hereunder, such books and records shall be open to inspection and
copying, during usual business hours, by an independent certified public
accountant mutually agreeable to the parties. Such accountant shall not
disclose to FHCRC any information other than information relating to accuracy of
reports and calculations of amounts due to FHCRC made under this Agreement. In
the event that any such inspection shows any underreporting and underpayment by
TGC in excess of five percent (5%) for any twelve (12) month period, then TGC
shall pay the cost of such examination. Such books and records shall be
maintained for at least two (2) full years after the termination of this
Agreement.
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
ARTICLE 9 - INFRINGEMENT
9.1 Each party agrees to notify the other promptly of any infringement of
the LICENSED PATENT RIGHTS of which such party becomes aware. TGC shall have
the option to commence legal proceedings with respect to such infringement.
Before TGC commences legal proceedings (an "Action") with respect to any
infringement of such patents, TGC shall give careful consideration to the views
of FHCRC and to potential effects on the public interest in making its decision
whether or not to commence such an Action.
9.2 If TGC elects to commence an Action as described above, TGC may
reduce, by up to fifty percent (50%), the royalty due to FHCRC earned under the
patent subject to suit by the amount of the expenses and costs of such Action,
including attorney fees. In the event such expenses and costs exceed the amount
of royalties withheld by TGC for any calendar year, TGC may to that extent
reduce the royalties due to FHCRC from TGC in succeeding calendar years, but
never by more than fifty percent (50%) of the royalty due in any one year. Any
unused royalty credit amount may be carried forward until the full amount of the
credit has been exhausted.
9.3 Recoveries or reimbursements from such Action shall first be applied
to reimburse TGC and FHCRC for litigation costs not paid from royalties (if any)
and then to reimburse FHCRC for royalties withheld. Any remaining recoveries or
reimbursements shall be shared equally by TGC and FHCRC.
9.4 In the event that TGC elects not to exercise its option to prosecute
an infringement of the LICENSED PATENT RIGHTS pursuant to this Agreement, FHCRC
may do so at its own expense, controlling such Action and retaining all
recoveries therefrom.
ARTICLE 10 - TERMINATION OF AGREEMENT
10.1 Unless terminated earlier in accordance with the terms hereof, this
Agreement will expire upon the expiration of the Term as provided in Article 5.
Upon termination, a final report shall promptly be submitted in accordance with
the provisions of Section 7.4, together with any royalty payments and
unreimbursed patent expenses due to FHCRC.
10.2 At FHCRC's option, FHCRC may terminate this Agreement sixty (60) days
after giving written notice to TGC of any default in payments due hereunder and
subsequent failure by TGC to remedy and such default within such period,
provided that FHCRC is not then in breach of any provision hereof.
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
10.3 This Agreement may be terminated by either party upon breach of a
material obligation or condition by the other (other than a breach according to
Section 10.2), effective ninety (90) days after giving written notice to the
other of such termination under this Article and specifying such breach,
provided however, that if the breach is cured or shown to be non-existent within
the ninety (90) day period, the notice shall be deemed automatically withdrawn
and of no effect. If the parties do not agree whether a breach has occurred or
been cured or whether it is "material", the dispute shall be resolved through
arbitration under Article 14.
10.4 Subject to any provisions of the federal bankruptcy laws limiting
rights of termination, this Agreement will automatically terminate if TGC files
for protection under federal bankruptcy laws, becomes insolvent, makes an
assignment for the benefit of creditors, appoints or suffers appointment of a
receiver or trustee over its property, files a petition under any bankruptcy or
insolvency act or has any such petition filed against it or files for
dissolution.
10.5 Any sublicenses granted by TGC under this Agreement shall provide for
termination or assignment to FHCRC, at the option of FHCRC, of TGC's interest
therein upon termination of this Agreement.
10.6 TGC shall have the right to terminate this Agreement effective thirty
(30) days after giving written notice to FHCRC of termination under this
Article, except that TGC shall have continuing obligations to FHCRC in
accordance with Sections 2.2 and 2.4 hereof.
10.7 Upon termination of this Agreement, TGC shall have the right for
three (3) months to sell all LICENSED PRODUCTS on hand at the time of
notification of termination if the royalties from such sales and any and all
other payments due FHCRC are paid to and statements rendered to FHCRC with
respect to such LICENSED PRODUCTS when due in accordance with this Agreement.
10.8 Upon termination of the Agreement for any reason, and subject to
TGC's rights under Section 10.7, TGC shall return to FHCRC and thereafter
continue to maintain the confidentiality thereof, and refrain from use thereof
or the disclosure thereof to any third party as required by Article 16, and all
other rights in LICENSED MATERIALS, LICENSED PROCESSES and LICENSED PRODUCTS
granted to TGC under Article 4 shall expire and revert to FHCRC. Immediately
upon cessation of discussions between TGC and FHCRC during the Term, or upon
request by one of the parties, TGC and FHCRC will return all Proprietary
Information of the other, and all documents or data storage media containing any
such Proprietary Information and any and all copies thereof, and TGC and FHCRC
will delete all Proprietary Information of the other from its documents or data
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
storage media, except that the parties shall maintain one copy of such
Proprietary Information in their legal or corporate development files.
10.9 Should either party terminate this Agreement as permitted herein, the
other party shall not be able to claim from the terminating party any damages or
compensation for losses or expenses incurred solely as a result of the
termination.
10.10 Provisions hereof and accrued rights hereunder which by their terms
or nature survive the termination or expiration of this Agreement shall so
survive such termination or expiration.
ARTICLE 11 - REPRESENTATIONS AND COVENANTS
11.1 FHCRC represents and warrants that all right, title, and interest in
the patent applications or patents comprising the LICENSED PATENT RIGHTS,
LICENSED PROCESSES and LICENSED MATERIALS have been assigned to it, or are
otherwise owned by it, and that FHCRC has the authority to issue licenses under
said LICENSED PATENT RIGHTS, LICENSED PROCESSES and LICENSED MATERIALS. FHCRC
disclaims all implied or express warranties of any nature whatsoever concerning
the validity of the LICENSED PATENT RIGHTS, LICENSED PROCESSES and LICENSED
MATERIALS licensed hereunder. TGC acknowledges and agrees that neither FHCRC
nor anyone acting on its behalf has made any representations or warranties and
expressly disclaims whatsoever with regard to the scope of the LICENSED PATENT
RIGHTS, LICENSED PROCESSES or the LICENSED MATERIALS, or that such LICENSED
PATENT RIGHTS, LICENSED PROCESSES and LICENSED MATERIALS may be exploited by
TGC, an AFFILIATE, or sublicensee without infringing other patents.
11.2 FHCRC EXPRESSLY DISCLAIMS ANY AND ALL EXPRESS WARRANTIES, EXCEPT
THOSE STATED IN THIS ARTICLE 11, AND FURTHER DISCLAIMS ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS OF THE LICENSED PROCESSES, LICENSED
MATERIALS OR LICENSED PRODUCTS FOR ANY PARTICULAR USE OR PURPOSE.
11.3 TGC represents and warrants to FHCRC that it has obtained and will at
all times during the Term of this Agreement, hold and comply with all licenses,
permits and authorizations necessary to TGC'S complete and timely performance of
its obligations under this Agreement which are required under any applicable
statutes, laws, ordinances, rules and regulations of the United States as well
as those of all applicable foreign governmental bodies, agencies and
subdivisions, having,
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
asserting or claiming jurisdiction over TGC or TGC's performance of the terms of
this Agreement. In particular, TGC:
(a) will be responsible for obtaining all necessary United States
Food and Drug Administration approvals and all approvals required
by similar governmental bodies or agencies of all applicable
foreign countries; and
(b) understands and acknowledges that the transfer of certain
commodities and technical data is subject to United States laws
and regulations controlling the export of such commodities and
technical data, including all Export Administration Regulations
of the United States Department of Commerce. These laws and
regulations, among other things, prohibit or require a license
for the export of certain types of technical data to certain
specified countries. TGC hereby agrees and gives written
assurance that it will comply with all United States laws and
regulations controlling the export of commodities and technical
data, that it will be solely responsible for any violation of
such by TGC or its AFFILIATES or sublicensees, and that it will
defend and hold FHCRC harmless in the event of any legal action
of any nature occasioned by such violation.
ARTICLE 12 - LEGAL ACTION
12.1 In the event any legal action is commenced against TGC involving the
use by TGC of a LICENSED MATERIAL, LICENSED PROCESS or LICENSED PRODUCT, or
otherwise relating to this Agreement, whether or not FHCRC is named as a party
to the legal action, TGC shall keep FHCRC or its attorney nominee fully advised
of the progress of the legal action and shall reimburse FHCRC for its reasonable
legal costs (including attorney's fees) incurred as a result of FHCRC's
monitoring of such action, FHCRC's being named a party to any such legal action,
or when FHCRC's employees or agents are called as witnesses therein or asked to
testify for or consult with TGC in connection therewith.
12.2 In the event that any legal action is commenced against FHCRC
involving the RESEARCH PROGRAM which is caused by the negligent or wrongful acts
of FHCRC or its employees or agents, whether or not TGC is named as a party to
the legal action, FHCRC shall keep TGC or its attorney nominees fully advised of
the progress of the legal action, and shall reimburse TGC for its reasonable
legal costs (including attorney's fees) incurred as a result of TGC's monitoring
of such action, TGC's being named a party to any such legal action, or
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
when TGC's employees or agents are called as witnesses therein or asked to
testify for or consult with FHCRC in connection therewith, unless the legal
action is caused by the negligent or wrongful acts of TGC or its employees or
agents.
12.3 FHCRC and TGC agree to cooperate with each other, to the extent
reasonably possible, in any legal action brought pursuant to this Article 12.
ARTICLE 13 - HOLD HARMLESS
13.1 TGC assumes responsibility for and shall defend, indemnify and hold
FHCRC, its directors, officers, managers, agents, students, doctors and
employees harmless from any and all liability, losses, expenses, damages,
assessments and claims arising out of or resulting from (i) the use, sale or any
disposition of LICENSED PRODUCTS or LICENSED MATERIALS by TGC or its AFFILIATES,
(ii) the practice of the LICENSED PROCESSES by TGC or its AFFILIATES, or (iii)
the use, sale or other disposition of the LICENSED PRODUCT or the practice of
LICENSED PROCESSES by others who receive LICENSED PRODUCTS, LICENSED MATERIALS
or LICENSED PROCESSES directly or indirectly from TGC, its AFFILIATES, agents or
representatives, (iv) the negligent or wrongful acts of TGC, its employees or
agents.
13.2 FHCRC assumes responsibility for and shall defend, indemnify and hold
TGC, its directors, officers, managers, agents and employees harmless from any
and all liability, losses, expenses, damages, assessments and claims arising out
of or resulting from the negligent or wrongful acts of FHCRC, its employees or
agents in connection with the activities to be conducted under the RESEARCH
PROGRAM.
ARTICLE 14 - ARBITRATION
14.1 Any dispute, other than a question relating to patent validity,
between the parties hereunder which cannot be resolved by good faith negotiation
between the parties over a period of at least sixty (60) days shall be resolved
by arbitration before a panel of three arbitrators under the then current rules
and procedures of the American Arbitration Association (the "AAA"), or other
rules and procedures as the parties may agree. Each party shall bear its own
costs incurred in connection with such arbitration and the fees, expenses and
costs of the AAA, the arbitrator(s) and the arbitration proceeding not incurred
solely by one party shall be divided equally between the parties. The arbitral
award shall be binding and conclusive on both parties and may be enforced in any
court of competent jurisdiction.
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
ARTICLE 15 - NOTICES
15.1 All communications, including payments, notices, demands or requests
required or permitted to be given hereunder, shall be given in writing and shall
be: (a) personally delivered; (b) sent by facsimile or other electronic means
of transmitting written documents; or (c) sent to the parties at their
respective addresses indicated herein by registered or certified U.S. mail,
return receipt requested and postage prepaid, or by private overnight mail
courier service. The respective addresses to be used for all such payments,
notices, demands or requests are as follows:
If to FHCRC: Fred Hutchinson Cancer Research FHCRC
1124 Columbia Street, C2M-027
Seattle, Washington 98104
Attention: Catherine J. Hennings, Manager, Technology Transfer
Facsimile: (206) 667-4732
With copies to: Douglas J. Shaeffer, Esq.
Fred Hutchinson Cancer Research FHCRC
1124 Columbia Street, LY-240
Seattle, Washington 98104
Facsimile: (206) 667-6590
If to TGC: Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
Attention: H. Stewart Parker, President
Facsimile: (206) 223-0288
ARTICLE 16 - CONFIDENTIALITY AND NON-DISCLOSURE
16.1 Any and all information relating to the LICENSED MATERIALS or
RESEARCH PROGRAM furnished to either party (or its agents or employees) by the
other party (or its laboratories or agents or employees), including but not
limited to information regarding or relating to devices, cell lines, monoclonal
antibodies, methods, processes, data regarding testing and experiments,
drawings, documentation, patent applications and patents (when issued) and
product development plans, is confidential, proprietary, trade secret
information and any and all such information is hereinafter referred to as
"Proprietary Information."
(a) As used herein, "Proprietary Information" includes the following:
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
(i) written material which is clearly designated on its face as
confidential and patent applications;
(ii) oral disclosures, the content of which is within thirty (30)
days after communication designated in writing as
confidential, or which is so designated as confidential
orally during oral disclosures or in contemporaneous written
memoranda; and
(iii) specimens, samples, and other physical materials which are
prior to or at the time of disclosure designated in writing
as confidential.
(b) As used herein, "Proprietary Information" does not include:
(i) information which at the time of disclosure to the receiving
party is generally available to the public, or which after
such disclosure becomes generally available to the public by
publication or otherwise;
(ii) information that is demonstrated to have been in the
receiving party's possession prior to the time of disclosure
by the disclosing party;
(iii) information that is demonstrated by a preponderance of the
evidence to have been independently developed by the
receiving party's personnel without reference to or use of
Proprietary Information disclosed by the disclosing party;
and
(iv) information received from a third party unless such
information is obtained subject to a confidential disclosure
agreement.
16.2 Each party agrees: (a) to hold in strict confidence and trust and
maintain as confidential all Proprietary Information disclosed by the other
party and any information derived therefrom; (b) not to disclose any such
Proprietary Information or any information derived therefrom to any person,
except to those employees or legal counsel of the receiving party who are
required to receive the Proprietary Information for the purposes described in
this Agreement and who are bound by the provisions of this Agreement; (c) not to
export or otherwise disclose any such Proprietary Information to any person who
is, or who the receiving party believes may be, located or may use the
Proprietary Information outside the United
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
States; and (d) to use the Proprietary Information only for the purposes
described in this Agreement.
16.3 Each party agrees that: all Proprietary Information disclosed by the
other party will at all times be and remain the sole property of the disclosing
party and the disclosing party is the sole owner of all patents, copyrights and
other intellectual property rights and other proprietary rights related to the
Proprietary Information disclosed by it. Nothing in this Agreement shall be
construed as granting to or permitting to the receiving party any implied
license in, or right or option to, license or use any intellectual property
right (including but not limited to any patent right obtained by the disclosing
party) relating to the Proprietary Information disclosed by it or any other
right to use such Proprietary Information except as expressly provided herein
and for any reason other than for the purposes described in this Agreement.
16.4 Immediately upon the termination of this Agreement, or upon either
disclosing party's request, the receiving party will deliver to the disclosing
party all Proprietary Information disclosed by the disclosing party and all
documents and data storage media containing any such Proprietary Information and
any and all copies thereof, and will delete all such Proprietary Information
from its documents and data storage media, except that the parties shall
maintain one copy of such Proprietary Information in its legal or corporate
development files.
16.5 The obligations of confidentiality provided herein shall continue in
force and effect for five (5) years from the date of termination of this
Agreement, whether by lapse of the Term hereof or otherwise, unless extended or
limited by mutual agreement executed in writing by an officer of each party.
ARTICLE 17 - PATENT MARKING
17.1 Subsequent to the issuance of any patent based on the application(s)
covered by LICENSED PATENT RIGHTS, TGC agrees to mark and to have marked by its
sublicensees every LICENSED PRODUCT manufactured, used or sold by TGC, its
AFFILIATES or its sublicensees in accordance with the statutes of the United
States relating to the marking of patented articles.
ARTICLE 18 - RIGHT TO PUBLISH
18.1 Nothing in this Agreement shall be construed as prohibiting FHCRC or
its researchers from publishing any of the results of research conducted under
the RESEARCH PROGRAM in reputable scientific journals. Notwithstanding the
foregoing, INVESTIGATORS shall not publish or otherwise publicly disclose the
results of their research hereunder, either orally or in writing, unless the
proposed
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FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
disclosure is first submitted in manuscript or other written form to TGC for
review, comment, consideration of appropriate patent action, and removal of
Proprietary Information, at least thirty (30) days prior to any submission or
other public disclosure. TGC may request an additional delay not to exceed forty
five (45) days so that a patent application can be filed or other appropriate
steps taken to protect Proprietary Information.
ARTICLE 19 - MISCELLANEOUS
19.1 The rights and obligations of the parties under this Agreement shall
be governed by and construed in accordance with the laws of the State of
Washington.
19.2 This Agreement may not be amended except by an instrument in writing
signed by both parties.
19.3 The Agreement shall be binding on the parties hereto and upon their
respective heirs, administrators, successors and assigns. This Agreement may
not be assigned or sublicensed by TGC or by operation of law without the prior
written consent of FHCRC.
19.4 TGC acknowledges that FHCRC is a non-profit organization qualifying
for and holding the status of an exempt organization under Section 501(c)(3) of
the United States Internal Revenue Code. If the Internal Revenue Service
determines, or a determination by FHCRC based on advice of legal or tax counsel
is reasonably made, that any part or all of this Agreement will jeopardize
FHCRC's Section 501(c)(3) status, the parties agree to meet and confer in good
faith to amend this Agreement to the extent necessary to satisfy Internal
Revenue Service requirements for retention of FHCRC'S Section 501(c)(3) status.
If FHCRC and TGC cannot agree within 30 days after commencing negotiations
regarding the amendments to be made to this Agreement in order for FHCRC to
retain its Section 501(c)(3) status, FHCRC may terminate this Agreement
effective upon giving written notice to TGC of termination under this Article
19.
19.5 TGC understands and acknowledges that agreements between FHCRC and
agencies of the United States Government funding FHCRC's programs may contain
clauses granting patent and/or other rights to the agencies or the U.S.
Government; TGC agrees that the rights granted to it under this Agreement shall
be subject to any rights of the agencies and the U.S. Government. In the event
of a conflict between any of the provisions of this Agreement and the provisions
of any U.S. Government agency funding agreement and/or regulation shall prevail
and FHCRC will have no liability to TGC as a result of such conflict.
23
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
19.6 Except as otherwise provided herein, FHCRC and its employees,
including but not limited to the INVESTIGATORS, shall not use the name of TGC,
its employees or agents, and TGC, including its employees, shall not use the
name of FHCRC or any of its employees or agents in any advertising, publicity,
news release, promotional materials or any public disclosure, whatsoever, EITHER
WRITTEN OR ORAL, related to the existence of this Agreement or any actions or
work undertaken pursuant to terms of this Agreement without the prior written
consent of the other party. FHCRC shall have three (3) business days from the
time it receives a proposed disclosure ("Review Period") to approve and/or
provide comments to TGC with respect to such disclosure. In the event that TGC
receives no communications from FHCRC regarding such disclosure within the
Review Period, then FHCRC's consent of the public release of such disclosure
shall be deemed to have been granted.
19.7 Upon the earlier of any: (i) testing or use in human subjects or
(ii) sale of a LICENSED PRODUCT, TGC will have FHCRC named as an additional
insured on TGC'S product liability insurance policies, with limits of at least
$1,000,000 per claim and $5,000,000 annual aggregate. Such policies shall not
be terminated without thirty (30) days prior written notice to FHCRC. If
FHCRC's insurance costs can be shown to have increased solely because of this
Agreement, and such increases are verified by an independent certified public
accountant, TGC shall reimburse FHCRC for such increase within twenty (20) days
of receiving written notice from FHCRC requesting such reimbursement and the
parties shall attempt to agree to changes and revisions of this Agreement. If
the parties fail to arrive at agreement within a reasonable time, or TGC does
not reimburse FHCRC, FHCRC may by written notice terminate this Agreement.
19.8 All letters, documents, or other materials of a written or physical
nature, required by or relating to this Agreement shall be in English and sent
to the party at the address given in Article 15.
19.9 The parties to this Agreement recognize and agree that each is
operating as an independent contractor and not as an agent of the other. This
Agreement shall not constitute a partnership or joint venture, and neither party
may be bound by the other to any contract, arrangement or understanding except
as specifically stated herein.
19.10 Should a court of competent jurisdiction later consider any
provision of this Agreement to be invalid, illegal, or unenforceable, it shall
be considered severed from this Agreement. All other provisions, rights and
obligations shall continue without regard to the severed provision, provided
that the remaining provisions of this Agreement are in accord with the intention
of the parties.
24
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
19.11 In the event any party to this Agreement commences any action or
proceeding, including an appeal of an action or proceeding, against the other,
or otherwise retains an attorney, by reason of any breach or claimed breach of
any provision of this Agreement, or to seek a judicial declaration of rights
hereunder or judicial or equitable relief, the prevailing party in such action
or proceeding shall be entitled to recover its reasonable attorneys' fees and
costs. At the option of FHCRC, venue of any such legal or equitable action
shall lie in Seattle, Washington. TGC hereby submits to the jurisdiction of the
Federal District Court of Western Washington located in Seattle, Washington, and
hereby agrees to accept service of process by certified mail, return receipt
requested, effective upon delivery to TGC.
IN WITNESS WHEREOF, the parties have executed this Agreement through duly
authorized representatives as of the date first above written.
TARGETED GENETICS CORPORATION
By H. Stewart Parker
------------------------------
Name H. Stewart Parker
------------------------------
Title President and CEO
------------------------------
Date March 28, 1994
------------------------------
FRED HUTCHINSON CANCER RESEARCH CENTER
By Catherine J. Hennings
------------------------------
Name Catherine J. Hennings
------------------------------
Title Manager, Technology Transfer
------------------------------
Date March 28, 1994
------------------------------
25
<PAGE>
FHCRC-TGC RESEARCH AND EXCLUSIVE LICENSE AGREEMENT
READ AND AGREED TO:
By Philip Greenberg, M.D.
--------------------------
Name Philip Greenberg, M.D.
--------------------------
Title Member, FHCRC
--------------------------
Date 3/28/94
--------------------------
By Stanley Riddell, M.D.
--------------------------
Name Stanley Riddell, M.D.
--------------------------
Title Assistant Member
--------------------------
Date 3/28/94
--------------------------
26
<PAGE>
APPENDIX A
PATENT APPLICATIONS AND PATENTS
<TABLE>
<CAPTION>
PATENT FILE OR
APPLCTN. NO. COUNTRY ISSUE DATE TITLE/INVENTOR
[ * ] [ * ] [ * ] [ * ]
<S> <C> <C> <C>
07/764,596 U.S. September 24, 1991 METHOD FOR PRODUCING T-HELPER INDEPENDENT CYTOTOXIC
T LYMPHOCYTES (P. Greenberg, R. Overell)
08/043,389 U.S. April 6, 1993 CHIMERIC CYTOKINE RECEPTORS IN LYMPHOCYTES (P.
Greenberg, B. Nelson)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] Confidential Treatment Requested
27
<PAGE>
REDACTED VERSION
EXHIBIT 10.10
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1997
"[ * ]" = omitted, confidential material, which material
has been separately filed with the Securities and Exchange Commission pursuant
to a request for confidential treatment.
<PAGE>
EXHIBIT 10.10
NATIONAL INSTITUTES OF HEALTH
CENTERS FOR DISEASE CONTROL
PATENT LICENSE AGREEMENT - EXCLUSIVE
COVER PAGE
- ------------------------------------------------------------------------
For Office of Technology Transfer/NIH internal use only:
- ------------------------------------------------------------------------
Patent License Number: L-059-93
Serial Numbers of Licensed Patents: USPA SN 07/891,962
Licensee: Targeted Genetics Corporation
CRADA Number (if applicable): Not-applicable
Additional Remarks:
- ------------------------------------------------------------------------
This Patent License Agreement, hereinafter referred to as the "Agreement,"
consists of this Cover Page, an attached Agreement, a Signature Page, Appendix A
(Patent or Patent Application), Appendix B (Fields of Use and Territory),
Appendix C (Royalties), Appendix D (Modifications), and Appendix E (Benchmarks).
This Cover Page serves to identify the Parties to this Agreement:
1) The National Institutes of Health ("NIH") or the Centers for Disease
Control ("CDC"), hereinafter singly or collectively referred to as
"PHS," agencies of the United States Public Health Service within the
Department of Health and Human Services ("DHHS"); and
2) The person, corporation, or institution identified above and/or on the
Signature Page, having offices at the address indicated on the
Signature Page, hereinafter referred to as "Licensee."
<PAGE>
PHS PATENT LICENSE AGREEMENT-EXCLUSIVE
PHS and Licensee agree as follows:
1. BACKGROUND
----------
1.01 In the course of conducting biomedical and behavioral research, PHS
investigators made inventions that may have commercial
applicability.
1.02 By assignment of rights from PHS employees and other inventors,
DHHS, on behalf of the United States Government, owns intellectual
property rights claimed in any United States and foreign patent
applications or patents corresponding to the assigned inventions.
DHHS also owns any tangible embodiments of these inventions actually
reduced to practice by PHS.
1.03 The Assistant Secretary for Health of DHHS has delegated to PHS the
authority to enter into this Agreement for the licensing of rights
to these inventions under 35 U.S.C. (S)(S) 200-212, the Federal
Technology Transfer Act of 1986, 15 U.S.C. (S) 3710a, and/or the
regulations governing the licensing of Government-owned inventions,
37 CFR Part 404.
1.04 PHS desires to transfer these inventions to the private sector
through commercialization licenses to facilitate the commercial
development of products and processes for public use and benefit.
1.05 Licensee desires to acquire commercialization rights to certain of
these inventions in order to develop processes, methods, or
marketable products for public use and benefit.
2. DEFINITIONS
-----------
2.01 "Licensed Patent Rights" shall mean:
a) U.S. patent applications and patents listed in Appendix A, all
divisions and continuations of these applications, all patents
issuing from such applications, divisions, and continuations, and
any reissues, reexaminations, and extensions of all such patents;
2
<PAGE>
b) to the extent that the following contain one or more claims
directed to the invention or inventions claimed in a) above: i)
continuations-in-part of a) above; ii) all divisions and
continuations of these continuations-in-part; iii) all patents
issuing from such continuations-in-part, divisions, and
continuations; and iv) any reissues, reexaminations, and
extensions of all such patents;
c) to the extent that the following contain one or more claims
directed to the invention or inventions claimed in a) above: all
counterpart foreign applications and patents to a) and b) above,
including those listed in Appendix A.
Licensed Patent Rights shall not include b) or c) above to the
extent that they contain one or more claims directed to new
matter which is not the subject matter of a claim in a) above.
2.02 "Licensed Product(s)" means tangible materials which, in the course
of manufacture, use, or sale would, in the absence of this
Agreement, infringe one or more claims of the Licensed Patent Rights
that have not been held invalid or unenforceable by an unappealed or
unappealable judgement of a court of competent jurisdiction.
2.03 "Licensed Process(es)" means processes which, in the course of being
practiced would, in the absence of this Agreement, infringe one or
more claims of the Licensed Patent Rights that have not been held
invalid or unenforceable by an unappealed or unappealable judgment
of a court of competent jurisdiction.
2.04 "Licensed Territory" means the geographical area identified in
Appendix B.
2.05 "Net Sales" means the total gross receipts for sales of Licensed
Products or practice of Licensed Processes by or on behalf of
Licensee or its sublicensees, and from leasing, renting, or
otherwise making Licensed Products available to others without sale
or other dispositions, whether invoiced or not, less returns and
allowances actually granted, packing costs, insurance costs, freight
out, taxes or excise duties imposed on the transaction (if
separately invoiced), and wholesaler and cash discounts in amounts
customary in the trade. No deductions shall be made for commissions
paid to individuals, whether they be with independent sales agencies
or regularly
3
<PAGE>
employed by Licensee, or sublicensees, and on its
payroll, or for the cost of collections.
2.06 "First Commercial Sale" means the initial transfer by or on behalf of
Licensee or its sublicensees of Licensed Products or the initial
practice of a Licensed Process by or on behalf of Licensee or its
sublicensees in exchange for cash or some equivalent to which value
can be assigned for the purpose of determining Net Sales.
2.07 "Government" means the government of the United States of America.
2.08 "Licensed Fields of Use" means the fields of use identified in
Appendix B.
3. GRANT OF RIGHTS
---------------
3.01 PHS hereby grants and Licensee accepts, subject to the terms and
conditions of this Agreement, an exclusive license to Licensee under
the Licensed Patent Rights in the Licensed Territory to make and
have made, to use and have used, and to sell and have sold any
Licensed Products in the Licensed Fields of Use and to practice and
have practiced any Licensed Processes in the Licensed Fields of Use.
3.02 This Agreement confers no license or rights by implication,
estoppel, or otherwise under any patent applications or patents of
PHS other than Licensed Patent Rights regardless of whether such
patents are dominant or subordinate to Licensed Patent Rights.
4. SUBLICENSING
------------
4.01 Upon written approval by PHS, which approval will not be
unreasonably withheld, Licensee may enter into sublicensing
agreements under the Licensed Patent Rights.
4.02 Licensee agrees that any sublicenses granted by it shall provide
that the obligations to PHS of Paragraphs 5.01-5.05, 8.01, 10.01,
10.02, 12.05, and 13.08-13.11 of this Agreement shall be binding
upon the sublicensee as if it were a party to this Agreement.
Licensee further agrees to attach copies of these Paragraphs to all
sublicense agreements.
4
<PAGE>
4.03 Any sublicenses granted by Licensee shall provide for the
termination of the sublicense, or the conversion to a license
directly between such sublicensees and PHS, at the option of the
sublicensee, upon termination of this Agreement under Article 13.
Such conversion is subject to PHS approval and contingent upon
acceptance by the sublicensee of the remaining provisions of this
Agreement.
4.04 Licensee agrees to forward to PHS a copy of each fully executed
sublicense agreement postmarked within sixty (60) days of the
execution of such agreement.
5. STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS
-------------------------------------------------------------
5.01 PHS reserves on behalf of the Government an irrevocable,
nonexclusive, nontransferable, royalty-free license for the practice
of all inventions licensed under the Licensed Patent Rights
throughout the world by or on behalf of the Government and on behalf
of any foreign government or international organization pursuant to
any existing or future treaty or agreement to which the Government
is a signatory.
5.02 Licensee agrees that products used or sold in the United States
embodying Licensed Products or produced through use of Licensed
Processes shall be manufactured substantially in the United States,
unless a written waiver is obtained in advance from PHS.
5.03 Licensee acknowledges that PHS may enter into future Cooperative
Research and Development Agreements (CRADAs) under the Federal
Technology Transfer Act of 1986 that relate to the subject matter of
this Agreement. Licensee agrees not to unreasonably deny requests
for sublicense or cross-license rights from such future
collaborators with PHS when acquiring such derivative rights is
necessary in order to make a CRADA project feasible. Licensee may
request an opportunity to join as a party to the proposed CRADA.
5.04 DHHS has responsibility for funding basic biomedical research, for
funding medical treatment through programs such as Medicare and
Medicaid, for providing direct medical care and, more generally, for
protecting the health and safety of the public. Because of these
5
<PAGE>
responsibilities, and the public investment in the research that
culminated in the Licensed Patent Rights, PHS may require Licensee
to submit documentation in confidence showing a reasonable
relationship between the pricing of a Licensed Product, the public
investment in that product, and the health and safety needs of the
public. This paragraph shall not restrict the right of Licensee to
price a Licensed Product or Licensed Process so as to obtain a
reasonable profit for its sale or use. This Paragraph 5.04 does not
permit PHS to set or dictate prices for Licensed Products or
Licensed Processes.
5.05 In addition to the reserved license of Paragraph 5.01 above, PHS
reserves the right to grant nonexclusive licenses to make and to use
the inventions defined by the Licensed Patent Rights for purposes of
research involving the inventions themselves, and not for purposes
of commercial manufacture or in lieu of purchase if the inventions
are available as commercial products for research purposes. The
purpose of this research license is to encourage basic research,
whether conducted at an academic or corporate facility. In order to
safeguard the Licensed Patent Rights, however, PHS shall consult
with Licensee before granting to commercial entities a research
license or providing to them research samples of the materials
claimed in the Licensed Patent Rights.
6. ROYALTIES AND REIMBURSEMENT
---------------------------
6.01 Licensee agrees to pay to PHS a noncreditable, nonrefundable license
issue royalty as set forth in Appendix C within thirty (30) days
from the date that this Agreement becomes effective.
6.02 Licensee agrees to pay to PHS a nonrefundable minimum annual royalty
as set forth in Appendix C. The minimum annual royalty is due and
payable on January 1 of each calendar year and may be credited
against any earned royalties due for sales made in that year. The
minimum annual royalty due for the first calendar year of this
Agreement may be prorated according to the fraction of the calendar
year remaining between the effective date of this Agreement and the
next subsequent January 1.
6.03 Licensee agrees to pay PHS earned royalties as set forth in Appendix
C.
6
<PAGE>
6.04 Licensee agrees to pay PHS benchmark royalties as set forth in
Appendix C.
6.05 A claim of a patent or patent application licensed under this
Agreement shall cease to fall within the Licensed Patent Rights for
the purpose of computing the minimum annual royalty and earned
royalty payments in any given country on the earliest of the dates
that a) the claim has been abandoned but not continued, b) the
patent expires, c) the patent is no longer maintained by the
Government, or d) all claims of the Licensed Patent Rights have been
held to be invalid or unenforceable by an unappealed or unappealable
decision of a court of competent jurisdiction or administrative
agency.
6.06 No multiple royalties shall be payable because any Licensed Products
or Licensed Processes are covered by more than one of the Licensed
Patent Rights.
6.07 On sales of Licensed Products by Licensee to sublicensees or
affiliated parties or on sales made in other than an arm's-length
transaction, the value of the Net Sales attributed under this
Article 6 to such a transaction shall be that which would have been
received in an arm's-length transaction, based on sales of like
quantity and quality products on or about the time of such
transaction.
6.08 As an additional royalty, Licensee agrees to pay PHS, within sixty
(60) days of PHS's submission of a statement and request for
payment, an amount equivalent to all reasonable expenses previously
incurred by PHS in the preparation, filing, prosecution, and
maintenance of Licensed Patent Rights. Licensee further agrees to
pay PHS annually, within sixty (60) days of PHS's submission of a
statement and request for payment, a royalty amount equivalent to
all such future patent expenses incurred during the previous
calendar year, as of the date the statement and request for payment
is sent by PHS to Licensee. Fifty percent (50%) of the cumulative
amount of such payments may be credited against royalties due under
Paragraph 6.03; however, the net royalty payment in any calendar
year may not be lower than the minimum annual royalty specified in
Appendix B. Licensee may elect to surrender its rights in any
country of the Licensed Territory under any Licensed Patent Rights
upon sixty (60) days' written notice to PHS and owe no payment
obligation under this paragraph for subsequent patent-related
expenses incurred in that country.
7
<PAGE>
7. DOMESTIC AND FOREIGN PATENT FILING, PROSECUTION, AND MAINTENANCE
----------------------------------------------------------------
7.01 PHS agrees to take responsibility for, but to consult with the
Licensee in, the preparation, filing, prosecution, and maintenance
of any and all patent applications or patents included in the
Licensed Patent Rights and shall furnish copies of relevant patent-
related documents to Licensee.
7.02 Each party shall promptly inform the other as to all matters that
come to its attention that may affect the preparation, filing,
prosecution, or maintenance of the Licensed Patent Rights and permit
each other to provide comments and suggestions with respect to the
preparation, filing, and prosecution of Licensed Patent Rights,
which comments and suggestions shall be considered by the other
party.
8. RECORD KEEPING
--------------
8.01 Licensee agrees to keep accurate and correct records of Licensed
Products made, used, or sold and Licensed Processes practiced under
this Agreement appropriate to determine the amount of royalties due
PHS. Such records shall be retained for at least five (5) years
following a given reporting period. They shall be available during
normal business hours for inspection at the expense of PHS by an
accountant or other designated auditor selected by PHS for the sole
purpose of verifying reports and payments hereunder. The accountant
or auditor shall only disclose to PHS information relating to the
accuracy of reports and payments made under this Agreement. If an
inspection shows an underreporting or underpayment in excess of five
percent (5%) for any twelve (12) month period, then Licensee shall
reimburse PHS for the cost of the inspection at the time Licensee
pays the unreported royalties, including any late charges as
required by Paragraph 7.06 of this Agreement. All payments required
under this Paragraph shall be due within thirty (30) days of the
date PHS provides Licensee notice of the payment due.
9. REPORTS ON PROGRESS, BENCHMARKS, SALES, AND PAYMENTS
----------------------------------------------------
9.01 Prior to signing this Agreement, Licensee has provided to PHS a
written commercialization plan ("Commercial Development Plan")
8
<PAGE>
under which Licensee intends to bring the subject matter of the
Licensed Patent Rights into commercial use. The Commercial
Development Plan is hereby incorporated by reference into this
Agreement. Based on this plan, performance benchmarks are determined
as specified in Appendix E ("Benchmarks").
9.02 Licensee shall provide written annual reports on its product
development progress or efforts to commercialize under the
Commercial Development Plan for each of the Licensed Fields of Use
within sixty (60) days after December 31 of each calendar year.
These progress reports shall include, but not be limited to:
progress on research and development, status of applications for
regulatory approvals, manufacturing, sublicensing, marketing, and
sales during the preceding calendar year, as well as plans for the
present calendar year. If reported progress differs from that
projected in the Commercial Development Plan and Benchmarks,
Licensee shall explain the reasons for such differences. Licensee
may propose amendments in any such annual report to the Commercial
Development Plan, acceptance of which by PHS may not unreasonably be
denied. Licensee agrees to provide any additional data reasonably
required by PHS to evaluate Licensee's performance. Licensee may
amend the Benchmarks at any time upon written consent by PHS. PHS
shall not unreasonably withhold approval of any request of Licensee
to extend the time periods of this schedule if such request is
supported by a reasonable showing by Licensee of diligence in its
performance under the Commercial Development Plan and toward
bringing the Licensed Products to the point of practical application
as defined in 37 CFR 404.3(d). Licensee shall amend the Commercial
Development Plan and Benchmarks at the request of PHS to address any
Licensed Fields of Use not specifically addressed in the plan
originally submitted.
9.03 Licensee shall report to PHS the date of the First Commercial Sale
in each country in the Licensed Territory within thirty (30) days of
such occurrence.
9.04 Licensee shall submit to PHS within sixty (60) days after each
calendar half-year ending June 30 and December 31 a royalty report
setting forth for the preceding half-year period the amount of the
Licensed Products sold or Licensed Processes practiced by or on
behalf of Licensee in each country within the Licensed Territory,
the
9
<PAGE>
Net Sales, and the amount of royalty accordingly due. With each
such royalty report, Licensee shall submit payment of the earned
royalties due. If no earned royalties are due to PHS for any
reporting period, the written report shall so state. The royalty
report shall be certified as correct by an authorized officer of
Licensee and shall include a detailed listing of all deductions made
under Paragraph 2.05 to determine Net Sales made under Article 6 to
determine royalties due.
9.05 Licensee agrees to forward semi-annually to PHS a copy of such
reports received by Licensee from its sublicensees during the
preceding half-year period as shall be pertinent to a royalty
accounting to PHS by Licensee for activities under the sublicense.
9.06 Royalties due under Article 6 shall be paid in U.S. dollars. For
conversion of foreign currency to U.S. dollars, the conversion rate
shall be the rate quoted in The Wall Street Journal on the day that
the payment is due. All checks and bank drafts shall be drawn on
United States banks and shall be payable to NIH/Patent Licensing at
the address shown on the Signature Page below. Any loss of
exchange, value, taxes, or other expenses incurred in the transfer
or conversion to U.S. dollars shall be paid entirely by Licensee.
All royalty payments due under this Agreement shall be mailed to the
following address: NIH, P.O. Box 360120, Pittsburgh, Pennsylvania
15251-6120. The royalty report required by paragraph 9.04 of this
Agreement shall accompany each such payment and a copy of such
report shall also be mailed to PHS at its address for notices
indicated on the Signature Page of this Agreement.
9.07 Late charges will be applied to any overdue payments as required by
the U.S. Department of Treasury in the Treasury Fiscal Requirements
Manual, Section 8025.40. The payment of such late charges shall not
prevent PHS from exercising any other rights it may have as a
consequence of the lateness of any payment.
9.08 All plans and reports required by this Article 9 and marked
"confidential" by Licensee shall be treated by PHS as commercial and
financial information obtained from a person and as privileged and
confidential and, to the extent permitted by law, shall not be
subject to disclosure under the Freedom of Information Act, 5 U.S.C.
(S) 552.
10
<PAGE>
10. PERFORMANCE
-----------
10.01 Licensee shall use its reasonable best efforts to introduce the
Licensed Products into the commercial market or apply the Licensed
Processes to commercial use as soon as practicable. "Reasonable
best efforts" for the purpose of this provision shall include, but
not be limited to, adherence to the Commercial Development Plan and
performance of the Benchmarks. The efforts of a sublicensee shall
be considered the efforts of Licensee.
10.02 Upon the First Commercial Sale, until the expiration of this
Agreement, Licensee shall use its reasonable best efforts to keep
Licensed Products and Licensed Processes reasonably accessible to
the public.
11. INFRINGEMENT AND PATENT ENFORCEMENT
-----------------------------------
11.01 PHS and Licensee agree to notify each other promptly of each
infringement or possible infringement, as well as any facts which
may affect the validity, scope, or enforceability of the Licensed
Patent Rights of which either Party becomes aware.
11.02 Pursuant to this Agreement and the provisions of Chapter 29 of Title
35, United States Code, Licensee may a) bring suit in its own name,
at its own expense, and on its own behalf for infringement of
presumably valid claims in the Licensed Patent Rights; b) in any
such suit, enjoin infringement and collect for its use, damages,
profits, and awards of whatever nature recoverable for such
infringement; and c) settle any claim or suit for infringement of
the Licensed Patent Rights-provided, however, that PHS and
appropriate Government authorities shall have the first right to
take such actions and shall have a continuing right to intervene in
such suit. Licensee shall take no action to compel the Government
either to initiate or to join in any such suit for patent
infringement. Licensee may request the Government to initiate or
joining any such suit if necessary to avoid dismissal of the suit.
Should the Government be made a party to any such suit, Licensee
shall reimburse the Government for any costs, expenses, or fees
which the Government incurs as a result of such motion or other
action, including any and all costs incurred by the Government in
opposing any such motion or other action. Upon Licensee's payment
of all costs incurred by the Government as a result of Licensee's
joinder motion or other action, these actions by
11
<PAGE>
Licensee will not be considered a default in the performance of any
material obligation under this Agreement. In all cases, Licensee
agrees to keep PHS reasonably apprised of the status and progress of
any litigation. Before Licensee commences an infringement action,
Licensee shall notify PHS and give careful consideration to the
views of PHS and to any potential effects of the litigation on the
public health in deciding whether to bring suit.
11.03 In any infringement action commenced under Paragraph 11.02, the
expenses including costs, fees, attorney fees, and disbursements,
shall be paid by Licensee. Up to fifty percent (50%) of such
expenses may be credited against the royalties payable to PHS under
Paragraph 6.03 under the Licensed Patent Rights in the country in
which such a suit is filed. In the event that fifty percent (50%)
of such expenses exceed the amount of royalties payable by Licensee
in any calendar year, the expenses in excess may be carried over as
a credit on the same basis into succeeding calendar years. A credit
against litigation expenses, however, may not reduce the royalties
due in any calendar year to less than the minimum annual royalty.
Any recovery made by Licensee, through court judgment or settlement,
first shall be applied to reimburse PHS for royalties withheld as a
credit against litigation expenses and then to reimburse Licensee
for its litigation expense. Any remaining recoveries shall be
shared equally by Licensee and PHS.
11.04 PHS shall cooperate fully with Licensee in connection with an
infringement action initiated under Paragraph 11.02. PHS agrees
promptly to provide access to all necessary documents and to render
reasonable assistance in response to a request by Licensee.
11.05 In the event that a declaratory judgment action alleging invalidity
or non-infringement of any of the Licensed Patent Rights shall be
brought against Licensee or raised by way of counterclaim or
affirmative defense in an infringement suit brought by Licensee
under Paragraph 11.02, pursuant to this Agreement and the provisions
of Chapter 29 of Title 35, United States Code or other statutes,
Licensee may a) defend the suit in its own name, at its own expense,
and on its own behalf for presumably valid claims in the Licensed
Patent Rights; b) in any such suit, ultimately to enjoin
infringement and to collect for its use, damages, profits, and
awards of whatever nature recoverable for such infringement; and c)
settle
12
<PAGE>
any claim or suit for declaratory judgment involving the Licensed
Patent Rights-provided, however, that PHS and appropriate Government
authorities shall have the first right to take such actions and
shall have a continuing right to intervene in such suit. Licensee
shall take no action to compel the Government either to initiate or
to join in any such declaratory judgment action. Licensee may
request the Government to initiate or joining any such suit if
necessary to avoid dismissal of the suit. Should the Government be
made a party to any such suit by motion or any other action of
Licensee, Licensee shall reimburse the Government for any costs,
expenses, or fees which the Government incurs as a result of such
motion or other action. Upon Licensee's payment of all costs
incurred by the Government as a result of Licensee's joinder motion
or other action, these actions by Licensee will not be considered a
default in the performance of any material obligation under this
Agreement. If Licensee elects not to defend against such declaratory
judgment action, PHS, at its option, may do so at its own expense.
In all cases, Licensee agrees to keep PHS reasonably apprised of the
status and progress of any litigation. Before Licensee commences an
infringement action, Licensee shall notify PHS and give careful
consideration to the views of PHS and to any potential effects of
the litigation on the public health in deciding whether to bring
suit.
12. NEGATION OF WARRANTIES AND INDEMNIFICATION
------------------------------------------
12.01 PHS offers no warranties other than those specified in Article 1.
12.02 PHS does not warrant the validity of the Licensed Patent Rights and
makes no representations whatsoever with regard to the scope of the
Licensed Patent Rights, or that the Licensed Patent Rights may be
exploited without infringing other patents or other intellectual
property rights of third parties.
12.03 PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER DEFINED BY
THE CLAIMS OF THE LICENSED PATENT RIGHTS.
12.04 PHS does not represent that it will commence legal actions against
third parties infringing the Licensed Patent Rights.
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12.05 Licensee shall indemnify and hold PHS, its employees, students,
fellows, agents, and consultants harmless from and against all
liability, demands, damages, expenses, and losses, including but not
limited to death, personal injury, illness, or property damage in
connection with or arising out of a) the use by or on behalf of
Licensee, its sublicensees, directors, employees, or third parties
of any Licensed Patent Rights, or b) the design, manufacture,
distribution, or use of any Licensed Products, Licensed Processes or
materials, or other products or processes developed in connection
with or arising out of the Licensed Patent Rights. Licensee agrees
to maintain a liability insurance program consistent with sound
business practice.
13. TERM, TERMINATION, AND MODIFICATION OF RIGHTS
---------------------------------------------
13.01 This Agreement is effective when signed by all parties and shall
extend to the expiration of the last to expire of the Licensed
Patent Rights unless sooner terminated as provided in this Article
13.
13.02 In the event that Licensee is in default in the performance of any
material obligations under this Agreement, and if the default has
not been remedied within ninety (90) days after the date of notice
in writing of such default, PHS may terminate this Agreement by
written notice.
13.03 At least thirty (30) days prior to filing a petition in bankruptcy,
Licensee must inform PHS in writing of its intention to file the
petition in bankruptcy or of a third party's intention to file an
involuntary petition in bankruptcy.
13.04 In the event that Licensee becomes insolvent, files a petition in
bankruptcy, has such a petition filed against it, determines to file
a petition in bankruptcy, or receives notice of a third party's
intention to file an involuntary petition in bankruptcy, Licensee
shall immediately notify PHS in writing. Furthermore, PHS shall
have the right to terminate this Agreement by giving Licensee
written notice. Termination of this Agreement is effective upon
Licensee's receipt of the written notice.
13.05 Licensee shall have a unilateral right to terminate this Agreement
and/or any licenses in any country by giving PHS sixty (60) days'
written notice to that effect.
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13.06 PHS shall specifically have the right to terminate or modify, at its
option, this Agreement, if PHS determines that the Licensee: 1) is
not executing the Commercial Development Plan submitted with its
request for a license and the Licensee cannot otherwise demonstrate
to PHS's satisfaction that the Licensee has taken, or can be
expected to take within a reasonable time, effective steps to
achieve practical application of the Licensed Products or Licensed
Processes; 2) has not achieved the Benchmarks as may be modified
under Paragraph 9.02; 3) has willfully made a false statement of, or
willfully omitted, a material fact in the license application or in
any report required by the license agreement; 4) has committed a
substantial breach of a covenant or agreement contained in the
license; 5) is not keeping Licensed Products or Licensed Processes
reasonably available to the public after commercial use commences;
6) cannot reasonably satisfy unmet health and safety needs; or 7)
cannot reasonably justify a failure to comply with the domestic
production requirement of Paragraph 5.01 unless waived. In making
this determination, PHS will take into account the normal course of
such commercial development programs conducted with sound and
reasonable business practices and judgment and the annual reports
submitted by Licensee under Paragraph 9.02. Prior to invoking this
right, PHS shall give written notice to Licensee providing Licensee
specific notice of, and a ninety (90) day opportunity to respond to,
PHS's concerns as to the previous items 1) to 7). If Licensee fails
to alleviate PHS's concerns as to the previous items 1) to 7) or
fails to initiate corrective action to PHS's satisfaction, PHS may
terminate this Agreement.
13.07 When the public health and safety so require, and after written
notice to Licensee providing Licensee a sixty (60) day opportunity
to respond, PHS shall have the right to require Licensee to grant
sublicenses to responsible applicants, on reasonable terms, in any
Licensed Fields of Use under the Licensed Patent Rights, unless
Licensee can reasonably demonstrate that the granting of the
sublicense would not materially increase the availability to the
public of the subject matter of the Licensed Patent Rights. PHS
will not require the granting of a sublicense unless the responsible
applicant has first negotiated in good faith with Licensee.
13.08 PHS reserves the right according to 35 U.S.C. (S) 209(f)(4) to
terminate or modify this Agreement if it is determined that such
15
<PAGE>
action is necessary to meet requirements for public use specified by
Federal regulations issued after the date of the license and such
requirements are not reasonably satisfied by Licensee.
13.09 Within thirty (30) days of receipt of written notice of PHS's
unilateral decision to modify or terminate this Agreement, Licensee
may, consistent with the provisions of 37 CFR (S) 404.11, appeal the
decision by written submission to the Director of NIH or designee.
The decision of the NIH Director or designee shall be the final
agency decision. Licensee may thereafter exercise any and all
administrative or judicial remedies that may be available.
13.10 Within ninety (90) days of termination of this Agreement under this
Article 13 or expiration under Paragraph 3.02, a final report shall
be submitted by Licensee. Any royalty payments, including those
related to patent expense, due to PHS shall become immediately due
and payable upon termination or expiration. If terminated under
this Article 13, sublicensees may elect to convert their sublicenses
to direct licenses with PHS pursuant to Paragraph 4.03.
14. GENERAL PROVISIONS
------------------
14.01 Neither Party may waive or release any of its rights or interests in
this Agreement except in writing. The failure of the Government to
assert a right hereunder or to insist upon compliance with any term
or condition of this Agreement shall not constitute a waiver of that
right by the Government or excuse a similar subsequent failure to
perform any such term or condition by Licensee.
14.02 This Agreement constitutes the entire agreement between the Parties
relating to the subject matter of the Licensed Patent Rights, and
all prior negotiations, representations, agreements, and
understandings are merged into, extinguished by, and completely
expressed by this Agreement.
14.03 The provisions of this Agreement are severable, and in the event
that any provision of this Agreement shall be determined to be
invalid or unenforceable under any controlling body of law, such
determination shall not in any way affect the validity or
enforceability of the remaining provisions of this Agreement.
16
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14.04 If either Party desires a modification to this Agreement, the
Parties shall, upon reasonable notice of the proposed modification
by the Party desiring the change, confer in good faith to determine
the desirability of such modification. No modification will be
effective until a written amendment is signed by the signatories to
this Agreement or their designees.
14.05 The construction, validity, performance, and effect of this
Agreement shall be governed by Federal law as applied by the Federal
courts in the District of Columbia.
14.06 All notices required or permitted by this Agreement shall be given
by prepaid, first class, registered or certified mail properly
addressed to the other Party at the address designated on the
following Signature Page, or to such other address as may be
designated in writing by such other Party, and shall be effective as
of the date of the postmark of such notice.
14.07 This Agreement shall not be assigned by Licensee except a) with the
prior written consent of PHS, such consent to be reasonably given;
or b) as part of a sale or transfer of substantially the entire
business of Licensee relating to operations which concern this
Agreement. Licensee shall notify PHS within ten (10) days of any
assignment of this Agreement by Licensee.
14.08 Licensee agrees in its use of any PHS-supplied materials to comply
with all applicable statutes, regulations, and guidelines, including
Public Health Service and National Institutes of Health regulations
and guidelines. Licensee agrees not to use the materials for
research involving human subjects or clinical trials in the United
States without complying with 21 CFR Part 50 and 45 CFR Part 46.
Licensee agrees not to use the materials for research involving
human subjects or clinical trials outside of the United States
without notifying PHS, in writing, of such research or trials and
complying with the applicable regulations of the appropriate
national control authorities. Written notification to PHS of
research involving human subjects or clinical trials outside of the
United States shall be given no later than sixty (60) days prior to
commencement of such research or trials.
14.09 Licensee acknowledges that it is subject to and agrees to abide by
the United States laws and regulations (including the Export
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Administration Act of 1979 and Arms Export Control Act) controlling
the export of technical data, computer software, laboratory
prototypes, biological material, and other commodities. The
transfer of such items may require a license from the cognizant
agency of the U.S. Government or written assurances by Licensee that
it shall not export such items to certain foreign countries without
prior approval of such agency. PHS neither represents that a
license is or is not required or that, if required, it shall be
issued.
14.10 Licensee agrees to mark the Licensed Products or their packaging
sold in the United States with all applicable U.S. patent numbers
and similarly to indicate "Patent Pending" status. All Licensed
Products manufactured in, shipped to, or sold in other countries
shall be marked in such a manner as to preserve PHS patent rights in
such countries.
14.11 By entering into this Agreement, PHS does not directly or indirectly
endorse any product or service provided, or to be provided, by
Licensee whether directly or indirectly related to this Agreement.
Licensee shall not state or imply that this Agreement is an
endorsement by the Government, PHS, any other Government
organizational unit, or any Government employee. Additionally,
Licensee shall not use the names of NIH, CDC, or PHS or their
employees in any advertising, promotional, or sales literature
without the prior written consent of PHS.
14.12 The Parties agree to attempt to settle amicably any controversy or
claim arising under this Agreement or a breach of this Agreement,
except for appeals of modification or termination decisions provided
for in Article 13. Licensee agrees first to appeal any such
unsettled claims or controversies to the Director of NIH, or
designee, whose decision shall be considered the final agency
decision. Thereafter, Licensee may exercise any administrative or
judicial remedies that may be available.
14.13 Nothing relating to the grant of a license, nor the grant itself,
shall be construed to confer upon any person any immunity from or
defenses under the antitrust laws or from a charge of patent misuse,
and the acquisition and use of rights pursuant to 37 CFR Part 404
shall not be immunized from the operation of state or Federal law by
reason of the source of the grant.
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14.14 Paragraphs 4.03, 8.01, 9.06, 9.07, 12.01-12.05, 13.09, 13.10, and
14.12 of this Agreement shall survive termination of this Agreement.
SIGNATURES BEGIN ON NEXT PAGE
19
<PAGE>
PHS PATENT LICENSE AGREEMENT - EXCLUSIVE
SIGNATURE PAGE
--------------
FOR PHS:
by: Barbara McGarey 3/18/94
-------------------------- ---------------
Barbara McGarey, J.D. Date
Deputy Director, Office of Technology Transfer
National Institutes of Health
Mailing Address for Notices:
Office of Technology Transfer
National Institutes of Health
Box OTT
Bethesda, Maryland 20892
FOR Licensee (Upon information and belief, the undersigned expressly certifies
or affirms that the contents of any statements of Licensee made or referred to
in this document are truthful and accurate.):
by: H. Stewart Parker March 10, 1994
----------------------------- -----------------
H. Stewart Parker Date
President and Chief Executive Officer
Targeted Genetics Corporation
Mailing Address for Notices:
Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
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APPENDIX A - PATENT OR PATENT APPLICATION
-----------------------------------------
Patent or Patent Application:
U.S. Patent Application SN 07/891,962 entitled "Modified Adeno-Associated Virus
Vector Capable Of Expression From A Novel Promoter" and corresponding foreign
applications.
21
<PAGE>
APPENDIX B - LICENSED FIELDS OF USE AND TERRITORY
-------------------------------------------------
Licensed Territory: World-wide.
Licensed Fields of Use: Vector-based gene therapy for cystic fibrosis.
22
<PAGE>
APPENDIX C - ROYALTIES
----------------------
Royalties:
Licensee agrees to pay to PHS a noncreditable, nonrefundable license issue
royalty in the amount of [ * ] according to the following
payment schedule:
A. [ * ] within thirty (30) days from the Effective
Date; and
B. [ * ] within three hundred sixty-five (365) days
from the Effective Date.
Licensee agrees to pay to PHS a nonrefundable minimum annual royalty in the
amount of [ * ].
Licensee agrees to pay PHS earned royalties on Net Sales as follows:
A. [ * ] of Net Sales by Licensee or an Affiliate of
Licensee of all Licensed Products manufactured and sold in the
Licensed Territory; and;
B. Licensee shall be entitled to a [ * ] credit against
the earned royalty rate for each percent of royalty in excess of [
* ] Licensee must pay to other unaffiliated licensors for the
manufacture and sale of Licensed Products. Said reduction, however,
shall not reduce the royalty rate for Licensed Products below [
* ] provided for under Paragraph A above.
Licensee agrees to pay PHS Sublicensing Royalties as follows:
A. [ * ] of Net Sales by Sublicensee, or an Affiliate
of Sublicensee of all Licensed Products manufactured and sold in the
Licensed Territory plus [ * ] of the value of any
consideration received in granting the sublicense.
B. Licensee shall be entitled to a [ * ] credit against
the earned sublicensing royalty rate for each percent of royalty in
excess of [ * ]. Sublicensee must pay to other
unaffiliated licensors for the manufacture and sale of Licensed
Products. Said reduction, however, shall not reduce the sublicensing
royalty rate for Licensed Products [ * ] provided for
under Paragraph A above.
[*] Confidential Treatment Requested
23
<PAGE>
Licensee agrees to pay PHS benchmark royalties as follows:
[ * ] upon first human use of Licensed Products.
[ * ] upon approval of each Product License Application
(PLA) for Licensed Products.
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<PAGE>
APPENDIX D - MODIFICATIONS
--------------------------
PHS and Licensee agree to the following modifications to the Articles and
Paragraphs of this Agreement:
ARTICLE FIVE
5.03 (revised) Licensee acknowledges that PHS may enter into future
Cooperative Research and Development Agreements (CRADAs) under the Federal
Technology Transfer Act of 1986 that relate to the subject matter of this
Agreement. Licensee agrees not to unreasonably deny requests for sublicense or
cross license rights from such future collaborators with PHS when acquiring such
derivative rights is necessary in order to make a CRADA project feasible.
Licensee may request an opportunity to join as a party to the proposed CRADA.
Notwithstanding the foregoing, the grant of such derivative rights to a
prospective PHS collaborator by Licensee shall include the right to sell or have
sold the inventions defined by the Licensed Patent Rights in Licensed Fields of
Use only at the option of Licensee.
5.05 (revised) In addition to the reserved license of Paragraph 5.01
above, PHS reserves the right to grant nonexclusive licenses to make and to use,
but not to sell or have sold, the inventions defined by the Licensed Patent
Rights for purposes of research involving the inventions themselves, and not for
purposes of commercial manufacture or in lieu of purchase if the inventions are
available as commercial products for research purposes. The purpose of this
research license is to encourage basic research, whether conducted at an
academic or corporate facility. In order to safeguard the Licensed Patent
Rights, however, PHS shall consult with Licensee before granting to commercial
entities a research license or providing to them research samples of the
materials claimed in the Licensed Patent Rights. In the event that Licensee can
provide convincing written evidence to PHS that a commercial entity that has
been granted a research license to Licensed Patent Rights is developing the
inventions for commercial manufacture or in lieu of purchase if the inventions
are available as commercial products, then Licensee can request that PHS
terminate its research license with such commercial entities, such request not
to be unreasonably denied.
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ARTICLE SIX
6.01 (revised) Licensee agrees to pay to PHS a noncreditable,
nonrefundable license issue royalty as set forth in Appendix C.
6.05 (revised) A claim of a patent or patent application licensed under
this Agreement shall cease to fall within the Licensed Patent Rights for the
purpose of computing the minimum annual royalty and earned royalty payments in
any given country on the earliest of the dates that a) the claim has been
abandoned but not continued, b) the patent expires, c) the patent is no longer
maintained by the Government or Licensee, or d) all claims of the Licensed
Patent Rights have been held to be invalid or unenforceable by an unappealed or
unappealable decision of a court of competent jurisdiction or administrative
agency.
ARTICLE SEVEN
7.01 (revised) Upon Effective Date, Licensee agrees to take the
responsibility and pay for, but to consult with PHS, in the preparation, filing,
prosecution, and maintenance of any and all patent applications or patents
included in the Licensed Patent Rights and shall furnish copies of relevant
patent-related documents to PHS, who shall retain its principle power of
attorney. Fifty percent (50%) of the cumulative amount of such payments may be
credited against royalties due under Paragraph 6.03; however, the net royalty
payment in any calendar year may not be lower than the minimum annual royalty
specified in Appendix B. Licensee may elect to surrender its rights in any
country of the Licensed Territory under any Licensed Patent Rights upon sixty
(60) days' written notice to PHS and owe no payment obligation under this
paragraph for subsequent patent-related expenses incurred in that country.
ARTICLE NINE
9.04 (revised) Beginning after the date of the First Commercial Sale,
Licensee shall submit to PHS within sixty (60) days after each calendar half-
year ending June 30 and December 31 a royalty report setting forth for the
preceding half-year period the amount of the Licensed Products sold or Licensed
Processes practiced by or on behalf of Licensee in each country within the
Licensed Territory, the Net Sales, and the amount of royalty accordingly due.
With each such royalty report, Licensee shall submit payment of the earned
royalties due. If no earned royalties are due to PHS for any reporting period,
the written report shall so state. The royalty report shall be certified as
correct by an authorized officer of Licensee and shall include a detailed
listing of all deductions made under Paragraph 2.05 to determine Net Sales made
under Article 6 to determine royalties due.
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<PAGE>
ARTICLE THIRTEEN
13.01 (revised) This Agreement is effective when signed by all parties
("Effective Date") and shall extend to the expiration of the last to expire of
the Licensed Patent Rights unless sooner terminated as provided in this Article
13.
27
<PAGE>
APPENDIX E - BENCHMARKS
-----------------------
Licensee agrees to the following Benchmarks for its performance under this
Agreement and, within ten (10) days of achieving a Benchmark, shall notify PHS
that the Benchmark has been achieved:
1. Complete development of a manufacturing process for a Licensed Product
within nine (9) months of the Effective Date.
2. Initiate toxicology studies for a Licensed Product within twelve (12)
months of the Effective Date.
3. File an investigational New Drug (IND) application for a Licensed
Product within eighteen (18) months of the Effective Date.
4. Initiate Phase I clinical trials for a Licensed Product within twenty-
four (24) months of the Effective Date.
5. Initiate Phase II or equivalent (e.g. Phase Ib) clinical trials for a
Licensed Product within forty-eight (48) months of the Effective Date.
6. Initiate Phase III or equivalent (e.g. Phase II/III) clinical trials
for a Licensed Product within eighty-four (84) months of the Effective
Date.
28
<PAGE>
TARGETED GENETICS CORPORATION
COMMERCIAL DEVELOPMENT PLAN
U.S.P.A. 07/891,962
BACKGROUND
Cystic fibrosis (CF) is an autosomal recessive disease that afflicts 30,000
people in the United States and 60,000 worldwide. The hallmarks of the disease
include thick, dehydrated airway mucus, chronic Pseudomonas lung infection,
pancreatic insufficiency, bile duct obstruction, infertility in males, reduced
fertility in females, intestinal obstruction, nasal polyp formation and chronic
sinusitis. CF is caused by a defect in a protein called CFTR, found in
epithelial cells.
Approximately 90% of the mortality in CF patients is related to pulmonary
disease, caused by Pseudomanas infection and airway inflammation. It is
believed that the pathology associated with CF may begin very early in life.
Thus, treating the patient very early in life before significant lung disease
occurs may be crucial. Currently, the average life span of a CF patient is 29.
Recently, Genentech's DNase received a unanimous recommendation for approval by
an FDA advisory committee. DNase is a useful product for the treatment of the
effects of CF, but does not address the causes of this disease.
Several gene therapy companies have developed adenovirus vector systems to
deliver the CFTR gene into the lungs of CF patients. The single ongoing
clinical trial with an adenovirus delivery system, however, has yielded toxicity
problems relating to lung tissue inflammation caused by the vector. These
results may serve to confirm preclinical animal studies conducted previously
with adenovirus-CFTR vectors where serious lung inflammation was also observed.
In addition to this toxicity concern, adenovirus is unable to sustain expression
of the CFTR gene in vivo beyond a few weeks. Liposomes, which are in
preclinical development as delivery vehicles for the CFTR gene, have a similar
limitation.
TGC APPROACH
Adeno-associated virus (AAV) is a non-pathogenic human isolate which integrates
stably and with high efficiency into the genome of respiratory epithelial cells.
This type of vector may be used for stable correction of the gene defect early
in life, prior to onset of irreversible lung disease.
29
<PAGE>
TGC will initially deliver the Licensed Product vector directly into lungs of
patients via a bronchoscope. An aerosol delivery system may be developed for
the vector if treatment is required more than two or three times per year.
Prior to initiation of clinical trials, TGC will be required to develop a
manufacturing process for the Licensed Product. It is expected that this will
be completed by the end of 1994. In parallel with this effort, the company will
initiate toxicology studies in large animals at Johns Hopkins University. The
project is expected to be completed by the first quarter of 1995. An
Investigational New Drug Application is scheduled to be filed by the end of
1995, with Phase I clinical studies slated to begin by the first quarter of
1996.
Phase I clinical studies for the Licensed Product will be conducted at Johns
Hopkins University under the director of Dr. Terence Flotte. Dr. Flotte
recently completed studies at Johns Hopkins that demonstrated that CFTR
expression could be sustained for up to six months in the lungs of rabbits
receiving direct in vivo delivery of the Licensed Product.
The sequence of clinical trials needed to move the Licensed Product into PLA
filing position differs substantially from standard clinical trial design. The
first Phase I trial will be designed to evaluate toxicity in adult CF patients
following delivery to a single lung lobe. Subsequent Phase Ib or Phase II
studies are expected to be initiated by early 1998, and will be designed to
evaluate, from a safety and efficacy standpoint, bilateral whole lung delivery
in adults, repeated delivery of vector, as well as delivery to neonatal and
pediatric populations. Phase III or Phase II/III clinical studies are expected
to begin by the first quarter of 2001, and will be designed on the basis of the
results from the Phase Ib or Phase II trials, as well as from additional pre-
clinical studies that may be conducted in parallel with the clinical trials.
Among the factors that will dictate how the Phase III (or II/III) trials are
designed are those following:
. Whether differential toxicity and/or efficacy profiles are observed
between the pediatric and adult populations enrolled in the trial
. Whether adult patients in the trial derived significant efficacy from
the therapy in the setting of chronic inflammation and scarring.
. Whether repeated delivery or non-bronchoscopic delivery was necessary
for long-term efficacy of the vector.
Given the uncertainty regarding the design of the Phase III or Phase II/III
trials, it is difficult at this stage to predict when a Product Licensing
Application will be filed for the Licensed Product.
30
<PAGE>
REDACTED VERSION
EXHIBIT 10.11
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1997
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.11
EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this 14th day of March 1994 by and
between: Medical College of Ohio, a public institution of higher education,
having administrative offices in Toledo, Ohio 43699 (hereinafter referred to as
"LICENSOR") and Targeted Genetics Corporation, having administrative offices in
Seattle, Washington 98101, (hereinafter referred to as "LICENSEE").
WHEREAS, Dr. James Trempe and Qicheng Yang, while employed by the Medical
College of Ohio, has invented a technology entitled "Cell Lines that Inducibly
Express Adeno-associated Virus (AAV) Proteins" (hereinafter referred to as the
"Invention") and Dr. Trempe is under obligation to assign all his rights, title
and interest in and to the invention to LICENSOR, and LICENSOR will take
appropriate steps to have Dr. Trempe assign such rights to LICENSOR;
WHEREAS, the Invention was developed with the financial support of the
National Institutes of Health, the March of Dimes Birth Defects Foundation and
the Ohio Cancer Research Associates which have an interest in seeing the
Invention used in a manner consistent with the public interest;
WHEREAS, LICENSOR warrants and represents that upon assignment of the
Invention to LICENSOR that it will be the sole and exclusive owner of all Dr.
Trempe's rights, title and interest in and to the Invention or, should patent
rights not be obtainable, to Know-how provided by Dr. Trempe relating to the
Invention, and in and to any patent application(s), both foreign and domestic,
that are pending and/or may hereafter be filed on the Invention;
WHEREAS, LICENSEE desires to obtain an exclusive license under any and all
of LICENSOR's interest in Patent Rights, both foreign and domestic, that may
hereafter be sought and/or granted on the Invention, granting to LICENSEE the
exclusive right to make, have made, use and/or sell the Invention;
WHEREAS, LICENSOR desires that the aforesaid Invention be developed,
utilized and commercially exploited to the fullest extent and is willing to
grant an exclusive license to LICENSEE in accordance with the terms and
conditions hereinafter specified;
NOW, THEREFORE, the LICENSOR and LICENSEE agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
1.1 "Licensed Patent Rights", as used herein, shall mean U.S. Patent
Application Serial No. 08/151,065 and any other patent applications or patents
covering "Licensed Materials". The term "Licensed Patent Rights" shall include
any divisions, continuations, continuation-in-part or reissues, and all foreign
counterparts thereof, covering "Licensed Materials".
1.2 "Licensed Materials", as used herein, shall mean cell lines that
inducibly express adeno-associated virus (AAV) proteins developed by James P.
Trempe, Ph.D., Biochemistry & Molecular Biology, MCO (hereinafter referred to as
"Investigator"), and improvements made by "Investigator" to such cell lines
which exist as of the date of execution of this Agreement or are conceived of
and reduced to practice by "Investigator" during the five (5) year period
beginning on the effective date of this Agreement and are owned by LICENSOR.
1.3 "Licensed Rights", as used herein, shall mean Licensed Patent Rights
and Licensed Know How.
1.4. "Licensed Product(s)", as used herein, shall mean any composition of
matter, product, apparatus, kit or component part thereof, and any process,
procedure or method which cannot be developed, manufactured, used or sold
without utilizing Licensed Rights.
1.4.1 "Valid Claim" as used herein, means any claim, or claims, in any
granted, unexpired, or judicially validated claim or claims of Patent Rights or
of any pending claim in any then pending but unissued patent application which
has not been held unenforceable, unpatentable, or invalid by a decision of a
court or other governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, and which has not been admitted
to be invalid or unenforceable through reissue or disclaimer.
1.5 "Licensed Know-how", as used herein, shall mean any method, procedure,
process, composition of matter, biological material or other subject matter
within the knowledge and possession of the Investigator on the effective date of
this agreement which is incorporated or becomes part of the Licensed Patent
Rights and which is disclosed by LICENSOR to LICENSEE and is identified as
Licensed Know-how in writing by LICENSOR within 30 days thereafter.
2
<PAGE>
1.6 "Net Sales Revenue", as used herein, shall mean the gross receipts,
royalties, fees or other valuable consideration of any kind received by or
credited to the benefit of the LICENSEE for the sale of Licensed Products to
unaffiliated third parties, less the following deductions:
i) Trade or quantity discounts actually allowed and taken in such
amounts as are customary;
ii) Amounts repaid or credited by reason of timely rejections or
returns.
1.7 "Affiliates" shall mean any company, corporation, or business in which
LICENSEE owns or controls at least a fifty percent (50%) ownership interest or
which owns or controls at least a fifty percent (50%) ownership interest of
LICENSEE.
1.7.1 "Non-Royalty Income", as used herein, shall mean any licensing fees,
upfront fees, milestone payments, equity, or any equivalent of the foregoing,
that is explicitly due to or receivable by LICENSEE from a third party in
consideration for a grant by LICENSEE to make, have made, use or sell LICENSED
PRODUCTS or LICENSED RIGHTS.
1.8 The "Effective Date" of this Agreement shall mean ________________.
ARTICLE II
GRANT
-----
2.1 LICENSOR hereby grants to LICENSEE and its Affiliates a worldwide
exclusive license of LICENSOR's entire interest under Licensed Patent Rights,
Licensed Know-how and Licensed Materials to make, have made, use and sell
(including to sell for resale by others) Licensed Product(s). Nothing in this
paragraph shall preclude LICENSOR from meeting its obligations to grant certain
rights to the U.S. Government, the March of Dimes or the Ohio Cancer Research
Associates, as required by those organizations.
2.2 LICENSOR hereby grants to LICENSEE under Licensed Patent Rights,
Licensed Know-how and Licensed Materials the exclusive right to grant one or
more non-exclusive sub-licenses to make, have made, use and sell Licensed
Product(s) provided only that such sub-licenses are granted by LICENSEE to such
sub-licensees on terms no less favorable to LICENSOR than provided for herein.
3
<PAGE>
2.3 LICENSOR reserves unto itself the personal right to make, have made,
use and publish information concerning Licensed Product(s) and Licensed Know-How
for purposes of scholarly research by or on behalf of LICENSOR only, and for no
other purpose; provided only, that LICENSOR agrees to notify LICENSEE of any
information to be publicly disseminated by LICENSOR relating to Licensed
Product(s) at least ninety (90) days prior to such public dissemination so that
LICENSEE can take any steps deemed necessary by it to preserve domestic and/or
foreign patent rights. All aforementioned restrictions on the LICENSOR shall
terminate five (5) years after the effective date of this agreement, unless an
extension is requested in writing by LICENSEE and approved by LICENSOR, such
approval not to be unreasonably withheld. Notwithstanding the foregoing,
LICENSOR shall not distribute Licensed Materials to commercial third parties
without the prior written consent of LICENSEE. LICENSOR shall have the right to
distribute Licensed Materials to not-for-profit third parties under terms of a
materials transfer agreement incorporated herein as Attachment A.
2.4 LICENSOR shall provide LICENSEE with sufficient quantities of Licensed
Material TO enable LICENSEE to make Licensed Product(s).
ARTICLE III
COMPENSATION-ROYALTIES
----------------------
3.1 LICENSEE agrees to pay to LICENSOR a royalty of [ * ] of the Net Sales
Revenue derived by LICENSEE, and its Affiliates or sub-licensees, from the sale
of Licensed Product(s) covered by Licensed Patent Rights throughout the term of
this Agreement on a country-by country basis. Notwithstanding the foregoing, in
the event that biological materials, patent rights or know-how licensed by
LICENSEE from a third party, are required for the manufacture, use or sale
(including as part of) a Licensed Product covered by a Valid Claim, LICENSEE
shall pay LICENSOR a royalty of [ * ] on the Nets Sales Revenue of Licensed
Products on a country-by-country basis.
3.2 LICENSEE agrees to pay to LICENSOR a royalty of [ * ] of the Net
Sales Revenue derived by LICENSEE, and its Affiliates or sub-licensees, from the
sale of Licensed Products in any country where no Licensed Patent Rights are in
effect at the time of such sales. If there are no Licensed Patent Rights under
article 1.1 hereof, the term of this Agreement shall extend for ten (10) years
from the effective date of the Agreement.
[*] Confidential Treatment Requested
4
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3.3 The obligation to pay LICENSOR a royalty under this Article III is
imposed only once with respect to the same unit of Licensed Product regardless
of the number of Valid Claims or Patent Rights covering the same.
3.4 LICENSEE agrees to pay LICENSOR the following sums within thirty (30)
days of the time that each of the milestones listed below related to the
Licensed Product is first reached:
[ * ] upon execution of this Agreement
[ * ] upon successful completion of Phase I clinical trials;
[ * ] upon successful completion of Phase 111 clinical trials;
[ * ] upon FDA approval of a New Drug Application.
3.5 Royalty payments made pursuant to Articles 3.1 and 3.2, supra, shall
be made quarterly for the three (3) month periods ending March 31, June 30,
September 30 and December 31 of each calendar year and shall be due and payable
within two (2) months of the termination of each quarter--i.e., such payments
shall be due or payable on or before May 31, August 31, November 31 and the last
day of February each calendar year.
3.6 All monies due to LICENSOR hereunder shall be paid in United States
dollars. LICENSEE shall be responsible for making the payment to the LICENSOR.
The rate of exchange to be used in computing the amount of currency equivalent
to United States dollars due to LICENSOR shall be made at the rate of exchange
in effect at Chase Manhattan Bank on the last business day of the calendar month
in which payment falls due.
3.7 LICENSEE shall also pay to LICENSOR a percentage of [ * ] of all Non-
Royalty Income receivable by LICENSEE in connection therewith. Any such payment
to LICENSOR shall be made within thirty (30) days after receipt of such proceeds
by LICENSEE. Any such sale or transfer shall not affect LICENSEE's obligation to
pay royalties pursuant to articles 3.1 and 3.2 above. In no event shall Non-
Royalty Income include any payment or other value due to or received by LICENSEE
from a third party that is not explicitly due to or received by LICENSEE in
consideration for a grant by LICENSEE to a third party to make, have made, use
or sell LICENSED PRODUCTS under LICENSED RIGHTS.
[*] Confidential Treatment Requested
5
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3.8 In the event that LICENSEE transfers or otherwise disposes of LICENSED
RIGHTS to a third party in combination with a patent(s) and/or right(s) of one
or more third parties and LICENSEE is due or receives Non-Royalty Income then
LICENSEE shall pay LICENSOR an equitable portion of such Non-Royalty Income as
to be determined by the good faith negotiations of LICENSOR and LICENSEE.
ARTICLE IV
RECORD KEEPING AND REPORTS
--------------------------
4.1 LICENSEE agrees to keep accurate records in sufficient detail to
enable the royalties payable by LICENSEE to LICENSOR hereunder to be determined,
and agrees to permit said records to be examined from time to time during the
life of this Agreement , and for one (1) year after the expiration or
termination thereof, at reasonable intervals by an independent auditor mutually
agreeable to the parties, during normal business hours, and to the extent
necessary to verify the reports and payments required hereunder.
4.2 LICENSEE agrees to furnish LICENSOR with written Reports within two
(2) months of the termination of each calendar quarter (i.e., such written
Reports shall be due as in Article 3.5 supra) setting forth separately by model
number or other identifying designation, the total number of Licensed Products
theretofore made and sold hereunder during the preceding calendar quarter and
the royalties due thereon. Each such Report shall be accompanied by a copy of
any sub-licensee's Report received subsequent to LICENSEE's prior Report and
prior to LICENSEE's current Report. If available, LICENSEE agrees to provide
LICENSOR a copy of its audited annual financial report and audited annual
financial reports of its affiliates and sublicensees.
4.3 In the event that LICENSEE's royalties calculated for any semi-annual
period are in error by greater than MINUS TEN PERCENT (-10%), the costs of any
audit and review initiated by LICENSOR will be borne by LICENSEE; but,
otherwise, the LICENSOR shall bear the costs of any audit initiated by LICENSOR.
ARTICLE V
PATENT RIGHTS
-------------
5.1 LICENSEE shall, in the first instance, have the sole and exclusive
right to file any and all patent applications, both foreign and domestic on any
Invention or improvement falling within the scope of this Agreement; and,
LICENSEE shall be responsible for all costs, fees and expenses incurred in
connection with the filing,
6
<PAGE>
prosecution and maintenance of any such patent application and the maintenance
of any patent issuing thereon. Any such patent shall be assigned to the LICENSOR
and be included within the Licensed Patent Rights defined by this Agreement.
LICENSOR shall be provided with all patent applications, Office Actions and
responses in a timely manner for its review and comment prior to filing thereof.
LICENSOR agrees to cooperate in filing patent applications in LICENSOR's name on
any such Invention and/or improvement.
5.2 In the event that LICENSEE determines that it will not, for any
reason, file, prosecute and/or maintain any foreign or domestic patent
application or patent on any Invention or improvement relating to the basic
technology licensed hereunder, it will promptly notify LICENSOR of its decision
and LICENSOR shall thereafter have the sole and exclusive right to file,
prosecute and/or maintain any such patent application or patent, either foreign
or domestic, at its own expense; and, any patent issuing therefrom shall not be
included among Licensed Patent Rights and LICENSEE shall forfeit any right to
the technology covered by such patent application or patent unless this
Agreement shall be amended, in writing, to include such patent application or
patent. LICENSEE agrees to cooperate in filing patent applications in
LICENSOR's name on any such Invention and/or improvement where LICENSEE declines
to proceed at its own expense.
5.3 If, at any time during the term of this Agreement, LICENSEE elects to
abandon any pending patent application or issued patent, either foreign or
domestic, it shall notify LICENSOR of that decision at least two (2) months
prior to any deadline for filing any response or taking any other action
necessary to maintain any such application and/or patent in existence; and,
thereafter, LICENSOR shall have the right and option to take over the sole and
exclusive responsibility for the prosecution of any such application and/or the
maintenance of any such patent solely at LICENSOR's expense, and any patent
issuing there from shall not be included among Licensed Patent Rights and
LICENSEE shall forfeit any right to that technology covered by such patend
application or patent unless this Agreement is amended, in writing, to include
such patent.
ARTICLE V1
DUE DILIGENCE
-------------
6.1 LICENSEE, during the entire term of this Agreement, shall utilize its
best efforts in proceeding with the development, manufacture, sale and
commercial exploitation of Licensed Product(s), and in creating a supply and
demand for same.
7
<PAGE>
6.2 LICENSEE agrees to keep LICENSOR fully and promptly informed of its
progress on the commercial exploitation of Licensed Product(s) hereunder by
annual reports due at the end of each calendar year.
ARTICLE V11
PATENT MARKING
--------------
7.1 LICENSEE shall mark, and shall require its sub-licensee(s) to mark,
each Licensed Product made and sold by it or by them with an appropriate patent
marking.
ARTICLE V111
TERM AND TERMINATION
--------------------
8.1 This Agreement shall be in force from the Effective Date hereof and
shall remain in full force and effect thereafter until the later of the last to
expire of Patent Rights, unless extended by mutual written agreement of the
parties or unless sooner terminated in accordance with the provision set forth
herein below.
8.2 If, at any time, LICENSEE shall have defaulted in the performance of
its obligations hereunder, LICENSOR may give written notice of such default;
and, if such default has not been cured within ninety (90) days after such
written notice, this Agreement shall terminate forthwith on the ninety-first
(91st) day following the date of such written notice.
8.3 LICENSEE may terminate this Agreement upon ninety (90) days written
notice to LICENSOR.
ARTICLE IX
DISPOSITION OF LICENSED PRODUCTS
--------------------------------
ON HAND UPON TERMINATION
------------------------
9.1 In the event of early termination of this Agreement, LICENSEE and its
sub-licensees shall have the right to use or sell all the Licensed Products on
hand at the time of such early termination, provided that LICENSEE shall be
obligated to pay to the LICENSOR a royalty on such sales as set forth in Article
III.
8
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ARTICLE X
GOVERNMENTAL RIGHT
------------------
10.1 In the event that it is found that any Licensed Right covered by this
Agreement is subject to the rights and limitations of Public Laws (PL) 96-517
and 98-620 and implementing regulations prescribed by the Federal Office of
Management and Budget, then LICENSEE agrees to include a statement in any such
patent application fully identifying such governmental right; and, LICENSEE
acknowledges that LICENSOR will have the right to furnish the Federal
Government, among other things, with a worldwide, non-exclusive, royalty free
license for such Invention(s) notwithstanding anything in this Agreement to the
contrary.
ARTICLE X1
PATENT ENFORCEMENT
------------------
11.1 LICENSEE shall have the sole and exclusive right to enforce
LICENSOR's-Patent Rights and to file suit in its own name and in the name of
LICENSOR to enforce such Patent Rights using counsel of LICENSEE's choice.
LICENSEE shall also have the sole and exclusive right to defend all charges of
infringements, using counsel of LICENSEE's choice, arising from the development,
manufacture, use or sale of Licensed Products(s). Any infringement prosecution
or defense shall be at LICENSEE's expense. LICENSEE shall further have the sole
and exclusive right to settle and compromise any such controversy with third
parties on terms that it, in its sole discretion, deems right and proper;
provided only, that LICENSEE shall not grant to any third party a sub-license
which is less favorable to LICENSOR in terms of royalty payments payable to
LICENSOR than the terms provided for herein unless and until LICENSEE obtains
LICENSOR's approval of such less favorable terms. Any recovery obtained by
LICENSEE as the result of any such proceedings, by settlement or otherwise,
shall be applied first, to pay LICENSEE's costs and expenses of the proceeding,
with the remainder, if any, to be paid fifty percent (50%) to-LICENSOR and fifty
percent (50%) to LICENSEE.
11.2 In the event that LICENSEE shall determine, for any reason, that it
does not choose to enforce LICENSOR's Patent Rights, then LICENSEE agrees to
promptly notify LICENSOR of such decision; and thereafter, LICENSOR shall have
the sole and exclusive right to enforce LICENSOR's Patent Rights solely at its
expense and any and all recoveries shall be awarded solely and exclusively to
LICENSOR.
11.3 In the event that one party elects to prosecute and defend an
infringement action pursuant to Articles 11.1 or 11.2, the other party shall
cooperate
9
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and supply technical assistance reasonably requested by the other party for the
conduct of the proceedings.
ARTICLE X11
USE OF NAMES. TRADE NAMES AND TRADEMARKS
-----------------------------------------
12.1 LICENSEE agrees to refrain from using and to require its Affiliates
to refrain from using the name of the Medical College of Ohio without the
express written permission of the President of the Medical College of Ohio, and
LICENSOR agrees to refrain from using the name of Targeted Genetics Corporation
without the express written permission of the President of Targeted Genetics
Corporation, such approval not to be unreasonably withheld by Targeted Genetics
Corporation. Notwithstanding the foregoing, LICENSOR hereby consents to
references to it (1) in such reports or documents sent to stockholders or filed
with or submitted to any governmental regulatory agencies or bodies or stock
exchanges or as may be required to obtain investment capital, or (2) pursuant to
any requirements of applicable law or governmental regulations, provided that,
in the event of any such disclosure, LICENSEE shall afford LICENSOR the prior
opportunity to review the text of such disclosure. LICENSEE shall use its best
efforts to comply with any reasonable requests by LICENSOR regarding changes.
ARTICLE XIII
WAIVER
------
13.1 No omission or delay of either party hereto in requiring due and
punctual fulfillment of the obligations of any other party hereto shall be
deemed to constitute a waiver by such party of its rights to require such due
and punctual fulfillment, or of any other of its remedies hereunder.
ARTICLE XIV
WARRANTIES
----------
14.1 LICENSOR warrants that it has the lawful right to grant the license
set forth herein.
14.2 LICENSOR makes no express or implied warranties of merchantability or
fitness of the Licensed Products for any particular purpose.
14.3 Nothing in this Agreement shall be construed as:
10
<PAGE>
i) a warranty or representation by the LICENSOR as to the
patentability, validity or scope of any of the Patent Rights;
ii) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement is or will be
free from infringement of patents of proprietary rights of third parties; or,
iii) an obligation to bring or prosecute actions or suits against
third parties for infringement.
ARTICLE XV
SUCCESSION AND ASSIGNABILITY
----------------------------
15.1 This Agreement and the rights and benefits conferred upon LICENSEE
hereunder may not be assigned nor transferred by LICENSEE without the prior
written consent of LICENSOR, except in the event of sale of all or a portion of
the business of LICENSEE.
15.2 This Agreement may be assigned by LICENSOR.
15.3 This Agreement shall be binding upon and inure to the benefit of the
successors, representatives and assigns of the parties hereto.
ARTICLE XVI
INDEMNITY
---------
16.1 LICENSEE agrees to indemnify, hold harmless and defend LICENSOR, its
officers, employees and agents, against any and all claims, suits, losses,
damages, costs, fees and expenses resulting from or arising out of exercise of
this Agreement including, but not limited to, any damages, losses or liabilities
whatsoever with respect to death or injury to any person and damage to any
property arising from the possession, use or operation of Licensed Products by
LICENSEE or its sub-licensees or their customers in any manner whatsoever.
ARTICLE XVII
CONFIDENTIALITY
---------------
17.1 LICENSOR and LICENSEE agree to hold in confidence all information
received from the providing party and not to disclose it to any third party or
use it for any purpose except as provided herein. The foregoing restrictions on
use and
11
<PAGE>
disclosure shall continue for a period of three (3) years following
termination of this Agreement, but shall not apply to any such information
which:
(a) is or later becomes generally available to the public by use,
publication or the like, through no fault of the other Party; or
(b) is obtained from a third party who had the legal right to
disclose the same to the Party; or
(c) the Party already possesses, as evidenced by its written records,
predating receipt thereof from the other Party.
ARTICLE XVIII
NOTICES
-------
18.1 Any payment, notice or other communication required or permitted to
be given by either party hereto shall be deemed to have been properly given and
be effective on the date of delivery if delivered, in writing, in person or by
first class certified mail with postage prepaid and return receipt requested to
the respective addresses set forth below, or to such other address as either
party shall designate by written notice given to the other party:
In the case of LICENSOR:
R. Douglas Wilkerson, Ph.D.
Associate Vice President for Research
Medical College of Ohio
3000 Arlington Avenue
Toledo, OH 43614
In the case of LICENSEE:
H. Stewart Parker
President and CEO
Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
12
<PAGE>
ARTICLE XIX
APPLICABLE LAW
--------------
19.1 This Agreement shall be construed in accordance with, and its
performance shall be governed by, the laws of the state of Ohio.
19.2 All disputes that may arise in connection with this agreement and
that are not adjusted by the parties themselves shall be submitted to binding
arbitration under the rules and regulations of the American Arbitration
Association relating to voluntary arbitrations. All costs of arbitration shall
be divided equally between the parties. Judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof.
ARTICLE XX
MISCELLANEOUS
-------------
20.1 The headings of the several sections of this Agreement are inserted
for convenience and reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
20.2 This Agreement will not be binding upon the parties until it has been
signed by, or on behalf of, each party, in which event it shall be effective as
of the Effective Date.
20.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed as aforesaid.
20.4 This Agreement embodies the entire understanding of the parties and
supersedes all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
hereof.
20.5 If any provision, or provisions, of this Agreement shall be held to
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not be in any way affected or impaired
thereby.
20.6 In witness whereof, both the LICENSOR and LICENSEE have executed this
Agreement, in duplicate originals but collectively evidencing only a single
contract, by their respective officers hereunto duly authorized, on the day and
year hereinafter written.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement through duly
authorized representatives as of the date first above written.
MEDICAL COLLEGE OF OHIO TARGETED GENETICS CORPORATION
By: R.D. Wilkerson By: H. Stewart Parker
------------------------- --------------------------
Title: Title: President & CEO
---------------------- ----------------------
Date: 3/14/94 Date: Feb. 28, 1994
----------------------- -----------------------
14
<PAGE>
ATTACHMENT A
MEDICAL COLLEGE OF OHIO MATERIALS TRANSFER AGREEMENT
----------------------------------------------------
_____________________________
_____________________________
_____________________________
Dear Dr. ______________:
This is to acknowledge your request that certain research material
(hereinafter Materials) developed in the laboratory of ________________ at the
Medical College of Ohio (hereinafter MCO) be sent to you for scientific research
purposes at _______________________.
The Materials concerned, which belong to the MCO, are:
_______________________________________________________________________________.
We would be pleased to permit your use of these Materials at your
institution for your scientific research. However, before forwarding them to
you, MCO would like you and your institution to agree to the following:
(i) that the Materials will be used by you solely in connection with the
following research project ("Research Project") described with
specificity as follows (use an attachment page if necessary)
____________________________________________________________________
____________________________________________________________________
(ii) that the Material shall be receive by you only for use in scientific
research in your laboratory and that all applicable guidelines set
forth by the national Institutes of Health (NIH) or other
governmental agencies regarding the use of the Materials shall be
followed;
(iii) these Materials are provided as a service to the research community.
THE MATERIALS ARE BEING SUPPLIED TO YOU WITH NO WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE. MCO makes no representations that the use of
the Materials will not infringe any patent or proprietary rights of
third parties;
15
<PAGE>
(iv) that you and your institution shall receive the Materials in
confidence and agree not to describe them to others not employed by
your institution without MCO's prior written consent;
(v) that you shall make known to MCO any results obtained from the use
of the Material prior to the written disclosure of those results
and/or written disclosure of any description of the Material so
others not employed by your institution and you will make good faith
efforts to do so thirty (30) days prior to such written (or oral)
disclosure;
(vi) that you and your institution shall bear all risk to you and/or any
others resulting from any use, directly or indirectly, to which you
put the Materials or any other material that could not have been
made by for these Materials;
(vii) that you shall not sell or otherwise transfer to any other party the
Materials, method(s) of using the Materials or any other material
that could not have been made but for the Materials, whether with or
without consideration, for any purpose or use;
(viii) that you shall not, directly or indirectly, use the Materials for
commercial purposes;
(ix) that you and your institution shall not obtain, and shall not
attempt to obtain patent coverage on the Materials without the
express written consent of MCO; and before seeking patent
prosecution for the use of the Materials or any other materials that
could not have been made but for the Materials, your institution
will notify MCO so that MCO can assert any claims to legal
inventorship it or its employees might have. In consideration of
MCO's providing of the Material, your institution, to the extent it
is able to do so under its policies and obligations to sponsors of
your research, hereby grants to MCO a ninety (90) day option to
negotiate a commercial license under any such patent application and
your institution agrees to negotiate the license terms in good faith
taking into account the respective parties' contributions and
relevant industry and university standards for similar rights. Such
option shall be exercised by MCO's agreement to support the filing
of a U.S. patent application;
(x) except where precluded by Federal law and to the extent allowed by
State law, you and your institution agree to defend, indemnify, and
hold harmless MCO, its trustees, officers, employees, and agents
from any
16
<PAGE>
loss, claim, damage, or liability, of any kind whatsoever, which may
arise from you or your institution's use, storage, or disposal of
the Materials or any other material that could not have been made
but for the Materials, except to the extent such arise due to the
gross negligence of MCO;
(xi) that you provide us with your Federal Express account number so that
we may ship the Materials to you.
You understand that no other right or license to these Materials or any
other materials that could not have been made but for these Materials or to
their use is granted or implied as a result of our transmission of these
Materials to you.
The Materials are to be used with caution and prudence in any experimental
work, since all of their characteristics are not known. Moreover, they are not
to be used for testing in or treatment of humans.
This Agreement shall be construed, interpreted, and applied in accordance
with the laws of the State of Ohio.
This Agreement embodies the entire understanding between MCO and
(investigator institution) and supersedes all previous communications,
representations or understandings, either oral or written, between the parties
relating to transfer of these Materials.
If you agree to accept these Materials under the above conditions, please
sign the enclosed duplicate copy of this letter, have it signed by an authorized
representative of your institution, and return one original to me. Upon receipt
of that confirmation, the Materials will be forwarded to you.
THE MEDICAL COLLEGE OF OHIO
---------------------------------------
R. Douglas Wilkerson, Ph.D.
Associate Vice President for Research
Date
-----------------------------------
17
<PAGE>
ACCEPTED:
- ------------------------------------ ----------------------------------------
Recipient's Signature Authorized Institutional Representative's
Signature
- ------------------------------------ ----------------------------------------
Recipient's Printed Name and Title Representative's Printed Name and Title
- ------------------------------------ -----------------------------------------
Date Date
MCO REF. NO.
----------------------------
18
<PAGE>
REDACTED VERSION
EXHIBIT 10.13
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1997
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
EXHIBIT 10.13
LICENSE AGREEMENT
MICHIGAN FILE 492c2 TECHNOLOGY
THERAPEUTIC LICENSE
This is an Agreement, effective as of the 28th day of March, 1994 (the
"Effective Date"), entered into by Targeted Genetics Corporation, a corporation
incorporated in the State of Washington, with offices located at 1100 Olive Way,
Suite #100, Seattle, Washington 98101 ("LICENSEE"), the Regents of the
University of Michigan, a constitutional corporation of the State of Michigan
("MICHIGAN"), and HSC Research and Development Limited Partnership, a
partnership organized and subsisting under the laws of the Province of Ontario,
Canada ("RDLP"). LICENSEE, MICHIGAN and RDLP agree as follows:
1. BACKGROUND.
----------
1.1 Michigan and the Research Institute of the Hospital for Sick Children
of Toronto, Ontario, Canada ("HSC") have conducted research relating to cystic
fibrosis. As a result of that research, MICHIGAN and RDLP have developed rights
in the "Licensed Patents" defined below.
1.2 LICENSEE desires to obtain, and MICHIGAN and RDLP, consistent with
their missions of education and research, desire to grant a license of the
Licensed Patents on the terms and conditions listed below.
2. DEFINITIONS.
-----------
2.1 "TECHNOLOGY", as used in this Agreement, shall mean the information,
manufacturing techniques, data, designs or concepts developed by MICHIGAN and
HSC, covering the gene for cystic fibrosis and uses thereof as encompassed by
U.S. Patent Application No. 401,609 entitled "Cystic Fibrosis Gene."
2.2 "Parties", in singular or plural usage as required by the context,
shall mean LICENSEE, MICHIGAN and/or RDLP.
2.3 "Affiliate(s)" shall mean any individual, corporation, partnership,
proprietorship or other entity controlled by, controlling, or under common
control with LICENSEE through equity ownership, ability to elect directors, or
by virtue of a majority of overlapping directors, and shall include any
individual, corporation, partnership, proprietorship or other entity directly or
indirectly owning, owned by or under common ownership with LICENSEE to the
extent of
<PAGE>
thirty percent (30%) or more of the voting shares, including shares owned
beneficially by such party.
2.4 "Licensed Patent(s)" shall mean U.S. Patent Application No. 401,609
entitled "Cystic Fibrosis Gene." and all foreign equivalent patent applications
and Patent Cooperation Treaty filings, and all patents issuing therefrom in
which MICHIGAN and/or RDLP has or acquires a property interest (currently
including the applications listed in the Appendix attached to this Agreement).
"Licensed Patent(s)" shall also include any divisional, continuation (excluding
continuations-in-part), reissue, reexamination or extension of the above-
described patent applications and resulting patents, along with any extended or
restored term, and any confirmation patent, registration patent, or patent of
addition.
2.5 "Valid Claim(s)" means any claim(s) in an unexpired patent or pending
in a patent application included within the Licensed Patents which has not been
held unenforceable, unpatentable, or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer. If in any country there should be
two or more such decisions conflicting with respect to the validity of the same
claim, the decision of the higher or highest tribunal shall thereafter control;
however, should the tribunals be of equal rank, then the decision or decisions
upholding the claim shall prevail when the conflicting decisions are equal in
number, and the majority of decisions shall prevail when the conflicting
decisions are unequal in number.
2.6 "Product(s)" shall mean any product(s) whose manufacture, use or sale
in any country would, but for this Agreement, comprise an infringement,
including contributory infringement, of one or more Valid Claims.
2.7 "Field of Use" shall refer to the field for which Products may be
designed, manufactured, used and/or marketed under this Agreement, and shall
mean solely Products to be used for the therapeutic treatment or prophylaxis of
the disease cystic fibrosis.
2.8 "Net Sales" shall mean the sum, over the term of this Agreement, of
all amounts received and all other consideration received (or, when in a form
other than cash or its equivalent, the fair market value thereof when received)
by LICENSEE and its Affiliates from persons or entities due to or by reason of
the sale or other distribution of Products, or the use of Products, including
any use by LICENSEE and Affiliates in the performance of services for their
customers;
2
<PAGE>
less the following deductions and offsets, but only to the extent such sums are
otherwise included in the computation of Net Sales, or are paid by LICENSEE and
not otherwise reimbursed: refunds, rebates, replacements or credits actually
allowed and taken by purchasers for return of Products; customary trade,
quantity and cash discounts actually allowed and taken; excise, value-added, and
sales taxes actually paid by LICENSEE for Products; and shipping and handling
charges actually paid by LICENSEE for Products.
2.9 "Royalty Quarter(s)" shall mean the three-month periods ending on the
last day of March, June, September and December of each year.
2.10 "Territory" means all countries of the world.
2.11 "First Therapeutic Sale" shall mean the first sale of any Product
(including any sale of a service using a Product in the Field of Use) by
LICENSEE or an Affiliate, other than for use in clinical trials being conducted
to obtain FDA or other governmental approvals to market Products.
3. GRANT OF LICENSE.
----------------
3.1 MICHIGAN and RDLP hereby grant to LICENSEE a non-exclusive license
under the Licensed Patents to make, have made, use (including use in the
performance of services for its customers), market and sell, in the Territory,
Products designed and marketed solely for use in the Field of Use.
3.2 MICHIGAN and RDLP reserve the right to license and use all aspects of
the TECHNOLOGY and the Licensed Patents for any use or purpose, including the
right to develop and produce Products.
3.3 The license granted to LICENSEE herein shall be without the right to
sublicense, except that LICENSEE may sublicense Affiliate(s) who agree to be and
are bound in writing to the terms and conditions of this Agreement to the same
extent as LICENSEE. LICENSEE agrees to strictly monitor and enforce compliance
with the terms and conditions of this Agreement by all Affiliate sublicensees.
3.4 If through exercise of its license under Paragraph 3.1 LICENSEE learns
of therapeutic or prophylactic fields of use for Products outside of the Field
of Use, then MICHIGAN and RDLP shall, upon LICENSEE's request, discuss in good
faith whether a separate agreement may be negotiated to provide LICENSEE the
rights necessary to develop and distribute Products designed and marketed for
such fields of use.
3
<PAGE>
4. CONSIDERATION.
-------------
4.1 LICENSEE shall pay to MICHIGAN a one-time license issue fee of U.S.
$40,000.00, forthwith following the Effective Date. Notwithstanding any other
terms of this Agreement, this Agreement and the license granted hereunder shall
not become effective until such issue fee is received by MICHIGAN.
4.2 LICENSEE shall also pay MICHIGAN, with respect to each Royalty
Quarter, a royalty [ * ] of the Net Sales of LICENSEE and Affiliates.
4.3 The obligation to pay MICHIGAN a royalty under this Article 4 is
imposed only once with respect to the same unit of Product regardless of the
number of Valid Claims or Licensed Patents covering the same; however, for
purposes of determination of payments due hereunder, whenever the term "Product"
may apply to a property during various stages of manufacture, use or sale, Net
Sales, as otherwise defined, shall be derived from the sale, distribution or use
of such Product by LICENSEE or Affiliates at the stage of its highest invoiced
value to unrelated third parties.
4.4 LICENSEE shall pay to MICHIGAN an annual license maintenance fee.
This annual fee shall accrue in the Royalty Quarter ending in March of the years
specified below, and shall be due and payable and included with the report for
that quarter.
If LICENSEE defaults in the payment of any annual license maintenance fee,
and fails to remedy that default within thirty (30) days after written notice of
it by MICHIGAN, then this Agreement and the license rights conveyed herein shall
terminate.
The annual license maintenance fees shall be as follows:
(1) In 1994 and 1995: [ * ];
(2) In 1996, 1997 and 1998: [ * ];
(3) in 1999, and in each year thereafter during the term of this Agreement
up to and including the year in which LICENSEE first obtains FDA approval or
other governmental approval to distribute or use Products in the Field of Use:
[ * ];
[*] Confidential Treatment Requested
4
<PAGE>
Also, notwithstanding (1-3) above (and in place of the amounts therein listed,
when applicable):
(4) In the first calendar year following the year in which LICENSEE
obtains the approval described in (3) above, and in each year thereafter during
the term of this Agreement up to and including the year in which the First
Therapeutic Sale occurs: [ * ];
Also, notwithstanding (1-4) above (and in place of the amounts therein
listed, when applicable);
(5) In the first calendar year following the First Therapeutic Sale:
[ * ];
(6) In the second year following the First Therapeutic Sale: [ * ];
(7) In the third year following the First Therapeutic Sale: [ * ];
and
(8) In the fourth year following the First Therapeutic Sale, and in each
year thereafter during the term of this Agreement; [ * ].
Each annual fee paid under (5-8) above may be credited by LICENSEE in full
against all earned royalties otherwise to be paid to MICHIGAN under Paragraph
4.2 for the calendar year in which the specific annual fee is paid. The year
for which such credits against royalties may be taken includes the Royalty
Quarter in which the annual fee accrues and the next three Royalty Quarters.
Each annual fee paid under (1-4) above may be credited by LICENSEE in full
against all earned royalties otherwise to be paid to MICHIGAN under Paragraph
4.2 after such annual fee is paid.
4.5 If it is necessary for LICENSEE to take any license(s), in a given
country, under valid third party patents which would be infringed by the
practice of Licensed Patents in that country, then LICENSEE can deduct up to
[ * ] of the royalties otherwise due and payable in each Royalty Quarter
under Paragraph 4.2 above for Net Sales in that country, until such time as
LICENSEE has recovered an amount equal to [ * ] of the royalty paid to
such third parties; provided that in no event shall such deducted amounts be
applied to reduce or require
[*] Confidential Treatment Requested
5
<PAGE>
reimbursement of the annual fees required under Paragraph 4.4. This Paragraph
is not intended to imply an obligation upon MICHIGAN or RDLP to reimburse
LICENSEE's above-described third-party royalties; the rights granted to LICENSEE
in this Paragraph shall not exceed the ability of the above-described mechanism
(i.e., a [ * ] of royalties due upon Net Sales in the country in question)
to reimburse such expenses. LICENSEE shall make an accounting to MICHIGAN of all
such third-party royalties, and all resulting deductions from royalties
otherwise due and payable to MICHIGAN, as part of its reporting obligations
under Article 5 below.
5. REPORTS.
-------
5.1 Within sixty (60) days after the close of (i) any Royalty Quarter in
which a fee under Paragraph 4.4 accrues, and (ii) each Royalty Quarter following
the First Therapeutic Sale during the term of this Agreement (including the
close of any Royalty Quarter immediately following any termination of this
Agreement), LICENSEE shall report to MICHIGAN all royalties accruing to MICHIGAN
during such Royalty Quarter. Such quarterly reports shall indicate for each
Royalty Quarter the gross sales and Net Sales of Products by LICENSEE and
Affiliates, and any other revenues with respect to which payments are due, and
the amount of such payments, as well as the various calculations used to arrive
at said amounts, including the quantity, description (nomenclature and type
designation), country of manufacture and country of sale of Products. In case
no payment is due for any such period, LICENSEE shall so report.
5.2 LICENSEE covenants that it will promptly establish and consistently
employ a system of specific nomenclature and type designations for Products so
that various types can be identified and segregated, where necessary; LICENSEE
and Affiliates shall consistently employ such system when rendering invoices
thereon and henceforth agree to inform MICHIGAN, or its auditors, when requested
as to the details concerning such nomenclature system as well as to all
additions thereto and changes therein.
5.3 LICENSEE shall keep, and shall require its Affiliates to keep, true
and accurate records and books of account containing data reasonably required
[*] Confidential Treatment Requested
6
<PAGE>
for the computation and verification of payments to be made as provided by this
Agreement, which records and books shall be open for inspection upon reasonable
notice during business hours by an independent certified accountant selected by
MICHIGAN. Said right of inspection will exist for six (6) years from the date
of origination of any such record, and this requirement and right of inspection
shall survive any termination of this Agreement. The independent certified
accountant shall provide to MICHIGAN only such information from LICENSEE's books
and records as is necessary to verify the accuracy or degree of inaccuracy of
the payments made under this Agreement. MICHIGAN shall be responsible for all
expenses of such inspection, except that if such inspection reveals an
underpayment of royalties to MICHIGAN in excess of ten percent (10%) for any
year, then said inspection shall be at LICENSEE's expense and such underpayment
shall become immediately due and payable to MICHIGAN.
5.4 The reports provided for hereunder shall be certified by an authorized
representative of LICENSEE to be correct to the best of LICENSEE's knowledge and
information.
6. TIMES AND CURRENCIES OF PAYMENTS.
--------------------------------
6.1 Payments accrued during each Royalty Quarter shall be due and payable
in Ann Arbor, Michigan on the date each quarterly report is due (as provided in
Paragraph 5.1), shall be included with such report and shall be paid in United
States dollars. LICENSEE agrees to make all payments due hereunder to MICHIGAN
by check made payable to "The Regents of The University of Michigan," and sent
by prepaid, certified or registered mail, return receipt requested, to the
address for notices set forth in Article 19 herein.
6.2 On all amounts outstanding and payable to MICHIGAN, interest shall
accrue from the date such amounts are due and payable at two percentage points
above the prime lending rate as established by the Chase Manhattan Bank N.A., in
New York City, New York, or at such lower rate as may be required by law.
6.3 Where Net Sales are generated in foreign currency during any Royalty
Quarter, such foreign currency shall be converted into its equivalent in United
States dollars at the exchange rate of such currency as reported (or if
erroneously reported, as subsequently corrected) in the Wall Street Journal on
the last business day of that Royalty Quarter (or if not reported on that date,
as quoted by the Chase Manhattan Bank, N.A., in New York City, New York).
7
<PAGE>
6.4 Except as provided in the definition of Net Sales, all royalty
payments to MICHIGAN under this Agreement shall be without deduction for sales,
use, excise, personal property or other similar taxes or other duties imposed on
such payments by the government of any country or any political subdivision
thereof; and any and all such taxes or duties shall be assumed by and paid by
LICENSEE.
7. COMMERCIALIZATION.
-----------------
7.1 It is understood that LICENSEE has the responsibility to do all that
is necessary for any governmental approvals to manufacture and/or sell Products.
7.2 LICENSEE agrees to use reasonable efforts to develop Products, obtain
any government approvals necessary, and manufacture and sell Products at the
earliest possible date; and to effectively exploit, market and manufacture in
sufficient quantities to meet anticipated customer demand and to make the
benefits of the Products reasonably available to the public.
7.3 Within fifteen (15) days of the First Therapeutic Sale, LICENSEE shall
report by written letter to MICHIGAN the date and general terms of that sale.
8. PATENT APPLICATIONS AND MAINTENANCE.
-----------------------------------
8.1 MICHIGAN and RDLP shall control all aspects of filing, prosecuting,
and maintaining Licensed Patents, including foreign filings and Patent
Cooperation Treaty filings. MICHIGAN and RDLP may in their sole discretion
decide to refrain from or to cease prosecuting or maintaining any of the
Licensed Patents, including any foreign filing or any Patent Cooperation Treaty
filing.
8.2 MICHIGAN shall notify LICENSEE of the issuance of any Licensed Patent
and the Valid Claims included therein, and any lapse, revocation, surrender,
invalidation or abandonment of any Licensed Patent or Valid Claim.
9. INFRINGEMENT.
------------
9.1 If LICENSEE becomes aware of or reasonably suspects infringement of
Licensed Patents by third parties, LICENSEE agrees to promptly notify Michigan
of such alleged infringement.
8
<PAGE>
9.2 MICHIGAN and RDLP shall take such measures as are in their reasonable
discretion appropriate to stop or discourage substantial infringements of the
Licensed Patents. On request by the LICENSEE, MICHIGAN and RDLP shall inform
LICENSEE of any measures being taken in response to any particular event or
allegation of infringement.
If MICHIGAN and RDLP fail to commence reasonable efforts to stop or
discourage a continuing substantial infringement of the Licensed Patents in any
country within six (6) months of MICHIGAN's receipt of written notice by
LICENSEE of that infringement, then LICENSEE may, upon written notice to
MICHIGAN, withhold royalty payments accruing under this Agreement upon Net Sales
which are thereafter generated in the country in which the infringement is
occurring, instead placing such royalty payments in escrow with an escrow agent
satisfactory to MICHIGAN and LICENSEE. If, within six (6) months of such notice
by LICENSEE, MICHIGAN or RDLP commences reasonable efforts to stop or discourage
the infringement, then LICENSEE's withheld royalties shall be released from
escrow and paid to MICHIGAN. If MICHIGAN and RDLP fail to commence such
reasonable efforts, then the withheld payments shall be released and returned to
LICENSEE and further royalty payments by LICENSEE with respect to Net Sales
generated in the country in which the infringement is occurring shall be waived
by MICHIGAN until MICHIGAN or RDLP in good faith commences such reasonable
efforts, upon which date the waiver of royalties by MICHIGAN shall terminate and
royalties accruing upon LICENSEE's Net Sales generated in that country after
that date shall be due and payable as provided in this Agreement.
An infringement shall not be deemed substantial under this paragraph unless
it can be demonstrated that it generates more than the equivalent of five
million U.S. Dollars (U.S. $5,000,000.00) in sales of infringing products for
use in the Field of Use, and that such sales comprise five percent or more (in
dollar volume) of the total sales market in the Field of Use in that country.
Reasonable efforts to be made by MICHIGAN and RDLP to stop or discourage
infringements may include notices, attempts to properly license the infringer,
or legal proceedings to enjoin or claim damages from the infringement. The
reasonable efforts to be made by MICHIGAN or RDLP shall not be deemed to include
the commencement or maintenance of any legal proceeding where the projected cost
of the proceeding exceeds either the royalties received by MICHIGAN and RDLP for
the practice of the Licensed Patents in the Field of Use in that country, or the
damages likely to be actually awarded and collected as a result of the
proceeding.
9
<PAGE>
10. NO WARRANTIES; LIMITATION ON MICHIGAN'S AND RDLP'S LIABILITY.
------------------------------------------------------------
10.1 MICHIGAN and RDLP, including their fellows, officers, employees and
agents, make no representations or warranties that any Licensed Patent is or
will be held valid, or that the manufacture, use, sale or other distribution of
any Products will not infringe upon any patent or other rights not vested in
MICHIGAN or RDLP.
10.2 MICHIGAN HSC AND RDLP, INCLUDING THEIR FELLOWS, OFFICERS, EMPLOYEES
AND AGENTS, MAKE NO REPRESENTATIONS, EXTEND NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUME NO
RESPONSIBILITIES WHATEVER WITH RESPECT TO DESIGN, DEVELOPMENT, MANUFACTURE, USE,
SALE OR OTHER DISPOSITION BY LICENSEE OR AFFILIATES OF PRODUCTS.
10.3 THE ENTIRE RISK AS TO THE DESIGN, DEVELOPMENT, MANUFACTURE, OFFERING
FOR SALE, SALE OR OTHER DISPOSITION, AND PERFORMANCE OF PRODUCTS IS ASSUMED BY
LICENSEE AND AFFILIATES. In no event shall MICHIGAN, RDLP or HSC, including
their fellows, officers, employees and agents, be responsible or liable for any
direct, indirect, special, incidental, or consequential damages or lost profits
to LICENSEE, Affiliates or any other individual or entity regardless of legal
theory. The above limitations on liability apply even though MICHIGAN, RDLP, or
HSC, including their fellows, officers, employees or agents, may have been
advised of the possibility of such damage.
10.4 LICENSEE shall not, and shall require that its Affiliates do not,
make any statements, representations or warranties or accept any liabilities or
responsibilities whatsoever to or with regard to any person or entity which are
inconsistent with any disclaimer or limitation included in this Article 10.
10.5 REGARDLESS OF ANY RESEARCH OR TESTING THAT MAY HAVE BEEN DONE AT HSC
OR MICHIGAN, HSC, MICHIGAN AND RDLP MAKE NO REPRESENTATIONS REGARDING HOW
PRODUCTS CAN OR SHOULD BE USED IN THE THERAPEUTIC TREATMENT OR PROPHYLAXIS OF
THE DISEASE CYSTIC FIBROSIS.
10
<PAGE>
11. INDEMNITY; INSURANCE.
--------------------
11.1 LICENSEE shall defend, indemnify and hold harmless and shall require
its Affiliates licensed hereunder to defend, indemnify and hold harmless
MICHIGAN, RDLP and HSC, as well as their fellows, officers, trustees, directors,
employees and agents, for and against any and all claims, demands, damages,
losses, and expenses of any nature (including attorneys' fees and other
litigation expenses), resulting from, but not limited to, death, personal
injury, illness, property damage, economic loss or products liability arising
from or in connection with, any of the following:
(1) Any manufacture, use, sale or other disposition by LICENSEE, Affiliates
or their transferees, of Products;
(2) The direct or indirect use by any person of Products made, used, sold
or otherwise distributed by LICENSEE or Affiliates;
(3) The use by LICENSEE or Affiliates of any invention related to the
TECHNOLOGY or the Licensed Patents.
11.2 MICHIGAN and RDLP shall be entitled to participate at their option
and expense through counsel of its own selection, and may join in any legal
actions related to any such claims, demands, damages, losses and expenses under
Paragraph 11.1 above.
11.3 LICENSEE shall purchase and maintain in effect a policy of product
liability insurance covering all claims with respect to any Products
manufactured, sold, licensed or otherwise distributed by LICENSEE and
Affiliates, and shall specify MICHIGAN, RDLP and HSC, including their fellows,
officers, trustees, directors and employees, as additional insureds (or
otherwise extend such coverage to include those Parties). LICENSEE shall
furnish certificate(s) of such insurance to MICHIGAN, upon request.
12. TERM AND TERMINATION.
--------------------
12.1 Upon any termination of this Agreement, and except as provided herein
to the contrary, all rights and obligations of the Parties hereunder shall
cease, except as follows:
(1) Obligations to pay royalties and other sums accruing hereunder up to
the day of such termination;
11
<PAGE>
(2) MICHIGAN's rights to inspect books and records as described in Article
5, and LICENSEE's obligations to keep such records for the required time;
(3) Obligations of defense and indemnity under Article 11;
(4) Any cause of action or claim of LICENSEE RDLP or MICHIGAN accrued or to
accrue because of any breach or default by the other Party hereunder;
(5) The general rights, obligations, and understandings of Articles 2, 10,
15, 17, 26 and 27; and
(6) All other terms, provisions, representations, rights and obligations
contained in this Agreement that by their sense and context are intended to
survive until performance thereof.
12.2 This Agreement will become effective on its Effective Date and,
unless terminated under another, specific provision of this Agreement, will
remain in effect until and terminate upon the last to expire of Licensed
Patents.
12.3 If LICENSEE shall at any time default in the payment of any royalty
or the making of any report hereunder, or shall make any false report, or shall
commit any material breach of any covenant or promise herein contained, and
shall fail to remedy any such default, breach or report within thirty (30) days
after written notice thereof by MICHIGAN specifying such default, then MICHIGAN
and RDLP may, at their option, terminate this Agreement and the license rights
granted herein by notice in writing to such effect. Any such termination shall
be without prejudice to any Party's other legal rights for breach of this
Agreement.
12.4 LICENSEE may terminate this Agreement by giving MICHIGAN a notice of
termination, which shall include a statement of the reasons, whatever they may
be, for such termination and the termination date established by LICENSEE, which
date shall not be sooner than ninety (90) days after the date of the notice.
Such notice shall be deemed by the Parties to be final.
12.5 In the event LICENSEE shall at any time during the term of this
Agreement deal with Products in any manner which violates the laws, regulations
or similar legal authority of any jurisdiction including, but not limited to,
the public health requirements relating to Products or the design, development,
manufacture, offering for sale, sale or other disposition of Products, the
license
12
<PAGE>
granted herein shall terminate immediately with respect to such Products within
the territory encompassed by such jurisdiction.
13. ASSIGNMENT.
----------
Due to the unique relationship between the Parties, this Agreement shall
not be assignable by LICENSEE without the prior written consent of MICHIGAN and
RDLP. Any attempt to assign this Agreement without such consent shall be void
from the beginning. MICHIGAN and RDLP shall not unreasonably withhold consent
for LICENSEE to assign this Agreement to a purchaser of all or substantially all
of LICENSEE's business. No assignment shall be effective unless and until the
intended assignee agrees in writing with RDLP and MICHIGAN to accept all of the
terms and conditions of this Agreement. Further, LICENSEE shall refrain from
pledging any of the license rights granted in this Agreement as security for any
creditor.
14. REGISTRATION AND RECORDATION.
----------------------------
14.1 If the terms of this Agreement, or any assignment or license under
this Agreement are or become such as to require that the Agreement or license or
any part thereof be registered with or reported to a national or supranational
agency of any area in which LICENSEE or Affiliates would do business, LICENSEE
will, at its expense, undertake such registration or report. Prompt notice and
appropriate verification of the act of registration or report or any agency
ruling resulting from it will be supplied by LICENSEE to MICHIGAN.
14.2 Any formal recordation of this Agreement or any license herein
granted which is required by the law of any country, as a prerequisite to
enforceability of the Agreement or license in the courts of any such country or
for other reasons, shall also be carried out by LICENSEE at its expense, and
appropriately verified proof of recordation shall be promptly furnished to
MICHIGAN.
15. LAWS AND REGULATIONS OF THE UNITED STATES AND CANADA; EXPORT.
------------------------------------------------------------
15.1 Activities under this Agreement shall be subject to all appropriate
United States and Canadian laws and regulations now or hereafter applicable.
15.2 LICENSEE shall comply, and shall require its Affiliates licensed
hereunder to comply, with all provisions of any applicable laws, regulations,
rules and orders relating to the license herein granted and to the testing,
13
<PAGE>
production, transportation, export, packaging, labeling, sale or use of
Products, or otherwise applicable to LICENSEE's or its Affiliates' activities
hereunder.
15.3 LICENSEE shall obtain, and shall require its Affiliates to obtain,
such written assurances regarding export and reexport of technical data
(including Products made by use of Technical data) as may be required by the
United States Office of Export Administration Regulations, and LICENSEE hereby
gives such written assurances as may be required under those Regulations to
MICHIGAN.
15.4 LICENSEE shall obtain, and shall require its Affiliates to obtain,
such authorization regarding export and re-export of technical data (including
Products made by use of technical data) as may be required by the Department of
External Affairs, Export Controls Division, or any authorization necessary for
export from or import into Canada, and LICENSEE hereby gives written assurances
as may be required under those regulations to RDLP.
16. BANKRUPTCY.
----------
If during the term of this Agreement, LICENSEE shall make an assignment for
the benefit of creditors, or if proceedings in voluntary or involuntary
bankruptcy shall be instituted on behalf of or against Licensee, or if a
receiver or trustee shall be appointed for the property of LICENSEE, MICHIGAN
and RDLP may, at their option, terminate this Agreement and revoke the license
herein granted by written notice to LICENSEE.
17. PUBLICITY.
---------
LICENSEE agrees to refrain from using and to require Affiliates to refrain
from using the name of MICHIGAN, RDLP and HSC in publicity or advertising
without the prior written approval of that entity. Notwithstanding the
foregoing, MICHIGAN, RDLP, and HSC hereby consent to references to them (1) in
informational reports or documents sent to stockholders or filed with or
submitted to any governmental regulatory agencies or bodies or stock exchanges
or as may be required by law when obtaining investment capital, or (2) pursuant
to any requirements of applicable law or governmental regulations, provided
that, in the event of such disclosure, LICENSEE shall afford MICHIGAN, RDLP, and
HSC the prior opportunity to review the text of such disclosure. LICENSEE shall
use its best efforts to comply with any reasonable request by Michigan, RDLP,
and HSC regarding changes.
14
<PAGE>
18. PRODUCT MARKING.
---------------
LICENSEE agrees to mark, and to require Affiliates to mark, Products with
the appropriate patent notice as approved by RDLP or MICHIGAN (when
appropriate), such approval not to be unreasonably withheld.
19. NOTICES.
-------
Any notice, request, report or payment required or permitted to be given or
made under this Agreement by a Party shall be given by sending such notice by
certified or registered mail, return receipt requested, to the address set forth
below or such other address as such Party shall have specified by written notice
given in conformity herewith. Any notice not so given shall not be valid unless
and until actually received, and any notice given in accordance with the
provisions of this Paragraph shall be effective when mailed.
To LICENSEE: Targeted Genetics Corporation
1100 Olive Way Suite #100
Seattle, Washington 98101
Attn: President
To MICHIGAN: The University of Michigan
Technology Management Office
Wolverine Tower, Room 2071
3003 South State Street
Ann Arbor, Michigan 48109-1280
U.S.A.
Attn: File No. 492c2
with a copy to: HSC Research and Development
Limited Partnership
555 University Avenue
Toronto, Ontario M5G 1X8
CANADA
Attn: Barbara Lavers
20. INVALIDITY.
----------
In the event that any term, provision, or covenant of this Agreement shall
be determined by a court of competent jurisdiction to be invalid, illegal or
15
<PAGE>
unenforceable, that term will be curtailed, limited or deleted but only to the
extent necessary to remove such invalidity, illegality or unenforceability, and
the remaining terms, provisions and covenants shall not in any way be affected
or impaired thereby.
21. ENTIRE AGREEMENT AND AMENDMENTS.
-------------------------------
This Agreement contains the entire understanding of the Parties with
respect to the matter contained herein. The Parties may, from time to time
during the continuance of this Agreement, modify, vary or alter any of the
provisions of this Agreement, but only by an instrument duly executed by
authorized officials of all Parties hereto.
22. WAIVER.
------
No waiver by a Party of any breach of this Agreement, no matter how long
continuing or how often repeated, shall be deemed a waiver of any subsequent
breach thereof, nor shall any delay or omission on the part of a Party to
exercise any right, power, or privilege hereunder be deemed a waiver of such
right, power or privilege.
23. ARTICLE HEADINGS.
----------------
The Article headings herein are for purposes of convenient reference only
and shall not be used to construe or modify the terms written in the text of
this Agreement.
24. NO AGENCY RELATIONSHIP.
----------------------
The relationship between the Parties is that of independent contractor and
contractees. LICENSEE shall not be deemed to be an agent of MICHIGAN or RDLP in
connection with the exercise of any rights hereunder, and shall not have any
right or authority to assume or create any obligation or responsibility on
behalf of MICHIGAN or RDLP.
25. FORCE MAJEURE.
-------------
No Party hereto shall be deemed to be in default of any provision of this
Agreement, or for any failure in performance, resulting from acts or events
beyond the reasonable control of such Party, such as Acts of God, acts of civil
or military authority, civil disturbance, war, strikes, fires, power failures,
natural catastrophes or other "force majeure" events.
16
<PAGE>
26. GOVERNING LAW.
-------------
This Agreement and the relationships of the Parties shall be governed in
all respects by the law of the State of Michigan* (notwithstanding any
provisions governing conflict of laws under such Michigan law to the
contrary),** except that questions affecting the construction and effect of any
patent shall be determined by the law of the country in which the patent has
been granted.
27. JURISDICTION AND FORUM.
----------------------
LICENSEE hereby consents to the jurisdiction of the courts of the State of
Michigan over any dispute concerning this Agreement or the relationship of the
Parties. Should LICENSEE bring any claim, demand or other action against
MICHIGAN or RDLP, including their fellows, officers, employees or agents,
arising out of this Agreement or the relationship between the Parties, LICENSEE
agrees to bring said action only in an appropriate court of the State or
Province of that Party.
28. 'MOST FAVORED NATION' STATUS.
----------------------------
If MICHIGAN and RDLP grants a license under the Licensed Patents and in the
Field of Use to any third party which is substantially the same as the license
granted to LICENSEE under Article 3 above, for all or any part of the Territory,
but which requires a royalty rate or license maintenance fees lower than those
required of LICENSEE under this Agreement, then MICHIGAN and RDLP shall offer
those terms to LICENSEE for that part of the Territory, to be effective as of
the effective date of the license to that third party.
*or the Province of Ontario
**depending upon the jurisdiction in which any action relating to the Agreement
is brought
17
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
triplicate originals by their duly authorized officers or representatives.
FOR TARGETED GENETICS CORPORATION
By H. Stewart Parker
------------------------------
(authorized representative)
Typed Name H. Stewart Parker
----------------------
Title Pres. & CEO
---------------------------
Date March 21, 1994
----------------------------
FOR HSC RESEARCH AND DEVELOPMENT FOR THE REGENTS OF THE UNIVERSITY OF
LIMITED PARTNERSHIP MICHIGAN
By G. Chiasson By Robert L. Robb
------------------------------ ------------------------------------
(authorized representative) (authorized representative)
Typed Name George Chiasson Typed Name Robert L. Robb
---------------------- ----------------------------
Title President Title Director, Intellectual Properties
--------------------------- ----------------------------------
Date March 28, 1994 Date August 26, 1993
---------------------------- ----------------------------------
18
<PAGE>
APPENDIX TO LICENSE AGREEMENT
MICHIGAN FILE #492C2 TECHNOLOGY - THERAPEUTIC LICENSE
BETWEEN
THE REGENTS OF THE UNIVERSITY OF MICHIGAN,
HSC RESEARCH AND DEVELOPMENT LIMITED
PARTNERSHIP, AND
TARGETED GENETICS CORPORATION
"Cystic Fibrosis Gene" - Patents Pending
Country Serial Number Filing Date
- ------- ------------- -----------
United States 401,609 August 31, 1989
Ireland 3024/90 August 21, 1990
PCT CA90/00267 August 20, 1990
WO 91/02796 March 7, 1991
EPO* 90912428.1 August 20, 1990
Japan 511424/90 August 20, 1990
Canada 2066204-2 August 20, 1990
Australia 61616/90 August 20, 1990
*Note: EPO designated states include the following countries: Austria,
Belgium, Switzerland and Liechtenstein, Germany, Denmark, Spain, France, United
Kingdom, Italy, Luxembourg, Netherlands, Sweden
<PAGE>
REDACTED VERSION
EXHIBIT 10.14
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1997
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
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TGC EXCLUSIVE LICENSE AGREEMENT
EXHIBIT 10.14
EXCLUSIVE LICENSE AGREEMENT
This Agreement is entered into as of the 23rd day of March, 1994 by and
between the Fred Hutchinson Cancer Research Center, a Washington non-profit
corporation ("FHCRC") and Targeted Genetics Corporation, 1100 Olive Way, Suite
100, Seattle, WA 98101 ("TGC"), a Washington corporation.
RECITALS
Whereas, FHCRC and the National Institutes of Health/Alcohol, Drug Abuse
and Mental Health Administration (NIH/ADAMHA) are the owners by assignment from
Drs. A. Dusty Miller, J. Victor Martinez, Carolyn A. Wilson and Maribeth V.
Eiden of the LICENSED PATENT RIGHTS as defined in this Agreement, and FHCRC and
NIH/ADAMHA have entered into an agreement that allows FHCRC to act as licensing
agent of NIH/ADAMHA;
Whereas FHCRC is committed to a policy that ideas or creative works
produced at FHCRC should be used for the greatest possible public benefit and
believes that every reasonable incentive should be provided for the prompt
introduction of such ideas into public use, all in a manner consistent with the
public interest;
Whereas TGC desires to obtain an exclusive worldwide license in order to
practice the above referenced invention covered by LICENSED PATENT RIGHTS in the
United States and in certain foreign countries, and to manufacture, use and sell
in the commercial market the products made in accordance therewith; and
Whereas FHCRC is willing to grant such a license to TGC subject to the
terms and conditions of this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants as set forth herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 LICENSED PATENT RIGHTS shall mean rights and claims in and to the
inventions described in, and rights covered by, the issued United States patents
and patent applications listed in Appendix A attached to this Agreement and made
a part hereof, as well as all continuations, continuations-in-part, divisions
and renewals thereof, which will automatically be deemed incorporated in and
added to this Agreement and shall periodically be added to Appendix A.
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TGC EXCLUSIVE LICENSE AGREEMENT
1.2 LICENSED PROCESSES shall mean processes the relevant practice of which
would in the applicable jurisdiction, in the absence of this License, infringe
upon either an unexpired valid claim under LICENSED PATENT RIGHTS or a claim in
a then-pending patent application under LICENSED PATENT RIGHTS (treating such
application, for such purposes, as having been issued as a patent in such
jurisdiction).
1.3 LICENSED PRODUCTS shall mean products the relevant manufacture, use or
sale of which would in the applicable jurisdiction, in the absence of this
License, infringe upon either an unexpired valid claim under LICENSED PATENT
RIGHTS or a claim in a then-pending patent application under LICENSED PATENT
RIGHTS or (treating such application, for such purposes, as having been issued
as a patent in such jurisdiction), or products made in accordance with or by
means of LICENSED PROCESSES.
1.4 NET SALES shall mean the amount billed or invoiced on sales of
LICENSED PRODUCTS less:
(a) Customary trade, quantity or cash discounts and non-affiliated
brokers' or agents' commissions actually allowed and taken;
(b) Amounts repaid or credited by reason of rejection or return;
and/or
(c) To the extent separately stated on purchase orders, invoices or
other documents of sales, taxes levied on and/or other
governmental charges made as to production, sale, transportation,
delivery or use and paid by or on behalf of TGC.
1.5 AFFILIATES shall mean any company, corporation, or business in which
TGC owns or controls at least a fifty percent (50%) ownership interest or which
directly or indirectly owns or controls more than a fifty percent (50%)
ownership interest in TGC.
1.6 TECHNOLOGY shall mean any and all information or LICENSED PATENT
RIGHTS supplied by FHCRC to TGC.
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TGC EXCLUSIVE LICENSE AGREEMENT
ARTICLE 2 - GRANT
2.1 FHCRC hereby grants to TGC and TGC accepts, subject to the terms and
conditions hereof, an exclusive worldwide license, under LICENSED PATENT RIGHTS,
to make, to use, to sell the LICENSED PRODUCTS, and to practice the LICENSED
PROCESSES, for the Term permitted in Article 3 of this Agreement (the
"License"). The License granted to TGC by FHCRC hereunder is limited to those
fields of use relevant for the prophylaxis and treatment of human disease in the
methods described under LICENSED PATENT RIGHTS. Any license in any other field
shall be the subject of a separate agreement and shall require TGC's submission
of evidence demonstrating its willingness and ability to develop and
commercialize the kinds of products or processes likely to be encompassed in
such other field. Such license shall include the right to grant sublicenses,
subject to the provisions of Section 2.2 below. In order to provide TGC with a
period of exclusivity, FHCRC agrees it will not grant licenses to others except
as permitted in Section 2.2 below. TGC agrees during the period of exclusivity
of this license in the United States that any LICENSED PRODUCT produced for sale
in the United States will be manufactured substantially in the United States.
2.2 The License is subject to the following policies, obligations and/or
conditions:
(a) FHCRC's Patents and Inventions Policy adopted September 30, 1983,
Public Law 98-620 and FHCRC's obligations under agreements with
other sponsors of research. Any right granted in this Agreement
greater than that permitted under Public Law 98-620 shall be
subject to modification as may be required to conform to the
provisions of the statute.
(b) For research purposes only and not for any commercial purpose,
FHCRC shall have the right to make and to use the TECHNOLOGY.
(c) TGC shall use reasonable effort to introduce the LICENSED
PRODUCTS into the commercial market as soon as practicable,
consistent with sound and reasonable business practices and
judgment, and thereafter endeavor to keep LICENSED PRODUCTS
reasonably available to the public.
(d) FHCRC shall have the right to terminate or render this Agreement
nonexclusive at any time after three (3) years from the date
hereof if, in FHCRC's reasonable judgment, TGC:
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TGC EXCLUSIVE LICENSE AGREEMENT
(i) has not put the licensed subject matter into commercial use
in the country or countries where licensed, directly or
through a sublicense, and is not keeping the licensed
subject matter reasonably available to the public, or
(ii) is not demonstrably engaged in research, development,
manufacturing, marketing or licensing program, as
appropriate, directed toward these ends; or
(iii) has not expended at least three hundred thousand dollars
($300,000) in the twelve (12) month period beginning (3)
years from the EFFECTIVE DATE, or in any (12) twelve month
period beginning anytime thereafter, on internal and
external personnel, their benefits, supplies and equipment
related to research and development of the LICENSED PRODUCTS
In making this determination FHCRC shall take into account the
normal course of such programs conducted with sound and
reasonable business practices and judgment and shall take into
account the reports provided hereunder by TGC.
(e) TGC shall not grant any sublicense without FHCRC's prior written
consent. All sublicenses granted by TGC hereunder shall include
a requirement that the sublicensee use its best efforts to bring
the subject matter of the sublicense into commercial use as
quickly as is reasonably possible and shall expressly bind the
sublicensee to meet TGC's obligations to FHCRC under this
Agreement. Copies of all sublicense agreements shall promptly be
provided to FHCRC.
(f) In the event FHCRC becomes aware of third parties that wish to
license the LICENSED PATENT RIGHTS in specific fields of use that
would not result in direct or indirect competition to TGC, FHCRC
shall notify TGC and TGC shall exercise one of the following
options:
(i) commence active research and development of LICENSED
PRODUCTS under the LICENSED PATENT RIGHTS in that field of
use;
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TGC EXCLUSIVE LICENSE AGREEMENT
(ii) grant a sublicense to said third parties to make, use and
sell LICENSED PRODUCTS under the LICENSED PATENT RIGHTS in
that field of use; or
(iii) grant the right to FHCRC to directly license said third
parties to make, use and sell LICENSED PRODUCTS under the
LICENSED PATENT RIGHTS in that field of use.
2.3 Notwithstanding the foregoing provisions of Article 2, TGC shall have
the right to assign the license granted under Article 2 to an AFFILIATE or to
any organization that acquires all or substantially all of TGC's business,
subject to the terms and conditions hereof.
2.4 This Agreement shall have no effect upon any and all rights reserved
to the United States Government and others under Public Law 98-620.
ARTICLE 3 - TERM OF AGREEMENT
3.1 This Agreement becomes effective as of the date first above written
(the "Effective Date"), and, subject to earlier termination as provided in
Article 9 shall remain in effect until the last to expire of the LICENSED PATENT
RIGHTS (the "Term").
ARTICLE 4 - ROYALTIES
4.1 In consideration for the granting of the License, TGC shall pay to
FHCRC a non-refundable license fee ("License Fee") in the sum of [ * ] of such
License Fee shall be payable within thirty days of the Effective Date and
[ * ] shall be payable one (1) year from the Effective Date.
4.2 During the Term, TGC shall pay to FHCRC a royalty in the amount of
[ * ] of the NET SALES of all LICENSED PRODUCTS and all products using LICENSED
PROCESSES and all services utilizing LICENSED PRODUCTS or LICENSED PROCESSES
which are manufactured or used by TGC and its AFFILIATES or sublicensees in the
United States, and leased or sold by TGC and its AFFILIATES or sublicenses in
the United States, except, however, that the foregoing royalty rate may be
reduced by one half the amount of third party royalties payable on
[*] Confidential Treatment Requested
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TGC EXCLUSIVE LICENSE AGREEMENT
licenses required to make, use or sell LICENSED PRODUCTS or to practice a
LICENSED PROCESS, but in no case shall the royalty rate be reduced to less than
[ * ] of NET SALES.
4.3 During the Term, TGC shall pay to FHCRC a royalty in the amount of
[ * ] of the NET SALES of all LICENSED PRODUCTS and all products using LICENSED
PROCESSES and all services utilizing LICENSED PRODUCTS or LICENSED PROCESSES
which are manufactured or used by TGC and its AFFILIATES or sublicensees in the
United States, and leased or sold by TGC and its AFFILIATES or sublicenses
outside of the United States, except, however, that the foregoing royalty rate
may be reduced by one half the amount of third party royalties payable on
licenses required to make, use or sell LICENSED PRODUCTS or to practice a
LICENSED PROCESS, but in no case shall the royalty rate be reduced to less than
[ * ] of NET SALES.
4.4 No multiple royalties shall be payable because any LICENSED PRODUCT
which TGC manufactures, uses, leases or sells is covered by multiple claims
under the LICENSED PATENT RIGHTS.
4.5 TGC shall pay to FHCRC at least the following amounts in royalties in
the following contract years (the "Maintenance Royalties"):
(i) [ * ] upon the earlier of the issuance of the first patent
included in the LICENSED PATENT RIGHTS or [ * ];
(ii) [ * ] upon the earlier of approval to commence Phase 2 (as
defined by 21 Code of Federal Regulations, Chapter 1) clinical
trials for the first LICENSED PRODUCT or [ * ]; and
(iii) [ * ] upon approval of the New Drug Application ("NDA") or
Product License Application ("PLA") (as defined by 21 Code of
Federal Regulations, Chapter 1) for the first LICENSED PRODUCT or
[ * ].
4.6 If TGC transfers or otherwise sublicenses LICENSED PATENT RIGHTS to a
third party, for value other than NET SALES, TGC shall also pay FHCRC a
percentage of [ * ] of all proceeds including, but not limited to, licensing
fees, receivable by TGC in connection therewith ("Non-Royalty Fees").
[*] Confidential Treatment Requested
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TGC EXCLUSIVE LICENSE AGREEMENT
Any such payment to FHCRC shall be made within thirty (30) days after receipt of
such proceeds by TGC. Any such sale or transfer shall not affect TGC's
obligations to pay royalties under Sections 6.2 and 6.3 above. In no event
shall Non-Royalty Fees include any payment or other value due to or received by
TGC from a third party as, for example, an upfront fee, research and development
payments, milestone payments, equity, or any equivalent of the foregoing, or of
any payment that is not explicitly due to or received by TGC in consideration
for a grant by TGC to a third party to make, have made, use and sell LICENSED
PRODUCTS, or practice LICENSED PROCESSES, under LICENSED PATENT RIGHTS.
In the event that TGC transfers or otherwise sublicenses LICENSED PATENT
RIGHTS to a third party in combination with patents(s) and/or other rights(s) of
a third party(ies) and TGC is due and receives Non-Royalty Fees, then TGC shall
pay FHCRC an equitable portion of such Non-Royalty Fees as to be determined by
the good faith negotiations of TGC and FHCRC.
ARTICLE 5 - REPORTING AND ROYALTY PAYMENT TERMS
5.1 Upon or before execution of this Agreement, TGC shall provide to FHCRC
a written research and development plan pursuant to which TGC intends to bring
the subject matter of the License granted hereunder into commercial use,
including projections of sales and proposed marketing efforts.
5.2 TGC shall report to FHCRC the date of first sale of LICENSED PRODUCTS
(or results of LICENSED PROCESSES) in each country within thirty (30) days of
occurrence.
5.3 TGC shall provide written annual reports within sixty (60) days after
June 30 of each calendar year which shall include the following information:
reports of progress on research and development, regulatory approvals,
manufacturing, sublicensing, marketing and sales during the preceding twelve
(12) months as plans for the coming year. If TGC's progress differs from that
anticipated in the plan provided to FHCRC under Section 5.1, TGC shall explain
the reasons for the difference and propose a modified plan for FHCRC's review
and approval. TGC shall also provide any reasonable additional data FHCRC
requires to evaluate TGC's performance.
5.4 Beginning after the first NET SALES, TGC shall submit to FHCRC within
sixty (60) days after June 30 and December 31 of each calendar year during the
Term, and upon the effective termination of this Agreement, reports for the
preceding six (6) month period identifying the amount of the LICENSED PRODUCTS
sold by TGC, its AFFILIATES and sublicensees in each country, the sales volume
and NET
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TGC EXCLUSIVE LICENSE AGREEMENT
SALES, and the amount of royalty due to FHCRC together with payment of such
royalty amount. Such report shall be certified as correct by an officer of TGC
and shall include a detailed listing of all deductions from NET SALES,
sublicensee income or from royalties as specified herein. If no royalties are
due to FHCRC for any reporting period, the written report shall so state. All
royalties due hereunder shall be payable in United States dollars. Conversion of
foreign currency to U.S. dollars shall be made at the conversion rate existing
in the United States on the date of royalty payments by TGC as quoted in the
Wall Street Journal for that day.
5.5 All such reports shall be maintained in confidence by FHCRC, except as
required by law, including Public Law 98-620.
ARTICLE 6 - RECORD KEEPING
6.1 TGC shall maintain complete and accurate books of account and records
showing all sales of LICENSED PRODUCTS and all NET SALES (broken down by gross
sales and allowable deductions) attributable to such sales. For purposes of
verifying the accuracy of the royalties paid by TGC pursuant to this Agreement
or verifying performance of TGC of any other obligation to FHCRC hereunder, such
books and records shall be open to inspection and copying, during usual business
hours, by an independent certified public accountant or by employees of FHCRC.
Such accountant shall not disclose to FHCRC any information other than
information relating to accuracy of reports and calculations of amounts due to
FHCRC made under this Agreement. In the event that any such inspection shows
any underreporting and underpayment by TGC in excess of five percent (5%) for
any twelve (12) month period, then TGC shall pay the cost of such examination.
Such books and records shall be maintained for at least two (2) full years after
the termination of this Agreement.
ARTICLE 7 - DOMESTIC AND FOREIGN PATENT FILING AND MAINTENANCE
7.1 TGC shall reimburse FHCRC for all reasonable expenses FHCRC has
incurred for the preparation, filing, prosecution and maintenance of LICENSED
PATENT RIGHTS and shall reimburse FHCRC for all such future expenses ("PATENT
EXPENSES"). With respect to PATENT EXPENSES incurred prior to the Effective
Date, TGC shall reimburse FHCRC for fifty percent (50%) of such expenses no
later than June 30, 1994, and shall reimburse FHCRC for fifty percent (50%) of
such expenses no later than June 30, 1995. TGC shall reimburse FHCRC for all
PATENT EXPENSES incurred subsequent to the Effective Date as they are invoiced
by FHCRC. FHCRC shall take responsibility for the preparation, filing,
prosecution and maintenance of any and all patent applications and patents
included
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TGC EXCLUSIVE LICENSE AGREEMENT
in LICENSED PATENT RIGHTS, provided however that FHCRC shall first consult with
TGC as to the preparation, filing, prosecution and maintenance of such patent
applications and patents and shall furnish to TGC copies of documents relevant
to any such preparation, filing, prosecution or maintenance. Notwithstanding the
foregoing, FHCRC may consent subsequent to the Effective Date for TGC to assume
such responsibilities with respect to the LICENSED PATENT RIGHTS.
7.2 FHCRC and TGC shall cooperate fully and in good faith in the
preparation, filing, prosecution and maintenance of LICENSED PATENT RIGHTS and
of all patents and patent applications licensed to TGC hereunder, including the
execution of all papers and instruments so as to enable FHCRC to apply for, to
prosecute and to maintain patent applications and patents in FHCRC's name in any
country. Each party shall provide to the other prompt notice as to all matters
which come to its attention and which may affect the preparation, filing,
prosecution or maintenance of any such patent applications or patents.
7.3 If TGC elects not to pay the expenses of a patent application or
patent included within LICENSED PATENT RIGHTS, TGC shall notify FHCRC not less
than sixty (60) days prior to such action and shall thereby surrender its rights
under Article 2.1 of this Agreement with regard to such patent or patent
application.
ARTICLE 8 - INFRINGEMENT
8.1 Each party agrees to notify the other promptly of any infringement of
the LICENSED PATENT RIGHTS of which such party becomes aware. TGC shall have
the option to commence legal proceedings with respect to such infringement.
Before TGC commences legal proceedings (an "Action") with respect to any
infringement of such patents, TGC shall give careful consideration to the views
of FHCRC and to potential effects on the public interest in making its decision
whether or not to commence such an Action.
8.2 If TGC elects to commence an Action as described above, TGC may
reduce, by up to fifty percent (50%), the royalty due to FHCRC earned under the
patent subject to suit by the amount of the expenses and costs of such Action,
including attorney fees. In the event such expenses and costs exceed the amount
of royalties withheld by TGC for any calendar year, TGC may to that extent
reduce the royalties due to FHCRC from TGC in succeeding calendar years, but
never by more than fifty percent (50%) of the royalty due in any one year. Any
unused royalty credit amount may be carried forward until the full amount of the
credit has been exhausted.
8.3 Recoveries or reimbursements from such Action shall first be applied
to reimburse TGC and FHCRC for litigation costs not paid from royalties (if any)
and
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TGC EXCLUSIVE LICENSE AGREEMENT
then to reimburse FHCRC for royalties withheld. Any remaining recoveries or
reimbursements shall be shared equally by TGC and FHCRC.
8.4 In the event that TGC elects not to exercise its option to prosecute
an infringement of the LICENSED PATENT RIGHTS pursuant to this Agreement, FHCRC
may do so at its own expense, controlling such Action and retaining all
recoveries therefrom.
ARTICLE 9 - TERMINATION OF AGREEMENT
9.1 Unless terminated earlier in accordance with the terms hereof, this
Agreement will expire upon the expiration of the Term as provided in Article 3.
Upon termination, a final report shall promptly be submitted in accordance with
the provisions of Section 5.4, together with any royalty payments and
unreimbursed patent expenses due to FHCRC.
9.2 At FHCRC's option, FHCRC may terminate this Agreement sixty (60) days
after giving written notice to TGC of any default in payments due hereunder and
subsequent failure by TGC to remedy any such default within such period,
provided that FHCRC is not then in breach of any provision hereof.
9.3 This Agreement may be terminated by either party upon breach of a
material obligation or condition by the other (other than a breach according to
Section 9.2), effective ninety (90) days after giving written notice to the
other of such termination under this Article and specifying such breach,
provided however, that if the breach is cured or shown to be non-existent within
the ninety (90) day period, the notice shall be deemed automatically withdrawn
and of no effect. If the parties do not agree whether a breach has occurred or
been cured or whether it is "material", the dispute shall be resolved through
arbitration under Article 13.
9.4 Subject to any provisions of the federal bankruptcy laws limiting
rights of termination, this Agreement will automatically terminate if TGC files
for protection under federal bankruptcy laws, becomes insolvent, makes an
assignment for the benefit of creditors, appoints or suffers appointment of a
receiver or trustee over its property, files a petition under any bankruptcy or
insolvency act or has any such petition filed against it or files for
dissolution.
9.5 Any sublicenses granted by TGC under this Agreement shall provide for
termination or assignment to FHCRC, at the option of FHCRC, of TGC's interest
therein upon termination of this Agreement.
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TGC EXCLUSIVE LICENSE AGREEMENT
9.6 TGC shall have the right to terminate this Agreement effective thirty
(30) days after giving written notice to FHCRC of termination under this
Article.
9.7 Upon termination of this Agreement, TGC shall have the right for three
(3) months to sell all LICENSED PRODUCTS on hand at the time of notification of
termination if the royalties from such sales and any and all other payments due
FHCRC are paid to and statements rendered to FHCRC with respect to such LICENSED
PRODUCTS when due in accordance with this Agreement.
9.8 Upon termination of the Agreement for any reason, and subject to TGC's
rights under Section 9.7, TGC shall return to FHCRC and thereafter continue to
maintain the confidentiality thereof, and refrain from use thereof or the
disclosure thereof to any third party as required by Article 15, and all other
rights in LICENSED PROCESSES and LICENSED PRODUCTS granted to TGC under Article
2 shall expire and revert to FHCRC. Immediately upon cessation of discussions
between TGC and FHCRC during the Term, or upon request by one of the parties,
TGC and FHCRC will return all Proprietary Information of the other, and all
documents or data storage media containing any such Proprietary Information and
any and all copies thereof, and TGC and FHCRC will delete all Proprietary
Information of the other from its documents or data storage media, except that
the parties shall maintain one copy of such Proprietary Information in their
legal or corporate development files.
9.9 Should either party terminate this Agreement as permitted herein, the
other party shall not be able to claim from the terminating party any damages or
compensation for losses or expenses incurred solely as a result of the
termination.
9.10 Provisions hereof and accrued rights hereunder which by their terms
or nature survive the termination or expiration of this Agreement shall so
survive such termination or expiration.
ARTICLE 10 - REPRESENTATIONS AND COVENANTS
10.1 FHCRC represents and warrants that all right, title, and interest in
the patent applications or patents comprising the LICENSED PATENT RIGHTS have
been assigned to it and that FHCRC has the authority to issue licenses under
said LICENSED PATENT RIGHTS. FHCRC disclaims all implied or express warranties
of any nature whatsoever concerning the validity of the LICENSED PATENT RIGHTS
licensed hereunder. TGC acknowledges and agrees that neither FHCRC nor anyone
acting on its behalf has made any representations whatsoever with regard to the
scope of the LICENSED PATENT RIGHTS or that such LICENSED PATENT RIGHTS may be
exploited by TGC, an AFFILIATE, or sublicensee without infringing other patents.
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TGC EXCLUSIVE LICENSE AGREEMENT
10.2 FHCRC EXPRESSLY DISCLAIMS ANY AND ALL EXPRESS WARRANTIES, EXCEPT
THOSE STATED IN THIS ARTICLE 10, AND FURTHER DISCLAIMS ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS OF THE TECHNOLOGY, LICENSED PROCESSES
OR LICENSED PRODUCTS FOR ANY PARTICULAR USE OR PURPOSE.
10.3 TGC represents and warrants to FHCRC that it has obtained and will at
all times during the Term of this Agreement, hold and comply with all licenses,
permits and authorizations necessary to TGC'S complete and timely performance of
its obligations under this Agreement which are required under any applicable
statutes, laws, ordinances, rules and regulations of the United States as well
as those of all applicable foreign governmental bodies, agencies and
subdivisions, having, asserting or claiming jurisdiction over TGC or TGC's
performance of the terms of this Agreement. In particular, TGC:
(a) will be responsible for obtaining all necessary United States
Food and Drug Administration approvals and all approvals required
by similar governmental bodies or agencies of all applicable
foreign countries; and
(b) understands and acknowledges that the transfer of certain
commodities and technical data is subject to United States laws
and regulations controlling the export of such commodities and
technical data, including all Export Administration Regulations
of the United States Department of Commerce. These laws and
regulations, among other things, prohibit or require a license
for the export of certain types of technical data to certain
specified countries. TGC hereby agrees and gives written
assurance that it will comply with all United States laws and
regulations controlling the export of commodities and technical
data, that it will be solely responsible for any violation of
such by TGC or its AFFILIATES or sublicensees, and that it will
defend and hold FHCRC harmless in the event of any legal action
of any nature occasioned by such violation.
ARTICLE 11 - LEGAL ACTION
11.1 In the event any legal action is commenced against TGC involving
TECHNOLOGY or a LICENSED PRODUCT or otherwise relating to this Agreement,
whether or not FHCRC is named as a party to the legal action, TGC shall keep
FHCRC or its attorney nominee fully advised of the progress of the legal action
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TGC EXCLUSIVE LICENSE AGREEMENT
and shall reimburse FHCRC for its reasonable legal costs (including attorney's
fees) incurred as a result of FHCRC's monitoring of such action, FHCRC's being
named a party to any such legal action, or when FHCRC's employees or agents are
called as witnesses therein or asked to testify for or consult with TGC in
connection therewith.
11.2 FHCRC agrees to cooperate with TGC, to the extent reasonably
possible, in any legal action brought pursuant to this Article 11.
ARTICLE 12 - HOLD HARMLESS
12.1 TGC assumes responsibility for and shall defend, indemnify and hold
FHCRC, its directors, officers, managers, agents, students, doctors and
employees harmless from any and all liability, losses, expenses, damages,
assessments and claims arising out of or resulting from (i) the use, sale or any
disposition of LICENSED PRODUCTS, (ii) the practice of the LICENSED PROCESSES by
TGC or its AFFILIATES, or (iii) the use, sale or other disposition of the
LICENSED PRODUCT or LICENSED PROCESSES by others who receive LICENSED PRODUCTS
or LICENSED PROCESSES directly or indirectly from TGC, its AFFILIATES, agents or
representatives.
ARTICLE 13 - ARBITRATION
13.1 Any dispute, other than a question relating to patent validity,
between the parties hereunder which cannot be resolved by good faith negotiation
between the parties over a period of at least sixty (60) days shall be resolved
by arbitration before a panel of three arbitrators under the then current rules
and procedures of the American Arbitration Association (the "AAA"), or other
rules and procedures as the parties may agree. Each party shall bear its own
costs incurred in connection with such arbitration and the fees, expenses and
costs of the AAA, the arbitrator(s) and the arbitration proceeding not incurred
solely by one party shall be divided equally between the parties. The arbitral
award shall be binding and conclusive on both parties and may be enforced in any
court of competent jurisdiction.
ARTICLE 14 - NOTICES
14.1 All communications, including payments, notices, demands or requests
required or permitted to be given hereunder, shall be given in writing and shall
be: (a) personally delivered; (b) sent by facsimile or other electronic means
of transmitting written documents; or (c) sent to the parties at their
respective addresses indicated herein by registered or certified U.S. mail,
return receipt requested and postage prepaid, or by private overnight mail
courier service. The respective
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TGC EXCLUSIVE LICENSE AGREEMENT
addresses to be used for all such payments, notices, demands or requests are as
follows:
If to FHCRC: Fred Hutchinson Cancer Research Center
1124 Columbia Street, C2M-027
Seattle, Washington 98104
Attention: Catherine J. Hennings, Manager, Technology Transfer
Facsimile: (206) 667-4732
With copies to: Douglas J. Shaeffer, Esq.
Fred Hutchinson Cancer Research Center
1124 Columbia Street, LY-240
Seattle, Washington 98104
Facsimile: (206) 667-6590
If to TGC: Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
Attention: President
Facsimile: (206) 223-0288
ARTICLE 15 - CONFIDENTIALITY AND NON-DISCLOSURE
15.1 Any and all information relating to the TECHNOLOGY furnished to
either party (or its agents or employees) by the other party (or its
laboratories or agents or employees), including but not limited to information
regarding or relating to devices, cell lines, monoclonal antibodies, methods,
processes, data regarding testing and experiments, drawings, documentation,
patent applications and patents (when issued) and product development plans, is
confidential, proprietary, trade secret information and any and all such
information is hereinafter referred to as "Proprietary Information."
(a) As used herein, "Proprietary Information" includes the following:
(i) written material which is clearly designated on its face as
confidential and patent applications;
(ii) oral disclosures, the content of which is within thirty (30)
days after communication designated in writing as
confidential, or which is so designated as confidential
orally during oral disclosures or in contemporaneous written
memoranda; and
14
<PAGE>
TGC EXCLUSIVE LICENSE AGREEMENT
(iii) specimens, samples, and other physical materials which are
prior to or at the time of disclosure designated in writing
as confidential.
(b) As used herein, "Proprietary Information" does not include:
(i) information which at the time of disclosure to the receiving
party is generally available to the public, or which after
such disclosure becomes generally available to the public by
publication or otherwise;
(ii) information that is demonstrated to have been in the
receiving party's possession prior to the time of disclosure
by the disclosing party;
(iii) information that is demonstrated by a preponderance of the
evidence to have been independently developed by the
receiving party's personnel without reference to Proprietary
Information disclosed by the disclosing party; and
(iv) information received from a third party unless such
information is obtained subject to a confidential disclosure
agreement.
15.2 Each party agrees: (a) to hold in strict confidence and trust and
maintain as confidential all Proprietary Information disclosed by the other
party and any information derived therefrom; (b) not to disclose any such
Proprietary Information or any information derived therefrom to any person,
except to those employees or legal counsel of the receiving party who are
required to receive the Proprietary Information for the purposes described in
this Agreement and who are bound by the provisions of this Agreement; (c) not to
export or otherwise disclose any such Proprietary Information to any person who
is, or who the receiving party believes may be, located or may use the
Proprietary Information outside the United States; and (d) to use the
Proprietary Information only for the purposes described in this Agreement.
15.3 Each party agrees that: all Proprietary Information disclosed by the
other party will at all times be and remain the sole property of the disclosing
party and the disclosing party is the sole owner of all patents, copyrights and
other intellectual property rights and other proprietary rights related to the
Proprietary Information disclosed by it. Nothing in this Agreement shall be
construed as granting to or
15
<PAGE>
TGC EXCLUSIVE LICENSE AGREEMENT
permitting to the receiving party any implied license in, or right or option to,
license or use any intellectual property right (including but not limited to any
patent right obtained by the disclosing party) relating to the Proprietary
Information disclosed by it or any other right to use such Proprietary
Information except as expressly provided herein and for any reason other than
for the purposes described in this Agreement.
15.4 Immediately upon the termination of this Agreement, or upon either
disclosing party's request, the receiving party will deliver to the disclosing
party all Proprietary Information disclosed by the disclosing party and all
documents and data storage media containing any such Proprietary Information and
any and all copies thereof, and will delete all such Proprietary Information
from its documents and data storage media.
15.5 The obligations of confidentiality provided herein shall continue in
force and effect for five (5) years from the date of termination of this
Agreement, whether by lapse of the Term hereof or otherwise, unless extended or
limited by mutual agreement executed in writing by an officer of each party.
ARTICLE 16 - PATENT MARKING
16.1 Subsequent to the issuance of any patent based on the application(s)
covered by LICENSED PATENT RIGHTS and provided FHCRC advises TGC of the patent
number or numbers of any such issued patents, TGC agrees to mark and to have
marked by its sublicensees every LICENSED PRODUCT manufactured, used or sold by
TGC, its AFFILIATES or its sublicensees in accordance with the statutes of the
United States relating to the marking of patented articles.
ARTICLE 17 - RIGHT TO PUBLISH
17.1 Nothing in this Agreement shall be construed as prohibiting FHCRC or
its researchers from publishing any of the results of research on the TECHNOLOGY
in reputable scientific journals. Notwithstanding the foregoing, it is expected
the FHCRC shall take such measures to obtain appropriate patent or other
protection for any inventions which FHCRC reasonably knows will be incorporated
into the LICENSED PATENT RIGHTS as a continuation or a continuation-in-part.
ARTICLE 18 - MISCELLANEOUS
18.1 The rights and obligations of the parties under this Agreement shall
be governed by and construed in accordance with the laws of the State of
Washington.
16
<PAGE>
TGC EXCLUSIVE LICENSE AGREEMENT
18.2 This Agreement may not be amended except by an instrument in writing
signed by both parties.
18.3 The Agreement shall be binding on the parties hereto and upon their
respective heirs, administrators, successors and assigns. This Agreement may not
be assigned or sublicensed by TGC or by operation of law without the prior
written consent of FHCRC.
18.4 TGC acknowledges that FHCRC is a non-profit organization qualifying
for and holding the status of an exempt organization under Section 501(c)(3) of
the United States Internal Revenue Code. If the Internal Revenue Service
determines, or a determination by FHCRC based on advice of legal or tax counsel
is reasonably made, that any part or all of this Agreement will jeopardize
FHCRC's Section 501(c)(3) status, the parties agree to meet and confer in good
faith to amend this Agreement to the extent necessary to satisfy Internal
Revenue Service requirements for retention of FHCRC'S Section 501(c)(3) status.
If FHCRC and TGC cannot agree within 30 days after commencing negotiations
regarding the amendments to be made to this Agreement in order for FHCRC to
retain its Section 501(c)(3) status, FHCRC may terminate this Agreement
effective upon giving written notice to TGC of termination under this Article
18.
18.5 TGC understands and acknowledges that agreements between FHCRC and
agencies of the United States Government funding FHCRC's programs may contain
clauses granting patent and/or other rights to the agencies or the U.S.
Government; TGC agrees that the rights granted to it under this Agreement shall
be subject to any rights of the agencies and the U.S. Government. In the event
of a conflict between any of the provisions of this Agreement and the provisions
of any U.S. Government agency funding agreement and/or regulation shall prevail
and FHCRC will have no liability to TGC as a result of such conflict.
18.6 Except as otherwise provided herein, FHCRC and its employees,
including but not limited to the INVESTIGATORS, shall not use the name of TGC,
its employees or agents, and TGC, including its employees, shall not use the
name of FHCRC or any of its employees or agents in any advertising, publicity,
news release, promotional materials or any public disclosure, whatsoever, EITHER
WRITTEN OR ORAL, related to the existence of this Agreement or any actions or
work undertaken pursuant to terms of this Agreement without the prior written
consent of the other party. FHCRC shall have three (3) business days from the
time it receives a proposed disclosure ("Review Period") to approve and/or
provide comments to TGC with respect to such disclosure. In the event that TGC
receives no communications from
17
<PAGE>
TGC EXCLUSIVE LICENSE AGREEMENT
FHCRC regarding such disclosure within the Review Period, then FHCRC's consent
of the public release of such disclosure shall be deemed to have been granted.
18.7 Upon the earlier of any: (i) testing or use in human subjects or
(ii) sale of a LICENSED PRODUCT, TGC will have FHCRC named as an additional
insured on TGC'S product liability insurance policies, with limits of at least
$1,000,000 per claim and $5,000,000 annual aggregate. Such policies shall not be
terminated without thirty (30) days prior written notice to FHCRC. If FHCRC's
insurance costs can be shown to have increased solely because of this Agreement,
and such increases are verified by an independent certified public accountant,
TGC shall reimburse FHCRC for such increase within twenty (20) days of receiving
written notice from FHCRC requesting such reimbursement and the parties shall
attempt to agree to changes and revisions of this Agreement. If the parties fail
to arrive at agreement within a reasonable time, or TGC does not reimburse
FHCRC, FHCRC may by written notice terminate this Agreement.
18.8 All letters, documents, or other materials of a written or physical
nature, required by or relating to this Agreement shall be in English and sent
to the party at the address given in Article 14.
18.9 The parties to this Agreement recognize and agree that each is
operating as an independent contractor and not as an agent of the other. This
Agreement shall not constitute a partnership or joint venture, and neither party
may be bound by the other to any contract, arrangement or understanding except
as specifically stated herein.
18.10 Should a court of competent jurisdiction later consider any
provision of this Agreement to be invalid, illegal, or unenforceable, it shall
be considered severed from this Agreement. All other provisions, rights and
obligations shall continue without regard to the severed provision, provided
that the remaining provisions of this Agreement are in accord with the intention
of the parties.
18.11 In the event any party to this Agreement commences any action or
proceeding, including an appeal of an action or proceeding, against the other,
or otherwise retains an attorney, by reason of any breach or claimed breach of
any provision of this Agreement, or to seek a judicial declaration of rights
hereunder or judicial or equitable relief, the prevailing party in such action
or proceeding shall be entitled to recover its reasonable attorneys' fees and
costs. At the option of FHCRC, venue of any such legal or equitable action shall
lie in Seattle, Washington. TGC hereby submits to the jurisdiction of the
Federal District Court of Western Washington located in Seattle, Washington, and
hereby agrees to accept service of process by certified mail, return receipt
requested, effective upon delivery to TGC.
18
<PAGE>
TGC EXCLUSIVE LICENSE AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement through duly
authorized representatives as of the date first above written.
FRED HUTCHINSON CANCER RESEARCH CENTER TARGETED GENETICS CORPORATION
By Catherine J. Hennings By H. Stewart Parker
------------------------------ ----------------------
Name Catherine J. Hennings Name H. Stewart Parker
------------------------------ ----------------------
Title Manager, Technology Transfer Title President and CEO
------------------------------ ----------------------
Date March 24, 1994 Date March 23, 1994
------------------------------ ----------------------
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<PAGE>
APPENDIX A
PATENT APPLICATIONS AND PATENTS
PATENT FILE OR
PATENT NO. APPLCTN NO. COUNTRY ISSUE DATE TITLE/INVENTOR
---------- ----------- ------- ---------- --------------
07/660,616 U.S. 2/22/91 RETROVIRUS PACKAGING CELL
LINES BASED ON GIBBON APE
LEUKEMIA VIRUS (Miller,
Wilson, Eiden, Garcia-Martinez)
20
<PAGE>
REDACTED VERSION
EXHIBIT 10.23
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1997
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
<PAGE>
LICENSE AGREEMENT
This Agreement is made and entered into as of March 15, 1997 (the
"Effective Date") by and between THE BURNHAM INSTITUTE, a non profit public
benefit corporation duly organized and existing under the laws of the State of
California and having its principal office at 10901 North Torrey Pines Road, La
Jolla, CA 92037, USA (hereinafter referred to as "INSTITUTE"), and TARGETED
GENETICS CORPORATION, a corporation duly organized under the laws of the State
of Washington and having its principal office at 1100 Olive Way, Suite 100,
Seattle, WA 98101 (hereinafter referred to as "LICENSEE").
RECITALS
--------
A. INSTITUTE is the owner of certain PATENT RIGHTS (as later defined
herein) and warrants that it has the right to grant licenses under said PATENT
RIGHTS, subject only to a royalty-free, nonexclusive license heretofore granted
to the United States Government.
B. INSTITUTE desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder.
C. LICENSEE has represented to INSTITUTE that LICENSEE is experienced in
the development of products similar to the LICENSED PRODUCT(s) (as later defined
herein) and that it will commit itself to a diligent program of exploiting the
PATENT RIGHTS so that public utilization will result therefrom.
D. LICENSEE desires to obtain a license under the PATENT RIGHTS upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
For the purposes of this Agreement, the following words and phrases will
have the following meanings:
1.1 "LICENSEE" means Targeted Genetics Corporation as well as a related
company of Targeted Genetics Corporation, the voting stock of which is
directly or indirectly at least fifty percent (50%) owned or
controlled by Targeted Genetics Corporation, an organization which
directly or indirectly controls more than fifty percent (50%) of the
voting stock of
<PAGE>
Targeted Genetics Corporation and an organization, the majority
ownership of which is directly or indirectly common to the ownership
of Targeted Genetics Corporation.
1.2 "PATENT RIGHTS" means all of the following:
(a) The US Patent Applications listed in Appendix A;
(b) divisions, continuations and continuations-in-part of (a) above,
including reissues, extensions or reexaminations of the
foregoing; and
(c) all foreign counterparts of (a) and (b) above;
(d) any and all US and foreign counterpart patent applications and
patents including divisions, continuations and continuations-in-
part and reissues, extensions or reexaminations of the foregoing
that claim any Institute Invention or Joint Invention as those
terms are defined in the Sponsored Research Agreement of even
date herewith;
(e) but excluding claims in any or all of (a) - (d) above drawn to
any uses of nucleic acid sequences that are not homologous with,
or a derivative, variant, progeny or improvement of E1A.
1.3 A "LICENSED PRODUCT" will mean any product or composition which
would, in the applicable jurisdiction, in the absence of the license
granted hereunder, infringe a Valid Claim.
1.4 A "LICENSED PROCESS" will mean any method or process or part thereof
which would in the applicable jurisdiction, in the absence of the
license granted hereunder, infringe a Valid Claim.
1.5 "NET SALES" will mean LICENSEE's (and its sublicensees') gross
billings for LICENSED PRODUCTS produced hereunder less the sum of the
following items to the extent that said items are included in the
gross billings: (a) discounts actually allowed in amounts customary in
the trade; (b) sales taxes, tariffs, duties and/or use taxes directly
imposed and with reference to particular sales; (c) outbound
transportation prepaid or allowed; and (d) amounts allowed or credited
on returns.
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<PAGE>
No deductions will be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by
LICENSEE and on its payroll, or for cost of collections. LICENSED
PRODUCTS will be considered "sold" when billed to the customers.
1.6 "TERRITORY" will mean the entire world.
1.7 "FIELD OF USE" will mean for the diagnosis and/or treatment of cancer.
1.8 "SPONSORED RESEARCH AGREEMENT" means the agreement of even date
herewith between the INSTITUTE and LICENSEE having said title.
1.9 "VALID CLAIM" will mean any pending or issued claim of the LICENSED
PATENT RIGHTS that has not been held invalid or unenforceable by a
final judgment by a court of competent jurisdiction and authority
which is unappeallable or as to which the applicable time for appeal
has expired without any appeal being filed.
ARTICLE 2 - GRANT AND SUBLICENSES
---------------------------------
2.1 License Grant. INSTITUTE hereby grants to LICENSEE the exclusive
license right to make, use, sell, import and export (subject to the
provisions of Article 9) LICENSED PRODUCTS and LICENSED PROCESSES in
the TERRITORY, for use in the FIELD OF USE. This license grant will
continue until the last to expire of the PATENT RIGHTS, unless this
Agreement is terminated sooner according to the terms hereof. This
license grant is subject to the governmental rights referenced in
Recital A and to the reserved rights referenced in Paragraph 2.2
hereof.
2.2 Reserved Rights. INSTITUTE reserves the right to (a) practice and
have practiced the PATENT RIGHTS for noncommercial purposes; and (b)
use and distribute to third parties material covered by the PATENT
RIGHTS for noncommercial research purposes and (c) grant to others the
right to practice the PATENT RIGHTS to make use or sell products that
are not LICENSED PRODUCTS and LICENSED PROCESSES. INSTITUTE will
notify LICENSEE of any pending distribution of materials covered by
the PATENT RIGHTS to commercial third parties and its intention to
grant licenses per (b) and (c) of this section, respectively, at least
thirty (30) days prior to such planned distribution.
-3-
<PAGE>
LICENSEE will have the right to request that materials covered by the
PATENT RIGHTS not be distributed or licenses not granted, and such
request will not be unreasonably denied by the INSTITUTE.
2.3 No Implied Rights. The license granted hereunder will not be
construed to confer any rights upon LICENSEE by implication, estoppel
or otherwise as to any technology not specifically set forth in
Appendix A hereof.
2.4 Sublicensing. LICENSEE will have the right to enter into sublicensing
agreements for the rights, privileges and licenses granted hereunder,
subject to the INSTITUTE'S prior written approval, which approval will
not be unreasonably denied. Upon any termination of this Agreement,
sublicensees' rights will also terminate, subject to Paragraph 13.6
hereof.
2.5 Binding on Sublicensee. LICENSEE agrees that any sublicenses granted
by it will provide that all obligations of LICENSEE to INSTITUTE
created by this Agreement will be binding upon the sublicensee as if
it were a party to this Agreement.
2.6 No Extra Consideration from Sublicensee. LICENSEE will not receive
from sublicensees anything of value in lieu of cash payments in
consideration for any sublicense under this Agreement, without the
express prior written permission of INSTITUTE
ARTICLE 3 - DUE DILIGENCE
-------------------------
3.1 Commercialization.
(a) LICENSEE will use its commercially reasonable efforts to bring
LICENSED PRODUCTS to market through a thorough, vigorous and
diligent program for exploitation of the PATENT RIGHTS and to
continue active, diligent marketing efforts for LICENSED PRODUCTS
throughout the life of this Agreement.
(b) LICENSEE will prepare and furnish to INSTITUTE an annual
development and progress report, as of June 30 of each year,
describing LICENSEE'S progress (and sublicensee's plans) for the
development and commercialization of LICENSED PRODUCTS.
(c) So long as LICENSEE is pursuing commercially reasonable efforts
to bring to market and to diligently market at least one
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<PAGE>
LICENSED PRODUCT, including meeting the milestones for said
LICENSED PRODUCT as specified in Paragraph 3.2, below, then
INSTITUTE will not be entitled to terminate this Agreement on
account of a default under this Paragraph 3.1.
3.2 Milestones. In addition, LICENSEE will adhere to the following
milestones:
(a) Initiate first Phase II clinical trial for a product covered by
the PATENT RIGHTS not more than [ * ] from the Effective Date;
and
(b) Initiate first Phase III clinical trial for a product covered by
the PATENT RIGHTS not more than [ * ] from the Effective Date;
and
(c) File a New Drug Application for a product covered by the PATENT
RIGHTS not more than [ * ] years from the Effective Date; and
(d) Receive approval of a New Drug Application for a product covered
by the PATENT RIGHTS not more than [ * ] years from the Effective
Date.
3.3 If LICENSEE fails to achieve the milestones described in Paragraph 3.2
(a), then the INSTITUTE has the option, in its sole discretion, to
terminate this Agreement, or to convert the exclusive license granted
by this Agreement to a non-exclusive license.
3.4 LICENSEE may request INSTITUTE approval to modify the milestones
described in Paragraph 3.2 (b)-(d). If LICENSEE can reasonably
demonstrate that such failure is attributable to causes outside of its
control, INSTITUTE approval of such request will not be unreasonably
denied. If such failure is attributable to causes within LICENSEE'S
[*] Confidential Treatment Requested
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<PAGE>
control then the INSTITUTE has the option, in its sole discretion, to
consider such failure a material breach or default of this Agreement
and may exercise its right to terminate this Agreement pursuant to
Paragraph 13.3 hereof.
ARTICLE 4 - LICENSE FEES, ROYALTIES AND MILESTONES
--------------------------------------------------
4.1 License Fees and Stock Warrants. In consideration of the license
granted LICENSEE pursuant to Article 2 hereof, LICENSEE will pay
and/or deliver to the INSTITUTE:
(a) a license fee of [ * ] cash payable as follows:
[ * ] already paid by LICENSEE upon execution of the term sheet
that outlined the terms of this Agreement, receipt of which is
hereby acknowledged; [ * ] due within thirty (30) days after the
Effective Date; and [ * ] due on or before six months after the
Effective Date.
(b) a stock warrant to purchase 50,000 of LICENSEE'S common stock at
the market price as of the Effective Date of this Agreement,
which warrant will be exercisable for a period of seven years
after the Effective Date. Such warrant will vest as follows:
1. 16,667 shares upon the Effective Date of this Agreement;
2. 16,666 shares upon successful completion by INSTITUTE of
[ * ], provided that such studies are completed within one
(1) year after the Effective Date, and provided further that
if such studies are not completed within one (1) year after
the Effective Date such warrant for these 16,666 shares will
be rescinded;
3. 16,667 shares upon issuance of a US patent covering [ * ].
4.2 Running Royalties.
(a) LICENSEE will pay to the INSTITUTE running royalties of
[ * ] of NET SALES of the LICENSED
[*] Confidential Treatment Requested
-6-
<PAGE>
made, used or sold by LICENSEE or sublicensees; provided however,
if there are multiple, stacking royalties payable by LICENSEE on
the LICENSED PRODUCTS to third parties, then LICENSEE may reduce
the [ * ] royalty to INSTITUTE on the same proportionate basis as
all of the other stacking royalties are reduced, so long as the
resulting royalty payable to the INSTITUTE does not go below
[ * ] of NET SALES of LICENSED PRODUCTS.
(b) In the case of NET SALES of LICENSE PRODUCTS by sublicensees,
INSTITUTE will be paid the greater of the running royalties
specified in Paragraph 4.2(a) or [ * ] of the royalties payable
by the sublicensee to LICENSEE.
(c) In the case of a sublicense which pays any consideration to
LICENSEE other than running royalties on NET SALES of LICENSED
PRODUCTS ("Non-Royalty Fees") (e.g. such other consideration
includes license fees, marketing fees, milestone payments, equity
in sublicensee, bonus payments and the like - but excludes
specific funding for specific future research and development
work and purchases of equity in LICENSEE) then LICENSEE will pay
[ * ] of said other consideration to INSTITUTE. In the event that
LICENSEE sublicenses the PATENT RIGHTS to a third party in
combination with patent(s) and or other rights of the University
of Texas MD Anderson Cancer Center ("MDACC") for which LICENSEE
receives Non-Royalty Fees, then the INSTITUTE's share of Non-
Royalty Fees will be reduced from [ * ] to the amount of
reduction from [ * ] agreed to by MDACC, but in no event will the
INSTITUTE's share of Non-Royalty Fees be reduced to less than
[ * ].
(d) Payments of royalties will be made within thirty (30)days after
March 31, June 30, September 30 and December 31 of each year
during the term of this Agreement covering LICENSED PRODUCTS sold
during the preceding calendar quarter. Payments of other
consideration pursuant to Paragraph 4.2(c) will be made within
thirty (30) days after receipt by LICENSEE.
[*] Confidential Treatment Requested
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<PAGE>
4.3 Milestone Payments. LICENSEE will pay to the INSTITUTE the following
milestone payments, due as follows:
(a) [ * ] upon achievement of the milestone outlined in Paragraph
3.2(a); and
(b) [ * ] upon achievement of the milestone outlined in Paragraph
3.2(b); and
(c) [ * ] upon achievement of the milestone outlined in Paragraph
3.2(c); and
(d) [ * ] upon achievement of the milestone outlined in Paragraph
3.2(d)
4.4 Minimum Sales. From and after the date of the first commercial sale
of a LICENSED PRODUCT, in each of the three succeeding calendar yeras,
LICENSEE will pay to the INSTITUTE royalties of not less than [ * ]
("Minimum Royalties"). In each calendar year thereafter LICENSEE will
achieve sales of LICENSED PRODUCTS sufficient to produce royalties
payable to the INSTITUTE of not less than [ * ]. If LICENSEE fails to
achieve such sales after three (3) full calendar years from the date
of the first commercial sale, INSTITUTE may either terminate this
Agreement or convert the license rights from exclusive to non-
exclusive. Minimum Royalties for the first year of commercial sales
will be pro-rated according to the month when such sales begin.
4.5 Net of Taxes. All payments due hereunder will be paid in full,
without deduction of taxes or other fees which may be imposed by any
government (excluding however any US income taxes which may be payable
by INSTITUTE), and which taxes and fees will be paid by LICENSEE.
4.6 No Multiple Royalties. No multiple royalties will be payable to
INSTITUTE because any LICENSED PRODUCT is covered by more
[*] Confidential Treatment Requested
-8-
<PAGE>
than one patent or patent application included in the PATENT RIGHTS
licensed under this Agreement.
4.7 US Dollar Payments. Royalty payments will be paid in United States
dollars in San Diego, California, or at such other place as INSTITUTE
may reasonably designate consistent with the laws and regulations
controlling in any foreign country. If any currency conversion will be
required in connection with the payment of royalties hereunder, such
conversion will be made by using the exchange rate prevailing at the
Chase Manhattan Bank (NA) on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 LICENSEE'S Books; Inspection. LICENSEE will keep full, true and
accurate books of account containing all particulars that may be
necessary for the purpose of showing the amounts payable to INSTITUTE
hereunder. Said books of account will 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 will be open and made available for
inspection by the INSTITUTE and/or its agents not less than seven (7)
days after receipt by LICENSEE of INSTITUTE'S advance written notice
of its intent to inspect said books and data for three (3) years
following the end of the calendar year to which they pertain, for the
purpose of verifying LICENSEE's royalty statement or compliance in
other respects with this Agreement. Such inspection may be conducted
no more frequently than annually. Should such inspection lead to the
discovery of a greater than ten percent (10%) discrepancy in reporting
to INSTITUTE's detriment, LICENSEE agrees to pay the full cost of such
inspection.
5.2 Annual Development Reports. Before the first commercial sale of a
LICENSED PRODUCT, LICENSEE will submit to INSTITUTE annual reports on
June 30 of each year as to LICENSEE'S activities, progress and plans
applicable to Paragraphs 3.1 and 3.2.
5.3 Quarterly Royalty Reports. Within thirty (30) days after the
expiration of each calendar quarter commencing with the quarter in
which the first commercial sale occurs of a LICENSED PRODUCT, LICENSEE
will deliver to INSTITUTE a written statement of all royalties due on
sales of LICENSED PRODUCTS during such calendar quarter. Such written
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<PAGE>
statements will be duly signed on behalf of LICENSEE and will show
the NET SALES of LICENSED PRODUCTS sold by LICENSEE and/or its
sublicensees during such calendar quarter and the amount of royalties
due, pursuant to section 4.2. If no royalties are due, LICENSEE will
so report.
5.4 Late Payment Charge. The payments set forth in this Agreement will,
if overdue, bear interest until paid at a per annum rate equal to two
percent (2%) above the prime rate in effect at the Chase Manhattan
Bank (NA) on the due date. The payment of such interest will not
preclude INSTITUTE from exercising any other rights it may have as a
consequence of the lateness of any payment.
ARTICLE 6 - PATENT PROSECUTION
------------------------------
6.1 LICENSEE'S Payment of Patent Costs. Payment of all reasonable fees
and costs relating to the filing, prosecution, and maintenance of the
PATENT RIGHTS incurred after December 1, 1996, will be the
responsibility of LICENSEE, and will be paid by LICENSEE.
6.2 INSTITUTE'S Duty. Subject to LICENSEE'S payment of the reasonable
costs, INSTITUTE will apply for, seek prompt issuance of, and maintain
during the term of this Agreement the PATENT RIGHTS in the United
States and in the foreign countries listed in Appendix B hereto.
Appendix B may be amended by written agreement of both parties. The
prosecution, filing and maintenance of all PATENT RIGHTS will be the
primary responsibility of INSTITUTE; provided, however, that INSTITUTE
will keep LICENSEE fully informed of the progress thereof, and will
provide LICENSEE with copies of all documents related to filing,
prosecuting and maintaining the PATENT RIGHTS, and a reasonable
opportunity to review any proposed application, amendment, response or
other communication related to the PATENT RIGHTS; and the INSTITUTE
will use its best efforts to accommodate LICENSEE'S reasonable
requests regarding filing, prosecuting and maintaining the PATENT
RIGHTS.
ARTICLE 7 - INFRINGEMENT
------------------------
7.1 Prosecution of Infringement Action. If it is believed in good faith
that the PATENT RIGHTS are infringed by a third party as evidenced by
a third party's manufacture, use or sale of a product, the party to
this Agreement first having knowledge of such infringement will
promptly
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<PAGE>
notify the other party in writing, which notice will set forth the
facts of such infringement in reasonable detail. LICENSEE will have
the right, but not the obligation, to institute and prosecute at its
own expense any such infringement of the PATENT RIGHTS to enjoin any
third party infringement of the PATENT RIGHTS in such third party's
efforts to make, use or sell a product and to recover damages as may
be awarded. If LICENSEE fails to bring such action or proceedings
within a period of three (3) months after receiving written notice or
otherwise having knowledge of such infringement, then INSTITUTE will
have the right, but not the obligation, to prosecute at its own
expense any infringement of the PATENT RIGHTS. In either instance in
which one party to this Agreement institutes an infringement action,
the second party will agree to be joined as a party plaintiff if
required by law, and at the expense of the first party, and the second
party further agrees to give the first party reasonable assistance and
authority to file and to prosecute such suit. Any recovery of damages
and costs in such suits will be apportioned as follows: the party
bringing the suit will first recover an amount equal to two (2) times
the costs and expenses incurred by the party directly related to the
prosecution of such action, and the remainder will be divided equally
between the INSTITUTE and LICENSEE.
7.2 Consent to Settlement. No settlement or consent judgment or other
voluntary final disposition of a suit under this Article may be
entered into without the consent of the INSTITUTE and/or LICENSEE,
which consents will not be unreasonably withheld.
7.3 Sublicense to Infringer. LICENSEE will have the sole right to grant a
sublicense to any alleged infringer for the FIELD OF USE to make, use
or sell LICENSED PRODUCTS, subject to compliance with all of the terms
and conditions, including Paragraph 2.4, of this Agreement.
ARTICLE 8 - PRODUCT LIABILITY
-----------------------------
8.1 Indemnity. LICENSEE will at all times during the term of this
Agreement and thereafter, indemnify, defend and hold INSTITUTE, its
trustees, directors, officers, employees and affiliates, harmless
against all claims, proceedings, demands and liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys' fees,
arising out of the death of or injury to any person or persons or out
of any damage to property, or resulting from the testing, production,
manufacture, sale, use, lease, consumption or advertisement of the
LICENSED PRODUCT(s) or arising from any obligation of LICENSEE
hereunder,
-11-
<PAGE>
excepting only claims that the PATENT RIGHTS infringe third party
intellectual property.
8.2 Insurance. LICENSEE will obtain and carry in full force and effect
liability insurance which will protect LICENSEE and INSTITUTE with
respect to events covered by Paragraph 8.1, above, as soon as
commercially practical, but in no event later than the earlier of the
commencement of any clinical trial for or the first sale of a LICENSED
PRODUCT or first practice of a LICENSED PROCESS. The limits of such
insurance will not be less than One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for
personal injury or death, and One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for
property damage and such insurance will be endorsed to included
clinical trials or product liability coverage as the circumstances may
require. LICENSEE will provide INSTITUTE with Certificates of
Insurance evidencing the same and will provide ten (10) days written
notice to INSTITUTE prior to any cancellation or material change
thereof. LICENSEE will have INSTITUTE named as an additional insured
on such insurance prior to the date of the first commercial sale of a
LICENSED PRODUCT or the practice of a LICENSED PROCESS. Additionally,
LICENSE will use its best efforts to have INSTITUTE named as an
additional insured on such insurance prior to the commencement of any
clinical trial for a LICENSED PRODUCT or LICENSED PROCESS. If,
however, LICENSEE is unable to have INSTITUTE named as an additional
insured on such insurance prior to the commencement of any clinical
trial for a LICENSED PRODUCT or LICENSED PROCESS, LICENSEE will so
advise INSTITUTE prior to the commencement of such clinical trial and
the INSTITUTE and LICENSEE will negotiate in good faith alternative
means to protect the INSTITUTE with respect to events covered by
Paragraph 8.1 during the period of such clinical trial.
8.3 Disclaimers by INSTITUTE. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN
THIS AGREEMENT, INSTITUTE, ITS TRUSTEES, DIRECTORS, OFFICERS,
EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING,
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<PAGE>
AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE. NOTHING IN THIS AGREEMENT WILL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY INSTITUTE THAT THE PRACTICE
BY LICENSEE OF THE LICENSE GRANTED HEREUNDER WILL NOT INFRINGE THE
PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT WILL INSTITUTE, ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC
DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER
INSTITUTE WILL BE ADVISED, WILL HAVE OTHER REASON TO KNOW, OR IN FACT
WILL KNOW OF THE POSSIBILITY.
8.4 Representations by INSTITUTE. INSTITUTE hereby makes the
representations as set forth in Recital A of this Agreement.
ARTICLE 9 - EXPORT CONTROLS
---------------------------
It is understood that INSTITUTE 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 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 will not export
data or commodities to certain foreign countries without prior approval of such
agency. INSTITUTE neither represents that a license will not be required nor
that, if required, it will be issued.
ARTICLE 10 - NON-USE OF NAMES
-----------------------------
LICENSEE will not use the names or trademarks of The Burnham Institute, nor
any adaptation thereof, nor the names of any of their employees, in any
advertising, promotional or sales literature without prior written consent
obtained from INSTITUTE, or said employee, in each case, except that LICENSEE
may state that it is licensed by INSTITUTE under one or more of the patents
and/or applications comprising the PATENT RIGHTS. INSTITUTE will not use the
name of the LICENSEE in any public disclosure without the prior written consent
of the LICENSEE.
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<PAGE>
ARTICLE 11 - ASSIGNMENT
-----------------------
This Agreement is not assignable by LICENSE without the express prior
written consent of the INSTITUTE except in the event of the sale of all or
substantially all of the LICENSEE'S assets and/or business. Any other attempt
to assign this Agreement without such consent will be void. This Agreement will
bind and inure to the benefit or permitted assigns.
ARTICLE 12 - DISPUTE RESOLUTION
-------------------------------
12.1 Arbitration. All disputes arising between the INSTITUTE and LICENSEE
under this Agreement will be settled by binding arbitration conducted
in the English language in accordance with and US laws with the
Commercial Arbitration Rules of the American Arbitration Association.
The parties will cooperate with each other in causing the arbitration
to be held in an efficient and expeditious manner. Any arbitration
proceeding instituted under this Agreement will be brought in the
state and county of the principal executive offices of the party
against which the arbitration is initiated.
12.2 Award. Any award rendered by the arbitrators will be final and
binding upon the parties hereto. Judgment upon the award may be
entered in any court of record of competent jurisdiction. Each party
will pay its own expenses of the arbitration, and the expenses of the
arbitrators will be equally shared, unless the arbitrators assess as
part of their award all or any part of the arbitration expenses of
one party (including reasonable attorneys' fees) against the other
party.
12.3 Jurisdiction. The law governing this Agreement, for purposes of the
arbitration will be the law of the state of the principal offices of
the party against which the arbitration is initiated.
12.4 No Waiver. Notwithstanding the foregoing, nothing in this Article
will be construed to waive any rights or timely performance of any
obligations existing under this Agreement.
ARTICLE 13 - TERMINATION
------------------------
13.1 Cessation of Business by LICENSEE. If LICENSEE will cease to carry
on its business, this Agreement will terminate upon notice by
INSTITUTE.
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<PAGE>
13.2 Payment Default by LICENSEE. If LICENSEE fails to make any payment
due and payable to INSTITUTE hereunder, INSTITUTE will have the right
to terminate this Agreement effective on thirty (30) days' written
notice, unless LICENSEE will make all such payments to INSTITUTE
within said thirty (30) day period. Upon the expiration of the thirty
(30) day period, if LICENSEE has not made all such payments to
INSTITUTE, the rights, privileges and license granted hereunder will
automatically terminate.
13.3 Default by LICENSEE. Upon any material breach or default of this
Agreement by LICENSEE (including, but not limited to, breach or
default under Paragraphs 3.3 or 4.4 or 8.1 or Article 11), other than
those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which will always take precedence in that order over any material
breach or default referred to in this Paragraph 13.3, INSTITUTE will
have the right to terminate this Agreement and the rights, privileges
and license granted hereunder effective on ninety (90) days' written
notice to LICENSEE. Such termination will become automatically
effective unless LICENSEE will have cured any such material breach or
default prior to the expiration of the ninety (90) day period.
13.4 LICENSEE'S right to Terminate. LICENSEE will have the right to
terminate this Agreement at any time on six (6) months' written
notice to INSTITUTE, and upon payment of all amounts due INSTITUTE
through the effective date of the termination.
13.5 Effect of Termination. Upon termination of this Agreement for any
reason, nothing herein will be construed to release either party from
any obligation that matured prior to the effective date of such
termination; and Articles 1, 8, 9, 10, 12, 13.5, 13.6, and 15 will
survive any such termination. LICENSEE and any sublicensee thereof
may, however, after the effective date of such termination, sell its
then existing inventory of LICENSED PRODUCTS, and complete LICENSED
PRODUCTS in the process of manufacture at the time of such
termination and sell the same, provided that LICENSEE will make the
payments to INSTITUTE as required by Article 4 of this Agreement and
will submit the reports required by Article 5 hereof.
13.6 Sublicenses. Upon termination of this Agreement for any reason, any
sublicensee will also terminate, but a sublicensee will have the
right to seek a license from INSTITUTE. INSTITUTE agrees to negotiate
such a license in good faith under reasonable terms and conditions
subject to
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<PAGE>
the INSTITUTE'S sole discretion as to whether or not to enter into a
new license agreement.
ARTICLE 14 - PAYMENTS AND NOTICES
----------------------------------
Any payment, notice or other communication pursuant to this Agreement will
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it will designate by written notice given to the other party:
In the case of INSTITUTE:
Vice President
The Burnham Institute
10901 North Torrey Pines Road
La Jolla, CA 92037
In the case of LICENSEE:
President
Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
ARTICLE 15 - MISCELLANEOUS PROVISIONS
-------------------------------------
15.1 Governing Law. This Agreement will be construed, governed,
interpreted and applied in accordance with the laws of the State of
California, USA, except that questions affecting the construction and
effect of any patent will be determined by the law of the country in
which the patent was granted.
15.2 Entirety. The parties hereto acknowledge that this Agreement sets
forth the entire Agreement and understanding of the parties hereto as
to the subject matter hereof, and will not be subject to any change
or modification except by the execution of a written instrument
subscribed to by the parties hereto.
15.3 Severability. The provisions of this Agreement are severable, and in
the event that any provisions of this Agreement will be determined to
be invalid or unenforceable under any controlling body of the law,
such invalidity or unenforceability will not in any way affect the
validity or enforceability of the remaining provisions hereof.
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<PAGE>
15.4 Patent Marking. LICENSEE agrees to mark the LICENSED PRODUCTS sold
in the United States with all applicable United States patent
numbers. All LICENSED PRODUCTS shipped to or sold in other countries
will be marked in such a manner as to conform with the patent laws
and practice of the country of manufacture or sale.
15.5 No Waiver. The failure of either party to assert a right hereunder
or to insist upon compliance with any term or condition of this
Agreement will not constitute a waiver of that right or excuse a
similar subsequent failure to perform any such term or condition by
the other party.
15.6 No Third Party Beneficiary. The rights set forth in this Agreement
are for the benefit of the parties to this Agreement. No third party
will have any benefits or rights under this Agreement, without the
expressed written approval of both parties to this Agreement.
15.7 Counterparts. This Agreement may be signed in counterparts, and
signatures may be transmitted by facsimile.
15.8 Construction. The words and provisions in the Agreement will be
construed and applied in accordance with the customary and plain
meaning of the words and provisions. Any ambiguity in the
interpretation of this Agreement will not be construed against either
party as the draftsman of this Agreement.
15.9 The INSTITUTE and its agents will maintain in confidence and will not
disclose to any third party or use for any purpose not expressly
authorized by this Agreement, all information provided to the
INSTITUTE or its agents pursuant to Articles 3 and 5 of this
Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
THE BURNHAM INSTITUTE
By: Louis R. Coffman 3/17/97
---------------------- ---------
Signature Date
-17-
<PAGE>
TARGETED GENETICS CORPORATION
By: H. Stewart Parker 3/19/97
----------------------- ---------
Signature Date
-18-
<PAGE>
APPENDIX A
1. US Patent Application, "Method of Inhibiting Replication of
Hyperproliferative Cells", Serial No. 07/960,112, and continuing application
08/473,399.
2. US Patent Application, Method of Sensitizing Tumor Cells with
Adenovirus E1A", Serial No. 08/301,316.
3. Any US or foreign patent applications and patents covering inventions
conceived and/or reduced to practice in the laboratory of Dr. Steven Frisch at
the INSTITUTE during the course and term of the Sponsored Research Agreement
between the INSTITUTE and LICENSEE of even date herewith.
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<PAGE>
APPENDIX B
----------
Foreign Patent Applications
(Paragraph 6.2)
Foreign countries in which PATENT RIGHTS will be filed, prosecuted and
maintained in accordance with Article 6:
EPO
CANADA
JAPAN
AUSTRALIA
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<PAGE>
THE BURNHAM INSTITUTE
---------------------
Established in 1976 as
LaJolla Cancer Research Foundation
January 7, 1998
Stephen Lupton, Ph.D.
Corporate Development
Targeted Genetics Corporation
1100 Olive Way
Suite 10
Seattle, WA 98101
re: Amendment to the License Agreement dated March 15, 1997
Dear Dr. Lupton:
This letter is to amend the referenced license agreement between The
Burnham Institute and Targeted Genetics Corporation. Replacement of Paragraph
4.2(b), with the following allows for a royalty stacking provision previously
omitted from the original agreement.
(b) In the case of NET SALES of LICENSED PRODUCTS by sublicenses, INSTITUTE
will be paid the greater of the running royalties specified in Paragraph 4.2(a)
or [ * ] of the royalties payable by the sublicensee to LICENSE; provided,
however, if there are multiple, stacking royalties payable by sublicensees on
the LICENSED PRODUCTS to third parties, then LICENSEE may reduce the payment to
INSTITUTE on the same proportionate basis as all the other stacking royalties
are reduced, so long as the resulting payment to the INSTITUTE is no less than
the greater of [ * ] of NET SALES of LICENSED PRODUCTS by sublicensees or [ * ]
of the royalties payable by the sublicensees to LICENSEE.
Please acknowledge the amendment of the agreement by signing in the space
provided below, on both copies of this letter, and returning a copy at your
earliest convenience.
[*] Confidential Treatment Requested
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<PAGE>
Thank you, in advance, for your efforts in completing this amendment.
Sincerely yours,
Rosalie Gonzalez
Technology Licensing Associate
<TABLE>
<S> <C>
AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED
The Burnham Institute Targeted Genetics Corporation
Louis R. Coffman: Louis R. Coffman By: James A. Johnson
--------------------------- ---------------------------
Vice President & Chief Administrative Officer Title: Vice President, Finance
------------------------
Date: 1/8/98 Date: 1/14/98
------------------------- ------------------------
</TABLE>
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EXHIBIT 10.34
TARGETED GENETICS CORPORATION
STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
AMENDED AND RESTATED ON JANUARY 14, 1997
SECTION 1 PURPOSES
The purpose of the Targeted Genetics Corporation Stock Option Plan for
Nonemployee Directors (this "Plan") is to attract and retain the services of
experienced and knowledgeable nonemployee directors for Targeted Genetics
Corporation (the "Company") and to provide added incentive to such directors by
providing an opportunity for stock ownership in the Company.
SECTION 2 ADMINISTRATION
The administrator of this Plan (the "Plan Administrator") shall be the
Board of Directors of the Company (the "Board"). Subject to the terms of this
Plan, the Plan Administrator shall have the power to construe the provisions of
this Plan, to determine all questions arising hereunder and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable.
SECTION 3 SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 6 hereof, the total number
of shares of the Company's common stock (the "Common Stock") for which options
may be granted under this Plan is 300,000 (the "Shares"). The Shares shall be
shares currently authorized but unissued or subsequently acquired by the Company
and shall include shares representing the unexercised portion of any option
granted under this Plan which expires or terminates without being exercised in
full.
SECTION 4 ELIGIBILITY
4.1 ELIGIBLE DIRECTORS
Each member of the Board elected or appointed who is not otherwise an
employee of the Company or any parent or subsidiary corporation (an "Eligible
Director") shall be eligible to participate in this Plan.
4.2 INITIAL GRANTS
Immediately following his or her initial election or appointment to the
Board, each Eligible Director shall automatically receive an option to purchase
15,000 Shares.
<PAGE>
4.3 ANNUAL GRANTS
Each Eligible Director continuing service as an Eligible Director
immediately following an Annual Meeting of Shareholders shall automatically
receive an option to purchase 5,000 Shares immediately following each year's
Annual Meeting of Shareholders as an annual grant; provided that an Eligible
Director who has received an initial grant of 15,000 Shares on such date shall
not receive an annual grant until the next Annual Meeting.
4.4 AVAILABILITY OF SHARES
No grant shall be made under this Plan if the effect of such grant would be
to obligate the Company to issue more Shares than are reserved under Section 3.
If insufficient Shares are reserved under Section 3 to fully fund one or more
grants to be made under this Section 4 on the same date of grant, then the
Shares available shall be divided by the number of Eligible Directors then
entitled to a grant and each such Eligible Director shall be granted an option
for that number of Shares.
SECTION 5 OPTION TERMS
Each option granted to an Eligible Director under this Plan and the
issuance of Shares hereunder shall be subject to the following terms:
5.1 OPTION AGREEMENT
Each option shall be evidenced by an option agreement (an "Agreement") duly
executed on behalf of the Company. Each Agreement shall comply with and be
subject to the terms and conditions of this Plan. Any Agreement may contain
such other terms, provisions and conditions not inconsistent with this Plan as
may be determined by the Plan Administrator.
5.2 OPTION EXERCISE PRICE
The option exercise price for an option shall be the closing price, or if
there is no closing price, the mean between the high and the low sale price of
shares of Common Stock on the Nasdaq Stock Market on the day the option is
granted or, if no Common Stock was traded on such date, on the next succeeding
day on which Common Stock is so traded.
5.3 VESTING AND EXERCISABILITY
Each option granted to an Eligible Director shall vest and become
exercisable in accordance with the following schedule:
2
<PAGE>
3
<PAGE>
<TABLE>
<CAPTION>
Period of Eligible Director's Continuous
Service
as a Director With the Company
From the Date the Option is Granted Portion of Total Option Which Is Exercisable
- ---------------------------------------- --------------------------------------------
<S> <C>
Less than twelve months 0%
Twelve months 33 1/3%
Twenty-four months 66 2/3%
Thirty-six months 100%
</TABLE>
5.4 TIME AND MANNER OF EXERCISE OF OPTION
Each option may be exercised in whole or in part at any time and from time
to time; provided, however, that no fewer than 20% of the Shares purchasable
under the option (or the remaining Shares then purchasable under the option, if
less than 20%) may be purchased upon any exercise of any option hereunder and
that only whole Shares will be issued pursuant to the exercise of any option.
Any option may be exercised by giving written notice, signed by the person
exercising the option, to the Company stating the number of Shares with respect
to which the option is being exercised, accompanied by payment in full for such
Shares, which payment may be in whole or in part (a) in cash or by check, (b) in
shares of Common Stock already owned for at least six months by the person
exercising the option, valued at fair market value at the time of such exercise,
or (c) by delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, to properly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price, all in accordance
with the regulations of the Federal Reserve Board.
5.5 TERM OF OPTIONS
Each option shall expire ten years from the date of the granting thereof,
but shall be subject to earlier termination as follows:
(a) In the event that an Optionee ceases to be a director of the
Company for any reason other than the death of the Optionee, the unvested
portion of the options granted to such Optionee shall terminate immediately and
the vested portion of the options granted to such Optionee may be exercised by
him or her only within three months after the date such Optionee ceases to be a
director of the Company.
4
<PAGE>
(b) In the event of the death of an Optionee, whether during the
Optionee's service as a director or during the three-month period referred to in
Section 5.5(a), the unvested portion of the options granted to such Optionee
shall terminate immediately and the vested portion of the options granted to
such Optionee shall be exercisable, and such options shall expire unless
exercised within twelve months after the date of the Optionee's death, by the
legal representatives or the estate of such Optionee, by any person or persons
whom the Optionee shall have designated in writing on forms prescribed by and
filed with the Company or, if no such designation has been made, by the person
or persons to whom the Optionee's rights have passed by will or the laws of
descent and distribution.
5.6 TRANSFERABILITY
During an Optionee's lifetime, an option may be exercised only by the
Optionee. Options granted under this Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or similar
process and may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by (a) will or by
the applicable laws of descent and distribution, or (b) by gift or other
transfer to either (i) a spouse or other immediate family member or (ii) any
trust or estate in which the Optionee or such Optionee's spouse or other
immediate family member has a substantial beneficial interest. In addition, an
Optionee may designate in writing during the Optionee's lifetime a beneficiary
to receive and exercise options in the event of the Optionee's death (as
provided in Section 5.5(b)). Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this Plan or of any right
or privilege conferred thereby, contrary to the provisions of this Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby, shall be null and void.
5.7 HOLDING PERIOD
If an individual subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") sells shares of Common Stock obtained upon
the exercise of any option granted under this Plan within six (6) months after
the date the option was granted, such sale may result in short-swing profit
recovery under Section 16(b) of the Exchange Act.
5.8 PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS SHAREHOLDER
Neither an Optionee nor the Optionee's successor in interest shall have any
rights as a shareholder of the Company with respect to any Shares subject to an
option granted to the Optionee until such person becomes a holder of record of
such Shares.
5
<PAGE>
5.9 LIMITATION AS TO DIRECTORSHIP
Neither this Plan, nor the granting of an option, nor any other action
taken pursuant to this Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an Optionee has a right to continue as a
director for any period of time or at any particular rate of compensation.
5.10 REGULATORY APPROVAL AND COMPLIANCE
The Company shall not be required to issue any certificate or certificates
for Shares upon the exercise of an option granted under this Plan, or record as
a holder of record of Shares the name of the individual exercising an option
under this Plan, without obtaining to the complete satisfaction of the Plan
Administrator the approval of all regulatory bodies deemed necessary by the Plan
Administrator, and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local law
deemed applicable by the Plan Administrator.
SECTION 6 CAPITAL ADJUSTMENTS
6.1 RECAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
6.2 EFFECT OF LIQUIDATION OR REORGANIZATION
Upon a merger (other than a merger of the Company in which the holders of
shares of Common Stock immediately prior to the merger have the same
proportionate ownership of shares of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the creation of
a holding company) or liquidation of the Company (each a "corporate
transaction"), as a result of which the shareholders of the Company receive
cash, stock or other property in exchange for or in connection with their shares
of Common Stock, then the Optionee shall have the right immediately prior to any
such merger, consolidation, acquisition of property or stock, reorganization or
liquidation to exercise such option in whole or in part whether or not the
vesting requirements set forth in the option agreement have been satisfied.
6
<PAGE>
To the extent such option is not exercised, it shall terminate, except that in
the event of a corporate transaction in which the shareholders of the Company
receive capital stock of another corporation in exchange for their shares of
Common Stock, such unexercised option shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or subsidiary of
such successor corporation. Any such assumed or equivalent option shall be 100%
vested and exercisable with respect to the total number of shares purchasable
under such option; provided that such acceleration will not occur if, in the
opinion of the Company's outside accountants, such acceleration would render
unavailable "pooling of interests" accounting treatment for such transaction for
which pooling of interests accounting treatment is sought by the Company. Upon a
merger of the Company in which the holders of Common Stock immediately prior to
the merger have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger, a mere reincorporation or
the creation of a holding company, each option outstanding under the Plan shall
be assumed or an equivalent option shall be substituted by the successor
corporation or a parent or subsidiary of such corporation, and the vesting
schedule set forth in the option agreement shall continue to apply to such
assumed or equivalent option.
6.3 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
SECTION 7 EXPENSES
All costs and expenses of the adoption and administration of this Plan
shall be borne by the Company; none of such expenses shall be charged to any
Optionee.
SECTION 8 COMPLIANCE WITH RULE 16b-3
It is the intention of the Company that this Plan comply in all respects
with the requirements for a "formula plan" within the meaning attributed to that
term for purposes of Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act. Therefore, if any Plan provision is later found not to be in compliance
with such requirements, that provision shall be deemed null and void, and in all
events this Plan shall be construed in favor of its meeting such requirements.
7
<PAGE>
SECTION 9 TERMINATION AND AMENDMENT
The Board may amend, terminate or suspend this Plan at any time, in its
sole and absolute discretion; provided, however, that if required to qualify
this Plan as a formula plan for purposes of Rule 16b-3 under Section 16(b) of
the Exchange Act, no amendment may be made more than once every six months that
would change the amount, price, timing or vesting of the options, other than to
comply with changes in the Internal Revenue Code of 1986, as amended, or the
rules and regulations thereunder; provided further that no amendment that would
(a) increase the number of Shares that may be issued under this Plan, or (b)
otherwise require shareholder approval under any applicable law or regulation
shall be made without the approval of the Company's shareholders.
SECTION 10 DURATION
This Plan shall continue in effect until March 2, 2004 unless it is sooner
terminated by action of the Board or the Company's shareholders, but such
termination shall not affect the then-outstanding terms of any options.
Adopted by the Company's Board of Directors on March 2, 1994 and approved by
the Company's shareholders on March 23, 1994. Amended and restated by the
Board on October 17, 1996. Amended and restated by the Board on January 14,
1997.
8
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-83064 and 333-03889) pertaining to the Targeted Genetics
Corporation's 1992 Restated Stock Option Plan and the Targeted Genetics
Corporations' Stock Option Plan for Nonemployee Directors of our report dated
February 3, 1998, with respect to the financial statements of Targeted Genetics
Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Seattle, Washington
March 27, 1998
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