U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ Annual Report under
Section 13 or 15(d) of
the Securities Exchange
Act of 1934 (Fee
required)
For the fiscal year ended December 31, 1999
/ / Transition report under
Section 13 or 15(d) of the
Securities Exchange Act of
1934 (No fee required)
For the transition period from to
Commission file number 0-26422
DISCOVERY LABORATORIES, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 94-3171943
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 SOUTH MAIN STREET, SUITE 307, DOYLESTOWN, PENNSYLVANIA 18901
(Address of Principal Executive Offices Including Zip Code)
(215) 340-4699
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of
the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
None None
Securities registered under Section 12(g) of
the Exchange Act:
Common Stock, $.001 par value Class A Warrants Class B Warrants
(Title of Class) (Title of Class) (Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year. $178,000.
As of March 28, 2000, 14,051,805 shares of the registrant's common stock, par
value $0.001 per share, were outstanding (exclusive of shares of such common
stock owned by each director and executive officer and each person who
beneficially owns 10% or more of the outstanding shares of common stock). The
aggregate market value of voting and non-voting common equity held by
non-affiliates computed by using the closing price of such common equity on the
Nasdaq SmallCap Market on March 28, 2000 was approximately $120 million. The
aggregate market value of all of the registrant's outstanding common stock
(20,630,290 shares) and including shares of common stock held by each director
and executive officer and each person who beneficially owns 10% or more of the
outstanding shares of common stock of the registrant, was approximately $176
million computed by reference to the closing price of such common equity on the
Nasdaq SmallCap Market on March 28, 2000. Shares of common stock beneficially
owned by each director and executive officer and each person who beneficially
owns 10% or more of the outstanding shares of common stock have been excluded
from the calculations set forth in the first two sentence of this paragraph in
that such persons may be deemed affiliates of the registrant. This determination
of affiliate status is not necessarily conclusive.
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement to be filed with the Commission within 120
days after the end of the Company's fiscal year.
Transitional Small Business Disclosure Format: YES NO X
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Unless the context otherwise requires, (i) all references to the "Company"
include Discovery Laboratories, Inc. ("Discovery") and its wholly-owned
subsidiary, Acute Therapeutics, Inc. ("ATI"), (ii) all references to the
Company's activities, results of operations and financial condition prior to
November 25, 1997 relate to Discovery Laboratories, Inc., a former Delaware
corporation ("Old Discovery"), a predecessor to the Company, insofar as business
activities relating to the SuperVentTM, Surfaxin(R) and DSC-103 products
described herein are concerned and (iii) all references to the Company's common
stock, par value $0.001 per share (the "Common Stock") are to the Company's
Common Stock after giving effect to a 1-for-3 reverse split of the Common Stock
effected on November 25, 1997. See Item 1 and Item 4 in this Annual Report on
Form 10-KSB (this "Report").
FORWARD LOOKING STATEMENTS
The statements set forth under "Item 1 Description of Business" and elsewhere in
this report, including in "Item 1 Description of Business, Important Factors
Regarding the Company", which are not historical constitute "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended, including statements
regarding the expectations, beliefs, intentions or strategies for the future. We
intend that all forward-looking statements be subject to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect our views as of the date they are made with
respect to future events and financial performance, but are subject to many
risks and uncertainties, which could cause our actual results to differ
materially from any future results expressed or implied by such forward-looking
statements.
Examples of such risks and uncertainties include, but are not limited to, the
inherent risks and uncertainties in developing products of the type we are
developing; possible changes in our financial condition; the progress of our
research and development (including the risk that our lead product candidate,
Surfaxin(R), will not prove to be safe or useful for the treatment of certain
indications); the impact of development of competing therapies and/or
technologies by other companies; our ability to obtain additional required
financing to fund our research programs; our ability to enter into agreements
with collaborators and the failure of collaborators to perform under their
agreements with us; the results of clinical trials being conducted by us; the
progress of the FDA approvals in connection with the conduct of our clinical
trials and the marketing of our products; the additional cost and delays which
may result from requirements imposed by FDA in connection with obtaining the
required approvals; and the other risks and certainties detailed in " Item 1
Description of Business, Important Factors Regarding the Company", and in the
documents incorporated by reference in this prospectus.
We do not undertake to update any forward-looking statements.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
We are a development stage pharmaceutical company that focuses on developing
compounds to treat respiratory diseases that affect the ability of the lungs to
absorb oxygen. We are initially developing our lead product candidate,
Surfaxin(R), for use by newborn infants to treat two respiratory conditions in
critical care units of hospitals. We are also developing this lead product
candidate for the treatment of acute respiratory distress syndrome and acute
lung injury in adult patients. We believe we can use Surfaxin(R) to treat other
respiratory conditions. These include asthma, chronic obstructive pulmonary
disease, emphysema and cystic fibrosis. In addition, we believe we can use
Surfaxin(R) to deliver drugs that are currently delivered by injection. These
drugs include antibiotics, pulmonary vasodilators, brochodilators, steroids and
proteins. We are also evaluating acquiring licenses to other drug candidates in
the early stage of development for the treatment of respiratory diseases. We may
develop and market our products on our own or seek to enter into collaborations
with corporate partners for manufacturing and marketing these drugs.
Our lead product is Surfaxin(R). Surfaxin(R) is a formulation of an artificial
lung surfactant containing a peptide or small protein. We patterned Surfaxin(R)
after a human surfactant protein. Surfactants are substances that are produced
in the lungs. They possess the ability to lower the surface tension of the fluid
normally present within the air sacs that are inside of the lungs. In the
absence of sufficient surfactants, these air sacs tend to collapse. As a result,
the lungs do not absorb sufficient oxygen.
We intend to use Surfaxin(R) for the treatment of several respiratory
conditions. Currently, we are developing Surfaxin(R) for the treatment of
respiratory distress syndrome in premature infants, meconium aspiration syndrome
in full-term infants and respiratory distress syndrome and acute lung injury
acute respiratory distress syndrome in adults. We have also begun developing
Surfaxin(R) to treat other respiratory disorders.
Respiratory distress syndrome is a condition in which premature infants are born
with an insufficient amount of their own natural surfactant. Meconium aspiration
syndrome is a similar condition, in which full-term infants are born with
meconium in their lungs which depletes the natural surfactant in their lungs.
Meconium is the baby's first bowel movement in the mother's womb. This condition
can lead to meconium aspiration syndrome if the baby breathes in the meconium.
Both of these conditions can be life-threatening as a result of the failure of
the lungs to absorb sufficient oxygen. These conditions can also deplete natural
surfactants in the lungs. This results in the need for mechanical ventilation
and can be life-threatening. Acute respiratory distress syndrome can result from
a variety of events. Some of these events are pneumonia, breathing in the
contents of the stomach, trauma, smoke inhalation, near drowning and head
injury.
The incidence of ARDS/ALI is approximately 240,000 patients per year in the
United States. Respiratory distress syndrome affects 40,000 to 50,000 infants
per year in the United States. Twenty to forty percent of infants with
respiratory distress syndrome require extended mechanical ventilation and
hospitalization. Meconium aspiration syndrome affects approximately 26,000
newborn infants per year in the United States.
Presently, the FDA has only approved replacement surfactants for treating
respiratory distress syndrome in premature infants. These approved replacement
surfactants come from pigs and
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cows. Surfaxin(R) is a synthetic surfactant. As a result, we believe that we can
manufacture Surfaxin(R) less expensively. In addition we believe that
Surfaxin(R) might possess other pharmaceutical benefits not possessed by animal
surfactants. The FDA has not approved replacement surfactants for treatment of
meconium aspiration syndrome and acute respiratory distress syndrome. The FDA
has granted meconium aspiration syndrome and acute respiratory distress syndrome
fast track designation. Fast track status does not accelerate the clinical
trials nor does it mean that the regulatory requirements are less stringent.
However, the FDA will review the New Drug Application for a drug granted fast
track status within six months. The FDA has awarded us an orphan drug grant to
support our development of Surfaxin(R) in meconium aspiration syndrome.
We also intend to begin preclinical research into converting Surfaxin(R) into an
aerosol spray for the treatment of asthma, chronic obstructive pulmonary
disease, acute and chronic bronchitis and a variety of other respiratory
diseases.
Our second compound under development is SuperVent(TM) . We intend to use
SuperVent(TM) to treat airway diseases such as cystic fibrosis and chronic
bronchitis. We deliver SuperVentTM to patients using a nebulizer. A nebulizer is
a device that turns liquid into mist, making it breathable. We anticipate using
SuperVentTM for the treatment of lung conditions involving inflammation,
excessive mucous and injurious oxidation. Injurious oxidation is a condition
where atoms in tissue lose electrons, which can result in damage to the tissue.
Cystic fibrosis is a progressive, lethal respiratory disease that afflicts
approximately 23,000 patients in the United States and a comparable number in
Europe. Cystic fibrosis is the most common lethal genetic disease among
Caucasians. Because of this genetic defect, mucus accumulates and clogs the
lungs, impairing breathing. This can lead to gradual destruction of the lungs of
cystic fibrosis patients. The inability to clear mucus from the lungs can lead
to blockage of the airways in the lungs. A new therapy that is intended to
minimize the complications of cystic fibrosis could have a major impact on the
length and quality of life of its patients.
We are conducting clinical trials of Surfaxin(R) for the treatment of
respiratory distress syndrome, meconium aspiration syndrome and acute
respiratory distress syndrome. In addition, we are conducting clinical trials of
SuperVentTM for treatment of cystic fibrosis.
PRODUCTS AND TECHNOLOGIES UNDER DEVELOPMENT
SURFAXIN(R)
The Company's lead product is Surfaxin(R), a protein-phospholipid formulation
containing the proprietary, synthetic peptide sinapultide, for the treatment of
several conditions characterized by insufficient surfactant. Lung surfactants
are protein-phospholipid complexes which coat the alveoli (air sacs) of the
lungs. Lung surfactants lower surface tension in expiration and raise it during
inspiration to prevent the collapse of alveoli. Replacement surfactants are
currently approved only for treating idiopathic respiratory distress syndrome in
premature babies ("RDS"). Infants with this condition, as well as infants born
with meconium (a component of the fetal bowel) in their lungs, which can lead to
meconium aspiration syndrome ("MAS"), typically suffer from insufficient
surfactant. This condition can lead to a life-threatening loss of pulmonary
function. Patients with ARDS/ALI, which can result from trauma, smoke
inhalation, head injury, pneumonia and a variety of other events, typically
suffer from surfactant deficiency as well. If Surfaxin(R) can be formulated as
an aerosol, it might have utility in other pulmonary disorders, such as asthma.
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Surfaxin(R) is an aqueous suspension of lipids containing the novel synthetic
peptide sinapultide. Surfaxin(R) was invented at The Scripps Research Institute
("Scripps"). Surfaxin(R) is patterned after human Surfactant Protein B, shown to
have the greatest surfactant activity in humans. The product was exclusively
licensed by Scripps to Johnson & Johnson, Inc. ("J&J"), which, together with its
wholly owned subsidiary, Ortho Pharmaceutical Corporation ("Ortho"), engaged in
development activities with respect to sinapultide. The Company acquired the
exclusive worldwide sublicense to the sinapultide technology from J&J and Ortho
in October 1996.
In July 1992, an investigational new drug application ("IND") submitted by
Scripps relating to the use of Surfaxin(R) to treat RDS was approved by the
United States Food and Drug Administration (the "FDA"). J&J subsequently
completed a multi-center, Phase 2 clinical trial of Surfaxin(R) in 47 infants
with RDS. This trial demonstrated safety and efficacy. In September 1994, an IND
was submitted by J&J relating to the use of Surfaxin(R) to treat ARDS and was
subsequently approved by the FDA. Both the RDS IND and the ARDS IND have been
transferred to the Company. The Company subsequently received FDA approval to
amend the approved ARDS IND and re-initiate Phase 1 clinical trials of
Surfaxin(R) for the treatment of ARDS. The Company amended the existing RDS IND
to permit the initiation of a Phase 2 clinical trial of Surfaxin(R) to treat MAS
on May 27, 1997 at Thomas Jefferson University Hospital in Philadelphia. This
trial was completed and results were announced on February 4, 1999. The Company
initiated a pivotal Phase 3 trial in MAS in January 2000. The trial intends to
enroll 200 MAS patients. The Company is engaged in discussions with the FDA
concerning a protocol for Phase 3 clinical trials for Surfaxin(R) for RDS. The
Company intends to commence the Phase 3 clinical trial upon approval of the
protocol on terms acceptable to the Company. The Company also commenced a
pivotal Phase 2/3 clinical trial in ARDS/ALI in July 1998. This trial was
stopped on January 27, 2000 due to the Company's cash position and so that a new
Phase 2 ARDS/ALI trial could be commenced using a new, less viscous formulation
of Surfaxin(R). A new Phase 2 trial is currently being planned, which the
Company expects to commence following submission of a protocol and subsequent
approval by the FDA.
SuperVent(TM)
The Company is developing SuperVent(TM) as a stable, aerosolized,
multidimensional therapy for airway diseases such as cystic fibrosis ("CF") and
chronic bronchitis, which are characterized by inflammation, injurious oxidation
and excessive sputum. CF results from a genetic defect in the CFTR gene. The
CFTR gene codes for a membrane protein responsible for the transport of chloride
ions. Because of this genetic defect, CF mucus is excessively viscous and
adherent to airway walls. Destruction of the lungs of CF patients occurs
gradually as the inability to clear mucus from the lungs leads to blockage of
the airways usually beginning in the smaller airways and alveoli. A new therapy,
which minimizes the pulmonary complications of CF, would have a major impact on
the length and quality of life of its patients.
SuperVent(TM)'s active component is tyloxapol, a compound which has been safely
used as an emulsifying agent in drug formulations by the United States
pharmaceutical industry for over 40 years. Experimental research conducted by
consultants to the Company indicates that tyloxapol may possess biological
activities beyond its well-recognized emulsification properties. In vitro
studies conducted by the inventors demonstrated that tyloxapol has three
mechanisms of action: anti-inflammatory activity, anti-oxidant activity and
mucoactive activity. This combination of pharmacological activities is not
presently found in any single, safe, effective therapy for CF or chronic
bronchitis in the United States.
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The Company's clinical development plan for SuperVent(TM) is to focus first on
CF. In September 1995, the FDA approved a physician-sponsored IND to begin a
clinical trial of SuperVent(TM) for use in treating CF. The trial commenced on
March 17, 1997 at the University of Utah Health Sciences Center and is designed
to determine whether aerosolized SuperVent(TM) holds promise as a low toxicity,
anti-inflammatory, anti-oxidant and mucolytic agent for the treatment of CF.
Part A of such clinical trial was completed on March 31, 1998. The results from
this clinical trial in normal healthy volunteers have indicated that the
compound had no significant effects on any objective measure of safety (although
coughing was noted by several subjects at the highest doses tested). The Company
began a Phase 2A clinical trial of SuperVent(TM) for the treatment of CF on
August 4, 1999. Preliminary analysis of the data show that SuperVent(TM)
decreased the amount of Interleukin 8 (IL-8) in the sputum of treated patients
compared to controls. IL-8 is an important body chemical that causes the
migration of inflammatory cells to the site of release. The Phase 2A clinical
trial involved 8 patients and an additional Phase 2 trial will likely be
required prior to commencement of a Phase 3 trial.
DSC-103
The Company is developing DSC-103 (formerly known as ST-630) for use in treating
postmenopausal osteoporosis. Postmenopausal osteoporosis is a disease of
postmenopausal women characterized by decreased bone mass which leads to reduced
bone strength and an increased risk of fractures. DSC-103 is an analog of the
active circulating vitamin D hormone, calcitriol, modified to increase its
potency and lengthen its circulating half-life. As a class, vitamin D analogs
are commonly used therapies in Europe and Japan for osteoporosis. In aggregate,
this class of compounds is believed to generate several hundred million dollars
in worldwide sales for osteoporosis.
Published studies have confirmed the efficacy of vitamin D analogs in increasing
bone mass and decreasing fractures. Vitamin D analogs, however, have not been
well accepted in the United States due to certain side effects in the compounds
currently marketed. Specifically, prior studies of vitamin D analogs have been
associated with hypercalcemia in a percentage of patients. Hypercalcemia is
elevated calcium levels in the blood above a generally accepted range. No
vitamin D analogs are currently marketed for osteoporosis in the United States.
In November 1997, the Company filed an IND with the FDA to initiate Phase 1
clinical studies of DSC-103 as a once-daily, orally administered drug for the
treatment of postmenopausal osteoporosis in the United States. On December 5,
1997, the Company initiated an initial safety and dose-ranging study of DSC-103
in healthy normal volunteers and postmenopausal women either with or without
osteoporosis at Covance Clinical Research Unit Inc. in Madison, Wisconsin. The
Company completed that clinical study and determined that DSC-103 does not
represent a risk of hypercalcemia at any dosage levels that may prove
efficacious for treating postmenopausal osteoporosis. The Company has access to
preclinical data generated by Sumitomo Pharmaceuticals and Taisho
Pharmaceuticals with respect to DSC-103 pursuant to the terms of the licensing
arrangements described herein.
Because DSC-103 does not meet the critical care focus of Discovery, it is the
Company's intention to seek a pharmaceutical partner to further develop DSC-103
for metabolic bone diseases.
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LICENSING ARRANGEMENTS; PATENTS AND PROPRIETARY RIGHTS
J&J License Agreement: Surfaxin(R)
The Company has received an exclusive, worldwide sublicense from J&J (the "J&J
License Agreement") to commercialize Surfaxin(R) for the diagnosis, prevention
and treatment of disease. The J&J License Agreement is a sublicense under
certain patent rights previously licensed to J&J by Scripps (the "Scripps Patent
Rights") and a license under certain other patent rights held by Ortho (the
"Ortho Patent Rights"). The Scripps Patent Rights consist of four issued United
States patents and two pending United States applications. The four issued
patents are United States Patent No. 5,407,914, U.S. Patent No. 5,260,273, U.S.
Patent No. 5,164,369, and U.S. Patent No. 6,013,619. These patents relate to
synthetic pulmonary surfactants (including Surfaxin(R)), certain related
polypeptides and a method of treating respiratory distress syndrome with these
surfactants. The first of these patents will expire in 2009. The two pending
United States applications relate to pulmonary surfactants, related
polypeptides, liposomal surfactant compositions and methods of treating
respiratory distress syndromes with these surfactants and compositions. The
Ortho Patent Rights consist of certain pending United States patent applications
which relate to methods of manufacturing certain peptides which may be used in
the manufacture of Surfaxin(R). J&J is responsible for filing, prosecuting and
maintaining the Ortho Patent Rights. A US patent covering use of all known
surfactants (including Surfaxin(R)) as a lavage was recently issued to The
Scripps Research Institute and licensed to Discovery Laboratories, Inc.
CMHA License Agreement: SuperVent(TM) /Tyloxapol
The Company has obtained the core technology relating to SuperVent(TM) pursuant
to a license agreement with the Charlotte-Mecklenberg Hospital Authority (the
"CMHA License Agreement"). The CMHA License Agreement grants the Company an
exclusive worldwide license under two issued United States patents (United
States Patent No. 5,474,760 and United States Patent No. 5,512,270) and two
pending United States patent applications held by CMHA, and any later-issued
United States and any foreign patents based on or issuing from the issued
patents and the pending patent applications. The issued United States patents
expire in 2013. The United States patents cover methods of using tyloxapol, the
active compound in SuperVentTM, to treat cystic fibrosis and methods of treating
diseases caused by oxidant species, such as myocardial infarction, stroke and
ARDS. The two pending United States patent applications relate to the use of
tyloxapol as an anti-inflammatory and anti-oxidant agent.
Tyloxapol, the active compound in SuperVentTM was the subject of an issued
United States composition of matter patent which expired in 1965. The patents
and patent applications licensed to the Company differ from the expired patent,
inter alia, in that one patent application covers proprietary pharmaceutical
formulations containing high concentrations of tyloxapol and the other patents
and patent applications cover uses of tyloxapol to treat certain diseases.
Although the Company believes that high concentration formulations of tyloxapol
will represent the most practical means to deliver the active compound, there
can be no assurance that any patent application covering this formulation will
issue or that the compound will not prove similarly effective in lower
concentrations which are not covered by any of the Company's patent
applications.
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WARF License Agreement: DSC-103
Pursuant to an agreement (the "WARF License Agreement") with the Wisconsin
Alumni Research Foundation ("WARF"), the Company has an exclusive license within
all countries in the Western hemisphere in the field of prevention, treatment,
amelioration or cure of bone disease, under U.S. Patent No. 4,358,406 (the
"DSC-103 Patent") covering the compound DSC-103 and U.S. Patent No. 5,571,802
(the "DSC-103 Use Patent") covering a method for treating postmenopausal
osteoporosis. In addition, the Company has options to extend the exclusive
license to the remaining countries of the world with the exception of Japan. The
Company options expire on January 1, 2002.
The DSC-103 Patent will expire in July 2001, which the Company anticipates will
be prior to receipt of any marketing approval for DSC-103 in the United States.
The DSC-103 Use Patent, which expires in 2014, is limited to claims relating to
a method of treating postmenopausal osteoporosis in humans having such disease
with an effective dosage of DSC-103. These claims do not include claims relating
to the use of DSC-103 to treat other metabolic bone disorders, such as
age-related osteoporosis (which occurs in men and women) and renal
osteodystrophy. At the Company's request, WARF filed an application to pursue
additional claims relating to the use of DSC-103 to treat other metabolic bone
diseases. However, there can be no assurance that any patent containing such
additional claims will issue in the United States or elsewhere. United States
and foreign patents covering certain processes relating to the manufacture of
vitamin D analogs, which have been nonexclusively licensed to the Company under
the WARF License Agreement, will expire on various dates up to 2005.
Scripps Agreement
The Company and Scripps were parties to a sponsored research agreement (the
"Sponsored Research Agreement") that expired during February 1999 pursuant to
which the Company contributed $460,000 to Scripps' Surfaxin(R) research efforts
per annum. In March 2000, the Company and Scripps entered into an Agreement
extending the term for one year commencing March 1, 2000 and for additional one
year terms upon agreement of the parties. The Company will contribute $247,731
per annum to Scripps' Surfaxin(R) research under the Agreement. The Company has
an option to acquire an exclusive worldwide license to technology developed
under the agreement prior to its expiration, which it is required to exercise
within 180 days from receipt of notice from Scripps of the development of such
technology. The Company has not received any notice of development of technology
pursuant to the Sponsored Research Agreement. Scripps will own all technology
that it developed pursuant to work performed under the Sponsored Research
Agreement. The Company has the right to receive 50% of the net royalty income
received by Scripps for inventions jointly developed by the Company and Scripps
to the extent the Company does not exercise its option with respect to such
inventions.
Collaboration Agreements
The Company entered into a sublicense agreement with Laboratorios del Dr.
Esteve, S.A. ("Laboratorios Dr. Esteve") pursuant to which the Company granted
to Laboratorios Dr. Esteve an exclusive license to market and sell Surfaxin(R)
products in southern Europe (other than Italy), Central and South America and
Mexico, with an option to acquire an exclusive license for Italy. In addition,
the Company granted to Laboratorios Dr. Esteve a right of first negotiation with
respect to other products developed by the Company for distribution and sale in
the licensed territory. Under the sublicense agreement, the Company will be
entitled to milestone payments upon achievement of certain milestones. In
addition, the Company entered into a supply
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agreement with Dr. Esteve pursuant to which Laboratorios Dr. Esteve agreed to
purchase all of its requirements (subject to certain limits) of the Surfaxin(R)
products from the Company. The Company will receive a percentage of the sales
price of the licensed products for the Surfaxin(R) products as the purchase
price under the supply agreement.
Risk of Loss of Technology/Technological Uncertainty and Obsolescence
The Company must satisfy the terms and conditions set forth in the license
agreements described above in order to retain its license rights thereunder,
including but not limited to diligent pursuit of product development and the
timely payment of royalty fees (including, with respect to certain such
agreements, minimum royalty payments), milestone payments and other amounts. If
the Company fails to comply with such terms and conditions as set forth in such
license agreements, its rights thereunder for individual product opportunities
could be terminated.
The patent position of firms relying upon biotechnology is highly uncertain and
involves complex legal and factual questions. To date, there has emerged no
consistent policy regarding the breadth of claims allowed in biotechnology
patents or the degree of protection afforded under such patents. The Company's
success will depend, in part, on its ability, and the ability of its
licensor(s), to obtain protection for its products and technologies under United
States and foreign patent laws, to preserve its trade secrets, and to operate
without infringing the proprietary rights of third parties. The Company has
obtained rights to certain patents and patent applications and may, in the
future, seek rights from third parties to additional patents and patent
applications. There can be no assurance that patent applications relating to the
Company's potential products which have been licensed to date, or that it may
license from others in the future, will result in patents being issued, that any
issued patents will afford adequate protection to the Company or not be
challenged, invalidated, infringed or circumvented, or that any rights granted
thereunder will afford additional competitive advantages to the Company.
Furthermore, there can be no assurance that others have not independently
developed, or will not independently develop, similar products and/or
technologies, duplicate any of the Company's products or technologies, or, if
patents are issued to, or licensed by, the Company, design around such patents.
There also can be no assurance that the validity of any of the patents licensed
to the Company, would be upheld if challenged by others in litigation or that
the Company's activities would not infringe patents owned by others. The Company
could incur substantial costs in defending itself in suits brought against it or
any of its licensors, or in suits in which the Company may assert, against
others, patents in which the Company has rights. Should the Company's products
or technologies be found to infringe patents issued to third parties, the
manufacture, use, and sale of the Company's products could be enjoined and the
Company could be required to pay substantial damages. In addition, the Company
may be required to obtain licenses to patents or other proprietary rights of
third parties, in connection with the development and use of its products and
technologies. No assurance can be given that any licenses required under any
such patents or proprietary rights would be made available on terms acceptable
to the Company, if at all.
The Company also relies on trade secrets and proprietary know-how. The Company
requires all employees to enter into confidentiality agreements that prohibit
the disclosure of confidential information to third parties and require
disclosure and assignment to the Company of rights to their ideas, developments,
discoveries and inventions. In addition, the Company seeks to obtain such
agreements from its consultants, advisors and research collaborators; however,
such agreements may not be possible where such persons are employed by
universities or other academic institutions that require assignment of employee
inventions to them.
THIRD PARTY SUPPLIERS; MANUFACTURING AND MARKETING
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To be successful, the Company's products must be manufactured in commercial
quantities under good manufacturing practice ("GMP") requirements set by the FDA
at acceptable costs. The FDA periodically inspects manufacturing facilities in
the United States in order to assure compliance with applicable GMP
requirements. Foreign manufacturers also are inspected by the FDA if their drugs
are marketed in the United States. Failure of the foreign or domestic suppliers
of Discovery's products or failure of the manufacturers of the Company's
products to comply with GMP regulations or other FDA regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not have any manufacturing
capacity of its own but instead intends to rely on outside manufacturers to
produce appropriate clinical grade material for its use in clinical studies for
certain of its products.
The Company has acquired from J&J experimental compounds, the sinapultide and
manufacturing equipment needed to produce and meet its requirements for clinical
supplies of Surfaxin(R). In addition, the Company has entered into an agreement
with Taylor Pharmaceuticals, Inc. for the manufacture of Surfaxin(R) for use in
the Company's planned clinical trials.
The active compound in SuperVent(TM) is presently manufactured for several third
parties pursuant to GMP standards by an affiliate of Sanofi-Winthrop, Inc.
(Sanofi"), a multinational pharmaceutical company. Sanofi is the sole supplier
of tyloxapol with GMP standard manufacturing capabilities and there are few
alternative non-GMP approved sources of supply. Currently, the Company purchases
bulk tyloxapol from Sanofi on an as-needed basis. Although Sanofi has sold a
quantity of tyloxapol sufficient for the Company's proposed Phase 1/2 clinical
trial of SuperVentTM, the Company does not have an agreement with Sanofi to
supply any additional material, either in connection with a Phase 3 clinical
trial or, following regulatory approval, for marketing purposes. In addition,
the Company does not intend to enter into an agreement for supply of the
formulated drug containing tyloxapol unless it plans to initiate a Phase 3
clinical trial of tyloxapol for the treatment of CF. There can be no assurance
that the Company will be able to enter into a supply agreement with Sanofi or a
supplier of the formulated drug on terms acceptable to the Company, if at all.
In such case, the Company would be required to seek alternate manufacturing
sources capable of producing tyloxapol and the formulated drug. There can be no
assurance that the Company will be able to identify and contract with
alternative manufacturers on terms acceptable to it, if at all. Any interruption
in the supply of tyloxapol would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company may elect to market Surfaxin(R) and SuperVent(TM) directly or may,
in the future seek to enter into collaboration agreements to license these
products, if they are successfully developed. The Company currently has no
marketing and sales experience and no marketing or sales personnel. Unless a
sales force is established, the Company will be dependent on corporate partners
or other entities for the marketing and selling of its products. There can be no
assurance that the Company will be able to enter into any satisfactory
arrangements for the marketing and selling of its products. The inability of the
Company to enter into such third party distribution, marketing and selling
arrangements for its anticipated products could have a material adverse effect
on the Company's business, financial condition and results of operations.
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COMPETITION
The Company is engaged in highly competitive fields of pharmaceutical research.
Competition from numerous existing companies and others entering the fields in
which the Company operates is intense and expected to increase. The Company
expects to compete with, among others, conventional pharmaceutical companies.
Most of these companies have substantially greater research and development,
manufacturing, marketing, financial, technological, personnel and managerial
resources than the Company. Acquisitions of competing companies by large
pharmaceutical or health care companies could further enhance such competitors'
financial, marketing and other resources. Moreover, competitors that are able to
complete clinical trials, obtain required regulatory approvals and commence
commercial sales of their products before The Company could enjoy a significant
competitive advantage. There are also existing therapies that may be expected to
compete with the Company's products under development.
Presently, there are no approved drugs that are specifically indicated for MAS
or ARDS/ALI. Current therapy consists of general supportive care and mechanical
ventilation. Four products are specifically approved for the treatment of RDS.
CurosurfTM, marketed in Europe by Ares-Serono and Chiesi, and in the US by Dey
Labs, is a porcine lung extract. ExosurfTM, marketed by Glaxo Wellcome, contains
only phospholipids and synthetic organic detergents and no stabilizing protein
or peptides. SurvantaTM, which has been shown to be more effective than
ExosurfTM in clinical trials, is an extract of bovine lung that contains the cow
version of Surfactant Protein B. Recently, Forest Laboratories has obtained
marketing clearance from the FDA for its calf lung surfactant, InfasurfTM, for
use in RDS. Although none of the four approved surfactants for RDS is approved
for ARDS or ALI, which are significantly larger markets, there are a significant
number of other potential therapies in development for the treatment of ARDS/ALI
that are not surfactant related. Any of these various drugs or devices could
significantly impact the commercial opportunity for Surfaxin(R). The Company
believes that synthetic surfactants such as Surfaxin(R) will be far less
expensive to produce than the animal-derived products approved for the treatment
of RDS.
Genentech has marketed PulmozymeTM in the United States and Canada as a CF
therapy since early 1994. PulmozymeTM reduces the viscosity of CF mucus by
cleaving the DNA released from destroyed inflammatory, epithelial and bacterial
cells which collect in mucus and contribute to its abnormal viscosity and
adherence. The approximate yearly cost of PulmozymeTM treatment for an average
patient is $12,000. The Company believe that the high cost of this treatment may
reduce its competitive profile as compared with SuperVent(TM).
There are numerous approved therapies for osteoporosis which will compete with
DSC-103. Such therapies include estrogen, which is of proven benefit in treating
osteoporosis in postmenopausal women, but is associated with significant adverse
effects (including increased breast and uterine cancer risk); FosamaxTM
(alendronate), a drug of the bisphosphonate class marketed by Merck; EvistaTM a
selective estrogen receptor modulator marketed by Eli Lilly; and MiacalcinTM, a
nasally administered calcitonin marketed by Sandoz Pharmaceuticals. In addition,
there are a number of therapies in development for osteoporosis that potentially
will compete with DSC-103.
GOVERNMENT REGULATION
The testing, manufacture, distribution, advertising and marketing of drug
products are subject to extensive regulation by governmental authorities in the
United States and other countries. Prior to marketing, any pharmaceutical
products developed or licensed by the Company must undergo
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an extensive regulatory approval process required by the FDA and by comparable
agencies in other countries. This process, which includes preclinical studies
and clinical trials of each pharmaceutical compound to establish its safety and
efficacy and confirmation by the FDA that good laboratory, clinical and
manufacturing practices were maintained during testing and manufacturing, can
take many years, requires the expenditure of substantial resources and gives
larger companies with greater financial resources a competitive advantage over
the Company. The FDA review process can be lengthy and unpredictable, and the
Company may encounter delays or rejections of its applications when submitted.
If questions arise during the FDA review process, approval may take a
significantly longer period of time. Generally, in order to gain FDA approval, a
company first must conduct preclinical studies in a laboratory and in animal
models to obtain preliminary information on a compound's efficacy and to
identify any safety problems. The results of these studies are submitted as part
of an IND application that the FDA must review before human clinical trials of
an investigational drug can start.
Clinical trials are normally done in three phases and generally take two to five
years or longer to complete. Typically, clinical testing involves a three-phase
process. Phase 1 consists of testing the drug product in a small number of
humans to determine preliminary safety and tolerable dose range. Phase 2
involves larger studies to evaluate the effectiveness of the drug product in
humans having the disease or medical condition for which the product is
indicated and to identify possible common adverse effects in a larger group of
subjects. Phase 3 consists of additional controlled testing to establish
clinical safety and effectiveness in an expanded patient population of
geographically dispersed test sites, to evaluate the overall benefit-risk
relationship for administering the product and to provide an adequate basis for
product labeling.
After completion of clinical trials of a new drug product, FDA and foreign
regulatory authority marketing approval must be obtained. A New Drug Application
("NDA") submitted to the FDA generally takes one to three years to obtain
approval. If questions arise during the FDA review process, approval may take a
significantly longer period of time. The testing and approval processes require
substantial time and effort and there can be no assurance that any approval will
be granted on a timely basis, if at all. Even if 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 the marketing of a product
or withdrawal of the product from the market as well as possible civil or
criminal sanctions. For marketing outside the United States, the Company also
will be subject to foreign regulatory requirements governing human clinical
trials and marketing approval for pharmaceutical products. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country. None of the Company's
products under development have been approved for marketing in the United States
or elsewhere. No assurance can be given that the Company will be able to obtain
regulatory approval for any such products under development. Failure to obtain
requisite governmental approvals or failure to obtain approvals of the scope
requested will delay or preclude the Company or its licensees or marketing
partners from marketing their products, or limit the commercial use of the
products, and thereby could have a material adverse effect on the Company's
business, financial condition and results of operations.
During October 1998, the FDA granted the Company Fast Track approval status for
the ARDS/ALI and MAS indications. Fast track status facilitates the development
and expedites the review of new drugs intended for treatment of life-threatening
conditions for which there is presently no medical option. The FDA Office of
Orphan Products Development (the "OOPD")
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has designated Surfaxin(R) as an orphan drug for the treatment of MAS and
ARDS/ALI. During October 1998, the OOPD awarded Discovery a renewable Orphan
Products Development Grant, ranging from $194,390 for the first year to $583,170
over three years, to finance the Company's MAS trial.
EMPLOYEES
The Company has 11 full-time employees. The Company's future success depends in
significant part upon the continued service of its key scientific personnel and
executive officers and its continuing ability to attract and retain highly
qualified scientific and managerial personnel. Competition for such personnel is
intense and there can be no assurance that the Company can retain its key
employees or that it can attract, assimilate or retain other highly qualified
technical and managerial personnel in the future.
1998 Merger
On June 16, 1998, Discovery completed the acquisition of the then outstanding
minority interest in ATI through the merger of a transitory subsidiary of
Discovery with and into ATI (the "1998 Merger"). Upon consummation of 1998 the
Merger, (i) Dr. Capetola became the Chief Executive Officer of the Company, (ii)
the other members of ATI's management team prior to the 1998 Merger assumed
executive positions with the Company comparable to their present positions with
ATI and (iii) the Board of Directors of Discovery was reconstituted to consist
of its present members.
1997 Merger
On November 25, 1997, Old Discovery was merged (the "1997 Merger") with and into
the Company. Pursuant to the 1997 Merger, the name of the Company was changed
from Ansan Pharmaceuticals, Inc. to Discovery Laboratories, Inc. Immediately
following the consummation of the 1997 Merger, the Company effected a 1-for-3
reverse split (the "Reverse Split") of the outstanding Common Stock.
IMPORTANT FACTORS REGARDING THE COMPANY
The following important factors, among others, could cause the Company's actual
results, performance, achievements, or industry results to differ materially
from those expressed in the Company's forward-looking statements contained
herein and presented elsewhere by management from time to time.
Because We Are a Development Stage Company, We May Not Successfully Develop and
Market Our Products, and Even If We Do, We May Not Generate Enough Revenue or
Become Profitable.
We are a development stage company. Therefore, you must evaluate us in light of
the uncertainties and complexities present in a development stage biotechnology
company. We are conducting research and development on our product candidates.
Accordingly, we have not begun to market or generate revenues from the
commercialization of any of these products. We will need to engage in
significant, time-consuming and costly research, development, pre-clinical
studies, clinical testing and regulatory approval for our products under
development prior to their commercialization. In addition, pre-clinical or
clinical studies may show that our products are not effective or safe for one or
more of their intended uses. We may fail in the development and
commercialization of our products. We expect to incur significant increasing
operating losses over the next several years. If we succeed in the development
of our products, we still cannot
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assure you that we will generate sufficient or sustainable revenues or that we
will be profitable.
The Types of Products We Are Developing Are Subject to Risks That Are Difficult
to Foresee, and We May Not Succeed In Our Development Efforts.
Our development of products is subject to the risks of failure inherent in the
development of new pharmaceutical products which utilize innovative or new
technologies. During the development process, we could experience unforeseen
problems that could delay us from completing the development of our products. As
a result, we may terminate development of these products or applications. We
cannot assure you:
-- that we will succeed in our research and development;
-- that we will successfully market our proposed products.
If We Cannot Raise Additional Capital We Will Need to Discontinue Our Research
and Development Activities. In Addition, Any Additional Financing Could Result
in Dilution.
We will need substantial additional funding to conduct our research and product
development activities and, if we are successful, to manufacture and market
products. We intend to raise further funds through collaborative ventures
entered into with potential corporate partners and through additional debt or
equity financings. We may in some cases elect to develop products on our own
instead of entering into collaboration arrangements. This would increase our
cash requirements for research and development. We cannot provide assurance that
we will obtain necessary financing. We have not entered into arrangements to
obtain any additional financing. Any additional financing could include
unattractive terms or result in significant dilution of stockholders' interests.
If we fail to enter into collaborative ventures or to receive additional
funding, we would have to scale back or discontinue our research and development
operations. Furthermore, we could cease to qualify for listing of our securities
on the Nasdaq SmallCap Market. See "We Face the Possibility of Delisting From
the Nasdaq SmallCap Market."
If We Fail to Obtain Regulatory Approval to Commercially Manufacture or Sell Any
of Our Products or If the FDA Delays Approval of Our Product Candidates, it
Could Increase the Cost of Product Development or Ultimately Prevent or Delay
Our Ability to Sell Our Products and Generate Revenues.
In order to sell our products that are under development, we must receive
regulatory approvals for our products. The FDA and comparable agencies in
foreign countries extensively and rigorously regulate the testing, manufacture,
distribution, advertising, pricing and marketing of drug products. The FDA and
comparable agencies in other countries require an extensive regulatory approval
process before we can market our product. This process includes preclinical
studies and clinical trials of each pharmaceutical compound to establish its
safety and effectiveness and confirmation by the FDA that the manufacturer
maintains good laboratory, clinical and manufacturing practices during testing
and manufacturing. The process is lengthy, expensive and uncertain. It is also
possible that we may not reach agreement with the FDA on the design of clinical
studies necessary for approval. In addition, conditions imposed by the FDA on
our clinical trials could significantly increase the time required for
completion of clinical trials and the costs of conducting clinical trials.
Clinical trials generally take two to five years or more to complete.
The testing and approval processes require the expenditure of substantial
resources. The FDA may not give us the requisite approvals for our products on a
timely basis, if ever. The FDA
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could withdraw any approvals we obtain. Further, if there is a later discovery
of unknown problems or if we fail to comply with other applicable regulatory
requirements at any stage in the regulatory process, the FDA may restrict or
delay our marketing of a product, or force us to make product recalls. In
addition, the FDA could impose other sanctions such as fines, injunctions, civil
penalties or criminal prosecutions. For marketing outside the United States, we
also need to comply with foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products. The FDA and
foreign regulators have not yet approved any of our products under development
for marketing in the United States or elsewhere. If the FDA and other regulators
do not approve our products, it could prevent us from marketing our products.
Our Strategy, In Many Cases, Is to Enter into Collaboration Agreements with
Third Parties with Respect to Our Products and We May Require Additional
Collaboration Agreements. In Addition, If We Enter into These Agreements and the
Third Parties Do Not Perform, it Could Impair Our Ability to Commercialize Our
Products.
Our strategy for the completion of the required development and clinical testing
of our products and for the manufacturing, marketing and commercialization of
our products, in many cases, depends upon entering into collaboration
arrangements with pharmaceutical companies. We have entered into a sublicense
agreement for Surfaxin(R) covering southern Europe and Latin America. We may
need to enter into additional collaboration agreements. Our success may depend
upon obtaining partners. In addition, we may depend on our partners' expertise
and dedication of sufficient resources to develop and commercialize our proposed
products. We may in the future grant to collaboration partners rights to license
and commercialize pharmaceutical products developed under collaboration
agreements. Under these arrangements our collaboration partners may control key
decisions relating to the development of the products. Those rights would limit
our flexibility in considering alternatives for the commercialization of our
products. If we fail to successfully develop these relationships or if our
collaboration partners fail to develop or commercialize successfully any of our
products, it may delay or prevent us from developing or commercializing our
products in a competitive and timely manner.
Discoveries or Developments of New Technologies by Our Competitors or Others May
Make Our Products less Competitive or Make Our Products Obsolete.
There are rapidly changing technologies and evolving industry standards in the
biotechnology and pharmaceutical markets. We intend to market our products under
development for the treatment of diseases for which other technologies and
proposed treatments are rapidly developing. The research efforts of others may
render our research and product development efforts obsolete. Third parties
conducting research include governments, major research facilities and large
multinational corporations. Many of the third parties have greater research and
development, manufacturing, marketing, financial, technological, personal and
managerial resources than we have.
If We Cannot Protect Our Intellectual Property, Other Companies Could Use Our
Technology in Competitive Products. If We Infringe the Intellectual Property
Rights of Others, Other Companies Could Prevent us from Developing or Marketing
Our Products.
We seek patent protection for our drug candidates so as to prevent others from
commercializing equivalent products in substantially less time and at
substantially lower expense. The pharmaceutical industry places considerable
importance on obtaining patent and trade secret
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protection for new technologies, products and processes. Our success will depend
in part on our ability and that of parties from whom we license technology to:
-- defend our patents and otherwise prevent others from infringing
on our proprietary rights;
-- protect trade secrets; and
-- operate without infringing upon the proprietary rights of
others, both in the United States and in other countries.
The patent position of firms relying upon biotechnology is highly uncertain and
involves complex legal and factual questions. To date, the United States Patent
and Trademark Office ("USPTO") has not adopted a consistent policy regarding the
breadth of claims that the USPTO allows in biotechnology patents or the degree
of protection that these types of patents afford.
Even If We Obtain Patents to Protect Our Products, Those Patents May Not Be
Sufficiently Broad and Others Could Compete with Us.
We, or the parties licensing technologies to us, have filed various United
States and foreign patents applications with respect to the products and
technologies under our development and the USPTO and foreign patent offices have
issued patents with respect to our products and technologies. These patent
applications include international application filed under the Patent
Cooperation Treaty. Our pending patent applications, those we may file in the
future or those we may license from third parties may not result in the USPTO or
foreign patent office issuing patents. Also, if patent rights covering our
products are not sufficiently broad, they may not provide us with proprietary
protection or competitive advantages against competitors with similar products
and technologies. Furthermore, if the USPTO or foreign patent offices issue
patents to us or our licensors, others may challenge the patents or circumvent
the patents, or the patent office or the courts may invalidate the patents.
Thus, any patents we own or license from third parties may not provide any
protection against competitors. In particular, our issued and pending patents
relating to SuperVent(TM) cover high concentrations of tyloxapol. These patents
could prove meaningless if low concentrations of tyloxapol are as effective as
higher concentrations of tyloxapol in treating the indications which we are
developing our SuperVent(TM) product to treat.
Patents Which Others Obtain Could Limit Our Ability to Market Our Products.
Our commercial success also significantly depends on our ability to operate
without infringing the patents or violating the proprietary rights of others.
The USPTO keeps United States patent applications confidential while the
applications are pending. Accordingly, we cannot determine which inventions
third parties claim in pending patent applications which they have filed. We may
need to engage in litigation to defend or enforce our patent and license rights
or to determine the scope and validity of the proprietary rights of others. It
will be expensive and time consuming to defend and enforce patent claims. Thus,
even in those instances in which the outcome is favorable to us, these
proceedings can result in the diversion of substantial resources from our other
activities. An adverse determination may subject us to significant liabilities
or require us to seek licenses that third parties may not grant to us. An
adverse determination could also require us to alter our products or processes
or cease altogether any related research and development activities or product
sales.
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If We Cannot Meet Requirements under Our License Agreements, We Could Lose Our
Rights to Our Products.
We depend on licensing arrangements to maintain rights to our products under
development. These agreements require us to make payments and satisfy
performance obligations in order to maintain our rights under these licensing
arrangements. In addition, we are responsible for the cost of filing and
prosecuting patent applications and maintaining issued patents licensed to us.
If we do not meet our obligations under our license agreements in a timely
manner, we could lose the rights to our proprietary technology.
We Rely on Confidentiality Agreements That Our Employees Could Breach.
We require all employees to enter into confidentiality agreements that prohibit
the disclosure of confidential information to third parties and require
disclosure and assignment to us of rights to our employees' ideas, developments,
discoveries and inventions while we employ them. In addition, we seek to obtain
these types of agreements from our consultants, advisors and research
collaborators. To the extent that consultants, key employees or other third
parties apply technological information which they or other parties
independently develop to any of our proposed projects, disputes may arise as to
the proprietary rights to this type of information. In such case, a court may
determine that the right belongs to a third party. In addition, we will rely on
trade secrets and proprietary know-how that we will seek to protect in part by
confidentiality agreements with our employees, consultants, advisors or others.
We cannot assure you:
-- that they will not breach these agreements; or
-- that agreements we would obtain would provide adequate
remedies for this type of breach or that our trade secrets or
proprietary know-how will not otherwise become known or
competitors will not independently develop similar technology.
If the Third Parties We Depend on for the Manufacture of Our Pharmaceutical
Products Do Not Supply These Products in a Timely Manner, it May Delay or Impair
Our Ability to Develop and Market Our Products.
We rely on outside manufacturers, including Taylor Pharmaceuticals, Inc., to
produce appropriate clinical grade material that meets standards for use in
clinical studies for our products. We will also rely on outside manufacturers
for production of products after marketing approval. We may also enter into
arrangements with other manufacturers for the manufacture of material for use in
clinical testing and after marketing approval.
Our outside manufacturers may not perform as they have agreed or may not remain
in the contract manufacturing business for a sufficient time to successfully
produce and market our product candidates. In this event we may fail to find a
replacement manufacturer or develop our own manufacturing capabilities. If we
cannot do so, it could delay or impair our ability to obtain regulatory approval
for our products. In addition, if we find a replacement manufacturer there could
be a substantial delay before a new facility could be qualified and registered
with the FDA and foreign regulatory authorities.
We may in the future elect to manufacture some of our products on our own. We do
not currently have a manufacturing facility, manufacturing experience or
manufacturing personnel. If we determine to manufacture products on our own and
do not successfully develop manufacturing capabilities, it will adversely affect
sales of our products.
In addition, the FDA and foreign regulatory authorities require manufacturers to
register manufacturing facilities. The FDA and corresponding foreign regulators
inspect these facilities
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to confirm compliance with good manufacturing practice requirements that the FDA
or corresponding foreign regulators establish. If our third-party foreign or
domestic suppliers or manufacturers of our products fail to comply with good
manufacturing practice requirements or other FDA regulatory requirements, it
could adversely affect our ability to market our products.
We Do Not Have Marketing and Sales Experience, and Our Lack of That Experience
Could Limit Our Ability to Generate Revenues from Future Product Sales.
We do not have marketing and sales experience or marketing or sales personnel.
If we do not develop a marketing and sales force, then we will depend on
arrangements with corporate partners or other entities for the marketing and
sale of our products. We may not succeed in entering into any satisfactory
third-party arrangements for the marketing and sale of our products. In
addition, we may not succeed in developing marketing and sales capabilities or
we may not have sufficient resources to do so. If we fail to establish marketing
and sales capabilities or fail to enter into arrangements with third parties, it
will adversely affect sales of our products.
We Depend upon Key Employees and Consultants in a Competitive Market for Skilled
Personnel. If We Are Unable to Attract and Retain Key Personal, it Could
Adversely Effect Our Ability to Develop and Market Our Products.
We are highly dependent upon the principal members of our management team,
especially Dr. Capetola, and our directors, as well as our scientific advisory
board members, consultants and collaborating scientists. We have an employment
agreement with Dr. Capetola which expires on June 15, 2002. We also have
employment agreements with other key personnel with termination dates in 2001.
We do not maintain key-man life insurance. The loss of any of these persons'
services would adversely affect our ability to develop and market our products
and obtain necessary regulatory approvals.
Our future success also will depend in part on the continued service of our key
scientific and management personnel and our ability to identify, hire and retain
additional personnel, including marketing and sales staff. We experience intense
competition for qualified personnel.
While we attempt to provide competitive compensation packages to attract and
retain key personnel, some of our competitors are likely to have greater
resources and more experience than we have, making it difficult for us to
compete for key personnel.
Our Industry is Highly Competitive and We Have less Capital and Resources than
Many of Our Competitors, and This May Give Them an Advantage in Developing and
Marketing Products Similar to Ours.
Our industry is highly competitive. We compete with numerous existing companies
intensely in many ways. We expect new companies to enter our industry and we
expect competition to increase. Many of these companies have substantially
greater research and development, marketing, financial, technological, personnel
and managerial resources than we have. In addition, many of these competitors,
either alone or with their collaborative partners, have significantly greater
experience than we do in:
-- developing products;
-- undertaking preclinical testing and human clinical trials;
-- obtaining FDA and other regulatory approvals or products;
and
-- manufacturing and marketing products.
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Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before us. If we commence
commercial product sales, we will compete against companies with greater
marketing and manufacturing capabilities. These are areas in which, as yet, we
have limited or no experience. In addition, developments by competitors may
render our product candidates obsolete or uncompetitive. Our competitors may
succeed in developing and marketing products that are more effective than ours.
We also face, and will continue to face, competition from colleges,
universities, governmental agencies and other public and private research
organizations. These competitors are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed. Some of these technologies may compete directly with
the technologies that we are developing. These institutions will also compete
with us in recruiting highly qualified scientific personnel. We expect that
therapeutic developments in the areas in which we are active may occur at a
rapid rate and that competition will intensify as advances in this field are
made. Accordingly, we need to continue to devote substantial resources and
efforts to research and development activities.
If Product Liability Claims Are Brought Against Us, it May Result in Reduced
Demand for Our Products or Damages That Exceed Our Insurance Coverage.
The marketing and use of our products exposes us to product liability claims in
the event that the use or misuse of those products causes injury, disease or
results in adverse effects. Use of our products in clinical trials, as well as
commercial sale, could result in product liability claims. In addition sales of
our products through third party arrangements could also subject us to product
liability claims. We presently carry product liability insurance relating to our
clinical trials of SuperVent(TM) and Surfaxin(R). However, this insurance
coverage might not fully cover any potential claims. We may need to obtain
additional product liability insurance coverage prior to initiation of other
clinical trials. We expect to obtain product liability insurance coverage before
commercialization of our proposed products; however, this insurance is expensive
and insurance companies may not issue this type of insurance when we need it. We
cannot provide assurance that we can obtain adequate insurance in the future at
an acceptable cost. Any product liability claim, even one that was not in excess
of our insurance coverage or one that is meritless, could adversely affect our
cash available for other purposes, such as research and development. In
addition, the existence of a product liability claim could affect the market
price of our common stock.
Healthcare Reform Measures and Reimbursement Procedures May Prevent Us from
Obtaining an Adequate Level of Reimbursement for Our Products That in Turn Would
Decrease Our Ability to Generate Revenues.
Efforts of governmental and third-party payers to contain or reduce the costs of
health care through various means could affect the levels of revenues and
profitability of pharmaceutical and biotechnology products and companies. For
example, in some foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States, there
have been a number of federal and state proposals to implement similar
government control. Pricing constraints on our products could negatively impact
our revenues and profitability.
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In the United States and elsewhere, successful commercialization of our products
will depend in part on the availability of reimbursement to the consumer using
our products from third-party health care payers such as government and private
insurance plans. Third-party payors may not provide sufficient reimbursement to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Third-party health care payers are
increasingly challenging the price and examining the cost-effectiveness of
medical products and services. If we succeed in bringing one or more products to
market, and the government or third-party payers fail to provide adequate
coverage or reimbursement rates for those products, it could reduce our product
sales and product revenues.
Directors, Executive Officers, Principal Stockholders and Affiliated Entities
Own a Significant Percentage of Our Capital Stock, and this Could Have an Effect
on Actions by the Stockholders.
As of March 29, 2000, our directors, executive officers, principal stockholders
and affiliated entities beneficially own, in the aggregate, approximately 32% of
our outstanding voting securities. Accordingly, these stockholders have the
ability to exert substantial influence over the election of our Board of
Directors and the outcome of issues requiring approval by our stockholders. This
concentration of ownership may have the effect of delaying or preventing a
change in control. This could prevent transactions in which stockholders might
otherwise recover a premium for their shares over current market prices.
We Face the Possibility that Nasdaq May Delist our Common Stock from the NASDAQ
SmallCap Market.
To meet the current listing requirements for Nasdaq to continue to list our
securities on the Nasdaq SmallCap Market, we will have to maintain:
(a) (1) at least $2 million in net tangible assets or
(2) $35 million in market capitalization or
(3) $500,000 in net income (over two of the last
three years),
(b) a public float of at least 500,000 shares valued at $1
million or more and
(c) a minimum bid price of $1 and
(d) at least 300 holders of our common stock and
(e) at least two active market makers.
At December 31, 1999, we had $3,108,000 in net tangible assets. The closing
price of our common stock during the period from January 1, 1999 to March 28,
2000 ranged from $1.00 to $12.63 and the closing price of our common stock on
March 28, 2000 was $8.53.
If we are unable to satisfy the listing requirements, Nasdaq may delist our
securities from the Nasdaq SmallCap Market. If any trading markets for our
securities are available, investors could only trade in the over-the-counter
market in the Pink Sheets(R) (a quotation medium operated by the National
Quotation Bureau, LLC), or on the NASD's OTC Bulletin Board(R). Consequently,
this would impair the liquidity of our securities. This could reduce the number
of our securities investors could buy and sell and could result in delays in the
timing of the transactions, reduction in securities analysts' and the news
media's coverage of us and lower prices for our securities.
The "Penny Stock" Rules May Adversely Affect the Liquidity of Our Common Stock.
If Nasdaq delisted our securities from the Nasdaq SmallCap Market, Rule 15g-9
under the Exchange Act would apply. Rule 15g-9 imposes additional sales practice
requirements on
21
<PAGE>
broker-dealers that sell these types of securities to persons other than
established customers and "accredited investors" (generally, individuals with
net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or
$300,000 together with their spouses). For transactions that this rule covers, a
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written consent to the transaction prior to sale.
Consequently, the rule may adversely affect the ability of broker-dealers to
sell our securities and may adversely affect the ability of stockholders to sell
any of our securities in the secondary market.
The Commission has adopted regulations that define a "penny stock". Generally, a
penny stock is an equity security that has a market price of less than $5.00 per
share. For any transaction involving a penny stock that is not exempt, the rules
require that a broker-dealer deliver a disclosure schedule that the Commission
has prepared relating to the penny stock market. The rule also requires the
broker-dealer to disclose information about commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, rules require that the broker-dealers send monthly
statements disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
These restrictions will not apply to our securities if the Nasdaq SmallCap
Market continues to list our securities. If Nasdaq delists our securities and
they become subject to the existing or proposed rules on penny stocks, it could
severely adversely affect the market liquidity for our securities.
A Substantial Number of Our Securities Are Eligible for Future Sale and this
Could Affect the Market Price for Our Stock and Our Ability to Raise Capital.
The market price of our common stock could drop due to sales of a large number
of shares of our common stock or the perception that these sales could occur. As
of March 28, 2000, there were approximately 20,630,290 shares of common stock
outstanding. In addition, as of March 28, 2000 up to 6,765,313 shares of Common
Stock were issuable on exercise of outstanding options and warrants.
Holders of our stock options and warrants are likely to exercise them, if ever,
at a time when we otherwise could obtain a price for the sale of our securities
that is higher than the exercise price per security of the options or warrants.
This exercise or the possibility of this exercise may impede our efforts to
obtain additional financing through the sale of additional securities or make
this financing more costly.
We cannot predict the effect that the availability of these shares for sale will
have on the market price of our common stock. Nevertheless, because holders may
sell substantial amounts of our common stock in the public market, the market
price of our common stock could drop as a result of sales of these securities or
the perception that these types of sales may occur. These factors could also
make it more difficult for us to raise funds through future offerings of
securities.
Anti-takeover Provisions of Our Certificate of Incorporation and Delaware Law
Could Delay Actual or Potential Changes of Control, Which Could Affect
Stockholder Ability to Benefit From Market Fluctuations and Changes in
Management.
Our Certificate of Incorporation and Delaware law contain provisions which may
discourage transactions involving actual or potential changes in control. Our
Certificate of Incorporation allows us to issue shares of preferred stock
without any vote or further action by our shareholders. Our Board of Directors
has the authority to fix and determine the relative rights
22
<PAGE>
and preferences of preferred shares. Our Board of Directors also has the
authority to issue these shares without further stockholder approval. As a
result, our Board of Directors could authorize the issuance of a series of
preferred stock that would grant to holders the preferred right to our assets
upon liquidation, the right to receive dividend payments before dividends on
common stock and the right to the redemption of these shares, together with a
premium, prior to the redemption of our common stock. In addition, our Board of
Directors, without further stockholder approval, could issue large blocks of
preferred stock to fend against unwanted tender offers or hostile takeovers.
We are also subject to provisions of Delaware law that could delay or make more
difficult a merger, tender offer or proxy contest involving us. In particular,
we are subject to Section 203 of the Delaware General Corporation Law that
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless the Board of
Directors and stockholders approve the transactions in a prescribed manner. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by this type of entity or person. The possible issuance of preferred
stock and the provisions of Delaware law could have the effect of discouraging
others from making tender offers for our securities. As a consequence, they also
may inhibit fluctuations in the market price of our common stock that otherwise
could result from actual or rumored takeover attempts. Those provisions also may
have the effect of preventing changes in our management.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently has its executive offices at 350 South Main Street, Suite
307, Doylestown, Pennsylvania 18901. The Company's telephone number is (215)
340-4699 and its facsimile number is (215) 340-3940.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not aware of any pending or threatened legal actions other than
disputes arising in the ordinary course of its business that would not, if
determined adversely to the Company, have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of securityholders during the fourth quarter
of 1999.
23
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"DSCO." In addition, the Company's units (consisting of Common Stock, Class A
Warrants and Class B Warrants), Class A Warrants and Class B Warrants are
approved for listing on the Nasdaq SmallCap Market. As of March 28, 2000, the
number of stockholders of record of the Common Stock was approximately 128, and
the number of beneficial owners of shares of the Common Stock was approximately
956. As of March 28, 2000, there were approximately 20,630,290 shares of Common
Stock were issued and outstanding.
The following table sets forth the quarterly price ranges of the Common Stock
for the periods indicated, as reported by Nasdaq. The following price ranges are
adjusted for the Reverse Split.
Low High
First Quarter 1998..................................3.94 9.00
Second Quarter 1998 ................................4.00 5.38
Third Quarter 1998..................................2.00 4.38
Fourth Quarter 1998.................................1.69 4.88
First Quarter 1999..................................1.88 4.00
Second Quarter 1999 ................................1.13 2.50
Third Quarter 1999..................................1.00 2.00
Fourth Quarter 1999.................................1.31 3.06
First Quarter 2000 (through March 28, 2000).........2.43 12.63
The Company has not paid dividends on the Common Stock. It is anticipated that
the Company will not pay dividends on the Common Stock in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
The following discussion reflects the historical results of Old Discovery as the
1997 Merger was accounted for as a reverse acquisition with Old Discovery as the
acquiror for financial reporting purposes.
Plan of Operations
Since its inception, the Company has concentrated its efforts and resources on
the development and commercialization of pharmaceutical products and
technologies. The Company has been unprofitable since its founding and had
incurred a cumulative net loss of approximately $32.4 million as of December 31,
1999. The Company expects to incur significantly increasing operating losses
over the next several years, primarily due to the expansion of its research and
development programs, including clinical trials for some or all of its existing
products and technologies and other products and technologies that it may
acquire or develop. The Company's ability to achieve profitability depends upon,
among other things, its ability to discover and develop products, obtain
regulatory approval for its proposed products, and enter into agreements for
product development, manufacturing and commercialization. None of the Company's
products currently generates revenues and the Company does not expect to achieve
24
<PAGE>
revenues for the foreseeable future. Moreover, there can be no assurance that
the Company will ever achieve significant revenues or profitable operations from
the sale of any of its products or technologies.
The Company is currently engaged in the development and commercialization of
drugs for critical care that are intended to be used in a hospital setting. The
Company anticipates that during the next 12 months it will conduct substantial
research and development of its products under development and that it will
focus primarily on the conduct of clinical trials for Surfaxin(R) indications.
The Company expects to expand its research and development activities as a
result of its receipt of approximately $17.5 million of net proceeds from its
offering completed in March 2000. The Company anticipates the near term
acquisition of equipment necessary to manufacture Surfaxin(R). The Company also
anticipates the hiring of further personnel to augment the clinical development
of Surfaxin(R). A pivotal Phase 2/3 clinical trial of Surfaxin(R) for the
treatment of ARDS/ALI was commenced on July 14, 1998. This trial was intended to
enroll approximately 540 patients and be conducted at up to 43 clinical sites
nationwide. This trial was stopped on January 27, 2000 due to the Company's cash
position and so that a new Phase 2 ARDS/ALI trial could be commenced using a
new, less viscous formulation of Surfaxin(R). A new Phase 2 trial is currently
being planned, which we expect to commence following submission of a protocol
and subsequent approval by the FDA.
A Phase 2A clinical trial of Surfaxin(R) for the treatment of MAS was commenced
on May 27, 1997. This trial was completed and results were announced on February
4, 1999. The Company initiated a pivotal Phase 3 trial in MAS in January 2000.
The trial intends to enroll 200 MAS patients. The Company is engaged in
discussions with the FDA concerning a protocol for Phase 3 clinical trials for
Surfaxin(R) for RDS. The Company intends to commence the Phase 3 clinical trial
upon approval of the protocol on terms acceptable to the Company. Such trial,
and any other clinical trials of the Company's products in development that have
not yet commenced, will require the receipt of approvals by the United States
Food and Drug Administration (the "FDA"). There can be no assurance as to the
receipt or the timing of such approvals.
A Phase 1/2 clinical trial of SuperVent(TM) for the treatment of cystic fibrosis
("CF") was commenced on March 17, 1997. Part A of such clinical trial was
completed on March 31, 1998. The Company began a Phase 2a clinical trial of
SuperVent(TM) for the treatment of CF on August 4, 1999. Preliminary analysis of
the data show that SuperVent(TM) decreased the amount of Interleukin 8 (IL-8) in
the sputum of treated patients compared to controls. IL-8 is an important body
chemical that causes the migration of inflammatory cells to the site of release.
On December 5, 1997 a Phase 1 clinical study of DSC-103 (formerly known as
ST-630) as a once-daily, orally administered drug for the treatment of
postmenopausal osteoporosis in the United States was initiated. Part B of such
trial was commenced on April 2, 1998 and was successfully completed on June 29,
1998. It is the Company's present intention to seek to develop DSC-103 through a
corporate partnering arrangement rather than directly.
The Company's expenses decreased from $16,090,000 in 1998 to $5,292,000 in 1999.
The decrease resulted primarily from a write-off of acquired in-process research
and development and supplies in 1998. In addition, the Company's research and
development costs decreased from $5,082,000 in 1998 to $2,869,000 in 1999. This
decrease resulted primarily from a slow-down in research and development due to
the Company's cash position. As a result of the receipt of proceeds from the
private placement completed in March, 2000, the Company expects to significantly
increase its research and development and clinical trial efforts. As a result of
the
25
<PAGE>
decreases in expenses from 1998, the Company's total comprehensive net loss
decreased from $15,626,000 in 1998 to $4,958,000 in 1999. In addition, due to
the reduction in the total comprehensive net loss and the increase in the
weighted average common shares outstanding during 1999, the Company's net loss
per share decreased from $4.02 in 1998 to $0.66 in 1999.
Liquidity
At December 31, 1999, the Company had working capital of $2.7 million. In March
2000, the Company completed a private placement pursuant to which it received
net proceeds of approximately $17.5 million. The Company believes its working
capital after completion of the offering is sufficient to meet its planned
research and development activities through the third quarter 2001. However, the
Company will need additional financing from investors or collaborators to
complete research and development of its product candidates.
The Company's working capital has been provided from the proceeds of private
financings. On April 7, 1999 (the "April 1999 Financing"), the Company completed
a private placement of shares of Common Stock and a newly created class of
warrants of the Company (the "Class C Warrants") for an aggregate purchase price
of $1,000,000. Investors in the April 1999 Financing received, in the aggregate,
826,447 shares of Common Stock at an adjusted purchase price of $1.21 and
569,026 Class C Warrants, each of which is exercisable for the purchase of a
share of Common Stock for an exercise price of $2.15 at any time prior to the
seventh anniversary of the issuance of such warrant.
On July 29, 1999, the Company received $2.45 million in gross proceeds when it
completed a private offering of Units (the "Unit Offering"), at a per Unit price
of $500,000, consisting of (a) 413,223 shares of the Company's Common Stock, par
value $0.001 per share (the "Common Stock, and (b) an equal number of the
Company's Class D Warrants, each of which entitles the holder thereof to
purchase a share of Common Stock at any time prior to the close of business on
July 27, 2004 at a per share purchase price equal to $1.33. Paramount Capital,
Inc. received options (the "Placement Options") to acquire 0.49 Units at a per
Unit exercise price of $550,000 as partial compensation for its services in
connection with the Unit Offering.
Pursuant to an agreement entered into on October 28, 1999, the Company issued
317,164 shares of Common Stock to Laboratorios P.E.N., S.A. at a price of $2.68
per share (based on a 50% premium over the average closing price for the 10 days
prior to the closing date) for aggregate proceeds of $850,000. The shares of
Common Stock were issued to Laboratorios P.E.N., S.A. in connection with the
Sublicense Agreement with Laboratorios Del Dr. Esteve, S.A. ("Laboratorios Dr.
Esteve") described under "Item 1. Description of Business".
On March 22, 2000, the Company received approximately $17.5 million in net
proceeds in a private offering of Units at a per unit price of $500,000. Each of
the Units consisted of (a) 76,923 shares of the Company's common stock and (b) a
number of Class E warrants equal to 20% of the number of shares of common stock
included in each Unit, each of which entitles the holder to purchase one share
of common stock at any time prior to the close of business on March 21, 2005 at
an exercise price per share equal to $7.63 per share. In addition, Paramount
received cash fees of approximately $1.32 million and options (the "Placement
Options") to acquire 9,230 shares of common stock per Unit sold at an exercise
price of $8.113 per share as partial compensation for its services in connection
with the offering.
The Company's working capital requirements will depend upon numerous factors,
including, without limitation, progress of the Company's research and
development programs, preclinical and clinical testing, timing and cost of
obtaining regulatory approvals, levels of resources that the
26
<PAGE>
Company devotes to the development of manufacturing and marketing capabilities,
technological advances, status of competitors and the ability of the Company to
establish collaborative arrangements with other organizations.
ITEM 7. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements on Page F-1.
27
<PAGE>
PART III
The information required by Item 8 through 12 of Part III is incorporated by
reference to the Company's definitive proxy statement to be filed with the
Commission within 120 days after the end of the Company's fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits are listed on the Index to Exhibits at the end of this Report. The
exhibits required by Item 601 of Regulation S-B, listed on such Index in
response to this Item, are incorporated herein by reference.
(b) Reports on Form 8-K
One report on Form 8-K was filed by the Company during the three months ended
December 31, 1999, a report filed on March 29, 2000, and a report filed in
October 1998, relating to publishing an interim report to shareholders.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DISCOVERY LABORATORIES, INC.
Date: March 28, 2000 By: /s/ Robert J. Capetola
----------------------
Robert J. Capetola, Ph.D
Chief Executive Officer
In accordance with the Exchange Act, 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 Name & Title Date
<S> <C> <C>
/s/ Robert J. Capetola Robert J. Capetola, Ph.D.
- -------------------------------------------- Chief Executive Officer
March _, 2000
/s/ Evan Myrianthopoulos
- -------------------------------------------- Evan Myrianthopoulos
Vice President, Finance March _, 2000
/s/ Cynthia Davis Cynthia Davis
- -------------------------------------------- Controller March _, 2000
(Principal Accounting Officer)
/s/ Steve Kanzer
- -------------------------------------------- Steve H. Kanzer, C.P.A., Esq.
Chairman of the Board March _, 2000
/s/ Richard Power
- -------------------------------------------- Richard Power
Director March _, 2000
/s/ Marvin Rosenthale
- -------------------------------------------- Marvin Rosenthale
Director March _, 2000
/s/ Mark Rogers
- -------------------------------------------- Mark C. Rogers, M.D.
Director March _, 2000
/s/ Herbert McDade, Jr.
- -------------------------------------------- Herbert McDade, Jr.
Director March _, 2000
/s/ M. Link
- -------------------------------------------- Max Link, Ph.D.
Director March _, 2000
/s/ David Naveh
- -------------------------------------------- David Naveh, Ph.D.
Director March _, 2000
/s/ Richard Sperber
- -------------------------------------------- Richard Sperber
Director March _, 2000
</TABLE>
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1(3) Agreement and Plan of Merger dated as of March 5, 1998 among Discovery, ATI Acquisition Corp. and
ATI.
2.2(4) Agreement and Plan of Reorganization and Merger, dated as of July 16, 1997, by and between
Discovery and Old Discovery.
3.1(3) Restated Certificate of Incorporation of Discovery.
3.2 Amendment to Restated Certificate of Incorporation of Discovery.
3.3(8) Certificate of Designation of Series C Preferred Stock.
3.4(2) By-laws of Discovery.
3.5 Certificate of Ownership Merging ATI Acquisition Corp. into Discovery.
4.1(8) Form of Class C Warrant.
4.2(10) Form of Class D Warrant.
4.3(12) Form of Class E Warrant.
4.4 Unit Purchase Option issued to Paramount Capital, Inc. in connection with the March 1999 private
placement.
10.1 Reference is made to Exhibits 2.1 and 2.2.
10.2(2) Warrant Agreement, dated as of August 8, 1995 among Discovery, Continental Stock Transfer & Trust
Company and D.H. Blair Investment Banking Corp.
10.3(2) Form of Escrow Agreement by and between Discovery, Continental Stock Transfer & Trust Company and
certain securityholders of Discovery.
10.4(2) Form of Indemnification Agreement.
10.5(3) Investor Rights Agreement dated March 20, 1996, between Old Discovery and RAQ, LLC.
10.6(3) Registration Rights Agreement dated October 28, 1996, between ATI, JJDC, and Scripps.
10.7(5)+ Inventory Transfer/Stock Purchase Agreement dated October 28, 1996, among ATI, Johnson & Johnson
Development Corporation ("JJDC"), The R.W. Johnson Pharmaceutical Research Institute and Ortho.
10.8(5)+ Sublicense Agreement dated October 28, 1996 between ATI, Johnson & Johnson, Inc. and Ortho.
10.9(5)+ License Agreement between Discovery and The
Charlotte-Mecklenburg Hospital Authority dated
March 20, 1996.
30
<PAGE>
10.10+ Amendment of License Agreement between Discovery and The Charlotte-Mecklenburg Hospital Authority
dated March 20, 1996.
10.11(5)+ License Agreement dated September 6, 1996, between Discovery and WARF, as amended on October 31,
1996.
10.12(2) Restated 1993 Stock Option Plan of Discovery.
10.13(2) 1995 Stock Option Plan of Discovery.
10.14(9) Amended and Restated 1998 Stock Incentive Plan of Discovery.
10.15(3) Management Agreement between Discovery Laboratories, Inc. and Acute Therapeutics, Inc. dated as of
March 5, 1998.
10.16(3) Lease Agreement between Discovery and Newmark and Company Real Estate, Inc., dated May 29, 1997,
for professional offices at 509 Madison Avenue, New York, New York.
10.17(8) Sublease dated as of August 25, 1998 among the Company, Milan Entertainment, Inc. and Entertainment
Management Group, Inc.
10.18(8) Indenture of Lease dated as of July 1, 1998 between SLTI1, LLC and Acute Therapeutics, Inc.
10.19(8)+ Pharmaceutical Services Contract dated August 15, 1997 between McKesson BioServices and the
Company, as amended.
10.20(8)+ Agreement dated as of August 16, 1998 between the Company and Pharmalytic, Inc.
10.21(8) Agreement dated November 25, 1998 between the Company and Brobeck, Phleger and Harrison, LLP
10.22(8) Letter Agreement dated September 15, 1998 between the Company and Lehman Brothers.
10.23(8) Letter Agreement dated November 18, 1998 between the Company and Charles Cochrane.
10.24(8) Letter Agreement dated January 4, 1999 between the Company and Yi, Tuan & Brunstein.
10.25(8)+ Development Agreement dated as of March 30, 1998 between ATI and Taylor Pharmaceuticals, Inc.
10.26(8) Registration Rights Agreement dated as of June 16, 1998 among the Company, Johnson & Johnson
Development Corporation ("JJDC") and Scripps.
10.27(8) Stock Exchange Agreement dated as of June 16, 1998 between the Company and JJDC.
10.28(8) Letter of Agreement dated April 27, 1998 between the Company and Robinson, Leher, and Montgomery
10.29(8)+ Letter Agreement dated April 27, 1998 between the Company and KPMG Peat Marwick LLP, as amended.
31
<PAGE>
10.30(8)+ Research Funding and Option Agreement dated October 28, 1996, between Scripps and ATI, as
amended by letter agreement dated February 26, 1997.
10.31(8)+ Amendment No 1 to Research Funding and Option Agreement dated March 1, 1998.
10.32(5)+ Clinical Testing Agreement dated as of February 24, 1997 between Discovery and the University of
Utah.
10.33(3)+ Clinical Development Services Agreement dated as of December 1, 1997 between Discovery and Covance
Clinical Research Unit.
10.34(3)+ Supply Agreement between ATI and Polypeptides Laboratories, Inc., dated December 10, 1997, for the
processing of peptides.
10.35(3) Letter Agreement between ATI and Lehman Brothers dated November 10, 1997.
10.36(8) Employment Agreement dated October 1, 1996 between ATI and Robert J. Capetola, Ph.D.
10.37(8) Employment Agreement between Discovery and Lisa Mastroianni, R.N., dated June 16, 1998
10.38(8) Employment Agreement between Discovery and Christopher J. Schaber, R.A.C., dated June 16, 1998
10.39(8) Employment Agreement dated as of June 16, 1998 between Discovery and Huei Tsai, Ph.D.
10.40(8) Employment Agreement dated as of June 16, 1998 between Discovery and Thomas E. Wiswell, M.D.
10.41(8) Employment Agreement dated as of June 16, 1998 between the Company and Evan Myrianthopoulos.
10.42(8) Employment Agreement dated as of June 16, 1998 between the Company and Cynthia Davis.
10.43(8) Form of Intellectual Property and Confidential Information Agreement.
10.44(5) Management Agreement dated June 1, 1996 by and between Discovery and Steve Kanzer.
10.45(5)+ Consulting Agreement dated December 9, 1996 between ATI and Dr. Charles Cochrane.
10.46(5)+ Consulting Agreement dated December 9, 1996 between ATI and Susan Revak.
10.47(5) Consulting Agreement dated October 28, 1996 between ATI and The Sage Group.
10.48(5) Amendment No. 1 to Letter Agreement dated as of April 30, 1998 to Consulting Agreement dated
October 28, 1996 between ATI and The Sage Group.
32
<PAGE>
10.49(5) Letter amendment dated October 7, 1998 to Consulting Agreement dated October 28, 1996 between ATI
and The Sage Group.
10.50(8) Form of Stock Purchase Agreement.
10.51(11) Notice of Grant of Stock Option.
10.52+ Sublicense Agreement between Discovery Laboratories, Inc. and Laboratories del Dr. Esteve S.A.
dated October 26, 1999.
10.53+ Supply Agreement between Discovery Laboratories, Inc. and Laboratories del Dr. Esteve S.A. dated
October 26, 1999.
10.54 Securities Purchase Agreement between Discovery Laboratories, Inc. and Laboratorios P.E.N., S.A.
dated October 26, 1999.
10.55+ Research Funding and Option Agreement dated March 1, 2000 between Discovery and Scripps.
16.1(7) Letter dated January 28, 1998 from Ernst & Young LLP to the Securities and Exchange Commission
21.1(3) Subsidiaries of Discovery.
23.1 Consent of Richard A. Eisner & Company, LLP
27.1 Financial Data Schedule.
- -------------------------------
(1) Incorporated by reference to Discovery's Annual Report on Form 10-K-SB for the year ending December 31, 1995.
(2) Incorporated by reference to Discovery's Registration Statement on Form SB-2 (File No. 33-92-886).
(3) Incorporated by reference to Discovery's Annual Report on Form 10-KSB for the year ending December 31, 1997.
(4) Incorporated by reference to Discovery's Registration Statement on Form S-4 (File No. 333-34337).
(5) Incorporated by reference to Discovery's Registration Statement on Form SB-2 (File No. 333-19375).
(6) Incorporated by reference to Discovery's Proxy Statement on Schedule 14A dated May 6, 1998.
(7) Incorporated by reference to Discovery's Current Report on form 8-K/A dated January 16, 1998.
(8) Incorporated by reference to Discovery's Annual Report on Form 10-K for the year ending December 31, 1998.
(9) Incorporated by reference to Discovery's Proxy Statement on Schedule 14A filed June 1, 1999.
(10) Incorporated by reference to Discovery's Current Report on Form 8-K filed August 9, 1999.
33
<PAGE>
(11) Incorporated by reference to Discovery's Quarterly Report on Form 10-Q for the quarter ending September 30, 1999.
(12) Incorporated by Reference to Discovery's Current Report on Form 8-K filed March 29, 2000.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted and filed separately
with the Commission.
</TABLE>
34
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
<TABLE>
<CAPTION>
Contents
Page
Consolidated Financial Statements
<S> <C>
Independent auditors' report F-2
Balance sheet as of December 31, 1999 F-3
Statements of operations for the years ended December 31, 1999 and 1998 and the
period from May 18, 1993 (inception) through December 31, 1999 F-4
Statements of changes in stockholders' equity for the period from May 18, 1993 (inception)
through December 31, 1999 F-5
Statements of cash flows for the years ended December 31, 1999 and 1998 and the
period from May 18, 1993 (inception) through December 31, 1999 F-7
Notes to financial statements F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Discovery Laboratories, Inc.
Doylestown, Pennsylvania
We have audited the accompanying consolidated balance sheet of Discovery
Laboratories, Inc. and subsidiary (a development stage company) as of December
31, 1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1999, and the period from May 18, 1993 (inception) through
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Discovery
Laboratories, Inc. and subsidiary as of December 31, 1999 and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the two-year period ended December 31, 1999, and the period from May
18, 1993 (inception) through December 31, 1999, in conformity with generally
accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 25, 2000
With respect to the last paragraph of Note A
March 23, 2000
With respect to note F[3]
March 1, 2000
With respect to the second paragraph of Note G
March 14, 2000
With respect to the last paragraph of Note G
March 3, 2000
F-2
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Balance Sheet
December 31, 1999
<TABLE>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 3,547,000
Inventory 575,000
Prepaid expenses and other current assets 66,000
----------------
Total current assets 4,188,000
Property and equipment, net of depreciation 426,000
Security deposits 18,000
----------------
$ 4,632,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 425,000
Deferred revenue 1,036,000
Capitalized lease - current 15,000
----------------
Total current liabilities 1,476,000
----------------
Capitalized lease - noncurrent 48,000
----------------
Commitments (Notes F and I)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized:
Series B convertible; 1,530,756 shares issued and outstanding (liquidation preference
$20,665,000) 2,000
Series C redeemable convertible; 2,039 shares issued and outstanding (liquidation
preference $2,481,000) 2,481,000
Common stock, $.001 par value; 35,000,000 authorized; 9,689,240 shares issued 10,000
Treasury stock (2,000 shares of common stock at cost) (5,000)
Additional paid-in capital 33,749,000
Unearned portion of compensatory stock options (37,000)
Deficit accumulated during the development stage (33,092,000)
----------------
3,108,000
----------------
$ 4,632,000
================
</TABLE>
See notes to financial statements F-3
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
May 18, 1993
Year Ended (Inception)
December 31, Through
----------------------------------- December 31,
1999 1998 1999
---------------- --------------- ----------------
<S> <C> <C> <C>
Interest income $ 156,000 $ 394,000 $ 1,468,000
License fees 68,000 68,000
Research grants 110,000 27,000 137,000
---------------- --------------- ----------------
334,000 421,000 1,673,000
---------------- --------------- ----------------
Expenses:
Write-off of acquired in-process research and development
and supplies 8,220,000 13,508,000
Research and development 2,869,000 5,082,000 12,869,000
General and administrative 2,421,000 2,788,000 7,755,000
Interest 2,000 13,000
---------------- --------------- ----------------
Total expenses 5,292,000 16,090,000 34,145,000
---------------- --------------- ----------------
(4,958,000) (15,669,000) (32,472,000)
Minority interest in net loss of subsidiary 24,000 26,000
---------------- --------------- ----------------
Net loss (4,958,000) (15,645,000) (32,446,000)
Other comprehensive income:
Unrealized gain on marketable securities available for sale 19,000
---------------- ---------------
Total comprehensive loss $ (4,958,000) $ (15,626,000) $ (32,446,000)
================ =============== ================
Net loss per share - basic and diluted (Note C[9]) $(0.66) $(4.02)
====== ======
Weighted average number of common shares
outstanding 7,545,000 3,896,000
========= =========
</TABLE>
See notes to financial statements F-4
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity
May 18, 1993 (Inception) Through December 31, 1999
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------
Common Stock Treasury Stock Series B Series C
--------------------- -------------------- ------------------ --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- --------- -------- ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common shares, May 1993 440,720 $ 1,000
Net loss
Expenses paid on behalf of the Company
---------- -------
Balance - December 31, 1993 440,720 1,000
Net loss
---------- -------
Balance - December 31, 1994 440,720 1,000
Issuance of common shares, February 143,016
1995
Net loss
Payment on stock subscriptions
Expenses paid on behalf of the Company
---------- -------
Balance - December 31, 1995 583,736 1,000
Issuance of common shares, March 1996 1,070,175 1,000
Issuance of private placement units
August,
October and November 1996 856,138 1,000 2,200,256 $ 2,000
Issuance of common shares for cash and
compensation, September 1996 82,502
Exercise of stock options, July and
October 1996 19,458
Net loss
---------- ------- ---------- ---------
Balance - December 31, 1996 2,612,009 3,000 2,200,256
2,000
Private placement expenses
Issuance of common shares pursuant to
Ansan Merger 546,433
Exercise of stock options, July,
August and
October 1997 17,513
Accumulated dividends on preferred
stock
Net loss
---------- ------- ---------- ---------
Balance - December 31, 1997 3,175,955 3,000 2,200,256
2,000
Issuance of common shares pursuant to
ATI Merger 1,033,500 1,000
Fair value of common stock issuable on
exercise of ATI options
Series C preferred stock issued
pursuant to
ATI Merger 2,039 $ 2,039,000
Accrued dividends payable on Series C
preferred stock at time of ATI 238,000
Merger
Common stock issued in settlement of
Series C preferred stock dividends 49,846 (204,000)
Exercise of stock options, July and
December 1998 131,676
Series B preferred stock converted 685,103 1,000 (253,375)
---------- ------- ---------- --------- ------- -----------
(carried forward) 5,076,080 5,000 1,946,881 2,039 2,073,000
2,000
Unearned Deficit
Portion of Accumulated Accumulated
Stock Additional Compensatory Other During the
Subscriptions Paid-in Stock Comprehensive Development
Receivable Capital Options Income Stage
-------------- ------------ -------------- -------------- ------------
Issuance of common shares, May 1993 $ (2,000) $ 1,000
Net loss $ (1,000)
Expenses paid on behalf of the Company 1,000
---------- ------------ ------------
Balance - December 31, 1993 (1,000) 1,000 (1,000)
Net loss
---------- ------------ ------------
Balance - December 31, 1994 (1,000) 1,000 (1,000)
Issuance of common shares, February (1,000) 1,000
1995
Net loss (17,000)
Payment on stock subscriptions 2,000
Expenses paid on behalf of the Company 18,000
---------- ------------ ------------
Balance - December 31, 1995 0 20,000 (18,000)
Issuance of common shares, March 1996 5,000
Issuance of private placement units
August,
October and November 1996 18,933,000
Issuance of common shares for cash and
compensation, September 1996 42,000
Exercise of stock options, July and
October 1996 7,000
Net loss (2,661,000)
---------- ------------ ------------
Balance - December 31, 1996 0 19,007,000 (2,679,000)
Private placement expenses (11,000)
Issuance of common shares pursuant to
Ansan Merger 2,459,000
Exercise of stock options, July,
August and
October 1997 9,000
Accumulated dividends on preferred (238,000)
stock
Net loss (9,164,000)
---------- ------------ ------------
Balance - December 31, 1997 0 21,464,000 (12,081,000)
Issuance of common shares pursuant to
ATI Merger 5,037,000
Fair value of common stock issuable on
exercise of ATI options 2,966,000
Series C preferred stock issued
pursuant to
ATI Merger
Accrued dividends payable on Series C
preferred stock at time of ATI
Merger
Common stock issued in settlement of
Series C preferred stock dividends 204,000
Exercise of stock options, July and
December 1998 30,000
Series B preferred stock converted (1,000)
---------- ------------ ------------
(carried forward) 0 29,700,000 (12,081,000)
</TABLE>
Total
-------------
Issuance of common shares, May 1993 $ 0
Net loss (1,000)
Expenses paid on behalf of the Company 1,000
------------
Balance - December 31, 1993 0
Net loss 0
------------
Balance - December 31, 1994 0
Issuance of common shares, February 0
1995
Net loss (17,000)
Payment on stock subscriptions 2,000
Expenses paid on behalf of the Company 18,000
------------
Balance - December 31, 1995 3,000
Issuance of common shares, March 1996 6,000
Issuance of private placement units
August,
October and November 1996 18,936,000
Issuance of common shares for cash and
compensation, September 1996 42,000
Exercise of stock options, July and
October 1996 7,000
Net loss (2,661,000)
------------
Balance - December 31, 1996 16,333,000
Private placement expenses (11,000)
Issuance of common shares pursuant to
Ansan Merger 2,459,000
Exercise of stock options, July,
August and
October 1997 9,000
Accumulated dividends on preferred (238,000)
stock
Net loss (9,164,000)
------------
Balance - December 31, 1997 9,388,000
Issuance of common shares pursuant to
ATI Merger 5,038,000
Fair value of common stock issuable on
exercise of ATI options 2,966,000
Series C preferred stock issued
pursuant to
ATI Merger 2,039,000
Accrued dividends payable on Series C
preferred stock at time of ATI 238,000
Merger
Common stock issued in settlement of
Series C preferred stock dividends 0
Exercise of stock options, July and
December 1998 30,000
Series B preferred stock converted 0
------------
(carried forward) 19,699,000
See notes to financial statements F-5
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity
May 18, 1993 (Inception) Through December 31, 1999
(continued)
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------
Common Stock Treasury Stock Series B Series C
----------------------- ------------------ ------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------- --------- -------- --------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(brought forward) 5,076,080 $ 5,000 1,946,881 $ 2,000 2,039 $ 2,073,000
Noncash exercise of private placement
warrants 8,372
Dividends payable on Series C preferred 204,000
stock
Treasury stock acquired (31,750) $ (90,000)
Treasury stock issued in payment for
services 16,150 51,000
Unrealized gain on marketable securities
available for sale
Fair value of options granted
Amortization of unearned portion of
compensatory stock options
Net loss
----------- ------- -------- --------- --------- --------------- -----------
Balance - December 31, 1998 5,084,452 5,000 (15,600) 1,946,881 2,039 2,277,000
(39,000) 2,000
Common stock and warrants in a private
placement offering in March and 1,000
April 1999 826,447
Issuance of private placement units in
July and
August 1999 (net of offering costs) 2,024,792 2,000
Exercise of stock options 119,732
Common stock issued in connection with
sublicense agreement 317,164 1,000
Series B preferred stock converted 1,295,485 1,000 (416,125)
Treasury stock acquired (2,000)
(5,000)
Treasury stock issued in payment for
services 15,600 39,000
Common stock issued in payment for
services 21,168
Amortization of unearned portion of
compensatory stock options
Compensatory stock options granted
Dividend payable on Series C preferred 204,000
stock
Unrealized loss on marketable securities
available for sale
Net loss
----------- ------- -------- --------- --------- -------- ------ -----------
Balance - December 31, 1999 9,689,240 $10,000 (2,000) $ (5,000) 1,530,756 $ 2,000 2,039 $ 2,481,000
=========== ======= ======== ========= ========== ======= ======= ===========
Unearned Deficit
Portion of Accumulated Accumulated
Stock Additional Compensatory Other During the
Subscriptions Paid-in Stock Comprehensive Development
Receivable Capital Options Income Stage
-------------- ------------ ------------- -------------- --------------
(brought forward) $ 0 $ 29,700,000 $(12,081,000)
Noncash exercise of private placement
warrants
Dividends payable on Series C preferred (204,000)
stock
Treasury stock acquired
Treasury stock issued in payment for
services
Unrealized gain on marketable securities
available for sale $19,000
Fair value of options granted 142,000 $ (142,000)
Amortization of unearned portion of
compensatory stock options 18,000
Net loss (15,645,000)
---------- ------------ ------------ ----------- ------------
Balance - December 31, 1998 0 29,842,000 (124,000) 19,000 (27,930,000)
Common stock and warrants in a private
placement offering in March and 999,000
April 1999
Issuance of private placement units in
July and
August 1999 (net of offering costs) 2,231,000
Exercise of stock options 17,000
Common stock issued in connection with
sublicense agreement 563,000
Series B preferred stock converted (1,000)
Treasury stock acquired
Treasury stock issued in payment for 14,000
services
Common stock issued in payment for 47,000
services
Amortization of unearned portion of
compensatory stock options 124,000
Compensatory stock options granted 37,000 (37,000)
Dividend payable on Series C preferred (204,000)
stock
Unrealized loss on marketable securities
available for sale (19,000)
Net loss (4,958,000)
---------- ------------ ------------ ----------- ------------
Balance - December 31, 1999 $ 0 $ 33,749,000 $ (37,000) $ 0 $(33,092,000)
======== ============ =========== ======= ============
</TABLE>
Total
-------------
(brought forward) $ 19,699,000
Noncash exercise of private placement 0
warrants
Dividends payable on Series C preferred 0
stock
Treasury stock acquired (90,000)
Treasury stock issued in payment for 51,000
services
Unrealized gain on marketable securities
available for sale 19,000
Fair value of options granted 0
Amortization of unearned portion of
compensatory stock options 18,000
Net loss (15,645,000)
------------
Balance - December 31, 1998 4,052,000
Common stock and warrants in a private
placement offering in March and 1,000,000
April 1999
Issuance of private placement units in
July and
August 1999 (net of offering costs) 2,233,000
Exercise of stock options 17,000
Common stock issued in connection with
sublicense agreement 564,000
Series B preferred stock converted 0
Treasury stock acquired (5,000)
Treasury stock issued in payment for 53,000
services
Common stock issued in payment for 47,000
services
Amortization of unearned portion of
compensatory stock options 124,000
Compensatory stock options granted 0
Dividend payable on Series C preferred 0
stock
Unrealized loss on marketable securities
available for sale (19,000)
Net loss (4,958,000)
------------
Balance - December 31, 1999 $ 3,108,000
============
See notes to financial statements F-6
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
May 18, 1993
Year Ended (Inception)
December 31, Through
-------------------------------- December 31,
1999 1998 1999
------------- ----------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (4,958,000) $ (15,645,000) $ (32,401,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Write-off of acquired in-process research and development and
supplies 8,220,000 13,508,000
Write-off of licenses 683,000
Depreciation and amortization 87,000 65,000 216,000
Compensatory stock options 124,000 18,000 142,000
Expenses paid using treasury stock and common stock 27,000 51,000 78,000
Changes in:
Prepaid expenses and other current assets 137,000 (13,000) (35,000)
Accounts payable and accrued expenses (590,000) 523,000 247,000
Deferred revenue 1,036,000 1,036,000
Other assets 12,000 (18,000)
Expenses paid on behalf of company 18,000
Employee stock compensation 42,000
Reduction of research and development supplies (161,000)
---------------- ---------------- ----------------
Net cash used in operating activities (4,137,000) (6,769,000) (16,645,000)
---------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (114,000) (235,000) (546,000)
Proceeds from disposal of property and equipment 25,000 25,000
Acquisition of licenses (711,000)
Purchase of marketable securities (1,000,000) (142,000) (21,745,000)
Proceeds from sale or maturity of marketable securities 3,525,000 2,574,000 22,150,000
Net cash payments on merger (216,000) (1,670,000)
---------------- ---------------- ----------------
Net cash provided by (used in) investing activities 2,411,000 2,006,000 (2,497,000)
---------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of securities, net of expenses 3,797,000 22,722,000
Purchase of treasury stock (5,000) (90,000) (95,000)
Principal payments under capital lease obligation (10,000) (10,000)
Collections on stock subscriptions and proceeds on exercise of stock
options 17,000 30,000 72,000
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities 3,799,000 (60,000) 22,689,000
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 2,073,000 (4,823,000) 3,547,000
Cash and cash equivalents - beginning of period 1,474,000 6,297,000
---------------- ---------------- --------------
Cash and cash equivalents - end of period $ 3,547,000 $ 1,474,000 $ 3,547,000
================ ================ ================
Supplementary disclosure of cash flows information:
Interest paid $ 2,000 $ 13,000
Noncash transactions:
Accrued dividends on Series C preferred stock $ 204,000 $ 204,000 $ 646,000
Series C preferred stock dividends paid using common stock $ 204,000 $ 204,000
Preferred stock issued for inventory $ 575,000
Equipment acquired through capitalized lease $ 73,000 $ 73,000
Common stock and treasury stock issued in payment for services $ 73,000 $ 73,000
</TABLE>
See notes to financial statements F-7
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
Discovery Laboratories, Inc. (the "Company"), formerly known as Ansan
Pharmaceuticals, Inc. ("Ansan"), was incorporated in Delaware on November 6,
1992 and was formed to license and develop pharmaceutical products to treat a
variety of human diseases. In November 1997, Ansan merged (the "Ansan Merger")
with Discovery Laboratories, Inc., a former Delaware corporation ("Old
Discovery"), and was the surviving corporate entity. Subsequent to the Ansan
Merger, Ansan changed its name to Discovery Laboratories, Inc. The Ansan Merger
was accounted for as a reverse acquisition with Old Discovery as the acquirer
for financial reporting purposes since Old Discovery's stockholders owned
approximately 92% of the merged entity on a diluted basis. The consolidated
financial statements include the accounts of Ansan from November 25, 1997 (the
date of acquisition).
Acute Therapeutics, Inc. ("Old ATI") was formed in October 1996 upon the
Company's investment of $7,500,000 in exchange for 600,000 shares of Old ATI's
Series A preferred stock, then representing 75% of the voting securities of Old
ATI. In June 1998, ATI Acquisition Corp., a wholly owned subsidiary of the
Company merged with and into Old ATI with Old ATI being the surviving entity
(the "Old ATI Merger"). Pursuant to the Old ATI Merger, each outstanding share
of Old ATI's common stock was exchanged for 3.90 shares of the Company's common
stock (the "Old ATI Exchange Ratio"), each share of Old ATI's Series B preferred
stock was converted into one share of the Company's Series C preferred stock and
all outstanding options to purchase Old ATI common stock were assumed by the
Company and are exercisable for shares of the Company's common stock on the
basis of the Old ATI Exchange Ratio. Further, in accordance with the employment
agreements entered into with the Company in connection with the Old ATI Merger,
Old ATI management was granted, in the aggregate, options to purchase (i)
338,500 shares of the Company's common stock, subject to vesting and (ii)
335,000 shares of the Company's common stock subject to the achievement of
certain corporate milestones. At December 31, 1999, the milestones had not been
achieved and thereby the options for the 335,000 shares remain unvested. As
these options vest, the Company will incur a charge at each vesting date for the
excess, if any of the market price of the Company's common stock over the
exercise price of the options. In addition, pursuant to a management agreement
entered into between the Company and Old ATI at the time the merger agreement
relating to the Old ATI Merger was executed, the members of Old ATI management
were granted options to purchase 126,500 shares of the Company's common stock.
In October 1999, Old ATI was merged with and into the Company. In October 1999,
the Company created a new wholly owned subsidiary, which is currently inactive,
called Acute Therapeutics, Inc. ("New ATI").
The historical consolidated financial position of the Company includes the
accounts of Old ATI. The value of the common stock of the Company issued to Old
ATI's common stockholders plus the assumption of the outstanding Old ATI options
and merger related costs has been attributed to in-process research and
development upon management's evaluation and has been recorded as an expense
upon acquisition.
The cost of the Old ATI Merger is as follows:
<TABLE>
<S> <C>
Common stock issued to Old ATI stockholders (1,033,500 shares at
fair value)* $ 5,038,000
Fair value of common stock issuable on exercise of options to
purchase Old ATI common stock net of exercise proceeds 2,966,000
Transaction costs 216,000
--------------
$ 8,220,000
==============
</TABLE>
* No discount from market value was recognized in determining the
fair value of the common stock issued. The lack of a discount
had no effect on financial position.
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE A - THE COMPANY AND BASIS OF PRESENTATION (CONTINUED)
The following pro forma unaudited statement of operations gives effect to the
Old ATI Merger as if it had occurred on January 1, 1998. A nonrecurring charge
of $8,220,000 for in-process research and development has not been considered in
the pro forma result.
Year Ended
December 31,
1998
Net loss $ (7,431,000)
==============
Net loss per common share - basic and diluted $(1.70)
======
Weighted average number of common shares
outstanding 4,370,000
=========
The accompanying financial statements include the accounts of the Company and
its wholly owned subsidiary, Old ATI (through the date of its merger into the
Company) and New ATI. All intercompany balances and transactions have been
eliminated.
As reflected in the accompanying financial statements, since inception, the
Company has incurred substantial losses from operations. As a result of the
start-up nature of its business, the Company can expect to continue incurring
substantial operating losses for at least the next several years and significant
additional financing will be required. On March 23, 2000, the Company received
$17,500,000 net proceeds from the sale of 37.74 units in a private placement.
Each unit consists of 76,923 shares of common stock and Class E warrants to
purchase an additional 15,385 shares of common stock at $7.38 per share. In
connection with this private placement, the placement agent, Paramount Capital,
Inc. ("Paramount") received fees of $1,321,000 and the Company agreed to issue
to Paramount warrants to purchase 348,341 shares of common stock at $8.113 per
share. Continuation of the Company is dependent on its ability to obtain
additional financing and, ultimately, on its ability to achieve profitable
operations. There is no assurance, however, that such financing will be
available or that the Company's efforts will ultimately be successful.
NOTE B - RETROACTIVE ADJUSTMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In October 1996, in conjunction with a licensing agreement with Johnson &
Johnson, Inc.'s ("J&J") wholly owned subsidiary, Ortho Pharmaceuticals, Inc.
(see Note F[1]), J&J contributed manufacturing equipment and raw material
inventory in exchange for the Company's non-voting Series B preferred stock
which had a liquidation preference of $2,039,000. The equipment and inventory
was charged to operations as acquired in-process research and development and
supplies during the year ended December 31, 1996. However, certain of this raw
material inventory, valued at approximately $575,000, which was then located at
the vendor, had an alternative future use. Such inventory could have been sold
to other users and was in excess of the estimated quantity required for the
Company's research and development purposes. The Company had arranged with the
vendor to defer delivery of the product. Previously issued financial statements
have been restated to reflect capitalizing such inventory effective December 31,
1996 and a corresponding reduction in deficit accumulated during the development
stage.
F-9
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Cash and cash equivalents:
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
[2] Marketable securities:
The investments are classified as available for sale, and are comprised
of United States government obligations and shares in a mutual fund which
invests in income producing securities. Investments are carried at fair
or market value. Any appreciation/depreciation on these investments is
recorded as a separate component of stockholders' equity until realized.
[3] Property and equipment:
Furniture and equipment is recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets (five to seven years). Leasehold improvements are amortized over
the lower of (a) term of the lease or (b) useful life of the
improvements.
[4] Inventory:
Inventory is stated at the lower of cost or market and consists of raw
materials.
[5] Licenses:
Through March 1997, licenses were capitalized and were being amortized on
a straight-line basis over their respective terms of 15 to 17 years.
Subsequently, the Company determined that since they will not pursue any
alternative uses for the licenses, that all license costs would be
written off as research and development costs.
[6] Research and development:
Research and development costs are charged to operations as incurred.
Certain of the Company's research and development efforts are funded by a
grant awarded to the Company by the Food and Drug Administration. Draw
downs of the grant are included in research grant revenue. In 1999 and
1998, the amounts funded were approximately $71,000 and $27,000,
respectively.
[7] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
[8] Long-lived assets:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company records impairment losses on
long-lived assets used in operations, including intangible assets, when
events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets. No such losses have been
recorded.
F-10
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[9] Stock-based compensation:
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). The
provisions of SFAS No. 123 allow companies to either expense the
estimated fair value of employee stock options or to continue to follow
the intrinsic value method set forth in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") but
disclose the pro forma effects on net income (loss) had the fair value of
the options been expensed. The Company has elected to continue to apply
APB 25 in accounting for its employee stock option incentive plans. See
Note H to the financial statements for further information.
[10] Net loss per share:
Net loss per share is computed pursuant to the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings per Share" and is based
on the weighted average number of common shares outstanding for the
periods and common shares issuable for little or no cash consideration.
Potential common shares not included in the calculation of net loss per
share for the years ended December 31, 1999 and 1998, as the effect would
be anti-dilutive, are as follows (Notes G and H):
Number of Potential
Common Shares
--------------------------
1999 1998
----------- -----------
Series B convertible preferred stock 4,766,000 6,061,000
Series C convertible preferred stock 892,000 932,000
Placement agent's option to acquire 0.49 unit 405,000
Stock options 595,000 727,000
Class C warrants 569,000
Class D warrants 2,025,000
[11] Comprehensive income:
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income and its
components. Accordingly, the Company revised the format of its
consolidated statements of operations to include total comprehensive
income. The adoption of this statement had no effect on the Company's
results of operations.
[12] Reclassifications:
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
F-11
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE D - PROPERTY AND EQUIPMENT
At December 31, 1999 property and equipment was comprised of the following:
Leasehold improvements $ 92,000
Furniture 53,000
Equipment 474,000
-----------
619,000
Less accumulated depreciation 193,000
-----------
$ 426,000
===========
Equipment includes property under a capitalized lease of $73,000 and accumulated
depreciation of $3,000.
During 1998 and 1999, the Company paid an aggregate $107,000 to the spouse of an
officer for the acquisition of leasehold improvements.
NOTE E - INCOME TAXES
At December 31, 1999, the Company has available for federal income tax purposes
net operating loss carryforwards of approximately $28,000,000 expiring through
2019, that may be used to offset future taxable income. As a result of the
ownership change pursuant to the Ansan Merger, use of Ansan's portion of the net
operating loss carryforward of approximately $9,500,000 at November 1997, is
limited in accordance with Section 382 of the Internal Revenue Code. Pursuant to
Section 382 of the Internal Revenue Code, the utilization of these carryforwards
may become further limited based on certain ownership changes that may have
occurred or may occur. The Company has research and development credit
carryforwards of approximately $671,000 which expire in 2019. Ansan's portion of
these credits of approximately $179,000 are also subject to a Section 383
limitation. There will be an annual amount available to offset future taxable
income.
The principal difference between the deficit accumulated during the development
stage for financial reporting purposes and the net operating loss carryforward
for tax purposes is primarily due to the write-off of the acquired in-process
research and development and supplies and certain research and development
expenses which were not deducted for tax purposes. The Company has provided a
valuation reserve against the full amount of the deferred tax asset of
$11,267,000 since realization of this benefit is not certain. The components of
the deferred tax assets are net operating loss carryforwards of approximately
$10,246,000, research and development expenses of approximately $350,000 and
research and development credits of approximately $671,000. The valuation
reserve increased by approximately $1,989,000 and $1,924,000 for the years ended
December 31, 1999 and 1998, respectively. The difference between the statutory
federal income tax rate of 34% and the Company's effective tax rate of 0% is due
to the increase in the valuation allowance.
NOTE F - LICENSE, SUBLICENSE AND RESEARCH FUNDING AGREEMENTS
[1] Concurrent with the Company's original investment in Old ATI, Johnson
& Johnson, Inc. ("J&J "), Ortho Pharmaceuticals, Inc., a wholly owned
subsidiary of J&J, and Old ATI entered into an agreement (the "J&J
License Agreement") granting an exclusive license of the Surfaxin(R)
technology to Old ATI in exchange for certain license fees ($200,000 of
which was paid in November 1996), milestone payments aggregating
$2,750,000, royalties and 40,000 shares of Old ATI common stock. J&J
contributed its Surfaxin(R) raw material inventory and manufacturing
equipment to Old ATI in exchange for 2,039 (originally 2,200) shares of
nonvoting Series B preferred stock of Old ATI having a $2,039,000
(originally $2,200,000) liquidation preference and a $100 per share
cumulative annual dividend. The inventory and equipment were valued at
F-12
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE F - LICENSE, SUBLICENSE AND RESEARCH FUNDING AGREEMENTS (CONTINUED)
[1] (continued)
$2,039,000 (the value of the preferred shares issued to J&J) and were
charged to expense in full (see Note B). The Scripps Research Institute
("Scripps") received 40,000 shares of common stock of Old ATI in exchange
for its consent to the J&J License Agreement.
[2] In October 1999, the Company granted an exclusive license to
Laboratorios Del Dr. Esteve S.A. to commercialize and sell Surfaxin(R)
within Central and South America, Mexico and certain Southern European
countries, not including Italy. The license expires, on a country by
country basis, on the later of the expiration of the underlying patents
or the fifteenth anniversary from the first commercial sale of
Surfaxin(R) within each country. Certain additional terms of the
agreement are:
(a) the Company was paid a nonrefundable license fee of $375,000,
(b) the Company will be the exclusive supplier (except in certain events)
of Surfaxin(R),
(c) Laboratorios Del Dr. Esteve S.A. agreed to conduct certain clinical
trials in the above countries, however, costs as defined in
the agreement, incurred on such clinical trials above an agreed
upon amount, will be borne by the Company,
(d) Laboratorios Del Dr. Esteve S.A. paid $375,000 in advance for
Surfaxin(R)supplied for clinical trials described in (c) above,
(e) an affiliate of Laboratorios Del Dr. Esteve S.A. invested $850,000 in
the Company in exchange for common stock issued at a 50% premium over
the ten day average closing price preceding the closing of this
transaction. The Company has accounted for the premium as
additional license fees amounting to $286,000, and
(f) an option to an exclusive license for Italy for additional specified
payments.
The Company has accounted for the license fees (including the premium
paid for common stock) and advance payment for inventory as deferred
revenue. Such deferred revenue will be recognized as revenue as it is
earned.
[3] In 1996, Old ATI entered into a research funding and option agreement
with Scripps to provide certain funding of research activities. The
agreement was for an initial term of two years with renewal provisions
for additional one year periods. On March 1, 2000 the Company and Scripps
entered into an agreement to extend the term for one year and provide for
additional one year renewal options. Pursuant to this agreement, the
Company will pay $248,000 per year Scripps to fund Scripps' research
efforts. The agreement provides for Scripps to grant an option to the
Company to acquire an exclusive license for the application of technology
developed from the research program. Pursuant to the agreement, payments
to Scripps were $115,000 and $460,000 in 1999 and 1998, respectively.
[4] In 1996, the Company entered into a license agreement with the
Charlotte-Mecklenburg Hospital Authority for the use of the active
compound in SuperVent, a therapy which the Company is clinically testing.
The Company paid a license issue fee of $86,000 and has agreed to pay
royalties on future sales and to pay future patent-related costs. The
license expires upon expiration of the underlying patents.
F-13
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE F - LICENSE, SUBLICENSE AND RESEARCH FUNDING AGREEMENTS (CONTINUED)
[5] In 1996, the Company entered into a license agreement with the
Wisconsin Alumni Research Foundation ("WARF") for the use of the patented
compound DSC 103 (formerly ST-630) in the treatment of post-menopausal
osteoporosis. The Company paid WARF an option fee of $25,000 in June 1996
and a license issue fee of $400,000 in October 1996 and is obligated to
make future milestones payments aggregating $3,095,000 and pay royalties
on future sales. The license expires upon expiration of the underlying
patents. The Company is currently seeking a development partner with
respect to this compound.
In June 1999, the Company granted YuYu Industrial Company, Ltd. ("YuYu
Industrial") of South Korea an exclusive license to use the DSC 103 and a
nonexclusive license to manufacture the compound and ancillary compounds
in South Korea. Under the agreement, YuYu Industrial paid the Company an
up-front payment of $68,000 including research and development fees, net
of $12,000 withheld for South Korean taxes, and agreed to make a
subsequent milestone payment of $50,000. YuYu Industrial also agreed to
purchase specified minimum quantities of the drug compound for the first
five years following the receipt of approval for marketing licensed
products within South Korea. The Company is entitled to receive royalty
payments for all product sales under the agreement.
NOTE G - STOCKHOLDERS' EQUITY
1996 private placement:
In 1996, in a private placement offering, Old Discovery sold approximately 44
units (each unit consisting of securities converted in the Ansan Merger into
50,000 shares of Series B convertible preferred stock and 19,458 shares of
common stock of the Company). Preferred stockholders have voting rights based
upon the number of shares of common stock issuable upon conversion of the
preferred shares. Pursuant to the terms of the offering, on December 1, 1998,
the conversion rate was adjusted whereby each share of preferred stock is
convertible at the option of the holders into 3.11 shares of common stock of the
Company. Net proceeds from the private placement approximated $19,000,000. The
Company is restricted from declaring dividends or distributions on its common
stock without the approval of the holders of at least 66.67% of the outstanding
Series B shares as long as there is in excess of 1,100,000 Series B shares
outstanding.
In February 2000, the Company gave notice to its Series B convertible preferred
stockholders of its intention to convert all outstanding shares of Series B
preferred stock into common stock. Pursuant to the notice, all of the Series B
shares were converted into 4,766,000 shares of common stock effective March 14,
2000.
The placement agent for the offering received approximately $2,860,000 in cash
plus warrants which pursuant to the merger give the holders thereof the right to
acquire 220,026 shares of Series B preferred stock (which as a result of the
conversion of the Series B preferred stock are convertible into 685,000 shares
of common stock) at a price of $11 per share, through November 8, 2006 and to
acquire 85,625 shares of common stock at a price of $0.64 per share, through
November 8, 2006. The warrants contain certain anti-dilution provisions and may
be exercised on a "net exercise" basis pursuant to a provision that does not
require the payment of any cash to the Company.
1999 private placements:
During March and April 1999 the Company raised $1.0 million in a private
placement offering of 826,447 shares of common stock and 569,026 Class C
warrants to purchase common stock at an exercise price of $2.15 per share (after
adjustment to the issue price in accordance with the terms of the offering). The
Class C warrants are exercisable through April 2006.
F-14
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
1999 private placements: (continued)
In July 1999, the Company raised approximately $2,233,000 (net of offering costs
of approximately $217,000) in a private placement offering of units. Each unit
was sold for $500,000 and consisted of 413,223 shares of common stock and
413,223 Class D warrants to purchase shares of common stock at an exercise price
of $1.33 per share. An aggregate of 2,024,792 shares of common stock and
2,024,792 Class D warrants were issued. The placement agent, Paramount Capital,
Inc., received fees at 7% of the gross proceeds, reimbursement of certain
expenses and an option to purchase 0.49 share of a unit at an exercise price of
$270,000. The Class D warrants are exercisable through August 2005.
Unit offering:
In August 1995, Ansan issued an aggregate of 498,333 units (including 65,000
units pursuant to the underwriter's overallotment option) at $15.00 per unit in
an initial public offering (the "Offering"). Each unit consisted of one share of
common stock, one redeemable Class A warrant, and one Class B warrant. Each
Class A warrant entitles the holder to purchase one share of common stock and
one Class B warrant at an exercise price of $19.50 per share. Each Class B
warrant entitles the holder to purchase one share of common stock an exercise
price of $26.25 per share.
In connection with the Offering, the holders of the Ansan's common stock and
options to purchase common stock placed, on a pro rata basis, 121,246 shares
(including 115,491 shares held by the Company pending cancellation pursuant to
the Ansan Merger (Note A)) and options to purchase 12,086 shares of common stock
into escrow (the "Escrow Shares" and "Escrow Options", respectively). The Escrow
Shares and Escrow Options are not transferable or assignable; however, the
Escrow Shares may be voted. Holders of Escrow Options may exercise their options
prior to their release from escrow; however, the shares issuable upon any such
exercise will continue to be held in escrow. The Escrow Shares and Escrow
Options will be released from escrow if, and only if, certain earnings or market
price criteria have been met. If the conditions are not met by March 31, 2000,
the Escrow Shares and Escrow Options will be cancelled and contributed to the
Company's capital.
The release of Escrow Shares and Escrow Options held by employees, officers,
directors, consultants and their relatives will be deemed compensatory.
Accordingly, the Company will recognize as compensation expense, during the
period in which the earnings or market price targets are met, a one-time charge
to reflect the then fair market value of the shares released from escrow. Such
charges could substantially reduce the Company's net income or increase the net
loss. The amount of compensation expense recognized by the Company will not
affect the total stockholders' equity.
Common shares reserved for issuance:
As of December 31, 1999, the Company has reserved shares of common stock for
issuance upon conversion of preferred stock and exercise of options as follows:
(i) Series B preferred stock 4,766,000
(ii) Series C preferred stock 892,000
(iii) Stock option plan 2,459,000
(iv) Placement agent warrants:
Conversion of preferred stock 685,000
Common stock 76,000
Option 405,000
(v) Class A warrants 736,000
(vi) Class B warrants 1,234,000
(vii) Class C warrants 569,000
(viii) Class D warrants 2,025,000
(ix) Underwriter's option 173,000
F-15
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
Treasury stock/common stock issued for services:
During 1998, the Company's Board of Directors approved a stock repurchase
program wherein the Company would buy its own shares from the open market and
use such shares to settle indebtedness. Such shares are accounted for as
treasury stock.
During 1999 and 1998, the Company acquired 2,000 and 31,750 shares of common
stock for approximately $5,000 and $90,000, respectively. In 1998, the Company
issued 16,150 of such shares (market value on date of issue $51,000) in
settlement of $51,000 of services rendered and in 1999 issued 15,600 shares of
treasury stock in settlement of $39,000 of indebtedness. The fair market value
of the 15,600 shares of treasury stock on the date it was issued in 1999 was
approximately $53,000 and the difference was charged to expense and credited to
paid-in-capital.
Series C preferred stock:
The Company's Series C redeemable convertible preferred stock is convertible at
the option of the holder into common stock at a conversion price equal to the
market price of the common stock, as defined. Such shares are redeemable at
liquidation value upon the occurrence of certain events. The liquidation value
is payable at the option of the Company in either cash or shares of common
stock. Series C stockholders are entitled to dividends of 10% per annum to be
paid only upon liquidation or redemption.
On March 3, 2000, J&J elected to convert their Series C preferred stock shares
into 398,186 shares of common stock.
NOTE H - STOCK OPTIONS
Ansan's 1993 Stock Option Plan which was amended and restated (the "1993 Plan"),
provided that incentive stock options may be granted to employees, and
nonstatutory stock options may be granted to employees, directors, consultants
and affiliates. In May 1995, Ansan adopted the 1995 Stock Option Plan (the "1995
Plan"). No further options will be granted under the 1993 Plan or 1995 Plan.
Options granted under the 1993 Plan and 1995 Plan expire no later than ten years
from the date of grant, except when the grantee is a 10% stockholder of the
Company or an affiliate company, in which case the maximum term is five years
from the date of grant. The exercise price shall be at least 100%, 85% and 110%
of the fair value of the stock subject to the option on the grant date, as
determined by the Board of Directors, for incentive stock options, nonstatutory
stock options and options granted to 10% stockholders of the Company or
affiliate company, respectively. Options granted under the 1993 Plan are
exercisable immediately upon grant, however, the shares issuable upon exercise
of the options are subject to repurchase by the Company. Such repurchase rights
lapse as the shares vest over a period of five years from the date of grant.
On consummation of the Ansan Merger, the Company assumed Old Discovery's
outstanding options which were exchanged at the Ansan Exchange Ratio for options
to purchase the Company's common stock (Note A).
In March 1998, the Company adopted its 1998 Stock Incentive Plan which includes
three equity programs (the "1998 Plan"). Under the Discretionary Option Grant
Program, options to acquire shares of the Company's common stock may be granted
to eligible persons who are employees, nonemployee directors, consultants and
other independent advisors. Pursuant to the Stock Issuance Program, such
eligible persons may be issued shares of the Company's common stock directly,
and under the Automatic Option Grant Program, eligible directors will
automatically receive option grants at periodic intervals at an exercise price
equal to 60% of fair market value per share on the date of the grant. The
maximum number of shares of common stock initially reserved for issuance over
the term of the plan shall not exceed 2,200,959.
F-16
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE H - STOCK OPTIONS (CONTINUED)
The pro forma effects of applying SFAS No. 123 and the stock options activity
shown below are those of the 1998 Plan, Old Discovery's 1996 Stock Option/Stock
Issuance Plan through the date of the Ansan Merger and the 1993 Plan and 1995
Plan after the Ansan Merger as the Ansan Merger was accounted for as a reverse
acquisition.
The Company applies APB 25 in accounting for stock options and, accordingly,
recognizes compensation expense for the difference between the fair value of the
underlying common stock and the exercise price of the option at the date of
grant. The effect of applying SFAS No. 123 on pro forma net loss is not
necessarily representative of the effects on reported net income or loss for
future years due to, among other things, (i) the vesting period of the stock
options and (ii) the fair value of additional stock options in future years. Had
compensation cost for the Company's stock option plans been determined based
upon the fair value of the options at the grant date of awards under the plans
consistent with the methodology prescribed under SFAS No. 123, the Company's net
loss for each of the years ended December 31, 1999 and 1998 would have been
approximately $5,622,000 or $0.74 per share and $16,371,000 or $4.20 per share,
respectively. The weighted average fair value of the options granted are
estimated at $2.46 and $2.63 per share, respectively, for the years ended
December 31, 1999 and 1998, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: dividend
yield 0%, volatility of 91% and 40%, risk-free interest rate of 4.86% for 1999
and 5.53% for 1998, and expected life of ten years.
Additional information with respect to the stock option activity is summarized
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1999 1998
---------------------------------------------- ---------------------------------------------------
Weighted Weighted
Weighted Average Weighted Average
Price Average Remaining Price Average Remaining
Per Exercise Contractual Per Exercise Contractual
Share Shares Price Life Share Shares Price Life
------------- ----------- ---------- ------------- -------------- --------- ----------- ------------
Options outstanding at
<S> <C> <C> <C> <C> <C> <C> <C>
beginning of year $0.0026 - 1,886,062 $2.23 8.73 years $0.18 - $4.50 371,993 $1.67
$4.87
Options granted 0.81 - 4.44 1,108,893 2.18 0.19 - 4.87 1,027,400 4.18
Options exercised 0.0026 - 0.51 (119,768) 0.11 0.0026 - 2.66 (131,676) 0.23
Options forfeited 0.08 - 4.44 (297,888) 3.56
Options expired 4.19 (118,459) 4.19
ATI options
assumed 0.0026 - 0.32 618,345 0.43
---------- ----------
Options outstanding
at end of year $0.0026 - 2,458,840 2.42 8.50 years $0.0026 - $4.87 1,886,062 2.23 8.73 years
========== ==========
$4.87
Options exercisable
at end of year $0.0026- 1,235,604 2.27 7.93 years $0.0026 - $4.87 1,512,062 2.28 8.76 years
========== ==========
$4.87
</TABLE>
Included in the options outstanding at December 31, 1999 are options to purchase
912,893 shares of the Company's common stock (at exercise prices ranging from
$1.38 to $4.44) granted during 1998 and 1999 which vest upon the Company
achieving specified milestones. Through December 31, 1999, the milestones were
not reached and the options remain unvested. On vesting, the Company will incur
a charge amounting to the excess, if any, of the market price over the exercise
price.
NOTE I - COMMITMENTS
[1] At December 31, 1999, the Company had employment agreements with six
officers providing for an aggregate annual salary of $853,000. The
agreements expire on various dates through June 2002 and provide for the
issuance of annual and milestone bonuses and the granting of options on
the Company's attaining certain milestones.
F-17
<PAGE>
DISCOVERY LABORATORIES, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE I - COMMITMENTS (CONTINUED)
[2] In July 1998, the Company entered into a seven year lease agreement to
lease office and laboratory space in premises owned by a Company
officer/stockholder. Future minimum annual rents for this lease is as
follows:
2000 $ 148,000
2001 151,000
2002 157,000
2003 162,000
2004 167,000
2005 114,000
-----------
$ 899,000
=========
The Company also leases additional office space pursuant to a three year
lease entered into in May 1997. Such office space is currently being
subleased at substantially the same terms and for the remaining period of
the Company's commitment.
In September 1999, the Company entered into a four year lease agreement
to lease laboratory equipment. Future minimum lease payments for this
lease are as follows:
2000 $ 20,000
2001 20,000
2002 20,000
2003 12,000
-----------
72,000
Less interest included 9,000
-----------
$ 63,000
========
Total net rent expense for the years ended December 31, 1999 and 1998 was
approximately $144,000 and $175,000, respectively.
F-18
Exhibit 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 07/21/1999
991300911 - 2315242
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
DISCOVERY LABORATORIES, INC.
Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware
Discovery Laboratories, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY, that the Restated Certificate of Incorporation of the Corporation filed
with the Secretary of State of the State of Delaware is hereby amended as
follows:
1. The name of the Corporation is Discovery Laboratories, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed under the name Ansan, Inc. with the Secretary of State of the State of
Delaware on November 6, 1992.
3. Paragraph A. of Article FOURTH of the Restated Certificate of
Incorporation is hereby amended in its entirety to read as follows:
A. Authorization.
-------------
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 40,000,000 consisting of
35,000,000 shares of common stock, par value $.001 per share (the
"Preferred Stock").
The Board of Directors may divide the Preferred Stock into any
number of series, fix the designation and number of shares of each such
935284.1
<PAGE>
series, and determine or change the designation, relative rights,
preferences, and limitations of any series of Preferred Stock. The
board of Directors (within the limits and restrictions of any
resolutions adopted by it originally fixing the number of any shares of
any series of Preferred Stock) may increase or decrease the number of
shares initially fixed for any series, but no such decrease shall
reduce the number below the number of shares then outstanding and
shares duly reserved for issuance.
4. The foregoing amendment was duly adopted in accordance with Section
228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Discovery Laboratories, Inc. has caused this
Certificate of Amendment to be signed this 15th day of July, 1999.
DISCOVERY LABORATORIES, INC.
By:/s/ Robert J. Capetola, Ph.D.
---------------------------------
Name: Robert J. Capetola, Ph.D.
Title: Chief Executive Officer
935284.1
EXHIBIT 3.5
STATE OF DELAWARE
CERTIFICATE OF OWNERSHIP
SUBSIDIARY INTO PARENT
Section 253
CERTIFICATE OF OWNERSHIP
MERGING
ATI ACQUISITION CORP.
INTO
DISCOVERY LABORATORIES, INC.
Pursuant to Section 253 of the General Corporation Law
of the State of Delaware
Discovery Laboratories, Inc., a corporation originally incorporated
under the name of Ansan, Inc. on the 6th day of November, 1992 and subsequently
changed to Discovery Laboratories, Inc. on the 25th day of November, 1997 (the
"Corporation"), pursuant to the provisions of the General Corporation Law of the
State of Delaware:
DOES HEREBY CERTIFY that the Corporation owns 100% of the outstanding
shares of each class of stock of ATI Acquisition Corp., a corporation originally
incorporated under the name of Acute Therapeutics, Inc. on the 11th day of
September, 1996, and amended its name to ATI Acquisition Corp. on the 16th day
of June, 1998, pursuant to the provisions of the General Corporation Law of the
State of Delaware ("ATI") and that the Corporation, by a resolution of its Board
of Directors duly adopted at a meeting held on the 16th day of February, 1999,
determined to and did merge ATI into itself, which resolution is as follows:
WHEREAS the Corporation lawfully owns 100% of the outstanding shares of
each class of stock of ATI, a corporation organized and existing under the laws
of the State of Delaware; and
WHEREAS in the judgment of this Board of Directors it is desirable for
business reasons to merge ATI into the Corporation and to be possessed of all
the estate, property, rights, and privileges of ATI;
NOW THEREFORE, upon motion duly made, seconded and carried, it was
unanimously
<PAGE>
RESOLVED, that such merger be effected by transferring all the assets
and related liabilities of ATI into the Corporation; and
FURTHER RESOLVED, that an authorized officer of the Corporation be and
is hereby directed to make and execute a certificate of ownership setting forth
a copy of resolution to so merge and assume ATI's liabilities and obligations,
the date of adoption thereof, and to file the same in the office of the
Secretary of the State of Delaware; and
FURTHER RESOLVED, that the officers of the Corporation be, and they
hereby are, authorized, empowered, and directed to do and perform all such
further acts and things, to execute and deliver in the name of the Corporation,
and where necessary or appropriate, to file with the appropriate governmental
authorities, all such further certificates, instruments, or other documents, as
in their judgment shall be necessary or advisable in order to effectuate such
merger, the intent and purposes of the foregoing resolutions, and any or all of
the transactions contemplated therein.
IN WITNESS WHEREOF, Discovery Laboratories, Inc., for the purpose of
merging ATI into Discovery Laboratories, Inc. under the laws of the State of
Delaware, has caused this Certificate of Ownership to be executed in its
corporate name this ___ day of October, A.D. 1999.
By: /s/Robert J. Capetola
-----------------------
Authorized Officer
Name: Robert J. Capetola
Title:
---------------------
Exhibit 4.4
[FORM]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NEITHER SUCH SECURITIES NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR THE SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAW.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT.
DISCOVERY LABORATORIES, INC.
Unit Purchase Option for the Purchase of Units Consisting of
Shares of Common Stock and Warrants
No.___ _____ Option Units
FOR VALUE RECEIVED, Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), hereby certifies that ______________ , or his/her
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on December 28, 1999 and prior to 5:00 P.M., New York City time,
on December 28, 2004, up to _____ Units, each Unit consisting of (a) one share
of Common Stock of the Company, par value $.001 per share, (the "Common Stock"),
and (b) one warrant (the "Class D Warrants") exercisable at any time prior to
July 27, 2004, for the purchase of one share of Common Stock at a per share
exercise price of $1.33, for an aggregate Unit purchase price of $___________
(computed on the basis of $1.331 per Unit). (Hereinafter, (i) said Units are
referred to as the "Units", (ii) said Class D Warrants are referred to as the
"Warrants", (iii) the Common Stock included in the Units and purchasable upon
exercise of the Warrants, is referred to as the "Common Stock", (iv) the shares
of the Common Stock purchasable hereunder or under any other Option (as
hereinafter defined) (or the shares of any capital stock purchasable hereunder
or under any other Option in lieu of Common Stock) are referred to as the
"Common Shares", (v) the shares of Common Stock purchasable upon exercise of the
Warrants hereunder or under any other Option are referred to as the "Warrant
Shares", (vi) the aggregate purchase price payable for the Units hereunder is
referred to as the "Aggregate Option Price", (vii) the price payable (initially
$1.331 per Unit, subject to adjustment) for each of the Units, hereunder is
referred to as the "Per Unit Price", (viii) this Option, all similar Options
issued on the date hereof and all warrants hereafter
935424.1
<PAGE>
issued in exchange or substitution for this Option or such similar Options are
referred to as the "Options" and (ix) the holder of this Option is referred to
as the "Holder" and the holder of this Option and all other Options are referred
to as the "Holders" and Holders of more than fifty percent (50%) of the
outstanding Options are referred to as the "Majority of the Holders." The
Aggregate Option Price is not subject to adjustment. The Per Unit Price is
subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Common Shares or Warrant Shares, as the case may be,
deliverable upon exercise of this Option shall be adjusted in accordance with
paragraph 3(i) below.
This Option, together with options of like tenor, constituting in the
aggregate Options to purchase _____ Units, was originally issued pursuant to a
placement agency agreement between the Company and Paramount Capital, Inc., as
placement agent (the "Placement Agent") in connection with a private placement
(the "Offering") of 4.9 Units (the "Offering Units"), each Offering Unit
consisting of Common Stock and Class D Warrants for which the Placement Agent
acted as Placement Agent.
1. Exercise of Option.
------------------
(a) This Option may be exercised, in whole at any time or in part from
time to time, commencing on December 28, 1999 and prior to 5:00 P.M., New York
City time, on December 28, 2004 by the Holder:
(i) by the surrender of this Option (with the subscription form at the
end hereof duly executed) at the address set forth in Subsection 9(a)
hereof, together with proper payment of the Aggregate Option Price, or the
proportionate part thereof if this Option is exercised in part, with
payment for the number of Units made by certified or official bank check
payable to the order of the Company; or
(ii) by the surrender of this Option (with the cashless exercise form
at the end hereof duly executed) (a "Cashless Exercise") at the address set
forth in Subsection 9(a) hereof. The exchange of the Option shall take
place on the date specified in the Cashless Exercise Form or, if later, the
date the Cashless Exercise Form is surrendered to the Company (the
"Exchange Date"). Such presentation and surrender shall be deemed a waiver
of the Holder's obligation to pay the Aggregate Option Price, or the
proportionate part thereof if this Option is exercised in part. In the
event of a Cashless Exercise this Option shall represent the right to
subscribe for and acquire the number of Units (rounded to the next highest
integer) equal to (x) the number of Units specified by the Holder in
his/her Cashless Exercise Form (the "Total Number") (such number not to
exceed the maximum number of Units subject to this Option, as may be
adjusted from time to time) less (y) the number of Units equal to the
quotient obtained by dividing (A) the product of the Total Number and the
existing Per Unit Price by (B) the Market Price Per Unit. "Market Price Per
Unit" shall mean first, if there is a trading market as indicated in
Subsection (A) below for the Units, such Market Price Per Unit and if there
is no such trading market in the Units, then Market Price Per Unit shall
equal the sum of the aggregate Market Price of all shares of Common
935424.1
<PAGE>
Stock (on per share basis, the "Market Price Per Share of Common Stock")
and Warrants (on a per warrant basis, the "Market Price Per Warrant") which
comprise a Unit, with the meanings indicated in Subsections (B) through (F)
below:
(A) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq National Market or the Nasdaq
Smallcap Market, the Market Price Per Unit shall be the average of the
last reported sale prices (or if no last sale, the last quoted ask
price) of the Units on such exchange or market for the five trading
days immediately preceding the Exchange Date; or
(B) If the Common Stock or Warrants, as the case may be, are
listed on a national securities exchange or admitted to unlisted
trading privileges on such exchange or listed for trading on the
Nasdaq National Market or the Nasdaq Smallcap Market, the Market Price
Per Share of Common Stock, or Market Price Per Warrant, respectively,
shall be the average of the last reported sale prices (or if no last
sale, the last quoted ask price) of the Common Stock or Warrants,
respectively, on such exchange or market for the five trading days
immediately preceding the Exchange Date; or
(C) If the Common Stock or Warrants, as the case may be, are not
so listed or admitted to unlisted trading privileges, the Market Price
Per Share of Common Stock, or Market Price Per Warrant, respectively,
shall be the last reported sale price (or if no last sale, the last
quoted ask price) of the Common Stock or Warrants in the
over-the-counter market as reported by the National Quotation Bureau
or similar organization or in the Pink Sheets for the trading day
immediately preceding the Exchange Date; or
(D) If the Common Stock is not so listed or admitted to unlisted
trading privileges and the sale price is (or if no last sale, the last
quoted ask price) not so reported, the Market Price Per Share of
Common Stock shall be the fair market value as determined by agreement
between the Board of Directors of the Company and a Majority of the
Holders; or
(E) If neither clause (B) nor (C) applies to the Warrants, then
the Market Price Per Warrant shall be an amount equal to the
difference between (i) the Market Price Per Share of Common Stock
which may be received upon the exercise of the Warrants, as determined
in paragraphs (B), (C) and (D) above, and (ii) the per share exercise
price of the Warrants then in effect.
(F) If the Company and the Majority of the Holders are unable to
reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent
investment bank selected by the Board of Directors of the Company and
the Majority of the Holders (or, if such
935424.1
<PAGE>
selection cannot be agreed upon promptly, or in any event within ten
days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American
Arbitration Association in New York City in accordance with its
rules), the costs of which valuation shall be paid for by the Company.
(b) If this Option is exercised in part, the Holder is entitled to
receive a new Option covering the Units, which have not been exercised and
setting forth the proportionate part of the Aggregate Option Price
applicable to such Units. Upon surrender of this Option, the Company will
(i) issue a certificate or certificates in the name of the Holder for the
largest number of whole shares of the Common Stock and Warrants to which
the Holder shall be entitled and, if this Option is exercised in whole, in
lieu of any fractional shares of the Common Stock or Warrants to which the
Holder shall be entitled, pay to the Holder cash in an amount equal to the
fair value of such fractional shares (determined in such reasonable manner
as the Board of Directors of the Company shall determine), and (ii) deliver
the other securities and properties receivable upon the exercise of this
Option, or the proportionate part thereof if this Option is exercised in
part, pursuant to the provisions of this Option.
(c) This Option shall be exercisable only for Units consisting of
Warrants and Common Shares at the then applicable Per Unit Price (including
any adjustment pursuant to Section 3 below).
(d) Notwithstanding anything to the contrary contained in the
Warrants, the following provisions shall apply in connection with the
exercise of the Warrants issuable upon exercise of this Option by the
Holder:
(i) if all outstanding Warrants are redeemed by the Company
pursuant to Section 7 thereof or have been exercised prior to the
exercise of this Option, the Holder shall be entitled to receive the
Common Stock otherwise issuable upon exercise of the Warrants
underlying this option (or the portion of this Option exercised) by
giving written notice of exercise of such Warrants simultaneously with
exercise of this Option, which notice shall specify whether the
Warrants are being such exercised for a cash payment or by cashless
exercise and the number shares of Common Stock as to which such
Warrants are being exercised, and if the exercise is for cash, shall
be accompanied by the payment required on exercise of such Warrants.
If all of the outstanding Warrants have been redeemed pursuant to
Section 7 thereof or have been exercised prior to the exercise of this
Option and the Holder does not exercise the Warrants issuable upon
exercise hereof simultaneously with exercise of this Option, then the
Holder on exercise of this Option shall only receive the number of
shares of the Common Stock included in the Units issuable on exercise
of this Option (or the portion of this Option exercised) and shall not
be issued any Warrants.
935424.1
<PAGE>
(ii) Notwithstanding anything to the contrary contained in the
Warrants, the Holder may exercise the Warrants by cashless exercise by
using the same formula as set forth for exercise of this Option by
cashless exercise in Section 1(a)(ii) of this Option (except that, for
this purpose, any reference to the Warrants or the Market Price Per
Warrant in Section 1(a)(ii) shall be inapplicable).
2. Reservation of Warrant Shares and Common Shares; Listing. The
Company agrees that, prior to the expiration of this Option, the Company will at
all times (a) have authorized and in reserve, and will keep available, solely
for issuance and delivery upon the exercise of this Option, the Units, the
Warrants and the Common Shares underlying such Units and other securities and
properties as from time to time shall be receivable upon the exercise of this
Option, free and clear of all restrictions on sale or transfer, other than under
Federal or state securities laws, and free and clear of all preemptive rights
and rights of first refusal and (b) have authorized and in reserve, and will
keep available, solely for issuance or delivery upon exercise of the Warrants,
the shares of Common Stock, the Warrant Shares and the Common Shares and other
securities and properties as from time to time shall be receivable upon such
exercise, free and clear of all restrictions on sale or transfer, other than
under Federal or state securities laws, and free and clear of all preemptive
rights and rights of first refusal; and (c) if the Company is listed or
hereafter lists its Common Stock on any national securities exchange, the Nasdaq
National Market or the Nasdaq Smallcap Market, use its best efforts to keep the
Common Shares authorized for listing on such exchange upon notice of issuance.
3. Protection Against Dilution.
---------------------------
(a) The anti-dilution provisions of the Warrants shall protect the
Holder from dilution of the purchase rights represented by the Warrants (it
being understood for this purpose that the Holder shall be deemed to own the
Warrants commencing on December 28, 1999); provided, however, that
notwithstanding anything to the contrary contained in the Warrants, if all of
the Warrants have been redeemed or exercised prior to exercise of this Option,
the Holder shall not be entitled to any adjustment in the Per Share Warrant
Price pursuant to Section 3(c) of the Warrants as a result of any issuances
subsequent to the date of the redemption of the Warrants pursuant to Section 7
of the Warrants. In addition, the following anti-dilution provisions shall
protect the Holder from dilution resulting from the issuance of Common Stock and
other securities:
(i) If the Company shall issue or distribute to the holders of
shares of Common Stock evidence of its indebtedness, any other
securities of the Company or any cash, property or other assets
(excluding a subdivision, combination or reclassification, or dividend
or distribution payable in shares of Common Stock, referred to in
Subsection 3(a)(ii), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the
full amount thereof (any such non-excluded event being herein called a
"Common Stock Special Dividend")), the Per Unit Price shall be adjusted
by multiplying the Per Unit Price then in effect by a fraction, (A) the
numerator of which shall be (x) the then current
935424.1
<PAGE>
Market Price Per Share of Common Stock in effect on the record date of
such issuance or distribution less (y) the fair market value (as
determined in good faith by the Company's Board of Directors) of the
evidence of indebtedness, cash, securities or property, or other assets
issued or distributed in such Common Stock Special Dividend applicable
to one share of Common Stock and (B) the denominator of which shall be
the then current Market Price Per Share of Common Stock in effect on
the record date of such issuance or distribution. An adjustment made
pursuant to this Subsection 3(a)(i) shall become effective immediately
after the record date of any such Common Stock Special Dividend.
(ii) If the Company shall (A) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater number
of shares, (C) combine its outstanding shares of Common Stock into a
smaller number of shares or (D) issue by reclassification of its Common
Stock any shares of capital stock of the Company, the Per Unit Price
shall be adjusted by multiplying the Per Unit Price by a fraction, the
numerator of which shall be the number of Common Shares which this
Option was exercisable for prior to such action and the denominator of
which shall be the number of Common Shares which a Holder would have
owned immediately following such action had such Option been exercised
immediately prior to the record or effective date therefor. An
adjustment made pursuant to this Subsection 3(a)(ii) shall become
effective immediately after the record date in the case of a dividend
or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification.
(b) No adjustment in the Per Unit Price shall be required unless such
adjustment would require an increase or decrease of at least $0.05 per Unit;
provided, however, that any adjustments which by reason of this Section 3(b) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment; provided, further, however, that adjustments shall be
required and made in accordance with the provisions of this Section 3 (other
than this Subsection 3(b)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the Holder of this Option.
All calculations under this Section 3 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be. Anything in this Section 3
to the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Per Unit Price, in addition to those required by this Section
3, as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its stockholders shall not be taxable.
(c) Whenever the Per Unit Price is adjusted as provided in this Section
3 and upon any modification of the rights of a Holder of Options in accordance
with this Section 3, the Company shall promptly prepare a brief statement of the
facts requiring such adjustment or modification and the manner of computing the
same and cause copies of such certificate to be mailed to the Holders of the
Options. The Company may, but shall not be obligated to unless requested by the
Holders of
935424.1
<PAGE>
more than fifty percent (50%) of the outstanding Options, obtain, at its
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) setting forth the Per Unit Price and the number of Warrants,
Warrant Shares or Common Shares, as the case may be, after such adjustment or
the effect of such modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause copies
of such certificate to be mailed to the Holders of the Options.
(d) If the Board of Directors of the Company shall declare any dividend
or other distribution with respect to the Common Stock other than a cash
distribution out of earned surplus, the Company shall mail notice thereof to the
Holders of the Options not less than 10 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend or other
distribution.
(e) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as a entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Option shall have the right thereafter to receive on the exercise of
this Option the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Option been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Option to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Option. The above
provisions of this Subsection 3(e) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter deliverable on the
exercise of this Option to be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Options not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(f) If, as a result of an adjustment made pursuant to this Section 3,
the Holder of any Option thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
935424.1
<PAGE>
notice to the Holder of any Option promptly after such adjustment) shall
determine the allocation of the adjusted Per Unit Price between or among shares
or such classes of capital stock or shares of Common Stock and other capital
stock.
(g) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the number of Units
purchasable upon exercise of this Option, to the extent this Option has not then
been exercised, shall, upon such expiration, be readjusted and shall thereafter
be such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) on the basis of (i)
the fact that Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion privileges, and (ii) the fact that
such shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion privileges whether or not
exercised; provided, however, that no such readjustment shall have the effect of
decreasing the number of Units purchasable upon exercise of this Option by an
amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion
privileges.
(h) Whenever the Per Unit Price payable upon exercise of each Option is
adjusted pursuant to this Section 3, (i) the number of shares of Common Stock
included in a Unit shall simultaneously be adjusted by multiplying the number of
shares of Common Stock included in a Unit immediately prior to such adjustment
by the Per Unit Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Per Unit Price, as adjusted and (ii) the
number of shares of Common Stock or other securities issuable upon exercise of
the Warrants included in the Units and the exercise price payable for each of
the Warrant Shares (initially $0.50 per Warrant Share, subject to adjustment)
pursuant to the Warrant terms shall be adjusted in accordance with the terms of
the Warrant Agreement applicable to holders of such Warrants.
(i) In case any event shall occur as to which the other provisions of
this Section 3 are not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Option in accordance with the essential intent and principles hereof then, in
each such case, the Board of Directors of the Company shall in good faith
determine the adjustment, if any, on a basis consistent with the essential
intent and principles established herein, necessary to preserve the purchase
rights represented by the Options. Upon such determination, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of
theCommon Stock represented by each and every certificate for Common Shares
delivered on the exercise of this Option and the shares of Common Stock
delivered upon the exercise of the Warrants, shall at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Unit Price. The Company further
935424.1
<PAGE>
covenants and agrees that it will pay, when due and payable, any and all Federal
and state stamp, original issue or similar taxes which may be payable in respect
of the issue of any Warrant Share, Common Share or any certificate thereof to
the extent required because of the issuance by the Company of such security.
5. Registration Under Securities Act of 1933.
-----------------------------------------
(a) The Holder shall, with respect to the Common Shares only, have the
right to participate in the registration rights granted to holders of
Registrable Securities pursuant to Section 5 of the subscription agreements (the
"Subscription Agreements") between such holders and the Company that were
entered into at the time of the initial sale of the Units. By acceptance of this
Option, the Holder agrees to comply with the provisions in Section 5 of the
Subscription Agreement to same extent as if he/she were a party thereto.
(b) Until all Common Shares and Warrant Shares have been sold under a
Registration Statement or pursuant to Rule 144 under the Act, the Company shall
use its reasonable best efforts to file with the Securities and Exchange
Commission all current reports and the information as may be necessary to enable
the Holder to effect sales of his/her shares in reliance upon Rule 144
promulgated under the Act.
6. Investment Intent; Limited Transferability.
(a) The Holder represents, by accepting this Option, that he/she
understands that this Option and any securities obtainable upon exercise of this
Option have not been registered for sale under Federal or state securities laws
and are being offered and sold to the Holder pursuant to one or more exemptions
from the registration requirements of such securities laws. In the absence of an
effective registration of such securities or an exemption therefrom, any
certificates for such securities shall bear the legend set forth on the first
page hereof. The Holder understands that he/she must bear the economic risk of
his/her investment in this Option and any securities obtainable upon exercise of
this Option for an indefinite period of time, as this Option and such securities
have not been registered under Federal or state securities laws and therefore
cannot be sold unless subsequently registered under such laws, unless an
exemption from such registration is available.
(b) The Holder, by his acceptance of his/her Option, represents to the
Company that he/she is acquiring this Option and will acquire any securities
obtainable upon exercise of this Option for his/her own account for investment
and not with a view to, or for sale in connection with, any distribution thereof
in violation of the Act. The Holder agrees that this Option and any such
securities will not be sold or otherwise transferred unless (i) a registration
statement with respect to such transfer is effective under the Act and any
applicable state securities laws or (ii) such sale or transfer is made pursuant
to one or more exemptions from the Act.
(c) This Option may not be sold, transferred, assigned or hypothecated
for six months from the date hereof except (i) to any firm or corporation that
succeeds to all or substantially all of the business of Paramount Capital, Inc.,
(ii) to any of the officers, employees, associates or affiliated
935424.1
<PAGE>
companies of Paramount Capital, Inc., or of any such successor firm, (iii) to
any NASD member participating in the Offering or any officer or employee of any
such NASD member or (iv) in the case of an individual, pursuant to such
individual's last will and testament or the laws of descent and distribution,
and is so transferable only upon the books of the Company which it shall cause
to be maintained for such purpose. The Company may treat the registered Holder
of this Option as he/she appears on the Company's books at any time as the
Holder for all purposes. The Company shall permit any Holder of an Option or
his/her duly authorized attorney, upon written request during ordinary business
hours, to inspect and copy or make extracts from its books showing the
registered holders of Options. All Options issued upon the transfer or
assignment of this Option will be dated the same date as this Option, and all
rights of the holder thereof shall be identical to those of the Holder.
7. Loss, etc., of Option. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Option, if mutilated, the Company
shall execute and deliver to the Holder a new Option of like date, tenor and
denomination.
8. Option Holder Not Stockholder. This Option does not confer upon the
Holder any right to vote or to consent to or receive notice as a stockholder of
the Company, as such, in respect of any matters whatsoever, or any other rights
or liabilities as a stockholder, prior to the exercise hereof; this Option does,
however, confer certain rights and require certain notices to Holders as set
forth herein.
9. Communication. No notice or other communication under this Option
shall be effective unless, but any notice or other communication shall be
effective and shall be deemed to have been given if, the same is in writing and
is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at Discovery Laboratories, Inc., 3359 Durham Road,
Doylestown, Pennsylvania, 18901, Attn: Vice President, Finance or such
other address as the Company has designated in writing to the Holder, or
(b) the Holder at c/o Paramount Capital, Inc., 787 Seventh Avenue, New
York, NY 10019 or other such address as the Holder has designated in
writing to the Company.
10. Headings. The headings of this Option have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Option shall be governed by and construed
inaccordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
935424.1
<PAGE>
12. Amendment, Waiver, etc. Except as expressly provided herein,
neither this Option nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that any provisions hereof may be amended, waived, discharged
or terminated upon the written consent of the Company and the then current
Majority of the Holders of the Options only.
935424.1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its Vice President, Finance and attested by its Secretary this ___ day of
February, 2000.
DISCOVERY LABORATORIES, INC.
By:
Name: Robert J. Capetola
Title: President and Chief Executive Officer
ATTEST:
Secretary
935424.1
<PAGE>
SUBSCRIPTION
------------
The undersigned, __________________________, pursuant to the provisions
of the foregoing Option, hereby agrees to subscribe for and purchase
________________ Units of Discovery Laboratories, Inc., each Unit consisting of
Common Stock, $.001 par value, and Class D Warrants to purchase ___________
share(s) of Common Stock, covered by said Option, and makes payment therefor in
full at the price per share provided by said Option. The undersigned hereby
confirms the representations and warranties made by him/her in the Option.
Dated:_______________ Signature:
Address:
CASHLESS EXERCISE
-----------------
The undersigned _______________________, pursuant to the provisions of
the foregoing Option, hereby elects to exchange his/her Option for __________
Units, each Unit consisting of Common Stock, $.001 par value, and Class D
Warrants to purchase __________ share(s) of Common Stock, pursuant to the
cashless exercise provisions of the Option. The undersigned hereby confirms the
representations and warranties made by him/her in the Option.
Dated:_______________ Signature:
Address:
ASSIGNMENT
----------
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto ____________________________ the foregoing Option and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Option on the books of
Discovery Laboratories, Inc.
Dated:_______________ Signature:
Address:
935424.1
<PAGE>
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED ___________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ________ Units
of Discovery Laboratories, Inc., each Unit consisting of Common Stock, $.001 par
value, and Class D Warrants to purchase ______________ share(s) of Common Stock,
covered by the foregoing Option, and a proportionate part of said Option and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Option on the
books of Discovery Laboratories, Inc.
Dated:_________________ Signature:
Address:
935424.1
<PAGE>
Exhibit 10.10
Certain portions have been omitted pursuant to a request for confidentiality and
such omitted portions have been separately filed with the Commission.
[DISCOVERY LABORATORIES, INC. LETTERHEAD]
March 7, 2000 VIA FEDEX
---------
Charlotte-Mecklenburg Hospital Authority
P.O. Box 32861
Charlotte, North Carolina 28232-2861
Attention: Dr. James G. Martin
Cannon Research Center
1542 Garden Terrace Drive
Charlotte, North Carolina 28203
Dear Dr. Martin:
Reference is herein made to the License Agreement dated as of March 20,
1996 by and between The Charlotte-Mecklenburg Hospital Authority and Discovery
Laboratories, Inc., as successor-in-interest to Triad Pharmaceuticals and as
amended by an Amendment Letter dated July 18, 1996 and as further amended by an
Amendment Letter dated August 8, 1996 and as further amended by an Amendment
Letter dated December 9, 1996 (collectively, the "License Agreement").
Licensor and Licensee hereby agree to further amend the License
Agreement as follows:
1. Section 3.4 is hereby amended and restated as follows:
"In the event[***], then Licensee shall on [***] pay to
Licensor a nonrefundable, one-time, additional license fee in
the amount of [***] to maintain its rights under this
Agreement for one additional year. On each subsequent
anniversary of [***] thereafter, if [***], then Licensee will
pay an additional [***] for each further annual extension of
the License Agreement. Licensee's failure to pay any such
additional license fee shall constitute a material breach or
default for purposes of the termination provisions of
Paragraph 7.3."
[***] Confidential treatment requested.
935262.1
<PAGE>
2. Section 4.1.5 is hereby amended and restated as follows:
"Within thirty (30) days following [***], Licensee shall pay
Licensor a nonrefundable, one time, license fee in the amount
of [***]."
Except as expressly provided for in this Amendment, the terms of the License
Agreement shall continue in full force and effect without modification and
amendment, including without limitation, Section 4.1.4. If the terms set forth
above are acceptable to you, please acknowledge your consent in the space
provided below and return one executed original to us.
Very truly yours,
DISCOVERY LABORATORIES, INC.
By:/s/ Robert J. Capetola, Ph.D.
_________________________________
Name: Robert J. Capetola, Ph.D.
Title: President/CEO
Consented and agreed to this 9th day of March, 2000
CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY
By:/s/ James G. Martin, Ph.D.
__________________________________
Name: James G. Martin, Ph.D.
Title: Vice President, Research
Chairman, Research Development Board, Cannon Research Center
[***] Confidential treatment requested.
935262.1
Exhibit 10.52
- --------------------------------------------------------------------------------
Certain portions have been omitted pursuant to a request for confidentiality
and such omitted portions have been separately filed with the Commission.
- --------------------------------------------------------------------------------
================================================================================
SUBLICENSE AGREEMENT
between
DISCOVERY LABORATORIES, INC.
and
LABORATORIOS DEL DR. ESTEVE S.A.
Concerning Sinapultide (Lucinactant)
October 26th, 1999
================================================================================
<PAGE>
935292.1
SUBLICENSE AGREEMENT
THIS SUBLICENSE AGREEMENT (this "Agreement") is made as of October
26th, 1999 (the "Effective Date"), between DISCOVERY LABORATORIES, INC.
("Licensor"), a Delaware corporation, and LABORATORIOS DEL DR. ESTEVE S.A., a
company organized and existing under the laws of Spain ("Licensee").
WHEREAS, Licensor has the exclusive worldwide right, under a license
from Johnson & Johnson, to sublicense certain technology, including certain
technology relating to synthetic pulmonary surfactant peptides and proteins, one
of which is known as sinapultide;
WHEREAS, Licensor owns certain technology and patent rights relating to
synthetic pulmonary surfactant formulations; and
WHEREAS, Licensee desires to acquire a license to the Licensed Products
in the Licensed Territory (in each case as defined below) and Licensor is
willing to grant such license to Licensee for the purpose of commercializing the
Licensed Products for the treatment of certain respiratory distress syndromes;
NOW, THEREFORE, in consideration of the promises and the performance of
the covenants herein contained, the parties agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
"Affiliate/s" of a Person shall mean any Person which directly or
indirectly Controls, is Controlled by or is under common Control with such
Person.
"ARDS/ALI Indication" shall mean the use of Licensed Products for the
treatment of acute respiratory distress syndrome or acute lung injury.
"Control" shall mean direct or indirect beneficial ownership of at
least 50% of the voting stock of a Person having outstanding voting securities,
or a 50% or greater interest in the income of a Person not having outstanding
securities, or, in either case, the power to direct or cause the direction of
the management or policies of such Person.
"Development" shall refer to all activities relating to formulation,
process development, manufacturing scale-up, quality assurance/quality control,
clinical studies and regulatory affairs in connection with a Licensed Product.
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"Development Costs" shall mean Direct Development Costs and Indirect
Development Costs.
"Direct Development Costs" shall mean all direct costs incurred in
connection with the Development of a Licensed Product in the Field. Direct
Development Costs shall include but are not limited to the cost of studies
(including post-approval studies) on the pharmacokinetic, metabolic or clinical
aspects of a Licensed Product conducted internally or by individual
investigators or consultants (such as contract research organizations) necessary
for the purpose of obtaining and/or maintaining approval of a Licensed Product
in the Field by a governmental entity in a country of the Licensed Territory
(including without limitation related hospital grants), and costs for preparing,
submitting, reviewing or developing data or information for the purpose of
submission to a governmental entity to obtain and/or maintain approval of a
Licensed Product in the Field in a country of the Licensed Territory.
"EMEA" shall mean the European Medicines Evaluation Agency.
"FDA" shall mean the United States Food and Drug Administration.
"Field" shall mean the use of Licensed Products for the ARDS/ALI
Indication and the Neonatal Indications [***].
"Indication" shall mean any ARDS/ALI Indication or Neonatal Indication
[***].
"Indirect Development Costs" shall mean all indirect costs incurred in
connection with the Development of a Licensed Product in the Field, including
without limitation, general and administrative expenses, allocable overhead, and
compensation, benefits and travel and other employee-related expenses.
"Initial Period" shall mean, on a country by country basis, the period
comprehended between the Effective Date until the latest of the following dates:
(i) the expiration of the last Patent Rights containing a Valid Claim
covering a Licensed Product in such country; or
(ii) the fifteenth (15th) anniversary of the first commercial sale of a
Licensed Product in such country.
"IRDS Indication" shall mean the use of Licensed Products for the
treatment of infant (idiopathic) respiratory distress syndrome.
[***] Confidential treatment requested.
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"Licensed Know-how" shall mean all know-how, data, information or
technology arising before or during the course of this agreement which are
proprietary to the Licensor and/or with respect to which Licensor has the power
and right to grant the licenses provided for herein and which relate to the
development or therapeutic use of Licensed Products.
"Licensed Methods" shall mean the methods for treating respiratory
distress syndromes that are covered by one or more claims of [***], and all
corresponding national patents and patent applications, European Patent
Convention filings and applications and filings and applications under similar
administrative international conventions, together with any divisional,
continuation, continuation-in-part, substitution, reissue, extension,
registration, confirmation, reexamination, renewal, supplementary protection
certificate or other application based thereon.
"Licensee Proprietary Information" shall mean any scientific and
technical information or data developed, possessed or acquired by Licensee
relating to Licensed Products, Patent Rights or Licensed Know-how which Licensee
is free to disclose other than such information that is within or enters the
public domain.
"Licensed Products" shall mean, with respect to each Indication, (i)
the Surfaxin(R) Product and/or (ii) if any Replacement Product has been
identified by the Committee pursuant to Section 5.8 with respect to such
Indication, the most recently identified Replacement Product with respect to
such Indication.
"Licensed Rights" shall mean collectively the Patent Rights, the
Licensed Methods, the Trademarks and the Licensed Know-how.
"Licensed Territory" shall mean Spain, Andorra, Portugal, Greece,
Central and South America, with an option for Italy as established in Section
2.2.
"Marketing Regulatory Approvals" shall mean all permissions and
applications for such permissions from the regulatory and/or governmental health
authorities in the Licensed Territory which are necessary for the importation of
the Licensed Products and their marketing, use, distribution and sale in the
Licensed Territory, including, where applicable, the Pricing Approvals.
"MAS Indication" shall mean the use of Licensed Products for the
treatment of meconium aspiration syndrome.
"Neonatal Indications" shall mean the IRDS Indication and the MAS
Indication.
"NDA" shall mean a New Drug Application or Product License Application
filed with the United States Food and Drug Administration under 21 USC 355(b)
(FDCA
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Section 505(b)) or its equivalent filed with the EMEA or with any country
within the Licensed Territory for purposes of mutual recognition by the other
countries within the Licensed Territory.
"Original License" shall mean the Sublicense Agreement dated as of
October 28, 1996 between the Original Licensor and Licensor.
"Original Licensor" shall mean Johnson & Johnson.
"Patent Rights" shall mean (i) the patents and patent applications in
Schedule I hereto, (ii) and any other patents or patent applications covering
the surfactant pharmaceutical compositions referenced in the patents and patent
applications in Schedule I or their use or administration owned by Licensor or
under which Licensor has the right, at any time while this Agreement is in
effect, to license to Licensee and (iii) with respect to the foregoing letters
patent and patent applications, all corresponding national patents and patent
applications, Patent Cooperation Treaty and European Patent Convention filings
and applications and filings and applications under similar administrative
international conventions, together with any divisional, continuation,
continuation-in-part, substitution, reissue, extension, supplementary protection
certificate or other application based thereon. Notwithstanding the foregoing,
"Patent Rights" shall not include any patents or patent applications, filings,
or applications under any treaty, or any divisional, continuation,
continuation-in-part, substitution, reissue, extension, supplementary protection
certificate or other application relating in whole or in part to the use or
administration of any of the surfactant pharmaceutical compositions on Schedule
I or any Licensed Product, alone or together with other active or inactive
components, outside the Field.
"Person" shall mean any natural person, corporation, limited liability
company, unincorporated association, partnership, joint venture or other entity.
"Phase 2 Clinical Trial" shall mean a controlled study in humans of the
potential efficacy and safety of a Licensed Product which is prospectively
designed to demonstrate activity of a given dose/s of a Licensed Product in a
particular indication.
"Phase 3 Clinical Trial" shall mean a controlled study in humans with a
Licensed Product which is prospectively designed to demonstrate statistically
any possible difference in efficacy or equivalence and/or safety in comparison
with an approved drug, if there is an approved drug and standard of care, if
there is no approved drug.
"Pricing Approvals" shall mean approvals by the regulatory and/or
governmental health authorities in the Licensed Territory defining the prices of
the Licensed Products and reimbursement conditions for the sale thereof.
"Product Failure" shall mean, with respect to the Surfaxin(R) Product
or any Replacement Product, the earlier to occur of (i) a determination by the
applicable regulatory
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authority in (or having jurisdiction over) any country of the Licensed Territory
that the Surfaxin(R) Product or such Replacement Product may not be
commercialized for an Indication, or that further clinical trials of the
Surfaxin(R) Product or such Replacement Product should not be conducted for an
Indication or (ii) a determination by the Committee (as defined in Section 5.4)
that the continued development of the Surfaxin(R) Product or such Replacement
Product for an Indication is not economically feasible or is unlikely to result
in the receipt of Marketing Regulatory Approvals within time frames and in
markets that will permit Licensor and Licensee to achieve the anticipated
benefits of this Agreement.
"Replacement Product" shall mean [***].
"Scripps Patent Rights" shall mean the Patent Rights identified in part
(a) of Schedule I.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of October 26th, 1999 between Licensor, as the seller and
Licensee's Affiliate Laboratorios P.E.N., S.A. as the purchaser.
"Surfaxin(R)Product" shall mean, in each jurisdiction [***].
"Trademark" shall mean Surfaxin(R) and such other trademarks owned by
Licensor that are selected by the Committee (as defined in Section 5.4) for use
within the Licensed Territory in connection with one or more Licensed Products.
"Valid Claim" shall mean a claim of an unexpired patent within the
Patent Rights which has matured into an issued patent or a claim being
prosecuted in a pending application within the Patent Rights. In each case a
claim shall be presumed to be valid unless and until it has been held to be
invalid by a final, unappealable judgement of a court of competent jurisdiction.
ARTICLE 2
GRANT
Section 2.1. Grant of License. Licensor hereby grants to Licensee, and
Licensee hereby accepts from Licensor, upon the terms and conditions herein
specified, an exclusive license under the Patent Rights, the Licensed Know-how
and the Trademark to import, use and sell Licensed Products under the Trademark,
and to practice Licensed Methods, in the Licensed Territory in the Field.
Licensor hereby agrees that it shall not grant
[***] Confidential treatment requested.
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<PAGE>
any other licenses to exploit the Licensed Rights, the Licensed Products or the
Replacement Products in the Licensed Territory to any third party (including,
without limitation, its Affiliates) during the term of this Agreement. The
license granted hereunder does not include any right or license of Licensee to
make or have made Licensed Products, all such right and license, together with
the right to sublicense, being hereby retained by Licensor. The license granted
under this Article 2 shall be subject to the terms and conditions of this
Agreement and the following terms:
(a) The rights of the Original Licensor of the Scripps Patent
Rights to use the Scripps Patent Rights for educational and research
purposes;
(b) To the extent applicable, the rights of the United States
Government pursuant to 35 U.S.C. 202 et seq. and 37 C.F.R. 401.1 et
seq. (the "U.S. Government Interest") which may have arisen or resulted
from federal funding of research relating to the Scripps Patent Rights,
including the non-exclusive right of the United States Government to
practice the inventions covered by the Scripps Patent Rights; and
(c) The reserved right of Licensor, to use the Licensed Rights
for research and development purposes and, to the extent permitted by
Section 6.2, for publication purposes subject to approval by Licensee.
Licensee shall have no right to sublicense or otherwise share its rights
hereunder with any other Person other than (i) Affiliates of Licensee (provided
that such Affiliates shall acknowledge in writing that they have read this
Agreement and that they agree to be bound by the applicable terms herein
contained, and provided further that Licensee shall not be relieved of any of
its obligations under this Agreement thereby), as provided for in Section 14.9,
and (ii) third parties pursuant to a sublicense or distribution agreement
complying with Section 2.4.
Section 2.2 Option for Italy. Subject to the conditions set forth
hereinafter, Licensee shall have an option right (the "Option Right") to include
Italy in the Licensed Territory. The Option Right shall be exercised by Licensee
not later than sixty (60) days (the "Option Period") after [***].
In the event that Licensee desires to exercise the Option Right, it shall prior
or upon the expiration of the Option Period so notify Licensor in writing.
Should Licensee fail to exercise its Option Right within the Option Period or
should Licensee notify Licensor at any time during the Option Period by written
notice of its intention not to exercise the Option Right, then Licensor shall be
no longer under any obligation towards Licensee for the country of Italy.
[***] Confidential treatment requested.
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In the event that Licensee exercises its Option Right, the country of Italy
shall be covered by the terms of this Agreement (provided, however, that Section
4.1 (a) shall not apply) and Licensee shall pay to Licensor the following
License Fees in consideration thereof:
(a) [***] within ten (10) business days of receipt of
Licensor's invoice issued upon first grant of final Marketing
Regulatory Approval for the MAS Indication in Italy.
(b) [***].
(c) [***] within ten (10) business days of receipt of
Licensor's invoice issued upon first grant of final Marketing
Regulatory Approval for the ARDS/ALI Indication in Italy.
Moreover, Licensee shall, within 90 (ninety) days of exercising its Option
Right, purchase from Licensor shares of Licensor's common stock for a total
price of Seven Hundred Fifty Thousand Dollar ($750,000) at a fifty percent (50%)
premium to the average market value of Licensor's shares in the ten (10) days
period immediately preceding the date of acquisition.
Section 2.3. No Active Sales Outside Licensed Territory. Licensee shall
neither directly nor indirectly carry out any active sales of the Licensed
Products outside the Licensed Territory and it shall not advertise the Licensed
Products or maintain branches for the distribution of the Licensed Products
outside the Licensed Territory.
Section 2.4. Sublicense Agreements. Licensee shall be entitled to
sublicense its rights and obligations under this Agreement in any country of the
Licensed Territory other than [***], provided that (i) any such sublicense
agreement shall be under terms no less stringent than the ones contained in this
Agreement and (ii) Licensee hereby warrants and represents that any such
sublicensee will comply with all applicable terms of this Agreement.
Section 2.5. Consideration for Licensed Products. Licensee shall not
accept as consideration for the sale or transfer of Licensed Products any
consideration other than cash except as consented to by Licensor following
agreement between Licensor and Licensee on the methodology for valuing such
non-cash consideration.
Section 2.6. Right of First Negotiation on New Products. In the event
that, during a period of [***] Licensor owns or controls the rights to
distribute, market and sell a product other than the Licensed Products in the
Licensed Territory which reaches or has reached [***], Licensor shall promptly
so notify Licensee in writing and shall provide Licensee with information on
such product as is reasonably necessary for Licensee's evaluation of interest.
Upon receipt of such notice and information, Licensee shall have a
[***] Confidential treatment requested.
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period of sixty (60) days to deliver to Licensor a written notice of its
interest in distributing, marketing and selling such product in the Licensed
Territory. If Licensee does not deliver such notice to Licensor within such
period, Licensor shall thereafter have no further obligation to Licensee with
respect to such product. If Licensee delivers to Licensor a notice confirming
its interest in such product, for sixty (60) days following Licensor's receipt
of Licensee's notice, the parties shall engage in exclusive, good-faith
negotiations for the terms upon which Licensor would appoint Licensee as the
licensee of such product in the Licensed Territory which shall be consistent,
insofar as reasonably possible, with the terms of this Agreement. If the parties
have failed to reach agreement on such terms by the end of such sixty day
period, Licensor shall thereafter have no further obligations to Licensee with
respect to such product; provided, however, that Licensor will not enter into
any agreement relating to the distribution, marketing and sale of the same
product in the Licensed Territory with a third party on terms which, taken as a
whole, are more favorable to such third party than those last offered in writing
by Licensor to Licensee for such product.
ARTICLE 3
GRANT BACK
In consideration for Licensor (i) making the Licensed Know-how
(including any improvements thereto) available to Licensee on a continuing basis
for the duration of this Agreement and (ii) procuring, and making available to
Licensee the benefit of, equivalent grants from Licensor's other licensees of
Patent Rights outside the Licensed Territory, Licensee hereby grants to Licensor
and such other licensees a royalty-free, nonexclusive license outside the
Licensed Territory, with the right to grant sublicenses, under any and all
inventions (whether patentable or not) hereafter during the term of this
Agreement, developed, possessed or acquired by Licensee related to the Licensed
Products, Patent Rights, Licensed Know-how or Licensed Methods; provided that
Licensee is not legally restricted or prevented from granting such rights in
connection with the relevant invention. Licensee shall provide Licensor with a
written enabling disclosure of each invention (such as a patent application or
internal docket reference) unambiguously identifying it as an invention governed
by this Article 3 prior to filing a patent application or taking any other
action disclosing or potentially disclosing the same to third parties.
Licensee shall promptly disclose all Licensee Proprietary Information
to Licensor and, subject to the execution of confidentiality undertakings
comparable to those set forth in Article 6, to Licensor's other licensees of
Patent Rights outside the Licensed Territory on a continuing basis during the
term of this Agreement. Licensee hereby grants to Licensor and such licensees a
royalty-free nonexclusive license, with the right to grant sublicenses, to use
the Licensee Proprietary Information. Licensee shall not disclose any Licensee
Proprietary Information under circumstances that would reasonably be expected to
result in the loss of the protectible status of any Licensee Proprietary
Information without the prior written consent of Licensor, which consent shall
not be unreasonably withheld.
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ARTICLE 4
CONSIDERATION
Section 4.1. License Fee. (a) Licensee agrees to pay to Licensor a
non-refundable license fee of Three Hundred Seventy Five Thousand Dollars
($375,000.00) within ten (10) business days of receipt of Licensor's invoice
issued on or after the Effective Date, subject to paragraph (b) below.
(b) Any and all taxes that are levied on license fees accruing
under this Agreement in a country in which provision is made in the law
or by regulation for withholding may be deducted by the payor from such
royalties and paid to the proper taxing authority and evidence of such
payment shall be secured and sent to Licensor within 1 month of such
payment. The parties shall do all such lawful acts and things and sign
all such lawful deeds and documents as either party may reasonably
request from the other party to enable Licensee, its Affiliates and/or
sublicensees to take advantage of any applicable legal provision or any
double taxation treaties with the object of paying the sums due to
Licensor hereunder without withholding any tax.
(c) The balance of any amounts which remain unpaid more than
30 days after they are due to Licensor hereunder shall accrue interest
until paid at an annual rate 2% over the United States Clearing Bank
Base Lending Rate or the maximum amount allowed under applicable law.
However, in no event shall this interest provision be construed as a
grant of permission for any payment delays.
Section 4.2 Supply Agreement. Concurrently with the execution of this
Agreement, Licensor and Licensee shall enter into a supply agreement for
Licensed Products (the "Supply Agreement").
Section 4.3 Location of Payment. The amounts provided for by this
Article 4 shall be paid to Licensor by swift transfer to the bank account
designated by Licensor.
ARTICLE 5
CLINICAL TRIALS, REGULATORY APPROVALS AND MARKETING
Section 5.1 Submission for Regulatory Approvals (a) Subject to the
completion of requisite clinical investigations, Licensor shall prepare and
submit to the regulatory authorities in the Licensed Territory applications for
Marketing Regulatory
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Approvals as soon as practicable and shall use its diligent efforts to obtain
and maintain all Marketing Regulatory Approvals that are obtained by Licensor
for the term of this Agreement, all at the cost and expense of Licensor. When
filing for Marketing Regulatory Approvals, Licensor shall designate Licensee or
such Licensee's Affiliates or sublicensees designated by Licensee as its
distributors or local representatives for the Licensed Products in the Licensed
Territory. Licensor shall, upon the granting of each Marketing Regulatory
Approval obtained by Licensor, promptly supply Licensee with a copy of such
approval.
(b) Subject to receipt of the Marketing Regulatory Approvals,
Licensee shall prepare and submit to the regulatory authorities in the
Licensed Territory applications for Pricing Approvals as soon as
practicable and shall use its diligent efforts to obtain and maintain
all Pricing Approvals that are obtained by Licensee for the term of
this Agreement, all at the cost and expense of Licensee. Licensee
shall, upon the granting of each Pricing Approval obtained by Licensee,
promptly supply Licensor with a copy of such approval. Licensee shall
further be responsible for achieving insertion of Licensed Products
into hospital formularies.
Section 5.2 Access of Licensee to Marketing Regulatory Approvals.
Licensor shall, in connection with any Marketing Regulatory Approval obtained by
it in the Licensed Territory, grant Licensee an irrevocable right of access and
reference thereto and shall effect such notifications to regulatory authorities
as shall be reasonably necessary to accomplish the foregoing. To the extent
Marketing Regulatory Approvals are transferred to Licensee, Licensee shall
maintain such Marketing Regulatory Approvals at its cost and expense. Licensor
shall assist Licensee in maintaining such Marketing Regulatory Approvals
including supplying to Licensee any information in connection therewith which
Licensor is free to disclose.
Section 5.3 Conduct of Clinical Investigations (a) Subject to paragraph
(b) below, Licensor shall at its own cost and expense conduct all preclinical
and clinical trials necessary for obtaining the Marketing Regulatory Approvals
in the Licensed Territory.
(b) Licensee shall be responsible for conducting the following
clinical trials with the Surfaxin(R)Product in the Licensed Territory:
(i) a Phase 3 Clinical Trial in IRDS [***]; and
(ii) a Phase 2 Clinical Trial in ARDS/ALI with [***].
Such clinical trials shall be conducted at Licensee's cost and expense,
provided that the applicable Licensed Product to be used during all such trials
shall be provided by Licensor to Licensee for an amount equal to Three Hundred
Seventy Five Thousand Dollars ($375,000.00) which amount shall be payable upon
execution and delivery of this Agreement and is inclusive of any custom duties
associated with
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the importation of such Licensed Product in Spain (which shall be reimbursed by
Discovery to Esteve in due course), and provided further, notwithstanding
anything herein to the contrary, the direct and indirect costs incurred by
Licensee under this Section 5.3(b), but not including the costs for the purchase
of the Licensed Product, shall not exceed[***]. Any costs and expenses in excess
of such amount shall be for Licensor's account. The protocols of any clinical
trials conducted by Licensee shall be reviewed and approved by Licensor, who
shall not unreasonably withhold or delay its approval.
(c) Licensor warrants that any clinical trials carried out by
it with respect to the Licensed Products shall be conducted in
accordance with FDA good clinical practice and Licensee warrants that
all clinical trials carried out by it with respect to the Licensed
Products shall be conducted in accordance with the European Union good
clinical practice. Licensor and Licensee shall keep each other fully
informed on the progress of all clinical trials and shall promptly
provide the other with copies of all submissions to regulatory
authorities in connection therewith, all significant communications
received from such regulatory authorities and reasonably detailed
descriptions (in English) of all meetings with and verbal
communications with such regulatory authorities which are of
significance. Each of Licensor and Licensee shall use its best efforts
to complete all clinical trials for which it is responsible within the
parameters established by the Committee (as such term is defined in
Section 5.4).
Section 5.4 Oversight Committee. (a) Licensee and Licensor shall
jointly form an oversight committee (the "Committee") for the purposes of
developing and assisting with the implementation of the clinical trials within
the Licensed Territory.
(b) The Committee shall be comprised of four members, two
members to be executives appointed by, and to be representatives of,
each of Licensee and Licensor. The Committee shall be chaired by a
designee of Licensor. In the event of any deadlock or other inability
of the Committee to reach a determination with respect to any matter
within the authority of the Committee, the issue shall be referred to
the respective Chief Executive Officers or General Managers of each
party who shall use their best endeavours to agree in good faith to a
resolution of the dispute within thirty (30) days of their receipt of
notice as to such dispute. If they are unable to resolve the dispute
within such thirty (30) day period, it shall be referred to the
decision of an external expert suitably qualified to resolve such
dispute which is mutually acceptable to both parties, whose decision
shall be final. In resolving the dispute, the appointed expert shall
take into account clinical development practices and procedures common
in the pharmaceutical industry.
(c) The initial members of the Committee shall be designated
by the parties hereto not later than 30 days after the Effective Date.
Upon resignation
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by or removal of any member of the Committee, Licensee or Licensor, as
appropriate, shall have the sole right to appoint a successor.
(d) The Committee shall meet within thirty (30) days after the
Effective Date and thereafter at least every six months until grant of
Marketing Regulatory Approvals and Pricing Approvals for Licensed
Products [***]. The location of such meetings shall alternate between
Doylestown, Pennsylvania, United States and Barcelona, Spain unless
otherwise agreed to by Licensor and Licensee. The Committee may also
meet by means of a telephone or video conference call with the consent
of each of Licensor and Licensee.
(e) Licensee and Licensor shall use reasonable efforts to
cause their representatives to attend the meetings of the Committee. If
a representative of either of the parties hereto is unable to attend a
meeting, such party may designate an alternate to attend such meeting
in place of the absent representative. In addition, each party may,
with the consent of the other party, invite consultants or scientific
advisors to attend meetings of the Committee.
(f) The Committee will report to Licensor and Licensee
annually with a written comprehensive report on the execution of the
clinical trials.
Section 5.5 Commencement of Marketing. Licensee shall consummate its
first commercial sale of each Licensed Product in each country of the Licensed
Territory within ninety (90) days after obtaining Pricing Approval (or if
Pricing Approval is not applicable, within ninety (90) days of Marketing
Regulatory Approval in such country); provided, however, that if Licensee has
failed to meet such deadlines in any country because of reasons beyond the
control of Licensee, Licensor and Licensee shall discuss in good faith a new
deadline for such country. In the event Licensee does not consummate a sale
within such period, Licensor may notify Licensee of a default under this Section
5.5 and, in the event such default is not cured within thirty (30) days from
such notice of default, Licensor shall have the right to terminate the license
granted to Licensee hereunder with respect to such Licensed Product in such
country.
Section 5.6. Commencement of Marketing; Post-Commencement Trials.
Licensee shall be responsible for conducting, at its own cost and expense such
post-marketing clinical trials and research and development activities as
Licensee deems useful or necessary to promote the sale of Licensed Products in
the Licensed Territory provided that the protocol shall be approved in
accordance with Section 5.3(b) in advance of its commencement. Licensor and
Licensee shall monitor and supervise the conduct thereof following commencement.
[***] Confidential treatment requested.
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Section 5.7. Standard of Diligence. (a) Licensee shall use commercially
reasonable efforts to commercialize the Licensed Products in the Licensed
Territory throughout the term of this Agreement in accordance with all
applicable legal and regulatory requirements, including promoting the Licensed
Products by accepted promotional practices consistent with those used (i) by
Licensee in connection with the promotion of its other products and (ii) in the
critical care pharmaceutical industry generally.
(b) From and after the date that an NDA with respect to any
Licensed Product is filed with the EMEA or the applicable regulatory
authority in the Licensed Territory, Licensee shall provide Licensor
regularly with summary reports on its plans for launch of Licensed
Products in the countries within the Licensed Territory that are member
countries of the European Union (in the case of the EMEA) or the
countries in Central and South America and of the anticipated
commercial potential therefor in such countries.
Section 5.8. Product Failure. In the case of a Product Failure with
respect to an Indication in any country, the Committee shall seek to identify a
single Replacement Product for development by Licensee and Licensor for such
Indication in the country or countries in which such Product Failure occurred.
In the event a Replacement Product has not been identified for development in
writing by the Committee within one year of such Product Failure, either party
shall have the right to terminate this Agreement with respect to such Indication
in such country or countries within 30 days following expiration of such
one-year period by written notice to the other party. The Committee shall
prepare a written development plan with respect to each Replacement Product that
has been identified for development by the Committee as promptly as practicable
following its identification, which shall include provisions for the funding of
Development Costs with respect to such Replacement Product by Licensor, Licensee
and other Licensor's licensees in countries outside the Licensed Territory where
Licensor or its licensees intend to commercialize such Replacement Product. In
the event the Committee has not reached agreement upon such development plan,
including the funding of Development Costs, within 90 days after identification
of a Replacement Product for development hereunder, then either party shall have
the right to terminate this Agreement with respect to such Indication in such
country or countries by written notice to the other within the 30 days following
expiration of such 90-day period; provided, however, than in such event,
Licensor shall not enter into any agreement relating to the development,
distribution, marketing and sale of the same product in the Licensed Territory
with a third party on terms which, taken as a whole, are more favorable to such
third party than those last offered in writing by Licensor for such product.
Section 5.9. Medico-Marketing Plan. Licensee shall submit to Licensor a
medico-marketing plan for the Licensed Products (the "Development Plan") as soon
as possible, but in any event no later than ninety (90) days prior to the
planned launch date in each country of the Licensed Territory, such plan to be
updated by Licensee before the end of each calendar year.
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Section 5.10. Reports. Licensee shall, as promptly as practicable,
submit written reports to Licensor as follows:
(a) quarterly statements showing the amount of sales of
Licensed Products in terms of units and currency of the Licensed
Territory; and
(b) annual statements by no later than February 28 of each
year detailing the medico-marketing activities carried out by Licensee
during the previous calendar year.
Section 5.11. Promotional Material. Licensor shall supply Licensee with
samples of all training aids and literature used by Licensor and its Affiliates
and distributors and sublicensees thereof for training their sales
representatives and samples of all promotional and sales material used by
Licensor or its Affiliates and distributors and sublicensees thereof for the
Licensed Products.
Section 5.12. Promotional Claims. All technical and scientific
information and therapeutic claims referred to by Licensee in promotional
advertisements, promotional literature, sales aids, training aids and literature
and the like with respect to each Licensed Product shall be consistent with any
Marketing Regulatory Approval and the information and claims made by Licensor
with respect thereto insofar as the latter are consistent with Marketing
Regulatory Approvals or permitted practices in the Licensed Territory.
Section 5.13. Samples of Licensee's Promotional Material. Licensee
shall supply Licensor with samples of product labeling, packages and/or cartons
and the like and of all advertisements, promotional literature, sales aids,
training material for salesmen, used by Licensee in connection with the
promotion and sale of the Licensed Products.
Section 5.14. Adverse Event Reporting. The Parties shall establish a
procedure for the handling of adverse events as soon as is practicable after the
Effective Date, which procedure shall be in conformance with all applicable
laws, rules and regulations. Each Party shall advise the other, by telephone or
facsimile, within twenty-four (24) hours after it becomes aware of any serious
adverse event arising in connection with the use of any Licensed Products and
shall include the following information: a description of the patient, the
Licensed Product, the reporting source and a description of the event and/or
such other information as may be required by the relevant regulatory authorities
in the Licensed Territory at the time the serious adverse event occurs. No later
than five (5) days after its initial report, the Party informing of a serious
adverse event shall provide the other with a written report delivered by
confirmed facsimile of any reported serious adverse event stating the full facts
known to it, including but not limited to such information as may be required by
the relevant regulatory authorities in the Licensed Territory at the time the
serious adverse event occurs.
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ARTICLE 6
TRANSFER OF LICENSED KNOW-HOW; CONFIDENTIALITY; PUBLICATION
Section 6.1. Transfer of Licensed Know-How. Promptly after the
Effective Date and from time to time as it becomes available during the term of
this Agreement, Licensor shall provide Licensee with the Licensed Know-How.
Section 6.2. Confidentiality. Any information disclosed by either
party, its Affiliates or permitted licensees to the other party hereunder shall
be safeguarded by the recipient, shall not be disclosed to third parties and
shall be made available only to recipient's employees, Affiliates, licensees for
the Licensed Products or independent contractors who agree to equivalent
conditions and who have a need to know the information for the purposes
specified under this Agreement. Subject to the license granted under Article 2,
all confidential information shall remain the property of and, subject to
Sections 7.7 and 7.8, shall be returned to the disclosing party within thirty
(30) days of termination of this Agreement. These mutual obligations of
confidentiality shall apply during and for a period of ten years after the term
of this Agreement, but such obligations shall not apply to any information that:
(a) is or hereafter becomes generally available to the public
other than by reason of any default with respect to a confidentiality
obligation under this Agreement; or
(b) was already known to the recipient as evidenced by prior
written documents in its possession; or
(c) is disclosed to the recipient by a third party who is not
in default of any confidentiality obligation to the disclosing party
hereunder; or
(d) is developed by or on behalf of the receiving party,
without reliance on confidential information received hereunder; or
(e) is provided to third parties under appropriate terms and
conditions including confidentiality provisions equivalent to those in
this Agreement for development purposes including, without limitation,
consulting, manufacturing development, manufacturing, external testing
and marketing trials with respect to the products covered by this
Agreement; or
(f) is used with the consent of the disclosing party (which
consent shall not be reasonably withheld) in applications for patents
or copyrights under the terms of this Agreement; or
(g) has been approved in writing for publication by each of
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the parties; or
(h) is required to be disclosed in compliance with applicable
laws or regulations in connection with the manufacture or sale of
products covered by this Agreement; or
(i) is otherwise required to be disclosed in compliance with
applicable laws or regulations or order by a court or other regulatory
body having competent jurisdiction; or
(j) is product-related information which is reasonably
required to be disclosed in connection with marketing of products
covered by this Agreement.
Section 6.3. Procedures for Obtaining Permission for Disclosure. In the
event that either party (the "Disclosing Party") desires to publish or disclose,
by written, oral or other presentation, any confidential information or other
information regarding the Licensed Rights, the Disclosing Party shall notify the
other party (the "Nondisclosing Party") in accordance with Section 14.2 at least
sixty (60) days before any written or other publication or disclosure. The
Disclosing Party shall include with such notice a description of any proposed
oral presentation or, in any proposed written or other disclosure, a current
draft of such proposed disclosure or abstract. The Nondisclosing Party may, no
later than thirty (30) days following the receipt of such notice, notify the
Disclosing Party that the Nondisclosing Party will not consent to such
disclosure of confidential information. If the Disclosing Party does not receive
any such objection to the proposed disclosure of confidential information or
other information regarding the Licensed Rights within such 30-day period, the
Disclosing Party shall be free to make such disclosure in substantially the
manner and form proposed at the time notice was given to the Nondisclosing
Party.
ARTICLE 7
TERMINATION
Section 7.1. Term. Unless otherwise terminated by operation of law or
by acts of the parties in accordance with the provisions of this Agreement, this
Agreement shall be in force from the Effective Date and shall remain in effect
with respect to each Licensed Product in each country of the Licensed Territory
for the duration of the Initial Period. Upon expiry of the Initial Period with
respect to any country in the Licensed Territory, the license granted under
Section 2.1 shall become fully paid up in such country, except that Licensee
shall pay Licensor a royalty equal to one percent of Licensed Product sales for
continued use by Licensee of the Trademark and Licensed Know-how. In addition
the parties agree that in such event Licensor shall deliver to Licensee all
know-how necessary or useful to give Licensee the capability of manufacturing
the Licensed Products and such know-how shall be
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delivered to Licensee in such a way as to communicate it to Licensee promptly,
effectively and economically.
Section 7.2. Termination by Licensor for Breach. Upon any material
breach of or default under this Agreement by Licensee, Licensor may terminate
this Agreement upon ninety (90) days written notice to Licensee. Said notice
shall become effective at the end of said period, unless during said period
Licensee shall cure such breach or default or shall take reasonable steps to
cure the same.
Section 7.3. Termination by Licensee. Licensee may terminate this
Agreement on sixty (60) days advance written notice to Licensor for any reason,
whereupon Licensee shall not be obligated to make any further payments to
Licensor other than those payments accruing prior to such termination or
pursuant to Section 7.9.
Section 7.4. Termination Upon Bankruptcy Event. If (i) Licensee files a
petition in bankruptcy or for the appointment of a receiver or trustee, (ii)
Licensee proposes a written agreement of composition or extension of its debts
or makes an assignment for the benefit of its creditors, or (iii) an involuntary
petition against Licensee is filed in any insolvency proceeding and such
petition is not dismissed within sixty (60) days after filing, Licensor may
immediately terminate this Agreement.
Section 7.5. No Automatic Termination upon Licensor's Bankruptcy. If
(i) Licensor files a petition in bankruptcy or for the appointment of a receiver
or trustee; (ii) Licensor proposes a written agreement of composition or
extension of its debts or makes an assignment for the benefit of its creditors;
or (iii) an involuntary petition against Licensor is filed in any insolvency
proceeding and such petition is not dismissed within sixty (60) days after
filing, Licensee shall have the option to either:
(a) Immediately terminate this Agreement; or
(b) Continue to market the Licensed Products under the
Licensed Know-How, Patent Rights, Marketing Regulatory Approvals and
the Trademark, in which case the license granted hereunder to Licensee
pursuant to Section 2.1 shall become a license to "make, have made,
import, use, offer to sell and sell Licensed Products", provided that
such license to make or have made Licensed Products shall be
nonexclusive and that Licensor shall be entitled to a royalty in an
amount equal to the sum of (i) [***] and (ii) [***] of such Licensed
Product sales. Licensee shall be solely responsible for payment of the
third party royalty obligations under such circumstances; provided,
however, that any royalties to be paid under this sub-section 7.5 (b)
shall be due only to the extent that Licensee's cost of the Licensed
Product in finished, packaged and labelled form, quality controlled and
ready for resale
[***] Confidential treatment requested.
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to the ultimate customer plus the royalties hereinabove established
shall not exceed the Transfer Price established in Section 2.2 of the
Supply Agreement. In addition the parties agree that in such event the
intellectual property delivered to Licensee shall include all know-how
necessary or useful to give Licensee the capability of manufacturing
the Licensed Products and such know-how shall be delivered to Licensee
in such a way as to communicate it to Licensee promptly, effectively
and economically.
Section 7.6. Termination With Respect to Competitive Activities. During
the term of this Agreement, in the event Licensee acquires a surfactant product
suitable for use in treating any ARDS/ALI Indication or Neonatal Indication
(including through off-label use) (a "Competitive Product"), or in the event
Licensee becomes an Affiliate of a Person whose product line includes a
Competitive Product, Licensee shall notify the other party thereof within thirty
(30) days of such acquisition or Affiliation and of its intention to either (a)
divest such Competitive Product or Affiliation or (b) terminate this Agreement
and the Supply Agreement. Any such termination shall be effective sixty (60)
days after such notice becomes effective in accordance with Section 14.2.
Alternatively, Licensee may notify Licensor that it intends to retain such
Competitive Product in its portfolio but does not wish to terminate this
Agreement, in which event Licensor shall, within ninety (90) days of such
notice, advise Licensee of its intent to terminate this Agreement (which
termination shall be effective thirty (30) days after such notice) or
acquiescence in Licensee's desire to so retain such Competitive Product. Failing
Licensor's notification within such ninety day term, it shall be understood that
Licensor agrees to the marketing by Licensee of such Competitive Product and
Licensor shall not be entitled thereafter to terminate this Agreement for such
reason.
Section 7.7. Reversion. Upon termination of this Agreement for any
reason, other than expiry of the Initial Period or under Section 7.8, all rights
granted to Licensee hereunder shall revert to Licensor and Licensee undertakes:
(a) to deliver to Licensor all copies of any Licensed Know-how
in its possession,
(b) not to use the Licensed Know-how as long as it has to be
kept confidential under Article 6 hereof;
(c) to transfer to Licensor, at Licensor's request, a single
copy of all Licensee Proprietary Information and, at Licensor's
expense, all health regulatory approvals and regulatory filings
relating to Licensed Products in Licensee's possession;
(d) to the extent requested by Licensor, to transfer to
Licensor or its designee responsibility for and control of ongoing
Licensed Products development work, including control over contracts
with third parties for such work,
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where permissible in accordance with such contracts, in an expeditious and
orderly manner with the costs for such work to be assumed by Licensor or its
designee as of the date of such transfer; and
(e) to the extent requested by Licensor, to transfer to
Licensor or its designee all inventory of Licensed Products and
materials and equipment for manufacture of Licensed Products at a price
equal to Licensee's fully amortized standard cost.
Section 7.8. Effect of Certain Terminations. In the event Licensee
terminates this Agreement or the Supply Agreement by reason of a material
unremedied breach of the same by Licensor [***], Licensee shall have the right
(without prejudice to Licensee's other rights and remedies at law or under this
Agreement, including the right to specific performance hereof by Licensor) to
(a) manufacture or procure the supply of Licensed Products from a third party
supplier acceptable to Licensee and (b) continue to use, the Licensed Know-How,
Patent Rights, Marketing Regulatory Approvals and Trademark on the terms (other
than compensation terms) provided herein in exchange for payment of a royalty in
an amount equal to the sum of (i) [***] and (ii) [***] cost of the Licensed
Products in finished, packaged and labelled form, quality controlled and ready
for resale to the ultimate customer plus the royalties hereinabove established
shall not exceed the Transfer Price established in Section 2.2 of the Supply
Agreement and only during the Initial Period, after which the royalty to be paid
by Licensee shall be reduced to one percent, as established in Section 7.1. In
addition the parties agree that in such event Licensor shall deliver to Licensee
all know-how necessary or useful to give Licensee the capability of
manufacturing the Licensed Products and such know-how shall be delivered to
Licensee in such a way as to communicate it to Licensee promptly, effectively
and economically.
Section 7.9. Survival. Upon any termination of this Agreement, Articles
3 (except in the event of termination by Licensee under Section 7.8), 6, 9, 10
and 11 and Sections 7.7 through 7.10, shall survive such termination and
continue in force and effect to the extent necessary to effectuate such
provisions.
Section 7.10. Disposition. Upon termination of this Agreement, other
than by expiration of the Initial Period or by Licensee under Section 7.8,
subject to Sections 7.4 and 7.7, Licensee shall have no right under the Patent
Rights to import, use or sell Licensed Products, except that Licensee shall have
the right for one hundred twenty (120) days following termination to dispose of
Licensed Products on hand and complete any existing contracts requiring rights
under the Patent Rights which can be completed within the one hundred twenty
(120) days.
[***] Confidential treatment requested.
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ARTICLE 8
INFRINGEMENT
Section 8.1. Notice. (a) In the event that Licensee believes that there
is an infringement of the Licensed Rights by a third party hereto selling
material quantities of products in the Licensed Territory in competition with
Licensee's sale of Licensed Products hereunder, Licensee shall promptly provide
Licensor with written notice that such infringement is occurring. In the event
that Licensee believes that such infringement is to Licensee's substantial
detriment, Licensee shall provide Licensor with reasonable evidence of the
infringement.
(b) Licensor shall have the right, at Licensor's sole expense
(subject to Section 8.5(a)), to bring suit against the infringer for
infringement of the Licensed Rights. However, if after six (6) months
from the date of receipt of evidence of infringement from Licensee,
Licensor has not initiated suit against the infringer, Licensee shall
have the right, at Licensee's sole expense (subject to Section 8.5(b)),
to bring such suit provided that the Original Licensor has consented to
Licensee bringing such suit. Licensor shall make its best efforts to
obtain the Original Licensor's consent in favor of Licensee.
Section 8.2. Assistance. In the event either party hereto shall
initiate or carry on legal proceedings to enforce the Licensed Rights against an
alleged infringer, as provided herein, the other party hereto shall render
reasonable assistance to and cooperate with the party initiating or carrying on
such proceedings.
Section 8.3. Legal Proceedings. In the event that either party shall
institute legal proceedings to enforce the Licensed Rights, it shall have sole
control of such suit and the other party shall be entitled to be represented in
any such suit by counsel of its choosing, at its sole expense.
Section 8.4. Discontinuance. Neither party hereto shall discontinue or
settle any such proceedings brought by it without obtaining the concurrence of
the other party if such action would impose any obligations on such other party
or affect the exercise of the rights granted hereunder to such other party
(which concurrence shall not be unreasonably withheld).
Section 8.5. Recoveries. All damages, settlements and awards made or
obtained in connection with any suit or other legal proceeding under
this Article 8 shall be distributed as follows:
(a) If Licensor initiated the suit and prosecuted it to its
conclusion, Licensor shall be entitled to retain the balance of any
damages, settlements
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and awards, provided that Licensee may elect (within thirty (30) days of
initiation of such suit) to fund up to twenty-five percent (25%) of Licensor's
litigation costs and to share in the same proportion of net recoveries.
(b) If the Licensee initiated the suit and prosecuted it to
its conclusion, Licensee shall be entitled to retain the balance of any
damages, settlements and awards; provided that Licensor may elect
(within thirty (30) days of initiation of such suit) to fund up to
twenty-five percent (25%) of Licensee's litigation costs and to share
in the same proportion of net recoveries received by Licensee.
ARTICLE 9
NON-USE OF NAMES
Section 9.1. Non-Use. Subject to the licenses expressly granted
hereunder with respect to the Trademark, nothing contained in this Agreement
shall be construed as granting to Licensor or Licensee any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of the other (including contraction,
abbreviation or simulation of any of the foregoing) without the prior, written
consent of the other.
Section 9.2. Relationship. Nothing herein shall be deemed to establish
a relationship of principal and agent between Licensor and Licensee, nor any of
their agents or employees for any purpose whatsoever. This Agreement shall not
be construed as constituting Licensor and Licensee as partners, or as creating
any other form of legal association or arrangement which would impose liability
upon one party for the act or failure to act of the other party.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
Section 10.1 Representations of Licensor. Licensor represents and
warrants to Licensee that:
(a) Subject to Section 2.1, it has the right to grant the
license granted under this Agreement and that it has full power and
authority to execute, deliver and perform this Agreement, the Supply
Agreement, the Securities Purchase Agreement and the obligations
hereunder and thereunder.
(b) Subject to Section 2.1, to Licensor's knowledge, there are
no claims or potential claims by any third parties (other than the
Original Licensor
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and Scripps) to an ownership interest in the Licensed Rights licensed to
Licensee under this Agreement.
(c) Licensor has obtained any required third-party consents
under contracts to which Licensor or any of its Affiliates is a party
to Licensor's entry into this Agreement, the Supply Agreement and the
Securities Purchase Agreement and the performance of its obligations
hereunder and thereunder.
(d) To Licensor's knowledge, based solely on a review of the
records of the United States Patent and Trademark Office and the
corresponding offices in countries other than the United States, the
patents listed on Schedule I are subsisting.
(e) No third party has served on Licensor or any of its
Affiliates any claim, lawsuit, charge, complaint or other action
alleging that the Licensed Rights are invalid or unenforceable or that
the Licensed Rights infringe any patent or other proprietary or
property rights of any third parties or advised Licensor or any of its
Affiliates in writing that it intends to pursue any such claim,
lawsuit, charge, complaint or other action. Licensor has not, prior to
the date hereof, entered into any compulsory license with a third party
with respect to the Patent Rights.
(f) The rights of the Original Licensor and of any subsequent
licensor (excluding the Licensor) of the Scripps Patent Rights do not
prevent the grant of the license made hereunder nor do such rights
permit any such person to sell (directly or indirectly) or license for
sale surfactant pharmaceutical preparations based on or embodying the
Patent Rights in the Licensed Territory or enable such person to demand
any indemnity, royalty or compensation of whatever nature from Licensee
as a result of Licensee's sales of Licensed Products in the Licensed
Territory in accordance with the terms of this Agreement.
(g) Licensor is not in breach of any of its obligations under
the Original License as of the date hereof.
(h) All of Licensor's employees having access to any
confidential information with respect to the Licensed Rights are
subject to written confidentiality obligations with respect to the
disclosure of such information.
(i) Prior to the execution of this Agreement it has disclosed
to Licensee all material information pertaining to the Licensed
Products and the Patent Rights reasonably relevant to Licensee in order
to assess its interest in entering into this Agreement, and that no
material information pertaining to the Licensed Products and the Patent
Rights actually known to Licensor as of the Effective Date regarding
the foregoing has been withheld from Licensee by Licensor.
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Section 10.2. Mutual Representation. Each party hereby warrants that
the execution, delivery and performance of this Agreement, the Supply Agreement
and the Securities Purchase Agreement has been duly approved and authorized by
all necessary corporate actions of both parties; does not require any
shareholder approval which has not been obtained or the approval and consent of
any trustee or the holders of any indebtedness of either party; does not
contravene any law, regulation rules or order binding on either party, and does
not contravene the provisions of or constitute a default under any indenture,
mortgage contract or other agreement or instrument to which either party is a
signatory.
Section 10.3. Validity. Subject to the foregoing provisions of this
Article 10, nothing in this Agreement shall be construed as a representation or
a warranty by Licensor that any process practiced or anything imported, used or
sold under any license granted under this Agreement is or will be free from
infringement of patents of third parties.
Section 10.4. No Consequential Damages. IN NO EVENT WILL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
RESULTING FROM EXERCISE OF THIS LICENSE OR SALE OR USE OF LICENSED PRODUCTS OR
LICENSED KNOW-HOW.
ARTICLE 11
INDEMNIFICATION
Section 11.1. Indemnification by Licensee. Subject to Section 10.4 and
to the extent not covered by Licensor's indemnity under Section 11.2, Licensee
agrees to indemnify and hold harmless Licensor and its Affiliates and their
respective officers, directors, employees and agents from and against any and
all claims, damages and liabilities, including reasonable attorneys fees and
expenses, asserted by third parties, both government and private (collectively,
"Claims"), arising from Licensee's or its Affiliates' or sublicensees' import,
use, offer to sell or sale of Licensed Products pursuant to this Agreement,
including without limitation any claim for breach of warranty, negligence or
strict liability with respect to any Licensed Product.
Section 11.2. Indemnification by Licensor. Subject to Section 10.4,
Licensor agrees to indemnify and hold harmless Licensee, its Affiliates and
sublicensees and their respective officers, directors, employees and agents from
and against any and all Claims arising from (a) any infringement of any patent
or other intellectual property interest in the Licensed Territory by any Person
other than the parties to this Agreement relating to the Licensed Products; (b)
any breach by Licensor of its representations and warranties set forth in this
Agreement; (c) any negligent act or omission of Licensor and (d) any intrinsic
or manufacturing defect of the Licensed Products existing when the Licensed
Products are placed by Licensor in the custody of the carrier for transport to
Licensee . This Section shall apply to the Supply Agreement. In the event of any
contradiction between the Supply Agreement
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and any of the terms contained in this Sublicense Agreement, the terms of this
Agreement shall prevail.
Section 11.3. Insurance. Licensor and Licensee shall maintain during
the term of this Agreement insurance policies covering their respective
obligations under this Article 11, issued by reputable insurance companies under
ordinary terms and conditions in the pharmaceutical industry and will prove the
existence thereof to the other party if so requested.
ARTICLE 12
TRADEMARK MATTERS; PATENT MARKING
Section 12.1. Trademarks Used in Connection With Licensed Products. (a)
Licensed Products shall be marketed under the Trademark. Licensee admits the
validity of the Trademark and agrees that it shall not challenge the same in the
Licensed Territory or elsewhere.
(b) Licensor shall be responsible, at its own cost and
expense, to register, maintain and renew registrations of the Trademark
in the Licensed Territory, to the extent that it is necessary for the
purposes of obtaining Marketing Regulatory Approval and for the
marketing of the Licensed Products in the Licensed Territory. Licensee
agrees not to take any actions (including without limitation effecting
any trademark registrations) inconsistent with the foregoing and not to
register anywhere in the world any trademark confusingly similar to
Surfaxin(R) or any derivative thereof.
(c) Licensee agrees to take such actions as may be reasonably
requested by Licensor to assist Licensor to register, maintain or renew
any Trademark at the sole cost and expense of Licensor.
Section 12.2. Patent Marking. Licensee shall mark all Licensed Products
made, used, or sold under the terms of this Agreement, or their containers, in
accordance with the applicable patent marking laws.
ARTICLE 13
PATENT PROSECUTION AND MAINTENANCE
Section 13.1. Maintenance of Patent Rights. Licensor has obtained
certain commitments from the licensor (the "Original Licensor") of the Scripps
Patent Rights and the patent rights listed in Section (b) of Schedule I
(collectively, the "Third Party Patent Rights")
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that the Original Licensor will maintain the Third Party Patent Rights or, in
the event that the Original Licensor does not do so, that Licensor shall be
given the right to do so. Licensor undertakes to enforce its rights with respect
to maintenance of the Third Party Patent Rights against the Original Licensor
and, to the extent Licensor succeeds to the maintenance of the Third Party
Patent Rights, to use all commercially reasonable efforts to do so. Licensor
further undertakes to maintain the Patent Rights owned by Licensor. Licensor
shall provide Licensee with copies of all written materials received by Licensor
from the Original Licensor, the Original Licensor's or Licensor's counsel, or
any governmental agency or instrumentality relating to prosecution and/or
maintenance of Patent Rights and shall afford Licensee the opportunity to review
and comment upon any filings to be made with respect to the Patent Rights (in
the case of the Third Party Patent Rights, to the same extent Licensor is
entitled to do so).
Section 13.2. Cooperation By Parties. Licensor and Licensee agree to
cooperate in order to avoid loss of any rights which may be available to
Licensor or the Original Licensor under the U.S. Drug Price Competition and
Patent Term Restoration Act of 1984, the Supplementary Certificate of Protection
of Member States of the European Community and other similar measures in any
country. Without limiting the foregoing, Licensee agrees to timely supply
Licensor with all information reasonably requested by Licensor to file or have
filed (or to permit the Original Licensor to file or have filed) an application
for patent term extension within the 60-day period following U.S. NDA approval.
The same shall apply with respect to the approval by health regulatory
authorities in a country of the European Community or approval by the
appropriate authorities in any other country in the Licensed Territory.
ARTICLE 14
GENERAL
Section 14.1. Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the entire agreement and understanding between
the parties as to the subject matter hereof. All prior negotiations,
representations, agreements, contracts, offers and earlier understandings of
whatsoever kind, whether written or oral between Licensor and Licensee in
respect of the subject matter of this Agreement, are superseded by, merged into,
extinguished by and completely expressed by this Agreement. No aspect, part or
wording of this Agreement may be modified except by mutual agreement between the
Licensor and Licensee taking the form of an instrument in writing signed and
dated by duly authorized representatives of both Licensor and Licensee.
Section 14.2. Notices. Any notice or communication or permitted to be
given by this Agreement shall be given by post-paid, first class, registered or
certified mail or by reputable courier service addressed to:
26
<PAGE>
In the case of Licensor: Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Attention: Robert J. Capetola, Ph.D.
Chief Executive Officer
With a copy to:
Han-Hsien Tuan, Esq.
Yi Tuan & Brunstein
350 Fifth Avenue, Suite 5411
New York, New York 10118
In the case of Licensee: Laboratorios del Dr. Esteve, S.A.
Av. Mare de Deu de Montserrat, 221
08041 Barcelona (Spain)
Attention: Director, International
Such addresses may be altered by notice so given. If no time limit is
specified for a notice required or permitted to be given by this Agreement, the
time limit therefor shall be 10 full business days, not including the day of
mailing. Notice shall be considered made as of the date of deposit with the
appropriate post office or courier service.
Section 14.3. Governing Laws and Dispute Resolution. (a) This Agreement
and its effect are subject and shall be construed and enforced in accordance
with the laws of the State of New York, United States, except as to any issue
which depends upon the validity, scope or enforceability of any patent within
the Patent Rights, which issue shall be determined in accordance with the
applicable patent laws of the country of such patent.
(b) Any controversy or claim arising out of or relating to
this Agreement, or the breach, termination or validity thereof which
cannot be settled within three (3) months of it having arisen shall be
submitted to the respective President or General Manager of each Party
and if, within thirty (30) days or such other period as may be agreed
upon between the Parties following such reference, the dispute remains
unresolved, it shall be settled on application by either Party by
arbitration conducted in the English language, in Stockholm (Sweden) in
accordance with the Rules of Arbitration of the International Chamber
of Commerce by one or more arbitrators appointed in accordance with the
said rules. The parties expressly agree to abide the award rendered.
This provision shall not prevent either party from addressing any
competent court or tribunal in order to seek for interim measures.
Section 14.4. Conflicts. Nothing in this Agreement shall be construed
so as to require the commission of any act contrary to law, and whenever there
is any conflict
27
<PAGE>
between any provision of this Agreement or concerning the legal right of the
parties to contract and any statute, law, ordinance or treaty, the latter shall
prevail, but in such event the affected provisions of this Agreement shall be
curtailed and limited only to the extent necessary to bring it within the
applicable legal requirements.
Section 14.5. Registration. Licensee shall take all reasonable and
necessary steps to register this Agreement in any country where such is required
to permit the transfer of funds and/or payment of royalties to Licensor
hereunder or is otherwise required by the government or law of such country to
effectuate or carry out this Agreement. Notwithstanding anything contained
herein, Licensee shall not be relieved of any of its obligations under this
Agreement by any failure to register this Agreement in any country, and,
specifically, Licensee shall not be relieved of its obligation to make any
payment due to Licensor hereunder at Licensor's address specified in Article
14.2 hereof, where such payment is blocked due to any failure to register this
Agreement.
Section 14.6. Headings. As used in this Agreement, singular includes
the plural and plural includes the singular, wherever so required by the
context. The headings appearing at the beginning of the numbered Articles and
Sections hereof have been inserted for convenience only and do not constitute a
part of this Agreement.
Section 14.7. Agency. Nothing herein shall be deemed to create an
agency, joint venture or partnership between the parties hereto.
Section 14.8. Force Majeure. Notwithstanding any other provisions of
this Agreement, neither of the parties hereto shall be liable in damages for any
delay or default in performing hereunder if such delay or default is caused by
conditions beyond its control including but not limited to acts of God,
governmental restrictions, wars, or insurrections, strikes, floods, work
stoppages and/or lack of materials; provided, however, that the party suffering
such delay or default shall notify the other party in writing of the reasons for
the delay or default. If such reasons for delay or default continuously exist
for six (6) months, this Agreement may be terminated by either party.
Section 14.9. Assignment. Neither party shall assign this Agreement
without the prior written consent of the other party, provided, however, that
Licensee may assign some or all of its rights and obligations hereunder to the
following Affiliates: Laboratorios P.E.N., S.A. (Spain), Esteve Farma, Lda.
(Portugal), Provesan S.A. (Switzerland) and to any other Affiliate which
Licensee may establish in the Licensed Territory. Licensee hereby warrants and
represents that such Affiliates will comply with all applicable terms of this
Agreement, and guarantees such Affiliates' performance hereunder.
Section 14.10. Successors and Assigns. Subject to Section 14.9, this
Agreement shall be binding upon and inure to the benefit of the permitted
successors or permitted assigns of Licensor and Licensee respectively.
28
<PAGE>
Section 14.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 14.12. Announcements. Neither Party shall make any public
announcement or press release regarding the content or signature of this
Agreement without the other Party's prior written consent other than as may be
required by law or any stock exchange rules. If such public announcement or
press release is required by law or any stock exchange rules the Parties shall
use their reasonable endeavours to agree to the text and content thereof prior
to making such public announcement or press release.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and duly executed this Agreement on the date(s) indicated below, to be effective
the day and year first above written.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola
----------------------
Name: Robert J. Capetola, Ph. D.
Title: President and CEO
Date: 26th October 1999
LABORATORIOS DEL DR. ESTEVE, S.A.
By: /s/ Dr. J. Esteve
------------------------
Name: Dr. J. Esteve
Title: President
Date: 26th October 1999
30
<PAGE>
SCHEDULE I
[***]
[***] Confidential treatment requested.
<PAGE>
SCHEDULE II
[***]
[***] Confidential treatment requested.
<PAGE>
December 8, 1999
VIA FACSIMILE & HAND DELIVERED
------------------------------
Laboratorios del Dr. Esteve, S.A.
Av. Mare de Deu de Montserrat, 221
08041 Barcelone (Spain)
Attention: Director, International
Re: Sublicense of Surfaxin from Discovery Laboratories, Inc.
to Laboratorios del Dr. Esteve, S.A.
--------------------------------------------------------
Dear Director:
Reference is herein made to the Sublicense Agreement dated October 27,
1999 (the "Agreement") between Discovery Laboratories, Inc. and Laboratorios del
Dr. Esteve, S.A.
You have requested and we hereby acknowledge that Mexico is included in
the definition of "Licensed Territory" in Article 1, "Definitions," page 4 of
the Agreement.
Please return one countersigned copy to us and one to our attorneys, Yi
Tuan & Brunstein. Thank you for your attention.
Very truly yours,
DISCOVERY LABORATORIES, INC.
By: /s/Robert J. Capetola
---------------------
Name: Robert J. Capetola, Ph.D.
Title: President
ACKNOWLEDGED AND AGREED TO:
LABORATORIOS DEL DR. ESTEVE, S.A.
By: /s/ Dr. J. Esteve
---------------------------
Name: /Dr. J. Esteve
Title: President
Exhibit 10.53
Certain portions have been omitted pursuant to a request for confidentiality and
such omitted portions have been separately filed with the Commission.
SUPPLY AGREEMENT
Supply Agreement dated as of October 26th, 1999 by and between
DISCOVERY LABORATORIES, INC. ("Seller") and LABORATORIOS DEL DR. ESTEVE, S.A., a
company organized and existing under the laws of Spain ("Buyer").
WHEREAS, Seller is engaged in clinical studies of surfactant
pharmaceutical preparations for the treatment of acute respiratory distress
syndrome ("ARDS"), acute lung injury ("ALI"), infant respiratory distress
syndrome ("IRDS") and meconium aspiration syndrome ("MAS"); and
WHEREAS, Seller and Buyer are parties to a Sublicense
Agreement dated as of October 26th, 1999 (the "Sublicense Agreement") pursuant
to which Buyer has agreed to purchase from Seller, and Seller has agreed to
supply to Buyer, Licensed Products (such term and other capitalized terms used
and not otherwise defined herein having the meanings assigned to them in the
Sublicense Agreement) from Seller.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual promises and covenants set forth below, Seller and Buyer mutually
agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate/s" of a Person shall mean any Person which directly
or indirectly Controls, is Controlled by or is under common Control with such
Person.
"Business Day" shall mean any day on which banking
institutions are open or authorized to be open in the Commonwealth of
Pennsylvania.
"Current Good Manufacturing Practices" or "cGMP" shall mean
(i) with respect to the United States, the good manufacturing practices required
by the FDA and set forth in the Federal Food, Drugs and Cosmetics Act or FDA
regulations,
935303.1
<PAGE>
policies or guidelines in effect at a particular time for the manufacture,
testing and quality control of pharmaceutical materials and (ii) with respect to
any other country, the standards for the manufacture and testing of
pharmaceutical materials that are imposed by any regulatory authority having
jurisdiction.
"Control" shall mean direct or indirect beneficial ownership
of at least fifty percent (50%) of the voting stock of a Person having
outstanding voting securities, or a fifty percent (50%) or greater interest in
the income of a Person not having outstanding securities, or, in either case,
the power to direct or cause the direction of the management or policies of such
Person.
"EMEA" shall mean the European Medicines Evaluation Agency.
"Ex Factory Price" shall mean Licensee or its Affiliate's
selling price for each Licensed Product in Spain (officially called "PVL" or
"Precio Venta Laboratorio") as such price is authorized from time to time by the
Spanish regulatory authorities and set forth in the Spanish Pricing Approval.
"FDA" shall mean the United States Food and Drug
Administration.
"Facility" means an Owned Facility or a Contract Facility (in
each case as defined in Section 3.1).
"First Commercial Sale" shall mean the first commercial sale
by Buyer, its Affiliates or sublicensees of any Licensed Product following final
EMEA or other regulatory approval required to market such Licensed Product
commercially in the Licensed Territory for use in humans.
"Person" shall mean any natural person, corporation, limited
liability company, unincorporated association, partnership, joint venture or
other entity.
"Specifications" shall mean the Licensed Product
specifications approved by the EMEA and the other regulatory authorities having
jurisdiction in the Licensed Territory, as the same may be amended from time to
time in accordance with applicable regulatory procedures.
"Transfer Price" shall mean the price for each Licensed
Product established in accordance with Section 2.2.
ARTICLE II
----------
PURCHASE AND SALE OF PRODUCTS
-----------------------------
935303.1
2
<PAGE>
Section 2.1. Purchase and Sale; Delivery; Acceptance or
Rejection.
(a) Seller agrees to sell to Buyer such
quantities of Licensed Products, manufactured in conformity with cGMP
and meeting the Specifications, as Buyer may order in accordance with
the terms and conditions of this Agreement. Subject to the provisions
of Sections 3.4 and 7.2 hereof, so long as this Agreement shall remain
in effect, Buyer agrees, for itself and its Affiliates and
sublicensees, to satisfy solely through the purchase of Licensed
Products from Seller under this Agreement 100% of Buyer's and its
Affiliates' and sublicensees' requirements for Licensed Products.
(b) Purchase orders issued by Buyer to Seller
with respect to purchases of Licensed Products shall be subject to, and
governed exclusively by, the terms of this Agreement. Buyer agrees not
to issue to Seller any purchase order containing terms different from
those set forth herein and further agrees that no shipment of Licensed
Product by Seller in accordance with a nonconforming purchase order
shall be deemed to be acceptance of any terms of such purchase order
conflicting with the terms of this Agreement except to the extent such
conflicting terms are initialed by Seller with the words "change
accepted" written thereon by Seller. Except as aforesaid, this
Agreement shall override all other conflicting terms of purchase and/or
sale contained in any purchase and/or sale document generated by Seller
or Buyer.
(c) All Licensed Products sold to Buyer
hereunder shall be delivered [***] , subject to paragraph (d) below.
[***] shall assist [***] in arranging transportation in the manner
specified by[***], in accordance with applicable regulatory
requirements, to any destinations specified in writing from time to
time by Buyer; provided that all costs and expenses relating to such
transportation and delivery (including without limitation customs,
duties, taxes, insurance premiums and all expenses relating to
validation of temperature-controlled shipment conditions) shall be at
[***]expense.
(d) Seller will include with each shipment
copies of all applicable quality and testing records, which shall be in
a form acceptable for any applicable EMEA or other regulatory
submission in the Licensed Territory. Product shipments for sale by
Buyer in the European countries of the Licensed Territory shall
originate from a [***] and shall be accompanied by a certificate of
analysis made in such [***]. Seller shall certify in writing, to
Buyer's reasonable satisfaction, that each delivery of Licensed Product
was produced and tested in compliance with (i) the Specifications, (ii)
cGMP requirements and (iii) all applicable regulatory documents.
[***] Confidential treatment requested.
935303.1
3
<PAGE>
(e) Buyer may reject any portion of any
shipment of Licensed Product which does not conform with the
Specifications. In order to reject a shipment, Buyer must (i) give
notice to Seller of Buyer's intent to reject the shipment within 30
days of receipt together with a detailed written indication of the
reasons for such possible rejection, and (ii) as promptly as reasonably
possible thereafter, but in any event within an additional thirty (30)
days, provide Seller with notice of final rejection and the full basis
therefor. After notice of intent to reject is given, Buyer shall
cooperate with Seller in determining whether rejection is necessary or
justified. If such notices of intent to reject and final rejection are
not timely received, Buyer shall be deemed to have accepted such
delivery of Licensed Product and to have waived all claims for
non-conformity with the Specifications, damage, defect or shortage,
other than claims for latent defects not capable of discovery by Buyer
upon physical examination. In the event of latent defects not capable
of discovery by Buyer upon physical examination, Buyer shall inform
Seller within fifteen (15) days of discovering any such defect. Buyer
shall be entitled to a refund of the purchase price (together with
insurance, freight charges and, where applicable, custom duties) of
properly rejected Licensed Products at the time they are ultimately
rejected, provided that if Seller disputes the rejection, refund shall
be made, if at all, at the time the dispute is finally resolved. Seller
shall notify Buyer as promptly as reasonably possible (but in any event
no later than thirty (30) days after receipt of Buyer's final rejection
notice) whether it accepts Buyer's basis for any rejection. In the
event Seller disputes Buyer's rejection, the parties will select a
mutually agreeable independent third party laboratory which shall
determine whether the rejected Licensed Products meet the applicable
Specifications and shall confirm or dissent from Buyer's rejection of
Licensed Products. If the parties are unable to agree on a laboratory
firm within thirty (30) days after receipt of Buyer's final rejection
notice, the laboratory shall be appointed by computer generation of a
random number, with an even number signifying Seller's right to
designate the laboratory and an odd number designating Buyer's right to
designate the laboratory. If the independent tester confirms Buyer's
rejection, Seller will pay the fees of the tester, and if the tester
dissents from Buyer's rejection, Buyer will pay the fees.
(f) Whether or not Seller accepts Buyer's
basis for rejection, promptly on receipt of a notice of rejection,
Seller shall use its commercially reasonable efforts, at Buyer's
request, to provide replacement Licensed Product, which shall be
purchased by Buyer as provided in this Agreement as soon as reasonably
practicable.
(g) Unless Seller requests the return to it
of a rejected batch within 60 days of receipt of Buyer's notice of
rejection, Buyer shall, at Seller's cost, destroy such batch promptly
and provide Seller with certification
935303.1
4
<PAGE>
of such destruction. Buyer shall, upon receipt of Seller's request for
return, promptly dispatch said batch to Seller, at Seller's cost.
(h) No change to the Specifications shall be
effective unless the same shall be required or permitted by any
regulatory agency having jurisdiction over any country in the Licensed
Territory, Buyer or the Licensed Products (and if not required, shall
be agreed to in writing by Buyer and Seller). Seller shall give Buyer
advance notice of any change to the Specifications required by a
regulatory agency.
2.2 Price; Method of Payment.
(a) Buyer shall purchase Licensed Products from
Seller hereunder at the applicable Transfer Price. The Transfer Price
for each unit of Licensed Product shall equal [***], subject to
paragraph (d) below.
(b) Seller shall invoice Buyer for each shipment of
Licensed Products delivered by Seller to Buyer, its Affiliates or
sublicensees at the Transfer Price converted into U.S. dollar at the
exchange rate of the last Business Day of the calendar month
immediately preceding the month when the Licensed Product is shipped to
Licensee, as quoted by the Wall Street Journal.
(c) Buyer shall pay Seller's invoices in U.S. Dollar
not later than ninety (90) days following the date of the applicable
invoice by wire transfer to the bank account designated by Seller.
(d) In the event that the Transfer Price of any
Licensed Product represents more than [***], Licensor and Licensee
shall, at Licensee's request, hold good faith discussions in order to
adjust the Transfer Price with respect to Licensed Product sales in
such country.
(e) All payments under this Section 2.2 shall be free
of all withholdings of any nature whatsoever (including, without
limitation, withholding taxes, monetary transfer fees, or similar taxes
and charges), and in the event any withholding is required, Buyer shall
pay the same together with such additional amount as is required so
that each such payment shall be, under any circumstances and in any
event, in the amount as set forth or referred to herein.
[***] Confidential treatment requested.
935303.1
5
<PAGE>
ARTICLE III
-----------
PRODUCTION OF PRODUCTS
----------------------
Section 3.1. Manufacturing of Licensed Products.
(a) Until such time, if any, as a Seller-owned
manufacturing facility (an "Owned Facility") is qualified for the
manufacture of Licensed Products sold to Buyer hereunder, Seller shall
manufacture or have manufactured the Licensed Products sold to Buyer
hereunder at a contract manufacturing facility (a "Contract Facility")
[***]. Commencing sixty (60) days prior to the First Commercial Sale of
any Licensed Product in a country of the Licensed Territory (provided
that such date of First Commercial Sale has been communicated to Seller
[***] Seller shall maintain at least one alternate production site for
Licensed Products sold to Buyer hereunder, which alternate production
site, if a Contract Facility, shall [***]. Seller's obligation to
maintain an alternate manufacturing facility may also be satisfied
through a sublicensing arrangement complying with Section 3.2.
(b) Seller shall be responsible for obtaining and
maintaining all necessary licenses, registrations, authorizations and
approvals (other than such licenses, registrations, authorizations and
approvals that are required to be obtained or made by an owner or
operator of a Contract Facility) which are necessary to manufacture,
handle, store, label, package, transport and ship Licensed Products
under cGMP conditions and in accordance with other regulatory
requirements.
(c) Seller shall provide Buyer with copies of any
correspondence sent from Seller to governmental entities relating to
the manufacturing, handling, storage, labeling, packaging,
transportation or shipment of Licensed Products at the time such
correspondence is sent by Seller, purged of Seller proprietary and/or
confidential information and trade secrets. Seller shall provide Buyer
with copies of any comments, responses, notices or other correspondence
received by Seller from any governmental entity relating to the
foregoing matters within fifteen (15) days of receipt of such
correspondence by Seller, purged of any Seller proprietary information
and/or trade secrets.
(d) Seller shall furnish to Buyer (i) promptly, but
in any event within fifteen (15) days after receipt, a summary of any
report or correspondence issued by a governmental entity (or a third
party authorized by
[***] Confidential treatment requested.
935303.1
6
<PAGE>
a governmental entity) in connection with a visit or inquiry relating
to any Owned Facility or, to the extent Seller is provided with such
information, any Contract Facility, including but not limited to, any
FDA Form 483 or warning letter and (ii) not later than fifteen (15)
days after the time Seller provides such to a governmental entity,
summaries of any and all proposed responses or explanations relating
thereto (each, a "Proposed Response"), in each case purged of trade
secrets or other confidential or proprietary information of Seller.
After the filing of a response with the appropriate governmental
entity, Seller will notify Buyer of any further oral and/or written
contacts with a governmental entity (or a third party authorized by a
governmental entity) relating to the manufacturing, handling, storage,
labeling, packaging, transportation or shipment of Licensed Products.
(e) If requested in writing by Buyer, Seller shall
permit Buyer to inspect, once per year, during normal business hours
and hours during which Seller is manufacturing Licensed Products,
Seller's Facilities and manufacturing records to the extent Buyer deems
it reasonably necessary to enable Buyer to verify compliance with any
statutory or regulatory requirements to which Buyer is subject and
which are applicable to the manufacture and/or packaging of Licensed
Products. Notwithstanding the foregoing, Buyer shall have the right to
inspect Seller's Facilities and manufacturing records at any time, in
the event that there is a quality or regulatory problem with any
Licensed Product. If, as a result of any such inspection, Buyer
concludes that Seller is not in compliance with any regulatory
obligations or requirements applicable to Buyer, Buyer shall so notify
Seller in writing, specifying such areas of noncompliance in reasonable
detail and Seller shall remedy the problems identified.
(f) Seller agrees to use all reasonable efforts to
promptly rectify or resolve any deficiencies noted by a governmental
entity (or third party authorized by a governmental entity) in a report
or correspondence issued to Seller with respect to an Owned Facility or
a Contract Facility.
Section 3.2. Subcontracting.
It is understood and agreed that Seller shall have the right
in connection with its performance hereunder to contract with such third parties
as Seller deems advisable to manufacture Licensed Products, provided that (i)
manufacture and/or quality control by any such third party has been authorised
by the competent regulatory authorities in the Licensed Territory, (ii) Seller
shall provide Buyer with not less than fifteen (15) days' advance notice of its
intent to contract with any third party and shall identify such third party to
Buyer, (iii) Buyer may audit Seller's contractor's qualifications and (iv)
Seller shall remain fully liable for its performance hereunder to the same
extent as if such contractor had not been engaged.
935303.1
7
<PAGE>
Section 3.3. Exclusivity.
For so long as the Sublicense Agreement remains in effect with
respect to any country in the Licensed Territory, until such time as Buyer has a
fully paid-up license in such country in accordance with the terms of the
Sublicense Agreement, Seller shall supply Licensed Products only to Buyer for
distribution within such country.
Section 3.4. Alternate Sources of Supply.
In the event Seller is unable to supply conforming Licensed
Products sufficient to meet Buyer's firm orders made consistent with Section
4.1, Buyer shall have the immediate right to manufacture and package Licensed
Product with a supplier other than Seller (a "Back-Up Supplier"). Such right
shall continue until Seller notifies Buyer that Seller is able to supply all
Licensed Products required by Buyer as provided herein, in which case Buyer
shall recommence sourcing Licensed Products from Seller once any outstanding
orders from a Back-Up Supplier have been satisfied (provided that Buyer shall
not at any time enter into binding commitments for the purchase of quantities of
Licensed Products from any Back-Up Supplier exceeding Buyer's requirements for
Licensed Products during the three-month period commencing with the date of the
latest such commitment). Seller shall be entitled to receive a royalty in an
amount equal to the sum of [***] and (ii) [***] of such Licensed Product sales;
but only to the extent that Buyer's cost of the Licensed Product in finished,
packaged, labelled and quality controlled form ready for resale to the ultimate
customer plus the royalties hereinabove established shall not exceed the [***].
Buyer may elect to act as Back-Up Supplier or, at its election, have a third
party supplier of Buyer's choice (and reasonably acceptable to Seller) act as
Back-Up Supplier. Seller shall cooperate fully with Buyer and any separate
Back-Up Supplier, and shall use commercially reasonable best efforts to enable
the Back-Up Supplier to qualify and validate the Back-Up Supplier's facilities
and to manufacture and package Licensed Products. Seller shall give the Back-Up
Supplier prompt and unrestricted access to, or, if requested, Seller shall
immediately provide to the Back-Up Supplier, all technical information necessary
for the Back-Up Supplier to manufacture Licensed Products during the period
permitted hereby. Any disclosure or use of technical information will be subject
to the confidentiality restrictions set forth in Article 6 of the Sublicense
Agreement. The Back-Up Supplier shall have the right to observe the operation of
any laboratory and manufacturing and/or packaging facility of Seller (subject to
Buyer obligations of confidentiality to third parties), and to have a reasonable
number of employees or other representatives of Seller visit the Back-Up
Suppliers' facilities, at Buyer's option and in accordance with a mutually
agreed timetable, to demonstrate and explain any of the technical information
and the manufacturing and packaging processes for the
[***] Confidential treatment requested.
935303.1
8
<PAGE>
Licensed Products. Seller shall reasonably cooperate with Buyer and Back-Up
Supplier to obtain any regulatory approval in the Licensed Territory as may be
required for the manufacture of Licensed Products by the Back-Up Supplier.
Section 3.5. Allocation in the Event of Shortage.
If for any reason Seller experiences a shortage of materials
required to manufacture Licensed Products and Seller is therefore unable to
supply Buyer with the full quantity of Licensed Products ordered by it and
accepted by Seller, Buyer shall be entitled to receive that quantity of Licensed
Products which bears the same proportion to the total quantity of available
Licensed Products as the quantity of Licensed Products purchased by Buyer from
Seller in the 12 months preceding the supply shortage (or a shorter period if
Buyer has started purchasing Licensed Products less than 12 months before the
shortage occurs) bears to all purchases of orders from Seller from all customers
(including Buyer) for Licensed Products during such period.
ARTICLE IV
----------
QUANTITY FORECASTS; ORDERS
--------------------------
Section 4.1. Forecasts.
(a) In order to assist Seller in planning its
production, commencing sixty (60) days prior to the calendar month in
which the First Commercial Sale of Licensed Products takes place in any
country in the Licensed Territory, Buyer shall provide Seller with
[***] rolling forecast of the quantities of such Licensed Product
required by Buyer, by month, for the following [***]. The first [***]
of such projections shall constitute a binding commitment to order the
quantity of such Licensed Product forecast for such period, provided
that with respect to the first [***] provided that the portion of such
forecast relating to such country is separately stated and is so
indicated. Projections for months [***] shall be made in good faith and
shall constitute Buyer's best estimates of future orders, but shall not
be binding on Buyer. Updated [***] forecasts will be provided at the
beginning of each succeeding calendar month for the [***] . Buyer's
forecast shall also describe anticipated regulatory modifications to
any English language version of Licensed Product labeling proposed by
Seller. Seller shall, no later than fifteen (15) Business Days after
receipt of each such forecast, notify Buyer in writing of any
prospective problems of which Seller is aware of that might prevent
Seller from meeting Buyer's forecast order quantities or estimated
delivery dates.
[***] Confidential treatment requested.
935303.1
9
<PAGE>
(b) Buyer shall provide Seller with its firm
purchase orders for Licensed Product in accordance with the lead-times
and batch size increments to be specified by Seller in writing as soon
as reasonably practicable but in any event before Buyer places its
first order for Licensed Products, such lead-times and batch sizes to
be applicable during the term of this Agreement unless otherwise agreed
in writing by the parties. Notwithstanding the foregoing, Buyer shall
have the right, up to the date of manufacture, to issue binding change
orders to increase or decrease such purchase orders with the consent of
Seller, which shall not be unreasonably withheld so long as Buyer
agrees to compensate Seller for any damages suffered by Seller as a
consequence of such change order (including damages attributable to
loss of allocable overhead recoupment, but excluding loss of profit),
provided that Seller shall advise Buyer before carrying out any change
order of Seller's estimated increased cost of doing so. Buyer agrees to
accept partial shipments of Licensed Products should, for any reason,
it become necessary to ship in advance of order completion, provided
that Seller shall (i) give advance written notice to Buyer of such
shipment and (ii) bear any additional cost to Buyer of receiving
Licensed Products in partial shipments. Seller shall make all
commercially reasonable efforts to comply with any revisions to
purchase order requirements consistent with the provisions of Section
4.1(a) and this Section 4.1(b). Seller, within ten (10) Business Days
after the date that a purchase order is issued to it, shall acknowledge
receipt of Buyer's order and confirm in writing that the order can be
supplied. For purposes hereof, a purchase order will be deemed issued
on the earlier of (i) the date that Seller receives the purchase order
via mail and (ii) the date of receipt of the telecopied purchase order.
Section 4.2. Purchase Order Contents.
(a) Each purchase order shall specify the
quantity, concentration and container size of Licensed Product ordered
and the required delivery date. Seller shall use reasonable commercial
efforts to deliver each shipment of Licensed Product within five (5)
days of the delivery date specified in Buyer's purchase order relating
thereto (provided that in no event shall such date be less than 30 days
after the date the purchase order is issued, unless otherwise consented
to by Buyer) using carriers mutually agreeable to Buyer and Seller.
Seller shall use commercially reasonable efforts to accommodate "Rush"
orders from Buyer.
(b) When all appropriate validation and
quality control release criteria for a particular shipment of Licensed
Product have been met (the "Release Date"), Seller shall notify Buyer
in writing of the expected delivery dates (including details of
destination, date and time) to enable delivery and receipt to be
coordinated. Title and risk of loss to Licensed Products shall
935303.1
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pass to Buyer upon delivery of Licensed Products by Seller to the
carrier.
Section 4.3. Packaging.
(a) Licensed Products shall be delivered to
Buyer as finished goods in final packaged and labelled form, quality
controlled in accordance with Section 2.1 (d) and ready for resale to
the ultimate customer and in accordance with the packaging requirements
set forth in the Marketing Regulatory Approvals.
(b) Buyer shall distribute all Licensed
Products as packaged by Seller in accordance with Section 4.3(a). In no
event shall any Licensed Products be repackaged or reconfigured by
Buyer without Seller's prior written consent.
Section 4.4. Labelling.
With respect to each country in the Licensed Territory, prior
to distribution of a Licensed Product, Buyer shall provide Seller with evidence
of the regulatory approval of labelling specifications for such Licensed Product
in such country and any variations required by the applicable regulatory agency.
All such materials shall be provided to Seller together with an English
translation by a translator reasonably acceptable to Seller. Seller shall
distribute Licensed Products bearing only labelling supplied or approved by
Buyer and in accordance with such regulatory requirements.
ARTICLE V
---------
CERTAIN OBLIGATIONS OF BUYER
----------------------------
Buyer agrees to ascertain and comply with all applicable laws
and regulations and standards of industry or professional conduct in connection
with the use, distribution or promotion of the Licensed Products, including
without limitation, those applicable to product claims, labelling, approvals,
registrations and notifications, and also to obtain Seller's prior written
consent to all claims, labels, instructions, packaging or the like, which
consent shall not be unreasonably withheld.
Buyer agrees to use commercially reasonable efforts, at its
sole expense, to obtain and maintain any applicable approvals, registrations,
notifications or the like (other than any NDA or its equivalent for which Seller
shall be responsible to the extent provided in the Sublicense Agreement) with
regard to marketing, using, selling, labeling or otherwise promoting or making
claims regarding the Licensed Products or
935303.1
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<PAGE>
their uses or reimbursement therefor in the Licensed Territory other than those
for which Seller is responsible pursuant to the Sublicense Agreement. Seller
will reasonably cooperate with Buyer in such efforts. Buyer shall not file any
such application or document without Seller's prior written consent, which shall
not be unreasonably withheld. To the extent permitted by law, all approvals,
registrations, notifications and the like (and all documents, applications and
information related thereto) and all rights thereunder or thereto shall be for
the sole benefit of and shall be solely owned by and in the name of Seller.
Buyer will provide Seller with any information regarding the foregoing that
Seller may request (with English translations).
ARTICLE VI
----------
REGULATORY MATTERS
------------------
Section 6.1. Information Regarding Regulatory Approvals.
Seller shall promptly advise Buyer, at Buyer's request, in matters pertaining to
U.S. regulatory requirements relating to Seller's activities hereunder. Seller
shall also provide to Buyer reasonable advance notice of any regulatory
submission containing information or data provided by Buyer to Seller which
Seller intends to disclose to regulatory agencies under this Agreement.
Section 6.2. Quality Control Program; Additional Testing
Programs. Seller shall maintain a quality control program consistent with cGMP,
as required by the FDA and/or any other governmental entity in the Licensed
Territory, with respect to Seller's manufacture of Licensed Products hereunder.
In addition, Seller will perform such additional testing programs, and provide
Buyer with documentation arising from such testing programs, as may be agreed to
by Buyer and Seller or required by any applicable regulatory authority.
Section 6.3. Retention of Samples. Seller shall retain as
samples such quantities of Licensed Products from each batch of Licensed Product
as Buyer shall reasonably request. Retained samples shall be maintained in a
suitable storage facility for one year past the product's expiration date. All
such samples shall be available for inspection and testing by Buyer at
reasonable times and upon reasonable notice.
Section 6.4. Recalls. Buyer shall notify Seller promptly if
any Licensed Product is the subject of a recall, market withdrawal or correction
within the Licensed Territory (a "Recall"), and Buyer and/or its designee shall
have sole responsibility for the handling and disposition of such Recall. Buyer
and/or its designee shall bear the costs of all Recalls of Licensed Products
except to the extent that such Recall shall have been the result of Seller's
breach of any of the warranties set
935303.1
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forth in this Agreement or the Sublicense Agreement, in which case Seller will
promptly reimburse Buyer to such extent for actual, direct costs sustained as a
result of the Recall. In the event that Seller disputes Buyer's determination
that the fault is due to Seller and/or to its agent, the Parties will select a
mutually agreeable outside consulting firm which will be instructed to review
the applicable information and data and to confirm or dissent from Buyer's
determination. If the consulting firm confirms Buyer's determination, Seller
will pay the fees of such consulting firm. If the consulting firm dissents from
Buyer's determination, Buyer will pay the fees of such consulting firm. Buyer
and/or its designee shall maintain records of all sales of Licensed Products and
customers sufficient to adequately administer a Recall, market withdrawal or
correction for a period of three years after termination or expiration of this
Agreement. Except as required by law, Buyer and/or its designee shall serve as
the sole point of contact with the applicable governmental entity concerning any
Recall within the Licensed Territory with respect to Licensed Products and
Seller shall serve as the sole point of contact with the FDA with respect to any
Recall. In the event that Seller is required to communicate with the FDA with
respect to Recall of Licensed Products, Seller shall within one Business Day
notify Buyer of such communication.
ARTICLE VII
-----------
TERMINATION; RIGHTS AND OBLIGATIONS UPON
----------------------------------------
TERMINATION
-----------
Section 7.1. Term. This Agreement shall commence on the date
hereof and shall continue in effect with respect to each Licensed Product in
each country in the Licensed Territory for so long as the Sublicense Agreement
remains in effect with respect to such Licensed Product in such country and
Buyer does not have a paid-up license thereunder with respect to such Licensed
Product in such country.
Section 7.2. Termination for Default. If either party
materially defaults in the performance of any material agreement, condition or
covenant of this Agreement or the Sublicense Agreement [***] after receipt by
the defaulting party of a notice thereof from the other party, the party not in
default may terminate this Agreement.
Section 7.3. Rights and Obligations on Expiration or
Termination. Except to the extent expressly provided to the contrary, the
following provisions shall survive the termination of this Agreement: Sections
6.3 and 6.4 and Articles VIII through X. Any rights of Seller to payments
accrued through termination as well as obligations of the parties under firm
orders for purchase and delivery of Licensed Products at the time of such
termination shall remain in effect, except that in the case
[***] Confidential treatment requested.
935303.1
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of termination under Section 7.2, the terminating party may elect whether
obligations under firm orders will remain in effect and except that Seller will
have no obligation with respect to delivery dates more than three months after
termination.
ARTICLE VIII
------------
WARRANTIES; REPLACEMENT OF PRODUCTS; INSURANCE
----------------------------------------------
Section 8.1. Warranties. Seller warrants to Buyer for itself
and on behalf of its subcontractors and agents who assume any of Seller's
obligations hereunder that (i) when shipped to Buyer by Seller, the Licensed
Products will conform to the Specifications, as then in effect, and will not be
(A) adulterated or misbranded within the meaning of the Food, Drugs & Cosmetic
Act or (B) be an article which may not, under the provisions of the Food, Drugs
& Cosmetic Act, be introduced into interstate commerce, (ii) any Facility used
by Seller will remain in compliance with cGMP at all times during the term of
this Agreement and (iii) Seller shall obtain and maintain all necessary permits,
registrations and licenses necessary to carry out its obligations pursuant to
this Agreement. The foregoing warranties are the only warranties made by Seller
with respect to the Licensed Products delivered hereunder, and may only be
modified or amended by a written instrument signed by a duly authorized officer
of Seller and duly authorized officer of Buyer. THE EXPRESS WARRANTIES CONTAINED
IN THIS ARTICLE 8 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A
PARTICULAR USE.
Section 8.2. Replacement of Licensed Products. Any Licensed
Products delivered to Buyer by Seller which do not conform to the Specifications
and are properly rejected as set forth in Article 2, or which are otherwise not
in compliance with the warranties made in Section 8.1 or in the Sublicense
Agreement, shall be replaced, or Buyer's account may be credited, at Buyer's
election. The remedy of replacement or credit shall not be available if and to
the extent that such nonconformance was caused by Buyer's misuse, unauthorized
modification, neglect, improper testing or improper storage, including without
limitation storage at inappropriate temperatures, transportation, use beyond any
dating provided, by accident, fire or other hazard. THE EXPRESS OBLIGATIONS
STATED IN THIS SECTION 8.2 AND IN SECTIONS 2.1 AND 8.3 ARE IN LIEU OF ALL OTHER
LIABILITIES OR OBLIGATIONS OF SELLER FOR DAMAGES, INCLUDING BUT NOT LIMITED TO
DIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE
DELIVERY, USE OR PERFORMANCE OF THE PRODUCTS.
935303.1
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Section 8.3. Insurance.
Buyer and Seller shall maintain during the term of this
Agreement products liability insurance policies, covering their respective
obligations under this Agreement, issued by reputable insurance companies under
ordinary terms and conditions in the pharmaceutical industry and will prove the
existence thereof to the other party if so requested.
ARTICLE IX
----------
MISCELLANEOUS
-------------
Section 9.1. Entire Agreement This Agreement, including the
Schedules and Exhibits hereto, constitutes the entire agreement and
understanding between the parties as to the subject matter hereof. All prior
negotiations, representations, agreements, contracts, offers and earlier
understandings of whatsoever kind, whether written or oral between Seller and
Buyer in respect of the subject matter of this Agreement, are superseded by,
merged into, extinguished by and completely expressed by this Agreement. No
aspect, part or wording of this Agreement may be modified except by mutual
agreement between the Seller and Buyer taking the form of an instrument in
writing signed and dated by duly authorized representatives of both Seller and
Buyer. The representations and warranties made by Seller in the Sublicense
Agreement are incorporated herein by reference, provided that no breach of such
representations and warranties shall be the basis for a termination of this
Agreement unless the Sublicense Agreement is terminated simultaneously.
Section 9.2. Notices Any notice or communication or permitted
to be given by this Agreement shall be given by post-paid, first class,
registered or certified mail or reputable courier service addressed to:
In the case of Seller: Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Attention: Robert J. Capetola, Ph.D.
Chief Executive Officer
With a copy to:
Yi Tuan & Brunstein
The Empire State Building
350 Fifth Avenue, Suite 5411
New York, New York 10118
Attention: Han-Hsien Tuan
935303.1
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<PAGE>
In the case of Buyer: Laboratorios del Dr. Esteve, S.A.
Av. Mare de Deu de Montserrat, 221
08041 Barcelona (Spain)
Attention: Director, International
Such addresses may be altered by notice so given. If no time
limit is specified for a notice required or permitted to be given by this
Agreement, the time limit therefor shall be 10 full Business Days, not including
the day of mailing. Notice shall be considered made as of the date of deposit
with the appropriate Post Office or courier service.
Section 9.3. Governing Laws and Dispute Resolution.
(a) This Agreement and its effect are subject
and shall be construed and enforced in accordance with the laws of the
State of New York, United States, except as to any issue which depends
upon the validity, scope or enforceability of any patent within the
Patent Rights, which issue shall be determined in accordance with the
applicable patent laws of the country of such patent.
(b) Any controversy or claim arising out of
or relating to this Agreement, or the breach, termination or validity
thereof which cannot be settled within three (3) months of it having
arisen shall be submitted to the respective President or General
Manager of each Party and if, within thirty (30) days or such other
period as may be agreed upon between the Parties following such
reference, the dispute remains unresolved, it shall be settled on
application by either Party by arbitration conducted in the English
language, in Stockholm (Sweden) in accordance with the Rules of
Arbitration of the International Chamber of Commerce by one or more
arbitrators appointed in accordance with the said rules. The parties
expressly agree to abide the award rendered. This provision shall not
prevent either party from addressing any competent court or tribunal in
order to seek for interim measures.
Section 9.4. Conflicts. Nothing in this Agreement shall be
construed so as require the commission of any act contrary to law, and whenever
there is any between any provision of this Agreement or concerning the legal
right the parties to contract and any statute, law, ordinance or treaty, the
latter prevail, but in such event the affected provisions of this Agreement
shall curtailed and limited only to the extent necessary to bring it within the
applicable legal requirements.
Section 9.5. Registration. Buyer shall take all reasonable and
necessary steps to register this Agreement in any country where such is required
to
935303.1
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<PAGE>
permit the transfer of funds and/or payment of royalties to Seller hereunder
or is otherwise required by the government or law of such country to effectuate
or carry out this Agreement. Notwithstanding anything contained herein but
subject to Section 9.4 hereof, Buyer shall not be relieved of any of its
obligations under this Agreement by any failure to register this Agreement in
any country, and, specifically, Buyer shall not be relieved of its obligation to
make any payment due to Seller hereunder at Seller's address specified in
Section 9.2 hereof, where such payment is blocked due to any failure to register
this Agreement.
Section 9.6. Headings. As used in this Agreement, singular
includes the plural and plural includes the singular, wherever so required by
the context. The headings appearing at the beginning of the numbered Articles
and Sections hereof have been inserted for convenience only and do not
constitute a part of this Agreement.
Section 9.7. Agency. Nothing herein shall be deemed to create
an agency, joint venture or partnership between the parties hereto.
Section 9.8. Force Majeure. Notwithstanding any other
provisions of this Agreement, neither of the parties hereto shall be liable in
damages for any delay or default in performing hereunder if such delay or
default is caused by conditions beyond its control including but not limited to
acts of God, governmental restrictions, wars, or insurrections, strikes, floods,
work stoppages and/or lack of materials; provided, however, that the party
suffering such delay or default shall notify the other party in writing of the
reasons for the delay or default. If such reasons for delay or default
continuous exist for six (6) months, this Agreement may be terminated by either
party.
Section 9.9. Assignment. Neither party shall assign this
Agreement without the prior written consent of the other party, provided,
however, that Buyer may assign some or all of its rights and obligations
hereunder to the following Affiliates: Laboratorios P.E.N., S.A. (Spain), Esteve
Farma, Lda. (Portugal), Provesan S.A. (Switzerland) and to any other Affiliate
which Buyer may establish in the Licensed Territory. Buyer hereby warrants and
represents that such Affiliates will comply with all applicable terms of this
Agreement, and guarantees such Affiliates' performance hereunder.
Section 9.10. Successors and Assigns. Subject to Section 9.9,
this Agreement shall be binding upon and inure to the benefit of the permitted
successors or permitted assigns of Seller and Buyer respectively.
Section 9.11. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
935303.1
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<PAGE>
ARTICLE X
---------
BASIS OF BARGAIN
----------------
EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY DISCLAIMERS
AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL, BARGAINED
FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN INTO ACCOUNT AND
REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS
AGREEMENT AND IN THE DECISION BY EACH PARTY TO ENTER INTO THIS AGREEMENT.
933503.1
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
to be effective as of the date first written above.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola,
-----------------------
Name: Robert J.Capetola, Ph.D.
Title: President & CEO
LABORATORIOS DEL DR. ESTEVE, S.A.
By: /s/ Dr. J. Esteve
-----------------
Name: Dr. J. Esteve
Title: President
935303.1
19
EXHIBIT 10.54
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of October 26th , 1999, between
LABORATORIOS P.E.N., S.A., a corporation organized under the laws of Spain (the
"Purchaser"), and DISCOVERY LABORATORIES, INC., a Delaware corporation (the
"Seller").
WHEREAS, Seller wishes to sell to Purchaser and Purchaser wishes to
purchase from Seller, upon the terms and subject to the conditions of this
Agreement, certain shares of common stock of Seller, par value $0.001 per share
("Common Stock"), upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, Seller and Purchaser are entering into this Agreement in
contemplation of Seller and Purchaser's affiliate Laboratorios del Dr. Esteve,
S.A. entering into that certain Sublicense Agreement dated as of October 26th ,
1999 (the "Sublicense Agreement") relating to Seller's Surfaxin(R) product; and
WHEREAS, Seller and Purchaser are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Regulation D as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.01. Purchase and Sale. Upon the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell to Purchaser, and
Purchaser agrees to purchase from Seller, on the Closing Date (as defined below)
[this amount will be fixed at closing by the following equation: the quotient of
(a) the Purchase Price and (b) a fifty percent (50%) premium to the average
closing price of the Seller's stock for the ten (10) days preceding the Closing]
shares of Common Stock (the "Shares"). In consideration of the sale and transfer
to Purchaser of the Shares, Purchaser shall pay to Seller on the Closing Date,
by wire transfer of immediately available funds, an aggregate purchase price of
approximately Eight Hundred Fifty Thousand Dollars ($850,000) (the "Purchase
Price").
935343.2
<PAGE>
Section 1.02. The Closing. The acquisition by Purchaser of the Shares
(the "Closing") shall occur within 5 (five) business days of the date of
execution of this Agreement, subject to satisfaction or waiver of the conditions
set forth in Articles V and VI, at the offices of Yi Tuan & Brunstein, The
Empire State Building, 350 Fifth Avenue, Suite 5411, New York, New York or at
such other time and place as the Seller and the Purchaser may agree.
Section 1.03. Further Assurances. From and after the Closing, upon
written request from and at the expense of Purchaser, Seller shall execute,
acknowledge and deliver all such further acts, assurances, deeds, assignments,
transfers, conveyances and other instruments and papers as may be reasonably
required to sell, assign, transfer, convey and deliver the Shares to Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser, acknowledging that such
representations and warranties are made by Seller with the intent that they be
relied upon by Purchaser in determining whether to invest in the Shares as
follows:
Section 2.01. Organization and Qualification of Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Seller is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the business, operations or condition (financial or otherwise) of Seller. The
Seller has registered certain of its Common Stock pursuant to Section 12 of the
1934 Act, and such Common Stock is listed and traded on The NASDAQ SmallCap
Market.
Section 2.02. Authority. Seller has the requisite power and authority
to execute and deliver this Agreement and the other agreements and instruments
to be executed and delivered by Seller pursuant hereto and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by or on the part of Seller to authorize such
execution, delivery and consummation have been duly and properly taken .
Section 2.03. Enforceability. This Agreement has been duly executed and
delivered by Seller and constitutes, and such other agreements and instruments
when duly executed and delivered by Seller will constitute, legal, valid and
binding obligations of Seller enforceable against Seller in accordance with
their respective terms, subject as to enforceability to general principles of
-2-
935343.2
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equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally. No approval,
authorization, consent or other order or action of or filing with any court,
administrative agency or other governmental body in the United States of America
or any foreign government is required for the execution and delivery by Seller
of this Agreement and the execution and delivery by Seller of such other
agreements and instruments or the consummation by Seller of the transactions
contemplated hereby or thereby.
Section 2.04. Capitalization; Status of the Shares. (a) As of the date
hereof, the authorized capital stock of Seller consists of 35,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share, of which 2,420,282 are designated Series B
Convertible Preferred Stock of Seller (the "Series B Preferred Stock") and 2,039
are designated Series C Convertible Preferred Stock of Seller (the "Series C
Preferred Stock"). As of the date hereof, (i) 9,064,889 shares of Common Stock
were issued and outstanding, (ii) 1,617,505 shares of Series B Preferred Stock
were issued and outstanding and are convertible into 5,035,706 shares of Common
Stock, (iii) 2,039 shares of Series C Preferred Stock were issued and
outstanding and are convertible into shares of Common Stock having an aggregate
market value of $2,467,190, (iv) 2,000 shares of Common Stock are held in the
treasury of Seller, (v) 2,154,428 shares of Common Stock are reserved for
issuance upon exercise of outstanding options issued under (A) Seller's 1998
Stock Incentive Plan, Seller's 1995 Stock Option Plan and Seller's 1993 Stock
Option Plan (the "Option Plans") and (B) stock option plans of certain corporate
predecessors of Seller, (vi) an aggregate of 2,297 shares of Common Stock are
reserved for issuance under stock options granted by Seller outside the Option
Plans, (vii) an aggregate of 2,593,818 shares of Common Stock are reserved for
issuance under outstanding investor warrants, (viii) 684,997 shares of Common
Stock are reserved for issuance upon conversion of the 220,026 shares of Series
B Preferred Stock upon the exercise of outstanding warrants, and (ix) 173,333
shares of Common Stock are reserved for issuance upon exercise of Seller's
outstanding unit purchase option (including warrants issuable upon the exercise
of such unit purchase option). All of the outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights.
(b) The Shares, upon such issuance, will be validly
issued, fully paid and nonassessable shares of Common Stock.
Except as described in the Reports (as hereinafter defined) or
as set forth in this Agreement, there are no preemptive rights
or other rights to subscribe for or to purchase, or any
restrictions upon the voting or transfer of, any shares of
Common Stock, pursuant to Seller's Certificate of
Incorporation or Bylaws or any agreement or other instrument
to which Seller is a party. The sale of the Shares as
contemplated in this Agreement does not give rise to any
rights, other than those which have been waived for or
relating to the registration of any shares of Common Stock
(other than as provided in Article 4 of this Agreement). The
Shares are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding,
including any such
-3-
935343.2
<PAGE>
agreement, arrangement, commitment or understanding
restricting or otherwise relating to the voting, dividend
rights or disposition of the Shares other than this Agreement.
Section 2.05. SEC Filings. Seller has duly and timely filed with the
SEC all reports (the "Reports") required by the Securities Exchange Act of 1934
(the "1934 Act"). None of the Reports contained, at the time they were filed,
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements made therein
in light of the circumstances under which they were made, not misleading. The
financial statements (including the related notes) of Seller included in the
Reports present fairly the financial position of Seller as of the dates
indicated and its results of operations for the period specified therein. All
such financial statements have been prepared in accordance with United States
generally accepted accounting principles on a basis consistently applied. Seller
will timely make in the future all required filings with the SEC.
Section 2.06. Absence of Certain Changes. Since December 31, 1998,
there has been no material adverse change in the business, properties,
operations, condition (financial or otherwise), or results of operations of
Seller, except as disclosed in Seller's SEC filings and except for uses of cash
in the course of Seller's business and corresponding decreases in stockholders'
equity.
Section 2.07. No Conflicts. Seller is not in violation of its
Certificate of Incorporation or Bylaws or in default in the performance of any
material obligation contained in any material agreement, indenture or other
instrument. The performance by Seller of its obligations under this Agreement
and the consummation of the transactions herein contemplated will not conflict
with or result in a breach of the Certificate of Incorporation or Bylaws of
Seller, or any material agreement, indenture or other instrument to which Seller
is a party or by which it is bound, or any law, rule, administrative regulation
or decree of any court or governmental authority having jurisdiction over Seller
or its properties, or result in the creation or imposition of any material lien,
charge, claim or encumbrance upon any property or asset of Seller under any such
agreement, indenture or other instrument. Except as required by the Act and
applicable state securities or blue sky laws, no consent, approval,
authorization or order of any court or governmental authority is required in
connection with the consummation of the transactions contemplated by this
Agreement. The rights granted to the Purchaser hereunder do not in any way
conflict with and do not violate any rights granted to the other holders of
Seller's securities or debt instruments.
Section 2.08. Properties. Except as otherwise stated in the Reports,
(A) Seller has good marketable title (in fee simple, in the case of real
property), free and clear of all liens and encumbrances, to all of the material
real and personal property described in the Report as being owned by it, except
for any liens and encumbrances which are not material in the aggregate and do
not materially interfere with the conduct of the business of Seller, and (B) has
valid leases to the material real property described in the Report as under
lease to it with such exceptions as do not materially interfere with the conduct
of the business of Seller.
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Section 2.09. Disputes. Except as set forth in the Reports, there are
no actions, suits or proceedings pending before or by any court or governmental
agency or authority, or any arbitrator, which seek to restrain or prohibit the
consummation of the transactions contemplated hereby or which might reasonably
be expected to result in any material adverse change in the condition (financial
or other), business or results of operations of Seller and, to Seller's
knowledge, no such action, suit or proceeding is being threatened.
Section 2.10. Compliance with Laws. Seller is not in violation of any
law, ordinance, governmental rule or regulation or court degree to which it may
be subject and Seller has not failed to obtain any license, permit, franchise or
other governmental authorization necessary to the ownership of its property or
to the conduct of its business as conducted on the date hereof, which violation
or failure to obtain is likely to have a material adverse effect on the
condition (financial or other), business or results of operations of Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller, acknowledging that such
representations and warranties are made by Purchaser with the intent that they
be relied upon by Seller in determining whether to sell the Shares, as follows:
Section 3.01. Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
Section 3.02. Authority. Purchaser has the full corporate power and
authority to execute and deliver this Agreement and the other agreements and
instruments to be executed and delivered by Purchaser pursuant hereto and to
consummate the transactions contemplated hereby and thereby. All corporate acts
and other proceedings required to be taken by or on the part of Purchaser to
authorize such execution, delivery and consummation have been duly and properly
taken.
Section 3.03. Enforceability. This Agreement has been duly executed and
delivered by Purchaser and constitutes, and such other agreements and
instruments when duly executed and delivered by Purchaser will constitute,
legal, valid and binding obligations of Purchaser enforceable against Purchaser
in accordance with their respective terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally. No
approval, authorization, consent or other order or action of or filing with any
court, administrative agency or other governmental body in the United States of
America or any foreign government is required for the execution and delivery by
Purchaser of this Agreement and the execution and delivery by Purchaser of such
other agreements and instruments or the
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consummation by Purchaser of the transactions contemplated hereby or thereby.
Section 3.04. Securities Act of 1933. (a) The Shares are being acquired
by Purchaser for its own account, for investment purposes only and not with a
view to any public distribution thereof, and Purchaser will not offer to sell or
otherwise dispose of the Shares in violation of the registration requirements of
the 1933 Act.
(b) The Purchaser has received and carefully reviewed
copies of (i) Seller's Annual Report on Form 10-KSB for the
year ended December 31, 1998 (including without limitation the
section thereof entitled "Important Considerations Regarding
Forward-Looking Statements"), (ii) Seller's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1999 and (iii)
all current reports on Form 8-K filed since the date of the
Seller's Form 10-QSB for the quarter ended June 30, 1999.
Purchaser has also been afforded the opportunity to ask
questions of and receive answers from duly authorized officers
or other representatives of Seller and has received any
additional information regarding Seller which Purchaser has
requested.
(c) The Purchaser's consent to this Agreement was not
obtained by means of any form of general solicitation or
general advertising, and in connection therewith Purchaser did
not: (A) receive or review any advertisement, article, notice
or other communication published in a newspaper or magazine or
similar media or broadcast over television or radio whether
closed circuit, or generally available; or (B) attend any
seminar meeting or industry investor conference whose
attendees were invited by any general solicitation or general
advertising.
(d) The Purchaser is an accredited investor within
the meaning of Rule 501 under the 1933 Act, and Purchaser was
not formed for the purpose of receiving the Shares. The
Purchaser, either by reason of Purchaser's business or
financial experience or the business or financial experience
of Purchaser's purchaser representative (within the meaning of
Rule 501 under the 1933 Act), which Purchaser representative,
if any, is unaffiliated with and is not compensated by Seller
or any affiliate of Seller, directly or indirectly, has the
capacity to protect Purchaser's interests in connection with
the transactions contemplated by this Agreement.
(e) The Purchaser recognizes that its purchase of the
securities contemplated herein involves a high degree of risk
in that (i) an investment in Seller is highly speculative and
(ii) Purchaser could sustain the loss of Purchaser's entire
investment.
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ARTICLE IV
FURTHER COVENANTS AND AGREEMENTS
Section 4.01. Certificates; Restrictive Legend; Stop Transfer
Instructions. Upon the Closing Date, Seller shall deliver to Purchaser one
certificate representing the Shares, duly executed by or on behalf of Seller.
Purchaser acknowledges and agrees that the Shares shall bear a restrictive
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED ABSENT SUCH REGISTRATION
UNLESS EVIDENCE SATISFACTORY TO COUNSEL FOR THE COMPANY THAT
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE HAS BEEN
DELIVERED TO THE COMPANY.
The share certificate may also have such additional legends, if any, as may be
required in order to comply with the applicable "blue sky" laws of any
jurisdiction. The Purchaser further agrees to the issuance by Seller to its
transfer agent of stop transfer instructions with respect to any sale or other
transfer of the Shares by Purchaser absent registration under the Securities Act
or the establishment by Purchaser of an exemption therefrom in accordance with
this Agreement.
Section 4.02. Transfer Restrictions. Purchaser acknowledges that:
(a) the Shares have not been and are not being
registered under the provisions of the 1933 Act and are not
intended to be registered under the Securities Act and are
intended to be exempt from the registration requirements of
Section 5 of the Securities Act pursuant to Sections 4(2) of
the 1933 Act and Regulation D promulgated thereunder;
(b) the Shares may not be transferred, and Purchaser
agrees not to transfer such Shares, unless (A) such sale or
transfer is registered under the 1933 Act or (B) Purchaser
shall have delivered to Seller an opinion of counsel,
reasonably satisfactory in form, scope and substance to
Seller, to the effect that the Shares to be sold or
transferred may be sold or transferred pursuant to an
exemption from such registration;
(c) any sale of the Shares made in reliance on Rule
144 promulgated
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<PAGE>
under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale
of such Shares under circumstances in which the seller, or the
person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require
compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and
(d) neither Seller nor any other person is under any
obligation to register the Shares under the 1933 Act or,
except as provided in Section 4.04, to comply with the terms
and conditions of any exemption thereunder.
Section 4.03. Rule 144 Undertaking. For so long as and to the extent
necessary to permit Purchaser to sell the Shares pursuant to Rule 144 under the
1933 Act, Seller shall use reasonable efforts to file, on a timely basis, all
reports and data required to be filed with the SEC by Seller pursuant to Section
13 of the 1934 Act. Seller has filed all reports required to be so filed by it
during the preceding twelve (12) months. Notwithstanding anything contained in
this Section 4.03, Seller may deregister under Section 12 of the 1934 Act if it
then is permitted to do so pursuant to the 1934 Act and the rules and
regulations thereunder.
Section 4.04. Transfer Taxes. Purchaser and Seller shall each be
responsible for all transfer and similar taxes assessed or payable in connection
with the transfer of the Shares pursuant to this Agreement in their respective
jurisdictions; provided that this Section 4.04 shall not apply to (i) taxes
which are net income, capital, net worth, franchise, or similar conduct of
business taxes which are imposed on either party by any national, provincial,
state or local taxing authority; (ii) taxes imposed as a direct and primary
result of any party's gross negligence or willful misconduct; and (iii) taxes
imposed as a result of either party's failure to file any applicable tax report
or return in a timely or proper manner.
Section 4.05. Additional Covenants of Seller. (a) For so long as
Purchaser is the holder of any Shares, Seller will use commercially reasonable
efforts to pay all taxes (other than those taxes that are being contested in
good faith by Seller through appropriate proceedings) and to comply with all
applicable laws noncompliance with which would be expected to have a material
adverse effect on Seller.
(b) Seller undertakes to notify Purchaser as soon as
reasonably practical of any material change in any representation,
warranty or other information relating Seller set forth herein which
occurs prior to the Closing.
(c) Neither the Company nor any of its employees or other
persons directly or indirectly affiliated with it will engage in any
activity that would jeopardize the status of the Offering as an
exempt transaction under the Act or under the laws of any state in
which the Offering is made.
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<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
All obligations of Purchaser to effect the Closing hereunder are, at
the option of Purchaser, subject to the conditions precedent that, at the
Closing:
Section 5.01. Performance by Seller. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
Seller on or before the Closing shall have been complied with and performed in
all material respects.
Section 5.02. Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall have been true and correct in
all material respects at the date hereof and as of the Closing with the same
force and effect as though all such representations and warranties had been made
as of the Closing.
Section 5.03. No Injunctions. No provision of any applicable law or
regulation and no judgment, injunction, order or decree shall prohibit the
consummation of the Closing.
Section 5.04. Sublicense Agreement. Seller shall have executed and
delivered to Purchaser's affiliate Laboratorios del Dr. Esteve, S.A. the
Sublicense Agreement.
Section 5.05. Consents. All consents, approvals, authorizations and
orders required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any relevant governmental or regulatory
authority or any other person or entity shall have been duly obtained, made or
given, as the case may be, and shall be in full force and effect, and any
waiting period required by any statute, ordinance, law, rule, regulation, code,
injunction, judgment, order, decree, ruling or other requirement, standard or
procedure enacted, adopted or applied by any Governmental Authority, including
judicial decisions applying common law or interpreting any other law or any
governmental or regulatory authority in connection with such transactions shall
have expired or have been earlier terminated, except such consents as would not,
individually or in the aggregate, have a material adverse effect if not received
by the Closing Date.
Section 5.06. Approvals. The Seller shall have taken all action
necessary to authorize the execution of this Agreement and the consummation of
the transactions contemplated hereby, including any actions required to be taken
by the Board of Directors of the Seller and/or its shareholders pursuant to
State law.
Section 5.07. Seller's Certificate. Purchaser shall have received from
Seller, in form and substance reasonably satisfactory to Purchaser and its
counsel, a certificate of Seller, dated the Closing Date, of Seller, confirming
the satisfaction of the conditions set forth in
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<PAGE>
Sections 5.01 and 5.02.
Section 5.08. Secretary's Certificate. Purchaser shall have received
from Seller, in form and substance reasonably satisfactory to Purchaser and its
counsel, a certificate, dated the Closing Date, of the Secretary or an Assistant
Secretary of Seller, (i) certifying all documents evidencing the actions of
Seller authorizing the transactions contemplated hereby and the execution,
delivery and performance by Seller of this Agreement and the documents
contemplated hereby, (ii) certifying the Certificate of Incorporation and Bylaws
of Seller, (iii) containing a certificate of good standing from the Secretary of
State of the State of Delaware, and (iv) containing an incumbency certificate
regarding the officers authorized to sign this Agreement and the other documents
contemplated hereby.
Section 5.09. Opinion of Counsel. Purchaser shall have received from
Seller's counsel an opinion reasonably acceptable to Purchaser.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller to effect the Closing hereunder are, at the
option of Seller, subject to the conditions precedent that, at the Closing:
Section 6.01. Performance by Purchaser. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
Purchaser on or before the Closing shall have been complied with and performed
in all material respects.
Section 6.02. Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement shall have been true and correct
in all material respects at the date hereof and as of the Closing with the same
force and effect as though all such representations and warranties had been made
as of the Closing.
Section 6.03. No Injunctions. No provision of any applicable law or
regulation and no judgment, injunction, order or decree shall prohibit the
consummation of the Closing.
Section 6.04. Sublicense Agreement. Purchaser's affiliate Laboratorios
del Dr. Esteve, S.A. shall have executed and delivered to Seller the Sublicense
Agreement.
Section 6.05. Consents. All consents, approvals, authorizations and
orders required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any relevant governmental or regulatory
authority or any other person or entity shall have been duly obtained, made or
given, as the case may be, and shall be in full force and effect, and any
waiting period required by any statute, ordinance, law, rule, regulation, code,
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935343.2
<PAGE>
injunction, judgment, order, decree, ruling or other requirement, standard or
procedure enacted, adopted or applied by any governmental authority, including
judicial decisions applying common law or interpreting any other law or any
governmental or regulatory authority in connection with such transactions shall
have expired or have been earlier terminated, except such consents as would not,
individually or in the aggregate, have a material adverse effect if not received
by the Closing Date.
Section 6.06. Approvals. The Purchaser shall have taken all action
necessary to authorize the execution of this Agreement and the consummation of
the transactions contemplated hereby, including any actions required to be taken
by the Board of Directors of the Purchaser and/or its shareholders pursuant to
the law of the jurisdiction of its organization.
Section 6.07. Purchaser's Certificate. Seller shall have received from
Purchaser, in form and substance reasonably satisfactory to Seller and its
counsel, a certificate of Purchaser, dated the Closing Date, of Purchaser,
confirming the satisfaction of the conditions set forth in Sections 6.01 and
6.02.
Section 6.08. Secretary's Certificate. Seller shall have received from
Purchaser, in form and substance reasonably satisfactory to Seller and its
counsel, a certificate, dated the Closing Date, of the Secretary or an Assistant
Secretary of Purchaser, (i) certifying all documents evidencing the actions of
Purchaser authorizing the transactions contemplated hereby and the execution,
delivery and performance by Purchaser of this Agreement and the documents
contemplated hereby, (ii) certifying the organizational documents of Purchaser,
(iii) containing a certificate of good standing in the jurisdiction of its
organization, and (iv) containing an incumbency certificate regarding the
officers authorized to sign this Agreement and the other documents contemplated
hereby.
Section 6.09. Opinion of Counsel. Seller shall have received from
Purchaser's counsel an opinion reasonably acceptable to Seller.
ARTICLE VII
SURVIVAL
The representations, warranties, covenants and agreements contained in
this Agreement, and in any agreements, certificates or other instruments
delivered pursuant to this Agreement, shall survive the Closing and shall remain
in full force and effect, but subject to all limitations and other provisions
contained in this Agreement. The representations and warranties contained in
this Agreement and such other agreements, certificates and instruments are
exclusive and the parties hereto confirm that they have not relied upon any
other representation or warranty as an inducement to enter into this Agreement
and the transactions contemplated hereby (even though information not
represented and warranted to may have been, or may hereafter be, given to or
obtained or developed by one or both of the
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935343.2
<PAGE>
parties hereto pertaining to Seller, the transactions contemplated hereby or
otherwise). All such representations, warranties, covenants and agreements are
made or given by the parties in connection with, and are intended to be relied
upon only in entering into, this Agreement and shall not be construed to have
been made or given by the parties in connection with, and are not intended to be
relied upon only in entering into, the Sublicense Agreement or the Supply
Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Brokers. Seller represents and warrants to Purchaser, and
Purchaser represents and warrants to Seller, that neither it nor any party
acting on its behalf has incurred any liability, either express or implied, to
any "broker", "finder", financial adviser or similar person in respect of any of
the transactions contemplated hereby. Purchaser agrees to indemnify Seller
against, and hold it harmless from, and Seller agrees to indemnify Purchaser
against, and hold it harmless from, any liability, cost or expense (including,
but not limited to, fees and disbursements of counsel) resulting from any
agreement, arrangement or understanding made by such party with any third party
for brokerage, finders' or financial advisory fees or other commissions in
connection with this Agreement or the transactions contemplated hereby.
Section 8.02. Expenses. Except as otherwise specifically provided in
this Agreement, each party will pay its own expenses incident to this Agreement
and the transactions contemplated hereby, including legal and accounting fees
and disbursements.
Section 8.03. Amendments and Waivers. The parties hereto may, by
written agreement signed by the parties, modify any of the covenants or
agreements or extend the time for the performance of any of the obligations
contained in this Agreement or in any document delivered pursuant to this
Agreement. Any party hereto may waive, by written instrument signed by such
party, any inaccuracies in the representations and warranties of another party
or compliance by another party with any of its obligations contained in this
Agreement or in any document delivered pursuant to this Agreement. This
Agreement may be amended only by written instrument signed by the parties
hereto.
Section 8.04. Transferability. The respective rights and obligations of
each party hereto shall not be assignable by either such party without the
written consent of the other party hereto (and any purported assignment without
such written consent shall be void and of no effect). This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assignees.
Section 8.05. Notices. Any notice, request or other document to be
given hereunder to a party hereto shall be effective when received and shall be
given in writing and
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<PAGE>
delivered in person or sent by hand delivery or overnight courier, as follows:
If to Purchaser, addressed to
it at: Laboratorios P.E.N., S.A.
Av. Mare de Deu de Montserrat, 215
08041 Barcelona (Spain)
Attn: Managing Director
If to Seller, addressed to
it at: Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
Attn: Robert J. Capetola, Ph.D.
Chief Executive Officer
With a copy to:
Yi Tuan & Brunstein
The Empire State Building
350 Fifth Avenue, Suite 5411
New York, New York 10118
Any party hereto may change its address for receiving notices, requests
and other documents by giving written notice of such change to the other parties
hereto.
Section 8.07. Governing Law; Choice of Forum. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to conflict of laws doctrines).
Section 8.08. Jurisdiction. The Seller and the Purchaser each hereby
irrevocably consents that any legal action or proceeding against it or any of
its assets with respect to this Agreement may be brought in any jurisdiction
where such party or any of its assets may be found, or in any court of the State
of New York or any Federal court of the United States of America located in New
York, New York, United States of America, or both, as the other parties may
elect, and by execution and delivery of this Agreement, the Seller and Purchaser
each hereby irrevocably submits to and accepts with regard to any such action or
proceeding, for itself and in respect of its assets, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Seller and
Purchaser may serve process in any manner permitted by applicable law or to
bring any legal action or proceeding or to obtain execution of judgment in any
jurisdiction. Each Seller and Purchaser further agrees that final judgment
against such party in any action or proceeding in connection with this Agreement
shall be conclusive and may be enforced in any other jurisdiction within or
outside the United States of America by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and the
amount of such party's indebtedness. Each Seller and Purchaser hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection which such party may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement
brought in the State of New York, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in the State of New York
has been brought in an inconvenient forum.
Section 8.09. Partial Invalidity. In the event that any provision of
this Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 8.10. Section Headings. The section headings and table of
contents contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Section 8.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 8.12. Entire Agreement. This Agreement, together with the
schedules and exhibits and the agreements, certificates and instruments
delivered pursuant hereto, contain the entire agreement among the parties
hereto, and supersede all prior agreements and undertakings (written and oral)
between the parties hereto, relating to the subject matter hereof.
Section 8.13. Parties in Interest. Nothing in this Agreement, express
or implied, is intended to confer on any person other than the parties and their
respective successors and permitted assigns any rights or remedies under or by
virtue of this Agreement, and no person shall assert any rights as a third party
beneficiary hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DISCOVERY LABORATORIES, INC.
By: /s/Robert Capetola, Ph.D.
-----------------------------------
Name: Robert J. Capetola, Ph.D.
Title: President & CEO
LABORATORIOS P.E.N., S.A.
By: /s/J. Andreu
---------------------------------
Name: J. Andreu
Title: Managing Director
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Certain portions have been omitted pursuant to a request for confidentiality and
such omitted portions have been separately filed with the Commission.
Exhibit 10.55
RESEARCH FUNDING AND OPTION AGREEMENT
This Agreement is entered into this 1st day of March 2000, by and between
THE SCRIPPS RESEARCH INSTITUTE, 10550 North Torrey Pines Road, La Jolla,
California 92037 ("Scripps"), a California nonprofit public benefit corporation,
and Discovery Laboratories, Inc. ("Optionee"), a Delaware corporation located at
350 South Main Street, Suite 307, Doylestown, Pennsylvania 18901, with respect
to the facts set forth below.
RECITALS
A. Scripps is engaged in scientific biomedical and biochemical research,
including research relating to synthetic pulmonary surfactants, as more
particularly described herein.
B. Optionee is engaged in research and development of synthetic pulmonary
surfactants.
C. Optionee desires to provide certain funding as part of the Scripps
research activities described above.
D. Scripps has the exclusive right to grant a license in and to any
technology developed pursuant to the research program described herein, subject
to any non exclusive rights of the U.S. Government, resulting from the receipt
by Scripps of U.S. Government funding, to use such technology for its own
purposes.
E. Scripps is willing to grant to Optionee an option to acquire an
exclusive, worldwide right and license to use, enhance and develop technology
arising from the Research Program and develop, market and sell products in the
field described below, all as is more particularly described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
outlined herein, Scripps and Optionee hereby agree as follows:
935512.1
<PAGE>
1. DEFINITIONS.
-----------
1.1 Confidential Information. The term "Confidential Information" shall
mean any and all proprietary information of Scripps or Optionee which may be
exchanged between the parties at any time and from time to time during the term
hereof. The fact that a party may have marked or identified as confidential or
proprietary any specific information shall be indicative that such party
believes such information to be confidential or proprietary, but the failure to
so mark information shall not conclusively determine that such information was
or was not considered confidential information by such party. Information shall
not be considered confidential to the extent that it:
a. Is publicly disclosed through no fault of any party hereto,
either before or after it becomes known to the receiving party; or
b. Was known to the receiving party prior to the date of this
Agreement, which knowledge was acquired independently and not from the other
party hereto (including such party's employees); or
c. Is subsequently disclosed to the receiving party in good faith
by a third party who has a right to make such disclosure; or
d. Has been published by a third party as a matter of right.
1.2 Core Patent Right. The term "Core Patent Rights" shall mean the
following issued U.S. patents and pending U.S. patent applications: (a) Patent
No. 5,407,914, issued April 18, 1995; Patent No. 5,260,273, issued November 9,
1993; and Patent No. 5,164,369, issued November 17, 1992; and (b) pending patent
applications Serial Nos. [***]
1.3 Field. The term "Field" shall mean use in research or as a
diagnostic, preventative or therapeutic product in humans or vertebrate animals
and shall specifically exclude any agricultural applications or products.
1.4 Jointly Developed Technology. The term "Jointly Developed
Technology" shall mean any information, process, technology and materials
included within the scope of the Research Program which are developed by both
Scripps and Optionee during the term of this Agreement as a result of the
Research Program and which, under principles arising under the patent laws of
the United States of America, would be found jointly owned by both Scripps and
Optionee thereunder.
[***] Confidential treatment requested
935512.1
2
<PAGE>
1.5 Licensed Product. The term "Licensed Product" shall mean any
research, diagnostic, preventative or therapeutic product or process which
cannot be developed, manufactured, used or sold without utilizing Scripps Patent
Rights, any Scripps Technology not otherwise includable within Scripps Patent
Rights or Jointly Developed Technology.
1.6 Principal Investigator. The term "Principal Investigator" shall
mean the person identified in Section 2.2 below, together with such replacement
persons selected in accordance with the provisions thereof.
1.7 Proprietary Property. The term "Proprietary Property" shall mean,
with respect to any party hereto, any and all technology, now existing or
hereafter arising, in which such party shall have a proprietary interest,
including without limitation, any idea, data, compound, molecule, cell line,
material, know-how, technique, method, process, use, composition, skill,
Confidential Information, trade secret or configuration of any kind, whether or
not any such information would be enforceable as a trade secret, the copying of
which would be enjoined or restrained by a court as constituting copyright
infringement or unfair competition or would be eligible for protection under the
patent laws of the United States or elsewhere.
1.8 Research Program. The term "Research Program" shall mean
theresearch program to be undertaken by Scripps under the direction and control
of the Principal Investigator set forth in Section 2.2 hereof.
1.9 Scripps Patent Rights. The term "Scripps Patent Rights" shall mean
the rights arising out of or resulting from (i) any and all U.S. and foreign
patent applications and patents covering Scripps Technology, (ii) the patents
proceeding from such applications, and (iii) all continuations, divisions,
continuations-in-part, reissues, reexaminations, and extensions thereof, so long
as said patents have not been held invalid and/or unenforceable by a court of
competent jurisdiction from which there is no appeal or, if appealable, from
which no appeal has been taken.
1.10 Scripps Technology. The term "Scripps Technology" shall mean any
Proprietary Property of Scripps developed, in whole or in part, in the
performance of the Research Program during the term of this Agreement, including
any intellectual property within the scope of the Research Program developed by
any employee of Scripps during the term of this Agreement while such employee is
rendering services to Optionee as a consultant or otherwise.
935512.1
3
<PAGE>
2. CONDUCT OF RESEARCH PROGRAM.
---------------------------
2.1 Conduct of Research Program. Scripps hereby agrees to conduct the
Research Program as expressly set forth on Exhibit A attached hereto, as amended
from time to time in accordance with its terms, and subject to the provisions of
this Agreement.
2.2 Supervision of Research Program. Scripps agrees that the Research
Program at Scripps shall be conducted by or under the direct supervision of the
following Principal Investigator: Charles Cochrane, M.D. In the event that the
Principal Investigator leaves Scripps, or terminates his/her involvement in the
Research Program, Scripps shall use its best efforts to find a replacement
Principal Investigator acceptable to Optionee, which acceptance shall not be
unreasonably withheld. In the event that Scripps shall fail to appoint a
replacement Principal Investigator reasonably acceptable to Optionee, Optionee
shall have a right to terminate this Agreement upon delivery to Scripps of
written notice of intent to terminate pursuant to this Section 2.2, which notice
must be delivered to Scripps not less than 30 days nor more than 90 days after
delivery by Scripps to Optionee of the name of the replacement Principal
Investigator.
2.3 Reports.
a. Scripps agrees that within sixty (60) days following the last
day of each calendar year during the term of this Agreement, Scripps shall
furnish Optionee with a written report summarizing the results of the research
included within the scope of the Research Program during the immediately
preceding calendar year conducted by Scripps, including but no limited to all
data, conclusions, results, observations and a detailed description of all
procedures.
b. Optionee agrees that within sixty (60) days following the last
day of each calendar year during the term of this Agreement, Optionee shall
furnish Scripps with a written report summarizing the results of the research
and development included within the scope of the Research Program during the
immediately preceding calendar year which Optionee believes constitutes Jointly
Developed Technology, including bot not limited to all data, conclusions,
results, observations and a detailed description of all procedures.
c. All such information submitted to Optionee by Scripps, and all
such information submitted to Scripps by Optionee, as a result of the Research
Program under this Agreement is deemed Confidential Information of Scripps, and
shall be kept confidential by Optionee, and shall be used by Optionee only for
the purpose of evaluating whether or not to exercise an option to obtain a
license pursuant to Section 3 hereof, as and when such option is exercisable in
accordance with the terms hereof. Optionee shall not, during the term or after
the termination hereof, use or disclose any of the Confidential Information,
unless and until (i) permitted to do so pursuant to the terms of any license
agreement entered into by Optionee
935512.1
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after exercise of option for such technology or (ii) such information no longer
comes within the definition of " Confidential Information" hereunder and
otherwise becomes available as public information.
2.4 Contributions of Parties to Research Program. Contributions in the
form of financial support, equipment, personnel, technology and other necessary
components for the conduct of the Research Program shall be made by the parties
in accordance with the terms set forth on Exhibit B attached to this Agreement.
3. OPTION FOR EXCLUSIVE LICENSE.
----------------------------
3.1 Grant of Option.
a. It is the intention of the parties hereto that the Proprietary
property which is the subject of the option described in this Section 3 is
available to Optionee, under the specific terms hereof, on an
application-by-application basis, where each application with respect to a
specific field. It is the further intention of the parties hereto that Optionee
shall elect to exercise its option from time to time and at multiple times
during the term thereof, as and when Scripps makes the disclosure of each
application of Proprietary Property (whether Scripps Technology, Scripps Patent
Rights covering Scripps Technology, or Scripps rights in Jointly Developed
Technology). The statement of general intention described in this subparagraph
is qualified in its entirety by the specific provisions of this Section 3.
b. Subject to the terms of this Agreement, Scripps hereby grants
to Optionee an exclusive option to acquire an exclusive worldwide license to
make, have made, sell or use License Products, with exclusive rights of
sublicense, in the Field. Each such license shall be to a specific application
of Scripps Technology, Scripps Patent rights covering Scripps Technology, or
Scripps' rights in Jointly Developed Technology, as more particularly described
in the disclosure (Sections 3.2 or 3.3). Such option shall be for the period
(Section 3.4) and exercised as (Section 3.5) more particularly described below.
3.2 Disclosure of Scripps Technology. As soon as reasonably possible,
either upon conception or reduction to practice, as the case may be, of each and
every application of Scripps Technology, Scripps shall disclose the same in
writing to Optionee. Such disclosure shall contain sufficient detail to enable
Optionee to evaluate the advisability of exercising the option granted hereunder
with respect to such application. All such disclosures shall be maintained in
confidence by Optionee.
3.3 Disclosure of Jointly Developed Technology. As soon as reasonably
feasible, either upon conception or reduction to practice, as the case may be,
of each and every application of Jointly Developed Technology, Optionee shall
disclose the same writing to Scripps. Such disclosure shall contain sufficient
detail to enable Scripps to evaluate whether such technology is, in fact, within
the definition of Jointly Developed. If Scripps, in the
935512.1
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exercise of its good faith discretion, acknowledges that all or some of such
technology as so described by Optionee falls within the definition of Jointly
Developed Technology, then Scripps shall deliver to Optionee a written notice
describing the Jointly Developed Technology and Scripps' intent to license the
same to Optionee if Optionee exercises its option.
3.4 Option Period. Optionee shall have a period of one hundred eighty
(180) days from receipt of the disclosure from Scripps described in Section 3.2
above or from the notice from Scripps described in Section 3.3 within which to
exercise its option to obtain a license in the Field to a particular application
of Scripps Technology or to Scripps' rights to a particular application of
Jointly Developed Technology pursuant to Section 3.1.
3.5 Exercise of Option. Optionee shall exercise its option to obtain a
license hereunder by delivering to Scripps a written notice within the option
period which specifies the particular application of Scripps Technology and
related Scripps Patent Rights or application of Jointly Developed Technology for
which the option is being exercised. Optionee and Scripps shall have a period of
ninety (90) days from the date of exercise of option by Optionee within which to
agree upon the royalty rate and commercial development obligations, all as is
more particularly set forth in the form of License Agreement attached hereto as
Exhibit C. The royalty rate shall be determined by the parties in accordance
with Exhibit D hereto. The specific application of Scripps Technology and
related Scripps Patent Rights, if any, or specific application of Jointly
Developed Technology which is the subject of such License Agreement will be as
set forth in the notice delivered by Scripps and described in Section 3.2 above
or Section 3.3, respectively. The "Field" in such License Agreement shall be no
broader than the Field defined herein.
3.6 Reservation of Rights. Scripps reserves the right to use any
Scripps Technology or Jointly Developed Technology that may be subject to an
option pursuant to this Agreement or covered by a license granted hereunder
solely for Scripps' own educational and research purposes and the educational
and research purposes of any other nonprofit organization, provided that such
nonprofit organization is not using or disclosing the Scripps Technology or
Jointly Developed Technology for research or development purposes for a
for-profit entity, without Scripps or such other nonprofit organization being
obligated to pay Optionee any royalties or other compensation related thereto.
4. WARRANTIES.
----------
4.1 Warranty of Title: No Other Warranties. Scripps hereby warrants and
represents that it has the full right and power to enter into this Agreement and
grant the option of Article 3 to Optionee.
4.2 No Other Warranties. SCRIPPS MAKES NO WARRANTIES CONCERNING THE
RESEARCH PROGRAM OR ANY SCRIPPS TECHNOLOGY, SCRIPPS PATENT RIGHTS OR JOINTLY
DEVELOPED TECHNOLOGY WHICH MAY
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BE SUBJECT TO THIS AGREEMENT. WITHOUT LIMITING THE FOREGOING, SCRIPPS DOES NOT
REPRESENT OR WARRANT THAT IT WILL SUCCESSFULLY COMPLETE THE RESEARCH PROGRAM OR
THAT, IF COMPLETED, THE RESEARCH PROGRAM WILL RESULT IN SCRIPPS TECHNOLOGY WHICH
WILL BE SUBJECT TO AN OPTION HEREUNDER OR WHICH OPTIONEE WILL DESIRE TO LICENSE.
SCRIPPS MAKES NO EXPRESS OR IMPLIED WARRANTY, INCLUDING BUT NOT LIMITED TO ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AS TO ANY
LICENSED PRODUCT SCRIPPS MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY
OR SCOPE OF ANY SCRIPPS PATENT RIGHTS OR THAT ANY LICENSED PRODUCT WILL BE FREE
FROM ANY INFRINGEMENT OF PATENTS OF THIRD PARTIES, OR THAT NO THIRD PARTIES ARE
IN ANY WAY INFRINGING SCRIPPS PATENT RIGHTS.
5. INTERESTS IN INTELLECTUAL PROPERTY.
----------------------------------
5.1 Title.
a. Scripps shall retain such ownership and title to Scripps
Technology and Scripps Patent Rights as Scripps shall have, subject to the
option of Optionee set forth herein. Scripps shall, in the good faith exercise
of its discretion, undertake reasonable efforts to reserve and maintain its
ownership and title as Scripps deems appropriate. Ownership of and title to
Jointly Developed Technology shall be vested jointly in Scripps and Optionee,
with each owning an undivided one-half interest therein.
b. In the event Optionee does not exercise its option hereunder to
obtain an exclusive license with respect to Scripps' rights in and to any
specific application of Jointly Developed Technology, Optionee hereby assigns to
Scripps all of Optionee's right, title and interest in and to such Jointly
Developed Technology, and Optionee shall have no further rights with respect
thereto, other than a right to receive from Scripps fifty percent (50%) of the
net royalty income received by Scripps with respect to such application, as and
when received. As used herein, "net royalty income" shall mean the gross
royalties and other license fees received under any such license agreement, less
all Scripps out-of-pocket expenses incurred in connection with the licensing of
such Jointly Developed Technology (including without limitation fees of
accountants, attorneys and other consultants engaged in connection with such
licensing).
5.2 Governmental Interest. Optionee and Scripps acknowledge that
Scripps has received and expects to continue to receive funding from the United
States Government in support of Scripps' research activities. Optionee
acknowledges and agrees that its rights and obligations pursuant to this
Agreement with respect to Scripps Technology and Scripps Patent Rights, and to
Scripps' rights to Jointly Developed Technology, as applicable, shall be subject
to Scripps' obligations and the rights of the United States Government, if any,
which arise or result from Scripps' receipt of research support from the United
States Government.
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6. CONFIDENTIALITY AND PUBLICATION.
-------------------------------
6.1 Confidential Information. The parties agree that during the term of
and any subsequent extension of this Agreement and of a period of five (5) years
after it terminates or for as long as any Confidential Information not otherwise
includable within Scripps Patent Rights is being utilized with a Licensed
product, whichever is longer, a party receiving Confidential Information of
another party will not use or intentionally disclose such Confidential
Information to any third party without the prior written consent of the
disclosing party.
6.2 Publications. Optionee acknowledges that it is the general policy
of Scripps to encourage publication of research results in technical or
scientific journals; and subject to Scripps meeting its disclosure obligations
under Section 3.2, Optionee agrees that Scripps shall have a right to publish in
accordance with its general policy. Prior to such publication, Scripps shall
submit to Optionee copies of proposed publications which contain subject matter
relating to Scripps Technology or Jointly Developed Technology and afford
Optionee a period of thirty (30) days to review the publication. Upon written
request by Optionee prior to the expiration of such thirty (30) day period and
provided that Optionee shall have exercised its option to one or more
applications included within the subject matter of such publication, Scripps
shall delay any such publication for up to sixty (60) days from the date of such
request to allow for the preparation and filing of a patent application.
6.3 Publicity. Except as otherwise provided herein or required by law,
no party shall originate any publication, news release or other public
announcement, written or oral, whether in the public press, or stockholders'
reports, or otherwise, relating to this Agreement or to any license granted
hereunder, or to the performance thereunder, without the prior written approval
of the other parties, which approval shall not be unreasonably withheld.
7. TERM AND TERMINATION.
--------------------
7.1 Term. Unless terminated sooner, the initial term of this Agreement
shall commence on the date set forth above and shall continue for a period of
one (1) year, and thereafter, this Agreement shall be renewable for additional
periods of one (1) year each upon mutual agreement of the parties.
7.2 Termination by Mutual Agreement. This Agreement may be terminated
at any time upon the mutual written agreement of the parties. In the absence of
an agreement to the contrary, no such termination shall have the effect of
relieving Optionee of its monetary obligations to fund the Research Program
which shall have accrued up and to the date of such termination.
935512.1
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7.3 Termination Upon Default. Any one or more of the following events
shall constitute an event of default hereunder: (i) the failure of a party to
pay any amounts when due hereunder and the expiration of thirty (30) days
thereafter; and (ii) the failure of a party to perform any obligation required
of it to be performed hereunder, and the failure to cure within sixty (60) days
after receipt of notice from the other party specifying in reasonable detail the
nature of such default. Upon the occurrence of an event of default, the non-
defaulting party may deliver to the defaulting party written notice of intent to
terminate, such termination to be effective upon the date set forth in such
notice. Such termination rights shall be in addition to and not in substitution
for any other remedies that may be available to the non-defaulting party serving
such notice against the defaulting party. Termination pursuant to this Section
7.3 shall not relieve the defaulting party of liability and damages to
non-defaulting party for breach of this Agreement, Waiver by any party of a
single default or a succession of defaults shall not deprive such party of any
right to terminate this Agreement arising by reason of any subsequent default.
7.4 Termination Upon Insolvency. This Agreement may be terminated as to
any party ("Insolvent Party") by another party giving written notice of
termination to the Insolvent Party upon the filing of bankruptcy or bankruptcy
of the Insolvent Party or the appointment of a receiver of any of the Insolvent
Party's assets, or the making by the Insolvent Party of any assignment for the
benefit of creditors, or the institution of any proceedings against the
Insolvent Party under any bankruptcy law. Termination shall be effective upon
the date specified in this notice.
7.5 Effect of Expiration or Termination.
7.5.1 Termination Upon Default of Optionee. Upon the termination
of this Agreement by reason of a default by Optionee, neither party shall have
any further rights or obligations with respect to this Agreement, other than the
obligation of Optionee to make any and all final payments accrued prior to the
date of termination and the obligation of the parties to make all reports
required hereunder. Upon such termination of this Agreement, the parties shall
continue to abide by their non-disclosure obligations as described in Section
6.1 and each party hereto shall fulfill any other obligations incurred prior to
such termination. Any such termination of this Agreement shall not constitute
the termination of any license or any other agreements between the parties which
are then in effect except as expressly provided therein.
7.5.2 Expiration or Termination upon Default of Scripps. Upon
theexpiration of this Agreement at its regularly scheduled expiration date, or
upon a termination of this Agreement on account of a default by Scripps, then
Scripps shall make the disclosures required by Section 3.2 for Scripps
Technology conceived or reduced to practice up to the date of said expiration or
termination; and Optionee shall have the right to exercise its option with
respect to said Scripps Technology in accordance with the schedule and
procedures specified in Sections 3.4 and 3.5 above. Additionally, each party
shall perform all other obligations up to
935512.1
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the date of said expiration or termination; and the parties shall continue to
abide by their non-disclosure obligations described in Section 6.1; and any
previously existing license agreements or other agreements between the parties
shall continue in effect.
8. ASSIGNMENT; SUCCESSORS.
----------------------
8.1 Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party except to a successor in
interest to all or substantially all of the business assets of assigning party,
whether by way of a merger, consolidation, sale of all or substantially all of
the assigning party's assets, change of control or similar transaction.
8.2 Binding Upon Successors and Assigns. Subject to the limitations on
assignment set forth herein, this Agreement shall be binding upon and inure to
the benefit of any successors in interest and assigns of Scripps and Optionee.
Any such successor to or assignee of a party's interest shall expressly assume
in writing the performance of all the terms and conditions of this Agreement to
be performed by such party.
9. GENERAL PROVISIONS.
------------------
9.1 Independent Contractors. The relationship between Scripps and
Optionee is that of independent contractors. Scripps and Optionee are not joint
venturers, partners, principal and agent, master and servant, employer or
employee, and have no other relationship other than independent contracting
parties. Scripps and Optionee shall have no power to bind or obligate each other
in any manner, other than as is expressly set forth in this Agreement.
9.2 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by binding arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), and the procedures set forth below. In the event of any
inconsistency between the Rules of AAA and the procedures set forth below, the
procedures set forth below shall control. Judgment upon the award rendered by
the arbitrators may be enforced in any court having jurisdiction thereof.
9.2.1 Location. The location of the arbitration shall be in the
City of Philadelphia.
9.2.2 Selection of Arbitrators. The arbitration shall be conducted
by a panel of three neutral arbitrators who are independent and disinterested
with respect to the parties, this Agreement, and the outcome of the arbitration.
Each party shall appoint one neutral arbitrator, and these two arbitrators so
selected by the parties shall then select the third arbitrator. If one party has
given written notice to the other party as to the identity of the arbitrator
appointed by the party, and the party thereafter makes a written demand on the
other
935512.1
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party to appoint its designated arbitrator within the next ten days, and the
other party fails to appoint its designated arbitrator within ten days after
receiving said written demand, then the arbitrator who has already been
designated shall appoint the other two arbitrators.
9.2.3 Discovery. Unless the parties mutually agree in writing to
some additional and specific pre-hearing discovery, the only pre-hearing
discovery shall be (a) reasonably limited production of relevant and
non-privileged documents, and (b) the identification of witnesses to be called
at the hearing, which identification shall give the witness's name, general
qualifications and position, and a brief statement as to the general scope of
the testimony to be given by the witness. The arbitrators shall decide any
disputes and shall control the process concerning these pre-hearing discovery
matters. Pursuant to the Rules of AAA, the parties may subpoena witnesses and
documents for presentation at the hearing.
9.2.4 Case Management. Prompt resolution of any dispute is
important to both parties; and the parties agree that the arbitration of any
dispute shall be conducted expeditiously. The arbitrators are instructed and
directed to assume case management initiative and control over the arbitration
process (including scheduling of events, pre-hearing discovery and activities,
and the conduct of the hearing), in order to complete the arbitration as
expeditiously as is reasonably practical for obtaining a just resolution of the
dispute.
9.2.5 Remedies. The arbitrators may grant any legal or equitable
remedy or relief that the arbitrators deem just and equitable, to the same
extent that remedies or relief could be granted by a state or federal court,
provided, however, that no punitive damages may be awarded. No court action may
be maintained seeking punitive damages. The decision of any two of the three
arbitrators appointed shall be binding upon the parties.
9.2.6 Expenses. The expenses of the arbitration, including the
arbitrators' fees, expert witness fees, and attorney's fees, may be awarded to
the prevailing party, in the discretion of the arbitrators, or may be
apportioned between the parties in any manner deemed appropriate by the
arbitrators. Unless and until the arbitrators decide that one party is to pay
for all (or a share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.
9.2.7 Confidentiality. Except as set forth below, the parties
shall keep confidential the fact of the arbitration, the dispute being
arbitrated, and the decision of the arbitrators. Notwithstanding the foregoing,
the parties may disclose information about the arbitration to persons who have a
need to know, such as directors, trustees, management, employees, witnesses,
experts, investors, attorneys, lenders, insurers, and others who may be directly
affected. Additionally, if a party has stock which is publicly traded, the party
may make such disclosures as are required by applicable securities laws.
Further, if a party is expressly asked by a third party about the dispute or the
arbitration, the party may disclose and acknowledge in general and limited terms
that there is a dispute with the other party which is
935512.1
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being (or has been) arbitrated. Once the arbitration award has become final, if
the arbitration award is not promptly satisfied, then these confidentiality
provisions shall no longer be applicable.
9.3 Entire Amendment; Modification. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof. There shall be no amendments or modifications to this Agreement, except
by a written document which is signed by both parties.
9.4 California Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
9.5 Headings. The headings for each article and section in this
Agreement have been inserted for the convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
9.6 Severability. Should any one or more of the provisions of this
Agreement be held invalid or unenforceable by a court of competent jurisdiction,
it shall be considered severed from this Agreement and shall not serve to
invalidate the remaining provisions thereof. The parties shall make a good faith
effort to replace any invalid or unenforceable provision with a valid and
enforceable one such that the objectives contemplated by them when entering this
Agreement may be realized.
9.7 No Waiver. Any delay in enforcing a party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
wavier as to a particular matter for a particular period of time.
9.8 Attorneys' Fees. In the event of a dispute among the parties hereto
or in the event of any default hereunder, the party prevailing in the resolution
of any such dispute or default shall be entitled to recover its reasonable
attorneys' fees and other costs incurred in connection with resolving such
dispute or default.
9.9 Notices. Any notices required by this Agreement shall be in
writing, shall specifically refer to this Agreement and shall be sent by
registered or certified airmail, postage prepaid, or by telefax, telex or cable,
charges prepaid, or by overnight courier, postage prepaid, and shall be
forwarded to the respective addresses set forth below unless subsequently
changed by written notice to the other party:
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FOR SCRIPPS: The Scripps Research Institute
10550 North Torrey Pines Road, TPC-9
La Jolla, California 92037
Attn: Director, Office of Technology Development
Fax No.: (868) 784-9910
FOR OPTIONEE: Discovery Laboratories, Inc.
350 South Main Street
Suite 307
Doylestown, PA 18901
Attn: Mr. Robert Capetola
Fax No.: (215) 340-3940
Notice shall be deemed delivered upon the earlier of (i) when received, (ii)
three (3) days after deposit into the mail, (iii) the date notice is sent via
telefax, telex or cable, or (iv) the day immediately following delivery to
overnight courier (except Sunday and holidays).
9.10 Compliance with U.S. Laws. Nothing contained in this Agreement
shall require or permit Scripps or Optionee to do any act inconsistent with the
requirements of any United States law, regulation or executive order as the same
may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date set forth above.
SCRIPPS: OPTIONEE:
THE SCRIPPS RESEARCH INSTITUTE DISCOVERY LABORATORIES, INC.
By: By:
---------------------------------- ---------------------------------
Arnold LaGuardia Robert Capetola
Title: Executive Vice President Title: President & CEO
-------------------------------- ------------------------------
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EXHIBIT A
DISCLOSURE OF TECHNOLOGY
935512.1
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EXHIBIT B
[***]
[***] Confidential treatment requested
935512.1
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EXHIBIT C
LICENSE AGREEMENT
By and between
THE SCRIPPS RESEARCH INSTITUTE,
a California nonprofit
public benefit corporation
and
DISCOVERY LABORATORIES, INC.,
a Delaware corporation
935512.1
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LICENSE AGREEMENT
This License Agreement is entered into and made effective as of this day of
, 19 by and between THE SCRIPPS RESEARCH INSTITUTE, a California nonprofit
public benefit corporation ("Scripps") located at 10550 North Torrey Pines Road,
La Jolla, California 92037, and Discovery Laboratories, Inc. a Delaware
corporation ("Licensee") located at 350 South Main Street, Suite 307,
Doylestown, PA 18901 with respect to the facts set forth below.
RECITALS
A. Scripps is engaged in fundamental scientific biomedical and biochemical
research including research relating to synthetic pulmonary surfactants.
B. Licensee is engaged in research and development of synthetic pulmonary
surfactants for use in humans and vertebrate animals.
C. Scripps has disclosed to Licensee certain technology described in
____________________________, a copy of which is attached hereto as Exhibit A
and incorporated herein by reference (the "__________").
D. Scripps has the exclusive right to grant a license to file technology
described in __________________ , subject to certain rights of the U.S.
Government to use such technology for its own purposes, resulting from the
receipt by Scripps of certain funding from the U.S. Government.
E. Scripps desires to grant to Licensee, and Licensee wishes to acquire, an
exclusive worldwide right and license to the technology described in the
_______________________ and to certain patent rights and know-how of Scripps
with respect thereto, subject to the terms and conditions set forth herein, with
a view to developing and marketing [diagnostic and/or therapeutic] products
within the Field (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
@h herein, Scripps and Licensee hereby agree as follows:
1. Definitions. Capitalized terms shall have the meaning set forth below.
1.1 Affiliate. The term "Affiliate" shall mean any entity which
directly or indirectly controls, is controlled by or is under common control
with Licensee. The term "control" as used herein means the possession of the
power to direct or cause the direction of the management and the policies of an
entity, whether through the ownership of a majority of the outstanding voting
securities or by contract or otherwise.
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1.2 Confidential Information. The term "Confidential Information"
shall mean any and all proprietary or confidential information of Scripps or
Licensee which may be exchanged between the parties at any time and from time to
time during the term of this Agreement Information shall not be considered
confidential to the extent that it:
a. Is publicly disclosed through no fault of any party hereto,
either before or after it becomes known to the receiving party; or
b. Was known to the receiving party prior to the date of this
Agreement, which knowledge was acquired independently and not from the other
party hereto (or such party's employees); or
c. Is subsequently disclosed to the receiving party in good faith
by a third party who has a right to make such disclosure; or
d. Has been published by a third party as a matter of right.
1.3 Core Patent Rights. The term "Core Patent Rights' shall mean
thefollowing issued U.S. patents and pending U.S. patent applications: (a)
Patent No. 5,407,914, issued April 18, 1995; Patent No. 5,260,273, issued
November 9, 1993; and Patent No. 5,164,369, issued November 17, 1992; and (b)
pending patent applications Serials Nos. [***]
1.4 Field. The term "Field" shall mean use in research or as a
diagnostic or therapeutic product in humans or vertebrate animals and shall
specifically exclude any agricultural applications or products.
1.5 Licensed Product. The term "Licensed Product" shall mean any
product or process which cannot be developed, manufactured, used or sold without
(i) infringing one or more claims under Scripps Patent Rights or (ii) utilizing
any part of Scripps Technology not otherwise includable within Scripps Patent
Rights.
1.6 Net Sales. The term "Net Sales" shall mean the gross amount
actually received by Licensee, or its Affiliates and sublicensees, or any of
them, on all sales of Licensed Products, less (i) prepaid freight and (ii) sales
taxes or other governmental charges actually paid in connection with sales of
Licensed Products (but excluding what is commonly known as income taxes). Sales
of Licensed Products by Licensee, or an Affiliate or sublicensee of Licensee to
any Affiliate or sublicensee which is a reseller thereof shall be excluded, and
only the subsequent sale of such Licensed Products by Affiliates or sublicensees
of Licensee to unrelated parties shall be deemed Net Sales hereunder.
[***] Confidential treatment requested
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1.7 Scripts Patent Rights. The term "Scripps Patent Rights" shall mean
rights arising out of or resulting from (i) any and all U.S. and foreign patent
applications and patents covering Scripps Technology, (ii) the patents
proceeding from such applications, (iii) all claims of continuations-in-part
directed solely to subject matter specifically described in Scripps Technology,
and (iv) divisionals, continuations, reissues, reexaminations, and extensions of
any patent or application set forth in (i)-(iii) above, so long as said patents
have not been held invalid and/or unenforceable by a court of competent
jurisdiction from which there is no appeal or, if appealable, from which no
appeal has been taken.
1.8 Scripps Technology. The term "Scripps Technology" shall mean so
much of the technology as is proprietary to Scripps disclosed in
________________________, ________ (______________________), a copy of which is
attached as Exhibit A hereto and incorporated herein by reference, together with
materials, information and know-how related thereto [as described on
__________________] whether or not the same is eligible for protection under the
patent laws of the United States or elsewhere, and whether or not any such
processes and technology, or information related thereto, would be enforceable
as a trade secret or the copying of which would be enjoined or restrained by a
court as constituting unfair competition.
2. License Terms and Conditions.
2.1 Grant of License. Scripps hereby grants to Licensee an exclusive,
worldwide license, including the right to sublicense, to Scripps Technology and
under Scripps Patent Rights, to develop, to make, to have made, to use, to
modify, to market, to sell and to otherwise dispose of Licensed Products in the
Field, subject to the terms of this Agreement.
2.2 Royalties.
2.2.1 Percentage Royalty, As consideration for the exclusive
license granted pursuant to Section 2. 1 hereof, Licensee shall pay to Scripps a
continuing royalty on a country-by-country basis in the amount of (i) _ percent
( %) of Net Sales of Licensed Products which cannot be made, used or sold in
such country without utilizing one or more valid claims under Scripps Patent
Rights and (ii) _ percent (_%) of Net Sales of all other Licensed Products.
2.3 Combination Products.
2.3.1 Definition of Combination Product. As used herein, the term
"Combination Product" shall mean a Licensed Product which cannot be
manufactured, used or sold without infringing Scripps Patent Rights or utilizing
Scripps Technology licensed hereunder, and infringing or utilizing one or more
patents or proprietary technology or knowhow of (i) Licensee, (ii) a third party
which has licensed the same to Licensee pursuant to
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an agreement between Licensee and such third party, or (iii) Scripps under a
license agreement other than this Agreement (referred to herein as "other
licensed rights").
2.3.2 Royalty Payable on Combination Products. The royalty payable
on Combination Products shall be the royalty rate set forth in Section 2.2. 1
above based on a pro rata portion of Net Sales of Combination Products in
accordance with the following formula:
A
X=-
B, where
X = the pro rata portion of Net Sales
attributable to Scripps Patent Rights or other
Scripps Technology licensed herein (expressed as a
percentage), and
A = the fair market value of the
component in the Combination Product utilizing
Scripps Technology licensed hereunder, and
B = A plus the fair market value of
all other components in the Combination Product
using other licensed rights.
The fair market values described above shall be determined by the parties hereto
in good faith. In the absence of agreement as to the fair market value of all of
the components contained in a Combination Product, the fair market value of each
component shall be determined by arbitration in accordance with the provisions
of Section 10.2 hereof.
2.4 Quarterly Payments.
2.4.1 Sales by Licensee. With regard to Net Sales made by Licensee
or its Affiliates, royalties shall be payable by Licensee quarterly, within
sixty (60) days after the end of each-calendar quarter, based upon the Net Sales
of Licensed Products during such preceding calendar quarter, commencing with the
calendar quarter in which the first commercial sale of any Licensed Product is
made.
2.4.2 Sales by Sublicensees. With regard ton@et Sales made by
sublicensees of Licensee or its Affiliates, royalties shall be payable by
Licensee quarterly, within ninety (90) days after the end of each calendar
quarter, based upon the Net Sales of Licensed Products by such sublicensee
during such preceding calendar quarter, commencing with the calendar quarter in
which the first commercial sale of any Licensed Product. is made by such
sublicensee.
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2.5 Term of License. Unless terminated sooner in accordance with the
provisions of this Agreement, the term of this license shall expire when the
last of the royalty obligations set forth has expired. Notwithstanding the
foregoing, if applicable government regulations require a shorter term and/or a
shorter term of exclusivity than provided for herein, then the term of this
License Agreement shall be so shortened or this License Agreement shall be
amended to provide for a non-exclusive license, and, in such event, the parties
shall negotiate in good faith to reduce appropriately the royalties payable as
set forth under the section heading "Royalties" hereof.
2.6 Sublicense. Licensee shall have the sole and exclusive right to
grant sublicenses to any party with respect to the rights conferred upon
Licensee under this Agreement, provided, however, that any such sublicense shall
be subject in all respects to the restrictions, exceptions, royalty obligations,
reports, termination provisions, and other provisions contained in this
Agreement and shall not exceed the scope of the license granted to Licensee
hereunder. Promptly after execution of any sublicense agreement, Licensee shall
give written notice to Scripps of the grant of such sublicense and details of
the following material terms: (i) the name of the sublicensee, (ii) the duration
of the sublicense, (iii) the Scripps Patent Rights and Scripps Technology that
are the subject of the sublicense, and (iv) the commercialization obligations
imposed upon the sublicensee. Licensee shall pay Scripps, or cause its Affiliate
or sublicensee to pay Scripps, the same royalties on all Net Sales of such
Affiliate or sublicensee the same as if said Net Sales had been made by
Licensee. Each Affiliate and sublicensee shall report its Net Sales to Scripps
through Licensee, which Net Sales shall be aggregated with any Net Sales of
Licensee for purposes of determining the Net Sales upon which royalties are to
be paid to Scripps.
2.7 Aggregate Royalties. In the event that a percentage of sublicense
income or royalties are paid by the Licensee, an Affiliate or a sublicensee to
an unaffiliated third party or to Scripps under a separate agreement in respect
of a Licensed Product ("Additional Royalties") for which royalties are also due
to Scripps pursuant to this Agreement, then the following provisions shall apply
(either separately or jointly, as applicable):
(a) if the Licensed Product is or was claimed in whole or in part,
in one or more of the Core Patent Rights and the Additional Royalties are due
pursuant to a license agreement between Scripps and Licensee that is executed
pursuant to that certain Research Funding and Option Agreement of even date
herewith between Scripps and Licensee (such licenses are collectively referred
to herein as "Other Research Licenses"):
(i) until the expiration of the last to expire of the Core Patent
rights, the royalties under this Agreement shall be reduced such that the
aggregate royalties due under this Agreement and the Other Research Licenses do
not exceed [***] of Net Sales of the Licensed Product;
[***] Confidential treatment requested
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(ii) after the expiration of the last to expire of the Core
Patent Rights, the royalties under this Agreement shall be increased such that
the aggregate royalties due under this Agreement and the Other Research Licenses
do not exceed [***] of Net Sales of the Licensed Product.
(b) if the Licensed Product is or was claimed in whole or in
part in one or more of the Core Patent Rights and the Additional Royalties are
due under any license with a third party or any other license agreement between
Licensee and Scripps, or if the Licensed Product is or was not claimed in any of
the Core Patent Rights, then the royalties under this Agreement shall be reduced
by the amount of the payments due to the third party or Scripps under such
license agreements, subject to a maximum reduction of fifty percent (50%) of the
royalties due hereunder.
2.8 Duration of Royalty Obligations. The royalty obligations of
Licensee as to each Licensed Product shall terminate on a country-by-country
basis concurrently with the expiration of the last to expire of Scripps Patent
Rights utilized by or in such Licensed Product in each such country or, with
respect to Licensed Products not utilizing, any Scripps Patent Rights, ten (10)
years after the date of first commercial sale of such Licensed Product in such
country.
2.9 Reports. Licensee shall furnish to Scripps at the same time as each
royalty payment is made by Licensee, a detailed written report of Net Sales of
the Licensed Products and the royalty due and payable thereon, including a
description of any offsets or credits deducted therefrom, on a
product-by-product and country-by-country basis, for the calendar quarter upon
which the royalty payment is based.
2.10 Records. Licensee shall keep, and cause its Affiliates and
sublicensees to keep, full, complete and proper records and accounts of all
Sales of Licensed Products in sufficient detail to enable the royalties payable
on Net Sales of each Licensed Product to be determined. Scripps shall have the
right to appoint an independent certified public accounting firm approved by
Licensee, which approval shall not be unreasonably withheld, to audit the
records of Licensee, its Affiliates and sublicensees as necessary to verify the
royalties payable pursuant to this Agreement. Licensee, its Affiliates and
sublicensees shall pay to Scripps an amount equal to any additional royalties to
which Scripps is entitled as disclosed by the audit, plus interest thereon at
the rate of one and one-half percent (1.5%) per month. Such audit shall be at
Scripps' expense; provided, however, that if the audit discloses that Scripps
was underpaid royalties with respect to any Licensed Product by at least five
percent (5%) for any calendar quarter, then Licensee, its Affiliates or
sublicensees, as the case may be shall[ reimburse Scripps for any such audit
costs. Scripps may exercise its right of audit as to each of Licensee, its
Affiliates or sublicensees no more frequently than once in any calendar year.
[***] Confidential treatment requested
935512.1
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The accounting firm shall disclose to Scripps only information relating to the
accuracy of the royalty payments. Licensee, its Affiliates and sublicensees
shall preserve and maintain all such records required for audit for a period of
three (3) years after the calendar quarter to which the record applies.
2.11 Foreign Sales. The remittance of royalties palpable on sales
outside the United States shall be payable to Scripps in United States Dollar
equivalents at the official rate of exchange of the currency of the country from
which the royalties are payable, as quoted in the Wall Street Journal for the
last business day of the calendar quarter in which the royalties are payable. If
the transfer of or the conversion into the United States Dollar equivalents of
any such remittance in any such instance is not lawful or possible, the payment
of such part of the royalties as is necessary shall be made by the deposit
thereof, in the currency of the county where the sale was made on which the
royalty was based to the credit and account of Scripps or its nominee in any
commercial bank or trust company of Scripps' choice located in that country,
prompt written notice of which shall be given by Licensee to Scripps.
2.12 Foreign Taxes. Any tax required to be withheld by Licensee under
the laws of any foreign country for the accounts of Scripps shall be promptly
paid by Licensee for and on behalf of Scripps to the appropriate governmental
authority, and Licensee shall use its best efforts to furnish Scripps with proof
of payment of such tax together with official or other appropriate evidence
issued by the applicable government authority. Any such tax actually paid on
Scripps' behalf shall be deducted from royalty payments due Scripps.
3. Patent Matters.
3.1 Patent Prosecution and Maintenance. From and after the date of this
Agreement, the provisions of this Section 3 shall control the prosecution and
maintenance of any patent included within Scripps Patent Rights. Subject to the
requirements, limitations and conditions set forth in this Agreement, Scripps
shall direct and control (i) the preparation, filing and prosecution of the
United States and foreign patent applications within Scripps Patent Rights
(including any interferences and foreign oppositions) and (ii) maintain the
patents issuing therefrom. Scripps shall select the patent attorney, subject to
Licensee's written approval, which approval shall not be unreasonably withheld.
Both parties hereto agree that Scripps may, at its sole discretion, utilize
Scripps' Office of Patent Counsel in lieu of outside counsel for patent
prosecution and maintenance described herein, and the fees and expenses incurred
by Scripps with respect to work done by such Office of Patent Counsel shall be
paid as set forth below. Licensee shall have full rights of consultation with
the patent attorney so selected on all matters relating to Scripps Patent
Rights. Scripps shall use its best efforts to implement all reasonable requests
made by Licensee with regard to the preparation, filing, prosecution and/or
maintenance of the patent applications and/or patents within Scripps Patent
Rights.
935512.1
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<PAGE>
3.2 Information to Licensee. Scripps shall keep Licensee informed with
regard to the patent application and maintenance processes. Scripps shall
deliver to Licensee copies of all patent applications, amendments, related
correspondence, and other related matters.
3.3 Patent Costs. Licensee acknowledges and agrees that Scripps does
not have independent funding to cover patent costs, and that the license granted
hereunder is in part in consideration for Licensee's assumption of patent costs
and expenses as described herein, Licensee shall pay for all expenses incurred
by Scripps pursuant to Section 3.1 hereof. In addition, Licensee agrees to
reimburse Scripps for all patent costs and expenses paid or incurred by Scripps
to date in connection with Scripps Patent Rights licensed hereunder. Licensee
agrees to pay all such past and future patent expenses directly or to reimburse
Scripps for the payment of such expenses within sixty (60) days after Licensee
receives an itemized invoice therefor. In the event Licensee elects to
discontinue payment for the filing prosecution and/or maintenance of any patent
application and/or patent within Scripps Patent Rights, any such patent
application or patent shall be excluded from the definition of Scripps Patent
Rights and from the scope of the license granted under this Agreement, and all
rights relating thereto shall revert to Scripps and may be freely licensed by
Scripps. Licensee shall give Scripps at least sixty (60) days' prior written
notice of such election. No such notice shall have any effect on Licensee's
obligations to pay expenses incurred up to the effective date of such election.
3.4 Ownership. The patent applications filed and the patents obtained
by Scripps pursuant to Section 3.1 hereof shall be owned solely by Scripps,
assigned to Scripps and deemed a part of Scripps Patent Rights.
3.5 Scripps Right to Pursue Patent. If at any time during the term of
this Agreement, Licensee's rights with respect to Scripps Patent Rights are
terminated, Scripps shall have the right to take whatever action Scripps deems
appropriate to obtain or maintain the corresponding patent protection at its own
expense. If Scripps pursues patents under this Section 3.5, Licensee agrees to
cooperate fully, including by providing, at no charge to Scripps, all
appropriate technical data and executing all necessary legal documents.
3.6 Licensee's Right to Pursue Patent . If subsequent to filing a
patent application on an invention within the Scripps Patent Rights, Scripps
elects not to direct and control the prosecution or maintenance of such patent
application or ensuing patent Scripps shall give Licensee notice thereof within
a reasonable period prior to allowing such patent application or patent to lapse
or become abandoned or unenforceable and Licensee may direct and control
prosecution or maintenance of such patent application or patent at its expense
and its exclusive benefit. If subsequent to filing of a United States patent
application, Scripps chooses not to file in foreign countries, Scripps shall
inform Licensee within six (6) months of the United States filing date and shall
permit Licensee to effect such foreign filings not made by Scripps at Licensee's
sole expense.
935512.1
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3.7 Infringement Actions.
3.7.1 Prosecution of Infringements. Scripps and Licensee shall
promptly notify the other in writing if any infringement of the Scripps Patent
Rights by a third party is discovered or comes to its attention. Provided
Licensee shall have supplied Scripps with reasonable evidence of infringement of
Scripps Patent Rights by a third party, Licensee shall have the right, at
Licensee's sole expense to bring suit against the infringer for infringement of
the Scripps Patent Rights. In the event that Licensee has not caused such
infringement to terminate (for whatever cause) or initiated legal proceedings
against the infringer within three (3) months following receipt or giving of
notice pursuant to this Section 3.7, Scripps shall have the right (but not the
obligation), at Scripps's sole expense, to bring suit against the infringer for
infringement of the Scripps Patent Rights.
3.7.2 Reasonable Assistance. In the event either party hereto
shall initiate or carry on legal proceedings to enforce the Scripps Patent
Rights against an alleged infringer, as provided herein, the other party hereto
shall render reasonable assistance to and cooperate with the party initiating or
carrying on such proceedings.
3.7.3 Control. In the event that either party shall institute suit
or other legal proceedings to enforce the Scripps Patent Rights, it shall have
sole control of such suit and the other party shall be entitled to be
represented in any such suit by counsel of its choosing, at its sole expense.
Licensee shall not discontinue or settle any such proceedings brought by it
without obtaining the concurrence of Scripps (which concurrence shall not be
unreasonably withheld) and giving Scripps a timely opportunity to continue such
proceedings in its own name, under its sole control, and at this sole expense.
In the event Scripps does not incur in such settlement, it must continue such
proceeding in its own name, under its sole control and expense within three (3)
months of being given notice by Licensee of its desire to settle or Licensee
shall be entitled to settle without Scripps's concurrence.
3.7.4 Allocation of Recovery. All damages, settlements and rewards
made or obtained in connection with any suit or other legal proceeding under
this section 3.7 shall be shared among the parties as follows:
(a) The party initiating the suit shall first be reimbursed for
all costs and expenses of such suit or legal proceeding; in the event that the
suit or other legal proceeding is initiated by Licensee but is later assumed,
under Section 3.7.3, by Scripps, Licensee shall first be reimbursed its costs
and expenses and then Scripps shall be reimbursed its costs and expenses of such
proceeding.
(b) If the Licensee initiated the suit and prosecuted it to its
conclusion, Licensee shall be entitled to retain the balance of any damages,
settlements and awards, less the royalty on such amounts due Scripps in
accordance with Article 2.
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(c) In all other circumstances other than that described in
Section 3.7.4(b) above, Scripps and Licensee shall divide the balance of any
damages, settlements and awards 60% to Scripps and 40% to Licensee.
4. Obligations Related to Commercialization.
4.1 Commercial Development Obligation. In order to maintain the license
granted hereunder in force, Licensee shall use reasonable efforts and due
diligence to develop Scripps Technology and Scripps Patent Rights which are
licensed hereunder into commercially viable Licensed Products, and thereafter to
produce and sell reasonable quantities of Licensed Products. Licensee shall keep
Scripps generally informed as to Licensee's progress in such development,
production and sale, including its efforts, if any and only to the extent it may
do so without breaching the terms of any confidentiality agreement, to
sublicense Scripps Technology and Scripps Patent Rights. Licensee shall deliver
to Scripps a semiannual written report and such other reports as Scripps may
reasonably request. The parties hereto acknowledge and agree that achievement of
the milestones described in Exhibit C attached hereto on or before the dates set
forth therein shall be evidence of compliance by Licensee with its commercial
development obligations hereunder for the time periods specified in Exhibit __.
In the event Scripps has a reasonable basis to believe that Licensee is not
using reasonable efforts and due diligence as required hereunder, upon notice
by Scripps to Licensee which specifies the basis for such belief, Scripps and
Licensee shall negotiate in good faith to attempt to mutually resolve the issue.
In the event Scripps and Licensee cannot agree upon any matter related to
Licensee's commercial development obligations, the parties agree to utilize
arbitration pursuant to Section 10.2 hereof in order to resolve the matter. If
the arbitrator determines that Licensee has not complied with its obligations
hereunder, and such default is not fully cured within sixty (60) days after the
arbitrator's decision, Scripps may terminate Licensee's rights under this
Agreement.
4.2 Governmental Approvals and Marketing of Licensed Products. Licensee
shall be responsible for obtaining all necessary governmental approvals for the
development, production, distribution, sale and use of any Licensed Product, at
Licensee's expense, including, without limitation safety studies. Licensee shall
have sole responsibility for any warning labels, packaging and instructions as
to the use of Licensed Products and for the quality control for any Licensed
Product.
4.3 Indemnity. Licensee hereby agrees to indemnify defend and hold
harmless Scripps and any parent, subsidiary or other affiliated entity of
Scripps and their trustees, officers, employees, scientists and agents from and
against any liability or expense arising from any product liability claim
asserted by any party as to any Licensed Product or any claims arising from the
use of any Scripps Patent Rights or Scripps Technology pursuant to this
Agreement. Such indemnity and defense obligation shall apply to any product
liability or other claims, including without limitation, personal injury, death
or property damage, made by employees, subcontractors, sublicensees, or agents
of Licensee, as well as any member of the
935512.1
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<PAGE>
general public. Licensee shall use its best efforts to have Scripps and, if
requested in writing by Scripps, any parent, subsidiary or other affiliated
entity of Scripps and their trustees, officers, employees, scientists and agents
named as additional insured parties on any product liability insurance policies
maintained by Licensee its Affiliates and sublicensees applicable to Licensed
Products.
4.4 Patent Marking. To the extent required by applicable law, Licensee
shall mark all Licensed Products or their containers in accordance with the
applicable patent marking laws.
4.5 No Use of Name. The use of the name "The Scripps Research
Institute", "Scripps", or any variation thereof in connection with the
advertising or sale of Licensed Products is expressly prohibited.
4.6 U.S. Manufacture. To the extent required by applicable United
States laws, if at all, Licensee agrees that Licensed Products will be
manufactured in the United States, or its territories, subject to such waivers
as may be required, or obtained, if at all, from the United States Department of
Health and Human Services, or its designee.
4.7 Foreign Registration. Licensee agrees to register this Agreement
with any foreign governmental agency which requires such registration, and
Licensee shall pay all costs and legal fees in connection therewith. In
addition, Licensee shall assure that all foreign laws affecting this Agreement
or the sale of Licensed Products are fully satisfied.
5. Limited Warranty. Scripps hereby represents and warrants that it has
full right and power to enter into this Agreement and grant the licenses to
Licensee granted herein. SCRIPPS MAKES NO OTHER WARRANTIES CONCERNING SCRIPPS
PATENT RIGHTS OR SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AS TO SCRIPPS PATENT RIGHTS, SCRIPPS TECHNOLOGY OR ANY
LICENSED PRODUCT. SCRIPPS MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY
OR SCOPE OF SCRIPPS PATENT RIGHTS, OR THAT ANY LICENSED PRODUCT WILL BE FREE
FROM AN INFRINGEMENT ON PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES, OR THAT NO THIRD PARTIES ARE IN ANY WAY INFRINGEMENT SCRIPPS PATENT
RIGHTS OR SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT.
6. Interests in Intellectual Property Rights.
6.1 Preservation of Title. Scripps shall retain full ownership and
title to Scripps Technology, and Scripps Patent Rights licensed hereunder and
shall preserve and
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maintain such full ownership and title, subject to Licensee fully performing all
of its obligations under this Agreement.
6.2 Royalty-Free License to Improvements. Licensee hereby grants to
Scripps a non-exclusive, royalty-free license to any improvement to Scripps
Technology developed by Licensee, to use for its own non-commercial research
purposes or grant to other nonprofit institutions for their non-commercial
research purposes.
6.3 Governmental Interest. Licensee and Scripps acknowledge that
Scripps has received, and expects to continue to receive, funding from the
United States Government in support of Scripps' research activities. Licensee
and Scripps. acknowledge and agree that their respective rights and obligations
pursuant to this Agreement shall be subject to Scripps' obligations and the
rights of the United States Government, if any, which arise or result from
Scripps' receipt of research support from the United States Government including
without limitation, the grant by Scripps to the United States a non-exclusive,
irrevocable, royalty-free license to Scripps Technology and Scripps Patent
Rights licensed hereunder for governmental purposes.
6.4 Reservation of Rights. Scripps reserves the right to use for any 9
non commercial research purposes and the right to allow other nonprofit
institutions to use for any non-commercial research purposes (provided that such
nonprofit institutions are not using or disclosing the Scripps Technology and
Scripps Patent Rights for research or development purposes on behalf of a
for-profit entity) any Scripps Technology and Scripps Patent Rights licensed
hereunder, without Scripps or such other institutions being obligated to pay
Licensee any royalties or other compensation.
7. Confidentiality and Publication.
7.1 Treatment of Confidential Information. The parties agree that
during the term of this Agreement, and for a period of three (3) years after
this Agreement terminates, a party receiving Confidential Information of the
other party will (i) maintain in confidence such Confidential Information to the
same extent such party maintains its own proprietary industrial information,
(ii) not disclose such Confidential Information to any third party without prior
written consent of the other party and (iii) not use such Confidential
Information for any purpose except those permitted by this Agreement.
7.2 Publications. Licensee agrees that Scripps shall have a right to
publish in accordance with its general policies.
7.3 Publicity. otherwise provided herein or required by law, no party
shall originate any publication, news release or other public announcement,
written or oral, whether in the public press, stockholders' reports, or
otherwise, relating to this Agreement or to any sublicense hereunder, or to the
performance hereunder or any such agreements, without the
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prior written approval of the other party, which approval shall not be
unreasonably withheld. Scientific publications published in accordance with
Section 7.2 of this Agreement shall not be construed as publicity governed by
this Section 7.3.
8. Term and Termination.
8.1 Term. Unless terminated sooner in accordance with the terms set
forth herein, this Agreement, and the license granted hereunder, shall terminate
as provided in Section 2.6 hereof.
8.2 Termination Upon Default. Any one or more of the following events
shall constitute an event of default hereunder: (i) the failure of a party to
pay any amounts when due hereunder and the expiration of thirty (30) days after
receipt of a written notice requesting the payment of such amount; (ii) the
failure of a party to perform any material obligation required of it to be
performed hereunder, and the failure to cure within sixty (60) days after
receipt of notice from the other party specifying in reasonable detail the
nature of such default; and, (if applicable) (iii) any material default by
Licensee under the Research Funding and Option Agreement dated March 1, 2000
between Scripps and Licensee and the failure to cure within thirty (30) days
after receipt of notice from the other party specifying in reasonable detail the
nature of such default. Upon the occurrence of any event of default, the
non-defaulting party may deliver to the defaulting party written notice of
intent to terminate such termination to be effective upon the date set forth in
such notice.
Such termination rights shall be in addition to and not in substitution for
any other remedies that may be available to the non-defaulting party.
Termination pursuant to this Section 8.2 shall not relieve the defaulting party
from liability and damages to the other party for breach of this Agreement.
Waiver by either party of a single default or a succession of defaults shall not
deprive such party of any right to terminate this Agreement arising by reason of
any subsequent default.
8.3 Termination Upon Bankruptcy or Insolvency. This Agreement may be
terminated by Scripps giving written notice of termination to Licensee upon
occurrence of any of the following events:
(a) Licensee is dissolved or any assignment is made of the
Licensee's business for the benefit of creditors;
(b) A receiver, or similar officer, is appointed to take charge of
a substantial part of the Licensee's assets; or
(c) Any petition in bankruptcy is filed by the Licensee or any
petition in bankruptcy is filed against the Licensee and which is not dismissed
within ninety (90) days.
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8.4 Rights Upon Expiration, Neither party shall have any further rights
or obligations upon the expiration of this Agreement upon its regularly
scheduled expiration date with respect to this Agreement, other than the
obligation of Licensee to make any and all reports and payments for the final
quarter period. Provided, however, that upon such expiration, each party shall
be required to continue to abide by its non-disclosure obligations, as described
in Section 7.1, and Licensee shall continue to abide by its obligation to
indemnify Scripps as described in Section 4.3 and by its obligations under
Section 6.2 hereof.
8.5 Rights Upon Termination. Notwithstanding any other provision of
this Agreement, upon any termination of this Agreement prior to the regularly
scheduled expiration date of this Agreement, the license granted hereunder shall
terminate. Except as otherwise provided in Section 8.6 of this Agreement with
respect to work- in-progress, upon such termination, Licensee shall have no
further right to develop, manufacture or market any Licensed Product, or to
otherwise use any Scripps Patent Rights or any Scripps Technology not otherwise
includable therein. Upon any such termination, Licensee shall promptly return
all materials, samples, documents, information, and other materials which were
provided to Licensee by Scripps. Any such termination shall not relieve either
party from any obligations accrued to the date of such termination. Upon such
termination, each party shall be required to abide by its non-disclosure
obligations as described in Section 7.1, and Licensee shall continue to abide
by its obligations to indemnify Scripps as described in Section 4.3.
8.6 Work-in-Progress. Upon any such early termination of the license
granted hereunder in accordance with this Agreement, Licensee shall be entitled
to finish any work-in-progress and to sell any completed inventory of a Licensed
Products covered by such license which remain on hand as of the date of the
termination, so long as Licensee pays to Scripps the royalties applicable to
said subsequent sales in accordance with the terms and conditions as set forth
in this Agreement, provided that no such sales shall tie permitted after the
expiration of six (6) months after the date of termination.
9. Assignment; Successors.
9.1 Assignment. Neither this Agreement nor any rights granted hereunder
may be assigned or transferred by Licensee except (i) to an Affiliate of
Licensee, (ii) to any entity with which it may merge or consolidate, or to which
it may transfer all or substantially all of its assets or business to which this
Agreement relates or (iii) as expressly permitted hereunder, without the prior
written consent of Scripps.
9.2 Binding Upon Successors and Assigns. Subject to the limitations on
assignment herein, this Agreement shall be binding upon and inure to the benefit
of any successors in interest and assigns of Scripps and Licensee. Any such
successor or assignee of Licensee's interest shall expressly assume in writing
the performance of all the terms and conditions of this Agreement to be
performed by Licensee.
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10. General Provisions.
10.1 Independent Contractors. The relationship between Scripps and
Licensee is that of independent contractors. Scripps and Licensee are not joint
venturers, partners, principal and agent, master and servant, employer or
employee, and have no other relationship other than independent contracting
parties. Scripps and Licensee shall have no power to bind or obligate each other
in any manner, other than as is expressly set forth in this Agreement.
10.2 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), and the procedures set forth below. In the
event of any inconsistency between the Rules of AAA and the procedures set forth
below, the procedures set forth below shall control. Judgment upon the award
rendered by the arbitrators may be enforced in any court having jurisdiction
thereof.
10.2.1 Location. The location of the arbitration shall be in the
City of Philadelphia.
10.2.2 Selection of Arbitrators. The arbitration shall be
conducted by a panel of three neutral arbitrators who are independent and
disinterested with respect to the parties, this Agreement, and the outcome of
the arbitration. Each party shall appoint one neutral arbitrator, and these two
arbitrators so selected by the parties shall then select the third arbitrator.
If one party has given written notice to the other party as to the identity of
the arbitrator appointed by the party, and the party thereafter makes a written
demand on the other party to appoint its designated arbitrator within the next
ten days, and the other party fails to appoint its designated arbitrator within
ten days after receiving said written demand, then the arbitrator who has
already been designated shall appoint the other two arbitrators.
10.2.3 Discovery. Unless the parties mutually agree in writing to
some additional and specific pre-hearing discovery, the only pre-hearing
discovery shall be (a) reasonably limited production of relevant and
non-privileged documents, and (b) the identification of witnesses to be called
at the hearing, which identification shall give the witness's name, general
qualifications and position, and a brief statement as to the general scope of
the testimony to be given by the witness. The arbitrators shall decide any
disputes and shall control the process concerning these pre-hearing discovery
matters. Pursuant to the Rules of AAA, the parties may subpoena witnesses and
documents for presentation at the hearing.
10.2.4 Case Management. Prompt resolution of any dispute is
important to both parties; and the parties agree that the arbitration of any
dispute shall be conducted expeditiously. The arbitrators are instructed and
directed to assume case management initiative and control over the arbitration
process including scheduling of events, pre-hearing discovery and activities,
and the conduct of the hearing), in order to complete the arbitration as
expeditiously as is reasonably practical for obtaining a just resolution of the
dispute.
935512.1
15
<PAGE>
10.2.5 Remedies. The arbitrators may grant any legal or equitable
remedy or relief that the arbitrators deem just and equitable, to the same
extent that remedies or relief could be granted by a state or federal court,
provided however, that no punitive damages may be awarded. No court action may
be maintained seeking punitive damages. The decision of any two of the three
arbitrators appointed shall be binding upon the parties.
10.2.6 Expenses. The expenses of the arbitration, including the
arbitrators' fees, expert witness fees, and attorney's fees, may be awarded to
the prevailing party, in the discretion of the arbitrators, or may be
apportioned between the parties in any manner deemed appropriate by the
arbitrators. Unless and until the arbitrators decide that one party is to pay
for all (or a share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.
10.2.7 Confidentiality. Except as set forth below, the parties
shall keep confidential the fact of the arbitration, the dispute being
arbitrated, and the decision of the arbitrators. Notwithstanding the foregoing,
the parties may disclose information about the arbitration to persons. who have
a need to know, such as directors, trustees, management employees, witnesses,
experts, investors, attorneys, lenders, insurers, and others who may be directly
affected. Additionally, if a party has stock which is publicly traded, the party
may make such disclosures as are required by applicable securities laws.
Further, if a party is expressly asked by a third party about the dispute or the
arbitration, the party may disclose and. acknowledge in general and limited
terms that there is a dispute with the other party which is being (or has been)
arbitrated. Once the arbitration award has become final, if the arbitration
award is not promptly satisfied, then these confidentiality provisions shall no
longer be applicable.
10.3 Entire Agreement; Modification. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof. There shall be no amendments or modifications to this Agreement, except
by a written document which is signed by both parties.
10.4 California Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
10.5 Headings. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
10.6 Severability. Should any one or more of the provisions of this
Agreement be held invalid or unenforceable by a court of competent jurisdiction,
it shall be considered severed from this Agreement and shall not serve to
invalidate the remaining provisions thereof The parties shall make a good faith
effort to replace any invalid or
935512.1
16
<PAGE>
unenforceable provision with a valid and enforceable one such that the
objectives contemplated by them when entering this Agreement may be realized.
10.7 No Waiver. Any delay in enforcing a party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
10.8 Name. Whenever there has been an assignment or sublicense by
Licensee as permitted by this Agreement, the term "Licensee" as used in this
Agreement shall also include and refer to, if appropriate, such assignee or
sublicensees.
10.9 Attorneys' Fees. In the event of a dispute between the parties
hereto or in the event of any default hereunder, the party prevailing in the
resolution of any such dispute or default shall be entitled to recover its
reasonable attorneys' fees and other costs incurred in connection with resolving
such dispute or default.
10.10 Notices. Any notices required by this Agreement shall be in
writing, shall specifically refer to this Agreement and shall be sent by
registered or certified airmail, postage prepaid, or by telefax, telex or cable,
charges prepaid, or by overnight courier, postage paid and shall be forwarded to
the respective addresses set forth below unless subsequently changed by written
notice to the other party:
For Scripps The Scripps Research Institute
10550 North Torrey Pines Road, TPC-9
La Jolla, California 92037
Attention: Director, Technology Development
Fax No.: (858) 784-9910
For Licensee: Discovery Laboratories
350 South Main Street
Suite 307
Doylsetown PA 18901
Attention: Mr. Robert Capetola
Fax No.:(215) 340-3940
Notice shall be deemed delivered upon the earlier of (i) when received, (ii)
three (3) days after deposit into the mail, or (iii) the date notice is sent via
telefax, telex or cable, (iv) the day immediately following delivery to
overnight courier (except Sunday and holidays).
10.11 Compliance with U.S. Laws. Nothing contained in this Agreement
shall require or permit Scripps or Licensee to do any act inconsistent with the
requirements of any
935512.1
17
<PAGE>
United States law, regulation or executive order as the same may be in effect
from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date set forth above.
SCRIPPS: LICENSEE:
THE SCRIPPS RESEARCH INSTITUTE
By:________________________________ By:___________________________
Arnold LaGuardia
Title: Senior Vice President Title:_________________________
--------------------------
935512.1
18
<PAGE>
EXHIBIT A
DISCLOSURE OF TECHNOLOGY
935512.1
<PAGE>
EXHIBIT D TO THE RESEARCH AGREEMENT
Royalty Rates
1. Different royalty arrangements will apply depending on whether the
Licensed Product is or was claimed in whole or in part by one or more of the
Core Patent Rights.
2. In respect of Licenses Products that are or were claimed in whole or
in part by one or more of the Core Patent Rights:
a. Until the last to expire of the issued patents and patents that
may issue from the pending applications within the Core Patent Rights, Optionee
will pay Scripps a royalty of between [***] and [***] of "Net Sales", which term
shall have the meaning ascribed to it in the form of License Agreement attached
to this Agreement as Exhibit C. There will be no royalty payable on patented
inventions which merely represent "speed bumps" (i.e., patents that represent
merely a potential block to competitors, but do not cover any new significant
improvements to the inventions claimed in the Core Patient Rights). The
aggregate of any royalties paid to Scripps for such Licensed Products during
such period shall not exceed [***] of Net Sales.
b. After the expiration of last to expire of the issued patents or
patents issued from the pending applications within the Core Patent Rights, the
royalty for such Licensed Products due to Scripps shall increase to [***],
subject to the additional royalty provision in Section 2.7 of the form of
License Agreement attached to this Research Agreement as Exhibit C.
3. In respect of Licensed Products that are not and were not claimed in
whole or in part by one or more of the Core Patent Rights, the parties will
negotiate on a case by case basis the applicable royalty rates.
[***] Confidential treatment requested
935512.1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Discovery Laboratories, Inc.'s
registration statements on Form S-3 (File No. 333-86105) and Form S-8 (File No.
333-59945) of our report dated February 25, 2000 (with respect to the last
paragraph of Note A, March 23, 2000, Note F[3], March 1, 2000, the second
paragraph of Note G, March 14, 2000 and the last paragraph of Note G, March 3,
2000), on our audit of the consolidated financial statements as of December 31,
1999 and for each of the two years in the period ended December 31, 1999 and the
period from May 18, 1993 (inception) through December 31, 1999, which report is
included in this Annual Report on Form 10-KSB.
Richard A. Eisner & Company, LLP
New York, New York
March 29, 2000
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM DISCOVERY
LABORATORIES, INC. FORM 10-KSB FOR THE PERIOD ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<NAME> DISCOVERY LABORATORIES, INC.
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