<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26244
SEQUANA THERAPEUTICS, INC.
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(Exact name of registrant as specified in its charter)
California 33-0550509
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11099 N. Torrey Pines Road, Suite 160, La Jolla, CA 92037
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(619) 452-6550
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(Registrant's telephone number, including area code)
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days -- Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class July 31, 1996
----- -------------
<S> <C>
Common Stock, $.001 par value 9,899,109
</TABLE>
<PAGE> 2
SEQUANA THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
COVER PAGE..................................................................................................... 1
TABLE OF CONTENTS.............................................................................................. 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets at June 30, 1996 and December 31, 1995 ............................................. 3
Statements of Operations for the Three Months and Six Months
ended June 30, 1996 and 1995....................................................................... 4
Statements of Cash Flows for the Six Months ended
June 30, 1996 and 1995............................................................................. 5
Notes to Financial Statements...................................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 7
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders...................................... 10
ITEM 5. Other Information........................................................................ 11
ITEM 6. Exhibits and Reports on Form 8-K......................................................... 11
SIGNATURE..................................................................................................... 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SEQUANA THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,713,241 $ 13,512,688
Investment securities, available-for-sale, net 49,045,866 27,825,023
Other current assets 2,585,310 1,582,053
------------ ------------
Total current assets 66,344,417 42,919,764
------------ ------------
Furniture and equipment, net 6,834,350 4,438,611
Other assets 1,662,057 179,482
Notes receivable from employees 689,498 463,000
------------ ------------
$ 75,530,322 $ 48,000,857
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,673,459 $ 2,775,380
Deferred revenue 4,081,450 2,311,856
Current portion of loans and capital lease obligations 2,048,544 1,335,720
------------ ------------
Total current liabilities 8,803,453 6,422,956
------------ ------------
Loans and capital lease obligations, less current portion 4,070,750 2,803,612
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares -- 50,000,000
Issued and outstanding shares -- 9,905,619 at
June 30, 1996 and 8,125,632 at December 31, 1995 9,906 8,126
Additional paid-in capital 86,656,622 55,484,707
Notes receivable from shareholders (267,110) (254,144)
Deferred compensation, net (1,151,419) (1,368,802)
Accumulated deficit (22,591,880) (15,095,598)
------------ ------------
Total shareholders' equity 62,656,119 38,774,289
------------ ------------
$ 75,530,322 $ 48,000,857
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes to financial statements.
3
<PAGE> 4
SEQUANA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue under strategic alliances $ 2,887,247 $ 3,891,652 $ 4,772,802 $ 4,640,411
Expenses:
Research and development 6,351,761 3,970,926 11,430,489 6,426,494
General and administrative 1,229,999 605,965 2,219,459 1,381,534
----------- ----------- ------------ -----------
Total operating expenses 7,581,760 4,576,891 13,649,948 7,808,028
Interest income 927,911 249,062 1,574,863 511,632
Interest expense (107,338) (57,554) (193,999) (119,524)
----------- ----------- ------------ -----------
Net loss $(3,873,940) $ (493,731) $ (7,496,282) $(2,775,509)
=========== =========== ============ ===========
Net loss per share $ (0.39) $ (0.09) $ (0.81) $ (0.52)
=========== =========== ============ ===========
Shares used in computing net
loss per share 9,879,515 5,380,813 9,240,702 5,342,260
=========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
4
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SEQUANA THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------
1996 1995
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (7,496,282) $ (2,775,509)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,039,667 331,729
Amortization of deferred compensation 217,383 530,340
Change in operating assets and liabilities 664,416 2,480,059
------------ ------------
Net cash provided by (used in) operating activities (5,574,816) 566,619
INVESTING ACTIVITIES:
Purchases of investment securities (37,288,341) (2,955,150)
Sales and maturities of investment securities 16,067,498 8,000,000
Purchases of furniture and equipment (578,823) (70,255)
Other investing activities (1,709,477) 7,175
------------ ------------
Net cash provided by (used in) investing activities (23,509,143) 4,981,770
FINANCING ACTIVITIES:
Issuance of common stock 31,173,695 162,844
Issuance of convertible preferred stock -- 6,999,995
Repayments of loans and capital lease obligations (876,218) (400,873)
Other financing activities (12,965) (1,749)
------------ ------------
Net cash provided by financing activities 30,284,512 6,760,217
Increase in cash and cash equivalents 1,200,553 12,308,606
Cash and cash equivalents at beginning of period 13,512,688 1,589,722
------------ ------------
Cash and cash equivalents at end of period $ 14,713,241 $ 13,898,328
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 193,999 $ 119,524
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases and loans $ 2,856,180 $ 703,484
============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
SEQUANA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
accompanying financial statements reflect all adjustments
(consisting of normal recurring accruals) which are, in the opinion
of management, considered necessary for a fair presentation of the
results for the interim periods presented. The Company has
experienced significant quarterly fluctuations in operating results
and it expects that these fluctuations in revenues, expenses and net
losses will continue.
The financial statements and related disclosures have been prepared
with the presumption that users of the interim financial information
have read or have access to the audited financial statements for the
preceding fiscal year. Accordingly, these financial statements
should be read in conjunction with the audited financial statements
and the related notes thereto incorporated by reference from the
Annual Report to Shareholders in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The adoption of the new standard had no effect on the
financial statements.
Effective January 1, 1996, the Company adopted SFAS No. 123
"Accounting and Disclosure of Stock-Based Compensation." As allowed
under the SFAS, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) in accounting for its employee stock
options. The adoption of the standard had no effect on the financial
statements.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares outstanding during the periods, as adjusted for the effects
of certain rules of the Securities and Exchange Commission for the
periods prior to the Company's initial public offering ("IPO") in
July 1995. Shares issuable upon the exercise of outstanding stock
options and warrants are not reflected for the periods subsequent to
the Company's IPO as their effect is anti-dilutive.
3. SHAREHOLDERS' EQUITY
In March 1996, the Company raised net proceeds of approximately $30
million through a follow-on public offering of 1,700,000 shares of
its common stock. The Company raised an additional $1.2 million in
net proceeds from the sale of common stock during the six months
ended June 30, 1996 consisting primarily of a private investment
from one of the Company's strategic alliance partners.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in February 1993 and has devoted substantially all
of its resources since that time to the development of an integrated technology
platform for discovering genes associated with common human diseases. The
Company has incurred substantial operating losses since inception and, as of
June 30, 1996, had incurred a cumulative net loss of $22.6 million. The Company
anticipates incurring additional losses over at least the next several years as
it expands its gene discovery efforts. Such expansion will result in increases
in both research and development and general and administrative expenses.
The Company does not anticipate revenues from product sales in the foreseeable
future. The Company's sources of revenue for the next several years will be
payments under existing strategic alliances, license fees, proceeds from the
sale of rights, payments from future strategic alliances and licensing
arrangements, if any, and interest income. Certain payments under strategic
alliances are contingent upon the Company meeting established milestones.
Payments under strategic alliances and licensing arrangements will be subject to
significant fluctuations in both timing and amount and, therefore, the Company's
results of operations for any period may not be comparable to the results of
operations for any other period.
In July 1994, the Company entered into a strategic alliance with Glaxo Wellcome
Inc. ("Glaxo") to discover disease genes associated with type II diabetes. In
February 1996, the alliance was expanded to include the study of human obesity.
The Company has granted Glaxo exclusive worldwide rights to develop and
commercialize therapeutic products based upon the Company's gene discoveries in
the areas of diabetes and human obesity, and has retained rights to all
diagnostic products. In June 1995, the Company entered into strategic alliances
with Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") in the
area of asthma and with Corange International, Ltd. ("Corange") in the area of
osteoporosis. Under the terms of the agreements with Boehringer Ingelheim and
Corange, the Company will be entitled to payments for research support, payments
upon achievement of certain research and product development milestones and
payment of royalties on the sale of any products developed by the strategic
alliance partner. The agreement with Boehringer Ingelheim provides Boehringer
Ingelheim with exclusive worldwide rights to develop and commercialize
therapeutic products for asthma based on genes discovered as a result of the
alliance. Sequana retains the right to develop and commercialize diagnostic
products based on such gene discoveries. The agreement with Corange provides
Corange with exclusive worldwide rights to develop and commercialize diagnostic
and therapeutic products based on osteoporosis genes which may be discovered as
a result of the alliance.
RESULTS OF OPERATIONS
Revenue under strategic alliances totaled $2.9 million for the three months
ended June 30, 1996 compared to $3.9 million for the three months ended June 30,
1995, and $4.8 million for the six months ended June 30, 1996 compared to $4.6
million for the comparable period of 1995. The decrease in revenue during the
three months ended June 30, 1996, relative to the comparable period of 1995, was
primarily attributable to up-front payments received in the prior year period
which were recognized upon the commencement of the Company's strategic alliances
with Boehringer Ingelheim and Corange in June 1995. Revenue for the three months
ended June 30, 1996 was primarily comprised of ongoing payments for research
support and DNA sample collection pursuant to the Company's strategic alliances,
as well as a $500,000 milestone payment from Glaxo in connection with the
attainment of a research milestone. Revenue under strategic alliances for the
six months ended June
7
<PAGE> 8
30, 1996 was relatively comparable to the level of such revenue for the
comparable period of 1995 as increased revenues for research support and DNA
sample collection during the six months ended June 30, 1996 offset the
aforementioned up-front payments recognized during the six months ended June 30,
1995.
Research and development expenses increased to $6.4 million in the three months
ended June 30, 1996 from $4.0 million in the three months ended June 30, 1995,
and $11.4 million for the six months ended June 30, 1996 compared to $6.4
million in the comparable period of 1995. The increase in research and
development expenses was primarily attributable to increased costs associated
with expansion of the Company's gene discovery efforts. Such costs consisted
primarily of increased personnel expenses, supply costs, and facility and
equipment expenses associated with expansion of the Company's research
organization. The Company expects to continue expanding its gene discovery
activities in future periods, which will result in continued increases in
research and development expenses, including costs associated with collection of
patient information and DNA samples.
General and administrative expenses increased to $1.2 million in the three
months ended June 30, 1996 from $606,000 in the three months ended June 30,
1995, and $2.2 million for the six months ended June 30, 1996 compared to $1.4
million in the comparable period of 1995. Increases in general and
administrative expenses largely reflect expansion of the Company's
administrative organization to support increased gene discovery and business
development activities. Such increases are comprised primarily of costs
associated with the addition of management and support personnel as well as
expenses related to Sequana's status as a public company (commencing in July
1995). General and administrative expenses are anticipated to increase in future
periods as a result of expansion necessary to support continued increases in
gene discovery programs and business development activities.
Interest income increased significantly during the three month and six month
periods ended June 30, 1996, relative to the comparable periods of 1995,
primarily due to higher levels of cash, cash equivalents and investment
securities attributable to public offerings of the Company's equity securities
and, to a lesser degree, funding under the company's strategic alliances.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
public and private offerings of its equity securities (generating net proceeds
of approximately $80.2 million) and cash received pursuant to the Company's
strategic alliances ($ 20.8 million). At June 30, 1996, the Company had cash,
cash equivalents and investment securities totaling $63.8 million compared to
$41.3 million at December 31, 1995. The increase in cash, cash equivalents and
investment securities during the six months ended June 30, 1996 is largely
attributable to net proceeds of approximately $30 million raised from the
Company's follow-on public offering in March 1996, which amount was reduced by
cash used to finance the Company's operations and equipment related
expenditures.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including progress of its gene discovery
programs, the number and breadth of these programs, achievement of milestones
under strategic alliance arrangements, the progress of the development and
commercialization efforts of the Company's strategic alliance partners,
competing technological and market developments, the costs associated with
collection of patient information and DNA samples, the costs involved in
preparing, filing, prosecuting and maintaining and enforcing patent claims and
other intellectual property rights, the regulatory process and other factors.
In July 1996, the Company signed a definitive agreement to acquire NemaPharm,
Inc., a company engaged in the development and application of drug discovery
technologies based upon the nematode worm, C. elegans. In addition, the Company
intends to pursue the acquisition of additional
8
<PAGE> 9
technologies which it believes will further complement its drug discovery and
functional genomics capabilities. The Company anticipates that a substantial
portion of these arrangements, like the NemaPharm acquisition, will be financed
through the issuance of the Company's equity securities, which will result in
ownership dilution to shareholders of the Company.
The Company believes that its existing cash, cash equivalents and investment
securities and anticipated cash flows from its current strategic alliances will
be sufficient to support the Company's operations through 1999. In the event
that additional financing is needed, the Company may seek to raise such
additional funds through public or private equity or debt financings or
additional strategic alliance and licensing arrangements. No assurance can be
given that additional financing or strategic alliance and licensing arrangements
will be available when needed or that, if available, such financing or strategic
alliance and licensing arrangements will be obtainable on terms favorable to the
Company or its shareholders. To the extent the Company raises additional capital
by issuing equity securities, ownership dilution to shareholders will result. In
the event that adequate funds are not available, the Company's business may be
adversely affected. The Company's forecast of the period of time through which
its financial resources will be adequate to support its operations is
forward-looking information, and actual results could vary. The factors
described earlier in this section will impact the Company's future capital
requirements and the adequacy of its available funds.
9
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 30, 1996, the Company held its Annual Meeting of Shareholders. The
following actions were taken at the Annual Meeting:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Withheld Not Voted
--------- -------- ---------
<S> <C> <C> <C>
1. The following directors were
elected:
Richard Darman 6,945,982 4,600 2,888,398
Timothy J.R. Harris 6,945,982 4,600 2,888,398
Kevin J. Kinsella 6,945,982 4,600 2,888,398
Irwin Lerner 6,945,982 4,600 2,888,398
Thomas C. McConnell 6,945,982 4,600 2,888,398
Howard D. Palefsky 6,945,982 4,600 2,888,398
Thomas F. Stephenson 6,945,982 4,600 2,888,398
2. An amendment to the Company's 1994 Incentive Stock Plan to
increase the number of shares of common stock reserved for
issuance by 450,000 shares was approved with voting as follows:
Shares Voted For 6,529,309
Shares Voted Against 326,857
Shares Abstaining 13,667
Broker Non-Votes 80,749
Shares Not Voted 2,888,398
3. An amendment to the Company's 1995 Director Option Plan to (i)
increase from 10,000 to 15,000 the number of shares of common
stock underlying options automatically granted to each new
non-employee director upon joining the board, (ii) provide that
each non-employee director that has not received an initial
grant under the plan within the previous six months will
automatically be granted an option to purchase 7,000 shares of
common stock upon re-election to the Board each year, (iii)
provide that all options granted under the plan become
exercisable at the rate of 12.5% of the shares subject to the
option on the six month anniversary of the date of grant and
1/48th of the option shares at the end of each month thereafter
and (iv) increase the number of shares reserved for issuance
under the plan by 125,000 shares, was approved with voting as
follows:
Shares Voted For 6,796,513
Shares Voted Against 80,860
Shares Abstaining 17,274
Broker Non-Votes 55,935
Shares Not Voted 2,888,398
4. The appointment of Ernst & Young LLP as the Company's
independent auditors for the 1996 fiscal year was confirmed
with voting as follows:
Shares Voted For 6,944,406
Shares Voted Against 3,500
Shares Abstaining 2,676
Shares Not Voted 2,888,398
</TABLE>
10
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ITEM 5. OTHER INFORMATION
During the second quarter of 1996, the Company entered into a collaborative
agreement with Aurora Biosciences Corporation ("Aurora") in the area of
functional genomics. Under the agreement, the Company gained access to certain
technologies and may provide research support and potential milestone and
royalty payments to Aurora for the application of Aurora's proprietary mammalian
cell-based screening technology to genetic targets selected by the Company. In
connection with the agreement, the Company also made a $1.5 million equity
investment in Aurora. Kevin Kinsella, the Company's President and Chief
Executive Officer and a member of the Board of Directors, is the Managing
General Partner of Avalon Ventures (a founder and major shareholder of Aurora)
and a shareholder and member of the Board of Directors of Aurora.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
10.14* Research Agreement dated as of April 2, 1996 by and
between the Registrant and Aurora Biosciences
Corporation.
27 Financial Data Schedule
</TABLE>
* Confidential treatment has been requested with respect to certain
portions of this exhibit.
(b) Reports on Form 8-K
None
11
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SEQUANA THERAPEUTICS, INC.
June 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Sequana Therapeutics, Inc.
Date: August 12, 1996 By: /s/ M. SCOTT SALKA
--------------------------
M. Scott Salka
Vice President of Operations,
Chief Financial Officer and
Principal Financial and
Accounting Officer
12
<PAGE> 13
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
10.14* Research Agreement dated as of April 2, 1996 by and between
the Registrant and Aurora Biosciences Corporation.
27 Financial Data Schedule
</TABLE>
- -------------
* Confidential treatment has been requested with respect to certain portions of
this exhibit.
13
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EXHIBIT 10.14
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION.
RESEARCH AGREEMENT
THIS RESEARCH AGREEMENT ("Agreement") is entered into as of this 2nd
day of April 1996 (the "Effective Date") by and between AURORA BIOSCIENCES
CORPORATION, a company organized under the laws of the State of Delaware, having
an office at 1020 Prospect Street, Suite 405, La Jolla, CA 92037 (hereinafter
referred to as "Aurora"), and SEQUANA THERAPEUTICS, INC., a California
corporation having its principal place of business at 11099 North Torrey Pines
Road, Suite 160, La Jolla, CA 92037 (hereinafter referred to as "Sequana").
RECITALS
WHEREAS, Aurora is a start-up drug discovery company focused on
exploiting novel, highly sensitive fluorescence assays for use in genetically
engineered mammalian cells and the development of ultra-high throughput
screening systems. Aurora desires to obtain additional capital resources and
customers with novel genomic based targets for developing cell-based assays in
high-throughput screens.
WHEREAS, Sequana is a company engaged in the discovery,
characterization and positional cloning of disease genes, which desires to
extend its discovery capabilities into functional analysis of newly identified
genes, cell-based or other systems for screening such gene targets and methods
for high throughput screening of potential drug candidates.
WHEREAS, In connection with the execution of this Agreement, Sequana
will purchase Preferred Stock of Aurora as set forth in a separate Stock
Purchase Agreement between the parties of even date herewith (the "Stock
Purchase Agreement").
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings.
1.1 "AFFILIATE" shall mean any entity that directly or indirectly
owns, is owned by, or is under common ownership, with a party, where "owns" or
"ownership" means direct or indirect possession and/or control of at least 50%
of the outstanding voting securities of a corporation or a comparable equity
interest in any other type of entity.
1.2 "AURORA PATENT" means the rights granted by any governmental
authority under a Patent which covers a Product or a method of use, apparatus,
material or manufacture useful
1.
<PAGE> 2
in the discovery, development, manufacture, use or sale of a Product, which
Patent Aurora (i) owns, controls or has a license to (with a right to
sublicense) as of the Effective Date or (ii) acquires ownership, control or
license rights to (with a right to sublicense) during the term of the Agreement
or in the course of carrying out the Research Program.
1.3 "AURORA TECHNOLOGY" shall mean the Aurora Patents and all know-how,
technology, trade secrets, processes, data, methods or other information and any
physical, chemical or biological material that is useful in the discovery,
development, manufacture, use or sale of Products which Aurora (i) owns,
controls or has a license to (with a right to sublicense) as of the Effective
Date or (ii) acquires ownership, control or license rights to (with a right to
sublicense) or in the course of carrying out the Research Program.
1.4 "COMPOUND" means a compound provided by Sequana to Aurora to be
used in screening activities in the Research Program.
1.5 "FTE" means 1880 hours of work per year by a full time equivalent
scientific or technical researcher, appropriately qualified for the tasks
assigned under the Research Plan.
1.6 "FUNCTIONAL ANALYSIS" means background research into the technical
suitability or commercial viability of proceeding to assay development and
screening for Targets, disease genes or genetically validated molecular targets.
1.7 "NET SALES" means the invoiced price charged by a Party, its
Affiliate or a sublicensee upon sale of any Product to the customer less (a)
customary trade, quantity and cash discounts actually allowed and taken; (b)
allowances actually given for returned or rejected products; (c) actual charges
for bad debts; (d) freight and insurance if included in the price; (e)
government mandated rebates; and (f) value added tax, sales, use or turnover
taxes, excise taxes and customs duties included in the invoiced price.
1.8 "PATENT" means (i) unexpired letters patent (including inventor's
certificates and utility models, petty patents and similar intellectual property
rights) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including without limitation any substitution,
extension, registration, confirmation, reissue, re-examination, renewal or any
like filing thereof and (ii) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.
1.9 "PRODUCT" shall have the meaning assigned in Section 4.2.
1.10 "RESEARCH PLAN" shall mean the plan established pursuant to
Section 3.3 describing the research activities to be undertaken regarding a
particular Target.
1.11 "RESEARCH PROGRAM" means the program described in Article 3.
1.12 "SEQUANA PATENT" means the rights granted by any governmental
authority under a Patent which covers a Product or a method of use, apparatus,
material or manufacture useful
2.
<PAGE> 3
* CONFIDENTIAL TREATMENT REQUESTED
in the discovery development, manufacture, use or sale of a Product, which
Patent Sequana (i) owns, controls or has a license to (with a right to
sublicense) as of the Effective Date or (ii) acquires ownership, control or
license rights to (with a right to sublicense) during the term of the Agreement
or in the course of carrying out the Research Program.
1.13 "SEQUANA TECHNOLOGY" shall mean the Sequana Patents and all
know-how, technology, trade secrets, processes, data, methods or other
information and any physical, chemical or biological material that is useful in
the discovery development, manufacture, use or sale of Products which Sequana
(i) owns, controls or has a license to (with a right to sublicense) as of the
Effective Date or (ii) acquires ownership, control or license rights to (with a
right to sublicense) in the course of carrying out the Research Program.
1.14 "TARGET" means a positionally cloned disease gene referred to
in Section 2.1 or an additional target gene referred to in Section 2.2, or the
protein-encoded by such a gene.
1.15 "TECHNICAL COMMITTEE" shall have the meaning assigned in
Section 3.2.
ARTICLE 2 - SELECTION OF TARGETS
2.1 POSITIONALLY CLONED DISEASE GENES. Sequana may select up to
******** disease genes or genetically validated molecular targets, discovered
as a result of positional cloning or statistical genetics of specified familial
lineages, to which Aurora will apply all scientifically applicable Aurora
Technology, including Functional Analysis, screen development and screening,
pursuant to an agreed Research Plan as provided in Section 3.2, during the term
of this Agreement.
2.2 ADDITIONAL TARGET GENES. During the term of this Agreement,
Aurora will also apply all scientifically applicable Aurora Technology
including, related to Functional Analysis, screen development and screening for
up to ******** additional newly identified genes or genetically validated
molecular targets, discovered by any method, including but not limited to
positional cloning, provided that: (i) Sequana specifies each such Target in
writing to Aurora; (ii) notwithstanding any other provision of this Agreement
(including but not limited to Section 3.3), within ********* of the date of such
notice the parties agree on an appropriate Research Plan for such Target (which
agreement shall not be unreasonably withheld by Aurora); and (iii) prior to
Sequana's delivery of any such notice Aurora has not already commenced work for,
or good faith negotiations with, another party, as demonstrated by written
correspondence, with respect to such Target. With regard to the foregoing clause
(iii), if negotiations are not concluded with such a third party within ********
months of delivery of Sequana's notice, Sequana shall be entitled to include the
relevant additional target gene in the Research Program subject to the terms of
this Agreement.
2.3 CHANGE IN CONTROL. Notwithstanding Section 2.2, in the event of
a Sequana change in control (defined below) at any time during the term of this
Agreement, Sequana's rights and Aurora's obligations to include Targets in the
Research Program shall thereafter be limited to Targets discovered by positional
cloning or statistical genetics of specified familial
3.
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* CONFIDENTIAL TREATMENT REQUESTED
lineages. In such event, new Targets not discovered by positional cloning or
statistical genetics of specified familial lineages may not be added to the
Research Program. Work in progress under the Research Program on Targets not
discovered by positional cloning or statistical genetics of specified familial
lineages shall continue according to the agreed Research Plan. Each party's
rights and obligations under this Agreement shall continue following an Aurora
change in control.
For purposes of this Section 2.3, "change in control" of an entity
shall mean (i) a merger or consolidation in which the shareholders of such
entity immediately prior to such merger or consolidation do not own at least
fifty percent (50%) of the surviving entity, (ii) the sale, transfer or other
disposition of all or substantially all of the assets of such entity, or (iii)
any transaction or series of related transactions in which a third party
acquires the beneficial ownership (as defined under the Securities Exchange Act
of 1934, as amended) of more than fifty percent (50%) of the voting power of
such entity's outstanding voting securities.
ARTICLE 3 - RESEARCH PROGRAM
3.1 OBJECTIVES; DILIGENCE. Following the selection of Targets in
accordance with Article 2, the parties agree to conduct a research program (the
"Research Program") in accordance with this Article 3 involving Functional
Analysis by Aurora of Targets, development of screens for such Targets,
screening of Compounds or any combination thereof. Aurora shall use commercially
reasonable diligence to pursue work under the Research Program so long as
Sequana is in compliance with its funding commitments under Section 4.1.
3.2 TECHNICAL COMMITTEE. A technical committee (the "Technical
Committee") consisting of two senior research and development executives from
each of Sequana and Aurora shall review opportunities for research projects to
be conducted under this Agreement and monitor and assess the status of work
being conducted pursuant to this Agreement. The Technical Committee shall
provide a quarterly written report regarding such matters to each party. The
Technical Committee shall meet at least quarterly at such times and places as
shall be mutually agreed upon by the members of the Technical Committee.
3.3 RESEARCH PLANS. The Research Program will be conducted in
accordance with a research plan (the "Research Plan") for each Target. Each
Research Plan shall by devised by the Technical Committee in accordance with the
terms of this Agreement, but Sequana shall have the determining vote on disputed
decisions (subject to clause (ii) of Section 2.2 and except with respect to the
allocation of work among Aurora, Sequana and/or third parties under Research
Plans as provided in Section 3.4 below). Each Research Plan shall provide for at
least ******** to perform such work through the term of such Research Plan,
however in the event of early completion of the Research Plan or a determination
by Sequana that a Target is not commercially viable, Sequana will have the right
to substitute a new Target under the Research Plan. Work may additionally be
done by Sequana scientists or third parties to the extent the parties agree that
such work is more appropriately done by Sequana or such third parties, and
Sequana and/or such third parties shall have a non-exclusive, non-assignable,
royalty-free license for the term of the applicable research contract to Aurora
Technology to the extent necessary to perform such work.
4.
<PAGE> 5
* CONFIDENTIAL TREATMENT REQUESTED
It is the understanding of the parties, however, that Aurora will be primarily
responsible for performing research under applicable Research Plans.
Notwithstanding the foregoing, however, to the extent any Research Plan with
respect to Targets selected under Section 2.1 or Section 2.2 is directed solely
toward Functional Analysis, then such Research Plan shall involve no less than
********** through the term of such Research Plan, however in the event of
early completion of the Research Plan, or a determination by Sequana that a
Target is not commercially viable, Sequana will have the right to substitute a
new Target under the Research Plan.
3.4 RESEARCH COMMITMENTS. Aurora shall not be required to provide, at
any one time, more than ******** Aurora appropriately qualified scientists at
any one time under this Agreement for research programs directed to Targets
selected under Section 2.1 above or more than ******** Aurora appropriately
qualified scientists at any one time under this Agreement for research programs
directed to Targets selected under Section 2.2 above. Further, Aurora shall not
be obligated to provide more than ******** appropriately qualified scientists at
any one time under this Agreement for Functional Analysis of Targets where the
Research Plans under which such scientists are working are directed solely
toward Function Analysis.
3.5 SPECIAL EQUIPMENT. Aurora may require Sequana to provide to Aurora,
at Sequana's expense (including but not limited to delivery charges to and from
Aurora's facilities, and insurance costs), any specific equipment (to be owned
by Sequana) that Aurora requires for work under a Research Plan. Aurora shall
not use such equipment for other purpose except with the consent of Sequana.
3.6 EXCLUSIVITY. During the term of this Agreement Aurora will not
apply Aurora Technology to any gene or genetically validated molecular Targets
discovered as a result of positional cloning or statistical genetics of
specified familial lineages, other than those provided by Sequana hereunder. In
addition, during the term of this Agreement, Aurora will not apply Aurora
Technology to any genes or genetically validated molecular Targets primarily
associated with the therapeutic area of ******** other than those provided by
Sequana hereunder. The exclusivity provisions of this Section 3.6 will continue
so long as, within ******** of the effective date of the UC License Agreement
(defined below), Sequana shall have either (i) selected Targets and agreed to
related Research Plans providing for research to be conducted by Aurora
requiring at least two ******** or (ii) paid Aurora an additional exclusivity
fee of ********. If this exclusivity obligation has been maintained throughout
the initial term of this Agreement, it will continue to apply through any
extension of the term of the Agreement under Section 7.1.
3.7 RESEARCH LICENSE TO AURORA. Sequana hereby grants to Aurora a
non-exclusive, non-transferable, fully-paid license under the Sequana Technology
solely for the purpose of carrying out the Research Program in accordance with
this Agreement.
5.
<PAGE> 6
* CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 4 - COMPENSATION
4.1 RESEARCH PAYMENTS. Sequana shall make research funding payments to
Aurora a rate equal to ******** per FTE for each FTE provided for in any
Research Plan. Such payments shall be made on a quarterly basis in advance.
If the Agreement is extended as provided in Section 7.1, the research
funding rate per FTE for such extension years will be increased from ********
per FTE by the percentage increase in the Radford (or equivalent) Biotechnology
Compensation Index applicable to the last year of the original three (3) year
period of this Agreement.
4.2 MILESTONES AND ROYALTIES.
(a) If any Compound screened by Aurora under the Research Program,
or any derivative thereof, is developed and commercialized as a drug product, or
any assay development or screening work performed by Aurora under this Agreement
otherwise directly or indirectly leads to the development and commercialization
of any drug products (collectively, "Products"), Aurora shall be entitled to
receive from Sequana, subject to paragraph (c) below, (i) ********* of all
license fees, milestone payments and other fees and compensation received by
Sequana from third parties (if any) with respect to such Products and (ii)
royalties on Net Sales of such Products equal to the lesser of ******** of Net
Sales or ******** of all royalties Sequana receives from third parties (if any)
with respect to such Products; provided, however, that with respect to any
Product, the amounts to which the percentages under the foregoing clauses (i)
and (ii) are applied shall be reduced by any license fees, milestone payments,
royalties or other payments which Sequana pays to other third parties in
connection with the discovery, development or commercialization of such Product.
(b) With respect to any Target on which Aurora performs Functional
Analysis but not screening or assay development work referred to under Section
4.2(a), if the Functional Analyses of any such Targets performed by Aurora under
this Agreement directly or indirectly lead to the development or
commercialization of any Products acting substantially on any such Target,
Aurora shall be entitled to receive from Sequana, subject to paragraph (c)
below, (i) ******** of all license fees, milestone fees and other fees and
compensation received by Sequana from third parties (if any) with respect to
such Products and (ii) royalties on Net Sales of such Products equal to the
lesser of ******** of Net Sales or ******** of the royalties Sequana receives
from third parties (if any) with respect to such Products; provided, however,
that the amounts to which the percentages under the foregoing clauses (i) and
(ii) are applied shall be reduced by any license fees, milestone payments,
royalties or other payments which Sequana pays to third parties in connection
with the discovery, development or commercialization of such Products.
In no event shall any license fees, milestone payments, royalties or
other payments paid by Sequana and referred to in the provisos in Sections
4.2(a) and 4.2(b) be applied on more than one occasion to reduce the amounts
upon which percentages are payable to Aurora under this Section 4.2.
6.
<PAGE> 7
(c) Aurora shall not be entitled to receive any amount of (i)
license fees, milestone payments, royalties or other fees or compensation
received by Sequana from third party collaborators to the extent such payments
are received solely and specifically in consideration of Sequana's research
activities in connection with and including discovering the gene with respect to
which screening services are being provided by Aurora to Sequana, or (ii)
payments from third party collaborators (a) for research or development work
performed by Sequana or (b) as reimbursement of patient collection costs, or
(iii) equity investments in Sequana even if at a premium to market price. The
provisions of this paragraph (c) and the provisos contained in Sections 4.2(a)
and 4.2(b) shall not apply to the extent the parties shall both otherwise agree
in writing to an alternative compensation arrangement with respect to any
Products, such as in the event that Sequana has not entered into a separate gene
discovery agreement with a commercial partner, after considering in good faith
the relative contributions by the parties (Aurora, Sequana and third parties) of
intellectual property, specialist know how and prior work done and any unusual
or special features of the contractual arrangements to which Sequana is subject
for a particular project, including but not limited to the fact that no
substantial milestones or royalties are payable to Sequana pursuant to such
arrangements. Notwithstanding anything in this Agreement to the contrary, Aurora
shall not be entitled to receive any amounts of any payments received by Sequana
under the following agreements as in effect on the date hereof: (i) the
Collaborative Research Agreement between Sequana and Glaxo Wellcome Inc. dated
July 27, 1994; (ii) the Collaborative Research Agreement dated June 30, 1995
between Sequana and Corange International, Ltd.; and (iii) the Collaborative
Research Agreement dated June 12, 1995 between Sequana and Boehringer Ingelheim
International GmbH; provided, however, that notwithstanding any other provision
of this Agreement, Aurora shall not be required to provide screening or assay
development services or Functional Analysis under this Agreement with respect to
any genes or molecular targets identified (or with respect to which Sequana may
otherwise receive compensation) under such agreements unless, with respect to
any such gene or molecular target under any such agreement, such agreement is
hereafter amended to provide for the payment of compensation to Sequana for the
provision of such services or Functional Analysis, in which case this sentence
shall no longer apply with respect to such agreement (it being understood that
the payments payable to Sequana under such agreements as in effect on the date
hereof shall be deemed to be payments referred to under clauses (i), (ii) and
(iii) of this Section 4.2(c)).
4.3 PAYMENTS. Sequana shall provide reports to Aurora within 60 days
after the end of each calendar quarter during this Agreement stating the
quantity and description of Products subject to royalty sold the preceding
calendar half year, the Net Sales thereof and the calculation of the royalty
due, as well the amount of any other payments due under Section 4.2 and the
basis for determining such amount. All payments due hereunder shall be paid
simultaneously with the submission of such reports. Payments shall be made in
United States Dollars. If any taxes are imposed and required to be withheld from
such payments, the taxes withheld shall be for the account of Aurora and shall
reduce the payments required to be made hereunder. Sequana shall make any
required withholding payments to appropriate tax authorities and forward to
Aurora all appropriate receipts and other documents necessary to enable Aurora
to recover such withheld taxes to the extent permissible under applicable law.
7.
<PAGE> 8
* CONFIDENTIAL TREATMENT REQUESTED
4.4 RECORDS AND AUDITS. Sequana shall keep true and accurate records
and/or books of account containing information reasonably required for the
computation and verification of all payments to be made hereunder, which records
and/or books shall at all reasonable and mutually convenient times during
ordinary business hours be open for periodic inspection, not more than once each
calendar year and for inspection of no more than the three prior years of
records and/or books, by an independently certified public accounting firm of
nationally recognized standing selected by Aurora who is reasonably acceptable
to Sequana, for the sole purpose of and only to the extent reasonably necessary
for verification of the amounts due and payable under this Agreement. The
accounting firm shall disclose to Sequana all information gathered or concluded,
and to Aurora only whether the records are correct or not and the specific
details concerning any discrepancies. The expense of the audit shall be borne by
Aurora, unless the audit reveals a deficiency of five percent (5%) or more in
payments due hereunder, in which case Sequana shall bear the expenses of the
audit. The results of the audit shall be binding on both parties. Any deficiency
in payments revealed by the audit shall be due and payable within thirty (30)
days of the audit results being disclosed to the parties, with simple interest
from the date originally due at a rate of eight percent (8%) per annum.
ARTICLE 5 - INTELLECTUAL PROPERTY RIGHTS
5.1 INVENTIONS AND DATA. Inventions made by Aurora using Compounds
supplied by Sequana under this Agreement, all data generated by Aurora in
connection with the evaluation of Compounds pursuant to this Agreement and all
rights in such inventions and data shall be owned by Sequana and Sequana shall
have the right to obtain Patents thereon at its own expense and using counsel of
its selection. Inventions made by Aurora pertaining generally to assay
development technology and screening technology shall be owned by Aurora and
Aurora shall have the right to obtain Patents thereon at its own expense and
using counsel of its selection. Aurora's rights shall, however, be subject to
any Patent rights owned by Sequana and no rights or license under Sequana
Patents shall inure to Aurora except as expressly provided in this Agreement.
All inventions made by Sequana in connection with the Research Program shall be
owned by Sequana.
For the avoidance of doubt, as between Aurora and Sequana, Sequana
shall own all rights to any Compounds identified as potential drug candidates,
and any assays containing a Target developed, in the course of the Research
Program.
5.2 COMMERCIAL LICENSE TO SEQUANA. Sequana shall use commercially
reasonable diligence to pursue product opportunities arising out of the Research
Program. Subject to the terms of this Agreement, Aurora hereby grants to Sequana
a worldwide, exclusive license under the Aurora Technology to develop, make, use
and sell Products covered by Section 4.2. Sequana may sublicense such rights to
third parties, provided that payments received by Sequana pursuant to such
sublicenses shall be covered by Section 4.2.
5.3 SUB-LICENSE TO ******** TECHNOLOGY. During the term of this
Agreement, Aurora hereby grants to Sequana a non-exclusive, non-transferable,
royalty-free sub-license to use, solely for use by Sequana employees for
Functional Analysis of disease genes and
8.
<PAGE> 9
* CONFIDENTIAL TREATMENT REQUESTED
genetically validated molecular targets, ******** technologies which are covered
by patent applications and invention disclosures under ******** dated ********
between Aurora and the ********, and subsequent improvements and new inventions
related thereto developed by Aurora (the "******** Technology"). Sequana shall
in no event use (or have a license or sub-license to use) the ********
Technology for screening assay development or screening except as permitted
pursuant to a separate agreement with Aurora. Further, in no event will Sequana
use the ******** Technology in connection with the provision of services to
third parties which are primarily Functional Analysis services. Reagents
necessary to practice the ******** Technology will be supplied by Aurora to
Sequana at cost with reasonable timeliness, upon request by Sequana and subject
to other terms to be negotiated in good faith and reasonably agreed upon.
Notwithstanding the foregoing, it is acknowledged that the ********
constitutes only a non-binding expression of intent between the parties thereto
and that such sub-license grant is subject to Aurora and ******** finalizing a
definitive license agreement ******** as contemplated under the Letter
Agreement; provided that Aurora agrees to use its reasonable best efforts to
cause such a definitive agreement to be finalized as soon as practicable.
During the term of this Agreement, Sequana hereby grants to Aurora a
non-exclusive, non-transferable, royalty-free license to improvements and
inventions to the ******** Technology developed by Sequana for use by Aurora for
all purposes other than Functional Analysis of positionally cloned disease genes
and genetically validated molecular targets (except where such analysis is
performed on behalf of Sequana).
The licenses granted under this Section 5.3 shall terminate upon the
expiration of the Agreement, provided that following the expiration of the
Agreement, Aurora and Sequana shall negotiate in good faith with regard to
extending the licenses set forth above on reasonable terms to be mutually agreed
upon by the parties.
5.4 PATENT ENFORCEMENT. Each party shall have the right at its own
expense to protect the Patents owned by it and licensed to the other party under
this Agreement from infringement by third parties and to control any litigation
initiated to prosecute such infringers. The decision to undertake litigation
shall be in the sole discretion of such party and its decision to enter into
litigation shall be binding on the other party. In the event that party shall
recover profits and/or damages from an infringer based upon the infringer's
sales of a Product, such party agrees to pay the other party a percentage of
such profit and/or damages equal to the percentage the other party would have
received hereunder in the absence of infringement, after deducting the
recovering party's expenses of litigation, including costs and legal fees
incurred therein.
9.
<PAGE> 10
* CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 6 - CONFIDENTIALITY
6.1 The parties contemplate that during the course of their
relationship arising under this Agreement, it may be necessary to provide the
other with confidential information to facilitate the performance of their
obligations pursuant to this Agreement. The parties agree, therefore, that
information received from the other shall be maintained in confidence and that
reasonable and prudent practices shall be followed to maintain the information
in confidence, including, where necessary, obtaining written confidentiality
agreement from employees and consultants not already bound by such agreements
who have access to the confidential information. Information received in
confidence shall be used by a party only for the purpose of and in connection
with its performance of this Agreement. The obligation to maintain information
in confidence shall survive expiration or termination of this Agreement for a
period of five (5) years thereafter.
However, a party shall not be obliged to maintain information in
confidence which it can show by written documentation: (a) to have been publicly
known prior to submission to it by the other party; (b) to have been known or
available to it prior to submission by the other party; (c) to have become
publicly known without fault on its part subsequent to submission by the other
party; (d) to have been received by it from a third party having possession of
the information without obligations of confidentiality; (e) to have
independently developed it without reference to or use of the confidential
information; or (f) to be required to be disclosed pursuant to applicable law or
the order of any court or governmental agency having jurisdiction thereof after
notice to the other party sufficient to afford it an opportunity to intervene in
the proceeding where disclosure is required.
ARTICLE 7 - TERM AND TERMINATION
7.1 TERM OF AGREEMENT; OPTION TO EXTEND. The term of the Agreement
shall be three years from the effective date of the ********, subject to
Sequana's right to extend such term for up to ******** periods for a fee of
******** for each such one-year extension (but only for an additional ********
Targets discovered by Sequana as a result of positional cloning or statistical
genetics of specified familial lineages under Section 2.1 and an additional
******** Targets under Section 2.2 per extension year). Up to one-half of such
extension fee may be applied to any FTE support or other payments payable to
Aurora for such year. In the event that Aurora has not established
fluorescence-based screening equipment referred to in the Recitals to this
Agreement with a capacity of ******** tests per week within ******** of the
Effective Date, no fee will be payable upon any extension of the Agreement under
this Section 7.1. Following the expiration of the initial three year term, or
any extension thereof, Sequana shall retain the license granted in Section 5.2
of this Agreement and shall remain subject to the terms of Section 4.2, 4.3 and
4.4, as well as Articles 6 and 8.
7.2 TERMINATION FOR MATERIAL BREACH. Each party can terminate this
Agreement in the event of a material breach of this Agreement by the other party
by giving the other party notice of its intention to terminate if within ninety
(90) days of such notice such party does not cure the breach.
10.
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* CONFIDENTIAL TREATMENT REQUESTED
7.3 CONSEQUENCES OF TERMINATION FOR MATERIAL BREACH.
(a) BREACH BY SEQUANA. If Aurora terminates this Agreement pursuant
to Section 7.2, then in addition to any other remedies that may be available,
all rights and obligations of the parties under this Agreement (including but
not limited to all licenses) shall terminate as of the effective date of such
termination and each party shall promptly return to the other party all
documentation and materials in such party's possession; provided, however, that
Sequana shall remain obligated to pay milestones and royalties under this
Agreement, and the provisions of Sections 4.2, 4.3, 4.4 and 5.2 of this
Agreement shall survive such termination, with respect to work done hereunder by
Aurora through the effective date of such termination, and nothing shall relieve
any party of any payment obligations accrued prior to the effective date of such
termination.
(b) BREACH BY AURORA. If Sequana terminates this Agreement pursuant
to Section 7.2, then in addition to any other remedies that may be available,
all rights and obligations of the parties under this Agreement (including but
not limited to all licenses) shall terminate as of the effective date of such
termination and each party shall promptly return to the other party all
documentation and materials in such party's possession; provided, however, that
(i) the provisions of Sections 4.2, 4.3, 4.4, and 5.2 of this Agreement shall
survive such termination, with respect to work done hereunder by Aurora through
the effective date of such termination (Section 5.3 shall survive for 3 years
from the effective date of the ******** and thereafter as Sequana may elect
subject to clause (ii) of this Section 7.3(b) below) and (ii) Sequana may elect
to continue the license grant under Section 5.3 and Aurora's exclusivity
obligation under Section 3.6 for up to ******** periods after expiration of the
initial 3 year period after the effective date of the ******** following such
termination by delivery to Aurora on or prior to the effective date of such
termination cash in the amount of ******** for each such year and (iii) nothing
shall relieve any party of any payment obligations accrued prior to the
effective date of such termination.
The provisions of Sections 5.1, 5.2, 5.4, 6.1, this 7.3 and 8.1 and Article 9
shall in any event survive termination of this Agreement.
7.4 DISPUTE RESOLUTION. In the event of any disputes under this
Agreement, the Technical Committee shall first attempt to resolve such disputes
in good faith. If the members of the Technical Committee cannot resolve such
matters, such matters shall be referred to the Chief Executive Officers of each
party for resolution. If such persons are unable to resolve such matters, then
such matters shall be resolved by Arbitration pursuant to Section 9.6.
ARTICLE 8 - INDEMNIFICATION
8.1 INDEMNIFICATION. Sequana shall defend, indemnify and hold Aurora
harmless from and against all claims and expenses, including reasonable
attorneys' fees, arising out of the development, manufacture, use or sale of
Products by Sequana and its Affiliates and sublicensees, except to the extent
caused by the negligence or misconduct of Aurora; provided that (i) Aurora
provides Sequana prompt notice of any such claim, (ii) Sequana shall not be
11.
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obligated to indemnify Aurora for any loss in connection with any settlement
unless Sequana consents in writing to such settlement and (iii) Sequana shall
have the exclusive right to defend and settle any such claim.
8.2 INDEMNIFICATION. Aurora shall defend, indemnify and hold Sequana
harmless from and against all claims and expenses, including reasonable
attorneys' fees, arising out of the development, manufacture, use or sale of
Products by Aurora and its Affiliates and sublicensees, except to the extent
caused by the negligence or misconduct of Sequana; provided that (i) Sequana
provides Aurora prompt notice of any such claim, (ii) Aurora shall not be
obligated to indemnify Sequana for any loss in connection with any settlement
unless Aurora consents in writing to such settlement and (iii) Aurora shall have
the exclusive right to defend and settle any such claim.
ARTICLE 9 - MISCELLANEOUS
9.1 NO AGENCY OR PARTNERSHIP. Neither party shall be deemed to be an
agent of the other party as the result of any transaction under or related to
this Agreement and shall not in any way incur any obligations on behalf of the
other party. This Agreement shall not constitute a partnership or a joint
venture, and neither party may be bound by the other to any contract,
arrangement or understanding except as specifically stated herein.
9.2 PUBLICITY. Neither party shall, in connection with its activities
under this Agreement, use the name of the other party in any advertising,
promotional sales literature, or other publicity without prior written consent
obtained from the other party, which consent shall not be unreasonably withheld.
9.3 NOTICES. All written notices, payment, reports and the like
required or permitted hereunder shall be deemed to be effective when mailed,
postage prepaid, by first class, registered or certified mail to the address of
the applicable party set forth above or to such other person or by such other
means as to which the parties may from time to time have agreed.
9.4 ASSIGNMENT. This Agreement, in whole or in part, shall be
assignable by each party in the case of a transfer of all the assets of such
party or to a successor entity by merger, acquisition or other reorganization.
Any other assignment shall require the consent of the other party, which consent
shall not be unreasonably withheld, and any attempted assignment other than is
provided herein without such consent shall be void.
9.5 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California as applied to contracts
entered into and performed entirely in California among California residents.
9.6 ARBITRATION. Subject to Section 7.4, any and all disputes arising
hereunder shall be resolved through binding and nonappealable arbitration to be
held in San Diego County administered by the American Arbitration Association
("AAA"). Any such arbitration shall be conducted before a single arbitrator to
be appointed by the parties from the AAA roster. If the
12.
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parties fail to agree as to the identity of the single arbitrator within fifteen
(15) days after notice by any party of any dispute hereunder, the AAA shall make
such appointment within ten (10) days of the expiration of such fifteen (15) day
period, provided that in any event the arbitrator shall be an active member of
the California bar who is reasonably familiar with the biotechnology industry
and is experienced with transactions of this type. The conduct of the
arbitration hearing and discovery prior thereto shall be in accordance with the
California Code of Civil Procedure, California Rules of Court, and California
Rules of Evidence. The arbitrator shall be empowered to make appropriate orders
and rulings and shall be empowered to award legal and equitable relief deemed
appropriate thereby; provided that notwithstanding any other provision of this
Agreement, in no event shall punitive damages be awarded. The parties shall
complete any and all discovery with respect to any such dispute within thirty
(30) days after the selection of the arbitrator and the arbitrator shall be
instructed to issue any and all orders and/or rulings within sixty (60) days
after selection of the arbitrator (subject in each case to extension if the
arbitrator determines extenuating circumstances exist which justify such
extension). Notwithstanding the foregoing provisions of this paragraph 9.6
however, the parties shall be entitled to seek and obtain appropriate injunctive
relief with respect to Article 6 in any court of competent jurisdiction pending
the results of the arbitration.
9.7 NO WAIVER. The failure of either party to enforce at any time any
of the provisions of this Agreement, or any rights in respect thereto, or to
exercise any election herein provided, shall in no way be considered to be a
waiver of such provisions, rights or elections, or in any way to affect the
validity of this Agreement. Exercise by either party any of its rights herein or
any of its elections under the terms or covenants herein shall not preclude
either party from exercising the same or any other rights in this Agreement,
irrespective of any previous action or proceeding taken by either party
hereunder.
9.8 SEVERABILITY. If any provision of this Agreement is judicially
determined to be void or unenforceable, such provision shall be deemed to be
severable from the other provisions of this Agreement which shall remain in full
force and effect. Either party may request that a provision otherwise void or
unenforceable be reformed so as to be valid and enforceable to the maximum
extent permitted by law.
9.9 FORCE MAJEURE. No liability hereunder shall result to a party by
reason of delay in performance caused by force majeure, that is, circumstances
beyond the reasonable control of the party, including, without limitation, acts
of God, fire, flood, war, civil unrest, labor unrest, or shortage of or
inability to obtain material as equipment.
9.10 ASSURANCES AND WARRANTIES. The parties agree to execute,
acknowledge and deliver all such further instruments, and to do all such other
acts, as may be necessary or appropriate in order to carry out the intent and
purpose of this Agreement. Each party warrants that it has the authority to
enter into this Agreement on the basis of the terms and conditions herein and
that it has not made any other Agreement inconsistent with its obligations under
this Agreement.
9.11 ENTIRE AGREEMENT; AMENDMENTS. The terms and conditions herein
constitute the entire Agreement between the parties and shall supersede all
previous Agreements, either
13.
<PAGE> 14
oral or written, between the parties hereto with respect to the subject matter
hereof. No amendment, modification or other understanding bearing on this
Agreement shall be binding upon either party hereto unless it shall be in
writing and signed by the duly authorized officer or representative of each of
the parties and shall expressly refer to this Agreement.
9.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives.
AURORA BIOSCIENCES
CORPORATION
By: /s/ Timothy J. Ring
-------------------------------
Name: Timothy J. Ring
-------------------------------
Title: President and Chief Executive
Officer
-------------------------------
SEQUANA THERAPEUTICS, INC.
By: /s/ M. Scott Salka
-------------------------------
Name: M. Scott Salka
-------------------------------
Title: VP & CFO
-------------------------------
14.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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0
0
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